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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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, Louisville, Colorado 80028-4309
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (303) 673-5151
Securities Registered Pursuant to Section 12(b) of the Act:
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Name of Each Exchange
Title of Each Class on which Registered
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Common Stock ($.10 par value), including related New York Stock Exchange
preferred stock purchase rights
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Securities Registered Pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] YES [ ] NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $3,653,084,526 based on the last reported sale price of the
common stock of the registrant on the New York Stock Exchange's consolidated
transactions reporting system on February 27, 1998. For purposes of this
disclosure, shares of common stock held by persons who hold more than 5% of the
outstanding common stock and common stock held by certain officers and directors
of the registrant have been excluded in that such persons may be deemed to be
"affiliates" as that term is defined under the rules and regulations promulgated
under the Securities Act of 1933. This determination is not necessarily
conclusive for other purposes.
As of February 27, 1998, there were 53,525,048 shares of common stock of the
registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to
Regulation 14A under the Securities Exchange Act of 1934 within 120 days of its
fiscal year ended December 26, 1997. Portions of the registrant's definitive
proxy statement for its annual meeting of stockholders to be held on May 21,
1998 are incorporated by reference into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
Storage Technology Corporation and its subsidiaries ("StorageTek(R)" or the
"Company") design, manufacture, market and maintain information storage systems
and network products. The Company's principal product lines include tape and
robotic storage subsystems (Nearline(R)), random access storage subsystems
(online) and network products. Nearline products include magnetic tape storage
devices and automated tape libraries. Online products include rotating magnetic
disk devices that utilize fault-tolerant array technology (RAID). Network
products include connectivity and security products. StorageTek maintains a
worldwide customer service organization to install, maintain and service its own
and third-party equipment. StorageTek also offers consulting services with a
focus on information storage systems management and solution integration
services. StorageTek's products are used by customers that include large
corporations, governmental agencies, and educational, financial, medical and
scientific institutions located worldwide.
StorageTek operates in one principal industry segment. StorageTek conducts its
business through a number of business groups that are focused on dynamic
markets. These groups include: the Enterprise Business Group, which develops and
markets Nearline and online products that are designed for the mainframe and
network-attached storage market, and network security and channel extension
products; the Multiplatform Systems Business Group, which develops and markets
products for the client/server market; and, the Solutions Business Group, which
provides maintenance and consulting services in information storage management
and solutions integration. The Company believes this organizational structure
allows it to efficiently focus on developing and selling information storage
products and solutions. The Company continually evaluates its organizational
structure and at any time may create or discontinue business groups to meet
changing customer demands and emerging technologies.
In 1997, the Company reorganized its sales and support field operations in North
America. In Europe, the Company is implementing a Pan-European sales and service
model. These new structures are designed to align the sales and support
functions with the Company's business group model that focuses on specific
market segments. The Company is also focusing activities on expanding its
indirect distribution channels through OEM and value-added reseller
arrangements, such as the Company's worldwide, non-exclusive OEM agreement with
International Business Machines Corporation (IBM) for mainframe online products.
StorageTek's business model is focused on delivering information storage
solutions for the mainframe and client/server marketplaces. The Company's
strategy includes: identifying new storage solutions; developing or acquiring
access to technologies that address the identified solutions through research
and development activities or the development of strategic relationships; and
delivering these solutions through the most effective distribution channels. To
this end, the Company continues to establish strategic alliances and
partnerships with other manufacturers, developers, distributors
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and suppliers. As a result of these relationships, it is possible for other
companies to be at various times collaborators, competitors and customers in
different markets.
Storage Technology Corporation was incorporated in Delaware in 1969. Its
principal executive offices are located at 2270 South 88th Street, Louisville,
Colorado 80028-0001, telephone (303) 673-5151.
THE ASSUMPTIONS, ANTICIPATIONS, EXPECTATIONS AND FORECASTS CONTAINED IN THE
FOLLOWING DESCRIPTION REGARDING THE COMPANY'S FUTURE PRODUCT AND BUSINESS PLANS,
FINANCIAL RESULTS, PERFORMANCE AND EVENTS ARE FORWARD-LOOKING STATEMENTS. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY BECAUSE OF A NUMBER OF RISKS AND
UNCERTAINTIES, SOME OF THESE RISKS ARE DETAILED IN PART II, ITEM 7,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--RISK FACTORS THAT MAY AFFECT FUTURE RESULTS," AND ELSEWHERE IN THIS
FORM 10-K.
STATEMENTS MADE HEREIN ARE ACCURATE ONLY AS OF THE DATE OF FILING OF THIS FORM
10-K WITH THE SECURITIES AND EXCHANGE COMMISSION AND MAY ONLY BE RELIED UPON AS
OF THAT DATE. THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE INFORMATION OR
FORECASTS CONTAINED HEREIN, EXCEPT AS MAY OTHERWISE BE REQUIRED BY LAW.
PRINCIPAL PRODUCTS
Product sales, including software license fees, accounted for approximately 72%
of total revenue in 1997, while maintenance revenue accounted for the balance.
The following table presents revenue by product line, which includes both
product sales and maintenance revenue:
REVENUE BY PRODUCT LINE
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FISCAL YEAR ENDED DECEMBER
1997 1996 1995
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$ million % $ million % $ million %
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Nearline products $1,382.7 64.5 $1,328.2 65.1 $1,197.7 62.1
Online products 519.6 24.2 429.3 21.1 375.9 19.5
Network and other products 242.4 11.3 282.1 13.8 355.9 18.4
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Total Revenue $2,144.7 100.0 $2,039.6 100.0 $1,929.5 100.0
======== ===== ======== ===== ======== =====
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Additional information concerning revenue from each of the Company's product
lines is found in Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and geographic information is
found in Part IV, Item 14, Note 14 of NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS, of this Form 10-K.
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NEARLINE PRODUCTS
StorageTek's Nearline products include its Automated Cartridge System (ACS)
library and associated tape cartridge storage products. The Company's current
library products include the PowderHorn(R)9310, which became available in the
second quarter of 1993, and the first generation 4410 ACS library, which has
been available since 1988. The Company also offers the TimberWolf(TM)automated
tape library product family that is designed to provide high-capacity, low cost
storage solutions for the client/server environment. The first TimberWolf
library product became available in the second quarter of 1996.
The Company's tape cartridge storage products include: the TimberLine(R)
9490-M44, which has been available since October 1997; the TimberLine 9490, a
high-performance 36-track cartridge subsystem, which became available in the
fourth quarter of 1994; the Twin Peaks 4890 36-track cartridge subsystem, a
cartridge subsystem designed for the client/server market, which has been
available since the second quarter of 1996; the RedWood(R) SD-3, a high-capacity
cartridge subsystem, which became available in the first quarter of 1995; the
Silverton 4490, a 36-track cartridge subsystem, which became available in the
third quarter of 1993; and the 4480 18-track cartridge subsystem, which has been
available since 1987. The Company also develops and licenses software designed
to expand the range of applications for and enhance the performance of its
Nearline products.
The Company is currently developing new Nearline products and enhancements. In
October 1997, the Company announced a new data storage management solution,
Virtual Storage Manager (VSM(TM)), a mainframe tape subsystem designed to
improve performance, cartridge utilization and storage management. VSM is
currently in the engineering validation testing phase and is currently targeted
to become available in the second half of 1998. The Company is also developing a
number of other tape products, all of which are in the design, preliminary
engineering or engineering validation testing phase and for which no
availability dates have been announced. See Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," of
this Form 10-K, which is incorporated by reference into Item 1 of Part I, for a
discussion of operating results and certain risks associated with the
development and introduction of new products that may affect future results.
ONLINE PRODUCTS
StorageTek's online products consist of direct access storage device (DASD)
products targeted at the mainframe and client/server markets. The
characteristics of these products differ principally in information storage
capacity, transfer rate, access time, attachment protocol and cost. In 1996 and
1997, the Company entered into worldwide, non-exclusive OEM agreements with IBM.
Under the 1997 OEM agreement, which replaced the parties' 1996 agreement, the
Company develops and manufactures for IBM mainframe online storage products. IBM
currently serves as the primary distribution channel for the Company's mainframe
online storage products. Approximately 19% of the Company's total revenue during
1997 was derived from sales of mainframe online products to IBM and the Company
currently anticipates that it will derive a significant portion of its revenue
in
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1998 from product sales to IBM. The Company's strategic plans include the
development of other distribution channels for its mainframe online products.
However, there can be no assurances that the Company will continue to supply
products to IBM at current levels or that it will be successful in developing
other distribution channels. A reduction in the level of purchases by IBM could
have a significant adverse effect on the Company's operating results. See Part
II, Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Risk Factors That May Affect Future Results -
Dependence on IBM," of this Form 10-K for a discussion of certain risks that may
affect the Company's relationship with IBM and future results.
StorageTek introduced the OPENstorage(TM)Disk subsystem product family in the
third quarter of 1996, which is designed for multiplatform environments and
utilizes online disk storage array architecture. The OPENstorage product family
is sold through both direct and indirect sales channels.
StorageTek is currently developing a number of online products for the mainframe
and client/server markets. Under the OEM arrangement with IBM, the Company is
developing new online technology, some of which will be owned by IBM, and IBM
has granted the Company both royalty-bearing and royalty-free licenses to use
such technology. The Company expects to supplement the OPENstorage Disk product
family with additional client/server disk products designed to provide an
integrated solution and increase storage management functionality. These
products are currently in the design or preliminary engineering phase of
development and no availability dates have been announced.
NETWORK AND OTHER PRODUCTS
The Company's network product offerings include connectivity and security
solutions for high-performance, enterprise-wide information networks. In 1997,
the Company formed the Solutions Business Group. Through the Solutions Business
Group, the Company provides consulting services primarily in information storage
management and solution integration services. The Solutions Business Group is
also working with leading software vendors to provide storage solutions to
customers in applications such as document management, scientific applications,
check imaging, broadcasting and video solutions, and medical imaging.
MARKETING AND DISTRIBUTION; SERVICES
StorageTek is committed to a worldwide marketing and product maintenance
strategy. StorageTek sells its products and services to customers through a
combination of direct and indirect channels. StorageTek's direct sales and
maintenance force operates in offices located in major metropolitan areas in the
United States, Europe, Canada, Australia, Japan, Mexico, New Zealand, Singapore,
Malaysia and Brazil. Direct sales revenue accounted for approximately 60% of the
Company's total product sales revenue in 1997. The Company also sells its
products in certain international markets through independent distributors,
sometimes in tandem with direct sales operations, located in Africa, Asia,
Europe and South America. In 1997, the Company reorganized its sales and support
field operations in North America, and in Europe the Company is implementing a
Pan-Europe model. See Part II, Item 7, "Management's Discussion and
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Analysis of Financial Condition and Results of Operations -- Risk Factors That
May Affect Future Results - New Products, Markets and Distribution Channels" of
this Form 10-K for a discussion of certain risks associated with the
reorganization.
Indirect channels include: Original equipment manufacturers (OEMs), system
vendors that integrate the Company's products with other hardware and software
and provide independent marketing, service and support programs to their
customers; value-added resellers (VARs) and value-added dealers (VADs); and
independent distributors, who primarily serve markets in which StorageTek does
not have a direct presence. The indirect distribution channel accounted for
approximately 40% of the Company's total product sales revenue in 1997.
Significant OEM partnerships include the Company's relationships with IBM for
mainframe online products, NCR with respect to the TimberWolf 9710 ACS library
and Hewlett-Packard for a number of the TimberWolf products. The Company's
marketing activities include advertising in business and computer publications,
direct mailings and participating in trade shows. Further expansion of the
Company's direct and indirect sales channels is very important to achieving
significant market penetration for current and future products and the Company's
long-term success. Sales to IBM under the OEM agreement accounted for
approximately 19% of the Company's total revenue in 1997. A significant
reduction or delay in sales to IBM or other OEM customers or other major
end-user customers could adversely affect the Company's operating results.
Revenue from outside the United States accounted for approximately 34% of total
revenue in 1997, and 41% in each of 1996 and 1995. In each of these three fiscal
periods, over two-thirds of the Company's revenue originating outside the United
States was derived from Europe, with most of the remaining balance coming from
Japan, Australia and Canada. The Company is subject to various risks associated
with conducting business outside the United States. The Company believes that
its current international diversification will lessen the impact of adverse
economic changes in single regions. However, in the past, weak economic
conditions in Europe have negatively affected the Company's results. There can
be no assurances that an economic crisis in a particular geographic region will
not adversely affect the Company's operations and financial results. See Part
II, Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations - International Operations and Market Risk
Management/Foreign Currency Exchange Risk," and Note 13 of NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS of this Form 10-K for a discussion of risk factors
associated with the Company's international business.
In 1997, maintenance revenue accounted for 28% of total revenue, compared to 27%
in 1996 and 30% in 1995. The Company generally warrants the performance of
products for a specified period of time, after which it services those products
under maintenance agreements for a fee. In response to continuing competitive
pressures, many of the Company's products include extended warranty periods.
Extending warranty periods may reduce future maintenance revenue and profit
margins.
The Company's primary distribution channel for mainframe online products is
currently the OEM channel, and the Company is increasing its OEM partnership
activities for other products. The increased reliance upon OEM relationships may
negatively affect
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future maintenance revenue, as OEM customers generally maintain their own
products. The Company expanded its maintenance services business model during
1997 to include providing customers full-shop maintenance services for
StorageTek equipment and equipment manufactured by other vendors.
As of December 26, 1997, the order backlog was approximately $27 million,
compared to approximately $43 million as of December 27, 1996. In 1997,
approximately 63% of the backlog amount was attributable to the Company's
library and tape products, as compared to 53% in 1996. In addition to these
backlog amounts, the Company also had approximately $51 million of inventory
held by customers on evaluation as of December 26, 1997, compared to
approximately $90 million as of December 27, 1996. Backlog amounts are
calculated on an "if sold" basis and include orders from end-users, OEMs, VARs,
VADs and distributors for products that StorageTek expects to deliver during the
following 12 months. Units held by customers on evaluation or covered by letters
of intent are not included in backlog amounts. Unfilled orders and orders with
respect to inventory held by customers on evaluation may be canceled by the
customer. Accordingly, backlog levels are not a reliable indicator of future
results, and there can be no assurance that orders in backlog or inventory held
by customers on evaluation will ultimately be recognized as revenue.
MANUFACTURING AND MATERIALS
The Company's primary manufacturing facilities are located in Puerto Rico,
Colorado, Minnesota, and France. The Company's manufacturing facilities are
currently in compliance with the ISO 9001 or 9002 international quality
standards.
StorageTek manufactures certain key components for its products. In addition, a
substantial portion of the Company's production costs is related to the purchase
of subassemblies, parts and components for its products from outside vendors
located within and outside the United States. The balance of the Company's
production costs relates to in-house assembly and testing. Certain of the parts
and components included in the Company's products are obtained from a single
source or a limited group of suppliers. In particular, a key component of the
Company's tape drive heads is supplied by Sumitomo Corporation on a sole source
basis. The Company is also dependent on IBM for disk drives used in the
mainframe online products supplied to IBM under the OEM agreement. Dependence
upon single or limited source vendors involves a number of risks, including the
possibility of a shortage of key components, longer lead times, and reduced
control over production and delivery schedules.
The Company has long-term supply contracts with certain vendors and suppliers;
the remaining parts and components are obtained by delivering purchase orders to
vendors specifying the required components. These vendors are not obligated to
supply products for an extended period at specific quantities and prices. See
Part II, Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Risk Factors that May Affect Future Results - Sole
Source Suppliers," of this Form 10-K for a discussion of factors that may affect
the Company's ability to obtain materials from sole source suppliers, which
information is incorporated by reference into Part I, Item 1 of this Form 10-K.
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COMPETITION
The markets for the Company's products and services are intensely competitive
and are subject to continuous, rapid technological change, frequent product
performance improvements, short product life cycles and price reductions. The
Company competes primarily on the basis of technology, performance, quality,
reliability, price, distribution and customer service. The Company believes that
its ability to compete depends on a number of factors, both within and outside
of its control, including the price and cost of the Company's and its
competitors' products, the timing and success of new product introductions by
the Company and its competitors, and general economic conditions within and
outside the United States. The Company expects that both the markets for its
products and services, and its competitors within such markets, will continue to
change in response to shifting customer storage requirements. In addition, stiff
competition has resulted in price reductions in the past and the Company expects
this trend to continue. As a result, the Company currently anticipates that it
will continue to adjust the price of many of its products and services in the
future.
In the mainframe information storage system market, the Company's competitors
include IBM, EMC, Fujitsu, and Hitachi. Competition in the client/server market
comes from the Company's traditional rivals, in addition to companies focused on
the client/server industry, such as Sun Microsystems, Compaq and
Hewlett-Packard. A number of the Company's competitors have significantly
greater market presence and financial resource than StorageTek.
In order to increase the rate of revenue growth and profitability, the Company
is focusing significant resources on product offerings for the client/server
market. Competition in the client/server market is aggressive and is based
primarily upon performance, quality, system scalability, price, service and name
recognition. The client/server market includes a broad spectrum of customers
including customers outside of the Company's traditional customer base. Many of
the Company's potential customers in the client/server market purchase their
storage requirements as part of a packaged server and storage product, which may
provide a competitive advantage to the Company's rivals. The Company expects to
address this issue by providing superior storage solutions and services that
operate across multiple computer platforms and by establishing distribution
relationships with these competitors.
In the consulting services and solutions integration market, the Company
competes against a number of large companies with an established presence in
this industry, including a number of equipment manufacturers with a larger
installed base of customers. From time to time, in connection with specific
projects, the Company partners with established companies in this market. The
Company's ability to compete in the consulting services and solutions
integration market is dependent upon its ability to attract and retain highly
skilled employees and the quality and price competitiveness of the Company's
solutions.
The quality and reliability of the Company's products and ongoing support for
its products are key elements of the Company's competitive strategy. The
Company's customer support organization operates worldwide and includes field
service engineers, and product support and administrative support personnel. The
customer support
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organization installs, maintains and services equipment manufactured by the
Company, as well as equipment manufactured by third parties. The Company
provides local customer support services from its offices located in major
metropolitan cities, with spare parts stored at regional locations. The Company
also has established several competency centers in the United States and Europe
to provide concept/design and engineering services to customers. StorageTek
believes that its installed base of products under maintenance agreements and
the expertise of the Company's customer service engineers are valuable assets of
the Company and believes they will be important competitive elements of the
Company's business in the future.
NEW PRODUCT DEVELOPMENT
StorageTek invests substantial resources to develop new products and product
enhancements. In 1997, 1996 and 1995, the Company recognized research and
development costs of approximately $210 million, $176 million and $187 million,
respectively. In order to expand the Company's access to new technologies and
reduce the amount of time necessary to bring new products to the market, the
Company in the past has acquired other companies and has entered into joint
development and other similar relationships. For example, in 1995 the Company
acquired a network company. In 1996 and 1997, the Company entered into OEM
agreements with IBM under which IBM agreed to finance certain research and
development activities conducted by the Company associated with future
development and enhancements to mainframe online products. The Company's
research and development costs in 1998 will be affected by the level of funding
received from IBM, and other partners for new products. The Company anticipates
that its research and development costs will increase during 1998 as it focuses
on developing new mainframe products and products designed for the client/server
market.
As of December 26, 1997, approximately 1,350 employees were engaged on a
full-time basis in engineering and product development activities, primarily at
several facilities located in the United States, including Colorado and
Minnesota, and at facilities located in France and Australia. For further
discussion of risk factors concerning product development, see Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Factors that May Affect Future Results - New Products,
Markets and Distribution Channels," of this Form 10-K.
PATENTS AND LICENSES
StorageTek's ability to compete is affected by its ability to protect its
proprietary information. StorageTek protects its proprietary rights through a
combination of patents, trademarks, copyrights, confidentiality procedures,
trade secret laws and licensing arrangements. The Company's policy is to apply
for patents, or other appropriate proprietary or statutory protection, in both
the United States and selected foreign countries to establish its proprietary
rights in new or improved technology. StorageTek currently holds over 377 United
States patents, as well as foreign counterparts to
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many of these patents in selected countries, covering various aspects of its
products. These patents will expire from 1998 through 2015. The Company also has
pending approximately 108 United States patent applications, including 6 that
have been allowed and are expected to be formally issued soon, as well as
pending foreign counterparts to many of these applications. In addition,
StorageTek has licenses to use patents held by others. For example, under the
OEM agreement between IBM and the Company, IBM has granted StorageTek both
royalty-bearing and royalty-free licenses to use technology developed under the
agreement. StorageTek owns, has license rights to, and/or has applied to
register over 70 trademarks in the United States and foreign jurisdictions.
Taken as a whole, these assets are material to the Company's business. However,
no individual patent, trademark, license or other item of proprietary
information is singularly material to the Company's business.
The Company has ongoing legal proceedings relating to certain of its patents.
For a discussion of certain legal proceedings relating to the Company's patents,
see Part I, Item 3, "Legal Proceedings" of this Form 10-K. For a discussion of
certain risk factors concerning proprietary information see Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Factors that May Affect Future Results - Patents and
Licenses," of this Form 10-K.
ENVIRONMENT
Compliance by the Company with the provisions of federal, state and local laws
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, has not had a material adverse
effect on the Company. The Company did not have any material expenditures for
environmental control facilities in 1997. The Company does not currently have
pending and has not budgeted any material estimated expenditures for
environmental control facilities during 1998. However, potential liability under
environmental legislation is ongoing, regardless of whether or not the Company
has complied with existing governmental guidelines.
Government regulation of the environment and related compliance costs has
increased in recent years. The Company cannot predict the nature or scope of
future environmental laws or regulations, how they will be administered, or
whether compliance will require substantial expenditures. Based upon currently
available information, the Company does not expect future compliance with
existing environmental regulations will have a material effect on the financial
results and operations of the Company.
RESTRUCTURING PLAN
During the fourth quarter of 1995, the Company recorded a restructuring charge
of $167.2 million related to the adoption of a formal action plan for
restructuring several businesses. The restructuring was adopted in an effort to
establish a more cost-efficient business structure in response to competition.
Elements of the Company's restructuring plan included focusing on core
businesses, outsourcing non-strategic activities, rearchitecting its
distribution processes and channels, and accelerating the integration of Network
Systems Corporation. See Part II, Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Restructuring and Other
Charges," and Part IV, Item 14, Note 7 of NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS, of this Form 10-K, for additional information concerning the 1995
Restructuring Plan.
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YEAR 2000
The Company's product lines include information storage systems and network
products which store, retrieve and transmit data. In order to properly process
data, the Company's products must manage and manipulate data that includes both
20th and 21st century dates (Year 2000 Compliant). The Company believes its
current products are Year 2000 Compliant provided they have been upgraded to
include all recommended engineering changes. There can be no assurance that the
Company's current products will be Year 2000 Compliant. In addition, the Company
does not currently intend to develop modifications to certain of its older
products to make them Year 2000 Compliant and plans to notify the affected
maintenance customers of this plan. The Company's inability to effectively
manage the year 2000 risks associated with its current and older product lines
could have material adverse effects, including increased warranty costs,
customer satisfaction issues and potential lawsuits.
The Company is currently in the process of replacing many of its internal
business and financial information systems. These systems are being replaced by
new systems which are believed to be Year 2000 Compliant. The Company is also
identifying and implementing changes to other information systems which are not
being replaced in order to make them Year 2000 Compliant. The Company
anticipates that the installation of its new information systems and changes to
its remaining information systems in order to make them Year 2000 Compliant will
be completed by the first half of 1999. The Company currently does not expect
that the year 2000 will cause operational problems or result in the Company
incurring material costs incremental to the cost of the information systems
projects currently underway. Delays in implementing these internal information
systems or a failure to fully identify all year 2000 dependencies in the
Company's internal information systems could have material adverse consequences,
including delays in the delivery or sale of the Company's products, or cause the
Company to incur increased costs.
EMPLOYEES
The Company employed approximately 8,300 persons on a full-time basis worldwide
as of December 26, 1997. The Company's future success is dependent, in part, on
its ability to continue to attract, retain and motivate skilled personnel.
OTHER MATTERS
The Company's results historically have experienced seasonality, with increased
sales revenue in the fourth quarter compared to other quarters because of
customers' tendencies to make purchase decisions near the end of the calendar
year. There can be no assurance that this historical trend will continue in 1998
and that revenue during the fourth quarter will be higher than any other
quarter.
During 1997, OEM sales to IBM accounted for approximately 19% of the Company's
total revenue and, at year-end, approximately 26% of the Company's outstanding
account receivable balance was due from IBM. No other single customer accounted
for 10% or more of the Company's total revenue in 1997.
No material portion of the Company's business is subject to contract termination
at the
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election of the United States government.
Reference is made to the following NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS set forth in Part IV, Item 14, of this Form 10-K for certain
additional information, which information is incorporated by reference herein:
Note 5 Description of the Company's debt, financing arrangements
and leasing obligations.
Note 9 Description of the Company's common stock repurchase
programs.
Note 13 Description of the Company's financial instruments and
off-balance-sheet risks - concentrations of credit risks.
Note 14 Information on the geographic operations of the Company's
single business segment. See also Part II, Item 7,
"Management's Discussion and Analysis of Financial
Condition and Results of Operations -- International
Operations and Market Risk Management/Foreign Currency
Exchange Risk," for further discussion of the risks
associated with the Company's foreign operations.
Reference is also made to Part II, Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," of this Form 10-K, for
information regarding liquidity, including working capital practices,
restructuring plans and risk factors that may affect future results.
ITEM 2. PROPERTIES
StorageTek conducts its operations worldwide and occupies both leased and owned
facilities. At the present time, such facilities are adequate for the Company's
purposes.
Colorado. StorageTek occupies facilities in 16 separate buildings in Boulder
County, Colorado, comprising approximately 1.9 million square feet. The Company
owns facilities with approximately 1.6 million square feet; the remaining space
is leased. These facilities include StorageTek's executive offices, as well as
manufacturing, research and development, and spare parts storage facilities.
Substantially all of the Boulder County space is fully utilized.
Other United States Properties. StorageTek owns approximately 199,000 square
feet of manufacturing facilities in the Palm Bay/Melbourne, Florida, area. A
majority of this space is leased to a third party. The Company owns 200,000
square feet of manufacturing, research and development, and administrative
facilities in the Minneapolis, Minnesota area, which are approximately 85%
utilized. The Company occupies manufacturing facilities in Puerto Rico, of which
approximately 78,000 square feet are owned and 50,000 square feet are leased.
The facilities in Puerto Rico are approximately 95% utilized. The Company also
leases office and customer facilities throughout the United States at
approximately 136 locations comprising approximately
<PAGE> 13
Page 13
725,000 square feet.
International Properties. StorageTek leases approximately 200,000 square feet of
engineering, manufacturing and marketing facilities in Toulouse, France, which
are approximately 60% utilized. In addition, StorageTek leases facilities at
locations throughout the world, primarily for sales and customer support
activities, spare parts storage, and limited research and product development
activities. The Company maintains offices in 15 locations in Canada comprising
92,000 square feet, an office in Latin America comprising 7,000 square feet,
over 70 offices in Europe comprising approximately 453,000 square feet, and 12
offices in the Asia/Pacific region comprising approximately 93,000 square feet.
Many of the Company's leases throughout the world contain renewal rights,
cancellation rights and rights of first refusal on contiguous expansion space.
ITEM 3. LEGAL PROCEEDINGS
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 alleged that the Company breached a
1990 settlement agreement that had resolved earlier litigation between the
parties. The suit sought injunctive relief and damages in the amount of
$2,400,000,000. On December 28, 1995, the court dismissed the complaint. Stuff
appealed the dismissal to the Colorado Court of Appeals. In April 1996, the
trial court stayed discovery on the Company's counterclaim for breach of the
covenant not to sue pending resolution of the appeal. In March 1997, the Court
of Appeals reversed the District Court's judgment and remanded the case to the
District Court for further proceedings. In December 1997, the Colorado Supreme
Court rejected the Company's petition seeking a reversal of this decision. A new
trial date has not been set.
On February 15, 1994, the Company filed suit in Boulder County, Colorado,
District Court against Array Technology Corporation (Array) and Tandem Computers
Incorporated (Tandem). The suit asked that the court order Array and Tandem to
either support certain disk drives purchased from them or provide the Company
with technical data necessary for StorageTek to provide such customer support.
In March 1994, Array and Tandem filed their answer and also filed counterclaims
against the Company alleging breach of contract and claiming damages. On
November 20, 1997, a jury determined in favor of the Company and awarded it
approximately $68 million in damages. Array and Tandem were awarded
approximately $8 million for amounts owed by StorageTek for inventory purchases.
On January 13, 1998, the parties filed a motion for dismissal to settle all
outstanding claims.
On June 29, 1995, Odetics, Inc. (Odetics) filed a patent infringement suit in
the U.S. District Court for the Eastern District of Virginia against the Company
and two of its customers alleging that the "pass-through" port in certain of the
Company's tape library products infringed U.S. Patent No. 4,779,151 (the "151
Patent"). The complaint asked the court to impose injunctive relief, treble
damages in an unspecified amount, and an award of attorney's fees and costs. In
February 1996, a jury found that the Company's products did not infringe the 151
Patent. Odetics appealed and in June 1997, the U.S. Court of Appeals for the
Federal Circuit reversed the District Court's ruling and remanded
<PAGE> 14
Page 14
the case back to the District Court for further proceedings. A new trial is
scheduled to commence in March 1998.
On December 8, 1995, Odetics filed a second patent infringement suit in the U.S.
District Court for the Eastern District of Virginia against the Company. The
complaint alleges that the "cartridge access port" in certain of the Company's
tape library products also infringes the 151 Patent. The complaint seeks
injunctive relief, treble damages in an unspecified amount, and an award of
attorney's fees and costs. This case has been stayed pending the outcome of the
case filed by Odetics on June 29, 1995, which is described above.
On July 30, 1996, the Company received Civil Investigative Demands (CIDs) from
the U.S. Department of Justice Antitrust Division concerning the OEM agreement
with IBM for mainframe online storage subsystems. The Company received
additional CIDs in 1996 and 1997. The CIDs requested production of documents and
testimony in connection with a review of the agreement for compliance with the
Sherman Act. On December 18, 1997, the DOJ filed a complaint and a proposed
settlement with the U.S. District Court for the District of Columbia. The
proposed settlement is set forth in a proposed consent decree, which will be
effective upon approval by the Court. The Court is expected to issue a ruling in
March 1998.
On October 3, 1995, certain former employees of the Company filed suit in the
U.S. District Court for the District of Colorado against the Company. The
amended suit alleges violations of the Age Discrimination in Employment Act
(ADEA) and the Employee Retirement Income Security Act (ERISA) between the
period of April 13, 1993, and December 31, 1996. On November 26, 1997, the Court
granted the plaintiffs' request to proceed as a collective action on the ADEA
claims and denied the plaintiffs' request to proceed as a class on the ERISA
claims. The plaintiffs seek, among other things, compensatory damages in an
unspecified amount, including the value of back pay and benefits; reinstatement
as employees or alternatively the value of future earnings and benefits; and
exemplary or liquidated damages. The Company has filed an answer denying both
the ADEA and ERISA claims. This case is in the discovery phase.
The Company believes it has adequate legal defenses with respect to each of the
actions cited above and intends to vigorously defend against these actions.
However, it is reasonably possible that these actions could result in outcomes
unfavorable to the Company. The Company is also involved in various other less
significant legal actions. While the Company currently believes that the amount
of the ultimate potential loss would not be material to the Company's financial
position, the outcome of these actions is inherently difficult to predict. In
the event of an adverse outcome, the ultimate potential loss could have a
material adverse effect on the Company's financial position or reported results
of operations in a particular quarter. An unfavorable decision, particularly in
patent litigation, could require material changes in production processes and
products or result in the Company's inability to ship products or components
found to have violated third-party patent rights.
Information concerning these legal proceedings is also contained in Note 8 of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS included in Part IV, Item 14, of this
Form 10-K.
<PAGE> 15
Page 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of StorageTek security holders during the
fourth quarter of the fiscal year ended December 26, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons were serving as executive officers of the Company as of
March 6, 1998.
<TABLE>
<CAPTION>
NAME POSITION WITH COMPANY AGE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
David E. Weiss.............. Chairman of the Board, President and Chief 53
Executive Officer
David E. Lacey.............. Executive Vice President and Chief Financial Officer 51
Victor Perez................ Executive Vice President, Enterprise Operations 47
Gary Francis................ Vice President and General Manager, Enterprise 50
Nearline Business Group
Sylvia Summers.............. Vice President and General Manager, 45
Multiplatform Systems Business Group
Thomas G. Arnold............ Vice President and Corporate Controller 36
</TABLE>
Mr. Weiss has served as Chairman of the Board, President and Chief Executive
Officer since May 23, 1996. He served as Chief Operating Officer of the Company
from March 1995 to May 1996, Executive Vice President of Systems Development
from January 1993 to March 1995, Senior Vice President of Marketing and Program
Management Process from June 1992 to January 1993, and Corporate Vice President
of Market Planning from August 1991 to June 1992. Mr. Weiss joined the Company
in February 1991 as Staff Vice President.
Mr. Lacey was appointed Executive Vice President and Chief Financial Officer on
May 23, 1996. From February 1995 to May 1996, Mr. Lacey served as Interim Chief
Financial Officer and Corporate Vice President. Mr. Lacey was appointed a
Corporate Vice President in December 1990 and served as Corporate Controller of
the Company from October 1989 to February 1995. Mr. Lacey has been employed by
the Company in various other capacities since 1985.
Mr. Perez was appointed Executive Vice President in October 1997. From June 1996
to November 1997, he served as Corporate Vice President and General Manager,
Enterprise DASD and International Manufacturing. From November 1995 to June
1996, Mr. Perez served as Corporate Vice President World Wide Manufacturing. Mr.
Perez was appointed Corporate Vice President in November 1994 and has been
employed by the Company in various other capacities since 1979.
<PAGE> 16
Page 16
Mr. Francis was appointed as Vice President and General Manager of Nearline
Business Group in February 1997. From September 1993 to February 1997, Mr.
Francis served as Vice President of the Nearline Line of Business and from
August 1992 to September 1993 served as Director of Strategic Planning. Mr.
Francis has been employed by the Company in various other capacities since 1976.
Ms. Summers was appointed Vice President and General Manager, Multiplatform
Business Group in May 1997. Prior to joining StorageTek, Ms. Summers was with
Bull Corporation, Paris, France, where she served as Vice President, Storage
Business Group from April 1996 to April 1997, and Vice President Software
Solutions from February 1994 to April 1997.
Mr. Arnold was appointed Vice President and Corporate Controller in April 1997.
From November 1995 to April 1997, he served as Director of Worldwide
Consolidation and Reporting. Mr. Arnold served as Manager of External Reporting
from April 1991 to November 1995. Mr. Arnold has been employed by the Company in
various other capacities since 1989.
<PAGE> 17
Page 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The common stock of Storage Technology Corporation is traded on the New York
Stock Exchange under the symbol STK. The table below reflects the high and low
closing sales prices of the common stock on the New York Stock Exchange
composite tape as reported by The Wall Street Journal during each fiscal quarter
of 1997 and 1996. On December 26, 1997, there were 13,151 record holders of
common stock of StorageTek.
<TABLE>
<CAPTION>
1997 High Low
------------------------------------------------------------------
<S> <C> <C>
First Quarter $53.875 $37.250
Second Quarter 46.125 34.000
Third Quarter 54.000 45.125
Fourth Quarter 66.375 48.000
1996 High Low
------------------------------------------------------------------
First Quarter $31.250 $22.375
Second Quarter 42.875 24.375
Third Quarter 40.000 31.875
Fourth Quarter 51.000 38.000
</TABLE>
Dividends
StorageTek has never paid cash dividends on its common stock. The Company
currently plans to continue to retain future earnings for use in its business.
The Company's existing $350 million credit agreement contains provisions
restricting the payment of cash dividends.
<PAGE> 18
Page 18
ITEM 6. SELECTED FINANCIAL DATA
The following data, insofar as it relates to the three fiscal years 1995 through
1997 (except for the 1995 Balance Sheet Data), has been derived from the
consolidated financial statements appearing elsewhere herein, including the
Consolidated Balance Sheet as of December 26, 1997, and December 27, 1996, and
the related Consolidated Statement of Operations for each of the three years in
the period ended December 26, 1997, and notes thereto. The data, insofar as it
relates to the Balance Sheet Data as of December 29, 1995, December 30, 1994,
and December 31, 1993, and the Statement of Operations Data for the fiscal years
1994 and 1993, has been derived from the historical financial statements of the
Company for such periods, restated as appropriate to reflect mergers accounted
for as poolings of interests.
The following table data (in thousands of dollars, except per share amounts)
should be read in conjunction with the consolidated financial statements and
notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
--------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue $ 2,144,656 $ 2,039,550 $ 1,929,485 $ 1,871,350 $ 1,617,691
Cost of revenue 1,171,530 1,192,777 1,217,622 1,186,942 1,072,784
----------- ----------- ----------- ----------- -----------
Gross profit 973,126 846,773 711,863 684,408 544,907
Research and product development costs 209,526 176,422 187,275 206,083 191,048
Marketing, general, administrative and
other income and expense, net 472,839 444,870 445,889 425,490 393,991
Restructuring and other charges (Note 7) 212,207 8,000(b) 90,414(c)
----------- ----------- ----------- ----------- -----------
Operating profit (loss) 290,761 225,481 (133,508) 44,835 (130,546)
Interest income, net 25,356 1,211 8,978 6,103 18,585
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes,
accounting change and extra-
ordinary item 316,117 226,692 (124,530) 50,938 (111,961)
Provision for income taxes (84,300) (55,900) (17,800) (18,900) (9,500)
----------- ----------- ----------- ----------- -----------
Income (loss) before accounting
change and extraordinary item 231,817 170,792 (142,330) 32,038 (121,461)
Cumulative effect of accounting change 40,000
Extraordinary gain, net of taxes 9,535
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 231,817 $ 180,327 $ (142,330) $ 32,038 $ (81,461)
=========== =========== =========== =========== ===========
Basic earnings (loss) per common share: (a)
Income (loss) before accounting
change and extraordinary item $ 3.86 $ 3.04 $ (2.91) $ 0.39 $ (2.59)
Net income (loss) 3.86 3.21 (2.91) 0.39 (1.80)
Diluted earnings (loss) per common share: (a)
Income (loss) before accounting
change and extraordinary item $ 3.79 $ 2.86 $ (2.91) $ 0.38 $ (2.59)
Net income (loss) 3.79 3.01 (2.91) 0.38 (1.80)
BALANCE SHEET DATA
Working capital $ 661,206 $ 724,171 $ 425,351 $ 501,065 $ 492,576
Total assets 1,740,017 1,884,276 1,888,629 2,144,458 2,064,851
Total debt 22,391 155,257 449,222 464,690 469,490
Stockholders' equity 1,112,503 1,180,983 962,833 1,265,285 1,215,877
</TABLE>
- ----------------
(a) Earnings per share data has been restated for 1996 and prior years to
conform with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share."
(b) In 1994, the Company recognized restructuring charges of $8,000,000.
(c) In 1993, the Company recognized restructuring charges of $77,832,000;
acquired research and development expenses of $7,060,000; and merger
expenses of $5,522,000.
<PAGE> 19
Page 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ALL ASSUMPTIONS, ANTICIPATIONS, EXPECTATIONS AND FORECASTS CONTAINED IN THE
FOLLOWING DISCUSSION REGARDING THE COMPANY'S PRODUCT AND BUSINESS PLANS,
FINANCIAL RESULTS, PERFORMANCE AND EVENTS ARE FORWARD-LOOKING STATEMENTS. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY BECAUSE OF A NUMBER OF RISKS AND
UNCERTAINTIES, SOME OF THESE RISKS ARE DETAILED BELOW IN "RISK FACTORS THAT MAY
AFFECT FUTURE RESULTS" AND ELSEWHERE IN THIS FORM-10K.
STATEMENTS MADE HEREIN ARE ACCURATE ONLY AS OF THE DATE OF FILING THIS FORM 10-K
WITH THE SECURITIES AND EXCHANGE COMMISSION AND MAY ONLY BE RELIED UPON AS OF
THAT DATE. THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE INFORMATION ON
FORECASTS CONTAINED HEREIN, EXCEPT AS MAY BE OTHERWISE REQUIRED BY LAW.
GENERAL
The Company reported net income for the year ended December 26, 1997, of $231.8
million on revenue of $2.14 billion, compared to net income for the year ended
December 27, 1996, of $180.3 million on revenue of $2.04 billion and a net loss
for the year ended December 29, 1995, of $142.3 million on revenue of $1.93
billion. The Company's results include an extraordinary gain on sale of lease
assets of $9.5 million in 1996, and restructuring and other charges of $212.2
million in 1995.
Revenue increased 5% in 1997 compared to 1996. The increase in revenue in 1997
is primarily because of increased sales of client/server tape and disk products,
mainframe online products, and increased consulting services revenue. Mainframe
Nearline product sales generated by the Company's applications initiative more
than offset decreased sales of earlier generation Nearline products and price
declines associated with the TimberLine(R)9490. Revenue associated with network
products declined in 1997. Revenue during 1997 was reduced by unfavorable
foreign currency exchange rate movements, particularly in Europe. The overall
gross profit margin increased during 1997, principally because of increased
manufacturing volumes of online products.
Revenue increased 6% in 1996 compared to 1995, primarily because of increased
sales revenue from mainframe Nearline products, mainframe online products,
client/server tape libraries, and application sales. Revenue from older
generation Nearline products decreased during 1996 as compared to 1995. Revenue
from network and other products also declined in 1996 as compared to 1995,
primarily because of the continued decline in revenue from a number of older
network products, the sale of a non-strategic network business during the third
quarter of 1996, and the sale of substantially all of the Company's midrange
lease assets and midrange service business in 1995.
The Company's future revenue and operating results are significantly dependent
upon the continued demand for mainframe Nearline and online products in their
traditional markets; expanding the market for and increasing sales of mainframe
Nearline products and products for the client/server environment through the
successful development and introduction of new products and applications;
expanding marketing and distribution channels; and successfully establishing the
Company's consulting services business. For discussion of these and other risk
factors, see "Risk Factors That May Affect Future Results" below.
<PAGE> 20
Page 20
The Company's cash balances decreased $132.1 million during 1997. Net cash flows
generated from operations of $446.7 million were more than offset by the
repurchase of 9.2 million shares of the Company's common stock at a cost of
$485.0 million, investments in property, plant and equipment of $65.9 million,
and short-term investments of $48.1 million. The Company's cash balances
increased $123.9 million during 1996. Net cash flows generated from operations
in 1996 of $464.7 million include cash received from the sale of substantially
all of the Company's lease assets. Cash from operating activities during 1996
was partially utilized by the repurchase of 4.5 million shares of the Company's
common stock for $195.5 million, net repayments of debt of $100.0 million and
net investments in property, plant and equipment of $68.9 million.
The following table, stated as a percentage of total revenue, presents
Consolidated Statement of Operations information and revenue by product line,
which includes both product sales and maintenance revenue.
<TABLE>
<CAPTION>
Year Ended December
1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
Revenue:
Nearline products 64.5% 65.1% 62.1%
Online products 24.2 21.1 19.5
Network and other products 11.3 13.8 18.4
------ ------ ------
Total revenue 100.0 100.0 100.0
Cost of revenue 54.6 58.5 63.1
------ ------ ------
Gross profit 45.4 41.5 36.9
Research and product development costs 9.8 8.6 9.7
Marketing, general, administrative and other
income and expense, net 22.0 21.8 23.1
Restructuring and other charges 11.0
------ ------ ------
Operating profit (loss) 13.6 11.1 (6.9)
Interest income, net 1.1 0.4
------ ------ ------
Income (loss) before income taxes and
extraordinary item 14.7 11.1 (6.5)
Provision for income taxes (3.9) (2.7) (0.9)
------ ------ ------
Income (loss) before extraordinary item 10.8 8.4 (7.4)
Extraordinary gain, net of income taxes 0.4
------ ------ ------
Net income (loss) 10.8% 8.8% (7.4)%
====== ====== ======
</TABLE>
REVENUE
NEARLINE PRODUCTS
Revenue from Nearline products increased 4% in 1997 compared to 1996, primarily
because of increased sales of TimberWolf, a line of smaller-scale tape libraries
designed for client/server attachment; and sales of RedWood SD-3, a high
capacity cartridge subsystem. The Company's initiative to develop new
applications for its Nearline products was a significant contributor to the
increase in RedWood sales in 1997. The Company's new applications include
document management, scientific applications, check imaging, broadcasting and
video solutions, and medical imaging. Unit sales of the TimberLine, a 36-track
cartridge subsystem, increased in 1997, as compared to 1996, but sales revenue
decreased as a result of a decline in the average selling price of these
products. Sales of the PowderHorn 9310, an automated
<PAGE> 21
Page 21
cartridge system library, and earlier generation Nearline products also
decreased in 1997 as compared to 1996. Nearline revenue was unfavorably affected
by foreign currency exchange rate movements during 1997.
Revenue from Nearline products increased 11% in 1996 compared to 1995, primarily
because of increased sales revenue from TimberLine. RedWood, PowderHorn and
TimberWolf also contributed to increased revenue during 1996. Revenue from
earlier generation Nearline products decreased in 1996 as compared to 1995.
The Company anticipates a slow growth rate in the market for mainframe tape
products as customers continue to transition to the client/server environment.
Future revenue growth for Nearline products is dependent upon successfully
developing and introducing new Nearline products, the continued success of the
Company's applications development initiative and expanding the indirect
distribution channels for the Company's client/server products through
agreements such as the original equipment manufacturer (OEM) agreement with
Hewlett-Packard announced in the fourth quarter of 1997. In October 1997, the
Company announced the Virtual Storage Manager (VSM), a mainframe data storage
management solution designed to improve performance, cartridge utilization, and
overall storage management. Failure to timely develop and introduce VSM and
other new Nearline products and features currently under development may
negatively impact the Company's results and long-term success. There can be no
assurance that the Company will continue to expand the Nearline market through
its application development efforts or that it will continue to be successful in
expanding the indirect distribution channels for its client/server Nearline
products.
ONLINE PRODUCTS
Revenue from online products increased 21% in 1997 as compared to 1996 because
of increased sales of mainframe online products under the OEM agreement with IBM
and increased sales of products in the Company's OPENstorage Disk subsystem
family for the client/server market.
Revenue from online products increased 14% in 1996 as compared to 1995. This
increase in revenue was primarily because of increased sales volume of mainframe
online products under the OEM agreement with IBM in the second half of 1996,
coupled with end-user sales of mainframe online products in the first half of
1996. These increases were partially offset by a decrease in revenue
contribution from earlier generation online products.
Approximately 19% of the Company's total revenue during 1997 was derived from a
worldwide non-exclusive OEM agreement under which the Company develops and
manufactures mainframe online storage products for IBM. In December 1997, the
Company entered into a new OEM agreement with IBM which expires in December
2000. IBM is not subject to any long-term volume purchase commitments; however,
IBM does receive volume-purchase discounts under this new agreement. IBM may
elect to terminate the agreement for convenience or for cause, or upon certain
instances of change in control or the occurrence of certain other conditions.
The Company may elect to terminate the agreement for cause. There can be no
assurance that the Company will continue to realize benefits associated with the
agreement. See "Risk Factors That May Affect Future Results - Dependence on
IBM," for further discussion of the risks associated with the OEM agreement.
The Company made significant investments during 1997 associated with its
entrance into the client/server disk market. Success in the client/server disk
market is critical to the Company's
<PAGE> 22
Page 22
plans to grow revenue in the future. The Company plans to enhance its current
product line in 1998 with new products which provide the customer with an
integrated solution and increase storage management functionality. In addition
to successfully managing the risks associated with introducing these new
products, the Company must continue to establish new cost-effective, high-volume
distribution channels for these products. There can be no assurance that the
Company will be successful in its client/server disk initiative.
NETWORK AND OTHER PRODUCTS
Revenue from network and other products decreased 14% in 1997, as compared to
1996, primarily because of continued declines in sales from network products.
This decrease was partially offset by an increase in consulting services
revenue.
Revenue from network and other products decreased 21% in 1996 compared to 1995.
This decrease was primarily because of the decline in revenue from network
products, the sale of a non-strategic network business and the sale of the
midrange lease assets and the midrange service business.
GROSS PROFIT
Overall gross profit margins increased to 45% in 1997, as compared to 42% in
1996 and 37% in 1995. The increase in 1997 was primarily because of increased
manufacturing volumes of mainframe online products. The increase in 1996 was
primarily because of cost savings achieved in connection with the Company's 1995
restructuring and increased manufacturing volumes.
Gross profit on product sales increased to 46% in 1997, as compared to 39% in
1996, principally as a result of increased manufacturing volumes of mainframe
online products, increased sales of higher-margin software products and cost
reductions associated with the manufacturing process. Product sales margins in
1997 also benefited from a change in the classification of advanced
manufacturing costs of approximately $34.7 million, which are included within
research and product development costs in the 1997 Consolidated Statement of
Operations. Gross profit on product sales increased to 39% in 1996, as compared
to 37% in 1995, primarily as a result of cost savings achieved in connection
with the Company's 1995 restructuring, increased manufacturing volumes and lower
purchase costs associated with components for online and Nearline products.
Product sales margins in 1996 also benefited from reduced sales revenue
contribution from lower-margin midrange products as a result of the sale of this
business.
Gross profit on maintenance revenue decreased to 45% in 1997, as compared to 47%
in 1996. The decline is principally attributable to reduced margins associated
with the Company's consulting services business. Gross profit on maintenance
revenue increased to 47% in 1996, as compared to 36% in 1995. This increase is
primarily because of continued cost savings associated with the 1995
restructuring and reduced maintenance revenue contribution from lower-margin
midrange services as a result of the sale of the midrange service business in
1995.
The market for most of the Company's products is subject to intense price
competition. The Company anticipates it will continue to experience price
competition as it expands into the client/server storage market. The Company's
ability to sustain or improve product sales margins is significantly dependent
upon continued success in reducing manufacturing costs in
<PAGE> 23
Page 23
all of its product lines. The Company anticipates that the product sales margins
for its mainframe online products may decline because of volume-purchase
discounts under the terms of the OEM agreement with IBM. Product sales margins
also may be affected by inventory reserves and writedowns resulting from rapid
technological changes and delays in gaining market acceptance for new products.
Maintenance margins may be adversely affected in the future as a result of
increased competition and lower margins associated with mainframe products and
the Company's consulting services business.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development expenditures increased 19% in 1997, as compared
to 1996. Research and product development costs for 1997 include incremental
costs of approximately $34.7 million because of a change in the classification
of costs associated with certain advanced manufacturing activities that were
previously included within cost of sales in the 1996 Consolidated Statement of
Operations. After considering this reclassification, research and product
development costs were relatively unchanged in 1997, as compared to 1996.
Increased investments during 1997 in developing new client/server tape and disk
products, and new mainframe Nearline products were offset by the receipt of
additional funding from IBM for certain research and development activities on
mainframe online products under the terms of the OEM agreement. Research and
product development expenditures decreased 6% in 1996, as compared to 1995,
primarily as a result of research and development funding from IBM. The
Company's research and development costs in 1998 will be affected by the level
of funding received from IBM and other partners for the development of new
products. The Company anticipates that its research and development costs will
increase during 1998 as it focuses on developing new mainframe products and
products designed for the client/server market.
MARKETING, GENERAL, ADMINISTRATIVE AND OTHER
Marketing, general, administrative and other income and expense (MG&A) increased
6% in 1997, as compared to 1996. The increase is primarily because of spending
on internal business and financial information systems, employee profit-sharing
and bonus expenses associated with increased earnings levels, and marketing
expenses associated with the Company's client/server storage initiative. The
increase was partially offset by gains realized on the sale of accounts
receivable of $33.8 million in 1997. MG&A remained relatively unchanged in 1996,
as compared to 1995, as cost savings associated with the 1995 restructuring were
partially offset by increased marketing expenses.
Gains and losses associated with foreign currency transactions and translation
adjustments, net of associated hedging results, are included in MG&A and
aggregated a net gain of $0.5 million for 1997, compared to net losses of $0.5
million in 1996 and $4.3 million in 1995. See "INTERNATIONAL OPERATIONS" and
"MARKET RISK MANAGEMENT / FOREIGN CURRENCY EXCHANGE RISK," below, 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 increased 10% in 1997, as compared to 1996, primarily as a
result of an increase in cash available for investment. Interest expense
decreased 82% in 1997, as compared to 1996, primarily because of the redemption
of all of the Company's outstanding convertible debentures. Interest income
decreased 37% and interest expense decreased 24%
<PAGE> 24
Page 24
in 1996, as compared to 1995, primarily because of the Company's sale of its
lease financing business.
The Company anticipates its net interest income will decline during 1998
primarily as a result of the Company's plan to use some of its cash to complete
the repurchase of up to $800 million of its common stock. See "Liquidity and
Capital Resources - Working Capital," for further discussion of the Company's
stock repurchase plan.
INCOME TAXES
Statement of Financial Accounting Standards (SFAS) No. 109 requires that
deferred income tax assets be recognized to the extent realization of such
assets is more likely than not. Based on the currently available information,
management has determined that the Company will more likely than not realize
$140.0 million of deferred income tax assets as of December 26, 1997. The
Company's valuation allowance of approximately $22.5 million as of December 26,
1997, was established based upon the consideration of a variety of factors,
including the Company's earnings history, the number of years the Company's
operating loss and tax credits can be carried forward, the existence of taxable
temporary differences, near-term expectations, and the highly competitive nature
of the high-technology marketplace.
The Company anticipates that the effective tax rate will exceed the U.S. federal
income tax rate of 35% in 1998 as the Company has recognized substantially all
of its remaining net deductible temporary differences, tax credit carryforwards
and net operating loss carryforwards in the United States.
RESTRUCTURING AND OTHER CHARGES
Restructuring and other charges for the year ended December 29, 1995, consisted
of the following (in thousands of dollars):
<TABLE>
<S> <C>
Restructuring charges $167,175
Litigation settlement 30,680
Merger and consolidation charges 14,352
--------
$212,207
========
</TABLE>
<PAGE> 25
Page 25
The following table summarizes the activity in the Company's restructuring
reserves (in thousands of dollars):
<TABLE>
<CAPTION>
Employee Asset Lease Other
Severance Writedowns Abandonments Exit Costs Total
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, December 30, 1994 $ 3,036 $ 0 $ 5,782 $ 3,612 $ 12,430
Restructuring charges 49,265 91,609 16,660 9,641 167,175
Cash payments (9,613) (3,904) (3,081) (16,598)
Asset writedowns (91,609) (91,609)
--------- -------- -------- -------- -----------
Balances, December 29, 1995 42,688 0 18,538 10,172 71,398
Cash payments (26,837) (2,907) (9,414) (39,158)
Reclassifications 301 (154) 1,222 1,369
--------- -------- -------- -------- -----------
Balances, December 27, 1996 16,152 0 15,477 1,980 33,609
Cash payments (6,718) (1,550) (577) (8,845)
Reclassifications 5,560 (1,858) (1,174) 2,528
--------- -------- -------- -------- -----------
Balances, December 26, 1997 $ 14,994 $ 0 $ 12,069 $ 229 $ 27,292
========= ======== ======== ======== ===========
</TABLE>
RESTRUCTURINGS
During the fourth quarter of 1995, the Company recorded a restructuring charge
of $167.2 million in connection with the adoption of a formal action plan for
restructuring its enterprise and network businesses. The restructuring was
adopted in an effort to establish a more cost-efficient business structure in
response to competition. Elements of the Company's restructuring plan included
focusing on core businesses and outsourcing non-strategic activities,
rearchitecting its distribution processes and channels, and accelerating the
integration of Network Systems Corporation, which was acquired in March 1995.
Reclassifications were made in 1997 and 1996 to reflect revised estimates of the
various components of the restructuring. Reclassifications had no effect on the
Consolidated Statement of Operations.
The remaining restructuring reserves relate principally to the Company's plans
to further integrate its sales administration organization and rearchitect its
distribution processes in the United States and Europe. While the majority of
these remaining accruals are expected to result in future cash outflows, these
outflows are not expected to have a material effect on the Company's liquidity.
The Company believes that its restructuring programs have eliminated certain
non-essential functions and excess costs. There can be no assurance, however,
that the Company's restructuring activities will be successful or sufficient to
allow the Company to continue to generate improved operating results in future
periods. It is possible that changes in the Company's business or in its
industry may necessitate restructuring charges in the future.
<PAGE> 26
Page 26
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
The Company's cash balances decreased $132.1 million from December 27, 1996, to
December 26, 1997. Cash generated from operations of $446.7 million during 1997
was more than offset by the cash used to repurchase 9.2 million of the Company's
common shares. Net purchases of property, plant and equipment of $65.9 million
and an increase in short-term investments of $48.1 million also contributed to
the decrease in cash balances during 1997. In October 1997, the Company
announced a plan to repurchase up to $800 million of its common stock through
open market purchases and privately negotiated transactions. In connection with
the plan announced in October 1997, the Company repurchased and retired 8.0
million shares of its common stock during 1997 pursuant to a privately
negotiated transaction, resulting in an initial cash outflow of $431.3 million.
The final purchase price of the common stock is subject to adjustment based on
the trading price of the common stock during a defined period. Any price
adjustment will be reflected as an adjustment to capital in excess of par value
on the Consolidated Statement of Changes in Stockholders' Equity. Repurchases of
common stock associated with the plan announced in October 1997 are expected to
be completed by the end of 1998. In February 1997, the Company announced a
program to repurchase up to 1.5 million shares of common stock on an annual
basis. As of December 26, 1997, the Company had repurchased 1.2 million shares
of common stock under this program, resulting in a total cash outflow of $53.7
million.
The Company's cash balances increased $123.9 million from December 29, 1995, to
December 27, 1996. The increase in cash balances in 1996 primarily resulted from
cash generated from operations of $464.7 million, which was offset by net
repayments of debt of $100.0 million, the repurchase of 4.5 million shares of
common stock for a purchase price of approximately $195.5 million, investments
in property, plant and equipment of $68.9 million and an increase of short-term
investments of $29.2 million. Net cash from operating activities during 1996
includes cash received from the sale of lease assets and cash payments
associated with the 1995 restructuring.
The current ratio decreased to 2.1 as of December 26, 1997, from 2.4 as of
December 27, 1996, primarily because of an increase in accounts payable and
accrued liabilities. Accounts receivable increased from $554.2 million as of
December 27, 1996, to $628.0 million as of December 26, 1997, primarily as a
result of increased sales revenue and a receivable from IBM which was collected
in January 1998. Inventories decreased from $288.6 million as of December 27,
1996, to $205.5 million as of December 26, 1997, principally as a result of a
reduction in raw materials and benefits associated with a recently implemented
finished goods inventory delivery process.
AVAILABLE FINANCING LINES
In 1997, the Company replaced its $150 million unsecured credit agreement with a
$350 million unsecured credit agreement which expires in October 2001 (the
Revolver). The credit limit available under the Revolver will be reduced by
$12.5 million on the last day of each calendar quarter beginning December 31,
1998. The interest rates under the Revolver depend on the type of advance
selected. The basic advance rate is no less than the London Interbank Offered
Rate (LIBOR) plus 0.75% (6.75% as of December 26, 1997). 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. As
of December 26, 1997, the
<PAGE> 27
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Company had issued letters of credit for approximately $25.4 million and had
approximately $324.6 million of available credit under the Revolver.
The Company has a financing agreement with a bank which provides for the sale of
promissory notes in the principal amount of up to $140 million at any one time.
The agreement, which expires in July 1999, provides for commitments by the bank
to purchase promissory notes denominated in a number of foreign currencies. The
notes must be repaid only to the extent of future revenue of the Company and
obligations under the agreement are not cancelable by the Company or the bank.
Transaction gains and losses related to the notes are deferred and recognized as
an adjustment to the revenue supporting the note repayment. The promissory
notes, together with accrued interest, are payable in U.S. dollars within 40
days from the date of issuance and bear interest at rates no less than the LIBOR
rate plus 0.35% (6.35% as of December 26, 1997). Under the terms of the
agreement, the Company is required to comply with certain covenants which
include the maintenance of a collateral account, including cash and qualifying
investments, in an amount of no less than the outstanding promissory notes. As
of December 26, 1997, the Company had no outstanding borrowings and had
committed to borrowings between January 1998 and December 1998 in the cumulative
principal amount of approximately $198.3 million.
The Company had a financing agreement with a bank which provided for the sale of
certain U.S. and foreign based accounts receivable on a recourse basis which
expired on January 31, 1998. This agreement allowed for receivable sales of up
to $40 million at any one time with the Company's obligations under the
agreement secured by a letter of credit for the amount of the receivables sold.
The selling price of the receivables was partially determined based upon foreign
currency exchange rates, and any gains or losses on the sales were recognized
within MG&A in the Consolidated Statement of Operations at the time the
receivables were sold. During 1997, the Company sold approximately $308.1
million of receivables in connection with this agreement. As of December 26,
1997, the outstanding balance associated with receivables sold on a recourse
basis, but not collected, was approximately $24.8 million. As of December 26,
1997, the Company had committed to receivable sales of approximately $39.9
million. Gains and losses associated with receivable sales did not have a
material effect on the Company's reported financial results after taking into
consideration other transactions associated with the Company's international
operations.
The Company intends to continue to commit substantial resources to research and
development projects and may, from time to time, as market and business
conditions warrant, invest in or acquire complementary businesses, products or
technologies. The Company believes it has adequate working capital and financing
capabilities to meet its anticipated operating and capital requirements for the
next 12 months. Over the longer term, the Company may choose to fund these
activities through the issuance of additional equity or debt financing. The
issuance of equity or convertible debt securities could result in dilution to
the Company's stockholders. There can be no assurance that such additional
financing, if required, can be completed on terms acceptable to the Company.
TOTAL DEBT-TO-TOTAL CAPITALIZATION
The Company's total debt-to-total capitalization ratio decreased from 12% as of
December 27, 1996, to 2% as of December 26, 1997 as a result of the conversion
of the Company's convertible debentures in 1997.
<PAGE> 28
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INTERNATIONAL OPERATIONS
During 1997, 1996 and 1995, approximately 34%, 41% and 41%, respectively, of
the Company's revenue was generated by its international operations. The
decrease in 1997 is principally because of the OEM sales of mainframe online
products to IBM, which occurred domestically in 1997. The Company's 1997
international operating income includes $40.0 million of expense associated with
the transfer of technology to a wholly-owned subsidiary in anticipation of a
future off-shore manufacturing operation. The Company expects that a significant
portion of revenue will be generated from international operations in the
future. The majority of the Company's international operations involves
transactions denominated in the local currencies of countries within Western
Europe, principally Germany, France and the United Kingdom; Japan; Canada and
Australia. An increase in the exchange value of the U.S. dollar reduces the
value of revenue and profits generated by the Company's international
operations. As a result, the Company's operating and financial results can be
materially affected by fluctuations in foreign currency exchange rates. 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. See "MARKET RISK MANAGEMENT / FOREIGN CURRENCY EXCHANGE
RISK," below.
The Company's international business may be affected by changes in demand
resulting from localized economic and market conditions. For example, in the
past, the Company's business has been adversely affected by weak economic
conditions in Europe. The Company does not currently anticipate that the
economic crisis in Asia will have a material adverse effect on the Company's
future financial results. The Company is subject to the risks of conducting
business outside the United States, including changes in, or impositions of,
legislative or regulatory requirements, tariffs, quotas, difficulty in obtaining
export licenses, potentially adverse taxes, the burdens of complying with a
variety of foreign laws and other factors outside the Company's control. There
can be no assurances that one or more of the foregoing factors will not have a
material adverse effect on the Company's business or financial results in the
future.
MARKET RISK MANAGEMENT / FOREIGN CURRENCY EXCHANGE RISK
The market risk inherent in the Company's financial instruments relates
primarily to changes in foreign currency exchange rates. To mitigate the impact
of foreign currency fluctuations, the Company seeks opportunities to reduce
exposures through financing activities and utilizes foreign currency options and
forward exchange contracts to further reduce any remaining exposures. All
foreign currency options and forward exchange contracts are authorized and
executed pursuant to the Company's policies. Foreign currency options and
forward exchange contracts that are designated as and qualify as hedging
transactions are subject to hedge accounting treatment. The Company does not
hold or issue financial instruments, foreign currency options or forward
exchange contracts for trading purposes. See Note 13 to the NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS for further discussion of the Company's
financial instruments and off-balance-sheet risks.
The Company has a financing agreement with a bank which provides for commitments
by the bank to purchase promissory notes denominated in a number of foreign
currencies. Transaction gains and losses related to the notes are deferred and
recognized as an adjustment to the revenue supporting the note repayment. See
"Available Financing Lines" above for further discussions of the financing
agreement.
<PAGE> 29
Page 29
The Company periodically utilizes foreign currency options, generally with
maturities of less than one year, to hedge a portion of its exposure to
exchange-rate fluctuations in connection with anticipated revenue from its
international operations. Gains and losses associated with the options are
deferred and recognized as an adjustment to the associated revenue at the same
time as the underlying anticipated transactions. To the extent that an option
which qualified for hedge accounting is terminated or ceases to be effective as
a hedge, any deferred gains and losses up to that point continue to be deferred
and are recognized as an adjustment to the associated 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 anticipated monetary assets and liabilities held in foreign
currencies and anticipated revenues from its international operations. The
carrying amounts of these forward foreign exchange contracts equal their fair
value as the contracts are adjusted at each balance sheet date for changes in
exchange rates. Gains and losses on the forward contracts used to hedge monetary
assets and liabilities are recognized as incurred within MG&A on the
Consolidated Statement of Operations as adjustments to the foreign exchange
gains and losses on the translation of net monetary assets. Gains and losses on
the forward contracts used to hedge anticipated revenue are recognized as
incurred as an adjustment to revenue.
A hypothetical 10% adverse movement in foreign exchange rates applied to the
Company's foreign currency exchange rate sensitive instruments held as of
December 26, 1997, would result in a hypothetical loss of approximately $26.6
million. This hypothetical loss does not take into consideration the Company's
underlying international operations. The Company anticipates that any
hypothetical loss associated with the Company's foreign currency exchange rate
sensitive instruments would be offset by gains associated with its underlying
international operations.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
NEW PRODUCTS, MARKETS AND DISTRIBUTION CHANNELS
The Company's results of operations and competitive strength depend upon its
ability to successfully develop, manufacture and market innovative new products
and product enhancements. Short product life cycles are inherent to the
high-technology market. The Company must devote significant resources to
research and product development projects and effectively manage the risks
inherent in new product transitions. Developing new technology and products is
complex and involves uncertainties. Delays in product development,
manufacturing, or in customer purchasing decisions can make product transitions
difficult. In addition, product transitions make the process of production and
inventory planning more difficult as the Company must accurately anticipate
product mix and configuration demands, and accurately forecast inventory levels.
The Company has experienced product development delays in the past that
adversely affected the Company's financial results and competitive position.
There can be no assurances that the Company will be able to successfully manage
the development and introduction of new products and product enhancements in the
future.
The Company historically has generated a significant portion of its revenue and
operating profits from mainframe products. The rate of growth in the mainframe
market has slowed as a result of customers shifting their storage requirements
from the mainframe to the client/server environment. The Company's future
financial results are significantly dependent upon successfully introducing new
products for the client/server environment. The Company
<PAGE> 30
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currently is making significant investments in research and development
activities focused on new products for the client/server markets currently
planned for introduction in 1998. The Company must also establish new
cost-effective, high-volume distribution channels for these products. There can
be no assurances that the Company will be successful in these activities.
The Company also has implemented an applications development initiative, which
is intended to develop new applications for its products. The new applications
initiative was successful in developing new markets for the Company's mainframe
Nearline products during 1997. However, there can be no assurances that the
Company's client/server products and applications development activities will
result in increased revenue and profitability during 1998.
In the fourth quarter of 1997, the Company reorganized its sales and support
field operations in North America. In Europe, the Company is implementing a
Pan-European sales and service model. These new structures are designed to align
the sales and support functions with the Company's business group model that
focuses on specific market segments. The Company believes the reorganization
will allow it to more effectively deliver information storage solutions to its
customers and achieve cost-savings. The reorganization may cause temporary
disruptions in sales and support field operations and may adversely affect the
Company's revenue and operating results.
The Company's greater dependence on indirect distribution channels, such as OEMs
and value-added resellers, will make production and inventory planning more
complex. In the event an indirect partner establishes a new relationship with a
competitor or experiences financial difficulties, the Company's operating and
financial results may be adversely affected. See "Dependence on IBM," below, for
a discussion of issues associated with the Company's distribution channels for
its mainframe online products.
DEPENDENCE ON IBM
In 1997, approximately 19% of the Company's total revenue was derived from OEM
sales of mainframe online products to IBM. The Company currently anticipates
that it will derive a significant portion of its sales revenue in 1998 from
product sales to IBM. Under the worldwide, non-exclusive OEM agreement entered
into during December 1997, IBM is not subject to any long-term volume purchase
commitments, however, IBM does receive volume-purchase discounts. IBM may
terminate the agreement under certain conditions. The Company's success under
the OEM agreement is significantly dependent upon achieving certain product
development, delivery and performance milestones. The Company's success is also
dependent upon IBM continuing to successfully market the mainframe online
products, and developing and delivering to the Company disk drives for inclusion
in the products. Because of the volume-purchase discounts included in the OEM
agreement, the Company must continue to reduce costs and expenses associated
with manufacturing the products in order to achieve the expected benefits. The
OEM relationship may also cause the Company to incur additional costs associated
with unanticipated increases or decreases in manufacturing and inventory
volumes. There can be no assurances that the Company will achieve the milestones
contained in the OEM agreement or that IBM will successfully market these
products in the future.
In December 1997, the Company and IBM agreed to a settlement with the United
States Department of Justice (DOJ) concerning the Company's OEM relationship
with IBM. The terms of the settlement are contained in a proposed consent decree
which was filed with the U.S. District Court for the District of Columbia on
December 18, 1997. The proposed consent decree will be effective upon approval
by the court. The court is expected to issue a ruling in
<PAGE> 31
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March 1998. Under the terms of the proposed consent decree, which will expire in
December 2002, the Company must develop new distribution channels for its online
products during 1998 or the Company will be subject to limitations on its sales
to IBM in the future. The Company's OEM agreement with IBM expires in December
2000 and IBM has indicated that it is currently developing a competitive online
product. Failure to develop new distribution channels for the Company's
mainframe online products could adversely affect the Company's ability to sell
its mainframe online products in future periods. See Note 8 of NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS for further information regarding the DOJ
investigation.
COMPETITION
The markets for the Company's products and services are intensely competitive.
In the mainframe market, the Company's traditional competitors include IBM, EMC,
Fujitsu and Hitachi. In an effort to increase the rate of revenue growth and
profitability, the Company has entered the client/server storage market.
Competition in the client/server market comes from the Company's traditional
rivals, in addition to companies focused on the client/server industry, such as
Sun Microsystems, Compaq and Hewlett-Packard. A number of the Company's
competitors have significantly greater market presence and financial resources
than the Company. In addition, many of the Company's potential customers in the
client/server market purchase their storage requirements as part of a packaged
server and storage product, which may provide a competitive advantage to the
Company's rivals. The Company expects to address this issue by providing
superior storage solutions that operate across multiple computer platforms and
by establishing distribution relationships with these competitors. There can be
no assurances that the Company will be able to successfully compete against
other companies in the mainframe and client/server market.
PATENTS AND LICENSES
The Company's patents and other proprietary rights are material assets and key
elements of the business and competitive strength. The Company protects its
proprietary information through a combination of patents, trademarks,
copyrights, confidentiality procedures, trade secret laws and licensing
arrangements. The Company's policy is to apply for patents, or other appropriate
proprietary or statutory protection in the United States and other selected
countries to establish its proprietary rights in new and improved technology.
There can be no assurances, however, that these arrangements will successfully
preclude competitors from developing products similar to the Company's products,
or that the Company's proprietary rights will not be challenged, invalidated, or
circumvented, or that these rights will provide significant competitive
advantages. The Company also relies on technology that is licensed from others,
such as IBM. The Company is unable to predict whether its licensing arrangements
can be renewed in the future on terms acceptable to the Company.
In order to protect and enforce its proprietary rights, from time to time the
Company has commenced legal actions against other companies. Similarly, other
companies have brought legal actions against the Company claiming infringement
of patent or other proprietary rights. Licenses or royalty arrangements are
generally offered in these situations. However, any litigation by or against the
Company, with or without merit, may result in significant expense and divert the
efforts of the Company's technical and management personnel. In the event of a
successful claim of infringement against the Company, the Company could be
required to pay substantial damages; cease the manufacture, use and sale of
infringing products; expend significant resources to develop non-infringing
technology; or discontinue the use of certain processes if the Company is unable
to enter into royalty arrangements. As a result of an
<PAGE> 32
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increasingly complex and diverse competitive environment, the Company
anticipates that the volume of proprietary rights claims will grow. There can be
no assurances that litigation will not be commenced against the Company in the
future involving patents, copyrights, trademarks or trade secrets, or that the
Company will be able to obtain any licensing, royalty or other rights on
acceptable terms. The Company currently is involved in legal proceedings
involving its proprietary rights and alleging patent infringement. See Note 8 of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for additional information with
respect to these legal proceedings.
VOLATILITY OF STOCK PRICE; EARNINGS FLUCTUATIONS
The trading price of the Company's common stock has fluctuated significantly in
the past and may fluctuate significantly in the future. Industry conditions, new
product or product development announcements by the Company or its competitors,
announced acquisitions and joint ventures by the Company or its competitors,
broad market trends unrelated to the Company's performance, changes in revenue
or earnings estimates by the investment community, global economic conditions
and foreign currency exchange rate fluctuations are among the factors that can
affect the Company's stock price. In addition, if the Company's reported
operating results are below the expectations of stock market analysts and
investors, there could be an immediate and significant adverse effect on the
trading price of the Company's common stock.
The Company's operating results have fluctuated significantly in the past and
may continue to fluctuate in the future. Fluctuations are caused by factors such
as customers' historical tendencies to make purchase decisions near the end of
the quarter, the timing of the announcement and availability of new products by
the Company and its competitors, fluctuating foreign currency exchange rates,
changes in the mix and configuration of products sold, rapid price erosion, the
purchasing patterns of the Company's OEM partners and global economic
conditions.
SOLE SOURCE SUPPLIERS
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. Certain of the Company's key
components and products are purchased from single suppliers that the Company
believes are currently the only manufacturers of the particular components that
meet the Company's qualification requirements and other specifications or for
which alternative sources of supply are not readily available. In particular, a
key component of the Company's tape drive heads is supplied by Sumitomo
Corporation on a sole source basis and the Company is dependent on IBM for disk
drives used in products manufactured for IBM under an OEM agreement. Certain of
the Company's suppliers have experienced occasional technical, financial or
other problems in the past that have delayed deliveries, but without significant
effect on the Company. An unanticipated failure of any sole source supplier to
meet the Company's requirements for an extended period, or an interruption in
the Company's ability to secure comparable components, could have a material
adverse effect on the Company's revenue and operating results. In the event a
sole source supplier was unable or unwilling to continue to supply components,
the Company would have to identify and qualify other acceptable suppliers. This
process could take an extended period, and no assurance can be given that any
additional source would become available or would be able to satisfy the
Company's production requirements on a timely basis.
<PAGE> 33
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RISKS ASSOCIATED WITH THE YEAR 2000
The Company's product lines include information storage systems and network
products which store, retrieve and transmit data. In order to properly process
data, the Company's products must manage and manipulate data that includes both
20th and 21st century dates (Year 2000 Compliant). The Company believes its
current products are Year 2000 Compliant provided they have been upgraded to
include all recommended engineering changes. There can be no assurance that the
Company's current products will be Year 2000 Compliant. In addition, the Company
does not currently intend to develop modifications to certain of its older
products to make them Year 2000 Compliant and plans to notify the affected
maintenance customers of this plan. The Company's inability to effectively
manage the year 2000 risks associated with its current and older product lines
could have material adverse effects, including increased warranty costs,
customer satisfaction issues and potential lawsuits.
The Company is currently in the process of replacing many of its internal
business and financial information systems. These systems are being replaced by
new systems which are believed to be Year 2000 Compliant. The Company is also
identifying and implementing changes to other information systems which are not
being replaced in order to make them Year 2000 Compliant. The Company
anticipates that the installation of its new information systems and changes to
its remaining information systems in order to make them Year 2000 Compliant will
be completed by the first half of 1999. The Company currently does not expect
that the year 2000 will cause operational problems or result in the Company
incurring material costs incremental to the cost of the information systems
projects currently underway. Delays in implementing these internal information
systems or a failure to fully identify all year 2000 dependencies in the
Company's internal information systems could have material adverse consequences,
including delays in the delivery or sale of the Company's products, or cause the
Company to incur increased costs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in the Index to
Consolidated Financial Statements at Item 14 of this Form 10-K are incorporated
by reference into this Item 8 of Part II of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
There have been no disagreements with the Company's independent accountants on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure or any reportable events.
<PAGE> 34
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference from the information set forth under the caption
"Proposal 1--Election of Directors" in the Company's definitive Proxy Statement
concerning the Annual Meeting of Stockholders to be held May 21, 1998 (the "1998
Proxy Statement"). The information concerning the Company's executive officers
required by this Item is incorporated by reference to the information set forth
under the caption "Executive Officers of the Registrant," in Part I of this
Annual Report on Form 10-K.
The information concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, required by this Item is incorporated by
reference to the information set forth under the caption "Compensation of
Executive Officers -- Section 16(a) Beneficial Ownership Reporting Compliance"
in the 1998 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
information under the captions "Compensation of Executive Officers" and
"Standard Arrangements for Compensation of Directors" in the 1998 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
information under the caption "Voting Securities of the Company -- Security
Ownership" in the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The information required by this Item is incorporated by reference to the
information under the captions "Standard Arrangements for Compensation of
Directors" and "Compensation of Executive Officers" in the 1998 Proxy Statement.
<PAGE> 35
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
<TABLE>
<CAPTION>
1. Financial Statements: PAGE
<S> <C>
Consolidated Balance Sheet at December 26, 1997,
and December 27, 1996 F-1
Consolidated Statement of Operations for the
Years Ended December 26, 1997, December 27, 1996,
and December 29, 1995 F-2
Consolidated Statement of Cash Flows for the
Years Ended December 26, 1997, December 27, 1996,
and December 29, 1995 F-3
Consolidated Statement of Changes in Stockholders'
Equity for the Years Ended December 26, 1997,
December 27, 1996, and December 29, 1995 F-4
Notes to Consolidated Financial Statements F-5
Report of Independent Accountants F-26
2. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts and Reserves F-27
</TABLE>
All other schedules are omitted because they are not applicable, or the required
information is included in the consolidated financial statements or notes
thereto.
<PAGE> 36
Page 36
3. Exhibits:
The exhibits listed below are filed as part of this Annual Report on Form
10-K or are incorporated by reference into this Annual Report on Form 10-K:
3.1 Restated Bylaws of Storage Technology Corporation dated July 28,
1987 (filed as Exhibit 3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 25, 1987, and as Exhibit
3.1(ii) to the Company's Quarterly Report on Form 10-Q, for the
quarter ended September 29, 1995, filed on November 13, 1995, and
incorporated herein by reference).
3.2 Certificate of Amendment dated May 22, 1989, to the Restated
Certificate of Incorporation dated July 28, 1987 (filed as Exhibit
(c)(1) to the Company's Current Report on Form 8-K dated June 2,
1989, and incorporated herein by reference).
3.3 Certificate of Second Amendment dated June 2, 1992, to the
Restated Certificate of Incorporation dated July 28, 1987 (filed
as Exhibit 3 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 26, 1992, and incorporated herein by
reference).
3.4 First Amendment dated February 2, 1988, to the Restated Bylaws of
Storage Technology Corporation, amending Section IV (filed as
Exhibit 3(c) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 25, 1987, and incorporated herein by
reference).
3.5 Second Amendment dated May 25, 1995, to the Restated Bylaws of
Storage Technology Corporation, amending Article II (filed as
Exhibit 3.3(ii) to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 29, 1995, filed on November 13, 1995,
and incorporated herein by reference).
4.1 Specimen Certificate of Common Stock, $0.10 par value of
Registrant (filed as Exhibit (c)(2) as to the Company's Current
Report on Form 8-K dated June 2, 1989, and incorporated herein by
reference).
4.2 Rights Agreement dated as of August 20, 1990, between Storage
Technology Corporation and First Fidelity Bank, N.A., New Jersey,
Rights Agent (filed as Exhibit 4.1 to the Company's Current Report
on Form 8-K dated August 20, 1990, and incorporated herein by
reference).
4.3 Certificate of Designations of Series B Junior Participating
Preferred Stock (filed as Exhibit A to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated August 8, 1990, and
incorporated herein by reference).
<PAGE> 37
Page 37
10.1(1) 1987 Employee Stock Purchase Plan, as amended (filed as part of
the Company's Registration Statement on Form S-8 filed September
8, 1994, File No. 33-42818, and incorporated herein by reference).
10.2(1) 1987 Equity Participation Plan (filed as part of the Company's
Registration Statement on Form S-8, filed December 28, 1987, File
No. 33-19426, and incorporated herein by reference).
10.3(1) Amendment to the 1987 Equity Participation Plan (filed as Exhibit
10(h) to the Company's Annual Report on Form 10-K for the fiscal
year ended December 28, 1990, File No. 1-7534, and incorporated
herein by reference).
10.4(1) 1995 Equity Participation Plan (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995, filed on August 11, 1995, and incorporated herein
by reference).
10.5(1) Storage Technology Corporation MBO Plan (filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
July 1, 1994, filed on August 12, 1994, and incorporated herein by
reference).
10.6(1) Storage Technology Corporation Amended and Restated Stock Option
Plan for Non-Employee Directors (filed as an Exhibit to the
Company's Registration Statement on Form S-8, filed September 18,
1991, File No. 33-42817, and incorporated herein by reference).
10.7(1) Employment Agreement between the Company and L. Thomas Gooch,
dated February 17, 1995 (filed as Exhibit 10.9 to the Company's
Annual Report on Form 10-K, for the fiscal year ended December
30, 1994, and incorporated herein by reference).
10.8(1) Amendment to Employment Agreement between the Company and L.
Thomas Gooch, dated December 1, 1995 (filed as Exhibit 10.11 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1995, and incorporated herein by reference).
10.9(1) Employment Agreement between the Company and W. Russell Wayman,
dated February 17, 1995 (filed as Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 30,
1994, and incorporated herein by reference).
- ---------------
(1) Contract or compensatory plan or arrangement in which directors and/or
officers participate.
<PAGE> 38
Page 38
10.11(1) Employment Agreement between the Company and John V. Williams,
dated February 17, 1995 (filed as Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 30,
1994, and incorporated herein by reference).
10.12(1) Employment and Termination Agreement dated June 26, 1997, between
the Company and John Williams (filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 27, 1997, and incorporated herein by reference).
10.13 Multicurrency Receivables Transfer Agreement dated as of January
29, 1996 (filed as Exhibit 10.21 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 29, 1995, and
incorporated herein by reference).
10.14(1) Tenth Amendment and Restatement of Storage Technology Corporation
1987 Employee Stock Purchase Plan (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
28, 1996, filed on August 12, 1996, and incorporated herein by
reference).
10.15(1) Storage Technology Corporation Amended and Restated Stock Option
Plan for Non-Employee Directors (filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
28, 1996, filed on August 12, 1996, and incorporated herein by
reference).
10.16(1) Employment Agreement between the Company and David E. Weiss, dated
June 24, 1996 (filed as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 28, 1996, filed on
August 12, 1996, and incorporated herein by reference).
10.17(1) Employment Agreement between the Company and David E. Lacey, dated
June 24, 1996 (filed as Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 28, 1996, filed on
August 12, 1996, and incorporated herein by reference).
10.18 Amendment dated July 26, 1996, to Multicurrency Receivables
Transfer Agreement dated January 29, 1996 (filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 27, 1996, filed on November 8, 1996, and
incorporated herein by reference).
10.19 Amendment dated August 26, 1996, to Multicurrency Receivables
Transfer Agreement dated January 29, 1996 (filed as Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 27, 1996, filed on November 8, 1996, and
incorporated herein by reference).
- ---------------
(1) Contract or compensatory plan or arrangement in which directors and/or
officers participate.
<PAGE> 39
Page 39
10.20(1) Storage Technology Corporation 1995 Equity Participation Plan, as
amended September 1996 (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 27,
1996, filed on November 8, 1996, and incorporated herein by
reference).
10.21(1) Storage Technology Corporation 1995 Equity Participation Plan, as
amended February 1997 (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 27, 1997,
filed on August 8, 1997, and incorporated herein by reference).
10.22 Contingent Multicurrency Note Purchase Commitment Agreement dated
as of December 12, 1996, between the Company and Bank of America
National Trust and Savings Association (filed as Exhibit 10.29 to
the Company's Annual Report on Form 10-K for the year ended
December 27, 1996, and incorporated herein by reference).
10.23(1/2)Eleventh Amendment to the Storage Technology Corporation 1987
Employee Stock Purchase Plan, as amended.
10.24(1/2)Termination Agreement between the Company and W. Russell Wayman
dated October 16, 1997.
10.25(1/2)Agreement between the Company and Gary Francis, dated
August 19, 1997.
10.26(1/2)Employment Agreement between the Company and Victor Perez, dated
February 17, 1995.
10.27 OEM Agreement between the Company and IBM dated as of June 7,
1996 (filed as Exhibit 10.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 28, 1996, and Exhibit 10.5 to
the Form 10-Q Amendment No. 1, filed on October 30, 1996, and
incorporated herein by reference).
10.28(2) OEM Agreement between the Company and International Business
Machines Corporation ("IBM") dated December 18, 1997. Concurrent
with the filing of this Annual Report on Form 10-K, the Company is
submitting to the Commission a request for confidential treatment
to omit certain information pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
- ---------------
(1) Contract or compensatory plan or arrangement in which directors and/or
officers participate.
(2) Indicates exhibits filed with this Annual Report on Form 10-K.
<PAGE> 40
Page 40
10.29(2) Credit Agreement dated as of October 23, 1997, among the Company
and Bank of America National Trust and Savings Association, as
Agent, Swingline Bank, and Letter of Credit Issuing Bank, and
the other financial institutions party thereto.
21.0(2) Subsidiaries of Registrant.
23.1(2) Consent of Price Waterhouse LLP.
24.0(2) Power of Attorney (See Page 41).
27.0(2) Financial Data Schedule.
(b) Reports on Form 8-K.
On October 29, 1997, the Company filed a Current Report on Form 8-K
regarding the Company's announcement on October 23, 1997, of a stock
repurchase program for up to $800 million of the Company's common stock,
and its announcement on October 28, 1997, that it had repurchased and
retired 8 million shares of common stock in a privately negotiated
transaction with a financial institution.
(c) Exhibits.
The Exhibits listed in Item 14(a)(3) hereof are filed as part of this
Annual Report on Form 10-K.
(d) Financial Statement Schedules.
See Item 14(a)(3) above.
- ---------------
(2) Indicates exhibits filed with this Annual Report on Form 10-K.
<PAGE> 41
Page 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 6, 1998 STORAGE TECHNOLOGY CORPORATION
By: /s/ David E. Weiss
------------------------------------
David E. Weiss
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David E. Weiss and David E. Lacey, jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this Report on Form 10-K,
and file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ David E. Weiss Chairman of the Board, March 6, 1998
- ------------------------ President and Chief
David E. Weiss Executive Officer (Principal
Executive Officer)
/s/ David E. Lacey Executive Vice President and March 6, 1998
- ------------------------ Chief Financial Officer
David E. Lacey (Principal Financial Officer)
/s/ Thomas G. Arnold Vice President and March 6, 1998
- ------------------------ Corporate Controller (Principal
Thomas G. Arnold Accounting Officer)
</TABLE>
<PAGE> 42
Page 42
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ William L. Armstrong Director March 6, 1998
- ---------------------------
William L. Armstrong
/s/ J. Harold Chandler Director March 6, 1998
- ---------------------------
J. Harold Chandler
/s/ Paul Friedman Director March 6, 1998
- ---------------------------
Paul Friedman
/s/ William R. Hoover Director March 6, 1998
- ---------------------------
William R. Hoover
/s/ Stephen J. Keane Director March 6, 1998
- ---------------------------
Stephen J. Keane
/s/ Robert E. La Blanc Director March 6, 1998
- ---------------------------
Robert E. La Blanc
/s/ Robert E. Lee Director March 6, 1998
- ---------------------------
Robert E. Lee
/s/ Harrison Shull Director March 6, 1998
- ---------------------------
Harrison Shull
/s/ Richard C. Steadman Director March 6, 1998
- ---------------------------
Richard C. Steadman
</TABLE>
<PAGE> 43
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
<TABLE>
<CAPTION>
December 26, December 27,
1997 1996
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash, including cash equivalents of $186,958 in 1997 and
$315,795 in 1996 $ 256,319 $ 388,401
Short-term investments 77,275 29,176
Accounts receivable, net of allowance for doubtful accounts
of $17,924 in 1997 and $12,907 in 1996 627,981 554,159
Inventories (Note 2) 205,461 288,615
Deferred income tax assets, net (Note 6) 102,575
---------- ----------
Total current assets 1,269,611 1,260,351
Property, plant and equipment, at cost net of accumulated
depreciation (Note 3) 305,122 327,534
Spare parts for maintenance, at cost net of accumulated
amortization of $49,739 in 1997 and $53,872 in 1996 27,523 29,625
Deferred income tax assets, net (Note 6) 37,468 122,190
Other assets 100,293 144,576
---------- ----------
$1,740,017 $1,884,276
========== ==========
LIABILITIES
Current liabilities:
Current portion of other long-term debt (Note 5) $ 3,282 $ 4,451
Accounts payable 103,483 82,949
Accrued liabilities (Note 4) 406,384 369,309
Income taxes payable (Note 6) 95,256 79,471
---------- ----------
Total current liabilities 608,405 536,180
Deferred income tax liabilities (Note 6) 16,307
Other long-term debt (Note 5) 19,109 150,806
---------- ----------
Total liabilities 627,514 703,293
---------- ----------
Commitments and contingencies (Notes 5 and 8)
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 150,000,000 shares authorized;
54,004,041 shares issued in 1997, and 58,175,120 shares
issued in 1996 5,400 5,818
Capital in excess of par value 1,161,997 1,444,939
Accumulated deficit (33,617) (265,434)
Treasury stock of 459,448 shares in 1997 and 62,514
shares in 1996 (18,874) (790)
Unearned compensation (2,403) (3,550)
---------- ----------
Total stockholders' equity 1,112,503 1,180,983
---------- ----------
$1,740,017 $1,884,276
========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-1
<PAGE> 44
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------------
December 26, December 27, December 29,
1997 1996 1995
-----------------------------------------------------
<S> <C> <C> <C>
Sales revenue $1,541,635 $1,478,685 $1,345,260
Maintenance revenue 603,021 560,865 584,225
---------- ---------- ----------
Total revenue 2,144,656 2,039,550 1,929,485
---------- ---------- ----------
Cost of sales 838,931 897,548 841,583
Cost of maintenance 332,599 295,229 376,039
---------- ---------- ----------
Total cost of revenue 1,171,530 1,192,777 1,217,622
---------- ---------- ----------
Gross profit 973,126 846,773 711,863
Research and product development costs 209,526 176,422 187,275
Marketing, general, administrative and other income
and expense, net 472,839 444,870 445,889
Restructuring and other charges (Note 7) 212,207
---------- ---------- ----------
Operating profit (loss) 290,761 225,481 (133,508)
Interest income 30,065 27,333 43,325
Interest expense (4,709) (26,122) (34,347)
---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item 316,117 226,692 (124,530)
Provision for income taxes (Note 6) (84,300) (55,900) (17,800)
---------- ---------- ----------
Income (loss) before extraordinary item 231,817 170,792 (142,330)
Extraordinary gain on sale of lease assets, net of
income taxes of $8,200 9,535
---------- ---------- ----------
Net income (loss) 231,817 180,327 (142,330)
Preferred dividend requirement (11,544)
---------- ---------- ----------
Income (loss) applicable to common shares $ 231,817 $ 180,327 $ (153,874)
========== ========== ==========
EARNINGS (LOSS) PER COMMON SHARE (Notes 1 and 10)
Basic:
Income (loss) before extraordinary item $ 3.86 $ 3.04 $ (2.91)
Extraordinary gain, net .17
---------- ---------- ----------
$ 3.86 $ 3.21 $ (2.91)
========== ========== ==========
Diluted:
Income (loss) before extraordinary item $ 3.79 $ 2.86 $ (2.91)
Extraordinary gain, net .15
---------- ---------- ----------
$ 3.79 $ 3.01 $ (2.91)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-2
<PAGE> 45
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------
December 26, December 27, December 29,
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Cash received from customers $ 2,110,587 $ 2,158,927 $ 2,036,789
Cash paid to suppliers and employees (1,615,636) (1,662,990) (1,715,669)
Interest received 29,103 26,448 53,362
Interest paid (3,640) (21,866) (30,401)
Income taxes paid, net (73,754) (35,819) (38,056)
----------- ----------- -----------
Net cash from operating activities 446,660 464,700 306,025
----------- ----------- -----------
INVESTING ACTIVITIES
Short-term investments, net (48,099) (29,176) 5,508
Purchase of property, plant and equipment, net (65,893) (68,946) (69,168)
Other assets, net 8,366 10,059 (8,842)
----------- ----------- -----------
Net cash used in investing activities (105,626) (88,063) (72,502)
----------- ----------- -----------
FINANCING ACTIVITIES
Repayments of nonrecourse borrowings and other debt, net (5,245) (100,036) (201,914)
Repurchases of common stock (Note 9) (484,996) (195,498)
Proceeds from employee stock plans 29,790 39,154 12,443
Preferred stock dividend payments (12,075)
----------- ----------- -----------
Net cash used in financing activities (460,451) (256,380) (201,546)
----------- ----------- -----------
Effect of exchange rate changes on cash (12,665) 3,642 4,444
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (132,082) 123,899 36,421
Cash and cash equivalents - beginning of the year 388,401 264,502 228,081
----------- ----------- -----------
Cash and cash equivalents - end of the year $ 256,319 $ 388,401 $ 264,502
=========== =========== ===========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
FROM OPERATING ACTIVITIES
Net income (loss) $ 231,817 $ 180,327 $ (142,330)
Depreciation and amortization expense 112,317 174,763 208,991
Translation (gain) loss 17,793 4,193 (2,910)
Restructuring and other charges (Note 7) 91,609
Other non-cash adjustments to income 32,862 16,208 40,975
Increase in accounts receivable (67,955) (143,103) (41,351)
Decrease in notes receivable and sales-type leases 246,297 149,158
Decrease in inventories 83,499 11,886 36,615
Increase in equipment held for sale or lease, net (24,080) (59,773)
Increase in spare parts, net (9,300) (9,316) (7,243)
Increase in net deferred income tax asset, net (13,635) (42,689) (22,750)
Increase (decrease) in accounts payable 22,889 (9,360) (31,699)
Increase (decrease) in accrued liabilities 20,219 (11,396) 85,102
Increase in income taxes payable 16,154 70,970 1,631
----------- ----------- -----------
Net cash from operating activities $ 446,660 $ 464,700 $ 306,025
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE> 46
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Notes
Capital in Receivable
Preferred Common Excess of Accumulated Treasury Unearned From
Stock Stock Par Value Deficit Stock Compensation Stockholders
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 30, 1994 $35 $5,252 $1,562,568 $(291,356) $ (773) $(6,150) $(4,291)
Preferred stock exchanged and
retired (3,450,000 shares) (35) (165,194)
Shares issued under stock
purchase plan, and for
exercises of options
(743,432 shares) 74 14,620
Cash dividends paid on preferred
stock ($3.50 per share) (12,075)
Net loss (142,330)
Other 9 2,557 (4) (277) 203
---- ------ ---------- --------- -------- ------- -------
Balances, December 29, 1995 0 5,335 1,414,551 (445,761) (777) (6,427) (4,088)
7% Convertible Subordinated
Debentures exchanged for stock
(7,282,536 shares) 728 168,273
8% Convertible Subordinated
Debentures exchanged for stock
(566,410 shares) 57 19,628
Shares issued under stock
purchase plan, and for
exercises of options
(1,472,312 shares) 147 37,555
Repurchases of common stock
(4,500,000 shares) (450) (195,048)
Net income 180,327
Other 1 (20) (13) 2,877 4,088
---- ------ ---------- --------- -------- ------- -------
Balances, December 27, 1996 0 5,818 1,444,939 (265,434) (790) (3,550) 0
8% Convertible Subordinated
Debentures exchanged for stock
(3,553,204 shares) 355 123,560
Shares issued under stock
purchase plan, and for
exercises of options (1,073,394
shares, including 553,270
shares issued from treasury) 52 37,409 22,681
Repurchases of common stock
(9,174,500 shares) (Note 9) (823) (443,447) (40,726)
Net income 231,817
Other (2) (464) (39) 1,147
---- ------ ---------- --------- -------- ------- -------
Balances, December 26, 1997 $ 0 $5,400 $1,161,997 $ (33,617) $(18,874) $(2,403) $ 0
==== ====== ========== ========= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE> 47
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Storage Technology Corporation and its wholly owned subsidiaries (collectively
hereinafter referred to as StorageTek or the Company). All intercompany
accounts and transactions have been eliminated in consolidation.
NATURE OF OPERATIONS
StorageTek designs, manufactures, markets and maintains information storage and
network product solutions for end-user customers, original equipment
manufacturers (OEMs), and value-added resellers. The principal markets for the
Company's products and services are located in the United States and Europe.
SIGNIFICANT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities as of the date of the financial statements,
and the reported amounts of revenue and expenses during the periods.
Significant estimates have been made by management in several areas including
the possible outcome of outstanding litigation (see Note 8), the realizability
of the Company's deferred tax assets (see Note 6), and future obligations
associated with the Company's 1995 restructuring (see Note 7). Actual results
could differ materially from these estimates making it reasonably possible that
a change in these estimates could occur in the near term.
REVENUE RECOGNITION
Revenue from end-user equipment sales, and associated software licenses, is
recognized at the time of acceptance by the customer, generally after
installation at a customer site. Revenue from OEMs and value-added resellers
is generally recognized at the time of shipment. Costs associated with
post-installation warranty obligations are estimated and accrued at the time of
revenue recognition.
StorageTek customers generally contract with the Company for equipment
maintenance, which includes normal maintenance, repair or replacement of
product components, and software support. Maintenance revenue is recognized as
earned and the associated costs are expensed as incurred.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents are short-term, highly liquid investments that are both
readily convertible to cash and have original maturities of three months or
less at the time of acquisition. The carrying value of the Company's cash
equivalents approximates fair value. Investments that do not qualify as cash
equivalents are classified as short-term investments. Short-term
F-5
<PAGE> 48
investments are principally comprised of commercial paper and are recorded at
cost plus accrued interest, which approximates fair value.
CAPITALIZED SOFTWARE COSTS
The Company capitalized costs associated with acquiring and developing software
products to be marketed to customers of $616,000 in 1997, $510,000 in 1996, and
$25,463,000 in 1995. Other assets as shown on the Consolidated Balance Sheet
include unamortized software costs of $13,907,000 as of December 26, 1997, and
$33,988,000 as of December 27, 1996. Amortization expense is recognized over
the estimated useful lives of the related products, generally four years.
Amortization expense and write-offs associated with capitalized software costs
were $20,697,000 in 1997, $20,556,000 in 1996, and $26,627,000 in 1995. The
Company evaluates the realizability of the carrying value of the capitalized
software based upon estimates of the associated future revenue.
DEPRECIATION AND GOODWILL AMORTIZATION
Depreciation of property, plant and equipment is computed using the
straight-line method over the estimated useful lives of the related assets.
Other assets as shown on the Consolidated Balance Sheet include unamortized
goodwill of $23,200,000 as of December 26, 1997, and $32,226,000 as of December
27, 1996. Amortization of goodwill is calculated on a straight-line basis over
a period not exceeding 10 years. The Company evaluates the realizability of
the carrying value of goodwill based upon estimated future cash flows
calculated on an undiscounted basis.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency for StorageTek's foreign subsidiaries is the U.S.
dollar, reflecting the significant volume of intercompany transactions and
associated cash flows that result from the fact that the majority of the
Company's products sold worldwide are manufactured in the United States.
Accordingly, monetary assets and liabilities are translated at year-end
exchange rates, while non-monetary items are translated at historical exchange
rates. Revenue and expenses are translated at the average exchange rates in
effect during the year, except for cost of sales and depreciation, which are
translated at historical exchange rates. See Note 13 for information with
respect to the Company's accounting policies for financial instruments utilized
in its foreign currency hedging program.
STOCK-BASED COMPENSATION PLANS
Stock-based compensation plans are accounted for using the intrinsic value
method prescribed in Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees."
EARNINGS (LOSS) PER COMMON SHARE
Effective for the year ended December 26, 1997, earnings (loss) per common
share (EPS) is computed using Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share." SFAS No. 128 establishes standards for
computing and presenting EPS and supersedes all prior EPS guidance found in APB
Opinion 15. Basic EPS is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted EPS reflects the potential dilution that
F-6
<PAGE> 49
could occur if securities or other contracts to issue common stock were
exercised or converted into common shares. All prior periods have been
restated to conform with SFAS No. 128.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130, which is effective for all
periods beginning after December 15, 1997, establishes standards for reporting
and displaying comprehensive income and its components with the same prominence
as other financial statements. All prior periods must be restated to conform
with the provisions of SFAS No. 130. The Company will adopt SFAS No. 130
during the first quarter of 1998, but does not expect the new accounting
standard to have a material effect on the Company's reported financial results.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131, which is effective for
fiscal years beginning after December 15, 1997, establishes new disclosure
requirements for operating segments, including products, services, geographic
areas, and major customers. The Company will adopt SFAS No. 131 for the 1998
fiscal year, but does not expect the new accounting standard to have a material
effect on the Company's reported financial results.
In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 97-2, "Software Revenue Recognition," which
provides guidance on recognizing revenue on software transactions. SOP 97-2 is
effective for transactions in fiscal years beginning after December 15, 1997.
The Company does not expect the SOP to have a material effect on its reported
financial results.
NOTE 2 - INVENTORIES
Inventories include material, labor and factory overhead and are accounted for
at the lower of cost (first-in, first-out method) or market. The Company
evaluates the need for reserves associated with obsolete, slow-moving and
nonsalable inventory by reviewing net realizable values on a quarterly basis.
The components of inventories, net of the associated reserves, are as follows
(in thousands of dollars):
<TABLE>
<CAPTION>
December 26, December 27,
1997 1996
---------------------------------------
<S> <C> <C>
Raw materials $ 32,607 $ 76,152
Work-in-process 57,235 78,834
Finished goods 115,619 133,629
--------- ---------
$ 205,461 $ 288,615
========= =========
</TABLE>
F-7
<PAGE> 50
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
December 26, December 27,
1997 1996
--------------------------------------
<S> <C> <C>
Machinery and equipment $ 617,956 $ 640,932
Buildings and building improvements 158,395 169,327
Land and land improvements 18,502 18,863
--------- ---------
794,853 829,122
Less: Accumulated depreciation (489,731) (501,588)
--------- ---------
$ 305,122 $ 327,534
========= =========
</TABLE>
Machinery and equipment includes capitalized leases of $26,886,000 as of
December 26, 1997, and $34,940,000 as of December 27, 1996. Accumulated
depreciation includes accumulated amortization on capitalized leases of
$10,076,000 as of December 26, 1997, and $12,228,000 as of December 27, 1996.
NOTE 4 - ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
December 26, December 27,
1997 1996
--------------------------------------
<S> <C> <C>
Deferred revenue $ 97,654 $ 66,813
Accrued payroll 32,359 22,922
Restructuring costs (see Note 7) 27,292 33,609
Other 249,079 245,965
--------- ---------
$ 406,384 $ 369,309
========= =========
</TABLE>
Other accrued liabilities consists of items that are individually immaterial.
NOTE 5 - DEBT, FINANCING ARRANGEMENTS AND LEASE OBLIGATIONS
Long-term debt, including capitalized lease obligations, consists of the
following (in thousands of dollars):
<TABLE>
<CAPTION>
December 26, December 27,
1997 1996
--------------------------------------
<S> <C> <C>
8% Convertible Subordinated Debentures due 2015 $125,677
Capitalized lease obligations $ 21,159 27,420
Other 1,232 2,160
--------- --------
22,391 155,257
Less: Current portion (3,282) (4,451)
--------- --------
$ 19,109 $150,806
========= ========
</TABLE>
In December 1996, the Company called for redemption on January 13, 1997, all
outstanding 8% Convertible Subordinated Debentures due 2015 (8% Convertible
Debentures). During
F-8
<PAGE> 51
January 1997, 8% Convertible Debentures in the principal amount of $125,258,000
were converted at a price of $35.25 per share into 3,553,204 shares of common
stock. The remaining 8% Convertible Debentures were redeemed for cash.
FINANCING ARRANGEMENTS
In 1997, the Company replaced its $150,000,000 unsecured credit agreement with
a $350,000,000 unsecured credit agreement which expires in October 2001 (the
Revolver). The credit limit available under the Revolver will be reduced by
$12,500,000 on the last day of each calendar quarter beginning December 31,
1998. The interest rates under the Revolver depend on the type of advance
selected. The basic advance rate is no less than the London Interbank Offered
Rate (LIBOR) plus 0.75% (6.75% as of December 26, 1997). 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.
As of December 26, 1997, the Company had issued letters of credit for
approximately $25,363,000 and had approximately $324,637,000 of available
credit under the Revolver.
The Company has a financing agreement with a bank which provides for the sale
of promissory notes in the principal amount of up to $140,000,000 at any one
time. The agreement, which expires in July 1999, provides for commitments by
the bank to purchase promissory notes denominated in a number of foreign
currencies. The notes must be repaid only to the extent of future revenue of
the Company and obligations under the agreement are not cancelable by the
Company or the bank. Transaction gains and losses related to the notes are
deferred and recognized as an adjustment to the revenue supporting the note
repayment. The promissory notes, together with accrued interest, are payable
in U.S. dollars within 40 days from the date of issuance and bear interest at
rates no less than the LIBOR rate plus 0.35% (6.35% as of December 26, 1997).
Under the terms of the agreement, the Company is required to comply with
certain covenants which include the maintenance of a collateral account,
including cash and qualifying investments, in an amount of no less than the
outstanding promissory notes. As of December 26, 1997, the Company had no
outstanding borrowings and had committed to borrowings between January 1998 and
December 1998 in the cumulative principal amount of approximately $198,326,000.
The Company had a financing agreement with a bank which provided for the sale
of certain U.S. and foreign based accounts receivable on a recourse basis which
expired on January 31, 1998. This agreement allowed for receivable sales of up
to $40,000,000 at any one time with the Company's obligations under the
agreement secured by a letter of credit for the amount of the receivables sold.
The selling price of the receivables was partially determined based upon
foreign currency exchange rates, and any gains or losses on the sales were
recognized within marketing, general, administrative and other income and
expense, net (MG&A) in the Consolidated Statement of Operations at the time the
receivables were sold. During 1997, the Company sold approximately
$308,118,000 of receivables in connection with this agreement. As of December
26, 1997, the outstanding balance associated with receivables sold on a
recourse basis, but not collected, was approximately $24,780,000. As of
December 26, 1997, the Company had committed to receivable sales of
approximately $39,885,000. Gains and losses associated with receivable sales
did not have a material effect on the Company's reported financial results
after taking into consideration other transactions associated with the
Company's international operations.
F-9
<PAGE> 52
SCHEDULED DEBT MATURITIES
Scheduled maturities of debt as of December 26, 1997, are as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
Capitalized Other Total Debt
Leases Debt Commitments
---------------------------------------------
<S> <C> <C> <C>
1998 $ 5,332 $ 441 $ 5,773
1999 3,538 520 4,058
2000 2,443 124 2,567
2001 2,108 134 2,242
2002 1,709 13 1,722
Thereafter 17,090 17,090
--------- ---------- ---------
32,220 $ 1,232 $ 33,452
========== =========
Less: Amount representing interest (11,061)
---------
Present value of capitalized lease
obligations (including $2,841
classified as current) $ 21,159
=========
</TABLE>
OPERATING LEASE OBLIGATIONS
StorageTek has operating leases in effect for certain buildings, sales offices,
and machinery and equipment. Rent expense was $41,200,000 in 1997; $41,144,000
in 1996; and $50,643,000 in 1995. Future minimum rental commitments required
under all noncancellable operating leases with terms of one year or more as of
December 26, 1997, were as follows: $33,013,000 in 1998; $23,945,000 in 1999;
$16,798,000 in 2000; $11,326,000 in 2001; $7,425,000 in 2002; and $22,461,000
thereafter.
NOTE 6 - INCOME TAXES
Income (loss) before income taxes and extraordinary item consists of the
following (in thousands of dollars):
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------
December 26, December 27, December 29,
1997 1996 1995
-------------------------------------------------------------
<S> <C> <C> <C>
United States $ 339,346 $220,495 $ (98,450)
International (23,229) 6,197 (26,080)
--------- -------- ---------
$ 316,117 $226,692 $(124,530)
========= ======== =========
</TABLE>
F-10
<PAGE> 53
The provision for income taxes attributable to the amounts shown above consists
of the following (in thousands of dollars):
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------
December 26, December 27, December 29,
1997 1996 1995
-------------------------------------------------------------
<S> <C> <C> <C>
Current tax provision:
U.S. federal $102,900 $ 44,400 $ 11,900
International 5,700 38,800 14,200
State 10,600 15,100 11,900
-------- -------- --------
119,200 98,300 38,000
-------- -------- --------
Deferred tax provision (benefit):
U.S. federal (32,400) (31,300) (12,100)
International 7,500 (11,200) (7,300)
State (10,000) 100 (800)
-------- -------- --------
(34,900) (42,400) (20,200)
-------- -------- --------
$ 84,300 $ 55,900 $ 17,800
======== ======== ========
</TABLE>
The provision for income taxes attributable to income (loss) before income
taxes and extraordinary item includes benefits of $5,590,000 in 1997;
$53,900,000 in 1996; and $4,098,000 in 1995 from the utilization of net
operating loss carryforwards. Benefits from the Company's Grant of Industrial
Tax Exemption issued by the Commonwealth of Puerto Rico (Tax Grant) included
reduced tax rates and, through 1995, included the ability to utilize U.S. net
operating losses to further reduce Puerto Rico tax liabilities. The Tax Grant
provision allowing reduced tax rates expires in 2007.
The deferred income tax balances on the Consolidated Balance Sheet consist of
the following (in thousands of dollars):
<TABLE>
<CAPTION>
December 26, December 27,
1997 1996
------------------------------------------
<S> <C> <C>
Deferred income tax assets, net
of valuation allowance:
Current $102,575
Non-current 37,468 $122,190
Deferred income tax liabilities (16,307)
-------- --------
Net deferred income tax asset $140,043 $105,883
======== ========
</TABLE>
F-11
<PAGE> 54
The Company's net deferred income tax asset consists of the following (in
thousands of dollars):
<TABLE>
<CAPTION>
December 26, December 27,
1997 1996
---------------------------------------------
<S> <C> <C>
Gross deferred income tax assets:
Net operating loss carryforwards $ 17,226 $ 15,482
Tax credit carryforwards 15,865 37,205
Restructuring accruals 6,150 9,939
Other accrued liabilities and reserves 52,356 56,265
Capitalized inventory costs 31,941 47,103
Deferred intercompany profit 15,183 12,172
Other 29,907 45,424
-------- ---------
168,628 223,590
Less: Valuation allowance (22,512) (100,523)
-------- ---------
146,116 123,067
-------- ---------
Gross deferred income tax liabilities:
Depreciation (11,148)
Other (6,073) (6,036)
-------- ---------
(6,073) (17,184)
-------- ---------
Net deferred income tax asset $140,043 $ 105,883
======== =========
</TABLE>
The net change in the valuation allowance for deferred income tax assets was a
decrease of $78,011,000 and $88,960,000 in 1997 and 1996, respectively. The
valuation allowance relates primarily to net deductible temporary differences,
tax credit carryforwards and net operating loss carryforwards. 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, "Accounting for Income
Taxes," including the Company's earnings history, the number of years the
Company's operating loss and tax credits can be carried forward, the existence
of taxable temporary differences, near-term earnings expectations and the
highly competitive nature of the high-technology market. StorageTek is also
subject to alternative minimum tax and had approximately $14,700,000 of
alternative minimum tax credit carryforwards available as of December 26, 1997.
Although realization is not assured, management believes it is more likely than
not that all of the net deferred income tax asset will be realized.
StorageTek has not provided for income taxes on the cumulative undistributed
earnings of its foreign subsidiaries to the extent they are considered to be
reinvested indefinitely (approximately $27,200,000 as of December 26, 1997).
It is not currently practicable to estimate the tax liability that might be
payable on the foreign earnings.
F-12
<PAGE> 55
The provision for income taxes differs from the amount computed by applying the
U.S. federal income tax rate of 35% to income (loss) before income taxes and
extraordinary item for the following reasons (in thousands of dollars):
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------------
December 26, December 27, December 29,
1997 1996 1995
---------------------------------------------------
<S> <C> <C> <C>
U.S. federal income tax at statutory rate $110,641 $ 79,342 $(43,586)
Increase (decrease) in income taxes
resulting from:
(Recognized) unrecognized net operating
losses, future deductions and credits (56,753) (72,755) 39,209
Foreign tax rate and exchange rate
differentials 17,340 29,325 9,989
Nondeductible items 7,095 4,644 13,362
State income taxes, net of federal benefits 9,867 13,545 2,467
Effect of Puerto Rico operations (4,530) 5,190 (4,075)
Other, net 640 (3,391) 434
-------- -------- --------
Income tax expense attributable to
income (loss) before extraordinary item $ 84,300 $ 55,900 $ 17,800
======== ======== ========
</TABLE>
The Internal Revenue Service is currently auditing the Company's federal income
tax returns for 1992 through 1994.
NOTE 7 - RESTRUCTURING AND OTHER CHARGES
Restructuring and other charges for the year ended December 29, 1995, consisted
of the following (in thousands of dollars):
<TABLE>
<S> <C>
Restructuring charges $167,175
Litigation settlement 30,680
Merger and consolidation charges 14,352
--------
$212,207
========
</TABLE>
Litigation settlement charges relate to a shareholder class action and
derivative litigation, which was settled with the Company agreeing to pay
$30,680,000 without admitting any wrongdoing. Merger and consolidation charges
in the amount of $14,352,000 were recognized in connection with the merger with
Network Systems Corporation.
F-13
<PAGE> 56
The following table summarizes the activity in the Company's restructuring
reserves (in thousands of dollars):
<TABLE>
<CAPTION>
Employee Asset Lease Other
Severance Writedowns Abandonments Exit Costs Total
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, December 30, 1994 $ 3,036 $ 0 $ 5,782 $ 3,612 $ 12,430
Restructuring charges 49,265 91,609 16,660 9,641 167,175
Cash payments (9,613) (3,904) (3,081) (16,598)
Asset writedowns (91,609) (91,609)
-------- -------- ------- ------- --------
Balances, December 29, 1995 42,688 0 18,538 10,172 71,398
Cash payments (26,837) (2,907) (9,414) (39,158)
Reclassifications 301 (154) 1,222 1,369
-------- -------- ------- ------- --------
Balances, December 27, 1996 16,152 0 15,477 1,980 33,609
Cash payments (6,718) (1,550) (577) (8,845)
Reclassifications 5,560 (1,858) (1,174) 2,528
-------- -------- ------- ------- --------
Balances, December 26, 1997 $ 14,994 $ 0 $12,069 $ 229 $ 27,292
======== ======== ======= ======= ========
</TABLE>
RESTRUCTURING
During the fourth quarter of 1995, the Company recorded a restructuring charge
of $167,175,000 related to the adoption by the Company of a formal action plan
for restructuring its enterprise and network businesses. The restructuring was
adopted in an effort to establish a more cost-efficient business structure in
response to competition. Elements of the Company's restructuring plan include
focusing on core businesses and outsourcing non-strategic activities,
rearchitecting its distribution processes and channels, and accelerating the
integration of Network Systems Corporation.
Asset writedowns incurred in connection with the restructuring included a
charge of approximately $21,310,000 associated with the planned disposal of
excess spare parts in connection with the consolidation of maintenance depots;
a charge of approximately $19,600,000 primarily associated with the writedown
of manufacturing equipment which will be scrapped or sold; a charge of
approximately $18,484,000 associated with goodwill and other investment
writedowns on business activities which are being discontinued; a charge of
approximately $16,361,000 associated with the shutdown of manufacturing and
research facilities; a charge of approximately $10,758,000 associated with
excess and obsolete inventories resulting from the decision to discontinue
various product lines; and a charge of approximately $5,096,000 associated with
other asset writedowns resulting from discontinued business activities.
Charges of approximately $16,660,000 were incurred in connection with the
abandonment of real estate leases. Other exit costs of approximately
$9,641,000 were incurred primarily as a result of equipment lease terminations
and the discontinuation of engineering support agreements.
F-14
<PAGE> 57
Reclassifications were made in 1997 and 1996 to reflect revised estimates of
the various components of the restructuring. These reclassifications had no
effect on the Consolidated Statement of Operations.
NOTE 8 - LITIGATION
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 alleged that the Company breached a
1990 settlement agreement that had resolved earlier litigation between the
parties. The suit sought injunctive relief and damages in the amount of
$2,400,000,000. On December 28, 1995, the court dismissed the complaint.
Stuff appealed the dismissal to the Colorado Court of Appeals. In April 1996,
the trial court stayed discovery on the Company's counterclaim for breach of
the covenant not to sue pending resolution of the appeal. In March 1997, the
Court of Appeals reversed the District Court's judgment and remanded the case
to the District Court for further proceedings. In December 1997, the Colorado
Supreme Court rejected the Company's petition seeking a reversal of this
decision. A new trial date has not been set.
On February 15, 1994, the Company filed suit in Boulder County, Colorado,
District Court against Array Technology Corporation (Array) and Tandem
Computers Incorporated (Tandem). The suit asked that the court order Array and
Tandem to either support certain disk drives purchased from them or provide the
Company with technical data necessary for StorageTek to provide such customer
support. In March 1994, Array and Tandem filed their answer and also filed
counterclaims against the Company alleging breach of contract and claiming
damages. On November 20, 1997, a jury determined in favor of the Company and
awarded it approximately $68,000,000 in damages. Array and Tandem were awarded
approximately $8,100,000 for amounts owed by StorageTek for inventory
purchases. On January 13, 1998, the parties filed a motion for dismissal to
settle all outstanding claims.
On June 29, 1995, Odetics, Inc. (Odetics) filed a patent infringement suit in
the U.S. District Court for the Eastern District of Virginia against the
Company and two of its customers alleging that the "pass-through" port in
certain of the Company's tape library products infringed U.S. Patent No.
4,779,151 (the "151 Patent"). The complaint asked the court to impose
injunctive relief, treble damages in an unspecified amount, and an award of
attorneys fees and costs. In February 1996, a jury found that the Company's
products did not infringe the 151 Patent. Odetics appealed and in June 1997,
the U.S. Court of Appeals for the Federal Circuit reversed the District Court's
ruling and remanded the case back to the District Court for further
proceedings. A new trial is scheduled to commence in March 1998.
On December 8, 1995, Odetics filed a second patent infringement suit in the
U.S. District Court for the Eastern District of Virginia against the Company.
The complaint alleges that the "cartridge access port" in certain of the
Company's tape library products also infringes the 151 Patent. The complaint
seeks injunctive relief, treble damages in an unspecified amount, and an award
of attorneys fees and costs. This case has been stayed pending the outcome of
the case filed by Odetics on June 29, 1995, which is described above.
On July 30, 1996, the Company received Civil Investigative Demands (CIDs) from
the U.S. Department of Justice Antitrust Division concerning the OEM agreement
with IBM for mainframe online storage subsystems. The Company received
additional CIDs in 1996 and
F-15
<PAGE> 58
1997. The CIDs requested production of documents and testimony in connection
with a review of the agreement for compliance with the Sherman Act. On
December 18, 1997, the DOJ filed a complaint and a proposed settlement with
the U.S. District Court for the District of Columbia. The proposed settlement
is set forth in a proposed consent decree, which will be effective upon
approval by the Court. The Court is expected to issue a ruling in March 1998.
On October 3, 1995, certain former employees of the Company filed suit in the
U.S. District Court for the District of Colorado against the Company. The
amended suit alleges violations of the Age Discrimination in Employment Act
(ADEA) and the Employee Retirement Income Security Act (ERISA) between the
period of April 13, 1993 and December 31, 1996. On November 26, 1997, the Court
granted the plaintiffs' request to proceed as a collective action on the ADEA
claims and denied the plaintiffs' request to proceed as a class on the ERISA
claims. The plaintiffs seek, among other things, compensatory damages in an
unspecified amount, including the value of back pay and benefits; reinstatement
as employees or alternatively the value of future earnings and benefits; and
exemplary or liquidated damages. The Company has filed an answer denying both
the ADEA and ERISA claims. This case is in the discovery phase.
The Company believes it has adequate legal defenses with respect to each of the
actions cited above and intends to vigorously defend against these actions.
However, it is reasonably possible that these actions could result in outcomes
unfavorable to the Company. The Company is also involved in various other less
significant legal actions. While the Company currently believes that the
amount of the ultimate potential loss would not be material to the Company's
financial position, the outcome of these actions is inherently difficult to
predict. In the event of an adverse outcome, the ultimate potential loss could
have a material adverse effect on the Company's financial position or reported
results of operations in a particular quarter. An unfavorable decision,
particularly in patent litigation, could require material changes in production
processes and products or result in the Company's inability to ship products or
components found to have violated third-party patent rights.
NOTE 9 - REPURCHASE OF COMMON STOCK
In October 1997, the Company announced a plan to repurchase up to $800,000,000
of its common stock through open market purchases and privately negotiated
transactions to enhance shareholder value. The repurchases are expected to be
completed by the end of fiscal year 1998. In connection with the plan
announced in October 1997, the Company repurchased and retired 8,000,000 shares
of its common stock in October 1997 for an initial purchase price of
$431,262,000 through a privately negotiated transaction. The final purchase
price of the common stock is subject to adjustment based on the trading price
of the common stock during a defined period. Any price adjustment will be
reflected as an adjustment to capital in excess of par value on the
Consolidated Statement of Changes in Stockholders' Equity.
In February 1997, the Company announced a program to repurchase up to 1,500,000
shares of common stock on an annual basis. The intent of the repurchase
program is to offset dilution associated with the Company's stock purchase and
stock option plans. As of December 26, 1997, the Company had repurchased
1,174,500 shares of common stock at a cost of $53,734,000 under this program.
F-16
<PAGE> 59
NOTE 10 - EARNINGS (LOSS) PER COMMON SHARE
Effective for the year ended December 26, 1997, earnings (loss) per common share
(EPS) is computed using SFAS No. 128, "Earnings Per Share." All prior periods
have been restated to conform with SFAS No. 128. The following is a
reconciliation between the basic and diluted earnings per common share for
income (loss) before income taxes and extraordinary item as calculated under
SFAS No. 128 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
For the Year Ended
---------------------------------------------------------------------------------------
December 26, 1997 December 27, 1996 December 29, 1995
------------------------- ------------------------- ------------------------------
Income EPS Shares Income EPS Shares Loss EPS Shares
-------- ----- ------ -------- ----- ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
extraordinary item $231,817 $170,792 $(142,330)
Preferred dividend
requirement (11,544)
-------- ------ -------- ------ --------- ------
Basic EPS $231,817 $3.86 60,132 $170,792 $3.04 56,160 $(153,874) $(2.91) 52,798
Effects of dilutive
securities:
Common stock
equivalents 980 925
8% Convertible
Debentures 255 145 9,773 4,120
7% Convertible
Debentures 5,277 3,750
-------- ------ -------- ------ --------- ------
Diluted EPS $232,072 $3.79 61,257 $185,842 $2.86 64,955 $(153,874) $(2.91) 52,798
======== ====== ======== ====== ========= ======
</TABLE>
Options to purchase 656,078 shares of common stock were outstanding at December
26, 1997, but not included in the computation of Diluted EPS, because the
options' exercise price exceeded the average market price of the Company's
common stock during 1997.
NOTE 11 - EMPLOYEE BENEFIT PLANS AND OPTIONS
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's 1987 Employee Stock Purchase Plan (Purchase Plan), as
amended, employees may be offered the option to collectively purchase a maximum
of 300,000 shares of StorageTek's common stock, plus any remaining shares from
earlier offering periods, in consecutive six-month offering periods. As of
December 26, 1997, the Company had an aggregate of 1,126,564 common shares
reserved for issuance under the Purchase Plan. Eligible employees may
contribute up to 10% of their pay toward the purchase of StorageTek common
stock at a price equal to 85% of the lower of the fair market price on the
first or the last day of each offering period. Proceeds received from the
issuance of shares are credited to stockholders' equity in the fiscal year the
shares are issued. Under the Purchase Plan, the Company issued 468,997,
558,750 and 622,810 shares of StorageTek common stock in 1997, 1996 and 1995,
respectively. The weighted average fair market value of grants made under the
Purchase Plan are estimated as $10.63, $9.35 and $5.55 per share during 1997,
1996 and 1995, respectively, using the Black-Scholes option pricing model with
the following weighted average assumptions: dividend yield of 0%; volatility of
36.40% in 1997, 37.60% in 1996 and 37.84% in 1995; risk-free interest rate of
5.65% in 1997, 5.68% in 1996 and 5.84% in 1995; and an expected life of 0.5
years.
F-17
<PAGE> 60
STOCK OPTION AND RESTRICTED STOCK PLANS
As of December 26, 1997, the Company had an aggregate of 4,994,265 common
shares reserved for issuance under its equity plans (Equity Plans). These
plans provide for the issuance of common shares pursuant to stock option
exercises, restricted stock awards and other equity based awards. There were
2,547,427 shares available for grant under the Equity Plans as of December 26,
1997.
Stock options are granted under the Equity Plans at the fair market value of
the common stock on the date of grant and generally vest over a period of
between three and six years. Options granted under the Equity Plans have a
maximum term of 10 years from the date of grant.
Restricted stock awards of the Company's common stock are made pursuant to its
Equity Plans at a purchase price per share equal to par value. Unearned
compensation, which is determined as the difference between par value and
fair market value of the Company's common stock on the date of the award, is
charged to stockholders' equity and amortized to expense over the vesting
period of the stock. A total of 1,519 shares of restricted stock with a
weighted average grant-date fair value of $49.30 per share using the
Black-Scholes option pricing model were awarded during 1997. No restricted
stock shares were awarded during 1996. A total of 70,237 shares of restricted
stock with a weighted average grant-date fair value of $25.92 per share using
the Black-Scholes option pricing model were awarded during 1995. Total
compensation expense recognized in the Consolidated Statement of Operations for
restricted stock awards was $592,012, $2,057,378 and $538,570 during 1997, 1996
and 1995, respectively. A total of 160,381 shares of restricted stock were
outstanding as of December 26, 1997.
The Company also has a Nonemployee Director Stock Option Plan (Director Plan)
under which the Company grants stock options to nonemployee directors for the
purchase of an aggregate maximum of 530,000 shares of common stock. Stock
options are granted at the fair market value of the common stock on the date of
grant. There were 368,286 shares reserved for issuance and 71,334 shares
available for grant under the Director Plan as of December 26, 1997.
F-18
<PAGE> 61
The following summarizes information with respect to options granted under the
Company's Equity and Director Plans:
<TABLE>
<CAPTION>
Weighted Average
Exercise Price of
Number of Shares Shares Under Plans
------------------------------------
<S> <C> <C>
Outstanding, December 30, 1994 2,912,019 $29.36
Granted 1,665,591 25.84
Exercised (162,363) 20.53
Forfeited or expired (1,004,204) 33.73
---------- ------
Outstanding, December 29, 1995 3,411,043 26.77
Granted 618,725 41.62
Exercised (913,562) 26.00
Forfeited or expired (325,378) 31.16
---------- ------
Outstanding, December 27, 1996 2,790,828 29.81
Granted 689,497 46.67
Exercised (604,397) 27.26
Forfeited or expired (132,138) 29.64
---------- ------
Outstanding, December 26, 1997 2,743,790 $34.61
========== ======
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options as of December 26, 1997:
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life in Years Price Exercisable Price
--------- ----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 0 - $20 155,404 3.23 $15.94 155,404 $15.94
20 - 30 1,243,677 7.10 26.71 801,842 26.34
30 - 45 606,989 8.47 37.35 155,655 34.90
45 - 76 737,720 9.29 49.62 80,978 49.30
--------- ---------
2,743,790 1,193,879
========= =========
</TABLE>
EMPLOYEE PROFIT SHARING AND THRIFT PLAN
StorageTek has a Profit Sharing and Thrift Plan whereby participants may
contribute a percentage of compensation, but not in excess of the maximum
allowed under the Internal Revenue Code. Effective January 1, 1996, the plan
provides for a matching contribution by the Company equal to 50% of the
participant's contribution for each pay period, up to a maximum of 3% of the
participant's base compensation for the pay period. The Company's matching
contribution was $7,772,000 and $7,463,000 for the years 1997 and 1996,
respectively. Company contributions in excess of the matching contribution are
contingent upon realization of profits by the Company which, at the sole
discretion of the Board of Directors, are adequate to justify a corporate
contribution. The Board authorized additional contributions of $11,100,000 in
1997, $5,550,000 in 1996 and $3,000,000 in 1995.
F-19
<PAGE> 62
SFAS NO. 123
The Company applies the intrinsic value method set forth in APB No. 25 in
accounting for its stock-based compensation plans. Net income and earnings per
share as reported and as calculated pursuant to SFAS No. 123 to reflect the
fair value method of accounting for stock-based compensation plans were as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------------
December 26, December 27, December 29,
1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
Net income(loss): As reported $231,817 $180,327 $(142,330)
SFAS 123 221,976 169,703 (147,036)
Basic earnings per share: (a) As reported $ 3.86 $ 3.21 $ (2.91)
SFAS 123 3.69 3.02 (2.78)
Diluted earnings per share: (a) As reported $ 3.79 $ 3.01 $ (2.91)
SFAS 123 3.65 2.64 (2.78)
</TABLE>
(a) Earnings per share data for years 1996 and 1995 has been restated to
conform with SFAS No. 128, "Earnings Per Share."
The estimated weighted average fair value of options granted during 1997, 1996
and 1995 were $19.77, $21.91 and $13.29 per option, respectively, using the
Black-Scholes option pricing model with the following weighted average
assumptions: dividend yield of 0%; volatility of 42.15% in 1997, 52.00% in 1996
and 60.60% in 1995; risk-free interest rate of 6.25% in 1997, 6.28% in 1996 and
5.91% in 1995; and an expected life of 4.3, 5.4 and 4.2 years in 1997, 1996 and
1995, respectively. Compensation cost for the options granted is computed
reflecting the actual forfeitures of options with the respective years.
NOTE 12 - STOCKHOLDER RIGHTS PLAN
In 1990, the Board of Directors adopted a Stockholder Rights Plan (Rights
Plan). The Rights Plan is designed to deter coercive or unfair takeover
tactics and to prevent an acquiring entity from gaining control of the Company
without offering a fair price to all of the Company's shareholders.
Each right would entitle the holder of the Company's common stock to purchase
one one-hundredth of a share of Series B Junior Participating Preferred Stock
at an exercise price of $150, subject to adjustment to prevent dilution. The
rights are evidenced by the common stock certificates and will not separate
from the common stock until the earlier of (i) 20 days following the date on
which any person or entity acquires beneficial ownership of 15% or more of the
common stock (an Acquiring Person) and the right of redemption has not been
reinstated; or (ii) 10 days after a public announcement of a tender or exchange
offer by any person or entity if upon consummation such person would be an
Acquiring Person. Further, upon the occurrence of certain events described
below, the rights generally entitle each right holder (except the Acquiring
Person) to purchase that number of shares of the Company's common stock which
equals the $150 exercise price of the right divided by one-half of the current
market price of the common stock. Those events generally include (i) 20 days
after any person or entity becomes
F-20
<PAGE> 63
an Acquiring Person; and (ii) if any person or entity becomes an Acquiring
Person and thereafter, (a) the Company is merged with or into an Acquiring
Person and the Company's common stock is changed, converted or exchanged; or
(b) 50% or more of the Company's assets or earning power is sold; or (c) an
Acquiring Person engages in one or more "self-dealing" transactions as
described in the Rights Agreement.
The Company is generally entitled to redeem the rights for $.01 per right at
any time prior to the earlier of the date on which any person or entity becomes
an Acquiring Person or August 31, 2000. The rights will expire on August 31,
2000, unless redeemed or exchanged earlier by the Company pursuant to the
Rights Plan.
NOTE 13 - FINANCIAL INSTRUMENTS AND OFF-BALANCE-SHEET RISKS
FOREIGN CURRENCY OPTIONS AND FORWARD EXCHANGE CONTRACTS
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. 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 does not hold or issue foreign
currency options or forward exchange contracts for trading purposes.
The Company periodically utilizes foreign currency options, generally with
maturities of less than one year, to hedge a portion of its exposure to
exchange-rate fluctuations in connection with anticipated revenue from its
international operations. The Company utilizes hedge accounting for its
foreign currency options with gains and losses associated with the options
recognized at the same time as the underlying anticipated transactions. The
Company held no foreign currency options as of December 26, 1997, or as of
December 27, 1996.
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 anticipated monetary assets and liabilities held in foreign
currencies and anticipated revenue from its international operations. The
carrying amounts of these forward foreign exchange contracts equal their fair
value as the contracts are adjusted at each balance sheet date for changes in
exchange rates. Gains and losses on the forward contracts used to hedge
monetary assets and liabilities are recognized as incurred within MG&A on the
Consolidated Statement of Operations as adjustments to the foreign exchange
gains and losses on the translation of net monetary assets. Gains and losses
on the forward contracts used to hedge anticipated revenues are recognized as
incurred as adjustments to revenue. The Company held forward foreign exchange
contracts with a face value of approximately $61,355,000 as of December 26,
1997, and $87,513,000 as of December 27, 1996.
The forward exchange contracts and foreign currency options do not subject the
Company to risk due to exchange rate movements, as gains and losses on the
contracts offset gains and losses on the transactions being hedged. The
foreign currency hedging instruments utilized by StorageTek are generally
traded over the counter. The Company does not believe there is significant
credit risk associated with these contracts, as the counterparties consist of
major international financial institutions, and the Company monitors the amount
of the contracts it enters into with any one party. There was no credit
exposure with respect to the Company's
F-21
<PAGE> 64
foreign currency forward contracts as of December 26, 1997, as the fair value
of these contracts was approximately zero.
Gains associated with foreign currency translation adjustments and foreign
currency transactions, net of associated hedging results, aggregated $482,000
in 1997, compared to losses of $447,000 in 1996 and $4,303,000 in 1995.
CONCENTRATIONS OF CREDIT RISK
Other financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash investments, trade
receivables, and outstanding letters of credit under the Company's Revolver.
The Company has a cash investment policy which restricts investments to ensure
preservation of principal and maintenance of liquidity. Substantially all of
the Company's trade receivable balances are unsecured. As of December 26,
1997, approximately 26% of the Company's outstanding accounts receivable
balance was due from IBM. The Company monitors this concentration and does not
believe any significant credit risk exists as of December 26, 1997. The
concentration of credit risk with respect to the remaining trade receivables is
limited due to the large number of customers comprising the Company's customer
base, and their dispersion across different industries and geographic areas.
As further discussed in Note 5, the Company's outstanding letters of credit of
approximately $25,363,000 as of December 26, 1997, relate principally to the
sale of certain U.S. and foreign based accounts receivable on a recourse basis.
These receivables were subsequently collected in January 1998 with no credit
losses associated with the recourse provisions of the agreement.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's accounts receivable, accounts payable and
accrued liabilities are either equal to or approximate their fair values. The
Company's foreign currency forward contracts, which are an off-balance-sheet
financial instrument, were entered into on December 26, 1997, and accordingly,
had a carrying value and fair value approximating zero. As of December 26,
1997, the Company had committed to sales of promissory notes denominated in a
number of foreign currencies in the aggregate amount of $198,326,000 (see
Note 5). These commitments are an off-balance-sheet financial instrument and
had a fair value of approximately $196,682,000 at December 26, 1997.
Transaction gains and losses related to the notes are deferred and recognized
as an adjustment to the revenue supporting the note repayment. The carrying
and estimated fair values of the Company's 8% Convertible Debentures were
$125,677,000, as of December 27, 1996. The fair value of the 8% Convertible
Debentures was based upon the closing sales prices on the New York Stock
Exchange as of December 27, 1996.
NOTE 14 - OPERATIONS OF BUSINESS SEGMENTS AND IN GEOGRAPHIC AREAS
SIGNIFICANT CUSTOMERS
In 1997, sales to IBM accounted for approximately 19% of total revenue.
F-22
<PAGE> 65
BUSINESS SEGMENTS
StorageTek operates in one principal business segment - the design,
manufacturing, marketing, and maintenance of information storage systems and
network products.
GEOGRAPHIC AREAS
StorageTek operates principally in the United States and Europe. Operations in
geographic areas other than the United States and Europe individually account
for less than 10% of the consolidated revenue and identifiable assets, and have
been combined and shown in the table below as "Other." Information regarding
each geographic area on an unconsolidated basis is shown below (in thousands of
dollars):
<TABLE>
<CAPTION>
Consolidated
1997 United States Europe Other Eliminations Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers $ 1,478,796(1) $ 499,297 $ 166,563 $ 2,144,656
Transfers between areas 355,154 $ (355,154)
----------- ----------- ----------- ----------- -----------
Total revenue $ 1,833,950 $ 499,297 $ 166,563 $ (355,154) $ 2,144,656
=========== =========== =========== =========== ===========
Operating profit (loss) $ 374,926 $ 10,164 $ (36,931) $ (7,949) $ 340,210
=========== =========== =========== ===========
Interest income (expense), net 25,356
General corporate expenses (49,449)
-----------
Income before income taxes $ 316,117
===========
Identifiable assets $ 1,316,653 $ 612,113 $ 160,707 $ (614,617) $ 1,474,856
=========== =========== =========== ===========
General corporate assets 265,161
-----------
Total assets $ 1,740,017
===========
</TABLE>
<TABLE>
<CAPTION>
Consolidated
1996 United States Europe Other Eliminations Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers $ 1,281,118(1) $ 587,951 $ 170,481 $ 2,039,550
Transfers between areas 370,814 $ (370,814)
----------- ----------- ----------- ----------- -----------
Total revenue $ 1,651,932 $ 587,951 $ 170,481 $ (370,814) $ 2,039,550
=========== =========== =========== =========== ===========
Operating profit (loss) $ 243,447 $ (886) $ (4,400) $ 17,424 $ 255,585
=========== =========== =========== ===========
Interest income (expense), net 1,211
General corporate expenses (30,104)
-----------
Income before income taxes $ 226,692
===========
Identifiable assets $ 1,060,243 $ 560,993 $ 156,062 $ (252,975) $ 1,524,323
=========== =========== =========== ===========
General corporate assets 359,953
-----------
Total assets $ 1,884,276
===========
</TABLE>
F-23
<PAGE> 66
<TABLE>
<CAPTION>
Consolidated
1995 United States Europe Other Eliminations Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers $ 1,227,509(1) $ 553,064 $ 148,912 $ 1,929,485
Transfers between areas 380,194 $ (380,194)
----------- ----------- ----------- ----------- -----------
Total revenue $ 1,607,703 $ 553,064 $ 148,912 $ (380,194) $ 1,929,485
=========== =========== =========== =========== ===========
Operating loss $ (22,769) $ (27,296) $ (7,047) $ (7,631) $ (64,743)
=========== =========== =========== ===========
Interest income (expense), net 8,978
General corporate expenses (68,765)(2)
-----------
Loss before income taxes $ (124,530)
===========
Identifiable assets $ 1,304,606 $ 494,499 $ 122,149 $ (233,300) $ 1,687,954
=========== =========== =========== ===========
General corporate assets 200,675
-----------
Total assets $ 1,888,629
===========
</TABLE>
- --------------------------
(1) U.S. revenue from unaffiliated customers includes international export
sales to customers of $59,359,000 in 1997; $67,636,000 in 1996; and
$79,714,000 in 1995.
(2) General corporate expenses in 1995 include a charge of $30,680,000
associated with the settlement of litigation, as well as merger and
consolidation expenses of $14,352,000.
Sales between geographic areas are generally priced to reflect market value and
to provide an appropriate gross margin to the affiliate. Operating profit, for
the purpose of this footnote, consists of total revenue less operating expenses,
and excludes interest income, interest expense and general corporate expenses
for all years presented. United States operating profit includes profit
recognized in the United States on transfers to other geographic areas.
Identifiable assets are those assets that are associated with the operations in
each geographic area. General corporate assets are primarily cash and
short-term investments not used in the operations of the individual geographic
regions.
F-24
<PAGE> 67
NOTE 15 - QUARTERLY INFORMATION (UNAUDITED)
The consolidated results of operations on a quarterly (13-week) basis were as
follows (in thousands of dollars, except per share amounts):
<TABLE>
<CAPTION>
Quarter Ended 1997
----------------------------------------------------------------
March 28 June 27 September 26 December 26
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 438,595 $ 517,024 $ 525,168 $ 663,869
Cost of revenue 241,672 283,284 285,383 361,191
------------- ------------- ------------- -------------
Gross profit 196,923 233,740 239,785 302,678
Operating expenses 148,237 166,375 173,042 194,711
------------- ------------- ------------- -------------
Operating profit 48,686 67,365 66,743 107,967
Interest income, net 5,603 6,619 7,987 5,147
------------- ------------- ------------- -------------
Income before income taxes 54,289 73,984 74,730 113,114
Provision for income taxes (14,700) (20,000) (20,200) (29,400)
------------- ------------- ------------- -------------
Net income $ 39,589 $ 53,984 $ 54,530 $ 83,714
============= ============= ============= =============
Earnings per common share:
Basic $ 0.65 $ 0.88 $ 0.89 $ 1.49
============= ============= ============= =============
Diluted $ 0.63 $ 0.87 $ 0.87 $ 1.46
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended 1996
----------------------------------------------------------------
March 29 June 28 September 27 December 27
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 453,481 $ 479,305 $ 486,085 $ 620,679
Cost of revenue 259,567 272,989 293,551 366,670
------------- ------------- ------------- -------------
Gross profit 193,914 206,316 192,534 254,009
Operating expenses 157,736 153,511 141,282 168,763
------------- ------------- ------------- -------------
Operating profit 36,178 52,805 51,252 85,246
Interest income (expense), net (1,189) (945) 2,248 1,097
------------- ------------- ------------- -------------
Income before income taxes 34,989 51,860 53,500 86,343
Provision for income taxes (9,400) (14,000) (14,000) (18,500)
------------- ------------- ------------- -------------
Income before extraordinary item 25,589 37,860 39,500 67,843
Extraordinary gain, net of income taxes 9,535
------------- ------------- ------------- -------------
Net income $ 35,124 $ 37,860 $ 39,500 $ 67,843
============= ============= ============= =============
Earnings per common share:
Basic $ 0.66 $ 0.70 $ 0.66 $ 1.18
============= ============= ============= =============
Diluted $ 0.62 $ 0.65 $ 0.64 $ 1.12
============= ============= ============= =============
</TABLE>
F-25
<PAGE> 68
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of
Storage Technology Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14.(a)1. and 2. on page 35 present fairly, in all material
respects, the financial position of Storage Technology Corporation and its
subsidiaries at December 26, 1997 and December 27, 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 26, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Denver, Colorado
February 20, 1998
F-26
<PAGE> 69
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Deductions
Accounts
Balance Additions Receivable
Beginning of Charged to Written Off Balance End
Year Other Expenses Net of Recoveries of Year
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts on
accounts receivable:
December 26, 1997 $12,907 $ 7,625 $ 2,608 $17,924
======= ======== ======== =======
December 27, 1996 $14,665 $ 3,838 $ 5,596 $12,907
======= ======== ======== =======
December 29, 1995 $13,387 $ 8,198 $ 6,920 $14,665
======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Balance Additions
Beginning of Charged to Reductions Balance End
Year Cost of Sales Write-offs of Year
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inventory reserves:
December 26, 1997 $51,338 $40,915 $46,391 $45,862
======= ======= ======= =======
December 27, 1996 $45,290 $55,771 $49,723 $51,338
======= ======= ======= =======
December 29, 1995 $51,803 $37,353 $43,866 $45,290
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Additions
Balance Charged to Deductions
Beginning of Cost of Spare Parts Balance End
Year Maintenance Written Off of Year
-------------------------------------------------------------------------
Amortization of spare parts for
maintenance:
<S> <C> <C> <C> <C>
December 26, 1997 $53,872 $12,568 $16,701 $49,739
======= ======= ======= =======
December 27, 1996 $87,980 $ 9,159 $43,267 $53,872
======= ======= ======= =======
December 29, 1995 $74,685 $43,378 $30,083 $87,980
======= ======= ======= =======
</TABLE>
F-27
<PAGE> 70
INDEX TO EXHIBITS FILED AS PART OF REGISTRANT'S
ANNUAL REPORT ON FORM 10-K
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.23 Eleventh Amendment to the Storage Technology Corporation 1987
Employee Stock Purchase Plan, as amended.
10.24 Termination Agreement between the Company and W. Russell Wayman
dated October 16, 1997.
10.25 Agreement between the Company and Gary Francis, dated
August 19, 1997.
10.26 Employment agreement between the Company and Victor Perez, dated
February 17, 1995.
10.28 OEM Agreement between the Company and International Business
Machines Corporation ("IBM") dated December 18, 1997. Concurrent
with the filing of this Annual Report on Form 10-K, the Company is
submitting to the Commission a request for confidential treatment
to omit certain information pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
</TABLE>
<PAGE> 71
<TABLE>
<S> <C>
10.29 Credit Agreement dated as of October 23, 1997, among the Company
and Bank of America National Trust and Savings Association, as
Agent, Swingline Bank, and Letter of Credit Issuing Bank, and
the other financial institutions party thereto.
21.0 Subsidiaries of Registrant.
23.1 Consent of Price Waterhouse LLP.
24.0 Power of Attorney (See Page 42).
27.0 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.23
ELEVENTH AMENDMENT TO THE
STORAGE TECHNOLOGY CORPORATION
1987 EMPLOYEE STOCK PURCHASE PLAN
Effective November 1, 1997, Storage Technology Corporation, a Delaware
corporation (the "Corporation") desires to amend the 1987 Employee Stock
Purchase Plan, as amended certain provisions of and restated as of December 14,
1995, (the "Plan") to make certain changes to Sections 8(c), 10 and 11(c) of the
Plan such amendments to be effective for Offering XIV of the Plan.
NOW, THEREFORE, in consideration of the foregoing, the following
provisions of the Plan are hereby amended:
Section 8 Paragraph (c) of the Plan entitled "Terms and Conditions of
Options" is amended and revised to read as follows:
"(c) The Committee may determine in its sole discretion from time to
time to issue fractional shares under the Plan. If the Committee
determines not to issue fractional shares, any accumulated payroll
deductions that would have been used to purchase fractional shares
shall be (i) automatically credited to each participant's Account and
applied towards his or her option to purchase shares in the next
successive Offering Period, or (ii) returned to each participant
promptly following the termination of the Offering Period, as may be
determined by the Committee. Any accumulated payroll deductions that
are in excess of the limitations of Paragraph 8(a), together with any
net income of the Segregated Account allocable to each participant, and
the amount referenced in item (ii) above, shall be returned to each
participant promptly following the termination of an Offering Period."
Section 10 of the Plan entitled "Delivery" is amended and revised to
read as follows:
"10. Delivery. As promptly as practicable after the Offering
Termination Date of each Offering Period, the Company will deliver to a
broker designated by the Committee to hold shares for the benefit of
the participants the shares of Common Stock purchased upon the exercise
of the participant's option. As determined by the Committee in its sole
discretion from time to time, such shares shall be delivered by
physical certificates or by means of a book entry system. A participant
may instruct any such designated broker to sell their shares at any
time, subject to applicable securities laws."
Section 11, Paragraph (c), of the Plan entitled "Withdrawal and
Termination" is amended and revised to read as follows:
<PAGE> 2
"(c) Upon termination of the participant's employment with the Company
for any reason (including retirement but excluding death or, in certain
cases, disability while in the employ of the Company) on or prior to
the last day of the last full payroll period immediately proceeding an
Offering Termination Date, the payroll deductions credited to the
participant, together with any net earnings of the Segregated Account
allocable to his or her Account, will be returned to the participant,
or, in the case of a participant's death subsequent to the termination
of employment, to the person or persons entitled thereto under
Paragraph 15. For purposes of the Plan, a participant shall be
considered disabled if the Company determines that the participant is
unable to perform the usual and customary requirements of his or her
job with the Company and will be unable to do so for at least six
months; provided, however, that such determination is subject to review
by the Committee at its discretion."
Except as otherwise defined herein, capitalized terms used herein shall have the
same meanings as set forth in the Plan.
<PAGE> 1
EXHIBIT 10.24
TERMINATION AGREEMENT
This Agreement, entered into October 16, 1997 is between
Storage Technology Corporation, a Delaware corporation (the "Company") and W.
Russell Wayman ("Employee").
WHEREAS, prior to the termination date of this Agreement
Employee served as Corporate Vice President, General Counsel & Secretary for the
Company;
WHEREAS, effective as of October 6, 1997, the Company and
Employee have terminated Employee's employment from the Company in the capacity
of Corporate Vice President, General Counsel & Secretary, and now wish to
resolve all claims between them. By this Agreement the parties set out the terms
and ongoing obligations of the parties with respect to his termination of
employment with the Company.
WHEREAS, the Company and Employee recognize and agree that
Employee's employment is being extended to February 27, 1998.
The parties agree as follows:
1. TERMINATION OF EMPLOYMENT:
a. The parties agree that unless otherwise agreed in writing
hereafter, Employee's employment with the Company will end on
February 27, 1998.
b. The parties agree that, even though Employee's employment with
the Company shall continue through February 27, 1998,
Employee's severance package from the Company will be limited
to a payment equal to the sum of: (i) his 1997 annual base
salary and (ii) 100% of his On Plan Bonus potential percentage
for 1997, which bonus shall be 45% of employee's 1997 annual
base salary. Payment shall be made within 30 days of the date
of termination. Employee agrees that he is not eligible for a
bonus under the MBO program for 1998 or thereafter.
c. Except as modified by this Agreement, all terms and conditions
of employment are unchanged, including the terms and
conditions outlined in the letter of February 17, 1995
(attached as Exhibit A).
<PAGE> 2
d. During the remainder of Employee's employment he will continue
to be bound by all of his other obligations to the Company,
including but not limited to his duties of loyalty and care
and his Proprietary Rights Agreement. The forgoing provisions
of this Agreement are not intended to prohibit the Company
from, and the Company reserves its right to, at any time,
terminate Employee for "Cause" as that term is defined in the
Letter Agreement. If Employee's employment is terminated for
Cause, he shall then be entitled to no further payments or
benefits under this Agreement or the Letter Agreement as of
the date of such termination.
e. In the event that Employee breaches this Agreement, then the
Company shall, in addition to any other remedies the Company
might have, be relieved of its obligation to pay further
salary or other payments due under the Letter Agreement or
under this Agreement (other than the severance payment set
forth in paragraph 1(b)). Payments made prior to such
termination and other commitments made by the Company shall be
deemed adequate consideration for Employee's obligations
hereunder.
2. SETTLEMENT AND RELEASE:
a. Employee hereby irrevocably and unconditionally releases and
discharges the Company, its past and present subsidiaries,
divisions, officers, directors, agents, employees, successors,
and assigns (separately and collectively, "releases") jointly
and individually, from any and all claims, known or unknown,
which he, his heirs, successors or assigns have or may have
against releases and any and all liability which releases may
have to him whether denominated as claims, demands, causes or
action, obligations, damages, or liabilities arising from any
and all bases, however denominated, including but not limited
to, any claims of discrimination under the Age Discrimination
in Employment Act, the Older Workers Benefit Protection Act,
the Rehabilitation Act, the Family Medical Leave Act, the
American with Disabilities Act, Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991 or any federal or
state civil rights act, claims for wrongful discharge, breach
of contract, or for damages under any federal, state or local
law, rule or regulation, or common law under any theory;
provided, however, that this release does not affect: (1) any
claims for benefits which have vested or shall vest on or
before February 27, 1998 under any of the Company's benefit
plans other than the MBO program; (2) any claims for
indemnification for acts of Employee which have occurred or
may occur as an officer or employee of the Company;
<PAGE> 3
or (3) any claims which may arise after the execution of this
Agreement. This release specifically excepts any claim
Employee may wish to make for unemployment compensation, and
the Company agrees not to contest any claim made by Employee
for unemployment compensation. This release is for any relief,
no matter how denominated, including, but not limited to, back
pay, front pay, compensatory damages, punitive damages, or
damages for pain and suffering. Employee further agrees that
he will not file or permit to be filed on his behalf any such
claim, will not permit himself to be a member of any class
seeking relief against the releases, and will not counsel or
assist in the prosecution of claims against the releases,
whether those claims are on behalf of himself or others,
unless he is under a court order to do so. Notwithstanding any
other provision of this Agreement or the Letter Agreement,
Employee voluntarily relinquishes and shall not under any
circumstances be paid any sum under paragraph 5(b) of the
Letter Agreement.
b. The Company hereby irrevocably and unconditionally releases
and discharges Employee and his heirs, successors, and assigns
(separately and collectively, "releases"), jointly and
individually, from any and all claims, known or unknown, which
it, its past and present subsidiaries, divisions, officers,
directors, agents, employees, successors, and assigns have or
may have against releases and any and all liability which
releases may have to it, whether denominated as claims,
demands, causes of action, obligations, damages or liabilities
arising from any and all bases, however denominated; provided,
however, that this release does not affect any claims which
are based on releases' willful acts, gross negligence or
dishonesty in the performance of duties as an employee of the
Company, nor any claims which may arise after the execution of
this Agreement. The Company further agrees that it will not
file or permit to be filed on its behalf any claim against
Employee which is released hereby.
3. PAYMENT TERMS: In the event that Employee complies in all respects with
the terms of this Agreement, the Company will pay to Employee the
amount due pursuant to Section 1(b) of this Agreement. Except as
otherwise provided in this Agreement, all stock options and restricted
stock will continue to vest through and including the Termination Date
and will be exercisable after that date in accordance with their terms.
Employee shall receive a payment of $16,000.00 as a tax gross-up of the
vesting restricted shares.
<PAGE> 4
4. EMPLOYEE BENEFITS: After the Termination Date, Employee shall be
entitled to continue his coverage under the Company's group medical and
dental plans to the extent provided in, and subject to his satisfaction
of the requirements of, the Company's standard Health Care Continuation
Notice. If Employee chooses to extend the benefits through COBRA,
Employee will be responsible for completing the Benefits Continuation
Notice and payment of premiums.
5. PENDING AND FUTURE LITIGATION:
a. Pending Litigation: During his employment and thereafter,
Employee agrees to participate in any litigation currently
active that is brought by or against the Company, by giving
advice, participating in discovery, and giving deposition and
trial testimony as may be necessary, as well as participation
in other activities related to such lawsuit.
b. Future Litigation: During his employment and thereafter,
Employee also agrees to participate in any future litigation
arising out of the period of his employment with the Company
by giving advice, participating in discovery, and giving
deposition and trial testimony as may be necessary, as well as
participation in other activities related to such litigation.
c. Pending and Future Litigation: If Employee is required to
participate in either pending or future litigation, the
Company agrees to reimburse Employee for all out of pocket
expenses reasonably incurred in connection therewith. The
Company will attempt to schedule said participation with the
employee's schedule and other commitments in mind. Employee
will be paid his current hourly rate for any participation as
described herein, after February 27, 1998.
6. NON-SOLICITATION:
a. Employee covenants and agrees that during the period ending
two years after the Termination Date, he will not, directly or
indirectly, hire, solicit, or encourage then-current Company
employees to apply for employment with any person or entity:
(a) with which Employee is (or intends to be) employed; (b) in
which Employee or a firm in which he is employed, has a
financial interest or is engaged as a consultant, recruiter,
independent contractor or otherwise; or (c) in which Employee
is otherwise substantially financially interested. Employee
further covenants and agrees that he will not provide to any
other person or
<PAGE> 5
entity the names of or references (other than a reference
requested by the Company) on any person who is then employed
by the Company.
b. Employee and the Company agree that if in any proceeding, the
tribunal shall refuse to enforce fully any covenants contained
herein because such covenants cover too extensive a geographic
area or too long a period of time or for any other reason
whatsoever, any such covenant shall be deemed amended to the
extent (but only to the extent) required by law.
7. NON-DISPARAGEMENT: Employee covenants and agrees that after his
termination and through February 27, 2000, he will not, except as
specifically required by law or court process, or as specifically
consented to in writing by the Company: (i) communicate to any person
or entity any adverse information, written or oral, concerning the
Company, its officers, directors, employees, attorneys, agents or
advisers (including without limitation any communication concerning
information that he acquired while he was employed by the Company and
that concerns or relates to the business, operations, prospects or
affairs of the Company or any of its subsidiaries or affiliates) under
circumstances in which there is a reasonable possibility that such
information might be publicly reported or disclosed or otherwise made
available to the public (regardless of whether the communication of
such information is intended to have or cause that result or that
result is within his control); or (ii) provide to any person (other
than his attorney or accountant) or entity any information that
concerns or relates to the negotiations or circumstances leading to the
execution of this Agreement or to the terms and conditions hereof or
the parties' performance hereunder. The parties agree that the term
"information" as used in this Section 6 shall have the broadest
possible meaning and shall include matters that are not considered
confidential or proprietary and that constitute beliefs, views and
opinions as well as facts.
8. RESIGNATION AND EXECUTION OF DOCUMENTS: Employee will tender his
resignation as Corporate Vice President, General Counsel & Secretary
for the Company, and in all capacities with respect to any subsidiary
or affiliate of the Company effective as of October 6, 1997, and agrees
to execute the letter of resignation attached hereto (Exhibit B).
Employee agrees to cooperate with the execution of any documents
required to complete resignation formalities. Employee further agrees
to cooperate with the Company to complete such documentation as is
reasonably necessary to effect his termination from the
<PAGE> 6
Company, including but not limited to the execution of the Foreign
Representative Statement/Certificate attached hereto (Exhibit C).
9. NON-DISCLOSURE: Unless otherwise required to do so by law, subpoena or
court order, neither party will in any way communicate or discuss the
terms of this Agreement or the circumstances of Employee's termination
with any person, other than his attorneys and accountants, except only
to state that the matter has been resolved. Employee understands this
nondisclosure provision applies particularly to current and former
employees of the Company and the Company's customers, clients, and
vendors.
10. CONTINUING OBLIGATIONS REGARDING STOCK TRADING: Employee will be deemed
a Corporate Officer for purposes of any restrictions on trading in the
Company's securities through February 27, 1998. Specifically, the
employee will be subject to all black-out periods and shall pre-clear
any securities transactions with the Office of Corporate Counsel.
11. AFFECT ON OTHER AGREEMENTS AND PLANS: Except to the extent inconsistent
herewith or as expressly provided herein, (including, without
limitation, Employee's ineligibility for a bonus under the MBO program
for 1998 or thereafter), and except for changes resulting from the
termination of Employee's employment with the Company, this Agreement
shall have no effect upon the parties' respective rights and
obligations under the Proprietary Rights Agreement, nor any vested
stock options or other vested stock rights Employee may have in the
Company.
12. ENTIRE AGREEMENT; AMENDMENT: This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter
hereof, and supersedes all prior oral or written agreements,
commitments or understanding with respect to the matters provided for
herein. No amendment, modification or discharge of this Agreement shall
be valid or binding unless set forth in writing and duly executed by
the party against whom enforcement of the amendment, modification, or
discharge was sought.
13. EXECUTION OF COUNTERPARTS: To facilitate execution, this Agreement may
be executed in as many counterparts as may be required; and it shall
not be necessary that the signatures of, or on behalf of, each part, or
that the signatures of all persons required to bind any party, appear
on each counterpart; but it shall be sufficient that all such
signatures appear on one or more of the counterparts. All counterparts
shall collectively constitute a single agreement. It shall not be
necessary in making proof of this Agreement to produce or
<PAGE> 7
account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto.
14. LIMITATION ON BENEFITS: It is the explicit intention of the parties
hereto that no person or entity other than the parties hereto shall be
entitled to bring any action or to enforce any provision of this
Agreement against any of the parties hereto, and the covenants,
undertakings and agreements set forth in this Agreement shall be solely
for the benefit of, and shall be enforceable only by, the parties
hereto or their respective successors, heirs, executors,
administrators, legal representatives, and permitted assigns.
15. BINDING EFFECT: This Agreement shall be binding upon and shall insure
to the benefit of the parties hereto and their respective successors,
heirs, executors, administrators, legal representatives and permitted
assigns.
16. SEVERABILITY: If any part of any provision of this Agreement shall be
determined to be invalid or unenforceable by reason of the extent,
duration or geographical scope thereof, or otherwise, then the parties
agree that the court making such determination may reduce such extent,
duration or geographical scope, or other provisions thereof, and in its
reduced form such part or provision shall then be enforceable in the
manner contemplated hereby.
17. GOVERNING LAW: This Agreement and all other disputes or issues arising
from or relating in any way to Storage Tek's relationship with Employee
and Employee's termination shall be governed by federal law of the
United States of America and the internal laws of the State of
Colorado, irrespective of the choice of law rules of any state or other
jurisdiction.
18. AMBIGUITIES: The parties acknowledge that they have reviewed this
Agreement in its entirety and have had a full opportunity to negotiate
its terms, and therefore, waive all applicable rules of construction
that any provision of this Agreement should be construed against its
drafter and agree that all provisions of the Agreement shall be
construed as a whole, according to the fair meaning of the language
used.
I acknowledge that I have been given 21 days by the Company to consider
this Agreement. I understand that I may revoke this Agreement for a period of
seven (7) days after I sign it by delivering written notice of my revocation to
the Company and that the Agreement does not become effective or enforceable
until the expiration of the seven (7) day revocation, of ______________, 1997.
<PAGE> 8
IN WITNESS WHEREOF, I have read the above Agreement, and I voluntarily
sign this Agreement after having been advised to seek my own legal counsel,
without threat or coercion, with full knowledge and understanding of its
contents, and without promise of benefit, except as expressly recited in this
Agreement.
11-12-97 /s/ W. Russell Wayman
- -------- ---------------------------------
Date W. Russell Wayman
STORAGE TECHNOLOGY CORPORATION
By: /s/ David E.Weiss
------------------------------
David E. Weiss
---------------------------------
Printed Name
Chairman of the Board
---------------------------------
(Director), President and
---------------------------------
Chief Executive Officer
---------------------------------
Title
This agreement presented to __________________________________ on
_____________________, _____.
<PAGE> 1
EXHIBIT 10.25
August 19, 1997
Mr. Gary D. Francis
Storage Technology Corporation
2270 South 88th Street
Louisville, Colorado 80028-5232
Dear Gary:
In connection with your accepting employment as Vice President and General
Manager of the Nearline Business Group ("VPNBG"), Storage Technology Corporation
(the "Company") agrees that you will be entitled to receive severance payments
upon the terms and conditions set forth hereinbelow. If, during your employment
as VPNBG, the Company elects to terminate your employment without "Cause" (as
that term is defined below), you shall be entitled to receive, as a severance
payment, an amount equal to the sum of (i) 100% of your then-current annual base
salary plus (ii) 100% of your then-current, on-plan bonus potential percentage
under the Company's MBO Program for the year of termination; provided, that it
is determined that the applicable MBO targets have been achieved and payments
under such MBO Program are generally paid to all other eligible participants.
The Company will pay you in cash, in a lump sum the amount referenced in item
(i) above, within thirty days after your date of termination of employment with
the Company. The Company will pay you the amount referenced in item (ii) above,
at the same time and in the same manner as MBO bonus payments are generally made
to all other eligible participants in such MBO Program.
As used in this letter the term "Cause" shall mean any of the following: (i)
willful breach by you of any provisions of this agreement or any other written
agreement between you and the Company; (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 that is materially detrimental to the business of the
Company; or (v) any intentional violation of the Company's policies applicable
to employees of your position with the Company.
<PAGE> 2
The terms set forth in this agreement supersede and replace in their entirety
the termination without cause and severance terms described in the Company's
correspondence to you dated July 22, 1997. This agreement shall in no way be
deemed a commitment by you or the Company to change the nature of your
employment to other than "at will employment" under applicable law.
Please indicate your acceptance of this agreement by signing both copies of this
letter below. Retain one copy of this agreement for your records and return the
other copy to the Company, to the attention of Lizbeth Stenmark, using the
enclosed envelope.
Very truly yours,
/s/ Laurie N. Dodd
---------------------------
Laurie N. Dodd
Corporate Vice President
Human Resource Development
<PAGE> 3
Accepted and Agreed:
/s/ Gary D. Francis
- -----------------------
Gary D. Francis
cc: Mike Halbmaier
Dwight Seeley
<PAGE> 1
EXHIBIT 10.26
February 17, 1995
Victor M. Perez
1165 Harper Lake Drive
Louisville, CO 80027-0932
Dear Victor
This letter (the "Agreement") sets forth the terms and conditions of your
employment with Storage Technology Corporation (the "Company"). In consideration
of your employment by the Company on the terms and conditions set forth below,
and the mutual covenants and agreements contained herein, you and the Company
agree as follows:
1. Position: You will be employed full-time by the Company as
CORPORATE VICE PRESIDENT INTERNATIONAL MANUFACTURING. You will report to the
Chief Executive Officer of the Company, or such other officer as he or she may
designate from time to time, and perform such duties as may be assigned you from
time to time. During the Employment Term (as herein defined), you shall devote
your entire working time, attention and energies to the business of the Company.
Except for personal investments, which shall not conflict with the business of
the Company, you shall not engage in any other business activity or activities
that require personal services by you that may conflict with the proper
performance of your duties hereunder.
2. Employment. The term of your employment pursuant to this
agreement (the "Employment Term"), is effective as of November 16, 1994, and
shall thereafter continue on an "at will" basis at the salary and terms
contained herein unless otherwise modified by the chief executive officer
("CEO") or his or her designee.
3. Base Compensation. For your services during the Employment
Term, the Company will pay you an annual base salary, effective November 16,
1994, of $170,000 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 the Employment Term. The amount of your base salary may be
adjusted either upward or downward by the Company from time to time during the
Employment Term.
<PAGE> 2
4. Bonuses.
(a) MBO Bonus Program. The Company currently maintains a
Management By Objective Bonus Program (the "MBO Program"). During the Employment
Term, you shall be eligible for such bonuses as may be established from time to
time in accordance with the MBO Program by the Company's Board of Directors (the
"Board"). For 1994, the Board has established for you an On Plan Bonus potential
percentage of 35%. Such percentage may be adjusted either upward or downward for
subsequent years during the Employment Term. Any payments under the MBO Program
shall be made in accordance with the provisions of, and under the conditions
contained in, the MBO Program and the terms of any bonus award authorized for
you by the Board.
5. Stock Options. Subject to: (i) approval by the Board, (ii) the
terms of the Company's employee stock option plan, and (iii) the standard
employee stock option agreement ("Option Agreement"), which will be separately
executed following Board approval, the Company proposes to grant you an option
to purchase 1500 Shares of the Company's common stock at a price per share equal
to the closing price of the stock on the New York Stock Exchange on the day
prior to approval by the Board. The vesting and other terms of those options
will be set out in the Option Agreement.
6. Termination of Employment.
(a) Termination Without Cause. If, during the Employment
Term, the Company elects to terminate your employment without "Cause" (as that
term is defined in paragraph 6(d)), except for terminations covered by the
provisions of 6(b), 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 (i) your then current rate of annual base salary and (ii) 100% of your On
Plan Bonus potential percentage under the MBO Program for the year of
termination (whether or not such bonus would be otherwise payable). Such amount
shall be paid to you in a cash lump sum within thirty days after your
termination of employment pursuant to this paragraph 6(a). In addition, you
shall be entitled to exercise any vested stock options then held to acquire
shares of Common Stock in accordance with the Option Agreement.
(b) Termination in the Event of Sale, Merger or Change of
Control. If, during the Employment Term, the Company is sold, or merged with or
into another company (in a transaction in which the Company is not the surviving
entity), or in which the stockholders of the Company immediately prior to the
merger own 50% or less of the Company after the merger, or all or substantially
all of the assets of the Company
<PAGE> 3
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, (any of which events is referred to hereinafter as a "Change in
Control"), and your employment is terminated either by you for any reason or by
the Company without Cause and such termination occurs within 24 months after the
date of any such Change in Control, then, upon such termination, and subject to
the provisions of 6(c) below, (i) the Company will pay you an amount equal to
two times your annual base salary then in effect, plus two times 100% of your On
Plan Bonus under the MBO Program based on your annual salary and On Plan Bonus
potential percentage in effect immediately prior to the Change in Control (which
shall be calculated as if the Company meets its plan for such year and which
shall be payable whether or not the Company does in fact meet its plan), (ii)
all outstanding stock options shall fully vest and become exercisable in full,
and (iii) the Company's right to repurchase shall terminate with respect to any
stock earlier purchased by you under the Company's 1987 Equity Participation
Plan, and all such stock shall become fully vested. In addition, after such
termination of employment, you shall be entitled to exercise all stock options
in accordance with the terms of the Option Agreements. To the extent you would
be entitled to payments or your rights to restricted stock or stock options
would vest not only pursuant to the terms of this section 6(b), but also
pursuant to the provisions of other section(s) of this agreement, or other
agreements with the Company, then such payments shall be deemed made and such
vesting shall be deemed to occur pursuant to the terms of such other section(s)
or other agreements, and not under the terms of this section 6(b).
(c) Limitation on Payments. In the event that the severance
and other benefits provided for in this Agreement or otherwise payable to you
(i) would constitute "parachute payments" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
section (c), would be subject to the excise tax imposed by Section 4999 of the
Code, then such severance benefits shall be either (i) delivered in full, or
(ii) delivered as to such lesser extent which would result in no portion of such
severance benefits being subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Section 4999, results
in the receipt by you on an after-tax basis, of the greatest amount of severance
benefits, notwithstanding that all or some portion of such severance benefits
may be taxable under Section 4999 of the Code. Unless you and
<PAGE> 4
the Company agree otherwise in writing, any determination required under this
section 6(c) shall be made in writing by the Company's independent public
accountants immediately prior to Change of Control (the "Accountants"), whose
determination shall be conclusive and binding upon you and the Company for all
purposes. For purposes of making the calculations required by this section 6(c),
the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. You and the
Company shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this
section. The Company shall bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by this section 6(c).
(d) Termination for Cause. If the Company, during the
Employment Term, elects to terminate your employment for Cause, your employment
will terminate on the date fixed for termination by the Company (provided,
however, that if the Company so elects during the 24-month period following a
Change in Control, you shall be given prior notice and shall be permitted to
voluntarily terminate your employment pursuant to section 6(b) hereof, in which
case this section 6(d) shall be inapplicable). Following a Termination for Cause
under this section, 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 or any other written agreement
between you and the Company; (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 that 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.
7. Benefit Programs. You shall also be entitled to such benefits
and benefit programs that apply to you and your position as the Company and the
Board may adopt from time to time, in accordance with the provisions of such
programs then in effect. Certain presently existing benefit programs (which may
or may not remain in effect) are outlined below:
<PAGE> 5
a. Life Insurance: Your life insurance coverage will
increase to three times your base salary.
b. Medical Coverage: You will have executive medical
coverage. This insurance covers 100% of your family's medical expenses up to
$5,000 over our group insurance coverage annually. Qualified retirees will be
eligible to participate in the Officer Post-Retirement Medical Program at a
per-person cost equivalent to prevailing COBRA premiums.
c. Vacation: You will receive cash for unused vacation days,
since you will be participating in the corporate officer vacation program, which
allows vacation as business conditions dictate. There is no defined limit, and
therefore no vacation accrual.
8. Compensation Deferral: You will be able to defer your
compensation in accordance with the terms of our Executive Deferred Compensation
Plan.
9. Automobile: You will receive up to $550 Auto allowance per
month reimbursement on leased automobile payments and reimbursement for regular
maintenance and automobile insurance on your leased automobile. Contact Marti
Jordan (x33977) for more information on this program.
10. Miscellaneous Executive Perquisites: During your Employment
Term, you shall be eligible for the following:
First class air travel as long as StorageTek is profitable.
Membership in an airline VIP club.
Financial and tax counseling up to 1% of annual base
salary.
11. Miscellaneous Provisions.
(a) Withholding. All payments to you pursuant to this
Agreement shall be subject to withholding of all amounts required to be withheld
by applicable Internal Revenue Service and State tax authorities by the Company
and shall be conditioned upon your submission of all information or execution of
all instruments necessary to enable the Company to comply with such withholding
requirements.
(b) Confidentiality Agreement. As a condition of your
employment, you have executed the Company's standard form of confidential
inventions and trade secrets agreement. You reaffirm that during the Employment
Term you will comply with all provisions of said agreement and agree that you
will enter into such modifications or amendments thereof as the Company may
reasonably request from time to time.
(c) Notice. Any notice required to be given in accordance
with the provisions of this Agreement shall be given in writing, either by
personal delivery or by
<PAGE> 6
causing such written notice to be mailed, first class postage prepaid, in the
United States mail to you at the address set forth above or to the Company at
its principal business address, or at such other address for a party as shall be
specified by like notice, provided that notices of change of address shall be
effective only upon receipt thereof.
(d) Governing Law. This Agreement is entered into in
accordance with, and shall be interpreted pursuant to the provisions of, the
laws of the State of Colorado.
(e) Severability. If any provision of this Agreement shall
be held to be invalid or unenforceable, such invalidity or unenforceability
shall not affect or impair the validity or enforceability of the remaining
provisions of this Agreement, which shall remain in full force and effect in
accordance with their terms.
(f) Entire Agreement. This Agreement, together with the
other agreements referenced herein, embody the entire agreement between the
parties relating to the subject matter hereof, and supersede all previous
agreements or understandings, whether oral or written.
(g) Amendment of Agreement. This Agreement may not be
modified or amended, and no provision of this Agreement may be waived, except by
a writing signed by the parties hereto.
If this letter accurately sets forth the terms of our agreement
relating to your employment, please sign the enclosed copy of this letter in the
space provided below and return it to the Company.
Very truly yours,
/s/ Ryal R. Poppa
- --------------------
Ryal R. Poppa
Chairman and Chief Executive
Officer
/s/ Victor M. Perez
---------------------------
Name
/s/ February 28, 1995
---------------------------
Date
<PAGE> 1
CONFIDENTIAL TREATMENT
----------------------
THE FOLLOWING IS A REDACTED VERSION OF THE
OEM AGREEMENT DATED AS OF DECEMBER 18, 1997
BY AND BETWEEN STORAGE TECHNOLOGY CORPORATION
AND INTERNATIONAL BUSINESS MACHINES CORPORATION
THIS MATERIAL IS BEING SUBMITTED IN CONNECTION
WITH A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO RULE 24b-2 UNDER
THE SECURITIES AND EXCHANGE ACT OF 1934.
<PAGE> 2
OEM AGREEMENT
BETWEEN
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND
STORAGE TECHNOLOGY CORPORATION
DECEMBER 18, 1997
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
BACKGROUND...............................................................................................................1
1. DEFINITIONS.......................................................................................................1
2. SCOPE OF AGREEMENT................................................................................................8
3. TERM OF AGREEMENT.................................................................................................8
4. COMPONENTS........................................................................................................9
5. AGREEMENT ADMINISTRATOR...........................................................................................9
6. PURCHASES.........................................................................................................9
6.1 [**] Purchases............................................................................................9
6.2 [**] Pricing.............................................................................................10
7. PRICING & PAYMENT TERMS..........................................................................................12
7.5 [**] Price...............................................................................................13
7.6 SnapShot Feature.........................................................................................13
7.7 FRU Prices...............................................................................................14
7.8 Lowest Cost Sourcing.....................................................................................14
7.9 Taxes/Duties.............................................................................................15
7.10 Payment Terms............................................................................................15
8. IBM SALES TO STORAGETEK..........................................................................................16
9. QUALITY..........................................................................................................18
9.1 Manufacturing Testing....................................................................................18
9.2 Engineering Changes......................................................................................19
9.3 Quality Levels...........................................................................................21
9.4 Quality Assurance........................................................................................27
9.5 ISO 9000 Certification and Use of Subcontractors.........................................................27
10. PRODUCT LEAD TIMES AND FORECAST..................................................................................28
10.4 Current Quarter..........................................................................................29
10.5 StorageTek's Allocation..................................................................................30
11. PURCHASE ORDERS, ALTERATIONS & RESCHEDULING......................................................................30
12. CONSIGNMENT......................................................................................................33
13. DELIVERY.........................................................................................................34
13.1 On-time Delivery.........................................................................................34
13.2 Carrier..................................................................................................38
13.3 Title/Risk of Loss.......................................................................................39
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
13.4 Packaging................................................................................................39
14. EQUIPMENT WARRANTY...............................................................................................39
14.10 Licensed Programs, Microcode and Maintenance Code Warranty...............................................41
15. FRUs.............................................................................................................43
15.4 FRU Rework Procedures and Prices.........................................................................43
16. FIELD SERVICE & SUPPORT..........................................................................................43
16.1 Training.................................................................................................43
16.2 Emergency and Expert Maintenance Coverage................................................................44
16.3 New Product Development Center Support...................................................................44
16.4 Maintenance and Installation Tools.......................................................................44
16.5 Maintenance and Technical Support........................................................................44
16.6 Retain Access............................................................................................47
17. MARKETING RIGHTS.................................................................................................47
17.1 Ongoing Training.........................................................................................47
17.2 Marketing Materials......................................................................................48
17.3 Marketing Tools..........................................................................................48
18. REPRESENTATIONS AND WARRANTIES...................................................................................49
19. TRADEMARK & ADVERTISING..........................................................................................50
19.1 Trademark and Design Rights..............................................................................50
19.2 Advertising/Disclosure...................................................................................50
20. CONFIDENTIALITY..................................................................................................50
21. ASSIGNMENT & CHANGE OF CONTROL...................................................................................51
22. DISPUTE RESOLUTION...............................................................................................52
22.1 Escalation Process.......................................................................................52
22.2 Mediation Process........................................................................................53
23. TERMINATION/REMEDIES.............................................................................................53
23.1 Termination by Mutual Consent............................................................................53
23.2 Termination by Bankruptcy................................................................................53
23.3 Termination for Cause....................................................................................54
23.4 Material Breach..........................................................................................56
23.5 [**] License.............................................................................................57
23.6 Manufacturing Make or Have Made Rights...................................................................57
23.7 Termination for Convenience..............................................................................59
23.8 Termination for Burdensome Condition.....................................................................59
23.9 Wind Down................................................................................................61
23.10 [**] After Termination...................................................................................61
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
24. INDEMNIFICATION RIGHTS...........................................................................................61
24.1 Intellectual Property Indemnity..........................................................................61
24.2 General Indemnity........................................................................................62
24.3 Obligations of IBM.......................................................................................63
25. GOVERNING LAW....................................................................................................64
25.1 New York Law.............................................................................................64
25.2 Limitation of Actions....................................................................................64
25.3 Limitation of Liability..................................................................................64
26. GENERAL..........................................................................................................65
26.1 Compliance with Laws.....................................................................................65
26.2 Relationship of the Parties..............................................................................65
26.3 Notices..................................................................................................65
26.4 Counterparts.............................................................................................67
26.5 Headings and Attachments.................................................................................67
26.6 Amendment................................................................................................67
26.7 Waiver...................................................................................................67
26.8 Severability.............................................................................................67
26.9 Weekends and Holidays....................................................................................68
26.10 Force Majeure............................................................................................68
26.11 Survival.................................................................................................68
26.12 Order of Precedence......................................................................................68
</TABLE>
<PAGE> 6
EXHIBITS, ATTACHMENTS, APPENDICES
<TABLE>
<S> <C> <C> <C>
Exhibit 1 - Prices
Attachment 1 - Product Prices
Attachment 2 - Upgrade Pricing
Exhibit 2 - Specifications
Attachment 1 - Manufacturing Test Specifications
Attachment 2 - Product Specifications
Exhibit 3 - IBM Developer Agreement Between IBM and StorageTek: Base Agreement
Attachment 1 - Statement of Work
Appendix A - Functional, Technical and Quality Specifications
Schedule 1 - Iceberg Items Schedule 2 - Kodiak Items
Schedule 3 - SnapShot, IXFP and IXOF Items
Schedule 4 - Iceberg Performance Commitments for [**]
Schedule 5 - Iceberg Performance Commitments for [**]
Schedule 6 - Kodiak Performance Commitments for [**]
Schedule 7 - Kodiak Performance
Commitments for [**] and After
Schedule 8 - Capacity Ratio Specification
Appendix B - Completion and Acceptance Criteria
Schedule 1 - Monterey System Test
Appendix C - Not Used
Appendix D - Certificate of Originality
Appendix E - IBM Source Code Custody Agreement
Appendix F - Performance Assessment Workload (PAWS)
Attachment 2 - Description of Licensed Works
Appendix A - IBM LIC Terms
Appendix B - StorageTek LIC Terms
Exhibit 4 - Consignment Agreement
Exhibit 5 - FRU Prices/Lead Times
Exhibit 6 - List of Countries for IP Indemnity
</TABLE>
<PAGE> 7
OEM AGREEMENT
This agreement is made and entered into as of December 18, 1997, by and
between International Business Machines Corporation, having an office for the
transaction of business at 5600 Cottle Road, San Jose, California 95193
(hereinafter called "IBM" or "Monterey"), and Storage Technology Corporation,
having an office for the transaction of business at 2270 South 88th Street,
Louisville, Colorado 80028 (hereinafter called "StorageTek," "STK" or "Oahu").
StorageTek and IBM may be individually referred to herein as a "Party" and
collectively as the "Parties." This Agreement amends, supersedes and replaces in
its entirety the OEM agreement dated June 7, 1996, as amended, between the
Parties, and will have prospective force and effect. However, this Agreement
shall not affect IBM's obligation to pay for any Equipment ordered by IBM under
a purchase order and accepted by StorageTek prior to the date of the Agreement's
execution by authorized representatives of the Parties.
BACKGROUND
StorageTek manufactures and sells, among other things, certain
Equipment as more fully described below. IBM wishes to purchase such Equipment
from StorageTek on an Original Equipment Manufacturer (OEM) basis in order to
resell or lease such Equipment to its customers throughout the world, both
directly and indirectly through its distributors, Subsidiaries, and other
channels. In order to secure access to IBM's distribution channels, to provide
StorageTek with the opportunity to reach more customers, to provide more product
choices for customers and also due to IBM's willingness to invest a substantial
amount in product research and development and in product engineering,
StorageTek is willing to sell such Equipment to IBM at the prices set forth
herein if IBM will purchase, advertise and market the Products and Upgrades,
provide maintenance and repair service for the Equipment sold or leased by it,
maintain an inventory of spare parts and take certain other related actions.
The provisions of this section are intended to generally explain the
reasons that StorageTek and IBM have entered into this Agreement, but do not
constitute a portion of the contractual obligations, terms or conditions agreed
to by the Parties, which are set forth in the following sections of this
Agreement.
WITNESSETH THAT:
In consideration of the mutual premises and covenants herein contained,
the Parties hereto agree as follows:
1. DEFINITIONS
1.1 "Agreement" shall mean this OEM Agreement, its Exhibits, their
Attachments, their Appendices and their Schedules.
1.2 "Agreement Administrator" shall have the meaning set forth in
Section 5.
1.3 "APAR" shall mean a completed form entitled "Authorized
Program Analysis Report," that is used by IBM to report
suspected Code or
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documentation errors in a Licensed Program (including
updates or enhancements thereto) and to request their
investigation and correction.
1.4 "Audit Rights" (Section 7.5c) shall mean a Party's right to
have Price Waterhouse, Arthur Andersen or Ernst & Young, or
their lawful successors, audit the other Party's books and
records on reasonable prior notice for the purpose of making a
factual determination of whether a specified event has
occurred. The Parties shall request the firms in the order set
forth above, and shall only request the second or third listed
firm if the earlier listed firms decline to serve. In carrying
out such audit responsibilities, said accounting firm shall
use generally accepted accounting principles (hereafter
"GAAP"), as consistently applied by the audited party. The
auditor's working papers shall not be made available to the
Party requesting the audit.
1.5 "Base Iceberg Package" shall have the meaning set forth in the
IDA.
1.6 "Burdensome Condition" (Section 23.8) shall mean: [**]
1.7 "Change of Control" (Section 21) shall mean the acquisition by
an entity of more than [**] of the [**], the sale of all or
substantially all of the assets of StorageTek, or any
consolidation, merger or other reorganization [**] is not the
continuing or surviving corporation or pursuant to which
shares [**] would be converted into cash, securities or other
property.
1.8 "Commit Date" shall have the meaning set forth in Section
13.1i.
1.9 "Cost Exclusions" (Section 9.3f) shall mean those parts costs
that are incurred by IBM for (i) FRUs returned for warranty
credit, (ii) FRU removals which are not in accordance with FRU
removal procedure to the extent that such removals exceed
StorageTek's actual experience during the first six (6) months
of 1996, (iii) defective IBM Drives, and (iv) FRUs replaced
due to a confirmed IBM Drive or any other IBM-supplied
component failure (without a defect in the associated
StorageTek FRU package).
1.10 "Day(s)," "month(s)," "quarter(s)" and "year(s)" shall mean
calendar days, months, quarters or years, unless otherwise
specified.
1.11 "Delivery," "Delivered," "Deliver" (Section 2.1) or other
forms of the term shall mean the physical transfer of
Equipment by StorageTek to an IBM-specified common carrier,
freight forwarder, or IBM's agent at StorageTek's plant of
manufacture.
1.12 "Devices" shall mean products which would be [**].
1.13 "Disclosing Party" shall have the meaning set forth in Section
20.
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1.14 "Drives" shall have the meaning set forth in Section 12.1.
1.15 "Emergency Engineering Change" shall have the meaning set
forth in Section 9.2b.
1.16 "Equipment" (Section 2) shall mean Products, Upgrades and
FRUs.
1.17 "Error Free Installation" (Section 9.3b) shall mean
installations of Products and Upgrades Delivered that both (i)
Plug and Play; and (ii) meet the following criteria: (a)
arrives configured according to IBM's written instructions;
(b) has all of the correct documentation, cables and
accessories included; and (c) is Delivered in the correct
packaging and with the shipping documents. Such criteria shall
specifically not include any failures caused by IBM or the
customer, or for which IBM or the customer is responsible,
including without limitation, I/O control program generations,
shipping damage, failure (for any reason) of Drives or other
IBM-supplied components.
1.18 "FAST" shall mean Iceberg, as described in the Specifications.
1.19 "FASTER" shall mean Kodiak, as described in the
Specifications.
1.20 "FRU" (Section 6.2) shall mean any part or component of
Products, Devices or Upgrades supplied by StorageTek that are
designed to be replaceable in the field.
1.21 "Gigabyte" or "GB" shall mean one billion bytes of storage.
1.22 "IDA" (Section 2.2) shall refer to the IBM Developer
Agreement, which is attached hereto as Exhibit 3.
1.23 "Impact Error" (Section 9.3a) shall mean an incident, as
reasonably determined by IBM, that either results in: (1) the
loss of data, or (2) the loss of access to data resulting in
an application interrupt (e.g., an abnormal program ending or
"abend" or inability to bring up an application) or system
interrupt (e.g., a system outage or requirement to initiate an
initial program load command in order to resolve or clear an
error condition). Any Impact Error due to improper use of the
Equipment by the customer, or an IBM agent or employee will be
excluded.
1.24 "Invention" shall mean any idea, design, concept, process,
technique, invention, discovery or improvement, whether or not
patentable, either conceived or reduced to practice solely by
one or more employees of one of the Parties or its
Subsidiaries (Inventing Party) or jointly by one or more
employees of IBM or its Subsidiaries and one or more employees
of StorageTek or its Subsidiaries (Joint Invention) in the
performance, and during the term, of this Agreement.
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1.25 "Level 1" support are those activities that assist the user in
resolving "how to" and operational-type questions, as well as
technical questions on installation procedures.
1.26 "Level 2" support are those activities that require additional
research and analysis of a user problem. The Problem
Management System database is checked to locate a duplicate of
the problem being reported and the previous solution applied
to that problem.
1.27 "Level 3" support are those activities to distribute a fix to
resolve a user problem.
1.28 "Licensed Programs" shall mean IXFP, IXOF and the Snapshot
Feature (as defined in Section 1.13 of the DLW).
1.29 "Machine Month" or "MM" (Section 9.3a) shall mean a
measurement, established at the end of such calendar month, of
the number of units of Product installed and operational
during a month at an end user's location, prorated on a daily
basis (e.g., the sum of the total number of machine days
[i.e., number of machines installed and operational at an end
user's location on a particular day] in a calendar month,
divided by the number of days in that month).
1.30 "Maintenance Code" shall be as defined in the DLW.
1.31 "Major Enhancements" shall be as defined in the IDA.
1.32 "Mandatory Engineering Changes" shall have the meaning set
forth in Section 9.2.
1.33 "Megabyte" or "MB" shall mean one million bytes of storage.
1.34 "Microcode" shall have the meaning set forth in the
Description of Licensed Works.
1.35 "[**] Price" shall have the meaning set forth in Section 7.5.
1.36 "New FRU Cost" (Section 7.7a) shall mean StorageTek's price
for FRUs, as specified in Section 7.7a. StorageTek will
provide IBM a schedule setting forth this cost for each FRU
(the current version set forth in Exhibit 5 to this Agreement,
FRU Prices and Lead Times) which list will be adjusted
semiannually (in January and July).
1.37 "Non-RMM Device" shall have the meaning set forth in Section
1.11 of the DLW.
1.38 "Object Code" shall have the meaning set forth in the SOW.
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<PAGE> 11
1.39 "Plug and Play" means that a unit of Product or Upgrade, when
installed following StorageTek's recommended installation
procedures, operates without experiencing any functional
failures during installation and passes all installation
verification tests, that internal diagnostic routines execute
successfully and generally that each such unit of Product or
Upgrade is observed to operate properly and in accordance with
the Specifications (as the same may be changed in any
applicable Product Development Plan) through the installation
of such unit. A functional failure is defined as any
repair/replacement/adjustment corrective action that is
required to install or make the subsystem functional that is
not specified as part of the installation instructions.
1.40 "PMR" shall mean a problem management report that is used by
IBM to report machine failures.
1.41 "Product(s)" (Section 6.1) shall mean the products purchased
from StorageTek by IBM and consist of the
StorageTek-manufactured Iceberg, Kodiak and Arctic Fox high
performance storage subsystems, including any Deliverables,
Enhancements and Maintenance Modifications hereafter made
pursuant to the IDA, and controllers, A-boxes, B-boxes,
Microcode and Licensed Works, and which are further described
in Exhibit 2, Specifications, and Appendices A and B to
Attachment 1 of Exhibit 3. Products also include related
documentation and other supporting materials.
1.42 "Product Engineering Services" shall mean the support and
services as described in Section 3.7 of the SOW.
1.43 "Quarterly Cost" (Section 6.2) shall mean the sum of [**] plus
[**], and for [**] for the [**] quarter, plus the [**];
provided, however, that [**] plus [**] and the [**] plus [**].
1.44 "QUICK" shall mean Arctic Fox.
1.45 "RAS criteria" shall have the meaning set forth in Section
9.3a.
1.46 "Receiving Party" shall have the meaning set forth in Section
20.
1.47 "Service Call" (Section 9.3a) shall mean any service call due
to a failure condition resulting from either a subsystem
hardware or Microcode error (including the Microcode portion
of Snapshot Feature) (e.g., 01, 02 and 04 service codes).
1.48 "Service Call Rate" (Section 9.3a) shall mean a rate which is
calculated as follows:
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<PAGE> 12
<TABLE>
<S> <C>
number of service 180 GB for Iceberg or
calls during month 360 GB for Kodiak
x
number of average capacity
Machine Months in GB per machine
</TABLE>
1.49 "Severity Level" shall mean a designation (i.e., Severity 1,
Severity 2, Severity 3 and Severity 4) assigned to errors that
is intended to indicate the seriousness of the error based
upon the impact that the error has on the user's operation.
1.50 "Severity 1" is a "critical problem"; the product is unusable
or an error severely impacts a customer's operation. Severity
1 requires maximum effort to resolve a critical problem until
an emergency fix is developed, implemented and made generally
available to IBM's customers who experience such problem.
1.51 "Severity 2" is a "major problem"; important function is not
available resulting in operations being severely restricted.
1.52 "Severity 3" is a "minor problem"; inability to use a function
occurs, but it does not seriously affect the user.
1.53 "Severity 4" is a "minor problem" that is not significant to
the user's operation; the user may be able to circumvent the
problem.
1.54 "Source Code" shall have the meaning as set forth in the SOW.
1.55 "Specifications" (Section 2.1) shall mean the descriptions
contained in Appendices A and B to Attachment 1 of Exhibit 3
and Exhibit 2, Specifications.
1.56 "Standard Parts Cost" (Section 9.3f) shall mean [**] of the
New FRU Cost plus [**] of the Used FRU Cost for each FRU, plus
actual freight.
1.57 "STK DASD" (Section 7.5c) shall mean any DASD product
developed, manufactured, or supplied by StorageTek at any time
prior to the expiration of the Final Judgment dated December
___, 1997, including but not limited to Iceberg, Kodiak, the
products marketed by IBM as RAMAC Virtual Array and RAMAC
Scalable Array, and any future versions, models or generations
of any of the aforementioned products (regardless of name or
designation). The term "STK DASD" does not include Virtual
Storage Manager, any future versions, models or generations
thereof (regardless of name or other product designation), or
any existing or future StorageTek Nearline storage products,
or any used DASD.
1.58 "StorageTek Installed Base" shall mean [**] prior to the [**].
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1.59 "Subsidiary" shall mean a corporation, company, limited
liability company or other entity:
a. more than fifty percent (50%) of whose outstanding
shares or securities (representing the right to vote
for the election of directors or other managing
authority) are, now or hereafter, owned or
controlled, directly or indirectly, by a party
hereto; or
b. which does not have outstanding shares or securities,
as may be the case in a partnership, joint venture,
or unincorporated association, but more than fifty
percent (50%) of whose ownership interest
representing the right to make the decisions for such
corporation, company or other entity is, now or
hereafter, owned or controlled, directly or
indirectly, by a party hereto;
but such corporation, company or other entity shall be deemed
to be a Subsidiary only so long as such ownership or control
exists.
1.60 [**]
1.61 "Terabyte" or "TB" shall mean one trillion bytes of storage
which is accessible to the customer. For calculating storage
capacities of purchases of [**]
1.62 "Upgrade(s)" shall mean a subassembly that increases the
capacity or performance of Products or Devices.
1.63 "Used FRU Cost" (Section 7.7a) shall mean the price of rework
for FRUs as determined by Section 15.4. This cost is set forth
in Exhibit 5 to this Agreement, FRU Prices and Lead Times,
which will be adjusted semiannually (in January and July).
1.64 Capitalized terms not otherwise defined in the OEM Agreement
shall have the definitions set forth elsewhere in the
Agreement.
2. SCOPE OF AGREEMENT
2.1 Subject to the terms of the Agreement, StorageTek agrees to
develop IBM requested enhancements to the Equipment, to
provide continuing engineering and technical assistance to IBM
for the Equipment, and to manufacture, test, sell and Deliver
Equipment to IBM and desires that IBM supply Drives for use in
such Equipment all in accordance with the Specifications,
procedures and conditions contained in this Agreement.
2.2 IBM (i) agrees to fund the continuing engineering on, and the
future development of, specific enhancements to the Equipment
as set forth in the IDA, (ii) intends to add value to such
Equipment by consigning IBM Drives to StorageTek for inclusion
in the Equipment, and (iii) has the right
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<PAGE> 14
to market and sell Equipment purchased from StorageTek, all in
accordance with the terms of this Agreement.
2.3 Changes to Specifications, procedures and conditions contained
in the Agreement, its Exhibits, their Attachments and their
Schedules may be made from time to time upon mutual written
agreement, specifically identifying this Agreement and stating
an intent to make such changes.
3. TERM OF AGREEMENT
Unless earlier terminated, the term of this Agreement shall be through
December 31, 2000.
4. COMPONENTS
Because the Equipment purchased by IBM from StorageTek is likely to be
associated with the IBM brand, IBM wishes to be assured that such
Equipment, when sold to its customers, will have the quality that its
customers expect from items so branded. Accordingly, IBM believes that,
to the extent that StorageTek can utilize components in such Equipment
that are manufactured by or for IBM under its high quality standards,
it would be desirable for StorageTek to obtain such components from IBM
for use in manufacturing the Equipment. On receipt of IBM's written
request, StorageTek agrees if such [**], it will [**]. StorageTek
agrees to [**] if IBM [**], and if such [**], and such [**].
5. AGREEMENT ADMINISTRATOR
Each Party will identify during the term of the Agreement an Agreement
Administrator who shall have overall responsibility for managing this
Agreement for such Party. Except for any changes that are made to the
Statement of Work and agreed to in writing by an authorized
representative from IBM's procurement function and StorageTek's
Agreement Administrator, the Agreement Administrators may not amend the
terms of this Agreement. The Agreement Administrators are [**] for
StorageTek, and [**] for IBM.
6. PURCHASES
6.1 [**] PURCHASES
IBM intends to purchase Products and Upgrades during the
remainder of 1997 and [**]. In consideration for StorageTek's
commitment to accept IBM's purchase orders during [**] in
accordance with this Agreement, and StorageTek's associated
investment in parts, labor, facilities, etc., during such
year, IBM will make a payment to StorageTek of [**] during
[**].
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6.2 [**] PRICING
On or before [**], the Parties will [**].
[**], then if IBM submits a binding forecast in accordance
with Section 10.1 between [**] of Products and Upgrades (of
which [**] of IBM's forecast for Upgrades will count towards
such forecast range) for the [**] or any [**], and if IBM has
submitted a binding forecast for [**] or more in accordance
with Section 10.1 for each prior [**] during [**], then IBM
shall be entitled to purchase [**] during the applicable [**]
at a price that [**] the [**]:
(1) [**]; or
(2) The [**]
If IBM submits a binding forecast in accordance with Section 10.1 [**]
and [**] of Products and Upgrades (of which [**] of IBM's forecast for
Upgrades will count towards such forecast range), for the [**] or any
[**] [**], and if IBM has submitted a binding forecast for [**] or more
in accordance with Section 10.1 for each prior [**], then IBM shall be
entitled to purchase [**] during the applicable [**] at a price that
[**] the [**]:
(1) [**]; or
(2) [**]
If IBM submits a binding forecast in accordance with Section 10.1 for
[**] or more of Products and Upgrades (of which [**] of IBM's forecast
for Upgrades will count towards such forecast range), for the [**] or
any [**], and if IBM has submitted a binding forecast for [**] in
accordance with Section 10.1 for each prior [**], then IBM shall be
entitled to purchase [**] during the applicable [**] at a price that
[**] the [**]:
(1) [**]; or
(2) [**]
The prices for [**] for [**] shall [**] the prices that [**] for each
[**] set forth in Attachment 1 to Exhibit 1 of this Agreement. The
prices for [**] shall [**] set forth in Attachment 2 to Exhibit 1 of
this Agreement.
Provided that IBM has previously submitted binding forecasts in
accordance with Section 10.1 for [**] in each prior [**] during [**],
IBM will also [**] of Products and Upgrades [**] by submitting a
binding forecast for the [**] of [**] in accordance with Section 10.1
of the Agreement, and thereafter issuing a [**] , at least [**] before
the beginning of the [**] of [**], for Products and Upgrades to be
Delivered during the [**] of [**], or subsequent [**] during [**] if
such order [**]. The prices for [**] of Products and Upgrades will be
[**] the Parties. If the Parties [**] on the [**] for Products and
Upgrades for [**], such [**] shall be set
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<PAGE> 16
forth in an Attachment of an Exhibit to this Agreement. If the Parties
are [**] on [**], the [**] for Products and Upgrades ordered under the
[**] shall [**] for Products and Upgrades that is associated with the
[**] of forecasted volumes. All Products ordered under [**] will be
subject to a [**] for [**] and [**]; provided, however, that IBM may
request and obtain [**] in accordance with the terms of this Agreement
before their Delivery. Such [**] shall be [**] any right of IBM to [**]
under Section 23.9 of this Agreement.
Notwithstanding anything to the contrary, if the Parties are unable to
[**] on the [**] for [**] to be Delivered by StorageTek to IBM during
[**] and StorageTek [**] determines that it would be [**] and [**] to
IBM during [**] , then StorageTek [**] to [**] during [**] [**] that it
supplies under this Agreement. If StorageTek [**] from [**] during [**]
that it supplies under this Agreement, StorageTek shall notify IBM in
writing of its [**] of [**] by no later than [**], and [**] by
submitting a binding forecast for the [**] of [**] in accordance with
Section 10.1 of the Agreement, and thereafter issuing a [**] at least
[**] before the [**] of the [**] of [**] for Kodiak Products to be
Delivered during the first quarter of 1999. The prices for this [**]
shall [**] for each [**] set forth in Attachment 1 to Exhibit 1 of this
Agreement. All [**] ordered under [**] will be subject to a [**];
provided, however, that IBM may request [**] in accordance with the
terms of this Agreement before their Delivery.
7. PRICING & PAYMENT TERMS
7.1 Prices charged to IBM by StorageTek for Products to be sold
hereunder in the [**] of [**] and the [**] shall be as set
forth in Attachment 1 to Exhibit 1 to this Agreement, and any
related future written amendments thereto agreed to by
authorized representatives of the Parties. These prices
include such software, packaging, packing and shipping
materials and other items as StorageTek currently includes in
its [**] for [**]
7.2 Prices charged to IBM by StorageTek for Upgrades to be sold
hereunder in the [**] of [**] and the [**] shall be as set
forth in Attachment 2 to Exhibit 1 to this Agreement, and any
related future written amendments thereto agreed to by
authorized representatives of the Parties.
7.3 In the case of Products or Upgrades manufactured by StorageTek
in Europe, [**], an additional charge equivalent to [**] will
be added by mutual agreement to the prices set forth in
Attachments 1 and 2 to Exhibit 1, which charge shall be:
For [**] = [**]; For [**] through [**] = [**]; and For [**]
and beyond = [**].
7.4 Prices charged for Products and Upgrades for [**] may [**]
and, if [**], such prices shall be set forth in an Attachment
of an Exhibit to this Agreement.
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7.5 [**] PRICE
Notwithstanding any other provisions in this Agreement, in no
event will any price charged by StorageTek to IBM exceed "[**]
Price," as defined below:
a. The prices, [**] offered by StorageTek to IBM for
[**] ordered by IBM under [**] placed on or before
[**] under this Agreement shall be [**]. The prices,
[**] offered by StorageTek to IBM for [**] by IBM
under [**] and/or [**] under this Agreement shall be
[**] after [**] to [**].
b. If StorageTek offers, on or before [**], to any [**]
purchasing [**] at the [**] more [**] than are
offered to IBM for [**] hereunder; or if StorageTek
offers to [**] [**] for [**] to [**] on or [**]
and/or [**] than are offered to [**]; then StorageTek
agrees to notify IBM in writing within [**] of making
such offer, and StorageTek agrees to [**] to IBM the
[**] prices, [**].
c. Notwithstanding anything to the contrary, under no
circumstances shall StorageTek be [**] to offer to
IBM any prices [**] for [**] that StorageTek has
offered to a[**] from StorageTek.
StorageTek grants IBM Audit Rights for purposes of
confirming that IBM is receiving [**] Prices. If the auditor
determines that IBM did not receive such prices, then in
addition to the remedies provided above, StorageTek will
reimburse IBM its costs for the audit. Audits will not exceed
two in any 12-month period.
7.6 SNAPSHOT FEATURE
IBM will license the Snapshot Feature as set forth in the
Description of Licensed Works for the license fees set forth
in Attachment 2 to Exhibit 1 hereto.
7.7 FRU PRICES
Prices charged by StorageTek to IBM for new FRUs will be [**]
of such FRUs and the multiples set forth in Section 7.7a,
below ("New FRU Cost"). For the purpose of this Section and
Section 15.4, cost shall be determined by using [**]. The
standard cost will be reviewed [**], and any differences in
cost will be adjusted in the following period. Compliance with
this section shall be subject to IBM's Audit Rights.
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<PAGE> 18
a. Multiples for New FRUs.
(1) During the term of this Agreement the multiple
is [**].
(2) After the termination of this Agreement the
multiple is [**].
b. FRU Rework. Prices for FRUs returned by IBM will be
determined in accordance with Section 15.4.
7.8 LOWEST COST SOURCING.
The Parties agree that it is in their mutual interest for
StorageTek to obtain parts for new production and maintenance
purposes at the lowest practicable cost. If IBM identifies a
potential alternative source for any part, StorageTek will
make a good faith reasonable effort to qualify the
alternative. If such bid is comparable with the quality, terms
and conditions and offers a better price compared to the then
current source of such parts, and awarding such alternative
source a supply contract pursuant to such bid does not
adversely impact the terms of StorageTek's purchases of other
parts from the then current source, then the lower cost will
be used in determining prices to IBM for Equipment whether or
not StorageTek actually obtains the part or parts from such
alternative source.
7.9 TAXES/DUTIES
The prices for Equipment supplied under this Agreement are
exclusive of any customs charges and duties and sales, use,
privilege, excise and similar taxes levied by the USA, foreign
territories, or any other governmental entity on the Products,
their export, import, shipment, purchase or sale. IBM shall
pay and be responsible for the payment of any such taxes
(excluding taxes based upon StorageTek's net income) or
duties; and, to the extent legally required, StorageTek shall
collect any applicable taxes unless IBM establishes its
exemption therefrom. If StorageTek is required to pay any such
taxes or duties, IBM will reimburse StorageTek pursuant to
StorageTek's invoice.
IBM hereby represents to StorageTek that it is purchasing the
Products hereunder for the purpose of resale, rent, lease or
in-house use, and, if required by applicable law, IBM will
furnish StorageTek with pertinent and valid sales and use tax
exemption certificates.
7.10 PAYMENT TERMS
a. StorageTek will invoice IBM for Equipment on or after
the date on which such Equipment is Delivered. If any
unit of Equipment is Delivered and is not suitable to
be installed, then the Equipment shall not be
considered as Delivered until such time that such
Equipment is rendered suitable for installation. IBM
or its designee will exercise reasonable efforts to
install Equipment that it receives. IBM will promptly
notify StorageTek when such Equipment is not suitable
for installation.
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<PAGE> 19
Subject to Section 13.1k, payment terms will be the
number of days from date of receipt of a correct
invoice by IBM as shown in the following table:
<TABLE>
<CAPTION>
Invoice Date Payment Term
<S> <C>
4Q of 1997 [**] days
1998 [**] days
1999 or later [**] days
</TABLE>
b. StorageTek's invoices must state the IBM purchase
order number, description of the item(s) being
invoiced, quantity shipped, ship date, unit price,
total amount due and the remit-to address. StorageTek
will mail or deliver invoices to the address
indicated on the purchase order.
c. Payment of an invoice by IBM under IBM purchase
order(s) will not be construed as and will not
constitute an acceptance of Product failing to
conform to specifications or agreed-upon quality
levels, nor will any payment to StorageTek be
construed as or constitute a waiver of any of IBM's
legal rights or remedies.
d. StorageTek will invoice, and IBM will pay, in US
Dollars to the address listed on StorageTek's
invoice. All payments will be made by wire transfer
of immediately available funds.
8. IBM SALES TO STORAGETEK
IBM will offer for sale to StorageTek the [**] IBM disk drives that are
used in the [**] and [**] and sold to IBM under the Agreement, or
similar IBM disk drive replacements therefor, for use in [**] (whether
or not considered to be a [**] under this Agreement) and the [**] [**]
throughout the term that this Agreement is in effect, for a [**]
thereafter, and [**] [**] to [**].
Notwithstanding anything to the contrary, in the event of a termination
of this Agreement pursuant to Sections 21, 23(e), 23.7 or 23.8 , for a
period of [**] after such termination or [**], whichever occurs first,
IBM will offer for sale to StorageTek the same IBM disk drives that are
used in the [**] and [**] and sold to IBM under the Agreement, or
similar IBM disk drive replacements therefor, for use in [**] (whether
or not considered to be a [**] under this Agreement) and the [**].
Upon [**] notice, IBM will notify StorageTek of its planned withdrawal
from general availability of the IBM disk drives that StorageTek
chooses to purchase. If a similar IBM disk drive replacement therefor
is not available, then subject to [**] and prior written notice from
StorageTek no later than [**] after StorageTek's receipt of IBM's
notice, IBM will allow StorageTek, at its option, to
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<PAGE> 20
either (i) [**] IBM disk drives before their planned withdrawal date;
or (ii) [**] contained in the IBM withdrawal notification letter.
IBM disk drives will be made available for sale by IBM to StorageTek
solely in accordance with the terms of its existing [**] and this
Section 8 of the Agreement.
Throughout the term of this Agreement and for a period [**], and in the
event of a termination of this Agreement pursuant to Sections 21,
23(e), 23.7 or 23.8, [**] or through [**], whichever occurs first, the
price to be charged to StorageTek for IBM disk drives to be sold during
a [**] shall be [**]. Pricing for StorageTek's purchase of IBM disk
drives during a [**] will be based on [**] disk drives for such [**]
under IBM's terms and conditions set forth in [**] and this Section 8.
StorageTek will integrate or incorporate IBM disk drives into [**]
(whether or not considered to be a [**] under this Agreement) and the
[**] that are to be sold [**]. StorageTek will be deemed to have
accepted IBM disk drives [**] after StorageTek receives them unless
written notice of rejection therefor is sent to IBM during such period
by StorageTek. IBM will inform StorageTek of changes to the product
specifications of IBM disk drives sold to StorageTek under [**] and
this Section 8 that may affect form, fit or function within [**] prior
to delivery of such IBM disk drives to StorageTek; provided, however,
that IBM may make any changes to the [**] of IBM disk drives without
prior notification if such changes are made to [**] issue, or to comply
with governmental regulations or laws. For all claims that are not
excluded by Section 10(a), or subject to other terms, of [**] and this
Section 8, IBM's liability for [**] shall be [**] or [**].
Upon request, IBM will offer StorageTek up to a [**] warranty on the
IBM disk drives it wishes to purchase; provided, however, that IBM [**]
offers the same period of warranty on such IBM disk drives to other
[**] . IBM may [**] the pricing it provides to StorageTek for
differences in warranty terms. Such pricing will, however, be
consistent with the pricing that is established [**] for the [**] who
receive the same length of warranty on IBM disk drives and the [**] for
their existing commitments to purchase comparable quantities over such
[**] under other standard [**] terms and conditions.
If StorageTek is unable to obtain IBM [**] for use in [**] from [**],
through [**], then StorageTek shall promptly notify IBM in writing and
upon receipt of such written notification and subject to availability,
IBM will make reasonable efforts to [**].
The terms of this Section 8 will survive the [**] or [**] of this
Agreement. In addition, in the event of an inconsistency between the
terms of this Section 8 and the terms of the [**], the terms of this
Section 8 shall prevail.
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<PAGE> 21
9. QUALITY
9.1 MANUFACTURING TESTING
Prior to Delivery, StorageTek shall conduct a mutually
agreed-upon preshipment manufacturing test at its plant on
each unit of Equipment. Notwithstanding such preshipment
manufacturing testing, all Equipment must conform to the
Specifications.
StorageTek will provide IBM on a quarterly basis with a
complete, summarized record of inspection and tests performed
on each unit of Equipment during the term of the Agreement.
Detailed records of inspection and tests (in manual and
electronic form) performed for each unit of Equipment shall
also be kept by StorageTek for three (3) years. Upon IBM's
request, StorageTek will provide IBM with access to an
electronic copy of the specific test results for each unit of
Equipment within two (2) business days after receipt of such
request.
IBM's representative may, if it so requests and at its sole
expense, witness the preshipment tests carried out by
StorageTek, provided such request is made at least three (3)
days prior to the scheduled Delivery of the items being
tested. Any such observation by IBM shall be subject to
StorageTek's reasonable safety and security rules and shall be
conducted to the extent feasible on a noninterference basis.
IBM may also conduct its own testing to the extent feasible on
a non- interference basis either at StorageTek's plant, its
own facilities or IBM's customers' facilities, at IBM's own
expense, to confirm that the Equipment meets the
Specifications. Any testing performed at StorageTek's plant
shall be subject to StorageTek's reasonable safety and
security rules.
9.2 ENGINEERING CHANGES
a. Mandatory Engineering Changes. If changes that may
affect the form, fit, function, interface,
reliability or serviceability of the Equipment
(including interchangeability with previously
purchased FRUs) are required in order to make the
Equipment sold hereunder conform to the
Specifications ("Mandatory Engineering Changes"),
StorageTek shall first obtain IBM's approval. If it
is mutually agreed that the change is to be made,
StorageTek shall make the changes at no charge to IBM
in all units of Equipment which are not yet delivered
to IBM. If such changes are required to make
delivered units of Equipment conform to those
Specifications, they shall be supplied in the form of
mandatory field change kits at no charge to IBM in
accordance with the procedure set forth below.
IBM shall supply labor to install, subject to Section
9.3h, all Mandatory Engineering Changes in delivered
units of Equipment.
15
<PAGE> 22
Field change kits resulting from Mandatory
Engineering Changes described above will be
administered as follows:
(1) StorageTek will promptly send an engineering
change notice (ECN) to IBM prior to Delivery
of the first shipment of Equipment that
contains a Mandatory Engineering Change. IBM
shall issue a no-charge purchase order for
all mandatory field change kits that IBM
desires. Such kits and any Equipment
returned which are covered by the Mandatory
ECNs shall be shipped freight prepaid by
StorageTek, at no charge to IBM.
(2) StorageTek will ship the mandatory field
change kits according to the schedule that
is set forth in clause (4), below, and issue
a no-charge invoice to IBM for all parts
ordered and shipped as a part of the
mandatory field change kits.
(3) Subject to the terms of Section 15.3, IBM
will use reasonable efforts to see that
repairable parts (displaced by field change
kits) from Equipment are packaged separately
from other parts returned. IBM will send
Products to StorageTek, freight prepaid, and
Upgrades and FRUs, freight collect.
(4) For each Mandatory Engineering Change the
parties will agree upon an appropriate
round-robin process for distributing field
change kits to the field and securing the
return of displaced FRUs for rework by
StorageTek.
b. Emergency Engineering Changes. Notwithstanding
Section 9.2a, above, StorageTek may issue any
engineering change necessary to remedy an
Equipment-down situation at a customer of IBM or to
make any unit of the Equipment safe (an "Emergency
Engineering Change") upon notice to IBM but without
any prior evaluation or approval by IBM; provided,
however, that StorageTek agrees to follow the
procedures as set forth in Section 9.2a in order to
implement a permanent solution to resolve the safety
or down situation that arose precipitating the need
for the engineering change.
As to any affected Equipment from time to time in
IBM's inventory or control, or already accepted by
IBM, IBM shall use reasonable efforts to promptly
accomplish the installation of such Emergency
Engineering Change. In the event of installation of
Emergency Engineering Changes by IBM hereunder,
StorageTek shall implement a corrective action plan,
including the provision of
16
<PAGE> 23
information, materials, tools and parts necessary to
effect the installation of such Emergency Engineering
Changes on the affected Equipment (all without cost
to IBM), subject to Section 9.3h.
c. Optional Engineering Changes. In addition to
Mandatory Engineering Changes, it is recognized by
the Parties that there may be optional changes
requested by either IBM or StorageTek, which are not
required to make the units of Equipment conform to
the Specifications. The cost of implementing such
changes (including kits and labor) on delivered
Equipment shall be divided between the parties as
they mutually agree. StorageTek will deliver field
change kits for such changes to IBM, as specified in
IBM's purchase order, which purchase order shall be
given by IBM to StorageTek within such time period as
the Parties shall mutually agree.
d. Procedures Regarding Proposed Engineering Changes. In
connection with any engineering changes proposed
pursuant to Section 9.2a, above, StorageTek will
forward to IBM, at IBM's request, a minimum of two
(2) samples of each such proposed engineering change,
as well as the details of any proposed change, to
enable IBM to determine whether to approve such
change, including:
(1) the effect of the change on the form, fit,
function, interface, reliability or
serviceability of the Equipment;
(2) StorageTek's reference number for the
proposed change;
(3) StorageTek's identification of the item to
be changed and whether any items should be
returned;
(4) description of and reason for the change
with sufficient engineering detail and
applicable validation data, as endorsed by
StorageTek's quality control process, to
enable the proposal to be assessed;
(5) the date and, if available at the time,
StorageTek's serial number from which
StorageTek proposes to implement the change;
(6) whether retroactive action is proposed and,
if so, the details of any necessary field
action and the initial availability of FRUs
(on Engineering Changes, StorageTek will
advise IBM about the effect on (a)
outstanding orders for Equipment; (b) units
of Equipment which are at the time of such
proposed change in for repair or
replacement; and (c)
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<PAGE> 24
the next batch of units of Equipment to be
delivered from StorageTek's plant on which
the Engineering Change should be
implemented);
(7) intended alterations to FRUs, documentation,
tools and other relevant material supplied
or to be supplied to IBM; and
(8) whether any parts will become obsolete as a
result of the change.
Except for any Emergency Engineering Changes,
StorageTek is required to obtain IBM's prior written
approval for each Engineering Change before
StorageTek's implementation of the same.
e. Revalidation. Upon implementation of each engineering
change, StorageTek agrees to perform revalidation
testing at no charge to IBM to ensure that the
Equipment so changed meets the Specifications.
f. Obsolete Upgrades and FRUs. If StorageTek makes any
Mandatory, Emergency or StorageTek-initiated
Engineering Change which renders any Upgrades and
FRUs obsolete (i.e., unusable), StorageTek shall
replace the obsolete Upgrades and FRUs at no charge
to IBM in accordance with the procedures set forth in
Section 9.2a, above. No returns are authorized for
field change kits that are requested as a result of
an optional IBM- initiated engineering change which
renders any Upgrade or FRU obsolete.
9.3 QUALITY LEVELS
a. RAS Criteria. StorageTek shall maintain (i)
throughout [**], and (ii) for a period of [**] after
the date of last Delivery of each type of Product
(provided IBM pays for the Product Engineering
Services unless it is not required to do so and
StorageTek is still providing Product Engineering
Services for its own distribution of Equipment or
Devices); the following reliability, availability and
service ("RAS") levels for the Products:
SERVICE CALL CALCULATION
<TABLE>
<CAPTION>
RAS Criteria [**] [**]
<S> <C> <C>
Service Call Rate [**] [**]
[**] [**] [**]
</TABLE>
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<PAGE> 25
For measuring Service Calls, the calculation of a
Machine Month is based on the use of a 180 GB and 360
GB machine configuration for Iceberg and Kodiak,
respectively.
IMPACT ERROR CALCULATION
<TABLE>
<CAPTION>
IMPACT ERRORS
------------------------------------------------
<S> <C> <C>
[**] [**]
------------------------------------------------
[**] [**] [**]
------------------------------------------------
[**] [**] [**]
------------------------------------------------
[**] [**] [**]
------------------------------------------------
</TABLE>
Such rates will be calculated based on the total
number of Impact Errors that occur during a calendar
quarter divided by the total number of Machine Months
during said quarter for Iceberg and Kodiak,
respectively.
EXAMPLE:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
OCTOBER NOVEMBER DECEMBER TOTAL
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
END OF MONTH
- --------------------------------------------------------------------------------------------------------------
INSTALL BASE [**] [**] [**] [**]
- --------------------------------------------------------------------------------------------------------------
IMPACT ERRORS [**] [**] [**] [**]
- --------------------------------------------------------------------------------------------------------------
FAILURE RATE [**]
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Impact Error measurements for Kodiak will not count
toward any criteria until the first quarter in which
[**] units of Kodiak have been installed by IBM.
The RAS measurements shall exclude impacts or
failures of Products where a microcode or engineering
change is available which, if installed, would have
prevented the impact or failure from occurring;
provided, however, that such microcode or engineering
change was made available by StorageTek for
installation pursuant to a nonemergency (i.e.,
generally distributed) engineering change at least
three (3) months prior to the date of an Impact Error
or Service Call. The RAS measurements will exclude
any Impact Errors and Service Calls that arise from
[**] or more concurrent Drive failures in the same
array, and any Service Calls and Impact Errors for
units of Iceberg and Kodiak installed as part of the
ESP, as defined in the SOW.
For the first ninety (90) days following the
availability of a Major Enhancement, IBM will
exercise reasonable efforts to install
19
<PAGE> 26
within 30 days engineering changes that StorageTek
designates as "critical."
Calculations of the actual Service Call Rate and
Impact Error Rate will be made based on U.S.
installations only.
IBM will notify StorageTek in writing of an Impact
Error within [**] after an Impact Error occurs. In
order to assist IBM in this notification process,
StorageTek will provide IBM with [**] to StorageTek's
[**]. IBM acknowledges that the [**], and IBM agrees
to keep such information confidential and in
accordance with the AECI between the Parties. If
detailed information about an Impact Error is needed,
then StorageTek will notify IBM in writing of its
need to obtain such information [**] after IBM
reports an Impact Error to StorageTek. Upon receipt
of StorageTek's written request for detailed
information, IBM will obtain and supply to StorageTek
the requested information, if and as available, [**]
after the receipt of StorageTek's written request.
StorageTek will analyze the available information and
determine whether an Impact Error occurred.
StorageTek will then communicate its decision in
writing as to whether it believes an Impact Error has
or has not occurred to IBM. If StorageTek believes
that an Impact Error has not occurred, then it will
provide in writing to IBM, [**] after StorageTek's
receipt of the available information, a reason for
StorageTek's belief that an Impact Error has not
occurred and shall [**]. If IBM fails to notify
StorageTek in writing of an Impact Error or to
provide written information that is available, within
the established time periods, then the [**]. If
StorageTek fails to request information in writing
from IBM, to provide in writing to IBM a reason for
its belief that an Impact Error has not occurred, or
to [**] in writing to the [**], within the
established periods, then the [**].
b. Error Free Installation Criteria. StorageTek shall
maintain a [**] Error Free Installation rate for
Products and Upgrades (separately calculated) until
the date on which IBM no longer markets Products and
Upgrades. These measurements will be calculated
separately for Products and Upgrades. This rate
assumes that an average IBM-customer subsystem
installation is comprised of an Iceberg subsystem, or
a Kodiak control unit and one connecting storage
cabinet. If the average IBM-customer installation for
the Kodiak Product involves more than one connecting
storage cabinet, then the [**] rate for Kodiak will
be reduced by [**] for each connecting storage
cabinet in calculating such average.
c. Levels for Future Functions. Features or functions
added after the initial shipment in volume of Iceberg
and Kodiak will be measured
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<PAGE> 27
against specific reliability, availability and
service criteria that is to be documented and
addressed in each applicable product development plan
and related specification for the future feature or
function, but in any event they must meet the Iceberg
and Kodiak criterion as specified herein.
d. Guardband. StorageTek shall not be considered to be
failing to meet the criterion unless the percentage
by which IBM's actual measurements exceeds the
criterion is at least higher than the Guardband
percentage set forth above in Section 9.3a for
Service Calls or Impact Errors.
e. Action Plan. If StorageTek fails to meet the Service
Call Rate, Impact Error Rate, or Error Free
Installation Rate, then StorageTek shall promptly
investigate the cause of the failures, and generate
and provide to IBM within ten (10) days a root-cause
failure analysis that describes the cause of the
failures. StorageTek will promptly develop and
implement an action plan acceptable to IBM to resolve
such failures, which plan shall include remedies for
failure to meet the Service Call Rate, Impact Error
Rate, or Error Free Installation Rate in such action
plan.
StorageTek shall provide all support necessary to
meet an agreed-upon repair turnaround time that is
established in the action plan to maintain IBM's
customers' satisfaction. StorageTek's plan may
include, but is not limited to increased repair
capacity (i.e., labor, equipment, facilities);
expedited freight; and providing new, repaired and/or
upgraded buffer stock to IBM's stocking locations,
distributors and customer sites.
f. Price Reduction for FRU Costs. StorageTek shall
provide a price reduction to IBM [**] after the date
of last Delivery of each type of Products in an
amount that is equal to [**] ("Excess FRU Cost"). The
calculation of this price reduction shall
specifically exclude [**]. The price reduction
provided hereunder may [**] StorageTek. Any claim to
such price reduction will be deemed waived if not
made by IBM no later than [**] days after the [**] in
which such Excess FRU Cost occurred.
g. Reporting of FRU Consumption. IBM will provide a
quarterly report to StorageTek that summarizes
IBM-reported fault symptom information for the
consumption of FRUs in repair actions that are
undertaken by IBM in the United States. The
summarized information in this report will be
adjusted by IBM to exclude those items which qualify
as Cost Exclusions. This information is considered to
be IBM confidential, and StorageTek agrees to keep
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<PAGE> 28
such information confidential under the terms of the
Agreement for Exchange of Confidential Information
between the Parties.
h. Credit for Labor Costs. The target for labor required
for repair actions (including [**] and those repair
actions related to [**], but excluding labor required
for [**] is [**] for each [**] during a Machine
Month. StorageTek shall provide a credit to IBM on a
[**] basis up through [**] after the date of last
Delivery of Product, upon StorageTek's receipt of
appropriate supporting documentation, for average
labor costs per Machine Month incurred by IBM in
connection with repair actions that are in excess of
[**] of that [**] target ("Excess Labor Cost"). The
amount of this credit will be calculated by
multiplying the number of hours in excess of [**] of
that [**] target by a rate of [**] per hour. In the
event that IBM incurs labor costs in excess of [**]
of that [**] target and the Parties determine that
the incurrence of [**], then a [**] action will be
developed and implemented. This plan shall include
[**]. The calculation of Excess Labor Cost will be
based on [**] and [**]. The credit provided hereunder
may [**] be used by [**], first, by [**] against any
[**] during the [**]; second, against [**]; or third,
[**] after [**]. Any claim to such credit will be
deemed waived if not made by IBM no later than [**]
days after the [**] in which such Excess Labor Cost
occurred.
i. Attainment. The RAS criteria will be separately
calculated and applied to Iceberg and Kodiak. If
StorageTek fails to meet the established RAS criteria
for Service Calls or Impact Error rates set forth in
Section 9.3a for Iceberg or Kodiak in any calendar
quarter (after taking into consideration the
applicable Guardbands), then StorageTek shall be
given until the end of the immediately succeeding
quarter to implement the action plan described in
Section 9.3e, above.
If the RAS criteria is missed again during an
immediately succeeding [**], then an amount equal to
[**] by which the RAS experience for such period was
more than the target RAS criterion set forth in
Section 9.3a., above, for a [**] with [**] shall be
[**] and [**] purchases and any [**] obtained under
this Agreement [**] such [**] to determine the [**]
of [**] to be acquired during [**]. In the event that
this [**] results in a [**] of [**] and [**]
purchases and any [**] obtained under this Agreement
during [**] that is [**], then IBM shall [**] and
[**] in an [**] Section 9.3a., above, for each [**]
toward [**] over [**].
If the Parties agree on a [**] for [**] purchases and
the RAS criteria is missed again during an
immediately succeeding [**], then IBM [**] and/or
[**]. The amount of [**] that IBM
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<PAGE> 29
will obtain will be calculated by [**] set forth in
Section 9.3a, above, for a miss associated with [**].
However, if IBM reaches [**] whereby [**], or if [**]
by the Parties, then IBM will [**] and [**] that is
equal to the [**] and [**] [**] (i) the [**]; and
(ii) [**].
The Parties agree that [**], which will be [**] by
the Parties, shall be available with regard to a RAS
criteria miss [**]. Notwithstanding anything to the
contrary, no [**] or [**] shall be given to IBM with
respect to any RAS criteria miss for [**] until [**];
or for [**] during [**] and any [**].
The [**] that IBM is [**] will be calculated
separately for "Service Calls" and "Impact Errors."
Such separate amounts will be aggregated to determine
the amount of the credit that IBM is entitled to
receive and [**] of [**] and [**].
9.4 QUALITY ASSURANCE
StorageTek shall maintain at its sole cost and expense an
effective quality control system to maintain under continuous
control the entire process of design, manufacture and FRU
repairs, including the packaging and shipping of Equipment.
This system shall include checks to verify that all
requirements of the Specifications are satisfied.
StorageTek is responsible to insure that workmanship,
construction and other standards specified by this system
satisfy the requirements of the Specifications. StorageTek's
quality assurance shall be applied in a manner that will
maintain a consistent level of quality. StorageTek's quality
control procedures and instructions shall be made available to
StorageTek's employees, agents, contractors and
subcontractors, and to IBM, at the place of manufacture.
Upon request, IBM may conduct inspections on a
non-interference basis at StorageTek's manufacturing and
repair plants at any time during normal working hours provided
that, within 24 hours if an emergency situation exists or at
least three (3) days under non-emergency situations, prior
written notice is given by IBM. StorageTek will use reasonable
efforts to accommodate visits on shorter notice. Such
inspection may, at IBM's option, include the witnessing of
tests and inspection of Equipment, whether completed or not.
StorageTek will promptly take appropriate corrective action
with regard to any deficiencies found by IBM and reasonably
agreed to by StorageTek.
9.5 ISO 9000 CERTIFICATION AND USE OF SUBCONTRACTORS
StorageTek shall maintain ISO 9000 certification, and use
statistical process control systems to monitor quality, for
its manufacturing and
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<PAGE> 30
development processes for Equipment supplied to IBM during the
term of the Agreement.
StorageTek shall ensure that its subcontractors that are
involved with the manufacturing and development of Equipment
shall maintain ISO 9000 certification, and use similar
statistical process control systems to monitor quality.
StorageTek shall also ensure that its suppliers who provide
parts, assemblies or subassemblies that are used in the
manufacturing and development of Equipment shall maintain ISO
9000 certification or use reasonable process control systems
to monitor quality.
It is the sole responsibility of StorageTek to select and
manage its suppliers. StorageTek will make available to IBM,
upon request, a list of all suppliers that are used to supply
parts or components in StorageTek's manufacturing process for
Equipment. StorageTek agrees to use its best efforts to notify
IBM of any additions or changes made in its suppliers. If IBM
reasonably determines that there is a supplier that may be of
concern to it, then StorageTek shall develop and implement a
mutually agreeable plan to address IBM's concerns.
StorageTek shall provide, upon written request by IBM, all
information pertaining to the measurements of quality that are
made for Equipment, and generated or derived from StorageTek's
statistical process control systems.
StorageTek is solely responsible for the quality of Equipment
supplied to IBM. Review and approval by IBM of StorageTek's or
any of its subcontractor's quality process systems does not
relieve StorageTek of this responsibility.
StorageTek agrees to notify IBM of any planned significant
changes that may adversely affect its manufacturing processes
or could adversely affect the form, fit, function, quality,
reliability, serviceability or safety of the Equipment to be
supplied to IBM no later than ninety (90) days before planned
implementation.
10. PRODUCT LEAD TIMES AND FORECAST
10.1 IBM will provide a monthly build forecast to StorageTek for a
[**] period (or a period equal to the remaining term of this
Agreement if less than [**]). The current quarter forecast
will be broken down by week and by Delivery location. Volumes,
specified in units of Product and Upgrades by Delivery
location, for the quarter following the then-current quarter
will be established and provided to StorageTek no later than
[**] prior to the start of any given quarter. At such time,
the forecast for the upcoming quarter will be binding, subject
to the quarterly volume modifications referred to in Sections
10.2 and 10.3. Except as otherwise provided in the preceding
sentence, volume forecasts are provided as good faith
estimates
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of IBM's anticipated requirements for Products and Upgrades
for the periods indicated based on current market conditions
and do not constitute commitments to purchase any fixed
quantity of Products.
10.2 StorageTek agrees to supply, and IBM agrees to issue purchase
orders for and take Delivery of, during any current quarter,
and to pay for in accordance with Section 7 above, [**] of the
[**] units forecasted for the [**] in the binding forecast
provided by IBM to StorageTek pursuant to Section 10.1. Unless
IBM [**] in the [**] by issuing purchase orders therefor,
StorageTek agrees to use such [**] to satisfy the next
quarter's orders. Any units not required under this section to
be purchased and delivered in the then-current quarter will be
applied to and delivered to fulfill the next-following
quarter's forecast before any new orders for such
next-following quarter are fulfilled.
10.3 After IBM provides a binding forecast to StorageTek pursuant
to Section 10.1, IBM may also require StorageTek to Deliver
during the current quarter by issuing purchase orders for [**]
and [**], for which IBM shall pay in accordance with Section
7, above, up to [**] of the units forecasted as of date the
volumes became binding as provided in Section 10.1.
10.4 CURRENT QUARTER
Subject to Sections 10.2 and 10.3, solely to assist StorageTek
in planning its manufacturing operations for units that are
forecasted for the current quarter, IBM will provide
modifications to the previously submitted weekly schedules in
the current forecast, as follows:
<TABLE>
<CAPTION>
FLEXIBILITY NOTICE PERIOD
TARGET (in days from anticipated
Delivery date)
--------------
<S> <C> <C>
+/-[**] within [**]
+/-[**] within [**]
+/-[**} within [**]
</TABLE>
StorageTek shall [**] in accordance with the binding forecast
unless IBM issues purchase orders for [**]. Any modifications
that IBM makes to the [**] shall not affect IBM's obligation
to purchase [**] that were originally forecasted for the [**]
unless IBM submits binding purchase orders for additional
units of [**] and [**]. In addition, under no circumstances
shall StorageTek be required to Deliver to IBM per the matrix
above more than [**] of [**] or [**] during the [**] , and the
[**].
10.5 STORAGETEK'S ALLOCATION
a. If StorageTek is unable to meet its Delivery
commitments and must allocate its capacity,
inventory, test equipment, resources, use
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of personnel, parts, components, supplier resources
and capabilities, etc., that are used to produce
Equipment, then StorageTek agrees to:
(1) act in good faith; and
(2) allocate its capacity, supplier resources
and capabilities, inventory, test equipment,
resources, use of personnel, parts,
components, and available supply of [**],
among IBM and other customers based upon the
delivery dates requested in purchase orders
received by StorageTek from IBM and other
customers.
For a given date, StorageTek will allocate production
for shipment to IBM and other customers on a [**]
basis.
b. StorageTek will allocate parts, components and
materials in accordance with the following
priorities:
(1) Code A FRUs order/requirements are filled
first; and
(2) then a fair allocation between manufacturing
orders and nonemergency maintenance parts
order/requirements.
11. PURCHASE ORDERS, ALTERATIONS & RESCHEDULING
11.1 IBM may submit purchase orders at any time; provided, however,
that subject to Section 11.6, any order shall be binding on
both Parties if such order is within the forecast range set
forth in Sections 10.2 and 10.3, and is submitted not less
than ten (10) business days before IBM's requested date of
Delivery. IBM may request that StorageTek deliver in fewer
than ten (10) business days and StorageTek may agree to do so,
which delivery shall hereafter be referred to as "Expedite
Shipment."
11.2 This Agreement does not constitute a purchase order. IBM may
issue purchase orders from time to time during the term of
this Agreement in either electronic (EDI) or written form.
Authorization to StorageTek to perform any work or produce any
Equipment under this Agreement will be through IBM purchase
orders only. Alterations to the quantity, delivery date,
engineering level, or other items on purchase orders may be
made by IBM from time to time, subject to StorageTek's
agreement. Purchase orders will be considered noncancelable
within ten (10) days of the scheduled Delivery date.
11.3 IBM shall submit its purchase orders to StorageTek at the
address set forth in the Notices section of this Agreement.
IBM's purchase orders will include:
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<PAGE> 33
a. IBM's part, model or feature numbers, configuration
and description of Equipment;
b. quantity required;
c. unit or item price and total order price;
d. required delivery date(s);
e. delivery instructions (including a carrier who will
accept delivery at StorageTek's address); and
f. reference to this Agreement.
Unless otherwise specifically agreed to in writing, additional
terms and conditions on IBM's purchase orders or on
StorageTek's acknowledgment, whether in conflict with this
Agreement or not, are superseded hereby and are of no force
and effect.
11.4 StorageTek agrees to accept conforming IBM purchase orders and
to manufacture, supply and Deliver Equipment in accordance
with the terms and conditions of this Agreement. StorageTek
agrees to provide written acknowledgment of IBM's purchase
orders within two (2) days, for volumes within IBM's forecast,
or within five (5) days, for volumes in excess of IBM's
forecast, as measured from StorageTek's actual receipt of the
purchase order (without regard to the Notices section of this
agreement, except for EDI) which purchase order may be made
verbally and/or in advance of StorageTek's receipt of a hard
copy confirming such order. If StorageTek's acknowledgment is
not received by IBM within the two (2) or five (5) day period,
as described above, from the date of receipt of the purchase
order from IBM, then the purchase order, including the
requested delivery date(s) will be deemed to be accepted by
StorageTek. StorageTek may not reject any IBM purchase order
that conforms to the requirements of this Agreement and covers
quantities forecasted by IBM, as described in Section 10.
11.5 Orders for FRUs needed on a "Code A" basis (i.e.,
emergency-customer down) will be shipped by StorageTek within
twenty-four (24) hours at a price not to exceed the lesser of
[**] of the price in Exhibit 5 or such price plus [**], with
IBM designating the carrier and being responsible for freight
and insurance costs. However, IBM will not pay any premium
(i.e. pay only 100%) for Code A FRUs necessitated because
StorageTek has failed to deliver nonemergency FRU orders
within the lead times set forth in Exhibit 5.
11.6 Except for any [**] issued by IBM to StorageTek for [**] to be
Delivered after the [**] this Agreement, IBM may cancel
purchase order(s) or any portions thereof for any reason by
notifying StorageTek in writing at least
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<PAGE> 34
ten (10) days prior to the scheduled Delivery date.
Cancellation will be effective upon StorageTek's receipt of
the written cancellation notice from IBM. StorageTek will
immediately cease building such units for the affected
purchase order(s) in accordance with the cancellation notice.
IBM will have no liability for canceled purchase orders other
than as set forth in Section 10.2.
11.7 If for any reason StorageTek is unable to Deliver as required
by accepted IBM purchase order(s), and fails to correct such
inability within [**] of such failure, IBM will have the right
to cancel such purchase order(s) or portions thereof by
notifying StorageTek in writing. If IBM cancels purchase
orders under this Section 11.7, IBM's only obligation will be
to pay for Products or Upgrades already Delivered at the time
of IBM's cancellation notice.
11.8 Due to ongoing and unpredictable market conditions, StorageTek
agrees to permit IBM, upon written notice to StorageTek, to
require StorageTek to reconfigure units of Products and
Upgrades as follows:
a. Configuration changes that do not change a unit model
number may be made without additional cost until [**]
before scheduled Delivery; and
b. Any other configuration changes may be made at any
time (including Product and Upgrades that require
reconfiguration after Delivery) and such
configuration changes will be [**]. StorageTek and
IBM will agree in advance on a schedule of lead times
and costs that will apply to such configurations.
11.9 Subject to Section 10, IBM may reschedule purchase order(s) or
any portions thereof for any reason by notifying StorageTek in
writing at least [**] prior to the Delivery Date specified on
the purchase order(s).
11.10 For the last quarter of this Agreement, the purchase orders
submitted by IBM to StorageTek shall be noncancelable unless
StorageTek is manufacturing Devices.
11.11 Except as otherwise provided in [**] Products and Upgrades
that are supplied to IBM hereunder will consist of new parts
and components. FRUs that IBM returns will be reworked by
StorageTek to an equivalent-to-new reliability level. Such
reworked FRUs will not be used in any new Products or Upgrades
Delivered to IBM hereunder, but may instead be returned to IBM
as reworked FRUs.
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<PAGE> 35
12. CONSIGNMENT
12.1 IBM will consign certain disk drives ("Drives") to StorageTek
for use in Equipment. Except as otherwise provided in [**] of
the IDA, Drives supplied by IBM to StorageTek shall only be
used by StorageTek to build Equipment for IBM and shall remain
the property of IBM. This Section 12 shall not apply to [**]
StorageTek pursuant to the terms of Section 8 of this
Agreement.
12.2 StorageTek agrees to adhere to the terms and conditions of the
IBM Consignment Agreement, attached hereto as Exhibit 4,
provided, however, that the terms of this Section 12 prevail
over those of Exhibit 4.
12.3 IBM agrees to consign Drives to StorageTek in accordance with
a mutually agreed Profile based on at least a five-day buffer
ahead of StorageTek's build cycle, and including a yield
factor based upon the previous quarter's experience and
calculated using a mutually agreed formula. Any Drives, or
other IBM-supplied parts and components, that are not used by
StorageTek due to integration fall-out will be returned to IBM
within ten (10) days after such fall-out.
12.4 If IBM fails to provide consigned Drives to StorageTek in
accordance with Section 12.3, and StorageTek's manufacturing
line is down such that StorageTek cannot meet its Delivery
dates to IBM, then StorageTek will agree, per Section 10.2, to
hold up to [**], as the case may be, of such undelivered and
forecasted Products and Upgrades, without Drives, in inventory
for up to [**]. If the amount of such Products and Upgrades
held in inventory exceeds [**] of the forecasted volumes then
StorageTek will notify IBM, and IBM will [**].
12.5 If IBM Drives are not available for an extended period of
time, IBM may request assistance from StorageTek in securing
drives from other drive manufacturers in lieu of using IBM
Drives. StorageTek agrees, on a best effort basis, to assist
in securing the most cost effective, high quality alternative,
and with the agreement of IBM, to take the steps necessary to
integrate such drives into the Product. In such event, the
parties will agree in advance on an equitable division of
StorageTek's cost of securing, qualifying and integrating such
drives, including any cost relating to inventory or required
firm purchase commitments even if such substitution is only
temporary in nature.
12.6 StorageTek agrees to return to IBM freight collect any Drives
in StorageTek's inventory, within five (5) days of receipt of
IBM's written (or EDI) request.
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<PAGE> 36
13. DELIVERY
13.1 ON-TIME DELIVERY
a. StorageTek shall use its best efforts to ensure that
every scheduled Delivery date is met. StorageTek must
notify IBM in advance if a scheduled Delivery date
will not be met. StorageTek will make every
reasonable effort at its expense to ensure the
earliest possible Delivery date and quantities for
late Equipment, including, but not limited to,
overtime and expedite charges. "On schedule" means
[**]. Unless delay is caused by IBM's delay in its
supply of Drives or IBM-supplied parts and
components, StorageTek will arrange for premium
transportation and pay, at StorageTek's sole cost and
expense, for the difference between normal
transportation and such premium transportation,
including, but not limited to, air transportation and
expedited freight charges. StorageTek also agrees to
provide, at IBM's request, an action plan to correct
late shipments and to resolve any Delivery problems.
b. If, during any [**] period, StorageTek fails, on a
one-time basis only, to Deliver more than [**], but
not more than [**], of the units of [**] and [**]
that are scheduled for Delivery in a calendar month
by their scheduled Delivery dates, then StorageTek
shall be required to expedite shipment of such units
in accordance with Section 13.1. If more than [**] of
such units of [**] and [**] are Delivered late in
[**], then an amount equal to [**] the number of [**]
that were [**] [**] in excess of [**] shall be added
to [**] and [**] purchases and credits obtained under
this Agreement during [**] (i.e., as though IBM had
already purchased such [**]) to determine the [**] to
be [**] during [**] . In the event that this [**]
results in a combined volume of [**] and [**]
purchases and credits obtained under this Agreement
during [**] that is [**], then IBM shall receive a
[**] and [**] in an amount equal to [**] under this
Section 13, On-time Delivery; provided, however, that
under no circumstances shall IBM receive any [**]
hereunder after the combined total of [**] and [**]
purchases and credits [**] [**] obtained under this
Agreement exceeds [**] during the [**].
c. If StorageTek fails to Deliver more than [**] of the
units of [**] and [**] that are scheduled for
Delivery by their scheduled Delivery dates in the
[**] , and except for units subject to the [**]
provision defined in 13.1b, above, then an amount
equal to [**] the number of [**] that were [**] shall
be [**] and [**] obtained under this Agreement during
[**] to determine [**] of future units of [**] to be
acquired during [**]. In the event that this [**]
results in a combined volume of [**] and [**]
purchases and credits obtained under this Agreement
during [**] that is [**], then IBM shall [**] to be
[**] in an amount equal to [**] under this Section
13, On-time Delivery; provided, however, that under
no circumstances shall IBM receive any [**] hereunder
after the combined total of
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<PAGE> 37
[**] and [**] purchases and credits [**] obtained
under this Agreement exceeds [**] during the [**].
d. If, in the [**] following any [**] in which a [**]
was made under this Section 13.1, StorageTek fails to
Deliver more than [**] of the units of [**] and [**]
that are scheduled for Delivery by their scheduled
Delivery dates, then an amount equal to [**] the
number of [**] shall be [**] to [**] and [**]
purchases and credits obtained under this Agreement
during [**] [**] to determine [**] of future units of
[**] to be acquired during [**] . In the event that
this [**] results in a combined volume of [**] and
[**] purchases and credits obtained under this
Agreement during [**] that is [**], then IBM shall
receive a [**] and [**] in an amount equal to [**]
under this Section 13, On-time Delivery; provided,
however, that under no circumstances shall IBM
receive any [**] hereunder after the combined total
of [**] and [**] purchases and credits in [**]
obtained under this Agreement [**] during the [**].
e. If, in the next following month, StorageTek fails to
Deliver more than [**] of the units of [**] and [**]
that are scheduled for Delivery by their scheduled
Delivery dates, then an amount equal to [**] the
number of [**] that were [**] by StorageTek shall be
[**] and [**] purchases and credits obtained under
this Agreement during [**] to determine [**] of
future units of [**] to be acquired during [**]. In
the event that this addition results in a combined
volume of [**] and [**] purchases and credits
obtained under this Agreement during [**] that is
[**] , then IBM shall receive a [**] and [**] in an
amount equal to [**] under this Section 13, On-time
Delivery; provided, however, that under no
circumstances shall IBM receive any [**] hereunder
after the combined total of [**] and [**] purchases
and credits in [**] obtained under this Agreement
[**] during the [**].
f. If, in the next following month, and for each
additional consecutive month, StorageTek fails to
Deliver more than [**] of the units of [**] and [**]
that are scheduled for Delivery by their scheduled
Delivery dates, then an amount equal to [**] the
number of [**] that were [**] by StorageTek shall be
[**] and [**] purchases and credits obtained under
this Agreement during [**] to determine [**] of
future units of [**] to be acquired during [**] . In
the event that this addition results in a combined
volume of [**] and [**] purchases and credits
obtained under this Agreement during 1998 that is
[**], then IBM shall receive a [**] and [**] in an
amount equal to [**] under this Section 13, On-time
Delivery; provided, however, that under no
circumstances shall IBM receive any [**] hereunder
after the combined total of [**] and [**] purchases
and credits in [**] [**] during the [**].
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<PAGE> 38
g. Notwithstanding anything to the contrary in this
Section, and in lieu of credits provided in other
paragraphs of this Section, if, in any calendar
month, and subject to Section 13.1b. above,
StorageTek fails to Deliver more than [**] of the
units of [**] [**] and [**] that are scheduled for
Delivery by their scheduled Delivery dates, then an
amount equal to [**] the number of [**] that were
[**] by StorageTek shall be added to [**] and [**]
purchases and credits obtained under this Agreement
during [**] to determine [**] of future units of [**]
to be acquired during [**] . In the event that this
addition results in a combined volume of [**] and
[**] purchases and credits obtained under this
Agreement during [**] that is greater than [**] then
IBM shall receive a [**] and [**] in an amount equal
to [**] under this Section 13, On-time Delivery;
provided, however, that under no circumstances shall
IBM receive any [**] hereunder after the combined
total of [**] and [**] purchases and credits in [**]
[**] of [**] during the [**] .
h. Any credit [**] by StorageTek to IBM [**] such [**]
and [**] [**] by StorageTek [**] credited.
i. Notwithstanding anything to the contrary in this
Section, units of [**] and [**] which StorageTek
fails to Deliver by the Delivery date will not be
counted as failures to Deliver if StorageTek causes
such units to be delivered to IBM customers by the
delivery date IBM has committed to such customers
(the "Commit Date") or if IBM has requested
StorageTek to Expedite Shipment and StorageTek fails
to do so within the period specified in Section 11.1.
IBM will notify StorageTek in writing prior to the
Commit Date in order to give StorageTek an
opportunity to expedite shipment, [**] . IBM will
also notify StorageTek in writing of each unit of
[**] or [**] which fails to arrive by the Commit
Date.
j. If IBM fails to deliver Drives to StorageTek in
accordance with the [**] in Section [**] of this
Agreement and this delay results in [**] in
accordance with [**], then IBM agrees to [**], and
StorageTek agrees to [**], and such units [**].
k. Subject to Section 13.1(i), if StorageTek fails to
deliver to IBM more than [**] of the units of
Products and Upgrades scheduled for Delivery by the
scheduled Delivery dates in a month, for [**]
consecutive calendar [**] then the payment terms in
Section 7.10a will be immediately extended by [**]
until [**] after the first month in which StorageTek
Delivers 98% or more of [**] and [**] by their
scheduled Delivery dates. Notwithstanding the
foregoing, this Section 13.1(k) shall not apply [**]
units of [**] and [**] are
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<PAGE> 39
Delivered during each month of any [**] consecutive
calendar month period.
l. If the Parties agree on a [**] for [**], the Parties
agree that similar remedies as those in Sections
13.1(b) through 13.1(g) shall apply to units of [**]
to be Delivered during the [**]. However, if IBM
reaches [**] whereby [**], or if [**] by the Parties,
then IBM will [**] calculated in a manner consistent
with Sections 13.1(b) through 13.1(g).
m. The Parties agree that similar remedies as those set
forth above in this Section 13, which will be [**] by
the Parties, shall apply for units of [**] to be
Delivered through [**] . IBM expressly reserves the
right to assert that any failure to ship [**] and
[**] on a timely basis could constitute a material
breach of StorageTek's obligations under this
Agreement.
13.2 CARRIER
It is understood and agreed that IBM shall make all
arrangements for shipments of the Equipment. It shall be the
responsibility of IBM, at its own expense, to supply
StorageTek with detailed documentation and instructions and
all necessary export licenses, customs declarations and
certificates in properly executed form required for successful
shipment of Equipment from the Manufacturing Site and entry
into foreign territories. StorageTek shall notify IBM when
Equipment is ready for shipment from StorageTek's plant. IBM
will pay all shipping and transportation charges directly to
the carrier or freight forwarder as long as shipped in
accordance with IBM's routing instructions. If IBM requests
that StorageTek arrange shipping, IBM shall reimburse
StorageTek for the shipping charges pursuant to StorageTek's
invoice. In no event will IBM reimburse StorageTek for, or pay
any C.O.D. charges, should StorageTek ship by another carrier
without prior IBM approval. If StorageTek ships using other
than an IBM-approved carrier, StorageTek is responsible for
any incremental increase in freight charges.
13.3 TITLE/RISK OF LOSS
Title to Equipment and risk of loss shall pass to IBM at
StorageTek's plant of manufacture loading dock. [F.O.B. by
UCC/ExWorks by INCOTERMS]; provided, however, that
notwithstanding anything to the contrary in this Agreement
title to all Licensed Works will remain with StorageTek,
except as provided in the IDA and its related Attachments. All
claims for shipping damage shall be resolved between IBM,
carriers or freight forwarders handling the Equipment and the
insurance companies and agents responsible for adjusting such
claims, and StorageTek shall have no responsibility with
respect thereto. However, at IBM's request,
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<PAGE> 40
StorageTek agrees to cooperate reasonably with IBM in filing
and settling such claims.
13.4 PACKAGING
StorageTek will package each unit of Equipment according to an
agreed-upon Specification for packaging. The prices for
Equipment include all packaging costs.
14. EQUIPMENT WARRANTY
14.1 StorageTek warrants that units of Equipment (excluding Drives
and nonserialized FRUs) that are to be provided to IBM
hereunder conform to the Specifications and are and shall
remain free from defects in materials and workmanship, for the
time periods specified in this Section 14.1.
a. The warranty period for each unit of Products and
Upgrades shall be [**] after the earlier of:
(1) [**]; or
(2) [**].
b. StorageTek will serialize the FRUs identified as
serialized on Exhibit 5, and as to those FRUs the
warranty period shall be [**] after the earlier of:
(1) [**] ; or
(2) [**].
14.2 All warranties provided by StorageTek to IBM hereunder shall
survive any inspection, delivery, acceptance and payment and
shall not be affected by the fact that IBM has resold, rented
or leased units of Equipment to others.
14.3 IBM will maintain failure records for Products and Upgrades to
the same extent as IBM maintains such records for similar
high-end direct access storage device products marketed by it.
If IBM believes failures for a given serial number unit of
Equipment warrants replacement, IBM may request and StorageTek
may agree to replace the same at no cost to IBM. StorageTek's
agreement will not unreasonably be withheld. In order to
improve Equipment quality and minimize costs, StorageTek may
request relevant information from the data which IBM retains
regarding failure by machine serial number. IBM may agree to
provide such information to StorageTek. Such agreement will
not be unreasonably withheld.
14.4 StorageTek's liability under warranty pursuant to Section 14.1
is limited to: Delivery to the IBM regional stocking locations
specified by IBM of retrofit kits (containing FRUs) with
installation instructions (at no charge
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<PAGE> 41
to IBM) as necessary to make Equipment conform to the
Specifications, or otherwise be free from defects in materials
and workmanship; or repair or replacement, at StorageTek's
option, without cost to IBM, of the defective Equipment. IBM
will use reasonable efforts to resolve customer issues through
use of FRUs or retrofit kits before requesting repair or
replacement of the defective Product or Upgrade. Labor to
remove defective FRUs and install replacement FRUs under this
warranty shall be supplied by IBM at no charge to StorageTek,
subject to Section 9.3h. Where warranty can be provided by
replacing a FRU, StorageTek will provide and IBM will install
the replacement FRU.
14.5 All warranty claims shall be made by IBM, regardless of any
transfer of title or possession of the Equipment by IBM to
other parties, and StorageTek agrees that IBM may make
warranty claims against StorageTek on the behalf of any
rightful user or possessor of the Equipment.
14.6 StorageTek's liability to perform warranty under this Section
14 shall not apply to failures of any unit of Equipment
caused by:
a. Physical abuse or use that is not consistent with
operating instructions for the Equipment; or
b. Modification (by other than StorageTek's personnel or
agents) in any way other than approved by StorageTek;
provided, however, that the warranty shall not be
voided by repair or replacement of FRUs or the
attachment of items in the manner described in
maintenance or installation instructions provided by
StorageTek.
14.7 Claims under the terms of this warranty shall be submitted to
StorageTek in writing (including EDI) and shall clearly state
the Product or Upgrade serial number. Where available, IBM
shall send StorageTek its field defect report. Defective FRUs
replaced under this warranty become the property of
StorageTek.
14.8 Both Parties will ensure that FRUs returned to the other Party
are properly and adequately packaged, and IBM agrees to use
the same or equivalent packaging as StorageTek uses to package
such FRUs.
14.9 StorageTek shall use reasonable commercial efforts to complete
repairs of FRUs for in-warranty units within thirty (30)
business days after the date StorageTek receives the defective
FRUs, but in any case, it will complete repairs of the FRUs at
no charge to IBM within sixty (60) days after receipt. If,
upon receipt, StorageTek determines that such defective FRUs
are not repairable or if StorageTek has not completed its
failure analysis on any FRU within ten (10) business days
after StorageTek's receipt, then replacement FRUs will be
provided at no charge by StorageTek to IBM within ten (10)
business days. If StorageTek cannot find a defect or
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<PAGE> 42
assignable cause in a FRU that is returned by IBM as
defective, StorageTek will replace the received FRU and will
ensure that the FRU is not included in Equipment and cannot be
returned in the future to IBM.
14.10 LICENSED PROGRAMS, MICROCODE AND MAINTENANCE CODE WARRANTY
a. StorageTek warrants that the Licensed Programs and
Microcode will conform to the Specifications, as such
Specifications may be modified by any Product
Development Plan, and are and shall remain free from
defects in workmanship. The Maintenance Code shall
remain free from defects in workmanship. The
warranties set forth in this Section 14.10 shall not
apply to:
(1) use of the Licensed Programs or Microcode
which is not in accordance with the end user
documentation delivered by [**], pertaining
to the Licensed Programs or Microcode;
(2) use of the Licensed Programs or Microcode
with other than the hardware described in
the Specifications;
(3) use of the Licensed Programs, Microcode and
Maintenance Code in other than the software
configuration described in the
Specifications;
(4) any modifications of the Licensed Programs,
Microcode and Maintenance Code not made or
authorized by [**];
(5) use of other than the then-current, or
immediately preceding, version of the
Licensed Programs; or
(6) [**] that [**] by [**] of the Microcode.
StorageTek does not warrant that the functions
contained in the Licensed Program and Maintenance
Code will satisfy IBM's or its end user's
requirements to the extent such requirements are
different than those set forth in the Specifications,
as such Specifications may be modified by any Product
Development Plan, or that the Licensed Programs will
[**] or its [**], or that the [**] of the Licensed
Programs and Maintenance Code will be [**].
b. In the event of a breach of the warranties contained
in this Section 14.10, StorageTek will exercise
reasonable commercial efforts to implement
appropriate procedures to correct such breach in
accordance with Section 16.4, for Licensed Programs
and Microcode and Section 16.3 for Maintenance Code.
14.11 StorageTek warrants that it will competently perform all work
relating to the Deliverables in a manner consistent with
ordinary Microcode
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programmers skilled in the art, and, further, all Deliverables
will conform to the mutually agreed-upon Specifications.
14.12 THE WARRANTIES IN SECTIONS 14 AND 18 OF THIS OEM AGREEMENT,
AND IN PART 6 OF THE SOURCE CODE CUSTODY AGREEMENT, ARE IN
LIEU OF ALL OTHER WARRANTIES EITHER WRITTEN, ORAL OR IMPLIED
WITH RESPECT TO THE EQUIPMENT, DELIVERABLES, LICENSED PROGRAMS
AND MAINTENANCE CODE.
STORAGETEK DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE. EXCEPT AS OTHERWISE
PROVIDED IN SECTION 18.2, STORAGETEK ALSO DISCLAIMS THE
IMPLIED WARRANTY OF NONINFRINGEMENT.
STORAGETEK'S WARRANTY OBLIGATIONS SHALL EXTEND ONLY TO IBM,
AND STORAGETEK SHALL HAVE NO LIABILITY ARISING OUT OF ANY
WARRANTIES PROVIDED BY IBM WHICH ARE BEYOND STORAGETEK'S
WARRANTY OBLIGATIONS IN THIS AGREEMENT.
IBM'S EXCLUSIVE REMEDY FOR A BREACH OF THE WARRANTY SET FORTH
IN THIS SECTION 14 IS SET FORTH IN SECTION 14.4 FOR EQUIPMENT,
AND SECTION 14.10(b) FOR LICENSED PROGRAMS, MICROCODE AND
MAINTENANCE CODE, PROVIDED, HOWEVER, THAT STORAGETEK PROMPTLY
PERFORMS ITS WARRANTY OBLIGATIONS PURSUANT TO SECTION 14.
15. FRUS
15.1 During the term of this Agreement and for [**] after the last
Delivery of Product or Upgrades, or for so long as StorageTek
makes FRUs available to any other entity, whichever is later,
StorageTek agrees to provide FRUs to IBM. The list of FRUs and
their respective prices and lead times are described in
Exhibit 5, which Exhibit will be updated semiannually (in
January and July).
15.2 Notwithstanding anything herein to the contrary, if StorageTek
intends to discontinue producing or making available any FRU
after the [**] obligation set forth above, StorageTek agrees
to provide IBM with twelve (12) months' prior written notice
of such intent and permit IBM to purchase as many FRUs as IBM
reasonably believes it will need for the Products. In the
alternative, and at IBM's option, StorageTek agrees to grant
IBM the right to manufacture such FRUs in accordance with
Section 23.6.
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15.3 FRUs shall be packaged in the same or equivalent packaging as
StorageTek used to package such FRUs. Return of FRUs for
repair or replacement is subject to a reasonable material
return procedure to be mutually agreed between the Parties.
15.4 FRU REWORK PROCEDURES AND PRICES
a. StorageTek will attempt to rework/repair all FRUs
returned from IBM and return them to IBM within 30
days of receipt. At IBM's request, StorageTek will
also ship to IBM any unrepairable FRUs.
b. Except as otherwise provided in Section 9, Quality,
and Section 14, Equipment Warranty, StorageTek will
invoice IBM, and IBM agrees to pay, [**] for FRUs as
described in Section 7.7, plus normal transportation
charges unless IBM requests special handling ("Used
FRU Cost"). Such costs will be subject to IBM's Audit
Rights.
16. FIELD SERVICE & SUPPORT
16.1 TRAINING
For all new Products and Upgrades StorageTek makes available
to IBM during the term of this Agreement, StorageTek agrees to
provide IBM personnel with assistance at no charge for IBM to
develop training for IBM's customer engineering personnel at
the same level as the training StorageTek provides to its own
personnel on its other products.
16.2 EMERGENCY AND EXPERT MAINTENANCE COVERAGE
In every country/territory where IBM installs Products and
Upgrades, StorageTek agrees to make available upon IBM's
request and on the shortest possible notice customer service
engineers to support critical customer situations. The maximum
fee StorageTek will charge IBM for each hour of such support
is equal to [**]. In addition, IBM will reimburse StorageTek
for actual and reasonable travel expenses incurred by
StorageTek's personnel in providing this support in countries
where StorageTek does not have a service organization.
16.3 NEW PRODUCT DEVELOPMENT CENTER SUPPORT
If IBM desires to receive support from StorageTek's New
Product Development Center for [**] to be Delivered under the
OEM Agreement and StorageTek is providing such support, then,
[**] the Parties will [**] the [**] and the [**] support to be
provided. The charge for such assistance shall be [**] for
[**] of support.
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16.4 MAINTENANCE AND INSTALLATION TOOLS
To assist IBM in providing optimum hardware and software
maintenance service to customers, StorageTek agrees to
promptly provide to IBM all problem determination and service
information, tools, Maintenance Code and related documentation
(except for the [**] tools and software, as to which
StorageTek agrees to [**] and all replacements, enhancements,
revisions, and modifications [**], to the extent not prevented
by [**]. StorageTek grants IBM a license to the [**] in
accordance with the Description of Licensed Works.
StorageTek also agrees to provide technical support, [**] to
correct and fix bugs and defects that arise from IBM's use of
Maintenance Code.
16.5 MAINTENANCE AND TECHNICAL SUPPORT
a. Maintenance. IBM will be responsible to provide Level
1, Level 2 and Level 3 support to its customers. IBM
agrees to use its commercially reasonable efforts to
perform the following:
(1) maintain [**] to provide maintenance to
customers who are capable of performing
installations of Equipment and taking [**]
and to [**];
(2) maintain [**] to provide support to the
field and who are capable of diagnosing and
resolving complex "system issues" related
to, among other things, system configuration
and operating systems;
(3) maintain [**] of planning and implementing
complex system configurations, performing
virtual DASD capacity planning, planning for
acceptable subsystem performance,
undertaking performance measurement and
tuning, and resolving or assisting in the
resolution of system-related problems when
required;
(4) provide necessary and relevant [**]
information, and [**] information to
StorageTek in order for StorageTek to
perform its technical and engineering
support responsibilities as set forth below;
and
(5) order a [**] for the Products [**] to
address customer requirements.
b. Technical Support. StorageTek agrees, upon IBM's
request, [**] to provide technical support to IBM
for the Equipment, Licensed Programs and Microcode,
including without limitation, assistance in problem
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determination, problem source identification and
problem diagnosis, in the following manner:
(1) Equipment. StorageTek will provide IBM with
reasonable assistance for the Equipment
[**].
In addition, if a malfunction or failure in
Equipment [**], then StorageTek shall, if
requested, provide [**]. Prior to honoring a
request for [**], the Equipment for which
the request is to be made shall be at [**].
IBM's technical support personnel must have
[**] to assist StorageTek's personnel [**]
and to supply needed [**] for repairs). Upon
receipt of appropriate supporting
documentation, IBM will [**] StorageTek for
[**] in providing this support.
StorageTek agrees to use its commercially
reasonable efforts to assist IBM in
resolving problems within the time frames
set forth below:
(a) Any Severity 1 level problem: Within
[**] after notification by IBM of
any such problem;
(b) Any Severity 2 level problem: Within
[**] after notification by IBM of
any such problem;
(c) Any Severity 3 level problem: Within
[**] after notification by IBM of
any such problem; and
(d) Any Severity 4 level problem: Within
[**] after notification by IBM of
any such problem.
For purposes of this Section 16.5(b)(1),
"resolving" by StorageTek means to assist
IBM in restoring the customer's machine to
[**] of operation or functionality (which
may be accomplished by a [**] that such
machine is operating and functioning as
designed).
(2) Licensed Programs and Microcode. The
following is a description of the support
that StorageTek shall provide to IBM:
(a) receive the APAR or PMR, and any
supporting documentation and
materials, as appropriate;
(b) analyze the problem symptoms and
diagnose the suspected error in the
Licensed Programs or Microcode;
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<PAGE> 47
(c) attempt to recreate the problem on
StorageTek's test system, if
recreation is required;
(d) reasonably develop a bypass or
circumvention for high impact (e.g.,
typically, Severity 1) problems with
assistance of IBM's personnel;
(e) reasonably determine if Maintenance
Modifications are required to be
made to the Deliverables and, if so,
provide the Code or other
corrections to IBM in the format
specified by IBM;
(f) provide resolution assistance to
APARs or PMRs in accordance with the
IBM-assigned Severity Level as set
forth in Section 16.8b(1)(a)-(d)
above;
(g) receive technical questions and
supporting documentation and
materials, and analyze such
technical questions and provide
answers to the same; and
(h) generate and promptly provide to IBM
the most current releases of the
Licensed Programs or Microcode with
all of the past fixes incorporated
as required, including any
accumulated maintenance items.
c. In order to [**] IBM's [**] of maintenance services
and technical support for [**] and [**], StorageTek
agrees to [**], which excludes [**] and [**] sold by
StorageTek.
16.6 [**] ACCESS
During the term of the Agreement, IBM agrees to allow
StorageTek to have access to IBM's [**], and [**] access for
[**] and such other implementations solely to support IBM's
and its Subsidiaries' provision of maintenance services for
Equipment and Licensed Programs. This information may be
viewed and updated electronically by StorageTek where feasible
and appropriate. StorageTek's use of and access to [**] is
subject to continual review, and may be terminated if such use
or access is beyond the permitted purposes as set forth
herein.
17. MARKETING RIGHTS
17.1 ONGOING TRAINING
StorageTek agrees to provide IBM with material, documentation,
and support from StorageTek's Engineering and Technical
Support Staff
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similar to that provided as of the Effective Date on
StorageTek's new products, for IBM to provide its personnel
with training for all new Products and Upgrades.
17.2 MARKETING MATERIALS
To the extent that StorageTek has the right to do so,
StorageTek hereby grants IBM a [**], nonexclusive worldwide
right and license to all of the marketing and collateral
materials relating to the Products and Upgrades it receives
from StorageTek, during the term of this Agreement, to use,
reproduce, display, distribute, create and have created
Derivative Works of any or all such materials without
attribution and grant sublicenses of equivalent scope to its
Subsidiaries but not otherwise; provided IBM does not use
StorageTek's trademarks or trade names except as specifically
permitted. StorageTek will identify portions of the materials
which are subject to third-party rights.
17.3 MARKETING TOOLS
StorageTek will provide all of its marketing tools, software
and related documentation related to the Products and
Upgrades, excluding third-party confidential materials, [**].
StorageTek agrees to provide IBM such tools and software (in
Source Code form, to the extent not prevented by supplier
license transferability restrictions and if StorageTek
discontinues its support of such tools and software, and in
Object Code form). StorageTek hereby grants IBM a [**],
nonexclusive worldwide right and license to the tools,
software and related documentation it receives from StorageTek
during the term of this Agreement, to use, reproduce, display,
distribute, and create, and have created Derivative Works of
any or all such tools and software without attribution, and
grant sublicenses of equivalent scope to its Subsidiaries but
not otherwise. In addition, StorageTek shall permit IBM and
its Subsidiaries to grant sublicenses for the tools, software
and documentation: (i) to [**], and (ii) to [**]. Such
sublicenses to [**] shall not include [**]. The software being
licensed under this Section includes [**] to use for [**];
provided, however, that with respect to [**], such [**] shall
be licensed and provided [**] by StorageTek. IBM will [**],
which [**] is subject to Audit Rights under this Agreement.
18. REPRESENTATIONS AND WARRANTIES
18.1 Each Party represents and warrants that it has the authority
and right to enter into this Agreement, and has no existing
obligations, and shall not assume any obligations, that
conflict with its obligations or the rights granted to it in
this Agreement. Each Party also represents and warrants that
it has the authority to convey the rights granted or assigned
by it in this Agreement. Each Party will provide, upon
request, copies of agreements or other documentation necessary
to establish such rights. If a
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Party is unable to supply a copy of such agreements or other
documentation, then such Party shall use its best efforts to
obtain such agreements or other documentation to sufficiently
establish that it has been granted these rights.
18.2 StorageTek represents and warrants that [**] the Equipment (or
Devices if [**] pursuant to Section [**]) (including the
Deliverables), Maintenance Code and Licensed Programs licensed
to IBM hereunder [**] provided, however, that this
representation and warranty shall [**] Equipment (or Devices
if [**] pursuant to Section [**]) that [**], and only
Maintenance Code and Licensed Programs that [**], Equipment
(or Devices if [**] pursuant to Section [**]). The right to
[**] based on the foregoing representation and warranty [**]
upon [**] as set forth in Section [**]. StorageTek further
represents and warrants that the Equipment (including the
Deliverables), Maintenance Code and Licensed Programs, [**].
StorageTek [**], provide IBM with [**] that StorageTek [**] to
the Equipment, including the Deliverables, Maintenance Code or
Licensed Programs.
18.3 StorageTek represents and warrants that, with respect to the
Deliverables, Licensed Programs and Maintenance Code created
outside the United States, all authors have waived their moral
rights in all Deliverables, Licensed Programs and Maintenance
Code to the extent permitted by law.
18.4 StorageTek represents and warrants that the Equipment (or
Devices if manufactured by IBM pursuant to Section 23.6), when
used in accordance with the Specifications, will not present a
health or safety risk to persons or property; and the
Equipment shall comply with all applicable regulatory health
and safety standards, including UL, CSA, VDE, IEC, FCC,
European Economic Community CE-mark standards, any other
standards that are described in the Specifications or as
required by law. StorageTek agrees to provide IBM with copies
of all reports, certifications, and other relevant documents
related to such standards at StorageTek's expense.
19. TRADEMARK & ADVERTISING
19.1 TRADEMARK AND DESIGN RIGHTS
Notwithstanding any other provisions of this Agreement,
neither party hereto is granted the right to use the
trademarks, trade names, or service marks of the other party
(including those of Subsidiaries), directly or indirectly, in
connection with any product, promotion or publication without
the prior written approval of the other party, except that IBM
may use StorageTek's trademarks and trade names for the
aforementioned purposes on any Equipment shipped by StorageTek
which bears such trademarks or trade names. Any approved use
of one Party's trademark or trade name shall enure to the
benefit of the Party owning such trademark or trade name.
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19.2 ADVERTISING/DISCLOSURE
Neither party shall, without first obtaining the written
consent of the other party, in any manner disclose any details
of the work to be performed herein, the terms, conditions and
subject matter of this Agreement, or documents issued
hereunder, except as may be required by law or government rule
or regulation. To the extent that a party is compelled to make
a disclosure due to government rule or regulation, such
disclosure shall be limited to the extent required, and the
other party shall have an opportunity to review the
information prior to its release. Each party may independently
and without the consent of the other party inform customers of
the fact that an OEM distribution arrangement exists between
the Parties; however, to the extent that such communication
includes any additional information about the other party,
such party shall have an opportunity to review such
information prior to disclosure.
19.3 Upon request by IBM, StorageTek shall apply IBM's, its
Subsidiaries', its distributors' and/or its OEMs' trademarks,
logos and other information designated by IBM for the Product
and Upgrades as may be provided to StorageTek by IBM.
19.4 Use of a Party's trademarks by the other Party shall not
diminish the owner's right, title or interest to such
trademarks.
20. CONFIDENTIALITY
20.1 It is anticipated that confidential information will be
exchanged between the Parties. Where confidential information
must be exchanged, it will be exchanged under an IBM Agreement
for the Exchange of Confidential Information (hereafter
"AECI").
20.2 With respect to all nonconfidential information disclosed by
one party (hereafter the "Disclosing Party") to the other
party (hereafter the "Receiving Party"), except to the extent
such information is protected by the Disclosing Party's patent
or copyright rights, the Disclosing Party grants to the
Receiving Party, to the extent, if any, of its interest
therein, a nonexclusive, royalty-free, irrevocable,
unrestricted, worldwide license to use, have used, disclose to
others, make copies in the case of documents, and dispose of,
all without limitation, such nonconfidential information in
any manner as it determines, including the use of such
nonconfidential information in the development, manufacture,
marketing and maintenance of products and services
incorporating such nonconfidential information.
21. ASSIGNMENT & CHANGE OF CONTROL
Neither Party shall assign or subcontract this Agreement, or any right
or obligation hereunder, without the prior written consent of the other
Party, except that subcontracts pursuant to StorageTek's normal
manufacturing procedures may
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be assigned, provided, however, that StorageTek may not subcontract
final assembly and test without IBM's prior written consent. Any
attempted assignment or subcontract not in compliance with this
paragraph shall be void.
StorageTek shall promptly notify IBM in writing of any Change of
Control involving StorageTek. Upon such Change of Control, [**]
provided below.
In the event that a Change in Control occurs whereby control of
StorageTek is acquired by (i) [**]; or (ii) [**]; then IBM may [**] of
the later of: (i) written notice by StorageTek to IBM of such Change of
Control; or (ii) the effective date of such Change of Control. If IBM
[**] pursuant to this Section, the [**] for [**] will be subject to
[**]; and provided further, that [**] shall not [**]. In addition, IBM
[**] hereof for [**] following the date that IBM [**] , [**] under any
binding forecast pursuant to Section 10.2, as well as any [**] during
the [**] in which IBM gives notice of such termination to StorageTek.
[**] the Change of Control described above, a Change of Control of [**]
shall [**] this Agreement.
22. DISPUTE RESOLUTION
22.1 ESCALATION PROCESS
The Parties will attempt in good faith to promptly resolve any
controversy or claim arising out of or relating to this
Agreement by negotiations between executives of the Parties.
If a controversy or claim should arise, the Agreement
Administrators, or their respective successors, or their
superiors, will meet in person or phone, as they decide, at
least once and will attempt to resolve the matter. Either
Agreement Administrator may require the other to meet within
seven days at a mutually agreed upon time and location.
If the matter has not been resolved within ten days of their
first meeting, or a request for such meeting if no meeting
occurs, the Agreement Administrators shall refer the matter to
senior executives, who shall have authority to settle the
dispute (hereafter "Senior Executives"). The Senior Executive
for IBM shall be the General Manager of IBM's Storage System
business or his/her designee and the Senior Executive of
StorageTek shall be its Chief Executive Officer, or his/her
designee. Thereupon, the Agreement Administrators shall
promptly prepare and exchange memoranda stating the issues in
dispute, and their positions, summarizing the negotiations
which have taken place, and attaching relevant documents. The
Senior Executives will meet in person or by telephone within
seven (7) days of the end of the ten (10) day period referred
to above, at a mutually agreed time.
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The first meeting shall be held at the offices of the
Agreement Administrator receiving the request to meet. If more
than one meeting is held, the meetings shall be held in
rotation at the offices of IBM and StorageTek.
If the matter has not been resolved within fifteen (15) days
of the first meeting of the Senior Executives (which period
may be extended by mutual agreement), the Parties will attempt
in good faith to resolve the controversy or claim in
accordance with the following mediation process. During the
course of negotiations between the representatives, all
reasonable requests made by one party to the other for
nonprivileged information will be honored in order that each
of the parties may be fully informed of the circumstances
relevant to the dispute.
22.2 MEDIATION PROCESS
If the escalation process fails to resolve a dispute in
connection with this Agreement, any such dispute shall be
submitted to expedited mediation prior to the commencement of
any litigation with respect to such dispute. In the event
either party intends to seek recourse against the other by an
action at law or in equity, such party shall first give notice
to the other party. Within ten (10) business days of such
notice, the Parties shall attempt to agree on one mediator who
shall be a person mutually agreeable to both Parties and who
shall be experienced in the DASD industry. In the event the
Parties cannot agree on one mediator, each shall have the
right to appoint one mediator, and the two mediators shall
appoint a third. Mediation shall commence within twenty (20)
business days of the notice of request for mediation. Each
party agrees to cooperate fully with the mediator(s) in an
attempt to resolve any disputes. The mediator(s) shall use the
rules of the American Arbitration Association in conducting
the mediation. Any decision reached through mediation shall be
in writing but shall not be legally binding upon the Parties
nor admissible as evidence in any legal proceedings. If the
Parties cannot resolve their differences to their mutual
satisfaction within thirty (30) business days of the request
for mediation, either Party shall be free to pursue any and
all other remedies available to such Party, including, but not
limited to, litigation. Costs of the Mediator shall be born
equally by the Parties.
23. TERMINATION/REMEDIES
23.1 TERMINATION BY MUTUAL CONSENT
This Agreement shall be subject to termination prior to the
expiration of the term at any time by mutual consent of the
parties, evidenced by a written agreement providing for
termination.
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23.2 TERMINATION BY BANKRUPTCY
This Agreement may be immediately terminated by either Party
if any of the following events ("Triggering Events") occur:
(1) the other Party files a voluntary petition under any
provision of the U.S. Bankruptcy Code or under any similar
insolvency law, makes an assignment for the benefit of its
creditors, (2) any involuntary petition in bankruptcy under
any provision of the U.S. Bankruptcy Code or under any similar
insolvency law is filed against such other Party, or (3) a
receiver is appointed for, or a levy or attachment is made
against all or substantially all of its assets, and such
involuntary petition is not dismissed or such receiver or levy
or attachment is not discharged within sixty (60) days after
the filing, appointment or making thereof.
To the extent that applicable bankruptcy law does not permit
the exercise of rights under the immediately preceding
paragraph, the bankrupt party agrees that adequate assurance
of performance by the bankrupt party of the balance of this
Agreement as a "Debtor-in-possession" or any similar entity
under successor bankruptcy laws will include assurances both
of such entity's ability to adequately produce products for
the specifically permitted Agreement and such entity's
willingness and ability to protect the other party's
proprietary rights. As a personal contract, exercise of rights
by a trustee or assignment of rights hereunder would not be
appropriate and such understanding is an essential part of
each Party's willingness to enter into this Agreement.
23.3 TERMINATION FOR CAUSE
a. If either Party is in material breach of this
Agreement, the other Party may give written notice to
the defaulting Party specifying the respects in which
the defaulting Party has failed to perform or comply
with the terms and conditions of this Agreement. In
the event that any defaults so indicated shall not be
remedied by the defaulting Party within sixty (60)
days (ten (10) days as to a failure to pay any
amounts indisputably due) unless a different period
is provided for elsewhere in this Agreement after
such notice, the party not in default may, by written
notice to the defaulting Party, terminate this
Agreement.
b. Either Party may submit disputes related to the
notice of termination to the Escalation Process or
Mediation Process described in Section 22 but such
termination notice shall not be stayed by submission
to escalation or mediation and termination shall take
effect as set forth above. Failure of either Party to
terminate this Agreement due to a breach on the part
of the other Party shall not prejudice its rights to
terminate for a subsequent breach on the part of the
defaulting Party.
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c. The right of a Party to terminate this Agreement, and
the exercise of such right by such Party, shall be in
addition to any other remedies or rights granted in
this Agreement or which a Party would have in law or
equity.
d. If IBM terminates this Agreement for cause:
(1) IBM will receive the [**] license and [**]
rights set forth in, and pursuant to,
Sections [**] of the Agreement, and the [**]
for [**] shall immediately become [**];
(2) So long as StorageTek continues to provide
Product Engineering Services as described in
Section [**] of the [**] for any [**]
product, which product includes any, all or
some of the Deliverables, StorageTek will
provide IBM with such Product Engineering
Services with respect to those same portions
of such Deliverables [**], and will, in
addition grant to IBM a [**] license to the
[**] (with respect to those same portions of
such Deliverables) of the [**] as the
licenses granted to IBM, under the [**], for
Licensed Works;
(3) All licenses granted to StorageTek to use
[**] under Section [**] of the Description
of Licensed Works will survive such
termination, and be [**] as provided in such
Description of Licensed Works, provided,
however, that, if StorageTek elects to
maintain or effectuate, whichever the case
may be, the StorageTek [**] Licenses set
forth in Section [**], and in Section [**]
of the Description of Licensed Works [**],
then StorageTek must [**] and also [**] as
set forth in the Description of Licensed
Works for such license, except that [**]
shall be [**] for each [**] following the
date of StorageTek's receipt of IBM's
written notice of termination, and except
that, once StorageTek has [**] pursuant to
this section [**] then such license shall
immediately become [**], and provided
further, that any [**] by StorageTek to IBM
under this section shall be [**] for
products other than as covered in Sections
[**] of the [**], and shall have no effect
on the [**] to be [**] pursuant to Section
[**]; and
(4) Despite such termination, IBM shall have the
[**] for any and all Specified Functions in
process under the IDA, and if IBM [**],
StorageTek will continue to develop
Specified Functions [**] as specified in the
IDA. Further, if IBM [**], the rights and
obligations of the Parties to the
intellectual property related to such [**].
If IBM does not
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[**] any such Specified Function, StorageTek
will have [**] above), provided, however,
that if IBM [**] for any Specified Function
of the Deliverables [**], and StorageTek
[**] completes development of such Specified
Function, then such [**] Specified Function
to the extent [**] will be deemed a [**] and
not [**].
e. If StorageTek terminates this Agreement for cause:
(1) IBM will pay to StorageTek any amounts that
become due under the IDA during the ninety
(90) day period following the date on which
StorageTek provides notice of termination to
IBM;
(2) The StorageTek Material Use Licenses set
forth in Sections 3.2d and 3.2e of the DLW
will immediately become fully paid-up and
irrevocable; and
(3) So long as StorageTek continues to provide
Product Engineering Services as described in
Section [**] for any StorageTek product
which includes any, all or some of the
Deliverables, StorageTek will provide IBM
with such Product Engineering Services (with
respect to the same portions of the
Deliverables) at [**].
23.4 MATERIAL BREACH
A material breach shall include, but not be limited to, a
material failure to:
a. pay any amounts that are undisputably due;
b. deliver Equipment or to supply software, tools and
licenses in accordance with this Agreement;
c. comply with the reliability, availability, and
service levels specified in the Agreement;
d. manufacture Equipment in accordance with the
Agreement;
e. supply Deliverables in accordance with Attachment 1
to Exhibit 3; or
f. comply with Section 18, Representations and
Warranties.
A Party may not be declared to be in material breach of any
provision of this Agreement if, and to the extent that its
failure to perform has been caused by the other Party's breach
of this Agreement.
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23.5 [**] LICENSE
StorageTek hereby grants to IBM a fully paid-up license to
[**], effective if: (1) IBM has [**], (2) StorageTek has [**],
or (3) one of the Triggering Events set forth in Section 23.2
occurs; provided, however, that IBM may not exercise its
rights under such license if, on the day IBM notifies
StorageTek that IBM will exercise such rights: (i) IBM is in
material breach of this Agreement; (ii) StorageTek has given
IBM notice in writing of such material breach prior to the
applicable event set forth in Section 23.5, above; and (iii)
IBM has failed to cure such material breach; and IBM
thereafter fails to cure such material breach within sixty
(60) days of IBM's notice to StorageTek.
23.6 MANUFACTURING MAKE OR HAVE MADE RIGHTS
If an event under Section 23.5, above, occurs, or if IBM
elects to receive [**] pursuant to Section [**], then
StorageTek agrees to provide the following assistance to IBM
or IBM's designee [**] to enable IBM or its designee to assume
Equipment, Devices or just FRUs, as the case may be,
manufacturing responsibilities:
a. Grant access by [**] to [**];
b. Provide a complete copy of all bills of material for
Equipment including the costs and sources of
materials listed therein and identification of
suppliers. In addition, if IBM requests, StorageTek
agrees to assist IBM in acquiring parts, or materials
from StorageTek's vendors at prices, terms and
conditions [**], and/or including [**].
c. Provide copies of all materials related to and
required for the manufacture and test of any and all
Equipment, Devices or just FRUs, as the case may be,
including, but not limited to, assembly drawings,
component drawings, mechanical drawings, schematics,
process descriptions, tools and fixtures.
d. In addition StorageTek will provide training on the
use of such tools.
e. Provide a copy of each document, Maintenance Code,
Microcode, Licensed Works, and any related software
that relates to the manufacture, maintenance or
repair of Equipment, Devices or just FRUs, as the
case may be.
f. Provide, to the extent that it has the right to do
so: (i) a [**], nonexclusive, [**] and license to use
the information, tooling, equipment, and know-how
described in this Section 23.6 and (ii) a [**];
solely to manufacture, have manufactured, test, have
tested, sell, lease and otherwise distribute, the
Equipment, Devices or just FRUs, as the case may be.
In addition, StorageTek agrees to
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transfer title to IBM or IBM's designee with respect
to all tooling specific to and necessary for
manufacture and test of Equipment, Devices or just
FRUs, as the case may be.
g. Provide IBM with permission to disclose confidential
StorageTek information related to Equipment, Devices
or just FRUs, as the case may be, which has been
received by IBM under this Agreement, or information
received pursuant to any confidential disclosure
agreement between the Parties, to the same extent as
IBM would disclose its own confidential information
to third Parties in order to have Equipment, Devices
or just FRUs, as the case may be, manufactured by
such third Parties.
h. Grant to IBM a [**], nonexclusive, [**] license to
[**] to the extent such license is required for IBM
to exercise the rights granted under this Section.
Such license shall include the right to [**] the
Equipment, Devices or just FRUs, as the case may be.
Such license shall [**], including [**], [**] to its
[**].
23.7 TERMINATION FOR CONVENIENCE
IBM shall have the right to terminate this Agreement for
convenience [**] by providing StorageTek with a [**] prior
written notice of its election to do so. In the event IBM
elects to terminate this Agreement for convenience, IBM's
liability for such termination is [**] of any [**]. StorageTek
agrees that, in consideration for such [**] , IBM shall have
the option to [**] prior to the date such termination becomes
effective, and StorageTek will at IBM's request [**], finish
any partially completed Equipment in StorageTek's possession
on such date and Deliver any such Equipment promptly to IBM.
Also, the [**] granted pursuant to the [**] will [**] .
23.8 TERMINATION FOR BURDENSOME CONDITION
a. Upon the occurrence of a Burdensome Condition
involving only a circumstance described in Section
[**], IBM shall [**] prior written notice to
StorageTek, to terminate this Agreement in its
entirety (including, but not limited to, the IDA)
[**]; except that
(1) IBM shall be [**] during the [**] notice
period and also the [**] that were scheduled
to have [**] for the [**] period after such
notice period, and StorageTek shall not be
[**] under the [**] after the [**] notice
period;
(2) The licenses granted to StorageTek pursuant
to the [**] shall [**]; and
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(3) StorageTek shall be [**] for [**] for
materials that StorageTek made prior to
notification of termination in order to
comply with its obligations under the
Agreement; provided that such materials are
Delivered to IBM [**] (to the extent that
[**] of such materials has been reimbursed);
and further provided that in no event will
such reimbursement by IBM exceed the sum of
[**]; and
(4) The licenses granted to IBM pursuant to the
Description of Licensed Works shall be the
same as if termination under this Section
23.8a had been a [**] or a [**].
b. Upon the occurrence of a Burdensome Condition
involving a circumstance described in Section [**],
IBM shall [**] prior written notice to StorageTek, to
terminate this Agreement in its entirety (including,
but not limited to, the IDA). IBM's liability will be
limited as set forth in Sections 23.8a(1) through
23.8(4), above, except that the period in which IBM
shall be [**] pursuant to Section 23.8a(1) above
shall be the [**] period following the date that IBM
notifies StorageTek of termination pursuant to
Section 26.3.
c. Upon the occurrence of a Burdensome Condition,
StorageTek shall [**] prior written notice to IBM, to
terminate this Agreement in its entirety [**]; except
that
(1) StorageTek shall [**];
(2) IBM shall have no further obligation to [**]
to StorageTek under the [**], and StorageTek
shall [**] that IBM has made to StorageTek
after [**] under the [**];
(3) The [**] granted to IBM pursuant to the
Description of Licensed Works shall [**] in
all instances; and
(4) IBM will receive the manufacturing make or
have made rights set forth in, and pursuant
to, Section 23.6 of this Agreement.
d. In no event will either Party's liability to the
other for termination pursuant to this Section 23.8
exceed (i) the sum of [**] in the event of a
termination of this Agreement only as a result of a
circumstance described in Section 1.6(ii); or (ii)
the sum of [**] in the event of a termination of this
Agreement as a result of a circumstance described in
Section 1.6(i). These limitations of liability will
not apply to [**] hereof; nor shall such limitations
apply to any [**] as modified above.
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23.9 WIND DOWN
Upon termination of this Agreement by either Party for any
reason prior to the expiration of the term set forth in
Section 3, and except as stated in Section [**] hereof, IBM
may continue for [**] following the date of notice of such
termination, to place noncancelable purchase orders at the
prices that are in effect for the quarter in which such notice
of termination is effective for Equipment, and StorageTek
agrees to accept such orders and to manufacture supply and
Deliver such Equipment to IBM if ordered for Delivery within
[**] of such purchase orders and within appropriate lead
times.
23.10 [**] AFTER TERMINATION
Subject to Sections 23.3 and 23.8, and so long as StorageTek
continues to provide Product Engineering Services as described
in Section [**] for any StorageTek product, if either Party
terminates this Agreement, then IBM may elect to: (i) [**]
Product Engineering Services under the SOW; (ii) [**] Product
Engineering Services at the [**] under the SOW, but at a
funding level of [**] of the funding levels for Product
Engineering Services required under the SOW; or (iii) receive
such Product Engineering Services as it may request, up to the
levels as then required under the SOW, on a time and materials
basis at [**].
24. INDEMNIFICATION RIGHTS
24.1 INTELLECTUAL PROPERTY INDEMNITY
a. StorageTek shall indemnify, defend and hold harmless
IBM [**] in respect to any costs, expenses, liability
or damages, including reasonable attorney's fees,
arising out of or related to any action [**] to the
extent that it is based on a [**]. StorageTek agrees
to provide IBM with [**] to defend a claim brought in
[**].
b. StorageTek shall also indemnify IBM in accordance
with the preceding paragraph for [**], provided that
such [**], provided, however, that StorageTek's
liability under this paragraph is [**].
c. StorageTek shall have no obligation regarding any
[**] to the extent based on: (i) the [**]; (ii) [**],
(iii) [**]; or (iv) [**].
d. If the use of the [**] shall become, [**] to become,
[**] based on [**], StorageTek may, [**], either:
(1) procure for IBM the right to continue to
market and use [**] on a continued,
uninterrupted basis; or
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<PAGE> 60
(2) replace or modify the [**] with a
functionally equivalent substitute so that
the [**] will become noninfringing.
24.2 GENERAL INDEMNITY
a. StorageTek shall indemnify, defend and hold harmless
IBM in respect to any cost, expenses, liability or
damages, including reasonable attorney's fees, for
any third-party claims arising out of or related to:
(1) injury or damage to persons or property
resulting [**] from any [**], or the [**]
used in, or in connection with, [**];
(2) StorageTek's failure to make available any
[**] and related documentation to [**] under
reasonable terms and conditions;
(3) StorageTek's failure to [**];
(4) Any [**], provided that such claims do not
specifically pertain to [**] in the ordinary
course of business by [**] end user
customers; or
(5) StorageTek's failure to comply with or a
[**].
b. StorageTek shall, however, have no liability to
indemnify IBM if and only to the extent that:
(1) the injury or damage is due to use of [**],
Maintenance Code or Licensed Programs in a
manner for which it was not designed;
(2) the injury or damage is caused by the
negligence of IBM or another third party
(but excluding those servants, agents,
contractors or subcontractors of
StorageTek); or
(3) the [**] has been modified by: (i) anyone
other than StorageTek, or (ii) IBM if not
authorized by StorageTek.
24.3 OBLIGATIONS OF IBM
The obligation of StorageTek to defend and make payments under
Sections 24.1 and 24.2 is conditioned on the following:
a. StorageTek shall be notified promptly in writing by
IBM of any claim;
b. StorageTek shall [**] for its settlement or
compromise; and
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c. IBM shall [**] in defending such an action.
IBM may participate, at its sole cost and expense, in the
defense of any action on such claim and any negotiations for
its settlement or compromise.
25. GOVERNING LAW
25.1 NEW YORK LAW
The relationship between the Parties and this Agreement are
governed by the substantive laws of the state of New York. Any
action between the Parties must be brought before a court of
competent jurisdiction located in the United States Southern
District of New York. Each Party hereby waives any right to a
jury trial in any dispute between them. The Parties agree that
the United Nations convention on the international sale of
goods shall not apply to this Agreement.
It shall be a condition precedent to the filing of any such
actions that the dispute resolution procedure set forth in
Section 22 will have been followed prior to the filing of such
action, excepting only that a Party may institute an action
seeking a preliminary injunction, temporary restraining order,
or other equitable relief, if necessary in the opinion of that
Party to avoid material harm to its property, rights or other
interest, before commencing or at any time during the course
of the dispute procedure in Section 22.
25.2 LIMITATION OF ACTIONS
Neither Party will bring a legal action in connection with
this Agreement against the other more than [**] after the
cause of action arose. This limitation does not apply to
actions brought to enforce (i) indemnification rights (Section
24) or (ii) violation of intellectual property rights.
25.3 LIMITATION OF LIABILITY
In no event shall either Party hereto be liable to the other
for more than [**] for any and all causes of action and claims
of any nature (including, but not limited to, claims that
obligations, representations or warranties hereunder have
failed of their essential purpose) in connection with this
Agreement; provided, however, that [**].
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26. GENERAL
26.1 COMPLIANCE WITH LAWS
Each Party agrees to comply at its own expense with all
applicable laws and regulations of the United States, the
European Union, and all other countries or country groups.
26.2 RELATIONSHIP OF THE PARTIES
Each Party acknowledges and agrees that it is independent of
the other. Neither Party is, or will claim to be, a partner,
employee, joint venturer, agent, or legal representative of
the other Party except as specifically stated in this
Agreement. Neither Party will assume or create any obligation
or responsibility, expressly or by implication, on behalf of
or in the name of the other Party. Each Party is responsible
for the direction and compensation of its employees. Each
Party may have similar agreements with others. Each Party may
design, develop, manufacture, acquire or market its own or
competitive products and services.
26.3 NOTICES
All notices by one party to the other in connection with this
Agreement shall be in writing and will be sent to the
following addresses:
Notices related to forecasts, orders, and shipment will be
sent to:
For IBM:
[**]
Procurement Manager
IBM Corporation
5600 Cottle Road
San Jose, CA 95193
For StorageTek:
[**]
Director of Logistics
Storage Technology Corporation
2270 South 88th Street
Louisville, CO 80028
All other notices, including without limitation notices of
breach, default, will be sent to the following addresses:
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<PAGE> 63
For IBM:
[**]
Vice President, Worldwide Materials
IBM Corporation
5600 Cottle Road
San Jose, CA 95193
For StorageTek:
[**]
Agreement Administrator
for IBM Agreement
Storage Technology Corporation
2270 South 88th Street
Louisville, CO 80028
with a copy to:
For IBM:
Legal Department
IBM Corporation
5600 Cottle Road
San Jose, CA 95193
For StorageTek:
General Counsel
StorageTechnology Corporation
2270 South 88th Street
Louisville, CO 80028
Either Party may change any address at which it will
receive notices by notifying the other Party in writing.
Notices and other communications between the Parties
in connection with this Agreement shall be deemed given:
a. three days after being sent by U.S. mail,
postage prepaid, certified or registered, to
the address listed above; or
b. on the date it is sent via facsimile
transmission with confirmation from the
receiving party that the transmission was
completed successfully, with the original
document sent as described above in item a.
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Notices related to order, forecast, shipment, and
delivery may also be sent via confirmed electronic mail (EDI)
to the address listed above and shall be deemed given on the
date of confirmation of delivery.
26.4 COUNTERPARTS
This Agreement may be executed simultaneously in two (2)
counterparts, each of which shall be deemed an original, but
both of which together shall constitute one and the same.
26.5 HEADINGS AND ATTACHMENTS
The headings in this Agreement are for reference only and will
not affect its meaning or interpretation. The Exhibits, their
Attachments, their Appendices and their Schedules, are
attached to and referenced in this Agreement and are
incorporated herein by reference.
26.6 AMENDMENT
For any change to this Agreement to be valid, it must be
signed by both Parties.
26.7 WAIVER
The failure by either Party at any time to enforce the
provisions of this Agreement, to exercise any option or
election, or to require at any time the performance by the
other Party of any provisions herein will not be construed as
a waiver of such provision.
26.8 SEVERABILITY
If any provision or provisions of this Agreement shall be held
to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall
not in any way be affected or impaired provided the original
intentions of both Parties are maintained.
If any provision of this Agreement is inconsistent with any
provision in the Final Judgment dated December ____,1997 that
is agreed upon by the Parties and approved by a Court of
competent jurisdiction, then such provision of this Agreement
shall be interpreted and construed in a manner to be
consistent with the relevant provision of the Final Judgment.
26.9 WEEKENDS AND HOLIDAYS
If any obligation of a party hereunder falls due on a weekend
day or a Federal holiday, then that obligation shall be due on
the next business day following such weekend day or Federal
holiday.
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<PAGE> 65
26.10 FORCE MAJEURE
Neither StorageTek nor IBM shall be liable for any delay or
failure of performance hereunder due to any contingency beyond
its control which renders performance commercially
unreasonable including, but not limited to, an act of God,
war, mobilization, riot, strike, embargo, fire, flood,
hurricane, earthquake or power failure ("force majeure
incident").
When only part of StorageTek's or IBM's ability to perform is
excused under this section, StorageTek or IBM must allocate
production and deliveries or receipt of deliveries among
various customers or suppliers then under contract for similar
goods during the period when StorageTek or IBM is unable to
perform. The allocation must be effected by StorageTek in
accordance with Section 10.5 of the Agreement.
If either StorageTek or IBM claims excuse for nonperformance
under this section, it must give notice in writing to the
other party. If a Party's inability to perform continues for
more than one hundred twenty (120) days, the other party may
terminate this Agreement.
26.11 SURVIVAL
The rights and obligations of Sections 1, 7.7a, 7.8, 7.10, 8,
9, 14, 15, 16.5, 18, 19.1, 19.2, 19.4, 20, 22, 23, 24, 25 and
26, and 11, 13.1a, 13.2, 13.3 and 13.4 (with respect to FRUs),
shall survive and continue after any expiration or termination
of this agreement and shall bind the parties and their legal
representatives, successors and assigns.
26.12 ORDER OF PRECEDENCE
In the event that there is an inconsistency or conflict
between the terms in the Specifications and other terms of
this Agreement, then such other terms in this Agreement shall
take precedence over the terms in the Specifications.
THIS AGREEMENT SUPERSEDES ALL PROPOSALS, ORAL OR WRITTEN, AND
ALL NEGOTIATIONS, CONVERSATIONS OR DISCUSSIONS HERETOFORE HAD
BETWEEN THE PARTIES RELATED TO THE SUBJECT MATTER OF THIS
AGREEMENT. THE PARTIES BOTH ACKNOWLEDGE THAT THEY HAVE NOT
BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY ANY
REPRESENTATIONS OR STATEMENTS, ORAL OR WRITTEN, NOT EXPRESSLY
CONTAINED HERE. THE TERMS AND CONDITIONS OF THIS AGREEMENT
SHALL PREVAIL, NOTWITHSTANDING ANY VARIANCE WITH THE TERMS AND
CONDITIONS OF ANY ORDER OR OTHER INSTRUMENT SUBMITTED BY THE
PARTIES.
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INTERNATIONAL BUSINESS STORAGE TECHNOLOGY
MACHINES CORPORATION CORPORATION
By: /s/ [**] By: /s/ [**]
Name: [**] Name: [**]
Title: Vice President Title: Executive Vice President
Enterprise Business
Date: December 18, 1997 Operations
Date: December 18, 1997
<PAGE> 67
ATTACHMENT 1 TO EXHIBIT 1
[**]
[Intentionally left blank]
<PAGE> 68
ATTACHMENT 2 TO EXHIBIT 1
[**]
[Intentionally left blank]
<PAGE> 69
EXHIBIT 2
The document described in the attached pages and in the form as
delivered to IBM in connection with this Agreement prior to the Effective Date,
and as further modified in accordance with the provisions of the Agreement, are
hereby incorporated into the Agreement by this Reference.
<PAGE> 70
Attachment 1 To Exhibit 2
<PAGE> 71
FILE: GAHIMEG1 LIST3270 A1 National VM/ESA Conversational Monitor System
MANUFACTURING TEST PROCESSES AND QUALIFICATIONS
- -------------------------------------------------------
o The test process is described in the [**] test instruction attachment for
Equipment. This process describes test durations, criteria, and feedback,
and includes Oahu monitoring and identification of [**] and [**] are [**]
by Monterey at an appropriate timeframe, and results are acceptable as
measured by [**].
o Oahu agrees that the test process of [**] shall be [**] than that process
described for [**] and will be subject to MONTEREY [**] before
implementation of same in [**] Equipment that is to be [**] under the
Agreement.
<PAGE> 72
STORAGETEK
ICEBERG(TM) TEST ENGINEERING
TEST INSTRUCTION, EMUSYS
CONTROLLED COPY NUMBER: ______________
NOTE: A controlled copy is
indicated if RED ink is used for the Control
Copy Number. If the number is not red, this
indicates and Uncontrolled Copy.
<PAGE> 73
DOCUMENT APPROVALS
ICEBERG TEST ENGINEERING [**]
DOCUMENT OWNER / DEPT MGR:
Date
ICEBERG TEST ENGINEERING [**]
DOCUMENT CONTROLLER:
Date
ICEBERG TEST ENGINEERING [**]
DOCUMENT CO-AUTHOR:
Date
ICEBERG TEST ENGINEERING [**]
DOCUMENT CO-AUTHOR:
Date
ICEBERG MANUFACTURING [**]
DEPARTMENT MANAGER:
Date
<PAGE> 74
REVISION HISTORY
[**]
<PAGE> 75
TABLE OF CONTENTS
[**]
<PAGE> 76
ATTACHMENT 2 TO EXHIBIT 2
[Intentionally left blank]
<PAGE> 77
EXHIBIT 3
IBM DEVELOPER AGREEMENT BETWEEN IBM AND STORAGETEK
BASE AGREEMENT
The IBM Developer Agreement ("IDA") consists of this Base Agreement
and its Transaction Documents. This IBM Developer Agreement is entered into
between International Business Machines Corporation , with an office at 5600
Cottle Road, San Jose, California 95193 ("IBM") and Storage Technology
Corporation, with an office at 2270 South 88th Street, Louisville, Colorado
80028 ("StorageTek"), which IDA is Exhibit 3 to the OEM Agreement between the
parties.
This Base Agreement establishes the basic terms and conditions under
which StorageTek will develop features, enhancements to storage products,
microcode therefor, related software, documentation and other supporting
materials and ongoing support thereof, for the Iceberg, Kodiak and Arctic Fox
storage products that IBM will purchase from StorageTek under the OEM
Agreement. The Transaction Document(s) attached hereto specify the work to be
performed by StorageTek and supplementary provisions and rights of the parties
with respect thereto.
The IDA, together with the documents listed in the Statement of Work
("SOW"), is the complete agreement with respect to the development activities
described above and replaces all prior oral or written communications between
StorageTek and IBM regarding the transactions described in the Transaction
Documents.
1.0 DEFINITIONS
Capitalized terms have the following meanings.
1.1 "Appearance Design" is the appearance presented by an object,
formed in hardware or by software, that creates a visual impression on an
observer. Appearance Design refers to the ornamental and not the functional
aspects of the object.
1.2 "Deliverable" is any item that StorageTek prepares or provides
under a Transaction Document, including IBM Materials and Licensed Works.
Where Deliverables include code, StorageTek shall deliver object and fully
commented source code, which source code shall correspond to the current
release or version of the Deliverable and be in the form specified in the
Transaction Document.
1.3 "Derivative Work" is a work that is based on an underlying
work and that would be a copyright infringement if prepared without the
authorization of the copyright owners of the underlying work. Derivative Works
are subject to the ownership rights and licenses of others in the underlying
work.
<PAGE> 78
1.4 "Development Environment" includes devices, compilers,
hardware, software, user and programming documentation, media or other items
required for the development, testing, maintenance or implementation of a
Deliverable.
1.5 "Enhancements" are changes or additions, other than
Maintenance Modifications, to the Deliverables.
"Basic Enhancements" are incidental updates or Enhancements
that support new releases of operating systems and devices. They do not
include Major Enhancements.
"Major Enhancements" provide substantial additional value that
could be offered to customers for an additional charge.
1.6 "IBM Licensees" include IBM, its Subsidiaries, and those
authorized by them to Distribute IBM's products.
1.7 "IBM Materials" are Deliverables that are funded in accordance
with the terms of this Agreement by IBM and as result from product engineering
funding specified in the SOW, that IBM owns, such as programs, program
listings, programming tools, documentation, reports and drawings. IBM
Materials also include Basic Enhancements and Maintenance Modifications that
StorageTek creates or authorizes others to create during the term of this IDA.
The term "IBM Materials" does not include Licensed Works, Maintenance Code,
software tools licensed to IBM by StorageTek, equipment or items specifically
excluded in a Transaction Document.
1.8 "Invention" is as defined in the OEM Agreement.
1.9 "Licensed Works" are as identified in the Description of
Licensed Works.
1.10 "Maintenance Modifications" are revisions that correct errors
and deficiencies in the Deliverables.
1.11 "Moral Rights" are personal rights associated with authorship
of a work under applicable law. They include the rights to approve
modifications and to require authorship identification.
1.12 "Personnel" are either party's employees or subcontractors
working under the IDA.
1.13 "Products" are as defined in the OEM Agreement.
1.14 "Services" are efforts expended by StorageTek or StorageTek's
Personnel to perform the work described in a Transaction Document. Deliverables
may result from such work.
2.0 AGREEMENT STRUCTURE
2.1 Structure. The structure of the IDA is as follows:
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<PAGE> 79
The "Base Agreement" defines certain basic terms and
conditions of the development and funding of the Deliverables in the SOW.
"Transaction Documents" specify the details of a transaction
related to the Deliverables and the rights and obligations of the parties
thereto and may include additional terms and conditions. Transaction Documents
include, among others, the Statement of Work and the Description of Licensed
Work, and their amendments, appendices, schedules and exhibits.
2.2 Conflicting Terms. Terms in IBM's purchase orders for
development and support issued under the IDA and terms in StorageTek's invoices
related thereto are all void unless identified otherwise in the IDA.
3.0 RELATIONSHIP OF THE PARTIES
3.1 Independent Contractor. Each party is an independent
contractor. Neither party is, nor will claim to be, a legal representative,
partner, franchisee, agent or employee of the other except as specifically
stated in the IDA. Neither party will assume or create obligations for the
other. Neither party nor such party's Personnel are employees of the other
party. Each party is responsible for the direction and compensation of its own
Personnel.
3.2 Confidentiality. Where confidential information must be
exchanged, it will be done under the Agreement for Exchange of Confidential
Information ("AECI") No. OEM-9447.
All Deliverables that are identified in the Agreement as IBM
Materials shall be marked by StorageTek as IBM Confidential and treated and
protected as the confidential information of IBM in accordance with
StorageTek's obligations under the AECI and mutatis mutandis with respect to
Deliverables and other StorageTek confidential materials that are marked
StorageTek Confidential.
3.3 Loaned Items: If any party lends the other party items
("Loaned Items"), the lending party will do so under a mutually agreeable
equipment loan agreement ("ELA"). The party borrowing the Loaned Items (and
such party's Personnel) will use the Loaned Items only in support of the IDA or
as otherwise mutually agreed in writing in the ELA. The party borrowing the
Loaned Items will return the Loaned Items as specified in the ELA or the
Transaction Document, whichever is earlier.
3.4 Furnished Items: Either party may provide the other party
items for use in connection with this IDA. These items will be identified as
either "IBM Furnished Items" or "StorageTek Furnished Items", as the case may
be, in the applicable Transaction Document(s). The party to whom any Furnished
Items (and such party's Personnel) will use such Furnished Items [**] and [**]
without the approval of the owner of such Furnished Items. At the end of the
term of the Agreement the party receiving such Furnished Items will destroy
such Items, including any copies of them, unless the party owning such
Furnished Items requests that the party receiving such Furnished Items delivers
them to such furnishing party.
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3.5 Records: Both parties will maintain auditable records to
support invoices issued and payments made to the other. The records will be
retained and made available for [**] from the date of the related payment or
invoice. Each party shall have [**], as that term is defined in the OEM
Agreement. The auditor will only disclose to the requesting party any payments
due and payable, or specific failure of records to support invoices, for the
period examined.
3.6 The parties shall each:
a. use their own then-current processes designed to
prevent and/or identify contamination by harmful code. Each party shall
promptly notify the other party if suspected contamination occurs in spite of
such processes.
b. participate in progress meetings to review
StorageTek's performance of its obligations as specified in a Transaction
Document or as otherwise agreed in writing by the parties; and
c. [**] obtain the [**] and such party's Personnel to
convey the rights granted or assigned in the IDA.
3.7 Neither party will, without the other party's prior written
approval:
a. [**] other than as may be permitted under the OEM
Agreement, and any attempt to do so is void; provided, however, that either
party shall be permitted to use individual subcontractors or temporary
agencies, so long as the other party's rights (as set forth in the OEM
Agreement and the documents comprising the IDA) are enforced against such
subcontractors; and provided, further, that each party acknowledges that
Subsidiaries of the other party have been and will continue to be involved in
the development activities described in the IDA.
b. assume or create obligations on the other party's
behalf, or make any representations for such other party; or
c. disclose the terms of the IDA except under a
nondisclosure agreement to the disclosing party's financial advisors, attorneys
and accountants, or to assert the disclosing party's rights under it. If
required by law to disclose the terms of the IDA, StorageTek will promptly
notify IBM. Upon request, StorageTek will seek confidential treatment for the
IDA.
3.8 StorageTek will: unless otherwise specified in the SOW or any
document comprising the IDA, maintain records to verify authorship of all
Licensed Works and IBM Materials for [**] after the expiration of the term of
the OEM Agreement. Upon request by IBM, StorageTek shall deliver or otherwise
make available such information in a form reasonably specified by IBM;
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4.0 OWNERSHIP AND RIGHTS
4.1 IBM Materials: IBM [**], and StorageTek agrees to execute any
documents and undertake any actions reasonably necessary to effect and perfect
the assignment of the ownership of [**] to IBM.
Each party's Personnel may use copies, intermediate versions,
drafts and partial copies of the other parties' owned property (i.e., IBM
Materials for IBM, Licensed Works for StorageTek) only as set forth in the
Agreement. At the expiration of the term of the OEM Agreement and unless
otherwise necessary to exercise the licenses granted to the receiving party for
such other party's owned property, the receiving party will destroy (and, upon
request certify destruction thereof) these items unless the owning party
requests that the receiving party deliver them to the owning party.
4.2 Development Environment
a. For each Deliverable, StorageTek will list all items
contained in its Development Environment that are not provided by IBM.
StorageTek will deliver the listed items that are not commercially available;
StorageTek will revise the list for any changes and deliver these updated items
that are not commercially available.
b. StorageTek grants IBM a [**] license to use, execute,
reproduce, display, perform, and prepare Derivative Works of, all delivered
Development Environment items and their Derivative Works. StorageTek grants
IBM the right to authorize others to do any of the above in support of this
Agreement. This license applies to associated audio and visual works.
4.3 Patents
StorageTek grants IBM an [**] license under any patents and
patent applications that are (a) owned or licensable by StorageTek now or in
the future, and (b) required to make, have made, use, have used, sell, offer
for sale, license or otherwise transfer: (i) combinations of Equipment with
equipment or software; (ii) Deliverables or its Derivative Works for inclusion
in Equipment; and (iii) combinations of a Deliverable or its Derivative Works
with equipment and other software in such equipment.
4.4 Inventions.
a. Disclosure. StorageTek will promptly disclose in
writing to IBM each Invention. Such disclosure will specify the features or
concepts that StorageTek believes to be new or different.
b. Ownership. IBM shall own all [**] and [**] including
[**] relating to an Appearance Design which arise out of development that is
fully or partially funded by IBM under this IDA. StorageTek will, at IBM's
expense, assist in the filing of patent applications on these [**] and have
required documents signed. StorageTek hereby [**], any such [**] together with
the right to seek protection by obtaining patent rights therefor and to claim
all rights of priority thereunder, and the same shall become and remain IBM's
property whether or not such protection is sought.
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c. License. IBM grants to StorageTek a [**] license
under [**] and shall include the right to make, have made, use, have used,
lease, sell offer for sale and/or otherwise transfer any apparatus, and to
practice and have practiced any process, provided, however, that such license
is not applicable to any [**], patent applications or patents relating to
Appearance Designs.
d. No Other Patent Rights. Except as specifically
granted, the IDA does not grant either party any rights in any patents or
patent applications.
5.0 DELIVERY AND ACCEPTANCE
5.1 Delivery: StorageTek will provide all Deliverables according
to the schedule in a Transaction Document with remedies for failure to do so as
specified in the Agreement.
5.2 Evaluation: IBM has the right to evaluate each Deliverable as
specified in the applicable Transaction Document before accepting it to verify
that it meets the requirements of such Transaction Document. IBM will notify
StorageTek if it accepts (in whole or in part) or rejects each Deliverable
according to the processes described in the particular Transaction Document.
6.0 PERSONNEL
6.1 Parties' IDA Representatives: A Technical and a Contract
Coordinator for each of StorageTek and IBM will be appointed pursuant to the
SOW to represent them in matters specific to the SOW and all other documents
comprising the IDA. Each party will address all notices, payments and
deliveries to the appropriate coordinator. A party will notify the other in
writing when coordinators change.
6.2 StorageTek will:
a. provide appropriate [**] the Personnel who will
perform StorageTek's obligations under the IDA;
b. assure that the skill levels being applied by
StorageTek's Personnel to the part of its business being used to perform the
IDA are consistent with the skills being applied in comparable parts of
StorageTek's business that are not involved in performing this IDA;
c. not [**] technical development personnel who will
support development of the Products to areas of StorageTek's business that are
not involved in performing under this IDA if so doing would [**] the Products
or the [**]; and
d. supply its [**] to IBM as to how it will [**] with
the specific development group performing the obligations under this IDA.
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6.3 Both Parties will:
a. assign employees with the requisite knowledge and
skills to perform their respective obligations under the IDA;
b. perform obligations under the IDA and grant rights to
the other party as set forth therein; and
c. be responsible for the direction, control,
compensation and actions of their own Personnel; and
d. if such employment would violate the terms of Section
2397 of Title Ten of the U.S.C.A., not employ or compensate Personnel to
perform work under this IDA (without M's prior written approval) who were,
within the last two years: 1) members of the U.S. Armed forces in a pay grade
of O-4 or higher; or 2) civilians employed by the U.S. Department of Defense
with a pay rate equal to or greater than the minimum rate for a grade GS-13.
7.0 COMPLIANCE WITH LAWS
7.1 Compliance with Laws and Regulations: Each party will, at its
own expense, comply with all applicable governmental laws and regulations.
7.2 Exports: Each party will comply with all applicable
government export laws and regulations.
7.3 EEO/OSHA: To the extent applicable, each party will comply
with Executive Order 11246 of the President of the United States on Equal
Employment Opportunity and the Occupational Safety and Health Act of 1970.
8.0 PRICES, PAYMENTS AND TAXES
8.1 Compensation: IBM will pay StorageTek for its Services in
accordance with the IDA. StorageTek's applicable taxes, expenses and payments
to third parties are included in the compensation, unless identified otherwise
in a Transaction Document.
8.2 Invoices: StorageTek and IBM will each submit invoices for
Services, as specified in each particular Transaction Document in accordance
with that document, with payment due as set forth in such Transaction Document.
The applicable expenses and payments to third parties are included in the
compensation, unless otherwise identified in a Transaction Document.
9.0 AGREEMENT TERM AND TERMINATION AND SURVIVAL
9.1 Term. The term of this IDA is coextensive with that of the
OEM Agreement; the IDA's continuation is contingent upon the OEM Agreement
remaining in effect.
9.2 Termination. The provisions relating to termination of the
IDA shall be as set forth in the OEM Agreement.
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9.3 Survival. Any terms of the IDA that by their nature extend
beyond its termination (e.g., Part 4.0 "Ownership and Rights" and Part 8.0
"Compliance with Laws") shall survive. These terms will apply to either
party's successors and assigns.
10.0 NOT USED
11.0 SUBSIDIARY RIGHTS
11.1 Each party may sublicense its intellectual property rights
granted to it by the other party under the Agreement to its Subsidiaries, who
may sublicense the same to their Subsidiaries.
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STATEMENT OF WORK
A Transaction Document Issued Under the
IBM Developer Agreement ("IDA" or "MDA")
By signing this Transaction Document, IBM and StorageTek agree that
the complete agreement between the parties regarding the Deliverables consists
of the following documents:
A. This Statement of Work ("SOW");
B. The IBM Developer Agreement Base Agreement ("Base Agreement");
C. Exhibit: Certificate of Originality ("COO");
D. Description of Licensed Work ("DLW");
E. IBM Source Code Custody Agreement ("Escrow Agreement");
F. The Agreement for Exchange of Confidential Information
("AECI") No. OEM-9447; and
G. The OEM Agreement.
OVERVIEW
Pursuant to the terms of this SOW and in connection with the purchase
and distribution of Iceberg, Kodiak and Arctic Fox by IBM under the OEM
Agreement, StorageTek will design, develop, document, test and provide certain
features, functions and enhancements to the microcode, software, hardware, and
related materials for Iceberg, Kodiak, and Arctic Fox, as well as ongoing
maintenance and support thereof. IBM agrees [**] these activities and provide
such other items and/or assistance, as specified herein.
DEFINITIONS
Unless otherwise defined herein, capitalized terms shall have the same
meanings as set forth in the Base Agreement or the OEM Agreement.
2.1 "Base Iceberg Package" shall mean the Iceberg product as it exists as
of June 30, 1996, including the Freezer III, IXFP base support, IXOF
and Predictive Service Analysis, as listed in Section 6 of this SOW.
2.2 "Code" means computer programming code, including both Object Code and
Source Code, and including computer programming code being used as
microcode:
Object Code is the computer programming code substantially in binary
form. It is directly executable by a computer after processing, but
without compilation or assembly.
Source Code is the computer programming code, other than Object Code,
and related source code level system documentation, comments and
procedural code, such as job control language. It may be printed out
or displayed in a form readable and understandable by a programmer of
ordinary skill.
<PAGE> 86
2.3 "Completion and Acceptance Criteria" shall mean, for each Deliverable,
the criteria listed in the attached Appendix B, as modified by the
PDP, that each such Deliverable must meet.
2.4 "Design Change Request" or "DCR" shall mean a request by either of
StorageTek or IBM to make a change in any Specified Function, which
DCR must follow the process listed in Section 5.1(a).
2.5 "Dispute Resolution Process" shall mean the dispute resolution process
described in Section 22 of the OEM Agreement.
2.6 "ESP" or "Early Support Program" means the Early Support Program
process as IBM has previously implemented such programs for S/390
storage subsystems.
2.7 The "ESP Date" shall mean, with respect to Section 6.1 hereof, the
date that StorageTek meets the ESP Checkpoint criteria as specified in
Appendix B attached hereto.
2.8 "Arctic Fox" is a solid state storage device comprised of Kodiak
without the disk drives.
2.9 "Iceberg" shall be as described in Appendix A attached hereto.
2.10 "Kodiak" shall be as described in Appendix A attached hereto.
2.11 "Impact Error" is as defined in the OEM Agreement.
2.12 "PDP Date" is the date specified for StorageTek to provide to IBM the
PDP for each
Specified Function or each group of Specified Function(s).
2.13 "Product Development Plan" or "PDP" shall mean a written plan prepared
by StorageTek describing the activities to be undertaken in connection
with each Specified Function or group of Specified Functions listed in
Section 6.1 hereof.
2.14 "Program Trouble Report" or "PTR" shall mean a report prepared by [**]
to reflect a problem discovered during component testing or IBM's
review of Deliverables.
2.15 "Specified Functions" or "SF" shall mean the specific functions and/or
features that, either individually or together with other Specified
Functions listed in Section 6.1 hereof, comprise Deliverables.
2.16 "Volume" shall mean, with respect to the heading in Section 6.1
hereof, the date on which StorageTek shall meet the Volume Shipment
Checkpoint and Volume Shipment Compliance criteria as specified in
Exhibit B. With respect to all Specified Functions, the Volume date
means that StorageTek has the capability of filling orders in
reasonable quantities on such date.
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STORAGETEK'S RESPONSIBILITIES
StorageTek agrees to perform the following obligations under this SOW:
3.1 PROJECT MANAGEMENT.
Write or provide a PDP for each Deliverable for which a PDP Date is
established in Section 6.1. StorageTek will include in the PDP (or
otherwise provide for in existing PDP's) a project staffing plan, a
specification and a development plan, all as described in Appendix G
and, as required, submit updates that include reassignment of key
personnel and training plans. The PDP is subject to the written
approval of IBM's Contract Coordinator in writing, which approval may
not be arbitrarily withheld or delayed. If no approval is received
within a reasonable time after the PDP Date or if IBM has rejected the
PDP, either party may invoke the Dispute Resolution Process.
Notwithstanding any failure to obtain IBM's approval of the PDP,
StorageTek shall proceed to perform the Services with respect to the
Deliverable in accordance with the terms of this Agreement, and the
Volume date, and adjustments shall apply with respect thereto.
Submit written monthly status reports ("Reports") that indicate
StorageTek's progress against the accepted plan.
The Reports will include:
(1) a summary of accomplishments during the current reporting
period, as compared with the schedule set forth in the PDP;
(2) a summary of all concerns or issues (including, without
limitation, development delays, and changes to the
Deliverables' specifications pursuant to the DCR and PTR
process described herein) for the current reporting period
along with the plan and projected date for resolution, if
any;
(3) the status of outstanding concerns or issues that were
reported in previous reporting periods; and
(4) any other information that materially affects StorageTek's
ability to provide the Deliverables.
Notify IBM in writing of any development or delivery delays as soon as
StorageTek becomes aware of such delays.
Provide all Deliverables in accordance with Section 6 and as further
described in the PDP, including without limitation, meeting the schedule set
forth therein, which Deliverable shall be in accordance with the requirements
specified in Section 6 and also in accordance with Appendix A, "FUNCTIONAL,
TECHNICAL AND QUALITY SPECIFICATIONS", as the same may be modified by the
applicable PDP.
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3.2 DESIGN, CODE AND DEVELOPMENT.
a. Provide and implement the Deliverables in accordance with the
specifications described in Appendix A and Section 6 hereof,
as the same may be amended by StorageTek's PDP with the
written agreement of IBM's Contract Coordinator.
b. Use its established procedures to implement the following
development processes for activities being under taken
subsequent to the Effective Date hereof:
design change requests (DCRs);
program trouble reports (PTRs);
design reviews of hardware, microcode and software
design; and
code and test case inspections, as appropriate.
c. Ensure that user documentation Deliverables are created by
individuals best qualified to describe the technical details
unique for its subsystems. StorageTek will further ensure
these individuals are available for interviews, at no
additional cost to IBM [**], to augment the information as
required; provided, however, that IBM agrees not to
unreasonably interfere with such individuals' ability to
perform the Services hereunder. IBM will provide prior
reasonable written notice to StorageTek prior to any requested
interviews and shall be subject to StorageTek's facility
security requirements.
3.3 INSPECTIONS.
StorageTek will inspect the Deliverables that StorageTek develops
under this SOW as such inspection is required pursuant to the
applicable PDP. StorageTek's inspection shall be done in accordance
with the processes it applies generally to inspection in its overall
business. StorageTek will inform IBM of the dates for all inspections
and provide draft copies of the Deliverable subject to inspection at
least one (1) week before the inspection meeting, or at such other
time as the parties may mutually agree if such draft copies cannot
reasonably be provided at least one (1) week before the inspection
meeting. IBM has the right to participate in these inspections and to
review the results of the inspections.
3.4 TRAINING. StorageTek agrees to provide training to IBM in accordance
with Sections 16 and 17 of the OEM Agreement.
3.5 QUALITY. StorageTek's Deliverables shall be subject to the quality
requirements set forth in Section 9 of the OEM Agreement and Section
2D to Appendix A attached hereto.
3.6 StorageTek will document and provide to IBM each Deliverable according
to the criteria in Appendix B, "COMPLETION AND ACCEPTANCE CRITERIA."
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3.7 StorageTek shall provide product engineering services ("Product
Engineering Services") to support Equipment that IBM is acquiring or
has acquired from StorageTek. These Services shall include, without
being limited thereto, the following:
a. StorageTek shall correct errors and deficiencies in the
Licensed Works and IBM Materials to ensure conformance to the
Specifications therefor (as these have been modified by any
applicable PDP);
b. StorageTek shall supply to IBM all corrections to the Licensed
Works that it has made outside of the scope of this Agreement
that affect the Equipment;
c. StorageTek shall provide minor updates and changes that
support new releases of operating systems and devices (e.g.,
HDAs, channel path, escon directors); and
d. StorageTek shall provide Basic Enhancements and Maintenance
Modifications to the Licensed Works and IBM Materials, as well
as enhance and support existing StorageTek software and
microcode that are normally shipped in or with Iceberg,
Kodiak, or Arctic Fox for the purpose of configuration,
service, maintenance and support; provided, however, that IBM
shall not acquire any ownership rights with respect to
StorageTek's Maintenance Code, proprietary tools and
maintenance documentation and enhancements thereto that are
owned by StorageTek and generally used by StorageTek for its
other products, all of which are excluded from the term
"Licensed Works."
4. IBM'S RESPONSIBILITIES
IBM agrees to perform the following obligations under this SOW:
4.1 IBM's Contract Coordinator will, on a timely basis, review and accept
or reject in writing all Deliverables according to the acceptance
criteria specified in Appendix B, "COMPLETION AND ACCEPTANCE
CRITERIA," as modified by the PDP. Acceptance of all Deliverables
shall not be unreasonably withheld or delayed, and any disagreement
between the parties shall be subject to the Dispute Resolution Process
described in Section 22 of the OEM Agreement. StorageTek's warranty
in Section 14 of the OEM Agreement relative to the conformance of the
Deliverables with the Specifications applies regardless of any
acceptance of a Deliverable by IBM under the acceptance criteria
specified in Appendix B, as modified by the PDP.
4.2 IBM shall track and record all Impact Errors. Such tracking and
recording shall be performed by IBM's product engineering group in
accordance with its standard practice presently utilized for IBM's
comparable DASD products.
4.3 FUNDING.
The parties have agreed upon the following schedule of funding
relating to the Services already performed in the [**] or to be
performed by StorageTek hereunder:
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<TABLE>
<CAPTION>
Total Funding [**] Funding [**]
<S> <C> <C>
4Q of 1997: [**]
[**]
[**] [**]
[**] [**]
Totals: [**]
</TABLE>
(1) Subject to Section 4.3b
a. Aggregate Funding Amounts. IBM has provided or will provide
StorageTek with aggregate funding for [**] Services in the
following amounts:
4Q of 1997: [**]
[**] subject to Section [**]; and
[**] subject to Section [**] .
On a quarterly basis the parties shall specify Deliverables (other
than "Committed In-Plan" Deliverables, as specified in Section 6.1
hereof) eligible for consideration for funding from (i) [**] funds;
(ii) [**] funds; or (iii) [**] funds.
StorageTek acknowledges that IBM shall have sole discretion to [**]
funding through the [**] process (except for [**] highlighted in
Section [**].
b. Product Engineering Funding. IBM has funded or shall fund
[**] Services for the products that IBM is purchasing from
StorageTek under the OEM Agreement, as those products are
enhanced in accordance with this IDA, as follows:
4Q of 1997: [**]
[**] [**]
[**] [**]
The total amount of [**] funding [**] shall be divided by 4 and
allocated to each quarter of the applicable year.
In any particular year, if StorageTek requires more funds to meet its
product engineering obligations under the OEM Agreement than is funded
above, StorageTek shall be responsible for any such additional funds.
In any particular year, if StorageTek spends less than the [**] funds,
the amount [**] for [**] will be made available for use by IBM for
Deliverables that are other than "Committed In-Plan Items". In
addition, if StorageTek is achieving its quality requirements for the
Equipment as set forth in Section 9 of the OEM Agreement ("Quality
Requirements"), IBM may, [**] funds and apply the remaining to
Deliverables
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that are other than "Committed In-Plan Items"; provided, however, that
if the quality of the Equipment falls below the Quality Requirements,
then IBM agrees to [**] to be used [**] funds.
With respect to [**], StorageTek shall [**] of the [**] [**] funding
paid by IBM in an amount equal to [**] that is (i) [**], or (ii) [**];
provided, however, that (a) [**], and (b) any [**].
Any [**] StorageTek shall be [**] by [**]; provided, however, that
with respect to any portion of such [**] described in clause (ii)
above, StorageTek agrees [**]. For the purpose of determining any
such [**], only the [**] will be used to determine the amount of [**]
by StorageTek, and a [**].
With respect to [**] , IBM may, at its option, [**] allocated for [**]
by giving written notice at least one year prior to the end of the
first or any subsequent quarter in [**]; any such notice(s) will be
effective for the applicable quarter and for any subsequent quarters
in [**]. StorageTek agrees to negotiate in good faith to provide
Product Engineering Services beyond [**] at a price equal to [**] if
IBM so requests and StorageTek is still providing product engineering
for such Devices or Equipment.
c. Funding of Deliverables. IBM has funded or shall fund [**] of
the development for the Deliverables specified in Section 6.1
as "Committed In-Plan Items" as follows:
(i) [**]
<TABLE>
<CAPTION>
Product $ Period
------- - ------
<S> <C> <C>
[**]
</TABLE>
(ii) [**]
<TABLE>
<CAPTION>
Product $ Period
------- - ------
<S> <C> <C>
[**]
</TABLE>
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If StorageTek requires more funds to complete any such
Deliverables than are specified above, StorageTek shall [**]
funding. Notwithstanding such StorageTek funding, the
Deliverables shall remain IBM Materials for purposes of the
rights and obligations set forth in the IDA documents.
If StorageTek requires [**] funds to complete a Deliverable,
then the parties agree any [**] funds shall be made available
for other Deliverables and other development projects.
The total amount of development funding for the [**] shall be
divided by 4 and allocated to each quarter of the applicable
year.
d. General. Funds are considered to be spent for product
engineering or a project based upon the application of GAAP,
as those principles have been applied during the one calendar
year period preceding the calendar year of the execution of
this SOW.
For each quarter, StorageTek shall invoice IBM for Services to
be performed during each such quarter on or before the first
business day of the quarter, and IBM shall pay for such
Services in [**] payments due and payable on the last business
day of the end of each month of each quarter.
e. [**] Funding. During the term of the Agreement, StorageTek
may, from time to time, conceive idea(s) for updates,
improvements, or other development projects which are not
merely duplicative of activities otherwise undertaken
hereunder and which add commercially significant functionality
and/or performance improvements to Equipment or Devices
(hereafter, "New Developments").
StorageTek may, but is not obligated to, offer any New
Development that it conceives through [**] to IBM--together
with its reasonable estimate of the cost and development
schedule for such New Development. IBM may [**] such New
Developments as a project hereunder. If IBM [**] such New
Developments [**] hereunder, or if StorageTek [**], StorageTek
shall own such New Developments.
If StorageTek completes [**] New Developments for inclusion in
or that would enhance the Iceberg, Kodiak and Arctic Fox
Products, then StorageTek shall offer until [**], for purchase
by IBM based on purchase orders that are placed prior to [**],
all devices, features, upgrades, or other products using such
New Developments to IBM at its [**] Price (as defined in the
OEM Agreement); and in the case of microcode or software New
Developments, StorageTek shall offer [**] to license them to
IBM under reasonable terms and conditions, which includes the
right to sublicense customers, at [**], not to exceed such
[**] Price. StorageTek agrees to deliver the object version
of the Code to IBM which may be replicated and distributed
directly to customers for any such New Development that IBM
elects to license and to deliver the source code version of
the Code to IBM to maintain and support such New Development
and prepare Derivative Works thereof.
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If the New Developments include any [**], StorageTek is
licensed to sell or license such [**] devices, features,
upgrades, or other products using such New Developments to
third parties as set forth in the DLW Transaction Documents.
All such New Developments shall become IBM Materials if funded
by IBM and any intellectual property rights arising out of the
development of such New Developments shall be owned by IBM in
accordance with the IDA.
f. IBM agrees to provide to StorageTek IBM drives under the
consignment process for StorageTek's use in [**] of the
Deliverables under the Agreement for [**] for each IBM drive
after the date of StorageTek's [**] of each such IBM drive.
Before the expiration of this period, StorageTek agrees to
remove any such IBM drives from [**] ; to check such IBM
drives under an [**]; and to integrate such IBM drives into
[**] or [**] that are to be Delivered to IBM under the
Agreement. If an IBM drive [**], it shall be promptly
returned to IBM in accordance with Section 12.3 of the OEM
Agreement.
If StorageTek does not remove each IBM drive from its [**],
within a period of [**], then IBM will [**] IBM drive to
StorageTek at a [**] agreed upon price. With regard to each
IBM drive that StorageTek has failed to remove, the following
additional terms shall apply:
(i) except as otherwise provided in subsections (ii),
(iii) and (iv), below, the terms of the IBM [**];
(ii) the IBM drives shall be sold on [**];
(iii) the IBM drives may be used [**] by StorageTek in
connection with its [**] under the OEM Agreement; and
(iv) if IBM drives are [**], then such IBM drives and all
associated documentation shall be considered as [**].
These items shall be covered under the terms of the
[**].
4.4 IBM shall provide SSA design and implementation assistance (not to
exceed two person- years) in accordance with the PDP.
4.5 In order to assist StorageTek in providing Deliverables as specified
in the IDA, IBM's DASD subsystem product development group shall make
reasonable efforts to provide, by the dates set forth in the related
PDP, StorageTek with the following items; but StorageTek shall have no
remedy for IBM's failure to so provide any of these items and shall
remain responsible, despite any such failure by IBM, for StorageTek's
obligations under this Agreement:
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a. Documentation and specifications as required in accordance
with the specific PDP: [**].
b. Products, programs, documentation, and training, as required
in accordance with the PDP:
(1) [**] and [**] such as [**] test;
(2) [**], including the [**] referred to in Section [**]
; and
(3) [**].
c. Assistance as required in accordance with the PDP for:
(1) General Design Review -- not to exceed one person
month per year during this SOW; and
(2) ESP Selection, account management, test plan,
monitoring, VSAM consultation.
d. Product specifications, and support for [**] with [**], as
required by the applicable PDP.
To the extent that IBM has the right to do so, IBM grants StorageTek a
[**] license (unless [**] for such items, and then such license shall
be [**] to use, execute, reproduce, display and perform the items
provided under this subsection-- only in support of IDA.
4.6 If IBM fails to provide any of the above items, then StorageTek will
immediately notify IBM's Contract Coordinator in writing and, if
within fourteen (14) days thereafter, IBM has still not provided such
items, then the parties shall use the Dispute Resolution Process to
reach a resolution in order to avoid unreasonable delays.
5. MUTUAL RESPONSIBILITIES
5.1 PROJECT CONTROLS. Both parties will use the following project
controls for work performed under this SOW.
a. Design Change Requests (DCR). All changes to the
specifications must go through the following DCR process:
(1) either party may propose a DCR;
(2) StorageTek will size the DCR and advise IBM in
writing of any impact to the schedule;
(3) IBM will decide whether to have the DCR implemented
or not; and
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(4) StorageTek will keep a log of all DCRs to track the
status of such DCRs through the development and test
cycle.
The log will specify the status as:
"Proposed" - a DCR has been created and has
been distributed to both parties;
"Accepted/Rejected" - IBM has notified
StorageTek that the DCR has been accepted or
rejected;
"Design Specification Updated" - StorageTek
has updated the Product's Design
Specification to reflect the DCR if it has
been accepted;
"In Process" - StorageTek is implementing the
DCR; or
"Complete" - The DCR has been implemented and
tested and the Documentation is updated to
reflect the DCR.
Any approval of a DCR by IBM or StorageTek
must be made by that party's Contract
Coordinator in writing.
b. Program Trouble Reports (PTR). All problems discovered during
component testing or IBM's review of Deliverables will follow
the PTR process. The procedure used will be as follows:
(1) either party may issue a PTR;
(2) StorageTek will track the status of each PTR; and
(3) the tracking system will specify the status as:
"Opened" - a problem has been discovered and
entered into the PTR tracking system;
"Received" - the programmer or engineer
responsible for the code is working on the
PTR;
"Answered" - the programmer or engineer has
fixed and tested the problem; or
"Closed" - the test has been rerun, to verify
that the problem has been corrected and has
not caused any new problems.
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5.2 PROJECT MANAGEMENT.
a. Project Management. IBM's and StorageTek's respective
management teams will meet monthly and review the field
support and status of the Deliverables. The field support
review will encompass the field performance of products, open
problems and status, resource allocation and use and customer
situations. The status of the Deliverables shall be reviewed
for progress in connection with the PDP, including plans for
corrective action (if any Deliverable is behind the PDP
schedule) and a summary of all concerns and issues.
b. Plan Change Process. As business needs, business
opportunities or resource availabilities change, IBM may
supply StorageTek with a concise description of new product
requirements to StorageTek, which StorageTek will review and
provide [**] therefor. In addition, StorageTek may also
propose alternative descriptions of such new product
requirements (as well as other new product requirements),
together with [**].
If StorageTek can commit to such new product requirements
without adversely affecting, to a material extent, the
Deliverables already planned, StorageTek shall propose an
ESP/volume shipment plan to be reviewed and negotiated in good
faith by the parties. If StorageTek cannot include the
requested new product requirement within the then-current
commitments, IBM may provide a prioritization and the parties
will negotiate in good faith amended commitments for all or
any affected Deliverables.
5.3 ESCROW. The Parties agree that the escrow account established with
[**] pursuant to the IBM Source Code Custody Agreement attached hereto
as Appendix E to Attachment 1 to Exhibit 3 shall apply to the [**]
deposited therewith, and confirm that the purpose for such escrow is
to determine the level of the Licensed Works in existence on [**],
together with the benchmarks used to measure the Products' performance
and other requirements (as such Products are in existence as of [**].
5.4 HEADCOUNT AND EQUIPMENT INVESTMENTS. The parties recognize that in
order to achieve the Impact Error Rate objectives set forth in Section
9.3 of the OEM Agreement, an investment in headcount and equipment is
required. IBM shall provide, at its own cost, through [**],
appropriate field support and test engineering personnel, and through
[**], a [**] IBM Model [**] processor system of a configuration
adequate for the testing that has been defined by both parties with
standard IBM software licenses and maintenance related thereto.
StorageTek shall provide, at its own cost, and incremental to
development and product engineering funding, through [**] appropriate
engineers, test technicians and program administrators.
6. DELIVERABLES, SCHEDULES AND ADJUSTMENTS
6.1 CHART OF DELIVERABLES.
a. [**]
12
<PAGE> 97
1. COMMITTED IN PLAN ITEMS
[**] DELIVERABLE
PDP DATE: [**]
SPECIFIED FUNCTIONS COMPRISING FOURTH ICEBERG DELIVERABLE
<TABLE>
<CAPTION>
DELIVERABLE TYPE ESP DATE VOLUME ADJUSTMENT
- -------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C>
[**]
</TABLE>
[**] DELIVERABLE
PDP DATE: [**]
SPECIFIED FUNCTIONS COMPRISING FIFTH ICEBERG DELIVERABLE
<TABLE>
<CAPTION>
DELIVERABLE TYPE ESP DATE VOLUME ADJUSTMENT
- -------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C>
[**]
</TABLE>
[**] DELIVERABLE
PDP DATE: [**]
SPECIFIED FUNCTIONS COMPRISING SIXTH ICEBERG DELIVERABLE
<TABLE>
<CAPTION>
DELIVERABLE TYPE ESP DATE VOLUME ADJUSTMENT
<S> <C> <C> <C> <C>
[**]
</TABLE>
[**] DELIVERABLE
-PDP DATE: [**]
SPECIFIED FUNCTIONS COMPRISING [**] DELIVERABLE
<TABLE>
<CAPTION>
DELIVERABLE TYPE ESP DATE VOLUME ADJUSTMENT
<S> <C> <C> <C> <C>
[**]
</TABLE>
B. [**]
1. COMMITTED IN-PLAN ITEMS
[**] DELIVERABLE
PDP DATE: [**]
SPECIFIED FUNCTIONS COMPRISING [**] DELIVERABLE
<TABLE>
<CAPTION>
DELIVERABLE TYPE ESP DATE VOLUME ADJUSTMENT
- --------------------------------------
<S> <C> <C> <C> <C>
[**]
</TABLE>
[**] DELIVERABLE
PDP DATE: [**]
SPECIFIED FUNCTIONS COMPRISING [**] DELIVERABLE
<TABLE>
<CAPTION>
DELIVERABLE TYPE ESP DATE VOLUME ADJUSTMENT
- -------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C>
[**]
</TABLE>
13
<PAGE> 98
2. "IN DEVELOPMENT BUDGET" ITEMS
<TABLE>
<CAPTION>
DELIVERABLE TYPE ESP DATE VOLUME ADJUSTMENT
- -------------------------------------- ------------------------------------------
<S> <C>
[**]
</TABLE>
These items will be developed with part of the [**] funds that are specified in
4.3b and have no [**] associated with them.
NOTE: With respect to all of the above Specified Functions, should StorageTek
fail to deliver any Specified Function by the Volume date listed for such
Specified Function in Section 6.1 above, then IBM shall be entitled to
purchase the existing subsystem product from StorageTek at the [**] as if
StorageTek had delivered such Specified Function by such Volume date.
6.2 CERTIFICATE OF ORIGINALITY (COO).
StorageTek agrees to provide a Certificate of Originality for software
and microcode items identified in 6.1. A blank Certificate of
Originality is attached hereto as Appendix D.
7. NOT USED.
8. SPECIFICATIONS
All Deliverables will be prepared and provided according to the
standards in Appendix A, "FUNCTIONAL, TECHNICAL AND QUALITY
SPECIFICATIONS" and those set forth in the associated PDP. In the
event of a conflict between Appendix A and the applicable PDP as
approved in writing by IBM's Contract Coordinator, the PDP shall
control.
9. QUALITY MEASUREMENTS
The quality measurements shall be as set forth in Section 9 of the OEM
Agreement, except for host software, which shall be as set forth in
Section 2D of Appendix A attached hereto.
10. LICENSE
10.1 Except as specifically stated in the Agreement, no license or
immunity is granted either directly or by implication,
estoppel or otherwise, under any intellectual property right
of either party, including, but not limited to, trade secrets,
copyrights, trademarks and patents.
11. COORDINATORS
11.1 CONTRACT COORDINATORS.
IBM and StorageTek agree that the following named contract
coordinators are responsible for amendments (including working
with each party's respective legal department to prepare and
execute such amendments), receipt of notices under
14
<PAGE> 99
this IDA and all nontechnical administrative matters associated
with this SOW.
The Contract Coordinators are:
<TABLE>
<CAPTION>
FOR IBM: FOR STORAGETEK:
<S> <C> <C>
Name: Mr. [**] Name: Mr. [**]
Title/Dept: Director, Future Title/Dept: Vice President,
Storage Subsystems DASD Product Management
Address: 9000 S. Rita Road Address: 2270 South 88th Street
Tuscon, Arizona 85744 Louisville, Colorado 80028
Phone: (520) [**] Phone: (303) [**]
Facsimile: (520) [**] Facsimile: (303) [**]
</TABLE>
Notices shall be deemed given as specified in Section 26.3 of
the OEM Agreement.
11.2 TECHNICAL COORDINATORS.
IBM and StorageTek agree that the following named coordinators
will administer and coordinate the technical matters
associated with this SOW. Any changes in the party's
coordinators shall be provided to the other party in writing.
They are responsible for accepting all Deliverables and will
supervise all exchanges of confidential information under the
CDA. The Technical Coordinators are:
<TABLE>
<CAPTION>
FOR IBM: FOR STORAGETEK:
<S> <C> <C>
Name: Mr. [**] Name: Mr. [**]
Title/Dept: Director, Future Title/Dept: Vice President,
Storage Subsystems DASD Systems Development
Address: 9000 S. Rita Road Address: 2270 South 88th Street
Tuscon, Arizona 85744 Louisville, Colorado 80028
Phone: (520) [**] Phone: (303) [**]
Facsimile: (520) [**] Facsimile: (303) [**]
</TABLE>
15
<PAGE> 100
APPENDIX A
FUNCTIONAL, TECHNICAL AND QUALITY SPECIFICATIONS
TO THE STATEMENT OF WORK
1. TECHNICAL SPECIFICATIONS
The technical specifications for the existing Iceberg, Kodiak and
Arctic Fox products, as well as the IXFP and IXOF software are contained in the
following documents:
a. [**]
b. [**]
c. [**]
d. [**]
e. [**]
f. [**]
g. [**]
h. [**]
i. [**]
j. [**]
k. [**]
l. [**]
m. [**]
n [**]
o. [**]
p. [**]
q. [**]
r. [**]
s. [**]
<PAGE> 101
t. [**]
u. [**]
v. [**]
w. [**]
x. [**]
y. [**]
z. [**]
aa. [**]
bb. [**]
cc. [**]
dd. [**]
ee. [**]
ff. [**]
gg. [**]
hh. [**]
ii. [**]
jj. [**]
kk. [**]
ll. [**]
mm. [**]
nn. [**]
oo. [**]
The technical descriptions for the [**] Iceberg Items (as specified in
Section 6.1 hereof) are in Schedule 1.
The technical descriptions for the [**] Kodiak Items are in Schedule 2.
2
<PAGE> 102
The technical descriptions for the [**] IXFP and IXOF Items are in
Schedule 3:
2. PERFORMANCE SPECIFICATIONS
A. PERFORMANCE TEST SET
[**]
Each performance workload has a specification of the number of
channels, cache size, subsystem capacity, and the number of logical
volumes to be used for each evaluation.
B. PARTICULAR PERFORMANCE SPECIFICATIONS
As specified in Schedules 4, 5, 6 and 7, Committed in Plan Items must
maintain performance specifications as currently existing or improve thereon as
required by the applicable PDP.
C. CAPACITY RATIO SPECIFICATIONS
For calculating storage capacities for purchases of Iceberg, a ratio of
[**] of storage accessible to 1 [**] is used to determine Terabytes. The
benchmark in Schedule 8 produces a capacity ratio of [**]. Future enhancements
to Iceberg, when this benchmark is applied, shall not produce results less than
[**]. Upon mutual written
agreement, such benchmark may be modified.
D. HOST SOFTWARE QUALITY MEASUREMENTS
StorageTek's host software development (IXFP and IXOF) shall meet a
quality index of no more than [**] errors per [**] lines of actually executing
code (not including comments, dummy, nonoperational or nonfunctional lines of
code) ("KLOC") for all of the code, including base, new and modified code that
is to be delivered to IBM under the IDA and its related attachments and
appendices.
3
<PAGE> 103
SCHEDULE 1 TO APPENDIX A TO
STATEMENT OF WORK
Integrated Iceberg Overview
The integrated Iceberg is [**], packaged in an [**]. This unit contains [**].
The system will initially support both FIPS and ESCON interfaces.
There are [**] differences between an Iceberg Controller with Freezer III and
the Integrated Iceberg system. Since the Freezer is [**]
[**]
[**] Overview
The [**] contains the following features. [**]
[**]
[**] Array Description
The [**] array is [**]
[**] Load [**]
This deliverable is described in the documents associated with the PDP
submitted by [**], dated [**], titled [**]
[**] Analysis
[**] Analysis (PSA) is the method by which the [**]
ESCON 128 [**]
For ESCON on Iceberg, the subsystem will initially support a maximum of [**]
followed later with support for a [**] . A host part is defined as the
communication [**] between the [**] and all [**]. In order to access [**], a
[**] will have four logical paths associated with it. This is due to the [**]
Control Unit images that are used to access [**]. The support of four Control
Unit images will not consume [**] resources available to the subsystem. Each
parallel channel card installed in the subsystem will reduce the number of host
paths support by [**] on the [**] and by [**] on the [**]. [**] installed
parallel channel cards ([**] per cluster) will reduce the total number of [**]
from [**] to [**] for [**] [**] and from [**] to [**] for [**] total [**].
The [**] project has been [**] and is currently [**]
<PAGE> 104
Table 5-1. Parallel and ESCON Channel Configurations Options
<TABLE>
<CAPTION>
Cluster 0 Cluster 1
--------------------------------------------------------
Total Cntrl Reg 0 Cntrl Reg 1 Cntrl Reg 2 Cntrl Reg 3
--------------------------------------------------------
<S> <C>
8P [**]
16P [**]
24P [**]
32P 4P [**]
8S - Single [**]
8S - Dual [**]
16S - Dual [**]
16P/8S - Single [**]
16P/8S - Dual [**]
</TABLE>
Note: Mixed channel configurations [**] are supported for [**]. [**] will
support [**] configurations.
(1) Where P is one OEMI channel (one fourth of an ICQ card), 1S is one ESCON
link (one half of an ICE1 or ICE2 card). Where Single is the top link enabled
on each ICE card and Dual is both links enabled in each ICE card.
(2) Each link will support [**] for Release 1 and [**] for Release 2.
(3) Each link will support [**] for Release 1 and [**] for Release 2.
(4) Each link will support [**] for Release 1 and [**] for Release 2.
(5) Each link will support [**] for Release 1. This configuration [**] for
Release 2.
(6) Each link will support [**] for Release 1. This configuration [**] for
Release 2.
All channels to a device from the same system (host or LPAR) must be the same
type. Channel types S (=CNC), FX (=CVC), BL (Block - MUX) cannot be intermixed
to a device from the same system. Channel configurations are therefore
symmetrical between the clusters.
2
<PAGE> 105
SCHEDULE 2 TO APPENDIX A TO
STATEMENT OF WORK
KODIAK Descriptions
K-1
[**] SIZE:
This is a cost reduction element to allow the parity group (or RAID group)
size to increase from its current [**] to [**]. This means that the effective
real data space utilization grows from [**] which realizes a reduced cost for
data protection. This group size must [**] for practical reasons.
[**] SIZE:
The current [**] size used in Kodiak is [**]. This was chosen as an optimal
amount for the internal transfer elements and the disk capacity. Subsequent to
that implementation, most drive vendors have dropped support for variable blocks
sizes or sizes of this range. To [**] must be adopted. The [**] size will allow
our internal element size to be maintained and still utilize the [**] drives.
[**] DRIVE CABINET:
With the support of 3.5" disk drives, up to 180 disk drives can be included
in a disk cabinet realizing both cost and floor space savings over the 60 drive
5.25 inch disk cabinets.
[**] DRIVE SUPPORT:
Higher capacity [**] drives are becoming available and will represent a
cost/performance advantage over the current drives being used. Additionally,
following the technology curves will be necessary for both supply and cost
issues. The support for [**] will encompass qualification, development of a dual
port card, packaging, code support (both configuration and functional, and
testing.
"BIND" OR MERGED ARCTIC FOX AND KODIAK
This feature allows [**] to be held resident in cache and treated as if
they were on a [**]. This is set up through the [**] and may be changed by the
customer support engineer. Data may still be [**] to [**] through a requested
action on the support controller for changes, power downs, etc. This feature
allows for [**] to have specific enhance performance characteristics over other
[**] for performance critical data.
[**]
[**] is using [**] and the ability to [**] and [**] on the [**] for [**].
<PAGE> 106
K-2
[**] POWER/PACKAGE
The K-2 development [**] of the [**] and allows for [**] of [**] in the
[**] while maintaining the [**]. The [**] in the [**] allows for [**] and [**].
This provides a significant cost reduction, assembly and test time decrease, and
reduced parts count. Additionally, [**] required is [**] as well as other [**]
requirements.
IMPROVED PERFORMANCE [**] :
The [**] will be improved in various areas to provide increased performance
that is targeted to be [**] in the simulated TSO workload. The areas include:
better utilization of [**] , faster [**] , faster [**] , increased [**], and
[**].
NON-HOMOGENEOUS CACHE SUPPORT:
This development allows for [**] . with the development of the appropriate
code, [**] may be done where only data written is [**] in a [**] of the [**]
depending on configuration choices at installation time. This is a cost
reduction over [**] system.
K-3
[**]
This deliverable is described in the Product Development Plan(PDP)
submitted by [**] dated [**] titled: [**].
[**]
This deliverable is described in the PDP submitted by [**] dated [**]
titled:
[**] . It should be noted that the performance requirement is as follows:
[**]
[**]
This deliverable is described in the Product Development Plan(PDP)
submitted by [**] dated [**] titled :[**]
[**]
This deliverable is described in the Product Development Plan(PDP)
submitted by [**] dated [**] titled :[**]
2
<PAGE> 107
OTHER ITEMS
ENHANCED PDS SEARCH ASSIST
Enhanced [**] is [**] for [**] operation based on analysis of particular
program accesses.
[**] ESCON
This development is the [**] and the [**] to allow [**]. This includes
evaluation as to feasibility (if it's possible at a reasonable cost/effort).
[**]
3
<PAGE> 108
SCHEDULE 3 TO APPENDIX A TO
STATEMENT OF WORK
XSA/SNAPSHOT [**]
XSA/SnapShot is a virtual data duplication program product which [**]
XSA/SNAPSHOT FOR [**]
[**] of XSA/SnapShot will be implemented on [**] as well (after release
of MVS SnapShot). [**] SnapShot will allow [**] and [**] from the [**]. SnapShot
for [**] will run as a [**] or from [**] through [**]. It will also have a
pre-requisite of [**] and [**].
XSA/SNAPSHOT [**]
XSA/SnapShot [**] will be the first major enhancement of XSA/SnapShot.
It will [**] and [**]. Final specifications are still being developed.
<PAGE> 109
APPENDIX A: SCHEDULE 4
TO THE STATEMENT OF WORK
ICEBERG PERFORMANCE COMMITMENTS FOR POST [**]
SHIPMENTS
<TABLE>
<CAPTION>
[**] DATA [**] CACHE # OF
WORKLOAD [**] CHNLS [**] SIZE DEVICES
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[**]
</TABLE>
NOTE: NA -> NOT APPLICABLE
4
<PAGE> 110
APPENDIX A: SCHEDULE 5
TO THE STATEMENT OF WORK
ICEBERG PERFORMANCE COMMITMENTS FOR POST [**]
SHIPMENTS
<TABLE>
<CAPTION>
[**] DATA [**] CACHE # OF
WORKLOAD [**] CHNLS [**] SIZE DEVICES
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[**]
</TABLE>
NOTE: NA -> NOT APPLICABLE
5
<PAGE> 111
APPENDIX A: SCHEDULE 6
TO THE STATEMENT OF WORK
KODIAK PERFORMANCE COMMITMENTS FOR POST [**]
SHIPMENTS
<TABLE>
<CAPTION>
[**] DATA [**] CACHE # OF
WORKLOAD [**] CHNLS [**] SIZE DEVICES
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[**]
</TABLE>
NOTE: NA -> NOT APPLICABLE
6
<PAGE> 112
APPENDIX A: SCHEDULE 7
TO THE STATEMENT OF WORK
KODIAK PERFORMANCE COMMITMENTS FOR [**]
SHIPMENTS AND AFTER
<TABLE>
<CAPTION>
[**] DATA [**] CACHE # OF
WORKLOAD [**] CHNLS [**] SIZE DEVICES
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[**]
</TABLE>
NOTE: NA -> NOT APPLICABLE
7
<PAGE> 113
SCHEDULE 8 TO APPENDIX A TO
STATEMENT OF WORK
CAPACITY RATIO SPECIFICATION
The test to determine capacity ratio consists of backing up a [**], and [**].
IXFP used to report test results. Specifications are as follows:
A. [**]
[**]
[**]
B. [**] capacity:
[**]
[**]
[**]
C. [**] (on FAST) = [**]
D. Compression ration = [**]
E. Net Capacity Level = [**]
F. Volume Utilization = [**]
G. Capacity Ratio = [**]
<PAGE> 114
APPENDIX B
COMPLETION AND ACCEPTANCE CRITERIA
COMPLETION AND ACCEPTANCE CRITERIA.
All completion and acceptance criteria for ESP, volume shipment
checkpoint and volume shipment compliance are included in this section.
In order to qualify for acceptance at the checkpoints identified
herein, each Deliverable must perform according to the specifications identified
and referenced in Appendix A, "FUNCTIONAL, TECHNICAL AND QUALITY SPECIFICATIONS"
as amended by the associated PDP for such Deliverable. For the Iceberg and
Kodiak Deliverables, the IBM System Test is attached as Schedule 1 to this
Appendix B.
STAGE CRITERIA.
Specified Function, ESP and Acceptance Criteria are as follows:
A. ESP Checkpoint. For each Specified Function, other than for the Base
Iceberg Package, StorageTek shall recommend to IBM when each SF is
ready for IBM to conduct an Early Support Program ("ESP"), typically
with a minimum of [**] StorageTek; IBM shall have the right to have up
to [**] be IBM internal customer sites or test installations. Machines
supplied to IBM installations shall be supplied at no charge to IBM
during the ESP test period.
Prior to the ESP start date, an ESP ready review shall be conducted
jointly by the parties; during this review StorageTek will present the
status of the testing that it has completed for the Specified Function,
with an accompanying written report. StorageTek's report will include a
summary of all problems that have been encountered and resolved,
details on all unresolved problems and proposed action plans for their
resolution and status of meeting the agreed to exit criteria for the
function test of this Specified Function.
StorageTek will present its recommendation as to whether to implement
the plan for ESP shipments. If StorageTek has recommended proceeding,
IBM will have [**] working days to conclude whether the SF had met the
criteria in the functional test plan for ESP initiation. IBM will not
unreasonably withhold its agreement that the particular Specified
Function is ready for the ESP.
If StorageTek disagrees with IBM's conclusion, StorageTek may appeal by
means of the Dispute Resolution Process.
For each Specified Function, StorageTek's obligation to be ready to
initiate an ESP at the designated date shall be met upon its delivery
of such Specified Function that is in accordance with the specification
documents for it as listed below:
8
<PAGE> 115
o functional specification, as updated in accordance with design
change procedures
o customer documentation readiness
o Functional Test Plan Completion Criteria
o performance measurement results against requirements, substantial
compliance required
B. Volume Shipment Checkpoint. Prior to the volume shipment date, a volume
shipment readiness review shall be conducted jointly by the parties;
during this review StorageTek will present the status of the testing
that it has completed for the Specified Function, with an accompanying
written report. StorageTek's report will include a summary of all
problems that have been encountered and resolved, details on all
unresolved problems and proposed action plans for their resolution and
status of meeting the agreed exit criteria for the ESP test of this
Specified Function ("SF").
StorageTek will present its recommendation as to whether to commence
volume shipments. If StorageTek recommends proceedings with volume
shipments, IBM will have [**] working days to conclude whether the SF
had met the criteria in the ESP test plan for volume shipments.
If StorageTek disagrees with IBM's conclusion, StorageTek may appeal by
means of the Dispute Resolution Process (as that process is defined in
Section 21 of the OEM Agreement).
For each Specified Function, StorageTek's obligation to justify volume
shipments at the designated date shall be met upon its delivery of such
Specified Function that is in accordance with the specification
documents for such Specified Function as listed below:
o functional specification, as updated in accordance with design
change procedures
o customer documentation readiness for volume shipments
o ESP Test Plan Exit Criteria
o performance measurement results against commitment curves,
complete compliance required
o level 1 and level 2 support training completed
o service cost estimate compliance
o IBM System Test
o manufacturing, marketing & service readiness
C. Testing. StorageTek shall be responsible for running tests as specified
in the applicable test plan; IBM shall have the right to monitor the
tests being run to verify compliance with the specification documents
for that Specified Function. Concurrently, IBM shall have the right to
verify compliance by independently running tests at IBM's expense.
A set of performance requirements will apply for each Specified
Functions in the PDP. These requirements will relate to [**]
environments appropriate to the Specified Function. The standard set of
performance benchmarks that IBM escrows will be run to verify that
performance has not been degraded for the
9
<PAGE> 116
delivered SF. Any variation from the performance commitments specified
in Appendix A for the identified "Committed In Plans" Items must be
approved in writing by the Contract Coordinators for the respective
parties, with specific reference being made in the approval to such
approval relating to varying the otherwise applicable performance
commitments.
D. Volume Shipment Compliance. StorageTek shall have met its volume
shipment date if it meets its obligation to justify volume shipments by
the Volume Date specified in Section 6.1 above.
IBM will provide written notification to StorageTek of any failure of
the SF to meet the applicable criteria which notice shall identify the
basis for any such IBM conclusion. IBM shall have the right to verify
compliance to test criteria by independently running tests, and
StorageTek shall have the opportunity to witness any such testing.
If StorageTek fails to deliver the Specified Function by the Volume
date, in accordance with this Volume Shipment Compliance process, then
the consequences shall be as specified in Section E below.
E. Adjustment for Failure to Meet Volume Date.
(1) If StorageTek fails to meet the Volume date for any [**] that
is associated with [**] and scheduled to be delivered prior to
[**] , then an amount equal to [**] for each [**] of delay,
[**], as stated below, for each failure relating to a [**]
associated with [**] shall be added to [**] and [**] purchases
and any [**] obtained under the Agreement during [**] to
determine the price of future units of [**] to be acquired
during [**].
However, if the calculation in the preceding paragraph
results in a combined volume of [**] and [**] purchases and
any credits obtained under the Agreement that is [**] for
each [**] of delay, [**], as stated below, for each such
failure.
If the Parties agree on a [**] for [**] purchases, then the
above calculations will be applied to provide IBM with
purchase credits against the [**] for any [**] that is
associated with [**] and scheduled to be delivered during
[**]. If no such [**], then if StorageTek fails to meet the
Volume date for any [**] that is associated with [**] and
scheduled to be delivered during
10
<PAGE> 117
[**], then IBM shall receive a [**] to be used against its
[**] that is equal to [**], as stated below, for each such
failure.
If StorageTek fails to meet the Volume date for any
[**] that is associated with [**] , then IBM shall receive a
[**] to be used against IBM's [**] that is equal to [**], as
stated below, for each such failure.
The following is a summary of factors to be used for a
failure to meet the Volume Date for a [**]:
*[**] for [**] ADJUSTMENT;
*[**] for [**] ADJUSTMENT; and
*[**] for [**] ADJUSTMENT.
(2) If a SF is delivered at any time later than 15 days after Volume date
specified for such SF, then it shall be considered to be delayed by a
full month. If multiple functions fail to be shipped in accordance with
the designated Volume shipment dates, then the highest applicable
ADJUSTMENT factor shall apply.
3. TEST PLAN CRITERIA
Functional Test Plan Completion/ESP Test Plan Exit Criteria/IBM System
Test Completion:
A. No known [**] problems in any Deliverables remain open; and
B. a list of any known [**] in place by StorageTek to resolve within
a specified period of time.
4. ERROR PROCESSING DURING ESP TEST
All problems found during the ESP Test will be logged by StorageTek and
reported to IBM with the following minimum information:
A. a description of the error;
B. how to reproduce the error. If it is an Information Unit error,
where the error may be found;
C. a description of what is believed to be the correct result; and
11
<PAGE> 118
D. the Severity of the problems discovered.
StorageTek shall notify IBM of any [**] errors discovered during ESP
Testing as soon as possible. Other errors shall be provided to IBM in
accordance with StorageTek's Standard Practices. StorageTek shall [**]
to resolve all [**] reasonably possible.
12
<PAGE> 119
- --------------------------------------------------------------------------------
MONTEREY SYSTEM TEST
- --------------------------------------------------------------------------------
For each specified function ("SF"), Oahu shall promptly notify Monterey In
writing when formal test, (i.e., Engineering Verification Test ("EVT")) is to
begin, and shall provide to Monterey a functional specification prior to such
time. Any changes to an early ship program ("ESP") date to test the SF, and
all design change request ("DCRs") to the functional specifications for the
Products must be supplied to and approved by Monterey.
Oahu shall provide, within [**] of request by Monterey, all documentation
determined by Monterey to be required to prepare for possible Monterey System
Test (MST) including but not limited to, all Oahu schedules related to the
development and test of each new SF or SFs, problem logs related to the SF(s),
detailed test plans used by Oahu for the formal testing of the SF(s), customer
and maintenance documentation associated with the SF(s), a list of product
claims for the new SF(s), and any other documentation normally produced for
marketing, service organizations, Oahu test, or for the customer.
Summary reports of test progress and problem status shall be updated and sent
to Monterey on a regular basis from this time until ESP on a schedule to be
agreed upon by Oahu and Monterey.
MONTEREY SYSTEM TEST (MST)
For each SF or group of SFs considered by Monterey to be available to the
customer as part of a single announce package with a single availability date,
Monterey shall have the right to waive execution of an MST, participate in a
joint MST with Oahu, or conduct an MST at either an Oahu or Monterey test site
location or locations, the location(s) and expected duration of such testing to
be reasonably determined by Monterey. As the duration of a test is dependent
on, among other things, the complexity of the SF(s), the number of problems
found, the problem fix rate, and the amount of resources applied to the
testing, the expected duration should not be seen as a commitment by Monterey.
It is expected that should an MST be required by Monterey, the test would run a
minimum of 3 weeks at a level of resource applied to the test as mentioned
below.
A typical MST conducted by Monterey would consist of [**], often conducted in
parallel and each utilizing approximately half the allocated test UUTs (Units
Under Test), tools and on-site support personnel.
The Monterey FVT (Functional Verification Test) would execute test scenarios,
the majority of which are run against a multi-host high stress background
(known as "(FVT) vanilla stress") driven by internally developed Monterey test
drivers. Monterey FVT tests include, but are not limited to, the following
subtests:
<PAGE> 120
attachment, stress, functional/algorithm, power, error injection (interface
(both internal and external), logic, drive, media), and channel sequence
controls.
The Monterey SLT (System Level Test) would execute test scenarios, the
majority of which are run against a [**] under the MVS operating system [**]
using both externally available applications, access methods and utilities as
well as internally developed jobstreams. Monterey SLT tests include, but are
not limited to, the following subtests:
[**]
ENTRY REQUIREMENTS FOR MST
Receipt of all test resources as described below with adequate time to
install and configure test UUTs
Available schedule windows, CPUs, personnel and other [**] resources to
conduct the MST
No staging of the [**] considered to be part of the [**] to be tested in the
current MST [**] of contiguous [**] stress runs in both the Monterey FVT and
SLT environments
Documentation as described above
[**]
MST REQUIRED RESOURCES
FAST, FASTER, and QUICK machines supplied to MST test locations will be
supplied at [**] to Monterey. These machines will be at hardware, microcode
(including functional, service, et al.), and supporting software levels
approved by Monterey. For a [**], there are usually [**] divided between FVT
and SLT.
On-site support by Oahu personnel will be supplied to Monterey for any MST.
These personnel will be supplied in a quantity and at a skill level mutually
agreed upon by Oahu and Monterey at [**] to Monterey. Monterey will request at
least [**] personnel, [**] testing and [**] training/testing, UUTEC
(Engineering Change) maintenance, and general support including failure data
collection. This does not include any development resource which might be
required for UUT debug or fix testing.
Tools required by Oahu for its own testing of the products (including but no
limited to debug, support, and error injection) will be supplied at a quantity
and level mutually agreed to by Oahu and Monterey for any MST at [**] to
Monterey.
EXIT CRITERIA FOR MST
All MST test variations attempted with [**] successful as determined by
Monterey
All [**] resolved with a mutually agreeable action plan for the resolution of
the remainder of the problems
Resolution of all problems considered by Monterey to be ESP gates with
adequate time to verify the fixes to such problems and ensure no unexpected
side effects of such fixes
Signoff by the Monterey test group that all claims have been met
2
<PAGE> 121
SF(s) meets [**] and other Monterey quality criteria
ENTRY CRITERIA FOR ESP
Successful exit of MST or successful Monterey pre-ESP certification of Oahu
testing or the non-default waiving of both of the prior criteria if Monterey
determines that is appropriate
Monterey agrees that all [**] found in any SF test effort by either Oahu or
Monterey do not constitute ESP gates
Monterey agrees that all testing efforts by either Oahu or Monterey (other
than ESP) have been successfully concluded and that [**] met
Appropriate support structures exist to deal in a timely manner with any
field problems which may be found
SF(s) meets Monterey quality criteria for general availability
3
<PAGE> 122
Attachment 1 to Exhibit 3
Appendix C
[Intentionally left blank]
<PAGE> 123
IBM DEVELOPER AGREEMENT
STATEMENT OF WORK
APPENDIX D
EXHIBIT: CERTIFICATE OF ORIGINALITY
NUMBER: ___(IDA NUMBER)___
DATED
__(IDA DATE)___
BETWEEN
CORPORATION
___(STREET ADDRESS)____
___(CITY, STATE)_____
AND
_____(VENDOR NAME)______
____(STREET ADDRESS)____
_____(CITY, STATE)______
<PAGE> 124
CONTENTS
EXHIBIT: CERTIFICATE OF ORIGINALITY APPENDIX:
<TABLE>
<S> <C>
ICON ORIGINALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
IDENTIFICATION FORM . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.0 QUESTIONNAIRE . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.0 ICON REPRESENTATION . . . . . . . . . . . . . . . . . . . . . . . 9
2.0 CERTIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.0 CREATOR OF ICON . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
2
<PAGE> 125
AGREEMENT # ___(IDA Number)___ DATE OF AGREEMENT ___(IDA Date)___
EXHIBIT: CERTIFICATE OF ORIGINALITY
IBM Developer Agreement Transaction Document no:
XXX
- --------------------------------------------------------------------------------
If you provide IBM any program product, offering, related documentation,
microcode or other software material (collectively, "Software Material"), you
must complete this questionnaire and send it to IBM's Contract Coordinator for
this project.
You will provide IBM with any additional information needed for copyright
registration or enforcement of legal rights relating to the Software Material.
One questionnaire can cover one complete product, even if that product includes
multiple modules. A separate questionnaire must be completed for code and
another for its related documentation. Significant changes to the Software
Material will require completion of a new questionnaire.
Please do not leave any questions blank. Write "not applicable" or "N/A" if a
question is not relevant to the Software Material. If you need additional
space to complete any question, please attach a separate sheet of paper that
identifies the question number.
3
<PAGE> 126
1.0 QUESTIONNAIRE
a) Name of the Software Material (provide complete identification
including version, release and modification numbers for programs and
documentation):
b) Was the Software Material or any portion thereof:
1) Written by any person(s) other than you or your employees working
within their job assignments?
YES___ NO___
(If NO, skip to #3)
2) Did the person(s) write ALL or PART of the Software Material?
ALL___ PART___
If PART, state the percentage written by the person(s) ____%
3) Was the Software Material provided to you by COMPANY(IES) or
INDIVIDUAL(S) or both?
COMPANY(IES)___ INDIVIDUAL(S)___ BOTH___
(Completed) and
e) below)
How did you acquire title to the Software Material or the right to grant the
licenses granted to IBM?
4) For each COMPANY, provide the following information:
Name:
Address:
How did the COMPANY acquire title to the Software Material? (For example, the
Software Material was written by the COMPANY's employees as part of their job
assignment):
Did the COMPANY have each non-US contributor to the Software Material sign a
waiver of their moral rights?
YES___ NO___
5) For each INDIVIDUAL(S) in 2c), provide the following:
Name:
Citizenship:
Address:
4
<PAGE> 127
Did the INDIVIDUAL(S) create the Software Material while employed by, or under
a contractual relationship with, another party?
YES___ NO___
If YES, provide name and address of the other party:
Did the INDIVIDUAL(S) create or first publish the Software Material in a
country other than the US?
YES___ NO___
If YES, did the INDIVIDUAL(S) sign a waiver of moral rights?
YES___ NO___
(If YES, please attach a copy)
6) Was any part of the Software Material registered at any copyright office?
YES___ NO___
(If YES, provide the following registration information:)
i) Claimant Name:
ii) Registration Number:
iii) Date of Registration:
iv) Title of Work:
c) Was any part of the Software Material published?
YES___ NO___
When and where was it published?
Was there a copyright notice on the published material(s)?
YES___ NO___
(If YES, provide the copyright notice below.)
5
<PAGE> 128
Was any part of the Software Material distributed by you to any outside person
or company other than IBM?
YES___ NO___
When and where was the Software Material distributed?
To whom was the Software Material distributed?
Why was the Software Material distributed?
Under what conditions was the Software Material distributed?
(for example, under a contract.)
d) Was any part of the Software Material derived from preexisting material(s)?
YES___ NO___
(If YES, provide the following information for each of the
preexisting materials:)
1) Name of the material:
2) Author (if known):
3) Owner (if known):
4) Copyright notice appearing on the material (if any):
5) Was any new function added to the preexisting software?
YES___ NO___
Briefly describe the new function(s) below:
___% of preexisting material used
___% of preexisting material modified
___% of new material consisting of or deriving from
preexisting materials
6
<PAGE> 129
6) Briefly describe below how the preexisting material has been used:
e) Were any part of the display screens, data formats,
instruction or command formats, operator messages, interfaces,
etc. (collectively called "External Characteristics") of the
Software Material copied or derived from the External
Characteristics of another program or product of yours or a
third party?
YES___ NO___
(If YES, provide the following information:)
a) Name of Developer's or third party's program or product:
b) Author (if known):
c) Owner (if known):
d) Copyright notice relating to the preexisting External
Characteristics (if any):
e) Have the preexisting External Characteristics
been modified?
YES___ NO___
(Describe how they have been modified below:)
f) Identify below any other circumstances that may affect
IBM's ability to reproduce and market the Software Material,
including:
1) confidentiality or trade secrecy of
preexisting materials:
2) known or expected royalty obligations to
others:
3) preexisting materials developed for another
party or customer (including government)
where you may not have retained full rights
to the materials:
7
<PAGE> 130
4) materials acquired from a person or company
possibly having no title to them:
g) Employee Identification. You recognize that for purposes
of copyright registration or enforcement of legal rights
relating to the Software Material, IBM may need to know the
names, addresses and citizenships of all persons who wrote or
contributed to the writing of the Software Materials. You
agree to keep accurate records of all such information
according to the IDA and to provide them to IBM at our
request.
h) ICON. An "ICON" is generally defined as a symbol on a
display screen that a user can point to with a device such as
a mouse in order to select a particular operation or software
application. For each ICON contained in the Software
Materials, you will have its creator complete an ICON
IDENTIFICATION FORM and submit them as appendices to this
Certificate of Originality.
2.0 CERTIFICATION
By signing below, you certify that all information contained in this
Certificate of Originality, including any attachments or appendices to it, are
accurate and complete.
(Developer Name)
-------------------------------------------------------------
Signature:
--------------------------------------------------------------------
Print name:
--------------------------------------------------------------------
(Name of Signer)
-------------------------------------------------------------
Title:
-------------------------------------------------------------------------
(Title of Signer)
-------------------------------------------------------------
Date:
-------------------------------------------------------------------------
8
<PAGE> 131
APPENDIX: ICON IDENTIFICATION FORM
1.0 ICON REPRESENTATION
Word(s), function or thing represented by the ICON:
2.0 CREATOR OF ICON
a) Name:
b) Job Title:
c) Business Address:
d) Business Telephone:
e) Citizenship:
f) Date created ICON in tangible form:
1) Was the attached ICON created as an assigned work task
without reference to any preexisting icons or other work
authored or owned by another?
YES___ NO___
(If NO, identify the preexisting icon or other works
that were referenced and attach copies:)
2) If the ICON was created for inclusion in a specific
product, identify the product in which it will be (or was)
used and provide the planned availability date and country of
first publication:
3) Identify or describe any known preexisting icons that
represent the same word or function or that are similar in
appearance to the ICON (attach copies):
4) Please attach a copy of the ICON and, for identification
purposes, include on the drawing the information you provided
in response to Item 2 (a through f) above.
9
<PAGE> 132
(Creator Name)
-----------------------------------------------------------------
Signature:
----------------------------------------------------------------------
Print name:
---------------------------------------------------------------------
(Name of Signer)
----------------------------------------------------------------
Date:
---------------------------------------------------------------------------
10
<PAGE> 133
Attachment to Exhibit 3
Appendix C
[Intentionally left blank]
<PAGE> 134
Exhibit: Certificate of Originality
Dated __ (IDA Date) __
APPENDIX: ICON IDENTIFICATION FORM
1.0 ICON REPRESENTATION
Word(s), function or thing represented by the ICON:
2.0 CREATOR OF ICON
a) Name:
b) Job Title:
c) Business Address:
d) Business Telephone:
e) Citizenship:
f) Date created ICON in tangible form:
1) Was the attached ICON created as an assigned work task without
reference to any preexisting icons or other work authored or
owned by another?
YES ___ NO ___
(If NO, identify the preexisting icon or other works that
were referenced and attach copies:)
2) If the ICON was created for inclusion in a specific product,
identify the product in which it will be (or was) used and provide
the planned availability date and country of first publication:
3) Identify or describe any known preexisting icons that
represent the same word or function or that are similar in
appearance to the ICON (attach copies):
4) Please attach a copy of the ICON and, for identification
purposes, include on the drawing the information you provided in
response to Item 2 (a through f)
<PAGE> 135
Exhibit: Certificate of Originality
Dated ___ (IDA Date) ___
above.
(Creator Name) _______________________________________________________
Signature: _______________________________________________________
Print name: _______________________________________________________
(Name of Signer) _______________________________________________________
Date: _______________________________________________________
<PAGE> 136
IBM Developer Agreement (Exhibit 3)
Statement of Work (Attachment 1)
Appendix E
- --------------------------------------------------------------------------------
IBM Source Code Custody Agreement : Base Agreement
- --------------------------------------------------------------------------------
This Source Code Custody Agreement ("SCCA") among Storage Technology
Corporation ("StorageTek"), Data Securities International, Inc. ("Custodian")
and International Business Machines Corporation ("IBM") describes the rights
and obligations of the parties for the Escrowed Works that StorageTek and IBM
deliver to Custodian. StorageTek, Custodian and IBM shall be called the
"parties".
The SCCA consists of this Base Agreement and its Description of Escrowed Work
("DEW"). The SCCA is our complete agreement, as it supplements the IBM
Developer Agreement ("IDA"), and replaces all prior oral or written
communications between us regarding the Escrowed Works.
By signing below for our companies, the parties agree to the terms of this Base
Agreement and its DEW.
Agreed To: Agreed To:
STORAGE TECHNOLOGY CORPORATION INTERNATIONAL BUSINESS MACHINES
CORPORATION
By: [**] By: [**]
--------------------------------- ----------------------------------
(Authorized Signature) (Authorized Signature)
Name: [**] Name: [**]
------------------------------- --------------------------------
Date: July 3, 1996 Date: 6/28/96
------------------------------- --------------------------------
2270 S. 88th Street
Louisville, CO 80028
- ------------------------------------ -------------------------------------
Address Address
<PAGE> 137
IBM Source Code Custody Agreement #:
--------------
Agreed To:
Data Securities International, Inc. License Agreement #:
-----------------
By: [**]
-----------------------------------
(Authorized Signature)
Name: [**]
---------------------------------
Date: 8-12-96
---------------------------------
Custodian Address:
Data Securities International, Inc.
Contract Administration
9555 Chesapeake Drive, Suite 200
San Diego, CA 92123
ph: [**]
2
<PAGE> 138
PART I. DEFINITIONS
Capitalized terms in the SCCA have the following meanings. The DEW may define
additional terms.
1.1 CODE is computer programming code including both Object Code and Source
Code.
a) OBJECT CODE is the computer programming code substantially in binary
form. It is directly executable by a computer after processing, but
without compilation or assembly.
b) SOURCE CODE is the computer programming code that may be displayed
in a form readable and understandable by a programmer of ordinary
skill. It includes related source code level system documentation,
comments and procedural code, such as job control language. Source Code
does not include Object Code.
1.2 DERIVATIVE WORK is a work that is based on an underlying work and that would
be a copyright infringement if prepared without the authorization of the
copyright owners of the underlying work.
Derivative Works are subject to the ownership rights and licenses of others in
the underlying work.
1.3 ESCROWED WORKS are the materials that are described in the DEW. They
include:
a) the Source Code in machine-readable form and the source code level
system documentation in hard copy form (for Licensed Works, inclusion
of adequate printing instructions in lieu of hard copy is sufficient);
b) a list of all Source Code modules of the Licensed Work;
c) a directory listing for each machine-readable medium;
d) commentary required to understand and use the Source Code;
e) a list of all Tools;
f) the noncommercially available Tools that Developer is required to
escrow under the License Agreement;
g) the code for initial performance benchmarks that IBM is required
to escrow under the License Agreement;
1.4 LICENSE AGREEMENT is the IBM Developer Agreement in which StorageTek
licenses IBM to its Licensed Works and IBM licenses the initial performance
benchmarks.
3
<PAGE> 139
1.5 LICENSED WORKS are those deliverables that StorageTek licenses to IBM under
the License Agreement.
1.6 RELEASE EVENTS are the following occurrences when either IBM or StorageTek
may demand that Custodian deliver a copy of the Escrowed Works to the requesting
party:
a) Either IBM or StorageTek may request Custodian to provide a
copy to the requesting party at any time, but Custodian must
retain the original deposited materials. Custodian is
authorized and shall deliver a copy of the Escrowed Works to
the requesting party.
1.7 Tools include devices, compilers, hardware, software, user and programming
documentation, media or other items required for the development, testing,
maintenance or implementation of a Licensed Work.
PART 2. ESCROWED WORKS DEPOSITS
2.1 StorageTek and IBM will:
a) deposit with Custodian two copies of their respective
Escrowed Works as described in the DEW attached hereto.
StorageTek and IBM will identify each item in the deposit by
labeling it;
b) deliver the Escrowed Works in good condition in sealed
containers;
c) provide Custodian with a notice that shall not be
confidential (hereafter "nonconfidential notice") of all
items contained in each container;
d) replace all lost or damaged Escrowed Works promptly upon
notice from Custodian; and
e) if either party determines that the Escrowed Works are not
complete and accurate, the depositing party shall promptly
rectify the same.
2.2 Custodian will:
a) accept each Escrow Works deposit to be held for the
non-Custodian parties and send the non-delivering party a
notice confirming receipt within ten business days;
b) retain the Escrow Works;
c) match all items on the nonconfidential notice to the labels
on Escrowed Works;
d) take all reasonable steps to protect and store Escrowed
Works in appropriate containers
4
<PAGE> 140
and atmospheric conditions, segregated from other materials;
e) promptly provide notice to IBM and StorageTek in the event
of lost or damaged Escrowed Works; and
f) store a copy of this SCCA and the nonconfidential notice
of items with Escrowed Works.
PART 3. ESCROWED WORKS VERIFICATION
3.1 Unless the requesting party and Custodian agree in writing, Custodian is not
responsible for technical verification that Escrowed Works are complete,
accurate and current. Each non-Custodian party may, at its expense, hire a party
qualified to do this verification. StorageTek will reimburse IBM's expenses if
the Escrowed Works do not comply with the requirements of this SCCA, and
mutatis mutandis with respect to StorageTek's expenses.
3.2 Verification includes generating Object Code from Source Code for each
Licensed Work. The verifier will witness the transfer of the verified Source
Code to deposited media. The depositing party will supervise the verification
which will be conducted at the depositing company's facilities unless the other
non-Custodian party advises otherwise.
3.3 One technical employee of the non-depositing, non-Custodian party may
witness verification. To the extent possible, verification will be done in a
way that does not expose the Source Code to this employee. If this is not
possible, this employee will treat the Source Code according to the
IBM/StorageTek Agreement for Exchange of Confidential Information, number
OEM-9447.
PART 4. RELEASE OF ESCROWED WORKS
4.1 Either IBM or StorageTek may demand delivery of Escrowed Works by notice to
Custodian pursuant to Section 1.6, copying the other non-Custodian party.
4.2 If either non-Custodian party determines that it does not have a complete
set of Escrowed Works, it may request them from the other party. The other
party will provide the materials required within three days of requesting
party's request.
4.3 Each non-Custodian party will treat Escrowed Works according to the
IBM/StorageTek Agreement for Exchange of Confidential Information.
PART 5. LICENSE TO ESCROWED WORKS
5.1 The license to Escrowed Works is governed by the IDA.
5
<PAGE> 141
PART 6. WARRANTY
Each depositing party represents and warrants that it has the authority to
deliver the Escrowed Works to the Custodian and that the Escrowed Works (other
than the Licensed Works being escrowed) are complete and accurate.
PART 7. LIABILITY AND INDEMNIFICATION
7.1 Custodian will take all reasonable precautions to prevent disclosure of
Escrowed Works to unauthorized third parties.
7.2 Custodian is liable only for its willful misconduct, gross negligence and
fraud in performing its duties under this SCCA. Custodian is not liable if
StorageTek or IBM fails to comply with any provision of the License Agreement or
this SCCA. Custodian is not liable for acting on any notice that it in good
faith believes to be genuine and legitimate.
7.3 If a third party makes a claim against Custodian:
a) StorageTek will defend and indemnify Custodian for any and
all claims, actions, damages, arbitration fees and expenses,
costs, attorneys' fees and other liabilities incurred by
Custodian on behalf of and pursuant to StorageTek's
instructions; and
b) IBM will defend and indemnify Custodian for any and all
claims, actions, damages, arbitration fees and expenses,
costs, attorneys' fees and other liabilities incurred by
Custodian on behalf of and pursuant to IBM's instructions.
These indemnities do no apply where it is found that Custodian acted with
willful misconduct, gross negligence or fraud.
7.4 The indemnifying party will pay any settlement amount that it authorizes and
all costs, damages and attorney's fees that a court finally awards if Custodian:
a) promptly provides the indemnifying party notice of the
claim; and
b) allows the indemnifying party to control and cooperates
with it in the defense of the claim and settlement
negotiations.
Custodian may participate in (but not control) the proceedings at its option and
expense.
PART 8. TERM AND TERMINATION
8.1 This SCCA begins when all parties sign it and continues until terminated by
mutual written agreement of the parties or for non-payment of Custodian fees.
Either non-Custodian party may, at
6
<PAGE> 142
its option, extend the term of the DEW for additional years as described in
Payment. Custodian may terminate this Agreement if invoice fees aren't paid in
accordance with Part 10.
8.2 Custodian will destroy any remaining Escrowed Works 30 days after the
expiration or termination of the DEW unless IBM or StorageTek provides notice,
otherwise with respect to their Escrowed Works.
8.3 The provisions of Liability and Indemnification will survive the expiration
or termination of this SCCA. These terms will apply to the parties respective
successors and assigns.
8.4 If Custodian cannot continue its responsibilities, Custodian may resign by
giving IBM and StorageTek 90 days' notice. IBM and StorageTek in good faith will
select a successor custodian to assume Custodian's responsibilities,
PART 9. COORDINATORS
9.1 SCCA Coordinators responsible to administer all matters associated with this
SCCA and its exhibits are:
FOR: FOR:
INTERNATIONAL BUSINESS MACHINES STORAGE TECHNOLOGY CORPORATION
CORPORATION
Name: [**] Name: [**]
---------------------------- --------------------------------
Title/Dept: Purchasing Manager Title/Dept: Vice President
Dept. G33 -12-4 Project Management
DASD Business Division
----------------------- ----------------------------
Address: 5600 COTTLE ROAD Address: 2270 South 88th Street, MS4218
------------------------- -------------------------------
SAN JOSE, CA 95193 Louisville, CO 80028
------------------------- -------------------------------
with a copy to:
FOR: DATA SECURITIES INTERNATIONAL, INC. OCC, STC/4309
StorageTek
2270 S. 88th St.
Louisville, CO 80028
Name:
-------------------------------
Title/Dept:
-------------------------
Address:
----------------------------
----------------------------
----------------------------
7
<PAGE> 143
9.2 Each of us will assign an Escrowed Work Coordinator in the DEW. These
coordinators are responsible to administer matters associated with the DEW. The
SCCA Coordinator and the Escrowed Work Coordinator may be the same person. A
party will provide notice to the others when coordinators change.
PART 10. PAYMENT
10.1 Each non-Custodian party will pay Custodian within 30 days after receipt
of an acceptable invoice for one-half of the fee for services under the DEW.
All payments will be made in U.S. dollars. The Exhibit: Fee Schedule identifies
the specified period of Custodian's services and the firm fees for that period.
Custodian may propose a revised fee schedule to the SCCA Coordinators no later
than 90 days before the end of the specified period. The SCCA Coordinators will
notify Custodian if they accept or reject the proposed fee schedule. If IBM and
StorageTek choose not to pay the new fees, the SCCA will expire at the end of
its term and IBM and StorageTek in good faith will select a successor custodian.
Subject to 8.2, Custodian will provide all assistance required to move the
Escrowed Works to the successor custodian.
10.2 Custodian will invoice each non-Custodian party for:
a) one-half of the fee for all services to be performed under a DEW
for one year; and
b) renewal of a DEW at least 60 days before it expires. Each non-
Custodian party may renew the DEW for an additional year by paying
the renewal fees. If Custodian does not receive the renewal fees
within 30 days, it will notify the IBM Escrowed Work Coordinator
and the StorageTek Escrowed Works Coordinator. Any party to this
Agreement shall have the right to make payment to the Custodian to
cure the default.
If neither IBM nor StorageTek pay the fees by the expiration date of the DEW,
the Custodian shall thereupon notify the IBM Escrowed Works Coordinator and the
StorageTek Escrowed Works Coordinator in writing that the Parties have thirty
days from the date of the notice to cure such failure to pay, and the Custodian
shall continue to maintain the escrow for that period.
In addition to information required by the DEW, the invoice will identify this
SCCA, the DEW and the services invoiced plus their associated fees. Custodian
will submit all invoices as identified in the DEW.
Each non-Custodian party is liable for one-half of the fee for services through
the [**] year; after that, either party may elect not to pay or to contribute
to the fee (in which case continuance of the SCCA is dependent upon the other
party's actions entirely).
PART 11. GENERAL
11.1 Each party will comply with all applicable laws and regulations at its
expense. This includes
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<PAGE> 144
all export and import laws and regulations.
11.2 Except as provided in the SCCA, none of the parties may assign or transfer
the SCCA or its rights under it or delegate or subcontract its obligations
without the prior written approval of the other parties. Any attempt to do so
is void.
11.3 No party will bring a legal action against another party more than two
years after the cause of action arose. All parties will act in good faith to
resolve disputes. All parties waive their rights to a jury trial in any
resulting litigation. Litigation will only be commenced in the State of
New York.
11.4 All notices must be in writing. Except as provided in the SCCA, for a
change to the SCCA to be valid, IBM, StorageTek and Custodian must sign it.
Other than changes to the Release Events, Custodian must also sign changes that
affect its rights or obligations under the SCCA. IBM will provide Custodian with
copies of all changes that Custodian is not required to sign.
No approval, consent or waiver will be enforceable unless signed by the
granting party.
11.5 The substantive laws of the State of New York govern the SCCA.
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IBM Source Code Custody Agreement
Description of Escrowed Work
- --------------------------------------------------------------------------------
This Description of Escrowed Work ("DEW") is a Transaction Document issued
under the IBM Source Code Custody Agreement ("SCCA").
PART 1. DESCRIPTION
1.1 The Escrowed Works required for deposit with Custodian: 1) by StorageTek,
are the source code and object code for IXFP, IXOF, ICEBERG, KODIAK, and ARCTIC
FOX (Licensed Works) the applicable noncommercially Development Environment and
the capacity ratio benchmark; and 2) by IBM, the initial benchmarks used to
measure performance requirements for ICEBERG and KODAK. In each case, as more
completely described in the Statement of Work to the IBM Developer Agreement.
1.2 Deposit will occur within thirty days after the signing of this SCCA.
1.3 StorageTek agrees that the Source Code for IXFP, IXOF, ICEBERG, KODIAK, and
ARCTIC FOX, deposited hereunder as of June 30, 1996 shall determine what is
considered Licensed Works under the Description of Licensed Works and that IBM
may rely on what is deposited as determinative for that purpose.
PART 2. ESCROWED WORK COORDINATORS
2.1 Escrowed Work Coordinators responsible to administer all matters associated
with this DEW are:
FOR: FOR:
INTERNATIONAL BUSINESS MACHINES STORAGE TECHNOLOGY CORPORATION
CORPORATION
Name: [**] Name: [**]
--------------------- ------------------------------
Purchasing Manager Vice President
Title/Dept: DEPT 033-12-4 Title/Dept: Project Management
--------------------- ------------------------------
Address: IBM Address: 2270 South 88th Street, MS 4218
--------------------- -------------------------------
5600 Cottle Road Louisville, CO 80028
--------------------- -------------------------------
San Jose, CA 95193
--------------------- -------------------------------
Phone: (408)[**] Phone: (303)[**]
--------------------- -------------------------------
Facsimile: (408)[**] Facsimile:(303)[**]
--------------------- -------------------------------
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FOR: DATA SECURITIES INTERNATIONAL, INC.
Name:
------------------------------
Title/Dept:
------------------------------
Address:
------------------------------
------------------------------
Phone:
------------------------------
Facsimile:
------------------------------
2.2 Notices are effective when received by the appropriate coordinator as
demonstrated by reliable written confirmation (for example, certified mail
receipt, courier receipt or facsimile receipt confirmation sheet.)
PART 3. PAYMENT
3.1 Custodian will send its original invoices to IBM at the following address:
(street address) IBM CORPORATION
- ----------------- ------------------------
ACCOUNTS PAYABLE
------------------------
DEPT. 42E/BLDG. 14-4
------------------------
(city, state) P.O. BOX 9001
- ----------------- ------------------------
ENDICOTT, NEW YORK 13761
------------------------
One copy of each invoice will be sent by mail or facsimile to the IBM Escrowed
Work Coordinator.
Custodian will send its original invoices to StorageTek at the following
address:
(street address) [**]
- ----------------- ------------------------
StorageTek
------------------------
MS 4218
------------------------
(city, state) 2270 South 88th Street
- ----------------- ------------------------
Louisville, CO 80028
------------------------
One copy of each invoice will be sent by mail or facsimile to the StorageTek
Escrowed Work Coordinator.
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3.2 Custodian's invoices will include the following information:
a) IBM Source Code Custody Agreement Number;
b) name of Custodian and "remit to" address;
c) short description of the performance for which payment is due; and
d) the party's purchase order number (if applicable), Custodian's invoice
number and its date.
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IBM DEVELOPER AGREEMENT (EXHIBIT 3)
STATEMENT OF WORK (ATTACHMENT 1)
APPENDIX F
================================================================================
OVERVIEW
The following document describes the methodology to be used in the
performance evaluation of the STK's ICEBERG and KODIAK DASD I/O
Subsystems.
The performance workload suite has the following attributes:
1. - [**]
2. - [**]
3. - [**]
4. - [**]
5. - [**]
6. - [**]
The following is a summary of the workloads included in the subsystem workload
suite.
1. Random stress test. A set of random access experiments, called
a four-corners test, evaluates performance of [**] conditions,
such as [**] or [**], with either [**] operations, or [**]
writes.
2. Sequential stress tests. A set of sequential experiments are
included that stress the [**] of the subsystem. These tests
include both [**] read and write streams, running between [**]
[**].
3. Data base workload. A data base workload is included that
tests a wide variation in [**]. This workload uses [**], and
has been designed to [**] the type of random access behavior
seen in the [**] data.
4. Batch workload. A batch workload is included that [**] the
[**] seen in customer batch workloads. This workload contains
a mixture of [**] activity.
5. Sort workload. A workload is included that is [**] jobs.
<PAGE> 149
6. Utility workload. A utility workload is included that contains
the type of "data mover" applications that might be seen in
many [**].
RANDOM STRESS TEST
The purpose of these experiments is to test variations of read and
write content with high and low reference locality.
Key workload characteristics
1. The workload consists of [**] tests:
- [**]
- [**]
- [**]
- [**]
2. Several measurement points are run for each case. First, a
[**] point is taken at approximately [**] to measure [**]
times. An additional [**] points are taken, ranging from
around [**] to [**] for [**], and from around [**] to maximum
[**] rate for [**].
3. [**] rates are controlled by selecting various [**]. The
maximum rates are tested by establishing a [**].
4. [**] volumes are standardly used, a sufficient number to allow
[**] of [**] subsystems.
5. Access are uniformly distributed across all of the [**]
volumes. [**] are generated by a set of [**].
6. The [**] tests use [**], and the [**] use a [**].
7. The [**] metrics for this [**] are:
- [**]
- [**]
SEQUENTIAL STRESS TESTS
1. The following are the [**] of the sequential stress tests.
- [**]
- [**]
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<PAGE> 150
KEY WORKLOAD CHARACTERISTICS
1. The experiments are run with [**] to ensure that the [**] to
the device is being [**] by [**]. Each data set is
approximately [**].
2. Experiments are run with [**] number of [**], varying from
[**] to [**] for both [**].
3. The [**] tests transfer roughly [**]. The [**] tests transfer
[**] [**].
4. The [**] tests do not use the [**] in the [**], thereby
testing the [**] capability of the subsystem.
5. The [**] metric for this workload is the [**] rate in [**] per
second.
-- Table 1 shows the test variations included in this sequential
test suite.
Table 1. Sequential test. [**] sequential streams
<TABLE>
<CAPTION>
EXPERIMENT ACCESS METHOD BLKSIZE NO.BLKS # OF STREAMS
<S> <C> <C> <C> <C>
[**]
[**]
[**]
[**]
</TABLE>
VSAM DATA BASE WORKLOAD
This test includes a general [**] data base workload. This workload
[**] the [**] characteristics of a variety of [**] systems, and is
implemented as an application program using [**] . This program has the
ability to generate a variety of [**]. Unlike some benchmarks of this
type, it is not tuned to [**], but rather is [**], and matches the [**]
of characteristic data base environments. In this way, it is a
reasonable test of the effects of [**] or the efficiency of [**], with
[**] characteristics similar to [**], and some characteristics of [**]
and [**] data base systems.
KEY WORKLOAD CHARACTERISTICS
1. The workload is run with [**], listed in order of "cache
friendliness".
a. [**]
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b. [**]
c. [**]
d. [**]
In general, the less cache friendly workloads have [**], and [**].
2. With the exception of the [**] workload, these workloads are
run at [**] measurement points, with each measurement point
representing a [**] [**] in variable user population. This
means that [**] are added at higher loads, with each [**]
having a [**]. (Some workloads, including the [**] variation,
[**] user population that [**] at [**] measurement points.) As
a result, as the user population grows at the [**] measurement
points, [**] effects are generally observed for a subsystem at
a specific cache size.
[**]
[**]
[**]
The [**] measurement point generates an average of [**] per
[**] volume in the workload, attempting to drive the workload
to [**] and [**] per volume at the [**] measurement points.
However, since the [**] times are fixed, as response times
increase at the [**], the actual subsystem throughputs [**]
these targets.
3. Each measurement point is run for approximately [**]. The data
bases are [**] (to realistically deal with [**] sizes), and
the [**] run duration is generally not long enough for [**]
design to stabilize into record caching. This is due to the
[**] unique to the [**]. As a result, some of the measurements
of the [**] variation may be pessimistic for the [**].
4. The workload can be configured using multiples of [**]
volumes. The current setup uses [**] volumes, but can be
easily expanded beyond that number. It should be noted than
although most [**] are configured with more than [**] volumes,
at any given time most of those volumes have very little
activity, and most of the data is inactive. In that sense, a
[**] volume experiment with these workloads represents the
performance characteristics of a larger customer
configuration.
5. Except for the [**] variation, [**] are skewed across [**]
volumes. For example, at the [**] measurement point for a set
of [**] volumes, [**] volumes attempt an [**] of approximately
[**] volumes attempt approximately [**] that rate, and [**]
volume attempts approximately [**] that rate.
6. In the cache standard variation, a few volumes have [**]
characteristics, while the rest of the volumes have [**]. In
the other workload variations, all of the [**]
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<PAGE> 152
volumes have [**] characteristics. The standard cache
workload contains [**] volumes that have [**] characteristics.
7. A [**] variation is included to [**] throughput capabilities
of the subsystem. [**] measurement points are run, from
approximately [**] sec per volume at the [**] rate, to a [**]
rate. This workload uses a [**] user population, reducing the
[**] as load increases, to a [**] at the [**] measurement
point. For this workload, [**] tend to remain constant across
the measurement points.
8. The workload uses [**] sizes for all variations.
9. The [**] friendly variations have [**] write content. All
writes are [**] writes, meaning that the record is [**], and
therefore [**] a hit in cache.
10. Each [**] volume in the workload has [**] data set. Each [**]
data set is approximately [**] in size.
-- Table 2 shows some of the key workload characteristics for the
random access tests and the [**] workload. The caching attributes shown
are those measured on a [**] configuration.
Table 2. Random Workload Attributes. Workload attributes for a [**]
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<TABLE>
<CAPTION>
EXPERIMENT RD HIT % WRITE % F/W RECRDMISS% XFER SIZE SKEW
DESTG%
<S> <C> <C> <C> <C> <C> <C>
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
</TABLE>
BATCH WORKLOAD
The purpose of the batch workload is to create a test which is
representative of customer's [**] batch window [**] characteristics.
The following are the basic workload attributes:
KEY WORKLOAD CHARACTERISTICS
1. Contains a mixture of type of [**] /O activity
[**]
[**]
[**]
[**]
2. The average transfer size is [**] if [**] programs excluded).
The [**] applications transfer either [**] or [**] per [**],
and the [**] applications transfer approximately [**] per
[**].
3. [**]
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<PAGE> 154
4. The primary metrics for the workload are [**] and [**] rates
and [**] times.
WORKLOAD IMPLEMENTATION
1. Contains [**] jobs, each with [**] job steps. The following is
the mixture of [**] by the job steps:
- [**] reads of data sets with either [**] or [**] block
sizes.
- A sequential application [**] that copies data sets with
either [**] or [**] block sizes.
- A [**] application that updates [**] of the records.
- A [**] application. This is in fact the [**] [**] variation
of the data base workload.
- A [**] application.
2. Each job is [**] except for the [**] of the steps. This is
done to allow jobs to finish at roughly the same time, but
creates a mixture of activity at each point in time.
3. Each job has [**] data sets. Except for the data base data
sets, data sets are [**] distributed across [**]. Each of the
[**] data base data sets are distributed across each of the
[**].
SORT WORKLOAD
WORKLOAD CHARACTERISTICS
1. A [**] application is included in the workload. The key
attributes +of the workload are:
- The [**]
- [**]
2. [**] sorting is [**], that is [**] sorting options are used.
This is to ensure that this is truly a DASD benchmark, and
that [**] differences are not a significant factor in the sort
elapsed times.
3. A [**] size of [**] is sued to ensure [**] writes for the sort
work data sets.
4. The [**] attributes for [**] are [**], and [**]
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<PAGE> 155
UTILITIES WORKLOAD
A collection of [**] are included in the test. Customers often focus on
these types of applications when conducting [**] benchmarks. The
purpose of these tests are to [**] the various "data mover" type of
utilities. The following are included in this test suite:
1. [**] Physical dump.
- A series of physical dumps are performed, using [**]
and [**] dump operations.
- A [**] has been provided which causes the output to
be [**], thereby eliminating [**] as a bottleneck.
- The volumes dumped are [**] approximately [**] full.
The volumes contain [**] data sets. They are in fact
[**] volumes used for the batch and data base
workloads.
- [**] is used.
2. [**] Physical restore.
- A series of physical restores are performed, using
[**] [**] restore operations. The volumes restored
are the same as the batch and data [**] volumes.
3. [**]
- A series of [**] jobs are executed.
- The data sets used are the [**] as for the [**]
stress tests, [**], with [**].
4. IEBCOPY
- A series of [**] jobs are executed.
- The data sets consist of copies of a source library
[**]
WORKLOAD EXECUTION TIME
-- Table 3 Shows approximate run times for each component of the
workload. These run times vary based upon the product being
evaluated. The total time to run the workloads and load and
initialize the base operating system is currently around [**].
8
<PAGE> 156
Table 3. Workload execution times
<TABLE>
<CAPTION>
COMPONENT DB LOAD EXECUTION
<S> <C> <C>
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
</TABLE>
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<PAGE> 157
ATTACHMENT 2 TO EXHIBIT 3
IBM DEVELOPER AGREEMENT
DESCRIPTION OF LICENSED WORK
This Description of Licensed Works ("DLW") is a Transaction Document
issued under the IBM Developer Agreement ("IDA") for the license to IBM of an
existing Licensed Works owned by StorageTek. StorageTek retains ownership of
its intellectual property rights in the Licensed Works, but grants IBM licenses
to such Licensed Works, as set forth in this DLW Transaction Document. IBM owns
intellectual property rights in IBM Materials included in Deliverables provided
to IBM in accordance with the IDA, but grants StorageTek licenses to such IBM
Materials as set forth in this DLW Transaction Document.
1. DEFINITIONS
1.1 Royalty Accounting Month: Is the time frame during which
licenses fees become due. The start and end dates of a Royalty Accounting
Month vary by the IBM geographic area where licenses are granted. The Royalty
Accounting Months are:
a. For StorageTek Worldwide and for IBM in the United
States/Puerto Rico: begins on the first business day of the current
calendar month and ends on the last business day of that month.
b. For IBM in the Americas/Far East Countries (Excluding
U.S.): begins on the first business day of the prior calendar month,
ending on the last business day of that month.
c. For IBM in Europe/Middle East/Africa Countries:
begins on the first business day of the last week of the prior calendar
month. It includes the first three weeks of the current calendar month
and ends on the last business day of that third week.
1.2 "Tape Server" shall be as defined in the OEM Agreement.
1.3 "Iceberg, Kodiak, Arctic Fox Storage System" (hereinafter "IKA
Storage System") shall mean any storage system which is primarily designed for
storing data, includes controller Microcode of which more than [**] of its
total lines of ultimately executable Source Code (including data declarations,
but not including any comments, dummy, nonoperational, or nonfunctional lines
of Source Code), consists of Licensed Works and IBM Materials in combination,
and either (a) represents itself to a host computer system as a disk drive
storage system, or (b) has more than [**] of its total data storage capacity on
[**].
1.4 "IBM Material Use License" shall mean a [**], nonexclusive,
[**], license to [**] Derivative Works of, the Licensed Works and its
Derivative Works. Such license includes the right of IBM to authorize others
to do any of the above, and also applies to associated audio and
<PAGE> 158
visual works. Except for the right to sublicense Subsidiaries pursuant to
Section 11.0 of the IDA, the right to sublicense under this definition is
limited to granting sublicenses for [**] which include terms and conditions
[**], and to [**] under terms and conditions that IBM uses for similar [**] of
its own, and to granting sublicenses to [**] under reasonable terms and
conditions.
1.5 "StorageTek [**] License" shall mean a [**], nonexclusive,
[**], license to [**] Derivative Works, of the IBM Materials and its Derivative
Works. Such license includes the right of StorageTek to authorize others to do
any of the above, and also applies to associated audio and visual works.
Except for the right to sublicense Subsidiaries pursuant to Section 11.0 of the
IDA, the right to sublicense under this definition is limited to granting
sublicenses for [**] which include terms and conditions [**], to granting [**]
under terms and conditions that StorageTek uses for similar [**] of its own,
and to granting sublicenses to [**] under reasonable terms and conditions.
1.6 "IBM [**] License" shall mean a nonexclusive, [**] license to
use: (a) the ideas, concepts, and techniques contained in; (b) the structure,
sequence and organization of, and (c) other nonliteral aspects of, Licensed
Works and their Derivative Works owned by StorageTek. Such license shall not
include the right of IBM to make a copy of any of the Licensed Works or
Derivative Work thereof owned by StorageTek which is substantially similar
thereto and would constitute literal infringement under applicable copyright
law.
1.7 "StorageTek [**] License" shall mean a nonexclusive, [**]
license to use: (a) the ideas, concepts, techniques contained in; (b) the
structure, sequence and organization of, and (c) other nonliteral aspects of
IBM Materials and their Derivative Works. Such license shall not include the
right of StorageTek to make a copy of any of the IBM Materials or any
Derivative Work thereof owned by IBM which is substantially similar thereto and
would constitute literal infringement under applicable copyright law.
1.8 "SSIKA Storage System" shall mean any storage system which is
primarily designed for storing data, which includes controller Microcode of
which more than [**] of its total lines of ultimately executable Source Code
(including data declarations, but not including any comments, dummy,
nonoperational, or nonfunctional lines of Source Code), consists of lines of
Source Code from any Licensed Work, and either (a) represents itself to a host
computer system as a disk drive storage system, or (b) has more than [**]
of its total data storage [**].
1.9 "Microcode" is defined as a set of instructions that is either
imbedded into or is to be loaded into the Product and executes below the
external user interface of such Product. Microcode may be in magnetic or other
storage media, integrated circuitry or other media.
1.10 "Maintenance Code" is defined as software other than
Microcode, including data files, which executes and exercises the Product and
Upgrades, and which detects, records, displays and/or analyzes malfunctions,
errors or other events in the Product and Upgrades.
2
<PAGE> 159
1.11 "Non-RMM Device" shall mean a storage system primarily
designed for storing data which has less than [**] of its total data storage
capacity on rotating magnetic media disk drives (other than magneto-optical) or
in semiconductor memory.
1.12 "Arctic Fox Storage System" shall mean any IKA Storage System
manufactured by or for StorageTek which is primarily designed for storing data,
includes controller Microcode of which more than [**] of its total lines of
ultimately executable Source Code including data declarations, but not
including any comments, dummy, nonoperational, or nonfunctional lines of Source
Code, consists of Licensed Works and IBM Materials in combination, or solely
IBM Materials, represents itself to a host computer systems as a disk drive
storage system, and includes only semiconductor memory.
1.13 "Snapshot Feature(s)" means the software with the capability
to enable Snapshot from within IXFP and from within Iceberg.
1.14 All other capitalized terms shall have the meanings defined
elsewhere in the Agreement, as that term is defined in the OEM Agreement
between the Parties hereto, of even date herewith.
2. DESCRIPTION
2.1 The Licensed Works are the StorageTek software and Microcode,
both including Code as defined in the IDA, documentation and related written
materials for the StorageTek Iceberg , Kodiak and Arctic Fox products, and
Licensed Programs, including Snapshot and the Snapshot Feature, all as they
exist on [**] and are required to be escrowed pursuant to the IDA.
2.2 StorageTek shall provide maintenance and support Services for
the Licensed Works, as described in a Statement of Work.
3. GRANT OF LICENSES
3.1 StorageTek hereby grants to IBM:
a. A IBM [**] License: (i) [**], prior to [**], and
[**] thereafter, for any purpose in connection with IKA Storage
Systems, except for manufacturing IKA Storage Systems or SSIKA Storage
Systems, and except that the license for developing and distributing
Basic Enhancements and Maintenance Modifications for IKA Storage
Systems shall remain [**] and (ii) [**] for manufacturing, selling or
leasing IKA Storage Systems except for SSIKA Storage Systems which
becomes effective upon termination or expiration of the Agreement.
b. A IBM [**] License for any purpose;
c. A [**] IBM Material Use License for developing and
distributing Basic Enhancements and Maintenance Modifications for
products other than IKA Storage Systems;
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<PAGE> 160
d. For products other than IKA Storage Systems, a [**]
IBM [**] License for any purpose except for developing and
distributing Basic Enhancements and Maintenance Modifications (which
is subject to Section 3.1c);
e. Notwithstanding any other provisions of the
Agreement, a nonexclusive, [**] license to use, execute, reproduce,
display, perform, transfer, distribute, sublicense, and prepare
Derivative Works of, the IXFP software for the purposes of enabling
the connectivity of IKA Storage Systems to IBM's operating systems and
application software. Such license includes the right of IBM to
authorize others to do any of the above, and also applies to
associated audio and visual works.
f. Notwithstanding any other provisions of the
Agreement, a [**], nonexclusive, [**], license to use, execute,
reproduce, display, perform and distribute internally, and prepare
Derivative Works of, Maintenance Code and related documentation, if
any, and Product service documentation for the sole use in the
maintenance of products. StorageTek agrees, upon request from [**],
to make available a license of the same scope as heretofore provided
under reasonable terms and conditions to such [**].
g. Notwithstanding any other provisions of the
Agreement, IBM may grant limited sublicenses to its Subsidiaries and
[**] to use such Maintenance Code and related documentation, and such
Product service manuals, and Derivative Works prepared by IBM
hereunder, solely for the purpose of maintaining Products purchased by
IBM under the OEM Agreement, such sublicenses to be nontransferable
and lasting only so long as such entities are Subsidiaries of IBM, or
[**] IBM.
h. A [**] IBM Material Use License to use the Snapshot
Feature to enable Snapshot.
i. No rights or licenses are granted to IBM under this
DLW with respect to manufacturing of IKA Storage Systems prior to
expiration or termination of the Agreement or SSIKA Storage Systems at
any time. Rights of IBM to use Licensed Works to manufacture Devices
in the case of a Triggering Event are set forth in Section 23.6 of the
OEM Agreement.
j. Under no circumstances will StorageTek make any claim
against IBM with respect to infringement of StorageTek patents or
copyrights with respect to any software which is provided to IBM by
StorageTek under the Agreement and is not a Licensed Work.
3.2 IBM hereby grants to StorageTek:
a. A StorageTek [**] License for any purpose;
4
<PAGE> 161
b. A [**] StorageTek [**] License for developing and
distributing Basic Enhancements and Maintenance Modifications for (i)
Tape Servers and (ii) products other than IKA Storage Systems;
c. For products other than IKA Storage Systems, a [**]
StorageTek [**] License for any purpose except for developing and
distributing Basic Enhancements and Maintenance Modifications for (i)
Tape Servers and (ii) all other products except IKA Storage Systems
(which is subject to Section 3.2b);
d. A StorageTek [**] License for developing and
distributing Basic Enhancements and Maintenance Modifications: (i)
[**] on the StorageTek Installed Base (as defined in the OEM
Agreement) and Devices sold, leased or otherwise distributed by
StorageTek, and (ii) [**] for a period of [**] from [**] and [**]
thereafter, for IKA Storage Systems other than those in the StorageTek
Installed Base and Devices sold, leased or otherwise distributed by
StorageTek;
e. For IKA Storage Systems a [**] StorageTek [**]
License, for any purpose whatsoever, except for developing and
distributing Basic Enhancements and Maintenance Modifications for IKA
Storage Systems (which is subject to Section 3.2d), for performing
development and manufacturing activities, including Major
Enhancements, in connection with IKA Storage Systems (which is subject
to Section 3.2f), Arctic Fox Storage Systems (which is subject to
Section 3.2g), and certain internal usage of Equipment or Devices by
StorageTek and its Subsidiaries (which is described in and subject to
Sections 3.2i and 3.2j);
f. A [**] StorageTek [**] License for performing
development and manufacturing activities, including Major
Enhancements, in connection with IKA Storage Systems, but not for
selling or leasing IKA Storage Systems (which is subject to Section
3.2e);
g. Notwithstanding any other provisions of this
Agreement, a [**] StorageTek [**] License for any purpose in
connection with Arctic Fox Storage Systems;
h. A [**] StorageTek [**] License for any purpose in
connection with Non-RMM Devices which include IBM Materials.
i. A [**] StorageTek [**] License for use of Equipment
or Devices internally by StorageTek and its Subsidiaries for
development, manufacture, test and demonstration at StorageTek's
manufacturing facility or field service offices; and
j. A [**] StorageTek [**] License for use of Equipment
or Devices internally by StorageTek's or its Subsidiaries
noncommercial business needs, provided that such Equipment or Devices
are used by StorageTek or its Subsidiaries solely to process
StorageTek's or its Subsidiaries' own data; and
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<PAGE> 162
sales or distributions of Equipment and Devices by StorageTek or its
Subsidiaries to its Subsidiaries, provided further that such Equipment
or Devices are used solely by such Subsidiary to process StorageTek's
or its Subsidiaries' data; and further provided that the [**] so used
by StorageTek and sold to such Subsidiaries by StorageTek does [**]
this Agreement.
4. COPYRIGHT
4.1 StorageTek is responsible for copyright registration and
maintenance of, and for taking reasonable efforts for, enforcement of the
copyrights for the Licensed Works. StorageTek authorizes IBM to act as its
agent in the copyright registration of the Licensed Works.
4.2 IBM is responsible for copyright registration and maintenance
of, and for taking reasonable effort for enforcement of copyrights for the IBM
Materials.
4.3 Each party agrees, upon the request of the other party, to
provide a copy of the Source Code for software and/or Microcode incorporated in
the nonrequesting party's product, to an independent third party mutually
agreed to by the parties to determine if such software and/ or Microcode makes
Material Use of the requesting party's software and/or Microcode.
4.4 The provisions of this Section 4 shall survive termination or
expiration of the IDA.
5. PAYMENT
5.1 In consideration for the licenses indicated as being royalty
bearing in Section 3.1 granted to IBM in this DLW, IBM will pay StorageTek
royalties against revenues received by IBM and its Subsidiaries as defined
below:
a. [**] of (1) all fees collected for [**], which
include Licensed Works or Derivative Works thereof (but not including
any works which consist only of IBM Materials or Derivative Works
thereof) for storage systems other than IKA Storage Systems, and (2)
all license fees collected for software or Microcode other than Major
Enhancements, which include Licensed Works or Derivative Works
thereof, distributed separately from hardware;
b. The lesser of [**] for each [**], which includes
Licensed Works or Derivative Works thereof (but not including any
works which consist only of IBM Materials or Derivative Works
thereof), and not including [**] by IBM or its Subsidiaries, or [**]
of: (a) the actual revenue received for such [**] or (b) in the case
of a [**], the average price of all such IBM [**] by IBM in the
calendar quarter prior to the sale or lease of such [**];
c. [**] of all fees collected for [**], which include
Licensed Works or Derivative Works thereof (but not including any
works which consist only of IBM Materials or Derivative Works
thereof), installed on [**] after [**];
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d. Notwithstanding any other provision in this
Description of Licensed Works, IBM will pay StorageTek [**] as
specified in Attachment 2 to Exhibit 1 to the OEM Agreement for each
copy of the Snapshot Feature that IBM distributes, except that copies
acquired for internal testing, technical evaluation and field support
of Equipment by IBM shall be [**]; and
e. All royalty obligations will be paid-up for the
Licensed Works when total royalties in the amount of [**] have been
paid by IBM or on [**], whichever occurs first. All the licenses
granted to IBM by StorageTek will be irrevocable at that time.
5.2 In consideration for the licenses indicated as being [**] in
Section 3.2 granted to StorageTek in this DLW, StorageTek will pay IBM [**] by
StorageTek and its Subsidiaries as defined below:
a. (i) [**] of all fees collected for [**], which
include IBM Materials or Derivative Works thereof, for storage systems
other than IKA Storage Systems,
(ii) [**] of the list price charged for customer
service which includes the right to install Basic Enhancements and
Maintenance Modifications on IKA Storage Systems, and
(iii) Except as otherwise provided in Section
5.2(f) of this DLW, [**] of all license fees collected for software
and Microcode other than Major Enhancements, which include IBM
Materials or Derivative Works thereof, distributed separately from
hardware;
b. The lesser of [**] for each (i) [**] , other than an
[**], or [**] therefor, which includes IBM Materials or Derivative
Works thereof, and (ii) each [**] or controller therefor, sold or
leased by StorageTek or its Subsidiaries, or, in the case of (i)
above, [**] of (x) the actual revenue received for [**] or (y) in the
case of a [**] controller, the average price of all StorageTek [**]
sold or leased by StorageTek in the calendar quarter prior to the sale
or lease of such [**];
c. Except as otherwise provided in Sections 5.2(d)(i)
and 5.2(f) of this DLW, [**] of all fees collected for Major
Enhancements, which include IBM Materials and Derivative Works
thereof, made in connection with IKA Storage Systems;
d. (i) The following amounts, [**], for each IKA
Storage System, IKA Storage System controller [**], that is sold or
leased by StorageTek [**] thereof:
[**]
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The [**] will be calculated using an estimate of [**], as the
[**] other than IBM. If the [**] period, then the [**] to be paid by
StorageTek for each unit will be recalculated based on use of a [**]
equal to the [**] period. The [**] will [**], however, if the actual
[**] period.
(ii) The lesser of [**] or IKA Storage System
controller, sold or leased by StorageTek after [**], or [**] of: (1)
[**] , or (2) [**].
e. Except for the royalty obligations specified in
Sections 5.2(d)(i) and 5.2(f) of this DLW which are not subject to any
limitation, all royalty obligations under this Section 5.2 will be
paid-up when total royalties in the amount of [**] in connection with
StorageTek's use of IBM Materials or Derivative Works thereof in
hardware or software products that are sold, leased or licensed have
been paid to IBM or on [**] whichever occurs first. All the licenses
granted to StorageTek by IBM will be irrevocable at that time.
f. The following amounts for each copy of [**] and [**]
that includes IBM Materials or any Derivative Works thereof, and is
licensed by StorageTek for use in or with an IKA Storage System or IKA
Storage System controller prior to [**] :
<TABLE>
<CAPTION>
Description [**] [**]
--------------------------------------------------------
<S> <C> <C>
Through [**] [**]
[**] through [**] [**]; and
[**] through [**] [**]
</TABLE>
5.3 StorageTek agrees to pay to IBM a [**] during [**] that is
payable in [**] on the [**] of each [**]. This payment will be [**] that
become due and owing to IBM under Section [**], above, of the DLW based upon
StorageTek's [**]. Unused portions of this payment that do not [**] may be
[**] that will become due and owing to IBM under Section [**], above, of the
DLW after [**].
5.4 [**] . Payment will be made by the last day of the calendar
month following the calendar quarter. Royalties will be paid less adjustments
and refunds due to the owing party. The owing party will provide a statement
summarizing the royalty calculation with each payment.
5.5 Notwithstanding any other provision of the Agreement, and
except for StorageTek's obligation to pay royalties pursuant to Section
3.2d(ii) herein, neither Party shall be liable to the other for royalties based
on de minimis use, as determined by applicable copyright law, of the other
Party's Code, documentation, and other written materials.
5.6 The provisions of this Section 5 shall survive termination of
the Agreement.
6. TERMINATION
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6.1 The termination of the Base Agreement or a Transaction
Document will not affect previously granted paid-up rights or licenses to IBM
or StorageTek or product users.
6.2 Any license, which is subject to a royalty, granted hereunder
may be terminated by the licensor if the licensee fails to pay any royalty due
with respect to such grant and fails to cure such nonpayment by the end of the
next calendar quarter after written notice from the Licensor.
6.3 All licenses will survive termination for convenience by IBM
subject to the obligations to pay royalties where applicable, except that, as
set forth in Section 23.7 of the OEM Agreement, the StorageTek [**] License for
[**] Devices and providing [**] for such Devices will immediately become fully
paid up; provided, however that royalties will be due for [**].
6.4 Upon termination of the Agreement for cause by IBM, all of the
licenses granted to IBM in Section 3.1 shall survive such termination subject
to the obligations to pay royalties where applicable, except that the IBM [**]
License set forth in Section 3.1(a) hereof, shall become effective and shall
immediately become fully paid up and irrevocable. Upon termination of the
Agreement for cause by StorageTek, all of the licenses granted to IBM in
Section 3.1 shall survive such termination subject to the obligations to pay
royalties where applicable.
6.5 Upon termination of the Agreement for cause the licenses
granted to StorageTek in Section 3.2 shall be treated as follows:
a. All licenses will survive termination for cause by
StorageTek subject to the obligations to pay royalties where
applicable except that the StorageTek [**] Licenses set forth in
Sections 3.2d and 3.2e shall immediately become [**]; and
b. If terminated for cause by IBM:
All licenses granted to StorageTek to use IBM
Materials under Section 3.2, above, will survive such termination, and
be [**] as provided herein, provided, however, that, if StorageTek
elects to maintain or effectuate, whichever the case may be, the
StorageTek [**] Licenses set forth in Section 3.2d(ii) ([**] for a
period of [**] from June 7, 1996, becoming royalty-free thereafter,
for use in developing and distributing Basic Enhancements and
Maintenance Modifications for IKA Storage Subsystems other than those
in the StorageTek Installed Base), and in Section 3.2e [**] license
for use in IKA Storage Systems or IKA Storage System controllers for
any purpose other than developing and distributing Basic Enhancements
and Maintenance Modifications), then StorageTek must first pay to IBM
the sum of [**] and also pay to IBM royalties as set forth in Section
5.2 above for such license, except that such royalty shall be [**] for
each IKA Storage System or IKA Storage System controller sold or
leased by StorageTek following the date of StorageTek's receipt of
IBM's written notice of termination, and, except that, once StorageTek
has paid in royalties pursuant to this Section the sum of an
additional [**], then such license shall immediately become [**], and
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provided further, that any sums paid by StorageTek to IBM under this
Section shall be in addition to any royalty payments due pursuant to
Section 5.2 hereof for products other than as covered in Sections
3.2d and 3.2e hereof, and shall have no effect on the total royalties
to be paid pursuant to Section 5.2e hereof.
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Attachment 2 to Exhibit 3
Appendix A
<PAGE> 168
IBM AGREEMENT FOR LICENSED INTERNAL CODE
- --------------------------------------------------------------------------------
You accept the terms of this Agreement by your initial use of a machine that
contains IBM Licensed Internal Code (called "Code").
These terms apply to Code used by certain machines IBM or your reseller
specifies (called "Specific Machines"). International Business Machines
Corporation or one of its subsidiaries ("IBM") owns copyrights in Code or has
the right to license Code. IBM or a third party owns all copies of Code,
including all copies made from them.
If you are the rightful possessor of a Specific Machine, IBM grants you a
license to use the Code (or any replacement IBM provides) on, or in conjunction
with, only the Specific Machine for which the Code is provided. IBM licenses
the Code only one rightful possessor at a time.
Under each license, IBM authorizes you to do only the following:
1. execute the Code to enable the Specific Machine to function according
to its Official Published Specifications (called "Specifications");
2. make a backup or archival copy of tile Code (unless IBM makes one
available for your use), provided you reproduce the copyright notice
and any other legend of ownership on the copy. You may use the copy
only to replace the original. when necessary; and
3. execute and display the Code as necessary to maintain the Specific
Machine.
You agree to acquire any replacement for, or additional copy of, Code directly
from IBM in accordance with IBM's standard policies and practices. You also
agree to use that Code under these terms.
You may transfer possession of the Code to another partly only with the
transfer of the Specific Machine. If you do so, you must 1) destroy all your
copies of the Code that were not provided by IBM, 2) either give the other
party all your IBM-provided copies of the Code or destroy them, and 3) notify
the other party of these terms. IBM licenses the other party when it accepts
these terms. These terms apply to all Code you acquire from any source.
Your license terminates when you no longer rightfully possess the Specific
Machine.
ACTIONS YOU MAY NOT TAKE
You agree to use the Code only as authorized above. You may not do, for
example, any of the following:
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1. otherwise copy, display, transfer, adapt, modify, or distribute the
Code (electronically or otherwise), except as IBM may authorize in the
Specific Machine's Specifications or in writing to you;
2. reverse assemble, reverse compile, or otherwise translate the Code
unless expressly permitted by applicable law without the possibility
of contractual waiver:
3. sublicense or assign the license for the Code; or
4. lease the Code or any copy of it.
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ATTACHMENT 2 TO EXHIBIT 3
APPENDIX B
<PAGE> 171
MICROCODE LANGUAGE
FOR
INCORPORATION INTO CONSOLIDATED END USER CONTRACT
TO BE ISSUED IN JULY
MICROCODE
1. Definitions: The following terms are defined as follows:
A. "Microcode" is defined as a set of instructions (software)
that is either imbedded into or is to be loaded into the Equipment and executes
below the external user interface of such Equipment. Microcode includes both
Internal Code and Maintenance Code, and may be in magnetic or other storage
media, integrated circuitry or other media.
B. "Internal Code" is Microcode that (a) is an integral part of
the Equipment, (b) is required by such Equipment to perform its data storage
and retrieval functions, and (C) executes below the user interface of such
Equipment. Internal Code does not include other Microcode or software,
including data files, which may reside or execute in or be used by or in
connection with such Equipment, including, without limitation, Maintenance
Code.
C. "Maintenance Code" is defined as Microcode and other software,
including data files, which may reside or execute in or be used by or in
connection with Equipment, and which detects, records, displays and/or analyzes
malfunctions, errors or other events occurring in the Equipment.
D. "Derivative Works" are defined as works (including software)
based upon one or more preexisting works such as a translation or a musical
arrangement, or any other form in which a work may be recast, transformed or
adapted. A work consisting of editorial revision, annotations, elaboration, or
other modifications which, as a whole, represent an original work of
authorship, is a Derivative Work.
2. The Equipment you have acquired by purchase or lease is
manufactured by or for StorageTek and contains Microcode. By accepting and
using this Equipment you acknowledge that StorageTek or its licensor(s) retains
title to and ownership of all Microcode, as well as all copies thereof, that
may execute in or be used in the operation of servicing of the Equipment and
that the copyright in such Microcode is owned by StorageTek or its licensor(s).
3. StorageTek hereby grants you, the end user of the Equipment, a
personal, non-transferable (except as permitted in the transfer terms in
paragraph 5 below), nonexclusive license to use and execute each copy of the
Internal Code (or any replacement provided by StorageTek or your authorized
StorageTek distributor or reseller) solely to enable the specific unit of
Equipment for which the copy of Internal Code is provided to perform its data
storage and retrieval functions in accordance with StorageTek's (or its
licensor's) official published specifications. If the Internal Code is
provided to you in any fashion other than preloaded into an
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integrated circuit, then you may make a single archival copy to be used only to
restore the Internal Code on the specific unit of Equipment for which the copy
of Internal Code is provided.
4. Your license is limited to the use of the Internal Code as set
forth in paragraph 3 above. You may not use the Internal Code for any other
purpose. You may not, for example, do any of the following:
(i) access copy, display, print, adapt, alter, modify,
patch, prepare Derivative Works of, transfer or distribute (electronically or
otherwise) or otherwise use the Internal Code;
(ii) reverse assemble, decode, translate, decompile or
otherwise reverse engineer the Internal Code (except, for use in European
jurisdictions, as decompilation may be expressly permitted under applicable
European law solely for the purpose of gaining information that will allow
interoperability when such information is not otherwise readily available); or
(iii) sublicense, assign or lease the Internal Code or
permit another person to use such Internal Code, or any copy of it.
5. You may transfer possession of the Internal Code to another
party only with the transfer of the specific Equipment on which its use is
authorized, and your license to use the Internal Code is discontinued when you
are no longer an owner or a rightful possessor the Equipment. You must give
such transferee all copies of the Internal Code for the transferred Equipment
that are in your possession, along with a copy of all the provisions of this
Notice. Any such transfer by you is automatically (without further action on
the part of either party) expressly subject to all the terms and conditions of
this Notice passing in full to the party to whom such Equipment is transferred,
and such transferee accepts the provisions of this license by initial use of
the Internal Code. You cannot pass to the transferee of the Equipment any
greater rights than granted under this Notice, and shall hold StorageTek
harmless from any claim to the contrary by your transferee or its successors or
assigns. In addition, the terms and conditions of this Notice apply to any
copies of Internal Code now in your possession or use or which you hereafter
acquire from either StorageTek or another party.
6. Nothing in the license set forth in paragraph 3 above or in
this entire Notice shall convey, in any manner, to you any license to or title
to or other right to use any Maintenance Code, or any copy of such Maintenance
Code. You agree that you shall not use or attempt to use the Maintenance Code
or permit any other third party to use or access such Maintenance Code. You
acknowledge that copies of both Internal Code and Maintenance Code may be
installed on the Equipment before shipment or included with the Equipment and
other material shipped to you, all for the convenience of StorageTek's service
personnel or service providers licensed by StorageTek, and that during the
warranty period, if any, associated with the Equipment, and during periods in
which the Equipment is covered under maintenance contract with StorageTek or
service providers licensed by StorageTek, both Internal Code and Maintenance
Code may reside and be executed in or used in connection with such Equipment,
and you agree that no rights to Maintenance Code are conferred upon you by such
facts. StorageTek or the licensed service provider may keep Maintenance Code,
service tools and manuals on your premises but they are to be used only by
StorageTek's customer service personnel or those of service
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providers licensed by StorageTek. You further agree that upon (I) any
termination of such warranty period or maintenance contract period; or (ii)
transfer of possession of the Equipment to another party, StorageTek and its
authorized service providers shall have the right with respect to the affected
Equipment to remove all service tools and manuals and to remove or disable all
Maintenance Code and/or replace Microcode which includes both Internal Code and
Maintenance Code with Microcode that consists only of Internal Code.
7. You, the end user, agree to take all appropriate steps to ensure
that all of your obligations set forth in this Notice, particularly in
paragraphs 4 and 6, are complied with by any third party having access to the
Equipment.
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- --------------------------------------------------------------------------------
NOTICE
INTERNAL CODE LICENSE AND TERMS OF SALE
PLEASE READ THIS NOTICE CAREFULLY BEFORE INSTALLING AND OPERATING THIS
EQUIPMENT. THIS IS A LEGAL AGREEMENT BETWEEN YOU (EITHER AN INDIVIDUAL OR
ENTITY), THE END USER, AND STORAGE TECHNOLOGY CORPORATION ("STORAGETEK") THE
MANUFACTURER OF THE EQUIPMENT. BY ACCEPTING AND USING ANY UNIT OF EQUIPMENT
DESCRIBED IN THIS DOCUMENT AND THE ASSOCIATED MICROCODE, YOU AGREE TO BE BOUND
BY THE TERMS OF T HIS AGREEMENT. IF YOU DO NOT AGREE WITH THE TERMS OF THIS
AGREEMENT, DO NOT USE THE EQUIPMENT AND ASSOCIATED MICROCODE. IF YOU DO NOT
HAVE THE AUTHORITY TO BIND YOUR COMPANY, DO NOT USE THE EQUIPMENT AND
ASSOCIATED MICROCODE. IF YOU HAVE ANY QUESTIONS, CONTACT THE AUTHORIZED
STORAGETEK DISTRIBUTOR OR RESELLER FROM WHOM YOU ACQUIRED THIS EQUIPMENT. IF
THE EQUIPMENT WAS OBTAINED BY YOU DIRECTLY FROM STORAGETEK, CONTACT YOUR
STORAGETEK REPRESENTATIVE.
MICROCODE
1. Definitions: The following terms are defined as follows:
A. "Microcode" is defined as a set of instructions (software)
that is either imbedded into or is to be loaded into the Equipment and executes
below the external user interface of such Equipment. Microcode includes both
Internal Code and Maintenance Code, and may be in magnetic or other storage
media, integrated circuitry or other media.
B. "Internal Code" is Microcode that (a) is an integral part of
the Equipment, (b) is required by such Equipment to perform its data storage
and retrieval functions, and (c) executes below the user interface of such
Equipment. Internal Code does not include other Microcode or software,
including data files, which may reside or execute in or be used by or in
connection with such Equipment, including, without limitation, Maintenance
Code.
C. "Maintenance Code" is defined as Microcode and other software,
including data files, which may reside or execute in or be used by or in
connection with Equipment, and which detects, records, displays and/or analyzes
malfunctions, errors or other events occurring in the Equipment.
D. "Derivative Works" are defined as works (including software)
based upon one or more preexisting works such as a translation or a musical
arrangement, or any other form in which a work may be recast, transformed or
adapted. A work consisting of editorial revision, annotations, elaboration, or
other modifications which, as a whole, represent an original work of
authorship, is a Derivative Work.
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2. The Equipment you have acquired by purchase or lease is
manufactured by or for StorageTek and contains Microcode. By accepting and
using this Equipment you acknowledge that StorageTek or its licensor(s) retains
title to and ownership of all Microcode, as well as all copies thereof, that
may execute in or be used in the operation of servicing of the Equipment and
that the copyright in such Microcode is owned by StorageTek or its licensor(s).
3. StorageTek hereby grants you, the end user of the Equipment, a
personal, non-transferable (except as permitted in the transfer terms in
paragraph 5 below), nonexclusive license to use and execute each copy of the
Internal Code (or any replacement provided by StorageTek or your authorized
StorageTek distributor or reseller) solely to enable the specific unit of
Equipment for which the copy of Internal Code is provided to perform its data
storage and retrieval functions in accordance with StorageTek's (or its
licensor's) official published specifications. If the Internal Code is
provided to you in any fashion other than preloaded into an integrated circuit,
then you may make a single archival copy to be used only to restore the
Internal Code on the specific unit of Equipment for which the copy of Internal
Code is provided.
4. Your license is limited to the use of the Internal Code as set
forth in paragraph 3 above. You may not use the Internal Code for any other
purpose. You may not, for example, do any of the following:
(i) access copy, display, print, adapt, alter, modify,
patch, prepare Derivative Works of, transfer or distribute (electronically or
otherwise) or otherwise use the Internal Code;
(ii) reverse assemble, decode, translate, decompile or
otherwise reverse engineer the Internal Code (except, for use in European
jurisdictions, as decompilation may be expressly permitted under applicable
European law solely for the purpose of gaining information that will allow
interoperability when such information is not otherwise readily available); or
(iii) sublicense, assign or lease the Internal Code or
permit another person to use such Internal Code, or any copy of it.
5. You may transfer possession of the Internal Code to another
party only with the transfer of the specific Equipment on which its use is
authorized, and your license to use the Internal Code is discontinued when you
are no longer an owner or a rightful possessor the Equipment. You must give
such transferee all copies of the Internal Code for the transferred Equipment
that are in your possession, along with a copy of all the provisions of this
Notice. Any such transfer by you is automatically (without further action on
the part of either party) expressly subject to all the terms and conditions of
this Notice passing in full to the party to whom such Equipment is transferred,
and such transferee accepts the provisions of this license by initial use of
the Internal Code. You cannot pass to the transferee of the Equipment any
greater rights than granted under this Notice, and shall hold StorageTek
harmless from any claim to the contrary by your transferee or its successors or
assigns. In addition, the terms and conditions of this Notice apply to any
copies of Internal Code now in your possession or use or which you hereafter
acquire from either StorageTek or another party.
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<PAGE> 176
6. Nothing in the license set forth in paragraph 3 above or in
this entire Notice shall convey, in any manner, to you any license to or title
to or other right to use any Maintenance Code, or any copy of such Maintenance
Code. You agree that you shall not use or attempt to use the Maintenance Code
or permit any other third party to use or access such Maintenance Code. You
acknowledge that copies of both Internal Code and Maintenance Code may be
installed on the Equipment before shipment or included with the Equipment and
other material shipped to you, all for the convenience of StorageTek's service
personnel or service providers licensed by StorageTek, and that during the
warranty period, if any, associated with the Equipment, and during periods in
which the Equipment is covered under maintenance contract with StorageTek or
service providers licensed by StorageTek, both Internal Code and Maintenance
Code may reside and be executed in or used in connection with such Equipment,
and you agree that no rights to Maintenance Code are conferred upon you by such
facts. StorageTek or the licensed service provider may keep Maintenance Code,
service tools and manuals on your premises but they are to be used only by
StorageTek's customer service personnel or those of service providers licensed
by StorageTek. You further agree that upon (I) any termination of such
warranty period or maintenance contract period; or (ii) transfer of possession
of the Equipment to another party, StorageTek and its authorized service
providers shall have the right with respect to the affected Equipment to remove
all service tools and manuals and to remove or disable all Maintenance Code
and/or replace Microcode which includes both Internal Code and Maintenance Code
with Microcode that consists only of Internal Code.
7. You, the end user, agree to take all appropriate steps to
ensure that all of your obligations set forth in this Notice, particularly in
paragraphs 4 and 6, are complied with by any third party having access to the
Equipment.
WARRANTY
(a) StorageTek warrants that at the time of shipment, and for a
period of twelve (12) months thereafter (the "Warranty Period"), the Equipment
and the Internal Code will be in conformance with StorageTek's published
specifications. Equipment purchased hereunder may consist in part of used
components which are warranted equivalent to new in performance. No warranty
of any kind is extended with respect to Maintenance Code, as to which you have
no right or license as provided above.
(b) During the Warranty Period, StorageTek will, at no charge to
you, make all adjustments, repairs and parts replacements necessary, in
StorageTek's opinion, to fulfill the above warranty. Any parts so replaced
will become the property of StorageTek on a substitution basis.
(c) Service pursuant to this warranty, as required at any time
during the Warranty Period, will be provided upon return of the Equipment to
the nearest StorageTek authorized service depot. StorageTek will return a
repaired or replacement unit (which may be used and/or reconditioned) to you
within [?thirty 30] days of receipt by StorageTek of the unit to be repaired.
Any such repaired or replacement Equipment unit will be covered by the above
warranty for the balance of the original Warranty Period.
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(d) The foregoing warranty shall not apply if any adjustment,
repair or parts replacement is required because of accident, transportation by
anyone other than StorageTek, neglect, abuse or misuse, use of unauthorized
supplies, failure of electrical power, air conditioning or humidity controls,
theft, fire or water damage, or causes other than ordinary use. StorageTek
shall not be required to adjust or repair any Equipment or part if it would be
impractical to do so because of non-StorageTek alterations to the Equipment,
the Equipment's connection by mechanical or electrical means to unauthorized
equipment devices, or if the Equipment is moved outside the United States.
(e) THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, AND STORAGETEK SPECIFICALLY DISCLAIMS ANY IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR
NON-INFRINGEMENT OF THIRD PARTY RIGHTS ALL WITH RESPECT TO BOTH EQUIPMENT AND
MICROCODE.
PATENT AND PROPRIETARY RIGHT INDEMNITY
(a) StorageTek shall defend, at its own expense, any action
brought against you to the extent that it is based upon a claim that the
Equipment or Internal Code infringes upon any United States patent, copyright,
trademark, mask work, trade secret or other proprietary right. In the event of
such infringement, StorageTek shall pay those costs and damages agreed upon in
settlement or compromise or finally assessed against you in any such action.
The obligation to undertake such defense and make such payments shall be
conditioned upon the following: (1) StorageTek shall be notified promptly in
writing by you of such claim, but in no event later than ten (10) days from the
date you received notice thereof; (2) StorageTek shall have sole control of the
defense of any action on such claim and all negotiations for its settlement or
compromise; (3) you shall provide reasonable assistance and cooperation to
StorageTek in defending such an action; and (4) should the use of Equipment
become, or in StorageTek's opinion be likely to become, the subject of an
injunction, StorageTek shall at its option and expense: (I) procure for you
the right to continue using the Equipment; (ii) replace or modify the same so
that such Equipment becomes non-infringing; or (iii) grant you a refund for
such Equipment, less accumulated depreciation, and accept its return. The
depreciation shall be an equal amount per year over the lifetime of the
Equipment as established by StorageTek.
(b) StorageTek shall not have any liability to you under the
provisions of this Section 9 for any infringement, or claim thereof, to the
extent based upon the use of said Equipment in combination with other machines,
apparatus or devices not manufactured by StorageTek or sold by StorageTek to
you, or the use of the Equipment in a manner or for a purpose other than that
for which it was sold, or the use of the Equipment in a modified condition if
such modification was not authorized in writing by StorageTek. StorageTek will
not defend or indemnify you if any claim of infringement is asserted by your
parent, subsidiary or affiliate.
(c) THE FOREGOING STATES THE ENTIRE LIABILITY OF STORAGETEK AND
YOUR SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO INFRINGEMENT OF
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ANY PROPRIETARY RIGHT BY THE EQUIPMENT OR INTERNAL CODE OR ANY PART THEREOF.
LIMITATION OF LIABILITY
(a) Your sole and exclusive remedy for any breach of the warranty
set forth in Section 8(a) above, shall be limited to the remedies set forth in
paragraph (b) of the section on WARRANTY above. If StorageTek is unable to
effect such remedy within a reasonable time, and such remedy fails of its
essential purpose, you may recover your actual loss directly resulting from the
breach, subject, however, to the limitations set forth below.
(b) StorageTek's entire cumulative liability from any cause
whatsoever, and regardless of the form of action or actions, whether in
contract, warranty or tort (including negligence), arising under this
Agreement, shall in no event exceed the greater of $50,000 or the purchase
price for the specific Equipment that is the subject matter of or is directly
related to the cause of action. The foregoing limitation shall not apply to
claims for proprietary right infringement under Section 9 or to claims by third
parties for personal injury or damage to real or tangible personal property
arising out of the negligence of StorageTek. Except for the two exceptions set
forth in the preceding sentence, StorageTek shall have no liability for claims
against you for loss or damage suffered by third parties.
(c) IN NO EVENT WILL STORAGETEK BE LIABLE FOR ANY INDIRECT,
SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES IN CONNECTION WITH OR ARISING OUT
OF THE PROVIDING, PERFORMANCE OR USE OF THE EQUIPMENT, PARTS OR SERVICES
PROVIDED UNDER THIS AGREEMENT, OR LOSS OF, OR DAMAGE TO, YOUR RECORDS OR DATA.
IT IS YOUR RESPONSIBILITY TO ADEQUATELY SAFEGUARD (BACK UP) YOUR DATA USED IN
CONJUNCTION WITH THE EQUIPMENT.
(d) StorageTek shall not be liable for any failure or delay in
performance hereunder which is due, in whole or in part, to any cause beyond
its control.
9
<PAGE> 179
EXHIBIT 4
This is an Agreement between IBM and STK ("Contractor"), pursuant to
which IBM win consign certain disk drives on a no-charge basis to Contractor
for incorporation into Equipment that Contractor is producing for IBM, subject
to the following terms and conditions:
1. DEFINITION OF CONSIGNED GOODS
For the purpose of this Agreement, consigned goods are defined as all
items finished by IBM or caused by IBM to be furnished to Contractor which are
not purchased by Contractor. Consigned goods include certain disk drives that
Contractor will use to fabricate Equipment for IBM.
Consigned goods do not include capital equipment or tooling.
The goods that are to be consigned under this Agreement are:
PART NUMBER DESCRIPTION
[**]
IBM may, at its option and in its sole discretion, consign
additional items to Contractor under the terms of this Agreement.
2. TERM OF AGREEMENT
The term of this Agreement will begin on the date it is signed by
Contractor and will end when IBM no longer has an obligation under Section 12
of the OEM Agreement to consign drives, or earlier, when it is terminated by
either party as provided for in Section 3 below or when it is terminated by IBM
as provided for in Section 13 below.
3. TERMINATION OF AGREEMENT
Either party may terminate this Agreement at any time for cause by
giving thirty (30) days' prior written notice to the other.
Upon termination of this Agreement, Contractor will return to IBM any
consigned goods then in its possession (including any parts, subassemblies, or
assemblies containing any consigned goods). Contractor will account for all
consigned goods within five (5) calendar days.
4. LOCATION OF CONSIGNED GOODS
The consigned goods will be located and used during the term of this
Agreement at a location that has been approved by IBM. Contractor will not
move the consigned goods to another location without IBM's prior written
approval.
<PAGE> 180
5. IBM'S PROPERTY
The consigned goods are and will remain the property of IBM.
6. IBM'S INSPECTION OF CONSIGNED GOODS
During the term of this Agreement, IBM will have the right to enter
Contractor's property and facilities on reasonable notice during Contractor's
normal business hours and subject to Contractor's normal security requirements
to physically inspect the consigned goods, conduct physical inventories;, and
audit stock-handling procedures (including receiving, storing, and
distribution).
7. CONTRACTOR INSPECTION OF CONSIGNED GOODS
Contractor will Inspect all consigned goods for type, quantity and
condition upon receipt. Contractor will notify IBM of any reasonably apparent
discrepancies within five (5) days of receipt. Contractor's notification to
IBM will include a description of all discrepancies. Discrepancies will be
described on the acknowledgment copy of the packing list accompanying the
shipment. The packing list must be signed and dated before it is returned to
IBM.
8. CONTRACTOR RESPONSIBILITIES
Contractor agrees that with respect to the consigned goods it will
A. Not commingle consigned goods with those of its own or third
parties. Contractor will stock all consigned goods separately and will
specifically identify them as IBM property.
B. Not represent to any person for any reason that the consigned
goods belong to Contractor or to any third party.
C. Not attempt to sell, mortgage, pledge, assign, borrow against,
or otherwise create a security interest in favor of third parties in the
consigned goods. Any such attempt will be void and will constitute a breach of
this Agreement.
D. Not use the consigned goods for any purpose except for the
performance of the OEM Agreement.
E. Maintain records of all consigned goods received from or
returned to IBM. Contractor will maintain in effective consigned goods
inventory system and will use the consigned goods on a first-in, first-out
basis.
F. Perform a reasonable number of physical counts upon IBM's
request (to confirm records), and provide IBM with the results.
G. Carefully store the consigned goods so as to prevent
Deterioration,
2
<PAGE> 181
H. Incorporate into Equipment only those consigned goods that
meet the Specifications. Nonconforming goods must be returned to IBM for
replacement, accompanied by a IBM "Authorization for Return of Material" form.
9. CONTRACTOR RESPONSIBILITY FOR LOST OR DAMAGED GOODS
Consigned goods are insured by IBM. Notwithstanding that insurance,
Contractor agrees that it will be fully liable for any loss or damage
occasioned by Contractor's fault or negligence. If any consigned goods are
lost or damaged, Contractor will notify IBM immediately. Payment to IBM for
consigned goods lost or damaged due to Contractor fault or negligence will be
at an amount equal to IBM's replacement cost for such lost or damaged consigned
goods plus transit costs.
10. TAXES AND ASSESSMENTS
IBM will pay all personal property taxes and assessments levied on the
consigned goods while they are in Contractor's possession.
11. SEPARATE AGREEMENTS
This Agreement will not apply to any tools, tooling, gauges, or
capital equipment fabricated or acquired by Contractor pursuant to IBM Purchase
Orders or loaned or leased to Contractor by IBM. All such equipment will be
covered by a separate Tooling, Equipment, Use, or other agreement.
12. CONTRACTOR'S INABILITY TO PRODUCE
If Contractor's facility where the consigned goods are located and
used is involved in any Force Majeure Event by reason of which Contractor
cannot fulfill the terms of IBM Purchase Orders (which conform to the OEM
Agreement), or if for any other reason Contractor is unable or unwilling to
perform under IBM's Purchase Orders (which conform to the OEM Agreement),
Contractor agrees to immediately notify IBM and further agrees, if requested by
IBM, to return any or all of the consigned goods to IBM within ten (10) days of
IBM's request without charge to IBM except that transportation charges shall be
billed collect.
13. BREACH OF CONTRACT
Failure of Contractor to materially comply with the terms and
conditions of this Agreement will be considered a breach of this Agreement
unless IBM has given specific written authorization for each particular
occurrence of each particular deviation. IBM will notify Contractor of any
breach by Contractor. Contractor will have ten (10) business days to rectify
the breach to Monterery's satisfaction. IBM may extend this period, in
writing, at IBM's discretion. If Contractor falls to rectify the breach to
IBM's satisfaction, IBM will have the night to terminate this Agreement
immediately at no charge to IBM for such termination.
3
<PAGE> 182
If Contractor falls to perform any of obligations under this
Agreement, or either party terminates this Agreement, IBM will have an
irrevocable right to enter Contractor's property and facilities at any time
during IBM's normal business hours for the purpose of removing the consigned
goods. Contractor expressly waives any right or remedies Contractor has with
regard to the consigned goods, including, but not limited to, any right
Contractor has to notice and a hearing or to a bond, undertaking or surety
before a writ of replevin, order of seizure, or similar writ or order will
issue or become enforceable.
The rights and remedies under this Section 13 are not exclusive and
are in addition to any other rights or remedies provided by law or by this
Agreement.
14. ASSIGNMENT
Contractor will not assign this Agreement or any right or obligation
created under this Agreement except in connection with a permitted assignment
under the OEM Agreement. Any attempted assignment will be void.
15. IBM SUPPLIER CONSIGNMENT GUIDE
The "IBM Supplier Consignment Guide" is expressly incorporated and
made a part of this Agreement.
16. COMMUNICATIONS AND NOTICES
All communications and notices between the parties concerning this
Agreement, if given to Contractor, will be in writing and sent by first class
mail to:
Attention:
-------------------------------
-------------------------------
-------------------------------
and if given to IBM, will be in writing and sent by first class mail to:
Attention:
-------------------------------
-------------------------------
-------------------------------
For the purposes of this Agreement, a "notice" is deemed given upon
receipt by the addressee.
Either party may change the above individual, title, department, or
address by notifying the other party in the same manner as any other notice.
17. CHANGES OR AMENDMENTS
4
<PAGE> 183
Except as provided for in Section 17 above, this Agreement may not be
changed or amended except by a written agreement between the parties.
18. CONSTRUCTION
In the event of any inconsistency between the terms and conditions of
this Agreement, the `IBM Supplier Consignment Guide," or the terms and
conditions of the OEM Agreement, the order of precedence shall be: first, the
terms and conditions of the OEM Agreement; second, the terms and conditions of
this Consignment Agreement, and lastly the "IBM Supplier Consignment Guide".
19. CONTINUING OBLIGATIONS
Any obligations and duties that by their nature extend beyond the
expiration or termination of this Agreement shall survive any such expiration
or termination and remain in effect.
20. SEVERABILITY
If any provision of this Agreement shall be held by a court of
competent jurisdiction to be invalid, illegal, or unenforceable, the validity,
legality, and enforceability of the remaining by provisions of this Agreement
shall IN no way be affected or impaired thereby.
21. LIMITATION OF LIABILITY
Neither party shall be in default nor liable for damages for any delay
or failure to perform hereunder due to causes beyond its reasonable control,
including fires, strikes, riots, and acts of war, provided the defaulting party
provides the non-defaulting party with immediate notice of the anticipated
delay or failure to comply.
In no event shall either party be liable for indirect, special, or
consequential damages, including attorney's fees, even if advised in advance of
the possibility of such damages.
Neither party may bring an action, regardless of the form, arising out
of this Agreement more than two (2) years after the cause of action arose.
22. GOVERNING LAW
The relationship between the Parties and this Agreement are governed
by the substantive laws of the state of New York. Any action between the
Parties must be brought before a court of competent Jurisdiction located in the
United States Southern District of New York. Each party hereby ,valves any
night to a jury trial in any dispute between them. The parties will first use
the Dispute Resolution escalation procedures described in the OEM Agreement to
resolve any disputes before any action is to be commenced in a court of
competent jurisdiction.
23. SOLE AGREEMENT
5
<PAGE> 184
This Agreement together with the OEM Agreement and its Exhibits
Schedules and Attachments is the entire agreement about this subject between
the parties. This Agreement supersedes all prior or contemporaneous written or
oral agreements about this subject between the parties or any of their
officials or representatives.
IBM STK
-------------- --------------
By By
-------------- --------------
Name Name
-------------- --------------
Title Title
------------ ------------
Date Date
------------ ------------
6
<PAGE> 185
CONSIGNMENT INVENTORY CONTROL
All correspondence regarding consigned material should be sent to:
IBM CORPORATION
Department 617
5600 Cottie Road
San Jose, CA 95193
All routine questions or problems should be directed to the
Consignment Coordinator assigned or the buyer.
All questions or problems of a critical nature should be directed to
the IBM Purchasing Department Buyer.
Revised: January 1992 Please note key changes preceded with (*)
7
<PAGE> 186
SUPPLIER RESPONSIBILITIES
FOR MATERIAL HANDLING AND CONTROL
OF IBM CONSIGNED MATERIAL
1. INTRODUCTION
As an IBM Supplier, you arc responsible for IBM's inventory while in
your possession. This agreement has been prepared for handling and control of
IBM consigned material. Most questions that could arise involving consignment
are addressed to aid the supplier. IBM may request space and facilities for an
on site consignment representative to assist.
If questions should arise that have not been explained fully by this
document, please contact Consignment Inventory Control (CIC), Department 617.
2. IBM SHIPMENT OF CONSIGNED MATERIAL TO SUPPLIER
a. Material will be shipped to supplier prepaid unless a
different arrangement has been agreed to in advance.
b. Partial shipment of Consigned material may be made when:
1) The entire quantity is not readily available from IBM
stock (an IBM backorder is automatically created when this situation occurs).
2) If the size or quantity of a given item would cause
storage difficulties, the supplier may notify the IBM buyer and the buyer will
arrange with CIC for partial shipments to be made. The notification must be
made on a timely basis, preferably when the order is placed.
3. RECEIPT AND INSPECTION OF CONSIGNMENT BY SUPPLIER
a. All shipments of consigned material by IBM to the supplier
will be accompanied by two copies of an IBM packing list (see Exhibits A, 13,
and C).
b. Immediately upon receipt, supplier is responsible for checking
all cartons for any sign of visible damage and noting such damage on the
consignee memo/bill of lading or delivery receipt. Also, note any shortages or
overages of containers, boxes, pallets, etc., if not as already noted on the
freight bill.
c. Visual external damage - Parts that are received by supplier
in packaging that exhibit external damage must be rejected and held until
disposition is made. Supplier must note damage on the delivery receipt and
have the driver sign that exception is taken. Immediately call the carrier for
a formal inspection of the damage. Carrier should make inspection within five
(5) working days. If the carrier does not respond within the five (5) days,
supplier must notify the IBM Buyer.
<PAGE> 187
In the event the carrier elects not to make in inspection. the carrier
must provide the supplier with letter stating that inspection has been waived.
The letter should include the necessary information to identify the damaged
shipment. The inspection report or letter of waiver and a copy of the delivery
receipt must be sent to the appropriate IBM Buyer who will notify the IBM
Traffic Department.
Please Note: Should the part be identified as "CFM", supplier must
notify the IBM Buyer and Traffic Department immediately upon receipt. The
Traffic Department will instruct the carrier to make an expedited 24 hour
disposition.
d. All packing material must be available for the carrier's
inspection.
e. Hidden/concealed damage - Parts that are received with
external packaging intact, but parts inside damaged, must be rejected. If
damage is discovered within ten (10) days of receipt, the carrier must be
notified to make a formal inspection report and a copy of the bill of lading or
delivery receipt and carrier's damage inspection report must be forwarded to
the appropriate IBM Buyer, who in turn will notify the Traffic Department. IBM
Material Review must be notified in order to set up the necessary documentation
for the return of the defective parts.
f. Verification of Count - Hand and scale counts must be made on
all receipts of consigned material, rework material, or material purchased from
IBM. A copy of the packing list must be signed and returned to IBM CIC
Department within five (5) days after receipt of materials. It should be noted
on the form (see Exhibit D) that all items received were correct, or items
received were correct with the exception of any shortage, overage or incorrect
part indicated. The method of count should also be indicated. Notify the IBM
CIC Department by telephone if the discrepancy cannot be reported within the
five day period.
g. All shipments received by supplier should be verified against
the Consignment Inventory Listing (CIL) and any discrepancies should be
referenced to a shipment and a CIL.
h. For audit purposes, supplier should return on copy of the
updated packing list, along with the date the receipt acknowledgment was
returned to IBM.
i. If supplier receives part that should not have been consigned,
contact your Consignment Coordinator and set the parts aside. Request an ARCM
(Authorization to Return Consigned Material) so that they may be returned to
IBM.
j. Supplier should notify the IBM CIC Department immediately of
parts movement to and from supplier premises without authorization, i.e., at
the direction of the Buyer or Engineer.
4. DROP SHIPMENT (Interplant & Supplier)
a. IBM may instruct other IBM plants or another supplier to ship
parts directly to a consigned supplier.
2
<PAGE> 188
b. The IBM Buyer will notify your company of this condition. Any
attempt to ship to you without this prior notification should be handled as
explained in Section 3 Item A.
c. Upon receipt of an authorized drop shipment, receive the
material as a normal consigned shipment.
NOTE: All drop shipments must be source stamped signifying
good parts. If you receive unstamped part, set aside
and contact the Buyer immediately. Parts should not
be used until inspected.
d. Once quantities are verified, the receiving supplier should
indicate the actual quantity received on packing slip. Sign and date the
packing slop and DELIVERY RECEIPT, staple the original packing slip to the
delivery receipt and forward to the IBM Receiving Department within 24 hours.
Retain a copy of the packing slip and delivery receipt for audit purposes.
e. If there are count discrepancies or defective parts on an
interplant drop shipment, notify the CIC Department immediately. If
discrepancies or defective parts are received on a drop shipment from another
supplier, contact the Buyer immediately.
f. Drop shipments from another supplier must have a drop ship
sequence number assigned by the sending supplier. A separate series of numbers
should be used if parts are drop shipped to more than one supplier.
*g. All drop shipments must be labeled in accordance with IBM
packing specifications GA21-9261-08 as indicated below:
All articles must be marked with the country of origin. Country
Customs Organizations require every article of foreign origin be marked in a
conspicuous place as legibly, indelibly, and permanently as the nature of the
article will permit. The country of origin is defined as that manufacturing
country wherein the article obtained its present identity as a part,
sub-assembly or finished product.
All domestic and foreign shipping containers must be identified as
described below, this includes bagged or boxed parts within a container or
containers within a unit loan shipper.
IBM P/N
--------------------
E/C LEVEL
--------------------
PKG TY
--------------------
COUNTRY OF ORIGIN
-----------
Figure 1. Identification required on each individual package.
* In addition, the date of manufacture is required on each
container when shipping shelf-life items.
3
<PAGE> 189
If size permits, this information should appear on two adjacent,
vertical sides of the container when it is in the normal shipping position.
Figure 2. Label placement - unit package
*h. Audit all (100%) world trade receipts and maintain
documentation by month.
1) Review receipts for container identification of
Country of Origin. In those instances where COO is not obvious, annotate the
packing list and forward to IBM receiving in your normal manner.
5. STOCKING AND CONTROL OF CONSIGNED MATERIAL BY SUPPLIER
a. Store IBM San Jose consigned material in an area separate from
your own material, another company's material, IBM rework material, or another
IBM plant's material.
1) If parts are required for a rework purchase order,
these must be provided. Consigned inventory should not be used.
2) Contact the IBM buyer if this situation exists.
b. Maintain adequate inventory records on all IBM consigned
material including quantity of each part number received by job number,
assembly number and purchase order number.
c. It is recommended that a withdrawal system from the stock room
to the production line be set up and controlled, including a parts inventory
location system. Parts should be issued on a First In, First Out basis (FIFO).
This location file can be either computer system or card file for warehouse
locations and card file within assembly areas. IBM identifies suppliers by
supplier number. If your physical location has been assigned more than one
supplier number, you must segregate IBM's inventory at your location by
supplier number.
d. Selected suppliers will be required to prepare a critical
parts list reflecting parts that will represent a shortage problem within a
specified number of working days. This notification is not to be used for
parts required for rework or reconditioning. These lists are to be forwarded
to IBM CIC Department. Contact you IBM Buyer when delivery problems arise (see
Exhibit E).
e. Discrepant parts found during the manufacturing process are to
be held until dispositioned by IBM. When this condition exists, contact IBM
CIC, Material Review or the IBM Buyer.
6. RETURN OF CONSIGNED MATERIAL TO IBM
4
<PAGE> 190
a. All consigned material returned to IBM must be listed on an
Authorization for Return of Consigned Material (ARCM), Form Number 927-0342
(see Exhibit F). A separate ARCM Document for each category of material
(excess, defective, down level, wrong part issue or parts requested by IBM
Analyzer) must be attached to all parts. The only exception is when parts have
been authorized to be scrapped on supplier's location. See page 7, Section 8d.
When this condition exists, only the ARCM document is returned to IBM.
All Returns:
1) An ARCM document will be prepared by CIC upon notification
from supplier that wrong part, excess, down level or defective material exists
at its location.
2) Periodically (at a minimum of twice per year), contact IBM CIC
to review the current IBM consigned part number list to the established IBM
manufacturing process. Any down level parts currently resident in your
facility should be dispositioned via ARCM documents.
3) CIC will send the ARCM document to supplier with authorized
signature within 24 hours of notification (see Exhibit F).
4) When appropriate, CIC will notify IBM Inspector to schedule a
review of the material at suppliers location.
5) The IBM inspector will inspect the material and indicate on
the ARCM document if it is acceptable for IBM stock. Damaged material will be
routed to IBM Material Review.
6) Include the number of boxes shipped to IBM on bottom of form.
Remove and return pink copy of ARCM document for your records.
7) Package individual parts in separate containers with separate
packing list. All parts listed on an ARCM must accompany the ARCM and
preferably unitized. The ARCM document number must be clearly marked on the
outside of each container. Containers should be identified by number of boxes,
i.e., 1 of 6, 2 of 6, etc.
8) Return remaining copies (white, green and yellow) of the ARCM
document along with the material (within five days of receipt of the ARCM
document) to IBM receiving. A bill of lading should be enclosed and a notation
that an ARCM is enclosed.
9) Damaged parts listed on the ARCM document that supplier agrees
are supplier's responsibility must be signed and dated by supplier. Any
disagreement will be resolved through the IBM Buyer.
10) All parts are to be packaged in accordance with IBM General
Packaging Specifications. Transportation charges will be paid by IBM.
5
<PAGE> 191
11) If a part is sent on a rework purchase order, the document to
return unreworkable parts is the Request for Return Material (RRM), Form Number
9267-8671 (see Exhibit II). The RRM is provided by the responsible Buyer.
7. INVENTORY AND AUDIT REQUIREMENTS
a. A yearly physical inventory is required on all IBM consigned
material.
b. Additional audits may be required and will be arranged by the
IBM Buyer and/or the IBM Consignment Auditor.
c. RICS (Rotating Inventory Counts) may be performed on a weekly
or monthly basis by CIC. These may be handled over the telephone or in person
by the Consignment Coordinator.
d. Actual inventory counts will be compared to the IBM
Consignment records and a percent-of-variance record will be kept. The control
of consignment may be a factor in IBM's determination of supplier's ability to
perform current and future subcontract work for IBM San Jose.
e. IBM requires that supplier keep inventory records. These
records should indicate current IBM inventory and a record of finished
assemblies shipped to IBM as well as that inventory received on consignment
from IBM or an IBM supplier. These records are commonly referred to as
in-transit records (i.e. receipts, shipments, returned parts on the ARCM
Documents, drop shipments and hand carried parts). Maintenance of these
records is an indication of supplier's ability to control IBM's assets. An
acceptable same log is attached for your review (Exhibit G).
f. When a subcontractor is used to complete operations on IBM
material at supplier's direction or based upon an agreement with IBM, supplier
is responsible for being able to account for that portion of the inventory that
may be at the subcontractor's location. Supplier is also responsible for
informing IBM auditors of the subcontractor, its location and what port of
IBM's inventory is located at subcontractor's premises or at a subsequent
location of supplier's.
g. Domestic Subsidiary - This involves assists that are given to
a domestic supplier who in turn gives it to their foreign subsidiary for use in
the production of goods to be imported into the U.S. with the U.S. supplier as
the Importer of Record.
If you are the Importer of Record for goods benefiting from this
consignment, you may have value declaration responsibilities to U.S. customs.
Contact the IBM Buyer for customs valuation information.
8. SUPPLIER RESPONSIBILITY FOR LOST OR DAMAGED GOODS
6
<PAGE> 192
a. IBM Consigned material is insured by IBM; however, supplier
will be held liable for loss occasioned by supplier's fault or negligence. It
is the supplier's responsibility to obtain insurance to protect itself from
loss due to its negligence.
b. Control and reporting as described in this instruction is
necessary to properly account for all IBM consigned material and to prevent
audit discrepancies.
c. IBM consigned parts are to be used only on new production
purchase orders. Special arrangements with IBM buyers are necessary to use
consigned parts for other orders, i.e. rework, engineering jobs, etc.
d. There are occasions when IBM desires to scrap good or
defective parts at supplier location versus return the inventory to IBM. No
parts are to be scrapped until supplier receives written authorization from an
IBM Buyer or IBM Material Review (MR). The physical destruction of the
inventory must be witnessed by an IBM representative and documented on an ARCM.
9. SUPPLEMENTAL STANDARD TERMS AND CONDITIONS - IBM PARTS
a. Supplier acknowledges that all consigned material described in
the Consignment Agreement (Consignment Inventory Listing) has been received in
good condition and in the quantities stated thereon except when supplier has
notified IBM, in writing and within five days following the receipt of the
materials, or specific damage or quantity discrepancies. IBM acknowledges that
Supplier may not discovery defects that are not reasonable apparent until the
consigned material is integrated into systems and tested.
b. Title to all consigned materials shall remain in IBM.
c. For all material lost, destroyed, or damaged through the fault
or negligence of the supplier, supplier will pay IBM, at IBM's option, either
the cost of such materials or the cost of replacement materials required to
complete the performance of this order.
d. Supplier at its own expense will:
1) Separately account for all IBM Material.
2) Maintain current and accurate inventory records.
3) Take an accurate physical inventory thereof as
required by IBM (not more often than once each three months).
4) Return all unused materials to the consigning IBM
location promptly upon completion, cancellation, or expiration unless otherwise
agreed, or at any time after completion, cancellation, or expiration of this
order upon IBM's request.
5) IBM shall have the right to examine and audit said
records and to verify said inventories at any time upon reasonable notice.
7
<PAGE> 193
10. EC - ENGINEERING CHANGES
IBM may require supplier to change the parts or process used in
assemblies. Supplier should maintain records related to which purchase orders
the change affects.
If this change affects orders where IBM has already shipped supplier
parts, contact your Consignment Coordinator to make sure correct parts have
been forwarded to these orders.
Supplier should call CIC if any problems occur with implementing an
Engineering Change, including completing the phase-in within the agreed upon
time frame and/or quantity.
11. SHIPMENTS TO IBM
When supplier completes assemblies to be shipped to IBM, supplier will
prepare the shipment and assign a control number in a sequential manner. The
purchase order number for the particular assemble must be shown.
NOTE: Suppliers are not authorized to overship on Consignment
Purchase Orders. Packing slip and invoice quantities must
match shipment quantity.
8
<PAGE> 194
Exhibit 5: RVA1 FRU Prices and Lead Times
<TABLE>
<CAPTION>
UNIT REPAIR CURRENT INA
P/N IBM P/N R/C DESCRIPTION PRICE PRICE P/N DATE
<S> <C> <C> <C> <C> <C> <C> <C>
[**]
</TABLE>
<PAGE> 195
EXHIBIT 6
LIST OF COUNTRIES FOR
INTELLECTUAL PROPERTY INDEMNITY
COUNTRIES FOR INDEMNIFICATION
-----------------------------
[**]
<PAGE> 1
EXHIBIT 10.29
================================================================================
CREDIT AGREEMENT
DATED AS OF OCTOBER 23, 1997
AMONG
STORAGE TECHNOLOGY CORPORATION,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
AS AGENT,
SWINGLINE BANK,
AND
LETTER OF CREDIT ISSUING BANK
AND
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
ARRANGED BY
BANCAMERICA ROBERTSON STEPHENS
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Other Interpretive Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.3 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE II DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1 Amounts and Terms of Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.2 Loan Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.3 Procedure for Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.4 Conversion and Continuation Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.5 Voluntary Termination or Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . 24
(a) Termination or Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 24
(b) Automatic Reduction of Swingline Commitment . . . . . . . . . . . . . . . . . . . . . . . 24
2.6 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.7 Mandatory Prepayments of Loans; Mandatory Commitment Reductions . . . . . . . . . . . . . . . . . 25
2.8 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.9 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.10 Swingline Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.11 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(a) Commitment Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(b) Arrangement Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.12 Computation of Fees and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.13 Payments by the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.14 Payments by the Banks to the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.15 Sharing of Payments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE III THE LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.1 The Letter of Credit Subfacility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.2 Issuance, Amendment and Renewal of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . 32
3.3 Existing BofA Letters of Credit; Risk Participations,
Drawings and Reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.4 Repayment of Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.5 Role of the Issuing Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.6 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.7 Cash Collateral Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.8 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.9 Uniform Customs and Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.1 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.2 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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4.3 Increased Costs and Reduction of Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.4 Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.5 Inability to Determine Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.6 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.7 Notice of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE V CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.1 Conditions to Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(a) Credit Agreement and Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(b) Resolutions; Incumbency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(c) Organization Documents; Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(d) Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(e) Payment of Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(f) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(g) Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.2 Conditions to All Credit Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(a) Prior Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(b) Notice, Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(c) Continuation of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 45
(d) No Existing Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(e) Cash Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE VI REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.1 Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.2 Corporate Authorization; No Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.4 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.6 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.7 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.8 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.9 Title to Properties; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.11 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.12 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.13 Regulated Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.14 Copyrights, Patents, Trademarks and Licenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . 49
6.15 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.17 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.18 Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE VII AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.2 Certificates; Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
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7.4 Preservation of Corporate Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.5 Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.7 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.9 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.10 Inspection of Property and Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.11 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.12 Disclosure; Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.13 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(a) Maintenance of Consolidated Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . 54
(b) Consolidated Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(c) Consolidated Total Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(d) Adjusted Quick Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.14 Patents and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE VIII NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.1 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.2 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.3 Consolidations and Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
8.4 Loans and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
8.5 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
8.6 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
8.7 Contingent Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.8 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.9 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.10 Change in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.11 Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE IX EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.1 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(a) Non-Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(b) Representation or Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(c) Specific Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(d) Other Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(e) Cross-Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(f) Insolvency; Voluntary Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(g) Involuntary Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(h) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(i) Monetary Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(j) Non-Monetary Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(k) Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(l) Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.3 Certain Financial Covenant Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
10.1 Appointment and Authorization; "Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
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10.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.3 Liability of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.4 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.6 Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.7 Indemnification of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.8 Agent in Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.9 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.10 Withholding Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
ARTICLES XI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
11.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
11.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
11.4 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
11.5 Borrower's Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
11.6 Payments Set Aside . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
11.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
11.8 Assignments, Participations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
11.9 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
11.10 Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
11.11 Automatic Debits of Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
11.12 Notification of Addresses, Lending Offices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 75
11.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
11.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
11.15 No Third Parties Benefited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
11.16 Governing Law and Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
11.17 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
11.18 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
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SCHEDULES
Schedule 2.1 Commitments and Pro Rata Shares
Schedule 2.9(e) Applicable Margin and Commitment Fees
Schedule 5.2(a) Letters of Credit Outstanding Under Prior Loan Documents
Schedule 6.5 Litigation
Schedule 6.11 Permitted Liabilities
Schedule 6.12 Environmental Matters
Schedule 6.15 Subsidiaries and Minority Interests
Schedule 6.16 Insurance Matters
Schedule 8.1(i) Permitted Liens
Schedule 8.2 Permitted Dispositions
Schedule 8.4(f) Permitted Investments
Schedule 8.7(e) Contingent Obligations
Schedule 11.2 Addresses for Notices; Lending Offices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D-1 Form of Legal Opinion of Shearman & Sterling
Exhibit D-2 Form of Legal Opinion of Internal Borrower's Counsel
Exhibit E Form of Assignment and Acceptance
Exhibit F Form of Promissory Note
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CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of October 23, 1997, among
Storage Technology Corporation, a Delaware corporation ("the Borrower"), the
several financial institutions from time to time party to this Credit Agreement
(individually, a "Bank"; collectively, the "Banks"), and Bank of America
National Trust and Savings Association, as swingline bank, letter of credit
issuing bank and as agent for the Banks.
WHEREAS, the Borrower, the Agent and certain financial institutions
were parties to that certain Credit Agreement dated as of April 9, 1997 (as
modified, the "Prior Credit Agreement") and certain other documents executed in
connection therewith (together with the Prior Credit Agreement, referred to at
times as the "Prior Loan Documents);
WHEREAS, the Borrower has decided to terminate the Prior Credit
Agreement and the other Prior Loan Documents in order to enter into this Credit
Agreement and the Loan Documents with the parties hereto;
WHEREAS, the Banks are willing to extend certain credit facilities to
the Borrower on the basis of this Credit Agreement and the Loan Documents and
to facilitate the termination of the Prior Credit Agreement and the other Prior
Loan Documents as provided in this Credit Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. The following terms have the following
meanings:
"Acquisition" means any transaction or series of related
transactions for the purpose of or resulting, directly or indirectly,
in (a) the acquisition of all or substantially all of the assets of a
Person, or of any business or division of a Person, (b) the
acquisition of in excess of 50% of the capital stock, partnership
interests, membership interests or equity of any Person, or otherwise
causing any Person to become a Subsidiary, or (c) a merger or
consolidation or any other combination with another Person (other than
a Person that is a Subsidiary) provided that the Borrower or its
Subsidiary is the surviving entity.
"Adjusted Quick Ratio" means, for any Person for any period,
the ratio that (i) Current Liquid Assets of such Person bears to (ii)
Current Liabilities of such Person.
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is
under common control with, such Person. A Person
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<PAGE> 8
shall be deemed to control another Person if the controlling Person
possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of the other Person, whether
through the ownership of voting securities, membership interests, by
contract, or otherwise.
"Agent" means BofA in its capacity as agent for the Banks
hereunder, and any successor agent arising under Section 10.9.
"Agent-Related Persons" means BofA and any successor agent
arising under Section 10.9 and any successor letter of credit issuing
bank hereunder, together with their respective Affiliates (including,
in the case of BofA, the Arranger), and the officers, directors,
employees, agents and attorneys-in-fact of such Persons and
Affiliates.
"Agent's Payment Office" means the address for payments set
forth on Schedule 11.2 or such other address as the Agent may from
time to time specify.
"Agreement" means this Credit Agreement.
"Applicable Fee Amount" means with respect to the commitment
fee payable hereunder, the amount set forth opposite the indicated
level below the heading "Commitment Fee" in the pricing grid set forth
on Schedule 2.9(e) in accordance with the parameters for calculations
of such amount set forth in Sections 2.9(e) and 2.11(a).
"Applicable Margin" means the amount set forth opposite the
indicated level below the heading "Base Rate Spread" or "Offshore Rate
Spread," as appropriate, in the pricing grid set forth in Schedule
2.9(e) in accordance with the parameters for calculations of such
amount also set forth in Sections 2.9(e) and 2.11(a).
"Arranger" means BancAmerica Robertson Stephens.
"Assignee" has the meaning specified in subsection 11.8(a).
"Attorney Costs" means and includes all fees and disbursements
of any law firm or other external counsel, the allocated cost of
internal legal services and all disbursements of internal counsel.
"Bank" has the meaning specified in the introductory clause
hereto. References to the "Banks" shall include BofA, including in
its capacity as Issuing Bank and Swingline Bank; for purposes of
clarification only, to the extent that BofA may have any rights or
obligations in addition to those of the Banks due to its status as
Issuing Bank and Swingline Bank, its status as such will be
specifically referenced.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of
1978 (11 U.S.C. Section 101, et seq.).
"Base Rate" means, for any day, the higher of: (a) 0.50% per
annum above the latest Federal Funds Rate; and (b) the rate of
interest in effect for such day as publicly
2.
<PAGE> 9
announced from time to time by BofA in SAN Francisco, California, as
its "reference rate." (The "reference rate" is a rate set by BofA
based upon various factors including BofA's costs and desired return,
general economic conditions and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above,
or below such announced rate.)
Any change in the reference rate announced by BofA shall take
effect at the opening of business on the day specified in the public
announcement of such change.
"Base Rate Loan" means a Revolving Loan, a Swingline Loan or
an L/C Advance, that bears interest based on the Base Rate.
"BofA" means Bank of America National Trust and Savings
Association, a national banking association.
"Borrower" has the meaning specified in the introductory
clause of this Agreement.
"Borrowing" means a borrowing hereunder consisting of
Revolving Loans of the same Type made to the Borrower on the same day
by the Banks under Article II, or Swingline Loans of the same Type
made to the Borrower on the same day by the Swingline Bank under
Article II and, in each case, other than for Base Rate Loans, having
the same Interest Period.
"Borrowing Date" means any date on which a Borrowing occurs
under Section 2.3.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in New York City or San Francisco
are authorized or required by law to close and, if the applicable
Business Day relates to any Offshore Rate Loan, means such a day on
which dealings are carried on in the applicable offshore Dollar
interbank market.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any
other law, rule or regulation, whether or not having the force of law,
in each case, regarding capital adequacy of any bank or of any
corporation controlling a bank.
"Capital Lease" means, for any Person, any lease of property
(whether real, personal or mixed) which, in accordance with GAAP,
would, at the time a determination is made, be required to be recorded
as a capital lease in respect of which such Per-son is liable as
lessee.
"Cash Collateralize" means, as provided in Section 3.7 hereof,
to pledge and deposit with or deliver to the Agent, for the benefit of
the Agent, the Issuing Bank, the Swingline Bank and the Banks, as
collateral for the Obligations, cash or deposit account balances
pursuant to documentation in form and substance satisfactory to the
Agent, the
3.
<PAGE> 10
Swingline Bank and the Issuing Bank (which documents are hereby
consented to by the Banks). Derivatives of such term shall have
corresponding meanings.
"Change of Control" means the occurrence, after the date of
this Agreement, of any of the following: (a) any Person or two or more
Persons acting in concert acquiring beneficial ownership (within the
meaning of Rule 13d-3 of the SEC under the Exchange Act), directly or
indirectly, of securities of the Borrower (or other securities
convertible into such securities) representing 30% or more of the
combined voting power of all securities of the Borrower entitled to
vote in the election of directors; or (b) during any period of up to
12 consecutive months, commencing after the Closing Date, individuals
who at the beginning of such 12-month period were directors of the
Borrower ceasing for any reason to constitute a majority of the Board
of Directors of the Borrower unless the Persons replacing such
individuals were nominated by the Board of Directors of the Borrower;
or (c) any Person or two or more Persons acting in concert acquiring
by contract or otherwise, or entering into a contract or arrangement
which upon consummation will result in its or their acquisition of, or
control over, securities of the Borrower (or other securities
convertible into such securities) representing 30% or more of the
combined voting power of all securities of the Borrower entitled to
vote in the election of directors.
"Closing Date" means the date on which all conditions
precedent set forth in Section 5.1 are satisfied or waived by all
Banks (or, in the case of subsection 5.1(e), waived by the Person
entitled to receive such payment).
"Code" means the Internal Revenue Code of 1986, and
regulations promulgated thereunder.
"Commitment", as to each Bank, has the meaning specified in
Section 2.1.
"Compliance Certificate" means a certificate substantially in
the form of Exhibit C.
"Consolidated" and any derivative thereof each means, with
reference to the accounts or financial reports of any Person, the
consolidated accounts or financial reports of such Person and each
Subsidiary of such Person determined in accordance with GAAP.
"Contingent Obligation" means, as to any Person, any direct or
indirect liability of that Person, whether or not contingent, with or
without recourse, (a) with respect to any Indebtedness, lease,
dividend, letter of credit or other obligation (the "primary
obligations") of another Person (the "primary obligor"), including any
obligation of that Person (i) to purchase, repurchase or otherwise
acquire such primary obligations or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any such
primary obligation, or to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial
condition of the primary obligor, (iii) to purchase property,
4.
<PAGE> 11
securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or otherwise to assure or
hold harmless the holder of any such primary obligation against loss
in respect thereof; (b) with respect to primary obligations of a
primary obligor in connection with any synthetic lease or similar off
balance sheet lease transaction or securitization transaction (each of
(a) and (b) a "Guaranty Obligation"), (c) with respect to any Surety
Instrument issued for the account of that Person or as to which that
Person is otherwise liable for reimbursement of drawings or payments;
(d) to purchase any materials, supplies or other property from, or to
obtain the services of, another Person if the primary purpose of the
contract or other related document or obligation requires that payment
for such materials, supplies or other property, or for such services,
shall be made regardless of whether delivery of such materials,
supplies or other property is ever made or tendered, or such services
are ever performed or tendered, or (e) in respect of any Swap
Contract. The amount of any Contingent Obligation shall, in the case
of Guaranty Obligations, be deemed equal to the stated or determinable
amount of the primary obligation in respect of which such Guaranty
Obligation is made or, if not stated or if indeterminable, the maximum
reasonably anticipated liability in respect thereof, and in the case
of other Contingent Obligations, shall be equal to the maximum
reasonably anticipated liability in respect thereof. Notwithstanding
anything to the contrary herein, Contingent Obligations shall not
include sales of Permitted Receivables (and books, chattel paper,
records, and software relating to the Permitted Receivables) sold
pursuant to the Permitted Receivables Purchase Facility and recourse
or repurchase obligations thereunder.
"Contractual Obligation" means, as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other
instrument, document or agreement to which such Person is a party or
by which it or any of its property is bound.
"Conversion/Continuation Date" means any date on which, under
Section 2.4, the Borrower (a) converts Loans of one Type to another
Type, or (b) continues as Loans of the same Type, but with a new
Interest Period, Loans having Interest Periods expiring on such date.
"Credit Extension" means and includes (a) the making of any
Revolving Loans or Swingline Loans hereunder, and (b) the Issuance of
any Letters of Credit hereunder (including the Existing BofA Letters
of Credit).
"Current Liabilities" of any Person means, as of any date of
determination, all liabilities of such Person (including estimated
accrued taxes and any Indebtedness outstanding under this Agreement
but excluding any obligations under the Multicurrency Note Purchase
Facility which are fully cash collateralized) which in accordance with
GAAP should be classified as current liabilities of such Person,
including the amount of any redeemable preferred stock of such Person
that is redeemable for cash at the option of the holder thereof or
that is mandatorily redeemable by such Person within one year of
5.
<PAGE> 12
such date of determination, valued at the applicable redemption price,
plus accrued and unpaid dividends payable in respect of such
redeemable preferred stock.
"Current Liquid Assets" of any Person means, as of any date of
determination, all cash, short-term investments and accounts
receivable, in each case as shown on the most recent balance sheet of
such Person and determined in accordance with GAAP (but excluding any
such assets deposited to collateralize any obligations under the
Multicurrency Note Purchase Facility).
"Default" means any event or circumstance which, with the
giving of notice, the lapse of time, or both, would (if not cured or
otherwise remedied during such time) constitute an Event of Default.
"Dollars," "dollars" and "$" each mean lawful money of the
United States.
"EBITDA" means, for any period, for the Borrower and its
Subsidiaries on a consolidated basis, determined in accordance with
GAAP, the sum of (a) the Net Income (or Net Loss) for such period plus
(b) all amounts treated as expenses for depreciation, interest and the
amortization of intangibles of any kind to the extent included in the
determination of such Net Income (or Net Loss), plus (c) all accrued
taxes on or measured by income to the extent included in the
determination of such Net Income (or Net Loss).
"Effective Amount" means (a) with respect to any Revolving
Loans or Swingline Loans, as the case may be, on any date, the
aggregate outstanding principal amount thereof after giving effect to
any Borrowings and prepayments or repayments of Revolving Loans or
Swingline Loans occurring on such date; and (b) with respect to any
outstanding L/C Obligations on any date, the amount of such L/C
Obligations on such date after giving effect to any Issuances of
Letters of Credit occurring on such date and any other changes in the
aggregate amount of the L/C Obligations as of such date, including as
a result of any reimbursements of outstanding unpaid drawings under
any Letters of Credit or any reductions in the maximum amount
available for drawing under Letters of Credit taking effect on such
date.
"Effective Date" has the meaning ascribed to it in Section
5.2(a).
"Eligible Assignee" means (a) a commercial bank organized
under the laws of the United States, or any state thereof, and having
a combined capital and surplus of at least $200,000,000; (b) a
commercial bank organized under the laws of any other country which is
a member of the Organization for Economic Cooperation and Development
(the "OECD"), or a political subdivision of any such country, and
having a combined capital and surplus of at least $200,000,000,
provided that such bank is acting through a branch or agency located
in the United States; and (c) a Person that is primarily engaged in
the business of commercial banking and that is (i) a Subsidiary of a
Bank, (ii) a Subsidiary of a Person of which a Bank is a Subsidiary,
or (iii) a Person of which a Bank is a Subsidiary.
6.
<PAGE> 13
"Environmental Claims" means all claims, however asserted, by
any Governmental Authority or other Person alleging potential
liability or responsibility for violation of any Environmental Law, or
for release or injury to the environment.
"Environmental Laws" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any
Governmental Authorities, in each case relating to environmental,
health, safety and land use matters.
"ERISA" means the Employee Retirement Income Security Act of
1974.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Borrower within the
meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and
(o) of the Code for purposes of provisions relating to Section 412 of
the Code).
"ERISA Event" means (a) a Reportable Event with respect to a
Pension Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate
from a Pension Plan subject to Section 4063 of ERISA during a plan
year in which it was a substantial employer (as defined in Section
4001(a)(2) of ERISA) or a cessation of operations which is treated as
such a withdrawal under Section 4062(e) of ERISA; (c) a complete or
partial withdrawal by the Borrower or any ERISA Affiliate from a
Multiemployer Plan or notification that a Multiemployer Plan is in
reorganization; (d) the filing of a notice of intent to terminate, the
treatment of a Plan amendment as a termination under Section 4041 or
4041A of ERISA, or the commencement of proceedings by the PBGC to
terminate a Pension Plan or Multiemployer Plan; (e) an event or
condition which might reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan or Multiemployer Plan; or
(f) the imposition of any liability under Title IV of ERISA, other
than PBGC premiums due but not delinquent under Section 4007 of ERISA,
upon the Borrower or any ERISA Affiliate.
"Eurodollar Reserve Percentage" has the meaning specified in
the definition of "Offshore Rate."
"Event of Default" means any of the events or circumstances
specified in Section 9.1.
"Exchange Act" means the Securities Exchange Act of 1934.
"Existing BofA Letters of Credit" means the letters of credit
issued by BofA for the account of the Borrower and outstanding under
the Prior Credit Agreement on the Termination Date.
"FDIC" means the Federal Deposit Insurance Corporation, and
any Governmental Authority succeeding to any of its principal
functions.
7.
<PAGE> 14
"Federal Funds Rate" means, for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Bank of New
York with respect to the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is
not so published with respect to any such preceding Business Day, the
rate for such day will be the arithmetic mean as determined by the
Agent of the rates for the last transaction in overnight Federal funds
arranged prior to 9:00 a.m. (New York City time) on that day by each
of three leading brokers of Federal funds transactions in New York
City selected by the Agent.
"FRB" means the Board of Governors of the Federal Reserve
System, and any Governmental Authority succeeding to any of its
principal functions.
"GAAP" means generally accepted accounting principles set
forth from time to time in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date
of determination.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Guaranty Obligation" has the meaning specified in the
definition of "Contingent Obligation."
"Honor Date" means each date that any amount is paid by the
Issuing Bank under any Letter of Credit.
"Indebtedness" of any Person means, without duplication, (a)
all indebtedness for borrowed money; (b) all obligations issued,
undertaken or assumed as the deferred purchase price of property or
services (other than trade payables entered into in the ordinary
course of business on ordinary terms); (c) all reimbursement or
payment obligations (contingent or otherwise) with respect to Surety
Instruments; (d) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses; (e)
all indebtedness created or arising under any conditional sale or
other title retention agreement, or incurred as financing, in either
case with respect to property acquired by the Person (even though the
rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such
property); (f) all obligations with respect to Capital Leases; (g) all
indebtedness referred to in clauses (a) through (f) above secured by
(or for which the holder of such
8.
<PAGE> 15
Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien upon or in property (including accounts and
contracts rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness; and
(h) all Guaranty Obligations in respect of indebtedness or obligations
of others of the kinds referred to in clauses (a) through (g) above.
Notwithstanding anything to the contrary herein, Indebtedness shall
not include sales of Permitted Receivables (and books, chattel paper,
records and software relating to the Permitted Receivables) sold
pursuant to the Permitted Receivables Purchase Facility and recourse
or repurchase obligations thereunder. For all purposes of this
Agreement, the Indebtedness of any Person shall include all recourse
Indebtedness of any partnership or joint venture or limited liability
company in which such Person is a general partner or a joint venturer
or a member.
"Indemnified Liabilities" has the meaning specified in Section
11.5.
"Indemnified Person" has the meaning specified in Section
11.5.
"Independent Auditor" has the meaning specified in subsection
7.1(a).
"Insolvency Proceeding" means, with respect to any Person, (a)
any case, action or proceeding with respect to such Person before any
court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the
benefit of creditors, composition, marshalling of assets for
creditors, or other, similar arrangement in respect of its creditors
generally or any substantial portion of its creditors; in either case
undertaken under U.S. Federal, state or foreign law, including the
Bankruptcy Code.
"Interest Payment Date" means, (a) as to any Loan other than a
Base Rate Loan, the last day of each Interest Period applicable to
such Loan, (b) as to any Base Rate Loan other than a Swingline Loan,
the last Business Day of each calendar quarter, and (c) as to any Base
Rate Loans which are Swingline Loans, the Business Day agreed upon by
the Borrower and the Swingline Bank which shall not be later than the
seventh Business Day following the Borrowing Date thereof; provided,
however, that if any Interest Period for an Offshore Rate Loan exceeds
three months, the date that falls three months after the beginning of
such Interest Period and after each Interest Payment Date thereafter
is also an Interest Payment Date.
"Interest Period" means, as to any Offshore Rate Loan, the
period commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending on the date one, two,
three or six months thereafter as selected by the Borrower in its
Notice of Borrowing or Notice of Conversion/Continuation;
provided that:
9.
<PAGE> 16
(a) if any Interest Period would
otherwise end on a day that is not a Business Day,
that Interest Period shall be extended to the
following Business Day unless the result of such
extension would be to carry such Interest Period into
another calendar month, in which event such Interest
Period shall end on the preceding Business Day;
(b) any Interest Period that begins on
the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding
day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the
calendar month at the end of such Interest Period;
and
(c) no Interest Period for any Loan
shall extend beyond the Revolving Termination Date.
"Investments" has the meaning specified in Section 8.4.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
"Issuance Date" has the meaning specified in subsection
3.1(a).
"Issue" means, with respect to any Letter of Credit, to
incorporate the Existing BofA Letters of Credit into this Agreement,
or to issue or to extend the expiry of, or to renew or increase the
amount of, such Letter of Credit; and the terms "Issued," "Issuing"
and "Issuance" have corresponding meanings.
"Issuing Bank" means BofA in its capacity as issuer of one or
more Letters of Credit hereunder, together with any replacement letter
of credit issuer arising under subsection 10.1(b) or Section 10.9.
"Joint Venture" means a single-purpose corporation,
partnership, limited liability company, joint venture or other similar
legal arrangement (whether created by contract or conducted through a
separate legal entity) now or hereafter formed by the Borrower or any
of its Subsidiaries with another Person in order to conduct a common
venture or enterprise with such Person.
"L/C Advance" means each Bank's participation in any L/C
Borrowing in accordance with its Pro Rata Share.
"L/C Amendment Application" means an application for amendment
of outstanding standby or commercial documentary letters of credit, in
the form as shall at any time be in use at the Issuing Bank, as the
Issuing Bank shall reasonably request.
"L/C Application" means an application for issuances of
standby or commercial documentary letters of credit, in the form as
shall at any time be in use at the Issuing Bank, as the Issuing Bank
shall reasonably request.
10.
<PAGE> 17
"L/C Borrowing" means an extension of credit resulting from a
drawing under any Letter of Credit which shall not have been
reimbursed on the date when made nor converted into a Borrowing of
Revolving Loans under subsection 3.3(c).
"L/C Commitment" means the commitment of the Issuing Bank to
Issue, and the commitment of the Banks severally to participate in,
Letters of Credit (including the Existing BofA Letters of Credit) from
time to time Issued or outstanding under Article III, in an aggregate
amount not to exceed on any date the amount of $75,000,000, as the
same shall be reduced as a result of a reduction in the L/C Commitment
pursuant to Section 2.5; provided that the L/C Commitment is a part of
the combined Commitments, rather than a separate, independent
commitment.
"L/C Obligations" means at any time the sum of (a) the
aggregate undrawn amount of all Letters of Credit then outstanding,
plus (b) the amount of all unreimbursed drawings under all Letters of
Credit, including all outstanding L/C Borrowings.
"L/C-Related Documents" means the Letters of Credit, the L/C
Applications, the L/C Amendment Applications and any other document
relating to any Letter of Credit, including any of the Issuing Bank's
standard form documents for letter of credit issuances.
"Lending Office" means, as to any Bank, the office or offices
of such Bank specified as its "Lending Office" on Schedule 11.2, or
such other office or offices as such Bank may from time to time notify
the Borrower and the Agent.
"Letters of Credit" means any letters of credit (whether
standby letters of credit or commercial documentary letters of credit)
Issued by the Issuing Bank pursuant to Article III and, as of the
Termination Date, the Existing BofA Letters of Credit.
"Lien" means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement,
encumbrance, lien (statutory or other) or preferential arrangement of
any kind or nature whatsoever in respect of any property (including
those created by, arising under or evidenced by any conditional sale
or other title retention agreement, the interest of a lessor under a
Capital Lease, any financing lease having substantially the same
economic effect as any of the foregoing, or the filing of any
financing statement naming the owner of the asset to which such lien
relates as debtor, under the Uniform Commercial Code or any comparable
law) and any contingent or other agreement to provide any of the
foregoing, but not including the interest of a lessor under an
Operating Lease.
"Loan" means an extension of credit by a Bank or the Swingline
Bank to the Borrower under Article II or Article III in the form of a
Revolving Loan, Swingline Loan or L/C Advance.
11.
<PAGE> 18
"Loan Documents" means this Agreement, any Notes, the
L/C-Related Documents, and all other documents delivered to the Agent
or any Bank in connection herewith.
"Margin Stock" means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
"Material Adverse Effect" means (a) a material adverse change
in, or a material adverse effect upon, the operations, business,
properties, condition (financial or otherwise) or prospects of the
Borrower and its Subsidiaries taken as a whole; (b) a material
impairment of the ability of the Borrower to perform under any Loan
Document and to avoid any Event of Default; or (c) a material adverse
effect upon the legality, validity, binding effect or enforceability
against the Borrower of any Loan Document.
"Material Subsidiary" means any Subsidiary that at any time
either (a) owns or holds title to 5% or more of the Consolidated
assets of the Borrower and its Consolidated Subsidiaries or (b)
accounts for 5% or more of the Consolidated revenue of the Borrower
and its Consolidated Subsidiaries, in each case as determined in
accordance with GAAP.
"Multicurrency Note Purchase Facility" means the facility
pursuant to the Contingent Multicurrency Note Purchase Commitment
Agreement dated as of December 12, 1996 (as amended, restated,
modified or supplemented from time to time) between Borrower and BofA,
whereby BofA has agreed to purchase certain notes of the Borrower
subject, in certain cases, to collateralization in cash and other
investments or any similar facility designed to accomplish the same
objectives.
"Multiemployer Plan" means a "multiemployer plan", within the
meaning of Section 4001(a)(3) of ERISA, to which the Borrower or any
ERISA Affiliate makes, is making, or is obligated to make
contributions or, during the preceding three calendar years, has made,
or been obligated to make, contributions.
"Net Income" means, with respect to any Person for any period,
net income of such Person, as determined by such Person in accordance
with GAAP.
"Net Loss" means, with respect to any Person for any period,
negative Net Income of such Person, as determined by such Person in
accordance with GAAP.
"Note" means a promissory note executed by the Borrower in
favor of a Bank pursuant to subsection 2.2(b), in substantially the
form of Exhibit F.
"Notice of Borrowing" means a notice in substantially the form
of Exhibit A.
"Notice of Conversion/Continuation" means a notice in
substantially the form of Exhibit B.
"Obligations" means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document
owing by the Borrower to any Bank, the Issuing
12.
<PAGE> 19
Bank, the Swingline Bank, the Agent, or any Indemnified Person,
whether direct or indirect (including those acquired by assignment),
absolute or contingent, due or to become due, now existing or
hereafter arising.
"Offshore Rate": For any Interest Period, with respect to
Offshore Rate Loans comprising part of the same Borrowing, the rate
equal to (A) (i) the rate of interest per annum determined by the
Agent to be the rate of interest per annum appearing on Telerate
display page 3750 (or such other display page on the Telerate System
as may replace such page) for Dollar deposits in an amount
substantially equal to the proposed Offshore Rate Loan to be made,
continued or converted by Agent, in its individual capacity, and
having a maturity comparable to such Interest Period, at approximately
11:00 a.m. (London time) two Business Days prior to the commencement
of such Interest Period, subject to clause (ii) below; or (ii) if for
any reason the rate is not available as provided in the preceding
clause (i) of this definition, the "Offshore Rate" instead means the
rate of interest per annum determined by the Agent (rounded to the
next higher 1/16 of 1%) to be the rate at which deposits in Dollars
are offered to prime banks by the principal office of BofA in the
London interbank market, at approximately 11:00 a.m. (London time),
two Business Days before the first day of such Interest Period, in the
approximate amount of the Offshore Rate Loan to be made by BofA and
for a period of time comparable to such Interest Period; divided by
(B) a number equal to 1.00 minus the aggregate (but without
duplication) of the rate (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two Business Days prior to
the commencement of such Interest Period (including basic,
supplemental, marginal and emergency reserves under any regulations of
the Board of Governors of the Federal Reserve System or other
governmental authority having jurisdiction with respect thereto, as in
effect at the time BofA quotes its rate to the Agent) for Eurocurrency
funding of domestic assets (currently referred to as "Eurocurrency
liabilities" in Regulation D of such Board) that are required to be
maintained by a member bank of such System. The determination of the
Offshore Rate by the Agent shall be conclusive in the absence of
manifest error.
"Offshore Rate Loan" means a Loan that bears interest based on
the Offshore Rate.
"Operating Lease" means, for any Person, any lease of any
property of any kind by that Person as lessee which is not a Capital
Lease.
"Operating Loss" of any Person means, as of the date of
determination, operating losses as calculated in accordance with GAAP.
"Organization Documents" means, for any corporation, the
certificate or articles of incorporation, the bylaws, any certificate
of determination or instrument relating to the rights of preferred
shareholders of such corporation, any shareholder rights agreement,
and all applicable resolutions of the board of directors (or any
committee thereof) of such corporation.
"Participant" has the meaning specified in subsection 11.8(d).
13.
<PAGE> 20
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions
under ERISA.
"Pension Plan" means a pension plan (as defined in Section
3(2) of ERISA) subject to Title IV of ERISA which the Borrower
sponsors, maintains, or to which it makes, is making, or is obligated
to make contributions, or in the case of a multiple employer plan (as
described in Section 4064(a) of ERISA) has made contributions at any
time during the immediately preceding five (5) plan years.
"Permitted Liens" has the meaning specified in Section 8.1.
"Permitted Receivable" shall mean at any time a Receivable
which constitutes an "account," "chattel paper" or a "general
intangible" and any "proceeds" thereof (each as defined in the UCC)
and collections thereon, which has been sold by the Borrower to BofA
or any of its Affiliates pursuant to the Permitted Receivables
Purchase Facility with or without recourse.
"Permitted Receivables Purchase Facility" shall mean that
certain Multicurrency Receivables Transfer Agreement dated January 29,
1996, as amended, which will terminate on January 31, 1998, between
the Borrower and BofA pursuant to which Permitted Receivables may be
sold or otherwise transferred by the Borrower to BofA or any Affiliate
of BofA, provided, that the aggregate purchase price paid therefor
shall not exceed $40,000,000 (with the aggregate face value thereof
not to exceed at any time outstanding $50,000,000).
"Permitted Swap Obligations" means all obligations (contingent
or otherwise) of the Borrower or any Subsidiary existing or arising
under Swap Contracts, provided that such obligations are (or were)
entered into in connection with a bona fide hedging operation that
provides offsetting benefits to such Person.
"Person" means an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or
any other entity of whatever nature.
"Plan" means an employee benefit plan (as defined in Section
3(3) of ERISA) which the Borrower sponsors or maintains or to which
the Borrower makes, is making, or is obligated to make contributions
and includes any Pension Plan.
"Prior Credit Agreement" has the meaning specified in the
recitals hereto.
"Prior Loan Documents" has the meaning specified in the
recitals hereto.
"Pro Rata Share" means, as to any Bank at any time, the
percentage equivalent (expressed as a decimal, rounded to the ninth
decimal place) at such time of such Bank's Commitment divided by the
combined Commitments of all Banks (or, if all Commitments have been
terminated, the aggregate principal amount of such Bank's Loans
divided by the aggregate principal amount of the Loans then held by
all Banks).
14.
<PAGE> 21
The initial Pro Rata Share of each Bank is set forth opposite such
Bank's name in Schedule 2.1 under the heading Pro Rata Share.
"Receivable" means any right to payment from an account
receivable obligor, arising from the sale of goods or services or the
licensing of intellectual property rights by the Borrower in the
ordinary course of its business.
"Reportable Event" means, any of the events set forth in
Section 4043(c) of ERISA or the regulations thereunder, other than any
such event for which the 30-day notice requirement under ERISA has
been waived in regulations issued by the PBGC.
"Required Banks" means at any time Banks then holding at least
51% of the aggregate amount of the Commitments or, if no Commitments
are outstanding, Banks then having at least 51% of the then aggregate
unpaid principal amount of the Loans (including the Swingline Loans).
"Requirement of Law" means, as to any Person, any law
(statutory or common), treaty, rule or regulation or determination of
an arbitrator or of a Governmental Authority, in each case applicable
to or binding upon the Person or any of its property or to which the
Person or any of its property is subject.
"Responsible Officer" means, with respect to the Borrower, the
chief executive officer, the president, any vice president, the
treasurer, chief operating officer or chief financial officer,
assistant treasurer, or the secretary of the Borrower, or any other
officer having substantially the same authority and responsibility;
or, with respect to compliance with financial covenants, the chief
financial officer, assistant treasurer or the treasurer of the
Borrower, or any other officer having substantially the same authority
and responsibility.
"Revolving Loan" has the meaning specified in Section 2.1, and
may be a Base Rate Loan or an Offshore Rate Loan (each, a "Type" of
Revolving Loan).
"Revolving Termination Date" means the earlier to occur of:
(a) October 23, 2001; and
(b) the date on which the Commitments terminate in
accordance with the provisions of this Agreement.
"SEC" means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal functions.
"Subordinated Indebtedness" means Indebtedness which is
expressly subordinated to the Obligations on terms consented to in
writing by the Required Banks.
"Subsidiary" of a Person means any corporation, association,
partnership, limited liability company, joint venture, trust or other
business entity of which more than 50% of
15.
<PAGE> 22
the voting stock, membership interests or other equity interests (in
the case of Persons other than corporations), is owned or controlled
directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof. Unless the
context otherwise clearly requires, references herein to a
"Subsidiary" refer to a Subsidiary of the Borrower.
"Surety Instruments" means all letters of credit (including
standby and commercial), banker's acceptances, bank guaranties,
shipside bonds, surety bonds and similar instruments.
"Swap Contract" means any agreement, whether or not in
writing, relating to any transaction that is a rate swap, basis swap,
forward rate transaction, commodity swap, commodity option, equity or
equity index swap or option, bond, note or bill option, interest rate
option, forward foreign exchange transaction, cap, collar or floor
transaction, currency swap, cross-currency rate swap, swaption,
currency option or any other, similar transaction (including any
option to enter into any of the foregoing) or any combination of the
foregoing, and, unless the context otherwise clearly requires, any
master agreement relating to or governing any or all of the foregoing.
"Swingline Bank" means BofA.
"Swingline Commitment" has the meaning specified in Section
2.10(a).
"Swingline Loan" has the meaning specified in Section 2.10(a).
"Tangible Net Worth" means, with respect to any Person as of
any date of determination, Total Assets of such Person as of such date
minus Total Liabilities of such Person as of such date and minus the
carrying value of (a) goodwill, organizational expenses, patents,
patent applications, trademarks, trademark applications, trade names,
service marks, service mark applications, copyrights, designs and
other intellectual property and licenses therefor and rights therein,
and other similar intangibles, (b) all amortizing debt issuance
expenses carried as an asset, (c) all reserves carried and not
deducted from assets or not reflected as a liability, and (d) cash
held in a sinking or other analogous fund established for the purpose
of redemption, retirement or prepayment of any capital stock or any
Indebtedness or Contingent Obligation, if no offsetting liability
exists with respect to such Indebtedness or Contingent Obligation on
the balance sheet of such Person.
"Taxes" means any and all present or future taxes (including
any taxes on any additional amounts required to be paid to the Agent
or the Banks), levies, assessments, imposts, duties, deductions, fees,
withholdings or similar charges, and all liabilities with respect
thereto, excluding, in the case of each Bank and the Agent,
respectively, (a) taxes imposed on its income by the United States and
taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which such Bank or the Agent (as the
case may be) is organized or any political subdivision thereof, and
(b)
16.
<PAGE> 23
taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction of such Bank's Lending Office, or any political
subdivision thereof.
"Termination Date" means the date on which the Prior Credit
Agreement is terminated and fully discharged.
"Total Assets" of any Person means all property, whether real,
personal, tangible, intangible or otherwise, which, in accordance with
GAAP, should be included in determining total assets as shown on the
assets portion of a balance sheet of such Person.
"Total Capital" of any Person means the sum of the
Consolidated Tangible Net Worth of such Person plus Consolidated Total
Debt of such Person.
"Total Debt" means, with respect to any Person, all
Indebtedness of such person incurred for borrowed money plus, without
duplication, all reimbursement obligations in respect of letters of
credit plus all obligations outstanding pursuant to the Multicurrency
Note Purchase Facility.
"Total Leverage Ratio" means, with respect to any Person, the
ratio that (i) Consolidated Total Debt bears to (ii) Total Capital of
such Person.
"Total Liabilities" of any Person means all obligations,
including, without limitation, all Indebtedness (other than Guaranty
Obligations) of such Person, which, in accordance with GAAP, should be
included in determining total liabilities as shown on the liabilities
portion of a balance sheet of such Person.
"Total Commitment Amount" means the total amount of
Commitments available hereunder during the following periods:
<TABLE>
<CAPTION>
Period Total Commitment Amount
------ -----------------------
<S> <C> <C>
(1) Closing Date to December 31, 1998 $350,000,000
(2) December 31, 1998 to March 31, 1999 $337,500,000
(3) March 31, 1999 to June 30, 1999 $325,000,000
(4) June 30, 1999 to September 30, 1999 $312,500,000
(5) September 30, 1999 to December 31, 1999 $300,000,000
(6) December 31, 1999 to March 31, 2000 $287,500,000
(7) March 31, 2000 to June 30, 2000 $275,000,000
(8) June 30, 2000 to September 29, 2000 $262,500,000
(9) September 29, 2000 to December 29, 2000 $250,000,000
(10) December 29, 2000 to March 30, 2001 $237,500,000
(11) March 30, 2001 to June 29, 2001 $225,000,000
(12) June 29, 2001 to September 28, 2001 $212,500,000
(13) September 28, 2001 to Revolving Termination Date $200,000,000
(14) Revolving Termination Date $0
</TABLE>
"Type" has the meaning specified in the definition of
"Revolving Loan."
17.
<PAGE> 24
"UCC" means the Uniform Commercial Code as in effect in the
State of California.
"Unfunded Pension Liability" means the excess of a Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the
current value of that Plan's assets, determined in accordance with the
assumptions used for funding the Pension Plan pursuant to Section 412
of the Code for the applicable plan year.
"United States" and "U.S." each means the United States of
America.
"Wholly Owned Subsidiary" means any corporation in which 100%
of the capital stock of each class having ordinary voting power, and
100% of the capital stock of every other class, in each case, at the
time as of which any determination is being made, is owned,
beneficially and of record, by the Borrower, or by one or more of the
other Wholly Owned Subsidiaries, or both; provided that, as to foreign
Subsidiaries this definition means any corporation in which at least
99% of the capital stock of each class having ordinary voting power
and at least 99% of the capital stock of every other class, at the
time as of which any determination is made, in each case is owned
beneficially and of record by the Borrower or one or more of the other
Wholly Owned Subsidiaries or both.
1.2 Other Interpretive Provisions. (a) The meanings of defined
terms are equally applicable to the singular and plural forms of the defined
terms.
(b) The words "hereof," "herein," "hereunder" and similar
words refer to this Agreement as a whole and not to any particular provision of
this Agreement; and subsection, Section, Schedule and Exhibit references are to
this Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all
instruments, documents, agreements, certificates, indentures, notices
and other writings, however evidenced.
(ii) The term "including" is not limiting and
means "including without limitation."
(iii) In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from
and including"; the words "to" and "until" each mean "to but
excluding", and the word "through" means "to and including."
(iv) The term "property" includes any kind of
property or asset, real, personal or mixed, tangible or intangible.
(d) Unless otherwise expressly provided herein, (i)
references to agreements (including this Agreement) and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of any Loan Document, and (ii)
references to any statute or regulation are to be construed as including all
statutory and regulatory
18.
<PAGE> 25
provisions consolidating, amending, replacing, supplementing or interpreting
the statute or regulation.
(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(f) This Agreement and other Loan Documents may use
several different limitations, tests or measurements to regulate the same or
similar matters. All such limitations, tests and measurements are cumulative
and shall each be performed in accordance with their terms. Unless otherwise
expressly provided, any reference to any action of the Agent, the Issuing Bank,
the Swingline Bank or the Banks by way of consent, approval or waiver shall be
deemed modified by the phrase "in its/their sole discretion."
(g) This Agreement and the other Loan Documents are the
result of negotiations among the Agent, the Issuing Bank, the Swingline Bank,
the Borrower and the other parties, have been reviewed by counsel to the Agent,
the Borrower and such other parties, and are the product of all parties.
Accordingly, they shall not be construed against the Banks, the Issuing Bank,
the Swingline Bank or the Agent merely because of the Agent's or Banks'
involvement in their preparation.
1.3 Accounting Principles. (a) Unless the context otherwise
clearly requires, all accounting terms not expressly defined herein shall be
construed, and all financial computations required under this Agreement shall
be made, in accordance with GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal
quarter" refer to such fiscal periods of the Borrower.
19.
<PAGE> 26
ARTICLE II
THE CREDITS
2.1 Amounts and Terms of Commitment. Each Bank severally agrees,
on the terms and conditions set forth herein, to make loans to the Borrower
(each such loan, a "Revolving Loan") from time to time on any Business Day
during the period from the Closing Date to the Revolving Termination Date, in
an aggregate amount not to exceed at any time outstanding the amount set forth
on Schedule 2.1 under the heading "Commitment" (such amount, inclusive of such
Bank's L/C Commitment and, in the case of BofA, its Swingline Commitment, as
the same may be reduced under Section 2.5 and Section 2.7 or reduced or
increased as a result of one or more assignments under Section 11.8, the Bank's
"Commitment"); provided, however, that, after giving effect to any Borrowing of
Revolving Loans, (i) the Effective Amount of all outstanding Revolving Loans,
the Effective Amount of all Swingline Loans and the Effective Amount of all L/C
Obligations, shall not at any time exceed the Total Commitment Amount; and (ii)
the Effective Amount of the Revolving Loans of any Bank and the Effective
Amount of all Swingline Loans of any Bank plus the participation of such Bank
in the Effective Amount of all L/C Obligations shall not at any time exceed
such Bank's Commitment (except for BofA, but solely with respect to its
Swingline Commitment), as such Bank's Commitment may be reduced hereunder.
Within the limits of each Bank's Commitment, and subject to the other terms and
conditions hereof, the Borrower may borrow under this Section 2.1, prepay under
Section 2.6 and reborrow under this Section 2.1.
2.2 Loan Accounts. (a) The Loans made by each Bank (including the
Swingline Bank) and the Letters of Credit Issued by the Issuing Bank shall be
evidenced by one or more accounts or records maintained by such Bank or Issuing
Bank, as the case may be, in the ordinary course of business. The accounts or
records maintained by the Agent, the Issuing Bank and each Bank (including the
Swingline Bank) shall be conclusive absent manifest error of the amount of the
Loans made by the Banks (including the Swingline Bank) to the Borrower and the
Letters of Credit Issued for the account of the Borrower, and the interest and
payments thereon. Any failure so to record or any error in doing so shall not,
however, limit or otherwise affect the obligation of the Borrower hereunder to
pay any amount owing with respect to the Loans or any Letter of Credit.
(b) Upon the request of any Bank made through the Agent,
the Loans made by such Bank may be evidenced by one or more Notes,
instead of or in addition to loan accounts. Each such Bank shall
endorse on the schedules annexed to its Notes the date, amount and
maturity of each Loan made by it and the amount of each payment of
principal made by the Borrower with respect thereto. Each such Bank
is irrevocably authorized by the Borrower to endorse its Notes and
each Bank's record shall be conclusive absent manifest error;
provided, however, that the failure of a Bank to make, or an error in
making, a notation thereon with respect to any Loan shall not limit or
otherwise affect the obligations of the Borrower hereunder or under
any such Note to such Bank.
20.
<PAGE> 27
2.3 Procedure for Borrowing. (a) Each Borrowing of Revolving
Loans shall be made upon the Borrower's irrevocable written notice delivered to
the Agent in the form of a Notice of Borrowing (which notice must be received
by the Agent prior to 9:00 a.m. San Francisco time) (i) three Business Days
prior to the requested Borrowing Date, in the case of Offshore Rate Loans; and
(ii) on the Business Day which is the requested Borrowing Date, in the case of
Base Rate Loans, specifying:
(A) the amount of the Borrowing,
which shall be in an aggregate minimum amount of
$10,000,000 or any integral multiple of $1,000,000 in
excess thereof;
(B) the requested Borrowing Date,
which shall be a Business Day;
(C) the Type of Loans comprising
the Borrowing; and
(D) the duration of the Interest
Period applicable to such Loans included in such
notice. If the Notice of Borrowing fails to specify
the duration of the Interest Period for any Borrowing
comprised of Offshore Rate Loans, such Interest
Period shall be one month.
provided, however, that with respect to the Borrowing to be made on the Closing
Date, the Notice of Borrowing shall be delivered to the Agent not later than
9:00 a.m. (San Francisco time) one Business Day before the Closing Date and
such Borrowing will consist of Base Rate Loans only.
(b) The Agent will promptly notify each Bank of its
receipt of any Notice of Borrowing and of the amount of such Bank's Pro Rata
Share of that Borrowing.
(c) Each Bank will make the amount of its Pro Rata Share
of each Borrowing available to the Agent for the account of the Borrower at the
Agent's Payment Office by 11:00 a.m. (San Francisco time) on the Borrowing Date
requested by the Borrower in funds immediately available to the Agent. The
proceeds of all such Loans will then be made available to the Borrower by the
Agent by (i) wire transfer of immediately available funds to the Borrower at,
Harris Trust, ABA No. 071 000 288, Account No. 4191706, for credit to Storage
Technology Corporation or such other account as the Borrower shall specify to
the Agent or (ii) at the option of the Borrower, by crediting the account of
the Borrower on the books of BofA with the aggregate of the amounts made
available to the Agent by the Banks and, in each case, in like funds as
received by the Agent.
(d) After giving effect to any Borrowing, unless the
Agent shall otherwise consent, there may not be more than five different
Interest Periods in effect.
(e) Any Notice of Borrowing received after the time noted
in subsection 2.3(a) but prior to 5:00 p.m. (San Francisco time) on any
Business Day, shall be deemed to have been received prior to 9:00 a.m. (San
Francisco time) on the next Business Day.
21.
<PAGE> 28
2.4 Conversion and Continuation Elections. (a) The Borrower may
with respect to its Loans, upon irrevocable written notice to the Agent in
accordance with subsection 2.4(b):
(i) elect, as of any Business Day, in the case of
Base Rate Loans, or as of the last day of the applicable Interest
Period, in the case of any other Type of Revolving Loans, to convert
any such Revolving Loans (or any part thereof in an amount not less
than $10,000,000, or that is in an integral multiple of $1,000,000 in
excess thereof) into Revolving Loans of any other Type; or
(ii) elect as of the last day of the applicable
Interest Period, to continue any Revolving Loans having Interest
Periods expiring on such day (or any part thereof in an amount not
less than $10,000,000, or that is in an integral multiple of
$1,000,000 in excess thereof);
provided, that if at any time the aggregate amount of Offshore Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $10,000,000, such Offshore Rate Loans shall
automatically convert into Base Rate Loans, and on and after such date the
right of the Borrower to continue such Revolving Loans as, and convert such
Loans into, Offshore Rate Loans shall terminate.
(b) The Borrower shall deliver a Notice of
Conversion/Continuation to be received by the Agent not later than 9:00 a.m.
(San Francisco time) with respect to its Revolving Loans at least (i) three
Business Days in advance of the Conversion/Continuation Date, if the Revolving
Loans of the Borrower are to be converted into or continued as Offshore Rate
Loans; and (ii) on the Conversion/Continuation Date, if the Revolving Loans of
the Borrower are to be converted into Base Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Revolving Loans to be
converted or continued;
(C) the Type of Revolving Loans resulting from
the proposed conversion or continuation; and
(D) other than in the case of conversions into
Base Rate Loans, the duration of the requested Interest
Period.
(c) If upon the expiration of any Interest Period
applicable to Offshore Rate Loans of the Borrower, the Borrower has failed to
select timely a new Interest Period to be applicable to such Offshore Rate
Loans or if any Default or Event of Default then exists, the Borrower shall be
deemed to have elected to convert such Offshore Rate Loans into Base Rate Loans
effective as of the expiration date of such Interest Period.
(d) The Agent will promptly notify each Bank of its
receipt of a Notice of Conversion/Continuation, or, if no timely notice is
provided by the Borrower, the Agent will promptly notify each Bank of the
details of any automatic conversion. All conversions and
22.
<PAGE> 29
continuations shall be made ratably according to the respective outstanding
principal amounts of the Revolving Loans with respect to which the notice was
given held by each Bank.
(e) Unless the Required Banks otherwise consent, during
the existence of a Default or Event of Default, the Borrower may not elect to
have Loans converted into or continued as an Offshore Rate Loans.
(f) After giving effect to any conversion or continuation
of Revolving Loans, unless the Agent shall otherwise consent, there may not be
more than five different Interest Periods for all Loans in effect.
2.5 Voluntary Termination or Reduction of Commitments.
(a) Termination or Reduction of Commitments. The
Borrower may, upon not less than five Business Days' prior notice to the Agent,
terminate the Commitments, or permanently reduce the Commitments by an
aggregate minimum amount of $10,000,000 or any integral multiple of $1,000,000
in excess thereof; unless, after giving effect thereto and to any prepayments
of any Loans made on the effective date thereof, (a) the Effective Amount of
all Revolving Loans, Swingline Loans and L/C Obligations together would exceed
the amount of the combined Commitments then in effect, or (b) the Effective
Amount of all L/C Obligations then outstanding would exceed the L/C Commitment.
Once reduced in accordance with this Section, the Commitments may not be
increased or reinstated. Any reduction of the Commitments shall be applied to
each Bank's Commitment according to its Pro Rata Share. If and to the extent
specified by the Borrower in the notice to the Agent, some or all of the
reduction in the combined Commitments shall be applied to reduce the L/C
Commitment. All accrued commitment and letter of credit fees to, but not
including, the effective date of any termination of Commitments shall be paid
on the effective date of such termination.
(b) Automatic Reduction of Swingline Commitment. At no
time shall the Swingline Commitment exceed the combined amount of all
Commitments, and any reduction of the combined amount of all Commitments which
reduces the combined amount of all Commitments below the then current amount of
the Swingline Commitment shall result in an automatic corresponding reduction
of the Swingline Commitment to the amount of the combined Commitments, as so
reduced, without any action on the part of the Swingline Bank.
2.6 Optional Prepayments. Subject to Section 4.4, the Borrower
may, at any time or from time to time, upon delivery of an irrevocable Notice
of Prepayment to the Agent prior to 9:00 a.m. (San Francisco time) (a) not less
than three Business Days prior to the date of prepayment in the case of
Offshore Rate Loans, and (b) the same day as the date of prepayment in the case
of Base Rate Loans,
(i) ratably prepay Revolving Loans in whole or in
part, in minimum amounts of $10,000,000 or any integral multiple of
$1,000,000 in excess thereof, and
23.
<PAGE> 30
(ii) prepay in whole or in part Swingline Loans,
in amounts of $1,000,000 or any integral multiple of $100,000 in
excess thereof, or in other amounts with the consent of the Swingline
Bank.
Any notice of prepayment received after 9:00 a.m. (San
Francisco time) on a Business Day but prior to 5:00 p.m. (San Francisco time)
on such Business Day shall be deemed to have been given prior to 9:00 a.m. (San
Francisco time) on the next Business Day. Any such notice of prepayment shall
specify the date and amount of such prepayment and the Type(s) of Loans to be
prepaid.
The Agent will promptly notify each Bank of its receipt of any
such notice, and of such Bank's Pro Rata Share of such prepayment other than
for prepayments of Swingline Loans. If any such notice is given the Borrower
shall make such prepayment and the payment amount specified in such notice
shall be due and payable on the date specified therein, together with accrued
interest to each such date on the amount prepaid and any amounts required
pursuant to Section 4.4.
2.7 Mandatory Prepayments of Loans; Mandatory Commitment
Reductions.
(a) If, on any date that the Total Commitment Amount
automatically decreases pursuant to the terms hereof, the amount of Loans
outstanding exceeds the then-permitted Total Commitment Amount, the Borrower
shall immediately pay such excess amount to the Agent for the ratable benefit
of the Banks. As the Total Commitment Amount available hereunder is reduced,
each Bank's Commitment amount hereunder shall be automatically reduced in
accordance with its Pro Rata Share of the Total Commitment Amount.
(b) If on any date on or prior to the Revolving
Termination Date the Effective Amount of L/C Obligations exceeds the L/C
Commitment, the Borrower shall Cash Collateralize on such date the outstanding
Letters of Credit in an amount equal to the excess of the maximum amount then
available to be drawn under the Letters of Credit over the aggregate L/C
Commitment. Subject to Section 4.4, if on any date after giving effect to any
Cash Collateralization made on such date pursuant to the preceding sentence,
the Effective Amount of all Revolving Loans and Swingline Loans then
outstanding plus the Effective Amount of all L/C Obligations exceeds the
combined Commitments, the Borrower shall immediately, and without notice or
demand, prepay the outstanding principal amount of the Revolving Loans, L/C
Advances and Swingline Loans (as necessary) by an amount equal to the
applicable excess. Additionally, to the extent the Borrower receives any
payments with respect to purchases of Permitted Receivables under the Permitted
Receivables Purchase Facility from BofA or any Affiliate, such payments shall
be immediately used, without demand or notice from any Person, by the Borrower
to prepay the amount of Revolving Loans, L/C Advances and Swingline Loans (as
necessary) by the amounts of any such payments.
2.8 Repayment. The Borrower agrees to repay to the Banks on the
Revolving Termination Date the aggregate principal amount of its Loans
(together with accrued interest and fees thereon) outstanding on such date.
Additionally, with respect to Swingline Loans, the Borrower agrees to repay to
the Swingline Bank the principal amount of each Swingline Loan
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(together with accrued interest and fees thereon) no later than the seventh
Business Day after the date each such Swingline Loan was made.
2.9 Interest. (a) Each Revolving Loan and Swingline Loan shall
bear interest on the outstanding principal amount thereof from the applicable
Borrowing Date at a rate per annum equal to the Offshore Rate or the Base Rate
as the case may be (provided that with respect to Swingline Loans interest
shall only be at the Base Rate unless and until the Swingline Bank agrees to a
different basis pursuant to Section 2.10(a)) and subject also to the Borrower's
right to convert to other Types of Revolving Loans under Section 2.4), plus the
Applicable Margin.
(b) Interest on each Revolving Loan and Swingline Loan of
the Borrower shall be paid by the Borrower in arrears on each Interest Payment
Date. Interest shall also be paid on the date of any prepayment of Loans
(other than Base Rate Loans) under Section 2.6 or 2.7 for the portion of the
Loans so prepaid and upon payment (including prepayment) in full thereof and,
during the existence of any Event of Default, interest shall be paid on demand
of the Agent at the request or with the consent of the Required Banks.
(c) Notwithstanding subsection (a) of this Section, while
any Event of Default exists or after acceleration, the Borrower shall pay
interest (after as well as before entry of judgment thereon to the extent
permitted by law) on the principal amount of all outstanding Obligations, at a
rate per annum which is determined by adding 2% per annum to the Applicable
Margin then in effect for such Loans (other than Base Rate Loans) and, in the
case of Obligations not subject to an Applicable Margin, at a fluctuating rate
per annum equal to the Base Rate plus 2%; provided, however, that, on and after
the expiration of any Interest Period applicable to any Offshore Rate Loan
outstanding on the date of occurrence of such Event of Default or acceleration,
the principal amount of such Loan shall, during the continuation of such Event
of Default or after acceleration, bear interest at a fluctuating rate per annum
equal to the Base Rate plus 2%.
(d) Anything herein to the contrary notwithstanding, the
obligations of the Borrower to any Bank hereunder shall be subject to the
limitation that payments of interest shall not be required for any period for
which interest is computed hereunder, to the extent (but only to the extent)
that contracting for or receiving such payment by such Bank would be contrary
to the provisions of any law applicable to such Bank limiting the highest rate
of interest that may be lawfully contracted for, charged or received by such
Bank, and in such event the Borrower shall pay such Bank interest at the
highest rate permitted by applicable law.
(e) Subject to the effect of subsection 2.9(a), the
Applicable Margin will be determined by the Agent from time to time in
accordance with the pricing grid set forth in Schedule 2.9(e) based on the most
recent Compliance Certificate delivered by the Borrower pursuant hereto. Such
determination shall be based on the calculations as set forth in such
Compliance Certificate and shall apply from the first Business Day after the
Agent receives such Compliance Certificate until and through the Business Day
when the Agent receives the applicable Compliance Certificate for the next
fiscal quarter.
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The initial Applicable Margin, applicable from the Closing
Date to the date of delivery of the Compliance Certificate hereunder for the
fiscal quarter ending December 1997, shall be as set forth in the Note to
Schedule 2.9(e).
2.10 Swingline Loans.
(a) Subject to the terms and conditions hereof, the
Swingline Bank severally agrees to make a portion of the combined Commitments
available to the Borrower by making swingline loans (individually, a "Swingline
Loan"; collectively, the "Swingline Loans") to the Borrower on any Business Day
during the period from the Closing Date to the Revolving Termination Date in
accordance with the procedures set forth in this Section in an aggregate
principal amount at any one time outstanding not to exceed $25,000,000
notwithstanding the fact that such Swingline Loans, when aggregated with the
Swingline Bank's outstanding Revolving Loans, may exceed the Swingline Bank's
Commitment (the amount of such commitment of the Swingline Bank to make
Swingline Loans to the Borrower pursuant to this subsection 2.10(a), as the
same shall be reduced pursuant to subsection 2.5(b) and Section 2.7 or as a
result of any assignment pursuant to Section 11.8, the Swingline Bank's
"Swingline Commitment"); provided, that at no time shall (i) the sum of the
Effective Amount of all Swingline Loans plus the Effective Amount of all
Revolving Loans plus the Effective Amount of all L/C Obligations exceed the
total of all Commitments, or (ii) the Effective Amount of all Swingline Loans
exceed the Swingline Commitment. Additionally, no more than an aggregate of
three Swingline Loans may be outstanding at any one time, and all Swingline
Loans shall at all times be Base Rate Loans unless otherwise agreed to by the
Swingline Bank in its sole discretion. Within the foregoing limits, and
subject to the other terms and conditions hereof, the Borrower may borrow under
this subsection 2.10(a), prepay pursuant to Section 2.6 and reborrow pursuant
to this subsection 2.10(a).
(b) Each borrowing of a Swingline Loan shall be made upon
the Borrower's irrevocable written notice to the Agent (with a copy to the
Swingline Bank) in the form of a Notice of Borrowing of any Swingline Loan
requested hereunder specifying (i) the amount to be borrowed, and (ii) the
requested Borrowing date, which must be a Business Day (which notice must be
received by the Swingline Bank and the Agent prior to 9:00 a.m. (San Francisco
time) on the requested Borrowing date; any notice received by the Swingline
Bank after 9:00 a.m. (San Francisco time) on a Business Day but before 5:00
p.m. (San Francisco time) on such Business Day shall be deemed to be received
by 9:00 a.m. (San Francisco time) on the next Business Day).
Upon receipt of the Notice of Borrowing, the Swingline Bank
will immediately confirm with the Agent (by telephone or in writing) that the
Agent has received a copy of the Notice of Borrowing from the Borrower and, if
not, the Swingline Bank will provide the Agent with a copy thereof.
Unless the Swingline Bank has received notice prior to 11:30
a.m. on such Borrowing date from the Agent or any Bank (A) directing the
Swingline Bank not to make the requested Swingline Loan as a result of the
limitations set forth in the proviso set forth in the first sentence of
subsection 2.10(a); or (B) that one or more conditions specified in Article V
are not then satisfied; then, subject to the terms and conditions hereof, the
Swingline Bank will, not later
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than 12:30 p.m. (San Francisco time) on the Borrowing date specified in such
Notice, make the amount of its Swingline Loan available to the Agent for the
account of the Borrower at the Agent's Payment Office in funds immediately
available to the Agent. The proceeds of such Swingline Loan will then be made
available to the Borrower by (i) wire transfer of immediately available funds
to the Borrower at, Harris Trust, ABA No. 071 000 288, Account No. 4191706, for
credit to Storage Technology Corporation or such other account as the Borrower
shall specify to the Agent or (ii) at the option of the Borrower by the Agent
crediting the account of the Borrower on the books of BofA with the aggregate
of the amounts made available to the Agent by the Swingline Bank and in like
funds as received by the Agent. Each Borrowing pursuant to this Section shall
be in an aggregate principal amount equal to $1,000,000 or an integral multiple
of $100,000 in excess thereof, unless otherwise agreed by the Swingline Bank.
(c) The Borrower agrees to repay any Swingline Loan to
the Swingline Bank when required by Section 2.8.
(d) If any Swingline Loans shall remain outstanding
during the existence of a Default or Event of Default and the Swingline Bank
shall in its sole discretion notify the Agent that the Swingline Bank desires
that such Swingline Loans be converted into Revolving Loans, then the Agent
shall be deemed to have received a Notice of Borrowing from the Borrower
pursuant to Section 2.3 requesting that Base Rate Loans be made pursuant to
Section 2.1 on the first Business Day subsequent to the date of such notice
from the Swingline Bank in an amount equal to the aggregate amount of such
Swingline Loans, and the procedures set forth in subsections 2.3(b) and 2.3(c)
shall be followed in making such Base Rate Loans; provided, that such Base Rate
Loans shall be made notwithstanding the Borrower's failure to comply with
subsections 5.2(b) and 5.2(c); and provided, further, that if a Borrowing of
Revolving Loans becomes legally impracticable and if so required by the
Swingline Bank at the time such Revolving Loans are required to be made by the
Banks in accordance with this subsection 2.10(d), each Bank agrees that in lieu
of making Revolving Loans as described in this subsection 2.10(d), such Bank
shall purchase a participation from the Swingline Bank in the applicable
Swingline Loans in an amount equal to such Bank's Pro Rata Share of such
Swingline Loans, and the procedures set forth in subsections 2.3(b) and 2.3(c)
shall be followed in connection with the purchases of such participations.
Upon such purchases of participations the prepayment requirements of subsection
2.10(d) shall be deemed waived with respect to such Swingline Loans. The
proceeds of such Base Rate Loans, or participations purchased, shall be applied
to repay such Swingline Loans.
A copy of each notice given by the Agent to the Banks pursuant
to this subsection 2.10(d) with respect to the making of Revolving Loans, or
the purchases of participations, shall be promptly delivered by the Agent to
the Borrower. Each Bank's obligation in accordance with this Agreement to make
the Revolving Loans, or purchase the participations, as contemplated by this
subsection 2.10(d), shall be absolute and unconditional and shall not be
affected by any circumstance, including (1) any set-off, counterclaim,
recoupment, defense or other right which such Bank may have against the
Swingline Bank, the Borrower or any other Person for any reason whatsoever; (2)
the occurrence or continuance of a Default, an Event of Default or a Material
Adverse Effect; or (3) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing.
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2.11 Fees. (a) Commitment Fees. In addition to certain fees
described in Section 3.8, the Borrower agrees to pay to the Agent for the
ratable account of each Bank a commitment fee on the average daily unused
portion of such Bank's Commitment, computed on a quarterly basis in arrears on
the last Business Day of each calendar quarter based upon the daily utilization
for that quarter as calculated by the Agent, equal to the amount set forth in
the next paragraph. For purposes of calculation of such unused portion of a
Bank's Commitment, (i) the making of any Swingline Loans shall not be
considered a use of a portion of the Swingline Bank's Commitment, and (ii) each
Bank's Commitment shall be considered used on any date to the extent of its
participation on such date in any Letter of Credit and any L/C Advance made by
it (exclusive of any Swingline Loans).
Such commitment fee shall accrue from the Closing Date to the
Revolving Termination Date and shall be due and payable quarterly in arrears on
(A) the last Business Day of the period ending on December 31, 1997, (B) on the
last Business Day of each calendar quarter commencing after December 31, 1997
and (C) on the Revolving Termination Date; provided that, in connection with
any reduction or termination of Commitments under Section 2.5 or Section 2.7,
the accrued commitment fee calculated for the period ending on such date shall
also be paid on the date of such reduction or termination. The commitment fees
provided in this subsection shall accrue at all times after the above-mentioned
commencement date, including at any time during which one or more conditions in
Article V are not met.
For the period from the Closing Date through the Business Day
when the Agent receives the Borrower's Compliance Certificate for the fiscal
quarter ending December 1997, the Applicable Fee Amount will be the greater of
(i) 0.200% or (ii) the Applicable Fee Amount determined by the Agent in
accordance with the pricing grid set forth in Schedule 2.9(e) based on a
Compliance Certificate of the Borrower for the fiscal quarter ending September
1997 delivered by the Borrower pursuant hereto. Thereafter the Applicable Fee
Amount shall be determined by the Agent from time to time in accordance with
the pricing grid set forth in Schedule 2.9(e) based on the most recent
Compliance Certificate of the Borrower delivered by the Borrower pursuant
hereto. Such determinations shall apply from the first Business Day after the
Agent receives such Compliance Certificate until and through the Business Day
when the Agent receives the applicable Compliance Certificate for the next
fiscal quarter as provided herein.
(b) Arrangement Fee. The Borrower will pay the Agent and
Arranger such other fees as are set forth in that certain fee letter dated
October 22, 1997.
2.12 Computation of Fees and Interest. (a) All computations of
interest for Base Rate Loans when the Base Rate is determined by BofA's
"reference rate" shall be made on the basis of a year of 365 or 366 days, as
the case may be, and actual days elapsed. All other computations of fees and
interest shall be made on the basis of a 360-day year and actual days elapsed
(which results in more interest being paid than if computed on the basis of a
365-day year). Interest and fees shall accrue during each period during which
interest or such fees are computed from the first day thereof to the last day
thereof.
(b) Each determination of an interest rate by the Agent
shall be conclusive and binding on the Borrower and the Banks in the absence of
manifest error.
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2.13 Payments by the Borrower. (a) All payments to be made by the
Borrower shall be made without set-off, recoupment or counterclaim. Except as
otherwise expressly provided herein, all payments by the Borrower shall be made
to the Agent for the account of the Banks at the Agent's Payment Office, and
shall be made in Dollars and in immediately available funds, no later than
10:30 a.m. (San Francisco time) on the date specified herein. The Agent will
promptly distribute to each Bank its Pro Rata Share (or other applicable share
as expressly provided herein) of such payment in like funds as received. Any
payment received by the Agent later than 10:30 a.m. (San Francisco time) shall
be deemed to have been received on the following Business Day and any
applicable interest or fee shall continue to accrue.
(b) Subject to the provisions set forth in the definition
of "Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and
such extension of time shall in such case be included in the computation of
interest or fees, as the case may be.
(c) Unless the Agent receives notice from the Borrower
prior to the date on which any payment is due to the Banks that the Borrower
will not make such payment in full as and when required, the Agent may assume
that the Borrower has made such payment in full to the Agent on such date in
immediately available funds and the Agent may (but shall not be so required),
in reliance upon such assumption, distribute to each Bank on such due date an
amount equal to the amount then due such Bank. If and to the extent the
Borrower has not made such payment in full to the Agent, each Bank shall repay
to the Agent on demand such amount distributed to such Bank, together with
interest thereon at the Federal Funds Rate for each day from the date such
amount is distributed to such Bank until the date repaid.
2.14 Payments by the Banks to the Agent. (a) Unless the Agent
receives notice from a Bank on or prior to the Closing Date or, with respect to
any Borrowing after the Closing Date, at least one Business Day prior to the
date of such Borrowing, that such Bank will not make available as and when
required hereunder to the Agent for the account of the Borrower the amount of
that Bank's Pro Rata Share of the Borrowing, the Agent may assume that each
Bank has made such amount available to the Agent in immediately available funds
on the Borrowing Date and the Agent may (but shall not be so required), in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent any Bank shall not have made its
full amount available to the Agent in immediately available funds and the Agent
in such circumstances has made available to the Borrower such amount, that Bank
shall on the Business Day following such Borrowing Date make such amount
available to the Agent, together with interest at the Federal Funds Rate for
each day during such period. A notice of the Agent submitted to any Bank with
respect to amounts owing under this subsection (a) shall be conclusive, absent
manifest error. If such amount is so made available, such payment to the Agent
shall constitute such Bank's Loan on the date of Borrowing for all purposes of
this Agreement. If such amount is not made available to the Agent on the
Business Day following the Borrowing Date, the Agent will notify the Borrower
of such failure to fund and, upon demand by the Agent, the Borrower shall pay
such amount to the Agent for the Agent's account, together with interest
thereon for each day elapsed since the date of such Borrowing, at a rate per
annum equal to the interest rate applicable at the time to the Loans comprising
such Borrowing.
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(b) The failure of any Bank to make any Loan on any
Borrowing Date shall not relieve any other Bank of any obligation hereunder to
make a Loan on such Borrowing Date, but no Bank shall be responsible for the
failure of any other Bank to make the Loan to be made by such other Bank on any
Borrowing Date.
2.15 Sharing of Payments, Etc. If, other than as expressly
provided elsewhere herein, any Bank shall obtain on account of the Loans made
by it any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) in excess of its ratable share (or other share
contemplated hereunder), such Bank shall immediately (a) notify the Agent of
such fact, and (b) purchase from the other Banks such participations in the
Loans made by them as shall be necessary to cause such purchasing Bank to share
the excess payment pro rata with each of them; provided, however, that if all
or any portion of such excess payment is thereafter recovered from the
purchasing Bank, such purchase shall to that extent be rescinded and each other
Bank shall repay to the purchasing Bank the purchase price paid therefor,
together with an amount equal to such paying Bank's ratable share (according to
the proportion of (i) the amount of such paying Bank's required repayment to
(ii) the total amount so recovered from the purchasing Bank) of any interest or
other amount paid or payable by the purchasing Bank in respect of the total
amount so recovered. The Borrower agrees that any Bank so purchasing a
participation from another Bank may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off, but subject
to Section 11.10) with respect to such participation as fully as if such Bank
were the direct creditor of each the Borrower in the amount of such
participation. The Agent will keep records (which shall be conclusive and
binding in the absence of manifest error) of participations purchased under
this Section and will in each case notify the Banks following any such
purchases or repayments.
ARTICLE III
THE LETTERS OF CREDIT
3.1 The Letter of Credit Subfacility. (a) On the terms and
conditions set forth herein (i) the Issuing Bank agrees, (A) from time to time
on any Business Day during the period from the Closing Date to the Revolving
Termination Date to issue Letters of Credit for the account of the Borrower,
and to amend or renew Letters of Credit previously issued by it, in accordance
with subsections 3.2(c) and 3.2(d), and (B) to honor drafts under the Letters
of Credit; and (ii) the Banks severally agree to participate in Letters of
Credit Issued for the account of the Borrower; provided, that the Issuing Bank
shall not Issue, and no Bank shall be obligated to participate in, any Letter
of Credit if as of the date of Issuance of such Letter of Credit (the "Issuance
Date") (1) the Effective Amount of all L/C Obligations plus the Effective
Amount of all Revolving Loans plus the Effective Amount of all Swingline Loans
exceeds the combined Commitments, (2) the participation of any Bank in the
Effective Amount of all L/C Obligations plus the Effective Amount of the
Revolving Loans plus the Effective Amount of all Swingline Loans of such Bank
exceeds such Bank's Commitment, or (3) the Effective Amount of L/C Obligations
exceeds the L/C Commitment. Within the foregoing limits, and subject to the
other terms and conditions hereof, the Borrower's ability to obtain Letters of
Credit shall be fully revolving, and,
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accordingly, the Borrower may, during the foregoing period, obtain Letters of
Credit to replace Letters of Credit which have expired or which have been drawn
upon and reimbursed.
(b) The Issuing Bank shall not Issue any Letter of Credit
if:
(i) any order, judgment or decree of any
Governmental Authority or arbitrator shall by its terms purport to
enjoin or restrain the Issuing Bank from Issuing such Letter of
Credit, or any Requirement of Law applicable to the Issuing Bank or
any request or directive (whether or not having the force of law) from
any Governmental Authority with jurisdiction over the Issuing Bank
shall prohibit, or request that the Issuing Bank refrain from, the
Issuance of letters of credit generally or such Letter of Credit in
particular or shall impose upon the Issuing Bank with respect to such
Letter of Credit any restriction, reserve or capital requirement (for
which the Issuing Bank is not otherwise compensated hereunder) not in
effect on the Closing Date, or shall otherwise impose upon the Issuing
Bank any unreimbursed loss, cost or expense which was not applicable
on the Closing Date and which the Issuing Bank in good faith deems
material to it;
(ii) the Issuing Bank has received written notice
from any Bank (and the Required Banks concur with the determination of
such Bank) or the Agent, on or prior to the Business Day prior to the
requested date of Issuance of such Letter of Credit, that no further
Letters of Credit are to be issued due to a continuing failure to meet
one or more of the applicable conditions contained in Article V and
such notice has not expired or been withdrawn by the applicable Bank
and/or the Agent;
(iii) the expiry date of any requested Letter of
Credit is more than 360 days after the Revolving Termination Date,
unless all of the Banks have approved such expiry date in writing;
(iv) any requested Letter of Credit does not
provide for drafts, or is not otherwise in form and substance
reasonably acceptable to the Issuing Bank, or the Issuance of a Letter
of Credit shall violate any applicable policies of the Issuing Bank
for extensions of credit; or
(v) such Letter of Credit is in a face amount
less than $50,000 or to be denominated in a currency other than
Dollars.
3.2 Issuance, Amendment and Renewal of Letters of Credit. (a)
Each Letter of Credit shall be issued upon the irrevocable written request of
the Borrower received by the Issuing Bank (with a copy sent by the Borrower to
the Agent) at least three Business Days (or such shorter time as the Issuing
Bank may agree in a particular instance in its sole discretion) prior to the
proposed date of issuance. Each such request for issuance of a Letter of
Credit shall be by facsimile, confirmed immediately by an original writing in
the mail, in the form of an L/C Application, and shall specify in form and
detail satisfactory to the Issuing Bank: (i) the proposed date of issuance of
the Letter of Credit (which shall be a Business Day); (ii) the face amount of
the Letter of Credit; (iii) the expiry date of the Letter of Credit; (iv) the
name and address of the beneficiary thereof (which beneficiary may be a Bank or
an Affiliate of a Bank); (v) the
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documents to be presented by the beneficiary of the Letter of Credit in case of
any drawing thereunder; (vi) the full text of any certificate to be presented
by the beneficiary in case of any drawing thereunder; (vii) if such Letter of
Credit will be a standby or commercial documentary Letter of Credit; and (viii)
such other matters as the Issuing Bank may require.
(b) At least two Business Days prior to the Issuance of
any Letter of Credit, the Issuing Bank will confirm with the Agent (by
telephone or in writing) that the Agent has received a copy of the L/C
Application or L/C Amendment Application from the Borrower and, if not, the
Issuing Bank will provide the Agent with a copy thereof. Unless the Issuing
Bank has received notice on or before the Business Day immediately preceding
the date the Issuing Bank is to issue a requested Letter of Credit from the
Agent (A) directing the Issuing Bank not to issue such Letter of Credit because
such issuance is not then permitted under subsection 3.1(a) as a result of the
limitations set forth in clauses (1) through (3) thereof or subsection
3.1(b)(ii); or (B) that one or more conditions specified in Article V are not
then satisfied; then, subject to the terms and conditions hereof, the Issuing
Bank shall, on the requested date, issue a Letter of Credit for the account of
the Borrower in accordance with the Issuing Bank's usual and customary business
practices.
(c) From time to time while a Letter of Credit is
outstanding and prior to the Revolving Termination Date, the Issuing Bank will,
upon the written request of the Borrower received by the Issuing Bank (with a
copy sent by the Borrower to the Agent) at least two Business Days (or such
shorter time as the Issuing Bank may agree in a particular instance in its sole
discretion) prior to the proposed date of amendment, amend any Letter of Credit
issued by it. Each such request for amendment of a Letter of Credit shall be
made by facsimile, confirmed immediately in an original writing, made in the
form of an L/C Amendment Application and shall specify in form and detail
satisfactory to the Issuing Bank: (i) the Letter of Credit to be amended; (ii)
the proposed date of amendment of the Letter of Credit (which shall be a
Business Day); (iii) the nature of the proposed amendment; and (iv) such other
matters as the Issuing Bank may require. The Issuing Bank shall not amend any
Letter of Credit if: (A) the Issuing Bank would have no obligation at such
time to issue such Letter of Credit in its amended form under the terms of this
Agreement; or (B) the beneficiary of any such Letter of Credit does not accept
the proposed amendment to the Letter of Credit. The Agent will promptly notify
the Banks of the receipt by it of any L/C Application or L/C Amendment
Application.
(d) The Issuing Bank and the Banks agree that, while a
Letter of Credit is outstanding and prior to the Revolving Termination Date, at
the option and upon the written request of the Borrower received by the Issuing
Bank (with a copy sent by the Borrower to the Agent) at least two Business Days
(or such shorter time as the Issuing Bank may agree in a particular instance in
its sole discretion) prior to the proposed date of notification of renewal, the
Issuing Bank shall be entitled to authorize the automatic renewal of any Letter
of Credit issued by it. Each such request for renewal of a Letter of Credit
shall be made by facsimile, confirmed immediately in an original writing, in
the form of an L/C Amendment Application, and shall specify in form and detail
satisfactory to the Issuing Bank: (i) the Letter of Credit to be renewed; (ii)
the proposed date of notification of renewal of the Letter of Credit (which
shall be a Business Day); (iii) the revised expiry date of the Letter of
Credit; and (iv) such other matters as the Issuing Bank may require. The
Issuing Bank shall not renew any Letter of Credit if: (A) the
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Issuing Bank would have no obligation at such time to issue or amend such
Letter of Credit in its renewed form under the terms of this Agreement; or (B)
the beneficiary of any such Letter of Credit does not accept the proposed
renewal of the Letter of Credit.
If any outstanding Letter of Credit for the account of the
Borrower shall provide that it shall be automatically renewed unless the
beneficiary thereof receives notice from the Issuing Bank that such Letter of
Credit shall not be renewed, and if at the time of renewal the Issuing Bank
would be entitled to authorize the automatic renewal of such Letter of Credit
in accordance with this subsection 3.2(d) upon the request of the Borrower but
the Issuing Bank shall not have received any L/C Amendment Application from the
Borrower with respect to such renewal or other written direction by the
Borrower with respect thereto, the Issuing Bank shall nonetheless be permitted
to allow such Letter of Credit to renew, and, notwithstanding anything in this
Agreement to the contrary, the Borrower and the Banks hereby authorize such
renewal and, accordingly, the Issuing Bank shall be deemed to have received an
L/C Amendment Application from the Borrower requesting such renewal; provided,
however, that the aggregate principal amount of all such automatically
renewable Letters of Credit shall not exceed $3,000,000, which amount shall be
a sublimit within the L/C Commitment.
(e) This Agreement shall control in the event of any
conflict with any L/C-Related Document (other than any Letter of Credit).
(f) The Issuing Bank will also deliver to the Agent,
concurrently or promptly following its delivery of a Letter of Credit, or
amendment to or renewal of a Letter of Credit, to an advising bank or a
beneficiary, a true and complete copy of each such Letter of Credit or
amendment to or renewal of a Letter of Credit.
3.3 Existing BofA Letters of Credit; Risk Participations, Drawings
and Reimbursements. (a) On and after the Termination Date, the Existing BofA
Letters of Credit shall be deemed for all purposes, including for purposes of
the fees to be collected pursuant to subsections 3.8(a) and 3.8(b), and
reimbursement of costs and expenses to the extent provided herein, Letters of
Credit outstanding under this Agreement and entitled to the benefits of this
Agreement and the other Loan Documents, and shall be governed by the
applications and agreements pertaining thereto and by this Agreement. Each
Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to,
purchase from the Issuing Bank on the Closing Date a participation in each such
Letter of Credit and each drawing thereunder in an amount equal to the product
of (i) such Bank's Pro Rata Share times (ii) the maximum amount available to be
drawn under such Letter of Credit and the amount of such drawing, respectively.
For purposes of Section 2.1 and subsection 2.11(a), the Existing BofA Letters
of Credit shall, as from the Termination Date, be deemed to utilize pro rata
the Commitment of each Bank.
(b) Immediately upon the Issuance of each Letter of
Credit in addition to those described in subsection 3.3(a), each Bank shall be
deemed to, and hereby irrevocably and unconditionally agrees to, purchase from
the Issuing Bank a participation in such Letter of Credit and each drawing
thereunder in an amount equal to the product of (i) the Pro Rata Share of such
Bank, times (ii) the maximum amount available to be drawn under such Letter of
Credit and the amount of such drawing, respectively. For purposes of Section
2.1, each Issuance of a Letter of
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Credit shall be deemed to utilize the Commitment of each Bank by an amount
equal to the amount of such participation.
(c) In the event of any request for a drawing under a
Letter of Credit by the beneficiary or transferee thereof, the Issuing Bank
will promptly notify the Borrower. The Borrower shall reimburse the Issuing
Bank in Dollars in same day funds (i) by no later than 3:30 p.m. (San Francisco
time) on each Honor Date if the Issuing Bank notifies the Borrower of a request
for a drawing prior to 11:00 a.m. (San Francisco time) on such Honor Date and
(ii) by no later than 11:00 a.m. (San Francisco time) on the day immediately
following each Honor Date if the Issuing Bank notifies the Borrower of a
request for drawing after 11:00 a.m. (San Francisco time) on such Honor Date,
in an amount equal to the amount so paid by the Issuing Bank.
In the event that the Issuing Bank notifies the Borrower
before 11:00 a.m. (San Francisco time) on the Honor Date and the Borrower fails
to reimburse the Issuing Bank for the full amount of any drawing under any
Letter of Credit by 3:30 p.m. (San Francisco time) on the Honor Date, the
Issuing Bank will promptly notify the Agent, and the Borrower shall be deemed
to have requested that Base Rate Loans be made by the Banks to be disbursed on
the Honor Date under such Letter of Credit, subject to the amount of the
unutilized portion of the Revolving Commitment and subject to the conditions
set forth in Section 5.2. In the event that the Borrower receives notice from
the Issuing Bank after 11:00 a.m. (San Francisco time) and does not reimburse
by 11:00 a.m. (San Francisco time) the day immediately following, the Issuing
Bank will promptly notify the Agent, and the Borrower shall be deemed to have
requested that Base Rate Loans be made by the Banks as of the Honor Date under
such Letter of Credit, subject to the amount of the unutilized portion of the
Revolving Commitment and subject to the conditions set forth in Section 5.2.
The Agent shall promptly notify the Banks of the occurrence of such a Base Rate
Loan and the Banks shall thereupon advance their Pro Rata Shares of such Base
Rate Loan.
Any notice given by the Issuing Bank or the Agent pursuant to
this subsection 3.3(c) may be oral if immediately confirmed in writing
(including by facsimile); provided that the lack of such an immediate
confirmation shall not affect the conclusiveness or binding effect of such
notice.
(d) Each Bank shall upon any notice pursuant to
subsection 3.3(c) make available to the Agent for the account of the relevant
Issuing Bank an amount in Dollars and in immediately available funds equal to
its Pro Rata Share of the amount of the drawing, and the participating Banks
shall (subject to subsection 3.3(e)) each be deemed to have made a Revolving
Loan consisting of a Base Rate Loan to the Borrower in that amount. Interest
shall accrue on each Bank's obligation to participate in any Base Rate Loan
deemed disbursed pursuant to Section 3.3(c) from the Honor Date to the date
such Bank makes payment pursuant to this Section 3.3(d), at a rate per annum
equal to the Federal Funds Rate in effect from time to time during such period.
For the avoidance of doubt, any Base Rate Loan deemed disbursed under Section
3.3(c) shall for all purposes, including the obligation of the Banks to
participate in such Base Rate Loan, be deemed made as of the Honor date and not
the date of notice of the Agent.
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(e) With respect to any unreimbursed drawing that is not
converted into Revolving Loans consisting of Base Rate Loans to the Borrower in
whole or in part, because of the Borrower's failure to satisfy the conditions
set forth in Section 5.2 or for any other reason, the Borrower shall be deemed
to have incurred from the Issuing Bank an L/C Borrowing in the amount of such
drawing, which L/C Borrowing shall be due and payable on demand (together with
interest) and shall bear interest at a rate per annum equal to the Base Rate
plus 2% per annum, and each Bank's payment to the Issuing Bank pursuant to
subsection 3.3(d) shall be deemed payment in respect of its participation in
such L/C Borrowing and shall constitute an L/C Advance from such Bank in
satisfaction of its participation obligation under this Section 3.3.
(f) Each Bank's obligation in accordance with this
Agreement to make the Revolving Loans or L/C Advances, as contemplated by this
Section 3.3, as a result of a drawing under a Letter of Credit, shall be
absolute and unconditional and without recourse to the Issuing Bank and shall
not be affected by any circumstance, including (i) any set-off, counterclaim,
recoupment, defense or other right which such Bank may have against the Issuing
Bank, the Borrower or any other Person for any reason whatsoever; (ii) the
occurrence or continuance of a Default, an Event of Default or a Material
Adverse Effect; or (iii) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing; provided, however, that each
Bank's obligation to make Revolving Loans under this Section 3.3 is subject to
the conditions set forth in Section 5.2.
3.4 Repayment of Participations. (a) Upon (and only upon) receipt
by the Agent for the account of the Issuing Bank of immediately available funds
from the Borrower (i) in reimbursement of any payment made by the Issuing Bank
under the Letter of Credit with respect to which any Bank has paid the Agent
for the account of the Issuing Bank for such Bank's participation in the Letter
of Credit pursuant to Section 3.3 or (ii) in payment of interest thereon, the
Agent will pay to each Bank, in the same funds as those received by the Agent
for the account of the Issuing Bank, the amount of such Bank's Pro Rata Share
of such funds, and the Issuing Bank shall receive the amount of the Pro Rata
Share of such funds of any Bank that did not so pay the Agent for the account
of the Issuing Bank.
(b) If the Agent or the Issuing Bank is required at any
time to return to the Borrower, or to a trustee, receiver, liquidator,
custodian, or any official in any Insolvency Proceeding, any portion of the
payments made by the Borrower to the Agent for the account of the Issuing Bank
pursuant to subsection 3.4(a) in reimbursement of a payment made under the
Letter of Credit or interest or fee thereon, each Bank shall, on demand of the
Agent, forthwith return to the Agent or the Issuing Bank the amount of its Pro
Rata Share of any amounts so returned by the Agent or the Issuing Bank plus
interest thereon from the date such demand is made to the date such amounts are
returned by such Bank to the Agent or the Issuing Bank, at a rate per annum
equal to the Federal Funds Rate in effect from time to time.
3.5 Role of the Issuing Bank. (a) Each Bank and the Borrower
agrees that, in paying any drawing under a Letter of Credit, the Issuing Bank
shall not have any responsibility to obtain any document (other than any sight
draft, certificates or other documents expressly required by the Letter of
Credit) or to ascertain or inquire as to the validity or accuracy of any such
document or the authority of the Person executing or delivering any such
document.
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(b) No Agent-Related Person nor any of the respective
correspondents, participants or assignees of the Issuing Bank shall be liable
to any Bank for: (i) any action taken or omitted in connection herewith at the
request or with the approval of the Banks (including the Required Banks, as
applicable); (ii) any action taken or omitted in the absence of gross
negligence or willful misconduct; or (iii) the due execution, effectiveness,
validity or enforceability of any L/C-Related Document.
(c) The Borrower hereby assumes all risks of the acts or
omissions of any beneficiary or transferee with respect to its use of any
Letter of Credit; provided, however, that this assumption is not intended to,
and shall not, preclude the Borrower pursuing such rights and remedies as it
may have against the beneficiary or transferee at law or under any other
agreement. No Agent-Related Person, nor any of the respective correspondents,
participants or assignees of the Issuing Bank, shall be liable or responsible
for any of the matters described in clauses (i) through (vii) of Section 3.6;
provided, however, anything in such clauses to the contrary notwithstanding,
that the Borrower may have a claim against the Issuing Bank, and the Issuing
Bank may be liable to the Borrower, to the extent, but only to the extent, of
any direct, as opposed to consequential or exemplary, damages suffered by the
Borrower which the Borrower proves were caused by the Issuing Bank's willful
misconduct or gross negligence or the Issuing Bank's willful failure to pay
under any Letter of Credit after the presentation to it by the beneficiary of a
sight draft and certificate(s) strictly complying with the terms and conditions
of a Letter of Credit. In furtherance and not in limitation of the foregoing:
(i) the Issuing Bank may accept documents that appear on their face to be in
order, without responsibility for further investigation, regardless of any
notice or information to the contrary; and (ii) the Issuing Bank shall not be
responsible for the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign a Letter of Credit or the rights
or benefits thereunder or proceeds thereof, in whole or in part, which may
prove to be invalid or ineffective for any reason.
3.6 Obligations Absolute. The obligations of the Borrower under
this Agreement and any L/C-Related Document to reimburse the Issuing Bank for a
drawing under a Letter of Credit, and to repay any L/C Borrowing and any
drawing under a Letter of Credit converted into Revolving Loans, shall be
unconditional and irrevocable, and shall be paid strictly in accordance with
the terms of this Agreement and each such other L/C-Related Document under all
circumstances, including the following:
(i) any lack of validity or enforceability of
this Agreement or any L/C-Related Document;
(ii) any change in the time, manner or place of
payment of, or in any other term of, all or any of the obligations of
the Borrower in respect of any Letter of Credit or any other amendment
or waiver of or any consent to departure from all or any of the
L/C-Related Documents;
(iii) the existence of any claim, set-off, defense
or other right that the Borrower may have at any time against any
beneficiary or any transferee of any Letter of Credit (or any Person
for whom any such beneficiary or any such transferee may be acting),
the Issuing Bank or any other Person, whether in connection with this
Agreement,
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the transactions contemplated hereby or by the L/C-Related Documents
or any unrelated transaction;
(iv) any draft, demand, certificate or other
document presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect; or any loss or
delay in the transmission or otherwise of any document required in
order to make a drawing under any Letter of Credit;
(v) any payment by the Issuing Bank under any
Letter of Credit against presentation of a draft or certificate that
does not strictly comply with the terms of any Letter of Credit; or
any payment made by the Issuing Bank under any Letter of Credit to any
Person purporting to be a trustee in bankruptcy, debtor-
in-possession, assignee for the benefit of creditors, liquidator,
receiver or other representative of or successor to any beneficiary or
any transferee of any Letter of Credit, including any arising in
connection with any Insolvency Proceeding;
(vi) any exchange, release or non-perfection of
any collateral, or any release or amendment or waiver of or consent to
departure from any other guarantee, for all or any of the obligations
of the Borrower in respect of any Letter of Credit; or
(vii) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing, including
any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Borrower or a guarantor;
provided, that, notwithstanding the foregoing, the Issuing Bank shall not be
relieved of any liability it may otherwise have as a result of its gross
negligence or willful misconduct.
3.7 Cash Collateral Pledge. (i)(A) Upon the request of the Agent,
if the Issuing Bank has honored any full or partial drawing request on any
Letter of Credit and such drawing has resulted in an L/C Borrowing hereunder,
or (B) unless otherwise consented to by the Banks, if, as of the Revolving
Termination Date, any Letter of Credit may for any reason remain outstanding
and partially or wholly undrawn, or (ii) the occurrence of the circumstances
described in Section 2.7 requiring the Borrower to Cash Collateralize Letters
of Credit, then, the Borrower shall immediately Cash Collateralize the
Obligations in an amount equal to such L/C Obligations. The Borrower hereby
grants the Agent, for the benefit of the Agent, the Issuing Bank, the Swingline
Bank and the Banks, a security interest in all such cash and deposit account
balances. Cash Collateral shall be maintained by the Agent in blocked,
interest bearing deposit accounts at BofA. After the Revolving Termination
Date the Issuing Bank may exercise a right of set off with respect to any such
Cash Collateral deposits it holds and may use such funds to satisfy drawings
under Letters of Credit. Unless otherwise agreed to by the Banks, all such
Cash Collateral (inclusive of accrued interest thereon) shall be returned to
the Borrower only when the L/C Commitment has terminated, all Letters of Credit
have been cancelled and no L/C Obligations are outstanding.
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3.8 Letter of Credit Fees. (a) The Borrower agrees to pay to the
Agent for the benefit of the Banks Letter of Credit fees. The Letter of Credit
fee shall be equal to (i) the rate per annum determined as being the Applicable
Margin for Offshore Rate Loans from time to time multiplied by (ii) the average
daily maximum amount available to be drawn of the outstanding Letters of
Credit. The Letter of Credit fees shall be payable quarterly in arrears on the
last Business Day of each calendar quarter, on the Revolving Termination Date,
and on the date when the last Letter of Credit expires.
(b) The Borrower agrees to pay to the Agent for the
benefit of the Banks an issuance fee for each commercial documentary Letter of
Credit Issued hereunder equal to the greater of (i) $250 and (ii) 0.125% of the
face amount of such commercial documentary Letter of Credit, payable on the
date of Issuance of each such commercial documentary Letter of Credit.
(c) The Borrower shall pay to the Issuing Bank, for its
account, quarterly in arrears on the last Business Day of each calendar
quarter, on the Revolving Termination Date and on the date when the last Letter
of Credit expires, a letter of credit fronting fee for each Letter of Credit
Issued by the Issuing Bank equal to .075% per annum of the average daily
maximum amount available to be drawn of the outstanding Letters of Credit.
(d) The Borrower shall pay to the Issuing Bank from time
to time on demand the normal issuance, presentation, amendment and other
processing fees, and other standard costs and charges, of the Issuing Bank
relating to letters of credit as from time to time in effect.
3.9 Uniform Customs and Practice. The Uniform Customs and
Practice for Documentary Credits as published by the International Chamber of
Commerce most recently at the time of issuance of any Letter of Credit shall
(unless otherwise expressly provided in the Letters of Credit) apply to the
Letters of Credit.
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
4.1 Taxes. (a) Any and all payments by the Borrower to each Bank
or the Agent under this Agreement and any other Loan Document shall be made
free and clear of, and without deduction or withholding for, any Taxes. In
addition, the Borrower shall pay all Taxes.
(b) If the Borrower shall be required by law to deduct or
withhold any Taxes from or in respect of any sum payable hereunder to any Bank
or the Agent, then:
(i) the sum payable shall be increased as
necessary so that, after making all required deductions and
withholdings (including deductions and withholdings applicable to
additional sums payable under this Section), such Bank or the Agent,
as the case may be, receives and retains an amount equal to the sum it
would have received and retained had no such deductions or
withholdings been made;
(ii) the Borrower shall make such deductions and
withholdings; and
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(iii) the Borrower shall pay the full amount
deducted or withheld to the relevant taxing authority or other
authority in accordance with applicable law.
(c) The Borrower agrees to indemnify and hold harmless
each Bank for the full amount of Taxes in the amount (without duplication of
other amounts paid pursuant to this Section 4.1) that the respective Bank
specifies as necessary to preserve the after-tax yield (which after tax yield
is intended to compensate each Bank for Taxes deducted or withheld pursuant to
this Section 4.1 and additional Taxes imposed on amounts payable pursuant to
this Section 4.1) the Bank would have received if such Taxes had not been
imposed, and any liability (including penalties, interest, and expenses)
arising therefrom or with respect thereto, whether or not such Taxes were
correctly or legally asserted. Payment under this indemnification shall be
made within 30 days after the date the Bank or the Agent makes written demand
therefor, which demand shall specify in reasonable detail the basis for such
demand.
(d) Within 30 days after the date of any payment by the
Borrower of Taxes, the Borrower shall furnish to such Bank or the Agent the
original or a certified copy of a receipt evidencing payment thereof, or other
evidence of payment satisfactory to such Bank or the Agent.
(e) Without affecting its rights under this Section 4.1
or any provision of this Agreement, the Agent, each Bank, the Swingline Bank
and the Issuing Bank agree that if any Taxes are imposed and required by law to
be paid or to be withheld from any amount payable to such Bank or its Lending
Office, the Swingline Bank or the Issuing Bank, as the case may be, with
respect to which the Borrower would be obligated pursuant to this Section 4.1
to increase any amounts payable to such Bank, the Swingline Bank or the Issuing
Bank, as the case may be, or to pay any such Taxes, such Bank shall use
reasonable efforts to select an alternative Lending Office, the Swingline Bank
shall use reasonable efforts to select an alternative office for purposes of
making and receiving payments in respect of Swingline Advances, and the Issuing
Bank shall use reasonable efforts to select an alternative office for purposes
of issuing and receiving payments in respect of Letters of Credit, as the case
may be, which would not result in the imposition of such Taxes; provided,
however, that none of the Agent, the Banks, the Swingline Bank or the Issuing
Bank shall be obligated to select any such alternative office if such Bank, the
Swingline Bank or the Issuing Bank, as the case may be, determines that (i) as
a result of such selection it would be in violation of an applicable law,
regulation, or treaty, or would incur additional costs or expenses or (ii) such
selection would be inadvisable for regulatory reasons or inconsistent with the
interests of such Bank, the Swingline Bank or the Issuing Bank, as the case may
be.
(f) So long as no Default or Event of Default shall have
occurred and be continuing, the Borrower may, within the 30 day period
commencing on the day that the Borrower receives a demand for the payment of
Taxes from any Bank pursuant to this Section 4.1, demand that the Bank making
such demand be replaced with a Person that is an Eligible Assignee selected by
the Borrower and subject to consent by the Agent. Upon any such demand by the
Borrower, if the Agent shall have consented to the Eligible Assignee selected
by the Borrower (provided that should such Eligible Assignee be a Bank, such
Bank shall also have consented to such selection), the Bank that made a demand
pursuant to this Section 4.1 shall
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execute and deliver an Assignment and Acceptance to the Agent pursuant to which
such Bank shall assign all of its rights and obligations under this Agreement
and the other Loan Documents to the Eligible Assignee selected by the Borrower.
4.2 Illegality. (a) If any Bank determines that the introduction
of any Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or any central bank or other Governmental Authority has asserted that
it is unlawful, for any Bank or its applicable Lending Office to make Offshore
Rate Loans, then, on notice thereof by such Bank to the Borrower through the
Agent, any obligation of that Bank to make Offshore Rate Loans shall be
suspended until the Bank notifies the Agent and the Borrower that the
circumstances giving rise to such determination no longer exist. Any Bank
notifying the Borrower of such a suspension of its obligation to make Offshore
Rate Loans shall provide to the Borrower reasonable documentation supporting
such obligation.
(b) If a Bank determines that it is unlawful to maintain
any Offshore Rate Loan, the Borrower shall, upon its receipt of notice of such
fact and demand from such Bank (with a copy to the Agent), prepay in full such
Offshore Rate Loans of that Bank then outstanding, together with interest
accrued thereon and amounts required under Section 4.4, either on the last day
of the Interest Period thereof, if such Bank may lawfully continue to maintain
such Offshore Rate Loans to such day, or immediately, if such Bank may not
lawfully continue to maintain such Offshore Rate Loan. If the Borrower is
required to so prepay any Offshore Rate Loan, then concurrently with such
prepayment, the Borrower shall borrow from the affected Bank, in the amount of
such repayment, a Base Rate Loan. Any Bank making such a demand for prepayment
of Offshore Rate Loans shall provide to the Borrower reasonable documentation
supporting such demand.
4.3 Increased Costs and Reduction of Return. (a) If any Bank
determines that, due to either (i) the introduction of or any change in or in
the interpretation of any law or regulation by any Governmental Authority
having jurisdiction over the Banks or (ii) the compliance by any Bank with any
guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to such Bank of agreeing to make or making, funding or maintaining any
Offshore Rate Loans or participating in Letters of Credit, or, in the case of
the Issuing Bank, any increase in the cost to the Issuing Bank of agreeing to
issue, issuing or maintaining any Letter of Credit or of agreeing to make or
making, funding or maintaining any unpaid drawing under any Letter of Credit,
then the Borrower shall be liable for, and shall from time to time, upon demand
(with a copy of such demand to be sent to the Agent), promptly (and in any
event within 30 days) pay to the Agent for the account of such Bank, additional
amounts as are sufficient to compensate such Bank for such increased costs.
Any Bank making such a demand for payment shall provide to the Borrower
reasonable documentation supporting such demand.
(b) If any Bank shall have determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or administration
of any Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof, or (iv)
compliance by the Bank (or its Lending Office) or any corporation controlling
the Bank with any
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Capital Adequacy Regulation, affects or would affect the amount of capital
required or expected to be maintained by such Bank or any corporation
controlling such Bank and (taking into consideration such Bank's or such
corporation's policies with respect to capital adequacy) determines that the
amount of such capital is increased as a consequence of its Commitments, loans,
credits or obligations under this Agreement, then, upon demand of such Bank to
the Borrower through the Agent, the Borrower shall promptly (and in any event
within 30 days) pay to such Bank, from time to time as specified by such Bank,
additional amounts sufficient to compensate such Bank for such increase. Any
Bank making such a demand for payment shall provide to the Borrower reasonable
documentation supporting such demand.
4.4 Funding Losses. The Borrower shall reimburse each Bank and
hold each Bank harmless from any loss or expense which the Bank sustains or
incurs as a consequence of:
(a) the failure of the Borrower to make on a timely basis
any payment of principal of any Offshore Rate Loan;
(b) the failure of the Borrower to borrow, continue or
convert a Loan after the Borrower has given (or is deemed to have given) a
Notice of Borrowing or a Notice of Conversion/Continuation;
(c) the failure of the Borrower to make any prepayment in
accordance with any notice delivered under Section 2.6;
(d) the prepayment (including pursuant to Section 2.7) or
other payment (including after acceleration thereof) of an Offshore Rate Loan
on a day that is not the last day of the relevant Interest Period; or
(e) the conversion under Section 2.4 of any Offshore Rate
Loan to a Base Rate Loan on a day that is not the last day of the relevant
Interest Period; including any such loss or expense arising from the
liquidation or reemployment of funds obtained by it to maintain its Offshore
Rate Loans or from fees payable to terminate the deposits from which such funds
were obtained.
4.5 Inability to Determine Rates. If the Agent determines that
for any reason adequate and reasonable means do not exist for determining the
Offshore Rate for any requested Interest Period with respect to a proposed
borrowing of Offshore Rate Loans or conversion into or continuation of Offshore
Rate Loans, or that the Offshore Rate applicable pursuant to Section 2.9 for
any requested Interest Period with respect to a proposed borrowing of Offshore
Rate Loans or conversion into or continuation of Offshore Rate Loans does not
adequately and fairly reflect the cost to the Agent or any Bank of funding such
Loans, the Agent will promptly so notify the Borrower and each Bank and will
provide such Persons with reasonable documentation supporting such
determination. Thereafter, the obligation of the Banks to make or maintain
Offshore Rate Loans hereunder shall be suspended until the Agent shall notify
the Borrower and the Banks that the circumstances causing such suspension no
longer exist. Upon receipt of such notice, the Borrower may revoke any Notice
of Borrowing or Notice of Conversion/Continuation then submitted by it. If the
Borrower does not revoke such Notice, the Banks shall make, convert
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or continue the Loans, as proposed by the Borrower, in the amount specified in
the applicable notice submitted by the Borrower, but such Loans shall be made,
converted or continued as Base Rate Loans instead of Offshore Rate Loans.
4.6 Survival. The agreements and obligations of the Borrower in
this Article IV shall survive the payment of all other Obligations.
4.7 Notice of Claims. The Agent or the appropriate Bank will
notify the Borrower in writing of its claims under Article IV within 180 days
after any officer of the Agent or such Bank having principal responsibility for
monitoring the Borrower's performance of its obligations under the Loan
Documents has actual knowledge of facts giving rise to a claim under Article
IV.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Agreement. The effectiveness of this Agreement
is subject to the condition that the Agent shall have received on or before the
Closing Date all of the following, in form and substance satisfactory to the
Agent and each Bank, and in sufficient copies for each Bank (other than the
Notes to be delivered pursuant to Section 5.1(a)):
(a) Credit Agreement and Notes. This Agreement and Notes
executed by the Borrower for Banks requesting Notes.
(b) Resolutions; Incumbency.
(i) Copies of the resolutions of the board of
directors of the Borrower authorizing the transactions contemplated
hereby, certified as of the Closing Date by the Secretary or an
Assistant Secretary of the Borrower; and
(ii) A certificate of the Secretary or Assistant
Secretary of the Borrower certifying the names and true signatures of
the officers of the Borrower authorized to execute, deliver and
perform, as applicable, this Agreement, and all other Loan Documents
to be delivered by it hereunder;
(c) Organization Documents; Good Standing. Each of the
following documents:
(i) the articles or certificate of incorporation
and the bylaws of the Borrower as in effect on the Closing Date,
certified by the Secretary or Assistant Secretary of the Borrower as
of the Closing Date; and
(ii) a good standing and tax good standing
certificate for the Borrower from the Secretary of State (or similar,
applicable Governmental Authority) of its state of incorporation and
from the State of Colorado;
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(d) Legal Opinions. Opinions of Shearman & Sterling and
internal counsel to the Borrower addressed to the Agent and the Banks,
substantially in the forms of Exhibit D-1 and Exhibit D-2, respectively.
(e) Payment of Fees. Evidence of payment by the Borrower
of all accrued and unpaid fees, costs and expenses to the extent then due and
payable on the Closing Date, including any such costs, fees and expenses
arising under or referenced in Sections 2.11 and 11.4, provided that the
Borrower shall have been given reasonably detailed bills for the fees and
services of the Agent's legal counsel at least one Business Day prior to the
Closing Date if it is to pay such fees and expenses on the Closing Date;
(f) Certificate. A certificate signed by a Responsible
Officer of the Borrower, dated as of the Closing Date, stating that:
(i) the representations and warranties contained
in Article VI are true and correct on and as of such date, as though
made on and as of such date;
(ii) no Default or Event of Default exists or
would result from the initial Borrowing.
(g) Other Documents. Such other approvals, opinions,
documents or materials as the Agent or any Bank may reasonably request.
5.2 Conditions to All Credit Extensions. The obligation of each
Bank to make any Revolving Loan to be made by it (including its initial
Revolving Loan) or to continue or convert any Revolving Loan under Section 2.4
and the obligation of the Issuing Bank to Issue any Letter of Credit (including
the initial Letter of Credit) is subject to the satisfaction of the following
conditions precedent on the relevant Borrowing Date, Conversion/Continuation
Date or Issuance Date:
(a) Prior Loan Documents. The Agent shall have received,
in a form and substance satisfactory to it, an irrevocable termination notice
from the Borrower delivered pursuant to the terms of the Prior Loan Documents,
requesting the reduction of the Commitments (as defined in the Prior Loan
Documents) to zero and terminating the Prior Loan Documents as of a date five
Business Days after the date of such termination notice (the "Effective Date").
The Borrower hereby represents to the Agent and the Banks that there are no
Loans outstanding under the Prior Loan Documents and that the only Letters of
Credit (as defined in the Prior Loan Documents) issued and outstanding under
the Prior Loan Documents as of the date of this Agreement are those listed in
Schedule 5.2(a). The Borrower covenants with the Agent and the Banks that it
shall not after the date of this Agreement request any Revolving Loans nor the
issuance of any Letters of Credit (as such terms are defined in the Prior Loan
Documents) under the Prior Loan Documents. The Borrower shall take all steps
necessary to effect a termination of the Prior Loan Documents and shall use its
best efforts to ensure that such termination is completed on the Effective
Date. The aggregate amount of Loans and maximum exposure under Letters of
Credit issued pursuant to this Agreement when aggregated with the maximum
exposure under Letters of Credit (as defined in the Prior Loan Documents)
issued and
43.
<PAGE> 50
outstanding pursuant to the Prior Loan Documents shall at no time exceed
$350,000,000. Letters of Credit (as defined in the Prior Loan Documents) shall
be deemed to utilize the Commitments in an amount equal to the maximum exposure
relating thereto.
(b) Notice, Application. The Agent shall have received (with, in
the case of the initial Revolving Loan only, a copy for each Bank) a Notice of
Borrowing or a Notice of Conversion/Continuation, as applicable or in the case
of any Issuance of any Letter of Credit, the Issuing Bank and the Agent shall
have received an L/C Application or L/C Amendment Application, as required
under Section 3.2;
(c) Continuation of Representations and Warranties. The
representations and warranties in Article VI shall be true and correct on and
as of such Borrowing Date or Conversion/Continuation Date or Issuance Date with
the same effect as if made on and as of such Borrowing Date or
Conversion/Continuation Date or Issuance Date; and
(d) No Existing Default. No Default or Event of Default shall
exist or shall result from such Borrowing or continuation or conversion or
Issuance.
(e) Cash Collateral. With regard to any Letter of Credit, such
Letter of Credit has been cash collateralized to the extent required by and in
accordance with this Agreement.
Each Notice of Borrowing, Notice of Conversion/Continuation and L/C Application
or L/C Amendment Application submitted by the Borrower hereunder shall
constitute a representation and warranty by the Borrower hereunder, as of the
date of each such notice and as of each Borrowing Date, Conversion/Continuation
Date, or Issuance Date, as applicable, that the conditions in this Section 5.2
are satisfied.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Agent and each Bank that:
6.1 Corporate Existence and Power. The Borrower and each of its
Material Subsidiaries:
(a) is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all governmental
licenses, authorizations, consents and approvals to own its assets, carry on
its business and to execute, deliver, and, in the case of the Borrower, perform
its obligations under the Loan Documents;
(c) is duly qualified, licensed and in good standing
under the laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification or license
or good standing; and
44.
<PAGE> 51
(d) is in compliance with all Requirements of Law;
except, in each case referred to in clause (c) or clause (d), to the extent
that the failure to do so could not reasonably be expected to have a Material
Adverse Effect.
6.2 Corporate Authorization; No Contravention. The execution,
delivery and performance by the Borrower of this Agreement and each other Loan
Document to which the Borrower is party, have been duly authorized by all
necessary corporate action, and do not:
(a) contravene the terms of any of such the Borrower's
Organization Documents;
(b) conflict with or result in any breach or
contravention of any document evidencing any Contractual Obligation to which
the Borrower is a party or any order, injunction, writ or decree of any
Governmental Authority to which the Borrower or its property is subject, except
where such conflict, breach or contravention would not cause a Material Adverse
Effect or render any Loan Document unenforceable against the Borrower or any
other Person;
(c) violate any Requirement of Law except, in each case,
where any such contravention, conflict, breach, or violation would not cause a
Material Adverse Effect or render any Loan Document unenforceable against the
Borrower or any other Person; or
(d) result in the creation of any Lien.
6.3 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or current enforcement against, the
Borrower or any of its Material Subsidiaries of the Agreement or any other Loan
Document.
6.4 Binding Effect. This Agreement and each other Loan Document
to which the Borrower is a party constitute (or, when duly executed and
delivered, shall constitute) the legal, valid and binding obligations of the
Borrower, enforceable against it in accordance with their respective terms and
claims under this Agreement and each Loan Document will rank at least pari
passu with the claims of other unsecured creditors, except as enforceability
may be limited by applicable bankruptcy, insolvency, or similar laws affecting
the enforcement of creditors' rights generally or by equitable principles
relating to enforceability.
6.5 Litigation. Except as specifically disclosed in Schedule 6.5,
there are no actions, suits, proceedings, claims or disputes pending, or to the
best knowledge of the Borrower, threatened or contemplated, at law, in equity,
in arbitration or before any Governmental Authority, against the Borrower, or
its Subsidiaries or any of their respective properties which:
(a) relates to this Agreement or any other Loan Document,
or any of the transactions contemplated hereby or thereby; or
(b) if determined adversely to the Borrower or its
Subsidiaries, would reasonably be expected to have a Material Adverse Effect.
No injunction, writ, temporary restraining order or any order of any nature has
been issued by any court or other Governmental
45.
<PAGE> 52
Authority purporting to enjoin or restrain the execution, delivery or
performance of this Agreement or any other Loan Document, or directing that the
transactions provided for herein or therein not be consummated as herein or
therein provided.
6.6 No Default. No Default or Event of Default exists or would
result from the incurring of any Obligations by the Borrower. Neither the
Borrower nor any Subsidiary is in default under or with respect to any
Contractual Obligation in any respect which, individually or together with all
such defaults, could reasonably be expected to have a Material Adverse Effect,
or that would, if such default had occurred after the Closing Date, create an
Event of Default under subsection 9.1(e).
6.7 ERISA Compliance.
(a) Each Plan is in compliance in all material respects
with the applicable provisions of ERISA, the Code and other federal or state
law. Each Plan which is intended to qualify under Section 401(a) of the Code
has received a favorable determination letter from the IRS and to the best
knowledge of the Borrower, nothing has occurred which would cause the loss of
such qualification. The Borrower and each ERISA Affiliate has made all
required contributions to any Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of the
Borrower, threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a Material Adverse Effect. There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan which has resulted or could reasonably be expected to result in a
Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably
expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability;
(iii) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably
expects to incur, any liability under Title IV of ERISA with respect to any
Pension Plan (other than premiums due and not delinquent under Section 4007 of
ERISA); (iv) neither the Borrower nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability (and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) neither the Borrower nor any ERISA Affiliate has engaged in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
6.8 Use of Proceeds; Margin Regulations. The proceeds of the
Loans are to be used solely for the purposes set forth in and permitted by
Section 7.11 and Section 8.6. Neither the Borrower nor any Subsidiary is
generally engaged in the business of purchasing or selling Margin Stock or
extending credit for the purpose of purchasing or carrying Margin Stock. To
the extent that the Borrower uses Loan proceeds to acquire shares of its own
stock which is Margin Stock, the Borrower intends to cause such acquired shares
to be immediately retired.
46.
<PAGE> 53
6.9 Title to Properties; Liens. The Borrower and each Subsidiary
have good record and marketable title in fee simple to, or valid leasehold
interests in, all real property necessary or used in the ordinary conduct of
their respective businesses, except for such defects in title as would not,
individually or in the aggregate, have a Material Adverse Effect. As of the
Closing Date the property (real or personal, tangible or intangible) of the
Borrower and its Material Subsidiaries is subject to no Liens, other than
Permitted Liens.
6.10 Taxes. The Borrower and its Subsidiaries have filed or caused
to be filed all federal and other material tax returns and reports required to
be filed, and have paid or caused to be paid all federal and other material
taxes, assessments, fees and other governmental charges levied or imposed upon
them or their properties, income or assets otherwise due and payable, except
(i) those which are being contested in good faith by appropriate proceedings
and for which adequate reserves have been provided in accordance with GAAP and
(ii) those for which the failure to pay would not have a Material Adverse
Effect. To the Borrower's knowledge, there is no proposed tax assessment
against the Borrower or any Subsidiary that would, if made, have a Material
Adverse Effect.
6.11 Financial Condition. (a) The unaudited Consolidated financial
statements of the Borrower and its Subsidiaries dated for the fiscal quarter
ending June 1997 (as set forth in the Borrower's latest Form 10-Q filing dated
August 8, 1997) and the related Consolidated statements of income or
operations, shareholders' equity and cash flows for the fiscal year ended on
that date:
(i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby, except as
otherwise expressly noted therein;
(ii) fairly present the financial condition of the
Borrower and its Subsidiaries as of the date thereof and results of
operations for the period covered thereby; and
(iii) except as specifically disclosed in Schedule
6.11, show all material indebtedness and other liabilities, direct or
contingent, of the Borrower and its Consolidated Subsidiaries as of
the date thereof, including liabilities for taxes, material
commitments and Contingent Obligations.
(b) Since the end of the fiscal quarter ending June 1997
there has been no Material Adverse Effect.
6.12 Environmental Matters. The Borrower conducts in the ordinary
course of business a review of the effect of existing Environmental Laws and
existing Environmental Claims on its business, operations and properties, and
as a result thereof the Borrower has reasonably concluded that, except as
specifically disclosed in Schedule 6.12, such Environmental Laws and
Environmental Claims could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
47.
<PAGE> 54
6.13 Regulated Entities. Neither the Borrower, nor any Person
controlling the Borrower, nor any Subsidiary, is an "Investment Company" within
the meaning of the Investment Company Act of 1940. The Borrower is not subject
to regulation under the Public Utility Holding Company Act of 1935, the federal
Power Act, the Interstate Commerce Act, any state public utilities code, or any
other federal or state statute or regulation limiting its ability to incur
Indebtedness.
6.14 Copyrights, Patents, Trademarks and Licenses, Etc. The
Borrower or its Subsidiaries own or are licensed or otherwise have the right to
use all of the patents, trademarks, service marks, trade names, copyrights,
contractual franchises, authorizations and other rights that are reasonably
necessary for the operation of their respective material businesses, without
conflict with the rights of any other Person. To the best knowledge of the
Borrower, no slogan or other advertising device, product, process, method,
substance, part or other material now employed, or now contemplated to be
employed, by the Borrower or any Material Subsidiary infringes upon any rights
held by any other Person. Except as specifically disclosed in Schedule 6.5, no
claim or litigation regarding any of the foregoing is pending or, to the best
knowledge of the Borrower, threatened, and no patent, invention, device,
application, principle or any statute, law, rule, regulation, standard or code
is pending or, to the knowledge of the Borrower, proposed, which, in either
case, could reasonably be expected to have a Material Adverse Effect.
6.15 Subsidiaries. The Borrower (a) has no Subsidiaries other than
those specifically disclosed in part (a) of Schedule 6.15 hereto as of the
Closing Date and (b) has no equity investments in any other corporation or
entity other than those specifically disclosed in part (b) of Schedule 6.15
except, in each case, for Subsidiaries created and equity investments made
after the Closing Date and otherwise permitted by this Agreement.
6.16 Insurance. Except as specifically disclosed in Schedule 6.16,
the properties of the Borrower and its Material Subsidiaries are insured with,
to the best knowledge of the Borrower, financially sound and reputable
insurance companies not Affiliates of the Borrower, in such amounts, with such
deductibles and covering such risks as are customarily carried by companies
engaged in similar businesses and owning similar properties in localities where
the Borrower or such Material Subsidiary operates.
6.17 Full Disclosure. None of the representations or warranties
made by the Borrower or any Subsidiary in the Loan Documents as of the date
such representations and warranties are made or deemed made, and none of the
statements contained in any written exhibit, report, statement or certificate
furnished by or on behalf of the Borrower or any Subsidiary in connection with
the Loan Documents (including the offering and disclosure materials delivered
by or on behalf of the Borrower to the Banks prior to the Closing Date),
contains any untrue statement of a material fact or omits any material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they are made, not misleading as of
the time when made or delivered; provided that nothing in this Section 6.17
shall apply to any projections, forward-looking information or other similar or
related information furnished by or on behalf of the Borrower or any Subsidiary
in connection with the Loan Documents.
48.
<PAGE> 55
6.18 Projections. All projections forward-looking information or
other similar or related information furnished by or on behalf of the Borrower
or any Subsidiary in connection with the Loan Documents were prepared in good
faith on the basis of the assumptions stated therein, which assumptions were
fair in the light of conditions existing at the time of delivery of such
forecasts, and represented, at the time of delivery, the Borrower or such
Subsidiary's best estimate of its future financial performance, operations and
results.
ARTICLE VII
AFFIRMATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Required Banks waive compliance in
writing:
7.1 Financial Statements. The Borrower shall deliver to the
Agent, in form and detail satisfactory to the Agent and the Required Banks,
with sufficient copies for each Bank:
(a) as soon as available, but not later than 120 days
after the end of each fiscal year, a copy of the audited Consolidated balance
sheet of the Borrower and its Subsidiaries as at the end of such year and the
related Consolidated statements of income or operations, shareholders' equity
and cash flows for such year, setting forth in each case in comparative form
the figures for the previous fiscal year, and accompanied by the opinion of
Price Waterhouse or another nationally-recognized independent public accounting
firm ("Independent Auditor") which report shall state that such Consolidated
financial statements present fairly the financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior
years. Such opinion shall not be qualified or limited because of a restricted
or limited examination by the Independent Auditor of any material portion of
the Borrower's or any Subsidiary's records;
(b) as soon as available, but not later than 55 days
after the end of each of the first three fiscal quarters of each fiscal year, a
copy of the unaudited Consolidated balance sheet of the Borrower and its
Subsidiaries as of the end of such quarter and the related Consolidated
statements of income, shareholders' equity and cash flows for the period
commencing on the first day and ending on the last day of such quarter, and
certified by a Responsible Officer as fairly presenting, in accordance with
GAAP (subject to ordinary, good faith year-end audit adjustments), the
financial position and the results of operations of the Borrower and the
Subsidiaries.
7.2 Certificates; Other Information. The Borrower shall furnish
to the Agent with sufficient copies for each Bank:
(a) concurrently with the delivery of the financial
statements referred to in subsections 7.1(a) and (b), a Compliance Certificate
executed by a Responsible Officer;
49.
<PAGE> 56
(b) promptly, copies of all financial statements and
reports that the Borrower sends to its shareholders, and copies of all
financial statements and regular, periodical or special reports (including
Forms 10-K, 10-Q and 8-K) that the Borrower or any Subsidiary may make to, or
file with, the SEC; and
(c) promptly, such additional information regarding the
business, financial or corporate affairs of the Borrower or any Subsidiary as
the Agent, at the request of any Bank, may from time to time reasonably
request.
7.3 Notices. The Borrower shall promptly notify the Agent and
each Bank:
(a) after a Responsible Officer of the Borrower knows or
has reason to know of the occurrence of any Default or Event of Default, and of
the occurrence or existence of any event or circumstance for which it is
reasonably foreseeable that such event or circumstance will become a Default or
Event of Default;
(b) after a Responsible Officer of the Borrower or any
ERISA Affiliate knows or has reason to know that any material ERISA Event has
occurred, with a statement of a Responsible Officer of the Borrower describing
such ERISA Event and the action, if any, that the Borrower or such ERISA
Affiliate proposes to take with respect thereto; and
(c) of any material change in accounting policies or
financial reporting practices by the Borrower or any of its Consolidated
Subsidiaries.
Each notice under this Section shall be accompanied by a
written statement by a Responsible Officer setting forth details of the
occurrence referred to therein, and stating what action the Borrower or any
affected Subsidiary proposes to take with respect thereto and at what time.
Each notice under subsection 7.3(a) shall describe with particularity any and
all clauses or provisions of this Agreement or other Loan Document that have
been (or foreseeably will be) breached or violated.
7.4 Preservation of Corporate Existence, Etc. The Borrower shall,
and shall cause each Material Subsidiary to preserve and maintain in full force
and effect its corporate existence and good standing under the laws of its
state or jurisdiction of incorporation and preserve and maintain in full force
and effect all governmental rights, privileges, qualifications, permits,
licenses and franchises necessary or desirable in the normal conduct of its
business except (a) if in the reasonable business judgment of the Borrower or
such Material Subsidiary, it is in its best economic interest not to preserve
or maintain such rights, privileges, qualification, permits, licenses or
franchises and (b) unless no Material Adverse Effect could result.
7.5 Maintenance of Property. The Borrower shall maintain, and
shall cause each Material Subsidiary to maintain, and preserve all its material
property (including, without limitation, equipment) which is used or useful in
its business in good working order and condition, ordinary wear and tear
excepted and make all necessary repairs thereto and renewals and replacements
thereof except where the failure to do so could not reasonably be expected to
50.
<PAGE> 57
have a Material Adverse Effect. The Borrower and each Material Subsidiary
shall use the standard of care typical in the industry in the operation and
maintenance of its facilities.
7.6 Insurance. The Borrower shall maintain, and shall cause each
Material Subsidiary to maintain, with financially sound and reputable
independent insurers, insurance against loss or damage of the kinds customarily
insured against by Persons engaged in the same or similar business, of such
types and in such amounts as are customarily carried under similar
circumstances by such other Persons.
7.7 Payment of Obligations. The Borrower shall, and shall cause
each Material Subsidiary to, pay and discharge before the same shall become
delinquent:
(a) all tax liabilities, assessments and governmental
charges or levies upon it or its properties or assets, unless the same are
being contested in good faith by appropriate proceedings and adequate reserves
in accordance with GAAP are being maintained by the Borrower or such Material
Subsidiary; and
(b) all lawful claims which, if unpaid, would by law
become a Lien upon its property.
7.8 Compliance with Laws. The Borrower shall comply, and shall
cause each Subsidiary to comply, in all material respects with all Requirements
of Law of any Governmental Authority having jurisdiction over it or its
business (including Environmental laws and the federal Fair Labor Standards
Act), except such as may be contested in good faith or as to which a bona fide
dispute may exist.
7.9 Compliance with ERISA. The Borrower shall, and shall cause
each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
federal or state law; (b) cause each Plan which is qualified under Section
401(a) of the Code to maintain such qualification; and (c) make all required
contributions to any Plan subject to Section 412 of the Code.
7.10 Inspection of Property and Books and Records. The Borrower
shall maintain and shall cause each Material Subsidiary to maintain proper
books of record and account, in which full, true and correct entries in
conformity with GAAP consistently applied shall be made of all financial
transactions and the assets and business of the Borrower and such Material
Subsidiary. During the continuance of any Event of Default, the Borrower shall
permit, and shall cause each Subsidiary to permit, representatives and
independent contractors of the Agent or any Bank to visit and inspect any of
their respective properties, to examine their respective corporate, financial
and operating records, and make copies thereof or abstracts therefrom, and to
discuss their respective affairs, finances and accounts with their respective
directors, officers, and independent public accountants, all at the expense of
each the Borrower and at such reasonable times during normal business hours and
as often as may be reasonably desired, upon reasonable advance notice to each
the Borrower.
51.
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7.11 Use of Proceeds. The Borrower shall use the proceeds of the
Loans for working capital and other general corporate purposes (including
repurchases of its own stock) not in contravention of any Requirement of Law or
of any Loan Document.
7.12 Disclosure; Further Assurances.
(a) The Borrower shall ensure that all written
information, exhibits and reports furnished to the Agent and the Banks by or on
behalf of the Borrower and concerning the Borrower do not and will not contain
any untrue statement of a material fact and do not and will not omit to state
any material fact or any fact necessary to make the statements contained
therein not misleading in light of the circumstances in which made, and will
promptly disclose to the Agent and the Banks and correct any material defect or
error that may be discovered therein or in any Loan Document or in the
execution, acknowledgement or recordation thereof; provided that nothing in
this Section 7.12(a) shall apply to any projections, forward-looking
information or other similar or related information furnished by or on behalf
of the Borrower or any Subsidiary in connection with the Loan Documents.
(b) The Borrower shall ensure that all projections,
forward-looking information or other similar or related information furnished
by or on behalf of the Borrower in connection with the Loan Documents are
prepared in good faith on the basis of the assumptions stated therein, which
assumptions are fair in the light of conditions existing at the time of
delivery of such forecasts, and represent, at the time of delivery, the
Borrower or such Subsidiary's best estimate of its future financial
performance, operations and results.
(c) The Borrower shall provide such other documentation
and cooperation as the Agent or the Required Banks reasonably request in
connection with the exercise by the Agent and the Banks of their rights and
remedies under the Loan Documents.
7.13 Financial Covenants. The Borrower will, unless the Required
Banks shall otherwise consent in writing:
(a) Maintenance of Consolidated Tangible Net Worth.
Maintain as at the end of each fiscal quarter a Consolidated Tangible Net Worth
of the Borrower and its Subsidiaries of not less than at any time the amount
that is, (i)(A) the greater of (x) 95% of Consolidated Tangible Net Worth as at
fiscal quarter ending September 1997, and (y) $1,279,000,000, plus (B) 75% of
Consolidated Net Income (excluding any Consolidated Net Loss) of the Borrower
and its Subsidiaries earned in each fiscal quarter after such September 1997
fiscal quarter, plus (C) 75% of the amount of all proceeds (net of costs and
expenses) received pursuant to the issuance of any equity securities issued by
the Borrower after such September 1997 fiscal quarter (excluding proceeds of
any issuance made for the purposes of fulfilling an employee stock purchase
plan or compensatory option plan), plus (D) 100% of the face amount of any
Subordinated Indebtedness that is converted into stock of the Borrower after
such September 1997 fiscal quarter, minus (E) the amount, up to $800,000,000,
paid by the Borrower in respect of repurchases of its stock, minus (F) an
amount equal to the costs and expenses arising from or related to mergers and
acquisitions consummated by the Borrower and its Subsidiaries and recognized in
accordance with GAAP, provided that all such amounts recognized shall be
accounted for in the fiscal
52.
<PAGE> 59
quarter in which the relevant merger or acquisition is consummated and,
provided further, that the total amount of costs and expenses which may be
excluded pursuant to this subsection (F) shall at no time exceed $100,000,000
in the aggregate during the initial term of this Agreement.
(b) Consolidated Net Income. Not permit (i) any
Consolidated Net Loss or Consolidated Operating Loss of the Borrower and its
Subsidiaries to occur for each of any two consecutive fiscal quarters
(calculated as of the last day of each such fiscal quarter); or (ii)
Consolidated Net Loss or Consolidated Operating Loss of the Borrower and its
Subsidiaries for any fiscal quarter to be greater than $25,000,000; provided
that in determining the Consolidated Net Loss or Consolidated Operating Loss
for any fiscal quarter for the purposes of subparagraphs (i) and (ii) of this
Section 7.13(b) there shall be excluded the amount equal to costs and expenses
arising from or related to mergers and acquisitions consummated by the Borrower
and its Subsidiaries and recognized in accordance with GAAP; provided further,
that all such amounts recognized shall be accounted for in the fiscal quarter
in which the relevant merger or acquisition is consummated and provided that
the total amount of costs and expenses which may be excluded pursuant to this
proviso shall at no time exceed $100,000,000 in the aggregate during the
initial term of this Agreement.
(c) Consolidated Total Leverage Ratio. Not permit the
Consolidated Total Leverage Ratio of the Borrower and its Subsidiaries as
determined at the end of each fiscal quarter during the measurement periods set
forth below to exceed the correlative ratio set forth below:
<TABLE>
<CAPTION>
Period Ratio
- ------ -----
<S> <C>
Closing Date through March 26, 1999 40.0%
March 27, 1999 and thereafter 35.0%
</TABLE>
(d) Adjusted Quick Ratio. Maintain a Consolidated
Adjusted Quick Ratio for the Borrower and its Subsidiaries as determined at the
end of each fiscal quarter during each of the measurement periods set forth
below at least equal to the correlative ratio for such period as set forth
below:
<TABLE>
<CAPTION>
Period Ratio
- ------ -----
<S> <C>
Closing Date through December 25, 1998 0.95 : 1.00
December 26, 1998 through September 24, 1999 1.00 : 1.00
September 25, 1999 and thereafter 1.25 : 1.00
</TABLE>
7.14 Patents and Permits. The Borrower will, and will cause each
of its Subsidiaries to, (i) maintain all permits, licenses, consents or other
approvals of any Government Authority or any Person and (ii) maintain in full
force and effect and protect patents, trademarks, tradenames or other
intellectual property rights, the failure of which to maintain or protect would
result in a Material Adverse Effect.
53.
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ARTICLE VIII
NEGATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Required Banks waive compliance in
writing:
8.1 Limitation on Liens. The Borrower shall not, and shall not
suffer or permit any Material Subsidiary to, directly or indirectly, make,
create, incur, assume or suffer to exist any Lien upon or with respect to any
part of its property, whether now owned or hereafter acquired, other than the
following ("Permitted Liens"):
(a) Liens for taxes, assessments or governmental charges
or levies, and to the extent not past due or to the extent contested, in good
faith, by appropriate proceedings and for which adequate reserves have been
established in accordance with GAAP;
(b) Liens imposed by law, such as materialman's,
mechanic's, carrier's, workman's, and repairman's Liens and other similar Liens
arising in the ordinary course of business which relate to obligations which
are not overdue for a period of more than 45 days or which are being contested
in good faith, by appropriate proceedings and for which adequate reserves have
been established in accordance with GAAP;
(c) pledges or deposits in the ordinary course of
business to secure nondelinquent obligations under workman's compensation or
unemployment laws or similar legislation or to secure the performance of leases
or trade contracts entered into in the ordinary course of business or of public
or nondelinquent statutory obligations, bids, or appeal bonds;
(d) Liens upon or in any property acquired or held by the
Borrower or any of its Subsidiaries to secure the purchase price or
construction costs (and, to the extent financed, sales and excise taxes,
delivery and installation costs and other related expenses) of such property or
to secure indebtedness incurred solely for the purpose of financing or
refinancing the acquisition or construction of any such property to be subject
to such Liens, or Liens existing on any such property at the time of
acquisition, or extensions, renewals or replacements of any of the foregoing
for the same or a lesser principal amount, provided that no such Lien shall
extend to or cover any property other than the property being acquired or
constructed and no such extension, renewal or replacement shall extend to or
cover any property not theretofore subject to the Lien being extended, renewed
or replaced;
(e) Liens consisting of the interest of a lessor upon any
assets subject to a Capital Lease and securing payment of the obligations
arising under such Capital Lease and provided that such Capital Lease is
otherwise permitted hereunder;
(f) zoning restrictions, easements, licenses, landlord's
Liens or restrictions on the use of any real property occupied by the Borrower
or its Subsidiaries, which do not materially
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impair the use of such property in the operation of the business of the
Borrower or any of its Subsidiaries or the value of such property for the
purpose of such business;
(g) Liens associated with judgments and awards to the
extent such judgments and awards do not create an Event of Default under
subsection 9.1(i) hereof;
(h) Liens in favor of the issuer of a documentary
commercial letter of credit, provided, that such Liens are limited exclusively
to the goods covered by such letter of credit;
(i) Liens listed on Schedule 8.1(i) securing Indebtedness
outstanding on the Closing Date;
(j) Liens consisting of the interest of a lessor under
Operating Leases made in the ordinary course of business, or existing on
property leased by the Borrower or its Subsidiaries under an Operating Lease in
the ordinary course of business;
(k) Liens in connection with the Permitted Receivables
Purchase Facility (including liens on Permitted Receivables, software, chattel
paper, books and records related to the Permitted Receivables);
(l) Liens securing borrowings by the Borrower against
life insurance policies under which it is the beneficiary in an aggregate
amount not to exceed $40,000,000;
(m) Liens in connection with the Borrower's credit card
processing program in an aggregate amount not to exceed $20,000,000;
(n) Consensual Liens not described in subclauses (a)
through (m) above that; (i) relate to liabilities other than borrowed money
debt (including Liens incurred in connection with sales and leasebacks of the
Borrower's assets) and securing obligations not in excess of $30,000,000 in the
aggregate at any time for all such Liens for the Borrower and its Subsidiaries
together, or (ii) secure obligations not in excess of $15,000,000 in the
aggregate at any time for all such Liens for the Borrower and its Subsidiaries
together; provided that no Liens otherwise permitted by clause (ii) shall be
permitted against Receivables or inventories of the Borrower or its
Subsidiaries; and provided further that the obligations secured by Liens
permitted pursuant to clauses (i) and (ii) shall at no time, in the aggregate,
exceed $30,000,000; and
(o) Liens with respect to collateral (whether in cash,
letters of credit or other investments) provided in connection with the
Multicurrency Note Purchase Facility; provided that at no time shall the
collateral with respect to the Multicurrency Note Purchase Facility exceed, in
the aggregate, $140,000,000.
8.2 Disposition of Assets. The Borrower shall not, and shall not
suffer or permit any Material Subsidiary to, directly or indirectly, sell,
assign, lease, convey, transfer or otherwise dispose of (whether in one or a
series of transactions) any property (including accounts and notes receivable,
with or without recourse) or enter into any agreement to do any of the
foregoing, except:
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(a) dispositions of inventory, or used, worn-out,
obsolete or surplus equipment or other assets not practically usable in the
business of the Borrower, all in the ordinary course of business;
(b) the sale of equipment to the extent that such
equipment is exchanged for credit against the purchase price of similar
replacement equipment, or the proceeds of such sale are reasonably promptly
applied to the purchase price of such replacement equipment;
(c) dispositions of assets in the ordinary course of
business by the Borrower or any of its Subsidiaries to the Borrower or any
other of its Subsidiaries pursuant to reasonable business requirements;
(d) dispositions of Permitted Receivables (including
software, books and records related to Permitted Receivables) pursuant to the
Permitted Receivables Purchase Facility;
(e) dispositions in connection with a sale/leaseback
transaction involving real or personal property of the Borrower or its
Subsidiaries; provided, that any such sale/leaseback transaction is otherwise
permitted under this Agreement;
(f) dispositions not otherwise permitted hereunder;
provided, that (i) at the time of any disposition, no Event of Default shall
exist or shall result from such disposition, and (ii) the aggregate net book
value of all assets so sold by the Borrower and its Subsidiaries, together,
shall not exceed in any fiscal year an amount equal to 5% of Consolidated Total
Assets of the Borrower for such fiscal year; and
(g) dispositions listed on Schedule 8.2.
8.3 Consolidations and Mergers. The Borrower shall not, and shall
not suffer or permit any Subsidiary to, merge, consolidate with or into, or
convey, transfer, lease or otherwise dispose of (whether in one transaction or
in a series of transactions) all or substantially all of its assets (whether
now owned or hereafter acquired) to or acquire all or substantially all of the
assets of, any Person, except:
(a) any Subsidiary may merge with the Borrower, provided
that the Borrower shall be the continuing or surviving corporation, or with any
one or more Subsidiaries, provided that if any transaction shall be between a
Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be
the continuing or surviving corporation;
(b) any Subsidiary may sell all or substantially all of
its assets (upon voluntary liquidation or otherwise), to the Borrower or
another Wholly-Owned Subsidiary; and
(c) to the extent permitted by Section 8.2.
Nothing in this Section 8.3 shall prevent the Borrower or any
of its Subsidiaries from merging with, or acquiring all or substantially all of
the assets of any Person if (i) with respect to a merger, the Borrower or such
Subsidiary party to such merger is the surviving entity
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of such merger, and (ii) the total assets (including securities and all other
assets) so acquired, together with the total assets for all such transactions
occurring after the Closing Date (in each case as measured on the effective
date of such merger or acquisition), do not exceed in any fiscal year an amount
greater than 30% of the Consolidated Tangible Net Worth of the Borrower and its
Subsidiaries for such fiscal year and do not exceed in the aggregate during the
initial term of this Agreement $500,000,000, and (iii) the merger or
acquisition involves an entity engaged in a similar business to that of the
Borrower or in a business within the Borrower's strategic plans; and (iv) no
Default or Event of Default has occurred or would occur from such merger or
acquisition.
If any Acquisition or Investment is hostile, no proceeds of
any Loan or Letter of Credit may be used, directly or indirectly, therefor
("hostile" for purposes of this sentence meaning the prior effective written
consent of the board of directors or equivalent governing body of the acquiree
is not obtained).
8.4 Loans and Investments. The Borrower shall not purchase or
acquire, or suffer or permit any Material Subsidiary to purchase or acquire, or
make any commitment therefor, any capital stock, equity interest, or any
obligations or other securities of, or any interest in, any Person, or make or
commit to make any advance, loan, extension of credit or capital contribution
to or any other investment in, any Person including any Affiliate of the
Borrower (together, but excluding Acquisitions, "Investments"), except for:
(a) Investments held by the Borrower or any Material
Subsidiary in the form of cash equivalents;
(b) extensions of credit in the nature of accounts
receivable or notes receivable arising from the sale or lease of goods or
services in the ordinary course of business;
(c) extensions of credit by the Borrower to any of its
Subsidiaries or by any of its Subsidiaries to another of its Subsidiaries;
(d) (i) Investments in any distributor of the Borrower's
products or any supplier of raw materials or services useful to the business of
the Borrower and its Subsidiaries (other than the acquisition of such Person by
the Borrower or its Subsidiaries), or in any partnership or corporation with
others, (ii) Joint-Ventures and (iii) other Investments, provided, that (A) the
book value (as to the Borrower) of any such Investment or Joint-Venture,
together with such value of all prior Investments or Joint-Ventures described
in clauses (i) through (iii) of this Section 8.4(d) undertaken by the Borrower
and its Subsidiaries after the Closing Date, shall not exceed at the time of
such Investment or Joint Venture, 15% of Consolidated Tangible Net Worth as
calculated as of the most recent fiscal quarter prior to such Investment or
Joint-Venture, (B) such Investments and Joint-Ventures are undertaken in
accordance with all applicable Requirements of Law and (C) immediately prior to
and after giving effect thereto, no Default or Event of Default shall exist or
be continuing;
(e) Investments constituting Permitted Swap Obligations
or payments or advances under Swap Contracts relating to Permitted Swap
Obligations;
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(f) Investments complying with the investment policy for
the Borrower and its Subsidiaries described on Schedule 8.4(f), as such
schedule may be amended from time to time;
(g) contributions, loans or advances to, or guarantees
of, the Borrower or any Subsidiary in connection with the Permitted Receivables
Purchase Facility or the Multicurrency Note Purchase Facility;
(h) loans to employees of the Borrower or any of its
Subsidiaries (i) not to exceed $20,000,000, exclusive of any loans permitted
pursuant to clause (ii), (valued without regard to any write-down due to
uncollectability) at any one time outstanding for all such loans to all
employees of the Borrower and its Subsidiaries in the aggregate, or (ii) in the
ordinary course of business with respect to travel and relocation expenses; and
(i) repurchases of shares of Company stock.
8.5 Transactions with Affiliates. The Borrower shall not, and
shall not suffer or permit any Material Subsidiary to, enter into any
transaction with any Affiliate of the Borrower, except (i) transactions upon
fair and reasonable terms no less favorable to the Borrower or such Material
Subsidiary than it would obtain in a comparable arm's-length transaction with a
Person not an Affiliate of the Borrower or such Material Subsidiary and (ii)
transactions between Material Subsidiaries of the Borrower and transactions
between the Borrower and its Material Subsidiaries on terms fair and reasonable
to all interested parties and undertaken by all such parties in good faith and
in the ordinary course of business.
8.6 Use of Proceeds. The Borrower shall not, and shall not suffer
or permit any Subsidiary to, use any portion of the Loan proceeds or any Letter
of Credit, directly or indirectly, otherwise than in connection with the
purchase of shares of its own stock for immediate cancellation, (i) to purchase
or carry Margin Stock, (ii) to repay or otherwise refinance indebtedness of the
Borrower or others incurred to purchase or carry Margin Stock, (iii) to extend
credit for the purpose of purchasing or carrying any Margin Stock, or (iv) to
acquire any security in any transaction that is subject to Section 13 or 14 of
the Exchange Act.
8.7 Contingent Obligations. The Borrower shall not, and shall not
suffer or permit any Material Subsidiary to, create, incur, assume or suffer to
exist any Contingent Obligations except:
(a) endorsements for collection or deposit in the
ordinary course of business;
(b) Permitted Swap Obligations;
(c) L/C Obligations in favor of BofA or any Affiliate of
BofA in connection with the Permitted Receivables Purchase Facility;
(d) Contingent Obligations in favor of BofA or any
Affiliate of BofA including, without limitation, in the form of recourse to the
Borrower or guaranties by the Borrower in connection with the Permitted
Receivables Purchase Facility or the Multicurrency Note Purchase Facility;
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(e) Contingent Obligations of the Borrower and its
Subsidiaries existing as of the Closing Date and listed in Schedule 8.7(e) and
any renewals, extensions or modifications thereof so long as the aggregate
amount of such Contingent Obligations does not increase from the amount
existing on the Closing Date;
(f) Contingent Obligations incurred in the ordinary
course of business and not exceeding at any time $30,000,000 in the aggregate
in respect of the Borrower and its Subsidiaries together;
(g) Contingent Obligations arising under the Loan
Documents;
(h) Contingent Obligations arising in connection with
Indebtedness of any Subsidiary of the Borrower, provided, that such
Indebtedness is otherwise permitted by this Credit Agreement; and
(i) Contingent Obligations of the Borrower pursuant to
guaranties in favor of Leasetec Corporation and other leasing partners (or any
of their successors or assigns) so long as the aggregate amount thereof does
not exceed at any time $50,000,000.
8.8 Restricted Payments. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, declare or make any dividend payment or
other distribution of assets, properties, cash, rights, obligations or
securities on account of any shares of any class of its capital stock, except
that the Borrower may (so long as there is no Default or Event of Default);
(a) declare and make dividend payments or other
distributions payable solely in its common stock;
(b) declare and make dividend payments in cash with
respect to preferred stock of the Borrower, so long as the aggregate amount of
such cash used by the Borrower pursuant to this clause (b) does not exceed
$20,000,000 in any fiscal year;
provided further that (so long as there is no Default or Event of Default) any
Subsidiary may pay cash dividends or make other distributions to the Borrower
or, in the ordinary course of business of the Borrower and its Subsidiaries
taken as a whole, any other Subsidiary.
8.9 ERISA. The Borrower shall not, and shall not suffer or permit
any of its ERISA Affiliates to: (a) engage in a prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Plan which
has resulted or could reasonably expected to result in liabilities of the
Borrower in an aggregate amount in excess of $10,000,000; or (b) engage in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
8.10 Change in Business. The Borrower shall not make any material
change in the nature of its business as conducted on the Closing Date.
8.11 Accounting Changes. The Borrower shall not and shall not
suffer or permit any Material Subsidiary to, make any significant change in
accounting treatment or reporting
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practices, except as required by GAAP, or change the fiscal year of each the
Borrower or any Material Subsidiary.
ARTICLE IX
EVENTS OF DEFAULT
9.1 Event of Default. Any of the following events shall
constitute an "Event of Default":
(a) Non-Payment. The Borrower fails to pay, (i) when and
as required to be paid herein, any amount of principal of any Loan or of any
L/C Obligation, or (ii) within two Business Days after the same becomes due,
any interest, fee or any other amount payable hereunder or under any other Loan
Document; or
(b) Representation or Warranty. Any representation or
warranty by the Borrower made or deemed made herein, in any other Loan
Document, or which is contained in any certificate, document or financial or
other statement by the Borrower, or any Responsible Officer, furnished at any
time under this Agreement, or in or under any other Loan Document, is incorrect
in any material respect on or as of the date made or deemed made; or
(c) Specific Defaults. The Borrower (i) fails to perform
or observe any term, covenant or agreement contained in Sections 7.3, 7.4, 7.11
or 7.13 or in Article VIII; or (ii) fails to perform or observe any term,
covenant or agreement contained in Sections 7.1, 7.2 or 7.9 and such failure
shall continue for five Business Days; or
(d) Other Defaults. The Borrower or any Subsidiary party
thereto fails to perform or observe any other term or covenant contained in
this Agreement or any other Loan Document, and such default shall continue
unremedied for a period of 30 days after the earlier of (i) the date upon which
a Responsible Officer knew or reasonably should have known of such failure or
(ii) the date upon which written notice thereof is given to the Borrower by the
Agent or any Bank; or
(e) Cross-Default. The Borrower or any Subsidiary (i)
fails to make any payment in respect of any Indebtedness or Contingent
Obligation (other than Indebtedness or Contingent Obligations hereunder),
having an aggregate principal amount (including undrawn committed or available
amounts and including amounts owing to all creditors under any combined or
syndicated credit arrangement) of more than $20,000,000 when due (whether by
scheduled maturity, required prepayment, acceleration, demand, or otherwise)
and such failure shall continue for five Business Days; or (ii) fails to
perform or observe any other condition or covenant, or any other event shall
occur or condition exist, under any agreement or instrument relating to any
such Indebtedness or Contingent Obligation, if the effect of such failure,
event or condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee
or agent on behalf of such holder or holders or beneficiary or beneficiaries)
to cause such Indebtedness to be declared to be due and payable
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prior to its stated maturity, or such Contingent Obligation to become payable
or cash collateral in respect thereof to be demanded; or
(f) Insolvency; Voluntary Proceedings. The Borrower or
any Material Subsidiary (i) ceases or fails to be solvent, or generally fails
to pay, or admits in writing its inability to pay, its debts as they become
due, subject to applicable grace periods, if any, whether at stated maturity or
otherwise; (ii) voluntarily ceases to conduct its business in the ordinary
course; (iii) commences any Insolvency Proceeding with respect to itself; or
(iv) takes any action to effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary
Insolvency Proceeding is commenced or filed against the Borrower or any
Material Subsidiary, or any writ, judgment, warrant of attachment, execution or
similar process, is issued or levied against a substantial part of the
Borrower's or any Material Subsidiary's properties, and any such proceeding or
petition shall not be dismissed, or such writ, judgment, warrant of attachment,
execution or similar process shall not be released, vacated or fully bonded
within 60 days after commencement, filing or levy; (ii) the Borrower or any
Material Subsidiary admits the material allegations of a petition against it in
any Insolvency Proceeding, or an order for relief (or similar order under
non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Borrower or
any Material Subsidiary acquiesces in the appointment of a receiver, trustee,
custodian, conservator, liquidator, mortgagee in possession (or agent
therefor), or other similar Person for itself or a substantial portion of its
property or business; or
(h) ERISA. (i) An ERISA Event shall occur with respect
to a Pension Plan or Multiemployer Plan which has resulted or could reasonably
be expected to result in liability of the Borrower under Title IV of ERISA to
the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in
excess of $20,000,000; (ii) the aggregate amount of Unfunded Pension Liability
among all Pension Plans at any time exceeds $20,000,000; or (iii) the Borrower
or any ERISA Affiliate shall fail to pay when due, after the expiration of any
applicable grace period, any installment payment with respect to its withdrawal
liability under Section 4201 of ERISA under a Multiemployer Plan in an
aggregate amount in excess of $20,000,000; or
(i) Monetary Judgments. One or more non-interlocutory
judgments, non-interlocutory orders, decrees or arbitration awards is entered
against the Borrower or any Subsidiary involving in the aggregate a liability
(to the extent not covered by independent third-party insurance as to which the
insurer does not dispute coverage) as to any single or related series of
transactions, incidents or conditions, of $20,000,000 or more, and the same
shall remain unvacated and unstayed pending appeal for a period of 10 days
after the entry thereof; or
(j) Non-Monetary Judgments. Any non-monetary judgment,
order or decree is entered against the Borrower or any Subsidiary which does or
would reasonably be expected to have a Material Adverse Effect, and there shall
be any period of 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(k) Change of Control. There occurs any Change of
Control; or
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(l) Adverse Change. There occurs a Material Adverse
Effect.
9.2 Remedies. If any Event of Default occurs and is continuing,
the Agent shall, at the request of, or may, with the consent of, the Required
Banks,
(a) declare the obligation of each Bank to make Loans and
the obligation of the Swingline Bank to make Swingline Loans, and any
obligation of the Issuing Bank to Issue Letters of Credit to be terminated,
whereupon such obligations and such Bank's Commitments shall be terminated;
(b) declare an amount equal to the maximum aggregate
amount that is or at any time thereafter may become available for drawing under
any outstanding Letters of Credit (whether or not any beneficiary shall have
presented, or shall be entitled at such time to present, the drafts or other
documents required to draw under such Letters of Credit) to be immediately due
and payable, and declare the unpaid principal amount of all outstanding Loans,
all interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Borrower; and
(c) exercise on behalf of itself and the Banks all rights
and remedies available to it and the Banks under the Loan Documents or
applicable law;
provided, however, that upon the occurrence of any event specified in
subsection (f) or (g) of Section 9.1 (in the case of clause (i) of subsection
(g) upon the expiration of the 60-day period mentioned therein), the obligation
of each Bank to make Loans and any obligation of the Issuing Bank to Issue
Letters of Credit shall automatically terminate and the unpaid principal amount
of all outstanding Loans and all interest and other amounts as aforesaid shall
automatically become due and payable without further act of the Agent, the
Issuing Bank or any Bank.
9.3 Certain Financial Covenant Defaults. In the event that, after
taking into account any extraordinary charge to earnings taken or to be taken
as of the end of any fiscal period of the Borrower (a "Charge"), and if solely
by virtue of such Charge, there would exist an Event of Default due to the
breach of any of Section 7.13 as of such fiscal period end date, such Event of
Default shall be deemed to arise upon the earlier of (a) the date after such
fiscal period end date on which the Borrower announces publicly it will take,
is taking or has taken such Charge (including an announcement in the form of a
statement in a report filed with the SEC) or, if such announcement is made
prior to such fiscal period end date, the date that is such fiscal period end
date, and (b) the date the Borrower delivers to the Agent its audited annual or
unaudited quarterly financial statements in respect of such fiscal period
reflecting such Charge as taken.
ARTICLE X
THE AGENT
10.1 Appointment and Authorization; "Agent". (a) Each Bank hereby
irrevocably (subject to Section 10.9) appoints, designates and authorizes the
Agent to take such action on its
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behalf under the provisions of this Agreement and each other Loan Document and
to exercise such powers and perform such duties as are expressly delegated to
it by the terms of this Agreement or any other Loan Document, together with
such powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary contained elsewhere in this Agreement or in any other
Loan Document, the Agent shall not have any duties or responsibilities, except
those expressly set forth herein, nor shall the Agent have or be deemed to have
any fiduciary relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
Without limiting the generality of the foregoing sentence, the use of the term
"agent" in this Agreement with reference to the Agent is not intended to
connote any fiduciary or other implied (or express) obligations arising under
agency doctrine of any applicable law. Instead, such term is used merely as a
matter of market custom, and is intended to create or reflect only an
administrative relationship between independent contracting parties.
(b) The Issuing Bank shall act on behalf of the Banks
with respect to any Letters of Credit Issued by it and the documents associated
therewith until such time and except for so long as the Agent may agree at the
request of the Required Banks to act for such Issuing Bank with respect
thereto; provided, however, that the Issuing Bank shall have all of the
benefits and immunities (i) provided to the Agent in this Article X with
respect to any acts taken or omissions suffered by the Issuing Bank in
connection with Letters of Credit Issued by it or proposed to be Issued by it
and the application and agreements for letters of credit pertaining to the
Letters of Credit as fully as if the term "Agent", as used in this Article X,
included the Issuing Bank with respect to such acts or omissions, and (ii) as
additionally provided in this Agreement with respect to the Issuing Bank.
10.2 Delegation of Duties. The Agent may execute any of its duties
under this Agreement or any other Loan Document by or through agents, employees
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
10.3 Liability of Agent. None of the Agent-Related Persons shall
(i) be liable for any action taken or omitted to be taken by any of them under
or in connection with this Agreement or any other Loan Document or the
transactions contemplated hereby (except for its own gross negligence or
willful misconduct), or (ii) be responsible in any manner to any of the Banks
for any recital, statement, representation or warranty made by the Borrower or
any Subsidiary or Affiliate of the Borrower, or any officer thereof, contained
in this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document,
or the validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Loan Document, or for any failure of the Borrower
or any other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Bank
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower or any
of the Borrower's Subsidiaries or Affiliates.
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10.4 Reliance by Agent. (a) The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or
telephone message, statement or other document or conversation believed by it
to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons, and upon advice and statements of legal counsel (including
counsel to the Borrower), independent accountants and other experts selected by
the Agent. The Agent shall be fully justified in failing or refusing to take
any action under this Agreement or any other Loan Document unless it shall
first receive such advice or concurrence of the Required Banks as it deems
appropriate and, if it so requests, it shall first be indemnified to its
satisfaction by the Banks against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action.
The Agent shall in all cases be fully protected in acting, or in refraining
from acting, under this Agreement or any other Loan Document in accordance with
a request or consent of the Required Banks and such request and any action
taken or failure to act pursuant thereto shall be binding upon all of the
Banks.
(b) For purposes of determining compliance with the
conditions specified in Section 5.1, each Bank that has executed this Agreement
shall be deemed to have consented to, approved or accepted or to be satisfied
with, each document or other matter either sent (or made available) by the
Agent to such Bank for consent, approval, acceptance or satisfaction, or
required thereunder to be consented to or approved by or acceptable or
satisfactory to such Bank, unless an officer of the Agent responsible for the
transactions contemplated by the Loan Documents shall have received notice from
such Bank prior to the Closing Date specifying its objection thereto and such
objection shall not have been withdrawn by notice to the Agent to that effect
on or prior to the Closing Date.
10.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest and fees
required to be paid to the Agent for the account of the Banks, unless the Agent
shall have received written notice from a Bank or the Borrower referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default". The Agent will notify the Banks of its
receipt of any such notice. The Agent shall take such action with respect to
such Default or Event of Default as may be requested by the Required Banks in
accordance with Article IX; provided, however, that unless and until the Agent
has received any such request, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable or in the best interest
of the Banks.
10.6 Credit Decision. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that
no act by the Agent hereinafter taken, including any review of the affairs of
the Borrower and its Subsidiaries, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Bank. Each Bank
represents to the Agent that it has, independently and without reliance upon
any Agent- Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of the Borrower and its Subsidiaries, the value of and title
to any collateral, and all applicable bank regulatory laws relating to the
transactions contemplated
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hereby, and made its own decision to enter into this Agreement and to extend
credit to the Borrower hereunder. Each Bank also represents that it will,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to
make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly herein required to be furnished to the Banks by the Agent,
the Agent shall not have any duty or responsibility to provide any Bank with
any credit or other information concerning the business, prospects, operations,
property, financial and other condition or creditworthiness of the Borrower
which may come into the possession of any of the Agent-Related Persons.
10.7 Indemnification of Agent. Whether or not the transactions
contemplated hereby are consummated, the Banks shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the
Borrower and without limiting the obligation of the Borrower to do so), in
accordance with the Banks' Pro Rata Shares from and against any and all
Indemnified Liabilities; provided, however, that no Bank shall be liable for
the payment to the Agent-Related Persons of any portion of such Indemnified
Liabilities to the extent that they are found by a final decision of a court of
competent jurisdiction to have resulted solely from such Person's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Bank shall reimburse the Agent upon demand for its ratable share of any costs
or out-of-pocket expenses (including Attorney Costs) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any
document contemplated by or referred to herein, to the extent that the Agent is
not reimbursed for such expenses by or on behalf of the Borrower. The
undertaking in this Section shall survive the payment of all Obligations
hereunder and the resignation or replacement of the Agent.
10.8 Agent in Individual Capacity. BofA and its Affiliates may
make loans to, issue letters of credit for the account of, accept deposits
from, acquire equity interests in and generally engage in any kind of banking,
trust, financial advisory, underwriting or other business with the Borrower and
its Subsidiaries and Affiliates as though BofA were not the Agent or the
Issuing Bank hereunder and without notice to or consent of the Banks. The
Banks acknowledge that, pursuant to such activities, BofA or its Affiliates may
receive information regarding the Borrower or its Affiliates (including
information that may be subject to confidentiality obligations in favor of the
Borrower or such Subsidiary) and acknowledge that the Agent shall be under no
obligation to provide such information to them. With respect to its Loans,
BofA shall have the same rights and powers under this Agreement as any other
Bank and may exercise the same as though it were not the Agent or the Issuing
Bank.
10.9 Successor Agent. The Agent may, and at the request of the
Required Banks shall, resign as Agent upon 30 days' notice to the Banks. If
the Agent resigns under this Agreement, the Required Banks shall appoint from
among the Banks a successor agent for the Banks. If no successor agent is
appointed prior to the effective date of the resignation of the
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Agent, the Agent may appoint, after consulting with the Banks and the Borrower,
a successor agent from among the Banks. Upon the acceptance of its appointment
as successor agent hereunder, such successor agent shall succeed to all the
rights, powers and duties of the retiring Agent and the term "Agent" shall mean
such successor agent and the retiring Agent's appointment, powers and duties as
Agent shall be terminated. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article X and Sections 11.4 and 11.5 shall inure
to its benefit as to any actions taken or omitted to be taken by it while it
was Agent under this Agreement. If no successor agent has accepted appointment
as Agent by the date which is 30 days following a retiring Agent's notice of
resignation, the retiring Agent's resignation shall nevertheless thereupon
become effective and the Banks shall perform all of the duties of the Agent
hereunder until such time, if any, as the Required Banks appoint a successor
agent as provided for above. Notwithstanding the foregoing, however, BofA may
not be removed as the Agent at the request of the Required Banks unless BofA
shall also simultaneously be replaced as "Issuing Bank" and "Swingline Bank"
hereunder pursuant to documentation in form and substance reasonably
satisfactory to BofA (which documentation, among other things, will deal with
replacement and cancellation of all outstanding Letters of Credit and the
payment of all outstanding Swingline Loans in a manner satisfactory to BofA).
10.10 Withholding Tax. (a) If any Bank is a "foreign corporation,
partnership or trust" within the meaning of the Code and such Bank claims
exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or
1442 of the Code, such Bank agrees to deliver to the Agent and the Borrower:
(i) if such Bank claims an exemption from, or a
reduction of, withholding tax under a United States tax treaty, two
properly completed and executed copies of IRS Form 1001 before the
payment of any interest or fees in the first calendar year and before
the payment of any interest or fees in each third succeeding calendar
year during which interest or fees may be paid under this Agreement;
(ii) if such Bank claims that interest paid under
this Agreement is exempt from United States withholding tax because it
is effectively connected with a United States trade or business of
such Bank, two properly completed and executed copies of IRS Form 4224
before the payment of any interest or fees is due in the first taxable
year of such Bank and in each succeeding taxable year of such Bank
during which interest or fees may be paid under this Agreement; and
(iii) such other form or forms as may be required
under the Code or other laws of the United States as a condition to
exemption from, or reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent and the Borrower of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Bank claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Bank sells, assigns, grants a participation in, or otherwise transfers all
or part of the Obligations of the Borrower owing to
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such Bank, such Bank agrees to notify the Agent and the Borrower of the
percentage amount in which it is no longer the beneficial owner of Obligations
of the Borrower owing to such Bank. To the extent of such percentage amount,
the Agent and the Borrower will treat such Bank's IRS Form 1001 as no longer
valid.
(c) If any Bank claiming exemption from United States
withholding tax by filing IRS Form 4224 with the Agent and the Borrower sells,
assigns, grants a participation in, or otherwise transfers all or part of the
Obligations of the Borrower to such Bank, such Bank agrees to undertake sole
responsibility for complying with the withholding tax requirements imposed by
Sections 1441 and 1442 of the Code.
(d) If any Bank is entitled to a reduction in the
applicable withholding tax, the Borrower (or if not withheld by the Borrower
the Agent) may withhold from any interest payment to such Bank, or to the Agent
on behalf of such Bank, an amount equivalent to the applicable withholding tax
after taking into account such reduction. However, if the forms or other
documentation required by subsection (a) of this Section are not delivered to
the Agent and the Borrower, then the Borrower (or the Agent, if not withheld by
the Borrower) may withhold from any interest payment to such Bank, or to the
Agent on behalf of such Bank, not providing such forms or other documentation
an amount equivalent to the applicable withholding tax imposed by Sections 1441
and 1442 of the Code, without reduction.
(e) If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that the Borrower or the
Agent did not properly withhold tax from amounts paid to or for the account of
any Bank (because the appropriate form was not delivered or was not properly
executed, or because such Bank failed to notify the Borrower or the Agent of a
change in circumstances which rendered the exemption from, or reduction of,
withholding tax ineffective, or for any other reason) such Bank shall indemnify
the Borrower or the Agent fully for all amounts paid, directly or indirectly,
by the Borrower or the Agent as tax or otherwise, including penalties and
interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Borrower or the Agent under this Section, together with all
costs and expenses (including Attorney Costs). The obligation of the Banks
under this subsection shall survive the payment of all Obligations and the
resignation or replacement of the Agent.
ARTICLE XI
MISCELLANEOUS
11.1 Amendments and Waivers. No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent with
respect to any departure by the Borrower or any applicable Subsidiary
therefrom, shall be effective unless the same shall be in writing and signed by
the Required Banks (or by the Agent at the written request of the Required
Banks) and the Borrower and acknowledged by the Agent, and then any such waiver
or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no such waiver,
amendment, or consent shall, unless in writing and
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signed by all the Banks and the Borrower and acknowledged by the Agent, do any
of the following:
(a) increase or extend the Commitment of any Bank or the
Swingline Commitment of the Swingline Bank;
(b) postpone or delay any date fixed by this Agreement or
any other Loan Document for any payment of principal, interest, fees or other
amounts due to the Banks (or any of them) hereunder or under any other Loan
Document;
(c) reduce the principal of, or the rate of interest
specified herein on any Loan, or any fees or other amounts payable hereunder or
under any other Loan Document;
(d) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which is required for the Banks
or any of them to take any action hereunder; or
(e) amend this Section, or Section 2.14, or any provision
herein providing for consent or other action by all Banks;
and, provided, further, that (i) no amendment, waiver or consent shall, unless
in writing and signed by the Issuing Bank in addition to the Required Banks or
all the Banks, as the case may be, affect the rights or duties of the Issuing
Bank under this Agreement or any L/C-Related Document relating to any Letter of
Credit Issued or to be Issued by it, and (ii) no amendment, waiver or consent
shall, unless in writing and signed by the Agent in addition to the Required
Banks or all the Banks, as the case may be, affect the rights or duties of the
Agent under this Agreement or any other Loan Document.
11.2 Notices. (a) All notices, requests, consents, approvals,
waivers and other communications shall be in writing (including, unless the
context expressly otherwise provides, by facsimile transmission, provided that
any matter transmitted by the Borrower by facsimile (i) shall be immediately
confirmed by a telephone call to the recipient at the number specified on
Schedule 11.2, and (ii) shall be followed promptly by delivery of a hard copy
original thereof) and mailed, faxed or delivered, to the address or facsimile
number specified for notices on Schedule 11.2; or, as directed to the Borrower
or the Agent, to such other address as shall be designated by such party in a
written notice to the other parties, and as directed to any other party, at
such other address as shall be designated by such party in a written notice to
the Borrower and the Agent. All notices to the Borrower shall be sent to
Storage Technology Corporation, 2270 South 88th Street, Louisville, CO
80028-4302, Attention: Treasurer, Telecopy No.: (303) 673-2837.
(b) All such notices, requests and communications shall,
when transmitted by overnight delivery, or faxed, be effective when delivered
for overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mails, or if delivered, upon delivery; except that
notices pursuant to Article II, III or X to the Agent shall not be effective
until actually
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received by the Agent, and notices pursuant to Article III to the Issuing Bank
shall not be effective until actually received by the Issuing Bank at the
address specified for the "Issuing Bank" on the applicable signature page
hereof.
(c) Any agreement of the Agent and the Banks herein to
receive certain notices by telephone or facsimile is solely for the convenience
and at the request of the Borrower. The Agent and the Banks shall be entitled
to rely on the authority of any Person purporting to be a Person authorized by
the Borrower to give such notice and the Agent and the Banks shall not have any
liability to the Borrower or other Person on account of any action taken or not
taken by the Agent or the Banks in reliance upon such telephonic or facsimile
notice. The obligation of the Borrower to repay the Loans and L/C Obligations
shall not be affected in any way or to any extent by any failure by the Agent
and the Banks to receive written confirmation of any telephonic or facsimile
notice or the receipt by the Agent and the Banks of a confirmation which is at
variance with the terms understood by the Agent and the Banks to be contained
in the telephonic or facsimile notice.
11.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Agent or any Bank, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights provided for in this Agreement
and the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
11.4 Costs and Expenses. The Borrower shall:
(a) whether or not the transactions contemplated hereby
are consummated, pay or reimburse the Agent within five Business Days after
demand (subject to subsection 5.1(e)) for all costs and expenses incurred by
the Agent in connection with the development, preparation, delivery, ongoing
administration and execution of, and any amendment, supplement, waiver or
modification to (in each case, whether or not consummated), this Agreement, any
Loan Document and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby, including reasonable Attorney Costs and search and filing fees and
expenses incurred by the Agent with respect thereto;
(b) pay or reimburse the Agent and the Arranger and each
Bank within five Business Days after demand (subject to subsection 5.1(e)) for
all costs and expenses (including reasonable Attorney Costs and search and
filing fees and expenses provided that the Borrower shall have been given
statements containing reasonably detailed bills for such fees and expenses)
incurred by them in connection with the enforcement or preservation of any
rights or remedies under this Agreement or any other Loan Document during the
existence of an Event of Default or after acceleration of the Loans (including
in connection with any "workout" or restructuring regarding the Loans, and
including in any Insolvency Proceeding or appellate proceeding); and
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(c) during the continuance of any Event of Default, pay
or reimburse the Agent within five Business Days after demand for all appraisal
(including the allocated cost of internal appraisal services), audit,
environmental inspection and review (including the allocated cost of such
internal services), incurred or sustained by the Agent in connection with the
matters referred to under subsections (a) and (b) of this Section.
11.5 Borrower's Indemnification. Whether or not the transactions
contemplated hereby are consummated, the Borrower shall indemnify, defend and
hold the Agent-Related Persons, and each Bank and each of its respective
officers, directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans, the termination of the Letters of Credit and the
termination, resignation or replacement of the Agent or replacement of any
Bank) be imposed on, incurred by or asserted against any such Person in any way
relating to or arising out of this Agreement or any document contemplated by or
referred to herein, or the transactions contemplated hereby, or any action
taken or omitted by any such Person under or in connection with any of the
foregoing, including with respect to any investigation, litigation or
proceeding (including any Insolvency Proceeding or appellate proceeding)
related to or arising out of this Agreement or the Loans or Letters of Credit
or the use of the proceeds thereof, whether or not any Indemnified Person is a
party thereto (all the foregoing, collectively, the "Indemnified Liabilities");
provided, that the Borrower shall have no obligation hereunder to any
Indemnified Person with respect to Indemnified Liabilities to the extent they
are found by a final decision of a court of competent jurisdiction to have
resulted solely from the gross negligence or willful misconduct of such
Indemnified Person. The agreements in this Section shall survive payment of all
other Obligations.
11.6 Payments Set Aside. To the extent that the Borrower makes a
payment to the Agent or the Banks, or the Agent or the Banks exercise their
right of set-off, and such payment or the proceeds of such set-off or any part
thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required (including pursuant to any settlement
entered into by the Agent or such Bank in its discretion) to be repaid to a
trustee, receiver or any other party, in connection with any Insolvency
Proceeding or otherwise, then (a) to the extent of such recovery the obligation
or part thereof originally intended to be satisfied shall be revived and
continued in full force and effect as if such payment had not been made or such
set-off had not occurred, and (b) each Bank severally agrees to pay to the
Agent upon demand its pro rata share of any amount so recovered from or repaid
by the Agent.
11.7 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the
prior written consent of the Agent and each Bank.
11.8 Assignments, Participations, Etc. (a) Any Bank may, with the
written consent of the Borrower at all times other than during the existence of
an Event of Default and the Agent and the Issuing Bank, (which consents in each
case shall not be unreasonably withheld), at any
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time assign and delegate to one or more Eligible Assignees (provided that no
written consent of the Borrower, the Agent or the Issuing Bank shall be
required in connection with any assignment and delegation by a Bank to an
Eligible Assignee that is an Affiliate of such Bank or that is a Bank then
holding a Commitment hereunder) (each an "Assignee") all, or any ratable part
of all, of the Loans, the Commitments, the L/C Obligations and the other rights
and obligations of such Bank hereunder, provided, that any such assigning Bank
either retains a Commitment or Loan of at least $15,000,000 or disposes of its
entire Commitment or Loans and provided further that any Assignee shall have a
Commitment or Loans of at least $15,000,000; provided, however, that the
Borrower and the Agent may continue to deal solely and directly with such Bank
in connection with the interest so assigned to an Assignee until (i) written
notice of such assignment, together with payment instructions, addresses and
related information with respect to the Assignee, shall have been given to the
Borrower and the Agent by such Bank and the Assignee; (ii) such Bank and its
Assignee shall have delivered to the Borrower and the Agent an Assignment and
Acceptance in the form of Exhibit E ("Assignment and Acceptance") together with
any Note or Notes subject to such assignment and (iii) the assignor Bank or
Assignee has paid to the Agent a processing fee in the amount of $4,000. No
Assignee shall be entitled to higher recoveries or greater rights under
Sections 4.1, 4.2 and 4.3 than its assignor.
(b) From and after the date that the Agent notifies the
assignor Bank that it has received (and provided its consent with respect to)
an executed Assignment and Acceptance and payment of the above-referenced
processing fee, (i) the Assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, shall have the rights and obligations of a
Bank under the Loan Documents, (ii) this Agreement shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the
addition of the Assignee and the resulting adjustment of the Commitments and
Loans arising therefrom, and (iii) the assignor Bank shall, to the extent that
rights and obligations hereunder and under the other Loan Documents have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its
rights and be released from its obligations under the Loan Documents; provided,
however, that the assignor Bank shall not relinquish its rights under Article
IV or under Sections 11.4 and 11.5 to the extent such rights relate to the time
prior to the effective date of the Assignment and Acceptance. The Commitment
allocated to each Assignee shall reduce the Commitment of the assigning Bank
pro tanto.
(c) Within five Business Days after its receipt of notice
by the Agent that it has received an executed Assignment and Acceptance and
payment of the processing fee, (and provided that it consents to such
assignment in accordance with subsection 11.8(a)), the Borrower shall execute
and deliver to the Agent, any new Notes requested by such Assignee evidencing
such Assignee's assigned Loans and Commitment and, if the assignor Bank has
retained a portion of its Loans and its Commitment, replacement Notes as
requested by the assignor Bank evidencing the Loans and Commitment retained by
such assignor Bank (such Notes to be in exchange for, but not in payment of,
the Notes held by such Bank).
(d) Any Bank may at any time sell to one or more
commercial banks or other Persons not Affiliates of the Borrower (a
"Participant") participating interests in any Loans, the Commitment of that
Bank and the other interests of that Bank (the "originating Bank") hereunder
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and under the other Loan Documents; provided, however, that (i) the originating
Bank's obligations under this Agreement shall remain unchanged, (ii) the
originating Bank shall remain solely responsible for the performance of such
obligations, (iii) the Borrower, the Issuing Bank and the Agent shall continue
to deal solely and directly with the originating Bank in connection with the
originating Bank's rights and obligations under this Agreement and the other
Loan Documents, and (iv) no Bank shall transfer or grant any participating
interest under which the Participant has rights to approve any amendment to, or
any consent or waiver with respect to, this Agreement or any other Loan
Document, except to the extent such amendment, consent or waiver would require
unanimous consent of the Banks as described in the first proviso to Section
11.1. In the case of any such participation, the Participant shall be entitled
to the benefit of Sections 4.1, 4.3 and 11.5 as though it were also a Bank
hereunder, and not otherwise have any rights under this Agreement, or any of
the other Loan Documents, and all amounts payable by the Borrower hereunder
shall be determined as if such Bank had not sold such participation; except
that, if amounts outstanding under this Agreement are due and unpaid, or shall
have been declared or shall have become due and payable upon the occurrence of
an Event of Default, each Participant shall be deemed to have the right of
set-off in respect of its participating interest in amounts owing under this
Agreement to the same extent as if the amount of its participating interest
were owing directly to it as a Bank under this Agreement.
(e) Notwithstanding any other provision in this
Agreement, any Bank may at any time create a security interest in, or pledge,
all or any portion of its rights under and interest in this Agreement and any
Note held by it in favor of any Federal Reserve Bank in accordance with
Regulation A of the FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and
such Federal Reserve Bank may enforce such pledge or security interest in any
manner permitted under applicable law.
11.9 Confidentiality. Each Bank and the Agent agrees that it will
not disclose to any third party any written information marked "Confidential,"
"Secret," "Top Security," "Protected" or words of similar import, provided to
it by the Borrower or any Subsidiary or any oral information which is stated to
be confidential and which is confirmed as such in writing within seven days;
provided, however, that the foregoing will not (i) restrict the ability of the
Agent, the Banks and any loan participants from freely exchanging such
information among themselves (and their respective employees, attorneys,
auditors and other professional advisors), (ii) restrict the ability to
disclose such information to a prospective Eligible Assignee or participants,
provided, that such Eligible Assignee or participants execute a confidentiality
agreement with the selling Bank agreeing to be bound by the terms hereof prior
to disclosure of such information to such Eligible Assignee or participant, or
(iii) prohibit the disclosure of such information to the extent such
information (A) becomes publicly available other than through a breach of this
Section 11.9, (B) becomes available through a Person other than the Borrower or
a Subsidiary of the Borrower, (C) is required to be disclosed pursuant to court
order, subpoena, other legal process, regulatory request or otherwise by law or
(D) is disclosed in litigation with the Borrower or any Subsidiary of the
Borrower or in connection with the enforcement of remedies by the Agent or
Banks after acceleration of the Loans or after the Termination Date.
11.10 Set-off. In addition to any rights and remedies of the Banks
provided by law, if an Event of Default exists or the Loans have been
accelerated, each Bank is authorized at any
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time and from time to time, without prior notice to the Borrower, any such
notice being waived by the Borrower to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held by, and other indebtedness at any time
owing by, such Bank to or for the credit or the account of the Borrower against
any and all Obligations owing to such Bank, now or hereafter existing,
irrespective of whether or not the Agent or such Bank shall have made demand
under this Agreement or any Loan Document and although such Obligations may be
contingent or unmatured. Each Bank agrees promptly to notify the Borrower and
the Agent after any such set-off and application made by such Bank; provided,
however, that the failure to give such notice shall not affect the validity of
such set-off and application.
11.11 Automatic Debits of Fees. With respect to any commitment fee,
letter of credit fee or other fee, or any other cost or expense (including
Attorney Costs) due and payable to the Agent, the Issuing Bank, BofA or the
Arranger under the Loan Documents, the Borrower hereby irrevocably authorizes
BofA to debit any deposit account of the Borrower with BofA in an amount such
that the aggregate amount debited from all such deposit accounts does not
exceed such fee or other cost or expense. If there are insufficient funds in
such deposit accounts to cover the amount of the fee or other cost or expense
then due, such debits will be reversed (in whole or in part, in BofA's sole
discretion) and such amount not debited shall be deemed to be unpaid. No such
debit under this Section shall be deemed a set-off.
11.12 Notification of Addresses, Lending Offices, Etc. Each Bank
shall notify the Agent in writing of any changes in the address to which
notices to the Bank should be directed, of addresses of any Lending Office, of
payment instructions in respect of all payments to be made to it hereunder and
of such other administrative information as the Agent shall reasonably request.
11.13 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
11.14 Severability. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
11.15 No Third Parties Benefited. This Agreement is made and
entered into for the sole protection and legal benefit of the Borrower, the
Banks, the Agent and the Agent-Related Persons, and their permitted successors
and assigns, and no other Person shall be a direct or indirect legal
beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this Agreement or any of the other Loan Documents.
11.16 Governing Law and Jurisdiction. (a) THIS AGREEMENT AND THE
NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF CALIFORNIA; PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL
RIGHTS ARISING UNDER FEDERAL LAW.
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(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA,
AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWER, THE
AGENT AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE BORROWER, THE AGENT
AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE
BORROWER, THE AGENT AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY
CALIFORNIA LAW.
11.17 Waiver of Jury Trial. THE BORROWER, THE BANKS AND THE AGENT
EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY
ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR
ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.
THE BORROWER, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE
OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
11.18 Entire Agreement. This Agreement, together with the other
Loan Documents, embodies the entire agreement and understanding among the
Borrower, the Banks and the Agent, and supersedes all prior or contemporaneous
agreements and understandings of such Persons, verbal or written, relating to
the subject matter hereof and thereof.
[Intentionally left blank]
74.
<PAGE> 81
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered in San Francisco by their proper and duly
authorized officers as of the day and year first above written.
STORAGE TECHNOLOGY CORPORATION
By: /s/ Mark D. McGregor
------------------------------------
Title: VP & Treasurer
---------------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: /s/ Kevin McMahon
------------------------------------
Kevin McMahon
Title: Managing Director
---------------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Bank, as Issuing
Bank and as Swingline Bank
By: /s/ Kevin McMahon
------------------------------------
Kevin McMahon
Title: Managing Director
---------------------------------
S-1
<PAGE> 82
SCHEDULE 2.1
COMMITMENTS
AND PRO RATA SHARES
<TABLE>
<CAPTION>
Bank Commitment* Pro Rata Share
---- ---------- --------------
<S> <C> <C> <C>
Bank of America National Trust and Savings $350,000,000 100.00%
Association
TOTAL $350,000,000 100.00%
</TABLE>
*The Commitment amount of each Bank is subject to reduction pursuant to
reductions in the Total Commitment Amount. As the Total Commitment Amount is
reduced, each Bank's Commitment amount shall be automatically reduced in
accordance with its Pro Rata Share of the Total Commitment Amount.
<PAGE> 83
Schedule 2.9(e)
APPLICABLE MARGIN AND COMMITMENT FEE PRICING GRID
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Total Debt to Total Leverage Ratio L. 35% 35% < Total Leverage Ratio
EBITDA
(rolling 4
quarter)
(x)
----------------------------------------------------------------------------------
Offshore Base Base
Rate Rate Commitment Offshore Rate Commitment
Spread Spread Fee Rate Spread Spread Fee
(%) (%)
(%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
X ( .50 .625 0.0 .200 .875 0.0 .250
- ------------------------------------------------------------------------------------------------------
.50 L. X ( 1.00 1.00 0.0 .275 1.25 0.0 .325
- ------------------------------------------------------------------------------------------------------
1.00 L. X ( 1.50 1.25 0.0 .325 1.50 0.0 .350
- ------------------------------------------------------------------------------------------------------
X 3rd power 1.50 1.50 0.0 .350 1.75 0.0 .375
- ------------------------------------------------------------------------------------------------------
</TABLE>
Note:
The initial Applicable Margin commencing on the Closing Date and continuing
until the Agent receives the Compliance Certificate required by Section 7.2(a)
for the fiscal quarter ending December 1997 shall be the greater of:
(a) The Offshore Rate plus .75%; and
(b) The Applicable Margin determined by the above pricing grid.
<PAGE> 84
SCHEDULE 5.2(a)
LETTERS OF CREDIT OUTSTANDING UNDER PRIOR LOAN DOCUMENTS
<TABLE>
<CAPTION>
===========================================================================================================
Letter of Credit Date of Date of Current Amount Beneficiary
Number Issuance Expiry Outstanding
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SBLC 227106 1/11/96 1/5/98 50,000.00 Mellon Bank
- -----------------------------------------------------------------------------------------------------------
SBLC 225003 8/2/95 7/31/99 100,000.00 New England Power Company
- -----------------------------------------------------------------------------------------------------------
SBLC 3001446 9/19/96 2/7/98 262,625.00 WCB Twenty Ltd. Partnership
- -----------------------------------------------------------------------------------------------------------
SBLC 228710 5/1/96 9/28/98 35,200,000.00 Bank of America NT&SA
===========================================================================================================
</TABLE>
<PAGE> 85
EXHIBIT A
to the Credit Agreement
FORM OF NOTICE OF BORROWING
Date:
-------------
To: Bank of America National Trust and
Savings Association, as Agent
Agency Administrative Services #5596
1850 Gateway Boulevard, 5th Floor
Concord, CA 94520-3281
Attn:Storage Technology A/O
Re: Storage Technology Corporation
Ladies and Gentlemen:
The undersigned, Storage Technology Corporation (the "Company"),
refers to the Credit Agreement dated as of October ___, 1997 (as amended,
modified, renewed or extended from time to time, the "Credit Agreement"), among
the Company, the financial institutions party to the Credit Agreement (the
"Banks") and Bank of America National Trust and Savings Association, as
Swingline Bank, Issuing Bank and Agent for the Banks, for full particulars of
the matters herein described. All capitalized terms used in this Notice of
Borrowing and not otherwise defined herein shall have the meanings assigned to
such terms in the Credit Agreement. The undersigned hereby gives you
irrevocable notice, pursuant to Section 2.3 of the Credit Agreement, of the
Borrowing specified herein and that:
1. The requested Borrowing Date for the proposed Borrowing is
_____________, ________.
2. The Borrowing is in respect of [Revolving Loans] [a Swingline
Loan].
3. The aggregate amount of the proposed Borrowing is
$____________.
4. The Borrowing is to be comprised of $________ of [Offshore
Rate] [Base Rate] Loans.
5. [If applicable:] The duration of the Interest Period for the
Offshore Rate Loans included in the Borrowing shall be [one] [two] [three]
[six] months.
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the proposed
Borrowing, before and after giving effect thereto and to the application of the
proceeds therefrom:
A-1
<PAGE> 86
(a) the representations and warranties of the Company
contained in Article VI of the Credit Agreement are true and correct
as though made on and as of each such date (except to the extent such
representations and warranties relate to an earlier date, in which
case they are true and correct as of such earlier date, and except
that subsections 6.11(a) and 6.11(b) of the Credit Agreement shall be
deemed to refer instead to the last day of the most recent fiscal year
for which financial statements have then been delivered);
(b) no Default or Event of Default exists, or would
result from such proposed Borrowing; and
(c) the proposed Borrowing will not cause (i) the
Effective Amount of all Revolving Loans plus the Effective Amount of
all Swingline Loans plus the Effective Amount of all L/C Obligations
to exceed the Total Commitment Amount, and (ii) the Effective Amount
of all Swingline Loans to exceed the Swingline Commitment.
STORAGE TECHNOLOGY CORPORATION
By:
-------------------------------------
Name:
Title:
[Copy to Swingline Bank if Notice of Borrowing relates to Borrowing of a
Swingline Loan.]
A-2
<PAGE> 87
EXHIBIT B
to the Credit Agreement
FORM OF NOTICE OF CONVERSION/CONTINUATION
Date:
--------------
To: Bank of America National Trust and
Savings Association, as Agent
Agency Administrative Services #5596
1850 Gateway Boulevard, 5th Floor
Concord, CA 94520-3281
Attn:Storage Technology A/O
Re: Storage Technology Corporation
Ladies and Gentlemen:
The undersigned, Storage Technology Corporation (the "Company"),
refers to the Credit Agreement dated as of October ___, 1997 (as amended,
modified, renewed or extended from time to time, the "Credit Agreement"), among
the Company, the financial institutions party to the Credit Agreement (the
"Banks") and Bank of America National Trust and Savings Association, as
Swingline Bank, Issuing Bank and Agent for the Banks, for full particulars of
the matters herein described. All capitalized terms used in this Notice of
Conversion/Continuation and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement. The undersigned
hereby gives you irrevocable notice, pursuant to Section 2.4 of the Credit
Agreement, of the [conversion] [continuation] of the Loans specified herein and
that:
1. The date of the [conversion] [continuation] is
______________, _______.
2. The [conversion] [continuation] is in respect of
outstanding Revolving Loans.
3. The aggregate amount of the Loans to be [converted]
[continued] is $__________.
4. The Loans are to be [converted into] [continued as]
[Offshore Rate] [Base Rate] Loans.
5. [If applicable:] The duration of the Interest Period
for the Offshore Rate Loans to be [converted] [continued] shall be
[one] [two] [three] [six] months.
B-1
<PAGE> 88
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the proposed
[conversion][continuation], before and after giving effect thereto:
(a) the representations and warranties of the Company
contained in Article VI of the Credit Agreement are true and correct
as though made on and as of each such date (except to the extent such
representations and warranties relate to an earlier date, in which
case they are true and correct as of such earlier date, and except
that subsections 6.11(a) and 6.11(b) of the Credit Agreement shall be
deemed to refer instead to the last day of the most recent fiscal year
for which financial statements have then been delivered); and
(b) no Default or Event of Default exists, or would
result from such proposed [conversion] [continuation].
STORAGE TECHNOLOGY CORPORATION
By:
-------------------------------
Name:
Title:
B-2
<PAGE> 89
EXHIBIT C
to the Credit Agreement
FORM OF COMPLIANCE CERTIFICATE
To: Bank of America National Trust and
Savings Association, as Agent
Credit Products High Technology #3697
555 California Street, 41st Fl.
San Francisco, CA 94104-1502
Attn:Kevin McMahon, Managing Director
Re: Storage Technology Corporation
Ladies and Gentlemen:
This Compliance Certificate is made and delivered pursuant to Section
7.2(a) of the Credit Agreement, dated as of October ___, 1997 (as amended,
modified, renewed or extended from time to time, the "Credit Agreement"), among
Storage Technology Corporation (the "Company"), the financial institutions
party to the Credit Agreement (the "Banks") and Bank of America National Trust
and Savings Association, as Swingline Bank, Issuing Bank and Agent for the
Banks, and reference is made thereto for full particulars of the matters
described herein. All capitalized terms used in this Compliance Certificate
and not otherwise defined herein shall have the meanings assigned to such terms
in the Credit Agreement. This Compliance Certificate relates to the fiscal
quarter ending __________, _____.
Pursuant to Section 7.1(a) and 7.1(b) the Company hereby certifies
that the information set forth on Schedule 1 hereto (and on any additional
schedules hereto setting forth further supporting detail) is true, accurate and
complete as of the end of such accounting period and further certifies that the
financial statements for the fiscal quarter ended __________, _____ fairly
present, in accordance with GAAP (subject to ordinary, good-faith year-end
audit adjustments), the financial position and the results of operations of the
Borrower and its Subsidiaries.
The Company further certifies that (i) as of the date hereof no
Default or Event of Default exists, and (ii) on and as of the date hereof,
there has occurred no Material Adverse Effect since the date of the end of the
last fiscal quarter, except in each case as may be set forth in a separate
attachment hereto describing in detail the nature of each condition or event
constituting an exception to the foregoing statements, the period during which
it has existed and the action which the Company is taking or proposes to take
with respect to each such condition or event.
C-1
<PAGE> 90
IN WITNESS WHEREOF, the undersigned has signed this Compliance
Certificate this ____ day of ______________, _____.
STORAGE TECHNOLOGY CORPORATION
By:
-------------------------------
Name:
Title:
C-2
<PAGE> 91
SCHEDULE 1
to the Compliance Certificate
Dated ________, ____
For the fiscal quarter ended __________, _____
<TABLE>
<CAPTION>
Actual Required/Permitted
------ ------------------
<S> <C> <C> <C> <C>
1. Section 7.13(a) - Minimum Consolidated A not less than B
--------------------------------------
Tangible Net Worth
------------------
(A) Consolidated Tangible Net
Worth, calculated as at
end of each fiscal quarter
Consolidated Total Assets $
-------------
minus intangible assets and other
excluded assets --------------
minus amortizing debt issuance --------------
expenses carried as an
asset
minus reserves carried and not --------------
deducted from assets or
not reflected as a
liability
minus cash held in sinking or
other analogous fund
minus Consolidated Total Liabilities --------------
Consolidated Tangible Net Worth $
as at the end of the fiscal quarter -------------
</TABLE>
1.
<PAGE> 92
<TABLE>
<CAPTION>
Actual Required/Permitted
------ ------------------
<S> <C> <C> <C>
(B) Minimum Consolidated
Tangible Net Worth
calculation
Beginning minimum amount The greater of
(i) 95% of
Consolidated
Tangible Net
Worth as at
9/26/97 and
(ii)
$1,279,000,000
plus75% of Consolidated Net --------------
Income (excluding
Consolidated Net Losses)
of the Borrower and its
Subsidiaries earned in
each fiscal quarter after
September 26, 1997
plus75% of the amount of all --------------
proceeds (net of costs
and expenses) received
pursuant to the issuance
of any equity securities
issued by the Borrower
after September 26, 1997
(excluding proceeds of
any issuance made for the
purposes of fulfilling an
employee stock purchase
plan or compensatory
option plan.)
plus100% of the face amount of --------------
any Subordinated
Indebtedness that is
converted into stock of
the Borrower after
September 26, 1997
minus 100% of the amount paid by --------------
the Borrower in respect
of repurchases of its
stock (up to
$800,000,000)
</TABLE>
2.
<PAGE> 93
<TABLE>
<CAPTION>
Actual Required/Permitted
------ ------------------
<S> <C> <C> <C>
minus 100% of the amount of costs --------------
and expenses in respect
of mergers and
acquisitions consummated
in such fiscal quarter
recognized in accordance
with GAAP (up to
$100,000,000 in aggregate
during the initial term
of the Agreement)
Minimum Consolidated Tangible Net $
------------
Worth required
Difference between A and B $
------------
</TABLE>
3.
<PAGE> 94
<TABLE>
<CAPTION>
Actual Required/Permitted
------ ------------------
<S> <C> <C> <C>
2. Section 7.13(b) - Consolidated Net Income No (i) Consolidated Net
----------------------------------------- Loss or Consolidated
Operating Loss of the
Borrower and its
Subsidiaries to occur for
each of any two
consecutive fiscal
quarters (calculated as of
the last day of each such
fiscal quarter); or (ii)
Consolidated Net Loss or
Consolidated Operating
Loss of the Borrower and
its Subsidiaries for any
fiscal quarter greater
then $25,000,000.
(A) Consolidated Net Loss $
-------------
(B) Consolidated Operating $
-------------
Loss
</TABLE>
Note: Provided that there shall be excluded from Consolidated Net Loss and
Consolidated Operating Loss for any fiscal quarter the amount of costs and
expenses in respect of mergers and acquisitions consummated in such quarter and
recognized in accordance with GAAP (up to $100,000,000 in aggregate during the
initial term of the Agreement).
4.
<PAGE> 95
<TABLE>
<CAPTION>
Actual Required/Permitted
------ ------------------
<S> <C> <C> <C>
3. Section 7.13(c) - Consolidated Total Fore the period Closing
------------------------------------ Date through April 2,
Leverage Ratio 1999, not greater than
-------------- 0.400 to 1.00 (as at the
end of the fiscal
quarter).
For the period of April 3,
1999 and thereafter, not
greater than 0.350 to 1.00
(as at the end of the
fiscal quarter).
(A) Consolidated Debt $
-------------
(B) Consolidated Total $
-------------
Capital
Ratio of (A) to (B)
--------------
</TABLE>
5.
<PAGE> 96
<TABLE>
<CAPTION>
Actual Required/Permitted
------ ------------------
<S> <C> <C> <C>
4. Section 7.13(d) - Adjusted Quick Ratio For the period Closing Date
-------------------------------------- through January 1, 1999,
not less than 0.95 to 1.00
(as at the end of the
fiscal quarter).
For the period January 2,
1999 through October 1,
1999, not less than 1.00 to
1.00 (as at the end of the
fiscal quarter).
For the period October 2,
1999 and thereafter, not
less than 1.25 to 1.00 (as
at the end of the fiscal
quarter).
(A) Current Liquid Assets $
--------
(B) Current Liabilities $
--------
Ratio of (A) to (B)
---------
5. EBITDA
------
Consolidated Net Income (or Net Loss) $
--------
calculated on a rolling four quarter basis
plusamounts treated as expenses $
---- -------------
for depreciation,
interest and the
amortization of
intangibles of any kind
to the extent included in
the determination of Net
Income or Net Loss,
calculated on a rolling
four quarter basis
plusaccrued taxes on or measured $
---- -------------
by income to the extent
included in the
determination of Net
Income or Net Loss,
calculated on a rolling
four quarter basis
EBITDA, calculated on a rolling four $
quarter basis ------------
</TABLE>
6.
<PAGE> 97
EXHIBIT D-1
FORM OF OPINION OF SHEARMAN & STERLING
October ___, 1997
To each of the financial institutions
party to the Credit Agreement referred to
below and to Bank of America National Trust and
Savings Association, as Agent
Ladies and Gentlemen:
We have acted as special counsel for Storage Technology Corporation, a
Delaware corporation ("the Company"), in connection with the negotiation,
execution and delivery of the Credit Agreement dated as of October ___, 1997
(the "Credit Agreement") among the Company, the several financial institutions
which are signatories thereto (collectively, the "Banks"), and Bank of America
National Trust and Savings Association, as lender of the Swingline Loans (in
such capacity, the "Swingline Bank"), as issuer of the Letters of Credit (in
such capacity, the "Issuing Bank"), and as agent (the "Agent") for the Banks,
the Swingline Bank and the Issuing Bank.
This opinion is delivered to you pursuant to Section 5.1(d) of the
Credit Agreement. Capitalized terms not otherwise defined herein are used
herein with the meanings ascribed to such terms in the Credit Agreement.
In connection with this opinion, we have examined counterparts of the
Credit Agreement, together with all schedules and exhibits thereto, executed by
each of the parties thereto and such other documents, instruments and
certificates as we have deemed necessary for the purposes of rendering this
opinion, including the opinion of Lizbeth J. Stenmark, Esq. (the "Stenmark
Opinion"), corporate counsel to the Company.
With respect to certain factual matters relevant to this opinion, we
have relied solely upon, and assumed the accuracy of, representations made by
the Company in the Credit Agreement including, without limitation, that any
shares of the stock of the Company purchased with any proceeds of Loans under
the Credit Agreement will be retired immediately after any such purchase. We
have made no independent investigation of any of the facts stated in any of the
representations; however, nothing has come to our attention which would lead us
to believe that such facts are inaccurate. We do, however, call your attention
to the fact that we have acted as special counsel to the Company with regard to
the Credit Agreement and are not generally familiar with the operations of the
Company or its business or legal affairs.
1.
<PAGE> 98
We have assumed (i) the genuineness of all signatures of Persons
(except for the Company) executing the Credit Agreement, (ii) the authenticity
of all documents submitted to us as originals, (iii) the conformity to
authentic original documents of all documents submitted to us as certified,
conformed or photostatic copies, and (iv) the due authorization, execution and
delivery of the Credit Agreement by the parties thereto.
We have also assumed, for the purposes of California usury law, that
the Swingline Bank, the Issuing Bank and each Bank is either (i) a national
bank operating pursuant to federal banking law or (ii) a "foreign (other state)
bank" within the meaning of Section 1200 of the California Financial Code.
We are qualified to practice law in the State of California, and our
opinion is restricted to the laws of the State of California and the federal
laws of the United States of America (collectively, the "Laws").
To the extent that our opinions expressed below involve conclusions as
to the matters set forth in paragraphs 1, 3, 4, 5, 9 or 10 of the Stenmark
Opinion, we have assumed without independent investigation the correctness of
such matters set forth in the Stenmark Opinion, our opinions being subject to
the assumptions, qualifications and limitations set forth in such opinions with
respect thereto.
Based upon the foregoing, and subject to the further assumptions,
exemptions, qualifications and limitations set forth herein, we advise you that
in our opinion:
1. The execution, delivery and performance by the Company of the
Credit Agreement does not contravene any applicable Laws, or any rule or
regulation promulgated thereunder (including, without limitation, Regulations
T, U, G and X of the Board of Governors of the Federal Reserve System).
2. No consent, authorization, approval or other action by, and no
notice to or registration or filing with, any Governmental Authority created or
acting under any of the Laws is required for the due execution, delivery or
performance by the Company of the Credit Agreement.
3. The Credit Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable against it in accordance with its terms.
4. No taxes or governmental fees and charges are payable in
connection with the execution and delivery of the Credit Agreement.
Our opinions set forth above are subject to the following assumptions,
exceptions, qualifications and limitations:
A. Our opinion in paragraph 3 above is subject to the effect of
any applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally.
2.
<PAGE> 99
B. Our opinion in paragraph 3 above is subject to the effect of
general principles of equity (regardless of whether considered in a proceeding
in equity or at law). Such principles of equity are of general application,
and in applying such principles a court, among other things, might not allow a
creditor to accelerate the maturity of a debt upon the occurrence of a default
deemed immaterial or might decline to order a borrower to perform covenants.
Such principles applied by a court might include a requirement that the
creditors act with reasonableness and in good faith. Such a requirement might
be applied, among other situations, to the provisions of the Credit Agreement
purporting to authorize conclusive determinations by any Bank, the Swingline
Bank, the Issuing Bank or the Agent.
C. Certain rights, remedies and waivers contained in the Credit
Agreement may be rendered ineffective or unenforceable or otherwise limited by
applicable laws or judicial decisions, but such laws and judicial decisions do
not, in our opinion, make the Credit Agreement inadequate for the practical
realization of the benefits intended to be provided thereby.
D. To the extent the Credit Agreement provides for the payment of
attorneys' fees in litigation, under California law such attorneys' fees must
be reasonable (as determined pursuant to Section 1717 of the California Civil
Code) and may be granted only to the prevailing party, and such provisions are
deemed to extend to both parties, notwithstanding that such provisions by their
express terms benefit only one party.
E. Enforcement of any indemnity provision contained in the Credit
Agreement, and the effect of any exculpatory provisions contained in the Credit
Agreement, may be limited to the extent such provisions encompass
indemnification or exculpation with respect to the negligence or misconduct of
any Bank, the Swingline Bank, the Issuing Bank or the Agent or to violations of
law or are found contrary to statute or public policy.
F. Requirements in the Credit Agreement specifying that
provisions thereof may only be waived or amended in writing may not be binding
or enforceable to the extent that a non-executory oral agreement has been
created modifying or waiving any provision of the Credit Agreement or an
implied agreement, by trade practice or course of conduct, allowing a waiver
has been created.
G. We have assumed that (i) each of the Banks has the power,
authority and legal right to enter into the Credit Agreement; (ii) the Credit
Agreement is a valid, binding and enforceable obligation of each of the Banks;
and (iii) there are no agreements, understandings or negotiations, whether
written or oral, between any of the Banks and the Company that would expand,
modify or otherwise affect the terms of the Credit Agreement, or the respective
rights or obligations or the parties thereunder. We note that we have been
advised by the Company that no such agreements, understandings or negotiations
exist.
H. We have assumed that if any Bank is required by California law
to be qualified as a foreign corporation in California as a result of
transactions other than the Credit Agreement, it has filed all required
franchise tax returns, if any, and paid all required taxes, if any, under the
California Revenue & Taxation Code.
3.
<PAGE> 100
I. We express no opinion as to the extent to which rights with
respect to self help or exercise of other remedies without notice or judicial
proceedings can be validly exercised in California.
J. With respect to the enforceability of the Credit Agreement, we
have assumed that the Banks will: (i) exercise the rights and remedies set
forth in the Credit Agreement in a commercially reasonable manner; (ii) abide
by the implied covenant of good faith and fair dealing imposed by California
Law; and (iii) not take any discretionary action which is arbitrary,
unreasonable or capricious.
K. We express no opinion with respect to the legality, validity,
binding nature or enforceability (whether according to its terms or otherwise)
of any provision of the Credit Agreement regarding : (i) any waivers or
variations of rights of a debtor; and (ii) any severability provision in the
Credit Agreement as it relates to a provision or provisions, taken as a whole,
in the Credit Agreement, the existence and enforceability of which was material
to a party's decision to enter into the Credit Agreement.
L. We express no opinion herein as to the enforceability of
provisions for a rate of interest, after failure to pay any amount when due, in
excess of the rate of interest otherwise payable or provisions for late
charges, set forth in the Credit Agreement.
This opinion is rendered as of the date hereof. We express no opinion
as to circumstances or events which may occur subsequent to such date, and we
assume no obligation to revise or supplement this opinion in the event of any
future change in the Laws, or the rules and regulations promulgated thereunder,
or the interpretations thereof or any change in the facts upon which this
opinion is based.
This opinion is furnished for the benefit of the Banks, the Swingline
Bank (including any successor of the Swingline Bank), the Issuing Bank and the
Agent and their respective, successors and assignees (as permitted pursuant to
Section 11.8 of the Credit Agreement) and may not be relied upon by any other
Person for any purpose without our prior written consent. We consent to
Lizbeth Stenmark's reliance on paragraph 1 of this opinion for the purpose of
her rendering her opinion pursuant to Section 5.1(d) of the Credit Agreement
Very truly yours,
4.
<PAGE> 101
EXHIBIT D-1
FORM OF OPINION OF LIZBETH J. STENMARK, ESQ.
October ___, 1997
To each of the financial institutions
party to the Credit Agreement referred to
below and to Bank of America National Trust and
Savings Association, as Agent
Ladies and Gentlemen:
I am Senior Counsel to Storage Technology Corporation, a Delaware
corporation ("the Company"), and in such capacity have represented the Company
in connection with the preparation, negotiation, execution and delivery of the
Credit Agreement, dated as of October ___, 1997 (the "Credit Agreement"), among
the Company, the several financial institutions from time to time party to the
Credit Agreement (the "Banks"), and Bank of America National Trust and Savings
Association ("BofA"), as lender of the Swingline Loans (BofA, in its capacity
as such lender, the "Swingline Bank"), as issuer of the Letters of Credit
(BofA, in its capacity as such issuer, the "Issuing Bank"), and as agent (the
"Agent") for the Banks, the Swingline Bank and the Issuing Bank.
This opinion is delivered to you pursuant to Section 5.1(d) of the
Credit Agreement. Capitalized terms not otherwise defined herein are used
herein with the meanings ascribed to such terms in the Credit Agreement.
In connection with this opinion, I have examined the following
documents:
(a) counterparts of the Credit Agreement, together with all
schedules and exhibits thereto, executed by each of the parties thereto;
(b) certificates of public officials from the States of Delaware
and Colorado and such other states as I have deemed necessary for the purpose
of rendering this opinion;
(c) the certificate and by-laws of the Company, as amended to
date;
(d) records of proceedings of the Board of Directors of the
Company during or by which resolutions were adopted relating to matters covered
by this opinion; and
1.
<PAGE> 102
(e) such other documents, instruments and certificates as I have
deemed necessary for the purpose of rendering this opinion.
I am qualified to practice law in the State of Colorado, and my
opinion is restricted to the laws of the State of Colorado, the general
corporation laws of the State of Delaware and the federal laws of the United
States of America.
Based upon the foregoing, and subject to the assumptions and
qualifications set forth herein, I am of the opinion that:
1. The Company is duly qualified as a foreign corporation to do
business and is in good standing in the State of Colorado and all other
jurisdictions in which the character of the properties owned or held under
lease by it or the nature of business transacted by it makes such qualification
necessary, except, in each case, where the failure to qualify as a foreign
corporation and be in good standing in jurisdictions other than Colorado would
not have a material adverse effect on the Company. The Company has been duly
incorporated and is validly existing and in good standing as a corporation
under the laws of the State of Delaware.
2. The Company has full corporate power and authority and all
authorizations, consents, approvals and governmental licenses required or
advisable to own and operate (or lease, as the case may be) its properties and
to carry on its business as currently conducted and contemplated to be
conducted.
3. The Company has full corporate power and authority and all
authorizations, consents, approvals and governmental licenses required or
advisable to execute, deliver and perform the Credit Agreement.
4. The execution, delivery and performance by the Company of the
Credit Agreement (i) are within the Company's corporate powers, (ii) have been
duly authorized by all necessary corporate action, (iii) do not contravene its
charter or by-laws or any other agreement, lease or instrument to which it is a
party or by which it or its properties may be bound or affected, (iv) will not
result in or require the creation or imposition of any Lien upon or with
respect to any property, assets or revenues now owned or hereafter acquired by
the Company, (v) will not violate, conflict with, contravene, or constitute a
default under any Contractual Obligation nor contravene any applicable law,
rule, regulation, order, writ, decree, determination or award presently in
effect which affects or binds it or any of its properties, which default,
contravention, violation or conflict could have a Material Adverse Effect or
render the Loan Documents unenforceable. No consent, authorization, approval
or other action by, and no notice to or registration with, any Governmental
Authority created or acting under any law, rule or regulation is required for
the due execution, delivery or performance by any Company of the Credit
Agreement.
5. The Credit Agreement has been duly executed and delivered on
behalf of each Company.
2.
<PAGE> 103
6. The Credit Agreement constitutes the legal, valid and binding
obligation of such Company enforceable against such Company in accordance with
its terms.
For purposes of the foregoing opinion, (i) I have relied upon the
opinion expressed in paragraph 1 of the opinion letter of Shearman & Sterling
(the "Shearman & Sterling Opinion"), special counsel to the Company, (ii) I
have assumed without independent investigation the correctness of such matters
set forth in such opinion expressed in paragraph 1 of the Shearman & Sterling
Opinion, although I am unaware of any fact or circumstance which, if brought to
the attention of Shearman & Sterling, would likely result in a further
assumption, qualification or limitation with respect to such opinion, and (iii)
my opinion is subject to the assumptions, qualifications and limitations set
forth in the Shearman & Sterling Opinion with respect to the opinion expressed
in paragraph 1 therein.
7. There is no action, suit or proceeding pending or threatened,
in or before any Governmental Authority, domestic or foreign, which relates to
any aspect of the transactions contemplated by the Credit Agreement, and,
except as set forth in Schedule 6.5 to the Credit Agreement, there is no
material action, suit or proceeding pending or threatened, in or before any
Governmental Authority, domestic or foreign, which relates to any Company of
any of its Subsidiaries or any of the properties of any Company of any of its
Subsidiaries.
8. The Company does not have any issued and outstanding
indentures, convertible debentures, convertible exchangeable preferred stock or
other preferred stock, common stock or stock warrants that by its terms has or
will have any right of payment of principal or interest, including any sinking
fund payment, or redemption, or other right of payment, that is not
subordinated in right of payment to the satisfaction in full of all of the
Obligations.
9. Neither the Company, nor any Subsidiary of the Company, is, or
is required to be, registered under the Investment Company Act of 1940, as
amended.
10. To my knowledge, the Company is not engaged principally in the
business of extending credit for the purposes of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System).
11. No taxes or governmental fees and charges are payable in
connection with the execution and delivery of the Credit Agreement.
The opinions set forth above are subject to the following
qualifications:
A. The opinion expressed in paragraph 6 above is subject to the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally, including, without
limitation, the effect of statutory or other laws regarding fraudulent
conveyances or preferential transfers.
B. The opinion expressed in paragraph 6 above is subject to the
effect of general principles of equity (regardless of whether considered in a
proceeding in equity or at law). Such principles of equity are of general
application, and in applying such principles a
3.
<PAGE> 104
court, among other things, might not allow a creditor to accelerate the
maturity of a debt upon the occurrence of a default deemed immaterial or might
decline to order a borrower to perform covenants. Such principles applied by a
court might include a requirement that the creditors act with reasonableness
and in good faith. Such a requirement might be applied, among other
situations, to the provisions of the Credit Agreement purporting to authorize
conclusive determinations by any Bank, the Swingline Bank, the Issuing Bank or
the Agent.
C. Enforcement of any indemnity provision contained in the Credit
Agreement, and the effect of any exculpatory provisions contained in the Credit
Agreement, may be limited to the extent such provisions encompass
indemnification or exculpation with respect to the negligence or misconduct of
any Bank, the Swingline Bank, the Issuing Bank or the Agent or to violations of
law or are found contrary to statute or public policy.
This opinion is furnished for the benefit of the Banks, the Swingline
Bank, the Issuing Bank and the Agent and their respective successors and
assignees and may not be relied upon by any other Person for any purpose
without my prior written consent. I consent to Shearman & Sterling's reliance
on this opinion for the purpose of their rendering their opinions pursuant to
Section 5.1(d) of the Credit Agreement.
Very truly yours,
Lizbeth J. Stenmark
Senior Counsel
4.
<PAGE> 105
EXHIBIT E
FORM OF ASSIGNMENT AND ACCEPTANCE
This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Assignment and
Acceptance") dated as of _____________ is made between __________________ (the
"Assignor") and ________________ (the "Assignee").
RECITALS
WHEREAS, the Assignor is party to that certain Credit Agreement dated
as of October ___, 1997 (as amended, restated, modified, supplemented or
renewed from time to time, the "Credit Agreement"), among Storage Technology
Corporation (the "Company"), the financial institutions from time to time party
thereto (including the Assignor, the "Banks") and Bank of America National
Trust and Savings Association, as Swingline Bank, Issuing Bank and agent for
the Banks (in its capacity as agent, the "Agent"). Any terms defined in the
Credit Agreement and not defined in this Assignment and Acceptance are used
herein as defined in the Credit Agreement;
WHEREAS, as provided under the Credit Agreement, the Assignor has
committed to making Revolving Loans to the Company and to participate in
Letters of Credit issued for the account of the Company in an aggregate amount
not to exceed $__________ (the "Commitment");
WHEREAS, [the Assignor has made Loans in the aggregate principal
amount of $____________ to the Company] [no Loans are outstanding under the
Credit Agreement] [and the amount of Assignor's percentage share of the
aggregate amount available for drawing under outstanding Letters of Credit
issued for the account of the Company is $___________________] [and no Letters
of Credit are outstanding under the Credit Agreement]; and
WHEREAS, the Assignor wishes to assign to the Assignee [part of the]
[all] rights and obligations of the Assignor under the Credit Agreement in
respect of its Commitment pro rata in accordance with the Assignor's Commitment
and L/C Commitment (which is a part of its Commitment rather than a separate,
independent commitment), [together with a corresponding portion of each of its
outstanding Loans] [and a corresponding portion of its participation in each of
the outstanding Letters of Credit], in an amount equal to ___% of the
Assignor's Commitment [and Loans], on the terms and subject to the conditions
set forth herein, and the Assignee wishes to accept assignment of such rights
and to assume such obligations from the Assignor on such terms and subject to
such conditions;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
E-1.
<PAGE> 106
1. Assignment and Acceptance.
(a) Subject to the terms and conditions of this
Assignment and Acceptance, (i) the Assignor hereby sells, transfers and assigns
to the Assignee, and (ii) the Assignee hereby purchases, assumes and undertakes
from the Assignor, without recourse and without representation or warranty
(except as provided in this Assignment and Acceptance) ___% (the "Assignee's
Percentage Share") of (A) the Commitment and L/C Commitment [and the Loans] of
the Assignor [and participation in outstanding Letters of Credit] and (B) all
related rights, benefits, obligations, liabilities and indemnities of the
Assignor thereto under and in connection with the Credit Agreement and the Loan
Documents.
(b) With effect on and after the Effective Date (as
defined in Section 5 hereof), the Assignee shall be a party to the Credit
Agreement and succeed to all of the rights and be obligated to perform all of
the obligations of a Bank under the Credit Agreement, including the
requirements concerning confidentiality and the payment of indemnification,
with a Commitment in the amount set forth in subsection (c) below. The
Assignee agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Credit Agreement are required to be
performed by it as a Bank. It is the intent of the parties hereto that the
Commitment of the Assignor shall, as of the Effective Date, be reduced by an
amount equal to the portion thereof assigned to the Assignee hereunder, and the
Assignor shall relinquish its rights and be released from its obligations under
the Credit Agreement to the extent such obligations have been assumed by the
Assignee including with respect to its L/C Commitment; provided, however, that
the Assignor shall not relinquish its rights under Article IV or Sections 11.4
and 11.5 of the Credit Agreement to the extent such rights relate to the time
prior to the Effective Date.
(c) After giving effect to the assignment and assumption
set forth herein, on the Effective Date: (i) the Assignee's Commitment will be
$__________[; (ii) the Assignee's aggregate outstanding Loans will be
$_______________;] [and (iii) the Assignee's L/C Commitment will be
$______________].
(d) After giving effect to the assignment and assumption
set forth herein, on the Effective Date: (i) the Assignor's Commitment will be
$__________[; (ii) the Assignor's aggregate outstanding Loans will be
$_______________;] [and (iii) the Assignor's L/C Commitment will be
$___________________].
2. Payments.
(a) As consideration for the sale, assignment and
transfer contemplated in Section 1 hereof, (i) the Assignee shall pay to the
Assignor on the Effective Date in immediately available funds an amount equal
to $__________, representing the Assignee's Percentage Share of the principal
amount of all Loans previously made by the Assignor to the Company under the
Credit Agreement and outstanding on the Effective Date and (ii) the Assignee
assumes the Assignee's Percentage Share of the Assignor's participation in the
Letters of Credit and each drawing under such Letter of Credit outstanding on
the Effective Date.
E-2.
<PAGE> 107
(b) The [Assignor] [Assignee] further agrees to pay to
the Agent a processing fee in the amount specified in Section 11.8 of the
Credit Agreement.
3. Reallocation of Payments. Any interest, fees and other
payments accrued to the Effective Date with respect to the Commitment [and
Loans] [and Letters of Credit] of the Assignor shall be for the account of the
Assignor. Any interest, fees and other payments accrued on and after the
Effective Date with respect to the portion of such Commitment [and Loans] [and
Letters of Credit] assigned to the Assignee shall be for the account of the
Assignee. Each of the Assignor and the Assignee agrees that it will hold in
trust for the other party any interest, fees and other amounts which it may
receive to which the other party is entitled pursuant to the preceding sentence
and pay to the other party any such amounts which it may receive promptly upon
receipt.
4. Independent Credit Decision. The Assignee: (a) acknowledges
that it has received a copy of the Credit Agreement and the Schedules and
Exhibits thereto, together with copies of the most recent financial statements
referred to in Section 6.11 or Section 7.1 of the Credit Agreement, and such
other documents and information as it has deemed appropriate to make its own
credit and legal analysis and decision to enter into this Assignment and
Acceptance; and (b) agrees that it will, independently and without reliance
upon the Assignor, the Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit and legal decisions in taking or not taking action under the Credit
Agreement.
5. Effective Date; Notices.
(a) As between the Assignor and the Assignee, the
effective date for this Assignment and Acceptance shall be ______________ (the
"Effective Date"); provided that the following conditions precedent have been
satisfied on or before the Effective Date:
(i) this Assignment and Acceptance shall be
executed and delivered by the Assignor and the Assignee;
(ii) any consent of the Company and the Agent
required under Section 11.8 of the Credit Agreement for the
effectiveness of the assignment hereunder by the Assignor to the
Assignee shall have been duly obtained and shall be in full force and
effect as of the Effective Date;
(iii) the Assignee shall pay to the Assignor all
amounts due to the Assignor under this Assignment and Acceptance;
(iv) the processing fee referred to in Section
2(b) hereof and in Section 11.8 of the Credit Agreement shall have
been paid to the Agent; and
(v) the Assignor and Assignee shall have complied
with the other requirements of Section 11.8 of the Credit Agreement
and with the requirements of Sections 10.10 and 11.9 of the Credit
Agreement (in each case to the extent applicable).
E-3.
<PAGE> 108
(b) Promptly following the execution of this Assignment
and Acceptance, the Assignor shall deliver to the Company and the Agent for
acknowledgement by the Agent, a Notice of Assignment substantially in the form
attached hereto as Schedule 1.
6. Agent. The Assignee hereby appoints and authorizes the
Assignor to take such action as agent on its behalf and to exercise such powers
under the Credit Agreement as are delegated to the Agent by the Banks pursuant
to the terms of the Credit Agreement. [The Assignee shall assume no duties or
obligations held by the Assignor in its capacity as Agent under the Credit
Agreement.] [INCLUDE ONLY IF ASSIGNOR IS AGENT]
7. Withholding Tax. The Assignee (a) represents and warrants to
the Assignor, the Agent and the Company that under applicable law and treaties
no tax will be required to be withheld by the Bank with respect to any payments
to be made to the Assignee hereunder, and (b) agrees to furnish (if it is
organized under the laws of any jurisdiction other than the United States or
any State thereof) to the Agent and the Company prior to the time that the
Agent or Company is required to make any payment of interest or fees under the
Credit Agreement, duplicate executed originals of either U.S. Internal Revenue
Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein the
Assignee claims entitlement to the benefits of a tax treaty that provides for a
complete exemption from U.S. federal income withholding tax on all payments
hereunder) and agrees to provide new Forms 4224 or 1001 upon the expiration of
any previously delivered form or comparable statements in accordance with
applicable U.S. law and regulations and amendments thereto, duly executed and
completed by the Assignee, as and when required under the Credit Agreement.
8. Representations and Warranties.
(a) The Assignor represents and warrants that (i) it is
the legal and beneficial owner of the interest being assigned by it hereunder
and that such interest is free and clear of any Lien or other adverse claim;
(ii) it is duly organized and existing and it has the full power and authority
to take, and has taken, all action necessary to execute and deliver this
Assignment and Acceptance and any other documents required or permitted to be
executed or delivered by it in connection with this Assignment and Acceptance
and to fulfill its obligations hereunder; (iii) no notices to, or consents,
authorizations or approvals of, any Person are required (other than those
referred to in Section 5(a)(ii) hereof and any already given or obtained) for
its due execution, delivery and performance of this Assignment and Acceptance,
and apart from any agreements or undertakings or filings required by the Credit
Agreement, no further action by, or notice to, or filing with, any Person is
required of it for such execution, delivery or performance; and (iv) this
Assignment and Acceptance has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignor,
enforceable against the Assignor in accordance with the terms hereof, subject,
as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and
other laws of general application relating to or affecting creditors' rights
and to general equitable principles.
(b) The Assignor makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement, any Loan
Document or the execution, legality, validity,
E-4.
<PAGE> 109
enforceability, genuineness, sufficiency or value of the Credit Agreement, any
Loan Document or any other instrument or document furnished pursuant thereto.
The Assignor makes no representation or warranty in connection with, and
assumes no responsibility with respect to, the solvency, financial condition or
statements of the Company, or the performance or observance by the Company, of
any of its respective obligations under the Credit Agreement or any other
instrument or document furnished in connection therewith.
(c) The Assignee represents and warrants that (i) it is
duly organized and existing and it has full power and authority to take, and
has taken, all action necessary to execute and deliver this Assignment and
Acceptance and any other documents required or permitted to be executed or
delivered by it in connection with this Assignment and Acceptance, and to
fulfill its obligations hereunder; (ii) no notices to, or consents,
authorizations or approvals of, any Person are required (other than those
referred to in Section 5(a)(ii) hereof and any already given or obtained) for
its due execution, delivery and performance of this Assignment and Acceptance;
and apart from any agreements or undertakings or filings required by the Credit
Agreement, no further action by, or notice to, or filing with, any Person is
required of it for such execution, delivery or performance; (iii) this
Assignment and Acceptance has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignee,
enforceable against the Assignee in accordance with the terms hereof, subject,
as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and
other laws of general application relating to or affecting creditors' rights
and to general equitable principles; and (iv) it is an Eligible Assignee.
9. Further Assurances. The Assignor and the Assignee each hereby
agrees to execute and deliver such other instruments, and take such other
action, as either party may reasonably request in connection with the
transactions contemplated by this Assignment and Acceptance, including the
delivery of any notices or other documents or instruments to the Company or the
Agent, which may be required in connection with the assignment and assumption
contemplated hereby.
10. Miscellaneous.
(a) Any amendment or waiver of any provision of this
Assignment and Acceptance shall be in writing and signed by the parties hereto.
No failure or delay by either party hereto in exercising any right, power or
privilege hereunder shall operate as a waiver thereof and any waiver of any
breach of the provisions of this Assignment and Acceptance shall be without
prejudice to any rights with respect to any other or further breach thereof.
(b) All payments made hereunder shall be made without any
set-off or counterclaim.
(c) The Assignor and the Assignee shall each pay its own
costs and expenses incurred in connection with the negotiation, preparation,
execution and performance of this Assignment and Acceptance.
E-5.
<PAGE> 110
(d) This Assignment and Acceptance may be executed in any
number of counterparts and all of such counterparts taken together shall be
deemed to constitute one and the same instrument.
(e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA. THE
ASSIGNOR AND THE ASSIGNEE EACH IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN CALIFORNIA OVER ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS ASSIGNMENT AND
ACCEPTANCE AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH CALIFORNIA STATE OR FEDERAL
COURT. EACH PARTY TO THIS ASSIGNMENT AND ACCEPTANCE HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, ANY OBJECTION, INCLUDING ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS ASSIGNMENT AND ACCEPTANCE OR
ANY DOCUMENT RELATED HERETO, AND PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR
OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA/NEW
YORK LAW.
(f) THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH THIS ASSIGNMENT AND ACCEPTANCE, AND ANY RELATED DOCUMENTS AND
AGREEMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY EITHER OF THE PARTIES
AGAINST THE OTHER PARTY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS,
OR OTHERWISE. EACH OF THE PARTIES ALSO AGREES THAT ANY SUCH CLAIM OR CAUSE OF
ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.
[Other provisions to be added as may be negotiated between the Assignor and the
Assignee, provided that such provisions are not inconsistent with the Credit
Agreement.]
E-6.
<PAGE> 111
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Assignment and Acceptance to be executed and delivered by their duly authorized
officers as of the date first above written.
[ASSIGNOR]
By:
----------------------------
Title:
-------------------------
[ASSIGNEE]
By:
----------------------------
Title:
-------------------------
E-7.
<PAGE> 112
EXHIBIT F
to the Credit Agreement
FORM OF PROMISSORY NOTE
U.S.$350,000,000 October ___, 1997
FOR VALUE RECEIVED, the undersigned, Storage Technology
Corporation, a Delaware corporation (hereinafter the "Company"), hereby
promises to pay to the order of Bank of America National Trust and Savings
Association (the "Bank") the principal sum of Three Hundred and Fifty Million
United States dollars (U.S.$350,000,000) or, if less, the aggregate unpaid
principal amount of all Loans made by the Bank to the Company pursuant to the
Credit Agreement, dated as of October ___, 1997 (as the same may be amended,
restated, supplemented or otherwise modified from time to time, being
hereinafter called the "Credit Agreement"), among the Company, the Bank, and
Bank of America National Trust and Savings Association, as Swingline Bank,
Issuing Bank and Agent for the Banks, on the dates and in the amounts provided
in the Credit Agreement. The Company further promises to pay interest on the
unpaid principal amount of the Loans evidenced hereby from time to time at the
rates, on the dates, and otherwise as provided in the Credit Agreement.
The Bank is authorized to endorse the amount and the date on
which each Loan is made, the maturity date therefor and each payment of
principal with respect thereto on the schedules annexed hereto and made a part
hereof, or on continuations of such schedules which continuations shall be
attached hereto and made a part hereof; provided, that any failure to endorse
such information on any such schedule or continuation thereof shall not in any
manner affect any obligation of the Company under the Credit Agreement and this
Promissory Note (the "Note") or the right of the Company to credit for any
payments made.
This Note is one of the Notes referred to in, and is entitled
to the benefits of, the Credit Agreement, which Credit Agreement, among other
things, contains provisions for acceleration of the maturity hereof upon the
happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified. The maker hereby expressly waives presentment, demand,
protest or further notice of any kind in connection with the delivery,
acceptance, performance or enforcement of this Note.
Unless otherwise defined in this Note, terms defined in the
Credit Agreement are used herein as therein defined.
F-1.
<PAGE> 113
This Note shall be governed by, and construed and interpreted
in accordance with, the laws of the State of California.
STORAGE TECHNOLOGY CORPORATION
By:
----------------------------
Name:
Title:
F-2.
<PAGE> 114
Schedule A to Note
BASE RATE LOANS AND REPAYMENT OF BASE RATE LOANS
<TABLE>
<CAPTION>
(2) (3) (4)
Amount Maturity Amount of
of Date of Base (5)
(1) Base Base Rate Loan Notation
Date Rate Loan Rate Loan Repaid Made By
---- --------- --------- ------ -------
<S> <C> <C> <C> <C>
</TABLE>
F-3.
<PAGE> 115
Schedule B to Note
OFFSHORE RATE LOANS AND REPAYMENT OF OFFSHORE RATE LOANS
<TABLE>
<CAPTION>
(2) (3) (4)
Amount Maturity Amount of
of Date of Base (5)
(1) Base Base Rate Loan Notation
Date Rate Loan Rate Loan Repaid Made By
---- --------- --------- ------ -------
<S> <C> <C> <C> <C>
</TABLE>
F-4.
<PAGE> 116
Schedule 6.5
LITIGATION
[To be provided]
Schedule 6.11
PERMITTED LIABILITIES
[To be provided]
Schedule 6.12
ENVIRONMENTAL MATTERS
[To be provided]
Schedule 6.15
SUBSIDIARIES AND MINORITY INTERESTS
[To be provided]
Schedule 6.16
INSURANCE MATTERS
[To be provided]
Schedule 8.1(i)
PERMITTED LIENS
[To be provided]
Schedule 8.2
PERMITTED DISPOSITIONS
[To be provided]
Schedule 8.4(f)
PERMITTED INVESTMENTS
[To be provided]
Schedule 8.7(e)
CONTINGENT OBLIGATIONS
[To be provided]
SCHEDULE 11.2
LENDING OFFICES,
ADDRESSES FOR NOTICES
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
F-1.
<PAGE> 117
Address for Funding Notices:
Bank of America National Trust
and Savings Association
Agency Administrative Services #5596
1850 Gateway Blvd., 5th Floor
Concord, CA 94520-3281
Attention: Storage Tech. AO
Telephone: (510) 675-8439
Facsimile: (510) 675-8500
Address for all Other Notices:
Bank of America National Trust
and Savings Association
555 California Street, 41st Floor
San Francisco, CA 94104
Attention: Credit Products
High Technology-SF #3697
Kevin McMahon
Telephone: (415) 622-8088
Facsimile: (415) 622-2385
AGENT'S PAYMENT OFFICE:
Bank of America National Trust
and Savings Association
(ABA 121-000-358)
Attention: Agency Administrative Services #5596
1850 Gateway Boulevard
Concord, CA 94520
For credit to account:
No. 12334-15395
Ref: Storage Technology Corporation
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION,
as Swingline Bank
Lending Office and Office for
Borrowing Notices and Notices of
Conversion/Continuation:
Bank of America National Trust
and Savings Association
Agency Administrative Services #5596
1850 Gateway Blvd., 5th Floor
Concord, CA 94520-3281
Attention: Storage Tech. AO
F-2.
<PAGE> 118
Telephone: (510) 675-8439
Facsimile: (510) 675-8500
with a copy to:
Bank of America National Trust
and Savings Association
1850 Gateway Boulevard
Concord, CA 94520
Notices (other than Borrowing Notices and
Notices of Conversion/Continuation):
Bank of America National Trust
and Savings Association
555 California Street, 41st Street
San Francisco, CA 94104
Attention: Credit Products
High Technology-SF #3697
Kevin McMahon
Telephone: (415) 622-8088
Facsimile: (415) 622-2514
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as a Bank
Lending Office and Office for
Borrowing Notices and Notices of
Conversion/Continuation:
1850 Gateway Boulevard, Fourth Floor
Concord, California 94520
Notices (other than Borrowing Notices and Notices of
Conversion/Continuation):
Bank of America National Trust
and Savings Association
555 California Street, 41st Floor
San Francisco, CA 94104
Attention: Credit Products
High Technology-SF #3697
Kevin McMahon
Telephone: (415) 622-8088
Facsimile: (415) 622-2514
F-3.
<PAGE> 119
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Issuing Bank
Notices:
Bank of America National Trust and
Savings Association
Trade Operations Center #22621
333 S. Beaudry Ave., 19th Floor
Los Angeles, CA 90017
Attention: Sandra Leon
Telephone: (213) 345-5231
Facsimile: (213) 345-6694
and to:
Bank of America National Trust
and Savings Association
1850 Gateway Boulevard
Concord, CA 94520
Attention: Account Administrator
Global Payment Operations
Account Administration #5693
Facsimile: (510) 675-7531
and to:
Bank of America National Trust
and Savings Association
Agency Administrative Services #5596
1850 Gateway Blvd., 5th Floor
Concord, CA 94520-3281
Attention: Storage Tech. AO
Telephone: (510) 675-8439
Facsimile: (510) 675-8500
and to:
Bank of America National Trust
and Savings Association
555 California Street, 41st Floor
San Francisco, CA 94104
Attention: Credit Products
High Technology-SF #3697
Kevin McMahon
Telephone: (415) 622-8088
Facsimile: (415) 622-2514
F-4.
<PAGE> 1
EXHIBIT 21
STORAGE TECHNOLOGY CORPORATION
<TABLE>
<CAPTION>
U.S. SUBSIDIARIES INCORPORATION
- ----------------- -------------
<S> <C>
NSC European Operations Company Minnesota
Storage Technology de Puerto Rico, Inc. Delaware
Storage Technology European Trade Corporation Delaware
Storage Technology Optical Disk Development Corporation Delaware
StorageTek Foundation Colorado
StorageTek Holding Corporation Nevada
StorageTek International Corporation Delaware
StorageTek International Services Corporation Delaware
Vitalink Communications Corporation Delaware
NON-U.S. SUBSIDIARIES
- ---------------------
Storage Technology of Australia Pty., Limited Australia
Network Systems Australasia Pty. Limited Australia
Storage Technology New Zealand Pty., Limited Australia
Network Systems Austria Gesellschaft m.b.h. Austria
Network Systems Foreign Sales Corp. Barbados
Storage Technology (Belgium) N.V./S.A. Belgium
Storage Technology (Bermuda) Ltd. Bermuda
StorageTek Brasil Ltda Brazil
StorageTek Canada, Inc. Canada
StorageTek A/S Denmark
StorageTek OY Finland
Network Systems France S.A. France
Storage Technology Holding France S.A. France
Storage Technology France S.A. France
Storage Technology Formation France
Storage Technology European Operations France
Bytex GmbH Germany
Storage Technology Holding GmbH Germany
Storage Technology GmbH Germany
Storage Technology OEM Vertrieb GmbH Germany
Network Systems Italia S.r.l. Italy
Storage Technology Italia, S.p.A. Italy
Network Systems Japan K.K. Japan
Storage Technology of Japan, Ltd. Japan
Storage Technology Asia/Pacific K.K. Japan
StorageTek (Malaysia) Sdn. Bhd. Malaysia
StorageTek de Mexico, S.A. de C.V. Mexico
Storage Technology (The Netherlands) B.V. Netherlands
Storage Technology (The Netherlands) B.V. (Irish Branch) Ireland
Storage Technology Finance B.V. Netherlands
StorageTek III B.V. Netherlands
StorageTek A/S Norway
StorageTek Espana, S.A. Spain
StorageTek South Asia Pte. Ltd. Singapore
NSC Network Systems AB Sweden
Storage Technology Sweden AB Sweden
StorageTek AG Switzerland
D.M.L. StorageTek Ltd. United Kingdom
Bytex DataCom Ltd. United Kingdom
Bytex Europe United Kingdom
Storage Technology Holding Limited United Kingdom
Storage Technology Limited United Kingdom
Storage Technology Manufacturing Limited United Kingdom
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-19426, 33- 32235, 33-32243, 33-37464,
33-42817, 33-42818, 33-51764, 33-51756, 2-60117, 2-80183, 2-61333,
2-76167, 2-89417, 33-50777, 33-59165, 33-61777 and 33-52197) of Storage
Technology Corporation of our reported dated February 20, 1998 appearing on
Page F-26 of this Form 10-K.
PRICE WATERHOUSE LLP
Denver, Colorado
March 5, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K DATED DECEMBER 26, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000094673
<NAME> STORAGE TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-END> DEC-26-1997
<CASH> 256,319
<SECURITIES> 77,275
<RECEIVABLES> 645,905
<ALLOWANCES> 17,924
<INVENTORY> 205,461
<CURRENT-ASSETS> 1,269,611
<PP&E> 794,853
<DEPRECIATION> 489,731
<TOTAL-ASSETS> 1,740,017
<CURRENT-LIABILITIES> 608,405
<BONDS> 0
0
0
<COMMON> 5,400
<OTHER-SE> 1,107,103
<TOTAL-LIABILITY-AND-EQUITY> 1,740,017
<SALES> 1,541,635
<TOTAL-REVENUES> 2,144,656
<CGS> 838,931
<TOTAL-COSTS> 1,171,530
<OTHER-EXPENSES> 209,526
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,709
<INCOME-PRETAX> 316,117
<INCOME-TAX> 84,300
<INCOME-CONTINUING> 231,817
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 231,817
<EPS-PRIMARY> 3.86
<EPS-DILUTED> 3.79
</TABLE>
