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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-12390
QUANTUM CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2665054
(State or other jurisdiction of (I.R.S. Employer Identification No.)
(incorporation or organization)
500 MCCARTHY BLVD., MILPITAS, CALIFORNIA 95035
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 894-4000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
6 3/8% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
PREFERRED STOCK
(Title of Class)
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 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. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of May 1, 1996: $949,425,659 based upon the closing price reported
for such date on the NASDAQ National Market System. For purposes of this
disclosure, shares of Common Stock held by persons who hold more than 5% of the
outstanding shares of Common Stock and shares held by officers and directors of
the Registrant have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily
conclusive. The number of shares outstanding of the Registrant's Common Stock as
of May 1, 1996, was 54,293,006.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 1996 Annual Meeting of
Shareholders (the "Proxy Statement") are incorporated by reference into Part III
of this Form 10-K Report.
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PART I
ITEM 1.
BUSINESS
Quantum Corporation (the "Company" or "Quantum") was incorporated as a
California corporation in February 1980, and reincorporated as a Delaware
corporation in April 1987.
Quantum designs, develops and markets information storage products, including
high-performance, high quality hard disk drives, recording heads and tape
drives. The Company combines its engineering and design expertise with the high
volume hard disk drive manufacturing capabilities of its exclusive manufacturing
partner, Matsushita-Kotobuki Electronics Industries, Ltd. ("MKE") of Japan, to
produce high quality hard disk drives to meet the storage requirements of
workstations, servers, disk arrays, entry-level to high-end desktop PCs and
minicomputers. In addition, the Company designs and manufactures its linear tape
drive products as well as the recording heads which are used in the Company's
disk drive products. The Company's customers include leading OEMs such as Acer,
Apple, Compaq, Dell, Digital, Hewlett-Packard, IBM, NEC, Silicon Graphics and
Sun Microsystems.
The Company's strategy is to offer a diversified product portfolio which
features leading edge technology and high quality manufacturing for a broad
range of market applications. The Company's storage business is currently
structured into the following four main operating divisions:
DESKTOP AND PORTABLE STORAGE GROUP (DPSG). The Desktop and Portable
Storage Group designs, develops and markets hard disk drives designed
to meet the storage needs of desktop and portable systems. The
Company's DPSG products are designed for entry-level to high-end
desktop PCs for use in both home and business environments.
WORKSTATION AND SYSTEMS STORAGE GROUP (WSSG). The Workstation and
Systems Storage Group designs, develops and markets the Company's most
technologically advanced hard disk drives for the demanding storage
needs of servers, workstations, storage subsystems, high-end desktop
systems and minicomputers. The Company's WSSG products are designed for
storage-intensive applications such as graphics, disk arrays, desktop
publishing systems, multimedia computing systems and networked data
bases and file servers.
SPECIALTY STORAGE PRODUCTS GROUP (SSPG). The Specialty Storage Products
Group designs, develops, manufactures and markets linear tape drives
and solid state disk drives. The tape drives use advanced linear
recording technology and a highly accurate tape guide system to perform
data backup for mid-range and high-end computer systems. The solid
state disk drives have the high execution speeds required for
applications such as imaging, multimedia, video-on-demand, on-line
transaction processing, material requirements planning and scientific
modeling.
RECORDING HEADS GROUP (RHG). The Recording Heads Group designs,
develops, and manufacturers both thin film inductive and
magnetoresistive ("MR") recording heads used in the Company's products.
The Company believes that MR technology, which provides higher capacity
per disk than conventional thin film heads, will replace thin film
heads as the leading recording head technology. The Company does not
currently market thin film or MR heads to other companies.
Quantum operates in an industry characterized by rapid technological change. The
Company is currently concentrating its product development efforts on broadening
its existing disk and tape drive product lines through the introduction of new
products, including new high-capacity hard disk drive products to be
manufactured by MKE for WSSG, as well as new products targeted specifically for
the increasing storage needs of the consumer market served by DPSG. The Company
is also focusing its efforts on applying its MR technology to new generations of
disk drives.
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On October 3, 1994, Quantum acquired the Hard Disk Drive, Heads and Tape Drives
Businesses of the Storage Business Unit of Digital Equipment Corporation (the
"Acquired Businesses") in a transaction (the "Acquisition") accounted for as a
purchase. The purchase of the Acquired Businesses was finalized in the second
quarter of fiscal 1996, resulting in a $5.7 million reduction to the original
contracted purchase price of $355.2 million. Included in the purchase were
Digital's interest in Digital Equipment Storage Products (Malaysia) Sdn Bhd. and
its 81% interest in Rocky Mountain Magnetics, Inc. ("RMMI"). Subsequently,
RMMI's name was changed to Quantum Peripherals Colorado, Inc. ("QPC"). The
Acquired Businesses were involved in the design, manufacture and marketing of
computer disk drive, tape drive, tape media, solid state memory device and
magnetic recording head products and optical storage devices and related
technology other than CD-ROM.
On November 8, 1995, the Company announced a plan to reorganize its WSSG
high-capacity business. This plan included resizing the infrastructure of the
business, focusing development and manufacturing efforts on a more
cost-effective product set and reducing the overall expense structure.
On January 30, 1996, the Company announced the transition of manufacturing of
its WSSG high-capacity products to MKE, the Company's long-time manufacturing
partner for desktop hard disk drives.
EXECUTIVE OFFICERS
The executive officers of the Company, and certain information about them as of
March 31, 1996, are as follows:
<TABLE>
<CAPTION>
Name Age Position with the company
<S> <C> <C>
Stephen M. Berkley 52 Chairman of the Board
Michael A. Brown 37 President and Chief Executive Officer
Kenneth Lee 58 President, Workstation Systems Storage Group
and Chief Technical Officer
W.C. Robinette, Jr. 53 President and General Manager, Recording Heads Group
Young K. Sohn 40 President and General Manager, Desktop
and Portable Storage Group
Mark Jackson 45 Executive Vice President, Hard Disk Drive Operations
William F. Roach 52 Executive Vice President, Worldwide Sales
Joseph T. Rodgers* 53 Executive Vice President, Finance, Chief Financial Officer
and Secretary
Deborah E. Barber 56 Vice President, Human Resources
Gina M. Bornino* 35 Vice President and General Manager, Specialty Storage
Products Group
Kenneth R. Pelowski* 36 Vice President, Strategic Planning and Business
Development
</TABLE>
* These officers have submitted their resignations since March 31, 1996.
Mr. Berkley joined the Company in 1981 as Vice President of Marketing. In 1983,
he became the founding President and CEO of Quantum subsidiary Plus Development
Corp., where he helped pioneer the development of Hardcard, the first hard disk
expansion board for personal computers. In 1987, he returned to Quantum, serving
as Chairman and CEO until 1992. He served as Chairman of Quantum's board until
1993 and became Board Chairman again in 1995. Prior to Quantum, Mr. Berkley was
with Qume Corp. from 1977 to 1981 where he served initially as Vice President of
Business Development and then General Manager of the Memory Products Division.
Mr. Brown joined the Company's marketing organization in August 1984. He was
named Vice President, Marketing, in June 1990 and became Executive Vice
President in February 1992. In 1993 he was named President of DPSG and in
September 1995 he was appointed President and Chief Executive Officer. Prior to
June 1990, Mr. Brown held positions in product and marketing management. Prior
to joining the Company, he served in the
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marketing organization at Hewlett-Packard Company and provided management
consulting services at Braxton Associates.
Mr. Lee joined the Company in 1989 as Director of Advanced Recording
Technologies and was promoted to Vice President, Engineering, in 1990. In 1993,
he was promoted to Executive Vice President, Technology and Engineering, and
Chief Technology Officer. In 1994, he also assumed responsibility for the
Recording Heads Group. In October 1995, Mr. Lee was named President of WSSG in
addition to his role as Chief Technical Officer. Prior to joining the Company,
he served for five years as Vice President, Product Development, for Domain
Technology, and previously spent 15 years at the IBM Research Laboratory in San
Jose, California, working on advanced magnetic storage devices.
Mr. Robinette joined the Company in August 1995 as President and General Manager
of RHG. In October 1995 he was named an Executive Vice President of the Company.
Prior to joining the Company, from 1992 to 1995, Mr. Robinette was Co-Founder,
Chairman and Chief Operating Officer of MicroModule Systems, Inc. (MMS), a
leader in the merchant multichip subsystems business. Previously, he was with
Digital Equipment Corporation (DEC) where he was group manager of worldwide
semiconductor manufacturing and technology, and group manager of UNIX/VAX-based
systems and software manufacturing operations.
Mr. Sohn joined the Company in 1992 as President and Managing Director of
Quantum Asia-Pacific. In 1994 he was named Vice President of Marketing for DPSG
and in February 1996 was promoted to President and General Manager of DPSG.
Prior to joining the Company in 1992, Mr. Sohn spent nine years at Intel
Corporation where, most recently, he managed that company's AT chip set
business.
Mr. Jackson joined the Company in 1985, serving in a variety of positions in the
logistics and operations organizations. In 1993 he was named Vice President of
Worldwide Logistics. Mr. Jackson served as President of DPSG from October 1995
to February 1996, when he was named Executive Vice President of Hard Disk Drive
Operations, responsible for production planning, logistics, quality and
reliability, customer service and materials support for both DPSG and WSSG.
Mr. Roach joined the Company in September 1989 as Vice President, Sales, and was
promoted to Executive Vice President, Worldwide Sales, in August 1993. Prior to
joining the Company, he spent 12 years in sales at Intel Corporation, last
serving as Worldwide Director, Distribution Sales and Marketing.
Mr. Rodgers joined the Company in December 1980 as its Vice President, Finance.
He was elected Secretary in May 1981 and Treasurer in September 1981 and
promoted to Executive Vice President, Finance in April 1986. From July 1979 to
December 1980, he served as Vice President, Finance, of Braegen Corporation, a
manufacturer of computer equipment. He also has more than nine years experience
with Price Waterhouse, last serving as an audit manager.
Ms. Barber joined the Company in October 1992 as Vice President, Human
Resources, Corporate Services, and Business Excellence. Prior to joining the
Company, she served five years at Cray Research as Vice President, Human
Resources. From June 1978 to January 1988, Ms Barber was employed by Honeywell,
Inc., last serving as Director of Human Resources for the military Avionics
Division.
Ms. Bornino joined the Company in August 1993 as Vice President, Corporate
Development and Planning. In October 1994, Ms. Bornino assumed responsibility
for the Specialty Storage Products Group as Vice President and General Manager.
Prior to joining the Company, she served as Director of Strategic Planning for
Silicon Graphics, Inc., from July 1992 to August 1993. From November 1989 to
July 1992, Ms. Bornino was employed by MIPS Computer Systems, Inc., last serving
as Director of Engineering. Prior to joining MIPS, she was a general management
consultant with the consulting firm of Arthur D. Little, Inc., from June 1988 to
November 1989.
Mr. Pelowski joined Quantum in April 1995 as Vice President, Strategic Planning
and Business Development. From 1990 to 1995, Mr. Pelowski was Senior Director of
Business Development at Sun Microsystems, responsible
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for planning, equity investments, corporate deals and mergers and acquisitions.
Prior to Sun Microsystems, he was a marketing manager with Intel Corporation
from 1987 to 1989.
PRODUCTS
DESKTOP AND PORTABLE STORAGE GROUP:
QUANTUM TRAILBLAZER(TM), QUANTUM FIREBALL, QUANTUM SIROCCO(TM) AND
QUANTUM FIREBALL TM SERIES 3.5-INCH DESKTOP PRODUCTS:
Quantum's desktop 3.5-inch hard drives consist of the Quantum
Trailblazer, Quantum Fireball, Quantum Sirocco and Quantum Fireball TM
Series products. These products are designed to meet the needs of
desktop systems.
Quantum Trailblazer 850. Mass production of the Trailblazer 850 began
in April 1995. The Quantum Trailblazer provides an industry-leading
storage solution for entry-level and mid-range desktop computer
systems. The drive features an innovative mechanical platform that
results in improved acoustics and lower cost, and a low part-count that
increases reliability and lowers power consumption.
Quantum Fireball 640/1280. Mass production of these products began in
October 1995. Quantum Fireball hard drives feature leading areal
density and innovative technology for capacity-hungry desktop systems
and servers. These products incorporate technologies such as advanced
read channel, enhanced interfaces to increase data transfer rates and
firmware that minimizes command overhead. As of June 1996, Quantum had
shipped over 10 million Fireball drives.
Quantum Sirocco 1700/2550. Mass production of these products began in
March 1996. Quantum Sirocco hard drives are one of the industry's first
desktop storage devices to combine magnetoresistive (MR) heads and a
Partial Response Maximum Likelihood (PRML) read channel, two advanced
technologies that are driving areal density and performance
improvements. Both drives are suited for multimedia, video and
information downloading applications.
Quantum Fireball 2.1/3.2 TM Series. Introduced in February 1996,
Quantum Fireball TM Series drives are the industry's first hard disk
drives to offer 1 gigabyte (GB) per platter storage capacity. Fireball
TM Series drives are the latest additions to the award-winning Fireball
family and also combine MR and PRML technologies to provide the storage
capacities and performance required by commercial personal computer
systems.
QUANTUM BIGFOOT(TM) 5.25-INCH DESKTOP PRODUCTS:
Quantum Bigfoot 1.2/2.5. Mass production of Quantum Bigfoot hard drives
began in March 1996. These products combine value with high-capacity
for consumer-oriented personal computer systems. Quantum 5.25-inch hard
drives fit into most modular PCs without any customization to system
enclosures.
WORKSTATION AND SYSTEMS STORAGE GROUP:
QUANTUM ATLAS(TM), QUANTUM ATLAS(TM) II AND QUANTUM VIKING(TM)
3.5-INCH HIGH-CAPACITY PRODUCTS:
Quantum's high-capacity 3.5-inch hard drives include the Quantum Atlas,
Quantum Atlas II and Quantum Viking products. These disk drives are
Quantum's most technologically advanced products and meet the demanding
needs of high-end desktop systems, workstations, RAID subsystems,
servers and minicomputers.
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Quantum Atlas 2150/4300. Mass production of the Quantum Atlas products
began in December 1994. The Company has announced plans to phase out
this product line in connection with the transition to MKE of the
manufacturing for the Company's high-capacity products. This product
line will be replaced by the Atlas II high-capacity products.
Quantum Atlas II 4.5/9.1. Announced in April 1995, Quantum Atlas II
hard drives, to be manufactured by MKE, are intended to provide the
capacity, performance and fault-tolerance required by high-end systems
such as video and database servers, RAID subsystems, mid-range
workstations and mini-computers. Atlas II drives feature 7,200
rotations-per-minute (RPM) spin speed and leading-edge technologies
such as MR heads, Ultra SCSI-3 and fiber channel interfaces to meet the
needs of the high-end marketplace.
Quantum Viking 2.1/4.3. Announced in February 1996, Quantum Viking hard
drives combine workstation-class performance with PC-class prices,
meeting the needs of one of the fastest-growing segments of the
high-end marketplace: workstations and PC-based servers. The drives
feature capacities of 2.1 and 4.3 GBs with MR heads and PRML read
channels and a high internal data rate of 74 to 120 megabits per
second. A wide selection of Ultra SCSI-3 interfaces provide burst data
transfer rates as fast as 40 MB per second.
SPECIALTY STORAGE PRODUCTS GROUP:
QUANTUM DLT(TM) 0.5-INCH CARTRIDGE TAPE DRIVES:
Quantum DLT 2000XT. Mass production of the Quantum DLT 2000XT began in
September 1995. This device is a 0.5-inch cartridge streaming tape
drive designed to perform data back-up for mid-range and high-end
computer systems. With advanced linear recording technology, a highly
accurate tape guide system, and an adaptive control mechanism, the
drive is suited for mid-range systems, network servers, and high-end
workstations and systems. Using data compression techniques, the DLT
2000XT features a formatted capacity of 30 GBs per cartridge and a
sustained data transfer rate of 2.5 megabytes (MB)/second.
Quantum DLT 4000. Mass production of the Quantum DLT 4000 began in
February 1995. This 0.5-inch cartridge streaming tape drive is designed
for heavy duty cycle computer applications in the mid-range to high-end
of the tape drive market. Assuming data compression, the DLT 4000
features a combination of 40 GBs per cartridge and a sustained data
transfer rate of 3 MB/second.
Quantum DLT 7000. Introduced in January 1996, the Quantum DLT 7000
provides data storage and retrieval for demanding data back-up,
archive, and on-line storage applications. Assuming data compression,
this tape drive achieves a transfer rate of over 10 MBs per second and
a formatted capacity of 70 GBs, this tape drive provides significant
performance and capacity advantages over other drives in its class.
QUANTUM DLT(TM) AUTOLOADERS:
Quantum DLT 2500XT/2700XT/4500/4700. Quantum DLT Autoloaders are five-
and seven-cartridge subsystems designed for high-capacity data backup
applications in the computer systems market. Ranging in capacity from
150 to 280 GBs, each autoloader consists of an elevator mechanism that
provides random or sequential cartridge access between a tape drive and
cartridge magazines. All are appropriate table-top solutions or can be
configured into standard 19-inch equipment racks.
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QUANTUM DLTstor(TM) TAPE LIBRARY:
Announced in January 1996, the Quantum DLTstor tape library is designed
for use with Quantum's family of DLT 7000, 4000 and 2000XT tape drives.
Equipped with two seven-cartridge magazines and up to three drives, the
DLTstor product family is available in native capacities of 490, 280
and 210 GBs.
QUANTUM ESP5000 SERIES, ESP3000 SERIES AND ESP3000/ESP5000 TABLE TOP
SERIES SOLID STATE DISKS:
Quantum's solid state disks (SSDs) significantly improve the execution
speed of applications such as imaging, multimedia, video-on-demand,
on-line transaction processing, material requirements planning and
scientific modeling. In product development environments, the products
can substantially shorten time-to-market. Quantum's SSDs are used like
magnetic disks, however, they achieve near instantaneous access times
by eliminating the latency associated with disk rotation and head seek.
SSD drives include a unique and fully integrated data retention system
with continuous back-up to ensure that data is safely stored in the
event of a power interruption. The Company currently offers the Quantum
ESP5000 Series 5.25-inch form factor SSDs and the Quantum ESP3000
Series 3.5-inch form factor SSDs. Quantum's SSD drives did not
represent a significant amount of the Company's revenues in the fiscal
years ended March 31, 1996 and 1995.
PRODUCT DEVELOPMENT
Quantum operates in an industry characterized by rapid technological changes and
short product life cycles. For these and other reasons, including competitive
pressures, gross margins on specific products can decrease rapidly and any delay
in introduction of more advanced and more cost effective products can result in
significantly lower sales and gross margins. The Company's future is therefore
dependent on its ability to develop new products, to qualify these products with
its customers, to successfully introduce these products to the market on a
timely basis and to commence volume production to meet customer demands. In this
regard, the Company expects that sales of new products will account for a
significant portion of fiscal 1997 sales and that sales of older products will
decline. However, the foregoing is a forward-looking statement and actual
results could vary. See "Trends and Uncertainties - New Product Development" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The Company expects sales from its current high-capacity products,
presently manufactured by the Company in Milpitas, California and Penang,
Malaysia, to decline substantially in the first half of fiscal 1997, as the
Company transitions its customers to new high-capacity products to be
manufactured by MKE. The Company's new high-capacity products, currently under
development, are not expected to achieve volume production and contribute to
sales prior to the latter half of fiscal 1997. The Company's inability to
successfully manage this transition could have a material adverse effect on the
Company. In addition, the Company designs and manufactures other information
storage related technologies, including magnetic recording head products and
tape media. Any failure of the Company to successfully develop and manufacture
new products and manage the transition of customers to these products would
adversely affect the Company's results of operations.
For the three fiscal years ended March 31, 1996, 1995 and 1994, the Company's
research and development expenses were $239.1 million, $169.3 million, and $89.8
million, respectively. The increase in research and development expenses for the
year ended March 31, 1996, is due to the impact of a full year of expenses for
the Acquired Businesses and reflects spending for both the vertically integrated
heads business and the additional high-capacity disk drive products. The
information storage industry, particularly the hard disk drive business, is
subject to rapid technological advances, and the future success of the Company
is dependent upon continued development and timely introduction of new products
and technologies. As a result, the Company expects to continue to make
significant expenditures for research and development. See "Trends and
Uncertainties," in Management's Discussion and Analysis of Financial Condition
and Results of Operations.
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MANUFACTURING
The Company believes that its manufacturing strategy is a key to its success.
For production of its desktop hard disk drives, Quantum has relied exclusively
on MKE and the Company recently announced the transition to MKE of the
high-capacity product manufacturing. MKE is a substantial manufacturer of hard
disk drives and other electronic components and is a majority-owned subsidiary
(57.3%) of Matsushita Electric Industries Company, Ltd., of Japan. MKE produces
hard disk drives for Quantum in Japan, Singapore and Ireland. MKE's
state-of-the-art manufacturing process is highly automated, employing integrated
computer networks and advanced control systems. During fiscal 1996,
approximately 75% of the Company's sales were derived from products manufactured
by MKE, a decline from 80% of fiscal 1995 sales. The decline in MKE products as
a percentage of sales is a result of the increase in consolidated sales due to
the products related to the Acquired Businesses and Quantum's manufacturing of
those products for a full year. Since the Company's acquisition of Digital's
high-capacity disk drive operations in late 1994 (the "Digital Acquisition"),
the Company has experienced significant difficulties integrating these
operations into its high-capacity business. With the transition of high-capacity
product manufacturing to MKE, the Company announced its plans to close its
high-capacity disk drive manufacturing plants in Milpitas, California and
Penang, Malaysia by September 1996. As a result, the Company's dependency on MKE
will increase. Prior to this transition, the Company had also closed its
high-capacity disk drive manufacturing operations in Colorado Springs, Colorado.
Quantum continues to perform manufacturing for its head operations in Batam,
Indonesia, Louisville, Colorado, and Shrewsbury, Massachusetts. Manufacturing
for the Company's tape products is performed in Colorado Springs, Colorado.
The Company and its manufacturing partner, MKE, are dependent on suppliers for
components and sub-assemblies, including recording heads, media and integrated
circuits, which are essential to the manufacture of the Company's products. In
connection with certain products, the Company qualifies only a single source for
certain components and subassemblies, which can magnify the risk of shortages.
Component shortages have, in the past, constrained the Company's revenue growth.
If such shortages occur, or if the Company experiences quality problems with
component suppliers, shipment of products could be significantly delayed or
costs significantly increased, which would have a material adverse effect on the
Company's results of operations. The Company believes that the industry will
periodically experience component shortages, and there can be no assurance that
these issues will not adversely affect the Company's operating results.
The Company's relationship with MKE, which has been continuous since 1984, is
currently governed by a master agreement that, unless extended, will expire in
December 1997. The current agreement between the Company and MKE gives MKE the
exclusive worldwide right to manufacture, and the Company the exclusive
worldwide right to design and market, hard disk drives. The Company provides MKE
with forecasts of its requirements and places purchase orders approximately
three months prior to delivery. The Company has only a limited right to modify
these purchase orders. The Company's transactions with MKE are denominated in
U.S. dollars with prices for product purchases negotiated periodically,
generally on a semiannual basis. Thus, fluctuations in the exchange rate have no
material short term impact on Quantum's results of operations. However, such
fluctuations may impact future negotiated prices. The failure of the parties to
extend their relationship, or the extension of the relationship on terms
unfavorable to the Company, would have a material adverse effect on the Company.
The Company's current product manufacturing relies on both thin film head
technology and magnetoresistive ("MR") recording head technology. The Company
believes that MR head technology will replace thin film heads as the leading
recording head technology. As a result, the Company is currently engaged in a
substantial effort to advance the development of its MR recording heads. There
can be no assurance as to the timing of the transition from thin film heads to
MR recording heads, or the Company's success in its development efforts. See
"Trends and Uncertainties", in Management's Discussion and Analysis of Financial
Condition and Results of Operations.
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SALES AND MARKETING
The Company markets its products directly to desktop personal computer, notebook
and workstation manufacturers and to distributors, resellers and systems
integrators through its worldwide sales force. Sales to major customers, as a
percentage of consolidated sales, for the fiscal years ended 1996, 1995 and 1994
were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Compaq Computer, Inc. 12% 16% 10%
Apple Computer, Inc. 11% 12% 22%
</TABLE>
As is typical in the information storage industry, the Company's customer base
is concentrated with a small number of systems manufacturers. The Company's
sales to its customers are generally governed by written agreements. In general,
these agreements do not obligate a customer to purchase any minimum volume of
the Company's products. Any significant decrease in sales to these customers, or
the loss of one or all of these customers, could have a material adverse effect
on the Company's results of operations.
Quantum maintains a European regional headquarters in Neuchatel, Switzerland, an
Asia-Pacific regional headquarters in Singapore, a Japanese headquarters in
Tokyo and sales offices throughout the world. International sales, which include
sales to foreign subsidiaries of United States companies, accounted for 52% of
sales in fiscal 1995 and 53% in both fiscal 1995 and 1994. See also Note 13 in
the Notes to Consolidated Financial Statements.
WARRANTY AND SERVICE
Quantum generally warrants its products against defects in design, materials and
workmanship for one to five years. A provision for estimated future warranty
costs is recorded when products are shipped. The Company believes its accrual
for warranty liability is adequate. However, actual warranty expenditures could
have a material unfavorable impact on the Company if the rate of unit failure or
the cost to repair a unit is greater than what the Company has assumed in its
estimate. The Company maintains in-house service facilities for refurbishment or
repair of its products in Milpitas, California, Dundalk, Ireland and Penang,
Malaysia.
BACKLOG
The Company's six-month order backlog at June 13, 1996, was approximately $870
million compared to approximately $820 million at May 8, 1995. Backlog increased
slightly year-to-year, but reflects a slowdown in demand from the fourth quarter
of fiscal 1996. As noted in "Management's Discussion and Analysis of Financial
Condition and Resuts of Operations," under "Trends and Uncertainties," on June
12, 1996, the Company announced that weaker than expected industry demand for
drives for the PC market is expected to have an adverse impact on revenue and
earnings for the first quarter of fiscal 1997.
Backlog includes only firm orders for which the customers have released a
specific purchase order and specified a delivery schedule. Lead time for the
release of purchase orders depends upon the scheduling practices of the
individual customer, and the rate of new order bookings varies from month to
month. For this reason, and the possibility of customer changes in delivery
schedules or cancellations of orders, Quantum's backlog as of any particular
date may not be representative of actual sales for any succeeding period. In
addition, it has been the Company's practice to permit customers to increase or
decrease (including canceling) orders for products with relatively short notice
to the Company. The Company believes that this practice enables customers to
improve the management of their inventory, minimizes the Company's exposure to
disputed accounts receivable and improves the Company's relationships with
customers.
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COMPETITION
The information storage products industry in general, and the disk drive
industry in particular, is characterized by intense competition which results in
rapid price erosion, short product life cycles, and continuous introduction of
new products offering increased levels of capacity and performance. Quantum
faces direct competition from a number of companies, including Seagate, Western
Digital, IBM and Maxtor and Exabyte. In February 1996, Seagate merged with
Conner, a former competitor, creating a company that is the world's largest disk
drive manufacturer. There can be no assurance that the Company can compete
effectively with these or any other companies, and the Company is unable to
predict the effect, if any, that the Seagate/Conner merger may have on the
Company's business. In the event that the Company is unable to compete
effectively with these or any other companies, the Company's business, financial
condition or results of operations would be materially adversely affected.
In the market for desktop products, Quantum competes primarily with Seagate,
Western Digital and Maxtor. Quantum and its competitors have developed and are
developing a number of products targeted at particular segments of this market,
such as home PC buyers, and factors such as time to market can have a
significant effect on the success of any particular product. The desktop market
is characterized by more competitors and shorter product life cycles than the
hard disk drive market in general.
The Company faces competition in the high-capacity disk drive market primarily
from Seagate and IBM. Seagate has the largest share of the market for
high-capacity disk drives. Although the same competitive factors generally
applicable to the overall disk drive industry apply to high-capacity disk
drives, the company believes that the performance and quality of its products
are more important in this segment than in the desktop market. In connection
with the Company's recently announced transition of its manufacturing activities
to MKE, the Company has been able to focus its product development efforts more
closely on certain key products. The Company's success in the high-capacity
market during the foreseeable future is dependent on the successful development,
timely introduction and market acceptance of these key products, as to which
there can be no assurance.
The Company also competes with companies offering products based on alternative
data storage and retrieval technologies. In the market for tape drives, the
Company competes with a large number of companies, including Exabyte. During
fiscal 1996, the Company experienced increasing market acceptance of its tape
drive products. However, a number of competitors have announced or already
introduced tape drive product offerings and the market could become
significantly more competitive during fiscal 1997. As a result, the Company
could experience increased price competition. If price competition occurs, the
Company may be forced to lower prices, in which case the Company would be
materially adversely affected. Quantum currently does not market thin film or MR
heads to outside companies. Technological advances in magnetic, optical or other
technologies, or the development of new technologies, could result in the
introduction of competitive products with superior performance to and
substantially lower prices than the Company's products, which could adversely
affect the Company's results of operations.
Finally, the Company's customers could commence the manufacture of disk and tape
drives for their own use or for sale to others. Any such loss of customers could
have a material adverse effect on the Company.
10
<PAGE> 11
PATENTS AND LICENSES
Quantum has been granted and/or owns by assignment 398 United States patents,
including patents originally issued to its former subsidiary Plus Development
Corporation, and patents originally issued to Digital Equipment Corporation. As
a general rule, these patents have 17-year terms from the date of issuance.
Quantum also has certain foreign patents and applications relative to certain of
the products and technologies. Although Quantum believes that its patents and
applications have significant value, the rapidly changing technology of the
computer industry makes Quantum's future success dependent primarily upon the
technical competence and creative skills of its personnel rather than on patent
protection. See also "Legal Proceedings."
Several companies and individuals have approached Quantum concerning the need
for a license under patented technology that Quantum has assertedly used, or is
assertedly using, in the manufacture and sale of one or more of Quantum's
products. Quantum conducts ongoing investigations into these assertions and
presently believes that any licenses ultimately determined to be required could
be obtained on commercially reasonable terms. However, there is no assurance
that such licenses are presently obtainable, or if later determined to be
required, could be obtained. See also "Legal Proceedings."
Quantum has signed several cross-licensing agreements with IBM, Seagate
Technology and Hewlett Packard. These agreements enable Quantum to use certain
patents owned by these companies, and it enables these companies to use certain
patents owned by Quantum.
EMPLOYEES
At March 31, 1996, the Company had 7,036 regular employees. However, in
connection with the transfer of the high-capacity product manufacturing to MKE
and the closure of manufacturing operations in Milpitas, California and
Malaysia, the Company has given termination notices to approximately 1,800
regular employees.
In the advanced electronics industry, competition for highly skilled employees
is intense. Quantum believes that a great part of its future success will depend
on its continued ability to attract and retain qualified employees. None of the
Company's employees are represented by a trade union, and the Company has
experienced no work stoppage. Quantum believes that its employee relations are
favorable.
ITEM 2.
PROPERTIES
The Company has its Corporate headquarters and some high-capacity product
manufacturing operations in a 37-acre leased campus complex in Milpitas,
California, which includes five buildings. The Company owns a repair facility in
Malaysia and a repair and distribution facility in Ireland. As part of the
Acquisition, the Company acquired two buildings and the associated 72-acre
parcel of land in Shrewsbury, Massachusetts, as well as a manufacturing plant in
Malaysia. The Shrewsbury facilities are currently utilized for research and
development activities, as well as the production of recording heads. In
conjunction with the announced plan to transfer its high-capacity disk drive
manufacturing to MKE, the Company is shutting down the high-capacity
manufacturing operations in California and Malaysia. A buyer is being sought for
the manufacturing building in Malaysia; however, the Company cannot predict when
a sale might be completed. The Company has committed to purchase a building in
Louisville, Colorado, which will be used for recording heads research and
development and manufacturing. Additionally, the Company leases office and
warehouse space and repair and manufacturing facilities throughout the world,
typically on a short-term basis. The Company believes that its configuration and
warehouse facilities are adequate to support customer requirements during fiscal
1997. The aggregate lease payments for all facilities in fiscal year 1996 were
approximately $30 million.
ITEM 3.
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<PAGE> 12
LEGAL PROCEEDINGS
On February 26, 1993, Quantum commenced a declaratory judgment lawsuit against
Rodime PLC of Glasgow, Scotland, in the U.S. District Court for the District of
Minnesota. Rodime counterclaimed by asserting that certain Quantum 3.5-inch hard
disk drive products infringed its U.S. Patent No. 4,638,383 and sought royalty
payments under that patent. The United States District Court entered a summary
judgment in Quantum's favor, ruling that claims of the Rodime patent were
invalid because of impermissible broadening in reexamination proceedings. This
summary judgement was affirmed on September 22, 1995, by the U.S. Court of
Appeals for the Federal Circuit. On April 29, 1996, the United States Supreme
Court declined to review this decision. This ruling, now final, is fully
dispositive of Quantum's dispute with Rodime.
The Company is also subject to other legal proceedings and claims which arise in
the ordinary course of its business. While management currently believes the
amount of ultimate liability, if any, with respect to these actions will not
materially affect the financial position, results of operations or liquidity of
the Company, the ultimate outcome of any litigation is uncertain. Were an
unfavorable outcome to occur, the impact could be material to the Company.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5.
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Quantum Corporation's common stock has been traded in the over-the-counter
market under the Nasdaq symbol QNTM since the Company's initial public offering
on December 10, 1982.
The prices per share reflected in the table represent the range of high and low
closing prices in the Nasdaq National Market System for the quarter indicated.
<TABLE>
<CAPTION>
Fiscal 1996 High Low
- ----------- ---- ---
<S> <C> <C>
Fourth quarter ended March 31, 1996 19 7/8 16 5/8
Third quarter ended December 31, 1995 20 7/8 16 1/8
Second quarter ended October 1, 1995 27 9/16 20 7/8
First quarter ended July 2, 1995 26 5/16 15
Fiscal 1995 High Low
- ----------- ---- ---
Fourth quarter ended March 31, 1995 15 13/16 13 7/8
Third quarter ended January 1, 1995 16 3/4 13 7/8
Second quarter ended October 2, 1994 17 5/8 12 13/16
First quarter ended July 3, 1994 18 3/16 11 3/4
</TABLE>
Historically, the Company has not paid cash dividends on its common stock and
the Company's debt agreement currently prohibits the Company from paying
dividends while the debt is outstanding.
As of May 1, 1996, there were approximately 2,445 shareholders of record of the
Company.
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<PAGE> 13
ITEM 6.
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands except per
share amounts, and ratios)
<TABLE>
<CAPTION>
Year ended March 31 (iv)
----------------------------------------------------------------------------------
1996(i) 1995(iii) 1994 1993 1992
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 4,422,726 $ 3,367,984 $ 2,131,054 $ 1,697,240 $ 1,127,733
Research and development $ 239,116 $ 169,282 $ 89,837 $ 63,019 $ 59,255
Net income (loss) $ (90,456) $ 81,591 $ 2,674 $ 93,811 $ 46,845
Net income (loss) per
share:
Primary $ (1.74) $ 1.72 $ .06 $ 2.05 $ 1.05
Fully diluted $ (1.74) $ 1.52 $ .06 $ 1.77 $ 1.04
Property, plant and
equipment, net $ 364,111 $ 280,099 $ 85,874 $ 74,698 $ 65,831
Total assets $ 1,975,355 $ 1,481,028 $ 997,438 $ 926,633 $ 550,864
Total long-term
debt $ 598,158 $ 327,500 $ 212,500 $ 212,500 $ -
Return on average
shareholders' equity (17.2)% 17.7% .7% 26.6% 17.1%
Ratio of earnings to
fixed charges (ii) 6.0 1.2 9.6 8.1
</TABLE>
(i) The results of operations for fiscal 1996 include the effect of a $209
million charge related to the transition of manufacturing for the
Company's high-capacity products to MKE. See Note 8 in Notes to
Consolidated Financial Statements.
(ii) Earnings (as defined) for fiscal 1996 were insufficient to cover fixed
charges by $141.3 million.
(iii) On October 3, 1994, Quantum acquired portions of Digital Equipment's
business. The acquisition is not reflected in the financial statements
prior to fiscal 1995, and thus the results for fiscal 1995 and fiscal
1996 are not comparable to the results prior to fiscal 1995. See Note 14
in Notes to Consolidated Financial Statements.
(iv) No cash dividends were paid for the years presented.
13
<PAGE> 14
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
include the expected benefits of transitioning the manufacturing of the
Company's high-capacity hard disk drive products to MKE, as well as management's
expectations regarding financial results for fiscal 1997. Actual results could
differ materially from those projected in the forward-looking statements as a
result of the factors set forth below in "Trends and Uncertainties" and
elsewhere in this report.
RESULTS OF OPERATIONS
On November 8, 1995, the Company announced a plan to resize the infrastructure
associated with its high-capacity products. Subsequently, the Company recorded a
pre-tax charge of $38 million, $36 million of which impacted cost of goods sold.
This charge included canceling a certain development program, accelerating
end-of-life plans for lower gross margin products and severance costs.
On January 30, 1996, the Company announced its intention to transition the
manufacturing of its WSSG high-capacity products to Matsushita-Kotobuki
Electronics Industries, Ltd. ("MKE") of Japan. The Company subsequently recorded
a charge of $209 million, pre-tax, associated with the closure of the Company's
two high-capacity manufacturing facilities in Penang, Malaysia and Milpitas,
California. The charge included incremental inventory write-downs and excess
purchase commitment accruals resulting directly from the decision to stop
manufacturing certain products, capital asset write-downs associated with the
closure of the production facilities, and severance for approximately 1,800
regular and 450 temporary employees.
Sales. Quantum's results of operations for fiscal 1996 reflect a significant
increase in sales over the prior fiscal year. Sales for the year ended March 31,
1996, grew 31%, to $4.4 billion, compared to sales of $3.4 billion recorded in
fiscal 1995. An increase in unit sales and a change in sales mix to newer,
larger-capacity products were partially offset by a decline in average unit
prices on existing products. The increase in sales was also partially
attributable to a full year of sales of the products acquired in the October 3,
1994, purchase of the Disks, Heads and Tapes Businesses of the Storage Business
Unit of Digital Equipment Corporation (the "Acquired Businesses"). Unit
shipments for fiscal 1996 increased 24% compared to fiscal 1995, reflecting a
higher sales level of desktop and portable storage products and the increased
product line offerings due to the Acquired Businesses.
Quantum's results of operations for fiscal 1995 reflected a significant increase
in sales over the prior fiscal year. Sales for the year ended March 31, 1995,
grew 58%, to $3.4 billion, compared to sales of $2.1 billion recorded in fiscal
1994. This increase is attributable to the newly acquired products as well as
increased unit shipments of existing Quantum products, offset by a decline in
average unit sales prices. On a pro forma basis, Quantum's sales for fiscal 1995
and 1994 would have been $3.8 billion and $3.0 billion, respectively, had the
acquisition of the Acquired Businesses occurred at the beginning of fiscal 1994.
Sales to the top five customers represented 44% of sales for fiscal 1996,
compared to 46% and 47% for fiscal 1995 and 1994, respectively. Sales to Compaq
Computer, Inc. were $522 million, or 12% of sales, in fiscal 1996, compared to
$536 million, or 16% of sales, in fiscal 1995 and $220 million, or 10% of sales,
in fiscal 1994. Sales to Apple Computer, Inc. were $473 million, or 11% of
sales, in fiscal 1996, compared to $404 million, or 12% of sales, in fiscal 1995
and $458 million, or 22% of sales, in fiscal 1994.
Sales to the distribution channel were 29% of consolidated sales or $1.3 billion
for fiscal 1996, compared to 25%, or $856 million for fiscal 1995 and 20% or
$428 million for fiscal 1994. Sales increased in the distribution channel during
fiscal 1996 as the Company widened the customer base.
Gross Margin. The gross margin decreased to 12% for fiscal 1996, compared to 17%
and 11% for fiscal 1995 and 1994. The decrease in gross margin in fiscal 1996 is
attributable to product qualification issues which were partially responsible
for higher costs and lower-than-expected unit volumes in the high-capacity
product line. In
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<PAGE> 15
addition, the $38 million resizing charge recorded in the third quarter of
fiscal 1996 impacted gross margin by $36 million. Without this resizing charge,
gross margin for fiscal 1996 would have been 13%. During fiscal 1995, transition
to newer and more cost efficient products, along with stabilizing industry
conditions, contributed to an increase in gross margin as compared to fiscal
1994. In the future, gross margin may be affected by pricing and other
competitive conditions, as well as the Company's ability to phase out the older,
lower gross margin product lines and transition to higher margin products
incorporating advances in technology. See "Trends and Uncertainties" below for a
discussion of certain other factors that may affect the Company's gross margin.
Research and Development Expenses. During fiscal 1996, the Company invested $239
million, or 5.4% of sales, in research and development, compared to $169
million, or 5.0% of sales, in fiscal 1995 and $90 million, or 4.2% of sales, in
fiscal 1994. The increase in fiscal 1996 is due to the impact of a full year of
expenses for the Acquired Businesses along with higher expenses related to
preproduction activity for a larger number of new products. The increase from
fiscal 1994 to fiscal 1995 is due primarily to the Acquired Businesses and
reflects spending for both the vertically integrated heads business and the
additional high-capacity disk drive products. The information storage industry,
particularly the hard disk drive business, is subject to rapid technological
advances, and the future success of the Company is dependent upon continued
development and timely introduction of new products and technologies. As a
result, the Company expects to continue to make significant expenditures for
research and development. See "Trends and Uncertainties" below.
Sales and Marketing Expenses. Sales and marketing expenses in fiscal 1996 were
$142 million, or 3.2% of sales, compared to $108 million, or 3.2% of sales, in
fiscal 1995 and $74 million, or 3.5% of sales, in fiscal 1994. The increase in
absolute dollar expenditures in fiscal 1996 is principally due to the costs
associated with supporting the Company's higher volume of sales. The increase in
absolute dollar expenditures during fiscal 1995 is related to the Digital
acquisition and the costs associated with supporting the higher sales volume and
the expanded Company infrastructure. Sales and marketing expenses as a
percentage of sales declined in fiscal 1995 due to the increase in sales.
General and Administrative Expenses. General and administrative expenses in
fiscal 1996 were $65 million, or 1.5% of sales, compared to $52 million, or 1.5%
of sales, in fiscal 1995, and $42 million, or 2.0% of sales, in fiscal 1994. The
absolute dollar increase in general and administrative expenses between fiscal
1995 and fiscal 1996 is related to the expansion of the Company's
infrastructure. The absolute dollar increase between fiscal 1994 and 1995
reflects the infrastructure required to support the Acquired Businesses. The
percentage decline in fiscal 1995 is due to the increase in sales.
Other Operating Charges. During fiscal 1996 the Company included in results of
operations a charge of $209 million related to the transition of manufacturing
for the high-capacity products to MKE. The charge was comprised of: reduction in
work force of approximately $10 million; write-down of capital assets of
approximately $45 million; incremental inventory write-downs and excess purchase
commitment accruals of approximately $144 million; and other charges of
approximately $10 million. These amounts reflect the provision for closing the
manufacturing facilities in Penang, Malaysia, and Milpitas, California.
As a result of the acquisition of the Acquired Businesses in fiscal 1995, the
Company incurred a charge of $73 million, which included $68 million of
purchased in-process research and development and $5 million in related merger
costs. Merger costs were comprised of incremental integration costs incurred
through the end of the quarter in which the acquisition was consummated.
Included in the Company's fiscal 1994 results of operations were restructuring
and other charges of $22.8 million, which were comprised of: the write-off of
goodwill and certain inventory associated with its former subsidiary, Plus
Development, of $7.7 million; the Company's reduction in work force of $1.5
million; accelerated product transitions of $8.0 million; the consolidation of
sales offices and other facilities of $5.1 million; and other charges of $0.5
million. Included in the charges for the consolidation of other facilities was
the consolidation of repair facilities from three facilities worldwide into a
single location in Malaysia. The Company had substantially completed the
restructuring as of March 31, 1994.
15
<PAGE> 16
Other (Income) Expense. Net interest and other income and expense for fiscal
1996 was $28.0 million net expense compared to $15.8 million net expense and
$6.7 million net expense for fiscal 1995 and 1994, respectively. The increase in
net expense in fiscal 1996 can be attributed to interest expense on higher
levels of debt to finance operations. In fiscal 1995, the increase in net
expense was due to higher interest expense resulting from the acquisition
financing and lower cash balances due to cash used for the acquisition.
Income Taxes. The effective tax rate for fiscal 1996 was 36%, compared to 44%
and 27% for the fiscal years 1995 and 1994, respectively. The decrease in the
effective tax rate for fiscal 1996, as compared to fiscal 1995, was attributable
primarily to the realization of deferred tax assets previously reserved and
lower overall state taxes, offset by a reduction in the benefit of foreign
earnings taxed at less than the U.S. rate. The increase in the effective tax
rate for fiscal 1995, as compared to fiscal 1994, is attributable primarily to
the impact of the purchased research and development write-off as there is
minimal tax benefit associated with the acquired technology utilized offshore.
For financial reporting purposes, the Company has provided a valuation allowance
for certain deferred tax assets that are expected to reverse over a 15 year
period. The Company has concluded that taxable income generated over the next 3
years, combined with the reversal of existing taxable temporary differences,
will be sufficient to realize the benefits of the recorded deferred tax assets.
Net Income. The Company recorded a net loss for fiscal 1996 of $90.5 million
compared to net income of $81.6 million and $2.7 million for fiscal 1995 and
1994, respectively. The change from net income in fiscal 1995 to a loss in
fiscal 1996 is primarily a result of the $209 million charge related to the
transition of high-capacity product manufacturing to MKE as well as the $38
million resizing charge for the high-capacity business infrastructure in fiscal
1996. The increase in net income from fiscal 1994 to fiscal 1995 is primarily
due to higher unit shipments and revenue offset by acquisition related
expenditures in fiscal 1995.
During the period covered by the accompanying financial statements, the Company
has used derivative financial instruments to manage foreign currency exposure on
a limited basis only (See Note 2 in Notes to Consolidated Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had $165 million in cash and cash equivalents,
compared to $188 million at March 31, 1995. Cash was used in operating and
investing activities, primarily as a result of increases in accounts receivable
and inventories and investing in property and equipment, partially offset by an
increase in accounts payable. Cash was provided by financing activities,
primarily as a result of borrowing under the senior credit facility and
equipment loan facility described below as well as the issuance of convertible
subordinated notes.
In October 1994, the Company entered into a three year $350 million senior
credit facility structured as a $225 million revolving credit line and a $125
million term loan. As subsequently amended, the revolving credit line has been
increased to $325 million and has been extended one year to expire in September
1998. The revolving credit is governed by a borrowing base of eligible accounts
receivable and inventory, and the term loan was to amortize in five equal
semiannual installments that commenced in October 1995. In February 1996, the
remaining outstanding balance on the term loan was paid in full with proceeds of
the issuance of the convertible subordinated notes discussed below. The
revolving borrowings, at the option of the Company bear interest at either LIBOR
plus a margin or a base rate with option periods of one to six months. The
facility is secured by all the Company's domestic assets and 66% of the
Company's ownership of certain of its subsidiaries. As of March 31, 1996, total
borrowings under the senior credit facility were $210 million with a weighted
average interest rate of approximately 7.5%.
The Company was not in compliance with three of its financial covenants in
connection with its senior credit facility as of March 31, 1996; however, the
Company has received a waiver of this non-compliance for the period ended March
31, 1996. In addition, the financial covenant requirements for future periods
have been amended.
16
<PAGE> 17
The Company also has a one-year $85 million unsecured Letter of Credit facility
with certain banks to issue standby letters of credit to MKE and its affiliates,
which expires in September 1996. As of March 31, 1996, there was no outstanding
balance under this letter of credit facility.
In March 1996, the Company entered into an $18 million term loan facility to
finance certain capital equipment. The facility amortizes over three years at a
fixed interest rate of 7.63% and payments are made on a quarterly basis. The
facility is secured by specified capital equipment.
In February 1996, the Company issued approximately $241 million of 5%
convertible subordinated notes (the "Notes") in a privately placed offering. The
Notes are due March 1, 2003, and are subordinated to all existing and future
senior indebtedness of the Company. Each Note is convertible at the option of
the holder into the Company's common stock at a conversion price of $22.32 per
share. The Notes are redeemable at the Company's option on or after March 3,
1998, and prior to March 3, 2000, under certain conditions related to the price
of the Company's common stock. Subsequent to March 3, 2000, the Notes are
redeemable at the Company's option at any time. Redemption prices range from
103.571% of the principal to 100% at maturity.
The Company's Convertible Subordinated Debentures due 2002 became redeemable at
the Company's option on or after April 2, 1995, at prices ranging from 104.5% of
the principal to 100% at maturity. Each debenture is convertible, at the option
of the holder, into the Company's common stock at a conversion price of
approximately $18.15 per share. During 1996, $79,567,000, or approximately 37%,
of the outstanding debentures were converted into the Company's common stock.
This conversion resulted in the issuance of 4,383,477 shares.
At this time, the Company expects to spend approximately $180 million for
leasehold improvements, capital equipment and expansion of the Company's
facilities during fiscal 1997. These capital expenditures will be to support the
recording heads and tapes businesses as well as to support general corporate
operations. In addition, the Company has committed to purchase, for $15 million,
a building currently under construction in Colorado and is seeking alternative
financing for that transaction.
The Company announced its intention to transition the manufacturing of its
high-capacity products to MKE and subsequently recorded a charge of $209
million, pre-tax, associated with the closure of the Company's two manufacturing
facilities in Penang, Malaysia and Milpitas, California (see Note 8 in Notes to
Consolidated Financial Statements). The Company anticipates that the cash
portion of this charge will be approximately $97 million, to be paid over the
first two quarters of fiscal 1997. There were no significant cash expenditures
related to this restructuring during fiscal 1996.
In conjunction with the purchase of the Acquired Businesses in October 1994, the
Company recorded an accrual for exit costs related to exiting facilities and
operations acquired from Digital (see Note 14 in Notes to Consolidated Financial
Statements). During fiscal 1996, cash outlays related to the exit activities
were $15.6 million. The Company anticipates that cash outlays for the exit
activities will be approximately $12 million during fiscal 1997.
The Company believes that its existing capital resources, including its credit
facilities and any cash generated from operations, will be sufficient to meet
all currently planned expenditures and sustain operations for the next fiscal
year. However, this forward-looking statement assumes that operating results and
cash flow from operations will meet the Company's expectations, and actual
results could vary due to the factors described below. The Company continues to
work to identify additional sources of cash and there can be no assurance that
if required, the Company will be able to obtain such financing on acceptable
terms, or at all.
TRENDS AND UNCERTAINTIES
On January 30, 1996, the Company announced its intention to transition the
manufacturing of its high-capacity products to MKE, and, as a result, the
Company subsequently recorded a related charge of $209 million, pre-tax. Actual
results, however, with regard to the restructuring charge could vary in the
event demand for the Company's current high-capacity products declines faster
than expected, resulting in additional excess inventory, or in the
17
<PAGE> 18
event the Company experiences unanticipated problems or incurs greater than
expected costs in connection with the closure of its high-capacity manufacturing
operations.
On June 12, 1996, the Company announced that due to weaker industry demand for
drives for the personal computer market than had been expected and the resulting
pressure on pricing, the Company's sales and earnings for the first quarter of
fiscal 1997 will be less than the results for the fourth quarter of fiscal 1996
before taking into account the restructuring. Based on the weakened industry
demand picture and the preliminary results for the first two months of the
quarter, the Company expects revenue for the first quarter of fiscal 1997 to be
less than $1.2 billion and earnings per share fully diluted to be in the range
of $.05 to $.15. With this uncertainty about the level of demand, the Company
has decided to reduce its drive build plan by approximately 1 million units for
each of the first and second quarters of fiscal 1997. Contributing factors to
the weakened demand picture are lackluster demand in the consumer market for
home PCs in the U.S., delays in commercial purchases pending new operating
systems and new systems architectures, and weakness in Europe driven by
Germany's economic slowdown.
The foregoing estimates regarding the Company's results for the first quarter of
fiscal 1997, which are preliminary, constitute forward-looking information, and
actual results for the quarter will be impacted by the Company's operating
results during the balance of the quarter, which could vary due to the factors
described below. In addition, future revenue and earnings growth would be
impacted if the weakness in demand for desktop drives continues or intensifies,
or if the Company experiences increased price competition as a result.
Fluctuation in Results of Operations. The Company's results of operations are
subject to fluctuations from period to period. In this regard, the demand for
the Company's hard disk drive products depends on the demand for the computer
systems manufactured by its customers, which is affected by computer system
product cycles and by prevailing economic conditions. Growth in demand for
computer systems, especially in the personal computer ("PC") market segment,
where the Company derives a significant amount of its disk drive sales, has
historically been subject to significant fluctuations. Such fluctuations in end
user demand have in the past and may, in the future, result in the deferral or
cancellation of orders for the Company's products, each of which would have a
material adverse effect on the Company. During the past several years, there has
been significant growth in the demand for PCs, a portion of which represented
sales of PCs for use in the home. However, many analysts predict that future
growth may be at a slower rate than the rate experienced in recent years.
As noted above, the Company recently announced that weaker than expected
industry demand for drives for the PC market is expected to have an adverse
impact on revenue and earnings for the first quarter of fiscal 1997, and the
Company has decided to reduce its drive build plan for the first two quarters of
fiscal 1997. The Company could experience additional decreases in demand for its
products in the near future, and any such additional slowdowns in demand would
have a material adverse effect on the Company. The hard disk drive industry has
also been subject, from time to time, to seasonal fluctuations in demand. The
Company has typically experienced relatively flat demand in the quarter ending
September 30 as compared to the quarter ending June 30 and increasing demand
throughout the quarters ending December 31 and March 31. The Company's shipments
tend to be highest in the third month of each quarter and failure by the Company
to complete shipments in the final month could adversely affect the Company's
operating results for the quarter.
Transition of High-Capacity Manufacturing Operations to MKE; Introduction of New
High-Capacity Products. Since the Company's acquisition of Digital's
high-capacity disk drive operations in late 1993, the Company has experienced
significant difficulties integrating these operations into its high-capacity
business. These difficulties have included problems involving both the
development and the manufacturing of its high-capacity products and have
resulted in, among other things, significant delays in meeting the qualification
standards imposed by certain major customers of the Company's high-capacity disk
drive products. As part of its strategy to address these problems, in January
1996, the Company decided to transition its high-capacity disk drive product
manufacturing to MKE. As a result, in the Company's fiscal quarter ended March
31, 1996, the Company incurred a charge of $209 million associated with the
closure of the Company's two high-capacity disk drive manufacturing facilities
in Milpitas, California and Penang, Malaysia. Future results could also be
adversely impacted by this transition in the event demand for the Company's
current high-capacity products declines faster than expected, resulting in
18
<PAGE> 19
additional excess inventory, or in the event the Company experiences
unanticipated problems or incurs greater than expected costs in connection with
the closure of its high-capacity manufacturing operations.
The Company's transition of its high-capacity manufacturing operations to MKE
entails several risks, and there can be no assurance that the Company's efforts
in this regard will be successful. This transition will require close and
continuous collaboration between the Company and MKE in all phases of design,
engineering and production of its high-capacity products. Although the Company
has had a continuous manufacturing relationship with MKE since 1984, the
Company's high-capacity products are more complex to manufacture than its
desktop products. MKE has not previously manufactured any significant amount of
the Company's high-capacity products and there can be no assurance that the
Company's previous difficulties with its high-capacity products will be resolved
or that new problems will not arise as a result of the transition of this
manufacturing to MKE. Any failure of the Company to successfully manage this
transition would have a material adverse effect on the Company.
In addition, the Company's high-capacity manufacturing transition could be
adversely affected by the necessity to phase out the Company's current
high-capacity products, which are manufactured by the Company, and to
simultaneously introduce, during the second half of calendar 1996, two new
high-capacity products to be manufactured by MKE. These new products are still
in the development and evaluation stage. The Company's product development
efforts entail a number of risks, and there can be no assurance that the Company
will be successful in these efforts.
Dependence on MKE Relationship. The Company is dependent upon MKE for the
manufacture of its disk drive products. During fiscal 1996 and 1995,
approximately 75% and 80%, respectively, of the Company's sales were derived
from products manufactured by MKE. In January 1996, the Company announced that
it will transition the manufacturing of its high-capacity hard disk drive
products to MKE. The Company and MKE have agreed that, following this
transition, MKE will have the exclusive right to manufacture all of the
Company's hard disk drive products.
The Company's relationship with MKE is critical to the Company's business and
financial performance. The Company's dependence on MKE entails, among others,
the following principal risks:
Quality and Delivery. The Company relies on MKE's ability to bring new
products rapidly to volume production at low cost, to meet the
Company's stringent quality requirements and to respond quickly to
changing product delivery schedules from the Company. This requires,
among other things, close and continuous collaboration between the
Company and MKE in all phases of design, engineering, and production.
In this respect, the Company's high-capacity product development teams
have had limited or no prior experience working with MKE. The Company's
business and financial results would be adversely affected if products
manufactured by MKE fail to satisfy the Company's quality requirements
or if MKE is unable to meet the Company's delivery commitments. In the
event MKE is unable to satisfy Quantum's production requirements, the
Company would not have an alternative high volume manufacturing source
to meet such demand without substantial delay and disruption of the
Company's operations. As a result, the Company would be materially
adversely affected.
Extension of Relationship. The Company's relationship with MKE, which
has been continuous since 1984, is currently governed by a master
agreement, that, unless extended, will expire in December 1997. The
failure of the parties to extend their relationship on terms favorable
to the Company would have a material adverse effect on the Company.
Volume and Pricing. MKE's production schedule is based on the Company's
forecasts of its product purchase requirements and the Company has only
limited rights to modify short-term purchase orders issued to MKE. In
addition, the Company renegotiates pricing arrangements with MKE on a
periodic basis. The failure of the Company to accurately forecast its
requirements, which could lead to inventory shortages or surpluses, or
the failure to reach agreements reasonable to the Company with regard
to pricing would have a material adverse effect on the Company.
19
<PAGE> 20
Manufacturing Capacity and Capital Commitment. The Company believes
that MKE's current and committed manufacturing capacity should be
adequate to meet the Company's requirements at least through the end of
calendar 1996. The Company's future growth will require, however, that
MKE continue to devote substantial financial resources to property,
plant and equipment and working capital to support manufacture of the
Company's products, as to which there can be no assurance. In the event
that MKE is unable or unwilling to meet the Company's manufacturing
requirements, there can be no assurance that the Company would be able
to obtain an alternate source of supply in a timely manner or at all.
Any such failure to obtain an alternative source would have a material
adverse effect on the Company.
Dependence on Suppliers of Components and Sub-Assemblies; Component Shortages.
The Company and its manufacturing partner, MKE, are dependent upon suppliers for
components and sub-assemblies, including recording heads, media and integrated
circuits, which are essential to the manufacture of the Company's products. In
connection with certain products, the Company and MKE qualify only a single
source for certain components and sub-assemblies, which can magnify the risk of
shortages. Component shortages have in the past constrained the Company's sales
growth. If such shortages occur, or if the Company experiences quality problems
with component suppliers, shipments of products could be significantly delayed
or costs significantly increased, which would have a material adverse effect on
the Company's results of operations. The Company believes that the industry will
periodically experience component shortages, and there can be no assurance that
these issues will not adversely affect the Company's operating results.
New Product Development. Quantum operates in an industry characterized by
increasingly rapid technological changes and short product life cycles. For
these and other reasons, including competitive pressures, gross margins on
specific products can decrease rapidly and any delay in introduction of more
advanced and more cost-effective products can result in significantly lower
sales and gross margins. The Company's future is therefore dependent on its
ability to develop new products, to qualify these new products with its
customers, to successfully introduce these products to the market on a timely
basis and to commence volume production to meet customer demands. In this
regard, the Company expects that sales of new products, particularly a limited
number of products from DPSG, will account for a significant portion of fiscal
1997 sales and that sales of older products will decline. However, there can be
no assurance that such products will achieve or sustain market acceptance. The
Company expects sales from its current high-capacity products to decline
substantially in the first half of fiscal 1997, as the Company transitions
customers to new high-capacity products to be manufactured by MKE. The Company's
new high-capacity products, currently under development, are not expected to
achieve volume production and contribute to sales until at least the latter half
of fiscal 1997. The Company's inability to successfully manage this transition
could have a material adverse effect on the Company.
The Company is also currently engaged in a substantial effort to advance the
development of its MR recording heads. The Company believes that MR head
technology, which enables higher capacity per disk than conventional thin film
inductive heads, will replace thin film inductive heads as the leading recording
head technology. Although MR recording heads comprised a relatively small
portion of the recording head market demand for the entire industry in 1995, the
Company expects demand to increase significantly by 1998. The Company believes
that by establishing its own supply of MR heads it can lower the risk of supply
shortages of MR heads that may occur in the future and can create cost
advantages for its overall business. However, MR technology is relatively
complex, and as is typical of new head technology, manufacturing yields are
expected to begin at relatively low levels and then possibly increase throughout
the product life of the recording head. While the Company has increased
production yields in its MR recording heads manufacturing in the past, several
of the Company's important new disk drive products which are scheduled to
commence volume production during fiscal 1997 are dependent on new MR recording
heads currently under development, and increases in the current levels of
production yields for these new MR recording heads will be required for the
Company to meet its manufacturing objectives for these new disk drive products.
In the event that yields do not improve, there are limited alternative sources
of supply for MR recording heads, and there can be no assurance that the Company
will be able to locate and obtain adequate supply from such alternative sources.
In such event, the Company will be materially adversely affected.
20
<PAGE> 21
There can be no assurance that the Company will be successful in the development
and marketing of these and other new products and components that respond to
technological change or evolving industry standards, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of these products and components, or that the
Company's new products and components will adequately meet the requirements of
the marketplace and achieve market acceptance. In addition, technological
advances in magnetic, optical or other technologies, or the development of new
technologies, could result in the introduction of competitive products with
superior performance to and substantially lower prices than the Company's
products. Further, the Company's new products and components are subject to
significant technical risks. If the Company experiences delays in the
commencement of commercial shipments of new products or components, the Company
could experience delays or loss of product sales. If the Company is unable, for
technological or other reasons, to develop and introduce new products in a
timely manner in response to changing market conditions or customer
requirements, the Company would be materially adversely affected.
Customer Concentration. As is typical in the information storage industry, the
Company's customer base is concentrated with a small number of systems
manufacturers. The Company's sales to its customers are generally governed by
written agreements. In general, these agreements do not obligate a customer to
purchase any minimum volume of the Company's products, and these agreements are
generally terminable at will by the customer.
Sales of the Company's desktop products, which comprise a significant majority
of its overall sales, were concentrated in several key customers during the
fiscal year ended March 31, 1996. Sales to the top five customers of the Company
represented 44% of total sales, of which 11% represented sales to Apple and 12%
represented sales to Compaq. Apple recently announced a significant layoff of
personnel and restructuring of its business. As a result, it could become
increasingly difficult for the Company to accurately forecast the demand for its
products by Apple. In addition, the Company is unable to predict whether or not
there will be any significant change in demand for Apple's or any of its other
customers' products in the future. In the event that any such changes result in
decreased demand for the Company's products, whether by loss or delays in
orders, the Company would be materially adversely affected.
Intensively Competitive Industry. The information storage products industry in
general, and the disk drive industry in particular, is characterized by intense
competition which results in rapid price erosion, short product life cycles, and
continuous introduction of new, more cost-effective products offering increased
levels of capacity and performance. In this regard, the Company intends to
introduce important new products during the latter half of fiscal 1997, and
there can be no assurance that it will be successful in this regard. If this
does not occur, the Company would be materially and adversely affected. The hard
disk drive industry also tends to experience periods of excess product inventory
and intense price competition. If price competition intensifies, the Company may
be forced to lower prices further than expected, which could adversely affect
its sales and gross margin.
Quantum faces direct competition from a number of companies, including Seagate,
Western Digital, IBM, Maxtor and Exabyte. In February 1996, Seagate merged with
Conner creating a company that is the world's largest disk drive manufacturer.
There can be no assurance that the Company can compete effectively with these or
any other companies and, in particular, the Company is unable to predict the
effect, if any, that the Seagate/Conner merger may have on the Company's
business. In the event that the Company is unable to compete effectively with
these or any other companies, the Company would be materially adversely
affected.
DPSG. In the market for desktop products, Quantum competes primarily
with Seagate, Western Digital, and Maxtor. Quantum and its competitors
have developed and are developing a number of products targeted at
particular segments of this market, such as home PC buyers, and factors
such as time to market can have a significant effect on the success of
any particular product. The desktop market is characterized by more
competitors and shorter product life cycles than the hard disk drive
market in general.
WSSG. The Company faces competition in the high-capacity disk drive
market primarily from Seagate and IBM. Seagate has the largest share of
the market for high-capacity disk drives. Although the same competitive
factors generally applicable to the overall disk drive industry apply
to high-capacity disk
21
<PAGE> 22
drives, the Company believes that the performance and quality of its
products are more important to the users in this market than to users
in the desktop market. In connection with the Company's recently
announced transition of its manufacturing activities to MKE, the
Company has been able to focus its product development efforts more
closely on certain key products. The Company's success in the
high-capacity market during the foreseeable future is dependent on the
successful development, timely introduction and market acceptance of
these key products, as to which there can be no assurance.
SSPG. In the market for tape drives, the Company competes with a large
number of companies, including Exabyte. During 1996, the Company
experienced increasing market acceptance of its tape drive products.
However, a number of competitors have announced or already introduced
tape drive product offerings and the market could become significantly
more competitive during the remainder of calendar 1996. As a result,
the Company could experience increased price competition. If price
competition occurs, the Company may be forced to lower prices, in which
case the Company would be materially adversely affected.
Finally, the Company's customers could commence the manufacture of disk and tape
drives for their own use or for sale to others. Any such loss of customers could
have a material adverse effect on the Company.
Risks Associated with Foreign Manufacturing. Many of the Company's products are
currently manufactured outside the United States. As a result, the Company is
subject to certain risks associated with contracting with foreign manufacturers,
including obtaining requisite United States and foreign governmental permits and
approvals, currency exchange fluctuations, currency restrictions, political
instability, labor problems, trade restrictions and changes in tariff and
freight rates.
Intellectual Property Matters. The hard disk drive industry has been
characterized by significant litigation relating to patent and other
intellectual property rights. From time to time, the Company is approached by
companies and individuals alleging Quantum's need for a license under patented
technology that Quantum assertedly uses. There can be no assurance that licenses
to any such technology, if required, could be obtained on commercially
reasonable terms or at all. Adverse resolution of any intellectual property
litigation could subject the Company to substantial liabilities and require it
to refrain from manufacturing certain products. In addition, the costs of
engaging in such litigation may be substantial, regardless of the outcome.
Future Capital Needs. The information storage business is capital-intensive and
competitive. Although the Company is in the process of transitioning the
manufacturing of all of its hard disk drive products to MKE, the Company
believes that in order to remain competitive in the information storage
business, it will need significant additional financial resources over the next
several years for capital expenditures, working capital and research and
development. The Company believes that it will be able to fund these capital
requirements at least through fiscal 1997. However, in the event that the
Company decides to increase its capital expenditures further or sooner than
presently contemplated, or if results of operations do not meet the Company's
expectations, the Company will require additional debt or equity financing.
There can be no assurance that such additional funds will be available to the
Company or, if available, will be available on favorable terms. In addition, the
Company may require additional capital for other purposes not presently
contemplated by the Company. If the Company is unable to obtain sufficient
capital, it could be required to curtail its capital equipment and research and
development expenditures, which could adversely affect the Company.
Volatility of Stock Price. The market price of the Company's Common Stock has
been, and may continue to be, extremely volatile. Factors such as new product
announcements by the Company or its competitors, quarterly fluctuations in the
operating results of the Company, its competitors and other technology companies
and general conditions in the computer market may have a significant impact on
the market price of the Common Stock. In particular, if the Company were to
report operating results that did not meet the expectations of research
analysts, the market price of the Common Stock could be materially adversely
affected. In addition, the stock market has recently experienced substantial
price and volume fluctuations, which have particularly affected the market
prices of the stock of many high technology companies.
22
<PAGE> 23
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
Financial Statements:
Report of Ernst & Young LLP, Independent Auditors 24
Consolidated Statements of Operations for each of the 25
three years in the period ended March 31, 1996
Consolidated Balance Sheets at March 31, 1996 and 1995 26
Consolidated Statements of Cash Flows for each of the 27
three years in the period ended March 31, 1996
Consolidated Statements of Shareholders' Equity for 28
each of the three years in the period ended
March 31, 1996
Notes to Consolidated Financial Statements 29
Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts 50
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
23
<PAGE> 24
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
QUANTUM CORPORATION
We have audited the accompanying consolidated balance sheets of Quantum
Corporation as of March 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended March 31, 1996. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Quantum
Corporation at March 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Palo Alto, California Ernst & Young LLP
May 3, 1996
24
<PAGE> 25
QUANTUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(In thousands except per share data) Year ended March 31,
-------------------------------------------------------
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Sales $4,422,726 $3,367,984 $2,131,054
Cost of sales 3,880,309 2,804,271 1,892,211
---------- ---------- ----------
542,417 563,713 238,843
Operating expenses:
Research and development 239,116 169,282 89,837
Sales and marketing 142,413 108,290 74,015
General and administrative 65,145 52,134 41,910
Restructuring and other charges 209,122 - 22,753
Purchased research and development
and in merger costs - 72,945 -
---------- ---------- ----------
655,796 402,651 228,515
---------- ---------- ----------
Income (loss) from operations (113,379) 161,062 10,328
Interest and other income 7,945 7,258 8,217
Interest expense (35,904) (23,015) (14,882)
---------- ---------- ----------
Income (loss) before income taxes (141,338) 145,305 3,663
Income tax provision (benefit) (50,882) 63,714 989
---------- ---------- ----------
Net income (loss) $ (90,456) $ 81,591 $ 2,674
=========== ============ =============
Net income (loss) per share:
Primary $ (1.74) $ 1.72 $ .06
=========== ============ =============
Fully diluted $ (1.74) $ 1.52 $ .06
=========== ============ =============
Common and common equivalent shares:
Primary 51,841 47,319 44,967
=========== ============ =============
Fully diluted 51,841 59,038 44,967
=========== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 26
QUANTUM CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands except share and per share data) March 31,
--------------------------------------------
1996 1995
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 164,752 $ 187,753
Accounts receivable, net of allowance for doubtful
accounts of $10,497 in 1996 and $11,963 in 1995 711,107 497,887
Inventories 459,538 324,650
Deferred taxes 109,625 44,054
Other current assets 81,472 35,580
---------- ----------
Total current assets 1,526,494 1,089,924
Property, plant and equipment, less accumulated
depreciation 364,111 280,099
Purchased intangibles, net 66,313 95,818
Other assets 18,437 15,187
---------- ----------
$1,975,355 $1,481,028
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 498,829 $ 355,117
Accrued warranty expense 62,289 57,001
Accrued compensation 45,439 54,917
Income taxes payable 40,994 17,566
Accrued restructuring and exit costs 115,537 32,213
Current portion of long-term debt 4,125 50,000
Other accrued liabilities 53,929 77,227
---------- ----------
Total current liabilities 821,142 644,041
Deferred taxes 11,232 -
Convertible subordinated debt 374,283 212,500
Long-term debt 223,875 115,000
Commitments and contingencies (Notes 11 and 12)
Shareholders' equity:
Preferred stock, $.01 par value; authorized:
4,000,000 shares; issued: none in 1996 and 1995 - -
Common stock, $.01 par value; authorized:
150,000,000 shares; issued and outstanding:
54,195,672 in 1996 and 46,164,295 in 1995 541 461
Capital in excess of par value 266,405 140,693
Retained earnings 277,877 368,333
---------- ----------
Total shareholders' equity 544,823 509,487
---------- ----------
$1,975,355 $1,481,028
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 27
QUANTUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands) Year ended March 31,
------------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (90,456) $ 81,591 $ 2,674
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operations:
Restructuring and other charges 208,571 67,184 6,338
Gain on sale of equity investment (3,844) - -
Depreciation and amortization 97,108 53,312 29,340
Deferred taxes (54,339) - -
Compensation related to stock option plans 1,414 - -
Changes in assets and liabilities:
Accounts receivable (216,499) (173,511) (57,382)
Inventories (188,444) 16,085 29,079
Accounts payable 144,547 87,928 51,744
Income taxes payable (26,430) 17,566 (19,026)
Accrued warranty expense 5,463 1,384 13,207
Other assets and liabilities (41,198) 9,517 15,316
--------- --------- ---------
Net cash provided by (used in) operating activities (164,107) 161,056 71,290
--------- --------- ---------
Cash flows from investing activities:
Purchases of marketable securities - (105,474) (134,581)
Proceeds from sales and maturities of
marketable securities - 217,982 192,407
Investment in property and equipment, net (211,602) (128,170) (38,372)
Proceeds from sale of equity investment 5,875 - -
Proceeds from sale of distribution subsidiary 5,276 - -
Purchase of Digital Equipment's Data
Storage Business - (285,171) -
--------- --------- ---------
Net cash provided by (used in) investing activities (200,451) (300,833) 19,454
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term credit facilities 393,000 220,500 -
Principal payments on short-term note - (70,000) -
Principal payments on long-term credit facilities (330,000) (55,500) -
Repurchase of common stock - - (17,479)
Proceeds from issuance of common stock 37,207 14,999 22,428
Proceeds from issuance of convertible
subordinated notes 241,350 - -
--------- --------- ---------
Net cash provided by financing activities 341,557 109,999 4,949
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (23,001) (29,778) 95,693
Cash and cash equivalents at beginning of year 187,753 217,531 121,838
--------- --------- ---------
Cash and cash equivalents at end of year $ 164,752 $ 187,753 $ 217,531
========= ========= =========
Supplemental disclosure of cash flow information:
Conversion of debentures $ 79,567 - -
========= ========= =========
Issuance of note for acquisition of
Digital Equipment's Data Storage Business - $ 70,000 -
========= ========= =========
Cash paid during the year for:
Interest $ 32,768 $ 21,113 $ 13,707
========= ========= =========
Income taxes $ 29,789 $ 47,310 $ 18,100
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 28
QUANTUM CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Capital
--------------------------- in excess Retained
(In thousands) Shares Amount of Par Value Earnings Total
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at March 31, 1993 43,322 $433 $ 99,616 $298,189 $398,238
Shares repurchased in the open
market (1,500) (15) (3,494) (13,970) (17,479)
Shares repurchased from
employees (11) - (63) (151) (214)
Shares issued under employee
stock purchase plan 735 7 6,251 - 6,258
Shares issued under employee
stock option plans 2,058 21 15,581 - 15,602
Tax benefits related to stock
option plans and other - - 6,193 - 6,193
Net income for year ended
March 31, 1994 - - - 2,674 2,674
----------------------------------------------------------------------------
Balances at March 31, 1994 44,604 446 124,084 286,742 411,272
Shares issued under employee
stock purchase plan 869 9 8,275 - 8,284
Shares issued under employee
stock option plans, net 691 6 6,709 - 6,715
Tax benefits related to stock
option plans - - 1,625 - 1,625
Net income for year ended
March 31, 1995 - - - 81,591 81,591
----------------------------------------------------------------------------
Balances at March 31, 1995 46,164 461 140,693 368,333 509,487
Conversion of subordinated debentures 4,384 44 77,776 - 77,820
Shares issued under employee
stock purchase plan 1,338 13 15,965 - 15,978
Shares issued under employee
stock option plans, net 2,310 23 22,011 - 22,034
Compensation expense - - 1,414 - 1,414
Tax benefits related to stock
option plans - - 8,546 - 8,546
Net loss for year ended
March 31, 1996 - - - (90,456) (90,456)
----------------------------------------------------------------------------
Balances at March 31, 1996 54,196 $541 $266,405 $277,877 $544,823
============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 29
QUANTUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies is presented to assist the reader
in understanding and evaluating the consolidated financial statements. These
policies are in conformity with generally accepted accounting principles.
Nature of business: Quantum Corporation (the "Company") designs, manufactures
and markets information storage products, including high-performance,
high-quality hard disk drives, as well as solid state disks and tape drives. The
Company also manufactures recording heads for use in its products. Quantum's
products meet the storage requirements of workstations, servers, disk arrays,
high-end to entry-level desktop personal computers and minicomputers. The
Company markets its products directly to major OEMs, and through a broad range
of distributors, resellers and systems integrators worldwide.
Principles of consolidation: The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Revenue recognition: Revenue from sales of products is recognized upon shipment
to customers with provision made for estimated returns.
Foreign currency transactions and translation: A significant percentage of the
Company's sales are made to customers in non-U.S. locations, and a majority of
the Company's products are manufactured by Matsushita-Kotobuki Electronics
Industries, Ltd. ("MKE") of Japan. However, the majority of the Company's
transactions are denominated in U.S. dollars. Accordingly, the application of
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Transactions," to the Company's historical financial statements has not resulted
in transaction or translation gains or losses which are material to the
Company's consolidated financial statements for any year presented. The effect
of foreign currency exchange rate fluctuations on cash flows was also not
material for any year presented.
Net income (loss) per share: Net income (loss) per share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding. Net income per share computed on a fully diluted basis for fiscal
1995 assumes conversion of the Company's outstanding 6 3/8% convertible
subordinated debentures having a principal value of $212.5 million. For fiscal
1996 and 1994, the net income (loss) per share is the same for both primary and
fully diluted, as the convertible subordinated debt is anti-dilutive.
Cash equivalents and marketable securities: The Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
The Company has classified its entire investment portfolio as
available-for-sale. Available-for-sale securities are carried at fair value,
with material unrealized gains and losses reported in shareholder's equity. The
amortized cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
income along with interest earned. Realized gains or losses and declines in
value judged to be other-than-temporary on available-for-sale securities are
reported as investment income or investment expense. The cost of securities sold
is based on the specific identification method.
Concentration of credit risk: The Company performs ongoing credit evaluations of
its customers' financial condition and generally requires no collateral from its
customers. The Company maintains reserves for potential credit losses and such
losses have historically been within management's expectations.
The Company invests its excess cash in deposits with major banks and in money
market and short-term debt securities of companies with strong credit ratings
from a variety of industries. These securities generally mature
29
<PAGE> 30
within 365 days and, therefore, bear minimal risk. The Company has not
experienced any material losses on its investments. The Company, by Corporate
policy, limits the amount of credit exposure to any one issuer and to any one
type of investment.
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined on a first-in, first-out basis.
Property, plant and equipment: Property, plant and equipment are stated at cost,
with plant and equipment depreciated using the straight-line method over the
estimated useful lives of the assets, which range from three to twenty-five
years. Amortization of leasehold improvements is computed over the useful life
of the improvements or the terms of their respective leases, whichever is
shorter. Land is not depreciated.
Long-lived assets: Effective April 1, 1995, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The cumulative effect of adopting SFAS 121 as of April 1, 1995,
and the impact on results of operations for the year ended March 31, 1996, were
immaterial.
Purchased intangibles: Intangible assets were acquired primarily as a result of
the Digital acquisition on October 3, 1994. Intangible assets include completed
technology, work force in place, a supply agreement and customer lists related
to the Digital acquisition. The assets are being amortized over their estimated
useful lives, which range from three to ten years. The accumulated amortization
at March 31, 1996, and March 31, 1995, was $39.8 million and $13.4 million,
respectively. Intangible assets are reviewed for impairment whenever events or
circumstances indicate an impairment might exist, or at least annually.
Warranty expense: The Company generally warrants its products against defect for
a period of one to five years. A provision for estimated future costs relating
to warranty expense is recorded when products are shipped.
Advertising expense: The Company accrues for cooperative advertising as the
related revenue is earned, and other advertising expense is recorded as
incurred. Advertising expense for the years ended March 31, 1996, 1995 and 1994,
was $25.1 million, $19.8 million and $9.3 million, respectively.
Stock-based compensation: SFAS No. 123, "Accounting for Stock-based
Compensation," was issued in October 1995. SFAS 123 allows the Company to
account for its stock-based employee compensation plans using either a fair
value based method or the intrinsic value based method currently followed by the
Company. Under the current method, SFAS 123 requires certain additional
disclosures regarding the impact which the fair value based method would have on
the results of the Company's operations. The Company expects to adopt SFAS 123
in fiscal 1997 through disclosure only and, therefore, the adoption is not
expected to have any material impact on the Company's results of operations.
Risks and uncertainties: The Company's business entails a number of risks. As is
typical in the disk drive industry, the Company's customer base is concentrated
with a small number of systems manufacturers and the Company is not able to
predict whether there will be any significant change in the demand for its
customers' products. Sales of a limited number of desktop and portable storage
products represent a significant majority of the Company's sales, and due to
rapid technological change in the industry, the Company's future depends on its
ability to develop and successfully introduce new products. Quantum utilizes a
third party, Matsushita-Kotobuki Electronics Industries, Ltd. ("MKE"), to
manufacture a substantial majority of the products it sells. The Company relies
on MKE's ability to bring new products rapidly to volume production and to meet
stringent quality standards. If MKE were unable to satisfy Quantum's production
requirements, the Company would not have an alternative source to meet the
demand for its products without substantial delay and disruption to its
operations. In addition, the actual results with regard to warranty expenditures
could have a material unfavorable impact on the Company if the actual rate of
unit failure or the cost to repair a unit is greater than what the Company has
used in estimating the warranty expense accrual.
Accounting estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from those estimates.
30
<PAGE> 31
NOTE 2: FINANCIAL INSTRUMENTS
AVAILABLE-FOR-SALE SECURITIES
<TABLE>
<CAPTION>
Cost (In thousands)
March 31,
-----------------------
1996 1995
-----------------------
<S> <C> <C>
Corporate commercial paper and bank notes $48,766 $ 31,270
Certificates of deposit - 85,000
U.S. Treasury securities and obligations of U.S. government agencies 2,499 9,995
Other 175 149
------- --------
$51,440 $126,414
=======- ========
</TABLE>
The gross unrealized gains and gross unrealized losses at March 31, 1996, and
March 31, 1995, were immaterial to the Company and, therefore, no amounts were
recorded to shareholders' equity. There were no sales of available-for-sale
securities during fiscal 1996. Proceeds from sales of available-for-sale
securities during fiscal 1995 were $6.2 million and gross realized gains and
losses were immaterial. At March 31, 1996, the average available-for-sale
portfolio duration was approximately 15 days and the securities had maturities
of 90 days or less.
DERIVATIVE FINANCIAL INSTRUMENTS
During the period covered by the financial statements, the Company has not used
any derivative instrument for trading purposes.
The Company invests its excess cash in various interest bearing instruments and
also has various borrowings which bear interest. During the period covered by
the financial statements, the Company has not used derivative instruments to
manage interest rate fluctuations.
Although the majority of the Company's transactions are denominated in U.S.
dollars, its global operations have resulted in some foreign currency exchange
rate fluctuation exposure. The Company utilizes foreign currency forward
exchange contracts to minimize the effects of exchange rate fluctuations arising
from certain intercompany receivable/payable transactions. The gains and losses
from market rate changes on these contracts, which are intended to offset the
gains and losses on the underlying recorded receivables/payables, are recorded
currently in the statement of operations. During the period covered by the
financial statements, the Company has not utilized derivative instruments to
manage either foreign currency firm commitments or foreign currency anticipated
transactions.
At March 31, 1996, the Company held foreign currency forward contracts with
maturities between April 5, 1996, and May 31, 1996, to sell 3.7 billion yen for
$36.2 million. The fair value of the yen underlying these instruments at March
31, 1996, totaled $34.5 million. At March 31, 1995, the Company held foreign
currency forward contracts to sell 2.5 billion yen for $26.2 million. The fair
value of the yen underlying these instruments at March 31, 1995, totaled $28.9
million.
31
<PAGE> 32
CARRYING AMOUNT AND FAIR VALUES OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
March 31,
------------------------------------------------
(In millions) 1996 1995
------------------------------------------------
Carrying Fair Carrying Fair
amount value amount value
-------- ------ --------
<S> <C> <C> <C> <C>
Cash and cash equivalents $164.8 $164.8 $187.8 $187.8
Foreign currency contracts gain (loss) $ 1.7 $ 1.7 $ (2.7) $ (2.7)
Borrowings:
Convertible subordinated debt $374.3 $387.7 $212.5 $207.2
Revolving credit line $210.0 $210.0 $ 40.0 $ 40.0
Term loan -- -- $125.0 $125.0
Equipment loan $ 18.0 $ 18.0 -- --
</TABLE>
The fair values for cash equivalents and marketable securities represent the
quoted market prices at the balance sheet dates. The fair values for foreign
currency forward contracts represent the difference between the contracted
forward rate and the quoted fair value of the underlying yen at the balance
sheet dates. Fair values for the convertible subordinated debt are based on the
quoted market price at the balance sheet dates. Fair values for the revolving
credit agreement and term loan approximate their carrying amounts since interest
rates on these borrowings are adjusted periodically to reflect market interest
rates. The equipment loan was entered into shortly before March 31, 1996, at a
market interest rate.
NOTE 3: INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
March 31,
---------------------------
(In thousands) 1996 1995
---------------------------
<S> <C> <C>
Materials and purchased parts $ 119,984 $ 116,732
Work in process 98,591 42,091
Finished goods 240,963 165,827
--------- ---------
$ 459,538 $ 324,650
========= =========
</TABLE>
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of:
<TABLE>
<CAPTION>
(In thousands) March 31,
-----------------------------
1996 1995
-----------------------------
<S> <C> <C>
Machinery and equipment $ 309,717 $ 241,926
Furniture and fixtures 55,505 43,347
Buildings and leasehold improvements 152,749 107,433
Land 7,474 7,224
--------- ---------
525,445 399,930
Less accumulated depreciation and amortization (161,334) (119,831)
--------- ---------
$ 364,111 $ 280,099
========= =========
</TABLE>
32
<PAGE> 33
NOTE 5: CREDIT AGREEMENTS
The Company has a one-year $85 million unsecured Letter of Credit facility with
certain banks to issue standby letters of credit to MKE and its affiliates,
which expires in September 1996. As of March 31, 1996, there was no outstanding
balance under this letter of credit facility.
NOTE 6: LONG-TERM DEBT
In October 1994, the Company entered into a three year $350 million senior
credit facility structured as a $225 million revolving credit line and a $125
million term loan. As subsequently amended, the revolving credit line has been
increased to $325 million and has been extended one year to expire in September
1998. The revolving credit is governed by a borrowing base of eligible accounts
receivable and inventory, and the term loan was to amortize in five equal
semiannual installments that commenced in October 1995. In February 1996, the
remaining outstanding balance on the term loan was paid in full with proceeds of
the issuance of the convertible subordinated notes discussed below. The
revolving borrowings, at the option of the Company, bear interest at either
LIBOR plus a margin or a base rate with option periods of one to six months. The
facility is secured by all the Company's domestic assets and 66% of the
Company's ownership of certain of its subsidiaries.
As of March 31, 1996, total borrowings under the revolving credit line were $210
million with a weighted average interest rate of approximately 7.5%. The maximum
amount outstanding during the year under the senior credit facility was $405
million and the average amount outstanding for the year was approximately $275
million. The total weighted average interest rates on the bank debt for the
years ended March 31, 1996 and 1995, were 8.3% and 8.0%, respectively. Financial
covenants related to the senior credit facility include but are not limited to
the following ratios: fixed charge coverage ratio, debt service coverage ratio
and quick ratio. The Company's debt agreement currently prohibits the Company
from paying dividends while the debt is outstanding. The Company was not in
compliance with three of the financial covenants in connection with its senior
credit facility as of March 31, 1996; however, the company has received a waiver
of this non-compliance for the period ended March 31, 1996. In addition, the
financial covenant requirements for future periods have been amended.
In March 1996, the Company entered into an $18 million term loan facility to
finance certain capital equipment. The facility amortizes over three years at a
fixed interest rate of 7.63% and payments are made on a quarterly basis. The
facility is secured by specified capital equipment.
In February 1996, the Company issued approximately $241 million of 5%
convertible subordinated notes (the "Notes") in a privately placed offering. The
Notes are due March 1, 2003, and are subordinated to all existing and future
senior indebtedness of the Company. Each Note is convertible at the option of
the holder into the Company's common stock at a conversion price of $22.32 per
share. The Notes are redeemable at the Company's option on or after March 3,
1998, and prior to March 3, 2000, under certain conditions related to the price
of the Company's common stock. Subsequent to March 3, 2000, the Notes are
redeemable at the Company's option at any time. Redemption prices range from
103.571% of the principal to 100% at maturity.
In April 1992, the Company issued $212.5 million of 6 3/8% convertible
subordinated debentures. Each debenture is convertible, at the option of the
holder, into the Company's common stock at a conversion price of $18.15 per
share. The debentures became redeemable at the Company's option on April 2,
1995, at prices ranging from 104.5% of the principal to 100% at maturity. The
debentures are due April 1, 2002, and are subordinated to all existing and
future senior indebtedness of the Company. During fiscal 1996, $79,567,000, or
approximately 37%, of the outstanding debentures were converted into the
Company's common stock. This conversion resulted in the issuance of 4,383,477
shares.
Payments required on long-term debt outstanding at March 31, 1996, are: $4.1
million in fiscal 1997, $5.9 million in fiscal 1998, $216.3 million in fiscal
1999 and $1.7 million in fiscal 2000.
33
<PAGE> 34
NOTE 7: SHAREHOLDERS' EQUITY
1993 Long-Term Incentive Plan: The Company has a Long-Term Incentive Plan (the
"Plan") which provides for the issuance of stock options, stock appreciation
rights, stock purchase rights and long-term performance awards. The Plan has
available and reserved for issuance 4.8 million shares and allows for an annual
increase in the number of shares available for issuance, subject to a
limitation. Available for grant as of March 31, 1996, were 488,000 shares.
During fiscal 1996, the Company recorded compensation expense of $889,000
related to 298,000 shares of restricted stock granted pursuant to stock purchase
rights under the Plan. No grants of restricted stock were made under the Plan
prior to fiscal 1996. During fiscal 1996, additional compensation expense of
$370,000 was recorded in relation to accelerated stock options under the Plan.
A summary of transactions relating to the 1993 Long-Term Incentive Plan follows:
<TABLE>
<CAPTION>
(In thousands) Year ended March 31,
--------------------------------------------------------------------------
1996 1995
--------------------------------------------------------------------------
Options Price Options Price
------- ----- ------- -----
<S> <C> <C> <C> <C>
Outstanding beginning of
period 3,086 $ 9.875 - 15.50 1,012 $ 9.875 - 15.50
Granted 2,444 $ .01 - 22.875 2,294 $ 12.875 - 14.25
Canceled (475) $ 9.875 - 22.875 (158) $ 9.875 - 15.50
Exercised (722) $ .01 - 15.625 (62) $ 9.875 - 12.875
----- ------------------- ----- -----------------
Outstanding end of period 4,333 $ .01 - 22.875 3,086 $ 9.875 - 15.50
===== =====
Exercisable end of period 1,270 764
===== =====
</TABLE>
Stock Option Plans: The Company has Stock Option Plans (the "Plans") under which
an aggregate of 4.1 million shares of common stock have been reserved for future
issuance. Options under the Plans are granted at prices determined by the Board
of Directors, but at not less than the fair market value, and expire ten years
from the date of grant; accordingly no compensation accounting has been required
at the original date of grant. Compensation expense of $155,000 was recorded in
fiscal 1996 on accelerated stock options under the Plans. Options generally vest
ratably over one to four years. At March 31, 1996, options with respect to
81,000 shares were available for grant.
A summary of transactions relating to the Plans' outstanding stock options
follows:
<TABLE>
<CAPTION>
(In thousands) Year ended March 31,
-------------------------------------------------------------------
1996 1995
-------------------------------------------------------------------
Options Price Options Price
------- ----- ------- -----
<S> <C> <C> <C> <C>
Outstanding beginning of
period 4,966 $ .82 - 16.00 5,914 $ .82 - 16.00
Granted 820 $16.875 - 24.50 38 $ 15.6875
Canceled (151) $ 8.50 - 17.50 (353) $ 8.50 - 12.50
Exercised (1,595) $ .82 - 16.00 (633) $ 2.00 - 13.75
----- ----------------- ----- -----------------
Outstanding end of period 4,040 $ 2.00 - 24.50 4,966 $ .82 - 16.00
===== =====
Exercisable end of period 2,837 2,934
===== =====
</TABLE>
Stock Purchase Plan: The Company has an employee stock purchase plan (the
"Purchase Plan") under which 8.5 million shares of common stock have been
reserved for issuance. The Purchase Plan is qualified under Section 423 of the
Internal Revenue Code. The plan allows for the purchase of stock at 85% of the
fair market value at the date of grant or the exercise date, whichever is less.
During fiscal 1996, 1995 and 1994, 1,338,000, 869,000 and 735,000 shares,
respectively, were issued under this plan.
34
<PAGE> 35
Shareholder Rights Plan: The Company has a shareholder rights plan (the "Rights
Plan") which provides existing shareholders with the right to purchase 1/100
preferred share for each common share held in the event of certain changes in
the Company's ownership. The Rights Plan may serve as a deterrent to takeover
tactics which are not in the best interests of shareholders.
NOTE 8: RESTRUCTURING AND OTHER EXPENSES
On January 30, 1996, the Company committed to transition manufacturing of its
high-capacity products to MKE. The Company's intention is to cease its
manufacturing of these products and complete the shut-down of the related
facilities by September 1996. The Company plans to continue manufacturing
certain of the high-capacity products until that time in order to utilize
components either on-hand or under firm committed orders. When the planned
production is completed, related manufacturing work forces will be reduced. The
Company intends to sell or dispose of certain facilities and equipment carried
at a fair value of approximately $30 million, net of estimated cost to dispose,
which are associated with the high-capacity manufacturing facilities located in
Penang, Malaysia and Milpitas, California. A buyer is being sought for the
manufacturing building in Malaysia; however, the Company cannot predict when a
sale might be completed. The fair value of the building was estimated based on a
market study.
In connection with the plan, the Company recorded a restructuring charge of $209
million, pre-tax, in the fourth quarter of fiscal 1996. Among other things, the
charge provides for costs associated with: employee termination benefits for
approximately 2,250 employees associated with the high-capacity product
manufacturing process; the difference between the carrying value and estimated
current fair value on disposal of high-capacity manufacturing property and
equipment; and incremental impairments in the carrying value of certain
high-capacity product inventories and losses on supplier commitments arising
directly from the decision to stop manufacturing, as follows:
<TABLE>
<CAPTION>
(In millions)
<S> <C>
Employee termination benefits $ 10
Write-down of capital assets to fair value 45
Write-down of inventories to net realizable value and
losses on supplier commitments 144
Other exit costs 10
----
$209
====
</TABLE>
The restructuring accrual at March 31, 1996, is comprised of approximately $83
million related to product transition costs, such as excess purchase commitments
and costs to complete existing inventory in excess of recoverable value,
approximately $10 million related to employee termination benefits, and
approximately $10 million in other estimated exit costs. There were no
significant cash expenditures associated with the exit plan in fiscal 1996. It
is expected that approximately $97 million of cash expenditures related to the
restructuring will occur during the first half of fiscal 1997.
The actual results with regard to this restructuring charge could vary in the
event that demand for the current high-capacity products declines faster than
expected, resulting in additional excess inventory, or if greater than expected
costs are incurred in closing the Company's high-capacity manufacturing
operations. In addition, the transition of the high-capacity manufacturing
operations to MKE entails several risks. The high-capacity products are more
complex to manufacture than the desktop products and MKE has not previously
manufactured any significant amount of the high-capacity products. This
transition also requires the successful introduction of new products during
fiscal 1997 which are currently still in development.
35
<PAGE> 36
During fiscal 1994, the Company recorded $22.8 million in restructuring and
other charges to operations. The charge was comprised of the following
components:
<TABLE>
<CAPTION>
(In millions)
<S> <C>
Write-off of Plus Development goodwill and certain
Plus Development inventory $ 7.7
Reduction in force 1.5
Accelerated product transitions 8.0
Consolidation of sales offices and other facilities 5.1
Other 0.5
-----
$22.8
=====
</TABLE>
At March 31, 1994, all of the activities contemplated in the $22.8 million of
restructuring and other charges had been completed and no material amount of the
accrual remained.
NOTE 9: SAVINGS AND INVESTMENT PLAN
Substantially all of the regular domestic employees are eligible to make
contributions to the Company's 401(k) savings and investment plan. The Company
matches a percentage of the employee's contributions and may also make
additional discretionary contributions to the plan. Prior to October 1, 1994,
all of the Company's matching contributions were discretionary. Company
contributions were $4.0 million in fiscal 1996, $1.1 million in fiscal 1995, and
$.3 million in fiscal 1994.
NOTE 10: INCOME TAXES
The income tax provision computed under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," consists of the following:
<TABLE>
<CAPTION>
(In thousands) Year ended March 31,
--------------------------------------------
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
Federal: Current $(31,160) $31,896 $(10,396)
Deferred (44,686) (751) 4,805
-------- ------- --------
(75,846) 31,145 (5,591)
-------- ------- --------
State: Current 9,691 19,386 3,965
Deferred (9,691) (5,571) (3,219)
-------- ------- --------
- 13,815 746
-------- ------- --------
Foreign: Current 24,926 23,528 1,244
Deferred 38 (4,774) 4,590
-------- ------- --------
24,964 18,754 5,834
-------- ------- --------
Income tax provision $(50,882) $ 63,714 $ 989
======== ======== =========
</TABLE>
The tax benefits associated with nonqualified stock options, disqualifying
dispositions of stock options and employee stock purchase plan shares reduce
taxes currently payable as shown above by $8.5 million, $1.6 million and $5.4
million in fiscal 1996, 1995 and 1994, respectively. Such benefits are credited
to capital in excess of par value when realized.
The Company's income tax provision differs from the amount computed by applying
the Federal statutory rates of 35% to income before income taxes as follows:
36
<PAGE> 37
<TABLE>
<CAPTION>
(In thousands) Year ended March 31,
------------------------------------------
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Tax at federal statutory rate $(49,468) $50,857 $ 1,282
State income tax, net of federal benefit - 8,980 485
Amortization and write-off of goodwill - 68 2,386
Foreign earnings taxed at less than U.S. rates (3,545) (9,447) (3,007)
Federal valuation allowance (4,855) 13,286 -
Other 6,986 (30) (157)
-------- ------- --------
$(50,882) $63,714 $ 989
======== ======= ========
Effective tax rate 36% 44% 27%
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
(In thousands) Year ended March 31,
--------------------------
1996 1995
--------------------------
<S> <C> <C>
Deferred tax assets
Inventory valuation methods $ 56,728 $ 30,009
Accrued warranty expense 8,768 10,514
Allowance for doubtful accounts 3,610 4,163
Distribution reserves 6,283 5,439
Restructuring reserve 35,776 --
Other accruals and reserves not currently deductible for tax purposes 11,470 5,868
Depreciation methods 21,819 5,750
Amortization methods 20,597 18,415
Federal and state valuation allowance (15,224) (16,347)
--------- ---------
149,827 63,811
Deferred tax liabilities
Tax on unremitted foreign earnings net of foreign tax credits and
foreign deferred taxes (36,619) (12,836)
Other (14,815) (6,921)
--------- ---------
(51,434) (19,757)
--------- ---------
Net deferred tax asset $ 98,393 $ 44,054
========= =========
</TABLE>
For financial reporting purposes, the Company has provided a valuation allowance
for certain deferred tax assets that are expected to reverse over a 15 year
period. The Company believes that the valuation allowance is needed to reduce
the deferred tax asset to an amount that is more likely than not to be realized.
The valuation allowance increased (decreased) by $(1.1) million and $16.3
million for the years ended March 31, 1996 and 1995, respectively.
Pretax income from foreign operations was $124.3 million, $113.6 million and
$49.2 million for the years ended March 31, 1996, 1995 and 1994, respectively.
U.S. taxes have not been provided for unremitted foreign earnings of $156.9
million. The residual U.S. tax liability if such amounts were remitted would be
approximately $39 million.
37
<PAGE> 38
NOTE 11: LITIGATION
On February 26, 1993, Quantum commenced a declaratory judgment lawsuit against
Rodime PLC of Glasgow, Scotland, in the U.S. District Court for the District of
Minnesota. Rodime counterclaimed by asserting that certain Quantum 3.5-inch hard
disk drive products infringed its U.S. Patent No. 4,638,383 and sought royalty
payments under that patent. The United States District Court entered a summary
judgment in Quantum's favor, ruling that claims of the Rodime patent were
invalid because of impermissible broadening in reexamination proceedings. This
summary judgement was affirmed on September 22, 1995, by the U.S. Court of
Appeals for the Federal Circuit. On April 29, 1996, the United States Supreme
Court declined to review this decision. This ruling, now final, is fully
dispositive of Quantum's dispute with Rodime.
The Company is also subject to other legal proceedings and claims which arise in
the ordinary course of its business. While management currently believes the
amount of ultimate liability, if any, with respect to these actions will not
materially affect the financial position, results of operations or liquidity of
the Company, the ultimate outcome of any litigation is uncertain. Were an
unfavorable outcome to occur, the impact could be material to the Company.
NOTE 12: COMMITMENTS
The Company leases its present facilities under non-cancelable operating lease
agreements for periods of up to fifteen years. Some of the leases have renewal
options ranging from one to ten years and contain provisions for maintenance,
taxes or insurance.
Rent expense was $29.7 million, $18.8 million and $12.1 million for the years
ended March 31, 1996, 1995 and 1994, respectively.
Future minimum lease payments under operating leases are as follows:
<TABLE>
<CAPTION>
(In thousands)
Year ended March 31,
<S> <C>
1997 $ 19,914
1998 17,994
1999 17,085
2000 14,540
2001 12,627
Thereafter 64,256
--------
Total future minimum lease payments $146,416
========
</TABLE>
The amounts above include $11.4 million for payments due on a lease in
Louisville, Colorado which were provided for in the Digital exit accrual (see
Note 14). In addition, the Company has committed to purchase for $15 million a
building currently under construction in Louisville. The Company expects to
occupy the building in August 1996.
NOTE 13: BUSINESS SEGMENT AND FOREIGN OPERATIONS
The Company is engaged in a single business segment consisting of the design,
manufacture and marketing of information storage products, including
high-performance, high-quality 3.5-inch hard disk drives; economical,
high-capacity 5.25-inch hard disk drives; high-capacity, high-performance
DLT(TM) tape drive products; and solid state disk drives. The Company also
manufactures recording heads for use in its products.
A significant percentage of the Company's sales are made to customers in
non-U.S. locations and a majority of the Company's products are manufactured by
MKE in Japan, Singapore and Ireland. Quantum also operates a repair facility in
Malaysia, a repair and distribution center in Ireland, and manufacturing plants
in Malaysia and Indonesia.
38
<PAGE> 39
As a result, the Company is subject to risks associated with foreign operations,
such as obtaining governmental permits and approvals, currency exchange
fluctuations, currency restrictions, political instability, labor problems,
trade restrictions and changes in tariff and freight rates.
During fiscal 1994, the Company began operations in its European headquarters.
Prior to fiscal 1994, export sales from domestic operations accounted for a
significant portion of the Company's sales. Export sales for fiscal 1996 and
1995 were less than 10% of consolidated sales. Following is a table that
summarizes U.S. export sales to certain geographic areas for the year ended
March 31, 1994:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Europe $140,000
Asia-Pacific 59,000
Other 21,000
--------
$220,000
========
</TABLE>
Information on operations by geographic area is presented in the tables below.
Transfers between geographic areas are accounted for at amounts which are
generally above cost and are eliminated in the consolidated financial
statements. Identifiable assets are those assets that can be directly associated
with a particular geographic location. Operating income (loss) by geographic
area does not include an allocation of general corporate expenses.
FISCAL 1996
<TABLE>
<CAPTION>
Geographic Area
-------------------------------------
Rest of
(In millions) U.S. Europe World Corp. Eliminations Total
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers $ 2,141 $ 2,121 $ 161 - - $ 4,423
Transfers between geographic
locations 461 66 - - $ (527) -
------- ------- ------- ------- ------- ------
Total net sales $ 2,602 $ 2,187 $ 161 - $ (527) $ 4,423
Operating income (loss) $ (167) $ 337 $ (117) $ (166) - $ (113)
Identifiable assets $ 1,163 $ 578 $ 189 $ 45 - $ 1,975
</TABLE>
FISCAL 1995
<TABLE>
<CAPTION>
Geographic Area
-------------------------------------
Rest of
(In millions) U.S. Europe World Corp. Eliminations Total
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers $1,596 $1,663 $ 109 - - $3,368
Transfers between geographic
locations 312 75 - - $ (387) -
------ ------ ------ ------ -------- ------
Total net sales $1,908 $1,738 $ 109 - $ (387) $3,368
Operating income (loss) $ 56 $ 294 $ (3) $ (186) - $ 161
Identifiable assets $ 917 $ 429 $ 100 $ 35 - $1,481
</TABLE>
39
<PAGE> 40
FISCAL 1994
<TABLE>
<CAPTION>
Geographic Area
-------------------------------------
Rest of
(In millions) U.S. Europe World Corp. Eliminations Total
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers $1,218 $ 837 $ 76 - - $2,131
Transfers between geographic
locations 261 77 - - $(338) -
------ ------ ----- ----- ------ ------
Total net sales $1,479 $ 914 $ 76 - $(338) $2,131
Operating income (loss) $ 4 $ 120 $ (4) $(110) - $ 10
Identifiable assets $ 666 $ 252 $ 53 $ 26 - $ 997
</TABLE>
One major customer accounted for 12%, 16%, and 10% of consolidated sales in
1996, 1995 and 1994, respectively. In addition, another customer accounted for
11%, 12% and 22% of consolidated sales in 1996, 1995 and 1994, respectively.
NOTE 14: ACQUISITION OF BUSINESSES FROM DIGITAL EQUIPMENT CORPORATION
On October 3, 1994, Quantum Corporation ("Quantum" or "the Company") acquired
the Hard Disk Drive, Heads and Tape Drives Businesses of the Storage Business
Unit of Digital Equipment Corporation ("the Acquired Businesses"), in a
transaction accounted for as a purchase. The operating results of the Acquired
Businesses have been included in the consolidated statement of operations from
the date of acquisition.
The purchase price was finalized during the second quarter of fiscal 1996,
resulting in a $5.7 million reduction to the original contracted purchase price
of $355.2 million. The original price included direct costs of $4.7 million
incurred for investment banker and professional fees and other direct
incremental transaction costs. The purchase price reduction is reflected as a
$4.6 million reduction in inventories and a $1.1 million reduction in property
and equipment.
Recap of finalized purchase price allocation (in millions)
<TABLE>
<CAPTION>
<S> <C>
Inventories $142.1
Property and equipment 103.2
Intangible assets 106.1
Accrual for exit costs (34.9)
Other assets/liabilities, net (34.2)
Purchased research and development 67.2
------
$349.5
======
</TABLE>
Intangible assets include $79.5 million of completed technology and an aggregate
of $26.6 million for work force in place, a supply agreement and customer lists.
Completed technology and work force in place were assigned four year lives,
while the customer base was assigned a ten year life. The supply agreement was
assigned a life equal to the terms of the contractual agreement. Intangible
asset amortization totaled $26.5 million and $13.4 million in fiscal 1996 and
1995, respectively.
The accrual for exit costs included only those direct costs related to exiting
facilities and operations in Colorado acquired from Digital and did not include
any costs related to modifications of the previous Quantum business. The
components of the exit activities were as follows:
40
<PAGE> 41
<TABLE>
<CAPTION>
(In millions)
<S> <C>
Non-cancelable lease commitments after closure
and costs to "make new" as required by the lease $11.4
Reduction in force 7.7
Retention bonuses 4.5
Write-off of capital assets resulting from closures 9.3
Other 2.0
-----
$34.9
=====
</TABLE>
Except for approximately $12 million to exit the QPC lease arrangement assumed
in the Acquisition and termination benefits related to a small remaining work
force, the activities contemplated in the $34.9 million accrual for exit costs
have been completed at March 31, 1996, without a material change in the
estimated cost of such activities. During fiscal 1996, cash outlays related to
exit activity were $15.6 million. The future cash outlays related to the exit
accrual are estimated to be approximately $12 million and are expected to be
incurred in calendar 1996.
The $67.2 million allocated to purchased research and development was expensed
in fiscal 1995 as required under generally accepted accounting principles.
The unaudited pro forma combined condensed results of operations of the Company
for the twelve months ended March 31, 1995, and March 31, 1994, had the
Acquisition occurred at the beginning of the period and which eliminate the
non-recurring charges, are as follows:
<TABLE>
<CAPTION>
(In thousands except per share data) Twelve Months Ended
---------------------------------------
March 31, 1995 March 31, 1994
Pro Forma Pro Forma
---------------------------------------
<S> <C> <C>
Net sales $ 3,790,769 $ 2,956,307
Net income (loss) $ 75,877 $ (40,696)
Net income (loss) per share:
Primary $ 1.60 $ (0.94)
Fully diluted $ 1.29 $ (0.94)
</TABLE>
The unaudited pro forma results for the twelve months ended March 31, 1995, and
March 31, 1994, exclude the effects of the charge for purchased research and
development and other in merger costs of $73 million, as such amounts are
non-recurring. The pro forma results for the twelve months ended March 31, 1995,
and March 31, 1994, reflect intangible asset amortization, depreciation of
acquired fixed assets, amortization of loan fees and interest expense on the new
debt related to the Acquisition.
The unaudited pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results that would have
occurred had the transaction been completed at the beginning of the period
indicated, nor is it necessarily indicative of future operating results.
41
<PAGE> 42
NOTE 15: UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal 1996
-----------------------------------------------------------------------
(In thousands except per share data) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter(i)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 941,316 $ 1,033,048 $ 1,215,872 $ 1,232,491
Gross margin $ 124,489 $ 142,426 $ 113,955 $ 161,548
Net income (loss) $ 12,942 $ 22,025 $ (2,481) $ (122,942)
Net income (loss) per share
Primary $ 0.25 $ 0.39 $ (0.05) $ (2.28)
Fully diluted $ 0.24 $ 0.37 $ (0.05) $ (2.28)
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1995(ii)
-------------------------------------------------------------------
(In thousands except per share data) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 725,304 $ 726,169 $ 932,702 $ 983,809
Gross margin $ 146,077 $ 132,730 $ 135,255 $ 149,651
Net income (loss) $ 58,241 $ 48,603 $ (48,310) $ 23,057
Net income (loss) per share
Primary $ 1.24 $ 1.03 $ (1.06) $ .48
Fully diluted $ 1.03 $ .85 $ (1.06) $ .42
</TABLE>
(i) The results of operations for the fourth quarter of fiscal 1996 include
the effect of a $209 million charge related to the transition of
manufacturing for the Company's high-capacity products to MKE. See Note
8.
(ii) On October 3, 1994, Quantum acquired portions of Digital Equipment's
business. The acquisition is not reflected in the financial statements
prior to the third quarter of fiscal 1995, and thus the results for the
first and second quarters of fiscal 1995 are not comparable to the
later results. See Note 14.
42
<PAGE> 43
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to Part I,
Item 1 of this document and to the Company's Proxy Statement.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
With the exception of the information incorporated in Items 10, 11, 12 and 13 of
this Form 10-K Annual Report, the Company's definitive Proxy Statement for its
1996 Annual Meeting of Shareholders is not deemed "filed" as part of this Form
10-K Annual Report.
43
<PAGE> 44
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES - See Index
to Consolidated Financial Statements at Item 8 on page 23 of this
report.
2. EXHIBITS
Exhibit
Number
-------
2.1(a) (1) Stock and Asset Purchase Agreement by and among Quantum
Corporation, Quantum Peripherals (Europe) S.A. and Digital
Equipment Corporation, dated as of July 18, 1994
2.1(b) (1) Amendment No. 1 dated as of October 3, 1994, to the Stock and
Asset Purchase Agreement by and among Quantum Corporation,
Quantum Peripherals (Europe) S.A. and Digital Equipment
Corporation, dated as of July 18, 1994
2.1(c) (1) Supplemental agreement to the Stock and Asset Purchase
Agreement by and among Quantum Corporation, Quantum
Peripherals (Europe) S.A. and Digital Equipment Corporation,
dated as of July 18, 1994
2.2 (1) RMMI Stock Purchase Agreement, dated as of July 18, 1994,
among Quantum Corporation, Digital Equipment Corporation and
Rocky Mountain Magnetics, Inc
3.1(a) (2) Certificate of Incorporation of Registrant
3.1(b) (3) Certificate of Amendment of Certificate of Incorporation of
Registrant
3.2 (3) By-laws of Registrant, as amended
4.1 (4) Indenture between Registrant and LaSalle National Bank,
Trustee, covering $212.5 million of 6 3/8% Convertible
Subordinated Debentures due 2002 (including form of Debenture)
4.2 (5) Shareholder Rights Plan
10.7 (2) Registrant's 1984 Incentive Stock Option Plan and Agreement
10.8 (6) Registrant's 1986 Stock Option Plan and Agreement, as amended
10.9 (7) Registrant's Employee Stock Purchase Plan and form of
Subscription Agreement, as amended
44
<PAGE> 45
10.10 (8) Form of Indemnification Agreement between Registrant and
Certain Officers and Directors
10.11 (9) Agreement between Registrant and MKE
10.12 (10) (11) Purchase Agreement between Registrant and MKE
10.13 (12) Lease (dated October 13, 1989) between Registrant and John
Arrillaga and Richard T. Perry, Separate Property Trusts
10.14 (13) Lease (dated September 17, 1990) between Registrant and John
Arrillaga and Richard T. Perry, Separate Property Trusts
10.15 (3) Lease (dated April 10, 1992) between Registrant and John
Arrillaga and Richard T. Perry, Separate Property Trusts
10.17 (14) Form of Statement of Employment Terms executed by Stephen M.
Berkley, David A. Brown and William J. Miller, directors of
Registrant, and Joseph T. Rodgers, William F. Roach and
Michael A. Brown, executive officers of Registrant
10.18 (9) Lease (dated November 13, 1992) and First Amendment to Lease
(dated November 17, 1992) between Registrant and Milpitas
Realty Delaware, Inc.
10.20 (15) Third Amendment to the Purchase Agreement between Registrant
and MKE dated December 31, 1992
10.21 (16) 1993 Long-Term Incentive Plan
10.23 (17) Second Amendment (dated April 15, 1993) to Lease (dated
November 13, 1992) between Registrant and Milpitas Realty
Delaware, Inc.
10.24 (17) Lease (dated April 14, 1993) between Registrant and Milpitas
Realty Delaware, Inc.
10.25 (1) Patent Assignment and License Agreement, dated as of October
3, 1994, by and between Digital Equipment Corporation and
Quantum Corporation
10.27 (10)(18) Supply Agreement between Digital Equipment Corporation (Buyer)
and Quantum Corporation (Seller) for Storage Devices, as dated
as of October 3, 1994
10.28 (18) Credit Agreement among Quantum Corporation and The Banks named
herein and ABN AMRO BANK N.V., San Francisco International
Branch, BARCLAYS BANK PLC and CIBC INC. as Managing Agents for
the Banks, and CANADIAN IMPERIAL BANK OF COMMERCE as
Administrative Agent and Collateral Agent for the Banks dated
as of October 3, 1994
10.29 (19) First Amendment dated February 15, 1995, to Credit Agreement
(dated October 3, 1994), among Quantum Corporation and The
Banks named herein and ABN AMRO BANK N.V., San Francisco
International
45
<PAGE> 46
Branch, BARCLAYS BANK PLC and CIBC INC. as Managing Agents for
the Banks, and CANADIAN IMPERIAL BANK OF COMMERCE as
Administrative Agent and Collateral Agent for the Banks
10.30 (20) Second Amendment dated June 26, 1995 to Credit Agreement
(dated October 3, 1994), among Quantum Corporation and The
Banks named herein and ABN AMRO BANK N.V., San Francisco
International Branch, BARCLAYS BANK PLC and CIBC INC. as
Managing Agents for the Banks, and CANADIAN IMPERIAL BANK OF
COMMERCE as Administrative Agent and Collateral Agent for the
Banks
10.31(21) Third Amendment, dated September 29, 1995, to Credit Agreement
(dated October 3, 1994) among Quantum Corporation and The
Banks named herein and ABN AMRO BANK N.V., San Francisco
International Branch, BARCLAYS BANK PLC and CIBC INC. as
Managing Agents for the Banks, and CANADIAN IMPERIAL BANK OF
COMMERCE as Administrative Agent and Collateral Agent for the
Banks.
10.32 (21) Credit Agreement dated September 22, 1995, among Quantum
Corporation and the Banks named therein and THE SUMITOMO BANK,
LIMITED, acting through its San Francisco branch, as Agent for
the Banks and as Issuer
10.33 (21) Lease Agreement, dated August 31, 1995, between CRAY COMPUTER
CORPORATION, as Landlord, and QUANTUM CORPORATION, as Tenant
10.34 (22) Lease Agreement, dated August 22, 1995, between QD INVESTORS,
as Landlord, and QUANTUM CORPORATION, as Tenant
10.35 Fourth Amendment, dated January 29, 1996, to Credit Agreement
(dated October 3, 1994) among Quantum Corporation and The
Banks named herein and ABN AMRO BANK N.V., San Francisco
International Branch, BARCLAYS BANK PLC and CIBC INC. as
Managing Agents for the Banks, and CANADIAN IMPERIAL BANK OF
COMMERCE as Administrative Agent and Collateral Agent for the
Banks
10.36 Indenture dated as of February 15, 1996, between Quantum
Corporation and LaSalle National Bank, as trustee, covering 5%
Convertible Subordinated Notes due 2003.
10.37 Fifth Amendment, dated May 29, 1996, to Credit Agreement
(dated October 3, 1994) among Quantum Corporation and The
Banks named herein and ABN AMRO BANK N.V., San Francisco
International Branch, BARCLAYS BANK PLC and CIBC INC. as
Managing Agents for the Banks, and CANADIAN IMPERIAL BANK OF
COMMERCE as Administrative Agent and Collateral Agent for the
Banks
10.38 Consulting and Release Agreement dated as of November 1, 1995,
between William J. Miller and Quantum Corporation
11 Statement of Computation of Earnings Per Share
46
<PAGE> 47
12 Statement of Computation of Ratios of Earnings to Fixed
Charges
21 Subsidiaries of Registrant
23 Consent of Ernst & Young LLP, Independent Auditors
24 Power of Attorney. See page 49.
27 Financial Data Schedule
- ------------------------------
(1) Incorporated by reference from Form 8-K filed with the
Securities and Exchange Commission on October 17, 1994.
(2) Incorporated by reference from Annual Report on Form 10-K for
Registrant's fiscal year ended March 31, 1987.
(3) Incorporated by reference from exhibits filed with
Registrant's Annual Report on Form 10-K for fiscal year ended
March 31, 1992.
(4) Incorporated by reference from Registration Statement No.
33-46387 on Form S-3.
(5) Incorporated by reference from Form 8-A filed with the
Securities and Exchange Commission on August 5, 1988.
(6) Incorporated by reference from exhibits filed with
Registrant's Form S-8, No. 33-52190 filed with the Securities
and Exchange Commission on September 21, 1992.
(7) Incorporated by reference from exhibits filed with
Registrant's Form S-8, No. 33-52192 filed with the Securities
and Exchange Commission on September 21, 1992.
(8) Incorporated by reference to the Registrant's Definitive
Special Meeting Proxy Statement filed with the Securities and
Exchange Commission on March 24, 1987.
(9) Incorporated by reference from exhibits filed with
Registrant's Form 10-Q for the quarterly period ended December
27, 1989, filed with the Securities and Exchange Commission on
February 10, 1993.
(10) Confidential Treatment Requested. Granted by the Securities
and Exchange Commission.
(11) Incorporated by reference from Annual Report on Form 10-K for
Registrant's fiscal year ended March 31, 1988.
(12) Incorporated by reference from exhibits filed with
Registrant's Form 10-Q for the quarterly period ended December
31, 1989, filed with the Securities and Exchange Commission on
February 14, 1990.
(13) Incorporated by reference from exhibits filed with
Registrant's Form 10-Q for the quarterly period ended December
30, 1990, filed with the Securities and Exchange Commission on
February 13, 1991.
(14) Incorporated by reference to the Registrant's Amendment No. 1
to Form 10-Q for the quarter ended June 30, 1991.
47
<PAGE> 48
(15) Incorporated by reference from Annual Report on Form 10-K for
Registrant's fiscal year ended March 31, 1993.
(16) Incorporated by reference from Registration Statement No.
33-72222 on Form S-8 filed with the Securities and Exchange
Commission on November 30, 1993.
(17) Incorporated by reference from exhibits filed with
Registrant's Annual Report on Form 10-K for fiscal year ended
March 31, 1994.
(18) Incorporated by reference from Form 8-K/A-1 filed with the
Securities and Exchange Commission on January 31, 1995.
(19) Incorporated by reference from exhibits filed with
Registrant's Annual Report on Form 10-K for fiscal year ended
March 31, 1995.
(20) Incorporated by reference from exhibits filed with
Registrant's Form 10-Q for the quarterly period ended July 2,
1995, filed with the Securities and Exchange Commission on
August 17, 1995.
(21) Incorporated by reference from exhibits filed with
Registrant's Form 10-Q for the quarterly period ended October
1, 1995, filed with the Securities and Exchange Commission on
November 20, 1995.
(22) Incorporated by reference from exhibits filed with
Registrant's Form 10-Q for the quarterly period ended December
31, 1995, filed with the Securities and Exchange Commission on
February 5, 1996.
(b) Reports on Form 8-K
(1) Form 8-K dated February 5, 1996, filed on February 8, 1996.
(2) Form 8-K dated February 15, 1996, filed on March 22, 1996.
(3) Form 8-K dated May 7, 1996, filed on May 8, 1996.
(c) Exhibits
See Item 14(a) above.
(d) Financial Statement Schedules
See Item 14(a) above.
48
<PAGE> 49
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.
QUANTUM CORPORATION
Dated: June 21, 1996 \s\ JOSEPH T. RODGERS
-----------------------
Joseph T. Rodgers
Executive Vice President, Finance
Chief Financial Officer and Secretary
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints G. Edward McClammy and Andrew Kryder, jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this Report on Form 10-K,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons in the capacities and on June 21,
1996.
<TABLE>
<CAPTION>
Signature Title
- ------------------------------------------------------------
<S> <C>
\s\ MICHAEL A. BROWN President, Chief Executive Officer and
- ------------------------------------- Director (Principal Executive Officer)
(Michael A. Brown)
\s\ JOSEPH T. RODGERS Executive Vice President, Finance, Chief
- ------------------------------------- Financial Officer and Secretary (Principal
(Joseph T. Rodgers) Financial and Accounting Officer)
\s\ STEPHEN M. BERKLEY Chairman of the Board
- -------------------------------------
(Stephen M. Berkley)
\s\ DAVID A. BROWN Director
- -------------------------------------
(David A. Brown)
\s\ ROBERT J. CASALE Director
- -------------------------------------
(Robert J. Casale)
\s\ EDWARD M. ESBER, JR. Director
- -------------------------------------
(Edward M. Esber, Jr.)
\s\ STEVEN C. WHEELWRIGHT Director
- -------------------------------------
(Steven C. Wheelwright)
</TABLE>
49
<PAGE> 50
QUANTUM CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at (reductions) Balance at
Classification beginning of charged to end of
(In thousands) period expense Deductions(i) period
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts year ended:
March 31, 1996 $ 11,962 $ (813) $ (652) $ 10,497
March 31, 1995 $ 9,391 $ 4,142 $ (1,571) $ 11,962
March 31, 1994 $ 8,118 $ 6,296 $ (5,023) $ 9,391
Accrued restructuring and exit costs
year ended: (ii)
March 31, 1996 $ 32,213 $ 116,187 $ (32,863) $ 115,537
March 31, 1995 $ 34,937 - $ (2,724) $ 32,213
</TABLE>
(i) For the allowance for doubtful accounts, deductions represent
write-offs, and for the accrued restructuring and exit costs,
deductions represent usage of the accrual.
(ii) Established October 3, 1994, when recording the Digital acquisition.
Additions in fiscal 1996 were related to the restructuring charge
resulting from the transition of the high-capacity product
manufacturing to MKE.
50
<PAGE> 1
EXHIBIT 10.35
EXECUTION COPY
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as
of January 29, 1996, is entered into by and among:
(1) QUANTUM CORPORATION, a Delaware corporation
("Borrower");
(2) Each of the financial institutions listed in Schedule
I to the Credit Agreement referred to in Recital A below, (such
financial institutions to be referred to herein collectively as the
"Banks");
(3) ABN AMRO BANK N.V., San Francisco International
Branch ("ABN"), BARCLAYS BANK PLC ("Barclays") and CIBC INC. ("CIBC"),
as managing agents for the Banks (collectively in such capacity, the
"Managing Agents");
(4) BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, THE FIRST NATIONAL BANK OF BOSTON, CHEMICAL BANK and THE
INDUSTRIAL BANK OF JAPAN, LIMITED, as co-agents for the Banks; and
(5) CANADIAN IMPERIAL BANK OF COMMERCE, as administrative
and collateral agent for the Banks (in such capacities, the
"Administrative Agent"); ABN, as syndication agent for the Banks; and
Barclays, as documentation agent for the Banks.
RECITALS
A. Borrower, the Banks, Managing Agents and Administrative Agent
are parties to a Credit Agreement dated as of October 3, 1994, as amended by a
First Amendment to Credit Agreement dated as of February 15, 1995, a Second
Amendment to Credit Agreement dated as of June 26, 1995 and a Third Amendment to
Credit Agreement dated as of September 29, 1995 (as so amended, the "Credit
Agreement"), pursuant to which the Banks have provided certain credit facilities
to Borrower.
B. Borrower has requested the Banks, Managing Agents and
Administrative Agent to amend the Credit Agreement in certain respects and to
waive an Event of Default which has occurred under the Credit Agreement.
C. The Banks, Managing Agents and Administrative Agent are
willing so to amend the Credit Agreement and to provide such waiver upon the
terms and subject to the conditions set forth below.
<PAGE> 2
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, the Banks, Managing Agents and Administrative Agent
hereby agree as follows:
1. DEFINITIONS, INTERPRETATION. All capitalized terms defined
above and elsewhere in this Amendment shall be used herein as so defined. Unless
otherwise defined herein, all other capitalized terms used herein shall have the
respective meanings given to those terms in the Credit Agreement, as amended by
this Amendment. The rules of construction set forth in Section I of the Credit
Agreement shall, to the extent not inconsistent with the terms of this
Amendment, apply to this Amendment and are hereby incorporated by reference.
2. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of
the conditions set forth in paragraph 6 below, the Credit Agreement is hereby
amended as follows:
(a) Paragraph 1.01 is amended by changing the definitions
of the following terms set forth therein to read in their entirety as
follows:
"Debt Service Coverage Ratio" shall mean, with
respect to any Person for any period, the ratio, determined on
a consolidated basis in accordance with GAAP where applicable,
of;
(a) The Adjusted Net Income of such
Person and its Subsidiaries for such period;
to
(b) The sum of (i) all principal
payments on Indebtedness for borrowed money of such
Person and its Subsidiaries scheduled for payment
during the period of comparable length immediately
succeeding such period, (ii) fifty percent (50%) of
all Capital Expenditures of such Person and its
Subsidiaries for such period, and (iii) all dividends
paid by such Person and its Subsidiaries during such
period (excluding any dividends paid to such Person);
Provided, however, that:
(A) In calculating the Debt Service
Coverage Ratio of Borrower for the period January 1,
1995 through December 31, 1995, (1) the amount
utilized
2
<PAGE> 3
in clause (b)(i) above shall be the principal
payments on Indebtedness for borrowed money of
Borrower and its Subsidiaries scheduled for payment
during 1995, rather than 1996, and (2) the principal
payments on the Term Loans scheduled for payment
during 1995 shall be deemed to be the principal
payment due on the Term Loans on September 30, 1995
and one-half of the principal payment due on the Term
Loans on March 31, 1996; and
(B) In calculating the Debt Service
Coverage Ratio of Borrower for the consecutive
four-quarter periods ending on March 31, 1996, June
30, 1996 and September 29, 1996 for purposes of
clause (ii) of Subparagraph 5.02(m), the amount
calculated under clause (a) above for each such
period shall be increased by an amount equal to the
lesser of (1) the MKE Restructuring Charges and (2)
$175,000,000.
"Fixed Charge Coverage Ratio" shall mean, with
respect to any Person for any period, the ratio, determined on
a consolidated basis in accordance with GAAP where applicable,
of;
(a) The remainder of (i) EBITDA of such
Person and its Subsidiaries for such period, minus
(ii) fifty percent (50%) of all Capital Expenditures
of such Person and its Subsidiaries for such period;
to
(b) All Interest Expenses of such
Person and its Subsidiaries for such period;
Provided, however, that, in calculating the Fixed Charge
Coverage Ratio of Borrower for the consecutive four-quarter
periods ending on March 31, 1996, June 30, 1996 and September
29, 1996 for purposes of clause (i) of Subparagraph 5.02(m),
the amount calculated under clause (a) above for each such
period shall be increased by an amount equal to the lesser of
(A) the MKE Restructuring Charges and (B) $175,000,000.
(b) Paragraph 1.01 is further amended by adding thereto,
in the appropriate alphabetical order, the following definitions to
read in their entirety as follows:
"MKE Restructuring Charges" shall mean the charges
incurred by Borrower in the quarter ending March 31, 1996 in
connection with the subcontracting by Borrower to MKE of the
manufacture of high capacity disk drives.
3
<PAGE> 4
"Subordinated Debt Limit" shall mean, as of any date
of determination, the sum of the following:
(a) $600,000,000; and
(b) Fifty percent (50%) of the sum of
Borrower's consolidated quarterly net income
(ignoring any quarterly losses) for each quarter
after March 31, 1996 through and including the
quarter ending immediately prior to the determination
date.
(c) Subparagraph 5.02(a) is amended by changing clauses
(iii), (viii) and (xvii) thereof and the proviso after clause (xviii)
thereof to read in their entirety as follows:
(iii) Indebtedness under:
(A) Loans and Capital Leases incurred
by Borrower or any of its Subsidiaries to finance
real property, fixtures or equipment acquired by such
Person not more than forty-five (45) days prior to
such loans and Capital Leases, provided that (1) in
each case, such Indebtedness does not exceed the
purchase price of the property so financed and (2)
the aggregate amount of such Indebtedness outstanding
under this clause (A) at any time does not exceed
$40,000,000; and
(B) Loans and Capital Leases incurred
by Borrower or any of its Subsidiaries to finance
equipment acquired by such Person more than
forty-five (45) days prior to such loans and Capital
Leases, provided that (1) in each case, such
Indebtedness equals or exceeds the net book value of
the equipment so financed and (2) the aggregate
amount of such Indebtedness outstanding under this
clause (B) at any time does not exceed $40,000,000;
(viii) Indebtedness of Borrower to MKE, provided
that (A) such Indebtedness is subordinated to the Obligations
on terms and conditions no less favorable to the Agents and
Banks than those set forth on Exhibit R or as otherwise
approved by the Required Banks; (B) the Net Proceeds of such
Indebtedness are applied to prepay the Term Loans to the
extent required by Subparagraph 2.05(c); and (C) the aggregate
principal amount of all Subordinated Debt of Borrower
(including MKE Subordinated Debt) outstanding at any time does
not exceed the Subordinated Debt Limit at such time;
4
<PAGE> 5
(xvii) Indebtedness of Borrower (other than MKE
Subordinated Debt) which is subordinated to the Obligations,
provided that (A) the payment terms, interest rate,
subordination provisions and other terms of such Indebtedness
are approved by the Required Banks; (B) the Net Proceeds of
such Indebtedness are applied to prepay the Term Loans to the
extent required by Subparagraph 2.05(c); and (C) the aggregate
principal amount of all Subordinated Debt of Borrower
(including MKE Subordinated Debt) outstanding at any time does
not exceed the Subordinated Debt Limit at such time; and
Provided, however, that:
(1) The aggregate amount of Indebtedness
outstanding under clauses (iii)(A), (iii)(B) and (xviii) above
at any time does not exceed $80,000,000; and
(2) Notwithstanding the Permitted Indebtedness
set forth in clauses (i)-(xviii) above, Quantum Holdings shall
not create, incur, assume or permit to exist any Indebtedness,
any Guaranty Obligations or any other material liabilities
except for Indebtedness of Quantum Holdings to Borrower or any
of Borrower's other Subsidiaries to the extent permitted by
clause (xv) above.
(d) Subparagraph 5.02(b) is amended by changing clause
(vii) thereof to read in its entirety as follows:
(vii) Liens securing Indebtedness which
constitutes Permitted Indebtedness under clause (iii) of
Subparagraph 5.02(a) provided that, (A) in each case under
clause (A) thereof, such Lien covers only those assets, the
acquisition of which was financed by such Permitted
Indebtedness, (B) in each case under clause (B) thereof, such
Lien covers only the equipment which was financed by such
Permitted Indebtedness, and (C) in each case under both
clauses (A) and (B) thereof, such Lien secures only such
Permitted Indebtedness;
(e) Subparagraph 5.02(b) is further amended by adding
thereto, immediately following clause (xvi) thereof, a new sentence to
read in its entirety as follows:
If Borrower finances any equipment through a secured loan
permitted by clause (iii)(A) or (iii)(B) of Subparagraph
5.02(a) and clause (vii) of this Subparagraph 5.02(b),
Administrative Agent shall execute such reasonable
subordination, intercreditor and other agreements as Borrower
may request to subordinate the security interest of
Administrative
5
<PAGE> 6
Agent in the financed equipment to the security interest of
the new lender in such equipment.
(f) Subparagraph 5.02(c) is amended by changing clause
(ix) thereof to read in its entirety as follows:
(ix) Sales by Borrower and its Subsidiaries of
equipment or the property covered by the Borrower Mortgage in
sale and leaseback transactions, provided that, in the case of
equipment, such equipment is leased back by Borrower or its
Subsidiary, as the case may be, in a Capital Lease permitted
by clause (iii) of Subparagraph 5.02(a);
(g) Subparagraph 5.02(c) is further amended by (i)
changing the designation of clause (x) thereof to clause (xi) and (ii)
adding, immediately following clause (ix), a new clause (x) to read in
its entirety as follows:
(x) Sales, leases, transfers and other disposals
by Borrower and its Subsidiaries of assets and property in
connection with the subcontracting by Borrower to MKE of the
manufacture of high capacity disk drives, provided that all
charges relating to such sales, leases, transfers and
disposals are taken in the quarter ending March 31, 1996; and
(h) Subparagraph 5.02(g) is amended to read in its
entirety as follows:
(g) Capital Expenditures. Borrower and its
Subsidiaries shall not pay or incur (without duplication) in
any of the periods set forth below Capital Expenditures in an
aggregate amount which exceeds the amount set forth opposite
such period below (plus, during the first sixty (60) days of
any such period, any portion of such permitted amounts of
Capital Expenditures not paid or incurred during the
immediately preceding period):
<TABLE>
<S> <C>
Closing Date -
March 31, 1995....................... $100,000,000;
April 1, 1995 -
March 31, 1996....................... $225,000,000;
April 1, 1996 -
March 31, 1997....................... $175,000,000;
April 1, 1997 -
March 31, 1998....................... $175,000,000;
April 1, 1998 -
Revolving Loan Maturity Date......... $ 87,500,000.
</TABLE>
(i) Subparagraph 5.02(i) is amended by adding thereto,
immediately following clause (iii)(b) thereof, a new sentence to read
in its entirety as follows:
6
<PAGE> 7
Borrower shall not cause or permit the holders of any of its
obligations, except the holders of its Obligations under the
Credit Documents and its obligations under the Sumitomo LC
Agreement (and its obligations under any refinancings of
either upon the termination and repayment thereof), to have
the right to block payments under any of its Subordinated Debt
upon the occurrence of a non-payment default in connection
with such obligations. (Without limiting the generality of the
preceding sentence, Borrower shall not cause or permit any of
its obligations, except the obligations specifically excepted
in such sentence, to constitute "Designated Senior
Indebtedness" under the Indenture governing the convertible
subordinated debt which Borrower proposes to issue in the
quarter ending March 31, 1996.)
(j) Subparagraph 5.02(m) is amended by changing clauses
(iii), (iv), (v) and (vi) thereof to read in their entirety as follows:
(iii) Borrower shall not permit its Net Worth on
any date of determination (such date to be referred to herein
as a "determination date") which occurs after March 31, 1996
(such date to be referred to herein as the "base date") to be
less than the sum on such determination date of the following:
(A) Ninety-five percent (95%) of
Borrower's Net Worth on the base date;
(B) Seventy-five percent (75%) of the
sum of Borrower's consolidated quarterly net income
(ignoring any quarterly losses) for each quarter
after the base date through and including the quarter
ending immediately prior to the determination date;
(C) One hundred percent (100%) of the
Net Proceeds of all Equity Securities issued by
Borrower and its Subsidiaries (excluding any issuance
where the total proceeds are less than $10,000,000)
during the period commencing on the base date and
ending on the determination date; and
(D) One hundred percent (100%) of the
Net Proceeds derived from the conversion of the
Convertible Subordinated Debentures.
(iv) Borrower shall not permit its Leverage Ratio
during any period set forth below to be more than the ratio
set forth opposite such period below:
7
<PAGE> 8
<TABLE>
<S> <C>
From the Closing Date to
March 30, 1996 ................. 1.35;
Thereafter.............................. 1.10.
</TABLE>
(v) Borrower shall not permit (A) its EBIT for
more than two quarters in any consecutive four-quarter period
to be losses or (B) its cumulative EBIT quarterly losses
(ignoring any EBIT quarterly profits) for any consecutive
four-quarter period to exceed $25,000,000; provided, however,
that, for the purposes of clause (B) of this sentence only,
any quarterly loss for the quarter ending March 31, 1996 shall
be ignored.
(vi) Borrower shall not permit its Quick Ratio
during any period set forth below to be less than the ratio
set forth opposite such period below:
<TABLE>
<S> <C>
From the Closing Date to
March 30, 1996 ................ 0.85;
Thereafter............................. 1.10.
</TABLE>
(k) Subparagraph 6.01((e) is amended to read in its
entirety as follows:
(e) (i) Borrower or any of Borrower's
Subsidiaries (A) shall fail to make a payment or payments in
an aggregate amount of $1,000,000 or more when due under the
terms of any bond, debenture, note or other evidence of
indebtedness to be paid by such Person (excluding this
Agreement and the other Credit Documents or any intercompany
Indebtedness between Borrower and any of its Subsidiaries, but
including any other evidence of indebtedness of Borrower or
any of its Subsidiaries to any Bank) and such failure shall
continue beyond any period of grace provided with respect
thereto, or (B) shall fail to make any other payment or
payments when due under or otherwise default in the observance
or performance of any other agreement, term or condition
contained in any such bond, debenture, note or other evidence
of indebtedness, and the effect of such failure or default is
to cause, or permit the holder or holders thereof to cause,
indebtedness in an aggregate amount of $5,000,000 or more to
become due prior to its stated date of maturity; (ii) there
shall occur or exist any other event or condition which
causes, or permits the holder or holders of such indebtedness
to cause, indebtedness in an aggregate amount of $5,000,000 or
more to become due prior to its stated date of maturity
(whether through holder puts, mandatory redemptions or
prepayments or otherwise); or (iii) the beneficiaries of any
letters of credit issued under the Sumitomo LC
8
<PAGE> 9
Agreement shall make a drawing or drawings under such letters
of credit, Borrower or any of its Subsidiaries shall provide
cash collateral or any other security for Borrower's
obligations under the Sumitomo LC Agreement, any of the
Sumitomo LC Banks or any agent therefor shall demand any such
cash collateral or other security or any event of default
shall occur under the Sumitomo LC Agreement; or
3. WAIVER. The Banks hereby waive any Event of Default under
Subparagraph 6.01(b) of the Credit Agreement arising from Borrower's failure to
observe the Leverage Ratio requirement set forth in clause (iv) of Subparagraph
5.02(m) of the Credit Agreement during the quarter ending December 31, 1995.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to the Banks and the Agents that the following are true and correct on
the date of this Amendment and that, after giving effect to the amendments set
forth in paragraph 2 above and the waiver set forth in paragraph 3 above, the
following also will be true and correct on the Effective Date (as defined
below):
(a) The representations and warranties of Borrower and
its Subsidiaries set forth in Paragraph 4.01 of the Credit Agreement
and in the other Credit Documents are true and correct in all material
respects as if made on such date (except for representations and
warranties expressly made as of a specified date, which shall be true
and correct as of such date);
(b) No Default or Event of Default has occurred and is
continuing; and
(c) Each of the Credit Documents is in full force and
effect.
(Without limiting the scope of the term "Credit Documents," Borrower expressly
acknowledges in making the representations and warranties set forth in this
paragraph 4 that, on and after the date hereof, such term includes this
Amendment.)
5. AMENDMENT FEE. Borrower shall pay to Administrative Agent, for
the ratable benefit of the Banks in accordance with their respective
Proportionate Shares on the Effective Date (as defined below), a nonrefundable
amendment fee (the "Amendment Fee") equal to one-half of one percent (0.50%) of
the sum of the Total Revolving Loan Commitment and the total Term Loans
outstanding on the Effective Date, with one-fourth of the Amendment Fee to be
payable on or prior to the Effective Date and the balance to be payable on or
prior to March 31, 1996;
9
<PAGE> 10
provided, however, that Borrower shall not be obligated to pay the portion of
the Amendment Fee payable on March 31, 1996 if, between the date of this
Amendment and March 31, 1996, Borrower (a) receives aggregate Net Proceeds of
$200,000,000 or more from Subordinated Debt or Equity Securities issued or sold
by Borrower in accordance with the Credit Agreement and (b) prepays the Term
Loans from such Net Proceeds to the extent required by the Credit Agreement.
6. EFFECTIVE DATE. The amendments effected by paragraph 2 above
and the waiver set forth in paragraph 3 above shall become effective on January
29, 1996 (such date, if the conditions set forth in this paragraph are
satisfied, to be referred to herein as the "Effective Date"), subject to receipt
by Administrative Agent and the Banks on or prior to the Effective Date of the
following, each in form and substance satisfactory to Administrative Agent, the
Required Banks and their respective counsel:
(a) This Amendment duly executed by Borrower and the
Required Banks;
(b) A letter in the form of Exhibit A hereto, dated the
Effective Date and duly executed by Quantum Europe and Quantum
Holdings;
(c) A Certificate of the Secretary of Borrower, dated the
Effective Date, certifying that the Certificate of Incorporation,
Bylaws and Board resolutions of Borrower, in the forms delivered to
Agent on the Effective Date, are in full force and effect and have not
been amended, supplemented, revoked or repealed since such date;
(d) A favorable written opinion of Cooley, Godward,
Castro, Huddleson & Tatum, counsel to Borrower, dated the Effective
Date, addressed to the Administrative Agent for the benefit of the
Agents and the Banks, covering such legal matters as Agents may
reasonably request and otherwise in form and substance satisfactory to
the Agents;
(e) The portion of the Amendment Fee payable on or prior
to the Effective Date; and
(f) Such other evidence as any Agent or any Bank may
reasonably request to establish the accuracy and completeness of the
representations and warranties and the compliance with the terms and
conditions contained in this Amendment and the other Credit Documents.
7. EFFECT OF THIS AMENDMENT. On and after the Effective Date,
each reference in the Credit Agreement and the other Credit Documents to the
Credit Agreement shall mean the Credit Agreement
10
<PAGE> 11
as amended hereby. Except as specifically amended above, (a) the Credit
Agreement and the other Credit Documents shall remain in full force and effect
and are hereby ratified and confirmed and (b) the execution, delivery and
effectiveness of this Amendment shall not, except as expressly provided herein,
operate as a waiver of any right, power, or remedy of any Bank or Agent, nor
constitute a waiver of any provision of the Credit Agreement or any other Credit
Document.
8. EXPENSES. Pursuant to Paragraph 8.02 of the Credit Agreement,
Borrower shall pay to Agents all reasonable Attorney Costs and other reasonable
fees and expenses payable to third parties incurred by Agents in connection with
the preparation, negotiation, execution and delivery of this Amendment and the
additional Credit Documents.
9. MISCELLANEOUS.
(a) Counterparts. This Amendment may be executed in any
number of identical counterparts, any set of which signed by all the
parties hereto shall be deemed to constitute a complete, executed
original for all purposes.
(b) Headings. Headings in this Amendment are for
convenience of reference only and are not part of the substance hereof.
(c) Governing Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of California
without reference to conflicts of law rules.
[The next page is the first signature page.]
11
<PAGE> 12
IN WITNESS WHEREOF, Borrower, the Banks and Agents have caused this
Amendment to be executed as of the day and year first above written.
BORROWER: QUANTUM CORPORATION
By:/s/Joseph T. Rodgers
--------------------------------
Name: Joseph T. Rodgers
---------------------------
Title: Executive Vice President,
--------------------------
Finance and Secretary
--------------------------
MANAGING AGENTS: ABN AMRO BANK N.V., San Francisco
International Branch,
As a Managing Agent
By: ABN AMRO North America, Inc.,
as agent
By:/s/Robin S. Yim
--------------------------------
Name: Robin S. Yim
---------------------------
Title: VP & Director
--------------------------
By:/s/Robert N. Hartinger
--------------------------------
Name: Robert N. Hartinger
---------------------------
Title: GVP & Director
--------------------------
BARCLAYS BANK PLC,
As a Managing Agent
By:/s/James Tan
--------------------------------
Name: James Tan
---------------------------
Title: Associate Director
--------------------------
CIBC INC.,
As a Managing Agent
By: SAKAI
--------------------------------
Name: SAKAI
---------------------------
Title: Vice President
--------------------------
<PAGE> 13
ADMINISTRATIVE AGENT: CANADIAN IMPERIAL BANK OF COMMERCE,
As Administrative Agent
By: SAKAI
--------------------------------
Name: SAKAI
---------------------------
Title: Director
--------------------------
BANKS: ABN AMRO BANK N.V., San Francisco
International Branch,
As a Bank
By: ABN AMRO North America, Inc.,
as agent
By:/s/Robin S. Yim
--------------------------------
Name: Robin S. Yim
---------------------------
Title: VP & Director
--------------------------
By:/s/Robert N. Hartinger
--------------------------------
Name: Robert N. Hartinger
---------------------------
Title: GVP & Director
--------------------------
BARCLAYS BANK PLC,
As a Bank
By:/s/James Tan
--------------------------------
Name: James Tan
---------------------------
Title: Associate Director
--------------------------
CIBC INC.,
As a Bank
By: SAKAI
--------------------------------
Name: SAKAI
---------------------------
Title: Director
--------------------------
<PAGE> 14
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION,
As a co-agent and as a Bank
By:/s/Kevin McMahon
-----------------------------------
Name: Kevin McMahon
------------------------------
Title: Vice President
-----------------------------
CHEMICAL BANK,
As a co-agent and as a Bank
By:/s/Ann B. Kerns
-----------------------------------
Name: Ann B. Kerns
------------------------------
Title: Vice President
-----------------------------
THE FIRST NATIONAL BANK OF BOSTON,
As a co-agent and as a Bank
By:/s/Elizabeth C. Everett
-----------------------------------
Name: Elizabeth C. Everett
------------------------------
Title: Vice President
-----------------------------
THE INDUSTRIAL BANK OF JAPAN,
LIMITED,
As a co-agent and as a Bank
By:/s/Makoto Masuda
-----------------------------------
Name: Makoto Masuda
------------------------------
Title: Joint General Manager
-----------------------------
THE BANK OF NOVA SCOTIA,
As a Bank
By:/s/Chris Johnson
-----------------------------------
Name: Chris Johnson
------------------------------
Title: Sr. Relationship Manager
-----------------------------
<PAGE> 15
FLEET BANK OF MASSACHUSETTS, N.A.,
As a Bank
By:/s/Thomas W. Davies
-----------------------------------
Name: Thomas W. Davies
------------------------------
Title: Vice President
-----------------------------
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD.,
As a Bank
By:/s/Motokazu Uematsu
-----------------------------------
Name: Motokazu Uematsu
------------------------------
Title: Deputy General Manager
-----------------------------
THE NIPPON CREDIT BANK, LTD.,
As a Bank
By:/s/Kenneth W. McNerney
-----------------------------------
Name: Kenneth W. McNerney
------------------------------
Title: VP & Sr. Mgr.
-----------------------------
By:/s/Masaki Iwataki
-----------------------------------
Name: Masaki Iwataki
------------------------------
Title: VP & Mgr.
-----------------------------
SANWA BANK CALIFORNIA,
As a Bank
By:/s/Robert R. Shutt
-----------------------------------
Name: Robert R. Shutt
------------------------------
Title: Vice President
-----------------------------
Fleet National Bank of Massachusetts,
formerly known as
SHAWMUT BANK, N.A.,
As a Bank
By:/s/Thomas W. Davies
-----------------------------------
Name: Thomas W. Davies
------------------------------
Title: Vice President
-----------------------------
<PAGE> 16
THE SUMITOMO BANK, LIMITED,
As a Bank
By:/s/Yuji Harada
-----------------------------------
Name: Yuji Harada
------------------------------
Title: General Manager
-----------------------------
By:/s/Herman White Jr.
-----------------------------------
Name: Herman White Jr.
------------------------------
Title: Vice President
-----------------------------
UNION BANK,
As a Bank
By:/s/John P. Baier
-----------------------------------
Name: John P. Baier
------------------------------
Title: Vice President
-----------------------------
THE FUJI BANK, LIMITED,
As a Bank
By:/s/Kazuo Kamio
-----------------------------------
Name: Kazuo Kamio
------------------------------
Title: General Manager
-----------------------------
<PAGE> 1
EXHIBIT 10.36
================================================================================
QUANTUM CORPORATION
TO
LASALLE NATIONAL BANK
TRUSTEE
INDENTURE
DATED AS OF FEBRUARY 15, 1996
5% CONVERTIBLE SUBORDINATED NOTES DUE 2003
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I DEFINITIONS..................................................................................... 1
Section 1.1
Definitions.......................................................................... 1
Affiliate............................................................................ 2
Applicable Price..................................................................... 2
Board of Directors................................................................... 2
Business Day......................................................................... 2
Commission........................................................................... 2
Common Stock......................................................................... 3
Company.............................................................................. 3
Conversion Price..................................................................... 3
Corporate Trust Office............................................................... 3
Credit Agreement..................................................................... 3
Custodian............................................................................ 4
default.............................................................................. 4
Depositary........................................................................... 4
Designated Senior Indebtedness....................................................... 4
Exchange Act......................................................................... 4
Event of Default..................................................................... 4
Fundamental Change................................................................... 5
Indebtedness......................................................................... 5
Indenture............................................................................ 6
Initial Purchaser.................................................................... 6
Note or Notes........................................................................ 6
Noteholder or holder................................................................. 6
Note register........................................................................ 6
Officers' Certificate................................................................ 6
Opinion of Counsel................................................................... 6
outstanding.......................................................................... 6
Payment Blockage Notice.............................................................. 7
Person............................................................................... 7
PORTAL Market........................................................................ 7
Predecessor Note..................................................................... 7
QIB.................................................................................. 7
Reference Market Price............................................................... 7
Registration Rights Agreement........................................................ 7
Regulation S......................................................................... 8
Representative....................................................................... 8
Responsible Officer.................................................................. 8
Restricted Securities................................................................ 8
Rights Agreement..................................................................... 8
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
(CONTINUED) PAGE
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<S> <C>
Rights............................................................................... 8
Rule 144A............................................................................ 8
Securities Act....................................................................... 8
Senior Indebtedness.................................................................. 8
Subsidiary:.......................................................................... 9
Sumitomo Credit Agreement............................................................ 9
Trading Day.......................................................................... 9
Trigger Event........................................................................ 9
Trust Indenture Act.................................................................. 9
Trustee............................................................................. 10
ARTICLE II ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES............................................................... 10
Section 2.1 Designation, Amount and Issue of Notes.............................................. 10
Section 2.2 Form of Notes....................................................................... 10
Section 2.3 Date and Denomination of Notes; Payments of Interest................................ 11
Section 2.4 Execution of Notes.................................................................. 13
Section 2.5 Exchange and Registration of Transfer of Notes:
Restrictions on Transfer: Depositary................................................ 13
Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes.......................................... 23
Section 2.7 Temporary Notes..................................................................... 24
Section 2.8 Cancellation of Notes Paid, Etc..................................................... 24
ARTICLE III REDEMPTION OF NOTES................................................................. 25
Section 3.1 Redemption Prices................................................................... 25
Section 3.2 Notice of Redemption: Selection of Notes............................................ 25
Section 3.3 Payment of Notes Called for Redemption.............................................. 27
Section 3.4 Conversion Arrangement on Call for Redemption....................................... 28
Section 3.5 Redemption at Option of Holders..................................................... 28
ARTICLE IV SUBORDINATION OF NOTES.............................................................. 31
Section 4.1 Agreement of Subordination.......................................................... 31
Section 4.2 Payments to Noteholders............................................................. 31
Section 4.3 Subrogation of Notes................................................................ 34
Section 4.4 Authorization to Effect Subordination............................................... 35
Section 4.5 Notice to Trustee................................................................... 35
Section 4.6 Trustee's Relation to Senior Indebtedness........................................... 36
Section 4.7 No Impairment of Subordination...................................................... 37
Section 4.8 Certain Conversions Deemed Payment.................................................. 37
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
(CONTINUED) PAGE
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<S> <C>
Section 4.9 Article Applicable to Paying Agents................................................. 37
Section 4.10 Senior Indebtedness Entitled to Rely. ............................................. 38
ARTICLE V PARTICULAR COVENANTS OF THE COMPANY ................................................ 38
Section 5.1 Payment of Principal, Premium and Interest.......................................... 38
Section 5.2 Maintenance of Office or Agency..................................................... 38
Section 5.3 Appointments to Fill Vacancies in Trustee's Office.................................. 39
Section 5.4 Provisions as to Paying Agent....................................................... 39
Section 5.5 Corporate Existence................................................................. 40
Section 5.6 Rule 144A Information Requirement................................................... 40
Section 5.7 Stay, Extension and Usury Laws...................................................... 41
ARTICLE VI NOTEHOLDERS' LISTS AND REPORTS BY THE
COMPANY AND THE TRUSTEE ............................................................ 41
Section 6.1 Noteholders' Lists.................................................................. 41
Section 6.2 Preservation and Disclosure of Lists................................................ 41
Section 6.3 Reports by Trustee.................................................................. 42
Section 6.4 Reports by Company.................................................................. 42
ARTICLE VII REMEDIES OF THE TRUSTEE AND NOTEHOLDERS
ON AN EVENT OF DEFAULT.............................................................. 43
Section 7.1 Events of Default................................................................... 43
Section 7.2 Payments of Notes on Default: Suit Therefor......................................... 45
Section 7.3 Application of Monies Collected by Trustee.......................................... 46
Section 7.4 Proceedings by Noteholder........................................................... 47
Section 7.5 Proceedings by Trustee.............................................................. 48
Section 7.6 Remedies Cumulative and Continuing.................................................. 48
Section 7.7 Direction of Proceedings and Waiver of Defaults by
Majority of Noteholders............................................................. 48
Section 7.8 Notice of Defaults.................................................................. 49
Section 7.9 Undertaking to Pay Costs............................................................ 49
ARTICLE VIII CONCERNING THE TRUSTEE ............................................................. 50
Section 8.1 Duties and Responsibilities of Trustee.............................................. 50
Section 8.2 Reliance on Documents, Opinions. Etc................................................ 51
Section 8.3 No Responsibility for Recitals, Etc................................................. 52
Section 8.4 Trustee, Paying Agents, Conversion Agents or Registrar
May Own Notes....................................................................... 52
</TABLE>
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<TABLE>
<CAPTION>
(CONTINUED) PAGE
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<S> <C>
Section 8.5 Monies to Be Held in Trust.......................................................... 52
Section 8.6 Compensation and Expenses of Trustee................................................ 53
Section 8.7 Officers' Certificate as Evidence................................................... 53
Section 8.8 Conflicting Interests of Trustee.................................................... 53
Section 8.9 Eligibility of Trustee.............................................................. 54
Section 8.10 Resignation or Removal of Trustee. ................................................. 54
Section 8.11 Acceptance by Successor Trustee..................................................... 55
Section 8.12 Succession by Merger, Etc........................................................... 56
Section 8.13 Limitation on Rights of Trustee as Creditor......................................... 56
ARTICLE IX CONCERNING THE NOTEHOLDERS ......................................................... 57
Section 9.1 Action by Noteholders............................................................... 57
Section 9.2 Proof of Execution by Noteholders................................................... 57
Section 9.3 Who Are Deemed Absolute Owners...................................................... 57
Section 9.4 Company-Owned Notes Disregarded..................................................... 58
Section 9.5 Revocation of Consents: Future Holders Bound........................................ 58
ARTICLE X NOTEHOLDERS' MEETINGS............................................................... 59
Section 10.1 Purpose of Meetings................................................................. 59
Section 10.2 Call of Meetings by Trustee......................................................... 59
Section 10.3 Call of Meetings by Company or Noteholders.......................................... 60
Section 10.4 Qualifications for Voting........................................................... 60
Section 10.5 Regulations......................................................................... 60
Section 10.6 Voting.............................................................................. 61
Section 10.7 No Delay of Rights by Meeting....................................................... 61
ARTICLE XI SUPPLEMENTAL INDENTURES............................................................. 61
Section 11.1 Supplemental Indentures Without Consent of Noteholders.............................. 61
Section 11.2 Supplemental Indentures with Consent of Noteholders................................. 63
Section 11.3 Effect of Supplemental Indenture.................................................... 64
Section 11.4 Notation on Notes................................................................... 64
Section 11.5 Evidence of Compliance of Supplemental Indenture to Be
Furnished Trustee................................................................... 64
ARTICLE XII CONSOLIDATION, MERGER, SALE, CONVEYANCE
AND LEASE .......................................................................... 65
Section 12.1 Company May Consolidate Etc. on Certain Terms....................................... 65
Section 12.2 Successor Corporation to Be Substituted............................................. 65
</TABLE>
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Section 12.3 Opinion of Counsel to Be Given Trustee.............................................. 66
ARTICLE XIII SATISFACTION AND DISCHARGE OF INDENTURE............................................. 66
Section 13.1 Discharge of Indenture.............................................................. 66
Section 13.2 Deposited Monies to Be Held in Trust by Trustee..................................... 67
Section 13.3 Paying Agent to Repay Monies Held................................................... 67
Section 13.4 Return of Unclaimed Monies.......................................................... 67
Section 13.5 Reinstatement....................................................................... 67
ARTICLE XIV IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS.............................................................. 68
Section 14.1 Indenture and Notes Solely Corporate Obligations.................................... 68
ARTICLE XV CONVERSION OF NOTES................................................................. 68
Section 15.1 Right to Convert.................................................................... 68
Section 15.2 Exercise of Conversion Privilege; Issuance of Common Stock on
Conversion; No Adjustment for Interest or Dividends................................. 69
Section 15.3 Cash Payments in Lieu of Fractional Shares.......................................... 70
Section 15.4 Conversion Price.................................................................... 71
Section 15.5 Adjustment of Conversion Price...................................................... 71
Section 15.6 Effect of Reclassification, Consolidation, Merger or Sale........................... 81
Section 15.7 Taxes on Shares Issued.............................................................. 82
Section 15.8 Reservation of Shares; Shares to Be Fully Paid; Compliance with
Governmental Requirements; Listing of Common Stock.................................. 82
Section 15.9 Responsibility of Trustee........................................................... 83
Section 15.10 Notice to Holders Prior to Certain Actions.......................................... 83
ARTICLE XVI MISCELLANEOUS PROVISIONS............................................................ 84
Section 16.1 Provisions Binding on Company's Successors.......................................... 84
Section 16.2 Official Acts by Successor Corporation.............................................. 84
Section 16.3 Addresses for Notices, Etc. ........................................................ 85
Section 16.4 Governing Law....................................................................... 85
Section 16.5 Evidence of Compliance with Conditions Precedent;
Certificates to Trustee............................................................. 85
Section 16.6 Legal Holidays...................................................................... 86
Section 16.7 Trust Indenture Act................................................................. 86
Section 16.8 No Security Interest Created........................................................ 86
Section 16.9 Benefits of Indenture............................................................... 86
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Section 16.10 Table of Contents, Headings, Etc. .................................................. 86
Section 16.11 Authenticating Agent................................................................ 87
Section 16.12 Execution in Counterparts........................................................... 88
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INDENTURE dated as of February 15, 1996, between Quantum Corporation, a
Delaware corporation (hereinafter sometimes called the "Company", as more fully
set forth in Section 1.1), and LaSalle National Bank, a national banking
association duly organized and existing under the laws of the United States, as
trustee hereunder (hereinafter sometimes called the "Trustee", as more fully set
forth in Section 1.1).
W I T N E S S E T H:
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issue of its 5% Convertible Subordinated Notes due 2003
(hereinafter sometimes called the "Notes"), in an aggregate principal amount not
to exceed $258,750,000 and, to provide the terms and conditions upon which the
Notes are to be authenticated, issued and delivered, the Company has duly
authorized the execution and delivery of this Indenture; and
WHEREAS, the Notes, the certificate of authentication to be borne by
the Notes, a form of assignment, a form of option to elect repayment upon a
Fundamental Change, a form of conversion notice and a certificate of transfer to
be borne by the Notes are to be substantially in the forms hereinafter provided
for; and
WHEREAS, all acts and things necessary to make the Notes, when executed
by the Company and authenticated and delivered by the Trustee or a duly
authorized authenticating agent, as in this Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute these presents a
valid agreement according to its terms, have been done and performed, and the
execution of this Indenture and the issue hereunder of the Notes have in all
respects been duly authorized.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the Notes
are, and are to be, authenticated, issued and delivered, and in consideration of
the premises and of the purchase and acceptance of the Notes by the holders
thereof, the Company covenants and agrees with the Trustee for the equal and
proportionate benefit of the respective holders from time to time of the Notes
(except as otherwise provided below), as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. The terms defined in this Section 1.1 (except
as herein otherwise expressly provided or unless the context otherwise requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section 1.1. All other
terms used in this Indenture that are defined in the Trust Indenture Act or
which are by reference therein defined in the Securities Act (except as herein
otherwise expressly provided or unless the context
<PAGE> 9
otherwise requires) shall have the meanings assigned to such terms in said Trust
Indenture Act and in said Securities Act as in force at the date of the
execution of this Indenture. The words "herein," "hereof," "hereunder," and
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other Subdivision. The terms defined in this
Article include the plural as well as the singular.
Affiliate: The term "Affiliate" of any specified Person shall mean any
other Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person. For the purposes of this
definition, "control," when used with respect to any specified Person means the
power to direct or cause the direction of the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
Applicable Price: The term "Applicable Price" shall mean (i) in the
event of a Fundamental Change in which the holders of the Company's Common Stock
receive only cash, the amount of cash received by the holder of one share of
Common Stock and (ii) in the event of any other Fundamental Change, the
arithmetic average of the Closing Price for the Company's Common Stock
(determined as set forth in Section 15.5(h)) during the ten Trading Days (as
defined in Section 15.5(h)) prior to the record date for the determination of
the holders of Common Stock entitled to receive cash, securities, property or
other assets in connection with such Fundamental Change, or, if there is no such
record date, the date upon which the holders of the Common Stock shall have the
right to receive such cash, securities, property or other assets in connection
with the Fundamental Change.
Board of Directors: The term "Board of Directors" shall mean the Board
of Directors of the Company or a committee of such Board duly authorized to act
for it hereunder.
Business Day: The term "Business Day" means each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which the banking
institutions in The City of New York, San Jose, California or the city in which
the Corporate Trust Office is located are authorized or obligated by law or
executive order to close or be closed.
Closing Price: The term "Closing Price" shall have the meaning
specified in Section 15.5(h)(1).
Commission: The term "Commission" shall mean the Securities and
Exchange Commission.
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Common Stock: The term "Common Stock" shall mean any stock of any class
of the Company which has no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company and which is not subject to redemption by the Company.
Subject to the provisions of Section 15.6, however, shares issuable on
conversion of Notes shall include only shares of the class designated as common
stock of the Company at the date of this Indenture or shares of any class or
classes resulting from any reclassification or reclassifications thereof and
which have no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which are not subject to redemption by the Company; provided
that if at any time there shall be more than one such resulting class, the
shares of each such class then so issuable shall be substantially in the
proportion which the total number of shares of such class resulting from all
such reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
Company: The term "Company" shall mean Quantum Corporation, a Delaware
corporation, and subject to the provisions of Article XII, shall include its
successors and assigns.
Conversion Price: The term "Conversion Price" shall have the meaning
specified in Section 15.4.
Corporate Trust Office: The term "Corporate Trust Office" or other
similar term, shall mean the principal office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
which office is, at the date as of which this Indenture is dated, located at 135
South LaSalle Street, Chicago, Illinois 60674-9135, Attention: Corporate Trust
Division (Quantum Corporation, 5% Convertible Subordinated Notes due 2003).
Credit Agreement: The term "Credit Agreement" means that certain Credit
Agreement, dated as of October 3, 1994 by and among the Company, each of the
financial institutions listed in Schedule I to the Credit Agreement (the
"Banks"), ABN Amro N.V., San Francisco International Branch ("ABN"), Barclays
Bank PLC ("Barclays") and CIBC Inc. ("CIBC"), as managing agents for the Banks
(collectively, in such capacity, the "Managing Agents"), Bank of America Trust
and Savings Association, The First National Bank of Boston, Chemical Bank and
The Industrial Bank of Japan Limited, as co-agents for the Banks ("Co-Agents"),
and Canadian Imperial Bank of Commerce, as administrative and collateral agent
for the Banks (in such capacity, the "Administrative Agent"), ABN, as syndicated
agent for the Banks, and Barclays, as documentation agent for the Banks, as
amended by that certain First Amendment to Credit Agreement, dated as of
February 15, 1995 by and among the Banks, the Managing Agents, the
Administrative Agent and the Co-Agents, as amended by that certain Second
Amendment to Credit Agreement, dated as of June 26, 1995 by and among the Banks,
the Managing Agents, the Administrative
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Agent and the Co-Agents, as amended by that certain Third Amendment to Credit
Agreement, as of dated June 26, 1995 by and among the Banks, the Managing
Agents, the Administrative Agent and the Co-Agents, as amended by that certain
Fourth Amendment to Credit Agreement, dated as of January 29, 1996 by and among
the Banks, the Managing Agents, the Administrative Agent and the Co-Agents, as
amended, amended and restated, supplemented or otherwise modified from time to
time.
Custodian: The term "Custodian" shall mean LaSalle National Bank, as
custodian with respect to the Notes in global form, or any successor entity
thereto.
default: The term "default" shall mean any event that is, or after
notice or passage of time, or both, would be, an Event of Default.
Depositary: The term "Depositary" means, with respect to the Notes
issuable or issued in whole or in part in global form, the person specified in
Section 2.5(d) as the Depositary with respect to such Notes, until a successor
shall have been appointed and become such pursuant to the applicable provisions
of this Indenture, and thereafter, "Depositary" shall mean or include such
successor.
Designated Senior Indebtedness: The term "Designated Senior
Indebtedness" means the Credit Agreement, the Sumitomo Credit Agreement and any
particular Senior Indebtedness in which the instrument creating or evidencing
the same or the assumption or guarantee thereof (or related agreements or
documents to which the Company is a party) expressly provides that such
Indebtedness shall be "Designated Senior Indebtedness" for purposes of the
Indenture (provided that such instrument, agreement or other document may place
limitations and conditions on the right of such Senior Indebtedness to exercise
the rights of Designated Senior Indebtedness). If any payment made to any holder
of any Designated Senior Indebtedness or its Representative with respect to such
Designated Senior Indebtedness is rescinded or must otherwise be returned by
such holder or Representative upon the insolvency, bankruptcy or reorganization
of the Company or otherwise, the reinstated Indebtedness of the Company arising
as a result of such rescission or return shall constitute Designated Senior
Indebtedness effective as of the date of such rescission or return.
Exchange Act: The term "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder, as in effect from time to time.
Event of Default: The term "Event of Default" shall mean any event
specified in Section 7.1(a), (b), (c), (d) or (e).
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Fundamental Change: The term "Fundamental Change" means the occurrence
of any transaction or event in connection with which all or substantially all
the Common Stock shall be exchanged for, converted into, acquired for or
constitute the right to receive consideration (whether by means of an exchange
offer, liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise) which is not all or
substantially all common stock which is (or, upon consummation of or immediately
following such transaction or event, will be) listed on a United States national
securities exchange or approved for quotation in the Nasdaq National Market or
any similar United States system of automated dissemination of quotations of
securities prices.
Indebtedness: The term "Indebtedness" means, with respect to any
Person, and without duplication, (a) all indebtedness, obligations and other
liabilities (contingent or otherwise) of such Person for borrowed money
(including obligations of the Company in respect of overdrafts, foreign exchange
contracts, currency exchange agreements, interest rate protection agreements,
and any loans or advances from banks, whether or not evidenced by notes or
similar instruments) or evidenced by bonds, debentures, notes or similar
instruments (whether or not the recourse of the lender is to the whole of the
assets of such Person or to only a portion thereof) (other than any account
payable or other accrued current liability or obligation incurred in the
ordinary course of business in connection with the obtaining of materials or
services), (b) all reimbursement obligations and other liabilities (contingent
or otherwise) of such Person with respect to letters of credit, bank guarantees
or bankers' acceptances, (c) all obligations and liabilities (contingent or
otherwise) in respect of leases of such Person required, in conformity with
generally accepted accounting principles, to be accounted for as capitalized
lease obligations on the balance sheet of such Person and all obligation and
other liabilities (contingent or otherwise) under any lease or related document
(including a purchase agreement) in connection with the lease of real property
which provides that such Person is contractually obligated to purchase or cause
a third party to purchase the leased property and thereby guarantee a minimum
residual value of the leased property to the lessor and the obligations of such
Person under such lease or related document to purchase or to cause a third
party to purchase such leased property, (d) all obligations of such Person
(contingent or otherwise) with respect to an interest rate or other swap, cap or
collar agreement or other similar instrument or agreement or foreign currency
hedge, exchange, purchase or similar instrument or agreement, (e) all direct or
indirect guaranties or similar agreements by such Person in respect of, and
obligations or liabilities (contingent or otherwise) of such Person to purchase
or otherwise acquire or otherwise assure a creditor against loss in respect of
indebtedness, obligations or liabilities of another Person of the kind described
in clauses (a) through (d), (f) any indebtedness or other obligations described
in clauses (a) through (d) secured by any mortgage, pledge, lien or other
encumbrance existing on property which is owned or held by such Person,
regardless of whether the indebtedness or other obligation secured thereby shall
have been assumed by such Person and (g) any and all deferrals, renewals,
extensions and refundings of, or
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amendments, modifications or supplements to, any indebtedness, obligation or
liability of the kind described in clauses (a) through (f).
Indenture: The term "Indenture" shall mean this instrument as
originally executed or, if amended or supplemented as herein provided, as so
amended or supplemented.
Initial Purchaser: The term "Initial Purchaser" means Morgan Stanley &
Co. Incorporated.
Note or Notes: The terms "Note" or "Notes" shall mean any Note or
Notes, as the case may be, authenticated and delivered under this Indenture.
Noteholder or holder: The terms "Noteholder" or "holder" as applied to
any Note, or other similar terms (but excluding the term "beneficial holder"),
shall mean any person in whose name at the time a particular Note is registered
on the Note registrar's books.
Note register: The term "Note register" shall have the meaning
specified in Section 2.5.
Officers' Certificate: The term "Officers' Certificate," when used with
respect to the Company, shall mean a certificate signed by both (a) the
President, the Chief Executive Officer, Executive or Senior Vice President or
any Vice President (whether or not designated by a number or numbers or word or
words added before or after the title "Vice President") and (b) by the Treasurer
or any Assistant Treasurer or Secretary or any Assistant Secretary of the
Company.
Opinion of Counsel: The term "Opinion of Counsel" shall mean an opinion
in writing signed by legal counsel, who may be an employee of or counsel to the
Company, or other counsel acceptable to the Trustee.
outstanding: The term "outstanding," when used with reference to Notes,
shall, subject to the provisions of Section 9.4, mean, as of any particular
time, all Notes authenticated and delivered by the Trustee under this Indenture,
except
(a) Notes theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(b) Notes, or portions thereof, for the redemption of which
monies in the necessary amount shall have been deposited in trust with
the Trustee or with any paying agent (other than the Company) or shall
have been set aside and segregated in trust by the Company (if the
Company shall act as its own paying agent); provided that if such Notes
are to be redeemed prior to the maturity thereof, notice
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of such redemption shall have been given as in Article III provided, or
provision satisfactory to the Trustee shall have been made for giving
such notice;
(c) Notes in lieu of which, or in substitution for which,
other Notes shall have been authenticated and delivered pursuant to the
terms of Section 2.6 unless proof satisfactory to the Trustee is
presented that any such Notes are held by bona fide holders in due
course; and
(d) Notes converted into Common Stock pursuant to Article XV
and Notes deemed not outstanding pursuant to Article III.
Payment Blockage Notice: The term "Payment Blockage Notice" has the
meaning specified in Section 4.2.
Person: The term "Person" shall mean a corporation, an association, a
partnership, an individual, a joint venture, a joint stock company, a trust, an
unincorporated organization or a government or an agency or a political
subdivision thereof.
PORTAL Market: The term "PORTAL Market" shall mean the Private
Offerings, Resales and Trading through Automated Linkages Market operated by the
National Association of Securities Dealers, Inc. or any successor thereto.
Predecessor Note: The term "Predecessor Note" of any particular Note
shall mean every previous Note evidencing all or a portion of the same debt as
that evidenced by such particular Note; and, for the purposes of this
definition, any Note authenticated and delivered under Section 2.6 in lieu of a
lost, destroyed or stolen Note shall be deemed to evidence the same debt as the
lost, destroyed or stolen Note that it replaces.
QIB: The term "QIB" shall mean a "qualified institutional buyer" as
defined in Rule 144A.
Reference Market Price: The term "Reference Market Price" shall
initially mean $12.00 and in the event of any adjustment to the Conversion Price
pursuant to Sections 15.5(a), (b), (c), (d), (e), (f) or (g), the Reference
Market Price shall also be adjusted so that the ratio of the Reference Market
Price to the Conversion Price after giving effect to any such adjustment shall
always be the same as the ratio of $12.00 to the initial Conversion Price
specified in the form of Note attached hereto (without regard to any adjustment
thereto).
Registration Rights Agreement: The term "Registration Rights Agreement"
means that certain Registration Rights Agreement, dated as of February 15, 1996,
between the Company and the Initial Purchaser.
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Regulation S: The term "Regulation S" shall mean Regulation S as
promulgated under the Securities Act.
Representative: The term "Representative" means the (a) indenture
trustee or other trustee, agent or representative for any Senior Indebtedness or
(b) with respect to any Senior Indebtedness that does not have any such trustee,
agent or other representative, (i) in the case of such Senior Indebtedness
issued pursuant to an agreement providing for voting arrangements as among the
holders or owners of such Senior Indebtedness, any holder or owner of such
Senior Indebtedness acting with the consent of the required persons necessary to
bind such holders or owners of such Senior Indebtedness and (ii) in the case of
all other such Senior Indebtedness, the holder or owner of such Senior
Indebtedness.
Responsible Officer: The term "Responsible Officer," when used with
respect to the Trustee, shall mean an officer of the Trustee in the Corporate
Trust Office assigned and duly authorized by the Trustee to administer its
corporate trust matters.
Restricted Securities: The term "Restricted Securities" has the meaning
specified in Section 2.5.
Rights Agreement: The term "Rights Agreement" means that certain
Preferred Shares Rights Agreement, dated as of August 3, 1988, between the
Company and Bank of America National Trust & Savings Association, as amended
from time to time.
Rights: The term "Rights" shall mean "Rights" as such term is defined
in the Rights Agreement.
Rule 144A: The term "Rule 144A" shall mean Rule 144A as promulgated
under the Securities Act.
Securities Act: The term "Securities Act" shall mean the Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder.
Senior Indebtedness: The term "Senior Indebtedness" means the principal
of, premium, if any, interest (including all interest accruing subsequent to the
commencement of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding) and rent
payable on or in connection with, and all fees, costs, expenses and other
amounts accrued or due on or in connection with, Indebtedness of the Company,
whether outstanding on the date of this Indenture or thereafter created,
incurred, assumed, guaranteed or in effect guaranteed by the Company (including
all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to, the foregoing), unless in the case of any
particular Indebtedness the instrument creating or evidencing the same or the
assumption or
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guarantee thereof expressly provides that such Indebtedness shall not be senior
in right of payment to the Notes or expressly provides that such Indebtedness is
"pari passu" or "junior" to the Notes. Notwithstanding the foregoing, the term
Senior Indebtedness shall not include any Indebtedness of the Company to any
subsidiary of the Company, a majority of the voting stock of which is owned,
directly or indirectly, by the Company or the Company's 6 3/8% Convertible
Subordinated Debentures due April 1, 2002. If any payment made to any holder of
any Senior Indebtedness or its Representative with respect to such Senior
Indebtedness is rescinded or must otherwise be returned by such holder or
Representative upon the insolvency, bankruptcy or reorganization of the Company
or otherwise, the reinstated Indebtedness of the Company arising as a result of
such rescission or return shall constitute Senior Indebtedness effective as of
the date of such rescission or return.
Subsidiary: The term "Subsidiary" means, with respect to any person,
(i) any corporation, association or other business entity of which more than 50%
of the total voting power of shares of capital stock entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by such person or one or more of the other subsidiaries of that
person (or a combination thereof) and (ii) any partnership (a) the sole general
partner or managing general partner of which is such person or a subsidiary of
such person or (b) the only general partners of which are such person or of one
or more subsidiaries of such person (or any combination thereof).
Sumitomo Credit Agreement: The term "Sumitomo Credit Agreement" means
that certain Credit Agreement, dated as of September 22, 1995 by and among the
Company, the several financial institutions listed on the signature pages
thereto (collectively, the "Banks"), and The Sumitomo Bank, Limited, acting
through its San Francisco Branch, as agent for the Banks (the "Agent") and as
Issuer, as amended, amended and restated, supplemented or otherwise modified
from time to time.
Trading Day: The term "Trading Day" shall have the meaning specified in
Section 15.5(h)(5).
Trigger Event: The term "Trigger Event" shall have the meaning
specified in Section 15.5(d).
Trust Indenture Act: The term "Trust Indenture Act" shall mean the
Trust Indenture Act of 1939, as amended, as it was in force at the date of
execution of this Indenture, except as provided in Sections 11.3 and 15.6;
provided, however, that in the event the Trust Indenture Act of 1939 is amended
after the date hereof, the term "Trust Indenture Act" shall mean, to the extent
required by such amendment, the Trust Indenture Act of 1939 as so amended.
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Trustee: The term "Trustee" shall mean LaSalle National Bank and its
successors and any corporation resulting from or surviving any consolidation or
merger to which it or its successors may be a party and any successor trustee at
the time serving as successor trustee hereunder.
The definitions of certain other terms are as specified in Sections 2.5
and 3.5 and Article XV.
ARTICLE II
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES
Section 2.1 Designation, Amount and Issue of Notes. The Notes shall be
designated as "5% Convertible Subordinated Notes due 2003." Notes not to exceed
the aggregate principal amount of $225,000,000 (or $258,750,000 if the
over-allotment option set forth in Section 7 of the Placement Agreement dated
February 12, 1996 (as amended from time to time by the parties thereto) by and
between the Company and the Initial Purchaser is exercised in full) (except
pursuant to Sections 2.5, 2.6, 3.3, 3.5 and 15.2 hereof) upon the execution of
this Indenture, or from time to time thereafter, may be executed by the Company
and delivered to the Trustee for authentication, and the Trustee shall thereupon
authenticate and deliver said Notes to or upon the written order of the Company,
signed by its (a) President, Executive or Senior Vice President or any Vice
President (whether or not designated by a number or numbers or word or words
added before or after the title "Vice President") and (b) Treasurer or Assistant
Treasurer or its Secretary or any Assistant Secretary, without any further
action by the Company hereunder.
Section 2.2 Form of Notes. The Notes and the Trustee's certificate of
authentication to be borne by such Notes shall be substantially in the form set
forth in Exhibit A, which is incorporated in and made a part of this Indenture.
Any of the Notes may have such letters, numbers or other marks of
identification and such notations, legends and endorsements as the officers
executing the same may approve (execution thereof to be conclusive evidence of
such approval) and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
securities exchange or automated quotation system on which the Notes may be
listed, or to conform to usage.
Any Note in global form shall represent such of the outstanding Notes
as shall be specified therein and shall provide that it shall represent the
aggregate amount of
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outstanding Notes from time to time endorsed thereon and that the aggregate
amount of outstanding Notes represented thereby may from time to time be
increased or reduced to reflect transfers or exchanges permitted hereby. Any
endorsement of a Note in global form to reflect the amount of any increase or
decrease in the amount of outstanding Notes represented thereby shall be made by
the Trustee or the Custodian, at the direction of the Trustee, in such manner
and upon instructions given by the holder of such Notes in accordance with this
Indenture. Payment of principal of and interest and premium, if any, on any Note
in global form shall be made to the holder of such Note.
The terms and provisions contained in the form of Note attached as
Exhibit A hereto shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Section 2.3 Date and Denomination of Notes; Payments of Interest. The
Notes shall be issuable in registered form without coupons in denominations of
$1,000 principal amount and integral multiples thereof. Every Note shall be
dated the date of its authentication and shall bear interest from the applicable
date in each case as specified on the face of the form of Note attached as
Exhibit A hereto. Interest on the Notes shall be computed on the basis of a
360-day year comprised of twelve 30-day months.
The person in whose name any Note (or its Predecessor Note) is
registered at the close of business on any record date with respect to any
interest payment date (including any Note that is converted after the record
date and on or before the interest payment date) shall be entitled to receive
the interest payable on such interest payment date notwithstanding the
cancellation of such Note upon any transfer, exchange or conversion subsequent
to the record date and on or prior to such interest payment date; provided, that
in the case of any Note, or portion thereof, called for redemption on a
redemption date or redeemed in connection with a Fundamental Change on a
Repurchase Date that is after a record date and prior to (but excluding) the
next succeeding interest payment date, interest shall not be paid to the person
in whose name the Note, or portion thereof, is registered on the close of
business on such record date and the Company shall have no obligation to pay
interest on such Note or such portion except to the extent required to be paid
upon redemption of such Note or portion thereof pursuant to Section 3.3 or 3.5
hereof. Interest may, at the option of the Company, be paid by check mailed to
the address of such person on the Note register; provided that, with respect to
any holder of Notes with an aggregate principal amount equal to or in excess of
$5,000,000, at the request of such holder in writing to the Company (who shall
then furnish written notice to such effect to the Trustee), interest on such
holder's Notes shall be paid by wire transfer in immediately available funds in
accordance with the wire transfer instructions supplied by such holder to the
Trustee and paying agent (if different from the Trustee). The term "record date"
with respect to any interest payment date shall mean the February 15 or August
15 preceding said March 1 or September 1, respectively.
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Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any said March 1 or September 1 (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Noteholder on
the relevant record date by virtue of his having been such Noteholder; and such
Defaulted Interest shall be paid by the Company, at its election in each case,
as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a special
record date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest to be paid on each Note and
the date of the payment (which shall be not less than twenty-five (25)
days after the receipt by the Trustee of such notice, unless the
Trustee shall consent to an earlier date), and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to
be held in trust for the benefit of the Persons entitled to such
Defaulted Interest as in this clause provided. Thereupon the Trustee
shall fix a special record date for the payment of such Defaulted
Interest which shall be not more than fifteen (15) days and not less
than ten (10) days prior to the date of the proposed payment and not
less than ten (10) days after the receipt by the Trustee of the notice
of the proposed payment. The Trustee shall promptly notify the Company
of such special record date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted
Interest and the special record date therefor to be mailed, first-class
postage prepaid, to each Noteholder at his address as it appears in the
Note register, not less than ten (10) days prior to such special record
date. Notice of the proposed payment of such Defaulted Interest and the
special record date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names the Notes (or
their respective Predecessor Notes) were registered at the close of
business on such special record date and shall no longer be payable
pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange and automated quotation system on which the Notes
may be listed or designated for issuance, and upon such notice as may
be required by such exchange and automated quotation system, if, after
notice given by the Company to the Trustee of the proposed payment
pursuant to this clause, such manner of payment shall be deemed
practicable by the Trustee.
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Section 2.4 Execution of Notes. The Notes shall be signed in the name
and on behalf of the Company by the facsimile signature of its President, any
Executive or Senior Vice President or any Vice President (whether or not
designated by a number or numbers or word or words added before or after the
title "Vice President") and attested by the facsimile signature of its Secretary
or any of its Assistant Secretaries (which may be printed, engraved or otherwise
reproduced thereon, by facsimile or otherwise). Only such Notes as shall bear
thereon a certificate of authentication substantially in the form set forth on
the form of Note attached as Exhibit A hereto, manually executed by the Trustee
(or an authenticating agent appointed by the Trustee as provided by Section
16.11), shall be entitled to the benefits of this Indenture or be valid or
obligatory for any purpose. Such certificate by the Trustee (or such an
authenticating agent) upon any Note executed by the Company shall be conclusive
evidence that the Note so authenticated has been duly authenticated and
delivered hereunder and that the holder is entitled to the benefits of this
Indenture.
In case any officer of the Company who shall have signed any of the
Notes shall cease to be such officer before the Notes so signed shall have been
authenticated and delivered by the Trustee, or disposed of by the Company, such
Notes nevertheless may be authenticated and delivered or disposed of as though
the person who signed such Notes had not ceased to be such officer of the
Company; and any Note may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Note, shall be the proper officers
of the Company, although at the date of the execution of this Indenture any such
person was not such an officer.
Section 2.5 Exchange and Registration of Transfer of Notes:
Restrictions on Transfer: Depositary.
(a) The Company shall cause to be kept at the Corporate Trust
Office a register (the register maintained in such office and in any
other office or agency of the Company designated pursuant to Section
5.2 being herein sometimes collectively referred to as the "Note
register") in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of Notes and
of transfers of Notes. The Note register shall be in written form or in
any form capable of being converted into written form within a
reasonably prompt period of time. The Trustee is hereby appointed "Note
registrar" for the purpose of registering Notes and transfers of Notes
as herein provided. The Company may appoint one or more co-registrars
in accordance with Section 5.2.
Upon surrender for registration of transfer of any Note to the
Note registrar or any co-registrar, and satisfaction of the
requirements for such transfer set forth in this Section 2.5, the
Company shall execute, and the Trustee shall authenticate and deliver,
in the name of the designated transferee or transferees, one or more
new
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Notes of any authorized denominations and of a like aggregate principal
amount and bearing such restrictive legends as may be required by this
Indenture.
Notes may be exchanged for other Notes of any authorized
denominations and of a like aggregate principal amount, upon surrender
of the Notes to be exchanged at any such office or agency maintained by
the Company pursuant to Section 5.2. Whenever any Notes are so
surrendered for exchange, the Company shall execute, and the Trustee
shall authenticate and deliver, the Notes which the Noteholder making
the exchange is entitled to receive bearing registration numbers not
contemporaneously outstanding.
All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under this Indenture, as
the Notes surrendered upon such registration of transfer or exchange.
All Notes presented or surrendered for registration of
transfer or for exchange, redemption or conversion shall (if so
required by the Company or the Note registrar) be duly endorsed, or be
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company, and the Notes shall be duly executed by
the Noteholder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a
sum sufficient to cover any tax, assessment or other governmental
charge that may be imposed in connection with any registration of
transfer or exchange of Notes.
Neither the Company nor the Trustee nor any Note registrar or
any Company-registrar shall be required to exchange or register a
transfer of (a) any Notes for a period of fifteen (15) days next
preceding any selection of Notes to be redeemed or (b) any Notes or
portions thereof called for redemption pursuant to Article III or (c)
any Notes or portion thereof surrendered for conversion pursuant to
Article XV.
(b) So long as the Notes are eligible for book-entry
settlement with the Depositary, unless otherwise required by law, all
Notes to be traded on the PORTAL Market or to a Person who is not a
U.S. Person (as defined in Regulation S) who is acquiring the Note in
an offshore transaction (a "Non-U.S. Person") in accordance with
Regulation S shall be represented by a Note in global form registered
in the name of the Depositary or the nominee of the Depositary. The
transfer and exchange of beneficial interests in such Note in global
form, which does not involve the issuance of a Note in certificated
form, shall be effected through the
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<PAGE> 22
Depositary, in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the
Depositary therefor.
At any time at the request of the beneficial holder of an
interest in a Note in global form to obtain a Note in certificated
form, such beneficial holder shall be entitled to obtain a Note in
certificated form upon written request to the Trustee and the Custodian
in accordance with the standing instructions and procedures existing
between the Custodian and Depositary for the issuance thereof. Upon
receipt of any such request, the Trustee, or the Custodian at the
direction of the Trustee, will cause, in accordance with the standing
instructions and procedures existing between the Depositary and the
Custodian, the aggregate principal amount of the Note in global form to
be reduced by the principal amount of the Note in certificated form
issued upon such request to such beneficial holder and, following such
reduction, the Company will execute and the Trustee will authenticate
and deliver to such beneficial holder (or its nominee) a Note or Notes
in certificated form in the appropriate aggregate principal amount in
the name of such beneficial holder (or its nominee) and bearing such
restrictive legends as may be required by this Indenture.
Any transfer of a beneficial interest in a Note in global form
which cannot be effected through book-entry settlement must be effected
by the delivery to the transferee (or its nominee) of a Note or Notes
in certificated form registered in the name of the transferee (or its
nominee) on the books maintained by the Note registrar in accordance
with the transfer restrictions set forth herein. With respect to any
such transfer, the Trustee, or the Custodian at the direction of the
Trustee, will cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Custodian, the
aggregate principal amount of the Note in global form to be reduced by
the principal amount of the beneficial interest in the Note in global
form being transferred and, following such reduction, the Company will
execute and the Trustee will authenticate and deliver to the transferee
(or such transferee's nominee, as the case may be), a Note or Notes in
certificated form in the appropriate aggregate principal amount in the
name of such transferee (or its nominee) and bearing such restrictive
legends as may be required by this Indenture.
(c) So long as the Notes are eligible for book-entry
settlement, or unless otherwise required by law, upon any transfer of a
Note in certificated form to a QIB in accordance with Rule 144A or a
Non-U.S. Person in accordance with Regulation S, and upon receipt of
the Note or Notes in certificated form being so transferred, together
with a certification from the transferor that the transferee is a QIB
or a Non-U.S. Person (or other evidence satisfactory to the Trustee),
the Trustee shall make, or direct the Custodian to make, an endorsement
on the Note in global form to reflect an increase in the aggregate
principal amount of the Notes represented by
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<PAGE> 23
the Note in global form, and the Trustee shall cancel such Note or
Notes in certificated form and cause, or direct the Custodian to cause,
in accordance with the standing instructions and procedures existing
between the Depositary and the Custodian, the aggregate principal
amount of Notes represented by the Note in global form to be increased
accordingly; provided that no Note in certificated form, or portion
thereof, in respect of which the Company or an Affiliate of the Company
held any beneficial interest shall be included in such Note in global
form until such Note in certificated form is freely tradable in
accordance with Rule 144(k); provided further that the Trustee shall
issue Notes in certificated form upon any transfer of a beneficial
interest in the Note in global form to the Company or an Affiliate of
the Company.
Any Note in global form may be endorsed with or have
incorporated in the text thereof such legends or recitals or changes
not inconsistent with the provisions of this Indenture as may be
required by the Custodian, the Depositary or by the National
Association of Securities Dealers, Inc. in order for the Notes to be
tradeable on the PORTAL Market or as may be required for the Notes to
be tradeable on any other market developed for trading of securities
pursuant to Rule 144A or Regulation S under the Securities Act or
required to comply with any applicable law or any regulation thereunder
or with the rules and regulations of any securities exchange or
automated quotation system upon which the Notes may be listed or traded
or to conform with any usage with respect thereto, or to indicate any
special limitations or restrictions to which any particular Notes are
subject.
(d) Every Note that bears or is required under this Section
2.5(d) to bear the legend set forth in this Section 2.5(d) (together
with any Common Stock issued upon conversion of the Notes and required
to bear the legend set forth in Section 2.5(e), collectively, the
"Restricted Securities") shall be subject to the restrictions on
transfer set forth in this Section 2.5(d) (including those set forth in
the legend set forth below) unless such restrictions on transfer shall
be waived by written consent of the Company, and the holder of each
such Restricted Note, by such Noteholder's acceptance thereof, agrees
to be bound by all such restrictions on transfer. As used in Sections
2.5(d) and 2.5(e), the term "transfer" encompasses any sale, pledge,
transfer or other disposition whatsoever of any Restricted Security.
Until three (3) years after the original issuance date of any
Note, any certificate evidencing such Note (and all securities issued
in exchange therefor or substitution thereof, other than Common Stock,
if any, issued upon conversion thereof, which shall bear the legend set
forth in Section 2.5(e), if applicable) shall bear a legend in
substantially the following form, unless otherwise agreed by the
Company in writing, with written notice thereof to the Trustee:
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<PAGE> 24
THE NOTE EVIDENCED HEREBY HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER: (1) REPRESENTS THAT (A) IT IS
A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)( 1), (2), (3)
OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE
NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES
THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL
ISSUANCE OF THE NOTE EVIDENCED HEREBY RESELL OR OTHERWISE
TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK
ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO QUANTUM
CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED
STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED
STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO LASALLE NATIONAL BANK, AS TRUSTEE
(OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM THE COMPANY), (D)
OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER
THE SECURITIES ACT, OR (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE); AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON
TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH
ANY TRANSFER OF THE NOTE EVIDENCED HEREBY WITHIN THREE YEARS
AFTER THE ORIGINAL ISSUANCE OF SUCH NOTE, THE HOLDER MUST
CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF
RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS
CERTIFICATE TO LASALLE NATIONAL BANK, AS TRUSTEE (OR A
SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFEREE
IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS
NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO LASALLE NATIONAL BANK, AS
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<PAGE> 25
TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS
LEGEND WILL BE REMOVED UPON ANY TRANSFER OF THE NOTE EVIDENCED
HEREBY AFTER THE EXPIRATION OF THREE YEARS FROM THE ORIGINAL
ISSUANCE OF THE NOTE EVIDENCED HEREBY. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER
THE SECURITIES ACT.
Any Note (or security issued in exchange or substitution
therefor) as to which such restrictions on transfer shall have expired
in accordance with their terms or as to the conditions for removal of
the foregoing legend set forth therein have been satisfied may, upon
surrender of such Note for exchange to the Note registrar in accordance
with the provisions of this Section 2.5, be exchanged for a new Note or
Notes, of like tenor and aggregate principal amount, which shall not
bear the restrictive legend required by this Section 2.5(d).
Notwithstanding any other provisions of this Indenture (other
than the provisions set forth in the second paragraph of Section 2.5(b)
and in this Section 2.5(d)), a Note in global form may not be
transferred as a whole or in part except by the Depositary to a nominee
of the Depositary or by a nominee of the Depositary to the Depositary
or another nominee of the Depositary or by the Depositary or any such
nominee to a successor Depositary or a nominee of such successor
Depositary.
The Depositary shall be a clearing agency registered under the
Exchange Act. The Company initially appoints The Depository Trust
Company to act as Depositary with respect to the Notes in global form.
Initially, the global Note shall be issued to the Depositary,
registered in the name of Cede & Co., as the nominee of the Depositary,
and deposited with the Custodian for Cede & Co.
If at any time the Depositary for the Note in global form
notifies the Company that it is unwilling or unable to continue as
Depositary for the Note, the Company may appoint a successor Depositary
with respect to such Note. If a successor Depositary is not appointed
by the Company within ninety (90) days after the Company receives such
notice, the Company will execute, and the Trustee, upon receipt of an
Officers' Certificate for the authentication and delivery of Notes,
will authenticate and deliver, Notes in certificated form, in an
aggregate principal
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<PAGE> 26
amount equal to the principal amount of the Note in global form, in
exchange for such Note in global form.
If a Note in certificated form is issued in exchange for any
portion of a Note in global form after the close of business at the
office or agency where such exchange occurs on any record date and
before the opening of business at such office or agency on the next
succeeding interest payment date, interest will not be payable on such
interest payment date in respect of such Note, but will be payable on
such interest payment date only to the person to whom interest in
respect of such portion of such Note in global form is payable in
accordance with the provisions of this Indenture.
Notes in certificated form issued in exchange for all or a
part of a Note in global form pursuant to this Section 2.5 shall be
registered in such names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. Upon execution
and authentication, the Trustee shall deliver such Notes in
certificated form to the persons in whose names such Notes in
certificated form are so registered.
At such time as all interests in a Note in global form have
been redeemed, converted, canceled, exchanged for Notes in certificated
form, or transferred to a transferee who receives Notes in certificated
form thereof, such Note in global form shall, upon receipt thereof, be
canceled by the Trustee in accordance with standing procedures and
instructions existing between the Depositary and the Custodian. At any
time prior to such cancellation, if any interest in a global Note is
exchanged for Notes in certificated form, redeemed, converted,
repurchased or canceled, exchanged for Notes in certificated form or
transferred to a transferee who receives Notes in certificated form
therefor or any Note in certificated form is exchanged or transferred
for part of a Note in global form, the principal amount of such Note in
global form shall, in accordance with the standing procedures and
instructions existing between the Depositary and the Custodian, be
appropriately reduced or increased, as the case may be, and an
endorsement shall be made on such Note in global form, by the Trustee
or the Custodian, at the direction of the Trustee, to reflect such
reduction or increase.
(e) Until three (3) years after the original issuance date of
any Note, any stock certificate representing Common Stock issued upon
conversion of such Note shall bear a legend in substantially the
following form, unless such Common Stock has been sold pursuant to a
registration statement that has been declared effective under the
Securities Act (and which continues to be effective at the time of such
transfer) or such Common Stock has been issued upon conversion of Notes
that have been transferred pursuant to a registration statement that
has been declared
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<PAGE> 27
effective under the Securities Act, or unless otherwise agreed by the
Company in writing with written notice thereof to the transfer agent:
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER
HEREOF AGREES THAT UNTIL THE EXPIRATION OF THREE YEARS AFTER
THE ORIGINAL ISSUANCE OF THE NOTE UPON THE CONVERSION OF WHICH
THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED: (1) IT WILL NOT
RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY
EXCEPT (A) TO QUANTUM CORPORATION OR ANY SUBSIDIARY THEREOF,
(B) INSIDE THE UNITED STATES TO A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN
COMPLIANCE WITH RULE 144A, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO HARRIS TRUST COMPANY OF
CALIFORNIA, AS TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT,
AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM SUCH TRANSFER AGENT (OR A
SUCCESSOR TRANSFER AGENT, AS APPLICABLE)), (D) OUTSIDE THE
UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED
BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE
EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2) PRIOR TO SUCH
TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F)
ABOVE), IT WILL FURNISH HARRIS TRUST COMPANY OF CALIFORNIA, AS
TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE),
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
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<PAGE> 28
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND (3) IT WILL DELIVER TO EACH PERSON TO
WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER
THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE) A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL
BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE COMMON
STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE 1(F) ABOVE OR UPON
ANY TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY AFTER THE
EXPIRATION OF THREE YEARS FROM THE ORIGINAL ISSUANCE OF THE
NOTE UPON THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED
HEREBY WAS ISSUED OR UPON THE EARLIER SATISFACTION OF HARRIS
TRUST COMPANY OF CALIFORNIA, AS TRANSFER AGENT (OR A SUCCESSOR
TRANSFER AGENT, AS APPLICABLE), THAT THE COMMON STOCK HAS BEEN
OR IS BEING OFFERED AND SOLD IN COMPLIANCE WITH RULE 904 UNDER
THE SECURITIES ACT. AS USED HEREIN, THE TERMS "UNITED STATES"
AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT.
Any such Common Stock as to which such restrictions on
transfer shall have expired in accordance with their terms or as to
which the conditions for removal of the foregoing legend set forth
therein have been satisfied may, upon surrender of the certificates
representing such shares of Common Stock for exchange in accordance
with the procedures of the transfer agent for the Common Stock, be
exchanged for a new certificate or certificates for a like number of
shares of Common Stock, which shall not bear the restrictive legend
required by this Section 2.5(e).
(f) Any certificate evidencing a Note that has been
transferred to an Affiliate of the Company within three years after the
original issuance date of the Note, as evidenced by a notation on the
Assignment Form for such transfer or in the representation letter
delivered in respect thereof, shall, until three years after the last
date on which the Company or any Affiliate of the Company was an owner
of such Note, bear a legend in substantially the following form, unless
otherwise agreed by the Company (with written notice thereof to the
Trustee):
THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE
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<PAGE> 29
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER AGREES (1) THAT IT WILL NOT
RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE
COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A)
TO QUANTUM CORPORATION OR ANY SUBSIDIARY THEREOF, (B) IN A
TRANSACTION REGISTERED UNDER THE SECURITIES ACT OR (C)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE
144 UNDER THE SECURITIES ACT (IF AVAILABLE) AND (2) THAT IT
WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY
IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. THIS LEGEND SHALL BE REMOVED UPON THE TRANSFER OF THE
NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON
CONVERSION OF SUCH NOTE PURSUANT TO THE IMMEDIATELY PRECEDING
SENTENCE. IF THE PROPOSED TRANSFER IS PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH LASALLE NATIONAL BANK, AS TRUSTEE (OR A SUCCESSOR
TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS
OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED
HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES
ACT.
Any stock certificate representing Common Stock issued upon
conversion of such Note shall also bear a legend in substantially the
form indicated above, unless otherwise agreed by the Company (with
written notice thereof to the Trustee).
(g) Notwithstanding any provision of Section 2.5 to the
contrary, in the event Rule 144(k) as promulgated under the Securities
Act (or any successor rule) is amended to shorten the three-year period
under Rule 144(k) (or the corresponding period under any successor
rule), from and after receipt by the Trustee of the Officers'
Certificate and Opinion of Counsel provided for in this Section 2.5(g),
(i) the references in the first sentence of the second paragraph of
Section 2.5(d) to "three (3) years" and in the restrictive legend set
forth in such paragraph to "THREE YEARS" shall be deemed for all
purposes hereof to be references to such shorter period, (ii) the
references in the first paragraph of
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<PAGE> 30
Section 2.5(e) to "three (3) years" and in the restrictive legend set
forth in such paragraph to "THREE YEARS" shall be deemed for all
purposes hereof to be references to such shorter period and (iii) all
corresponding references in the Notes and the restrictive legends on
the Restricted Securities shall be deemed for all purposes hereof to be
references to such shorter period, provided that such changes shall not
become effective if they are otherwise prohibited by, or would
otherwise cause a violation of, the then-applicable federal securities
laws. As soon as practicable after the Company has knowledge of the
effectiveness of any such amendment to shorten the three-year period
under Rule 144(k) (or the corresponding period under any successor
rule), unless such changes would otherwise be prohibited by, or would
otherwise cause a violation of, the then-applicable securities laws,
the Company shall provide to the Trustee an Officers' Certificate and
Opinion of Counsel informing the Trustee of the effectiveness of such
amendment and the effectiveness of the foregoing changes to Sections
2.5(d) and 2.5(e) and the restrictive legends on the Restricted
Securities. This Section 2.5(g) shall apply to successive amendments to
Rule 144(k) (or any successor rule) shortening the holding period
thereunder.
Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes. In case any
Note shall become mutilated or be destroyed, lost or stolen, the Company in its
discretion may execute, and upon its request the Trustee or an authenticating
agent appointed by the Trustee shall authenticate and deliver, a new Note,
bearing a number not contemporaneously outstanding, in exchange and substitution
for the mutilated Note, or in lieu of and in substitution for the Note so
destroyed, lost or stolen. In every case the applicant for a substituted Note
shall furnish to the Company, to the Trustee and, if appli cable, to such
authenticating agent such security or indemnity as may be required by them to
save each of them harmless for any loss, liability, cost or expense caused by or
connected with such substitution, and, in every case of destruction, loss or
theft, the applicant shall also furnish to the Company, to the Trustee and, if
applicable, to such authenticating agent evidence to their satisfaction of the
destruction, loss or theft of such Note and of the ownership thereof.
The Trustee or such authenticating agent may authenticate any such
substituted Note and deliver the same upon the receipt of such security or
indemnity as the Trustee, the Company and, if applicable, such authenticating
agent may require. Upon the issuance of any substituted Note, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses connected
therewith. In case any Note which has matured or is about to mature or has been
called for redemption or is about to be converted into Common Stock shall become
mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a
substitute Note, pay or authorize the payment of or convert or authorize the
conversion of the same (without surrender thereof except in the case of a
mutilated Note), as the case may be, if the applicant for such payment or
conversion shall
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furnish to the Company, to the Trustee and, if applicable, to such
authenticating agent such security or indemnity as may be required by them to
save each of them harmless for any loss, liability, cost or expense caused by or
connected with such substitution, and, in case of destruction, loss or theft,
evidence satisfactory to the Company, the Trustee and, if applicable, any paying
agent or conversion agent of the destruction, loss or theft of such Note and of
the ownership thereof.
Every substitute Note issued pursuant to the provisions of this Section
2.6 by virtue of the fact that any Note is destroyed, lost or stolen shall
constitute an additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Note shall be found at any time, and shall be
entitled to all the benefits of (but shall be subject to all the limitations set
forth in) this Indenture equally and proportionately with any and all other
Notes duly issued hereunder. To the extent permitted by law, all Notes shall be
held and owned upon the express condition that the foregoing provisions are
exclusive with respect to the replacement or payment or conversion of mutilated,
destroyed, lost or stolen Notes and shall preclude any and all other rights or
remedies notwithstanding any law or statute existing or hereafter enacted to the
contrary with respect to the replacement or payment or conversion of negotiable
instruments or other securities without their surrender.
Section 2.7 Temporary Notes. Pending the preparation of Note in
certificated forms, the Company may execute and the Trustee or an authenticating
agent appointed by the Trustee shall, upon the written request of the Company,
authenticate and deliver temporary Notes (printed or lithographed). Temporary
Notes shall be issuable in any authorized denomination, and substantially in the
form of the Notes in certificated form, but with such omissions, insertions and
variations as may be appropriate for temporary Notes, all as may be determined
by the Company. Every such temporary Note shall be executed by the Company and
authenticated by the Trustee or such authenticating agent upon the same
conditions and in substantially the same manner, and with the same effect, as
the Notes in certificated form. Without unreasonable delay the Company will
execute and deliver to the Trustee or such authenticating agent Notes in
certificated form (other than in the case of Notes in global form) and thereupon
any or all temporary Notes (other than any such Note in global form) may be
surrendered in exchange therefor, at each office or agency maintained by the
Company pursuant to Section 5.2 and the Trustee or such authenticating agent
shall authenticate and deliver in exchange for such temporary Notes an equal
aggregate principal amount of Notes in certificated form. Such exchange shall be
made by the Company at its own expense and without any charge therefor. Until so
exchanged, the temporary Notes shall in all respects be entitled to the same
benefits and subject to the same limitations under this Indenture as Notes in
certificated form authenticated and delivered hereunder.
Section 2.8 Cancellation of Notes Paid, Etc. All Notes surrendered for
the purpose of payment, redemption, conversion, exchange or registration of
transfer, shall, if
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surrendered to the Company or any paying agent or any Note registrar or any
conversion agent, be surrendered to the Trustee and promptly canceled by it, or,
if surrendered to the Trustee, shall be promptly canceled by it, and no Notes
shall be issued in lieu thereof except as expressly permitted by any of the
provisions of this Indenture. The Trustee shall destroy canceled Notes (unless
the Company directs it to do otherwise) and, after such destruction, shall, if
requested by the Company, deliver a certificate of such destruction to the
Company. If the Company shall acquire any of the Notes, such acquisition shall
not operate as a redemption or satisfaction of the indebtedness represented by
such Notes unless and until the same are delivered to the Trustee for
cancellation.
ARTICLE III
REDEMPTION OF NOTES
Section 3.1 Redemption Prices. The Company may not redeem the Notes
prior to March 3, 1998. At any time on or after March 3, 1998, the Company may,
at its option, redeem all or from time to time any part of the Notes on any date
prior to maturity, upon notice as set forth in Section 3.2, and at the optional
redemption prices set forth in the form of Note attached as Exhibit A hereto,
together with accrued interest to, but excluding, the date fixed for redemption,
except that prior to March 3, 2000 the Notes will not be redeemable at the
option of the Company unless the Closing Price of the Common Stock shall have
exceeded the product of the Conversion Price then in effect times 125% (rounded
to the nearest cent) for 20 Trading Days within a period of 30 consecutive
Trading Days ending within five Trading Days prior to the notice of redemption.
Section 3.2 Notice of Redemption: Selection of Notes. In case the
Company shall desire to exercise the right to redeem all or, as the case may be,
any part of the Notes pursuant to Section 3.1, it shall fix a date for
redemption and it or, at its request, the Trustee in the name of and at the
expense of the Company, shall mail or cause to be mailed a notice of such
redemption at least 15 and not more than 60 days prior to the date fixed for
redemption to the holders of Notes so to be redeemed as a whole or in part at
their last addresses as the same appear on the Note register (provided that if
the Company shall give such notice, it shall also give written notice, and
written notice of the Notes to be redeemed, to the Trustee). Such mailing shall
be by first class mail. The notice if mailed in the manner herein provided shall
be conclusively presumed to have been duly given, whether or not the holder
receives such notice. In any case, failure to give such notice by mail or any
defect in the notice to the holder of any Note designated for redemption as a
whole or in part shall not affect the validity of the proceedings for the
redemption of any other Note.
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Each such notice of redemption shall specify the aggregate principal
amount of Notes to be redeemed, the date fixed for redemption, the redemption
price at which Notes are to be redeemed, the place or places of payment, that
payment will be made upon presentation and surrender of such Notes, that
interest accrued to the date fixed for redemption will be paid as specified in
said notice, and that on and after said date interest thereon or on the portion
thereof to be redeemed will cease to accrue. Such notice shall also state the
current Conversion Price and the date on which the right to convert such Notes
or portions thereof into Common Stock will expire. If fewer than all the Notes
are to be redeemed, the notice of redemption shall identify the Notes to be
redeemed. In case any Note is to be redeemed in part only, the notice of
redemption shall state the portion of the principal amount thereof to be
redeemed and shall state that on and after the date fixed for redemption, upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion thereof will be issued.
On or prior to the redemption date specified in the notice of
redemption given as provided in this Section 3.2, the Company will deposit with
the Trustee or with one or more paying agents (or, if the Company is acting as
its own paying agent, set aside, segregate and hold in trust as provided in
Section 5.4) an amount of money sufficient to redeem on the redemption date all
the Notes (or portions thereof) so called for redemption (other than those
theretofore surrendered for conversion into Common Stock) at the appropriate
redemption price, together with accrued interest to, but excluding, the date
fixed for redemption; provided that if such payment is made on the redemption
date it must be received by the Trustee or paying agent, as the case may be, by
10:00 a.m. New York City time, on such date. If any Note called for redemption
is converted pursuant hereto, any money deposited with the Trustee or any paying
agent or so segregated and held in trust for the redemption of such Note shall
be paid to the Company upon its written request, or, if then held by the Company
shall be discharged from such trust. If fewer than all the Notes are to be
redeemed, the Company will give the Trustee written notice in the form of an
Officers' Certificate not fewer than forty-five (45) days (or such shorter
period of time as may be acceptable to the Trustee) prior to the redemption date
as to the aggregate principal amount of Notes to be redeemed.
If fewer than all the Notes are to be redeemed, the Trustee shall
select the Notes or portions thereof to be redeemed (in principal amounts of
$1,000 or integral multiples thereof), by lot or, in its discretion, on a pro
rata basis. If any Note selected for partial redemption is converted in part
after such selection, the converted portion of such Note shall be deemed (so far
as may be) to be the portion to be selected for redemption. The Notes (or
portions thereof) so selected shall be deemed duly selected for redemption for
all purposes hereof, notwithstanding that any such Note is converted as a whole
or in part before the mailing of the notice of redemption.
Upon any redemption of less than all Notes, the Company and the Trustee
may (but need not) treat as outstanding any Notes surrendered for conversion
during the
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period of fifteen (15) days next preceding the mailing of a notice of redemption
and may (but need not) treat as outstanding any Note authenticated and delivered
during such period in exchange for the unconverted portion of any Note converted
in part during such period.
Section 3.3 Payment of Notes Called for Redemption. If notice of
redemption has been given as above provided, the Notes or portion of Notes with
respect to which such notice has been given shall, unless converted into Common
Stock pursuant to the terms hereof, become due and payable on the (but
excluding) date and at the place or places stated in such notice at the
applicable redemption price, together with interest accrued to (but excluding)
the date fixed for redemption, and on and after said date (unless the Company
shall default in the payment of such Notes at the redemption price, together
with interest accrued to said date) interest on the Notes or portion of Notes so
called for redemption shall cease to accrue and such Notes shall cease after the
close of business on the Business Day next preceding the date fixed for
redemption to be convertible into Common Stock and, except as provided in
Sections 8.5 and 13.4, to be entitled to any benefit or security under this
Indenture, and the holders thereof shall have no right in respect of such Notes
except the right to receive the redemption price thereof and unpaid interest to
(but excluding) the date fixed for redemption. On presentation and surrender of
such Notes at a place of payment in said notice specified, the said Notes or the
specified portions thereof shall be paid and redeemed by the Company at the
appli cable redemption price, together with interest accrued thereon to (but
excluding) the date fixed for redemption; provided that, if the applicable
redemption date is an interest payment date, the semi-annual payment of interest
becoming due on such date shall be payable to the holders of such Notes
registered as such on the relevant record date instead of the holders
surrendering such Notes for redemption on such date.
Upon presentation of any Note redeemed in part only, the Company shall
execute and the Trustee shall authenticate and deliver to the holder thereof, at
the expense of the Company, a new Note or Notes, of authorized denominations, in
principal amount equal to the unredeemed portion of the Notes so presented.
Notwithstanding the foregoing, the Trustee shall not redeem any Notes
or mail any notice of optional redemption during the continuance of a default in
payment of interest or premium on the Notes or of any Event of Default of which,
in the case of any Event of Default other than under Sections 7.1(a) or 7.1(b),
a Responsible Officer of the Trustee has knowledge. If any Note called for
redemption shall not be so paid upon surrender thereof for redemption, the
principal and premium, if any, shall, until paid or duly provided for, bear
interest from the date fixed for redemption at the rate borne by the Note and
such Note shall remain convertible into Common Stock until the principal and
premium, if any, shall have been paid or duly provided for.
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Section 3.4 Conversion Arrangement on Call for Redemption. In
connection with any redemption of Notes, the Company may arrange for the
purchase and conversion of any Notes by an agreement with one or more investment
bankers or other purchasers to purchase such Notes by paying to the Trustee in
trust for the Noteholders, on or before the date fixed for redemption, an amount
not less than the applicable redemption price, together with interest accrued to
(but excluding) the date fixed for redemption, of such Notes. Notwithstanding
anything to the contrary contained in this Article III, the obligation of the
Company to pay the redemption price of such Notes, together with interest
accrued to (but excluding) the date fixed for redemption, shall be deemed to be
satisfied and discharged to the extent such amount is so paid by such
purchasers. If such an agreement is entered into, a copy of which will be filed
with the Trustee prior to the date fixed for redemption, any Notes not duly
surrendered for conversion by the holders thereof may, at the option of the
Company, be deemed, to the fullest extent permitted by law, acquired by such
purchasers from such holders and (notwithstanding anything to the contrary
contained in Article XV) surrendered by such purchasers for conversion, all as
of immediately prior to the close of business on the date fixed for redemption
(and the right to convert any such Notes shall be extended through such time),
subject to payment of the above amount as aforesaid. At the direction of the
Company, the Trustee shall hold and dispose of any such amount paid to it in the
same manner as it would monies deposited with it by the Company for the
redemption of Notes. Without the Trustee's prior written consent, no arrangement
between the Company and such purchasers for the purchase and conversion of any
Notes shall increase or otherwise affect any of the powers, duties,
responsibilities or obligations of the Trustee as set forth in this Indenture,
and the Company agrees to indemnify the Trustee from, and hold it harmless
against, any loss, liability or expense arising out of or in connection with any
such arrangement for the purchase and conversion of any Notes between the
Company and such purchasers to which the Trustee has not consented in writing,
including the costs and expenses, including reasonable legal fees, incurred by
the Trustee in the defense of any claim or liability arising out of or in
connection with the exercise or performance of any of its powers, duties,
responsibilities or obligations under this Indenture.
Section 3.5 Redemption at Option of Holders.
(a) If there shall occur a Fundamental Change, then each
Noteholder shall have the right, at such holder's option, to require
the Company to redeem all of such holder's Notes, or any portion
thereof that is an integral multiple of $1,000 principal amount, on the
date (the "Repurchase Date") that is 30 days after the date of the
Company Notice (as defined in Section 3.5(b) below) of such Fundamental
Change (or, if such 30th day is not a Business Day, the next succeeding
Business Day). Such repayment shall be made at the following prices
(expressed as percentages of the principal amount) in the event of a
Fundamental Change occurring during the 12-month period beginning
November 1:
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<PAGE> 36
<TABLE>
<CAPTION>
Year Percentage Year Percentage
---- ---------- ---- ----------
<S> <C> <C> <C>
1996 . . . . . . . . . . . 105.000% 2000 . . . . . . . . . 102.143%
1997 . . . . . . . . . . . 104.286 2001 . . . . . . . . . 101.429
1998 . . . . . . . . . . . 103.571 2002 . . . . . . . . . 100.714
1999 . . . . . . . . . . . 102.857
</TABLE>
and 100% at March 1, 2003; provided that if the Applicable Price with
respect to the Fundamental Change is less than the Reference Market
Price, the Company shall redeem such Notes at a price equal to the
foregoing redemption price multiplied by the fraction obtained by
dividing the Applicable Price by the Reference Market Price; provided
that if such repayment date is March 1 or September 1, then the
interest payable on such date shall be paid to the holder of record of
the Note on the next preceding February 15 or August 15. In each case,
the Company shall also pay to such holders accrued interest to, but
excluding, the Repurchase Date on the redeemed Notes.
Upon presentation of any Note redeemed in part only, the
Company shall execute and the Trustee shall authenticate and deliver to
the holder thereof, at the expense of the Company, a new Note or Notes,
of authorized denominations, in principal amount equal to the
unredeemed portion of the Notes so presented.
(b) On or before the tenth day after the occurrence of a
Fundamental Change, the Company, or, at its request (which must be
received by the Trustee at least five Business Days prior to the date
the Trustee is requested to give notice as described below), the
Trustee in the name of and at the expense of the Company, shall mail or
cause to be mailed to all holders of record on the date of the
Fundamental Change a notice (the "Company Notice") of the occurrence of
such Fundamental Change and of the redemption right at the option of
the holders arising as a result thereof. Such notice shall be mailed in
the manner and with the effect set forth in the first paragraph of
Section 3.2. The Company shall also deliver a copy of the Company
Notice to the Trustee at such time as it is mailed to Noteholders.
Each Company Notice shall specify the circumstances
constituting the Fundamental Change, the Repurchase Date, the price at
which the Company shall be obligated to redeem Notes, the latest time
on the Repurchase Date by which the holder must exercise the redemption
right (the "Fundamental Change Expiration Time"), that the holder shall
have the right to withdraw any Notes surrendered prior to the
Fundamental Change Expiration Time, a description of the procedure
which a Noteholder must follow to exercise such redemption right and to
withdraw any surrendered Notes, the place or places where the holder is
to surrender such
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holder's Notes, and the amount of interest accrued on each Note to the
Repurchase Date.
No failure of the Company to give the foregoing notices and no
defect therein shall limit the Noteholders' redemption rights or affect
the validity of the proceedings for the repurchase of the Notes
pursuant to this Section 3.5.
(c) For a Note to be so repaid at the option of the holder,
the Company must receive at the office or agency of the Company
maintained for that purpose in the Borough of Manhattan, The City of
New York or, at the option of such holder, the Corporate Trust Office,
such Note with the form entitled "Option to Elect Repayment Upon A
Fundamental Change" on the reverse thereof duly completed, together
with such Notes duly endorsed for transfer, on or before the
Fundamental Change Expiration Time. All questions as to the validity,
eligibility (including time of receipt) and acceptance of any Note for
repayment shall be determined by the Company, whose determination shall
be final and binding absent manifest error.
(d) On or prior to the Repurchase Date, the Company will
deposit with the Trustee or with one or more paying agents (or, if the
Company is acting as its own paying agent, set aside, segregate and
hold in trust as provided in Section 5.4) an amount of money sufficient
to repay on the Repurchase Date all the Notes to be repaid on such date
at the appropriate redemption price, together with accrued interest to
(but excluding) the Repurchase Date; provided that if such payment is
made on the Repurchase Date it must be received by the Trustee or
paying agent, as the case may be, by 10:00 a.m. New York City time, on
such date. Payment for Notes surrendered for redemption (and not
withdrawn) prior to the Fundamental Change Expiration Time will be made
promptly (but in no event more than three Business Days) following the
Repurchase Date by mailing checks for the amount payable to the holders
of such Notes entitled thereto as they shall appear on the registry
books of the Company.
(e) In the case of consolidation, merger, conveyance, transfer
or lease to which Section 15.6 applies, in which the Common Stock of
the Company is changed or exchanged as a result into the right to
receive securities, cash or other property which includes shares of
Common Stock of the Company or another person that are, or upon
issuance will be, traded on a United States national securities
exchange or approved for trading on an established automated
over-the-counter trading market in the United States and such shares
constitute at the time such change or exchange becomes effective in
excess of 50% of the aggregate fair market value of such securities,
cash and other property (as determined by the Company, which
determination shall be conclusive and binding), then the person formed
by such consolidation or resulting from such merger or which acquires
such assets, as the case may be, shall execute and deliver to the
Trustee a supplemental
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indenture (which shall comply with the Trust Indenture Act as in force
at the date of execution of such supplemental indenture) modifying the
provisions of this Indenture relating to the right of holders of the
Notes to cause the Company to repurchase the Notes following a
Fundamental Change, including without limitation the applicable
provisions of this Section 3.5 and the definitions of the Applicable
Price, Common Stock, Fundamental Change and Reference Market Price, as
appropriate, as determined in good faith by the Company (which
determination shall be conclusive and binding), to make such provisions
apply to the common stock and the issuer thereof if different from the
Company and Common Stock of the Company (in lieu of the Company and the
Common Stock of the Company).
ARTICLE IV
SUBORDINATION OF NOTES
Section 4.1 Agreement of Subordination. The Company covenants and
agrees, and each holder of Notes issued hereunder by his acceptance thereof
likewise covenants and agrees, that all Notes shall be issued subject to the
provisions of this Article IV; and each Person holding any Note, whether upon
original issue or upon transfer, assignment or exchange thereof, accepts and
agrees to be bound by such provisions.
The payment of the principal of, premium, if any, and interest on all
Notes (including, but not limited to, the redemption price with respect to the
Notes called for redemption in accordance with Section 3.2 or submitted for
redemption in accordance with Section 3.5, as the case may be, as provided in
the Indenture) issued hereunder shall, to the extent and in the manner
hereinafter set forth, be subordinated and subject in right of payment to the
prior payment in full of all Senior Indebtedness, whether outstanding at the
date of this Indenture or thereafter incurred.
No provision of this Article IV shall prevent the occurrence of any
default or Event of Default hereunder.
Section 4.2 Payments to Noteholders. No payment shall be made with
respect to the principal of, or premium, if any, or interest on the Notes
(including, but not limited to, the redemption price with respect to the Notes
to be called for redemption in accordance with Section 3.2 or submitted for
redemption in accordance with Section 3.5, as the case may be, as provided in
the Indenture), except payments and distributions made by the Trustee as
permitted by the first or second paragraph of Section 4.5, if:
(i) a default in the payment of principal, premium, interest,
rent or other obligations due on any Senior Indebtedness occurs and is
continuing (or, in the case
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<PAGE> 39
of Senior Indebtedness for which there is a period of grace, in the
event of such a default that continues beyond the period of grace, if
any, specified in the instrument or lease evidencing such Senior
Indebtedness), unless and until such default shall have been cured or
waived or shall have ceased to exist; or
(ii) a default, other than a payment default, on a Designated
Senior Indebtedness occurs and is continuing that then permits holders
of such Designated Senior Indebtedness to accelerate its maturity and
the Trustee receives a notice of the default (a "Payment Blockage
Notice") from a Representative or the Company.
If the Trustee receives any Payment Blockage Notice pursuant to clause
(ii) above, no subsequent Payment Blockage Notice shall be effective for
purposes of this Section unless and until (A) at least 365 days shall have
elapsed since the initial effectiveness of the immediately prior Payment
Blockage Notice, and (B) all scheduled payments of principal, premium, if any,
and interest on the Notes that have come due have been paid in full in cash. No
nonpayment default that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice.
The Company may and shall resume payments on and distributions in
respect of the Notes upon the earlier of:
(1) the date upon which the default is cured or waived or ceases to
exist, or
(2) in the case of a default referred to in clause (ii) above, 179 days
pass after notice is received if the maturity of such Designated Senior
Indebtedness has not been accelerated, unless this Article IV otherwise
prohibits the payment or distribution at the time of such payment or
distribution.
Upon any payment by the Company, or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding-up or liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Indebtedness shall first be paid in full in cash or other payment
satisfactory to the holders of such Senior Indebtedness, or payment thereof in
accordance with its terms provided for in cash or other payment satisfactory to
the holders of such Senior Indebtedness before any payment is made on account of
the principal of, premium, if any, or interest on the Notes (except payments
made pursuant to Article XIII from monies deposited with the Trustee pursuant
thereto prior to commencement of proceedings for such dissolution, winding-up,
liquidation or reorganization); and upon any such dissolution or winding-up or
liquidation or
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<PAGE> 40
reorganization of the Company or bankruptcy, insolvency, receivership or other
proceeding, any payment by the Company, or distribution of assets of the Company
of any kind or character, whether in cash, property or securities, to which the
holders of the Notes or the Trustee would be entitled, except for the provision
of this Article IV, shall (except as aforesaid) be paid by the Company or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other Person
making such payment or distribution, or by the holders of the Notes or by the
Trustee under this Indenture if received by them or it, directly to the holders
of Senior Indebtedness (pro rata to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders, or as otherwise required by
law or a court order) or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, to the extent necessary to pay all Senior Indebtedness in
full, in cash or other payment satisfactory to the holders of such Senior
Indebtedness, after giving effect to any concurrent payment or distribution to
or for the holders of Senior Indebtedness, before any payment or distribution is
made to the holders of the Notes or to the Trustee.
For purposes of this Article IV, the words, "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article IV with respect
to the Notes to the payment of all Senior Indebtedness which may at the time be
outstanding; provided that (i) the Senior Indebtedness is assumed by the new
corporation, if any, resulting from any reorganization or readjustment, and (ii)
the rights of the holders of Senior Indebtedness (other than leases which are
not assumed by the Company or the new corporation, as the case may be) are not,
without the consent of such holders, altered by such reorganization or
readjustment. The consolidation of the Company with, or the merger of the
Company into, another corporation or the liquidation or dissolution of the
Company following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided for in Article XII shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 4.2
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article XII.
In the event of the acceleration of the Notes because of an Event of
Default, no payment or distribution shall be made to the Trustee or any holder
of Notes in respect of the principal of, premium, if any, or interest on the
Notes (including, but not limited to, the redemption price with respect to the
Notes called for redemption in accordance with Section 3.2 or submitted for
redemption in accordance with Section 3.5, as the case may be, as provided in
the Indenture), except payments and distributions made by the Trustee as
permitted by the first or second paragraph of Section 4.5, until all Senior
Indebtedness has been paid in full in cash or other payment satisfactory to the
holders of Senior
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Indebtedness or such acceleration is rescinded in accordance with the terms of
this Indenture. If payment of the Notes is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Indebtedness of the
acceleration.
In the event that, notwithstanding the foregoing provisions, any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities (including, without limitation, by way
of setoff or otherwise), prohibited by the foregoing, shall be received by the
Trustee or the holders of the Notes before all Senior Indebtedness is paid in
full in cash or other payment satisfactory to the holders of such Senior
Indebtedness, or provision is made for such payment thereof in accordance with
its terms in cash or other payment satisfactory to the holders of such Senior
Indebtedness, such payment or distribution shall be held in trust for the
benefit of and shall be paid over or delivered to the holders of Senior
Indebtedness or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing any
Senior Indebtedness may have been issued, as their respective interests may
appear, as calculated by the Company, for application to the payment of all
Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness in full in cash or other payment satisfactory to the holders of
such Senior Indebtedness, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness.
Nothing in this Section 4.2 shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 8.6. This Section 4.2 shall be subject
to the further provisions of Section 4.5.
Section 4.3 Subrogation of Notes. Subject to the payment in full of all
Senior Indebtedness, the rights of the holders of the Notes shall be subrogated
to the extent of the payments or distributions made to the holders of such
Senior Indebtedness pursuant to the provisions of this Article IV (equally and
ratably with the holders of all indebtedness of the Company which by its express
terms is subordinated to other indebtedness of the Company to substantially the
same extent as the Notes are subordinated and is entitled to like rights of
subrogation) to the rights of the holders of Senior Indebtedness to receive
payments or distributions of cash, property or securities of the Company
applicable to the Senior Indebtedness until the principal, premium, if any, and
interest on the Notes shall be paid in full; and, for the purposes of such
subrogation, no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the holders of the
Notes or the Trustee would be entitled except for the provisions of this Article
IV, and no payment over pursuant to the provisions of this Article IV, to or for
the benefit of the holders of Senior Indebtedness by holders of the Notes or the
Trustee, shall, as between the Company, its creditors other than holders of
Senior Indebtedness, and the holders of the Notes, be deemed to be a payment by
the Company to or on account of the Senior Indebtedness; and no payments or
distributions of cash, property or securities to or for the benefit of the
holders of the Notes pursuant to the subrogation provisions of this
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Article IV, which would otherwise have been paid to the holders of Senior
Indebtedness shall be deemed to be a payment by the Company to or for the
account of the Notes. It is understood that the provisions of this Article IV
are and are intended solely for the purposes of defining the relative rights of
the holders of the Notes, on the one hand, and the holders of the Senior
Indebtedness, on the other hand.
Nothing contained in this Article IV or elsewhere in this Indenture or
in the Notes is intended to or shall impair, as among the Company, its creditors
other than the holders of Senior Indebtedness, and the holders of the Notes, the
obligation of the Company, which is absolute and unconditional, to pay to the
holders of the Notes the principal of (and premium, if any) and interest on the
Notes as and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the holders of
the Notes and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent the Trustee or the
holder of any Note from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article IV of the holders of Senior Indebtedness in respect of cash,
property or securities of the Company received upon the exercise of any such
remedy.
Upon any payment or distribution of assets of the Company referred to
in this Article IV, the Trustee, subject to the provisions of Section 8.1, and
the holders of the Notes shall be entitled to rely upon any order or decree made
by any court of competent jurisdiction in which such bankruptcy, dissolution,
winding-up, liquidation or reorganization proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent
or other person making such payment or distribution, delivered to the Trustee or
to the holders of the Notes, for the purpose of ascertaining the persons
entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon and all other facts pertinent thereto or to this Article IV.
Section 4.4 Authorization to Effect Subordination. Each holder of a
Note by the holder's acceptance thereof authorizes and directs the Trustee on
the holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in this Article IV and appoints the
Trustee to act as the holder's attorney-in-fact for any and all such purposes.
If the Trustee does not file a proper proof of claim or proof of debt in the
form required in any proceeding referred to in the third paragraph of Section
7.2 hereof at least 30 days before the expiration of the time to file such
claim, the holders of any Senior Indebtedness or their representatives are
hereby authorized to file an appropriate claim for and on behalf of the holders
of the Notes.
Section 4.5 Notice to Trustee. The Company shall give prompt written
notice in the form of an Officers' Certificate to a Responsible Officer of the
Trustee and to any paying agent of any fact known to the Company which would
prohibit the making of any
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payment of monies to or by the Trustee or any paying agent in respect of the
Notes pursuant to the provisions of this Article IV. Notwithstanding the
provisions of this Article IV or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts which
would prohibit the making of any payment of monies to or by the Trustee in
respect of the Notes pursuant to the provisions of this Article IV, unless and
until a Responsible Officer of the Trustee shall have received written notice
thereof at the Corporate Trust Office from the Company (in the form of an
Officers' Certificate) or a Representative or a holder or holders of Senior
Indebtedness or from any trustee thereof; and before the receipt of any such
written notice, the Trustee, subject to the provisions of Section 8.1, shall be
entitled in all respects to assume that no such facts exist; provided that if on
a date not fewer than one Business Day prior to the date upon which by the terms
hereof any such monies may become payable for any purpose (including, without
limitation, the payment of the principal of, or premium, if any, or interest on
any Note) the Trustee shall not have received, with respect to such monies, the
notice provided for in this Section 4.5, then, anything herein contained to the
contrary notwithstanding, the Trustee shall have full power and authority to
receive such monies and to apply the same to the purpose for which they were
received, and shall not be affected by any notice to the contrary which may be
received by it on or after such prior date.
Notwithstanding anything in this Article IV to the contrary, nothing
shall prevent any payment by the Trustee to the Noteholders of monies deposited
with it pursuant to Section 13.1, and any such payment shall not be subject to
the provisions of Section 4.1 or 4.2.
The Trustee, subject to the provisions of Section 8.1, shall be
entitled to rely on the delivery to it of a written notice by a Representative
or a person representing himself to be a holder of Senior Indebtedness (or a
trustee on behalf of such holder) to establish that such notice has been given
by a Representative or a holder of Senior Indebtedness or a trustee on behalf of
any such holder or holders. In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any person
as a holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article IV, the Trustee may request such person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such person, the extent to which such person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such person under this Article IV, and if such
evidence is not furnished the Trustee may defer any payment to such person
pending judicial determination as to the right of such person to receive such
payment.
Section 4.6 Trustee's Relation to Senior Indebtedness. The Trustee in
its individual capacity shall be entitled to all the rights set forth in this
Article IV in respect of any Senior Indebtedness at any time held by it, to the
same extent as any other holder of
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Senior Indebtedness, and nothing in Section 8.13 or elsewhere in this Indenture
shall deprive the Trustee of any of its rights as such holder.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article IV, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and, subject to the
provisions of Section 8.1, the Trustee shall not be liable to any holder of
Senior Indebtedness if it shall pay over or deliver to holders of Notes, the
Company or any other person money or assets to which any holder of Senior
Indebtedness shall be entitled by virtue of this Article IV or otherwise.
Section 4.7 No Impairment of Subordination. No right of any present or
future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with the
terms, provisions and covenants of this Indenture, regardless of any knowledge
thereof which any such holder may have or otherwise be charged with.
Section 4.8 Certain Conversions Deemed Payment. For the purposes of
this Article IV only, (1) the issuance and delivery of junior securities upon
conversion of Notes in accordance with Article XV shall not be deemed to
constitute a payment or distribution on account of the principal of (or premium,
if any) or interest on Notes or on account of the purchase or other acquisition
of Notes, and (2) the payment, issuance or delivery of cash (except in
satisfaction of fractional shares pursuant to Section 15.2), property or
securities (other than junior securities) upon conversion of a Note shall be
deemed to constitute payment on account of the principal of such Note. For the
purposes of this Section 4.8, the term "junior securities" means (a) shares of
any stock of any class of the Company, or (b) securities of the Company which
are subordinated in right of payment to all Senior Indebtedness which may be
outstanding at the time of issuance or delivery of such securities to
substantially the same extent as, or to a greater extent than, the Notes are so
subordinated as provided in this Article. Nothing contained in this Article IV
or elsewhere in this Indenture or in the Notes is intended to or shall impair,
as among the Company, its creditors other than holders of Senior Indebtedness
and the Noteholders, the right, which is absolute and unconditional, of the
Holder of any Note to convert such Note in accordance with Article XV.
Section 4.9 Article Applicable to Paying Agents. If at any time any
paying agent other than the Trustee shall have been appointed by the Company and
be then acting hereunder, the term "Trustee" as used in this Article shall
(unless the context otherwise requires) be construed as extending to and
including such paying agent within its meaning
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as fully for all intents and purposes as if such paying agent were named in this
Article in addition to or in place of the Trustee; provided, however, that the
first paragraph of Section 4.5 shall not apply to the Company or any Affiliate
of the Company if it or such Affiliate acts as paying agent.
Section 4.10 Senior Indebtedness Entitled to Rely. The holders of
Senior Indebtedness (including, without limitation, Designated Senior
Indebtedness) shall have the right to rely upon this Article IV, and no
amendment or modification of the provisions contained herein shall diminish the
rights of such holders unless such holders shall have agreed in writing thereto.
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY
Section 5.1 Payment of Principal, Premium and Interest. The Company
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of and premium, if any, and interest on each of the Notes at the
places, at the respective times and in the manner provided herein and in the
Notes. Each installment of interest on the Notes due on any semi-annual interest
payment date may be paid by mailing checks for the interest payable to or upon
the written order of the holders of Notes entitled thereto as they shall appear
on the Note register; provided, that; with respect to any holder of Notes with
an aggregate principal amount equal to or in excess of $5,000,000, at the
request of such holder in writing to the Company (who shall then furnish notice
to such effect to the Trustee), interest on such holder's Notes shall be paid by
wire transfer in immediately available funds in accordance with the wire
transfer instructions supplied by such holder to the Trustee and paying agent
(if different from the Trustee).
Section 5.2 Maintenance of Office or Agency. The Company will maintain
in the Borough of Manhattan, The City of New York, an office or agency where the
Notes may be surrendered for registration of transfer or exchange or for
presentation for payment or for conversion or redemption and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company will give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency not
designated or appointed by the Trustee. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office or the office or agency of
the Trustee in the Borough of Manhattan, The City of New York.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and
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may from time to time rescind such designations; provided that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of Manhattan, The City
of New York, for such purposes. The Company will give prompt written notice to
any such designation or rescission and of any change in the location of any such
other office or agency.
The Company hereby initially designates the Trustee as paying agent,
Note registrar, Custodian and conversion agent, and each of the Corporate Trust
Office of the Trustee and the office of the Trustee in the Borough of Manhattan,
The City of New York (which shall initially be IBJ Schroder Bank & Trust
Company, an agent of the Trustee located at One State Street, New York, New
York, 10004, Attn: Reorganization Department), one such office or agency of the
Company for each of the aforesaid purposes.
So long as the Trustee is the Note registrar, the Trustee agrees to
mail, or cause to be mailed, the notices set forth in Section 8.10(a) and the
third paragraph of Section 8.11.
Section 5.3 Appointments to Fill Vacancies in Trustee's Office. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 8.10, a Trustee, so that there
shall at all times be a Trustee hereunder.
Section 5.4 Provisions as to Paying Agent.
(a) If the Company shall appoint a paying agent other than the
Trustee, or if the Trustee shall appoint such a paying agent, it will
cause such paying agent to execute and deliver to the Trustee an
instrument in which such agent shall agree with the Trustee, subject to
the provisions of this Section 5.4:
(1) that it will hold all sums held by it as such
agent for the payment of the principal of and premium, if any,
or interest on the Notes (whether such sums have been paid to
it by the Company or by any other obligor on the Notes) in
trust for the benefit of the holders of the Notes;
(2) that it will give the Trustee notice of any
failure by the Company (or by any other obligor on the Notes)
to make any payment of the principal of and premium, if any,
or interest on the Notes when the same shall be due and
payable; and
(3) that at any time during the continuance of an
Event of Default, upon request of the Trustee, it will
forthwith pay to the Trustee all sums so held in trust.
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The Company shall, on or before each due date of the principal
of, premium, if any, or interest on the Notes, deposit with the paying
agent a sum sufficient to pay such principal, premium, if any, or
interest, and (unless such paying agent is the Trustee) the Company
will promptly notify the Trustee of any failure to take such action;
provided that if such deposit is made on the due date, such deposit
shall be received by the paying agent by 10:00 a.m. New York City time,
on such date.
(b) If the Company shall act as its own paying agent, it will,
on or before each due date of the principal of, premium, if any, or
interest on the Notes, set aside, segregate and hold in trust for the
benefit of the holders of the Notes a sum sufficient to pay such
principal, premium, if any, or interest so becoming due and will notify
the Trustee of any failure to take such action and of any failure by
the Company (or any other obligor under the Notes) to make any payment
of the principal of, premium, if any, or interest on the Notes when the
same shall become due and payable.
(c) Anything in this Section 5.4 to the contrary
notwithstanding, the Company may, at any time, for the purpose of
obtaining a satisfaction and discharge of this Indenture, or for any
other reason, pay or cause to be paid to the Trustee all sums held in
trust by the Company or any paying agent hereunder as required by this
Section 5.4, such sums to be held by the Trustee upon the trusts herein
contained and upon such payment by the Company or any paying agent to
the Trustee, the Company or such paying agent shall be released from
all further liability with respect to such sums.
(d) Anything in this Section 5.4 to the contrary
notwithstanding, the agreement to hold sums in trust as provided in
this Section 5.4 is subject to Sections 13.3 and 13.4.
Section 5.5 Corporate Existence. Subject to Article XII, the Company
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence.
Section 5.6 Rule 144A Information Requirement. During the period
beginning on the latest date of the original issuance of the Notes and ending on
the date that is three years from such date, the Company covenants and agrees
that it shall, during any period in which it is not subject to Section 13 or
15(d) under the Exchange Act, make available to any holder or beneficial holder
of Notes or any Common Stock issued upon conversion thereof which continue to be
Restricted Securities in connection with any sale thereof and any prospective
purchaser of Notes or such Common Stock from such holder or beneficial holder,
the information required pursuant to Rule 144A(d)(4) under the Securities Act
upon the request of any holder or beneficial holder of the Notes or such Common
Stock and it will take such further action as any holder or beneficial holder of
such Notes or such
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Common Stock may reasonably request, all to the extent required from time to
time to enable such holder or beneficial holder to sell its Notes or Common
Stock without registration under the Securities Act within the limitation of the
exemption provided by Rule 144A, as such Rule may be amended from time to time.
Upon the request of any holder or any beneficial holder of the Notes or such
Common Stock, the Company will deliver to such holder a written statement as to
whether it has complied with such requirements.
Section 5.7 Stay, Extension and Usury Laws. The Company covenants (to
the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would prohibit or
forgive the Company from paying all or any portion of the principal of or
interest on the Notes as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance of
this Indenture and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law has been enacted.
ARTICLE VI
NOTEHOLDERS' LISTS AND REPORTS BY
THE COMPANY AND THE TRUSTEE
Section 6.1 Noteholders' Lists. The Company covenants and agrees that
it will furnish or cause to be furnished to the Trustee, semiannually, not more
than fifteen (15) days after each February 15 and August 15 in each year
beginning with August 15, 1996, and at such other times as the Trustee may
request in writing, within thirty (30) days after receipt by the Company of any
such request (or such lesser time as the Trustee may reasonably request in order
to enable it to timely provide any notice to be provided by it hereunder), a
list in such form as the Trustee may reasonably require of the names and
addresses of the holders of Notes as of a date not more than fifteen (15) days
(or such other date as the Trustee may reasonably request in order to so provide
any such notices) prior to the time such information is furnished, except that
no such list need be furnished so long as the Trustee is acting as Note
registrar.
Section 6.2 Preservation and Disclosure of Lists.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses
of the holders of Notes contained in the most recent list furnished to
it as provided in Section 6.1 or
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maintained by the Trustee in its capacity as Note registrar, if so
acting. The Trustee may destroy any list furnished to it as provided in
Section 6.1 upon receipt of a new list so furnished.
(b) The rights of Noteholders to communicate with other
holders of Notes with respect to their rights under this Indenture or
under the Notes, and the corresponding rights and duties of the
Trustee, shall be as provided by the Trust Indenture Act.
(c) Every Noteholder, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor
the Trustee nor any agent of either of them shall be held accountable
by reason of any disclosure of information as to names and addresses of
holders of Notes made pursuant to the Trust Indenture Act.
Section 6.3 Reports by Trustee.
(a) Within 60 days after May 15 of each year commencing with
the year 1996, the Trustee shall transmit to holders of Notes such
reports dated as of May 15 of the year in which such reports are made
concerning the Trustee and its actions under this Indenture as may be
required pursuant to the Trust Indenture Act at the times and in the
manner provided pursuant thereto.
(b) A copy of such report shall, at the time of such
transmission to holders of Notes, be filed by the Trustee with each
stock exchange and automated quotation system upon which the Notes are
listed and with the Company. The Company will notify the Trustee within
a reasonable time when the Notes are listed on any stock exchange and
automated quotation system.
Section 6.4 Reports by Company. The Company shall file with the Trustee
(and the Commission if at any time after the Indenture becomes qualified under
the Trust Indenture Act), and transmit to holders of Notes, such information,
documents and other reports and such summaries thereof, as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant to such Act; provided that any such information, documents or reports
required to be filed with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act shall be filed with the Trustee within 15 days after the same is so
required to be filed with the Commission.
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ARTICLE VII
REMEDIES OF THE TRUSTEE AND NOTEHOLDERS
ON AN EVENT OF DEFAULT
Section 7.1 Events of Default. In case one or more of the following
Events of Default (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body) shall have occurred and be
continuing:
(a) default in the payment of any installment of interest upon
any of the Notes as and when the same shall become due and payable, and
continuance of such default for a period of thirty (30) days, whether
or not such payment is permitted under Article IV hereof; or
(b) default in the payment of the principal of and premium, if
any, on any of the Notes as and when the same shall become due and
payable either at maturity or in connection with any redemption
pursuant to Article III, by acceleration or otherwise, whether or not
such payment is permitted under Article IV hereof; or
(c) failure on the part of the Company duly to observe or
perform any other of the covenants or agreements on the part of the
Company in the Notes or in this Indenture (other than a covenant or
agreement a default in whose performance or whose breach is elsewhere
in this Section 7.1 specifically dealt with) continued for a period of
sixty (60) days after the date on which written notice of such failure,
requiring the Company to remedy the same, shall have been given to the
Company by the Trustee, or to the Company and a Responsible Officer of
the Trustee by the holders of at least 25 percent in aggregate
principal amount of the Notes at the time outstanding determined in
accordance with Section 9.4; or
(d) the Company shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or other similar official
of it or any substantial part of its property, or shall consent to any
such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against
it, or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due; or
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(e) an involuntary case or other proceeding shall be commenced
against the Company seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or other similar official
of it or any substantial part of its property, and such involuntary
case or other proceeding shall remain undismissed and unstayed for a
period of ninety (90) consecutive days;
then, and in each and every such case (other than an Event of Default specified
in Section 7.1(d) or (e)), unless the principal of all of the Notes shall have
already become due and payable, either the Trustee or the holders of not less
than 25 percent in aggregate principal amount of the Notes then outstanding
hereunder determined in accordance with Section 9.4, by notice in writing to the
Company (and to the Trustee if given by Noteholders), may declare the principal
of all the Notes and the interest accrued thereon to be due and payable
immediately, and upon any such declaration the same shall become and shall be
immediately due and payable, anything in this Indenture or in the Notes
contained to the contrary notwithstanding. If an Event of Default specified in
Section 7.1(d) or (e) occurs, the principal of all the Notes and the interest
accrued thereon shall be immediately and automatically due and payable without
necessity of further action. This provision, however, is subject to the
conditions that if, at any time after the principal of the Notes shall have been
so declared due and payable, and before any judgment or decree for the payment
of the monies due shall have been obtained or entered as hereinafter provided,
the Company shall pay or shall deposit with the Trustee a sum sufficient to pay
all matured installments of interest upon all Notes and the principal of and
premium, if any, on any and all Notes which shall have become due otherwise than
by acceleration (with interest on overdue installments of interest (to the
extent that payment of such interest is enforceable under applicable law) and on
such principal and premium, if any, at the rate borne by the Notes, to the date
of such payment or deposit) and amounts due to the Trustee pursuant to Section
8.6, and if any and all defaults under this Indenture, other than the nonpayment
of principal of and premium, if any, and accrued interest on Notes which shall
have become due by acceleration, shall have been cured or waived pursuant to
Section 7.7 -- then and in every such case the holders of a majority in
aggregate principal amount of the Notes then outstanding, by written notice to
the Company and to the Trustee, may waive all defaults or Events of Default and
rescind and annul such declaration and its consequences; but no such waiver or
rescission and annulment shall extend to or shall affect any subsequent default
or Event of Default, or shall impair any right consequent thereon. The Company
shall notify a Responsible Officer of the Trustee, promptly upon becoming aware
thereof, of any Event of Default.
In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
because of such waiver or rescission and annulment or for any other reason or
shall have been determined adversely to the Trustee, then and in every such case
the Company, the holders of Notes, and the
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Trustee shall be restored respectively to their several positions and rights
hereunder, and all rights, remedies and powers of the Company, the holders of
Notes, and the Trustee shall continue as though no such proceeding had been
taken.
Section 7.2 Payments of Notes on Default: Suit Therefor. The Company
covenants that (a) in case default shall be made in the payment of any
installment of interest upon any of the Notes as and when the same shall become
due and payable, and such default shall have continued for a period of thirty
(30) days, or (b) in case default shall be made in the payment of the principal
of or premium, if any, on any of the Notes as and when the same shall have
become due and payable, whether at maturity of the Notes or in connection with
any redemption, by or under this Indenture declaration or otherwise -- then,
upon demand of the Trustee, the Company will pay to the Trustee, for the benefit
of the holders of the Notes, the whole amount that then shall have become due
and payable on all such Notes for principal and premium, if any, or interest, or
both, as the case may be, with interest upon the overdue principal and premium,
if any, and (to the extent that payment of such interest is enforceable under
applicable law) upon the overdue installments of interest at the rate borne by
the Notes; and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection, including reasonable compensation
to the Trustee, its agents, attorneys and counsel, and any expenses or
liabilities incurred by the Trustee hereunder other than through its negligence
or bad faith. Until such demand by the Trustee, the Company may pay the
principal of and premium, if any, and interest on the Notes to the registered
holders, whether or not the Notes are overdue.
In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or any other obligor on the Notes
and collect in the manner provided by law out of the property of the Company or
any other obligor on the Notes wherever situated the monies adjudged or decreed
to be payable.
In the case there shall be pending proceedings for the bankruptcy or
for the reorganization of the Company or any other obligor on the Notes under
Title 11 of the United States Code, or any other applicable law, or in case a
receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
sequestrator or similar official shall have been appointed for or taken
possession of the Company or such other obligor, the property of the Company or
such other obligor, or in the case of any other judicial proceedings relative to
the Company or such other obligor upon the Notes, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of the Notes shall then be due and payable as therein
expressed or by declaration or other wise and irrespective of whether the
Trustee shall have made any demand pursuant to the
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provisions of this Section 7.2, shall be entitled and empowered, by intervention
in such proceedings or otherwise, to file and prove a claim or claims for the
whole amount of principal, premium, if any, and interest owing and unpaid in
respect of the Notes, and, in case of any judicial proceedings, to file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee and of the Noteholders allowed in
such judicial proceedings relative to the Company or any other obligor on the
Notes, its or their creditors, or its or their property, and to collect and
receive any monies or other property payable or deliverable on any such claims,
and to distribute the same after the deduction of any amounts due the Trustee
under Section 8.6; and any receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, custodian or similar official is hereby authorized
by each of the Noteholders to make such payments to the Trustee, and, in the
event that the Trustee shall consent to the making of such payments directly to
the Noteholders, to pay to the Trustee any amount due it for reasonable
compensation, expenses, advances and disbursements, including counsel fees
incurred by it up to the date of such distribution. To the extent that such
payment of reasonable compensation, expenses, advances and disbursements out of
the estate in any such proceedings shall be denied for any reason, payment of
the same shall be secured by a lien on, and shall be paid out of, any and all
distributions, dividends, monies, securities and other property which the
holders of the Notes may be entitled to receive in such proceedings, whether in
liquidation or under any plan of reorganization or arrangement or otherwise.
All rights of action and of asserting claims under this Indenture, or
under any of the Notes, may be enforced by the Trustee without the possession of
any of the Notes, or the production thereof at any trial or other proceeding
relative thereto, and any such suit or proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the holders of the Notes.
In any proceedings brought by the Trustee (and in any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the holders
of the Notes, and it shall not be necessary to make any holders of the Notes
parties to any such proceedings.
Section 7.3 Application of Monies Collected by Trustee. Any monies
collected by the Trustee pursuant to this Article VII shall be applied in the
order following, at the date or dates fixed by the Trustee for the distribution
of such monies, upon presentation of the several Notes, and stamping thereon the
payment, if only partially paid, and upon surrender thereof, if fully paid:
First: To the payment of all amounts due the Trustee under
Section 8.6;
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Second: Subject to the provisions of Article IV, in case the
principal of the outstanding Notes shall not have become due and be
unpaid, to the payment of interest on the Notes in default in the order
of the maturity of the installments of such interest, with interest (to
the extent that such interest has been collected by the Trustee) upon
the overdue installments of interest at the rate borne by the Notes,
such payments to be made ratably to the persons entitled thereto;
Third: Subject to the provisions of Article IV, in case the
principal of the outstanding Notes shall have become due, by
declaration or otherwise, and be unpaid to the payment of the whole
amount then owing and unpaid upon the Notes for principal and premium,
if any, and interest, with interest on the overdue principal and
premium, if any, and (to the extent that such interest has been
collected by the Trustee) upon overdue installments of interest at the
rate borne by the Notes; and in case such monies shall be insufficient
to pay in full the whole amounts so due and unpaid upon the Notes, then
to the payment of such principal and premium, if any, and interest
without preference or priority of principal and premium, if any, over
interest, or of interest over principal and premium, if any, or of any
installment of interest over any other installment of interest, or of
any Note over any other Note, ratably to the aggregate of such
principal and premium, if any, and accrued and unpaid interest; and
Fourth: Subject to the provisions of Article IV, to the
payment of the remainder, if any, to the Company or any other person
lawfully entitled thereto.
Section 7.4 Proceedings by Noteholder. No holder of any Note shall have
any right by virtue of or by availing of any provision of this Indenture to
institute any suit, action or proceeding in equity or at law upon or under or
with respect to this Indenture, or for the appointment of a receiver, trustee,
liquidator, custodian or other similar official, or for any other remedy
hereunder, unless such holder previously shall have given to the Trustee written
notice of an Event of Default and of the continuance thereof, as hereinbefore
provided, and unless also the holders of not less than 25 percent in aggregate
principal amount of the Notes then outstanding shall have made written request
upon the Trustee to institute such action, suit or proceeding in its own name as
Trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee for sixty (60) days after its
receipt of such notice, request and offer of indemnity, shall have neglected or
refused to institute any such action, suit or proceeding and no direction
inconsistent with such written request shall have been given to the Trustee
pursuant to Section 7.7; it being understood and intended, and being expressly
covenanted by the taker and holder of every Note with every other taker and
holder and the Trustee, that no one or more holders of Notes shall have any
right in any manner whatever by virtue of or by availing of any provision of
this Indenture to affect, disturb or prejudice the rights of any other holder of
Notes, or to obtain or seek to obtain priority over or preference to any
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other such holder, or to enforce any right under this Indenture, except in the
manner herein provided and for the equal, ratable and common benefit of all
holders of Notes (except as otherwise provided herein). For the protection and
enforcement of this Section 7.4, each and every Noteholder and the Trustee shall
be entitled to such relief as can be given either at law or in equity.
Notwithstanding any other provision of this Indenture and any provision
of any Note, the right of any holder of any Note to receive payment of the
principal of and premium, if any, and interest on such Note, on or after the
respective due dates expressed in such Note, or to institute suit for the
enforcement of any such payment on or after such respective dates against the
Company shall not be impaired or affected without the consent of such holder.
Anything in this Indenture or the Notes to the contrary
notwithstanding, the holder of any Note, without the consent of either the
Trustee or the holder of any other Note, in his own behalf and for his own
benefit, may enforce, and may institute and maintain any proceeding suitable to
enforce, his rights of conversion as provided herein.
Section 7.5 Proceedings by Trustee. In case of an Event of Default the
Trustee may in its discretion proceed to protect and enforce the rights vested
in it by this Indenture by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any of such rights, either by
suit in equity or by action at law or by proceeding in bankruptcy or otherwise,
whether for the specific enforcement of any covenant or agreement contained in
this Indenture or in aid of the exercise of any power granted in this Indenture,
or to enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law.
Section 7.6 Remedies Cumulative and Continuing. Except as provided in
Section 2.6, all powers and remedies given by this Article VII to the Trustee or
to the Noteholders shall, to the extent permitted by law, be deemed cumulative
and not exclusive of any thereof or of any other powers and remedies available
to the Trustee or the holders of the Notes, by judicial proceedings or
otherwise, to enforce the performance or observance of the covenants and
agreements contained in this Indenture, and no delay or omission of the Trustee
or of any holder of any of the Notes to exercise any right or power accruing
upon any default or Event of Default occurring and continuing as aforesaid shall
impair any such right or power, or shall be construed to be a waiver of any such
default or any acquiescence therein; and, subject to the provisions of Section
7.4, every power and remedy given by this Article VII or by law to the Trustee
or to the Noteholders may be exercised from time to time, and as often as shall
be deemed expedient, by the Trustee or by the Noteholders.
Section 7.7 Direction of Proceedings and Waiver of Defaults by Majority
of Noteholders. The holders of a majority in aggregate principal amount of the
Notes at the
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time outstanding determined in accordance with Section 9.4 shall have the right
to direct the time, method, and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee; provided, however, that (a) such direction shall not be in conflict
with any rule of law or with this Indenture, and (b) the Trustee may take any
other action deemed proper by the Trustee which is not inconsistent with such
direction. The holders of a majority in aggregate principal amount of the Notes
at the time outstanding determined in accordance with Section 9.4 may on behalf
of the holders of all of the Notes waive any past default or Event of Default
hereunder and its consequences except (i) a default in the payment of interest
or premium, if any, on, or the principal of, the Notes, (ii) a failure by the
Company to convert any Notes into Common Stock, (iii) a default in the payment
of redemption price pursuant to Article III or (iv) a default in respect of a
covenant or provisions hereof which under Article XI cannot be modified or
amended without the consent of the holders of all Notes then outstanding. Upon
any such waiver the Company, the Trustee and the holders of the Notes shall be
restored to their former positions and rights hereunder; but no such waiver
shall extend to any subsequent or other default or Event of Default or impair
any right consequent thereon. Whenever any default or Event of Default hereunder
shall have been waived as permitted by this Section 7.7, said default or Event
of Default shall for all purposes of the Notes and this Indenture be deemed to
have been cured and to be not continuing; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
Section 7.8 Notice of Defaults. The Trustee shall, within ninety (90)
days after it has knowledge of the occurrence of a default, mail to all
Noteholders, as the names and addresses of such holders appear upon the Note
register, notice of all defaults known to a Responsible Officer, unless such
defaults shall have been cured or waived before the giving of such notice; and
provided that, except in the case of default in the payment of the principal of,
or premium, if any, or interest on any of the Notes, the Trustee shall be
protected in withholding such notice if and so long as a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determine
that the withholding of such notice is in the interests of the Noteholders.
Section 7.9 Undertaking to Pay Costs. All parties to this Indenture
agree, and each holder of any Note by his acceptance thereof shall be deemed to
have agreed, that any court may, in its discretion, require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken or omitted by it as Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; provided that the provisions of this Section 7.9 (to the extent
permitted by law) shall not apply to any suit instituted by the Trustee, to any
suit instituted by any Noteholder, or group of Noteholders, holding in the
aggregate more than ten percent in principal amount
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of the Notes at the time outstanding determined in accordance with Section 9.4,
or to any suit instituted by any Noteholder for the enforcement of the payment
of the principal of or premium, if any, or interest on any Note on or after the
due date expressed in such Note or to any suit for the enforcement of the right
to convert any Note in accordance with the provisions of Article XV.
ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.1 Duties and Responsibilities of Trustee. The Trustee, prior
to the occurrence of an Event of Default and after the curing of all Events of
Default which may have occurred, undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture. In case an Event of
Default has occurred (which has not been cured or waived) the Trustee shall
exercise such of the rights and powers vested in it by this Indenture, and use
the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default and after
the curing or waiving of all Events of Default which may have occurred:
(1) the duties and obligations of the Trustee shall
be determined solely by the express provisions of this
Indenture and the Trust Indenture Act, and the Trustee shall
not be liable except for the performance of such duties and
obligations as are specifically set forth in this Indenture
and no implied covenants or obligations shall be read into
this Indenture and the Trust Indenture Act against the
Trustee; and
(2) in the absence of bad faith and willful
misconduct on the part of the Trustee, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but, in the
case of any such certificates or opinions which by any
provisions hereof are specifically required to be furnished to
the Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the
requirements of this Indenture;
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(b) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or Officers of the Trustee,
unless the Trustee was negligent in ascertaining the pertinent facts;
(c) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the holders of not less than a majority in principal
amount of the Notes at the time outstanding determined as provided in
Section 9.4 relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this Indenture; and
(d) whether or not therein provided, every provision of this
Indenture relating to the conduct or affecting the liability of, or
affording protection to, the Trustee shall be subject to the provisions
of this Section.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if there is reasonable ground for believing that the
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
Section 8.2 Reliance on Documents, Opinions. Etc. Except as otherwise
provided in Section 8.1:
(a) the Trustee may rely and shall be protected in acting upon
any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, debenture, note, coupon or other
paper or document believed by it in good faith to be genuine and to
have been signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by an Officers'
Certificate (unless other evidence in respect thereof be herein
specifically prescribed); and any resolution of the Board of Directors
may be evidenced to the Trustee by a copy thereof certified by the
Secretary or an Assistant Secretary of the Company;
(c) the Trustee may consult with counsel and any advice or
Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or omitted by it hereunder in
good faith and in accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request,
order or direction of any of
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the Noteholders pursuant to the provisions of this Indenture, unless
such Noteholders shall have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby;
(e) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation,
it shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney; provided, however, that if
the payment within a reasonable time to the Trustee of the costs,
expenses or liabilities likely to be incurred by it in the making of
such investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms of
this Indenture, the Trustee may require reasonable indemnity against
such expenses or liability as a condition to so proceeding; the
reasonable expenses of every such examination shall be paid by the
Company or, if paid by the Trustee or any predecessor Trustee, shall be
repaid by the Company upon demand; and
(f) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed by it with due care hereunder.
Section 8.3 No Responsibility for Recitals, Etc. The recitals contained
herein and in the Notes (except in the Trustee's certificate of authentication)
shall be taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Notes. The Trustee shall not be accountable for the use or application by the
Company of any Notes or the proceeds of any Notes authenticated and delivered by
the Trustee in conformity with the provisions of this Indenture.
Section 8.4 Trustee, Paying Agents, Conversion Agents or Registrar May
Own Notes. The Trustee, any paying agent, any conversion agent or Note
registrar, in its individual or any other capacity, may become the owner or
pledgee of Notes with the same rights it would have if it were not Trustee,
paying agent, conversion agent or Note registrar.
Section 8.5 Monies to Be Held in Trust. Subject to the provisions of
Section 13.4, all monies received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received.
Money held by the Trustee in trust hereunder need not be segregated from other
funds except to the
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extent required by law. The Trustee shall be under no liability for interest on
any money received by it hereunder except as may be agreed from time to time by
the Company and the Trustee.
Section 8.6 Compensation and Expenses of Trustee. The Company covenants
and agrees to pay to the Trustee from time to time, and the Trustee shall be
entitled to, reasonable compensation for all services rendered by it hereunder
in any capacity (which shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust), and the Company will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances reasonably incurred or made by the Trustee in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all persons not regularly in its employ) except any such expense, disbursement
or advance as may arise from its negligence, willful misconduct, recklessness or
bad faith. The Company also covenants to indemnify the Trustee in any capacity
under this Indenture and its agents and any authenticating agent for, and to
hold them harmless against, any loss, liability or expense incurred without
negligence, willful misconduct, recklessness, or bad faith on the part of the
Trustee or such agent or authenticating agent, as the case may be, and arising
out of or in connection with the acceptance or administration of this trust or
in any other capacity hereunder, including the costs and expenses of defending
themselves against any claim of liability in the premises. The obligations of
the Company under this Section 8.6 to compensate or indemnify the Trustee and to
pay or reimburse the Trustee for expenses, disbursements and advances shall be
secured by a lien prior to that of the Notes upon all property and funds held or
collected by the Trustee as such, except funds held in trust for the benefit of
the holders of particular Notes. The obligation of the Company under this
Section shall survive the satisfaction and discharge of this Indenture.
When the Trustee and its agents and any authenticating agent incur
expenses or render services after an Event of Default specified in Section
7.1(d) or (e) occurs, the expenses and the compensation for the services are
intended to constitute expenses of administration under any bankruptcy,
insolvency or similar laws.
Section 8.7 Officers' Certificate as Evidence. Except as otherwise
provided in Section 8.1, whenever in the administration of the provisions of
this Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or omitting any action hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence, willful misconduct, recklessness,
or bad faith on the part of the Trustee, be deemed to be conclusively proved and
established by an Officers' Certificate delivered to the Trustee.
Section 8.8 Conflicting Interests of Trustee. If the Trustee has or
shall acquire a conflicting interest within the meaning of the Trust Indenture
Act, the Trustee shall either
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eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Indenture.
Section 8.9 Eligibility of Trustee. There shall at all times be a
Trustee hereunder which shall be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus of at least
$50,000,000. If such person publishes reports of condition at least annually,
pursuant to law or to the requirements of any supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such person shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
Section 8.10 Resignation or Removal of Trustee.
(a) The Trustee may at any time resign by giving written
notice of such resignation to the Company and to the holders of Notes.
Upon receiving such notice of resignation, the Company shall promptly
appoint a successor trustee by written instrument, in duplicate,
executed by order of the Board of Directors, one copy of which
instrument shall be delivered to the resigning Trustee and one copy to
the successor trustee. If no successor trustee shall have been so
appointed and have accepted appointment sixty (60) days after the
mailing of such notice of resignation to the Noteholders, the resigning
Trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee, or any Noteholder who has been a
bona fide holder of a Note or Notes for at least six months may,
subject to the provisions of Section 7.9, on behalf of himself and all
others similarly situated, petition any such court for the appointment
of a successor trustee. Such court may thereupon, after such notice, if
any, as it may deem proper and prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with Section 8.8
after written request therefor by the Company or by any
Noteholder who has been a bona fide holder of a Note or Notes
for at least six months; or
(2) the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.9 and shall fail
to resign after written request therefor by the Company or by
any such Noteholder; or
(3) the Trustee shall become incapable of acting, or
shall be adjudged a bankrupt or insolvent, or a receiver of
the Trustee or of its property shall be appointed, or any
public officer shall take charge or control
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of the Trustee or of its property or affairs for the purpose
of rehabilitation, conservation or liquidation;
then, in any such case, the Company may remove the Trustee and appoint
a successor trustee by written instrument, in duplicate, executed by
order of the Board of Directors, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor
trustee, or, subject to the provisions of Section 7.9, any Noteholder
who has been a bona fide holder of a Note or Notes for at least six
months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of
the Notes at the time outstanding may at any time remove the Trustee
and nominate a successor trustee which shall be deemed appointed as
successor trustee unless within ten (10) days after notice to the
Company of such nomination the Company objects thereto, in which case
the Trustee so removed or any Noteholder, upon the terms and conditions
and otherwise as in Section 8.10(a) provided, may petition any court of
competent jurisdiction for an appointment of a successor trustee.
(d) Any resignation or removal of the Trustee and appointment
of a successor trustee pursuant to any of the provisions of this
Section 8.10 shall become effective upon acceptance of appointment by
the successor trustee as provided in Section 8.11.
Section 8.11 Acceptance by Successor Trustee. Any successor trustee
appointed as provided in Section 8.10 shall execute, acknowledge and deliver to
the Company and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but, nevertheless, on the written request
of the Company or of the successor trustee, the trustee ceasing to act shall,
upon payment of any amounts then due it pursuant to the provisions of Section
8.6, execute and deliver an instrument transferring to such successor trustee
all the rights and powers of the trustee so ceasing to act. Upon request of any
such successor trustee, the Company shall execute any and all instruments in
writing for more fully and certainly vesting in and confirming to such successor
trustee all such rights and powers. Any trustee ceasing to act shall,
nevertheless, retain a lien upon all property and funds held or collected by
such trustee as such, except for funds held in trust for the benefit of holders
of particular Notes, to secure any amounts then due it pursuant to the
provisions of Section 8.6.
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No successor trustee shall accept appointment as provided in this
Section 8.11 unless at the time of such acceptance such successor trustee shall
be qualified under the provisions of Section 8.8 and be eligible under the
provisions of Section 8.9.
Upon acceptance of appointment by a successor trustee as provided in
this Section 8.11, the Company (or the former trustee, at the written direction
of the Company) shall mail or cause to be mailed notice of the succession of
such trustee hereunder to the holders of Notes at their addresses as they shall
appear on the Note register. If the Company fails to mail such notice within ten
(10) days after acceptance of appointment by the successor trustee, the
successor trustee shall cause such notice to be mailed at the expense of the
Company.
Section 8.12 Succession by Merger, Etc. Any corporation into which the
Trustee may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation succeeding to all or substantially
all of the corporate trust business of the Trustee (including any trust created
by this Indenture), shall be the successor to the Trustee hereunder without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that in the case of any corporation succeeding to all
or substantially all of the corporate trust business of the Trustee such
corporation shall be qualified under the provisions of Section 8.8 and eligible
under the provisions of Section 8.9.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture, any of the Notes shall have been authenticated
but not delivered, any such successor to the Trustee may adopt the certificate
of authentication of any predecessor trustee or authenticating agent appointed
by such predecessor trustee, and deliver such Notes so authenticated; and in
case at that time any of the Notes shall not have been authenticated, any
successor to the Trustee or an authenticating agent appointed by such successor
trustee may authenticate such Notes either in the name of any predecessor
trustee hereunder or in the name of the successor trustee; and in all such cases
such certificates shall have the full force which it is anywhere in the Notes or
in this Indenture provided that the certificate of the Trustee shall have;
provided, however, that the right to adopt the certificate of authentication of
any predecessor Trustee or authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
Section 8.13 Limitation on Rights of Trustee as Creditor. If and when
the Trustee shall be or become a creditor of the Company (or any other obligor
upon the Notes), the Trustee shall be subject to the provisions of the Trust
Indenture Act regarding the collection of the claims against the Company (or any
such other obligor).
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ARTICLE IX
CONCERNING THE NOTEHOLDERS
Section 9.1 Action by Noteholders. Whenever in this Indenture it is
provided that the holders of a specified percentage in aggregate principal
amount of the Notes may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any other
action), the fact that at the time of taking any such action, the holders of
such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by Noteholders
in person or by agent or proxy appointed in writing, or (b) by the record of the
holders of Notes voting in favor thereof at any meeting of Noteholders duly
called and held in accordance with the provisions of Article X, or (c) by a
combination of such instrument or instruments and any such record of such a
meeting of Noteholders. Whenever the Company or the Trustee solicits the taking
of any action by the holders of the Notes, the Company or the Trustee may fix in
advance of such solicitation, a date as the record date for determining holders
entitled to take such action. The record date shall be not more than fifteen
(15) days prior to the date of commencement of solicitation of such action.
Section 9.2 Proof of Execution by Noteholders. Subject to the
provisions of Sections 8.1, 8.2 and 10.5, proof of the execution of any
instrument by a Noteholder or his agent or proxy shall be sufficient if made in
accordance with such reasonable rules and regulations as may be prescribed by
the Trustee or in such manner as shall be satisfactory to the Trustee. The
holding of Notes shall be proved by the registry of such Notes or by a
certificate of the Note registrar.
The record of any Noteholders' meeting shall be proved in the manner
provided in Section 10.6.
Section 9.3 Who Are Deemed Absolute Owners. The Company, the Trustee,
any paying agent, any conversion agent and any Note registrar may deem the
person in whose name such Note shall be registered upon the Note register to be,
and may treat him as, the absolute owner of such Note (whether or not such Note
shall be overdue and notwithstanding any notation of ownership or other writing
thereon) for the purpose of receiving payment of or on account of the principal
of, premium, if any, and interest on such Note, for conversion of such Note and
for all other purposes; and neither the Company nor the Trustee nor any paying
agent nor any conversion agent nor any Note registrar shall be affected by any
notice to the contrary. All such payments so made to any holder for the time
being, or upon his order, shall be valid, and, to the extent of the sum or sums
so paid, effectual to satisfy and discharge the liability for monies payable
upon any such Note.
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Section 9.4 Company-Owned Notes Disregarded. In determining whether the
holders of the requisite aggregate principal amount of Notes have concurred in
any direction, consent, waiver or other action under this Indenture, Notes which
are owned by the Company or any other obligor on the Notes or by any person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company or any other obligor on the Notes shall be
disregarded and deemed not to be outstanding for the purpose of any such
determination; provided that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, consent, waiver or other
action only Notes which a Responsible Officer knows are so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as outstanding for the purposes of this Section 9.4 if the pledgee
shall establish to the satisfaction of the Trustee the pledgee's right to vote
such Notes and that the pledgee is not the Company, any other obligor on the
Notes or a person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company or any such other obligor. In
the case of a dispute as to such right, any decision by the Trustee taken upon
the advice of counsel shall be full protection to the Trustee. Upon request of
the Trustee, the Company shall furnish to the Trustee promptly an Officers'
Certificate listing and identifying all Notes, if any, known by the Company to
be owned or held by or for the account of any of the above described persons;
and, subject to Section 8.1, the Trustee shall be entitled to accept such
Officers' Certificate as conclusive evidence of the facts therein set forth and
of the fact that all Notes not listed therein are outstanding for the purpose of
any such determination.
Section 9.5 Revocation of Consents: Future Holders Bound. At any time
prior to (but not after) the evidencing to the Trustee, as provided in Section
9.1, of the taking of any action by the holders of the percentage in aggregate
principal amount of the Notes specified in this Indenture in connection with
such action, any holder of a Note which is shown by the evidence to be included
in the Notes the holders of which have consented to such action may, by filing
written notice with the Trustee at its Corporate Trust Office and upon proof of
holding as provided in Section 9.2, revoke such action so far as concerns such
Note. Except as aforesaid, any such action taken by the holder of any Note shall
be conclusive and binding upon such holder and upon all future holders and
owners of such Note and of any Notes issued in exchange or substitution
therefor, irrespective of whether any notation in regard thereto is made upon
such Note or any Note issued in exchange or substitution therefor.
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ARTICLE X
NOTEHOLDERS' MEETINGS
Section 10.1 Purpose of Meetings. A meeting of Noteholders may be
called at any time and from time to time pursuant to the provisions of this
Article X for any of the following purposes:
(1) to give any notice to the Company or to the Trustee or to
give any directions to the Trustee permitted under this Indenture, or
to consent to the waiving of any default or Event of Default hereunder
and its consequences, or to take any other action authorized to be
taken by Noteholders pursuant to any of the provisions of Article VII;
(2) to remove the Trustee and nominate a successor trustee
pursuant to the provisions of Article VIII;
(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 11.2; or
(4) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal amount of
the Notes under any other provision of this Indenture or under
applicable law.
Section 10.2 Call of Meetings by Trustee. The Trustee may at any time
call a meeting of Noteholders to take any action specified in Section 10.1, to
be held at such time and at such place at a location within 10 miles of the
Corporate Trust Office or the Borough of Manhattan, The City of New York, as the
Trustee shall determine. Notice of every meeting of the Noteholders, setting
forth the time and the place of such meeting and in general terms the action
proposed to be taken at such meeting and the establishment of any record date
pursuant to Section 9.1, shall be mailed to holders of Notes at their addresses
as they shall appear on the Note register. Such notice shall also be mailed to
the Company. Such notices shall be mailed not less than twenty (20) nor more
than ninety (90) days prior to the date fixed for the meeting.
Any meeting of Noteholders shall be valid without notice if the holders
of all Notes then outstanding are present in person or by proxy or if notice is
waived before or after the meeting by the holders of all Notes outstanding, and
if the Company and the Trustee are either present by duly authorized
representatives or have, before or after the meeting, waived notice.
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Section 10.3 Call of Meetings by Company or Noteholders. In case at any
time the Company, pursuant to a resolution of its Board of Directors, or the
holders of at least ten percent in aggregate principal amount of the Notes then
outstanding, shall have requested the Trustee to call a meeting of Noteholders,
by written request setting forth in reasonable detail the action proposed to be
taken at the meeting, and the Trustee shall not have mailed the notice of such
meeting within twenty (20) days after receipt of such request, then the Company
or such Noteholders may determine the time and the place at any location within
10 miles of the Corporate Trust Office or the Borough of Manhattan, The City of
New York for such meeting and may call such meeting to take any action
authorized in Section 10.1, by mailing notice thereof as provided in Section
10.2.
Section 10.4 Qualifications for Voting. To be entitled to vote at any
meeting of Noteholders a person shall (a) be a holder of one or more Notes on
the record date pertaining to such meeting or (b) be a person appointed by an
instrument in writing as proxy by a holder of one or more Notes. The only
persons who shall be entitled to be present or to speak at any meeting of
Noteholders shall be the persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.
Section 10.5 Regulations. Notwithstanding any other provisions of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Noteholders, in regard to proof of the holding of
Notes and of the appointment of proxies, and in regard to the appointment and
duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Noteholders as provided in Section 10.3, in which case the Company
or the Noteholders calling the meeting, as the case may be, shall in like manner
appoint a temporary chairman. A permanent chairman and a permanent secretary of
the meeting shall be elected by vote of the holders of a majority in principal
amount of the Notes represented at the meeting and entitled to vote at the
meeting.
Subject to the provisions of Section 9.4, at any meeting each
Noteholder or proxyholder shall be entitled to one vote for each $1,000
principal amount of Notes held or represented by him; provided, however, that no
vote shall be cast or counted at any meeting in respect of any Note challenged
as not outstanding and ruled by the chairman of the meeting to be not
outstanding. The chairman of the meeting shall have no right to vote other than
by virtue of Notes held by him or instruments in writing as aforesaid duly
designating him as the proxy to vote on behalf of other Noteholders. Any meeting
of Noteholders duly called pursuant to the provisions of Section 10.2 or 10.3
may be adjourned from time to time by the holders of a majority of the aggregate
principal
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amount of Notes represented at the meeting, whether or not constituting a
quorum, and the meeting may be held as so adjourned without further notice.
Section 10.6 Voting. The vote upon any resolution submitted to any
meeting of Noteholders shall be by written ballot on which shall be subscribed
the signatures of the holders of Notes or of their representatives by proxy and
the principal amount of the Notes held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
duplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of Noteholders shall be prepared by the secretary of
the meeting and there shall be attached to said record the original reports of
the inspectors of votes on any vote by ballot taken thereat and affidavits by
one or more persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was mailed as provided in
Section 10.2. The record shall show the principal amount of the Notes voting in
favor of or against any resolution. The record shall be signed and verified by
the affidavits of the permanent chairman and secretary of the meeting and one of
the duplicates shall be delivered to the Company and the other to the Trustee to
be preserved by the Trustee, the latter to have attached thereto the ballots
voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
Section 10.7 No Delay of Rights by Meeting. Nothing in this Article X
contained shall be deemed or construed to authorize or permit, by reason of any
call of a meeting of Noteholders or any rights expressly or impliedly conferred
hereunder to make such call, any hindrance or delay in the exercise of any right
or rights conferred upon or reserved to the Trustee or to the Noteholders under
any of the provisions of this Indenture or of the Notes.
ARTICLE XI
SUPPLEMENTAL INDENTURES
Section 11.1 Supplemental Indentures Without Consent of Noteholders.
The Company, when authorized by the resolutions of the Board of Directors, and
the Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto for one or more of the following purposes:
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(a) to make provision with respect to the conversion rights of
the holders of Notes pursuant to the requirements of Section 15.6 and
the redemption obligations of the Company pursuant to the requirements
of Section 3.5(e);
(b) subject to Article IV, to convey, transfer, assign,
mortgage or pledge to the Trustee as security for the Notes, any
property or assets;
(c) to evidence the succession of another corporation to the
Company, or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the Company
pursuant to Article XII;
(d) to add to the covenants of the Company such further
covenants, restrictions or conditions as the Board of Directors and the
Trustee shall consider to be for the benefit of the holders of Notes,
and to make the occurrence, or the occurrence and continuance, of a
default in any such additional covenants, restrictions or conditions a
default or an Event of Default permitting the enforcement of all or any
of the several remedies provided in this Indenture as herein set forth;
provided, however, that in respect of any such additional covenant,
restriction or condition such supplemental indenture may provide for a
particular period of grace after default (which period may be shorter
or longer than that allowed in the case of other defaults) or may
provide for an immediate enforcement upon such default or may limit the
remedies available to the Trustee upon such default;
(e) to provide for the issuance under this Indenture of Notes
in coupon form (including Notes registrable as to principal only) and
to provide for exchangeability of such Notes with the Notes issued
hereunder in fully registered form and to make all appropriate changes
for such purpose;
(f) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may
be defective or inconsistent with any other provision contained herein
or in any supplemental indenture, or to make such other provisions in
regard to matters or questions arising under this Indenture which shall
not materially adversely affect the interests of the holders of the
Notes;
(g) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Notes; or
(h) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualifications of this Indenture under the Trust Indenture Act, or
under any similar federal statute hereafter enacted.
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The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, to make any further appropriate
agreements and stipulations which may be therein contained and to accept the
conveyance, transfer and assignment of any property thereunder, but the Trustee
shall not be obligated to, but may in its discretion, enter into any
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section
11.1 may be executed by the Company and the Trustee without the consent of the
holders of any of the Notes at the time outstanding, notwithstanding any of the
provisions of Section 11.2.
Section 11.2 Supplemental Indentures with Consent of Noteholders. With
the consent (evidenced as provided in Article IX) of the holders of not less
than a majority in aggregate principal amount of the Notes at the time
outstanding, the Company, when authorized by the resolutions of the Board of
Directors, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or any supplemental indenture or of modifying in any manner the
rights of the holders of the Notes; provided, however, that no such supplemental
indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or
extend the time of payment of interest thereon, or reduce the principal amount
thereof or premium, if any, thereon, or reduce any amount payable on redemption
thereof, or impair the right of any Noteholder to institute suit for the payment
thereof, or make the principal thereof or interest or premium, if any, thereon
payable in any coin or currency other than that provided in the Notes, or modify
the provisions of this Indenture with respect to the subordination of the Notes
in a manner adverse to the Noteholders in any material respect, or change the
obligation of the Company to redeem any Note upon the happening of a Fundamental
Change in a manner adverse to the holder of Notes, or impair the right to
convert the Notes into Common Stock subject to the terms set forth herein,
including Section 15.6, without the consent of the holder of each Note so
affected, or (ii) reduce the aforesaid percentage of Notes, the holders of which
are required to consent to any such supplemental indenture, without the consent
of the holders of all Notes then outstanding.
Upon the request of the Company, accompanied by a copy of the
resolutions of the Board of Directors certified by its Secretary or Assistant
Secretary authorizing the execution of any such supplemental indenture, and upon
the filing with the Trustee of evidence of the consent of Noteholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in is discretion, but shall not be obligated to, enter into
such supplemental indenture.
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It shall not be necessary for the consent of the Noteholders under this
Section 11.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
Section 11.3 Effect of Supplemental Indenture. Any supplemental
indenture executed pursuant to the provisions of this Article XI shall comply
with the Trust Indenture Act, as then in effect; provided that this Section 11.3
shall not require such supplemental indenture or the Trustee to be qualified
under the Trust Indenture Act prior to the time such qualification is in fact
required under the terms of the Trust Indenture Act or the Indenture has been
qualified under the Trust Indenture Act, nor shall it constitute any admission
or acknowledgment by any party to such supplemental indenture that any such
qualification is required prior to the time such qualification is in fact
required under the terms of the Trust Indenture Act or the Indenture has been
qualified under the Trust Indenture Act. Upon the execution of any supplemental
indenture pursuant to the provisions of this Article XI, this Indenture shall be
and be deemed to be modified and amended in accordance therewith and the
respective rights, limitation of rights, obligations, duties and immunities
under this Indenture of the Trustee, the Company and the holders of Notes shall
thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
Section 11.4 Notation on Notes. Notes authenticated and delivered after
the execution of any supplemental indenture pursuant to the provisions of this
Article XI may bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company or the Trustee shall
so determine, new Notes so modified as to conform, in the opinion of the Trustee
and the Board of Directors, to any modification of this Indenture contained in
any such supplemental indenture may, at the Company's expense, be prepared and
executed by the Company, authenticated by the Trustee (or an authenticating
agent duly appointed by the Trustee pursuant to Section 16.11) and delivered in
exchange for the Notes then outstanding, upon surrender of such Notes then
outstanding.
Section 11.5 Evidence of Compliance of Supplemental Indenture to Be
Furnished Trustee. The Trustee, subject to the provisions of Sections 8.1 and
8.2, may receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto
complies with the requirements of this Article XI.
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ARTICLE XII
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
Section 12.1 Company May Consolidate Etc. on Certain Terms. Subject to
the provisions of Section 12.2, nothing contained in this Indenture or in any of
the Notes shall prevent any consolidation or merger of the Company with or into
any other corporation or corporations (whether or not affiliated with the
Company), or successive consolidations or mergers in which the Company or its
successor or successors shall be a party or parties, or shall prevent any sale,
conveyance or lease (or successive sales, conveyances or leases) of all or
substantially all of the property of the Company, to any other corporation
(whether or not affiliated with the Company), authorized to acquire and operate
the same and which shall be organized under the laws of the United States of
America, any state thereof or the District of Columbia; provided, that upon any
such consolidation, merger, sale, conveyance or lease, the due and punctual
payment of the principal of and premium, if any, and interest on all of the
Notes, according to their tenor, and the due and punctual performance and
observance of all of the covenants and conditions of this Indenture to be
performed by the Company, shall be expressly assumed, by supplemental indenture
satisfactory in form to the Trustee, executed and delivered to the Trustee by
the corporation (if other than the Company) formed by such consolidation, or
into which the Company shall have been merged, or by the corporation which shall
have acquired or leased such property, and such supplemental indenture shall
provide for the applicable conversion rights set forth in Section 15.6.
Section 12.2 Successor Corporation to Be Substituted. In case of any
such consolidation, merger, sale, conveyance or lease and upon the assumption by
the successor corporation, by supplemental indenture, executed and delivered to
the Trustee and satisfactory in form to the Trustee, of the due and punctual
payment of the principal of and premium, if any, and interest on all of the
Notes and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Company, such successor
corporation shall succeed to and be substituted for the Company, with the same
effect as if it had been named herein as the party of the first part. Such
successor corporation thereupon may cause to be signed, and may issue either in
its own name or in the name of Quantum Corporation any or all of the Notes
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee; and, upon the order of such successor corporation
instead of the Company and subject to all the terms, conditions and limitations
in this Indenture prescribed, the Trustee shall authenticate and shall deliver,
or cause to be authenticated and delivered, any Notes which previously shall
have been signed and delivered by the officers of the Company to the Trustee for
authentication, and any Notes which such successor corporation thereafter shall
cause to be signed and delivered to the Trustee for that purpose. All the Notes
so issued shall in all respects have the same legal rank and benefit under this
Indenture as the Notes theretofore or thereafter issued in accordance with the
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terms of this Indenture as though all of such Notes had been issued at the date
of the execution hereof. In the event of any such consolidation, merger, sale,
conveyance or lease, the person named as the "Company" in the first paragraph of
this Indenture or any successor which shall thereafter have become such in the
manner prescribed in this Article XII may be dissolved, wound up and liquidated
at any time thereafter and such person shall be released from its liabilities as
obligor and maker of the Notes and from its obligations under this Indenture.
In case of any such consolidation, merger, sale, conveyance or lease,
such changes in phraseology and form (but not in substance) may be made in the
Notes thereafter to be issued as may be appropriate.
Section 12.3 Opinion of Counsel to Be Given Trustee. The Trustee,
subject to Sections 8.1 and 8.2, shall receive an Officers' Certificate and an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale, conveyance or lease and any such assumption complies with the provisions
of this Article XII.
ARTICLE XIII
SATISFACTION AND DISCHARGE OF INDENTURE
Section 13.1 Discharge of Indenture. When (a) the Company shall deliver
to the Trustee for cancellation all Notes theretofore authenticated (other than
any Notes which have been destroyed, lost or stolen and in lieu of or in
substitution for which other Notes shall have been authenticated and delivered)
and not theretofore canceled, or (b) all the Notes not theretofore canceled or
delivered to the Trustee for cancellation shall have become due and payable, or
are by their terms to become due and payable within one year or are to be called
for redemption within one year under arrangements satisfactory to the Trustee
for the giving of notice of redemption, and the Company shall deposit with the
Trustee, in trust, funds sufficient to pay at maturity or upon redemption of all
of the Notes (other than any Notes which shall have been mutilated, destroyed,
lost or stolen and in lieu of or in substitution for which other Notes shall
have been authenticated and delivered) not theretofore canceled or delivered to
the Trustee for cancellation, including principal and premium, if any, and
interest due or to become due to such date of maturity or redemption date, as
the case may be, and if in either case the Company shall also pay or cause to be
paid all other sums payable hereunder by the Company, then this Indenture shall
cease to be of further effect (except as to (i) remaining rights of registration
of transfer, substitution and exchange and conversion of Notes, (ii) rights
hereunder of Noteholders to receive payments of principal of and premium, if
any, and interest on, the Notes and the other rights, duties and obligations of
Noteholders, as beneficiaries hereof with respect to the amounts, if any, so
deposited with the Trustee and (iii) the rights, obligations and immunities of
the Trustee hereunder), and the Trustee, on demand of the
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Company accompanied by an Officers' Certificate and an Opinion of Counsel as
required by Section 16.5 and at the cost and expense of the Company, shall
execute proper instruments acknowledging satisfaction of and discharging this
Indenture; the Company, however, hereby agreeing to reimburse the Trustee for
any costs or expenses thereafter reasonably and properly incurred by the Trustee
and to compensate the Trustee for any services thereafter reasonably and
properly rendered by the Trustee in connection with this Indenture or the Notes.
Section 13.2 Deposited Monies to Be Held in Trust by Trustee. Subject
to Section 13.4, all monies deposited with the Trustee pursuant to Section 13.1
and not in violation of Article IV shall be held in trust for the sole benefit
of the Noteholders and not to be subject to the subordination provisions of
Article IV, and such monies shall be applied by the Trustee to the payment,
either directly or through any paying agent (including the Company if acting as
its own paying agent), to the holders of the particular Notes for the payment or
redemption of which such monies have been deposited with the Trustee, of all
sums due and to become due thereon for principal and interest and premium, if
any.
Section 13.3 Paying Agent to Repay Monies Held. Upon the satisfaction
and discharge of this Indenture, all monies then held by any paying agent of the
Notes (other than the Trustee) shall, upon written request of the Company, be
repaid to it or paid to the Trustee, and thereupon such paying agent shall be
released from all further liability with respect to such monies.
Section 13.4 Return of Unclaimed Monies. Subject to the requirements of
applicable law, any monies deposited with or paid to the Trustee for payment of
the principal of, premium, if any, or interest on Notes and not applied but
remaining unclaimed by the holders of Notes for two years after the date upon
which the principal of, premium, if any, or interest on such Notes, as the case
may be, shall have become due and payable, shall be repaid to the Company by the
Trustee on demand and all liability of the Trustee shall thereupon cease with
respect to such monies; and the holder of any of the Notes shall thereafter look
only to the Company for any payment which such holder may be entitled to collect
unless an applicable abandoned property law designates another Person.
Section 13.5 Reinstatement. If the Trustee or the paying agent is
unable to apply any money in accordance with Section 13.2 by reason of any order
or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 13.1 until such time as the Trustee or the paying
agent is permitted to apply all such money in accordance with Section 13.2;
provided, however, that if the Company makes any payment of interest on or
principal of any Note following the reinstatement of its obligations, the
Company shall
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be subrogated to the rights of the holders of such Notes to receive such payment
from the money held by the Trustee or paying agent.
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
Section 14.1 Indenture and Notes Solely Corporate Obligations. No
recourse for the payment of the principal of or premium, if any, or interest on
any Note, or for any claim based thereon or otherwise in respect thereof, and no
recourse under or upon any obligation, covenant or agreement of the Company in
this Indenture or in any supplemental indenture or in any Note, or because of
the creation of any indebtedness represented thereby, shall be had against any
incorporator, stockholder, employee, agent, officer, or director or subsidiary,
as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Notes.
ARTICLE XV
CONVERSION OF NOTES
Section 15.1 Right to Convert. Subject to and upon compliance with the
provisions of this Indenture, the holder of any Note shall have the right, at
his option, at any time after ninety (90) days following the latest date of
original issuance of the Notes and prior to the close of business on March 1,
2003 (except that, with respect to any Note or portion of a Note which shall be
called for redemption, such right shall terminate, except as provided in Section
15.2 or Section 3.4, at the close of business on the Business Day next preceding
the date fixed for redemption of such Note or portion of a Note unless the
Company shall default in payment due upon redemption thereof) to convert the
principal amount of any such Note, or any portion of such principal amount which
is $1,000 or an integral multiple thereof, into that number of fully paid and
non-assessable shares of Common Stock (as such shares shall then be constituted)
obtained by dividing the principal amount of the Note or portion thereof
surrendered for conversion by the Conversion Price in effect at such time, by
surrender of the Note so to be converted in whole or in part in the manner
provided, together with any required funds, in Section 15.2. A holder of Notes
is not entitled to any rights of a holder of Common Stock
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until such holder has converted his Notes to Common Stock, and only to the
extent such Notes are deemed to have been converted to Common Stock under this
Article XV.
Section 15.2 Exercise of Conversion Privilege; Issuance of Common Stock
on Conversion; No Adjustment for Interest or Dividends. In order to exercise the
conversion privilege with respect to any Note in certificated form, the holder
of any such Note to be converted in whole or in part shall surrender such Note,
duly endorsed, at an office or agency maintained by the Company pursuant to
Section 5.2, accompanied by the funds, if any, required by the penultimate
paragraph of this Section 15.2, and shall give written notice of conversion in
the form provided on the Notes (or such other notice which is acceptable to the
Company) to the office or agency that the holder elects to convert such Note or
the portion thereof specified in said notice. Such notice shall also state the
name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock which shall be issuable on such
conversion shall be issued, and shall be accompanied by transfer taxes, if
required pursuant to Section 15.7. Each such Note surrendered for conversion
shall, unless the shares issuable on conversion are to be issued in the same
name as the registration of such Note, be duly endorsed by, or be accompanied by
instruments of transfer in form satisfactory to the Company duly executed by,
the holder or his duly authorized attorney.
In order to exercise the conversion privilege with respect to any
interest in a Note in global form, the beneficial holder must complete the
appropriate instruction form for conversion pursuant to the Depository's
book-entry conversion program, deliver by book-entry delivery an interest in
such Note in global form, furnish appropriate endorsements and transfer
documents if required by the Company or the Trustee or conversion agent, and pay
the funds, if any, required by this Section 15.2 and any transfer taxes if
required pursuant to Section 15.7.
As promptly as practicable after satisfaction of the requirements for
conversion set forth above, subject to compliance with any restrictions on
transfer if shares issuable on conversion are to be issued in a name other than
that of the Noteholder (as if such transfer were a transfer of the Note or Notes
(or portion thereof) so converted), the Company shall issue and shall deliver to
such holder at the office or agency maintained by the Company for such purpose
pursuant to Section 5.2, a certificate or certificates for the number of full
shares of Common Stock issuable upon the conversion of such Note or portion
thereof in accordance with the provisions of this Article and a check or cash in
respect of any fractional interest in respect of a share of Common Stock arising
upon such conversion, as provided in Section 15.3. In case any Note of a
denomination greater than $1,000 shall be surrendered for partial conversion,
and subject to Section 2.3, the Company shall execute and the Trustee shall
authenticate and deliver to the holder of the Note so surrendered, without
charge to him, a new Note or Notes in authorized denominations in an aggregate
principal amount equal to the unconverted portion of the surrendered Note.
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Each conversion shall be deemed to have been effected as to any such
Note (or portion thereof) on the date on which the requirements set forth above
in this Section 15.2 have been satisfied as to such Note (or portion thereof),
and the person in whose name any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become on said date the holder of record of the shares represented thereby;
provided, however, that any such surrender on any date when the stock transfer
books of the Company shall be closed shall constitute the person in whose name
the certificates are to be issued as the record holder thereof for all purposes
on the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date upon which
such Note shall be surrendered.
Any Note or portion thereof surrendered for conversion during the
period from the close of business on the record date for any interest payment
date to the close of business on the Business Day next preceding the following
interest payment date shall (unless such Note or portion thereof being converted
shall have been called for redemption during the period from the close of
business on such record date to the close of business on the Business Day next
preceding the following interest payment date) be accompanied by payment, in New
York Clearing House funds or other funds acceptable to the Company, of an amount
equal to the interest otherwise payable on such interest payment date on the
principal amount being converted; provided, however, that no such payment need
be made if there shall exist at the time of conversion a default in the payment
of interest on the Notes. Except as provided above in this Section 15.2, no
adjustment shall be made for interest accrued on any Note converted or for
dividends on any shares issued upon the conversion of such Note as provided in
this Article.
Upon the conversion of an interest in a Note in global form, the
Trustee, or the Custodian at the direction of the Trustee, shall make a notation
on such Note in global form as to the reduction in the principal amount
represented thereby.
Section 15.3 Cash Payments in Lieu of Fractional Shares. No fractional
shares of Common Stock or scrip representing fractional shares shall be issued
upon conversion of Notes. If more than one Note shall be surrendered for
conversion at one time by the same holder, the number of full shares which shall
be issuable upon conversion shall be computed on the basis of the aggregate
principal amount of the Notes (or specified portions thereof to the extent
permitted hereby) so surrendered. If any fractional share of stock would be
issuable upon the conversion of any Note or Notes, the Company shall make an
adjustment and payment therefor in cash at the current market value thereof to
the holder of Notes. The current market value of a share of Common Stock shall
be the Closing Price on the first Business Day immediately preceding the day on
which the Notes (or specified portions thereof) are deemed to have been
converted.
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Section 15.4 Conversion Price. The conversion price shall be as
specified in the form of Note (herein called the "Conversion Price") attached as
Exhibit A hereto, subject to adjustment as provided in this Article XV.
Section 15.5 Adjustment of Conversion Price. The Conversion Price shall
be adjusted from time to time by the Company as follows:
(a) In case the Company shall hereafter pay a dividend or make
a distribution to all holders of the outstanding Common Stock in shares
of Common Stock, the Conversion Price in effect at the opening of
business on the date following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution
shall be reduced by multiplying such Conversion Price by a fraction of
which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or
other distribution, such reduction to become effective immediately
after the opening of business on the day following the date fixed for
such determination. The Company will not pay any dividend or make any
distribution on shares of Common Stock held in the treasury of the
Company. If any dividend or distribution of the type described in this
Section 15.5(a) is declared but not so paid or made, the Conversion
Price shall again be adjusted to the Conversion Price which would then
be in effect if such dividend or distribution had not been declared.
(b) In case the Company shall issue rights or warrants to all
holders of its outstanding shares of Common Stock entitling them (for a
period expiring within 45 days after the date fixed for determination
of stockholders entitled to receive such rights or warrants) to
subscribe for or purchase shares of Common Stock at a price per share
less than the Current Market Price (as defined below) on the date fixed
for determination of stockholders entitled to receive such rights or
warrants, the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to the date fixed for determination of
stockholders entitled to receive such rights or warrants by a fraction
of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for
determination of stockholders entitled to receive such rights and
warrants plus the number of shares which the aggregate offering price
of the total number of shares so offered would purchase at such Current
Market Price, and of which the denominator shall be the number of
shares of Common Stock outstanding on the date fixed for determination
of stockholders entitled to receive such rights and warrants plus the
total number of additional shares of Common Stock offered for
subscription or purchase. Such adjustment shall be successively made
whenever any such rights and warrants are issued, and shall become
effective immediately
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after the opening of business on the day following the date fixed for
determination of stockholders entitled to receive such rights or
warrants. To the extent that shares of Common Stock are not delivered
after the expiration of such rights or warrants, the Conversion Price
shall be readjusted to the Conversion Price which would then be in
effect had the adjustments made upon the issuance of such rights or
warrants been made on the basis of delivery of only the number of
shares of Common Stock actually delivered. In the event that such
rights or warrants are not so issued, the Conversion Price shall again
be adjusted to be the Conversion Price which would then be in effect if
such date fixed for the determination of stockholders entitled to
receive such rights or warrants had not been fixed. In determining
whether any rights or warrants entitle the holders to subscribe for or
purchase shares of Common Stock at less than such Current Market Price,
and in determining the aggregate offering price of such shares of
Common Stock, there shall be taken into account any consideration
received by the Company for such rights or warrants, the value of such
consideration, if other than cash, to be determined by the Board of
Directors.
(c) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall
be proportionately reduced, and conversely, in case outstanding shares
of Common Stock shall be combined into a smaller number of shares of
Common Stock, the Conversion Price in effect at the opening of business
on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(d) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock shares of any class of
capital stock of the Company (other than any dividends or distributions
to which Section 15.5(a) applies) or evidences of its indebtedness or
assets (including securities, but excluding any rights or warrants
referred to in Section 15.5(b), and excluding any dividend or
distribution (x) paid exclusively in cash or (y) referred to in Section
15.5(a) (any of the foregoing hereinafter in this Section 15.5(d)
called the "Securities")), then, in each such case (unless the Company
elects to reserve such Securities for distribution to the Noteholders
upon the conversion of the Notes so that any such holder converting
Notes will receive upon such conversion, in addition to the shares of
Common Stock to which such holder is entitled, the amount and kind of
such Securities which such holder would have received if such holder
had converted its Notes into Common Stock immediately prior to the
Record Date (as defined in Section 15.5(h) for such distribution of the
Securities)), the Conversion Price shall be reduced so that the same
shall be equal to the price determined by multiplying the Conversion
Price in effect on the Record Date with respect to such distribution
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by a fraction of which the numerator shall be the Current Market Price
per share of the Common Stock on such Record Date less the fair market
value (as determined by the Board of Directors, whose determination
shall be conclusive, and described in a resolution of the Board of
Directors) on the Record Date of the portion of the Securities so
distributed applicable to one share of Common Stock and the denominator
shall be the Current Market Price per share of the Common Stock, such
reduction to become effective immediately prior to the opening of
business on the day following such Record Date; provided, however, that
in the event the then fair market value (as so determined) of the
portion of the Securities so distributed applicable to one share of
Common Stock is equal to or greater than the Current Market Price of
the Common Stock on the Record Date, in lieu of the foregoing
adjustment, adequate provision shall be made so that each Noteholder
shall have the right to receive upon conversion the amount of
Securities such holder would have received had such holder converted
each Note on the Record Date. In the event that such dividend or
distribution is not so paid or made, the Conversion Price shall again
be adjusted to be the Conversion Price which would then be in effect if
such dividend or distribution had not been declared. If the Board of
Directors determines the fair market value of any distribution for
purposes of this Section 15.5(d) by reference to the actual or when
issued trading market for any securities, it must in doing so consider
the prices in such market over the same period used in computing the
Current Market Price of the Common Stock.
Each share of Common Stock issued upon conversion of Notes
pursuant to this Article XV shall be entitled to receive the
appropriate number of Rights, if any, and the certificates representing
the Common Stock issued upon such conversion shall bear such legends,
if any, in each case as provided by and subject to the terms of the
Rights Agreement as in effect at the time of such conversion. If the
Rights are separated from the Common Stock in accordance with the
provisions of the Rights Agreement such that the holders of Notes would
thereafter not be entitled to receive any such Rights in respect to the
Common Stock issuable upon conversion of such Notes, the Conversion
Price will be adjusted as provided in this Section 15.5(d) on the
separation date; provided that if such Rights expire, terminate or are
redeemed by the Company, the Conversion Price shall again be adjusted
to be the Conversion Price which would then be in effect if such
separation had not occurred. In lieu of any such adjustment, the
Company may amend the Rights Agreement to provide that upon conversion
of the Notes the holders will receive, in addition to the Common Stock
issuable upon such conversion, the Rights which would have attached to
such shares of Common Stock if the Rights had not become separated from
the Common Stock pursuant to the provisions of the Rights Agreement.
Rights or warrants distributed by the Company to all holders
of Common Stock entitling the holders thereof to subscribe for or
purchase shares of the Company's capital stock (either initially or
under certain circumstances), which
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rights or warrants, until the occurrence of a specified event or events
("Trigger Event"): (i) are deemed to be transferred with such shares of
Common Stock; (ii) are not exercisable; and (iii) are also issued in
respect of future issuances of Common Stock, shall be deemed not to
have been distributed for purposes of this Section 15.5 (and no
adjustment to the Conversion Price under this Section 15.5 will be
required) until the occurrence of the earliest Trigger Event, whereupon
such rights and warrants shall be deemed to have been distributed and
an appropriate adjustment (if any is required) to the Conversion Price
shall be made under this Section 15.5(d). If any such right or warrant,
including any such existing rights or warrants distributed prior to the
date of this Indenture, are subject to events, upon the occurrence of
which such rights or warrants become exercisable to purchase different
securities, evidences of indebtedness or other assets, then the date of
the occurrence of any and each such event shall be deemed to be the
date of distribution and record date with respect to new rights or
warrants with such rights (and a termination or expiration of the
existing rights or warrants without exercise by any of the holders
thereof). In addition, in the event of any distribution (or deemed
distribution) of rights or warrants, or any Trigger Event or other
event (of the type described in the preceding sentence) with respect
thereto that was counted for purposes of calculating a distribution
amount for which an adjustment to the Conversion Price under this
Section 15.5 was made, (1) in the case of any such rights or warrants
which shall all have been redeemed or repurchased without exer cise by
any holders thereof, the Conversion Price shall be readjusted upon such
final redemption or repurchase to give effect to such distribution or
Trigger Event, as the case may be, as though it were a cash
distribution, equal to the per share redemption or repurchase price
received by a holder or holders of Common Stock with respect to such
rights or warrants (assuming such holder had retained such rights or
warrants), made to all holders of Common Stock as of the date of such
redemption or repurchase, and (2) in the case of such rights or
warrants which shall have expired or been terminated without exercise
by any holders thereof, the Conversion Price shall be readjusted as if
such rights and warrants had not been issued.
For purposes of this Section 15.5(d) and Sections 15.5(a) and
(b), any dividend or distribution to which this Section 15.5(d) is
applicable that also includes shares of Common Stock, or rights or
warrants to subscribe for or purchase shares of Common Stock (or both),
shall be deemed instead to be (1) a dividend or distribution of the
evidences of indebtedness, assets or shares of capital stock other than
such shares of Common Stock or rights or warrants (and any Conversion
Price reduction required by this Section 15.5(d) with respect to such
dividend or distribution shall then be made) immediately followed by
(2) a dividend or distribution of such shares of Common Stock or such
rights or warrants (and any further Conversion Price reduction required
by Sections 15.5(a) and (b) with respect to such dividend or
distribution shall then be made), except (A) the Record
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Date of such dividend or distribution shall be substituted as "the date
fixed for the determination of stockholders entitled to receive such
dividend or other distribution" and "the date fixed for such
determination" within the meaning of Sections 15.5(a) and (b) and (B)
any shares of Common Stock included in such dividend or distribution
shall not be deemed "outstanding at the close of business on the date
fixed for such determination" within the meaning of Section 15.5(a).
(e) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock cash (excluding (x) any
quarterly cash dividend on the Common Stock to the extent the aggregate
cash dividend per share of Common Stock in any fiscal quarter does not
exceed the greater of (A) the amount per share of Common Stock of the
next preceding quarterly cash dividend on the Common Stock to the
extent that such preceding quarterly dividend did not require any
adjustment of the Conversion Price pursuant to this Section 15.5(e) (as
adjusted to reflect subdivisions or combinations of the Common Stock),
and (B) 3.75% of the arithmetic average of the Closing Price
(determined as set forth in Section 15.5(h)) during the ten Trading
Days (as defined in Section 15.5(h)) immediately prior to the date of
declaration of such dividend, and (y) any dividend or distribution in
connection with the liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary), then, in such case, the
Conversion Price shall be reduced so that the same shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on such Record Date by a
fraction of which the numerator shall be the Current Market Price of
the Common Stock on the Record Date less the amount of cash so
distributed (and not excluded as provided above) applicable to one
share of Common Stock and the denominator shall be such Current Market
Price of the Common Stock, such reduction to be effective immediately
prior to the opening of business on the day following the Record Date;
provided, however, that in the event the portion of the cash so
distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price of the Common Stock on the Record
Date, in lieu of the foregoing adjustment, adequate provision shall be
made so that each Noteholder shall have the right to receive upon
conversion the amount of cash such holder would have received had such
holder converted each Note on the Record Date. In the event that such
dividend or distribution is not so paid or made, the Conversion Price
shall again be adjusted to be the Conversion Price which would then be
in effect if such dividend or distribution had not been declared. If
any adjustment is required to be made as set forth in this Section
15.5(e) as a result of a distribution that is a quarterly dividend,
such adjustment shall be based upon the amount by which such
distribution exceeds the amount of the quarterly cash dividend
permitted to be excluded pursuant hereto. If an adjustment is required
to be made as set forth in this Section 15.5(e) above as a result of a
distribution that is not a quarterly dividend, such adjustment shall be
based upon the full amount of the distribution.
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(f) In case a tender or exchange offer made by the Company or
any subsidiary of the Company for all or any portion of the Common
Stock shall expire and such tender or exchange offer (as amended upon
the expiration thereof) shall require the payment to stockholders of
consideration per share of Common Stock having a fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board if Directors)
that as of the last time (the "Expiration Time") tenders or exchanges
may be made pursuant to such tender or exchange offer (as it may be
amended) that exceeds the Current Market Price of the Common Stock on
the Trading Day next succeeding the Expiration Time, the Conversion
Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately
prior to the Expiration Time by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding (including any
tendered or exchanged shares) on the Expiration Time multiplied by the
Current Market Price of the Common Stock on the Trading Day next
succeeding the Expiration Time and the denominator shall be the sum of
(x) the fair market value (determined as aforesaid) of the aggregate
consideration payable to shareholders based on the acceptance (up to
any maximum specified in the terms of the tender or exchange offer) of
all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such maximum,
being referred to as the "Purchased Shares") and (y) the product of the
number of shares of Common Stock outstanding (less any Purchased
Shares) on the Expiration Time and the Current Market Price of the
Common Stock on the Trading Day next succeeding the Expiration Time,
such reduction to become effective immediately prior to the opening of
business on the day following the Expiration Time. In the event that
the Company is obligated to purchase shares pursuant to any such tender
or exchange offer, but the Company is permanently prevented by
applicable law from effecting any such purchases or all such purchases
are rescinded, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such tender or
exchange offer had not been made.
(g) In case of a tender or exchange offer made by a person
other than the Company or any Subsidiary for an amount which increases
the offeror's ownership of Common Stock to more than 25% of the Common
Stock outstanding and shall involve the payment by such person of
consideration per share of Common Stock having a fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive, and described in a resolution of the Board of Directors) at
the last time (the "Expiration Time") tenders or exchanges may be made
pursuant to such tender or exchange offer (as it shall have been
amended) that exceeds the Current Market Price of the Common Stock on
the Trading Day next succeeding the Expiration Time, and in which, as
of the Expiration Time the Board of Directors is not recommending
rejection of the offer, the Conversion Price shall be reduced so that
the same shall equal the price determined by multiplying
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the Conversion Price in effect immediately prior to the Expiration Time
by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding (including any tendered or exchanged shares)
on the Expiration Time multiplied by the current Market Price of the
Common Stock on the Trading Day next succeeding the Expiration Time and
the denominator shall be the sum of (x) the fair market value
(determined as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum specified in
the terms of the tender or exchange offer) of all shares validly
tendered or exchanged and not withdrawn as of the Expiration Time (the
shares deemed so accepted, up to any such maximum, being referred to as
the "Purchased Shares") and (y) the product of the number of shares of
Common Stock outstanding (less any Purchased Shares) on the Expiration
Time and the Current Market Price of the Common Stock on the Trading
Day next succeeding the Expiration Time, such reduction to become
effective immediately prior to the opening of business on the day
following the Expiration Time. In the event that such person is
obligated to purchase shares pursuant to any such tender or exchange
offer, but such person is permanently prevented by applicable law from
effecting any such purchases or all such purchases are rescinded, the
Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such tender or exchange offer had not
been made. Notwithstanding the foregoing, the adjustment described in
this Section 15.5(g) shall not be made if, as of the Expiration Time,
the offering documents with respect to such offer disclose a plan or
intention to cause the Company to engage in any transaction described
in Article XII.
(h) For purposes of this Section 15.5, the following terms
shall have the meaning indicated:
(1) "Closing Price" with respect to any securities on
any day shall mean the closing sale price regular way on such
day or, in case no such sale takes place on such day, the
average of the reported closing bid and asked prices, regular
way, in each case on the New York Stock Exchange, or, if such
security is not listed or admitted to trading on such
Exchange, on the principal national security exchange or
quotation system on which such security is quoted or listed or
admitted to trading, or, if not quoted or listed or admitted
to trading on any national securities exchange or quotation
system, the average of the closing bid and asked prices of
such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting
service, or if not so available, in such manner as furnished
by any New York Stock Exchange member firm selected from time
to time by the Board of Directors for that purpose, or a price
determined in good faith by the Board of Directors or, to the
extent permitted by applicable law, a duly authorized
committee thereof, whose determination shall be conclusive.
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(2) "Current Market Price" shall mean the average of
the daily Closing Prices per share of Common Stock for the ten
consecutive Trading Days immediately prior to the date in
question; provided, however, that (1) if the "ex" date (as
hereinafter defined) for any event (other than the issuance or
distribution or Fundamental Change requiring such computation)
that requires an adjustment to the Conversion Price pursuant
to Section 15.5(a), (b), (c), (d), (e), (f) or (g) occurs
during such ten consecutive Trading Days, the Closing Price
for each Trading Day prior to the "ex" date for such other
event shall be adjusted by multiplying such Closing Price by
the same fraction by which the Conversion Price is so required
to be adjusted as a result of such other event, (2) if the
"ex" date for any event (other than the issuance, distribution
or Fundamental Change requiring such computation) that
requires an adjustment to the Conversion Price pursuant to
Section 15.5(a), (b), (c), (d), (e), (f) or (g) occurs on or
after the "ex" date for the issuance or distribution requiring
such computation and prior to the day in question, the Closing
Price for each Trading Day on and after the "ex" date for such
other event shall be adjusted by multiplying such Closing
Price by the reciprocal of the fraction by which the
Conversion Price is so required to be adjusted as a result of
such other event, and (3) if the "ex" date for the issuance,
distribution or Fundamental Change requiring such computation
is prior to the day in question, after taking into account any
adjustment required pursuant to clause (1) or (2) of this
proviso, the Closing Price for each Trading Day on or after
such "ex" date shall be adjusted by adding thereto the amount
of any cash and the fair market value (as determined by the
Board of Directors or, to the extent permitted by applicable
law, a duly authorized committee thereof in a manner
consistent with any determination of such value for purposes
of Section 15.5(d), (f) or (g), whose determination shall be
conclusive and described in a resolution of the Board of
Directors or such duly authorized committee thereof, as the
case may be) of the evidences of indebtedness, shares of
capital stock or assets being distributed applicable to one
share of Common Stock as of the close of business on the day
before such "ex" date. For purposes of any computation under
Section 15.5(f) or (g), the Current Market Price of the Common
Stock on any date shall be deemed to be the average of the
daily Closing Prices per share of Common Stock for such day
and the next two succeeding Trading Days; provided, however,
that if the "ex" date for any event (other than the tender or
exchange offer requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section
15.5(a), (b), (c), (d), (e), (f) or (g) occurs on or after the
Expiration Time for the tender or exchange offer requiring
such computation and prior to the day in question, the Closing
Price for each Trading Day on and after the "ex" date for such
other event shall be adjusted by multiplying such Closing
Price by the reciprocal of the fraction by which the
Conversion
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Price is so required to be adjusted as a result of such other
event. For purposes of this paragraph, the term "ex" date, (1)
when used with respect to any issuance or distribution, means
the first date on which the Common Stock trades regular way on
the relevant exchange or in the relevant market from which the
Closing Price was obtained without the right to receive such
issuance or distribution, (2) when used with respect to any
subdivision or combination of shares of Common Stock, means
the first date on which the Common Stock trades regular way on
such exchange or in such market after the time at which such
subdivision or combination becomes effective, and (3) when
used with respect to any tender or exchange offer means the
first date on which the Common Stock trades regular way on
such exchange or in such market after the Expiration Time of
such offer.
(3) "fair market value" shall mean the amount which a
willing buyer would pay a willing seller in an arm's length
transaction.
(4) "Record Date" shall mean, with respect to any
dividend, distribution or other transaction or event in which
the holders of Common Stock have the right to receive any
cash, securities or other property or in which the Common
Stock (or other applicable security) is exchanged for or
converted into any combination of cash, securities or other
property, the date fixed for determination of shareholders
entitled to receive such cash, securities or other property
(whether such date is fixed by the Board of Directors or by
statute, contract or otherwise).
(5) "Trading Day" shall mean (x) if the applicable
security is listed or admitted for trading on the New York
Stock Exchange or another national security exchange, a day on
which the New York Stock Exchange or another national security
exchange is open for business or (y) if the applicable
security is quoted on the Nasdaq National Market, a day on
which trades may be made on thereon or (z) if the applicable
security is not so listed, admitted for trading or quoted, any
day other than a Saturday or Sunday or a day on which banking
institutions in the State of New York are authorized or
obligated by law or executive order to close.
(i) The Company may make such reductions in the Conversion
Price, in addition to those required by Sections 15.5 (a), (b), (c),
(d), (e), (f) and (g), as the Board of Directors considers to be
advisable to avoid or diminish any income tax to holders of Common
Stock or rights to purchase Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes.
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To the extent permitted by applicable law, the Company from
time to time may reduce the Conversion Price by any amount for any
period of time if the period is at least twenty (20) days, the
reduction is irrevocable during the period and the Board of Directors
shall have made a determination that such reduction would be in the
best interests of the Company, which determination shall be conclusive.
Whenever the Conversion Price is reduced pursuant to the preceding
sentence, the Company shall mail to holders of record of the Notes a
notice of the reduction at least fifteen (15) days prior to the date
the reduced Conversion Price takes effect, and such notice shall state
the reduced Conversion Price and the period during which it will be in
effect.
(j) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in such price; provided, however, that any adjustments which
by reason of this Section 15.5(j) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Article XV shall be made by the Company and
shall be made to the nearest cent or to the nearest one hundredth of a
share, as the case may be. No adjustment need be made for rights to
purchase Common Stock pursuant to a Company plan for reinvestment of
dividends or interest. To the extent the Notes become convertible into
cash, assets, property or securities (other than capital stock of the
Company), no adjustment need be made thereafter as to the cash, assets,
property or such securities. Interest will not accrue on the cash.
(k) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the Trustee and any
conversion agent other than the Trustee an Officers' Certificate
setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
Promptly after delivery of such certificate, the Company shall prepare
a notice of such adjustment of the Conversion Price setting forth the
adjusted Conversion Price and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the
Conversion Price to the holder of each Note at his last address
appearing on the Note register provided for in Section 2.5 of this
Indenture, within 20 days after execution thereof. Failure to deliver
such notice shall not affect the legality or validity of any such
adjustment.
(l) In any case in which this Section 15.5 provides that an
adjustment shall become effective immediately after a record date for
an event, the Company may defer until the occurrence of such event (i)
issuing to the holder of any Note converted after such record date and
before the occurrence of such event the additional shares of Common
Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable
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upon such conversion before giving effect to such adjustment and (ii)
paying to such holder any amount in cash in lieu of any fraction
pursuant to Section 15.3.
(m) For purposes of this Section 15.5, the number of shares of
Common Stock at any time outstanding shall not include shares held in
the treasury of the Company but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of
Common Stock. The Company will not pay any dividend or make any
distribution on shares of Common Stock held in the treasury of the
Company.
Section 15.6 Effect of Reclassification, Consolidation, Merger or Sale.
If any of the following events occur, namely (i) any reclassification or change
of the outstanding shares of Common Stock (other than a subdivision or
combination to which Section 15.5(c) applies), (ii) any consolidation, merger or
combination of the Company with another corporation as a result of which holders
of Common Stock shall be entitled to receive stock, securities or other property
or assets (including cash) with respect to or in exchange for such Common Stock,
or (iii) any sale or conveyance of the properties and assets of the Company as,
or substantially as, an entirety to any other corporation as a result of which
holders of Common Stock shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
Common Stock, then the Company or the successor or purchasing corporation, as
the case may be, shall execute with the Trustee a supplemental indenture (which
shall comply with the Trust Indenture Act as in force at the date of execution
of such supplemental indenture) providing that such Note shall be convertible
into the kind and amount of shares of stock and other securities or property or
assets (including cash) receivable upon such reclassification, change,
consolidation, merger, combination, sale or conveyance by a holder of a number
of shares of Common Stock issuable upon conversion of such Notes (assuming, for
such purposes, a sufficient number of authorized shares of Common Stock
available to convert all such Notes) immediately prior to such reclassification,
change, consolidation, merger, combination, sale or conveyance assuming such
holder of Common Stock did not exercise his rights of election, if any, as to
the kind or amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance (provided that, if
the kind or amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance is not the same
for each share of Common Stock in respect of which such rights of election shall
not have been exercised ("nonelecting share")), then for the purposes of this
Section 15.6 the kind and amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance for each non-electing share shall be deemed to be the kind and amount
so receivable per share by a plurality of the non-electing shares. Such
supplemental indenture shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Article.
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The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each holder of Notes, at his address appearing on the
Note register provided for in Section 2.5 of this Indenture, within twenty (20)
days after execution thereof. Failure to deliver such notice shall not affect
the legality or validity of such supplemental indenture.
The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.
If this Section 15.6 applies to any event or occurrence, Section 15.5
shall not apply.
Section 15.7 Taxes on Shares Issued. The issue of stock certificates on
conversions of Notes shall be made without charge to the converting Noteholder
for any tax in respect of the issue thereof. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of stock in any name other than that of the holder of
any Note converted, and the Company shall not be required to issue or deliver
any such stock certificate unless and until the person or persons requesting the
issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
Section 15.8 Reservation of Shares; Shares to Be Fully Paid; Compliance
with Governmental Requirements; Listing of Common Stock. The Company shall
provide, free from preemptive rights, out of its authorized but unissued shares
or shares held in treasury, sufficient shares of Common Stock to provide for the
conversion of the Notes from time to time as such Notes are presented for
conversion.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Notes, the Company will take all corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue shares of such Common Stock at such
adjusted Conversion Price.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Notes will upon issue be fully paid and non-assessable
by the Company and free from all taxes, liens and charges with respect to the
issue thereof.
The Company covenants that if any shares of Common Stock to be provided
for the purpose of conversion of Notes hereunder require registration with or
approval of any governmental authority under any federal or state law before
such shares may be validly issued upon conversion, the Company will in good
faith and as expeditiously as possible endeavor to secure such registration or
approval, as the case may be.
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The Company further covenants that if at any time the Common Stock
shall be listed on the Nasdaq National Market or any other national securities
exchange or automated quotation system the Company will, if permitted by the
rules of such exchange or automated quotation system, list and keep listed, so
long as the Common Stock shall be so listed on such exchange or automated
quotation system, all Common Stock issuable upon conversion of the Notes;
provided, however, that if rules of such exchange or automated quotation system
permit the Company to defer the listing of such Common Stock until the first
conversion of the Notes into Common Stock in accordance with the provisions of
this Indenture, the Company covenants to list such Common Stock issuable upon
conversion of the Notes in accordance with the requirements of such exchange or
automated quotation system at such time.
Section 15.9 Responsibility of Trustee. The Trustee and any other
conversion agent shall not at any time be under any duty or responsibility to
any holder of Notes to determine whether any facts exist which may require any
adjustment of the Conversion Price, or with respect to the nature or extent or
calculation of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed, in
making the same. The Trustee and any other conversion agent shall not be
accountable with respect to the validity or value (or the kind or amount) of any
shares of Common Stock, or of any securities or property, which may at any time
be issued or delivered upon the conversion of any Note; and the Trustee and any
other conversion agent make no representations with respect thereto. Subject to
the provisions of Section 8.1, neither the Trustee nor any conversion agent
shall be responsible for any failure of the Company to issue, transfer or
deliver any shares of Common Stock or stock certificates or other securities or
property or cash upon the surrender of any Note for the purpose of conversion or
to comply with any of the duties, responsibilities or covenants of the Company
contained in this Article. Without limiting the generality of the foregoing,
neither the Trustee nor any conversion agent shall be under any responsibility
to determine the correctness of any provisions contained in any supplemental
indenture entered into pursuant to Section 15.6 relating either to the kind or
amount of shares of stock or securities or property (including cash) receivable
by Noteholders upon the conversion of their Notes after any event referred to in
such Section 15.6 or to any adjustment to be made with respect thereto, but,
subject to the provisions of Section 8.1, may accept as conclusive evidence of
the correctness of any such provisions, and shall be protected in relying upon,
the Officers' Certificate (which the Company shall be obligated to file with the
Trustee prior to the execution of any such supplemental indenture) with respect
thereto.
Section 15.10 Notice to Holders Prior to Certain Actions. In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock that would require an adjustment in
the Conversion Price pursuant to Section 15.5; or
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(b) the Company shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any
share of any class or any other rights or warrants; or
(c) of any reclassification or reorganization of the Common
Stock of the Company (other than a subdivision or combination of its
outstanding Common Stock, or a change in par value, or from par value
to no par value, or from no par value to par value), or of any
consolidation or merger to which the Company is a party and for which
approval of any shareholders of the Company is required, or of the sale
or transfer of all or substantially all of the assets of the Company;
or
(d) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
the Company shall cause to be filed with the Trustee and to be mailed to each
holder of Notes at his address appearing on the Note register provided for in
Section 2.5 of this Indenture, as promptly as possible but in any event at least
fifteen (15) days prior to the applicable date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective or occur,
and the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of such
dividend, distribution, reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
Section 16.1 Provisions Binding on Company's Successors. All the
covenants, stipulations, promises and agreements by the Company contained in
this Indenture shall bind its successors and assigns whether so expressed or
not.
Section 16.2 Official Acts by Successor Corporation. Any act or
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board, committee or officer of the Company shall and may be
done and performed with like force and effect by the like board, committee or
officer of any corporation that shall at the time be the lawful sole successor
of the Company.
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Section 16.3 Addresses for Notices, Etc. Any notice or demand which by
any provision of this Indenture is required or permitted to be given or served
by the Trustee or by the holders of Notes on the Company shall be deemed to have
been sufficiently given or made, for all purposes, if given or served by being
deposited postage prepaid by registered or certified mail in a post office
letter box addressed (until another address is filed by the Company with the
Trustee) to Quantum Corporation, 500 McCarthy Boulevard, Milpitas, California
95035, Attention: Chief Financial Officer. Any notice, direction, request or
demand hereunder to or upon the Trustee shall be deemed to have been
sufficiently given or made, for all purposes, if given or served by being
deposited postage prepaid by registered or certified mail in a post office
letter box addressed to the Corporate Trust Office, which office is, at the date
as of which this Indenture is dated, located at 135 South LaSalle Street,
Chicago, Illinois 60603-4109, Attention: Corporate Trust Division (Quantum
Corporation, 5% Convertible Subordinated Notes due 2003).
The Trustee, by notice to the Company, may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication mailed to a Noteholder shall be mailed to
him by first class mail, postage prepaid, at his address as it appears on the
Note register and shall be sufficiently given to him if so mailed within the
time prescribed.
Failure to mail a notice or communication to a Noteholder or any defect
in it shall not affect its sufficiency with respect to other Noteholders. If a
notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
Section 16.4 Governing Law. This Indenture and each Note shall be
deemed to be a contract made under the laws of New York, and for all purposes
shall be construed in accordance with the laws of New York.
Section 16.5 Evidence of Compliance with Conditions Precedent;
Certificates to Trustee. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and an Opinion of Counsel stating that,
in the opinion of such counsel, all such conditions precedent have been complied
with.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include (1) a statement that the person
making such certificate or opinion has read such covenant or condition; (2) a
brief statement as to the nature and scope of the examination or investigation
upon which the statement or opinion contained in such
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certificate or opinion is based; (3) a statement that, in the opinion of such
person, he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant or
condition has been complied with; and (4) a statement as to whether or not, in
the opinion of such person, such condition or covenant has been complied with.
Section 16.6 Legal Holidays. In any case where the date of maturity of
interest on or principal of the Notes or the date fixed for redemption of any
Note will not be a Business Day, then payment of such interest on or principal
of the Notes need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the date of
maturity or the date fixed for redemption, and no interest shall accrue for the
period from and after such date.
Section 16.7 Trust Indenture Act. This Indenture is hereby made subject
to, and shall be governed by, the provisions of the Trust Indenture Act required
to be part of and to govern indentures qualified under the Trust Indenture Act;
provided, however, that, unless otherwise required by law, notwithstanding the
foregoing, this Indenture and the Notes issued hereunder shall not be subject to
the provisions of subsections (a)(1), (a)(2), and (a)(3) of Section 314 of the
Trust Indenture Act as now in effect or as hereafter amended or modified;
provided, further, that this Section 16.7 shall not require this Indenture or
the Trustee to be qualified under the Trust Indenture Act prior to the time such
qualification is in fact required under the terms of the Trust Indenture Act,
nor shall it constitute any admission or acknowledgment by any party to such
supplemental indenture that any such qualification is required prior to the time
such qualification is in fact required under the terms of the Trust Indenture
Act. If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in an indenture qualified
under the Trust Indenture Act, such required provision shall control.
Section 16.8 No Security Interest Created. Nothing in this Indenture or
in the Notes, expressed or implied, shall be construed to constitute a security
interest under the Uniform Commercial Code or similar legislation, as now or
hereafter enacted and in effect, in any jurisdiction where property of the
Company or its subsidiaries is located.
Section 16.9 Benefits of Indenture. Nothing in this Indenture or in the
Notes, expressed or implied, shall give to any Person, other than the parties
hereto, any paying agent, any authenticating agent, any Note registrar and their
successors hereunder, the holders of Notes and the holders of Senior
Indebtedness, any benefit or any legal or equitable right, remedy or claim under
this Indenture.
Section 16.10 Table of Contents, Headings, Etc. The table of contents
and the titles and headings of the articles and sections of this Indenture have
been inserted for convenience of reference only, are not to be considered a part
hereof, and shall in no way modify or restrict any of the terms or provisions
hereof.
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Section 16.11 Authenticating Agent. The Trustee may appoint an
authenticating agent which shall be authorized to act on its behalf and subject
to its direction in the authentication and delivery of Notes in connection with
the original issuance thereof and transfers and exchanges of Notes hereunder,
including under Sections 2.4, 2.5, 2.6, 2.7, 3.3 and 3.5, as fully to all
intents and purposes as though the authenticating agent had been expressly
authorized by this Indenture and those Sections to authenticate and deliver
Notes. For all purposes of this Indenture, the authentication and delivery of
Notes by the authenticating agent shall be deemed to be authentication and
delivery of such Notes "by the Trustee" and a certificate of authentication
executed on behalf of the Trustee by an authenticating agent shall be deemed to
satisfy any requirement hereunder or in the Notes for the Trustee's certificate
of authentication. Such authenticating agent shall at all times be a person
eligible to serve as trustee hereunder pursuant to Section 8.9.
Any corporation into which any authenticating agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any authenticating agent
shall be a party, or any corporation succeeding to the corporate trust business
of any authenticating agent, shall be the successor of the authenticating agent
hereunder, if such successor corporation is otherwise eligible under this
Section 16.11, without the execution or filing of any paper or any further act
on the part of the parties hereto or the authenticating agent or such successor
corporation.
Any authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time terminate the agency of any authenticating agent by giving written notice
of termination to such authenticating agent and to the Company. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
any authenticating agent shall cease to be eligible under this Section, the
Trustee shall either promptly appoint a successor authenticating agent or itself
assume the duties and obligations of the former authenticating agent under this
Indenture, and upon such appointment of a successor authenticating agent, if
made, shall give written notice of such appointment of a successor
authenticating agent to the Company and shall mail notice of such appointment of
a successor authenticating agent to all holders of Notes as the names and
addresses of such holders appear on the Note register.
The Trustee agrees to pay to the authenticating agent from time to time
reasonable compensation for its services (to the extent pre-approved by the
Company in writing), and the Trustee shall be entitled to be reimbursed for such
pre-approved payments, subject to Section 8.6.
The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section 16.11
shall be applicable to any authenticating agent.
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Section 16.12 Execution in Counterparts. This Indenture may be executed
in any number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
LaSalle National Bank hereby accepts the trusts in this Indenture
declared and provided, upon the terms and conditions hereinabove set forth.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly signed, all as of the date first written above.
QUANTUM CORPORATION
By: /s/ Joseph T. Rodgers
------------------------------------------
Name: Joseph T. Rodgers
---------------------------------------
Title: Executive Vice President, Finance,
---------------------------------------
Chief Financial Officer and Secretary
---------------------------------------
LASALLE NATIONAL BANK
as Trustee
By: /s/ Laura H. Mackey
-----------------------------------------
Name: Laura A. Mackey
---------------------------------------
Title: Assistant Vice President
---------------------------------------
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EXHIBIT 10.37
EXECUTION COPY
FIFTH AMENDMENT TO CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as
of May 29, 1996, is entered into by and among:
(1) QUANTUM CORPORATION, a Delaware corporation ("Borrower");
(2) Each of the financial institutions listed in Schedule I to
the Credit Agreement referred to in Recital A below, (such financial
institutions to be referred to herein collectively as the "Banks");
(3) ABN AMRO BANK N.V., San Francisco International Branch
("ABN"), BARCLAYS BANK PLC ("Barclays") and CIBC INC. ("CIBC"), as
managing agents for the Banks (collectively in such capacity, the
"Managing Agents");
(4) BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, THE
FIRST NATIONAL BANK OF BOSTON, CHEMICAL BANK and THE INDUSTRIAL BANK OF
JAPAN, LIMITED, as co-agents for the Banks; and
(5) CANADIAN IMPERIAL BANK OF COMMERCE, as administrative and
collateral agent for the Banks (in such capacities, the "Administrative
Agent"); ABN, as syndication agent for the Banks; and Barclays, as
documentation agent for the Banks.
RECITALS
A. Borrower, the Banks, Managing Agents and Administrative Agent are
parties to a Credit Agreement dated as of October 3, 1994, as amended by a First
Amendment to Credit Agreement dated as of February 15, 1995, a Second Amendment
to Credit Agreement dated as of June 26, 1995, a Third Amendment to Credit
Agreement dated as of September 29, 1995 and a Fourth Amendment to Credit
Agreement dated as of January 29, 1996 (as so amended, the "Credit Agreement"),
pursuant to which the Banks have provided certain credit facilities to Borrower.
B. Borrower has requested the Banks, Managing Agents and Administrative
Agent to amend the Credit Agreement in certain respects and to waive certain
Events of Default which have occurred under the Credit Agreement.
C. The Banks, Managing Agents and Administrative Agent are willing so
to amend the Credit Agreement and to provide such waivers upon the terms and
subject to the conditions set forth below.
<PAGE> 2
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, the Banks, Managing Agents and Administrative Agent
hereby agree as follows:
1. DEFINITIONS, INTERPRETATION. All capitalized terms defined above and
elsewhere in this Amendment shall be used herein as so defined. Unless otherwise
defined herein, all other capitalized terms used herein shall have the
respective meanings given to those terms in the Credit Agreement, as amended by
this Amendment. The rules of construction set forth in Section I of the Credit
Agreement shall, to the extent not inconsistent with the terms of this
Amendment, apply to this Amendment and are hereby incorporated by reference.
2. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of the
conditions set forth in paragraph 6 below, the Credit Agreement is hereby
amended as follows:
(a) Paragraph 1.01 is amended by changing the definitions of the
following terms set forth therein to read in their entirety as follows:
"Debt Service Coverage Ratio" shall mean, with respect to any
Person for any period, the ratio, determined on a consolidated basis
in accordance with GAAP where applicable, of;
(a) The Adjusted Net Income of such Person and its
Subsidiaries for such period;
to
(b) The sum of (i) all principal payments on Indebtedness
for borrowed money of such Person and its Subsidiaries scheduled
for payment during the period of comparable length immediately
succeeding such period, (ii) fifty percent (50%) of all Capital
Expenditures of such Person and its Subsidiaries for such
period, and (iii) all dividends paid by such Person and its
Subsidiaries during such period (excluding any dividends paid to
such Person);
Provided, however, that:
(A) In calculating the Debt Service Coverage Ratio of
Borrower for the period January 1, 1995 through December 31,
1995, (1) the amount utilized
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<PAGE> 3
in clause (b)(i) above shall be the principal payments on
Indebtedness for borrowed money of Borrower and its Subsidiaries
scheduled for payment during 1995, rather than 1996, and (2) the
principal payments on the Term Loans scheduled for payment
during 1995 shall be deemed to be the principal payment due on
the Term Loans on September 30, 1995 and one-half of the
principal payment due on the Term Loans on March 31, 1996; and
(B) In calculating the Debt Service Coverage Ratio of
Borrower for the consecutive four-quarter periods ending on
March 31, 1996, June 30, 1996, September 29, 1996 and December
29, 1996 for purposes of clause (ii) of Subparagraph 5.02(m),
the amount calculated under clause (a) above for each such
period shall be increased by an amount equal to the lesser of
(1) the MKE Restructuring Charges and (2) $175,000,000.
"Fixed Charge Coverage Ratio" shall mean, with respect to any
Person for any period, the ratio, determined on a consolidated basis
in accordance with GAAP where applicable, of;
(a) The remainder of (i) EBITDA of such Person and its
Subsidiaries for such period, minus (ii) fifty percent (50%) of
all Capital Expenditures of such Person and its Subsidiaries for
such period;
to
(b) All Interest Expenses of such Person and its
Subsidiaries for such period;
Provided, however, that, in calculating the Fixed Charge Coverage
Ratio of Borrower for the consecutive four-quarter periods ending on
March 31, 1996, June 30, 1996, September 29, 1996 and December 29,
1996 for purposes of clause (i) of Subparagraph 5.02(m), the amount
calculated under clause (a) above for each such period shall be
increased by an amount equal to the lesser of (A) the MKE
Restructuring Charges and (B) $175,000,000.
(b) Paragraph 1.01 is further amended by adding thereto, in the
appropriate alphabetical order, the following definitions to read in
their entirety as follows:
"Louisville Property" shall mean that certain real property
consisting of approximately 27 acres located
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<PAGE> 4
at 1450 Centennial Court in Louisville, Colorado and improvements
thereto.
"Shrewsbury Property" shall mean that certain real property
consisting of approximately 72 acres located at 333 South Street in
Shrewsbury, Massachusetts and improvements thereto.
(c) Subparagraph 2.13(a) is amended by changing the proviso at the
end thereof to read in its entirety as follows:
Provided, however, that, after any sale of the Shrewsbury Property
as permitted by clause (ix) of Subparagraph 5.02(c) or any financing
of the Shrewsbury Property as permitted by clause (iii) of
Subparagraph 5.02(a), (A) the Obligations shall not be secured by
the Borrower Mortgage and (B) Administrative Agent shall execute
such documents, instruments and agreements as Borrower may
reasonably request to release the Borrower Mortgage.
(d) Subparagraph 2.13(b) is amended by changing clause (i) thereof
to read in its entirety as follows:
(i) Grant, perfect, maintain, protect and evidence security
interests in favor of Administrative Agent, for the benefit of the
Agents and Banks, in any or all present and future real and personal
property of Borrower (except, during any financing thereof permitted
by clause (iii) of Subparagraph 5.02(a), the Louisville Property and
the Shrewsbury Property) and the Material Subsidiaries (except Rocky
Mountain and Foreign Subsidiaries) prior to the Liens or other
interests of any Person, except for Permitted Liens;
(e) Subparagraph 5.02(a) is amended by changing clause (iii) thereof
to read in its entirety as follows:
(iii) Indebtedness under:
(A) Loans and Capital Leases incurred by Borrower or any
of its Subsidiaries to finance real property, fixtures or
equipment acquired by such Person not more than forty-five (45)
days prior to such loans and Capital Leases, provided that (1)
in each case, such Indebtedness does not exceed the purchase
price of the property so financed and (2) the aggregate amount
of such Indebtedness outstanding under this clause (A) at any
time does not exceed $40,000,000;
(B) Loans and Capital Leases incurred by Borrower or any
of its Subsidiaries to finance
4
<PAGE> 5
equipment acquired by such Person more than forty-five (45) days
prior to such loans and Capital Leases, provided that (1) in
each case, such Indebtedness equals or exceeds the net book
value of the equipment so financed and (2) the aggregate amount
of such Indebtedness outstanding under this clause (B) at any
time does not exceed $40,000,000;
(C) Loans and Capital Leases incurred by Borrower or any
of its Subsidiaries to finance the Louisville Property, provided
that such Indebtedness does not exceed the purchase price of
such property; and
(D) Loans and Capital Leases incurred by Borrower or any
of its Subsidiaries to finance the Shrewsbury Property, provided
that (1) such Indebtedness does not exceed the purchase price of
such property and (2) the aggregate amount of such Indebtedness
outstanding under this clause (D) at any time does not exceed
$30,000,000;
Provided, however, that the aggregate amount of Indebtedness
outstanding under clauses (iii)(C) and (iii)(D) above at any time
does not exceed $45,000,000;
(f) Subparagraph 5.02(a) is further amended by changing the proviso
after clause (xviii) thereof to read in its entirety as follows:
Provided, however, that:
(1) The aggregate amount of Indebtedness outstanding under
clauses (iii)(A), (iii)(B), (iii)(C) and (xviii) above at any time
does not exceed $80,000,000; and
(2) Notwithstanding the Permitted Indebtedness set forth in
clauses (i)-(xviii) above, Quantum Holdings shall not create, incur,
assume or permit to exist any Indebtedness, any Guaranty Obligations
or any other material liabilities except for Indebtedness of Quantum
Holdings to Borrower or any of Borrower's other Subsidiaries to the
extent permitted by clause (xv) above.
(g) Subparagraph 5.02(b) is amended by changing clause (vii) thereof
to read in its entirety as follows:
(vii) Liens securing Indebtedness which constitutes Permitted
Indebtedness under clause (iii) of Subparagraph 5.02(a) provided
that, (A) in each case under clause (A) thereof, such Lien covers
only those
5
<PAGE> 6
assets, the acquisition of which was financed by such Permitted
Indebtedness, (B) in each case under clause (B) thereof, such Lien
covers only the equipment which was financed by such Permitted
Indebtedness, (C) in each case under clause (C) and clause (D)
thereof, such Lien covers only the property which was financed by
such Permitted Indebtedness, and (D) in each case under clauses (A),
(B), (C) and (D) thereof, such Lien secures only such Permitted
Indebtedness;
(h) Subparagraph 5.02(c) is amended by changing clause (ix) thereof
to read in its entirety as follows:
(ix) Sales by Borrower and its Subsidiaries of equipment or the
Shrewsbury Property in sale and leaseback transactions, provided
that, in the case of equipment, such equipment is leased back by
Borrower or its Subsidiary, as the case may be, in a Capital Lease
permitted by clause (iii) of Subparagraph 5.02(a);
(i) Subparagraph 5.02(m) is amended by changing clauses (i), (iv)
and (vi) thereof to read in their entirety as follows:
(i) Borrower shall not permit its cumulative Fixed Charge
Coverage Ratio for each period set forth below to be less than the
ratio set forth opposite such period below:
<TABLE>
<S> <C>
October 1, 1994 -
December 31, 1994................................ 1.50;
October 1, 1994 -
March 31, 1995................................... 1.50;
October 1, 1994 -
June 30, 1995.................................... 2.00;
October 1, 1994 -
September 30, 1995............................... 2.50;
January 1, 1995 -
December 31, 1995................................ 2.50;
April 1, 1995 -
March 31, 1996................................... 2.50;
July 1, 1995 -
June 30, 1996.................................... 2.00;
Each consecutive four-
quarter period ending
on the last day of each
quarter thereafter............................... 3.00.
</TABLE>
(iv) Borrower shall not permit its Leverage Ratio during any
period set forth below to be more than the ratio set forth opposite
such period below:
6
<PAGE> 7
<TABLE>
<S> <C>
From the Closing Date to
March 30, 1996 .................................. 1.35;
March 31, 1996 to
June 30, 1996 ................................... 1.20;
Thereafter.......................................... 1.10.
</TABLE>
(vi) Borrower shall not permit its Quick Ratio during any period
set forth below to be less than the ratio set forth opposite such
period below:
<TABLE>
<S> <C>
From the Closing Date to
March 30, 1996 .................................. 0.85;
March 31, 1996 to
June 30, 1996 ................................... 1.00;
Thereafter.......................................... 1.10.
</TABLE>
3. WAIVER. The Banks hereby waive any Event of Default under
Subparagraph 6.01(b) of the Credit Agreement arising from Borrower's failure to
observe the following requirements for the periods indicated:
(a) The Fixed Charge Coverage Ratio requirement set forth in clause
(i) of Subparagraph 5.02(m) of the Credit Agreement for the period
April 1, 1995 through March 31, 1996;
(b) The Leverage Ratio requirement set forth in clause (iv) of
Subparagraph 5.02(m) of the Credit Agreement for the quarter ending
March 31, 1996; and
(c) The Quick Ratio requirement set forth in clause (vi) of
Subparagraph 5.02(m) of the Credit Agreement for the quarter ending
March 31, 1996.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to the Banks and the Agents that the following are true and correct on
the date of this Amendment and that, after giving effect to the amendments set
forth in paragraph 2 above and the waiver set forth in paragraph 3 above, the
following also will be true and correct on the Effective Date (as defined
below):
(a) The representations and warranties of Borrower and its
Subsidiaries set forth in Paragraph 4.01 of the Credit Agreement and in
the other Credit Documents are true and correct in all material
respects as if made on such date (except for representations and
warranties expressly made as of a specified date, which shall be true
and correct as of such date);
(b) No Default or Event of Default has occurred and is continuing;
and
7
<PAGE> 8
(c) Each of the Credit Documents is in full force and effect.
(Without limiting the scope of the term "Credit Documents," Borrower expressly
acknowledges in making the representations and warranties set forth in this
paragraph 4 that, on and after the date hereof, such term includes this
Amendment.)
5. AMENDMENT FEE. On the Effective Date (as defined below), Borrower
shall pay to each Bank which executes this Amendment on or prior to May 29, 1996
a nonrefundable amendment fee (the "Amendment Fee") of $5,000.
6. EFFECTIVE DATE. The amendments effected by paragraph 2 above and the
waivers set forth in paragraph 3 above shall become effective on May 30, 1996
(such date, if the conditions set forth in this paragraph are satisfied, to be
referred to herein as the "Effective Date"), subject to receipt by
Administrative Agent and the Banks on or prior to the Effective Date of the
following, each in form and substance satisfactory to Administrative Agent, the
Required Banks and their respective counsel:
(a) This Amendment duly executed by Borrower and the Required Banks;
(b) A letter in the form of Exhibit A hereto, dated the Effective
Date and duly executed by Quantum Europe and Quantum Holdings;
(c) A Certificate of the Secretary of Borrower, dated the Effective
Date, certifying that the Certificate of Incorporation, Bylaws and
Board resolutions of Borrower, in the forms delivered to Agent on the
Closing Date, are in full force and effect and have not been amended,
supplemented, revoked or repealed since such date;
(d) A favorable written opinion of Cooley, Godward, Castro,
Huddleson & Tatum, counsel to Borrower, dated the Effective Date,
addressed to the Administrative Agent for the benefit of the Agents and
the Banks, covering such legal matters as Agents may reasonably request
and otherwise in form and substance satisfactory to the Agents;
(e) The Amendment Fee payable to each Bank which has executed this
Amendment on or prior to May 29, 1996; and
(f) Such other evidence as any Agent or any Bank may reasonably
request to establish the accuracy and completeness of the
representations and warranties and the compliance with the terms and
conditions contained in this Amendment and the other Credit Documents.
8
<PAGE> 9
7. EFFECT OF THIS AMENDMENT. On and after the Effective Date, each
reference in the Credit Agreement and the other Credit Documents to the Credit
Agreement shall mean the Credit Agreement as amended hereby. Except as
specifically amended above, (a) the Credit Agreement and the other Credit
Documents shall remain in full force and effect and are hereby ratified and
confirmed and (b) the execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power, or remedy of any Bank or Agent, nor constitute a waiver of any
provision of the Credit Agreement or any other Credit Document.
8. EXPENSES. Pursuant to Paragraph 8.02 of the Credit Agreement,
Borrower shall pay to Agents all reasonable Attorney Costs and other reasonable
fees and expenses payable to third parties incurred by Agents in connection with
the preparation, negotiation, execution and delivery of this Amendment and the
additional Credit Documents.
9. MISCELLANEOUS.
(a) Counterparts. This Amendment may be executed in any number of
identical counterparts, any set of which signed by all the parties
hereto shall be deemed to constitute a complete, executed original for
all purposes.
(b) Headings. Headings in this Amendment are for convenience of
reference only and are not part of the substance hereof.
(c) Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the State of California without
reference to conflicts of law rules.
[The next page is the first signature page.]
9
<PAGE> 10
IN WITNESS WHEREOF, Borrower, the Banks and Agents have caused this
Amendment to be executed as of the day and year first above written.
BORROWER: QUANTUM CORPORATION
By: /s/ Joseph T. Rodgers
------------------------------------------
Name: Joseph T. Rodgers
-------------------------------------
Title: Executive Vice President, Finance
------------------------------------
Chief Financial Officer & Secretary
MANAGING AGENTS: ABN AMRO BANK N.V., San Francisco
International Branch,
As a Managing Agent
By ABN AMRO North America, Inc.
By: /s/ Robin S. Yim
------------------------------------------
Name: Robin S. Yim
-------------------------------------
Title: VP and Director
------------------------------------
By: /s/ Robert N. Hartinger
------------------------------------------
Name: Robert N. Hartinger
-------------------------------------
Title: GVP and Director
------------------------------------
BARCLAYS BANK PLC,
As a Managing Agent
By: /s/ James C. Tan
------------------------------------------
Name: James C. Tan
-------------------------------------
Title: Associate Director
------------------------------------
CIBC INC.,
As a Managing Agent
By: /s/ SAKAI
------------------------------------------
Name: SAKAI
-------------------------------------
Title: Director
------------------------------------
10
<PAGE> 11
ADMINISTRATIVE AGENT: CANADIAN IMPERIAL BANK OF COMMERCE,
As Administrative Agent
By: /s/ SAKAI
------------------------------------------
Name: SAKAI
-------------------------------------
Title: Director
------------------------------------
BANKS: ABN AMRO BANK N.V., San Francisco
International Branch,
As a Bank
By ABN AMRO North America, Inc.
By: /s/ Robin S. Yim
------------------------------------------
Name: Robin S. Yim
-------------------------------------
Title: VP and Director
------------------------------------
By: /s/ Robert N. Hartinger
------------------------------------------
Name: Robert N. Hartinger
-------------------------------------
Title: GVP and Director
------------------------------------
BARCLAYS BANK PLC,
As a Bank
By: /s/ James C. Tan
------------------------------------------
Name: James C. Tan
-------------------------------------
Title: Associate Director
------------------------------------
CIBC INC.,
As a Bank
By: /s/ SAKAI
------------------------------------------
Name: SAKAI
-------------------------------------
Title: Director
------------------------------------
11
<PAGE> 12
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION,
As a co-agent and as a Bank
By: /s/ Kevin McMahon
------------------------------------------
Name: Kevin McMahon
-------------------------------------
Title: Vice President
------------------------------------
CHEMICAL BANK,
As a co-agent and as a Bank
By: /s/ Ann B. Kerns
------------------------------------------
Name: Ann B. Kerns
-------------------------------------
Title: Vice President
------------------------------------
THE FIRST NATIONAL BANK OF BOSTON,
As a co-agent and as a Bank
By: /s/ Debra E. Delvecchio
------------------------------------------
Name: Debra E. Delvecchio
-------------------------------------
Title: Vice President
------------------------------------
THE INDUSTRIAL BANK OF JAPAN,
LIMITED,
As a co-agent and as a Bank
By: /s/ Eiji Tanaka
------------------------------------------
Name: Eiji Tanaka
-------------------------------------
Title: Senior Vice President
------------------------------------
THE BANK OF NOVA SCOTIA,
As a Bank
By: /s/ John Quick
------------------------------------------
Name: John Quick
-------------------------------------
Title: Senior Relationship Manager
------------------------------------
12
<PAGE> 13
FLEET NATIONAL BANK (successor in
interest to Fleet Bank of
Massachusetts, N.A.),
As a Bank
By: /s/ Thomas W. Davies
------------------------------------------
Name: Thomas W. Davies
-------------------------------------
Title: Vice President
------------------------------------
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD.,
As a Bank
By: /s/ Motokazu Uematsu
------------------------------------------
Name: Motokazu Uematsu
-------------------------------------
Title: Deputy General Manager
------------------------------------
THE NIPPON CREDIT BANK, LTD.,
As a Bank
By: /s/ Masaki Iwataki
------------------------------------------
Name: Masaki Iwataki
-------------------------------------
Title: Vice President & Manager
------------------------------------
By: /s/
------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
SANWA BANK CALIFORNIA,
As a Bank
By: /s/ Robert R. Shutt
------------------------------------------
Name: Robert R. Shutt
-------------------------------------
Title: Vice President
------------------------------------
13
<PAGE> 14
FLEET NATIONAL BANK (successor in
interest to Shawmut Bank, N.A.),
As a Bank
By: /s/ Thomas W. Davies
------------------------------------------
Name: Thomas W. Davies
-------------------------------------
Title: Vice President
------------------------------------
THE SUMITOMO BANK, LIMITED,
As a Bank
By: /s/ Motosuke Yagaki
------------------------------------------
Name: Motosuke Yagaki
-------------------------------------
Title: Joint General Manager
------------------------------------
By: /s/ Herman White Jr.
------------------------------------------
Name: Herman White Jr.
-------------------------------------
Title: Vice President
------------------------------------
UNION BANK OF CALIFORNIA, N.A.
(successor in interest to Union
Bank),
As a Bank
By: /s/ Nanci Brusati Dias
------------------------------------------
Name: Nanci Brusati Dias
-------------------------------------
Title: Vice President and District Manager
------------------------------------
THE FUJI BANK, LIMITED,
As a Bank
By: /s/
------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
14
<PAGE> 1
EXHIBIT 10.38
CONSULTING AND RELEASE AGREEMENT
This CONSULTING AND RELEASE AGREEMENT ("Agreement") is made and entered
into by and between Mr. William J. Miller ("Consultant") and Quantum Corporation
(the "Company") as of November 1, 1995 ("Effective Date").
WITNESSETH
WHEREAS, Consultant has tendered his resignation as Chief Executive
Officer and wishes to enter into a consulting relationship with the Company;
WHEREAS, the Company has accepted Consultant's resignation and wishes
to provide Consultant with certain benefits in consideration of Consultant's
services to the Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
1. RESIGNATION. Consultant has tendered, and the Company has accepted,
Consultant's resignation as Chief Executive Officer, effective as of October 31,
1995 ( the "Separation Date").
2. SEVERANCE PAY. Eleven (11) months payable as either an employee or a
consultant in equal monthly amounts over eleven (11) months commencing on
November 1, 1995.
3. ACCRUED VACATION AND BENEFITS. The Company shall pay the Consultant
at Separation Date all accrued vacation and benefits.
4. HEALTH INSURANCE. Consultant will be eligible to continue health
insurance benefits under the federal COBRA law for eighteen (18) months. The
Company will pay the employer portion of such expense for a period of eleven
(11) months from the Separation Date.
5. OUTPLACEMENT SERVICES. The Company will pay the Consultant's
reasonable cost of outplacement services for up twelve (12) months.
<PAGE> 2
6. STOCK OPTION VESTING. The Company will recommend to the Board of
Directors the acceleration of vesting of six (6) months of stock options to be
fully exercisable upon the Separation Date.
7. CONSULTING AGREEMENT. Consultant shall serve as a consultant to the
Company under the terms specified below. Consulting relationship shall commence
on November 1, 1995 and shall continue through September 30, 1997 ("Consulting
Period") unless terminated earlier pursuant to paragraph 8 herein.
(a) CONSULTING SERVICES. Consultant agrees to provide upon
request by the Company consulting services to the Company in any area of
Consultant's expertise. Consultant agrees to make himself available to perform
such consulting services throughout the consulting period.
(b) CONSULTING FEES AND BENEFITS.
(i) CONSULTING FEES. During the first eleven (11)
months of the Consulting Period, Consultant shall provide at Company's request a
minimum of one (1) day per month. For any additional consulting services agreed
to during the first eleven (11) months by the Consultant, the Company shall pay
the Consultant a daily fee of $5,000 in cash. Beginning in the twelfth (12)
month, in consideration for any Consultant's services agreed to by Consultant,
the Company shall pay the Consultant a daily fee for consulting services of
$5,000 in cash. In addition to any other fees specified herein, the Company
agrees to pay Consultant's reasonable out of pocket expense relating to the
consulting services.
(ii) STOCK OPTIONS. Consultant acknowledges and
agrees that in consideration of the promises made by the Company herein, that
the Consultant release his right to any vesting of stock options under the
Company's stock option plans except as provided in section 6 of this Agreement.
Further, the Company agrees to extend the Consultant's period to exercise any
and all of Consultant's vested stock options until ninety (90) days after this
agreement has been terminated. Further, at Separation Date the Consultant shall
be released from the obligation to observe the Company's insider trading window
per the Company insider trading policy.
8. TERMINATION OF THE AGREEMENT. This Agreement may be terminated prior
to September 30, 1997 by the Consultant upon thirty (30) days' written notice,
or at any time by the Company for cause. If Consultant resigns or if the
Consultant relationship is terminated for cause, all Compensation and Benefits
shall cease as of the date of Consultant's termination.
9. LIMITATIONS ON AUTHORITY. Consultant shall have no responsibilities
or authority as a Consultant to the Company other than as provided for above.
Consultant hereby agrees not to represent or purport to represent the Company in
any manner whatsoever to any third party unless authorized by the Company to do
so.
<PAGE> 3
10. COMPETITIVE ACTIVITY. In order to protect trade secrets and
confidential and proprietary information of the Company, Consultant agrees that
during the Consultant Period, the Consultant will not obtain employment with,
perform work for any division, unit or segment of a business entity, or engage
in any other work activity which competes with the Company directly in the area
of hard disk drives ("Competitive Activity"). In the event that the Consultant
engages in any Competitive Activity, the Company's obligation to pay
Consultant's Fees shall cease immediately.
11. NON-COMPETITION.
(a) ACKNOWLEDGMENTS BY CONSULTANT. Consultant acknowledges by
virtue of Consultant's position with the Company, Consultant developed
considerable expertise in the business operations of the Company and has had
access to extensive confidential information with respect to the Company.
Consultant also acknowledges that this is a contract of personal services
wherein Consultant's services are of a special, unique, unusual, extraordinary
and intellectual character. Consultant further acknowledges that Consultant's
services will have peculiar value, the loss of which cannot be reasonably or
adequately compensated in damages in an action at law and that the company would
be irreparably damaged and its substantial investment materially impaired, if
Consultant were to enter into an activity competing the Company's business in
violation of the terms of this Agreement. Accordingly, Consultant expressly
acknowledges that Consultant is voluntarily entering into this Agreement and
that the terms and conditions of this Agreement are fair and reasonable to
Consultant in all respects.
(b) NON-COMPETITION. Consultant agrees that during the
Consulting Period, Consultant shall not directly without prior written consent
of the Company, perform work for any division, unit or segment of a business
entity or engage in any other work activity which directly competes with the
business of the Company.
12. INDEPENDENT CONTRACTOR. Consultant's relationship with the Company
shall be that of an Independent Contractor and nothing in this Agreement shall
be construed to create an employer-employee relationship between the parties
hereto.
13. NON-SOLICITATION. Consultant agrees that during the Consulting
Period, Consultant will not personally be involved in the solicitation or
attempted solicitation of any employee, consultant, or independent contractor of
the Company to terminate his or her relationship with the Company in order to
become an employee, consultant or independent contractor to or for any other
person or entity.
14. NONDISPARAGEMENT. Consultant and the Company agree that neither
party will at any time disparage the other in any manner likely to be harmful
the Consultant's business or reputation or the personal or business reputation
of the Company or it's Directors, Shareholders and Employees provided that each
party shall respond accurately and fully to any question, inquiry or request for
information when required by legal process.
<PAGE> 4
15. CONFIDENTIALITY. The provisions of this Agreement shall be held in
strictest confidentiality by the Consultant and the Company and shall not be
publicized or disclosed in any manner whatsoever. Notwithstanding the
prohibition of the preceding sentence: (i) Consultant may disclose this
Agreement, in confidence, to Consultant's immediate family; (ii) the parties may
disclose this Agreement to their respective attorneys, accountants, auditors,
tax preparers and financial advisors; (iii) the Company may disclose this
Agreement as necessary to fulfill standard or legally required corporate
reporting and disclosure requirements; (iv) the parties may disclose this
Agreement insofar as such disclosure may be necessary to enforce its terms or as
otherwise required by law; and (v) the Consultant may reveal as may be necessary
the provisions of section 10, 11, and 13 to prospective employers.
16. HOLD HARMLESS. Consultant shall exonerate, indemnify and hold
harmless the Company, its officers, agents and employees from and against any
and all liability, loss, cost, damage, claims, demands or expenses of every kind
on account of injuries (including death) to Consultant or any third party or
loss or damage to Consultant or any third party's property arising out of or
resulting from the gross negligence or willful misconduct of the Consultant in
connection with Consultant's performance of services hereunder.
17. RELEASE OF CLAIMS. Except as otherwise set forth in this Agreement,
Consultant hereby releases, acquits and forever discharges the Company, its
officers, directors, agents, servants, employees, shareholders, attorneys,
successors, assigns and affiliates, and the Company hereby releases the
Consultant, of and from any and all claims, liabilities, demands, causes of
action, costs, expenses, attorneys' fees, damages, indemnities and obligations
of every kind and nature, in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed, arising out of or in any
way related to agreements, events, acts or conduct at any time prior to and
including the Effective Date, including but not limited to: any and all such
claims and demands directly or indirectly arising out of or in any way connected
with Consultant's employment with the Company or the termination of that
employment; claims or demands related to salary, bonuses, commissions, stock,
stock options, or any other ownership interests in the Company, vacation pay,
fringe benefits, expense reimbursements, severance benefits, or any other form
of compensation; claims pursuant to any federal, state or local law, statute or
cause of action including, but not limited to, tort law; contract law; wrongful
discharge; discrimination; fraud; defamation; emotional distress; and breach of
the implied covenant of good faith and fair dealing. Notwithstanding the above,
the Company shall be obligated to indemnify Consultant against third party
claims brought against Consultant as specified in the Indeminification Agreement
dated January 11, 1994 between the Consultant and the Company for acts or
conduct performed during the Consultant's employment with the Company.
18. SECTION 1542 WAIVER. Consultant acknowledges that Consultant has
read and understands Section 1542 of the Civil Code of the State of California,
which reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
<PAGE> 5
Consultant hereby expressly waives and relinquishes all rights and benefits
under that section and any law or legal principle of similar effect in any
jurisdiction with respect to the release granted in this Agreement.
19. ENTIRE AGREEMENT. This Agreement constitute the complete, final and
exclusive embodiment of the entire agreement between Consultant and the Company
with regard to the subject matter hereof. It is entered into without reliance on
any promise or representation, written or oral, other than those expressly
contained herein. It may not be modified except in a writing signed by
Consultant and a duly authorized officer of the Company. Each party has
carefully read this Agreement, and has been afforded the opportunity to be
advised of its meaning and consequences by Consultant or its respective
attorneys, and signed the same of Consultant's or its own free will.
20. SUCCESSORS AND ASSIGNS. This Agreement shall bind the heirs,
personal representatives, successors, assigns, executors, and administrators of
each party, and inure to the benefit of each party, its heirs, successors and
assigns. However, because of the unique and personal nature of Consultant's
duties under this Agreement, Consultant agrees not to delegate the performance
of Consultant's duties under this Agreement.
21. APPLICABLE LAW. This Agreement shall be deemed to have been entered
into and shall be construed and enforced in accordance with the laws of the
State of California as applied to contracts made and to be performed entirely
within California.
22. SEVERABILITY. If a court of competent jurisdiction determines that
any term or provision of this Agreement is invalid or unenforceable, in whole or
in part, then the remaining terms and provisions hereof shall be unimpaired.
Such court will have the authority to modify or replace the invalid or
unenforceable terms or provision with a valid and enforceable term or provision
that most accurately represents the parties' intention with respect to the
invalid or unenforceable term or provision.
23. SURVIVAL. In the event of termination of this Agreement, all rights
and obligations which by their nature survive the expiration or termination of
this Agreement shall remain in effect, including specifically paragraphs 10, 11,
13, 14, 15, 16, 17 and 18.
24. SECTION HEADINGS. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
25. COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, both of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly authorized and caused this
Agreement to be executed as follows:
<PAGE> 6
WILLIAM J. MILLER, QUANTUM CORPORATION,
an individual a corporation
By:_______________________________ By:________________________________
Date:_____________________________ Date:______________________________
<PAGE> 1
QUANTUM CORPORATION
EXHIBIT 11
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
(In thousands except per share data) Year ended March 31,
------------------------------------
1996 1995 1994
------------------------------------
<S> <C> <C> <C>
PRIMARY
Weighted average number of common
shares outstanding 51,841 45,401 43,341
Incremental common shares attributable
to outstanding options -* 1,918 1,626
-------- -------- --------
Total shares 51,841 47,319 44,967
======== ======== ========
Net income (loss) $(90,456) $ 81,591 $ 2,674
-======== ======== ========
Net income (loss) per share $ (1.74) $ 1.72 $ .06
-======== ======== ========
FULLY DILUTED
Weighted average number of common
shares outstanding 51,841 45,401 43,341
Incremental common shares attributable to:
Outstanding options 3,011 1,929 1,759
6 3/8% convertible subordinated
debentures 8,129 11,708 11,708
5% convertible subordinated notes 1,302 - -
-------- -------- ---------
Total shares 64,283 59,038 56,808
======== ======== =========
Net income (loss):
Net income (loss) $(90,456) $ 81,591 $ 2,674
Add interest on convertible debt,
net of tax 6,957 8,128 8,128
-------- -------- ---------
Adjusted net income (loss) $(83,499) $ 89,719 $ 10,802
======== ======== =========
Net income (loss) per share $ (1.30)* $ 1.52 $ .19 *
======== ======== =========
</TABLE>
* The primary net income (loss) per share is shown in the statements of
operations for both primary and fully diluted, as the effect of the assumed
conversion of the subordinated debentures is anti-dilutive. For fiscal 1996,
the effect of common stock equivalents is also anti-dilutive for the primary
loss per share.
<PAGE> 1
QUANTUM CORPORATION
EXHIBIT 12
STATEMENT OF COMPUTATION OF RATIOS
OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Years Ended March 31,
-------------------------------------------------------------------------------
(In thousands) 1996 1995 1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income (loss) before income
taxes $ (141,338) $ 145,305 $ 3,663 $ 146,579 $ 74,356
Add fixed charges 48,226 29,277 18,906 17,125 10,409
----------- ---------- --------- --------- ---------
Earnings (as defined) $ (93,112) $ 174,582 $ 22,569 $ 163,704 $ 84,765
=========== ========== ========= ========= ========
Fixed charges
Interest expense $ 35,904 $ 21,557 $ 14,305 $ 13,777 $ 7,763
Amortization of debt
issuance costs 2,427 1,458 577 586 -
Estimated interest component
of rent expenses 9,895 6,262 4,024 2,762 2,646
----------- ---------- --------- --------- ---------
Total fixed charges $ 48,226 $ 29,277 $ 18,906 $ 17,125 $ 10,409
=========== ========== ========= ========= =========
Ratio of earnings to fixed
charges (i) 6.0 1.2 9.6 8.1
----------- ---------- --------- --------- ---------
</TABLE>
(i) Earnings (as defined) for fiscal 1996 were insufficient to cover fixed
charges by $141.3 million.
<PAGE> 1
QUANTUM CORPORATION
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
1. Quantum International, Inc., a California corporation
2. Quantum International DISC Inc., a California corporation
3. Quantum Foreign Sales Corporation, a Barbados corporation
4. Quantum GmbH, a German corporation
5. Quantum Peripheral Products, Ltd., a United Kingdom corporation
6. Quantum France SARL, a French corporation
7. Quantum Asia Pacific Pte., Ltd., a Singapore corporation
8. Quantum Peripherals Japan Corporation, a Japanese corporation
9. Quantum Data Storage B.V., a Netherlands corporation
10. Quantum Peripheral Products (Ireland), Ltd., an Ireland corporation
11. Quantum Peripherals (Europe) S.A., a Swiss corporation
12. Quantum Singapore Pte. Ltd., a Singapore corporation
13. Quantum Korea Corporation, a Korean corporation
14. Quantum Hong Kong, Ltd., a Hong Kong corporation
15. Quantum Peripherals (Malaysia) Sdn. Bhd., a Malaysian corporation
16. P.T. Quantum Peripherals Indonesia, an Indonesian corporation
17. Quantum Japan Procurement Center, Inc., a Japanese corporation
18. Quantum Storage (Malaysia) Sdn. Bhd., a Malaysian corporation
19. Quantum Peripherals Colorado, Inc., a Delaware corporation
<PAGE> 1
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-94170, 33-37388, 33-52190, 33-19412, 33-52192, 33-72222,
33-61059, 33-64625) pertaining to the 1984 Stock Option Plan, the 1986 Stock
Option Plan, the Plus Development 1987 Stock Option Plan of Quantum Corporation,
the Employee Stock Purchase Plan and the 1993 Long-Term Incentive Plan of
Quantum Corporation, of our report dated May 3, 1996, with respect to the
consolidated financial statements and schedule of Quantum Corporation included
in the Annual Report (Form 10-K) for the year ended March 31, 1996.
Ernst & Young LLP
Palo Alto, California
June 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FINANCIAL
STATEMENTS OF QUANTUM CORPORATION FOR THE TWELVE MONTHS ENDED MARCH 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 164,752
<SECURITIES> 0
<RECEIVABLES> 721,604
<ALLOWANCES> 10,497
<INVENTORY> 711,107
<CURRENT-ASSETS> 1,526,494
<PP&E> 525,445
<DEPRECIATION> 161,334
<TOTAL-ASSETS> 1,975,355
<CURRENT-LIABILITIES> 821,142
<BONDS> 598,158
0
0
<COMMON> 266,946
<OTHER-SE> 277,877
<TOTAL-LIABILITY-AND-EQUITY> 1,975,355
<SALES> 4,422,726
<TOTAL-REVENUES> 4,422,726
<CGS> 3,880,309
<TOTAL-COSTS> 3,880,309
<OTHER-EXPENSES> 655,796
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,904
<INCOME-PRETAX> (141,338)
<INCOME-TAX> (50,882)
<INCOME-CONTINUING> (90,456)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (90,456)
<EPS-PRIMARY> (1.74)
<EPS-DILUTED> (1.74)
</TABLE>
