-----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, AMcT8tySs/8u6m6cygZBgQtqksuHrsfNhGpb70xAEFNcrYCv0em/TjkcDvBIwri6 bfKvR0y9c2zSDuotQ5fnLw== 0000352789-95-000011.txt : 19951120 0000352789-95-000011.hdr.sgml : 19951120 ACCESSION NUMBER: 0000352789-95-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951001 FILED AS OF DATE: 19951115 SROS: NASD 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: 000-11963 FILM NUMBER: 95593756 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 OCTOBER 1, 1995 COMMISSION FILE NUMBER 0-11963 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 October 1, 1995. Common Stock, par value $.03 1/3 19,431,676 (Title of each class) (Number of shares) IOMEGA CORPORATION TABLE OF CONTENTS Page PART I - FINANCIAL INFORMATION Condensed consolidated balance sheets at October 1, 1995 and December 31, 1994. . . . . 2 Condensed consolidated statements of operations for the three months ended October 1, 1995 and October 2, 1994. . . . . . . . . . . . . . 4 Condensed consolidated statements of operations for the nine months ended October 1, 1995 and October 2, 1994. . . . . . . . . . . . . . 5 Condensed consolidated statements of cash flows for the nine months ended October 1, 1995 and October 2, 1994. . . . . . . . . . . . . . 6 Notes to condensed consolidated financial statements . . 7 Management's discussion and analysis of financial condition and results of operations. . . . . . 12 PART II - OTHER INFORMATION. . . . . . . . . . . . . . . 15 SIGNATURES. . . 16 EXHIBIT INDEX . 17 IOMEGA CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS October 1, December 31, 1995 1994 (In thousands) CURRENT ASSETS: Cash and cash equivalents $ - $ 16,861 Temporary investments - 2,932 Trade receivables (net) 53,519 18,892 Inventories 52,681 17,318 Income taxes receivable - 1,682 Deferred income taxes (net) 2,037 477 Other current assets 4,092 2,395 -------- ------- Total current assets 112,329 60,557 EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost 81,642 59,193 Less - accumulated depreciation and amortization (47,740) (43,917) ---------- --------- Net equipment and leasehold improvements 33,902 15,276 DEFERRED INCOME TAXES (NET) 1,408 - ---------- --------- $147,639 $ 75,833 ========== ==========
The accompanying notes to condensed consolidated financial statements are an integral part of these balance sheets. IOMEGA CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY October 1, December 31, 1995 1994 (In thousands) CURRENT LIABILITIES: Accounts payable $ 47,366 $ 7,228 Other accrued liabilities 23,414 18,511 Notes payable 21,791 - Income taxes payable 2,014 - Current portion of capitalized lease obligations 462 - --------- -------- Total current liabilities 95,047 25,739 CAPITALIZED LEASE OBLIGATIONS, net of current portion 924 - SERIES A CONVERTIBLE PREFERRED STOCK, Authorized 1,200,000 shares, 258,816 outstanding shares at December 31, 1994, none outstanding at October 1, 1995 - 1,031 SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value; authorized 3,300,000 shares, none issued - - Series C junior participating preferred stock, authorized 250,000 shares, none issued - - Common stock, $.03 1/3 par value; authorized 30,000,000 shares, 19,431,676 and 18,519,749 shares outstanding at October 1, 1995 and December 31, 1994, respectively 648 617 Additional paid-in capital 51,690 48,258 Notes receivable from shareholders - (597) Retained earnings (deficit) (670) 785 ------- -------- Total shareholders' equity 51,668 49,063 --------- --------- $147,639 $ 75,833 ========= ==========
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 October 1, October 2, 1995 1994 (In thousands except per share data) SALES $ 84,721 $ 35,534 COST OF SALES 63,225 23,039 --------- -------- Gross Margin 21,496 12,495 OPERATING EXPENSES: Selling, general and administrative 13,878 8,437 Research and development 4,691 3,889 ---------- -------- Total operating expenses 18,569 12,326 ---------- -------- OPERATING INCOME 2,927 169 Interest and other income and expense (230) 873 ----------- --------- INCOME BEFORE INCOME TAXES 2,697 1,042 Benefit (provision) for income taxes (672) 1,426 ------------ --------- NET INCOME $ 2,025 $ 2,468 ============ ========= NET INCOME PER COMMON SHARE $ 0.10 $ 0.13 =========== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (1994 includes effects of 5-for-4 stock split) 21,206 18,950 =========== =========
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. IOMEGA CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Nine Months Ended October 1, October 2, 1995 1994 (In thousands except per share data) SALES $177,427 $102,907 COST OF SALES 132,527 67,796 ------- --------- Gross Margin 44,900 35,111 OPERATING EXPENSES: Selling, general and administrative 33,389 27,061 Research and development 12,793 11,196 ---------- --------- Total operating expenses 46,182 38,257 ---------- --------- OPERATING LOSS (1,282) (3,146) Foreign currency (loss) gain (1,232) 119 Interest and other income and expense 927 1,140 ---------- --------- LOSS BEFORE INCOME TAXES (1,587) (1,887) Benefit (provision) for income taxes 167 (1,274) ---------- --------- NET LOSS $ (1,420) $ (3,161) ========== ========= NET LOSS PER COMMON SHARE $ (0.07) $ (0.17) ========== ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (1994 includes effects of 5-for-4 stock split) 19,044 18,460 ========== =========
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 Nine Months Ended October 1, October 2, 1995 1994 (In thousands) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (1,420) $ (3,161) Non-cash Revenue and Expense Adjustments: Depreciation and amortization expense 6,198 5,138 Deferred income tax (benefit) provision (2,968) 2,700 Change in restructuring reserve - 1,015 Other (489) 128 Changes in Assets and Liabilities: Trade receivables (net) (34,627) 2,215 Inventories (35,363) (2,066) Income taxes receivable/payable 3,696 (831) Other current assets (1,980) (464) Accounts payable 40,138 490 Accrued liabilities 5,058 (722) Net cash provided from (used in) -------- -------- operating activities (21,757) 4,442 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment and leasehold improvements (24,221) (3,697) Purchase of temporary investments (2,090) - Sale of temporary investments 5,022 - Net increase in other assets - (5) Proceeds from sale of research and development assets - 2,792 ---------- -------- Net cash used in investing activities (21,289) (910) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sales of Common Stock 1,914 201 Proceeds from notes payable and capital leases 79,222 - Payments on notes payable and capital leases (56,045) - Tax benefit from early dispositions of employee stock 244 - Purchase of Common Stock - (305) Conversion of Series A Convertible Stock (30) - Proceeds from notes receivable from sharehold 880 - Net cash provided from (used in) --------- --------- financing activities 26,185 (104) --------- --------- NET INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS (16,861) 3,428 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16,861 18,804 ---------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ - $ 22,232 ========== ========= SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Net (payable) receivable associated with revaluation of forward exchange contracts $ (892) $ 109 =========== ========= Sale of common stock for a note $ 283 $ - =========== ========= Conversion of Series A Preferred Stock to Common Stock $ 1,205 $ - =========== ==========
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 October 1, 1995 and December 31, 1994, the results of operations for the three-and nine-month periods ended October 1, 1995 and October 2, 1994, and cash flows for the nine-month periods ended October 1, 1995 and October 2, 1994. The results of operations for the nine-month period ended October 1, 1995 are not necessarily indicative of the results 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 Iomega Corporation's latest Annual Report on Form 10-K. 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 -- Revenue is recognized when units are shipped to customers. However, revenue recognition is deferred on shipments to distributors whose inventory is in excess of normal distributor inventory requirements. The Company's general policy is not to accept returns of product except for those products under warranty or for which the customer has a right of return agreement. The gross margin associated with the deferral of sales in excess of normal distributor inventory requirements due to right of return agreements totaled $1,610,000 and $1,947,000 at October 1, 1995 and December 31, 1994, respectively, and is recorded in deferred revenue as a component of other accrued liabilities. 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 as a component of interest and other income and expense. Cash Equivalents and Temporary Investments -- The Company considers all highly liquid debt instruments purchased with maturities of three or fewer months to be cash equivalents. Instruments with maturities in excess of three months are classified as temporary investments. At December 31, 1994, all temporary investments had maturities less than six months. Accordingly, the Company classifies all cash equivalents and temporary investments as held to maturity. Cash equivalents and temporary investments consist primarily of commercial paper, banker's acceptances, investments in money market mutual funds and certificates of deposit and are recorded at cost which approximates market value. The Company's policy is to invest in high quality commercial paper of reputable companies rated at A2P2 or above. The diversification of risk is consistent with Company policy to maintain liquidity and ensure the safety of principal. IOMEGA CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (1) SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED) 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: October 1, December 31, 1995 1994 (In thousands) Raw materials $ 32,810 $ 7,524 Work-in-process 17,645 4,839 Finished goods 2,226 4,955 --------- --------- $ 52,681 $ 17,318 ========= ========= Reclassifications -- Certain reclassifications were made to the 1994 condensed consolidated financial statements to conform with the 1995 presentation. Net Income (Loss) Per Common Share -- Net income (loss) per common share is based on the weighted average number of shares of common stock and dilutive common stock equivalent shares outstanding during the respective periods. Common stock equivalent shares consist primarily of stock options and convertible preferred stock that have a dilutive effect when applying the treasury stock method. In periods where losses are recorded, common stock equivalents would decrease the loss per share and are therefore not added to weighted average shares outstanding. The outstanding shares and earnings per share have been restated for all 1994 periods presented to reflect the impact of the Stock Split described in Note 2. (2) STOCK SPLIT On October 27, 1994 the Company's Board of Directors declared a 5-for-4 stock split which was effected in the form of a 25% common stock dividend paid on November 23, 1994 to stockholders of record at the close of business on November 9, 1994 ("Stock Split"). The Company paid cash in lieu of issuing fractional shares. The transaction was accounted for as a stock split. Of the shares of Common Stock distributed by the Company in connection with the Stock Split, approximately 3,017,000 were treasury shares and the remainder were authorized but unissued shares. The cost of the treasury shares and authorized but unissued shares was recorded as a reduction in paid-in capital. All earnings per share and outstanding shares have been retroactively restated in the 1994 financial statements. IOMEGA CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (3) INCOME TAXES The components of and the changes in the net deferred tax assets and liabilities for the nine month period ended October 1, 1995 are as follows (in thousands): Deferred December 31, (Expense) October 1, 1994 Benefit 1995 Deferred tax assets: Bad debt reserves $ 482 $ 557 $ 1,039 Inventory reserves 940 700 1,640 Fixed asset reserves 36 29 65 Accrued expense reserves 4,596 787 5,383 Unrealized foreign currency - 304 304 Inventory unicap adjustment 160 121 281 Accelerated depreciation - 292 292 Foreign net operating loss carryover 1,493 1,976 3,469 Research credit carryover 5,365 (2,323) 3,042 Intercompany profit in inventory 95 (14) 81 Other (216) 2 (214) -------- ------- ------- Total deferred tax assets 12,951 2,431 15,382 Valuation allowance (12,333) 396 (11,937) --------- ------- -------- Deferred tax asset net of valuation allowance 618 2,827 3,445 Deferred tax liabilities: Accelerated depreciation (141) 141 - ---------- -------- ------- Net deferred tax asset $ 477 $ 2,968 $ 3,445 ========== ========= ======= Cash paid for income taxes was $50,000 for the first nine months of 1995 and $84,000 for the corresponding period in 1994. A tax refund of $1,332,000 was received during the first nine months of 1995. IOMEGA CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (4) OTHER MATTERS Significant Customers -- During the fiscal quarter and nine-month periods ended October 1, 1995, a single customer accounted for 11% and 10%, respectively, of consolidated sales. During the fiscal quarter and nine-month periods ended October 2, 1994, sales to another single customer accounted for 12% and 11%, respectively, of the Company's sales. No other single customer accounted for more than 10% of the Company's sales for these periods. Notes Receivable from Related Parties -- In September 1993, the Company loaned an executive officer approximately $679,000 on a full recourse basis as part of the officer's severance package; a portion of the loan was used by the executive to exercise stock options. This loan is included in note receivable from shareholder in the accompanying consolidated financial statements. The loan was paid in full with accrued interest during the first quarter of 1995. In January 1995, the Company loaned an executive officer approximately $283,000 as part of the officer's severance package. A portion of the loan was used by the executive to exercise stock options. The loan was paid in full with accrued interest during the second quarter of 1995. Forward Exchange Contracts -- The Company's foreign subsidiaries sell products in several foreign currencies. In order to hedge the estimated cash flow (revenues less expenses) which is remitted to the parent company, the Company has entered into forward exchange contracts to sell foreign currencies. The contracts mature at February 1996. The outstanding forward exchange sales contracts at October 1, 1995 are as follows: Deutsche Marks 12,170,000 DM Great Britain Pound 1,095,000 GBP French Franc 14,950,000 FRF Spanish Pesta 222,000,000 ESB Italian Lira 2,490,000,000 ITL The forward contracts are marked to market by obtaining forward rates from financial institutions. Gains and losses on foreign currency contracts intended to be used to hedge operating requirements are reported currently in income. The Company's risk in these transactions includes the cost of replacing, at current market rates, these contracts in the event of default by the counterparty. IOMEGA CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED) (6) CONVERSION OF SERIES A CONVERTIBLE PREFERRED STOCK Effective June 16, 1995, the Company exercised its right to require the conversion of all outstanding Series A Convertible Preferred Stock ("Series A") into the Company's Common Stock pursuant to the original conversion terms. Upon conversion, 106,200 shares of Common Stock were issued to the Series A shareholders. Any fractional shares were paid cash in lieu of stock. Common shares issued on conversion of the Series A shares were recorded at the net carrying value of Series A shares, plus accrued dividends. (7) COMMITMENTS Loan Agreement -On July 5, 1995, the Company entered into a loan agreement with the Commercial Finance Division of Wells Fargo Bank, N.A. The agreement permits revolving loans, term loans and letters of credit up to an aggregate outstanding principal amount equal to the lesser of $60 million or 80% of eligible accounts receivable. The revolving credit line bears interest at the bank's prime rate plus 1%, and the Wells Fargo term loans bear interest at the bank's prime rate plus 1.25%. At October 1, 1995, borrowings under the revolving credit line were $21.8 million, consisting of $17.9 million under the revolving credit facility and $3.9 million under the term loan facility. Total availability under the Wells Fargo agreement at October 1, 1995 was $28.8 million. The agreement expires June 30, 1996. Certain covenants within the agreement require the Company maintain minimum levels of working capital and net worth. Capital Leases - Under the above agreement with Wells Fargo, the Company may also secure financing of equipment purchases from third parties up to a maximum of $20 million, less term loans outstanding to Wells Fargo. In August of 1995, the Company entered into an agreement to provide capital lease financing for the purchase of certain manufacturing equipment. The total amount of capital lease commitments at October 1, 1995 is $1.4 million, of which $462,000 is classified as a current liability in the accompanying balance sheet. IOMEGA CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On October 27, 1994, the Company's Board of Directors declared a 5-for-4 stock split effected in the form of a 25% common stock dividend paid on November 23, 1994 (the "Stock Split"). The following discussion gives retroactive effect to the Stock Split for all 1994 periods presented. RESULTS OF OPERATIONS The Company reported record quarterly sales of $84.7 million in the third quarter ended October 1, 1995, and returned to profitability after posting losses in the first two quarters of 1995. The Company recorded net income of $2.0 million, or $0.10 per share, for the third quarter ended October 1, 1995, compared to net income of $2.5 million, or $0.13 per share, for the third quarter ended October 2, 1994. Net income for the third quarter of 1994 included a one-time tax benefit of $1.4 million, or $0.08 per share. For the nine months ended October 1, 1995, sales were $177.4 million, resulting in a net loss of $1.4 million, or $0.07 per share. These results are compared to sales of $102.9 million, and a net loss of $3.2 million, or $0.17 per share, for the same period in 1994. Sales for the three and nine months ended October 1, 1995 increased by $49.2 million, or 138%, and $74.5 million, or 72%, respectively, when compared to the corresponding periods of 1994. The positive sales results were due to the introduction of the new Zip product line which began shipping at the end of the first quarter of 1995 and increased sales of Ditto tape products. These increased sales have been partially offset by the expected decline in the sales of Bernoulli products. Ditto sales in the third quarter of 1995 increased by 117% in North America and 57% in Europe over the third quarter of 1994. International sales, primarily to customers located in Europe, represented 18.2% and 25.2% of sales for the three- and nine-month periods ended October 1, 1995, respectively, compared to 26.6% and 32.9% for the corresponding periods of 1994. Management expects increased sales of Zip and Ditto products in the fourth quarter of 1995. Management also expects fourth quarter sales to be enhanced by the previously announced Jaz product line which is expected to begin shipping by the end of the fourth quarter. These increases are expected to be partially offset by declines in Bernoulli product sales. However, the Company is experiencing component shortages which may continue to limit production. There can be no assurance that future sales will materialize as expected. The Company's gross margin percentages for the three- and nine-month periods ended October 1, 1995 were 25.4% and 25.3%, respectively, compared to 35.2% and 34.1% reported for the comparable periods of 1994. The decline in gross margin percentages is due to a shift in product mix from higher margin Bernoulli products to lower margin Ditto and Zip products. Gross margins thus far in 1995 have also been negatively impacted by start-up costs related to the Zip and Jaz products. The third quarter gross margin percentage of 25.4% represented an improvement over the second quarter gross margin percentage of 22.2%. This improvement is primarily due to the impact of increased sales of Zip disks, which more than offset the decline in higher margin Bernoulli sales. IOMEGA CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Selling, general and administrative expenses represented 16.4% and 18.8% of sales for the third quarter and first nine months of 1995, compared to 23.7% and 26.3% for the same periods of 1994. The decline in percentages is due to the increased sales volumes in 1995. The actual selling, general and administrative expenses increased by $5.4 million for the three-month and $6.3 million for the nine-month periods ended October 1, 1995 as compared to the prior year periods. The increased expenses are primarily the result of advertising expenses incurred to launch new products, variable selling expenses, and increased salaries and wages resulting from increased headcount in all areas of sales, marketing and administration. Management expects selling, general and administrative expenses to increase further in the fourth quarter of 1995 due to additional advertising expenses, trade show expenses, and payroll-related costs. Research and development expenses were 5.5% and 7.2% of sales for the three - and nine-month periods ended October 1, 1995, respectively, compared to 10.9% for both the three- and nine-month periods ended October 2, 1994. The decline in percentages is due to the increased sales volumes in 1995. The actual research and development expenses have increased by $0.8 million and $1.6 million for the third quarter and first nine months of 1995 compared to the same periods of 1994. These increases were primarily the result of expenditures related to the development of the Zip, Ditto and Jaz products. Management expects continued increases in research and development expenses in the fourth quarter of 1995 as the result of the resources needed for future product development and enhancement. During the first quarter of 1995, the Company recorded a net foreign currency loss of $1.0 million as a result of the U.S. dollar weakening against European currencies. The majority of this decline took place in March. The Company also recorded interest expense of approximately $.3 million, primarily in the third quarter of 1995. These expenses have been partially offset by interest income, royalties and other income. For the third quarter of 1995, the Company recorded a tax provision of $0.7 million representing an effective tax rate of 24.9%. For the first nine months of 1995, the Company recorded a tax benefit of $0.2 million representing 10.5% of the pre-tax loss for the period. The Company expects the effective income tax rate to increase in the future to the statutory rate of 34% for federal income tax and approximately 5% for state income taxes. The timing of the rate increase will depend on future taxable income and the utilization of available tax credits. LIQUIDITY AND CAPITAL RESOURCES At October 1, 1995, the Company had cash and cash equivalents of $0, working capital of $17.3 million, and a ratio of current assets to current liabilities of 1.2 to 1. For the first nine months of 1995, the Company has used $16.8 million in cash and cash equivalents consisting of $21.7 million used in operating activities, and $21.3 million in investing activities, offset by $26.2 million provided by financing activities. IOMEGA CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONCLUDED) On July 5, 1995, the Company entered into a loan agreement with the Commercial Finance Division of Wells Fargo Bank, N.A. The agreement permits revolving loans, term loans and letters of credit up to an aggregate outstanding principal amount equal to the lesser of $60 million or 80% of eligible accounts receivable. The revolving credit line bears interest at the bank's prime rate plus 1%, and the Wells Fargo term loans bear interest at the bank's prime rate plus 1.25%. At October 1, 1995, borrowings under the revolving credit line were $21.8 million, consisting of $17.9 million under the revolving credit facility and $3.9 million under the term loan facility. Total availability under the Wells Fargo agreement was $28.8 million. The agreement expires June 30, 1996. Certain covenants within the agreement require the Company maintain minimum levels of working capital and net worth. Under the agreement with Wells Fargo, the Company may also secure financing of equipment purchases from third parties up to a maximum of $20 million, less term loans outstanding to Wells Fargo. In August of 1995, the Company entered into an agreement to provide capital lease financing for the purchase of certain manufacturing equipment. The total of capital lease commitments at October 1, 1995 is $1.4 million, of which $462,000 is classified as a current liability in the accompanying balance sheet. The Company's balance sheet at October 1, 1995 reflected short-term borrowings of $22.3 million, representing utilization of the revolving credit line with Wells Fargo of $17.9 million, term loans with Wells Fargo of $3.9 million, and the short-term portion of capital lease obligations of $.5 million. In addition, the long-term portion of capital lease obligations totaled $.9 million at October 1, 1995. The borrowings have been used to finance working capital needs, including increases in inventory and accounts receivable and capital expenditures related to production volume increases. Accounts receivable have increased by $34.6 million at October 1, 1995 compared to December 31, 1994, due to increased sales, particularly in the last portion of the third quarter. Inventory increased by $35.4 million during the first nine months of 1995 due to build-ups in manufacturing capacity. The increases in receivables and inventory were partially offset by increases in accounts payable and accrued liabilities of $45.2 million and proceeds from the sale of common stock of $1.9 million. Fixed asset additions for the first nine months of 1995 totaled $24.2 million. These additions are primarily related to increased manufacturing capacity for Zip, Ditto and Jaz products. The Company expects capital expenditures in future quarters to continue to be significant as production capacity is added at the Company's current manufacturing facility, as well as tooling at vendor facilities and third-party manufacturing facilities. In addition to the credit facility with Wells Fargo discussed above, the Company is continuing to investigate other sources of financing. However, there can be no assurance that additional financing will be secured or that funds available under the existing finance arrangements will be sufficient. PART II - OTHER INFORMATION IOMEGA CORPORATION 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 by the Company during the quarter for which this report is filed. SIGNATURE 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: November 15, 1995 Kim B. Edwards President and Chief Executive Officer /s/ Leonard C. Purkis Dated: November 15, 1995 Leonard C. Purkis Senior Vice President, Finance, Chief Financial Officer and Treasurer EXHIBIT INDEX The following exhibit is filed as part of this Quarterly Report on Form 10-Q: Exhibit No. Description 10.32 Iomega Incentive Plan for Kim B. Edwards 10.33(a) Loan Agreement dated July 5, 1995 between Iomega Corporation and Wells Fargo Bank, N.A., Commercial Finance Division 10.33(b) Security Agreement dated July 5, 1995 between Iomega Corporation and Wells Fargo Bank, N.A., Commercial Finance Division 10.33(c) Wells Fargo Bank Continuing Commercial Letter of Credit Agreement EX-10.32 2 EXHIBIT 10.32 SUMMARY OF 1995 BONUS ARRANGEMENTS The Compensation Committee has approved and ratified 1995 target bonus payments for Kim B. Edwards, the Company's President and Chief Executive Officer. The maximum bonus payable under such arrangement is $160,000 in cash plus a maximum of 20,000 shares of the Company's common stock. Payments of the cash and stock bonuses are based on the Company achieving certain specified objectives, sales levels, and net income levels. One-third of the total number of common stock shares awarded would be issued on each of the first three anniversary dates of the date on which the Compensation Committee determines the total number of shares to be awarded. The shares awarded will be issued at a purchase price equal to par value. EX-10.33A 3 EXHIBIT 10.33(a) LOAN AGREEMENT Dated as of July 5, 1995 between IOMEGA CORPORATION and WELLS FARGO BANK, N.A., COMMERCIAL FINANCE DIVISION TABLE OF CONTENTS SECTION PAGE Section 1. DEFINITIONS. . . . . . . . . . . . . . . . . 1 1.1 "Accounts". . . . . . . . . . . . . . . . . 1 1.2 "Availability Reserves" . . . . . . . . . . 1 1.3 "Cash Collateral Account" . . . . . . . . . 2 1.4 "Closing Date". . . . . . . . . . . . . . . 2 1.5 "Collateral". . . . . . . . . . . . . . . . 2 1.6 "Eligible Accounts" . . . . . . . . . . . . 2 1.7 "Equipment" . . . . . . . . . . . . . . . . 4 1.8 "Event of Default". . . . . . . . . . . . . 4 1.9 "Facility A". . . . . . . . . . . . . . . . 4 1.10 "Facility A Revolving Credit Note". . . . . 4 1.11 "Facility B". . . . . . . . . . . . . . . . 4 1.12 "Facility B Term Note". . . . . . . . . . . 4 1.13 "GAAP". . . . . . . . . . . . . . . . . . . 4 1.14 "General Intangibles" . . . . . . . . . . . 5 1.15 "Information Certificate" . . . . . . . . . 5 1.16 "Inventory" . . . . . . . . . . . . . . . . 5 1.17 "Letters of Credit" . . . . . . . . . . . . 5 1.18 "Letter of Credit Agreement". . . . . . . . 5 1.19 "Letter of Credit Obligations". . . . . . . 5 1.20 "Loan Documents". . . . . . . . . . . . . . 5 1.21 "Loans" . . . . . . . . . . . . . . . . . . 5 1.22 "Maximum Amount". . . . . . . . . . . . . . 5 1.23 "Net Amount of Eligible Accounts" . . . . . 5 1.24 "Notes" . . . . . . . . . . . . . . . . . . 6 1.25 "Obligations" . . . . . . . . . . . . . . . 6 1.26 "Obligor" . . . . . . . . . . . . . . . . . 6 1.27 "Pledge Agreement". . . . . . . . . . . . . 6 1.28 "Prime Rate". . . . . . . . . . . . . . . . 6 1.29 "Records" . . . . . . . . . . . . . . . . . 6 1.30 "Revolving Loans" . . . . . . . . . . . . . 6 1.31 "Rights to Payment" . . . . . . . . . . . . 7 1.32 "Security Agreement". . . . . . . . . . . . 7 1.33 "Tangible Net Worth". . . . . . . . . . . . 7 1.34 "Term Loans". . . . . . . . . . . . . . . . 7 1.35 "Value" . . . . . . . . . . . . . . . . . . 7 1.36 "Working Capital" . . . . . . . . . . . . . 7 Section 2. CREDIT FACILITIES. . . . . . . . . . . . . . 7 2.1 Facility A. . . . . . . . . . . . . . . . . 7 2.2 Facility B. . . . . . . . . . . . . . . . . 8 2.3 Letters of Credit . . . . . . . . . . . . . 9 2.4 Overadvance . . . . . . . . . . . . . . . . 10 2.5 Availability Reserves . . . . . . . . . . . 10 Section 3. INTEREST AND FEES. . . . . . . . . . . . . . 10 3.1 Interest. . . . . . . . . . . . . . . . . . 10 3.2 Maximum Interest. . . . . . . . . . . . . . 11 3.3 Payments . . . . . . . . . . . . . . . . . 11 3.4 Closing Fee. . . . . . . . . . . . . . . . 12 3.5 Unused Line Fee. . . . . . . . . . . . . . 12 3.6 Audit Fees . . . . . . . . . . . . . . . . 12 3.7 Computation and Payment. . . . . . . . . . 12 Section 4. CONDITIONS PRECEDENT . . . . . . . . . . . 12 4.1 Initial Credit . . . . . . . . . . . . . . 12 4.2 Subsequent Credit. . . . . . . . . . . . . 14 Section 5. GRANT OF SECURITY INTEREST . . . . . . . . 15 Section 6. COLLECTION AND ADMINISTRATION . . . . . . . 15 6.1 Cash Collateral Account. . . . . . . . . . 15 6.2 Statements . . . . . . . . . . . . . . . . 16 6.3 Payments . . . . . . . . . . . . . . . . . 16 6.4 Use of Proceeds. . . . . . . . . . . . . . 17 Section 7. REPRESENTATIONS AND WARRANTIES . . . . . . 17 7.1 Legal Status . . . . . . . . . . . . . . . 17 7.2 Authorization and Validity . . . . . . . . 18 7.3 No Violation . . . . . . . . . . . . . . . 18 7.4 No Claims. . . . . . . . . . . . . . . . . 18 7.5 Correctness of Financial Statement . . . . 18 7.6 Income Tax Returns . . . . . . . . . . . . 18 7.7 No Subordination . . . . . . . . . . . . . 18 7.8 Permits, Franchises. . . . . . . . . . . . 18 7.9 ERISA. . . . . . . . . . . . . . . . . . . 19 7.10 Other Obligations. . . . . . . . . . . . . 19 7.11 Environmental Matters. . . . . . . . . . . 19 7.12 No Default . . . . . . . . . . . . . . . . 19 7.13 Priority of Liens. . . . . . . . . . . . . 19 Section 8. AFFIRMATIVE COVENANTS. . . . . . . . . . . 19 8.1 Punctual Payments. . . . . . . . . . . . . 20 8.2 Records and Premises . . . . . . . . . . . 20 8.3 Collateral Reporting . . . . . . . . . . . 20 8.4 Financial Statements . . . . . . . . . . . 21 8.5 Compliance . . . . . . . . . . . . . . . . 22 8.6 Insurance. . . . . . . . . . . . . . . . . 22 8.7 Facilities . . . . . . . . . . . . . . . . 22 8.8 Taxes and Other Liabilities. . . . . . . . 22 8.9 Litigation . . . . . . . . . . . . . . . . 22 8.10 Financial Condition. . . . . . . . . . . . 22 8.11 Notice to Lender . . . . . . . . . . . . . 23 8.12 Further Assurances . . . . . . . . . . . . 23 Section 9. NEGATIVE COVENANTS . . . . . . . . . . . . 23 9.1 Other Indebtedness . . . . . . . . . . . . 23 9.2 Merger, Consolidation, Transfer of Assets . . . . . . . . . . . . . . . . . 24 9.3 Guaranties . . . . . . . . . . . . . . . . 24 9.4 Loans, Advances, Investments . . . . . . . 24 9.5 Dividends, Distributions . . . . . . . . . 24 9.6 Pledge of Assets . . . . . . . . . . . . . 24 9.7 New Collateral Location. . . . . . . . . . 24 Section 10. EVENTS OF DEFAULT . . . . . . . . . . . . . 25 10.1 Events of Default . . . . . . . . . . . . . 25 10.2 Remedies . . . . . . . . . . . . . . . . . 26 Section 11. TERM OF AGREEMENT AND MISCELLANEOUS . . . . 27 11.1 Term . . . . . . . . . . . . . . . . . . . 27 11.2 No Waiver. . . . . . . . . . . . . . . . . 28 11.3 Notices. . . . . . . . . . . . . . . . . . 28 11.4 Costs, Expenses and Attorneys' Fees. . . . 29 11.5 Successors, Assignment . . . . . . . . . . 29 11.6 Entire Agreement, Amendment. . . . . . . . 30 11.7 No Third Party Beneficiaries . . . . . . . 30 11.8 Time . . . . . . . . . . . . . . . . . . . 30 11.9 Severability of Provisions . . . . . . . . 30 11.10 Governing Law . . . . . . . . . . . . . . . 30 11.11 Confidentiality . . . . . . . . . . . . . . 30 LOAN AGREEMENT (LINE OF CREDIT) This Loan Agreement dated July 5, 1995 is entered into by and between Wells Fargo Bank, National Association, a national banking association ("Lender") and Iomega Corporation, a Delaware corporation ("Borrower"). W I T N E S S E T H: WHEREAS, Borrower has requested that Lender enter into certain financing arrangements with Borrower pursuant to which Lender may make loans and provide other financial accommodations to Borrower; and WHEREAS, Lender is willing to make such loans and provide such financial accommodations on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: Section 1. DEFINITIONS All terms used herein which are defined in Article 1 or Article 9 of the Uniform Commercial Code shall have the meanings given therein unless otherwise defined in this Agreement. Any accounting term used herein unless otherwise defined or set forth in this Agreement shall have the meanings customarily given to such term in accordance with GAAP. For purposes of this Agreement, the following terms shall have the respective meanings given to them below: 1.1 "Accounts" shall mean all present and future rights of Borrower to payment for goods sold or leased or for services rendered, which are not evidenced by instruments or chattel paper, and whether or not earned by performance. 1.2 "Availability Reserves" shall mean, as of any date of determination, such amounts as Lender may from time to time establish and revise in good faith and in a commercially reasonable manner reducing the amount of Revolving Loans and Letters of Credit which would otherwise be available to Borrower under the lending formula(s) provided for herein: (a) to reflect events, conditions, contingencies or risks which, as determined by Lender in good faith, do or may affect either (i) the Collateral or its value, (ii) the assets, business or prospects of Borrower or any Obligor or (iii) the security interests and other rights of Lender in the Collateral (including the enforceability, perfection and priority thereof) or (b) to reflect Lender's good faith belief that any collateral report or financial information furnished by or on behalf of Borrower or any Obligor to Lender is or may have been incomplete, inaccurate or misleading in any material respect or (c) in respect of any state of facts which Lender determines in good faith constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default. 1.3 "Cash Collateral Account" shall have the meaning set forth in Section 6.1 hereof. 1.4 "Closing Date" shall mean the date on which all of the conditions precedent set forth in Section 4 hereof have been satisfied to Lender's satisfaction. 1.5 "Collateral" shall mean all the property in which Borrower or an Obligor grants or is required to grant to Lender a security interest or lien, as described in Section 5 hereof. 1.6 "Eligible Accounts" shall mean Accounts created by Borrower which are and continue to be acceptable to Lender in its reasonable discretion based on the criteria set forth below. In general, Accounts shall be Eligible Accounts if: (a) such Accounts arise from the actual and bona fide sale and delivery of goods by Borrower or rendition of services by Borrower in the ordinary course of its business which transactions are completed in accordance with the terms and provisions contained in any documents related thereto; (b) such Accounts are not unpaid more than [ninety (90)] days after the date of the original invoice for them; (c) such Accounts comply with the terms and conditions applicable thereto contained in the Security Agreement executed in connection therewith; (d) such Accounts do not arise from sales on consignment, guaranteed sale, sale and return, sale on approval, or other terms under which payment by the account debtor may be conditional or contingent; (e) the chief executive office of the account debtor with respect to such Accounts is located in the United States of America, or, at Lender's option, if: (i) the account debtor has delivered to Borrower an irrevocable letter of credit issued or confirmed by a bank satisfactory to Lender, sufficient to cover such Account, in form and substance satisfactory to Lender and, if required by Lender, the original of such letter of credit has been delivered to Lender or Lender's agent and the issuer thereof notified of the assignment of the proceeds of such letter of credit to Lender, or (ii) such Account is subject to credit insurance payable to Lender issued by an insurer and on terms and in an amount acceptable to Lender, or (iii) such Account is otherwise acceptable in all respects to Lender (subject to such lending formula with respect thereto as Lender may determine); (f) such Accounts do not consist of progress billings, bill and hold invoices or retainage invoices; (g) the account debtor with respect to such Accounts has not asserted a counterclaim, defense or dispute and does not have, and does not engage in transactions which are likely to give rise to, any right of setoff against such Accounts; (h) there are no facts, events or occurrences which would impair the validity, enforceability or collectability of such Accounts or reduce the amount payable or delay payment thereunder; (i) such Accounts are subject to the first priority, valid and perfected security interest of Lender and any goods giving rise thereto are not, and were not at the time of the sale thereof, subject to any liens except those permitted in this Agreement; (j) neither the account debtor nor any officer or employee of the account debtor with respect to such Accounts is an officer, employee or agent of or affiliated with Borrower directly or indirectly by virtue of family membership, ownership, control, management or otherwise; (k) the account debtors with respect to such Accounts are not any foreign government, the United States of America, any State, political subdivision, department, agency or instrumentality thereof, unless, if the account debtor is the United States of America, any State, political subdivision, department, agency or instrumentality thereof, upon Lender's request, the Federal Assignment of Claims Act of 1940, as amended, or any similar State or local law, if applicable, has been complied with in a manner satisfactory to Lender; (l) there are no proceedings or actions which are threatened or pending against the account debtors with respect to such Accounts which might result in any material adverse change in any such account debtor's financial condition; (m) such Accounts of a single account debtor or its affiliates do not constitute more than twenty-five percent (25%) of all otherwise Eligible Accounts (but the portion of the Accounts not in excess of such percentage may be deemed Eligible Accounts); (n) such Accounts are not owed by an account debtor who has Accounts unpaid more than ninety (90) days after the date of the original invoice for them which constitute more than fifty percent (50%) of the total Accounts of such account debtor; (o) such Accounts are owed by account debtors whose total indebtedness to Borrower does not exceed the credit limit with respect to such account debtors as determined by Lender from time to time (but the portion of the Accounts not in excess of such credit limit may still be deemed Eligible Accounts); and (p) such Accounts are owed by account debtors deemed creditworthy at all times by Lender, as determined by Lender. General criteria for Eligible Accounts may be established and revised from time to time by Lender in good faith. Any Accounts which are not Eligible Accounts shall nevertheless be part of the Collateral. 1.7 "Equipment" shall mean all of Borrower's now owned and hereafter acquired equipment, machinery, computers and computer hardware and software (whether owned or licensed, but only to the extent assignable), vehicles, tools, furniture, fixtures, all attachments, accessions and property now or hereafter affixed thereto or used in connection therewith, and substitutions and replacements thereof, wherever located. 1.8 "Event of Default" shall mean the occurrence or existence of any event or condition described in Section 10.1 hereof. 1.9 "Facility A" shall mean a line of credit under which Lender agrees to make Revolving Loans and issue Letters of Credit, subject to the terms and conditions of this Agreement. 1.10 "Facility A Revolving Credit Note" shall have the meaning set forth in Section 2.1 hereof. 1.11 "Facility B" shall mean the term loan facility made available by Lender to Borrower as set forth in Section 2.2 hereof, which Facility B shall be a sub-facility of Facility A. 1.12 "Facility B Term Note" shall have the meaning set forth in Section 2.2 hereof. 1.13 "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Boards which are applicable to the circumstances as of the date of determination consistently applied, except that, for purposes of Section 8.10 hereof, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the audited financial statements delivered to Lender prior to the date hereof. 1.14 "General Intangibles" shall mean general intangibles (including, but not limited to, tax and duty refunds, registered and unregistered patents, trademarks, service marks, copyrights, trade names, applications for the foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer lists, licenses (whether as licensor or licensee), choses in action and other claims, and existing and future leasehold interests in equipment). 1.15 "Information Certificate" shall mean the Information Certificate of Borrower constituting Exhibit A hereto containing material information with respect to Borrower, its business and assets, provided by or on behalf of Borrower to Lender in connection with the preparation of this Agreement and the other Loan Documents and the financing arrangements provided for herein. 1.16 "Inventory" shall mean all of Borrower's now owned and hereafter existing or acquired raw materials, work in process, finished goods and all other inventory of whatsoever kind or nature, wherever located. 1.17 "Letters of Credit" shall mean commercial letters of credit issued by Lender from time to time under Facility A. 1.18 "Letter of Credit Agreement" shall have the meaning set forth in Section 2.3(c) hereof. 1.19 "Letter of Credit Obligations" shall mean at any time, the aggregate amount available to be drawn, plus amounts drawn and not yet reimbursed, under Letters of Credit. 1.20 "Loan Documents" shall mean, collectively, this Agreement, the Facility A Revolving Credit Note, the Facility B Term Note, the Letter of Credit Agreement, the Security Agreement, the Pledge Agreement and all other notes, guarantees, landlord waivers, security agreements, subordination agreements, and other agreements, documents and instruments now or at any time hereafter executed and/or delivered by Borrower or any Obligor in connection with this Agreement, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.21 "Loans" shall mean, collectively, the Term Loans and the Revolving Loans. 1.22 "Maximum Amount" shall mean the amount of $60,000,000. 1.23 "Net Amount of Eligible Accounts" shall mean the gross amount of Eligible Accounts less (a) sales, excise or similar taxes included in the amount thereof and (b) returns, discounts, claims, credits and allowances of any nature at any time issued, owing, granted, outstanding, available or claimed with respect thereto. 1.24 "Notes" shall mean, collectively, the Facility A Revolving Credit Note and the Facility B Term Note. 1.25 "Obligations" shall mean all Loans, Letter of Credit Obligations and all other advances, debts, liabilities, obligations, covenants and duties, together with all interest, fees and other charges thereon, owing, arising, due or payable from Borrower to Lender of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether arising under this Agreement or any of the other Loan Documents or otherwise, whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however acquired. 1.26 "Obligor" shall mean any guarantor, endorser, acceptor, surety or other person liable on or with respect to the Obligations or who is the owner of any property which is security for the Obligations, or any of them, other than Borrower. 1.27 "Pledge Agreement" shall mean that certain stock pledge agreement of even date herewith between Borrower and Lender relating to the stock of Borrower's domestic subsidiaries, as it may be modified from time to time. 1.28 "Prime Rate" shall mean the rate of interest most recently announced at Lender's principal office in San Francisco, California as its Prime Rate, with the understanding that the Prime Rate is one of Lender's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Lender may designate. 1.29 "Records" shall mean all of Borrower's present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of Borrower with respect to the foregoing maintained with or by any other person). 1.30 "Revolving Loans" shall mean advances made by Lender to Borrower on a revolving basis under Facility A, as set forth in Section 2.1 hereof. 1.31 "Rights to Payment" shall mean all Accounts, General Intangibles, contract rights, chattel paper, documents, instruments, letters of credit, bankers acceptances and guaranties, all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Accounts and other Collateral (including, without limitation, (a) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (b) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (c) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Accounts or other Collateral, including, without limitation, returned, repossessed and reclaimed goods, and (d) deposits by and property of account debtors or other persons securing the obligations of account debtors), all monies, securities, credit balances, deposits, deposit accounts and other property of Borrower now or hereafter held or received by or in transit to Lender or its affiliates or at any other depository or other institution from or for the account of Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise. 1.32 "Security Agreement" shall mean that certain security agreement of even date herewith between Borrower and Lender, as it may be modified from time to time. 1.33 "Tangible Net Worth" shall mean the aggregate of total stockholders' equity plus subordinated debt less any intangible assets, determined from Borrower's balance sheet prepared in accordance with GAAP. 1.34 "Term Loans" shall mean term loans made by Lender to Borrower under Facility B, as set forth in Section 2.2 hereof. 1.35 "Value" shall mean, as determined by Lender in good faith, with respect to Inventory, the lower of (a) cost computed on a first-in-first-out basis in accordance with GAAP or (b) market value. 1.36 "Working Capital" shall mean total current assets less total current liabilities, determined from Borrower's balance sheet prepared in accordance with GAAP. Section 2. CREDIT FACILITIES 2.1 Facility A (a) Lending Formula. Subject to and upon the terms and conditions contained herein, Lender agrees to make Revolving Loans (pursuant to Section 2.1 hereof), Term Loans (pursuant to Section 2.2 hereof), and issue Letters of Credit (pursuant to Section 2.3 hereof) from time to time in amounts requested by Borrower up to an aggregate outstanding principal amount equal to the lesser of (1) the Maximum Amount, less the aggregate amount of Term Loans then outstanding; or (2) an amount equal to: (i) eighty percent (80%) of the Net Amount of Eligible Accounts, less (ii) the aggregate amount of Letter of Credit Obligations then outstanding, and less (iii) any Availability Reserves. (b) Reduction of Lending Formula. Lender may, in its discretion, from time to time, upon not less than five (5) days' prior notice to Borrower, reduce the lending formula with respect to Eligible Accounts to the extent that Lender determines in good faith that: (A) the dilution with respect to the Accounts for any period (based on the ratio of (1) the aggregate amount of reductions in Accounts other than as a result of payments in cash to (2) the aggregate amount of total sales) has increased in any material respect or may be reasonably anticipated to increase in any material respect above historical levels, or (B) the general creditworthiness of account debtors has declined. In determining whether to reduce the lending formula(s), Lender may consider events, conditions, contingencies or risks which are also considered in determining Eligible Accounts or in establishing Availability Reserves. (c) Facility A Revolving Credit Note. Borrower's obligation to repay Revolving Loans made under Facility A shall be evidenced by a promissory note executed by Borrower, substantially in the form of Exhibit B hereto (the "Facility A Revolving Credit Note"). 2.2 Facility B. (a) Lending Formula. Subject to and upon the terms and conditions contained herein, Lender agrees to make Term Loans from time to time in amounts requested by Borrower up to an aggregate outstanding principal amount equal to the lesser of (1) $10,000,000; or (2) eighty percent (80%) of the orderly liquidation value of the Equipment up to a maximum of one hundred percent (100%) of auction value of the Equipment, with such values to be determined by Lender and subject to reduction from time to time based on appraisals of the Equipment or otherwise in Lender's discretion. (b) Terms and Conditions of Draws Under Facility B. Advances under Facility B shall be subject to a minimum $1,000,000 per extension of credit and shall be available only for a period of one hundred eighty (180) days from the Closing Date. Each such draw under Facility B shall be amortized over a period of three (3) years from the date of making the Term Loan, with the outstanding principal amount of all Term Loans made under Facility B due and payable one (1) year from the Closing Date. (c) Facility B Term Note. Borrower's obligation to repay Term Loans under Facility B shall be evidenced by one or more promissory notes executed by Borrower, substantially in the form of Exhibit C hereto (the "Facility B Term Note"). (d) Third Party Term Lender. At Borrower's option, Borrower may obtain term loan financing not to exceed $10,000,000 from a party other than Lender, which loans may be secured only by purchase money liens on Equipment acquired concurrently with or subsequent to the making of such loans and which loans, in the aggregate with all loans outstanding under Facility B, do not exceed $10,000,000. For purposes of this Section 2.2(d), the Equipment which may be financed with another party includes, without limitation, "3 Up" Servo Writers and any Servo Writers hereafter acquired. 2.3 Letters of Credit. (a) Issuance. Subject to, and upon the terms and conditions contained herein, at the request of Borrower, Lender agrees from time to time during the term of this Agreement to issue Letters of Credit for the account of Borrower containing terms and conditions acceptable to Lender, provided however that no Letter of Credit shall have an expiration date beyond ninety (90) days following the maturity date of the Obligations set forth in Section 11.1 hereof. (b) Letter of Credit Sublimits. No Letters of Credit shall be issued unless, on the date of the proposed issuance of any Letter of Credit, the Revolving Loans available to Borrower (subject to the Maximum Amount and Availability Reserves) are equal to 100% of the face amount of such Letters of Credit. Effective on the issuance of each Letter of Credit, the amount of Revolving Loans which would otherwise be available to Borrower shall be reduced by the amount available to be drawn under such Letter of Credit. Except in Lender's discretion, (i) the amount of all Letter of Credit Obligations shall not at any time exceed $10,000,000. At any time an Event of Default exists or has occurred and is continuing, upon Lender's request, Borrower shall furnish cash collateral to Lender for the Letter of Credit Obligations, and in either case, the Revolving Loans otherwise available to Borrower shall not be reduced as provided in this Section 2.3(b) to the extent of such cash collateral. (c) Letter of Credit Fees. Borrower shall pay to Lender, for Letters of Credit, one and one-half percent (1.50%) per annum of the aggregate face amount of such Letters of Credit outstanding from time to time during the term of this Agreement, plus all of Lender's normal and customary charges associated with the issuance thereof, which fees and charges shall be deemed fully earned upon issuance of each such Letter of Credit, shall be due and payable on the first business day of each month and shall not be subject to rebate or proration upon the termination of this Agreement for any reason. (d) Letter of Credit Agreement. Each Letter of Credit shall be subject to the additional terms and conditions of the Letter of Credit Agreement and related documents, if any, required by Lender in connection with the issuance thereof (each, a "Letter of Credit Agreement"). Each draft paid by Lender under a Letter of Credit shall be deemed a Revolving Loan under Facility A and shall be repaid by Borrower in accordance with the terms and conditions of this Agreement applicable to such Revolving Loans; provided however, that if Facility A is not available, for any reason whatsoever, at the time any draft is paid by Lender, or if Revolving Loans are not available under Facility A at such time due to any limitation on borrowings set forth herein, then the full amount of such draft shall be immediately due and payable, together with interest thereon, from the date such amount is paid by Lender to the date such amount is fully repaid by Borrower, at the rate of interest applicable to Revolving Loans. In such event, Borrower agrees that Lender, at Lender's sole discretion, may debit Borrower's deposit account with Lender for the amount of any such draft. 2.4 Overadvance. In the event that the outstanding amount of any component of the Loans, or the aggregate amount of the outstanding Loans and Letter of Credit Obligations, exceed the amounts available under the lending formulas, the sublimits for Letters of Credit set forth in Section 2.3(b) or the Maximum Amount, as applicable, such event shall not limit, waive or otherwise affect any rights of Lender in that circumstance or on any future occasions and Borrower shall, upon demand by Lender, which may be made at any time or from time to time, immediately repay to Lender the entire amount of any such excess(es) for which payment is demanded. 2.5 Availability Reserves. All Loans and Letters of Credit otherwise available to Borrower pursuant to the lending formulas, sublimits and subject to the Maximum Amount, and other applicable limits hereunder shall be subject to Lender's continuing right to establish and revise Availability Reserves. Section 3. INTEREST AND FEES 3.1 Interest. (a) Interest shall accrue on the principal amount of the Revolving Loans outstanding at the end of each day at a fluctuating rate per annum equal to one percent (1.0%) plus the Prime Rate. At Borrower's option, Borrower may utilize the LIBOR option as defined and set forth in the Facility A Revolving Credit Note. (b) Interest shall accrue on the principal amount of the Term Loans outstanding at the end of each day at a fluctuating rate per annum equal to one and one-quarter percent (1.25%) plus the Prime Rate. (c) Except as provided in the Facility A Revolving Credit Note, upon and after the occurrence of an Event of Default, and during the continuation thereof, the principal amount of all Loans shall bear interest at a rate per annum equal to two percent (2.0%) above the interest rate otherwise applicable thereto (the "Default Rate"). The above rates of interest shall increase or decrease by an amount equal to any increase or decrease in the Prime Rate, effective as of the opening of business on the day that any such change in the Prime Rate occurs. The interest and all fees shall be calculated over a year of 360 days, actual days elapsed. 3.2 Maximum Interest. In no event whatsoever shall the aggregate of all amounts deemed interest on the Loans and charged or collected pursuant to the terms of this Agreement or pursuant to the Facility A Revolving Credit Note or the Facility B Term Note exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If any provisions of this Agreement, the Facility A Revolving Credit Note or the Facility B Term Note are in contravention of any such law, such provisions shall be deemed amended to conform thereto. 3.3 Payments. Except where evidenced by notes or other instruments issued or made by Borrower to Lender specifically containing payment provisions which are in conflict with this Section 3.3 or Section 6.3 (in which event the conflicting provisions of said notes or other instruments shall govern and control), the Loans shall be repayable as follows: (a) Principal on Revolving Loans. Principal payable on account of Revolving Loans made under Facility A shall be payable by Borrower to Lender immediately upon the earliest of (i) the receipt by Lender or Borrower of any proceeds of any of the Collateral, to the extent of said proceeds, (ii) the occurrence of an Event of Default in consequence of which Lender elects to accelerate the maturity and payment of the Obligations, or (iii) termination of this Agreement pursuant to Section 11 hereof. (b) Principal on Term Loans. The entire outstanding principal balance of all Term Loans made under Facility B shall be due and payable upon the earliest of (i) June 30, 1996, (ii) the occurrence of an Event of Default in consequence of which Lender elects to accelerate the maturity and payment of the Obligations, or (iii) termination of this Agreement pursuant to Section 11 hereof. The Term Loans may be prepaid without a prepayment or termination fee. (c) Interest on All Loans. Interest accrued on the Revolving Loans and the Term Loans shall be due on the earliest of (i) the first calendar day of each month (for the immediately preceding month), computed through the last calendar day of the preceding month, (ii) the occurrence of an Event of Default in consequence of which Lender elects to accelerate the maturity and payment of the Obligations or (iii) termination of this Agreement pursuant to Section 11 hereof. 3.4 Closing Fee. Borrower shall pay to Lender as a closing fee the amount of $450,000, which shall be fully earned as of and payable on the Closing Date. 3.5 Unused Line Fee. Borrower shall pay to Lender monthly an unused line fee equal to a rate per annum of three-eights of one percent (3/8 of 1%) of the amount by which the Maximum Amount exceeds the average daily principal balance of the outstanding Loans and Letter of Credit Obligations during the immediately preceding month (or part thereof) while this Agreement is in effect and for so long thereafter as any of the Loans or Letter of Credit Obligations are outstanding, which fee shall be payable on the first day of each month in arrears. 3.6 Audit Fees. In connection with each audit or examination of Borrower performed by Lender prior to or after the Closing Date, Borrower shall pay to Lender, on demand, a fee in the amount of Lender's prevailing rate at the time of such audit or examination (currently $600.00 per person, per day), plus all other costs and expenses incurred by Lender in connection with such audit or examination. Prior to the occurrence of an Event of Default, Borrower shall not be liable for audit fees in excess of $20,000 pursuant to this Section 3.6. 3.7 Computation and Payment. Interest and fees shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in the Facility A Revolving Credit Note and the Facility B Term Note. Section 4. CONDITIONS PRECEDENT 4.1 Initial Credit. The obligation of Lender to extend any credit contemplated by this Agreement is subject to the fulfillment to Lender's satisfaction of all of the following conditions on or prior to July 31, 1995: (a) Approval of Lender's Counsel. All legal matters incidental to the extension of credit by Lender shall be satisfactory to counsel of Lender. (b) Documentation. Lender shall have received, in form and substance satisfactory to Lender, each of the following, duly executed by the parties thereto and such additional documents as Lender may require: (i) This Agreement; (ii) The Facility A Revolving Credit Note; (iii) The Facility B Term Note; (iv) The Letter of Credit Agreement; (v) UCC-1 Financing Statement(s); (vi) The Security Agreement; (vii) Cash Collateral Account Agreement; (viii) The Pledge Agreement (along with the original stock certificates of Borrower's domestic subsidiaries pledged thereunder and appropriate stock powers therefor); and (ix) Corporate resolutions of Borrower, certified by the secretary or assistant secretary of Borrower, authorizing the transactions contemplated by the Loan Documents. (c) Insurance. Borrower shall have delivered to Lender evidence of insurance coverage on all Borrower's property, covering risks, in amounts, issued by companies and in form and substance satisfactory to Lender, with loss payable endorsements in favor of Lender. (d) Financial Condition. There shall have been since the date of the latest audited financial statements delivered to Lender prior to the Closing Date no material adverse change, as determined by Lender in its reasonable discretion, in the financial condition or business of Borrower or any Obligor, nor any material decline, as determined by Lender in its reasonable discretion, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower or any Obligor. (e) Security Interests. Lender shall have received evidence, in form and substance satisfactory to Lender, that Lender has valid perfected and first priority security interests in and liens upon the Collateral and any other property which is intended to be security for the Obligations or the liability of any Obligor in respect thereof, subject only to the security interests and liens permitted herein or in the other Loan Documents. (f) Field Review. Lender shall have completed a field review of the Records and such other information with respect to the Collateral as Lender may require to determine the amount of Revolving Loans available to Borrower, the results of which shall be satisfactory to Lender. (g) Appraisal. Lender shall have received and deemed satisfactory the results of an appraisal of Borrower's Equipment, which appraisal shall have been prepared by an appraiser acceptable to Lender. (h) Review of Books and Records. Lender shall have performed and deemed satisfactory the results of an audit of Borrower's books and records. (i) Cash Collateral Account. The Cash Collateral Account provided for in Section 6.1(a) shall have been opened. (j) Other Documents. Lender shall have received, in form and substance satisfactory to Lender, all consents, waivers, acknowledgments and other agreements from third persons which Lender may deem necessary or desirable in order to permit, protect and perfect its security interests in and liens upon the Collateral or to effectuate the provisions or purposes of this Agreement and the other Loan Documents, including, without limitation, acknowledgments by lessors, mortgagees and warehousemen of Lender's security interests in the Collateral, waivers by such persons of any security interests, liens or other claims by such persons to the Collateral and agreements permitting Lender access to, and the right to remain on, the premises to exercise its rights and remedies and otherwise deal with the Collateral. (k) Opinion. Lender shall have received, in form and substance satisfactory to Lender and its counsel, such opinion letters of counsel to Borrower with respect to the Loan Documents and such other matters as Lender may request. 4.2 Subsequent Credit. The obligation of Lender to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Lender's satisfaction of each of the following conditions: (a) Compliance. The representations and warranties contained herein shall be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Lender pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist. (b) No Adverse Change. There shall have been since the date of the latest audited financial statements delivered to Lender prior to the Closing Date, no material adverse change, as determined by Lender in its reasonable discretion, in the financial condition or business of Borrower or any Obligor, nor any material decline, as determined by Lender in its reasonable discretion, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower or any Obligor. (c) Documentation. Lender shall have received all additional documents which may be required in connection with such extension of credit. Section 5. GRANT OF SECURITY INTEREST As security for the Obligations, Borrower has executed contemporaneously herewith a Security Agreement and Pledge Agreement granting and pledging to Lender a security interest in the Collateral as defined therein. Borrower shall reimburse Lender, immediately upon demand, for all reasonable costs and expenses incurred by Lender in connection with any of the foregoing security, including without limitation, filing and recording fees and reasonable costs of environmental studies, appraisals, audits and title insurance, if applicable. All Loans, Letter of Credit Obligations and all costs, fees and expenses payable by Borrower hereunder shall constitute one general Obligation of Borrower, and shall be secured by Lender's lien upon all of the Collateral. Section 6. COLLECTION AND ADMINISTRATION 6.1 Cash Collateral Account. (a) Cash Collateral Account. Borrower shall, at Borrower's expense and in the manner requested by Lender, establish and maintain with First Security Bank a blocked account and with Bank of America a lock box, acceptable to Lender, and shall direct that remittances and all other collections and proceeds of Accounts and other Collateral shall be deposited into such blocked account or lock box and wire transferred daily to Lender. In its discretion, Lender may replace the blocked account arrangement with a lockbox account maintained in Lender's name. In connection therewith, Borrower shall execute such dominion account and lock box agreements as Lender shall require. Borrower shall maintain with Lender, and Borrower hereby grants to Lender a security interest in, a non-interest bearing deposit account over which Borrower shall have no control ("Cash Collateral Account") and into which the proceeds of all Borrower's accounts and other rights to payment in which Lender has a security interest shall be deposited immediately upon their receipt. (b) Calculations. For purposes of calculating interest on the Obligations, such payments or other funds received will be applied (conditional upon final collection) as a principal reduction thereon one (1) business day following the date of receipt thereof by Lender's Commercial Finance Division. For purposes of calculating the amount of the Revolving Loans available to Borrower such payments will be applied (conditional upon final collection) to the Obligations on the business day of receipt by the Commercial Finance Division, if such advices are received within sufficient time (in accordance with Lender's usual and customary practices as in effect from time to time) to credit Borrower's loan account on such day, and if not, then on the next business day. (c) Immediate Deposit. Borrower and all of its affiliates, subsidiaries, shareholders, directors, employees or agents shall, acting as trustee for Lender, receive, as the property of Lender, any monies, checks, notes, drafts, or any other payment relating to and/or proceeds of Accounts or other Collateral which come into their possession or under their control and immediately upon receipt thereof, shall deposit or cause the same to be deposited in the Cash Collateral Account, or remit the same or cause the same to be remitted, in kind, to Lender. In no event shall the same be commingled with Borrower's own funds. 6.2 Statements. Lender shall render to Borrower each month a statement setting forth the balance in Borrower's loan account(s) maintained by Lender for Borrower pursuant to the provisions of this Agreement, including principal, interest, fees, costs and expenses. Each such statement shall be subject to subsequent adjustment by Lender but shall, absent manifest errors or omissions, be considered correct and deemed accepted by Borrower and conclusively binding upon Borrower as an account stated except to the extent that Lender receives a written notice from Borrower of any specific exceptions of Borrower thereto within thirty (30) days after the date such statement has been mailed by Lender. Until such time as Lender shall have rendered to Borrower a written statement as provided above, the balance in Borrower's loan account(s) shall be presumptive evidence of the amounts due and owing to Lender by Borrower. 6.3 Payments. All amounts due under Loan Documents shall be payable to the Cash Collateral Account as provided in Section 6.1 or such other place as Lender may designate from time to time. Lender may apply payments received or collected from Borrower or for the account of Borrower (including, without limitation, the monetary proceeds of collections or of realization upon any Collateral) to the Obligations, whether or not then due, in such order and manner as Lender determines. At Lender's option, all principal, interest, fees, costs, expenses and other charges provided for in this Agreement or the other Loan Documents may be charged directly to the loan account(s) of Borrower. Borrower shall make all payments due Lender free and clear of, and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholding, restrictions or conditions of any kind. If after receipt of any payment of, or proceeds of Collateral applied to the payment of, any of Borrower's obligations to Lender under this Agreement, Lender is required to surrender or return such payment or proceeds to any person or entity for any reason, then the obligations intended to be satisfied by such payment or proceeds shall be reinstated and continue and this Agreement shall continue in full force and effect as if such payment or proceeds had not been received by Lender. Borrower shall be liable to pay to Lender, and does hereby indemnify and hold Lender harmless for the amount of any payments or proceeds surrendered or returned. This Section 6.3 shall remain effective notwithstanding any contrary action which may be taken by Lender in reliance upon such payment or proceeds. This Section 6.3 shall survive the payment of Borrower's obligations under the Loan Documents and the termination of this Agreement. 6.4 Use of Proceeds. Borrower shall use the initial proceeds of the Revolving Loans provided by Lender to Borrower hereunder only for: (a) payments to each of the persons listed in the disbursement order furnished by Borrower to Lender on or about the date hereof, and (b) costs, expenses and fees in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Financing Agreements. All other Revolving Loans made or Letters of Credit provided by Lender to Borrower pursuant to the provisions hereof shall be used by Borrower only for general operating, working capital and other proper corporate purposes of Borrower not otherwise prohibited by the terms of this Agreement. None of the proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or for the purposes of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for the any other purpose which might cause any of the Revolving Loans to be considered a "purpose credit" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended. Section 7. REPRESENTATIONS AND WARRANTIES Borrower makes the following representations and warranties to Lender, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Lender subject to this Agreement. 7.1 Legal Status. Borrower is a corporation duly organized and existing and in good standing under the laws of the State of Delaware, and is qualified or licensed to do business, and is in good standing as a foreign corporation, if applicable, in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower. 7.2 Authorization and Validity. The Loan Documents have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms. 7.3 No Violation. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of Borrower's certificate of incorporation or bylaws, or result in a breach of or constitute a default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound. 7.4 No Claims. There are no pending, or to the best of Borrower's knowledge threatened, actions, claims, investigations, suits or proceedings before any governmental authority, arbitrator, court or administrative agency which may adversely affect the financial condition or operation of Borrower other than those disclosed by Borrower to Lender in the Information Certificate. 7.5 Correctness of Financial Statement. The financial statement of Borrower dated April 2, 1995, heretofore delivered by Borrower to Lender is complete and correct and presents fairly the financial condition of Borrower; discloses all liabilities of Borrower that are required to be reflected or reserved against under GAAP, whether liquidated or unliquidated, fixed or contingent; and has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of such financial statement there has been no material adverse change in the financial condition of Borrower, nor has Borrower mortgaged, pledged or granted a security interest in or encumbered any of its assets or properties except as permitted by this Agreement. 7.6 Income Tax Returns. Except as set forth in the Information Certificate, Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year. 7.7 No Subordination. There is no agreement, indenture, contract or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower's obligations subject to this Agreement to any other obligation of Borrower. 7.8 Permits, Franchises. Borrower possesses, and will hereafter possess, all permits, memberships, franchises, contracts and licenses required and all trademark rights, trade names, trade name rights, patents, patent rights and fictitious name rights necessary to enable it to conduct the business in which it is now engaged without conflict with the rights of others. 7.9 ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended from time to time (ERISA); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents. 7.10 Other Obligations. Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation. 7.11 Environmental Matters. Except as disclosed by Borrower to Lender in writing prior to the date hereof, Borrower is in compliance in all material respects with all applicable environmental, hazardous waste, health and safety statutes and regulations governing its operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), the Superfund Amendments and Reauthorization Act of 1986 (SARA), the Federal Resource Conservation and Recovery Act of 1976, the Federal Toxic Substances Control Act and the California Health and Safety Code. None of the operations of Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment. 7.12 No Default. As of the Closing Date, no Event of Default and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist. 7.13 Priority of Liens. There exist no liens or encumbrances on any property of Borrower other than Lender's liens, such other liens or encumbrances as are permitted in the Loan Documents and such liens described on Schedule 1 hereto. Section 8. AFFIRMATIVE COVENANTS. Borrower covenants that so long as Lender remains committed to extend credit to Borrower pursuant to the terms of this Agreement or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Lender under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall: 8.1 Punctual Payments. Punctually pay the interest and principal on each of the Loan Documents requiring any such payments at the times and place and in the manner specified therein, and any fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein, and immediately upon demand by Lender, the amount by which the outstanding principal balance of the Obligations is at any time in excess of any limitation on borrowings hereunder. 8.2 Records and Premises. Maintain proper books and records in which true and complete entries shall be made of all dealings or transactions of or in relation to Collateral and the business of Borrower in accordance with GAAP. From time to time as requested by Lender, at the cost and expense of Borrower (provided that prior to an Event of Default, and except as provided in Section 3.6, Borrower shall not be liable for costs and expenses of more than two visits per year from and after the date hereof), allow Lender or its designee complete access to all of Borrower's premises during normal business hours and after notice to Borrower, or at any time and without notice to Borrower if an Event of Default exists or has occurred and is continuing, for the purposes of inspecting, verifying and auditing the Collateral and all of Borrower's books and records, including, without limitation, the Records, and promptly furnish to Lender such copies of such books and records or extracts therefrom as Lender may request, and allow Lender during normal business hours to use such of Borrower's personnel, equipment, supplies and premises as may be reasonably necessary for the foregoing and if an Event of Default exists or has occurred and is continuing for the collection of Accounts and realization of other Collateral. 8.3 Collateral Reporting. Borrower shall provide Lender with the following documents in a form satisfactory to Lender: (a) on a regular basis as required by Lender, a schedule of Accounts, including without limitation, daily sales, credit and adjustment journals and cash receipts; (b) on or before the tenth (10th) day after and as of the end of each month, (or more frequently as Lender may request), (i) perpetual inventory reports, (ii) inventory reports by category and (iii) agings of accounts payable, (c) upon Lender's request, (i) copies of customer statements and credit memos, remittance advices and reports, and copies of deposit slips and bank statements, (ii) copies of shipping and delivery documents, and (iii) copies of purchase orders, invoices and delivery documents for Inventory and Equipment acquired by Borrower; (d) agings of accounts receivable on or before the tenth (10th) day after and as of the end of each month or more frequently as Lender may request; (e) upon Lender's request, Borrower shall, at its expense, no more than once in any twelve (12) month period, but at any time or times as Lender may request on or after an Event of Default, deliver or cause to be delivered to Lender written reports or appraisals as to the Collateral in form, scope and methodology acceptable to Lender and by an appraiser acceptable to Lender, addressed to Lender or upon which Lender is expressly permitted to rely; and (f) such other reports as to the Collateral as Lender shall request from time to time. If any of Borrower's records of the Collateral are prepared or maintained by an accounting service, contractor, shipper or other agent, Borrower hereby irrevocably authorizes such service, contractor, shipper or agent to deliver such records, reports, and related documents to Lender and to follow Lender's instructions with respect to further services at any time that an Event of Default exists or has occurred and is continuing. 8.4 Financial Statements. Provide to Lender all of the following, in form and detail satisfactory to Lender: (a) not later than one-hundred twenty (120) days after and as of the end of each fiscal year, an audited financial statement of Borrower, prepared in accordance with GAAP by a certified public account acceptable to Lender; (b) not later than thirty (30) days after and as of the end of each month, a financial statement of Borrower prepared by Borrower in accordance with GAAP, together with a certification of Borrower's chief financial officer; (c) contemporaneously with each annual and monthly financial statement of Borrower required hereby, a certificate of the president or chief financial officer of Borrower that the financial statements delivered pursuant thereto are accurate and that there exists no Event of Default nor any condition, act or event which with the giving of notice or the passage of time or both would constitute an Event of Default; (d) promptly upon their becoming available (but not later than concurrently with the delivery thereof to the Securities and Exchange Commission), copies of all registration statements and regular periodic reports (including Forms 10-K and 10-Q) which Borrower or any of its subsidiaries, direct or indirect, shall have made to or filed with the Securities and Exchange Commission or any national securities exchange; and (e) from time to time such other information as Lender may reasonably request, which may include, without limitation, budgets, forecasts, projections and other information respecting the Collateral and the business of Borrower. 8.5 Compliance. Maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; conduct its business in an orderly and regular manner; and comply with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower's continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority applicable to Borrower or its business. 8.6 Insurance. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to Borrower's, including but not limited to fire, extended coverage, public liability, property damage and workers' compensation, carried with companies and in amounts satisfactory to Lender, and deliver to Lender from time to time at Lender's request schedules setting forth all insurance then in effect. At its option, Lender may apply any insurance proceeds received by Lender at any time to the cost of repairs or replacement of Collateral and/or to payment of the Borrower's Obligations to Lender under this Agreement, whether or not then due, in any order and in such manner as Lender may determine or hold such proceeds as cash collateral for such Obligations. 8.7 Facilities. Keep all Borrower's properties useful or necessary to Borrower's business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that Borrower's properties shall be fully and efficiently preserved and maintained. 8.8 Taxes and Other Liabilities. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal and including federal and state income and payroll taxes, except such as Borrower may in good faith contest or as to which a bona fide dispute may arise, provided provision is made to the satisfaction of Lender for eventual payment thereof in the event that it is found that the same is an obligation of Borrower. 8.9 Litigation. Promptly give notice in writing to Lender of any litigation pending or threatened in writing against Borrower seeking in excess of $1,000,000. 8.10 Financial Condition. Maintain Borrower's financial condition as follows: (a) As of the end of each fiscal quarter, Borrower's Working Capital shall not be less than $10,000,000. (b) As of the end of each fiscal quarter, Borrower's Tangible Net Worth shall not be less than $42,500,000. 8.11 Notice to Lender. Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Lender in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default; (b) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; (c) any termination or cancellation of any insurance policy which Borrower is required to maintain, or any loss through liability or property damage, or through fire, theft or any other cause affecting Borrower's property in excess of $500,000. Borrower shall provide no less than thirty (30) days prior notice of any change in the name or the organizational structure of Borrower. 8.12 Further Assurances. At the request of Lender at any time and from time to time, duly execute and deliver, or cause to be duly executed and delivered, such further agreements, documents and instruments, and do or cause to be done such further acts as may be necessary or proper to evidence, perfect, maintain and enforce the security interests and the priority thereof in the Collateral and to otherwise effectuate the provisions or purposes of this Agreement or any of the other Loan Documents, at Borrower's expense. Lender may at any time and from time to time request a certificate from an officer of Borrower representing that all conditions precedent to the making of Revolving Loans and issuing Letters of Credit contained herein are satisfied. In the event of such request by Lender, Lender may, at its option, cease to make any further Revolving Loans or provide any further Letters of Credit until Lender has received such certificate and, in addition, Lender has determined that such conditions are satisfied. Where permitted by law, Borrower hereby authorizes Lender to execute and file one or more UCC financing statements signed only by Lender. Lender may, at Borrower's sole expense, commission an appraisal of Borrower's Inventory, from an appraiser acceptable to Lender. Section 9. NEGATIVE COVENANTS. Borrower further covenants that so long as Lender remains committed to Borrower pursuant to the terms of this Agreement or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Lender under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not without the prior written consent of Lender: 9.1 Other Indebtedness. Create, incur, assume or permit to exist any indebtedness or liabilities in excess of $500,000 in the aggregate at any time outstanding resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except as permitted by Section 2.2(d) hereof and except the liabilities of Borrower to Lender and any other liabilities of Borrower existing as of, and disclosed to Lender in the Information Certificate prior to, the date hereof. 9.2 Merger, Consolidation, Transfer of Assets. Merge into or consolidate with any corporation or other entity; make any substantial change in the conduct or nature of Borrower's business; acquire all or substantially all of the assets of any corporation or other entity; nor sell, lease, transfer or otherwise dispose of all or a substantial or material part of its assets except in the ordinary course of business. 9.3 Guaranties. Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations of any other person or entity, except as disclosed in the Information Certificate. 9.4 Loans, Advances, Investments. Except as permitted in Sections 9.1 and 9.2, make any loans or advances to or investments in any person or entity except for: (a) loans and advances to Borrower's employees in the ordinary course of Borrower's business in an amount not to exceed $500,000 at any time outstanding, and (b) provided no Event of Default has occurred and is continuing, investments not to exceed $10,000,000 outstanding at any one time in the aggregate provided any single investment shall not exceed $5,000,000. 9.5 Dividends, Distributions. Declare or pay any dividend or distribution either in cash, stock or any other property on Borrower's stock now or hereafter outstanding; nor redeem, retire, repurchase or otherwise acquire any shares of any class of Borrower's stock now or hereafter outstanding. Notwithstanding anything to the contrary herein or in Section 9.1, Borrower may effect a stock split of outstanding shares and may issue up to $100,000,000 in gross proceeds of preferred stock or subordinated unsecured debt provided that if an Event of Default has occurred and while it is continuing, Borrower may not pay interest or dividends on such preferred stock or subordinated debt. 9.6 Pledge of Assets. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, any of its assets of any kind, now owned or hereafter acquired, except any of the foregoing in favor of Lender, except as permitted in Section 2.2(d), and except as set forth in the Information Certificate. 9.7 New Collateral Location. Open any new location unless Borrower (a) gives Lender thirty (30) days prior written notice of the intended opening of any such new location and (b) executes and delivers, or causes to be executed and delivered, to Lender such agreements, documents, and instruments as Lender may deem reasonably necessary or desirable to protect its interests in the Collateral at such location, including, without limitation, UCC financing statements. Notwithstanding the foregoing, Borrower may transfer, to another location and without Bank's consent, the existing "3 UP" Servo Writers and any Servo Writers hereafter acquired, and may further transfer any newly acquired equipment which is (a) financed with a third party to the extent permitted under Section 2.2(d) hereof and (b) which is shipped immediately out of the United States. Section 10. EVENTS OF DEFAULT 10.1 Events of Default. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) Borrower shall fail to pay within five (5) days of when due or upon maturity any principal, interest, fees or other amounts payable under any of the Loan Documents. (b) Any financial statement or certificate (including the Information Certificate) furnished to Lender in connection with this Agreement or any representation or warranty made by Borrower hereunder shall prove to be false, incorrect or incomplete in any material respect when furnished or made. (c) Any default in the performance of or compliance with any obligation, agreement or other provision contained in Sections 6.1, 6.3, 8.1, 8.2, 8.3, 8.9, 8.10 or 8.11 of this Agreement or any other default which shall continue for more than 10 days after the occurrence thereof. (d) Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower or any Obligor has incurred any debt for borrowed money and as a result of which maturity thereof has been accelerated. (e) Any default in the payment or performance of any obligation, or any defined event of default, in either case after the expiration of any applicable grace period, under any of the Loan Documents other than this Agreement which shall continue for more than 10 days after the occurrence of such default. (f) The filing of a notice of judgment lien against Borrower or any Obligor; or the recording of any abstract of judgment against Borrower or any Obligor in any county in which Borrower or such Obligor has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower or any Obligor; or the entry of a judgment against Borrower or any Obligor; and with respect to any of the foregoing, the amount in dispute is in excess of $1,000,000 and has not been stayed or bonded within thirty (30) days provided that as to a levy, writ of attachment, execution or other like process, Bank shall have no obligation to advance funds during the foregoing 30 day period. (g) Borrower or any Obligor shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower or any Obligor shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to said Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower or any Obligor, or Borrower or any Obligor shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower or any Obligor shall be adjudicated a bankrupt, or an order for relief shall be entered by any court of competent jurisdiction under said Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors. (h) The dissolution or liquidation of Borrower or any Obligor; or Borrower or any Obligor, or if any of its their respective directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of Borrower or such Obligor. (i) Any entity or individual, singly or collectively with its affiliates, shall own more than 50% of the issued and outstanding capital stock of Borrower. (j) The indictment of Borrower or any Obligor under any criminal statute, or commencement or threatened commencement of criminal or civil proceedings against Borrower or any Obligor, pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture of any of the property of Borrower or such Obligor. 10.2 Remedies. If an Event of Default shall occur, (a) any indebtedness of Borrower under any of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Lender's option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by Borrower; (b) the obligation, if any, of Lender to permit further borrowings hereunder shall immediately cease and terminate; and (c) Lender shall have all the default rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any credit accommodation from Lender subject hereto and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Lender in connection with each of the Loan Documents may be exercised at any time by Lender and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. Section 11. TERM OF AGREEMENT AND MISCELLANEOUS 11.1 Term. (a) Maturity Date. This Agreement and the other Loan Documents shall become effective on the Closing Date and shall continue in full force and effect for a term ending on June 30, 1996. Upon the date of termination of the Loan Documents, Borrower shall pay to Lender, in full, all outstanding and unpaid obligations under this Agreement and the other Loan Documents and shall furnish cash collateral to Lender in such amounts as Lender determines are reasonably necessary to secure Lender from loss, cost, damage or expense, including attorneys' fees and legal expenses, in connection with any contingent obligations, including issued and outstanding Letters of Credit and checks or other payments provisionally credited to the obligations and/or as to which Lender has not yet received final and indefeasible payment. Interest shall be due until and including the next business day, if the amounts so paid by Borrower to the bank account designated by Lender are received in such bank account later than 12:00 noon, California time. (b) Continuing Obligations. No termination of this Agreement or the other Loan Documents shall relieve or discharge Borrower of its respective duties, obligations and covenants under this Agreement or the other Loan Documents until all Borrower's obligations under this Agreement and the other Loan Documents have been fully and finally discharged and paid, and Lender's continuing security interest in the Collateral and the rights and remedies of Lender hereunder, under the other Loan Documents and applicable law, shall remain in effect until all such obligations have been fully and finally discharged and paid. (c) Early Termination Fee. If for any reason (other than as set forth in paragraph 11.1(d)) this Agreement is terminated prior to the end of the then current term of this Agreement, in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Lender's lost profits as a result thereof, Borrower shall pay to Lender, upon the effective date of such termination, an early termination fee in the amount set forth below for the corresponding date of termination. Date of Termination Fee Date hereof through January 31, 1996 $600,000 February 1 to February 28, 1996 $500,000 March 1 to March 31, 1996 $400,000 April 1 to April 30, 1996 $300,000 May 1 to May 31, 1996 $200,000 June 1 to June 29, 1996 $100,000 Such early termination fee shall be presumed to be the amount of damages sustained by Lender as a result of such early termination and Borrower agrees that it is reasonable under the circumstances currently existing. (d) No Early Termination Fee. No early termination fee shall be payable if a group or division of Wells Fargo Bank (other than the workout group) or an affiliate of Wells Fargo Bank extends credit to Borrower, which credit refinances and/or replaces in full the credit facilities granted under this Agreement. 11.2 No Waiver. No delay, failure or discontinuance of Lender in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Lender of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing. 11.3 Notices. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address: BORROWER: Iomega Corporation 1821 West Iomega Way Roy, Utah 84067 Attention: Leonard C. Purkis, C.F.O., with a copy to Donald R. Sterling, Esq. Telephone: (801) 778-1000 Facsimile: (801) 778-3190 LENDER: WELLS FARGO BANK, NATIONAL ASSOCIATION Commercial Finance Division 9000 Flair Drive El Monte, California 91731 Attention: Manager Telephone: (818) 573-6471 Facsimile: (818) 571-1090 or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. 11.4 Costs, Expenses and Attorneys' Fees. Borrower shall pay to Lender immediately upon demand the full amount of all reasonable costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Lender's in-house counsel), incurred by Lender in connection with (a) the negotiation and preparation of this Agreement and each other of the Loan Documents, Lender's continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) all reasonable out-of-pocket expenses and costs heretofore and from time to time hereafter incurred by Lender during the course of periodic field examinations of the Collateral and Borrower's operations, plus a per diem charge for Lender's examiners in the field and office at Lender's Commercial Finance Division's rate in effect from time to time as set forth herein, (c) the enforcement of Lender's rights and/or the collection of any amounts which become due to Lender under any of the Loan Documents, (d) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation any action for declaratory relief and (e) Lender's participation in any bankruptcy or insolvency proceeding involving Borrower, whether or not suit is filed. 11.5 Successors, Assignment. This Agreement shall be binding on and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without the prior written consent of Lender. Lender reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Lender's rights and benefits under each of the Loan Documents. In connection therewith, Lender may disclose all documents and information which Lender now has or may hereafter acquire relating to any credit extended by Lender to Borrower, Borrower or its business, any Obligor or the business of any Obligor, or any collateral required hereunder. 11.6 Entire Agreement, Amendment. This Agreement and each other of the Loan Documents constitute the entire agreement between Borrower and Lender with respect to any extension of credit by Lender subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only by a written instrument executed by each party hereto. 11.7 No Third Party Beneficiaries. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party. 11.8 Time. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents. 11.9 Severability of Provisions. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. 11.10 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, except to the extent that Lender has greater rights or remedies under Federal law, whether as a national bank or otherwise, in which case such choice of California law shall not be deemed to deprive Lender of such rights and remedies as may be available under Federal law. 11.11 Confidentiality. Lender shall use reasonable efforts to maintain the confidentiality of information it receives from Borrower pursuant to the Loan Documents, except for disclosure to (i) Lender's affiliates, (ii) prospective participants in or assignees of all or any part of the Obligations, (iii) legal counsel, accountants and other professional advisors to Lender, (iv) regulatory officials, and (v) any person or entity as required by law, regulation, or legal process; provided that Lender shall instruct such persons or entities to treat the information in a confidential manner. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above. IOMEGA CORPORATION WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/Kim B. Edwards_________ By: /s/Michael P. Baranowski__ Title: President & CEO________ Title: Vice President / RM____ EX-10.33B 4 EXHIBIT 10.33(b) SECURITY AGREEMENT Dated as of July 5, 1995 between IOMEGA CORPORATION and WELLS FARGO BANK, N.A., COMMERCIAL FINANCE DIVISION TABLE OF CONTENTS Page Section 1. Definitions and Interpretation . . . . . 1 1.1 Certain Defined Terms . . . . . . . . . . . . . 1 1.2 Interpretation. . . . . . . . . . . . . . . . . 4 Section 2. Collateral . . . . . . . . . . . . . . . 5 2.1 Grant . . . . . . . . . . . . . . . . . . . . . 5 2.2 Intellectual Property . . . . . . . . . . . . . 6 2.3 Perfection. . . . . . . . . . . . . . . . . . . 7 2.4 Preservation and Protection of Security Interests. . . . . . . . . . . . . . . . 7 2.5 Attorney-in-Fact. . . . . . . . . . . . . . . . 8 2.6 Use of Intellectual Property. . . . . . . . . . 9 2.7 Instruments . . . . . . . . . . . . . . . . . . 9 2.8 Use or Sale of Collateral . . . . . . . . . . . 9 2.9 Rights and Obligations. . . . . . . . . . . . . 10 2.10 Termination. . . . . . . . . . . . . . . . . . 10 Section 3. Cash Proceeds of Collateral. . . . . . . 11 3.1 Cash Collateral Account . . . . . . . . . . . . 11 3.2 Certain Proceeds. . . . . . . . . . . . . . . . 11 Section 4. Representations and Warranties . . . . . 11 4.1 Title . . . . . . . . . . . . . . . . . . . . . 11 4.2 Intellectual Property . . . . . . . . . . . . . 12 Section 5. Covenants. . . . . . . . . . . . . . . . 12 5.1 Books and Records . . . . . . . . . . . . . . . 12 5.2 Removals, Etc.. . . . . . . . . . . . . . . . . 13 5.3 Sales and Other Liens . . . . . . . . . . . . . 13 5.4 Intellectual Property . . . . . . . . . . . . . 13 5.5 Further Assurances. . . . . . . . . . . . . . . 15 Section 6. Remedies . . . . . . . . . . . . . . . . 15 6.1 Events of Default, Etc. . . . . . . . . . . . . 15 6.2 Deficiency. . . . . . . . . . . . . . . . . . . 16 6.3 Manner of Disposition . . . . . . . . . . . . . 16 6.4 Application of Proceeds . . . . . . . . . . . . 16 Section 7. Miscellaneous. . . . . . . . . . . . . . 17 7.1 Waiver. . . . . . . . . . . . . . . . . . . . . 17 7.2 Notices . . . . . . . . . . . . . . . . . . . . 17 7.3 Expenses, Etc.. . . . . . . . . . . . . . . . . 18 7.4 Amendments, Etc.. . . . . . . . . . . . . . . . 19 7.5 Successors and Assigns. . . . . . . . . . . . . 19 7.6 Survival. . . . . . . . . . . . . . . . . . . . 19 7.7 Agreements Superseded . . . . . . . . . . . . . 19 7.8 Severability. . . . . . . . . . . . . . . . . . 19 7.9 Captions. . . . . . . . . . . . . . . . . . . . 19 7.10 Counterparts . . . . . . . . . . . . . . . . . 19 7.11 GOVERNING LAW; SUBMISSION TO JURISDICTION . . . . . . . . . . . . . . 19 7.12 WAIVER OF JURY TRIAL . . . . . . . . . . . . . 20 ANNEX 1 LIST OF NON-FOREIGN COPYRIGHTS, COPYRIGHT REGISTRATIONS AND APPLICATIONS FOR COPYRIGHT REGISTRATIONS ANNEX 2 LIST OF NON-FOREIGN PATENTS AND PATENT APPLICATIONS ANNEX 3 LIST OF NON-FOREIGN TRADE NAMES, TRADEMARKS, SERVICES MARKS, TRADEMARK AND SERVICE MARK REGISTRATIONS AND APPLICATIONS FOR TRADEMARK AND SERVICE MARK REGISTRATIONS ANNEX 4 LIST OF LOCATIONS ANNEX 5 ASSIGNMENT FOR SECURITY (PATENTS) ANNEX 6 ASSIGNMENT FOR SECURITY (TRADEMARKS) SECURITY AGREEMENT This SECURITY AGREEMENT (this "Agreement") dated as of July 5, 1995 is made between IOMEGA CORPORATION, a Delaware corporation (the "Company") and WELLS FARGO BANK, N.A. (the "Bank"). The Loan Agreement (Line of Credit) dated as of July 5, 1995 (the "Loan Agreement") between the Company and the Bank provides, subject to its terms and conditions, for certain extensions of credit by the Bank to the Company. It is a condition to the obligations of the Bank under the Loan Agreement that the Company shall have executed and delivered, and granted the Liens provided for in this Agreement. To induce the Bank to enter into, and to extend credit under, the Loan Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company has agreed to pledge and grant a security interest in the Collateral as security for the Secured Obligations. Accordingly, the Company agrees with the Bank as follows: Section 1. Definitions and Interpretation. 1.1 Certain Defined Terms. Unless otherwise defined, all capitalized terms used in this Agreement that are defined in the Loan Agreement (including those terms incorporated by reference) shall have the respective meanings assigned to them in the Loan Agreement. In addition, the following terms shall have the following meanings under this Agreement: "Account" shall have the meaning assigned to that term in Section 9106 of the Uniform Commercial Code as in effect on the date of this Agreement, without regard to any subsequent amendments. "Chattel Paper" shall have the meaning assigned to that term in Section 9105 of the Uniform Commercial Code, as in effect on the date of this Agreement, without regard to any subsequent amendments. "Collateral" shall have the meaning assigned to that term in Section 2.1. "Copyright Collateral" shall mean all Copyrights, whether now owned or hereafter acquired by the Company, including each Copyright identified in Annex 1. "Copyrights" shall mean, collectively, (a) all non-foreign copyrights, copyright registrations and applications for copyright registrations, (b) all renewals and extensions of all non-foreign copyrights, copyright registrations and applications for copyright registration and (c) all rights, now existing or hereafter coming into existence, (i) to all income, royalties, damages and other payments (including in respect of all past, present or future infringements) now or hereafter due or payable under or with respect to any of the foregoing, (ii) to sue for all past, present and future infringements with respect to any of the foregoing and (iii) otherwise accruing under or pertaining to any of the foregoing. "Deposit Account" shall have the meaning assigned to that term in Section 9105 of the Uniform Commercial Code as in effect on the date of this Agreement, without regard to any subsequent amendments. "Document" shall have the meaning assigned to that term in Section 9105 of the Uniform Commercial Code as in effect on the date of this Agreement, without regard to any subsequent amendments. "Equipment" shall have the meaning assigned to that term in Section 9109 of the Uniform Commercial Code as in effect on the date of this Agreement, without regard to any subsequent amendments. "General Intangibles" shall have the meaning assigned to that term in Section 9106 of the Uniform Commercial Code as in effect on the date of this Agreement, without regard to any subsequent amendments. "Instrument" shall have the meaning assigned to that term in Section 9105 of the Uniform Commercial Code as in effect on the date of this Agreement, without regard to any subsequent amendments. "Intellectual Property" shall mean all Copyright Collateral, all Patent Collateral and all Trademark Collateral, together with (a) all inventions, processes, production methods, proprietary information, know-how and trade secrets; (b) all licenses or user or other agreements granted to the Company with respect to any of the foregoing, in each case whether now or hereafter owned or used; (c) all information, customer lists, identification of suppliers, data, plans, blueprints, specifications, designs, drawings, recorded knowledge, surveys, engineering reports, test reports, manuals, materials standards, processing standards, performance standards, catalogs, computer and automatic machinery software and programs; (d) all accounting information and all media in which or on which any information or knowledge or data or records may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records or data; (e) all governmental approvals now held or hereafter obtained by the Company in respect of any of the foregoing; and (f) all causes of action, claims and warranties now owned or hereafter acquired by the Company in respect of any of the foregoing. It is understood that Intellectual Property shall include all of the foregoing owned or acquired by the Company on a worldwide basis. "Inventory" shall have the meaning assigned to that term in Section 9109 of the Uniform Commercial Code as in effect on the date of this Agreement, without regard to any subsequent amendments. "Lien" shall mean any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on common law, statute or contract. The term "Lien" shall also include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purpose of the Agreement, the Company shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes. "Motor Vehicles" shall mean motor vehicles, tractors, trailers and other like property, whether or not the title to such property is governed by a certificate of title or ownership. "Patent Collateral" shall mean all Patents, whether now owned or hereafter acquired by the Company, including each Patent identified in Annex 2. "Patents" shall mean, collectively, (a) all non-foreign patents and patent applications, (b) all reissues, divisions, continuations, renewals, extensions and continuations-in-part of all patents or patent applications and (c) all rights, now existing or hereafter coming into existence, (i) to all income, royalties, damages, and other payments (including in respect of all past, present and future infringements) now or hereafter due or payable under or with respect to any of the foregoing, (ii) to sue for all past, present and future infringements with respect to any of the foregoing and (iii) otherwise accruing under or pertaining to any of the foregoing, including all inventions and improvements described or discussed in all such patents and patent applications. "Person" means any individual, corporation, company, voluntary association, partnership, joint venture, trust, unincorporated organization, limited liability company or governmental entity. "Proceeds" shall have the meaning assigned to that term in Section 9306 of the Uniform Commercial Code. "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Secured Obligations" shall mean (a) any and all Obligations, and (b) any and all other obligations of the Company for the performance of its agreements, covenants and undertakings under or in respect of the Loan Documents. "Security" shall have the meaning assigned to that term in Section 8102(c) of the Uniform Commercial Code. "Trademark Collateral" shall mean all Trademarks, whether now owned or hereafter acquired by the Company, including each Trademark identified in Annex 3. Notwithstanding the foregoing, the Trademark Collateral shall not include any Trademark which would be rendered invalid, abandoned, void or unenforceable by reason of its being included as part of the Trademark Collateral. "Trademarks" shall mean, collectively, (a) all non-foreign trade names, trademarks and service marks, logos, trademark and service mark registrations and applications for trademark and service mark registrations, (b) all renewals and extensions of any of the foregoing and (c) all rights, now existing or hereafter coming into existence, (i) to all income, royalties, damages and other payments (including in respect of all past, present and future infringements) now or hereafter due or payable under or with respect to any of the foregoing, (ii) to sue for all past, present and future infringements with respect to any of the foregoing and (iii) otherwise accruing under or pertaining to any of the foregoing, together, in each case, with the product lines and goodwill of the business connected with the use of, or otherwise symbolized by, each such trade name, trademark and service mark. "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in the State of California from time to time, except as otherwise specified herein. Section 1.2 Interpretation. In this Agreement, unless otherwise indicated: the singular includes the plural and plural the singular; words importing either gender include the other gender; references to statutes or regulations are to be construed as including all statutory or regulatory provisions consolidating, amending or replacing the statute or regulation referred to; references to "writing" include printing, typing, lithography and other means of reproducing words in a tangible visible form; the words "including," "includes" and "include" shall be deemed to be followed by the words "without limitation"; references to articles, sections (or subdivisions of sections), exhibits, annexes or schedules are to this Agreement; references to agreements and other contractual instruments shall be deemed to include all subsequent amendments, extensions and other modifications to such instruments (without, however, limiting any prohibition on any such amendments, extensions and other modifications by the terms of any Loan Document); and references to Persons include their respective permitted successors and assigns and, in the case of governmental entities, Persons succeeding to their respective functions and capacities. Section 2. Collateral. 2.1 Grant. As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) and performance of the Secured Obligations, the Company hereby pledges and grants to the Bank a security interest in all of the Company's right, title and interest in and to the following property, whether now owned or hereafter acquired by the Company and whether now existing or hereafter coming into existence (collectively, the "Collateral"): (a) all Accounts and General Intangibles, including all rights to the payment of money, whether or not earned by performance, including all moneys due and to become due to the Company in repayment of any loans or advances, in payment for goods (including Inventory and Equipment) sold or leased or for services rendered, in payment of tax refunds and in payment of any guarantee of any of the foregoing; (b) all Documents, Instruments, and Chattel Paper and, without limiting the generality of the foregoing, letters of credit, including any such writing evidencing, representing, arising from or existing in respect of, relating to, covering, evidencing, securing or supporting the payment of, any of the Accounts, General Intangibles, Equipment or Inventory; (c) all Inventory, including all goods of the Company that are held by the Company for sale, lease or furnishing under a contract of service that are so leased or furnished, and including all spare parts and related supplies, all goods obtained by the Company in exchange for any such goods, all products made or processed from any such goods and all substances, if any, commingled with or added to any such goods; (d) all Equipment, including all goods (excluding Motor Vehicles) of the Company that are used or bought for use primarily in its business, including all spare parts and related supplies, all goods obtained by the Company in exchange for any such goods, all substances, if any, commingled with or added to such goods and all upgrades and other improvements to such goods; (e) all money and Deposit Accounts and the balances thereof from time to time, including the Cash Collateral Account and the balance thereof from time to time; (f) without limiting the generality of the foregoing, all Intellectual Property; (g) without limiting the generality of the foregoing, all contracts and other agreements relating to the sale or other disposition of all or any part of the Collateral and all rights, warranties, claims and benefits against any Person arising out of, relating to or in connection with all or any part of the Collateral; (h) without limiting the generality of the foregoing, to the extent related to all or any part of the other Collateral, all books, correspondence, credit files, records, invoices, tapes, cards, computer runs and other papers and documents in the possession or under the control of the Company or any computer bureau or service company from time to time acting for the Company; (i) without limiting the generality of the foregoing, all Securities; (j) without limiting the generality of the foregoing, all property that is or may become fixtures under applicable law; (k) all other tangible and intangible property of the Company; and (l) all Proceeds in whatever form of all or any part of the other Collateral including all insurance payments in respect of the Collateral and all condemnation awards and all other compensation for any casualty event with respect to all or any part of the other Collateral, together with all rights to recover and proceed with respect to the same, and all accessions to, substitutions for and replacements of all or any part of the Collateral. 2.2 Intellectual Property. For the purpose of enabling the Bank to exercise its rights, remedies, powers and privileges under Section 6 at such time or times as the Bank shall be lawfully entitled to exercise such rights, remedies, powers and privileges, and for no other purpose, the Company hereby grants to the Bank, to the extent assignable, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to the Company) to use, assign, license or sublicense any of the Intellectual Property, together with reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout of such items. 2.3 Perfection. Concurrently with the execution and delivery of this Agreement, the Company shall (i) execute such financing statements and other documents as the Bank may request with respect to the Liens granted hereby, (ii) deliver and pledge to the Bank any and all Instruments, endorsed or accompanied by such instruments of assignment and transfer in such form and substance as the Bank may request, (iii) give appropriate notice to the relevant depository institution or financial intermediary with respect to all Deposit Accounts or uncertificated Securities, and (iv) take all such other actions as the Bank may request to perfect or establish the priority of the Liens granted by this Agreement. 2.4 Preservation and Protection of Security Interests. The Company shall: (a) upon the acquisition after the Closing Date, by the Company of any Instrument (so long as no Event of Default shall have occurred and be continuing, excluding any checks received by the Company for the payment of goods or services in the ordinary course of business), promptly deliver and pledge to the Bank all such Instruments, endorsed or accompanied by such instruments of assignment and transfer in such form and substance as the Bank may request; (b) upon the acquisition after the Closing Date by the Company of any Equipment (other than Motor Vehicles) covered by a certificate of title or ownership issued by a jurisdiction whose laws permit the notation of liens on such certificate, promptly cause the Bank to be listed as the lienholder on such certificate of title and within 120 days of the acquisition of such Equipment deliver evidence of the same to the Bank; (c) upon the Company's acquiring, or otherwise becoming entitled to the benefits of, any Copyright (or copyrightable material), Patent (or patentable invention), Trademark (or associated goodwill) or other Intellectual Property or upon or prior to the Company's filing, either directly or through any agent, licensee or other designee, of any application with any governmental entity for any Copyright, Patent, Trademark, or other Intellectual Property, in each case after the Closing Date, amend Annex 1, 2 or 3 (as the case may be) to reflect the inclusion of any such Intellectual Property as part of the Collateral (it being understood that the failure to amend any such Annex shall not affect the Liens granted by this Agreement on any such Intellectual Property); and (d) give, execute, deliver, file or record any and all financing statements, notices, contracts, agreements or other instruments, obtain any and all governmental approvals and take any and all steps that may be necessary or as the Bank may request to create, perfect, establish the priority of, or to preserve the validity, perfection or priority of, the Liens granted by this Agreement or to enable the Bank to exercise and enforce its rights, remedies, powers and privileges under this Agreement with respect to such Liens, provided that notices to account debtors or other Persons obligated in respect of any Accounts, General Intangibles, Instruments or Securities shall be governed by the provisions of Section 3.2. 2.5 Attorney-in-Fact. (a) Subject to the rights of the Company under Sections 2.6, 2.7, 2.8 and 2.9, the Bank is hereby appointed the attorney-in-fact of the Company for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instruments which the Bank may deem necessary or advisable to accomplish the purposes of this Agreement, to preserve the validity, perfection or priority of the Liens granted by this Agreement, including the execution and filing of financing statements, continuation statements and the like, and to exercise its rights, remedies, powers and privileges under this Agreement. This appointment as attorney-in-fact is irrevocable and coupled with an interest. The Bank shall be entitled under this Agreement upon the occurrence and during the continuance of any Event of Default, (i) to ask, demand, collect, sue for, recover, receive and give receipt and discharge for amounts due and to become due under and in respect of all or any part of the Collateral; (ii) to receive, endorse and collect any Instruments or other drafts, instruments, documents and chattel paper in connection with clause (i) above (including any draft or check representing the proceeds of insurance or the return of unearned premiums); (iii) to file any claims or take any action or proceeding that the Bank may deem necessary or advisable for the collection of all or any part of the Collateral, including the collection of any compensation due and to become due under any contract or agreement with respect to all or any part of the Collateral; (iv) to execute, in connection with any sale or disposition of the Collateral under Section 6, any endorsements, assignments, bills of sale or other instruments of conveyance or transfer with respect to all or any part of the Collateral; and (v) to execute such documents and instruments on behalf of, and to take such action in the name of, the Company as the Bank may deem necessary or advisable to accomplish the purpose of this Agreement. (b) Without limiting the rights and powers of the Bank under Section 2.5(a), the Company hereby appoints the Bank as its attorney-in-fact, effective as of the Closing Date and terminating upon the termination of this Agreement and upon satisfaction in full of the Secured Obligations, for the purpose of executing and filing all such contracts, agreements and other documents as are contemplated by Section 2.4(c) but subject to the limitations of Section 5.5. This appointment as attorney-in-fact is irrevocable and coupled with an interest. 2.6 Use of Intellectual Property. So long as no Event of Default shall have occurred and be continuing, the Company will be permitted to exploit, use, enjoy, protect, license, sublicense, assign, sell, dispose of or take other actions with respect to the Intellectual Property in the ordinary course of the business of the Company. In furtherance of the foregoing, so long as no Event of Default shall have occurred and be continuing, the Bank shall from time to time, upon the request of the Company, execute and deliver any instruments, certificates or other documents, in the form so requested, which the Company shall have certified are appropriate (in its judgment) to allow it to take any action permitted above (including relinquishment of the license provided pursuant to Section 2.2 as to any specific Intellectual Property). The exercise of rights, remedies, powers and privileges under Section 6 by the Bank shall not terminate the rights of the holders of any licenses or sublicenses theretofore granted by the Company in accordance with the first sentence of this Section 2.6. 2.7 Instruments. So long as no Event of Default shall have occurred and be continuing, the Company may retain for collection in the ordinary course of business any checks received by the Company for the payment of goods and services in the ordinary course of business, and the Bank shall, promptly upon the request, and at the expense, of the Company, make appropriate arrangements for making any other Instruments pledged by the Company available to the Company for purposes of presentation, collection or renewal. Any such arrangement shall be effected, to the extent deemed appropriate by the Bank, against trust receipt or like document. 2.8 Use or Sale of Collateral. So long as no Event of Default shall have occurred and be continuing, the Company shall, in addition to its rights under Sections 2.6 and 2.7 in respect of the Collateral contemplated in those sections, be entitled to use and possess the other Collateral and to exercise its rights, title and interest in all contracts, agreements, licenses and governmental approvals, subject to the rights, remedies, powers and privileges of the Bank under Sections 3 and 6 and to such use, possession or exercise not otherwise constituting an Event of Default. 2.9 Rights and Obligations. (a) The Company shall remain liable to perform its duties and obligations under the contracts and agreements included in the Collateral in accordance with their respective terms to the same extent as if this Agreement had not been executed and delivered. The exercise by the Bank of any right, remedy, power or privilege in respect of this Agreement shall not release the Company from any of its duties and obligations under such contracts and agreements. The Bank shall not have any duty, obligation or liability under such contracts and agreements or in respect to any governmental approval included in the Collateral by reason of this Agreement or any other Loan Document, nor shall the Bank be obligated to perform any of the duties or obligations of the Company under any such contract or agreement or any such governmental approval or to take any action to collect or enforce any claim (for payment) under any such contract or agreement or governmental approval. (b) No Lien granted by this Agreement in the Company's right, title and interest in any contract, agreement or governmental approval shall be deemed to be a consent by the Bank to any such contract, agreement or governmental approval. (c) No reference in this Agreement to Proceeds or to the sale or other disposition of Collateral shall authorize the Company to sell or otherwise dispose of any Collateral except to the extent otherwise expressly permitted by the terms of any Loan Document. (d) The Bank shall not be required to take steps necessary to preserve any rights against prior parties to any part of the Collateral. 2.10 Termination. When all Secured Obligations shall have been fully paid or otherwise fully performed and the commitments thereunder and all Letter of Credit Obligations shall have expired or been terminated, this Agreement shall terminate, and the Bank shall, on the Company's written demand and at no cost to the Bank, forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect of the Collateral, to or on the order of the Company and to be released, canceled and granted back all licenses and rights referred to in Section 2.2. The Bank shall also execute and deliver to the Company upon such termination such Uniform Commercial Code termination statements and such other documentation as shall be reasonably requested by the Company to effect the termination and release of the Liens granted by this Agreement on the Collateral. Section 3. Cash Proceeds of Collateral. 3.1 Cash Collateral Account. The balance from time to time in the Cash Collateral Account shall constitute part of the Collateral and shall not constitute payment of the Secured Obligations until applied as provided in the Loan Agreement. 3.2 Certain Proceeds. (a) If any Event of Default shall have occurred and be continuing, the Company shall, upon request of the Bank, instruct (and the Company hereby authorizes the Bank so to notify) each account debtor and other Person obligated in respect of any Accounts and General Intangibles to make all payments in respect of the Accounts, General Intangibles directly to the Bank (by instructing that such payments shall be made to the Bank for deposit into the Cash Collateral Account) or to such other Persons or under other arrangements in form and substance satisfactory to the Bank. (b) If any Event of Default shall have occurred and be continuing, the Company shall, upon request of the Bank, promptly notify (and the Company hereby authorizes the Bank so to notify) each account debtor in respect of any Instruments or Securities that such Collateral has been assigned to the Bank under this Agreement and that any payments due or to become due in respect of such Collateral are to be made directly to the Bank. All such payments made to the Bank shall be immediately deposited in the Cash Collateral Account. (c) The Company agrees that if the Proceeds of any Collateral required to be deposited in the Cash Collateral Account shall be received by the Company, the Company shall promptly deposit such Proceeds into the Cash Collateral Account or, if the Proceeds are of a type that cannot be so deposited, deliver such Proceeds to the Bank in kind. Until so deposited or delivered, all such Proceeds shall be held in trust by the Company for the Bank and shall not be commingled with any other funds or property of the Company. Section 4. Representations and Warranties. As of the Closing Date and as of the date of each extension of credit by the Bank under the Loan Agreement, the Company represents and warrants to the Bank as follows: 4.1 Title. The Company is the sole beneficial owner of the Collateral in which it purports to grant a Lien pursuant to this Agreement, and such Collateral is free and clear of all Liens, except for Liens expressly permitted in the Loan Documents. The Liens granted by this Agreement in favor of the Bank for the benefit of the Bank have attached and constitute a perfected security interest in all of such Collateral prior to all other Liens (except such permitted Liens or Liens disclosed in the Schedule to the Loan Agreement). Notwithstanding the foregoing, nothing contained in this Section 4.1 shall derogate the grant of a security interest under Section 2.1 with respect to any property not owned by the Company but with respect to which the Company has sufficient rights to confer a security interest. 4.2 Intellectual Property. (a) Annexes 1, 2 and 3 set forth completely and correctly all Copyrights, Patents and Trademarks owned by the Company on the Closing Date; except pursuant to licenses and other user agreements entered into by the Company in the ordinary course of business, the Company owns and possesses the right to use, and has done nothing to authorize or enable any other Person to use, any Copyright, Patent or Trademark listed in Annex 1, 2 or 3; all registrations listed in Annexes 1, 2 and 3 are valid and in full force and effect; and, except as limited by certain licensing agreements, the Company owns and possesses the right to use all Copyrights, Patents and Trademarks listed in Annexes 1, 2 and 3. (b) To the Company's knowledge, (i) there is no violation by others of any right of the Company with respect to any Copyright, Patent or Trademark listed in Annex 1, 2 or 3 and (ii) the Company is not infringing in any respect upon any Copyright, Patent or Trademark of any other Person; and no proceedings have been instituted, are pending against the Company or, to the Company's knowledge, have been threatened against, and no claim has been received by, the Company, alleging any such violation. (c) The Company does not own any Trademarks registered in the United States of America to which the last sentence of the definition of Trademark Collateral applies. Section 5. Covenants. 5.1 Books and Records. The Company shall: (a) keep full and accurate books and records relating to the Collateral and stamp or otherwise mark such books and records in such manner as the Bank may reasonably require in order to reflect the Liens granted by this Agreement; and (b) permit representatives of the Bank, upon reasonable notice, at any time during normal business hours, to inspect and make abstracts from its books and records pertaining to the Collateral, permit representatives of the Bank to be present at the Company's place of business to receive copies of all communications and remittances relating to the Collateral and forward copies of any notices or communications received by the Company with respect to the Collateral, all in such manner as the Bank may reasonably request. 5.2 Removals, Etc. Without at least 30 days' prior written notice to the Bank, the Company shall not (i) maintain any of its books and records with respect to the Collateral at any office or maintain its principal place of business at any place, other than at the address initially indicated for notices to it under Section 7.2 or at one of the locations identified in Annex 4 or in transit from one of such locations to another, (ii) without also obtaining the prior written consent of the Bank, maintain any Collateral (other than "3UP" Servo Writers, any Servo Writers hereafter acquired and any newly acquired Equipment which is (a) financed with a third party to the extent permitted under Section 2.2(d) of the Loan Agreement and (b) which is shipped immediately out of the United States) at any place other than at the address initially indicated for notices to it under Section 7.2 or at one of the locations identified in Annex 4 or in transit from one of such locations to another, or (iii) change its corporate name, or the name under which it does business, from the name shown on the signature pages to this Agreement. 5.3 Sales and Other Liens. Except as otherwise permitted under the Loan Agreement, without the prior written consent of the Bank, the Company shall not dispose of any Collateral, create, incur, assume or suffer to exist any Lien upon any Collateral or file or suffer to be on file or authorize to be filed, in any jurisdiction, any financing statement or like instrument with respect to all or any part of the Collateral in which the Bank is not named as the sole secured party for the benefit of the Bank. 5.4 Intellectual Property. (a) The Company (either itself or through licensees) will, for each Trademark, (i) to the extent consistent with past practice and good business judgment, continue to use such Trademark on each and every trademark class of goods in order to maintain such Trademark in full force and effect free from any claim of abandonment for nonuse, (ii) maintain as in the past the quality of products and services offered under such Trademark, (iii) employ such Trademark with the appropriate notice of registration and (iv) not (and not permit any licensee or sublicensee to) do any act or knowingly omit to do any act whereby any Trademark material to the conduct of its business may become invalidated. (b) The Company will not do or omit to do and will use its best efforts to prevent any licensee from doing or knowingly omitting to do any act whereby any Patent material to the conduct of the Company's business may become abandoned or dedicated. (c) The Company shall notify the Bank promptly if it knows or has reason to know that any Intellectual Property material to the conduct of its business may become abandoned or dedicated, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding before any governmental entity) regarding the Company's ownership of any Intellectual Property material to the conduct of its business, its right to copyright, patent or register the same (as the case may be), or its right to keep, use and maintain the same. (d) The Company will take all necessary steps that are consistent with good business practices in any proceeding before any appropriate governmental entity to maintain and pursue each application relating to any Intellectual Property (and to obtain the relevant registrations) and to maintain each registration material to the conduct of its business, including payment of maintenance fees, filing of applications for renewal, affidavits of use, affidavits of incontestability and opposition, interference and cancellation proceedings. (e) In the event that any Intellectual Property material to the conduct of its business is infringed, misappropriated or diluted by a third party, the Company shall notify the Bank within thirty (30) days after it learns of such event and shall, if consistent with good business practice, promptly sue for infringement, misappropriation or dilution, seek temporary restraints and preliminary injunctive relief to the extent practicable, seek to recover any and all damages for such infringement, misappropriation or dilution and take such other actions as are appropriate under the circumstances to protect such Collateral. (f) The Company shall, through counsel acceptable to the Bank, prosecute diligently any application for any Intellectual Property pending as of the date of this Agreement or thereafter made until the termination of this Agreement, make application on uncopyrighted but copyrightable material, unpatented but patentable inventions and unregistered but registerable Trademarks and preserve and maintain all rights in applications for any Intellectual Property; provided, however, that the Company shall have no obligation to make any such application if making such application would be unnecessary or imprudent in the good faith business judgment of the Company. Any expenses incurred in connection with such an application shall be borne by the Company. The Company shall not abandon any right to file an application for any Intellectual Property or any pending such application in the United States without the consent of the Bank, which consent shall not be unreasonably withheld. (g) The Bank shall have the right but shall in no way be obligated to bring suit in its own name to enforce the Copyrights, Patents and Trademarks and any license under such Intellectual Property, in which event the Company shall, at the request of the Bank, do any and all lawful acts and execute and deliver any and all proper documents required by the Bank in aid of such enforcement action. 5.5 Further Assurances. The Company agrees that, from time to time upon the request of the Bank, the Company will execute and deliver such further writings and do such other acts and things as the Bank may reasonably request in order fully to effect the purposes of this Agreement. After the occurrence of an Event of Default under the Loan Agreement, at the Bank's request, Borrower shall execute and deliver to the Bank, and file with each relevant governmental entity, each of the assignments in the form of Annex 5 (in the case of any Patent Collateral) and Annex 6 (in the case of any Trademark Collateral). Prior to the occurrence of an Event of Default under the Loan Agreement, the Bank will not record or file any matter with the United States Patent and Trademark Office or any other federal agency to evidence or perfect the Bank's security interest in the Intellectual Property. Section 6. Remedies. 6.1 Events of Default, Etc. If any Event of Default shall have occurred and be continuing: (a) the Bank in its discretion may require the Company to, and the Company shall, assemble the Collateral owned by it at such place or places, reasonably convenient to both the Bank and the Company, designated in the Bank's request. (b) the Bank in its discretion may make any reasonable compromise or settlement it deems desirable with respect to any of the Collateral and may extend the time of payment, arrange for payment in installments, or otherwise modify the terms of, all or any part of the Collateral. (c) the Bank in its discretion may, in its name or in the name of the Company or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for all or any part of the Collateral, but shall be under no obligation to do so. (d) in the event of any sale, license or other disposition of any of the Trademark Collateral, the goodwill connected with and symbolized by the Trademark Collateral subject to such disposition shall be included, and the Company shall supply to the Bank or its designee, for inclusion in such sale, assignment or other disposition, all Intellectual Property relating to such Trademark Collateral. (e) in addition to any rights conferred by this Agreement, the Bank shall have, and in its discretion may exercise, all of the rights, remedies, powers and privileges with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not a version of the Official Text of the Uniform Commercial Code is in effect in the jurisdiction where such rights, remedies, powers and privileges are asserted) and such additional rights, remedies, powers and privileges to which a secured party is entitled under the laws in effect in any jurisdiction where any rights, remedies, powers and privileges in respect of this Agreement or the Collateral may be asserted, including the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral (and the Company agrees to take all such action as may be appropriate to give effect to such right). The Proceeds of, and other realization upon, the Collateral by virtue of the exercise of remedies under this Section 6.1 and of the exercise of the license granted to the Bank in Section 2.2 shall be applied in accordance with Section 6.4. 6.2 Deficiency. If the Proceeds of, or other realization upon, the Collateral by virtue of the exercise of remedies under Section 6.1 and of the exercise of the license granted by the Bank in Section 2.2 are insufficient to cover the costs and expenses of such exercise and the payment in full of the other Secured Obligations, the Company shall remain liable for any deficiency. 6.3 Manner of Disposition. The Bank shall incur no liability as a result of the sale, lease or other disposition of all or any part of the Collateral conducted in any commercially reasonable manner. The Company hereby waives any claims against the Bank arising by reason of the fact that the price at which the Collateral may have been sold, leased, or otherwise disposed of was less than the price which might have been obtained by some other manner of sale, lease or other disposition or was less than the aggregate amount of the Secured Obligations, even if, in connection with a private sale or other non-public disposition, the Bank accepts the first offer received and does not offer the Collateral to more than one offeree, so long as the Bank has acted in a commercially reasonable manner. 6.4 Application of Proceeds. Except as otherwise expressly provided in this Agreement and except as provided below in this Section 6.4, the Proceeds of, or other realization upon, all or any part of the Collateral by virtue of the exercise of remedies under Section 6.1 or of the exercise of the license granted in Section 2.2, and any other cash at the time held by the Bank under Section 3 or this Section 6, shall be applied by the Bank: First, to the reasonable expenses of retaking, holding, preparing for sale or lease, selling, or leasing or other disposition of the Collateral, including reasonable out-of-pocket costs and expenses of the Bank, and the reasonable fees and expenses of its agents, as well as reasonable attorneys' fees and legal expenses incurred by the Bank in that connection; Next, to satisfaction of the Secured Obligations in such order as the Bank in its discretion may choose; and Finally, to the Persons legally entitled thereto, or as a court of competent jurisdiction may direct, with respect to any surplus then remaining. Section 7. Miscellaneous. 7.1 Waiver. No failure on the part of the Bank to exercise and no delay in exercising, and no course of dealing with respect to, any right, remedy, power or privilege under this Agreement shall operate as a waiver of such right, remedy, power or privilege, nor shall any single or partial exercise of any right, remedy, power or privilege under this Agreement preclude any other or further exercise of any such right, remedy, power or privilege or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges provided in this Agreement are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 7.2 Notices. All notices and communications to be given under this Agreement shall be given or made in writing to the intended recipient at the address specified below or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telex or telecopier, or personally delivered or, in the case of a mailed notice, upon receipt, in each case, given or addressed as provided in this Section 7.2: To the Company: Iomega Corporation 1821 West Iomega Way Roy, Utah 84067 Attention: Leonard C. Purkis, Chief Financial Officer, with a copy to Donald R. Sterling, Esq. Telecopier No.: (801) 778-3190 To the Bank: Wells Fargo Bank, N.A. Commercial Finance Division 9000 Flair Drive El Monte, California 91731 Attention: Mr. Michael Baranowski Telecopier No.: (818) 571-1090 Notwithstanding the foregoing, if a notice is transmitted by telex, telecopier or personal delivery or, in the case of a mailed notice, is received on a day that is not a business day, then such notice shall be deemed to have been duly given on the first business day after such transmission or, in the case of a mailed notice, receipt. 7.3 Expenses, Etc. The Company agrees to pay or to reimburse the Bank for all reasonable costs and expenses (including reasonable attorneys' fees and expenses) that may be incurred by the Bank in any effort to enforce any of the provisions of Section 6 or any of the obligations of the Company in respect of the Collateral or in connection with (a) the preservation of the Lien of, or the rights of the Bank under this Agreement, (b) any actual or attempted sale, lease, disposition, exchange, collection, compromise, settlement or other realization in respect of, or care of, the Collateral, or (c) all such reasonable costs and expenses and any other reasonable costs and expenses, including reasonable attorneys' fees and expenses incurred in any bankruptcy, reorganization, workout, restructuring or other similar process or proceeding, including reasonable costs, expenses and reasonable attorneys' fees and expenses relating to any proceeding concerning relief from stay, cash collateral, appointment of a trustee, disclosure statement approval, or plan confirmation. Notwithstanding the foregoing, the Company's obligation to reimburse the Bank for legal fees and expenses incurred in connection with the initial documentation of this Agreement and the other Loan Documents shall be governed by Section 11.4 of the Loan Agreement, and in connection with any modification of the terms of this Agreement that is not in connection with any bankruptcy, reorganization, workout, restructuring or other similar process or proceeding, the Company shall be obligated to reimburse the Bank for its reasonable costs and expenses (including reasonable attorneys' fees and costs). 7.4 Amendments, Etc. Any provision of this Agreement may be modified, supplemented or waived only by an instrument in writing duly executed by the Company and the Bank. Any such modification, supplement or waiver shall be for such period and subject to such conditions as shall be specified in the instrument effecting the same and shall be binding upon the Bank and the Company, and any such waiver shall be effective only in the specific instance and for the purposes for which given. 7.5 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company and the Bank, and their respective successors and permitted assigns. The Company shall not assign or transfer its rights under this Agreement without the prior written consent of the Bank. 7.6 Survival. All representations and warranties made in this Agreement or in any certificate or other document delivered pursuant to or in connection with this Agreement shall survive the execution and delivery of this Agreement or such certificate or other document (as the case may be) or any deemed repetition of any such representation or warranty. 7.7 Agreements Superseded. This Agreement supersedes all prior agreements and understandings (including any and all commitment letters and term sheets), written or oral, between the Company and the Bank with respect to the subject matter of this Agreement. 7.8 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 7.9 Captions. The table of contents and captions and section headings appearing in this Agreement are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 7.10 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties to this Agreement may execute this Agreement by signing any such counterpart. 7.11 GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA. THE COMPANY HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA AND OF ANY STATE COURT SITTING IN THE COUNTY OF LOS ANGELES, CALIFORNIA FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE 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. 7.12 WAIVER OF JURY TRIAL. THE COMPANY AND THE BANK HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the day and year first above written. IOMEGA CORPORATION By:/s/Leonard C. Purkis_________________ Title:Chief Financial Officer WELLS FARGO BANK, N.A. By:/s/Michael P. Baranowski_____________ Title: Vice President / RM ANNEX 1 LIST OF NON-FOREIGN COPYRIGHTS, COPYRIGHT REGISTRATIONS AND APPLICATIONS FOR COPYRIGHT REGISTRATIONS IOMEGA CORPORATION Title Date Filed Registration No. Closing Date ANNEX 2 LIST OF NON-FOREIGN PATENTS AND PATENT APPLICATIONS IOMEGA CORPORATION File Patent Country Registration No. Date ANNEX 3 LIST OF NON-FOREIGN TRADE NAMES, TRADEMARKS, SERVICES MARKS, TRADEMARK AND SERVICE MARK REGISTRATIONS AND APPLICATIONS FOR TRADEMARK AND SERVICE MARK REGISTRATIONS U.S. Trademarks IOMEGA CORPORATION Application (A) Registration (R) Registration Mark or Series No. (S) or Filing Date ANNEX 4 LIST OF LOCATIONS IOMEGA CORPORATION 1821 West Iomega Way Roy, Utah 84067 ANNEX 5 ASSIGNMENT FOR SECURITY (PATENTS) WHEREAS, Iomega Corporation, a Delaware corporation (herein referred to as "Assignor"), owns the letters patent, and/or applications for letters patent, of the United States, more particularly described on Schedule 1 annexed hereto as part hereof (the "Patents"); WHEREAS, Assignor has executed and delivered to Wells Fargo Bank, N.A. (herein referred to as "Assignee") for the benefit of Assignee under the Loan Agreement dated as of July 5, 1995 (as amended, supplemented, restated or otherwise modified from time to time, the "Loan Agreement"), a Security Agreement of even date herewith (the "Agreement", terms defined therein and not otherwise defined herein being used herein as therein defined) in favor of Assignee; and WHEREAS, pursuant to the Agreement, Assignor has assigned to Assignee, and granted to Assignee a security interest in, and mortgage on, all right, title and interest of Assignor in and to the Patents, together with any reissue, continuation, continuation-in-part or extension thereof, and all proceeds thereof, including, without limitation, any and all causes of action which may exist by reason of infringement thereof for the full term of the Patents (the "Intellectual Property Collateral"), to secure the prompt payment, performance and observance of the Secured Obligations; NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Assignor does hereby further assign unto Assignee and grant to Assignee a security interest in, and mortgage on, the Intellectual Property Collateral to secure the prompt payment, performance and observance of the Secured Obligations. Assignor does hereby further acknowledge and affirm that the rights and remedies of Assignee with respect to the assignment of, security interest in and mortgage on the Intellectual Property Collateral made and granted hereby are more fully set forth in the Agreement, the terms and provisions of which are hereby incorporated herein by reference as if fully set forth herein. Assignee's address is 1821 West Iomega Way, Roy, Utah 84067. IN WITNESS WHEREOF, Assignor has caused this Assignment to be duly executed by its officer thereunto duly authorized as of the 5th day of July, 1995. IOMEGA CORPORATION By: _______________________________ Name: _________________________ Title: ________________________ SCHEDULE 1 TO ASSIGNMENT FOR SECURITY PATENTS Title Date Issued Patent No. ANNEX 6 ASSIGNMENT FOR SECURITY (TRADEMARKS) WHEREAS, Iomega Corporation, a Delaware corporation (herein referred to as "Assignor"), has adopted, used and is using the trademarks listed on the annexed Schedule 1, which trademarks are registered in the United States Patent and Trademark Office (the "Trademarks"); WHEREAS, Assignor has executed and delivered to Wells Fargo Bank, N.A. (herein referred to as "Assignee") for the benefit of Assignee under the Loan Agreement dated as of July 5, 1995 (as amended, supplemented, restated or otherwise modified from time to time, the "Loan Agreement"), a Security Agreement of even date herewith (the "Agreement", terms defined therein and not otherwise defined herein being used herein as therein defined) in favor of Assignee; and WHEREAS, pursuant to the Agreement, Assignor has assigned to Assignee and granted to Assignee a security interest in, and mortgage on, all right, title and interest of Assignor in and to the Trademarks, together with the goodwill of the business symbolized by the Trademarks and the applications and registrations thereof, and all proceeds thereof, including, without limitation, any and all causes of action which may exist by reason of infringement thereof (the "Intellectual Property Collateral"), to secure the payment, performance and observance of the Secured Obligations; NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Assignor does hereby further assign unto Assignee and grant to Assignee a security interest in, and mortgage on, the Intellectual Property Collateral to secure the prompt payment, performance and observance of the Secured Obligations. Assignor does hereby further acknowledge and affirm that the rights and remedies of Assignee with respect to the assignment of, security interest in and mortgage on the Intellectual Property Collateral made and granted hereby are more fully set forth in the Agreement, the terms and provisions of which are hereby incorporated herein by reference as if fully set forth herein. Assignee's address is 1821 West Iomega Way, Roy, Utah 84067. IN WITNESS WHEREOF, Assignor has caused this Assignment to be duly executed by its officer thereunto duly authorized as of the 5th day of July, 1995. IOMEGA CORPORATION By: _______________________________ Name: _________________________ Title: ________________________ SCHEDULE 1 TO ASSIGNMENT FOR SECURITY TRADEMARKS Trademark Reg. Date Reg. No. EX-10.33C 5 EXHIBIT 10.33(c) WELLS FARGO BANK CONTINUING COMMERCIAL LETTER OF CREDIT AGREEMENT To: WELLS FARGO BANK, NATIONAL ASSOCIATION In consideration of Wells Fargo Bank, National Association, at the request and for the account of the undersigned Applicant, and, unless otherwise specifically provided in any Loan Document, at the option of Wells Fargo, issuing commercial letters of credit pursuant to applications for commercial letters of credit and the terms and conditions of this Agreement, Applicant hereby agrees that the terms and conditions hereinafter set forth shall apply to each such Application, to the Credit issued by Wells Fargo pursuant to such Application, to the issuance of each such Credit, and to transactions under each such Application, each such Credit and this Agreement. SECTION 1. DEFINITIONS. As used in this Agreement, the following terms shall have the meanings set forth after each term: "Acceptance" shall mean any time draft drawn or made, or purported to be drawn or made, under any Credit, and accepted for payment by Wells Fargo or by any other bank specified by Wells Fargo to accept such time draft for payment. "Acceptance Fee" shall mean the fee, computed at the acceptance fee rate specified by Wells Fargo, charged by Wells Fargo when each Acceptance is created on the amount of each Acceptance for the time period each such Acceptance is to be outstanding. "Agreement" shall mean this Continuing Commercial Letter of Credit Agreement as it may be revised or amended from time to time pursuant to its terms. "Applicant" shall mean the person or persons or the entity or entities signing this Agreement. "Application" shall mean Wells Fargo's printed form titled "Application for Commercial Letter of Credit" or any other form acceptable to Wells Fargo on which Applicant applies for the issuance by Wells Fargo of a Credit and/or an application for amendment of a Credit or any combination of such applications, as the context may require. "Beneficiary" shall mean any person or entity named on an Application as the beneficiary or any person or entity who is the transferee of any such beneficiary. "Collateral" shall mean the Property, together with the proceeds of such Property, securing any or all the obligations and liabilities of Applicant to Wells Fargo at any time existing under or in connection with any Letter of Credit Document and/or any Loan Document. "Credit" shall mean an instrument or document titled "Irrevocable Commercial Letter of Credit" or "Irrevocable Documentary Credit", or any instrument or document whatever it is titled or whether or not it is titled functioning as a commercial letter of credit, issued under or pursuant to an Application, and all renewals, extensions and amendments of such instrument or document. "Deferred Payment Fee" shall mean the fee, computed at the deferred payment fee rate specified by Wells Fargo, charged by Wells Fargo on the amount of each Demand presented under a Credit providing for deferred payment of Demands which are not time drafts, which fee will be payable when the Demand is determined by Wells Fargo to comply with such Credit and cover the time period from the date of such determination to the date such Demand is payable. "Delivery Authorization" shall mean any agreement, undertaking, guarantee, indemnity, release, bond, letter, document or authorization given or executed by Wells Fargo, at its option in each case, at the request of Applicant or Applicant's agent to or in favor of a carrier or other person or entity in order to permit delivery to Applicant or Applicant's agent of Property referred to in or shipped under any Credit. "Demand" shall mean any sight or time draft (before it is accepted), electronic or telegraphic transmission or other written demand drawn or made, or purported to be drawn or made, under or in connection with any Credit. "Document" shall mean any instrument, statement, certificate or other document, including, but not limited to, shipping documents, warehouse receipts and policies or certificates of insurance, referred to in or related to any Credit or required by any Credit to be presented with any Demand. "Dollars" shall mean the lawful currency at any time for the payment of public or private debts in the United States of America. "Event of Default" shall mean any of the events set forth in Section 14 of this Agreement. "Expiration Date" shall mean the date any Credit expires. "Guarantor" shall mean any person or entity guaranteeing the payment and/or performance of any or all the obligations of Applicant to Wells Fargo under or in connection with any Letter of Credit Document and/or any Loan Document. "Holding Company" shall mean any company or other entity controlling Wells Fargo. "Issuance Fee" shall mean the fee, computed at the issuance fee rate specified by Wells Fargo, charged by Wells Fargo on the amount of each Credit and on the amount of each increase in a Credit at the time each Credit is issued and the time the amount of each Credit is increased. "Letter of Credit Document" shall mean this Agreement, each Application, each Credit, each Demand and each Acceptance. "Loan Document" shall mean each and any promissory note, credit agreement, loan agreement, security agreement, pledge agreement, guarantee or other agreement or writing signed by Wells Fargo and/or Applicant and/or any Guarantor relating to, evidencing or guaranteeing any loan or other extension of credit made by Wells Fargo to Applicant under or in connection with any Letter of Credit Document. The foregoing includes, without limitation, the Loan Agreement and Security Agreement of even date. "Negotiation Fee" shall mean the fee, computed at the negotiation fee rate specified by Wells Fargo, charged by Wells Fargo on the amount of each Demand paid or accepted by Wells Fargo when each Demand is paid or accepted. "Payment Office" shall mean such office of Wells Fargo specified by Wells Fargo as the office where reimbursements and other payments under or in connection with any Letter of Credit Document are to be made by Applicant. "Prime Rate" shall mean the rate of interest most recently announced at Wells Fargo's principal office in San Francisco, California as its Prime Rate, with the understanding that the Prime Rate is one of Wells Fargo's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Wells Fargo may designate. "Property" shall mean all forms of property, whether tangible or intangible, real, personal or mixed. "Rate of Exchange" shall mean Wells Fargo's then current selling rate of exchange in San Francisco, California for sales of the currency of payment of any Demand or Acceptance, or of any fees or expenses or other amounts payable under this Agreement, for cable transfer to the country of which such currency is the legal tender. "UCP" shall mean the Uniform Customs and Practice for Documentary Credits, an International Chamber of Commerce publication, or any substitution therefor or replacement thereof. "Unpaid and Undrawn Balance" shall mean at any time and from time to time the entire amount which has not been paid by Wells Fargo under all the Credits issued for the account of Applicant, including, but not limited to, the amount of each Demand and Acceptance on which Wells Fargo has not yet effected payment as well as the amount undrawn under all such Credits. "Wells Fargo" shall mean Wells Fargo Bank, National Association, a national banking association. SECTION 2. HONORING DEMANDS AND DOCUMENTS. Applicant agrees that Wells Fargo may receive, accept and honor, as complying with the terms of any Credit, any Demand and any Documents accompanying such Demand; provided, however, that (a) such Demand and accompanying Documents appear on their face to comply substantially with the provisions of such Credit, and (b) such Demand and accompanying Documents are, or appear on their face to be,signed or issued by (I) a person or entity authorized under such Credit to draw, sign or issue such Demand and such accompanying Documents, or (ii) an administrator, executor, trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, liquidator, receiver or other legal representative or successor in interest by operation of law of any such person or entity. Notwithstanding the preceding sentence, Applicant agrees that (x) in consideration for Wells Fargo giving or executing a Delivery Authorization at its option at any time, Wells Fargo may, in its sole discretion, receive, accept and honor, as complying with the terms of the Credit related to such Delivery Authorization, any Demand and any Documents accompanying such Demand which are presented under such Credit and relate to any Property covered by such Delivery Authorization even if such Demand or any such Document does not conform to the requirements of such Credit or is not otherwise in order or any other term or condition of such Credit has not been complied with; and (y) in consideration for Wells Fargo issuing a Credit which, at the request of Applicant and at the option of Wells Fargo, contains provisions that (I) any Demand made under such Credit will be honored only if and when Wells Fargo receives written notice that the Property referred to in the Documents accompanying such Demand has been inspected and passed and/or released and/or approved by the United States Food and Drug Administration or by any other state or federal government agency or regulatory authority or by any other party or entity, and (ii) the Documents accompanying such Demand are to be released by Wells Fargo to Applicant or Applicant's agent for the purpose of arranging such inspection against Applicant or Applicant's agent signing a receipt for such Documents, Wells Fargo may in its sole discretion honor and accept such Demand and such Documents as complying with the terms of such Credit without having received written notice that such Property has been inspected and passed and/or released and/or approved as aforesaid (1) if such Demand and accompanying Documents appear on their face to comply substantially with all other terms of such Credit, or Applicant has waived any failure of such Demand or Documents to comply with the terms of such Credit, and (11) if Applicant or Applicant's agent does not promptly (A) sign such a receipt which is in form and substance acceptable to Wells Fargo and (B) comply with all the terms of such receipt and (C) arrange such inspection of such Property. SECTION 3. REIMBURSEMENT FOR PAYMENT OF DEMANDS AND ACCEPTANCES. Applicant agrees to reimburse Wells Fargo for all amounts paid by Wells Fargo on each Demand and on each Acceptance, including, but not limited to, all amounts paid by Wells Fargo on each Demand and on each Acceptance to any paying, accepting, negotiating or other bank. If in connection with the issuance of any Credit, Wells Fargo agrees to pay any other bank the amount of any payment or negotiation made by such other bank under such Credit upon receipt by Wells Fargo of a cable, telex or other written telecommunication advising Wells Fargo of such payment or negotiation, or authorizes any other bank to debit Wells Fargo's account for the amount of such payment or negotiation, Applicant agrees to reimburse Wells Fargo for all such amounts paid by Wells Fargo, or debited to Wells Fargo's account with such other bank, even if any Demand or Document specified in such Credit fails to arrive in whole or in part or if, upon the arrival of any such Demand or Document, the terms of such Credit have not been complied with or such Demand or Document does not conform to the requirements of such Credit or is not otherwise in order. SECTION 4. FEES AND EXPENSES. Applicant agrees to pay to Wells Fargo (a) all Issuance Fees, Negotiation Fees, Acceptance Fees, Deferred Payment Fees, cable fees, amendment fees, non-usance fees and cancellation fees of, and all out-of-pocket expenses incurred by, Wells Fargo under or in connection with any Letter of Credit Document, and (b) all fees and charges of banks other than Wells Fargo under or in connection with any Letter of Credit Document if any Application (i) does not indicate who will pay such fees and charges, (ii) indicates that such fees and charges are to be paid by Applicant, or (iii) indicates that such fees and charges are to be paid by the Beneficiary and the Beneficiary does not, for any reason whatsoever, pay such fees or charges. There shall be no refund of any portion of any Issuance Fee in the event any Credit is used, reduced, amended, modified or terminated before its Expiration Date; and there shall be no refund of any portion of any Acceptance Fee or Deferred Payment Fee if any Acceptance or deferred payment Demand is reimbursed by Applicant before it matures. SECTION 5. DEFAULT INTEREST. Unless otherwise specified in any Loan Document or on an Application and agreed to by Wells Fargo, all amounts to be reimbursed by Applicant to Wells Fargo pursuant to Section 3 of this Agreement and all fees and expenses to be paid by Applicant to Wells Fargo pursuant to Section 4 of this Agreement, and all other amounts due from Applicant to Wells Fargo under or in connection with the Letter of Credit Documents, will bear interest (to the extent permitted by law), payable on demand, from the date Wells Fargo paid the amounts to be reimbursed or the date such fees, expenses and other amounts were due until such amounts are reimbursed in full or such fees, expenses and other amounts are paid in full, at that interest rate per annum, calculated for the actual days elapsed in a year of 360 days, which is two percent (2%) above the Prime Rate in effect from time to time. SECTION 6. TIME AND METHOD OF REIMBURSEMENT AND PAYMENT. Unless otherwise specified in this Section 6, in any Loan Document or on an Application and agreed to by Wells Fargo, all amounts to be reimbursed by Applicant to Wells Fargo pursuant to Section 3 of this Agreement, all fees and expenses to be paid by Applicant to Wells Fargo pursuant to Section 4 of this Agreement, all interest due to Wells Fargo pursuant to Section 5 of this Agreement, and all other amounts due to Wells Fargo from Applicant under or in connection with the Letter of Credit Documents will be reimbursed or paid at the Payment Office in Dollars in immediately available funds without setoff or counterclaim on demand or, at Wells Fargo's option, by Wells Fargo debiting any of Applicant's accounts with Wells Fargo without presentment, protest, demand for reimbursement or payment, notice of dishonor or any other notice whatsoever, all of which are hereby expressly waived by Applicant. Such debit will be made (a) at the time each Demand is paid by Wells Fargo or on the maturity of each Acceptance or, if earlier, at the time each amount is paid by Wells Fargo to any paying, accepting, negotiating or other bank, (b) at the time each fee and expense referenced in Section 4 of this Agreement is to be paid, (c) at the time interest is due to Wells Fargo pursuant to Section 5 of this Agreement, and (d) at the time each other amount is due under or in connection with the Letter of Credit Documents. If any Demand or Acceptance or any fee, expense, interest or other amount payable under or in connection with the Letter of Credit Documents is payable in a currency other than Dollars, Applicant agrees to reimburse Wells Fargo for all amounts paid by Wells Fargo on such Demand and on such Acceptance, and/or to pay Wells Fargo all such fees, expenses, interest and other amounts, in one of the three following ways, as determined by Wells Fargo in its sole discretion in each case, (i) at such place as Wells Fargo shall direct, in such other currency, or (ii) at the Payment Office in the Dollar equivalent of the amount of such other currency calculated at the Rate of Exchange on the date determined by Wells Fargo in its sole discretion, or (iii) at the Payment Office in the Dollar equivalent, as determined by Wells Fargo (which determination shall be deemed correct absent manifest error), of such fees, expenses, interest or other amounts or of the actual cost to Wells Fargo of paying such Demand or Acceptance. SECTION 7. AGREEMENTS OF APPLICANT. Applicant agrees that (a) unless otherwise specifically provided in any Loan Document, Wells Fargo shall not be obligated at any time to issue any Credit for the account of Applicant; (b) unless otherwise specifically provided in any Loan Document, if any Credit is issued by Wells Fargo for the account of Applicant, Wells Fargo shall not be obligated to issue any further Credit for the account of Applicant or to make other extensions of credit to Applicant or in any other manner to extend any financial consideration to Applicant; (c) Wells Fargo has not given Applicant any legal or other advice with regard to any Letter of Credit Document or Loan Document; (d) if Wells Fargo at any time discusses with Applicant the wording for any Credit, any such discussion will not constitute legal or other advice by Wells Fargo or any representation or warranty of Wells Fargo that any wording or Credit will satisfy Applicant's needs; (a) Applicant Is responsible for the wording of each Credit, including, but not limited to, any drawing conditions, and will not rely on Wells Fargo in any way in connection with the wording of any Credit or the structuring of any transaction related to any Credit; (f) Applicant and not Wells Fargo is responsible for entering into the contracts relating to the Credits between Applicant and the Beneficiaries and for causing Credits to be issued; (g) Wells Fargo may, as Wells Fargo deems appropriate, modify or alter and use in any Credit the terminology contained on the Application for such Credit; (h) unless the Application for a Credit specifies whether the Documents to be presented with a Demand under such Credit must be sent to Wells Fargo in one parcel or in two parcels or may be sent to Wells Fargo in any number of parcels, Wells Fargo may, if it so desires, make such determination and specify in the Credit whether such Documents must be sent in one parcel or two parcels or may be sent in any number of parcels; (i) Wells Fargo shall not be deemed the agent of Applicant, any Beneficiary or any other user of any Credit, and neither Applicant, nor any Beneficiary nor any other user of any Credit shall be deemed an agent of Wells Fargo; (j) Applicant will promptly examine all Documents and each Credit if and when they are delivered to Applicant by Wells Fargo and, in the event of any claim of noncompliance of any Documents or any Credit with Applicant's instructions or any Application, or in the event of any other irregularity, will promptly notify Wells Fargo in writing of such noncompliance or irregularity, Applicant being conclusively deemed to have waived an such claim of noncompliance or irregularity unless such notice is promptly given; (k) all directions and correspondence relating to any Letter of Credit Document are to be sent at the risk of Applicant; (1) if any Credit has a provision concerning the automatic extension of the Expiration Date of such Credit, Wells Fargo may, at its sole option , give notice of nonrenewal of such Credit and if Applicant does not at any time want such Credit to be renewed Applicant will so notify Wells Fargo at least fifteen (15) calendar days before Wells Fargo is to notify the Beneficiary of such Credit or any advising bank of such nonrenewal pursuant to the terms of such Credit; (m) Applicant will not seek to obtain, apply for, or acquiesce in any temporary restraining order, restraining order, preliminary injunction, permanent injunction or any type of pretrial or permanent injunctive relief or any similar relief, however named, restraining, prohibiting or enjoining Wells Fargo, any of Wells Fargo's correspondents or any advising, confirming, negotiating, paying, accepting or other bank from paying or negotiating any Demand or creating or paying any Acceptance or honoring any other obligation under or in connection with any Credit; and (n) except for any of Applicant's obligations which are specifically affected by the actions referred to in subsection (vi) of this Section 7(n), Applicant's obligations under or in connection with each Letter of Credit Document and each Loan Document shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of each such Letter of Credit Document and each such Loan Document under all circumstances whatsoever, including, but not limited to, the following circumstances and the circumstances listed in Section 13(b) through (bb) of this Agreement: (i) any lack of validity or enforceability of any Letter of Credit Document, any Loan Document, any Document or any agreement relating to any Letter of Credit Document, any Loan Document or any Document; (ii) any amendment of or waiver relating to, or any consent to or departure from, any Letter of Credit Document, any Loan Document or any Document; (iii) any release or substitution at any time of any Property which may be held as Collateral; (iv) the existence of any claim, set-off, defense or other right which Applicant may have at any time against Wells Fargo or any Beneficiary (or any person or entity for whom any Beneficiary may be acting) or any other person or entity, whether under or in connection with any Letter of Credit Document, any Loan Document, any Document or any Property referred to in or related to any Letter of Credit Document, any Loan Document or any Document or under or in connection with any unrelated transaction; (v) any breach of contract or other dispute between or among any two or more of Applicant, Wells Fargo, any Beneficiary, any transferee of any Beneficiary, any person or entity for whom any Beneficiary or any transferee of any Beneficiary may be acting, or any other person or entity; or (vi) any delay, extension of time, renewal, compromise or other indulgence granted or agreed to by Wells Fargo with or without notice to, or approval by, Applicant in respect of any of Applicant's indebtedness or other obligations to Wells Fargo under or in connection with any Letter of Credit Document or any Loan Document. SECTION 8. COMPLIANCE WITH LAWS AND REGULATIONS. Applicant represents and warrants to Wells Fargo that no Application, Credit or transaction under any Application and/or any Credit will contravene any law or regulation of the government of the United States or any state thereof. Applicant agrees (a) to comply with all federal, state and foreign exchange regulations and other government laws and regulations now or hereafter applicable to any Letter of Credit Document, to any payments under or in connection with any Letter of Credit Document, to each transaction under or in connection with any Letter of Credit Document, or to the import, export, shipping or financing of the Property referred to in or shipped under or in connection with any Credit, and (b) to reimburse Wells Fargo for such amounts as Wells Fargo may be required to expend as a result of such laws or regulations, any change in such laws or regulations or any change in the interpretation of such laws or regulations by any court or administrative or government authority charged with the administration of such laws or regulations. SECTION 9. TAXES, RESERVES AND CAPITAL ADEQUACY REQUIREMENTS. In addition to, and notwithstanding, any other provision of any Letter of Credit Document or any Loan Document, in the event that any law, treaty, rule, regulation, guideline, request, order, directive or determination (whether or not having the force of law) of or from any government authority, including, but not limited to, any court, central bank or government regulatory authority, or any change therein or in the interpretation or application thereof, (a) does or shall subject Wells Fargo to any tax of any kind whatsoever with respect to the Letter of Credit Documents or the Loan Documents, or change the basis of taxation of payments to Wells Fargo of any amount payable thereunder (except for changes in the rate of tax on the net income of Wells Fargo); or (b) does or shall impose, modify or hold applicable any reserve, special deposit, assessment, compulsory loan, Federal Deposit Insurance Corporation insurance or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or loans by, other credit extended by or any other acquisition of funds by, any office of Wells Fargo; or (c) does or shall impose, modify or hold applicable any capital adequacy requirements, (whether or not having the force of law); or (d) does or shall impose on Wells Fargo any other condition; and the result of any of the foregoing is (i) to increase the cost to Wells Fargo of issuing or maintaining any Credit or of performing any transaction under any Letter of Credit Document or any Loan Document, or (ii) to reduce any amount receivable by Wells Fargo under any Letter of Credit Document or any Loan Document, or (iii) to reduce the rate of return on the capital of Wells Fargo or the Holding Company to a level below that which Wells Fargo or the Holding Company could have achieved but for any imposition, modification or application of any capital adequacy requirement (taking into consideration the policy of Wells Fargo or the Holding Company, as the case may be, with respect to capital adequacy), and any such increase or reduction is material (as determined by Wells Fargo in its sole discretion); then, in any such case, Applicant agrees to pay to Wells Fargo such amount or amounts as may be necessary to compensate Wells Fargo or the Holding Company for (1) any such additional cost, (2) any reduction in the amount received by Wells Fargo under any Letter of Credit Document or any Loan Document, or (3) to the extent allocable (as determined by Wells Fargo in its sole discretion) to any Letter of Credit Document or any Loan Document, any reduction in the rate of return on the capital of Wells Fargo or the Holding Company. SECTION 10. COLLATERAL. In addition to, and not in substitution for, any Property delivered, conveyed, transferred or assigned to Wells Fargo under any Loan Document as security for any or all of the obligations and liabilities of Applicant to Wells Fargo at any time existing under or in connection with any Letter of Credit Document or any Loan Document', Applicant grants to Wells Fargo a security interest in and to the following Collateral, whether or not any such Collateral is in Wells Fargo's possession or control or in the possession or control of Wells Fargo's agents or correspondents or in transit to, or set apart for, Wells Fargo or any of Wells Fargo's agents or correspondents: (a) with respect to each Credit and until such time as all the obligations and liabilities of Applicant to Wells Fargo at any time existing under or in connection with each Credit and each Letter of Credit Document and each Loan Document related to such Credit have been fully paid and discharged, all as security for such obligations and liabilities, (i) all Property referred to in each Credit or at any time shipped under or pursuant to each Credit or in any way related to each Credit or to any Demand made or Acceptance created under each Credit, whether or not Wells Fargo receives the Documents covering such Property or releases such Documents to Applicant on trust or bailee receipt or otherwise, (ii) all Documents accompanying any Demand made under each Credit, and (iii) all the proceeds of the Property and the Documents referred to in subsections (i) and (ii) of this Section 10(a); and (b) with respect to all the Credits and until such time as all the obligations and liabilities of Applicant to Wells Fargo at any time existing under or connection with each Letter of Credit Document and each Loan Document have been fully paid and discharged, all as security for such obligations and liabilities, (i) all the property, claims, demands, right, title and interest of Applicant in and to the balance of every deposit account of Applicant with Wells Fargo now or at any time hereafter existing, and all evidences of such deposit accounts, (ii) all Property belonging to Applicant or in which Applicant may have an interest, now or at any time hereafter delivered, conveyed, assigned, pledged or paid to Wells Fargo or its agents or correspondents in any manner whatsoever, whether as security or for safekeeping or otherwise, including, but not limited to, any items received for collection or transmission, and the proceeds of such items, whether or not such Property is in whole or in part released to Applicant on trust or bailee receipt or otherwise, and (iii) where more than one person or entity is an Applicant, all right, title and interest of each Applicant in and to all the Property which any Applicant may now or hereafter obtain as security for the obligations of the other Applicants or Applicant to such Applicant arising under or in connection with the transaction to which any Credit relates. Further, in addition to, and not in substitution for, any Property delivered, conveyed, transferred or assigned to Wells Fargo under any Loan Document as security for any or all of the obligations and liabilities of Applicant to Wells Fargo at any time existing under or in connection with any Letter of Credit Document or any Loan Document, Applicant agrees to deliver, convey, transfer and assign to Wells Fargo, on demand, as security, Property of a value and character satisfactory to Wells Fargo (x) if Wells Fargo at any time feels insecure about Applicant's ability or willingness to repay any amounts which Wells Fargo has paid or may pay in the future on any Demand or Acceptance or in honoring any other obligation of Wells Fargo under or in connection with any Credit, or (y) without limiting the generality of the foregoing subsection (x), if any temporary restraining order, restraining order, preliminary injunction, permanent injunction or any type of pretrial or permanent injunctive relief or any similar relief, however named, is obtained restraining, prohibiting or enjoining Wells Fargo, any of Wells Fargo's correspondents or any advising, confirming, negotiating, paying or other bank from paying or negotiating any Demand or creating or paying any Acceptance or honoring any other obligation under or in connection with any Credit. Applicant agrees that the receipt by Wells Fargo's agents or correspondents at any time of any kind of security, including, but not limited to, cash, shall not be deemed a waiver of any of Wells Fargo's rights or powers under this Agreement. Applicant agrees to sign and deliver to Wells Fargo on demand of Wells Fargo all such deeds of trust, security agreements, financing statements and other documents as Wells Fargo shall at any time request which are necessary or desirable (in the sole opinion of Wells Fargo) to grant to Wells Fargo an effective and perfected security interest in and to any or all of the Collateral. Applicant agrees to pay all filing and recording fees related to the perfection of any security interest granted to Wells Fargo in accordance with this Section 10. Applicant hereby agrees that any or all of the Collateral may be held and disposed of by Wells Fargo as provided in this Agreement. Upon any transfer, sale, delivery, surrender or endorsement of any Document or Property which is or was part of the Collateral, Applicant will indemnify and hold Wells Fargo and Wells Fargo's agents and correspondents harmless from and against each and every claim, demand, action or suit which may arise against Wells Fargo or any such agent or correspondent by reason of such transfer, sale, delivery, surrender or endorsement. SECTION 11. LICENSES AND INSURANCE FOR PROPERTY. Applicant agrees (a) to procure promptly any necessary import, export or other licenses for the import, export or shipping of the Property referred to in or shipped under, pursuant to or in connection with any Credit; (b) to furnish such instruments, certificates and other documents as Wells Fargo may at any time require with respect to such import, export or other licenses and with respect to the compliance by Applicant with all federal, state and foreign government laws, regulations, guidelines, requests, directives and/or determinations with regard to the import, export, shipping and financing of the Property referred to in or shipped under, pursuant to or in connection with any Credit; (c) to keep such Property adequately covered by insurance in amounts, against risks and with companies satisfactory to Wells Fargo; (d) to assign the policies or certificates of insurance to Wells Fargo, or to make the loss or adjustment, if any, payable to Wells Fargo, at its option; and (e) to furnish to Wells Fargo, upon demand of Wells Fargo, evidence of such insurance and/or evidence of acceptance by the insurers of the assignment of such policies or certificates of insurance. Should the insurance on any Property referred to in or shipped under, pursuant to or in connection with any Credit for any reason be unsatisfactory to Wells Fargo, Wells Fargo may, at Applicant's expense, obtain insurance satisfactory to Wells Fargo. SECTION 12. INDEMNIFICATION. Except to the extent caused by Wells Fargo's lack of good faith, and notwithstanding any other provision of this Agreement, Applicant agrees to reimburse and indemnify Wells Fargo for (a) all amounts paid by Wells Fargo to any person or entity under or in connection with any Delivery Authorization, and (b) all damages, losses, liabilities, actions, claims, suits, penalties, judgments, obligations, costs or expenses, of any kind whatsoever and howsoever caused, including, but not limited to, attorneys' fees and interest, paid, suffered or incurred by, or imposed upon, Wells Fargo directly or indirectly arising out of or in connection with (i) any Letter of Credit Document, any Loan Document, any Document or any Property referred to in or related to any Credit; (ii) the issuance of any Credit; (iii) the transfer of any Credit; (iv) any Delivery Authorization; (v) the collection of any amounts owed to Wells Fargo by Applicant under or in connection with any Letter of Credit Document or any Loan Document; (vi) the foreclosure against, or other enforcement of, any Collateral; (vii) the protection, exercise or enforcement of Wells Fargo's rights and remedies under or in connection with any Letter of Credit Document or any Loan Document; (viii) any court decrees or orders, including, but not limited to, temporary restraining orders, restraining orders, preliminary injunctions, permanent injunctions or any type of pretrial or permanent injunctive relief or any similar relief, however named, restraining, prohibiting or enjoining or seeking to restrain, prohibit or enjoin Wells Fargo, any of Wells Fargo's correspondents or any advising, confirming, negotiating, paying, accepting or other bank from paying or negotiating any Demand or creating or paying any Acceptance or honoring any other obligation under or in connection with any Credit; or (ix) any Credit being governed by laws or rules other than the UCP in effect on the date such Credit is issued. The indemnity provided in this Section 12 will survive the termination of this Agreement and the expiration or cancellation of any or all the Credits. SECTION 13. LIMITATION OF LIABILITY. Notwithstanding any other provision of this Agreement, neither Wells Fargo nor any of its agents or correspondents will have any liability to Applicant for any action, neglect or omission, if done in good faith, under or in connection with any Letter of Credit Document, Loan Document or Credit, including, but not limited to, any issuance or amendment of any Credit, the failure to issue or amend any Credit, or the honoring or dishonoring of any Demand under any Credit, and such good faith action, neglect or omission will bind the Applicant. Notwithstanding any other provision of any Letter of Credit Document, in no event shall Wells Fargo, its officers or directors be liable or responsible, regardless of whether any claim is based on contract or tort, for (a) any special, consequential, indirect or incidental damages, including, but not limited to, lost profits, arising out of or in connection with the issuance of any Credit or any action taken or not taken by Wells Fargo in connection with any Letter of Credit Document, any Loan Document or any Document or Property referred to in or related to any Credit; (b) the honoring of any Demand or Acceptance in accordance with any order or directive of any court or government or regulatory body or entity requiring such honor despite any temporary restraining order, restraining order, preliminary injunction, permanent injunction or any type of pretrial or permanent injunctive relief or any similar relief, however named, restraining, prohibiting or enjoining such honor; (c) the use which may be made of any Credit; (d) the validity of any purported transfer of any Credit or the identity of any purported transferee of any Beneficiary; (e) any acts or omissions of any Beneficiary or any other user of any Credit; (f) the existence, character, quality, quantity, condition, packing, value or delivery of the Property referred to in or related to any Credit or purporting to be represented by any Document; (g) any difference in the character, quality, quantity, condition or value of the Property referred to in or related to any Credit or purporting to be represented by any Document from that expressed in any Credit or any Document; (h) the time, place, manner or order in which shipment is made of, or the failure or omission to ship, or the partial or incomplete shipment of, any or all of the Property referred to in or related to any Credit or any Document; (i) the form, validity, sufficiency, correctness, genuineness or legal effect of any Demand or any Document, or of any signatures or endorsements on any Demand or Document, even if any Demand or any Document should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (j) any deviation from instructions, delay, default or fraud by the shipper or anyone else in connection with any Document or any Property referred to in or related to any Credit or the shipping of any such Property; (k) any delay in giving or failure to give any notice, including, but not limited to, notice of arrival of any Property referred to in or related to any Credit or any Document; (l) any delay in arrival or failure to arrive of any Property referred to in or related to any Credit or any Document; (m) any breach of contract between the shippers or vendors and the consignees or buyers; (n) the character, adequacy, validity or genuineness of any insurance or the solvency or responsibility of any insurer of any risk; (o) the solvency of any person or entity issuing any Document or the responsibility of any such person or entity for, or the relationship of any such person or entity to, any Property referred to in or related to any Document; (p) payment or acceptance by Wells Fargo of any Demand when the Demand and any Documents which accompany such Demand appear on their face to comply substantially with the terms of the Credit to which they relate or dishonor by Wells Fargo of any Demand when the Demand and any Documents which accompany such Demand do not strictly comply on their face with the terms of the Credit to which they relate; (q) the failure of any Demand or Document to bear any reference or adequate reference to the Credit to which it relates; (r) the failure of any Document to accompany any Demand; (s) the failure of any person or entity to note the amount of any Demand on the Credit to which it relates or on any Document; (t) the failure of any person or entity to surrender or take up any Credit; (u) the failure of any Beneficiary to comply with the terms of any Credit or to meet the obligations of such Beneficiary to Applicant; (v) the failure of any person or entity to send or forward Documents if and as required by the terms of any Credit; (w) any errors, inaccuracies, omissions, interruptions or delays in transmission or delivery of any messages, directions or correspondence by mail, cable, telegraph, wireless or otherwise, whether or not they are in cipher; (x) any notice of nonrenewal of a Credit sent by Wells Fargo not being received on time or at any time by the Beneficiary of such Credit; (y) any inaccuracies in the translation of any messages, directions or correspondence; (z) any Beneficiary's use of the proceeds of any Demand or Acceptance; (aa) any Beneficiary's failure to repay to Wells Fargo or Applicant the proceeds of any Demand or Acceptance if the terms of any Credit require such repayment; (bb) any act, error, neglect, default, negligence, gross negligence, omission, willful misconduct, lack of good faith, insolvency or failure in business of any of Wells Fargo's agents or correspondents or of any advising, confirming, negotiating, paying, accepting or other bank. The occurrence of any one or more of the contingencies referred to in the preceding sentence shall not affect, impair or prevent the vesting of any of Wells Fargo's rights or powers under this Agreement or any Loan Document or Applicant's obligation to make reimbursement or payment to Wells Fargo under this Agreement or any Loan Document. The provisions of this Section 13 will survive the termination of this Agreement and any Loan Documents and the expiration or cancellation of any or all the Credits. SECTION 14. EVENTS OF DEFAULT. Applicant agrees that each of the following shall constitute an Event of Default under this Agreement: (a) Applicant's or any Guarantor's failure to pay any principal, interest, fee or other amount when due under or in connection with any Letter of Credit Document; (b) the occurrence and continuance of any default or defined event of default under any Loan Document or any other agreement, document or instrument signed or made by Applicant or any Guarantor in favor of Wells Fargo; (c) Applicant's or any Guarantor's failure to perform or observe any term, covenant or agreement contained in this Agreement (other than those referred to in subsections (a), (b) and (c) of this Section 14); (d) any representation, warranty or certification made or furnished by Applicant or any Guarantor under or in connection with any Letter of Credit Document, or as an inducement to Wells Fargo to enter into any Letter of Credit Document, shall be materially false, incorrect or incomplete when made; (e) any guarantee of, or any security covering, any indebtedness of Applicant to Wells Fargo arising under or in connection with any Letter of Credit Document or any Loan Document fails to be in full force and effect at any time; SECTION 15. REMEDIES. Upon the occurrence and continuance of any Event of Default, Wells Fargo may, as it may at any time during the term of this Agreement, exercise its rights under Section 7 of this Agreement and refuse to issue any Credit or Credits for the account of Applicant, and all amounts paid by Wells Fargo on any Demand or Acceptance which have not previously been repaid to Wells Fargo, together with all interest on such amounts, and the Unpaid and Undrawn Balance, if any, shall automatically be owing by Applicant to Wells Fargo and shall be due and payable by Applicant on demand. Applicant agrees that upon payment of the Unpaid and Undrawn Balance to Wells Fargo Applicant shall have no further legal or equitable interest therein, and that Wells Fargo will not be required to segregate on its books or records the Unpaid and Undrawn Balance paid by Applicant. After Wells Fargo receives the Unpaid and Undrawn Balance, Wells Fargo agrees to pay to Applicant, upon termination of all of Wells Fargo's liability under all the Credits, Demands and Acceptances, a sum equal to the amount which has not been drawn under all the Credits less all amounts due and owing to Wells Fargo from Applicant under or in connection with the Letter of Credit Documents and the Loan Documents. Further, upon the occurrence and continuance of any Event of Default, Wells Fargo may sell immediately, without demand for payment, advertisement or notice to Applicant, all of which are hereby expressly waived, any and all Collateral, received or to be received, at private sale or public auction or at brokers' board or upon any exchange or otherwise, at Wells Fargo's option, in such parcel or parcels, at such time or times, at such place or places, for such price or prices and upon such terms and conditions as Wells Fargo may deem proper, and Wells Fargo may apply the net proceeds of such sale or sales, together with any deposit balances and any sums credited by or due from Wells Fargo to Applicant in a general account or otherwise, to the payment of any and all obligations and liabilities due to Wells Fargo by Applicant under or in connection with the Letter of Credit Documents and the Loan Documents, all without prejudice to the rights of Wells Fargo against Applicant with respect to any and all such obligations and liabilities which may be or remain unpaid. If any sale pursuant to the preceding sentence be at brokers' board or at public auction or upon any exchange, Wells Fargo may itself be a purchaser at such sale free from any right of redemption, which Applicant hereby expressly waives and releases. All rights and remedies of Wells Fargo existing under the Letter of Credit Documents and the Loan Documents are in addition to, and not exclusive of, any rights or remedies otherwise available to Wells Fargo under applicable law. SECTION 16. SETOFF. In addition to any rights now or hereafter granted under applicable law, and not by way of limitation of any such rights, upon the occurrence and continuance of any Event of Default, Wells Fargo is hereby authorized by Applicant at any time or from time to time, without notice to Applicant or to any other person (any such notice being hereby expressly waived by Applicant) to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit), whether matured or unmatured, and any other indebtedness at any time held or owing by Wells Fargo to or for the credit or the account of Applicant, against and on account of the obligations and liabilities of Applicant to Wells Fargo under or in connection with any of the Letter of Credit Documents or the Loan Documents, irrespective of whether or not Wells Fargo shall have made any demand for payment of any or all such obligations and liabilities or declared any or all such obligations and liabilities to be due and payable, and although any or all such obligations and liabilities shall be contingent or unmatured. SECTION 17. WAIVERS. Applicant agrees that no delay, extension of time, renewal, compromise or other indulgence which may occur or be granted by Wells Fargo under any Letter of Credit Document or any Loan Document from time to time shall impair Wells Fargo's rights or powers under this Agreement or any Application. Wells Fargo shall not be deemed to have waived any of its rights under this Agreement or any Application unless such waiver is in writing signed by an authorized representative of Wells Fargo. No such waiver, unless expressly provided in such waiver, shall be effective as to any transactions which occur subsequent to the date of such waiver, or as to any continuance of any Event of Default after such waiver. No amendment or modification of this Agreement shall be effective unless such amendment or modification is in writing signed by authorized representatives of Wells Fargo and Applicant. SECTION 18. AMENDMENTS AND MODIFICATIONS TO CREDITS. At the request or with the consent of Applicant, and without affecting the obligations of Applicant under this Agreement, Wells Fargo may, but will not be obligated to, (a) increase the amount of any Credit, (b) extend the time for, and amend or modify the terms and conditions governing, the making and honoring of any Demand, Acceptance or Document or any other terms and conditions of any Credit, or (c) waive the failure of any Demand or Document to comply with the terms of the Credit to which it relates. No amendment to, or modification of, the terms of any Credit will become effective if the Beneficiary of such Credit or any confirming bank objects to such amendment or modification. If any Credit is amended or modified in accordance with this Section 18, Applicant shall be bound by, and obligated under, the provisions of this Agreement with respect to such Credit as so amended or modified and any action taken by Wells Fargo or any advising, confirming, negotiating, paying, accepting or other bank in accordance with such amendment or modification. SECTION 19. SUCCESSORS AND ASSIGNS. Applicant agrees that the terms and conditions of this Agreement and each Application shall bind the heirs, executors, administrators, successors and assigns of Applicant, and that all rights, benefits and privileges conferred on Wells Fargo under or in connection with each Letter of Credit Document and each Loan Document shall be and hereby are extended to, conferred upon and may be enforced by the successors and assigns of Wells Fargo. Applicant will not assign this Agreement or Applicant's obligations or liabilities under or in connection with any Letter of Credit Document or any Loan Document to any person or entity without the prior written approval of Wells Fargo. SECTION 20. GOVERNING LAW. This Agreement and each Application, and the performance by Applicant and Wells Fargo under this Agreement and each Application, shall be governed by and be construed in accordance with the laws of the State of California. Unless Wells Fargo otherwise specifically agrees in writing, each Credit, the opening of each Credit, the performance by Wells Fargo under each Credit, and the performance by the Beneficiary and any advising, confirming, negotiating, paying, accepting or other bank under each Credit, shall be governed by and be construed in accordance with the UCP in force on the date of the issuance of each Credit. SECTION 21. JURISDICTION AND SERVICE OF PROCESS. Any suit, action or proceeding against Applicant under or with respect to any Letter of Credit Document may, at Wells Fargo's sole option, be brought in (a) the courts of the State of California, (b) the United States District Courts in California, (c) the courts of the jurisdiction of Applicant's incorporation or principal office, or (d) the courts of the jurisdiction where any Beneficiary, any advising, confirming, negotiating, paying, accepting or other bank, or any other person or entity has brought any suit, action or proceeding against Wells Fargo with respect to any Credit, any Demand or any Acceptance, and Applicant hereby submits to the nonexclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment and waives any other preferential jurisdiction by reason of domicile. Applicant further agrees that it will accept joinder in any suit, action or proceeding brought in any court or jurisdiction against Wells Fargo by any Beneficiary, any advising, confirming, negotiating, paying, accepting or other bank or any other person or entity with respect to any Credit, any Demand or any Acceptance. Applicant irrevocably waives trial by jury and any objection, including, but not limited to, any objection of the laying of venue or any objection based on the grounds of forum non conveniens, which Applicant may now or hereafter have to the bringing of any such action or proceeding, Applicant further waives any right to transfer or change the venue of any suit, action or proceeding brought against Applicant by Wells Fargo under or in connection with any Letter of Credit Document. Applicant irrevocably consents to the service of process in any action or proceeding in any court by the mailing of copies thereof by registered or certified mail, postage prepaid, to Applicant at its address specified next to its signature on this Agreement or at such other address as Applicant shall have notified to Wells Fargo in writing, such service to be effective ten (10) days after such mailing. SECTION 22. JOINT APPLICANTS. If this Agreement is signed by more than one person or entity, each Applicant agrees that this Agreement and the Applications shall be the joint and several agreement of all such Applicants and that all references to Applicant in this Agreement and the Applications shall refer to all such Applicants jointly and severally. SECTION 23. SEVERABILITY. Any provision of any Letter of Credit Document which is prohibited or unenforceable in any jurisdiction shall be, only as to such jurisdiction, ineffective to the extent of such prohibition or unenforceability, but all the remaining provisions of such Letter of Credit Document and all the other Letter of Credit Documents shall remain valid. SECTION 24. HEADINGS. The headings used in this Agreement are for convenience of reference only and shall not define or limit the provisions of this Agreement. SECTION 25. COMPLETE AGREEMENT. This Agreement and the Application for each Credit contain the entire agreement of Wells Fargo and Applicant with respect to such Credit; provided, however, that such entire agreement will also include any written document or instrument signed by Wells Fargo and/or Applicant, and approved by Wells Fargo, which specifically references this Agreement, any Application or any Credit. Except as specifically provided in this Agreement, in any Application or in any written document or instrument referred to in the preceding sentence, no statements or representations not contained in this Agreement, such Application or such written document or instrument shall have any force or effect on this Agreement, such Application or such written document or instrument. This Agreement is signed by Applicant's duly authorized representative or representatives on the date specified below, 1821 West Iomega Way Roy, Utah 84067 ADDRESS Date: July 5, 1995 IOMEGA CORPORATION APPLICANT By:/s/Leonard C. Purkis Chief Financial Officer TITLE EX-27 6
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