SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
0-11963
(Commission file number)
Iomega
Corporation
(Exact name of registrant as specified in its charter)
Delaware 86-0385884
(State of incorporation) (IRS employer identification number)
1821 West Iomega Way, Roy, UT 84067
(Address of principal executive offices) (ZIP Code)
(801) 778-1000
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.033333 per share
Series A Convertible Preferred Stock, par value $.01 per share*
6.75% Convertible Subordinated Notes due 2001
* A Certification and Notice of Termination of Registration under Section
12(g) of the Securities Exchange Act of 1934 has been filed with respect to
the Series A Convertible Preferred Stock, no shares of which remain
outstanding, but has not yet become effective.
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of Common Stock held by non-affiliates of the
registrant at January 31, 1996 was $731,711,134, based upon the last
reported sales price of the Common Stock on the Nasdaq National Market, as
reported by Nasdaq. The number of shares of the registrant's Common Stock
outstanding at January 31, 1996 was 58,923,372.
Documents incorporated by reference:
1. Specifically identified portions of the Company's Annual Report to
Stockholders for the year ended December 31, 1995 into Part I and
Part II of Form 10-K.
2. Specifically identified portions of the Company's Definitive Proxy
Statement for its 1996 annual meeting of stockholders into Part III of
Form 10-K.
<PAGE>
PART I
This Annual Report on Form 10-K 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 forward-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 II of this Annual Report on Form
10-K.
ITEM 1. BUSINESS:
Iomega Corporation ("Iomega" or the "Company") designs, manufacturers and
markets innovative data storage solutions, based on removable-media technology,
that help personal computer users "manage their stuff." The Company's data
storage solutions include disk drives marketed under the tradenames Zip and Jaz,
and a family of tape drives marketed under the tradename Ditto. The Company's
Zip and Jaz disk drives are designed to provide users with the benefits of high
capacity and rapid access generally associated with hard disk drives and the
benefits of media removability generally associated with floppy disk drives,
including expandable storage capacity and data transportability, management and
security. The Company's Ditto tape drives primarily address the market for
backup data storage. The Company began shipping Zip drives in March 1995 and
Jaz drives in limited quantities in December 1995.
Iomega Solutions
The Company believes its recently introduced Zip and Jaz disk drives
address key information storage and management needs of today's personal
computer users by providing affordable, easy-to-use storage solutions that
combine the high capacity and rapid access of hard disk drives with the
benefits of media removability generally associated with floppy disk drives.
Specifically, the Company's products offer the following benefits to personal
computer users.
Expandable Storage Capacity
As personal computer users are increasingly forced to expand their primary
storage capacity (generally provided by the hard disk drive incorporated in the
computer), Zip and Jaz provide an easy and efficient way to do so. Both the Zip
and the Jaz drive can be easily connected or installed and offer unlimited
additional storage capacity, in increments of 100 MBs (in the case of Zip) and
1 GB (in the case of Jaz).
Media Removability
Both Zip and Jaz store data on high-capacity removable disks, thus enabling
computer users to:
- take programs and files from an office computer and work with them
on a home or laptop computer;
- share programs and files with other personal computer users;
- organize data by storing different files on different disks;
- create a "separate personal computer" for each person using the
computer (such as different family members) -- each user can store
all of his or her software and data on a single disk that can be
removed from the computer and privately stored when that person is
not using the computer; and
- remove particularly sensitive or valuable information from the
computer for storage in a different location, thus protecting it
against viewing or modification by another user of the computer and
against damage to the computer.
Data Backup
The Company's family of Ditto tape drives, as well as the Zip and Jaz
drive, offer a convenient and effective way for personal computer users to
create backup copies of their programs and files.
Attractive Price, Performance and Features
The Company believes that its Zip and Jaz drives provide a combination of
price, performance and features that makes them attractive data storage
solutions for their target markets. Zip offers data access times and
transfer rates and storage capacity that greatly exceeds that offered by
conventional floppy disk drives, along with the benefits of removable media,
at a price that is attractive to mass-market customers. Jaz offers many
performance features comparable to those of most other data storage devices
(including conventional hard disk drives), at a lower price than other
currently available comparably performing removable-media storage devices.
Products
The Company offers products targeted at both the mass market and the
high-performance market. The Zip drive and the Ditto 420 and Ditto Easy 800
tape drives were designed to achieve price levels which the Company determined
are critical to mass-market consumers. The Jaz drive and Ditto 3200 tape
drive, on the other hand, are principally targeted to more technically
demanding, high-end customers, who the Company believes are less price
sensitive than typical mass-market consumers.
The following table lists the principal data storage devices currently
being offered by the Company:
<TABLE>
Typical
Product Retail Price
(Year Introduced)* Media and Capacity Drive/Disk** Technology
<C> <S> <S> <S>
Zip (1995) 100-MB Zip Disks $199/$14.99 Drive: Winchester
heads
Disks: Advanced
flexible
media
Jaz (1995) 1-GB Jaz Disks $599/$99.99 Drive: Thin-film
heads
540-MB Jaz Disks Disks: Two rigid disk
platters
Ditto 420 (1994) Ditto Tape $99 Drive: Direct drive
Ditto Easy 800 (1995) minicartridges $149 mechanism
Ditto Easy 3200 (1996) (420-MB, 800-MB, $299 Media: Industry
3200-MB) standard
quarter inch
cartridges
____________________
</TABLE>
* Drives are available in internal and external versions. The indicated
capacities for Ditto drives represent the maximum capacity using data
compression.
** Indicates the typical price at which the external version of the drive and
the highest capacity media for that drive is sold at retail. Prices for
the internal version of a drive and for smaller capacity media are
generally lower. The price for the Ditto 420 is the internal version
price. Disk prices represent per unit purchase price in multi-packs.
Media prices for tape are not presented because revenues from tape
minicartridge sales are not material to the Company.
Zip
The Company began shipping external Zip drives and 100-MB Zip disks in
March 1995. Designed as an affordable mass-market product, the Zip drive
addresses multiple needs of personal computer users; hard drive expansion, data
transportability, management and security and data backup. The drive uses
interchangeable 100-MB Zip disks to provide users of IBM-compatible and Apple
Macintosh personal computers with 70 times the capacity of, and superior
performance to, traditional floppy disks. Zip drives were designed with 100-MB
disks based on the results of the Company's market research, which showed that
85% of the files stored on personal computers are 100 Mbs or less.
Zip drives use durable, high-capacity flexible media and Winchester-style
nanoslide heads with a special airbearing surface combined with a linear voice
coil motor. The Zip drive provides high capacity and rapid access and can be
used for a number of data storage purposes. The SCSI version of the Zip drive,
which offers faster performance than the parallel port version of the drive,
features 29 millisecond average seek time and an average sustained data transfer
rate of 1.00 MB per second. Software included with the Zip drive provides a
total data storage solution by helping users organize and copy their data and
offers software read/write protect, which further enables users to secure and
protect their data.
The external, portable version of the Zip drive weighs approximately one
pound and is offered in a parallel port version for use with IBM PC-compatible
computers and a SCSI version for use with Apply Macintosh computers or IBM
PC-compatible computers which have a SCSI adapter board. The parallel port
version features printer pass through to allow normal operation of a printer
in the same port. The SCSI version has two connectors allowing it to be
connected with other SCSI devices. The external Zip drive has a unique
compact design, including a royal blue color, a window allowing visibility of
the label on the cartridge being used, rubber feet for positioning the drive
flat or on its side, operation lights and a finger slot for easy cartridge
insertion and removal.
In September 1995, Power Computing, the first Macintosh clone manufacturer,
began offering internal 5.25-inch Zip SCSI drives as a $159 option on its
computers. The Company has also designed an internal version of the Zip drive
which incorporates a conventional 3.5-inch floppy disk drive. In addition, the
Company has developed an internal 3.5-inch IDE version of the Zip drive, which
it expects will be available in the first quarter of 1996.
During 1995, Zip received numerous awards from industry publications in
select categories including: PC/Computing's Most Valuable Product; Publish
magazine's 1995 Publish Impact Award; Cadence magazine's Editor's Choice Award;
the International Digital Imaging Association's "Best New Hardware" award; and,
listing in Computer Life magazine's "Best of Everything" list.
The Zip drive carries a one-year warranty and Zip disks are sold with a
limited lifetime warranty.
Jaz
The Company began shipping Jaz drives and 1-GB Jaz disks in limited
quantities in December 1995. Jaz addresses the high-performance needs of
personal computer users in three areas: multimedia applications (audio, video
and graphics), personal data management, and hard drive upgrade. The Jaz drive
offers data transfer rates comparable to those of most current hard disk drives,
with an average sustained transfer rate of 5.4 MBs per second, 12 millisecond
average seek time and 17.5 millisecond average access time. Jaz disks are
currently available in a capacity of 1 GB, which the Company's market research
indicated was a capacity that many high-performance computer users demand, and
540-MB Jaz disks are expected to be available in the first half of 1996. Using
1-GB disks, Jaz is capable of storing and playing up to two hours of MPEG1
compressed DSS satellite quality video, up to eight hours of CD-quality audio,
more than 20,000 scanned documents for document imaging or up to four minutes of
full-screen, full-motion broadcast-quality video. The Jaz drive will be
available in an external SCSI version, which is expected to be sold by retailers
for approximately $599 and is available in an internal SCSI version, which is
expected to be sold by retailers for approximately $499. Each 1-GB and 540-MB
Jaz cartridge is expected to sell for approximately $99 and $69, respectively,
in five-packs. The Company expects an internal IDE version of the Jaz drive to
be available beginning in the second half of 1996.
The Jaz drive incorporates many innovative technological features including
tri-pad, thin-film recording heads, dynamic head loading and drag and drop
motorized cartridge ejection. Jaz disks feature a dual rigid platter cartridge
and a proprietary disk capture system which secures the dual disk platters when
not installed in a drive, eliminating rattle and reducing the possibility of
losing valuable information. The drive operates with leading operating systems
for personal computers and workstations, including Windows 95, Windows NT,
Windows 3.x, Macintosh and OS/2.
The external version of the drive, which weighs approximately two pounds,
features design enhancements similar to those introduced with the external Zip
drive, including a unique jade colored casing, a window to allow visibility of
the label on the cartridge being used, operating lights and a finger slot for
easy cartridge insertion and removal. Additional features include an
auto-switching powersupply to allow operation in different countries,
auto-sensing SCSI termination and anti-gyro disk locking to increase durability.
The Jaz drive carries a one-year warranty and Jaz disks are sold with a
limited lifetime warranty.
Ditto
The Company's Ditto family of tape drives addresses the need of personal
computer users for an easy-to-use, dependable backup solution. In response to
the information learned from consumers regarding the characteristics demanded
from backup storage devices, beginning in 1994 the Company redesigned its family
of tape drives, which had first been introduced in 1992. The Company offers
internal and external models based on leading industry standards ranging in
capacity from 420 MBs to 3.2 GBs (using data compression). The tape drives are
primarily designed to backup and protect against loss of data stored on hard
disk drives in IBM PC-compatible computers. Iomega's tape drives have a
patented beltless design which the Company believes enhances reliability.
The storage media used by Iomega's tape products is the industry-standard
QIC-compatible minicartridge. In addition, the Ditto Easy 800 and Ditto Easy
3200 support new high-capacity Travan cartridge technology.
The Ditto family of tape drives has achieved several industry first. In
April 1992, the Iomega Tape 250 (later renamed the Ditto 250) became the
industry's first commercially available QIC-standard, one-inch high tape drive
and in March 1995 because the industry's first internal 250-MB tape drive to
sell for under $100. In June 1995, the Ditto 420 became the industry's first
internal 420-MB tape drive to sell for under $100. In October 1995, the Company
introduced the Ditto Easy 800, which the Company believes was the industry's
first external parallel port 800-MB tape drive to sell for under $150. The
Ditto Easy 800 features an enhanced design similar to, and is stackable with,
the Zip and Jaz drives.
The Company's tape products are generally available in either internal or
external models. The internal versions attach to the standard floppy drive
interface in IBM PC-compatible computers, while the external versions attach to
the parallel port on IBM PC-compatible computers and offer pass-through
capability for a printer. The drives are shipped with backup software for both
DOS and Windows.
In connection with the introduction of the Ditto Easy 800 in October 1995,
the Company also introduced new 1-Step software designed to permit the backup of
an entire hard disk in a single step while the user continues working.
The Ditto Easy 800 and the Ditto Easy 3200 carry a two-year warranty and
the Ditto 420 carries a five-year warranty. Ditto media is sold with a two-year
warranty.
Bernoulli
These 5.25-inch half-height drives are removable-media storage devices
based on the Company's proprietary Bernoulli technology. The Company's
Bernoulli drives and the associated disks are sold both in the form of a
complete storage subsystem for leading personal computers and workstations
and in the form ofcomponents for integration into larger systems by OEMs or
value-added resellers ("VARs"). The Bernoulli MultiDisk 150 drive began
shipping in October 1992 and was Iomega's first drive to use multiple capacity
disks - 35, 65, 105 and 150 Mbs. The Company began shipping the Bernoulli 230
drive in September 1994. The Bernoulli drives are sold in internal and
transportable versions.
The Company is now focusing its development and marketing efforts on its
Zip, Jaz and Ditto products, and does not expect Bernoulli products to represent
a significant portion of the Company's revenues in the future.
Marketing and Sales
The Company believes that broadening the distribution of its products
through strategic marketing alliances with a variety of key companies within the
computer industry is a critical element in the Company's strategic goal of
establishing its products as industry standards. The Company's initial
marketing strategy for the introduction of its new products during 1995 was
to generate consumer awareness of and demand for such products by focusing on
aftermarket sales to existing users of personal computers through leading
computer retail channels. As the next step in its strategy of promoting its
products as new industry standards, the Company is increasingly focusing its
efforts on establishing OEM relationships with leading personal computer
manufacturers who will include the Company's products on a factory-installed
basis to purchasers of new personal computers.
Retail Distribution
Retail outlets for the Company's products include mail order catalogs,
computer superstores, office supply superstores, consumer electronics
superstores and specialty computer stores. The Company sells its products to
retail channels directly, as well as indirectly through distributors. The
Company's products are sold at a retail level by most of the leading retailers
of computer products in the United States. The following is a partial listing
of the retail chains carrying the Company's products.
Best Buy Electronics Boutique
CDW Computer Center Elek-Tek
Circuit City Fry's Electronics
CompUSA MicroCenter
Computer City NeoStar
Creative Computer Office Max
Egghead Software PC Warehouse
Strategic Marketing Alliances
In addition to sales through these retail channels, the Company has entered
into a number of strategic marketing alliances with a variety of companies
within the computer industry. These alliances include OEM arrangements
providing for certain of the Company's products to be incorporated in new
computer systems at the time of purchase. For example, Power Computing, the
first Macintosh clone manufacturer, is offering Zip drives as an option in
certain of its new computers, and Micron Electronics, a mail-order
manufacturer of IBM PC-compatible personal computers, has announced plans to
offer Zip, Ditto and Jaz drives as a factory-installable option in certain of
its new computers. In addition, Hewlett-Packard recently announced that it
will provide the Zip drive as a feature in its recently announced HP Pavilion
7110Z Multimedia PC. The Company's strategic alliances also include private-
branding and co-branding arrangements with major vendors of computer products
covering the resale of the Company's products by such companies. For example,
the Company has entered into co-branding arrangements with Seiko Epson,
Maxell and Fuji, which offer Zip drives in Japan in packages which feature
Iomega's name in addition to the partner's name, and has entered into a
private-branding arrangement with Reveal Computer Products, which sells Zip
drives and disks under Reveal's tradename.
International
The Company sells its products outside of North America primarily through
international distributors. The Company has increased its sales efforts in the
European market in the past several years. Sales are accomplished primarily
through offices located in Germany, Austria, Belgium, France, Ireland, Italy,
Norway, Spain and the United Kingdom. The Company plans to open a Singapore
office in 1996. The Company has been invoicing predominantly in foreign
currencies since January 1992. In total, sales outside of the United States
represented 32%, 37%, and 28% for the years ended December 31, 1995, 1994 and
1993, respectively.
Marketing
The Company's marketing group is responsible for positioning and promoting
the Company's products. The Company participates in various industry
tradeshows, including MacWorld and COMDEX, and seeks to generate coverage of
its products in a wide variety of trade publications. Although the Company
did not engage in significant direct consumer marketing in 1995 in light of
the large number of favorable articles about the Company's products which
appeared in newspapers and computer magazines and constraints on the Company's
ability to further increase production levels, the Company expects marketing
and advertising expenses to increase significantly as the Company seeks to
expand market awareness of its products.
As is common practice in the industry, the Company's arrangements with its
customers generally allow customers, in the event of a price decrease, credit
equal to the difference between the price originally paid and the new decreased
price on units in the customers' inventories on the date of the price decrease.
When a price decrease is anticipated, the Company establishes reserves for
amounts estimated to be reimbursed to qualifying customers. In addition,
customers generally have the right to return excess inventory within specified
time periods. There can be no assurance that these reserves will be sufficient
or that any future returns or price protection charges will not have a material
adverse effect on the Company's results of operations.
The Company markets its products primarily through computer product
distributors and retailers. Accordingly, since the Company grants credit to its
customers, a substantial portion of outstanding accounts receivable are due from
computer product distributors and certain large retailers. At December 31,
1995, the customers with the ten highest outstanding accounts receivable
balances totaled $47.1 million or 43% of gross accounts receivable, with one
customer accounting for $15.2 million, or 14% of gross accounts receivable.
If any one or a group of these customers' receivable balances should be deemed
uncollectible, it would have a material adverse effect on the Company's results
of operations and financial condition.
During the year ended December 31, 1994, sales to Ingram Micro D, Inc., a
distributor, accounted for 11% of sales. No other single customer accounted for
more than 10% of the Company's sales in 1994 or 1995.
Manufacturing
The Company's products are manufactured both by the Company at its
facilities in Roy, Utah and by independent parties manufacturing products for
the Company on a contract basis. Manufacturing activity generally consists of
assembling various components, subcomponents and prefabricated parts
manufactured by the Company or outside vendors. The Company currently has
third-party manufacturing relationships with Seiko Epson (Zip drives),
MegaMedia Computer (Zip disks), Sequel (Jaz drives) and First Engineering
Plastics (Ditto drives). Although the Company substantially increased its
manufacturing capacity (through both internal expansion and arrangements with
third-party manufacturers) during 1995, the Company was not able to produce
enough Zip drives and Zip disks in 1995 to fill all orders for such products
due to component supply constraints and normal manufacturing start-up issues.
To minimize its manufacturing costs, to take maximum advantage of its
available personnel and facilities and to benefit from the expertise of
experienced high-volume manufacturing companies, the Company plans to use
third-party manufacturers to produce a majority of its products in the future.
There can be no assurance that the Company will be successful in establishing
and managing such third-party manufacturing relationships, or that third-party
manufactures will be able to meet the Company's quantity or quality
requirements for manufactured products. Moreover, the Company may grant
certain of its third-party manufacturers, among others, the right to sell
significant quantities of the Zip and Jaz drives they produce for their own
account, thereby reducing the supply of such drives to the Company and
increasing competition.
Many components incorporated in, or used in the manufacture of, the
Company's products are currently only available from sole source suppliers.
Moreover, the Company has experienced difficulty in the past, is currently
experiencing difficulty, and expects to continue to experience difficulty in the
future, in obtaining a sufficient supply of many key components. For example,
many of the integrated circuits used in the Company's Zip and Jaz drives are
currently available only from sole source suppliers. The Company has been
unable to obtain a sufficient supply of certain of these integrated circuits
due to industry-wide shortages. In addition, the Company has been advised by
certain sole source suppliers, including the manufacturers of critical
integrated circuits for Zip and Jaz, that they do not anticipate being able
to fully satisfy the Company's demand for components during 1996. These
component shortages have limited the Company's ability to produce sufficient
Zip drives to meet market demand and have limited the Company's ability to
implement certain cost reduction and productivity improvement plans, and the
Company expects that the shortage of components may limit production of Zip
and Jaz products for the foreseeable future. The Company also experienced
difficulty during 1995 in obtaining a sufficient supply of the servowriting
equipment used in the manufacture of Zip disks. Such equipment shortages in
1995 limited the Company's production of Zip disks, and there can be no
assurance that similar equipment shortages will not occur in the future.
The Company purchases all of its sole and limited source components and
equipment pursuant to purchase orders placed from time to time and has no
guaranteed supply arrangements. The inability to obtain sufficient components
and equipment, or to obtain or develop alternative sources of supply at
competitive prices and quality or to avoid manufacturing delays, could prevent
the Company from producing sufficient quantities of its products to satisfy
market demand, result in delays in product shipments, increase the Company's
material or manufacturing costs or cause an imbalance in the inventory level of
certain components. Moreover, difficulties in obtaining sufficient components
may cause the Company to modify the design of its products to use a more readily
available component, and such design modifications may result in product
performance problems. Any or all of these problems could in turn result in the
loss of customers, provide an opportunity for competing products to achieve
market acceptance and otherwise adversely affect the Company's business and
financial results.
The Company had a backlog as of January 28, 1996 of approximately $157
million, compared to a backlog at the end of January 1995 of approximately $5
million. Substantially all of the January 28, 1996 backlog was related to the
Company's Zip and Jaz products, for which the Company has experienced component
shortages. Based in part on the Company's current estimates regarding the
expected availability of components (which estimates are based on information
provided to the Company by its suppliers, the Company's current inventory of
components, sales recorded since January 19, 1996 and the Company's experience
in its business) and the Company's manufacturing capabilities, the Company
believes that it will be able to fill all orders in the January 28, 1996 backlog
during the first half of the current fiscal year, unless such orders are
scheduled for delivery outside the first half of 1996 or first canceled or
rescheduled. However, there can be no assurance that the Company's current
estimates regarding the expected availability of components will in fact turn
out to be correct. In addition, the purchase agreements or purchase orders
pursuant to which orders are made generally allow the customer to cancel
orders without penalty, and the Company has experienced some cancellations or
rescheduling of orders in backlog. Moreover, it is common in the industry
during periods of product shortages for customers to engage in practices such
as double ordering in order to increase a customer's allowance of available
product. Accordingly, the Company's backlog as of any particular date should
not be relied upon as an indication of the Company's actual sales for any
future period.
Product Development
An important element of the Company's business strategy is the ongoing
enhancement of existing products and the development of new products. During
1994 and 1995, the Company's product development efforts were primarily devoted
to the development of its Zip and Jaz products, which began commercial shipment
in March 1995 and December 1995, respectively. During 1996 the Company expects
that its development efforts will be primarily focused on enhancing the
features, developing higher capacity versions and reducing the production
costs of its existing Zip, Jaz and Ditto products. In particular, there are
projects underway to develop higher capacity removable-media disk drives and
tape products, to develop different system interfaces for the Company's
removable-media disk drive products, such as IDE interface versions of Zip
and Jaz, and to develop smaller subsystem versions of the Company's products,
including a version of Zip which could be installed in laptop computers.
During 1995, 1994 and 1993, the Company's research and development expenses
were $19,576,000, $15,438,000 and $18,972,000, respectively (or 6.0%, 10.9% and
12.9%, respectively, of sales). The decline in research and development
spending from 1993 to 1994 was the result of the Company's decision to
discontinue certain research and development projects relating to floptical
technology, digital audiotape technology, and thin-film head development.
Research and development spending in 1995 was primarily related to efforts
focused on the Company's Zip, Jaz and Ditto product lines.
The Company operates in an industry that is subject to both rapid
technological change and rapid change in consumer demands. For example, over
the last 10 years the typical hard disk drive included in a new personal
computer has increased in capacity from approximately 40 Mbs to over 1 GB
while the price of a hard disk drive has remained constant or even decreased.
The Company's future success will depend in significant part on its ability
to continually develop and introduce, in a timely manner, new removable disk
drives and tape products with improved features, and to develop and
manufacture those new products within a cost structure that enables the
Company to sell such products at lower prices than those of comparable
products today. There can be no assurance that the Company will be
successful in developing, manufacturing and marketing new and enhanced
products that meet both the performance and price demands of the data
storage market.
Competition
The Company believes that its Zip and Jaz products compete most directly
with other removable-media data storage devices, such as magnetic cartridge disk
drives, optical disk drives and "floptical" disk drives. Current suppliers of
removable-media data storage devices include Syquest Technology (which offers
magnetic disk drives with removable cartridges based on hard drive technology),
Panasonic (which offers the Power Drive, a removable optical drive) and Sony
(which offers the MD-DATA drive, a disk drive based on removable magneto-optical
technology). Although the Company believes the Zip and Jaz products offer
price, performance or usability advantages over the other removable-media
storage devices available today, the Company believes that the price,
performance and usability of existing removable-media products will improve
and that other companies will introduce new removable-media storage devices.
Accordingly, the Company believes that its Zip and Jaz products will face
increasingly intense competition. In particular, a consortium comprised of
Compaq Computer, 3M and MKE has announced the Floptical 120, a high-capacity
floptical drive that is compatible with conventional floppy disks. In
addition, both Mitsumi and Swan Instruments are expected to introduce
high-capacity, removable-media disk drives in 1996 that would also directly
compete with Zip and Jaz. As new and competing removable-media storage
solutions are introduced, it is possible that any such solution that achieves
a significant market presence or establishes a number of significant OEM
relationships will emerge as an industry standard and achieve a dominant
market position. If such is the case, there can be no assurance that
the Company's products would achieve significant market acceptance, particularly
given the Company's size and market position vis-a-vis other competitors.
To the extent that Zip and Jaz drives are used for incremental primary
storage capacity, they also compete with conventional hard disk drives, which
are offered by companies such as Seagate Technology, Western Digital
Corporation, Quantum Corporation, Conner Peripherals (which was recently
acquiried by Seagate Technology), Micropolis Corporation and Maxtor
Corporation, as well as integrated computer manufacturers such as Hewlett-
Packard, IBM, Fujitsu, Hitachi and Toshiba. In addition, the leading suppliers
of conventional hard disk drives could at any time determine to enter the
removable-media storage market.
The Company believes that it is currently the only source of supply for the
disks used in its disk drives. However, this situation may change either as a
result of another party succeeding in producing disks that are compatible with
Zip and Jaz drives without infringing the Company's proprietary rights, or as a
result of licenses granted by the Company to other parties.
The Company's tape drives compete in the market for backup data storage
with other QIC and DC2000-type products (which includes QIC and Irwin),
including parallel port interface products. DC2000-type products currently
offer capacities up to 4 Gbs with compression. The Company's two major
competitors in the tape drive market are Conner Peripherals and Colorado
Memory Systems, a division of Hewlett-Packard. Tape drives may in the future
encounter increased competition from other forms of removable-media storage
devices. The tapes used in the Company's tape drives are available from a
number of sources and the Company is not the primary source of supply for
these tapes.
In the OEM market for both its disk drives and tape drives, the Company
competes with the vendors mentioned above, as well as with the manufacturers of
personal computers, who may elect to manufacture data storage devices
themselves.
The Company intends to license its products or technology to other computer
manufactures on a royalty-bearing basis in order to increase market use and
acceptance of its products and help promote them as industry standards.
Accordingly, the Company expects to compete in the future with licensees of the
Company's products.
The Company believes that most consumers distinguish among competitive data
storage products on the basis of some or all of the following criteria: price
(cost per unit and cost per megabyte of storage capacity), performance (speed
and capacity), functionality (reliability, product size and removability),
ease of installation and use, and security of data. Price is a particularly
important factor with respect to the Company's mass-market products (the Zip
drive and the Ditto 420 and Ditto Easy 800 tape drives). An additional
competitive consideration, particularly in the OEM market, is the size (form
factor) of the drive. Winchester drives are available in 5.25-inch, 3.5-inch,
2.5-inch and 1.8-inch form factors. The most common form factor for
Winchester and floppy drives is 3.5-inches. The Company currently offers 3.5-
inch Zip, Jaz and Ditto drives, and 5.25-inch Bernoulli disk drives.
The data storage industry is highly competitive, and the Company expects
that competition will substantially increase in the future. In addition, the
data storage industry is characterized by rapid technological development. The
Company competes with a number of companies that have greater financial,
manufacturing and marketing resources than the Company. The introduction by a
competitor or products with superior performance or substantially lower prices
would adversely affect the Company's business.
Proprietary Rights
The Company relies on a combination of patent, copyright and trade secret
laws to protect its technology. The Company has filed approximately 40 U.S. and
foreign patent applications relating to its Zip and Jaz drives and disks,
although there can be no assurance that such patents will issue. The Company
holds over 50 U.S. and foreign patents, three of which relate to its Ditto
products and the remainder of which relate to its Bernoulli products. Although
the Company believes that a combination of patent rights (pursuant to a number
of pending patent applications) and copyright protection should prevent another
party from manufacturing and selling disks that work effectively with the
Company's Zip and Jaz drives (except pursuant to a license from the Company),
there can be no assurance that the steps taken by the Company to protect such
technology will be successful. If another party were to succeed in producing
and selling Zip- or Jaz-compatible disks, the Company's sales would be
materially adversely affected. Moreover, because the Company's Zip and Jaz
disks have significantly higher gross margins than the Zip and Jaz drives,
the Company's net income would be disproportionately affected by any such
sales shortfall. Due to the rapid technological change that characterizes
the Company's industry, the Company believes that the success of its disk
drives will also depend on the technical competence and creative skill of its
personnel than on the legal protections afforded its existing drive technology.
As is typical in the data storage industry, from time to time the Company
has been, and may in the future be, notified that it may be infringing certain
patents and other intellectual property rights of others. The Company, however,
is not currently aware of any threatened or pending legal challenge to the
technology which is incorporated in its products which it expects to have a
material adverse effect on its business or financial results. The Company has
in the past been engaged in several patent infringement lawsuits, both as
plaintiff and defendant. There can be no assurance that future claims will not
result in litigation. If infringement were established, the Company could be
required to pay damages or be enjoined from selling the infringing product. In
addition, there can be no assurances that the Company will be able to obtain any
necessary licenses on satisfactory terms.
Certain technology used in the Company's products is licenses on a royalty-
bearing basis from third parties, including the backup software included with
the Company's Ditto products and certain patent rights relating to Zip. The
Company is in the process of negotiating a definitive license agreement for
the Ditto backup software and, although it has entered into a letter agreement
regarding the Zip patent rights, is in the process of negotiating a more
detailed license agreement for the Zip patent rights. The failure to execute
definitive agreements or the termination of any such license arrangements
could have a material adverse effect on the Company's business and financial
results.
Employees
As of December 31, 1995, the Company employed 1,667 persons (1,645 full-
time and 22 part-time), including 143 in research and development, 1,209 in
manufacturing, 139 in sales, marketing and service, 103 in general management
and administration, and 73 in its European operations.
The Company's business growth during 1995 has resulted in additional
personnel needs and an increased level of responsibility for management
personnel and the Company anticipates hiring a substantial number of new
employees in the near future. There can be no assurance that the Company
will be successful in hiring, integrating or retaining such personnel.
Government Contracts
No material portion of the Company's business is subject to renegotiation
of profits or termination of contracts at the election of the United States
government.
Environmental Matters
Compliance with federal, state and local environmental protection laws had
no material effect on the Company in 1995 and is not expected to have a material
effect in 1996.
ITEM 2. PROPERTIES:
The Company currently leases an aggregate of approximately 210,000 square
feet of space in seven buildings located in Roy, Utah, where its executive
offices, manufacturing and distribution facilities, and primary research and
development facilities are located. The leases for these buildings expire at
various dates from 1998 to 2000 and provide for an aggregate base rent of
approximately $1,100,000 for 1996.
The Company expects to lease an additional 70,000 square feet of space in
the Roy area, which it estimates will cost an additional $765,000 in annual
rent. The Company expects that such additional space will be ready for
occupancy by the end of 1996. Pending the availability of that space, the
Company may rent additional space in the Roy area in 1996 on a temporary basis.
The Company leases an 11,000 square foot facility in San Diego, California
and a 10,000 square foot facility in San Jose, California, each for certain
research and development activities. The Company may seek to increase its
leased space in San Jose to approximately 50,000 square feet during 1996.
The Company has also rented a 20,000 square foot facility in Freiburg,
Germany for use as its European headquarters. In addition, the Company
leases small sales offices, typically on a short-term basis, at 11 locations
in the United States and in Canada, Austria, Belgium, France, Ireland, Italy,
Spain and the United Kingdom.
ITEM 3. LEGAL PROCEEDINGS:
There are no legal proceedings, other than ordinary routine litigation
incidental to its business, to which the Company or its subsidiaries is a party
or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matters were submitted to a vote of the Company's security holders
during the quarter ended December 31, 1995.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
Name Age Position
- -------------- ---- ---------------------
Kim B. Edwards 48 President, Chief Executive Officer and Director
Leonard C. Purkis 47 Senior Vice President, Finance and Chief Financial
Officer
Srini Nageshwar 53 Senior Vice President, Europe
Anton J. Radman, Jr. 43 Senior Vice President, Strategic Business
Development
Leon J. Staciokas 67 Senior Vice President and Chief Internal Operating
Officer
M. Wayne Stewart 50 Senior Vice President, Operations
Edward D. Briscoe 33 Vice President, Sales
Reed M. Brown 42 Vice President, Manufacturing
Timothy L. Hill 37 Vice President, Marketing
Willard C. Kennedy 49 Vice President, Worldwide Logistics and
Materials
Donald R. Sterling 59 Vice President, Corporate Counsel and
Secretary
John G. Thompson 55 Vice President, Outsourcing
Kim B. Edwards joined the Company as President and Chief Executive Officer
on January 1, 1994. Mr. Edwards served as President and Chief Executive Officer
of Gates Energy Products, Inc., a manufacturer of rechargeable batteries and the
successor of General Electric Battery Division, from March 1993 to December
1993. From January 1987 until March 1993, Mr. Edwards served in various
other executive positions for Gates Energy Products, Inc., including Vice
President and General Manager of its Consumer Business Unit and Vice President
of Marketing and Sales. Prior to that, Mr. Edwards was employed for 18 years
at General Electric Company in various marketing and sales positions.
Leonard C. Purkis joined the Company as Senior Vice President, Finance and
Chief Financial Officer in March 1995. Mr. Purkis also served as Treasurer of
the Company from March 1995 until January 1996. Mr. Purkis joined Iomega
following 12 years at General Electric Company, where his most recent assignment
was as Senior Vice President of Finance at GE Capital Fleet Services. He also
held positions in the Financial Services, Lighting and Plastics businesses, with
assignments in Europe and the U.S.
Srini Nageshwar was promoted to Senior Vice President, Europe in April
1991. Mr. Nageshwar joined the Company in January 1991 as Vice President,
Europe. Prior to joining the Company, Mr. Nageshwar was Executive Vice
President for Marketing, Sales and Operations of OAZ Communications, a
network fax server company, from February 1990 to December 1990. Prior to
that, he was President and Chief Operating Officer of Cumulus Corp., a memory
peripherals manufacturing company, from January 1989 to February 1990. Prior
to that, Mr. Nageshwar spent 24 years in marketing and general management
positions with Hewlett-Packard, a computer company, most recently as Value-
Added Business Manager.
Anton J. Radman, Jr., has been Senior Vice President, Strategic Business
Development since April 1995. Mr. Radman joined the Company in April 1980 and
his previous positions with the Company have included Senior Vice President,
Sales and Marketing, Senior Vice President, Corporate Development, President of
the Bernoulli Optical Systems Co. (BOSCO) subsidiary of the Company, Vice
President, Research and Development, Vice President, OEM Products and Sales
Manager, and Senior Vice President, Micro Bernoulli Division.
Leon J. Staciokas has been Senior Vice President and Chief Internal
Operating Officer since April 1993. Mr. Staciokas joined the Company in August
1987 as Senior Vice President - Operations. He served as acting Chief Executive
Officer of the Company from October 1993 until January 1994. Mr. Staciokas
plans to retire during 1996, although he may continue with the Company for
some period of time in a consulting role.
M. Wayne Stewart joined the Company as Senior Vice President, Operations
in January 1996. Prior to that, Mr. Stewart was Vice President of Global
Manufacturing Concepts and Engineering Services at Whirlpool Corporation, a
consumer appliance company, from January 1995 to December 1995. From September
1970 to December 1994, Mr. Steward was Manufacturing Manager for Hewlett-
Packard.
Edward D. Briscoe joined the Company as Vice President, Sales in January
1995. From May 1993 to January 1995, Mr. Briscoe was Director of Sales and
Marketing for Apple Computer's Personal Interactive Electronics Division. Prior
to that, Mr. Briscoe was Executive Assistant to the President of Apple USA.
From July 1987 to April 1992, he held various sales management positions with
Apple Computer, Inc. Previously, Mr. Briscoe was an Account Marketing
Representative for IBM, Inc. From June 1984 to July 1987.
Reed M. Brown joined the Company as Vice President, Manufacturing in
February 1996. Prior to that, Mr. Brown was Director of Manufacturing at
Quantum Corporation, a manufacturer of hard disk drives, from March 1994 to
January 1996. From January 1979 to February 1994, Mr. Brown was Production
Manager for Hewlett-Packard Company.
Timothy L. Hill joined the Company as Vice President, Marketing in July
1994. Mr. Hill was Vice President, Marketing of Falcon Microsystems, a federal
reseller and systems integrator, from August 1993 to July 1994. Prior to that,
Mr. Hill was Director of Marketing and Sales for the Consumer Business Division
of Gates Energy Products from January 1988 to August 1993. Prior to January
1988, Mr. Hill was Marketing Manager for the Consumer Camera Products Division
of Polaroid Corporation, a producer of photography equipment and supplies.
Willard C. Kennedy joined the Company as Vice President, Worldwide
Logistics and Materials in November 1995. From January 1994 to November 1995,
he was Senior Vice President and General Manager of the Digital
Videocommunications Systems for Philips Consumer Electronics. He also held
positions at Philips Consumer Electronics as Vice President of Logistics from
October 1992 to January 1994 and Vice President of Purchasing from September
1990 to October 1992. Before joining Philips, Mr. Kennedy held a variety of
management positions in manufacturing, purchasing and engineering over a period
of 20 years with General Electric Company.
Donald R. Sterling was promoted to Vice President, Corporate Counsel and
Secretary in April 1994. Prior to that, he was Vice President for Legal Affairs
and Secretary from August 1993 to March 1994. Mr. Sterling joined the Company
in September 1988.
John G. Thompson has been Vice President, Outsourcing since January 1996.
He was Vice President, Corporate Manufacturing from January 1993 to January
1996. Prior to that, Mr. Thompson was Vice President, Materials, Procurement and
Engineering Services from March 1988 until January 1992. Mr. Thompson was Vice
President/Controller of the Company from January 1988 until March 1988.
Executive Officers are elected on an annual basis and serve at the
discretion of the Board of Directors.
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS:
The information required by this item is found in the section entitled
"Securities" of the Company's 1995 Annual Report, which section is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA:
The information required by this item is found in the tables entitled
"Trends in Operations" and "Financial Conditions and Trends" of the Company's
1995 Annual Report, which tables are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
The information required by this item is found in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Company's 1995 Annual Report, which section is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
The information required by this item is contained in the section entitled
"Financial and Operating Highlights" of the Company's 1995 Annual Report,
which section is incorporated herein by reference, and in the financial
statements and schedules referred to in the Index to Consolidated
Financial Statements and Consolidated Financial Statement Schedules, filed as
a part of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE:
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
The information required by this item appears in the section entitled
"ELECTION OF DIRECTORS - Nominees" of the Company's Proxy Statement for its
1996 annual meeting of stockholders and the section of such Proxy Statement
entitled "ELECTION OF DIRECTORS - Board and Committee Meetings", which
sections are incorporated herein by reference. Information regarding the
executive officers of the Company is furnished in Part I of this Annual
Report on Form 10-K under the heading "Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION:
The information required by this item appears in the sections entitled
"ELECTION OF DIRECTORS -- Director's Compensation", "ELECTION OF DIRECTORS --
Executive Compensation", "ELECTION OF DIRECTORS -- Employment and Severance
Agreements" and "ELECTION OF DIRECTORS -- Certain Business Relationships" of
the Company's Proxy Statement for its 1996 annual meeting of stockholders,
which sections are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT:
The information required by this item is contained in the section entitled
"Beneficial Ownership of Common Stock" of the Company's Proxy Statement for
its 1996 annual meeting of stockholders, which section is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The information required by this item is contained in the sections
entitled "ELECTION OF DIRECTORS -- Employment and Severance Agreements" and
"ELECTION OF DIRECTORS -- Certain Business Relationships" of the Company's
Proxy Statement for its 1996 annual meeting of stockholders, which sections
are incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
(a) The following documents are filed as part of or are included in this
Annual Report on Form 10-K:
1. The financial statements listed in the Index to Consolidated
Financial Statements and Consolidated Financial Statement
Schedules, filed as a part of this Annual Report on Form 10-K.
2. The financial statement schedule listed in the Index to
Consolidated Financial Statements and Consolidated Financial
Statement Schedules, filed as a part of this Annual Report on
Form 10-K.
3. The exhibits listed in the Exhibit Index filed as a part of this
Annual Report on Form 10-K.
(b) Reports on Form 8-K: No reports on Form 8-K were filed by the
Company during the last quarter of the year ended December 31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Kim B. Edwards
Kim B. Edwards
Chief Executive Officer
Date: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
)
/s/Kim B. Edwards Chief Executive Officer and )
Kim B. Edwards Director (Principal executive )
officer) )
)
/s/Leonard C. Purkis Senior Vice President-Finance and )
Leonard C. Purkis Chief Financial Officer (Principal)
financial and accounting officer) )
)
/s/ David J. Dunn Chairman of the Board of Directors)
David J. Dunn )
)
/s/ Willem H.J. Andersen Director )
Willem H.J. Andersen )
)
Director )
Robert P. Berkowitz )
)
Director )
Anthony L. Craig )
)
/s/ Michael J. Kucha Director )
Michael J. Kucha )
)
/s/ John R. Myers Director )
John R. Myers )
)
/s/ John E. Nolan, Jr. Director )
John E. Nolan, Jr. )
)
/s/ Johne E. Sheehan Director )
The Honorable )
John E. Sheehan )
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED
FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements appear in the Company's
1995 Annual Report to Stockholders and are incorporated herein by reference:
Description
Report of Independent Public Accountants
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
The following schedule is included in this Annual Report on Form 10-K:
Description Page Reference
Report of Independent Public Accountants on Consolidated
Financial Statement Schedules . . . . . . . . . . . 21
II - Valuation and Qualifying Accounts. . . . . . . . . 22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
To Iomega Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Iomega Corporation's annual
report to stockholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 26, 1996. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the index on page 20 is the responsibility of the Company's
management and is presented for the purpose of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 26, 1996
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
Additions
Balance at charged to Balance
beginning costs and at end
Description of period expenses Deductions of period
- ------------------------------ ---------- --------- ---------- ---------
(In thousands)
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
<C> <S> <S> <S> <S>
Year ended December 31, 1995 $ 1,627 $ 799 $ 565 * $ 1,861
Year ended December 31, 1994 $ 1,547 $ 323 $ (243) * $ 1,627
Year ended December 31, 1993 $ 901 $ 792 $ (146) * $ 1,547
PRICE PROTECTION AND PROMOTION RESERVE:
Year ended December 31, 1995 $ 169 $ 7,103 $(5,639) ** $ 1,633
Year ended December 31, 1994 $ 67 $ 1,143 $(1,041) ** $ 169
Year ended December 31, 1993 $ 73 $ 2,403 $(2,409) ** $ 67
ACCRUED RESTRUCTURING COSTS:
Year ended December 31, 1994 $ 6,818 $ 875 $(7,693) $ -
Year ended December 31, 1993 $ - $ 8,080 $(1,262) $ 6,818
OTHER RESTRUCTURING RESERVES:
Year ended December 31, 1994 $ 4,649 $ 2,063 $(6,712) $ -
Year ended December 31, 1993 $ - $ 4,649 $ - $ 4,649
</TABLE>
* Represents write-offs of Accounts Receivable
** Credits granted against Accounts Receivable
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included or incorporated by reference in this Form 10-K, into
the Company's previously filed Registration Statements on Form S-8, File Nos.
2-87671, 33-13083, 33-20432, 33-23822, 33-41083, 33-54438, 33-59027 and
33-62029.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
March 29, 1996
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report on
Form 10-K:
Exhibit
Number Description
- --------- -------------------------------
3.1 (17) Restated Certificate of Incorporation of the Company, as
amended
3.2 (1) By-Laws of the Company, as amended
4.1 (18) Indenture, dated March 13, 1996, between the Company
and State Street Bank and Trust Company
4.2 (7) Rights Agreement dated as of July 28, 1989 between the
Company and The First National Bank of Boston, as Rights Agent
4.2(a) (8) Amendment No. 1 dated September 24, 1990 to Rights
Agreement dated as of July 28, 1989 between the Company and
The First National Bank of Boston
10.1 (11) Lease dated January 6, 1993 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 1
10.1(a) Amendment to lease dated August 14, 1995 between the
Company and Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 1
10.2 Lease dated August 14, 1995 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 2
10.3 (3) Lease dated November 9, 1992 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 3
10.3(a) Amendment to lease dated August 14, 1995 between the
Company and Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 3
10.4 (3) Lease dated November 9, 1992 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 4
10.4(a) Amendment to lease dated August 14, 1995 between the
Company and Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 4
10.5 (4) Lease Agreement dated October 29, 1984 between the Company
and Damson/Birtcher Realty Income Fund-II, Limited
Partnership (formerly with Western Mortgage Loan Corporation)
(including an Amendment thereto dated January 30, 1986)
relating to Iomega Park Building (Parking Lot) No. 5
10.6 (11) Lease dated January 6, 1993 between the Company
and Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 6
10.6(a) Amendment to lease dated August 14, 1995 between the
Company and Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 6
10.7 (2) Lease dated June 21, 1991 between the Company
and Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 7
10.7(a)(13) Amendment to Lease dated May 20, 1994 between the
Company and Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 7
10.7(b) Second amendment to lease dated August 14, 1995 between the
Company and Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 7
10.8 (3) Lease dated November 9, 1992 between the
Company and Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 8
10.8(a) Amendment to lease dated August 14, 1995 between the
Company and Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 8
10.9 Lease Agreement dated January 25, 1996 between the
Company and Boyer Iomega LLC, by the Boyer Company, L.C.,
its Manager
**10.10 (2) 1981 Stock Option Plan of the Company, as amended
**10.11 (2) 1987 Stock Option Plan of the Company, as amended
**10.12 (2) 1987 Director Option Plan of the Company, as amended
**10.13 (18) 1995 Director Stock Option Plan of the Company, as amended
**10.14 (2) Employment Letter dated January 11, 1991 between the
Company and Srini Nageshwar
**10.15 (13) Employment Letter dated November 29, 1993 between the
Company and Kim Edwards
**10.16 (3) Expatriate Agreement dated January 1, 1992 between the
Company and Srini Nageshwar
10.17 (3) Form of Indemnification Agreement between the Company and
each of its directors
10.18 (7) Rights Agreement dated as of July 28, 1989 between the
Company and The First National Bank of Boston, as Rights
Agent
10.18(a)(8) Amendment No. 1 dated September 24, 1990 to Rights
Agreement dated as of July 28, 1989 between the Company
and The First National Bank of Boston
10.19 (13) Indemnity Agreement, dated April 21, 1994 between
the Company and Srini Nageshwar
**10.20 (11) Secured Installment Promissory Note, dated September 17,
1993, between the Company and Fred Wenninger
**10.21 (11) Letter Agreement, dated April 13, 1993, between the Company
and Anton J. Radman, Jr.
**10.22 (14) 1995 Iomega Incentive Plan
**10.22(a)(15) 1995 Iomega Incentive Plan Awards for Named Executive Officers
10.23 (14) Consulting Agreement with John Myers
10.24 (16) Iomega Incentive Plan for Kim B. Edwards
10.26 (16) Loan Agreement, dated July 5, 1995, between the Company and
Wells Fargo Bank, N.A., Commercial Finance Division
10.26(a)(16) Security Agreement, dated July 5, 1995, between the
Company and Wells Fargo Bank, N.A., Commercial Finance
Division
10.26(b)16) Wells Fargo Continuing Commercial Letter of Credit
Agreement, dated July 5, 1995
10.26(c) First Amendment to Loan Agreement, dated August 24, 1995,
between the Company and Wells Fargo Bank, N.A., Commercial
Finance Division
10.26(d) Second Amendment to Loan Agreement, dated October 16,
1995, between the Company and Wells Fargo Bank, N.A.,
Commercial Finance Division
10.26(e) Third Amendment to Loan Agreement, dated November 30,
1995, between the Company and Wells Fargo Bank, N.A.,
Commercial Finance Division
10.26(f) Fourth Amendment to Loan Agreement, dated January 12,
1996 between the Company and Wells Fargo Bank, N.A.,
Commercial Finance Division
10.27 Master Lease Agreement, dated August 29, 1995, between the
Company and USL Capital Corporation
10.28 Loan Commitment Agreement, dated October 23, 1995, between the
Company and Heller Financial, Inc., Commercial Equipment
Finance Division
10.29 Factoring Agreement, dated November 10, 1995, between Iomega
Europe GmbH and Heller Bank, AG
10.30 Revolving Loan Agreement, dated January 12, 1996, between the
Company and First Security Bank of Utah, N.A.
10.31 (17) Indenture, dated March 13, 1996, between the Company and
State Street Bank and Trust Company
13.1 Portions of the Company's 1995 Annual Report (which is
not deemed to be "filed" except to the extent that portions
thereof are expressly incorporated by reference in this
Annual Report of Form 10-K)
21.1 Subsidiaries of the Company
23.1 Consent of Independent Public Accountants (appears on
page 24 of this Annual Report on Form 10-K)
- ------------
** Management contract or compensation plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(1) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended July 4, 1993.
(2) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991.
(3) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
(4) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1990.
(5) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1989.
(6) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 2-96209).
(7) Incorporated herein by reference to the exhibits to the Company's Current
Report on Form 8-K filed on August 12, 1989.
(8) Incorporated herein by reference to the exhibits to the Company's
Amendment No. 1 to Current Report on Form 8-K filed on September 25,
1990.
(9) Incorporated herein by reference to the exhibits to the Company's
Amendment No. 1 to Annual Report on Form 10-K for the year ended
December 31, 1992.
(10) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended October 3, 1993.
(11) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
(12) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended October 2, 1994.
(13) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the period ended December 31, 1994.
(14) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended April 2, 1995.
(15) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended July 2, 1995.
(16) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended October 1, 1995.
(17) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-3. (File No. 33-64995)
(18) Incorporated by reference to Appendix to the Company's definitive
Proxy Statement for the 1995 Annual Meeting of Stockholders.
Exhibit 10.1(a)
AGREEMENT TO EXTEND LEASE
This Agreement is made and entered into as of this 14th day of
August, 1995, by and between Damson/Birtcher Realty Income Fund-II,
Limited Partnership (hereinafter called "Landlord") and IOMEGA
Corporation (hereinafter called "Tenant") with respect to the
following facts:
WITNESSETH:
A. Landlord and Tenant entered into a certain lease dated January
6, 1993, (the "Lease") under which Landlord demised to Tenant
the Property commonly known as Building 1, consisting of
approximately 24,000 square feet; and
B. Said Lease is schedule to expire by lapse of time on May 31,
1996; and
C. Landlord and Tenant desire to amend said Lease so as to extend
the Term thereof and to establish the rents payable thereunder
during such period; and
D. It is intended by this Agreement to amend said Lease;
NOW, THEREFORE, in consideration of the Property, and of the
covenants and agreements herein set forth, it is agreed that the
Lease be hereby amended from and after the date hereof as follows:
1) Section 1.05 of the Lease, entitled Lease Term, is hereby
extended for a period of two (2) years, commencing on the last
day of the initial Term of the Lease and expiring on the 31st
day of May, 1998, unless the Lease shall sooner terminate as
provided therein.
2) For the period from the first day of June, 1996, through and
including the 31st day of May, 1998, Tenant shall pay to
Landlord as Base Rent over and above the other and additional
payments to be made by Tenant for the Property, the sum of Two
Hundred Seventy-Three Thousand, Eighty-One and 60/100 Dollars
($273,081.60) payable monthly in advance on the first day of
each and every calendar month as follows:
Period Monthly Base Rent
June 1, 1996 through and
including May 31, 1997 $11,200.80
June 1, 1997 through and
including May 31, 1998 $11,556.00
all at the place and in the manner in the Lease provided.
3) Section 3.02 of the Lease, entitled Cost of Living Increases,
is hereby deleted and shall have no further force or effect.
4) Except as herein specifically amended, all terms, provisions,
covenants, and conditions of the Lease shall remain unchanged
and in full force and effect, and the same are hereby ratified
and confirmed.
TENANT LANDLORD
IOMEGA Corporation Damson/Birtcher Realty Income
Fund-II, Limited Partnership
By: /s/ Leon J. Staciokas By: Birtcher
Investments
Its: Authorized Agent
Its: Senior Vice President
By: /s/ Michael S. Buzar
Date: 8/25/95 Its: Senior Vice President
Date: 8/28/95
Exhibit 10.2
IOMEGA PARK
ROY, UTAH
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of
the Lease referred to in this Article One explain and define the Basic Terms
and are to be read in conjunction with the Basic Terms.
Section 1.01. Date of Lease: August 14, 1995
Section 1.02. Landlord: DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED
PARTNERSHIP
Address of Landlord: 27611 La Paz Road, Laguna Niguel, CA 92656.
Section 1.03. Tenant: IOMEGA Corporation
Address of Tenant: 1821 West 4000 South, Roy, Utah 84067
Section 1.04. Property: The Property is part of Landlord's multi-tenant
real property development known as Iomega Park, Roy, Utah, and
described or depicted in Exhibit "A" (the "Project"). The Project includes
the land, the buildings and all other improvements located on the land, and
the common areas described in Paragraph 4.05(a). The Property is Building 2,
consisting of approximately 19,400 square feet and cross-hatched on Exhibit
"A".
Section 1.05. Lease Term Five (5) years, three (3) months and
seventeen (17) days beginning on August 15, 1995, or such other date as is
specified in this Lease, and ending on November 30, 2000.
Section 1.06. Permitted Uses: (See Article Five) Manufacturing,
research, development and distribution of Tenants and Tenant's affiliate
products for desktop computers.
Section 1.07. Brokers: (See Article Fourteen)
Landlord's Broker: Birtcher Investments
Tenant's Broker: None
Section 1.08. Initial Security Deposit: (See Section 3.03) $0.00
Section 1.09. Rent and Other Charges Payable by Tenant:
(a) BASE RENT: Five Hundred Six Thousand One Hundred Sixty-Nine and
28/100 Dollars ($506,169.28) payable in monthly installments as follows:
Period Monthly Base Rent
August 15, 1995 through and including September 30, 1995 $ 0.00
October 1, 1995 through and including November 30, 1996 $7,678.52
December 1, 1996 through and including November 30, 1997 $8,002.50
December 1, 1997 through and including November 30, 1998 $8,148.00
December 1, 1997 through and including November 30, 1999 $8,439.00
December 1, 1999 through and including November 30, 2000 $8,633.00
(b) OTHER PERIODIC PAYMENTS: (I) Real Property Taxes (See Section
4.02); (ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See
Section 4.04); (iv) Tenant's Pro Rata Share of Common Area Expenses 11.42%
(See Section 4.05); (v) Impounds for Insurance Premiums and Property Taxes
(See Section 4.08); (vi) Maintenance, Repairs and Alterations (See Article
Six).
ARTICLE TWO: LEASE TERM
Section 2.01. Lease of Property For Lease Term. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.05 above and shall
begin and end on the date specified in Section 1.05 above, unless the
beginning or end of the Lease Term is changed under any provision of this
Lease. The "Commencement Date" shall be the date specified in Section 1.05
above for the beginning of the Lease Term, unless advanced or delayed under
any provision of this Lease.
Section 2.02. Holding Over. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the Property. If Tenant does not vacate the
Property upon the expiration or earlier termination of the Lease and Landlord
thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall
be a "month-to-month" tenancy, subject to all of the terms of this Lease
applicable to a month-to-month tenancy, except that the Base Rent then in
effect shall be increased by twenty-five percent (25%).
ARTICLE THREE: BASE RENT
Section 3.01. Time and Manner of Payment. Upon execution of this
Lease, Tenant shall pay Landlord the Base Rent in the amount stated in
Paragraph 1.09(a) above for the first month of the Lease Term. On the first
day of the second month of the Lease Term and each month thereafter, Tenant
shall pay Landlord the Base Rent, in advance, without offset, deduction or
prior demand. The Base Rent shall be payable at Landlord's address or at such
other place as Landlord may designate in writing.
Section 3.03. Security Deposit. Tenant has deposited with Landlord a
cash Security Deposit in the amount set forth in Section 1.08 above. Landlord
may apply all or part of the Security Deposit to any unpaid rent or other
charges due from Tenant or to cure any other defaults of Tenant. If Landlord
uses any part of the Security Deposit, Tenant shall restore the Security
Deposit to its full amount within ten (10) days after Landlord's written
request. Tenant's failure to do so shall be a material default under this
Lease. No interest shall be paid on the Security Deposit. Landlord shall not
be required to keep the Security Deposit separate from its other accounts and
no trust relationship is created with respect to the Security Deposit.
Section 3.04. Termination; Advance Payments. Upon termination of this
Lease under Article Seven (Damage or Destruction), Article Eight
(Condemnation) or any other termination not resulting from Tenant's default,
and after Tenant has vacated the Property in the manner required by this
Lease, Landlord shall refund or credit to Tenant (or Tenant's successor) the
unused portion of the Security Deposit, any advance rent or other advance
payments made by Tenant to Landlord, and any amounts paid for real property
taxes and other reserves which apply to any time periods after termination of
the Lease.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01. Additional Rent. All charges payable by Tenant other
than Base Rent are called "Additional Rent". Unless this Lease provides
otherwise, Tenant shall pay all Additional Rent then due with the next monthly
installment of Base Rent. The term "rent" shall mean Base Rent and Additional
Rent.
Section 4.02. Property Taxes.
(a) Real Property Taxes. As long as Tenant is the only tenant in the
Project, Tenant shall pay all real property taxes on the Property (including
any fees, taxes or assessments against, or as a result of, any tenant
improvements installed on the Property by or for the benefit of Tenant) during
the Lease Term. Subject to Paragraph 4.02(c) and Section 4.08 below, such
payment shall be made at least ten (10) days prior to the delinquency date of
the taxes. Within such ten (10) day period, Tenant shall furnish Landlord
with satisfactory evidence that the real property taxes have been paid.
Landlord shall reimburse Tenant for any real property taxes paid by Tenant
covering any period of time prior to or after the Lease Term. If Tenant fails
to pay the real property taxes when due, Landlord may pay the taxes and Tenant
shall reimburse Landlord for the amount of such tax payment as Additional
Rent.
(b) Definition of "Real Property Tax". "Real property tax" means: (i)
any fee, license fee, license tax, business license fee, commercial rental
tax, levy, charge, assessment, penalty or tax imposed by any taxing authority
against the Property; (ii) any tax on the Landlord's right to receive, or the
receipt of, rent or income from the Property or against landlord's business
of leasing the Property; (iii) any tax or charge for fire protection, streets,
sidewalks, road maintenance, refuse or other services provided to the Property
by any governmental agency; (iv) any tax imposed upon this transaction or
based upon a re-assessment of the Property due to a change of ownership, as
defined by applicable law, or other transfer of all or part of Landlord's
interest in the Property; and (v) any charge or fee replacing any tax
previously included within the definition of real property tax. "Real
property tax" does not, however, include Landlord's federal or state income,
franchise, inheritance or estate taxes. Any "taxing authority" means any
authority having the direct or indirect power to tax, including, but not
limited to, any city, county, state or federal government, or any school,
agricultural, sanitary, fire, street, drainage or other improvement district
thereof, as against any legal or equitable interest of Landlord in the Project
or in any portion thereof.
(c) Joint Assessment. If the Property is not separately assessed, or
if another tenant leases premises within the Project, Landlord may reasonably
determine Tenant's share of the real property tax payable by Tenant under
Paragraph 4.02(a) from the assessor's worksheets or prorated in accordance
with the formula in Paragraph 4.05(e). Landlord's determination of Tenant's
share of the real property tax payable by Tenant shall be conclusive. Tenant
shall pay such share to Landlord within fifteen (15) days after receipt of
Landlord's written statement.
(d) Personal Property Taxes.
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the Property.
Tenant shall pay such personal property taxes prior to delinquency.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property within
fifteen (15) days after Tenant receives a written statement from Landlord for
such personal property taxes.
Section 4.03. Utilities. Tenant shall pay, directly to the
appropriate supplier, the cost of all natural gas, heat, light, power, sewer
service, telephone, water, refuse disposal and other utilities and services
supplied to the Property. However, if any services or utilities are jointly
metered with other property, Landlord shall make a reasonable determination
of Tenant's proportionate share of the cost of such utilities and services and
Tenant shall pay such share to Landlord within fifteen (15) days after receipt
of Landlord's written statement.
Section 4.04. Insurance Policies.
(a) Liability Insurance. During the Lease Term, Tenant shall maintain
a policy of commercial general liability insurance (sometimes known as broad
form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of
property) and personal injury arising out of the operation, use or occupancy
of the Property and the Project. Tenant shall name Landlord as an additional
insured under such policy. The initial amount of such insurance shall be One
Million Dollars ($1,000,000) per occurrence and shall be subject to periodic
increase based upon inflation, increased liability awards, recommendation of
Landlord's professional insurance advisors and other relevant factors. The
liability insurance obtained by Tenant under this Paragraph 4.04(a) shall (i)
be primary and non-contributing; (ii) contain cross-liability endorsements;
and (iii) insure Landlord against Tenant's performance under Section 5.05.
The amount and coverage of such insurance shall not limit Tenant's liability
nor relieve Tenant of any other obligation under this Lease. Landlord may
also obtain comprehensive public liability insurance in an amount and with
coverage determined by Landlord insuring Landlord against liability arising
out of ownership, operation, use or occupancy of the Property. The policy
obtained by Landlord shall not be contributory and shall not provide primary
insurance.
(b) Property and Rental Income Insurance. During the Lease Term,
Tenant shall maintain policies of insurance covering loss of or damage to the
property, including fixtures or equipment or building improvements installed
by Tenant on the Property, but not Tenant's personal property, in an amount
not to exceed the full replacement value thereof, as the same may exist from
time to time. Such policy shall contain an Inflation Guard Endorsement and
shall provide protection against all perils included within the classification
of fire, extended coverage, vandalism, malicious mischief, special extended
perils (all risk), sprinkler leakage and any other perils which Landlord deems
reasonably necessary. Tenant shall not do or permit anything to be done which
invalidates any such insurance policies.
(c) Payment of Premiums. Subject to Section 4.08, as long as Tenant
is the only tenant in the Project, Tenant shall pay all premiums for the
insurance policies described in Paragraphs 4.04(a) and (b). Landlord shall
pay all premiums for non-primary comprehensive public liability insurance
which Landlord elects to obtain as provided in Paragraph 4.04(a). If another
tenant leases premises within the Project, Landlord may maintain the insurance
policies described in Paragraph 4.04(b) and Tenant shall pay Tenant's prorated
share of the premiums, in accordance with the formula in Paragraph 4.05(e)
for determining Tenant's share of Common Area costs. If such insurance
policies maintained by Landlord cover improvements on real property other than
the Project, Landlord shall deliver to Tenant a statement of the premium
applicable to the Property showing in reasonable detail how Tenant's share of
the premium was computed. If the Lease Term expires before the expiration of
an insurance policy maintained by Landlord, Tenant shall be liable for
Tenant's prorated share of the insurance premiums. Before the Commencement
Date, Tenant shall deliver to Landlord a copy of any policy of insurance which
Tenant is required to maintain under this Section 4.04. At least thirty (30)
days prior to the expiration of any such policy, Tenant shall deliver to
Landlord a renewal of such policy. As an alternative to providing a policy
of insurance, Tenant shall have the right to provide Landlord a certificate
of insurance, executed by an authorized officer of the insurance company,
showing that the insurance which Tenant is required to maintain under this
Section 4.04 is in full force and effect and containing such other information
which Landlord reasonably requires.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain under this
Lease shall include a provision which requires the insurance carrier to give
Landlord not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.
(ii) If Tenant fails to deliver any policy, certificate or renewal
to Landlord required under this Lease within the prescribed time period of if
any such policy is canceled or modified during the Lease Term without
Landlord's consent, Landlord may obtain such insurance, in which case Tenant
shall reimburse Landlord for the cost of such insurance within fifteen (15)
days after receipt of a statement that indicates the cost of such insurance.
(iii) Tenant shall maintain all insurance required under this
Lease with companies acceptable to landlord. Landlord and Tenant acknowledge
the insurance markets are rapidly changing and that insurance in the form and
amounts described in this Section 4.04 may not be available in the future.
Tenant acknowledges that the insurance described in this Section 4.04 is for
the primary benefit of Landlord. Landlord makes no representation as to the
adequacy of such insurance to protect Landlord's or Tenant's interests.
Therefore, Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control, if such loss or damage is covered by any
insurance policy in force (whether or not described in this Lease) at the time
of such loss or damage. Upon obtaining the required policies of insurance,
Landlord and Tenant shall give notice to the insurance carriers of this mutual
waiver of subrogation.
Section 4.05. Common Areas; Use, Maintenance and Costs.
(a) Common Areas. As used in this Lease, "Common Areas" shall mean all
areas within the Project which are available for the common use of tenants of
the Project and which are not leased or held for the exclusive use of Tenant
or other tenants, including, but not limited to, parking areas, driveways,
sidewalks, loading areas, access roads, corridors, landscaping and planted
areas. Landlord, from time to time, may change the size, location, nature and
use of any of the Common Areas, convert Common Areas into leasable areas,
construct additional parking facilities (including parking structures) in the
Common Areas, and increase or decrease Common Area land and/or facilities.
Tenant acknowledges that such activities may result in inconvenience to
Tenant. Such activities an changes are permitted if they do not materially
affect Tenant's use of the Property.
(b) Use of Common Areas. Tenant shall have the nonexclusive right (in
common with other tenants and all others to whom Landlord has granted or may
grant such rights) to use the Common Areas for the purposes intended, subject
to such reasonable rules and regulations as Landlord may establish from time
to time. Tenant shall abide by such rules and regulations and shall use its
best effort to cause others who use the Common Areas with Tenant's express or
implied permission to abide by Landlord's rules and regulations. Under no
circumstances shall Tenant's right to use the Common Areas be deemed to
include the right to store any property, temporarily or permanently, in the
Common Areas, without the prior consent of Landlord. At any time, Landlord
may close any Common Areas to perform any acts in the Common Areas as, in
Landlord's judgment, are desirable to improve the Project. Tenant shall not
interfere with the rights of Landlord, other tenants or any other person
entitled to use the Common Areas. Landlord shall not be responsible to Tenant
for the Project's other tenants' non-compliance with Landlord's rules and
regulations with respect to the use of Common Areas.
(c) Specific Provision re: Vehicle Parking. Tenant shall be entitled
to use Tenant's pro rate share of vehicle parking spaces in the Project
without paying any additional rent. Tenant's parking shall not be reserved
and shall be limited to vehicles no larger than standard size automobiles or
pickup utility vehicles. Tenant shall not cause large trucks or other large
vehicles to be parked within the Project for any unreasonable period of time
or on the adjacent public streets. Temporary parking of large delivery
vehicles in the Project shall be permitted by the rules and regulations
established by Landlord. Temporary parking of large delivery vehicles in the
Project may be permitted by the rules and regulations established by Landlord.
Vehicles shall be parked only in striped parking spaces and not in driveways,
loading areas or other locations not specifically designated for parking.
Handicapped spaces shall only be used by those legally permitted to use them.
If Tenant parks more than Tenant's pro rate share of vehicles in the parking
area, such conduct shall be a material breach of this Lease. If Tenant
permits any of the prohibited parking activities described herein at the
Project, then Landlord shall have the right, without notice, in addition to
such other rights and remedies that it may have, to remove or tow away the
vehicle involved and charge the cost to Tenant, which costs shall be
immediately payable on demand by Landlord. In addition to Landlord's other
remedies under the Lease, Tenant shall pay a daily charge determined by
Landlord for each such additional vehicle.
(d) Maintenance of Common Areas. As long as Tenant is the only tenant
in the Project, Tenant shall, at Tenant's expense, maintain the Common Areas
in good order, condition and repair, except that Landlord shall perform all
major pavement repairs, and shall operate the Project, in Landlord's sole
discretion, as a first-class industrial/commercial real property development.
If another tenant leases premises within the Project, Landlord reserves the
right to maintain the Common Areas in good order, condition and repair and
shall operate the Project, in Landlord's sole discretion, as a first-class
industrial/commercial real property development. In such event, Tenant shall
pay Tenant's pro rata share (as determined below) of all costs incurred by
Landlord for the operation and maintenance of the Common Areas. Common Area
costs include, but are not limited to, costs and expenses for the following:
gardening and landscaping; utilities, water and sewage charges; maintenance
of signs (other than tenants' signs); premiums for liability, property damage,
fire and other types of casualty insurance on the Common Areas and worker's
compensation insurance; all property taxes and assessments levied on or
attributable to the Common Areas and all Common Area improvements; all
personal property taxes levied on or attributable to personal property used
in connection the Common Areas; straight-line depreciation on personal
property owned by Landlord which is consumed in the operation or maintenance
of the Common Areas; rental or lease payments paid by Landlord for rented or
leased personal property used in the operation or maintenance of the Common
Areas; fees for required licenses and permits; repairing, resurfacing,
repaving, maintaining, painting, lighting, cleaning, refuse removal, security
and similar items; reserves for exterior painting and other appropriate
reserves; and all components of electrical, mechanical, plumbing, heating and
air conditioning systems and facilities located in the Property which are
concealed or used in common by tenants of the Project. Landlord may cause any
or all of such services to be provided by third parties and the cost of such
services shall be included in Common Area costs. Common Areas costs shall not
include depreciation of real property which forms part of the Common Areas.
(e) Tenant's Share and Payment. In the event that Landlord maintains
the Common Areas pursuant to Paragraph 4.05(d), Tenant shall pay Tenant's
annual pro rata share of all Common Areas costs (prorated for any fractional
month) upon written notice from Landlord that such costs are due and payable,
and in any event prior to delinquency. Tenant's pro rata share of Building
Common Area costs shall be calculated by dividing the square foot area of the
Property, as set forth in Section 1.04 of the Lease, by the aggregate square
foot area of the Building. Tenant's pro rata share of Project Common Area
costs shall be calculated by dividing the square foot area of the Property,
as set forth in Section 1.04 of the Lease, by the aggregate square foot area
of the Project. Tenant's pro rata share is set out in Paragraph 1.09(b). Any
changes in the Common Area costs and/or the aggregate area of the Project
leased or held for lease during the Lease Term shall be effective on the first
day of the month after such change occurs. If applicable, Landlord may, at
Landlord's election, estimate in advance and charge to Tenant as Common Area
costs, all real property taxes for which Tenant is liable under Section 4.02
of the Lease, all insurance premiums for which Tenant is liable under Section
4.04 of the Lease, all maintenance and repair costs for which Tenant is liable
under Section 6.04 of the Lease, and all other Common Area costs payable by
Tenant hereunder. At Landlord's election, such statements of estimated Common
Area costs shall be delivered monthly, quarterly or at any other periodic
intervals to be designated by landlord. Landlord may adjust such estimates
at any time based upon Landlord's experience and reasonable anticipation of
costs. Such adjustments shall be effective as of the next rent payment date
after notice to Tenant. Within one hundred twenty (120) days after the end
of each calendar year of the Lease Term, Landlord shall deliver to Tenant a
statement prepared in accordance with generally accepted accounting principles
setting forth, in reasonable detail, the Common Area costs paid or incurred
by Landlord during the preceding calendar year and Tenant's pro rata share.
Upon receipt f such statement, there shall be an adjustment between Landlord
and Tenant, with payment to or credit given by Landlord (as the case may be)
so that Landlord shall receive the entire amount of Tenant's share of such
costs and expenses for such period.
Section 4.06. Late Charges. Tenant's failure to pay rent promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs
are impractical or extremely difficult to ascertain. Such costs may include,
but are not limited to, processing and accounting charges and late charges
which may be imposed on Landlord by any ground lease, mortgage or trust deed
encumbering the Property. Therefore, if Landlord does not receive any rent
payment within five (5) days after it becomes due, Tenant shall pay Landlord
a late charge equal to five percent (5%) of the overdue amount. The parties
agree that such late charge represents a fair and reasonable estimate of the
costs Landlord will incur by reason of such late payment. Landlord's
acceptance of any late payment charge shall in no event constitute a waiver
of Tenant's default with respect to any overdue amount, nor prevent Landlord
from exercising any of the other rights and remedies granted to Landlord
hereunder.
Section 4.07. Interest on Past Due Obligations. Any amount owed by
Tenant to Landlord which is not paid when due shall bear interest at the rate
of fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease. If the interest rate specified in this
Lease is higher than the rate permitted by law, the interest rate is hereby
decreased to the maximum legal interest rate permitted by law.
Section 4.08. Impounds for Insurance Premiums and Real Property Taxes.
If requested by any ground lessor or lender to whom Landlord has granted a
security interest in the Property, or if Tenant is more than ten (10) days
late in the payment of rent more than once in any consecutive twelve (12)
month period, Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of
the annual real property taxes and insurance premiums payable by Tenant under
this Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-interest bearing impound account. If unknown, Landlord
shall reasonably estimate the amount of real property taxes and insurance
premiums when due. Tenant shall pay any deficiency of funds in the impound
account to Landlord upon written request. If Tenant defaults under this
Lease, Landlord may apply any funds in the impound account to any obligation
then due under this Lease.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. Permitted Uses. Tenant may use the Property only for
the Permitted Uses set forth in Section 1.06 above.
Section 5.02. Manner of Use. Tenant shall not cause or permit the
Property to be used in any way which constitutes a violation of any law,
ordinance, or governmental regulation or order, which annoys or interferes
with the rights of tenants of the Project, or which constitutes a nuisance or
waste. Tenant shall obtain and pay for all permits, including a Certificate
of Occupancy, required for Tenant's occupancy of the Property and shall
promptly take all actions necessary to comply with all applicable statutes,
ordinances, rules, regulations, orders and requirements regulating the use by
Tenant of the Property, including the Occupational Safety and Health Act.
Tenant acknowledges that neither Landlord nor any agent of Landlord has made
any representations to Tenant relative to the suitability of the Property or
Project for Tenant's intended use.
Section 5.03. Hazardous Materials. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition
of "hazardous substances", "hazardous wastes", "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state
or local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which
are subsequently found to have adverse effects on the environment or the
health and safety of persons. Tenant shall not cause or permit any Hazardous
Material to be generated, produced, brought upon, used, stored, treated or
disposed of in or about the Property by Tenant, its agents, employees,
contractors, sublessees or invitees without the prior written consent of
Landlord. Landlord shall be entitled to take into account such other factors
or facts as Landlord may reasonably determine to be relevant in determining
whether to grant or withhold consent to Tenant's proposed activity with
respect to Hazardous Material. In no event, however, shall Landlord be
required to consent to the installation or use of any storage tanks on the
Property. Notwithstanding anything herein to the contrary, Landlord
acknowledges that Tenant may bring Hazardous Material onto the Property in the
context of Tenant's use, and further that Tenant will use the following
substances on the Property, provided any such use, storage and disposal by
Tenant shall be in compliance with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating such use:
Substance Quantity Per Year
.032 P3 Alpha Metal Solder 6 lbs.
Acetone 12 gal.
Acrylic Ass. Paint 24 oz.
Alcohol 100 gal.
Aluminum Solder 6 lbs.
Black Max 14 oz.
Depend (Loctite) 120 oz.
Freon TF 93 gal.
Kester Flux 2800 2 gal.
Kester Rosin Core Solder 6 lbs.
Kester Flux 4800 4 gal.
Kleen-All 64 oz.
Loctite Output Accelerator 1168 oz.
Loctite 410 58 oz.
Loctite 416 42 oz.
Loctite 420 227 oz.
Peerless Spray and Wipe 41 qts.
Spray Paint 32 oz.
Tac Pac 710 580 oz.
Tac Pac 444 2400 oz.
Tra-Bond 260 oz.
X-NMS Clean-Up Solvent 33 oz.
Section 5.04. Signs and Auctions. Tenant shall not place any signs or
window coverings on the Property without Landlord's prior written consent,
which consent shall not be unreasonably withhold. Tenant shall not conduct
or permit any public auctions or sheriff's sales at the Property. Tenant may
have employee sales or auctions at the Property if such are permitted by
applicable laws.
Section 5.05. Indemnity. Tenant shall indemnify Landlord against and
hold Landlord harmless from any and all costs, claims or liability arising
from: (a) Tenant's use of the Property; (b) the conduct of Tenant's business
or anything else done or permitted by Tenant to be done in or about the
Property, including any contamination of the Property or any other property
resulting from the presence or use of Hazardous Material caused or permitted
by Tenant; (c) any breach or default in the performance of Tenant's
obligations under this Lease; (d) any misrepresentation or breach of warranty
by Tenant under this Lease; or (e) other acts or omissions of Tenant. Tenant
shall defend Landlord against any such cost, claim or liability at Tenant's
expense with counsel reasonably acceptable to Landlord or, at Landlord's
election, Tenant shall reimburse Landlord for any reasonable legal fees or
costs incurred by Landlord in connection with any such claim. As a material
part of the consideration to Landlord, Tenant assumes all risk of damage to
property or injury to persons in or about the Property arising from any cause,
and Tenant hereby waives all claims in respect thereof against Landlord,
except for any claim arising out of Landlord's gross negligence or willful
misconduct. As used in this Section, the term "Tenant" shall include Tenant's
employees, agents, contractors and invitees, if applicable.
Section 5.06. Landlord's Access. Landlord or its agents may enter the
Property during reasonable business hours, subject to security obligations
reasonably required by Tenant, to show the Property to potential buyers,
investors, or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems necessary. Landlord shall
give Tenant prior notice of such entry, except in the case of an emergency.
landlord may place customary "For Sale" or "For Lease" signs on the Property
during the last one hundred eighty (180) days of the Lease Term.
Section 5.07. Quiet Possession. If Tenant pays the rent and complies
with all other terms of this Lease, Tenant may occupy and enjoy the Property
for the full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. Existing Conditions. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein, Tenant acknowledges that neither Landlord nor any agent of Landlord
has made any representation as to the condition of the Property. Tenant
represents and warrants that Tenant has made its own inspection of and inquiry
regarding the condition of the Property and is not relying on any
representations of Landlord or any Broker with respect thereto.
Section 6.02. Exemption of Landlord from Liability. Landlord shall
not be liable for any damage or injury to the person, business (or any loss
of income therefrom), goods, wares, merchandise or other property of Tenant,
Tenant's employees, invitees, customers or any other person in or about the
Property, whether such damage or injury is caused by or results from: (a)
fire, steam, electricity, water, gas or rain; (b) the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wire, appliances, plumbing,
air conditioning or lighting fixtures or any other cause; (c) conditions
arising in or about the Property or upon other portions of the Project, or
from other sources or places; or (d) any act or omission of any other tenant
of the Project. Landlord shall not be liable for any such damage or injury
even though the cause of or the means of repairing such damage or injury are
not accessible to Tenant. The provisions of this Section 6.02 shall not,
however, exempt Landlord from liability for Landlord's gross negligence or
willful misconduct.
Section 6.03. Landlord's Obligations.
(a) Except as provided in Article Seven (Damage or Destruction) and
Article Eight (Condemnation), Landlord shall keep the following in good order,
condition and repair: the foundation, exterior walls and roof of the Property
(including painting the exterior surface of the exterior walls of the Property
not more often than once every five (5) years, if necessary). However,
Landlord shall not be obligated to maintain or repair windows, doors, plate
glass or the interior surfaces of exterior walls. Landlord shall make repairs
under this Section 6.03 within a reasonable time after receipt of written
notice from Tenant of the need for such repairs.
(b) Tenant waives the benefit of any statute in effect now or in the
future which might give Tenant the right to make repairs at Landlord's expense
or to terminate this Lease due to Landlord's failure to keep the Property in
good order, condition and repair.
Section 6.04. Tenant's Obligations.
(a) Except as provided in Section 6.03, Article Seven (Damage or
Destruction) and Article Eight (Condemnation), Tenant shall keep all portions
of the Property (including structural, nonstructural, interior, systems and
equipment) in good order, condition and repair (including interior repainting
and refinishing, as needed). If any portion of the Property or any system or
equipment in the Property which Tenant is obligated to repair cannot be fully
repaired or restored, Tenant shall promptly replace such portion of the
Property or system or equipment in the Property, regardless of whether the
benefit of such replacement extends beyond the Lease Term; but if the benefit
or useful life of such replacement extends beyond the Lease Term (as such term
may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which
is applicable to the Lease Term (as extended). Tenant shall, at Tenant's
expense provide for the regular inspection and maintenance of the heating and
air conditioning system by a licensed heating and air conditioning contractor
or its own qualified technician, unless Landlord maintains such equipment
under Section 6.03 above. If any part of the Property or the Project is
damaged by any act or omission of Tenant, Tenant shall pay Landlord the cost
of repairing or replacing such damaged property, whether or not Landlord would
otherwise be obligated to pay the cost of maintaining or repairing such
property. It is the intention of Landlord and Tenant that at all times Tenant
shall maintain the portions of the Property which Tenant is obligated to
maintain in an attractive, first-class and fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this Section
6.04 at Tenant's sole expense. If Tenant fails to maintain, repair or replace
the Property as required by this Section 6.04, Landlord may, upon ten (10)
days' prior notice to Tenant (except that no notice shall be required in the
case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
Section 6.05. Alterations, Additions, and Improvements.
(a) Tenant shall not make any alterations, additions, or improvements
to the Property without Landlord's prior written consent, which consent shall
not be unreasonably withheld, except for non-structural alterations which do
not exceed Five Thousand Dollars ($5,000) in cost or which does not materially
alter the basic character of the Property or Project, weaken any structure on
the Property, or reduce the value of the Property or Project and which are not
visible from the outside of any building of which the Property is part.
Landlord may require Tenant to provide demolition and/or lien and completion
bonds in form and amount satisfactory to Landlord. Landlord may, at any time
during the Lease Term, require Tenant to promptly remove any alterations,
additions, or improvements constructed in violation of this Paragraph 6.05(a).
All alterations, additions, and improvements shall be done in a good and
workmanlike manner, in conformity with all applicable laws and regulations,
and by a contractor selected by Tenant subject to Landlord's reasonable
approval. Upon completion of any such work, Tenant shall provide Landlord
with "as built" plans, copies of all construction contracts, and proof of
payment for all labor and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord prior written notice
of the commencement of any work on the Property, regardless of whether
Landlord's consent to such work is required. Landlord may elect to record and
post notices of non-responsibility on the Property. If Tenant shall, in good
faith, contest the validity of any mechanics' or materialmens' liens against
the Property, then Tenant shall, at its sole expense, defend itself and
Landlord against the same and shall pay and satisfy any adverse judgment that
may be rendered thereon before the enforcement thereof against Landlord or the
Property or the Project, upon the condition that if Landlord shall require,
Tenant shall furnish to Landlord a surety bond satisfactory to Landlord in an
amount equal to such contested lien claim or demand indemnifying Landlord
against liability for the same and holding the Property and the Project free
from the effect of such lien or claim. In addition, Landlord may require
Tenant to pay Landlord's attorneys' fees and costs incurred in participating
in such action.
Section 6.06. Condition Upon Termination. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. In
addition, Tenant shall be obligated to clean up and remove any Hazardous
Materials present at the Property as a result of Tenant's use thereof.
However, Tenant shall not be obligated to repair any damage which Landlord is
required to repair under Article Seven (Damage and Destruction). In addition,
Landlord may require Tenant to remove any alterations, additions or
improvements (whether or not made with Landlord's consent) prior to the
expiration of the Lease and to restore the Property to its prior condition,
all at Tenant's expense. All alterations, additions and improvements which
Landlord has not required Tenant to remove shall become Landlord's property
and shall be surrendered to Landlord upon the expiration of earlier
termination of the Lease, except that Tenant may remove any of Tenant's
machinery or equipment which can be removed without material damage to the
Property. Tenant shall repair, at Tenant's expense, any damage to the
Property caused by the removal of any such machinery or equipment. In no
event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's prior
written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other winder coverings; carpets
or other floor coverings; heaters, air conditions or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operating equipment and decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. Partial Damage to Property.
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged i.e., less than fifty percent (50%) of the Property is untenantable
as a result of such damage or less than fifty percent (50%) of Tenant's
operations are materially impaired and if the proceeds received by Landlord
from the insurance policies described in Paragraph 4.04(b) are sufficient to
pay for the necessary repairs, this Lease shall remain in effect and Landlord
shall repair the damage as soon as reasonably possible. Landlord may elect
(but is not required) to repair any damage to Tenant's fixtures, equipment,
or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient
to pay the entire cost of repair, or if the cause of the damage is not covered
by the insurance policies which Landlord maintains under Paragraph 4.04(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the
occurrence of the damage whether Landlord elects to repair the damage or
terminate the Lease. If Landlord elects to repair the damage, Tenant shall
pay Landlord the "deductible amount" (if any) under Landlord's insurance
policies and, if the damage was due to an act or omission of Tenant, or
Tenant's employees, agents, contractors or invitees, the difference between
the actual cost of repair and any insurance proceeds received by Landlord.
If Landlord elects to terminate this Lease, Tenant may elect to continue this
Lease in full force and effect, in which case Tenant shall repair any damage
to the Property and the Building. Tenant shall pay the cost of such repairs,
except that upon satisfactory completion of such repairs, Landlord shall
deliver to Tenant any insurance proceeds received by Landlord for the damage
repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6) months
of the Lease Term and such damage will require more than thirty (30) days to
repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall given written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
Section 7.02. Substantial or Total Destruction. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage
to the Property is greater than partial damage as described in Section 7.01),
and regardless of whether Landlord receives any insurance proceeds, this Lease
shall terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months after
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force
and effect. Landlord shall notify Tenant of such election within sixty (60)
days after Tenant's notice of the occurrence of total or substantial
destruction. If Landlord so elects, Landlord shall rebuild the Property at
Landlord's sole expense, except that if the destruction was caused by an act
or omission of Tenant, Tenant shall pay Landlord the difference between the
actual cost of rebuilding and any insurance proceeds received by Landlord.
Section 7.03. Temporary Reduction of Rent. If the Property is
destroyed or damaged and Landlord or Tenant repairs or restores the Property
pursuant to the provisions of this Article Seven, any rent payable during the
period of such damage, repair and/or restoration shall be reduced according
to the degree, if any, to which Tenant's use of the Property is impaired.
However, the reduction shall not exceed the sum of one year's payment of Base
Rate, insurance premiums and real property taxes. Except for such possible
reduction in Base Rent, insurance premiums and real property taxes, Tenant
shall not be entitled to any compensation, reduction, or reimbursement from
Landlord as a result of any damage, destruction, repair, or restoration of or
to the Property.
Section 7.04. Waiver. Tenant waives the protection of any statute,
code or judicial decision which grants a tenant the right to terminate a lease
in the event of the substantial or total destruction of the leased property.
Tenant agrees that the provisions of Section 7.02 above shall govern the
rights and obligations of Landlord and Tenant in the event of any substantial
or total destruction to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of eminent
domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on
the date the condemning authority takes title or possession, whichever occurs
first. If more than twenty-five percent (25%) of the Building, or the
Property, is taken, either Landlord or Tenant may terminate this Lease as of
the date the condemning authority takes title or possession, by delivering
written notice to the other within ten (10) days after receipt of written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority takes title or possession). If neither
Landlord nor Tenant terminates this Lease this Lease shall remain in effect
as to the portion of the Property not taken, except that the Base Rent and
Additional Rent shall be reduced in proportion to the reduction of the
Property not taken, except that the Base Rent and Additional Rent shall be
reduced in proportion to the deduction in the floor area of the Property. Any
Condemnation award or payment shall be distributed in the following order:
(a) first, to any ground lessor, mortgagee or beneficiary under a deed of
trust encumbering the Property, the amount of its interest in the Property;
(b) second, to Tenant, only the amount of any aware specifically designated
for loss of or damage to Tenant's trade fixtures or removable personal
property; and (c) third, to Landlord, the remainder of such award, whether as
compensation for reduction in the value of the leasehold, the taking of the
fee, or otherwise. If this Lease is not terminated, Landlord shall repair any
damage to the Property caused by the Condemnation, except that Landlord shall
not be obligated to repair any damage for which Tenant has been reimbursed by
the condemning authority. If the severance damages received by Landlord are
not sufficient to pay for such repair, Landlord shall have the right to either
terminate this Lease or make such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. Landlord's Consent Required. No portion of the Property
or of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by sale, assignment, mortgage, sublease, transfer, option of
law, or act of Tenant, without Landlord's prior written consent, except as
provided in Section 9.02 below. Landlord has the right to grant or withhold
its consent as provided in Section 9.05 below. Any attempted transfer without
consent shall be void and shall constitute a non-curable breach of this Lease.
If Tenant is a partnership, any cumulative transfer of more than twenty
percent (20%) of the partnership interests shall require Landlord's consent.
If Tenant is a corporation, any change in the ownership of a controlling
interest of the voting stock of the corporation shall require Landlord's
consent.
Section 9.02. Tenant Affiliate. Tenant may assign this Lease or
sublease the Property, without Landlord's consent, to any corporation which
controls, is controlled by or is under common control with Tenant, or to any
corporation resulting from the merger of or consolidation with Tenant
("Tenant's Affiliate"). In such case, any Tenant's Affiliate shall assume in
writing all of Tenant's obligations under this Lease.
Section 9.03. No Release of Tenant. No transfer permitted by this
Article Nine, whether with or without Landlord's consent, shall release Tenant
or change Tenant's primary liability to pay the rent and to perform all other
obligations of Tenant under this Lease. Landlord's acceptance of rent from
any other person is not a waiver of any provision of this Article Nine.
Consent to one transfer is not a consent to any subsequent transfer. If
Tenant's transferee defaults under this Lease, Landlord may proceed directly
against Tenant without pursuing remedies against the transferee. Landlord may
consent to subsequent assignments or modifications of this Lease by Tenant's
transferee, without notifying Tenant or obtaining its consent. Such action
shall not relieve Tenant's liability under this Lease.
Section 9.04. Offer to Terminate. If Tenant desires to assign the
Lease or sublease the Property, Tenant shall have the right to offer, in
writing, to terminate the Lease as of a date specified in the offer. If
Landlord elects in writing to accept the offer to terminate within twenty (20)
days after notice of the offer, the Lease shall terminate as of the date
specified and all the terms and provisions of the Lease governing termination
shall apply. If Landlord does not so elect, the Lease shall continue in
effect until otherwise terminated and the provisions of Section 9.05 with
respect to any proposed transfer shall continue to apply.
Section 9.05. Landlord's Consent.
(a) Tenant's request for consent to any transfer described in Section
9.01 shall set forth in writing the details of the proposed transfer,
including the name, business and financial condition of the prospective
transferee, financial details of the proposed transfer (e.g., the term of and
the rent and security deposit payable under any proposed assignment or
sublease), and any other information Landlord deems relevant. Landlord shall
have the right to withhold consent, if reasonable, or to grant consent, based
on the following factors: (i) the business of the proposed assignee or
subtenant and the proposed use of the Property; (ii) the net worth and
financial reputation of the proposed assignee or subtenant; (iii) Tenant's
compliance with all of its obligations under the Lease; and (iv) such other
factors as Landlord may reasonably deem relevant.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the Lease the
Profit (defined below) on such transaction as and when received by
Tenant, unless Landlord given written notice to Tenant and the assignee
or subtenant that Landlord shall be paid by the assignee or subtenant
directly. The "Profit" means (A) all amounts paid to Tenant for such
assignment or sublease, including "key" money, monthly rent in excess of
the monthly rent payable under the Lease, and all fees and other
consideration paid for the assignment or sublease, including fees under
any collateral agreements, less (B) cost and expenses directly incurred
by Tenant in connection with the execution and performance of such
assignment or sublease for real estate broker's commissions and costs of
renovation or construction of tenant improvements required under such
assignment of sublease. Tenant is entitled to recover such costs and
expenses before Tenant is obligated to pay Landlord. The Profit in the
case of a sublease of less than all the Property is the rent allocable
to the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement certifying
all amounts to be paid from any assignment or sublease of the Property
within thirty (30) days after the transaction documentation is signed,
and Landlord may inspect Tenant's books and records to verify the
accuracy of such statement. On written request, Tenant shall promptly
furnish to Landlord copies of all the transaction documentation, all of
which shall be certified by Tenant to be complete, true and correct.
Landlord's receipt shall not be a consent to any further assignment or
subletting. The breach of Tenant's obligation under this Paragraph
9.05(b) shall be a material default of the Lease.
Section 9.06. No Merger. No merger shall result from Tenant's
sublease of the Property under this Article Nine, Tenant's surrender of this
Lease or the termination of this Lease in any other manner. In any such
event, Landlord may terminate any or all subtenancies or succeed to the
interest of Tenant as sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. Covenants and Conditions. Tenant's performance of each
of Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.02. Defaults. Tenant shall be in material default under
this Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section
4.04;
(b) If Tenant fails to pay rent or any other charge when due; and any
such default shall continue for a period of ten (10) days after written notice
to Tenant;
(c) If Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period of thirty (30) days after written notice from
Landlord; provided that if more than thirty (30) days are required to complete
such performance Tenant shall not be in default if Tenant commences such
performance within the thirty (30) day period and thereafter diligently
pursues its completion. However, Landlord shall not be required to give such
notice if Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy any and
all notice requirements imposed by law on Landlord and is not in addition to
any such requirement.
(d) (i) If Tenant makes a general assignment or general arrangement for
the benefit of creditors; (ii) if a petition for adjudication of bankruptcy
or for reorganization or rearrangement is filed by or against Tenant and is
not dismissed within thirty (30) days; (iii) if a trustee or receiver is
appointed to take possession of substantially all of Tenant's assets located
at the Property or of Tenant's interest in this Lease and possession is not
restored to Tenant within thirty (30) days; or (iv) if substantially all of
Tenant's assets located at the Property or of Tenant's interest in this Lease
is subjected to attachment, execution or other judicial seizure which is not
discharged within thirty (30) days. If a court of competent jurisdiction
determines that any of the acts described in this subparagraph (d) is not a
default under this Lease, and a trustee is appointed to take possession (or
if Tenant remains a debtor in possession) and such trustee or Tenant transfers
Tenant's interest hereunder, then Landlord shall receive, as Additional Rent,
the excess, if any, of the rent (or any other consideration) paid in
connection with such assignment or sublease over the rent payable by Tenant
under this Lease.
(e) If Tenant defaults with respect to any other lease between Landlord
and Tenant, or any parent company or subsidiary company or affiliate or agent
of Landlord or Tenant.
Section 10.03. Remedies. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time
of the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord has earned at the time of the termination; (ii) the worth at the time
of the aware of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the
time of the award exceeds the amount of such rental loss that Tenant proves
Landlord could have reasonably avoided; (iii) the worth at the time of the
award of the amount by which the unpaid Base Rent, Additional Rent and other
charges which Tenant would have paid for the balance of the Lease term after
the time of award exceeds the amount of such rental loss that Tenant proves
Landlord could have reasonably avoided; and (iv) any other amount necessary
to compensate Landlord for all the detriment proximately caused by Tenant's
failure to perform its obligations under the Lease or which in the ordinary
course of things would be likely to result therefrom, including but not
limited to, any costs or expenses Landlord incurs in maintaining or preserving
the Property after such default, the cost of recovering possession of the
Property, expenses of reletting, including necessary renovation or alteration
of the Property, Landlord's reasonable attorneys' fees incurred in connection
therewith, and any real estate commission paid or payable. As used in
subparts (i) and (ii) above, the "worth at the time of the award" is computed
by allowing interest on unpaid amounts at the rate of fifteen percent (15%)
per annum, or such lesser amount as may then be the maximum lawful rate. As
used in subpart (iii) above, the "Worth at the time of the award" is computed
by discounting such amount at the discount rate of the Federal Reserve Bank
of San Francisco at the time of the award, plus one percent (1%). If Tenant
has abandoned the Property, Landlord shall have the option of (i) retaking
possession of the Property and recovering from Tenant the amount specified in
this Paragraph 10.03(a), or (ii) proceeding under Paragraph 10.03(b);
(b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant has abandoned the Property.
In such event, Landlord shall be entitled to enforce all of Landlord's rights
and remedies under this Lease, including the right to recover the rent as it
becomes due;
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Property is
located.
Section 10.04. Automatic Termination. Notwithstanding any other term
or provision hereof to the contrary, the Lease shall terminate on the
occurrence of any act which affirms the Landlord's intention to terminate the
Lease as provided in Section 10.03 hereof, including the filing of any
unlawful detainer action against Tenant. On such termination, Landlord's
damages for default shall include all costs and fees, including reasonable
attorneys' fees that Landlord incurs in connection with the filing,
commencement, pursuing and/or defending of any action in any bankruptcy court
or other court with respect to the Lease; the obtaining of relief from any
stay in bankruptcy restraining any action to evict Tenant; or the pursuing of
any action with respect to Landlord's right to possession of the Property.
All such damages suffered (apart from Base Rent and other rent payable
hereunder) shall constitute precuniary damages which must be reimbursed to
Landlord prior to assumption of the Lease by Tenant or any successor to Tenant
in any bankruptcy or other proceeding.
Section 10.05. Cumulative Remedies. Landlord's exercise of any right
or remedy shall not prevent it from exercising any other right or remedy.
Section 10.06. Tenant's Remedies. On the occurrence of any material
default by Landlord, Tenant may at any time if not cured within thirty (30)
days after written notice to Landlord, pursue any remedy now or hereafter
available to Tenant under the laws or judicial decisions of the state in which
the property is located, provided, however, that if more than thirty (30) days
are required to complete such cure, Landlord shall not be in default if
Landlord commences such cure within the thirty (30) day period and thereafter
diligently pursues its completion.
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. Subordination. Landlord shall have the right to
subordinate this Lease to any ground lease, deed of trust or mortgage
encumbering the Property, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded. Tenant shall cooperate with Landlord and any
lender which is acquiring a security interest in the Property or the Lease.
Tenant shall execute such further documents and assurances as such lender may
require, provided that Tenant's obligations under this Lease shall not be
increased in any material way (the performance of ministerial acts shall not
be deemed material), and Tenant shall not be deprived of its right under this
Lease. Tenant's right to quiet possession of the Property during the Lease
Term shall not be disturbed if Tenant pays the rent and performs all of
Tenant's obligations under this Lease and is not otherwise in default. If any
ground lessor, beneficiary or mortgagee elects to have this Lease prior to the
lien of its ground lease, deed of trust or mortgage and gives written notice
thereof to Tenant, this Lease shall be deemed prior to such ground lease, deed
of trust or mortgage whether this Lease is dated prior or subsequent to the
date of said ground lease, deed of trust or mortgage or the date of recording
thereof.
Section 11.02. Attornment. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee,
or purchaser at a foreclosure sale, Tenant shall attorn to the transferee of
or successor to Landlord's interest in the Property and recognize such
transferee or successor as Landlord under this Lease. Tenant waives the
protection of any statute or rule of law which gives or purports to give
Tenant any right to terminate this Lease or surrender possession of the
Property upon the transfer of Landlord's interest.
Section 11.03. Signing of Documents. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such
attornment or subordination or agreement to do so. If Tenant fails to do so
within ten (10) days after written request, Tenant hereby makes, constitutes
and irrevocably appoints Landlord, or any transferee or successor of Landlord,
the attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.04. Estoppel Certificates.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge
and deliver to Landlord a written statement certifying: (i) that none of the
terms or provisions of this Lease have been changed (or if they have been
changed, stating how they have been changed); (ii) that this Lease has not
been canceled or terminated; (iii) the last date of payment of the Base Rent
and other charges and the time period covered by such payment; (iv) that
Landlord is not in default under this Lease (or, if Landlord is claimed to be
in default, stating why); and (v) such other representations or information
with respect to Tenant or the Lease as Landlord may reasonably request or
which any prospective purchaser or encumbrancer of the Property may require.
Tenant shall deliver such statement to landlord within fifteen (15) days after
Landlord's request. Landlord may give any such statement by Tenant to any
prospective purchaser or encumbrancer of the Property. Such purchaser or
encumbrancer may rely conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within such
fifteen (15) day period, the failure to deliver such statement within such
time shall be a material default of this Lease by Tenant, without any further
notice to Tenant, or Landlord, and any prospective purchaser or encumbrancer,
may conclusively presume and rely upon the following facts: (i) that the terms
and provisions of this Lease have not been changed except as otherwise
represented by Landlord; (ii) that this Lease has not been canceled or
terminated except as otherwise represented by Landlord; (iii) that not more
than one month's Base Rent or other charges have been paid in advance; and
(iv) that Landlord is not in default under the Lease. In such event, Tenant
shall be estopped from denying the truth of such facts.
Section 11.05. Tenant's Financial Condition. Within ten (10) days
after written request from Landlord, Tenant shall deliver to Landlord its
latest published, audited financial statements to verify the net worth of
Tenant or any assignee, subtenant, or guarantor of Tenant. In addition,
Tenant shall deliver to any lender designated by Landlord any such financial
statements to allow such lender to facilitate the financing or refinancing of
the Property. Tenant represents and warrants to Landlord that each such
financial statement is a true and accurate statement as of the date of such
statement. All financial statements shall be used only for the purposes set
forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01. Legal Proceedings. If Tenant or Landlord shall be in
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any
costs or expenses that the Nondefaulting Party incurs in connection with any
breach or default of the Defaulting Party under this Lease, whether or not
suit is commenced or judgement entered. Such costs shall include reasonable
legal fees and costs incurred for the negotiation of a settlement, enforcement
or rights or otherwise. Furthermore, if any action for breach of or to
enforce the provisions of this Lease is commenced, the court in such action
shall award to the part in whose factor a judgment is entered, a reasonable
sum as attorney's fees and costs. The losing party in such action shall pay
such attorneys' fees and costs. Tenant shall also indemnify Landlord against
and hold Landlord harmless from all costs, expenses, demands and liability
Landlord may incur if Landlord becomes or is made a party to any claim or
action (a) instituted by Tenant against any third party, or by any third party
against Tenant, or by or against any person holding any interest under or
using the Property by license of or agreement with Tenant; (b) for foreclosure
of any lien for labor or material furnished to or for Tenant or such other
person; (c) otherwise arising out of or resulting from any act or transaction
of Tenant or such other person; or (d) necessary to protect Landlord's
interest under this Lease in a bankruptcy proceeding, or other proceeding
under Title 11 of the United States Code, as amended. Tenant shall defend
Landlord against any such claim or action at Tenant's expense with counsel
reasonably acceptable to Landlord or, at Landlord's election, Tenant shall
reimburse Landlord for any legal fees or costs Landlord incurs in any such
claim or action.
Section 12.02. Landlord's Consent. Tenant shall pay Landlord's
reasonable attorneys' fees incurred in connection with Tenant's request for
Landlord's consent under Article Nine (Assignment and Subletting), or in
connection with any other act which Tenant proposes to do and which requires
Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. Non-Discrimination. Tenant promises, and it is a
condition to the continuance of this Lease, that there will be no
discrimination against, or segregation of, any person or group of persons on
the basis of race, color, sex, creed, national origin or ancestry in the
leasing, subleasing, transferring, occupancy, tenure or use of the Property
or any portion thereof.
Section 13.02. Landlord's Liability; Certain Duties.
(a) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or Project or the leasehold
estate under a ground lease of the Property or Project at the time in
question. Each Landlord is obligated to perform the obligations of Landlord
under this Lease only during the time such Landlord owns such interest or
title. Any Landlord who transfers its title or interest is relieved of all
liability with respect to the obligations of Landlord under this Lease to be
performed on or after the date of transfer. However, each Landlord shall
deliver to its transferee all funds that Tenant previously paid if such funds
have not yet been applied under the terms of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor, mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such
non-performance reasonably requires more than thirty (30) days to cure,
Landlord shall not be in default if such cure is commenced within such thirty
(30) day period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property and the Project,
and neither the Landlord nor its partners, shareholders, officers or other
principals shall have any personal liability under this Lease.
Section 13.03. Severability. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal
or unenforceable shall not cancel or invalidate the remainder of such
provision or this Lease, which shall remain in full force and effect.
Section 13.04. Interpretation. The captions of the Articles or
Sections of this Lease are to assist the parties in reading this Lease and are
not a part of the terms or provisions of this Lease. Whenever required by the
context of this Lease, the singular shall include the plural and the plural
shall include the singular. The masculine, feminine and neuter genders shall
each include the other. In any provision relating to the conduct, acts or
omissions of Tenant, the term "Tenant" shall include Tenant's agents,
employees, contractors, invitees, successors or others using the Property with
Tenant's expressed or implied permission.
Section 13.05. Incorporation of Prior Agreements; Modification. This
Lease is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.06. Notices. All notices required or permitted under this
Lease shall be in writing and shall be personally delivered or sent by
certified mail, return receipt requested, postage prepaid. Notices to Tenant
shall be delivered to the address specified in Section 1.03 above, except that
upon Tenant's taking possession of the Property, the Property shall be
Tenant's address for notice purposes. Notices to Landlord shall be delivered
to the address specified in Section 1.02 above. All notices shall be
effective upon delivery. Either party may change its notice address upon
written notice to the other party.
Section 13.07. Waivers. All waivers must be in writing and signed by
the waiving party. Landlord's failure to enforce any provision of this Lease
or its acceptance of rent, notwithstanding Landlord's knowledge of any breach
of this Lease by Tenant, shall not be a waiver and shall not prevent Landlord
from enforcing that provision or any other provision of this Lease in the
future. No statement on a payment check from Tenant or in a letter
accompanying a payment check shall be binding on Landlord. Landlord may, with
or without notice to Tenant, negotiate such check without being bound to the
conditions of such statement.
Section 13.08. No Recordation. Tenant shall not record this Lease
without prior written consent from Landlord. However, either Landlord or
Tenant may require that "Short Form" memorandum of this Lease executed by
both parties be recorded. The party requiring such recording shall pay all
transfer taxes and recording fees.
Section 13.09. Binding Effect; Choice of Law. This Lease binds any
party who legally acquires any rights or interest in this Lease from Landlord
or Tenant. However, Landlord shall have no obligation to Tenant's successor
unless the rights or interests of Tenant's successor are acquired in
accordance with the terms of this Lease. The laws of the state in which the
Property is located shall govern this Lease.
Section 13.10. Corporate Authority; Partnership Authority. If a party
is a corporation, each person signing this Lease on behalf of such party
represents and warrants that he has full authority to do so and that this
Lease finds the corporation. If a party is a partnership, each person or
entity signing this Lease for such party represents and warrants that he or
it is a general partner of the partnership, that he or it has full authority
to sign for the partnership and that this Lease binds the partnership and all
general partners of the partnership.
Section 13.11. Force Majeure. If either party cannot perform any of
its obligations due to events beyond its control, other than Tenant's
obligation to pay rent or any other charge, the time provided for performing
such obligations shall be extended by a period of time equal to the duration
of such events. Events beyond control include, but are not limited to, acts
of God, war, civil commotion, labor disputes, strikes, fire, flood or other
casualty, shortages of labor or material, government regulation or restriction
and weather Conditions.
Section 13.12. Execution of Lease. This lease may be executed in
counterparts and, when all counterpart documents are executed, the
counterparts shall constitute a single binding instrument. Landlord's
delivery of this Lease to Tenant shall not be deemed to be an offer to lease
and shall not be binding upon either party until executed and delivered to
both parties.
Section 13.13. Survival. All representations and warranties of
Landlord and Tenant shall survive the termination of this Lease.
Section 13.14. Guarantors. In the event that there is a guarantor of
this Lease, said guarantor shall have the same obligation as Tenant under this
Lease.
Section 13.15. Security Measures. Tenant hereby acknowledges that
Landlord shall have no obligation whatsoever to provide guard service or other
security measures for the benefit of the Property or the Project. Tenant
assumes all responsibility for the protection of Tenant, its agents and
invitees, and the property of Tenant and Tenant's agents and invitees from
acts of third parties. In the event that Tenant is not the only tenant in the
Project, nothing herein contained shall prevent Landlord, at Landlord's sole
option, from providing security protection for the Project or any part
thereof, in which event the cost thereof shall be included within the
definition of Common Area Costs set forth in Section 4.05(d) hereof.
Section 13.16. Easements. Landlord reserves to itself the right, from
time to time, to grant such easements, rights and dedications that Landlord
deems necessary or desirable, and to cause the recordation of Parcel Maps and
restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Property by
Tenant. Tenant shall execute any of the aforementioned documents upon request
of Landlord and failure to do so shall constitute a material default of this
Lease by Tenant without the need for further notice to Tenant.
ARTICLE FOURTEEN: BROKERS
Section 14.01. Broker's Disclosure of Agency. Landlord's Broker hereby
discloses to Landlord and Tenant and Landlord and Tenant hereby consent to
Landlord's Broker acting in this transaction as the agent of Landlord
exclusively.
Section 14.02. No Other Brokers. Each party represents and warrants to
the other party that there are no other agents, brokers, finders or other
parties who are or may be entitled to any commission or fee with respect to
this Lease or the Property.
ARTICLE FIFTEEN: LANDLORD'S WORK
Section 15.01. Landlord shall, at its sole cost, not to exceed Two
Thousand Five Hundred and no/100 Dollars ($2,500.00), perform the following
improvements to the Property, as shown on Exhibit "A", attached hereto:
- Paint the exterior of the Property to match the other Buildings in
the Project.
Final plans, specifications and costs are subject to the mutual approval of
Landlord and Tenant.
Landlord and Tenant have signed this Lease on the dates specified adjacent to
their signature below and have initialed all Riders which are attached to or
incorporated by reference to this Lease.
LANDLORD TENANT
DAMSON/BIRTCHER REALTY IOMEGA Corporation
INCOME FUND-11,
LIMITED PARTNERSHIP
By: Bircher Investments
As: Authorized Agent
By: /s/ Michael S. Buzar By: /s/ Leon J. Staciokas
Michael S. Buzar
Its: Senior Vice President Its: Senior Vice President
Date: 8/28/95 Date: 8/25/95
Exhibit 10.3(a)
AGREEMENT TO EXTEND LEASE
This Agreement is made and entered into as of this 14th day of
August, 1995, by and between Damson/Birtcher Realty Income Fund-II,
Limited Partnership (hereinafter called "Landlord") and IOMEGA
Corporation (hereinafter called "Tenant") with respect to the
following facts:
WITNESSETH:
A. Landlord and Tenant entered into a certain lease dated
November 9, 1992, (the "Original Lease") under which Landlord
demised to Tenant the Property commonly known as Building 3,
consisting of approximately 26,830 square feet; and
B. Said Lease is schedule to expire by lapse of time on November
30, 1995; and
C. Landlord and Tenant desire to amend said Lease so as to extend
the Term thereof and to establish the rents payable thereunder
during such period; and
D. It is intended by this Agreement to amend said Lease;
NOW, THEREFORE, in consideration of the Property, and of the
covenants and agreements herein set forth, it is agreed that the
Lease be hereby amended from and after the date hereof as follows:
1) Section 1.05 of the Lease, entitled Lease Term, is hereby
extended for a period of five (5) years, commencing on the
last day of the initial Term of the Lease and expiring on the
30th day of November, 2000, unless the Lease shall sooner
terminate as provided therein.
2) For the period from the first day of December, 1995, through
and including the 30th day of November, 2000, Tenant shall pay
to Landlord as Base Rent over and above the other and
additional payments to be made by Tenant for the Property, the
sum of Six Hundred Seventy-Eight Thousand Seven Hundred
Eighty-Eight and 28/100 Dollars ($678,788.28) payable monthly
in advance on the first day of each and every calendar month
as follows:
Period Monthly Base Rent
December 1, 1995 through and
including November 30, 1996 $10,619.31
December 1, 1996 through and
including November 30, 1997 $11,067.38
December 1, 1997 through and
including November 30, 1998 $11,268.60
December 1, 1998 through and
including November 30, 1999 $11,671.05
December 1, 1999 through and
including November 30, 2000 $11,939.35
all at the place and in the manner in the Lease provided.
3) Except as herein specifically amended, all terms, provisions,
covenants, and conditions of the Lease shall remain unchanged
and in full force and effect, and the same are hereby ratified
and confirmed.
TENANT LANDLORD
IOMEGA Corporation Damson/Birtcher Realty Income
Fund-II, Limited Partnership
By: /s/ Leon J. Staciokas By: Birtcher Investments
Its: Authorized Agent
Its: Senior Vice President
By: /s/ Michael S. Buzar
Date: 8/25/95 Its: Senior Vice President
Date: 8/28/95
Exhibit 10.4(a)
AGREEMENT TO EXTEND LEASE
This Agreement is made and entered into as of this 14th day of
August, 1995, by and between Damson/Birtcher Realty Income Fund-II,
Limited Partnership (hereinafter called "Landlord") and IOMEGA
Corporation (hereinafter called "Tenant") with respect to the
following facts:
WITNESSETH:
A. Landlord and Tenant entered into a certain lease dated June
21, 1991, (the "Original Lease") under which Landlord demised
to Tenant the Property commonly known as Building 7,
consisting of approximately 70,000 square feet; and
B. Landlord and Tenant agree to modify the Original Lease
pursuant to the Agreement to Extend Lease, dated May 20, 1994
(the Original Lease, as amended by the Agreement to Extend
Lease is hereinafter referred to as the "Lease"); and
C. Said Lease is schedule to expire by lapse of time on November
30, 1997; and
D. Landlord and Tenant desire to amend said Lease so as to extend
the Term thereof and to establish the rents payable thereunder
during such period; and
E. It is intended by this Agreement to amend said Lease;
NOW, THEREFORE, in consideration of the Property, and of the
covenants and agreements herein set forth, it is agreed that the
Lease be hereby amended from and after the date hereof as follows:
1) Section 1.05 of the Lease, entitled Lease Term, is hereby
extended for a period of two (2) years, commencing on the last
day of the initial Term of the Lease and expiring on the 30th
day of November, 1999, unless the Lease shall sooner terminate
as provided therein.
2) For the period from the first day of December, 1997, through
and including the 30th day of November, 1999, Tenant shall pay
to Landlord as Base Rent over and above the other and
additional payments to be made by Tenant for the Property, the
sum of Eight Hundred Twenty-One Thousand One Hundred and
no/100 ($821,100.00) payable monthly in advance on the first
day of each and every calendar month as follows:
Period Monthly Base Rent
December 1, 1997 through and
including November 30, 1998 $33,705.00
December 1, 1998 through and
including November 30, 1999 $34,720.00
all at the place and in the manner in the Lease provided.
3) Section 3.02 of the Lease, entitled Cost of Living Increases,
is hereby deleted, and shall have no further force or effect.
4) Except as herein specifically amended, all terms, provisions,
covenants, and conditions of the Lease shall remain unchanged
and in full force and effect, and the same are hereby ratified
and confirmed.
TENANT LANDLORD
IOMEGA Corporation Damson/Birtcher Realty Income
Fund-II, Limited Partnership
By: /s/ Leon J. Staciokas By: Birtcher Investments
Its: Authorized Agent
Its: Senior Vice President
By: /s/ Michael S. Buzar
Date: 8/25/95 Its: Senior Vice President
Date: 8/28/95
Exhibit 10.6(a)
AGREEMENT TO EXTEND LEASE
This Agreement is made and entered into as of this 14th day of
August, 1995, by and between Damson/Birtcher Realty Income Fund-II,
Limited Partnership (hereinafter called "Landlord") and IOMEGA
Corporation (hereinafter called "Tenant") with respect to the
following facts:
WITNESSETH:
A. Landlord and Tenant entered into a certain lease dated January
6, 1993, (the "Lease") under which Landlord demised to Tenant
the Property commonly known as Building 6, consisting of
approximately 35,935 square feet; and
B. Said Lease is schedule to expire by lapse of time on May 31,
1996; and
C. Landlord and Tenant desire to amend said Lease so as to extend
the Term thereof and to establish the rents payable thereunder
during such period; and
D. It is intended by this Agreement to amend said Lease;
NOW, THEREFORE, in consideration of the Property, and of the
covenants and agreements herein set forth, it is agreed that the
Lease be hereby amended from and after the date hereof as follows:
1) Section 1.05 of the Lease, entitled Lease Term, is hereby
extended for a period of two (2) years, commencing on the last
day of the initial Term of the Lease and expiring on the 31st
day of May, 1998, unless the Lease shall sooner terminate as
provided therein.
2) For the period from the first day of June, 1996, through and
including the 31st day of May, 1998, Tenant shall pay to
Landlord as Base Rent over and above the other and additional
payments to be made by Tenant for the Property, the sum of
Four Hundred Eight Thousand Eight Hundred Eighty-Two and
72/100 Dollars ($408,882.72) payable monthly in advance on the
first day of each and every calendar month as follows:
Period Monthly Base Rent
June 1, 1996 through and
including May 31, 1997 $16,770.86
June 1, 1997 through and
including May 31, 1998 $17,302.70
all at the place and in the manner in the Lease provided.
3) Section 3.02 of the Lease, entitled Cost of Living Increases,
is hereby deleted and shall have no further force or effect.
4) Except as herein specifically amended, all terms, provisions,
covenants, and conditions of the Lease shall remain unchanged
and in full force and effect, and the same are hereby ratified
and confirmed.
TENANT LANDLORD
IOMEGA Corporation Damson/Birtcher Realty Income
Fund-II, Limited Partnership
By: /s/ Leon J. Staciokas By: Birtcher Investments
Its: Authorized Agent
Its: Senior Vice President
By: /s/ Michael S. Buzar
Date: 8/25/95 Its: Senior Vice President
Date: 8/28/95
Exhibit 10.7(b)
SECOND AGREEMENT TO EXTEND LEASE
This Agreement is made and entered into as of this 14th day of August, 1995,
by and between Damson/Birtcher Realty Income Fund-II, Limited Partnership
(hereinafter called "Landlord") and IOMEGA Corporation (hereinafter called
"Tenant") with respect to the following facts:
WITNESSETH:
A. Landlord and Tenant entered into a certain lease dated June 21, 1991,
(the "Original Lease") under which Landlord demised to Tenant the
Property commonly known as Building 7, consisting of approximately
70,000 square feet; and
B. Landlord and Tenant agree to modify the Original Lease pursuant to the
Agreement to Extend Lease, dated May 20, 1994 (the Original Lease, as
amended by the Agreement to Extend Lease is hereinafter referred to as
the "Lease"); and
C. Said Lease is schedule to expire by lapse of time on November 30, 1997;
and
D. Landlord and Tenant desire to amend said Lease so as to extend the Term
thereof and to establish the rents payable thereunder during such
period; and
E. It is intended by this Agreement to amend said Lease;
NOW, THEREFORE, in consideration of the Property, and of the covenants and
agreements herein set forth, it is agreed that the Lease be hereby amended
from and after the date hereof as follows:
1) Section 1.05 of the Lease, entitled Lease Term, is hereby extended for
a period of two (2) years, commencing on the last day of the initial
Term of the Lease and expiring on the 30th day of November, 1999, unless
the Lease shall sooner terminate as provided therein.
2) For the period from the first day of December, 1997, through and
including the 30th day of November, 1999, Tenant shall pay to Landlord
as Base Rent over and above the other and additional payments to be made
by Tenant for the Property, the sum of Eight Hundred Twenty-One Thousand
One Hundred and no/100 ($821,100.00) payable monthly in advance on the
first day of each and every calendar month as follows:
Period Monthly Base Rent
December 1, 1997 through and
including November 30, 1998 $33,705.00
December 1, 1998 through and
including November 30, 1999 $34,720.00
all at the place and in the manner in the Lease provided.
3) Section 3.02 of the Lease, entitled Cost of Living Increases, is hereby
deleted, and shall have no further force or effect.
4) Except as herein specifically amended, all terms, provisions, covenants,
and conditions of the Lease shall remain unchanged and in full force and
effect, and the same are hereby ratified and confirmed.
TENANT LANDLORD
IOMEGA Corporation Damson/Birtcher Realty Income
Fund-II, Limited Partnership
By: /s/ Leon J. Staciokas By: Birtcher Investments
Its: Authorized Agent
Its: Senior Vice President
By: /s/ Michael S. Buzar
Date: 8/25/95 Its: Senior Vice President
Date: 8/28/95
Exhibit 10.8(a)
AGREEMENT TO EXTEND LEASE
This Agreement is made and entered into as of this 14th day of
August, 1995, by and between Damson/Birtcher Realty Income Fund-II,
Limited Partnership (hereinafter called "Landlord") and IOMEGA
Corporation (hereinafter called "Tenant") with respect to the
following facts:
WITNESSETH:
A. Landlord and Tenant entered into a certain lease dated January
6, 1993, (the "Lease") under which Landlord demised to Tenant
the Property commonly known as Building 8, consisting of
approximately 10,000 square feet; and
B. Said Lease is schedule to expire by lapse of time on November
30, 1995; and
C. Landlord and Tenant desire to amend said Lease so as to extend
the Term thereof and to establish the rents payable thereunder
during such period; and
D. It is intended by this Agreement to amend said Lease;
NOW, THEREFORE, in consideration of the Property, and of the
covenants and agreements herein set forth, it is agreed that the
Lease be hereby amended from and after the date hereof as follows:
1) Section 1.05 of the Lease, entitled Lease Term, is hereby
extended for a period of five (5) years, commencing on the
last day of the initial Term of the Lease and expiring on the
30th day of November, 2000, unless the Lease shall sooner
terminate as provided therein.
2) For the period from the first day of December, 1995, through
and including the 30th day of November, 2000, Tenant shall pay
to Landlord as Base Rent over and above the other and
additional payments to be made by Tenant for the Property, the
sum of Two Hundred Two Thousand Eight Hundred and no/100
Dollars ($202,800.00) payable monthly in advance on the first
day of each and every calendar month as follows:
Period Monthly Base Rent
December 1, 1995 through and
including November 30, 1996 $3,100.00
December 1, 1996 through and
including November 30, 1997 $3,300.00
December 1, 1997 through and
including November 30, 1998 $3,400.00
December 1, 1998 through and
including November 30, 1999 $3,500.00
December 1, 1999 through and
including November 30, 2000 $3,600.00
all at the place and in the manner in the Lease provided.
3) Section 1.08 of the Lease, entitled Initial Security Deposit,
is corrected to $0.00..
4) Except as herein specifically amended, all terms, provisions,
covenants, and conditions of the Lease shall remain unchanged
and in full force and effect, and the same are hereby ratified
and confirmed.
TENANT LANDLORD
IOMEGA Corporation Damson/Birtcher Realty Income
Fund-II, Limited Partnership
By: /s/ Leon J. Staciokas By: Birtcher Investments
Its: Authorized Agent
Its: Senior Vice President
By: /s/ Michael S. Buzar
Date: 8/25/95 Its: Senior Vice President
Date: 8/28/95
Exhibit 10.9
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease") is made and entered into as of this
25 day of January, 1996, by and between BOYER IOMEGA, A UTAH LIMITED LIABILITY
COMPANY, BY THE BOYER COMPANY, L.C., ITS MANAGER (the "Landlord"), and IOMEGA
CORPORATION (the "Tenant").
For and in consideration of the rental to be paid by Tenant and of the
covenants and agreements herein set forth to be kept and performed by Tenant,
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, the
Leased Premises (as hereafter defined) and certain other areas, rights and
privileges for the term, at the rental and subject to and upon all of the
terms, covenants and agreements hereinafter set forth.
I. PREMISES
1.1 Description of Premises. Landlord does hereby demise, lease
and let unto Tenant, and Tenant does hereby take and receive from
Landlord the following:
(a) That certain office building (the "Building") located at the
Executive Business Park, Roy, Utah, on the real property (the
"Property") described on Exhibit "A" attached hereto and by this
reference incorporated herein. The space occupied by Tenant consists
of approximately 70,788 gross rentable square feet (the "Leased
Premises") as shown on Exhibit "B" which is attached hereto and by this
reference incorporated herein.
(b) Such non-exclusive rights-of-way, easements and similar
rights with respect to the Building and Property as may be reasonably
necessary for access to and egress from, the Leased Premises.
(c) The exclusive right to use those areas designated and
suitable for vehicular parking, including the exclusive right to the use
of three hundred twenty-eight (328) parking stalls.
1.2 Work of Improvement. The obligation of Landlord to perform
the work and supply the necessary materials and labor to prepare the
Leased Premises for occupancy shall be in accordance with plans and
specifications prepared by architect and approved by Tenant.
1.3 Construction of Building. If the Leased Premises and the
Building in which the Leased Premises are located are not currently in
existence, landlord shall, at its own cost and expense, construct and
complete such Building and cause all of the construction which is to be
performed by it in completing the Building and the Leased Premises ready
for Tenant to install its fixtures and equipment as soon as reasonably
possible, but in no event later than twelve (12) months after the
commencement of construction. In the event that Landlord's construction
of obligations has not been fulfilled upon the expiration of said twelve
(12) month period, Landlord shall pay to Tenant $594.16 per day for each
day premises are not ready past the 12 month period.
1.4 Changes to Building. Following the Rental Commencement Date
of this Lease Agreement, Landlord hereby reserves the right at any time
and from time to time to make changes, alterations or additions the
Building or the Property required by reason of health, safety or
governmental regulation. Tenant shall not, in such event, claim or be
allowed any damages for injury or inconvenience occasioned thereby and
shall not be entitle to terminate this Lease. Provided, however, that
in the event that such alterations, changes or additions create undue
interference with the Tenant's operations, Landlord agrees to give
Tenant adequate written notice of such work, and agrees to provide
Tenant with alternate, temporary space suitable for the maintenance of
its operations.
II. TERM
2.1 Length of Term. The term of this Lease (the "Primary Term"),
shall be for a period of ten (10) years commencing on the Rental
Commencement Date (as defined below). Tenant shall have two (2)
successive options to renew this Lease for a five (5) year renewal term
(the "Renewal Term") for each option on the same terms provided in this
Lease; provided, however, that the rental rate for each Renewal Term
shall be the fair market rental value of the Leased Premises as of the
beginning of the Renewal Term. If the parties cannot agree upon such
fair market value, then each party shall designate a real estate
appraiser with experience in commercial rental properties. If the two
appraisers cannot agree upon a fair market value, then they shall
designate a third appraiser, and each appraiser shall provide a good
faith determination of the fair market rental value. The highest and
lowest appraised value shall be discarded and the fair market value
shall be the remaining appraisal. Each party shall pay its own
appraiser, and the fees of the third appraiser shall be divided equally
between the parties. Each option to renew shall be exercised by Tenant
giving written notice to Landlord of its exercise of the option to renew
at least six (6) months prior to the expiration of the Primary Term or
the next preceding Renewal Term.
2.2 Rental Commencement Date; Obligation to Pay Rent. The term
of this Lease and Tenant's obligation to pay rent hereunder shall
commence on the date five (5) days following Tenant's receipt from
Landlord of the Certificate of Occupancy (the "Rental Commencement
Date").
Tenant agrees to enter upon the Leased Premises as early as it is
feasible (with the permission of the supervising contractor), and to use
its best efforts to complete fixturing thereof. Exhibit "C"
acknowledges the Rental Commencement Date of the Lease.
2.3 Acknowledgment of Rental Commencement Date. Landlord and
Tenant shall execute a written acknowledgment of the Rental Commencement
Date in the form attached hereto as Exhibit "C".
III. RENTAL PAYMENTS
3.1 Annual Rent. Tenant agrees to pay to Landlord as annual
rental payments (the "Annual Rental") at such place as Landlord may
designate, without prior demand therefore, Seven Hundred Sixty-five
Thousand Two Hundred Eighteen and no/100 Dollars ($765,218.00).
The aforementioned Annual Rental shall be due and payable in twelve (12)
equal monthly installments to be paid in advance on or before the first
day of each calendar month during the term of the Lease. Simultaneously
with the execution hereof, Tenant has paid to Landlord the first month's
rent, receipt whereof is hereby acknowledged, subject to collection,
however, if made by check. In the event the Rental Commencement Date
occurs on a day other than the first day of a calendar month, then rent
shall be paid on the Rental Commencement Date for the initial fractional
calendar month prorated on a per-diem basis (based upon a thirty (30)
day month).
3.2 Additional Monetary Obligations. Tenant shall also pay as
rental (in addition to the Annual Rent) all other sums of money as shall
become due and payable by Tenant to Landlord under this Lease. Landlord
shall have the same remedies in the case of a default in the payment of
said other sums of money as are available to landlord in the case of a
default in the payment of one or more installments of Annual Rent.
3.3 Rental Escalations. Annual Rental shall be increased at the
commencement of the sixth year of this Lease by multiplying the Annual
Rental then in effect by fifty percent (50%) of the percentage change
in the Consumer Price Index (National CPI-U Urban Consumer-All Items-Salt
Lake City Area) cost-of-living index from the beginning month to
the ending month of the then preceding five year period. For example,
if the CPI at the lease commencement of September, 1994 was 210 and the
CPI for the ending month of that five year period, i.e., August 1999 was
230, then the percentage change in the CPI would be 230 minus 210
divided by 210 times 50%, which equals a 4.76% increase in rent to
commence at the beginning of the sixth year and continuing through the
last month of the tenth year of the lease term.
IV. ADDITIONAL RENT
It is the intent of both parties that the Annual Rental herein specified
shall be absolutely net to the Landlord throughout the term of this Lease and
that all necessary and reasonable costs, expenses and obligations relating to
the Leased Premises that arise or become due during the term of this Lease
shall be paid by Tenant. Notwithstanding the foregoing, Tenant shall not be
responsible to Landlord for (a) any "overhead" of Landlord or "similar
indirect expenses" relating to the operations of the Leased Premises or the
Building, or (b) any costs, expenses or obligations specifically assumed by
Landlord under this Lease, including, without limitation, costs incurred in
connection with the construction of the Building and the maintenance of its
structural components.
V. USE
5.1 Use of Leased Premises. The Leased Premises shall be used
and occupied by Tenant for general office purposes or for any lawful
purposes.
5.2 Prohibition of Certain Activities or Uses. The Tenant and
Landlord shall not do or permit anything to be done in or about, or
bring or keep anything in the Leased Premises which is prohibited by
this Lease, or will, in any way or to any extent:
(a) Adversely affect any fire, liability or other insurance
policy carried with respect to the Building, the Improvements or any of
the contents of the Building (except with Landlord's express written
permission, which will not be unreasonably withheld, but which may be
contingent upon Tenant's agreement to bear any additional costs,
expenses or liability for risk that may be involved).
(b) Conflict with or violate any law, statute, ordinance, rule,
regulation or requirement of any governmental unit, agency or authority
(whether existing or enacted as promulgated in the future, known or
unknown, foreseen or unforeseen).
(c) Adversely overload the floors or otherwise damage the
structural soundness of the Leased Premises or Building, or any part
thereof (except with Landlord's express written permission, which will
not be unreasonably withheld, but which may be contingent upon Tenant's
agreement to bear any additional costs, expenses or liability for risk
that may be involved).
5.3 Affirmative Obligations with Respect to Use. Tenant and
Landlord will comply with all governmental laws, ordinances,
regulations, and requirements, now in force or which hereafter may be
in force, of any lawful governmental body or authorities having
jurisdiction over the Leased Premises, will keep the Premises and every
part thereof in a clean, neat, and orderly condition, free of
objectionable noise, odors, or nuisances, will in all respects and at
all times fully comply with all health and policy regulations, and will
not suffer, permit, or commit any waste.
5.4 Suitability. The Leased Premises, Building and Improvements
(and each and every part thereof) shall be deemed to be in satisfactory
condition unless, within sixty (60) days after the Rental Commencement
Date, Tenant shall give Landlord written notice specifying, in
reasonable detail, the respects in which the Leased Premises, Building
or Improvements are not in satisfactory condition.
5.5 Taxes. Tenant shall pay all taxes, assessments, charges, and
fees which during the term hereof may be imposed, assessed or levied by
any governmental or public authority against or upon Tenant's use of the
Leased Premises or any personal property or fixture kept or installed
therein by Tenant and on the value of leasehold improvements to the
extent that the same exceed Building allowances.
VI. UTILITIES AND SERVICE
6.1 Obligation of Landlord. During the term of this Lease the
Landlord agrees to cause to be furnished to the Leased Premises the
following utilities and services, the cost and expense of which shall
be paid by Tenant:
(a) Electricity, water, gas and sewer service.
(b) Telephone connection, but not including telephone stations
and equipment (it being expressly understood and agreed that Tenant
shall be responsible for the ordering and installation of telephone
lines and equipment which pertain to the Leased Premises).
(c) Heat and air-conditioning to such extent and to such levels
as is reasonably required for the comfortable use of occupancy of the
Leased Premises subject however to any limitations imposed by any
governmental agency.
6.2 Tenant's Obligations. Tenant shall arrange for and shall pay
the entire cost and expense of all telephone stations, equipment and use
charges, electric light bulbs and all other materials and services not
expressly required to be provided and paid for pursuant to the
provisions of Section 6.1 above, including the following:
(a) Janitorial service.
(b) Security (including the lighting of common halls, stairways,
entries and restrooms) to such extent as is usual and customary in
similar buildings in Weber County, Utah.
(c) Snow removal service.
(d) Landscaping and groundskeeping service.
(e) Property Taxes assessed against the Leased Premises.
It is expressly agreed and understood that Tenant will make no
alterations, additions or betterment to, or installations upon the
Leased Premises without the prior written approval of Landlord, which
approval shall not be unreasonably withheld.
6.3 Limitation on Landlord's Liability. Following the Rental
Commencement Date of this Lease Agreement, Landlord shall not be liable
for and Tenant shall not be entitled to terminate this Lease or to
effectuate any abatement or reduction of rent by reason of Landlord's
failure to provide or furnish any of the foregoing utilities or services
if such failure was reasonably beyond the control of Landlord. In no
event shall Landlord be liable for loss or injury to persons or
property, however, arising or occurring in connection with or
attributable to any failure to furnish such utilities or services unless
such failure to furnish is caused by the gross negligence or willful
misconduct of Landlord.
VII. MAINTENANCE AN REPAIRS; ALTERATIONS; ACCESS
7.1 Maintenance and Repairs by Landlord. Landlord, at Tenant's
sole cost and expense, shall maintain in good, first-class order,
condition and repair the structural components of the Leased Premises,
including without limitation roof, exterior walls and foundations for
the term of the Lease following the warranty period under any
construction warranties. Landlord, at Landlord's sole cost and expense,
shall perform maintenance and repair specified in this paragraph during
the warranty period under any construction warranties.
7.2 Maintenance and Repairs by Tenant. Tenant, at Tenant's sole
cost and expense and without prior demand being made, shall maintain the
Leased Premises in good order, condition and repair, and will be
responsible for the painting, carpeting or other interior design work
of the Leased Premises beyond the initial construction phase as
specified in Section 2.3 of the Lease and shall maintain all building
equipment and fixtures in accordance with generally accepted maintenance
standards, which standards shall be approved by Landlord. If repainting
or recarpeting is required and authorized by Tenant, the cost for such
are the sole obligations of Tenant and shall be paid for by Tenant
immediately following the performance of said work and a presentation
of an invoice for payment.
7.3 Alterations. Tenant shall not make or cause to be made any
structural alterations, additions or improvement to the building,
without first obtaining Landlord's written approval, which approval
shall not be unreasonably withheld. Notwithstanding anything contained
in this Paragraph to the contrary, Tenant shall be allowed to make
non-structural improvements in the Leased Premises up to a cost of Five
Thousand and no/100 Dollars ($5,000.00) without Landlord's approval.
Tenant shall present to the Landlord plans and specifications for such
work at the time approval is sought. In the event Landlord consents to
the making of any alterations, additions, or improvements to the Leased
Premises by Tenant, the same shall be made by Tenant at Tenant's sole
cost and expense. Tenant may make non-structural improvements,
alterations, or additions to the Leased Premises without Landlord
approval at Tenant's sole cost and expense. All such work with respect
t any alterations, additions, and changes shall be done in a good and
workmanlike manner and diligently prosecuted to completion such that,
except as absolutely necessary during the course of such work, the
Leased Premises shall at all times be a complete operating unit. Any
such alterations, additions, or changes shall be performed and done
strictly in accordance with all laws and ordinances relating thereto.
Any alterations, additions, or improvements to or of the Leased
Premises, including, but not limited to, wall covering, paneling, and
built-in cabinet work, but excepting movable furniture and equipment,
shall at once become a part of the realty and shall be surrendered with
the Leased Premises unless Landlord otherwise elects at the end of the
term hereof.
7.4 Landlord's Access to Leased Premises. Landlord shall have
the right to place, maintain, and repair all utility equipment of any
kind in, upon, and under the Leased Premises as may be necessary for the
servicing of the Leased Premises and other portion of the Building.
Landlord shall upon providing adequate notice to Tenant, also have the
right to enter the Leased Premises at all times to inspect or to exhibit
the same to prospective purchasers, mortgagees, tenants, and lessees and
to make such repairs, additions, alterations, or improvements as
Landlord may deem desirable. In the event that Landlord must make
unavoidable repairs, Landlord shall be allowed to take all material upon
said Leased Premises that may be required therefor without the same
constituting an actual or constructive eviction of Tenant in whole or
in part and the rents reserved herein shall in no wise abate while said
work is in progress by reason of loss or interruption of Tenant's
business or otherwise, and Tenant shall have no claim for damages.
Provided, however, that in the event that such repairs create undue
interference with Tenant's operations, Landlord agrees to give Tenant
adequate written notice of such work, and agrees to provide the Tenant
with alternate, temporary space suitable for the maintenance of its
operations. During the three (3) months prior to expiration of this
Lease or of any renewal term, Landlord may place upon the Leased
Premises "For Lease" or "For Sale" signs which Tenant shall permit to
remain thereon.
VIII. ASSIGNMENT
8.1 Assignment Prohibited. Tenant shall not transfer, assign,
mortgage, hypothecate this Lease, in whole or in part, or permit the use
of the Leased Premises by any person or persons other than Tenant, or
sublet the Leased Premises, or any part thereof, without the prior
written consent of Landlord in each instance, which consent shall not
be unreasonably withheld, provided sufficient information is provided
to Landlord to accurately represent the financial condition of those to
whom this Lease will be transferred, assigned, mortgaged, or
hypothecated. Such prohibition against assigning or subletting shall
include any assignment or subletting by operation of law. Any transfer
of this Lease from the Tenant by merger, consolidation, transfer of
assets, or liquidation shall constitute an assignment for purposes of
this Lease. In the event that Tenant hereunder is a corporation, an
unincorporated association, or a partnership, the transfer, assignment,
or hypothecation of any stock or interest in such corporation,
association, or partnership (except for transfers to Tenant's affiliates
or to family members of existing shareholders of Tenant) in the
aggregate in excess of forty-nine percent (49%) shall be deemed an
assignment within the meaning of this Section.
8.2 Consent Required. Any assignment or subletting without
Landlord's consent shall be void, and shall constitute a default
hereunder which, at the option of Landlord, shall result in the
termination of this Lease or exercise of Landlord's other remedies
hereunder, if such assignment of subletting is not revoked by Tenant
within thirty (30) days after written demand by Landlord. Consent to
any assignment or subletting shall not operate as a waiver of the
necessity for consent to any subsequent assignment or subletting and the
terms of such consent shall be binding upon any person holding by,
under, or through Tenant.
8.3 Landlord's Right in Event of Assignment. If this Lease is
assigned or if the Leased Premises or any portion thereof are sublet or
occupied by any persons other than the Tenant, Landlord may collect rent
and other charges from such assignee or other party, and apply the
amount collected to the rent and other charges reserved hereunder, but
such collection shall not constitute consent or waiver of the necessity
of consent to such assignment, subleasing, or other transfer, nor shall
such collection constitute the recognition of such assignee, sublessee,
or other party as the Tenant hereunder or a release of Tenant from the
further performance of all of the covenants and obligations, including
obligation to pay rent, of Tenant herein contained. In the event that
Landlord shall consent to a sublease or assignment hereunder, Tenant
shall pay to Landlord reasonable fees, not to exceed $100.00, incurred
in connection with processing of documents necessary to the giving of
such consent.
IX. INDEMNITY
9.1 Mutual Indemnification. Each of Tenant and Landlord shall
indemnify the other and save each other harmless from and against any
and all suits, bodily or personal injury, or property damage arising
from or out of any occurrence in, upon, at or from the Leased Premises,
or occasioned wholly or in part by any act or omission of the
indemnifying party, its agents, contractors, employees, servants,
invitees, licensees or concessionaires. All insurance policies carried
by Tenant and/or Landlord shall include a waiver of subrogation
endorsement which specifies that the insurance carrier(s) will waive any
right of subrogation against Tenant and/or Landlord arising out of any
insurance claim.
9.2 Notice. Tenant shall give prompt notice to Landlord in case
of fire or accidents in the Leased Premises or of defects therein or in
any fixtures or equipment.
X. INSURANCE
10.1 Fire and "All Risk" Insurance. At all times during the term
of this Lease, Tenant shall keep in force at its sole cost and expense,
fire and "All Risk" (including vandalism and malicious mischief)
insurance equal to the replacement cost of Tenant's fixtures,
furnishings, equipment, and contents upon the Leased Premises, and all
improvements made by Tenant to the Leased Premises, and the Building
(excluding fixtures, furnishings, equipment, and contents belonging to
tenants other than Landlord and all improvements or additions made by
tenants other than Landlord). Landlord shall be named as an additional
insured on all such policies.
10.2 Property Coverage. Landlord shall obtain and maintain in
force "All Risk" insurance, including vandalism and malicious mischief,
required to cover any loss or destruction that the Leased Premises
herein may experience during the Lease period and any extension thereof,
and including, at Landlord's discretion, flood and earthquake coverage
if commercially available at reasonable rates. Such insurance shall
also include coverage against loss of rents. Landlord shall submit to
Tenant copies of all the proposed policies for Tenant to review.
Landlord and Tenant shall jointly arrive at the coverage to be purchased
on the Leased Premises and Landlord's personal property, which coverage
shall be reasonably satisfactory to Landlord's lender. Tenant shall pay
Landlord, as a separate consideration, all reasonable costs to purchase
the insurance called for in this paragraph on the Leased Premises.
10.3 Liability Insurance. Tenant shall, during the entire term
hereof, keep in full force and effect a policy of public liability and
property damage insurance with respect to the Leased Premises and
Building, with a combined single limit for personal or bodily injury and
property damage of not less than $1,000,000.00. The policy shall name
Landlord, any person, firms, or corporations designated by Landlord, and
Tenant as insureds, and shall contain a clause that the insurer will not
cancel or materially change the insurance pertaining to the Leased
Premises without first giving Landlord ten (10) days written notice.
Tenant shall at all times during the term hereof provide Landlord with
evidence of current insurance coverage. All public liability, property
damage, and other liability policies shall be written as primary
policies, not contributing with coverage which Landlord may carry. All
such policies shall contain a provision that Landlord, although named
as an insured, shall nevertheless be entitled to recover under said
policies for any loss occasioned to it, its servants, agents, and
employees by reason of the negligence of Tenant. All such insurance
shall specifically insure the performance by Tenant of the indemnity
agreement as to liability for injury to or death of persons or injury
or damage to property contained in Part IX.
10.4 Waiver of Subrogation. Tenant and Landlord each waives its
right of subrogation against each other for any reason whatsoever.
10.5 Lender. Any mortgage lender interest in any part of the
Building or Improvements may, at Landlord's option, be afforded coverage
under any policy required to be secured by Tenant hereunder, by use of
a mortgagee's endorsement to the policy concerned.
XI. DESTRUCTION
If the Leased Premises shall be partially damaged by any casualty
insured against under any insurance policy maintained by Landlord, Landlord
shall, upon receipt of the insurance proceeds, repair the Leased Premises, and
until repair is complete the Basic Annual Rent and Additional Rent shall be
abated proportionately as to that portion of the Leased Premises rendered
untenantable. Notwithstanding the foregoing, if (a) the Leased Premises by
reason of such occurrence are rendered wholly untenantable, or (b) the Leased
Premises should in whole or in part during the last six (6) months of the term
or of any renewal hereof, or (c) the Leased Premises or the Building (whether
the Leased Premises are damaged or not) should be damaged to the extent of
fifty percent (50%) or more of the then-monetary value thereof, then and in
any such events, Landlord may either elect to repair the damage or may cancel
this Lease by notice of cancellation within ninety (90) days after such event
and thereupon this Lease shall expire, and Tenant shall vacate and surrender
the Leased Premises to Landlord. Tenant's liability for rent upon the
termination of this Lease shall cease as of the day following Landlord's
giving notice of cancellation. In the event Landlord elects to repair any
damage, any abatement of rent shall end five (5) days after notice by Landlord
to Tenant that the Leased Premises have been repaired. If the damage is
caused by the negligence of Tenant or its employees, agents, invitees, or
concessionaires, there shall be no abatement of rent. Unless this Lease is
terminated by Landlord, Tenant shall repair and refixture the interior of the
Leased Premises in a manner and in at least a condition equal to that existing
prior to the destruction or casualty and the proceeds of all insurance carried
by Tenant on its property and fixtures shall be held in trust by Tenant for
the purpose of said repair and replacement.
XII. CONDEMNATION
12.1 Total Condemnation. If the whole of the Leased Premises
shall be acquired or taken by condemnation proceeding, then this Lease
shall cease and terminate as of the date of title vesting in such
proceeding.
12.2 Partial Condemnation. If any part of the Leased Premises
shall be taken as aforesaid, and such partial taking shall render that
portion not so taken unsuitable for Tenant's operations, then this Lease
shall cease and terminate as aforesaid. If such partial taking is not
extensive enough to render the Leased Premises unsuitable for Tenant's
operations, then this Lease shall continue in effect except that the
Annual Rental and Additional Rent shall be reduced in the same
proportion that the portion of the Leased Premises (including basement,
if any) taken bears to the total area initially demised, and Landlord
shall, upon receipt of the award in condemnation, make all necessary
repairs or alterations to the Building in which the Leased Premises are
located, provided that Landlord shall not be required to expend for such
work an amount in excess of the amount received by Landlord as damages
for the part of the Leased Premises so taken. "Amount received by
Landlord" shall mean that part of the award in condemnation which is
free and clear to Landlord of any collection by mortgage lenders for the
value of the diminished fee.
12.3 Landlord's Option to Terminate. If more than twenty percent
(20%) of the Building shall be taken as aforesaid, Landlord or Tenant
may, by written notice to the other party, terminate this Lease. If
this Lease is terminated as provided in this Section, rent shall be paid
up to the day that possession is so taken by public authority and
Landlord shall make an equitable refund of any rent paid by Tenant in
advance.
12.4 Award. Tenant shall be entitled to any condemnation award
for any taking, whether whole or partial, to the extent such award is
specifically given for diminution in value of Tenant's Leasehold.
Tenant shall also be entitled to such other amounts as may be
recoverable by Tenant in its own right for damages to Tenant's business
and fixtures.
12.5 Definition. As used in this Part XII the term "condemnation
proceeding" means any action or proceeding in which any interest in the
Leased Premises is taken for any public or quasi-public purpose by any
lawful authority through exercise of eminent domain or right of
condemnation or by purchase or otherwise in lieu thereof.
XIII. LANDLORD'S RIGHT TO CURE
13.1 General Right. In the event of breach, default, or
noncompliance hereunder by Landlord, following the Rental Commencemnet
Date of this Lease Agreement, Tenant shall, before exercising any right
or remedy available to it, give Landlord written notice of the claimed
breach, default, or noncompliance. If prior to its given such notice
Tenant has been notified in writing (by way of Notice of Assignment of
Rents and Leases, or otherwise) of the address of a lender which has
furnished any of the financing referred to in Part XIV hereof,
concurrently with giving the aforesaid notice to Landlord, Tenant shall,
by registered mail, transmit a copy thereof to such lender. For the
thirty (30) days following the giving of the notice(s) required by the
foregoing portion of this section (or such longer period of time as may
be reasonably required to cure a matter which, due to its nature, cannot
reasonably be rectified within thirty (30) days), if within such thirty
(30) day period Landlord has commenced and is diligently pursuing the
actions or remedies necessary to cure the reach, default or
noncompliance involved, Landlord shall have the right to cure the
breach, default, or noncompliance involved. If Landlord has failed to
cure a default within said period, any such lender shall have an
additional thirty (30) days within which to cure the same or, if such
default cannot be cured within that period, such additional time as may
be necessary if within such thirty (30) day period said lender has
commenced and is diligently pursuing the actions or remedies necessary
to cure the breach default, or noncompliance involved (including, but
not limited to, commencement and prosecution of proceedings to foreclose
or otherwise exercise its rights under its mortgage or other security
instrument, if necessary to effect such cure), in which event this Lease
shall not be terminated by Tenant so long as such actions or remedies
are being diligently pursued by said lender.
13.2 Mechanic's Lien. Should any mechanic's or other lien be
filed against the Leased Premises or any part thereof by reason of
Tenant's acts or omissions or because of a claim against Tenant, Tenant
shall cause the same to be canceled and discharged of record by bond or
otherwise within ten (10) days after notice by Landlord; provided,
however, that Tenant may contest the amount or validity of any such lien
in good faith so long as Tenant ensures that the lien is satisfied or
released prior to any final foreclosure sale thereof.
XIV. FINANCING; SUBORDINATION
14.1 Subordination. Tenant acknowledges that it might be
necessary for Landlord or its successors or assigns to secure mortgage
loan financing or refinancing affecting the Leased Premises. Tenant
also acknowledges that the lender interested in any given loan may
desire that Tenant's interest under this Lease be either superior or
subordinate to the mortgage then held or to be taken by said Lender.
Accordingly, Tenant agrees that at the request of Landlord at any time
and from time to time Tenant shall execute and deliver to Landlord an
instrument, in form reasonably acceptable to Landlord and Tenant,
whereby Tenant subordinates its interest under this Lease and in the
Leased Premises to such of the following encumbrances as may be
specified by Landlord. Any mortgage or trust deed and customary related
instruments are herein collectively referred to merely as a "Mortgage"
and securing a loan obtained by Landlord or its successors or assigns
for the purpose of enabling acquisition of the Building and/or
construction of additional improvements to provide permanent financing
for the Building, or for the purpose of refinancing any such
construction, acquisition, standing or permanent loan. Provided,
however, that any such instrument or subordination executed by Tenant
shall provide that so long as Tenant continues to perform all of its
obligations under this Lease its tenancy shall remain in full force and
effect notwithstanding Landlord's default in connection with the
Mortgage concerned or any resulting foreclosure or sale or transfer in
lieu of such proceedings. Tenant shall not subordinate its interests
hereunder or in the Leased Premises to any lien or encumbrance other
than the Mortgages described in and specified pursuant to this Section
14.1 without the prior written consent of Landlord and of the lender
interested under each mortgage then affecting the Leased Premises. Any
such unauthorized subordination by Tenant shall be void and of no force
or effect whatsoever.
14.2 Amendment. Tenant recognizes that Landlord's ability from
time t time to obtain construction, acquisition, standing and/or
permanent mortgage loan financing for the Building and/or the Leased
Premises may in part be dependent upon the acceptability of the terms
of this Lease to the lender concerned. Accordingly, Tenant agrees that
from time to time it shall, if so requested by Landlord and if doing so
will not adversely affect Tenant's interests hereunder join with
Landlord in amending this Lease so as to meet the needs or requirements
of any lender which is considering making or which has made a loan
secured by a mortgage affecting the Leased Premises.
14.3 Attornment. Any sale, assignment, or transfer of Landlord's
interest under this Lease or in the Leased Premises including any such
disposition resulting from Landlord's default under a mortgage, shall
be subject to this Lease and also Tenant shall attorn to Landlord's
successor and assigns and shall recognize such successor or assigns as
Landlord under this Lease, regardless of any rule of law to the contrary
or absence of privity of contract.
XV. EVENTS OF DEFAULT; REMEDIES OF LANDLORD AND TENANT
15.1 Default by Tenant. Upon the occurrence of any of the
following events, Landlord shall have the remedies set forth in Section
15.2:
(a) Tenant fails to pay any installment of Annual Rental or
Additional Rent or any other sum due hereunder within ten (10) days
after Tenant receives written notice of rent due.
(b) Tenant fails to perform any other term, condition, or
covenant to be performed by it pursuant to this Lease within thirty (30)
days after written notice of such default shall have been given to
Tenant by Landlord or, if cure would reasonably require more than thirty
(30) days to complete, if Tenant fails to commence performance within
the thirty (30) day period or fails diligently to pursue such cure to
completion.
(c) Tenant or any guarantor of this Lease shall become bankrupt
or insolvent or file any debtor proceedings or have taken against such
party in any court pursuant to state or federal statute, a petition in
bankruptcy or insolvency, reorganization, or appointment of a receiver
or trustee; or Tenant petitions for or enters into an arrangement; or
suffers this Lease to be taken under a writ of execution.
15.2 Remedies. In the event of any material default by Teannt
hereunder, Landlord may at any time, without waiving or limiting any
other right or remedy available to it, terminate Tenant's rights under
this Lease by written notice, re-enter and take possession of the
Premises by any lawful means (with or without terminating this Lease),
or pursue any other remedy allowed by law. Tenant agrees to pay to
Landlord the reasonable cost of recovering possession of the Premises,
all reasonable costs of reletting, and all other reasonable costs and
damages arising out of Tenant's default (excluding consequential
damages), including reasonable attorneys' fees. Notwithstanding any
re-entry, the liability of Teannt for the rent reserved herein shall not
be extinguished for the balance of the Term, and Tenant agrees to
compensate Landlord upon demand for any deficiency arising from
reletting the Premises at a lesser rent that applies under this Lease.
15.3 Past due Sums; Penalty. If Tenant fails to pay, when the
same is due and payable, any Annual Rental, Additional Rent, or other
sum required to be paid by it hereunder, such unpaid amounts shall bear
interest from the due date thereof to the date of payment at a
fluctuation rate equal to two percent (2%) per annum above the prime
rate of interest charged by First Security Bank of Utah, Salt Lake City,
Utah. In addition thereto, if any such annual rental, additional rent,
or other sum is not paid within ten (10) days of its due date, Tenant
shall pay a sum of five percent (5%) of such unpaid amounts as a service
fee. Notwithstanding the foregoing, however, Landlord's right
concerning such interest and service fee shall be limited by the maximum
amount which may properly be charged by Landlord for such purposes under
applicable law.
XVI. PROVISIONS APPLICABLE AT TERMINATION OF LEASE
16.1 Surrender of Premises. At the expiration of this Lease,
except for changes made by Tenant that were approved by Landlord, Tenant
shall surrender the Leased premises in the same condition, less
reasonable wear and tear, as they were in upon delivery of possession
thereto under this Lease and shall deliver all keys to Landlord. Before
surrendering the Leased Premises, Tenant shall remove all of its
personal property and trade fixtures and such property or the removal
thereof shall in no way damage the Leased Premises, and Tenant shall be
responsible for all costs, expenses and damages incurred in the removal
thereof. If Tenant fails to remove its personal property and fixtures
upon the expiration of this Lease, the same shall be deemed abandoned
and shall become the property of Landlord.
16.2 Holding Over. Any holding over after the expiration of the
term hereof or of any renewal term shall be construed to be a tenancy
from month to month at such rates as landlord may designate and on the
terms herein specified so far as possible.
XVII. ATTORNEYS' FEES
In the event that at any time during the term of this Lease either
Landlord or the Tenant institutes any action or proceeding against the other
relating to the provisions of this Lease or any default hereunder, then the
unsuccessful party in such action or proceeding agrees to reimburse the
successful party for reasonable attorneys' fees, incurred therein by the
successful party.
XVIII. ESTOPPEL CERTIFICATE
18.1 Landlord's Right to Estoppel Certificate. Tenant shall,
within fifteen (15) days after Landlord's request, execute and deliver
to Landlord a written declaration, in form and substance similar to
Exhibit "C", in recordable form (a) ratifying this Lease; (b) expressing
the Commencement Date and termination date hereof; (c) certifying
whether or not this Lease is in full force and effect and whether or not
it has been assigned, modified, supplemented or amended (except by such
writing as shall be stated); (d) whether or not all conditions under
this Lease to be performed by Landlord have been satisfied; (e) that
there are no defenses or offsets against the enforcement of this Lease
by the Landlord, or stating those claimed by Tenant; (f) the amount of
advance rental, if any, (or none if such is the case) paid by Tenant;
(g) the date to which rental has been paid; (h) the amount of security
deposited with Landlord; and (i) such other information as Landlord may
reasonably request. Landlord's mortgage lenders and/or purchasers shall
be entitled to rely upon such declaration.
18.2 Effect of Failure to Provide Estoppel Certificate. Tenant's
failure to furnish any Estoppel Certificate within fifteen (15) days
after request therefor shall be deemed a default hereunder and moreover,
it shall be conclusively presumed that (a) this Lease is in full force
and effect without modification in accordance with the terms set forth
in the request; (b) that there are no unusual breaches or defaults on
the part of the Landlord; and (c) no more than one (1) month's rent has
been paid in advance.
XIX. SIGNS, AWNINGS, AND CANOPIES
Signs, awnings, and canopies are allowed as long as they are within
local law and building codes.
XX. MISCELLANEOUS PROVISIONS
20.1 No Partnership. Landlord does not by this Lease, in any way
or for any purpose become a partner or joint venturer of Tenant in the
conduct of its business or otherwise.
20.2 Force Majeure. Landlord and Tenant shall be excused for the
period of any delay in the performance of any obligations hereunder when
prevented from so doing by cause or causes beyond Landlord's or Tenant's
control, including labor disputes, civil commotion, war, governmental
regualtions or controls, fire or other casualty, inability to obtain any
material or service not related to Landlord's negligence, or acts of
God.
20.3 No Waiver. Failure of either party to insist upon the strict
performance of any provision or to exercise any option hereunder shall
not be deemed a waiver of such breach. No provision of this Lease shall
be deemed to have been waived unless such waiver be in writing signed
by the waiving party.
20.4 Notice. Any notice, demand, request, or other instrument
which may be or is required to be given under this Lease shall be
delivered in person or sent by United States certified or registered
mail, postage prepaid and shall be addressed (a) if to Landlord, at the
place specified for payment of rent, and (b) if to Tenant, either at the
Demised Premises or at any other current address for Tenant which is
known to Landlord. Either party may designate such other address as
shall be given by written notice.
20.5 Captions; Attachments; Defined Terms
(a) The captions to the Section of this Lease are for convenience
of reference only and shall not be deemed relevant tin resolving
questions of construction or interpretation under this Lease.
(b) Exhibits referred to in this Lease, and any addendums and
schedules attached to this Lease and initialed by the parties shall be
deemed to be incorporated in this Lease as though part thereof.
20.6 Recording. Tenant may record this Lease or a memorandum
thereof with the written consent of Landlord, which consent shall not
be unreasonably withheld. Landlord, at its option and at any time, may
file this Lease for record with the Recorder of the County in which the
Building is located.
20.7 Partial Invalidity. If any provisions of this Lease or the
application thereof to any person or circumstance shall to any extent
be invalid, the remainder of this Lease or the application of such
provision to persons or circumstances other than those as to which it
is held invalid shall not be affected thereby and each provision of this
Lease shall be valid and enforced to the fullest extent permitted by
law.
20.8 Broker's Commissions. Each party represents and warrants
that there are no claims for brokerage commissions or finder's fees
other than those of Ron McCall in connection with this Lease and agrees
to indemnify the other party against and hold it harmless from all
liabilities arising from such claim, including any attorneys' fees
connected therewith.
20.9 Tenant Defined: Use of Pronouns. The word "Tenant" shall be
deemed and taken to mean each and every person or party executing this
document as a Tenant herein. If there is more than one person or
organization set forth on the signature line as the Tenant, their
liability hereunder shall be joint and several. If there is more than
one Tenant, any notice required or permitted by the terms of this Lease
may be given by or to any one thereof, and shall have the same force and
effect as if given by or to all thereof. The use of the neuter singular
pronoun to refer to Landlord or Tenant shall be deemed a proper
reference even though Landlord or Tenant may be an individual, a
partnership, a corporation, or a group of two or more individuals or
corporation. The necessary grammatical changed required to make the
provision of this Lease apply in the plural sense where there is more
than one Landlord or Tenant and to corporations, associations,
partnerships, or individuals, males or females, shall in all instances
be assumed as though in each case fully expressed.
20.10 Provision Binding, Etc. Except as otherwise provided,
all provisions herein shall be binding upon and shall inure to the
benefit of the parties, their legal representative, heirs, successors,
and assigns. Each provision to be performed by Tenant shall be
construed to be both a covenant and a condition, and if there shall be
more than one Tenant, they shall be bound, jointly and severally, by
such provisions.
20.11 Entire Agreement, Etc. This Lease and the Exhibits,
Riders, the Business Agreement, and/or Addenda, if any, attached hereto,
constitute the entire agreement between the parties. All Exhibits,
Riders, the Business Agreement, and/or Addenda mentioned in this Lease
are incorporated herein by reference. Any Guaranty attached hereto is
an integral part of this Lease and constitutes consideration given to
Landlord to enter in this Lease. Any prior conversations or writings
are merged herein and extinguished. No subsequent amendment to this
Lease shall be binding upon Landlord or Tenant unless reduced to writing
and signed. Submission of this Lease for examination does not
constitute an option for the Leased Premises and becomes effective as
a lease only upon execution and delivery thereof by Landlord to Tenant.
If any provision contained in Rider or Addenda is inconsistent with a
provision in the body of this Lease, the provision contained in said
Rider or Addenda shall control. It is hereby agreed that this Lease
contains no restrictive covenants or exclusives in favor of Tenant. The
captions and Section numbers appearing herein are inserted only as a
matter of convenience and are not intended to define, limit, construe,
or describe the scope or intent of any Section or Paragraph.
20.12 Choice of Law. This Lease shall be governed by and
construed in accordance with the laws of the State of Utah.
20.13 Quiet Enjoyment. Landlord hereby warrants that Landlord
(and no other person or corporation) has the right to lease the property
and the Leased Premises, and that Tenant shall have peaceful and quiet
use and possession of the Leased Premises without hindrance on the part
of Landlord, and that Landlord shall warrant and defend Tenant and its
successors and assigns in such peaceful and quiet use and possession
against the claims of all persons or corporations whatsoever claiming
by, under and through Landlord.
20.14 Option to Purchase.
(a) Purchase Option: Landlord hereby grants Tenant exclusive
right to purchase (the "Purchase Option") the property at any time
between the date of this Lease Agreement and the date of rental
commencement (the "Option Period").
To exercise the Purchase Option, Tenant shall give notice in writing
(the "Notice") to Landlord at any time during the Option Period.
(b) Purchase Price: In the event the Tenant exercises the
Purchase Option, the Purchase Price for the property (the "Purchase
Price") shall be $6,279,000.00.
(c) Closing: If the Purchase Option is exercised, the closing
shall occur on the date specified in the Notice but in no event later
than the date that is thirty (30) days after the rental commencement
date. Closing shall be conducted at the property or at such other place
as Landlord and Tenant agree. At closing, Tenant shall pay the Purchase
Price in immediately available funds, and Landlord shall deliver to
Tenant fee simple title to the property. Any conveyance or transfer
taxes, stamp taxes, and any other recording fees and expenses shall be
divided equally between the Landlord and Tenant at closing. Real estate
taxes shall be pro-rated between Landlord and Tenant at closing. At
closing, Landlord shall, at its expense, provide Tenant with (a) an ALTA
Survey of the property prepared by a certified, licensed land surveyor,
which survey shall show the courses and distance of the property and the
number of acres included therein; and (b) a standard Owner's Title
Insurance Policy prepared by a title insurance company acceptable to
Tenant, insuring Tenant's fee simple title to the property.
(d) Construction Warranties: If the Purchase Option is exercised,
all construction warranties provided by contractors shall continue in
full force and effect and shall be conveyed by Landlord to Tenant.
(e) Contract: If the Purchase Option is exercised, the Lease
Agreement shall constitute a binding contract for the purchase and sale
of the property on the terms described herein.
IN WITNESS WHEREOF, the Landlord and Tenant have executed this Lease on
the day first set forth above.
LANDLORD: BOYER IOMEGA, L.C., A UTAH LIMITED
LIABILITY COMPANY, BY THE BOYER
COMPANY, ITS MANAGER
By: /s/ Kem C. Gardner
KEM C. GARDNER
PRESIDENT AND MANAGER
TENANT: IOMEGA CORPORATION
By: /s/ C. David Correll
Its: Director of Corporate Facilities
Exhibit 10.26c
FIRST AMENDMENT TO PLEDGE AGREEMENT
THIS FIRST AMENDMENT TO PLEDGE AGREEMENT (this "Amendment") is
entered into as of July 5, 1995, by and between IOMEGA CORPORATION,
a Delaware corporation ("Pledgor"), and WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Pledgee").
RECITALS
WHEREAS, Pledgor and Pledgee have executed that certain Pledge
Agreement dated as of July 5, 1995, (the "Pledge Agreement").
WHEREAS, Pledgee and Pledgor have agreed to certain changes in
the terms and conditions set forth in the Pledge Agreement and have
agreed to amend the Pledge 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 Pledge Agreement shall be amended as follows:
1. Section 2.1 is hereby deleted in its entirety, and the
following substituted therefor:
"SECTION 2.1. Sixty-five percent (65%) of the shares of
capital stock of Iomega GMBH and all the shares of
capital stock of Iomega International Inc., Iomega Canada
Inc., Iomega Italia Inc., Iomega France Inc., Iomega
United Kingdom Ltd., Iomega Iberia Ltd., Iomega Belgium
Inc., Iomega Scandinavia Inc., and Iomega Austria Inc.
(collectively, the "Companies"), owned beneficially and
of record by Pledgor as listed on Schedule I attached
hereto and made a part hereof, and all cash, dividends,
other securities, instruments, rights and other property
at any time and from time to time received or receivable
in respect of the stock of the Companies or in exchange
for all or any part thereof, including without
limitation, stock dividends, warrants, rights to
subscribe, conversion rights, liquidating dividends and
other stock rights, and in the event Pledgor receives any
of the foregoing, Pledgor acknowledges that the same
shall be received IN TRUST for Pledgee and agrees
immediately to deliver the same to Pledgee in original
form of receipt, together with any stock or bond powers,
assignments, endorsements or other documents or
instruments as Pledgee may reasonably request to
establish, protect or perfect Pledgee's interest in
respect of such Collateral: and"
2. Except as specifically provided herein, all terms and
conditions of the Pledge Agreement remain in full force and effect,
without waiver or modification. All terms defined in the Pledge
Agreement shall have the same meaning when used in this Amendment.
This Amendment and the Pledge Agreement shall be read together, as
one document.
3. Pledgee hereby remakes all representations and warranties
contained in the Pledge Agreement and reaffirms all covenants set
forth therein. Pledgee further certifies that as of the date of
this Amendment there exists no Event of Default as defined in the
Pledge 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/ Leonard C. Purkis By: /s/ Michael P. Baranowski
Title: Chief Financial Officer Title: Vice President
Exhibit 10.26(d)
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT (this "Amendment") is
entered into as of October 16, 1995, 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 2.1(a) of the Loan Agreement is hereby amended
by:
(A) deleting the period at the end of clause (iii) and
replacing it with ", and plus", and
(B) adding a new clause (iv) which reads as follows:
"(iv) up to and including January 15, 1996, an amount
equal to the lesser of (1) $5,000,000.00, or (2) ten
percent (10%) of Borrower's net borrowing base in effect
from time to time, as determined by Lender based on
Lender's review of Borrower's Collateral Activity
Report."
Revolving Loans made and Letter of Credit Obligations incurred
under clause (iv) are hereinafter referred to as "Overadvances".
2. Revolving Loans and Letter of Credit Obligations under
Facility A are hereby deemed to have been made or incurred first
against the Net Amount of Eligible Accounts and then as
Overadvances. Repayments of principal under Facility A shall be
applied first to Revolving Loans and Letter of Credit Obligations
made or incurred as Overadvances and then to Revolving Loans and
Letter of Credit Obligations made or incurred against the Net
Amount of Eligible Accounts.
3. The outstanding principal balance of Overadvances shall
bear interest at a variable rate per annum equal to one and one-quarter percent
(1.25%) above the Prime Rate in effect from time to
time. No LIBOR based interest rate option is available with
respect to Overadvances. Interest shall be paid at the times set
forth in the Facility A Revolving Credit Note. The outstanding
principal balance of Overadvances shall be due and payable in full
on January 15, 1996. All terms and conditions of the Facility A
Revolving Credit Note, other than those which are expressly
inconsistent with the terms of this Amendment, are hereby made
applicable to Overadvances.
4. Borrower shall pay a non-refundable fee of $12,500.00,
due and payable on the date of execution hereof, in consideration
for Lender's agreement set forth herein.
5. Overadvances are hereby deemed to be included in the
definition of Obligations and to be secured by all the Collateral.
6. 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.
7. 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/ Jerol S. Garner By: /s/ Michael P. Baranowski
Title: Assistant Treasurer Title: Vice President
Exhibit 10.26(e)
THIRD AMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT (this "Amendment") is
entered into as of November 30, 1995, 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) 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 $25,000,000 from a party(ies)
other than Lender, which loans may be secured only by
purchase money liens on equipment consisting only of "3
Up" Server Writers acquired concurrently with or
subsequent to the making of such loans and which loans,
in the aggregate with all loans outstanding under
Facility B, do not exceed $25,000,000. Borrower shall
provide to Lender executed copies of all documentation
evidencing the term loan financing permitted hereunder at
least 5 days prior to the funding of the loan(s)
evidenced thereby."
2. 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.
3. 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/ Jerol S. Garner By: /s/ Michael P. Baranowski
Title: Assistant Treasurer Title: Vice President
Exhibit 10.26(f)
FOURTH AMENDMENT TO LOAN AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AGREEMENT (this "Amendment") is
entered into as of January 12, 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. Clause 2.1(a)(iv) of the Loan Agreement (added via the
Second Amendment) is hereby amended to read as follows:
"(iv) up to and including the earliest to occur of:
(A) receipt by Borrower of funds from a secondary public
offering of common stock, (B) April 12, 1996, or (C) a
date on which Overadvance has been paid down to zero and
Lender receives written notice from Borrower of
cancellation of Overadvance, (which such earliest date
referred to as the "Overadvance Maturity Date"), an
amount equal to ten percent (10%) of Borrower's net
borrowing base in effect from time to time, as determined
by Lender based on Lender's review of Borrower's
Collateral Activity Report."
2. The outstanding principal balance of Overadvances shall
be due and payable in full on the Overadvance Maturity Date. All
terms and conditions of the Facility A Revolving Credit Note, other
than those which are expressly inconsistent with the terms of this
Amendment, continue to be applicable to Overadvances.
3. Borrower shall pay a non-refundable fee of $12,000.00,
for each 30-day period or partial period during which the
Overadvance is available or any liabilities under the Overadvance
remain outstanding, which fee shall be due and payable beginning
January 16, 1996 and, if applicable, February 16, 1996 and March
16, 1996, in consideration for Lender's agreement set forth herein.
4. 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.
5. 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/ Jerol S. Garner By: /s/ Michael P. Baranowski
Title: Assistant Treasurer Title: Vice President
Exhibit 10.27
USL MASTER LEASE AGREEMENT
CAPITAL
_________________________________________________________________
LESSOR: USL CAPITAL CORPORATION LESSEE: Iomega Corporation
ADDRESS: 733 Front Street ADDRESS: 1821 West Iomega Way
San Francisco, California 94111 Roy, Utah 84607
TERMS AND CONDITIONS OF LEASE
The undersigned Lessee hereby requests Lessor to purchase the personal property
described in any Equipment Schedule hereunder (herein called "Equipment") from
supplier listed in any Equipment Schedule hereunder (herein called "Vendor"
and/or "Manufacturer", as applicable) and to lease the Equipment to Lessee on
the terms and conditions of the lease set forth below.
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the
Equipment upon the following terms and conditions:
1. NO WARRANTIES BY LESSOR. Lessee has selected the Equipment and may have
entered into certain purchase, licensing, or maintenance agreements with the
Vendor and/or Manufacturer (herein referred to as an "Acquisition Agreement")
covering the Equipment as further described in Paragraph 26 hereof. If Lessee
has entered into any Acquisition Agreement, each agreement shall provide for
certain rights and obligations of the parties thereto with respect to the
Equipment, and Lessee shall perform all of the obligations set forth in each
Acquisition Agreement as if this lease did not exist. LESSOR MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING THE CONDITION OF THE
EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND,
AS TO LESSOR, LESSEE LEASES THE EQUIPMENT "AS IS." LESSOR SHALL HAVE NO
LIABILITY FOR ANY LOSS, DAMAGE OR EXPENSE OF ANY KIND WHATSOEVER RELATING
THERETO, INCLUDING WITHOUT LIMITATION ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OF ANY CHARACTER.
2. CLAIMS AGAINST VENDOR AND/OR MANUFACTURER. If the Equipment is not
properly installed, does not operate as represented or warranted by Vendor
and/or Manufacturer, or is unsatisfactory for any reason, Lessee shall make any
claim on account thereof solely against Vendor and/or Manufacturer pursuant
to the Acquisition Agreement, if any, and shall, nevertheless, pay Lessor all
rent payable under this lease. All warranties from Vendor and/or
Manufacturer are, to the extent they are assignable, hereby assigned to
Lessee for the term of the lease or until an Event of Default occurs
hereunder, for Lessee's exercise at Lessee's expense. Lessee may directly
inquire with Vendor and/or Manufacturer to receive an accurate and complete
statement of such warranties, including any disclaimers or limitations of
such warranties or of any remedies with respect thereto.
3. VENDOR NOT AN AGENT. Lessee understands and agrees that neither Vendor,
nor any sales representative or other agent of Vendor, is an agent of Lessor.
Sales representatives or agents of Vendor, and persons that are not employed by
Lessor (including brokers and agents) are not authorized to waive or alter any
term or condition of this lease, and no representation as to the Equipment or
any other matter by Vendor or any other person that is not employed by Lessor
(including brokers and agents) shall in any way affect Lessee's duty to pay the
rent and perform its other obligations as set forth in this lease.
4. NON-CANCELABLE LEASE. This lease and any Equipment Schedule hereto cannot
be canceled or terminated except as expressly provided herein. Lessee agrees
that its obligation to pay all rent and other sums payable hereunder and the
rights of Lessor in and to such rent are absolute and unconditional and are not
subject to any abatement, reduction, setoff, defense, counterclaim or recoupment
due or alleged to be due to, or by reason of, any past, present or future claims
which Lessee may have against Lessor, any assignee, any Manufacturer or Vendor,
or against any person for any reason whatsoever.
5. ORDERING EQUIPMENT. Lessee shall arrange for delivery of the Equipment so
that it can be accepted in accordance with Paragraph 6 hereof within 90 days
after the date on which Lessor accepts Lessee's offer to enter into this lease
with respect to any Equipment Schedule or by such other date as may be set forth
in an Equipment Schedule or Commitment Letter issued by Lessor as the Commitment
Expiration Date. Unless otherwise specified on the Equipment Schedule, Lessee
shall be responsible for all transportation, packing, installation, testing and
other charges in connection with the delivery, installation and use of the
Equipment. Lessee hereby authorizes Lessor to insert in any Equipment Schedule
hereunder the serial numbers and other identification data of Equipment when
determined by Lessor.
6. ACCEPTANCE. Lessee acknowledges that for purposes of receiving or
accepting the Equipment from Vendor, Lessee is acting on Lessor's behalf. Upon
delivery of the Equipment to Lessee and Lessee's inspection thereof, Lessee
shall furnish Lessor a written statement (a) acknowledging receipt of the
Equipment in good condition and repair and (b) accepting it as satisfactory
in all respects for the purposes of this lease (the "Certificate of
Acceptance"). The date of receipt and acceptance of the Equipment covered by
an Equipment Schedule (or any later date that Lessor chooses) shall be the
Rent Commencement Date therefor. Lessor is authorized to fill in on any
Equipment Schedule hereunder the Rent Commencement Date in accordance with
the foregoing.
7. TERMINATION BY LESSOR. If, by the Commitment Expiration Date, the
Equipment described in any Equipment Schedule has not been delivered to Lessee
and accepted by Lessee as provided in Paragraph 6 hereof, or if other conditions
of Lessor's Commitment Letter, if any, have not been met, then Lessor may, at
its option, terminate this lease and its obligations hereunder with respect
to such Equipment Schedule at any time after the expiration of such 90 days
or any date after the Commitment Expiration Date, as applicable. Lessor
shall give Lessee written notice whether or not it elects to exercise such
option within 10 days after Lessor's receipt of Lessee's written request for
such notice.
8. TERM. The term of this lease commences upon the Rent Commencement Date,
as provided in Paragraph 9 below. The term shall continue until all of Lessee's
obligations are fulfilled hereunder. The initial Term with respect to any
Equipment Schedule begins on the Rent Commencement Date for such Equipment
Schedule (as defined in Paragraph 6) and expires after the later of (I) the
number of periods for which the rent payments are due, or (ii) the date Lessee
fulfills all Lessee's obligations hereunder.
9. RENTAL. Lessee shall pay the rent payments as stated on each Equipment
Schedule, the first of which shall be due on the Rent Commencement Date for said
Equipment Schedule, and subsequent payments shall be due on the same day of each
calendar period as indicated on the Equipment Schedule for the balance of the
Initial Term. Rent payments shall be due whether or not Lessee has received any
notice that such payments are due. All rent payments shall be paid to Lessor at
its address set forth on the Equipment Schedule or as otherwise directed by
Lessor in writing.
10. RENEWAL. If no default shall have occurred and be continuing, Lessee shall
be entitled to renew the lease with respect to all, but not less than all, of
the Equipment covered by an Equipment Schedule for a minimum 12 month period
at an amount equal to the fair market rental value thereof, in use and
operational, in the condition required by the lease, payable on a periodic
basis, as mutually agreed by Lessor and Lessee ("Renewal Rent"). Lessee
must give Lessor written notice of its intention to exercise said option,
which notice must be received by Lessor at least 90 days before expiration of
the Initial Term. The first installment of the Renewal Rent shall be due at
expiration of the Initial Term of the lease. Should Lessee fail to comply
with the provisions described above covering Renewal, upon expiration of the
Initial Term, the term of the lease shall be automatically extended for a
term of 3 months. Thereafter, the term of the lease will be extended for
subsequent full month periods, on a month to month basis, until Lessee has
given at least 90 days written notice terminating the lease. Such
termination will take effect upon completion of all Lessee's obligations
under the lease (including payment of all periodic rental payments
due during such 90 day period, as provided in Paragraph 9 of the lease). At any
time after the expiration of the Initial Term, if the lease has been
automatically extended as set forth herein, Lessor reserves the right to
terminate the lease by 30 days written notice to Lessee.
11. LOCATION; INSPECTION; LABELS. The Equipment shall be delivered to and
shall not be removed without Lessor's prior written consent from the "Equipment
Location" shown on the related Equipment Schedule, or if none is specified,
Lessee's billing address shown on the Equipment Schedule. Lessor shall have the
right to inspect the Equipment at any reasonable time. If Lessor supplies
Lessee with labels stating that the Equipment is owned by Lessor, Lessee
shall affix such labels to and keep them in a prominent place on the Equipment.
12. REPAIRS; USE; ALTERNATIONS. Lessee, at its own cost and expense, shall
keep the Equipment in the same condition as when delivered to Lessee, reasonable
wear and tear excepted, and in accordance with the manufacturer's recommended
specifications; shall use the Equipment lawfully; shall not alter the Equipment
without Lessor's prior written consent; shall use the Equipment in compliance
with any existing Manufacturer's service and warranty requirements and any
insurance policies applicable to the Equipment and shall furnish all parts and
servicing required therefor. All parts, repairs, additions, alterations and
attachments placed on or incorporated into the Equipment which cannot be removed
without damage to the Equipment shall immediately become part of the Equipment
and shall be the property of the Lessor. Lessee will obtain and maintain all
permits, licenses and registrations necessary to lawfully operate the facility
where the Equipment is located. Lessee shall comply with all applicable
environmental and industrial hygiene laws, rules and regulations (including but
not limited to federal, state, and local environmental protection, occupational,
health and safety or similar laws, ordinances and restrictions). Lessee shall,
not later than 5 days after the occurrence of any event, provide Lessor with
copies of any report of such event that is required to be filed with
governmental agencies regulating environmental claims. Lessee shall
immediately notify Lessor in writing of any existing, pending or threatened
investigation, inquiry, claim or action by any governmental authority in
connection with any law, rule or regulation relating to industrial hygiene
or environmental conditions that could affect the Equipment.
13, MAINTENANCE. If the Equipment is such that Lessee is not normally capable
of maintaining it, Lessee, at its expense, shall enter into and maintain in full
force and effect throughout the Initial Term, and any renewal term, Vendor and
/or Manufacturer's standard maintenance contract, and shall comply with all its
obligations thereunder. An alternate source of maintenance may be used with
Lessor's prior written consent. Such consent shall be granted if, in Lessor's
reasonable opinion, the Equipment will be maintained in an equivalent state of
good repair, condition and working order.
14. SURRENDER. Provided that Lessee does not exercise the purchase option as
set forth in Paragraph 28 hereof, upon the expiration of the Initial Term, or
any renewal term, or upon demand by Lessor made pursuant to Paragraph 22 of the
lease, Lessee, at its expense, shall return all, but not less than all, of the
Equipment by delivering it to such place or on board such carrier, packed for
shipping, as Lessor may specify. Lessee agrees that the Equipment, when
returned, shall be in the same condition as when delivered to Lessee, reasonable
wear and tear excepted, and in a condition which will permit Lessor to be
eligible for Manufacturer's standard maintenance contract without incurring any
expense to repair or rehabilitate such Equipment. Lessee shall be liable for
reasonable and necessary expenses to place the Equipment in such condition.
Lessee shall remain liable for the condition of the Equipment until it is
received and accepted at the destination designated by Lessor as set forth
above. If any items of Equipment are missing or damaged when returned, such
occurrence shall be treated as an event of Loss or Damage with respect to
such missing or damaged items and shall be subject to the terms specified in
Paragraph 15 below. Lessee shall provide Lessor with a Letter of
Maintainability from the Manufacturer of the Equipment, which letter shall
state that the Equipment will be eligible for the Manufacturer's standard
maintenance contract when sold or leased to a third party. Lessee shall
give Lessor prior written notice that it is returning the Equipment as
provided above, and such notice must be received by Lessor at least 90 days
prior to such return. Should Lessee fail to comply with the provisions
described above covering surrender, upon expiration of the
Initial Term, the term of the lease shall be automatically extended for a term
of 3 months. Thereafter, the term of the lease will be extended for subsequent
full month periods, on a month to month basis, until Lessee has given at least
90 days written notice terminating the lease. Such termination will take effect
upon completion of all Lessee's obligations under the lease (including payment
of all periodic rental payments due during such 90 day period as provided in
Paragraph 9 of the lease).
15. LOSS OR DAMAGE. Lessee shall bear the entire risk of loss, theft,
destruction of or damage to the Equipment or any item thereof (herein "Loss or
Damage") from any cause whatsoever. No Loss or Damage shall relieve Lessee of
the obligation to pay rent or of any other obligation under this lease. In the
event of Loss or Damage, Lessee, at the option of Lessor, shall: (a) place the
same in good condition and repair; (b) replace the same with like equipment
acceptable to Lessor in good condition and repair with clear title thereto in
Lessor; or pay to Lessor the total of the following amounts; (I) the total
rent and other amounts due and owing at the time of such payment, plus (ii)
an amount calculated by Lessor which is the present value at 5% per annum
simple interest discount of all rent and other amounts payable by Lessee with
respect to said item from date of such payment to date of expiration of its
Initial Term, plus (iii) the "reversionary value" of the Equipment, which
shall be determined by Lessor as the total cost of the Equipment less 60% of
the total rent (net of sales/use taxes, if any) required to be paid pursuant to
Paragraph 9. Upon Lessor's receipt of such payment, Lessee and./or Lessee's
insurer shall be entitled to Lessor's interest in said item, for salvage
purposes, in its then condition and location, "as-is", without any warranty,
express or implied.
16. INSURANCE. Lessee shall provide, maintain and pay for (a) all risk
property insurance against the loss or theft of or damage to the Equipment, for
the full replacement value thereof, naming Lessor as a loss payee, and (b)
commercial general liability insurance (and if Lessee is a doctor, hospital or
other health care provider, medical malpractice insurance). All such policies
shall name Lessor as an additional insured and shall have combined single limits
in amounts acceptable to Lessor. All such insurance policies shall be endorsed
to be primary and non-contributory to any policies maintained by Lessor. In
addition, Lessee shall cause Lessor to be named as an additional insured on any
excess or umbrella policies purchased by Lessee. A copy of each paid-up policy
evidencing such insurance (appropriately authenticated by the insurer) or a
certificate of the insurer providing such coverage proving that such policies
have been issued, providing the coverage required hereunder shall be delivered
to Lessor prior to the Rent Commencement Date. All insurance shall be placed
with companies satisfactory to Lessor and shall contain the insurer's agreement
to give 30 days written notice to Lessor before cancellation or any material
change of any policy of insurance.
17. TAXES. Lessee shall reimburse to Lessor (or pay directly if, but only if,
instructed by Lessor) all charges and taxes (local, state and federal) which may
now or hereafter be imposed or levied upon the sale, purchase, ownership,
leasing, possession or use of the Equipment, excluding, however, all income
taxes levied on (a) any rental payments made to Lessor hereunder, (b) any
payment made to Lessor in connection with Loss or Damage to the Equipment under
Paragraph 15 hereof, or any payment made to Lessor in connection with Lessee's
exercise of its purchase option under Paragraph 28 hereof.
18. LESSOR'S PAYMENT. If Lessee fails to provide or maintain said insurance,
to pay said taxes, charges or fees, or to discharge any levies, liens and
encumbrances created by Lessee, Lessor shall have the right, but shall not be
obligated, to obtain such insurance, pay such taxes, charges and fees, or effect
such discharge. In that event, Lessee shall remit to Lessor the cost thereof
with the next rent payment.
19. INDEMNITY, (A) General Indemnity. Lessee shall indemnity Lessor against
and hold Lessor harmless from any and all claims, actions, damages, costs,
expenses including reasonable attorneys' fees, obligations, liabilities and
liens (including any of the foregoing arising or imposed under the doctrines
of "strict liability" or "product liability" and including without limitation
the cost of any fines, remedial action, damage to the environment and cleanup
and the fees and costs of consultants and experts), arising out of the
manufacture, purchase, lease, ownership, possession, operation, condition,
return or use of the Equipment, or by operation of law, excluding however, any
of the foregoing resulting from the sole negligence or willful misconduct of
Lessor. Lessee agrees that upon written notice by Lessor of the assertion of
such a claim, action, damage, obligation, liability or lien, Lessee shall
assume full responsibility for the defense thereof. Lessee's choice of
counsel shall be mutually acceptable to both Lessee and Lessor. This
indemnity also extends to any environmental claims arising out of or relating
to prior acts or omissions of any party whatsoever. The provisions of this
paragraph shall survive termination of this lease with respect to events
occurring prior to such termination. ((b) Tax Indemnity.
Lessee acknowledges that Lessor shall be entitled to all tax
benefits of ownership with respect to the Equipment (the "Tax Benefits"),
including but not limited to, (I) the accelerated cost recovery deductions
determined in accordance with Section 168(b)(1) of the Internal Revenue Code of
1986 for the Equipment based on the original cost of the Equipment to Lessor
(ii) deductions for interest on any indebtedness incurred by Lessor to finance
the Equipment and (iii) sourcing of income and losses attributable to this
lease to the United States. Lessee represents that the Equipment shall be
depreciable for Federal tax purposes utilizing the MACRS Recovery Period as
set forth in the Equipment Schedule, with such depreciation commencing
as of the date of Equipment acceptance by Lessee as set forth on the
Certificate of Acceptance. Lessee agrees to take no action inconsistent with
the foregoing or any action which would result in the loss, disallowance or
unavailability to Lessor of all or any part of the Tax Benefits. Lessee
hereby indemnifies and holds harmless Lessor
and its assigns from and against (I) the loss, disallowance, unavailability or
recapture of all or any part of the Tax Benefits resulting from any action,
statement, misrepresentation or breach of warranty or covenant by Lessee of any
nature whatsoever including but not limited to the breach of any
representations, warranties or covenants contained in this paragraph, plus
(ii) all interest, penalties, fines or additions to tax resulting from such
loss, disallowance, unavailability or recapture, plus (iii) all taxes required
to be paid by Lessorupon receipt of the indemnity set forth in this paragraph.
Any payments made by Lessee to reimburse Lessor for lost Tax Benefits shall
be calculated (I) on the assumption that Lessor is subject to the maximum
Federal Corporate Income Tax with respect to each year and that all Tax
Benefits are currently utilized, and (ii) without regard to whether Lessor
or any members of a consolidated group of which Lessor is also a member is
then subject to any increase in tax as a result of the loss of Tax Benefits.
For the purposes of this paragraph, "Lessor" includes for all tax purposes
the consolidated taxpayer group of which Lessor is a part.
Payment. The amounts payable pursuant to this Paragraph 19 shall be payable
upon demand of Lessor, accompanied by a statement describing in reasonable
detail such claim, action, damage, cost, expense, fee, obligation, liability,
lien or tax and setting forth the computation of the amount so payable, which
computation shall be binding and conclusive upon Lessee, absent manifest
error. The indemnities and assumptions of liabilities and obligations
contained in this Paragraph 19 shall continue in full force and effect
notwithstanding the expiration or other termination of this Lease.
20. ASSIGNMENT. Without Lessor's prior written consent, Lessee shall not
assign, transfer, pledge, hypothecate or otherwise dispose of this lease, the
Equipment, or any interest therein. Lessee's interest in this lease may not be
assigned or transferred by operation of law without Lessor's prior written
consent, which will not be unreasonably withheld. Without Lessor's prior
written consent, Lessee shall not sublet or lend the Equipment or permit it
to be used by anyone other than Lessee or Lessee's employees. Lessor may
assign this lease in whole or in part without notice to Lessee. If Lessee is
given notice of such assignment it agrees to acknowledge receipt thereof in
writing. Each such assignee shall have all of the rights, but none of
the obligations, of Lessor under this lease. Lessee shall not
assert against assignee any defense, counterclaim or offset that Lessee
may have against Lessor. Notwithstanding any such assignment, Lessor
warrants that Lessee shall quietly enjoy use of the
Equipment subject to the terms and conditions of this lease so long as Lessee is
not in default hereunder. Subject to the foregoing, this lease inures to the
benefit of and is binding upon the successors and assigns of the parties hereto.
21. DELINQUENT PAYMENTS. (a) Service Charge. Since it would be impractical
or extremely difficult to fix Lessor's actual damages for collecting and
accounting for a late payment, if any payment to Lessor required herein
(including, but not limited to, rental, renewal, tax, purchase and other
amounts) is not paid on or before its due date, Lessee shall pay to Lessor
an amount equal to 5% of any such late payment. (B) Interest. Lessee shall
also pay interest on any such late payment from the due date thereof until
the date paid at the lessor of 18% per annum or the maximum rate allowed by law.
22, DEFAULT; REMEDIES. Any of the following shall constitute an Event of
Default: If a) Lessee fails to pay when due any rent or other amount required
herein to be paid by Lessee, or b) Lessee makes an assignment for the benefit of
creditors, whether voluntary or involuntary, or c) a petition is filed by or
against Lessee under any bankruptcy, insolvency or similar legislation, or d)
Lessee violates or fails to perform any provision of either this lease or any
Acquisition Agreement, or violates or fails to perform any covenant or
representation made by Lessee herein, or e) Lessee makes a bulk transfer of
furniture, furnishings, fixtures or other equipment or inventory, or f) Lessee
ceases doing business as a going concern or there is a change in the legal
structure of ownership of Lessee, or a consolidation or merger of Lessee into or
with another entity, which results, in the opinion of Lessor, in a material
adverse change in Lessee's ability to perform its obligations under the lease,
or g) any representation or warranty made by Lessee in this lease or in any
other document or agreement furnished by Lessee to Lessor shall prove to
have been false or misleading in any material respect when made or when
deemed to have been made. An Event of Default with respect to any Equipment
Schedule shall constitute an Event of Default for all Equipment Schedules.
Lessee shall promptly notify Lessor of the occurrence of any Event of Default.
If an Event of Default occurs, Lessor shall have the right to exercise any
one or more of the following remedies in order to protect the interest and
reasonably expected profits and bargains of Lessor: a) Lessor may terminate this
lease with respect to all or any part of the Equipment, b) Lessor may recover
from Lessee all rent and other amounts then due and as they shall thereafter
become due hereunder, c) Lessor may take possession of any or all items of
Equipment, wherever the same may be located, without demand or notice, without
any court order or other process of law and without liability to Lessee for any
damages occasioned by such taking of possession, and any such taking of
possession shall not constitute a termination of this lease, d) Lessor may
recover from Lessee, with respect to any and all items of Equipment, and with or
without repossessing the Equipment the sum of (1) the total amount due and owing
to Lessor at the time of such default, plus (2) an amount calculated by Lessor
which is the present value at 5% per annum simple interest discount of all rent
and other amounts payable by Lessee with respect to said item(s) from date of
such payment to date of expiration of its Initial Term, plus (3) the
"reversionary value" of the Equipment, which shall be determined by Lessor as
the total cost of the Equipment less 60% of the total rent (net of sales/use
taxes, if any) required to be paid pursuant to Paragraph 9; and which the
parties agree is a reasonable estimate of such value; and upon the payment of
all amounts described in clauses (1), (2) and (3) above, and e) Lessor may
pursue any other remedy available at law or in equity, including but not
limited to seeking damages or specific performance and/or obtaining an
injunction.
No right or remedy herein conferred upon or reserved to Lessor is exclusive
of any right or remedy herein or by law or equity provided or permitted, but
each shall be cumulative of every other right or remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise, and may be
enforced concurrently therewith or from time to time, but Lessor shall not be
entitled to recover a greater amount in damages than Lessor could have gained by
receipt of Lessee's full, timely and complete performance of its obligations
pursuant to the terms of this lease plus accrued delinquent payments under
Paragraph 21.
23. LESSOR'S EXPENSE. Lessee shall pay Lessor all costs and expenses,
including reasonable attorneys' fees and the fees of collection agencies,
incurred by Lessor in enforcing any of the terms, conditions, or provisions
hereof or in protecting Lessor's rights herein. Lessee's obligation hereunder
includes all such costs and expenses expended by Lessor (a) prior to filing of
an action, (b) in connection with an action which is dismissed, and in the
enforcement of any judgment. Lessee's obligation to pay Lessor's attorneys'
fees incurred in enforcing any judgment is a separate obligation of Lessee,
severable from Lessee's other obligations hereunder, which obligation will
survive such judgment and will not be deemed to have been merged into such
judgment.
24. OWNERSHIP; PERSONAL PROPERTY. The Equipment shall at all times remain the
property of Lessor and Lessee shall have no right, title or interest therein or
thereto except as expressly set forth in this lease and the Equipment shall at
all times be and remain personal property notwithstanding that the Equipment or
any part thereof may now be, or hereafter become, in any manner, affixed or
attached to real property or any improvements thereon.
25. NOTICES. Service of all notices under this lease shall be sufficient if
given personally or mailed to the respective party at its address set forth on
any Equipment Schedule, or at such address as either party may provide in
writing from time to time. Any such notice mailed to said address shall be
effective when deposited in the United States mail, duly addressed and with
postage prepaid.
26. ACQUISITION AGREEMENTS. If the Equipment is subject to any Acquisition
Agreement, Lessee, as part of this lease, transfers and assigns to Lessor all of
its rights, but none of its obligations (except for Lessee's obligation to pay
for the Equipment conditioned upon Lessee's acceptance in accordance with
Paragraph 6), in and to the Acquisition Agreement, including but not limited to
the right to take title to the Equipment. Lessee shall indemnify and hold
Lessor harmless in accordance with Paragraph 19 from any liability resulting
from any Acquisition Agreement as well as liabilities resulting from any
Acquisition Agreement Lessor is required to enter into on behalf of Lessee or
with Lessee for purposes of this lease.
27. UPGRADES. Any existing lease between Lessor and Lessee subject to an
"upgrade" program shall continue in full force and effect and shall be kept free
of default by Lessee (even if the equipment covered by the existing lease is
sold, traded-in, etc.) Until any such existing lease is canceled by Lessor when,
if applicable, the new Equipment is accepted by Lessee for all purposes of this
lease.
28. PURCHASE OPTION. If no default shall have occurred and be continuing,
Lessee shall be entitled, at its option upon written notice to Lessor, which
notice must be received by Lessor at least 90 days prior to the end of either
the Initial Term or any renewal term of any Equipment Schedule, to purchase
all, but not less than all, of the Equipment covered by such Equipment
Schedule from Lessor at the end of the Initial Term or any renewal term for
such Equipment Schedule at a purchase price equal to the then fair market
value of the Equipment in use and operational, in the condition required
by the lease, as mutually agreed by Lessor and Lessee. On a date which
is no later than the expiration date of the Initial Term or any renewal term,
as applicable, Lessee shall pay to Lessor the purchase price for the
Equipment covered by such Equipment Schedule (plus any taxes levied thereon)
and Lessor shall sell the Equipment "as-is where-is" without any warranties
expressed or implied.
29. RELATED EQUIPMENT SCHEDULES. In the event that any Equipment Schedule
hereunder shall include Equipment that may become attached to, affixed to, or
used in connection with Equipment covered under another Equipment Schedule
hereunder ("Related Equipment Schedule"), Lessee acknowledges the following: (a)
if Lessee elects to exercise a purchase option or renewal option under any
Equipment Schedule, if provided; or (b) if Lessee elects to return the Equipment
under any Equipment Schedule as described in Paragraph 14, then Lessor, at its
discretion, may require the similar disposition of all Related Equipment
Schedules as provided for by this lease.
30. MISCELLANEOUS. This instrument and any Commitment Letter issued by Lessor
and any Equipment Schedule hereunder constitutes the entire agreement between
Lessor and Lessee, and shall not be amended, altered or changed except by a
written agreement signed by the parties hereto, and in the case of Lessor, such
agreement shall not be valid unless executed by Lessor at Lessor's home office.
To the extent any provision of this lease may be determined to be invalid or
unenforceable, it shall be ineffective without affecting the other provisions of
this lease. To the extent permitted by applicable law, Lessee hereby waives any
provisions of law which render any provision of this lease unenforceable in any
respect. Unless specified otherwise, in the event such written agreement is
attached to and made a part of an Equipment Schedule, the terms and conditions
of said written agreement shall apply only to said Equipment Schedule and shall
not apply to any other Equipment Schedule attached to and made a part of this
lease. In the event Lessee issues a purchase order to Lessor covering Equipment
to be leased hereunder, it is agreed that such purchase order is issued for
purposes of authorization and Lessee's internal use only, and none of its terms
and conditions shall modify the terms and conditions of this lease and/or
related documentation, or affect Lessor's responsibility to Lessee as defined
in this documentation, or affect Lessor's responsibility to Lessee as defined
in this lease. An executed Equipment Schedule that incorporates by reference
the terms of this Master Lease Agreement, marked "Original," shall be the
original of the lease for the Equipment described therein for all purposes.
All other executed counterparts of the lease shall be marked "Duplicate." To
the extent the lease constitutes chattel paper, as such term is defined
in the Uniform Commercial Code
of the applicable jurisdiction, no security interest in the lease may be created
through the transfer of possession of any counterpart other than the Original of
the lease, Lessor reserves the right to charge Lessee fees for its provision of
additional administrative services related to the lease requested by Lessee.
Lessee shall provide Lessor with such corporate resolutions, opinions
of counsel, financial statements, and other documents (including documents for
filing or recording) as Lessor may request from time to time. LESSEE
REPRESENTS AND WARRANTS THAT ALL CREDIT AND FINANCIAL INFORMATION SUBMITTED
TO LESSOR HEREWITH OR AT ANY OTHER TIME IS TRUE AND CORRECT. LESSEE HEREBY
APPOINTS LESSOR OR ITS
ASSIGNEE ITS TRUE AND LAWFUL ATTORNEY IN FACT TO EXECUTE ON BEHALF OF LESSEE ALL
UNIFORM COMMERCIAL CODE FINANCING STATEMENTS OR OTHER DOCUMENTS WHICH, IN
LESSOR'S DETERMINATION, ARE NECESSARY TO SECURE LESSOR'S INTEREST IN SAID
EQUIPMENT. The filing of UCC Financing Statements is precautionary and shall
not be evidence that the lease is intended as security. If for any reason this
agreement is determined not to be a lease, Lessee hereby grants Lessor a
security interest in the lease, the Equipment or collateral pertaining
thereto and the proceeds thereof, including re-lease, sale or disposition of
the Equipment or other collateral. If more than one Lessee is named in this
lease, the liability of each shall be joint and several. Time is of the
essence with respect to this lease, Lessee represents and warrants that the
Equipment is being leased hereunder for business purposes. The descriptive
headings which are used in this lease are for convenience of the parties only
and shall not affect the meaning of any provision of the lease. Any failure
of the Lessor to require strict performance by the Lessee or any waiver
by Lessor of any provision herein shall not be construed as a consent or
waiver of any other breach of the same or of any
other provision. This agreement shall be governed by the laws of the state of
California (without giving effect to principles of conflicts of law thereof).
31. LESSEE'S REPRESENTATIONS; WAIVER OF JURY TRIAL. Lessee represents and
warrants, as of the date of this lease: (a) Lessee is duly organized, validly
existing and in good standing under the laws of the state of its incorporation
or organization, and is duly qualified to do business wherever necessary to
carry on its present business and operations and to own its property; (b)
this lease (and any Equipment Schedule entered into pursuant to this lease)
has been duly authorized by all necessary action on the part of the Lessee,
duly executed and delivered by authorized officers or agents of Lessee, does
not require any further shareholder or partner approval, does not require the
approval of, or the
giving notice to, any federal, state, local or foreign governmental authority,
does not contravene any law binding on Lessee or contravene any certificate or
articles of incorporation or by-laws or partnership certificate or agreement, or
any agreement, indenture or other instruments to which Lessee is a party or by
which it or any of its assets or property may be bound; this lease (and any
Equipment Schedule entered into pursuant to this lease) constitutes the legal,
valid and binding obligation of Lessee and is enforceable in accordance with its
terms; (d) all credit and financial information, and all other information
submitted to Lessor at any time is true and correct, and there does not exist
any pending or threatened action or proceeding before any court or
administrative agency which might materially adversely affect Lessee's
financial condition or operations; (e) Lessee agrees to furnish to Lessor (I)
as soon as available, and in any event within 120 days after the last day of
each fiscal year of Lessee, a copy of the financial statements of Lessee as
of the end of such fiscal year, certified by an independent certified public
accounting firm; (ii) at any time if requested by Lessor, a copy of quarterly
financial statements certified by the
principal financial officer of Lessee; and (iii) such additional information
concerning Lessee as Lessor may reasonably request. LESSEE AND LESSOR HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS LEASE OR ANY
OTHER AGREEMENT EXECUTED IN CONNECTION HEREWITH.
32. COMMITMENT FEE REQUIREMENT. Lessee agrees, with respect to each
transaction, to pay the commitment fee specified in Lessor's proposal for such
transaction or in the Equipment Schedule related thereto. This commitment fee
is given in consideration for Lessor's costs and expenses in investigating and
appraising and/or establishing credit for Lessee. This commitment fee shall not
be refunded unless Lessor declines to accept Lessee's offer to enter into the
lease. Upon Lessor's acceptance of Lessee's offer to enter into the lease,
unless otherwise specified in the proposal or Equipment Schedule, the amount
shall be applied to the first period's rent payment. Lessee acknowledges that
Lessor's act of depositing any commitment fee into Lessor's bank account shall
not in itself constitute Lessor's acceptance of Lessee's offer to enter into the
lease.
IN WITNESS WHEREOF, the parties have executed this Master Lease Agreement
effective as of the first date it is executed by Lessee below.
USL CAPITAL CORPORATION (LESSOR) IOMEGA CORPORATION (LESSEE) TITLE DATE
BY BY
Name ___________________________ x/s/ Jerol S. Garner
Asst. Treasurer 8/29/95
Title __________________________ BY
x
_______________________________________________
Business Unit ________________________
HOME OFFICE 733 FRONT STREET, ____________________(CO-LESSEE)TITLE DATE
SAN FRANCISCO, CA 94111 (415) 627-9000 BY
Not valid unless executed by Lessor at Lessor's home office x
_____________________________________________
USL
CAPITAL EQUIPMENT SCHEDULE/CERTIFICATE OF ACCEPTANCE
Equipment Schedule to Master Lease Agreement dated August 29, 1995
LESSOR LESSEE
USL Capital Corporation Iomega Corporation
733 Front Street 1821 West Iomega Way
San Francisco, California 94111 Roy, Utah 84607
All terms and conditions of the above referenced Master Lease Agreement are
hereby expressly incorporated into this Equipment Schedule and made a part
hereof as if such terms and conditions were fully set forth herein. By their
execution of the Equipment Schedule, the parties reaffirm all terms and
conditions of the Master Lease Agreement except as they may be modified hereby.
TOTAL COST OF EQUIPMENT TO LESSOR: $1,397,390.00 EQUIPMENT: AS SET FORTH ON
THE
EXHIBIT A ATTACHED HERETO:
# OF RENT EQUIPMENT LOCATION (ADDRESS,
PAYMENTS RENTAL AMOUNT FREQUENCY CITY, STATE, ZIP CODE)
36 $44,574.09 Monthly 1821 West Iomega Way, Building #3
Roy, Utah 84607
INITIAL TERM
(MONTHS) X IN CITY LIMITS __ NOT IN
CITY
36 LIMITS WEBER COUNTY
COMMITMENT FEE: $24,000.00 EQUIPMENT CONTACT
VENDOR NAME and ADDRESS NAME: Jerol Garner, Assistant Treasurer
PHONE: (801) 778-1000
Helios, Inc.
1020 Stewart Drive
Sunnyvale, CA 94056 INVOICING ADDRESS
Same
VENDOR CONTACT
NAME: Gary Nichols, Project Manager or Andrea Shipp INVOICE CONTACT
PHONE: (406) 732-8206; (406) 732-5427 (fax)
NAME: Accounts Payable
PHONE: (801) 778-1000
MACRS RECOVERY PERIOD ___ YEARS
LESSEE REFERENCE NUMBER:
SPECIAL TERMS: THE TERMS AND CONDITIONS OF THE ABOVE REFERENCED MASTER LEASE
AGREEMENT ARE HEREBY MODIFIED FOR THIS EQUIPMENT SCHEDULE AS FOLLOWS: In
Paragraph 28, PURCHASE OPTION, the first sentence is deleted and replaced by the
following sentence: "If no default shall have occurred and be continuing, Lessee
shall have the option to purchase the Equipment for one dollar ($1.00) at the
end of the Initial Term."
WE CERTIFY THAT THE EQUIPMENT DESCRIBED IN THAT ATTACHED EXHIBIT "A" HAS BEEN
INSTALLED, OPERATES PROPERLY, AND IS, THEREFORE, ACCEPTED FOR PURPOSES OF THE
LEASE.
WE REQUEST THAT LESSOR PAY THE VENDOR FOR THE EQUIPMENT AND WE UNDERSTAND THAT
RENTAL PAYMENTS WILL COMMENCE.
ATTACHMENTS: IN ADDITION TO EXHIBIT A, THE FOLLOWING EXHIBITS ARE ATTACHED
HERETO AND INCORPORATED HEREIN.
Exhibit B, Exhibit S, Indenture and Bill of Sale, Exhibit A to Indenture and
Bill of Sale, Quitclaim Bill of Sale
IN WITNESS WHEREOF, the parties have executed this Equipment Schedule effective
as of the first date it is executed by Lessee below.
USL CAPITAL CORPORATION (LESSOR) LESSEE SIGNATURE TITLE DATE
BY BY Asst. Treasurer 8/29/95
x __________________________________ x/s/ Jerol S. Garner
TITLE BUSINESS UNIT BY
x __________________________________ x _________________
HOME OFFICE 733 FRONT STREET, CO-LESSEE SIGNATURE TITLE DATE
SAN FRANCISCO, CA 94111 BY
x _________________
Not valid unless executed by Lessor at Lessor's home office
LEASE
INTERNAL USE COMMITMENT DATE RENT COMMENCEMENT DATE NO.
ONLY
USL
CAPITAL EXHIBIT A
EQUIPMENT DESCRIPTION
to Equipment Schedule dated August 29, 1995
DESCRIPTION (Include Quantity, Model #, Serial #) COST
(7) Hellios Incorporated, Three spindle, 3-Up ServoWriter stations and
peripherals/options
as specified in the Helios proposal #1903-12 dated 2/2/94. The following
is a
breakdown of each unit by serial number and cost:
Serial # Cost
031595-01 $221,830.00
050995-03 204,830.00
040695-01 204,000.00
061495-05 193,800.00
062695-06 193,800.00
073195-09 189,565.00
081195-12 189,565.00
SUBTOTAL (THIS PAGE) $ __________
TOTAL COST $1,397,390.00
LESSEE INITIALS /S/JSG
PAGE 1 OF 1
USL
CAPITAL EXHIBIT B
AMENDMENT TO EQUIPMENT SCHEDULE(S) DATED August 29, 1995
TO MASTER LEASE AGREEMENT ("LEASE")
BETWEEN
USL CAPITAL CORPORATION ("LESSOR")
AND
IOMEGA CORPORATION ("LESSEE")
With respect to the above referenced Equipment Schedule(s) only, the terms
and conditions of the Lease shall be modified as follows:
Lessee and Lessor hereby agree that the rent payments shown on the
Equipment Schedule shall be adjusted if, for the week preceding the week in
which the Equipment is accepted for purposes of the Lease, the weekly average of
the Three-Year Treasury Note interest rate as specified in the Federal Reserve
statistical release H.15 is greater than or less than 5.65%, and said variance
is at least equal to one quarter of one percent (.25%), then the rent payments
will be adjusted so that for each one one-hundredth of one percent (.01%)
increase or decrease in the aforementioned Treasury interest rate, all rent
payments shall be increased or decreased by 0.0121%.
IN WITNESS WHEREOF, the parties have executed this Amendment to Lease
effective as of the date set forth above.
USL CAPITAL CORPORATION (LESSOR) LESSEE SIGNATURE TITLE
BY BY Asst. Treasurer
x __________________________________ x/s/ Jerol S. Garner
TITLE BY
x __________________________________ x _________________________
HOME OFFICE 733 FRONT STREET CO-LESSEE SIGNATURE TITLE
SAN FRANCISCO, CA 94111 BY
Not valid unless executed by Lessor at x _________________________
Lessor's home office
LMS-451 Rev. (08/94)
USL
CAPITAL EXHIBIT S
AMENDMENT TO EQUIPMENT SCHEDULE(S) DATED August 29, 1995
TO MASTER LEASE AGREEMENT ("LEASE")
BETWEEN
USL CAPITAL CORPORATION ("LESSOR")
AND
IOMEGA CORPORATION ("LESSEE")
With respect to the above referenced Equipment Schedule(s) only, Paragraphs
5, 6, 7, 8 and 26 of the Lease are hereby deleted and replaced with the
following paragraphs:
5. COMMITMENT DATE. Lessee shall provide Lessor with documentation in
accordance with Paragraph 8(a) hereof by the date set forth in an Equipment
Schedule or Commitment Letter issued by Lessor as the Commitment Expiration
Date.
6. CERTIFICATE OF ACCEPTANCE. If Lessor so requests, Lessee shall
furnish Lessor a written statement (a) acknowledging that the Equipment is in
good condition and repair and (b) accepting it as satisfactory in all respects
for the purposes of this lease (the "Certificate of Acceptance").
7. TERMINATION BY LESSOR. If, by the Commitment Expiration Date, the
Lessee has not furnished the Lessor with the documentation in accordance with
Paragraphs 6 and 8(a) hereof, Lessor may, at its option, terminate this lease
and its obligations hereunder with respect to such Equipment Schedule at any
time after the Commitment Expiration Date. Lessor shall give Lessee written
notice whether or not it elects to exercise such option within ten (10) days
after Lessor's receipt of Lessee's written request fore such notice.
8. TERM; COMMENCEMENT. The term of this lease commences upon the
earlier of (a) the date upon which Lessor receives title to the Equipment
pursuant to a Bill of Sale or similar documentation or (b) the date of Lessor's
execution of this lease. The Rent Commencement Date shall be the later of (a)
or (b), above. Lessor is authorized to fill in on this lease the Rent
Commencement Date in accordance with the foregoing. The term shall continue
until all Lessee's obligations are fulfilled hereunder, unless sooner terminated
as to all or any part of the Equipment. The Initial Term of this lease begins
on the Rent Commencement Date and expires after the number of period for which
the rent payments are due.
26. ACQUISITION AGREEMENTS. If the Equipment described in any Equipment
Schedule is subject to any Acquisition Agreement between the Lessee and the
Vendor and/or Manufacturer, Lessee shall indemnify and hold Lessor harmless in
accordance with Paragraph 19 from any liability resulting from any Acquisition
Agreement as well as liabilities resulting from any Acquisition Agreement Lessor
is required to enter into on behalf of Lessee or with Lessee for purposes of
this lease.
Except as amended hereby, the Lease shall remain in full force and effect.
In the event of any conflict between the Lease and this Amendment to Equipment
Schedule, the Amendment to Equipment Schedule shall govern.
IN WITNESS WHEREOF, the parties have executed this Amendment to Equipment
Schedule as of the date set forth above.
USL CAPITAL CORPORATION (LESSOR) LESSEE SIGNATURE TITLE
BY BY Asst. Treasurer
x __________________________________ x/s/ Jerol S. Garner
TITLE BY
x __________________________________ x _________________________
HOME OFFICE 733 FRONT STREET CO-LESSEE SIGNATURE TITLE
SAN FRANCISCO, CA 94111 BY
Not valid unless executed by Lessor at x _________________________
Lessor's home office
LMS-451 Rev. (08/94)
USL
CAPITAL INDENTURE AND BILL OF SALE
This Indenture and Bill of Sale, dated the 29th day of August 1995, from
Iomega Corporation, a corporation hereinafter called "Seller" to USL CAPITAL
CORPORATION, hereinafter called "Buyer".
WITNESSETH
For valuable consideration, the receipt of which is hereby acknowledged,
Seller does hereby sell, assign, transfer, convey and deliver to Buyer all
property and equipment of whatsoever kind or character listed, described or
otherwise referred to in "Exhibit A" (the "Equipment"), a copy of which Exhibit
A is attached hereto and incorporated herein by this reference with the same
force and effect as set forth herein in full.
Seller covenants and warrants that:
A. It is the owner of, and has absolute title to, all the Equipment free
and clear of all claims, liens, encumbrances and all other defect of title of
any kind whatsoever.
B. It has not made any prior sale, assignment or transfer of any item
of said Equipment to any person, entity, firm or corporation.
C. It has the present right, power and authority to sell, assign and
transfer each and every item of said Equipment to Buyer.
D. Each and every item of said Equipment is in good repair, condition
and working order.
E. All acts, proceedings and things necessary and required by laws and
the articles of incorporation and by-laws of Seller and agreements or judgements
binding upon Seller to make this Indenture and Bill of Sale a valid, binding and
legal obligation of Seller have been done, taken and have happened; and the
execution and delivery hereof have in all respects been duly authorized in
accordance with law and said articles of incorporation and by-laws.
Seller shall forever warrant and defend the sale, assignment, transfer,
conveyance and delivery of each and every item of said Equipment to Buyer, its
successors and assigns, against each and every person whomsoever lawfully
claiming the same.
Possession of said Equipment shall not be transferred to Buyer but shall
be retained by Seller, it being the intention of Buyer to lease said Equipment
to Seller.
This Indenture and Bill of Sale is binding upon the successors and assigns
of Seller and inures to the benefit of the successors and assigns of Buyer.
IN WITNESS WHEREOF the undersigned Seller has caused this instrument to be
executed on the day and year first above appearing, by and through an officer
thereunto duly authorized.
IOMEGA CORPORATION (SELLER)
By. /s/ Jerol S. Garner
Title Assistant Treasurer
USL
CAPITAL EXHIBIT A TO INDENTURE AND BILL OF SALE
FROM IOMEGA CORPORATION
To USL CAPITAL CORPORATION
DATED August 29, 1995
Equipment Location: 1821 West Iomega Way, Building #3
Roy, Utah 84067
Equipment Description:
(7) Hellios Incorporated, Three spindle, 3-Up ServoWriter stations and
peripherals/options
as specified in the Helios proposal #1903-12 dated 2/2/94. The following
is
a breakdown of each unit by serial number and cost:
Serial # Cost
031595-01 $221,830.00
050995-03 204,830.00
040695-01 204,000.00
061495-05 193,800.00
062695-06 193,800.00
073195-09 189,565.00
081195-12 189,565.00
USL
CAPITAL
Lessee Name: IOMEGA CORPORATION
Customer Account # 90168200
INSURANCE INFORMATION
The equipment you have chosen to lease must be properly insured. This
outline is intended to assist you and your insurance company in obtaining the
necessary coverage:
Insurers must possess a Best's rating of "A-" or better. USL Capital
Corporation is to be named as Certificate Holder on insurance certificates.
X PHYSICAL DAMAGE: Fire, Extended Coverage, Vandalism, Malicious
Mischief and Theft for the full replacement value of all equipment
leased or to be leased during the coverage period. The following
language should appear on the certificate: "Certificate Holder is
included as Loss Payee with respect to equipment leased under
Account #90168200" (shown above)
NA LIABILITY: Property Damage and Bodily Injury coverage in the amount of $3
million naming USL Capital Corporation as additional insured. If
liability coverage is required, the following language should appear on
the certificate: "Certificate Holder is included as Loss Payee and
Additional Insured with respect to equipment leased under Account #
____________" (shown above)
A copy of the insurance certificate, or other evidence of coverage, needs
to be received at USL Capital before funding can occur. This may be faxed to
Shirley Chen at 415-627-4565; originals should be sent by mail to:
USL Capital Corporation
Equipment Insurance Department, MS-410
733 Front Street
San Francisco, CA 94111
The policy should include a thirty (30) day written notice of cancellation
sent to the above address.
We suggest you forward this information to your insurance representative
so that they may update your coverage for you. Thank you for your attention to
this matter.
USL
CAPITAL QUITCLAIM BILL OF SALE
For valuable consideration, receipt of which is hereby acknowledged, the
undersigned Seller hereby transfers any and all of its right, title and
interest, if any, in and to the following described personal property except for
its rights under the Equipment Schedule dated 8/29/95 to USL Capital
Corporation:
Description of Personal Property (Equipment):
(1) Hellios Incorporated, Three spindle, 3-Up ServoWriter stations and
peripherals/options
as specified in the Helios proposal #1903-12 dated 2/2/94. The following
is a
breakdown of each unit by serial number and cost:
Serial # Cost:
081195-12 $189,565.00
EXECUTED THIS 29TH DAY OF AUGUST, 1995.
IOMEGA CORPORATION (SELLER)
BY: /s/ Jerol S. Garner
Title: Assistant Treasurer
Exhibit 10.28
Heller Financial
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (hereinafter referred to as "Agreement" or
"Security Agreement"), is made this 23 day of October, 1995, by and
between Iomega Corporation, a Delaware corporation ("Debtor"), whose
business address is 1821 West Iomega Way, Roy, Utah 84067, and
Heller Financial, Inc., a Delaware corporation ("Secured Party"),
whose address is Commercial Equipment Finance Division, 500 West
Monroe Street, Chicago, Illinois 60661..
WITNESSETH:
1. Secure Payment. To secure payment of indebtedness in the
principal sum of up to Two Million Five Hundred Thousand and 00/100
Dollars ($2,500,000.00) as evidenced by a note or notes
(individually, a "Note," and together, the "Notes"), which Debtor has
executed and delivered or will execute and deliver to Secured Party
and also to secure any other indebtedness or liability of Debtor to
Secured Party, direct or indirect, absolute or contingent, due or
to become due, now existing or hereafter arising and no matter how
acquired by Secured Party, including all future advances or loans
which may be made at the option of Secured Party (all the foregoing
hereinafter called the "Indebtedness"), Debtor hereby grants and
conveys to Secured Party a first superior continuing lien and
security interest in the property described below and/or on the
Schedule(s) attached hereto (the "Schedules"), all products and
proceeds (including insurance proceeds) thereof, if any, and all
increases, substitutions, replacements, attachments, additions, and
accessions thereto, all or any of the foregoing hereinafter called
the "Collateral".
(Description of Collateral on Attached Schedules. The Schedules
may be supplemented from time to time to evidence the Collateral,
subject to this Agreement.)
2. Warranties, Representations and Covenants. Debtor warrants,
represents, covenants and agrees as follows:
(a) Perform Obligations. Debtor shall pay as and when due
all of the Indebtedness secured by this Agreement and perform all
of the obligations contained in this Agreement according to its
terms. Debtor shall use the loan proceeds primarily for business
uses and not for personal, family, household, or agricultural uses.
(b) Defend the Collateral. Debtor shall defend the title to
the Collateral against all persons and against all claims and
demands whatsoever, which Collateral, except for the security
interest granted hereby, is lawfully owned by Debtor and is now
free and clear of any and all liens, security interests, claims
charges, encumbrances, taxes, and assessments of any kind, except
as may be set forth on the Schedules. At the request of Secured
Party, Debtor shall furnish further assurance of title, execute any
written agreement or do any other acts necessary to effectuate the
purposes and provisions of this Agreement, execute any instrument
or statement required by law or otherwise in order to perfect,
continue, or terminate the security interest of Secured Party in
the Collateral and pay all costs of filing in connection therewith.
(c) Keep Possession of the Collateral. Debtor shall retain
possession of the Collateral until the Indebtedness is fully paid
and performed (subject to Secured Party's rights and remedies upon
the occurrence of an Event of Default (defined below)) and shall
not sell, exchange, assign, loan, deliver, lease, mortgage, or
otherwise dispose of the Collateral or any part thereof without the
prior written consent of Secured Party. Debtor shall keep the
Collateral at the location(s) specified on the Schedules and shall
not remove same (except in the usual course of business for
temporary periods) without the prior written consent of Secured
Party.
(d) Collateral Free and Clear. Debtor shall keep the
Collateral free and clear of all liens, charges, encumbrances,
assessments, and other security interests of any kind (other than
the security interest granted hereby) and shall pay, when due, all
taxes, assessments, and license fees relating to the Collateral.
(e) Collateral in Good Operating Order. All of the
Collateral is in good operating order, condition and repair and is
used or useful in the business of Debtor. Debtor shall keep the
Collateral, at Debtor's sole cost and expense, in good repair and
condition and not misuse, abuse, waste, or allow it to deteriorate
except for normal wear and tear. Debtor shall make the Collateral
available for inspection by Secured Party at all reasonable times,
and Debtor will use and maintain the Collateral in a lawful manner
in accordance with all applicable laws, regulations, ordinances,
and codes.
(f) Insurance. Debtor shall insure the Collateral against
loss by fire (including extended coverage), theft and other
hazards, for its full insurable value including replacement costs,
with a deductible not to exceed $50,000.00 per occurrence and
without co-insurance. The insurance policy shall name Secured
Party as loss payee and shall contain such other terms as Secured
Party may require. In addition, Debtor shall obtain liability
insurance, including automobile if the Collateral includes motor
vehicles, respecting the Collateral covering liability for bodily
injury, including death and property damage, in an amount of at
least $5,000,000 per occurrence or such greater amount as may
comply with general industry standards, or in such other amounts as
Secured Party may otherwise require. Policies shall be in such
form, amounts, and with such companies as Secured Party may
approve; shall provide for at least thirty (30) days prior written
notice to Secured Party prior to any modification or cancellation
thereof; shall be payable to Debtor and Secured Party as their
interests may appear; shall waive any claim for premium against
Secured Party; and shall provide that no breach of warranty or
representation or act or omission of Debtor shall terminate, limit
or affect the insurers' liability to Secured Party. Certificates
of insurance or policies evidencing the insurance required hereby
along with satisfactory proof of the payment of the premiums
therefor shall be delivered to Secured Party who is authorized, but
under no duty, to obtain such insurance upon failure of Debtor to
do so. Debtor shall give immediate written notice to Secured Party
and to insurers of loss or damage to the Collateral and shall
promptly file proofs of loss with insurers. Debtor hereby
irrevocably appoints Secured Party as Debtor's attorney-in-fact,
coupled with an interest, for the purpose of obtaining, adjusting
and canceling any such insurance and endorsing settlement drafts.
Debtor hereby assigns to Secured Party, as additional security for
the Indebtedness, all sums which may become payable under such
insurance, including return premiums and dividends.
(g) Complete Information. No representation or warranty made
by Debtor in this Agreement and no other document or statement
furnished to Secured Party by or on behalf of Debtor contains any
material misstatement of a material fact or omits to state any
material fact necessary in order to make the statements contained
herein or therein not misleading. Except as expressly set forth in
the Schedules, there is no fact known to Debtor that will or could
have a materially adverse affect on the business, operation,
condition (financial or otherwise), performance, properties or
prospects of Debtor or Debtor's ability to timely pay all of the
Indebtedness and perform all of its other obligations contained in
or secured by this Agreement.
(h) If Collateral Attaches to Real Estate. If the Collateral
or any part thereof has been attached to or is to be attached to
real estate, an accurate description of the real estate and the
name and address of the record owner is set forth on the Schedules.
If said Collateral is attached to real estate prior to the
perfection of the security interest granted hereby, debtor will, on
demand of Secured Party, furnish Secured Party with a disclaimer or
waiver of any interest in the Collateral satisfactory to Secured
Party and signed by all persons having an interest in the real
estate. Notwithstanding the foregoing, the Collateral shall remain
personal property and shall not be affixed to realty without the
prior written consent of Secured Party.
(I) Financial Statements. If Debtor is required to make such
reports to the Securities and Exchange Commission pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, then
Debtor shall, within sixty (60) days after the end of each fiscal
quarter of Debtor (except the last fiscal quarter of each fiscal
year), furnish to Secured Party a complete and accurate copy of
Debtor's Form 10-Q files with the Securities and Exchange
Commission for the quarterly period then ended. If Debtor is not
required to file a Form 10-Q with the Securities and Exchange
Commission pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, then Debtor shall, within sixty (60) days
after the end of each fiscal quarter of Debtor (except the last
fiscal quarter of each fiscal year), furnish to Secured Party
unaudited financial statements of Debtor, including, in each
instance, balance sheets and income statements, on a consolidated
basis, for the quarterly period then ended and for Debtor's fiscal
year to date, prepared in accordance with generally accepted
accounting principles, consistently applied ("GAAP"), certified as
to truth and accuracy by an appropriate officer of Debtor. If
Debtor is required to make such reports to the Securities and
Exchange Commission pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, then Debtor shall, within ninety
(90) days after the end of each fiscal year of Debtor, furnish to
Secured Party a complete and accurate copy of Debtor's Form 10-K
files with the Securities and Exchange Commission for the fiscal
year then ended. If Debtor is not required to file a Form 10-K
with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, then Debtor shall,
within ninety (90) days after the end of each fiscal year of
Debtor, furnish to Secured Party its annual audited financial
statements, including balance sheets, income statements and cash
flow statements for the fiscal year then ended, on a consolidated
and consolidating basis, as appropriate, which have been prepared
by its independent accounts in accordance with GAAP. Such audited
financial statements shall be accompanied by the independent
accountant's opinion, which opinion shall be in form generally
recognized as "unqualified".
(j) Perfection. This Agreement creates a valid and first
priority security interest in the Collateral, securing the payment
and performance of the Indebtedness and all actions necessary to
perfect and protect such security interest have been duly taken.
(k) Authorization. Debtor is now, and will at all times
remain, duly licensed, qualified to do business and in good
standing in every jurisdiction where failure to be so licensed or
qualified and in good standing would have a material adverse effect
on its business, properties or assets. Debtor has the power to
authorize, execute and deliver this Security Agreement, the Notes
and the other documents relating thereto (the Security Agreement,
Notes and other documents, all as amended from time to time, are
hereafter collectively referred to as the "Loan Documents"), to
incur and perform obligations hereunder and thereunder, and to
grant the security interests created hereby. The Loan Documents
have been duly authorized, executed, and delivered by or on behalf
of Debtor, and constitute the legal, valid, and binding obligations
of Debtor and are enforceable against Debtor in accordance with
their respective terms. Debtor will preserve and maintain its
existence and will not wind up its affairs or otherwise dissolve.
Debtor will not, without thirty (30) days prior written notice to
Secured Party, (1) change its name or so change its structure such
that any financing statement or other record notice becomes
misleading or (2) change its principal place of business or chief
executive or accounting offices from the address stated herein.
(l) Litigation. There are no actions, suits, proceedings, or
investigations ("Litigation") pending or, to the knowledge of
Debtor, threatened against Debtor. Debtor is not in violation of
any material term or provision of its by-laws, or of any material
agreement or instrument, or of any judgment, decree, order, or any
statute, rule, or governmental regulation applicable to it. The
execution, delivery, and performance of the Loan Documents do not
and will not violate, constitute a default under, or otherwise
conflict with any such term or provision or result in the creation
of any security interest, lien, charge, or encumbrance upon any of
the properties or assets of Debtor, except for the security
interest herein created. Debtor will promptly notify Secured Party
in writing of Litigation against it if: (1) the outcome of such
Litigation may materially or adversely affect the finances or
operations of Debtor (for purposes of this provision, One Hundred
Thousand and 00/100 Dollars ($100,000) shall be deemed material) or
(2) such Litigation questions the validity of any Loan Document or
any action taken or to be taken pursuant thereto. Debtor shall
furnish to Secured Party such information regarding any such
Litigation as Secured Party shall reasonably request.
(m) Compliance with Laws. Debtor shall comply in all
material respects with all applicable laws, rules, and regulations
and duly observe all valid requirements of all governmental
authorities, and all statutes, rules and regulations relating to
its business, including, without limitation, those concerning
public and employee health, safety, and social security and
withholding taxes and those concerning employee benefit plans and
as such may be required by the Internal Revenue Code, as amended
from time to time ("the Code") and the Employees Retirement Income
Security Act of 1974 as amended from time to time ("ERISA"). With
respect to any "multiple employer plan" or "single employer plan" as
defined in ERISA (collectively, "Plans"), Debtor will not: (I) incur
any liability to the Pension Benefit Guaranty Corporation ("PBGC");
(ii) participate in any prohibited transaction involving any of
such Plans or any trust created thereunder which would subject
Debtor to a tax or penalty on prohibited transactions imposed under
the Code or ERISA; (iii) fail to make any contribution which it is
obligated to pay under the terms of such Plan; (iv) allow or suffer
to exist any occurrence of a "reportable event", or any other event
or condition which presents a risk of termination by the PBGC of
any such Plan; or (v) incur any withdrawal liability with respect
to any Plan which is not fully bonded.
(n) Taxes. Debtor has timely filed all tax returns (federal,
state, local, and foreign) required to be filed by it and has paid
or established reserves for all taxes, assessments, fees, and other
governmental charges upon its properties, assets, income and
franchises. Debtor does not know of any actual or proposed
additional tax assessments for any fiscal period against it which
would have a material adverse effect on it. Debtor will promptly
pay and discharge all taxes, assessments, and other governmental
charges prior to the date on which penalties are attached thereto,
establish adequate reserves for the payments of such taxes,
assessments, and other governmental charges (including cash
reserves, if any, required by GAAP for any taxes, assessments, or
other charges being contested), make all required withholding and
other tax deposits, and, upon request, provide Secured Party with
receipts or other proof that any or all of such taxes, assessments,
or governmental charges have been paid in a timely fashion;
provided, however, that nothing contained herein shall require the
payment of any tax, assessment, or other governmental charge so
long as its validity is being contested in good faith and by
appropriate proceedings diligently conducted. Should any stamp,
excise, or other tax, including mortgage, conveyance, deed,
intangible, or recording taxes become payable in respect of this
Security Agreement, the Notes, or any other Loan Documents, Debtor
shall pay the same (including interest and penalties, if any) and
shall hold Secured Party harmless with respect thereto.
(o) Labor Laws. Debtor is in compliance with the Fair Labor
Standards Act. Debtor is not engaged in any unfair labor practice
which would have a material adverse effect on it. There are: (1)
no unfair labor practice complaints pending or, to the best
knowledge of Debtor, threatened against Debtor before the National
Labor Relations Board and no grievance or arbitration proceedings
arising out of or under collective bargaining agreements are
pending or, to the best knowledge of Debtor, threatened; (2) no
strikes, work stoppages, or controversies pending or threatened
between Debtor and any of its employees; and (3) no union
representation questions that exist with respect to Debtor's
business and no union organizing activities that are taking place.
(p) Environmental Laws. Debtor has complied and will comply
in all material respects with all Environmental Laws (defined
below) applicable to the transfer, construction on, and operations
of its property and business. Debtor has (1) not received any
summons, complaint, order, or similar notice that it is not in
compliance with, or that any public authority is investigating its
compliance with, any Environmental Laws on or about its assets or
property. Debtor will comply, in all material respects with all
Environmental Laws and provide Secured Party, promptly following
receipt, copies of any correspondence, notice, complaint, order, or
other document that it receives asserting or alleging a
circumstance or condition which requires or may require a cleanup,
removal, remedial action or other response by or on the part of
Debtor under Environmental Laws, or which seeks damages or civil,
criminal or punitive penalties from Debtor for an alleged violation
of any Environmental Laws. Debtor will advise Secured Party in
writing as soon as Debtor becomes aware of any condition or
circumstance that makes the environmental representations or
warranties contained in this Agreement inaccurate in any material
respect. For purposes of this Security Agreement, "Environmental
Laws" means all federal, state, and local laws, rules, resolutions,
orders, and decrees relating to health, safety, hazardous
substances, and environmental matters, including without
limitation, the Resource Recovery and Reclamation Act of 1976, the
Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, the Toxic Substances Control Act, the Clean Water Act
of 1977, and the Clean Air Act, all as amended from time to time.
(q) No Liability. Debtor acknowledges and agrees that
Secured Party shall not be liable for any acts or omissions nor for
any error of judgment or mistake of fact or law other than as a
result of Secured Party's gross negligence or willful misconduct.
(r) Setoff. Without limiting any other right of Secured
Party, whenever Secured Party has the right to declare any
Indebtedness to be immediately due and payable (whether or not it
has so declared), Secured Party is hereby authorized at any time
and from time to time to the fullest extent permitted by law, to
set off and apply against any and all of the Indebtedness, any and
all monies then or thereafter owed to Debtor by Secured Party in
any capacity, whether or not the obligation to pay such monies owed
by Secured Party is then due. Secured Party shall be deemed to
have exercised such right of setoff immediately at the time of such
election even though any charge therefor is made or entered on
Secured Party's records subsequent thereto.
(s) Regulations. No proceeds of the loans or any other
financial accommodation hereunder will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin
security, as that term is defined in Regulations G, T, U, X of the
Board of Governors of the Federal Reserve System.
(t) Books and Records. Debtor shall maintain, at all times,
true and complete books, records and accounts in which true and
correct entries are made of its transactions in accordance with
GAAP and consistent with those applied in the preparation of
Debtor's financial statements. At all reasonable times, upon
reasonable notice, and during normal business hours, Debtor will
permit Secured Party or its agents to audit, examine and make
extracts from or copies of any of its books, ledgers, reports,
correspondence, and other records. Secured Party may verify any
Collateral in any reasonable manner which Secured Party may
consider appropriate, and Debtor shall furnish all reasonable
assistance and information and perform any acts which Secured Party
may reasonably request in connection therewith.
(u) Written Notice. Debtor agrees to give Secured Party
written notice of any action or inaction by Secured Party or any
agent or attorney of Secured Party that may give rise to a claim
against Secured Party or any agent or attorney of Secured Party or
that may be a defense to payment of the obligations for any reason,
including, but not limited to, commission of a tort or violation of
any contractual duty or duty implied by law. Debtor agrees that
unless such notice is fully given as promptly as possible (and in
any event within thirty (30) days) after Debtor has knowledge, or
with the exercise of reasonable diligence should have had
knowledge, of any such action or inaction, Debtor shall not assert,
and Debtor shall be deemed to have waived, any claim or defense
arising therefrom.
(v) Indemnity. Debtor shall indemnify, defend and hold
Secured Party, its parent, officers, directors, agents, employees,
and attorneys harmless from and against any loss, expense
(including reasonable attorneys' fees and costs), damage or
liability arising directly or indirectly out of (I) any breach of
any representation, warranty or covenant contained herein and in
the other Loan Documents, (ii) any claim or cause of action that
would deny Secured Party the full benefit or protection of any
provision herein and in the Loan Documents, and (iii) the
ownership, possession, lease, operation, use, condition, sale,
return, or other disposition of the Collateral. If after the
receipt of any payment of all or any part of the Indebtedness,
Secured Party is for any reason compelled to surrender such payment
to any person or entity, because such payment is determined to be
void or voidable as a preference, impermissible set-off, or a
diversion of trust funds, or for any other reason, this Security
Agreement and the Loan Documents shall continue in full force and
effect and Debtor shall be liable to Secured Party for the amount
of such payment surrendered. The provisions of the preceding
sentence shall be and remain effective notwithstanding any contrary
action which may have been taken by Secured Party in reliance upon
such payment, and any such contrary action so taken shall be
without prejudice to Secured Party's rights under this Security
Agreement and shall be deemed to have been conditioned upon such
payment having become final and irrevocable. Additionally, Debtor
will pay or reimburse Secured Party for any and all reasonable
costs and expenses incurred in connection herewith, including, but
not limited to, attorneys' fees, filing fees, search fees, and lien
recordation. The provisions of this paragraph shall survive the
termination of this Security Agreement and the Loan Documents.
(w) Collateral Documentation. Debtor shall deliver to
Secured Party prior to any advance or loan, satisfactory
documentation regarding the Collateral to be financed, including,
but not limited to, such invoices, canceled checks evidencing
payments, or other documentation as may be reasonably requested by
Secured Party. Additionally, Debtor must satisfy Secured Party
that Debtor's business and financial information is as has been
represented and there has been no material change in Debtor's
business, financial condition, or operations.
3. Prepayment. Upon forty-five (45) days prior written notice to
Secured Party, on any regular installment payment date under a
Note, Debtor may prepay in whole, but not in part, the then entire
unpaid principal balance of the Note, together with all accrued and
unpaid interest thereon to the date of such prepayment, provided
that along with and in addition to such prepayment, Debtor shall
pay (I) any and all other sums due hereunder or under the Note or
any other Loan Documents, and (ii) a prepayment fee as liquidated
damages and not as a penalty, in a sum equal to the following
percentages of the amount prepaid: three percent (3%) of the amount
prepaid for any prepayment during Loan Year 1; two percent (2%) of
the amount prepaid for any prepayment during Loan Year 2; and, one
percent (1%) of the amount prepaid for any prepayment during Loan
Year 3. The prepayment fee described in clause (ii) above shall
also be due upon the acceleration of the maturity date of the Note
following the occurrence of any Event of Default. The phrase "Loan
Year" as used herein shall mean each twelve (12) consecutive months
commencing on the date of the Note.
4. Events of Default. If any one of the following events (each
of which is herein called an "Event of Default") shall occur: (a)
Debtor fails to pay any part of the Indebtedness within ten (10)
days of its due date, or (b) any warranty or representation of
Debtor is untrue or inaccurate or Debtor breaches any warranty or
representation hereunder, or (c) Debtor breaches or defaults in the
performance of any other agreement or covenant hereunder, of (d)
Debtor shall default in the payment of performance of any debt or
other obligation owed by it to any person or entity in excess of
One Million and 00/100 Dollars ($1,000,000), including, but not
limited to, Secured Party, or (e) Debtor becomes insolvent, makes
an assignment for the benefit of creditors or ceases to continue as
a going business, of (f) a receiver, trustee, conservator, or
liquidator is appointed for Debtor or for all or a substantial
portion of Debtor's property, with or without the approval or
consent of Debtor, or (g) a petition is filed by or against Debtor
under the Bankruptcy Code or any debtors, or (h) in the reasonable
opinion of Secured Party the value of the Collateral is
substantially reduced or Secured Party considers that the prospect
of full performance and satisfaction by Debtor of the Indebtedness
is imperiled; or (I) if there is a material adverse change in the
business or financial condition or prospects of Debtor, then, and
in any such event, Secured Party shall have the right to exercise
any one or more of the remedies hereinafter provided.
Each of the following events shall also constitute an Event of
Default hereunder and upon the occurrence of any one or more of
them, Secured Party shall have the right to exercise any one or
more of the remedies hereinafter provided:
(aa) If, as of the end of any fiscal quarter, Debtor has
a Consolidated Net Worth of less than Forty-Two Million five
Hundred and 00/100 Dollars ($42,500,000.00), where "Consolidated
Net Worth" means, as of any date of determination, the
stockholders' equity of Debtor as determined in accordance with
GAAP and as would be reflected on a consolidated balance sheet of
Debtor prepared as of such date; or
(bb) If, as of the end of any fiscal quarter, Debtor has
Working Capital of less than Ten Million and 00/100 Dollars
($10,000,000.00), where "Working Capital" means, as of any date of
determination, the excess of Debtor's current assets over current
liabilities, each as determined in accordance with GAAP; or
(cc) If Debtor's income from operations as determined in
accordance with GAAP ("Operating Income") in any fiscal quarter is
less than Two Million and 00/100 Dollars ($2,000,000.00); or
(dd) If Debtor's Operating Income in any fiscal quarter
is less than the product of (I) Debtor's interest expense as
determined in accordance with GAAP ("Interest Expense") in the
fiscal quarter, times (ii) two (2).
Notwithstanding the foregoing, clauses (cc) and (dd)
shall not apply to any fiscal quarter ending after December 31,
1996, so long as (I) no Event of Default has then occurred, (ii)
Debtor's Operating Income for the fiscal year ending December 31,
1996, is at least Ten Million and 00/100 Dollars ($10,000,000.00),
and (iii) Debtor's Operating Income for the fiscal year ending
December 31, 1996, exceeds the product of (A) Debtor's Interest
Expense for the fiscal year ending December 31, 1996, times (B) two
(2).
5. Remedies. If an event of Default shall occur, in addition to
all rights and remedies of a secured party under the Uniform
Commercial Code, Secured Party may, at its option, at any time (a)
declare the entire unpaid Indebtedness to be immediately due and
payable; (b) without demand or legal process, enter into the
premises where the Collateral may be found and take possession of
and remove the Collateral, all without charge to or liability on
the part of Secured Party; and (c) require Debtor to assemble the
Collateral, render it unusable, and crate, pack, ship, and deliver
the Collateral to Secured Party in such manner and at such place as
Secured Party may require, all at Debtor's sole cost and expense.
DEBTOR HEREBY EXPRESSLY WAIVES ITS RIGHTS IF ANY TO (1) PRIOR
NOTICE OF REPOSSESSION AND (2) A JUDICIAL OR ADMINISTRATIVE HEARING
PRIOR TO SUCH REPOSSESSION. Secured Party may, at its option,
ship, store, and repair the Collateral so removed and sell any or
all of it at a public or private sale or sales. Unless the
Collateral is perishable or threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Secured
Party will give Debtor reasonable notice of the time and place of
any public sale thereof or of the time after which any private sale
or any other intended disposition thereof is to be made, it being
understood and agreed that Secured Party may be a buyer at any such
sale and Debtor may not, either directly or indirectly, be a buyer
at any such sale. The requirements, if any, for reasonable notice
will be met if such notice is mailed postage prepaid to Debtor at
its address shown above, at least five (5) days before the time of
sale or disposition. Debtor shall also be liable for and shall
upon demand pay to Secured Party all expenses incurred by Secured
Party in connection with the undertaking or enforcement by Secured
Party of any of its rights or remedies hereunder or at law,
including, but not limited to, all expenses of repossessing,
storing, shipping, repairing, selling or otherwise disposing of the
Collateral and legal expenses, including reasonable attorneys' fees
and court costs (through any and all appeals and judgment
enforcement actions, it being acknowledged and agreed by Debtor
that this provision shall survive and not merge with any such
judgment), all of which costs and expenses shall be additional
Indebtedness hereby secured. After any such sale or disposition,
Debtor shall be liable for any deficiency of the Indebtedness
remaining unpaid, with interest thereon at the rate set forth in
the related Notes.
6. Cumulative Remedies. All remedies of Secured Party hereunder
are cumulative, are in addition to any other remedies provided for
by law or in equity and may, to the extent permitted by law, be
exercised concurrently or separately, and the exercise of any one
remedy shall not be deemed an election of such remedy or to
preclude the exercise of any other remedy. No failure on the part
of Secured Party to exercise, and no delay in exercising any right
or remedy, shall operate as a waiver thereof or in any way modify
or be deemed to modify the terms of this Security Agreement and the
other Loan Documents or the Indebtedness, nor shall any single or
partial exercise by Secured Party of any right or remedy preclude
any other or further exercise of the same or any other right or
remedy.
7. Assignment. Secured Party may transfer or assign this
Security Agreement, any Note, or any part of the Indebtedness and
the other Loan Documents either together or separately without
releasing Debtor or the Collateral, and upon such transfer or
assignment the assignee or holder shall be entitled to all the
rights, powers, privileges and remedies of Secured Party to the
extent assigned or transferred. The obligations of Debtor shall
not be subject, as against any such assignee or transferee, to the
defense, set-off, or counter-claim available to Debtor against
Secured Party and any such defense, set-off, or counter-claim may
be asserted only against Secured Party.
8. Time is of the Essence. Time and manner of performance by
Debtor of its duties and obligations under this Security Agreement,
the Notes, and the other Loan Documents is of the essence. If
Debtor shall fail to comply with any provision of this Security
Agreement or any of the other Loan Documents, Secured Party shall
have the right, but shall not be obligated, to take action to
address such non-compliance, in whole or in part, and all moneys
spent and expenses and obligations incurred or assumed by Secured
Party shall be paid by Debtor upon demand and shall be added to the
Indebtedness. Any such action by Secured Party shall not
constitute a waiver of Debtor's default.
9. Enforcement. This Agreement shall be governed by and
construed in accordance with the internal laws and decisions of the
State of Illinois, without regard to principles of conflicts of
law. At Secured Party's election and without limiting Secured
Party's right to commence an action in any other jurisdiction,
Debtor hereby submits to the exclusive jurisdiction and venue of
any court (federal, state or local) having situs within the State
of Illinois, expressly waives personal service of process and
consents to service by certified mail, postage prepaid, directed to
the last known address of Debtor, which service shall be deemed
completed within ten (10) days after the date of mailing thereof.
10. Further Assurance: Notice. Debtor shall, at its expense, do,
execute and deliver such further acts and documents as Secured
Party may from time to time reasonably require to assure and
confirm the rights created or intended to be created hereunder to
carry out the intention or facilitate the performance of the terms
of this Security Agreement and the Loan Documents or to assure the
validity, perfection, priority or enforceability of any security
interest created hereunder. Debtor agrees to execute any
instrument or instruments necessary or expedient for filing,
recording, perfecting, notifying, foreclosing, and/or liquidating
of Secured Party's interest in the Collateral upon request of, and
as determined by, Secured Party, and Debtor hereby specifically
authorizes Secured Party to prepare and file Uniform Commercial
Code financing statements and other documents and to execute same
for and on behalf of Debtor as Debtor's attorney-in-fact,
irrevocably and coupled with an interest, for such purposes. All
notices required or otherwise given by either party shall be deemed
adequately and properly given if sent by registered or certified
mail or by overnight courier with a copy by facsimile to the other
party at the addresses stated herein or at such other address as
the other party may from time to time designate in writing.
11. Waiver of Jury Trial. Debtor and Secured Party hereby waive
their respective rights to a jury trial of any claim or cause of
action based upon or arising out of this Security Agreement, the
Notes, or the other Loan Documents. This waiver is informed and
freely made. Debtor and Secured Party acknowledge that this waiver
is a material inducement to enter into a business relationship,
that each has already relied on the waiver in entering into this
Agreement and the other Loan Documents, and that each will continue
to rely on the waiver in their related future dealings. Debtor and
Secured Party further warrant and represent that each has reviewed
this waiver with its legal counsel and that each knowingly and
voluntarily waives its jury trial rights following consultation
with legal counsel.
12. Complete Agreement. This Security Agreement and the other
related Loan Documents are intended by Debtor and Secured Party to
be the final, complete, and exclusive expression of the agreement
between them. This Security Agreement and the other related Loan
Documents may not be altered, modified or terminated in any manner
except by a writing duly signed by the parties hereto. Debtor and
Secured Party intend this Security Agreement and the other related
Loan Documents to be valid and binding and no provisions hereof and
thereof which may be deemed unenforceable shall in any way
invalidate any other provisions of this Security Agreement and the
other related Loan Documents, all of which shall remain in full
force and effect. This Security Agreement and the other related
Loan Documents shall be binding upon the respective successors,
legal representatives, and assigns of the parties. The singular
shall include the plural, the plural shall include the singular,
and the use of any gender shall be applicable to all genders. If
there be more than one Debtor, the warranties, representations and
agreements herein are joint and several. The Schedules on the
following page(s) are a part hereof. Sections and subsections
headings are included for convenience of reference only and shall
not be given any substantive effect.
13. Credit Facility.
(a) Purpose. On and subject to the terms and conditions set
forth in this Agreement, Secured Party and Debtor hereby establish
a credit facility pursuant to which Secured Party agrees to lend to
Debtor and Debtor agrees to borrow from Secured Party up to a sum
of Two Million Five Hundred Thousand and 00/100 Dollars
($2,500,000.00) (the "Facility"). The purpose of the Facility is
to finance the acquisition of items of the Collateral and proceeds
advanced under the Facility shall not in any event exceed the
actual cost of those items of Collateral, plus applicable taxes, as
verified and approved by Secured Party. All of the Collateral
shall be acceptable to Secured Party in its sole discretion.
(b) Disbursements. Provided no Event of Default shall have
occurred, upon Debtor's request therefor and upon all of the terms
and conditions set forth herein, Secured Party agrees to advance
proceeds under the Facility to or on behalf of Debtor, provided,
however, that Secured Party shall not be obligated to make more
than two (2) advances under the Facility, and shall not be
obligated to make any advance under the Facility at any time after
December 7, 1995. Each advance of funds under the Facility shall
reduce, dollar for dollar, the amount that may be advanced under
the Facility and no amount may be reborrowed once it has been
advanced.
(c) The Notes. Each advance of funds under the Facility
shall be evidenced by a Note, which shall be in form and substance
satisfactory to Secured Party. Interest shall accrue under each
Note at the rate of eight and 89/100 percent (8.89%) per annum.
Each Note shall be payable in thirty-seven (37) consecutive monthly
installments of principal and interest, the first thirty-six (36)
of which shall be in equal amounts so that ten percent (10%) of the
original principal amount of the Note remains outstanding after the
thirty-sixth (36th) such payment, and the thirty-seventh (37th) and
final payment of which shall be in the entire then remaining
outstanding principal balance under the Note, plus interest thereon
at the rate set forth above. At Secured Party's discretion, each
Note may also provide for an initial interest only payment. A
default under any Note shall constitute an Event of Default
hereunder and under any other Note. Reference is made to the Notes
for a full statement of the subjects addressed in this Subsection.
(d) Request for Advances. Each request for an advance of
funds under the Facility shall be in writing and shall be in form
and substance satisfactory to Secured Party (the "Proceeds
Request"). In connection with each Proceeds Request, Debtor shall
furnish to Secured Party complete and accurate copies of payoff
demands, purchase orders, invoices, canceled checks and other
information, documents and instruments as requested by Secured
Party relating to the Collateral. In addition, each such request
shall be accompanied by a certificate executed by a duly authorized
officer of Debtor and satisfactory in form and substance to Secured
Party, certifying (I) that no Event of Default or event which, with
the passage of time or the giving of notice, or both, would
constitute an Event of Default, has occurred hereunder, and (ii)
the authority and incumbency of the individual(s) executing the
Proceeds Request on behalf of Debtor.
(e) Rate Lock Fee. Debtor has previously deposited with
Secured Party the sum of Twenty-Five Thousand and 00/100 Dollars
($25,000.00) (the "Rate Lock Fee") in consideration for Secured
Party's assumption of interest rate risks upon its covenant to
advance funds under the Facility at a fixed rate of interest that
was previously set. The Rate Lock Fee was deemed earned upon
receipt by Secured Party. Notwithstanding the foregoing, Secured
Party agrees to apply the Rate Lock Fee to it's costs of legal
counsel (including internal counsel), and search, filing and other
incident fees and charges incurred by Secured Party in connection
with the Facility (collectively, "Transaction Expenses"). Secured
Party further agrees to apply any balance of the Rate Lock Fee
remaining after payment of the Transaction Expenses to the first
payment due under each Note, on a pro rate basis and if for any
reason the amount advanced under the Facility is less than Two
Million Five Hundred Thousand and 00/100 Dollars ($2,500,000) as of
December 8, 1995, Secured Party shall retain any remaining balance
of the Rate Lock Fee.
IN WITNESS WHEREOF, Secured Party and Debtor have each signed this
Security Agreement as of the day and year first above written.
HELLER FINANCIAL, INC. Iomega Corporation,
a Delaware corporation a Delaware corporation
By: ____________________________ By: /s/ Jerol S. Garner
Name:____________________________ Name: Jerol S. Garner
Title:____________________________ Title: Assistant Treasurer
Fax: ____________________________ Fax: 801-778-3190
SCHEDULE
Description of Collateral
Description of Collateral (Full description including make, model
and serial number):
See Schedule A attached hereto and incorporated herein by this
reference.
Place where Collateral is to be kept:
1821 West Iomega Way
Roy, Utah 84067
Other liens, encumbrances or security interests to which Collateral
is subject, if any:
None
Other Collateral:
None
If Collateral is attached or to be attached to real estate, set
forth:
Address of Real Estate (Including County, block number, lot
number, etc.):
Not Applicable
Record Owner of Real Estate (Name and Address):
Not Applicable
If the real estate at which the Collateral is to be kept is leased:
Name and Address of Lessor of Real Estate:
Not Applicable
/s/JSG
Initials
Exhibit 10.29
HELLER
TRANSLATION
FACTORING AGREEMENT
between
HELLER BANK AG
Weberstrasse 21, D-55130 Mainz
- hereinafter called "the Bank" -
and
- hereinafter called "Client" -
1. BASIC FACTS
In accordance with this agreement the bank purchases the Client's
accounts receivable against his customers and thus assumes the risk
of their insolvency. In addition the bank will relieve the Client
- - also of those accounts receivable which up until now have not
been purchased - of the accounts receivable administration
including dunning procedures and collection. The assignment of the
Client's purchased accounts receivable against his customers is not
made in order to secure a loan granted. These accounts receivable
will remain with the bank ultimately as an equivalent for the
purchase price the bank pays to the Client. The claims the Client
has against the bank and the payments resulting from them will not
serve as a security for loans granted to the Client by third
parties but are to be at the Client's entire disposal in order to
enable him to meet his liabilities to his suppliers making use of
the advantages resulting from immediate payment. The bank's
decision to buy the accounts receivable largely depends on the
information on the accounts receivable and the customers provided
by the Client. Therefore, the correctness and reliability of this
data is of great importance. The factoring agreement creates a
permanent confidential relationship between the contracting
parties.
2. PURCHASE OFFER: COPIES OF INVOICES
2.1 The Client herewith offers to the bank for purchase all of his
present and future accounts receivable against his customers
resulting from sales and services.
2.2 As soon as the Client has delivered the counter-performance in
return for the account receivable, he will inform the bank of the
account receivable by sending a copy of the invoice. In this
invoice the customer, the reason for the accrual of the account
receivable, the amount and the maturity data must be stated in
detail. The Client may only submit copies of invoices of which the
originals were received by the customer and for which the
counter-performance was delivered completely and free from defects.
2.3 The Client will provide the bank besides invoice copies
according to No. 2.2 with these invoice and credit note data by
data carrier or data distance transfer for automatic filing
according to prior agreement. The Client is exclusively liable for
the correctness and the completeness of these data; he will
discharge the bank from all claims of third parties.
3. ACCEPTANCE
3.1 The sales contract for the individual account receivable is
concluded by the bank's acceptance. The acceptance is confirmed by
booking the account receivable to the Client's factoring account.
An advice of this entry does not have to be sent to the Client.
3.2 The bank undertakes to continuously inform the Client of the
bookings of the accounts receivable. The Client may also connect
himself by a data line with the data processing system of the bank
and will then have simultaneous access to each booking operation
and to the entire sales ledger concerning the factoring
relationship.
3.3 The bank undertakes to purchase each account receivable in the
order of the receipt of the invoices, provided that it meets the
following requirements:
a) The account receivable is within the scope of the credit line
established for the customer and of the total maximum investment
for the Client as agreed upon. As far as these requirements are
only partly met, the bank undertakes to purchase that part of the
account receivable which is covered by credit line and the total
amount of the maximum investment.
b) The customer has not been granted a term of payment exceeding
90 days after the invoice date.
c) The copy of the invoice is received by the bank not later than
14 days after the invoice date.
d) The account receivable actually exists, is free of objections
and disputes, it is assignable and not burdened with rights of
third parties.
e) The account receivable is not a claim against an associated
company.
3.4 The bank is also entitled to purchase accounts receivable
which do not meet the requirements as stated in No. 3.3. The bank
will become obliged to purchase an account receivable that
originally was not bought but subsequently meets the requirements
of No. 3.3 (subsequent procedure). If there are several accounts
receivable of this kind they will be purchased in the order of the
invoice dates.
3.5 The bank is not obliged to purchase an account receivable
according to No. 3.3 and No. 3.4 if it has any reason to assume
that the Client does not meet his obligations to suppliers whose
purchase terms include extended property rights.
3.6 The bank will book accounts receivable it does not purchase
after the copy of the invoice was submitted, to a special account
of the Client. These accounts receivable remain offered to the
bank for purchase at any time. The Client may, however, set a
limit of 10 days for the acceptance of such accounts receivable by
the bank. If this period of time has expired without result, the
purchase offer becomes invalid. The acceptance may be confirmed by
the advice of the booking to the factoring account.
4. PURCHASE PRICE
4.1 The purchase price to be paid by the bank equals the amount of
the existing account receivable purchased (less boni and trade
discounts) after the deduction of the factoring commission -
charged on the gross receivables - and the amount of discount. The
amount of discount consists of the interests on the part of the
purchase price paid to the Client for the period of time from this
payment until the payment of the receivable by the customer or
until the occurrence of a bad debt case (No. 6). The amount of the
factoring commission and the interest rate are stated in the letter
"Cooperation".
4.2 The purchase price less the part of the purchase price which
is retained (see No. 8) is due for payment immediately upon the
purchase of the account receivable. The part of the purchase price
which is retained is due for payment as soon as the customer has
paid the purchased account receivable to the bank completely or
when the bad debt case has occurred (No. 6).
5. GUARANTEE
The Client guarantees the legal validity of the account receivable
purchased, in particular that the claim is due for payment as
stated in the copy of the invoice, that the claim exists, that it
is free of objections and disputes, that it is assignable and not
subject to any rights of third parties and that the account
receivable will remain in this condition until collected by the
bank.
6. RISK OF INSOLVENCY OF THE CUSTOMER ("BAD DEBT CASE")
6.1 The bank will assume the risk that the customer is not able to
pay the account receivable purchased.
6.2 The customer's insolvency will be presumed if the customer
does not pay the invoice within 120 days after maturity. The
presumption does not apply if the customer disputes his obligation
to pay within or not within this period of time. In this case the
customer's insolvency has to be proved.
7. CREDIT LINE
7.1 The bank establishes the credit line for the individual
customer, at its own discretion, taking especially into
consideration aspects of credit rating and reliability. In
accordance with the above the bank subsequently has the right to
modify or cancel credit lines at any time.
7.2 A modification of a credit line effects neither the accounts
receivable already purchased nor the accounts receivable for which
the Client has before the receipt of the notice of modification
already delivered the counter-performance by delivery to the
customer and is not able to reclaim it.
8. RETAINED PART OF PURCHASE PRICE
The part of the purchase price retained serves the bank to cover
possible claims the bank might have against the Client. The bank
is entitled to increase the amount retained of the purchase price
even to a higher amount than the one agreed upon, if and as far as
facts justify the apprehension that a) the Client will not meet his
obligations to the bank, in particular because he is in danger to
be verging on insolvency, b) the part of the purchase price
retained up until this point in time does not suffice to cover the
average, justified shortening of the receivables in particular due
to objections of the customer or credit notes of the Client.
9. COLLECTION OF ACCOUNTS RECEIVABLE NOT PURCHASED
9.1 The bank will collect accounts receivable not purchased in its
own name and for the Client's account.
9.2 As compensation for the administration of the accounts
receivable not purchased the bank will receive the administration
fee agreed upon, which becomes due with the first booking of the
account receivable.
10. ACCOUNTS PAYABLE ACCOUNTING
10.1 The bank will carry out the administration of the entire
accounts receivable ledger on the basis of the invoices submitted
to it and in accordance with the governing regulations of the
commercial and taxation laws. The bank will provide the Client
with the bookkeeping records in writing or by an EDP-connection.
From this time the Client will keep all documents or data provided
to him at his own risk.
11. ASSIGNMENT
11.1 Herewith the Client assigns to the bank under the suspensory
effect of the purchase of the respective receivable by the bank all
existing and future accounts receivable against his customers,
which resulted from deliveries and services. The bank herewith
accepts this assignment. Thus the acceptance of the purchase offer
the bank becomes the owner of the account receivable purchased. If
only a part of an account receivable is purchased only this part is
assigned.
11.2 In the event that the bank will not purchase the account
receivable offered to it by the Client immediately (marked by
booking to the special account) the Client assigns this receivable
to the bank already today for the purpose of collection of this
account receivable by the bank and of covering all claims of the
bank against the Client which result from this business
relationship with him. The bank herewith accepts this assignment.
11.3 All accounts receivable the Client has assigned or will
assigned to his suppliers within the scope of extended property
rights (real partial waiver clause) are exempt from the assignment
according to No. 11.2. To the extent he is entitled to, the Client
will authorize the bank to collect these accounts receivable which
are not assigned in its own name for third account.
11.4 If the extended property rights regarding an account
receivable to which No. 11.3 is applicable subsequently become
invalid, the receivable will remain assigned according to No. 11.2.
11.5 If the bank subsequently purchases an account receivable
according to No. 3.4, 3.6, the assignment according to No. 11.2 or
the authorization to collect according to No. 11.3 become invalid
and the receivable remains assigned according to No. 11.1.
11.6 For the assignment of the accounts receivable according to
11.2, as well as for all securities which were registered in the
past or will be registered in the future in favor of the bank
according to the factoring agreement and its supplements as well as
to other agreements applies that:
- - The bank can enforce its right on registration or
strengthening of the securities until the liquidatable value
of all securities equals the total amount of all claims
resulting from the business relation (limit for cover).
- - If the liquidatable value of all securities exceeds the limit
for cover not only temporarily, the bank has - upon the
Client's request - to release securities at its option, namely
in the amount of the sum exceeding the limit for cover; when
choosing the securities to be released the bank will respect
the entitled demands of the Client and of a third licensee,
who has ordered securities for the Client's liabilities.
12. COMMENCEMENT AND END OF THE AGREEMENT
12.1 The commencement and the end of the agreement are stated in
the letter "Cooperation". If the agreement is not canceled three
months before its expiration it will always extend for one year.
12.2 The notice of cancellation must be in writing.
12.3 At the time of expiration of the agreement all purchase offers
not yet accepted will become void. All transactions still pending
will be handled in accordance with this agreement.
13. ADDITIONAL ELEMENTS OF CONTRACT
13.1 The elements of contract in addition to the wording of this
contract are the Additional Business Terms for factoring, the
General Business Terms of the bank and the letter "Cooperation".
13.2 The Client will be notified on modifications of the Additional
Business Terms for factoring or of the General Business Terms of
the bank in writing. They are taken for approved, unless the
Client makes an objection in writing. The bank will expressly draw
the Client's attention to this consequence upon notification. The
Client has to make the objection not later than within one month
following the bank's notification about the modifications.
14. CONCLUDING PROVISIONS
If provisions of this agreement or of the attachments to it should
be or become completely or partially ineffective, the validity of
the remaining provisions is not effected by this. This applies in
particular if the invalidity concerns only certain accounts
receivable or parts of accounts receivable. Instead of the
inoperative provision another appropriate provision should apply,
which is legally effective and comes closest to the economical
purpose intended. As far as real business (assignments of accounts
receivable and expectancies, transfers) should become ineffective,
the contracting parties are, as far as legally permissible, obliged
to handle the transactions among one another as if it was
effective. In addition, they are obliged to transact the real
business without delay taking into consideration requirements which
until this time had possibly not been observed.
This agreement is executed in German and translated into the
English language. In the event of any discrepancies between the
two texts the German version will prevail.
HELLER
TRANSLATION
HELLER BANK
Aktiengesellschaft
Postfach 2420, 55014 Mainz
ADDITIONAL TERMS OF BUSINESS FOR FACTORING (11/94)
1. ASSOCIATED COMPANIES
Associated with the Client are such companies which are indirectly
or directly participating in the Client's enterprise, or in which
the Client is indirectly or directly participating, or the partners
of which are indirectly or directly identical with the Client's
partners, or if at least some of the persons authorized to
represent the company are identical with the persons authorized to
represent the Client's enterprise.
2. CALCULATION OF CREDIT LINES AND TOTAL AMOUNT OF MAXIMUM
INVESTMENT
2.1 For calculating the utilization of the credit line (Nos. 3.3
and 7 of the Factoring Agreement) all purchased and still unpaid
accounts receivable against one customer will be added up.
Accounts receivable, for the settlement of which drafts were given
for rediscounting, also have to be included until the drafts are
paid.
2.2 The utilization of the total amount of the maximum investment
(No. 3.3 of the Factoring Agreement) is calculated accordingly, but
this calculation is based on the parts of the purchase prices paid
out to the Client for still unpaid accounts receivables against all
of the Client's customer.
3. BANK'S OBLIGATION TO INFORM, QUARTERLY STATEMENT, APPROVAL BY
SILENCE
3.1 The bank will inform the Client without delay of decisions
regarding credit lines or of their modifications. Clients who are
connected by EDP to the sales ledger administrated for them can
obtain such information directly at any time.
3.2 In addition to the booking documents (No. 10 of the Factoring
Agreement) the bank provides the Client with a survey made out for
the quarterly statement regarding all accounts relating to the
cooperation, each within 10 days following the ending of a quarter
(quarterly statement).
3.3 Any objection a Client may have concerning the incorrectness
or incompleteness of a quarterly statement must be raised not later
than within one month following its receipt; if the objections are
made in writing, it is sufficient to dispatch these within the
period of one months. Failure to make objections in due time will
be considered approval and is regarded as reaching of an agreement
that the notified accounts correctly describe the mutual rights and
legal relationships and are to be taken as basis for further
cooperation. when issuing the quarterly statement the bank will
expressly draw the Client's attention to this consequence.
3.4 The Client may demand a correction of the quarterly statement
even after expiry of this period, but must then prove that and how
far the quarterly statement was made wrongly.
3.5 Silence following the quarterly statement according to the
above mentioned is regarded as final acceptance concerning the
interest rates calculated during this quarter, commissions and
other fees; when dispatching the quarterly statement this is
expressly pointed out as well.
3.6 Incorrect credit entries may be reversed by the bank through
an according correction entry. If the bank ascertains an incorrect
credit entry after a quarterly statement has been issued and the
period according to No. 3.2 has expired, it will notify the Client
of any reverse entries to be made. If the Client objects to the
correction entry, the bank will re-credit the corrected amount and
assert the resulting claim separately.
4. GUARANTEE
4.1 Upon the occurrence of the warranty case (No. 5 of the
Factoring Agreement) the Client has to put the bank, by payment of
a corresponding sum, in the same position in which it would have
been if the customer had completely paid the assigned account
receivable. Instead of this the bank itself may have remedied the
objection or dispute against the claim - in particular it is
entitled to have certain work carried out in order to remedy
complaints - and it may demand reimbursement of the costs from the
Client, provided that the bank had before unsuccessfully reminded
the Client by setting a time limit and threatening to exercise this
right. Other rights according to 437, 440 GBG (German Civil
Code) are not affected.
4.2 In the event that the customer asserts to the bank that he is
not liable to pay, the bank will inform the Client of this fact
stating the customer's objections and defense. Thus the Client is
given the opportunity to remove the reason for non-payment. As
long as the customer disputes his liability to pay, the bank may,
up to the amount of the purchase price it has paid for the account
receivable, retain payments which would become due in the future as
special parts of the purchase price retained, which may exceed the
part of the purchase price that is retained generally. The bad
debt risk will remain with the bank. The Client may obtain such
special parts of the purchase price retained by giving adequate
security, in particular by providing a bank guarantee. The special
part of the purchase price retained has to be paid out as soon as
it is established that the objections and the defense brought
forward do not exist.
4.3 In the event that the customer has paid in foreign currency
and differences in the rate of exchange result from the period of
time between the date of the invoice and the date of payment, the
Client is liable to pay these differences to the bank.
4.4 The bank is allowed, but not obliged, to enforce maturity and
accumulated interest against the customer. The bank has to assign
such claims against the customer to the Client upon his request.
If the bank collects such claims - before re-assignment to the
Client - it compensates those accounts receivable with the Client's
investment with the bank.
5. BAD DEBT CASE
5.1 In the event that the customer has become insolvent the bank
will hand a respective certificate to the Client (bad debt
voucher). With this certificate the Client will file an
application for sales tax refund with the tax office for this loss.
Taking into consideration the sales tax refund to be expected from
the tax office the bank's obligation to make a bad debt payment is
at first limited to the amount of the account receivable without
sales tax. To the extent the tax office might refuse a sales tax
refund by giving the decision in writing, although the application
for refund was properly filed, the bank is obliged to also pay this
amount. The Client then is obliged to institute and carry through
legal proceedings against the tax office, in accordance with the
instructions by the bank, and to assign to the bank the claims for
payment against the tax office.
5.2 In the event that a customer pays by check against a draft
made out by the Client and accepted by the customer, the bank's
obligation to make a bad debt payment expires when the check is
cashed. Consequently the bank does not cover the risk of the
customer's inability to pay the Client's recourse claim against the
customer resulting from the draft. It will not incorporate such
drafts in its portfolio.
6. INTEREST CHANGE, REIMBURSEMENT
6.1 The bank may at its reasonable discretion adjust (increase or
decrease) an interest rate designated with "until further notice"
in its approval letter according to 315 BGB within an adequate
term, if its re-financing conditions change due to money market
related modifications.
6.2 The bank will collect purchased accounts receivable under its
own name and for its own account. The Client has to reimburse the
bank for court costs, attorney's fees and the bank's own expenses
resulting from the fact that the customer rightfully disputes his
liability to pay. The bank will bear any expenses resulting from
the customer's insolvency; the Client's account will first be
charged and will then be reimbursed with the bad debt payment.
6.3 The Client has to reimburse the bank for expenses in
connection with the collection of accounts receivable not purchased
as well as for all court costs, attorney's fees and other expenses
that will accrue in this respect and upon request he has to pay an
adequate advance on these costs.
6.4 In the event that only a part of an account receivable was
purchased, No. 6.2 will apply to the purchased part of the
receivable and No. 6.3 will apply to the part of the receivable
that was not purchased.
6.5 The customer shall bear all out-of-pocket expenses which are
incurred when the bank carries out the instructions or acts in the
presumed interests of the customer (in particular telephone costs,
postage, travel expenses and similar costs) or when credit security
is furnished, administered, released or realized (in particular,
notarial fees, storage charges, cost of guarding items serving as
collateral).
7. TRUST RELATIONSHIP PAYMENTS BY CUSTOMERS
7.1 In the event that payments for assigned accounts receivable
are received by the Client or if they are credited to the Client's
accounts with other banks, the Client will receive them for the
bank as a trustee and has to pass them on to the bank immediately
together with all original vouchers - bank transfer forms, postal
checks, letters containing instructions for the allocation of the
payments, etc. The Client herewith already assigns his credits due
from his respective banks up to the amount of the payment made by
the customer, and he will grant the bank an irrevocable power of
attorney to order the bank to transfer to the bank these credits
due to the Client.
7.2 In the event that the Client receives such sums in other means
of payment (in particular drafts, checks or open postal checks) the
bank and the Client already now agree that the ownership in these
instruments will pass to the bank as soon as the Client acquires
it. Furthermore, the Client assigns to the bank in advance his
rights resulting from these means of payment. Already now the
transfer of the checks and drafts which the Client becomes personal
possession of is replaced by a custodianship which the bank and the
Client herewith agree upon, and by the fact that the Client will
assign to the bank his right to claim restitution from third
parties, in the event that he will not become the actual possessor.
The Client will endorse the means of payment - as far as this is
required - and he will immediately deliver them to the bank. Until
the time of delivery to the bank the Client has to take all
measures necessary to preserve the rights resulting from the
instruments of payment. The Client authorizes the bank to sign in
his name drafts as the drawer as well as to endorse drafts and
checks in his name.
7.3 If the bank credits the countervalue of cheques, direct debits
and of drafts prior to their clearing, this is done on condition of
payment. In case of any return debit, the bank may demand the
Client to be put in the same position as if the open account
related to the return debit had not been paid from the beginning.
The bank is allowed to make the resulting correction booking
regardless of whether or not a quarterly statement has been issued
in the meantime.
8. SECURITIES, SECONDARY RIGHTS
8.1 Together with the assigned account receivable the Client will
assign to the bank all his claims he obtains from his contract with
the customer, in particular claims for restitution in the event
that the contract would be cancelled.
8.2 The Client and the bank already now agree that property
subject to retention of title and pledged property with which the
Client has secured an assigned account receivable will become the
property or joint property of the bank upon the assignment of the
secured account receivable - but at the time the Clients obtains
the property or joint property at the latest.
The Client and the bank also agree that all existing and future
expectancy rights which the Client obtains to objects included in
invoices regarding assigned accounts receivable are transferred to
the bank immediately. At the same time the Client assigns to the
bank his future claim for recovery against the customer or any
third party who personally owns the goods subject to retention of
title or the pledged property. If the Client still is in personal
possession of such objects, he will held them in trust for the bank
free of charges and separated from other goods.
8.3 If the assigned account receivable has resulted from a sales
contract including the shipment of the goods the Client already now
assigns to the bank his claims against the shipping agent and his
right of pursuit to the goods.
8.4 The Client already now assigns to the bank all of his possible
insurance claims with respect to the assigned accounts receivable
and assigned goods. If the assignment is subject to special
requirements, the Client undertakes to effect the assignment in the
form required.
8.5 As far as secondary rights are not already transferred by
operation of law, the Client will transfer, together with the
assigned account receivable, all rights supporting the security and
enforcement of the purchased account receivable.
8.6 If facts become known which make the customer's proper
fulfillment of the contract, an account receivable resulting from
which was assigned to the bank, seem endangered, the Client has to
take back the goods by order of the bank. The bank will bear the
costs for taking back goods with respect to purchased accounts
receivable, the Client will bear the costs for receivables not
purchased.
8.7 The Client will keep in trust for the bank, free of charges
and separated from other goods, goods the Client again got
possession of, regardless of the reasons for this recovery. The
Client has to inform the bank immediately of resuming possession of
the goods and to obtain its instructions. In the event that the
goods are not already owned by the bank, the Client and the bank
agree that the bank will become the owner as soon as the Client
reacquires the goods. The goods have to be marked as the property
of the bank. No. 8.7 does not apply to goods returned with respect
to accounts receivable that were not assigned to the bank.
8.8 The Client is obliged to support the bank to the best of his
ability in realizing and selling of all securities put at the
bank's disposal. The bank may demand the Client to sell the
objects serving as security best possible by himself. In this case
the Client will act as a trustee for the bank and will have to give
extensive account of the realization and he has to turn everything
he receives from it over to the bank immediately.
As from termination of contract and after the repayment of the
Client's investment the bank may at her option either reassign
those accounts receivable not collected and not purchased yet to
the Client or collect them according to this contract by paying out
the earnings after foregoing deduction of the costs. This right
only refers to those accounts receivable which occurred by the date
of the contract termination.
8.9 In the event that a customer does not pay as assigned account
receivable when due, the bank is entitled to take possession of the
objects serving as security for it or to store them at a third
location, even if the securities are in the Client's possession.
8.10 The bank will only realize the pledged goods, if the Client is
in default of payments regarding considerable accounts receivable
and if the payment term of at least 2 weeks which the Client was
granted by the bank to settle the claim in connection with the
threat of realization in case of non-fulfillment has passed without
any success.
In case of realization the bank may choose between several security
items. When realizing security and selecting the items to be
realized the bank will take into account the legitimate concerns of
the Client and any third party, who may have provided security for
the Client's obligations.
The realization of the accounts receivable assigned as security is
made through their collection and compensation with the Client's
liabilities with the bank.
The bank may at its reasonable discretion realize objects serving
as security, also by voluntary sale.
The bank will use the net proceeds of the realization after
deduction of all costs which arose in connection with the
realization and of an appropriate substitute amount for own
expenses to cover the secured accounts receivable. The bank will
deliver possible surpluses.
8.11 The bank may demand that the Client provide the usual form of
security for any claims that may arise from overdrafts of the
factoring clearing account or from other banking relations not
concerning factoring, even if such claims are conditional. If the
customer has assumed a liability for another Client's obligations
toward the bank (e.g., as a surety), the bank is, however, not
entitled to demand that security be provided or increased for the
debt resulting from such liability incurred before the maturity of
the debt.
If the bank, upon the creation of claims against the customer, has
initially dispensed wholly or partly with demanding that security
be provided or increased, it may nonetheless make such a demand at
a later time, provided, however, that circumstances occur or become
known which justify a higher risk assessment of the claims against
the customer. This may, in particular, be the case if
- - the economic status of the customer has changed or threatens
to change in a negative manner or
- - the value of the existing security has deteriorated or
threatens to deteriorate.
The bank has no right to demand security if it has been expressly
agreed that the Client either does not have to provide any security
or must only provide that security which has been specified.
The bank will allow adequate time to provide or increase security.
If the bank intends to make use of its right of termination without
notice, should the Client fail to comply with the obligation to
provide or increase securities within such time period, it will
draw the Client's attention to this consequence before doing so.
8.12 The Client and the bank agree that the bank acquires a lien on
the securities and chattels which, within the scope of business
relation, have come or may come into possession of the bank. The
bank also acquires a lien on any claims which the customer has or
may in future have against the bank arising from the business
relationship (e.g. credit balances).
The lien serves to secure all existing, future and contingent
claims arising from the banking relationship which the bank with
all its domestic and foreign offices is entitled to against the
Client. If the Client has assumed a liability for another Client's
obligation towards the bank (e.g. as a surety), the lien shall not
secure the debt resulting from the liability incurred before the
maturity of the debt.
If funds or other assets come into the power of disposal of the
bank under the reserve that they may only be used for a specified
purpose, the bank's lien does not extend to these assets.
9. TRUSTEESHIP CONCERNING NOT ASSIGNABLE ACCOUNTS RECEIVABLE
9.1 The Client will keep for the bank as a trustee accounts
receivable which cannot be assigned. If the impediment for the
assignment disappears, the assignment will become effective and the
bank will become the holder of the right.
9.2 In case of assignments of accounts receivable effective
according to 354 of HGB, the Client is obliged to transact legal
acts regarding the substantiated claim not without the bank's
approval and to omit especially agreements concerning balancing of
accounts, retention, deduction and respite, even if they are
effective in relation to the creditor. The Client will accept
incoming payments as a trustee on behalf of the bank; above-mentioned
No. 7 applies. In addition the bank reserves the right
to demand the Client to make all dunning procedures against the
Client directly, namely within a certain rhythm to be arranged with
the bank.
10. NOTIFICATION OF THE CUSTOMERS
10.1 The bank is entitled and the Client is obliged to notify the
customers of the factoring relationship and the assignment of the
accounts receivable and of the rights to the securities.
10.2 After consultation with the bank the Client has to include
into his General Terms of Business, effective for his customers, an
unequivocal indication regarding the cooperation with the bank in
factoring as well as the assignment of the accounts receivable, of
the secondary rights as well as of the transfer of rights to the
deliveries of goods made in this connection. Also on his invoices
he will clearly visible state this indication of the assignment of
the account receivable invoiced to the bank.
10.3 The bank is entitled to demand the Client to hand over
original invoices in order to pass them on to the customer.
11. OBLIGATIONS CONCERNING CONTRACT TERMS
11.1 In addition the Client undertakes to draw up his General Terms
of Business, effective for his customers, in a way that will
exclude the effectiveness of conflicting conditions of the
customers, contradict a nonassignment clause or a restriction of
the assignment which might be included in the customer's General
Terms of Business, and include the agreement that the venue will be
Mainz or alternatively the Client's location. Furthermore, the
Clients Terms have to include all customary and legally permissible
security agreements, especially a property rights clause including
extended property rights. In addition they have to restrict, as
far as legally permissible, offsets and assertions of rights of
retention by the customer. In addition it has to be stipulated
that payments received from the customer always have to be put to
account according to 366 Abs. 2 BGB (German Civil Code).
In the beginning of cooperation between the Client and the bank the
Client will submit to the bank for review his General Terms of
Business and he will take into consideration suggestions for
modifications and supplementation made by the bank. It is herewith
emphasized that the bank will not give legal advice with respect to
the drawing up of the Client's General Terms of Business but that
it will make this review only in its own interest. As far as
legally permissible the Client will comply with the suggestions
made by the bank. The Client may modify his General Terms of
Business only in agreement with the bank. Furthermore, without the
consent by the bank the Client will not conclude any individual
agreement with the customer which is inconsistent with the
obligations stated above.
11.2 Without the consent by the bank the Client will not conclude
any agreements with his suppliers according to which the assignment
of the accounts receivable based on their purchase within the scope
of factoring procedures is forbidden.
12. OBLIGATIONS TO CONVEY INFORMATION, AUDIT PRIVILEGE
12.1 The Client undertakes to inform the bank immediately of all
circumstances that become know to him, which concern the accounts
receivable against the customers and which might affect the
interests of the bank. This obligation to convey information
especially applies to the following:
a) Objections and disputes, rights of compensation, of avoidance
and of retention concerning the accounts receivable made known by
the copy of the invoice. The Client has so inform the bank of such
facts in the fastest way possible and he has to issue a respective
credit note without delay.
b) Each disputing of an account receivable by the customer, even
if the Client considers this dispute not justified. If the
customer expresses himself in writing, the Client has to provide
the bank with a copy without delay and in the fastest way possible.
c) All information concerning the credit worthiness of the
customers that is available to the Client.
d) All changes in the General Terms of Business of the Client's
suppliers, as far as they concern extended property rights.
e) Measures of attachment and other measures of execution as well
as any other assertion of rights of third parties concerning
accounts receivable against customers.
f) To hand to the bank upon request documents proving the actual
existence of the accounts receivable offered for purchase, like
bills of delivery, contracts, order confirmations, etc.
12.2 The Client will support the bank at the best of his ability in
disputes - extra-judicial as well as judicial - concerning an
account receivable or a security right. In particular the Client
is obliged to completely inform the bank on the subject of the
dispute, to provide all relevant documents and to specify all other
relevant evidence.
12.3 In addition the Client is obliged to inform the bank without
delay of all essential circumstances concerning his enterprise and
to hand to the bank the respective documents. This obligation
concerns:
a) All balance sheets, profit and loss statements and other
short-term income statements.
b) Existing loan agreements with other banks and possible
assignments of the accounts receivable against customers as
securities.
c) Existing powers to collect granted to third parties; such
powers of attorney may not be granted without the consent of the
bank, powers of attorney already granted have to be withdrawn
immediately.
d) All arrears in bookkeeping of more than four weeks; more
comprehensive arrears in bookkeeping must not accrue.
e) Each substantial deterioration of the Client's general
financial and business situation; each change in the Client's
enterprise concerning company laws or rights of representation; all
facts that make another enterprise become an associated company in
the meaning of No. 1.
12.4 The bank or third parties ordered by the bank are entitled to
inspect at any time the books, accounts and other documents and
files of the Client at the Client's premises. Requested records
have to be presented to the bank completely. For the purpose of
auditing the bank has the right to enter the Client's business
premises at the customary office hours unimpededly.
12.5 The Client will discharge the bank and its affiliated
companies, and - as far as requests for information by the bank are
concerned - all commercial banks cooperating with him from bank
secrecy and authorizes the bank to request all information relevant
to the Client from the Client's commercial banks. In addition the
bank is herewith given an irrevocable power to demand documents or
information from the tax advisor, auditors or any other person
keeping the Client's accounts or issuing his balance sheet. These
persons are discharged from their professional secrecy concerning
information given to the bank.
12.6 The bank will continuously inform the Client of the
developments of legal proceedings and will give him the opportunity
to express his views on disputes and objections raised by the
customer. The bank will agree to judicial and extrajudicial
compromises resulting from disputes or objections by the customer
only with the consent of the Client. The bank will incorporate the
Client's comments into the legal proceedings and upon the Client's
request the bank will by a third party notice given him the
possibility to join the law suit taking the side of the bank.
However, complying with the obligations of information and
consideration agreed upon the results of a law suit between the
bank and the customer are binding in the relationship between the
bank and the Client, even if a third party notice was not issued.
13. ASSIGNABILITY OF THE CLAIMS AGAINST THE BANK
The Client's claims against the bank may be assigned to third
parties only with the consent of the bank. The bank may refuse its
consent for cause; such cause could especially be the fact that the
intended assignment might appear to be of disadvantage to the
Client's suppliers.
14. ACCOUNTING UNIT
All accounts of a Client, no matter from which legal relationship,
form an accounting unit and may be offset against each other as far
as this is legally possible. The Client only may offset against
the bank's claims, if his claims have been established undisputed
or by a court of law.
The bank may within its relationship to the Client offset payments
made by a customer, which are received after the cancellation of a
credit line established for this customer, against accounts
receivable purchased from the same customer, regardless of the
instructions for allocation by the customers, provided that
regarding the account receivable against which the payment should
be offset no extended property rights in favor of a supplier were
agreed upon.
The same applies to the bank's claims against the Client resulting
from the guarantee according to No. 5 of the Factoring Agreement
together with No. 4 of these Additional Terms of Business for
Factoring as well as for credit notes issued by the Client and for
possible returns from utilizations.
15. TERMINATION FOR CAUSE
For an important reason the Factoring Agreement may be canceled
effective immediately. Such important reason especially exists, if
the other contracting party severely infringes an essential
obligation resulting from the contract or if its financial
situation deteriorates considerably and thus jeopardizes the
fulfillments of its contractual obligations. An important reason
would also exist, if the Client would not meet his obligations to
his suppliers, especially if he would not pay checks and drafts
due.
16. DISCRETIONARY CREDIT LINES
16.1 As a supplement to No. 7 of the factoring agreement the bank
authorizes the Client to determine the credit lines for the
individual customers, until the bank might pass another decision.
For discretionary credit lines the bank will also assume the bad
debt risk. As the granting of the credit line considerably
determines the extent of the bad debt risk, the Client is obliged
to examine the requirements for granting a credit line with special
diligence. This obligation of the Client is an obligation to
perform to the bank.
16.2 The Clientele to whom the Client may grant discretionary
credit lines and the maximum amount of the credit line (standard
credit line) which the Client is authorized to grant to an
individual customer are stated in the letter "cooperation".
16.3 The Client will name to the bank those customers, to whom he
wishes to grant a credit line. If the Client does not declare
anything to the contrary the naming of the customer is to be
understood as the granting of a credit line in the amount of the
standard credit line (No. 16.2).
The manner in which the customer is named is irrelevant. The
submittance of the first invoice concerning the respective customer
the bank has to understand as the granting of the standard credit
line, provided that the Client does not give any declaration to the
contrary when submitting the invoice.
If the Client wants to grant another but the standard credit line,
he will expressly notify the bank of this fact in writing. The
same applies if the Client subsequently modifies a determined
credit line. A newly determined credit line is always effective
for accounts receivable not yet purchased.
16.4 A Client's decision regarding a credit line will not become
effective if the bank objects to it immediately upon receipt. A
Client's decision regarding a credit line is also ineffective, if
the bank had already before determined a credit line for the
customer and if the Client had received this decision.
The bank is entitled to subsequently modify decisions regarding
credit lines passed by the Client. No. 7.1 sentence 2 and No. 7.2
of the Factoring Agreement remain in effect.
16.5 The Client will determine the amount of the credit line with
the attention of a conscientious businessman. If any negative
facts regarding the solvency or the paying habits of the customer
are realizable to the Client, he may not grant a credit line.
Otherwise the granting of credit lines has to be handled as
follows:
a) In cases of "old customers" the Client may, without any further
examination, grant a credit line of up to 150 per cent of the
maximum balance (total of all of the Client's accounts receivable
against the customer unpaid at one time) granted to the respective
customer during the past 12 months. Granting higher credit lines
is only permissible in accordance with the provisions for "new
customers".
b) In cases of "new customers" the amount of the credit line must
be justified beyond doubt by a written information by a commercial
information agency or by a banker's reference which have to be
obtained in writing before the credit line is granted. The
information must not be older than 12 months.
An "old customer" is a customer who has been in business relations
with the Client for at least one year before the credit line is
granted, who has bought goods at least twice during the past 12
months and has paid for them correctly 60 days after the maturity
date at the latest. All other customers are "new customers".
If the Client infringes his obligations when granting credit lines
he will be liable for damages to the bank.
Upon request the Client has to answer for the fulfillment of his
obligations regarding the granting of credit lines. In this case
the Client has to submit the appertaining written documents as well
as information regarding the customers or proof for the fact that
the customer concerned is an "old customer".
16.6 Both contracting parties may cancel the agreement regarding
the granting of discretionary credit lines with a 10 days notice
effective at the end of each month.
The right of termination for cause effective immediately is not
affected hereby.
The legal consequence of the cancellation is that the authorization
to grant discretionary credit lines is terminated and that the
remaining contractual provisions remain in effect unchanged.
17. PLACE OF PERFORMANCE AND VENUE
Place of performance and venue for all disputes that might arise
from this agreement is Mainz.
This agreement is executed in German and translated into English
language. In the event of any discrepancies between the two texts
the German version shall prevail.
Exhibit 10.30
REVOLVING LOAN AGREEMENT
(with Security Agreement)
THIS REVOLVING LOAN AGREEMENT, dated as of January 12, 1996,
by and between IOMEGA CORPORATION (the "Borrower") and FIRST
SECURITY BANK OF UTAH, N.A. (the "Bank"):
RECITALS
The Borrower has requested the Bank to extend credit to the
Borrower up to the principal sum of Six Million Dollars
($6,000,000.00) on a revolving loan basis and the Bank is willing
to do so upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises herein
contained, and each intending to be legally bound hereby, the
parties agree as follows:
SECTION I. DEFINITIONS.
As used herein:
1.01 Incorporation of Uniform Commercial Code Definitions.
All capitalized terms used herein shall have the same respective
meanings as are given (if any are given) to those terms in the Utah
Uniform Commercial Code.
1.02 "Bank" means First Security Bank of Utah, N.A.
1.03 "Borrower" means IOMEGA Corporation.
1.04 "Collateral" means all of the Personal Property
Collateral.
1.05 "Collateral Documents" means, collectively, the Financing
Statements, the Security Agreements and any other instruments,
papers agreements, documents or certificates which grant or create
security interests, liens or encumbrances in the Collateral in
favor of the Bank, or which further assist in perfecting the same
or in giving notice thereof.
1.06 "Financial Statements" means the consolidated balance
sheet and consolidated profit and loss statements of the Borrower
prepared according to Generally Accepted Accounting Principles
consistently applied.
1.07 "Financing Statements" shall have the meaning specified
in the Utah Uniform Commercial Code and shall include this
Agreement or any form UCC-1 required by the Bank of Borrower to
accomplish perfection of security interests in the Collateral.
1.08 "First Advance" means the first Loan made pursuant to the
Loan Commitment.
1.09 "Indebtedness" means, as to the Borrower, all items of
indebtedness, obligation or liability, whether matured or
unmatured, liquidated or unliquidated, direct or contingent, joint
or several, including but without limitation:
(A) All indebtedness guaranteed, directly or indirectly, in
any manner, or endorsed (other than for collection or deposit
in the ordinary course of business) or discounted with
recourse;
(B) All indebtedness in effect guaranteed, directly or
indirectly, through agreements, contingent or otherwise: (1)
to purchase such indebtedness; or (2) to purchase, sell or
lease (as lessee or lessor) property, products, materials or
supplies or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such
indebtedness or to assure the owner of the indebtedness
against loss; or (3) to supply funds to or in any other manner
invest in the debtor; and
(C) All indebtedness secured by (or for which the holder of
such indebtedness has a right, contingent or otherwise, to be
secured by) any mortgage, deed of trust, pledge, lien,
security interest or other charge or encumbrance upon property
owned or acquired subject thereto, whether or not the
liabilities secured thereby have been assumed.
1.10 "Laws" means all ordinances, statutes, rules, regulations,
orders, injunctions, writs or decrees of any government or
political subdivision or agency thereof, or any court or similar
entity established by any thereof.
1.11 "Loan" or "Loans" means any sum or sums of money advanced
to or on behalf of the Borrower pursuant to the Loan Commitment and
the terms may mean any specific advance of sums or all aggregate
sums, as the context may require.
1.12 "Loan Commitment" means the Bank's agreement and
commitment to loan funds to Borrower as provided herein and as
specifically defined herein.
1.13 "Loan Termination Date" means April 12, 1996.
1.14 "Note" means the revolving note referenced herein
evidencing the Loans, which Note matures on the Loan Termination
Date.
1.15 "Obligations" means the obligation of the Borrower:
(A) To pay the principal of and interest on the Note in
accordance with the terms thereof and to satisfy all of its
other liabilities to the Bank, whether hereunder or otherwise,
including but not limited to, all indebtedness of Borrower to
Bank arising in connection with the Note or any other
instrument or documentation of indebtedness of Bank, whether
now existing or hereafter incurred, matured or unmatured,
direct or contingent, joint or several, including any
extensions, modifications, renewals thereof and substitutions
therefor;
(B) To repay to the Bank all amounts advanced by the
Bank hereunder or otherwise on behalf of the Borrower,
including, but without limitation, advances for principal or
interest payments to prior secured parties, or lienors, or for
taxes, levies, insurance, rent, repairs to or maintenance or
storage of any of the Collateral; and
(C) To reimburse the Bank, on demand, for all of the
Bank's expenses and costs, including the reasonable fees and
expenses of its counsel, in connection with the preparation,
administration, amendment, modification, or enforcement of
this Agreement and the documents required hereunder,
including, without limitation, any proceeding brought or
threatened to enforce payment of any of the obligations
referred to in the foregoing paragraphs (A) and (B).
1.16 "Permitted Liens" means:
(A) Liens for taxes, assessments, or similar charges,
incurred in the ordinary course of business that are not yet
due and payable;
(B) Pledges or deposits made in the ordinary course of
business to secure payment or workmen's compensation, or to
participate in any fund in connection with workmen's
compensation, unemployment insurance, old-age pensions or
other social security programs;
(C) Liens of mechanics, materialmen, warehousemen,
carriers, or other like liens, securing obligations incurred
in the ordinary course of business that are not yet due and
payable;
(D) Good faith pledges or deposits made in the ordinary
course of business to secure performance of bids, tenders,
Contracts (other than for the repayment of borrowed money) or
leases, not in excess of ten percent (10%) of the aggregate
amount due thereunder, or to secure statutory obligations, or
surety, appeal, indemnity, performance or other similar bonds
required in the ordinary course of business;
(E) Encumbrances consisting of zoning restrictions,
easements or other restrictions on the use of real property,
none of which materially impairs the use of such property by
the Borrower in the operation of its business, and none of
which is violated in any material respect by existing or
proposed structures or land use;
(F) Liens in favor of the Bank;
(G) The existing lien in favor of Wells Fargo Bank,
N.A., relating to a Security Agreement dated as of July 5,
1995 between Wells Fargo Bank and Borrower;
(H) Purchase money security interest granted to vendors
or purchase money lenders to secure the purchase price of
assets;
(I) Such other security interests, liens or encumbrances
as Bank may, from time-to-time, approve in writing;
(J) The following, if the validity or amount thereof is
being contested in good faith by appropriate and lawful
proceedings, so long as levy and execution thereon have been
stayed and continued to be stayed and they do not, in the
aggregate, materially detract from the value of the property
of the Borrower, or materially impair the use thereof n the
operation of its business:
(1) Claims or liens for taxes, assessments or
charges due and payable and subject to interest or
penalty;
(2) Claims, liens and encumbrances upon, and
defects of title to, real or personal property, including
any attachment of personal or real property or other
legal process prior to adjudication of a dispute on the
merits;
(3) Claims or liens of mechanics, materialmen,
warehousemen, carriers, or other like liens; and
(4) Adverse judgments on appeal.
1.17 "Person" means any individual, corporation, partnership,
association, joint stock company, trust, unincorporated
organization, joint venture, court or government or political
subdivision or agency thereof.
1.18 "Personal Property Collateral" means all of the right,
title and interest of Borrower and of any subsidiary of the
Borrower, wherever located, whether now owned or hereafter
acquired, in and to all Accounts, Chattel Paper, Contracts,
Contract Rights, Documents, General Intangibles, Instruments,
Inventory, right as seller of goods and rights to returned or
repossessed goods and all proceeds, products, accessions, additions
and substitutions of, to and for all of the foregoing.
1.19 "Prime Rate" means the Bank's announced rate of interest
used as a reference point from which it may calculate the cost of
credit to customers. It is subject to change from time to time.
The Bank may make loans bearing interest above, at, or below its
prime rate.
SECTION II. THE LOAN.
2.01 Disbursement of the Loan. The Bank will disburse the
loan upon completion of such documents and action as is reasonably
required by the Bank.
2.02 General Terms. Subject to the terms hereof, the Bank
will lend the Borrower, from time to time until the Loan
Termination Date, such sums as the Borrower may request by not less
than two (2) business days' notice to the Bank, but which shall not
exceed, in the aggregate principal amount at any one time
outstanding, Six Million Dollars ($6,000,000.00) (the "Loan
Commitment"). The Borrower may borrow, repay without penalty or
premium and reborrow hereunder, from the date of this Agreement
until the Loan Termination Date.
2.03 The Note. The Loan Commitment shall be evidenced by a
revolving note, maturing on the Loan Termination Date, in the form
attached hereto as Exhibit "A".
2.04 Interest Rate and Payments of Interest. Interest shall
be paid as follows:
(1) Interest on the principal balance of the Loan, from
time to time outstanding, will be payable at the rate equal to
two (2.0) percent per annum above Bank's Prime rate in effect
from time to time, hereafter called the "Rate"). Each time the
Prime Rate shall change, the Rate shall change
contemporaneously with such change in the Prime Rate.
(2) Interest shall be calculated on the basis of a 360-day year,
counting the actual number of days elapsed, and
shall be payable monthly on the first day of each calendar
month commencing February 1, 1996.
If, at any time, the Rate shall be deemed by any competent
court of law, governmental agency or tribunal to exceed the maximum
rate of interest permitted by any applicable Laws, then, for such
time as the Rate would be deemed excessive, its application shall
be suspended and there shall be charged instead the maximum rate of
interest permissible under such Laws.
2.05 Payments to the Bank. All sums payable to the Bank
hereunder shall be paid directly to the Bank in immediately
available funds. The Bank shall for the convenience of the
Borrower, send the Borrower statements of all amounts due
hereunder, which statements shall be considered correct and
conclusively binding on the Borrower unless the Borrower notifies
the Bank to the contrary within thirty (30) days of its receipt of
any statement which it deems to be incorrect. Any omission of the
Bank to send such periodic statements to Borrower shall not relieve
Borrower from its obligation to make payment as otherwise provided
herein. Alternatively for the convenience of the Borrower, the
Bank may charge against any deposit account of the Borrower all or
any part of any amount due hereunder.
2.06 Commitment Fee. A non-refundable commitment fee of
Thirty Thousand Dollars ($30,000.00) shall be paid by the borrower
to the Bank upon execution of this Agreement.
SECTION III. CONDITIONS PRECEDENT.
The obligation of the Bank to make the Loans hereunder is
subject to the following conditions precedent:
3.01 Documents. The performance by the Bank hereunder and its
obligation to extend or continue credit and make Loans to Borrower
is in all events subject to (A) the continuing truth and accuracy
of Borrower's representations and warranties set forth in this
Agreement, (B) the full and timely performance of all of Borrower's
covenants and obligations theretofore to be performed hereunder,
(C) the due execution and delivery of this Agreement, the Note and
the Collateral Documents, (D) the due recordation and timely filing
of the Collateral Documents as necessary, (E) the non-occurrence of
any Event of Default, and (F) the receipt by the Bank of all
reasonably requested fees, instruments, documents and materials in
form and substance satisfactory to the Bank.
SECTION IV. SECURITY.
4.01 Personal Property Collateral Security Interest. The
Borrower does hereby transfer, assign and, as appropriate, pledge
to the Bank all of its right, title and interest in and to, and
grants the Bank a lien and security interest in, the Personal
Property Collateral as collateral security for performance and
payment of the Obligations, together with all replacements
therefor, accessions thereto and proceeds and products thereof.
4.02 Priority of Liens. The liens and security interests
described in Section 4.01 are and shall be, at all times, first and
prior liens and security interests except for Permitted Liens. The
lien in the Personal Property Collateral in favor of Wells Fargo
Bank, N.A. by virtue of its security agreement dated July 5, 1995
with Borrower is a Permitted Lien.
4.03 Financing Statements and Other Acts to Perfect.
(A) The Borrower will:
(1) Execute such Financing Statements (including
amendments thereto and continuation statements thereof)
in form satisfactory to the Bank as the Bank may specify;
(2) Pay or reimburse the Bank for all costs of
filing or recording the financing statements and other
documents in such public offices as the Bank may
designate;
(3) Take such other steps as the Bank may direct,
including the noting of the Bank's lien in the Collateral
on records thereof and on any certificates of title
therefor and delivering to the Bank possession of certain
items of the Collateral (including documents of title and
other instruments), all as required to perfect the Bank's
security interest and lien in the Collateral.
(B) In addition to the foregoing, and not in limitation
thereof;
(1) A carbon, photographic or other reproduction of
this Agreement shall be sufficient as a Financing
Statement and may be filed in any appropriate office in
lieu thereof; and
(2) To the extent lawful, the Borrower hereby
appoints the Bank as its attorney-in-fact (without
requiring the Bank to act as such) to execute any
Financing Statement in the name of the Borrower, and to
perform all other acts that the Bank deems appropriate to
perfect and continue the security interest and lien of
the Bank in, and to protect and preserve the Collateral.
SECTION V. REPRESENTATIONS AND WARRANTIES.
5.01 Original Representations and Warranties. To induce the
Bank to enter into this Agreement, the borrower represents and
warrants to the Bank as follows:
(A) Borrower is a corporation duly organized and validly
existing and is in good standing under the Laws of the states
in which it is doing business; it has the lawful power to own
its properties and to engage in the business it conducts, and
is duly qualified and in good standing as a foreign
corporation in the jurisdictions wherein the nature of the
business transacted by it or property owned by it makes such
qualification necessary for the conduct of such business or
the availability of rights and remedies.
(B) The Borrower is not in default with respect to any
of its existing Indebtedness, and the making and performance
of this Agreement, the Note and the Collateral Documents will
not (immediately, with the passage of time, the giving of
notice, or any combination of the foregoing):
(1) Violate the charter or bylaw provisions of the
Borrower, or violate the Laws or result in a default
under any contract, agreement, or instrument to which the
Borrower is a party or by which the Borrower or its
property is bound; or
(2) Result in the creation or imposition of any
security interest in, or lien or encumbrance upon, any of
the assets of the Borrower expect in favor of the Bank
and except for Permitted Liens:
(C) The Borrower has the power and authority to enter
into and perform this Agreement, the Note, and the Collateral
Documents, and to incur the obligations herein and therein
provided for, and has taken all corporate or other action
necessary to authorize the execution, delivery and performance
of this Agreement, the Note, and the Collateral Documents;
(D) This Agreement and the Collateral Documents are, and
the Note when delivered will be, valid, binding and
enforceable in accordance with their respective terms;
(E) The Borrower and its subsidiaries have good and
marketable title to all of their respective assets, subject to
no security interest, encumbrance or lien, or the claim of any
third person except for Permitted Liens;
(F) The Financial Statements, including any schedules
and notes pertaining thereto, have been prepared in accordance
with generally accepted accounting principles consistently
applied, and fully and fairly present the financial condition
of the Borrower at the dates thereof and the results of
operations for the periods covered thereby, and there have
been no material adverse changes in the consolidated financial
condition or business of the Borrower hereof.
(G) The Borrower does not know and has no reasonable
ground to know of any basis for the assertion against it as of
the date hereof, of any material Indebtedness of any nature
not fully reflected and reserved against in the Financial
Statements;
(H) Except as otherwise permitted herein, the Borrower
has filed all federal, state and local tax returns and other
reports it is required by Laws to file prior to the date
hereof and which are material to the conduct of its respective
businesses, has paid or caused to be paid all taxes,
assessments and other governmental charges that are due and
payable prior to the date hereof, and has made adequate
provision for the payment of such taxes, assessments or other
charges accruing but not yet payable; the Borrower has no
knowledge of any deficiency or additional assessment in a
materially important amount in connection with any taxes,
assessments or charges not provided for on its books;
(I) Except as otherwise has been disclosed by Borrower,
or except to the extent that the failure to comply would not
materially interfere with the conduct of the business of the
Borrower, the Borrower has complied with all applicable Laws
with respect to: (1) any restrictions, specifications, or
other requirements pertaining to products that the Borrower
sells or to the services it performs; (2) the conduct of its
business; and (3) the use, maintenance, and operation of the
real and personal properties owned or leased by it in the
conduct of its business;
(J) No representation or warranty by the Borrower
contained herein or in any certificate or other document
furnished by the Borrower pursuant hereto contains any untrue
statement of material fact or omits to state a material fact
necessary to make such representation or warranty not
misleading in light of the circumstances under which it was
made.
(K) Each consent, approval or authorization of, or
filing, registration or qualification with, any Person
required to be obtained or effected by the Borrower or its
subsidiaries in connection with the execution and delivery of
this Agreement, the Note, and the Collateral Documents or the
undertaking or performance of any obligation hereunder or
thereunder has been duly obtained or effected;
(L) Except as has been fully disclosed to the Bank in
writing, the Borrower has no material lease, contract or
commitment of any kind (such as employment agreements;
collective bargaining agreements; powers of attorney;
distribution arrangements; patent license agreements;
contracts for future purchase or delivery of goods or
rendering of services; bonus, pension and retirement plans; or
accrued vacation pay, insurance and welfare agreements); all
parties (including the Borrower) to all such material leases,
contracts and other commitments to which the Borrower is a
party have complied with the provisions of such leases,
contracts and other commitments; no party is in default under
any thereof and no event has occurred which, but for the
giving of notice or the passage of time, or both, would
constitute a default;
5.02 Survival. All of the representations and warranties set
forth in Paragraph 5.01 shall survive until all Obligations are
satisfied in full.
SECTION VI. THE BORROWER'S COVENANTS.
The Borrower does hereby covenant and agree with the Bank
that, so long as any of the Obligations remain unsatisfied, it will
comply with the following covenants:
6.01 Affirmative Covenants.
(A) The Borrower will maintain all Collateral in good
condition and repair (normal wear and tear excepted), and will
pay and discharge or cause to be paid and discharged when due,
the cost of material repairs to or maintenance of the same.
The Borrower hereby agrees that, in the event it fails to
perform its obligations under this Subsection, the Bank may
undertake such maintenance or make such payments and be
reimbursed by the Borrower therefor.
(B) The Borrower will pay or cause to be paid when due,
all material taxes, assessments and charges or levies imposed
upon it or on any of its property, including the Collateral,
or which it is required to withhold and pay over, except where
contested in good faith by appropriate proceedings with
adequate reserves therefor having been set aside on its books.
But the Borrower shall pay or cause to be paid all such taxes,
assessments, charges or levies forthwith whenever foreclosure
on any lien that attaches (or security therefor) appears
imminent.
(C) The Borrower will, when requested so to do, make
available for inspection by duly authorized representatives of
the Bank of any of its books and records, and will furnish the
Bank any information regarding its business affairs and
financial condition within a reasonable time after written
request therefor.
(D) The Borrower will take all necessary steps to
preserve its corporate existence and franchises and comply
with all present and future Laws, applicable to it in the
operation of its respective businesses, and all material
agreements to which it is subject.
(E) The Borrower will collect its Accounts and sell its
Inventory only in the ordinary course of business.
(F) The Borrower will keep accurate and complete records
of its Accounts and Inventory, consistent with generally
accepted accounting principles.
(G) The Borrower will: (1) give notice to the Bank
within ten (10) days of: (a) any litigation or proceeding in
which it is a party if an adverse decision therein would
require it to pay (in addition to the proceeds of any
insurance therefore) more than Fifty Thousand Dollars
($50,000.00) or deliver assets the value of which exceeds such
sum (in excess of any insurance proceeds which may be payable
in connection with such claim); and (b) the institution of any
other suit or proceeding involving it that might materially
and adversely affect its operations, financial condition,
property or business; and (2) give prior notice to the Bank of
any grant, sale, conveyance or assignment which it is
anticipated, will have the effect of creating any lien,
encumbrance or security interest in favor of any entity
(excepting the Permitted Liens), such notice to include a
description and valuation of the assets which it is proposed,
shall be subject to such lien, encumbrance or security
interest. Borrower will also provide the Bank with quarterly
written reports respecting the progress and status of any
proceedings for which a notice required hereby has been given.
(H) The Borrower will pay when due (or within applicable
grace periods) all Indebtedness due third Persons, except when
the amount thereof is being contested in good faith by
appropriate proceedings and with adequate reserves therefor
being set aside on the books of the Borrower. If default be
made by the Borrower in the payment of any principal (or
installment thereof) of, or interest on, any such
Indebtedness, the Bank shall have the right, in its
discretion, to pay such interest or principal for the account
of the Borrower and be reimbursed by the Borrower therefor.
(I) The Borrower will notify the Bank immediately if it
becomes aware of the occurrence of any Event of Default or of
any fact, condition or event that only with the giving of
notice or passage of time or both, could become an Event of
Default, or of the failure of the Borrower to observe any of
its respective undertakings hereunder.
(J) The Borrower will notify the Bank thirty (30) days
in advance of any change in the location of any of its
principal places of business or of the establishment of any
new, or the discontinuance of any existing principal places of
business.
(K) The Borrower will: (1) fund all its Defined Benefit
Pension Plans in accordance with no less than the minimum
funding standards and (2) promptly advise the Bank of the
occurrence of any Reportable Event or Prohibited Transaction
with respect to any such Plan.
(L) The Borrower will, when requested so to do, provide
to duly authorized representatives of the Bank entry and
access to any of its offices and/or facilities for purposes of
inspection of the Collateral or any of it and for purposes of
physical inspection, observation and review of the conduct of
the businesses of the Borrower. Borrower will fully cooperate
in any such inspections, observing and reviewing.
(M) The Borrower agrees to carry on and maintain the
businesses of Borrower without fundamental or substantial
changes in the nature thereof or in the structure of the
financial, operational, marketing or management aspects
thereof.
6.02 Negative Covenants.
(A) The Borrower will not change its name, enter into
any merger, consolidation, reorganization or recapitalization,
or reclassify its capital stock.
(B) The Borrower will not sell, transfer, lease or
otherwise dispose of all or (except in the ordinary course of
business) any part of its right, title and interest in any
assets or property, including the Collateral, unless all of
the proceeds therefrom are applied to reduction and payment of
the Obligations.
(C) The Borrower will not, without the prior written
consent of the Bank, mortgage, pledge, grant or permit to
exist a material security interest in or lien upon any of its
assets, including the Collateral, of any kind, now owned or
hereafter acquired except for Permitted Liens.
(D) The Borrower will not, without the prior written
consent of the Bank, become liable, directly or indirectly, as
guarantor or otherwise, for any obligation of any other
Person, except for the endorsement of commercial paper for
deposit or collection in the ordinary course of business.
(E) The Borrower will not incur, create, assume, or
permit to exist any material Indebtedness except: (1) the
Loans; and (2) existing indebtedness previously disclosed to
Bank.
(F) The Borrower will not furnish the Bank any
certificate or other document that contains any untrue
statement of a material fact or that omits to state a material
fact necessary to make it not misleading in light of the
circumstances under which it is furnished.
(G) Borrower will not borrow more than the maximum sums
provided for hereunder under existing or future short-term
lines of credit, including the Obligations of Borrower under
this Agreement, excepting loans secured by Permitted Liens.
(H) Borrower will not, without the prior approval of the
Bank, enter into any transaction of merger or consolidation
except that: the Borrower may merge or consolidate into or
with any wholly owned subsidiary provided that the Borrower
shall be the surviving corporation and providing that
immediately following such merger or consolidation, the
Borrower shall be in compliance with the terms and covenants
of this Agreement.
(I) Without the written consent of the Bank, Borrower
will not materially expand its business operation, or incur in
any fiscal year any capital expenditures for improvements in
excess of presently budgeted capital expenditures or acquire
other assets or entities (including leasehold interests
containing an option to purchase or leases treated as
financing devices). The Borrower will not, without the prior
written consent of the Bank, engage in any business
substantially different from or unrelated to, or change or
modify in any material respect the character or conduct of,
the business of Borrower as of the date hereof.
(N) Borrower will not further pledge, transfer, sell,
encumber, assign or grant liens or security interests in their
respective assets except Permitted Liens.
(O) Borrower shall not pay any bonuses under Borrower's
Incentive Bonus Program or other similar plan based on 1995
performance until after this credit facility has expired and
been fully paid.
SECTION VII. DEFAULT.
7.01 Events of Default. The occurrence of any one or more of
the following events shall constitute an Event of Default
hereunder:
(A) The Borrower shall fail to pay when due any
installment of principal, interest, fee or other charge.
(B) The Borrower shall fail to pay, and such failure
shall result in acceleration of any material indebtedness due
any third Persons and such failure shall continue beyond any
applicable grace period, or the Borrower shall suffer to exist
any other event of default under any material agreement
binding the Borrower or any of its subsidiares.
(C) Any financial statement, representation, warranty or
certificate made or furnished by the Borrower to the Bank in
connection with this Agreement, or as inducement to the Bank
to enter into this Agreement, or in any separate statement or
document to be delivered hereunder to the Bank, shall be
materially false, incorrect, or incomplete when made.
(D) The Borrower shall admit in writing its inability to
pay its debts as they mature, or shall make an assignment for
the benefit of its or any of its creditors.
(E) Proceedings in bankruptcy, or for reorganization of
the Borrower or for the readjustment of any of their
respective debts, under the Bankruptcy Act, as amended, or any
part thereof, or under any other Laws, whether state or
federal, for the relief of debtors, now or hereafter existing,
shall be commenced by the Borrower or shall be commenced
against the Borrower and shall not be discharged within thirty
(30) days of their commencement.
(F) A receiver or trustee shall be appointed for the
Borrower or for any substantial part of their respective
assets, or any proceedings shall be instituted for the
dissolution or the full or partial liquidation of the Borrower
and such receiver or trustee shall not be discharged within
thirty (30) days of his appointment, or such proceedings shall
not be discharged within thirty (30) days of their
commencement, or the Borrower shall discontinue business or
materially change the nature of its business.
(G) The Borrower shall suffer final judgments for
payment of money aggregating in excess of One Million Dollars
($1,000,000.00) and shall not discharge the same within a
period of thirty (30) days unless, pending further
proceedings, execution has not been commenced or if commenced
has been effectively stayed or bonded against.
(H) A judgment creditor of the Borrower shall obtain
possession of any of the Collateral by any means, including,
but without limitation, levy, distraint, replevin or self-help.
7.02 Acceleration. Immediately and without notice upon the
occurrence of an Event of Default all Obligations, whether
hereunder or otherwise, shall immediately become due and payable
without further action of any kind.
7.03 Remedies. Upon the occurrence of an Event of Default
and/or after any acceleration, the Bank shall have, in addition to
the rights and remedies given it by this Agreement, the Note and
the Collateral Documents, all those rights and remedies allowed by
all applicable Laws, including but without limitation, the Uniform
Commercial Code as enacted in any jurisdiction in which any
Collateral may be located. Without limiting the generality of the
foregoing, the Bank may immediately, without demand for performance
and without other notice (except as specifically required by this
Agreement or the Collateral Documents) or demand whatsoever to the
Borrower, all of which are hereby expressly waived, and without
advertisement, sell at public or private sale or otherwise realize
upon, in Ogden, Utah or elsewhere, the shole or, from time to time,
any part of the Collateral, or any interest which the Borrower may
have therein. After deducting from the proceeds of sale or other
disposition of the Collateral all expenses (including all
reasonable expenses for leagal services), the Bank shall apply such
proceeds toward the satisfaction of the Obligations. Any remainder
of the proceeds after satisfaction in full of the Obligations shall
be distributed as required by applicable laws. Notice of any sale
or other disposition shall be given to the Borrower at least five
(5) days before the time of any intended public sale or of the time
after which any intended private sale or other disposition of the
Collateral is to be made, which the Borrower hereby agrees shall be
reasonable notice of such sale or other disposition. The Borrower
agrees to assemble, or to cause to be assembled, at its own
expense, the Collateral at such place or places as the Bank shall
designate. At any such sale or other disposition, the Bank may, to
the extent permissible under applicable Laws, purchase the whole or
any part of the Collateral, free from any right of redemption on
the part of the Borrower, which right is hereby waived and
released. Without limiting the generality of any of the rights and
remedies conferred upon the Bank under this paragraph, the Bank
may, to the full extent permitted by applicable Laws:
(A) Enter upon the premises of the Borrower and take
immediate possession of the Collateral, either personally or
by means of a receiver appointed by a court of competent
jurisdiction, using all necessary force to do so;
(B) At the Bank's option, use, operate, manage and
control the Collateral in any lawful manner;
(C) Collect and receive all rents, income, revenue,
earnings, issues and profits therefrom and give notice of the
assignment thereof to any account debtors; and
(D) Maintain, repair, renovate, alter or remove the
Collateral as the Bank may determine in its sole discretion.
SECTION VIII. MISCELLANEOUS.
8.01 Construction. The provisions of this Agreement shall be
in addition to those of any pledge or security agreement, note or
other evidence of liability held by the Bank, all of which shall be
construed as complementary to each other. Nothing herein contained
shall prevent the Bank from enforcing any or all other notes,
pledge or security agreements in accordance with their respective
terms.
8.02 Further Assurance. From time to time, the Borrower will
execute and deliver to the Bank such additional documents and will
provide such additional information as the Bank may reasonably
require to carry out the terms of this Agreement and be informed of
the Borrower's status and affairs. At the request of the Bank,
Borrower will deliver to the Bank any chattel paper and instruments
evidencing the Accounts assigned to the Bank as Collateral
hereunder, and the Borrower will execute and deliver assignments of
any security interests securing such Accounts.
8.03 Enforcement and Waiver by the Bank. The Bank shall have
the right at all times to enforce the provisions of this Agreement,
the Note and the Collateral Documents in strict accordance with the
terms hereof and thereof, notwithstanding any conduct or custom on
the part of the Bank in refraining from so doing at any time or
times. The failure of the Bank at any time or times to enforce
rights under such provisions, strictly in accordance with the same,
shall not be construed as having created a custom in any way or
manner contrary to specific provisions of this Agreement or as
having in any way or manner modified or waived the same. All
rights and remedies of the Bank are cumulative and concurrent and
the exercise of one right or remedy shall not be deemed a waiver or
release of any other right or remedy.
8.04 Expenses of the Bank. The Borrower will, on demand,
reimburse the Bank for all expenses, including the reasonable fees
and expenses of legal counsel for the Bank and its participants,
incurred by the Bank in connection with the administration,
amendment, modification, assignment or enforcement of this
Agreement and all related documents and the collection or attempted
collection of the Note, whether any default is ultimately cured or
whether the Bank is obligated to pursue remedies hereunder
including such fees and expenses incurred before legal action,
during the pendency of any such legal action and continuing to all
such fees and expenses in connection with any appeal to higher
courts arising out of transactions associated herewith. The
obligations of this section shall survive the making of this
Agreement, the Notes and the Collateral Documents, including any
documents or amendments subsequently executed.
8.05 Notices. Any notices or consents required or permitted
by this Agreement shall be in writing and shall be deemed delivered
if delivered in person or if sent by certified mail, postage
prepaid, return receipt requested, telegraph or telex, as follows,
unless such address is changed by written notice hereunder:
(A) If the Borrower:
IOMEGA Corporation
1821 West Iomega Way
Roy, Utah 84067
Attn: _________________________
(B) If to the Bank:
First Security Bank of Utah, N.A.
2404 Washington Blvd.
Ogden, Utah 84401
Attention: Taft Meyer
8.06 Wavier and Release by the Borrower. To the maximum
extent permitted by applicable Laws, the Borrower:
(A) Waives: (1) protest of all commercial paper at any
time held by the Bank on which the Borrower is any way liable;
and (2) notice and opportunity to be heard, after acceleration
before exercise by the Bank of the remedies of self-help, set-off, or of
other summary procedures permitted by any
applicable Laws or by any agreement with the Borrower, and,
except where required hereby or by any applicable Laws, notice
of any other action taken by the Bank; and
(B) Releases the Bank and its officers, attorneys,
agents and employees from all claims for loss or damage caused
by any action or omission on the part of it except willful
misconduct.
8.07 Direct Notification and Collection. Upon the occurrence
of an Event of Default, the Bank shall have the authority, but
shall not be obligated to: (I) notify any or all Account Debtors or
any lessees or sublessees of the Collateral of the existence of the
Bank's security interest and to direct such Account Debtors to pay
or remit all sums due or to become due directly to the Bank or to
its nominee or nominees; (ii) in the name of the Borrower or
otherwise, to demand, collect, receive and receipt for, compound,
compromise, settle and give acquittance for, and in respect of any
or all of the Collateral, including all Accounts; (iii) require
Borrower to deposit any and all proceeds from the Accounts on a
daily basis in a special account or accounts with the Bank making
an accounting to the Bank of all such proceeds collected; (iv)
cause Borrower to deliver to the Bank such books, records,
documents and instruments in Borrower's possession as may relate to
the Collateral and as may be necessary to facilitate collections of
accounts, leases and subleases or the enforcement of the
obligations of Account Debtors and lessees and sublessees including
but not limited to correspondence, records, books and other
instruments relating thereto; (v) take any action which the Bank
may deem necessary or desirable in order to realize on the
Collateral, including without limitation, the power to perform any
contract, to indorse in the name of Borrower any checks, drafts,
notes or other instruments or documents received in payment of or
on account of the Collateral. Borrower will use diligence in the
enforcement and collection of all accounts, leases and subleases
and proceeds thereof until receipt of notice from the Bank to
notify all Account Debtors, lessees or sublessees of the existence
of its security interest. Borrower will hold all of the proceeds
of such collections in trust for the Bank and will not commingle
the same with any other funds or property of the Borrower and will
account to the Bank for the collection of all proceeds of the
Collateral. The Bank's authorized agents shall (should the Bank
deem it necessary or advisable) at all reasonable times have the
right to be present at Borrower's place of business to receive all
communications and remittances relating to the Collateral.
Notwithstanding any election by the Bank to effect such direct
collections of accounts, leases or subleases, Borrower agrees to
pay all expenses and costs of such collections including reasonable
attorneys' fees incurred by the Bank. The Bank shall have the
right but not the obligation to perform any obligations of Borrower
on Accounts or any leases or subleases and the same shall not
constitute an assumption of such obligations by the Bank unless the
Bank shall affirmatively and expressly so elect.
8.08 Applicable Law. The substantive Laws of the State of
Utah shall govern the construction of this Agreement and the rights
and remedies of the parties hereto.
8.09 Binding Effect, Assignment and Entire Agreement. This
Agreement shall inure to the benefit of, and shall be binding upon,
the respective successors and permitted assigns of the parties
hereto. The Borrower has no right to assign any of its rights or
obligations hereunder without the prior written consent of the
Bank. This Agreement, and the documents executed and delivered
pursuant hereto, constitute the entire agreement between the
parties, and may be amended only by a writing signed on behalf of
each party.
8.10 Severability. If any provision of this Agreement shall
be held invalid under any applicable Laws, such invalidity shall
not affect any other provision of this Agreement that can be given
effect without the invalid provision, and, to this end, the
provisions hereof are severable.
8.11 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BORROWER
IOMEGA CORPORATION
By: /s/ Jerol S. Garner
Its: Assistant Treasurer
BANK
FIRST SECURITY BANK
By: /s/ Taft Meyer
Its: Vice President
EXHIBIT "A"
All of the right, title and interest of Debtor and of any
subsidiary of the Debtor, wherever located, whether now owned or
hereafter acquired, in and to all Accounts, Chattel Paper,
Contracts, Contract Rights, Documents, General Intangibles,
Instruments, Inventory, right as seller of goods and rights to
returned or repossessed goods and all proceeds, products,
accessions, additions and substitutions of, to and for all of the
foregoing.
Exhibit 13.1
IOMEGA CORPORATION AND SUBSIDIARIES
Financial Highlights
<TABLE>
For years ended December 31,
(in thousands, except per share data) 1995 1994
<C> <S> <S>
Sales $326,225 $141,380
Cost of sales 235,838 92,453
Operating expenses 76,765 49,809
Net income (loss) $ 8,503 $ (1,882)
Net income (loss) per common share $ 0.14 $ (0.03)
Weighted average number of shares
outstanding(1) 60,180 55,419
Share price(1): high $ 17.92 $ 1.50
low $ 1.08 $ .53
</TABLE>
Quarterly Financial Information
<TABLE>
For year ended December 31, 1995
(in thousands, except per share
data) Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total Year
<C> <S> <S> <S> <S> <S>
Sales $40,112 $52,594 $84,721 $148,798 $326,225
Gross margin 11,717 11,687 21,496 45,487 90,387
Net income (loss) (1,498) (1,947) 2,025 9,923 8,503
Net income (loss) per
common share(1) $ (0.03) $(0.03) $ 0.03 $ 0.16 $ 0.14
For year ended December 31, 1994
(in thousands, except per share
data) Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total Year
Sales $34,506 $32,867 $35,534 $38,473 $141,380
Gross margin 10,600 12,016 12,495 13,816 48,927
Net income (loss) (5,391) (238) 2,468 1,279 (1,882)
Net income (loss) per
common share(1) $ (0.10) $ (0.00) $ 0.04 $ 0.02 $ (0.03)
</TABLE>
Operating Highlights
<TABLE>
As of year end December 31, 1995 1994
<C> <S> <S>
Employees 1,667 886
Facilities (square feet) 251,000 242,000
</TABLE>
(1) Earnings per share, outstanding shares and share prices have been
retroactively adjusted to reflect stock splits (see Note 2 to Consolidated
Financial Statements).
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIA CONDITION AND
RESULTS OF OPERATIONS
Trends in operations
The following table indicates the trends in certain components of the
consolidated statements of operations for each of the last five years.
<TABLE>
Year ended December 31, 1995 1994 1993 1992 1991
(in thousands, except per share and employee data)
<C> <S> <S> <S> <S> <S>
Sales $326,225 $141,380 $147,123 $139,174 $136,566
Cost of sales 235,838 92,453 92,585 74,090 68,404
-------- ------- -------- ------ -------
Gross margin 90,387 48,927 54,538 65,084 68,162
Operating expenses:
Selling, general and
administrative 57,189 36,862 38,862 37,572 34,323
Research and development 19,576 15,438 18,972 21,959 17,939
Restructuring costs
(reversal) - (2,491) 14,131 - -
-------- -------- -------- ------- -------
Total operating expenses 76,765 49,809 71,965 59,531 52,262
Operating income (loss) 13,622 (882) (17,427) 5,553 15,900
Interest and other
income (expense) (1,983) 908 771 592 1,661
------- ------- -------- ------ -------
Income (loss) before
income taxes and
cumulative effect of
accounting change 11,639 26 (16,656) 6,145 17,561
Provision for income
taxes(1) (3,136) (1,908) (206) (1,474) (5,236)
-------- -------- --------- ------- -------
Net income (loss) before
cumulative effect
of accounting change(1) 8,503 (1,882) (16,862) 4,671 12,325
Cumulative effect of
accounting change(1) - - 2,337 - -
-------- -------- --------- ------- -------
Net income (loss $ 8,503 $(1,882) $(14,525) $4,671 $12,325
======== ======== ========= ======= =======
Net income (loss) per
common share(2) $ 0.14 $ (0.03) $ (0.27) $ 0.08 $ 0.20
======== ========= ========= ======= =======
Weighted average common
shares outstanding(2) 60,180 55,419 54,318 60,795 61,767
======== ======== ========= ======= =======
Total personnel 1,667 886 1,077 1,270 1,153
======== ======== ========= ======= =======
</TABLE>
(1) See Note 3 of Notes to Consolidated Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of sales
for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
Percentage of Sales
Year ended December 31, 1995 1994 1993
<C> <S> <S> <S>
Sales 100.0% 100.0% 100.0%
Cost of sales 72.3 65.4 62.9
------ ------ -------
Gross margin 27.7 34.6 37.1
Operating expenses:
Selling, general and
administrative 17.5 26.1 26.4
Research and development 6.0 10.9 12.9
Restructuring costs (reversal) - (1.8) 9.6
----- ------ -----
Total operating expenses 23.5 35.2 48.9
Operating income (loss) 4.2 (0.6) (11.8)
Interest and other income
(expense) (0.6) 0.6 0.5
----- ------ -----
Income (loss) before income
taxes and cumulative effect
of accounting change 3.6 - (11.3)
Provision for income taxes (1.0) (1.3) (0.2)
----- ------ -------
Net income (loss) before
cumulative effect of
accounting change 2.6 (1.3) (11.5)
Cumulative effect of
accounting change - - 1.6
----- ------ ------
Net income (loss) 2.6% (1.3)% (9.9)%
===== ====== ======
</TABLE>
1995 As Compared To 1994
Sales. Sales increased by $185 million, or 131%, in 1995 when compared to 1994.
The primary reason for the increased sales was the introduction of the new Zip
product line, which began shipping at the end of the first quarter of 1995.
Increased sales of Ditto products also contributed to the increased sales. In
addition, the Company began shipping Jaz products in limited quantities
in December 1995. These sales increases were partially offset by reduced
sales of Bernoulli products.
In 1995, sales of Zip and Jaz products accounted for $174.2 million, or 53%, of
sales. Ditto products accounted for $86.5 million, or 27%, of sales in 1995 as
compared to $42.1 million, or 30%, of sales in 1994. Bernoulli and other product
sales totaled $65.5 million, or 20%, of sales in 1995 as compared to $99.3
million, or 70%, of 1994 sales. In the fourth quarter of 1995, sales of Zip and
Jaz increased to 68% of sales, Ditto represented 22% of sales and Bernoulli and
other products were 10% of sales.
Sales to the U.S. market increased by $133.5 million, or 149%, in 1995 when
compared to 1994. International sales, primarily to customers located in Europe,
increased by $51.3 million, or 99%, in 1995 when compared to 1994. In total,
sales outside of the United States represented 31.7% of sales in 1995 as
compared to 36.7% in 1994.
Management expects increased sales of Zip, Jaz and Ditto products in 1996, which
it expects to be partially offset by significant declines in sales of Bernoulli
products. However, the Company is experiencing component shortages which may
continue to limit production and therefore sales. Accordingly, there can be no
assurance that future sales will materialize as expected.
Gross Margin. The Company's gross margin percentage in 1995 was 27.7%, as
compared to 34.6% in 1994. The decline in gross margin percentage was primarily
attributable to a shift in sales mix away from higher margin Bernoulli products
to lower margin Zip products. Start-up costs associated with the introduction of
Zip and Jaz products also contributed to the decline in gross margin percentage.
The Company's gross margin percentage increased from 25.4% in the third quarter
of 1995 to 30.6% in the fourth quarter of 1995, which is primarily attributable
to an increase in sales of Zip disks, which have significantly higher margins
than drives, as a percentage of total sales.
Gross margins in 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. Historically, the gross margin of
Bernoulli products has generally been in excess of 40%; the gross margins of the
Zip, Jaz and Ditto product lines during 1995 were significantly lower than that.
Although the Company expects the gross margins of Zip and Jaz products to
increase as production increases, it does not expect them to achieve the levels
historically achieved by Bernoulli. In addition, gross margins will be affected
by the level of sales through OEMs, the Company's ability to achieve planned
cost reductions and by any future price reductions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 55% in 1995 as compared to 1994. As a
percentage of sales, these expenses declined from 26.1% in 1994 to 17.5% in
1995. The decline in percentage is due to the increased sales volume in 1995.
The actual selling, general and administrative expenses increased by $20.3
million in 1995 as compared to 1994. The increased expenses were primarily
the result of advertising and promotion expenses incurred to launch new
products, 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 to increase further in 1996 in absolute dollars due to advertising
and promotion expenses expected to be incurred to help create demand for Zip,
Jaz and Ditto products, as well as increased variable selling expenses and
increased fixed administrative expenses.
Research and Development Expenses. Research and development expenses were 6.0%
of sales in 1995, compared to 10.9% in 1994. The decline in percentages is
due to the increased sales volumes in 1995. The actual research and
development expenses increased by $4.1 million in 1995 compared to 1994. This
increase was primarily the result of expenditures related to the development
of the Zip, Ditto and Jaz products. Management expects continued increases in
research and development expenses in 1996 in absolute dollars as the result
of the continued growth in the resources needed for future product
development and enhancement.
Other. In 1995, the Company recorded a net foreign currency loss of $1.2
million. This loss was primarily a result of losses incurred in connection
with the remeasurement of forward exchange contracts to market values. The
majority of the loss was incurred in the first quarter of 1995 as the U.S.
dollar weakened against foreign currencies (primarily European currencies)
that were hedged by the forward contracts in place at April 2, 1995. In the
first quarter of 1995, the Company bought more than its customary three
months of forward exchange contracts with the intent of hedging operating
cash flows through the remainder of the year and in anticipation of a
strengthening dollar. However, the dollar continued to weaken against the
currencies that were hedged, resulting in a $1.5 million charge to operations.
The loss on the remeasurement of forward exchange contracts was partially
offset by translation gains recorded in remeasurement of its foreign
subsidiary's financial statements to the U.S. dollar.
The Company recorded interest expense of $1.7 million in 1995 due to borrowings
on short-term credit lines as well as capital leases. Interest income declined
from $.9 million in 1994 to $.5 million in 1995 due to declining cash balances.
Other income of $.4 million recorded in 1995 is primarily attributable to
royalty payments received related to the Company's Ditto products.
For 1995, the Company recorded a tax provision of $3.1 million representing an
effective income tax rate of 27%. The Company expects the effective income tax
rate to increase in the future to the statutory rate of 35% for federal income
tax and approximately 5% for state income taxes. The timing of the rate increase
will depend on future taxable income, the utilization of available tax credits,
and changes in the valuation allowance associated with the deferred tax assets.
1994 As Compared To 1993
Sales decreased by 4% in 1994 when compared to 1993. Significant declines in
sales of 5.25-inch 44- and 90-MB Bernoulli drive products were partially offset
by increased sales of 5.25-inch 150- and 230-MB Bernoulli drive products.
Bernoulli drive sales dollars in total declined in 1994 as compared to 1993.
Unit sales of Bernoulli drives were relatively flat in 1994 versus 1993, but
price reductions resulted in lower sales dollars. Bernoulli disk sales also
declined in 1994 as compared to 1993 in both dollars and units. These
declines in Bernoulli sales were partially offset by increased sales of tape
products. Tape drive unit sales doubled in 1994 as compared to 1993, while
sales dollars increased at a slightly lower rate due to a lower average price
on tape products in 1994. Sales of the Company's SyQuest-compatible removable
hard disk cartridges (which have been discontinued) increased in 1994, which
offset a decline in Floptical product
sales.
Sales to the U.S. market declined in 1994 when compared to 1993 as a result of
decreasing sales of Bernoulli products, which were only partially offset by
increases in tape product sales. International sales, including export sales,
increased by approximately 25% and represented 37% of total consolidated sales
in 1994 compared to 28% in 1993. Substantial increases in sales of tape
products in Europe were the primary reason for the increased sales in the
international channels.
Cost of sales increased as a percentage of sales from 62.9% in 1993 to 65.4% in
1994. The decline in the gross margin percentage was partially due to a higher
mix of tape products which have lower gross margins than the Bernoulli products.
In addition, all product lines continued to experience competitive price
pressures which resulted in lower selling prices in 1994 when compared to 1993.
Partially offsetting these factors, both the Bernoulli and tape product lines
benefitted from significant production cost reductions which were realized
throughout 1994.
Selling, general and administrative expenses decreased by $2.0 million and
decreased slightly as a percentage of sales from 26.4% to 26.1%. Decreases in
selling, general and administrative expenses resulted from restructuring actions
which occurred in January and June of 1994, including the closing down of the
Floptical product line, as well as streamlining operations in both the U.S. and
Europe. Sales and marketing expenses were increased in the latter part of 1994
to introduce the Zip product line and to reposition the Company's marketing
strategy worldwide. In addition, selling, general and administrative expenses
increased in 1994 due to the payment of management bonuses.
Research and development expenses decreased by $3.5 million and declined as a
percentage of sales from 12.9% in 1993 to 10.9% in 1994. The major decline in
research and development expenses resulted from the sale of the Company's thin
film head development operation located in Fremont, California in the first
quarter of 1994 and from closing its Floptical development laboratory located in
Boulder, Colorado in the first quarter of 1994. Offsetting these decreases were
increased development spending on the Company's tape product line and
development costs for the Company's Zip product line.
The Company's operating expenses were reduced in 1994 due to the reversal of
restructuring reserves totaling $2.5 million. The Company had previously
recorded restructuring reserves totaling $11.5 million at December 31, 1993.
During 1993 and 1994, the Company effected most of the restructuring actions
that had been planned, but due to changing conditions, it elected to change
the scope and focus of other previously planned activities. As a result, the
Company no longer required $2.5 million of the previously recorded reserves
and reversed the unneeded reserves in the fourth quarter of 1994. The Company
had no remaining restructuring reserves on its balance sheet at December 31,
1994.
Interest income increased by $0.3 million in 1994 as compared to 1993 due to a
slight increase in cash and temporary investments, as well as higher interest
rates earned on available balances. Other income consisted primarily of
royalties received, offset in part by losses incurred on the writedown of
computer systems and foreign currency losses.
In 1993, the Company increased its deferred tax assets as required by Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109). The deferred tax assets net value at December 31, 1993 was $5.0
million. The realizability of deferred tax assets was reevaluated throughout
1994 in light of changing business conditions and uncertainties regarding
previously contemplated strategies. As a result, the Company recorded a tax
provision of $3.3 million to increase the valuation allowance to cover the
realizability of the deferred tax assets to its estimated realizable value as
of December 31, 1994. In addition to this tax provision which was recorded in
1994, the Company recognized a tax benefit of $1.4 million in the third
quarter of 1994 as a result of a change in an estimate on the Company's 1993
tax return due to a change in the transfer price on products between the
Company and its German subsidiary. The change in transfer price was a result
of an independent economic study. The above items resulted in a tax provision
for 1994 totaling $1.9 million.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had cash and cash equivalents of $1.0 million,
working capital of $12.6 million and a ratio of current assets to current
liabilities of 1.1 to 1. During 1995, the Company used $15.8 million in cash and
cash equivalents consisting of $27.0 million used in operating activities, and
$42.5 million in investing activities, offset by $53.7 million provided by
financing activities.
On July 5, 1995, the Company entered into a loan agreement with the Commercial
Finance Division of Wells Fargo. The agreement permits revolving loans, term
loans and letters of credit up to an aggregate outstanding principal amount
equal to the lesser of $60 million or 90% of eligible accounts receivable.
There is an aggregate sublimit of $10 million for letters of credit. The
revolving credit line bears interest at the bank's prime rate plus 1%, and
the Wells Fargo term loans bear interest at the bank's prime rate plus 1.25%.
The agreement expires June 30, 1996. Certain covenants within the agreement
require the Company to maintain minimum levels of working capital and net
worth. Under the agreement with Wells Fargo, the Company may also secure
financing of equipment purchases from third parties up to a maximum of $25
million, less term loans outstanding to Wells Fargo. 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. In January 1996, the Company entered into a $6.0 million
short-term revolving credit facility with First Security Bank of Utah.
This facility matures on April 12, 1996 and contains covenants similar to those
contained in the Wells Fargo loan agreement. 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
intends to refinance its loan with Wells Fargo upon its maturity. There can be
no assurance, however, that the Company will be able to refinance such loan at
acceptable terms.
The Company's balance sheet at December 31, 1995 reflected current notes payable
of $47.6 million, representing utilization of the revolving credit line with
Wells Fargo of $33.2 million, term loans with Wells Fargo of $3.6 million,
borrowings under the German loan agreement of $9.8 million and the short-term
portion of other term loans of $1.0 million. In addition, the short-term and
long-term portion of capital lease obligations totaled $0.8 million and $1.5
million, respectively, at December 31, 1995, and the long-term portion of notes
payable totaled $2.6 million at December 31, 1995. The borrowings have been used
to finance working capital needs, including increases in inventory and accounts
receivable and capital expenditures related to production volume increases.
Accounts receivable increased by $87.1 million at December 31, 1995 compared to
December 31, 1994, due to increased sales, particularly in the last portion of
the fourth quarter. Inventory increased by $81.4 million during 1995 due to
build-ups in manufacturing capacity at both the Company's facilities and those
of manufacturing partners. The Company's inventory is currently somewhat
imbalanced, with more than sufficient quantities of certain goods and
insufficient quantities of other goods, due in part to difficulties in
obtaining certain components. The increases in receivables and inventory were
partially offset by increases in accounts payable and accrued liabilities of
$120.4 million.
Cash expenditures for fixed asset additions for 1995 totaled $45.2 million.
These additions are primarily related to increased manufacturing capacity for
Zip, Ditto and Jaz products. The Company expects capital expenditures in future
quarters to continue to be significant as production capacity is added at the
Company's current manufacturing facility, as well as tooling at vendor
facilities and third-party manufacturing facilities.
The Company expects that additional financing will be required to fund the
Company's operations through 1996, including any planned expense increases or
capital expenditures discussed above. The precise amount and timing of the
Company's funding needs cannot be determined at this time and will depend upon a
number of factors, including the market demand for the Company's products, 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 and the Company's inventory management. The Company currently expects
that it would seek to obtain such funds from additional borrowing arrangements
and/or a public offering of debt or equity securities. There can be no assurance
that funds required by the Company in the future will be available on terms
satisfactory to the Company.
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,
the timing of the introduction of such solutions, and the success of the
Company in establishing OEM arrangements for Zip and Jaz with leading
personal computer manufacturers. In addition, the component shortages
confronting the Company could continue to limit the Company's sales and
provide an opportunity for competing products to achieve market acceptance.
A number of elements of the Company's business strategy may also directly impact
the Company's future operating results. Because the Company's marketing strategy
is based in significant part on generating consumer awareness of and demand for
its products, the Company plans to incur significantly increased marketing and
advertising expenses in 1996. In addition, a critical element of the Company's
distribution strategy is the establishment of OEM arrangements for Zip, Jaz and
Ditto. OEM sales generally provide lower gross margins than sales to other
channels. Moreover, reductions in the prices of the Company's Zip, Jaz and Ditto
products would likely have an adverse effect on gross margins for those
products. 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 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.
Although sales of Zip drives and disks were the primary reason for the Company's
revenue growth during 1995, sales of such products may be attributable in large
part to the novelty of such products and the initial publicity surrounding the
introduction of Zip and may not be indicative of the long-term demand for such
products. Moreover, 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 may be subject to continued softening in
1996. Accordingly, investors should not assume that the sales growth experienced
by the Company in 1995 is an indication of future sales. Moreover, in light
of the Company's revenue growth in 1995 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 would result in foreign currency gains and losses.
RECENT ACCOUNTING PRONOUNCEMENT
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS
No. 121). SFAS No. 121 is effective for financial statement periods beginning
after December 31, 1995. Management does not expect that the adoption of SFAS
No. 121 will have a material impact on the Company's financial position or
results of operations.
Financial Conditions and Trends
<TABLE>
December 31, (in thousands) 1995 1994 1993 1992 1991
<C> <S> <S> <S> <S> <S>
Cash and temporary investments $ 1,023 $19,793 $18,804 $19,691 $31,611
Trade receivables, net 105,955 18,892 21,685 15,482 19,168
Inventories 98,703 17,318 13,572 18,546 12,019
Total assets 266,227 75,833 81,089 86,955 87,046
Notes payable 47,640 - - - -
Accounts payable and accrued
liabilities 145,946 25,739 29,023 20,261 21,159
Current portion of capital
lease obligations 782 - - 11 153
Working capital 12,623 34,818 30,550 35,038 43,165
Long-term obligations and
redeemable preferred stock 4,032 1,031 976 926 889
Equipment and leasehold
improvement additions
during year 45,232 7,083 6,567 12,980 8,482
</TABLE>
Securities
Iomega Common Stock is traded on the Nasdaq National Market under the symbol
IOMG. As of December 31, 1995, there were 2,634 holders of record of Common
Stock. The Company has not paid dividends on its Common Stock in the past and
has no present intention to do so in the future. The following table reflects
the high and low sales prices for 1995 and 1994, retroactively adjusted for the
5-for-4 stock split in November 1994 and the 3-for-1 stock split in January
1996. (see Note 2 to Consolidated Financial Statements). The Company's loan
agreements prohibit the repayment of dividends without the prior written
consent of the banks.
Price Range of Common Stock:
1995 1994
High Low High Low
1st Quarter $ 2.61 $ 1.08 $0.83 $0.60
2nd Quarter $ 8.71 $ 2.33 $0.70 $0.53
3rd Quarter $10.00 $ 6.79 $1.07 $0.70
4th Quarter $17.92 $ 5.50 $1.50 $0.77
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31, (in thousands, except share data) 1995 1994
<C> <S> <S>
ASSETS
Current assets:
Cash and cash equivalents $ 1,023 $ 16,861
Temporary investments - 2,932
Trade receivables, less allowance for
doubtful accounts of $1,861
and $1,627, respectively 105,955 18,892
Inventories 98,703 17,318
Deferred tax assets 2,778 477
Other current assets 3,673 4,077
--------- -------
Total current assets 212,132 60,557
--------- -------
Equipment and leasehold improvements, at cost:
Machinery and equipment 67,812 45,585
Leasehold improvements 6,475 6,034
Furniture and fixtures 4,805 4,737
Equipment and construction in process 24,057 2,837
--------- -------
103,149 59,193
Less: Accumulated depreciation and amortization (49,779) (43,917)
--------- -------
53,370 15,276
Deferred tax assets 520 -
--------- ------
Other assets 205 -
--------- ------
$266,227 $75,833
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 47,640 $ -
Accounts payable 94,782 7,228
Bank overdraft 11,833 -
Accrued payroll and bonus 6,777 3,047
Deferred revenue 3,207 1,947
Accrued vacation 2,939 1,954
Accrued warranty 4,652 3,943
Other accrued liabilities 21,756 7,620
Income taxes payable 5,141 -
Current portion of capitalized lease obligations 782 -
-------- --------
Total current liabilities 199,509 25,739
-------- --------
Capitalized lease obligations, net of
current portion 1,481 -
-------- --------
Notes payable, net of current portion 2,551 -
-------- --------
Commitments and contingencies (Note 4)
Redeemable Series A Convertible Preferred Stock;
outstanding 258,816 shares - 1,031
-------- -------
Stockholders' equity:
Preferred Stock, $0.01 par value; authorized
4,750,000 shares - -
Series C Junior Participating Preferred Stock;
authorized 250,000 shares, none issued - -
Common Stock, $.03333par value; authorized
150,000,000 shares; issued 58,819,335 and
55,559,247 shares, respectively 1,960 1,852
Notes receivable from stockholders - (597)
Additional paid-in capital 51,473 47,023
Retained earnings 9,253 785
-------- -------
Total stockholders' equity 62,686 49,063
-------- -------
$266,227 $75,833
======== =======
</TABLE>
The accompanying notes to consolidated statements are an integral part
of these balance sheets.
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Years ended December 31,
(in thousands, except per share data) 1995 1994 1993
<C> <S> <S> <S>
Sales $326,225 $141,380 $147,123
Cost of sales 235,838 92,453 92,585
-------- -------- --------
Gross margin 90,387 48,927 54,538
Operating expenses:
Selling, general and administrative 57,189 36,862 38,862
Research and development 19,576 15,438 18,972
Restructuring costs (reversal) - (2,491) 14,131
-------- -------- --------
Total operating expenses 76,765 49,809 71,965
-------- -------- --------
Operating income (loss) 13,622 (882) (17,427)
Foreign currency gain (loss) (1,243) 353 328
Interest income 537 871 620
Interest expense (1,652) (15) (70)
Other income (expense) 375 (301) (107)
-------- -------- --------
Income (loss) before income taxes and
cumulative effect of accounting change 11,639 26 (16,656)
Provision for income taxes (3,136) (1,908) (206)
-------- -------- --------
Net income (loss) before cumulative
effect of accounting change 8,503 (1,882) (16,862)
Cumulative effect of accounting change - - 2,337
-------- -------- --------
Net income (loss) $ 8,503 $ (1,882) $ 14,525)
======== ======== ========
Net income (loss) per common share:
Net income (loss) before cumulative
effect of accounting change $ 0.14 $ (0.03) $ (0.31)
Cumulative effect of accounting change - - 0.04
------- --------- --------
Net income (loss) $ 0.14 $ (0.03) $ (0.27)
======= ========= ========
Weighted average common shares
outstanding 60,180 55,419 54,318
======= ========= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
(in thousands, except share data) Notes
Receivable Additional
Common Stock from Paid-in Retained Treasury
Shares Amount Stockholders Capital Earnings Stock Total
---------- ------ ------------ -------- --------- -------- -----
<C> <S> <S> <S> <S> <S> <S> <S>
Balances at December 31,
1992 53,632,656 $1,788 $ - $57,746 $17,347 $(11,857) $65,024
Sale of shares to employees
at an average price of
$0.69 cash per share 570,888 19 - 373 - - 392
Sale of shares to officer
at an average price of
$0.68 per share for a
note receivable 882,000 29 (597) 568 - - -
Accretion of Series A
Convertible Preferred Stock
redemption premium - - - (51) - - (51)
Dividends on Series A
Convertible Preferred Stock - - - - (78) - (78)
Tax benefit from early
dispositions of employee
stock - - - 214 - - 214
Recognition of compensation
from Employee Stock Purchase
Plan - - - 84 - - 84
Issuance of 34,563 treasury
shares under Employee Stock
Purchase Plan - - - (30) - 60 30
Net loss - - - - (14,525) - (14,525)
---------- ------ ------ ---------- -------- ------ -------
Balances at December 31,
1993 55,085,544 1,836 (597) 58,904 2,744 (11,797) 51,090
Sale of shares to employees
at an average price of
$0.56 cash per share 473,703 16 - 240 - - 256
Purchase of 390,000 shares
at an average cost of
$0.78 cash per share - - - - - (305) (305)
Accretion of Series A
Convertible Preferred Stock
redemption premium - - - (55) - - (55)
Dividends on Series A
Convertible Preferred Stock - - - - (77) - (77)
Tax benefit from early
dispositions of employee
stock - - - 28 - - 28
Recognition of compensation
from Employee Stock Purchase
Plan - - - 8 - - 8
Issuance of 15,171 treasury
shares under Employee Stock
Purchase Plan - - - (17) - 17 -
Five-for-four Common Stock
split effected in the form
of a 25% stock dividend - - - (12,085) - 12,085 -
Net loss - - - - (1,882) - (1,882)
---------- ------ ------- -------- -------- ------ -------
Balances at December 31,
1994 55,559,247 1,852 (597) 47,023 785 - 49,063
Sale of shares to employees
at an average price of
$0.83 cash per share 2,429,751 81 - 1,945 - - 2,026
Sale of shares to an
officer at an average
price of $0.57 per share
for a note receivable 496,875 16 (283) 267 - - -
Accretion of Series A
Convertible Preferred
Stock redemption premium - - - (14) - - (14)
Dividends on Series A
Convertible Preferred Stock - - - - (35) - (35)
Tax benefit from early
dispositions of employee
stock - - - 860 - - 860
Recognition of compensation
from Employee Stock Purchase
Plan - - - 185 - - 185
Conversion of Series A
Convertible Preferred
Stock to Common Stock 318,600 11 - 1,194 - - 1,205
Issuance of Common Shares
under Employee Stock
Purchase Plan 14,862 - - 13 - - 13
Collection of notes
receivable from
stockholders - - 880 - - - 880
Net income - - - - 8,503 - 8,503
---------- ------- ----- --------- ------ ------ -----
Balances at December 31,
1995 58,819,335 $1,960 $ - $51,473 $ 9,253 $ -$62,686
========== ======= ======= ========= ======= ======= ======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Years ended December 31, (in thousands) 1995 1994 1993
<C> <S> <S> <S>
Increase (decrease) in cash and
cash equivalents
Cash flow from operating activities:
Net income (loss) $ 8,503 $ (1,882) $(14,525)
Non-cash revenue and expense adjustments:
Depreciation and amortization expense 8,943 6,853 8,472
Cumulative effect of accounting change - - (2,337)
Deferred income tax provision (benefit) (2,821) 4,508 -
Change in restructuring reserves - 1,590 5,554
Other 926 (314) (751)
Changes in assets and liabilities:
Trade receivables (net) (87,063) 2,793 (6,203)
Inventories (81,385) (3,747) 3,786
Income taxes payable 6,823 - -
Other current assets (1,278) (1,135) (694)
Accounts payable 87,554 161 1,696
Accrued liabilities 32,808 (3,516) 6,333
-------- --------- --------
Net cash provided from (used in)
operating activities (26,990) 5,311 1,331
-------- --------- --------
Cash flows from investing activities:
Purchase of equipment and leasehold
improvements (45,232) (7,083) (6,567)
Purchase of temporary investments (2,090) (8,825) -
Sale of temporary investments 5,022 5,893 -
Prepayment of royalties - - (1,000)
Proceeds from sale of property held
for resale - - 4,461
Proceeds from sale of research and
development assets - 2,792 -
Net (increase) decrease in other assets (205) (10) 343
-------- -------- -------
Net cash used in investing activities (42,505) (7,233) (2,763)
-------- -------- -------
Cash flows from financing activities:
Proceeds from sales of Common Stock 2,028 256 402
Proceeds from issuance of notes payable 259,667 - -
Payments on notes payable and
capitalized lease obligations (209,748) - (11)
Tax benefit from early dispositions
of employee stock 860 28 214
Redemption of Preferred Stock (30) - (2)
Purchase of treasury stock - (305) -
Utilization of treasury stock for
Stock Purchase Plan - - 20
Payment of dividends on Preferred Stock - - (78)
Proceeds from notes receivable from
stockholders 880 - -
--------- ------- --------
Net cash provided from (used in)
financing activities 53,657 (21) 545
--------- ------- --------
Net change in cash and cash equivalents (15,838) (1,943) (887)
Cash and cash equivalents at beginning
of year 16,861 18,804 19,691
--------- -------- -------
Cash and cash equivalents at end of
the year $ 1,023 $16,861 $ 18,804
========= ======== ======
Supplemental schedule of non-cash
investing and financing activities:
Net receivable (payable) associated
with revaluation of forward exchange
contracts $ (1,113) $ (111) $ 49
========= ======== ======
Sale of Common Stock for a note $ 283 $ - $ 597
========= ======== ======
Conversion of Series A Preferred
Stock to Common Stock $ 1,205 $ - $ -
========= ======== ======
Machinery and equipment financed
under capitalized
lease obligations $ 2,535 $ - $ -
========= ======== ======
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
1 SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - The Company designs, manufactures and markets
innovative data storage solutions, based on removable-media
technology, that help personal computer users manage their stuff. The
Company's data storage solutions include disk drives marketed under
the tradenames Zip and Jaz, a family of tape drives marketed under the
tradename Ditto, and a line of removable drives marketed under the
tradename Bernoulli. Retail outlets for the Company's products include
mail order catalogs, computer superstores, office supply superstores
and specialty computer stores. The Company sells its products to
retail channels directly as well as indirectly through distributors.
The Company's products are sold at the retail level by most of the
leading retailers of computer products in the United States. In
addition to sales through these retail channels, the Company has
entered into a number of strategic marketing alliances with a variety
of companies within the computer industry. These alliances include OEM
arrangements providing for certain of the Company's products to be
incorporated in new computer systems at the time of purchase.
The Company's business has grown significantly in the past year, with
sales increasing from $141.4 million in 1994 to $326.2 million in
1995. This business growth has resulted in substantial increases in
accounts receivable and inventories. Increases in these working
capital components have resulted in a significant decline in the
Company's liquidity. The Company does not expect that current sources
of financing available to the Company will be sufficient to fund the
Company's operations through 1996. The Company will require additional
funds during 1996 to finance its operations.
Sources of Supply - Many components incorporated in, or used in the
manufacture of, the Company's products are currently only available
from sole source suppliers. The Company purchases all of its sole
source and limited source components and equipment pursuant to
purchase orders placed from time to time and has no guaranteed supply
arrangements. Supply shortages resulting from a change in suppliers
could cause a delay in manufacturing and a possible loss of sales,
which would have an adverse effect on operating results.
Manufacturing Relationships - The Company uses independent parties to
manufacture for the Company, on a contract basis, a substantial
portion of the Company's products. The Company's manufacturing
relationships are generally not covered by binding contracts and may
be subject to unilateral termination by the Company's manufacturing
partners. Shortages resulting from a change in manufacturing partners
could cause a delay in manufacturing and a possible loss of sales,
which would have an adverse affect on operating results.
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 disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Principles of Consolidation - The 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 deferral of sales in excess of estimated normal
customers' inventory requirements totaled $3,207,000, $1,947,000 and
$1,494,000 at December 31, 1995, 1994 and 1993, respectively, and is
included in deferred revenue in the accompanying consolidated balance
sheets.
In addition, the Company records reserves at the time of shipment
for estimated volume rebates and price protection credits to be issued
to customers. These reserves totalled $1,633,000 and $169,000 at
December 31, 1995 and 1994, respectively, and are netted against
accounts receivable in the accompanying 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 the price decrease.
When a price decrease is anticipated, the Company establishes reserves
for amounts estimated to be reimbursed to the qualifying customers.
Inventories - Inventories include direct materials, direct labor, and
manufacturing overhead costs and are recorded at the lower of cost
(first-in, first-out) or market and consist of the following (in
thousands):
December 31, 1995 1994
Raw materials $89,030 $ 7,524
Work-in-process 5,680 4,839
Finished goods 3,993 4,955
------- -------
$98,703 $17,318
======= =======
Equipment and Leasehold Improvements - When property is retired or
otherwise disposed of, the book value of the property is removed from
the asset and related accumulated depreciation and amortization
accounts, and the net gain or loss is included in the determination of
net income. Depreciation is provided based on the straight-line method
over the following estimated useful lives of the property.
Machinery and equipment 2 - 5 years
Leasehold improvements 5 years
Furniture and fixtures 10 years
The Company has certain specialized manufacturing equipment used in
its operations.
Product Development - Product research and development costs are
expensed as incurred.
Advertising - The Company expenses the cost of advertising the first
time the advertising takes place, except cooperative advertising with
customers, which is accrued at the time of sale. For the years ended
December 31, 1995, 1994 and 1993, advertising expenses totaled
approximately $10,612,000, $6,348,000 and $5,574,000, respectively.
Bank Overdraft - The bank overdraft represents those checks which have
been disbursed to vendors but have not been presented to the bank for
clearance. Upon presentment to the bank, the bank overdraft will be
funded by the revolving line of credit, thereby reducing the
availability under the line (see Note 5).
Warranty Costs - A one-year limited warranty is generally provided on
the Company's Zip and Jaz drives. Zip and Jaz disks carry a limited
lifetime warranty. A two to five-year limited warranty is generally
provided on Bernoulli disk drives and disk drive subsystems. A two to
five-year limited warranty is generally provided on the tape drives
and tape media.
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 year. Common stock equivalent shares consist primarily of stock
options and convertible preferred stock 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.
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.
Income Taxes - The Company recognizes a liability or asset for the
deferred tax consequences of temporary differences between the tax
bases of assets or liabilities and their reported amounts in the
financial statements. These temporary differences will result in
taxable or deductible amounts in future years when the reported
amounts of the assets or liabilities are recovered or settled.
General business tax credits are accounted for using the "liability"
method, which reduces Federal income tax expense in the year in which
these credits are generated.
Cash Equivalents and Temporary Investments - For purposes of the
statements of cash flows, the Company considers all highly liquid debt
instruments purchased with maturities of three or fewer months to be
cash equivalents. Instruments with maturities in excess of three
months are classified as temporary investments. At December 31, 1994,
all temporary investments had maturities of less than six months. Cash
equivalents and temporary investments primarily consist
of certificates of deposit, investments in money market mutual funds,
commercial paper and bankers' acceptances and are recorded at cost
which approximates market.
Fair Value of Financial Instruments - The book value of the Company's
financial instruments approximates fair value. The estimated fair
values have been determined using appropriate market information and
valuation methodologies.
Reclassifications - Certain reclassifications have been made in prior
periods' consolidated financial statements to conform to the current
presentation.
2 STOCK SPLITS
On October 27, 1994, the Company's Board of Directors declared a
5-for-4 stock split which was effected in the form of a 25% Common
Stock dividend paid on November 23, 1994 to stockholders of record at
the close of business on November 9, 1994. The Company paid cash in
lieu of issuing fractional shares. The transaction has been accounted
for as a stock split. Of the shares of Common Stock distributed by the
Company in connection with the November 1994 stock split,
approximately 9,051,000 were treasury shares and the remainder were
authorized but unissued shares. The cost of the treasury shares and
authorized but unissued shares were recorded as a reduction in
additional paid-in capital. All earnings per share and outstanding
shares have been retroactively restated in the financial statements
for all periods presented.
In December 1995, the Board of Directors approved a 3-for-1 Common
Stock split, to be effected in the form of a 200% Common Stock dividend,
subject to stockholder approval of an increase in the authorized Common Stock
to 150,000,000 shares at $.03333 par value per share.
On January 26, 1996, the stockholders approved the charter amendment
to increase the authorized Common Stock. The stock dividend was paid
on January 31, 1996 to stockholders of record at the close of business
on January 15, 1996. This stock split has been retroactively reflected
in the accompanying 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 (loss) before income taxes and cumulative effect of accounting
change consisted of the following:
December 31, (in thousands) 1995 1994 1993
U.S. $10,761 $208 $(7,338)
Non-U.S. 878 (182) (9,318)
------- ------ --------
$11,639 $ 26 $16,656)
======= ======= ========
The income tax provision consists of the following:
December 31, (in thousands) 1995 1994 1993
Current income taxes:
Federal $(4,158) $ 1,217 $ (164)
State (805) 208 (22)
Foreign (156) - -
------ ------ -----
(5,119) 1,425 (186)
====== ====== =====
Deferred taxes:
Federal 189 (6) 5,989
State 47 - 1,497
Change in valuation
allowance 1,747 (3,327) (7,506)
------ ------- -------
1,983 (3,333) (20)
====== ======= =======
Provision for
income taxes $(3,136)$(1,908) $(206)
======= ======== =======
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). In accordance with the provisions of SFAS No. 109, the Company
recognized the cumulative effect of this accounting change totaling
$2.3 million in the consolidated statement of operations for the year
ended December 31, 1993.
Deferred tax assets and liabilities are determined based on the
differences between the financial reporting and tax basis of assets
and liabilities. They are measured by applying the enacted tax rates
and laws in effect for the years in which such differences are
expected to reverse. The significant components of the Company's
deferred tax assets and liabilities are as follows:
December 31, (in thousands) 1995 1994
Deferred tax assets:
Accounts receivable reserves $ 1,158 $ 482
Inventory reserves 2,378 940
Fixed asset reserves 64 36
Accrued expense reserves 7,188 4,596
Unrealized foreign currency loss 438 -
Inventory unicap adjustment 375 160
Foreign net operating loss
carryover 1,921 1,493
Tax credit carryover 1,273 5,365
Intercompany profit in inventory 48 6
Other 30 45
------ -------
Total deferred tax assets 14,909 13,203
Valuation allowance (11,341) (12,585)
------ -------
Deferred tax asset net of
valuation allowance 3,568 618
Deferred tax liabilities:
Accelerated depreciation (270) (141)
------- --------
Net deferred tax assets $ 3,298 $ 477
======= ========
Management believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the
realizability of the deferred tax asset such that a valuation
allowance has been recorded. Such factors include lack of cumulative
operating profits in the previous three years, recent increases in
expense levels to support the Company's growth, and the fact that the
market in which the Company competes is intensely competitive and
characterized by rapidly changing technology. Accordingly, the
deferred tax assets have been reduced by a $11.3 million valuation
allowance at December 31, 1995. This allowance has been established
for the foreign net operating loss carryforward and temporary
differences which are not expected to be realized through an income
tax loss carryback to a prior period.
Although the realization of the net deferred tax assets are not
assured, management believes that it is more likely than not that all
of the net deferred tax assets will be realized. The amount of the net
deferred tax assets considered realizable, however, could be reduced
in the near term based on changing conditions.
The differences between the provision for income taxes at the U.S.
statutory rate and the effective rate, are summarized as follows:
December 31, (in thousands) 1995 1994 1993
Benefit (provision) at
U.S. statutory rate $(3,957) $ (9) $5,663
Utilization of tax credits - 4 947
Change in transfer price - 1,400 -
Non-Deductible items (95) - 21
State income taxes (596) (22) 669
(Increase) decrease in
deferred asset
valuation allowance 1,747 (3,327) (7,506)
Foreign income taxes (156) - -
Other (79) 46 -
------- ------- ------
Provision for
income taxes $(3,136) $(1,908) $ (206)
======= ======== ======
Cash paid for income taxes was $71,000 in 1995, $94,000 in 1994, and
$1,322,000 in 1993. The Company received cash refunds of $1,592,000 in
1995 and $2,247,000 in 1994.
For income tax purposes, the Company has approximately $5,056,000 in
foreign net operating loss carryforwards and $1,273,000 of tax credit
carryforwards. The tax credit carryforwards will begin expiring in
2008.
4 COMMITMENTS AND CONTINGENCIES
Litigation - The Company is involved in lawsuits and claims generally
incidental to its business. It is the opinion of management, after
discussions with legal counsel, that
the ultimate dispositions of these lawsuits and claims will not have a
material adverse effect on the Company's financial statements.
Lease Commitments - The Company conducts its operations from leased
facilities and leases certain equipment used in its operations.
Aggregate lease commitments under non-cancelable operating leases in
effect at December 31, 1995 are as follows (in thousands):
Years ending December 31, Lease Commitments
1996 $ 3,063
1997 2,456
1998 2,108
1999 1,683
2000 1,289
Thereafter 97
-------
$10,696
=======
Total rent expense for the years ended December 31, 1995, 1994 and
1993 was approximately $1,981,000, $1,989,000 and $2,336,000,
respectively.
The following is a schedule of future minimum lease payments under
capital leases together with the present value of net minimum lease
payments at December 31, 1995 (in thousands):
Future Minimum
Years ending December 31, Lease Payments
1996 $ 973
1997 973
1998 640
------
Total net minimum lease payments 2,586
Less amount representing interest (323)
------
Present value of net minimum lease payments 2,263
Less: current portion (782)
------
$1,481
======
Bonus Plan - The Company has adopted a bonus plan that provides for
bonus payments to officers and key employees. The payment of the 1995
bonuses was contingent upon the Company and the employees achieving
certain objectives. At December 31, 1995, the Company has accrued
$3,000,000 for management bonuses which will be paid in March 1996 or
after the First Security Bank Loan Agreement is paid in full (see Note
13). At December 31, 1994, approximately $1,400,000 was accrued for
management bonuses, the majority of which was paid in February and
March of 1995.
Executive Compensation Agreement - In 1995, the Company adopted a
bonus plan for the Chief Executive Officer that provides for bonus
payments of cash and up to 60,000 shares of stock, subject to a three
year vesting, contingent upon the achievement of certain objectives.
At December 31, 1995, the cash payment is fully accrued. In January
1996, the Compensation Committee approved the issuance of the full
60,000 shares of stock. The shares will be issued at a cost equal to
par value.
Profit Sharing Plan - In 1991, the Company adopted a profit sharing
plan that provided for payments to all eligible employees of their
share of a pool that equaled 6.0% of the Company's annual income
before income taxes. In 1994, the plan was amended to 5.0% of the
Company's annual income before income taxes. Employees must complete
one year of continuous employment to be eligible. Employees receive a
share of the profit sharing pool based upon their annual salary as a
ratio to total annual salaries of all eligible employees. The Company
has accrued approximately $600,000 for the 1995 profit sharing plan,
which will be paid in the first quarter of 1996. There were no profit
sharing payments for fiscal 1994 and 1993.
Foreign Exchange Contracts - The Company has commitments to sell
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 sale and purchase contracts at
December 31, 1995 are as follows. The contracts mature in January and
February 1996.
Contracted
Amount Currency Forward Rate
French Franc 1,939,000 FRF 5.169
Spanish Peseta 64,524,000 ESP 134.45
Italian Lira 363,000,000 ITL 1692.0
Japanese Yen (1,109,678,923) YEN 100.60 - 101.0
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 are recognized as part of the cost of the
underlying transaction being hedged. At December 31, 1995 and 1994,
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.
5 NOTES PAYABLE
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. The agreement permits revolving loans, term loans and letters of
credit up to an aggregate outstanding principal amount equal to the
lesser of $60 million or 90% of eligible accounts receivable. Amounts
outstanding are collateralized by accounts receivable and equipment.
The revolving credit line bears interest at the bank's prime rate plus
1% and the term loans bear interest at the bank's prime rate plus
1.25%. The Company has segregated $25 million of the revolving line
into a 60 day LIBOR loan to achieve a lower interest rate. Total
availability under the Wells Fargo agreement at December 31, 1995 was
$56.1 million, of which $36.8 million (exclusive of bank overdrafts of
$11.8 million) had been drawn (see Note 1). The agreement expires June
30, 1996. Among other restrictions, covenants within the agreement
require the Company to maintain minimum levels of working capital and
net worth. The weighted average outstanding balance was $23,327,000
during 1995. The maximum amount outstanding during 1995 was
$38,184,000. The weighted average interest rate was 10.6% for the year
ended December 31, 1995.
Loss of Wells Fargo Bank as a lender would require the Company to find
an alternative source of funding, which could have a material adverse
affect on business and financial results.
Other Term Notes - During 1995, the Company has entered into term
notes with financial institutions. The proceeds from these notes were
used to purchase manufacturing equipment. The term notes have 36-month
terms which mature at various dates from November 1998 to January
1999. Principal and interest payments are payable monthly. Interest
rates are fixed and range from 8.89% to 9.11%. 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. 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. The interest rate varies depending on the
currency and ranges from 7.75% to 15% at December 31, 1995. The loan
is denominated in several different European currencies and is
dependent on the underlying receivable. The weighted average interest
rate was 11% for the year ended December 31, 1995. During 1995, the
Company received a total of $17,849,000 in proceeds under the
arrangement. At December 31, 1995, $9.8 million was outstanding and is
included in notes payable in the accompanying December 31, 1995
consolidated balance sheet.
The following table summarizes the notes payable outstanding at
December 31, 1995 (in thousands):
LIBOR loan (8.875% fixed interest rate) $25,000
Revolving credit line (9.5% interest rate
at 12/31/95) 8,241
Term loan (9.75% interest rate at 12/31/95) 3,612
Other term notes 3,537
European agreement 9,801
-------
50,191
Less: Current portion (47,640)
--------
$ 2,551
========
Maturities of notes payable by year are as follows
(in thousands):
Years ending December 31,
1996 $47,640
1997 1,119
1998 1,187
1999 245
--------
$50,191
========
Cash paid for interest was $970,000 in 1995, including interest on
capital leases. There was no outstanding debt in 1994 and 1993.
Included in interest expense for 1995 was $267,000 of amortization of
deferred charges associated with obtaining the debt.
6 PREFERRED STOCK
The Company has authorized the issuance of up to 5,000,000 shares of
Preferred Stock, $.01 par value per share. The Company's Board of
Directors has the authority, without further shareholder approval, to
issue Preferred Stock in one or more series and to fix the rights and
preferences thereof. As of December 31, 1995, 250,000 shares were
designated as Series C Junior Participating Preferred Stock and the
remaining 4,750,000 shares were undesignated.
Series A Convertible Preferred Stock - During 1987, in connection with
the settlement of litigation, the Company designated 1,200,000 shares
of Preferred Stock as Redeemable Series A Convertible Preferred Stock.
These shares were issued in 1989.
Effective June 16, 1995, the Company exercised its right to require
the conversion of all outstanding Series A Stock into the Company's
Common Stock pursuant to the original conversion terms. Upon
conversion, 318,600 shares of Common Stock were issued to the Series A
Stock shareholders. Any fractional shares were paid with cash in lieu
of stock.
Common shares issued on conversion of the Series A Stock shares were
recorded at the net carrying value of the Series A Convertible
Preferred Stock, plus accrued dividends.
Series C Junior Participating Preferred Stock - In July 1989, the
Company designated 250,000 shares of Preferred Stock as Series C
Junior Participating Preferred Stock in connection with its
Shareholder Rights Plan (see Note 7). Each share of Series C Junior
Participating Preferred Stock (Series C Stock) will: (1) have a
liquidation preference of $375 per share; (2) have rights to
dividends, subject to the rights of any series of Preferred Stock
ranking prior and superior to the Series C Stock, when and if declared
by the Board of Directors; (3) not be redeemable; and (4) have voting
rights which entitle the holder to 375 votes per share.
7 PREFERRED STOCK PURCHASE RIGHTS
In July 1989, the Company adopted a Shareholder Rights Plan and
declared a dividend of four-fifteenth of one preferred stock purchase
right for each outstanding share of Common Stock. Under certain
conditions, each right may be exercised to purchase one one-hundredth
of a share of Series C Stock at an exercise price of $15. The rights
will be exercisable only if a person or group has acquired beneficial
ownership of 20% or more of the Common Stock or announced a tender or
exchange offer that would result
in such a person or group owning 30% or more of the Common Stock. The
Company generally will be entitled to redeem the rights at $.01 per
right at any time until the tenth day following public announcement
that a 20% stock position has been acquired and in certain other
circumstances.
If any person or group becomes a beneficial owner of 25% or more of
the Common Stock (except pursuant to a tender or exchange offer for
all shares at a fair price as determined by the outside members of the
Board of Directors) or if a 20% stockholder consolidates or merges
into or engages in certain self-dealing transactions with the Company,
each right not owned by a 20% stockholder will enable its holder to
purchase such number of shares of Common Stock as is equal to the
exercise price of the right divided by one-half of the current market
price of the Common Stock on the date of the occurrence of the event.
In addition, if the Company engages in a merger or other business
combination with another person or group in which it is not the
surviving corporation or in connection with which its Common Stock is
changed or converted, or if the Company sells or transfers 50% or more
of its assets or earning power to another person, each right that has
not previously been exercised will entitle its holder to purchase such
number of shares of Common Stock of such other person as is equal to
the exercise price of the right divided by one-half of the current
market price of such Common Stock on the date of the occurrence of the
event.
8 STOCK OPTIONS
Stock Option Plans - The Company has a 1981 Stock Option Plan (the
"1981 Option Plan") and a 1987 Stock Option Plan (the "1987 Option
Plan"). The 1981 Option Plan has expired and no further options may be
granted under this plan; however, outstanding options previously
granted under this plan remain in effect. Both plans permit the
granting of incentive and nonstatutory stock options. The plans cover
an aggregate of 20,625,000 shares of Common Stock. The exercise price
of options granted under the 1987 Option Plan may not be less than
100% of the fair market value of the Common Stock at the date of grant
in the case of incentive stock options, and may not be less than 25%
of the fair market value of the Common Stock at the date of grant in
the case of nonstatutory stock options.
Options under both plans must be exercised within ten years from the
date of grant in the case of incentive stock options and within ten
years and one month from the date of grant in the case of nonstatutory
stock options, or sooner if so specified within the option agreement.
At December 31, 1995, the Company had reserved an aggregate of
11,134,590 shares for issuance upon exercise of options granted or to
be granted under these plans.
The following table presents the aggregate options granted, forfeited,
and exercised under the 1981 and 1987 Option Plans for the years ended
December 31, 1993, 1994 and 1995 at their respective exercise price
ranges. All options and option prices have been restated for the stock
splits (see Note 2).
Number of Option Price
Options Per Share
Options outstanding at
December 31, 1992 8,934,153 $0.11 to $ 2.92
Granted 305,034 $0.70 to $ 1.90
Exercised (1,816,110) $0.11 to $ 1.00
Forfeited (373,908) $0.27 to $ 2.90
-----------
Options outstanding at
December 31, 1993 7,049,169 $0.27 to $ 2.92
Granted 2,204,625 $0.60 to $ 1.06
Exercised (474,141) $0.27 to $ 0.80
Forfeited (1,418,391) $0.41 to $ 2.92
-----------
Options outstanding at
December 31, 1994 7,361,262 $0.27 to $ 2.92
Granted 1,000,800 $1.13 to $14.21
Exercised (2,473,053) $0.27 to $ 2.92
Forfeited (57,032) $0.42 to $ 2.10
------------
Options outstanding at
December 31, 1995 5,831,977 $0.27 to $14.21
============
Options to purchase 4,754,094, 4,886,061 and 5,660,850 shares were
exercisable at December 31, 1995, 1994 and 1993, respectively.
Options to purchase 5,302,613 shares were reserved for future grant at
December 31, 1995.
Director Stock Option Plans - The 1987 Director Stock Option Plan (the
"Director Plan") covered 750,000 shares of Common Stock. The Director
Plan provided for the grant to each non-employee director of the
Company, on his initial election as a director, an option to purchase
93,750 shares of Common Stock. The exercise price per share of the
option is equal to the fair market value of the Company's Common Stock
on the date of grant of the option. Options become exercisable in five
equal annual installments, commencing one year from the date of grant,
provided the holder continues to serve as a director of the Company.
Any option granted under the Director Plan must be exercised no later
than ten years from the date of grant. All options granted under the
Director Plan are nonstatutory options. In 1995 the Board adopted, and
the stockholders approved, the 1995 Director Stock Option Plan. This
Plan covers 600,000 shares of Common Stock and provides for the grant
to each non-employee director of the Company, on his initial election
as a director, an option to purchase 75,000 shares of Common Stock.
The following table presents the aggregate options granted, forfeited
and exercised under the Director Plans for the years ended December
31, 1993, 1994 and 1995, at their respective exercise price ranges.
All options and option prices have been restated for the stock splits
(see Note 2).
Number of Option Price
Options Per Share
Options outstanding at
December 31, 1992 412,500 $0.57 to $0.92
Granted 93,750 $1.17
Exercised -
Forfeited -
--------
Options outstanding at
December 31, 1993 506,250 $0.57 to $1.17
Granted 187,500 $0.53
Exercised (93,750) $0.57
Forfeited -
--------
Options outstanding at
December 31, 1994 600,000 $0.53 to $1.17
Granted -
Exercised (225,000) $0.73 to $0.87
Forfeited -
--------
Options outstanding at
December 31, 1995 375,000 $0.53 to $1.17
========
Options to purchase 300,000, 300,000 and 281,250 shares were
exercisable at December 31, 1995, 1994 and 1993, respectively.
Options to purchase 600,000 shares were reserved for future grant at
December 31, 1995.
Other Stock Options - In December 1987, the Company granted to each of
five of the six members of the Board of Directors an option to
purchase 93,750 shares of Common Stock. The exercise price of these
options was $0.40 per share in the case of four options, and $0.47 per
share in the case of the other option. Each option is exercisable in
increments of 18,750 shares per year beginning one year from the date
of grant and must be exercised no later than ten years and one month
from the date of grant. During 1995, options to purchase 243,750
shares were exercised at $0.40 and $0.47 per share. At December 31,
1994, options for the purchase of 243,750 shares were outstanding and
exercisable at $0.40 and $0.47 per share. There were no options
outstanding at December 31, 1995.
9 STOCK PURCHASE PLAN
1991 Stock Purchase Plan - On January 25, 1991, the Company's Board of
Directors approved an employee stock purchase plan for 1991, 1992, and
1993. Eligible employees were allowed to purchase Common Stock at
market value on the date coincident with the distribution of the
semiannual profit sharing payments. The employee will earn a premium
equal to 25% of their original purchase on each of the first four
anniversaries of purchase provided the employee is still employed by
the Company and the shares are still held by the Company. A total of
4,500,000
shares were approved for the three-year plan with 750,000 shares plus
the premium of 750,000 shares approved for each year. Employees
participating in the profit sharing plan used up to 66.6667% of their
profit sharing payment to purchase stock. As of December 31, 1995, a
total of 130,923 shares have been purchased pursuant to this plan and
a total of 41,370 of premium shares have been issued under this plan.
10 RETIREMENT PLAN
The Iomega Retirement and Investment Savings (IRIS) Plan permits
eligible employees to make tax deferred investments through payroll
deductions. Each year the Company may contribute to the IRIS Plan at
the discretion of the Board of Directors, based on the prior year's
earnings of the Company. The IRIS Plan is subject to compliance with
Section 401(k) of the Internal Revenue Code and the Employee
Retirement Income Securities Act of 1974. Under the terms of the IRIS
Plan, all employee contributions and certain employer contributions
are immediately vested in full. Certain employer matching
contributions become vested over five years. The Company contributed
approximately $398,000 and $319,000 to the IRIS Plan for the years
ended December 31, 1993 and 1994, respectively. The Company has
accrued $671,000 for contribution to the IRIS Plan for the year ended
December 31, 1995.
11 OPERATIONS BY GEOGRAPHIC REGION
The Company has two primary geographic regions: domestic and European.
Domestic operations include all U.S. and export operations, primarily
Canada and Asia. Domestic export sales for the years ended December
31, 1995, 1994 and 1993 were $18,160,000, $6,133,000 and $7,534,000,
respectively. European operations are comprised of a subsidiary in
Germany and sales offices located in France, Belgium, the United
Kingdom, Spain, Italy, Germany, Ireland and Austria. The sales offices
are branches of U.S. subsidiaries. All European sales and
substantially all identifiable assets and operating expenses are
recorded on
the books of the German subsidiary. Export sales from the European
operation for the years ended December 31, 1995, 1994 and 1993 were
approximately $49,526,000, $29,903,000 and $23,868,000, respectively,
primarily to European countries other than Germany. Sales to the
European countries other than Germany are distributed relatively
evenly across countries in which sales offices are located. The
characteristics of sales to Germany and all other European countries
are similar. The sales offices are compensated through commission
agreements. Inventory is transferred from domestic operations to the
German subsidiary at an arms-length price as determined by an
independent economic study. Following is a summary of the Company's
operations by geographic location.
For the year ended December 31, 1995:
Domestic European Intercompany
(in thousands) Operations Operations Transactions Consolidated
Net sales:
Unaffiliated
customers $241,128 $ 85,097 $ - $326,225
Affiliates 65,644 - (65,644) -
Cost of sales (229,134) (72,357) 65,653 (235,838)
----------- --------- --------- ---------
Gross margin 77,638 12,740 9 90,387
----------- --------- --------- ---------
Operating
expenses 66,072 10,693 - 76,765
----------- --------- --------- ---------
Net income $ 8,475 $ 19 $ 9 $ 8,503
=========== ========= ========= =========
Identifiable
assets $226,696 $ 39,473 $ 58 $266,227
=========== ========= ========== =========
Capital
expenditures $ 44,223 $ 1,009 $ - $ 45,232
=========== ========= ========== =========
For the year ended December 31, 1994:
Domestic European Intercompany
(in thousands) Operations Operations Transactions Consolidated
Net sales:
Unaffiliated
customers $ 95,554 $ 45,826 $ - $141,380
Affiliates 26,393 - (26,393) -
Cost of sales (87,305) (31,522) 26,374 (92,453)
---------- ---------- ----------- ----------
Gross margin 34,642 14,304 (19) 48,927
---------- ---------- ----------- ----------
Operating
expenses 45,049 4,760 - 49,809
---------- ---------- ----------- ----------
Net income
(loss) $ (9,729) $ 7,866 $ (19) $ (1,882)
========== ========== =========== ==========
Identifiable
assets $ 61,696 $ 14,228 $ (91) $ 75,833
========== ========== =========== ==========
Capital
expenditures $ 5,894 $ 1,189 $ - $ 7,083
========== ========== =========== ==========
For the year ended December 31, 1993:
Domestic European Intercompany
(in thousands) Operations Operations Transactions Consolidated
Net sales:
Unaffiliated
customers $112,961 $ 34,162 $ - $147,123
Affiliates 26,750 - (26,750) -
Cost of sales (89,984) (29,997) 27,396 (92,585)
---------- ---------- ---------- ---------
Gross margin 49,727 4,165 646 54,538
---------- ---------- ---------- ---------
Operating
expenses 58,454 13,511 - 71,965
---------- ---------- ---------- ---------
Net income
(loss) $ (4,147) $(11,024) $ 646 $ (14,525)
========== ========== ========== =========
Identifiable
assets $ 68,004 $ 13,214 $ (129) $ 81,089
========== ========== ========== ========
Capital
expenditures $ 4,920 $ 1,647 $ - $ 6,567
========== ========== ========== ========
12 OTHER MATTERS
Significant Customers - In 1995, no single customer accounted for 10%
or more of consolidated sales. During 1994, sales to Ingram Micro D,
Inc. accounted for 11% of the Company's sales. During 1993, sales to
Ingram Micro D, Inc. accounted for 14% of the Company's sales.
Concentration of Credit Risk - The Company markets its products
primarily through computer product distributors and retailers.
Accordingly, as the Company grants credit to its customers, a
substantial portion of outstanding accounts receivable are due from
computer product distributors and certain large retailers. At December
31, 1995, the customers with the ten highest outstanding accounts
receivable balances totaled $47.1 million or 43% of the gross accounts
receivable. At December 31, 1995, the outstanding accounts receivable
balance from one customer was $15.2 million or 14% of gross accounts
receivable. At December 31, 1994, the customers with the ten highest
outstanding accounts receivable balances totaled $7.1 million or 34%
of gross accounts receivable. At December 31, 1994, the outstanding
accounts receivable balance from one customer was $3.1 million or 15%
of gross accounts receivable. If any one or a group of these customers'
receivable balances should be deemed uncollectible, it would have a
material adverse effect on the Company's results of operations and
financial condition.
Purchases From Related Parties - The Company purchased inventory items
totaling $1,130,000, $398,000 and $372,000 for the years ended
December 31, 1995, 1994 and 1993, respectively, from a vendor having a
common director with the Company.
Notes Receivable From Related Parties - In September 1993, the Company
loaned an executive officer approximately $679,000 as part of the
officer's severance package; a portion of the loan was used by the
executive to exercise stock options. This amount of the loan is
included in notes receivable from shareholders in the accompanying
consolidated balance sheet at December 31, 1994. The Company received
a note from the officer which bore interest at an annual rate of 4.5%
and was payable in two equal annual installments of $340,000 which
were due on or before January 1995 and January 1996. The note was with
full recourse and was collateralized by the stock purchased. The loan
was paid in full with accrued interest during the first quarter of
1995.
In January 1995, the Company loaned another executive officer
approximately $283,000 as part of the officer's severance package. A
portion of the loan was used by the executive to exercise stock
options. The Company received a note from the officer which bore
interest at an annual rate of 7.75% and was payable in full on or
before January 1996. The note was with full recourse and was
collateralized by the stock purchased. The loan was paid in full with
accrued interest during the second quarter of 1995.
13 SUBSEQUENT EVENTS
Revolving Credit Facility - In January 1996, the Company entered into
a $6 million revolving credit facility with First Security Bank of
Utah, N.A. The line matures on April 12, 1996 and bears interest at
prime plus 2%. Interest is payable monthly and principal is due at
maturity. The facility is secured by accounts receivable and inventory
subject to a priority lien by Wells Fargo Bank, N.A. In addition, the
agreement prohibits the payment of certain bonuses until the facility
expires or is paid in full.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Iomega Corporation:
We have audited the accompanying consolidated balance sheets of Iomega
Corporation (a Delaware corporation)and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Iomega Corporation
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
As explained in Note 3 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
/s/Arthur Andersen LLP
Salt Lake City, Utah
January 26, 1996
EXHIBIT 21.1
Subsidiaries of Iomega Corporation
Subsidiary Name Jurisdication of Incorporation
Iomega International, Inc. U.S. Virgin Islands
Iomega Europe GmbH Germany
Iomega United Kingdom Ltd. Delaware
Iomega Belgium Inc. Delaware
Iomega Iberia Inc. Delaware
Iomega France Inc. Delaware
Iomega Italia Inc. Delaware
Iomega Canada Inc. Delaware
Iomega Austria Inc. Delaware
Iomega Scandinavia Delaware
Iomega Pacific PTE LTD Singapore
Iomega Singapore Ltd Delaware
Iomega (Bermuda) Ltd. Bermuda
