Form 10-Q
============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 1, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 1-7534
---------------------------
STORAGE TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-0593263
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2270 South 88th Street, 80028-4309
Louisville, Colorado (Zip Code)
(Address of principal executive
offices)
Registrant's Telephone Number, including area code: (303) 673-5151
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. /X/ YES / / NO
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock ($.10 Par Value) - 43,529,842 shares outstanding at May 5, 1994.
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STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
April 1, 1994
PAGE
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PART I - FINANCIAL INFORMATION
Consolidated Balance Sheet 3
Consolidated Statement of Operations 4
Consolidated Statement of Cash Flows 5
Supplementary Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 19
Item 6 - Exhibits and Reports on Form 8-K 19
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STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
04/01/94
(Unaudited) 12/31/93
------------ ---------
ASSETS
Cash, including cash equivalents $ 242,171 $ 255,062
Short-term investments 16,042
Accounts receivable, net 196,283 218,701
Notes and installment receivables 6,290 9,973
Net investment in sales-type leases 166,662 171,165
Inventories (Note 2) 228,759 203,257
--------- ---------
Total current assets 840,165 874,200
Notes and installment receivables 12,300 13,968
Net investment in sales-type leases 240,393 252,678
Computer equipment, at cost (net) 92,240 97,324
Spare parts for field service, at cost (net) 47,518 50,150
Property, plant and equipment, at cost (net) 314,684 306,034
Deferred income tax assets, net 54,868 52,260
Other assets 137,655 146,395
--------- ---------
$1,739,823 $1,793,009
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Nonrecourse borrowings secured by lease
commitments $ 62,505 $ 74,191
Current portion of other long-term debt 29,455 32,581
Accounts payable and accrued liabilities 292,464 284,764
Income taxes payable 9,646 14,167
--------- ---------
Total current liabilities 394,070 405,703
8% Convertible subordinated debentures 145,645 145,645
Nonrecourse borrowings secured by lease
commitments 78,614 96,975
Other long-term debt 113,297 119,098
Deferred income tax liabilities 8,413 8,285
--------- ---------
Total liabilities 740,039 775,706
--------- ---------
Contingencies (Note 3)
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 40,000,000
shares authorized; 3,450,000 shares of
$3.50 Convertible Exchangeable Preferred
Stock issued at April 1, 1994, and
December 31, 1993, $172,500,000 aggregate
liquidation preference 35 35
Common stock, $.10 par value, 150,000,000
shares authorized; 43,342,405 shares issued
at April 1, 1994, and 43,097,788
shares issued at December 31, 1993 4,334 4,310
Capital in excess of par value 1,426,120 1,421,860
Accumulated deficit (424,230) (401,623)
Treasury stock of 35,309 shares at
April 1, 1994, and 34,349 shares at
December 31, 1993 (767) (735)
Unearned compensation (5,708) (6,544)
--------- ---------
Total stockholders' equity 999,784 1,017,303
--------- ---------
$1,739,823 $1,793,009
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
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STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In Thousands of Dollars, Except Per Share Amounts)
Quarter Ended
---------------------
04/01/94 03/26/93
--------- ---------
Sales $209,413 $214,617
Service and rental revenue 126,210 124,375
------- -------
Total revenue 335,623 338,992
Cost of sales 155,455 143,634
Cost of service and rental revenue 78,860 80,871
------- -------
Total cost of revenue 234,315 224,505
Gross profit 101,308 114,487
Research and product development costs 39,165 34,559
Marketing, general, administrative and other
income and expense, net 85,667 75,278
------- -------
Operating profit (loss) (23,524) 4,650
Interest expense 9,232 11,649
Interest income (11,568) (14,016)
------- -------
Income (loss) before income taxes and
cumulative effect of accounting change (21,188) 7,017
Provision (benefit) for income taxes (1,600) 3,000
------- -------
Income (loss) before cumulative effect of
accounting change (19,588) 4,017
Cumulative effect on prior years of change in
method of accounting for income taxes 40,000
------- -------
Net income (loss) (19,588) 44,017
Preferred dividend requirement 3,019 749
------- -------
Income (loss) applicable to common shares $(22,607) $ 43,268
======= =======
EARNINGS (LOSS) PER COMMON SHARE
Primary:
Income (loss) before cumulative effect of
accounting change $ (0.52) $ 0.08
Cumulative effect on prior years of change
in method of accounting for income taxes 0.92
------- -------
$ (0.52) $ 1.00
======= =======
Fully Diluted:
Income before cumulative effect of accounting
change $ 0.13
Cumulative effect on prior years of change in
method of accounting for income taxes 0.81
-------
N/A $ 0.94
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
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STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands of Dollars)
Quarter Ended
------------------------
04/01/94 03/26/93
---------- ----------
OPERATING ACTIVITIES
Cash received from customers $ 383,684 $ 418,180
Cash paid to suppliers and employees (352,389) (346,167)
Interest received 11,568 14,016
Interest paid (7,425) (12,217)
Income taxes paid (5,719) (8,697)
-------- --------
Net cash from operating activities 29,719 65,115
-------- --------
INVESTING ACTIVITIES
Short-term investments, net 16,042 (49,849)
Purchase of property, plant and equipment (27,417) (15,665)
Other assets, net 4,191 (5,130)
-------- --------
Net cash used in investing activities (7,184) (70,644)
-------- --------
FINANCING ACTIVITIES
Proceeds from nonrecourse borrowings 13,979 46,933
Repayments of nonrecourse borrowings (44,147) (41,784)
Proceeds from other debt 5,041
Repayments of other debt (10,253) (10,270)
Proceeds from employee stock plans and warrants 3,658 308
Proceeds from preferred stock offering, net 166,479
Preferred stock dividends paid (3,019)
-------- --------
Net cash (used in) from financing activities (39,782) 166,707
-------- --------
Effect of exchange rate changes on cash 4,356 (2,560)
-------- --------
Increase (decrease) in cash and cash equivalents (12,891) 158,618
Cash and cash equivalents - beginning of
the period 255,062 117,954
-------- --------
Cash and cash equivalents - end of the period $ 242,171 $ 276,572
======== ========
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH FROM OPERATING ACTIVITIES
Net income (loss) $ (19,588) $ 44,017
Cumulative effect of accounting change (40,000)
Depreciation and amortization expense 42,185 38,633
Deferred income taxes (2,563) (2,756)
Translation (gain) loss (2,589) 2,550
Other non-cash adjustments to income 28,554 (488)
Decrease in accounts receivable 24,304 44,514
Decrease in notes receivable and sales-type
leases 23,757 40,445
Increase in inventories (31,199) (8,781)
Increase in computer equipment, net (8,865) (44,810)
Increase in spare parts, net (6,146) (6,268)
Increase in accounts payable 10,709 855
Increase (decrease) in accrued liabilities (24,084) 145
Decrease in income taxes payable (4,756) (2,941)
-------- --------
Net cash from operating activities $ 29,719 $ 65,115
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PREPARATION
- - -----------------------------
The accompanying consolidated financial statements of Storage Technology
Corporation and subsidiaries (StorageTek or the Company) have been prepared in
accordance with the Securities and Exchange Commission requirements for Form
10-Q. In the opinion of management, these statements reflect all adjustments
necessary for the fair presentation of results for the periods presented. For
further information, refer to the consolidated financial statements and
footnotes included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
NOTE 2 - INVENTORIES
- - --------------------
Inventories consist of the following (in thousands of dollars):
04/01/94 12/31/93
-------------------------
Raw Materials $ 41,649 $ 38,991
Work-In-Process 93,701 66,668
Finished Goods 93,409 97,598
------- -------
$228,759 $203,257
======= =======
NOTE 3 - LITIGATION
- - -------------------
In the second quarter of 1992, seven purported class actions were filed in the
U.S. District Court for the District of Colorado against the Company and
certain of its officers and directors. These actions were subsequently
consolidated into a single action, and a consolidated amended complaint was
filed on July 7, 1992, seeking an unspecified amount of damages. The
complaint alleged that the defendants failed to properly disclose the status
of development of a new product and the Company's business prospects. The
complaint further alleged that the individual defendants sold shares of the
Company's common stock based on material inside information, in violation of
federal securities and common law. Following the court's ruling on the
defendants' motion to dismiss, a ruling which dismissed several of the fraud
and insider trading claims against a number of the individual defendants, the
class plaintiffs filed a second, and then a third, amended complaint which
renewed many of the dismissed fraud and insider trading claims and sought to
extend the class period to November 9, 1992. In response to the defendants'
second motion to dismiss, the court refused to extend the class period, but
did not dismiss any of the claims as pleaded in the third amended complaint.
The court has certified a class consisting (with certain exceptions) of those
who purchased StorageTek's common stock and related securities from December
23,
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1991, to August 8, 1992. Depositions of Company employees and other
potential witnesses commenced in August 1993 and are expected to continue
through mid-1994. In addition to the class action, a shareholder derivative
action was filed in the second quarter of 1992 based on substantially similar
factual allegations and the derivative action has been consolidated with the
class action. The Company believes the suits are without merit and intends to
vigorously defend against them. There can be no guarantee; however, that the
cases will result in decisions favorable to the Company. In the event of an
adverse decision, neither the amount nor the likelihood of any potential
liability which might result is reasonably estimable. In the derivative
action, any recovery would be the property of the Company.
In June 1993, the Company received a subpoena from the Denver Regional Office
of the Securities and Exchange Commission (the Commission) to produce certain
documents in connection with the Commission's order for an investigation of
possible violations of federal disclosure, reporting and insider trading
requirements. The requests by the Commission relate principally to
announcements and related disclosures concerning the status of development of
a new product in 1992.
In January 1994, Stuff Technology Partners II, a Colorado Limited Partnership
(Stuff), filed suit in Boulder County, Colorado, District Court against the
Company and certain subsidiaries. The suit alleges that the Company breached
a 1990 settlement agreement which had resolved earlier litigation between the
parties. The suit seeks injunctive relief and damages in the amount of
$2,400,000,000. The Company believes that the claims in the suit are barred
by the 1990 settlement between the Company and Stuff, the claims are without
merit, and the Company intends to vigorously defend against them. The Company
has filed a motion to dismiss the complaint, as well as an alternative motion
to bifurcate certain of the claims. A hearing on these motions was held on
May 10, 1994, but no ruling has been issued.
In April 1992, Unisys Corporation (Unisys) filed a suit against Amperif and in
September 1993, Unisys filed additional suits against both Amperif and the
Company. All of the suits related to patents which Unisys alleged were
violated by certain Amperif and StorageTek disk products. In October 1993,
Amperif became a wholly owned subsidiary of StorageTek. In March 1994, the
parties settled all of the suits and entered into multi-year licenses. In
connection with the settlement, the Company paid $7,000,000 to Unisys.
In addition, the Company is involved in various other less significant legal
proceedings. The outcomes of these legal proceedings are not expected to have
a material adverse effect on the financial condition or operations of the
Company based on the Company's current understanding of the relevant facts and
law.
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NOTE 4 - RECENT PRONOUNCEMENTS
- - ------------------------------
In November 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 112, Employers' Accounting for
Postemployment Benefits, which generally requires the accrual of the estimated
cost of postemployment benefits provided over the related service periods of
active employees. The Company completed its review of SFAS No. 112 in the
first quarter of 1994 and concluded there is no effect of adopting this new
accounting standard.
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STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
April 1, 1994
General
- - -------
Storage Technology Corporation (StorageTek or the Company) reported a net loss
for the first quarter ended April 1, 1994, of $19.6 million on revenue of
$335.6 million, compared to net income for the first quarter ended March 26,
1993, of $43.3 million on revenue of $339.0 million. The Company's results
for the first quarter of 1993 included a $40 million benefit from the
cumulative effect of an accounting change.
The Company's revenue was largely unchanged in the first quarter of 1994,
compared to the first quarter of 1993. Increased sales of the Company's newer
tape and library products and improved operating performance of the Company's
midrange business were offset by decreased sales of older tape and library
products, a strengthening U.S. dollar, and a lack of new direct access storage
device (DASD) product offerings. The loss reported in the first quarter of
1994 reflects the significant investments associated with the development,
manufacturing, marketing and servicing of new products, charges associated
with the settlement of litigation, and writedowns and reserves taken in
certain de-emphasized areas of the Company's midrange business. The Company
completed its review of Statement of Financial Accounting Standards (SFAS No
112), Employers' Accounting for Postemployment Benefits, in the first quarter
of 1994 and concluded there is no effect of adopting this new accounting
standard.
The Company's goal is to return to profitability for the remainder of 1994.
While the library product family has generated substantially more revenue for
the Company than its other product lines in the last several years, achieving
profitability is dependent upon the timely completion and successful market
introduction of a number of new DASD products. Accordingly, there can be no
assurance that the Company will be profitable in 1994.
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The following table, stated as a percentage of total revenue, presents
consolidated statement of operations information and revenue by product line
which includes product sales, service and rental, and software revenue.
Quarter Ended
--------------------
04/01/94 03/26/93
--------------------
Revenue:
Serial Access Subsystems 61.9% 61.7%
Random Access Subsystems 6.3 13.0
Midrange Systems 25.9 19.6
Other 5.9 5.7
----- -----
Total revenue 100.0 100.0
Cost of revenue 69.8 66.2
----- -----
Gross profit 30.2 33.8
Research and product development costs 11.7 10.2
Marketing, general, administrative and other
income and expense, net 25.5 22.2
----- -----
Operating profit (loss) (7.0) 1.4
Interest (income) expense, net (0.7) (0.7)
----- -----
Income (loss) before income taxes and
cumulative effect of accounting change (6.3) 2.1
Provision (benefit) for income taxes (0.5) 0.9
----- -----
Income (loss) before cumulative effect of
accounting change (5.8) 1.2
Cumulative effect on prior years of change in
method of accounting for income taxes 11.8
----- -----
Net income (loss) (5.8)% 13.0%
===== =====
Revenue
- - -------
Serial Access Subsystems
Revenue from serial access subsystem products was largely unchanged in the
first quarter of 1994, compared to the first quarter of 1993. Increased sales
of the Company's new, next-generation library and tape products were offset by
reduced sales of the Company's older library and tape products and a
strengthening U.S. dollar. The Company realized incremental sales revenue
during the first quarter of 1994 from new products introduced in the second
half of 1993: the PowderHorn 9310 (PowderHorn), the next generation of the
4400 Automated Cartridge System (ACS) library, and the Silverton 4490
(Silverton), the Company's new 36-track tape offering. Sales of PowderHorn and
Silverton offset decreased sales of the Company's first generation 4400 ACS
library, 4480 18-track cartridge subsystem, and the smaller capacity (Junior)
4400 ACS library.
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The Company anticipates its serial access product revenue will decrease in
1994 as a result of declining revenue from the Company's first generation
library and tape products and the strength of the U.S. dollar. The decrease
is expected to be partially offset by incremental revenue associated with
PowderHorn, Silverton, and other new library and tape products. The library
product family generates substantially more revenue than any other product
line of the Company and continues to be a major element of the Company's plans
for the foreseeable future.
Random Access Subsystems
Revenue from random access subsystem products decreased 52% in the first
quarter of 1994, compared to the first quarter of 1993, with decreases
experienced in all the Company's DASD product lines. Revenue from the
Company's existing DASD products, which consists largely of service revenue
from the Company's rotating DASD installed base and sales revenue from solid-
state DASD and disk subsystems for the Unisys marketplace, is expected to
continue to decline during the remainder of 1994. The Company has
discontinued sales of rotating DASD and add-on memory products.
The Company continues to commit substantial resources to the development,
product ramp-up and support of its new random access subsystem products in
1994. The Company began limited production of the Iceberg 9200 Disk Array
Subsystem (Iceberg) in late 1993 and expects initial revenue contribution from
Iceberg in the second quarter of 1994. The Nordique 9100 (Nordique), an IBM-
compatible disk array product positioned below Iceberg, is expected to begin
shipment in the second quarter of 1994; however, revenue contribution from
Nordique is not expected until the second half of the year. Other new DASD
products, based on technology developed by Amperif, are targeted for
availability beginning in the second half of 1994.
While the Company anticipates significant revenue from new DASD products in
the second half of 1994, delays in the timely completion and successful
marketing of these DASD products would adversely affect the Company's
financial performance.
Midrange Systems
Revenue from midrange system products increased 31% in the first quarter of
1994, compared to the first quarter of 1993, as the Company began to realize
the benefits from the restructuring of its midrange business which occurred in
the third quarter of 1993. The Company also experienced improved customer
demand and a slowing of the recent price erosion for DASD in the midrange
marketplace.
The Company anticipates the operating performance of its midrange product line
will continue to improve in 1994; however, this improvement is dependent upon
the timely completion and successful marketing of new DASD and tape products.
Highlands, a high-performance and cost-competitive disk drive for the midrange
marketplace, began revenue contribution during the first quarter of 1994.
Northfield, a high-performance
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disk drive with RAID 5 data protection, is expected to begin generating
revenue in the second quarter of 1994.
Other
Revenue from other products was largely unchanged in the first quarter of
1994, compared to the first quarter of 1993. Revenue from printer products is
expected to decline as the Company continues to wind down its printer
operations. The decrease in revenue from printer products for the remainder
of 1994 is expected to be offset by incremental revenue from new software and
network storage management products, including the NearNet 7900 network
storage manager.
Gross Profit
- - ------------
Overall gross profit was 30% in the first quarter of 1994, compared to 34% in
the first quarter of 1993, as decreased product sales margins were partially
offset by improved service and rental margins.
Gross profit on product sales decreased to 26% in the first quarter of 1994,
compared to 33% in the first quarter of 1993, largely due to investments
associated with new DASD, tape and library products, and a charge of $4.5
million associated with a writedown of the Company's Alpine 9600 Storage
Manager inventory.
Gross profit on service and rental revenue increased to 38% in the first
quarter of 1994, compared to 35% in the first quarter of 1993, reflecting
increased product reliability and economies created by an increased installed
service base, coupled with operating expense controls.
The Company expects continued pressure on its product sales margins for the
remainder of 1994 due to the heavy investment associated with new DASD, tape
and library products and a strong U.S. dollar. The Company's service margins
in 1994 are expected to be adversely affected by incremental costs associated
with the installation of new products, coupled with longer warranty periods
for new DASD products.
Research and Product Development
- - --------------------------------
Research and product development expenditures increased 13% in the first
quarter of 1994, compared to the first quarter of 1993, due to the continuing
investment in a significant number of new products. The Company continues to
invest in the development of new DASD, tape, library, and software and network
communication products that expand applications for its library and DASD
products.
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Marketing, General, Administrative and Other
- - --------------------------------------------
Marketing, general, administrative and other income and expense (MG&A)
increased 14% in the first quarter of 1994, compared to the first quarter of
1993. The increase in MG&A was primarily due to a charge associated with
settlement of litigation, an increase in marketing expenses as the Company
prepares to bring its new products to market, and reserves taken on a midrange
product line investment. Gains and losses associated with foreign currency
transactions and translation adjustments, net of associated hedging results,
aggregated a net loss of $1.4 million in the first quarter of 1994, compared
to a net loss of $3.2 million in the first quarter of 1993.
See "INTERNATIONAL OPERATIONS AND HEDGING ACTIVITIES" for further discussion
of the foreign exchange risks associated with the Company's international
operations and the related foreign currency hedging activities.
Interest Income and Expense
- - ---------------------------
Interest income decreased 17% in the first quarter of 1994, compared to the
first quarter of 1993, due primarily to a reduction in net investment in
sales-type lease balances and lower interest rates.
Interest expense decreased 21% in the first quarter of 1994, compared to the
first quarter of 1993, due primarily to a reduction in the Company's
nonrecourse borrowings and lower interest rates.
Income Taxes
- - ------------
A one-time benefit of $40 million was recognized in the first quarter of 1993
as a result of the required adoption of SFAS No. 109, Accounting for Income
Taxes, on a prospective basis.
SFAS No. 109 requires that deferred income tax assets be recognized to the
extent realization of such assets is more likely than not. The Company
evaluates a variety of factors in determining the amount of the deferred
income tax assets to be recognized pursuant to SFAS No. 109, including the
number of years the Company's operating loss and tax credits can be carried
forward, the existence of taxable temporary differences, the Company's
earnings history, the Company's near-term earnings expectations and possible
reductions in the Company's net operating loss carryforwards as a result of
proposed adjustments by the Internal Revenue Service to the Company's
previously filed federal income tax returns. Based on the currently available
information, management has determined that the Company will more likely than
not realize $55 million of its deferred income tax assets as of April 1, 1994.
The Company's provision for income taxes relates primarily to taxable earnings
associated with its international operations. The Company's effective tax rate
can be
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subject to significant fluctuations due to dynamics associated with the
mix of its U.S. and international taxable earnings.
Liquidity and Capital Resources
- - -------------------------------
Working Capital
The Company's cash balances decreased $12.9 million and short-term investments
decreased $16.0 million from December 31, 1993, to April 1, 1994. Net cash
from operating activities was $29.7 million for the first quarter of 1994
compared to $65.1 million in the first quarter of 1993. The decrease in cash
and short-term investments during the first quarter of 1994 is due primarily
to investments in property, plant and equipment, and a reduction in
nonrecourse borrowings.
The current ratio decreased to 2.1 at April 1, 1994, from 2.2 at December 31,
1993. Accounts receivable decreased from $218.7 million at December 31, 1993,
to $196.3 million at April 1, 1994, due primarily to lower comparable revenue.
Inventories increased from $203.3 million at December 31, 1993, to $228.8
million at April 1, 1994, principally as a result of a build-up of inventories
associated with new DASD products.
Available Financing Lines
The Company has a $150 million secured multicurrency credit agreement with a
group of U.S. and international banks (the Revolver) which expires in March
1995. The interest rates available under the Revolver depend on the type of
advance selected; however, the primary advance rate is the agent bank's prime
lending rate (6.25% at April 1, 1994). The total amount available under the
Revolver is limited to a percentage of the Company's eligible U.S. accounts
receivable and lease assets (primarily net investments in sales-type leases
not previously utilized for secured borrowings). To obtain funds under the
Revolver, the Company is required to comply with certain financial and other
covenants, including restrictions on the payment of cash dividends on its
common stock. There were no advances under the Revolver during the first
quarter of 1994. Based on the amount of eligible accounts receivable and
lease assets assigned to the Revolver, the Company had approximately $56
million of available credit under the Revolver as of April 1, 1994.
As of April 1, 1994, the Company had approximately $49 million of lease assets
available for financing. The Company can, subject to lender credit approval,
borrow against a portion of these lease assets through its unused committed
lease discounting lines. The Company believes it can increase its lease
discounting lines, if needed, or fund its operating and capital requirements
through other forms of lease asset financings. At the Company's option, a
portion of these lease assets can also be utilized for borrowings under the
Revolver.
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The Company believes it has adequate working capital and financing
capabilities to meet its anticipated 1994 operating and capital requirements,
including new product offerings.
Long-Term Debt-to-Equity
The Company's long-term debt-to-equity ratio decreased to 34% as of April 1,
1994, from 36% as of December 31, 1993, principally as a result of a reduction
in nonrecourse borrowings. These debt-to-equity ratios include $78.6 million
and $97.0 million, respectively, of long-term nonrecourse borrowings secured
by customer lease commitments included within total assets (primarily net
investment in sales-type leases). Excluding long-term nonrecourse borrowings,
the Company's long-term debt-to-equity ratio remained unchanged at 26% from
December 31, 1993, to April 1, 1994.
Repayment Obligations
Pursuant to the indenture related to the Company's 8% Convertible Subordinated
Debentures due 2015 (Convertible Debentures), the Company is required to make
semiannual interest payments on the $145.6 million principal amount of
Convertible Debentures outstanding. The Convertible Debentures became
redeemable at the option of StorageTek beginning May 31, 1993, at a premium of
5.6%, and are redeemable at decreasing premiums through May 30, 2000.
Convertible Debentures in the principal amount of $8 million per annum, plus
accrued interest, must be redeemed beginning May 31, 2000, through a sinking
fund which provides for the retirement of 75% of the Convertible Debentures
prior to their maturity on May 31, 2015. Convertible Debentures purchased by
the Company in the open market and Convertible Debentures converted to common
stock may be applied to the sinking fund requirements. As of April 1, 1994,
the Company held Convertible Debentures in the principal amount of $14.3
million available for sinking fund payments.
In connection with the Company's 9.53% Senior Secured Notes due August 31,
1996 (the Notes), the Company is required to make semiannual interest payments
on the $55 million principal amount outstanding. The Notes are redeemable at
the option of the Company, in whole or in part, from time to time, at a
premium which is determined based on current interest rates and the time
remaining until maturity. Any principal amounts not previously redeemed are
due and payable on August 31, 1996.
The Company's Preferred Stock provides for cumulative dividends payable
quarterly in arrears at an annual rate of $3.50 per share, when and as
declared by the Company's board of directors. Based on the 3.45 million
shares outstanding, annual dividends will aggregate $12.1 million. The Notes
contain restrictions which limit the payment of dividends; however, these
restrictions are not expected to limit the ability of the Company to pay
dividends on its Preferred Stock.
PAGE
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Page 16
International Operations and Hedging Activities
- - -----------------------------------------------
A significant portion of the Company's revenue is generated by its
international operations. As a result, the Company's operations and financial
results can be materially affected by changes in foreign currency exchange
rates. An increase in the exchange value of the U.S. dollar reduces the U.S.
dollar value of revenue and profits generated by the Company's international
operations because the functional currency for the Company's foreign
subsidiaries is the U.S. dollar and a significant portion of the costs
associated with this revenue are incurred in the United States.
In an attempt to mitigate the impact of foreign currency fluctuations, the
Company employs a hedging program which utilizes foreign currency options and
forward exchange contracts. The Company utilizes foreign currency options,
generally with maturities of less than one year, to hedge its exposure to
exchange-rate fluctuations in connection with anticipated sales revenue from
its international operations. Gains and losses on the options are deferred
and subsequently recognized as an adjustment to the associated sales revenue.
The Company also utilizes forward exchange contracts, generally with
maturities of less than two months, to hedge its exposure to exchange-rate
fluctuations in connection with monetary assets and liabilities held in
foreign currencies. Gains and losses on forward contracts are recognized
currently within MG&A as adjustments to the foreign exchange gains and losses
on the translation of net monetary assets.
Other Factors That May Affect Future Results
- - --------------------------------------------
The Company believes that successful and timely development and shipment of
its new products will play a key role in determining its competitive strength
during the next several years. During 1994, the Company plans to introduce a
number of new products. There can be no assurance that the Company will
successfully develop, manufacture or market these products.
The Company's strategic plans assume that its new DASD product family will
serve as a significant source of revenue beginning in the second half of 1994.
While the Company believes the schedules for these products are achievable,
there is no assurance that they can be met. If, as part of the development
and testing of these DASD products, significant problems arise which result in
material delays in their availability, expected revenue would be further
delayed or may be lost, and such delays would continue to adversely affect the
Company's financial results.
The Company competes with several large, multinational companies having
substantially greater resources than the Company's, principally, IBM, Fujitsu
Limited and Hitachi Ltd., as well as other midsized companies. Because of the
significance of the IBM mainframe and midrange operating environments, many of
the Company's products are designed to be compatible with certain IBM
operating systems and many of its products function like IBM equipment. As a
result, the Company's business has been and in the future may be adversely
affected by a number of factors including,
PAGE
<PAGE>
Page 17
among others, modifications in the design or configuration of IBM computer
systems; the announcement and introduction of new products by competitors;
continuing changes in customer requirements such as migration toward networked
computing and reductions in the pricing of comparable systems, equipment or
services. The Company's ability to sustain or increase sales levels depends
to a significant extent upon acceptance of the many new and enhanced products
it has introduced in 1993 and products planned for introduction in 1994.
There can be no assurance that the Company's current products, products in
development, or products in the early stages of market introduction will
achieve or sustain market acceptance.
The market for the Company's products is characterized by rapid technological
advances which can result in frequent product introductions and enhancements,
unpredictable product transitions and shortened product life cycles. To be
successful in this market, the Company must make significant investments in
research and product development and introduce competitive new products and
enhancements to existing products on a timely basis. These factors can reduce
the effective life of product-line-specific assets. There can be no assurance
that new products developed by the Company will be accepted in the
marketplace. Moreover, certain components of the Company's products operate
near the present limits of electronic and physical capabilities of performance
and are designed and manufactured with relatively small tolerances. If flaws
in design or production occur, the Company may experience a rate of failure in
its products that results in substantial costs for the repair or replacement
of defective products and potential damage to the Company's reputation.
The Company's manufacturing process has increased in complexity as it has
increased the number and diversity of products offered to customers. The
Company generally uses standard parts and components for its products and
believes that, in most cases, there are a number of alternative, competent
vendors for most of those parts and components. The Company purchases certain
important components and products from single suppliers that the Company
believes are currently the only manufacturers of the particular components
that meet the Company's specifications. In addition, the Company manufactures
some key components or its products include components for which alternative
sources of supply are not readily available. In the past, certain suppliers
have experienced occasional technical, financial or other problems that have
delayed deliveries to the Company, without significant effect on it. An
unanticipated failure of any sole-source supplier to meet the Company's
requirements for an extended period, or an interruption of the Company's
ability to secure comparable components, could have a material adverse effect
on its revenue and profitability. In addition, the Company markets a number
of products acquired from other manufacturers on an original equipment
manufacturer (OEM) basis. These products are often available only from a
single manufacturer. Some of these OEM suppliers are, or may in the future
be, competitors of the Company. In the event that an OEM product is no longer
available, second sourcing is not always feasible and there could be a
material adverse effect on the Company's profitability.
PAGE
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Page 18
The Company's earnings can fluctuate significantly from quarter to quarter due
to the effects of (i) customers' tendencies to make purchase decisions near
the end of the calendar year, (ii) the timing of the announcement and
availability of products and product enhancements by the Company and its
competitors, and (iii) fluctuating foreign currency exchange rates.
<PAGE>
<PAGE>
Page 19
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
- - --------------------------
See Supplementary Note 3 to the Consolidated Financial Statements.
On June 10, 1993, the Company filed suit against EMC Corp. in U.S. District
Court for the District of Colorado. The suit currently alleges infringement
of a patent pertaining to the Company's disk storage technology. The
complaint seeks an injunction prohibiting further infringement, treble damages
in an unspecified amount, and an award of attorney fees and costs. EMC Corp.
filed an answer and counterclaim on July 20, 1993, alleging, among other
things, patent misuse and seeking the invalidation of the Company's patents,
damages in an unspecified amount and an award of attorney fees, costs and
interest. Discovery has commenced and a trial has been scheduled for October
1994.
On January 21, 1994, Bell Atlantic Business Systems Services, Inc. (BABSS)
filed suit in U.S. District Court for the Northern District of California,
alleging that a number of the Company's service business policies are illegal,
including price increases and parts and maintenance software availability.
BABSS has asked the court to order the Company to stop or change these
practices. BABSS motion for preliminary injunction was denied on March 18,
1994. The case is now in the discovery phase. The complaint appears to focus
on conduct of the Company since December 1, 1993.
On February 23, 1994, the Company and its subsidiary XL/Datacomp, Inc., filed
suit in Boulder County, Colorado, District Court against Array Technology
Corporation (Array) and Tandem Computers Incorporated (Tandem). The suit asks
that the court order Array and Tandem to either support certain disk drives
purchased from them or provide the Company with the technical data necessary
for StorageTek to provide such customer support. On March 15, 1994, Array and
Tandem filed their answer and also filed counterclaims against the Company
alleging breach of contract. Discovery has commenced and a preliminary
injunction hearing on the Company's claim is now in progress.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- - -----------------------------------------
(a) Exhibits
*10.1 Amendment No. 1 and Waiver to Note Agreement.
*10.2 Third Amendment to Credit Agreement.
*10.3 Employment Agreement between the Company and Gregory
A. Tymn, dated February 27, 1987.
<PAGE> <PAGE>
Page 20
*11.0 Computation of Earnings (Loss) Per Common Share.
(b) Reports on Form 8-K
None.
<PAGE> <PAGE>
Page 21
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STORAGE TECHNOLOGY CORPORATION
(Registrant)
May 13, 1994 /s/ GREGORY A. TYMN
- - ----------------------- ---------------------------------
(Date) Gregory A. Tymn
Senior Vice President and
Chief Financial Officer
May 13, 1994 /s/ DAVID E. LACEY
- - ----------------------- ---------------------------------
(Date) David E. Lacey
Corporate Vice President
PAGE
<PAGE>
EXHIBIT 10.1
- - ------------
AMENDMENT NO. 1 AND WAIVER
TO
NOTE AGREEMENT
This Amendment No. 1 and Waiver (the "Amendment") to that
certain Note Agreement, dated as of August 30, 1991, between
Storage Technology Corporation, a Delaware corporation (the
"Company"), and the purchasers listed in the Purchaser Schedule
attached thereto (the "Note Agreement") is entered into as of
April 1, 1994 by and between the Company and the holders of the
Company's 9.53% Senior Secured Notes due August 31, 1996 ("Notes")
which are signatories hereto. Capitalized terms defined in the
Note Agreement which are used herein shall have the meanings set
forth in the Note Agreement unless otherwise specified herein.
WITNESSETH:
WHEREAS, pursuant to Section 11C of the Note Agreement, the
Company has requested certain amendments to the financial covenants
contained in the Note Agreement and the holders of the Notes
("Holders") which are signatories hereto have agreed, subject to
the terms and conditions contained herein, to amend such financial
covenants as set forth herein.
NOW, THEREFORE, in consideration of the premises set forth
above, the mutual covenants contained herein and for other good and
valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. Amendments to Note Agreement. Subject to the terms and
conditions specified herein, effective as of the Effective Date (as
defined below), the Agreement is amended as of April 1, 1994 as
follows:
1.1 Schedule 6C(4)(iv) to the Note Agreement is hereby
amended and restated in its entirety to read as set forth in
Exhibit 1.1 attached hereto.
1.2 Schedule 8A(1) to the Note Agreement is hereby amended
and restated in its entirety to read as set forth in Exhibit 1.2
attached hereto.
1.3 Certain subparagraphs set forth in paragraph 5 of the
Note Agreement are hereby amended as follows:
(a) Paragraph 5A(1) of the Note Agreement is hereby amended
and restated in its entirety as set forth below:
(1) as soon as practicable and in any event within 55
days after the end of each quarterly period (other than
the last quarterly period) in each fiscal year, a
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<PAGE>
consolidated statement of income and statement of cash
flows of the Company and its Subsidiaries for such
quarterly period and for the period from the beginning of
the current fiscal year to the end of such quarterly
period, and a consolidated balance sheet of the Company
and its Subsidiaries as at the end of such quarterly
period, setting forth in each case in comparative form
figures for the corresponding period in the preceding
fiscal year, all in reasonable detail and certified by an
authorized financial officer of the Company, subject to
changes resulting from ordinary year-end adjustments;
(b) Paragraph 5A(2) of the Note Agreement is hereby amended
and restated in its entirety as set forth below:
(2) as soon as practicable and in any event within 100
days after the end of each fiscal year, a consolidated
statement of income and statement of cash flows of the
Company and its Subsidiaries for such year, and a
consolidated balance sheet of the Company and its
Subsidiaries as at the end of such year, setting forth in
each case in comparative form corresponding consolidated
figures from the preceding annual audit all in reasonable
detail and, as to the consolidated financial statements,
certified to the Company by independent public accoun-
tants of recognized national standing selected by the
Company whose certificate shall be in scope and substance
satisfactory to you;
(c) The second paragraph after clause (9) of paragraph 5A of
the Note Agreement is hereby amended by deleting the words "6C(3)".
(d) Paragraph 5C of the Note Agreement is hereby amended by
deleting the words "if the Company acquires XL".
1.4 Certain subparagraphs set forth in paragraph 6 of the
Note Agreement are hereby amended as follows:
(a) Paragraph 6A(1) of the Note Agreement is hereby amended
by deleting the amount "$525,000,000" and inserting in lieu thereof
the amount "$700,000,000."
(b) Paragraph 6B(b) of the Note Agreement is hereby amended
by deleting the words "(other than XL unless the Subsidiary paying
such dividends is a wholly owned Subsidiary of XL)".
(c) Paragraph 6B(f) of the Note Agreement is hereby amended
by deleting the words "(other than XL and any Subsidiary of XL)".
(d) Paragraph 6C(2) of the Note Agreement is hereby amended
and restated in its entirety as set forth below:
-2-
PAGE
<PAGE>
6C(2). Debt -- Create, incur or assume any Debt or
Contingent Obligation, except:
(i) Debt of the Company represented by the Notes,
(ii) Debt of the Company to any Subsidiary of the
Company,
(iii) Debt of any Subsidiary of the Company to any
other Subsidiary of the Company,
(iv) Debt of any Subsidiary of the Company to the
Company , and
(v) Other Debt of the Company or of any Subsidiary
of the Company and Contingent Obligations if as of the
last day of the Company's fiscal quarter in which such
Debt or Contingent Obligation is created, incurred or
assumed (including, without limitation, each borrowing
under the Revolving Loan Agreement and each borrowing
under any other revolving credit facility) and after
giving effect thereto, (a) the sum of the aggregate
outstanding principal amount of all Senior Recourse Debt
plus the amount of all Contingent Obligations of the
Company and its Subsidiaries does not exceed an amount
equal to 40% of Tangible Net Worth, (b) the sum of the
aggregate outstanding principal amount of all
Consolidated Debt (including, without limitation,
Subordinated Debt and Consolidated Non-Recourse Debt)
plus the amount of all Contingent Obligations of the
Company and its Subsidiaries does not exceed an amount
equal to 115% of Tangible Net Worth and (c) the amount
of all Contingent Obligations of the Company and its
Subsidiaries does not exceed 10% of Tangible Net Worth.
For purposes of this clause (v), the amount of Contingent
Obligations shall be the aggregate outstanding face
amount of all obligations guaranteed, endorsed or
otherwise subject to becoming a direct obligation (upon
the occurrence of any contingency or otherwise) under all
Contingent Obligations of the Company and its Subsidiar-
ies (including, without limitation, the face amount of
all undrawn letters or credit).
(e) Paragraph 6C(3) of the Note Agreement is hereby deleted
in its entirety.
(f) Paragraph 6C(4) of the Note Agreement is hereby amended
and restated in its entirety as set forth below:
6C(4). Restricted Investments -- Make or permit to
remain outstanding any loan or advance to, or own,
purchase or acquire any stock, obligations or securities
-3-
PAGE
<PAGE>
of, or any other interest in, or make any capital
contribution to any Person (all of the foregoing loans,
advances, purchases, acquisitions, extensions and permis-
sions to remain outstanding, other than those set forth
in clauses (i) through (vi) below, being collectively
referred to as "Restricted Investments" and individually
as a "Restricted Investment"), except:
(i) any Subsidiary of the Company may make or
permit to remain outstanding loans or advances to the
Company or any other Subsidiary and the Company may make
or permit to remain outstanding loans or advances to any
of its Subsidiaries,
(ii) the Company and each of its Subsidiaries may
own, purchase or acquire stock or other securities of
another Subsidiary or of a corporation which immediately
after such purchase or acquisition will be a Subsidiary,
(iii) the Company and each of its Subsidiaries may
acquire and own stock, obligations or securities received
in settlement of debts (created in the ordinary course of
business) owing to the Company or any such Subsidiary,
(iv) the Company and each of its Subsidiaries may
make investments in accordance with its written cash
investment policy as set forth as Schedule 6C(4)(iv)
attached hereto,
(v) the Company may permit to remain outstanding
the Company's present investments described on Schedule
6C(4)(v) attached hereto, and
(vi) Restricted Investments permitted to be made
pursuant to paragraph 6B.
(g) Paragraph 6C(6) of the Note Agreement is hereby amended
and restated in its entirety as set forth below:
6C(6). Merger and Sale of Assets -- Merge or consoli-
date with any other corporation or sell, lease, transfer
or otherwise dispose of all of its assets or a
Substantial Part of its assets, to any Person, except
that:
(i) any Subsidiary of the Company may merge with
the Company (provided that the Company shall be the
continuing or surviving corporation) or with any one or
more other such wholly-owned Subsidiaries,
-4-
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<PAGE>
(ii) any Subsidiary may sell, lease, transfer or
otherwise dispose of any of its assets to the Company or
another such Subsidiary, and
(iii) the Company may merge with any other corpora-
tion, provided that (a) the Company shall be the continu-
ing or surviving corporation, and (b) both before and
immediately after such merger (1) the Company shall not
be in violation of the covenants set forth in paragraphs
6A(1) and 6A(2) hereof, as of the date of such merger,
and (2) the Company shall be able to incur at least $1.00
of additional Senior Recourse Debt and $1.00 of
additional Contingent Obligations under paragraph 6C(2)
(assuming such Debt and Contingent Obligations were
incurred in the fiscal quarter of the Company immediately
preceding the then existing fiscal quarter),
provided, however, that with respect to each of clauses
(i), (ii) and (iii) above, there shall exist no Default or
Event of Default either immediately before or after giving
effect to any such merger, sale, lease, transfer or other
disposition.
(h) Paragraph 6C(9) of the Note Agreement is hereby amended
and restated in its entirety as set forth below:
6C(9). Transactions with Affiliates -- Directly or
indirectly, purchase, acquire or lease any property from,
or sell, transfer or lease any property to, or otherwise
deal with in the ordinary course of business or otherwise
(i) any Affiliate of the Company, or (ii) any Person
related by blood, adoption or marriage to any Affiliate
of the Company; provided, however, that this paragraph
shall not be deemed to prohibit transactions the terms
of which are at least as favorable to the Company and its
Subsidiaries (as applicable) as the terms that could be
obtained by the Company and such Subsidiary on an arm's
length basis with a Person other than a Person described
in clause (i) or (ii) above.
1.5 Paragraph 11D of the Note Agreement is hereby amended by
deleting the amount "$1,000,000" each time it appears and inserting
in lieu thereof the amount "$500,000."
1.6 Paragraph 10B of the Note Agreement is hereby amended by
amending and restating in their entirety as set forth the
definitions of "Revolving Loan Agreement" and "Subsidiary."
"Revolving Loan Agreement" shall mean that certain
Multicurrency Credit Agreement dated as of
March 31, 1993 among the Company, Bank of America,
-5-
PAGE
<PAGE>
National Trust and Savings Association and certain
other parties.
"Subsidiary" shall mean, as to any Person, any
corporation 100% of the total combined voting power
of all classes of Voting Stock of which shall, at
the time as of which any determination is being
made, be owned by such Person either directly or
through Subsidiaries.
1.7 Paragraph 10B of the Note Agreement is hereby amended by
deleting in their entirety the definitions of "Secured XL Debt" and
"XL Merger Agreement".
2. Waiver. Subject to the terms and conditions specified
herein, effective as of the Effective Date, the Holders which are
signatories hereto hereby waive the Company's compliance with
paragraph 6I of the Note Agreement solely with respect to the
fiscal quarters ending April 1, July 1 and September 30, 1994.
3. Conditions to Effectiveness. The effectiveness of this
Amendment is subject to satisfaction of the following conditions on
April 1, 1994 or any other date on or before April 1, 1994 on which
the Company and the Holders which are signatories hereto may
mutually agree (the date upon which such conditions are satisfied
being called the "Effective Date"):
3.1 Execution and Delivery of Amendment by Holders. This
Amendment shall have been executed and delivered by the Company and
holders of at least 66-2/3% of the aggregate principal amount of
the outstanding Notes.
3.2 Representations and Warranties by the Company; No
Default. The representations and warranties contained in Section
4 hereof and in paragraph 8 of the Note Agreement shall be true on
and as of the Effective Date (and for purposes of this Amendment
all references in such representations and warranties to "date of
closing" or "closing" shall mean the Effective Date), both before
and after giving effect to the effectiveness of this Amendment;
there shall exist on the Effective Date no Event of Default or
Default, both before and after giving effect to the effectiveness
of this Amendment; and the Company shall have delivered to the
Holders an Officer's Certificate, dated the Effective Date, to both
such effects and demonstrating (with computations in reasonable
detail) compliance as of March 4, 1994 with Paragraphs 6E, 6F, 6G,
6H and 6I (after taking into effect this Amendment) of the Note
Agreement.
3.3 Certain Payments. The Company shall have paid all
expenses payable by the Company pursuant to paragraph 11B of the
Agreement relating to the fees and expenses of the Holders' special
counsel to the extent the Company has received an invoice therefor.
-6-
PAGE
<PAGE>
3.4 Amendment Permitted By Applicable Laws. The transactions
contemplated by this Amendment shall not violate any applicable law
or governmental regulation and shall not subject the Holders to any
tax, penalty, liability or other onerous condition under or
pursuant to any applicable law or governmental regulation, and the
Holders shall have received such certificates or other evidence as
you may request to establish compliance with this condition.
3.5 Payment of Fee. The Company shall have paid to each
Holder a fee equal to such Holder's pro rata share (based on the
proportion of the outstanding principal amount of the Notes held by
such Holder) of $50,000.
3.6 Proceedings. All corporate and other proceedings taken
or to be taken in connection with the transactions contemplated
hereby and all documents incident thereto shall be satisfactory in
form and substance to the Holders which are signatories hereto, and
the Holders shall have received all such counterpart originals or
certified or other copies of such documents as the Holders which
are signatories hereto may reasonably request.
4. Representations and Warranties. The Company represents,
covenants and warrants:
4.1 Power and Authority. The Company is a corporation duly
organized and existing in good standing under the laws of the state
of its incorporation. The Company has all requisite corporate
power to conduct its business as currently conducted and as
currently proposed to be conducted. The Company has all requisite
corporate power to execute, deliver and perform its obligations
under this Amendment. The execution, delivery and performance by
the Company of this Amendment has been duly authorized by all
requisite corporate action on the part of the Company and the
Company has duly executed and delivered this Amendment, and this
Amendment constitutes the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its
terms.
4.2 No Conflicts. Neither the execution and delivery of this
Amendment by the Company, nor the consummation of the transactions
contemplated hereby, nor fulfillment of nor compliance with the
terms and provisions hereof will conflict with, or result in a
breach of the terms, conditions or provisions of, or constitute a
default under, or result in any violation of, or result in the
creation of any Lien upon any of the properties or assets of the
Company or any Subsidiary pursuant to, the charter or by-laws of
the Company, or any such Subsidiary, any award of any arbitrator or
any agreement (including any Assigned Contract and agreement with
stockholders), instrument, order, judgment, decree, statute, law,
rule or regulation to which the Company or any such Subsidiary is
subject.
-7-
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<PAGE>
4.3 Governmental Consent. No circumstance in connection with
this Amendment is such as to require any authorization, consent,
approval, exemption or other action by or notice to or filing with
any court or administrative or governmental body in connection with
the execution and delivery of this Amendment or fulfillment of or
compliance with the terms and provisions hereof or thereof.
5. Reference to the Effect on the Agreement.
a. Upon the effectiveness of this Amendment, (i) each
reference, if any, in the Note Agreement to "this Agreement,"
"hereunder," "hereof," or words of like import shall mean and be a
reference to the Note Agreement as amended hereby and (ii) each
reference to the Note Agreement in the other Transaction Documents
shall mean and be a reference to the Note Agreement, as amended
hereby.
b. Except as specifically amended above, the Agreement
shall remain in full force and effect, and is hereby ratified and
confirmed.
c. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate
as an amendment to any provision of the Note Agreement nor a waiver
of any right, power or remedy of the Holders, nor constitute a
waiver of any provision of the Note Agreement or any other
document, instrument or agreement executed and delivered in
connection with the Note Agreement.
6. Descriptive Headings. The descriptive headings of the
several paragraphs of this Amendment are inserted for convenience
only and do not constitute a part of this Amendment.
7. Governing Law. This Amendment has been delivered in and
shall be construed and enforced in accordance with, and the rights
of the parties shall be governed by, the law of the State of
Illinois.
8. Counterparts. This Amendment may be executed simulta-
neously in two or more counterparts, each of which shall be deemed
an original, and it shall not be necessary in making proof of this
Amendment to produce or account for more than one such counterpart.
[Signature pages to follow]
-8-
PAGE
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered as of the day and year first written above.
STORAGE TECHNOLOGY CORPORATION
By: /s/ Gregory A. Tymn
--------------------------------
Title: Senior Vice President and
Chief Financial Officer
THE TRAVELERS INSURANCE COMPANY Aggregate Principal
Amount of Notes Held
By: /s/ Thomas T. S. Li
--------------------------------
Title: Investment Officer $19,000,000
THE PHOENIX INSURANCE COMPANY
By: /s/ Thomas T.S. Li
--------------------------------
Title: Investment Officer $ 7,000,000
THE TRAVELERS INDEMNITY COMPANY
By: /s/ Thomas T.S. Li
--------------------------------
Title: Investment Officer $ 3,000,000
THE TRAVELERS LIFE AND ANNUITY COMPANY
By: /s/ Thomas T.S. Li
--------------------------------
Title: Investment Officer $ 1,000,000
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY
By: /s/ Dennis D. Ballard
--------------------------------
Title: Counsel
By: /a/ Nora M. Everett
--------------------------------
Title: Counsel $20,000,000
PAGE
<PAGE>
CANADA LIFE ASSURANCE COMPANY
By:
--------------------------------
Title: $ 5,000,000
PAGE
<PAGE>
EXHIBIT 10.2
- - ------------
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT ("Third
Amendment"), dated as of March 1, 1994, is entered into by and
among the following parties:
STORAGE TECHNOLOGY CORPORATION ("STK");
STORAGETEK FINANCIAL SERVICES CORPORATION ("New SFSC");
STORAGETEK RELOCATION OPERATIONS, INC. ("Old SFSC");
STORAGE TECHNOLOGY DE PUERTO RICO, INC. ("STPR");
XL/DATACOMP, INC. ("XL/DC") (STK, New SFSC, STPR and
XL/DC are collectively referred to as the "Borrowers");
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as agent for itself and the Lenders (the "Agent"); and
The several financial institutions party to the Credit
Agreement referred to below (collectively, the "Lenders").
RECITALS
A. The Borrowers (other than New SFSC), Old SFSC, the
Lenders and the Agent are parties to that certain $150,000,000
Multicurrency Credit Agreement dated as of March 31, 1993, as
amended by the First Amendment to Credit Agreement dated as of
August 6, 1993, and as further amended by the Second Amendment to
Credit Agreement dated as of September 24, 1993 (the "Prior
Credit Agreement"), pursuant to which the Agent and the Lenders
have extended certain credit facilities and other financial
accommodations to the Borrowers.
B. The Borrowers have requested that the Lenders
agree to amend Schedule 1.01(c)(1) of the Prior Credit Agreement
in order to reflect accurately the changes in the Borrowers'
corporate cash investment policy. A copy of the Borrowers' new
corporate cash investment policy is attached hereto as EXHIBIT A
(the "New Schedule 1.01(c)(1)").
C. The Borrowers have also requested that the Lenders
agree to certain other amendments to the Prior Credit Agreement.
D. The Borrowers have also informed the Lenders that
(i) Old SFSC, which was a party to the Prior Credit Agreement and
the other Loan Documents intends to change its name to
1.
PAGE
<PAGE>
"StorageTek Relocation Operations Inc.," and (ii) New SFSC has
been formed for the purpose of acquiring equipment manufactured
and/or distributed by STK and, in turn, leasing or selling such
equipment to other Persons. The Old SFSC is, at present, a
dormant shell company that does not hold any assets, does not
have any liabilities (other than to the Lenders) and does not
conduct any business operations.
E. STK intends to (i) transfer, assign and convey to
New SFSC all of its right, title and interest in and to certain
existing leases and installment sales agreements entered into by
STK prior to January 6, 1994, together with the related equipment
and upgrades, and (ii) have New SFSC be the lessor under all
leases of the equipment manufactured and/or distributed by STK
entered into on or after January 6, 1994. Consistent with the
terms and provisions of the Credit Agreement and the other Loan
Documents, STK intends to provide New SFSC with financing in
connection with New SFSC's on-going purchases of equipment and,
as may from time to time be warranted, contribute additional
capital to New SFSC.
F. In connection with the intended name change for
Old SFSC and the formation of New SFSC, the Borrowers have
requested that (i) Old SFSC be deleted as a Borrower under the
Loan Documents, and (ii) New SFSC be added as a Borrower under
the Loan Documents. New SFSC has agreed to assume and be bound
by all of the obligations, duties and Indebtedness imposed on the
Borrowers under the Loan Documents.
G. The Lenders are willing to agree to the Borrowers
requested amendments to the Prior Credit Agreement, pursuant to
Section 9.01 of the Prior Credit Agreement and subject to the
terms and conditions of this Third Amendment.
NOW, THEREFORE, for valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Defined Terms; General Principles.
(a) Definitions. Unless otherwise defined
herein, capitalized terms used herein shall have the meanings, if
any, assigned to them in the Prior Credit Agreement. This Third
Amendment is incorporated into the Prior Credit Agreement by this
reference and made a part thereof. The Prior Credit Agreement,
as modified by this Third Amendment, is herein referred to as the
"Credit Agreement."
(b) SFSC. Unless otherwise specified, all
references to "SFSC" in the Prior Credit Agreement, this Third
2.
PAGE
<PAGE>
Amendment or any other Loan Documents (including, without
limitation, all Collateral Documents) shall refer to New SFSC.
2. Amendment of Prior Credit Agreement.
(a) Release of Old SFSC; New SFSC Added as Party.
Old SFSC is hereby released from its Indebtedness and obligations
under the Prior Credit Agreement (other than Section 9.06
[Indemnity] of the Prior Credit Agreement) and all other Loan
Documents. New SFSC hereby (i) assumes and agrees to be bound by
all of Old SFSC's Indebtedness and obligations under the Loan
Documents, and (ii) succeeds to all of Old SFSC's right, title
and interest in and under the Loan Documents. New SFSC hereby
adopts, ratifies and agrees to be bound by all of the Loan
Documents (including, without limitation, the Collateral
Documents) as if such Loan Documents were fully set forth herein.
New SFSC and Old SFSC hereby agree that they will take all action
that the Agent may reasonably request to make sure that none of
the Liens granted by Old SFSC in favor of the Agent, which Liens
are hereby expressly assumed, ratified and reaffirmed by New
SFSC, is in any way released, impaired or adversely affected.
New SFSC and Old SFSC also agree to execute and deliver any other
agreements or documents that the Agent may reasonably request to
implement the provisions of this Section 2(a).
(b) Schedule 1.01(c)(1). Schedule 1.01(c)(1) of
the Prior Credit Agreement is hereby deleted and replaced in its
entirety by the New Schedule 1.01(c)(1).
(c) Certain Definitions. Section 1.01 of the
Prior Credit Agreement is hereby amended as follows:
(i) The definition of "Assessment Rate" is hereby
amended by deleting it in its entirety and inserting in its
place the following:
"Assessment Rate" means, for each Interest Period, the
rate determined by the Agent as equal to the annual
assessment rate in effect on the first day of such
Interest Period payable to the FDIC by a member of the
Bank Insurance Fund that is classified as adequately
capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification
within the meaning of 12 C.F.R. Section 327.3(d)) for insuring
time deposits at offices of such member in the United
States; or, in the event that the FDIC shall at any
time hereafter cease to assess time deposits based upon
such classifications or successor classifications,
equal to the maximum annual assessment rate in effect
on the first day of such Interest Period that is
3.
PAGE
<PAGE>
payable to the FDIC by commercial banks (whether or not
applicable to the Banks) for insuring time deposits at
offices of such banks in the United States.
(ii) The following defined term shall be inserted in
the Prior Credit Agreement, to appear in the appropriate
alphabetical order:
"Amperif" means Amperif Corporation.
(iii) Subsection (g) of the definition of "Eligible
Lease Receivables" set forth in the Prior Credit Agreement is
hereby amended by deleting it in its entirety and inserting in
place thereof the following:
"(g) the Lease Receivable, when combined with the
Adjusted Value of all other Lease Receivables owing by
the Account Debtor and its Apparent Affiliates to the
Borrower, would not exceed 10% (or, solely in the case
of those Account Debtors that are Investment Grade
Obligors, 30%) of the total Adjusted Value of Eligible
Lease Receivables of the Borrower in the aggregate,
except to the extent that the Adjusted Value of such
Lease Receivable would, together with the Adjusted
Value of all such other Lease Receivables, not exceed
10% (or, solely in the case of those Account Debtors
that are Investment Grade Obligors, 30%) of the
Adjusted Value of total Eligible Lease Receivables of
such Borrower;"
(iv) The definition of "Net Income" is hereby amended
by inserting the phrase "(including cumulative effects of
accounting changes)" following the phrase "extraordinary items".
(v) The definition of "Net Loss" is hereby amended by
inserting the phrase "(including cumulative effects of accounting
changes)" following the phrase "extraordinary items".
(d) Financial Results of Amperif. Solely for the
purposes of calculating the financial covenants set forth in
Section 6.03 of the Prior Credit Agreement, Amperif's financial
performance and results (i) will not be included for purposes of
determining compliance with the Credit Agreement for all periods
prior to, and including, the third Fiscal Quarter of Fiscal Year
1993, and (ii) will be included for purposes of determining
compliance with the Credit Agreement for all periods beginning
with the fourth Fiscal Quarter of Fiscal Year 1993 and each
Fiscal Quarter thereafter.
4.
PAGE
<PAGE>
(e) Consolidated Tangible Net Worth. Section
6.03(a) of the Prior Credit Agreement is hereby amended by (i)
deleting the number "$730,000,000" and inserting in its place the
number "$690,000,000", and (ii) inserting the phrase "(excluding
any Net Loss)" following the phrase "Consolidated Net Income" in
clause (i).
(f) Fixed Charge Coverage Ratio. Section 6.03(c)
of the Prior Credit Agreement is hereby amended by deleting the
required ratios set forth for all periods following the Fiscal
Quarter ending on September 24, 1993, and inserting in place
thereof the following:
Fiscal Quarter
Ending On Ratio
December 31, 1993 1.75:1.00
April 1, 1994 1.10:1.00
July 1, 1994 1.10:1.00
September 30, 1994 1.75:1.00
December 30, 1994 and thereafter 2.75:1.00
(g) Net Income. Section 6.03(d) of the Prior
Credit Agreement is hereby amended by deleting it in its entirety
and inserting in place thereof the following:
"(d) Net Income. Not permit (i) any Consolidated
Net Loss of STK and its Subsidiaries to occur for each
of any two consecutive Fiscal Quarters (calculated as
of the last day of each such Fiscal Quarter), provided,
however, that STK may permit a Consolidated Net Loss
for each of the first two Fiscal Quarters of Fiscal
Year 1994; (ii) Consolidated Net Loss of STK and its
subsidiaries for any Fiscal Quarter to be greater than
$10,000,000, provided, however, that in respect of the
Fiscal Quarter ending April 1, 1994, such Consolidated
Net Loss shall not be greater than $35,000,000; or
(iii) any Consolidated Net Loss of STK and its
Subsidiaries for any Fiscal Quarter to occur if STK and
its Subsidiaries also incur a Consolidated
extraordinary loss, as determined in accordance with
GAAP, of more than $15,000,000 for such Fiscal
Quarter."
(h) Leverage Ratio. Section 6.03(e) of the Prior
Credit Agreement is hereby amended by inserting at the end of
that section the following provision:
5.
PAGE
<PAGE>
"provided, however, that with respect to each of the
third Fiscal Quarter of 1994 and the fourth Fiscal
Quarter of 1994, the Consolidated Leverage Ratio of STK
and its Subsidiaries shall not be greater than
1.15:1.00."
(i) Total Leverage Ratio. Section 6.03(f) of the
Prior Credit Agreement is hereby amended by inserting at the end
of that section the following provision:
"; provided, however, that with respect to each of the
third Fiscal Quarter of 1994 and the fourth Fiscal
Quarter of 1994, the Consolidated Total Leverage Ratio
of STK and its Subsidiaries shall not be greater than
1.20:1.00."
3. Waiver.
(a) Subject to the terms and conditions hereof,
the Lenders hereby waive the Existing Defaults. For purposes
hereof, the "Existing Defaults" shall mean the Events of Default
existing under Section 7.01(c) of the Prior Credit Agreement as
of the date hereof solely be virtue of the default by the
Borrowers under Section 6.03(c) of the Prior Credit Agreement as
of December 31, 1993.
(b) Nothing contained herein shall be deemed a
waiver of (or otherwise affect the Agent's or the Lenders'
ability to enforce) any other default or Event of Default other
than the Existing Defaults.
4. Representations and Warranties. The Borrowers
hereby represent and warrant to the Agent and the Lenders as
follows:
(a) Other than the Existing Defaults, no Event of
Default has occurred and is continuing;
(b) The execution, delivery and performance by
each Borrower of this Third Amendment are within such Borrower's
corporate powers, have been duly authorized by all necessary
corporate action, do not contravene (i) such Borrower's charter
or bylaws, (ii) any law, rule, regulation (including, without
limitation, Regulations G, T, U or X of the Board of Governors of
the Federal Reserve System), order, writ, judgment, injunction,
decree, determination or award binding on or affecting such
Borrower or any of its properties, or (iii) any contractual
restriction binding on or affecting such Borrower or any of its
properties, except, in each case, where any such contravention
would not cause a Material Adverse Effect or render any Loan
6.
PAGE
<PAGE>
Document unenforceable against such Borrower or any third party,
and do not result in or require the creation of any Lien (other
than pursuant to the Credit Agreement or pursuant to the
Collateral Documents) upon or with respect to any of its material
properties;
(c) No authorization, approval or other action
by, and no notice to or filing with, any governmental authority
or regulatory body or other Person is required for the due
execution, delivery and performance by any Borrower of this Third
Amendment;
(d) This Third Amendment, the Prior Credit
Agreement, as amended hereby, and all other Loan Documents are
each the legal, valid and binding obligation of each Borrower
enforceable against such Borrower (including, without limitation,
New SFSC) in accordance with their terms;
(e) All representations and warranties of the
Borrowers contained in Article V of the Credit Agreement are true
and correct;
(f) Old SFSC does not currently have any assets
or conduct any business operations;
(g) Upon the filing of the Financing Statements,
the transactions described in Section 2(a) of this Third
Amendment do not in any way waive, impair, adversely affect or
lower the priority of the Liens granted by Borrowers and Old SFSC
in favor of the Agent in and to the Collateral;
(h) New SFSC has not granted or permitted to
exist any Liens on the Collateral in favor of any Person other
than the Agent (except for Liens created by or pursuant to the
Loan Documents and Permitted Liens); and
(i) The Borrowers are entering into this Third
Amendment on the basis of their own investigation and for their
own reasons, without reliance upon the Agent and the Lenders or
any other Person.
5. Effective Date. This Third Amendment shall be
deemed effective as of March 1, 1994 (the "Effective Date"),
provided that each of the following conditions precedent has been
satisfied:
(a) The Agent has received from the Borrowers
and each of the Majority Lenders a complete and duly executed
original of this Third Amendment;
7.
PAGE
<PAGE>
(b) The Agent has received from each of the
Borrowers a certificate signed by the Secretary or Assistant
Secretary of such Borrower, certifying that the resolution passed
by the board of directors of such corporation in connection with
the execution delivery and performance of the Prior Credit
Agreement authorizes the execution, delivery and performance of
this Third Amendment and the Credit Agreement and that such
resolution is in full force and effect as of the date of delivery
of such certificate;
(c) The Agent has received evidence of the due
filing of proper financing statements (Form UCC-1) naming New
SFSC as debtor (the "Financing Statements") under the Uniform
Commercial Code in all jurisdictions as may be necessary or, in
the reasonable opinion of the Agent, desirable to perfect or
maintain the perfection of the security interests created by the
U.S. Security Agreements;
(d) The Agent shall have received from the
Borrowers, for the pro rata account of each Lender, an amendment
fee equal to 0.10% times the amount of each Lender's Commitment;
and
(e) All representations and warranties contained
herein (including statements contained in the recitals hereof)
are true and correct as of the date the Agent has received a duly
executed original of this Third Amendment from all of the parties
hereto.
6. Reservation of Rights. The Borrowers acknowledge
and agree that the execution and delivery by the Agent and the
Lenders of this Third Amendment shall not be deemed (i) to create
a course of dealing or otherwise obligate the Agent or the
Lenders to execute similar agreements or provide other
accommodations under the same or similar circumstances in the
future, or (ii) to waive, relinquish or impair any right of the
Agent or the Lenders to receive any indemnity or similar payment
from any Person.
7. Miscellaneous.
(a) Except as herein expressly amended, all
terms, covenants and provisions of the Prior Credit Agreement are
and shall remain in full force and effect and all references
therein to the Credit Agreement shall henceforth refer to the
Prior Credit Agreement as amended by this Third Amendment. This
Third Amendment shall be deemed incorporated into, and a part of,
the Credit Agreement.
8.
PAGE
<PAGE>
(b) The Borrowers agree to pay or reimburse the
Agent, on demand, for all reasonable Attorney Costs and expenses
incurred in connection with the development, preparation,
negotiation, execution and delivery of this Third Amendment.
(c) This Third Amendment shall be binding upon
and inure to the benefit of the parties hereto and thereto and
their respective successors and assigns. No third party
beneficiaries are intended in connection with this Third
Amendment.
(d) This Third Amendment shall be governed by and
construed in accordance with the law of the State of California.
(e) This Third Amendment may be executed in any
number of counterparts, each of which shall be deemed an
original, but all such counterparts together shall constitute but
one and the same instrument.
(f) This Third Amendment, together with the
Credit Agreement, contains the entire and exclusive agreement of
the parties hereto with reference to the matters discussed herein
and therein. This Third Amendment supersedes all prior drafts
and communications with respect thereto. This Third Amendment
may not be amended except in accordance with the provisions of
Section 9.01 of the Credit Agreement.
(g) If any term or provision of this Third
Amendment shall be deemed prohibited by or invalid under any
applicable law, such provision shall be invalidated without
affecting the remaining provisions of this Third Amendment or the
Credit Agreement, respectively.
9.
PAGE
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
and delivered this Third Amendment as of the date first above
written.
THE BORROWERS:
STORAGE TECHNOLOGY CORPORATION
By: /s/ Mark D. McGregor
------------------------------
Name: Mark D. McGregor
Title: Assistant Treasurer
STORAGE TECHNOLOGY DE PUERTO RICO, INC.
By: /s/ Mark D. McGregor
------------------------------
Name: Mark D. McGregor
Title: Assistant Treasurer
XL/DATACOMP, INC.
By: /s/ Mark D. McGregor
------------------------------
Name: Mark D. McGregor
Title: Assistant Treasurer
STORAGETEK FINANCIAL SERVICES CORPORATION
By: /s/ Robert J. Kali
------------------------------
Name: Robert J. Kali
Title: Vice President & Chief
Operating Officer
STORAGETEK RELOCATION OPERATIONS, INC.
By: /s/ Robert J. Kali
------------------------------
Name: Robert J. Kali
Title: Vice President & Chief
Operating Officer
10.
PAGE
<PAGE>
THE AGENT:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: /s/ Judith L. Kramer
------------------------------
Name: Judith L. Kramer
Title: Vice President
THE SWING LINE BANK:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Swing
Line Bank
By: /s/ Kevin McMahon
------------------------------
Name: Kevin McMahon
Title: Vice President
THE ISSUING BANK:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Issuing
Bank
By: /s/ Kevin McMahon
------------------------------
Name: Kevin McMahon
Title: Vice President
THE LENDERS:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Kevin McMahon
------------------------------
Name: Kevin McMahon
Title: Vice President
11.
PAGE
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Andrea Lamp Peabody
------------------------------
Name: Andrea Lamp Peabody
Title: Division Executive
BANK OF MONTREAL
By: /s/ Daniel A. Brown
------------------------------
Name: Daniel A. Brown
Title: Director
NBD BANK, N.A.
By: /s/ James Gregory Mickens
------------------------------
Name: James Gregory Mickens
Title: Vice President
CONTINENTAL BANK N.A.
By: /s/ Elizabeth M. Nolan
------------------------------
Name: Elizabeth M. Nolan
Title: Vice President
12.
PAGE
<PAGE>
FIRST INTERSTATE BANK OF DENVER
By: /s/ Alex J. McCombs
------------------------------
Name: Alex J. McCombs
Title: Vice President
BANQUE NATIONALE DE PARIS
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
13.
PAGE
<PAGE>
EXHIBIT 10.3
- - ------------
February 27, 1987
Mr. Gregory A. Tymm
Storage Technology Corporation
Louisville, Colorado 80028
Dear Greg:
The purpose of this letter is to set forth the
compensation arrangement that will govern your employment with
Storage Technology Corporation (the "Company") until that
employment terminates or until your compensation arrangement
changes. This letter (the "Letter") is not intended to change in
any way your employment relationship with the Company, which has
been and will continue to be "at will" under a general hiring for
an indefinite term, terminable at any time by either the Company
or you with or without cause, under an oral employment arrangement.
Set forth below are the principal elements of your compensation:
1. Base Compensation. For your services, the Company
will pay you a base salary, at an annual rate, effective January 1,
1987, of $120,000 per year. Such salary shall be payable in
installments in accordance with the regular payroll policies of the
Company in effect from time to time during your employment by the
Company. The amount of your base salary may be adjusted from time
to time during your employment.
2. Bonuses.
(a) MBO Bonus Program. The Company currently
maintains a Management By Objective Bonus Program (the "MBO
Program"). During 1987, you shall be eligible for such bonuses in
accordance with the MBO Program as may be established from time to
time by the Company's Board of Directors (the "Board"). Any such
payments under the MBO Program shall be made in accordance with the
provisions, and under the conditions contained in, the MBO Program
and the terms of any bonus award authorized for you by the Board.
For 1987, the Board has established an On Plan Bonus potential for
you of 30% of your base salary.
(b) Reorganization Bonus. Effective on the date a
Plan of Reorganization is confirmed under Chapter 11 of the
Bankruptcy Code ("Reorganization Date"), you shall be paid a cash
bonus in the amount of $45,000.
3. Stock Options.
(a) Previously Granted Option. Pursuant to that
certain letter from the Company to you dated May 15, 1985 (the
"Prior Letter"), you were granted certain options (the "Prior
Options") to acquire voting shares of common stock of the Company
("Common Stock"). A portion of the Prior Options is to become
effective as of the Reorganization Date (the "First Reorganization
Option"). The grant of the Prior Option in accordance with the
Prior Letter shall continue in full force and effect in accordance
with the provisions of such grant, except as modified herein.
(b) Reorganization Option. On the Reorganization
Date, if the Company is successfully reorganized and a Plan of
Reorganization is confirmed, the Company will grant you an
additional option (the "Second Reorganization Option") for the
purchase of 30,000 shares of Common Stock.
(c) Exercise Price - Vesting. The exercise price
for both the First Reorganization Option and the Second
Reorganization Option (collectively, the "Reorganization Options")
shall be equal to the lowest final closing price of the Common
Stock on the New York Stock Exchange during the period commencing
on the Reorganization Date and ending 60 calendar days thereafter.
For purposes of this Letter, if the Common Stock is not then listed
on the New York Stock Exchange, the applicable closing price shall
be the closing price on any other national securities exchange on
which the Common Stock is listed or, if not so listed, the closing
price as reported by NASDAQ in the National Market System. The
Second Reorganization Option shall be exercisable as follows: one-
third of the number of shares covered by such Option shall be
exercisable one year from the Reorganization Date, one-third shall
be exercisable two years from the Reorganization Date, and the
remaining one-third shall be exercisable three years from the
Reorganization Date. Shares as to which the right of exercise have
vested are hereinafter referred to as "Vested Shares".
4. Termination of Employment.
(a) Termination Without Cause. If the Company
elects to terminate your employment without "cause" (as that term
is defined in subparagraph 4(c)), or if you should die, without
cause existing at such time, you shall be entitled to receive, as
a severance payment, a payment equal to the sum of your then
current rate of annual base compensation for one full calendar year
and 100% of your bonus amount under the MBO Program for the year
of termination. Such amount shall be paid to you in a cash lump
sum within thirty days after your termination of employment
pursuant to this subparagraph 4(a).
(b) Termination in the Event of Sale, Merger or
Change of Control. If, during your employment, the Company is
sold, or merged with or into another company (in a transaction in
which the Company is not the surviving entity), or all or
substantially all of the assets of the Company are sold, or more
than 25% of the outstanding voting capital stock of the Company is
acquired by another person or persons (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934)
acting as a group, excepting stock issued to creditors of the
Company under a Plan of Reorganization, you shall have the right
to terminate your employment by written notice to the Company,
given within six months after the date of any such event, and upon
such termination the Company will pay you an amount equal to the
sum of your then current rate of annual base compensation for one
full calendar year and 100% of your then current bonus amount
pursuant to the MBO Program. The amount payable pursuant to this
subparagraph shall be paid in a cash lump sum within 30 days after
your termination of employment or, at your option, over such period
of time as you shall determine.
(c) Termination for Cause. If the Company elects
to terminate your employment for cause (as that term is defined
below), your employment will terminate on the date fixed for
termination by the Company, and thereafter the Company will not be
obligated to pay you any additional compensation, whether in the
way of base compensation, bonus or otherwise, other than the
compensation due and owing through the date of termination.
"Cause," for purposes of this Agreement, shall mean any of the
following: (i) willful breach by you of any provision of this
Agreement; (ii) gross negligence or dishonesty in the performance
of your duties hereunder; (iii) engaging in conduct or activities
or holding any position that materially conflicts with the interest
of, or materially interferes with your duties owed to, the Company;
(iv) engaging in conduct which is materially detrimental to the
business of the Company; or (v) any intentional violation of
Company policies applicable to employees of your position with the
Company.
Very truly yours,
STORAGE TECHNOLOGY CORPORATION
By: /s/ Ryal R. Poppa
------------------------------
Ryal R. Poppa, Chairman and
Chief Executive Officer
PAGE
<PAGE>
EXHIBIT 11
- - ----------
<TABLE>
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
<CAPTION>
Quarter Ended
--------------------------------
04/01/94 03/26/93
------------ ------------
<S> <C> <C>
PRIMARY (a)
Earnings (loss)
Income (loss) before cumulative
effect of accounting change ($19,588) $4,017
Cumulative effect on prior years of change
in method of accounting for income taxes 40,000
------------ ------------
Net income (loss) (19,588) 44,017
Preferred dividend requirement 3,019 749
------------ ------------
Income (loss) applicable to common shares ($22,607) $43,268
============ ============
Shares
Weighted average common shares outstanding 43,154 42,592
Dilutive effect of outstanding options
and warrants (as determined under
the treasury stock method) 592
------------ ------------
Weighted average common shares
and equivalents 43,154 43,184
============ ============
Earnings (loss) per common share
Income (loss) before cumulative
effect of accounting change ($0.52) $0.08
Cumulative effect on prior years of change
in method of accounting for income taxes 0.92
------------ ------------
($0.52) $1.00
============ ============
Quarter Ended
--------------------------------
04/01/94 03/26/93
------------ ------------
FULLY DILUTED (b)
Earnings (loss)
Income (loss) before cumulative
effect of accounting change ($19,588) $4,017
Adjustment for interest and amortization
of debt issue costs on 8% Convertible
Debentures, net of estimated tax effects 2,465 2,578
------------ ------------
Income (loss) before cumulative effect
of accounting change, as adjusted (17,123) 6,595
Cumulative effect on prior years of change
in method of accounting for income taxes 40,000
------------ ------------
Net income (loss), as adjusted ($17,123) $46,595
============ ============
Shares
Weighted average common shares outstanding 43,154 42,592
Dilutive effect of outstanding options
and warrants (as determined under
the treasury stock method) 1,184 730
Adjustment for shares issuable upon assumed
conversion of $3.50 Convertible
Exchangeable Preferred Stock 7,340 1,855
Adjustment for shares issuable upon assumed
conversion of 8% Convertible Debentures 4,132 4,132
------------ ------------
Weighted average common shares
and equivalents, as adjusted 55,810 49,309
============ ============
Earnings (loss) per common share
Income (loss) before cumulative
effect of accounting change ($0.31) $0.13
Cumulative effect on prior years of change
in method of accounting for income taxes 0.81
------------ ------------
($0.31) (b) $0.94 (a)
============ ============
(a) These figures agree with the related amounts in the Consolidated Statement of Operations.
(b) This calculation is submitted in accordance with Regulation S-K, Item 601(b)(11) although
it is contary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive
result.
</TABLE>
