-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ED4SM5B+8PnZYAXKShgXlwPj6fDUPBzwNA51qZbP+REkTOPqG4DjGy0kcfUSFEx+ gBnRNRJrfBFygCxbiQ0YAw== 0000352789-97-000009.txt : 19970515 0000352789-97-000009.hdr.sgml : 19970515 ACCESSION NUMBER: 0000352789-97-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970330 FILED AS OF DATE: 19970514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IOMEGA CORP CENTRAL INDEX KEY: 0000352789 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 860385884 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12333 FILM NUMBER: 97604417 BUSINESS ADDRESS: STREET 1: 1821 W IOMEGA WAY CITY: ROY STATE: UT ZIP: 84067 BUSINESS PHONE: 8017781000 MAIL ADDRESS: STREET 1: 1821 WEST IOMEGA WAY CITY: ROY STATE: UT ZIP: 84067 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 30, 1997 COMMISSION FILE NUMBER 1-12333 Iomega Corporation (Exact name of registrant as specified in its charter) Delaware 86-0385884 (State or other jurisdiction (IRS employer identification number) of incorporation or organization) 1821 West Iomega Way, Roy, UT 84067 (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code (801) 778-1000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of March 30, 1997. Common Stock, par value $.03 1/3 129,382,495 (Title of each class) (Number of shares) IOMEGA CORPORATION TABLE OF CONTENTS Page PART I - FINANCIAL STATEMENTS Item 1. Financial Statements Condensed consolidated balance sheets at March 30, 1997 and December 31, 1996 2 Condensed consolidated statements of operations for the three months ended March 30, 1997 and March 31, 1996 4 Condensed consolidated statements of cash flows for the three months ended March 30, 1997 and March 31, 1996 5 Notes to condensed consolidated financial statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II - OTHER INFORMATION Item 1. Legal Proceedings 19 Item 2. Changes in Securities 19 Item 6. Exhibits and Reports on 8-K 19 Signatures 20 Exhibit Index 21 This Quarterly Report on Form 10-Q contains a number of forward-looking statements, including statements relating to the sufficiency of cash and cash equivalent balances and available sources of financing; projected effective tax rates; the possible material adverse impact on second quarter results of the recall of a limited number of Jaz disks; expected further declines in component and manufacturing costs; the impact on gross margins of the sales mix between disks and drives and the mix between OEM sales and sales through other channels; anticipated expenditures for selling, general and administrative and research and development activities; the possible effects of an adverse outcome in legal proceedings, described in Item 1 of Part II, and the Company's efforts to protect its intellectual property rights. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes", "anticipates", "plans", "expects" and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause actual events or the Company's actual results to differ materially from those indicated by such forwarding-looking statements. These factors include, without limitation, those set forth under, and in the paragraph immediately preceding, the caption "Factors Affecting Future Operating Results" included under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2 of Part I of this Quarterly Report on Form 10-Q, and those set forth in Item 1 of Part II of this Quarterly Report on Form 10-Q. IOMEGA CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (Unaudited) March 30, December 31, 1997 1996 ----------- ----------- (In thousands) CURRENT ASSETS: Cash and cash equivalents $116,767 $108,312 Trade receivables (net) 210,674 210,733 Inventories 155,326 171,920 Deferred tax assets 37,802 38,059 Other current assets 29,236 27,644 -------- -------- Total current assets 549,805 556,668 -------- -------- PROPERTY, PLANT AND EQUIPMENT, at cost 202,472 187,125 Less - accumulated depreciation and amortization (68,494) (61,083) -------- -------- Net property, plant and equipment 133,978 126,042 -------- -------- OTHER ASSETS 3,072 3,432 -------- -------- $686,855 $686,142 ======== ========
The accompanying notes to condensed consolidated financial statements are an integral part of these balance sheets. IOMEGA CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) March 30, December 31, 1997 1996 ---------- ----------- (In thousands) CURRENT LIABILITIES: Current portion of notes payable $ 7,144 $ 33,770 Accounts payable 128,922 145,844 Accrued liabilities 104,037 103,255 Current portion of capitalized lease obligations 4,602 4,114 ---------- --------- Total current liabilities 244,705 286,983 ---------- --------- CAPITALIZED LEASE OBLIGATIONS, net of current portion 5,389 5,711 ---------- --------- NOTES PAYABLE, net of current portion 33,137 13,465 ---------- --------- CONVERTIBLE SUBORDINATED NOTES, 6.75%, due 2001 45,722 45,733 ---------- --------- STOCKHOLDERS' EQUITY: Preferred Stock, $.01 par value; authorized 4,750,000 shares, none issued - - Series C, Junior Participating Preferred Stock, authorized 250,000 shares, none issued - - Common Stock, $.03 1/3 par value; authorized 150,000,000 shares, issued 129,797,100 and 128,277,426 shares at March 30, 1997 and December 31, 1996, respectively 4,325 4,275 Additional paid-in capital 270,667 268,426 Less: 414,605 and 300,000 Common Stock treasury shares at March 30, 1997 and December 31, 1996, respectively, at cost (6,099) (4,363) Deferred compensation (586) (669) Retained earnings 89,595 66,581 ---------- --------- Total stockholders' equity 357,902 334,250 ---------- --------- $686,855 $686,142 ========== =========
The accompanying notes to condensed consolidated financial statements are an integral part of these balance sheets. IOMEGA CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended March 30, March 31, 1997 1996 ---------- --------- (In thousands, except per share data) SALES $ 361,344 $ 221,988 COST OF SALES 254,065 162,088 --------- --------- Gross Margin 107,279 59,900 --------- --------- OPERATING EXPENSES: Selling, general and administrative 54,360 33,156 Research and development 14,717 6,991 --------- --------- Total operating expenses 69,077 40,147 --------- --------- OPERATING INCOME 38,202 19,753 Interest and other income and expense, net (2,872) (3,161) --------- --------- INCOME BEFORE INCOME TAXES 35,330 16,592 Provision for income taxes (12,316) (6,471) --------- --------- NET INCOME $ 23,014 $ 10,121 ========= ========= NET INCOME PER COMMON SHARE $ 0.17 $ 0.08 ========= ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Includes effect of stock splits (see Note 2) 135,703 128,838 ========= =========
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. IOMEGA CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended March 30, March 31, 1997 1996 --------- --------- (In thousands) Increase (Decrease) in Cash and Cash Equivalents Cash Flow from Operating Activities: Net Income $ 23,014 $ 10,121 Non-Cash Revenue and Expense Adjustments: Depreciation and amortization expense 7,964 4,179 Deferred income tax provision (benefit) 257 (6,879) Other 197 107 Changes in Assets and Liabilities: Trade receivables (net) 59 (38,791) Inventories 16,594 (6,928) Other current assets (1,592) (4,864) Accounts payable (16,922) 16,610 Accrued liabilities 782 15,060 Net cash provided from (used in) --------- --------- operating activities 30,353 (11,385) --------- --------- Cash Flows from Investing Activities: Purchase of property, plant and equipment (14,489) (14,608) Net decrease in other assets 360 108 --------- --------- Net cash used in investing activities (14,129) (14,500) --------- --------- Cash Flows from Financing Activities: Proceeds from sales of Common Stock 1,168 595 Proceeds from issuance of notes payable 86,725 365,096 Payments on notes payable and capitalized lease obligations (94,982) (383,377) Purchase of Common Stock (1,736) - Tax benefit from dispositions of employee stock 1,056 86 Net proceeds from issuance of convertible subordinated notes - 43,163 Net cash provided from (used in) --------- --------- financing activities (7,769) 25,563 --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents 8,455 (322) Cash and Cash Equivalents at Beginning of Period 108,312 1,023 --------- --------- Cash and Cash Equivalents at End of Period $ 116,767 $ 701 ========= =========
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. IOMEGA CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd.) (Unaudited) For the Three Months Ended March 30, March 31, 1997 1996 --------- --------- (In thousands) Supplemental Schedule of Non-Cash Investing and Financing Activities: Property, plant and equipment financed under capitalized lease obligations $ 1,321 $ 4,841 ========= =========
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. IOMEGA CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) SIGNIFICANT ACCOUNTING POLICIES In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) which are necessary to present fairly the financial position of Iomega Corporation and subsidiaries (the "Company") as of March 30, 1997 and December 31, 1996, the results of operations for the three-month periods ended March 30, 1997 and March 31, 1996, and cash flows for the three-month periods ended March 30, 1997 and March 31, 1996. The results of operations for the three-month period ended March 30, 1997 are not necessarily indicative of the results to be expected for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in or incorporated into the Company's latest Annual Report on Form 10-K. Pervasiveness of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Principles of Consolidation - The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries after elimination of all material intercompany accounts and transactions. Revenue Recognition - The Company's customers include original equipment manufacturers, end users, retailers and distributors. Revenue, less reserves for returns, is generally recognized upon shipment to the customer. In addition to reserves for returns, the Company defers recognition of revenue on estimated excess inventory in the distribution and retail channels. For this purpose, excess inventory is the amount of inventory which exceeds the channels' 30 day requirements as estimated by management. The gross margin associated with deferral of revenue for returns and estimated excess channel inventory totaled $16.9 million and $15.7 million at March 30, 1997 and December 31, 1996, respectively, and is included in accrued liabilities in the accompanying condensed consolidated balance sheets. Price Protection and Volume Rebates - The Company has agreements with certain of its customers which, in the event of a price decrease, allow those customers (subject to certain limitations) credit equal to the difference between the price originally paid and the reduced price on units in the customers' inventories at the date of the price decrease. When a price decrease is anticipated, the Company establishes reserves against gross accounts receivable for amounts estimated to be reimbursed to the qualifying customers. In addition, the Company records reserves at the time of shipment for estimated volume rebates. These reserves for volume rebates and price protection credits totaled $24.3 million and $17.0 million at March 30, 1997 and December 31, 1996, respectively, and are netted against accounts receivable in the accompanying condensed consolidated balance sheets. Foreign Currency Translation - For purposes of consolidating foreign operations, the Company has determined the functional currency for its foreign operations is the U.S. dollar. Therefore, translation gains and losses are included in the determination of income. Inventories - Inventories include direct materials, direct labor and manufacturing overhead costs and are recorded at the lower of cost (first-in, first-out) or market and consist of the following: March 30, December 31, 1997 1996 Raw materials $ 84,443 $ 88,728 Work-in-process 21,163 14,004 Finished goods 49,720 69,188 ---------- ---------- $ 155,326 $ 171,920 ========== ========== Reclassifications - Certain reclassifications were made to the prior periods' condensed consolidated financial statements to conform with the current presentation. Net Income Per Common Share - Net income per common share is based on the weighted average number of shares of Common Stock and dilutive common stock equivalent shares outstanding during the period. Common stock equivalent shares consist primarily of stock options that have a dilutive effect when applying the treasury stock method. The outstanding shares and earnings per share have been restated for the three-month period ended March 31, 1996 to reflect the impact of the April 1996 stock split described in Note 2. Recent Accounting Pronouncement - In February 1997, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). This statement specifies the computation, presentation, and disclosure requirements for earnings per share (EPS) for financial statements issued for all periods ending after December 15, 1997. SFAS 128 replaces the standards for computing EPS previously found in APB Opinion No. 15 with a presentation of Basic EPS and Diluted EPS. The following represents the Company's pro forma earnings per share as computed under the rules of SFAS 128: For the Three Months Ended March 30, 1997 March 31, 1996 -------------- -------------- Pro Forma Basic EPS $0.18 $0.09 Pro Forma Diluted EPS $0.17 $0.08 (2) STOCK SPLITS In December 1995, the Board of Directors declared a three-for-one Common Stock split which was effected in the form of a 200% Common Stock dividend paid on January 31, 1996 to stockholders of record at the close of business on January 15, 1996. In April 1996, the Company's Board of Directors declared a two-for-one Common Stock split which was effected in the form of a 100% Common Stock dividend paid on May 20, 1996 to stockholders of record at the close of business on May 6, 1996. Each of these stock splits was accounted for as a stock split and the April 1996 stock split has been retroactively reflected in the accompanying condensed consolidated financial statements. In connection with the stock splits, proportional adjustments were made to outstanding stock options and other outstanding obligations of the Company to issue shares of Common Stock. (3) INCOME TAXES Income taxes for the three months ended March 30, 1997 have been provided for at an effective rate of 35% compared to an effective rate of 39% for the year ended December 31, 1996. This tax rate is based on the Company's projected mix of domestic and foreign pre-tax income for 1997. The decrease in the effective tax rate is due to tax advantages associated with the relocation of the Company's manufacturing capacity to Malaysia and the move of the Company's European headquarters from Germany to Switzerland. U.S. taxes have not been provided for unremitted foreign earnings which are considered to be permanently reinvested in non-U.S. operations. Cash paid for income taxes was $3,298,000 for the first three months of 1997 and $4,772,000 for the corresponding period in 1996. (4) NOTES PAYABLE Line of Credit - On March 11, 1997, the Company entered into a $200 million Senior Secured Credit Facility ("Credit Facility") with Morgan Guaranty Trust Company of New York, Citibank, N.A. and a syndicate of other lenders. This Credit Facility replaced the Company's prior loan facility with Wells Fargo Bank, N.A. The Credit Facility is a three-year revolving line of credit secured by U.S. and Canadian accounts receivable and a pledge of 66% of the stock of certain of the Company's subsidiaries. Borrowings under the Credit Facility are limited to the lesser of 70% of eligible accounts receivable or $200 million. Under the Credit Facility, the Company may borrow at a base rate, which is the higher of prime or federal funds plus a margin of 0.0% to 0.5%, depending on the Company's debt-to-equity ratio, or at LIBOR plus a margin of 1.0% to 2.0%, depending on the Company's debt-to-equity ratio. As of March 30, 1997, the Credit Facility bore interest at LIBOR plus 1.25%, or 6.69%. Total availability under the Credit Facility at March 30, 1997 was $147.5 million, of which $20.0 million was outstanding. Among other restrictions, the Credit Facility treats a change of control (as defined) as an event of default and requires the maintenance of minimum levels of consolidated tangible net worth and earnings. Capital Leases - The Company has entered into various agreements to provide capital lease financing for the purchase of certain manufacturing equipment, office furniture and other equipment. The leases have 36-month to 60-month terms and mature at various dates from July 1998 to March 2000. Principal and interest payments are payable monthly. Interest rates are fixed and range from 7.9% to 10.2% per year. At March 30, 1997, the Company had $10.0 million outstanding on these leases. The leases are secured by the leased equipment and furniture. Other Term Notes - The Company has entered into term notes with various financial institutions. The proceeds of the notes were used to purchase manufacturing equipment. The term notes have 36-month terms which mature at various dates from November 1998 to January 1999. Principal and interest payments are payable monthly. Interest rates are fixed and range from 8.89% to 9.11% per year. At March 30, 1997, the Company had $2.3 million outstanding on these term notes. The term notes are secured by the equipment purchased. The term notes require the Company to maintain minimum levels of working capital, net worth and quarterly operating income. Financing of European Accounts Receivable - In November 1995, a foreign subsidiary of the Company entered into an agreement with a German commercial bank for up to DM 50 million (approximately $35 million) which involved the sales of a portion of the foreign subsidiary's accounts receivable to the bank. During March 1997, the agreement expired and the Company repaid all amounts outstanding under the agreement. Promissory Note on Malaysian Manufacturing Facility - In September 1996, the Company entered into an agreement with Quantum Corporation to finance a portion of the purchase price of a building and equipment associated with a manufacturing facility in Penang, Malaysia. The amount financed under this agreement totaled $18 million, bearing interest at 8.5%, and was payable over a three-year period. The agreement required the Company to maintain minimum levels of working capital and net worth and restrictions on maximum levels of indebtedness. In April 1997, in connection with the consummation of the purchase of the facility, the Company elected to prepay the entire $18 million plus accrued interest. (5) CONVERTIBLE SUBORDINATED NOTES In March 1996, the Company issued $46.0 million of convertible subordinated notes. The net proceeds from the issuance of the notes totaled $43.1 million and were used to pay down other debt and for operating requirements. The notes bear interest at 6.75% per year and interest payments are payable semi- annually on March 15 and September 15 in each year commencing on September 15, 1996. The notes mature on March 15, 2001. The notes are unsecured and subordinated to all existing and future senior indebtedness of the Company and are effectively subordinated to all existing and future indebtedness and other liabilities of the Company's subsidiaries. The principal amount of the notes is convertible into Common Stock of the Company at the option of the holder at or before maturity, unless previously redeemed or repurchased, at a conversion price of $9.875 per share (equivalent to a conversion rate of approximately 101.26 shares per $1,000 principal amount of notes), subject to adjustment in certain events. At March 30, 1997, holders have converted $278,000 of convertible subordinated notes into 28,147 shares of Common Stock. The notes are redeemable at any time on or after March 15, 1999, in whole or in part, at the option of the Company, at declining redemption prices of 102.7% for 1999 and 101.35% for 2000, together with accrued interest, if any, to the redemption date. If any repurchase event, as defined in the indenture agreement, occurs, each holder of notes may require the Company to repurchase all or any part of such holder's notes at 100% of the principal amount thereof plus accrued interest to the repurchase date. (6) OTHER MATTERS Significant Customers - During the fiscal quarter ended March 30, 1997, sales to Ingram Micro, Inc. accounted for 13.2% of consolidated sales. During the fiscal quarter ended March 31, 1996, sales to Ingram Micro, Inc. accounted for 11% of consolidated sales. No other single customer accounted for more than 10% of the Company's sales for these periods. Forward Exchange Contracts - The Company has commitments to sell and purchase foreign currencies relating to forward exchange contracts in order to hedge against future currency fluctuations. The outstanding forward exchange sales (purchase) contracts at March 30, 1997 are as follows. The contracts mature in June 1997. Contracted Currency Amount Forward Rate -------- ------------- ------------ British Pound 8,550,000 .62 Dutch Guilder 15,900,000 1.89 French Franc 50,100,000 5.67 German Mark 45,950,000 1.67 Irish Punt 280,000 .64 Italian Lira 16,650,000,000 1,701.25 Malaysian Ringgitt (1,600,000) 2.49 Spanish Peseta 460,550,000 143.47 Gains and losses on foreign currency contracts intended to be used to hedge operating requirements are reported currently in income. Gains and losses on foreign currency contracts intended to meet firm commitments are deferred and are recognized as part of the cost of the underlying transaction being hedged. At March 30, 1997 and December 31, 1996, all of the Company's foreign currency contracts are being used to hedge operating requirements. The Company's theoretical risk in these transactions is the cost of replacing, at current market rates, these contracts in the event of default by the counterparty. IOMEGA CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company reported sales of $361.3 million and net income of $23.0 million, or $0.17 per share, in the first quarter of 1997. This compares to sales of $222.0 million and net income of $10.1 million, or $0.08 per share, in the first quarter of 1996. SALES Sales for the three months ended March 30, 1997 increased by $139.3 million, or 62.7%, when compared to the corresponding period of 1996. The primary reasons for the increase were higher sales of Zip and Jaz products. Combined Zip and Jaz sales totaled $323.0 million, or 89.4% of total sales, in the first quarter of 1997, as compared to $185.6 million, or 83.6% of total sales, in the first quarter of 1996. Sales of Zip drives to OEM customers increased to over 20% of total Zip drive unit sales in the first quarter of 1997, as compared to less than 1% in the first quarter of 1996. Ditto product sales also increased in the first quarter of 1997, as total Ditto sales were $35.6 million, or 9.9% of sales, as compared to $27.6 million, or 12.4% of sales, in the first quarter of 1996. International sales, primarily to customers in Europe and Asia, were $135.2 million, or 37.4% of sales, in the first quarter of 1997. In the first quarter of 1996, international sales, which were primarily to customers in Europe, totaled $83.9 million, or 37.8% of sales. Sales to the U.S. market increased to $226.1 million, or 62.6% of sales, in the first quarter of 1997, from $138.1 million or 62.2% of sales, in the first quarter of 1996. GROSS MARGIN The Company's gross margin percentage was 29.7% in the first quarter of 1997, as compared to 27.0% in the first quarter of 1996. Gross margins on Zip products improved in the first quarter of 1997, as compared to the first quarter of 1996, due primarily to reductions in component material costs and per unit manufacturing overhead costs. These cost improvements were partially offset by price reductions on Zip products resulting from a series of rebate programs which began in July of 1996. In addition, first quarter 1997 gross margins were negatively impacted by price protection reserves recorded by the Company in anticipation of price reductions on its Zip and Jaz products which became effective in the second quarter. The ratio of disk sales to drive sales on Zip products was slightly higher in the first quarter of 1997, than in the first quarter of 1996. Jaz product gross margins improved in the first quarter of 1997, as compared to the first quarter of 1996, due to the absence of manufacturing start-up costs and a higher ratio of disk sales to drive sales. Jaz product gross margins are lower than Zip product gross margins, due in large part to a lower ratio of disk sales to drive sales. Gross margins on Ditto products were similar in the first quarter of 1997 and the first quarter of 1996. Gross margins for the remainder of 1997 will depend in large part on sales of Zip and Jaz disks, which generate significantly higher gross margins than the corresponding drives, and on the sales mix between disks and drives, and between Zip, Jaz and Ditto products. Although the Company expects the costs of Zip, Jaz and Ditto products to decline in the future due to lower component material cost and lower per unit overhead expenses, the gross margin percentages will depend in large part on the Company's ability to achieve planned cost reductions, as well as on recent and any future pricing actions. The Company's ability to achieve planned cost reductions will depend in large part on the success of the Company's efforts to shift manufacturing capacity from the United States to Malaysia. Also, future gross margin percentages will be impacted by the mix between OEM sales, which generally provide lower gross margins than sales through other channels, and retail sales, as well as other factors. In April 1997, the Company announced the recall of a batch of approximately 75,000 Jaz disks manufactured within the period March 13, 1997 to April 20, 1997 at one of the Company's facilities. The recall was announced after the Company's ongoing reliability testing revealed that the batch of disks contained a component that did not conform over time to Iomega's reliability requirements. The Company has contacted its distributors and channel partners to remove the affected disks from their inventories and will replace any affected disk purchased by a customer. The costs associated with this recall could have a material adverse impact on second quarter 1997 gross margins. The amount of the impact will depend, in part, on the Company's ability to meet anticipated demand for Jaz disks while at the same time replacing the recalled disks, and the timing and amount of any monetary recovery by the Company from its supplier. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased by $21.2 million in the first quarter of 1997, as compared to the first quarter of 1996, and increased slightly as a percentage of sales to 15.0% in the first quarter of 1997 from 14.9% in the first quarter of 1996. The increased expenses in the first quarter of 1997 were primarily the result of advertising expenses incurred to increase market awareness of Zip, Jaz and Ditto products, variable selling expenses, and increased salaries and wages associated with increased headcount in all areas of sales, marketing and administration. Management expects selling, general and administrative expenses to increase further in the remainder of 1997 in absolute dollars due primarily to increased advertising and promotional expenses in the United States, Europe and Asia, as well as increased variable selling expenses and increased fixed administrative expenses. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses increased by $7.7 million in the first quarter of 1997, as compared to the first quarter of 1996, and increased as a percentage of sales to 4.1% of sales in the first quarter of 1997, as compared to 3.1% of sales in the first quarter of 1996. The increase was primarily the result of expenditures related to the continued development and enhancement of Zip, Jaz and Ditto products, as well as development expenses related to the Company's n-hand product. Management expects continued increases in research and development expenses during the remainder of 1997 in absolute dollars as the result of planned increases in resources dedicated to product development and enhancement. OTHER The Company recorded interest income of $1.1 million in the first quarter of 1997, as compared to $0.1 million in the first quarter of 1996, due to increased available cash balances in the first quarter of 1997. Interest expense was $2.5 million in the first quarter of 1997, as compared to $2.2 million in the first quarter of 1996, due to increased average borrowings under a financing agreement in Europe and several new capital lease obligations. INCOME TAXES For the first quarter of 1997, the Company recorded an income tax provision of $12.3 million, representing an effective income tax rate of 35%. The effective tax rate decreased from 39% in the first quarter of 1996 due to tax advantages associated with the relocation of manufacturing capacity to Malaysia and the relocation of the Company's European headquarters from Germany to Switzerland. Differences between the currently anticipated mix of foreign income versus domestic income, and the actual mix, will have an impact on the effective tax rate that is recorded during the remainder of 1997. SEASONALITY The Company's Ditto, Zip and Jaz products are targeted primarily to the retail consumer market. This market is generally seasonal, with a substantial portion of total sales occurring in the fourth quarter and sales slowdowns commonly occurring during the summer months. In light of the seasonal nature of the market for the Company's products, revenues for any prior quarter are not necessarily indicative of the revenues to be expected in any future quarter. LIQUIDITY AND CAPITAL RESOURCES At March 30, 1997, the Company had cash and cash equivalents of $116.8 million, working capital of $305.1 million, and a ratio of current assets to current liabilities of 2.25 to 1. During the first quarter of 1997, the Company generated $30.4 million from operating activities. The primary sources of funds provided by operating activities were net income and non-cash expenses. Inventories decreased by $16.6 million. This reduction was offset by decreases in accounts payable and accrued liabilities of $16.1 million. The Company used $14.1 million in investing activities during the first quarter of 1997, primarily for the purchase of property, plant and equipment. Cash used in financing activities totaled $7.8 million during the first quarter of 1997. Included in cash and cash equivalents used in financing activities was $8.3 million of net payments on notes payable and capitalized lease obligations and $1.7 million used to repurchase 114,605 shares of the Company's Common Stock, offset by a $1.1 million tax benefit for dispositions of employee stock and proceeds of $1.2 million for sales of Common Stock to option holders. On March 11, 1997, the Company entered into a $200 million Senior Secured Credit Facility ("Credit Facility") with Morgan Guaranty Trust Company of New York, Citibank, N.A. and a syndicate of other lenders. This Credit Facility replaced the Company's prior loan facility with Wells Fargo Bank, N.A. The Credit Facility is a three-year revolving line of credit secured by U.S. and Canadian accounts receivable and a pledge of 66% of the stock of certain of the Company's subsidiaries. Borrowings under the Credit Facility are limited to the lesser of 70% of eligible accounts receivable or $200 million. Under the Credit Facility, the Company may borrow at a base rate, which is the higher of prime or federal funds plus a margin of 0.0% to 0.5%, depending on the Company's debt-to-equity ratio, or at LIBOR plus a margin of 1.0% to 2.0%, depending on the Company's debt-to-equity ratio. As of March 30, 1997, the Credit Facility bore interest at LIBOR plus 1.25%, or 6.69%. Total availability under the Credit Facility at March 30, 1997 was $147.5 million, of which $20.0 million was outstanding. Among other restrictions, the Credit Facility treats a change of control (as defined) as an event of default and requires the maintenance of minimum levels of consolidated tangible net worth and earnings. In November 1995, a foreign subsidiary of the Company entered into an agreement with a German commercial bank for up to DM 50 million (approximately $35 million), which involved the sales of a portion of the foreign subsidiary's accounts receivable to the bank. During March 1997, the agreement expired and the Company repaid all amounts outstanding under the agreement. The Company's balance sheet at March 30, 1997 reflected current notes payable of $7.1 million, consisting of term loans of $1.1 million and the short-term portion of financing entered into in connection with the purchase of a manufacturing facility in Malaysia of $6.0 million. At March 30, 1997, long-term notes payable totaled $33.1 million, consisting of the long-term portion of the financing agreement for the purchase of the facility in Malaysia of $12.0 million, borrowings under the Company's Credit Facility of $20.0 million and other term loans of $1.1 million. The current and long-term portions of capitalized lease obligations at March 30, 1997 were $4.6 million and $5.4 million, respectively. In April 1997, the Company prepaid the entire $18.0 million relating to the Malaysian manufacturing facility. The Company had $45.7 million of convertible subordinated notes outstanding at March 30, 1997, which bear interest at 6.75% per year and mature on March 15, 2001. Net accounts receivable at the end of the first quarter of 1997 were relatively comparable to the first quarter of 1996. As indicated above, inventory decreased by $16.6 million in the first quarter of 1997, due primarily to a reduction in finished goods resulting from higher than anticipated sales of Zip products. Other current assets increased by $1.6 million due to increases in prepaid advertising expenses. Additions to property, plant and equipment during the first quarter of 1997 totaled $15.7 million, partially offset by $1.3 million in proceeds from capital leases. The Company expects that its balance of cash and cash equivalents, together with current and future sources of available financing, will be sufficient to fund the Company's operations during at least the remainder of 1997. Thereafter, the Company may require additional funds to finance its operations. The precise amount and timing of the Company's future financing needs cannot be determined at this time, and will depend on a number of factors, including the market demand for the Company's products, the success of the Company's strategy to transfer manufacturing capacity to Malaysia, the availability of critical components, the progress of the Company's product development efforts, the success of the Company in improving its inventory management, and the Company's management of its cash and accounts payable. FACTORS AFFECTING FUTURE OPERATING RESULTS Because the Company is relying on its Zip and Jaz products for the substantial majority of its sales in 1997, the Company's future operating results will depend in large part on the ability of those products to attain widespread market acceptance. Although the Company believes there is market demand for new personal computer data storage solutions, there can be no assurance that the Company will be successful in establishing Zip and Jaz as the preferred solutions for that market need. The extent to which Zip and Jaz achieve a significant market presence will depend upon a number of factors, including the price, performance and other characteristics of competing solutions introduced by other vendors, including the LS-120 (product of the consortium of Compaq Computer, Imation and MKE) and EZ Flyer 230 and SyJet 1.5 GB (products of Syquest Technology, Inc.), the success of the Company in establishing OEM arrangements, the willingness of OEMs to promote the products containing the Company's drives, the ability of the Company to create demand for Zip and Jaz with leading personal computer manufacturers, the success of the Company in educating consumers about the existence and possible uses of Zip and Jaz products as storage devices, any adverse consumer reaction resulting from the recently-announced recall of a limited number of Jaz disks and the success of the Company's plans to improve customer satisfaction and provide quicker turnaround on its rebate programs. In addition, component problems, shortages or other factors affecting the supply of the Company's products, including any difficulties encountered relating to the transfer of manufacturing capacity to the Company's new facility in Malaysia or the Company's ability to add manufacturing capacity as needed, could limit the Company's sales and provide an opportunity for competing products to achieve market acceptance. The Company's business strategy is substantially dependent on maximizing sales of its proprietary Zip and Jaz disks, which generate significantly higher margins than its disk drives. If this strategy is not successful, either because the Company does not establish a sufficiently large installed base of Zip and Jaz drives, because the sales mix between disks and drives is below levels anticipated by the Company, because another party succeeds in producing disks that are compatible with Zip and Jaz drives without infringing the Company's proprietary rights, or for any other reason, the Company's sales would be adversely affected, and its net income would be disproportionately adversely affected. Future market demand for the Company's products cannot be predicted with certainty. Sales of Zip and Jaz products in 1996 and the first quarter of 1997 were the primary reasons for the Company's revenue growth in these periods. However, these sales may not be indicative of the long-term demand for such products. Accordingly, the sales growth experienced by the Company in 1996 and in the first quarter of 1997 should not be assumed to be an indication of future sales. Moreover, because the Company's expense levels are based in part on expectations of future sales levels, a shortfall in expected sales could result in a disproportionate decrease in the Company's net income. In addition, the Company has experienced and may in the future experience significant fluctuations in its quarterly operating results. The Company's European sales are predominantly denominated in foreign currencies. The Company enters into forward exchange contracts to sell foreign currencies as a means of hedging its foreign operating requirements. Fluctuations in the value of foreign currencies relative to the U.S. dollar could result in foreign currency gains and losses. A significant portion of the Company's revenues are currently being generated in Europe and Asia. The Company's existing infrastructure outside of the United States is significantly less mature and developed than in the United States. In particular, the Company's recent relocation of its European operations from Germany to Switzerland and the Netherlands, combined with the recent start-up and expansion of the Company's Asian headquarters and sales offices, could adversely impact sales momentum in these international markets. Other factors that could cause actual events or actual results to differ materially from those indicated by any forward-looking statements include the ability of management to manage growth and an increasingly complex business, market demand for personal computers with which the Company's products are used, manufacturing capacity, component availability, transportation and quality issues (including, for example, the Company's recall of a limited number of Jaz cartridges on April 25, 1997), product and component pricing, competition, intellectual property rights, litigation and general economic conditions. IOMEGA CORPORATION PART II - OTHER INFORMATION Item 1. Legal Proceedings As previously disclosed in the Company's Annual Report on Form 10-K for the period ended December 31, 1996, the Company has commenced litigation against Nomai S.A. in conjunction with Nomai's alleged plans to announce a disk product claimed to be compatible with the Company's Zip drive. The Company has not licensed Nomai to manufacture or sell Zip products, and believes the Nomai planned product would infringe the Company's copyrights, patents and other intellectual property rights and constitute unfair competition. In addition to the preliminary injunction obtained by the Company against Nomai in Germany and other legal proceedings commenced by the Company previously described in the Company's Annual Report on Form 10-K for the period ended December 31, 1996, on April 7, 1997, the Company filed suit against an equipment supplier, Thames Automation, Inc. ("Thames"), in United States District Court for the District of Utah, claiming breach of contract, conversion and infringement of various Iomega intellectual property rights, misappropriation of trade secrets and unfair competition. The claims arise from Thames' alleged offer for sale to Nomai of equipment for the automated assembly of a Zip-compatible product. On April 8, 1997, the Company filed a motion for a temporary restraining order prohibiting Thames from selling or delivering to Nomai or any other person any automated assembly lines or other equipment designed or suited for making a computer disk compatible with Zip drives and from disclosing to any third party various documents and information relating to Zip disk manufacturing equipment sold by Thames to Iomega. On April 10, 1997, following a hearing before the Court, Thames stipulated to the entry by the District Court of an order prohibiting Thames from selling or delivering any such equipment and from making any such disclosure. The Order was entered on April 11, 1997 and will remain in effect until the Court rules on the Company's pending motion for a preliminary injunction. Discovery in the litigation with Thames is underway. An adverse outcome in any of the proceedings referred to above could result in the introduction by Nomai in one or more countries of a Zip-compatible product. Any such introduction could have a material adverse effect on the Company's future sales and operating results, as previously indicated in the Company's most recent Annual Report on Form 10-K. The Company intends to vigorously protect and enforce its intellectual property rights in the proceedings referenced above. Item 2. Change in Securities The Company did not sell any equity securities during the quarter ended March 30, 1997 that were not registered under the Securities Act of 1933. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The exhibits listed on the Exhibit Index filed as a part of this Quarterly Report on Form 10-Q are incorporated herein by reference. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter for which this report on Form 10-Q is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IOMEGA CORPORATION (Registrant) /S/KIM B. EDWARDS ----------------------- Dated: May 12, 1997 Kim B. Edwards President and Chief Executive Officer /S/ LEONARD C. PURKIS ----------------------- Dated: May 12, 1997 Leonard C. Purkis Senior Vice President, Finance and Chief Financial Officer EXHIBIT INDEX The following exhibits are filed as part of this Quarterly Report on Form 10-Q: Exhibit No. Description 3(i).1 (1) Restated Certificate of Incorporation of the Company, as amended. 10.13 (2) 1995 Director Stock Option Plan of the Company, as amended. 10.32 $200 million Credit Agreement, dated March 11, 1997. 10.32 (a) Pledge Agreement, dated March 11, 1997. 10.32 (b) Security Agreement, dated March 11, 1997. 10.33 (2) 1997 Stock Incentive Plan of the Company. 10.34 1997 Bonus Program. 27 Financial Data Schedule (only filed as part of electronic copy). ______________________________ (1) Incorporated herein by reference to the exhibits to the Company's Registration Statement on Form S-8 (File No. 333-26375). (2) Incorporated herein by reference to the Company's Preliminary Proxy Statement for the 1997 Annual Meeting of Stockholders as filed with the SEC on February 21, 1997 (File No. 001-12333). EX-10.32 2 EXHIBIT 10.32 $200,000,000 CREDIT AGREEMENT dated as of March 11, 1997 among Iomega Corporation, The Banks Party Hereto, Citibank, N.A., as Administrative Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent TABLE OF CONTENTS ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions 1 SECTION 1.02. Accounting Terms and Determinations 12 ARTICLE 2 THE CREDITS SECTION 2.01. Commitments to Lend 12 SECTION 2.02. Method of Borrowing 12 SECTION 2.03. Maturity of Loans 14 SECTION 2.04. Interest Rates 14 SECTION 2.05. Method of Electing Interest Rates 15 SECTION 2.06. Fees 17 SECTION 2.07. Termination or Reduction of Commitments 17 SECTION 2.08. Optional Prepayments 17 SECTION 2.09. General Provisions as to Payments 18 SECTION 2.10. Funding Losses 18 SECTION 2.11. Computation of Interest and Fees 19 SECTION 2.12. Notes 19 ARTICLE 3 CONDITIONS SECTION 3.01. Closing 20 SECTION 3.02. Borrowings 21 ARTICLE 4 REPRESENTATIONS AND WARRANTIES SECTION 4.01. Corporate Existence and Power 22 SECTION 4.02. Corporate and Governmental Authorization; No Contravention 22 SECTION 4.03. Binding Effect 22 SECTION 4.04. Financial Information 22 SECTION 4.05. Litigation 23 SECTION 4.06. Compliance with ERISA 23 SECTION 4.07. Environmental Matters 23 SECTION 4.08. Taxes 24 SECTION 4.09. Subsidiaries 24 SECTION 4.10. Regulatory Restrictions on Borrowing 24 SECTION 4.11. Full Disclosure 24 SECTION 4.12. Representations in Collateral Documents True and Correct 25 ARTICLE 5 COVENANTS SECTION 5.01. Information 25 SECTION 5.02. Payment of Obligations 27 SECTION 5.03. Maintenance of Property; Insurance 28 SECTION 5.04. Conduct of Business and Maintenance of Existence 28 SECTION 5.05. Compliance with Laws 29 SECTION 5.06. Inspection of Property, Books and Records 29 SECTION 5.07. Mergers and Sales of Assets 29 SECTION 5.08. Use of Proceeds 29 SECTION 5.09. Negative Pledge 30 SECTION 5.10. Limitation on Debt 31 SECTION 5.11. Minimum Consolidated Tangible Net Worth 31 SECTION 5.12. Debt to Consolidated Tangible Net Worth 32 SECTION 5.13. Minimum Consolidated EBITDA 32 SECTION 5.14. Maximum Cash Conversion Days 32 SECTION 5.15. Restricted Payments 32 SECTION 5.16. Investments 32 SECTION 5.17. Transactions with Affiliates 33 SECTION 5.18. Further Assurances 33 ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default 34 SECTION 6.02. Notice of Default 36 ARTICLE 7 THE AGENTS SECTION 7.01. Appointment and Authorization 36 SECTION 7.02. Agents and Affiliates 37 SECTION 7.03. Action by Agents 37 SECTION 7.04. Consultation with Experts 37 SECTION 7.05. Liability of Agents 37 SECTION 7.06. Indemnification 38 SECTION 7.07. Credit Decision 38 SECTION 7.08. Successor Agents 38 SECTION 7.09. Agents Fees 38 ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair 39 SECTION 8.02. Illegality 39 SECTION 8.03. Increased Cost and Reduced Return 40 SECTION 8.04. Taxes 41 SECTION 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans 43 SECTION 8.06. Substitution of Bank 43 ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices 44 SECTION 9.02. No Waivers 44 SECTION 9.03. Expenses; Indemnification 44 SECTION 9.04. Sharing of Set-offs 45 SECTION 9.05. Amendments and Waivers; Release of Collateral 45 SECTION 9.06. Successors; Participation and Assignments 46 SECTION 9.07. No Reliance on Margin Stock 47 SECTION 9.08. Governing Law; Submission to Jurisdiction 47 SECTION 9.09. Counterparts; Integration; Effectiveness 48 SECTION 9.10. WAIVER OF JURY TRIAL 48 SECTION 9.11. Confidentiality 48 SECTION 9.12. Right of Set-off 49 COMMITMENT SCHEDULE PRICING SCHEDULE SCHEDULE I - Debt EXHIBIT A - Note EXHIBIT B - Opinion of Counsel for the Borrower EXHIBIT C - Opinion of Special Counsel for the Agents EXHIBIT D - Assignment and Assumption Agreement EXHIBIT E - Security Agreement EXHIBIT F - Pledge Agreement AGREEMENT dated as of March 11, 1997 among IOMEGA CORPORATION, the BANKS party hereto, CITIBANK, N.A., as Administrative Agent, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Documentation Agent. The parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.1. Definitions. The following terms, as used herein, have the following meanings: Administrative Agent means Citibank, N.A., in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity. Administrative Questionnaire means, with respect to each Bank, an administrative questionnaire in the form prepared by the Administrative Agent, completed by such Bank and returned to the Administrative Agent (with a copy to the Borrower and the Documentation Agent). Affiliate means (i) any Person that directly, or indirectly through one or more intermediaries, controls the Borrower (a Controlling Person) or (ii) any Person (other than the Borrower or a Subsidiary) which is controlled by or is under common control with a Controlling Person. As used herein, the term control means possession, directly or indirectly, of the power to vote 10% or more of any class of voting securities of a Person or to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Agents means the Administrative Agent and the Documentation Agent, and Agent means either of the foregoing. Applicable Lending Office means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office, and (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office. Assignee has the meaning set forth in Section 9.06(c). Bank means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors. Base Rate means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 2 of 1% plus the Federal Funds Rate for such day. Base Rate Loan means a Loan which bears interest at the Base Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate Election or the provisions of Section 2.05(a) or Article 8. Borrower means Iomega Corporation, a Delaware corporation, and its successors. Borrowing means a borrowing hereunder consisting of Loans made to the Borrower on the same day pursuant to Article 2, all of which Loans are of the same type (subject to Article 8) and, except in the case of Base Rate Loans, have the same initial Interest Period. A Borrowing is a Base Rate Borrowing if such Loans are Base Rate Loans or a Euro-Dollar Borrowing if such Loans are Euro- Dollar Loans. Borrowing Base means, on any date, a dollar amount equal to 70% of the consolidated trade receivables, less allowance for doubtful accounts, of the Borrower and its Consolidated Subsidiaries determined as of the last day of the most recently ended Fiscal Quarter for which financial statements are required to have been delivered on or before such date pursuant to clauses (a) and (b) of Section 5.01. Closing Date means the date on or after the Effective Date on which the Documentation Agent shall have received all the documents specified in or pursuant to Section 3.01. Collateral means collateral subject to the Collateral Documents. Collateral Documents means the Pledge Agreement, the Security Agreement, any additional pledge or security agreements required to be delivered pursuant to the Loan Documents and any instruments of assignment, lockbox letters or other instruments or agreements executed pursuant to the foregoing. Commitment means (i) with respect to each Bank listed on the Commitment Schedule, the amount set forth opposite the name of such Bank on the Commitment Schedule, and (ii) with respect to any Assignee, the amount of the transferor Bank's Commitment assigned to it pursuant to Section 9.06(c), in each case as such amount may be changed from time to time pursuant to Section 2.07 or 9.06(c). Commitment Schedule means the Commitment Schedule attached hereto. Consolidated Debt means, at any date, the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. Consolidated EBITDA means, for any period, the net income of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis for such period, after excluding the effect of any extraordinary or other non-recurring gain (but not loss) and the effect of the one-time pre-tax charge of $9,100,000 taken in the last Fiscal Quarter of 1996, plus, to the extent deducted in determining such net income for such period, the aggregate amount of (i) interest expense, (ii) income tax expense, and (iii) depreciation, amortization and other similar non-cash charges. Consolidated Subsidiary means, at any date, any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consolidated financial statements if such statements were prepared as of such date. Consolidated Tangible Net Worth means, at any date, the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries less their consolidated Intangible Assets, all determined as of such date. As used herein, Intangible Assets means the amount (to the extent reflected in determining such consolidated stockholders' equity) of (i) all write-ups (except write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve months after the acquisition of such business) after September 30, 1996 in the book value of any asset owned by the Borrower or a Consolidated Subsidiary, (ii) all Investments in unconsolidated Subsidiaries and all equity Investments in Persons which are not Subsidiaries and (iii) all unamortized debt discount and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, anticipated future benefit of tax loss carry- forwards, copyrights, organization or developmental expenses and other intangible assets. Debt of any Person means, at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with GAAP, (v) all non-contingent obligations (and, for purposes of Section 5.09 and the definitions of Material Debt and Material Financial Obligations, all contingent obligations) of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vii) all Guarantees by such Person of Debt of another Person (each such Guarantee to constitute Debt in an amount equal to the amount of such other Person's Debt Guaranteed thereby). Default means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. Derivatives Obligations of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. Documentation Agent means Morgan Guaranty Trust Company of New York, in its capacity as documentation agent for the Banks hereunder, and its successors in such capacity. Domestic Business Day means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. Domestic Lending Office means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Administrative Agent. Effective Date means the date this Agreement becomes effective in accordance with Section 9.09. Environmental Laws means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment or the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into the environment, including (without limitation) ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean-up or other remediation thereof. ERISA means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. ERISA Group means the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. Euro-Dollar Business Day means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. Euro-Dollar Lending Office means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent. Euro-Dollar Loan means a Loan which bears interest at a Euro-Dollar Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate Election. Euro-Dollar Margin has the meaning set forth in Section 2.04(b). Euro-Dollar Rate means a rate of interest determined pursuant to Section 2.04(b) on the basis of a London Interbank Offered Rate. Euro-Dollar Reserve Percentage means, for any day, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of Eurocurrency liabilities (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). Events of Default has the meaning set forth in Section 6.01. Exchange Act means the Securities Exchange Act of 1934, as amended from time to time. Federal Funds Rate means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Citibank, N.A. on such day on such transactions as determined by the Administrative Agent. Fiscal Quarter means a fiscal quarter of the Borrower. Fiscal Year means a fiscal year of the Borrower. GAAP means generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks. Group of Loans means, at any time, a group of Loans consisting of (i) all Loans which are Base Rate Loans at such time or (ii) all Euro-Dollar Loans having the same Interest Period at such time, provided that, if a Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Article 8, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made. Guarantee by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise), (ii) to reimburse a bank for amounts drawn under a letter of credit for the purpose of paying such Debt or (iii) entered into for the purpose of assuring in any other manner the holder of such Debt or other obligation of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term Guarantee used as a verb has a corresponding meaning. Hazardous Substances means any toxic, radioactive, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics. Indemnitee has the meaning set forth in Section 9.03(b). Information Memorandum means the confidential descriptive memorandum dated January 1997 furnished to the Banks in connection with the transactions contemplated hereby. Interest Period means: (1) with respect to each Euro-Dollar Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in an applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the Borrower may elect in such notice; provided that (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro- Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar 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, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. Internal Revenue Code means the Internal Revenue Code of 1986, as amended, or any successor statute. Investment means any investment in any Person, whether by means of share purchase, capital contribution, loan, Guarantee, time deposit or otherwise (but not including any demand deposit). Lien means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has substantially the same practical effect as a security interest, in respect of such asset. For purposes hereof, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. Loan means a loan made by a Bank pursuant to Section 2.01. Loan Documents means this Agreement, the Notes and the Collateral Documents. London Interbank Offered Rate has the meaning set forth in Section 2.04(b). Material Adverse Effect means (i) any material adverse effect upon the condition (financial or otherwise), results of operations, properties, assets or business of the Borrower and its Subsidiaries, taken as a whole; (ii) a material adverse effect on the ability of the Borrower or any other Person to consummate the transactions contemplated hereby to occur on the Closing Date; (iii) a material adverse effect on the ability of the Borrower to perform under this Agreement and the Notes and the other Loan Documents; or (iv) a material adverse effect on the rights and remedies of the Agents and the Banks under this Agreement and the Notes and the other Loan Documents. Material Debt means Debt (except Debt outstanding hereunder) of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate principal or face amount exceeding $5,000,000. Material Financial Obligations means a principal or face amount of Debt and/or payment or collateralization obligations in respect of Derivatives Obligations of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate $5,000,000. Material Plan means, at any time, a Plan or Plans having aggregate Unfunded Liabilities in excess of $5,000,000. Multiemployer Plan means, at any time, an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. Notes means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the Borrower's obligation to repay the Loans, and Note means any one of such promissory notes issued hereunder. Notice of Borrowing has the meaning set forth in Section 2.02. Notice of Interest Rate Election has the meaning set forth in Section 2.05. Parent means, with respect to any Bank, any Person controlling such Bank. Participant has the meaning set forth in Section 9.06(b). PBGC means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. Person means an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. Plan means, at any time, an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. Pledge Agreement means the pledge agreement dated as of the Closing Date substantially in the form of Exhibit F hereto between the Borrower and the Security Agent, as amended from time to time. Pricing Schedule means the Pricing Schedule attached hereto. Prime Rate means the rate of interest publicly announced by Citibank, N.A. in New York City from time to time as its Prime Rate. Quarterly Payment Dates means each March 31, June 30, September 30 and December 31. Reference Banks means the principal London offices of Fleet National Bank, Citibank, N.A. and Morgan Guaranty Trust Company of New York, and Reference Bank means any one of such Reference Banks. Regulation U means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. Required Banks means, at any time, Banks having at least 51% of the aggregate amount of the Commitments or, if the Commitments shall have terminated, holding at least 51% of the aggregate unpaid principal amount of the Loans. Restricted Payment means (i) any dividend or other distribution on any shares of the Borrower's capital stock (except dividends payable solely in shares of its capital stock other than mandatorily redeemable preferred stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of the Borrower's capital stock or (b) any option, warrant or other right to acquire shares of the Borrower's capital stock (but not including payments of principal, premium (if any) or interest made pursuant to the terms of convertible debt securities prior to conversion). Revolving Credit Period means the period from and including the Effective Date to but not including the Termination Date. SEC means the Securities and Exchange Commission. Security Agent means Citicorp USA, Inc., in its capacity as agent for the Banks under the Collateral Documents, and its successors in such capacity. Security Agreement means the security agreement dated as of the Closing Date substantially in the form of Exhibit E hereto among the Borrower, the Security Agent and Wells Fargo Bank, N.A., as Concentration Bank, as amended from time to time. Subsidiary means, as to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. Unless otherwise specified, Subsidiary means a Subsidiary of the Borrower. Temporary Cash Investment means any Investment in (i) direct obligations of the United States or any agency thereof or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated at least A-1 by Standard & Poor's Ratings Services or P-1 by Moody's Investors Service, Inc., (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized or licensed under the laws of the United States or any State thereof and has capital, surplus and undivided profits aggregating at least $1,000,000,000, (iv) repurchase agreements with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above, or (v) any other obligation which meets the criteria established in the Borrower's U.S. cash investment policy as in effect on the date hereof. Termination Date means March 11, 2000, or, if such day is not a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day unless such Euro- Dollar Business Day falls in another calendar month, in which case the Termination Date shall be the next preceding Euro-Dollar Business Day. Unfunded Liabilities means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. United States means the United States of America. SECTION 1.2. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP; provided that, if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any provision hereof to eliminate the effect of any change in GAAP on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Banks wish to amend any provision hereof for such purpose), then the Borrower's compliance with such provision shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such provision is amended in a manner satisfactory to the Borrower and the Required Banks. ARTICLE 2 THE CREDITS SECTION 2.1. Commitments to Lend. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower from time to time during the Revolving Credit Period; provided that, immediately after each such loan is made, the aggregate outstanding principal amount of all Loans by such Bank shall not exceed its Commitment. Each Borrowing under this Section shall be in an aggregate principal amount of $5,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount of the unused Commitments) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrower may borrow under this Section, prepay Loans to the extent permitted by Section 2.08 and reborrow at any time during the Revolving Credit Period under this Section. SECTION 2.2. Method of Borrowing. (a) The Borrower shall give the Administrative Agent notice (a Notice of Borrowing) not later than 12:00 Noon (New York City time) on (x) the date of each Base Rate Borrowing and (y) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (i) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing; (ii) the aggregate amount of such Borrowing; (iii) whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate or a Euro-Dollar Rate; and (iv) in the case of a Euro-Dollar Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. In no event shall the total number of Groups of Loans at any one time outstanding exceed twenty. (b) Promptly after receiving a Notice of Borrowing, the Administrative Agent shall notify each Bank of the contents thereof and of such Bank's ratable share of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (c) Not later than 1:00 P.M. (New York City time) on the date of each Euro- Dollar Borrowing or 2:00 P.M. (New York City time) on the date of each Base Rate Borrowing, each Bank shall make available its ratable share of such Borrowing, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address specified in or pursuant to Section 9.01. Unless the Administrative Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Administrative Agent will make the funds so received from the Banks available to the Borrower at the Administrative Agent's aforesaid address. (d) Unless the Administrative Agent shall have received notice from a Bank before the date of any Borrowing (or, in the case of a Base Rate Borrowing, prior to 1:30 P.M.(New York City time) on the date of such Borrowing) that such Bank will not make available to the Administrative Agent such Bank's share of such Borrowing, the Administrative Agent may assume that such Bank has made such share available to the Administrative Agent on the date of such Borrowing in accordance with subsection (b) of this Section and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Administrative Agent, such Bank and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) if such amount is repaid by the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.04 and (ii) if such amount is repaid by such Bank, the Federal Funds Rate. If such Bank shall repay to the Administrative Agent such corresponding amount, the Borrower shall not be required to repay such amount and the amount so repaid by such Bank shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. SECTION 2.3. Maturity of Loans. (a) Each Loan shall mature, and the principal amount thereof shall be due and payable (together with interest accrued thereon), on the Termination Date. (b) If at any time the aggregate outstanding principal amount of the Loans exceeds the Borrowing Base, the Borrower shall prepay on the next succeeding Domestic Business Day a principal amount of Loans equal to such excess. SECTION 2.4. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the sum of (x) the Base Rate Margin (as determined in accordance with the Pricing Schedule) plus (y) the Base Rate for such day. Such interest shall be payable quarterly in arrears on each Quarterly Payment Date and, with respect to the principal amount of any Base Rate Loan converted to a Euro-Dollar Loan, on the date such amount is so converted. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the Base Rate Margin for such day plus the Base Rate for such day. (b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Euro-Dollar Margin means a rate per annum determined in accordance with the Pricing Schedule. The Adjusted London Interbank Offered Rate applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. The London Interbank Offered Rate applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. (c) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Loan on the day before such payment was due and (ii) the sum of 2% plus the Euro-Dollar Margin for such day plus a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than three months as the Administrative Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of the Reference Banks are offered to such Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the Base Rate for such day). (d) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall promptly notify the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (e) Each Reference Bank agrees to use its best efforts to furnish quotations to the Administrative Agent as contemplated by this Section. If any Reference Bank does not furnish a timely quotation, the Administrative Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply. SECTION 2.5. Method of Electing Interest Rates. (a) The Loans included in each Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject to subsection (d) of this Section and the provisions of Article 8), as follows: (i) if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day and (ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate Loans or elect to continue such Loans as Euro-Dollar Loans for an additional Interest Period, subject to Section 2.10 if any such conversion is effective on any day other than the last day of an Interest Period applicable to such Loans. Each such election shall be made by delivering a notice (a Notice of Interest Rate Election) to the Administrative Agent not later than 10:30 A.M. (New York City time) on the third Euro-Dollar Business Day before the conversion or continuation selected in such notice is to be effective. A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply, are each at least $5,000,000 (unless such portion is comprised of Base Rate Loans). If no such notice is timely received before the end of an Interest Period for any Group of Euro-Dollar Loans, the Borrower shall be deemed to have elected that such Group of Loans be converted to Base Rate Loans at the end of such Interest Period. (b) Each Notice of Interest Rate Election shall specify: (i) the Group of Loans (or portion thereof) to which such notice applies; (ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection (a) above; (iii) if the Loans comprising such Group are to be converted, the new type of Loans and, if the Loans resulting from such conversion are to be Euro- Dollar Loans, the duration of the next succeeding Interest Period applicable thereto; and (iv) if such Loans are to be continued as Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period. Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period. (c) Promptly after receiving a Notice of Interest Rate Election from the Borrower pursuant to subsection (a) above, the Administrative Agent shall notify each Bank of the contents thereof and such notice shall not thereafter be revocable by the Borrower. (d) The Borrower shall not be entitled to elect to convert any Loans to, or continue any Loans for an additional Interest Period as, Euro-Dollar Loans if (i) the aggregate principal amount of any Group of Euro-Dollar Loans created or continued as a result of such election would be less than $5,000,000 or (ii) a Default shall have occurred and be continuing when the Borrower delivers notice of such election to the Administrative Agent. SECTION 2.6. Fees. The Borrower shall pay to the Administrative Agent, for the account of the Banks ratably in proportion to their Commitments, a commitment fee at the Commitment Fee Rate (determined daily in accordance with the Pricing Schedule) per annum on the daily average amount by which the aggregate amount of the Commitments exceeds the aggregate outstanding principal amount of the Loans. Such commitment fee shall accrue from and including the Effective Date to but excluding the date on which the Commitments terminate in their entirety, and shall be payable quarterly in arrears on each Quarterly Payment Date and on the date on which the Commitments terminate in their entirety. SECTION 2.7. Termination or Reduction of Commitments. (a) The Borrower may, upon at least three Domestic Business Days' notice to the Administrative Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at such time, or (ii) ratably reduce from time to time, by an aggregate amount of at least $25,000,000, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans. Promptly after receiving a notice pursuant to this subsection, the Administrative Agent shall notify each Bank of the contents thereof. (b) Unless previously terminated, the Commitments shall terminate in their entirety on the Termination Date. SECTION 2.8. Optional Prepayments. (a) Subject in the case of Euro-Dollar Loans to Section 2.10, the Borrower may, upon at least one Domestic Business Day's notice to the Administrative Agent, prepay any Group of Base Rate Loans or upon at least three Euro-Dollar Business Days' notice to the Administrative Agent, prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or from time to time in part in amounts aggregating $5,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with interest accrued thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group of Loans. (b) Promptly after receiving a notice of prepayment pursuant to this Section, the Administrative Agent shall notify each Bank of the contents thereof and of such Bank's ratable share of such prepayment, and such notice shall not thereafter be revocable by the Borrower. SECTION 2.9. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder not later than 1:00 P.M. (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address specified in or pursuant to Section 9.01. The Administrative Agent will promptly distribute to each Bank its ratable share of each such payment received by the Administrative Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Base Rate Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Borrower notifies the Administrative Agent before the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance on such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.10. Funding Losses. If the Borrower makes any payment of principal with respect to any Euro-Dollar Loan, or any Euro-Dollar Loan is converted to a Base Rate Loan (whether such payment or conversion is pursuant to Article 2, 6 or 8 or otherwise), on any day other than the last day of an Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.04(c), or if the Borrower fails to borrow, prepay, convert or continue any Euro-Dollar Loans after notice has been given to any Bank in accordance with Section 2.02(b), 2.05(c) or 2.08(b), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant which has purchased or agreed to purchase a participation in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after such payment or conversion or failure to borrow, prepay, convert or continue; provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. SECTION 2.11. Computation of Interest and Fees. All interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.12. Notes. (a) The Borrower's obligation to repay the Loans of each Bank shall be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office (b) Each Bank may, by notice to the Borrower and the Administrative Agent, request that the Borrower's obligation to repay such Bank's Loans of a particular type be evidenced by a separate Note. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it relates solely to Loans of the relevant type. Each reference in this Agreement to the Note of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Promptly after it receives each Bank's Note pursuant to Section 3.01(a), the Documentation Agent shall forward such Note to such Bank. Each Bank shall record the date, amount and type of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that a Bank's failure to make any such recordation or endorsement shall not affect the Borrower's obligations hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. ARTICLE 3 CONDITIONS SECTION 3.1. Closing. The closing hereunder shall occur when the Documentation Agent has received all the following documents, each dated the Closing Date unless otherwise indicated: (a) a duly executed Note for the account of each Bank dated on or before the Closing Date and complying with the provisions of Section 2.12; (b) an opinion of Hale and Dorr LLP, counsel for the Borrower, substantially in the form of Exhibit B hereto, and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (c) an opinion of Davis Polk & Wardwell, special counsel for the Agents, substantially in the form of Exhibit C hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (d) duly executed counterparts of each of the Collateral Documents, together with evidence satisfactory to the Agents of the effectiveness and perfection (to the extent required thereby) of the Liens contemplated thereby, including the filing of UCC-1's and the delivery of any stock certificates comprising the Collateral; (e) evidence satisfactory to it of (i) the repayment in full, not later than the Closing Date, of all loans (if any) and other amounts outstanding under the Loan Agreement dated as of July 5, 1995, as amended, between the Borrower and Wells Fargo Bank, N.A., and the Factoringvertrag dated November 10, 1995, as amended, between Heller Bank A.G. and Iomega International S.A. (collectively, the Existing Credit Agreements), together with interest accrued thereon to the Closing Date and all accrued and unpaid commitment fees and all other amounts due and payable under the Existing Credit Agreements, and the release of all Liens relating thereto, and (ii) receipt by such banks of irrevocable notice of the termination of the commitments under the Existing Credit Agreements, not later than the Closing Date, which notice shall also state that no further notices of borrowing will be delivered thereunder; (f) evidence satisfactory to it that all fees and expenses payable for the account of the Banks and the Agents and their affiliates on or before the Closing Date have been paid in full in the amounts previously agreed upon on or before the Closing Date; and (g) all documents the Documentation Agent may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of the Loan Documents, and any other matters relevant hereto, all in form and substance satisfactory to the Documentation Agent. Promptly after the Closing Date occurs, the Documentation Agent shall notify the Borrower, the Administrative Agent and the Banks thereof, and such notice shall be conclusive and binding on all parties hereto. SECTION 3.2. Borrowings. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) the fact that the Closing Date shall have occurred on or before April 30, 1997; (b) receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.02; (c) the fact that, immediately after such Borrowing, the aggregate outstanding principal amount of the Loans will not exceed the lesser of the aggregate Commitments and the Borrowing Base; (d) the fact that, immediately before and after such Borrowing, no Default shall have occurred and be continuing; and (e) the fact that the representations and warranties of the Borrower contained in this Agreement shall be true on and as of the date of such Borrowing. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (c), (d) and (e) of this Section. ARTICLE 4 REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.1. Corporate Existence and Power. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and has all corporate powers and all material governmental licenses, consents, authorizations and approvals required to carry on its business as now conducted. SECTION 4.2. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of the Loan Documents are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official (other than in connection with the Collateral Documents) and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the Borrower's certificate of incorporation or by-laws or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any Subsidiary, the contravention of which instrument or default under which instrument could reasonably be expected to have a Material Adverse Effect, or result in the creation or imposition of any Lien on any asset of the Borrower or any Subsidiary. SECTION 4.3. Binding Effect. The Loan Documents (other than the Notes) constitute valid and binding agreements of the Borrower and each Note, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms except (i) as may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) as rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. SECTION 4.4. Financial Information. (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 1996 and the related consolidated statements of operations, stockholders= equity and cash flows for the Fiscal Year then ended, reported on by Arthur Andersen LLP , a copy of which financial statements has been delivered to each of the Banks, fairly present, in conformity with GAAP, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such Fiscal Year. (b) Since December 31, 1996 there has been no material adverse change in the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.5. Litigation. There is no action, suit or proceeding pending against, or to the Borrower's knowledge threatened against or affecting, the Borrower or any Subsidiary before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity or enforceability of the Loan Documents. SECTION 4.6. Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan, or made any amendment to any Plan, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 4.7. Environmental Matters. In the ordinary course of its business, the Borrower conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Borrower and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or Hazardous Substances and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, the Borrower has reasonably concluded that such associated liabilities and costs, including the costs of complying with Environmental Laws, are unlikely to have a material adverse effect on the business, financial condition or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.8. Taxes. The Borrower and its Subsidiaries have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes or other governmental charges are, in the Borrower's opinion, adequate. SECTION 4.9. Subsidiaries. Each of the Borrower's corporate Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.10. Regulatory Restrictions on Borrowing. The Borrower is not (i) an investment company within the meaning of the Investment Company Act of 1940, as amended, (ii) a holding company within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (iii) otherwise subject to any regulatory scheme which restricts its ability to incur debt. SECTION 4.11. Full Disclosure. (a) All information heretofore furnished by the Borrower to the Agents or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Borrower to the Agents or any Bank will be, true and accurate in all material respects on the date as of which such information is stated or certified. The Borrower has disclosed to the Banks any and all facts which materially and adversely affect, or may materially and adversely affect (to the extent the Borrower can now reasonably foresee), the business, operations or financial condition of the Borrower and its Consolidated Subsidiaries, taken as a whole, or the Borrower's ability to perform its obligations under the Loan Documents. (b) The projections set forth in the Information Memorandum were based on reasonable assumptions and as of their date represented the best estimate of future performance of the Borrower and its Subsidiaries. During the period from the respective dates as of which information is stated in the Information Memorandum to and including the Closing Date, no event has occurred and no condition has come into existence which would have caused the projections therein to be materially misleading. SECTION 4.12. Representations in Collateral Documents True and Correct. Each of the representations and warranties of the Borrower contained in the Collateral Documents is true and correct. ARTICLE 5 COVENANTS The Borrower agrees that, so long as any Bank has any Commitment hereunder or any principal of or interest on any Loan remains unpaid: SECTION 5.1. Information. The Borrower will deliver to each of the Banks: (a) as soon as available and in any event within 90 days after the end of each Fiscal Year, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such Fiscal Year and the related consolidated statements of operations, stockholders= equity and cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all reported on in a manner acceptable to the SEC by Arthur Andersen LLP or other independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such Fiscal Quarter, the related consolidated statement of operations for such Fiscal Quarter and the related consolidated statements of operations and cash flows for the portion of the Fiscal Year ended at the end of such Fiscal Quarter, setting forth in the case of each such statement of operations and cash flows in comparative form the figures for the corresponding period in the previous Fiscal Year, all certified (subject to normal year-end adjustments) as to fairness of presentation and consistency with GAAP by the Borrower's chief financial officer or chief accounting officer; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the Borrower's chief financial officer or chief accounting officer (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.09 to 5.16, inclusive, and the calculation of the Borrowing Base on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements stating whether anything has come to their attention to cause them to believe that (i) any Default existed on the date of such statements and (ii) the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to clause (c) above are not correct; (e) within five Domestic Business Days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, a certificate of the Borrower's chief financial officer or chief accounting officer setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (f) as soon as reasonably practicable after any officer of the Borrower obtains knowledge thereof, notice of any event or condition which has had or could reasonably be expected to have a Material Adverse Effect and the nature of such Material Adverse Effect; (g) as soon as reasonably practicable after any officer of the Borrower obtains knowledge of the commencement of, or of a threat of the commencement of, an action, suit or proceeding against the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable likelihood of an adverse decision which could have a Material Adverse Effect or which in any manner questions the validity of the Loan Documents, a certificate of a senior financial officer of the Borrower setting forth the nature of such pending or threatened action, suit or proceeding and such additional information with respect thereto as may be reasonably requested by any Bank; (h) promptly after the mailing thereof to the Borrower's shareholders generally, copies of all financial statements, reports and proxy statements so mailed; (i) promptly after the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) filed by the Borrower with the SEC; (j) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any reportable event (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or makes any amendment to any Plan which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the Borrower's chief financial officer or chief accounting officer setting forth details as to such occurrence and the action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; (k) within 30 days after the commencement of each Fiscal Year, the Borrower's operating and capital expenditure budgets and cash flow forecast on a quarterly basis for such Fiscal Year and on an annual basis for the succeeding Fiscal Years through the Termination Date; and (l) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as either Agent, at the request of any Bank, may reasonably request. SECTION 5.2. Payment of Obligations. The Borrower will pay and discharge, and will cause each Subsidiary to pay and discharge, at or before maturity, all their respective material obligations and liabilities (including, without limitation, tax liabilities and claims of materialmen, warehousemen and the like which if unpaid might by law give rise to a Lien), except where the same are contested in good faith, and will maintain, and will cause each Subsidiary to maintain, in accordance with GAAP, if and to the extent appropriate, reserves for the accrual thereof. SECTION 5.3. Maintenance of Property; Insurance. (a) The Borrower will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in reasonably good working order and condition, ordinary wear and tear excepted. (b) The Borrower will, and will cause each Subsidiary to, maintain (either in the Borrower's name or in such Subsidiary's own name) with financially sound and responsible insurance companies, insurance on all their respective material properties in at least such amounts, against at least such risks and with no greater risk retention as are usually maintained, insured against or retained, as the case may be, in the same general area by companies of established repute engaged in the same or a similar business. The Borrower will furnish to the Banks, upon request from the Administrative Agent, information presented in reasonable detail as to the insurance so carried. SECTION 5.4. Conduct of Business and Maintenance of Existence. The Borrower and its Subsidiaries will continue to engage in business of the same general type as now conducted by the Borrower and its Subsidiaries, and will preserve, renew and keep in full force and effect their respective corporate existences and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that nothing in this Section shall prohibit: (i) the merger of a Subsidiary into the Borrower if, after giving effect thereto, no Default shall have occurred and be continuing; (ii) the merger or consolidation of a Subsidiary with or into a Person other than the Borrower if the corporation surviving such consolidation or merger is a Subsidiary and, after giving effect thereto, no Default shall have occurred and be continuing; or (iii) the termination of the corporate existence of a Subsidiary if the Borrower in good faith determines that such termination is in the best interest of the Borrower and is not materially disadvantageous to the Banks. The Borrower will not modify its policy for classification of doubtful accounts in any manner materially detrimental to the interests of the Banks (including, without limitation, in any manner which would result in an increase in the Borrowing Base) without the consent of the Required Banks. SECTION 5.5. Compliance with Laws. The Borrower will comply, and will cause each Subsidiary to comply, in all respects with all applicable laws, ordinances, rules, regulations and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder), except (i) where the necessity of compliance therewith is contested in good faith by appropriate proceedings or (ii) where such noncompliance could not reasonably be expected to have a Material Adverse Effect. SECTION 5.6. Inspection of Property, Books and Records. The Borrower will keep, and will cause each Subsidiary to keep, proper books of record and account in which full and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of any Bank at such Bank's expense to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times (including reasonable notice) and as often as may reasonably be requested. SECTION 5.7. Mergers and Sales of Assets. (a) The Borrower will not, and will not permit any Subsidiary to, consolidate or merge with or into, or transfer all or substantially all of its assets to, any other Person, provided that (i) the Borrower may merge with another Person if the Borrower is the corporation surviving such merger and immediately after giving effect to such merger, no Default shall have occurred and be continuing, and (ii) any Subsidiary may merge with, or transfer all or substantially all of its assets to, any other Person if the corporation which survives the merger or is the transferee of the assets is the Borrower or a Subsidiary and immediately after giving effect to such merger or transfer, no Default shall have occurred and be continuing. (b) The Borrower will not sell, lease or otherwise transfer, directly or indirectly, any Collateral except to the extent permitted by the Collateral Documents. SECTION 5.8. Use of Proceeds. The proceeds of the Loans will be used by the Borrower for general corporate purposes. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any margin stock within the meaning of Regulation U. SECTION 5.9. Negative Pledge. Neither the Borrower nor any Subsidiary will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) Liens existing on the date of this Agreement securing Debt outstanding on the date of this Agreement in an aggregate principal or face amount not exceeding $13,700,000, and Liens on Plot 44, Bayan Lepas Industrial Park IV, Penang, Malaysia, securing debt in an aggregate principal or face amount not at any time exceeding $18,000,000; (b) any Lien existing on any asset of any Person at the time such Person becomes a Subsidiary and not created in contemplation of such event; (c) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring such asset, including, without limitation, Liens securing obligations under capital leases, provided that such Lien attaches to such asset concurrently with or within 90 days after the acquisition thereof; (d) any Lien on any asset of any Person existing at the time such Person is merged or consolidated with or into the Borrower or a Subsidiary and not created in contemplation of such event; (e) any Lien existing on any asset prior to the acquisition thereof by the Borrower or a Subsidiary and not created in contemplation of such acquisition; (f) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses of this Section, provided that such Debt is not increased and is not secured by any additional assets; (g) Liens arising in the ordinary course of its business (i) which do not secure Debt or Derivatives Obligations, (ii) which do not secure any single obligation (or class of obligations having a common cause) in an amount exceeding $10,000,000 and (iii) as to which no financing statement or other document similar in effect is on file in any recording office; (h) Liens created by the Collateral Documents; and (i) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt in an aggregate principal or face amount not at any time exceeding $15,000,000. Notwithstanding the foregoing, the Borrower will not create, assume or suffer to exist any Lien on any inventories now owned or hereafter acquired by the Borrower (other than Liens described in clause (g) above, so long as such Liens have not given rise to an Event of Default) or any Collateral (other than Liens described in clause (h) above). SECTION 5.10. Limitation on Debt. The Borrower will not, and will not permit any of its Subsidiaries to, incur or at any time be liable with respect to any Debt except: (a) Debt under this Agreement; (b) Debt outstanding on the date hereof not in excess of $77,500,000 in aggregate principal amount and identified on Schedule I hereto; (c) Debt secured by Liens permitted by Section 5.09; and (d) Debt of the Borrower and its Subsidiaries not otherwise permitted by this Section incurred after the Closing Date in an aggregate principal amount at any time outstanding not to exceed $10,000,000. SECTION 5.11. Minimum Consolidated Tangible Net Worth. Consolidated Tangible Net Worth will at no time be less than an amount equal to the sum of (i) $250,000,000 plus (ii) an amount equal to 75% of Consolidated Net Income for each Fiscal Quarter ending after December 31, 1996 but before the date of determination, in each case, for which Consolidated Net Income is positive (but with no deduction on account of negative Consolidated Net Income for any Fiscal Quarter) plus (iii) 75% of the aggregate net proceeds, including the fair market value of property other than cash (as determined in good faith by the Borrower's board of directors), received by the Borrower from the issuance and sale after the date hereof of any capital stock of the Borrower (other than the proceeds of any issuance and sale of any capital stock (x) to a Subsidiary or (y) which is required to be redeemed, or is redeemable at the option of the holder, if certain events or conditions occur or exist or otherwise) or in connection with the conversion or exchange of any Debt of the Borrower into capital stock of the Borrower after December 31, 1996. SECTION 5.12. Debt to Consolidated Tangible Net Worth. Consolidated Debt will not at any time exceed 60% of Consolidated Tangible Net Worth. SECTION 5.13. Minimum Consolidated EBITDA. Consolidated EBITDA for any four consecutive quarters will at no time be less than $100,000,000 for any period ending prior to March 31, 1998 and $125,000,000 for any period ending on or after March 31, 1998. SECTION 5.14. Maximum Cash Conversion Days. Cash Conversion Days for any Fiscal Quarter shall not exceed eighty. For purposes of this Section, Cash Conversion Days means the sum of (i) Accounts Receivable Days and (ii) Inventory Days, minus (iii) Accounts Payable Days; Accounts Receivable Days means, for any period, consolidated trade receivables, less allowance for doubtful accounts, of the Borrower and its Consolidated Subsidiaries on the last day of such period, divided by consolidated average daily sales of the Borrower and its Consolidated Subsidiaries during such period; Inventory Days means, for any period, consolidated inventories of the Borrower and its Consolidated Subsidiaries on the last day of such period divided by the consolidated average daily cost of sales of the Borrower and its Consolidated Subsidiaries for such period; and Accounts Payable Days means, for any period, consolidated accounts payable of the Borrower and its Consolidated Subsidiaries on the last day of such period divided by the consolidated average daily cost of sales of the Borrower and its Consolidated Subsidiaries for such period. SECTION 5.15. Restricted Payments. Neither the Borrower nor any Subsidiary will declare or make any Restricted Payment; provided that the Borrower may purchase and retire shares of its capital stock so long as the aggregate amount paid for such purchases in any Fiscal Year does not exceed the sum of (i) the Base Amount for such Fiscal Year and (ii) the amount (if any) by which the Base Amount for the prior Fiscal Year exceeds the amount paid for such purchases during such prior Fiscal Year. For purposes of this Section, Base Amount means (x) in 1997, $30,000,000, and (y) in any subsequent Fiscal Year, 20% of consolidated net income of the Borrower and its Consolidated Subsidiaries for the prior Fiscal Year. SECTION 5.16. Investments. Neither the Borrower nor any Subsidiary will hold, make or acquire any Investment in any Person other than: (a) Investments in Persons which are Subsidiaries on the date hereof; (b) Temporary Cash Investments; and (c) any Investment not otherwise permitted by the foregoing clauses of this Section if, immediately after such Investment is made or acquired, (i) no Default shall have occurred and be continuing and (ii) the aggregate net book value of all Investments permitted by this clause (c) does not exceed 7.5% of Consolidated Tangible Net Worth. SECTION 5.17. Transactions with Affiliates. The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, pay any funds to or for the account of, make any investment (whether by acquisition of stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Debt, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect, any transaction with, any Affiliate except on an arms-length basis on terms at least as favorable to the Borrower or such Subsidiary as could have been obtained from a third party that was not an Affiliate. SECTION 5.18. Further Assurances. (a) The Borrower will at its sole cost and expense, do, execute, acknowledge and deliver all such further acts, deeds, conveyances, mortgages, assignments, notices of assignment and transfers as the Administrative Agent shall from time to time request, which may be necessary in the reasonable judgment of the Administrative Agent from time to time to assure, perfect, convey, assign and transfer to the Administrative Agent the property and rights conveyed or assigned pursuant to the Collateral Documents, or which may facilitate the performance of the terms of the Collateral Documents, or the filing, registering or recording of the Collateral Documents. (b) All costs and expenses in connection with the grant of any security interests under the Collateral Documents, including without limitation reasonable legal fees and other reasonable costs and expenses in connection with the granting, perfecting and maintenance of any security interests under the Collateral Documents or the preparation, execution, delivery, recordation or filing of documents and any other acts as the Administrative Agent may reasonably request in connection with the grant of such security interests shall be paid by the Borrower promptly upon demand. (c) The Borrower will not enter into or become subject to any agreement which would impair its ability to comply, or which would purport to prohibit it from complying, with the provisions of this Section. ARTICLE 6 DEFAULTS SECTION 6.1. Events of Default. If one or more of the following events (Events of Default) shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan, or shall fail to pay within three Domestic Business Days of the due date thereof any interest, fee or other amount payable hereunder; (b) the Borrower shall fail to observe or perform (i) any covenant contained in Article 5, other than those contained in Sections 5.01 through 5.06, Section 5.17 and Section 5.18, or (ii) any covenant contained in Section 4(A) or 4(H) of the Security Agreement or Section 5(B) of the Pledge Agreement; (c) the Borrower shall fail to observe or perform any covenant or agreement (other than those covered by clause (a) or (b) above) contained in the Loan Documents for 10 days after the Administrative Agent gives notice thereof to the Borrower at the request of any Bank; (d) any representation, warranty, certification or statement made by the Borrower or any Subsidiary in any Loan Document or in any certificate, financial statement or other document delivered pursuant to any Loan Document shall prove to have been incorrect in any material respect when made (or deemed made); (e) the Borrower or any Subsidiary shall fail to make one or more payments in respect of Material Financial Obligations when due or within any applicable grace period; (f) any event or condition shall occur which results in the acceleration of the maturity of any Material Debt or enables (or, with the giving of notice or lapse of time or both, would enable) the holder of such Debt or any Person acting on such holder's behalf to accelerate the maturity thereof; (g) the Borrower or any Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (h) an involuntary case or other proceeding shall be commenced against the Borrower or any Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $5,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer, any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $5,000,000; (j) judgments or orders for the payment of money exceeding $5,000,000 in aggregate amount shall be rendered against the Borrower or any Subsidiary and such judgments or orders shall continue unsatisfied and unstayed for a period of 20 days; (k) any Lien created by any of the Collateral Documents shall at any time fail to constitute a valid and (to the extent required by the Collateral Documents) perfected Lien on all of the Collateral purported to be subject thereto, securing the obligations purported to be secured thereby, with the priority required by the Loan Documents, or the Borrower shall so assert in writing; or (l) any person or group of persons (within the meaning of Section 13 or 14 of the Exchange Act) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under said Act) of 30% or more of the outstanding shares of common stock of the Borrower; or, during any period of twelve consecutive calendar months, individuals who were directors of the Borrower on the first day of such period (Initial Directors) or who were nominated for election by at least 66b% of the Initial Directors shall cease to constitute a majority of the Borrower's board of directors; then, and in every such event, the Administrative Agent shall (i) if requested by Banks having more than 50% in aggregate amount of the Commitments, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding more than 50% of the aggregate unpaid principal amount of the Loans, by notice to the Borrower declare the Loans (together with accrued interest thereon) to be, and the Loans (together with accrued interest thereon) shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that, if any Event of Default specified in clause 6.01(g) or 6.01(h) occurs with respect to the Borrower, then without any notice to the Borrower or any other act by the Agents or the Banks, the Commitments shall thereupon terminate and the Loans (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. SECTION 6.2. Notice of Default. The Administrative Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE 7 THE AGENTS SECTION 7.1. Appointment and Authorization. Each Bank irrevocably appoints and authorizes each Agent to enter into and act as its agent in connection with the Collateral Documents and to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to such Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.2. Agents and Affiliates. Each of Citibank, N.A. and Morgan Guaranty Trust Company of New York shall have the same rights and powers under the Loan Documents as any other Bank and may exercise or refrain from exercising the same as though it were not an Agent, and each of Citibank, N.A. and Morgan Guaranty Trust Company of New York and its affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not an Agent. SECTION 7.3. Action by Agents. The obligations of the Agents hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, neither Agent shall be required to take any action with respect to any Default, except as expressly provided with respect to the Administrative Agent in Article 6. SECTION 7.4. Consultation with Experts. Each Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.5. Liability of Agents. Neither Agent nor any of its affiliates or any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks (or such different number of Banks as any provision hereof expressly requires for such consent or request) or (ii) in the absence of its own gross negligence or willful misconduct. Neither Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with the Loan Documents or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to such Agent; or (iv) the validity, effectiveness or genuineness of the Loan Documents or any other instrument or writing furnished in connection herewith. Neither Agent shall incur any liability by acting in reliance upon any notice, consent, certificate, statement or other writing (which may be a bank wire, telex, facsimile or similar writing) believed by it to be genuine or to be signed by the proper party or parties. Without limiting the generality of the foregoing, the use of the term agent in this Agreement with reference to the Agents 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. SECTION 7.6. Indemnification. The Banks shall, ratably in proportion to their Commitments, indemnify each Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with the Loan Documents or any action taken or omitted by such indemnitees thereunder. SECTION 7.7. Credit Decision. Each Bank acknowledges that it has, independently and without reliance on either Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance on either 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 decisions in taking or not taking any action under the Loan Documents. SECTION 7.8. Successor Agents. Either Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $100,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent resigns as Agent hereunder, the provisions of this Article shall inure to its benefit as to actions taken or omitted to be taken by it while it was Agent. SECTION 7.9. Agents' Fees. The Borrower shall pay to each Agent for its own account fees in the amounts and at the times previously agreed upon by the Borrower and such Agent. ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.1. Basis for Determining Interest Rate Inadequate or Unfair. If on or before the first day of any Interest Period for any Euro-Dollar Loan: (a) the Administrative Agent is advised by the Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Reference Banks in the London interbank market for such Interest Period, or (b) Banks holding 50% or more of the aggregate principal amount of the affected Loans advise the Administrative Agent that the Adjusted London Interbank Offered Rate as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Banks of funding their Euro- Dollar Loans for such Interest Period, the Administrative Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make Euro-Dollar Loans or to continue or convert outstanding Loans as or into Euro-Dollar Loans shall be suspended and (ii) each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless the Borrower notifies the Administrative Agent at least two Domestic Business Days before the date of any affected Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as a Base Rate Borrowing. SECTION 8.2. Illegality. If, on or after the date hereof, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency, shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans, or to convert outstanding Loans into Euro-Dollar Loans or continue outstanding Loans as Euro-Dollar Loans, shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice is given, each Euro- Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (a) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such day. SECTION 8.3. Increased Cost and Reduced Return. (a) If on or after the date hereof, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency, shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding any such requirement included in an applicable Euro- Dollar Reserve Percentage), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or the London interbank market any other condition affecting its Euro-Dollar Loans, its Note or its obligation to make Euro-Dollar Loans and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Euro-Dollar Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction. (c) Each Bank will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. SECTION 8.4. Taxes. (a) For the purposes of this Section, the following terms have the following meanings: Taxes means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings with respect to any payment by the Borrower pursuant to this Agreement or under any Note, and all liabilities with respect thereto, excluding (i) in the case of each Bank and Agent, taxes imposed on its net income, and franchise or similar taxes imposed on it, by a jurisdiction under the laws of which such Bank or Agent (as the case may be) is organized or in which its principal executive office is located or, in the case of each Bank, in which its Applicable Lending Office is located and (ii) in the case of each Bank, any United States withholding tax imposed on such payment, but not any portion of such tax that exceeds the United States withholding tax which would have been imposed on such a payment to such Bank under the laws and treaties in effect when such Bank first became a party to this Agreement. Other Taxes means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or under any Note or from the execution, delivery, registration or enforcement of, or otherwise with respect to, any Loan Document. (b) All payments by the Borrower to or for the account of any Bank or Agent hereunder or under any Note shall be made without deduction for any Taxes or Other Taxes; provided that, if the Borrower shall be required by law to deduct any Taxes or Other Taxes from any such payment, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) such Bank or Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall promptly furnish to the Administrative Agent, at its address specified in or pursuant to Section 9.01, the original or a certified copy of a receipt evidencing payment thereof. (c) The Borrower agrees to indemnify each Bank and Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted (whether or not correctly) by any jurisdiction on amounts payable under this Section) paid by such Bank or Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after such Bank or Agent (as the case may be) makes demand therefor. (d) Each Bank organized under the laws of a jurisdiction outside the United States, before it signs and delivers this Agreement in the case of each Bank listed on the signature pages hereof and before it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Borrower (but only so long as such Bank remains lawfully able to do so), shall provide each of the Borrower and the Administrative Agent with Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which exempts the Bank from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Bank or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. (e) For any period with respect to which a Bank has failed to provide the Borrower or the Administrative Agent with the appropriate form referred to in Section 8.04(d) (unless such failure is due to a change in treaty, law or regulation occurring after the date on which such form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 8.04(b) or (c) with respect to Taxes imposed by the United States; provided that if a Bank, that is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section as a result of a change in law or treaty occurring after such Bank first became a party to this Agreement, then such Bank will, at the Borrower's request, change the jurisdiction of its Applicable Lending Office if, in the judgment of such Bank, such change (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank. SECTION 8.5. Base Rate Loans Substituted for Affected Euro-Dollar Loans. If (i) the obligation of any Bank to make, or to continue or convert outstanding Loans as or to, Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its Euro-Dollar Loans, and in any such case the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Administrative Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, all Loans which would otherwise be made by such Bank as (or continued as or converted to) Euro-Dollar Loans shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks). If such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Banks. SECTION 8.6. Substitution of Bank. If (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04, the Borrower shall have the right, with the assistance of the Agents, to require such Bank to transfer, pursuant to an Assignment and Assumption Agreement substantially in the form of Exhibit D hereto, its Note and Commitment to a substitute bank or banks (which may be one or more of the Banks) satisfactory to the Borrower and the Agents. ARTICLE 9 MISCELLANEOUS SECTION 9.1. Notices. Communications to any party hereunder shall be in writing (including bank wire, telex, facsimile or similar writing) and shall be given to such party: (a) in the case of the Borrower or either Agent, at its address, facsimile number or telex number set forth on the signature pages hereof, (b) in the case of any Bank, at its address, facsimile number or telex number set forth in its Administrative Questionnaire or (c) in the case of any party, at such other address, facsimile number or telex number as such party may hereafter specify for the purpose by notice to the Agents and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when transmitted to the telex number referred to in this Section and the appropriate answerback is received, (ii) if given by facsimile, when transmitted to the facsimile number referred to in this Section and confirmation of receipt is received, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address referred to in this Section; provided that notices to the Administrative Agent under Article 2 or Article 8 shall not be effective until received. SECTION 9.2. No Waivers. No failure or delay by either Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.3. Expenses; Indemnification. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Agents, including fees and disbursements of special counsel for the Agents, in connection with the preparation and administration of the Loan Documents, any waiver or consent thereunder or any amendment thereof or any Default or alleged Default thereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by either Agent and each Bank, including (without duplication) the fees and disbursements of outside counsel and the allocated cost of inside counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Borrower agrees to indemnify each Agent and Bank, their respective affiliates (including, without limitation, the Security Agent and the Concentration Bank (as defined in the Security Agreement)) and the respective directors, officers, agents and employees of the foregoing (each an Indemnitee) and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel (including the allocated cost of in-house counsel), which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of the Loan Documents or any actual or proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction. SECTION 9.4. Sharing of Set-offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest then due with respect to the Loans held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest then due with respect to the Loans held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participation in the Loans held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Loans held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness hereunder. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Loan, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.5. Amendments and Waivers; Release of Collateral. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of either Agent are affected thereby, by such Agent); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for the termination of any Commitment or (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement. Any provision of the Collateral Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Administrative Agent with the consent of the Required Banks; provided that no such amendment or waiver shall, unless signed by all the Banks, effect or permit a release of all or substantially all of the Collateral. Notwithstanding the foregoing, Collateral shall be released from the Lien of the Collateral Documents from time to time as necessary to effect any sale or pledge of assets permitted by the Loan Documents, and the Agent shall execute and deliver all release documents reasonably requested to evidence such release. SECTION 9.6. Successors; Participation and Assignments. (a) 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 otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a Participant) participating interests in its Commitment or any or all of its Loans. If a Bank grants any such participating interest to a Participant, whether or not upon notice to the Borrower and the Agents, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Agents shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the Borrower's obligations hereunder, including (without limitation) the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of, or in the proviso in the penultimate sentence of, Section 9.05 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article 8 with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection. (c) Any Bank may at any time assign to one or more banks or other institutions (each an Assignee) all, or a proportionate part (equivalent to an initial Commitment of not less than $10,000,000) of all, of its rights and obligations under this Agreement and its Note, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement substantially in the form of Exhibit D hereto signed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Borrower, which shall not be unreasonably withheld, and the Agents; provided that if an Assignee is an affiliate of such transferor Bank or was a Bank immediately before such assignment, no such consent shall be required. When such instrument has been signed and delivered by the parties thereto and such Assignee has paid to such transferor Bank the purchase price agreed between them, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection, the transferor Bank, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Administrative Agent an administrative fee for processing such assignment in the amount of $3,000. If the Assignee is not incorporated under the laws of the United States or a State thereof, it shall deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.04. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.03 or 8.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. SECTION 9.7. No Reliance on Margin Stock. Each of the Banks represents to the Agents and each of the other Banks that it in good faith is not relying upon any margin stock (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.8. Governing Law; Submission to Jurisdiction. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. SECTION 9.9. Counterparts; Integration; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. This Agreement shall become effective when the Documentation Agent has received from each of the parties hereto a counterpart hereof signed by such party or facsimile or other written confirmation satisfactory to the Documentation Agent confirming that such party has signed a counterpart hereof. SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENTS AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 9.11. Confidentiality. Each Agent and Bank agrees to keep any information delivered or made available by the Borrower pursuant to this Agreement confidential from anyone other than persons employed or retained by such Bank who are engaged in evaluating, approving, structuring or administering the credit facility contemplated hereby; provided that nothing herein shall prevent either Agent or any Bank from disclosing such information (a) to any other Bank or to either Agent, (b) to any other Person if reasonably incidental to the administration of the credit facility contemplated hereby, (c) upon the order of any court or administrative agency, (d) upon the request or demand of any regulatory agency or authority, (e) which had been publicly disclosed other than as a result of a disclosure by either Agent or any Bank prohibited by this Agreement, (f) in connection with any litigation to which either Agent, any Bank or its subsidiaries or Parent may be a party, (g) to the extent necessary in connection with the exercise of any remedy hereunder, (h) to such Bank's or Agent's legal counsel and independent auditors and (i) subject to provisions substantially similar to those contained in this Section, to any actual or proposed Participant or Assignee; provided, further, that for purposes of this Section, information does not mean any information which (x) was already in the possession of such Bank or Agent at the time of its disclosure by the Borrower or (y) is made available to such Bank or Agent by a third party which, to the knowledge of such Bank or Agent, did not violate any confidentiality obligation by doing so. SECTION 9.12. Right of Set-off. Upon the occurrence and during the continuance of any Event of Default, each Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set-off and otherwise apply any and all deposits (general or special, time or demand, provisional or final) at any time held 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 of the obligations of the Borrower now or hereafter existing under this Agreement and the Note held by such Bank, whether or not such Bank shall have made any demand under this Agreement or the Note held by such Bank and although such obligations may be unmatured. Such Bank agrees promptly to notify the Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Bank under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Bank may have. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. IOMEGA CORPORATION By /S/ ROBERT J. SIMMONS Name: ROBERT J. SIMMONS Title: TREASURER Address: 1821 West Iomega Way Roy, Utah 84067 Attention: Treasurer and General Counsel Facsimile: (801) 778-4142 BANKS CITIBANK, N.A. By /S/ CAROLYN A. KEE Name: CAROLYN A. KEE Title: ATTORNEY-IN-FACT MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /S/ ADAM J. SILVER Name: ADAM J. SILVER Title: ASSOCIATE FLEET NATIONAL BANK By /S/ FRANK BENESH Name: FRANK BENESH Title: VICE PRESIDENT WELLS FARGO BANK, N.A. By /S/ MATHEW HARVEY Name: MATHEW HARVEY Title: VICE PRESIDENT BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By /S/ KEVIN MCMAHON Name: KEVIN MCMAHON Title: MANAGING DIRECTOR CIBC, INC. By /S/CYD D PETRE Name: CYD D PETRE Title: AUTHORIZED SIGNATORY FIRST SECURITY BANK OF UTAH, N.A. By /S/ TAFT G. MEYER Name: TAFT G. MEYER Title: VICE PRESIDENT KEY BANK OF WASHINGTON By /S/ J.T. TAYLOR Name: J.T. TAYLOR Title: ASSISTANT VICE PRESIDENT ABN AMRO BANK N.V. By /S/ THOMAS R. WAGNER Name: THOMAS R. WAGNER Title: GROUP VICE PRESIDENT CREDIT LYONNAIS LOS ANGELES BRANCH By /S/ THIERRY VINCENT Name: THIERRY VINCENT Title: VICE PRESIDENT NATIONAL BANK OF CANADA By /S/ WILLIAM N. TSIOUVARAS Name: WILLIAM N. TSIOUVARAS Title: VICE PRESIDENT THE SUMITOMO TRUST & BANKING CO., LTD., LOS ANGELES AGENCY By /S/ NINOOS Y. BENJAMIN Name: NINOOS Y. BENJAMIN Title: VICE PRESIDENT & MANAGER CREDITO ITALIANO, NEW YORK BRANCH By /S/ PIERLUIGI MAINARDI Name: PIERLUIGI MAINARDI Title: ASST. VICE PRESIDENT THE NORTHERN TRUST COMPANY By /S/ JOHN E. BURDA Name: JOHN E. BURDA Title: SECOND VICE PRESIDENT ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A By /S/ ILLEGIBLE Name: ILLEGIBLE Title: FVP By /S/ ILLEGIBLE Name: ILLEGIBLE Title: V.P. THE SANWA BANK, LIMITED, LOS ANGELES BRANCH By /S/ GILL S. REALON Name: GILL S. REALON Title: VICE PRESIDENT UNION BANK OF CALIFORNIA, N.A. By /S/ WADE SCHLUETER Name: WADE SCHLUETER Title: VICE PRESIDENT CITIBANK, N.A., as Administrative Agent By /S/ CAROLYN A. KEE Name: CAROLYN A. KEE Title: ATTORNEY-IN-FACT Address: 399 PARK AVENUE, NY, NY 10043 Facsimile: (415) 433-0307 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Documentation Agent By /S/ ADAM J. SILVER Name: ADAM J. SILVER Title: ASSOCIATE Address: 60 Wall Street New York, NY 10260 Facsimile: COMMITMENT SCHEDULE Bank Commitment Citibank, N.A. $20,000,000 Morgan Guaranty Trust Company of New York 20,000,000 Fleet National Bank 15,000,000 Wells Fargo Bank, N.A. 15,000,000 Bank of America National Trust and Savings Association 12,500,000 CIBC, Inc. 12,500,000 First Security Bank of Utah, N.A. 12,500,000 Key Bank of Washington 12,500,000 ABN AMRO Bank N.V. 10,000,000 Credit Lyonnais Los Angeles Branch 10,000,000 National Bank of Canada 10,000,000 The Sumitomo Trust & Banking Co., Ltd. Los Angeles Agency 10,000,000 Credito Italiano, New York Branch 8,000,000 The Northern Trust Company 8,000,000 Istituto Bancario San Paolo Di Torino S.P.A. 8,000,000 The Sanwa Bank, Limited, Los Angeles Branch 8,000,000 Union Bank of California, N.A. 8,000.000 Total $200,000,000 PRICING SCHEDULE Each of Euro-Dollar Margin, Base Rate Margin and Commitment Fee Rate means, for any date, the percentage as set forth below in the row opposite such term and in the column corresponding to the Pricing Level that applies at such date: Level Level Level Level I II III IV Euro-Dollar Margin 1.0% 1.25% 1.50% 2.0% Base Rate Margin 0% 0% 0% .50% Commitment Fee Rate .375% .375% .375% .50% For purposes of this Schedule, the following terms have the following meanings: Level I Pricing applies at any date if, as of such date, the Leverage Ratio is less than .15 to 1. Level II Pricing applies at any date if, as of such date, (i) the Leverage Ratio is less than or equal to .35 to 1 and (ii) Level I Pricing does not apply. Level III Pricing applies at any date if, as of such date, (i) the Leverage Ratio is less than or equal to .5 to 1 and (ii) neither Level I Pricing nor Level II Pricing applies. Level IV Pricing applies at any date if, as of such date, no other Pricing Level applies. Leverage Ratio means as of any date the ratio of Consolidated Debt to Consolidated Tangible Net Worth set forth in the most recent certificate delivered pursuant to Section 5.01(c); provided that unless the Required Banks otherwise agree, if the Borrower has failed to deliver the financial statements and accompanying certificates most recently required to have been delivered within the time periods specified therefor in Section 5.01, Level IV Pricing shall apply until the next date on which financial statements and accompanying certificates are timely delivered. Pricing Level refers to the determination of which of Level I, Level II, Level III or Level IV applies at any date. EXHIBIT A Note New York, New York ___________ __, 199_ For value received, Iomega Corporation, a Delaware corporation (the Borrower), promises to pay to the order of ______________________ (the Bank), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the maturity date provided for in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Citibank, N.A., _________________, New York, New York. All Loans made by the Bank, the respective types thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the Borrower's obligations hereunder or under the Credit Agreement. This note is one of the Notes referred to in the Credit Agreement dated as of March 11, 1997 among Iomega Corporation, the Banks party thereto, Citibank, N.A., as Administrative Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent (as the same may be amended from time to time, the Credit Agreement). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. IOMEGA CORPORATION By____________________ Name: Title: Loans and Payments of Principal Date Amount of Type of Amount of Notation Made Loan Loan Principal By Repaid EXHIBIT B Opinion of Counsel for the Borrower EXHIBIT C Opinion of Davis Polk & Wardwell, Special Counsel for the Agents ________________, 199__ To the Banks and the Agents Referred to Below c/o Morgan Guaranty Trust Company of New York, as Documentation Agent 60 Wall Street New York, New York 10260 Dear Sirs: We have participated in the preparation of the Credit Agreement dated as of March 11, 1997 (the Credit Agreement) among Iomega Corporation, a Delaware corporation (the Borrower), the Banks party thereto, Citibank, N.A., as Administrative Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent, and have acted as special counsel for the Agents for the purpose of rendering this opinion pursuant to Section 3.01(c) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that: 1. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower's corporate powers and have been duly authorized by all necessary corporate action. 2. The Credit Agreement constitutes a valid and binding agreement of the Borrower and each Note issued thereunder today constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and general principles of equity. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York, the federal laws of the United States of America and the General Corporation Law of the State of Delaware. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other Person without our prior written consent. Very truly yours, EXHIBIT D Assignment and Assumption Agreement AGREEMENT dated as of _________, 19__ among (the Assignor), (the Assignee)[, IOMEGA CORPORATION (the Borrower), CITIBANK, N.A., as Administrative Agent, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Documentation Agent (collectively, the Agents).] WHEREAS, this Assignment and Assumption Agreement (the Agreement) relates to the Credit Agreement dated as of March 11, 1997 among the Borrower, the Assignor and the other Banks party thereto and the Agent (as amended from time to time, the Credit Agreement); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $____________; WHEREAS, Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the Assigned Amount), together with a corresponding portion of each of its outstanding Loans, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of each of the Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, [the Borrower and the Agent] and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them.* Commitment and/or facility fees accrued before the date hereof are for the account of the Assignor and such fees accruing on and after the date hereof with respect to the Assigned Amount are for the account of the Assignee. Each of the Assignor and the Assignee agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and promptly pay the same to such other party. [SECTION 4. Consent of the Borrower and the Agents. This Agreement is conditioned upon the consent of the Borrower and the Agents pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by the Borrower and the Agents is evidence of their consent. Pursuant to Section 9.06(c), the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein.] SECTION 5. Non-Reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition or statements of the Borrower, or the validity and enforceability of the Borrower's obligations under the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. By Name: Title: By Name: Title: [IOMEGA CORPORATION By Name: Title:] [CITIBANK, N.A., as Administrative Agent By Name: Title:] [MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Documentation Agent By Name: Title:] * Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum. If this Agreement is prepared in connection with a substitution pursuant to Section 8.06 of the Credit Agreement, amount must combine principal, accrued interest and fees and breakage compensation, if any, and the administrative fee referred to in Section 9.06(c) of the Credit Agreement must be paid to the Administrative Agent. EX-10.32(A) 3 EXHIBIT 10.32 (A) PLEDGE AGREEMENT AGREEMENT dated as of March 11, 1997 between IOMEGA CORPORATION (with its successors, the Borrower, and, together with any other Person which becomes a Grantor pursuant to Section 3(B), the Grantors and each a Grantor), and CITICORP USA, INC., as Security Agent (with its successors in such capacity, the Security Agent). W I T N E S S E T H : WHEREAS, the Borrower, certain banks (the Banks), Citibank, N.A., as Administrative Agent (the Administrative Agent) and Morgan Guaranty Trust Company of New York, as Documentation Agent (together with the Administrative Agent, the Bank Agents), are parties to a Credit Agreement of even date herewith (as the same may be amended from time to time, the Credit Agreement); WHEREAS, in order to induce said Banks and Bank Agents to enter into the Credit Agreement, each Grantor has agreed to grant a continuing security interest in and to the Collateral (as hereafter defined) to secure the obligations of the Borrower under the Credit Agreement and the Notes issued pursuant thereto; WHEREAS, the Banks and the Bank Agents have appointed Citicorp USA, Inc., their Security Agent hereunder; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Definitions. Terms defined in the Credit Agreement and not otherwise defined herein have, as used herein, the respective meanings provided for therein. The following additional terms, as used herein, have the following respective meanings: Collateral has the meaning assigned to such term in Section 3(A). Domestic Subsidiary means any Subsidiary which is either incorporated under the laws of, or has a principal place of business in, the United States or any State, the District of Columbia or any territory or possession of the United States. Foreign Subsidiary means any Subsidiary which is not a Domestic Subsidiary. Issuer means Iomega International S.A. and any other Subsidiary which owns trade receivables which, in accordance with GAAP, would be included in trade receivables on the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries; provided that the Borrower may, by notice to the Security Agent, exclude from this definition any Subsidiary so long as such Subsidiary, together with all other Subsidiaries so excluded, at no time owns more than 5% of the consolidated trade receivables, less allowance for doubtful accounts, of the Borrower and its Consolidated Subsidiaries. Pledged Stock means (i) the Subsidiary Shares and (ii) any other capital stock required to be pledged to the Security Agent pursuant to Section 3(B). Secured Obligations means (i) all principal of and interest on any loan under, or any Note issued pursuant to, the Credit Agreement, (ii) all other amounts payable by any Grantor hereunder or under the Credit Agreement and (iii) any renewals or extensions of any of the foregoing. The Secured Obligations shall include, without limitation, any interest, costs, fees and expenses which accrue on or with respect to any of the foregoing, whether before or after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of any Grantor; provided that, for the purposes of payments and allocations pursuant to Section 13 after the commencement of any case, action or other proceeding relating to the bankruptcy, insolvency or reorganization of the Borrower, each Secured Obligation shall be deemed to include interest accrued thereon after the commencement of such proceeding only to the extent that such interest is allowed in such proceeding (pursuant to Section 506(b) of the United States Bankruptcy Code or otherwise). Secured Parties means the Security Agent, the Bank Agents and the Banks. Security Interests means the security interests in the Collateral granted hereunder securing the Secured Obligations. Subsidiary Shares means the capital stock of the Issuers listed in Schedule I. Unless otherwise defined herein, or unless the context otherwise requires, all terms used herein which are defined in the New York Uniform Commercial Code as in effect on the date hereof shall have the meanings therein stated. SECTION 2. Representations and Warranties. Each Grantor represents and warrants as follows: (A) Title to Pledged Stock. The Grantors own all of the Pledged Stock, free and clear of any Liens other than the Security Interests. The Pledged Stock includes all of the issued and outstanding capital stock of each Issuer which is a Domestic Subsidiary and at least 66% of the issued and outstanding capital stock of each Issuer which is a Foreign Subsidiary. All of the Pledged Stock has been duly authorized and validly issued, and is fully paid and non- assessable, and is subject to no options to purchase or similar rights of any Person. No Grantor is or will become a party to or otherwise bound by any agreement, other than this Agreement, which restricts in any manner the rights of any present or future holder of any of the Pledged Stock with respect thereto. (B) Validity, Perfection and Priority of Security Interests. Upon the delivery of the certificates representing the Pledged Stock to the Security Agent in accordance with Section 4 hereof, the Security Agent will have valid and perfected security interests in the Collateral subject to no prior Lien. No registration, recordation or filing with any governmental body, agency or official is required in connection with the execution or delivery of this Agreement or necessary for the validity or enforceability hereof or for the perfection or enforcement of the Security Interests. Neither the Borrower nor any of its Subsidiaries has performed or will perform any acts which might prevent the Security Agent from enforcing any of the terms and conditions of this Agreement or which would limit the Security Agent in any such enforcement. (C) UCC Filing Locations. The chief executive office of the Borrower is located at its address set forth on the signature pages of the Credit Agreement. Under the Uniform Commercial Code as in effect in the State in which such office is located, no local filing is required to perfect a security interest in collateral consisting of general intangibles. SECTION 3. The Security Interests. In order to secure the full and punctual payment of the Secured Obligations in accordance with the terms thereof, and to secure the performance of all the obligations of the Grantors hereunder: (A) Each Grantor hereby assigns and pledges to and with the Security Agent for the benefit of the Secured Parties and grants to the Security Agent for the benefit of the Secured Parties security interests in the Pledged Stock, and all of its rights and privileges with respect to the Pledged Stock, and all dividends and other payments and distributions with respect thereto, and all proceeds of the foregoing (the Collateral). Contemporaneously with the execution and delivery hereof, the Borrower is delivering the certificates representing the Subsidiary Shares in pledge hereunder. (B) In the event that any Subsidiary becomes an Issuer, or any Issuer at any time issues any shares of capital stock of any class to a Grantor or any other Subsidiary, including, without limitation, any additional or substitute shares, such Grantor will, or will cause such Subsidiary to take appropriate steps to become a Grantor hereunder (including, in connection therewith, the delivery by such Subsidiary Grantor of appropriate limited recourse guaranties of the Borrower=s obligations under the Credit Agreement and legal opinions and the making of appropriate representations and warranties) and to, immediately pledge and deposit with the Security Agent certificates representing all (or, if such Issuer is a Foreign Subsidiary, at least 66% of) such shares as additional security for the Secured Obligations. All such shares constitute Pledged Stock and are subject to all provisions of this Agreement. (C) The Security Interests are granted as security only and shall not subject any Secured Party to, or transfer or in any way affect or modify, any obligation or liability of the Borrower or any of its Subsidiaries with respect to any of the Collateral or any transaction in connection therewith. SECTION 4. Delivery of Pledged Stock. All certificates representing Pledged Stock delivered to the Security Agent by the Grantors pursuant hereto shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, with signatures appropriately guaranteed, and accompanied by any required transfer tax stamps, all in form and substance satisfactory to the Security Agent. SECTION 5. Further Assurances. (A) Each Grantor agrees that it will, at its expense and in such manner and form as the Security Agent may require, execute, deliver, file and record any financing statement, specific assignment or other paper and take any other action that may be necessary or desirable, or that the Security Agent may request, in order to create, preserve, perfect or validate any Security Interest or to enable the Security Agent to exercise and enforce its rights hereunder with respect to any of the Collateral. To the extent permitted by applicable law, each Grantor hereby authorizes the Security Agent to execute and file, in the name of the Borrower or otherwise, Uniform Commercial Code financing statements (which may be carbon, photographic, photostatic or other reproductions of this Agreement or of a financing statement relating to this Agreement) which the Security Agent in its sole discretion may deem necessary or appropriate to further perfect the Security Interests. (B) Each Grantor agrees that it will not change (i) its name, identity or corporate structure in any manner or (ii) the location of its chief executive office unless it shall have given the Security Agent not less than 30 days' prior notice thereof. SECTION 6. Record Ownership of Pledged Stock. The Security Agent may at any time during the continuance of a Default, in its sole discretion, cause any or all of the Pledged Stock to be transferred of record into the name of the Security Agent or its nominee. Each Grantor will promptly give to the Security Agent copies of any notices or other communications received by it with respect to Pledged Stock registered in its name and the Security Agent will promptly give to the Borrower copies of any notices and communications received by the Security Agent with respect to Pledged Stock registered in the name of the Security Agent or its nominee. SECTION 7. Right to Receive Distributions on Collateral. The Security Agent shall have the right to receive and, during the continuance of any Default, to retain as Collateral hereunder all dividends and other payments and distributions made upon or with respect to the Collateral, and each Grantor shall take all such action as the Security Agent may deem necessary or appropriate to give effect to such right. All such dividends and other payments and distributions which are received by a Grantor shall be received in trust for the benefit of the Secured Parties and, if the Security Agent so directs during the continuance of a Default, shall be segregated from other funds of such Grantor and shall, forthwith upon demand by the Security Agent during the continuance of a Default, be paid over to the Security Agent as Collateral in the same form as received (with any necessary endorsement). After all Defaults have been cured, the Security Agent's right to retain dividends and other payments and distributions under this Section 7 shall cease and the Security Agent shall pay over to such Grantor any such Collateral retained by it during the continuance of a Default. It is understood that prior to the occurrence of a Default, all dividends and other payments and distributions made upon or with respect to the Collateral shall be distributable to the Grantors. SECTION 8. Right to Vote Pledged Stock. Unless a Default shall have occurred and be continuing, each Grantor shall have the right, from time to time, to vote and to give consents, ratifications and waivers with respect to its Pledged Stock, and the Security Agent shall, upon receiving a written request from such Grantor accompanied by a certificate signed by the principal financial officer of the Borrower stating that no Default has occurred and is continuing, deliver to such Grantor or as specified in such request such proxies, powers of attorney, consents, ratifications and waivers in respect of any of the Pledged Stock which is registered in the name of the Security Agent or its nominee as shall be specified in such request and be in form and substance satisfactory to the Security Agent. If a Default shall have occurred and be continuing, the Security Agent shall have the right to the extent permitted by law and each Grantor shall take all such action as may be necessary or appropriate to give effect to such right, to vote and to give consents, ratifications and waivers, and take any other action with respect to any or all of the Pledged Stock with the same force and effect as if the Security Agent were the absolute and sole owner thereof. SECTION 9. General Authority. Each Grantor hereby irrevocably appoints the Security Agent its true and lawful attorney, with full power of substitution, in the name of the Grantors, the Security Agent, the Bank Agents, the Banks or otherwise, for the sole use and benefit of the Secured Parties, but at the expense of such Grantor, to the extent permitted by law to exercise, at any time and from time to time while an Event of Default has occurred and is continuing, all or any of the following powers with respect to all or any of the Collateral: (i) to demand, sue for, collect, receive and give acquittance for any and all monies due or to become due upon or by virtue thereof, (ii) to settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto, (iii) to sell, transfer, assign or otherwise deal in or with the same or the proceeds or avails thereof, as fully and effectually as if the Security Agent were the absolute owner thereof, and (iv) to extend the time of payment of any or all thereof and to make any allowance and other adjustments with reference thereto; provided that the Security Agent shall give the relevant Grantor not less than ten days' prior notice of the time and place of any sale or other intended disposition of any of the Collateral except any Collateral which threatens to decline speedily in value or is of a type customarily sold on a recognized market. The Security Agent and the Grantors agree that such notice constitutes reasonable notification within the meaning of Section 9-504(3) of the Uniform Commercial Code. SECTION 10. Remedies upon Event of Default. If any Event of Default shall have occurred and be continuing, the Security Agent may exercise on behalf of the Secured Parties all the rights of a secured party under the Uniform Commercial Code (whether or not in effect in the jurisdiction where such rights are exercised) and, in addition, the Security Agent may, without being required to give any notice, except as herein provided or as may be required by mandatory provisions of law, (i) apply the cash, if any, then held by it as Collateral as specified in Section 13 and (ii) if there shall be no such cash or if such cash shall be insufficient to pay all the Secured Obligations in full, sell the Collateral or any part thereof at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery, and at such price or prices as the Security Agent may deem satisfactory. Any Bank may be the purchaser of any or all of the Collateral so sold at any public sale (or, if the Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations, at any private sale). The Security Agent is authorized, in connection with any such sale, if it deems it advisable so to do, (i) to restrict the prospective bidders on or purchasers of any of the Pledged Stock to a limited number of sophisticated investors who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or sale of any of such Pledged Stock, (ii) to cause to be placed on certificates for any or all of the Pledged Stock or on any other securities pledged hereunder a legend to the effect that such security has not been registered under the Securities Act of 1933 and may not be disposed of in violation of the provision of said Act, and (iii) to impose such other limitations or conditions in connection with any such sale as the Security Agent deems necessary or advisable in order to comply with said Act or any other law. Each Grantor will execute and deliver such documents and take such other action as the Security Agent deems necessary or advisable in order that any such sale may be made in compliance with law. Upon any such sale the Security Agent shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold. Each purchaser at any such sale shall hold the Collateral so sold absolutely and free from any claim or right of whatsoever kind, including any equity or right of redemption of the Grantors which may be waived, and each Grantor, to the extent permitted by law, hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any law now existing or hereafter adopted. The notice (if any) of such sale required by Section 9 shall (1) in the case of a public sale, state the time and place fixed for such sale, (2) in the case of a sale at a broker's board or on a securities exchange, state the board or exchange at which such sale is to be made and the day on which the Collateral, or the portion thereof so being sold, will first be offered for sale at such board or exchange, and (3) in the case of a private sale, state the day after which such sale may be consummated. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Security Agent may fix in the notice of such sale. At any such sale the Collateral may be sold in one lot as an entirety or in separate parcels, as the Security Agent may determine. The Security Agent shall not be obligated to make any such sale pursuant to any such notice. The Security Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In the case of any sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by the Security Agent until the selling price is paid by the purchaser thereof, but the Security Agent shall not incur any liability in the case of the failure of such purchaser to take up and pay for the Collateral so sold and, in the case of any such failure, such Collateral may again be sold upon like notice. The Security Agent, instead of exercising the power of sale herein conferred upon it, may proceed by a suit or suits at law or in equity to foreclose the Security Interests and sell the Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction. SECTION 11. Expenses. The Grantors jointly and severally agree that they will forthwith upon demand pay to the Security Agent: (i) the amount of any taxes which the Security Agent may have been required to pay by reason of the Security Interests or to free any of the Collateral from any Lien thereon, and (ii) the amount of any and all out-of-pocket expenses, including the fees and disbursements of counsel and of any other experts, which the Security Agent may incur in connection with (w) the administration or enforcement of this Agreement, including such expenses as are incurred to preserve the value of the Collateral and the validity, perfection, rank and value of any Security Interest, (x) the collection, sale or other disposition of any of the Collateral, (y) the exercise by the Security Agent of any of the rights conferred upon it hereunder or (z) any Default or Event of Default. Any such amount not paid on demand shall bear interest at the rate applicable to Base Rate Borrowings plus 2% and shall be an additional Secured Obligation hereunder. SECTION 12. Limitation on Duty of Security Agent in Respect of Collateral. Beyond the exercise of reasonable care in the custody thereof, the Security Agent all have no duty as to any Collateral in its possession or control or in the possession or control of any agent or as to the preservation of rights against prior parties or any other rights pertaining thereto. The Security Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which it accords its own property, and shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any agent selected by the Security Agent in good faith. SECTION 13. Application of Proceeds. Upon the occurrence and during the continuance of an Event of Default, the proceeds of any sale of, or other realization upon, all or any part of the Collateral and any cash held shall be applied by the Security Agent in the following order of priorities: first, to payment of the expenses of such sale or other realization, including reasonable compensation to agents and counsel for the Security Agent, and all expenses, liabilities and advances incurred or made by the Security Agent in connection therewith, and any other unreimbursed expenses for which any Secured Party is to be reimbursed pursuant to Section 9.03 of the Credit Agreement or Section 11 hereof and unpaid fees owing to the Bank Agents under the Credit Agreement; second, to the ratable payment of unpaid principal of the Secured Obligations; third, to the ratable payment of accrued but unpaid interest on the Secured Obligations in accordance with the provisions of the Credit Agreement; fourth, to the ratable payment of all other Secured Obligations, until all Secured Obligations shall have been paid in full; and finally, to payment to the Grantors or their successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. The Security Agent may make distributions hereunder in cash or in kind or, on a ratable basis, in any combination thereof. SECTION 14. Concerning the Security Agent. (A) The Security Agent is authorized to take all such action as is provided to be taken by it as Security Agent hereunder and all other action reasonably incidental thereto. As to any matters not expressly provided for herein (including, without limitation, the timing and methods of realization upon the Collateral) the Security Agent shall act or refrain from acting in accordance with written instructions from the Required Banks or, in the absence of such instructions, in accordance with its discretion. (B) Citicorp USA, Inc. and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not the Security Agent hereunder. (C) The obligations of the Security Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Security Agent shall not be required to take any action with respect to any Default or Event of Default, except as expressly provided herein. (D) The Security Agent may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. (E) Neither the Security Agent nor any director, officer, agent, or employee of the Security Agent shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Security Agent, nor any of its affiliates, nor any of their respective directors, officers, agents or employees, shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement; (ii) the performance or observance of any of the covenants or agreements of the Grantors, or (iii) the validity, effectiveness or genuineness of this Agreement or any instrument or writing furnished in connection herewith. The Security Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it to be genuine or to be signed by the proper party or parties. The Security Agent shall not be responsible for the existence, genuineness or value of any of the Collateral or for the validity, perfection, priority or enforceability of the Security Interests in any of the Collateral, whether impaired by operation of law or by reason of any action or omission to act on its part hereunder. The Security Agent shall have no duty to ascertain or inquire as to the performance or observance of any of the terms of this Agreement by the Grantors. (F) Each Bank shall, ratably in accordance with the amount of its Secured Obligations, indemnify the Security Agent (to the extent not reimbursed by the Grantors) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from the Security Agent's gross negligence or willful misconduct) that the Security Agent may suffer or incur in connection with this Agreement or any action taken or omitted by the Security Agent hereunder or thereunder. (G) The Security Agent may resign at any time by giving written notice of its resignation to the other Secured Parties and the Borrower. Upon any such resignation, the Required Banks shall have the right to appoint a successor Security Agent (a Successor Agent). If no Successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Security Agent's giving of notice of resignation, then the retiring Security Agent may, on behalf of the other Secured Parties, appoint a Successor Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $100,000,000. Upon the acceptance of its appointment as Security Agent hereunder by a Successor Agent, such Successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Security Agent, and the retiring Security Agent shall be discharged from its duties and obligations hereunder. After any retiring Security Agent's resignation hereunder as Security Agent, the provisions of this Section shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Security Agent. SECTION 15. Appointment of Co-Agents. At any time or times, in order to comply with any legal requirement in any jurisdiction, the Security Agent may appoint another bank or trust company or one or more other persons, either to act as co-agent or co-agents, jointly with the Security Agent, or to act as separate agent or agents on behalf of the Secured Parties with such power and authority as may be necessary for the effectual operation of the provisions hereof and may be specified in the instrument of appointment (which may, in the discretion of the Security Agent, include provisions for the protection of such co-agent or separate agent similar to the provisions of Section 14). SECTION 16. Termination of Security Interests; Release of Collateral. Upon the repayment in full of all Secured Obligations and the termination of the Commitments under the Credit Agreement, the Security Interests shall terminate and all rights to the Collateral shall revert to the Grantors. At any time and from time to time prior to such termination of the Security Interests, the Security Agent may release any of the Collateral with the prior written consent of the Required Banks; provided that prior to such termination, the Security Agent may release all or substantially all of the Collateral (as defined in the Credit Agreement) only with the consent of all Banks. Upon any such termination of the Security Interests or release of Collateral, the Security Agent will, at the expense of the Grantors, execute and deliver to the Grantors such documents as the Grantors shall reasonably request to evidence the termination of the Security Interests or the release of such Collateral, as the case may be. SECTION 17. Notices. All notices hereunder shall be in writing (including telex, facsimile or similar writing) and shall be given to the parties hereto at their respective addresses, facsimile numbers or telex numbers set forth on the signature pages hereof or at such other addresses, facsimile numbers or telex numbers as the addressees may hereafter specify for such purpose by notice to the other parties hereto. Each such notice, request or other communication shall be effective (i) if given by telex, when transmitted to the telex number referred to in this Section and the appropriate answerback is received, (ii) if given by facsimile, when transmitted to the facsimile number referred to in this Section and confirmation of receipt is received, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address referred to in this Section. SECTION 18. Waivers, Non-Exclusive Remedies. No failure on the part of any Secured Party to exercise, and no delay in exercising and no course of dealing with respect to, any right under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise by such party of any right under the Credit Agreement or this Agreement preclude any other or further exercise thereof or the exercise of any other right. The rights in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other remedies provided by law. SECTION 19. Successors and Assigns. This Agreement is for the benefit of the Secured Parties and their successors and assigns, and in the event of an assignment of all or any of the Secured Obligations, the rights hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness. This Agreement shall be binding on the Grantors and their successors and assigns. SECTION 20. Changes in Writing. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only in writing signed by the Grantors and the Security Agent with the consent of the Required Banks. SECTION 21. New York Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York, except as otherwise required by mandatory provisions of law and except to the extent that remedies provided by the laws of any jurisdiction other than New York are governed by the laws of such jurisdiction. SECTION 22. Severability. If any provision hereof is invalid or unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Security Agent and the other Secured Parties in order to carry out the intentions of the parties hereto as nearly as may be possible; and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. IOMEGA CORPORATION By /S/ ROBERT J. SIMMONS Name: ROBERT J. SIMMONS Title: TREASURER Address:1821 WEST IOMEGA WAY, ROY, UT 84067 Facsimile: CITICORP USA, INC., as Security Agent By /S/ CAROLYN A. KEE Name: CAROLYN A. KEE Title: ATTORNEY-IN-FACT Address: 399 PARK AVENUE, NY, NY 10043 Facsimile: Schedule I Subsidiary Shares Issuer Shares of Capital Stock Iomega International S.A. Capital Stock EX-10.32(B) 4 EXHIBIT 10.32 (B) SECURITY AGREEMENT AGREEMENT dated as of March 11, 1997 among IOMEGA CORPORATION (with its successors, the Borrower), CITICORP USA, INC., as Security Agent (with its successors in such capacity, the Security Agent), and WELLS FARGO BANK, N.A., as agent of the Secured Parties referred to below for purposes of administering the Collateral Account referred to below (with its successors in such capacity, the Concentration Bank). W I T N E S S E T H : WHEREAS, the Borrower, certain banks (the Banks), Citibank, N.A., as Administrative Agent (the Administrative Agent) and Morgan Guaranty Trust Company of New York, as Documentation Agent (together with the Administrative Agent, the Bank Agents), are parties to a Credit Agreement of even date herewith (as the same may be amended from time to time, the Credit Agreement); WHEREAS, in order to induce said Banks and Bank Agents to enter into the Credit Agreement, the Borrower has agreed to grant a continuing security interest in and to the Collateral (as hereafter defined) to secure its obligations under the Credit Agreement and the Notes issued pursuant thereto; and WHEREAS, the Banks and the Bank Agents have appointed Citicorp USA, Inc., their Security Agent hereunder; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Definitions. Terms defined in the Credit Agreement and not otherwise defined herein have, as used herein, the respective meanings provided for therein. The following additional terms, as used herein, have the following respective meanings: Collateral has the meaning set forth in Section 3. Collateral Account has the meaning set forth in Section 5. Instruments means all instruments, chattel paper or letters of credit (each as defined in the UCC) evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Receivables, including (but not limited to) promissory notes, drafts, bills of exchange and trade acceptances evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Receivables, now owned or hereafter acquired by the Borrower. Liquid Investments has the meaning set forth in Section 5(D). Lockbox Banks means each bank which has signed a Lockbox Letter substantially in the form of Annex C hereto or has entered into the other arrangements described in Section 5(B). Perfection Certificate means a certificate substantially in the form of Annex A, completed and supplemented with the schedules and attachments contemplated thereby to the satisfaction of the Security Agent, and duly executed by the chief financial officer and the chief legal officer of the Borrower. Proceeds means all cash and other proceeds of, and all other profits or receipts, in whatever form, arising from the collection, sale, exchange, assignment or other disposition of, or realization upon, Collateral, including, without limitation, all claims of the Borrower against third parties for loss of, damage to or destruction of, or for proceeds payable under any Collateral, whether now existing or hereafter arising. Receivables means, whether now owned or hereafter acquired by the Borrower, (i) all accounts (as defined in Article 9-106 of the UCC) and shall also mean and include all accounts receivable, contract rights, chattel paper, instruments, general intangibles and other rights of the Borrower to receive a payment of money or other consideration, in each case which result from transactions with account debtors located in the United States or Canada or are evidenced by invoices or other documents issued in the name of or held by the Borrower in the United States or Canada, and (ii) any and all rights of the Borrower (x) with respect to any collateral securing any Receivable described in clause (i) above, (y) under any security agreement (as defined in the UCC) securing any Receivable described in clause (i) above or (z) assertable against any Person other than the related account debtor, under a guaranty, warranty or otherwise, in connection with any Receivable described in clause (i) above or any collateral securing any Receivable described in clause (i) above. Secured Obligations means (a) all principal of and interest on any Loan under, or any Note issued pursuant to, the Credit Agreement, (b) all other amounts payable by the Borrower hereunder or under the Credit Agreement and (c) any renewals or extensions of any of the foregoing. The Secured Obligations shall include, without limitation, any interest, costs, fees and expenses which accrue on or with respect to any of the foregoing, whether before or after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower; provided that, for the purposes of payments and allocations pursuant to Section 9 after the commencement of any case, action or other proceeding relating to the bankruptcy, insolvency or reorganization of the Borrower, each Secured Obligation shall be deemed to include interest accrued thereon after the commencement of such proceeding only to the extent that such interest is allowed in such proceeding (pursuant to Section 506(b) of the United States Bankruptcy Code or otherwise). Secured Parties means the Security Agent, the Concentration Bank, the Bank Agents and the Banks. Security Interests means the security interests in the Collateral granted hereunder securing the Secured Obligations. UCC means the Uniform Commercial Code as in effect on the date hereof in the State of New York; provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of any of the Security Interests in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, UCC means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection. SECTION 2. Representations, Warranties and Covenants. The Borrower represents, warrants and covenants as follows: (A) The Borrower has good and marketable title to all of the Collateral, free and clear of any Liens. The Borrower has taken all actions necessary under the UCC to perfect its interest in any Receivables purchased or otherwise acquired by it, as against its assignors and creditors of its assignors. (B) The Borrower has not performed any acts which might prevent the Security Agent from enforcing any of the terms of this Agreement or which would limit the Security Agent in any such enforcement. No registration, recordation or filing with any governmental body, agency or official is required in connection with the execution or delivery of this Agreement. Other than financing statements or other similar or equivalent documents or instruments with respect to the Security Interests, no financing statement, mortgage, security agreement or similar or equivalent document or instrument covering all or any part of the Collateral is on file or of record in any jurisdiction in which such filing or recording would be effective to perfect a Lien on such Collateral. No Collateral is in the possession of any Person (other than the Borrower) asserting any claim thereto or security interest therein, except that the Security Agent, the Concentration Bank or any designee of the Security Agent may have possession of Collateral as contemplated hereby. (C) Not less than five Domestic Business Days prior to the date of the first Borrowing under the Credit Agreement, the Borrower will deliver the Perfection Certificate to the Security Agent. The information set forth therein will be correct and complete as of the dates referred to therein. Not later than 60 days following the date of the first Borrowing, the Borrower will furnish to the Security Agent file search reports from each UCC filing office set forth in Schedule 7 to the Perfection Certificate confirming the filing information set forth in such Schedule. (D) The Security Interests constitute valid security interests under the UCC securing the Secured Obligations. When UCC financing statements in the form specified in Schedule 6(A) to the Perfection Certificate have been filed in the offices specified in the Perfection Certificate, the Security Interests will constitute perfected security interests in the Collateral to the extent that a security interest therein may be perfected by filing pursuant to the UCC, prior to all other Liens and rights of others therein. SECTION 3. The Security Interests. (A) In order to secure the full and punctual payment of the Secured Obligations in accordance with the terms thereof, and to secure the performance of all of the obligations of the Borrower hereunder and under the Credit Agreement, the Borrower hereby grants to the Security Agent, for the ratable benefit of the Secured Parties, a continuing security interest in and to all of the following property of the Borrower, whether now owned or existing or hereafter acquired or arising and regardless of where located (all being collectively referred to as the Collateral): (1) Receivables; (2) Instruments; (3) The Collateral Account, all cash deposited therein from time to time, the Liquid Investments made pursuant to Section 5(D) and other monies and property of any kind of the Borrower in the possession or under the control of the Security Agent; (4) All books and records (including, without limitation, customer lists, credit files, computer programs, printouts and other computer materials and records) of the Borrower pertaining to any of the Collateral described in Clauses 1 through 3 hereof; and (5) All Proceeds of all or any of the Collateral described in Clauses 1 through 4 hereof. (B) The Security Interests are granted as security only and shall not subject the Security Agent or any other Secured Party to, or transfer or in any way affect or modify, any obligation or liability of the Borrower with respect to any of the Collateral or any transaction in connection therewith. SECTION 4. Further Assurances; Covenants. (A) (I) The Borrower will not change (i) the location of its chief executive office or chief place of business or (ii) the locations where it keeps or holds any Collateral or any records relating to any Collateral from the applicable location described in the Perfection Certificate unless it shall have (a) given the Security Agent at least 30 days' prior notice thereof and (b) delivered an opinion of counsel with respect thereto in accordance with Section 4(J). The Borrower shall not in any event change the location of any Collateral if such change would cause the Security Interests in such Collateral to lapse or cease to be perfected. (II) The Borrower will not change its name, identity or corporate structure in any manner unless it shall have (i) given the Security Agent at least 30 days' prior notice thereof and (ii) delivered an opinion of counsel with respect thereto in accordance with Section 4(J). (B) The Borrower will, from time to time, at its expense, execute, deliver, file and record any statement, assignment, instrument, document, agreement or other paper and take any other action (including, without limitation, any filings of financing or continuation statements under the UCC) that from time to time may be necessary or desirable, or that the Security Agent may request, under the laws of the United States of America or Canada or any State, provincial or local jurisdiction located therein, in order to create, preserve, perfect, confirm or validate the Security Interests or to enable the Secured Parties to obtain the full benefits of this Agreement, or to enable the Security Agent to exercise and enforce any of its rights, powers and remedies hereunder with respect to any of the Collateral. To the extent permitted by applicable law, the Borrower hereby authorizes the Security Agent to execute and file financing statements or continuation statements without the Borrower's signature appearing thereon. The Borrower agrees that a carbon, photographic, photostatic or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement. The Borrower shall pay the costs of, or incidental to, any recording or filing of any financing or continuation statements concerning the Collateral. (C) If any Collateral is at any time in the possession or control of any of the Borrower's agents, the Borrower shall notify such agents of the Security Interests created hereby and to hold all such Collateral for the Security Agent's account subject to the Security Agent's instructions. (D) The Borrower shall keep full and accurate books and records consistent with GAAP relating to the Collateral, and stamp or otherwise mark such books and records in such manner as the Security Agent or the Required Banks may reasonably require in order to reflect the Security Interests. (E) The Borrower will immediately deliver and pledge each Instrument to the Security Agent, appropriately endorsed to the Security Agent; provided that so long as no Event of Default shall have occurred and be continuing, the Borrower may retain for collection in the ordinary course any Instruments (other than checks and drafts constituting payments in respect of Receivables, as to which the provisions of Section 5(B) shall apply) received by it in the ordinary course of business and the Security Agent shall, promptly upon request of the Borrower, make appropriate arrangements for making any other Instrument pledged by the Borrower available to it for purposes of presentation, collection or renewal (any such arrangement to be effected, to the extent deemed appropriate to the Security Agent, against trust receipt or like document). (F) The Borrower shall use its best efforts to cause to be collected from its account debtors, as and when due, any and all amounts owing under or on account of each Receivable and Instrument (including, without limitation, Receivables which are delinquent, such Receivables to be collected in accordance with lawful collection procedures) and shall apply forthwith upon receipt thereof all such amounts as are so collected to the outstanding balance of the related Receivable. Subject to the rights of the Security Agent and the other Secured Parties hereunder if an Event of Default shall have occurred and be continuing, the Borrower may allow in the ordinary course of business as adjustments to amounts owing under its Receivables or Instruments (i) an extension or renewal of the time or times of payment, or settlement for less than the total unpaid balance, which the Borrower finds appropriate in accordance with sound business judgment and (ii) a refund or credit due as a result of returned or damaged merchandise, all in accordance with the Borrower's ordinary course of business consistent with its historical collection practices. The costs and expenses (including, without limitation, attorney's fees) of collection, whether incurred by the Borrower or the Security Agent, shall be borne by the Borrower. (G) Upon the occurrence and during the continuance of any Event of Default, upon request of the Required Banks through the Security Agent, the Borrower will promptly notify (and the Borrower hereby authorizes the Security Agent so to notify) each account debtor in respect of any Receivable or Instrument that such Collateral has been assigned to the Security Agent hereunder, and that any payments due or to become due in respect of such Collateral are to be made directly to the Security Agent or its designee. (H) Without the prior written consent of the Security Agent, the Borrower will not (a) sell, exchange, assign or otherwise dispose of any Collateral or (b) create, incur or suffer to exist any Lien with respect to any Collateral (other than the Security Interests) or with respect to any inventories now owned or hereafter acquired by the Borrower (other than Liens described in clause (g) of Section 5.09 of the Credit Agreement, so long as such Liens have not given rise to an Event of Default). (I) The Borrower will, promptly upon request, provide to the Security Agent all information and evidence it may reasonably request concerning the Collateral, and in particular concerning the Receivables, to enable the Security Agent to enforce the provisions of this Agreement. The Borrower will permit the representatives of the Security Agent to call at its places of business from time to time and at any reasonable time during business hours (such visits to be conducted so as not to disrupt the business and affairs of the Borrower), and, without hindrance or delay but with prior notice, to inspect the Collateral and, no more than once each Fiscal Year unless an Event of Default has occurred and is continuing, to inspect, audit, check and make extracts from and copies of the books, records, journals, orders, receipts and correspondence which relate to the Collateral at the Borrower's cost and expense without undue interference with the Borrower's operations. The Borrower will provide each Secured Party with such information as to the Collateral as such Secured Party may reasonably request. (J) Not more than six months nor less than 30 days prior to (i) each date on which the Borrower proposes to take any action contemplated by Section 4(A)(I) or (II) and (ii) each anniversary of the date of the first Borrowing during the term of the Credit Agreement, the Borrower shall, at its cost and expense, cause to be delivered to the Secured Parties an opinion of counsel satisfactory to the Security Agent substantially in the form of Annex B hereto or in such other form as is reasonably acceptable to the Secured Parties and their counsel, to the effect that all financing statements and amendments or supplements thereto, continuation statements and other documents required to be recorded or filed in order to perfect and protect the Security Interests, for a period, specified in such opinion, continuing until a date not earlier than eighteen months from the date of such opinion, against all creditors of and purchasers from the Borrower have been filed in each filing office necessary for such purpose. Each such opinion shall be accompanied by a certificate of the Borrower to the effect that all filing fees and taxes, if any, payable in connection with such filings have been paid in full. SECTION 5. Collateral Account. (A) There is hereby established with the Concentration Bank a cash collateral account designated Collateral Account No. 4518099635 of Citicorp USA, Inc., as Security Agent under the Security Agreement dated as of March 11, 1997 among Iomega Corporation, Citicorp USA, Inc. and Wells Fargo Bank, N.A. (the Collateral Account) in the name and under the control of the Security Agent into which there shall be deposited from time to time and as they become available the cash proceeds of the Collateral required to be delivered to the Concentration Bank or the Security Agent pursuant to subsection (B) of this Section 5 or any other provision of this Agreement. Any income received by the Concentration Bank or the Security Agent with respect to the balance from time to time standing to the credit of the Collateral Account, including any interest or capital gains on Liquid Investments, shall remain, or be deposited, in the Collateral Account. All right, title and interest in and to the cash amounts on deposit from time to time in the Collateral Account together with any Liquid Investments from time to time made pursuant to subsection (D) of this Section shall vest in the Security Agent, shall constitute part of the Collateral hereunder and shall not constitute payment of the Secured Obligations until applied thereto as hereinafter provided. (B) The Borrower shall instruct all account debtors and other Persons obligated in respect of all Receivables to make all payments in respect of the Receivables either (i) directly to the Concentration Bank (by electronic transfer to the Collateral Account or by remittance to a post office box which shall be in the name and under the control of the Concentration Bank) or (ii) to one or more other banks in any state (other than Louisiana) in the United States (by remittance to a post office box which shall be in the name and under the control of such bank) under a Lockbox Letter substantially in the form of Annex C hereto duly executed by the Borrower and such bank or under other arrangements, in form and substance satisfactory to the Security Agent, pursuant to which the Borrower shall have irrevocably instructed such other bank (and such other bank shall have agreed) to remit all proceeds of such payments directly to the Concentration Bank for deposit into the Collateral Account or as the Security Agent may otherwise instruct such bank (it being understood that the Security Agent may not otherwise instruct such bank unless an Event of Default has occurred and is continuing or the Concentration Bank or the Collateral Account changes). All such payments made to the Concentration Bank or the Security Agent shall be deposited in the Collateral Account. In addition to the foregoing, the Borrower agrees that if the proceeds of any Collateral hereunder (including the payments made in respect of Receivables) shall be received by it, the Borrower shall as promptly as possible deposit such proceeds into the Collateral Account. Until so deposited, all such proceeds shall be held in trust by the Borrower for and as the property of the Secured Parties and shall not be commingled with any other funds or property of the Borrower. (C) The balance from time to time standing to the credit of the Collateral Account shall, except upon the occurrence and continuation of an Event of Default, be distributed without set-off (except for any set-off for amounts owed under this Agreement or the Credit Agreement) to the Borrower upon the order of the Borrower. If immediately available cash on deposit in the Collateral Account is not sufficient to make any distribution to the Borrower referred to in the previous sentence of this Section 5(C), the Security Agent shall liquidate as promptly as practicable Liquid Investments as required to obtain sufficient cash to make such distribution and, notwithstanding any other provision of this Section 5, such distribution shall not be made until such liquidation has taken place. Upon the occurrence and continuation of an Event of Default, the Security Agent shall, if so instructed by the Required Banks, apply or cause to be applied (subject to collection) any or all of the balance from time to time standing to the credit of the Collateral Account in the manner specified in Section 9. (D) Amounts on deposit in the Collateral Account shall be invested and re- invested from time to time in such Liquid Investments as the Borrower shall from time to time determine, which Liquid Investments shall be held in the name and be under the control of the Security Agent; provided that, if an Event of Default has occurred and is continuing, the Security Agent shall, if so instructed by the Required Banks, liquidate any such Liquid Investments and apply or cause to be applied the proceeds thereof to the payment of the Secured Obligations in the manner specified in Section 9. For the purposes hereof, Liquid Investments means any investment in (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated in the highest grade or, in the case of commercial paper issued by the Agent, in any investment grade, by a nationally recognized credit rating agency or (iii) time deposits with, including certificates of deposit issued by, the Security Agent or any office located in the United State of any bank or trust company which is organized or licensed under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least $1,000,000,000; provided that (i) each Liquid Investment shall mature within 30 days after it is acquired by the Security Agent and (ii) in order to provide the Security Agent, for the benefit of the Secured Parties, with a perfected security interest therein, each Liquid Investment shall be either: (a) evidenced by negotiable certificates or instruments, or if non-negotiable then issued in the name of the Security Agent, which (together with any appropriate instruments of transfer) are delivered to, and held by, the Security Agent or an agent thereof (which shall not be the Borrower or any of its Affiliates) in the State of New York; or (b) in book-entry form and issued by the United States and subject to pledge under applicable state law and Treasury regulations and as to which (in the opinion of counsel to the Security Agent) appropriate measures shall have been taken for perfection of the Security Interests. SECTION 6. General Authority. The Borrower hereby irrevocably appoints the Security Agent its true and lawful attorney, with full power of substitution, in the name of the Borrower, the Security Agent, the Bank Agents, the Banks or otherwise, for the sole use and benefit of the Secured Parties, but at the Borrower's expense, to the extent permitted by law to exercise, at any time and from time to time while an Event of Default has occurred and is continuing, all or any of the following powers with respect to all or any of the Collateral: (i) to demand, sue for, collect, receive and give acquittance for any and all monies due or to become due thereon or by virtue thereof; (ii) to settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto; (iii) to sell, transfer, assign or otherwise deal in or with the same or the proceeds or avails thereof, as fully and effectually as if the Security Agent were the absolute owner thereof; and (iv) to extend the time of payment of any or all thereof and to make any allowance and other adjustments with reference thereto; provided that the Security Agent shall give the Borrower not less than ten days' prior notice of the time and place of any sale or other intended disposition of any of the Collateral except any Collateral which threatens to decline speedily in value or is of a type customarily sold on a recognized market. The Security Agent and the Borrower agree that such notice constitutes reasonable notification within the meaning of Section 9-504(3) of the UCC. SECTION 7. Remedies upon Event of Default. (A) If any Event of Default has occurred and is continuing, the Security Agent may exercise on behalf of the Secured Parties all rights of a secured party under the UCC (whether or not in effect in the jurisdiction where such rights are exercised) and, in addition, the Security Agent may, without being required to give any notice, except as herein provided or as may be required by mandatory provisions of law, (i) withdraw all cash and Liquid Investments in the Collateral Account and apply such monies, Liquid Investments and other cash, if any, then held by it as Collateral as specified in Section 9 and (ii) if there shall be no such monies, Liquid Investments or cash or if such monies, Liquid Investments or cash shall be insufficient to pay all the Secured Obligations in full, sell the Collateral or any part thereof at public or private sale, for cash, upon credit or for future delivery, and at such price or prices as the Security Agent may deem satisfactory. The Security Agent or any other Secured Party may be the purchaser of any or all of the Collateral so sold and thereafter hold the same, absolutely and free from any right or claim of any kind whatsoever. The Borrower will execute and deliver such documents and take such other action as the Security Agent deems necessary or advisable in order that any such sale may be made in compliance with law. Upon any such sale the Security Agent shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold. Each purchaser at any such sale shall hold the Collateral so sold to it absolutely and free from any claim or right of any kind whatsoever, including any equity or right of redemption of the Borrower which may be waived, and the Borrower, to the extent permitted by law, hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any law now existing or hereafter adopted. The notice (if any) of such sale required by Section 6 shall (1) in the case of a public sale, state the time and place fixed for such sale, and (2) in the case of a private sale, state the day after which such sale may be consummated. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Security Agent may fix in the notice of such sale. At any such sale, the Collateral may be sold in one lot as an entirety or in separate parcels, as the Security Agent may determine. The Security Agent shall not be obligated to make any such sale pursuant to any such notice. The Security Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In the case of any sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by the Security Agent until the selling price is paid by the purchaser thereof, but the Security Agent shall not incur any liability in the case of the failure of such purchaser to take up and pay for the Collateral so sold and, in the case of any such failure, such Collateral may again be sold upon like notice. The Security Agent, instead of exercising the power of sale herein conferred upon it, may proceed by a suit or suits at law or in equity to foreclose the Security Interests and sell the Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction. (B) For the purpose of enforcing any and all rights and remedies under this Agreement the Security Agent may (i) require the Borrower to, and the Borrower agrees that it will, at its expense and upon the request of the Security Agent, forthwith assemble all or any part of the Collateral as directed by the Security Agent and make it available at a place designated by the Security Agent which is, in its opinion, reasonably convenient to the Security Agent and the Borrower or otherwise, (ii) to the extent permitted by applicable law, enter, with or without process of law and without breach of the peace, any premise where any of the Collateral is or may be located, and without charge or liability to it seize and remove such Collateral from such premises and (iii) have access to and use the Borrower=s books and records relating to the Collateral. The Security Agent may also render any or all of the Collateral unusable at the Borrower=s premises and may dispose of such Collateral on such premises without liability for rent or costs. SECTION 8. Limitation on Duty of Security Agent in Respect of Collateral. Beyond the exercise of reasonable care in the custody thereof, the Security Agent shall have no duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee of it or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. The Security Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which it accords its own property and shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any agent or bailee selected by the Security Agent in good faith. SECTION 9. Application of Proceeds. Upon the occurrence and during the continuance of an Event of Default, the proceeds of any sale of, or other realization upon, all or any part of the Collateral and any cash held in the Collateral Account or otherwise held by the Security Agent shall be applied by the Security Agent in the following order of priorities: first, to payment of the expenses of such sale or other realization, including reasonable compensation to agents of (including, but not limited to, the Concentration Bank) and counsel for the Security Agent, and all expenses, liabilities and advances incurred or made by the Security Agent in connection therewith; second, to payment of any other unreimbursed expenses for which the Security Agent or any Bank Agent or Bank is to be reimbursed pursuant to Section 9.03 of the Credit Agreement or Section 11 hereof and unpaid fees owing to the Security Agent hereunder or to the Bank Agents under the Credit Agreement; third, to the ratable payment of unpaid principal of the Secured Obligations; fourth, to the ratable payment of accrued but unpaid interest on the Secured Obligations in accordance with the provisions of the Credit Agreement; fifth, to the ratable payment of all other Secured Obligations, until all Secured Obligations shall have been paid in full; and finally, to payment to the Borrower or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. The Security Agent may make distributions hereunder in cash or in kind or, on a ratable basis, in any combination thereof. SECTION 10. Concerning the Security Agent and the Concentration Bank. (A) The Security Agent is authorized to take all such action as is provided to be taken by it as Security Agent hereunder and all other action reasonably incidental thereto. As to any matters not expressly provided for herein (including, without limitation, the timing and methods of realization upon the Collateral) the Security Agent shall act or refrain from acting in accordance with written instructions from the Required Banks or, in the absence of such instructions, in accordance with its discretion. (B) Citicorp USA, Inc. and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not the Security Agent hereunder. (C) The obligations of the Security Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Security Agent shall not be required to take any action with respect to any Default or Event of Default, except as expressly provided herein. (D) The Security Agent may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. (E) Neither the Security Agent nor any director, officer, agent, or employee of the Security Agent shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Security Agent, nor any of its affiliates, nor any of their respective directors, officers, agents or employees, shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement; (ii) the performance or observance of any of the covenants or agreements of the Borrower; or (iii) the validity, effectiveness or genuineness of this Agreement or any instrument or writing furnished in connection herewith. The Security Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it to be genuine or to be signed by the proper party or parties The Security Agent shall not be responsible for the existence, genuineness or value of any of the Collateral or for the validity, perfection, priority or enforceability of the Security Interests in any of the Collateral, whether impaired by operation of law or by reason of any action or omission to act on its part hereunder. The Security Agent shall have no duty to ascertain or inquire as to the performance or observance of any of the terms of this Agreement by the Borrower. (F) Each Bank shall, ratably in accordance with the amount of its Secured Obligations, indemnify the Security Agent (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from the Security Agent's gross negligence or willful misconduct) that the Security Agent may suffer or incur in connection with this Agreement or any action taken or omitted by the Security Agent hereunder or thereunder. (G) The Security Agent may resign at any time by giving written notice of its resignation to the other Secured Parties and the Borrower. Upon any such resignation, the Required Banks shall have the right to appoint a successor Security Agent (a Successor Agent). If no Successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Security Agent's giving of notice of resignation, then the retiring Security Agent may, on behalf of the other Secured Parties, appoint a Successor Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $100,000,000. Upon the acceptance of its appointment as Security Agent hereunder by a Successor Agent, such Successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Security Agent, and the retiring Security Agent shall be discharged from its duties and obligations hereunder. After any retiring Security Agent's resignation hereunder as Security Agent, the provisions of this Section shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Security Agent. (H) The Concentration Bank is acting hereunder as the agent of the Secured Parties, and is entitled to the benefits of Sections 8 and 10 of this Agreement in respect of its activities under this Agreement to the same extent as if it were the Security Agent. (I) The Concentration Bank may at any time, by giving written notice to the Security Agent and the Borrower, and shall, if requested to do so by the Security Agent, resign its position as the Secured Parties' agent and be discharged of its responsibilities hereunder, such resignation to be effective upon the appointment by the Security Agent, with the consent of the Borrower, of a successor Concentration Bank. If no successor Concentration Bank shall be appointed and shall have accepted such appointment within 30 days after the Concentration Bank gives the aforesaid notice of resignation, the Security Agent may appoint a successor Concentration Bank or apply to any court of competent jurisdiction to appoint a successor Concentration Bank. Any successor Concentration Bank shall be a commercial bank organized under the laws of the United States of America or of any state thereof and having a combined capital and surplus of at least $100,000,000. Upon the acceptance of its appointment as Concentration Bank hereunder by a successor Concentration Bank, such successor Concentration Bank shall thereupon succeed to and become vested with all the rights and duties of the retiring Concentration Bank, the Collateral Account shall be transferred to such successor Concentration Bank, and the retiring Concentration Bank shall be discharged from its duties and obligations hereunder. After any retiring Concentration Bank's resignation hereunder the provisions of Sections 8 and 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Concentration Bank. (J) In order to comply with any legal requirement in any jurisdiction, the Security Agent may at any time appoint another bank or trust company or one or more other persons, either to act as co-agent or co-agents, jointly with the Security Agent, or to act as separate agent or agents on behalf of the Secured Parties with such power and authority as may be necessary for the effectual operation of the provisions hereof and may be specified in the instrument of appointment (which may, in the discretion of the Security Agent, include provisions for the protection of such co-agent or separate agent similar to the provisions of this Section 10). SECTION 11. Fees and Expenses. If the Borrower fails to comply with the provisions of the Credit Agreement or this Agreement, and as a result thereof, the value of any Collateral or the validity, perfection, rank or value of any part of the Security Interests is thereby diminished or potentially diminished or put at risk, the Security Agent, if requested by the Required Banks, may, but shall not be required to, effect such compliance on behalf of the Borrower, and the Borrower shall reimburse the Security Agent for the costs thereof on demand. All insurance expenses and all expenses of protecting, storing, warehousing, appraising, insuring, handling, maintaining, and shipping the Collateral, any and all excise, property, sales, and use taxes imposed by any state, federal, or local authority on any of the Collateral, or in respect of periodic appraisals and inspections of the Collateral to the extent the same may be requested by the Requested Banks during the continuance of an Event of Default, or in respect of the sale or other disposition thereof, shall be borne and paid by the Borrower; and if the Borrower fails to promptly pay any portion thereof when due, the Security Agent or any Bank may, at its option, but shall not be required to, pay the same and charge the Borrower's account therefor, and the Borrower agrees to reimburse the Security Agent or such Bank therefor on demand. All sums so paid or incurred by the Security Agent or any other Secured Party for any of the foregoing and any and all other sums for which the Borrower may become liable hereunder and all costs and expenses (including reasonable attorneys' fees and expenses and court costs) reasonably incurred by the Security Agent in enforcing or protecting the Security Interests or any of their rights or remedies under this Agreement, shall, together with interest thereon until paid at the rate applicable to Base Rate Borrowings plus 2%, be additional Secured Obligations hereunder. SECTION 12. Termination of Security Interests; Release of Collateral. Upon the repayment in full of all Secured Obligations and the termination of the Commitments under the Credit Agreement, the Security Interests shall terminate and all rights to the Collateral shall revert to the Borrower. At any time and from time to time prior to such termination of the Security Interests, the Security Agent may release any of the Collateral with the prior written consent of the Required Banks; provided that prior to such termination, the Security Agent may release all or substantially all of the Collateral (as defined in the Credit Agreement) only with the consent of all Banks. Upon any such termination of the Security Interests or release of Collateral, the Security Agent will, at the expense of the Borrower, execute and deliver to the Borrower such documents as the Borrower shall reasonably request to evidence the termination of the Security Interests or the release of such Collateral, as the case may be. SECTION 13. Notices. All notices hereunder shall be in writing (including telex, facsimile or similar writing) and shall be given to the parties hereto at their respective addresses, facsimile numbers or telex numbers set forth on the signature pages hereof or at such other addresses, facsimile numbers or telex numbers as the addressees may hereafter specify for such purpose by notice to the other parties hereto. Each such notice, request or other communication shall be effective (i) if given by telex, when transmitted to the telex number referred to in this Section and the appropriate answerback is received, (ii) if given by facsimile, when transmitted to the facsimile number referred to in this Section and confirmation of receipt is received, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address referred to in this Section. SECTION 14. Waivers, Non-Exclusive Remedies. No failure on the part of any Secured Party to exercise, and no delay in exercising and no course of dealing with respect to, any right under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise by such party of any right under any other Loan Document preclude any other or further exercise thereof or the exercise of any other right. The rights in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other remedies provided by law. SECTION 15. Successors and Assigns. This Agreement is for the benefit of the Secured Parties and their successors and assigns, and in the event of an assignment of all or any of the Secured Obligations, the rights hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness. This Agreement shall be binding on the Borrower and its successors and assigns. SECTION 16. Changes in Writing. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only in writing signed by the Borrower and the Security Agent with the consent of the Required Banks (and, if the rights or duties of the Concentration Bank are affected thereby, by the Concentration Bank). SECTION 17. New York Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York, except as otherwise required by mandatory provisions of law and except to the extent that remedies provided by the laws of any jurisdiction other than New York are governed by the laws of such jurisdiction. SECTION 18. Severability. If any provision hereof is invalid or unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Security Agent and the other Secured Parties in order to carry out the intentions of the parties hereto as nearly as may be possible; and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. SECTION 19. Notice of Security Interest. By signing below, Wells Fargo Bank, N.A. acknowledges receipt of notice, pursuant to '9302(g)(ii) of Division 9 of the California Commercial Code, that Citicorp USA, Inc., as Security Agent, has a security interest in the Collateral Account. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. IOMEGA CORPORATION By /S/ ROBERT J. SIMMONS Name: ROBERT J. SIMMONS Title: TREASURER Address: 1821 WEST IOMEGA WAY, ROY, UTAH 84067 Facsimile: CITICORP USA, INC., as Security Agent By /S/ CAROLYN A. KEE Name: CAROLYN A. KEE Title: ATTORNEY-IN-FACT Address: 399 PARK AVENUE, NY, NY 10043 Facsimile: WELLS FARGO BANK, N.A., as Concentration Bank By /S/ MATHEW HARVEY Name: MATHEW HARVEY Title: VICE PRESIDENT Address: Facsimile: ANNEX A PERFECTION CERTIFICATE The undersigned, the chief financial officer and chief legal officer of IOMEGA CORPORATION, a Delaware corporation (the Borrower), hereby certify with reference to the Security Agreement dated as of March 11, 1997 among the Borrower, Citicorp USA, Inc., as Security Agent, and Wells Fargo Bank, N.A., as Concentration Bank (terms defined therein being used herein as therein defined), to the Secured Parties as follows: 1. Names. (a) The exact corporate name of the Borrower as it appears in its certificate of incorporation is as follows: (b) Set forth below is each other corporate name the Borrower has had since its organization, together with the date of the relevant change: (c) Except as set forth in Schedule 1, the Borrower has not changed its identity or corporate structure in any way within the past five years.* (d) The following is a list of all other names (including trade names or similar appellations) used by the Borrower or any of its divisions or other business units at any time during the past five years: 2. Current Locations. (a) The chief executive office of the Borrower is located at the following address: Mailing Address County State (b) The following are all the locations where the Borrower maintains any books or records relating to any Receivables: Mailing Name Address County State (c) The following are all the places of business of the Borrower not identified above that have any connection with or relationship to the Receivables: Mailing Name Address County State 3. Prior Locations. Set forth below is the information required by subparagraphs (a), (b) and (c) of paragraph 2 with respect to each location or place of business maintained by the Borrower at any time during the past five years: 4. Unusual Transactions. [Except as set forth in Schedule 4,] all Receivables have been originated by the Borrower in the ordinary course of its business. 5. File Search Reports. Attached hereto as Schedule 5(A) is a true copy of a file search report from the Uniform Commercial Code filing officer in each jurisdiction identified in paragraph 2 or 3 above with respect to each name set forth in paragraph 1 above. Attached hereto as Schedule 5(B) is a true copy of each financing statement or other filing identified in such file search reports. 6. UCC Filings. A duly signed financing statement on Form UCC-1 in substantially the form of Schedule 6(A) hereto has been duly filed in the Uniform Commercial Code filing office in each jurisdiction identified in paragraph 2 hereof. Attached hereto as Schedule 6(B) is a true copy of each such filing duly acknowledged by the filing officer. 7. Schedule of Filings. Attached hereto as Schedule 7 is a schedule setting forth filing information with respect to the filings described in paragraph 6 above. 8. Filing Fees. All filing fees and taxes payable in connection with the filings described in paragraph 6 above have been paid. IN WITNESS WHEREOF, we have hereunto set our hands this day of March, 1997. ____________________________ Name: Title: ____________________________ Name: Title: SCHEDULE 6(A) Description of Collateral All accounts (including receivables, contract rights, and chattel paper), instruments and general intangibles pertaining to accounts and instruments, now owned and hereafter acquired, wherever located, and all proceeds thereof. SCHEDULE 7 SCHEDULE OF FILINGS Debtor Filing Officer File Number Date of Filing** ANNEX B OPINION OF COUNSEL FOR BORROWER * * * * 1. The Security Agreement creates valid security interests, for the benefit of the Secured Parties, in all the Borrower's right, title and interest in all Collateral to the extent the UCC is applicable thereto (the Security Interests). 2. UCC financing statements [and amendments thereto] (collectively, the Financing Statements) have been filed in the filing offices listed in Schedule 7 to the Perfection Certificate (the Filing Jurisdictions), which are all of the offices in which filings are required to perfect the Security Interests, to the extent the Security Interests may be perfected by filing under the UCC, and no further filing or recording of any document or instrument or other action will be required so to perfect the Security Interests, except that (i) continuation statements with respect to each Financing Statement must be filed within the respective time periods set forth on Schedule 7 to the Perfection Certificate; (ii) additional filings may be necessary if the Borrower changes its name, identity or corporate structure or the jurisdiction in which its places of business, its chief executive office or the Collateral are located; and (iii) we express no opinion on the perfection of, or need for further filing or recording to perfect, the Security Interests in the Collateral now or hereafter located in any jurisdiction other than the Filing Jurisdictions. 3. Based solely on information provided to us by ______ through the dates of the respective searches in each of the respective filing offices set forth in Schedule A hereto, there are (i) no UCC financing statements which name the Borrower as debtor or seller and cover any of the Collateral, other than the Financing Statements, listed in the available records in the UCC filing offices set forth in paragraphs 2 and 3 of the Perfection Certificate, which include all of the offices prescribed under the UCC as the offices in which filings should have been made to perfect security interests in the Collateral; and (ii) no notices of the filing of any federal tax lien (filed pursuant to Section 6323 of the Internal Revenue Code) or any lien of the Pension Benefit Guaranty Corporation (filed pursuant to Section 4068 of ERISA) covering any of the Collateral listed in the available records in the [office of the clerk of the United States district court for the judicial district of Utah], which is the only office having files which must be searched in order to fully determine the existence of notices of the filing of federal tax liens (filed pursuant to Section 6323 of the Internal Revenue Code) and liens of the Pension Benefit Guaranty Corporation (filed pursuant to Section 4068 of ERISA) on the Collateral. 4. The Security Interests validly secure the payment of all future Loans made by the Banks to the Borrower, whether or not at the time such Loans are made an Event of Default or other event not within the control of the Banks has relieved or may relieve the Banks of their obligations to make such Loans, and are perfected to the extent set forth in paragraph 7 above with respect to such future Loans. ANNEX C [FORM OF LOCKBOX LETTER] March 11, 1997 [Name and Address of Lockbox Bank] Re: Iomega Corporation Gentlemen: We hereby notify you that effective March 11, 1997, we have transferred exclusive ownership and control of our lock-box account[s] No[s]. _________________ (the Lockbox Account[s]) [maintained with you under the terms of the [Lockbox Agreement] attached hereto as Exhibit A] to Citicorp USA, Inc., as Security Agent (the Security Agent). We hereby irrevocably instruct you to make all payments to be made by you out of or in connection with the Lockbox Account[s] (i) to the Security Agent for credit to account no. ___________ maintained by Wells Fargo Bank, N.A., at the latter's office at ________________, or (ii) as you may otherwise be instructed by the Security Agent. We also hereby notify you that the Security Agent shall be irrevocably entitled to exercise any and all rights in respect of or in connection with the Lockbox Account[s], including, without limitation, the right to specify when payments are to be made out of or in connection with the Lockbox Account[s]. No funds deposited into the Lockbox Account[s] will be subject to deductions, set-off, banker's lien or any other right in favor of any other person than the Security Agent, except that you may set-off against the Lockbox Account[s] the face amount of any check deposited in and credited to such Lockbox Account[s] which is subsequently returned for any reason and fees owed with respect to the Lockbox Account[s]. Your compensation for providing the services contemplated herein shall be as mutually agreed between you and us from time to time and we will continue to pay such compensation. Please confirm your acknowledgment of and agreement to the foregoing instructions by signing in the space provided below. Very truly yours, IOMEGA CORPORATION By___________________________ Title: Acknowledged and agreed to as of this ____ day of March __, 1997. [LOCKBOX BANK] By_________________________ Title: * Changes in identity or corporate structure would include mergers, consolidations and acquisitions, as well as any change in the form, nature or jurisdiction of corporate organization. If any such change has occurred, include in Schedule 1 the information required by paragraphs 1, 2 and 3 of this certificate as to each acquiree or constituent party to a merger or consolidation. ** Indicate lapse date, if other than fifth anniversary. EX-10.34 5 EXHIBIT 10.34 IOMEGA CORPORATION 1997 BONUS PLAN The 1997 Bonus Plan ("Plan") for the Chief Executive Officer, Executive Group and Key Contributors of Iomega Corporation (the "Company") is as follows: 1. Definitions For purposes of the Plan, the following terms shall have the following meanings: "NATP" means the consolidated net after-tax income of the Company and its subsidiaries for fiscal 1997 as reported by the Company in its audited financial statements for 1997. "Minimum NATP" means the minimum amount of fiscal 1997 NATP required to allow the Plan to be funded, as determined by the Board of Directors of the Company. "Minimum Plus NATP" means the sum of Minimum NATP and an amount equal to 12.5% of Minimum NATP. "Target NATP" means the sum of Minimum NATP and an amount equal to 25% of Minimum NATP. "Consolidated Worldwide Revenue" means the consolidated gross revenue of the Company and its subsidiaries. "Minimum Consolidated Worldwide Revenue" means the minimum amount of fiscal 1997 Consolidated Worldwide Revenue required to allow the Plan to be funded, as determined by the Board of Directors of the Company. "Executive Group" means the senior executives of the Company listed in Appendix A and such additional executives as the Chief Executive Officer of the Company ("CEO") shall designate. "Key Contributors" means employees who perform management or management- equivalent duties and responsibilities, who are designated to participate in the Plan based on their performance and their contributions to the Company. "Gross Salary" means the gross salary (before bonus) paid during fiscal 1997 to salary-based employees of the Company. 2. Bonus for Chief Executive Officer Unless 1997 NATP equals or exceeds Minimum NATP and 1997 Consolidated Worldwide Revenue equals or exceeds Minimum Consolidated Worldwide Revenue, no bonus shall be paid under the Plan to the CEO except as provided below under "Discretionary CEO Bonus." If 1997 NATP equals or exceeds Minimum NATP and 1997 Consolidated Worldwide Revenue equals or exceeds Minimum Consolidated Worldwide Revenue, the Company shall pay a bonus to the CEO for 1997, determined as follows: For Minimum NATP, a sum of $180,000 plus 1% of the amount by which fiscal 1997 NATP exceeds Minimum NATP but is less than Target NATP, plus 1.7% of the amount by which 1997 NATP exceeds Target NATP. Discretionary CEO Bonus. In addition, the Company may pay the CEO a discretionary bonus of up to $400,000, as determined by the Board of Directors, based upon the CEO's performance with respect to the following non-financial objectives: Improving Customer Satisfaction Building an Outstanding Organization Managing the Corporation's Assets 3. Bonus for Executive Group Unless 1997 NATP equals or exceeds Minimum NATP and 1997 consolidated Worldwide Revenue equals or exceeds Minimum Consolidated Worldwide Revenue, no bonus shall be paid under the Plan to the Executive Group. If 1997 NATP equals or exceeds Minimum NATP and 1997 Consolidated Worldwide Revenue exceeds Minimum Consolidated Worldwide Revenue, the Company shall pay a bonus to each member of the Executive Group for 1997 as follows: If 1997 NATP exceeds Minimum NATP but is less than Minimum Plus NATP, a bonus equal to 20% of such executive's 1997 Gross Salary. If 1997 NATP exceeds Minimum Plus NATP but is less than Target NATP, a bonus equal to 30% of such executive's 1997 Gross Salary. If 1997 NATP equals or exceeds Target NATP, a bonus equal to 40% of such executive's 1997 Gross Salary. In addition, the Company may establish a Discretionary Pool funded as follows: 2% of the amount by which 1997 NATP exceeds Minimum NATP but is less than Target NATP, and 2.5% of the amount by which 1997 NATP exceeds Target NATP. The Discretionary Pool may be distributed to some or all members of the Executive Group at the discretion of the CEO based upon the contributions by the members of the Executive Group to the achievement of the Company's 1997 Business Plan or other performance criteria as may be established by the CEO. 4. Bonus for Key Contributors If 1997 NATP equals or exceeds Minimum NATP and 1997 Consolidated Worldwide Revenue equals or exceeds Minimum Consolidated Worldwide Revenue, the Company may pay an incentive bonus to its Key Contributors. Each Key Contributor shall be assigned a target annual bonus which shall be a percentage of his/her Gross Salary, and such percentage may increase as various levels of NATP are achieved, based on the performance of the Company and its ability to achieve or exceed its Business Plan. It is expected that approximately 300 Key Contributors will participate in the Plan in 1997. 5. Profit Sharing Program If 1997 NATP equals or exceeds Minimum NATP and 1997 Consolidated Worldwide Revenue equals or exceeds Minimum Consolidated Worldwide Revenue, the Company may make profit sharing awards to full-time regular employees who do not participate in any incentive bonus plan or sales commission plan. Profit sharing awards, if made, will generally be paid quarterly on the basis of achievement of specified quarterly results as measured against the Company's Minimum NATP and Target NATP, with a holdback of approximately 50% for the first quarter, 40% for the second quarter, 25% for the third quarter and 0% for the fourth quarter. The profit sharing payments will range from 5% of a participating employee's Gross Salary, with an increasing percentage as the Company's operating results exceed Minimum NATP, provided that for 1997 the maximum payment percentage shall not exceed 7.5% of a participating employee's Gross Salary. The Profit Sharing Program will be funded as follows: $1.8 million if 1997 NATP is at least equal to Minimum NATP, plus 1.4% of the amount by which 1997 NATP exceeds Minimum NATP, provided that the maximum aggregate amount which may be available for profit sharing for 1997 is $2.8 million. 6. CEO's Discretionary Authority The CEO shall have the authority to allocate bonuses and profit sharing payments payable pursuant to the Plan among the Key Contributors and Company employees participating in the Profit Sharing Program, including the authority to allocate more or less than the maximum amount payable under the Plan if he determines, in his discretion, that such action is in the best interest of the Company. The CEO is also authorized to pay a discretionary bonus up to a maximum aggregate amount of $1.0 million to professional personnel of Level 15 and below, and "Spot Awards" primarily to employees that are not classified as "executives" as special recognition for outstanding performance. However, no such bonuses shall be paid if the Company is not profitable. The CEO shall report quarterly to the Board of Directors and the Compensation Committee the aggregate amounts of any discretionary bonuses awarded for outstanding performance. EX-27 6 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000 EXHIBIT 27 3-MOS DEC-31-1996 JAN-01-1997 MAR-30-1997 116,767 0 260,934 50,260 155,326 549,805 202,472 68,494 686,855 244,705 45,722 0 0 274,992 0 686,855 361,344 361,344 254,065 254,065 69,077 0 2,461 35,330 12,316 23,014 0 0 0 23,014 .17 .17
-----END PRIVACY-ENHANCED MESSAGE-----