-----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, IGHv56Go0wmLyt0DtLjpCeEJGVaa77YiCtwFTDJeBGYCLbNnWSX11hJK24yVrIsj DvqHJBnC7/68Lk77ubFqUQ== 0000352789-96-000013.txt : 19961115 0000352789-96-000013.hdr.sgml : 19961115 ACCESSION NUMBER: 0000352789-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960929 FILED AS OF DATE: 19961113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IOMEGA CORP CENTRAL INDEX KEY: 0000352789 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 860385884 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12333 FILM NUMBER: 96660571 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 SEPTEMBER 29, 1996 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 September 29, 1996. Common Stock, par value $.03 1/3 126,891,588 (Title of each class) (Number of shares) IOMEGA CORPORATION TABLE OF CONTENTS Page PART I - FINANCIAL INFORMATION Condensed consolidated balance sheets at September 29, 1996 and December 31, 1995 . . . . . . 2 Condensed consolidated statements of operations for the three months ended September 29, 1996 and October 1, 1995. . . . . . . . . . . . . . . . . 4 Condensed consolidated statements of operations for the nine months ended September 29, 1996 and October 1, 1995. . . . . . . . . . . . . . . . . 5 Condensed consolidated statements of cash flows for the nine months ended September 29, 1996 and October 1, 1995. . . . . . . . . . . . . . . . . 6 Notes to condensed consolidated financial statements 8 Management's discussion and analysis of financial condition and results of operations. . . . . . . . . 14 PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . 21 SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . 22 EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . 23 This Quarterly Report on Form 10-Q contains forward-looking statements, including information with respect to the Company's plans and strategy for its business. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes", "anticipates", "plans", "expects" and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause actual events or the Company's actual results to differ materially from those indicated by such forwarding-looking statements. These factors include, without limitation, those set forth below under the caption "Factors Affecting Future Operating Results" included under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part I of this Quarterly Report on Form 10-Q and those identified in the Company's other filings with the Securities and Exchange Commission. IOMEGA CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (Unaudited) September 29, December 31, 1996 1995 (In thousands) CURRENT ASSETS: Cash and cash equivalents $ 102,452 $ 1,023 Trade receivables (net) 197,706 105,955 Inventories 178,035 98,703 Deferred income taxes 30,440 2,778 Other current assets 11,219 3,673 --------- --------- Total current assets 519,852 212,132 PROPERTY AND EQUIPMENT, at cost 192,175 103,149 Less - accumulated depreciation and amortization (64,611) (49,779) --------- --------- Net property and equipment 127,564 53,370 OTHER ASSETS 2,803 725 --------- --------- $ 650,219 $ 266,227 ========= =========
The accompanying notes to condensed consolidated financial statements are an integral part of these balance sheets. IOMEGA CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) September 29, December 31, 1996 1995 (In thousands) CURRENT LIABILITIES: Current portion of notes payable $ 30,452 $ 47,640 Accounts payable 143,061 94,782 Other accrued liabilities 99,529 51,164 Income taxes payable 11,319 5,141 Current portion of capitalized lease obligations 4,035 782 --------- --------- Total current liabilities 288,396 199,509 CAPITALIZED LEASE OBLIGATIONS, net of current portion 6,776 1,481 NOTES PAYABLE, net of current portion 13,754 2,551 CONVERTIBLE SUBORDINATED NOTES, 6.75%, due 2001 45,733 - STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; authorized 4,750,000 shares - - Series C junior participating preferred stock, authorized 250,000 shares, none issued - - Common stock, $.03 1/3 par value; authorized 150,000,000 shares, 126,891,588 and 117,638,670 shares outstanding at September 29, 1996 and December 31, 1995, respectively 4,236 3,921 Additional paid-in capital 250,219 49,512 Deferred compensation (754) - Retained earnings 46,222 9,253 --------- --------- 299,923 62,686 Treasury stock (4,363) - Total stockholders' equity 295,560 62,686 --------- --------- $ 650,219 $ 266,227 ========= =========
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 September 29, October 1, 1996 1995 (In thousands, except per share data) SALES $ 310,085 $ 84,721 COST OF SALES 228,424 63,225 --------- --------- Gross Margin 81,661 21,496 OPERATING EXPENSES: Selling, general and administrative 50,323 13,878 Research and development 10,475 4,691 --------- --------- Total operating expenses 60,798 18,569 --------- --------- OPERATING INCOME 20,863 2,927 Interest expense (1,790) (360) Interest income 1,633 67 Other income, net 228 63 --------- --------- INCOME BEFORE INCOME TAXES 20,934 2,697 Provision for income taxes (8,168) (672) --------- --------- NET INCOME $ 12,766 $ 2,025 ========= ========= NET INCOME PER COMMON SHARE $ 0.09 $ 0.02 ========= ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Includes effects of stock splits (see Note 2) 137,027 127,236 ========= =========
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 September 29, October 1, 1996 1995 (In thousands, except per share data) SALES $ 815,711 $ 177,427 COST OF SALES 597,955 132,527 --------- --------- Gross Margin 217,756 44,900 OPERATING EXPENSES: Selling, general and administrative 122,605 33,389 Research and development 29,008 12,793 --------- --------- Total operating expenses 151,613 46,182 --------- --------- OPERATING INCOME (LOSS) 66,143 (1,282) Interest expense (6,420) (463) Interest income 2,169 619 Foreign currency loss (250) (1,232) Other income (expense) (828) 771 --------- --------- INCOME (LOSS) BEFORE INCOME TAXES 60,814 (1,587) Benefit (provision) for income taxes (23,845) 167 --------- --------- NET INCOME (LOSS) $ 36,969 $ (1,420) ========= ========= NET INCOME (LOSS) PER COMMON SHARE $ 0.28 $ (0.01) ========= ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Includes effects of stock splits (see Note 2) 132,089 114,264 ========= =========
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 September 29, October 1, 1996 1995 (In thousands) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ 36,969 $ (1,420) Non-cash Revenue and Expense Adjustments: Depreciation and amortization expense 16,532 6,198 Deferred income tax benefit (27,142) (2,968) Other 681 (489) Changes in Assets and Liabilities: Trade receivables (net) (91,751) (34,627) Inventories (79,332) (35,363) Income taxes 6,178 3,696 Other current assets (7,546) (1,980) Accounts payable 48,279 40,138 Accrued liabilities 48,365 5,058 --------- --------- Net cash used in operating activities (48,767) (21,757) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (62,765) (24,221) Purchase of temporary investments - (2,090) Sale of temporary investments - 5,022 Net decrease in other assets 271 - --------- --------- Net cash used in investing activities (62,494) (21,289) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sales of Common Stock 1,825 1,914 Proceeds from issuance of notes payable 745,864 79,222 Payments on notes payable and capitalized lease obligations (771,668) (56,045) Purchase of treasury stock (4,363) - Tax benefit from early dispositions of employee stock 6,755 244 Conversion of Series A Preferred Stock - (30) Net proceeds from public offering of Common Stock 191,146 - Net proceeds from issuance of convertible notes 43,131 - Proceeds from notes receivable from shareholders - 880 --------- --------- Net cash provided from financing activities 212,690 26,185 --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 101,429 (16,861) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,023 16,861 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 102,452 $ - ========= ========= SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Sale of Common Stock for a note $ - $ 283 ========= ========= Property and equipment financed under capitalized lease obligations and note payable $ 28,367 $ - ========= ========= Conversion of Series A Preferred Stock to Common Stock $ - $ 1,205 ========= ========= Conversion of Subordinated Notes to Common Stock $ 267 $ - ========= =========
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 September 29, 1996 and December 31, 1995, the results of operations for the three- and nine-month periods ended September 29, 1996 and October 1, 1995, and cash flows for the nine-month periods ended September 29, 1996 and October 1, 1995. The results of operations for the three- and nine-month periods 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 the Company's latest Annual Report on Form 10-K. Pervasiveness of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Principles of Consolidation -- The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries after elimination of all material intercompany accounts and transactions. Revenue Recognition -- Revenue is recognized when units are shipped to customers. However, revenue recognition is deferred on shipments to customers with right of return privileges whose inventory is in excess of estimated normal customers' inventory requirements. The gross margin associated with the deferral of sales in excess of normal customers' inventory requirements totaled $11,141,000 and $3,207,000 at September 29, 1996 and December 31, 1995, respectively, and is included in other accrued liabilities in the accompanying condensed consolidated balance sheets. In addition, the Company records reserves at the time of shipment for estimated volume and consumer rebates and price protection credits to be issued to customers. These reserves totaled $23,271,000 and $1,633,000 at September 29, 1996 and December 31, 1995, respectively, and are netted against accounts receivable in the accompanying condensed consolidated balance sheets. Price Protection -- The Company has agreements with certain of its customers which, in the event of a price decrease, allow those customers (subject to certain limitations) credit equal to the difference between the price originally paid and the reduced price on units in the customers' inventories at the date of a price decrease. When a price decrease is anticipated, the Company establishes reserves for amounts estimated to be reimbursed to the qualifying customers. Foreign Currency Translation -- For purposes of consolidating foreign operations, the Company has determined the functional currency for its foreign operations is the U.S. dollar. Therefore, translation gains and losses are included in the determination of income. Inventories -- Inventories include direct materials, direct labor, manufacturing overhead costs and are recorded at the lower of cost (first-in, first-out) or market and consist of the following: September 29, December 31, 1996 1995 (In thousands) Raw materials $ 113,561 $ 89,030 Work-in-process 8,300 5,680 Finished goods 56,174 3,993 --------- --------- $ 178,035 $ 98,703 ========= ========= Reclassifications -- Certain reclassifications were made to the prior periods' condensed consolidated financial statements to conform with the current 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 period. Common Stock equivalent shares consist primarily of stock options 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 periods presented to reflect the impact of the stock splits described in Note 2. (2) STOCK SPLITS In December 1995, the Company's Board of Directors declared a 3-for-1 Common Stock split, which was effected in the form of a 200% Common Stock dividend, paid on January 31, 1996 to stockholders of record at the close of business on January 15, 1996. On April 23, 1996, the Company's Board of Directors declared a 2-for-1 Common Stock split, which was effected in the form of a 100% Common Stock dividend, paid on May 20, 1996 to stockholders of record at the close of business on May 6, 1996. These stock splits have been retroactively reflected in the accompanying condensed consolidated financial statements. In connection with each stock split, proportional adjustments were made to outstanding stock options and other outstanding obligations of the Company to issue shares of Common Stock. (3) INCOME TAXES Income tax expense for the nine months ended September 29, 1996 has been provided at an effective rate of 39% compared to an effective rate of 27% for the year ended December 31, 1995. This tax rate is based on the Company's projected domestic and foreign pre-tax income for 1996. The increase in the effective tax rate is due to the Company's expected full utilization of available tax credits and foreign net operating loss carryforwards during 1996, and because pre-tax income of certain foreign operations is subject to foreign income taxes at a rate in excess of the U.S. statutory rate. The higher tax on foreign operations is expected to offset the benefits of the tax credits and net operating loss carryforwards which the Company expects to utilize during 1996. Cash paid for income taxes was $37,546,000 for the first nine months of 1996 and $50,000 for the corresponding period in 1995. (4) DEBT Line of Credit -- On July 5, 1995, the Company entered into a loan agreement with the Commercial Finance Division of Wells Fargo Bank, N.A. ("Wells Fargo Bank"). Effective May 13, 1996, the Company renewed and amended its loan agreement with Wells Fargo Bank. The amended agreement permits revolving loans, term loans and letters of credit up to an aggregate outstanding principal amount equal to the lesser of $100 million or 80% of eligible accounts receivable. Amounts outstanding are collateralized by accounts receivable, inventory, equipment, general intangibles and certain other assets. The new revolving line bears interest at the bank's prime rate plus .5% and the term loans bear interest at the bank's prime rate plus .75%. Total availability under this agreement was $98.7 million at September 29, 1996, of which no amount had been drawn. This agreement expires June 30, 1997. Under this agreement, the Company may also secure financing of equipment purchases from third parties up to a maximum of $75 million, less term loans outstanding to Wells Fargo Bank. Among other restrictions, covenants within the agreement require the Company to maintain minimum levels of working capital and net worth. Capital Leases -- From August 1995 to September 1996, the Company entered into various agreements to provide capital lease financing for the purchase of certain manufacturing equipment and office furniture and equipment. The total amount of capital lease commitments at September 29, 1996 is $10.8 million. Other Term Notes -- During 1995, the Company entered into term notes with financial institutions. The proceeds of the notes were used to purchase manufacturing equipment. The term notes have 36-month terms which mature at various dates from November 1988 to January 1999. Interest rates are fixed and range from 8.89% to 9.11%. At September 29, 1996, the Company had $2.8 million outstanding on these notes. The notes are secured by the equipment purchased. The term notes require the Company to maintain minimum levels of working capital, net worth, and quarterly operating income. Financing of European Accounts Receivable -- In November 1995, a foreign subsidiary of the Company entered into an agreement with a German commercial bank for up to DM 50 million (approximately $35 million) which involves the sale of a portion of the foreign subsidiary's accounts receivable to the bank. The agreement expires in November 1996. The Company is currently in the process of negotiating the renewal of this agreement, although there can be no assurance that the agreement will be renewed. Such sales of receivables are limited to 90% of eligible accounts receivable subject to certain credit limits. The Company has retained the bad debt risk on the receivables up to DM 1 million per customer. At September 29, 1996, borrowings against the agreement totaled $23.4 million. In September 1996, the Company entered into an agreement with Quantum Corporation to finance a portion of the purchase price of land, building and equipment associated with a manufacturing facility in Penang, Malaysia. Even though the Company is occupying and utilizing the facility, the promissory note reflecting the portion of the purchase price being financed will not be signed or finalized until after receipt of approval of the sale by the Malaysian government, which the Company anticipates will occur the first quarter of 1997. However, since the Company is utilizing the facilities, the assets and debt have been reflected in the accompanying financial statements. The amount financed under this agreement will be $18.0 million, which will bear interest at 8.5%, and will be payable over a three-year period. Security under this agreement will be comprised of the land, building and equipment which was purchased. The agreement will require the Company to maintain minimum levels of working capital and net worth. Cash paid for interest was $6,769,000 during the first nine months of 1996, including interest on capital leases and convertible notes. Interest expense in the first nine months of 1995 was minimal. Included in interest expense for the nine months ended September 29, 1996 was $759,000 of amortization of deferred charges associated with obtaining the debt. (5) CONVERTIBLE SUBORDINATED NOTES In March 1996, the Company issued $46,000,000 in convertible subordinated notes. The net proceeds from the issuance of the notes totaled $43.1 million and were used to pay down other debts and for operating requirements. The notes bear interest at 6.75% per year and interest payments are payable semi- annually on March 15 and September 15 of each year commencing on September 15, 1996. The notes mature on March 15, 2001. The notes are unsecured and subordinated to all existing and future senior indebtedness of the Company and are effectively subordinated to all existing and future indebtedness and other liabilities of the Company's subsidiaries. The notes are convertible into Common Stock of the Company at the option of the holder at any time and at or before maturity, unless previously redeemed or repurchased, at a conversion price of $9.875 per share (equivalent to a conversion rate of approximately 101.27 shares per $1,000 principal amount of notes), subject to adjustment in certain events. At September 29, 1996, holders have converted $267,000 of convertible subordinated notes into 27,034 shares of Common Stock. The notes are redeemable at any time on or after March 15, 1999, in whole or in part, at the option of the Company, at declining redemption prices, 102.7% for 1999 and 101.35% for 2000, together with accrued interest, if any, to the redemption date. In the event any repurchase event, as defined in the indenture agreement, occurs, each holder of notes may require the Company to repurchase all or any part of such holder's notes at 100% of the principal amount thereof plus accrued interest to the repurchase date. (6) OTHER MATTERS Significant Customers -- During the fiscal quarter and nine months ended September 29, 1996, sales to a single customer accounted for 20% and 17%, respectively, of consolidated sales. During the fiscal quarter and nine months ended October 1, 1995, sales to a single customer accounted for 11% and 10%, respectively, of consolidated sales. No other single customer accounted for more than 10% of the Company's sales for these periods. Forward Exchange Contracts -- The Company has commitments to sell and purchase foreign currencies relating to forward exchange contracts in order to hedge against future currency fluctuations. In addition, the Company purchases components denominated in Yen and has purchased forward contracts to buy Yen. The outstanding forward exchange sales and (purchase) contracts at September 29, 1996 are as follows. The contracts mature in December of 1996. Contracted Currency Amount Forward Rate ---------------------- --------------- --------------- German Mark (3,600,000) 1.5037 British Pound 4,500,000 1.56306 French Franc 29,000,000 5.0851 Spanish Peseta 252,000,000 127.73 Italian Lira 4,750,000,000 1,525.7 Japanese Yen (2,141,200,000) 108.8 Gains and losses on foreign currency contracts intended to be used to hedge operating requirements are reported currently in income. Gains and losses on foreign currency contracts intended to meet firm commitments are deferred and recognized as part of the cost of the underlying transaction being hedged. At September 29, 1996 and December 31, 1995, all of the Company's foreign currency contracts are being used to hedge operating requirements. The Company's theoretical risk in these transactions is the cost of replacing, at current market rates, these contracts in the event of default by the counterparty. IOMEGA CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company reported sales of $310.1 million and net income of $12.8 million, or $0.09 per share, in the third quarter of 1996. This compares to sales of $84.7 million and net income of $2.0 million, or $0.02 per share, in the third quarter of 1995. For the nine-month period ended September 29, 1996, sales were $815.7 million and net income was $37.0 million, or $0.28 per share, compared to sales of $177.4 million and net loss of $1.4 million, or $0.01 per share, in the same period of 1995. SALES Sales for the three- and nine-month periods ended September 29, 1996 increased by $225.4 million, or 266%, and $638.3 million, or 360%, respectively, when compared to the corresponding periods of 1995. The primary reasons for the increases were sales of Zip and Jaz products, which began shipping in March 1995 and December 1995, respectively. Increased sales of Ditto products also contributed to the increased sales. In the third quarter of 1996, sales of Zip and Jaz products accounted for $269.0 million, or 87%, of total sales, sales of Ditto products accounted for $32.5 million, or 10%, of total sales, and sales of Bernoulli products accounted for $8.6 million, or 3%, of total sales. Compared to the third quarter of 1995, Zip and Jaz sales increased by $217.0 million, Ditto sales increased by $13.0 million, and Bernoulli sales declined by $5.4 million. For the nine-month period ended September, 1996, Zip and Jaz sales totaled $700.8 million, or 86%, of total sales, Ditto product sales totaled $88.5 million, or 11%, of total sales, and Bernoulli sales were $26.4 million, or 3%, of total sales. When compared to the first nine months of 1995, Zip and Jaz sales increased by $628.3 million, Ditto sales increased by $34.7 million, and Bernoulli sales declined by $24.7 million. Sales outside of the United States in the third quarter of 1996 were $80.3 million, or 26% of total sales, as compared to $15.4 million, or 18% of total sales in the third quarter of 1995. For the first nine months of 1996, sales outside of the United States were $256.0 million, or 31% of total sales, as compared to $44.7 million, or 25% of total sales for the comparable period of 1995. GROSS MARGIN The Company's gross margin percentage for the three- and nine-month periods ended September 29, 1996 were 26.3% and 26.7%, respectively, compared to 25.4% reported in the third quarter of 1995 and 25.3% in the first nine months of 1995. The gross margin percentage is slightly higher in the third quarter of 1996, as compared to the third quarter of 1995, due primarily to a higher margin percentage achieved on Zip products as a result of a higher ratio of sales of disks versus drives. These higher margins were partially offset by price reductions on Jaz and Ditto products and a rebate program on Zip products. For the first nine months of 1996, the gross margin percentage is slightly higher than the same period of 1995, again due to higher margin percentage achieved on Zip products due to a higher ratio of sales of disks versus drives and also due to manufacturing start up costs associated with Zip products experienced in 1995. Gross margins in the first nine months of 1996, as compared to 1995, were negatively impacted by a shift in product mix away from higher margin Bernoulli products to lower margin Zip, Jaz and Ditto products. Gross margins for the remainder of 1996 will depend in large part on sales of Zip and Jaz disks, which generate significantly higher gross margins than the corresponding drives, and on the sales mix between disks and drives, and between Zip, Ditto and Jaz products. Although the Company expects the costs of Zip, Jaz and Ditto products to decline in the future as production increases and the start up costs associated with Jaz products decrease, the gross margin percentages will depend on the Company's ability to achieve planned cost reductions, as well as on recent and any future pricing actions. Also, future gross margin percentages will be impacted by the mix between OEM sales, which generally provide lower gross margins than sales to other channels, and retail sales, as well as other factors. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses represented 16% of sales for the third quarter of 1996, and 15% for the first nine months of 1996, compared to 16% and 19% for the third quarter and first nine months of 1995, respectively. The decline in these percentages for the comparable nine-month periods is primarily due to increased sales volumes in 1996. The actual selling, general and administrative expenses increased by $36.4 million in the third quarter and $89.2 million for the first nine months when compared to the corresponding periods of 1995. The increased expenses are primarily the result of advertising expenses incurred to increase the market awareness of Zip, Jaz and Ditto, 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, in absolute dollars, to increase further during the remainder of 1996, due to planned additional advertising and promotional expenses, trade show expenses, and variable selling expenses. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses were 3% of sales in the third quarter of 1996, and 4% of sales for the first nine months of 1996. In 1995, research and development expenses were 6% of sales in the third quarter and 7% of sales for the first nine months. The decline in the percentages from 1995 to 1996 is due to increased sales volumes. The actual research and development expenses increased by $5.7 million for the third quarter and $16.2 million for the first nine months of 1996 when compared to the same periods of 1995. The increased expenses are primarily the result of expenditures related to continued development of Zip, Jaz and Ditto products. Management expects continued increases in research and development expenses, in absolute dollars, during the remainder of 1996, due to planned increases in resources dedicated to future product development. OTHER Interest expense increased by $1.4 million in the third quarter and $6.0 million in the first nine months of 1996 compared to the same periods in 1995. The increases, on a year-to-date basis, are primarily due to interest expense associated with the Wells Fargo Bank line of credit, financing of European accounts receivable, capital leases, other term notes and the convertible subordinated notes. Interest income increased by $1.6 million in the third quarter and $1.6 million in the first nine months of 1996 compared to comparable periods in 1995. The increases are due to higher levels of available cash balances. 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. INCOME TAXES For the nine-month period ended September 29, 1996, the Company recorded a tax provision of $23.8 million, representing an effective income tax rate of 39%. The tax rate has increased from the rate of 27% recorded in 1995 due to the Company's expected full utilization of available tax credits and foreign net operating loss carryforwards in 1996. The Company anticipates that the effective income tax rate will remain at 39% for the remainder of 1996. However, differences between the currently anticipated mix of foreign income versus domestic income, and the actual mix, will have an impact on the income tax rate that is recorded in future quarters. SEASONALITY The retail market to which the Company's products are targeted is seasonal with a substantial portion of total sales typically occurring in the fourth quarter, and sales slow downs commonly occurring during the summer months, particularly in Europe. LIQUIDITY AND CAPITAL RESOURCES At September 29, 1996, the Company had cash and cash equivalents of $102.4 million, working capital of $231.5 million, and a ratio of current assets to current liabilities of 1.8 to 1. During the first nine months of 1996, the Company's cash and cash equivalents increased by $101.4 million, comprised of $212.7 million provided from financing activities offset by $62.5 million used in investing activities and $48.8 million used in operating activities. Included in cash and cash equivalents provided from financing activities is $43.1 million in net proceeds from the issuance of convertible notes which were issued in March 1996 and $191.2 million in net proceeds from a secondary offering of common stock which was completed in June 1996. These proceeds were offset by $25.8 million of net payments against notes payable and capital lease obligations, and $4.4 million used to repurchase 300,000 shares of the Company's common stock. The primary component of cash and cash equivalents used in investing activities is $62.8 million used for the purchase of property and equipment. Net cash used in operating activities includes an increase of $91.8 million in net accounts receivable and an increase of $79.3 million in inventories. These uses of cash and cash equivalents were offset by an increase of $96.6 million in accounts payable and accrued liabilities. On July 5, 1995, the Company entered into a loan agreement with Wells Fargo Bank. Effective May 13, 1996, the Company renewed and amended its loan agreement with Wells Fargo Bank. The amended agreement permits revolving loans, term loans and letters of credit up to an aggregate outstanding principal amount equal to the lesser of $100 million or 80% of eligible accounts receivable. Amounts outstanding are collateralized by accounts receivable, inventory, equipment, general intangibles and certain other assets. The new revolving line bears interest at the bank's prime rate plus 0.5% and the term loans bear interest at the bank's prime rate plus 0.75%. This agreement expires June 30, 1997. Under this agreement, the Company may also secure financing of equipment purchases from third parties up to a maximum of $75 million, less term loans outstanding to Wells Fargo Bank. Among other restrictions, covenants within the agreement require the Company to maintain minimum levels of working capital and net worth. In November 1995, a foreign subsidiary of the Company entered into an agreement with a German commercial bank for up to DM 50 million (approximately $35 million), which involves the sale of a portion of the foreign subsidiary's accounts receivable to the bank. The agreement expires in November 1996. The Company is currently in the process of negotiating the renewal of this agreement, although there can be no assurance that the agreement will be renewed. In addition, the Company has entered into various agreements to provide capital lease financing and other term loans for the purchase of certain manufacturing equipment. The Company's balance sheet at September 29, 1996 reflected short-term borrowings of $34.5 million, consisting of borrowings under the German loan agreement of $23.4 million, term loans of $1.1 million, the short-term portion of financing to be entered into in connection with the purchase of a manufacturing facility in Penang, Malaysia of $6.0 million, and the short-term portion of capitalized lease obligations of $4.0 million. At September 29, 1996, the Company's long-term borrowings were $66.3 million, consisting of $45.7 million of convertible notes, $6.8 million of capitalized lease obligations, $12.0 million representing the long-term portion of the financing related to the facility in Malaysia, and $1.8 million of other term notes. The borrowings have been used to finance working capital needs, including increases in accounts receivable and inventories and capital expenditures related to production volume increases, in addition to the purchase of the manufacturing facility in Malaysia mentioned above. Net accounts receivable increased by $91.8 million at September 29, 1996 when compared to December 31, 1995, due primarily to increased sales. Inventory increased by $79.3 million. The increase in inventory was primarily in finished goods (which increased by $52.1 million from December 31, 1995 to September 29, 1996). The majority of finished goods inventory at September 29, 1996 relates to the Zip and Jaz product lines. Start up of the facility in Malaysia, a change in the distribution vendor in Europe, and anticipation of fourth quarter demand were the primary reasons for the increased inventory balance. The increases in accounts receivable and inventory were offset by increases in accounts payable and accrued liabilities of $48.3 million and $48.4 million, respectively. Additions to property and equipment for the first nine months of 1996 totaled $91.1 million, offset by $10.4 million in proceeds from capital leases and $18.0 million in seller financing for the manufacturing facility in Malaysia. These additions were primarily related to increased manufacturing capacity for Zip, Jaz and Ditto products, including $28.0 million for the manufacturing facility in Malaysia. The Company expects property and equipment additions to be less significant in future quarters. The Company expects that its balance of cash and cash equivalents, together with current sources of available financing will be sufficient to fund the Company's operations during 1997. Thereafter, the Company may require additional funds to finance its operations. The precise amount and timing of the Company's future financing needs cannot be determined at this time, and will depend on a number of factors, including the market demand for the Company's products, the success of the Company's strategy to transfer manfacturing capacity to its new facility in Malaysia, the availability of critical components, the Company's strategic alliances for the manufacture of its products, the progress of the Company's product development efforts, the success of the Company in improving its inventory management, the Company's management of its cash and accounts payable, and the Company's ability to refinance its currently available debt. FACTORS AFFECTING FUTURE OPERATING RESULTS Because the Company is relying on its Zip and Jaz products for the substantial majority of its sales in 1996, the Company's future operating results will depend in large part on the ability of those products to attain widespread market acceptance. Although the Company believes there is a market demand for new personal computer data storage solutions, there can be no assurance that the Company will be successful in establishing Zip and Jaz as accepted solutions for that market need. The extent to which Zip and Jaz achieve a significant market presence will depend upon a number of factors, including the price, performance and other characteristics of competing solutions introduced by other vendors, including the LS-120 and Syquest Technology, Inc.'s EZ Flyer 230 and SyJet 1.3 GB, the timing of the introduction of such solutions, the success of the Company in establishing OEM arrangements for Zip and Jaz with leading personal computer manufacturers, the success of the Company in educating consumers about the existence and possible uses of Zip and Jaz products as storage devices. In addition, component shortages or other factors affecting the supply of the Company's products, including any difficulties encountered during the transfer of manufacturing capacity to the Company's new facility in Malaysia, could limit the Company's sales and provide an opportunity for competing products to achieve market acceptance. Also, the success of the Company's efforts to restructure its European operations will have an impact on future operating results. The Company's business strategy is substantially dependent on maximizing sales of its proprietary Zip and Jaz disks, which generate significantly higher margins than its disk drives. If this strategy is not successful, either because the Company does not establish a sufficiently large installed base of Zip and Jaz drives, because the sales mix between disks and drives is below levels anticipated by the Company, because another party succeeds in producing disks that are compatible with Zip and Jaz drives without infringing the Company's proprietary rights, or for any other reason, the Company's sales would be adversely affected, and its net income would be disproportionately adversely affected. Future market demand for the Company's products cannot be predicted with certainty. Sales of Zip products in 1995, and Zip and Jaz products in the first nine months of 1996, were the primary reasons for the Company's revenue growth in these periods, however, these sales may not be indicative of the long-term demand for such products. Accordingly, the sales growth experienced by the Company in 1995 and the first nine months of 1996 should not be assumed to be an indication of future sales. Moreover, in light of the Company's revenue growth in 1995 and the first nine months of 1996, and the change in the nature of its business over the past year, the Company believes that period-to-period comparisons of its financial results are not necessarily meaningful. In addition, the Company has experienced and may experience significant fluctuations in its quarterly operating results. The Company's European sales are predominantly denominated in foreign currencies. In addition, the Company purchases certain components in foreign currencies. The Company enters into forward exchange contracts to sell and purchase foreign currencies as a means of hedging its foreign operating cash flows. Fluctuations in the value of foreign currencies relative to the U.S. dollar could result in foreign currency gains and losses. 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 during the quarter for which this report on Form 10-Q 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 12, 1996 Kim B. Edwards President and Chief Executive Officer /s/ Leonard C. Purkis Dated: November 12, 1996 Leonard C. Purkis Senior Vice President, Finance and Chief Financial Officer EXHIBIT INDEX The following exhibit is filed as part of this Quarterly Report on Form 10-Q: Exhibit No. Description 10.26 (i) Seventh Amendment to Loan Agreement dated July 31, 1996 between the Company and Wells Fargo Bank, N.A., Commercial Finance Division. 10.34 Agreement for the Sale and Purchase of Assets in Malaysia, dated September 13, 1996 between the Company and Quantum Corporation. 10.34 (a) Exhibit A to the Agreement for the Sale and Purchase of Assets in Malaysia, dated September 13, 1996 between the Company and Quantum Corporation - Preliminary Form of Secured Promissory Note. 10.34 (b) Exhibit B to the Agreement for the Sale and Purchase of Assets in Malaysia, dated September 13, 1996 between the Company and Quantum Corporation - The Indemnification Agreement. EX-10.26(I) 2 EXHIBIT 10.26 (i) SEVENTH AMENDMENT TO LOAN AGREEMENT THIS SEVENTH AMENDMENT TO LOAN AGREEMENT (this "Amendment") is entered into as of July 31, 1996, by and between IOMEGA CORPORATION, a Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Lender"). RECITALS WHEREAS, Borrower is currently indebted to Lender pursuant to the terms and conditions of that certain Loan Agreement between Borrower and Lender dated as of July 5, 1995, as amended ("the Loan Agreement"). WHEREAS, Lender and Borrower have agreed to certain changes in the terms and conditions set forth in the Loan Agreement and have agreed to amend the Loan Agreement to reflect said changes. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Loan Agreement shall be amended as follows: 1. Section 2.2(d) of the Loan Agreement is hereby deleted in its entirety, and the following substituted therefor: "Section 2.2(d). Third Party Term Lender. At Borrower's option, Borrower may obtain term loan financing not to exceed $75,000,000.00 from one or more parties other than Lender, which loans may be secured only by purchase money liens on new equipment and/or by liens on the real estate and equipment to be acquired by Borrower in Malaysia and which loans, in the aggregate with all loans outstanding under Facility B, do not exceed $75,000,000.00. Borrower shall provide to Lender executed copies of all documentation evidencing the term loan financing permitted hereunder not later than ten (10) days after the funding of the loan(s) evidenced thereby." 2. Section 9.5 of the Loan Agreement is amended by adding thereto a new sentence which reads as follows: "In addition to the foregoing, Borrower may purchase up to 2,000,000 shares of its issued and outstanding common stock for an aggregate price not to exceed $50,000,000.00." 3. Except as specifically provided herein, all terms and conditions of the Loan Agreement remain in full force and effect, without waiver or modification. All terms defined in the Loan Agreement shall have the same meaning when used in this Amendment. This Amendment and the Loan Agreement shall be read together, as one document. 4. Borrower hereby remakes all representations and warranties contained in the Loan Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Loan Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above. WELLS FARGO BANK IOMEGA CORPORATION NATIONAL ASSOCIATION By: /s/ Robert J. Simmons By: /s/ Michael P. Baranowski Title: Treasurer Title: Vice President EX-10.34 3 EXHIBIT 10.34 Effective September 13, 1996 BETWEEN QUANTUM CORPORATION AND QUANTUM STORAGE (MALAYSIA) SDN.BHD. AND IOMEGA CORPORATION AND IOMEGA (MALAYSIA) SDN.BHD. __________________________________________________ AGREEMENT FOR THE SALE AND PURCHASE OF ASSETS IN MALAYSIA __________________________________________________ CONTENTS Clause Heading Page 1. Interpretation. . . . . . . . . . . . . . . 3 2. Sale of Assets. . . . . . . . . . . . . . . 4 3. Consideration . . . . . . . . . . . . . . . 5 4. Pre-Closing . . . . . . . . . . . . . . . . 5 5. Closing . . . . . . . . . . . . . . . . . . 6 6. Obligations of QSM. . . . . . . . . . . . . 8 7. Obligations of Iomega . . . . . . . . . . . 8 8. Employees . . . . . . . . . . . . . . . . . 8 9. Periodic Payments . . . . . . . . . . . . . 8 10. Representations, Warranties and Undertakings of QSM 9 11. Representations, Warranties and Undertakings ofIomega 10 12. Representations, Warranties and Undertakings of Both Parties. . . . . . . . . . . . . . . . . . 11 13. Limitation of Liabilities . . . . . . . . . 11 14. Access to Information . . . . . . . . . . . 13 15. Environmental Indemnity . . . . . . . . . . 13 16. Termination . . . . . . . . . . . . . . . . 13 17. Miscellaneous . . . . . . . . . . . . . . . 14 Schedule and Exhibits Schedule The Assets . . . . . . . . . . . . . . 16 Exhibit A Secured Promissory Note. . . . . . . . . 17 Exhibit B The Indemnification Agreement. . . . . . 21 Exhibit C Agreement as to Certain Employees of Quantum Peripherals Malaysia Sdn.Bhd . . . . . . 23 Exhibit D Mutual Non-Disclosure Agreement. . . . . 24 Exhibit E Non-Exclusive List of Equipment Turned Over to Iomega. . . . . . . . . . . . . . . . . 25 THIS AMENDED AND RESTATED AGREEMENT is effective as of September 13, 1996. BETWEEN: (1) Quantum Corporation, a Delaware Corporation whose principal place of business is at 500 McCarthy Blvd., Milpitas, California 95035, ("Quantum U.S.") and Quantum Storage (Malaysia) Sdn.Bhd., a private limited company incorporated in Malaysia whose registered office is Ground Floor, Wisma Pen-Group, No. 37 Jalan Anson 10460 Penang, Malaysia ("QSM"), (collectively "Quantum"): AND (2) Iomega Corporation, a Delaware Corporation whose principal place of business is at 1821 West Iomega Way, Roy, Utah 84067 ("Iomega U.S.") and Iomega Malaysia Sdn.Bhd., a private limited company incorporated in Malaysia whose [registered office] will be (is) Suite 13-03, 13th Floor, Menara, Tan & Tan 207 Jalan Razak 50400, Kuala Lumpur, Malaysia, ("Iomega Malaysia") (collectively "Iomega)); WHEREAS, Quantum U.S. and Iomega U.S. have entered into a Letter Agreement dated July 15, 1996 (the "Letter Agreement") for the sale by QSM and purchase by Iomega Malaysia of the Assets (as hereinafter defined); and WHEREAS, the Parties now wish to enter into a more definitive agreement as herein stated. NOW THEREFORE, THE PARTIES HEREBY AGREE: 1. INTERPRETATION 1.1 In this Agreement, unless the context requires otherwise: "Agreement to Charge" means the agreement by Iomega Malaysia to execute the Charge; "Assets" means the Property and the Equipment; "Charge" means the legal charge over the Property by Iomega Malaysia in favor of QSM; "Closing" means closing of the sale and purchase of the Assets as specified in Section 5. "Closing Date" means a date not later than five months (150 days) after the filing of a joint application to the PSA for its approval, but not later than six months after execution of this agreement or such other date as the parties may agree in writing. "Consideration" means the consideration for the sale and purchase of the Assets being the sum specified in Section 3.l; "Equipment" means the plan equipment and other items set out in paragraph (3) of the Schedule and the list attached thereto. "Good and Marketable Title" means title that is saleable, unencumbered and valid under Malaysian Law. "Guaranty" means that guaranty delivered at Preclosing by Iomega U.S. in favor of QSM. "Parties" means Quantum and Iomega, collectively; "Party" means either Quantum or Iomega singularly; "Preclosing" means preclosing of the sale and purchase of the Assets as specified in Section 4. "Pre-Closing Date" means Friday, September 27, 1996 or such other date as the Quantum U.S. and Iomega may agree in writing. "Property" means all the leasehold estate in and to the real property as set out in the attached Schedule and any building thereon or other improvements thereto subject to any and all express or implied conditions listed on the title; "Iomega's Lawyers" means Francis Tan of the Azman Davidson law offices in Kuala Lumpur; and Eugene Lim of Donaldson and Burkinshaw in Singapore. "Quantum's Lawyers" means Baker & McKenzie of 1 Temasek Avenue, #27-01 Millennia Tower, Singapore 039192; 1.2 References to statutory provisions shall be construed as references to those provisions as amended or re-enacted or as their application is modified by other provisions (whether before or after the date hereof) from time to time and shall include any provisions of which they are re-enactments (whether with or without modification). 1.3 References herein to Sections and the attached Schedule are to Sections in and the attached Schedule to this Agreement unless the context requires otherwise and the attached Schedule to this Agreement shall be deemed to form part of this Agreement. 1.4 The expressions "Quantum U.S.", "QSM", "Iomega U.S." and "Iomega Malaysia" shall, where the context permits, include their respective successors and permitted assigns. 1.5 The headings are inserted for convenience only and shall not affect the construction of this Agreement. 1.6 Unless the context requires otherwise, words importing the singular include the plural and vice versa and words importing a gender include every gender. 2. SALE OF ASSETS 2.1 Subject to the terms of this Agreement, Quantum U.S. shall cause, and QSM shall sell as legal and beneficial owner and Iomega U.S. shall cause Iomega Malaysia to purchase the Assets. 2.2 Iomega U.S. undertakes that it shall guarantee fulfillment the performance of Iomega Malaysia's obligations under the Note and the Agreement to Charge and the performance of all the obligations of Iomega Malaysia pursuant to this Agreement, the Note and the Agreement to Charge and, for such purpose shall be jointly and severally liable hereunder. 3. CONSIDERATION 3.1 The Consideration shall be U.S. Dollars Twenty Eight Million (U.S. $28,000,000) to be paid to Quantum by Iomega as follows: (a) U.S. Dollars Two Million Eight Hundred Thousand (U.S. $2,800,000) due, as earnest money, upon and with execution of this Agreement. This payment will be offset against the $28,000,000 purchase price. Such initial payment is non- refundable and forfeit to Quantum U.S. if the parties fail to proceed to Closing due to a material breach of this Agreement by Iomega. If Closing does not take place as contemplated hereunder due to reasons other than any material breach by Iomega, Quantum U.S. shall thereupon refund to Iomega such initial payment. (b) At Pre-Closing the sum of U.S. Dollars Seven Million Two Hundred Thousand (U.S. $7,200,000) to be paid by wire transfer as specified by Quantum U.S. in favor of Quantum U.S. (whose receipt shall be an absolute discharge therefore). If Closing does not take place as contemplated hereunder due to reasons other than any material breach by Iomega, Quantum U.S. shall thereupon refund to Iomega such initial payment. (c) The sum of U.S. Dollars Eighteen Million (U.S. $18,000,000) in accordance with the method of payment described in the note (the format of which is attached to this Agreement as Exhibit "A" (the "Note"). The Note shall be executed and delivered by Iomega Malaysia in favor of QSM upon Closing. 3.2 The Consideration shall be allocated to the Assets in the manner as stated in the attached Schedule. 3.3 QSM owes to Quantum U.S. a sum of U.S. Dollars in excess of Twenty-Eight Million. QSM hereby directs Iomega U.S., to pay directly to Quantum U.S., the Consideration in Section 3.1(a) and (b) and such of the Consideration in Section 3.2(c) as is properly required under the Note, in satisfaction of Iomega's payment obligations to QSM under this Agreement. 3.4 The Parties agree that in the event any payment of the Consideration or any part thereof shall be effected by Iomega Malaysia to QSM, the payment of such Consideration shall be in Ringgit Malaysia (the currency of Malaysia) equivalent to the sum to be paid in U.S. Dollars. The rate of exchange will be the spot rate obtained by Iomega Malaysia in effecting its payments hereunder in Ringgits, if applicable. 3.5 To the extent that it becomes necessary to obtain exchange control approval by local Malaysian authorities or local law requires up to a five (5%) withholding that is not satisfied by the Note, the Parties agree to comply with such regulations. Any amount withheld in excess of taxes subsequently determined payable will be returned with interest earned, if any. 4. PRE-CLOSING 4.1 Pre-Closing shall take place in Singapore at the offices of Quantum's Lawyers or at such other place and time as shall be mutually agreed. 4.2 At Pre-Closing: (a) QSM shall deliver to Iomega Malaysia: (i) the document of title to the Property which is evidence of Good and Marketable title to the Property under Malaysian law together with the transfer form (Form 14A) of the National Land Code No. 56 of 1965 duly executed by QSM for the transfer of the Property from QSM to Iomega Malaysia; (ii) any designs and drawings, plans, technical and sales publications, advertising material, brochures, catalogues held by QSM in relation to the Assets, (iii) copies of all receipts in respect of quit rent and assessment in respect of the Property; (iv) title to the Equipment by way of delivery of possession of the Equipment, as well as any title documents thereto (if any); (v) and any other documents necessary and in the possession of QSM to the transfer of the Assets and requested by Iomega; (vi) any warranty documents as to the Property or Equipment, if any. (vii) Quantum will obtain or deliver to Iomega a copy of the resolutions of the shareholders an the board of directors of Quantum Malaysia authorizing the sale of the property. 4.3 Iomega to deliver to QSM: (i) the executed Guaranty; (ii) such payment of the Consideration as specified in Section 3.1(b). 5. CLOSING 5.1 The following shall be obtained, or delivered to Quantum, as the case may be on or before Closing by Iomega: (a) approval of the Penang Development Corporation ("PDC") to the transfer of the Property to Iomega Malaysia; (b) the approval of the Penang State Authority ("PSA") to the transfer of the Property to Iomega Malaysia; (c) the adjudication of the stamp duty payable on the transfer of the Property by the relevant Stamp Office; (d) the approvals required for the registration of the Charge (the "Charge Approvals" as defined in the Agreement to Charge; (e) charter documents of Iomega Malaysia and certificates from appropriate Malaysian governmental agencies certifying that Iomega Malaysia is in good standing under the law of Malaysia; (f) certificates from the Secretaries of State for the States of Delaware and Utah certifying that Iomega U.S. in good standing in such state; (g) a certificate dated as of the Closing of the Secretary or Assistant Secretary of Iomega U.S. certifying (i) the incumbency and specimen signatures of the persons authorized to execute and deliver this Agreement and the Guaranty on behalf of Iomega U.S., (ii) a copy of the resolutions of the board of directors of Iomega U.S. authorizing the transactions contemplated hereby including the issuance of the Guaranty; and (iii) a copy of the Certificate of Incorporation and By-Laws of Iomega U.S., together with all amendments and supplements thereto as in effect on the Closing Date; and (h) a legal opinion of counsel to Iomega U.S. as to the due authorization, execution and delivery by Iomega U.S. of this Agreement and the Guaranty, that this Agreement and the Guaranty are enforceable against Iomega U.S. in accordance with their terms and that the execution and delivery of this Agreement and the Guaranty by Iomega U.S. will not violate any relevant U.S. law or any material agreement of Iomega U.S. 5.2 The approvals and the adjudication referred to in Section 5.1 or any of them shall be deemed not to have been obtained if they are obtained with conditions deemed to be prejudicial to Iomega Malaysia. For the purpose of this section, a condition shall only be deemed to be prejudicial if it involves a payment by Iomega Malaysia of an aggregate sum exceeding U.S. Dollars One Hundred Thousand (U.S. $100,000) or if such condition materially and adversely affects the commercial viability of the Property. 5.3 Iomega may waive all or any of the approvals and the adjudication, or any conditions of the approvals or adjudication deemed to be prejudicial to Iomega Malaysia. 5.4 Iomega Malaysia agrees that none of the payment of the stamp duty payable in respect of the transfer of the Property, and the administrative fees chargeable by PDC and the PSA in giving their approvals, referred to in 5.1, shall be deemed to be a condition which is prejudicial to Iomega referred to in Section 5.2 above. 5.5 Iomega Malaysia hereby agrees to execute the Agreement in Charge and all documents and do all things as shall be necessary to give effect to the Charge. 5.6 Iomega hereby undertakes that it shall present the Transfer for registration at the relevant Land Office, on the same day the last of the approvals referred to in Section 5.1 are obtained and, simultaneously therewith, also present the Charge for registration. 5.7 If, due to failure to obtain the Approvals, for other reason than material breach, the Parties fail to Close, on or before Closing Date, Iomega shall either waive the preconditions to Closing or vacate the Property within ninety (90) days. If Iomega chooses to vacate, it shall restore the Property to its original condition, less reasonable wear and tear, and Quantum shall deduct from the ten million dollars ($10,000,000) Consideration to be refunded to Iomega pursuant to Section 3.1 of this Agreement, a sum equal to the accrued interest on the Note from the date of this Agreement (i.e. September 13, 1996) until such time as Iomega vacates and restores the premises. 5.8 At Closing, Iomega Malaysia shall execute and deliver to QSM the Note, a copy of which is attached to this Agreement as Exhibit "A". 5.9 Quantum U.S. shall execute and deliver to Iomega a Board of Directors Resolution authorizing the sale of the Property. 6. OBLIGATIONS OF QSM 6.1 Prior to Pre-Closing, QSM shall pay, satisfy and discharge all the debts, liabilities and obligations as might encumber the Assets. 6.2 QSM shall assist Iomega in obtaining any necessary consents granted by any third parties and the approval of the Penang State Authority and the Penang Development Corporation to the transfer of the Property to Iomega Malaysia. 6.3 QSM shall duly submit such notifications and execute all documents and do all acts and things on its part to be executed and done under the Real Property Gains Tax Act, 1976. 6.4 QSM shall do and execute or procure to be done and executed all such further acts, deeds, things, and documents as may be necessary to give effect to the terms of this Agreement. 7. OBLIGATIONS OF IOMEGA 7.1 Iomega Malaysia shall obtain a manufacturing license sufficient to operate the Assets and take possession of the Property as soon as possible. 7.2 Iomega Malaysia shall duly submit such notifications and execute all documents and do all acts and things on its part to be executed and done under the Real Property Gains Tax Act, 1976. 7.3 Iomega shall do and execute or procure to be done and executed all such further acts, deeds, things, and documents as may be necessary to give effect to the terms of this Agreement. 8. EMPLOYEES 8.1 At Iomega's request, QSM retained a number of employees on behalf of Iomega for the purpose of facilitating Iomega's timely operation of the Assets. Iomega has agreed to indemnify Quantum U.S. and QSM for any and all liability incurred pursuant to this accommodation. See Indemnification Agreement, a copy of which is attached to this Agreement as Exhibit "B" and incorporated by this reference. 8.2 As part of the consideration for QSM selling the Property and temporarily hiring the employees (See Section 8.1 above), Iomega further agrees that for a six month period, expiring January 31, 1997 it will not recruit or hire certain employees of Quantum Peripherals Malaysia as listed in Exhibit "C". 9. PERIODIC PAYMENTS 9.1 Any amounts paid or receivable in respect of the Assets which are of a periodical nature (such as deposits, rents, quit rents, assessments, rates, insurance premiums, gas, water, electricity, telephone charges, license fees, commissions, royalties and other outgoings or receipts) shall, unless otherwise agreed, be prorated between QSM and Iomega Malaysia according to the portion of the period remaining for the above expense as of July 15, 1996. 9.2 Any salaries, wages and other emoluments and all statutory contributions and salaries tax for which QSM is accountable after July 15, 1996 in respect of QSM employees retained by Iomega Malaysia pursuant to Section 8.1 shall be reimbursed to QSM by Iomega. 10. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS OF QSM Quantum U.S. and QSM hereby represent, warrant and undertake to Iomega that: 10.1 The representations, warranties and undertakings set out in each paragraph of this Section 10 shall remain true as at Closing as a condition of the parties obligation to complete the Closing. 10.2 Organization and Existence. Quantum U.S. is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 10.3 QSM is a wholly owned subsidiary of Quantum U.S. and has been duly incorporated and is validly existing under the laws of Malaysia and has full power, authority and legal right to own its Assets and carry on its business and is not in receivership or liquidation, it has taken no steps to enter liquidation and no petition has been presented for any winding up QSM and there are no grounds on which a petition or application could be based for the winding up or appointment of a receiver of QSM. QSM hereby represents, warrants and undertakes to Iomega that: 10.4 To the best of QSM's knowledge, it is the sole beneficial owner of and has a Good and Marketable title to the Property. 10.5 To the best of QSM's knowledge, there are no options or other agreements outstanding which provide for the sale or transfer to any person of or the right to require the creation of any mortgage, charge, pledge, lien or other security or encumbrance over the Assets or any part thereof. 10.6 To the best of QSM's knowledge, there is no unsatisfied judgment, court order or tribunal or arbitral award outstanding against QSM and no distress, execution or process has been levied on any part of the Assets. 10.7 To the best of QSM's knowledge, it is not in default under any agreement relating to the Equipment to which it is a part or by which it is bound. 10.8 Without limiting the foregoing, to the best of QSM's knowledge, there are no loans, guarantees, pledges, mortgages, given, made or incurred by or on behalf of QSM in relation to the Assets. 10.9 To the best of QSM's knowledge, it is not involved whether as plaintiff or defendant or otherwise in any civil criminal or arbitration proceedings in relation to the Assets which might affect the Assets (apart from debt collection in the ordinary course of business) or in any proceedings before any tribunal and no such proceedings are threatened or pending, and no claim, dispute, adverse tax, acquisition or other notice by any governmental authorities or creditors relating to the Assets has been presented against or is being engaged by Quantum. 10.10 There are no material facts or circumstances currently known to QSM which are likely to result in any such proceedings being brought by or against QSM or against any person for whose acts or defaults QSM may be vicariously liable. 10.11 To the best of QSM's knowledge, all information contained in this Agreement (including the recitals) is true and accurate. 10.12 To the best of QSM's knowledge, all information given to Iomega and its professional advisors by QSM, its officers and employees and QSM's professional advisors in writing during the negotiations prior to this Agreement was when given, and is at the date hereof true and accurate and there is no fact, matter or circumstance which has not been disclosed in writing to Iomega or its professional advisors which renders any such information untrue, inaccurate or misleading or which might reasonably affect the willingness of Iomega to proceed with the purchase of the Assets on the terms of this Agreement. 10.13 QSM represents and warrants to Iomega that there are no outstanding employee contracts or obligations between QSM and any of its former employees that have been hired by Iomega Malaysia. 11. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS OF IOMEGA Iomega hereby represents, warrants, and undertakes to Quantum that: 11.1 Organization and Existence. Iomega U.S. is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. Iomega Malaysia is a wholly owned subsidiary of Iomega U.S. and has been duly incorporated and is validly existing under the laws of Malaysia and has full power, authority and legal right to enter into this Agreement and carry out the obligations assumed hereunder. 11.2 Financing. Iomega has sufficient funds in bank accounts, commitments for funds or currently available lines of credit to pay the Consideration. 11.3 Iomega acknowledges and agrees that having been given the opportunity to inspect the Property and review information and documentation affecting the Property, buyer is relying solely on its own investigation of the Property and review of such information and documentation, and not on any information provided or to be provided by QSM. Iomega further acknowledges and agrees that any information made available to Iomega or provided or to be provided by or on behalf of Quantum with respect to the Property was obtained from a variety of sources and that Quantum has not made any independent investigation or verification of such information and makes no representations as to the accuracy or completeness of such information or documentation. Quantum is not liable or bound in any manner by any representations or information pertaining to the Property, or the operation thereof, furnished by any real estate broker, agent, employee, servant or other person. 11.4 Iomega further acknowledges and agrees that to the maximum extent permitted by law, the sale of the Property as provided for herein is made on an "as is" condition and basis with all faults, and that Quantum has no obligations to make repairs, replacements or improvements except as may otherwise be expressly stated herein. 11.5 To the best of Iomega's knowledge, all information given to Quantum and its professional advisors by Iomega, its officers and employees and Iomega's professional advisors in writing during the negotiations prior to this Agreement was when given, and is at the date hereof true and accurate and there is no fact, matter or circumstance which has not been disclosed in writing to Iomega or its professional advisors which renders any such information untrue, inaccurate or misleading or which might reasonably affect the willingness of QSM to proceed with the sale of the Assets on the terms of this Agreement. 12. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS OF BOTH PARTIES 12.1 Non-Contravention. The execution, delivery and performance of this Agreement and the Note do not and will not contravene or conflict with any certificates of incorporation or bylaws of either Party or contravene or conflict with any provision of any law, regulation, judgment, injunction, order or decree binding upon or applicable to either party. 12.2 Finders' Fees. There is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of either Party who might be entitled to any fee or commission from either Party or any of its Affiliates upon consummation of the transactions contemplated by this Agreement. 12.3 Litigation. There is no claim or any third party nor any action, suit, investigation or proceedings pending against or to the knowledge of either Party, threatened against or affecting either Party before any court or arbitrator or any governmental body, agency or official that in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated hereby. 12.4 Both parties have the full power, authority and legal right to enter into this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not result in the breach or cancellation or termination of any of the terms or conditions of or constitute a default under any agreement, commitment or other instrument to which either is a Party. 13. LIMITATION OF LIABILITIES 13.1 (a) Neither Party shall be liable for any breach of representations, warranties or undertakings: (i) which would not have arisen but for a voluntary act, omission or transaction by the other Party after the date hereof which could reasonably have been avoided or carried out and/or which on the part of the other Party was not in the ordinary course of business; (ii) which arise as a result of the other Party's failure to cooperate, or arises as a result of the Other Party failing to act in accordance with any reasonable request to avoid, resist or compromise any claim after being given a reasonable time in which to comply with any such request; and/or (b) The liability of QSM in respect of any claims for breach of representations, warranties or undertakings made hereunder shall be limited as follows: (i) the maximum aggregate liability of QSM in respect of all claims for breach of representations warranties or undertakings shall not exceed U.S. $2,000,000. (ii) no claims may be brought against QSM in respect of a breach of representations, warranties or undertakings after the expiry of three years from the date hereof. (c) It is a condition of any claim for breach of representations, warranties or undertakings hereunder either Party shall, upon any claim, action, demand or assessment being made or issued against it which could lead to a claim by it for breach of representations, warranties or undertakings under this Agreement, promptly give notice thereof to the other Party. (d) The amount of any compensation or damages payable by QSM in respect of any claims for breach of representations, warranties or undertakings or under the indemnities shall be computed after taking into account and giving full credit for Assets realized, if any, at the date of any relevant claim within two (2) years from the date hereof (less any realization costs and expenses); (e) If any claim for breach of representations, warranties or undertakings is brought under this Agreement in relation to any liability of either Party which is contingent only, the other Party shall not be liable to make any payment in respect thereof until such contingent liability becomes an actual liability and liquidated as to amount. (f) In no event shall either Party be liable to the other for any remote, punitive or consequential damages. 13.2 Iomega acknowledges and agrees that QSM has not made, does not make and specifically negates and disclaims any representations, warranties, promises, covenants, agreements or guaranties of any kind or character whatsoever, whether express or implied, oral or written, past, present or future, of, as to, concerning or with respect to: (a) value; (b) the income to be derived from the Property; (c) the suitability of the Property for any and all activities and uses which Iomega may conduct thereon, including the possibilities for future development of the Property; (d) the habitability, merchantability, profitability or fitness for a particular purpose of the Property; (e) the manner, quality, state of repair or lack of repair of the Property; (f) the nature, quality or condition of the Property, including, without limitation, the water, soil and geology; (g) the manner or quality of the construction or materials if any, incorporated into the Property; (h) the conformity of the Property to applicable zoning or building requirements after Closing. 14. ACCESS TO INFORMATION 14.1 At the Pre-Closing, QSM shall make available to Iomega and any persons authorized by it all such information relating to the Assets and such access to the Assets and all title deeds, and of relating to the Assets. 14.2 Both Parties hereby undertake that they will not, save as required by law, divulge any confidential information obtained from the other as a result of the transaction memorialized in this Agreement to any person other than its own officers, employees, professional advisors and/or local government authorities who "need to know". For the purposes of implementing this section the parties agree to execute the mutual non-disclosure Agreement, attached to this Agreement as Exhibit "D". 14.3 In the event this Agreement is terminated (pursuant to Section 16), both Parties undertake to return to each other, all information and documents concerning the Assets which have been provided in connection with this Agreement. Each Party also agrees not to use any such information gained by it to further itself in its trade or to the detriment of the other Party unless such information had already been known to it or had become or subsequently becomes public knowledge otherwise than by reason of any act or default of the recipient Party, its advisors or employees. 15. ENVIRONMENTAL INDEMNITY 15.1 Quantum Indemnification: QSM agrees to indemnify, hold harmless and defend Iomega from and against any liabilities, claims, demands, damages (including, without limitation, attorneys', experts' and consultants' fees), fines, penalties, and monetary sanctions arising out of any liability related to contamination of the Property as a result of Hazardous Material Activities conducted by Quantum before July 15, 1996. 15.2 Iomega Indemnification: Iomega shall indemnify, hold harmless and defend Quantum from and against any liabilities, claims, demands, damages (including, without limitation, attorneys', experts' and consultants' fees), fines, penalties, and monetary sanctions arising out of any liability related to contamination of the Property as a result of Hazardous Materials Activities which occur during Iomega's possession or operation of the Property which for purposes of this section shall be deemed to have begun on July 16, 1996. 15.3 For purposes of this Section 15, Environmental Indemnity, "Hazardous Material" shall mean oil, petroleum (or any fraction thereof), explosives, asbestos, radioactive materials and any such other substances as are defined as "hazardous substances," or "hazardous materials" or "hazardous wastes" under applicable laws, regulations, ordinances, rules, codes, permits, and/or restrictions relating to the protection of human health and safety and the indoor and outdoor environment ("Environmental Requirements"). 15.4 For purposes of this Section 15, Environmental Indemnity, "Hazardous Material Activity" shall mean the use, processing, distribution, manufacture, handling, storage, transportation, treatment, disposal, emission, discharge, release (as defined by applicable Environmental Requirements), or threatened release of any Hazardous Material. 15.5 The provisions of these indemnities shall survive to the Closing and to the extent necessary to give effect to such provisions. 16. TERMINATION 16.1 In the event the approvals referred to in Section 5 are not obtained or not obtained on or before Closing or obtained with conditions deemed to be prejudicial (as defined in Section 5.2) to Iomega Malaysia, then the following shall occur: (a) all sums forming part of the Consideration, if paid to QSM, shall be refunded free of interest by QSM to Iomega; (b) Good and Marketable Title to the Property under Malaysian law shall be redelivered to QSM or its designee; (c) all the Equipment shall be re-delivered by possession to QSM, or its designee at the Property; and (d) all other documents delivered by QSM pursuant to Section 4.2 of this Agreement shall be re-delivered to QSM, or its designee and this Agreement, the Charge and Agreement to Charge as well as the Letter Agreement (other than sections concerned with the parties post termination responsibilities and allocation of costs and the mutual Non-Disclosure Agreement attached to this Agreement as Exhibit D), subject to any antecedent breach by either Party, shall terminate and be null and void and of no effect. 17. MISCELLANEOUS 17.1 Each party shall pay its own legal costs and disbursements of, and incidental to, this Agreement, Iomega shall, however, bear all stamp duties and registration fees with such other disbursements of, and incidental to the transactions in this Agreement. However, the Parties hereby agree that the stamp duties and registration fees with such other disbursements of, or incidental to, the registration of the Charge shall be borne by QSM and Iomega Malaysia in equal proportions. 17.2 Each notice, demand or other communication given or made under this Agreement shall be in writing and delivered or sent to the relevant party at its address or fax number as the addressee has by five (5) days' prior written notice specified to the other parties: To Quantum U.S. and QSM: Attention: Andrew Kryder Vice President, General Counsel Quantum Corporation 500 McCarthy Boulevard Milpitas, California 95035 Phone Number: (408) 894-4031 Fax Number: (408) 324-7005 To Iomega U.S. and Attention: Donald Sterling Iomega Malaysia: Vice President, Corporate Counsel and Secretary Iomega Corporation 1821 West Iomega Way Roy, Utah 84067 Phone Number: (801) 778-3188 Fax Number: (801) 778-3871 Any notice, demand or other communication so addressed to the relevant party shall be deemed to have been delivered (a) if given or made by letter, when actually delivered to the relevant address; (b) if given or made by telex, when dispatched with confirmed answer back and (c) if given or made by fax, when dispatched. 17.3 No waiver by either party of any breach by the other party of any provision hereof shall be deemed to be a waiver of any subsequent breach of that or any other provision hereof. If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect, the legality, validity, and enforceability of the remaining provisions of this Agreement shall not be affected or impaired thereby. 17.4 This Agreement is a fully integrated Agreement and constitutes the whole Agreement between the Parties and it is expressly declared that no variations hereof shall be effective unless mutually agreed upon in writing. 17.5 This Agreement shall be governed by and construed in accordance with the laws of California, taking into account the extent to which the Agreement contains terms designed to address the unique circumstances of Malaysia. To the extent that the resolution of a particular action requires the jurisdiction of the courts of Malaysia, both Parties hereby agree to bring the action in said courts of Malaysia. IN WITNESS WHEREOF this Agreement has been executed on the day and year first above written. SIGNED by: /s/ Michael Brown Signature for and on behalf of Michael A. Brown Name QUANTUM CORPORATION President and CEO Title SIGNED by: /s/ Kenneth Lee Signature for and on behalf of Kenneth Lee Name QUANTUM STORAGE (MALAYSIA) SDN.BHD. President and General Manager Title SIGNED by: /s/ Donald R. Sterling Signature for and on behalf of Donald R. Sterling Name IOMEGA CORPORATION Vice President, Corporate Counsel Title SIGNED by: /s/ Donald R. Sterling Signature for and on behalf of Donald R. Sterling Name IOMEGA (MALAYSIA) SDN.BHD. Director Title EX-10.34(A) 4 EXHIBIT 10.34 (a) EXHIBIT A AGREEMENT FOR THE SALE AND PURCHASE OF ASSETS SECURED PROMISSORY NOTE OF IOMEGA (MALAYSIA) SDN.BHD. $18,000,000.00 Milpitas, California Dated _______ ___, 199__ FOR VALUE RECEIVED, AND SUBJECT TO THE TERMS OF THIS SECURED PROMISSORY NOTE (this "Note") AND CLOSING OF THE REAL PROPERTY TRANSACTION MEMORIALIZED IN THE ATTACHED SALE AND PURCHASE AGREEMENT DATED SEPTEMBER 13, 1996, IOMEGA (MALAYSIA) SDN.BHD., with a principal place of business at Plot 44, Bayan Lepas Industrial Park IV, 11900 Penang, Malaysia (the "Company"), unconditionally promises to pay to the order of QUANTUM STORAGE (MALAYSIA) SDN.BHD., a wholly owned Malaysian subsidiary of Quantum Corporation, a Delaware corporation, having its principal place of business at 500 McCarthy Boulevard, Milpitas, California 95035, together with its successors and assigns, (the "Note Holder"), or at such other place as the Note Holder may from time to time designate in writing, in lawful money of the United States of America and in immediately available funds, the principal sum of Eighteen Million Dollars ($18,000,000) together with interest thereof from September 12, 1996 on the unpaid balance of principal from time to time outstanding at the rate of 8.5% per annum until this note is paid in full according to the following terms and conditions: Principal and Interest Repayment. The outstanding principal amount of $18,000,000 shall be due and payable in installments at the Note Holder's principal office or such other place as may be designated from time to time by the Note Holder as follows: (a) The first payment of $7,530,000 ($6,000,000) plus one year interest on $18,000,000 @ 8.5% equaling $1,530,000) shall be due on September 13, 1997. (b) The second payment of $7,020,000 ($6,000,000 plus one year interest on $12,000,000 @ 8.5% equaling $1,020,000) shall be due on September 13, 1998. (c) A final payment of $6,510,000 ($6,000,000 plus one year of interest on $6,000,000 @ 8.5% equaling $510,000) shall be due by September 13, 1999. The Company shall be allowed, at any time to prepay in the amount(s) it desires without penalty. Prepayments shall be applied first to fees and expenses, second to accrued interest and last to principal. The obligations of the Company under this Note are secured by that charge referred to in the attached S&P Agreement ("the Charge") by the Company in favor of the Note Holder. If any day on which a payment is due pursuant to the terms of this Note is not a day on which banks in California are generally open (a "Business Day"), such payment shall be due on the next Business Day following. Events of Default. The occurrence of any of the following shall constitute an "Event of Default" under this Note: (a) The Company shall fail to pay when due or upon maturity any principal, interest, fees or other amounts payable under this Note or Iomega Corporation shall fail to pay when due or upon maturity any principal, interest, fees or other amounts payable under the Guaranty to be executed at Pre-Closing. (b) Any financial statement or certificate furnished to Note Holder in connection with this Note or any representation or warranty made by the Company or Iomega Corporation hereunder or under the Charge, the Agreement for the Sale and Purchase of Assets in Malaysia dated as of September 13, 1996 (the "Purchase Agreement") among Company, Note Holder, Quantum Corporation and Iomega Corporation ("Iomega"), or the Guaranty and together with this Note, the Charge and the Purchase Agreement (the "Purchase Documents") by Iomega in favor of Note Holder by the Company under the Note shall prove to be false, incorrect or incomplete in any material respect when furnished or made. (c) Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument, evidencing aggregate obligations in excess of $5,000,000 (other than this Note or the Guaranty) pursuant to which Iomega, the Company and Iomega's direct or indirect subsidiaries has incurred any debt for borrowed money and as a result of which maturity thereof has been accelerated. (d) The filing of a notice of judgment lien against Iomega or the Company; or the recording of any abstract of judgment against Iomega or the Company in any country in which Iomega or the Company 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 Iomega or the Company; or the entry of a judgment against Iomega or the Company; and with respect to any of the foregoing, the judgment in excess of $5,000,000 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. (e) Either Iomega or the Company shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself of 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; Iomega or the Company 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 or foreign 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 commended against Iomega or the Company, or Iomega or the Company shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Iomega or the Company shall be adjudicated a bankruptcy, 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 or foreign law relating to bankruptcy, reorganization or other relief for debtors. (f) The dissolution or liquidation of Iomega or the Company; or if any of their respective directors, stockholders or members, shall take action seeking to affect the dissolution or liquidation of Iomega or the Company. The Company waives presentment and demand for payment, protest or notice of protest, notice of dishonor, and notice of nonpayment of this Note and all other notices or demands in connection with the delivery, acceptance, performance, default or enforcement of this Note. The Company hereby waives to the full extent permitted by law, the right to plead any and all statutes of limitations as a defense to any demands hereunder. The Company further covenants and agrees as follows: 1. The Company agrees to pay the Note Holder all costs and expenses incurred by such Note Holder, including without limitation, reasonable attorneys' fees and expenses, and court costs (including any costs of appeal) in enforcing and collecting this Note. 2. The Company shall not and shall not permit any of its Subsidiaries to, create, incur, or otherwise cause or suffer to exist or become effective any consensual Lien(s) [except as provided in Section 13 of the Charge (entitled "Leasing and Possession"))], upon Plot 44, Bayan Lepas Industrial Park IV, also known as P.T. 3217, held under Suratan Hakmilik, Sementara No. H-S (D) 8712, Daerah Barat Daya, Palau, Penang (the "Property"). 3. The Company shall not hypothecate or encumber its interest in the Property or any interest therein or suffer or permit the Property or any interest therein to be hypothecated or encumbered by operation of law. [Except as provided in Section 13 of the Charge (entitled "Leasing and Possession")], the Company shall not assign, sell, convey, or otherwise transfer or dispose of the Property or any interest therein. The Company may lease the Property subject to exercise of the Charge thereon. Such lease agreements must be prior approved in writing, by the Note Holder which shall not refuse any lease properly subject to the Charge. 4. The Company shall not consolidate or merge with or into any other Person or entity, or permit any other Person or entity to consolidate or merge with or into the Company, nor shall the Company sell, lease, convey or otherwise dispose of all or substantially all of its assets unless (i) the entity formed by or surviving any such consolidation or merger, or to which such sale, lease, conveyance or other sale shall have been made (the "Surviving Entity"), is a corporation organized and existing under the laws of the United States, any state thereof, the District of Columbia, or Malaysia; (ii) the Surviving Entity assumes all of the obligations of the Company under this Note; (iii) immediately after giving effect to such transaction, no Event of Default nor event that with the passage of time or the giving of notice would lead to an Event of Default, shall have occurred and be continuing; (iv) immediately after giving effect to such transaction, the Consolidated Tangible Net Worth of the Company or the Surviving Entity, as the case may be, would be at least equal to the Consolidated Tangible Net Worth of the Company immediately prior to such transaction; and (v) such consolidation or merger should not have a material adverse effect on the Company's business or on the ability of Note Holder to enforce any Charge. This Note is the Secured Promissory Note referred to in, and is executed and delivered in connection with the Charge. The full amount of this Note is secured by the Charge. The Company shall not, directly or indirectly, suffer or permit to be created or to remain, and shall promptly discharge, any lien on or in the Property or any equipment or property maintained on such Property, or in any portion thereof, except as permitted pursuant to the Charge. In addition, the Company shall not suffer any other matter whereby an interest of the Note Holder under the Charge in the Property or in any lien pursuant to the Charge or any part of the foregoing might be impaired, except as permitted pursuant to such Charge. Upon the occurrence and during the continuance of any Event of Default, Note Holder may, by written notice to the Company, declare all outstanding amounts payable by Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. Upon the occurrence and during the continuance of any Event of Default described in clauses (f) or (g) of the definition of "Events of Default", immediately and without notice, all outstanding amounts payable by Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. In addition to the foregoing remedies, upon the occurrence and during the continuance of any Event of Default, Note Holder may exercise any other right, power or remedy permitted to it by law, either by suit in equity or by action at law, or both. This Note shall be governed by, and construed, enforced and interpreted in accordance with the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. If any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. The provisions of this Note shall inure to the benefit of and be binding on any successor to the Company and shall extend to any assignee of Note Holder. IN WITNESS WHEREOF, the Company has caused this Note to be executed and issued as of the day and year first written above. IOMEGA (MALAYSIA) SDN.BHD. By: ____________________________ EX-10.34(B) 5 EXHIBIT 10.34 (b) Exhibit B Indemnification Agreement QUANTUM CORPORATION, a Delaware corporation, with its primary business location at 500 McCarthy Boulevard, Milpitas, California 95035 and Quantum Storage Malaysia ("QSM") (M) Sdn. Bhd. Malaysia (collectively "Quantum") and IOMEGA CORPORATION, a Delaware Corporation with its primary business location at 1821 West Iomega Way, Roy, UT 84067 and any future Malaysian subsidiary (collectively "Iomega") execute the following indemnification agreement ("Agreement"). Agreement Whereas, Quantum has agreed to cause its wholly owned subsidiary, QSM to sell its facility located at Plot 44, Phase IV, Bayan Free Trade Zone, Penang, Malaysia ("the Facility") and Iomgea has agreed to purchase the Facility, and Whereas, Iomega intends to operate the Facility but has not received the necessary business permits ("Permits") from the Malaysian government to do so, and Whereas, Quantum is in the process of shutting down the Facility, and had scheduled the termination of the employment of the majority of its employees, and Whereas, Iomega has issued offers of employment to approximately 350 of Quantum's employees who were originally scheduled for termination effective July 15, 1996 ("the Iomega Employees"), and Whereas, Iomega has requested Quantum to continue employment of the Iomega employees until such time as Iomega has received the Permits to allow it to employ the Iomega Employees. Whereas, Quantum has agreed to so act, provided that Iomega indemnifies Quantum for any adverse consequence it might suffer as a result of so acting. Now therefore, The parties hereby agree that Iomega will release, indemnify and hold harmless Quantum, and all of its officers, directors, employees, agents or successors in interests from any and all expenses and/or costs, including but not limited to, any legal expenses, claims, proceedings, and/or other adverse monetary consequences associated with, or arising out of, Quantum's continued employment of the Iomega employees and/or the enforcement of this Agreement. Quantum Corporation Iomega Corporation By: /s/ Andy Kryder By: /s/ Donald R. Sterling Andy Kryder Donald R. Sterling Title: V.P., General Counsel Title: Date: 7/12/96 Date: 7/15/96 EX-27 6
5 1000 9-MOS DEC-31-1996 SEP-29-1996 102452 0 228671 30965 178035 41659 192175 64611 650219 288396 0 4236 0 0 249465 650219 815711 815711 597955 749568 1078 0 4251 60814 23845 36969 0 0 0 36969 0.28 0.28
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