-----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, JaP6/EaN0A5R0wZ81XLoHpkiEPrTZlc+rq6ryvpFabKo+9atGyVkNGgKNNavRZ4H x3NGVaAL6Hu8gO+Wg3xnyw== 0001021408-01-502794.txt : 20010702 0001021408-01-502794.hdr.sgml : 20010702 ACCESSION NUMBER: 0001021408-01-502794 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUANTUM CORP /DE/ CENTRAL INDEX KEY: 0000709283 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 942665054 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13449 FILM NUMBER: 1670852 BUSINESS ADDRESS: STREET 1: 501 SYCAMORE STREET CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4088944000 MAIL ADDRESS: STREET 1: 501 SYCAMORE STREET CITY: MILPITAS STATE: CA ZIP: 95035 10-K 1 d10k.txt FORM 10-K FOR PERIOD ENDED MARCH 31, 2001 As filed with the Securities and Exchange Commission on June 29, 2001 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_____________to_____________ Commission file number 0-12390 ___________ QUANTUM CORPORATION (Exact name of Registrant as specified in its charter) Delaware 94-2665054 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 501 Sycamore Drive., Milpitas, California 95035 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (408) 894-4000 ___________ Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- QUANTUM CORPORATION-DLT & STORAGE SYSTEMS GROUP COMMON STOCK NEW YORK STOCK EXCHANGE RIGHTS TO PURCHASE SERIES B JUNIOR PARTICIPATING PREFERRED STOCK NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: 7% CONVERTIBLE SUBORDINATED NOTES DUE 2004 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 31, 2001, was $1,381,849,861. For purposes of this disclosure, shares of Common Stock held by persons who hold more than 5% of the outstanding shares of Common Stock and shares held by officers and directors of the Registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive. As of the close of business on May 27, 2001, the registrant had 154,444,379 shares of DLT & Storage Systems group common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Parts of the Proxy Statement for Registrant's 2001 Annual Meeting of Shareholders (the "Proxy Statement") are incorporated by reference into Part III of this Form 10-K Report. ================================================================================ PART I ITEM 1. Business This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements usually contain the words "estimate," "anticipate," "expect" or similar expressions. All forward- looking statements, including statements regarding anticipated operating results and gross margin trends, are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties. These uncertainties could cause actual results to differ materially from those expected for the reasons set forth under Trends and Uncertainties in Part IV of this report. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Specifically, statements regarding Quantum's anticipated revenues and earnings, including anticipated revenue from the Company's DLTtape business, ATL Enterprise Solutions Group and Snap Server division, as well as the impact of current market conditions on the expected future financial health of those businesses, are all forward-looking statements within the meaning of the Safe Harbor. These statements are based on management's current expectations and are subject to certain risks and uncertainties. As a result, actual results may differ materially from the forward-looking statements contained herein. Factors that could cause actual results to differ materially from those described herein include (1) the amount of orders received and products shipped through the remainder of the quarter or year and any adjustments made at the close of the quarter or year; (2) the ability of Quantum to timely ship its products; (3) uncertainty regarding the slowdown in IT spending and the corresponding reduction in the demand for DLTtape drives; (4) a continued trend toward centralization of storage; (5) Quantum's ability to maintain anticipated pricing and cost levels; (6) the successful execution of Quantum's strategy to expand its businesses into new directions; (7) Quantum's ability to successfully introduce new products; (8) Quantum's ability to anticipate and capitalize on changes in market demand; (9) acceptance of, and demand for, Quantum's products; (10) Quantum's ability to maintain supplier relationships; (11) Quantum's ability to work with industry leaders to deliver customers with integrated business solutions; (12) the ability of Quantum's competitors to introduce new products that compete more successfully with its products; (13) the economic environment and the continued growth of the storage industry; (14) the ability of the Company to sustain and/or improve its cash and overall financial position; and (15) the general economic environment. Business Description Quantum Corporation ("Quantum" or the "Company") (NYSE:DSS), founded in 1980, is a global leader in data protection, meeting the rapidly growing needs of business customers for innovative enterprise-wide storage solutions and services. The Company's products provide backup, archiving and recovery of business-critical data through solutions that deliver high performance, reliability, cost effectiveness and scalability. Quantum is the world's largest supplier of DLTtape(TM) automation systems, DLTtape drives, Super DLTtape(TM) drives, and workgroup-class network attached storage appliances through its Snap Server products. Until the beginning of fiscal year 2002, Quantum Corporation had operated its business through two separate business groups: the DLT & Storage Systems group ("DSS") and the Hard Disk Drive group ("HDD"), that were represented by two classes of Quantum common stock, DSS common stock and HDD common stock, which were intended to track the respective businesses. On March 30, 2001, Quantum's stockholders approved the disposition of the HDD group to Maxtor Corporation (Maxtor). On April 2, 2001, each authorized share of HDD common stock was exchanged for 1.52 shares of Maxtor common stock. The DSS business now represents Quantum, and as such, DSS is no longer a tracking stock, but is now the common stock for Quantum Corporation. The Quantum tracking stock structure had begun on August 3, 1999, when each authorized share of Quantum common stock was exchanged for one share of DSS common stock and one-half share of HDD common stock. This followed stockholders approval on July 23, 1999, when Quantum's stockholders approved a tracking stock proposal that created two new classes of Quantum common stock, DSS common stock and HDD common stock, intended to track separately the performance of the DLT & Storage Systems group and the Hard Disk Drive group. A summary of Quantum's ongoing DLT & Storage Systems business, following the disposition of the HDD group follows. QUANTUM CORPORATION BUSINESS SUMMARY Quantum designs, develops, manufactures, licenses, services, and markets DLTtape and Super DLTtape drives, DLTtape and Super DLTtape media cartridges and storage solutions. Quantum's storage solutions consist of tape automation systems, network attached storage solutions and service. DLTtape products are used to back up large amounts of data stored on network servers. Digital Linear Tape, or DLTtape, is Quantum's half-inch tape technology that is the industry standard for mid-range UNIX and NT system backup and archive applications. In fiscal year 2001, Quantum introduced a new family of tape drive products based on Super DLTtape technology, targeted to serve workgroup, mid-range and enterprise business needs. Quantum's tape automation systems and network attached storage solutions are part of its storage solutions business. Quantum's tape automation systems serve the entire tape library data storage market from desktop computers to enterprise class computers. Quantum offers a broad line of tape automation systems which are used to manage, store and transfer data in enterprise networked computing environments through its ATL business. Quantum is a leading provider of NAS solutions for workgroups, with its network attached storage solutions, consisting of products which incorporate hard disk drives and an operating system designed to meet the requirements of entry and workgroup level computing environments, where multiple computer users access shared data files over a local area network. DLTtape and Super DLTtape drives store data on DLTtape and Super DLTtape media cartridges, respectively. Historical use of tape drives has shown that drives use many media cartridges per year. Growth in the installed base of DLTtape or Super DLTtape drives is expected to result in continued demand for DLTtape and Super DLTtape media cartridges. Quantum's DLTtape media cartridges are manufactured and sold by licensed third-party manufacturers. The installed base of DLTtape drives resulted in shipments of approximately 17 million DLTtape media cartridges in fiscal year 2001. The installed base of DLTtape drives includes more than 1.6 million DLTtape drives that have been shipped to date. Prior to 1998, Quantum's DLTtape media cartridge revenue was derived from direct sales. Beginning in 1998, Quantum's licensed third party DLTtape media manufacturers also began selling DLTtape media cartridges. Quantum receives a royalty fee on DLTtape and Super DLTtape media cartridges sold by its licensees which, while resulting in lower revenue than media sold directly by Quantum, generates comparable income from operations. Quantum prefers to have a substantial portion of media cartridge sales occur through its license model because this minimizes Quantum's operational risks and expenses and provides an efficient distribution channel. Currently, approximately 86% of media sales occur through this license model. Quantum believes that the large installed base of DLTtape drives and its licensing of DLTtape and Super DLTtape media cartridges give Quantum a unique competitive advantage. Media royalties have been a primary source of earnings for Quantum and this trend is expected to continue. This expectation is a forward looking statement and actual results may be affected by factors discussed in Trends and Uncertainties. In fiscal year 2000, Quantum announced the formation of Quantum Technology Ventures ("QTV"), an investment arm for Quantum. QTV is used to explore, develop and invest in new storage technologies and storage businesses. QTV is managed as a wholly-owned subsidiary of Quantum Corporation. Quantum has committed $50 million of funding to QTV over 2001 and 2002 fiscal years. 2 In the fourth quarter of fiscal year 2001, Quantum signed a definitive agreement to acquire M4 Data (Holdings) Ltd., a privately held data storage company based in the United Kingdom. M4 Data provides high performance and scalable tape automation products for the data storage market. This acquisition closed in April 2001 and enables Quantum to leverage M4 Data's complementary products and technologies to enhance the range of storage solutions offered to customers. Products The DLT & Storage Systems group's products include: DLT: --- . Super DLTtape (TM) drives. Quantum introduced a new family of tape drive products based on Super DLTtape technology, targeted to serve workgroup, mid-range and enterprise business needs. Native capacity of 110GB (220GB compressed) and a transfer rate of 11MB per second (22MB compressed). . DLTtape drives. The family of DLTtape drives includes performance up to 40GB of native capacity (80GB compressed) and a sustained data transfer rate of 6MB per second (12MB compressed). . Super DLTtape media cartridges. The Super DLTtape media cartridges are designed and formulated specifically for use with Super DLTtape drives. The capacity of a Super DLTtape media cartridge is up to 110GB (220GB compressed). . DLTtape media cartridges. The DLTtape family of half-inch tape media cartridges is designed and formulated specifically for use with DLTtape drives. The capacity of a DLTtape media cartridge is up to 40GB (80GB compressed). Storage Solutions: ----------------- . Tape automation systems. Quantum offers a broad line of DLTtape automation systems that support a wide range of back-up and archival needs from workgroup servers to enterprise-class servers. Quantum's tape automation systems range from its tape autoloaders which accommodate a single DLTtape drive to the P6000 series library which features Prism Library Architecture(TM) and can be configured in multiple units to scale up to 143 terabytes of storage capacity. In addition, Quantum offers WebAdmin(TM), the industry's first Internet browser-based tape library management system, allowing system administrators to monitor widely distributed storage systems at remote locations with point-and-click ease. In early 2001, Quantum introduced modular automation systems with the M1500. The M1500 is a modular library that is rack mountable and available in increments of two drives and 20 cartridges that easily scale up to 20 drives and 200 cartridges. . Network attached storage solutions. Quantum's Snap! Server(TM) family of network attached storage appliances, include the Snap Server 1000, Snap Server 2000, and Snap Server 4100, with storage capacities ranging from 20GB to 300GB. The Snap Server 4100 features rack mount form factor and RAID 0, 1, and 5. Snap Servers connect directly to a network and can be easily and seamlessly integrated with other network devices. The Snap solution includes a proprietary file system that can simultaneously function in a variety of operating environments, including Apple MacOS, Linux, Microsoft Windows, Novell Netware and UNIX and hard disk drive technology. Customers Quantum's tape drives have achieved broad market acceptance in the mid-range network server market with leading computer equipment manufacturers such as Compaq Computer Corporation, Dell Computer Corporation, Hewlett-Packard Company, IBM Corporation, StorageTek and Sun Microsystems, Inc. Customers for Quantum's storage 3 solutions, including tape automation systems and network attached storage solutions include Compaq, EMC Corporation, Hewlett-Packard, IBM, Ingram Micro, Micro Tech, Sun Microsystems and Tech Data. Because the leading computer equipment manufacturers have a dominant market share for the computer systems within which Quantum's products are incorporated, Quantum's sales are concentrated with several key customers. Sales to Quantum's top five customers in fiscal year 2001 represented 43% of revenue, compared to 47% of revenue in fiscal year 2000. Sales to Compaq were 19% of revenue in fiscal year 2001, compared to 20% of revenue in fiscal year 2000. Sales to Hewlett-Packard were 10% of revenue in fiscal year 2001 compared to 13% in fiscal year 2000. Sales and Marketing Quantum markets its products directly to end customers, manufacturers of computer systems and workstations, distributors, resellers and systems integrators through its worldwide sales force. Quantum also sells its products through the www.quantum.com website. Quantum supports international sales and operations by maintaining a European headquarters in Geneva, Switzerland; a Japanese headquarters in Tokyo; an Asia Pacific headquarters in Singapore and additional sales offices throughout the world. Quantum's international sales, including sales to foreign subsidiaries of United States companies, were 35% of Quantum's total revenue in both fiscal years 2001 and 2000, and 29% of total revenue in fiscal year 1999. Strategic Licensing Partners Fuji Photo Film Co., Ltd. ("Fuji") and Hitachi Maxell, Ltd. ("Maxell") have historically been the primary manufacturers of DLTtape media cartridges for Quantum. In addition, Maxell is licensed to manufacture Super DLTtape media. Quantum's license agreements with Fuji and Maxell allow those companies to independently sell tape media cartridges for which Quantum receives royalties. Quantum believes these strategic license agreements can expand the market for DLTtape and Super DLTtape technology and provide customers with multiple sources for tape media cartridges. In fiscal year 1999, Quantum entered into a manufacturing license and marketing agreement with Tandberg Data ASA, a European-based data storage company, through which Tandberg has become an independent manufacturer of DLTtape drives, and can manufacture products such as those based on Super DLTtape technology. Under the terms of the agreement, Quantum receives royalties on all DLTtape drives that Tandberg manufactures and sells. Tandberg also markets a full spectrum of DLTtape drives, DLTtape media cartridges and tape automation systems. In fiscal year 2000, Quantum entered into a manufacturing license agreement with Benchmark Tape Systems Corporation, a company dedicated to the development of tape backup and archive systems, through which Benchmark can manufacture and sell certain versions of tape drives based on Quantum technology. Manufacturing Quantum manufactures DLTtape drives in both Penang, Malaysia and Colorado Springs, Colorado. In addition, Quantum manufactures Super DLTtape drives, DLTtape drives and network attached storage appliances in its Colorado Springs, Colorado facility. Network attached storage appliances are also manufactured by two third parties. Quantum manufactures tape automation systems in its Irvine, California facility. Quantum also has a logistics site in Dundalk, Ireland. With the acquisition of M4 Data in April 2001, Quantum will manufacture its modular tape automation systems in Yately, United Kingdom. All of Quantum's DLTtape media cartridges are manufactured by third parties - Fuji and Maxell. 4 Research and Development Quantum's DLT and Storage Solutions businesses invested approximately $130 million, $123 million and $99 million in research and development in fiscal years 2001, 2000 and 1999, respectively. Quantum is focusing its research and development efforts on the development of new tape drives, tape automation systems, network attached storage solutions, software storage architectures, and other storage solutions and services. In particular, Quantum is currently developing a family of tape drives based on Super DLTtape technology. Quantum maintains research and development facilities in Shrewsbury, Massachusetts; Boulder, Colorado; Irvine, California; and San Jose, California. Competition Competition in the mid-range network market for tape drives has intensified. In this market Quantum competes primarily with Exabyte Corporation, Hewlett- Packard, IBM, Sony Corporation and StorageTek. Hewlett-Packard, IBM and Seagate Technology, Inc. formed a consortium that developed new tape drive products using linear tape open technology. Such products target the high-capacity data storage market and compete with products based on Super DLTtape technology. Key competitive factors in the tape storage market include capacity, reliability, durability, scalability, compatibility and cost. ADIC, Exabyte, Hewlett-Packard, Overland Data Inc. and StorageTek also offer tape automation systems incorporating DLTtape and Super DLTtape technology. Quantum expects increased competition from large integrated computer equipment companies, many of whom have historically incorporated their own tape storage products into their computer systems, and are broadening their focus on the enterprise-wide computing market. Quantum's products, particularly tape products, including tape drives and tape automation systems, also compete with other storage technologies, such as hard disk drives. The competition from hard disk drives may increase if hard disk drive prices continue to decline. In the market for network attached storage appliances, Quantum competes with Hewlett Packard, Intel Corporation, Maxtor Corporation and Nortel Networks Corporation. Large traditional suppliers of general purpose computer servers also offer specialized server storage solutions. Any one of these companies, or any other company, could introduce network attached storage appliances or another similar storage solution targeted at workgroup-level applications that could result in increased competition with Quantum's network attached storage appliances. Warranty and Service Quantum generally warrants its products against defects for a period of one to three years from the date of sale. Quantum generally provides warranty service on DLTtape drives on a return-to-factory basis. Quantum's tape automation systems generally have a warranty period of one year, with service agreements available to customers for additional years of warranty service. Quantum maintains in-house product repair facilities in Colorado Springs, Colorado, Penang, Malaysia, and Dundalk, Ireland to support warranty and service obligations for tape drives, automation systems and other storage products. Quantum also performs tape library warranty service in its facility in Irvine, California. In addition, third party service providers throughout the world perform tape library service. Backlog Quantum manufactures its products based upon forecasts of customer demand. Orders are generally placed by customers on an as-needed basis. In general, customers may cancel or reschedule orders without penalty. For these reasons, Quantum does not believe orders constitute a firm backlog and believes customer orders are not a meaningful indicator of revenues nor material to an understanding of its business. 5 Employees At March 31, 2001, Quantum DLT and Storage Solutions businesses had approximately 2,450 regular employees. In addition, approximately 750 employees performed services for both the Quantum DLT and Storage Solutions business and the former Quantum Hard Disk Drive business. Of these 750 employees who performed services for both business groups, approximately 200 will remain with Quantum, approximately 320 have accepted severance packages in conjunction with the disposition of the HDD group to Maxtor, and approximately 230 will transfer to Maxtor. Those employees that have accepted severance packages will provide Quantum with on-going support for up to the first nine months of fiscal year 2002. With the acquisition of HDD by Maxtor, approximately 650 employees in the HDD group, primarily manufacturing employees in Penang, Malaysia, will transfer to the Quantum DLT and Storage Solutions business and approximately 1,660 employees with the HDD group will transfer to Maxtor. Including 125 employees from the acquisition of M4 Data in April 2001, Quantum will have a combined workforce of approximately 3,425 employees following the disposition of the HDD group. In the advanced electronics industry, competition for highly skilled employees is intense. Quantum believes that a great part of its future success will depend on Quantum's ability to attract and retain highly skilled employees. None of Quantum's employees are represented by a union, and Quantum has experienced no work stoppages. Quantum believes that its employee relations are favorable. Technology Quantum develops and protects its technology and know-how, principally in the field of computer-based on-line data storage, data backup and data archive technology. Quantum presently has been granted and/or owns by assignment 96 United States patents. In general, these patents would have a 20 year term from the first effective filing date. Quantum also has certain foreign patents and patent applications relative to certain of its products and technologies. Although Quantum believes that its patents and applications have significant value, the rapidly changing computer industry technology makes Quantum's future success dependent primarily upon the technical competence and creative skills of its personnel rather than on patent protection. From time to time, third parties have approached Quantum concerning the need for Quantum to take a license under patented technology of such third party that Quantum assertedly used, or is assertedly using, in the manufacture or sale of one or more of its products. Quantum conducts ongoing investigations into these assertions and presently believes that any licenses ultimately determined to be required could be obtained on commercially reasonable terms. However, Quantum cannot provide assurance that such licenses are presently obtainable, or if later determined to be required, could be obtained on commercially reasonable terms or at all. Quantum has signed a patent cross-licensing agreement with Seagate Technology and has agreed to a time-limited mutual patent non-assertion agreement with Maxtor Corporation covering certain technologies and patents of each party. Quantum may enter into patent cross-licensing agreements with other third parties in the future as part of its normal business activities. These agreements, when and if entered into, would enable Quantum to use certain patents owned by these third parties and to enable these third parties to use certain patents owned by Quantum. 6 EXECUTIVE OFFICERS OF QUANTUM CORPORATION Set forth below are the names, ages (as of June 25, 2001), positions and offices held by, and a brief account of the business experience of, each executive officer of Quantum.
Name Age Position with Quantum - ---- --- --------------------- Michael A. Brown............................. 42 Chairman of the Board and Chief Executive Officer Renee Budig/(1)/............................. 40 Vice President, Finance, Acting Chief Financial Officer Kevin Daly................................... 56 Chief Executive Officer and President of ATL Products John J. Gannon/(2)/.......................... 54 President, Hard Disk Drive Group Jerald L. Maurer............................. 58 Executive Vice President, Human Resources, Real Estate, and Corporate Services Barbara Nelson............................... 46 President, DLTtape Group
/(1)/ Ms. Budig was promoted to Acting Chief Financial Officer effective May 15, 2001. /(2)/ In connection with the transfer of the hard disk drive business to Maxtor, Mr. Gannon will be terminating his employment with Quantum effective August 2, 2001. Mr. Brown has been Chairman of the Board and Chief Executive Officer since 1998 and 1995, respectively. Mr. Brown was President of the Desktop Storage Division from 1993 to 1995 and Executive Vice President in a chief operating officer role from 1992 to 1993. Previously, Mr. Brown was named Vice President of Marketing in 1990 and held positions in product and marketing management since joining Quantum's marketing organization in August 1984. Before joining Quantum, Mr. Brown served in the marketing organization at Hewlett-Packard and provided management consulting services at Braxton Associates. Mr. Brown is also a member of the board of Digital Impact, a publicly held internet marketing company. Ms. Budig is currently Acting Chief Financial Officer, and has been Vice President, Finance since 2000. From 1999 to 2000, Ms. Budig was Director, Investor Relations. Before joining Quantum, from 1990 to 1998, Ms. Budig was a partner at Murdock & Associates, a financial consulting firm. Ms. Budig worked in public accounting for nine years prior to that and is a Certified Public Accountant. Mr. Daly has served as Chief Executive Officer and President of ATL Products, Inc., a wholly owned subsidiary of Quantum acquired in 1998, since its formation in 1991. Mr. Daly had been with Odetics, Inc., ATL's former parent company, since 1985, most recently as Chief Technical Officer. From 1974 through 1985 Mr. Daly was Director of the Control and Dynamics Division of the Charles Stark Draper Laboratory in Cambridge, MA. Mr. Daly is a member of the board of directors of Odetics, Inc. and Ascolta Training Company, Inc. Mr. Gannon has been President of the Hard Disk Drive Group since February 1999. From May 1998 to February 1999, Mr. Gannon was Executive Vice President of Worldwide Sales. Prior to joining Quantum, Mr. Gannon spent seventeen years with Hewlett Packard from 1981 to 1998, last serving as General Manager of Commercial Personal Computer Business from 1996 to 1998 and its Digital Audio Tape business from 1993 to 1996. Mr. Maurer joined Quantum as Executive Vice President of Human Resources, Real Estate and Corporate Services in December 1998. Prior to joining Quantum, Mr. Maurer was Senior Vice President of Human Resources at Seagate Technology from 1996 to 1998. Previously, he was Senior Vice President of Human Resources for Melville Corporation from 1993 to 1996 and spent more than 25 years in a variety of management and human resources positions with companies such as Illinois Bell Telephone Co., AT&T and Aetna Life & Casualty. Ms. Nelson has been president of Quantum's DLTtape Group since December 1999. From September 1999 to December 1999, Ms. Nelson was the General Manager of Quantum's high-end storage division. Before this, from November 1997 to August 1999, Ms. Nelson was Vice President and General Manager of Quantum's desktop storage division, joining Quantum as Vice President of Marketing in January 1997. Prior to joining Quantum, Ms. Nelson spent 13 years in various management positions at Intel Corporation, including operations manager for 7 private label technology, and 7 years in various management positions at Lumina Office Products, Inc., a start-up supplier of consumer office equipment, Maxtor Corporation, and Weitek, Inc., a provider of high-end math microprocessors and application software. 8 ITEM 2. Properties Quantum's headquarters is located in Milpitas, California. Quantum owns or leases facilities in North America, Europe and Asia. The following is a summary of the locations, functions and approximate square footage:
Location Function Square Feet - -------- -------- ----------- North America Milpitas, CA Corporate headquarters 72,000 Santa Clara, CA QTV headquarters 3,000 San Jose, CA Network attached storage operations including research and development 64,000 Irvine, CA Tape library manufacturing and research and development 187,000 Shrewsbury, MA Tape research and development 57,000 Colorado Springs, CO Super DLTtape, DLTtape and network attached storage products manufacturing 554,000 Boulder, CO Tape research and development 93,000 Other USA Sales offices 15,000 Europe Dundalk, Ireland DLTtape configuration and distribution 110,000 Geneva, Switzerland European Headquarters 9,000 Other Europe Sales and administrative offices 18,000 Asia Tokyo, Japan Sales office and procurement center 7,000 Singapore City, Singapore Asia Pacific headquarters; DLTtape configuration and distribution 5,000 Penang, Malaysia Tape manufacturing and customer service 159,000 Other Asia Sales offices 7,000
ITEM 3. Legal Proceedings For information regarding legal proceedings, refer to Note 15 of the Notes to the Financial Statements. ITEM 4. Submission of Matters to a Vote of Security Holders A special meeting of the stockholders of Quantum was held on March 30, 2001. Following are the matters voted upon at the meeting, and the number of votes cast for or against, as well as the number of abstentions for each such matter: Matter 1. Proposal to adopt the Amended and Restated Agreement and Plan of Merger and Reorganization with Maxtor Corporation, as provided in the proxy statement/prospectus. For: 148,185,435 Against: 1,021,655 Abstained: 261,402 Matter 2. Proposal to amend Quantum's restated certificate of incorporation regarding redemption of Quantum's HDD common stock, as provided in the proxy statement/prospectus. For: 148,543,924 Against: 644,670 Abstained: 279,908 Matter 3. Proposal to amend Quantum's restated certificate of incorporation to delete provisions relating to Quantum's HDD common stock, as provided in the proxy statement/prospectus. 9 For: 148,714,250 Against: 555,372 Abstained: 198,880 10 PART II ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters Quantum Corporation's common stock was traded in the over-the-counter market under the Nasdaq symbol QNTM for the period beginning December 10, 1982, the date of Quantum's initial public offering, through August 3, 1999, the date of the tracking stock recapitalization. On August 4, 1999, DSS common stock and HDD common stock began trading on the New York Stock Exchange under the symbols DSS and HDD, respectively. The prices per share reflected in the following table represent the range of high and low closing prices of QNTM and DSS for the quarters indicated.
Fiscal Year 2000 - QNTM High Low - ----------------------- ---- --- First quarter ended June 27, 1999............................................. $25.0625 $16.9375 Second quarter (for the period from June 28, 1999 through August 3, 1999)..... 27.1875 21.9675 Fiscal Year 2000 - DSS High Low - ---------------------- ---- --- Second quarter (for the period from August 4, 1999 through September 26, 1999) 21.4375 14.3750 Third quarter ended December 26, 1999......................................... 18.5625 11.5000 Fourth quarter ended March 31, 2000........................................... 15.6875 8.7500 Fiscal Year 2001 - DSS High Low - ---------------------- ---- --- First quarter ended July 2, 2000.............................................. $11.9375 $ 9.4375 Second quarter ended October 1, 2000.......................................... 15.5625 9.4375 Third quarter ended December 31, 2000......................................... 16.1250 11.3125 Fourth quarter ended March 31, 2001........................................... 14.9375 11.5000
Historically, Quantum has not paid cash dividends on its common stocks. As of May 27, 2001, there were approximately 1,966 Quantum shareholders of record. ITEM 6. Selected Financial Data The information required by Item 6 is incorporated by reference from Part IV herein. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by Item 7 is incorporated by reference from Part IV included herein. ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk For information about market risk, refer to the "Financial Market Risks" sections in Part IV of this report. 11 ITEM 8. Financial Statements and Supplementary Data The information required by Item 8 is incorporated by reference from Part IV herein. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 12 PART III ITEM 10. Directors and Executive Officers of the Registrant Information with respect to directors is incorporated by reference from Quantum's Proxy Statement. For information pertaining to executive officers of Quantum, refer to the "Executive Officers of Quantum Corporation" section of Part I, Item 1 of this document. ITEM 11. Executive Compensation The information required by Item 11 is incorporated by reference from Quantum's Proxy Statement. ITEM 12. Security Ownership of Certain Beneficial Owners and Management The information required by Item 12 is incorporated by reference from Quantum's Proxy Statement. ITEM 13. Certain Relationships and Related Transactions The information required by Item 13 is incorporated by reference from Quantum's Proxy Statement. With the exception of the information incorporated in Items 10, 11, 12 and 13 of this Form 10-K Annual Report, Quantum's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders is not deemed "filed" as part of this Form 10-K Annual Report. 13 PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as a part of this Report: 1. Financial Statements--The consolidated financials statements of Quantum Corporation are listed in the Index to Financial Statements and Financial Statement Schedules. 2. Financial Statement Schedules--The consolidated valuation and qualifying accounts (Schedule II) financial statement schedule of Quantum Corporation are listed in the Index to Financial Statements and Financial Statement Schedules. 3. Exhibits Exhibit Exhibit Number ------- - ------ 3.1 Amended and Restated Certificate of Incorporation of Registrant 3.2(1) Amended and Restated By-laws of Registrant, as amended 3.3(2) Certificate of Designations for the Series B Participating Junior Preferred Stock and Series C Participating Junior Preferred Stock 4.1(2) Restated Preferred Shares Rights Agreement between the Registrant and Harris Trust and Savings Bank 10.1 Form of Indemnification Agreement between Registrant and the Named Executive Officers and Directors 10.2 Form of Change of Control Agreement between Registrant and the Named Executive Officers and Directors 10.3(3) 1993 Long-Term Incentive Plan (as amended May 29, 2001) 10.4(3) 1993 Long-Term Incentive Plan Form of Stock Option Agreement 10.5(3) Supplemental Stock Option Plan (as amended May 29, 2001) 10.6(3) Supplemental Stock Option Plan Form of Stock Option Agreement 10.7 1996 Board of Directors Stock Option Plan (as amended May 29, 2001) 10.8 1996 Board of Directors Stock Option Plan Form of Stock Option Agreement 10.9 Employee Stock Purchase Plan (as amended May 29, 2001) 10.10(4) Patent Assignment and License Agreement, dated as of October 3, 1994, by and between Digital Equipment Corporation and Registrant 10.11(5) Indenture, dated August 1, 1997, between the Registrant and La Salle National Bank as trustee, related to the Registrant's subordinated debt securities 10.12(5) Supplemental Indenture, dated August 1, 1997, between the Registrant and Trustee, relating to the Notes, including the form of Note 10.13 Second Supplemental Indenture, dated as of August 4, 1999, between the Registrant and Trustee, relating to the Notes, including the form of Note 10.14 Third Supplemental Indenture, dated as of April 2, 2001, between the Registrant and Trustee, relating to the Notes, including the form of Note 10.15(6) Amended and Restated Master Agreement, dated April 30, 1997, between Registrant and Matsushita-Kotobuki Electronics Industries, Ltd. 10.16(6) Amended and Restated Purchase Agreement, dated April 30, 1997, between Registrant and Matsushita-Kotobuki Electronics Industries, Ltd. 14 Exhibit Number Exhibit - ------ ------- 10.17(6) License Agreement, dated as of April 17, 1997, between International Business Machines Corporation and Registrant 10.18(7) Amended and Restated Master Lease, dated July 12, 2000, between Selco Service Corporation, as Lessor and Registrant, as Lessee 10.19(7) Amended and Restated Participation Agreement, dated July 12, 2000, among Registrant, as Lessee, Selco Service Corporation, as Lessor, the Participants and The Bank of Nova Scotia, as Agent 10.20 First Amendment to Amended and Restated Participation Agreement, dated as of March 28, 2001, among Registrant, as Lesee, Selco Service Corporation, as Lessor, the Participants and The Bank of Nova Scotia, as Agent 10.21(8) Industrial Lease, dated as of July 17, 1998, between The Irvine Company as lessor, and ATL Products, Inc. as lessee 10.22(9) Agreement and Plan of Merger and Reorganization, dated as of May 10, 1999, by and among Registrant, Defiant Acquisition Sub, Inc. and Meridian Data, Inc. 10.23(9) First Amendment, dated as of June 28, 1999, to Agreement and Plan of Merger and Reorganization, dated as of May 10, 1999, by and among Registrant, Defiant Acquisition Sub, Inc. and Meridian Data, Inc. 10.24(10) Amended and Restated Agreement and Plan of Merger and Reorganization dated as of October 3, 2000 by and among Quantum Corporation, Maxtor Corporation, Insula Corporation and Hawaii Corporation (excluding exhibits). 10.25 Credit Agreement, entered into as of April 19, 2000 and amended and restated as of the Restatement Date, by and among Registrant, the Lenders and Bank of America, N.A., as Administrative Agent and Issuing Lender 12 Statement of Computation of Ratios of Earnings to Fixed Charges 21 Subsidiaries of Registrant 23.1 Consent of Ernst & Young LLP, Independent Auditors 24 Power of Attorney (see signature page) _________ 1. Incorporated by reference to Registrant's Annual Report on Form 10-K for fiscal year ended March 31, 2000. 2. Incorporated by reference to Registrant's Registration Statement on Form S- 4, Amendment No.2, filed with the Securities and Exchange Commission on June 10, 1999. 3. Incorporated by reference to Registrant's Schedule TO filed with the Securities and Exchange Commission on May 29, 2001. 4. Incorporated by reference to Registrant's Form 8-K filed with the Securities and Exchange Commission on October 17, 1994. 5. Incorporated by reference to Registrant's Form 8-K filed with the Securities and Exchange Commission on August 6, 1997. 6. Incorporated by reference to Registrant's Form 10-Q for the quarterly period ended June 29, 1997 filed with the Securities and Exchange Commission on August 13, 1997. 7. Incorporated by reference to Registrant's Form 10-Q for the quarterly period ended October 1, 2000 filed with the Securities and Exchange Commission on November 14, 2000 8. Incorporated by reference to Registrant's Form 10-Q for the quarterly period ended December 27, 1998 filed with the Securities and Exchange Commission on February 9, 1999. 9. Incorporated by reference to Registrant's Registration Statement on Form S-4 filed with the Securities and Exchange Commission on August 10, 1999 10. Incorporated by reference to Registrant's Form 10-Q for the quarterly period ended December 31, 2000 filed with the Securities and Exchange Commission on February 14, 2001. (b) Reports on Form 8-K: None. (c) Exhibits: See Item 14(a) above. (d) Financial Statement Schedules: See Item 14(a) above. 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. QUANTUM CORPORATION Dated: June 28, 2001 /s/ RENEE BUDIG ------------------------ Renee V. Budig Acting Chief Financial Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Renee Budig and Shawn Hall, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons in the capacities and on June 28, 2001. Signature Title --------- ----- /s/ MICHAEL A. BROWN Chairman of the Board, and Chief - ----------------------------------- Michael A. Brown Executive Officer (Principal Executive Officer) /s/ RENEE V. BUDIG Acting Chief Financial Officer - ----------------------------------- Renee V. Budig (Principal Financial and Accounting Officer) /s/ STEPHEN M. BERKLEY Director - ----------------------------------- Stephen M. Berkley /s/ DAVID A. BROWN Director - ----------------------------------- David A. Brown /s/ EDWARD M. ESBER, JR. Director - ----------------------------------- Edward M. Esber, Jr. /s/ KEVIN J. KENNEDY Director - ----------------------------------- Kevin J. Kennedy /s/ GREGORY W. SLAYTON Director - ----------------------------------- Gregory W. Slayton 16 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page ------ Quantum Corporation -- Financial Statements Selected Consolidated Financial Information.......................................................... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations................ 20 Report of Ernst & Young LLP, Independent Auditors.................................................... 39 Consolidated Statements of Operations for the Years Ended March 31, 2001, 2000 and 1999.............. 40 Consolidated Balance Sheets as of March 31, 2001 and 2000............................................ 42 Consolidated Statements of Cash Flows for the Years Ended March 31, 2001, 2000 and 1999.............. 44 Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 2001, 2000 and 1999.... 45 Notes to Consolidated Financial Statements........................................................... 48 Schedule II--Consolidated Valuation and Qualifying Accounts.......................................... 75
17 QUANTUM CORPORATION SELECTED FINANCIAL INFORMATION This summary of consolidated financial information of Quantum for fiscal years 1997 to 2001 should be read along with Quantum's audited consolidated financial statements contained in this Annual Report on Form 10-K. The summarized financial information, other than the statement of operations data for fiscal years 1997 and 1998 and the balance sheet data at March 31, 1997, 1998 and 1999, was taken from these financial statements. As a result of the disposition of the HDD business on April 2, 2001, the selected financial information below has been restated to present the results of the HDD business as discontinued operations (see note 18 to the consolidated financial statements). A number of items affect the comparability of this information. . The results of operations for fiscal year 2000 include the effect of a $40.1 million special charge associated with Quantum's strategy to reduce overhead expenses and product cost including the transfer of DLTtape drive volume manufacturing to Penang, Malaysia from Colorado Springs, Colorado. . The results of operations for fiscal years 1999 and 2000 include charges of $89 million and $37 million, respectively, for purchased in-process research and development in connection with the acquisitions of ATL Products, Inc. ("ATL") and Meridian Data Inc. ("Meridian"), respectively. . Prior to fiscal year 1999, almost all DLTtape media cartridges were sold directly by Quantum. However, beginning in fiscal year 1999, increased DLTtape media availability allowed licensed third party DLTtape media cartridge manufacturers to sell DLTtape media cartridges for which Quantum receives royalties. Royalty receipts by Quantum are reported as royalty revenue, which is significantly lower than the equivalent DLTtape media cartridge product revenue for Quantum. However, this royalty model has generated income from operations comparable to that generated by DLTtape media cartridge sales made directly by Quantum.
At or For the Year Ended March 31, ---------------------------------- 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- (In thousands, except per share amounts) Statement of Operations Data Product revenue............................................. $1,183,845 $1,232,442 $1,181,273 $1,162,725 $ 719,925 Royalty revenue............................................. 221,973 186,429 121,463 27,075 8,088 ---------- ---------- ---------- ---------- ---------- Total revenue............................................. 1,405,818 1,418,871 1,302,736 1,189,800 728,013 Gross profit................................................ 623,036 648,890 579,919 502,214 270,339 Research and development expenses........................... 130,106 122,821 99,330 62,825 30,039 Sales and marketing, general and administrative expenses.................................................. 231,684 181,495 114,895 69,607 35,240 Special charge.............................................. -- 40,083 -- -- -- Purchased in-process research and development expense................................................... -- 37,000 89,000 -- -- Income from operations...................................... 261,246 267,491 276,694 369,782 205,060 Income from continuing operations........................... 167,446 145,614 122,991 223,659 107,460 Income (loss) from discontinued operations.................. (6,760) (104,770) (152,526) (52,858) 41,055 Net income (loss)........................................... $ 160,686 $ 40,844 $ (29,535) $ 170,801 $ 148,515 Income per share from continuing operations Basic..................................................... $ 1.13 $ 0.53 $ 0.77 $ 1.64 $ 0.92 Diluted................................................... $ 1.08 $ 0.51 $ 0.74 $ 1.37 $ 0.75 Net income (loss)per share (1), (2): Basic..................................................... (0.10) $ (0.18) $ 1.25 $ 1.27 Diluted................................................... (0.10) $ (0.18) $ 1.07 $ 1.04
18 Balance Sheet Data Property, plant and equipment, net.......................... $ 94,700 $ 78,137 $ 73,122 $ 57,399 $ 39,114 Total assets................................................ 1,899,704 1,862,480 1,804,889 1,698,516 1,293,193 Total long-term debt, convertible debt and redeemable preferred stock................................ 287,500 287,500 287,500 287,500 320,587 Net current assets of discontinued operations 501,839 674,248 708,610 738,707 616,903 Net non-current assets of discontinued operations 184,504 102,228 82,636 167,739 238,366
(1) Net income (loss) per share for fiscal year 2000 is presented for the period from April 1, 1999 through August 3, 1999, as there is no single class of stock that represents the consolidated company after August 3, 1999, the date of the recapitalization. (2) Net income (loss) per share for fiscal year 2001 is not presented, as there is no single class of stock that represents the consolidated company after August 3, 1999, the date of the recapitalization. (3) Income per share from continuing operations for fiscal year 2000 presented in the table is for the period from August 4, 1999 through March 31, 2000, after the recapitalization that occurred on August 3, 1999. The income per share from continuing operations for the period from April 1, 1999 through August 3, 1999 was $0.36 (basic) and $0.35 (dilutive). 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Continuing Operations Fiscal Year 2001 Compared With Fiscal Year 2000 - ----------------------------------------------- Revenue Total revenue in fiscal year 2001 was $1,406 million, compared to $1,419 million in fiscal year 2000. The slight decline in revenue reflected decreased revenue from DLTtape drives, partially offset by increased storage solutions revenue and DLTtape media royalties. The decline in DLTtape drive revenue reflected decreased shipments and a decline in average unit prices due to competitive pricing. The increase in DLTtape media royalties reflected an increase in sales of DLTtape media cartridges at licensed media manufacturers for which Quantum earns a royalty. The increase in storage solutions revenue reflects increased shipments of tape automation systems and network attached storage appliances, which in part reflects Quantum's introduction of these products following and in conjunction with the acquisition of Meridian Data, Inc. in September 1999 or the second quarter of fiscal year 2000. The table below summarizes the components of Quantum's revenue in the years ended March 31, 2001 and March 31, 2000. (in millions) 2001 2000 ------ ------ DLTtape drives $ 754 $ 858 DLTtape media 114 147 DLTtape royalty 222 187 Storage solutions 413 323 Inter-group elimination* (97) (96) ------ ------ Revenue $1,406 $1,419 ====== ====== * Represents inter-group sales of DLTtape drives for incorporation into tape automation systems, for which the sales are included in storage solutions revenue. Sales to the top five customers in fiscal year 2001 represented 43% of revenue, compared to 47% of revenue in fiscal year 2000. Sales to Compaq were 19% of revenue in fiscal year 2001, compared to 20% of revenue in fiscal year 2000. Sales to Hewlett-Packard were 10% of revenue in fiscal years 2001, compared to 13% of revenue in fiscal year 2000. Sales to computer equipment manufacturers and distribution channel customers were 59% and 15% of revenue, respectively, in fiscal year 2001, compared to 63% and 16% of revenue, respectively, in fiscal year 2000. The remaining revenue in fiscal years 2001 and 2000 represented media royalty revenue and sales to value- added resellers. Gross Margin Rate The gross margin rate in fiscal year 2001 was 44.3%, compared to 45.7% in fiscal year 2000. The slight decrease reflected lower DLTtape drive margins is a result of price declines, partially offset by an increase in the proportion of overall revenue represented by DLTtape media royalty revenue and storage solutions. As a result of economic conditions and an expected increase in competition in the tape drive market, Quantum expects that DLTtape drive margins will face increasing pressure in the future, which could cause a decline in the overall gross margin rate. In addition, a substantial portion of the overall gross margin is derived from media sales. To the extent that media sales decline, our business could be adversely affected. 20 Research and Development Expenses Research and development expenses in fiscal year 2001 were $130 million, or 9.3% of revenue, compared to $123 million, or 8.7% of revenue, in fiscal year 2000. The increase in research and development expenses reflected an increase in network attached storage solutions research and development, which in part reflects Quantum's acquisition of Meridian Data, Inc. in September 1999, the second quarter of fiscal year 2000. Sales and Marketing Expenses Sales and marketing expenses in fiscal year 2001 were $153 million, or 10.9% of revenue, compared to $119 million, or 8.4% of revenue in fiscal year 2000. The increase was the result of additional marketing expense to build category awareness for NAS applications and brand awareness for our network attached storage product line and in part reflects Quantum's acquisition of Meridian Data, Inc. in September 1999, the second quarter of fiscal year 2000. The increase also reflected the increased sales and marketing for tape automation systems, including the development of a direct sales channel. General and Administrative Expenses General and administrative expenses in fiscal year 2001 were $79 million, or 5.6% of revenue, compared to $63 million, or 4.4% of revenue, in fiscal year 2000. The increase in general and administrative expenses reflected increased storage solutions expenses, with increased costs related to tape automation systems and network attached storage solutions and in part reflects Quantum's acquisition of Meridian Data, Inc. in September 1999 or the second quarter of fiscal year 2000. Purchased In-process Research and Development Expense In fiscal year 2000, Quantum expensed purchased in-process research and development costs of $37 million as a result of the Meridian acquisition in the second quarter. On September 10, 1999, Quantum completed the acquisition of Meridian Data, Inc. ("Meridian" - now known as Snap Appliances Inc, which is part of Quantum's Storage Solutions business). Four in-process research and development projects were identified and valued, including three Snap network attached storage server projects and one operating system ("O/S") project. The Snap server is a family of network attached storage appliances with products that incorporate hard disk drives and an O/S designed to meet the requirements of entry and workgroup level computing environments where multiple computer users access shared data files over a local area network. Since the O/S represents a significant technology component of the Snap server product, the O/S technology was valued as a separate technology asset. These projects are intended to provide additional capacity and enhanced functionality to current Snap server products. The Snap server projects and the O/S project represent 61% and 39%, respectively, of the total in-process research and development value of $37 million. As of September 10, 1999, the Snap server projects ranged from 24% to 82% complete and the O/S technology project was 39% complete. The Snap server and O/S projects were completed on schedule in fiscal year 2000. For additional information regarding the Meridian acquisition and the costs associated with in-process research and development, refer to Note 6 of the Notes to the Financial Statements. Goodwill and intangible assets Goodwill and intangible assets at March 31, 2001, represented approximately 12% and 18% of total assets and stockholders' equity, respectively. The goodwill and intangible assets balance at March 31, 2001, was approximately $228 million and included goodwill of $115 million from the acquisition of ATL and goodwill of $25 million from the acquisition of Meridian. Goodwill and other acquired intangible assets are amortized over their estimated useful lives, which range from three to fifteen years. Management in estimating the useful lives of the goodwill and other intangible assets considered the following factors: 21 . The cash flow projections used to estimate the useful lives of the goodwill and other intangible assets showed a trend of growth that was expected to continue for an extended period of time; . The products offered by Snap and ATL, in particular, have long development cycles and corresponding long product life cycles; . The ability to leverage core technology into new Snap and ATL products, and to therefore extend the life of these technologies. Quantum assesses the recoverability of its assets, including goodwill, by comparing projected undiscounted net cash flows associated with those assets against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. No such impairment has been identified to date with respect to Quantum's acquired intangible assets and goodwill. Special Charge During the fourth quarter of fiscal year 2000, Quantum recorded a special charge of $40.1 million. The charge was primarily focused on Quantum's DLTtape division and reflected Quantum's strategy to align its DLTtape drive operations with market conditions. These conditions include slower growth in the mid-range server market and increasing centralization of server backup through automation solutions, both of which have resulted in relatively flat to declining DLTtape drive shipments. The special charge included a reduction of overhead expenses throughout the DLTtape division and an acceleration of Quantum's low cost manufacturing strategy, which includes moving volume production of DLTtape drives from Colorado Springs, Colorado to Penang, Malaysia. The special charge consisted of $13.5 million in facility related costs, $13.9 million for the write-off of investments in optical technology, $7.6 million for severance and benefits for terminated employees, $3.2 million for fixed asset write-offs, primarily related to the transfer of manufacturing to Penang, Malaysia and $1.9 million in other costs associated with the plan. In the third quarter of fiscal year 2001, Quantum reversed $7 million as a special charge benefit on the income statement. This reversal was primarily due to a revised estimate of the vacancy period related to a facility in Colorado Springs, Colorado. Quantum recorded a special charge of $7 million in the third quarter of fiscal year 2001. This is a result of Quantum's decision to establish a close proximity between its design and manufacturing operations in order to accelerate time-to- market for future products within its DLTtape drive product family. This impacted engineering, marketing and administrative employees in Shrewsbury, Massachusetts, as these positions were transitioned to Boulder, Colorado. The special charge is related to severance and benefits associated with terminated employees affected by this plan. Quantum is proceeding according to plan and expects to realize annual cost savings from the plans of approximately $50 million, beginning upon full implementation of the plans in the beginning of fiscal year 2002. Approximately $25 million of the savings are expected in cost of revenue as a result of reduced manufacturing costs, with the remaining amount in operating expenses, primarily research and development, as a result of ending research on certain optical-based storage solutions and a reduction in headcount. These expectations are forward-looking statements and actual results could vary. See "safe harbor" disclosure in Part I, Item 1. See also risk factors entitled - Quantum's quarterly operating results could fluctuate significantly and past quarterly operating results should not be used to predict future performance. Interest and Other Income/Expense Net interest and other income/expense for the fiscal year 2001 was $0.4 million income compared to $0.1 million expense in fiscal year 2000. The change from expense to income reflected increased interest income as a result of higher average cash balances and higher interest rates, partially offset by a write- down of an equity investment. 22 Income Taxes Quantum's effective rate in fiscal 2001 was 36% compared to 40% in fiscal year 2000. The fiscal year 2000 tax rate excludes the write-off for purchased in- process research and development for which a tax benefit is not recognizable. Quantum recorded a provision of 45.5% of pretax earnings in fiscal 2000. The lower effective rate in fiscal 2001 is primarily attributable to increased foreign earnings taxed at less than the U.S. rate. Income from Continuing Operations Income from continuing operations in fiscal year 2001 was $167 million, compared to $146 million in fiscal year 2000. The increase in income from continuing operations reflects the exclusion in fiscal year 2001 of purchased in-process research and development costs and special charges. The exclusion of these expenses was partially offset by increased operating expenses. Events Subsequent to Year-End - ----------------------------- Discontinued Operations - Disposition of the Hard Disk Drive group On March 30, 2001, Quantum's stockholders approved the disposition of the HDD group to Maxtor Corporation. On April 2, 2001, each authorized share of HDD common stock was exchanged for 1.52 shares of Maxtor common stock. The HDD group produced two primary product lines, desktop hard disk drives and high-end hard disk drives. HDD had two separate business units that supported these two product lines. The desktop business unit designed, developed and marketed desktop hard disk drives designed to meet the storage requirements of entry-level to high-end desktop personal computers in home and business environments. The high-end business unit designed, developed and marketed high- end hard disk drives designed to meet the storage requirements of network servers, workstations and storage subsystems. Quantum expects to realize a net gain on the disposal of the HDD business of between $135 million to $160 million to be recorded in the June quarter of fiscal year 2002. This is a forward looking statement and actual results could differ. See risk factor entitled - If Quantum incurs non-insured tax as a result of the disposition, Quantum's financial condition and operating results could be negatively affected. The following table summarizes the results of discontinued operations:
Year Ended March 31, 2001 2000 ---------- ---------- (In thousands) Revenue.................................................. $3,046,489 $3,311,579 Gross Profit............................................. 410,867 230,070 Operating Expenses....................................... 434,418 420,994 Loss from operations..................................... (23,551) (190,924) Loss before income taxes................................. (9,660) (178,181) Income tax benefit....................................... 2,900 73,411 Loss from discontinued operations........................ $ (6,760) $ (104,770)
The decreased revenue for fiscal year 2001 primarily reflected decreased shipments of desktop hard disk drives in conjunction with lower average unit prices. The lower than expected shipments were attributable to an economic slowdown and a specific component shortage experienced in the third fiscal quarter. The increase in gross profit resulted from higher gross margin rates and a special charge of $57 million incurred in fiscal year 2000, of which $16 million was reversed in fiscal year 2001. The higher gross margin rates were due to a shift towards lower cost, higher capacity, higher margin products in both the desktop and high-end divisions. The special charge related to Quantum's strategy to modify the Hard Disk Drive business model with the low-cost PC 23 market. The special charge benefit in fiscal year 2001 was due to negotiated lease cancellations and reduced severance and benefits due to the redeployment of employees. The increase in operating expenses primarily resulted from expenses associated with the disposition of HDD to Maxtor and higher research and development costs, partially offset by lower sales and marketing and general and administrative expenses. Merger costs incurred in fiscal year 2001 were $19 million and reflected employee retention, legal, accounting and underwriter fees. Non-Recurring and Special Charges, In-Process Research and Development Expenses Transition Expenses (i) Non-Recurring Charges As a result of the disposition of the HDD business and its merger with Maxtor in the first quarter of fiscal year 2002, Quantum will record certain stock and other compensation charges to better align resources with the requirements of Quantum's ongoing operations. These charges will be recorded in Quantum's results of operations. Stock Compensation Charges As described in the paragraphs below, approximately $17 million of stock compensation charges will be immediately expensed upon completing the disposition in the first quarter of fiscal year 2002, and approximately $17 million of deferred stock compensation charges will be recorded and expensed over remaining vesting periods or up to four years. The following table estimates the vesting and expense recognition for the $17 million of deferred stock compensation charges.
Period Stock ------ Compensation Recognized (in millions) 1/st/ quarter fiscal year 2002 $ 9.7 2/nd/ quarter fiscal year 2002 2.0 3/rd/ quarter fiscal year 2002 1.8 4/th/ quarter fiscal year 2002 0.7 ----- Fiscal Year 2002 14.2 Fiscal Year 2003 2.0 Fiscal Year 2004 0.6 Fiscal Year 2005 0.2 ===== Total $17.0 =====
Stock Compensation Charges - Continuing Quantum Employees In the first quarter of fiscal year 2002, continuing DSS employees, including corporate employees with HDD stock options and HDD restricted stock will have their HDD equity interests converted into DSS stock options and restricted stock, respectively. The aggregate intrinsic value of the stock option and restricted stock immediately after the conversion will equal the intrinsic value of the stock option and restricted stock immediately before the conversion. In addition, the ratio of the exercise price per share to the market value per share will not be reduced. Resulting compensation at approximately $15 million, related to vested stock options will be immediately expensed, and compensation at approximately $8 million, related to unvested options and restricted stock will be expensed over the remaining vesting periods of those awards or up to four years. The compensation expense related to these replacement awards will be included in continuing operations in Quantum's consolidated financial statements. 24 Stock Compensation Charge - Corporate Employees Terminated at the time of the Merger Most Quantum employees whose employment is terminated coincident with the closing of the HDD and Maxtor transaction will be afforded the normal 90-day period in which to exercise their vested HDD and DSS stock option awards. Employees designated for termination at the merger consummation date had their unvested HDD and DSS stock options and restricted stock converted in to shares of DSS restricted stock based on a conversion formula that conferred an economic value at least equal to the intrinsic value of the HDD and DSS options and restricted stock at the time of the conversion. Terminated employees who are not party to a transition arrangement will receive accelerated vesting of 50% of the unvested portion of their restricted stock awards. Compensation expense related to the stock conversions and acceleration granted to former corporate employees terminated coincident with the closing of the transaction at approximately $3 million will be included in continuing operations in Quantum's consolidated financial statements. Compensation expense related to the stock conversions and acceleration granted to former Quantum HDD employees terminated with the closing of the transaction will be included in the calculation of the gain on disposal of discontinued operations. Stock Compensation Charge - Employees to be Terminated After the Merger Employees designated for termination on or about the merger consummation date, but who will remain employed by Quantum pursuant to a transition service arrangement, had their unvested HDD and DSS stock options and restricted stock converted into shares of DSS restricted stock based on a conversion formula that conferred an economic value at least equal to the intrinsic value of the HDD and DSS options and restricted stock at the time of the conversion (vested but unexercised awards will be permitted to expire according to their original terms). Fifty percent of the DSS restricted stock issued upon conversion of such outstanding unvested awards will vest upon the earlier of three months succeeding the initial three-month period or the termination date of the employee. Quantum will account for the award of restricted stock, in settlement of existing unvested options and restricted stock, as the cancellation of an award and concurrent new issuance. The other 50% of the DSS restricted stock will vest ratably over the successive nine month period so long as such individuals remain employed by Quantum during this time. Quantum will record deferred compensation of approximately $9 million for the value of the DSS restricted stock issued, fixed as of the issuance date, and will recognize compensation expense through continuing operations over the period during which the restrictions on such stock lapse, or up to nine months. Corporate Severance and Compensation Charges Subsequent to the disposition of the HDD business and its merger with Maxtor, Quantum will be left with excess administration and overhead costs. Pursuant to the merger agreement, Maxtor has agreed to hire, or in the event it does not hire, pay the severance costs associated with the termination of substantially all of the of the HDD employees and a significant portion of the corporate employees, including certain members of Quantum's senior management. The severance costs that will not be paid by Maxtor will be included in Quantum's results of operations. The corporate severance and compensation costs that will be included in Quantum first quarter of fiscal year 2001 are estimated at approximately $10 million. (ii) Special Charges - DLT and Storage Solutions In the first quarter of fiscal year 2001, Quantum expects to incur approximately $25 million of special charges related to: 1) discontinuing business activities in solid state storage systems, 2) the decision to withdraw the plans for an initial public offering of its Snap Appliances subsidiary, namely writing off deferred costs that were related to the plan, 3) staff reductions and other cost incurred related to cost savings activities related to tape automation systems activities, and 4) DLT relocation and transition expenses that will be incurred as DLTtape product development is moved from Shrewsbury, Massachusetts, to Boulder, Colorado. 25 (iii) In-Process Research and Development Expenses Approximately $13 million of the M4 purchase price will be assigned to in- process research and development, which will be expensed in the first quarter of fiscal year 2002. (iv) Transition Expenses Certain Quantum employees designated for termination on or about the merger consummation date, but who will remain employed by Quantum pursuant to a transition service arrangement will provide transition services to Quantum, as well as to Maxtor. These transition services will be aimed at transitioning certain activities to Maxtor or for ongoing Quantum activities, to a scaled down version of the function that is appropriate to the size of Quantum after the disposition of the HDD business. The transition services include real estate, information systems and equipment, accounting, payroll, sales and marketing, product support, inventory maintenance, procurement, costing, warehouse management, communications, human resources and other specific services. Maxtor will reimburse Quantum for a portion of the transition services. Quantum's portion of the transition services is expected to be approximately $10 million and $5 million in the first and second quarters of fiscal year 2002, respectively, excluding stock compensation charges associated with transition employees. The related transition charges will be included in continuing operations in Quantum's consolidated financial statements. Acquisition of M4 (Data) Holdings Ltd On February 7, 2001, Quantum announced that it had signed a definitive agreement to acquire M4 Data (Holdings) Ltd., a privately held data storage company based in the United Kingdom. The acquisition enables Quantum to leverage M4 Data's complementary products and technologies to enhance the range of tape automation storage solutions offered to enterprise customers. M4 Data provides scalable high performance tape automation products for the data storage market. Under the terms of the agreement, Quantum acquired on April 12, 2001, all the outstanding stock of M4 Data for approximately $56 million in consideration, including $15 million in cash and $41 million in notes payable. These notes are due 2006 and are callable by the holders at their option, beginning April 2002. The purchase agreement also includes additional contingent consideration based on the achievement of future performance goals. The acquisition will be accounted for as a purchase, and Quantum expects that approximately $13 million of the purchase price will be assigned to in-process research and development, which will be expensed in the first quarter of fiscal year 2002. 26 Fiscal Year 2000 Compared With Fiscal Year 1999 - ------------------------------------------------ Revenue Total revenue in fiscal year 2000 was $1,419 million, compared to $1,303 million in fiscal year 1999, an increase of 9%. The increase in revenue reflected increased revenue from sales of storage solutions and increased DLTtape media royalties and a decline in revenue from sales of DLTtape drives. The increase in storage solutions revenue reflected an increase in shipments of tape automation systems and the acquisition of the ATL tape library business in September 1998, and shipments of network attached storage appliances following the acquisition of Meridian in September 1999. The increase in DLTtape media royalties reflected an increase in sales of DLTtape media cartridges by licensed media manufacturers for which Quantum earns a royalty. The overall increase in market sales of DLTtape media cartridges reflected sales of cartridges for use in both new DLTtape drives and to meet the ongoing new media needs of the installed base of DLTtape drives. The decrease in DLTtape drive revenue reflected increased shipments, offset by competitive price declines. The table below summarizes the components of Quantum's revenue in the years ended March 31, 2000 and March 31, 1999.
(in millions) 2000 1999 ------ ------ DLTtape drives.............................. $ 858 $ 872 DLTtape media............................... 147 195 DLTtape royalty............................. 187 122 Storage solutions........................... 323 154 Inter-group elimination*.................... (96) (40) ------ ------ Revenue $1,419 $1,303 ====== ======
* Represents inter-group sales of DLTtape drives for incorporation into Quantum's tape automation systems, for which the sales are included in storage solutions revenue. Sales to the top five customers in fiscal year 2000 represented 47% of revenue, compared to 53% of revenue in fiscal year 1999. These amounts reflected a retroactive combination of sales to Compaq and Digital Equipment as a result of their merger in June 1998. Sales to Compaq were 20% of revenue in fiscal year 2000, compared to 25% of revenue in fiscal year 1999, including sales made to Digital Equipment. Sales to Hewlett-Packard were 13% of revenue in fiscal years 2000 and 1999. Sales to computer equipment manufacturers and distribution channel customers were 63% and 16% of revenue, respectively, in fiscal year 2000, compared to 71% and 17% of revenue, respectively, in fiscal year 1999. The remaining revenue in fiscal years 2000 and 1999 represented media royalty revenue and sales to value- added resellers. Gross Margin Rate The gross margin rate in fiscal year 2000 was 45.7%, compared to 44.5% in fiscal year 1999. The 1.2 percentage point increase reflected an increase in the proportion of overall revenue represented by DLTtape media royalty revenue, partially offset by a decline in the gross margin rate earned on DLTtape drives. Research and Development Expenses Research and development expenses in fiscal year 2000 were $123 million, or 8.7% of revenue, compared to $99 million, or 7.6% of revenue, in fiscal year 1999. The increase in research and development expenses reflected the following: . inclusion of ATL's expenses, which were not included in the first two quarters of fiscal year 1999, as the acquisition occurred on September 28, 1998, . inclusion of Snap's expenses, which were not included in fiscal year 1999 and the first quarter of fiscal year 2000, as the acquisition occurred on September 10, 1999 and . higher research and development expenses related to new tape drive products and other new information storage products, including Super DLTtape technology. 27 Sales and Marketing Expenses Sales and marketing expenses in fiscal year 2000 were $119 million, or 8.4% of revenue, compared to $77 million, or 5.9% of revenue in fiscal year 1999. The increase in sales and marketing expenses reflected the inclusion of ATL and Snap's expenses and an increase in marketing and advertising costs associated with DLTtape products. General and Administrative Expenses General and administrative expenses in fiscal year 2000 were $63 million, or 4.4% of revenue, compared to $38 million, or 2.9% of revenue, in fiscal year 1999. The increase in general and administrative expenses reflected the inclusion of ATL and Snap's expenses and the amortization of intangible assets, particularly goodwill. Purchased In-process Research and Development Expense Quantum expensed purchased in-process research and development costs of $37 million as a result of the Snap acquisition in the second quarter of fiscal year 2000, and $89 million as a result of the ATL acquisition in the third quarter of fiscal year 1999. On September 28, 1998, Quantum completed the acquisition of ATL Products, Inc. ("ATL"). Five in-process research and development projects were identified and valued, including three tape library projects, one network project and one software project. These projects were intended to develop next- generation tape automation systems and software management products. As of September 28, 1998, the tape library projects ranged from 68% to 83% complete, the network project was 54% complete and the software project was 78% complete. These projects were completed by the end of fiscal year 2000. For additional information regarding the Snap and ATL acquisitions and the costs associated with in-process research and development, refer to Note 6 of the Notes to the Financial Statements. Interest and Other Income/Expense Net interest and other income and expense in fiscal year 2000 was $0.1 million expense compared to $12 million expense in fiscal year 1999. The decrease in expense reflected increased interest income as a result of higher cash balances and a $2.6 million gain on the sale of an equity investment. In addition, the expense in fiscal year 1999 reflected a $6.8 million write-down of an equity investment. Income Taxes Quantum's effective tax rate in fiscal years 2000 and 1999, excluding the write- off for purchased in-process research and development was 40%. Quantum recorded a provision of 45.5% of pretax earning in fiscal year 2000, compared to 53.5% in fiscal year 1999. This lower effective rate was primarily attributable to a decreased amount of purchased in-process research and development write-off in fiscal year 2000, for which a tax benefit is not recognizable. Income from continuing operations Quantum reported income from continuing operations in fiscal year 2000 of $146 million, compared to $123 million in fiscal year 1999. The increase reflected the lower charge for purchased in-process research and development in fiscal year 2000, partially offset by increased operating expenses, including the special charge and increased amortization of goodwill and other intangible assets resulting from the ATL and Snap acquisitions. 28 Discontinued operations The following table summarizes the results of operations for discontinued operations:
Year Ended March 31, 2000 1999 ---------- ---------- (In thousands) Revenue................................................................. $3,311,579 $3,599,320 Gross Profit............................................................ 230,070 291,419 Operating Expenses...................................................... 420,994 423,874 Loss from operations.................................................... (190,924) (132,455) Loss before income taxes................................................ (178,181) (264,503) Income tax benefit...................................................... 73,411 111,977 Loss from discontinued operations....................................... $ (104,770) $ (152,526)
The decreased revenue for fiscal year 2000 primarily reflected a decline in average unit prices of desktop hard disk drives, partially offset by an increase in shipments. The decline in average unit prices was a result of intense competitive pricing pressures, especially in the first two quarters of fiscal year 2000. The decrease in gross profit resulted from a special charge of $57 million incurred in fiscal year 2000 and decreased revenues, partially offset by higher gross margin rates. The special charge related to Quantum's strategy to modify the Hard Disk Drive business model with the low-cost PC market. The higher gross margin rate was due to a shift towards higher margin products in the high-end divisions. The decrease in operating expenses reflected decreases in research and development expenses and sales and marketing expenses of $11 million and $4 million, respectively, partially offset by an increase of $10 million in general and administrative expenses and a special charge of $2 million incurred in fiscal year 2000 related to the modification of the Hard Disk Drive business model. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. Quantum is required to adopt SFAS 133 in fiscal year 2002 and management does not expect SFAS No. 133 to have a material effect on the Quantum's financial position or results of operations. In December 1999, the Securities and Exchange Commission ("SEC") issued SEC Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB 101 summarized certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 was effective for Quantum in the first quarter of fiscal year 2001. The adoption of SAB 101 did not have a material impact on Quantum's financial position or results of operations. In March 2000, FASB issued FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation--an Interpretation of Accounting Principles Board ("APB") Opinion No. 25." FIN 44 clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. FIN 44 did not have a material impact on the Quantum's financial position or results of operations. Liquidity and Capital Resources Quantum's cash, cash equivalents and marketable securities were $399 million at March 31, 2001, compared to $339 million at March 31, 2000. Quantum generated cash from operations of $177 million, primarily reflecting net income, increases in income taxes payable, partially offset by increases in inventories and other assets and liabilities.Quantum used cash in fiscal year 2001 to purchase $241 million of treasury stock, as discussed below. 29 Other uses of cash included approximately $92 million for purchases of property and equipment. Other sources of cash included $64 million from the issuance of common stock. Net cash provided by continuing operations in fiscal years 2001 and 2000 was $61 million and $64 million, respectively, and net cash used by continuing operations in fiscal year 1999 was $116 million. Net cash used by discontinued operations in fiscal year 2001 was $178 million and net cash provided by discontinued operations in fiscal years 2000 and 1999 was $82 million and $246 million, respectively. Net cash provided by the operating activities of continuing operations in fiscal years 2001, 2000 and 1999 was $241 million, $380 million and $217 million, respectively. Net cash used in the operating activities of discontinued operations in fiscal year 2001 was $64 million and net cash provided by the operating activities of discontinued operations in fiscal years 2000 and 1999 was $117 million and $247 million, respectively. During fiscal year 2000, the Board of Directors authorized Quantum to repurchase up to $700 million of Quantum's common stock in open market or private transactions. Of the total repurchase authorization, $600 million was authorized for repurchase of either Quantum, DSS or HDD common stock. An additional $100 million was authorized for repurchase of HDD common stock. Under these authorizations, as of March 31, 2001, including 13.5 million shares of DSS common stock and 10 million shares of HDD common stock repurchased for a combined total of $241 million during the year ended March 31, 2001, Quantum had repurchased a total of 3.9 million shares of Quantum common stock, 29.2 million shares of DSS common stock and 13.5 million shares of HDD common stock for a combined total of $566 million. In April 2000, Quantum entered into two unsecured senior credit facilities, each providing a $187.5 million revolving credit line and expiring in April 2001 and April 2003, respectively. At Quantum's option, borrowings under the revolving credit lines bear interest at either the London interbank offered rate or a base rate, plus a margin determined by a leverage ratio with option periods of one to six months. In March 2001, Quantum canceled the credit facility expiring April 2001. At March 31, 2001, there were no outstanding balances drawn on these lines. Quantum filed a registration statement that became effective on July 24, 1997, pursuant to which Quantum may issue debt or equity securities, in one or more series or issuances, limited to $450 million aggregate public offering price. Under the registration statement, in July 1997, Quantum issued $288 million of 7% convertible subordinated notes. The notes mature on August 1, 2004, and were convertible at the option of the holder at any time prior to maturity, unless previously redeemed, into shares of Quantum DSS common stock and HDD common stock. The notes are convertible into 6,206,152 shares of Quantum common stock, or 21.587 shares per $1,000 note, and were originally convertible to 3,103,076 shares of HDD common stock, or 10.793 shares per $1,000 note. However, as a result of the disposition of HDD, the HDD shares are convertible into 16.405 shares of Maxtor common stock per $1,000 note. Quantum has the option to redeem the notes on or after August 1, 1999 and prior to August 1, 2001, under certain conditions related to the price of Quantum's common stocks. Subsequent to August 1, 2001, Quantum may redeem the notes at any time. In the event of certain changes involving all or substantially all of Quantum's common stocks, the holder would have the option to redeem the notes. Redemption prices range from 107% of the principal to 100% at maturity. The notes are unsecured obligations subordinated in right of payment to all of Quantum's existing and future senior indebtedness. Quantum expects to spend approximately $60 million in fiscal year 2002 for capital equipment and leasehold improvements. These capital expenditures will support the tooling and other capital expenditures related to the ramp of Super DLTtape products; additional manufacturing of tape drives in Penang, Malaysia; and Quantum's general infrastructure. Quantum expects its cash flow from operations, together with available financing sources, will be sufficient to meet all currently planned expenditures and sustain operations for the next 12 months. However, this belief assumes that operating results and cash flow from operations will meet Quantum's expectations. In the future, Quantum may seek to raise cash through the issuance of debt or equity securities. Such financing may not be on terms favorable to Quantum. 30 Financial Market Risks Quantum is exposed to a variety of risks, including changes in interest rates, foreign currency fluctuations and marketable equity security prices. To manage the volatility relating to these exposures, Quantum enters into various derivative transactions pursuant to Quantum's policies to hedge against known or forecasted market exposures. Changes in interest rates affect interest income earned on Quantum's cash equivalents and short-term investments, and interest expense on short-term and long-term borrowings. Quantum does not enter into derivative transactions related to its cash, cash equivalents or short-term investments, nor existing or anticipated liabilities. As a multinational corporation, Quantum is exposed to changes in foreign exchange rates. These exposures may change over time and could have a material adverse impact to our financial results. Quantum utilizes foreign currency forward contracts to manage the risk of exchange rate fluctuations. In all cases, Quantum uses these derivative instruments to reduce its foreign exchange risk by essentially creating offsetting market exposures. The instruments held by Quantum are not leveraged and are not held for trading or speculative purposes. Quantum uses forward exchange contracts to hedge its net asset or net liability position, which primarily consists of inter-company balances, foreign tax liabilities and non-functional currency denominated receivables. The hedging activity is intended to manage the effects of foreign currency re-measurement arising from certain assets and liabilities denominated in foreign currency. The success of the hedging program depends on forecasts of transaction activity in the various currencies. To the extent that these forecasts are overstated or understated during periods of currency volatility, Quantum could experience unanticipated currency gains or losses. Quantum maintains a portfolio of equity investments in companies that are not currently publicly traded. These investments are recorded at cost, adjusted for other than temporary impairment and are included in other assets. At March 31, 2001, the cost of these investments was $15.4 million. Quantum regularly reviews the financial information of these investments and does not believe there has been any impairment in the value of these investments. Quantum is exposed to equity price risk on its investment in TiVo. Inc. common stock. Quantum does not attempt to reduce or eliminate its market exposure on this security. Quantum entered into a strategic alliance with TiVo in fiscal year 1999 to supply hard drives utilizing Quantum's QuickView technology for integration into TiVo's Personal Video Recorder. At March 31, 2001, the fair market value of Quantum's investment was approximately $4.5 million. As TiVo is a relatively new company and has introduced a new product in the consumer electronics market, Quantum does not believe it is possible to reasonably estimate any future price movement of TiVo common stock. This investment is included in current assets from discontinued operations. Trends and Uncertainties Relating to Quantum - -------------------------------------------- Quantum is exposed to general economic conditions that have resulted in lower sales and actions to reduce operating expenses and continued or worsened conditions may result in additional actions to reduce operating expenses. As a result of recent unfavorable economic conditions and reduced capital spending, Quantum's sales have declined in the fourth quarter of fiscal year 2001 compared to the previous three quarters of fiscal 2001. In particular, sales to OEMs and resellers in the server equipment manufacturing and storage networking markets in the United States were impacted during the fourth quarter of fiscal 2001. If the economic conditions in the United States worsen or if a wider or global economic slowdown occurs, Quantum may experience a material adverse impact on its business, operating results, and financial condition. For example, Quantum expects a reduction in sales in the first quarter of fiscal year 2002 compared to the fourth quarter of fiscal year 2001, which will result in comparatively lower operating results as well as adjustments and other charges associated with actions aimed at reducing operating expenses. Comparatively lower sales have resulted in operating expenses increasing as a percentage of revenue in the fourth quarter of fiscal year 2001 and this trend is expected to worsen in the first quarter of fiscal year 2002 and although Quantum is taking actions and charges in the first quarter of 2002 to reduce operating expenses, a prolonged continuation or worsening of sales trends may result in additional actions and charges aimed at further reducing operating expenses in subsequent quarters of fiscal year 2002. The impact of charges or an inability to reduce operating expenses consistent with future trends in sales may adversely impact Quantum's operating results. 31 The disposition of HDD may be determined not to be tax-free, which would result in Quantum or its stockholders, or both, incurring a substantial tax liability. Maxtor and Quantum have agreed not to request a ruling from the Internal Revenue Service (the "IRS"), or any state tax authority confirming that the structure of the combination of Maxtor with HDD will not result in any federal income tax or state income or franchise tax to Quantum, or the holders of HDD common stock. Instead, Maxtor and Quantum have agreed to effect the disposition and the merger on the basis of an opinion from Ernst & Young LLP, Quantum's tax advisors, and a tax opinion insurance policy issued by a syndicate of major insurance companies covering up to $340 million of tax loss to Quantum caused by disposition and merger. The tax opinion insurance policy does not cover all circumstances under which the disposition could become taxable to Quantum. In addition to customary exclusions from its coverage, the tax opinion insurance policy does not cover any federal or state tax payable by Quantum if the disposition becomes taxable to Quantum as a result of: . a change in relevant tax law; . an acquisition representing a 50% or greater interest in Quantum during the two-year period following the merger, whether or not approved by Quantum's board of directors; or . an acquisition representing a 50% or greater interest in Maxtor during the two-year period following the merger, whether or not approved by Maxtor's board of directors. If Quantum incurs non-insured tax as a result of the disposition, Quantum's financial condition and operating results could be negatively affected. If the split-off is determined to be taxable to Quantum, Quantum will not be able to recover the tax either from Maxtor or under the insurance policy under the following circumstances: . If the tax loss were not covered by the policy because it fell under one of the exclusions described above, insurance proceeds would not be available to cover the loss. . If the tax loss were caused by Quantum's own acts or those of a third party that made the disposition taxable (for instance, an acquisition of control of Quantum during the two-year period following the closing), Maxtor would not be obligated to indemnify Quantum for the tax. . If Maxtor was obligated to indemnify Quantum for the tax but was not able to make the payment, Quantum would nevertheless be obligated, as the taxpayer, to make the payment. In any of these circumstances, the tax payments due from Quantum could be substantial. In order to pay the tax, Quantum would have to either deplete its existing cash resources or borrow money to cover its tax obligation. Quantum's payment of the tax prior to Maxtor's payment to it under Maxtor's indemnification obligations, or in circumstances where those obligations do not apply, could harm Quantum's business, financial condition and operating results. Because the disposition would be taxable to Quantum if either Maxtor or Quantum undergoes a change of control as part of the disposition plan, Quantum may be a less attractive acquisition candidate for at least two years after the disposition. 32 Under the federal tax rules applicable to the disposition, if a 50% or greater interest in either Maxtor or Quantum is acquired within two years after the disposition, the disposition would become taxable to Quantum under circumstances not covered by the tax opinion insurance policy and/or under which Maxtor would be required to pay Quantum for the amount of the tax. Neither Maxtor nor Quantum will have control over all the circumstances under which an acquisition could occur. Because of the restriction on acquisitions, Quantum: . may have to forego significant growth and other opportunities; . may not be deemed an attractive acquisition target reducing opportunities for its stockholders to sell or exchange their shares in attractive transactions which might otherwise be proposed; and . will be restricted in its ability to initiate a business combination that its board of directors might wish to pursue because it will not be able to structure the transaction as an acquisition, even if that would otherwise be the most attractive structure. The foregoing effects of the restriction on an acquisition of Quantum could have a negative impact on Quantum's business and stockholder value. Quantum may be harmed as a result of operating solely as a DLTtape and storage solutions business. Quantum's operations have consisted of the DLTtape and storage solutions business and the Hard Disk Drive business. Operating results of the DSS business alone may be adversely affected by the loss of one or more of the following benefits that HDD had contributed to Quantum: . The ability to leverage the expertise of HDD in areas related to HDD's core competency in hard disk drives; . The opportunity to jointly develop various products, such as online storage solutions; . The ability to more effectively enable and cost reduce data storage solutions; . Use of the goodwill and brand recognition associated with HDD; . The benefit of Quantum as a whole having a larger market capitalization related to the two tracking stocks; . Diversification associated with a single company serving the DLTtape, storage solutions and hard disk drive markets. Maxtor's failure to perform under the indemnification agreement in connection with Quantum's convertible debt would harm Quantum's business. Maxtor has agreed to assume responsibility for payments of up to $95,833,000 of Quantum's convertible debt. If Maxtor fails to indemnify Quantum under the indemnification agreement for Maxtor's portion of the convertible debt, Quantum could experience a material adverse effect on its business and financial performance. Quantum may have contingent liabilities for some obligations assumed by Maxtor, and Maxtor's failure to perform under these obligations could result in significant costs for Quantum that could have an adverse impact on Quantum operating results. Maxtor has agreed to assume responsibility for obligations related to Quantum and its HDD business, including obligations associated with taxes, real estate, computer equipment, software, litigation, and human resources. If Maxtor fails to perform under these obligations, Quantum may have contingent liability and incur costs that have a material adverse effect on its business and financial performance. Quantum's continuing operations may experience difficulty attracting and retaining quality employees, which may hurt its ability to operate its business effectively. The ability of Quantum to maintain its competitive technological position will depend, in large part, on its ability to attract and retain highly qualified technical and managerial personnel. The combination of DSS and HDD has resulted in faster growth and greater scale for Quantum. After the disposition, without the benefits of a combined business, Quantum may not experience the same success in attracting quality employees. Competition for qualified personnel is intense. There is a risk that some key employees will depart as a result of the disposition. Lack of 33 success in attracting qualified employees could lead to lower than expected operating results and delays in the introduction of new products and could have a negative effect on the ability of Quantum to support customers. The historical financial information of Quantum's DSS group may not be representative of its future results as a separate company. The historical financial information of DSS does not necessarily reflect what its financial position, operating results, and cash flows would have been had it been a separate, stand-alone entity during the periods presented. In addition, the historical information is not necessarily indicative of what its operating results, financial position and cash flows will be in the future. Quantum has not made adjustments to reflect many significant changes that may occur in its cost structure, funding and operations as a result of its separation from HDD, including changes in its employee base, legal structure, costs associated with reduced economics of scale, marketing expenses related to establishing a new brand identity, and costs associated with being a public stand-alone company. Quantum is exposed to general economic conditions that have resulted in lower sales and actions to reduce operating expenses and continued or worsened conditions may result in additional actions to reduce operating expenses. As a result of recent unfavorable economic conditions and reduced capital spending, our sales have declined in the fourth quarter of fiscal year 2001 compared to the previous three quarters of fiscal 2001. In particular, sales to OEMs and resellers in the server equipment manufacturing and storage networking markets in the United States were impacted during the fourth quarter of fiscal 2001. If the economic conditions in the United States worsen or if a wider or global economic slowdown occurs, we may experience a material adverse impact on our business, operating results, and financial condition. For example, we expect a reduction in sales in the first quarter of fiscal year 2002 compared to the fourth quarter of fiscal year 2001, which will result in comparatively lower operating results as well as adjustments and other charges associated with actions aimed at reducing operating expenses. Comparatively lower sales have resulted in operating expenses increasing as a percentage of revenue in the fourth quarter of fiscal year 2001 and this trend is expected to worsen in the first quarter of fiscal year 2002 and although we are taking actions and charges in the first quarter of 2002 to reduce operating expenses, a prolonged continuation or worsening of sales trends may result in additional actions and charges aimed at further reducing operating expenses in subsequent quarters of fiscal year 2002. The impact of charges or an inability to reduce operating expenses consistent with future trends in sales may adversely impact Quantum's operating results. Competition has increased and may increasingly intensify in the tape drive market as a result of competitors introducing tape drive products based on new technology standards and on DLTtape technology. Quantum competes with companies that develop, manufacture, market and sell tape drive products. Quantum's principal competitors include Benchmark Storage Innovations Inc., Hewlett-Packard, Seagate Technology, Inc., Sony Corporation and Storage Technology Corporation. These competitors are aggressively trying to develop new tape drive technologies to compete more successfully with products based on DLTtape technology. Hewlett-Packard, IBM Corporation and Seagate formed a consortium and developed new linear tape drive products. Such products target the high-capacity data back-up market and compete with Quantum's products based on Super DLTtape technology. This competition has resulted in a trend, which is expected to continue, toward lower prices and margins earned on Quantum's DLTtape and Super DLTtape drives. A combination of the current economic environment, which has resulted in reduced shipments of tape drives, and increased competition could result in a further deterioration in prices and reduced margins which could have a material adverse impact on Quantum's operating results. 34 Competition has increased and may increasingly intensify and sales have trended lower in the tape library market as a result of current economic conditions. Quantum's tape library products compete with product offerings of ADIC, Inc., Exabyte, Hewlett-Packard, Overland Data Inc. and StorageTek, who also offer tape automation systems incorporating DLTtape and Super DLTtape technology. Current economic conditions have been marked by lower information technology investment, particularly for higher priced products such as high-end tape automation systems. The lower demand has resulted in lower sales as well as increased price competition. If this trend continues or intensifies, sales and margins may be further reduced which could have a material adverse impact on Quantum's operating results. Competition from alternative storage solutions that compete with Quantum products may increase. Quantum's products, particularly tape products, including tape drives and automation systems, also compete with other storage technologies, such as hard disk drives. Hard disk drives have experienced a trend toward lower prices while capacity and performance has increased. If hard disk drive costs continue to decline, the competition resulting from hard disk drive based storage solutions may increase. Quantum's operating results depend on new product introductions, which may not be successful. To compete effectively, Quantum must improve existing products and introduce new products, such as products based on Super DLTtape technology and network attached storage appliances. Quantum cannot provide assurance that: . It will introduce any of these new products in the time frame Quantum currently forecasts; . It will not experience technical or other difficulties that could prevent or delay the introduction of these new products; . Its new products will achieve market acceptance; . Its new products will be successfully or timely qualified with Quantum's customers by meeting customer performance and quality specifications. A successful and timely customer qualification must occur before customers will place large product orders; or . It will achieve high volume production of these new products in a timely manner, if at all. These risks are magnified because Quantum expects that technological changes, changes in customer requirements and increasing competition could result in declining sales and gross margins on its existing products. Reliance on a limited number of third-party suppliers could result in significantly increased costs and delays in the event these suppliers experience shortages or quality problems. Quantum depends on a limited number of suppliers for components and sub- assemblies, including recording heads, media cartridges and integrated circuits, all of which are essential to the manufacture of DLTtape drives and tape automation systems. Quantum currently purchases the DLTtape media cartridges it sells primarily from Fuji Photo Film Co., Ltd. and from Hitachi Maxell, Ltd. Maxell is also the sole supplier of Super DLTtape media cartridges. Quantum cannot provide assurance that Fuji or Maxell will continue to supply an adequate number of high quality media cartridges in the future. If component shortages occur, or if Quantum experiences quality problems with component suppliers, shipments of products could be significantly delayed and/or costs significantly increased. In addition, Quantum 35 qualifies only a single source for many components and sub-assemblies, which magnifies the risk of future shortages. Quantum's main supplier of tape heads is located in China. Political instability, trade restrictions, changes in tariff or freight rates or currency fluctuations in China could result in increased costs, delays in shipment and could have an adverse impact on Quantum's operating results. Quantum's quarterly operating results could fluctuate significantly and past quarterly operating results should not be used to predict future performance. Quantum's quarterly operating results have fluctuated significantly in the past and could fluctuate significantly in the future. As a result, Quantum's past quarterly operating results should not be used to predict future performance. Quarterly operating results could be adversely affected by: . An inadequate supply of DLTtape media cartridges; . Customers canceling, deferring or rescheduling significant orders as a result of excess inventory levels or other factors; . Declines in network server demand; . Failure to complete shipments in the last month of a quarter during which a substantial portion of Quantum's products are typically shipped; or . Increased competition. A majority of sales come from a few customers and these customers have no minimum or long-term purchase commitments. Quantum's sales are concentrated with a few customers. Customers are not obligated to purchase any minimum product volume and Quantum's relationships with its customers are terminable at will. The loss of, or a significant change in demand from, one or more key customers could materially and adversely impact Quantum's operating results. Unpredictable end-user demand, combined with the computer equipment manufacturer trend toward carrying minimal inventory levels, increases the risk that Quantum will manufacture and custom configure too much or too little inventory for particular customers. Significant excess inventory could result in inventory write-downs and losses, while inventory shortages could adversely impact Quantum's relationship with its customers, either of which could adversely impact Quantum's operating results. For example, current economic conditions, which in part have resulted in reduced product orders from Quantum's customers will have an adverse impact on Quantum's operating results. Quantum does not control licensee pricing or licensee sales of DLTtape media cartridges and as a result Quantum's royalty revenue may decline. Quantum receives a royalty fee based on sales of DLTtape media cartridges by Fuji and Maxell. Under Quantum's license agreements with Fuji and Maxell, each of the licensees determines the pricing and number of units of DLTtape media cartridges sold by it. In addition, other companies may begin to sell DLTtape media cartridges under license agreements. As a result, Quantum's royalty revenue will vary depending upon the level of sales and prices set by Fuji, Maxell and potentially other licensees. In addition, lower licensee pricing could require Quantum 36 to lower its prices on direct sales of DLTtape media cartridges, which would adversely impact Quantum's margins for this product. Quantum's royalty revenue is dependent on an installed base of tape drives that utilize DLTtape media cartridges and if the installed base declines royalty revenue may decline. Competition from other tape technologies could result in reduced sales of DLTtape drives and the replacement of currently installed DLTtape drives with drives that do not consume DLTtape media. This could cause a decline in the installed base of tape drives that utilize DLTtape media from which Quantum earns a royalty and a reduction in Quantum's royalty revenue. Third party infringement claims could result in substantial liability and significant costs. From time to time, third parties allege Quantum's infringement of and need for a license under their patented or other proprietary technology. While management currently believes the amount of ultimate liability, if any, with respect to these actions will not materially affect the financial position, results of operations, or liquidity of Quantum, the ultimate outcome of any litigation is uncertain. Adverse resolution of any third party infringement claim could subject Quantum to substantial liabilities and require it to refrain from manufacturing and selling certain products. In addition, the costs incurred in intellectual property litigation can be substantial, regardless of the outcome. Power outages which currently impact companies with facilities in California may adversely affect Quantum's California facilities. Quantum conducts operations in the state of California and relies on a continuous power supply to conduct operations. California's current energy crisis could disrupt Quantum's operations and increase expenses. In the event of an acute power shortage, that is, when power reserves for the state of California fall below 1.5%, California has on some occasions implemented, and may in the future continue to implement, rolling blackouts throughout the state. Although state lawmakers are working to minimize the impact, if blackouts interrupt our power supply, Quantum may be temporarily unable to continue operations at its facilities. Any such interruption in Quantum's ability to continue operations at its facilities could delay the development of products and manufacturing processes. Future interruptions could damage Quantum's reputation and could result in lost revenue, either of which could harm Quantum's business and results of operations. Furthermore, the deregulation of the energy industry instituted in 1996 by the California government and shortages in wholesale electricity supplies have caused power prices to increase. If wholesale prices continue to increase, Quantum's operating expenses will likely increase which will have a negative effect on Quantum's operating results. The Snap product line, which is part of the Storage Solutions group, is currently not profitable and may never be profitable. Quantum has invested, and will continue to invest, in the Snap product line, consisting of network attached storage solutions. This product line is currently not profitable and the unprofitability may continue in the future. Quantum's limited historical financial performance associated with the Snap products make it difficult to evaluate the success of the product line to date and to assess its future viability. Quantum's operating expenses associated with its Snap product line revenue are comparatively high. Therefore, the Snap product line will need to generate significant revenues or a significant reduction in related operating expenses to achieve profitability. Future revenues are dependent upon, among others, the following factors: . growth of the Network Attached Storage (NAS) market, 37 . acceptance of NAS appliances in the entry and mid-range market, . demand for existing Snap products and levels of product and price competition, and . expansion of current product offerings and introduction of new technologies. Investments in equity securities currently recorded at cost may be subject to write-downs in the future. Quantum currently records its investments in certain equity securities, particularly venture capital type investments on a cost basis, adjusted for other than temporary impairment. Quantum has incurred impairment losses in the past. These equity investments are mostly in companies that are currently not profitable. Therefore, these investments may be subject to write-downs in the future due to impairment in the carrying value. Quantum will continue to invest in businesses that are not profitable at the time of investment. Currently there is $50 million intended for future investments in equity securities. In the future, impairment losses associated with these investments may have an adverse impact on Quantum's earnings. Euro Impact Quantum believes that the adoption of a single currency, the Euro, by eleven European countries has not and will not materially affect its business, information systems or consolidated financial position, operating results or cash flows. 38 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Quantum Corporation We have audited the accompanying consolidated balance sheets of Quantum Corporation (the "Company") as of March 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended March 31, 2001. Our audits also included the financial statement schedule listed in the index at Item 14a. These financial statements are the responsibility of Quantum's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Quantum Corporation at March 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP San Jose, California April 27, 2001 39 QUANTUM CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Year Ended March 31, ------------------------------------------ 2001 2000 1999 ---------- ---------- ---------- Product revenue......................................................... $1,183,845 $1,232,442 $1,181,273 Royalty revenue......................................................... 221,973 186,429 121,463 ---------- ---------- ---------- Total revenue........................................................... 1,405,818 1,418,871 1,302,736 Cost of revenue......................................................... 782,782 769,981 722,817 ---------- ---------- ---------- Gross profit............................................................ 623,036 648,890 579,919 Operating expenses: Research and development............................................. 130,106 122,821 99,330 Sales and marketing.................................................. 152,819 118,504 76,737 General and administrative........................................... 78,865 62,991 38,158 Special charge....................................................... -- 40,083 -- Purchased in-process research and development........................ -- 37,000 89,000 ---------- ---------- ---------- 361,790 381,399 303,225 ---------- ---------- ---------- Income from operations.................................................. 261,246 267,491 276,694 Interest income and other, net.......................................... 18,047 18,838 5,946 Interest expense........................................................ (17,658) (18,978) (18,322) ---------- ---------- ---------- Income before income taxes.............................................. 261,635 267,351 264,318 Income tax provision.................................................... 94,189 121,737 141,327 ---------- ---------- ---------- Income from continuing operations....................................... 167,446 145,614 122,991 Loss from discontinued operations, net of income taxes.................. (6,760) (104,770) (152,526) ---------- ---------- ---------- Net income (loss)....................................................... $ 160,686 $ 40,844 $ (29,535) ========== ========== ========== Income per share from continuing operations: Basic................................................................ $ 1.13 $ 0.77 ========== ========== Diluted.............................................................. $ 1.08 $ 0.74 ========== ========== Weighted-average common shares: Basic................................................................ 148,150 160,670 ========== ========== Diluted.............................................................. 155,645 166,215 ========== ========== Net loss per share (1): Basic................................................................ $ (0.18) ========== Diluted.............................................................. $ (0.18) ========== Weighted-average common shares: Basic................................................................ 160,670 ========== Diluted.............................................................. 166,215 ========== Net loss for the period from April 1, 1999 to August 3, 1999 (1)........ $(17,193) ======== Net loss per share: Basic................................................................ $ (0.10) ======== Diluted.............................................................. $ (0.10) ======== Weighted-average common shares: Basic................................................................ 165,788 ======== Diluted.............................................................. 172,016 ======== Income from continuing operations for the period from April 1, 1999 to $ 60,028 August 3, 1999 (2)..................................................... ======== Net income per share from continuing operations: Basic................................................................ $ 0.36 ========
40 Diluted.............................................................. $ 0.35 ======== Weighted-average common shares: Basic................................................................ 165,788 ======== Diluted.............................................................. 172,016 ======== Income from continuing operations for the period from August 4, 1999 to $ 85,586 March 31, 2000 (2)..................................................... ======== Income per share from continuing operations: Basic................................................................ $ 0.53 ======== Diluted.............................................................. $ 0.51 ======== Weighted-average common shares: Basic................................................................ 162,023 ======== Diluted.............................................................. 167,734 ========
(1) Net income (loss) per share for fiscal year 2001 and the period from August 4, 1999 through March 31, 2000 is not presented, as there is no single class of stock that represents the consolidated company after the recapitalization that occurred on August 3, 1999 (as discussed in Note 1 to consolidated financial statements). (2) Income per share from continuing operations for fiscal year 2000 is presented for the two following periods- the period from April 1, 1999 through August 3, 1999 and for the period from August 4, 1999 through March 31, 2000 because of the recapitalization that occurred on August 3, 1999 (as discussed in Note 1 to consolidated financial statements). See accompanying notes to consolidated financial statements. 41 QUANTUM CORPORATION CONSOLIDATED BALANCE SHEET (In thousands)
March 31, -------------------------- 2001 2000 ---------- ---------- Assets Current assets: Cash and cash equivalents............................................................. $ 397,537 $ 336,720 Marketable securities................................................................. 1,084 2,032 Accounts receivable, net of allowance for doubtful accounts of $3,227 and $3,492 respectively.................................................................. 208,402 214,107 Inventories........................................................................... 130,763 101,478 Deferred taxes........................................................................ 48,329 54,669 Other current assets.................................................................. 72,592 38,424 Net current assets of discontinued operations 501,839 674,248 ---------- ---------- Total current assets............................................................... 1,360,546 1,421,678 Property, plant and equipment, less accumulated depreciation........................... 94,700 78,137 Goodwill and intangible assets, less accumulated amortization.......................... 227,501 248,288 Other assets........................................................................... 32,453 12,149 Net non-current assets of discontinued operations...................................... 184,504 102,228 ---------- ---------- Total Assets $1,899,704 $1,862,480 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable...................................................................... $ 86,510 $ 94,596 Accrued warranty...................................................................... 54,771 52,593 Accrued compensation.................................................................. 36,326 36,379 Income taxes payable.................................................................. 22,424 -- Accrued special charge................................................................ 8,081 20,954 Due to the Hard Disk Drive group...................................................... 34,000 30,100 Other accrued liabilities............................................................. 37,945 27,749 ---------- ---------- Total current liabilities.......................................................... 280,057 262,371 Deferred taxes......................................................................... 35,807 13,578 Convertible subordinated debt.......................................................... 287,500 287,500 ---------- ---------- Total term liabilities............................................................. 323,307 301,078 Stockholders' equity Preferred Stock: Quantum Corporation preferred stock, $.01 par value; 20,000,000 shares authorized at March 31, 2001 and 2000; no shares issued at March 31, 2001, and March 31, 2000. - - Common Stock: DSS common stock, $.01 par value; 1,000,000,000 shares authorized at March 31, 2001 and 2000; 152,061,529 and 157,422,824 shares issued and outstanding at March 31, 2001 and 2000, respectively................................. 1,551 1,574 HDD common stock, $.01 par value; 600,000,000 shares authorized at March 31, 2001 and 2000; 80,084,678 and 83,784,277 shares issued and outstanding at March 31, 2001 and 2000, respectively................................. 801 838 Capital in excess of par value....................................................... 749,066 734,608 Retained earnings.................................................................... 584,696 545,050 Accumulated other comprehensive income (loss)........................................ (4,854) 16,961
42 Treasury stock....................................................................... (34,920) -- ---------- ---------- Total stockholders' equity......................................................... 1,296,340 1,299,031 ---------- ---------- $1,899,704 $1,862,480 ========== ==========
See accompanying notes to consolidated financial statements. 43 QUANTUM CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended March 31, ---------------------------------- 2001 2000 1999 --------- --------- --------- Cash flows from operating activities: Net income (loss)............................................................................ $ 160,686 $ 40,844 $ (29,535) Adjustments to reconcile net income (loss) to net cash provided by operations: Loss from investee.......................................................................... -- -- 124,809 Special charge.............................................................................. -- 90,468 -- Purchased in-process research and development............................................... -- 37,000 89,000 Depreciation................................................................................ 90,119 98,646 92,522 Amortization................................................................................ 30,576 31,923 20,413 Deferred taxes.............................................................................. (46,600) (7,315) 22,904 Compensation related to stock incentive plans............................................... 19,352 7,868 5,636 Changes in assets and liabilities: Accounts receivable........................................................................ 141,400 37,696 114,792 Inventories................................................................................ (85,661) 49,302 67,149 Accounts payable........................................................................... (153,769) 61,726 (56,211) Income taxes payable....................................................................... 77,057 10,873 (6,367) Accrued warranty........................................................................... (5,812) 22,070 2,037 Other assets and liabilities............................................................... (49,886) 15,568 16,740 --------- --------- --------- Net cash provided by operating activities..................................................... 177,462 496,669 463,889 --------- --------- --------- Cash flows from investing activities: Purchases of marketable securities........................................................... -- (37,890) (78,145) Maturities of marketable securities.......................................................... 2,032 70,400 125,292 Purchases of equity securities............................................................... (26,803) (4,147) (1,750) Acquisition of intangible assets............................................................. -- (2,500) -- Purchases of property and equipment.......................................................... (91,823) (85,608) (115,662) Proceeds from disposition of property and equipment.......................................... -- -- 143 Proceeds from repayment of note receivable................................................... -- 3,126 -- --------- --------- --------- Net cash used in investing activities......................................................... (116,594) (56,619) (70,122) --------- --------- --------- Cash flows from financing activities: Proceeds from long-term credit facilities.................................................... -- 10,000 33,545 Purchase of treasury stock................................................................... (240,848) (324,698) (305,287) Principal payments on long-term credit facilities............................................ (1,131) (29,114) (34,090) Proceeds from issuance of common stock, net.................................................. 64,039 49,656 42,283 Proceeds from factoring...................................................................... 100,000 Payments on factoring........................................................................ (100,000) -- -- --------- --------- --------- Net cash provided by (used in) financing activities........................................... (177,940) (294,156) (263,549) --------- --------- --------- Increase (decrease) in cash and cash equivalents.............................................. (117,072) 145,894 130,218 Cash and cash equivalents at beginning of period.............................................. 918,262 772,368 642,150 --------- --------- --------- Cash and cash equivalents at end of period.................................................... $ 801,190 $ 918,262 $ 772,368 ========= ========= ========= Reconciliation of cash and cash equivalents at end of period: Cash and cash equivalents of continuing operations at end of period........................... $ 397,537 $ 336,720 $ 272,643 Cash and cash equivalents of discontinued operations at end of period......................... $ 403,653 $ 581,542 $ 499,725 --------- --------- --------- Cash and cash equivalents at end of period.................................................... $ 801,190 $ 918,262 $ 772,368 ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for: Interest.................................................................................... $ 15,505 $ 26,878 $ 26,721 ========= ========= ========= Income taxes................................................................................ $ 32,912 $ 28,469 $ 2,718 ========= ========= ========= Tangible and intangible assets acquired for shares of Quantum, DSS and HDD common stock, net of cash acquired and liabilities assumed................................................. $ -- $ 104,698 $ 289,474 ========= ========= =========
See accompanying notes to consolidated financial statements. 44 QUANTUM CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands)
DLT & Storage Systems Quantum Corporation Group Common Stock Common Stock --------------------- -------------------------- Shares Amount Shares Amount ---------- --------- ------------ ------------ Balances at March 31, 1998................................. $ 160,879 $ 1,609 -- -- Comprehensive loss: Income from continuing operations.................... Loss from discontinued operations, net............... Net loss................................................ -- -- -- -- Other comprehensive income--foreign currency translation adjustments.............................. -- -- -- Comprehensive loss......................................... -- -- -- -- Shares issued under employee stock purchase plan........... 2,555 26 -- -- Shares issued under employee stock option plans, net....... 2,502 25 -- -- Treasury shares repurchased................................ (15,477) -- -- -- Treasury shares reissued for ATL acquisition............... 15,477 -- -- -- New shares issued for ATL acquisition...................... 1,471 15 -- -- Conversion of ATL stock options............................ -- -- -- -- Compensation expense and other............................. -- -- -- -- Tax benefits related to stock option plans................. -- -- -- -- -------- -------- ------- ----------- Balances at March 31, 1999................................. 167,407 1,675 -- -- ======== ======== ======= =========== Comprehensive income: Income from continuing operations.................... Loss from discontinued operations, net............... Net income.............................................. -- -- -- -- Other comprehensive income: Foreign currency translation adjustments............ -- -- -- -- Unrealized gain on investments, net of tax of -- -- -- -- $12,025 Other comprehensive income.............................. -- -- -- -- Comprehensive income....................................... -- -- -- -- Shares issued under employee stock purchase plan........... 829 8 1,145 11 Shares issued under employee stock option plans, net....... 1,065 10 2,526 25 Treasury shares repurchased-Quantum common stock ......... (3,868) -- -- -- Recapitalization (August 3, 1999).......................... (165,433) (1,693) 165,433 1,693 Tracking stock issuance costs.............................. -- -- -- -- Treasury shares reissued for Meridian acquisition.......... -- -- 3,868 -- New shares issued for Meridian acquisition................. -- -- 186 2 Conversion of Meridian stock options....................... -- -- -- -- Treasury shares repurchased and retired common stock...... -- -- (15,735) (157) Compensation expense and other............................. -- -- -- -- Tax benefits related to stock option plans................. -- -- -- -- -------- -------- ------- ----------- Balances at March 31, 2000................................. -- -- 157,423 1,574 ======== ======== ======= =========== Comprehensive income: Income from continuing operations.................... Loss from discontinued operations, net............... Net income.............................................. -- -- -- -- Other comprehensive income: Foreign currency translation adjustments............ -- -- -- -- Unrealized loss on investments, net of tax of -- -- -- -- $10,218 Other comprehensive income.............................. -- -- -- -- Comprehensive income....................................... -- -- -- -- Shares issued under employee stock purchase plan........... -- -- 2,119 21 Shares issued under employee stock option plans, net...... -- 6,000 61 Treasury shares repurchased and retired common stock...... -- -- (13,480) (105) Compensation expense and other............................. -- -- -- -- Tax benefits related to stock option plans................. -- -- -- -- -------- -------- ------- ----------- Hard Disk Drive Group Common Stock Capital in ----------------- Excess of Shares Amount Par Value -------- ------- ----------- Balances at March 31, 1998................................. -- -- $ 774,682 Comprehensive loss: Income from continuing operations.................... Loss from discontinued operations, net............... Net loss................................................ -- -- -- Other comprehensive income--foreign currency translation adjustments.............................. -- -- Comprehensive loss......................................... -- -- -- Shares issued under employee stock purchase plan........... -- -- 24,014 Shares issued under employee stock option plans, net -- -- 18,218 Treasury shares repurchased................................ -- -- -- Treasury shares reissued for ATL acquisition............... -- -- -- New shares issued for ATL acquisition...................... -- -- 22,973 Conversion of ATL stock options............................ -- -- 22,367 Compensation expense and other............................. -- -- 5,636 Tax benefits related to stock option plans................. -- -- 16,869 ------ ------ --------- Balances at March 31, 1999................................. -- -- 884,759 ====== ====== ========= Comprehensive income: Income from continuing operations.................... Loss from discontinued operations, net............... Net income.............................................. -- -- -- Other comprehensive income: Foreign currency translation adjustments............ -- -- -- Unrealized gain on investments, net of tax of -- -- -- $12,025 Other comprehensive income.............................. -- -- -- Comprehensive income....................................... -- -- -- Shares issued under employee stock purchase plan........... 572 6 25,462 Shares issued under employee stock option plans, net....... 1,923 19 31,331 Treasury shares repurchased-Quantum common stock ......... -- -- -- Recapitalization (August 3, 1999).......................... 82,716 846 (846) Tracking stock issuance costs.............................. -- -- (7,216) Treasury shares reissued for Meridian acquisition.......... 1,934 -- 3,505 New shares issued for Meridian acquisition................. 93 1 4,216 Conversion of Meridian stock options....................... -- -- 10,276 Treasury shares repurchased and retired common stock...... (3,454) (34) (240,268) Compensation expense and other............................. -- -- 7,868 Tax benefits related to stock option plans................. -- -- 15,521 ------ ------ --------- Balances at March 31, 2000................................. 83,784 838 734,608 ====== ====== ========= Comprehensive income: Income from continuing operations.................... Loss from discontinued operations, net............... Net income.............................................. -- -- -- Other comprehensive income: Foreign currency translation adjustments............ -- -- -- Unrealized loss on investments, net of tax of -- -- -- $10,218 Other comprehensive income.............................. -- -- -- Comprehensive income....................................... -- -- -- Shares issued under employee stock purchase plan........... 1,058 11 23,795 Shares issued under employee stock option plans, net...... 5,240 52 40,297 Treasury shares repurchased and retired common stock...... (9,997) (100) (84,886) Compensation expense and other............................. -- -- 19,357 Tax benefits related to stock option plans................. -- -- 15,895 ------ ------ ---------
45 Balances at March 31, 2001........... $ -- $ -- 152,062 $ 1,551 80,085 $ 801 $ 749,066 ======== ======== ========= ========= ======= ====== =========
Accumulated Other Retained Comprehensive Treasury Earnings Income (Loss) Stock Total -------- ------------- ----- ----- Balances at March 31, 1998................................... $ 597,193 $ (1,462) $ -- $1,372,022 Comprehensive loss: Income from continuing operations...................... 122,991 122,991 Loss from discontinued operations, net (152,526) -- -- (152,526) ---------- Net loss (29,535) Other comprehensive income--foreign currency translation adjustments................................ -- 612 -- 612 ---------- Comprehensive loss........................................... -- -- -- (28,923) Shares issued under employee stock purchase plan............. -- -- -- 24,040 Shares issued under employee stock option plans, net......... -- -- -- 18,243 Treasury shares repurchased.................................. -- -- (305,287) (305,287) Treasury shares reissued for ATL acquisition................. (63,452) -- 305,287 241,835 New shares issued for ATL acquisition........................ -- -- -- 22,988 Conversion of ATL stock options.............................. -- -- -- 22,367 Compensation expense and other............................... -- -- -- 5,636 Tax benefits related to stock option plans................... -- -- -- 16,869 --------- -------- ----------- ---------- Balances at March 31, 1999................................... 504,206 (850) -- 1,389,790 ========= ======== =========== ========== Comprehensive income: Income from continuing operations...................... 145,614 145,614 Loss from discontinued operations, net................. (104,770) -- -- (104,770) ---------- Net income................................................ 40,844 Other comprehensive income: Foreign currency translation adjustments............... -- (212) -- -- Unrealized gain on investments, net of tax of $12,025 -- 18,023 -- -- -------- Other comprehensive income................................ -- 17,811 -- 17,811 ---------- Comprehensive income......................................... -- -- -- 58,655 Shares issued under employee stock purchase plan............. -- -- -- 25,487 Shares issued under employee stock option plans, net......... -- -- -- 31,385 Treasury shares repurchased-Quantum common stock ........... -- -- (84,239) (84,239) Recapitalization (August 3, 1999)............................ -- -- -- -- Tracking stock issuance costs................................ -- -- -- (7,216) Treasury shares reissued for Meridian acquisition............ -- -- 84,239 87,744 New shares issued for Meridian acquisition................... -- -- -- 4,219 Conversion of Meridian stock options......................... -- -- -- 10,276 Treasury shares repurchased and retired common stock......... -- -- -- (240,459) Compensation expense and other............................... -- -- -- 7,868 Tax benefits related to stock option plans................... -- -- -- 15,521 --------- -------- ----------- ---------- Balances at March 31, 2000................................... 545,050 16,961 -- 1,299,031 ========= ======== =========== ========== Comprehensive income: Income from continuing operations...................... 167,446 -- -- 167,446 Loss from discontinued operations, net of tax......... (6,760) -- -- (6,760) ---------- Net income 160,686 Other comprehensive income: Foreign currency translation adjustments............... -- (6,487) -- -- Unrealized loss on investments, net of tax of $10,218 -- (15,328) -- -- -------- Other comprehensive loss.................................. -- (21,815) -- (21,815) ---------- Comprehensive income......................................... -- -- -- 138,871 Shares issued under employee stock purchase plan............. -- -- -- 23,827 Shares issued under employee stock option plans, net......... -- -- -- 40,410 Treasury shares repurchased and retired common stock........ (121,040) -- (34,920) (241,051)
46 Compensation expense and other............................... -- -- -- 19,357 Tax benefits related to stock option plans................... -- -- -- 15,895 --------- -------- ------------- ---------- Balances at March 31, 2001................................... $ 584,696 $ (4,854) $ (34,920) $1,296,340 ========= ======== ============= ==========
See accompanying notes to consolidated financial statements. 47 QUANTUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: Summary of Significant Accounting Policies ------------------------------------------ Nature of Business Until the beginning of fiscal year 2002, Quantum operated its business through two separate business groups: the DLT & Storage Systems group ("DSS") and the Hard Disk Drive group ("HDD"). On March 30, 2000, Quantum's stockholders approved the sale of HDD to Maxtor Corporation ("Maxtor"). On April 2, 2001, each authorized share of HDD common stock was exchanged for 1.52 shares of Maxtor common stock. DSS designs, develops, manufactures, licenses, services, and markets DLTtape and Super DLTtape drives, DLTtape and Super DLTtape media cartridges and storage solutions. DSS' storage solutions consist of tape automation systems, network attached storage solutions and service. HDD designed, developed and marketed a diversified product portfolio of hard disk drives to meet the storage requirements of entry-level to high-end desktop PCs in home and business environments, and high-end hard disk drives for the storage needs of network servers, workstations and storage sub-systems. Recapitalization On July 23, 1999, Quantum's stockholders approved a tracking stock proposal. As a result, Quantum's Certificate of Incorporation was amended and restated, effective as of the close of business on August 3, 1999, designating two new classes of Quantum Corporation common stock, DLT & Storage Systems group common stock, $0.01 par value per share and Hard Disk Drive group common stock, $0.01 par value per share. On August 3, 1999, each authorized share of Quantum common stock, $0.01 par value per share, was exchanged for one share of DSS stock and one-half share of HDD stock. These two securities were intended to track separately the performance of the DLT & Storage Systems group and the Hard Disk Drive group. As a result of the disposition of HDD to Maxtor, as of April 2, 2001, the DSS business represents Quantum, and as such, DSS is no longer a tracking stock, but is now the common stock for Quantum Corporation. Financial Statement Presentation As a result of the disposition of the HDD business on April 2, 2001, the consolidated financial statements and related footnotes have been restated to present the results of the HDD business as discontinued operations (See note 18). Accordingly in the consolidated Statements of Operations, the results of the HDD group have been classified as "Loss from discontinued operations, net of income taxes", for fiscal year 2001 and comparatively for fiscal years 2000 and 1999. In the consolidated Balance Sheets, the assets and liabilities of the HDD group have been classified as "Net current assets of discontinued operations" and "Net non-current assets of discontinued operations" for fiscal year 2001 and comparatively for fiscal year 2000. The accompanying consolidated financial statements include the accounts of Quantum and its majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated. Certain amounts in prior periods have been reclassified to conform to the current presentation. Use of Estimates The preparation of the consolidated financial statements of Quantum in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. In particular, significant estimates are required to value inventory and estimate the future cost associated 48 with Quantum's warranties. If the actual value of Quantum's inventories and associated provisions differs from these estimates, the Quantum's operating results could be materially adversely impacted. The actual results with regard to warranty expenditures could also have a material adverse impact on Quantum if the actual rate of unit failure or the cost to repair a unit is greater than what Quantum has used in estimating the warranty expense accrual. Revenue Recognition Revenue from sales of products is recognized on passage of title to customers, when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed or determinable and collectibility is reasonably assured, with provision made for estimated returns. Quantum accrues royalty revenue based on licensees' sales that incorporate certain licensed technology as reported by the licensees. In December 1999, the Securities and Exchange Commission ("SEC") issued SEC Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB 101 summarized certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 was effective for the Quantum in the first quarter of fiscal year 2001. The adoption of SAB 101 did not have a material effect on Quantum's financial position or results of operations. Foreign Currency Translation and Transactions Assets, liabilities, and operations of foreign offices and subsidiaries are recorded based on the functional currency of the entity. For a majority of Quantum's material foreign operations, the functional currency is the U.S. dollar. The assets and liabilities of foreign offices with a local functional currency are translated, for consolidation purposes, at current exchange rates from the local currency to the reporting currency, the U.S. dollar. The resulting gains or losses are reported as a component of other comprehensive income (loss) within stockholders' equity. Although close to one third of Quantum's sales are made to customers in non-U.S. locations and all of Quantum's hard disk drive products are manufactured in Japan, Singapore and Ireland by Matsushita-Kotobuki Electronics Industries, Ltd. ("MKE"), a majority of Quantum's material transactions are denominated in U.S. dollars. Accordingly, transaction gains or losses have been immaterial to Quantum's consolidated financial statements for all years presented. The effect of foreign currency exchange rate fluctuations on cash was also immaterial for the years presented. Assets and liabilities denominated in other than the functional currency are remeasured each month with the remeasurement gain or loss recorded in other income. Foreign Exchange Contracts The effect of foreign currency rate changes on the remeasurement of certain assets and liabilities denominated in a foreign currency are managed using foreign currency forward exchange contracts. Foreign currency forward exchange contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price, on an agreed-upon settlement date. Foreign currency forward exchange contracts are accounted for by the fair value method, with changes in value recognized in other income. Equity Instruments Indexed to Quantum's Common Stock Equity instruments are utilized in connection with Quantum's stock repurchase program, which give Quantum the choice of cash settlement or settlement in shares of common stock. Proceeds received upon the sale of equity instruments and amounts paid upon the purchase of equity instruments are recorded as a component of stockholders' equity. Subsequent changes in the fair value of the equity instruments are not recognized. If the contracts are ultimately settled in cash, the amount of cash paid or received is recorded as a component of stockholders' equity. Income Taxes The federal income taxes of Quantum and the subsidiaries that own assets allocated between continuing and discontinued operations are determined on a consolidated basis. Consolidated federal income tax provisions and 49 related tax payments or refunds are allocated between continuing and discontinued operations based principally on the taxable income and tax credits directly attributable to each operation, as if each operation were a stand-alone entity. Such allocations reflect each operation's contribution (whether positive or negative) to Quantum's consolidated federal taxable income and the consolidated federal tax liability and tax credit position. Tax benefits that cannot be used by the operation generating those benefits but can be used on a consolidated basis are credited to the operation that generated such benefits. Accordingly, the amounts of taxes payable or refundable allocated to each operation may not necessarily be the same as that which would have been payable or refundable had each operation filed a separate income tax return. See note 14 for the discussion of Quantum's income tax provision. Cash Equivalents and Marketable Securities Quantum considers all highly liquid debt instruments with a maturity of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents are carried at fair value, which approximates cost. Quantum's marketable securities have maturities of more than 90 days at the time of purchase. Quantum has classified all cash equivalents and marketable securities as available-for-sale. Securities classified as available-for-sale are carried at fair value with material unrealized gains and losses reported in stockholders' equity. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value judged to be other- than-temporary are recorded in other income or expense. The cost of securities sold is based on the specific identification method. Concentration of Credit Risk Quantum performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral from its customers. Sales to Quantum's top five customers in fiscal year 2001 represented 43% of revenue. Two customers accounted for 19% and 10% of revenue, respectively. Quantum maintains reserves for potential credit losses and such losses have historically been within management's expectations. Quantum invests its excess cash in deposits with major banks and in money market funds and short-term debt securities of companies with strong credit ratings from a variety of industries. These securities generally mature within 365 days and, therefore, bear minimal risk. Quantum has not experienced any material losses on these investments. Quantum limits the amount of credit exposure to any one issuer and to any one type of investment. Investments in Other Entities Investments in other entities are recorded in other assets. Investments in other entities (generally less-than-20-percent-owned companies) that are not represented by marketable securities are carried at cost less write-downs for declines in value that are judged to be other-than-temporary. Dividends are recorded in other income when received. Inventories Inventories are carried at the lower of cost or market. Cost is determined on a first-in, first-out basis. Shipping and handling costs are included in cost of sales. Property, Plant and Equipment Property, plant and equipment are carried at cost, less accumulated depreciation and amortization computed on a straight-line basis over the lesser of the estimated useful lives of the assets (generally three to ten years for 50 machinery, equipment, furniture, and leasehold improvements; and twenty-five years for buildings) or the lease term. Goodwill and Intangible Assets Goodwill and other acquired intangible assets are amortized over their estimated useful lives, which range from three to fifteen years. Intangible assets are reviewed for impairment whenever events or circumstances indicate impairment might exist, or at least annually. Quantum assesses the recoverability of its assets, including goodwill, by comparing projected undiscounted net cash flows associated with those assets against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. No such impairment has been identified to date with respect to Quantum's acquired intangible assets and goodwill. The following table summarizes Quantum's goodwill and intangible assets (in thousands): March 31 March 31 2001 2000 Goodwill $167,054 $161,333 Acquired intangible assets 120,800 128,736 -------- -------- 287,854 290,069 Less accumulated amortization (60,353) (41,781) -------- -------- $227,501 $248,288 ======== ======== Warranty Expense Quantum generally warrants its products against defects for a period of one to three years. A provision for estimated future costs and estimated returns for credit relating to warranty are recorded when products are shipped and revenue recognized. Advertising Expense Quantum accrues for co-operative advertising as the related revenue is earned, and other advertising expense is recorded as incurred. Advertising expense for the years ended March 31, 2001, 2000 and 1999, was $39 million, $29 million, and $26 million, respectively. Stock-Based Compensation As permitted by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), Quantum accounts for employee stock- based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related interpretations. Under APB 25, when the exercise price of its employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Any deferred stock compensation calculated according to APB 25 is amortized over the vesting period of the individual stock awards. In March 2000, FASB issued FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation--an Interpretation of APB Opinion No. 25." FIN 44 clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The adoption of FIN 44 did not have a material impact on the Quantum's financial position or results of operations. 51 Risks and Uncertainties As is typical in the information storage industry, a significant portion of the Quantum's customer base is concentrated with a small number of OEMs, and Quantum is not able to predict whether there will be any significant change in the demand for its customers' products. The loss of any one of the Quantum's more significant customers could have a material adverse effect on the Quantum's results of operations. A limited number of tape drive storage products make up a significant majority of the Quantum's sales, and due to increasingly rapid technological change in the industry, the Quantum's future depends on its ability to develop and successfully introduce new products. Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. Quantum is required to adopt SFAS 133 in fiscal year 2002. Management does not expect SFAS No. 133 to have a material effect on Quantum's financial position or results of operations. Note 2: Recapitalization ---------------- On July 23, 1999, the Quantum's stockholders approved a tracking stock proposal. As a result, Quantum's Certificate of Incorporation was amended and restated, effective as of the close of business on August 3, 1999, designating two new classes of Quantum Corporation common stock, DLT & Storage Systems group ("DSS") common stock, $0.01 par value per share and Hard Disk Drive group ("HDD") common stock, $0.01 par value per share. On August 3, 1999, each authorized share of Quantum common stock, $0.01 par value per share, was exchanged for one share of DSS stock and one-half share of HDD stock. These two securities were intended to track separately the performance of the DLT & Storage Systems group and the Hard Disk Drive group. On March 30, 2001, Quantum's stockholders approved the sale of HDD to Maxtor Corporation. On April 2, 2001, each authorized share of HDD common stock was exchanged for 1.52 shares of Maxtor common stock. Note 3: Financial Instruments --------------------- Available-For-Sale Securities The following is a summary of Quantum's consolidated available-for-sale securities, all of which are classified as cash equivalents and marketable securities:
March 31, March 31, ---------- ----------- 2001 2000 ---- ---- (In thousands) Certificates of deposit.................................................. $145,181 $223,690 Money market funds....................................................... 87,337 49,993 Corporate commercial paper and bank notes................................ 144,088 48,599 U.S. Treasury securities and obligations of U.S. government agencies.... -- 10,974 Other.................................................................... 22,015 5,496 -------- -------- $398,621 $338,752 ======== ======== Included in cash and cash equivalents.................................... $397,537 $336,720 Included in marketable securities........................................ 1,084 2,032 -------- -------- $398,621 $338,752 ======== ========
52 The difference between the amortized cost of available-for-sale securities and fair value was immaterial at March 31, 2000 and March 31, 2001. At March 31, 2001, unrealized gains on available-for-sale securities were recorded, net of tax, as a component of accumulated other comprehensive income within Quantum's stockholders' equity. The estimated fair value of available-for-sale securities is based on market quotations. There were no sales of available-for-sale securities in fiscal years 2000 or 2001. At March 31, 2001, the average available-for-sale portfolio duration was approximately 22 days for debt securities, and no security had a maturity longer than one year. Derivative Financial Instruments Foreign Exchange--Asset and Liability Management. During the periods covered by the financial statements, Quantum utilized foreign currency forward exchange contracts to manage the effects of foreign currency remeasurement arising from certain assets and liabilities denominated in a foreign currency. The gains and losses from market rate changes on these contracts, which are intended to offset the losses and gains on certain foreign currency denominated assets and liabilities, are recorded monthly in other income. The following is a summary of foreign currency forward contracts held for asset and liability management purposes:
March 31, March 31, --------- --------- 2001 2000 ---- ---- (In millions, except for forward rates) Currency to be sold............................. - Yen Maturity dates.................................. - April 2000 Foreign currency notional amount................ - 650 yen Weighted average forward rate................... - 109.88 U.S. dollar notional amount..................... - $ 5.9 U.S. dollar equivalent.......................... - $ 6.2 Fair value...................................... - $ (0.3) March 31, March 31, -------- --------- 2001 2000 ---- ---- (In millions, except for forward rates) Currency to be purchased........................ Swiss Franc Swiss Franc Yen Irish Punt Maturity dates.................................. April 2001 April 2000 April 2000 April 2000 Foreign currency notional amount................ 57.0 Swiss Francs 42.7 Swiss Francs 400 yen 7.6 Irish Punt Weighted average forward rate................... 1.73 1.65 104.7 1.23 U.S. dollar notional amount..................... $32.9 $ 25.9 $ 3.8 $ 9.3 U.S. dollar equivalent.......................... $32.8 $ 25.8 $ 3.8 $ 9.3 Fair value...................................... $(0.1) $ (0.1) $ -- $ --
There were no foreign currency forward contracts to be sold outstanding at March 31, 2001. The fair values for foreign currency forward contracts represent the difference between the contracted forward rate and the quoted fair value of the underlying Yen, Swiss Francs or Irish Punt at the balance sheet dates. Quantum generally does not require collateral from the counterparties to foreign currency forward contracts. Carrying Amount and Fair Values of Financial Instruments The estimated fair value of Quantum's borrowings are summarized as follows: 53
March 31, --------- 2001 2000 ------ ------ Carrying Amount Fair Value Carrying Amount Fair Value --------------- ---------- --------------- ---------- (In millions) Convertible subordinated debt........................ $287.5 $253.0 $287.5 $227.1
The fair values for the convertible subordinated debt were based on the quoted market price at the balance sheet dates. Note 4: Inventories ----------- Inventories consisted of:
March 31, ---------------------- 2001 2000 -------- -------- (In thousands) Materials and purchased parts........................................................... $ 73,020 $ 41,819 Work in process......................................................................... 31,098 37,024 Finished goods.......................................................................... 26,645 22,635 -------- -------- $130,763 $101,478 ======== ========
Note 5: Property, Plant and Equipment ------------------------------ Property, plant and equipment consisted of:
March 31, ------------------------- 2001 2000 --------- -------- (In thousands) Machinery and equipment................................................................ $ 147,843 $116,864 Furniture and fixtures................................................................. 11,123 8,006 Buildings and leasehold improvements................................................... 47,995 33,305 Land................................................................................... 947 959 --------- -------- 207,908 159,134 Less accumulated depreciation and amortization......................................... (113,208) (80,997) --------- -------- $ 94,700 $ 78,137 ========= ========
Note 6: Business Combinations --------------------- Meridian Data, Inc. On September 10, 1999, Quantum completed the acquisition of Meridian Data, Inc. ("Meridian" - now known as Snap). Meridian is a developer and manufacturer of network attached storage appliances for the PC local area network environment. The acquisition has been accounted for as a purchase at a total cost of $115 million. The acquisition was completed with the issuance of 4.1 million shares of DSS common stock and 2 million shares of HDD common stock valued at $74 million and $18 million, respectively, on the date of acquisition in exchange for all outstanding shares of Meridian; the conversion of outstanding Meridian stock options into options to purchase 630,000 shares of DSS common stock and 315,000 shares of HDD common stock valued at $8 million and $2 million, respectively; and the assumption of Meridian liabilities and other acquisition costs of approximately $13 million. At the date of acquisition, Meridian had $11 million of cash and marketable securities and a net operating loss carryforward for U.S. federal income tax purposes of approximately $46 million. Meridian's results of operations are included in the financial statements from the date of acquisition, and the assets and liabilities acquired were recorded based on their fair values as of the date of acquisition. Pro forma results of operations have not been 54 presented because the effect of the acquisition was not material to Quantum's financial position or results of operations. The purchase price has been allocated based on the estimated fair market value of net tangible and intangible assets acquired and assumed liabilities as well as in-process research and development costs. As of the acquisition date, technological feasibility of the in-process technology has not been established and the technology has no alternative future use. Therefore, Quantum expensed $37 million of the purchase price as in-process research and development in the second quarter of fiscal year 2000. The remaining intangible assets are being amortized on a straight-line basis over periods ranging from five to ten years. The following is a summary of the purchase price allocation (in millions):
Tangible assets acquired.................................................. $ 12 In-process research and development....................................... 37 Completed technology...................................................... 29 Trademark................................................................. 4 Assembled workforce....................................................... 3 Goodwill.................................................................. 45 Deferred tax liability.................................................... (15) ---- $115 ====
The amount of the purchase price allocated to in-process research and development was determined by estimating the stage of development of each in- process research and development project at the date of acquisition, estimating cash flows resulting from the expected revenue generated from such projects, and discounting the net cash flows back to their present value using a discount rate of 21%, which represents a premium to Quantum's cost of capital. The expected revenue assumes an average compound annual revenue growth rate of 64% during calendar years 1999 through 2007. Expected total revenue from the purchased in- process projects peak in calendar year 2005 and then begin to decline as other new products are expected to be introduced. These projections are based on management's estimates of market size and growth, expected trends in technology and the expected timing of new product introductions. ATL Products, Inc. On September 28, 1998, Quantum completed the acquisition of ATL Products, Inc. ("ATL"). ATL designs, manufactures, markets and services tape automation systems for the networked computer market. ATL's products incorporate DLTtape drives as well as ATL's proprietary IntelliGrip automation technology. The acquisition has been accounted for as a purchase with a total cost of $335 million. The acquisition was completed with the issuance of 16.9 million shares of Quantum common stock valued at $265 million on the date of acquisition in exchange for all outstanding shares of ATL, the conversion of outstanding ATL stock options into options valued at $22 million to purchase 1.8 million shares of Quantum common stock and the assumption of $45 million of ATL liabilities. Quantum also recognized deferred tax liabilities of $33 million. ATL's results of operations are included in the financial statements from the date of acquisition, and the assets and liabilities acquired were recorded based on their fair values as of the date of acquisition. The purchase price was allocated based on the estimated fair market value of net tangible and intangible assets acquired and assumed liabilities as well as in- process research and development costs. As of the acquisition date, technological feasibility of the in-process technology has not been established, and the technology has no alternative future use. Therefore, Quantum expensed $89 million of the purchase price as in-process research and development in the third quarter of fiscal year 1999. The remaining identifiable intangible assets are being amortized on a straight-line basis over periods ranging from two to fifteen years. The following is a summary of the purchase price allocation (in millions): 55 Tangible assets acquired................................................. $ 59 In-process research and development...................................... 89 Completed technology..................................................... 42 Trademarks and trade names............................................... 20 Original equipment manufacturer and value added reseller customer relationships................................................ 14 Assembled workforce...................................................... 4 Non-compete agreements................................................... 2 Goodwill................................................................. 138 Deferred tax liability................................................... (33) ---- $335 ====
The amount of the purchase price allocated to in-process research and development was determined by estimating the stage of development of each in- process research and development project at the date of acquisition, estimating cash flows resulting from the expected revenue generated from such projects, and discounting the net cash flows back to their present value using a discount rate of 20%, which represents a premium to Quantum's cost of capital. The expected revenue assumes an average compound annual revenue growth rate of 37% during fiscal years 1999 to 2007. Expected total revenues from the purchased in- process projects peak in fiscal year 2002 and then begin to decline as other new products are expected to be introduced. These projections were based on management's estimates of market size and growth, expected trends in technology and the expected timing of new product introductions. The following unaudited pro forma information has been prepared assuming that the acquisition had taken place at the beginning of fiscal year 1999. The pro forma financial information is not necessarily indicative of the combined results that would have occurred had the acquisition taken place at the beginning of the periods, nor is it necessarily indicative of results that may occur in the future. Year Ended March 31, 1999 -------------- (In thousands) Total revenue....................................... $1,343,037 Net income.......................................... $ 202,363 Note 7: Special Charges --------------- During the fourth quarter of fiscal year 2000, Quantum recorded a special charge of $40.1 million. The charge was primarily focused on Quantum's DLTtape Division and reflected Quantum's strategy to align its DLTtape drive operations with market conditions. These conditions include slower growth in the mid-range server market and increasing centralization of server backup through automation solutions, both of which have resulted in relatively flat DLTtape drive shipments. The special charge included a reduction of overhead expenses throughout the DLTtape Division and an acceleration of Quantum's low cost manufacturing strategy, which includes moving volume production of DLTtape drives from Colorado Springs, Colorado to Penang, Malaysia. The special charge consisted of $13.5 million in facility related costs, $13.9 million for the write-off of investments in optical technology, $7.6 million for severance and benefits for terminated employees, $3.2 million for fixed assets write-offs, primarily related to the transfer of manufacturing to Penang, Malaysia and $1.9 million in other costs associated with the plan. The facilities costs noted above include lease payments for vacant space in a facility in Colorado Springs, Colorado, the write-off of related leasehold improvements and manufacturing equipment, as well as the write-off of certain leasehold improvements at Quantum's facility in Penang, Malaysia, as this space is converted to Quantum manufacturing. Quantum had vacated the Colorado facility by the end of fiscal year 2001. 56 The write-off of investments reflects Quantum's decision to end its research on certain optical based storage solutions. As a result, Quantum has written-off an equity investment and technology licenses related to optical technology. In connection with the charge, Quantum currently expects a workforce reduction of approximately 800 employees, down from the original expectation of 900 employees. The reduction in force primarily affects employees at Quantum's manufacturing operations in Colorado Springs, Colorado, as well as administrative employees within the DLTtape Division. As of March 31, 2001, 779 employees have been terminated. Quantum anticipates that the remaining employees will be terminated by the end of the first quarter of fiscal year 2002. As of March 31, 2001, Quantum had incurred cash expenditures of $8 million associated with employee severance and benefits, facilities and other costs. Quantum expects to incur additional cash expenditures associated with the plan of approximately $3 million, which will be funded out of operations. In the third quarter of fiscal year 2001, Quantum reversed $7 million as a special charge benefit on the income statement. This reversal is primarily due to a revised estimate of the vacancy period related to a facility in Colorado Springs, Colorado. The following tables summarize the activity related to the fourth quarter fiscal year 2000 special charge through March 31, 2001:
(In thousands) Severance And Facility Fixed Other Benefits Costs Investments Assets Costs Total -------- ----- ----------- ------ ----- ----- Special charge provision $ 7,646 $13,500 $ 13,908 $ 3,163 $ 1,866 $ 40,083 Cash payments (956) -- -- -- (1,102) (2,058) Non-cash charges -- -- (13,908) (3,163) -- (17,071) ------- ------- -------- ------- ------- -------- Balance at March 31, 2000 $ 6,690 $13,500 $ -- $ -- $ 764 $ 20,954 Cash payments (5,181) (748) -- -- (68) (5,997) Non-cash charges -- (5,219) -- -- -- (5,219) Special charge benefit -- (7,000) -- -- -- ( 7,000) ------- ------- -------- ------- ------- -------- Balance at March 31, 2001 $ 1,509 $ 533 $ -- $ -- $ 696 $ 2,738 ======= ======= ======== ======= ======= ========
Quantum recorded a special charge of $7 million in the third quarter of fiscal year 2001. This is a result of Quantum's decision to establish a close proximity between its design and manufacturing operations in order to accelerate time-to- market for future products within its DLTtape drive product family. This will impact engineering, marketing and administrative employees in Shrewsbury, Massachusetts, as these positions will be transitioned to Boulder, Colorado. The special charge is related to severance, benefits and costs associated with terminated employees affected by this plan. Quantum currently expects a workforce reduction of approximately 200 employees. As of March 31, 2001, 84 employees have been terminated, representing $1.7 million in cash expenditures. Quantum anticipates that the remaining employees will be terminated by the end of the first quarter of fiscal year 2002. Quantum expects to incur additional cash expenditures associated with the plan of approximately $5.3 million, which will be funded out of operations. The following table summarizes activity related to the third quarter fiscal year 2001 special charge at March 31, 2001: 57 (In thousands) Severance and Benefits Special charge provision $ 7,000 Cash payments (1,657) ------- Balance at March 31, 2001 $ 5,343 ======= Note 8: Common Stock Repurchase ------------------------ During fiscal year 2000, the Board of Directors authorized Quantum to repurchase up to $700 million of Quantum's common stock in open market or private transactions. Of the total repurchase authorization, $600 million was authorized for repurchase of either Quantum, DSS or HDD common stock. An additional $100 million was authorized for repurchase of HDD common stock. Since the beginning of the authorization through March 31, 2001, Quantum has repurchased a total of 3.9 million shares of Quantum common stock, 29.2 million shares of DSS common stock and 13.5 million shares of HDD common stock for a combined total of $566 million. For the year ended March 31, 2001, Quantum repurchased 13.5 million shares of DSS common stock and 10 million shares of HDD common stock for a combined total of $241 million. Note 9: Credit Agreements, Long-Term Debt and Convertible Subordinated Debt -------------------------------------------------------------------- Quantum's debt includes the following:
March 31, ------------------------ 2001 2000 -------- -------- (In thousands) 7% convertible subordinated notes................................................ $287,500 $287,500 ======== ======== Weighted average interest rate on Quantum's debt at period-end................... 7.00% 7.00%
In April 2000, Quantum entered into two unsecured senior credit facilities, each providing a $187.5 million revolving credit line and expiring in April 2001 and April 2003, respectively. At the option of Quantum, borrowings under the revolving credit line bear interest at either the London interbank offered rate plus a margin determined by a total funded debt ratio, or at a base rate, with option periods of one to six months. At March 31, 2000, and March 31, 2001, there was no outstanding balance drawn on this line. In July 1997, Quantum issued $288 million of 7% convertible subordinated notes. The notes mature on August 1, 2004, and are convertible at the option of the holder at any time prior to maturity, unless previously redeemed, into shares of DSS common stock and HDD common stock. The notes are convertible into 6,206,152 shares of DSS common stock, or 21.587 shares per $1,000 note, and were convertible into 3,103,076 shares of HDD common stock, or 10.793 shares per $1,000 note. However, as a result of the Maxtor acquisition of HDD, the HDD shares are convertible into 16.405 shares of Maxtor common stock per $1,000 note. Quantum has the option to redeem the notes on or after August 1, 1999 and prior to August 1, 2001, under certain conditions related to the price of Quantum's common stocks. Subsequent to August 1, 2001, Quantum may redeem the notes at any time. In the event of certain changes involving all or substantially all of Quantum's common stocks, the holder would have the option to redeem the notes. Redemption prices range from 107% of the principal to 100% at maturity. The notes are unsecured obligations subordinated in right of payment to all of Quantum's existing and future senior indebtedness. 58 Note 10: Stock Incentive Plans --------------------- As a result of the recapitalization, each outstanding stock option under Quantum's stock option plans was converted into separately exercisable options to acquire one share of DLT & Storage Systems group stock and one-half of a share of Hard Disk Drive group stock. The exercise price for the resulting DSS stock options and HDD stock options was calculated by multiplying the exercise price under the original options by a fraction, the numerator of which was the opening price of DSS stock or HDD stock on August 4, 1999 (the date such stocks were first traded on the New York Stock Exchange) and the denominator of which was the sum of these DSS and HDD stock prices. However, the aggregate intrinsic value of the options was not increased, and the ratio of the exercise price per option to the market value per share was not reduced. In addition, the vesting provisions and option periods of the original grants remained the same upon conversion. Long-Term Incentive Plan Quantum has a Long-Term Incentive Plan (the "Plan") that provides for the issuance of stock options, stock appreciation rights, stock purchase rights, and long-term performance awards (collectively referred to as "options") to employees, consultants, officers and affiliates of Quantum. The Plan has reserved for future issuance 27.8 million shares and 11.7 million shares of DSS stock and HDD stock, respectively, and allows for an annual increase in the number of shares available for issuance, subject to a limitation. Available for grant as of March 31, 2001, were 3.9 million shares of DSS group stock and 0.9 million shares of HDD stock. Options under the Plan generally expire no later than ten years from the grant date and generally vest over four years. Restricted stock granted under the Plan generally vests over two to three years. In fiscal years 2001, 2000 and 1999, DSS recorded compensation expense of $1,618,000, $2,097,000 and $2,141,000, respectively, related to restricted stock granted pursuant to stock purchase rights under the Plan. In fiscal years 2001, 2000 and 1999, HDD recorded compensation expense of $710,000, $1,070,000 and $985,000, respectively, related to restricted stock granted pursuant to stock purchase rights under the Plan. In fiscal years 2000 and 1999, Quantum granted 99,800 shares and 157,200 shares, respectively, of Quantum Corporation restricted stock under the Plan at an exercise price of $0.01 per share. Additionally, nil shares and 321,600 shares of DSS restricted stock and 1,000 shares and 155,800 shares of HDD restricted stock were granted during fiscal years 2001 and 2000, respectively, at an exercise price of $.01 per share. Supplemental Plan Quantum has a Supplemental Stock Plan (the "SSOP") that provides for the issuance of stock options and stock purchase rights (collectively referred to as "options") to employees and consultants of Quantum. The SSOP has available and reserved for future issuance 6.4 million shares and 3.8 million shares of DSS stock and HDD stock, respectively. Options under the SSOP generally vest over two to four years and expire ten years after the grant date. At March 31, 2001, options with respect to 0.7 million shares of DSS stock and 0.5 million shares of HDD stock were available for grant. Restricted stock granted under the SSOP generally vests over two to three years. In fiscal years 2001 and 2000, continuing operations recorded compensation expense of $11,225,000 and $3,108,000, respectively, related to DSS restricted stock granted pursuant to stock purchase rights under the SSOP. In fiscal years 2001 and 2000, discontinued operations recorded compensation expense of $5,067,000 and $1,423,000, respectively, related to HDD restricted stock granted pursuant to stock purchase rights under the SSOP. In fiscal years 2001 and 2000, 80,000 shares and 3.0 million shares of DSS restricted stock and 77,000 shares and 1.5 million shares of HDD restricted stock, respectively, were granted under the SSOP at an exercise price of $.01 per share. Stock Option Plans 59 Quantum has Stock Option Plans (the "Plans") under which 5.1 million shares and 2.4 million shares of DSS stock and HDD stock, respectively, were reserved for future issuance at March 31, 2001 to employees, officers and directors of Quantum. Options under the Plans are granted at prices determined by the Board of Directors, but at not less than the fair market value, and accordingly no compensation accounting has been required at the original date of grant. Options currently expire no later than ten years from the grant date and generally vest ratably over one to four years. At March 31, 2001, options with respect to 343,000 shares and 170,000 shares of DSS stock and HDD stock, respectively, were available for grant. Stock Option Summary Information. A summary of activity relating to Quantum's stock option plans follows:
Year Ended March 31, --------------------------- 1999 --------------------------- Shares Weighted-Avg. (000s) Exercise Price --------------------------- Outstanding at beginning of period................................................ 17,005 $12.09 Granted........................................................................... 10,781 $21.51 Canceled.......................................................................... (1,880) $22.63 Exercised......................................................................... (2,530) $ 7.23 ------ Outstanding at end of period...................................................... 23,376 $14.68 ====== Exercisable at end of period...................................................... 11,786 $10.65 ======
Year Ended March 31, ------------------------------------------------------------------------------------ 2000 ------------------------------------------------------------------------------------ Period from Period from April 1, 1999, to August 4, 1999, to August 3, 1999 March 31, 2000 -------------------------- ------------------------------------------------------- DLT & Storage Systems Quantum Corporation Group Hard Disk Drive Group -------------------------- ------------------------------------------------------- Shares Weighted-Avg. Shares Weighted-Avg. Shares Weighted-Avg. (000s) Exercise Price (000s) Exercise Price (000s) Exercise Price -------- -------------- -------- -------------- -------- --------------- Outstanding at beginning of period.... 23,376 $14.68 26,412 $13.18 13,206 $4.80 Granted............................... 4,719 $18.91 11,037 $ 6.45 7,430 $6.19 Canceled.............................. (585) $18.56 (3,404) $15.17 (1,789 $6.39 Exercised............................. (1,098) $ 8.87 (2,605) $ 6.27 (1,961 $3.06 ------ ------ ------ Outstanding at end of period.......... 26,412 $15.58 31,440 $11.14 16,886 $5.37 ====== ====== ====== Exercisable at end of period.......... 13,037 $11.95 13,686 $11.03 6,407 $4.23 ====== ====== ======
Year Ended March 31, 2001 ---------------------------------------------------------- DLT & Storage Systems Hard Disk Drive -------------------------- -------------------------- Shares Weighted-Avg. Shares Weighted-Avg. (000s) Exercise Price (000s) Exercise Price ------ -------------- ------ --------------- Outstanding at beginning of period........................ 31,440 $11.14 16,886 $ 5.37 Granted................................................... 12,358 $10.18 5,906 $11.01 Canceled.................................................. (4,413) $13.60 (1,744) $ 8.13 Exercised................................................. (6,716) $ 3.90 (5,636) $ 3.80 ------ ------ Outstanding at end of period.............................. 32,669 $11.91 15,412 $ 7.76 ====== ====== Exercisable at end of period.............................. 17,291 $11.93 7,685 $ 6.31 ====== ======
The exercise prices for options outstanding at March 31, 2001, range from $0.01 to $26.07 and from $0.01 to $11.63 for DSS stock and HDD stock, respectively. 60 In fiscal years 2001, 2000 and 1999, continuing operations recorded compensation expense of $93,000, $189,000 and $1,459,000, respectively, in connection with accelerated vesting of DSS stock options under the Plans. In fiscal years 2001, 2000 and 1999, discontinued operations recorded compensation expense of $98,000, $93,000 and $729,000, respectively, in connection with accelerated vesting of HDD stock options under the Plans. The following tables summarize information about options outstanding and exercisable at March 31, 2001: DLT & Storage Systems Group - ---------------------------
Outstanding Options ------------------- Shares Outstanding at Weighted-Average March 31, 2001 Remaining Weighted-Average Range of Exercise Prices (000s) Contractual Life Exercise Price ------------------------ ------ ---------------- -------------- $ 0.01 -- $ 8.69 8,555 6.80 $ 7.09 $ 8.72 -- $15.75 15,535 8.27 $11.24 $15.81 -- $26.07 8,579 7.66 $17.93 ------ 32,669 7.72 $11.91 ====== Options Exercisable ------------------- Shares Outstanding at March 31, 2001 Weighted-Average Range of Exercise Prices (000s) Exercise Price ------------------------ ------ -------------- $ 0.01 -- $ 8.69 6,196 $ 6.55 $ 8.72 -- $ 15.75 6,066 $12.20 $ 15.81 -- $ 26.07 5,029 $18.23 ------ 17,291 $11.93 ======
Hard Disk Drive Group - ---------------------
Outstanding Options ------------------- Shares Outstanding at Weighted-Average March 31, 2001 Remaining Weighted-Average Range of Exercise Prices (000s) Contractual Life Exercise Price ------------------------ ------ ---------------- -------------- $ 0.01 -- $ 5.85 $ 5.87 -- $ 8.25 4,443 5.98 $ 4.09 $ 8.28 -- $11.63 5,934 8.18 $ 7.61 5,032 9.25 $11.17 ------ 15,409 7.90 $ 7.76 ====== Options Exercisable ------------------- Shares Outstanding at March 31, 2001 Weighted-Average Range of Exercise Prices (000s) Exercise Price ------------------------ ------ --------------- $ 0.01 -- $ 5.85 3,500 $ 3.69 $ 5.87 -- $ 8.25 3,192 $ 7.64 $ 8.28 -- $11.63 993 $11.25 ----- 7,685 $ 6.31 =====
Expiration dates ranged from April 15, 2001 to June 21, 2011 for options outstanding at March 31, 2001. Prices for options exercised during the three- year period ended March 31, 2001, are as follows: Period Price range ------------------ ---------------- Quantum Corporation 4/1/98 -- 8/3/99 $0.01 -- $ 23.94 DLT & Storage Systems Group 8/4/99 -- 3/31/01 $0.01 -- $ 19.83 Hard Disk Drive Group 8/4/99 -- 3/31/01 $0.01 -- $ 14.50 Proceeds received by Quantum from exercises are credited to common stock and capital in excess of par value. 61 Stock Purchase Plan Quantum has an employee stock purchase plan (the "Purchase Plan") that allows for the purchase of stock at 85% of fair market value at the date of grant or the exercise date, whichever value is less. The Purchase Plan is qualified under Section 423 of the Internal Revenue Code. Of the 27.9 million DSS shares and 14.1 million HDD shares authorized to be issued under the plan, 2,422,000 shares and 1,315,000 shares, respectively, were available for issuance at March 31, 2001. Employees purchased 2,555,000 shares and 829,000 shares of Quantum Corporation common stock under the Purchase Plan in fiscal years 1999 and 2000, respectively. Additionally, employees purchased 2,121,000 shares and 1,145,000 shares of DSS stock in fiscal years 2001 and 2000, respectively, and 1,059 shares and 571,000 of HDD stock in fiscal years 2001 and 2000, respectively. The weighted average exercise price of Quantum Corporation stock purchased under the Purchase Plan was $16.16 and $9.41, in fiscal years 2000 and 1999, respectively. The weighted average exercise prices of DSS stock and HDD stock purchased under the Purchase Plan were $8.29 and $5.93, respectively, in fiscal year 2001, and $8.08 and $5.03, respectively, in fiscal year 2000. Pro forma information Quantum adopted SFAS No. 123, "Accounting for Stock-Based Compensation" in fiscal year 1997. Quantum has elected to continue to account for its stock- based compensation plans under APB Opinion No. 25 and disclose the pro forma effects of the plans on net income and earnings per share as provided by SFAS No. 123. Accordingly, no compensation expense has been recognized for the stock option plans and the employee stock purchase plans as all options have been issued at fair market value. Pro forma net income and earnings per share information, as required by SFAS No. 123, have been determined as if Quantum had accounted for its employee stock options (including shares issued under the Long-Term Incentive Plan, Supplemental Plan, Stock Option Plans, and the Stock Purchase Plan, collectively called "options") granted subsequent to March 31, 1995, under the fair value method of that statement. The fair value of options granted in fiscal years 2001, 2000 and 1999 reported below have been estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:
Quantum Corporation - ------------------- Long-Term Incentive Plan, Supplemental Plan And Stock Option Plans Stock Purchase Plan ---------------------------------------- ------------------- Fiscal 2000 Fiscal 1999 Fiscal 2000 Fiscal 1999 ----------- ----------- ----------- ----------- Option life (in years)............... 2.8 3.1 1.1 1.4 Risk-free interest rate.............. 5.19% 5.52% 5.57% 5.85% Stock price volatility............... 0.65 0.61 0.62 0.56 Dividend yield....................... -- -- -- --
DLT & Storage Systems Group - --------------------------- Long-Term Incentive Plan, Supplemental Plan And Stock Option Plans Stock Purchase Plan ----------------------------------------- ------------------- Fiscal 2001 Fiscal 2000 Fiscal 1999 Fiscal 2001 Fiscal 2000 Fiscal 1999 ----------- ----------- ----------- ----------- ----------- ----------- Option life (in years)............... 3.0 2.2 -- 1.1 0.8 -- Risk-free interest rate.............. 5.32% 6.43% -- 5.87% 6.12% -- Stock price volatility............... 0.79 0.67 -- 0.69 0.66 -- Dividend yield....................... -- -- -- -- -- --
62 Hard Disk Drive Group - ---------------------
Long-Term Incentive Plan, Supplemental Plan And Stock Option Plans Stock Purchase Plan ---------------------------------------- ------------------- Fiscal 2001 Fiscal 2000 Fiscal 1999 Fiscal 2001 Fiscal 2000 Fiscal 1999 ----------- ----------- ----------- ----------- ----------- ----------- Option life (in years)............... 3.2 3.5 -- 1.2 1.51 -- Risk-free interest rate.............. 5.30% 6.27% -- 5.89% 5.57% -- Stock price volatility............... 0.79 0.68 -- 0.70 0.63 -- Dividend yield....................... -- -- -- -- -- --
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because Quantum's options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of the options. The following is a summary of weighted-average grant date fair values: Quantum Corporation - -------------------
Weighted-Average Grant Date Fair Value ----- Fiscal Fiscal Fiscal 2001 2000 1999 ------ ------ ------ Options granted under the Long-Term Incentive Plan, Supplemental Plan and Stock Option Plans................................. -- $ 8.55 $ 9.86 Restricted stock granted under the Long-Term -- Incentive Plan and Supplemental Plan..................................... $18.99 $22.40 Shares granted under the Stock Purchase Plan............................... -- $ 7.85 $ 4.86
DLT & Storage Systems Group - ---------------------------
Weighted-Average Grant Date Fair Value ----- Fiscal Fiscal 2001 2000 ------ ------ Options granted under the Long-Term Incentive Plan, Supplemental Plan and Stock Option Plans................................. $ 5.01 $4.03 Restricted stock granted under the Long-Term Incentive Plan and Supplemental Plan..................................... $12.70 $8.86 Shares granted under the Stock Purchase Plan............................... $ 5.22 $4.62
Hard Disk Drive Group - ---------------------
Weighted-Average Grant Date Fair Value ----- Fiscal Fiscal 2001 2000 ------ ------ Options granted under the Long-Term Incentive Plan, Supplemental Plan and Stock Option Plans................................. $6.14 $4.16 Restricted stock granted under the Long-Term Incentive Plan and Supplemental Plan..................................... $9.35 $7.98 Shares granted under the Stock Purchase Plan............................... $3.04 $2.73
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the option's vesting period. Quantum's pro forma net income (loss) and net income (loss) per share follows: 63 Quantum Corporation - -------------------
Period from Year Ended --------- April 1, March 31, --------- 1999, to 1999 August 3, ---- --------- 1999 ---- Net loss (in thousands).................................................. $(32,227) $(83,964) ======== ======== Net loss per share: Basic................................................................. $ (0.19) $ (0.52) ======== ======== Diluted............................................................... $ (0.19) $ (0.52) ======== ======== DLT & Storage Systems Group - --------------------------- Year Ended Period from ---------- March 31, August 4, 1999, --------- 2001 to March 31, ---- ------------ 2000 ---- Income from continuing operations (in thousands)......................... $100,185 $54,265 ======== ======= Income per share from continuing operations: Basic................................................................. $ 0.68 $ 0.33 ======== ======= Diluted............................................................... $ 0.64 $ 0.33 ======== ======= Hard Disk Drive Group - --------------------- Year Ended Period from ---------- March 31, August 4, 1999, --------- 2001 to March 31, ---- ------------ 2000 ---- Income from discontinued operations (in thousands)....................... $(31,267) $(35,678) ======== ======== Income per share from discontinued operations: Basic................................................................. $ (0.40) $ (0.43) ======== ======== Diluted............................................................... $ (0.40) $ (0.43) ======== ========
Since the DSS stock and HDD stock were not part of the capital structure of Quantum prior to the recapitalization on August 3, 1999 and no DSS stock options and HDD stock options were outstanding prior to this date, pro forma information for DSS and HDD for fiscal years 1999 is omitted. Accordingly, the pro forma effect of DSS stock options and HDD stock options is not representative of what the effect will be in future years. As SFAS No. 123 is applicable only to options granted subsequent to March 31, 1995, its pro forma effect has only been fully reflected in fiscal year 2001. Note 11: Common Stock and Stockholder Rights Agreement --------------------------------------------- The number of authorized shares of DSS common stock is 1,000,000,000. The number of authorized shares of preferred stock is 20,000,000. Quantum has a stockholder rights agreement (the "Rights Plan") that provides existing stockholders with the right to purchase preferred stock in the event of certain changes in Quantum's ownership. Specifically, existing DSS stockholders will have the right to purchase one one-thousandth of a share of Series B Junior Participating Preferred Stock for each share of DSS common stock held, or, under certain circumstances, shares of DSS common stock with a market value twice the exercise price of such right. The purchase price in either case is determined by the Board of Directors, subject to adjustment. Subject to certain exceptions, these rights may be exercised the tenth day after any person or group becomes the beneficial owner (or makes an offer that would result in such beneficial ownership) of 20% or more of the outstanding DSS common stock. If such change in beneficial ownership is 64 combined with a merger of Quantum or a sale of more than 50% of the assets of Quantum, then the existing stockholders have the right to purchase, for the exercise price, a number of shares of common stock in the surviving entity having a market value of twice the exercise price of such right. The Rights Plan may serve as a deterrent to takeover tactics that are not in the best interests of stockholders. There are 1,000,000 preferred shares reserved for issuance under the Rights Plan. As at March 31, 2001, there were 600,000,000 shares authorized for HDD common stock. Existing HDD stockholders had the right to purchase one one-thousandth of a share of Series C Junior Participating Preferred Stock for each share of HDD common stock held or, under certain circumstances, shares of HDD common stock with a market value twice the exercise price of such right. As a result of disposition of HDD to Maxtor on April 2, 2001, Quantum is in the process of amending the Rights Plan to remove the provisions applicable to HDD. Note 12: Net Income (Loss) Per Share --------------------------- Net income (loss) per share was calculated on a consolidated basis until DSS stock and HDD stock were created as a result of the recapitalization on August 3, 1999. Subsequent to this date, net income (loss) per share was computed individually for DSS and HDD. The following tables set forth the computation of basic and diluted net income (loss) per share as well as income(loss) from continuing and discontinuing operations per share:
(In thousands, Year Ended March Period from Period from Year Ended March 31, 1999 except per share 31, 2001 August 4, 1999 to April 1, 1999 to August 3, 1999 data) March 31, 2000 Quantum Quantum Cont. Ops Disc. Ops Cont. Ops Disc. Ops Cont. Ops Disc. Ops Corp. Cont. Ops Disc. Ops Corp. --------- --------- --------- --------- --------- -------- ---------- --------- --------- ---------- Numerator: Numerator for basic and diluted net income (loss) per share - income (loss) available to common stockholders $ 167,446 $ (6,760) $ 85,586 $ (27,549) $ 60,028 $ (77,221) $ (17,193) $ 122,991 $(152,526) $ (29,535) ========= ========= ========= ========= ========= ========= ========= ========= ========= ========= Denominator: Denominator for basic net income (loss) per share - weighted average shares 148,150 78,407 162,023 83,018 165,788 165,788 165,788 160,670 160,670 160,670 Effect of dilutive securities: Outstanding options 7,495 5,711 6,228 6,228 5,545 5,545 ---------- --------- --------- --------- -------- -------- Denominator for diluted net income (loss) per share - adjusted weighted average shares 155,645 78,407 167,734 83,018 172,016 165,788 172,016 166,215 160,670 166,215 ========= ========= ========= ========= ========= ========= ========= ========= ========= ========= Basic net income (loss) per share $ 1.13 $ (0.09) $ 0.53 $ (0.33) $ 0.36 $ (0.47) $ (0.10) $ 0.77 $ (0.95) $ (0.18) ========= ========= ========= ========= ========= ========= ========= ========= ========= ========= Diluted net income (loss) per share $ 1.08 $ (0.09) $ 0.51 $ (0.33) $ 0.35 $ (0.47) $ (0.10) $ 0.74 $ (0.95) $ (0.18) ========= ========= ========= ========= ========= ========= ========= ========= ========= =========
65 The computation of diluted net income (loss) per share for DSS, HDD and Quantum for all periods presented, excluded the effect of the 7% convertible subordinated notes issued in July 1997, which are convertible into 6,206,152 shares of DSS common stock, or 21.587 shares per $1,000 note, and 3,103,076 shares of HDD common stock, or 10.793 shares per $1,000 note, because the effect would have been antidilutive. Options to purchase 32,668,918 shares of DSS common stock were outstanding for the fiscal year ended March 31, 2001, of which 13,225,845 shares were not included in the computation of diluted net income per share because the options' exercise price was greater than the average market price of the common stock and, therefore, the effect would have been antidilutive. Options to purchase 15,408,994 shares of HDD common stock were outstanding for the fiscal year ended March 31, 2001. However, the corresponding weighted average outstanding options were not included in the computation of diluted net loss per share because the effect would have been antidilutive. Options to purchase 16,885,729 shares of HDD common stock were outstanding at March 31, 2000. However, the corresponding weighted average outstanding options were not included in the computation of diluted net loss per share for HDD for the period August 4, 1999 through March 31, 2000, because the effect would have been antidilutive. Options to purchase 23,376,499 and 26,411,958 shares of Quantum common stock were outstanding at March 31, 1999, and August 3, 1999, respectively. Although the effect is antidilutive, the corresponding weighted average outstanding options were included in the computation of diluted net loss per share for Quantum for the year ended March 31, 1999, and the period April 1, 1999 through August 3, 1999, due to Quantum reporting income from continuing operations in the respective periods. Note 13: Savings and Investment Plan --------------------------- Substantially all of the regular domestic employees are eligible to make contributions to Quantum's 401(k) savings and investment plan. Quantum matches a percentage of the employees' contributions and may also make additional discretionary contributions to the plan. Contributions for DSS and HDD combined were $8 million, $9 million and $7 million, in fiscal years 2001, 2000 and 1999, respectively. Note 14: Income Taxes ------------ The income tax provision for continuing operations consists of the following:
Year Ended March 31, ---------------------------------------- 2001 2000 1999 ------- -------- -------- (In thousands) Federal: Current........................................... $34,900 $126,793 $110,509 Deferred.......................................... 24,523 (25,050) 5,710 ------- -------- -------- 59,423 101,743 116,219 ------- -------- -------- State: Current........................................... 9,673 24,236 27,430 Deferred.......................................... 1,293 (4,242) (2,322) ------- -------- -------- 10,966 19,994 25,108 ------- -------- -------- Foreign: Current........................................... 22,519 -- -- Deferred.......................................... 1,281 -- -- ------- -------- -------- 23,800 -- -- ------- -------- -------- Income tax provision.......................................... $94,189 $121,737 $141,327 ======= ======== ========
66 The tax benefits associated with nonqualified stock options, disqualifying dispositions of incentive stock options, and employee stock purchase plan shares reduced taxes currently payable as shown above by $11 million, $10 million, and $8 million in fiscal years 1999, 2000 and 2001, respectively. Such benefits are credited to equity when realized. The income tax provision for continuing operations differs from the amount computed by applying the federal statutory rate of 35% to income before income taxes as follows:
Year Ended March 31, --------------------------------------- 2001 2000 1999 ------- -------- -------- (In thousands) Tax at federal statutory rate................................................ $91,574 $ 93,570 $ 92,511 State income tax, net of federal benefit..................................... 7,128 12,996 16,320 Research and development credit.............................................. (3,933) (2,109) (634) Acquired in-process research and development................................. 12,950 31,150 Goodwill amortization........................................................ 3,930 4,075 1,609 Foreign earnings taxed at less than U.S. rates............................... (8,898) -- -- Other items.................................................................. 4,388 255 371 ------- -------- -------- $94,189 $121,737 $141,327 ======= ======== ========
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities are as follows:
Year Ended March 31, ------------------------------------ 2001 2000 -------- -------- (In thousands) Deferred tax assets: Inventory valuation methods............................................. $ 14,606 $ 15,283 Accrued warranty expense................................................ 13,477 16,193 Distribution reserves................................................... 6,895 3,206 Loss carryforwards and tax credits................................... 13,109 16,287 Restructuring Reserves............................................... 3,295 8,725 Other accruals and reserves not currently deductible for tax Purposes............................................................ 7,408 16,532 Depreciation and amortization methods................................... 12,813 9,156 -------- -------- 71,603 85,382 -------- -------- Deferred tax liabilities: Acquired intangibles................................................... (37,368) (40,821) Tax on unremitted foreign earnings net of foreign tax credits.......... (17,917) -- Other.................................................................... (3,796) (3,470) -------- -------- (59,081) (44,291) -------- -------- Net deferred tax asset.................................................... $ 12,522 $ 41,091 ======== ========
67 Pretax income from foreign operations was $133 million for the fiscal year ended March 31, 2001. U.S. taxes have not been provided for unremitted foreign earnings of $42 million. The residual U.S. tax liability, if such amounts were remitted would be approximately $11 million. The net operating loss carryforwards and credit carryforwards disclosed above expire in varying amounts between fiscal years 2005 and 2018 if not previously utilized. Ownership change provisions of tax law result in these carryforwards being available ratably over the next six years. Note 15: Litigation ---------- On August 7, 1998, Quantum was named as one of several defendants in a patent infringement lawsuit filed in the U.S. District Court for the Northern District of Illinois, Eastern Division. The plaintiff, Papst Licensing GmbH, owns at least 26 United States patents having claims which Papst has asserted are or have been infringed by Quantum's hard disk drive products. In October 1999 the case was transferred to a federal district court in New Orleans, Louisiana, where it has been joined with similar suits brought by Papst against Maxtor Corporation and Minebea Company, Ltd., for purposes of coordinated discovery under multi-district litigation rules. IBM was sued by Papst in New Orleans, and this suit has been added to the multi-district proceedings. As part of Quantum's disposition of its Hard Disk Drive business to Maxtor Corporation, Maxtor has agreed to assume defense of Quantum's hard disk drive business disposed to Maxtor, and to indemnify Quantum in this litigation going forward. A motion to dismiss Quantum as a party from this lawsuit has been filed. While Quantum believes that it should be dismissed from this lawsuit under established legal principles, there is no guarantee that Quantum will be dismissed from the lawsuit, or that Maxtor would have sufficient resources to indemnify Quantum in the event that Papst prevails in the lawsuit against the Quantum pre-merger hard disk drive products. If Maxtor were unable for any reason to indemnify Quantum in accordance with the merger agreement, the outcome of this litigation would be uncertain and the costs to Quantum could be substantial. Quantum is also subject to other legal proceedings and claims that arise during the ordinary course of its business. While management currently believes that the amount of ultimate liability, if any, with respect to these actions and claims will not materially affect the financial position, results of operations, or liquidity of Quantum, the ultimate outcome of any litigation is uncertain. Were an unfavorable outcome to occur, the impact could be material to Quantum. Note 16: Commitments ----------- Quantum leases certain facilities under non-cancelable operating lease agreements for periods of up to 15 years. Some of the leases have renewal options ranging from one to ten years and contain provisions for maintenance, taxes, or insurance. Rent expense was $17 million, $11 million, and $10 million for the fiscal years ended March 31, 2001, 2000, and 1999, respectively. Future minimum lease payments under operating leases are as follows: Year ended March 31, (In thousands) 2002..................................................... $16,936 2003..................................................... 13,074 2004..................................................... 7,457 2005..................................................... 3,963 2006..................................................... 2,870 Thereafter............................................... 7,259 ------- Total future minimum lease payments...................... $51,559 ======= 68 Quantum is contingently liable, under residual value guarantees, for approximately $63 million for one of its current facility leases. Note 17: Business Segment and Geographic Information ------------------------------------------- Quantum's reportable segments are the DLTtape group and the Storage Solutions group. These reportable segments are each managed separately as they manufacture and distribute distinct products with different production processes. The DLTtape group consists of DLTtape drives and media. The Storage Solutions group consists of tape automation systems, network attached storage appliances and solid state storage systems. Quantum directly markets its products to computer manufacturers and through a broad range of distributors, resellers and systems integrators. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Quantum evaluates segment performance based on operating profit (loss) excluding non-recurring gains or losses. Quantum does not allocate interest and other income, interest expense, or taxes to operating segments. Additionally, Quantum does not allocate all assets by operating segment, only inventories and accounts receivable.
Year Ended March 31, --------------------- 2001 2000 1999 ------ ------ ------ DLTtape Storage Total DLTtape Storage Total DLTtape Storage Total ------- ------- ----- ------- ------- ----- ------- ------- ----- Solutions Solutions Solutions --------- --------- --------- (in millions) Revenue from external customers................. $993 $413 $1,406 $1,096 $323 $1,419 $1,149 $154 $1,303 Intersegment revenue....... 97 -- 97 96 -- 96 40 -- 40 Operating expenses 188 174 362 194 110 *304 162 52 **214 Operating income (loss).... 301 (34) 267 351 (7) *344 374 (8) **366 Inventories 87 44 131 58 43 101 106 18 124 Accounts receivable, net 139 69 208 152 62 214 212 42 254
* Special charge of $40 million and in-process research and development of $37 million excluded. ** In-process research and development of $89 million excluded. Product Information Revenue for reportable segments is comprised of the following:
Year Ended March 31, -------------------------------- 2001 2000 1999 ------ ------ ------ (In millions) DLTtape group: DLTtape drives................................................................ $ 756 $ 858 $ 872 DLTtape media................................................................. 115 147 195 DLTtape royalties............................................................. 219 187 122 Intersegment elimination...................................................... (97) (96) (40) ------ ------ ------ $ 993 $1,096 $1,149 Storage Solutions group:......................................................... 413 323 154 ------ ------ ------ Total $1,406 $1,419 $1,303 ====== ====== ======
69 Inter-group elimination represents intra-group sales of DLTtape drives incorporated into the Storage Solutions group's tape automation systems. Geographic and Customer Information Revenue by region is as follows (revenue is attributed to regions based on the location of customers):
Year Ended March 31, -------------------- 2001 2000 1999 ---- ---- ---- Long-Lived Long-Live Long-Lived Revenue Assets Revenue Assets Revenue Assets ------- ------ ------- ------ ------- ------ (In millions) United States............................. $ 909 $317 $ 915 $322 $ 922 $291 United Kingdom............................ 181 1 117 -- 188 -- Rest of Europe............................ 145 2 259 4 134 1 Asia Pacific.............................. 168 2 126 -- 59 1 Latin America............................. 3 -- 2 -- -- -- ------ ---- ------ ---- ------ ---- Total.................................. $1,406 $322 $1,419 $326 $1,303 $293 ====== ==== ====== ==== ====== ====
Two customers accounted for 10% or more of Quantum's revenue in fiscal years 2001, 2000 and 1999. Revenue from one customer represented $263 million, $283 million and $329 million of Quantum's revenue in the respective periods. Revenue from the other customer represented $146 million, $183 million and $171 million of Quantum's revenue in the respective periods. Note 18: Discontinued Operations ----------------------- On March 30, 2001, Quantum's stockholders approved the disposition of the HDD group to Maxtor Corporation. On April 2, 2001, each authorized share of HDD common stock was exchanged for 1.52 shares of Maxtor common stock. The HDD group produced two primary product lines, desktop hard disk drives and high-end hard disk drives. HDD had two separate business units that supported these two product lines. The desktop business unit designed, developed and marketed desktop hard disk drives designed to meet the storage requirements of entry-level to high-end desktop personal computers in home and business environments. The high-end business unit designed, developed and marketed high- end hard disk drives designed to meet the storage requirements of network servers, workstations and storage subsystems. Quantum expects to realize a net gain on the disposal of the HDD business to be recorded in the June quarter of fiscal year 2002. The following table details the net current assets and net other assets of discontinued operations:
March 31, --------------------------------- 2001 2000 --------- --------- (In thousands) Net current assets of discontinued operations Cash and marketable securities..................................................... $ 408,155 $ 611,590 Accounts receivable, net of allowance for doubtful accounts of $2,083 and $19,618 respectively............................................................ 259,339 395,118 Inventories........................................................................ 179,197 122,347 Accounts payable................................................................... (229,931) (375,614)
70 Other net current liabilities...................................................... (114,921) (79,193) --------- --------- $ 501,839 $ 674,248 ========= ========= Net other assets of discontinued operations Property, plant, and equipment, less accumulated depreciation...................... 138,566 158,548 Long-term debt..................................................................... (36,608) (37,838) Other net assets (liabilities)..................................................... 82,546 (18,482) --------- --------- $ 184,504 $ 102,228 ========= =========
As Quantum remains the obligor of the convertible subordinated debt subsequent to the merger with Maxtor, Quantum will record a receivable for the portion of the convertible subordinated debt Maxtor is obligated to reimburse Quantum as a result of the merger. The following table summarizes the results of discontinued operations:
Year Ended March 31, 2001 2000 1999 ---------- ---------- ---------- (In thousands) Revenue................................................................. $3,046,489 $3,311,579 $3,599,320 Gross profit............................................................ 410,867 230,070 291,419 Operating expenses: 434,418 420,994 423,874 Loss from operations.................................................... (23,551) (190,924) (132,455) Loss before income taxes................................................ (9,660) (178,181) (264,503) Income tax benefit...................................................... 2,900 73,411 111,977 Net loss................................................................ (6,760) (104,770) (152,526)
Net cash used by discontinued operations in fiscal years 2001 was $178 million and net cash provided by discontinued operations in fiscal years 2000 and 1999 was $82 million and $246 million, respectively. Note 19: Unaudited Quarterly Financial Data ----------------------------------
Year Ended March 31, 2001 ------------------------- 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------- ------------ ------------ ----------- (In thousands, except per share data) Revenue....................................................... $366,184 $361,751 $369,271 $308,612 Gross profit.................................................. 159,835 157,838 163,410 141,953 Income from continuing operations............................. 43,950 44,285 47,519 31,692 Net income.................................................... 60,420 35,614 44,235 20,417 Income per share from continuing operations: Basic...................................................... 0.29 0.30 0.32 0.21 Diluted.................................................... 0.28 0.29 0.30 0.20 Year Ended March 31, 2000 ------------------------- 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------- ----------- ------------ ----------- (In thousands, except per share data) Revenue....................................................... $330,744 $357,098 $365,780 $365,249 Gross profit.................................................. 151,650 170,206 164,088 162,946 Income from continuing operations............................. 51,465 21,060 50,790 22,299 Net income (loss)............................................. 8,281 (62,653) 55,896 39,320 Net income (loss) per share: Basic...................................................... 0.05 (0.15) NA NA
71 Diluted.................................................... 0.05 (0.15) NA NA Income per share from continuing operations: Basic...................................................... 0.05 0.08 0.31 0.14 Diluted.................................................... 0.05 0.07 0.30 0.14
NA: - - Net income (loss) per share is not presented for the third and fourth quarters of fiscal year 2000, as there is no single class of stock that represents the consolidated company after August 3, 1999, the date of the recapitalization. Revenue and gross profit figures presented from continuing operations are from DSS' quarterly financial statements as included in Quantum's quarterly reports. Net income (loss) per share for the second quarter of fiscal year 2000 reflected the net loss per share for Quantum through August 3, 1999, the date of the recapitalization. Options to purchase 26,411,958 shares of Quantum common stock were outstanding at August 3, 1999. Although the effect is antidilutive, the corresponding weighted average outstanding options were included in the computation of diluted net loss per share for the period, due to Quantum reporting income from continuing operations. The results of operations for continuing operations in the fourth quarter of fiscal year 2000 included the effect of a $40 million special charge associated with Quantum's strategy to reduce overhead expenses and product cost including the transfer of volume manufacturing to Penang, Malaysia. The results of operations for continuing operations for the second quarter of fiscal year 2000 included a $37 million charge related to purchased in-process research and development related to the acquisition of Meridian. Note 20: Subsequent Events ----------------- Acquisition of M4 (Data) Holdings Ltd - ------------------------------------- On February 7, 2001, Quantum announced that it signed a definitive agreement to acquire M4 Data (Holdings) Ltd., a privately held data storage company based in the United Kingdom. The acquisition enables Quantum to leverage M4 Data's complementary products and technologies to enhance the range of storage solutions offered to enterprise customers. M4 Data provides high performance tape automation products for the data storage market. Under the terms of the agreement, Quantum acquired on April 12, 2001, all the outstanding stock of M4 Data for approximately $56 million in consideration, including $15 million in cash and $41 million in notes payable. These notes are due 2006 and are callable by the holders at their option, beginning April 2002. The purchase agreement also includes additional contingent consideration based on the achievement of future performance goals. The acquisition will be accounted for under the purchase method of accounting. Disposition of the Hard Disk Drive group - ---------------------------------------- On October 3, 2000, Quantum entered into a definitive agreement with Maxtor Corporation to combine Maxtor and HDD in an all-stock transaction. The merger agreement resulted in HDD's stockholders receiving on April 2, 2001, 1.52 shares of Maxtor common stock for every share of HDD common stock. The transaction, which was approved by the stockholders of both companies, is expected to be tax- free to Quantum and its stockholders. The disposition of the HDD group to Maxtor will be recorded in the June quarter of fiscal year 2002 and is expected to result in a net gain on disposal. This gain will be included in the income statement of the first quarter of fiscal year 2000 and is based on 72 the difference between the purchase price and the net book value of the disposed assets, net of certain stock charges and other adjustments. The net book value of the disposed assets used in the calculation of the gain on disposition comprises the assets of the discontinued operations as at March 31, 2001, less a receivable for the portion of the convertible subordinated debt Maxtor is obligated to reimburse Quantum. The conversions of employee options and restricted stock related to the disposition of HDD to Maxtor will result in additional dilution to Quantum of approximately six million shares. These conversions include: . HDD stock options converting to DSS stock options for employees remaining with Quantum, . HDD stock options converting to DSS restricted stock for employees being terminated, . HDD restricted stock converting to DSS restricted stock for employees remaining with Quantum or being terminated and . DSS options converting to DSS restricted stock for employees transferring to Maxtor. Non-Recurring and Special Charges, and In-Process Research and Development - -------------------------------------------------------------------------- Expenses - -------- (i) Non-Recurring Charges As a result of the disposition of the HDD business and its merger with Maxtor, in the first quarter of fiscal year 2002, Quantum will record certain stock and other compensation charges to better align resources with the requirements of Quantum's ongoing operations. These charges will be recorded in Quantum's results of operations. Stock Compensation Charges As described in the paragraphs below, a portion of the total stock compensation charges will be immediately expensed upon completing the disposition in the first quarter of fiscal year 2002, and the remaining deferred stock compensation charges will be recorded and expensed over remaining vesting periods, or up to four years. Stock Compensation Charges - Continuing Quantum Employees In the first quarter of fiscal year 2002, continuing Quantum DSS employees, including corporate employees with HDD stock options and HDD restricted stock will have their HDD equity interests converted into DSS stock options and restricted stock, respectively. The aggregate intrinsic value of the stock option and restricted stock immediately after the conversion will equal the intrinsic value of the stock option and restricted stock immediately before the conversion. In addition, the ratio of the exercise price per share to the market value per share will not be reduced. Resulting compensation related to vested stock options will be immediately expensed, and compensation related to unvested options and restricted stock will be expensed over the remaining vesting periods of those awards or up four years. The compensation expense related to these replacement awards will be included in continuing operations in Quantum's consolidated financial statements. Stock Compensation Charge - Corporate Employees Terminated at the time of the Merger Most Quantum employees whose employment is terminated coincident with the closing of the HDD and Maxtor transaction will be afforded the normal 90-day period in which to exercise their vested HDD and DSS stock option awards. Employees designated for termination at the merger consummation date had their unvested HDD and DSS stock options and restricted stock converted in to shares of DSS restricted stock based on a conversion formula that conferred an economic value at least equal to the intrinsic value of the HDD and DSS options and restricted stock at the time of the conversion. Terminated employees who are not party to a transition arrangement will receive accelerated vesting of 50% of the unvested portion of their restricted stock awards. Compensation expense related to the stock conversions and acceleration granted to former corporate employees terminated coincident with the closing of the transaction will be included in continuing operations in Quantum's consolidated financial statements. Compensation expense related to the stock conversions and acceleration granted to former Quantum HDD employees terminated with the closing of the transaction will be included in the calculation of the gain on disposal of discontinued operations. 73 Stock Compensation Charge - Employees to be Terminated After the Merger Employees designated for termination on or about the merger consummation date, but who will remain employed by Quantum pursuant to a transition service arrangement, had their unvested HDD and DSS stock options and restricted stock converted into shares of DSS restricted stock based on a conversion formula that conferred an economic value at least equal to the intrinsic value of the HDD and DSS options and restricted stock at the time of the conversion (vested but unexercised awards will be permitted to expire according to their original terms). Fifty percent of the DSS restricted stock issued upon conversion of such outstanding unvested awards will vest upon the earlier of three months succeeding the initial three-month period or the termination date of the employee. The other 50% of the DSS restricted stock will vest ratably over the successive nine month period so long as the employee remains employed by Quantum during this time. Quantum will account for the award of restricted stock, in settlement of existing unvested options and restricted stock, as the cancellation of an award and concurrent new issuance. Quantum will record deferred compensation for the value of the DSS restricted stock issued, fixed as of the issuance date, and will recognize compensation expense through continuing operations over the period during which the restrictions on such stock lapse, or up to nine months. Corporate Severance and Compensation Charges Subsequent to the disposition of the HDD business and its merger with Maxtor, Quantum will be left with excess administration and overhead costs. Pursuant to the merger agreement, Maxtor has agreed to hire, or in the event it does not hire, pay the severance costs associated with the termination of substantially all of the of the HDD employees and a significant portion of the corporate employees, including certain members of Quantum's senior management. The severance costs that will not be paid by Maxtor will be included in Quantum's results of operations. (ii) Special Charges - DLT and Storage Solutions In the first quarter of fiscal year 2001, Quantum expects to incur significant special charges related to: 1) discontinuing business activities in solid state storage systems, 2) the decision to withdraw the plans for an initial public offering of its Snap Appliances subsidiary, namely writing off deferred costs that were related to the plan, 3) staff reductions and other cost incurred related to cost savings activities related to tape automation systems activities, and 4) DLT relocation and transition expenses that will be incurred as DLTtape product development is moved from Shrewsbury, Massachusetts, to Boulder, Colorado. (iii) In-Process Research and Development Expenses A portion of the M4 purchase price will be assigned to in-process research and development, which will be expensed in the first quarter of fiscal year 2002. Voluntary Employee Stock Option Exchange Program - ------------------------------------------------ On June 4, 2001, Quantum announced that the Quantum Board of Directors had approved a Voluntary Stock Option Exchange program in which eligible employees will have the opportunity to exchange certain options that have an exercise price of $14 per share or more for the promise to grant new options on January 7, 2002, under the Quantum Corporation Supplemental Stock Option Plan. The offer for the Exchange Program began June 4, 2001, and ends July 3, 2001. There are approximately 2.6 million DSS options eligible under this program. 74 QUANTUM CORPORATION SCHEDULE II CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Balance at Additions Balance at beginning of charged to end of period expense Deductions (i) period ------ ------- -------------- ------ Classification (In thousands) - ----------------------------- Allowance for doubtful accounts year ended: March 31, 1999..................................... $2,586 $2,709 $(2,788) $2,507 March 31, 2000..................................... $2,507 $1,297 $ (312) $3,492 March 31, 2001..................................... $3,492 $ 824 $(1,089) $3,227
____________ (i) Uncollectible accounts written off, net of recoveries. 75 EX-3.1 2 dex31.txt AMENDED AND RESTATED CERTIFICATE OF INCORPORATION Exhibit 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF QUANTUM CORPORATION, a Delaware Corporation Quantum Corporation, a corporation organized and existing under the laws of the State of Delaware, certifies that: 1. This Amended and Restated Certificate of Incorporation is to become effective April 3, 2001. 2. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on January 28, 1987. 3. The amendment and restatement herein set forth has been duly approved by the Board of Directors of the corporation and by the stockholders of the Corporation pursuant to Sections 141, 228 and 242 of the General Corporation Law of the State of Delaware ("Delaware Law"). 4. The restatement herein set forth has been duly adopted pursuant to Section 245 of the Delaware Law. This Amended and Restated Certificate of Incorporation restates, integrates and amends the provisions of the corporation's Certificate of Incorporation. 5. The text of the Restated Certificate of Incorporation is hereby amended and restated to read in its entirety as follows: "ARTICLE I The name of this Corporation is Quantum Corporation (the "Corporation"). ARTICLE II The address of the registered office of the Corporation in the State of Delaware is 15 East North Street, City of Dover, County of Kent, Delaware, 19901. The name of its registered agent at such address is Incorporating Services, Ltd. ARTICLE III The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under Delaware Law. ARTICLE IV This Corporation is authorized to issue two classes of shares to be designated, respectively, Common Stock and Preferred Stock. Each share of Common Stock shall have a par value of $0.01 and each share of Preferred Stock shall have a par value of $0.01. The total number of shares of Common Stock this Corporation shall have authority to issue is 1,000,000,000 and the total number of shares of Preferred Stock this Corporation shall have authority to issue is 20,000,000. The Board of Directors of the corporation, subject to any restrictions contained in Delaware Law, the Bylaws, any preferences and relative, participating, optional or other special rights of any outstanding class or series of preferred stock of the Corporation and any qualifications or restrictions on the Common Stock created thereby, may declare and pay dividends upon the shares of its capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. The Preferred Stock initially shall be undesignated as to series. Any Preferred Stock not previously designated as to series may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board), and such resolution or resolutions shall also set forth the voting powers, full or limited or none, of each such series of Preferred Stock and shall fix the designations, preferences and relative, participating, optional or other special rights of each such series of Preferred Stock and the qualifications, limitations or restrictions of such powers, designations, preferences or rights. The Board of Directors is also authorized to fix the number of shares of each such series of Preferred Stock. The Board of Directors is authorized to alter the powers, designation, preferences, rights, qualifications, limitations and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series of Preferred Stock, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. Each share of Preferred Stock issued by the Corporation, if reacquired by the Corporation (whether by redemption, repurchase, conversion to Common Stock or other means), shall upon such reacquisition resume the status of authorized and unissued shares of Preferred Stock, undesignated as to series and available for designation and issuance by the Corporation in accordance with the immediately preceding paragraph. The Corporation shall from time to time in accordance with Delaware Law increase the authorized amount of its Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance shall not be sufficient to permit conversion, if applicable, of the Preferred Stock. ARTICLE V Except as otherwise provided in this Amended and Restated Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is -2- expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation. ARTICLE VI The management of the business and the conduct of the affairs of the Corporation shall be vested in its Board of Directors. The number of directors constituting the whole Board of Directors shall be designated in the Bylaws of the Corporation. ARTICLE VII Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. ARTICLE VIII Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE IX To the fullest extent permitted by Delaware Law as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Neither any amendment nor repeal of this Article IX shall, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article IX, shall eliminate or reduce the effect of this Article IX in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article IX, would accrue or arise, action, suit or claim that, but for this Article IX, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. ARTICLE X Subject to Article XI hereof, at all elections of directors of the Corporation, each holder of stock or of any class or classes or of a series or series thereof shall be entitled to as many votes as shall equal the number of votes which (except for this provision as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected, and he may cast all of such votes for a single director or may distribute them among the number of directors to be voted for, or for any two or more of them as he may see fit. ARTICLE XI Advance notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the Corporation. -3- ARTICLE XII Any action required or permitted to be taken by the stockholders of the Corporation must be effected at at duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Unless otherwise required by law, special meetings of the stockholders of the Corporation, for any purpose or purposes, may be called only by either (i) the Board of Directors of the Corporation, (ii) the Chairman of the Board of Directors of the Corporation, if there be one, or (iii) the President of the Corporation. ARTICLE XIII The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. ARTICLE XIV The Corporation shall have perpetual existence." * * * IN WITNESS WHEREOF, the undersigned has executed this certificate on March 30, 2001. Quantum Corporation By: /s/ Richard L. Clemmer ---------------------------------------- Richard L. Clemmer, Chief Financial Officer and Secretary -4- EX-10.1 3 dex101.txt INDEMNIFICATION AGREEMENT Exhibit 10.1 INDEMNIFICATION AGREEMENT ------------------------- This Indemnification Agreement ("Agreement") is made as of this _____ day of January, 2001, by and between Quantum Corporation, a Delaware corporation (the "Company") and __________ (Indemnitee"), a Vice President of the Company. WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining directors' and officers' liability insurance, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; and WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation subjecting officers and directors to expensive litigation risks at the same time that liability insurance has been severely limited; and WHEREAS, Indemnitee does not regard the current protection available as adequate given the present circumstances, and Indemnitee and other officers and directors of the Company may not be willing to serve as officers and directors without adequate protections; and WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as officers and directors of the Company and to indemnify its officers and directors as to provide them with the maximum protection permitted by law. NOW, THEREFORE, the Company and Indemnitee hereby agree as follows: 1. Indemnification. --------------- (a) Third Party Proceedings. The Company shall indemnify Indemnitee if ----------------------- Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suite or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action, suite or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or ---- ---------- its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that Indemnitee's conduct was unlawful. (b) Proceedings by or in the Right of the Company. The Company shall --------------------------------------------- indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right for the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company or any subsidiary of the Company by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney's fees) and, to the fullest extent permitted by law, amounts paid in settlement in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper. (c) Mandatory Payment of Expenses. To the extent that Indemnitee has ----------------------------- been successful on the merit or otherwise in defense of any action, suit or proceeding referred to in Subsections (a) and (b) of the Section 1 or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorney's fees) actually and reasonably incurred by Indemnitee in connection therewith. 2. Expenses: Indemnification Procedure. ----------------------------------- (a) Advancement of Expenses. The Company shall advance all expenses ----------------------- incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referenced in Section l(a) or (b) hereof. Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor, together with evidence of such expenses incurred, by Indemnitee to the Company. (b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition -------------------------------- precedent to his right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to Quantum Corporation, 500 McCarthy Boulevard, Milpitas, California 95035 (Attn: Michael A. Brown) (or such address as the Company shall designate in writing to Indemnitee). Notice shall be deemed received on the third business day after the date postmarked if sent by domestic certified or registered mail, properly addressed; otherwise notice shall be deemed received when such notice shall actually be received by the Company. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) Procedure. Any indemnification and advances provided for in --------- Section (a) of this Section 2 shall be made no later than forty-five (45) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within forty- five (45) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 12 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorney's fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standard of conduct which makes it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments and expenses pursuant to Subsection 2(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal either exists or is pursued within six months from the date of such court order of judgment. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholder) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. (d) Notice to Insurers. If, at the time of the receipt of a notice of ------------------ a claim pursuant to Section 2(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedure set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. (e) Selection of Counsel. In the event the Company shall be obligated -------------------- under Section 2(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ his counsel in any such proceedings at Indemnitee's expense and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee and its counsel shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 3. Additional Indemnification Rights: Non-Exclusivity. -------------------------------------------------- (a) Scope. Notwithstanding any other provision of the Agreement, the ----- Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's:Certificate of Incorporation, the Company's bylaws or by statute. In the event of any changes, after the date of the Agreement, in any applicable law, statute, or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or any officer, such changes shall be, ipso facto, within the ---- ----- purview of the Indemnitee's rights and the Company obligations under this Agreement. In the event of any change in any applicable law, statute, or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or any officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to the Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. (b) Nonexclusivity. The indemnification provided by this Agreement -------------- shall not be deemed exclusive of any rights to which an Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested Directors, the General Corporation Law of the State of Delaware, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in such capacity at the time of any action, suit or other covered proceeding. 4. Partial Indemnification. If Indemnitee is entitled under any provision of ----------------------- this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. 5. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in --------------------- certain instances, Federal law or applicable public policy may prohibit the Company from indeminfying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violation. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 6. Directors' and Officers' Liability Insurance. The Company shall, from time -------------------------------------------- to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the directors and officers with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of directors' and officers' liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a parent or subsidiary of the Company. 7. Severability. Nothing in this Agreement is intended to require or shall be ------------ construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 7. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 8. Exceptions. Any other provision herein to the contrary notwithstanding, the ---------- Company shall not be obligated pursuant to the terms of this Agreement: (a) Claims Initiated by Indemnitee. To indemnify or advance expenses ------------------------------ to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation of such suit: (b) Lack of Good Faith. To indemnify Indemnitee for any expenses ------------------ incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; (c) Insured Claims. To indemnify Indemnitee for expenses of -------------- liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company. (d) Claims Under Section 16(b). To indemnify Indemnitee for expenses -------------------------- or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 9. Construction of Certain Phrases. ------------------------------- (a) For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (b) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involved services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and that Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 10. Counterparts and Amendment. This Agreement may be executed in -------------------------- counterparts, each of which shall constitute an original. This Agreement may only be amended in writing signed by both parties. 11. Successors and Assigns. This Agreement shall be binding upon the ---------------------- Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns. 12. Attorney's Fees. In the event that any action is instituted by --------------- Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee, shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. 13. Notice. All notices, requests, demands and other communications under this ------ Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressed, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 14. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably ----------------------- consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of Delaware. 15. Choice of Law. This Agreement shall be governed by and its provisions ------------- construed in accordance with the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware. 16. Modification. This Agreement constitutes the entire agreement between the ------------ parties hereto with respect to the transactions contemplated herein. All prior negotiations, agreements and understandings are superseded hereby. This Agreement may not be modified or amended except by an instrument in writing signed by or on behalf of the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. AGREED TO AND ACCEPTED: QUANTUM CORPORATION INDEMNITEE _____________________________ __________________________________ Michael A. Brown ______________________ Chief Executive Officer Vice President EX-10.2 4 dex102.txt CHANGE OF CONTROL AGREEMENT Exhibit 10.2 CHANGE OF CONTROL AGREEMENT THIS CHANGE OF CONTROL AGREEMENT ("Agreement") is effective as of this 1/st/ day of April, 2001, by and between _________________ (the "Employee") and QUANTUM CORPORATION, a Delaware corporation (the "Corporation"). Recitals -------- A. The board of directors of the Corporation has determined that it is in the best interests of the Corporation and its stockholders to assure that the Corporation will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Corporation. B. The board of directors believes that it is important to provide the Employee with compensation arrangements and stock benefits upon a Change of Control which provide the Employee with enhanced financial security, are competitive with those of other corporations, and provide sufficient incentive to the Employee to remain with the Corporation following a Change of Control. C. In order to accomplish the foregoing objectives, the board of directors has directed the Corporation, upon execution of this Agreement by the Employee, to agree to amend and restate the terms of this Agreement as in effect since its original effective date and to extend the terms of this Agreement as set forth below. D. Certain capitalized terms used in the Agreement are defined in Section 3 below. In consideration of the mutual covenants herein contained, and in consideration of the continuing employment of Employee by the Corporation, the parties agree as follows: 1. Change of Control Severance Benefits. Subject to Section 4 below, if ------------------------------------ the employee's employment terminates at any time within eighteen (18) months after a Change of Control, then the following shall apply: (a) Voluntary Resignation; Termination For Cause. If the Employee's -------------------------------------------- employment terminates in a voluntary resignation (and not an Involuntary Termination), or if the Employee is terminated for Cause, or if Employee voluntarily accepts a position below the level of vice president then the Employee shall not be entitled to receive severance or other benefits except for those (if any) as may be available under the Corporation's severance and benefits plans and policies existing at the time of such termination. (b) Involuntary Termination. If the Employee suffers an Involuntary ----------------------- Termination, then the Employee shall be entitled to: (i) Receive severance pay in an amount equal to twelve (12) months of the Employee's then established Base Compensation plus (ii) Receive reimbursements from the Corporation for the same level of health coverage and benefits as in effect for the Employee on the day immediately preceding the day of the Employee's termination of employment; provided, however, that (i) the Employee constitutes a qualified beneficiary, as defined in Section 4980B(g)(1) of the Internal Revenue Code of 1986, as amended; and (ii) Employee elects continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), within the time period prescribed pursuant to COBRA. The Corporation shall continue to reimburse Employee for continuation coverage until one year after the date of the Involuntary Termination. Employee shall be responsible for the payment of COBRA premiums (including, without limitation, all administrative expenses) for the remaining COBRA period. (c) Disability; Death. If the Employee's employment terminates due ----------------- to the Employee's Disability or death, then such termination shall be treated as if it were an Involuntary Termination and severance and other benefits shall be provided in accordance with paragraph (b) above. 2. Option and Stock Acceleration. ----------------------------- (a) Acceleration Upon Change of Control. Subject to Section 4 below, ----------------------------------- in the event of a Change of Control: (i) Fifty percent (50%) of the then unvested portion of any stock option held by the Employee under the Corporation's stock option plans and outstanding at the time of the Change of Control shall become vested and the Employee shall automatically have the right to exercise all or any portion of such stock option to the extent so vested in addition to any portion of the option exercisable prior to the Change of Control; (ii) Fifty percent (50%) of any unvested shares held by the Employee under any common stock purchase agreement with the Corporation and outstanding at the time of the Change of Control shall automatically become vested shares, and such shares shall automatically be free of any right of repurchase to the extent so vested in addition to any shares which were vested prior to the Change of Control. Where the Change of Control results from a merger or consolidation of the Corporation with any other corporation, such vesting shall occur prior to consummation of such merger or consolidation, no less than ten (10) days prior to such merger or consolidation. (b) Option Acceleration Following Change of Control. Subject to the ----------------------------------------------- continued employment of the Employee, after acceleration of vesting under paragraph (a)(i) the remaining -2- unvested portion of any stock option shall become fully vested upon the first anniversary of the Change of Control (or the expiration date of such stock option, if earlier). If, however, the Employee's employment terminates within the twelve (12) month period following a Change of Control, then, subject to Section 4 below, the exercisability of any stock option held by the Employee shall be as follows: (i) Voluntary Resignation; Termination for Cause. If the -------------------------------------------- Employee's employment terminates in a voluntary resignation (and not an Involuntary Termination), or if the Employee is terminated for Cause, the Employee is entitled to exercise any vested stock option (including an option vested under paragraph (a)(i) above). (ii) Involuntary Termination. If the Employee suffers an ----------------------- Involuntary Termination, then the portion of any stock option then held by the Employee that is not vested and exercisable shall automatically become vested and exercisable. (iii) Disability; Death. If the Employee's employment ----------------- terminates due to the Employee's Disability or death, then such termination shall be treated as if it were an Involuntary Termination for purposes of this Section 6. (c) Acceleration of Unvested Shares Following Change of Control. ----------------------------------------------------------- Subject to the continued employment of the Employee, any unvested shares following the acceleration provided in paragraph (a)(ii) above shall vest on the date of the first anniversary following the Change of Control. If, however, the Employee's employment is terminated within the twelve (12) month period following a Change of Control, then, subject to Section 4 of the Agreement, any shares held by the Employee under any common stock purchase agreement with the Corporation shall become vested shares as follows: (i) Voluntary Resignation; Termination for Cause. If the -------------------------------------------- Employee's employment terminates in a voluntary resignation (and not an Involuntary Termination), or if the Employee is terminated for Cause, then the Employee shall receive only his or her vested shares (including the shares vested under paragraph (a)(ii) above). (ii) Involuntary Termination. If the Employee suffers an ----------------------- Involuntary Termination, then all of the Employee's shares shall vest. (iii) Disability; Death. If the Employee's employment ----------------- terminates due to the Employee's Disability or death, then such termination shall be treated as if it were an Involuntary Termination for purposes of this Section 2. 3. Definition of Terms. The following terms referred to in this ------------------- Agreement shall have the following meanings: (a) Base Compensation. "Base Compensation" shall mean the base ----------------- salary the Corporation pays the Employee for his services immediately prior to an Involuntary Termination. -3- (b) Change of Control. "Change of Control shall mean the occurrence ----------------- of any of the following events: (i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the "beneficial owner" (as defined in Rule l3d-3 under said Act), directly or indirectly, of securities of the Corporation representing forty percent (40%) or more of the total voting power represented by the Corporation's then outstanding voting securities; or (ii) A change in the composition of the board of directors of the Corporation occurring within a six (6) month period, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Corporation as of the date hereof, or (B) are elected, or nominated for election, to the board of directors of the Corporation with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Corporation); or (iii) The stockholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation, other than a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. (c) Involuntary Termination. "Involuntary Termination" shall mean ----------------------- (i) without the Employee's express written consent, the assignment to the Employee of any duties or the reduction of the Employee's duties, either of which results in a significant diminution in the Employee's position or responsibilities with the Corporation in effect immediately prior to such assignment, or the removal of the Employee from such position and responsibilities; (ii) without the Employee's express written consent, a substantial reduction of the facilities and perquisites (including office space and location) available to the Employee immediately prior to such reduction; (iii) a reduction by the Corporation in the Base Compensation of the Employee as in effect immediately prior to such reduction; (iv) a material reduction by the Corporation in the kind or level of employee benefits to which the Employee is entitled immediately prior to such reduction with the result that the Employee's overall benefits package is significantly reduced; (v) the relocation of the Employee to a facility or a location more than 25 miles from the Employee's then present location, without the Employee's express written consent; (vi) any purported termination of the Employee by the Corporation which is not effected for Disability or for Cause; or (vii) the failure of the Corporation to obtain the assumption of this agreement by any successors contemplated in Section 10 below. -4- (d) Cause. "Cause" shall mean (i) any act of personal dishonesty ----- taken by the Employee in connection with his responsibilities as an employee that is intended to result in substantial personal enrichment of the Employee, (ii) the conviction of a felony, (iii) a willful act by the Employee which constitutes gross misconduct injurious to the Corporation, and (iv) continued violations by the Employee of the Employee's obligations under Section 1 of this Agreement which are demonstrably willful and deliberate on the Employee's part after the Corporation has delivered a written demand for performance to the Employee that describes the basis for the Corporation's belief that the Employee has not substantially performed his duties. (e) Disability. "Disability" shall mean that the Employee has been ---------- unable to perform his duties under this Agreement as the result of his incapacity due to physical or mental illness with or without reasonable accommodation, and such inability, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Corporation or its insurers and acceptable to the Employee or the Employee's legal representative (such statement as to acceptability not to be unreasonably withheld). Termination resulting from Disability may only be effected after at least thirty (30) days' written notice by the Corporation of its intention to terminate the Employee's employment. In the event that the Employee resumes the performance of substantially all of his duties hereunder before the termination of his employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked. (f) Disinterested Board. "Disinterested Board" shall mean the board ------------------- of directors of the Corporation excluding those members of the board of directors, if any, who are parties to agreements or arrangements identical to or substantially similar to this Agreement. 4. Limitation on Payments. ---------------------- (a) Basic Rule. In the event that any payment or benefit received or ---------- to be received by the Employee in connection with a termination of his employment with the Corporation (collectively, the "Severance Payments") would (i) constitute a "parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), or any similar or successor provision to 280G and (ii) but for this Section 8(a), be subject to the excise tax imposed by Section 4999 of the Code or any similar or successor provision to Section 4999 (the "Excise Tax"), then, subject to the provisions of Section 8(b) hereof, such Severance Payments (which Severance Payments shall collectively be referred to herein as the "Severance Parachute Payments") shall be reduced to the largest amount which the Employee, in his sole discretion, determines would result in no portion of the Severance Parachute Payments being subject to the Excise Tax. The determination of any required reduction pursuant to this Section 8(a) (including the determination as to which specific Severance Parachute Payments shall be reduced) shall be made by the Employee in his sole discretion, and such determination shall be conclusive and binding upon the Corporation or any related corporation for all purposes. The Corporation and its related corporations waive all claims and rights against the Employee with respect thereto except as specifically set forth in the next sentence. If the Internal Revenue Service (the "IRS") determines that a Severance Parachute Payment is subject to the Excise Tax, then the Corporation or any related corporation, as their exclusive remedy, shall seek to enforce the provisions of Section 8(b) hereof. Such -5- enforcement of Section 8(b) hereof shall be the only remedy, under any and all applicable state and federal laws or otherwise, for the Employee's failure to reduce the Severance Parachute Payments so that no portion thereof is subject to the Excise Tax. The Corporation or related corporation shall reduce a Severance Parachute Payment in accordance with Section 8(a) only upon written notice by the Employee indicating the amount of such reduction, if any. (b) Remedy. If, notwithstanding the reduction described in Section ------ 8(a) hereof, the IRS determines that the Employee is liable for the Excise Tax as a result of the receipt of a Severance Parachute Payment, then the Employee shall, subject to the provisions of this Agreement, be obligated to pay to the Corporation (the "Repayment Obligation") an amount of money equal to the "Repayment Amount". The Repayment Amount with respect to a Severance Parachute Payment shall be the smallest such amount, if any, as shall be required to be paid to the Corporation so that the Employee's net proceeds with respect to any Severance Parachute Payment (after taking into account the payment of the Excise Tax imposed on such Severance Parachute Payment) shall be maximized. Notwithstanding the foregoing, the Repayment amount with respect to a Severance Parachute Payment shall be zero if a Repayment Amount of more than zero would not eliminate the Excise Tax imposed on such Severance Parachute Payment. If the Excise Tax is not eliminated through the performance of the Repayment Obligation, the Employee shall pay the Excise Tax. If the Employee pays the Excise Tax, the Employee shall be entitled to receive from the Corporation a cash payment equal to the Primary Excise Tax Amount. For purposes of this Section 8(b), the "Primary Excise Tax Amount" shall mean a calculation of the Employee's Excise Tax liability determined without including any amount paid or payable to the Employee under the preceding sentence. The Corporation shall make such payment to the Employee within thirty (30) days of the Employee's written request therefor, which request shall include reasonable proof of the Employee's Excise Tax payment. The Repayment obligation shall be performed within thirty (30) days of either (i) the Employee entering into a binding agreement with the IRS as to the amount of the Employee's Excise Tax liability or (ii) a final determination by the IRS or a court decision requiring the Employee to pay the Excise Tax with respect to such a Severance Parachute Payment from which no appeal is available or is timely taken. 5. At-Will Employment. The Corporation and the Employee acknowledge that ------------------ the Employee's employment is at will and may be terminated at any time and for any reason, with or without notice. On termination of the Employee's employment, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Corporation's established employee plans and policies at the time of termination. 6. Term, Amendment and Termination. ------------------------------- (a) Term. Subject to subsection (b) below, the terms of this ---- Agreement shall terminate upon the earlier of (i) the date that all obligations of the parties hereunder have been satisfied, (ii) April 1, 2003, or (iii) eighteen (18) months after a Change of Control. A termination of the terms of this Agreement pursuant to the preceding sentence shall be effective for all purposes, except that such termination shall not affect the payment or provision of compensation or benefits on -6- account of a termination of employment occurring prior to the termination of the terms of this Agreement. (b) Amendment and Termination. This Agreement may be amended in any ------------------------- respect or terminated by the unanimous resolution of the Disinterested Board, unless a Change of Control has previously occurred. If a Change of Control occurs, this Agreement shall no longer be subject to amendment, change, substitution, deletion, revocation or termination in any respect whatsoever. (c) Form of Amendment. The Form of any proper amendment or ----------------- termination of this Agreement shall be a written instrument signed by a duly authorized officer or officers of the Corporation, certifying that the amendment or termination has been approved by the Disinterested Board in accordance with Section 6(b). 7. Successors. ---------- (a) Corporation's Successors. Any successor to the Corporation ------------------------ (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Corporation's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Corporation would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term "Corporation" shall include any successor to the Corporation's business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law. (b) Employee's Successors. The terms of this Agreement and all --------------------- rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. (c) Employment By Subsidiaries. If the Employee is employed by a -------------------------- wholly owned subsidiary of Quantum Corporation, then (i) "Corporation" as defined herein shall be deemed to include such subsidiary, and (ii) the effects intended to result from a Change of Control under this Agreement shall apply to such subsidiary, and the Employee shall be entitled to all the benefits and subject to all the obligations provided herein. 8. Notice. ------ (a) General. Notices and all other communications contemplated by ------- this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Employee, mailed notices shall be addressed to him at the home address which he most recently communicated to the Corporation in writing. In the case of the Corporation, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary. -7- (b) Notice of Termination. Any termination by the Corporation for --------------------- Cause or by the Employee as a result of an Involuntary Termination shall be communicated by a notice of termination of the other party hereto given in accordance with Section 11 of this Agreement. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the termination date (which shall be not more than fifteen (15) days after the giving of such notice). The failure by the Employee to include in the notice any fact or circumstance which contributes to a showing of Involuntary Termination shall not waive any right of the Employee hereunder or preclude the Employee from asserting such fact or circumstance in enforcing his rights hereunder. 9. Miscellaneous Provisions. ------------------------ (a) No Duty to Mitigate. The Employee shall not be required to ------------------- mitigate the amount of any payment contemplated by this Agreement (whether by seeking new employment or in any other manner), nor shall any such payment be reduced by any earnings that the Employee may receive from any other source. (b) Waiver. No provision of this Agreement shall be modified, waived ------ or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Corporation (other than the Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. (c) Whole Agreement. No agreements, representations or --------------- understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. (d) Choice of Law. The validity, interpretation, construction and ------------- performance of this Agreement shall be governed by the laws of the State of California. (e) Severability. The invalidity or unenforceability of any ------------ provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. (f) Arbitration. ----------- (i) Employee and the Corporation agree that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof, shall be finally settled by binding arbitration to be held in Milpitas, California under the National Rules for the Resolution of Employment Disputes supplemented by the Supplemental Procedures for Large Complex Disputes, of the American Arbitration Association as then in effect (the "Rules"). The parties shall be entitled to conduct discovery pursuant to the California Code of Civil Procedure. The arbitrator may regulate -8- the timing and sequence of such discovery and shall decide any discovery disputes or controversies between the Corporation. The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. (ii) The arbitrator(s) shall apply California law to the merits of any dispute or claim, without reference to rules or conflicts of law. (iii) Unless otherwise provided for by law, the Corporation and the Employee shall each pay half of the costs and expenses of such arbitration. (iv) EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION. EMPLOYEE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EMPLOYEE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, OR RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THIS AGREEMENT. (g) No Assignment of Benefits. The rights of any person to payments ------------------------- or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor's process, and any action in violation of this subsection (g) shall be void. (h) Withholding Taxes. All payments made pursuant to this Agreement ----------------- will be subject to withholding of applicable taxes. (i) Assignment by Corporation. The Corporation may assign its rights ------------------------- under this Agreement to an affiliate, and an affiliate may assign its rights under this Agreement to another affiliate of the Corporation or to the Corporation provided, however, that no assignment shall be made if the net worth of the assignee is less than the net worth of the Corporation at the time of assignment. In the case of any such assignment, the term "Corporation" when used in a section of this Agreement shall mean the Corporation that actually employs the Employee. (j) Amendment of Option and Purchase Agreements. The Corporation and ------------------------------------------- the Employee agree that the provisions of this Agreement shall supersede any conflicting provisions of any stock purchase or stock option agreement of the Employee, and the Corporation and the Employee agree to execute such further documents as may be necessary to amend any such agreement. -9- (k) Headings. The headings of sections herein are included solely -------- for convenience of reference and shall not control the meaning or interpretation of any provisions of this Agreement. (l) Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be deemed an original, but all of which together will constitute one and the same instrument. -10- IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Corporation by its duly authorized officer, as of the day and year first above written. QUANTUM CORPORATION EMPLOYEE By_______________________________ ___________________________________ Title: SIGNATURE PAGE OF CHANGE OF CONTROL AGREEMENT -11- EX-10.7 5 dex107.txt 1996 BOARD OF DIRECTORS STOCK OPTION PLAN Exhibit 10.7 QUANTUM CORPORATION 1996 BOARD OF DIRECTORS STOCK OPTION PLAN (As Amended May 29, 2001) 1. Purposes of the Plan. The purposes of this 1996 Board of Directors -------------------- Stock Option Plan are to attract and retain the best available personnel for service as Outside Directors (as defined herein) of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board. All options granted hereunder shall be nonstatutory stock options. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Administrator" means the Board or any of its Committees as shall ------------- be administering the Plan, in accordance with Section 4 of the Plan. (b) "Applicable Laws" means the legal requirements relating to the --------------- administration of stock option plans under applicable U.S. state corporate laws, U.S. federal and state securities laws, and any stock exchange or quotation system on which the Common Stock is listed or quoted. (c) "Board" means the Board of Directors of the Company. ----- (d) "Code" means the Internal Revenue Code of 1986, as amended. ---- (e) "Common Stock" means the Common Stock of the Company. ------------ (f) "Company" means Quantum Corporation, a Delaware corporation. ------- (g) "Director" means a member of the Board. -------- (h) "Employee" means any person, including officers and Directors, -------- employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company. (i) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (j) "Fair Market Value" means, as of any date, the closing sales ----------------- price of the Common Stock (or the closing bid, if no sales were reported) as quoted on the stock exchange with the greatest volume of trading in Common Stock on the date of grant, as reported in The Wall Street Journal or such other source as the Administrator deems reliable. (k) "Inside Director" means a Director who is an Employee. --------------- (l) "Option" means a stock option granted pursuant to the Plan. ------ (m) "Optioned Stock" means the Common Stock subject to an Option. -------------- (n) "Optionee" means a Director who holds an Option. -------- (o) "Outside Director" means a Director who is not an Employee. ---------------- (p) "Parent" means a "parent corporation," whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. (q) "Plan" means this 1996 Board of Directors Stock Option Plan. ---- (r) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 11 of the Plan. (s) "Subsidiary" means a "subsidiary corporation," whether now or ---------- hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of 1986. 3. Stock Subject to the Plan. Subject to the provisions of Section 11 of ------------------------- the Plan, the maximum aggregate number of Shares reserved and available for issuance under the Plan is 600,000 Shares, plus (b) subject to ratification by an affirmative vote of the holders of a majority of the Shares which are present by person or by proxy and entitled to vote at the Company's 2001 Annual Meeting of Stockholders, 600,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan. 4. Administration. -------------- (a) Procedure. The Plan shall be administered by (A) the Board, or --------- (B) a committee (a "Committee"), which Committee shall be constituted to satisfy Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the --------------------------- Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: 2 (i) to determine the Fair Market Value of the Shares in accordance with Section 2(j) of the Plan; (ii) to select the Outside Directors to whom Options may be granted hereunder; (iii) to determine the number of shares of Common Stock to be covered by each Option granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the shares of Common Stock relating thereto, based in each case on such factors as the Board, in its sole discretion, shall determine; (vi) to construe and interpret the terms of the Plan and Options granted pursuant to the Plan; (vii) to prescribe, amend and rescind rules and regulations relating to the Plan; (viii) to modify or amend each Option (subject to Section 12 of the Plan), including the discretionary authority to extend the post- termination exercisability period of Options longer than is otherwise provided for in the Plan; (ix) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Board may deem necessary or advisable; (x) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option previously granted by the Administrator; and (xi) to make all other determinations deemed necessary or advisable for administering the Plan. (c) Effect of Administrator's Decision. The Administrator's ---------------------------------- decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options. 3 5. Eligibility. Options may be granted only to Outside Directors. ----------- The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate the Director's relationship with the Company at any time. 6. Term of Plan. The Plan shall continue in effect for a term of ten ------------ (10) years from the date the Plan was adopted by the Board unless sooner terminated under Section 12 of the Plan. 7. Term of Option. The term of each Option shall be stated in the Option -------------- Agreement. The term of each Option shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. 8. Option Exercise Price and Consideration. --------------------------------------- (a) Exercise Price. The per share exercise price for the Shares to -------------- be issued pursuant to exercise of an Option shall be one hundred percent of the Fair Market Value per Share on the date of grant. (b) Form of Consideration. The consideration to be paid for the --------------------- Shares to be issued upon exercise of an Option, including the method of payment, shall consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (iv) delivery of a properly executed exercise notice together with such other documentation as the Company and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, or (v) any combination of the foregoing methods of payment. 9. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Stockholder. Any Option ----------------------------------------------- granted hereunder shall be exercisable at such times as are set forth in the Option Agreement. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 8 of the Plan. Until Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the 4 Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Continuous Status as a Director. Subject to ---------------------------------------------- Section 11 hereof in the event an Optionee ceases to be a Director, the Optionee may exercise his or her Option, but only within ninety (90) days following the date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of such termination, and to the extent that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. 10. Non-Transferability of Options. Unless otherwise provided for by the ------------------------------ Board, the Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. Adjustments Upon Changes in Capitalization, Dissolution- Merger or ------------------------------------------------------------------ Asset Sale. - ---------- (a) Changes in Capitalization. Subject to any required action by the ------------------------- stockholders of the Company, the number of Shares covered by each outstanding Option, the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share covered by each such outstanding Option, and the number of Shares issuable under the Plan shall be proportionately adjusted by the Board, in its discretion, for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, to the extent that an Option has not been previously exercised, it shall terminate immediately prior to the consummation of such proposed action. 5 (c) Merger or Asset Sale. In the event of a merger of the Company -------------------- with or into another corporation or the sale of substantially all of the assets of the Company, outstanding Options may be assumed or equivalent options may be substituted by the successor corporation or a Parent or Subsidiary thereof (the "Successor Corporation"). If an Option is assumed or substituted for, the Option or equivalent option shall continue to be exercisable as provided in the Option Agreement for so long as the Optionee serves as a Director or a director of the Successor Corporation. Following such assumption or substitution, if the Optionee's status as a Director or director of the Successor Corporation, as applicable, is terminated other than upon a voluntary resignation by the Optionee, the Option or option shall become fully exercisable, including as to Shares for which it would not otherwise be exercisable. Thereafter, the Option or option shall remain exercisable in accordance with Section 9(b) above. If the Successor Corporation does not assume an outstanding Option or substitute for it an equivalent option, the Option shall become fully vested and exercisable, including as to Shares for which it would not otherwise be exercisable. In such event the Board shall notify the Optionee that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice, and upon the expiration of such period the Option shall terminate. For the purposes of this Section 11(c), an Option shall be considered assumed if, following the merger or sale of assets, the Option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares). If such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 12. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may at any time amend, ------------------------- alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amendment or ---------------------------------- termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated. 6 13. Time of Granting Options. The date of grant of an Option shall, for ------------------------ all purposes, be the date on which the Board makes the determination granting such Option. 14. Conditions Upon Issuance of Shares. Shares shall not be issued ---------------------------------- pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 15. Reservation of Shares. The Company, during the term of this Plan, --------------------- will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 16. Option Agreement. Options shall be evidenced by written option ---------------- agreements in such form as the Board shall approve. 7 EX-10.8 6 dex108.txt FORM OF STOCK OPTION AGREEMENT Exhibit 10.8 II. Agreement --------- 1. Grant of Option. The Board of the Company hereby grants to the Optionee --------------- named in the Notice of Grant attached as Part I of this Agreement (the "Optionee"), a nonstatutory stock option (the "Option") to purchase a number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price"), subject to the terms and conditions of the Plan, which is incorporated herein by reference. In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail. 2. Exercise of Option. ------------------ (a) Right to Exercise. This Option is exercisable during its term in ----------------- accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Agreement. In the event of Optionee's termination of service as a Director, the exercisability of the Option is governed by the applicable provisions of the Plan and this Agreement. (b) Method of Exercise. This Option is exercisable by delivery of an ------------------ exercise notice (the "Exercise Notice"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The Exercise Notice shall be accompanied by payment of the aggregate exercise price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless (i) a registration statement under the Securities Act of 1933 covering the Shares is effective, and (ii) such issuance and exercise complies with all relevant provisions of law and the requirements of any stock exchange or quotation service upon which the Shares are then listed. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares. 3. Method of Payment. Payment of the aggregate Exercise Price shall be ----------------- by any of the following, or a combination thereof, at the election of the Optionee: (a) cash, (b) check, (c) delivery of a properly executed exercise notice together with such other documentation as the Board and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, (d) surrender of other Shares which (i) in the case of Shares acquired upon exercise of an Option, have been owned by the optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender not greater than the aggregate Exercise Price of the Exercised Shares. 4. Non-Transferability of Option. This Option may not be transferred in ----------------------------- any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee, only by the Optionee. The terms of the Plan and this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 5. Term of Option. This Option may be exercised only within the term set -------------- out in the Notice of Grant, and may be excised during such term only in accordance with the Plan and the terms of this Agreement. 6. Termination Period. Subject to Section 11 of the Plan, this Option may ------------------ be exercised for ninety (90) days after the termination of Optionee's service as a Director, but in no event later than the term/expiration date. 7. Tax and Consequences. Some of the federal tax consequences relating to -------------------- this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) Exercising the Option. The Optionee may incur regular federal --------------------- income tax liability upon exercise. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. (b) Disposition of Shares. Upon a resale of the Exercised Shares by --------------------- the Optionee, any difference between the sale price and the Fair Market Value of the shares on the date of exercise of the Option, to the extent not included in income as described above, will be treated as a capital gain or loss. 8. Acknowledgements of Optionee. Optionee has reviewed the Plan and this ---------------------------- Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of the Plan and Agreement. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT OT THE OPTION HEREOF IS EARNED ONLY BY CONTINUING SERVICE AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING APPOINTED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S 1996 BOARD OF DIRECTORS STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF SERVICE BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH HIS RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS SERVICE AT ANY TIME, WITH OR WITHOUT CAUSE. -2- EX-10.9 7 dex109.txt EMPLOYEE STOCK PURCHASE PLAN Exhibit 10.9 QUANTUM CORPORATION EMPLOYEE STOCK PURCHASE PLAN (As Amended May 29, 2001) The following constitute the provisions of the Employee Stock Purchase Plan (herein called the "Plan") of Quantum Corporation (herein called the "Company"). 1. Purpose. The purpose of the Plan is to provide employees of the ------- Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. ----------- (a) "Board" shall mean the Board of Directors of the Company. ----- (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. ---- (c) "Common Stock" shall mean the common stock of the Company. ------------ (d) "Company" shall mean Quantum Corporation, a Delaware corporation. ------- (e) "Compensation" shall mean all regular straight time earnings, ------------ payments for overtime, shift premium, incentive compensation, incentive payments, bonuses and commissions (except to the extent that the exclusion of any such items for all participants is specifically directed by the Board or its committee). (f) "Continuous Status as an Employee" shall mean the absence of any -------------------------------- interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of: (i) a leave of absence agreed to in writing by the Company, provided that such leave is for a period of not more than 90 days or re-employment upon the expiration of such leave is guaranteed by contract or statute; or (ii) notification by the Company of termination under a reduction-in-force. Termination in the case of a reduction-in-force shall be considered to have occurred at the end of the employee's continuation period. (g) "Designated Subsidiaries" shall mean the Subsidiaries which have ----------------------- been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (h) "Employee" means any person, including an officer, who is -------- customarily employed for at least twenty (20) hours per week by the Company or one of its Designated Subsidiaries. (i) "Enrollment Date" shall mean the first day of each Offering --------------- Period. (j) "Exercise Date" shall mean the date one day prior to the date six ------------- months, twelve months, eighteen months, or twenty-four months after the Enrollment Date of an Offering Period. (k) "Exercise Period" shall mean a period commencing on an Enrollment --------------- Date or on the day after an Exercise Date and terminating one day prior to the date six (6) months later. (l) "Fair Market Value" means, as of any date, the closing sales ----------------- price of the Common Stock (or the closing bid, if no sales were reported) as quoted on the stock exchange with the greatest volume of trading in Common Stock on the last market trading day prior to the date of grant, as reported in The Wall Street Journal or such other source as the Administrator deems reliable. (m) "Offering Period" shall mean a period of twenty-four (24) months --------------- consisting of four six-month Exercise Periods, or as otherwise set forth in Section 4 hereof. (n) "Plan" shall mean this Employee Stock Purchase Plan. ---- (o) "Subsidiary" shall mean a corporation, domestic or foreign, of ---------- which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. 3. Eligibility. ----------- (a) Any Employee (as defined in Section 2) who shall be employed by the Company on the date his or her participation in the Plan is effective shall be eligible to participate in the Plan, subject to limitations imposed by Section 423(b) of the Code. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately, after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 425(d) of the Code) would own shares and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company, or (ii) which permits his rights to purchase shares under all employee stock plans of the Company and its subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of the fair market value of the shares (determined at the time such option is granted) for each calendar year in which such stock option is outstanding at any time. 4. Offering Dates. The Plan shall be implemented by consecutive Offering -------------- Periods with a new Offering Period commencing on or about January 25 and July 25 of each year, and shall continue thereafter until terminated in accordance with Section 20 or 24 hereof. The Board of Directors of the Company shall have the power to change the duration of Offering Periods and Exercise Periods with respect to future offerings without stockholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first Offering Period to be affected. In no event shall the duration of an Offering Period exceed twenty-seven (27) months. Notwithstanding the foregoing, no offers hereunder shall be made until compliance with all applicable securities law has been obtained. 5. Participation. ------------- 2 (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deduction on the form provided by the Company and filing it with the Company's payroll office prior to the applicable Enrollment Date, unless a later time for filing the subscription agreement is set by the Board for all eligible Employees with respect to a given Offering Period. (b) Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll date in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 11. 6. Payroll Deductions. ------------------ (a) At the time a participant files his subscription agreement, he shall elect to have payroll deductions made on each payday during the Offering Period at a rate not exceeding ten percent (10%) of the Compensation which he received on such payday, and the aggregate of such payroll deductions pursuant to the Plan during the Offering Period shall not exceed ten percent (10%) of his aggregate Compensation during said Offering Period. (b) All payroll deductions made for a participant shall be credited to his account under the Plan. A participant may not make any additional payments into such account. (c) A participant may discontinue participation in the Plan as provided in Section 11, or may change the rate of payroll deductions by giving written notice to the Company authorizing a change in the participant's payroll deduction rate. The change rate shall be effective (i) in the case of a decrease in rate, with the first payroll period following the Company's receipt of the notice of rate change, and (ii) in the case of an increase in rate at the beginning of the next Exercise Period following the Company's receipt of the notice of rate change. 7. Grant of Option. --------------- (a) On the Enrollment Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on each Exercise Date during such Offering Period up to a number of shares of the Company's Common Stock determined by dividing such Employee's payroll deductions accumulated during the Exercise Period ending on such Exercise Date by the lower of (i) eighty-five percent (85%) of the Fair Market Value of a share of the Company's Common Stock on the Enrollment Date, or (ii) eighty-five (85%) of the Fair Market Value of a share of the Company's Common Stock on the Exercise Date; provided that in no event shall an Employee be permitted to purchase during each 24-month Offering Period more than a number of shares determined by dividing $50,000 by the Fair Market Value of a share of the Company's Common Stock on the Enrollment Date, and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 13 hereof. The option shall be automatically exercised on the Exercise Dates during the Offering Period, unless the participant has withdrawn pursuant to Section 11, and shall expire on the last day of the Offering Period. (b) The option price per share of the shares offered in a given offering Period shall be the lower of: (i) 85% of the Fair Market Value of a share of the Common Stock of the Company on the Enrollment Date; or (ii) 85% of the Fair Market Value of a share of the Common Stock of the Company on the Exercise Date. 3 (c) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's payroll deductions may be decreased to 0% at such time during any Exercise Period which is scheduled to end during the current calendar year that the aggregate of all payroll deductions accumulated with respect to such Exercise Period and any other Exercise Period ending within the same calendar year equal $21,250. Payroll deductions shall recommence at the rate provided in such participant's subscription scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 11. 8. Exercise of Option. The participant's option for the purchase of ------------------ shares will be exercised automatically on each Exercise Date of each Offering Period and the maximum number of full shares subject to option will be purchased for such participant at the applicable option price with the accumulated payroll deductions in his or her account unless prior to such Exercise Date the participant has withdrawn from the Offering Period as provided in Section 11. During a participant's lifetime, a participant's option to purchase shares hereunder is exercisable only by the participant. No fractional shares shall be purchased; any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full share shall be retained in the participant's account for the subsequent Exercise Period or Offering Period, subject to earlier withdrawal by the participant as provided in Section 10 hereof. Any other monies left over in a participant's account after the Exercise Date shall be returned to the participant. 9. Delivery. As promptly as practicable after each Exercise Date, the -------- Company shall arrange the delivery to each participant, as appropriate, the shares of Common Stock purchased upon exercise of the option. 10. Automatic Transfer to Low Price Offering Period. If the Fair Market ----------------------------------------------- Value of the Company's Common Stock on the first day of an Offering Period then in progress exceeds the Fair Market Value of the Company's Common Stock on any Exercise Date within such Offering Period in progress, then each participant in such Offering Period shall be deemed to have withdrawn from the Offering Period in progress immediately following the exercise of his or her option on such Exercise Date and to have enrolled in a subsequent Offering Period as of such Exercise Date. 11. Withdrawal; Termination of Employment. ------------------------------------- (a) A participant may withdraw all but not less than all the payroll deductions credited to his account under the Plan at any time prior to the end of the Offering Period by giving written notice to the Company. All of the participant's payroll deductions credited to his account will be paid to him promptly after receipt of his notice of withdrawal and his option for the current Offering Period will be automatically terminated, and no further payroll deductions for the purchase of shares will be made during the Offering Period. If a participant withdraws from an Offering Period, payroll deductions will not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement. (b) Upon termination of the participant's employment prior to the end of the Offering Period for any reason, including retirement or death, the payroll deductions credited to his account will be returned to him or, in the case of his death, to the person or persons entitled thereto under Section 15, and his option will be automatically terminated. (c) In the event a participant fails to remain in continuous Status as an Employee of the Company for at least twenty (20) hours per week during the Offering Period in which the employee is a participant, the participant will be deemed to have elected to 4 withdraw from the Plan and the payroll deductions credited to his account will be returned to such participant and such participant's option terminated; provided that (i) if an Employee shall take a leave of absence approved by the Company in accordance with Section 2(f) of this Plan during an Offering Period in which the Employee is a participant, the participant will be deemed to have his or her payroll deductions reduced to 0% during such leave of absence, but he shall continue to be a participant in the applicable Offering Period and upon his return to full-time employment with the Company shall be eligible to participate fully in any remaining portion of the applicable Offering Period. If the participant fails to return to full-time employment with the Company at the end of such authorized leave of absence, or if his employment is otherwise terminated earlier, he shall be deemed to have withdrawn from participation in the Plan; and (ii) if an Employee begins working part-time (fewer than twenty (20) hours per week) with the intent of returning to full-time employment before the end of the Offering Period in which he is currently participating, the participant will be deemed to have withdrawn from the applicable Exercise Period, the payroll deductions credited to his account will be returned to him, and the rate of his payroll deductions shall be reduced to 0% during such part- time employment, but he shall continue to be a participant in the applicable Offering Period, and upon his return to full-time employment with the Company he shall be eligible to participate fully in any remaining portion of the applicable Offering Period. If the participant fails to return to full-time employment with the Company before the end of the applicable Offering Period, or if his employment with the Company is otherwise terminated earlier, he shall be deemed to have withdrawn from participation in the Plan. (d) A participant's withdrawal from an Offering Period will not have any effect upon his eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods. 12. Interest. No interest shall accrue on the payroll deductions of a -------- participant in the Plan. 13. Stock. ----- (a) The maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be made available for sale under the Plan shall be 6,514,795, plus an increase to be added on April 1 of each year beginning on April 1, 2002 and ending on and including April 1, 2005 equal to the lesser of (i) 5,000,000 shares, (ii) 2% of the outstanding shares on such date or (iii) a lesser amount determined by the Board, subject to adjustment upon changes in capitalization of the Company as provided in Section 19. If the total number of shares which would otherwise be subject to options granted pursuant to Section 7(a) hereof at the beginning of an Offering Period exceeds the number of shares then available under the Plan (after deduction of all shares for which options have been exercised or are then outstanding), the Company shall make a pro rata allocation of the shares remaining available for option grant in as uniform a manner as shall be practicable and as it shall determine to be equitable. In such event, the Company shall give written notice of such reduction of the number of shares subject to the option to each Employee affected thereby and shall similarly reduce the rate of payroll deductions, if necessary. (b) The participant will have no interest or voting right in shares covered by his option until such option has been exercised. 5 (c) Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his spouse, or as otherwise directed by the participant. 14. Administration. The Plan shall be administered by the Board of -------------- Directors of the Company or a committee appointed by the Board. The administration, interpretation or application of the Plan by the Board or its committee shall be final, conclusive and binding upon all participants. Members of the Board who are eligible Employees are permitted to participate in the Plan, provided that: (a) Members of the Board who are eligible to participate in the Plan may not vote on any matter affecting the administration of the Plan or the grant of any option pursuant to the Plan. (b) If a committee is established by the Board to administer the Plan, no member of the Board who is eligible to participate in the Plan may be a member of the committee. 15. Designation of Beneficiary. -------------------------- (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to the end of the Offering Period but prior to delivery to him of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to the end of the Offering Period. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion , may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 16. Transferability. Neither payroll deductions credited to a --------------- participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 11. 17. Use of Funds. All payroll deductions received or held by the Company ------------ under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 18. Reports. Individual accounts will be maintained for each participant ------- in the Plan. Statements of account will be given to participating Employees at least annually promptly following the Exercise Date, which statements will set forth the amounts of payroll deductions, the per share purchase price, the number of shares purchased and the remaining cash balance, if any. 6 19. Adjustments Upon Changes in Capitalization. Subject to any required ------------------------------------------ action by the stockholders of the Company, the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the price per share of Common Stock covered by each option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to the number or price of shares of Common Stock subject to an Option. The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation. 20. Amendment or Termination. ------------------------ (a) The Board of Directors of the Company may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19 hereof, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board of Directors on any Exercise Date if the Board determines that the termination of the Offering Period or the Plan is in the best interests of the Company and its shareholders. Except as provided in Section 19 and this Section 20 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain shareholder approval in such a manner and to such a degree as required. (b) Without shareholder consent and without regard to whether any participant rights may be considered to have been "adversely affected," the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. 7 (c) Notwithstanding anything to the contrary in this Plan, in the event the Board determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to: (i) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price; (ii) shortening any Offering Period so that Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Board action; and (iii) allocating shares. Such modifications or amendments shall not require stockholder approval or the consent of any Plan participants. 21. Notices. All notices or other communications by a participant to the ------- Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 22. Stockholder Approval. If required by Section 20, any amendment to the -------------------- Plan shall be subject to approval by the stockholders of the Company within twelve months before or after the date such amendment is adopted. If such stockholder approval is obtained at a duly held stockholders' meeting, it may be obtained by the affirmative vote of the holders of a majority of the outstanding shares of the Company present or represented and entitled to vote thereon, which approval shall be: (a) (1) solicited substantially in accordance with Section 14(a) of the Securities Act of 1934 as amended (the "Act") and the rules and regulations promulgated thereunder, or (2) solicited after the Company has furnished in writing to the holders entitled to vote substantially the same information concerning the Plan as that which would be required by the rules and regulations in effect under Section 14(a) of the Act at the time such information is furnished; and (b) obtained at or prior to the first annual meeting of stockholders held subsequent to the later of (i) the first registration of Common Stock under Section 12 of the Act, or (ii) the acquisition of an equity security for which exemption is claimed. In the case of approval by written consent, it must be obtained in accordance with applicable state law. 23. Conditions Upon Issuance of Shares. Shares shall not be issued with ---------------------------------- respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that 8 the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 24. Term of Plan. The Plan shall continue in effect for a term of twenty ------------ (20) years from the earlier to have occured of its adoption by the Board of Directors or its appoval by the stockholders of the Company as described in Section 22, unless sooner terminated under Section 20. 9 EX-10.13 8 dex1013.txt SECOND SUPPLEMENT TRUST INDENTURE Exhibit 10.13 This Second Supplemental Trust Indenture, dated as of August 4, 1999 (the "Supplemental Indenture"), between Quantum Corporation, a corporation duly organized and existing under the laws of the State of Delaware (the "Company"), and LaSalle National Bank, a national banking association organized and existing under the laws of the United States of America, as Trustee (the "Trustee"), supplementing that certain Indenture, dated as of August 1, 1997, between the Company and the Trustee as supplemented by the Supplemental Indenture dated as of August 1, 1997 (the "First Supplemental Indenture, and such Indenture, as supplemented by the First Supplemental Indenture and this Supplemental Indenture, being referred to herein as the "Indenture"). Recitals A. The Company has duly authorized the execution and delivery of the Indenture heretofore executed and delivered to provide for the issuance from time to time of its unsecured debentures, notes, or other evidences of indebtedness to be issued in one or more series as provided for in the Indenture heretofore executed and delivered. B. The Company issued Securities denominated "7% Convertible Subordinated Notes due 2004" (the "Notes") pursuant to the terms of the First Supplemental Indenture. C. Effective August 4, 1999, the Company entered into a restructuring (the "Restructuring") of common stock, whereby the common stock of the Company was exchanged for two classes of tracking stock called DLT & Storage Systems group stock and Hard Disk Drive group stock. In connection with the Restructuring, each share of common stock was changed into one share of DLT & Storage Systems group stock and 0.5 shares of Hard Disk Drive group stock. D. Pursuant to Section 14.09 of the Indenture, the Company and the Trustee are required to execute this Supplemental Indenture to make the Notes convertible into both classes of tracking stock as further set forth herein. ARTICLE ONE AMENDMENTS Section 101 Amendment to Section 101 of Indenture. Section 101 of the Indenture is hereby amended by adding the following definitions in appropriate alphabetical order: "DSS Common Stock" shall mean the Company's Common Stock called DLT & Storage Systems group stock or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which are not subject to redemption by the Company; provided that if at any time there shall be more than one such -------- resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "HDD Common Stock" shall mean the Company's Common Stock called Hard Disk Drive group stock or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which are not subject to redemption by the Company; provided -------- that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. Section 102 Amendments to Article Fourteen of Indenture. (a) Each of Sections 1404, 1405, 1406 and 1407 of the Indenture is hereby amended by replacing the phrase "Common Stock" with the phrase "DSS Common Stock or HDD Common Stock" in each place where such phrase appears. (b) Section 1409 of the Indenture is hereby amended by replacing it in its entirety with the following: If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of DSS Common Stock or HDD Common Stock (other than a subdivision or combination of DSS Common Stock or HDD Common Stock, as the case may be, to which Section 1404 applies), (ii) any consolidation, merger or combination of the Company with another corporation as a result of which holders of DSS Common Stock or HDD Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such DSS Common Stock or HDD Common Stock, as the case may be, or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation as a result of which holders of DSS Common Stock or HDD Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such DSS Common Stock or HDD Common Stock, as the case may be, then the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) providing that the Holder of each Security of a series then Outstanding that is convertible into DSS Common Stock or HDD Common Stock of the Company shall have the right thereafter to convert such Security into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of DSS Common Stock or HDD Common Stock issuable upon conversion of such Securities (assuming, for such purposes, a sufficient number of authorized shares of DSS Common Stock or HDD Common Stock, as the case may be, available to convert all such Securities) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of DSS Common Stock or HDD Common Stock, as the case may be, did not exercise his rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance (provided that, if -2- the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance is not the same for each share of DSS Common Stock or HDD Common Stock, as the case may be, in respect of which such rights of election shall not have been exercised ("nonelecting share")), then for the purposes of this Section 1409 the kind and amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares. Such supplemental indenture shall provide for adjustments which, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article or in accordance with the terms of the supplemental indenture or Board Resolutions setting forth the terms of such adjustments. The above provisions of this Section 1409 shall similarly apply to successive consolidations, mergers, conveyances, sales, transfers or leases. Notice of the execution of such a supplemental indenture shall be given by the Company to the Holder of each Security of a series that is convertible into DSS Common Stock or HDD Common Stock of the Company as provided in Section 106 promptly upon such execution. Neither the Trustee nor any conversion agent, if any, shall be under any responsibility to determine the correctness of any provisions contained in any such supplemental indenture relating either to the kind or amount of shares of stock or other securities or property or cash receivable by Holders of Securities of a series convertible into DSS Common Stock and HDD Common Stock of the Company upon the conversion of their Securities after any such consolidation, merger, conveyance, transfer, sale or lease or to any such adjustment, but may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, an Opinion of Counsel with respect thereto, which the Company shall cause to be furnished to the Trustee upon request. Section 103 Amendments to Section 201 of First Supplemental Indenture. Section 201 of the Supplemental Indenture is hereby amended by adding the following definitions in the appropriate alphabetized order: "DSS Conversion Price" has the meaning specified in Section 501 of this Supplemental Indenture. "HDD Conversion Price" shall have the meaning specified in Section 501 of this Supplemental Indenture. Section 104 Amendment to Section 401 of First Supplemental Indenture. Section 401 of the First Supplemental Indenture is hereby amended by replacing the proviso beginning in the fourth line of the first paragraph of Section 401 with the following: provided, however, that the Notes will not be redeemable following August -------- ------- 1, 1999, and before August 1, 2001, unless the fair market value of the DSS Common Stock -3- and HDD Common Stock issuable upon the conversion of $1,000 of principal amount of Notes, based on the Closing Prices for at least 20 Trading Days within a period of 30 consecutive Trading Days ending within five Trading Days prior to the notice of redemption, exceeds $1,250 (using the same Trading Days for determining the Closing Prices of both the DSS Common Stock and the HDD Common Stock). Section 105 Amendment to Article Five of First Supplemental Indenture. Article Five of the First Supplemental Indenture is hereby replaced in its entirety with the following: Section 501 Conversion Right Subject to and upon compliance with the provisions of this Article, each Holder shall have the right to convert any $1000 of principal of Notes held by such holder into the number of DSS Common Stock obtained by dividing $666.67 by the DSS Conversion Price and into the number of HDD Common Stock obtained by dividing $333.33 by the HDD Conversion Price. Such conversion right shall commence on August 1, 1997 and expire at the close of business on August 1, 2004, subject, in the case of the conversion of any Global Security, to any applicable book-entry procedures of the Depositary therefor. In case a Note is called for redemption at the election of the Company, such conversion right in respect of the Note shall expire at the close of business on the Business Day next preceding the Redemption Date. A Note in respect of which a Holder is exercising its option to require redemption upon a Fundamental Change may be converted only if such Holder withdraws its election to exercise its option in accordance with Article Six of this Supplemental Indenture. The initial DSS Conversion Price shall be $30.883 and the initial HDD Conversion Price shall be $30.883, and each shall be adjusted in certain instances as provided in this Article Five. Section 502 Adjustment of DSS Conversion Price. The DSS Conversion Price shall be subject to adjustment from time to time as follows: (a) In case the Company shall hereafter pay a dividend or make a distribution to all holders of the outstanding DSS Common Stock in shares of DSS Common Stock, the DSS Conversion Price in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such DSS Conversion Price by a fraction of which the numerator shall be the number of shares of DSS Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction -4- to become effective immediately after the opening of business on the day following the date fixed for such determination. The Company will not pay any dividend or make any distribution on shares of DSS Common Stock held in the treasury of the Company. The Company will not pay any dividend or make any distribution on shares of DSS Common Stock held in the treasury of the Company. If any dividend or distribution of the type described in this Section 502(a) is declared but not so paid or made, the DSS Conversion Price shall again be adjusted to the DSS Conversion Price which would then be in effect if such dividend or distribution had not been declared. (b) In case the Company shall issue rights or warrants to all holders of its outstanding shares of DSS Common Stock entitling them (for a period expiring within 45 days after the date fixed for determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of DSS Common Stock at a price per share less than the Current Market Price (as defined below) on the date fixed for determination of stockholders entitled to receive such rights or warrants, the DSS Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the DSS Conversion Price in effect immediately prior to the date fixed for determination of stockholders entitled to receive such rights or warrants by a fraction of which the numerator shall be the number of shares of DSS Common Stock outstanding at the close of business on the date fixed for determination of stockholders entitled to receive such rights and warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price, and of which the denominator shall be the number of shares of DSS Common Stock outstanding on the date fixed for determination of stockholders entitled to receive such rights and warrants plus the total number of additional shares of DSS Common Stock offered for subscription or purchase. Such adjustment shall be successively made whenever any such rights and warrants are issued, and shall become effective immediately after the opening of business on the day following the date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of DSS Common Stock are not delivered after the expiration of such rights or warrants, the DSS Conversion Price shall be readjusted to the DSS Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of DSS Common Stock actually delivered. In the event that such rights or warrants are not so issued, the DSS Conversion Price shall again be adjusted to be the DSS Conversion Price which would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of DSS Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of DSS Common Stock, there shall be taken into account any consideration received by the Company for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. -5- (c) In case outstanding shares of DSS Common Stock shall be subdivided into a greater number of shares of DSS Common Stock, the DSS Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of DSS Common Stock shall be combined into a smaller number of shares of DSS Common Stock, the DSS Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) In case the Company shall, by dividend or otherwise, distribute to all holders of its DSS Common Stock shares of any class of capital stock of the Company (other than any dividends or distributions to which Section 502(a) applies) or evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in Section 502(b), and excluding any dividend or distribution (x) paid exclusively in cash or (y) referred to in Section 502(a) (any of the foregoing hereinafter in this Section 502(d) called the "DSS Distribution Securities")), then, in each such case (unless the Company elects to reserve such DSS Distribution Securities for distribution to the Holders upon the conversion of the Notes so that any such Holder converting Notes will receive upon such conversion, in addition to the shares of DSS Common Stock to which such Holder is entitled, the amount and kind of such DSS Distribution Securities which such Holder would have received if such Holder had converted its Notes immediately prior to the Distribution Record Date (as defined in Section 504(c) for such distribution of the DSS Distribution Securities)), the DSS Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the DSS Conversion Price in effect on the Distribution Record Date with respect to such distribution by a fraction of which the numerator shall be the Current Market Price per share of the DSS Common Stock on such Distribution Record Date less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) on the Distribution Record Date of the portion of the Securities so distributed applicable to one share of DSS Common Stock and the denominator shall be the Current Market Price per share of the DSS Common Stock, such reduction to become effective immediately prior to the opening of business on the day following such Distribution Record Date; provided, however, that in the event the then fair -------- ------- market value (as so determined) of the portion of the DSS Distribution Securities so distributed applicable to one share of DSS Common Stock is equal to or greater than the Current Market Price of the DSS Common Stock on the Distribution Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion the amount of DSS Distribution Securities such Holder would have received had such Holder converted each Note on the Distribution Record Date. In the event that such dividend or distribution is not so paid or made, the DSS Conversion Price shall again be adjusted to be the DSS Conversion Price which -6- would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 502(d) by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price of the DSS Common Stock. Each share of DSS Common Stock upon conversion of Notes shall be entitled to receive the appropriate number of Rights, if any, and the certificates representing the DSS Common Stock issued upon such conversion shall bear such legends, if any, in each case as provided by and subject to the terms of the Rights Agreement as in effect at the time of such conversion. If the Rights are separated from the DSS Common Stock in accordance with the provisions of the Rights Agreement such that the Holders would thereafter not be entitled to receive any such Rights in respect to the DSS Common Stock, issuable upon conversion of such Notes, the DSS Conversion Price will be adjusted as provided in this Section 502(d) on the separation date; provided that if such Rights -------- expire, terminate or are redeemed by the Company, the DSS Conversion Price shall again be adjusted to be the DSS Conversion Price which would then be in effect if such separation had not occurred. In lieu of any such adjustment, the Company may amend the Rights Agreement to provide that upon conversion of the Notes the Holders will receive, in addition to the DSS Common Stock issuable upon such conversion, the Rights which would have attached to such shares of DSS Common Stock if the Rights had not become separated from the DSS Common Stock pursuant to the provisions of the Rights Agreement. Rights or warrants distributed by the Company to all holders of DSS Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("DSS Trigger Event"): (i) are deemed to be transferred with such shares of DSS Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of DSS Common Stock, shall be deemed not to have been distributed for purposes of this Section 502 (and no adjustment to the DSS Conversion Price under this Section 502 will be required) until the occurrence of the earliest DSS Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the DSS Conversion Price shall be made under this Section 502(d). If any such right or warrant, including any such existing rights or warrants distributed prior to the date of this Supplemental Indenture, are subject to events, upon the occurrence of which such rights or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and record date with respect to new rights or warrants with such rights (and a termination or expiration of the existing rights or warrants without exercise by any of the holders thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any DSS Trigger Event or other event (of the type described in the preceding sentence) with respect thereto that was counted for -7- purposes of calculating a distribution amount for which an adjustment to the DSS Conversion Price under this Section 502 was made, (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the DSS Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or DSS Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of DSS Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of DSS Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants which shall have expired or been terminated without exercise by any holders thereof, the DSS Conversion Price shall be readjusted as if such rights and warrants had not been issued. For purposes of this Section 502(d) and Sections 502(a) and (b), any dividend or distribution to which this Section 502(d) is applicable that also includes shares of DSS Common Stock, or rights or warrants to subscribe for or purchase shares of DSS Common Stock (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets or shares of capital stock other than such shares of DSS Common Stock or rights or warrants (and any DSS Conversion Price reduction required by this Section 502(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of DSS Common Stock or such rights or warrants (and any further DSS Conversion Price reduction required by Sections 502(a) and (b) with respect to such dividend or distribution shall then be made), except (A) the Distribution Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution" and "the date fixed for such determination" within the meaning of Sections 502(a) and (b) and (B) any shares of DSS Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of Section 502(a). (e) In case the Company shall, by dividend or otherwise, distribute to all holders of its DSS Common Stock cash (excluding (x) any quarterly cash dividend on the DSS Common Stock to the extent the aggregate cash dividend per share of DSS Common Stock in any fiscal quarter does not exceed the greater of (A) the amount per share of DSS Common Stock of the next preceding quarterly cash dividend on the DSS Common Stock to the extent that such preceding quarterly dividend did not require any adjustment of the DSS Conversion Price pursuant to this Section 502(e) (as adjusted to reflect subdivisions or combinations of the DSS Common Stock), and (B) 3.75% of the arithmetic average of the Closing Price (determined as set forth in Section 504(a)) during the ten Trading Days (as defined in Section 504(e)) immediately prior to the date of declaration of such dividend, and (y) any dividend or distribution in connection with the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary), then, in such case, the DSS Conversion Price shall be reduced so that the same shall equal the price determined -8- by multiplying the DSS Conversion Price in effect immediately prior to the close of business on such Distribution Record Date by a fraction of which the numerator shall be the Current Market Price of the DSS Common Stock on the Distribution Record Date less the amount of cash so distributed (and not excluded as provided above) applicable to one share of DSS Common Stock and the denominator shall be such Current Market Price of the DSS Common Stock, such reduction to be effective immediately prior to the opening of business on the day following the Distribution Record Date; provided, however, that in the event -------- ------- the portion of the cash so distributed applicable to one share of DSS Common Stock is equal to or greater than the Current Market Price of the DSS Common Stock on the Distribution Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion the amount of cash such Holder would have received had such Holder converted each Note on the Distribution Record Date. In the event that such dividend or distribution is not so paid or made, the DSS Conversion Price shall again be adjusted to be the DSS Conversion Price which would then be in effect if such dividend or distribution had not been declared. If any adjustment is required to be made as set forth in this Section 502(e) as a result of a distribution that is a quarterly dividend, such adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant hereto. If an adjustment is required to be made as set forth in this Section 502(e) above as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution. (f) In case a tender or exchange offer made by the Company or any Subsidiary of the Company for all or any portion of the DSS Common Stock shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment to stockholders of consideration per share of DSS Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board if Directors) that as of the last time (the "DSS Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended) that exceeds the Current Market Price of the DSS Common Stock on the Trading Day next succeeding the DSS Expiration Time, the DSS Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the DSS Conversion Price in effect immediately prior to the DSS Expiration Time by a fraction of which the numerator shall be the number of shares of DSS Common Stock outstanding (including any tendered or exchanged shares) on the DSS Expiration Time multiplied by the Current Market Price of the DSS Common Stock on the Trading Day next succeeding the DSS Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the DSS Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "DSS Purchased Shares") and (y) the product of the number of shares of DSS Common Stock outstanding (less any DSS Purchased Shares) on the DSS Expiration Time and the Current Market -9- Price of the DSS Common Stock on the Trading Day next succeeding the DSS Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the DSS Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender or exchange offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the DSS Conversion Price shall again be adjusted to be the DSS Conversion Price which would then be in effect if such tender or exchange offer had not been made. (g) In case of a tender or exchange offer made by a Person other than the Company or any Subsidiary for an amount which increases the offeror's ownership of DSS Common Stock and HDD Common Stock to more than 25% of the aggregate amount of DSS Common Stock and HDD Common Stock outstanding and shall involve the payment by such Person of consideration per share of DSS Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) at the last time (the "DSS Offer Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the Current Market Price of the DSS Common Stock on the Trading Day next succeeding the DSS Offer Expiration Time, and in which, as of the DSS Offer Expiration Time the Board of Directors is not recommending rejection of the offer, the DSS Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the DSS Conversion Price in effect immediately prior to the DSS Offer Expiration Time by a fraction of which the numerator shall be the number of shares of DSS Common Stock outstanding (including any tendered or exchanged shares) on the DSS Offer Expiration Time multiplied by the Current Market Price of the DSS Common Stock on the Trading Day next succeeding the DSS Offer Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the DSS Offer Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "DSS Accepted Purchased Shares") and (y) the product of the number of shares of DSS Common Stock outstanding (less any DSS Accepted Purchased Shares) on the DSS Offer Expiration Time and the Current Market Price of the DSS Common Stock on the Trading Day next succeeding the DSS Offer Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the DSS Offer Expiration Time. In the event that such Person is obligated to purchase shares pursuant to any such tender or exchange offer, but such Person is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the DSS Conversion Price shall again be adjusted to be the DSS Conversion Price which would then be in effect if such tender or exchange offer had not been made. Notwithstanding the foregoing, the adjustment described in this Section 502(g) shall not be made if, as of the DSS Offer Expiration Time, the offering documents with respect to such offer -10- disclose a plan or intention to cause the Company to engage in any transaction described in Article Eight of the Indenture. Section 503 Adjustment of HDD Conversion Price. The HDD Conversion Price shall be subject to adjustment from time to time as follows: (a) In case the Company shall hereafter pay a dividend or make a distribution to all holders of the outstanding HDD Common Stock in shares of HDD Common Stock, the HDD Conversion Price in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such HDD Conversion Price by a fraction of which the numerator shall be the number of shares of HDD Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. The Company will not pay any dividend or make any distribution on shares of HDD Common Stock held in the treasury of the Company. The Company will not pay any dividend or make any distribution on shares of HDD Common Stock held in the treasury of the Company. If any dividend or distribution of the type described in this Section 503(a) is declared but not so paid or made, the HDD Conversion Price shall again be adjusted to the HDD Conversion Price which would then be in effect if such dividend or distribution had not been declared. (b) In case the Company shall issue rights or warrants to all holders of its outstanding shares of HDD Common Stock entitling them (for a period expiring within 45 days after the date fixed for determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of HDD Common Stock at a price per share less than the Current Market Price (as defined below) on the date fixed for determination of stockholders entitled to receive such rights or warrants, the HDD Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the HDD Conversion Price in effect immediately prior to the date fixed for determination of stockholders entitled to receive such rights or warrants by a fraction of which the numerator shall be the number of shares of HDD Common Stock outstanding at the close of business on the date fixed for determination of stockholders entitled to receive such rights and warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price, and of which the denominator shall be the number of shares of HDD Common Stock outstanding on the date fixed for determination of stockholders entitled to receive such rights and warrants plus the total number of additional shares of HDD Common Stock offered for subscription or purchase. Such adjustment shall be successively made whenever any such rights and warrants are issued, and shall become effective -11- immediately after the opening of business on the day following the date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of HDD Common Stock are not delivered after the expiration of such rights or warrants, the HDD Conversion Price shall be readjusted to the HDD Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of HDD Common Stock actually delivered. In the event that such rights or warrants are not so issued, the HDD Conversion Price shall again be adjusted to be the HDD Conversion Price which would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of HDD Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of HDD Common Stock, there shall be taken into account any consideration received by the Company for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. (c) In case outstanding shares of HDD Common Stock shall be subdivided into a greater number of shares of HDD Common Stock, the HDD Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of HDD Common Stock shall be combined into a smaller number of shares of HDD Common Stock, the HDD Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) In case the Company shall, by dividend or otherwise, distribute to all holders of its HDD Common Stock shares of any class of capital stock of the Company (other than any dividends or distributions to which Section 503(a) applies) or evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in Section 503(b), and excluding any dividend or distribution (x) paid exclusively in cash or (y) referred to in Section 503(a) (any of the foregoing hereinafter in this Section 503(d) called the "HDD Distribution Securities")), then, in each such case (unless the Company elects to reserve such HDD Distribution Securities for distribution to the Holders upon the conversion of the Notes so that any such Holder converting Notes will receive upon such conversion, in addition to the shares of HDD Common Stock to which such Holder is entitled, the amount and kind of such HDD Distribution Securities which such Holder would have received if such Holder had converted its Notes immediately prior to the Distribution Record Date (as defined in Section 504(c) for such distribution of the HDD Distribution Securities)), the HDD Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the HDD Conversion Price in effect on the Distribution Record Date with respect to such distribution by a -12- fraction of which the numerator shall be the Current Market Price per share of the HDD Common Stock on such Distribution Record Date less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) on the Distribution Record Date of the portion of the Securities so distributed applicable to one share of HDD Common Stock and the denominator shall be the Current Market Price per share of the HDD Common Stock, such reduction to become effective immediately prior to the opening of business on the day following such Distribution Record Date; provided, however, that in the event the then fair -------- ------- market value (as so determined) of the portion of the HDD Distribution Securities so distributed applicable to one share of HDD Common Stock is equal to or greater than the Current Market Price of the HDD Common Stock on the Distribution Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion the amount of HDD Distribution Securities such Holder would have received had such Holder converted each Note on the Distribution Record Date. In the event that such dividend or distribution is not so paid or made, the HDD Conversion Price shall again be adjusted to be the HDD Conversion Price which would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 503(d) by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price of the HDD Common Stock. Each share of HDD Common Stock upon conversion of Notes shall be entitled to receive the appropriate number of Rights, if any, and the certificates representing the HDD Common Stock issued upon such conversion shall bear such legends, if any, in each case as provided by and subject to the terms of the Rights Agreement as in effect at the time of such conversion. If the Rights are separated from the HDD Common Stock in accordance with the provisions of the Rights Agreement such that the Holders would thereafter not be entitled to receive any such Rights in respect to the HDD Common Stock, issuable upon conversion of such Notes, the HDD Conversion Price will be adjusted as provided in this Section 503(d) on the separation date; provided that if such Rights -------- expire, terminate or are redeemed by the Company, the HDD Conversion Price shall again be adjusted to be the HDD Conversion Price which would then be in effect if such separation had not occurred. In lieu of any such adjustment, the Company may amend the Rights Agreement to provide that upon conversion of the Notes the Holders will receive, in addition to the HDD Common Stock issuable upon such conversion, the Rights which would have attached to such shares of HDD Common Stock if the Rights had not become separated from the HDD Common Stock pursuant to the provisions of the Rights Agreement. Rights or warrants distributed by the Company to all holders of HDD Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("HDD Trigger Event"): (i) are deemed to be transferred with such shares of HDD Common Stock; -13- (ii) are not exercisable; and (iii) are also issued in respect of future issuances of HDD Common Stock, shall be deemed not to have been distributed for purposes of this Section 503 (and no adjustment to the HDD Conversion Price under this Section 503 will be required) until the occurrence of the earliest HDD Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the HDD Conversion Price shall be made under this Section 503(d). If any such right or warrant, including any such existing rights or warrants distributed prior to the date of this Supplemental Indenture, are subject to events, upon the occurrence of which such rights or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and record date with respect to new rights or warrants with such rights (and a termination or expiration of the existing rights or warrants without exercise by any of the holders thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any HDD Trigger Event or other event (of the type described in the preceding sentence) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the HDD Conversion Price under this Section 503 was made, (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the HDD Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or HDD Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of HDD Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of HDD Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants which shall have expired or been terminated without exercise by any holders thereof, the HDD Conversion Price shall be readjusted as if such rights and warrants had not been issued. For purposes of this Section 503(d) and Sections 503(a) and (b), any dividend or distribution to which this Section 503(d) is applicable that also includes shares of HDD Common Stock, or rights or warrants to subscribe for or purchase shares of HDD Common Stock (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets or shares of capital stock other than such shares of HDD Common Stock or rights or warrants (and any HDD Conversion Price reduction required by this Section 503(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of HDD Common Stock or such rights or warrants (and any further HDD Conversion Price reduction required by Sections 503(a) and (b) with respect to such dividend or distribution shall then be made), except (A) the Distribution Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution" and "the date fixed for such determination" within the meaning of Sections 503(a) and (b) and (B) any shares of HDD Common Stock included in such -14- dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of Section 503(a). (e) In case the Company shall, by dividend or otherwise, distribute to all holders of its HDD Common Stock cash (excluding (x) any quarterly cash dividend on the HDD Common Stock to the extent the aggregate cash dividend per share of HDD Common Stock in any fiscal quarter does not exceed the greater of (A) the amount per share of HDD Common Stock of the next preceding quarterly cash dividend on the HDD Common Stock to the extent that such preceding quarterly dividend did not require any adjustment of the HDD Conversion Price pursuant to this Section 503(e) (as adjusted to reflect subdivisions or combinations of the HDD Common Stock), and (B) 3.75% of the arithmetic average of the Closing Price (determined as set forth in Section 504(a)) during the ten Trading Days (as defined in Section 504(e)) immediately prior to the date of declaration of such dividend, and (y) any dividend or distribution in connection with the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary), then, in such case, the HDD Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the HDD Conversion Price in effect immediately prior to the close of business on such Distribution Record Date by a fraction of which the numerator shall be the Current Market Price of the HDD Common Stock on the Distribution Record Date less the amount of cash so distributed (and not excluded as provided above) applicable to one share of HDD Common Stock and the denominator shall be such Current Market Price of the HDD Common Stock, such reduction to be effective immediately prior to the opening of business on the day following the Distribution Record Date; provided, however, that in the event the portion of -------- ------- the cash so distributed applicable to one share of HDD Common Stock is equal to or greater than the Current Market Price of the HDD Common Stock on the Distribution Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion the amount of cash such Holder would have received had such Holder converted each Note on the Distribution Record Date. In the event that such dividend or distribution is not so paid or made, the HDD Conversion Price shall again be adjusted to be the HDD Conversion Price which would then be in effect if such dividend or distribution had not been declared. If any adjustment is required to be made as set forth in this Section 503(e) as a result of a distribution that is a quarterly dividend, such adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant hereto. If an adjustment is required to be made as set forth in this Section 503(e) above as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution. (f) In case a tender or exchange offer made by the Company or any Subsidiary of the Company for all or any portion of the HDD Common Stock shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment to stockholders of consideration per share of HDD Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board if -15- Directors) that as of the last time (the "HDD Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended) that exceeds the Current Market Price of the HDD Common Stock on the Trading Day next succeeding the HDD Expiration Time, the HDD Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the HDD Conversion Price in effect immediately prior to the HDD Expiration Time by a fraction of which the numerator shall be the number of shares of HDD Common Stock outstanding (including any tendered or exchanged shares) on the HDD Expiration Time multiplied by the Current Market Price of the HDD Common Stock on the Trading Day next succeeding the HDD Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the HDD Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "HDD Purchased Shares") and (y) the product of the number of shares of HDD Common Stock outstanding (less any HDD Purchased Shares) on the HDD Expiration Time and the Current Market Price of the HDD Common Stock on the Trading Day next succeeding the HDD Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the HDD Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender or exchange offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the HDD Conversion Price shall again be adjusted to be the HDD Conversion Price which would then be in effect if such tender or exchange offer had not been made. (g) In case of a tender or exchange offer made by a Person other than the Company or any Subsidiary for an amount which increases the offeror's ownership of HDD Common Stock and DSS Common Stock to more than 25% of the aggregate HDD Common Stock and DSS Common Stock outstanding and shall involve the payment by such Person of consideration per share of HDD Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) at the last time (the "DHH Offer Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the Current Market Price of the HDD Common Stock on the Trading Day next succeeding the DHH Offer Expiration Time, and in which, as of the DHH Offer Expiration Time the Board of Directors is not recommending rejection of the offer, the HDD Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the HDD Conversion Price in effect immediately prior to the DHH Offer Expiration Time by a fraction of which the numerator shall be the number of shares of HDD Common Stock outstanding (including any tendered or exchanged shares) on the DHH Offer Expiration Time multiplied by the Current Market Price of the HDD Common Stock on the Trading Day next succeeding the DHH Offer Expiration Time and the denominator shall be the sum of (x) the fair -16- market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the DHH Offer Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "DHH Accepted Purchased Shares") and (y) the product of the number of shares of HDD Common Stock outstanding (less any DHH Accepted Purchased Shares) on the DHH Offer Expiration Time and the Current Market Price of the DSS Common Stock on the Trading Day next succeeding the DHH Offer Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the DHH Offer Expiration Time. In the event that such Person is obligated to purchase shares pursuant to any such tender or exchange offer, but such Person is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the HDD Conversion Price shall again be adjusted to be the HDD Conversion Price which would then be in effect if such tender or exchange offer had not been made. Notwithstanding the foregoing, the adjustment described in this Section 503(g) shall not be made if, as of the DHH Offer Expiration Time, the offering documents with respect to such offer disclose a plan or intention to cause the Company to engage in any transaction described in Article Eight of the Indenture. 504 Certain Definitions. For purposes of this Article Five, the following terms shall have the meaning indicated: (a) "Closing Price" with respect to any securities on any day shall mean the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the New York Stock Exchange, or, if such security is not listed or admitted to trading on such Exchange, on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof, whose determination shall be conclusive. (b) "Current Market Price" shall mean the average of the daily Closing Prices per share of DSS Common Stock or HDD Common Stock for the ten consecutive Trading Days immediately prior to the date in question; provided, however, that -------- ------- (1) if the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution or Fundamental Change requiring such computation) that requires an adjustment to the DSS Conversion Price or the HDD Conversion Price, as the Case may be, pursuant to this Section 5.02 occurs during such ten consecutive -17- Trading Days, the Closing Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the same fraction by which the DSS Conversion Price or the HDD Conversion Price, as the case may be is so required to be adjusted as a result of such other event, (2) if the "ex" date for any event (other than the issuance, distribution or Fundamental Change requiring such computation) that requires an adjustment to the Conversion Price pursuant to this Section 5.02 occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the DSS Conversion Price or the HDD Conversion Price, as the case may be, is so required to be adjusted as a result of such other event, and (3) if the "ex" date for the issuance, distribution or Fundamental Change requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (1) or (2) of this proviso, the Closing Price for each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the fair market value (as determined by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof in a manner consistent with any determination of such value for purposes of Section 502(d), (f) or (g), in the case of DSS Common Stock, or Section 5.03 (d), (f) or (g), in the case of HDD Common Stock, whose determination shall be conclusive and described in a resolution of the Board of Directors or such duly authorized committee thereof, as the case may be) of the evidences of indebtedness, shares of capital stock or assets being distributed applicable to one share of DSS Common Stock or HDD Common Stock, as the case may be, as of the close of business on the day before such "ex" date. For purposes of any computation under Section 502(f) or (g) in the case of DSS Common Stock, or 503(f) or (g) in the case of HDD Common Stock, the Current Market Price of the Common Stock on any date shall be deemed to be the average of the daily Closing Prices per share of DSS Common Stock or HDD Common stock, as the case may be, for such day and the next two succeeding Trading Days; provided, however, that if the "ex" -------- ------- date for any event (other than the tender or exchange offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to this Section 5.02 occurs on or after the DSS Expiration Time, HDD Expiration Time, DSS Offer Expiration Time or DHH Offer Expiration Time, as the case may be, for the tender or exchange offer requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the DSS Conversion Price or the HDD Conversion Price, as the case may be, is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the DSS Common Stock or HDD Common Stock, as the case may be, trades regular way on the relevant exchange or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution, (2) when used with respect to any subdivision or combination of shares of DSS Common Stock or HDD Common Stock, as the case -18- may be, means the first date on which the DSS Common Stock or HDD Common Stock, as the case may be, trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective, and (3) when used with respect to any tender or exchange offer means the first date on which the DSS Common Stock or HDD Common Stock, as the case may be, trades regular way on such exchange or in such market after the DSS Expiration Time, HDD Expiration Time, DSS Offer Expiration Time or DHH Offer Expiration Time, as the case may be, of such offer. (c) "Distribution Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of DSS Common Stock or HDD Common Stock, as the case may be, have the right to receive any cash, securities or other property or in which such Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). (d) "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm's length transaction. (e) "Trading Day" shall mean (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or another national security exchange is open for business or (y) if the applicable security is quoted on the Nasdaq National Market, a day on which trades may be made on thereon or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. 505 General Conversion Provisions (a) No adjustment in the DSS Conversion Price or the HDD Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in either such price; provided, however, that any -------- ------- adjustments which by reason of this Section 505(a) are not required to be made shall be carried forward and taken into account in any subsequent adjustment of the DSS Conversion Price or the HDD Conversion Price, as the case may be. All calculations under this Article Five shall be made by the Company and shall be made to the nearest one tenth of a cent or to the nearest one hundredth of a share, as the case may be. No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest. To the extent the Notes become convertible into cash, assets, property or securities (other than capital stock of the Company), no adjustment need be made thereafter as to the cash, assets, property or such securities. Interest will not accrue on the cash. -19- (b) Whenever the DSS Conversion Price or the HDD Conversion Price, as the case may be, is adjusted as herein provided, the Company shall promptly file with the Trustee and any conversion agent other than the Trustee an Officers' Certificate setting forth the DSS Conversion Price and the HDD Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the DSS Conversion Price or the HDD Conversion Price, as the case may be, setting forth the adjusted DSS Conversion Price or HDD Conversion Price, as the case may be, and the date on which each adjustment becomes effective and shall mail such notice of such adjustment to the Holder of each Note at his last address appearing on the Security Register within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. (c) In any case in which this Article Five provides that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (i) issuing to the Holder of any Note converted after such record date and before the occurrence of such event the additional shares of DSS Common Stock or HDD Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the DSS Common Stock and HDD Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 1403 of the Indenture. (d) For purposes of this Article Five, the number of shares of DSS Common Stock and HDD Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of DSS Common Stock or HDD Common Stock. The Company will not pay any dividend or make any distribution on shares of DSS Common Stock or HDD Common Stock held in the treasury of the Company. (e) The Company may make such reductions in the DSS Conversion Price and HDD Conversion Price, in addition to those required by this Sections 502 or 503, as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of DSS Common Stock or HDD Common Stock, respectively, or rights to purchase DSS Common Stock or HDD Common Stock, as the case may be, resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. To the extent permitted by applicable law, the Company from time to time may reduce the DSS Conversion Price or the HDD Conversion Price by any amount for any period of time if the period is at least twenty (20) days, the reduction is irrevocable during the period and the Board of Directors shall have made a determination that such reduction would be in the best interests of the Company, which determination shall be conclusive. Whenever the DSS Conversion Price or the -20- HDD Conversion Price, as the case may be, is reduced pursuant to the preceding sentence, the Company shall mail to holders of record of the Notes a notice of the reduction at least fifteen (15) days prior to the date the reduction takes effect, and such notice shall state the reduced DSS Conversion Price or HDD Conversion Price and the period during which it will be in effect. Section 106 Amendment to Annex 1. Annex 1 of the First Supplemental Indenture is hereby replaced in its entirety with Annex 1 hereto. ARTICLE TWO MISCELLANEOUS Section 201 Reference to and Effect on the Indenture. This Supplemental Indenture shall be construed as supplemental to the Indenture and all the terms and conditions of this Supplemental Indenture shall be deemed to be part of the terms and conditions of the Indenture. This Supplemental Indenture is subject to the provisions of the Trust Indenture Act, and shall, to the extent applicable, be governed by such provisions. Section 202 Supplemental Indenture May be Executed In Counterparts. This instrument may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. Section 203 Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 204 Separability. In case any one or more of the provisions contained in this Supplemental Indenture or in the Notes shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not effect any other provisions of this Supplemental Indenture or of the Notes, but this Supplemental Indenture and the Notes shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. Section 205 Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. -21- IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed all as of the day and year first above written. Quantum Corporation By: /s/ Richard L. Clemmer _____________________________________ Richard L. Clemmer Executive Vice President, Finance and Chief Financial Officer LaSalle National Bank, as Trustee By: /s/ Estelita E. Tucker _____________________________________ Estelita E. Tucker Assistant Vice President -22- Annex 1 [Form of Face of Security] [If the Security is a Global Security, insert -- THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.] QUANTUM CORPORATION 7% Convertible Subordinated Note due 2004 No. __________ $ ____________ CUSIP: ____________ Quantum Corporation, a corporation duly organized and existing under the laws of Delaware (herein called the "Company," which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to ________________, or registered assigns, the principal sum of ___________________ Dollars on August 1, 2004 and to pay interest thereon from August 1, 1997 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on February 1 and August 1 in each year, commencing February 1, 1998, at the rate of 7% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and any interest on this Security will be made at the office or agency of the Company maintained for such purpose in the Borough of Manhattan, The City of New York, or at the option of the Holder of this Security, at the Corporate Trust Office, in such coin or currency of the United States of America as at the time of payment is -23- legal tender for payment of public and private debts; provided, however, that at -------- ------- the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register; provided, further, that a Holder with an aggregate principle -------- ------- amount in excess of $5,000,000 will be paid by wire transfer in immediately available funds at the election of such Holder. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be signed manually or by facsimile by their duly authorized officers and by its corporate seal to be affixed or imported hereon. Dated: ___________ QUANTUM CORPORATION By: ___________________________ Title: Attest: By: ______________________________ Title: The Trustee's certificates of authentication shall be in substantially the following form: This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. LASALLE NATIONAL BANK As Trustee By: ___________________________ Authorized Officer Form of Reverse of Security This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of August 1, 1997 (herein called the "Indenture," which term shall have the meaning assigned to it in such instrument), between the Company and LaSalle National Bank, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), and reference is hereby -24- made to the Indenture and all indentures supplemental thereto for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee, the holders of Senior Indebtedness and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $287,500,000, and is issued pursuant to a Supplemental Trust Indenture supplementing the Indenture, dated as of August 1, 1997, from the Company to Trustee relating to the issuance of the "7% Convertible Notes due 2004" of this series (the "Supplemental Indenture"). The Securities will not be subject to redemption prior to August 1, 1999 and will be redeemable on and after such date at the option of the Company, in whole or in part, upon not less than 15 nor more than 60 days' notice to the Holders, at the Redemption Prices (expressed as a percentage of principal amount) set forth below; provided, however, that the Securities will not be -------- ------- redeemable following August 1, 1999, and before August 1, 2001, unless the fair market value of the DSS Common Stock and HDD Common Stock issuable upon the conversion of $1,000 of principal amount of Notes, based on the Closing Prices for at least 20 Trading Days within a period of 30 consecutive Trading Days ending within five Trading Days prior to the notice of redemption, exceeds $1,250 (using the same Trading Days for determining the Closing Prices of both the DSS Common Stock and the HDD Common Stock). The Redemption Price (expressed as a percentage of principal amount) is as follows for the 12 month periods beginning on August 1 of the following years: Year Redemption Price ---- ---------------- 1999............................. 105% 2000............................. 104% 2001............................. 103% 2002............................. 102% 2003............................. 101% and 100% at August 1, 2004, in each case together with accrued and unpaid interest to, but excluding, the Redemption Date; provided, however, that -------- ------- interest installments whose Stated Maturity is on such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. The Securities are not subject to redemption through operation of any sinking fund. In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. If a Fundamental Change (as defined in the Supplemental Indenture) occurs at any time prior to August 1, 2004, the Securities will be redeemable on the 30th day after notice thereof at the option of the Holder. Such payment shall be made at the following prices (expressed as a percentage of -25- principal amount) in the event of a Fundamental Change occurring during the 12 month period beginning August 1 of the following years: Year Percentage Year Percentage ---- ---------- ---- ---------- 1997 ............. 107% 2001 .............. 103% 1998 ............. 106 2002 .............. 102 1999 ............. 105 2003 .............. 101 2000 ............. 104 and 100% at August 1, 2004; provided in each case that if the Applicable Price (as defined in the Supplemental Indenture) is less than the Reference Market Price (as defined in the Supplemental Indenture), the Company shall redeem such Securities at a price equal to the foregoing redemption price multiplied by the fraction obtained by dividing the Applicable Price by the Reference Market Price. In each case, the Company shall also pay accrued interest, if any, on such Securities to, but excluding, the Repurchase Date; provided, however, that -------- ------- interest installments whose Stated Maturity is on such Repurchase Date will be paid to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Supplemental Indenture. The Company shall mail to all Holders a notice of the occurrence of a Fundamental Change and of the redemption right arising as a result thereof on or before the 10th day after the occurrence of such Fundamental Change. For a Security to be so repaid at the option of the Holder, the Company must receive at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, the City of New York, or, at the option of the Holder, the Corporate Trust Office of the Trustee, such Security with the form entitled "Option to Elect Redemption Upon a Fundamental Change" on the reverse thereof duly completed, together with such Securities duly endorsed for transfer, on or before the 30th day after the date of such notice (or if such 30th day is not a Business Day, the immediately succeeding Business Day). The indebtedness evidenced by this Security is, to the extent and in the manner provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness of the Company, and this Security is issued subject to such provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee as his or her attorney-in-fact for any and all such purposes. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Security or certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth in the Indenture, except that the Company will not be able to defease the right of the Holders to convert this Security pursuant to Article Fourteen of the Indenture. Subject to the provisions of the Indenture, the Holder of this Security is entitled, at its option, at any time on or before August 1, 2004 (except that, in case this Security or any portion hereof shall be redeemed, such right shall terminate with respect to this Security or portion hereof, as the case -26- may be, so redeemed at the close of business on the first Business Day next preceding the date fixed for redemption as provided in the Indenture, unless the Company defaults in making the payment due upon redemption or except as otherwise provided in the Indenture), to convert any $1000 of principal of Notes held by such holder into the number of DSS Common Stock obtained by dividing $666.67 by the DSS Conversion Price (initially $30.833) and into the number of HDD Common Stock obtained by dividing $333.33 by the HDD Conversion Price (initially $30.833), as the HDD Conversion Price and the DSS Conversion Price may be adjusted from time to time, upon surrender of this Security, together with the conversion notice hereon duly executed, to be accompanied (if so required by the Company) by instruments of transfer, in form satisfactory to the Company and to the Trustee, duly executed by the Holder or by its duly authorized attorney in writing. Such surrender shall, if made during any period beginning at the close of business on a Regular Record Date and ending at the opening of business on the Interest Payment Date next following such Regular Record Date (unless this Security or the portion being converted shall have been called for redemption on a Redemption Date during the period beginning at the close of business on a Regular Record Date and ending at the opening of business on the first Business Day after the next succeeding Interest Payment Date, or if such Interest Payment Date is not a Business Day, the second such Business Day), also be accompanied by payment in funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Security then being converted. Subject to the aforesaid requirement for payment and, in the case of a conversion after the Regular Record Date next preceding any Interest Payment Date and on or before such Interest Payment Date, to the right of the Holder of this Security (or any Predecessor Security) of record at such Regular Record Date to receive an installment of interest (with certain exceptions provided in the Indenture), no adjustment is to be made on conversion for interest accrued hereon or for dividends on shares of Common Stock issued on conversion. The Company is not required to issue fractional shares upon any such conversion, but shall make adjustment therefor as provided in the Indenture. Each of the DSS Conversion Price and the HDD Conversion Price is subject to adjustment as provided in the Indenture. In the event of conversion of this Security in part only, a new Security or Securities for the unconverted portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of more than 50% in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. -27- As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or its attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -28- Abbreviations The following abbreviations, when used in the inscription of the face of this Security, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT TEN ENT - as tenants by the entireties (Cust) JT TEN - as joint tenants with right of Custodian_________under Uniform survivorship and not as tenants (Minor) in common Gifts to Minors Act ___________ (State) Additional abbreviations may also be used though not in the above list. Conversion Notice To Quantum Corporation: The undersigned owner of this Security hereby irrevocably exercises the option to convert this Security, or portion hereof (which is $1,000 or an integral multiple thereof) below designated, into shares of DSS Common Stock and HDD Common Stock of the Company in accordance with the terms of the Indenture referred to in this Security, and directs that the shares issuable and deliverable upon the conversion, together with any check in payment for fractional shares and any Securities representing any unconverted principal amount hereof, be issued and delivered to the registered Holder hereof unless a different name has been indicated below. If this Notice is being delivered on a date after the close of business on a Regular Record Date and prior to the opening of business on the related Interest Payment Date (unless this Security or the portion thereof being converted has been called for redemption on a Redemption Date after the close of business on a Regular Record Date and prior to the opening of business on the first Business Day after the next succeeding Interest Payment Date, or if such Interest Payment Date is not a Business Day, the next such Business Day), this Notice is accompanied by payment, in funds acceptable to the Company, of an amount equal to the interest payable on such Interest Payment Date of the principal of this Security to be converted. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect hereto. Any amount required to be paid by the undersigned on account of interest accompanies this Security. -29- Principal Amount to be Converted (in an integral multiple of $1,000, if less than all) $ __________ Dated:___________ _____________________________ _____________________________ Signature(s) must be guaranteed by a qualified guarantor institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934 if shares of DSS Common Stock and HDD Common Stock are to be delivered, or Securities to be issued, other than to and in the name of the registered owner. _____________________________ Signature Guaranty Fill in for registration of shares of DSS Common Stock, HDD Common Stock and Security if to be issued otherwise than to the registered Holder. _______________________________ _________________________________ (Name) Social Security or Other Taxpayer Identification Number _______________________________ (Address) _______________________________ -30- OPTION TO ELECT REDEMPTION UPON A FUNDAMENTAL CHANGE To: Quantum Corporation The undersigned registered owner of this Security hereby irrevocably acknowledges receipt of a notice from Quantum Corporation (the "Company") as to the occurrence of a Fundamental Change with respect to the Company and requests and instructs the Company to redeem the entire principal amount of this Security, or the portion thereof (which is $1,000 or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Security at the redemption price, together with accrued interest to, but excluding, such date, to the registered Holder hereof. Dated: _______________ _______________________________ _______________________________ Signature(s) Signature(s) must be guaranteed by a qualified guarantor institution with membership in an __ approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. _______________________________ Signature Guaranty Principal amount to be redeemed (in an integral multiple of $1,000, if less than all): _____________________________________________ NOTICE: The signature to the foregoing Election must correspond to the Name as written upon the face of this Security in every particular, without alteration or any change whatsoever. -31- EX-10.14 9 dex1014.txt THIRD SUPPLEMENT TRUST INDENTURE Exhibit 10.14 QUANTUM CORPORATION MAXTOR CORPORATION 7% Convertible Subordinated Notes due 2004 THIRD SUPPLEMENTAL INDENTURE Dated as of April 2, 2001 to INDENTURE Dated as of August 1, 1997 LASALLE BANK NATIONAL ASSOCIATION (f/k/a LaSalle National Bank) This Third Supplemental Trust Indenture, dated as of April 2, 2001 (the "Supplemental Indenture"), among Quantum Corporation, a corporation duly organized and existing under the laws of the State of Delaware (the "Company"), Maxtor Corporation, a corporation duly organized and existing under the laws of the State of Delaware ("Maxtor"), and LaSalle Bank National Association (f/k/a Lasalle National Bank), a national banking association organized and existing under the laws of the United States of America, as Trustee (the "Trustee"), supplementing that certain Indenture, dated as of August 1, 1997, between the Company and the Trustee, as supplemented by the Supplemental Indenture, dated as of August 1, 1997 (the "First Supplemental Indenture"), as supplemented by the Second Supplemental Indenture, dated as of August 4, 1999 (the "Second Supplemental Indenture," and such Indenture, as supplemented by the First Supplemental Indenture, the Second Supplemental Indenture and this Supplemental Indenture, being referred to herein as the "Indenture"). RECITALS A. The Company has duly authorized the execution and delivery of the Indenture heretofore executed and delivered to provide for the issuance from time to time of its unsecured debentures, notes, or other evidences of indebtedness to be issued in one or more series as provided for in the Indenture heretofore executed and delivered. B. The Company issued Securities denominated "7% Convertible Subordinated Notes due 2004" (the "Notes") pursuant to the terms of the First Supplemental Indenture. C. On August 4, 1999, the Company entered into a restructuring (the "Restructuring") of its common stock, whereby the common stock of the Company was exchanged for two classes of tracking stock called DLT & Storage Systems group stock and Hard Disk Drive group stock. In connection with the Restructuring, each share of common stock was changed into one share of DLT & Storage Systems group stock and 0.5 shares of Hard Disk Drive ("HDD") group stock, and pursuant to Section 1409 of the Indenture, the Company and the Trustee executed the Second Supplemental Indenture to make the Notes convertible into both classes of tracking stock as set forth in the Second Supplemental Indenture. D. The Company has entered into an Amended and Restated Agreement and Plan of Merger and Reorganization, dated as of October 3, 2000, by and among the Company, Insula Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company ("Spinco"), Maxtor and Hawaii Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Maxtor pursuant to which the Company will contribute and transfer to Spinco all of the assets and liabilities associated with the HDD business, and upon the completion of such contribution and transfer and immediately prior to and in connection with the merger of Spinco with and into Maxtor (the "Merger"), the Company will redeem the Hard Disk Drive group stock. E. Pursuant to Section 1409 of the Indenture, the Company, Maxtor and Trustee have agreed in connection with the Merger to execute this Supplemental Indenture to make the Notes convertible into Quantum Common Stock (as defined below) and the Maxtor Common Stock (as defined below) as set forth herein. ARTICLE ONE AMENDMENTS Section 101 Amendment to Section 101 of Indenture. Section 101 of the Indenture, as amended by Section 101 of the Second Supplemental Indenture, is hereby amended by deleting the definitions of DSS Common Stock and HDD Common Stock and by adding the following definitions in appropriate alphabetical order: "Board of Directors" means either the board of directors of the Company or Maxtor, as the case may be, or any duly authorized committee of that board empowered to act for it with respect to this Indenture. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company or Maxtor, as the case may be, to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Common Stock" shall mean the Quantum Common Stock and Maxtor Common Stock or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company or Maxtor, as the case may be, and which are not subject to redemption by the Company or Maxtor. "Maxtor" means the corporation named as "Maxtor" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Maxtor" shall mean such successor Person. "Maxtor Common Stock" shall mean the Common Stock, par value $.01 per share, of Maxtor or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of Maxtor and which are not subject to redemption by Maxtor; provided that if at any time there -------- shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "Maxtor Subsidiary" means a corporation of which at least a majority of the outstanding voting stock having the power to elect a majority of the board of directors of such corporation is at the time owned, directly or indirectly, by Maxtor or by one or more other subsidiaries of Maxtor, or by Maxtor and one or more other subsidiaries of Maxtor, and -2- the accounts of which are consolidated with those of Maxtor in its most recent consolidated financial statements in accordance with generally accepted accounting principles. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the President or a Vice President, and by the principal financial officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company or Maxtor, as the case may be, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 1004 shall be the principal executive, financial or accounting officer of the Company. "Quantum Common Stock" shall mean the Common Stock, par value $0.01 per share, of the Company or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which are not subject to redemption by the Company; provided -------- that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. Section 102 Amendments to Article Fourteen of Indenture. Article Fourteen of the Indenture, as amended by Section 102 of the Second Supplemental Indenture, is hereby replaced in its entirety with the following: ARTICLE FOURTEEN CONVERSION OF SECURITIES SECTION 1401. Applicability of Article Fourteen. The provisions of this Article shall be applicable to the Securities which are convertible into shares of Quantum Common Stock or Maxtor Common Stock, as the case may be, and the issuance of such shares of Quantum Common Stock or Maxtor Common Stock, as the case may be, upon the conversion of such Securities, except as otherwise specified as contemplated by Section 301 for the Securities of such series. SECTION 1402. Exercise of Conversion Privilege. In order to exercise a conversion privilege, the Holder of a Security with such a privilege shall surrender such Security to the Company at the office or agency maintained for that purpose pursuant to Section 1002, accompanied by a duly executed conversion notice to -3- the Company and Maxtor substantially in the form set forth in Section 206 stating that the Holder elects to convert such Security or a specified portion thereof. Such notice shall also state, if different from the name and address of such Holder, the name or names (with address) in which the certificate or certificates for shares of Quantum Common Stock and Maxtor Common Stock, as the case may be, which shall be issuable on such conversion shall be issued. Securities surrendered for conversion shall (if so required by the Company, Maxtor or the Trustee) be duly endorsed by or accompanied by instruments of transfer in forms satisfactory to the Company, Maxtor and the Trustee duly executed by the registered Holder or its attorney duly authorized in writing; and Securities so surrendered for conversion (in whole or in part) during the period from the close of business on any Regular Record Date to the opening of business on the next succeeding Interest Payment Date (excluding Securities or portions thereof called for redemption during the period beginning at the close of business on a Regular Record Date and ending at the opening of business on the first Business Day after the next succeeding Interest Payment Date, or if such Interest Payment Date is not a Business Day, the second such Business Day) shall also be accompanied by payment in funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of such Security then being converted, and such interest shall be payable to such registered Holder notwithstanding the conversion of such Security, subject to the provisions of Section 307 relating to the payment of Defaulted Interest by the Company. As promptly as practicable after the receipt of such notice and of any payment required pursuant to a Board Resolution and, subject to Section 303, set forth, or determined in the manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto setting forth the terms of such series of Security, and the surrender of such Security in accordance with such reasonable regulations as the Company may prescribe, the Company and Maxtor shall issue and shall deliver, at the office or agency at which such Security is surrendered, to such Holder or on its written order, a certificate or certificates for the number of full shares of the respective Quantum Common Stock and Maxtor Common Stock issuable upon the conversion of such Security (or specified portion thereof), in accordance with the provisions of such Board Resolution, Officers' Certificate or supplemental indenture, and cash as provided therein in respect of any fractional share of such Quantum Common Stock or Maxtor Common Stock, as the case may be, otherwise issuable upon such conversion. Such conversion shall be deemed to have been effected immediately prior to the close of business on the date on which such notice and such payment, if required, shall have been received in proper order for conversion by the Company and Maxtor and such Security shall have been surrendered as aforesaid (unless such Holder shall have so surrendered such Security and shall have instructed the Company and Maxtor to effect the conversion on a particular date following such surrender and such Holder shall be entitled to convert such Security on such date, in which case such conversion shall be deemed to be effected immediately prior to the close of business on such date) and at such time the rights of the Holder of such Security as such Security Holder shall cease and the Person or Persons in whose name or names any certificate or certificates for shares of Quantum Common Stock and Maxtor Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby. Except as set forth above and subject to the final -4- paragraph of Section 307, no payment or adjustment shall be made upon any conversion on account of any interest accrued on the Securities (or any part thereof) surrendered for conversion or on account of any dividends on Quantum Common Stock or Maxtor Common Stock issued upon such conversion. In the case of any Security which is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and deliver to or on the order of the Holder thereof, at the expense of the Company, a new Security or Securities of the same series, of authorized denominations, in aggregate principal amount equal to the unconverted portion of such Security. SECTION 1403. No Fractional Shares. No fractional share of Quantum Common Stock or Maxtor Common Stock shall be issued upon conversions of Securities of any series. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares which shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof to the extent permitted hereby) so surrendered. If, except for the provisions of this Section 1403, any Holder of a Security or Securities would be entitled to a fractional share of Quantum Common Stock or Maxtor Common Stock upon the conversion of such Security or Securities, or specified portions thereof, the Company or Maxtor, as the case may be, shall pay to such Holder an amount in cash equal to the current market value of such fractional share computed, (i) if such Quantum Common Stock or Maxtor Common Stock, as the case may be, is listed or admitted to unlisted trading privileges on a national securities exchange or market, on the basis of the last reported sale price regular way on such exchange or market on the last trading day prior to the date of conversion upon which such a sale shall have been effected, or (ii) if such Quantum Common Stock or Maxtor Common Stock, as the case may be, is not at the time so listed or admitted to unlisted trading privileges on a national securities exchange or market, on the basis of the average of the bid and asked prices of such Quantum Common Stock or Maxtor Common Stock, as the case may be, in the over-the-counter market, on the last trading day prior to the date of conversion, as reported by the National Quotation Bureau, Incorporated or similar organization if the National Quotation Bureau, Incorporated is no longer reporting such information, or if not so available, the fair market price as determined by the Board of Directors. For purposes of this Section 1403, "trading day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which either the Quantum Common Stock or Maxtor Common Stock, as the case may be, is not traded on the Nasdaq National Market, or if the Quantum Common Stock or Maxtor Common Stock, as the case may be, is not traded on the Nasdaq National Market, on the principal exchange or market on which the Quantum Common Stock or Maxtor Common Stock, as the case may be, is traded or quoted. SECTION 1404. Adjustment of the Quantum Conversion Price and the Maxtor Conversion Price. -5- The Quantum Conversion Price and the Maxtor Conversion Price shall be adjusted for any stock dividends, stock splits, reclassifications, combinations or similar transactions in accordance with the terms of the supplemental indenture or Board Resolutions of the Company or Maxtor, as the case may be, setting forth the terms of the Securities as set forth in Section 105 of this Supplemental Indenture. Whenever either the Quantum Conversion Price or the Maxtor Conversion Price is adjusted, the Company or Maxtor, as the case may be, shall compute the adjusted Quantum Conversion Price or Maxtor Conversion Price, as the case may be, in accordance with terms of the applicable Board Resolution of the Company or Maxtor, as the case may be, or supplemental indenture and shall prepare an Officers' Certificate of either the Company or Maxtor, as the case may be, setting forth the adjusted Quantum Conversion Price or Maxtor Conversion Price, as the case may be, and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 1002 and, if different, with the Trustee. The Company shall with respect to any adjustment to the Quantum Conversion Price forthwith cause a notice setting forth the adjusted Quantum Conversion Price to be mailed, first class postage prepaid, to each Holder of Securities of such series at its address appearing on the Security Register and to any conversion agent other than the Trustee. Maxtor shall with respect to any adjustment to the Maxtor Conversion Price forthwith cause a notice setting forth the adjusted Maxtor Conversion Price to be mailed, first class postage prepaid, to each Holder of Securities of such series at its address appearing on the Security Register and to any conversion agent other than the Trustee. SECTION 1405. Notice of Certain Corporate Actions. (i) In the case of the Company, if: (1) the Company shall declare a dividend (or any other distribution) on its Quantum Common Stock payable otherwise than in cash out of its retained earnings (other than a dividend for which approval of any stockholders of the Company is required) that would require an adjustment pursuant to Section 1404; or (2) the Company shall authorize the granting to all or substantially all of the holders of its Quantum Common Stock of rights, options or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights (other than any such grant for which approval of any stockholders of the Company is required); or (3) any reclassification of the Quantum Common Stock (other than a subdivision or combination of its outstanding shares of Quantum Common Stock, or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any stockholders of the Company is required), or of the sale of all or substantially all of the assets of the Company shall occur; or -6- (4) the voluntary or involuntary dissolution, liquidation or winding up of the Company shall occur; then the Company shall cause to be filed with the Trustee, and shall cause to be mailed to all Holders at their last addresses as they shall appear in the Security Register, at least 20 days (or 10 days in any case specified in Clause (1) or (2) above) prior to the applicable record date hereinafter specified, a notice stating (i) the date on which a record is to be taken for the purpose of such dividend, distribution, rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Quantum Common Stock of record to be entitled to such dividend, distribution, rights, options or warrants are to be determined, or (ii) the date on which such reclassification, consolidation, merger, share exchange, sale, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Quantum Common Stock of record shall be entitled to exchange their shares of Quantum Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, sale, dissolution, liquidation or winding up. If at any time the Trustee shall not be the conversion agent, a copy of such notice shall also forthwith be filed by the Company with the Trustee. (ii) In the case of Maxtor, if: (1) Maxtor shall declare a dividend (or any other distribution) on its Maxtor Common Stock payable otherwise than in cash out of its retained earnings (other than a dividend for which approval of any stockholders of Maxtor is required) that would require an adjustment pursuant to Section 1404; or (2) Maxtor shall authorize the granting to all or substantially all of the holders of its Maxtor Common Stock of rights, options or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights (other than any such grant for which approval of any stockholders of Maxtor is required); or (3) any reclassification of the Maxtor Common Stock (other than a subdivision or combination of its outstanding shares of Maxtor Common Stock, or of any consolidation, merger or share exchange to which Maxtor is a party and for which approval of any stockholders of Maxtor is required), or of the sale of all or substantially all of the assets of Maxtor shall occur; or (4) the voluntary or involuntary dissolution, liquidation or winding up of Maxtor shall occur; then Maxtor shall cause to be filed with the Trustee, and shall cause to be mailed to all Holders at their last addresses as they shall appear in the Security Register, at least 20 days (or 10 days in any case specified in Clause (1) or (2) above) prior to the applicable record date hereinafter specified, a notice stating (i) the date on which a record is to be taken for the purpose of such dividend, distribution, rights, -7- options or warrants, or, if a record is not to be taken, the date as of which the holders of Maxtor Common Stock of record to be entitled to such dividend, distribution, rights, options or warrants are to be determined, or (ii) the date on which such reclassification, consolidation, merger, share exchange, sale, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Maxtor Common Stock of record shall be entitled to exchange their shares of Maxtor Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, sale, dissolution, liquidation or winding up. If at any time the Trustee shall not be the conversion agent, a copy of such notice shall also forthwith be filed by Maxtor with the Trustee. SECTION 1406. Reservation of Shares of Quantum Common Stock and Maxtor Common Stock. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Quantum Common Stock, for the purpose of effecting the conversion of Securities, the full number of shares of Quantum Common Stock then issuable upon the conversion of all outstanding Securities that have conversion rights. Maxtor shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Maxtor Common Stock, for the purpose of effecting the conversion of Securities, the full number of shares of Maxtor Common Stock then issuable upon the conversion of all outstanding Securities that have conversion rights. SECTION 1407. Payment of Certain Taxes Upon Conversion. Except as provided in the next sentence, the Company will pay any and all taxes that may be payable in respect of the issue or delivery of shares of its Quantum Common Stock on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of its Quantum Common Stock in a name other than that of the Holder of the Security or Securities to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax, or has established, to the satisfaction of the Company, that such tax has been paid. Except as provided in the next sentence, Maxtor will pay any and all taxes that may be payable in respect of the issue or delivery of shares of its Maxtor Common Stock on conversion of Securities pursuant hereto. Maxtor shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of its Maxtor Common Stock in a name other than that of the Holder of the Security or Securities to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to Maxtor the amount of any such tax, or has established, to the satisfaction of Maxtor, that such tax has been paid. SECTION 1408. Nonassessability. -8- The Company covenants that all shares of its Quantum Common Stock which may be issued upon conversion of Securities will upon issue in accordance with the terms hereof be duly and validly issued and fully paid and nonassessable. Maxtor covenants that all shares of its Maxtor Common Stock which may be issued upon conversion of Securities will upon issue in accordance with the terms hereof be duly and validly issued and fully paid and nonassessable. SECTION 1409. Provision in Case of Consolidation, Merger or Sale of Assets. (i) With respect to the Company, if any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Quantum Common Stock (other than a subdivision or combination of Quantum Common Stock to which Section 1404 applies), (ii) any consolidation, merger or combination of the Company with another corporation as a result of which holders of Quantum Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Quantum Common Stock, or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation as a result of which holders of Quantum Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Quantum Common Stock, then the Company and Maxtor (as required) or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) providing that the Holder of each Security of a series then Outstanding that is convertible into Quantum Common Stock of the Company shall have the right thereafter to convert such Security into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Quantum Common Stock issuable upon conversion of such Securities (assuming, for such purposes, a sufficient number of authorized shares of Quantum Common Stock is available to convert all such Securities) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of Quantum Common Stock did not exercise his rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance is not the same for each share of Quantum Common Stock in respect of which such rights of election shall not have been exercised ("nonelecting share")), then for the purposes of this Section 1409 the kind and amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance for each -9- non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting shares. (ii) With respect to Maxtor, if any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Maxtor Common Stock (other than a subdivision or combination of Maxtor Common Stock to which Section 1404 applies), (ii) any consolidation, merger or combination of Maxtor with another corporation as a result of which holders of Maxtor Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Maxtor Common Stock, or (iii) any sale or conveyance of the properties and assets of Maxtor as, or substantially as, an entirety to any other corporation as a result of which holders of Maxtor Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Maxtor Common Stock then the Company and Maxtor or the Company and the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) providing that the Holder of each Security of a series then Outstanding that is convertible into Maxtor Common Stock shall have the right thereafter to convert such Security into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Maxtor Common Stock issuable upon conversion of such Securities (assuming, for such purposes, a sufficient number of authorized shares of Maxtor Common Stock available to convert all such Securities) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of Maxtor Common Stock did not exercise his rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance (provided that, if the kind or amount of -------- securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance is not the same for each share of Maxtor Common Stock in respect of which such rights of election shall not have been exercised ("Maxtor nonelecting share")), then for the purposes of this Section 1409 the kind and amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance for each Maxtor non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the Maxtor nonelecting shares. (iii) Such supplemental indenture in the event of either (i) or (ii) above shall provide for adjustments which, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article Fourteen or in accordance with the terms -10- of the supplemental indenture or Board Resolutions of the Company or Maxtor, as the case may be, setting forth the terms of such adjustments. The above provisions of this Section 1409 shall similarly apply to successive consolidations, mergers, conveyances, sales, transfers or leases. Notice of the execution of such a supplemental indenture shall be given by the Company to the Holder of each Security of a series that is convertible into Quantum Common Stock or Maxtor Common Stock as provided in Section 106 promptly upon such execution. Neither the Trustee nor any conversion agent, if any, shall be under any responsibility to determine the correctness of any provisions contained in any such supplemental indenture relating either to the kind or amount of shares of stock or other securities or property or cash receivable by Holders of Securities of a series convertible into Quantum Common Stock and Maxtor Common Stock upon the conversion of their Securities after any such consolidation, merger, conveyance, transfer, sale or lease or to any such adjustment, but may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, an Opinion of Counsel with respect thereto, which the Company or Maxtor, as applicable, shall cause to be furnished to the Trustee upon request. -11- SECTION 1410. Duties of Trustee Regarding Conversion. Neither the Trustee nor any conversion agent shall at any time be under any duty or responsibility to any Holder of Securities that are convertible into Quantum Common Stock and Maxtor Common Stock to determine whether any facts exist which may require any adjustment of the Quantum Conversion Price or the Maxtor Conversion Price, as the case may be, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, whether herein or in any supplemental indenture, any resolutions of the Board of Directors of the Company or Maxtor, as the case may be, or written instrument executed by one or more officers of the Company provided to be employed in making the same. Neither the Trustee nor any conversion agent shall be accountable with respect to the validity or value (or the kind or amount) of any shares of Quantum Common Stock or Maxtor Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Securities and neither the Trustee nor any conversion agent makes any representation with respect thereto. Subject to the provisions of Section 601, neither the Trustee nor any conversion agent shall be responsible for any failure of either the Company or Maxtor to issue, transfer or deliver any shares of their respective Quantum Common Stock or Maxtor Common Stock or stock certificates or other securities or property upon the surrender of any Security for the purpose of conversion or to comply with any of the covenants of the Company and Maxtor contained in this Article Fourteen or in the applicable supplemental indenture, resolutions of the Board of Directors of the Company or Maxtor, as the case may be, or written instrument executed by one or more duly authorized officers of the Company or Maxtor, as the case may be. SECTION 1411. Repayment of Certain Funds Upon Conversion. Any funds which at any time shall have been deposited by the Company or on its behalf with the Trustee or any other paying agent for the purpose of paying the principal of, and premium, if any, and interest, if any, on any of the Securities (including, but not limited to funds deposited pursuant to Article Thirteen hereof) and which shall not be required for such purposes because of the conversion of such Securities as provided in this Article Fourteen shall after such conversion be repaid to the Company by the Trustee upon the Company's written request. Section 103 Amendments to Section 201 of First Supplemental Indenture. Section 201 of the First Supplemental Indenture, as amended by Section 201 of the Second Supplemental Indenture, is hereby amended by deleting the definitions of DSS Conversion Price and HDD Conversion Price and by adding the following definitions in the appropriate alphabetized order: "Maxtor Conversion Price" shall have the meaning specified in Section 501 of this Supplemental Indenture. -12- "Quantum Conversion Price" has the meaning specified in Section 501 of this Supplemental Indenture. Section 104 Amendment to Section 401 of First Supplemental Indenture. Section 401 of the First Supplemental Indenture, as amended by Section 104 of the Second Supplemental Indenture, is hereby amended by replacing the proviso beginning in the fourth line of the first paragraph of Section 401 with the following: provided, however, that the Notes will not be redeemable following August -------- ------- 1, 1999, and before August 1, 2001, unless the fair market value of the Quantum Common Stock and Maxtor Common Stock issuable upon the conversion of $1,000 of principal amount of Notes, based on the Closing Prices for at least 20 Trading Days within a period of 30 consecutive Trading Days ending within five Trading Days prior to the notice of redemption, exceeds $1,250 (using the same Trading Days for determining the Closing Prices of both the Quantum Common Stock and the Maxtor Common Stock). Section 105 Amendment to Article Five of First Supplemental Indenture. Article Five of the First Supplemental Indenture, as amended by Section 105 of the Second Supplemental Indenture, is hereby replaced in its entirety with the following: Section 501 Conversion Right Subject to and upon compliance with the provisions of this Article Five, each Holder shall have the right to convert any $1000 of principal of Notes held by such Holder into the number of shares of Quantum Common Stock obtained by dividing $666.67 by the Quantum Conversion Price and into the number of shares of Maxtor Common Stock obtained by dividing $333.33 by the Maxtor Conversion Price. Such conversion right shall commence on August 1, 1997 and expire at the close of business on August 1, 2004, subject, in the case of the conversion of any Global Security, to any applicable book-entry procedures of the Depositary therefor. In case a Note is called for redemption at the election of the Company, such conversion right in respect of the Note shall expire at the close of business on the Business Day next preceding the Redemption Date. A Note in respect of which a Holder is exercising its option to require redemption upon a Fundamental Change may be converted only if such Holder withdraws its election to exercise its option in accordance with Article Six hereof. The initial Quantum Conversion Price shall be $30.883 and the initial Maxtor Conversion Price shall be $20.318, and each shall be adjusted in certain instances as provided in this Article Five. Section 502 Adjustment of Conversion Price. -13- The Quantum Conversion Price shall be subject to adjustment from time to time as follows: (a) In case the Company shall hereafter pay a dividend or make a distribution to all holders of the outstanding Quantum Common Stock in shares of Quantum Common Stock, the Quantum Conversion Price in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Quantum Conversion Price by a fraction of which the numerator shall be the number of shares of Quantum Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. The Company will not pay any dividend or make any distribution on shares of Quantum Common Stock held in the treasury of the Company. If any dividend or distribution of the type described in this Section 502(a) is declared but not so paid or made, the Quantum Conversion Price shall again be adjusted to the Quantum Conversion Price which would then be in effect if such dividend or distribution had not been declared. (b) In case the Company shall issue rights or warrants to all holders of its outstanding shares of Quantum Common Stock entitling them (for a period expiring within 45 days after the date fixed for determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Quantum Common Stock at a price per share less than the Current Market Price (as defined below) on the date fixed for determination of stockholders entitled to receive such rights or warrants, the Quantum Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Quantum Conversion Price in effect immediately prior to the date fixed for determination of stockholders entitled to receive such rights or warrants by a fraction of which the numerator shall be the number of shares of Quantum Common Stock outstanding at the close of business on the date fixed for determination of stockholders entitled to receive such rights and warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price, and of which the denominator shall be the number of shares of Quantum Common Stock outstanding on the date fixed for determination of stockholders entitled to receive such rights and warrants plus the total number of additional shares of Quantum Common Stock offered for subscription or purchase. Such adjustment shall be successively made whenever any such rights and warrants are issued, and shall become effective immediately after the opening of business on the day following the date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Quantum Common Stock are not delivered after the expiration of such rights or warrants, the Quantum Conversion Price shall be readjusted to the Quantum Conversion Price which would then be in effect had the -14- adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Quantum Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Quantum Conversion Price shall again be adjusted to be the Quantum Conversion Price which would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Quantum Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Quantum Common Stock, there shall be taken into account any consideration received by the Company for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. (c) In case outstanding shares of Quantum Common Stock shall be subdivided into a greater number of shares of Quantum Common Stock, the Quantum Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of Quantum Common Stock shall be combined into a smaller number of shares of Quantum Common Stock, the Quantum Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) In case the Company shall, by dividend or otherwise, distribute to all holders of its Quantum Common Stock shares of any class of capital stock of the Company (other than any dividends or distributions to which Section 502(a) applies) or evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in Section 502(b), and excluding any dividend or distribution (x) paid exclusively in cash or (y) referred to in Section 502(a) (any of the foregoing hereinafter in this Section 502(d) called the "Distribution Securities")), then, in each such case (unless the Company elects to reserve such Distribution Securities for distribution to the Holders upon the conversion of the Notes so that any such Holder converting Notes will receive upon such conversion, in addition to the shares of Quantum Common Stock to which such Holder is entitled, the amount and kind of such Distribution Securities which such Holder would have received if such Holder had converted its Notes immediately prior to the Distribution Record Date (as defined in Section 504(c) for such distribution of the Distribution Securities)), the Quantum Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Quantum Conversion Price in effect on the Distribution Record Date with respect to such distribution by a fraction of which the numerator shall be the Current Market Price per share of the Quantum Common Stock on such Distribution Record Date less the fair market value (as determined by -15- the Board of Directors, whose determination shall be conclusive, and described in a Board Resolution) on the Distribution Record Date of the portion of the Distribution Securities so distributed applicable to one share of Quantum Common Stock and the denominator shall be the Current Market Price per share of the Quantum Common Stock, such reduction to become effective immediately prior to the opening of business on the day following such Distribution Record Date; provided, however, that in the event the then fair market value (as so - -------- ------- determined) of the portion of the Distribution Securities so distributed applicable to one share of Quantum Common Stock is equal to or greater than the Current Market Price of the Quantum Common Stock on the Distribution Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion the amount of Distribution Securities such Holder would have received had such Holder converted each Note on the Distribution Record Date. In the event that such dividend or distribution is not so paid or made, the Quantum Conversion Price shall again be adjusted to be the Quantum Conversion Price which would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 502(d) by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price of the Quantum Common Stock. Each share of Quantum Common Stock upon conversion of Notes shall be entitled to receive the appropriate number of Rights, if any, and the certificates representing the Quantum Common Stock issued upon such conversion shall bear such legends, if any, in each case as provided by and subject to the terms of the Rights Agreement as in effect at the time of such conversion. If the Rights are separated from the Quantum Common Stock in accordance with the provisions of the Rights Agreement such that the Holders would thereafter not be entitled to receive any such Rights in respect to the Quantum Common Stock, issuable upon conversion of such Notes, the Quantum Conversion Price will be adjusted as provided in this Section 502(d) on the separation date; provided -------- that if such Rights expire, terminate or are redeemed by the Company, the Quantum Conversion Price shall again be adjusted to be the Quantum Conversion Price which would then be in effect if such separation had not occurred. In lieu of any such adjustment, the Company may amend the Rights Agreement to provide that upon conversion of the Notes the Holders will receive, in addition to the Quantum Common Stock issuable upon such conversion, the Rights which would have attached to such shares of Quantum Common Stock if the Rights had not become separated from the Quantum Common Stock pursuant to the provisions of the Rights Agreement. Rights or warrants distributed by the Company to all holders of Quantum Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Trigger -16- Event"): (i) are deemed to be transferred with such shares of Quantum Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Quantum Common Stock, shall be deemed not to have been distributed for purposes of this Section 502 (and no adjustment to the Quantum Conversion Price under this Section 502 will be required) until the occurrence of the earliest Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the Quantum Conversion Price shall be made under this Section 502(d). If any such right or warrant, including any such existing rights or warrants distributed prior to the date of this Supplemental Indenture, are subject to events, upon the occurrence of which such rights or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and record date with respect to new rights or warrants with such rights (and a termination or expiration of the existing rights or warrants without exercise by any of the holders thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Quantum Conversion Price under this Section 502 was made, (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Quantum Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of Quantum Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Quantum Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants which shall have expired or been terminated without exercise by any holders thereof, the Quantum Conversion Price shall be readjusted as if such rights and warrants had not been issued. For purposes of this Section 502(d) and Sections 502(a) and (b), any dividend or distribution to which this Section 502(d) is applicable that also includes shares of Quantum Common Stock, or rights or warrants to subscribe for or purchase shares of Quantum Common Stock (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets or shares of capital stock other than such shares of Quantum Common Stock or rights or warrants (and any Quantum Conversion Price reduction required by this Section 502(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Quantum Common Stock or such rights or warrants (and any further Quantum Conversion Price reduction required by Sections 502(a) and (b) with respect to such dividend or distribution shall then be made), except (A) the Distribution Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of stockholders entitled to receive such dividend -17- or other distribution" and "the date fixed for such determination" within the meaning of Sections 502(a) and (b) and (B) any shares of Quantum Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of Section 502(a). (e) In case the Company shall, by dividend or otherwise, distribute to all holders of its Quantum Common Stock cash (excluding (x) any quarterly cash dividend on the Quantum Common Stock to the extent the aggregate cash dividend per share of Quantum Common Stock in any fiscal quarter does not exceed the greater of (A) the amount per share of Quantum Common Stock of the next preceding quarterly cash dividend on the Quantum Common Stock to the extent that such preceding quarterly dividend did not require any adjustment of the Quantum Conversion Price pursuant to this Section 502(e) (as adjusted to reflect subdivisions or combinations of the Quantum Common Stock), and (B) 3.75% of the arithmetic average of the Closing Price (determined as set forth in Section 504(a)) during the ten Trading Days (as defined in Section 504(e)) immediately prior to the date of declaration of such dividend, and (y) any dividend or distribution in connection with the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary), then, in such case, the Quantum Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Quantum Conversion Price in effect immediately prior to the close of business on such Distribution Record Date by a fraction of which the numerator shall be the Current Market Price of the Quantum Common Stock on the Distribution Record Date less the amount of cash so distributed (and not excluded as provided above) applicable to one share of Quantum Common Stock and the denominator shall be such Current Market Price of the Quantum Common Stock, such reduction to be effective immediately prior to the opening of business on the day following the Distribution Record Date; provided, however, -------- ------- that in the event the portion of the cash so distributed applicable to one share of Quantum Common Stock is equal to or greater than the Current Market Price of the Quantum Common Stock on the Distribution Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion the amount of cash such Holder would have received had such Holder converted each Note on the Distribution Record Date. In the event that such dividend or distribution is not so paid or made, the Quantum Conversion Price shall again be adjusted to be the Quantum Conversion Price which would then be in effect if such dividend or distribution had not been declared. If any adjustment is required to be made as set forth in this Section 502(e) as a result of a distribution that is a quarterly dividend, such adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant hereto. If an adjustment is required to be made as set forth in this Section 502(e) above as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution. -18- (f) In case a tender or exchange offer made by the Company or any Subsidiary of the Company for all or any portion of the Quantum Common Stock shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment to stockholders of consideration per share of Quantum Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) that as of the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended) exceeds the Current Market Price of the Quantum Common Stock on the Trading Day next succeeding the Expiration Time, the Quantum Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Quantum Conversion Price in effect immediately prior to the Expiration Time by a fraction of which the numerator shall be the number of shares of Quantum Common Stock outstanding (including any tendered or exchanged shares) on the Expiration Time multiplied by the Current Market Price of the Quantum Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Quantum Common Stock outstanding (less any Purchased Shares) on the Expiration Time and the Current Market Price of the Quantum Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender or exchange offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Quantum Conversion Price shall again be adjusted to be the Quantum Conversion Price which would then be in effect if such tender or exchange offer had not been made. (g) In case of a tender or exchange offer made by a Person other than the Company or any Subsidiary for an amount which increases the offeror's ownership of Quantum Common Stock to more than 25% of the aggregate amount of Quantum Common Stock outstanding and shall involve the payment by such Person of consideration per share of Quantum Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a Board Resolution) at the last time (the "Offer Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the Current Market Price of the Quantum Common Stock on the Trading Day next succeeding the Offer Expiration Time, and in which, as of the Offer Expiration Time the Board of Directors is not recommending rejection of the offer, the Quantum Conversion Price shall be reduced -19- so that the same shall equal the price determined by multiplying the Quantum Conversion Price in effect immediately prior to the Offer Expiration Time by a fraction of which the numerator shall be the number of shares of Quantum Common Stock outstanding (including any tendered or exchanged shares) on the Offer Expiration Time multiplied by the Current Market Price of the Quantum Common Stock on the Trading Day next succeeding the Offer Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Offer Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Accepted Purchased Shares") and (y) the product of the number of shares of Quantum Common Stock outstanding (less any Accepted Purchased Shares) on the Offer Expiration Time and the Current Market Price of the Quantum Common Stock on the Trading Day next succeeding the Offer Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Offer Expiration Time. In the event that such Person is obligated to purchase shares pursuant to any such tender or exchange offer, but such Person is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Quantum Conversion Price shall again be adjusted to be the Quantum Conversion Price which would then be in effect if such tender or exchange offer had not been made. Notwithstanding the foregoing, the adjustment described in this Section 502(g) shall not be made if, as of the Offer Expiration Time, the offering documents with respect to such offer disclose a plan or intention to cause the Company to engage in any transaction described in Article Eight of the Indenture. Section 503 Adjustment of Maxtor Conversion Price. The Maxtor Conversion Price shall be subject to adjustment from time to time as follows: (a) In case Maxtor shall hereafter pay a dividend or make a distribution to all holders of the outstanding Maxtor Common Stock in shares of Maxtor Common Stock, the Maxtor Conversion Price in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Maxtor Conversion Price by a fraction of which the numerator shall be the number of shares of Maxtor Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. The Company will not pay any dividend or make any distribution on shares of Maxtor Common Stock held in the treasury of Maxtor. If any dividend or distribution of the type -20- described in this Section 503(a) is declared but not so paid or made, the Maxtor Conversion Price shall again be adjusted to the Maxtor Conversion Price which would then be in effect if such dividend or distribution had not been declared. (b) In case Maxtor shall issue rights or warrants to all holders of its outstanding shares of Maxtor Common Stock entitling them (for a period expiring within 45 days after the date fixed for determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Maxtor Common Stock at a price per share less than the Current Market Price (as defined below) on the date fixed for determination of stockholders entitled to receive such rights or warrants, the Maxtor Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Maxtor Conversion Price in effect immediately prior to the date fixed for determination of stockholders entitled to receive such rights or warrants by a fraction of which the numerator shall be the number of shares of Maxtor Common Stock outstanding at the close of business on the date fixed for determination of stockholders entitled to receive such rights and warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price, and of which the denominator shall be the number of shares of Maxtor Common Stock outstanding on the date fixed for determination of stockholders entitled to receive such rights and warrants plus the total number of additional shares of Maxtor Common Stock offered for subscription or purchase. Such adjustment shall be successively made whenever any such rights and warrants are issued, and shall become effective immediately after the opening of business on the day following the date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Maxtor Common Stock are not delivered after the expiration of such rights or warrants, the Maxtor Conversion Price shall be readjusted to the Maxtor Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Maxtor Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Maxtor Conversion Price shall again be adjusted to be the Maxtor Conversion Price which would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Maxtor Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Maxtor Common Stock, there shall be taken into account any consideration received by Maxtor for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors of Maxtor. (c) In case outstanding shares of Maxtor Common Stock shall be subdivided into a greater number of shares of Maxtor Common Stock, the Maxtor Conversion Price in effect at the opening of business on the day following the day -21- upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of Maxtor Common Stock shall be combined into a smaller number of shares of Maxtor Common Stock, the Maxtor Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) In case Maxtor shall, by dividend or otherwise, distribute to all holders of its Maxtor Common Stock shares of any class of capital stock of Maxtor (other than any dividends or distributions to which Section 503(a) applies) or evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in Section 503(b), and excluding any dividend or distribution (x) paid exclusively in cash or (y) referred to in Section 503(a) (any of the foregoing hereinafter in this Section 503(d) called the "Maxtor Distribution Securities")), then, in each such case (unless Maxtor elects to reserve such Maxtor Distribution Securities for distribution to the Holders upon the conversion of the Notes so that any such Holder converting Notes will receive upon such conversion, in addition to the shares of Maxtor Common Stock to which such Holder is entitled, the amount and kind of such Maxtor Distribution Securities which such Holder would have received if such Holder had converted its Notes immediately prior to the Distribution Record Date (as defined in Section 504(c) for such distribution of the Maxtor Distribution Securities)), the Maxtor Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Maxtor Conversion Price in effect on the Distribution Record Date with respect to such distribution by a fraction of which the numerator shall be the Current Market Price per share of the Maxtor Common Stock on such Distribution Record Date less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Maxtor Board of Directors) on the Distribution Record Date of the portion of the Maxtor Distribution Securities so distributed applicable to one share of Maxtor Common Stock and the denominator shall be the Current Market Price per share of the Maxtor Common Stock, such reduction to become effective immediately prior to the opening of business on the day following such Distribution Record Date; provided, however, that in the event the then fair market value (as so - -------- ------- determined) of the portion of the Maxtor Distribution Securities so distributed applicable to one share of Maxtor Common Stock is equal to or greater than the Current Market Price of the Maxtor Common Stock on the Distribution Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion the amount of Maxtor Distribution Securities such Holder would have received had such Holder converted each Note on the Distribution Record Date. In the event that such dividend or distribution is not so paid or made, the Maxtor Conversion Price shall again be adjusted to be the Maxtor Conversion Price which would then be in effect if such dividend or distribution had not been declared. -22- If the Board of Directors of Maxtor determines the fair market value of any distribution for purposes of this Section 503(d) by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price of the Maxtor Common Stock. Rights or warrants distributed by Maxtor to all holders of Maxtor Common Stock entitling the holders thereof to subscribe for or purchase shares of Maxtor's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Maxtor Trigger Event"): (i) are deemed to be transferred with such shares of Maxtor Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Maxtor Common Stock (such rights or warrants the "Maxtor Rights"), shall be deemed not to have been distributed for purposes of this Section 503 (and no adjustment to the Maxtor Conversion Price under this Section 503 will be required) until the occurrence of the earliest Maxtor Trigger Event, whereupon such Maxtor Rights shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the Maxtor Conversion Price shall be made under this Section 503(d). In lieu of any such adjustment, Maxtor may provide in the agreement that governs the Maxtor Rights (the "Maxtor Rights Agreement") that upon conversion of the Notes the Holders will receive, in addition to the Maxtor Common Stock issuable upon such conversion, the Maxtor Rights which would have attached to such shares of Maxtor Common Stock if the Maxtor Rights had not become separated from the Maxtor Common Stock pursuant to the provisions of the Maxtor Rights Agreement. Each share of Maxtor Common Stock upon conversion of Notes shall be entitled to receive the appropriate number of Maxtor Rights, if any, and the certificates representing the Maxtor Common Stock issued upon such conversion shall bear such legends, if any, in each case as provided by and subject to the terms of the Maxtor Rights Agreement as in effect at the time of such conversion. If any Maxtor Rights are subject to events, upon the occurrence of which such rights the Maxtor Rights become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and record date with respect to new rights or warrants with such Maxtor Rights (and a termination or expiration of the existing Maxtor Rights without exercise by any of the holders thereof). In addition, in the event of any distribution (or deemed distribution) of Maxtor Rights, or any Maxtor Trigger Event or other event (of the type described in the preceding sentence) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Maxtor Conversion Price under this Section 503 was made, (1) in the case of any such Maxtor Rights which shall all have been redeemed or repurchased without exercise by any holders thereof, the Maxtor Conversion Price shall be readjusted upon such final redemption or -23- repurchase to give effect to such distribution or Maxtor Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of Maxtor Common Stock with respect to such Maxtor Rights (assuming such holder had retained such Maxtor Rights ), made to all holders of Maxtor Common Stock as of the date of such redemption or repurchase, and (2) in the case of such Maxtor Rights which shall have expired or been terminated without exercise by any holders thereof, the Maxtor Conversion Price shall be readjusted as if such Maxtor Rights had not been issued. For purposes of this Section 503(d) and Sections 503(a) and (b), any dividend or distribution to which this Section 503(d) is applicable that also includes shares of Maxtor Common Stock, or rights or warrants to subscribe for or purchase shares of Maxtor Common Stock (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets or shares of capital stock other than such shares of Maxtor Common Stock or rights or warrants (and any Maxtor Conversion Price reduction required by this Section 503(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Maxtor Common Stock or such rights or warrants (and any further Maxtor Conversion Price reduction required by Sections 503(a) and (b) with respect to such dividend or distribution shall then be made), except (A) the Distribution Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution" and "the date fixed for such determination" within the meaning of Sections 503(a) and (b) and (B) any shares of Maxtor Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of Section 503(a). (e) In case Maxtor shall, by dividend or otherwise, distribute to all holders of its Maxtor Common Stock cash (excluding (x) any quarterly cash dividend on the Maxtor Common Stock to the extent the aggregate cash dividend per share of Maxtor Common Stock in any fiscal quarter does not exceed the greater of (A) the amount per share of Maxtor Common Stock of the next preceding quarterly cash dividend on the Maxtor Common Stock to the extent that such preceding quarterly dividend did not require any adjustment of the Maxtor Conversion Price pursuant to this Section 503(e) (as adjusted to reflect subdivisions or combinations of the Maxtor Common Stock), and (B) 3.75% of the arithmetic average of the Closing Price (determined as set forth in Section 504(a)) during the ten Trading Days (as defined in Section 504(e)) immediately prior to the date of declaration of such dividend, and (y) any dividend or distribution in connection with the liquidation, dissolution or winding up of Maxtor, whether voluntary or involuntary), then, in such case, the Maxtor Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Maxtor Conversion Price in effect immediately prior to the close of business on such Distribution Record Date by a fraction of which the numerator -24- shall be the Current Market Price of the Maxtor Common Stock on the Distribution Record Date less the amount of cash so distributed (and not excluded as provided above) applicable to one share of Maxtor Common Stock and the denominator shall be such Current Market Price of the Maxtor Common Stock, such reduction to be effective immediately prior to the opening of business on the day following the Distribution Record Date; provided, however, that in the event the portion of -------- ------- the cash so distributed applicable to one share of Maxtor Common Stock is equal to or greater than the Current Market Price of the Maxtor Common Stock on the Distribution Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion the amount of cash such Holder would have received had such Holder converted each Note on the Distribution Record Date. In the event that such dividend or distribution is not so paid or made, the Maxtor Conversion Price shall again be adjusted to be the Maxtor Conversion Price which would then be in effect if such dividend or distribution had not been declared. If any adjustment is required to be made as set forth in this Section 503(e) as a result of a distribution that is a quarterly dividend, such adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant hereto. If an adjustment is required to be made as set forth in this Section 503(e) above as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution. (f) In case a tender or exchange offer made by Maxtor or any Maxtor Subsidiary for all or any portion of the Maxtor Common Stock shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment to Maxtor stockholders of consideration per share of Maxtor Common Stock having a fair market value (as determined by the Board of Directors of Maxtor, whose determination shall be conclusive and described in a resolution of the Board of Directors of Maxtor) that as of the last time (the "Maxtor Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended) exceeds the Current Market Price of the Maxtor Common Stock on the Trading Day next succeeding the Maxtor Expiration Time, the Maxtor Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Maxtor Conversion Price in effect immediately prior to the Maxtor Expiration Time by a fraction of which the numerator shall be the number of shares of Maxtor Common Stock outstanding (including any tendered or exchanged shares) on the Maxtor Expiration Time multiplied by the Current Market Price of the Maxtor Common Stock on the Trading Day next succeeding the Maxtor Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Maxtor Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Maxtor Purchased Shares") and (y) the product of the number of -25- shares of Maxtor Common Stock outstanding (less any Maxtor Purchased Shares) on the Maxtor Expiration Time and the Current Market Price of the Maxtor Common Stock on the Trading Day next succeeding the Maxtor Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Maxtor Expiration Time. In the event that Maxtor is obligated to purchase shares pursuant to any such tender or exchange offer, but Maxtor is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Maxtor Conversion Price shall again be adjusted to be the Maxtor Conversion Price which would then be in effect if such tender or exchange offer had not been made. (g) In case of a tender or exchange offer made by a Person other than Maxtor or any Maxtor Subsidiary for an amount which increases the offeror's ownership of Maxtor Common Stock to more than 25% of the aggregate Maxtor Common Stock outstanding and shall involve the payment by such Person of consideration per share of Maxtor Common Stock having a fair market value (as determined by the Board of Directors of Maxtor, whose determination shall be conclusive, and described in a resolution of the Board of Directors of Maxtor) at the last time (the "Maxtor Offer Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the Current Market Price of the Maxtor Common Stock on the Trading Day next succeeding the Maxtor Offer Expiration Time, and in which, as of the Maxtor Offer Expiration Time the Board of Directors of Maxtor is not recommending rejection of the offer, the Maxtor Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Maxtor Conversion Price in effect immediately prior to the Maxtor Offer Expiration Time by a fraction of which the numerator shall be the number of shares of Maxtor Common Stock outstanding (including any tendered or exchanged shares) on the Maxtor Offer Expiration Time multiplied by the Current Market Price of the Maxtor Common Stock on the Trading Day next succeeding the Maxtor Offer Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Maxtor Offer Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Maxtor Accepted Purchased Shares") and (y) the product of the number of shares of Maxtor Common Stock outstanding (less any Maxtor Accepted Purchased Shares) on the Maxtor Offer Expiration Time and the Current Market Price of the Maxtor Common Stock on the Trading Day next succeeding the Maxtor Offer Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Maxtor Offer Expiration Time. In the event that such Person is obligated to purchase shares pursuant to any such tender or exchange offer, but such Person is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Maxtor Conversion Price shall again be -26- adjusted to be the Maxtor Conversion Price which would then be in effect if such tender or exchange offer had not been made. Notwithstanding the foregoing, the adjustment described in this Section 503(g) shall not be made if, as of the Maxtor Offer Expiration Time, the offering documents with respect to such offer disclose a plan or intention to cause Maxtor to engage in any transaction described in Article Eight of the Indenture. Section 504 Certain Definitions. For purposes of this Article Five, the following terms shall have the meaning indicated: (a) "Closing Price" with respect to any securities on any day shall mean the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the New York Stock Exchange, or, if such security is not listed or admitted to trading on such exchange, on the principal national securities exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors of the Company or Maxtor, as the case may be, for that purpose, or a price determined in good faith by the Board of Directors of the Company or Maxtor, as the case may be, or, to the extent permitted by applicable law, a duly authorized committee thereof, whose determination shall be conclusive. (b) "Current Market Price" shall mean the average of the daily Closing Prices per share of Quantum Common Stock or Maxtor Common Stock as applicable, for the ten consecutive Trading Days immediately prior to the date in question; provided, however, that (1) if the "ex" date (as hereinafter defined) for any - -------- ------- event (other than the issuance or distribution or Fundamental Change requiring such computation) that requires an adjustment to the Quantum Conversion Price or the Maxtor Conversion Price, as the case may be, pursuant to Section 502 or Section 503, as applicable, occurs during such ten consecutive Trading Days, the Closing Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the same fraction by which the Quantum Conversion Price or the Maxtor Conversion Price, as the case may be, is so required to be adjusted as a result of such other event, (2) if the "ex" date for any event (other than the issuance, distribution or Fundamental Change requiring such computation) that requires an adjustment to the Quantum Conversion Price or the Maxtor Conversion Price pursuant to Section 502 or Section 503, as applicable, occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the -27- "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Quantum Conversion Price or the Maxtor Conversion Price, as the case may be, is so required to be adjusted as a result of such other event, and (3) if the "ex" date for the issuance, distribution or Fundamental Change requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (1) or (2) of this proviso, the Closing Price for each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the fair market value (as determined by the Board of Directors of the Company or Maxtor, as the case may be, or, to the extent permitted by applicable law, a duly authorized committee thereof in a manner consistent with any determination of such value for purposes of Section 502(d), (f) or (g), in the case of Quantum Common Stock, or Section 503 (d), (f) or (g), in the case of Maxtor Common Stock, whose determination shall be conclusive and described in a resolution of the Board of Directors of the Company or Maxtor, as the case may be, or such duly authorized committee thereof, as the case may be) of the evidences of indebtedness, shares of capital stock or assets being distributed applicable to one share of Quantum Common Stock or Maxtor Common Stock, as the case may be, as of the close of business on the day before such "ex" date. For purposes of any computation under Section 502(f) or (g) in the case of Quantum Common Stock, or 503(f) or (g) in the case of Maxtor Common Stock, the Current Market Price on any date shall be deemed to be the average of the daily Closing Prices per share of Quantum Common Stock or Maxtor Common Stock, as the case may be, for such day and the next two succeeding Trading Days; provided, however, -------- ------- that if the "ex" date for any event (other than the tender or exchange offer requiring such computation) that requires an adjustment to the Quantum Conversion Price or Maxtor Conversion Price pursuant to Section 502 or Section 503 occurs on or after the Expiration Time, Offer Expiration Time, Maxtor Expiration Time or Maxtor Offer Expiration Time, as the case may be, for the tender or exchange offer requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Quantum Conversion Price or the Maxtor Conversion Price, as the case may be, is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Quantum Common Stock or Maxtor Common Stock, as the case may be, trades regular way on the relevant exchange or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution, (2) when used with respect to any subdivision or combination of shares of Quantum Common Stock or Maxtor Common Stock, as the case may be, means the first date on which the Quantum Common Stock or Maxtor Common Stock, as the case may be, trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective, and (3) when used with respect to any tender or exchange offer means the first date on which the Quantum Common Stock or Maxtor Common Stock, as the case may be, trades regular way on such exchange -28- or in such market after the Expiration Time, Offer Expiration Time, Maxtor Expiration Time or Maxtor Offer Expiration Time, as the case may be, of such offer. (c) "Distribution Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Quantum Common Stock or Maxtor Common Stock, as the case may be, have the right to receive any cash, securities or other property or in which such Quantum Common Stock or Maxtor Common Stock, as the case may be, (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors of the Company or the Board of Directors of Maxtor, as the case may be, or by statute, contract or otherwise). (d) "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm's length transaction. (e) "Trading Day" shall mean (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or such other national securities exchange is open for business or (y) if the applicable security is quoted on the Nasdaq National Market, a day on which trades may be made on thereon or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. Section 505 General Conversion Provisions (a) No adjustment in the Quantum Conversion Price or the Maxtor Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in either such price; provided, however, -------- ------- that any adjustments which by reason of this Section 505(a) are not required to be made shall be carried forward and taken into account in any subsequent adjustment of the Quantum Conversion Price or the Maxtor Conversion Price, as the case may be. All calculations under this Article Five with respect to the Quantum Common Stock shall be made by the Company and with respect to the Maxtor Common Stock by Maxtor, and shall be made to the nearest one tenth of a cent or to the nearest one hundredth of a share, as the case may be. No adjustment need be made for rights to purchase Quantum Common Stock pursuant to a Company plan for reinvestment of dividends or interest. No adjustment need be made for rights to purchase Maxtor Common Stock pursuant to a Maxtor plan for reimbursement of dividends or interest. To the extent the Notes become convertible into cash, assets, property or securities (other than capital stock of the Company or Maxtor), no adjustment need be made thereafter as to the cash, assets, property or such securities. Interest will not accrue on the cash. -29- (b) Whenever the Quantum Conversion Price is adjusted as herein provided, the Company shall promptly file with the Trustee and any conversion agent other than the Trustee an Officers' Certificate setting forth the Quantum Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Whenever the Maxtor Conversion Price is adjusted as herein provided, Maxtor shall promptly file with the Trustee and any conversion agent other than the Trustee an Officers' Certificate signed by the applicable officers of Maxtor setting forth the Maxtor Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after delivery of such certificate, the Company or Maxtor, as the case may be, shall prepare a notice of such adjustment of the Quantum Conversion Price or the Maxtor Conversion Price, as the case may be, setting forth the adjusted Quantum Conversion Price or Maxtor Conversion Price, as the case may be, and the date on which each adjustment becomes effective and shall mail such notice of such adjustment to the Holder of each Note at his last address appearing on the Security Register within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. (c) In any case in which this Article Five provides that an adjustment shall become effective immediately after a record date for an event, the Company or Maxtor, as the case may be, may defer until the occurrence of such event (i) issuing to the Holder of any Note converted after such record date and before the occurrence of such event the additional shares of Quantum Common Stock or Maxtor Common Stock, as the case may be, issuable upon such conversion by reason of the adjustment required by such event over and above the Quantum Common Stock and Maxtor Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 1403 of the Indenture. (d) For purposes of this Article Five, the number of shares of Quantum Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Quantum Common Stock. The Company will not pay any dividend or make any distribution on shares of Quantum Common Stock held in the treasury of the Company. For purposes of this Article Five, the number of shares of Maxtor Common Stock at any time outstanding shall not include shares held in the treasury of Maxtor but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Maxtor Common Stock. Maxtor will not pay any dividend or make any distribution on shares of Maxtor Common Stock held in the treasury of Maxtor. (e) The Company may make such reductions in the Quantum Conversion Price, in addition to those required by this Sections 502 or 503, as the -30- Board of Directors of the Company considers to be advisable to avoid or diminish any income tax to holders of Quantum Common Stock or rights to purchase Quantum Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. Maxtor may make such reductions in the Maxtor Conversion Price, in addition to those required by this Section 503, as the Board of Directors of Maxtor considers to be advisable to avoid or diminish any income tax to holders of Maxtor Common Stock or rights to purchase Maxtor Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. To the extent permitted by applicable law, the Company from time to time may reduce the Quantum Conversion Price by any amount for any period of time if the period is at least twenty (20) days, the reduction is irrevocable during the period and the Board of Directors shall have made a determination that such reduction would be in the best interests of the Company, which determination shall be conclusive. Whenever the Quantum Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to holders of record of the Notes a notice of the reduction at least fifteen (15) days prior to the date the reduction takes effect, and such notice shall state the reduced Quantum Conversion Price and the period during which it will be in effect. To the extent permitted by applicable law, Maxtor from time to time may reduce the Maxtor Conversion Price by any amount for any period of time if the period is at least twenty (20) days, the reduction is irrevocable during the period and the Board of Directors shall have made a determination that such reduction would be in the best interests of Maxtor, which determination shall be conclusive. Whenever the Maxtor Conversion Price is reduced pursuant to the preceding sentence, Maxtor shall mail to holders of record of the Notes a notice of the reduction at least fifteen (15) days prior to the date the reduction takes effect, and such notice shall state the reduced Maxtor Conversion Price and the period during which it will be in effect. Section 106 Amendment to Section 301 of the First Supplemental Indenture. Section 301 of the First Supplemental Indenture is hereby amended by replacing in its entirety the following: ARTICLE THREE CERTAIN COVENANTS Section 301 Registration and Listing. -31- The Company (i) will effect all registrations with, and obtain all approvals by, all governmental authorities that may be necessary under any United States Federal or state law (including the Securities Act, the Exchange Act and state securities and Blue Sky laws) before the shares of Quantum Common Stock issuable upon conversion of Notes may be lawfully issued and delivered, and thereafter publicly traded, and qualified or listed as contemplated by clause (ii); and (ii) will list the shares of Quantum Common Stock required to be issued and delivered upon conversion of the Notes prior to such issuance or delivery on the New York Stock Echangeor such other exchange or automated quotation as the Quantum Common Stock is then listed at such date of conversion. Maxtor (i) will effect all registrations with, and obtain all approvals by, all governmental authorities that may be necessary under any United States Federal or state law (including the Securities Act, the Exchange Act and state securities and Blue Sky laws) before the shares of Maxtor Common Stock issuable upon conversion of Notes may be lawfully issued and delivered, and thereafter publicly traded, and qualified or listed as contemplated by clause (ii); and (ii) will list the shares of Maxtor Common Stock required to be issued and delivered upon conversion of the Notes prior to such issuance or delivery on the Nasdaq National Market or such other exchange or automated quotation as the Maxtor Common Stock is then listed at such date of conversion. The provisions of Section 1008 of the Indenture shall not apply to this Section 301. Section 107 Amendment to Annex 1. Annex 1 of the First Supplemental Indenture is hereby replaced in its entirety with Annex 1 hereto. ARTICLE TWO MISCELLANEOUS Section 201 Reference to and Effect on the Indenture. This Supplemental Indenture shall be construed as supplemental to the Indenture and all the terms and conditions of this Supplemental Indenture shall be deemed to be part of the terms and conditions of the Indenture. This Supplemental Indenture is subject to the provisions of the Trust Indenture Act, and shall, to the extent applicable, be governed by such provisions. Section 202 Supplemental Indenture May be Executed In Counterparts. This instrument may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. -32- Section 203 Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 204 Separability. In case any one or more of the provisions contained in this Supplemental Indenture or in the Notes shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not effect any other provisions of this Supplemental Indenture or of the Notes, but this Supplemental Indenture and the Notes shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. Section 205 Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. Section 206 Company's Obligations with Respect to Maxtor. The Company will be required to fulfill any and all obligations set forth in this Supplemental Indenture of Maxtor in the event and to the extent that Maxtor fails to fulfill its obligations set forth in this Supplemental Indenture. Section 207 Access to Information The Trustee and the Company shall provide Maxtor with access to all Books , Records, and personnel, upon reasonable request in writing by Maxtor, required for Maxtor to meet its obligations set forth in this Supplemental Indenture, including, without limitation, lists of the holders of the Notes. -33- IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed all as of the day and year first above written. Quantum Corporation By: /s/ Richard L. Clemmer _____________________________________________ Richard L. Clemmer Executive Vice President, Finance and Chief Financial Officer Maxtor Corporation By: /s/ Glenn Stevens _____________________________________________ LaSalle Bank National Association (f/k/a LaSalle National Bank), as Trustee By: /s/ Victoria Douyon _____________________________________________ Victoria Douyon, Vice President -34- Annex 1 [Form of Face of Security] [If the Security is a Global Security, insert -- THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.] QUANTUM CORPORATION 7% Convertible Subordinated Note due 2004 No. __________ $ ____________ CUSIP: ____________ Quantum Corporation, a corporation duly organized and existing under the laws of Delaware (herein called the "Company," which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to ________________, or registered assigns, the principal sum of ___________________ Dollars on August 1, 2004 and to pay interest thereon from August 1, 1997 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on February 1 and August 1 in each year, commencing February 1, 1998, at the rate of 7% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and any interest on this Security will be made at the office or agency of the Company maintained for such purpose in the Borough of A-1 Manhattan, The City of New York, or at the option of the Holder of this Security, at the Corporate Trust Office, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company -------- ------- payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register; provided, further, that a Holder with an aggregate principle amount in excess of - -------- ------- $5,000,000 will be paid by wire transfer in immediately available funds at the election of such Holder. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be signed manually or by facsimile by their duly authorized officers and by its corporate seal to be affixed or imported hereon. Dated: ___________ QUANTUM CORPORATION By:____________________________________ Title: Attest: By:___________________________ Title: The Trustee's certificates of authentication shall be in substantially the following form: This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. LASALLE BANK NATIONAL ASSOCIATION (f/k/a LaSalle National Bank) As Trustee By:____________________________________ Victoria Douyon, Vice President A-2 Form of Reverse of Security This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of August 1, 1997 (herein called the "Indenture," which term shall have the meaning assigned to it in such instrument), between the Company and LaSalle Bank National Association (f/k/a LaSalle National Bank), as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture and all indentures supplemental thereto for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee, the holders of Senior Indebtedness and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $287,500,000, and is issued pursuant to a Supplemental Trust Indenture supplementing the Indenture, dated as of August 1, 1997, from the Company to Trustee relating to the issuance of the "7% Convertible Notes due 2004" of this series (the "Supplemental Indenture"). The Securities will not be subject to redemption prior to August 1, 1999 and will be redeemable on and after such date at the option of the Company, in whole or in part, upon not less than 15 nor more than 60 days' notice to the Holders, at the Redemption Prices (expressed as a percentage of principal amount) set forth below; provided, however, that the Securities will not be -------- ------- redeemable following August 1, 1999, and before August 1, 2001, unless the fair market value of the Quantum Common Stock and Maxtor Common Stock issuable upon the conversion of $1,000 of principal amount of Notes, based on the Closing Prices for at least 20 Trading Days within a period of 30 consecutive Trading Days ending within five Trading Days prior to the notice of redemption, exceeds $1,250 (using the same Trading Days for determining the Closing Prices of both the Quantum Common Stock and the Maxtor Common Stock). The Redemption Price (expressed as a percentage of principal amount) is as follows for the 12 month periods beginning on August 1 of the following years: Year Redemption Price ---- ---------------- 1999....................... 105% 2000....................... 104% 2001....................... 103% 2002....................... 102% 2003....................... 101% and 100% at August 1, 2004, in each case together with accrued and unpaid interest to, but excluding, the Redemption Date; provided, however, that -------- ------- interest installments whose Stated Maturity is on such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. A-3 The Securities are not subject to redemption through operation of any sinking fund. In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. If a Fundamental Change (as defined in the Supplemental Indenture) occurs at any time prior to August 1, 2004, the Securities will be redeemable on the 30th day after notice thereof at the option of the Holder. Such payment shall be made at the following prices (expressed as a percentage of principal amount) in the event of a Fundamental Change occurring during the 12 month period beginning August 1 of the following years: Year Percentage Year Percentage ---- ---------- ---- ---------- 1997............. 107% 2001............. 103% 1998............. 106 2002............. 102 1999............. 105 2003............. 101 2000............. 104 and 100% at August 1, 2004; provided in each case that if the Applicable Price (as defined in the Supplemental Indenture) is less than the Reference Market Price (as defined in the Supplemental Indenture), the Company shall redeem such Securities at a price equal to the foregoing redemption price multiplied by the fraction obtained by dividing the Applicable Price by the Reference Market Price. In each case, the Company shall also pay accrued interest, if any, on such Securities to, but excluding, the Repurchase Date; provided, however, that -------- ------- interest installments whose Stated Maturity is on such Repurchase Date will be paid to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Supplemental Indenture. The Company shall mail to all Holders a notice of the occurrence of a Fundamental Change and of the redemption right arising as a result thereof on or before the 10th day after the occurrence of such Fundamental Change. For a Security to be so repaid at the option of the Holder, the Company must receive at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, the City of New York, or, at the option of the Holder, the Corporate Trust Office of the Trustee, such Security with the form entitled "Option to Elect Redemption Upon a Fundamental Change" on the reverse thereof duly completed, together with such Securities duly endorsed for transfer, on or before the 30th day after the date of such notice (or if such 30th day is not a Business Day, the immediately succeeding Business Day). The indebtedness evidenced by this Security is, to the extent and in the manner provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness of the Company, and this Security is issued subject to such provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee as his or her attorney-in-fact for any and all such purposes. A-4 The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Security or certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth in the Indenture, except that the Company will not be able to defease the right of the Holders to convert this Security pursuant to Article Fourteen of the Indenture. Subject to the provisions of the Indenture, the Holder of this Security is entitled, at its option, at any time on or before August 1, 2004 (except that, in case this Security or any portion hereof shall be redeemed, such right shall terminate with respect to this Security or portion hereof, as the case may be, so redeemed at the close of business on the first Business Day next preceding the date fixed for redemption as provided in the Indenture, unless the Company defaults in making the payment due upon redemption or except as otherwise provided in the Indenture), to convert any $1,000 of principal of Notes held by such holder into the number of Quantum Common Stock obtained by dividing $666.67 by the Quantum Conversion Price (initially $30.883) and into the number of Maxtor Common Stock obtained by dividing $333.33 by the Maxtor Conversion Price (initially $20.318), as the Quantum Conversion Price or the Maxtor Conversion Price may be adjusted from time to time, upon surrender of this Security, together with the conversion notice hereon duly executed, to be accompanied (if so required by the Company and Maxtor) by instruments of transfer, in form satisfactory to the Company and Maxtor and to the Trustee, duly executed by the Holder or by its duly authorized attorney in writing. Such surrender shall, if made during any period beginning at the close of business on a Regular Record Date and ending at the opening of business on the Interest Payment Date next following such Regular Record Date (unless this Security or the portion being converted shall have been called for redemption on a Redemption Date during the period beginning at the close of business on a Regular Record Date and ending at the opening of business on the first Business Day after the next succeeding Interest Payment Date, or if such Interest Payment Date is not a Business Day, the second such Business Day), also be accompanied by payment in funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Security then being converted. Subject to the aforesaid requirement for payment and, in the case of a conversion after the Regular Record Date next preceding any Interest Payment Date and on or before such Interest Payment Date, to the right of the Holder of this Security (or any Predecessor Security) of record at such Regular Record Date to receive an installment of interest (with certain exceptions provided in the Indenture), no adjustment is to be made on conversion for interest accrued hereon or for dividends on shares of Quantum Common Stock or Maxtor Common Stock issued on conversion. Neither the Company nor Maxtor will be required to issue fractional shares upon any such conversion, but shall make adjustment therefor as provided in the Indenture. Each of the Quantum Conversion Price and the Maxtor Conversion Price is subject to adjustment as provided in the Indenture. In the event of conversion of this Security in part only, a new Security or Securities for the unconverted portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. A-5 The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of more than 50% in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or its attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate A-6 principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. A-7 Abbreviations The following abbreviations, when used in the inscription of the face of this Security, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT___________ TEN ENT - as tenants by the entireties (Cust) JT TEN - as joint tenants with right of Custodian _____ under Uniform survivorship and not as tenants (Minor) in common Gifts to Minors Act _________ (State) Additional abbreviations may also be used though not in the above list. Conversion Notice To Quantum Corporation: Maxtor Corporation The undersigned owner of this Security hereby irrevocably exercises the option to convert this Security, or portion hereof (which is $1,000 or an integral multiple thereof) below designated, into shares of Quantum Common Stock and Maxtor Common Stock of the Company in accordance with the terms of the Indenture referred to in this Security, and directs that the shares issuable and deliverable upon the conversion, together with any check in payment for fractional shares and any Securities representing any unconverted principal amount hereof, be issued and delivered to the registered Holder hereof unless a different name has been indicated below. If this Notice is being delivered on a date after the close of business on a Regular Record Date and prior to the opening of business on the related Interest Payment Date (unless this Security or the portion thereof being converted has been called for redemption on a Redemption Date after the close of business on a Regular Record Date and prior to the opening of business on the first Business Day after the next succeeding Interest Payment Date, or if such Interest Payment Date is not a Business Day, the next such Business Day), this Notice is accompanied by payment, in funds acceptable to the Company, of an amount equal to the interest payable on such Interest Payment Date of the principal of this Security to be converted. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect hereto. Any amount required to be paid by the undersigned on account of interest accompanies this Security. A-8 Principal Amount to be Converted (in an integral multiple of $1,000, if less than all) $ __________ Dated:___________ __________________________________ __________________________________ Signature(s) must be guaranteed by a qualified guarantor institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934 if shares of Quantum Common Stock and Maxtor Common Stock are to be delivered, or Securities to be issued, other than to and in the name of the registered owner. __________________________________ Signature Guaranty Fill in for registration of shares of Quantum Common Stock or Maxtor Common Stock, or Securities to be issues, if to be issued otherwise than to the registered Holder. ___________________________ ____________________________________________ (Name) Social Security or Other Taxpayer Identification Number ___________________________ (Address) ___________________________ A-9 OPTION TO ELECT REDEMPTION UPON A FUNDAMENTAL CHANGE To: Quantum Corporation The undersigned registered owner of this Security hereby irrevocably acknowledges receipt of a notice from Quantum Corporation (the "Company") as to the occurrence of a Fundamental Change and requests and instructs the Company to redeem the entire principal amount of this Security, or the portion thereof (which is $1,000 or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Security at the redemption price, together with accrued interest to, but excluding, such date, to the registered Holder hereof. Dated: ______________________ ___________________________________ ___________________________________ Signature(s) Signature(s) must be guaranteed by a qualified guarantor institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. ___________________________________ Signature Guaranty Principal amount to be redeemed (in an integral multiple of $1,000, if less than all): __________________________________ NOTICE: The signature to the foregoing Election must correspond to the Name as written upon the face of this Security in every particular, without alteration or any change whatsoever. A-10 EX-10.20 10 dex1020.txt FIRST AMENDMENT TO PARTICIPATION AGREEMENT Exhibit 10.20 EXECUTION VERSION FIRST AMENDMENT TO ------------------ AMENDED AND RESTATED PARTICIPATION AGREEMENT -------------------------------------------- THIS FIRST AMENDMENT TO AMENDED AND RESTATED PARTICIPATION AGREEMENT (this "Amendment"), dated as of March 28, 2001, is entered into by and among: --------- (1) QUANTUM CORPORATION, a Delaware corporation (the "Lessee"); ------ (2) SELCO SERVICE CORPORATION, an Ohio corporation (the "Lessor"); ------ (3) Each of the financial institutions listed in the Amended and Restated Participation Agreement referred to in Recital A below as --------- "participants" (collectively, the "Participants"); and ------------ (4) THE BANK OF NOVA SCOTIA ("BNS"), as agent for the Participants --- (in such capacity, the "Agent"). ----- RECITALS -------- A. The Lessee, the Lessor, the Participants and the Agent are parties to an Amended and Restated Participation Agreement dated as of July 12, 2000 (the "Participation Agreement"). ----------------------- B. The Lessee has recently approached the Lessor, the Participants and the Agent and requested that the Lessor, the Participants and the Agent amend the Participation Agreement in order to conform with the changes to be made in that certain Credit Agreement (3-Year) entered into as of April 19, 2000 and amended and restated as of the date hereof among the Lessee, as borrower, the financial institutions party thereto as lenders and/or agents, and Bank of America, N.A., as administrative agent and letter of credit issuing agent. C. The Lessor, the Participants and the Agent are willing so to amend the Participation Agreement upon the terms and subject to the conditions set forth herein. AGREEMENT --------- NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Lessee, the Lessor, the Participants and Agent hereby agree as follows: 1. Definitions, Interpretation. All capitalized terms defined above and --------------------------- elsewhere in this Amendment shall be used herein as so defined. Unless otherwise defined herein, all other capitalized terms used herein shall have the respective meanings given to those terms in the Appendix 1 to the Participation ------------------------------- Agreement, as amended by this Amendment. The rules of interpretation set forth - --------- in Appendix 1 to the Participation Agreement shall, to the extent not ----------------------------------------- inconsistent with the terms of this Amendment, apply to this Amendment and are hereby incorporated by reference. 1 2. Amendment to Participation Agreement. Subject to the satisfaction of the ------------------------------------ conditions set forth in Paragraph 4 below, the Participation Agreement is hereby ----------- amended by as follows: (a) Clause (a) of Section 6.3 is amended by changing the two ------------------------- references to "Section 10.1(s)" set forth therein to "Section 10.2(h)". --------------- --------------- (b) Section 8 (Representations) is amended by changing Section 8.3 --------- ----------- thereof to read in its entirety as set forth on Attachment 1 hereto. ------------ (c) Section 10 (Other Covenants and Agreements) is amended by (i) ---------- changing Section 10.1 thereof to read in its entirety as set forth on ------------ Attachment 2 hereto; (ii) renumbering existing Sections 10.2 and 10.3 ------------ ---------------------- thereof as "Section 10.3" and Section 10.4", respectively; and (iii) adding ------------ ------------ a new Section 10.2 thereto to read in its entirety as set forth on ------------ Attachment 3 hereto. ------------ (d) Schedule III is hereby amended by (i) changing the references ------------ therein from "Chris Osborn, Director" to "Liz Hanson, Director" with respect to the notice information for The Bank of Nova Scotia, (ii) changing the e-mail references therein from "cosborn@scotiacapital.com" to "lhanson@scotiacapital.com" with respect to the notice information for The Bank of Nova Scotia, and (iii) changing the notice information for KeyBank National Association as a Participant to read in its entirety as follows: KEYBANK NATIONAL ASSOCIATION 601 108th Ave. NE Belleview, Washington 98009-9027 Telephone: (425) 709-4571 Facsimile: (425) 709-4565 Email: tom_crandell@keybank.com (e) A new Schedule 8.3 is added immediately after Schedule 6.4 to ------------ ------------ read in its entirety as set forth on Attachment 4 hereto. ------------ (f) Schedule 10.01 is hereby renumbered "Schedule 10.2". -------------- (g) Appendix 1 to the Participation Agreement is amended to read in ----------------------------------------- its entirety as set forth on Attachment 5 hereto. ------------ (h) Exhibit Q to the Participation Agreement is amended to read in ---------------------------------------- its entirety as set forth on Attachment 6 hereto. ------------ 3. Representations and Warranties. The Lessee hereby represents and ------------------------------ warrants to the Agent and the Participants that the following are true and correct on the date of this Amendment and that, after giving effect to the amendment set forth in Paragraph 2 above, the following will be true and correct ----------- on the Effective Date (as defined below): (a) The representations and warranties of the Lessee set forth in Section 8.3 of the Participation Agreement and in the other Operative ------------------------------------------ Documents are true and correct in all 2 material respects as if made on such date (except for representations and warranties expressly made as of a specified date, which shall be true as of such date); (b) No Default has occurred and is continuing; (c) All of the Operative Documents are in full force and effect; (d) There has been no event or circumstance since the date of the Financial Statements of the Lessee and its Subsidiaries for the fiscal year ended March 31, 2000 which has a Material Adverse Effect; (e) Any material consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority required to be obtained or made in connection with the consummation of the HDD Redemption and Maxtor Merger have been duly obtained or made; (f) No litigation, investigation or proceeding of or before an arbitrator or Governmental Authority is pending, or to the knowledge of the Lessee after due and diligent investigation, threatened by or against the Lessee or any of its Subsidiaries or against any of their properties or revenues which in any manner challenges or seeks to prevent, enjoin, alter or delay the HDD Redemption or the Maxtor Merger; and (g) The Maxtor Merger Effective Time has occurred and the HDD Redemption has been consummated, each in accordance with the material terms of the Maxtor Merger Documents and on or before April 30, 2001. (Without limiting the scope of the term "Operative Documents," the Lessee expressly acknowledges in making the representations and warranties set forth in this Paragraph 3 that, on and after the date hereof, such term includes this ----------- Amendment.) 4. Effective Date. The amendments effected by Paragraph 2 above shall -------------- ----------- become effective upon the date (the "Effective Date") that the Lessor, the Agent -------------- and the Participants receives the following, each in form and substance satisfactory to the Agent, the Participants and their respective counsel: (a) This Amendment duly executed by the Lessor, the Lessee, each Participant and the Agent; (b) A First Amendment to Amended and Restated Master Lease Agreement in the form of Attachment 7 hereto, duly executed by the Lessee and the ------------ Lessor and appropriately notarized for recording; (c) A certificate of the Secretary or an Assistant Secretary of the Lessee attaching and certifying (i) that the resolutions of the Board of Directors of the Lessee, in the form delivered to the Agent on the Closing Date, are in full force and effect and have not been amended, supplemented, revoked or repealed since such date; and (ii) the incumbency and signature of persons authorized to execute and deliver on its behalf this Amendment; (d) A nonrefundable amendment fee to be paid to each Participant equal to .175% of each Participant's Commitment; 3 (e) All fees and expenses of the Lessor's and the Agent's counsels through the Effective Date, to the extent set forth in statements of such counsels delivered to the Lessee on or before the Effective Date; and (f) Such other evidence as the Lessor, the Agent or any Participant may reasonably request to establish the accuracy and completeness in all material respects of the representations and warranties and the compliance with the terms and conditions contained in this Amendment and the other Operative Documents. In addition, within a reasonable period of time (but in no event later than thirty (30) days after the Effective Date), the Lessee shall deliver to the Agent, the Lessor and the Participants (a) such endorsements as the Lessor and the Agent may reasonably request to each of (i) the ALTA owner's title insurance policy issued in connection with the closing of the Amended and Restated Participation Agreement, and (ii) the ALTA lender's title insurance policy issued in connection with the closing of the Amended and Restated Participation Agreement; and (b) a favorable written opinion of (i) Wilson Sonsini Goodrich & Rosati, California counsel to the Lessee, and (ii) local counsel licensed to practice in Colorado, in each case addressed to the Agent for the benefit of the Agent, the Lessor and the Participants, covering such legal matters as the Agent may reasonably request and otherwise in form and substance satisfactory to Agent. 5. Effect of this Amendment. On and after the Effective Date, each ------------------------ reference in the Participation Agreement and the other Operative Documents to the Participation Agreement shall mean the Participation Agreement as amended hereby. Except as specifically amended above, (a) the Participation Agreement and the other Operative Documents shall remain in full force and effect and are hereby ratified and affirmed and (b) the execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power, or remedy of the Participants or the Agent, nor constitute a waiver of any provision of the Participation Agreement or any other Operative Document. 6. Miscellaneous. ------------- (a) Counterparts. This Amendment may be executed in any number of ------------ identical counterparts, any set of which signed by all the parties hereto shall be deemed to constitute a complete, executed original for all purposes. (b) Headings. Headings in this Amendment are for convenience of -------- reference only and are not part of the substance hereof. (c) Governing Law. THIS AMENDMENT SHALL IN ALL RESPECTS BE GOVERNED BY ------------- THE LAW OF THE STATE OF ILLINOIS (EXCLUDING ANY CONFLICT-OF-LAW OR CHOICE- OF-LAW RULES WHICH MIGHT LEAD TO THE APPLICATION OF THE INTERNAL LAWS OF ANY OTHER JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. 4 IN WITNESS WHEREOF, the Lessee, the Lessor, the Agent and the Participants have caused this Amendment to be executed as of the day and year first above written. THE LESSEE: QUANTUM CORPORATION By: /s/ Richard L. Clemmer Name: Richard L. Clemmer Title: Executive Vice President Finance and Chief Financial Officer THE LESSOR: SELCO SERVICE CORPORATION By:_____________________________________ Name: ______________________________ Title: ______________________________ THE AGENT: THE BANK OF NOVA SCOTIA By:_____________________________________ Name: ______________________________ Title: ______________________________ THE PARTICIPANTS: THE BANK OF NOVA SCOTIA By:_____________________________________ Name: ______________________________ Title: ______________________________ KEYBANK NATIONAL ASSOCIATION By:_____________________________________ Name: _______________________________ Title: ______________________________ 5 SELCO SERVICE CORPORATION By:_____________________________________ Name: ______________________________ Title: ______________________________ UNION BANK OF CALIFORNIA, N.A. By:_____________________________________ Name: ______________________________ Title: ______________________________ 6 ATTACHMENT 1 ------------ Revised Section 8.3 ------------------- SECTION 8.3 Representations of the Lessee. The Lessee represents and ----------------------------- warrants to each of the other parties hereto that: (a) Corporate Status. The Lessee (i) is a corporation duly organized, ---------------- validly existing and in good standing under the laws of the State of Delaware and (ii) has duly qualified and is authorized to do business and has obtained a certificate of authority to transact business as a foreign corporation in the States of California and Colorado and in each other jurisdiction where the failure to so qualify is reasonably likely to be Material. (b) Corporate Power and Authority. As of their respective dates of ----------------------------- execution, the Lessee has corporate power and authority to execute, deliver and carry out the terms and provisions of the Operative Documents, the Maxtor Merger Documents and the Snap Spin-Off Documents to which it is or will be a party and has taken all necessary corporate action to authorize the execution, delivery and performance of such documents to which it is or will be a party and has or will have duly executed and delivered each such document required to be executed and delivered by it and, assuming the due authorization, execution and delivery thereof on the part of each other party thereto, each such document constitutes or will constitute a legal, valid and binding obligation enforceable against it in accordance with its terms, except as the same may be limited by insolvency, bankruptcy, reorganization or other laws relating to or affecting the enforcement of creditors' rights or by general equitable principles. (c) No Violation. Neither the execution, delivery and performance by ------------ the Lessee of the Operative Documents, the Maxtor Merger Documents or the Snap Spin-Off Documents to which it is or will be a party nor compliance with the terms and provisions thereof, nor the consummation by the Lessee of the transactions contemplated therein (i) will result in a violation by the Lessee of any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality having jurisdiction over the Lessee or the Property that would (x) adversely affect the validity or enforceability of such documents to which the Lessee is a party, or the title to, or value or condition of, the Property, or (y) have a Material Adverse Effect on the consolidated financial position, business or consolidated results of operations of the Lessee, or (z) have an adverse effect on the ability of the Lessee to perform its obligations under such documents, (ii) will conflict with or result in any breach under, or (other than pursuant to the Operative Documents) result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of Lessee pursuant to the terms of, any indenture, loan agreement or other agreement for borrowed money to which the Lessee is a party or by which it or any of its property or assets is bound or to which it may be subject (other than Permitted Liens), or (iii) will violate any provision of the certificate or articles of incorporation or bylaws of the Lessee. (d) Litigation. Except as set forth on Schedule 8.3, there are no ---------- ------------ actions, suits or proceedings pending or, to the knowledge of the Lessee, threatened (i) that are reasonably likely to have a Material Adverse Effect or (ii) that question the validity of the Operative Documents or the rights or remedies of the Lessor, the Agent or the Participants with respect to the Lessee or the Property under the Operative Documents. [1]-1 (e) Governmental Approvals. No Governmental Action by any ---------------------- Governmental Authority having jurisdiction over the Lessee or the Property is required to authorize or is required in connection with (i) the execution, delivery and performance by the Lessee of any Operative Document or (ii) the legality, validity, binding effect or enforceability against the Lessee of any Operative Document, except for the filing or recording of the Operative Documents listed in Section 8.4(f) hereof with the appropriate Governmental Authorities, all of which will have been completed on or prior to the Land Interest Acquisition Date. (f) Investment Company Act. The Lessee is not an "investment company" ---------------------- or a company "controlled" by an "investment company," within the meaning of the Investment Company Act. (g) Public Utility Holding Company Act. The Lessee is not a "holding ---------------------------------- company, or a "subsidiary company," or an "affiliate" of a "holding company", or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. (h) Accuracy of Information Furnished. None of the Operative --------------------------------- Documents and none of the other certificates, statements or information furnished to the Lessor, the Agent or any Participant by or on behalf of the Lessee or any of its Subsidiaries in connection with the Operative Documents or the transactions contemplated thereby (taken together with all such Operative Documents, certificates, statements or information) contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood by the Lessor, the Agent or any Participant that the projections and forecasts provided by the Lessee are not to be viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results). (i) Taxes. All United States federal income tax returns and all other ----- Material tax returns which are required to have been filed have been or will be prepared in accordance with applicable law and filed by or on behalf of the Lessee by the respective due dates, including extensions, and all taxes due with respect to the Lessee pursuant to such returns or pursuant to any assessment received by the Lessee have been or will be paid. The charges, accruals and reserves on the books of the Lessee in respect of taxes or other governmental charges are, in the opinion of the Lessee, adequate. (j) Compliance with ERISA. Each member of the ERISA Group has --------------------- fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all Material respects with the presently applicable provisions of ERISA and the Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. [1]-2 (k) Environmental and Other Regulations. Except as set forth in ----------------------------------- Schedule III attached hereto, the Lessee and the Property are in compliance with all Environmental Laws relating to pollution and environmental control or employee safety in the jurisdiction in which the Property is located and in all other domestic jurisdictions, other than, with respect to such other jurisdictions, those Environmental Laws the non-compliance with which would not have a Material Adverse Effect. (l) Offer of Securities, etc. Neither the Lessee nor the Guarantor ------------------------- nor any Person authorized to act on their behalf has, directly or indirectly, offered any interest in the Property or the Lease or any other interest similar thereto (the sale or offer of which would be integrated with the sale or offer of such interest in the Property or the Lease), for sale to, or solicited any offer to acquire any of the same from, any Person other than the Participants, the Lessor and other "accredited investors" (as defined in Regulation D of the Securities and Exchange Commission). (m) Financial Statements. The audited consolidated statement of -------------------- financial position of the Lessee and its consolidated Subsidiaries as of March 31, 1997 and the related consolidated statements of income, shareholder's equity and cash flows for the fiscal year then ended, reported on by Ernst & Young, LLP, a copy of which has been delivered to each of the Lessor, the Participants and the Agent, present fairly in all material respects, in conformity with generally accepted accounting principles, the financial position of the Lessee as of such date and its results of operations and cash flows for such fiscal year. (n) DSS Combined Financial Statements. The DSS Combined Financial --------------------------------- Statements filed by the Lessee with the Securities and Exchange Commission together with its 10-Q quarterly report for the fiscal quarter ended December 31, 2000 (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except for the absence of footnotes thereto and as otherwise expressly noted therein; (ii) fairly present the financial condition of the DSS Business on a stand-alone basis as of the date thereof and the results of operations of such business for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except for the absence of footnotes thereto and as expressly noted therein, and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Lessee and its Subsidiaries relating to the DSS Business as of the date thereof, including liabilities for taxes, material commitments and Indebtedness, in accordance with GAAP consistently applied throughout the period covered thereby. (o) No Violation or Default. Neither the Lessee nor any of the ----------------------- Lessee's Subsidiaries is in violation of or in default with respect to (i) any Requirement of Law applicable to such Person or (ii) any Contractual Obligation of such Person, where, in each case, such violation or default is reasonably likely to have a Material Adverse Effect. Without limiting the generality of the foregoing, neither the Lessee nor any of the Lessee's Subsidiaries (A) is in violation of any Environmental Laws, (B) to the best of the Lessee's knowledge, has any liability or potential liability under any Environmental Laws or (C) has received written notice or other written communication of an investigation or is under investigation by any Governmental Authority having jurisdiction over the Lessee or any of the Lessee's Subsidiaries having authority to enforce Environmental Laws, where, in each case, such violation, liability or investigation could reasonably be expected to have a Material Adverse Effect, nor, to the best of the Lessee's knowledge, have any Hazardous Materials been released or disposed of on any of [1]-3 the properties owned by the Lessee or the Lessee's Subsidiaries which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. No Event of Default or Default has occurred and is continuing. (p) Title; Possession Under Leases. The Lessee and the Lessee's ------------------------------ Subsidiaries (i) own and have good title (without regard to minor defects of title), or leasehold interests in, all their other respective properties and assets which are material to the business of the Lessee and its Subsidiaries taken as a whole as reflected in the most recent Financial Statements delivered to the Agent (except those assets and properties disposed of since the date of such Financial Statements in compliance with this Participation Agreement) and (ii) own and have good title (without regard to minor defects of title) to, or leasehold interests in, all respective properties and assets acquired by the Lessee and the Lessee's Subsidiaries since such date which are material to the business of the Lessee and its Subsidiaries taken as a whole (except those assets and properties disposed of in compliance with this Participation Agreement). Such assets and properties are subject to no Lien, except for Permitted Liens. (q) Patent and Other Rights. The Lessee and the Lessee's Subsidiaries ----------------------- own or license under validly existing agreements (or could obtain such ownership, possession or license on terms not materially adverse to the Lessee and its Subsidiaries, taken as a whole, and under circumstances that could not reasonably be expected to have a Material Adverse Effect), and have the full right to license without the consent of any other Person, all patents, licenses, trademarks, trade names, trade secrets, service marks, copyrights and all rights with respect thereto, which are material to conduct the businesses of the Lessee and its Subsidiaries (taken as a whole) as now conducted. (r) Solvency, Etc. The Lessee and each of its Material Subsidiaries -------------- is Solvent and, after the execution and delivery of the Operative Documents and the consummation of the transactions contemplated thereby, will be Solvent. (s) Catastrophic Events. Neither the Lessee nor any of the Lessee's ------------------- Subsidiaries and none of their properties is affected by any fire, explosion, strike, lockout or other labor dispute, earthquake, embargo or other casualty that is reasonably likely to have a Material Adverse Effect. As of the Closing Date, there are no disputes presently subject to grievance procedure, arbitration or litigation under any of the collective bargaining agreements, employment contracts or employee welfare or incentive plans to which the Lessee or any of the Lessee's Subsidiaries is a party, an there are no strikes, lockouts, work stoppages or slowdowns, or, to the best knowledge of the Lessee, jurisdictional disputes or organizing activities occurring or threatened which alone or in the aggregate are reasonably likely to have a Material Adverse Effect. (t) Maxtor Merger Matters. --------------------- (i) The Maxtor Merger Agreement and the other Maxtor Merger Documents have been duly executed by each of the parties thereto and are enforceable in accordance with their terms by and against all such parties. Such agreements have not been amended, modified or supplemented since their respective dates of execution in any manner that could reasonably be expected to be materially adverse to the Lessor or the Participants. [1]-4 (ii) All material conditions precedent to the effectiveness of the Maxtor Merger have been satisfied (or, with respect to conditions precedent to Maxtor's obligations thereunder, waived by Maxtor) and the Maxtor Merger has been consummated in accordance with the terms of the Maxtor Merger Agreement. The HDD Redemption has been duly authorized by and on behalf of the Lessee and has been consummated in accordance with the terms of the Maxtor Merger Agreement and the other Maxtor Merger Documents. (iii) Pursuant to the Maxtor Merger Documents, Maxtor is legally obligated to indemnify the Lessee and the Lessee's Subsidiaries to the extent set forth therein. Maxtor has not disputed, disclaimed or breached in any material respect such indemnification obligations. (u) Snap Spin-Off Matters. --------------------- (i) As of the dates of the Snap Spin-Off Documents, each, respectively, will be duly executed by each of the parties thereto in a form substantially identical to the form thereof filed as an exhibit to the Snap Appliances S-1 and will be enforceable in accordance with its terms by and against all parties thereto and, as of any date subsequent thereto, such agreements will not have been amended, modified or supplemented in any manner that could reasonably be expected to be materially adverse to the Lessor or the Participants. (ii) As of the date of the consummation of the Snap Spin-Off, all material conditions precedent to the effectiveness of the Snap Spin-Off will have been satisfied and the Snap Spin-Off will have been consummated in accordance with the terms of the Snap Spin-Off Documents. (iii) As of the dates of the Snap Spin-Off Documents, Snap Appliances will be legally obligated to indemnify the Lessee and the Lessee's Subsidiaries to the extent set forth therein. (iv) Prior to the consummation of the Snap Spin-Off, any material consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority required to be obtained or made in connection with the consummation of the Snap Spin-Off will have been duly obtained or made. (v) Immediately prior to the consummation of the Snap Spin-Off, no litigation, investigation or proceeding of or before an arbitrator or Governmental Authority will be pending, or to the knowledge of the Lessee after due and diligent investigation, threatened by or against the Lessee or any of its Subsidiaries or against any of their properties or revenues which in any manner challenges or seeks to prevent, enjoin, alter or delay the consummation of the Snap Spin-Off. (vi) Prior to the consummation of the Snap Spin-Off, the Lessee shall have obtained a private letter ruling from the IRS to the effect that the distribution to the Lessee's shareholders of all or substantially all of shares of Snap Appliances held by the Lessee will constitute a tax-free reorganization under the Code. [1]-5 (v) Disclosure. ---------- (i) No statement, information, report, representation, or warranty made by the Lessee in any Operative Document or furnished to the Agent, the Lessor or any Participant in connection with any Operative Document contains any untrue statement of a material fact or, when viewed together with the Lessee's periodic reports filed under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, omits to state any material fact necessary to make the statements herein or therein not misleading. (ii) None of the information supplied or to be supplied by the Lessee or any of its Subsidiaries for inclusion or incorporation by reference in: (A) the Maxtor Merger S-4 or the Snap Appliances S-1 will at the time such registration statement is declared or ordered effective under the Securities Act of 1933, as amended, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading; and (B) the proxy statement of the Lessee contained in the Maxtor Merger S-4 shall not, on the date such proxy statement is first mailed to the stockholders of the Lessee, at the time of the meeting of the Lessee's stockholders called for therein and at the Maxtor Merger Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for such stockholders' meeting which has become false or misleading. The proxy statement of the Lessee contained in the Maxtor Merger S-4 will comply as to form in all material respects with the provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Notwithstanding the foregoing, the Lessee makes no representation or warranty with respect to any information supplied by Maxtor which is contained in any of the foregoing documents. [1]-6 ATTACHMENT 2 ------------ Revised Section 10.1 -------------------- SECTION 10.1 Affirmative Covenants of the Lessee. So long as this ----------------------------------- Participation Agreement is in effect, the Lessee shall, and shall (except in the case of the Lessee's reporting covenants) cause each Subsidiary, to: (a) Financial Statements. Deliver to the Agent and each Participant, -------------------- in form and detail satisfactory to the Agent and the Required Participants: (i) as soon as available, but in any event within ninety (90) days after the end of each fiscal year of the Lessee, or, if the Lessee has been granted an extension by the Securities and Exchange Commission permitting the late filing by the Lessee of any annual report on form 10-K, the earlier of (x) 120 days after the end of each fiscal year of the Lessee or (y) the last day of any such extension, (A) a consolidated balance sheet of the Lessee and its Subsidiaries as at the end of such fiscal year, and the related consolidated statements of income and cash flows for such fiscal year, and (B) in respect of any period (or partial period) prior to the Maxtor Merger Effective Time, DSS Combined Financial Statements for such year-end; in each case setting forth in comparative form the figures for the previous fiscal year, all in reasonable detail, audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing, which report and opinion shall be prepared in accordance with GAAP and shall not be subject to any qualifications or exceptions as to the scope of the audit nor to any qualifications and exceptions not reasonably acceptable to the Required Participants; (ii) as soon as available, but in any event within forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year of the Lessee, or, if the Lessee has been granted an extension by the Securities and Exchange Commission permitting the late filing by the Lessee of any quarterly report on form 10-Q, the earlier of (x) sixty (60) days after the end of each of the first three fiscal quarters of each fiscal year of the Lessee or (y) the last day of any such extension, (A) a consolidated balance sheet of the Lessee and its Subsidiaries as at the end of such fiscal quarter, and the related consolidated statements of income and cash flows for such fiscal quarter and for the portion of the Lessee's fiscal year then ended, and (B) in respect of any period (or partial period) prior to the Maxtor Merger Effective Time, DSS Combined Financial Statements for such quarter end; in each case setting forth in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail and certified by a Responsible Officer of the Lessee as fairly presenting the financial condition, results of operations and cash flows of the Lessee and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes; and (iii) Reports required to be delivered pursuant to clauses (i) ----------- and (ii) of this Section 10.1(a) shall be deemed to have been delivered on -------------------------------- the date on which the Lessee posts such reports on the Lessee's website on the Internet at the website address listed on Schedule III hereof or when ------------ such report is posted on the Securities and Exchange Commission's website at www.sec.gov.; provided that (A) the Lessee shall -------- [2]-1 deliver paper copies of the reports referred to in such clauses (i) and (ii) of this Section 10.1(a) to the Agent or any Participant who requests the Lessee to deliver such paper copies until written request to cease delivering paper copies is given by the Agent or such Participant, (B) the Lessee shall notify the Agent and the Participants of the posting of any such new material, and (C) in every instance the Lessee shall provide paper copies of the Compliance Certificates required by clause (i) of Section --------------------- 10.1(b) to the Agent and each Participant. Except for the Compliance ------- Certificates referred to in such clause (i) of Section 10.1(b), the Agent ----------------------------- shall have no obligation to request the delivery or to maintain copies of the reports referred to in clauses (i) and (ii) of this Section 10.1(a), -------------------------------------------- and in any event shall have no responsibility to monitor compliance by the Lessee with any such request for delivery, and each Participant shall be solely responsible for requesting delivery to it or maintaining its copies of such reports. (b) Certificates, Notices and Other Information. Deliver to the ------------------------------------------- Agent and each Participant, in form and detail satisfactory to the Agent and the Required Participants: (i) concurrently with the delivery of the financial statements referred to in clauses (i) and (ii) of Section 10.1(a), a duly completed --------------------------------------- Compliance Certificate signed by a Responsible Officer of the Lessee; (ii) promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of the Lessee, and copies of all annual, regular, periodic and special reports and registration statements which the Lessee may file or be required to file with the Securities and Exchange Commission under Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and not otherwise required to be delivered to the Agent pursuant hereto; (iii) promptly after the occurrence thereof, notice of any Default or Event of Default; (iv) notice of any change in accounting policies or financial reporting practices by the Lessee or any Subsidiary that is material to the Lessee or to the Lessee and its Subsidiaries on a consolidated basis; (v) promptly after the commencement thereof, notice of any litigation, investigation or proceeding affecting the Lessee where the reasonably expected damages to the Lessee exceed the Threshold Amount, or in which injunctive relief or similar relief is sought, which relief, if granted, has a Material Adverse Effect; (vi) promptly after the occurrence thereof, notice of any Reportable Event with respect to any Plan or the intent to terminate any Plan, or the institution of proceedings or the taking or expected taking of any other action to terminate any Plan or withdraw from any Plan; (vii) promptly after the occurrence thereof, notice of any Material Adverse Effect; [2]-2 (viii) promptly after the occurrence thereof, notice of (i) any material amendment of or supplement to, or the occurrence of any material breach under, any of the Maxtor Merger Documents or the Snap Spin-Off Documents, and (ii) the consummation of each step in the Snap Spin-Off; and (ix) promptly, such other data and information as from time to time may be reasonably requested by the Agent, or, through the Agent or any Participant. Notwithstanding any provision of this Participation Agreement to the contrary, so long as no Default or Event of Default shall have occurred and be continuing, neither the Lessee nor any of its Subsidiaries shall be required to disclose, permit the inspection, examination, photocopying or making extracts of, or discuss, any document, information or other matter that (A) constitutes non-financial trade secrets or non- financial proprietary information, or (B) the disclosure of which to any Participant, or their designated representative, is then prohibited by law or any agreement binding on the Lessee or any of its Subsidiaries that was not entered into by the Lessee or any such Subsidiary for the purpose of concealing information from the Participants. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of the Lessee setting forth details of the occurrence referred to therein and stating what action the Lessee has taken and proposes to take with respect thereto. (c) Payment of Taxes. Pay and discharge when due all material taxes, ---------------- assessments, and governmental charges, except for any such tax, assessment, charge, or levy which is an Ordinary Course Lien under subsection (b) of the -------------- definition of such term and except as otherwise provided in Section 13 hereof or ---------- Article XIII of the Lease. - ------------ (d) Preservation of Existence. Preserve and maintain its existence, ------------------------- licenses, permits, rights, franchises and privileges necessary or desirable in the normal conduct of its business, except (i) as permitted by Section 10.2(c), --------------- or (ii) where failure to do so does not have a Material Adverse Effect. (e) Maintenance of Properties. Maintain, preserve and protect all of ------------------------- its material properties and equipment necessary in the operation of its business in good order and condition, subject to wear and tear in the ordinary course of business, and not permit any waste of its properties, except where failure to do so would not reasonably be expected to have a Material Adverse Effect. (f) Maintenance of Insurance. Maintain liability and casualty ------------------------ insurance with responsible insurance companies satisfactory to the Agent in such amounts and against such risks as is customary for similarly situated businesses. (g) Compliance with Requirements of Law. (i) Comply with all ----------------------------------- Requirements of Law, noncompliance with which has a Material Adverse Effect; and (ii) conduct its operations and keep and maintain its property in material compliance with all Environmental Laws. (h) Inspection Rights. At any time during regular business hours and ----------------- as often as reasonably requested upon reasonable notice, permit the Agent or any Participant, or any employee, agent or representative thereof, to examine, audit and make copies and abstracts from [2]-3 the Lessee's records and books of account and to visit and inspect its properties and to discuss its affairs, finances and accounts with any of its officers and key employees, and, upon request, furnish promptly to the Agent or any Participant true copies of all financial information and internal management reports made available to their senior management. (i) Keeping of Records and Books of Account. Keep adequate records --------------------------------------- and books of account reflecting all financial transactions in conformity with GAAP, consistently applied, and in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over the Lessee or any applicable Subsidiary. (j) Compliance with ERISA. Cause, and cause each of its ERISA --------------------- Affiliates to: (i) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law; (ii) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; and (iii) make all required contributions to any Plan subject to Section 412 of the Code. (k) Compliance with Agreements. Promptly and fully comply with all -------------------------- Contractual Obligations to which any one or more of them is a party, except for any such Contractual Obligations (i) the nonperformance of which would not cause a Default or Event of Default, (ii) then being contested by any of them in good faith by appropriate proceedings, or (iii) if the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect. [2]-4 ATTACHMENT 3 ------------ New Section 10.2 ---------------- SECTION 10.2 Negative Covenants of the Lessee. So long as this -------------------------------- Participation Agreement is in effect, the Lessee shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (a) Indebtedness. Create, incur, assume or suffer to exist any ------------ Indebtedness, except for the following ("Permitted Indebtedness"): ------ ---------------------- (i) The obligations of the Lessee under the Operative Documents; (ii) Indebtedness outstanding on the date hereof and listed on Schedule 10.2 and any refinancings, refundings, renewals or extensions ------------- thereof, provided that the amount of such Indebtedness is not increased at -------- the time of such refinancing, refunding, renewal or extension except by an amount equal to the premium or other amount paid, and fees and expenses incurred, in connection with such refinancing and by an amount equal to any utilized commitments thereunder; (iii) Ordinary Course Indebtedness; (iv) Indebtedness of the Lessee under the Convertible Subordinated Debentures; (v) Indebtedness of the Lessee and its Subsidiaries under loans and Capital Leases incurred by the Lessee or any of its Subsidiaries to finance the acquisition by such Person of real property, improvements, fixtures, equipment or other fixed assets (together with attachments, ascensions, additions, "soft costs" and proceeds thereof), provided that in each case, (A) such Indebtedness is incurred by such Person at the time of, or not later than six (6) months after, the acquisition by such Person of the property so financed, and (B) such Indebtedness does not exceed the purchase price of the property so financed; (vi) Indebtedness of the Lessee and any of its Subsidiaries under Synthetic Lease Obligations incurred by such Person; (vii) Indebtedness of the Lessee and its Subsidiaries under initial or successive refinancings, refundings, renewals or extensions of any Indebtedness permitted by clauses (v) and (vi) above, provided that the -------------------- -------- amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to the premium or other amount paid, and fees and expenses incurred, in connection with such refinancing; (viii) Indebtedness of the Lessee and its Subsidiaries in respect of any Permitted Receivables Facility; (ix) Indebtedness of the Lessee to any of the Lessee's Subsidiaries, Indebtedness of any of the Lessee's Subsidiaries (other than Snap Appliances, except as [3]-1 permitted pursuant to Section 10.02(e)(ix)) to the Lessee or Indebtedness --------------------- of any of the Lessee's Subsidiaries (other than Snap Appliances, except as permitted pursuant to Section 10.02(e)(ix)) to any of the Lessee's other --------------------- Subsidiaries; (x) Subordinated Indebtedness of the Lessee to any Person, provided that (A) such Indebtedness contains subordination provisions no -------- less favorable to the Agent and the Participants than those set forth in Exhibit R or as otherwise approved by the Required Participants and (B) the --------- aggregate principal amount of all Subordinated Debt of the Lessee outstanding (including the Convertible Subordinated Debentures) does not exceed $350,000,000 at any time; (xi) Indebtedness not exceeding, in the aggregate at any time, ten percent (10%) of the total consolidated assets of the Lessee and its Subsidiaries determined as of the end of the most recent fiscal quarter; provided that if such fiscal quarter end date is prior to the Maxtor Merger -------- Effective Time, such Indebtedness shall not exceed 10% of the combined assets of DSS, based upon the most recent DSS Combined Financial Statements; and (xii) Indebtedness in the form of Guarantee Obligations set forth in the terms of the Maxtor Merger Agreement. (b) Liens. Incur, assume or suffer to exist, any Lien upon any of its ----- property, assets or revenues, whether now owned or hereafter acquired, except for the following ("Permitted Liens"): --------------- (i) Liens in favor of any of the Agent or any Participant securing the obligations of the Lessee under the Operative Documents; (ii) Liens existing on the date hereof and listed on Schedule -------- 10.2 and any renewals or extensions thereof, provided that the property ---- -------- covered thereby is not increased and any renewal or extension of the obligations secured or benefited thereby is permitted by Section 10.2(a); --------------- (iii) Ordinary Course Liens; (iv) Liens granted by a person securing Investments of such Person which constitute Permitted Investments under Section 10.2(e); --------------- (v) Liens on cash or cash equivalents securing reimbursement obligations of the Lessee under letters of credit (other than any letters of credit issued under the Loan Documents) in an aggregate amount of all such cash and cash equivalents not to exceed $50,000,000; (vi) Liens in respect of accounts receivable and any related property that are the subject of a Permitted Receivables Facility; (vii) Liens on the property or assets of any corporation which becomes a Subsidiary of the Lessee after the date of this Participation Agreement, provided that -------- [3]-2 (A) such Liens exist at the time such corporation became a Subsidiary, and (B) such Liens were not created in contemplation of such acquisition by the Lessee; (viii) Rights of vendors or lessors under conditional sale agreements, Capital Leases or other title retention agreements, provided -------- that in each case, (A) such rights secure or otherwise relate to Permitted Indebtedness, (B) such rights do not extend to any property other than property acquired with the proceeds of such Permitted Indebtedness (together with accessions, additions, replacements and proceeds thereof), and (z) such rights do not secure any Indebtedness other than Permitted Indebtedness; (ix) Liens securing Indebtedness and any related obligations of the Lessee or any of its Subsidiaries which constitutes Permitted Indebtedness under clause (vi) of Section 10.2(a) (or refinancings of such ------------------------------ Indebtedness under clause (vii) of Section 10.2(a)), provided that such -------------------------------- -------- Liens cover only those assets subject to Synthetic Lease Obligations (together with accessions, additions, replacements and proceeds thereof); (x) Liens incurred in connection with leases, subleases, licenses and sublicenses granted to Persons not interfering in any material respect with the business of the Lessee and its Subsidiaries and any interest or title of a lessee or licensee under any such leases, subleases, licenses or sublicenses; (xi) Liens in favor of the Lenders in connection with the letter of credit cash collateral account established in accordance with the Loan Documents; and (xii) Liens not otherwise permitted hereunder on the property or assets of the Lessee and any of its Subsidiaries securing (A) borrowed money Indebtedness of the Person granting such Lien, (B) all obligations of the Lessee arising other than in connection with any securitization which are evidenced by bonds, debentures, notes or other similar instruments, or (C) Indebtedness consisting of letter of credit reimbursement obligations, provided that, in each case, (x) the aggregate principal amount of all -------- Indebtedness secured by such Liens does not exceed at any time ten percent (10%) of the total assets of the Lessee and its Subsidiaries determined as of the end of the fiscal quarter immediately preceding the date of determination (provided that if such fiscal quarter end date is prior to -------- the Maxtor Merger Effective Time, the aggregate principal amount of all Indebtedness secured by such Liens shall not exceed 10% of the combined assets of DSS, based upon the most recent DSS Combined Financial Statements) and (y) such Liens do not encumber current assets of the Lessee and its Subsidiaries in excess of $50,000,000. (c) Fundamental Changes. Merge or consolidate with or into any Person ------------------- or liquidate, wind-up or dissolve itself, or permit or suffer any liquidation or dissolution or sell all or substantially all of its assets, except that: ------ (i) any Subsidiary may merge with (A) the Lessee, provided -------- that the Lessee shall be the continuing or surviving corporation, (B) any one or more Subsidiaries, and (C) any joint venture, partnership or other Person, so long as such joint venture, partnership and other Person will, as a result of making such merger and all other contemporaneous related transactions, become a Subsidiary; [3]-3 (ii) any Subsidiary may sell all or substantially all of its assets (upon voluntary liquidation or otherwise), to the Lessee or to another Subsidiary; (iii) the Lessee may merge with any other corporation, provided -------- that (A) the Lessee is the surviving corporation, and (B) immediately after giving effect to such merger, no Default or Event of Default shall have occurred and be continuing; (iv) any Subsidiary may merge or consolidate with or into any other Person or sell all or substantially all of its assets to the extent such transaction is a Disposition otherwise permitted under Section 10.2(d) --------------- or an Investment otherwise permitted under Section 10.2(e) and immediately --------------- after giving effect to such merger or consolidation, no Default or Event of Default shall have occurred and be continuing; and (v) Spinco may merge with Maxtor pursuant to and as set forth in Section 2.2 of the Maxtor Merger Agreement. (d) Dispositions. Make any Dispositions, except: ------------ (i) Ordinary Course Dispositions; (ii) Dispositions permitted by Section 10.2(c); --------------- (iii) Dispositions which constitute the making of or liquidation of Permitted Investments; (iv) Dispositions to Snap Appliances of assets and liabilities of the Lessee related to the Snap Business pursuant to the Snap Spin-Off Documents that are permitted pursuant to Section 10.2(e); --------------- (v) Disposition of Snap Appliances stock permitted by Section ------- 10.2(f)(vi); ----------- (vi) Dispositions not otherwise permitted hereunder not exceeding twenty percent (20%) of Consolidated Tangible Net Worth for the four fiscal quarter period ending as of the end of the fiscal quarter immediately preceding the date of determination, other than Dispositions by the Lessee or any Subsidiary to Snap Appliances or relating to stock of Snap Appliances; (vii) Dispositions of accounts receivables and any related property that are the subject of a Permitted Receivables Facility by the Lessee and its Subsidiaries; and (viii) Dispositions of the HDD Business pursuant to the Maxtor Merger Documents and ancillary documents executed contemporaneously therewith. (e) Investments. Make any Investments, except for the following ----------- ("Permitted Investments"): (i) Investments existing on March 31, 2000; (ii) Ordinary Course Investments; [3]-4 (iii) Investments permitted by Section 10.2(a) or Section --------------- ------- 10.2(c); ------- (iv) Investments arising from rights received by the Lessee and its Subsidiaries upon the required payment of any permitted contingent obligations of the Lessee and its Subsidiaries; (v) Investments in the nature of Acquisitions, provided that the aggregate amount of such Acquisitions in any period of four consecutive fiscal quarters does not exceed twenty percent (20%) of Consolidated Tangible Net Worth as determined as of the fiscal quarter immediately preceding the date of determination; (vi) Investments of the Lessee and its Subsidiaries in Swap Contracts, provided that all such arrangements are entered into in connection with bona fide hedging operations and not for speculation; (vii) Investments by Quantum Technology Ventures (or any other Subsidiary of the Lessee with the primary purpose of making venture investments) and other Investments which the Lessee's Board of Directors determines to be strategic for the Lessee in an aggregate cost basis, at any time invested for all such entities and investments together, not to exceed the sum of (A) $150,000,000 and (B) the aggregate gain or loss on such Investments previously made under this clause (vii); ------------ (viii) Investments not otherwise permitted hereunder, provided -------- that the aggregate amount of such other Investments made after March 31, 2000 (less any return on any such Investments) does not exceed twenty percent (20%) of Consolidated Tangible Net Worth as determined as of the fiscal quarter immediately preceding the date of determination; and (ix) Investments in Snap Appliances from and after the First Amendment Effective Date but prior to the consummation of the Snap Spin-Off in an aggregate amount not exceeding $100,000,000. (f) Restricted Payments. Make any Restricted Payments, except as ------------------- ------ follows: (i) (a) the Lessee may pay dividends or other distributions payable solely in shares of capital stock of the Lessee and (b) any Subsidiary of the Lessee may make Restricted Payments to (A) the Lessee or (B) any other Subsidiary of the Lessee (other than Snap Appliances, except that any Subsidiary of Snap Appliances may make Restricted Payments to Snap Appliances); (ii) the Lessee may distribute rights pursuant to a shareholder rights plan or redeem such rights, provided that such -------- redemption is in accordance with the terms of such shareholder rights plan; (iii) the Lessee may make Restricted Payments in connection with or pursuant to any of its Employee Benefits Plans or in connection with the employment, termination or compensation of its employees, officers or directors; [3]-5 (iv) the Lessee may make Restricted Payments with the Net Security Proceeds received from a substantially concurrent issuance of Equity Securities or capital stock or with its Equity Securities or capital stock or the Lessee may convert any Equity Securities in accordance with their terms into other Equity Securities; (v) the Lessee may purchase Equity Securities pursuant to one or more stock repurchase programs, provided that (A) no Default or Event of -------- Default shall have occurred and be continuing, and (B) after giving effect to any such repurchases the Lessee shall be in compliance with Section ------- 10.2(e); ------- (vi) the Lessee may, on or before the date twelve months subsequent to the First Amendment Effective Date, dividend or distribute to its shareholders all or substantially all stock of Snap Appliances held by it pursuant to the Snap Spin-Off, provided there exists no Default or Exist of Default; and (vii) the Lessee may declare or pay any dividends in respect of its Equity Securities or purchase or redeem shares of its Equity Securities or make distributions to shareholders not otherwise permitted hereunder, provided that the aggregate amount paid or distributed in any period of -------- four consecutive quarters (excluding any amounts covered by clause (ii) ----------- above) does not exceed five percent (5%) of Consolidated Tangible Net Worth as determined as of the fiscal quarter immediately preceding the date of determination. (g) ERISA. At any time engage in a transaction which could be ----- subject to Sections 4069 or 4212(c) of ERISA, or permit any Pension Plan to (i) engage in any non-exempt "prohibited transaction" (as defined in Section 4975 of the Code); (ii) fail to comply with ERISA or any other applicable Requirements of Law; or (iii) incur any material "accumulated funding deficiency" (as defined in Section 302 of ERISA), which, with respect to each event listed above, has a Material Adverse Effect. (h) Change in Nature of Business. Engage, either directly or ---------------------------- indirectly through Affiliates, in any line of business other than the digital storage business, any other business incidental or reasonably related thereto, or any businesses that are, as determined by the Board of Directors of the Lessee, appropriate extensions thereof. (i) Transactions with Affiliates. Enter into any transaction of any ---------------------------- kind with any Affiliate (other than transactions among the Lessee or any of its Subsidiaries and any Subsidiary) of the Lessee other than arm's-length transactions with Affiliates that are otherwise permitted hereunder. (j) Certain Indebtedness Payments, Etc. Pay, prepay, redeem, ----------------------------------- purchase, defease or otherwise satisfy in any manner prior to the scheduled payment thereof any Subordinated Debt except as otherwise permitted under this Section 10.2(j); amend, modify or otherwise change the terms of any document, - --------------- instrument or agreement evidencing Subordinated Debt such that such amendment, modification or change would (i) cause the outstanding aggregate principal amount of all such Subordinated Debt so amended, modified or changed to be increased as a consequence of such amendment, modification or change, (ii) cause the subordination provisions applicable to such Subordinated Debt to be less favorable to the Agent and the Participants than those set forth on Exhibit R, --------- (iii) increase the interest rate applicable [3]-6 thereto, or (iv) accelerate the scheduled payment thereof, except that, subject to the other terms and provisions hereof, the Lessee may (A)(1) call for redemption of the entire outstanding amount of the Convertible Subordinated Debentures and, (2) to the extent such Convertible Subordinated Debentures are not converted prior to the redemption date, redeem up to thirty percent (30%) of any such outstanding Convertible Subordinated Debentures less the amount of Subordinated Debt purchased by the Lessee pursuant to clause (B)(2) of this --------------------- Section 10.2(j), provided that (x) no Default or Event of Default has occurred - --------------- and is continuing or would result from such call for redemption or redemption and (y) the closing price of a share of common stock of the Lessee shall have exceeded one hundred twenty percent (120%) of the then applicable conversion price for twenty (20) trading days within a period of thirty (30) consecutive trading days ending within five (5) trading days prior to the notice of redemption. The Lessee shall not cause or permit any of its obligations, except the obligations constituting Senior Indebtedness, to constitute "Designated Senior Indebtedness" under the Indenture governing the Convertible Subordinated Debentures (it being understood that the obligations of the Lessee under the Operative Documents shall at all times constitute "Designated Senior Indebtedness") or, subject to the other terms and provisions of this Section ------- 10.2(j), the Lessee may (B)(1) pay, prepay, redeem, purchase, defease or - ------- otherwise satisfy in any manner any Subordinated Debt, with the Net Security Proceeds from the substantially contemporaneous issuance of Equity Securities by the Lessee or in exchange for Equity Securities of the Lessee; (2) otherwise purchase outstanding Subordinated Debt, provided that the aggregate value of all such Subordinated Debt repurchased, together with the amount of all redemptions undertaken pursuant to clause (A) of this Section 10.2(j), does not at any time ---------------------------------- exceed thirty (30%) of the total amount of any Convertible Subordinated Debentures outstanding as of March 31, 2000. The Lessee may convert, or honor a conversion request with respect to, any such Subordinated Debt into Equity Securities of the Lessee in accordance with the terms of, and pay any cash to holders of such Subordinated Debt in connection with, such a conversion solely to the extent representing the value of any fractional shares. (k) Financial Covenants. ------------------- (i) Consolidated Tangible Net Worth. Permit Consolidated ------------------------------- Tangible Net Worth on the last day of any fiscal quarter (such date to be referred to herein as a "determination date"), commencing with the fiscal quarter ended March 31, 2000, to be less than the greater of: (A) seventy- five percent (75%) of Consolidated Tangible Net Worth as of March 31, 2000, or (B) the sum of (1) an amount equal to seventy-five percent (75%) of Consolidated Tangible Net Worth as of March 31, 2000; plus (2) an amount ---- equal to seventy-five percent (75%) of the sum of positive Consolidated Net Income (ignoring any quarterly losses and any charge for In-Process Research and Development described in clause (6) below) for each fiscal quarter after the quarter ended March 31, 2000, through and including the quarter ending on the determination date; plus (3) an amount equal to ---- seventy-five (75%) of the Net Security Proceeds of all Equity Securities issued by the Lessee (excluding any issuance where the Net Security Proceeds to the Lessee therefor are less than $10,000,000) during the period commencing on March 31, 2000 and ending on the determination date; plus (4) an amount equal to seventy-five percent (75%) of the increase in ---- shareholders' equity resulting, in accordance with GAAP, from any conversion of Convertible Subordinated Debentures into Equity Securities; minus (5) the lesser of (x) the aggregate amount paid by the to repurchase ----- Equity Securities during the period commencing on March 31, 2000 and ending on the [3]-7 determination date and (y) $200,000,000; minus (6) the lesser of (x) the ----- aggregate amount of charges taken by the Lessee for In-Process Research & Development associated with Acquisitions during the period commencing on March 31, 2000 and ending on the determination date, and (y) $100,000,000, provided that any such charges were taken by the Lessee during the quarter -------- in which any such Acquisition was completed; and minus (7) for any fiscal ----- quarter ending after the Snap Spin-Off is consummated, the lesser of (x) net book value of Snap Appliances as of the First Amendment Effective Date (as determined in accordance with GAAP and reflected on the Lessee's financial statements for the fiscal quarter ending March 30, 2001) and (y) $150,000,000. (ii) Minimum Quick Ratio. Permit the Quick Ratio determined as ------------------- of the last day of any fiscal quarter of the Lessee (commencing with the quarter ending March 31, 2000) to be less than 1.10:1. (iii) Maximum Leverage Ratio. Permit the Leverage Ratio, ---------------------- determined as of the last day of any fiscal quarter of the Lessee, commencing with the fiscal quarter ending March 31, 2000 (measured on a rolling four quarter basis for the four fiscal quarters then ended), to be greater than 2.00:1. (iv) Minimum Profitability. Suffer or permit there to exist, --------------------- as of the last day of any fiscal quarter, for the four fiscal quarters ending on such date, commencing with the fiscal quarter ending March 31, 2000, (A) any two fiscal quarters in which the aggregate negative Consolidated Net Income for such fiscal quarters exceeds five percent (5%) of Consolidated Tangible Net Worth as of such date, or (B) cumulative Consolidated Net Income for such four-quarter period of less than $1.00. For purposes of calculating this covenant, charges for In-Process Research & Development associated with Acquisitions shall be excluded, provided that (x) any such charges for In-Process Research and Development are taken during the quarter in which any such Acquisitions are completed, and (y) to the extent that the aggregate amount of any such charges for In-Process Research and Development taken does not exceed $100,000,000 from and after the First Amendment Effective Date. (l) No Impairment of Deposits. Enter into or become bound by any ------------------------- agreement, instrument, indenture or other obligation which could directly or indirectly restrict, prohibit or require the consent of any Person to the making by the Lessee of any deposit of Cash Collateral or the realization thereon or utilization thereof (or of any earnings thereon or of any other Collateral) by the Lessor, the Agent or any of the Participants. (m) Tax Losses. Alone or together with one or more of its ---------- Subsidiaries or Affiliates incur a Tax Loss, the uninsured portion of which (individually, or together with all other prior Tax Losses) exceeds the Threshold Amount, where an "uninsured" Tax Loss means a Tax Loss which is not the subject of a bona fide insurance policy or contract with an insurer or syndicate of insurers of national repute or as to which such insurer or insurers have disputed or disclaimed contractual liability for such Tax Loss or otherwise breached the terms of such policy or contract. [3]-8 (n) Maxtor Merger and Snap Spin-Off Matters. --------------------------------------- (i) Without the consent of the Agent and the Required Participants, the Lessee shall not and shall not permit any of its Subsidiary Affiliates to: (A) amend or supplement the terms of any Maxtor Merger Document to which it is a party in a manner that could reasonably be expected to be materially adverse to the Lessor or any Participant, (B) agree to transfer any asset or assume any liability pursuant to Section 1.1(d) of the HDD General Assignment Agreement, (C) agree to transfer any asset or assume any liability pursuant to an Ancillary Agreement (as defined in Section 2.1(h) of the HDD Separation Agreement), (D) agree that any asset is an HDD Asset pursuant to Section 1.2(l) of the HDD General Assignment Agreement, (E) agree that any liability is an Excluded HDD Liability pursuant to Section 1.5(f) of the HDD General Assignment Agreement (other than those set forth on Schedule 1.5 thereto) or (F) otherwise agree to transfer assets to or assume liabilities of Maxtor or Spinco in a manner not set forth in the Maxtor Merger Documents; provided that the Lessee may, and may permit any of its -------- Subsidiaries or Affiliates to, take any of the actions described in clauses (B) through (F) above if after giving effect to the same, in the aggregate (and assuming that any of the same consisting of contingent or off-balance sheet liabilities are incurred and accounted for in an amount equal to that which could reasonably be expected to be paid by the Lessee or its Subsidiary or Affiliate in connection therewith), the Lessee will remain in compliance with the covenants set forth in Section 10.2(k). --------------- (ii) Without the consent of the Agent and the Required Participants, the Lessee shall not and shall not permit any of its Subsidiaries or Affiliates to: (A) amend or supplement the terms of any Snap Spin-Off Document to which it is a party in a manner that could reasonably be expected to be materially adverse to the Lessor or any Participant, (B) agree to transfer any asset or assume any liability pursuant to Section 1.1(d) or 1.4(b) of the Snap General Assignment Agreement, (C) agree to transfer any asset or assume any liability pursuant to an Ancillary Agreement (as defined in Section 2.1(h) of the Snap General Assignment Agreement), (D) agree that any asset is an Snap Asset pursuant to Section 1.2(a)(iv) of the Snap General Assignment Agreement, [3]-9 (E) agree to assume any liability pursuant to Section 2.1 of the Snap Employment Matters Agreement or (F) otherwise agree to transfer Snap assets to or assume liabilities of Snap Appliances in a manner not set forth in the Snap Spin- Off Documents; provided that the Lessee may, and may permit any of its Subsidiaries or Affiliates to, take any of the actions described in clauses (B) through (F) above after giving effect to the same, in the aggregate (and assuming that any of the same consisting of contingent or off-balance sheet liabilities are incurred and accounted for in an amount equal to that which could reasonably be expected to be paid by the Lessee or its Subsidiary or Affiliate in connection therewith), the Lessee will remain in compliance with the covenants set forth in Section 10.2(k). (o) Appraisal. On or prior to the date that is not later than thirty --------- (30) days (or such later date as is acceptable to the Agent and the Lessor) after the Land Interest Acquisition Date, the Agent, the Lessor and the Participants shall have received an Appraisal of that portion of the Phase I project on the Land Interest described in the Preliminary Letter of Value delivered pursuant to Section 6.1(d), which Appraisal shall (i) show that the Fair Market Sales Value of the Land Interest with respect to such Property as of the projected Completion Date shall not exceed twenty-five (25%) of the Fair Market Sales Value of such Land Interest and the Improvements to be constructed thereon in accordance with the Plans and Specifications for Property, and (ii) show as of the projected Completion Date the Fair Market Sales Value of such Land Interest and the Improvements to be constructed thereon in accordance with the Plans and Specifications, and (iii) meet the other applicable requirements set forth in the definition of the term "Appraisal" contained in Appendix 1. [3]-10 ATTACHMENT 4 ------------ New Schedule 8.3 ---------------- LITIGATION On August 7, 1998, the Lessee was named as one of several defendants in a patent infringement lawsuit filed in the U.S. District Court for the Northern District of Illinois, Eastern Division. The plaintiff, Papst Licensing GmbH ("Papst"), owns at least 26 U.S. patents, which it asserts that the Lessee has infringed. In October 1999 the case was transferred to a federal district court in New Orleans, Louisiana, where it has been joined with suits involving Maxtor Corporation and Minebea Company, Ltd. for the purposes of coordinated discovery under multi-district litigation rules. IBM has recently been sued by Papst and has been added to the multi-district proceedings. The final results of this litigation, as with any litigation, are uncertain. In addition, the costs of engaging in litigation with Papst will be substantial. The Lessee is also subject to other legal proceedings and claims that arise in the ordinary course of its business. For example, in fiscal year 2000, Discovision Associates brought patents they hold to the Lessee's attention. While management currently believes the amount of ultimate liability, if any, with respect to these actions will not materially affect the financial position, results of operations, or liquidity of the Lessee, the ultimate outcome of any litigation is uncertain. Were an unfavorable outcome to occur, the impact could be material to the Lessee. [4]-1 ATTACHMENT 5 ------------ Revised Appendix 1 ------------------ APPENDIX 1 to Amended and Restated Participation Agreement and Amended and Restated Master Lease, each as amended and each dated as of July 12, 2000, and Construction Deed of Trust amended as of July 12, 2000 (Specialty Storage Product Group Facilities) DEFINITIONS AND INTERPRETATION A. Interpretation. In each Operative Document, unless a clear contrary -------------- intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by the Operative Documents, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually ; (iii) reference to any gender includes each other gender; (iv) reference to any agreement (including any Operative Document), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms of the other Operative Documents and reference to any promissory note includes any promissory note which is an extension or renewal thereof or a substitute or replacement therefor; (v) reference to any Applicable Law means such Applicable Law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to any section or other provision of any Applicable Law means that provision of such Applicable Law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision; (vi) reference in any Operative Document to any Article, Section, Appendix, Schedule, or Exhibit means such Article or Section thereof or Appendix, Schedule or Exhibit thereto; (vii) "hereunder", "hereof", "hereto" and words of similar import shall be deemed references to an Operative Document as a whole and not to any particular Article, Section or other provision thereof; [5]-1 (viii) "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term; (ix) "or" is not exclusive; and (x) relative to the determination of any period of time, "from" means "from and including" and "to" means "to but excluding". B. Accounting Terms. In each Operative Document, unless expressly ---------------- otherwise provided, accounting terms shall be construed and interpreted, and accounting determinations and computations shall be made, in accordance with GAAP. C. Conflict in Operative Documents. If there is any conflict between any ------------------------------- Operative Documents, such Operative Document shall be interpreted and construed, if possible, so as to avoid or minimize such conflict but, to the extent (and only to the extent) of such conflict, the Lease shall prevail and control. D. Legal Representation of the Parties. The Operative Documents were ----------------------------------- negotiated by the parties with the benefit of legal representation and any rule of construction or interpretation otherwise requiring the Operative Document to be construed or interpreted against any party shall not apply to any construction or interpretation hereof or thereof. E. Defined Terms. Unless a clear contrary intention appears, terms ------------- defined herein have the respective indicated meanings when used in each Operative Document. "Account" is defined in Section 3.11 of the Participation Agreement and in ------- ------------------------------------------- Section 1 of the Cash Collateral Agreement. - ------------------------------------------ "Acquisitions" means any transaction or series of related transactions for ------------ the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any line of business or any division of a Person, (b) the acquisition of in excess of fifty percent (50%) of the capital stock, partnership interests or equity of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary). "Acquisition Request" is defined in Section 3.3 of the Participation ------------------- -------------------------------- Agreement. - --------- "Adjusted Percentage" is defined in Section 11.6 of the Participation ------------------- --------------------------------- Agreement. - --------- "Administrative Fee" is defined in Section 4.1 of the Participation ------------------ -------------------------------- Agreement. - --------- "Advance" means an advance of funds by the Lessor pursuant to Section 3 of ------- ------------ the Participation Agreement which will be used to pay Land Interest Acquisition - --------------------------- Costs or Property Improvements Costs. "Affiliate" means any Person directly or indirectly controlling, controlled --------- by, or under direct or indirect common control with, another Person. A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote ten percent (10%) or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause [5]-2 the direction of the management and policies of such Person whether by contract or otherwise; provided that Persons, other than Subsidiaries, in which -------- Quantum Technology Ventures holds Equity Securities shall not be "Affiliates" for purposes of this definition. "After Tax Basis" means, with respect to any payment to be received, the --------------- amount of such payment increased so that, after deduction of the amount of all taxes required to be paid by the recipient calculated at the then maximum marginal federal and state income tax rates generally applicable to Persons of the same type as the recipient (less any tax savings realized as a result of the payment of the indemnified amount) with respect to the receipt by the recipient of such amounts, such increased payment (as so reduced) is equal to the payment otherwise required to be made. "Agent" means The Bank of Nova Scotia, as successor in interest to the ----- Original Agent in its capacity as agent for the Participants pursuant to the Participation Agreement, or any successor or additional agent appointed in accordance with the terms of the Participation Agreement. "Agent Financing Statements" means UCC financing statements appropriately -------------------------- completed and executed for filing in the applicable jurisdiction in order to perfect a security interest in favor of the Agent for the ratable benefit of the Participants in the Equipment located on the Property or in any Improvements on the Property. "Alternate Base Rate" means, for any period, an interest rate per annum ------------------- equal to the lower of (i) the Prime Rate or (ii) the Federal Funds Effective Rate most recently determined by the Agent plus one-half percent (0.50%). If either of the aforesaid rates or equivalent changes from time to time after the date of the Participation Agreement, the Alternate Base Rate shall be automatically increased or decreased, if appropriate and as the case may be, without notice to the Lessee or the Lessor, as of the effective time of each change. "Alternate Basic Rate Advance" means an Advance bearing interest or Yield ---------------------------- determined with reference to the Alternate Base Rate as provided in the Participation Agreement. "Applicable Law" means all existing and future applicable laws, rules, -------------- regulations (including Environmental Laws), statutes, treaties, codes, ordinances, permits, certificates, covenants, restrictions, requirements, orders and licenses of and interpretations by, any Governmental Authorities, and applicable judgments, decrees, injunctions, writs, orders or like action of any court, arbitrator or other administrative, judicial or quasi-judicial tribunal or agency of competent jurisdiction (including those pertaining to health, safety or the environment (including, without limitation, wetlands) and those pertaining to the construction, use or occupancy of the Property) and any restrictive covenant or deed restriction or easement affecting the Property. "Applicable Margin" means at any time with respect to any Advance, either ----------------- (i) at any time amounts are deposited in an Account subject to the Cash Collateral Agreement, and with respect to that portion of the Advances represented by such Collateral, one-quarter percent (0.25%) per annum margin with respect to Tranche A Participation Interests and Tranche B Participation Interests therein and one and one-quarter percent (1.25%) per annum margin with respect to Tranche C Participation Interests therein, or (ii) at any other time, the per annum [5]-3 margin which is determined pursuant to the Pricing Grid, and, in each case, added to the Eurodollar Rate or Alternative Base Rate applicable to such Advance. "Appraisal" means, with respect to the Property, an appraisal, prepared by --------- a reputable appraiser approved by the Lessor, the Agent and the Required Participants, which in the judgment of counsel to the Lessor, the Agent and the Required Participants, complies with all of the provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, the rules and regulations adopted pursuant thereto, and all other applicable Requirements of Law, which appraisal will (i) appraise the Fair Market Sales Value of the Property as built in accordance with the Plans and Specifications; on the fifth anniversary of the Effective Date; as of the commencement of the Renewal Term, if any; and at the end of the Renewal Term, if any; and (ii) contain an estimate of the useful life of the Improvements as of each such date, all in a form satisfactory to the Lessor, the Agent and the Required Participants. "Appurtenant Rights" means (i) all agreements, easements, rights of way or ------------------ use, rights of ingress or egress, privileges, appurtenances, tenements, hereditaments and other rights and benefits at any time belonging or pertaining to any Land Interest or the Improvements, including, without limitation, the use of any streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or contiguous to any Land Interest and (ii) all permits, licenses and rights, whether or not of record, appurtenant to any Land Interest. "Asset Termination Value" means, as of any date of determination, an amount ----------------------- equal to (i) the sum of (A) the outstanding Advances, (B) all accrued and unpaid interest on the Advances, and (C) all other amounts owing by the Lessee under the Operative Documents, less (ii) the sum of all payments received by the Lessor, the Agent or the Participants on account of payments to reduce Asset Termination Value, including reductions resulting from payments by the Lessor, the Lessee or the Guarantor and/or any payment of the Partial Purchase Option Price upon the exercise of a Partial Purchase Option and/or the proceeds from the sale of the Property and/or amounts realized from the Collateral pursuant to the Cash Collateral Agreement. "Assignment and Acceptance" is defined in Section 12.1(b) of the ------------------------- ---------------------- Participation Agreement. - ----------------------- "Assignment of Construction Documents" means the Assignment of Construction ------------------------------------ Documents, dated as of the Effective Date, in the form attached as Exhibit A to ------------ the Construction Agency Agreement, as the rights of the Original Lessor - --------------------------------- thereunder have been further assigned to the Lessor as of July 12, 2000. "Assignment of Lease" means the Assignment of Lease, dated as of the ------------------- Effective Date, from the Original Lessor to the Original Agent for the benefit of the Participants, and consented to by the Lessee pursuant to that certain Lessee's Consent, dated as of the Effective Date (the "Consent to Assignment") by the Lessee, as obligor, in favor of the Agent for the benefit of the Participants, in each case in the respective forms set forth in Exhibit L to the ---------------- Participation Agreement, as the respective rights and obligations of the - ----------------------- Original Lessor and the Original Agent thereunder have been further assigned to the Lessor and the Agent as of July 12, 2000. "Assignment of Purchase Agreement" means the Assignment of Certain Rights -------------------------------- under Purchase and Sale Agreement, dated as of the Land Interest Acquisition Date, by and among the Lessee, as assignor, the Original Lessor, as assignee and the Existing Owner, as seller, as the [5]-4 rights of the Original Lessor thereunder have been further assigned to the Lessor as of July 12, 2000. "Available Commitments" means as to any Participant at any time, an amount --------------------- equal to the excess, if any, of (a) the amount of such Participant's Commitment over (b) the aggregate amount of its Participation Interest in all Advances made by the Lessor then outstanding. "Bankruptcy Code" means Title 11 of the United States Code entitled --------------- "Bankruptcy," as now or hereafter in effect. "Basic Rent" means the sum of (i) that portion of the Property Improvements ---------- Costs due on any Payment Date, if any, as set forth on Schedule 1 to the Lease ----------------------- and (ii) the interest or Yield on Advances due on any Payment Date as set forth in Section 3.8 of the Participation Agreement. ------------------------------------------ "Benefit Arrangement" means at any time an employee benefit plan within the ------------------- meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "Board" means the Board of Governors of the Federal Reserve System of the ----- United States (or any successor). "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday ------------ which is not a day on which banks in Albany, New York, New York, New York, San Francisco, California or (if interest is being determined by reference to the Eurodollar Rate) London, England, are generally authorized or obligated, by law or executive order, to close. "Capital Leases" means any and all leases under which certain obligations -------------- are required to be capitalized on the books of a lessee in accordance with GAAP. "Cash Collateral" is defined in Section 1 of the Cash Collateral Agreement. --------------- ------------------------------------------ "Cash Collateral Agreement" means the Cash Collateral Agreement dated as of ------------------------- the Effective Date among the Lessee, the Original Lessor, the Original Agent and the Participants, in the form of Exhibit S to the Participation Agreement, as ---------------------------------------- the respective rights and obligations of the Original Lessor and the Original Agent thereunder have been assigned to the Lessor and the Agent as of July 12, 2000. "Casualty" means any damage or destruction of all or any portion of the -------- Property as a result of a fire or other casualty. "CERCLA" means the Comprehensive Environmental Response, Compensation, and ------ Liability Act of 1980, 42 U.S.C. (S)(S) 9601 et seq., as amended by the Superfund Amendments and Reauthorization Act of 1986. "Certifying Party" is defined in Section 26.1 of the Lease. ---------------- ------------------------- "Change of Control" means with respect to the Lessee, the occurrence of any ----------------- of the following events: (a) any person or group of persons (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, but excluding any employee benefit plan of the Lessee or its Subsidiaries, or any person or entity acting in its capacity as trustee, [5]-5 agent or other fiduciary or administrator of any such plan) shall become the "beneficial owner" (within the meaning of Rules 13d-3 and 13d-5 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, except that such a person or group shall be deemed to have "beneficial ownership" of all securities that such person or group has the right to acquire (such right, an "option right"), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of forty percent (40%) or more of the outstanding Equity Securities of the Lessee entitled to vote for members of the board of directors, or (B) during any period of twelve (12) consecutive months, a majority of the members of the board of directors of the Lessee cease to be composed of individuals (i) who were members of that board on the first day of such period, (ii) whose election or nomination to that board was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or (iii) whose election or nomination to that board was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board. "Change of Law" is defined in Section 13.9 of the Participation Agreement. ------------- ------------------------------------------- "Claims" means any and all obligations, liabilities, losses, actions, ------ suits, judgments, penalties, fines, claims, demands, settlements, costs and expenses (including, without limitation, reasonable legal fees and expenses) of any nature whatsoever, including, as they relate to issues involving any Environmental Law or Environmental Violation, those matters set forth in Section ------- 13.3 of the Participation Agreement. - ----------------------------------- "Closing Date" is defined in Section 2 of the Participation Agreement. ------------ ---------------------------------------- "Code" means the Internal Revenue Code of 1986, as amended from time to ---- time, or any successor statute thereto. "Collateral" means the Collateral under the Cash Collateral Agreement. ---------- "Commitment" means (i) as to any Participant, the obligation of such ---------- Participant to purchase a Participation Interest in Advances to be made by the Lessor under the Participation Agreement, in an aggregate amount at any one time outstanding not to exceed the amount set forth opposite such Participant's name on Schedule I to the Participation Agreement, as such amount may be reduced from ----------------------------------------- time to time in accordance with the provisions of the Participation Agreement, and (ii) as to the Lessor, the obligation of the Lessor to make Advances from amounts received from the Participants pursuant to the purchase of Participation Interests under the Participation Agreement. "Commitment Percentage" means, as to any Participant at any time, the --------------------- percentage which such Participant's Commitment then constitutes of the aggregate Commitments of the Participants (or, at any time after the Commitments of the Participants shall have expired or terminated, the percentage which the aggregate amount of such Participant's Participation Interest then outstanding constitutes of the aggregate amount of the Participation Interests then outstanding). "Commitment Period" means the period from and including the Effective Date ----------------- to but not including the earlier of the Completion Date or the Outside Completion Date, or such earlier date on which the Commitments shall terminate as provided in the Operative Documents or such later [5]-6 date as may be provided for the Completion of construction in the Construction Agency Agreement due to the existence of a Force Majeure Event. "Completion" means such time as (i) the conditions set forth in Section 7 ---------- --------- of the Participation Agreement are satisfied and (ii) the Improvements are ready - ------------------------------ for occupancy. "Completion Date" means, with respect to the Property, the date on which --------------- Completion of the Improvements on such Property has occurred. "Compliance Certificate" means a certificate substantially in the form of ---------------------- Exhibit Q, properly completed and signed by a Responsible Officer of the Lessee. - --------- "Condemnation" means any condemnation, requisition, confiscation, seizure ------------ or other taking or sale of the use, access, occupancy, easement rights or title to the Property or any part thereof, wholly or partially (temporarily or permanently), by or on account of any actual or threatened eminent domain proceeding or other taking of action by any Person having the power of eminent domain, including an action by a Governmental Authority to change the grade of, or widen the streets adjacent to, the Property or alter the pedestrian or vehicular traffic flow to the Property so as to result in change in access to the Property, or by or on account of an eviction by paramount title or any transfer made in lieu of any such proceeding or action. A "Condemnation" shall be deemed to have occurred on the earliest of the dates that use, occupancy or title is taken. "Confidential Information" is defined in Section 15.13 of the Participation ------------------------ ---------------------------------- Agreement. - --------- "Consent to Assignment" is defined in the definition of the term --------------------- "Assignment of Lease". "Consent to Construction Agency Agreement Assignment" means the Consent --------------------------------------------------- dated as of the Effective Date by the Lessee to the Construction Agency Agreement Assignment in the form attached to the Construction Agency Agreement Assignment. "Consolidated EBITDA" means, for any period, for the Lessee and its ------------------- Subsidiaries on a consolidated basis, an amount equal to the sum of (a) Consolidated Net Income, (b) Consolidated Interest Charges, (c) the amount of taxes, based on or measured by income, used or included in the determination of such Consolidated Net Income, (d) the amount of depreciation and amortization expense deducted in determining such Consolidated Net Income, (e) the amount written off in connection with In-Process Research & Development related to the Meridian Acquisition in the second fiscal quarter of year 2000, (f) the charge taken in the fourth fiscal quarter of year 2000 in connection with DSS, and (g) the amount of any charges taken in connection with In-Process Research & Development associated with Acquisitions (other than any charge included in clause (e) above) provided that (i) any such charges are taken during the fiscal -------- quarter in which the related Acquisition was completed, and (ii) for purposes of calculating In-Process Research & Development charges under this clause (g), the ---------- aggregate amount of any such charges does not exceed $100,000,000 from and after the First Amendment Effective Date; provided that; in respect of any period (or -------- partial period) prior to the Maxtor Merger Effective Time, "Consolidated EBITDA" shall be determined solely in respect of the DSS Business on a stand-alone basis, based upon the then-current DSS Combined Financial Statements. [5]-7 "Consolidated Funded Indebtedness" means, as of any date of determination, -------------------------------- for the Lessee and its Subsidiaries on a consolidated basis, the sum of (a) the outstanding principal amount of all obligations and liabilities, whether current or long-term, for borrowed money (including obligations under the Loan Documents to the extent consisting of principal), (b) that portion of obligations with respect to Capital Leases that would in conformity with GAAP be capitalized on the consolidated balance sheet of the Lessee and its Subsidiaries, and (c) Synthetic Lease Obligations; provided that in respect of any date prior to the -------- Maxtor Merger Effective Time, "Consolidated Funded Indebtedness" shall be determined solely in respect of the DSS Business on a stand-alone basis, based upon the then-current DSS Combined Financial Statements. "Consolidated Interest Charges" means, for any period, for the Lessee and ----------------------------- its Subsidiaries on a consolidated basis, the sum of (a) all interest, premium payments, fees, charges and related expenses payable by the Lessee and its Subsidiaries in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, (b) the portion of rent payable by the Lessee and its Subsidiaries with respect to such period under Capital Leases that is treated as interest in accordance with GAAP and (c) the portion of rent under any Synthetic Lease Obligation that would be treated as interest in accordance with GAAP if the Synthetic Lease Obligation were treated as a Capital Lease under GAAP; provided that in respect of any date prior to the -------- Maxtor Merger Effective Time, "Consolidated Interest Charges" shall be determined solely in respect of the DSS Business on a stand-alone basis, based upon the then-current DSS Combined Financial Statements. "Consolidated Net Income" means, for any period, for the Lessee and its ----------------------- Subsidiaries on a consolidated basis, the net income of the Lessee and its Subsidiaries from continuing operations after extraordinary items for that period after excluding the Maxtor Merger Net Charge in the case of the period in which it is recorded; provided that in respect of any period (or partial period) -------- prior to the Maxtor Merger Effective Time, "Consolidated Net Income" shall be determined solely in respect of the DSS Business on a stand-alone basis, based upon the then-current DSS Combined Financial Statements. "Consolidated Tangible Net Worth" means, as of any date of determination, ------------------------------- for the Lessee and its Subsidiaries on a consolidated basis, Shareholders' Equity of the Lessee and its Subsidiaries on that date minus the Intangible Assets of the Lessee and its Subsidiaries on that date provided that in respect -------- of any date prior to the Maxtor Merger Effective Time, "Consolidated Tangible Net Worth" shall be determined solely in respect of the DSS Business on a stand- alone basis, based upon the then-current DSS Combined Financial Statements. "Construction Agency Agreement" means the Construction Agency Agreement, ----------------------------- dated as of the Effective Date, between the Original Lessor and the Construction Agent, in the form of Exhibit M to the Participation Agreement, as the rights of the Original Lessor thereunder have been assigned to the Lessor as of July 12, 2000. "Construction Agency Agreement Assignment" means the Assignment of ---------------------------------------- Construction Agency Agreement, dated as of the Effective Date, from the Original Lessor to the Original Agent, for the benefit of the Participants, in the form of Exhibit N to the Participation Agreement, as the respective rights and ---------------------------------------- obligations of the Original Lessor and the Original Agent thereunder have been further assigned to the Lessor and the Agent as of July 12, 2000. [5]-8 "Construction Agency Agreement Event of Default" means a "Construction ---------------------------------------------- Agency Agreement Event of Default" as defined in Section 5.1 of the Construction ------------------------------- Agency Agreement. - ---------------- "Construction Agent" means the Lessee, as construction agent under the ------------------ Construction Agency Agreement. "Construction Commencement Date" is defined in Section 2.3 of the ------------------------------ ------------------ Construction Agency Agreement. - ----------------------------- "Construction Period" means, with respect to the Property, the period ------------------- commencing on the Construction Commencement Date and ending on the earlier of the Completion Date and the Outside Completion Date for such Property. "Contractual Obligation" means, as to any Person, any provision of any ---------------------- security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Covered Liabilities" is defined in Section 11.6 of the Participation ------------------- --------------------------------- Agreement. - --------- "Convertible Subordinated Debentures" means the 7% Convertible Subordinated ----------------------------------- Notes due 2004 issued by the Lessee pursuant to the Indenture dated as of August 1, 1997 and the Supplemental Indenture dated as of August 1, 1997 between the Lessee and LaSalle National Trust Company, N.A., as Trustee. "DSS" means DLT and Storage Systems Group, a reportable business segment of --- the Lessee, as indicated in the Lessee's quarterly report filed with the Securities and Exchange Commission on form 10-Q on or about February 14, 2001. "DSS Business" means, collectively, all businesses and activities of the ------------ Lessee and its Subsidiaries, other than the HDD Business. "DSS Combined Financial Statements" means, collectively, the annual or --------------------------------- quarterly (as the case may be) condensed combined balance sheet and statements of income and cash flow in respect of DSS on a stand-alone basis, prepared in a manner and in a form consistent with those contained in the Lessee's 2000 10-K and December 31, 2000 10-Q filings that were filed with the Securities and Exchange Commission on or about June 26, 2000 and February 14, 2000, respectively. "Deed" is defined in Section 6.1(e) of the Participation Agreement, ---- --------------------------------------------- together with the quitclaim deed delivered by the Original Lessor to the Lessor as of July 12, 2000. "Default" means any event or condition which, with the lapse of time or the ------- giving of notice, or both, would constitute an Event of Default. "Defaulted Amount" is defined in Section 11.7 of the Participation ---------------- --------------------------------- Agreement. - --------- "Defaulting Participant" means, at any time, any of the Participants which ---------------------- at such time has (i) failed to make a payment when due to the Lessor equal to its Commitment Percentage of an Advance, (ii) has been notified of such failure by the Lessor, and (iii) has not cured such failure by making such payment, together with interest at the Late Payment Rate. [5]-9 "Depositary Bank" is defined in Section 1 of the Cash Collateral Agreement. --------------- ------------------------------------------ "Designated Payment Date" means the Expiration Date, the Termination Date ----------------------- or other date of termination of the Lease. "Disclosure Letter" means the letter from the Lessee to the Lessor and the ----------------- Agent, dated the Effective Date, which identifies itself as the "Disclosure Letter" under the Participation Agreement. "Disposition" or "Dispose" means the sale, transfer, License Disposition or ----------- ------- other disposition (including any sale and leaseback transaction) of any property by any Person, including any sale, assignment, transfer or other disposal with or without recourse of any notes or accounts receivable or any rights and claims associated therewith. "Dollars" and "$" mean dollars in lawful currency of the United States of ------- - America. "Effective Date" means August 22, 1997. -------------- "Employee Benefit Plan" means any employee benefit plan within the meaning --------------------- of Section 3(3) of ERISA maintained or contributed to by the Lessee or any ERISA Affiliate, other than a Multiemployer Plan. "End of the Term Report" is defined in Section 13.2 of the Participation ---------------------- --------------------------------- Agreement. - --------- "Environmental Audit" means a Phase One environmental site assessment (the ------------------- scope and performance of which meets or exceeds ASTM Standard Practice E1527-93 Standard Practice for Environmental Site Assessments: Phase One Environmental Site Assessment Process) of the Property to be leased by the Lessor on the Closing Date or of the Property to be remarketed under the Remarketing Option under the Lease. "Environmental Certificate" is defined in Section 6.1 of the Participation ------------------------- -------------------------------- Agreement. - --------- "Environmental Law" means, whenever enacted or promulgated, any Federal, ----------------- state, county or local law, statute, ordinance, rule, regulation, license, permit, authorization, approval, covenant, criteria, guideline, administrative or court order, judgment, decree, injunction, code or requirement or any agreement with a Governmental Authority: (i) relating to pollution (or the cleanup, removal, remediation or encapsulation thereof, or any other response thereto), or the regulation or protection of human health, safety or the environment, including air, water, vapor, surface water, groundwater, drinking water, land (including surface or subsurface), plant, aquatic and animal life, or (ii) concerning exposure to, or the use, containment, storage, recycling, treatment, generation, discharge, emission, Release or threatened Release, transportation, processing, handling, labeling, containment, production, disposal or remediation of any Hazardous Substance, Hazardous Condition or Hazardous Activity; in each case as amended and as now or hereafter in effect, and any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries [5]-10 (whether personal or property) or damages due to or threatened as a result of the presence of, exposure to, or ingestion of, any Hazardous Substance, whether such common law or equitable doctrine is now or hereafter recognized or developed. Applicable laws include, but are not limited to, CERCLA; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. (S) 6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. (S) 1251 et seq.; the Clean Air Act, 42 U.S.C. (S)(S) 7401 et seq.; the National Environmental Policy Act, 42 U.S.C. (S) 4321; the Refuse Act, 33 U.S.C. (S)(S) 401 et seq.; the Hazardous Materials Transportation Act of 1975, 49 U.S.C. (S)(S) 1801-1812; the Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. (S)(S) 136 et seq.; the Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et seq.; and the Occupational Safety and Health Act of 1970, each as amended and as now or hereafter in effect, and their state and local counterparts or equivalents, including any regulations promulgated thereunder. "Environmental Violation" means any activity, occurrence or condition or ----------------------- omission that violates or results in non-compliance with any Environmental Law. "Equipment" means equipment, apparatus, furnishings, fittings and personal --------- property of every kind and nature whatsoever purchased by the Lessor using the proceeds of the Participation Interests in the Advances now or subsequently attached to, contained in or used or usable in any way in connection with any operation or letting of the Property, including but without limiting the generality of the foregoing, all semiconductor manufacturing equipment, screens, awnings, shades, blinds, curtains, draperies, artwork, carpets, rugs, storm doors and windows, shelving, counters, furniture and furnishings, heating, electrical, and mechanical equipment, lighting, switchboards, plumbing, ventilation, air conditioning and air-cooling apparatus, refrigerating, and incinerating equipment, escalators, elevators, loading and unloading equipment and systems, cleaning systems (including window cleaning apparatus), telephones, communication systems (including satellite dishes and antennae), televisions, computers, sprinkler systems and other fire prevention and extinguishing apparatus and materials, security systems, motors, engines, machinery, pipes, pumps, tanks, conduits, appliances, fittings and fixtures of every kind and description. "Equipment Schedule" means each Equipment Schedule in the form of Exhibit B ------------------ --------- to the Lease. - ------------ "Equity Securities" of any Person means (a) all common stock, preferred ----------------- stock, participations, shares, partnership interests or other equity interests in such Person (regardless of how designated and whether or not voting or non- voting) and (b) all warrants, options and other rights to acquire any of the foregoing, other than convertible debt securities which have not been converted into common stock, preferred stock, participations, shares, partnership interests or other equity interests in any such Person. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time or any successor Federal statute. "ERISA Affiliate" means any trade or business (whether or not incorporated) --------------- under common control with the Lessee within the meaning of Sections 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). [5]-11 "ERISA Group" means the Lessee and all members of a controlled group of ----------- corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Lessee, are treated as a single employer under Section 414 of the Code. "Eurocurrency Reserve Requirements" means, for any day as applied to an --------------------------------- Advance, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for Eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System. "Eurodollar Rate" means, with respect to each day during each Interest --------------- Period, the rate per annum determined by the Agent to be the offered rate per annum at which deposits in Dollars appear with respect to such Interest Period on the Reuters Screen LIBOR Page (or any successor page), or if such offered rate is not available, then the rate per annum at which deposits in Dollars appear with respect to such Interest Period on the Telerate Page 3750 (or any successor page) in each case as of 11:00 a.m. (London time), two (2) Business Days prior to the beginning of such Interest Period or in the event that the foregoing offered rates are not available, then the average (rounded upward to the nearest whole multiple of one sixteenth of one percent per annum, if such average is not such a multiple) of the respective rates notified to the Agent by each of the Participants as the rates at which such Participant's Funding Office is offered Dollar deposits at or about 11:00 a.m. (London time), two (2) Business Days prior to the beginning of such Interest Period in the interbank Eurodollar market for delivery on the first day of such Interest Period for the number of days comprised therein in an amount comparable to the amount of the Advances estimated to be outstanding during such Interest Period. "Eurodollar Rate Advance" means on Advance bearing interest or Yield ----------------------- determined with reference to the Eurodollar Rate as provided in the Participation Agreement. "Event of Default" means a Lease Event of Default, a Construction Agency ---------------- Agreement Event of Default or a Guarantee Event of Default. "Excepted Payments" means: ----------------- (a) all indemnity payments (including indemnity payments made pursuant to Section 13 of the Participation Agreement) to which the Lessor, ----------------------------------------- or any of its Affiliates, agents, officers, directors or employees is entitled; (b) any amounts (other than Basic Rent or amounts payable by Lessee pursuant to Section 16.2, Section 16.3, Section 16.4 or Articles XVII, XX ------------------------------------------------------------- or XXII of the Lease) payable under any Operative Document to reimburse the -------------------- Lessor or any of its respective Affiliates (including the reasonable expenses of the Lessor incurred in connection with any such payment) for performing or complying with any of the obligations of the Lessee under and as permitted by any Operative Document, except to the extent that one or more Participants have indemnified the Lessor with respect thereto pursuant to the Participation Agreement; [5]-12 (c) any amount payable to the Lessor by any Participant or transferee permitted under the Operative Documents of the interest of the Lessor as the purchase price of such Participant's Participation Interest; (d) any insurance proceeds (or payments with respect to risks self- insured or policy deductibles) under liability policies other than such proceeds or payments payable to the Agent or the Lessor; (e) any insurance proceeds under policies maintained by the Lessor; (f) Transaction Expenses or other amounts or expenses paid or payable to or for the benefit of the Lessor; (g) all right, title and interest of the Lessor to the Property or any portion thereof or any other property to the extent any of the foregoing has been released from the Lien of the Mortgage, the Assignment of Lease and the Construction Agency Agreement Assignment pursuant to the terms thereof following the payment of the Participant Balances of all of the Participants and all amounts due and owing to the Agent; and (h) any payments in respect of interest to the extent attributable to payments referred to in clauses (a) through (g) above. ----------------------- "Excess Investment" of the Lessor means the excess (if any) of the ----------------- outstanding Participant Balance of the Lessor in the Property from time to time over the amount that would have been the Lessor's Participant Balance if, in connection with all Advances actually made under the Participation Agreement, all Participants had paid to the Lessor an amount equal to such Advances times their respective Commitment Percentages, as such excess may be determined by the Lessor. Absent the existence of a Defaulting Participant, a failure by Participant to make a payment required by Section 3.4 of the Participation -------------------------------- Agreement or some other unexpected contingency, it is expected that the Lessor - --------- will have no Excess Investment. "Excess Proceeds" means the excess, if any, of the aggregate of all --------------- awards, compensation or insurance proceeds payable in connection with a Casualty or Condemnation over the Asset Termination Value paid by the Lessee pursuant to Articles XIV and XV of the Lease with respect to such Casualty or Condemnation. "Excess Reimbursement" is defined in Section 11.6 of the Participation -------------------- --------------------------------- Agreement. - --------- "Existing Financing" means the debt and equity financing provided to the ------------------ Existing Owner to purchase and/or construct the Land Interest and any Improvements. "Existing Participants" means the lenders and holders of equity interests --------------------- under the Existing Financing. "Existing Owner" means Schuck Holdings LLC, a Colorado limited liability -------------- company. "Expiration Date" means the later of (i) April 19, 2003, or (ii) the --------------- scheduled expiration of any Renewal Term, if any. [5]-13 "Expiration Date Purchase Obligation" means the Lessee's obligation, ----------------------------------- pursuant to Section 20.2 of the Lease, to purchase all (but not less than all) ------------------------- of the Property on the Expiration Date. "Fair Market Sales Value" means, with respect to the Property, the amount, ----------------------- which in any event shall not be less than zero, that would be paid in cash in an arm's-length transaction between an informed and willing purchaser and an informed and willing seller, neither of whom is under any compulsion to purchase or sell, respectively, for the ownership of the Property. The Fair Market Sales Value of the Property shall be determined based on the assumption that, except for purposes of Article XVII of the Lease and Section 13.2 of the Participation ------------------------- --------------------------------- Agreement, the Property is in the condition and state of repair required under - --------- Section 10.1 of the Lease and the Lessee is in compliance with the other - ------------------------- requirements of the Operative Documents. "Federal Funds Effective Rate" means, for any day, an interest rate per ---------------------------- annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of quotations for such day on such transaction received by the Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" means the letter from the Lessee to the Agent, The Bank of ---------- Nova Scotia and KeyBank National Association, dated as of July 12, 2000. "Financial Statements" means, with respect to any accounting period for any -------------------- Person, consolidated statements of income, shareholders' equity and cash flows of such Person for such period, and a balance sheet of such Person as of the end of such period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year if such period is less than a full fiscal year or, if such period is a full fiscal year, corresponding figures from the preceding annual audit, all prepared in reasonable detail and in accordance with GAAP. "First Amendment Effective Date" means March 28, 2001. ------------------------------ "Fixtures" means all fixtures relating to the Improvements, including all -------- components thereof, located in or on the Improvements which are acquired with Advances and all replacements and Modifications thereto, other than Lessee's Property. "Force Majeure Event" means with respect to the Property any event (the ------------------- existence or potentiality of which was not known and could not have been discovered through the exercise of due diligence by the Lessee prior to the Closing Date) beyond the reasonable control of the Construction Agent, other than a Casualty or Condemnation, including, but not limited to, strikes, lockouts, adverse soil conditions, acts of God, adverse weather conditions, inability to obtain labor or materials, government activities, civil commotion and enemy action; but excluding any event, cause or condition that results from the Construction Agent's financial condition or failure to pay or any event, cause or condition which could be remedied through the exercise of commercially reasonable efforts or the commercially reasonable expenditure of funds. "Funding Date" means any Business Day on which Advances are funded pursuant ------------ to the Participation Agreement. [5]-14 "Funding Losses" means with respect to any repayment, prepayment or -------------- conversion of any Eurodollar Rate Advance, the amount (which shall not be less than zero) computed in accordance with the following formula: Funding Losses = (R - T x P x D) ----------------- 360 Where R = the interest rate or Yield that was or would have been applicable to such Eurodollar Rate Advance; T = the Eurodollar Rate for the date of such repayment, prepayment, conversion, failure to borrow, failure to contribute or failure to convert for new Eurodollar Rate Advances, of the same principal amount or equity contribution made for an assumed Interest Period (the "Remaining Period") which begins on the date of such repayment, prepayment, conversion, failure to borrow, failure to contribute or failure to convert and ends on the last day of the actual Interest Period that was or would have been applicable to the Eurodollar Rate Advance that was repaid, prepaid or converted or that was not borrowed, contributed or converted; P = the principal amount of the Eurodollar Rate Advance that was repaid, prepaid or converted or that was not borrowed, contributed or converted; and D = the number of days in the Remaining Period. "Funding Office" means the office of each Participant identified on -------------- Schedule II to the Participation Agreement as its Funding Office. - ------------------------------------------ "Funding Request" is defined in Section 3.4 of the Participation Agreement. --------------- ------------------------------------------ "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession, that are applicable to the circumstances as of the date of determination, consistently applied. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Operative Document, and either the Lessee or the Required Participants shall so request, the Agent, the Participants and the Lessee shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Participants), provided that, -------- until so amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (b) the Lessee shall provide to the Agent and the Participants financial statements and other documents required under the Operative Documents or as reasonably requested thereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. [5]-15 "Governmental Action" means all permits, authorizations, registrations, ------------------- consents, approvals, waivers, exceptions, variances, orders, judgments, written interpretations, decrees, licenses, exemptions, publications, filings, notices to and declarations of or with, or required by, any Governmental Authority, or required by any Applicable Law, and shall include, without limitation, all environmental and operating permits and licenses that are required for the full use, occupancy, zoning and operation of the Property. "Governmental Authority" means (a) any international, foreign, federal, ---------------------- state, county or municipal government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality, central bank or public body, or (c) any court, administrative tribunal or public utility. "Gross Proceeds" is defined in Section 22.1(k) of the Lease. -------------- ---------------------------- "Guarantee" means the Guarantee executed by the Guarantor in favor of the --------- Original Agent, for the benefit of the Participants, in the form of Exhibit O to ------------ the Participation Agreement, as the rights of the Original Agent thereunder have - --------------------------- been assigned to the Agent as of July 12, 2000. "Guarantee Event of Default" is defined in the Guarantee. -------------------------- "Guarantor" means Quantum Corporation, a Delaware corporation. --------- "Guaranty Obligation" means, as to any Person, any (a) guaranty by such ------------------- Person of Indebtedness of, or other obligation payable or performable by, any other Person or (b) assurance, agreement, letter of responsibility, letter of awareness, undertaking or arrangement given by such Person to an obligee of any other Person with respect to the payment or performance of an obligation by, or the financial condition of, such other Person, whether direct, indirect or contingent, including any purchase or repurchase agreement covering such obligation or any collateral security therefor, any agreement to provide funds (by means of loans, capital contributions or otherwise) to such other Person, any agreement to support the solvency or level of any balance sheet item of such other Person or any "keep-well" or other arrangement of whatever nature, in each such case, given for the purpose of assuring or holding harmless such obligee against loss with respect to any obligation of such other Person; provided, -------- however, that the term Guaranty Obligation shall not include endorsements of - ------- instruments for deposit or collection in the ordinary course of business. The amount of any Guaranty Obligation shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, covered by such Guaranty Obligation or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the Person in good faith. "Hazardous Activity" means any activity, process, procedure or undertaking ------------------ that directly or indirectly (i) produces, generates or creates any Hazardous Substance; (ii) causes or results in (or threatens to cause or result in) the Release of any Hazardous Substance into the environment (including air, water vapor, surface water, groundwater, drinking water, land (including surface or subsurface), plant, aquatic and animal life); (iii) involves the containment or storage of any Hazardous Substance; or (iv) would be regulated as hazardous waste treatment, storage or disposal within the meaning of any Environmental Law. [5]-16 "Hazardous Condition" means any condition that violates or threatens to ------------------- violate, or that results in or threatens noncompliance with, any Environmental Law. "Hazardous Substance" means any of the following: (i) any petroleum or ------------------- petroleum product, explosives, radioactive materials, asbestos, formaldehyde, polychlorinated biphenyls, lead and radon gas; (ii) any substance, material, product, derivative, compound or mixture, mineral, chemical, waste, gas, medical waste or pollutant, in each case whether naturally occurring, man-made or the by-product of any process, that is toxic, harmful or hazardous to the environment or human health or safety; or (iii) any substance, material, product, derivative, compound or mixture, mineral, chemical, waste, gas, medical waste or pollutant that would support the assertion of any claim under any Environmental Law, whether or not defined as hazardous as such under any Environmental Law. "HDD" means Hard Disk Drive Group, a reportable business segment of the --- Lessee, as indicated in the Lessee's quarterly report filed with the Securities and Exchange Commission on form 10-Q on or about February 14, 2001. "HDD Assets" has the meaning specified in Section 4.14 of the HDD General ---------- ------------------------------- Assignment Agreement, subject to Section 5.16(d) of the HDD General Assignment - -------------------- --------------------------------------------- Agreement. - --------- "HDD Business" has the meaning specified in Section 4.16 of the HDD General ------------ ------------------------------- Assignment Agreement. - -------------------- "HDD Convertible Debt Portion" means the pro rata portion described on ---------------------------- Schedule 1 attached hereto. - -------------------------- "HDD General Assignment Agreement" means that General Assignment and -------------------------------- Assumption Agreement dated as of the Maxtor Merger Effective Date among the Lessee, Spinco and Maxtor. "HDD Redemption" means the redemption by the Lessee of all or substantially ---------- all of the outstanding HDD common stock, par value $0.01 per share, of the Lessee, in exchange for common stock of Spinco. "HDD Separation Agreement" means that Separation and Redemption Agreement ------------------------ dated as of the Maxtor Merger Effective Date, among the Lessee, Spinco and Maxtor. "Impositions" means, except to the extent described in the following ----------- sentence, any and all liabilities, losses, expenses, costs, charges and Liens of any kind whatsoever for fees, taxes, levies, imposts, duties, charges, assessments or withholdings ("Taxes") including (i) real and personal property ----- taxes, including personal property taxes on any property covered by the Lease that is classified by Governmental Authorities as personal property, and real estate or ad valorem taxes in the nature of property taxes; (ii) sales taxes, use taxes and other similar taxes (including rent taxes and intangibles taxes); (iii) any excise taxes; (iv) real estate transfer taxes, mortgage taxes, conveyance taxes, stamp taxes and documentary recording taxes and fees; (v) taxes that are or are in the nature of franchise, income, value added, privilege and doing business taxes, license and registration fees; (vi) assessments on the Property, including all assessments for public improvements or benefits, whether or not such improvements are commenced or completed within the Term; and (vii) any tax, Lien, assessment or charge asserted, imposed or assessed by the PBGC or any governmental authority succeeding to or performing functions [5]-17 similar to, the PBGC, and in each case all interest, additions to tax and penalties thereon, which at any time prior to, during or with respect to the Term or in respect of any period for which the Lessee shall be obligated to pay Supplemental Rent, may be levied, assessed or imposed by any Governmental Authority upon or with respect to (a) the Property or any part thereof or interest therein; (b) the purchase, sale, leasing, financing, refinancing, demolition, construction, alteration, substitution, subleasing, assignment, control, condition, occupancy, servicing, maintenance, repair, ownership, possession, activity conducted on, delivery, insuring, use, operation, improvement, transfer of title, return or other disposition of the Property or any part thereof or interest therein; (c) the Participation Interests with respect to the Property or any part thereof or interest therein; (d) the rentals, receipts or earnings arising from the Property or any part thereof or interest therein; (e) the Operative Documents, the performance thereof, or any payment made or accrued pursuant thereto; (f) the income or other proceeds received with respect to the Property or any part thereof or interest therein upon the sale or disposition thereof; (g) any contract (including the Construction Agency Agreement) relating to the construction, acquisition or delivery of the Improvements or any part thereof or interest therein; or (h) otherwise in connection with the transactions contemplated by the Operative Documents. The term "Imposition" shall not mean or include the following (except to the extent that such Taxes apply in consequence of the Lease being treated other than as a loan for purposes of such Taxes and exceed the amount of such Taxes that would have applied if the Lease had been so treated as a loan: (1) Taxes and impositions (other than Taxes that are, or are in the nature of, sales, use, transfer or property taxes) that are imposed on an Indemnitee by the United States federal or any foreign government that are based on or measured by the net income (including taxes based on capital gains and minimum taxes) of such Person; provided, that this clause (1) ---------- shall not be interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made; (2) Taxes and impositions (other than Taxes that are, or are in the nature of, sales, use, transfer or property taxes) that are imposed by any state or local jurisdiction or taxing authority within any state or local jurisdiction and that are franchise taxes or are based upon or measured by net income or net receipts; provided, that this clause (2) shall not be ---------- interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made (anything to the contrary notwithstanding, nothing in the Operative Documents shall be construed to impose upon Lessee any liability for Taxes imposed upon an Indemnitee to the extent imposed with respect to any activities of such Indemnitee other than under the transactions contemplated by the Operative Documents); (3) any Taxes or imposition for so long as, but only for so long as, it is being contested in accordance with the provisions of Section 13.5 of --------------- the Participation Agreement; --------------------------- (4) any Taxes which are imposed on an Indemnitee as a result of the gross negligence or willful misconduct of such Indemnitee itself (as opposed to gross negligence or willful misconduct imputed to such Indemnitee), but not Taxes imposed as a result of ordinary negligence of such Indemnitee; or [5]-18 (5) any Taxes or imposition to the extent, but only to such extent, it relates to any act, event or omission that occurs after the termination of the Lease and redelivery or sale of the Property in accordance with the terms of the Lease (but not any Taxes or imposition that relates to any period prior to such termination and redelivery). Any Taxes excluded from the defined term "Imposition" in any one of the foregoing clauses (1) through (4) shall not be construed as constituting an ----------------------- Imposition by any provision of any other of the aforementioned clauses. For purposes of the foregoing, taxes based upon or measured by net income shall be deemed to include, without limitation, any Imposition that qualifies as an "income tax" within the meaning of United States Treasury Regulation Section 1.901-2. "Improvements" means all buildings, structures, Fixtures, Equipment, and ------------ other improvements of every kind existing on the Land Interest Acquisition Date and at any time and from time to time and either constructed pursuant to the Construction Agency Agreement or those purchased with amounts advanced by the Participants pursuant to the Participation Agreement (or those becoming the property of the Lessor pursuant to Article XI of the Lease) on or under the Land ----------------------- Interest, together with any and all appurtenances to such buildings, structures, or improvements, including sidewalks, utility pipes, conduits and lines, parking areas and roadways, and including all Modifications and other additions to or changes in the Improvements at any time, other than Lessee's Property. "Indebtedness" means, as to any Person at any date of determination, all ------------ items which would, in conformity with GAAP, be classified as liabilities on a balance sheet of such Person as at such date excluding (i) trade and other --------- accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue for a period of more than sixty (60) days (unless contested in good faith by the Lessee or any Subsidiary), (ii) deferred taxes, and (iii) accrued interest and expenses, except to the extent capitalized, and in any event including: --------- (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) any direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), banker's acceptances, bank guaranties, surety bonds and similar instruments; (c) whether or not so included as liabilities in accordance with GAAP, net obligations under any Swap Contract in an amount equal to (x) if such Swap Contract has been closed out, the termination value thereof, or (y) if such Swap Contract has not been closed out, the mark-to-market value thereof determined on the basis of readily available quotations provided by any recognized dealer in such Swap Contract; (d) whether or not so included as liabilities in accordance with GAAP and whether with or without recourse, all obligations of such Person to pay the deferred purchase price of property or services, and indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements); [5]-19 (e) lease payment obligations under Capital Leases or Synthetic Lease Obligations; and (f) all Guaranty Obligations of such Person in respect of any of the foregoing obligations of any other Person. For all purposes of the Operative Documents, the Indebtedness of any Person shall include, at any such time as such partnership or joint venture is not Solvent, the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person (subject to customary recourse exceptions acceptable to the Required Participants). "Indemnitee" means the Lessor, the Agent, the Participants, their ---------- respective Affiliates and their respective successors, assigns, directors, shareholders, partners, officers, employees and agents. "In-Process Research & Development" means purchased in-process research and --------------------------------- development, as specified on the Lessee's statement of income in accordance with GAAP. "Insurance Requirements" means all terms and conditions of any insurance ---------------------- policy required by the Lease to be maintained by the Lessee, and all requirements of the issuer of any such policy. "Intangible Assets" means assets that are required to be disclosed as ----------------- intangible assets in accordance with GAAP on the Lessee's balance sheet, including customer lists, goodwill, computer software, copyrights, trade names, trade marks, patents, unamortized deferred charges, unamortized debt discount and capitalized research and development costs. "Interest Payment Advance" means any Advance made to fund the payment of ------------------------ interest or Yield accruing on the Advances during the Construction Period. "Interest Period" means, with respect to any Advance: --------------- (a) during the Syndication Period: (i) initially, the period commencing on the funding with respect to such Advance and ending one (1) month thereafter; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Advance and ending one month thereafter; and (b) subsequent to the Syndication Period, each period commencing on the last day of the next preceding Interest Period applicable to such Advance and ending one, two (2), three (3) or six (6) months thereafter, as selected by the Lessee by irrevocable notice to the Lessor and the Agent not less than three (3) Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, the foregoing provisions relating to Interest Periods are subject to the following: [5]-20 (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that would otherwise extend beyond the Expiration Date shall end on the Expiration Date; (iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of the Interest Period) shall end on the last Business Day of a calendar month; (iv) the Lessee shall select Interest Periods so as not to require a payment or prepayment of any Advance during an Interest Period for such Advance; and (v) if the Lessee shall fail to notify the Lessor and the Agent of the next Interest Period, such Advance shall automatically convert to an Alternate Base Rate Advance on the last day of the current Interest Period therefor. "Investment" means, as to any Person, any investment by such Person, ---------- whether by means of the purchase or other acquisition of stock or other securities of any other Person or by means of a loan, creating a debt, capital contribution, guaranty or other debt or equity participation or interest in any other Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment. "Investment Company Act" means the Investment Company Act of 1940, as ---------------------- amended, together with the rules and regulations promulgated thereunder. "Land Interest" means fee title to the parcel of real property described on ------------- Schedule 1 of the Lease Supplement and all Appurtenant Rights attached thereto. - ---------------------------------- "Land Interest Acquisition Cost" means, with respect to the Property, the ------------------------------ amount funded by the Lessor under the Participation Agreement as the purchase price of the Land Interest as set forth in the Acquisition Request therefor, including closing costs and fees in connection therewith. "Land Interest Acquisition Date" means the date on which the Lessor ------------------------------ acquires the Land Interest, which date shall be specified in the Acquisition Request. "Late Payment Rate" means (a) for each day (other than as set forth in ----------------- clause (b) of this definition) the Federal Funds Effective Rate or (b) for the - ---------- purpose of computing interest on past due payments for each day following the fifth day after such payments first became due, a rate of two percent (2%) per annum in excess of the Alternate Base Rate then in effect; provided, the Late Payment Rate shall not, notwithstanding anything to the contrary herein contained, exceed the maximum rate of interest permitted by applicable law. [5]-21 "Lease" means the Original Lease as amended and restated by the Amended and ----- Restated Master Lease, dated as of July 12, 2000, between the Lessor and the Lessee, together with the Lease Supplement and all Equipment Schedules thereto. "Lease Balance" means, as of any date of determination, an amount equal to ------------- (i) the sum of the outstanding amount of the Advances, all accrued and unpaid interest and Yield on the Advances, and all other amounts owing by the Lessee under the Operative Documents, less (ii) the sum of all payments received by the Lessor, the Agent or the Participant on account of payments to reduce the Lease Balance, including reductions resulting from payments by the Lessor, the Lessee and the Guarantor, proceeds from the sale of the Property and/or amounts realized from the Collateral pursuant to the Cash Collateral Agreement. "Lease Default" means any event or condition which, with the lapse of time ------------- or the giving of notice, or both, would constitute a Lease Event of Default. "Lease Event of Default" is defined in Section 17.1 of the Lease. ---------------------- ------------------------- "Lease Supplement" means the Lease Supplement substantially in the form of ---------------- Exhibit A to the Lease together with all attachments and schedules thereto, as - ---------------------- such Lease Supplement may be supplemented, amended or modified from time to time. "Lenders" means the lenders from time to time party to, and as defined in, ------- the Loan Documents. "Lessee" means Quantum Corporation, a Delaware corporation, as lessee under ------ the Lease, and its successors and assigns expressly permitted under the Operative Documents. "Lessee's Property" is defined in Section 11.1 of the Lease. ----------------- ------------------------- "Lessor" means SELCO Service Corporation, as successor in interest to the ------ Original Lessor in its capacity as Lessor under the Lease, and its successors and assigns expressly permitted under the Operative Documents. "Lessor Financing Statements" means UCC financing statements appropriately --------------------------- completed and executed for filing in the applicable jurisdiction in order to protect the Lessor's interest under the Lease to the extent the Lease is a security agreement. "Lessor Lien" means any Lien, true lease or sublease or disposition of ----------- title arising as a result of (a) any claim against the Lessor not resulting from the transactions contemplated by the Operative Documents, (b) any act or omission of the Lessor which is not required by the Operative Documents or is in violation of any of the terms of the Operative Documents, (c) any claim against the Lessor with respect to Taxes or Transaction Expenses against which Lessee is not required to indemnify the Lessor, pursuant to Sections 9 or 13.5 of the ------------------------- Participation Agreement or (d) any claim against the Lessor arising out of any - ----------------------- transfer by the Lessor of all or any portion of the interest of the Lessor in the Property or the Operative Documents other than the transfer of title to or possession of the Property by the Lessor pursuant to and in accordance with the Lease or the Participation Agreement or pursuant to the exercise of the remedies set forth in Article XVII of the Lease. ------------------------- [5]-22 "Leverage Ratio" means, as of any date of determination, for the Lessee and -------------- its Subsidiaries on a consolidated basis, the ratio of (a) Consolidated Funded Indebtedness as of such date to (b) Consolidated EBITDA for the period of the four fiscal quarters ending on, or ending most recently prior to, such date. "License Disposition" means, in respect of any patent, trademark, ------------------- copyright, mask work, trade secret or other intellectual property right owned or held by the Lessee or any of its Subsidiaries (the "IP Holder") which is --------- material to the Lessee or any of its Subsidiaries (together, "Material IP"), (a) ----------- the granting by the IP Holder of an exclusive license across all or substantially all fields, uses or regions to any Person other than the Lessee or another Subsidiary, (b) the granting of any license by the IP Holder that conveys directly or indirectly to any Person other than the Lessee or its Subsidiaries all or substantially all of the economic value of such Material IP, or (c) the abandonment by the IP Holder of such Material IP. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit ---- arrangement (including in the nature of, cash collateral accounts or security interests), encumbrance, lien (statutory or other), fixed or floating charge, or other security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable Requirements of Law of any jurisdiction), including the interest of a purchaser of accounts receivable. "Loan Documents" means (i) the Credit Agreement (3-Year), entered into as -------------- of April 19, 2000 and amended and restated as of the Restatement Date (as defined therein), among the Lessee as borrower, Bank of America, N.A. as administrative agent and letter of credit issuing lender, The Bank of Nova Scotia and the other financial institutions party thereto, and each note, letter of credit application, request for extension of credit, certificate, fee letter and other instrument or agreement from time to time executed by the Lessee or any of its Subsidiaries and delivered in connection with such agreement; and (ii) the 364 Day Credit Agreement and each note, request for extension of credit, certificate, fee letter and other instrument or agreement from time to time executed by the Lessee or any of its Subsidiaries and delivered in connection with such agreement. "Marketing Period" and "Remarketing Period" mean the period commencing on ---------------- ------------------ the date one hundred eighty (180) days prior to the Expiration Date and ending on the Expiration Date or such other 180 day period as is referred to in Section ------- 17.2(h) of the Lease. - -------------------- "Material", "Materially", and "Material Adverse Effect" mean material to, -------- ---------- ----------------------- or a material adverse effect on, (i) the business, assets, operations or financial or other condition of the Lessee or the Guarantor and their respective Subsidiaries taken as a whole or, in respect of anytime prior to the Maxtor Merger Effective Time, to the DSS Business on a stand-alone basis, (ii) the ability of the Lessee or the Guarantor to perform its obligations under any of the Operative Documents, (iii) the value or condition of the Property or the Lessor's interests therein or title thereto, or (iv) the rights and remedies of the Lessor, the Agent and the Participants under the Participation Agreement or any other Operative Document taken as a whole. "Material Subsidiaries" means each Subsidiary of the Lessee which has --------------------- assets with a total book value greater than ten percent (10%) of the consolidated total assets of the Lessee and its [5]-23 Subsidiaries, each determined as of the end of the fiscal quarter immediately preceding the date of determination. "Maturity Date" means April 19, 2003, unless extended in accordance with ------------- the provisions of Section 3.7(b) of the Participation Agreement. --------------------------------------------- "Maxtor" means Maxtor Corporation, a Delaware corporation. ------ "Maxtor Merger" means the merger between Spinco and Maxtor, undertaken ------------- pursuant to the Maxtor Merger Agreement. "Maxtor Merger Agreement" means that Amended and Restated Agreement and ----------------------- Plan of Merger and Reorganization dated as of October 3, 2000, by and among the Lessee, Spinco, Maxtor and Hawaii Acquisition Corporation, in substantially the form attached to the Lessee's Form 8-K/A filed with the Securities and Exchange Commission on or about December 14, 2000. "Maxtor Merger Documents" means the documents set forth on Schedule 1 ----------------------- ---------- attached hereto under the caption "Maxtor Merger Documents" (each in a form - --------------- substantially identical to that filed as an exhibit to the Maxtor Merger S-4). "Maxtor Merger Effective Date" means the date of the effectiveness of the ---------------------------- Maxtor Merger. "Maxtor Merger Effective Time" means the time of the effectiveness of the ---------------------------- Maxtor Merger. "Maxtor Merger Net Charge" means an amount equal to the lesser of (i) the ------------------------ amount of the expense charge recorded by the Lessee in accordance with GAAP (whether arising from discontinued operations, the restructuring of the continuing DSS operations or the amortization of deferred compensation) in either the first fiscal quarter of fiscal year 2002 or the fourth fiscal quarter of fiscal year 2001, as the case may be, in connection with the Maxtor Merger minus any gain recorded by the Lessee in accordance with GAAP in connection with the sale of the HDD Business in such quarter and (ii) $75,000,000, but in any event not less than $0. "Maxtor Merger S-4" means that Registration Statement on Form S-4 filed by ----------------- Maxtor with the Securities and Exchange Commission on or about December 11, 2000, as amended on or about (i) January 23, 2001, (ii) February 16, 2001 and (iii) February 28, 2001, together with all exhibits and attachments thereto, and as the prospectus contained in such Registration Statement was amended on or about March 7, 2001. "Meridian Acquisition" means the acquisition by DSS of Meridian Data, Inc., -------------------- which was completed on or about September 10, 1999. "MKE" means Matsushita-Kotobuki Electronics Industries, Ltd., a Japanese --- corporation. "Modifications" is defined in Section 11.1(a) of the Lease. ------------- ---------------------------- "Moody's" means Moody's Investors Service, Inc. and any successor thereto ------- that is a nationally-recognized rating agency. [5]-24 "Mortgage" means, with respect to the Property, a Construction Deed of -------- Trust, Security Agreement and Financing Statement substantially in the form attached as Exhibit P to the Participation Agreement, made by the Original ---------------------------------------- Lessor in favor of a trustee for the Original Agent for the benefit of the Participants and satisfactory in form and substance to the Agent and the Required Participants in order to create a first priority mortgage lien on the Lessor's fee interest in the Property and a first priority security interest in the Equipment, as the respective rights and obligations of the Original Lessor and the Original Agent thereunder have been assigned to the Lessor and the Agent as of July 12, 2000. "Mortgage Documents" is defined in Section 6.1 of the Participation ------------------ -------------------------------- Agreement. - --------- "Mortgage Taxes" is defined in Section 6.1 of the Participation Agreement. -------------- ------------------------------------------ "Multiemployer Plan" means any employee benefit plan of the type described ------------------ in Section 4001(a)(3) of ERISA. "Net Cure Proceeds" is defined in Section 11.8 of the Participation ----------------- --------------------------------- Agreement. - --------- "Net Proceeds" means all amounts paid in connection with any Casualty or ------------ Condemnation, and all interest earned thereon, less the expense of claiming and collecting such amounts, including all costs and expenses in connection therewith for which the Agent or the Lessor is entitled to be reimbursed pursuant to the Lease. "Net Sales Proceeds" means the Gross Proceeds actually received by the ------------------ Lessor upon any sale by the Lessor of any part of the Property pursuant to Articles XVII or XXII of the Lease, including, without limitation, (i) any such - ---------------------------------- payments made to the Lessor by the Lessee or any purchaser, (ii) any Shortfall Amount paid to the Lessor by the Lessee, and (iii) any interest paid by the Lessee to the Lessor on past due amounts under the Lease; but excluding any payments applied by the Lessor to pay, or received by the Lessor as reimbursement for, bona fide costs of the sale and further excluding any excess net sales proceeds received from a purchaser that the Lessor is required to pay over to the Lessee. In the event that for any reason whatsoever, including a default by the Lessee, the Lessor does not sell the Property pursuant to the Lease on the Designated Payment Date, "Net Sales Proceeds" shall nonetheless include any Shortfall Amount actually received by the Lessor. Further, if the Lessor does not sell the Property pursuant to the Lease, then "Net Sales Proceeds" shall also include the excess, if any, of: (a) all rents and all sales, condemnation and insurance proceeds actually received by the Lessor from any sale or lease after the Designated Payment Date of any interest in, or because of any subsequent taking or damage to, the Property; over (b) the sum of (i) all costs of collecting the rents and proceeds described in the preceding clause (a) plus (ii) all ad valorem taxes, ---------- insurance premiums and other costs of every kind incurred by the Lessor with respect to the ownership, operation or maintenance of the Property. However, for purposes of computing any excess described in the preceding sentence, costs described in clause (b) shall not include the Lessor's general ---------- overhead costs or any costs for which the Participants have already paid the Lessor their Commitment Percentages thereof as required by Section 11.6 of the ------------------- Participation Agreement. - ----------------------- [5]-25 "Net Security Proceeds" means, with respect to any sale or issuance of any --------------------- Equity Securities or other security by any Person (including in the case of the Lessee, any sale or issuance of any Subordinated Debt), the aggregate consideration received by such Person from such sale or issuance less the actual ---- amount of fees and commissions payable to Persons other than such Person or any Affiliate of such Person. "Non-Consenting Participant" means any Participant which has denied, or is -------------------------- deemed to have denied, an Extension Request pursuant to Section 3.7 of the ------------------ Participation Agreement. - ----------------------- "Operative Documents" means the following: ------------------- (a) the Participation Agreement; (b) the Lease and Lease Supplement; (c) the Guarantee; (d) the Property Purchase Agreement, the Assignment of Purchase Agreement and the Deed; (e) the Construction Agency Agreement; (f) the Assignment of Lease and each Supplement to the Assignment of Lease; (g) the Consent to Assignment; (h) the Equipment Schedules; (i) the Mortgage; (j) the Construction Agency Agreement Assignment; (k) the Consent to Construction Agency Agreement Assignment; (l) the Assignment of Construction Documents; and (m) the Cash Collateral Agreement. "Ordinary Course Indebtedness" means: ---------------------------- (a) Indebtedness under the Loan Documents; (b) intercompany Guaranty Obligations of the Lessee or any of its Subsidiaries guarantying Indebtedness otherwise permitted hereunder of the Lessee or any Subsidiary of the Lessee (other than Snap Appliances); (c) Indebtedness arising from the honoring of a check, draft or similar instrument against insufficient funds or from the endorsement of instruments for collection in the ordinary course of the Lessee's or any Subsidiary's business; [5]-26 (d) Permitted Swap Obligations; and (e) Indebtedness of the Lessee or any of its Subsidiaries with respect to surety, appeal, indemnity, performance or other similar bonds in the ordinary course of business. "Ordinary Course Investments" means Investments consisting of: --------------------------- (a) Investments in other assets properly classified as "marketable securities" or "cash" or "cash equivalents" under GAAP, and which conform to the investment policies adopted by the Board of Directors of the Lessee from time to time; (b) advances to officers, directors and employees of the Lessee and its Subsidiaries for travel, entertainment, relocation and analogous ordinary business purposes; (c) Investments of the Lessee in any of its Subsidiaries (other than Snap Appliances) and Investments of any Subsidiary of the Lessee in the Lessee or another Subsidiary of the Lessee (other than Snap Appliances); (d) extensions of credit to customers or suppliers of the Lessee and its Subsidiaries in the ordinary course of business and any Investments received in satisfaction or partial satisfaction thereof; (e) Guaranty Obligations permitted by Section 10.2(a) of the ---------------------- Participation Agreement; ----------------------- (f) Investments received by the Lessee or any of its Subsidiaries as distributions on claims in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (g) Investments of any Subsidiary existing at the time it becomes a Subsidiary of the Lessee, provided that such Investments were not made in -------- anticipation of such Person becoming a Subsidiary of the Lessee; and (h) Investments consisting of loans to employees, officers and directors, the proceeds of which shall be used to purchase Equity Securities of the Lessee or its Subsidiaries and other loans to employees, officers and directors. "Ordinary Course Liens" means: --------------------- (a) Liens pursuant to any Loan Document; (b) Liens for taxes not yet due or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP; (c) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a [5]-27 period of more than thirty (30) days or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP; (d) pledges or deposits in connection with worker's compensation, unemployment insurance and other social security legislation; (e) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (f) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of any Person; (g) attachment, judgment or other similar Liens arising in connection with litigation or other legal proceedings (and not otherwise an Event of Default hereunder) in the ordinary course of business that is currently being contested in good faith by appropriate proceedings, adequate reserves have been set aside, and no material property is subject to a material risk of loss or forfeiture; (h) Liens on the property or assets of any Subsidiary of the Lessee in favor of the Lessee or any other Subsidiary of the Lessee (other than Snap Appliances); (i) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties and in connection with the importation of goods in the ordinary course of the Lessee's and its Subsidiaries' businesses; (j) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (x) such deposit account is -------- not a dedicated cash collateral account and is not subject to restrictions against access by the Lessee in excess of those set forth by regulations promulgated by the Board, and (y) such deposit account is not intended by the Lessee or any Subsidiary to provide collateral to the depository institution; and (k) Liens on insurance proceeds in favor of insurance companies with respect to the financing of insurance premiums. "Original Agent" is defined in Recital A to the Participation Agreement. -------------- "Original Executed Counterpart" is defined in Section 31.8 of the Lease. ----------------------------- ------------------------- "Original Lessor" is defined in Recital A to the Participation Agreement. --------------- "Original Participation Agreement" is defined in Recital A to the -------------------------------- ---------------- Participation Agreement. - ----------------------- "Outside Completion Date" means the second anniversary of the Effective ----------------------- Date. [5]-28 "Overdue Rate" means, with respect to the Advances, fees or any other ------------ payment due under the Operative Documents, the interest rate then applicable to the Advances plus two percent (2%) per annum. "Partial Purchase Date" is defined in Section 20.5(b) of the Lease. --------------------- ---------------------------- "Partial Purchase Notice" is defined in Section 20.5(b) of the Lease. ----------------------- ---------------------------- "Partial Purchase Option" is defined in Section 20.5(b) of the Lease. ----------------------- ---------------------------- "Partial Purchase Option Price" is defined in Section 20.5(a) of the Lease. ----------------------------- ---------------------------- "Participant's Letter" is defined in Section 12.1(b) of the Participation -------------------- ------------------------------------ Agreement. - --------- "Participation Agreement" means the Original Participation Agreement as ----------------------- amended and restated by the Amended and Restated Participation Agreement, dated as of July 12, 2000, among the Lessee, the Lessor, the Participants and the Agent. "Participation Interest" means, as to each Participant, a participation ---------------------- interest in, or in the case of each Tranche C Participant, an equity investment in, the Lease and the right to receive that percentage of the following payments actually received by the Lessor from or on behalf of the Lessee as is set forth on Schedule I to the Participation Agreement, subject to the provisions of ----------------------------------------- Sections 3.11 - 3.21 and Section 11 of the Participation Agreement: (i) Basic - ------------------------------------------------------------------ Rent, (ii) Supplemental Rent, (iii) Asset Termination Value, (iv) Purchase Option Price, (v) Partial Purchase Option Price, (vi) Net Sales Proceeds, (vii) Residual Value Guarantee Amount, (viii) the Shortfall Amount, and (ix) other payments in respect of indemnities or pursuant to the Guarantee or the exercise of remedies under the Operative Documents, excluding, however, (x) any Excepted Payments and (y) as to a particular Participant, any payments on account of any Advances and any Required Supplemental Payments (and interest thereon) for which the Lessor has not received payment from such Participant of such Participant's Commitment Percentage thereof. For example, if the Lessor elects to pay for insurance required of the Lessee by the Lease because of the Lessee's failure to obtain such insurance, the Lessor's receipt of reimbursement for the cost of such insurance from the Lessee shall be included within "Participation Interest" for purposes of this Agreement only if such Participant has paid to the Lessor such Participant's Commitment Percentage of such cost pursuant to Section 11.6 ------------ or Section 11.7 of the Participation Agreement. - ---------------------------------------------- "Participants" means each Person executing the Participation Agreement or a ------------ Participant's Letter as a Participant and purchasing a Participation Interest in the transactions contemplated by the Participation Agreement and the other Operative Documents. "Participant Balance" means for each Participant the sum of its Tranche A ------------------- Participation Interest Balance, its Tranche B Participation Interest Balance and its Tranche C Participation Interest Balance. "Payment Date" means (a) any Scheduled Payment Date and (b) any date on ------------ which interest or Yield is payable pursuant to Section 3.8(d) of the --------------------- Participation Agreement in connection with any prepayment of the Advances. - ----------------------- [5]-29 "PBGC" means the Pension Benefit Guaranty Corporation or any entity ---- succeeding to any or all of its functions under ERISA. "Pension Plan" means any "employee pension benefit plan" (as such term is ------------ defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the Lessee or any ERISA Affiliate or to which the Lessee or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five plan years. "Permitted Exceptions" means (a) the respective rights and interests of the -------------------- parties to the Operative Documents as provided in the Operative Documents; (b) the rights of any sublessee or assignee under a sublease or an assignment expressly permitted by the terms of the Lease; (c) Liens for Taxes that either are not yet due or are being contested in accordance with the provisions of Section 13.1 of the Lease or Section 13.5 of the Participation Agreement; (d) - ------------------------- ------------------------------------------- Liens arising by operation of law, materialmen's, mechanics', workers', repairmen's, employees', carriers', warehousemen's and other like Liens in connection with any Modifications or arising in the ordinary course of business for amounts that either are not more than sixty (60) days past due or are being diligently contested in good faith by appropriate proceedings, so long as such proceedings satisfy the conditions for the continuation of proceedings to contest Taxes set forth in Section 13.1 of the Lease, and that have been bonded ------------------------- for not less than the full amount in dispute (or as to which other security arrangements satisfactory to the Lessor have been made), which bonding (or arrangements) shall comply with applicable Requirements of Law, and has effectively stayed any execution or enforcement of such Liens; (e) Liens arising out of judgments or awards with respect to which appeals or other proceedings for review are being prosecuted in good faith and for the payment of which adequate reserves have been provided as required by GAAP or other appropriate provisions have been made, so long as such proceedings have the effect of staying the execution of such judgments or awards and satisfy the conditions for the continuation of proceedings to contest set forth in Section 13.1 of the ------------------- Lease; (f) all encumbrances, exceptions, restrictions, easements, rights of way, - ----- servitudes, encroachments and irregularities in title, other than Liens which, in the reasonable assessment of the Agent, do not materially impair the value of the Property or the use of the Property for its intended purpose; (g) easements, rights of way and other encumbrances on title to the Property pursuant to Section 12.2 of the Lease; (h) a Lien consisting of a deposit or pledge made, in - ------------------------- the ordinary course of business, in connection with, or to secure payment of, obligations under worker's compensation, unemployment insurance or similar legislation and (i) Liens of the types described in clauses (i), (ii) and (iv) -------------------------- of Section 10.2(b) of the Participation Agreement and clauses (b), (d), (e) and - ------------------------------------------------- ------------------------- (h) of the definition of Ordinary Course Liens; provided, however, that - --- -------- ------- Permitted Exceptions shall in no event include Lessor's Liens. "Permitted Indebtedness" is defined in Section 10.2(a) of the Participation ---------------------- ------------------------------------ Agreement. - --------- "Permitted Investments" is defined in Section 10.2(e) of the Participation --------------------- ------------------------------------ Agreement. - --------- "Permitted Liens" is defined in Section 10.2(b) of the Participation --------------- ------------------------------------ Agreement. - --------- "Permitted Receivables Facility" means one or more accounts receivable ------------------------------ financing arrangements including (a) the sale of accounts receivable and any related property by the Lessee and/or any of its Subsidiaries to a financing party or a special purpose vehicle, and/or (b) the [5]-30 granting of a security interest in accounts receivable and any related property by the Lessee and/or any of its Subsidiaries; provided, however, that the -------- ------- aggregate advances under all such accounts receivable financing arrangements shall not exceed $100,000,000 at any time. "Permitted Swap Obligations" means all obligations (contingent or -------------------------- otherwise) of the Lessee or any of its Subsidiaries existing or arising under Swap Contracts, provided that such obligations are (or were) entered into by -------- such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments or assets held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person in conjunction with a securities repurchase program not otherwise prohibited hereunder, and not for purposes of speculation or taking a "market view." "Person" means any individual, trustee, corporation, general partnership, ------ limited partnership, limited liability company, joint stock company, trust, unincorporated organization, bank, business association, firm, joint venture, Governmental Authority, or otherwise. "Plan" means any employee benefit plan maintained or contributed to by the ---- Lessee or by any trade or business (whether or not incorporated) under common control with the Lessee as defined in Section 4001(b) of ERISA and insured by the PBGC under Title IV of ERISA. "Plans and Specifications" means, with respect to the Property, the plans ------------------------ and specifications for the Improvements to be constructed on the Property. "Pricing Grid" means Schedule II to the Participation Agreement. ------------ ------------------------------------------ "Prime Rate" means the per annum rate publicly announced by the Agent from ---------- time to time at its New York Branch. The Prime Rate is determined by the Agent from time to time as a means of pricing credit extensions to some customers and is neither directly tied to any external rate of interest or index nor necessarily the lowest rate of interest charged by the Agent at any given time for any particular class of customers or credit extensions. Any change in the Alternative Base Rate resulting form a change in the Prime Rate shall become effective on the Business Day on which each change in the Prime Rate occurs. "Property" means (i) the Land Interest and (ii) all of the Improvements, -------- Equipment and Fixtures at any time located on or under such Land Interest other than Lessee's Property. "Property Balance" means, with respect to the Property, as of any date of ---------------- determination, an amount equal to (i) the sum of the outstanding amount of the Advances, all accrued and unpaid interest and Yield on the Advances, and all other amounts owing by the Lessee under the Operative Documents, less (ii) the sum of all payments received by the Lessor, the Agent or the Participant on account of payments to reduce the Property Balance, including reductions resulting from payments by the Lessor, the Lessee and the Guarantor and/or proceeds from the sale of the Property and/or amounts realized from the Collateral pursuant to the Cash Collateral Agreement. "Property Cost" means, with respect to the Property, the aggregate amount ------------- of the related Land Interest Acquisition Cost and the related Property Improvements Cost. [5]-31 "Property Improvements Cost" means, with respect to the Property, the -------------------------- amount funded to or on behalf of the Construction Agent by the Lessor under the Participation Agreement and the Construction Agency Agreement to construct any Improvements, Fixtures or Modifications and to purchase Equipment to be used on the Property in accordance with the Plans and Specifications therefor and the Operative Documents, as set forth in the Acquisition Request and Funding Requests therefor (including interest and Yield on the Advances during the Construction Period applied to such cost and funded by an Interest Payment Advance). "Property Purchase Agreement" means the Purchase and Sale Agreement, dated --------------------------- as of July, 1997, between the Existing Owner and the Lessee, and assigned to the Original Lessor pursuant to the Assignment of Purchase Agreement, providing for the purchase of the Property by the Lessor on the Land Interest Acquisition Date. "Purchase Notice" is defined in Section 20.1 of the Lease. --------------- ------------------------- "Purchase Option" is defined in Section 20.1 of the Lease. --------------- ------------------------- "Purchase Option Price" is defined in Section 20.1 of the Lease. --------------------- ------------------------- "Quick Ratio" means, with respect to the Lessee and its Subsidiaries at any ----------- time, the ratio, determined on a consolidated basis in accordance with GAAP, of: (a) the sum at such time of all (i) cash and cash equivalents of the Lessee and its Subsidiaries (excluding restricted cash), and (ii) accounts receivable of the Lessee and its Subsidiaries, less all reserves therefor; to (b) the sum at -- such time of (i) the current liabilities of the Lessee and its Subsidiaries (including any such liabilities outstanding under the Loan Documents and the Operative Documents), plus (ii) to the extent not included in clause (i), the ---- ---------- aggregate outstanding obligations under the Loan Documents with respect to the principal amount of loans, the undrawn face amount of letters of credit and unreimbursed drawings under letters of credit; provided that in respect of any -------- period (or partial period) prior to the Maxtor Merger Effective Time, the "Quick Ratio" shall be determined solely in respect of the DSS Business on a stand- alone basis, based upon the then-current DSS Combined Financial Statements. "Release" means any release, pumping, pouring, emptying, injecting, ------- escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or emission of a Hazardous Substance. "Remarketing Option" is defined in Section 22.1 of the Lease. ------------------ ------------------------- "Remarketing Period" is defined in the definition "Marketing Period". ------------------ "Renewal Option" is defined in Section 21.1(a) of the Lease. -------------- ---------------------------- "Renewal Request" is defined in Section 21.1(a) of the Lease. --------------- ---------------------------- "Renewal Response Date" is defined in Section 21.1(a) of the Lease. --------------------- ---------------------------- "Renewal Term" means, individually, either of the two one-year periods ------------ which immediately follow April 19, 2003, with respect to which Lessee has exercised its Renewal Option pursuant to Section 21.1 of the Lease. ------------------------- [5]-32 "Rent" means, collectively, the Basic Rent and the Supplemental Rent, in ---- each case payable under the Lease. "Reportable Event" means any of the events set forth in Section 4043(b) of ---------------- ERISA or the regulations thereunder, a withdrawal from a Plan described in Section 4063 of ERISA, or a cessation of operations described in Section 4062(e) of ERISA. "Requesting Party" is defined in Section 26.1 of the Lease. ---------------- ------------------------- "Required Modification" is defined in Section 11.1(a) of the Lease. --------------------- ---------------------------- "Required Participants" means, at any time, Participants the Commitment --------------------- Percentages of which aggregate at least sixty-six and two-thirds percent (66 2/3%). "Required Supplemental Payments" means all payments of Supplemental Rent ------------------------------ that the Lessee has agreed to pay the Lessor under the Lease and the other Operative Agreements, other than (i) the Administrative Fee, (ii) Excepted Payments, (iii) Residual Value Guarantee Amount, (iv) Asset Termination Value, (v) Purchase Option Price, (vi) Partial Purchase Option Price and (vii) interest or Yield accruing on any amount due from the Lessee, which amount is itself not a Required Supplemental Payment under this definition. For example, if the Lessor incurs attorneys' fees because of a breach by the Lessee of the Lease, the payments required of the Lessee by the Lease as reimbursement for such fees shall constitute a Required Supplemental Payment. "Requirement of Law" means all Federal, state, county, municipal and other ------------------ governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting the Property, the Improvements or the demolition, construction, use or alteration thereof, whether now or hereafter enacted and in force, including any that require repairs, modifications or alterations in or to the Property or in any way limit the use and enjoyment thereof (including all building, zoning and fire codes and the Americans with Disabilities Act of 1990, 42 U.S.C. (S) 1201 et. seq. and any other similar Federal, state or local laws or ordinances and the regulations promulgated thereunder) and any that may relate to environmental requirements (including all Environmental Laws), and all permits, certificates of occupancy, licenses, authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments which are either of record or known to the Lessee affecting the Property, other than Lessor Liens, the Appurtenant Rights and any easements, licenses or other agreements entered into pursuant to Section 12.2 of the Lease. ------------------------- "Residual Value Guarantee Amount" means (i) during the Construction Period, ------------------------------- an amount equal to eighty-nine and nine-tenths percent (89.9%) of the Lease Balance, and (ii) at all other times, an amount equal to the aggregate Tranche A Participation Interest Balances of the Participants holding Tranche A Participation Interests. "Response Actions" means remove, removal, remedy, and remedial action as ---------------- those terms are defined in CERCLA, 42 U.S.C. (S) 9601. "Responsible Officer" means the President, any Vice President, the ------------------- Treasurer or Controller of the Lessee. [5]-33 "Responsible Officer's Certificate" means a certificate signed by any --------------------------------- Responsible Officer, which certificate shall certify as true and correct the subject matter being certified to in such certificate. "Restricted Payment" means: ------------------ (a) the declaration or payment of any dividend or distribution by the Lessee or any Subsidiary, either in cash or property, on any shares of the capital stock of any class of the Lessee or any Subsidiary; and (b) any other payment or distribution by the Lessee or any Subsidiary in respect of its capital stock, either directly or indirectly. "Restructuring Date" means July 12, 2000, if all conditions described in ------------------ Schedule 6.4 to the Participation Agreement have been satisfied or waived or - ------------------------------------------- deferred as provided in Section 6.4 of the Participation Agreement. ------------------------------------------ "S&P" means Standard & Poor's Ratings Services, a division of The McGraw- --- Hill Companies, Inc., and any successor thereto that is a nationally-recognized rating agency. "Scheduled Payment Date" means (a) as to interest or Yield on any Advances ---------------------- having an Interest Period of three (3) months or less, the last day of each Interest Period, (b) as to interest or Yield on any Advances having an Interest Period longer than three (3) months, each day which is three (3) months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period, (c) as to interest or Yield on any Advances bearing interest at the Alternate Base Rate, the last day of each March, June, September and December, and (d) as to the principal amount or equity contribution amount of the Advances, each date indicated on Schedule 1 to the Lease as being a ----------------------- payment date with respect to such portion of the Property Cost, if any. "Securities Act" means the Securities Act of 1933, as amended, together -------------- with the rules and regulations promulgated thereunder. "Security Documents" means the collective reference to the Mortgage, the ------------------ Assignment of Lease, the Construction Agency Agreement Assignment, the Assignment of Construction Documents, the Cash Collateral Agreement and all other security documents hereafter delivered to the Agent granting a Lien on any asset or assets of any Person to secure the obligations and liabilities of the Lessor to the Agent and the Participants under the Participation Agreement or of the Lessee to the Lessor under the Lease. "Senior Indebtedness" means, with respect to any Person at any time, all ------------------- Indebtedness of such Person other than Subordinated Debt. "Shareholders' Equity" means, as of any date of determination for the -------------------- Lessee and its Subsidiaries on a consolidated basis, shareholders' equity as of that date determined in accordance with GAAP. "Shortfall Amount" means, as of the Expiration Date, the amount that the ---------------- Asset Termination Value will exceed the aggregate of the Gross Proceeds and the Residual Value Guarantee Amount upon the completion of a sale of the Property pursuant to Article XXII of the Lease. ------------------------- [5]-34 "Significant Casualty" means (i) a Casualty that results in an insurance -------------------- settlement on the basis of a total loss, or a constructive or compromised total loss, or (ii) a Casualty that in the reasonable, good faith judgment of the Lessee (as evidenced by a Responsible Officer's Certificate delivered to the Lessor pursuant to Section 16.1 of the Lease) either (a) renders the Property ------------------------- unsuitable for continued use as a commercial property of the type of such property immediately prior to such Casualty or (b) is so substantial in nature that restoration of the Property to substantially its condition as existed immediately prior to such Casualty would be impracticable or impossible. "Significant Condemnation" means (i) a Condemnation that involves a taking ------------------------ of Lessor's entire title to the related Land Interest, (ii) a Condemnation that results in loss of possession of the Property by the Lessee for a period in excess of one hundred eighty (180) consecutive days, or (iii) a Condemnation that in the reasonable, good faith judgment of the Lessee (as evidenced by a Responsible Officer's Certificate delivered to the Lessor pursuant to Section ------- 16.1 of the Lease) either (a) renders the Property unsuitable for continued use - ----------------- as commercial of the type of such property immediately prior to such Condemnation or (b) is such that restoration of the Property to substantially its condition as existed immediately prior to such Condemnation would be impracticable or impossible. "Significant Event" means (i) a Significant Casualty, (ii) a Significant ----------------- Condemnation, (iii) an event where the restoration of the Property subject to a Casualty or Condemnation shall not be completed prior to the earlier of (A) the 180th day prior to the Expiration Date or (B) twelve (12) months following the occurrence of such Casualty or Condemnation or (iv) the occurrence of an Environmental Violation where the costs to clean up or remediate the same are reasonably estimated by the Lessee to exceed $5,000,000. "Snap Appliances" means Snap Appliances, Inc., a Delaware corporation. --------------- "Snap Appliances S-1" means that Registration Statement on Form S-1 filed ------------------- by Snap Appliances with the Securities and Exchange Commission on or about October 30, 2000, as amended on or about November 13, 2000, together with all exhibits and attachments thereto. "Snap Business" has the meaning specified in Section 4.20 of the Snap ------------- ------------------------ General Assignment Agreement. - ---------------------------- "Snap Employee Matters Agreement" means that Employment Matters Agreement ------------------------------- to be entered into by the Lessee and Snap Appliances in connection with the Snap Spin-Off in a form substantially identical to the form of such agreement attached as an exhibit to the Snap Appliances S-1. "Snap General Assignment Agreement" means that General Assignment and --------------------------------- Assumption Agreement to be entered into by the Lessee and Snap Appliances in connection with the Snap Spin-Off in a form substantially identical to the form of such agreement attached as an exhibit to the Snap Appliances S-1. "Snap Master Agreement" means that Master Separation and Distribution --------------------- Agreement effective as of October 26, 2000 between the Lessee and Snap Appliances. [5]-35 "Snap Spin-Off Documents" means the documents set forth on Schedule 1 ----------------------- ---------- attached hereto under the caption "Snap Spin-Off Documents" together with any - --------------- and all other documents entered into pursuant thereto, in connection therewith or required thereby. "Snap Spin-Off" means (a) the contribution and assignment by the Lessee to ------------- Snap Appliances of certain assets and liabilities of the Lessee associated with the Snap Business, substantially in accordance with the terms of the Snap Master Agreement, (b) the consummation by Snap Appliances of an initial public offering following which the Lessee shall retain an ownership interest in not less than 80% of outstanding common stock of Snap Appliances, substantially in accordance with the Snap Appliances S-1 and (c) the distribution to the Lessee's shareholders of all or substantially all remaining shares of Snap Appliances pursuant to a tax-free reorganization. "Solvent" means, as to any Person at any time, that (i) the fair value of ------- the property of such Person is greater than the amount of such Person's liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy Code; (ii) the present fair saleable value of the property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (iii) such Person is able to realize upon its property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business; (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (v) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital. "Specified Event of Default" is defined in Section 17.1(q) of the Lease. -------------------------- ---------------------------- "Spinco" means Insula Corporation, a Delaware corporation and, prior to the ------ Maxtor Merger Effective Time, a wholly-owned Subsidiary of the Lessee. "Subdivided Parcel" is defined in Section 20.5(a) of the Lease. ----------------- ---------------------------- "Subordinated Debt" means the Convertible Subordinated Debentures and any ----------------- other subordinated debt permitted by clause (xi) of Section 10.2(a) of the ------------------------------------- Participation Agreement. - ----------------------- "Subsidiary" of a Person means a corporation, partnership, joint venture, ---------- limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned or controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. "Supplemental Rent" means all amounts, liabilities and obligations (other ----------------- than Basic Rent) which Lessee assumes or agrees to pay to Lessor or any other Person under the Lease, or under any of the other Operative Documents, including, without limitation, payments of the Residual Value Guarantee Amount, the Shortfall Amount and payments pursuant to Sections 16.2, 16.3, 16.4 or 17.6 --------------------------------- of the Lease and Articles XX and XXII of the Lease. - ------------ --------------------------------- [5]-36 "Supplement to Assignment of Lease" means the Supplement substantially in --------------------------------- the form of Exhibit A to the Assignment of Lease together with all attachments ------------------------------------ and schedules thereto, as such Supplement to Assignment of Lease may be supplemented, amended or modified from time to time. "Swap Contract" means (a) any and all rate swap transactions, basis swaps, ------------- forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., or any other master agreement (any such master agreement, together with any related schedules, as amended, restated, extended, supplemented or otherwise modified in writing from time to time, a "Master Agreement"), including any such ---------------- obligations or liabilities under any Master Agreement. "Syndication Period" means the period commencing on the Effective Date and ------------------ concluding on the earlier of (i) the date which is ninety (90) days after the Effective Date or (ii) the date on which the Agent has syndicated Participation Interests to other Participants representing not less than seventy percent (70%) of the total Commitment set forth on Schedule I to the Participation Agreement. ----------------------------------------- "Synthetic Lease Obligations" means all monetary obligations of a Person --------------------------- under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations which do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as secured debt of such Person. "Tax Loss" means any and all taxes (including interest and penalties) of -------- the Lessee or any of its Subsidiaries paid, or required to be paid, at any time as a result of the Maxtor Merger or HDD Redemption not qualifying to be treated as a tax free transaction or as part of a tax-free reorganization under the Code (or other applicable tax law), whether as a result of the IRS (or any other applicable taxing authority) making such a determination or otherwise. "Taxes" is defined in the definition of Impositions. ----- "Term" is defined in Section 2.3 of the Lease. ---- ------------------------ "Termination Date" is defined in Section 15.1(d), 16.2(a) and 17.2(e) of ---------------- --------------------------------------- the Lease. - --------- "Termination Notice" is defined in Section 16.1 of the Lease. ------------------ ------------------------- "364 Day Commitment" means $53,600,000. ------------------ [5]-37 "364 Day Credit Agreement" means the Credit Agreement (364-Day/1-Year), ------------------------ dated as of April 19, 2000, among the Lessee as borrower, Bank of America, N.A. as administrative agent, The Bank of Nova Scotia and the other financial institutions party thereto. "Threshold Amount" means $10,000,000. ---------------- "Two Year Commitment" means $12,400,000. The Two Year Commitment expires ------------------- on the earlier of the Completion Date or the Outside Completion Date. "Tranche A Participants" means those Participants purchasing a Tranche A ---------------------- Participation Interest in the Advances and maintaining a Tranche A Participation Interest Commitment. "Tranche A Participation Interest" means, (i) as to each Tranche A -------------------------------- Participant, such Participant's Tranche A Participation Interest Commitment Percentage, multiplied by the outstanding amount of all Advances as to which such Participant has funded its Tranche A Participation Interest Commitment Percentage under Section 3.4 of the Participation Agreement and (ii) as to all ------------------------------------------ Tranche A Participants, 86.679162% of all outstanding Advances. "Tranche A Participation Interest Balance" means for each Tranche A ---------------------------------------- Participant as of any date of determination an amount equal to (i) the sum of such Tranche A Participant's Tranche A Participation Interest in all outstanding Advances, together with all accrued and unpaid interest thereon, and all other amounts owing by the Lessee to such Tranche A Participant under the Operative Documents, less (ii) the sum of all payments received by the Tranche A Participant on account of payments to reduce such Tranche A Participant's Tranche A Participation Interest, including reductions resulting from payments by the Lessor, the Lessee and the Guarantor and/or proceeds from the sale of the Property and/or amounts realized from the Collateral pursuant to the Cash Collateral Agreement. "Tranche A Participation Interest Commitment" is defined in Section 3.5 of ------------------------------------------- -------------- the Participation Agreement. - --------------------------- "Tranche A Participation Interest Commitment Percentage" means (i) with ------------------------------------------------------ respect to all Participants in the aggregate, 86.679162% of the aggregate Commitments, and (ii) with respect to each Tranche A Participant, the percentage of the aggregate Commitments set forth after such Participant's Tranche A Participation Interest Commitment in Schedule I to the Participation Agreement. ----------------------------------------- "Tranche B Participants" means those Participants purchasing a Tranche B ---------------------- Participation Interest in the Advances and maintaining a Tranche B Participation Interest Commitment. "Tranche B Participation Interest" means, (i) as to each Tranche B -------------------------------- Participant, such Tranche B Participant's Tranche B Participation Interest Commitment multiplied by the outstanding amount of all Advances as to which such Participant has funded its Tranche B Participation Interest Commitment Percentage under Section 3.4 of the Participation Agreement and (ii) as to all ------------------------------------------ Tranche B Participants, 9.80000% of all outstanding Advances. "Tranche B Participation Interest Balance" means for each Tranche B ---------------------------------------- Participant as of any date of determination an amount equal to (i) the sum of such Tranche B Participant's Tranche B Participation Interest in all outstanding Advances, together with all accrued and [5]-38 unpaid interest thereon, and all other amounts owing by the Lessee to such Tranche B Participant under the Operative Documents, less (ii) the sum of all payments received by the Tranche B Participant on account of payments to reduce such Tranche B Participant's Tranche B Participation Interest, including reductions resulting from payments by the Lessor, the Lessee and the Guarantor and/or proceeds from the sale of the Property and/or amounts realized from the Collateral pursuant to the Cash Collateral Agreement. "Tranche B Participation Interest Commitment" is defined in Section 3.5 of ------------------------------------------- -------------- the Participation Agreement. - --------------------------- "Tranche B Participation Interest Commitment Percentage" means (i) with ------------------------------------------------------ respect to all Participants in the aggregate, 9.80000% of the aggregate Commitments, and (ii) with respect to each Tranche B Participant, the percentage of the aggregate Commitments set forth after such Participant's Tranche B Participation Interest Commitment in Schedule I to the Participation Agreement. ----------------------------------------- "Tranche C Participants" means those Participants purchasing a Tranche C ---------------------- Participation Interest in the Advances and maintaining a Tranche C Participation Interest Commitment. "Tranche C Participation Interest" means, (i) as to each Tranche C -------------------------------- Participant, such Tranche C Participant's Tranche C Participation Interest Commitment multiplied by the outstanding amount of all Advances as to which such Participant has funded its Tranche C Participation Interest Commitment Percentage under Section 3.4 of the Participation Agreement and (ii) as to all ------------------------------------------ Tranche C Participants 3.520838% of all outstanding Advances. "Tranche C Participation Interest Balance" means for each Tranche C ---------------------------------------- Participant as of any date of determination an amount equal to (i) the sum of such Tranche C Participant's Tranche C Participation Interest in all outstanding Advances, together with all accrued and unpaid Yield thereon, and all other amounts owing by the Lessee to such Tranche C Participant under the Operative Documents, less (ii) the sum of all payments received by the Tranche C Participant on account of payments to reduce such Tranche C Participant's Tranche C Participation Interest, including reductions resulting from payments by the Lessor, the Lessee and the Guarantor, proceeds from the sale of the Property and/or amounts realized from the Collateral pursuant to the Cash Collateral Agreement. "Tranche C Participation Interest Commitment" is defined in Section 3.5 of ------------------------------------------- -------------- the Participation Agreement. - --------------------------- "Tranche C Participation Interest Commitment Percentage" means (i) with ------------------------------------------------------ respect to all Participants in the aggregate, 3.520838% of the Aggregate Commitments, and (ii) with respect to each Tranche C Participant, the percentage of the Aggregate Commitments set forth after such Participant's Tranche C Participation Interest Commitment in Schedule I to the Participation Agreement. ----------------------------------------- "Transaction Expenses" means the following costs and expenses incurred by -------------------- the Lessor, the Agent and, to the extent referred to below, the Participants in connection with the preparation, execution and delivery of the Operative Documents and the transactions contemplated by the Operative Documents: [5]-39 (a) the reasonable fees, out-of-pocket expenses and disbursements of counsel for each of the Lessor and the Agent, in negotiating the terms of the Operative Documents and the other transaction documents, preparing for the closing under, and rendering opinions in connection with, such transactions and in rendering other services customary for counsel representing parties to transactions of the types involved in the transactions contemplated by the Operative Documents; (b) the reasonable fees, out-of-pocket expenses and disbursements of counsel of each of the Lessor and the Agent in connection with (1) any amendment, supplement, waiver or consent with respect to any Operative Documents requested or approved by the Lessee and (2) any enforcement of any rights or remedies against the Lessee in respect of the Operative Documents; (c) any and all Taxes and fees incurred in recording, registering or filing any Operative Document or any other transaction document, any deed, declaration, mortgage, security agreement, notice or financing statement with any public office, registry or governmental agency in connection with the transactions contemplated by the Operative Documents; (d) any title fees, premiums and escrow costs and other expenses relating to title insurance and the closing contemplated by the Transaction Documents; and (e) all expenses relating to all Environmental Audits and Appraisals. "Type" means, with respect to any Advance, its nature as an Alternate Base ---- Rate Advance or a Eurodollar Rate Advance. "UCC Financing Statements" means collectively the Agent Financing ------------------------ Statements and the Lessor Financing Statements. "Uniform Commercial Code" and "UCC" means the Uniform Commercial Code as in ----------------------- --- effect in any applicable jurisdiction. "Yield" is defined in Section 3.8(b) of the Participation Agreement. ----- --------------------------------------------- [5]-40 SCHEDULE 1 TO APPENDIX 1 HDD CONVERTIBLE DEBT PORTION; MAXTOR MERGER DOCUMENTS; SNAP SPIN-OFF DOCUMENTS ------------------------------------------------ HDD Convertible Debt Portion - ---------------------------- The HDD Convertible Debt Portion shall be 33.33%. Maxtor Merger Documents - ----------------------- . Maxtor Merger Agreement. . HDD Separation Agreement. . HDD General Assignment Agreement. . Tax Sharing and Indemnity Agreement among the Lessee, Spinco and Maxtor. . Transitional Services Agreement among the Lessee, Spinco and Maxtor. . Intellectual Property Agreement among the Lessee, Spinco and Maxtor. . Indemnification Agreement among the Lessee, Spinco and Maxtor. . Reimbursement Agreement, dated as of a date on or prior to the Maxtor Merger Effective Date, between the Lessee and Maxtor. Snap Spin-Off Documents - ----------------------- . Snap Master Agreement. . Snap General Assignment Agreement. . Master Intellectual Property Agreement between the Lessee and Snap Appliances. . Snap Employee Matters Agreement. . Tax Sharing Agreement between the Lessee and Snap Appliances. . Master Transitional Services Agreement between the Lessee and Snap Appliances. . Indemnification and Insurance Matters Agreement between the Lessee and Snap Appliances. . Hard Disk Drive Supply Agreement dated as of June 30, 2000, entered into by Snap Appliances and the Lessee. [5]-41 ATTACHMENT 6 ------------ Revised Exhibit Q ----------------- FORM OF COMPLIANCE CERTIFICATE Financial Statement Date: _______________________,___ To: The Bank of Nova Scotia, as Agent Ladies and Gentlemen: Reference is made to that certain Amended and Restated Participation Agreement, dated as of July 12, 2000 between Quantum Corporation, a Delaware corporation (the "Lessee"), SELCO Service Corporation, an Ohio corporation (the ------ "Lessor"), the Participants from time to time party thereto, The Bank of Nova ------ Scotia, as agent (the "Agent"), (said agreement, as amended, restated, extended, ----- supplemented or otherwise modified in writing from time to time, the "Participation Agreement;" the terms defined therein being used herein as ----------------------- therein defined). The undersigned Responsible Officer hereby certifies as of the date hereof that he is the ____________________________________ of the Lessee, and that, as such, he is authorized to execute and deliver this Compliance Certificate to the Agent on the behalf of the Lessee, and that: [Use following for fiscal year-end financial statements] 1. Attached hereto as Schedule 1 are the year-end audited financial statements required by clause (i) of Section 10.1(a) of the Participation -------------------------------------------------- Agreement for the fiscal year of the Lessee ended as of the above date, together - --------- with the report and opinion of an independent certified public accountant required by such section. [Use following for fiscal quarter-end financial statements] 1. Attached hereto as Schedule 1 are the unaudited financial statements ---------- required by clause (ii) of Section 10.1(a) of the Participation Agreement for ------------------------------------------------------------- the fiscal quarter of the Lessee ended as of the above date. Such financial statements fairly present the financial condition, results of operations and changes in financial position of the Lessee and its Subsidiaries in accordance with GAAP as at such date and for such periods, subject only to normal year-end audit adjustments and the absence of footnotes. 2. The undersigned has reviewed and is familiar with the terms of the Participation Agreement and has made, or has caused to be made under his supervision, a detailed review of the transactions and conditions (financial or otherwise) of the Lessee during the accounting period covered by the attached financial statements. [6]-1 3. A review of the activities of the Lessee and its Subsidiaries during such fiscal period has been made under my supervision with a view to determining whether during such fiscal period the Lessee performed and observed all its respective obligations under the Operative Documents, and [select one:] [to the knowledge of the undersigned during such fiscal period, the Lessee performed and observed each covenant and condition of the Operative Documents applicable to it.] --or-- [the following covenants or conditions have not been performed or observed and the following is a list of all such Defaults and its nature and status:] 4. The following financial covenant analyses and information set forth on Schedule 2 attached hereto are true and accurate on and as of the date of this Compliance Certificate. IN WITNESS WHEREOF, the undersigned has executed this Compliance Certificate as of ________________, ___________. QUANTUM CORPORATION By: _________________________________________ Name: _______________________________________ Title: ______________________________________ [6]-2 For the Quarter/Year ended _______________ ("Statement Date") -------------- SCHEDULE 2 to the Compliance Certificate ($ in 000's) [NOTE: With respect to any period (or partial period) prior to the Maxtor Merger Effective Time, certain of the ratios and amounts described herein shall be determined solely in respect of the DSS Business on a stand-alone basis, based upon the then-current DSS Combined Financial Statements.] I. Section 10.2(n)(i) Please indicate whether the Lessee remains in compliance with the covenants set forth in Section 10.2(k) after taking into account the aggregate amount of any transfers of assets or assumptions of liabilities (assuming that any contingent or off balance sheet YES / NO liabilities are incurred and accounted for in an amount equal to that which could reasonably be expected to be paid) pursuant to Section 10.2(n)(i). II. Section 10.2(n)(ii)(D) Please indicate whether the Lessee remains in compliance with the covenants set forth in Section 10.2(k) after taking into account the aggregate amount of any transfers of assets or assumptions of liabilities (assuming that any contingent or off balance sheet YES / NO liabilities are incurred and accounted for in an amount equal to that which could reasonably be expected to be paid) pursuant to Section 10.2(n)(i)(D). III. Section 10.2(e)(ix) Note: Please indicate whether the Lessee or any of its Subsidiaries ---- made any Investment in Snap Appliances pursuant to Section 10.2(e)(ix) in the period to which this Compliance Certificate YES / NO relates, and if so complete this section. Aggregate Investments in Snap Appliances from and after Restatement Date but prior to consummation of the Snap Spin Off. $___________________ Maximum permitted: $100,000,000
[6]-3 IV. Section 10.2(k)(i) - Minimum Consolidated Tangible Net Worth. A. Actual Consolidated Tangible Net Worth at Statement Date: 1. Shareholders' Equity: $____________________ 2. Intangible Assets: $____________________ 3. Consolidated Tangible Net Worth (Line IV.A.1 less Line IV.A.2): $____________________ B. 75% of Consolidated Tangible Net Worth as of March 31, 2000 $____________________ C. Amount equal to 75% of the sum of positive Consolidated Net Income (ignoring any quarterly losses and any charge for In-Process Research and Development described in Line IV.F below) for each fiscal quarter after the quarter ended March 31, 2000, through and including the quarter ending on the Statement Date: $____________________ D. Amount equal to 75% of the Net Security Proceeds of all Equity Securities issued by the Lessee (excluding any issuance where the Net Security Proceeds to the Lessee are less than $10,000,000) during the period commencing on March 31, 2000 and ending on the Statement Date: $____________________ E. Amount equal to 75% of the increase in shareholders' equity resulting from any conversion of Convertible Subordinated Debentures into Equity Securities during the period commencing on March 31, 2000 and ending on the Statement Date: $____________________ F. Lesser of (i) the aggregate amount paid by the Lessee to repurchase Equity Securities during the period commencing on March 31, 2000 and ending on the Statement Date, and (ii) $200,000,000: $____________________ G. Lesser of (i) the aggregate amount of charges taken by the Lessee for In Process Research & Development associated with Acquisitions during the period commencing on March 31, 2000 and ending on the Statement Date, and (ii) $100,000,000; provided that any such amounts -------- were paid during the quarter in which any such Acquisition was completed: $____________________ H. For any fiscal quarter ending after the Snap Spin-Off is $____________________
[6]-4 consummated, the lesser of (i) net book value of Snap Appliances as of the First Amendment Effective Date and (ii) $150,000,000. I. Sum of: Lines IV.B + IV.C + IV.D + IV.E less IV.F less IV.G less $____________________ IV.H: J. Greater of Line IV.B and IV.I: $____________________ K. Excess (deficiency) for covenant compliance (Line IV.A.3 less IV.J): $____________________
[6]-5 V. Section 10.2(k)(ii) - Minimum Quick Ratio. A. Quick Assets: 1. Amount of cash and cash equivalents of the Lessee and its Subsidiaries (excluding restricted cash) as of the Statement Date: $____________________ 2. Amount of all accounts receivable of the Lessee and its Subsidiaries, less all reserves therefor, as of the Statement Date: $____________________ 3. Amount of Quick Assets as of Statement Date (Lines V.A.1 + 2): $____________________ B. Current Liabilities: 1. Amount of current liabilities of the Lessee and its Subsidiaries as of the Statement Date (including any such liabilities outstanding under the Loan Documents and the Operative Documents): $____________________ 2. Aggregate amount of outstanding obligations under the Loan Documents with respect to the principal amount of loans, the undrawn face amount of letters of credit and unreimbursed drawings under letters of credit (to the extent not included in Line V.B.1): $____________________ 3. For one year prior to the Maturity Date, the aggregate outstanding Synthetic Lease Obligations under the Operative Documents: 4. Amount of total current liabilities of the Lessee and its $____________________ Subsidiaries as of the Statement Date (Line V.B.1 + 2 + 3): C. Quick Ratio ((Line V.A.3 / Line V.B.4): ________________ to 1 Minimum required: 1.10 to 1
[6]-6 VI. Section 10.2(k)(iii) - Maximum Leverage Ratio. A. Consolidated EBITDA measured on a rolling four quarter basis for the four fiscal quarters ended as of the Statement Date ("Subject ------- Period"): ------ 1. Consolidated Net income for Subject Period: $____________________ 2. Consolidated Interest Charges for Subject Period: $____________________ 3. Provision for income taxes for Subject Period: $____________________ 4. Depreciation expenses for Subject Period: $____________________ 5. Amortization expenses for intangibles for Subject Period: $____________________ 6. Amount written off in connection with In-Process Research & Development related to the Meridian Acquisition (in the second fiscal quarter of year 2000 only): $____________________ 7. Amount of charge taken in connection with DSS (in the fourth fiscal quarter of year 2000 only): $____________________ 8. Lesser of (i) the aggregate amount of charges taken by the Lessee for In Process Research & Development associated with Acquisitions during the period commencing on March 31, 2000 and ending on the Statement Date, and (ii) $100,000,000; provided that -------- any such amounts were paid during the quarter in which any such Acquisition was completed: $____________________ 9. Consolidated EBITDA (Lines VI.A.1 + 2 + 3 + 4 + 5 + 6 + 7 + 8): $____________________ B. Consolidated Funded Indebtedness at Statement Date: $____________________ C. Leverage Ratio (Line VI.B / Line VI.A.9): ________________ to 1 Maximum permitted: 2.00 to 1
[6]-7 VII. Section 10.2(k)(iv) - Minimum Profitability. A. 5% of Consolidated Tangible Net Worth as of Statement Date: $____________________ B. Aggregate amount of the two greatest quarterly losses incurred $____________________ during the four quarters immediately preceding the Statement Date: C. Excess (deficiency) for covenant compliance (Line VII.A less Line $____________________ VII.B): D. Cumulative Consolidated Net Income for the four quarters $____________________ immediately preceding the Statement Date: E. Excess (deficiency) for covenant compliance (Line VII.D less $1.00): $____________________
[6]-8 ATTACHMENT 7 ------------ Form of First Amendment to Amended and Restated Master Lease RECORDING REQUESTED BY AND WHEN RECORDED, RETURN TO: Orrick, Herrington & Sutcliffe LLP Old Federal Reserve Bank Building 400 Sansome Street San Francisco, CA 94111 Attn: Dolph M. Hellman, Esq. - -------------------------------------------------------------------------------- FIRST AMENDMENT TO AMENDED AND RESTATED MASTER LEASE AGREEMENT ------------------------------------------- THIS FIRST AMENDMENT TO AMENDED AND RESTATED MASTER LEASE AGREEMENT (this "Amendment"), dated as of March 28, 2001, is entered into by and between: --------- (1) QUANTUM CORPORATION, a Delaware corporation (the "Lessee"); and (2) SELCO SERVICE CORPORATION, an Ohio corporation (the "Lessor"). RECITALS -------- A. The Lessee, the Lessor, each of the financial institutions that are parties thereto as "Participants" ("Participants"), and THE BANK OF NOVA SCOTIA ------------ ("BNS"), as agent for the Participants (in such capacity, the "Agent"), are --- ----- parties to that certain Amended and Restated Participation Agreement dated as of dated as of July 12, 2000 (the "Participation Agreement"), pursuant to which the ----------------------- Lessor and the Participants have provided to the a lease facility referenced therein. B. Pursuant to the Participation Agreement, the Lessee and the Lessor executed a Master Lease Agreement dated as of July 12, 2000, affecting certain real property located in El Paso County, Colorado, described in Schedule 1 ---------- thereto (the "Master Lease Agreement"). The Master Facility 1 Lease Agreement ---------------------- was recorded in the Official Records of El Paso County, Colorado, on July 12, 2000, as Document No. 200081204. C. The Lessee now has requested the Lessor, the Participants and the Agent to amend the Participation Agreement in certain respects. D. Pursuant to a First Amendment to Amended and Restated Participation Agreement dated as of the date hereof (the "First Amendment to Participation -------------------------------- Agreement") among the Lessee, the Lessor, the Participants and the Agent, the - --------- parties thereto have agreed to amend the Participation Agreement upon the terms and subject to the conditions set forth therein, including without limitation, the execution and delivery by the Lessee of this Amendment. [7]-1 AGREEMENT --------- NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Lessee and the Lessor hereby agree as follows: 1. Definitions, Interpretation. All capitalized terms defined above and --------------------------- elsewhere in this Amendment shall be used herein as so defined. Unless otherwise defined herein, all other capitalized terms used herein shall have the respective meanings given to those terms in the Appendix 1 to the Participation ------------------------------- Agreement, as amended by the First Amendment to Amended and Restated - --------- Participation Agreement and this Amendment. The rules of interpretation set forth in Appendix 1 to the Participation Agreement shall, to the extent not ----------------------------------------- inconsistent with the terms of this Amendment, apply to this Amendment and are hereby incorporated by reference. 2. Amendments to the Master Lease Agreement. ---------------------------------------- (a) Section 8.1 (Condition of the Property) is amended by replacing ----------- "SECTION 10.3(a)" with "SECTION 10.4(a)". --------------- --------------- (b) Clause (v) of Section 11.1 is amended by changing the reference to -------------------------- "Sections 8.2 and 10.2" set forth therein to "Sections 8.2, 10.1 and 10.2". --------------------- --------------------------- (c) Section 14.3(f) is amended by changing the reference to "Section --------------- ------- 10.1(v)" set forth therein to "Section 10.2(k)". ------- --------------- (d) Section 15.1(e) is amended by changing the reference to "Sections --------------- -------- 10.1 and 11.1" set forth therein to "Sections 10.1, 10.2 and 11.1". ------------- ---------------------------- (c) Appendix 1 is amended to read in its entirety as set forth on ---------- Annex 1 hereto. ------- 3. Effective Date. The amendments effected by Paragraph 2 above shall -------------- ----------- become effective on the "Effective Date" as defined in the First Amendment to the Amended and Restated Participation Agreement, subject to satisfaction of the conditions set forth in Paragraph 4 thereof. ----------- 4. Effect of this Amendment. On and after the Effective Date, each ------------------------ reference in the Master Lease Agreement and the other Operative Documents to the Master Lease Agreement shall mean the Master Lease Agreement as amended hereby. Except as specifically amended above, (a) the Master Lease Agreement and the other Operative Documents shall remain in full force and effect and are hereby ratified and affirmed and (b) the execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power, or remedy of the Lessor, the Participants or the Agent, nor constitute a waiver of any provision of the Master Lease Agreement or any other Operative Document. [7]-2 5. Miscellaneous. ------------- (a) Counterparts. This Amendment may be executed in any number of ------------ counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. The signature page and acknowledgment of any counterpart may be removed therefrom and attached to any other counterpart to evidence execution thereof by all of the parties hereto without affecting the validity thereof. (b) Headings. Headings in this Amendment are for convenience of -------- reference only and are not part of the substance hereof. (c) Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED ------------- AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES, EXCEPT AS TO MATTERS RELATING TO THE CREATION OF THE LEASEHOLD ESTATE UNDER THE LEASE AND THE EXERCISE OF RIGHTS AND REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE IN WHICH SUCH ESTATE IS LOCATED. [The signature page follows.] [7]-3 IN WITNESS WHEREOF, the Lessee and the Lessor have caused this Amendment to be executed as of the day and year first above written. LESSEE: QUANTUM CORPORATION By:_________________________________ Name:____________________________ Title:___________________________ LESSOR: SELCO SERVICE CORPORATION By:_________________________________ Name:____________________________ Title:___________________________ [7]-4 STATE OF _____________________) ) COUNTY OF ____________________) On ________ 2001, before me, _______________________, a Notary Public in and for the State of California, personally appeared ______________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. [SEAL] ___________________________ STATE OF _____________________) ) COUNTY OF ____________________) On ___________, 2001, before me, _______________________, a Notary Public in and for the State of California, personally appeared _______________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. [SEAL] _____________________________ ANNEX 1 TO ATTACHMENT 7 ----------------------- APPENDIX 1 to Amended and Restated Participation Agreement and Amended and Restated Master Lease, each as amended and each dated as of July 12, 2000, and Construction Deed of Trust amended as of July 12, 2000 (Specialty Storage Product Group Facilities) DEFINITIONS AND INTERPRETATION A. Interpretation. In each Operative Document, unless a clear contrary -------------- intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by the Operative Documents, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually; (iii) reference to any gender includes each other gender; (iv) reference to any agreement (including any Operative Document), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms of the other Operative Documents and reference to any promissory note includes any promissory note which is an extension or renewal thereof or a substitute or replacement therefor; (v) reference to any Applicable Law means such Applicable Law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to any section or other provision of any Applicable Law means that provision of such Applicable Law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision; (vi) reference in any Operative Document to any Article, Section, Appendix, Schedule, or Exhibit means such Article or Section thereof or Appendix, Schedule or Exhibit thereto; (vii) "hereunder", "hereof", "hereto" and words of similar import shall be deemed references to an Operative Document as a whole and not to any particular Article, Section or other provision thereof; (viii) "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term; [7-A]-1 (ix) "or" is not exclusive; and (x) relative to the determination of any period of time, "from" means "from and including" and "to" means "to but excluding". B. Accounting Terms. In each Operative Document, unless expressly ---------------- otherwise provided, accounting terms shall be construed and interpreted, and accounting determinations and computations shall be made, in accordance with GAAP. C. Conflict in Operative Documents. If there is any conflict between any ------------------------------- Operative Documents, such Operative Document shall be interpreted and construed, if possible, so as to avoid or minimize such conflict but, to the extent (and only to the extent) of such conflict, the Lease shall prevail and control. D. Legal Representation of the Parties. The Operative Documents were ----------------------------------- negotiated by the parties with the benefit of legal representation and any rule of construction or interpretation otherwise requiring the Operative Document to be construed or interpreted against any party shall not apply to any construction or interpretation hereof or thereof. E. Defined Terms. Unless a clear contrary intention appears, terms ------------- defined herein have the respective indicated meanings when used in each Operative Document. "Account" is defined in Section 3.11 of the Participation Agreement and in ------- ------------------------------------------- Section 1 of the Cash Collateral Agreement. - ------------------------------------------ "Acquisitions" means any transaction or series of related transactions for ------------ the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any line of business or any division of a Person, (b) the acquisition of in excess of fifty percent (50%) of the capital stock, partnership interests or equity of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary). "Acquisition Request" is defined in Section 3.3 of the Participation ------------------- -------------------------------- Agreement. - --------- "Adjusted Percentage" is defined in Section 11.6 of the Participation ------------------- --------------------------------- Agreement. - --------- "Administrative Fee" is defined in Section 4.1 of the Participation ------------------ -------------------------------- Agreement. - --------- "Advance" means an advance of funds by the Lessor pursuant to Section 3 of ------- ------------ the Participation Agreement which will be used to pay Land Interest Acquisition - --------------------------- Costs or Property Improvements Costs. "Affiliate" means any Person directly or indirectly controlling, controlled --------- by, or under direct or indirect common control with, another Person. A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote ten percent (10%) or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise; provided that Persons, other than Subsidiaries, in which -------- Quantum Technology Ventures holds Equity Securities shall not be "Affiliates" for purposes of this definition. [7-A]-2 "After Tax Basis" means, with respect to any payment to be received, the --------------- amount of such payment increased so that, after deduction of the amount of all taxes required to be paid by the recipient calculated at the then maximum marginal federal and state income tax rates generally applicable to Persons of the same type as the recipient (less any tax savings realized as a result of the payment of the indemnified amount) with respect to the receipt by the recipient of such amounts, such increased payment (as so reduced) is equal to the payment otherwise required to be made. "Agent" means The Bank of Nova Scotia, as successor in interest to the ----- Original Agent in its capacity as agent for the Participants pursuant to the Participation Agreement, or any successor or additional agent appointed in accordance with the terms of the Participation Agreement. "Agent Financing Statements" means UCC financing statements appropriately -------------------------- completed and executed for filing in the applicable jurisdiction in order to perfect a security interest in favor of the Agent for the ratable benefit of the Participants in the Equipment located on the Property or in any Improvements on the Property. "Alternate Base Rate" means, for any period, an interest rate per annum ------------------- equal to the lower of (i) the Prime Rate or (ii) the Federal Funds Effective Rate most recently determined by the Agent plus one-half percent (0.50%). If either of the aforesaid rates or equivalent changes from time to time after the date of the Participation Agreement, the Alternate Base Rate shall be automatically increased or decreased, if appropriate and as the case may be, without notice to the Lessee or the Lessor, as of the effective time of each change. "Alternate Basic Rate Advance" means an Advance bearing interest or Yield ---------------------------- determined with reference to the Alternate Base Rate as provided in the Participation Agreement. "Applicable Law" means all existing and future applicable laws, rules, -------------- regulations (including Environmental Laws), statutes, treaties, codes, ordinances, permits, certificates, covenants, restrictions, requirements, orders and licenses of and interpretations by, any Governmental Authorities, and applicable judgments, decrees, injunctions, writs, orders or like action of any court, arbitrator or other administrative, judicial or quasi-judicial tribunal or agency of competent jurisdiction (including those pertaining to health, safety or the environment (including, without limitation, wetlands) and those pertaining to the construction, use or occupancy of the Property) and any restrictive covenant or deed restriction or easement affecting the Property. "Applicable Margin" means at any time with respect to any Advance, either ----------------- (i) at any time amounts are deposited in an Account subject to the Cash Collateral Agreement, and with respect to that portion of the Advances represented by such Collateral, one-quarter percent (0.25%) per annum margin with respect to Tranche A Participation Interests and Tranche B Participation Interests therein and one and one-quarter percent (1.25%) per annum margin with respect to Tranche C Participation Interests therein, or (ii) at any other time, the per annum margin which is determined pursuant to the Pricing Grid, and, in each case, added to the Eurodollar Rate or Alternative Base Rate applicable to such Advance. "Appraisal" means, with respect to the Property, an appraisal, prepared by --------- a reputable appraiser approved by the Lessor, the Agent and the Required Participants, which in the [7-A]-3 judgment of counsel to the Lessor, the Agent and the Required Participants, complies with all of the provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, the rules and regulations adopted pursuant thereto, and all other applicable Requirements of Law, which appraisal will (i) appraise the Fair Market Sales Value of the Property as built in accordance with the Plans and Specifications; on the fifth anniversary of the Effective Date; as of the commencement of the Renewal Term, if any; and at the end of the Renewal Term, if any; and (ii) contain an estimate of the useful life of the Improvements as of each such date, all in a form satisfactory to the Lessor, the Agent and the Required Participants. "Appurtenant Rights" means (i) all agreements, easements, rights of way or ------------------ use, rights of ingress or egress, privileges, appurtenances, tenements, hereditaments and other rights and benefits at any time belonging or pertaining to any Land Interest or the Improvements, including, without limitation, the use of any streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or contiguous to any Land Interest and (ii) all permits, licenses and rights, whether or not of record, appurtenant to any Land Interest. "Asset Termination Value" means, as of any date of determination, an amount ----------------------- equal to (i) the sum of (A) the outstanding Advances, (B) all accrued and unpaid interest on the Advances, and (C) all other amounts owing by the Lessee under the Operative Documents, less (ii) the sum of all payments received by the Lessor, the Agent or the Participants on account of payments to reduce Asset Termination Value, including reductions resulting from payments by the Lessor, the Lessee or the Guarantor and/or any payment of the Partial Purchase Option Price upon the exercise of a Partial Purchase Option and/or the proceeds from the sale of the Property and/or amounts realized from the Collateral pursuant to the Cash Collateral Agreement. "Assignment and Acceptance" is defined in Section 12.1(b) of the ------------------------- ---------------------- Participation Agreement. - ----------------------- "Assignment of Construction Documents" means the Assignment of Construction ------------------------------------ Documents, dated as of the Effective Date, in the form attached as Exhibit A to ------------ the Construction Agency Agreement, as the rights of the Original Lessor - --------------------------------- thereunder have been further assigned to the Lessor as of July 12, 2000. "Assignment of Lease" means the Assignment of Lease, dated as of the ------------------- Effective Date, from the Original Lessor to the Original Agent for the benefit of the Participants, and consented to by the Lessee pursuant to that certain Lessee's Consent, dated as of the Effective Date (the "Consent to Assignment") by the Lessee, as obligor, in favor of the Agent for the benefit of the Participants, in each case in the respective forms set forth in Exhibit L to the ---------------- Participation Agreement, as the respective rights and obligations of the - ----------------------- Original Lessor and the Original Agent thereunder have been further assigned to the Lessor and the Agent as of July 12, 2000. "Assignment of Purchase Agreement" means the Assignment of Certain Rights -------------------------------- under Purchase and Sale Agreement, dated as of the Land Interest Acquisition Date, by and among the Lessee, as assignor, the Original Lessor, as assignee and the Existing Owner, as seller, as the rights of the Original Lessor thereunder have been further assigned to the Lessor as of July 12, 2000. [7-A]-4 "Available Commitments" means as to any Participant at any time, an amount --------------------- equal to the excess, if any, of (a) the amount of such Participant's Commitment over (b) the aggregate amount of its Participation Interest in all Advances made by the Lessor then outstanding. "Bankruptcy Code" means Title 11 of the United States Code entitled --------------- "Bankruptcy," as now or hereafter in effect. "Basic Rent" means the sum of (i) that portion of the Property Improvements ---------- Costs due on any Payment Date, if any, as set forth on Schedule 1 to the Lease ----------------------- and (ii) the interest or Yield on Advances due on any Payment Date as set forth in Section 3.8 of the Participation Agreement. ------------------------------------------ "Benefit Arrangement" means at any time an employee benefit plan within the ------------------- meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "Board" means the Board of Governors of the Federal Reserve System of the ----- United States (or any successor). "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday ------------ which is not a day on which banks in Albany, New York, New York, New York, San Francisco, California or (if interest is being determined by reference to the Eurodollar Rate) London, England, are generally authorized or obligated, by law or executive order, to close. "Capital Leases" means any and all leases under which certain obligations -------------- are required to be capitalized on the books of a lessee in accordance with GAAP. "Cash Collateral" is defined in Section 1 of the Cash Collateral Agreement. --------------- ------------------------------------------ "Cash Collateral Agreement" means the Cash Collateral Agreement dated as of ------------------------- the Effective Date among the Lessee, the Original Lessor, the Original Agent and the Participants, in the form of Exhibit S to the Participation Agreement, as ---------------------------------------- the respective rights and obligations of the Original Lessor and the Original Agent thereunder have been assigned to the Lessor and the Agent as of July 12, 2000. "Casualty" means any damage or destruction of all or any portion of the -------- Property as a result of a fire or other casualty. "CERCLA" means the Comprehensive Environmental Response, Compensation, and ------ Liability Act of 1980, 42 U.S.C. (S)(S) 9601 et seq., as amended by the Superfund Amendments and Reauthorization Act of 1986. "Certifying Party" is defined in Section 26.1 of the Lease. ---------------- ------------------------- "Change of Control" means with respect to the Lessee, the occurrence of any ----------------- of the following events: (a) any person or group of persons (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, but excluding any employee benefit plan of the Lessee or its Subsidiaries, or any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) shall become the "beneficial owner" (within the meaning of Rules 13d-3 and 13d-5 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, except that such a person [7-A]-5 or group shall be deemed to have "beneficial ownership" of all securities that such person or group has the right to acquire (such right, an "option right"), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of forty percent (40%) or more of the outstanding Equity Securities of the Lessee entitled to vote for members of the board of directors, or (B) during any period of twelve (12) consecutive months, a majority of the members of the board of directors of the Lessee cease to be composed of individuals (i) who were members of that board on the first day of such period, (ii) whose election or nomination to that board was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or (iii) whose election or nomination to that board was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board. "Change of Law" is defined in Section 13.9 of the Participation Agreement. ------------- ------------------------------------------- "Claims" means any and all obligations, liabilities, losses, actions, ------ suits, judgments, penalties, fines, claims, demands, settlements, costs and expenses (including, without limitation, reasonable legal fees and expenses) of any nature whatsoever, including, as they relate to issues involving any Environmental Law or Environmental Violation, those matters set forth in Section ------- 13.3 of the Participation Agreement. - ----------------------------------- "Closing Date" is defined in Section 2 of the Participation Agreement. ------------ ---------------------------------------- "Code" means the Internal Revenue Code of 1986, as amended from time to ---- time, or any successor statute thereto. "Collateral" means the Collateral under the Cash Collateral Agreement. ---------- "Commitment" means (i) as to any Participant, the obligation of such ---------- Participant to purchase a Participation Interest in Advances to be made by the Lessor under the Participation Agreement, in an aggregate amount at any one time outstanding not to exceed the amount set forth opposite such Participant's name on Schedule I to the Participation Agreement, as such amount may be reduced from ----------------------------------------- time to time in accordance with the provisions of the Participation Agreement, and (ii) as to the Lessor, the obligation of the Lessor to make Advances from amounts received from the Participants pursuant to the purchase of Participation Interests under the Participation Agreement. "Commitment Percentage" means, as to any Participant at any time, the --------------------- percentage which such Participant's Commitment then constitutes of the aggregate Commitments of the Participants (or, at any time after the Commitments of the Participants shall have expired or terminated, the percentage which the aggregate amount of such Participant's Participation Interest then outstanding constitutes of the aggregate amount of the Participation Interests then outstanding). "Commitment Period" means the period from and including the Effective Date ----------------- to but not including the earlier of the Completion Date or the Outside Completion Date, or such earlier date on which the Commitments shall terminate as provided in the Operative Documents or such later date as may be provided for the Completion of construction in the Construction Agency Agreement due to the existence of a Force Majeure Event. [7-A]-6 "Completion" means such time as (i) the conditions set forth in Section 7 ---------- --------- of the Participation Agreement are satisfied and (ii) the Improvements are ready - ------------------------------ for occupancy. "Completion Date" means, with respect to the Property, the date on which --------------- Completion of the Improvements on such Property has occurred. "Compliance Certificate" means a certificate substantially in the form of ---------------------- Exhibit Q, properly completed and signed by a Responsible Officer of the Lessee. - --------- "Condemnation" means any condemnation, requisition, confiscation, seizure ------------ or other taking or sale of the use, access, occupancy, easement rights or title to the Property or any part thereof, wholly or partially (temporarily or permanently), by or on account of any actual or threatened eminent domain proceeding or other taking of action by any Person having the power of eminent domain, including an action by a Governmental Authority to change the grade of, or widen the streets adjacent to, the Property or alter the pedestrian or vehicular traffic flow to the Property so as to result in change in access to the Property, or by or on account of an eviction by paramount title or any transfer made in lieu of any such proceeding or action. A "Condemnation" shall be deemed to have occurred on the earliest of the dates that use, occupancy or title is taken. "Confidential Information" is defined in Section 15.13 of the Participation ------------------------ ---------------------------------- Agreement. - --------- "Consent to Assignment" is defined in the definition of the term --------------------- "Assignment of Lease". "Consent to Construction Agency Agreement Assignment" means the Consent --------------------------------------------------- dated as of the Effective Date by the Lessee to the Construction Agency Agreement Assignment in the form attached to the Construction Agency Agreement Assignment. "Consolidated EBITDA" means, for any period, for the Lessee and its ------------------- Subsidiaries on a consolidated basis, an amount equal to the sum of (a) Consolidated Net Income, (b) Consolidated Interest Charges, (c) the amount of taxes, based on or measured by income, used or included in the determination of such Consolidated Net Income, (d) the amount of depreciation and amortization expense deducted in determining such Consolidated Net Income, (e) the amount written off in connection with In-Process Research & Development related to the Meridian Acquisition in the second fiscal quarter of year 2000, (f) the charge taken in the fourth fiscal quarter of year 2000 in connection with DSS, and (g) the amount of any charges taken in connection with In-Process Research & Development associated with Acquisitions (other than any charge included in clause (e) above) provided that (i) any such charges are taken during the fiscal -------- quarter in which the related Acquisition was completed, and (ii) for purposes of calculating In-Process Research & Development charges under this clause (g), the ---------- aggregate amount of any such charges does not exceed $100,000,000 from and after the First Amendment Effective Date; provided that; in respect of any period (or -------- partial period) prior to the Maxtor Merger Effective Time, "Consolidated EBITDA" shall be determined solely in respect of the DSS Business on a stand-alone basis, based upon the then-current DSS Combined Financial Statements. "Consolidated Funded Indebtedness" means, as of any date of determination, -------------------------------- for the Lessee and its Subsidiaries on a consolidated basis, the sum of (a) the outstanding principal amount of all obligations and liabilities, whether current or long-term, for borrowed money (including obligations under the Loan Documents to the extent consisting of principal), (b) that portion of obligations with respect to Capital Leases that would in conformity with GAAP be [7-A]-7 capitalized on the consolidated balance sheet of the Lessee and its Subsidiaries, and (c) Synthetic Lease Obligations; provided that in respect of -------- any date prior to the Maxtor Merger Effective Time, "Consolidated Funded Indebtedness" shall be determined solely in respect of the DSS Business on a stand-alone basis, based upon the then-current DSS Combined Financial Statements. "Consolidated Interest Charges" means, for any period, for the Lessee and ----------------------------- its Subsidiaries on a consolidated basis, the sum of (a) all interest, premium payments, fees, charges and related expenses payable by the Lessee and its Subsidiaries in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, (b) the portion of rent payable by the Lessee and its Subsidiaries with respect to such period under Capital Leases that is treated as interest in accordance with GAAP and (c) the portion of rent under any Synthetic Lease Obligation that would be treated as interest in accordance with GAAP if the Synthetic Lease Obligation were treated as a Capital Lease under GAAP; provided that in respect of any date prior to the -------- Maxtor Merger Effective Time, "Consolidated Interest Charges" shall be determined solely in respect of the DSS Business on a stand-alone basis, based upon the then-current DSS Combined Financial Statements. "Consolidated Net Income" means, for any period, for the Lessee and its ----------------------- Subsidiaries on a consolidated basis, the net income of the Lessee and its Subsidiaries from continuing operations after extraordinary items for that period after excluding the Maxtor Merger Net Charge in the case of the period in which it is recorded; provided that in respect of any period (or partial period) -------- prior to the Maxtor Merger Effective Time, "Consolidated Net Income" shall be determined solely in respect of the DSS Business on a stand-alone basis, based upon the then-current DSS Combined Financial Statements. "Consolidated Tangible Net Worth" means, as of any date of determination, ------------------------------- for the Lessee and its Subsidiaries on a consolidated basis, Shareholders' Equity of the Lessee and its Subsidiaries on that date minus the Intangible Assets of the Lessee and its Subsidiaries on that date provided that in respect -------- of any date prior to the Maxtor Merger Effective Time, "Consolidated Tangible Net Worth" shall be determined solely in respect of the DSS Business on a stand- alone basis, based upon the then-current DSS Combined Financial Statements. "Construction Agency Agreement" means the Construction Agency Agreement, ----------------------------- dated as of the Effective Date, between the Original Lessor and the Construction Agent, in the form of Exhibit M to the Participation Agreement, as the rights of the Original Lessor thereunder have been assigned to the Lessor as of July 12, 2000. "Construction Agency Agreement Assignment" means the Assignment of ---------------------------------------- Construction Agency Agreement, dated as of the Effective Date, from the Original Lessor to the Original Agent, for the benefit of the Participants, in the form of Exhibit N to the Participation Agreement, as the respective rights and ---------------------------------------- obligations of the Original Lessor and the Original Agent thereunder have been further assigned to the Lessor and the Agent as of July 12, 2000. "Construction Agency Agreement Event of Default" means a "Construction ---------------------------------------------- Agency Agreement Event of Default" as defined in Section 5.1 of the Construction ------------------------------- Agency Agreement. - ---------------- [7-A]-8 "Construction Agent" means the Lessee, as construction agent under the ------------------ Construction Agency Agreement. "Construction Commencement Date" is defined in Section 2.3 of the ------------------------------ ------------------ Construction Agency Agreement. - ----------------------------- "Construction Period" means, with respect to the Property, the period ------------------- commencing on the Construction Commencement Date and ending on the earlier of the Completion Date and the Outside Completion Date for such Property. "Contractual Obligation" means, as to any Person, any provision of any ---------------------- security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Covered Liabilities" is defined in Section 11.6 of the Participation ------------------- --------------------------------- Agreement. - --------- "Convertible Subordinated Debentures" means the 7% Convertible Subordinated ----------------------------------- Notes due 2004 issued by the Lessee pursuant to the Indenture dated as of August 1, 1997 and the Supplemental Indenture dated as of August 1, 1997 between the Lessee and LaSalle National Trust Company, N.A., as Trustee. "DSS" means DLT and Storage Systems Group, a reportable business segment of --- the Lessee, as indicated in the Lessee's quarterly report filed with the Securities and Exchange Commission on form 10-Q on or about February 14, 2001. "DSS Business" means, collectively, all businesses and activities of the ------------ Lessee and its Subsidiaries, other than the HDD Business. "DSS Combined Financial Statements" means, collectively, the annual or --------------------------------- quarterly (as the case may be) condensed combined balance sheet and statements of income and cash flow in respect of DSS on a stand-alone basis, prepared in a manner and in a form consistent with those contained in the Lessee's 2000 10-K and December 31, 2000 10-Q filings that were filed with the Securities and Exchange Commission on or about June 26, 2000 and February 14, 2000, respectively. "Deed" is defined in Section 6.1(e) of the Participation Agreement, ---- --------------------------------------------- together with the quitclaim deed delivered by the Original Lessor to the Lessor as of July 12, 2000. "Default" means any event or condition which, with the lapse of time or the ------- giving of notice, or both, would constitute an Event of Default. "Defaulted Amount" is defined in Section 11.7 of the Participation ---------------- --------------------------------- Agreement. - --------- "Defaulting Participant" means, at any time, any of the Participants which ---------------------- at such time has (i) failed to make a payment when due to the Lessor equal to its Commitment Percentage of an Advance, (ii) has been notified of such failure by the Lessor, and (iii) has not cured such failure by making such payment, together with interest at the Late Payment Rate. "Depositary Bank" is defined in Section 1 of the Cash Collateral Agreement. --------------- ------------------------------------------ [7-A]-9 "Designated Payment Date" means the Expiration Date, the Termination Date ----------------------- or other date of termination of the Lease. "Disclosure Letter" means the letter from the Lessee to the Lessor and the ----------------- Agent, dated the Effective Date, which identifies itself as the "Disclosure Letter" under the Participation Agreement. "Disposition" or "Dispose" means the sale, transfer, License Disposition or ----------- ------- other disposition (including any sale and leaseback transaction) of any property by any Person, including any sale, assignment, transfer or other disposal with or without recourse of any notes or accounts receivable or any rights and claims associated therewith. "Dollars" and "$" mean dollars in lawful currency of the United States of ------- - America. "Effective Date" means August 22, 1997. -------------- "Employee Benefit Plan" means any employee benefit plan within the meaning --------------------- of Section 3(3) of ERISA maintained or contributed to by the Lessee or any ERISA Affiliate, other than a Multiemployer Plan. "End of the Term Report" is defined in Section 13.2 of the Participation ---------------------- --------------------------------- Agreement. - --------- "Environmental Audit" means a Phase One environmental site assessment (the ------------------- scope and performance of which meets or exceeds ASTM Standard Practice E1527-93 Standard Practice for Environmental Site Assessments: Phase One Environmental Site Assessment Process) of the Property to be leased by the Lessor on the Closing Date or of the Property to be remarketed under the Remarketing Option under the Lease. "Environmental Certificate" is defined in Section 6.1 of the Participation ------------------------- -------------------------------- Agreement. - --------- "Environmental Law" means, whenever enacted or promulgated, any Federal, ----------------- state, county or local law, statute, ordinance, rule, regulation, license, permit, authorization, approval, covenant, criteria, guideline, administrative or court order, judgment, decree, injunction, code or requirement or any agreement with a Governmental Authority: (i) relating to pollution (or the cleanup, removal, remediation or encapsulation thereof, or any other response thereto), or the regulation or protection of human health, safety or the environment, including air, water, vapor, surface water, groundwater, drinking water, land (including surface or subsurface), plant, aquatic and animal life, or (ii) concerning exposure to, or the use, containment, storage, recycling, treatment, generation, discharge, emission, Release or threatened Release, transportation, processing, handling, labeling, containment, production, disposal or remediation of any Hazardous Substance, Hazardous Condition or Hazardous Activity; in each case as amended and as now or hereafter in effect, and any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries (whether personal or property) or damages due to or threatened as a result of the presence of, exposure to, or ingestion of, any Hazardous Substance, whether such common law or [7-A]-10 equitable doctrine is now or hereafter recognized or developed. Applicable laws include, but are not limited to, CERCLA; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. (S) 6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. (S) 1251 et seq.; the Clean Air Act, 42 U.S.C. (S)(S) 7401 et seq.; the National Environmental Policy Act, 42 U.S.C. (S) 4321; the Refuse Act, 33 U.S.C. (S)(S) 401 et seq.; the Hazardous Materials Transportation Act of 1975, 49 U.S.C. (S)(S) 1801-1812; the Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. (S)(S) 136 et seq.; the Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et seq.; and the Occupational Safety and Health Act of 1970, each as amended and as now or hereafter in effect, and their state and local counterparts or equivalents, including any regulations promulgated thereunder. "Environmental Violation" means any activity, occurrence or condition or ----------------------- omission that violates or results in non-compliance with any Environmental Law. "Equipment" means equipment, apparatus, furnishings, fittings and personal --------- property of every kind and nature whatsoever purchased by the Lessor using the proceeds of the Participation Interests in the Advances now or subsequently attached to, contained in or used or usable in any way in connection with any operation or letting of the Property, including but without limiting the generality of the foregoing, all semiconductor manufacturing equipment, screens, awnings, shades, blinds, curtains, draperies, artwork, carpets, rugs, storm doors and windows, shelving, counters, furniture and furnishings, heating, electrical, and mechanical equipment, lighting, switchboards, plumbing, ventilation, air conditioning and air-cooling apparatus, refrigerating, and incinerating equipment, escalators, elevators, loading and unloading equipment and systems, cleaning systems (including window cleaning apparatus), telephones, communication systems (including satellite dishes and antennae), televisions, computers, sprinkler systems and other fire prevention and extinguishing apparatus and materials, security systems, motors, engines, machinery, pipes, pumps, tanks, conduits, appliances, fittings and fixtures of every kind and description. "Equipment Schedule" means each Equipment Schedule in the form of Exhibit B ------------------ --------- to the Lease. - ------------ "Equity Securities" of any Person means (a) all common stock, preferred ----------------- stock, participations, shares, partnership interests or other equity interests in such Person (regardless of how designated and whether or not voting or non- voting) and (b) all warrants, options and other rights to acquire any of the foregoing, other than convertible debt securities which have not been converted into common stock, preferred stock, participations, shares, partnership interests or other equity interests in any such Person. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time or any successor Federal statute. "ERISA Affiliate" means any trade or business (whether or not incorporated) --------------- under common control with the Lessee within the meaning of Sections 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). [7-A]-11 "ERISA Group" means the Lessee and all members of a controlled group of ----------- corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Lessee, are treated as a single employer under Section 414 of the Code. "Eurocurrency Reserve Requirements" means, for any day as applied to an --------------------------------- Advance, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for Eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System. "Eurodollar Rate" means, with respect to each day during each Interest --------------- Period, the rate per annum determined by the Agent to be the offered rate per annum at which deposits in Dollars appear with respect to such Interest Period on the Reuters Screen LIBOR Page (or any successor page), or if such offered rate is not available, then the rate per annum at which deposits in Dollars appear with respect to such Interest Period on the Telerate Page 3750 (or any successor page) in each case as of 11:00 a.m. (London time), two (2) Business Days prior to the beginning of such Interest Period or in the event that the foregoing offered rates are not available, then the average (rounded upward to the nearest whole multiple of one sixteenth of one percent per annum, if such average is not such a multiple) of the respective rates notified to the Agent by each of the Participants as the rates at which such Participant's Funding Office is offered Dollar deposits at or about 11:00 a.m. (London time), two (2) Business Days prior to the beginning of such Interest Period in the interbank Eurodollar market for delivery on the first day of such Interest Period for the number of days comprised therein in an amount comparable to the amount of the Advances estimated to be outstanding during such Interest Period. "Eurodollar Rate Advance" means on Advance bearing interest or Yield ----------------------- determined with reference to the Eurodollar Rate as provided in the Participation Agreement. "Event of Default" means a Lease Event of Default, a Construction Agency ---------------- Agreement Event of Default or a Guarantee Event of Default. "Excepted Payments" means: ----------------- (a) all indemnity payments (including indemnity payments made pursuant to Section 13 of the Participation Agreement) to which the Lessor, ----------------------------------------- or any of its Affiliates, agents, officers, directors or employees is entitled; (b) any amounts (other than Basic Rent or amounts payable by Lessee pursuant to Section 16.2, Section 16.3, Section 16.4 or Articles XVII, XX ------------------------------------------------------------- or XXII of the Lease) payable under any Operative Document to reimburse the -------------------- Lessor or any of its respective Affiliates (including the reasonable expenses of the Lessor incurred in connection with any such payment) for performing or complying with any of the obligations of the Lessee under and as permitted by any Operative Document, except to the extent that one or more Participants have indemnified the Lessor with respect thereto pursuant to the Participation Agreement; [7-A]-12 (c) any amount payable to the Lessor by any Participant or transferee permitted under the Operative Documents of the interest of the Lessor as the purchase price of such Participant's Participation Interest; (d) any insurance proceeds (or payments with respect to risks self- insured or policy deductibles) under liability policies other than such proceeds or payments payable to the Agent or the Lessor; (e) any insurance proceeds under policies maintained by the Lessor; (f) Transaction Expenses or other amounts or expenses paid or payable to or for the benefit of the Lessor; (g) all right, title and interest of the Lessor to the Property or any portion thereof or any other property to the extent any of the foregoing has been released from the Lien of the Mortgage, the Assignment of Lease and the Construction Agency Agreement Assignment pursuant to the terms thereof following the payment of the Participant Balances of all of the Participants and all amounts due and owing to the Agent; and (h) any payments in respect of interest to the extent attributable to payments referred to in clauses (a) through (g) above. ----------------------- "Excess Investment" of the Lessor means the excess (if any) of the ----------------- outstanding Participant Balance of the Lessor in the Property from time to time over the amount that would have been the Lessor's Participant Balance if, in connection with all Advances actually made under the Participation Agreement, all Participants had paid to the Lessor an amount equal to such Advances times their respective Commitment Percentages, as such excess may be determined by the Lessor. Absent the existence of a Defaulting Participant, a failure by Participant to make a payment required by Section 3.4 of the Participation -------------------------------- Agreement or some other unexpected contingency, it is expected that the Lessor - --------- will have no Excess Investment. "Excess Proceeds" means the excess, if any, of the aggregate of all awards, --------------- compensation or insurance proceeds payable in connection with a Casualty or Condemnation over the Asset Termination Value paid by the Lessee pursuant to Articles XIV and XV of the Lease with respect to such Casualty or Condemnation. - -------------------------------- "Excess Reimbursement" is defined in Section 11.6 of the Participation -------------------- --------------------------------- Agreement. - --------- "Existing Financing" means the debt and equity financing provided to the ------------------ Existing Owner to purchase and/or construct the Land Interest and any Improvements. "Existing Participants" means the lenders and holders of equity interests --------------------- under the Existing Financing. "Existing Owner" means Schuck Holdings LLC, a Colorado limited liability -------------- company. "Expiration Date" means the later of (i) April 19, 2003, or (ii) the --------------- scheduled expiration of any Renewal Term, if any. [7-A]-13 "Expiration Date Purchase Obligation" means the Lessee's obligation, ----------------------------------- pursuant to Section 20.2 of the Lease, to purchase all (but not less than all) ------------------------- of the Property on the Expiration Date. "Fair Market Sales Value" means, with respect to the Property, the amount, ----------------------- which in any event shall not be less than zero, that would be paid in cash in an arm's-length transaction between an informed and willing purchaser and an informed and willing seller, neither of whom is under any compulsion to purchase or sell, respectively, for the ownership of the Property. The Fair Market Sales Value of the Property shall be determined based on the assumption that, except for purposes of Article XVII of the Lease and Section 13.2 of the Participation ------------------------- --------------------------------- Agreement, the Property is in the condition and state of repair required under - --------- Section 10.1 of the Lease and the Lessee is in compliance with the other - ------------------------- requirements of the Operative Documents. "Federal Funds Effective Rate" means, for any day, an interest rate per ---------------------------- annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of quotations for such day on such transaction received by the Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" means the letter from the Lessee to the Agent, The Bank of ---------- Nova Scotia and KeyBank National Association, dated as of July 12, 2000. "Financial Statements" means, with respect to any accounting period for any -------------------- Person, consolidated statements of income, shareholders' equity and cash flows of such Person for such period, and a balance sheet of such Person as of the end of such period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year if such period is less than a full fiscal year or, if such period is a full fiscal year, corresponding figures from the preceding annual audit, all prepared in reasonable detail and in accordance with GAAP. "First Amendment Effective Date" means March 28, 2001. ------------------------------ "Fixtures" means all fixtures relating to the Improvements, including all -------- components thereof, located in or on the Improvements which are acquired with Advances and all replacements and Modifications thereto, other than Lessee's Property. "Force Majeure Event" means with respect to the Property any event (the ------------------- existence or potentiality of which was not known and could not have been discovered through the exercise of due diligence by the Lessee prior to the Closing Date) beyond the reasonable control of the Construction Agent, other than a Casualty or Condemnation, including, but not limited to, strikes, lockouts, adverse soil conditions, acts of God, adverse weather conditions, inability to obtain labor or materials, government activities, civil commotion and enemy action; but excluding any event, cause or condition that results from the Construction Agent's financial condition or failure to pay or any event, cause or condition which could be remedied through the exercise of commercially reasonable efforts or the commercially reasonable expenditure of funds. "Funding Date" means any Business Day on which Advances are funded pursuant ------------ to the Participation Agreement. [7-A]-14 "Funding Losses" means with respect to any repayment, prepayment or -------------- conversion of any Eurodollar Rate Advance, the amount (which shall not be less than zero) computed in accordance with the following formula: Funding Losses = (R - T x P x D) --------------- 360 Where R = the interest rate or Yield that was or would have been applicable to such Eurodollar Rate Advance; T = the Eurodollar Rate for the date of such repayment, prepayment, conversion, failure to borrow, failure to contribute or failure to convert for new Eurodollar Rate Advances, of the same principal amount or equity contribution made for an assumed Interest Period (the "Remaining Period") which begins on the date of such repayment, prepayment, conversion, failure to borrow, failure to contribute or failure to convert and ends on the last day of the actual Interest Period that was or would have been applicable to the Eurodollar Rate Advance that was repaid, prepaid or converted or that was not borrowed, contributed or converted; P = the principal amount of the Eurodollar Rate Advance that was repaid, prepaid or converted or that was not borrowed, contributed or converted; and D = the number of days in the Remaining Period. "Funding Office" means the office of each Participant identified on -------------- Schedule II to the Participation Agreement as its Funding Office. - ------------------------------------------ "Funding Request" is defined in Section 3.4 of the Participation Agreement. --------------- ------------------------------------------ "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession, that are applicable to the circumstances as of the date of determination, consistently applied. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Operative Document, and either the Lessee or the Required Participants shall so request, the Agent, the Participants and the Lessee shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Participants), provided that, -------- until so amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (b) the Lessee shall provide to the Agent and the Participants financial statements and other documents required under the Operative Documents or as reasonably requested thereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. [7-A]-15 "Governmental Action" means all permits, authorizations, registrations, ------------------- consents, approvals, waivers, exceptions, variances, orders, judgments, written interpretations, decrees, licenses, exemptions, publications, filings, notices to and declarations of or with, or required by, any Governmental Authority, or required by any Applicable Law, and shall include, without limitation, all environmental and operating permits and licenses that are required for the full use, occupancy, zoning and operation of the Property. "Governmental Authority" means (a) any international, foreign, federal, ---------------------- state, county or municipal government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality, central bank or public body, or (c) any court, administrative tribunal or public utility. "Gross Proceeds" is defined in Section 22.1(k) of the Lease. -------------- ---------------------------- "Guarantee" means the Guarantee executed by the Guarantor in favor of the --------- Original Agent, for the benefit of the Participants, in the form of Exhibit O to ------------ the Participation Agreement, as the rights of the Original Agent thereunder have - --------------------------- been assigned to the Agent as of July 12, 2000. "Guarantee Event of Default" is defined in the Guarantee. -------------------------- "Guarantor" means Quantum Corporation, a Delaware corporation. --------- "Guaranty Obligation" means, as to any Person, any (a) guaranty by such ------------------- Person of Indebtedness of, or other obligation payable or performable by, any other Person or (b) assurance, agreement, letter of responsibility, letter of awareness, undertaking or arrangement given by such Person to an obligee of any other Person with respect to the payment or performance of an obligation by, or the financial condition of, such other Person, whether direct, indirect or contingent, including any purchase or repurchase agreement covering such obligation or any collateral security therefor, any agreement to provide funds (by means of loans, capital contributions or otherwise) to such other Person, any agreement to support the solvency or level of any balance sheet item of such other Person or any "keep-well" or other arrangement of whatever nature, in each such case, given for the purpose of assuring or holding harmless such obligee against loss with respect to any obligation of such other Person; provided, -------- however, that the term Guaranty Obligation shall not include endorsements of - ------- instruments for deposit or collection in the ordinary course of business. The amount of any Guaranty Obligation shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, covered by such Guaranty Obligation or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the Person in good faith. "Hazardous Activity" means any activity, process, procedure or undertaking ------------------ that directly or indirectly (i) produces, generates or creates any Hazardous Substance; (ii) causes or results in (or threatens to cause or result in) the Release of any Hazardous Substance into the environment (including air, water vapor, surface water, groundwater, drinking water, land (including surface or subsurface), plant, aquatic and animal life); (iii) involves the containment or storage of any Hazardous Substance; or (iv) would be regulated as hazardous waste treatment, storage or disposal within the meaning of any Environmental Law. [7-A]-16 "Hazardous Condition" means any condition that violates or threatens to ------------------- violate, or that results in or threatens noncompliance with, any Environmental Law. "Hazardous Substance" means any of the following: (i) any petroleum or ------------------- petroleum product, explosives, radioactive materials, asbestos, formaldehyde, polychlorinated biphenyls, lead and radon gas; (ii) any substance, material, product, derivative, compound or mixture, mineral, chemical, waste, gas, medical waste or pollutant, in each case whether naturally occurring, man-made or the by-product of any process, that is toxic, harmful or hazardous to the environment or human health or safety; or (iii) any substance, material, product, derivative, compound or mixture, mineral, chemical, waste, gas, medical waste or pollutant that would support the assertion of any claim under any Environmental Law, whether or not defined as hazardous as such under any Environmental Law. "HDD" means Hard Disk Drive Group, a reportable business segment of the --- Lessee, as indicated in the Lessee's quarterly report filed with the Securities and Exchange Commission on form 10-Q on or about February 14, 2001. "HDD Assets" has the meaning specified in Section 4.14 of the HDD General ---------- ------------------------------- Assignment Agreement, subject to Section 5.16(d) of the HDD General Assignment - -------------------- --------------------------------------------- Agreement. - --------- "HDD Business" has the meaning specified in Section 4.16 of the HDD General ------------ ------------------------------- Assignment Agreement. - -------------------- "HDD Convertible Debt Portion" means the pro rata portion described on ---------------------------- Schedule 1 attached hereto. - -------------------------- "HDD General Assignment Agreement" means that General Assignment and -------------------------------- Assumption Agreement dated as of the Maxtor Merger Effective Date among the Lessee, Spinco and Maxtor. "HDD Redemption" means the redemption by the Lessee of all or substantially ----------- all of the outstanding HDD common stock, par value $0.01 per share, of the Lessee, in exchange for common stock of Spinco. "HDD Separation Agreement" means that Separation and Redemption Agreement ------------------------ dated as of the Maxtor Merger Effective Date, among the Lessee, Spinco and Maxtor. "Impositions" means, except to the extent described in the following ----------- sentence, any and all liabilities, losses, expenses, costs, charges and Liens of any kind whatsoever for fees, taxes, levies, imposts, duties, charges, assessments or withholdings ("Taxes") including (i) real and personal property ----- taxes, including personal property taxes on any property covered by the Lease that is classified by Governmental Authorities as personal property, and real estate or ad valorem taxes in the nature of property taxes; (ii) sales taxes, use taxes and other similar taxes (including rent taxes and intangibles taxes); (iii) any excise taxes; (iv) real estate transfer taxes, mortgage taxes, conveyance taxes, stamp taxes and documentary recording taxes and fees; (v) taxes that are or are in the nature of franchise, income, value added, privilege and doing business taxes, license and registration fees; (vi) assessments on the Property, including all assessments for public improvements or benefits, whether or not such improvements are commenced or completed within the Term; and (vii) any tax, Lien, assessment or charge asserted, imposed or assessed by the PBGC or any governmental authority succeeding to or performing functions similar to, the PBGC, and in each case all interest, additions to tax and penalties thereon, which [7-A]-17 at any time prior to, during or with respect to the Term or in respect of any period for which the Lessee shall be obligated to pay Supplemental Rent, may be levied, assessed or imposed by any Governmental Authority upon or with respect to (a) the Property or any part thereof or interest therein; (b) the purchase, sale, leasing, financing, refinancing, demolition, construction, alteration, substitution, subleasing, assignment, control, condition, occupancy, servicing, maintenance, repair, ownership, possession, activity conducted on, delivery, insuring, use, operation, improvement, transfer of title, return or other disposition of the Property or any part thereof or interest therein; (c) the Participation Interests with respect to the Property or any part thereof or interest therein; (d) the rentals, receipts or earnings arising from the Property or any part thereof or interest therein; (e) the Operative Documents, the performance thereof, or any payment made or accrued pursuant thereto; (f) the income or other proceeds received with respect to the Property or any part thereof or interest therein upon the sale or disposition thereof; (g) any contract (including the Construction Agency Agreement) relating to the construction, acquisition or delivery of the Improvements or any part thereof or interest therein; or (h) otherwise in connection with the transactions contemplated by the Operative Documents. The term "Imposition" shall not mean or include the following (except to the extent that such Taxes apply in consequence of the Lease being treated other than as a loan for purposes of such Taxes and exceed the amount of such Taxes that would have applied if the Lease had been so treated as a loan: (1) Taxes and impositions (other than Taxes that are, or are in the nature of, sales, use, transfer or property taxes) that are imposed on an Indemnitee by the United States federal or any foreign government that are based on or measured by the net income (including taxes based on capital gains and minimum taxes) of such Person; provided, that this clause (1) ---------- shall not be interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made; (2) Taxes and impositions (other than Taxes that are, or are in the nature of, sales, use, transfer or property taxes) that are imposed by any state or local jurisdiction or taxing authority within any state or local jurisdiction and that are franchise taxes or are based upon or measured by net income or net receipts; provided, that this clause (2) shall not be ---------- interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made (anything to the contrary notwithstanding, nothing in the Operative Documents shall be construed to impose upon Lessee any liability for Taxes imposed upon an Indemnitee to the extent imposed with respect to any activities of such Indemnitee other than under the transactions contemplated by the Operative Documents); (3) any Taxes or imposition for so long as, but only for so long as, it is being contested in accordance with the provisions of Section 13.5 of --------------- the Participation Agreement; --------------------------- (4) any Taxes which are imposed on an Indemnitee as a result of the gross negligence or willful misconduct of such Indemnitee itself (as opposed to gross negligence or willful misconduct imputed to such Indemnitee), but not Taxes imposed as a result of ordinary negligence of such Indemnitee; or [7-A]-18 (5) any Taxes or imposition to the extent, but only to such extent, it relates to any act, event or omission that occurs after the termination of the Lease and redelivery or sale of the Property in accordance with the terms of the Lease (but not any Taxes or imposition that relates to any period prior to such termination and redelivery). Any Taxes excluded from the defined term "Imposition" in any one of the foregoing clauses (1) through (4) shall not be construed as constituting an ----------------------- Imposition by any provision of any other of the aforementioned clauses. For purposes of the foregoing, taxes based upon or measured by net income shall be deemed to include, without limitation, any Imposition that qualifies as an "income tax" within the meaning of United States Treasury Regulation Section 1.901-2. "Improvements" means all buildings, structures, Fixtures, Equipment, and ------------ other improvements of every kind existing on the Land Interest Acquisition Date and at any time and from time to time and either constructed pursuant to the Construction Agency Agreement or those purchased with amounts advanced by the Participants pursuant to the Participation Agreement (or those becoming the property of the Lessor pursuant to Article XI of the Lease) on or under the Land ----------------------- Interest, together with any and all appurtenances to such buildings, structures, or improvements, including sidewalks, utility pipes, conduits and lines, parking areas and roadways, and including all Modifications and other additions to or changes in the Improvements at any time, other than Lessee's Property. "Indebtedness" means, as to any Person at any date of determination, all ------------ items which would, in conformity with GAAP, be classified as liabilities on a balance sheet of such Person as at such date excluding (i) trade and other --------- accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue for a period of more than sixty (60) days (unless contested in good faith by the Lessee or any Subsidiary), (ii) deferred taxes, and (iii) accrued interest and expenses, except to the extent capitalized, and in any event including: --------- (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) any direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), banker's acceptances, bank guaranties, surety bonds and similar instruments; (c) whether or not so included as liabilities in accordance with GAAP, net obligations under any Swap Contract in an amount equal to (x) if such Swap Contract has been closed out, the termination value thereof, or (y) if such Swap Contract has not been closed out, the mark-to-market value thereof determined on the basis of readily available quotations provided by any recognized dealer in such Swap Contract; (d) whether or not so included as liabilities in accordance with GAAP and whether with or without recourse, all obligations of such Person to pay the deferred purchase price of property or services, and indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements); [7-A]-19 (e) lease payment obligations under Capital Leases or Synthetic Lease Obligations; and (f) all Guaranty Obligations of such Person in respect of any of the foregoing obligations of any other Person. For all purposes of the Operative Documents, the Indebtedness of any Person shall include, at any such time as such partnership or joint venture is not Solvent, the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person (subject to customary recourse exceptions acceptable to the Required Participants). "Indemnitee" means the Lessor, the Agent, the Participants, their ---------- respective Affiliates and their respective successors, assigns, directors, shareholders, partners, officers, employees and agents. "In-Process Research & Development" means purchased in-process research and --------------------------------- development, as specified on the Lessee's statement of income in accordance with GAAP. "Insurance Requirements" means all terms and conditions of any insurance ---------------------- policy required by the Lease to be maintained by the Lessee, and all requirements of the issuer of any such policy. "Intangible Assets" means assets that are required to be disclosed as ----------------- intangible assets in accordance with GAAP on the Lessee's balance sheet, including customer lists, goodwill, computer software, copyrights, trade names, trade marks, patents, unamortized deferred charges, unamortized debt discount and capitalized research and development costs. "Interest Payment Advance" means any Advance made to fund the payment of ------------------------ interest or Yield accruing on the Advances during the Construction Period. "Interest Period" means, with respect to any Advance: --------------- (a) during the Syndication Period: (i) initially, the period commencing on the funding with respect to such Advance and ending one (1) month thereafter; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Advance and ending one month thereafter; and (b) subsequent to the Syndication Period, each period commencing on the last day of the next preceding Interest Period applicable to such Advance and ending one, two (2), three (3) or six (6) months thereafter, as selected by the Lessee by irrevocable notice to the Lessor and the Agent not less than three (3) Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, the foregoing provisions relating to Interest Periods are subject to the following: [7-A]-20 (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that would otherwise extend beyond the Expiration Date shall end on the Expiration Date; (iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of the Interest Period) shall end on the last Business Day of a calendar month; (iv) the Lessee shall select Interest Periods so as not to require a payment or prepayment of any Advance during an Interest Period for such Advance; and (v) if the Lessee shall fail to notify the Lessor and the Agent of the next Interest Period, such Advance shall automatically convert to an Alternate Base Rate Advance on the last day of the current Interest Period therefor. "Investment" means, as to any Person, any investment by such Person, ---------- whether by means of the purchase or other acquisition of stock or other securities of any other Person or by means of a loan, creating a debt, capital contribution, guaranty or other debt or equity participation or interest in any other Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment. "Investment Company Act" means the Investment Company Act of 1940, as ---------------------- amended, together with the rules and regulations promulgated thereunder. "Land Interest" means fee title to the parcel of real property described on ------------- Schedule 1 of the Lease Supplement and all Appurtenant Rights attached thereto. - ---------------------------------- "Land Interest Acquisition Cost" means, with respect to the Property, the ------------------------------ amount funded by the Lessor under the Participation Agreement as the purchase price of the Land Interest as set forth in the Acquisition Request therefor, including closing costs and fees in connection therewith. "Land Interest Acquisition Date" means the date on which the Lessor ------------------------------ acquires the Land Interest, which date shall be specified in the Acquisition Request. "Late Payment Rate" means (a) for each day (other than as set forth in ----------------- clause (b) of this definition) the Federal Funds Effective Rate or (b) for the - ---------- purpose of computing interest on past due payments for each day following the fifth day after such payments first became due, a rate of two percent (2%) per annum in excess of the Alternate Base Rate then in effect; provided, the Late Payment Rate shall not, notwithstanding anything to the contrary herein contained, exceed the maximum rate of interest permitted by applicable law. [7-A]-21 "Lease" means the Original Lease as amended and restated by the Amended and ----- Restated Master Lease, dated as of July 12, 2000, between the Lessor and the Lessee, together with the Lease Supplement and all Equipment Schedules thereto. "Lease Balance" means, as of any date of determination, an amount equal to ------------- (i) the sum of the outstanding amount of the Advances, all accrued and unpaid interest and Yield on the Advances, and all other amounts owing by the Lessee under the Operative Documents, less (ii) the sum of all payments received by the Lessor, the Agent or the Participant on account of payments to reduce the Lease Balance, including reductions resulting from payments by the Lessor, the Lessee and the Guarantor, proceeds from the sale of the Property and/or amounts realized from the Collateral pursuant to the Cash Collateral Agreement. "Lease Default" means any event or condition which, with the lapse of time ------------- or the giving of notice, or both, would constitute a Lease Event of Default. "Lease Event of Default" is defined in Section 17.1 of the Lease. ---------------------- ------------------------- "Lease Supplement" means the Lease Supplement substantially in the form of ---------------- Exhibit A to the Lease together with all attachments and schedules thereto, as - ---------------------- such Lease Supplement may be supplemented, amended or modified from time to time. "Lenders" means the lenders from time to time party to, and as defined in, ------- the Loan Documents. "Lessee" means Quantum Corporation, a Delaware corporation, as lessee under ------ the Lease, and its successors and assigns expressly permitted under the Operative Documents. "Lessee's Property" is defined in Section 11.1 of the Lease. ----------------- ------------------------- "Lessor" means SELCO Service Corporation, as successor in interest to the ------ Original Lessor in its capacity as Lessor under the Lease, and its successors and assigns expressly permitted under the Operative Documents. "Lessor Financing Statements" means UCC financing statements appropriately --------------------------- completed and executed for filing in the applicable jurisdiction in order to protect the Lessor's interest under the Lease to the extent the Lease is a security agreement. "Lessor Lien" means any Lien, true lease or sublease or disposition of ----------- title arising as a result of (a) any claim against the Lessor not resulting from the transactions contemplated by the Operative Documents, (b) any act or omission of the Lessor which is not required by the Operative Documents or is in violation of any of the terms of the Operative Documents, (c) any claim against the Lessor with respect to Taxes or Transaction Expenses against which Lessee is not required to indemnify the Lessor, pursuant to Sections 9 or 13.5 of the ------------------------- Participation Agreement or (d) any claim against the Lessor arising out of any - ----------------------- transfer by the Lessor of all or any portion of the interest of the Lessor in the Property or the Operative Documents other than the transfer of title to or possession of the Property by the Lessor pursuant to and in accordance with the Lease or the Participation Agreement or pursuant to the exercise of the remedies set forth in Article XVII of the Lease. ------------------------- [7-A]-22 "Leverage Ratio" means, as of any date of determination, for the Lessee and -------------- its Subsidiaries on a consolidated basis, the ratio of (a) Consolidated Funded Indebtedness as of such date to (b) Consolidated EBITDA for the period of the four fiscal quarters ending on, or ending most recently prior to, such date. "License Disposition" means, in respect of any patent, trademark, ------------------- copyright, mask work, trade secret or other intellectual property right owned or held by the Lessee or any of its Subsidiaries (the "IP Holder") which is --------- material to the Lessee or any of its Subsidiaries (together, "Material IP"), (a) ----------- the granting by the IP Holder of an exclusive license across all or substantially all fields, uses or regions to any Person other than the Lessee or another Subsidiary, (b) the granting of any license by the IP Holder that conveys directly or indirectly to any Person other than the Lessee or its Subsidiaries all or substantially all of the economic value of such Material IP, or (c) the abandonment by the IP Holder of such Material IP. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit ---- arrangement (including in the nature of, cash collateral accounts or security interests), encumbrance, lien (statutory or other), fixed or floating charge, or other security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable Requirements of Law of any jurisdiction), including the interest of a purchaser of accounts receivable. "Loan Documents" means (i) the Credit Agreement (3-Year), entered into as -------------- of April 19, 2000 and amended and restated as of the Restatement Date (as defined therein), among the Lessee as borrower, Bank of America, N.A. as administrative agent and letter of credit issuing lender, The Bank of Nova Scotia and the other financial institutions party thereto, and each note, letter of credit application, request for extension of credit, certificate, fee letter and other instrument or agreement from time to time executed by the Lessee or any of its Subsidiaries and delivered in connection with such agreement; and (ii) the 364 Day Credit Agreement and each note, request for extension of credit, certificate, fee letter and other instrument or agreement from time to time executed by the Lessee or any of its Subsidiaries and delivered in connection with such agreement. "Marketing Period" and "Remarketing Period" mean the period commencing on ---------------- ------------------ the date one hundred eighty (180) days prior to the Expiration Date and ending on the Expiration Date or such other 180 day period as is referred to in Section ------- 17.2(h) of the Lease. - -------------------- "Material", "Materially", and "Material Adverse Effect" mean material to, -------- ---------- ----------------------- or a material adverse effect on, (i) the business, assets, operations or financial or other condition of the Lessee or the Guarantor and their respective Subsidiaries taken as a whole or, in respect of anytime prior to the Maxtor Merger Effective Time, to the DSS Business on a stand-alone basis, (ii) the ability of the Lessee or the Guarantor to perform its obligations under any of the Operative Documents, (iii) the value or condition of the Property or the Lessor's interests therein or title thereto, or (iv) the rights and remedies of the Lessor, the Agent and the Participants under the Participation Agreement or any other Operative Document taken as a whole. "Material Subsidiaries" means each Subsidiary of the Lessee which has --------------------- assets with a total book value greater than ten percent (10%) of the consolidated total assets of the Lessee and its [7-A]-23 Subsidiaries, each determined as of the end of the fiscal quarter immediately preceding the date of determination. "Maturity Date" means April 19, 2003, unless extended in accordance with ------------- the provisions of Section 3.7(b) of the Participation Agreement. --------------------------------------------- "Maxtor" means Maxtor Corporation, a Delaware corporation. ------ "Maxtor Merger" means the merger between Spinco and Maxtor, undertaken ------------- pursuant to the Maxtor Merger Agreement. "Maxtor Merger Agreement" means that Amended and Restated Agreement and ----------------------- Plan of Merger and Reorganization dated as of October 3, 2000, by and among the Lessee, Spinco, Maxtor and Hawaii Acquisition Corporation, in substantially the form attached to the Lessee's Form 8-K/A filed with the Securities and Exchange Commission on or about December 14, 2000. "Maxtor Merger Documents" means the documents set forth on Schedule 1 ----------------------- ---------- attached hereto under the caption "Maxtor Merger Documents" (each in a form - --------------- substantially identical to that filed as an exhibit to the Maxtor Merger S-4). "Maxtor Merger Effective Date" means the date of the effectiveness of the ---------------------------- Maxtor Merger. "Maxtor Merger Effective Time" means the time of the effectiveness of the ---------------------------- Maxtor Merger. "Maxtor Merger Net Charge" means an amount equal to the lesser of (i) the ------------------------ amount of the expense charge recorded by the Lessee in accordance with GAAP (whether arising from discontinued operations, the restructuring of the continuing DSS operations or the amortization of deferred compensation) in either the first fiscal quarter of fiscal year 2002 or the fourth fiscal quarter of fiscal year 2001, as the case may be, in connection with the Maxtor Merger minus any gain recorded by the Lessee in accordance with GAAP in connection with the sale of the HDD Business in such quarter and (ii) $75,000,000, but in any event not less than $0. "Maxtor Merger S-4" means that Registration Statement on Form S-4 filed by ----------------- Maxtor with the Securities and Exchange Commission on or about December 11, 2000, as amended on or about (i) January 23, 2001, (ii) February 16, 2001 and (iii) February 28, 2001, together with all exhibits and attachments thereto, and as the prospectus contained in such Registration Statement was amended on or about March 7, 2001. "Meridian Acquisition" means the acquisition by DSS of Meridian Data, Inc., -------------------- which was completed on or about September 10, 1999. "MKE" means Matsushita-Kotobuki Electronics Industries, Ltd., a Japanese --- corporation. "Modifications" is defined in Section 11.1(a) of the Lease. ------------- ---------------------------- "Moody's" means Moody's Investors Service, Inc. and any successor thereto ------- that is a nationally-recognized rating agency. [7-A]-24 "Mortgage" means, with respect to the Property, a Construction Deed of -------- Trust, Security Agreement and Financing Statement substantially in the form attached as Exhibit P to the Participation Agreement, made by the Original ---------------------------------------- Lessor in favor of a trustee for the Original Agent for the benefit of the Participants and satisfactory in form and substance to the Agent and the Required Participants in order to create a first priority mortgage lien on the Lessor's fee interest in the Property and a first priority security interest in the Equipment, as the respective rights and obligations of the Original Lessor and the Original Agent thereunder have been assigned to the Lessor and the Agent as of July 12, 2000. "Mortgage Documents" is defined in Section 6.1 of the Participation ------------------ -------------------------------- Agreement. - --------- "Mortgage Taxes" is defined in Section 6.1 of the Participation Agreement. -------------- ------------------------------------------ "Multiemployer Plan" means any employee benefit plan of the type described ------------------ in Section 4001(a)(3) of ERISA. "Net Cure Proceeds" is defined in Section 11.8 of the Participation ----------------- --------------------------------- Agreement. - --------- "Net Proceeds" means all amounts paid in connection with any Casualty or ------------ Condemnation, and all interest earned thereon, less the expense of claiming and collecting such amounts, including all costs and expenses in connection therewith for which the Agent or the Lessor is entitled to be reimbursed pursuant to the Lease. "Net Sales Proceeds" means the Gross Proceeds actually received by the ------------------ Lessor upon any sale by the Lessor of any part of the Property pursuant to Articles XVII or XXII of the Lease, including, without limitation, (i) any such - ---------------------------------- payments made to the Lessor by the Lessee or any purchaser, (ii) any Shortfall Amount paid to the Lessor by the Lessee, and (iii) any interest paid by the Lessee to the Lessor on past due amounts under the Lease; but excluding any payments applied by the Lessor to pay, or received by the Lessor as reimbursement for, bona fide costs of the sale and further excluding any excess net sales proceeds received from a purchaser that the Lessor is required to pay over to the Lessee. In the event that for any reason whatsoever, including a default by the Lessee, the Lessor does not sell the Property pursuant to the Lease on the Designated Payment Date, "Net Sales Proceeds" shall nonetheless include any Shortfall Amount actually received by the Lessor. Further, if the Lessor does not sell the Property pursuant to the Lease, then "Net Sales Proceeds" shall also include the excess, if any, of: (a) all rents and all sales, condemnation and insurance proceeds actually received by the Lessor from any sale or lease after the Designated Payment Date of any interest in, or because of any subsequent taking or damage to, the Property; over (b) the sum of (i) all costs of collecting the rents and proceeds described in the preceding clause (a) plus (ii) all ad valorem taxes, ---------- insurance premiums and other costs of every kind incurred by the Lessor with respect to the ownership, operation or maintenance of the Property. However, for purposes of computing any excess described in the preceding sentence, costs described in clause (b) shall not include the Lessor's general ---------- overhead costs or any costs for which the Participants have already paid the Lessor their Commitment Percentages thereof as required by Section 11.6 of the ------------------- Participation Agreement. - ----------------------- [7-A]-25 "Net Security Proceeds" means, with respect to any sale or issuance of any --------------------- Equity Securities or other security by any Person (including in the case of the Lessee, any sale or issuance of any Subordinated Debt), the aggregate consideration received by such Person from such sale or issuance less the actual ---- amount of fees and commissions payable to Persons other than such Person or any Affiliate of such Person. "Non-Consenting Participant" means any Participant which has denied, or is -------------------------- deemed to have denied, an Extension Request pursuant to Section 3.7 of the ------------------ Participation Agreement. - ----------------------- "Operative Documents" means the following: ------------------- (a) the Participation Agreement; (b) the Lease and Lease Supplement; (c) the Guarantee; (d) the Property Purchase Agreement, the Assignment of Purchase Agreement and the Deed; (e) the Construction Agency Agreement; (f) the Assignment of Lease and each Supplement to the Assignment of Lease; (g) the Consent to Assignment; (h) the Equipment Schedules; (i) the Mortgage; (j) the Construction Agency Agreement Assignment; (k) the Consent to Construction Agency Agreement Assignment; (l) the Assignment of Construction Documents; and (m) the Cash Collateral Agreement. "Ordinary Course Indebtedness" means: ---------------------------- (a) Indebtedness under the Loan Documents; (b) intercompany Guaranty Obligations of the Lessee or any of its Subsidiaries guarantying Indebtedness otherwise permitted hereunder of the Lessee or any Subsidiary of the Lessee (other than Snap Appliances); (c) Indebtedness arising from the honoring of a check, draft or similar instrument against insufficient funds or from the endorsement of instruments for collection in the ordinary course of the Lessee's or any Subsidiary's business; [7-A]-26 (d) Permitted Swap Obligations; and (e) Indebtedness of the Lessee or any of its Subsidiaries with respect to surety, appeal, indemnity, performance or other similar bonds in the ordinary course of business. "Ordinary Course Investments" means Investments consisting of: --------------------------- (a) Investments in other assets properly classified as "marketable securities" or "cash" or "cash equivalents" under GAAP, and which conform to the investment policies adopted by the Board of Directors of the Lessee from time to time; (b) advances to officers, directors and employees of the Lessee and its Subsidiaries for travel, entertainment, relocation and analogous ordinary business purposes; (c) Investments of the Lessee in any of its Subsidiaries (other than Snap Appliances) and Investments of any Subsidiary of the Lessee in the Lessee or another Subsidiary of the Lessee (other than Snap Appliances); (d) extensions of credit to customers or suppliers of the Lessee and its Subsidiaries in the ordinary course of business and any Investments received in satisfaction or partial satisfaction thereof; (e) Guaranty Obligations permitted by Section 10.2(a) of the ---------------------- Participation Agreement; ----------------------- (f) Investments received by the Lessee or any of its Subsidiaries as distributions on claims in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (g) Investments of any Subsidiary existing at the time it becomes a Subsidiary of the Lessee, provided that such Investments were not made in -------- anticipation of such Person becoming a Subsidiary of the Lessee; and (h) Investments consisting of loans to employees, officers and directors, the proceeds of which shall be used to purchase Equity Securities of the Lessee or its Subsidiaries and other loans to employees, officers and directors. "Ordinary Course Liens" means: --------------------- (a) Liens pursuant to any Loan Document; (b) Liens for taxes not yet due or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP; (c) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a [7-A]-27 period of more than thirty (30) days or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP; (d) pledges or deposits in connection with worker's compensation, unemployment insurance and other social security legislation; (e) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (f) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of any Person; (g) attachment, judgment or other similar Liens arising in connection with litigation or other legal proceedings (and not otherwise an Event of Default hereunder) in the ordinary course of business that is currently being contested in good faith by appropriate proceedings, adequate reserves have been set aside, and no material property is subject to a material risk of loss or forfeiture; (h) Liens on the property or assets of any Subsidiary of the Lessee in favor of the Lessee or any other Subsidiary of the Lessee (other than Snap Appliances); (i) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties and in connection with the importation of goods in the ordinary course of the Lessee's and its Subsidiaries' businesses; (j) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (x) such deposit account is -------- not a dedicated cash collateral account and is not subject to restrictions against access by the Lessee in excess of those set forth by regulations promulgated by the Board, and (y) such deposit account is not intended by the Lessee or any Subsidiary to provide collateral to the depository institution; and (k) Liens on insurance proceeds in favor of insurance companies with respect to the financing of insurance premiums. "Original Agent" is defined in Recital A to the Participation Agreement. -------------- "Original Executed Counterpart" is defined in Section 31.8 of the Lease. ----------------------------- ------------------------- "Original Lessor" is defined in Recital A to the Participation Agreement. --------------- "Original Participation Agreement" is defined in Recital A to the -------------------------------- ---------------- Participation Agreement. - ----------------------- "Outside Completion Date" means the second anniversary of the Effective ----------------------- Date. [7-A]-28 "Overdue Rate" means, with respect to the Advances, fees or any other ------------ payment due under the Operative Documents, the interest rate then applicable to the Advances plus two percent (2%) per annum. "Partial Purchase Date" is defined in Section 20.5(b) of the Lease. --------------------- ---------------------------- "Partial Purchase Notice" is defined in Section 20.5(b) of the Lease. ----------------------- ---------------------------- "Partial Purchase Option" is defined in Section 20.5(b) of the Lease. ----------------------- ---------------------------- "Partial Purchase Option Price" is defined in Section 20.5(a) of the Lease. ----------------------------- ---------------------------- "Participant's Letter" is defined in Section 12.1(b) of the Participation -------------------- ------------------------------------ Agreement. - --------- "Participation Agreement" means the Original Participation Agreement as ----------------------- amended and restated by the Amended and Restated Participation Agreement, dated as of July 12, 2000, among the Lessee, the Lessor, the Participants and the Agent. "Participation Interest" means, as to each Participant, a participation ---------------------- interest in, or in the case of each Tranche C Participant, an equity investment in, the Lease and the right to receive that percentage of the following payments actually received by the Lessor from or on behalf of the Lessee as is set forth on Schedule I to the Participation Agreement, subject to the provisions of ----------------------------------------- Sections 3.11 - 3.21 and Section 11 of the Participation Agreement: (i) Basic - ------------------------------------------------------------------ Rent, (ii) Supplemental Rent, (iii) Asset Termination Value, (iv) Purchase Option Price, (v) Partial Purchase Option Price, (vi) Net Sales Proceeds, (vii) Residual Value Guarantee Amount, (viii) the Shortfall Amount, and (ix) other payments in respect of indemnities or pursuant to the Guarantee or the exercise of remedies under the Operative Documents, excluding, however, (x) any Excepted Payments and (y) as to a particular Participant, any payments on account of any Advances and any Required Supplemental Payments (and interest thereon) for which the Lessor has not received payment from such Participant of such Participant's Commitment Percentage thereof. For example, if the Lessor elects to pay for insurance required of the Lessee by the Lease because of the Lessee's failure to obtain such insurance, the Lessor's receipt of reimbursement for the cost of such insurance from the Lessee shall be included within "Participation Interest" for purposes of this Agreement only if such Participant has paid to the Lessor such Participant's Commitment Percentage of such cost pursuant to Section 11.6 ------------ or Section 11.7 of the Participation Agreement. - ---------------------------------------------- "Participants" means each Person executing the Participation Agreement or a ------------ Participant's Letter as a Participant and purchasing a Participation Interest in the transactions contemplated by the Participation Agreement and the other Operative Documents. "Participant Balance" means for each Participant the sum of its Tranche A ------------------- Participation Interest Balance, its Tranche B Participation Interest Balance and its Tranche C Participation Interest Balance. "Payment Date" means (a) any Scheduled Payment Date and (b) any date on ------------ which interest or Yield is payable pursuant to Section 3.8(d) of the --------------------- Participation Agreement in connection with any prepayment of the Advances. - ----------------------- [7-A]-29 "PBGC" means the Pension Benefit Guaranty Corporation or any entity ---- succeeding to any or all of its functions under ERISA. "Pension Plan" means any "employee pension benefit plan" (as such term is ------------ defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the Lessee or any ERISA Affiliate or to which the Lessee or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five plan years. "Permitted Exceptions" means (a) the respective rights and interests of the -------------------- parties to the Operative Documents as provided in the Operative Documents; (b) the rights of any sublessee or assignee under a sublease or an assignment expressly permitted by the terms of the Lease; (c) Liens for Taxes that either are not yet due or are being contested in accordance with the provisions of Section 13.1 of the Lease or Section 13.5 of the Participation Agreement; (d) - ------------------------- ------------------------------------------- Liens arising by operation of law, materialmen's, mechanics', workers', repairmen's, employees', carriers', warehousemen's and other like Liens in connection with any Modifications or arising in the ordinary course of business for amounts that either are not more than sixty (60) days past due or are being diligently contested in good faith by appropriate proceedings, so long as such proceedings satisfy the conditions for the continuation of proceedings to contest Taxes set forth in Section 13.1 of the Lease, and that have been bonded ------------------------- for not less than the full amount in dispute (or as to which other security arrangements satisfactory to the Lessor have been made), which bonding (or arrangements) shall comply with applicable Requirements of Law, and has effectively stayed any execution or enforcement of such Liens; (e) Liens arising out of judgments or awards with respect to which appeals or other proceedings for review are being prosecuted in good faith and for the payment of which adequate reserves have been provided as required by GAAP or other appropriate provisions have been made, so long as such proceedings have the effect of staying the execution of such judgments or awards and satisfy the conditions for the continuation of proceedings to contest set forth in Section 13.1 of the ------------------- Lease; (f) all encumbrances, exceptions, restrictions, easements, rights of way, - ----- servitudes, encroachments and irregularities in title, other than Liens which, in the reasonable assessment of the Agent, do not materially impair the value of the Property or the use of the Property for its intended purpose; (g) easements, rights of way and other encumbrances on title to the Property pursuant to Section 12.2 of the Lease; (h) a Lien consisting of a deposit or pledge made, in - ------------------------- the ordinary course of business, in connection with, or to secure payment of, obligations under worker's compensation, unemployment insurance or similar legislation and (i) Liens of the types described in clauses (i), (ii) and (iv) -------------------------- of Section 10.2(b) of the Participation Agreement and clauses (b), (d), (e) and - ------------------------------------------------- ------------------------- (h) of the definition of Ordinary Course Liens; provided, however, that - --- -------- ------- Permitted Exceptions shall in no event include Lessor's Liens. "Permitted Indebtedness" is defined in Section 10.2(a) of the Participation ---------------------- ------------------------------------ Agreement. - --------- "Permitted Investments" is defined in Section 10.2(e) of the Participation --------------------- ------------------------------------ Agreement. - --------- "Permitted Liens" is defined in Section 10.2(b) of the Participation --------------- ------------------------------------ Agreement. - --------- "Permitted Receivables Facility" means one or more accounts receivable ------------------------------ financing arrangements including (a) the sale of accounts receivable and any related property by the Lessee and/or any of its Subsidiaries to a financing party or a special purpose vehicle, and/or (b) the [7-A]-30 granting of a security interest in accounts receivable and any related property by the Lessee and/or any of its Subsidiaries; provided, however, that the -------- ------- aggregate advances under all such accounts receivable financing arrangements shall not exceed $100,000,000 at any time. "Permitted Swap Obligations" means all obligations (contingent or -------------------------- otherwise) of the Lessee or any of its Subsidiaries existing or arising under Swap Contracts, provided that such obligations are (or were) entered into by -------- such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments or assets held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person in conjunction with a securities repurchase program not otherwise prohibited hereunder, and not for purposes of speculation or taking a "market view." "Person" means any individual, trustee, corporation, general partnership, ------ limited partnership, limited liability company, joint stock company, trust, unincorporated organization, bank, business association, firm, joint venture, Governmental Authority, or otherwise. "Plan" means any employee benefit plan maintained or contributed to by the ---- Lessee or by any trade or business (whether or not incorporated) under common control with the Lessee as defined in Section 4001(b) of ERISA and insured by the PBGC under Title IV of ERISA. "Plans and Specifications" means, with respect to the Property, the plans ------------------------ and specifications for the Improvements to be constructed on the Property. "Pricing Grid" means Schedule II to the Participation Agreement. ------------ ------------------------------------------ "Prime Rate" means the per annum rate publicly announced by the Agent from ---------- time to time at its New York Branch. The Prime Rate is determined by the Agent from time to time as a means of pricing credit extensions to some customers and is neither directly tied to any external rate of interest or index nor necessarily the lowest rate of interest charged by the Agent at any given time for any particular class of customers or credit extensions. Any change in the Alternative Base Rate resulting form a change in the Prime Rate shall become effective on the Business Day on which each change in the Prime Rate occurs. "Property" means (i) the Land Interest and (ii) all of the Improvements, -------- Equipment and Fixtures at any time located on or under such Land Interest other than Lessee's Property. "Property Balance" means, with respect to the Property, as of any date of ---------------- determination, an amount equal to (i) the sum of the outstanding amount of the Advances, all accrued and unpaid interest and Yield on the Advances, and all other amounts owing by the Lessee under the Operative Documents, less (ii) the sum of all payments received by the Lessor, the Agent or the Participant on account of payments to reduce the Property Balance, including reductions resulting from payments by the Lessor, the Lessee and the Guarantor and/or proceeds from the sale of the Property and/or amounts realized from the Collateral pursuant to the Cash Collateral Agreement. "Property Cost" means, with respect to the Property, the aggregate amount ------------- of the related Land Interest Acquisition Cost and the related Property Improvements Cost. "Property Improvements Cost" means, with respect to the Property, the -------------------------- amount funded to or on behalf of the Construction Agent by the Lessor under the Participation Agreement and the [7-A]-31 Construction Agency Agreement to construct any Improvements, Fixtures or Modifications and to purchase Equipment to be used on the Property in accordance with the Plans and Specifications therefor and the Operative Documents, as set forth in the Acquisition Request and Funding Requests therefor (including interest and Yield on the Advances during the Construction Period applied to such cost and funded by an Interest Payment Advance). "Property Purchase Agreement" means the Purchase and Sale Agreement, dated --------------------------- as of July, 1997, between the Existing Owner and the Lessee, and assigned to the Original Lessor pursuant to the Assignment of Purchase Agreement, providing for the purchase of the Property by the Lessor on the Land Interest Acquisition Date. "Purchase Notice" is defined in Section 20.1 of the Lease. --------------- ------------------------- "Purchase Option" is defined in Section 20.1 of the Lease. --------------- ------------------------- "Purchase Option Price" is defined in Section 20.1 of the Lease. --------------------- ------------------------- "Quick Ratio" means, with respect to the Lessee and its Subsidiaries at any ----------- time, the ratio, determined on a consolidated basis in accordance with GAAP, of: (a) the sum at such time of all (i) cash and cash equivalents of the Lessee and its Subsidiaries (excluding restricted cash), and (ii) accounts receivable of the Lessee and its Subsidiaries, less all reserves therefor; to (b) the sum at -- such time of (i) the current liabilities of the Lessee and its Subsidiaries (including any such liabilities outstanding under the Loan Documents and the Operative Documents), plus (ii) to the extent not included in clause (i), the ---- ---------- aggregate outstanding obligations under the Loan Documents with respect to the principal amount of loans, the undrawn face amount of letters of credit and unreimbursed drawings under letters of credit; provided that in respect of any -------- period (or partial period) prior to the Maxtor Merger Effective Time, the "Quick Ratio" shall be determined solely in respect of the DSS Business on a stand- alone basis, based upon the then-current DSS Combined Financial Statements. "Release" means any release, pumping, pouring, emptying, injecting, ------- escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or emission of a Hazardous Substance. "Remarketing Option" is defined in Section 22.1 of the Lease. ------------------ ------------------------- "Remarketing Period" is defined in the definition "Marketing Period". ------------------ "Renewal Option" is defined in Section 21.1(a) of the Lease. -------------- ---------------------------- "Renewal Request" is defined in Section 21.1(a) of the Lease. --------------- ---------------------------- "Renewal Response Date" is defined in Section 21.1(a) of the Lease. --------------------- ---------------------------- "Renewal Term" means, individually, either of the two one-year periods ------------ which immediately follow April 19, 2003, with respect to which Lessee has exercised its Renewal Option pursuant to Section 21.1 of the Lease. ------------------------- "Rent" means, collectively, the Basic Rent and the Supplemental Rent, in ---- each case payable under the Lease. [7-A]-32 "Reportable Event" means any of the events set forth in Section 4043(b) of ---------------- ERISA or the regulations thereunder, a withdrawal from a Plan described in Section 4063 of ERISA, or a cessation of operations described in Section 4062(e) of ERISA. "Requesting Party" is defined in Section 26.1 of the Lease. ---------------- ------------------------- "Required Modification" is defined in Section 11.1(a) of the Lease. --------------------- ---------------------------- "Required Participants" means, at any time, Participants the Commitment --------------------- Percentages of which aggregate at least sixty-six and two-thirds percent (66 2/3%). "Required Supplemental Payments" means all payments of Supplemental Rent ------------------------------ that the Lessee has agreed to pay the Lessor under the Lease and the other Operative Agreements, other than (i) the Administrative Fee, (ii) Excepted Payments, (iii) Residual Value Guarantee Amount, (iv) Asset Termination Value, (v) Purchase Option Price, (vi) Partial Purchase Option Price and (vii) interest or Yield accruing on any amount due from the Lessee, which amount is itself not a Required Supplemental Payment under this definition. For example, if the Lessor incurs attorneys' fees because of a breach by the Lessee of the Lease, the payments required of the Lessee by the Lease as reimbursement for such fees shall constitute a Required Supplemental Payment. "Requirement of Law" means all Federal, state, county, municipal and other ------------------ governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting the Property, the Improvements or the demolition, construction, use or alteration thereof, whether now or hereafter enacted and in force, including any that require repairs, modifications or alterations in or to the Property or in any way limit the use and enjoyment thereof (including all building, zoning and fire codes and the Americans with Disabilities Act of 1990, 42 U.S.C. (S) 1201 et. seq. and any other similar Federal, state or local laws or ordinances and the regulations promulgated thereunder) and any that may relate to environmental requirements (including all Environmental Laws), and all permits, certificates of occupancy, licenses, authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments which are either of record or known to the Lessee affecting the Property, other than Lessor Liens, the Appurtenant Rights and any easements, licenses or other agreements entered into pursuant to Section 12.2 of the Lease. ------------------------- "Residual Value Guarantee Amount" means (i) during the Construction Period, ------------------------------- an amount equal to eighty-nine and nine-tenths percent (89.9%) of the Lease Balance, and (ii) at all other times, an amount equal to the aggregate Tranche A Participation Interest Balances of the Participants holding Tranche A Participation Interests. "Response Actions" means remove, removal, remedy, and remedial action as ---------------- those terms are defined in CERCLA, 42 U.S.C. (S) 9601. "Responsible Officer" means the President, any Vice President, the ------------------- Treasurer or Controller of the Lessee. "Responsible Officer's Certificate" means a certificate signed by any --------------------------------- Responsible Officer, which certificate shall certify as true and correct the subject matter being certified to in such certificate. [7-A]-33 "Restricted Payment" means: ------------------ (a) the declaration or payment of any dividend or distribution by the Lessee or any Subsidiary, either in cash or property, on any shares of the capital stock of any class of the Lessee or any Subsidiary; and (b) any other payment or distribution by the Lessee or any Subsidiary in respect of its capital stock, either directly or indirectly. "Restructuring Date" means July 12, 2000, if all conditions described in ------------------ Schedule 6.4 to the Participation Agreement have been satisfied or waived or - ------------------------------------------- deferred as provided in Section 6.4 of the Participation Agreement. ------------------------------------------ "S&P" means Standard & Poor's Ratings Services, a division of The McGraw- --- Hill Companies, Inc., and any successor thereto that is a nationally-recognized rating agency. "Scheduled Payment Date" means (a) as to interest or Yield on any Advances ---------------------- having an Interest Period of three (3) months or less, the last day of each Interest Period, (b) as to interest or Yield on any Advances having an Interest Period longer than three (3) months, each day which is three (3) months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period, (c) as to interest or Yield on any Advances bearing interest at the Alternate Base Rate, the last day of each March, June, September and December, and (d) as to the principal amount or equity contribution amount of the Advances, each date indicated on Schedule 1 to the Lease as being a ----------------------- payment date with respect to such portion of the Property Cost, if any. "Securities Act" means the Securities Act of 1933, as amended, together -------------- with the rules and regulations promulgated thereunder. "Security Documents" means the collective reference to the Mortgage, the ------------------ Assignment of Lease, the Construction Agency Agreement Assignment, the Assignment of Construction Documents, the Cash Collateral Agreement and all other security documents hereafter delivered to the Agent granting a Lien on any asset or assets of any Person to secure the obligations and liabilities of the Lessor to the Agent and the Participants under the Participation Agreement or of the Lessee to the Lessor under the Lease. "Senior Indebtedness" means, with respect to any Person at any time, all ------------------- Indebtedness of such Person other than Subordinated Debt. "Shareholders' Equity" means, as of any date of determination for the -------------------- Lessee and its Subsidiaries on a consolidated basis, shareholders' equity as of that date determined in accordance with GAAP. "Shortfall Amount" means, as of the Expiration Date, the amount that the ---------------- Asset Termination Value will exceed the aggregate of the Gross Proceeds and the Residual Value Guarantee Amount upon the completion of a sale of the Property pursuant to Article XXII of the Lease. ------------------------- "Significant Casualty" means (i) a Casualty that results in an insurance -------------------- settlement on the basis of a total loss, or a constructive or compromised total loss, or (ii) a Casualty that in the reasonable, good faith judgment of the Lessee (as evidenced by a Responsible Officer's Certificate delivered to the Lessor pursuant to Section 16.1 of the Lease) either (a) renders the ------------------------- [7-A]-34 Property unsuitable for continued use as a commercial property of the type of such property immediately prior to such Casualty or (b) is so substantial in nature that restoration of the Property to substantially its condition as existed immediately prior to such Casualty would be impracticable or impossible. "Significant Condemnation" means (i) a Condemnation that involves a taking ------------------------ of Lessor's entire title to the related Land Interest, (ii) a Condemnation that results in loss of possession of the Property by the Lessee for a period in excess of one hundred eighty (180) consecutive days, or (iii) a Condemnation that in the reasonable, good faith judgment of the Lessee (as evidenced by a Responsible Officer's Certificate delivered to the Lessor pursuant to Section ------- 16.1 of the Lease) either (a) renders the Property unsuitable for continued use - ----------------- as commercial of the type of such property immediately prior to such Condemnation or (b) is such that restoration of the Property to substantially its condition as existed immediately prior to such Condemnation would be impracticable or impossible. "Significant Event" means (i) a Significant Casualty, (ii) a Significant ----------------- Condemnation, (iii) an event where the restoration of the Property subject to a Casualty or Condemnation shall not be completed prior to the earlier of (A) the 180th day prior to the Expiration Date or (B) twelve (12) months following the occurrence of such Casualty or Condemnation or (iv) the occurrence of an Environmental Violation where the costs to clean up or remediate the same are reasonably estimated by the Lessee to exceed $5,000,000. "Snap Appliances" means Snap Appliances, Inc., a Delaware corporation. --------------- "Snap Appliances S-1" means that Registration Statement on Form S-1 filed ------------------- by Snap Appliances with the Securities and Exchange Commission on or about October 30, 2000, as amended on or about November 13, 2000, together with all exhibits and attachments thereto. "Snap Business" has the meaning specified in Section 4.20 of the Snap ------------- ------------------------ General Assignment Agreement. - ---------------------------- "Snap Employee Matters Agreement" means that Employment Matters Agreement ------------------------------- to be entered into by the Lessee and Snap Appliances in connection with the Snap Spin-Off in a form substantially identical to the form of such agreement attached as an exhibit to the Snap Appliances S-1. "Snap General Assignment Agreement" means that General Assignment and --------------------------------- Assumption Agreement to be entered into by the Lessee and Snap Appliances in connection with the Snap Spin-Off in a form substantially identical to the form of such agreement attached as an exhibit to the Snap Appliances S-1. "Snap Master Agreement" means that Master Separation and Distribution --------------------- Agreement effective as of October 26, 2000 between the Lessee and Snap Appliances. "Snap Spin-Off Documents" means the documents set forth on Schedule 1 ----------------------- ---------- attached hereto under the caption "Snap Spin-Off Documents" together with any - --------------- and all other documents entered into pursuant thereto, in connection therewith or required thereby. "Snap Spin-Off" means (a) the contribution and assignment by the Lessee to ------------- Snap Appliances of certain assets and liabilities of the Lessee associated with the Snap Business, [7-A]-35 substantially in accordance with the terms of the Snap Master Agreement, (b) the consummation by Snap Appliances of an initial public offering following which the Lessee shall retain an ownership interest in not less than 80% of outstanding common stock of Snap Appliances, substantially in accordance with the Snap Appliances S-1 and (c) the distribution to the Lessee's shareholders of all or substantially all remaining shares of Snap Appliances pursuant to a tax- free reorganization. "Solvent" means, as to any Person at any time, that (i) the fair value of ------- the property of such Person is greater than the amount of such Person's liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy Code; (ii) the present fair saleable value of the property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (iii) such Person is able to realize upon its property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business; (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (v) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital. "Specified Event of Default" is defined in Section 17.1(q) of the Lease. -------------------------- ---------------------------- "Spinco" means Insula Corporation, a Delaware corporation and, prior to the ------ Maxtor Merger Effective Time, a wholly-owned Subsidiary of the Lessee. "Subdivided Parcel" is defined in Section 20.5(a) of the Lease. ----------------- ---------------------------- "Subordinated Debt" means the Convertible Subordinated Debentures and any ----------------- other subordinated debt permitted by clause (xi) of Section 10.2(a) of the ------------------------------------- Participation Agreement. - ----------------------- "Subsidiary" of a Person means a corporation, partnership, joint venture, ---------- limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned or controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. "Supplemental Rent" means all amounts, liabilities and obligations (other ----------------- than Basic Rent) which Lessee assumes or agrees to pay to Lessor or any other Person under the Lease, or under any of the other Operative Documents, including, without limitation, payments of the Residual Value Guarantee Amount, the Shortfall Amount and payments pursuant to Sections 16.2, 16.3, 16.4 or 17.6 --------------------------------- of the Lease and Articles XX and XXII of the Lease. - ------------ --------------------------------- "Supplement to Assignment of Lease" means the Supplement substantially in --------------------------------- the form of Exhibit A to the Assignment of Lease together with all attachments ------------------------------------ and schedules thereto, as such Supplement to Assignment of Lease may be supplemented, amended or modified from time to time. "Swap Contract" means (a) any and all rate swap transactions, basis swaps, ------------- forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or [7-A]-36 equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross- currency rate swap transactions, currency options, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., or any other master agreement (any such master agreement, together with any related schedules, as amended, restated, extended, supplemented or otherwise modified in writing from time to time, a "Master Agreement"), including any such obligations or ---------------- liabilities under any Master Agreement. "Syndication Period" means the period commencing on the Effective Date and ------------------ concluding on the earlier of (i) the date which is ninety (90) days after the Effective Date or (ii) the date on which the Agent has syndicated Participation Interests to other Participants representing not less than seventy percent (70%) of the total Commitment set forth on Schedule I to the Participation Agreement. ----------------------------------------- "Synthetic Lease Obligations" means all monetary obligations of a Person --------------------------- under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations which do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as secured debt of such Person. "Tax Loss" means any and all taxes (including interest and penalties) of -------- the Lessee or any of its Subsidiaries paid, or required to be paid, at any time as a result of the Maxtor Merger or HDD Redemption not qualifying to be treated as a tax free transaction or as part of a tax-free reorganization under the Code (or other applicable tax law), whether as a result of the IRS (or any other applicable taxing authority) making such a determination or otherwise. "Taxes" is defined in the definition of Impositions. ----- "Term" is defined in Section 2.3 of the Lease. ---- ------------------------ "Termination Date" is defined in Section 15.1(d), 16.2(a) and 17.2(e) of ---------------- --------------------------------------- the Lease. - --------- "Termination Notice" is defined in Section 16.1 of the Lease. ------------------ ------------------------- "364 Day Commitment" means $53,600,000. ------------------ "364 Day Credit Agreement" means the Credit Agreement (364-Day/1-Year), ------------------------ dated as of April 19, 2000, among the Lessee as borrower, Bank of America, N.A. as administrative agent, The Bank of Nova Scotia and the other financial institutions party thereto. "Threshold Amount" means $10,000,000. ---------------- "Two Year Commitment" means $12,400,000. The Two Year Commitment expires ------------------- on the earlier of the Completion Date or the Outside Completion Date. [7-A]-37 "Tranche A Participants" means those Participants purchasing a Tranche A ---------------------- Participation Interest in the Advances and maintaining a Tranche A Participation Interest Commitment. "Tranche A Participation Interest" means, (i) as to each Tranche A -------------------------------- Participant, such Participant's Tranche A Participation Interest Commitment Percentage, multiplied by the outstanding amount of all Advances as to which such Participant has funded its Tranche A Participation Interest Commitment Percentage under Section 3.4 of the Participation Agreement and (ii) as to all ------------------------------------------ Tranche A Participants, 86.679162% of all outstanding Advances. "Tranche A Participation Interest Balance" means for each Tranche A ---------------------------------------- Participant as of any date of determination an amount equal to (i) the sum of such Tranche A Participant's Tranche A Participation Interest in all outstanding Advances, together with all accrued and unpaid interest thereon, and all other amounts owing by the Lessee to such Tranche A Participant under the Operative Documents, less (ii) the sum of all payments received by the Tranche A Participant on account of payments to reduce such Tranche A Participant's Tranche A Participation Interest, including reductions resulting from payments by the Lessor, the Lessee and the Guarantor and/or proceeds from the sale of the Property and/or amounts realized from the Collateral pursuant to the Cash Collateral Agreement. "Tranche A Participation Interest Commitment" is defined in Section 3.5 of ------------------------------------------- -------------- the Participation Agreement. - --------------------------- "Tranche A Participation Interest Commitment Percentage" means (i) with ------------------------------------------------------ respect to all Participants in the aggregate, 86.679162% of the aggregate Commitments, and (ii) with respect to each Tranche A Participant, the percentage of the aggregate Commitments set forth after such Participant's Tranche A Participation Interest Commitment in Schedule I to the Participation Agreement. ----------------------------------------- "Tranche B Participants" means those Participants purchasing a Tranche B ---------------------- Participation Interest in the Advances and maintaining a Tranche B Participation Interest Commitment. "Tranche B Participation Interest" means, (i) as to each Tranche B -------------------------------- Participant, such Tranche B Participant's Tranche B Participation Interest Commitment multiplied by the outstanding amount of all Advances as to which such Participant has funded its Tranche B Participation Interest Commitment Percentage under Section 3.4 of the Participation Agreement and (ii) as to all ------------------------------------------ Tranche B Participants, 9.80000% of all outstanding Advances. "Tranche B Participation Interest Balance" means for each Tranche B ---------------------------------------- Participant as of any date of determination an amount equal to (i) the sum of such Tranche B Participant's Tranche B Participation Interest in all outstanding Advances, together with all accrued and unpaid interest thereon, and all other amounts owing by the Lessee to such Tranche B Participant under the Operative Documents, less (ii) the sum of all payments received by the Tranche B Participant on account of payments to reduce such Tranche B Participant's Tranche B Participation Interest, including reductions resulting from payments by the Lessor, the Lessee and the Guarantor and/or proceeds from the sale of the Property and/or amounts realized from the Collateral pursuant to the Cash Collateral Agreement. "Tranche B Participation Interest Commitment" is defined in Section 3.5 of ------------------------------------------- -------------- the Participation Agreement. - --------------------------- [7-A]-38 "Tranche B Participation Interest Commitment Percentage" means (i) with ------------------------------------------------------ respect to all Participants in the aggregate, 9.80000% of the aggregate Commitments, and (ii) with respect to each Tranche B Participant, the percentage of the aggregate Commitments set forth after such Participant's Tranche B Participation Interest Commitment in Schedule I to the Participation Agreement. ----------------------------------------- "Tranche C Participants" means those Participants purchasing a Tranche C ---------------------- Participation Interest in the Advances and maintaining a Tranche C Participation Interest Commitment. "Tranche C Participation Interest" means, (i) as to each Tranche C -------------------------------- Participant, such Tranche C Participant's Tranche C Participation Interest Commitment multiplied by the outstanding amount of all Advances as to which such Participant has funded its Tranche C Participation Interest Commitment Percentage under Section 3.4 of the Participation Agreement and (ii) as to all ------------------------------------------ Tranche C Participants 3.520838% of all outstanding Advances. "Tranche C Participation Interest Balance" means for each Tranche C ---------------------------------------- Participant as of any date of determination an amount equal to (i) the sum of such Tranche C Participant's Tranche C Participation Interest in all outstanding Advances, together with all accrued and unpaid Yield thereon, and all other amounts owing by the Lessee to such Tranche C Participant under the Operative Documents, less (ii) the sum of all payments received by the Tranche C Participant on account of payments to reduce such Tranche C Participant's Tranche C Participation Interest, including reductions resulting from payments by the Lessor, the Lessee and the Guarantor, proceeds from the sale of the Property and/or amounts realized from the Collateral pursuant to the Cash Collateral Agreement. "Tranche C Participation Interest Commitment" is defined in Section 3.5 of ------------------------------------------- -------------- the Participation Agreement. - --------------------------- "Tranche C Participation Interest Commitment Percentage" means (i) with ------------------------------------------------------ respect to all Participants in the aggregate, 3.520838% of the Aggregate Commitments, and (ii) with respect to each Tranche C Participant, the percentage of the Aggregate Commitments set forth after such Participant's Tranche C Participation Interest Commitment in Schedule I to the Participation Agreement. ----------------------------------------- "Transaction Expenses" means the following costs and expenses incurred by -------------------- the Lessor, the Agent and, to the extent referred to below, the Participants in connection with the preparation, execution and delivery of the Operative Documents and the transactions contemplated by the Operative Documents: (a) the reasonable fees, out-of-pocket expenses and disbursements of counsel for each of the Lessor and the Agent, in negotiating the terms of the Operative Documents and the other transaction documents, preparing for the closing under, and rendering opinions in connection with, such transactions and in rendering other services customary for counsel representing parties to transactions of the types involved in the transactions contemplated by the Operative Documents; (b) the reasonable fees, out-of-pocket expenses and disbursements of counsel of each of the Lessor and the Agent in connection with (1) any amendment, supplement, waiver or consent with respect to any Operative Documents requested or approved by the [7-A]-39 Lessee and (2) any enforcement of any rights or remedies against the Lessee in respect of the Operative Documents; (c) any and all Taxes and fees incurred in recording, registering or filing any Operative Document or any other transaction document, any deed, declaration, mortgage, security agreement, notice or financing statement with any public office, registry or governmental agency in connection with the transactions contemplated by the Operative Documents; (d) any title fees, premiums and escrow costs and other expenses relating to title insurance and the closing contemplated by the Transaction Documents; and (e) all expenses relating to all Environmental Audits and Appraisals. "Type" means, with respect to any Advance, its nature as an Alternate Base ---- Rate Advance or a Eurodollar Rate Advance. "UCC Financing Statements" means collectively the Agent Financing ------------------------ Statements and the Lessor Financing Statements. "Uniform Commercial Code" and "UCC" means the Uniform Commercial Code as in ----------------------- --- effect in any applicable jurisdiction. "Yield" is defined in Section 3.8(b) of the Participation Agreement. ----- --------------------------------------------- [7-A]-40 SCHEDULE 1 TO APPENDIX 1 HDD CONVERTIBLE DEBT PORTION; MAXTOR MERGER DOCUMENTS; SNAP SPIN-OFF DOCUMENTS ------------------------------------------------ HDD Convertible Debt Portion - ---------------------------- The HDD Convertible Debt Portion shall be 33.33%. Maxtor Merger Documents - ----------------------- . Maxtor Merger Agreement. . HDD Separation Agreement. . HDD General Assignment Agreement. . Tax Sharing and Indemnity Agreement among the Lessee, Spinco and Maxtor. . Transitional Services Agreement among the Lessee, Spinco and Maxtor. . Intellectual Property Agreement among the Lessee, Spinco and Maxtor. . Indemnification Agreement among the Lessee, Spinco and Maxtor. . Reimbursement Agreement, dated as of a date on or prior to the Maxtor Merger Effective Date, between the Lessee and Maxtor. Snap Spin-Off Documents - ----------------------- . Snap Master Agreement. . Snap General Assignment Agreement. . Master Intellectual Property Agreement between the Lessee and Snap Appliances. . Snap Employee Matters Agreement. . Tax Sharing Agreement between the Lessee and Snap Appliances. . Master Transitional Services Agreement between the Lessee and Snap Appliances. . Indemnification and Insurance Matters Agreement between the Lessee and Snap Appliances. . Hard Disk Drive Supply Agreement dated as of June 30, 2000, entered into by Snap Appliances and the Lessee. [7-A]-41 EX-10.25 11 dex1025.txt CREDIT AGREEMENT DATED APRIL 19, 2000 Exhibit 10.25 ================================================================================ Credit Agreement (3-Year) Dated as of April 19, 2000 Amended and Restated as of the Restatement Date among Quantum Corporation and Bank of America, N.A., as Administrative Agent and Letter of Credit Issuing Lender, and Fleet National Bank as Syndication Agent, and The Bank of Nova Scotia as Documentation Agent and The Other Financial Institutions Party Hereto Banc of America Securities LLC, as Sole Arranger and Sole Book Manager ================================================================================ TABLE OF CONTENTS -----------------
Page ---- SECTION 1. DEFINITIONS AND ACCOUNTING TERMS............................................................... 1 1.01 Defined Terms................................................................................. 1 1.02 Use of Certain Terms.......................................................................... 24 1.03 Accounting Terms.............................................................................. 25 1.04 Rounding...................................................................................... 25 1.05 Exhibits and Schedules........................................................................ 25 1.06 References to Agreements and Laws............................................................. 25 SECTION 2. THE COMMITMENTS AND EXTENSIONS OF CREDIT....................................................... 25 2.01 Loans......................................................................................... 25 2.02 Borrowings, Conversions and Continuations of Loans............................................ 26 2.03 Letters of Credit............................................................................. 26 2.04 Prepayments................................................................................... 31 2.05 Reduction or Termination of Commitments....................................................... 31 2.06 Principal and Interest........................................................................ 31 2.07 Fees.......................................................................................... 32 2.08 Computation of Interest and Fees.............................................................. 33 2.09 Making Payments............................................................................... 33 2.10 Funding Sources............................................................................... 34 SECTION 3. TAXES, YIELD PROTECTION AND ILLEGALITY......................................................... 34 3.01 Taxes......................................................................................... 34 3.02 Illegality.................................................................................... 35 3.03 Inability to Determine Rates.................................................................. 36 3.04 Increased Cost and Reduced Return; Capital Adequacy........................................... 36 3.05 Breakfunding Costs............................................................................ 37 3.06 Matters Applicable to all Requests for Compensation........................................... 37 3.07 Survival...................................................................................... 37 SECTION 4. CONDITIONS PRECEDENT TO EXTENSIONS OF CREDIT................................................... 37 4.01 Conditions of Initial Extension of Credit..................................................... 37 4.02 Conditions to all Extensions of Credit........................................................ 39 SECTION 4A. CONDITIONS PRECEDENT TO AMENDED AND RESTATED AGREEMENT........................................ 39 4A.01 Conditions of Effectiveness of Amended and Restated Agreement................................. 39 SECTION 5. REPRESENTATIONS AND WARRANTIES................................................................. 41 5.01 Existence and Qualification; Power; Compliance with Laws...................................... 41 5.02 Power; Authorization; Enforceable Obligations................................................. 41 5.03 No Legal Bar.................................................................................. 41 5.04 Financial Statements; No Material Adverse Effect.............................................. 41 5.05 Litigation.................................................................................... 42
5.06 No Default..................................................................................... 42 5.07 Ownership of Property; Liens................................................................... 42 5.08 Taxes.......................................................................................... 42 5.09 Margin Regulations; Investment Company Act; Public Utility Holding Company Act................. 43 5.10 ERISA Compliance............................................................................... 43 5.11 Intangible Assets.............................................................................. 44 5.12 Compliance With Laws........................................................................... 44 5.13 Environmental Compliance....................................................................... 44 5.14 Insurance...................................................................................... 44 5.15 Swap Obligations............................................................................... 44 5.16 Maxtor Merger Matters.......................................................................... 44 5.17 Snap Spin-Off Matters.......................................................................... 45 5.18 Disclosure..................................................................................... 45 SECTION 6. AFFIRMATIVE COVENANTS........................................................................... 46 6.01 Financial Statements........................................................................... 46 6.02 Certificates, Notices and Other Information.................................................... 47 6.03 Payment of Taxes............................................................................... 48 6.04 Preservation of Existence...................................................................... 48 6.05 Maintenance of Properties...................................................................... 48 6.06 Maintenance of Insurance....................................................................... 49 6.07 Compliance With Laws........................................................................... 49 6.08 Inspection Rights.............................................................................. 49 6.09 Keeping of Records and Books of Account........................................................ 49 6.10 Compliance with ERISA.......................................................................... 49 6.11 Compliance With Agreements..................................................................... 49 6.12 Use of Proceeds................................................................................ 49 6.13 Maxtor Merger and Snap Spin-Off Matters........................................................ 49 SECTION 7. NEGATIVE COVENANTS.............................................................................. 50 7.01 Indebtedness................................................................................... 50 7.02 Liens.......................................................................................... 52 7.03 Fundamental Changes............................................................................ 53 7.04 Dispositions................................................................................... 53 7.05 Investments.................................................................................... 54 7.06 Restricted Payments............................................................................ 55 7.07 ERISA.......................................................................................... 55 7.08 Change in Nature of Business................................................................... 56 7.09 Transactions with Affiliates................................................................... 56 7.10 Use of Proceeds................................................................................ 56 7.11 Certain Indebtedness Payments, Etc............................................................. 56 7.12 Financial Covenants............................................................................ 57 7.13 Accounting Changes............................................................................. 59 SECTION 8. EVENTS OF DEFAULT AND REMEDIES.................................................................. 59 8.01 Events of Default.............................................................................. 59
-ii- 8.02 Certain Financial Covenant Defaults.......................................................... 63 8.03 Remedies Upon Event of Default............................................................... 63 SECTION 9. ADMINISTRATIVE AGENT.......................................................................... 65 9.01 Appointment and Authorization of Administrative Agent........................................ 65 9.02 Delegation of Duties......................................................................... 65 9.03 Liability of Administrative Agent............................................................ 65 9.04 Reliance by Administrative Agent............................................................. 66 9.05 Notice of Default............................................................................ 67 9.06 Credit Decision; Disclosure of Information by Administrative Agent........................... 67 9.07 Indemnification of Administrative Agent...................................................... 67 9.08 Administrative Agent in Individual Capacity.................................................. 68 9.09 Successor Administrative Agent............................................................... 68 9.10 Syndication Agent; Documentation Agent....................................................... 69 SECTION 10. MISCELLANEOUS................................................................................ 69 10.01 Amendments; Consents......................................................................... 69 10.02 Transmission and Effectiveness of Communications and Signatures.............................. 70 10.03 Attorney Costs, Expenses and Taxes........................................................... 71 10.04 Binding Effect; Assignment................................................................... 71 10.05 Set-off...................................................................................... 73 10.06 Sharing of Payments.......................................................................... 73 10.07 No Waiver; Cumulative Remedies............................................................... 74 10.08 Usury........................................................................................ 74 10.09 Counterparts................................................................................. 75 10.10 Integration.................................................................................. 75 10.11 Nature of Lenders' Obligations............................................................... 75 10.12 Survival of Representations and Warranties................................................... 75 10.13 Indemnity by Borrower........................................................................ 75 10.14 Nonliability of Lenders...................................................................... 76 10.15 No Third Parties Benefited................................................................... 77 10.16 Severability................................................................................. 77 10.17 Confidentiality.............................................................................. 77 10.18 Further Assurances........................................................................... 78 10.19 Headings..................................................................................... 78 10.20 Time of the Essence.......................................................................... 78 10.21 Foreign Lenders.............................................................................. 78 10.22 Removal and Replacement of Lenders........................................................... 79 10.23 Governing Law................................................................................ 80 10.24 Waiver of Right to Trial by Jury............................................................. 80 10.25 Entire Agreement............................................................................. 80 10.26 Effect of Amendment and Restatement.......................................................... 81
-iii- EXHIBITS Form of A Request for Extension of Credit B Compliance Certificate C Form of Note D Notice of Assignment and Acceptance SCHEDULES 1.01 HDD Convertible Debt Portion; Maxtor Merger Documents; Snap Spin- Off Documents 2.01 Commitments and Pro Rata Shares 5.05 Litigation 7.01 Existing Indebtedness and Liens 7.13 Subordination Provisions 10.02 Offshore and Domestic Lending Offices, Addresses for Notices -iv- CREDIT AGREEMENT This CREDIT AGREEMENT ("Agreement") is entered into as of April 19, --------- 2000 and amended and restated as of the Restatement Date (as defined herein), by and among Quantum Corporation, a Delaware corporation ("Borrower"), each lender -------- from time to time party hereto (collectively, "Lenders" and individually, a ------- "Lender"), and BANK OF AMERICA, N.A., as Administrative Agent and Issuing ------ Lender. RECITALS Borrower, Administrative Agent and certain Lenders are party to a Credit Agreement (3-Year) dated as of April 19, 2000 (the "April 2000 Credit ----------------- Agreement"), pursuant to which the Lenders have provided a revolving line of - --------- credit under the terms and conditions set forth therein. In conjunction with the consummation of the Maxtor Merger (as defined herein below), Borrower has requested, and Administrative Agent and Lenders have agreed, to amend and restate the April 2000 Credit Agreement in accordance with the terms and provisions and subject to the conditions set forth herein. In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows: SECTION 1. DEFINITIONS AND ACCOUNTING TERMS 1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below: "Acquisitions" means any transaction or series of related transactions ------------ for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any line of business or any division of a Person, (b) the acquisition of in excess of 50% of the capital stock, partnership interests or equity of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary). "Administrative Agent" means Bank of America, N.A., in its capacity as -------------------- administrative agent under any of the Loan Documents, or any successor administrative agent. "Administrative Agent's Office" means Administrative Agent's address ----------------------------- and, as appropriate, account as set forth on Schedule 10.02, or such other -------------- address or account as Administrative Agent hereafter may designate by written notice to Borrower and Lenders. "Administrative Agent-Related Persons" means Administrative Agent ------------------------------------ (including any successor agent), together with its Affiliates (including, in the case of Bank of America in its -1- capacity as Administrative Agent, the Arranger), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Affiliate" means any Person directly or indirectly controlling, --------- controlled by, or under direct or indirect common control with, another Person. A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise; provided that Persons, other than Subsidiaries, in which Quantum Technology Ventures holds Equity Securities shall not be "Affiliates" for purposes of this definition. "Agreement" means this Credit Agreement, as amended, restated, --------- extended, supplemented or otherwise modified in writing from time to time. "Applicable Amount" means the following amounts per annum, based upon ----------------- the Leverage Ratio as set forth in the most recent Compliance Certificate received by Administrative Agent pursuant to Section 6.02(a), provided, however, --------------- -------- that, until the six month anniversary of the Closing Date, such amounts shall be fixed as indicated for pricing level 3 set forth below:
- ------------------------------------------------------------------------------------------------------------------------- Applicable Amount (in basis points per annum) - ------------------------------------------------------------------------------------------------------------------------- Applicable LIBOR Applicable Base Level Leverage Ratio Margin Rate Margin Commitment fee Utilization Fee - ------------------------------------------------------------------------------------------------------------------------- 1 *0.75:1 112.50 12.50 25.00 12.50 - ------------------------------------------------------------------------------------------------------------------------- 2 **0.75:1 but *1.00:1 125.00 25.00 27.50 12.50 - ------------------------------------------------------------------------------------------------------------------------- 3 **1.00:1 but *1.25:1 137.50 37.50 30.00 12.50 - ------------------------------------------------------------------------------------------------------------------------- 4 **1.25:1 but *1.50:1 150.00 50.00 32.50 12.50 - ------------------------------------------------------------------------------------------------------------------------- 5 **1.50 175.00 75.00 37.50 12.50 - -------------------------------------------------------------------------------------------------------------------------
The Applicable Amount shall be in effect from the date the most recent Compliance Certificate is received by Administrative Agent to but excluding the date the next Compliance Certificate is received. "Applicable Payment Date" means, (a) as to any Offshore Rate Loan, the ------------------------------ last day of the relevant Interest Period, any date that such Loan is prepaid or converted in whole or in part and the Maturity Date; provided, however, that if -------- ------- any Interest Period for an Offshore Rate Loan exceeds three months, interest shall also be paid on the date which falls every three months after the beginning of such Interest Period; and (b) as to any other Obligations, the last Business Day of each calendar quarter and the Maturity Date; provided, further, -------- ------- that interest accruing at the Default Rate shall be payable from time to time upon demand of Administrative Agent. "Applicable Time" means California time. --------------- "April 2000 Credit Agreement" has the meaning set forth in the recitals --------------------------- hereto. "Arranger" means Banc of America Securities LLC, in its capacity as -------- sole arranger and sole book manager. * Less than ** More than or equals to -2- "Assignment and Acceptance" means an Assignment and Acceptance ------------------------- substantially in the form of Exhibit D. --------- "Attorney Costs" means and includes all fees and disbursements of any -------------- law firm or other external counsel and the allocated cost of internal legal services and all disbursements of internal counsel. "Audited Financial Statements" means the audited consolidated balance ---------------------------- sheet of Borrower and its Subsidiaries for the fiscal year ended March 31, 2000, and the related consolidated statements of income and cash flows for such fiscal year of Borrower. "Bank of America" means Bank of America, N.A. --------------- "Base Rate" means a fluctuating rate per annum equal to the higher of --------- (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its "prime rate." Such rate is a rate set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change. "Base Rate Loan" means a Loan made hereunder and specified to be a Base -------------- Rate Loan in accordance with Section 2. "Borrower" has the meaning set forth in the introductory paragraph -------- hereto. "Borrowing" and "Borrow" each mean a borrowing of Loans hereunder. --------- ------ "Borrowing Date" means the date that a Loan is made, which shall be a -------------- Business Day. "Business Day" means any day other than a Saturday, Sunday, or other ------------ day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where Administrative Agent's Office is located and, if such day relates to any Offshore Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the offshore Dollar interbank market. "Capital Leases" means any and all leases under which certain -------------- obligations are required to be capitalized on the books of a lessee in accordance with GAAP. "Change of Control" means, with respect to any Person, an event or ----------------- series of events by which: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, but excluding any employee benefit plan of such person or its subsidiaries, or any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities -3- Exchange Act of 1934, as amended, except that such a person or group shall be deemed to have "beneficial ownership" of all securities that such person or group has the right to acquire (such right, "option right"), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 40% or more of the equity securities of such Person entitled to vote for members of the board of directors or equivalent governing body on a partially-diluted basis (i.e., taking into account all such securities that such person or group has the right to acquire pursuant to any option right); or (b) during any period of 12 consecutive months, a majority of the members of the board of directors or other equivalent governing body of such Person cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body. "Closing Date" means the date all the conditions precedent in Section ------------ 4.01 are satisfied or waived in accordance with Section 4.01. "Code" means the Internal Revenue Code of 1986. ---- "Commitment" means, for each Lender, the amount set forth opposite such ---------- Lender's name on Schedule 2.01, as such amount may be reduced or adjusted from ------------- time to time in accordance with the terms of this Agreement (collectively, the "combined Commitments"). -------------------- "Compliance Certificate" means a certificate substantially in the form ---------------------- of Exhibit B, properly completed and signed by a Responsible Officer of --------- Borrower. "Consolidated EBITDA" means, for any period, for Borrower and its ------------------- Subsidiaries on a consolidated basis, an amount equal to the sum of (a) Consolidated Net Income, (b) Consolidated Interest Charges, (c) the amount of taxes, based on or measured by income, used or included in the determination of such Consolidated Net Income, (d) the amount of depreciation and amortization expense deducted in determining such Consolidated Net Income, (e) the amount written off in connection with In-Process Research & Development related to the Meridian Acquisition in the second fiscal quarter of year 2000, (f) the charge taken in the fourth fiscal quarter of year 2000 in connection with DSS and (g) the amount of any charges taken in connection with In-Process Research & Development associated with Acquisitions (other than any charge included in clause (e) above) provided that (i) any such charges are taken during the fiscal quarter in which the related Acquisition was completed, and (ii) for purposes of calculating In-Process Research & Development charges under this clause (g), the aggregate amount of any such charges does not exceed $100,000,000 from and after the Closing Date; provided that in respect of any period (or partial period) prior to the Maxtor Merger Effective Time, "Consolidated EBITDA" shall be determined solely in respect of the DSS Business on a stand-alone basis, based upon the then-current DSS Combined Financial Statements. -4- "Consolidated Funded Indebtedness" means, as of any date of -------------------------------- determination, for Borrower and its Subsidiaries on a consolidated basis, the sum of (a) the outstanding principal amount of all obligations and liabilities, whether current or long-term, for borrowed money (including Obligations to the extent consisting of principal), (b) that portion of obligations with respect to Capital Leases that would in conformity with GAAP be capitalized on the consolidated balance sheet of Borrower and its Subsidiaries, and (c) Synthetic Lease Obligations; provided that in respect of any date prior to the Maxtor Merger Effective Time, "Consolidated Funded Indebtedness" shall be determined solely in respect of the DSS Business on a stand-alone basis, based upon the then-current DSS Combined Financial Statements. "Consolidated Interest Charges" means, for any period, for Borrower and ----------------------------- its Subsidiaries on a consolidated basis, the sum of (a) all interest, premium payments, fees, charges and related expenses payable by Borrower and its Subsidiaries in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, (b) the portion of rent payable by Borrower and its Subsidiaries with respect to such period under Capital Leases that is treated as interest in accordance with GAAP and (c) the portion of rent under any Synthetic Lease Obligation that would be treated as interest in accordance with GAAP if the Synthetic Lease Obligation were treated as a Capital Lease under GAAP; provided that in respect of any date prior to the -------- Maxtor Merger Effective Time, "Consolidated Interest Charges" shall be determined solely in respect of the DSS Business on a stand-alone basis, based upon the then-current DSS Combined Financial Statements. "Consolidated Net Income" means, for any period, for Borrower and its ----------------------- Subsidiaries on a consolidated basis, the net income of Borrower and its Subsidiaries from continuing operations after extraordinary items for that period and after excluding the Maxtor Merger Net Charge in the case of the period in which it is recorded; provided that in respect of any period (or -------- partial period) prior to the Maxtor Merger Effective Time, "Consolidated Net Income" shall be determined solely in respect of the DSS Business on a stand-alone basis, based upon the then-current DSS Combined Financial Statements. "Consolidated Tangible Net Worth" means, as of any date of ------------------------------- determination, for Borrower and its Subsidiaries on a consolidated basis, Shareholders' Equity of Borrower and its Subsidiaries on that date minus the Intangible Assets of Borrower and its Subsidiaries on that date; provided that -------- in respect of any date prior to the Maxtor Merger Effective Time, "Consolidated Tangible Net Worth" shall be determined solely in respect of the DSS Business on a stand-alone basis, based upon the then-current DSS Combined Financial Statements. "Continuation" and "Continue" mean, with respect to any Offshore Rate ------------ -------- Loan, the continuation of such Offshore Rate Loan as an Offshore Rate Loan on the last day of the Interest Period for such Loan. "Contractual Obligation" means, as to any Person, any provision of any ---------------------- security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Conversion" and "Convert" mean, with respect to any Loan, the conversion of such Loan from or into another type of Loan. "Convertible Subordinated Debentures" means the 7% Convertible Subordinated Notes due 2004 issued by Borrower pursuant to the Indenture dated as of August 1, 1997 and the Supplemental Indenture dated as of August 1, 1997 between Borrower and LaSalle National Trust Company, N.A., as Trustee. -5- "Conversion" and "Convert" mean, with respect to any Loan, the conversion ---------- ------- of such Loan from or into another type of Loan. "Convertible Subordinated Debentures" means the 7% Convertible Subordinated ----------------------------------- Notes due 2004 issued by Borrower pursuant to the Indenture dated as of August 1, 1997 and the Supplemental Indenture dated as of August 1, 1997 between Borrower and LaSalle National Trust Company, N.A., as Trustee. "Debtor Relief Laws" means the Bankruptcy Code of the United States of ------------------ America, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States of America or other applicable jurisdictions from time to time in effect affecting the rights of creditors generally. "Default" means any event that, with the giving of any notice, the passage ------- of time, or both, would be an Event of Default. "Default Rate" means an interest rate equal to the Base Rate plus the ------------ Applicable Amount, if any, applicable to Base Rate Loans plus 2% per annum; provided, however, that with respect to an Offshore Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Amount) otherwise applicable to such Loan plus 2% per annum, in each case to the fullest extent permitted by applicable Laws. "Designated Deposit Account" means a deposit account maintained by Borrower -------------------------- with Bank of America, as from time to time designated by Borrower to Administrative Agent by Requisite Notice. "Disposition" or "Dispose" means the sale, transfer, License Disposition or ----------- ------- other disposition (including any sale and leaseback transaction) of any property by any Person, including any sale, assignment, transfer or other disposal with or without recourse of any notes or accounts receivable or any rights and claims associated therewith. "Dollar" and "$" means lawful money of the United States of America. ------ "DSS" means DLT and Storage Systems Group., a reportable business segment --- of Borrower, as indicated in Borrower's quarterly report filed with the Securities and Exchange Commission on form 10-Q on or about February 14, 2001. "DSS Business" means, collectively, all businesses and activities of the ------------ Borrower and its Subsidiaries, other than the HDD Business. "DSS Combined Financial Statements" means, collectively, the annual or --------------------------------- quarterly (as the case may be) condensed combined balance sheet and statements of income and cash flow in respect of DSS on a stand-alone basis, prepared in a manner and in a form consistent with those contained in Borrower's 2000 10-K and December 31, 2000 10-Q filings that were filed with the Securities and Exchange Commission on or about June 26, 2000 and February 14, 2000, respectively. -6- "Eligible Assignee" means (a) a financial institution organized under the ----------------- laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that -------- such bank is acting through a branch or agency located in the United States; (c) a Person that is primarily engaged in the business of commercial banking and that is (i) a Subsidiary of a Lender, (ii) a Subsidiary of a Person of which a Lender is a Subsidiary, or (iii) a Person of which a Lender is a Subsidiary; (d) another Lender; (e) any other entity which is an "accredited investor" (as defined in Regulation D under the Securities Act of 1933, as amended) which extends credit or buys loans as one of its businesses, including but not limited to, insurance companies, mutual funds and lease financing companies; or (f) other lenders or institutional investors consented to in writing in advance by Administrative Agent and Borrower. Neither Borrower nor any Affiliate of Borrower shall be an Eligible Assignee. "Employee Benefit Plan" means any employee benefit plan within the meaning --------------------- of section 3(3) of ERISA, maintained or contributed to by Borrower or any ERISA Affiliate, other than a Multiemployer Plan. "Environmental Laws" means all Laws relating to environmental, health, ------------------ safety and land use matters applicable to any property. "Equity Securities" of any Person means (a) all common stock, preferred ----------------- stock, participations, shares, partnership interests or other equity interests in such Person (regardless of how designated and whether or not voting or non- voting) and (b) all warrants, options and other rights to acquire any of the foregoing, other than convertible debt securities which have not been converted into common stock, preferred stock, participations, shares, partnership interests or other equity interests in any such Person. "ERISA" means the Employee Retirement Income Security Act of 1974. ----- "ERISA Affiliate" means any trade or business (whether or not incorporated) --------------- under common control with Borrower within the meaning of Sections 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). "ERISA Event" means (a) a Reportable Event with respect to a Pension Plan; ----------- (b) a withdrawal by Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer -7- Plan; or (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA Affiliate. "Event of Default" means any of the events specified in Section 8. ---------------- --------- "Existing Credit Agreement" means that certain Credit Agreement, dated as ------------------------- of June 6, 1997, among Borrower, Canadian Imperial Bank of Commerce, as administrative agent, and a syndicate of lenders. "Extension of Credit" means (a) a Borrowing, Conversion or Continuation of ------------------- Loans and (b) a Letter of Credit Action wherein a new Letter of Credit is issued or which has the effect of increasing the amount of, extending the maturity of, or making a material modification to an outstanding Letter of Credit or the reimbursement of drawings thereunder. "Federal Funds Rate" means, for any day, the rate per annum (rounded ------------------ upwards to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank on the Business Day next succeeding such day; provided that -------- (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to Bank of America on such day on such transactions as determined by Administrative Agent. "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession, that are applicable to the circumstances as of the date of determination, consistently applied. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either Borrower or Requisite Lenders shall so request, Administrative Agent, Lenders and Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of Requisite Lenders), provided that, until so amended, (a) such -------- ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (b) Borrower shall provide to Administrative Agent and Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. "Governmental Authority" means (a) any international, foreign, federal, ---------------------- state, county or municipal government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality, central bank or public body, or (c) any court, administrative tribunal or public utility. "Guaranty Obligation" means, as to any Person, any (a) guaranty by such ------------------- Person of Indebtedness of, or other obligation payable or performable by, any other Person or (b) -8- assurance, agreement, letter of responsibility, letter of awareness, undertaking or arrangement given by such Person to an obligee of any other Person with respect to the payment or performance of an obligation by, or the financial condition of, such other Person, whether direct, indirect or contingent, including any purchase or repurchase agreement covering such obligation or any collateral security therefor, any agreement to provide funds (by means of loans, capital contributions or otherwise) to such other Person, any agreement to support the solvency or level of any balance sheet item of such other Person or any "keep-well" or other arrangement of whatever nature, in each such case, given for the purpose of assuring or holding harmless such obligee against loss with respect to any obligation of such other Person; provided, however, that the -------- ------- term Guaranty Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guaranty Obligation shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, covered by such Guaranty Obligation or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the Person in good faith. "HDD" means Hard Disk Drive Group, a reportable business segment of --- Borrower, as indicated in Borrower's quarterly report filed with the Securities and Exchange Commission on form 10-Q on or about February 14, 2001. "HDD Assets" has the meaning specified in Section 4.14 of the HDD General ---------- Assignment Agreement, subject to Section 5.16(d). "HDD Business" has the meaning specified in Section 4.16 of the HDD General ------------ Assignment Agreement. "HDD Convertible Debt Portion" means the pro rata portion described on ---------------------------- Schedule 1.01. - ------------- "HDD General Assignment Agreement" means that General Assignment and -------------------------------- Assumption Agreement dated as of the Maxtor Merger Effective Date among Borrower, Spinco and Maxtor. "HDD Redemption" means the redemption by Borrower of all or substantially -------------- all of the outstanding HDD common stock, par value $0.01 per share, of Borrower, in exchange for common stock of Spinco. "HDD Separation Agreement" means that Separation and Redemption Agreement ------------------------ dated as of the Maxtor Merger Effective Date, among Borrower, Spinco and Maxtor. "In-Process Research & Development" means purchased in-process research and --------------------------------- development, as specified on Borrower's statement of income in accordance with GAAP. "Indebtedness" means, as to any Person at any date of determination, all ------------ items which would, in conformity with GAAP, be classified as liabilities on a balance sheet of such Person as at such date excluding (i) trade and other --------- accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue for a period of more than 60 days (unless contested in good faith by Borrower or any Subsidiary), (ii) deferred taxes, and (iii) accrued interest and expenses, except to the extent capitalized, and in any event including: --------- -9- (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) any direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), banker's acceptances, bank guaranties, surety bonds and similar instruments; (c) whether or not so included as liabilities in accordance with GAAP, net obligations under any Swap Contract in an amount equal to (i) if such Swap Contract has been closed out, the termination value thereof, or (ii) if such Swap Contract has not been closed out, the mark-to-market value thereof determined on the basis of readily available quotations provided by any recognized dealer in such Swap Contract; (d) whether or not so included as liabilities in accordance with GAAP and whether with or without recourse, all obligations of such Person to pay the deferred purchase price of property or services, and indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements); (e) lease payment obligations under Capital Leases or Synthetic Lease Obligations; and (f) all Guaranty Obligations of such Person in respect of any of the foregoing obligations of any other Person. For all purposes of this Agreement, the Indebtedness of any Person shall include, at any such time as such partnership or joint venture is not Solvent, the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person (subject to customary recourse exceptions acceptable to Requisite Lenders). "Indemnified Liabilities" has the meaning set forth in Section 10.13. ----------------------- ------------- "Indemnitees" has the meaning set forth in Section 10.13. ----------- ------------- "Intangible Assets" means assets that are required to be disclosed as ----------------- intangible assets in accordance with GAAP on Borrower's balance sheet, including customer lists, goodwill, computer software, copyrights, trade names, trade marks, patents, unamortized deferred charges, unamortized debt discount and capitalized research and development costs. "Interest Period" means for each Offshore Rate Loan, (i) initially, the --------------- period commencing on the date such Offshore Rate Loan is disbursed or Continued or Converted into such Offshore Rate Loan, and (ii) thereafter, the period commencing on the last day of the preceding Interest Period, and ending, in each case, on the earlier of (x) the scheduled Maturity Date, or (y) one, two, three or six months thereafter or, to the extent acceptable to all Lenders, as otherwise requested by Borrower; provided that: -------- -10- (A) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; (B) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (C) unless Administrative Agent otherwise consents, there may not be more than eight Interest Periods for Offshore Rate Loans in effect at any time. "Investment" means, as to any Person, any investment by such Person, ---------- whether by means of the purchase or other acquisition of stock or other securities of any other Person or by means of a loan, creating a debt, capital contribution, guaranty or other debt or equity participation or interest in any other Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment. "IRS" means the United States Internal Revenue Service. --- "Issuing Lender" means Bank of America, or any successor issuing lender -------------- hereunder. "Laws" or "Law" means all international, foreign, federal, state and local ---- --- statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law. "Lender" means each lender from time to time party hereto and, as the ------ context requires, Issuing Lender. "Lending Office" means, as to any Lender, the office or offices of such -------------- Lender described as such on Schedule 10.02, or such other office or offices as a Lender may from time to time notify Administrative Agent. "Letter of Credit" means any standby letter of credit issued or outstanding ---------------- hereunder. A Letter of Credit may be a performance letter of credit or a financial letter of credit. "Letter of Credit Action" means the issuance, supplement, amendment, ----------------------- renewal, extension, modification or other action relating to a Letter of Credit hereunder. "Letter of Credit Application" means an application for a Letter of Credit ---------------------------- Action from time to time in use by Issuing Lender. -11- "Letter of Credit Cash Collateral Account" means a blocked deposit account ---------------------------------------- at Bank of America with respect to which Borrower agrees to execute and deliver from time to time such documentation as Administrative Agent or Issuing Lender may reasonably request to grant to Administrative Agent and Issuing Lender a security interest therein as security for the Letter of Credit Usage. "Letter of Credit Expiration Date" means the scheduled Maturity Date. -------------------------------- "Letter of Credit Sublimit" means an amount equal to $50,000,000. The ------------------------- Letter of Credit Sublimit is part of, and not in addition to, the combined Commitments. "Letter of Credit Usage" means, as at any date of determination, the ---------------------- aggregate undrawn face amount of outstanding Letters of Credit plus the aggregate amount of all drawings under the Letters of Credit not reimbursed by Borrower or converted into Loans. "Leverage Ratio" means, as of any date of determination, for Borrower and -------------- its Subsidiaries on a consolidated basis, the ratio of (a) Consolidated Funded Indebtedness as of such date to (b) Consolidated EBITDA for the period of the four fiscal quarters ending on, or ending most recently prior to, such date. "License Disposition" means, in respect of any patent, trademark, ------------------- copyright, mask work, trade secret or other intellectual property right owned or held by Borrower or any of its Subsidiaries (the "IP Holder") which is material --------- to Borrower or any of its Subsidiaries (together, "Material IP"), (i) the ----------- granting by the IP Holder of an exclusive license across all or substantially all fields, uses or regions to any Person other than Borrower or another Subsidiary, (ii) the granting of any license by the IP Holder that conveys directly or indirectly to any Person other than Borrower or its Subsidiaries all or substantially all of the economic value of such Material IP, or (iii) the abandonment by the IP Holder of such Material IP. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit ---- arrangement (including in the nature of, cash collateral accounts or security interests), encumbrance, lien (statutory or other), fixed or floating charge, or other security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable Laws of any jurisdiction), including the interest of a purchaser of accounts receivable. "Loan" means any advance made by any Lender to Borrower as provided in ---- Section 2 (collectively, the "Loans"). - --------- ----- "Loan Documents" means this Agreement and each Note, each Letter of Credit -------------- Application, each Request for Extension of Credit, each certificate, each fee letter, and each other instrument, or agreement from time to time executed by Borrower or any of its Subsidiaries or any Responsible Officer and delivered in connection with this Agreement. "Master Agreement" has the meaning set forth in the definition of "Swap ---------------- ---- Contract". - -------- -12- "Material Adverse Effect" means any set of circumstances or events which ----------------------- (a) has any material adverse effect upon the validity or enforceability of any Loan Document, (b) is material and adverse to the financial condition, business, assets or operations of Borrower or, in respect of any time prior to the Maxtor Merger Effective Time, to the DSS Business on a stand-alone basis, or (c) materially impairs the ability of Borrower to perform the Obligations. "Material Subsidiaries" means each Subsidiary of Borrower which has assets --------------------- with a total book value greater than 10% of the consolidated total assets of Borrower and its Subsidiaries, determined as of the end of the fiscal quarter immediately preceding the date of determination. "Maturity Date" means (a) April 18, 2003, or (b) such earlier date upon ------------- which the combined Commitments may be terminated in accordance with the terms of this Agreement. "Maxtor" means Maxtor Corporation, a Delaware corporation. ------ "Maxtor Merger" means the merger between Spinco and Maxtor, undertaken ------------- pursuant to the Maxtor Merger Agreement. "Maxtor Merger Agreement" means that Amended and Restated Agreement and ----------------------- Plan of Merger and Reorganization dated as of October 3, 2000, by and among Borrower, Spinco, Maxtor and Hawaii Acquisition Corporation, in substantially the form attached to Borrower's Form 8-K/A filed with the Securities and Exchange Commission on or about December 14, 2000. "Maxtor Merger Documents" means the documents set forth on Schedule 1.01 ----------------------- ------------- under the caption "Maxtor Merger Documents" (each in a form substantially identical to that filed as an exhibit to the Maxtor Merger S-4 or, if not included as an exhibit to the Maxtor Merger S-4, in form and substance satisfactory to the Administrative Agent). "Maxtor Merger Effective Date" means the date of the effectiveness of the ---------------------------- Maxtor Merger. "Maxtor Merger Effective Time" means the time of the effectiveness of the ---------------------------- Maxtor Merger. "Maxtor Merger Net Charge" means an amount equal to the lesser of (i) the ------------------------ amount of the expense charge recorded by Borrower in accordance with GAAP (whether arising from discontinued operations, the restructuring of the continuing DSS operations or the amortization of deferred compensation) in either the first fiscal quarter of fiscal year 2002 or the fourth fiscal quarter of fiscal year 2001, as the case may be, in connection with the Maxtor Merger minus any gain recorded by Borrower in accordance with GAAP in connection with the sale of the HDD Business in such quarter and (ii) $75,000,000, but in any event not less than $0. "Maxtor Merger S-4" means that Registration Statement on Form S-4 filed by ----------------- Maxtor with the Securities and Exchange Commission on or about December 11, 2000, as amended on or about (i) January 23, 2001, (ii) February 16, 2001 and (iii) February 28, 2001, together with all exhibits and attachments thereto, and as the prospectus contained in such Registration Statement was amended on or about March 7, 2001. -13- "Meridian Acquisition" means the acquisition by DSS of Meridian Data, Inc., -------------------- which was completed on or about September 10, 1999. "Minimum Amount" means, with respect to each of the following actions, the -------------- minimum amount and any multiples in excess thereof set forth opposite such action:
Type of Action Minimum Multiples in Amount excess thereof Borrowing or prepayment of, or Conversion into, Base $ 5,000,000 $1,000,000 Rate Loans Borrowing, prepayment or Continuation of, or Conversion $ 5,000,000 $1,000,000 into, Offshore Rate Loans Letter of Credit Action $ 1,000,000 None Reduction in Commitments $10,000,000 $1,000,000 Assignments $10,000,000 None
"MKE" means Matsushita-Kotobuki Electronics Industries, Ltd., a Japanese --- corporation. "Multiemployer Plan" means any employee benefit plan of the type described ------------------ in Section 4001(a)(3) of ERISA. "Net Proceeds" means, with respect to any sale or issuance of any Equity ------------ Security or other security by any Person (including in the case of Borrower, any sale or issuance of any Subordinated Debt), the aggregate consideration received by such Person from such sale or issuance less the actual amount of fees and ---- commissions payable to Persons other than such Person or any Affiliate of such Person. "Note" means a promissory note made by Borrower in favor of a Lender ---- evidencing Loans made by such Lender, substantially in the form of Exhibit C --------- (collectively, the "Notes"). ----- "Obligations" means all advances to, and debts, liabilities, obligations, ----------- covenants and duties of, Borrower arising under any Loan Document, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest that accrues after the commencement of any proceeding under any Debtor Relief Laws by or against Borrower or any Subsidiary or Affiliate of Borrower. "Offshore Base Rate" has the meaning set forth in the definition of ------------------ Offshore Rate. "Offshore Rate" means for any Interest Period with respect to each Offshore ------------- Rate Loan comprising part of the same Borrowing, a rate per annum determined by Administrative Agent pursuant to the following formula: -14- Offshore Rate = Offshore Base Rate -------------------------------------------- 1.00 - Eurodollar Reserve Percentage Where, "Offshore Base Rate" means, for such Interest Period: ------------------ (a) the rate per annum equal to the rate determined by Administrative Agent to be the offered rate that appears on the page of the Telerate LIBOR screen (currently, page 3750) that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or (b) if the rate referenced in the preceding subsection (a) does not appear on such page or service or such page or service shall cease to be available, the rate per annum (rounded upwards to the fourth decimal place) equal to the rate determined by Administrative Agent to be the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or (c) if the rates referenced in the preceding subsections (a) and (b) are not available, the rate per annum determined by Administrative Agent as the rate of interest at which Dollar deposits (for delivery on the first day of such Interest Period) in same day funds in the approximate amount of the Offshore Rate Loan being made, Continued or Converted into by Administrative Agent or its Affiliate in its capacity as a Lender hereunder, and with a term equivalent to such Interest Period would be offered by Bank of America's London Branch to major banks in the offshore Dollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period. "Eurodollar Reserve Percentage" means, for any day during any Interest ----------------------------- Period, the reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day, whether or not applicable to any Lender, under regulations issued from time to time by the Board of Governors of the Federal Reserve System for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"). The Offshore Rate for each outstanding Offshore Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. The determination of the Eurodollar Reserve Percentage and the Offshore Base Rate by Administrative Agent shall be conclusive in the absence of manifest error. -15- "Offshore Rate Loan" means a Loan made hereunder and specified to be a ------------------ Offshore Rate Loan in accordance with Section 2. "Ordinary Course Dispositions" means: ---------------------------- (a) Dispositions of surplus equipment or damaged, obsolete or worn out property, whether now owned or hereafter acquired, in the ordinary course of business; (b) Dispositions in the ordinary course of business; (c) Dispositions of property to the extent that such property is exchanged for credit against the purchase price of similar replacement property, or the proceeds of such sale are reasonably promptly applied to the purchase price of such replacement property or where Borrower or its Subsidiary determine in good faith that the failure to replace such equipment will not be detrimental to the business of Borrower or such Subsidiary; (d) Dispositions of assets or property by any Subsidiary of Borrower to Borrower or another Subsidiary of Borrower (other than Snap Appliances); (e) Dispositions which constitute the making or liquidating of Permitted Investments; and (f) Dispositions which constitute the incurrence (but not the enforcement) of Permitted Liens; provided, however, that, other than with respect to Dispositions of the types - -------- ------- described in clauses (a) and (d) of this definition, no such Disposition shall be for less than the fair market value of the property being disposed of. "Ordinary Course Indebtedness" means: ---------------------------- (a) Indebtedness under the Loan Documents; (b) intercompany Guaranty Obligations of Borrower or any of its Subsidiaries guarantying Indebtedness otherwise permitted hereunder of Borrower or any Subsidiary of Borrower (other than Snap Appliances); (c) Indebtedness arising from the honoring of a check, draft or similar instrument against insufficient funds or from the endorsement of instruments for collection in the ordinary course of Borrower's or any Subsidiary's business; (d) Permitted Swap Obligations; and (e) Indebtedness of Borrower or any of its Subsidiaries with respect to surety, appeal, indemnity, performance or other similar bonds in the ordinary course of business. -16- "Ordinary Course Investments" means Investments consisting of: --------------------------- (a) Investments in other assets properly classified as "marketable securities" or "cash" or "cash equivalents" under GAAP, and which conform to the investment policies adopted by the Board of Directors of Borrower from time to time; (b) advances to officers, directors and employees of Borrower and its Subsidiaries for travel, entertainment, relocation and analogous ordinary business purposes; (c) Investments of Borrower in any of its Subsidiaries (other than Snap Appliances) and Investments of any Subsidiary of Borrower in Borrower or another Subsidiary of Borrower (other than Snap Appliances); (d) extensions of credit to customers or suppliers of Borrower and its Subsidiaries in the ordinary course of business and any Investments received in satisfaction or partial satisfaction thereof; (e) Guaranty Obligations permitted by Section 7.01. ------------ (f) Investments received by Borrower or any of its Subsidiaries as distributions on claims in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (g) Investments of any Subsidiary existing at the time it becomes a Subsidiary of Borrower, provided that such Investments were not made in -------- anticipation of such Person becoming a Subsidiary of Borrower; and (h) Investments consisting of loans to employees, officers and directors, the proceeds of which shall be used to purchase Equity Securities of Borrower or its Subsidiaries and other loans to employees, officers and directors. "Ordinary Course Liens" means: --------------------- (a) Liens pursuant to any Loan Document; (b) Liens for taxes not yet due or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP; (c) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP; -17- (d) pledges or deposits in connection with worker's compensation, unemployment insurance and other social security legislation; (e) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (f) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of any Person; (g) attachment, judgment or other similar Liens arising in connection with litigation or other legal proceedings (and not otherwise an Event of Default hereunder) in the ordinary course of business that is currently being contested in good faith by appropriate proceedings, adequate reserves have been set aside, and no material property is subject to a material risk of loss or forfeiture; (h) Liens on the property or assets of any Subsidiary of Borrower in favor of Borrower or any other Subsidiary of Borrower (other than Snap Appliances); (i) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties and in connection with the importation of goods in the ordinary course of Borrower's and its Subsidiaries' businesses; (j) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (i) such deposit account is -------- not a dedicated cash collateral account and is not subject to restrictions against access by Borrower in excess of those set forth by regulations promulgated by the Federal Reserve Board, and (ii) such deposit account is not intended by Borrower or any Subsidiary to provide collateral to the depository institution; and (k) Liens on insurance proceeds in favor of insurance companies with respect to the financing of insurance premiums. "Organization Documents" means, (a) with respect to any corporation, the ---------------------- certificate or articles of incorporation and the bylaws; (b) with respect to any limited liability company, the articles of formation and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership or joint venture agreement and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation with the secretary of state or other department in the state of its formation, in each case as amended from time to time. "Outstanding Obligations" means, as of any date, and giving effect to ----------------------- making any Extensions of Credit requested on such date and all payments, repayments and prepayments made on such date, (a) when reference is made to all Lenders, the sum of (i) the aggregate outstanding principal amount of all Loans, and (ii) all Letter of Credit Usage, and (b) when -18- reference is made to one Lender, the sum of (i) the aggregate outstanding principal amount of all Loans made by such Lender, and (ii) such Lender's ratable risk participation in all Letter of Credit Usage. "PBGC" means the Pension Benefit Guaranty Corporation or any successor ---- thereto established under ERISA. "Pension Plan" means any "employee pension benefit plan" (as such term is ------------ defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by Borrower or any ERISA Affiliate or to which Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five plan years. "Permitted Indebtedness" has the meaning specified in Section 7.01. ---------------------- ------------ "Permitted Investments" has the meaning specified in Section 7.05. --------------------- ------------ "Permitted Liens" has the meaning specified in Section 7.02. --------------- ------------ "Permitted Receivables Facility" means one or more accounts receivable ------------------------------ financing arrangements including (i) the sale of accounts receivable and any related property by Borrower and/or any of its Subsidiaries to a financing party or a special purpose vehicle, and/or (ii) the granting of a security interest in accounts receivable and any related property by Borrower and/or any of its Subsidiaries; provided, however, that the aggregate advances under all such -------- ------- accounts receivable financing arrangements shall not exceed $100,000,000 at any time. "Permitted Swap Obligations" means all obligations (contingent or -------------------------- otherwise) of Borrower or any of its Subsidiaries existing or arising under Swap Contracts, provided that such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments or assets held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person in conjunction with a securities repurchase program not otherwise prohibited hereunder, and not for purposes of speculation or taking a "market view. " "Person" means any individual, trustee, corporation, general partnership, ------ limited partnership, limited liability company, joint stock company, trust, unincorporated organization, bank, business association, firm, joint venture, Governmental Authority, or otherwise. "Plan" means any employee benefit plan maintained or contributed to by ---- Borrower or by any trade or business (whether or not incorporated) under common control with Borrower as defined in Section 4001(b) of ERISA and insured by the Pension Benefit Guaranty Corporation under Title IV of ERISA. "Pro Rata Share" means, with respect to each Lender, the percentage of the -------------- combined Commitments set forth opposite the name of such Lender on Schedule -------- 2.01, as such share may be adjusted as contemplated herein. - ---- -19- "Quantum Technology Ventures" means Quantum Technology Ventures, a Delaware --------------------------- corporation in formation. "Quick Ratio" means, with respect to Borrower and its Subsidiaries at any ----------- time, the ratio, determined on a consolidated basis in accordance with GAAP, of: (a) the sum at such time of all (i) cash and cash equivalents of Borrower and its Subsidiaries (excluding restricted cash), and (ii) accounts receivable of Borrower and its Subsidiaries, less all reserves therefor; to (b) the sum at such time of (i) the current liabilities of Borrower and its Subsidiaries (including any such liabilities outstanding under this facility), plus (ii) to ---- the extent not included in clause (i), Outstanding Obligations; provided that in -------- respect of any period (or partial period) prior to the Maxtor Merger Effective Time, the "Quick Ratio" shall be determined solely in respect of the DSS Business on a stand-alone basis, based upon the then-current DSS Combined Financial Statements. "Reportable Event" means any of the events set forth in Section 4043(b) of ---------------- ERISA or the regulations thereunder, a withdrawal from a Plan described in Section 4063 of ERISA, or a cessation of operations described in Section 4062(e) of ERISA. "Request for Extension of Credit" means, unless otherwise specified herein, ------------------------------- (a) with respect to a Borrowing, Conversion or Continuation of Loans, a written request substantially in the form of Exhibit A, and (b) with respect to a Letter --------- of Credit Action, a Letter of Credit Application; in each case duly completed and signed by a Responsible Officer of Borrower and delivered by Requisite Notice. "Requisite Lenders" means, as of any date of determination: (a) if the ----------------- Commitments are then in effect, Lenders (excluding any Lenders not funding when required to so hereunder) having in the aggregate more than 50% of the combined Commitments then in effect and (b) if the Commitments have then been terminated and there are Outstanding Obligations, Lenders holding Outstanding Obligations aggregating more than 50% of such Outstanding Obligations. "Requisite Notice" means, unless otherwise provided herein, (a) irrevocable ---------------- written notice to the intended recipient or (b) except with respect to Letter of Credit Actions (which must be in writing), irrevocable telephonic notice to the intended recipient, promptly followed by a written notice to such recipient. Such notices shall be (i) delivered to such recipient at the address or telephone number specified on Schedule 10.02 or as otherwise designated by such -------------- recipient by Requisite Notice to Administrative Agent, and (ii) if made by Borrower, given or made by a Responsible Officer of Borrower. Any written notice delivered in connection with any Loan Document shall be in the form, if any, prescribed herein or therein. Any notice sent by other than hardcopy shall be promptly confirmed by a telephone call to the recipient and, if requested by Administrative Agent, by a manually-signed hardcopy thereof. -20- "Requisite Time" means, with respect to any of the actions listed -------------- below, the time and date set forth below opposite such action:
Applicable Type of Action Time Date of Action ------------------------------------------------ ----------------------- ------------------------------------ Delivery of Request for Extension of Credit for, or notice for: . Borrowing or prepayment of, or 9:00 a.m. Same date as such Borrowing, Conversion into, Base Rate Loans prepayment or Conversion . Borrowing, prepayment or Continuation 9:00 a.m. 3 Business Days prior to such of, or Conversion into, Offshore Rate Loans Borrowing, prepayment Continuation or Conversion . Letter of Credit Action 10:00 a.m. 2 Business Days prior to such action (or such lesser time which is acceptable to Issuing Lender) . Voluntary reduction in or 10:00 a.m. 3 Business Days prior to such termination of Commitments reduction or termination Payments by Lenders or Borrower to 11:00 a.m. On date payment is due Administrative Agent
"Responsible Officer" means the president, chief financial officer, ------------------- vice president-finance, treasurer or assistant treasurer of Borrower. Any document or certificate hereunder that is signed by a Responsible Officer of Borrower shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of Borrower and such Responsible Officer shall be conclusively presumed to have acted on behalf of Borrower. "Restatement Date" means the date on which all conditions precedent to ---------------- the effectiveness of this amended and restated Agreement are satisfied or waived by the Requisite Lenders. "Restricted Payment" means: ------------------ (a) the declaration or payment of any dividend or distribution by Borrower or any Subsidiary, either in cash or property, on any shares of the capital stock of any class of Borrower or any Subsidiary; and (b) any other payment or distribution by Borrower or any Subsidiary in respect of its capital stock, either directly or indirectly. "Senior Indebtedness" means, with respect to any Person at any time, ------------------- all Indebtedness of such Person other than Subordinated Debt. -21- "Shareholders' Equity" means, as of any date of determination for -------------------- Borrower and its Subsidiaries on a consolidated basis, shareholders' equity as of that date determined in accordance with GAAP. "Snap Appliances" means Snap Appliances, Inc., a Delaware corporation. --------------- "Snap Appliances S-1" means that Registration Statement on Form S-1 ------------------- filed by Snap Appliances with the Securities and Exchange Commission on or about October 30, 2000, as amended on or about November 13, 2000, together with all exhibits and attachments thereto. "Snap Business" has the meaning specified in Section 4.20 of the Snap ------------- General Assignment Agreement. "Snap Employee Matters Agreement" means that Employment Matters ------------------------------- Agreement to be entered into by Borrower and Snap Appliances in connection with the Snap Spin Off in a form substantially identical to the form of such agreement attached as an exhibit to the Snap Appliances S-1. "Snap General Assignment Agreement" means that General Assignment and --------------------------------- Assumption Agreement to be entered into by Borrower and Snap Appliances in connection with the Snap Spin Off in a form substantially identical to the form of such agreement attached as an exhibit to the Snap Appliances S-1. "Snap Master Agreement" means that Master Separation and Distribution --------------------- Agreement effective as of October 26, 2000 between Borrower and Snap Appliances. "Snap Spin-Off Documents" means the documents set forth on Schedule ----------------------- 1.01 under the caption "Snap Spin-Off Documents" together with any and all other documents entered into pursuant thereto, in connection therewith or required thereby. "Snap Spin-Off" means (a) the contribution and assignment by Borrower ------------- to Snap Appliances of certain assets and liabilities of Borrower associated with the Snap Business, substantially in accordance with the terms of the Snap Master Agreement, (b) the consummation by Snap Appliances of an initial public offering following which Borrower shall retain an ownership interest in not less than 80% of outstanding common stock of Snap Appliances, substantially in accordance with the Snap Appliances S-1 and (c) the distribution to Borrower's shareholders of all or substantially all remaining shares of Snap Appliances pursuant to a tax-free reorganization. "Solvent" means, as to any Person at any time, that (i) the fair value ------- of the property of such Person is greater than the amount of such Person's liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy Code; (ii) the present fair saleable value of the property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (iii) such Person is able to realize upon its property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business; (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's -22- ability to pay as such debts and liabilities mature; and (v) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital. "Spinco" means Insula Corporation, a Delaware corporation and, prior to ------ the Maxtor Merger Effective Time, a wholly-owned Subsidiary of Borrower. "Subordinated Debt" means the Convertible Subordinated Debentures and ----------------- any other subordinated debt permitted by Section 7.01. ------------ "Subsidiary" of a Person means a corporation, partnership, joint ---------- venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned or controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of Borrower. "Swap Contract" means (a) any and all rate swap transactions, basis ------------- swaps, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., or any other master agreement (any such master agreement, together with any related schedules, as amended, restated, extended, supplemented or otherwise modified in writing from time to time, a "Master Agreement"), including any such ---------------- obligations or liabilities under any Master Agreement. "Swap Termination Value" means, in respect of any one or more Swap ---------------------- Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a) the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include any Lender). "Synthetic Lease Obligations" means all monetary obligations of a --------------------------- Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations which do not appear on the balance sheet of such -23- Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as secured debt of such Person. "364-Day Credit Agreement" means that Credit Agreement (364-Day) dated ------------------------ as of April 19, 2000 among Borrower, Bank of America, N.A., as "Administrative Agent" and other financial institutions party thereto. "Tax Loss" means any and all taxes (including interest and penalties) -------- Borrower or any of its Subsidiaries paid, or required to be paid, at any time as a result of the Maxtor Merger or HDD Redemption not qualifying to be treated as a tax free transaction or as part of a tax-free reorganization under the Code (or other applicable tax law), whether as a result of the IRS (or any other applicable taxing authority) making such a determination or otherwise. "Threshold Amount" means $10,000,000. ---------------- "to the best knowledge of" means, when modifying a representation, ------------------------ warranty or other statement of any Person, that the fact or situation described therein is known by such Person (or, (i) in the case of Borrower, known by any Responsible Officer or executive officer of Borrower, or, (ii) in the case of any other Person other than a natural Person, known by any officer of such Person) making the representation, warranty or other statement, or with the exercise of reasonable due diligence under the circumstances (in accordance with the standard of what a reasonable Person in similar circumstances would have done) would have been known by such Person (or, (i) in the case of Borrower, would have been known by any Responsible Officer or executive officer of Borrower, or, (ii) in the case of any other Person other than a natural Person, would have been known by any executive officer of such Person). "type" of Loan means (a) a Base Rate Loan and (b) an Offshore Rate ---- Loan. "Unfunded Pension Liability" means the excess of a Pension Plan's -------------------------- benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year. "Voluntary Redemption Event" means, in respect of any Indebtedness -------------------------- consisting of bonds, debentures, senior or subordinated notes or other debt securities, any redemption, prepayment or call for redemption or prepayment of any or all of such Indebtedness at the election of the issuer and not in connection with any breach by such issuer of any term or covenant contained in any instrument, indenture or agreement evidencing such Indebtedness. 1.02 Use of Certain Terms. (a) All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto or thereto, unless otherwise defined therein. (b) As used herein, unless the context requires otherwise, the masculine, feminine and neuter genders and the singular and plural include one another. -24- (c) The words "herein" and "hereunder" and words of similar import when used in any Loan Document shall refer to the Loan Documents as a whole and not to any particular provision thereof. The term "including" is by way of example and not limitation. References herein to a Section, subsection or clause shall, unless the context otherwise requires, refer to the appropriate Section, subsection or clause in this Agreement. (d) The term "or" is disjunctive; the term "and" is conjunctive. The term "shall" is mandatory; the term "may" is permissive. 1.03 Accounting Terms. All accounting terms not specifically or completely defined in this Agreement shall be construed in conformity with, and all financial data required to be submitted by this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, and applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein. 1.04 Rounding. Any financial ratios required to be maintained by Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed in this Agreement and rounding the result up or down to the nearest number (with a round-up if there is no nearest number) to the number of places by which such ratio is expressed in this Agreement. 1.05 Exhibits and Schedules. All exhibits and schedules to this Agreement, either as originally existing or as the same may from time to time be supplemented, modified or amended, are incorporated herein by this reference. A matter disclosed on any Schedule shall be deemed disclosed on all Schedules. 1.06 References to Agreements and Laws. Unless otherwise expressly provided herein, (a) references to agreements (including the Loan Documents) and other contractual instruments shall include all amendments, restatements, extensions, supplements and other modifications thereto (unless prohibited by any Loan Document), and (b) references to any Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Law. SECTION 2. THE COMMITMENTS AND EXTENSIONS OF CREDIT 2.01 Loans. (a) Subject to the terms and conditions set forth in this Agreement, each Lender severally agrees to make, Convert and Continue Loans until the Maturity Date in such amounts as Borrower may from time to time request; provided, however, that the Outstanding Obligations of each Lender shall not - -------- ------- exceed such Lender's Commitment, and the Outstanding Obligations of all Lenders shall not exceed the combined Commitments at any time. This is a revolving credit and, subject to the foregoing and the other terms and conditions hereof, Borrower may borrow, Convert, Continue, prepay and reborrow Loans as set forth herein without premium or penalty. -25- (b) Loans made by each Lender shall be evidenced by one or more Notes. The date, amount and maturity of each Lender's Loans and payments and other particulars with respect thereto may be endorsed on schedule(s) attached to its Note by each Lender and/or recorded on one or more loan accounts or records maintained by such Lender in the ordinary course of business. Such Notes, loan accounts and records shall be conclusive absent manifest error of the amount of such Loans and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of Borrower to pay any amount owing with respect to the Loans. 2.02 Borrowings, Conversions and Continuations of Loans. (a) Borrower may irrevocably request a Borrowing, Conversion or Continuation of Loans in a Minimum Amount therefor by delivering a Request for Extension of Credit therefor by Requisite Notice to Administrative Agent not later than the Requisite Time therefor. All Borrowings, Conversions and Continuations of Loans shall constitute Base Rate Loans unless properly and timely otherwise designated as set forth in the prior sentence. (b) Following receipt of a Request for Extension of Credit, Administrative Agent shall promptly notify each Lender of its Pro Rata Share thereof by Requisite Notice. In the case of a Borrowing of Loans, each Lender shall make the funds for its Loan available to Administrative Agent at Administrative Agent's Office not later than the Requisite Time therefor on the Business Day specified in such Request for Extension of Credit. Upon satisfaction of the applicable conditions set forth in Section 4.02 (and, if the ------------ initial Extension of Credit hereunder, Section 4.01), all funds so received ------------ shall be made available to Borrower in like funds received. Administrative Agent shall promptly notify Borrower and Lenders of the interest rate applicable to any Loan other than a Base Rate Loan upon determination of same. (c) Except as otherwise provided herein, an Offshore Rate Loan may be Continued or Converted only on the last day of the Interest Period for such Offshore Rate Loan. During the existence of a Default or Event of Default, no Loans may be requested as, Converted into or Continued as Offshore Rate Loans without the consent of Requisite Lenders, and Requisite Lenders may demand that any or all of the then outstanding Offshore Rate Loans be Converted immediately into Base Rate Loans. (d) If a Loan is to be made on the same date that another Loan is due and payable, Borrower or Lenders, as the case may be, shall, unless Administrative Agent otherwise requests, make available to Administrative Agent the net amount of funds giving effect to both such Loans and the effect for purposes of this Agreement shall be the same as if separate transfers of funds had been made with respect to each such Loan. (e) The failure of any Lender to make any Loan on any date shall not relieve any other Lender of any obligation to make a Loan on such date, but no Lender shall be responsible for the failure of any other Lender to so make its Loan. 2.03 Letters of Credit. (a) The Letter of Credit Sublimit. Subject to the terms and conditions set forth in this Agreement, until the Letter of Credit Expiration Date, Issuing Lender shall take such Letter of -26- Credit Actions as Borrower may from time to time request; provided, however, -------- ------- that (i) the Outstanding Obligations of each Lender shall not exceed such Lender's Commitment, and the Outstanding Obligations of all Lenders shall not exceed the combined Commitments at any time, and (ii) Letter of Credit Usage shall not exceed the Letter of Credit Sublimit at any time. Subject to subsection (f) below and unless consented to by Issuing Lender and Requisite Lenders, no Letter of Credit may expire more than 12 months after the date of its issuance or last renewal; provided, however, that no Letter of Credit shall -------- ------- expire after the Letter of Credit Expiration Date. If any Letter of Credit Usage remains outstanding after such date, Borrower shall, not later than such date, deposit cash in an amount equal to such Letter of Credit Usage in a Letter of Credit Cash Collateral Account. (b) Requesting Letter of Credit Actions. Borrower may irrevocably request a Letter of Credit Action in a Minimum Amount therefor by delivering a Letter of Credit Application therefor to Issuing Lender, with a copy to Administrative Agent (who shall notify Lenders), by Requisite Notice not later than the Requisite Time therefor. Each Letter of Credit Action shall be in a form acceptable to Issuing Lender in its sole discretion. Unless Administrative Agent notifies Issuing Lender that such Letter of Credit Action is not permitted hereunder, or Issuing Lender notifies Administrative Agent that it has determined that such Letter of Credit Action is contrary to any Laws or policies of Issuing Lender, Issuing Lender shall, upon satisfaction of the applicable conditions set forth in Section 4.02 with respect to any Letter of Credit Action ------------ constituting an Extension of Credit, effect such Letter of Credit Action. This Agreement shall control in the event of any conflict with any Letter of Credit Application. Upon the issuance of a Letter of Credit, each Lender shall be deemed to have purchased from Issuing Lender a risk participation therein in an amount equal to such Lender's Pro Rata Share times the amount of such Letter of Credit. (c) Reimbursement of Payments Under Letters of Credit. Borrower shall reimburse Issuing Lender through Administrative Agent for any payment that Issuing Lender makes under a Letter of Credit on or before the date of such payment; provided, however, that if the conditions precedent set forth in -------- ------- Section 4.02 can be satisfied, Borrower may request a Borrowing of Loans to - ------------ reimburse Issuing Lender for such payment pursuant to Section 2.02, or, failing ------------ to make such request, Borrower shall be deemed to have requested a Borrowing of Base Rate Loans on such payment date pursuant to subsection (e) below. (d) Funding by Lenders When Issuing Lender Not Reimbursed. Upon any drawing under a Letter of Credit, Issuing Lender shall notify Administrative Agent and Borrower. If Borrower fails to timely make the payment required pursuant to subsection (c) above, Issuing Lender shall notify Administrative Agent of such fact and the amount of such unreimbursed payment. Administrative Agent shall promptly notify each Lender of its Pro Rata Share of such amount by Requisite Notice. Each Lender shall make funds in an amount equal its Pro Rata Share of such amount available to Administrative Agent at Administrative Agent's Office not later than the Requisite Time therefor on the Business Day specified by Administrative Agent, Administrative Agent shall remit the funds so received to Issuing Lender. The obligation of each Lender to so reimburse Issuing Lender shall be absolute and unconditional and shall not be affected by the occurrence of a Default or Event of Default or any other occurrence or event. Any such reimbursement shall not relieve or otherwise impair the obligation of Borrower to -27- reimburse Issuing Lender for the amount of any payment made by Issuing Lender under any Letter of Credit, together with interest as provided herein. (e) Nature of Lenders' Funding. If the conditions precedent set forth in Section 4.02 can be satisfied (except for the giving of a Request for ------------ Extension of Credit) on any date Borrower is obligated to, but fails to, reimburse Issuing Lender for a drawing under a Letter of Credit, the funding by Lenders pursuant to the previous subsection shall be deemed to be a Borrowing of Base Rate Loans (without regard to the Minimum Amount therefor) deemed requested by Borrower. If the conditions precedent set forth in Section 4.02 cannot be ------------ satisfied on the date Borrower is obligated to, but fails to, reimburse Issuing Lender for a drawing under a Letter of Credit, the funding by Lenders pursuant to the previous subsection shall be deemed to be a funding by each Lender of its risk participation in such Letter of Credit, and each Lender making such funding shall thereupon acquire a pro rata participation, to the extent of its reimbursement, in the claim of Issuing Lender against Borrower in respect of such payment and shall share, in accordance with that pro rata participation, in any payment made by Borrower with respect to such claim. Any amounts made available by a Lender under its risk participation shall be payable by Borrower upon demand of Administrative Agent, and shall bear interest at a rate per annum equal to the Default Rate. (f) Special Provisions Relating to Evergreen Letters of Credit. Borrower may request Letters of Credit that have automatic extension or renewal provisions ("evergreen" Letters of Credit) so long as Issuing Lender consents in its sole and absolute discretion thereto and has the right to not permit any such extension or renewal at least annually within a notice period to be agreed upon at the time each such Letter of Credit is issued. Once an evergreen Letter of Credit is issued, unless Administrative Agent has notified Issuing Lender that Requisite Lenders have elected not to permit such extension or renewal, the Borrower Parties, Administrative Agent and Lenders shall be deemed to have authorized (but may not require) Issuing Lender to, in its sole and absolute discretion, permit the renewal of such evergreen Letter of Credit at any time to a date not later than the Letter of Credit Expiration Date, and, unless directed by Issuing Lender, Borrower shall not be required to request such extension or renewal. Issuing Lender may, in its sole and absolute discretion elect not to permit an evergreen Letter of Credit to be extended or renewed at any time. (g) Obligations Absolute. The obligation of Borrower to pay to Issuing Lender the amount of any payment made by Issuing Lender under any Letter of Credit shall be absolute, unconditional, and irrevocable. Without limiting the foregoing, Borrower's obligation shall not be affected by any of the following circumstances: (i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other agreement or instrument relating thereto; (ii) any amendment or waiver of or any consent to departure from such Letter of Credit, this Agreement, or any other agreement or instrument relating hereto or thereto; (iii) the existence of any claim, setoff, defense, or other rights which Borrower may have at any time against Issuing Lender, Administrative Agent or any Lender, any -28- beneficiary of such Letter of Credit (or any persons or entities for whom any such beneficiary may be acting) or any other Person, whether in connection with such Letter of Credit, this Agreement, or any other agreement or instrument relating thereto, or any unrelated transactions; (iv) any demand, statement, or any other document presented under such Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever so long as any such document appeared to comply with the terms of the Letter of Credit; (v) payment by Issuing Lender in good faith under such Letter of Credit against presentation of a draft or any accompanying document which does not strictly comply with the terms of such Letter of Credit; or any payment made by Issuing Lender under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor- in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Laws; (vi) the existence, character, quality, quantity, condition, packing, value or delivery of any property purported to be represented by documents presented in connection with such Letter of Credit or for any difference between any such property and the character, quality, quantity, condition, or value of such property as described in such documents; (vii) the time, place, manner, order or contents of shipments or deliveries of property as described in documents presented in connection with such Letter of Credit or the existence, nature and extent of any insurance relative thereto; (viii) the solvency or financial responsibility of any party issuing any documents in connection with such Letter of Credit; (ix) any failure or delay in notice of shipments or arrival of any property; (x) any error in the transmission of any message relating to such Letter of Credit not caused by Issuing Lender, or any delay or interruption in any such message; (xi) any error, neglect or default of any correspondent of Issuing Lender in connection with such Letter of Credit; (xii) any consequence arising from acts of God, wars, insurrections, civil unrest, disturbances, labor disputes, emergency conditions or other causes beyond the control of Issuing Lender; (xiii) so long as Issuing Lender in good faith determines that the document appears to comply with the terms of the Letter of Credit, the form, accuracy, genuineness or legal effect of any contract or document referred to in any document submitted to Issuing Lender in connection with such Letter of Credit; and -29- (xiv) any other circumstances whatsoever where Issuing Lender has acted in good faith. In addition, Borrower will promptly examine a copy of each Letter of Credit and amendments thereto delivered to it and, in the event of any claim of noncompliance with Borrower's instructions or other irregularity, Borrower will immediately notify Issuing Lender in writing. Borrower shall be conclusively deemed to have waived any such claim against Issuing Lender and its correspondents unless such notice is given as aforesaid. (h) Role of Issuing Lender. Each Lender and Borrower agree that, in paying any drawing under a Letter of Credit, Issuing Lender shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. No Administrative Agent-Related Person nor any of the respective correspondents, participants or assignees of Issuing Lender shall be liable to any Lender for any action taken or omitted in connection herewith at the request or with the approval of Lenders or Requisite Lenders, as applicable; any action taken or omitted in the absence of gross negligence or willful misconduct; or the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit. Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, - -------- ------- preclude Borrower's pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. No Administrative Agent-Related Person, nor any of the respective correspondents, participants or assignees of Issuing Lender, shall be liable or responsible for any of the matters described in subsection (g) above. In furtherance and not in limitation of the foregoing, Issuing Lender may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and Issuing Lender shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. (i) Applicability of ISP98 and UCP. Unless otherwise expressly agreed by Issuing Lender and Borrower when a Letter of Credit is issued and subject to applicable laws, performance under Letters of Credit by Issuing Lender, its correspondents, and beneficiaries will be governed by, with respect to standby Letters of Credit, the rules of the "International Standby Practices 1998" (ISP98) or such later revision as may be published by the International Chamber of Commerce (the "ICC"). --- (j) Letter of Credit Fee. On each Applicable Payment Date, Borrower shall pay to Administrative Agent in arrears, for the account of each Lender in accordance with its Pro Rata Share, a Letter of Credit fee equal to the Applicable Amount for Offshore Rate Loans on a per annum basis times the actual daily maximum amount available to be drawn under each Letter of Credit for the period since the later of the Closing Date and the previous Applicable Payment Date. If there is any change in the Applicable Amount during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Amount separately for each period during such quarter that such Applicable Amount was in effect. -30- (k) Fronting Fee and Documentary and Processing Charges Payable to Issuing Lender. On each Applicable Payment Date, Borrower shall pay to Administrative Agent for the sole account of Issuing Lender a fronting fee in an amount equal to 0.125% per annum on the daily average face amount of all outstanding Letters of Credit, payable in arrears. In addition, Borrower shall pay directly to Issuing Lender, upon demand, for its sole account its customary documentary and processing charges in accordance with its standard schedule, as from time to time in effect, for any Letter of Credit Action or other occurrence relating to a Letter of Credit for which such charges are customarily made. Such fees and charges are nonrefundable. 2.04 Prepayments. (a) Upon Requisite Notice to Administrative Agent not later than the Requisite Time therefor, Borrower may at any time and from time to time voluntarily prepay Loans in part in the Minimum Amount therefor or in full without premium or penalty. Administrative Agent will promptly notify each Lender thereof and of such Lender's Pro Rata Share of such prepayment. Any prepayment of an Offshore Rate Loan shall be accompanied by all accrued interest thereon, together with the amounts set forth in Section 3.05. ------------ (b) If for any reason the Outstanding Obligations exceed the combined Commitments as in effect or as reduced or because of any limitation set forth in this Agreement or otherwise, Borrower shall immediately prepay Loans and/or deposit cash in a Letter of Credit Cash Collateral Account in an aggregate amount equal to such excess. 2.05 Reduction or Termination of Commitments. Upon Requisite Notice to Administrative Agent not later than the Requisite Time therefor, Borrower may at any time and from time to time, without premium or penalty, permanently and irrevocably reduce the Commitments in a Minimum Amount therefor to an amount not less than the Outstanding Obligations at such time or terminate the Commitments. Any such reduction or termination shall be accompanied by payment of all accrued and unpaid commitment fees with respect to the portion of the Commitments being reduced or terminated. Administrative Agent shall promptly notify Lenders of any such request for reduction or termination of the Commitments. Each Lender's Commitment shall be reduced by an amount equal to such Lender's Pro Rata Share times the amount of such reduction. 2.06 Principal and Interest. (a) Except as otherwise provided hereunder, if not sooner paid, Borrower agrees to pay the outstanding principal amount of each Loan on the Maturity Date. (b) Subject to subsection (c) below, and unless otherwise specified herein, Borrower shall pay interest on the unpaid principal amount of each Loan (before and after default, before and after maturity, before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Laws) from the date borrowed until paid in full (whether by acceleration or otherwise) on each Applicable Payment Date at a rate per annum equal to the interest rate determined in accordance with the definition of such type of Loan, plus, to the extent applicable in each case, the Applicable Amount. -31- (c) Notwithstanding subsection (b) of this Section, while any Event of Default exists or after acceleration, Borrower shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all outstanding Obligations, at a rate per annum which is determined by adding 2% per annum to the Applicable Amount then in effect for such Loans and, in the case of Obligations not subject to an Applicable Amount, at a rate per annum equal to the Base Rate plus 2%; provided, however, that, on -------- ------- and after the expiration of any Interest Period applicable to any Offshore Rate Loan outstanding on the date of occurrence of such Event of Default or after acceleration, the principal amount of such Loan shall, during the continuation of such Event of Default or after acceleration, bear interest at a rate per annum equal to the Base Rate plus 2%. 2.07 Fees. (a) Commitment Fee. Borrower shall pay to Administrative Agent for the account of each Lender according to its Pro Rata Share, a commitment fee equal to the Applicable Amount times the actual daily amount by which the combined Commitments exceed the Outstanding Obligations. The commitment fee shall accrue from the Closing Date until the Maturity Date and shall be payable quarterly in arrears on each Applicable Payment Date. The commitment fee shall be calculated quarterly in arrears, and if there is any change in the Applicable Amount during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Amount separately for each period during such quarter that such Applicable Amount was in effect. The commitment fee shall accrue at all times, including at any time during which one or more conditions in Section 4 are not --------- met. (b) Utilization Fee. Borrower shall pay to Administrative Agent for the account of each Lender pro rata according to its Pro Rata Share, a utilization fee equal to the Applicable Amount times the actual daily amount of Outstanding ----- Obligations. The utilization fee shall accrue from the Closing Date until the Maturity Date at all times that the Outstanding Obligations hereunder exceed 50% of the combined Commitments, and shall be payable quarterly in arrears on each Applicable Payment Date. The utilization fee shall be calculated quarterly in arrears, and if there is any change in the Applicable Amount during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Amount separately for each period during such quarter that such Applicable Amount was in effect. (c) Agency and Arrangement Fees. Borrower shall pay to Administrative Agent and Arranger an agency fee and arrangement fee, respectively, in such amounts and at such times as set forth in a separate letter agreement among Borrower, Administrative Agent and Arranger. Such fees are for the services to be performed by Administrative Agent in acting as Administrative Agent and for the services of Arranger in arranging the credit facilities under this Agreement, respectively, and are fully earned on the date paid. Such fees are solely for Administrative Agent's and Arranger's own account and are nonrefundable. (d) Lenders' Upfront Fee. On the Closing Date, Borrower shall pay to Administrative Agent for the account of each Lender an upfront fee in an amount agreed between Administrative Agent and Borrower, calculated based on each Lender's Commitment and allocated by Administrative Agent. Such upfront fees are for the credit facilities committed by -32- each Lender under this Agreement and are fully earned on the date paid. The upfront fee paid to each Lender is solely for its own account and is nonrefundable. (e) Amendment and Restatement Fee. On the Restatement Date, Borrower shall pay to Administrative Agent for the account of each Lender having timely executed and delivered a counterpart of this amended and restated Agreement, an amendment and restatement fee in the amount of 0.175% (17.5 basis points) of such Lender's Commitment. Such fee is nonrefundable. 2.08 Computation of Interest and Fees. Computation of interest on Base Rate Loans when the Base Rate is determined by Bank of America's "prime rate" shall be calculated on the basis of a year of 365 or 366 days, as the case may be, and the actual number of days elapsed. Computation of all other types of interest and all fees shall be calculated on the basis of a year of 360 days and the actual number of days elapsed, which results in a higher yield to Lenders than a method based on a year of 365 or 366 days. Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall - -------- bear interest for one day. 2.09 Making Payments. (a) Except as otherwise provided herein, all payments by Borrower or any Lender hereunder shall be made to Administrative Agent at Administrative Agent's Office not later than the Requisite Time for such type of payment. All payments received after such Requisite Time shall be deemed received on the next succeeding Business Day. All payments shall be made in immediately available funds in lawful money of the United States of America. All payments by Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. (b) Upon satisfaction of any applicable terms and conditions set forth herein, Administrative Agent shall promptly make any amounts received in accordance with the prior subsection available in like funds as received, as follows: (i) if payable to Borrower, by crediting the Designated Deposit Account, and (ii) if payable to any Lender, by wire transfer to such Lender at its Lending Office. If such conditions are not so satisfied, Administrative Agent shall return any funds it is holding to the Lenders making such funds available, without interest. (c) Subject to the definition of "Interest Period," if any payment to be made by Borrower shall come due on a day other than a Business Day, payment shall instead be considered due on the next succeeding Business Day, and such extension of time shall be reflected in computing interest and fees. (d) Unless Borrower or any Lender has notified Administrative Agent prior to the date any payment to be made by it is due, that it does not intend to remit such payment, Administrative Agent may, in its sole and absolute discretion, assume that Borrower or Lender, as the case may be, has timely remitted such payment and may, in its sole and absolute discretion and in reliance thereon, make available such payment to the Person entitled thereto. If such payment was not in fact remitted to Administrative Agent in immediately available funds, then: -33- (i) if Borrower failed to make such payment, each Lender shall forthwith on demand repay to Administrative Agent the amount of such assumed payment made available to such Lender, together with interest thereon in respect of each day from and including the date such amount was made available by Administrative Agent to such Lender to the date such amount is repaid to Administrative Agent at the Federal Funds Rate; and (ii) if any Lender failed to make such payment, Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender. If such Lender does not pay such corresponding amount forth-with upon Administrative Agent's demand therefor, Administrative Agent promptly shall notify Borrower, and Borrower shall pay such corresponding amount to Administrative Agent. Administrative Agent also shall be entitled to recover from such Lender interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by Administrative Agent to Borrower to the date such corresponding amount is recovered by Administrative Agent, (A) from such Lender at a rate per annum equal to the daily Federal Funds Rate. and (B) from Borrower, at a rate per annum equal to the interest rate applicable to such Borrowing. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice any rights which Administrative Agent or Borrower may have against any Lender as a result of any default by such Lender hereunder. (e) If Administrative Agent or any Lender is required at any time to return to Borrower, or to a trustee, receiver, liquidator, custodian, or any official under any proceeding under Debtor Relief Laws, any portion of a payments made by Borrower, each Lender shall, on demand of Administrative Agent, return it share of the amount to be returned, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the daily Federal Funds Rate. 2.10 Funding Sources. Nothing in this Agreement shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner. SECTION 3. TAXES, YIELD PROTECTION AND ILLEGALITY 3.01 Taxes. (a) Any and all payments by Borrower to or for the account of Administrative Agent or any Lender under any Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding, in the case of --------- Administrative Agent and each Lender, taxes imposed on or measured by its net income, and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the Laws of which Administrative Agent or such Lender, as the case -34- may be, is organized or maintains a lending office (all such non-excluded taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and liabilities being hereinafter referred to as "Taxes"). If Borrower ----- shall be required by any Laws to deduct any Taxes from or in respect of any sum payable under any Loan Document to Administrative Agent or any Lender, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section), Administrative Agent and such Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions, (iii) Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Laws, and (iv) within 30 days after the date of such payment, Borrower shall furnish to Administrative Agent (who shall forward the same to such Lender) the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, Borrower agrees to pay any and all present or future stamp, court or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under any Loan Document or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, any Loan Document (hereinafter referred to as "Other Taxes"). ----------- (c) If Borrower shall be required by the Laws of any jurisdiction outside the United States to deduct any Taxes from or in respect of any sum payable under any Loan Document to Administrative Agent or any Lender, Borrower shall also pay to such Lender or Administrative Agent (for the account of such Lender), at the time interest is paid, such additional amount that the respective Lender specifies as necessary to preserve the after-tax yield (after factoring in United States (federal and state) taxes imposed on or measured by net income) such Lender would have received if such deductions (including deductions applicable to additional sums payable under this Section) had not been made. (d) Borrower agrees to indemnify Administrative Agent and each Lender for the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section) paid by Administrative Agent and such Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. 3.02 Illegality. If any Lender determines that any Laws have made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Offshore Rate Loans, or materially restricts the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the applicable offshore Dollar market, or to determine or charge interest rates based upon the Offshore Rate, then, on notice thereof by Lender to Borrower through Administrative Agent, any obligation of such Lender to make Offshore Rate Loans shall be suspended until Lender notifies Administrative Agent and Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, Borrower shall, upon demand from such Lender (with a copy to Administrative Agent), prepay or Convert all Offshore Rate Loans of such Lender, either on the last day of the Interest Period thereof, if Lender may lawfully continue to maintain such Offshore Rate Loans to such day, or immediately, if Lender may not lawfully continue to maintain such Offshore Rate Loans. Each Lender agrees to designate a different Lending Office -35- if such designation will avoid the need for such notice and will not, in the good faith judgment of such Lender, otherwise be materially disadvantageous to such Lender. 3.03 Inability to Determine Rates. If, in connection with any Request for Extension of Credit involving any Offshore Rate Loan, Administrative Agent determines that (a) Dollar deposits are not being offered to banks in the applicable offshore dollar market for the applicable amount and Interest Period of the requested Offshore Rate Loan, (b) adequate and reasonable means do not exist for determining the underlying interest rate for such Offshore Rate Loan, or (c) such underlying interest rate does not adequately and fairly reflect the cost to Lender of funding such Offshore Rate Loan, Administrative Agent will promptly notify Borrower and all Lenders. Thereafter, the obligation of all Lenders to make or maintain such Offshore Rate Loan shall be suspended until Administrative Agent revokes such notice. Upon receipt of such notice, Borrower may revoke any pending request for a Borrowing of Offshore Rate Loans or, failing that, be deemed to have converted such request into a request for a Borrowing of Base Rate Loans in the amount specified therein. 3.04 Increased Cost and Reduced Return; Capital Adequacy (a) If any Lender determines that any Laws: (i) subject such Lender to any Tax, duty, or other charge with respect to any Offshore Rate Loans or its obligation to make Offshore Rate Loans, or change the basis on which taxes are imposed on any amounts payable to such Lender under this Agreement in respect of any Offshore Rate Loans; (ii) shall impose or modify any reserve, special deposit, or similar requirement (other than the reserve requirement utilized in the determination of the Offshore Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender (including its Commitment); or (iii) shall impose on such Lender or on the offshore Dollar interbank market any other condition affecting this Agreement or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Lender of making, Converting into, Continuing, or maintaining any Offshore Rate Loans or to reduce any sum received or receivable by such Lender under this Agreement with respect to any Offshore Rate Loans, then from time to time upon demand of Lender (with a copy of such demand to Administrative Agent), Borrower shall pay to such Lender such additional amounts as will compensate such Lender for such increased cost or reduction. (b) If any Lender determines that any change in or the interpretation of any Laws have the effect of reducing the rate of return on the capital of such Lender or compliance by such Lender (or its Lending Office) or any corporation controlling such Lender as a consequence of such Lender's obligations hereunder (taking into consideration its policies with respect to capital adequacy and such Lender's desired return on capital), then from time to time upon demand of such Lender (with a copy to Administrative Agent), Borrower shall pay to such Lender such additional amounts as will compensate such Lender for such reduction. -36- 3.05 Breakfunding Costs. Upon demand of any Lender (with a copy to Administrative Agent) from time to time, Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of: (a) any Continuation, Conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); or (b) any failure by Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, Continue or Convert any Loan other than a Base Rate Loan on the date or in the amount notified by Borrower; including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing. 3.06 Matters Applicable to all Requests for Compensation. (a) A certificate of any Lender claiming compensation under this Section ------- 3 and setting forth the additional amount or amounts to be paid to it hereunder - - shall be conclusive in the absence of clearly demonstrable error. In determining such amount, Lenders may use any reasonable averaging and attribution methods. For purposes of this Section 3, a Lender shall be deemed to have funded each --------- Offshore Rate Loan at the Offshore Base Rate used in determining the Offshore Rate for such Loan by a matching deposit or other borrowing in the offshore Dollar interbank market, whether or not such Offshore Rate Loan was in fact so funded. (b) Borrower shall not be obligated to pay any amount under this Section ------- 3 which arose prior to the date which is 180 days preceding the date of such - - demand or is attributable to periods prior to the date which is 180 days preceding the date of such demand. (c) Upon any Lender making a claim for compensation under Section 3.01 or ------------ 3.04, Borrower may remove and replace such Lender in accordance with Section - ---- ------- 10.22. - ----- 3.07 Survival. All of Borrower's obligations under this Section 3 shall --------- survive for a period of one year after the later of (i) termination of the Commitments, and (ii) payment in full of all Obligations. SECTION 4. CONDITIONS PRECEDENT TO EXTENSIONS OF CREDIT 4.01 Conditions of Initial Extension of Credit. The obligation of each Lender to make its initial Extension of Credit hereunder is subject to satisfaction of the following conditions precedent: (a) Unless waived by all Lenders (or by Administrative Agent with respect to immaterial matters or items specified in subsections (v) or (vi) below with respect to which Borrower has -37- given assurances satisfactory to Administrative Agent that they will be delivered promptly following the Closing Date), Administrative Agent's receipt of the following, each of which shall be originals or facsimiles (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of Borrower, each dated on, or in the case of third-party certificates, recently before the Closing Date and each in form and substance satisfactory to Administrative Agent, Lenders and their legal counsel: (i) executed counterparts of this Agreement, sufficient in number for distribution to Administrative Agent, Lenders and Borrower; (ii) Notes executed by Borrower in favor of each Lender, each in a principal amount equal to such Lender's Commitment; (iii) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of Borrower as Administrative Agent and any Lender may require to establish the identities of and verify the authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer thereof; (iv) such evidence as Administrative Agent and any Lender may reasonably require to verify that Borrower is duly organized or formed, validly existing, in good standing and qualified to engage in business in each jurisdiction in which it is required to be qualified to engage in business, including certified copies of Borrower's Organization Documents, certificates of good standing and/or qualification to engage in business, tax clearance certificates, and the like; (v) a certificate signed by a Responsible Officer of Borrower certifying (A) that the representations and warranties made by Borrower herein, or which are contained in any certificate, document or financial or other statement furnished at any time under or in connection herewith or therewith, are true and correct on and as of the Closing Date, (B) that Borrower is in compliance with all the terms and provisions of the Loan Documents to which it is a party, and no Default or Event of Default shall have occurred and be continuing, and (C) that there has been no event or circumstance since the date of the Audited Financial Statements which has a Material Adverse Effect; (vi) an opinion of counsel to Borrower in form and substance satisfactory to Administrative Agent and the Lenders; (vii) written evidence that the Existing Credit Agreement and all commitments thereunder have been or concurrently herewith are being terminated; and (viii) such other assurances, certificates, documents, consents or opinions as Administrative Agent, Issuing Lender or Requisite Lenders reasonably may require. (b) Any fees required to be paid on or before the Closing Date shall have been paid. (c) Unless waived by Administrative Agent, Borrower shall have paid all Attorney Costs of Administrative Agent to the extent invoiced prior to or on the Closing Date, plus such -38- additional amounts of Attorney Costs as shall constitute its reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude final -------- settling of accounts between Borrower and Administrative Agent). 4.02 Conditions to all Extensions of Credit. In addition to any applicable conditions precedent set forth elsewhere in this Section 4 or in Section 2, the --------- --------- obligation of each Lender to honor any Request for Extension of Credit other than a Conversion or Continuation is subject to the following conditions precedent: (a) the representations and warranties of Borrower contained in Section 5, --------- or which are contained in any certificate, document or financial or other statement furnished at any time under or in connection herewith or therewith, shall be correct on and as of the date of such Extension of Credit, except to the extent that such representations and warranties specifically refer to an earlier date; (b) no Default or Event of Default exists, or would result from such proposed Extension of Credit; (c) Administrative Agent shall have timely received a Request for Extension of Credit by Requisite Notice by the Requisite Time therefor; and (d) Administrative Agent shall have received, in form and substance satisfactory to it, such other assurances, certificates, documents or consents related to the foregoing as Administrative Agent or Requisite Lenders reasonably may require. Each Request for Extension of Credit by Borrower shall be deemed to be a representation and warranty that the conditions specified in Sections 4.02(a) ---------------- and (b) have been satisfied on and as of the date of such Extension of Credit. --- SECTION 4.A CONDITIONS PRECEDENT TO AMENDED AND RESTATED AGREEMENT 4A.01 Conditions of Effectiveness of Amended and Restated Agreement. The effectiveness of this amended and restated Agreement is subject to satisfaction of the following conditions precedent: (a) Unless waived by all Lenders (or by Administrative Agent with respect to immaterial matters or items specified in subsection (iii) below with respect to which Borrower has given assurances satisfactory to Administrative Agent that they will be delivered promptly following the Restatement Date), Administrative Agent's receipt of the following, each of which shall be originals or facsimiles (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of Borrower, each dated on, or in the case of third-party certificates, recently before the Restatement Date and each in form and substance satisfactory to Administrative Agent, Requisite Lenders and their legal counsel: -39- (i) executed counterparts of this Agreement by Borrower and Requisite Lenders, sufficient in number for distribution to Administrative Agent, Lenders and Borrower, by no later than 12:00 noon (Pacific time) March 28, 2001; (ii) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of Borrower as Administrative Agent and any Lender may require to establish the identities of and verify the authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer thereof; (iii) such evidence as Administrative Agent and any Lender may reasonably require to verify that Borrower is duly organized or formed, validly existing, in good standing and qualified to engage in business in California and Delaware, including certified copies of Borrower's Organization Documents, certificates of good standing and/or qualification to engage in business, tax clearance certificates, and the like; (iv) a certificate signed by a Responsible Officer of Borrower certifying (A) that the representations and warranties made by Borrower herein, or which are contained in any certificate, document or financial or other statement furnished at any time under or in connection herewith or therewith, are true and correct on and as of the Restatement Date, (B) that Borrower is in compliance with all the terms and provisions of the Loan Documents to which it is a party, and no Default or Event of Default shall have occurred and be continuing, (C) that there has been no event or circumstance since the date of the Audited Financial Statements which has a Material Adverse Effect, (D) that any material consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority required to be obtained or made in connection with the consummation of the HDD Redemption and Maxtor Merger have been duly obtained or made, (E) that no litigation, investigation or proceeding of or before an arbitrator or Governmental Authority is pending, or to the knowledge of Borrower after due and diligent investigation, threatened by or against Borrower or any of its Subsidiaries or against any of their properties or revenues which in any manner challenges or seeks to prevent, enjoin, alter or delay the HDD Redemption or the Maxtor Merger and (F) that the Maxtor Merger Effective Time has occurred and the HDD Redemption has been consummated, each in accordance with the material terms of the Maxtor Merger Documents and on or before April 30, 2001; (v) an opinion of counsel to Borrower in form and substance satisfactory to Administrative Agent and the Requisite Lenders; (vi) evidence satisfactory to Administrative Agent that the 364-Day Credit Agreement and all commitments thereunder have been or concurrently herewith are being terminated; and (vii) such other assurances, certificates, documents, consents or opinions as Administrative Agent, Issuing Lender or Requisite Lenders reasonably may require. (b) Any fees required to be paid on or before the Restatement Date shall have been paid. -40- (c) Unless waived by Administrative Agent, Borrower shall have paid all Attorney Costs of Administrative Agent to the extent invoiced prior to or on the Restatement Date, plus such additional amounts of Attorney Costs as shall constitute its reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not -------- thereafter preclude final settling of accounts between Borrower and Administrative Agent). SECTION 5. REPRESENTATIONS AND WARRANTIES Borrower represents and warrants to Administrative Agent and Lenders that: 5.01 Existence and Qualification; Power; Compliance with Laws. Borrower is a corporation duly organized or formed, validly existing and in good standing under the Laws of the state of its incorporation or organization, has the power and authority and the legal right to own and operate its properties, to lease the properties it operates and to conduct its business, is duly qualified and in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, and is in compliance with all Laws except to the extent that noncompliance could not be reasonably expected to have a Material Adverse Effect. 5.02 Power; Authorization; Enforceable Obligations. Borrower has the power and authority and the legal right to make, deliver and perform each Loan Document to which it is a party and Borrower has power and authority to borrow hereunder and has taken all necessary action to authorize the borrowings on the terms and conditions of this Agreement and to authorize the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party. No consent or authorization of, filing with, or other act by or in respect of any Governmental Authority, is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any of the other Loan Documents. The Loan Documents have been duly executed and delivered by Borrower, and constitute legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms. 5.03 No Legal Bar. As of their respective dates of execution, the execution, delivery, and performance by Borrower of the Loan Documents, the Maxtor Merger Documents and the Snap Spin Off Documents to which it is a party and compliance with the provisions thereof have been duly authorized by all requisite action on the part of Borrower and do not and will not (a) violate or conflict with, or result in a breach of, or require any consent under (i) any Organization Documents of Borrower or any of its Subsidiaries, (ii) any material applicable Laws, rules, or regulations or any order, writ, injunction, or decree of any Governmental Authority or arbitrator, or (iii) any material Contractual Obligation of Borrower or any of its Subsidiaries or by which any of them or any of their property is bound or subject, (b) constitute a default under any material Contractual Obligation, or (c) result in, or require, the creation or imposition of any Lien on any of the properties of Borrower or any of its Subsidiaries. 5.04 Financial Statements; No Material Adverse Effect. -41- (a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present the financial condition of Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) show all material indebtedness and other liabilities, direct or contingent, of Borrower and its Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness in accordance with GAAP consistently applied throughout the period covered thereby. (b) Since the date of the Audited Financial Statements, there has been no event or circumstance which has a Material Adverse Effect. (c) The DSS Combined Financial Statements filed by Borrower with the Securities and Exchange Commission together with its 10-Q quarterly report for the fiscal quarter ended December 31, 2000 (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except for the absence of footnotes thereto and as otherwise expressly noted therein; (ii) fairly present the financial condition of the DSS Business on a stand-alone basis as of the date thereof and the results of operations of such business for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except for the absence of footnotes thereto and as expressly noted therein, and (iii) show all material indebtedness and other liabilities, direct or contingent, of Borrower and its Subsidiaries relating to the DSS Business as of the date thereof, including liabilities for taxes, material commitments and Indebtedness, in accordance with GAAP consistently applied throughout the period covered thereby. 5.05 Litigation. No litigation, investigation or proceeding of or before an arbitrator or Governmental Authority is pending or, to the knowledge of Borrower after due and diligent investigation, threatened by or against Borrower or any of its Subsidiaries or against any of their properties or revenues which could reasonably be expected to have a Material Adverse Effect. 5.06 No Default. Neither Borrower nor any its Subsidiaries are in default under or with respect to any Contractual Obligation which could reasonably be expected to have a Material Adverse Effect, and no Default or Event of Default has occurred and is continuing or will result from the consummation of this Agreement or any of the other Loan Documents, or the making of the Extensions of Credit hereunder. 5.07 Ownership of Property; Liens. Borrower and its Subsidiaries have valid fee or leasehold interests in all real property which they use in their respective businesses, and Borrower and its respective Subsidiaries have good and marketable title to all their other property, and none of such property is subject to any Lien, except as permitted in Section 7.02. ------------ 5.08 Taxes. Borrower and its Subsidiaries have filed all material tax returns which are required to be filed, and have paid, or made provision for the payment of, all taxes with respect to the periods, property or transactions covered by said returns, or pursuant to any assessment received by Borrower or its respective Subsidiaries, except (a) such taxes, if any, as are being ------ contested in good faith by appropriate proceedings and as to which adequate reserves have been -42- established and maintained, and (b) immaterial taxes; provided, however, that in -------- ------- each case no material item or portion of property of Borrower or any of its Subsidiaries is in jeopardy of being seized, levied upon or forfeited. 5.09 Margin Regulations; Investment Company Act; Public Utility Holding Company Act. (a) Borrower is not engaged nor will it engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. No part of the proceeds of any Extensions of Credit hereunder will be used for "purchasing" or "carrying" "margin stock" as so defined or for any purpose which violates, or which would be inconsistent with, the provisions of Regulations U or X of such Board of Governors. (b) Neither Borrower nor any of its Subsidiaries (i) is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, or (ii) is or is required to be registered as an "investment company" under the Investment Company Act of 1940. 5.10 ERISA Compliance. (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state Laws. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the best knowledge of Borrower, nothing has occurred which would prevent, or cause the loss of, such qualification. Borrower and each ERISA Affiliate have made all required contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has or could reasonably be expected to have a Material Adverse Effect. (b) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA. -43- 5.11 Intangible Assets. Borrower and its Subsidiaries own, or possess the right to use, all trademarks, trade names, copyrights, patents, patent rights, franchises, licenses and other intangible assets that are used in the conduct of their respective businesses as now operated or could obtain such right without causing a Material Adverse Effect, and none of such items, to the best knowledge of Borrower, conflicts with the valid trademark, trade name, copyright, patent, patent right or intangible asset of any other Person to the extent that such conflict has or could reasonably be expected to have a Material Adverse Effect. 5.12 Compliance With Laws. Borrower and its Subsidiaries are in compliance in all material respects with all material Laws that are applicable to it. 5.13 Environmental Compliance. Borrower and its Subsidiaries conduct in the ordinary course of business a review of the effect of existing Environmental Laws and claims alleging potential liability or responsibility for violation of any Environmental Law on their respective businesses, operations and properties, and as a result thereof Borrower has reasonably concluded that such Environmental Laws and claims do not, individually or in the aggregate, have a Material Adverse Effect. 5.14 Insurance. The properties of Borrower and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of Borrower, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where Borrower or such Subsidiary operates. 5.15 Swap Obligations. Neither Borrower nor any of its Subsidiaries has incurred any outstanding obligations under any Swap Contracts, other than Permitted Swap Obligations. Borrower has undertaken its own independent assessment of its consolidated assets, liabilities and commitments and has considered appropriate means of mitigating and managing risks associated with such matters and has not relied on any swap counterparty or any Affiliate of any swap counterparty in determining whether to enter into any Swap Contract. 5.16 Maxtor Merger Matters. (a) The Maxtor Merger Agreement and the other Maxtor Merger Documents have been duly executed by each of the parties thereto and are enforceable in accordance with their terms by and against all such parties. Such agreements have not been amended, modified or supplemented since their respective dates of execution in any manner that could reasonably be expected to be materially adverse to the Lenders. (b) All material conditions precedent to the effectiveness of the Maxtor Merger have been satisfied (or, with respect to conditions precedent to Maxtor's obligations thereunder, waived by Maxtor) and the Maxtor Merger has been consummated in accordance with the terms of the Maxtor Merger Agreement. The HDD Redemption has been duly authorized by and on behalf of Borrower and has been consummated in accordance with the terms of the Maxtor Merger Agreement and the other Maxtor Merger Documents. -44- (c) Pursuant to the Maxtor Merger Documents, Maxtor is legally obligated to indemnify Borrower and Borrower's Subsidiaries to the extent set forth therein. Maxtor has not disputed, disclaimed or breached in any material respect such indemnification obligations. 5.17 Snap Spin-Off Matters. (a) As of the dates of the Snap Spin Off Documents, each, respectively, will be duly executed by each of the parties thereto in a form substantially identical to the form thereof filed as an exhibit to the Snap Appliances S-1 and will be enforceable in accordance with its terms by and against all parties thereto and, as of any date subsequent thereto, such agreements will not have been amended, modified or supplemented in any manner that could reasonably be expected to be materially adverse to the Lenders. (b) As of the date of the consummation of the Snap Spin-Off, all material conditions precedent to the effectiveness of the Snap Spin-Off will have been satisfied and the Snap Spin-Off will have been consummated in accordance with the terms of the Snap Spin-Off Documents. (c) As of the dates of the Snap Spin-Off Documents, Snap Appliances will be legally obligated to indemnify Borrower and Borrower's Subsidiaries to the extent set forth therein. (d) Prior to the consummation of the Snap Spin Off, any material consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority required to be obtained or made in connection with the consummation of the Snap Spin Off will have been duly obtained or made. (e) Immediately prior to the consummation of the Snap Spin Off, no litigation, investigation or proceeding of or before an arbitrator or Governmental Authority will be pending, or to the knowledge of Borrower after due and diligent investigation, threatened by or against Borrower or any of its Subsidiaries or against any of their properties or revenues which in any manner challenges or seeks to prevent, enjoin, alter or delay the consummation of the Snap Spin Off. (f) Prior to the consummation of the Snap Spin Off, Borrower shall have obtained a private letter ruling from the IRS to the effect that the distribution to Borrower's shareholders of all or substantially all of shares of Snap Appliances held by Borrower will constitute a tax-free reorganization under the Code. 5.18 Disclosure. (a) No statement, information, report, representation, or warranty made by Borrower in any Loan Document or furnished to Administrative Agent or any Lender in connection with any Loan Document contains any untrue statement of a material fact or, when viewed together with Borrower's periodic reports filed under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, omits to state any material fact necessary to make the statements herein or therein not misleading. (b) None of the information supplied or to be supplied by Borrower or any of its Subsidiaries for inclusion or incorporation by reference in: (i) the Maxtor Merger S-4 or the Snap Appliances S-1 will at the time such registration statement is declared or ordered effective under the Securities Act of 1933, as amended, contain any untrue statement of a material fact or omit to state any material fact -45- required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading; and (ii) the proxy statement of Borrower contained in the Maxtor Merger S- 4 shall not, on the date such proxy statement is first mailed to the stockholders of Borrower, at the time of the meeting of Borrower's stockholders called for therein and at the Maxtor Merger Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for such stockholders' meeting which has become false or misleading. The proxy statement of Borrower contained in the Maxtor Merger S-4 will comply as to form in all material respects with the provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Notwithstanding the foregoing, Borrower makes no representation or warranty with respect to any information supplied by Maxtor which is contained in any of the foregoing documents. SECTION 6. AFFIRMATIVE COVENANTS So long as any Obligation remains unpaid or unperformed, or any portion of the Commitments remains outstanding, Borrower shall, and shall (except in the case of Borrower's reporting covenants) cause each Subsidiary, to: 6.01 Financial Statements. Deliver to Administrative Agent and each Lender, in form and detail satisfactory to Administrative Agent and Requisite Lenders: (a) As soon as available, but in any event within 90 days after the end of each fiscal year of Borrower, or if Borrower has been granted an extension by the Securities and Exchange Commission permitting the late filing by Borrower of any annual report on form 10-K, the earlier of (x) 120 days after the end of each fiscal year of Borrower or (y) the last day of any such extension, (i) a consolidated balance sheet of Borrower and its Subsidiaries as at the end of such fiscal year, and the related consolidated statements of income and cash flows for such fiscal year, and (ii) in respect of any period (or partial period) prior to the Maxtor Merger Effective Time, DSS Combined Financial Statements for such year-end; in each case, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing, which report and opinion shall be prepared in accordance with GAAP and shall not be subject to any qualifications or exceptions as to the scope of the audit nor to any qualifications and exceptions not reasonably acceptable to Requisite Lenders; and (b) As soon as available, but in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of Borrower, or if Borrower has been granted an -46- extension by the Securities and Exchange Commission permitting the late filing by Borrower of any quarterly report on form 10-Q, the earlier of (x) 60 days after the end of each of the first three fiscal quarters of each fiscal year of Borrower or (y) the last day of any such extension, (i) a consolidated balance sheet of Borrower and its Subsidiaries as at the end of such fiscal quarter, and the related consolidated statements of income and cash flows for such fiscal quarter and for the portion of Borrower's fiscal year then ended, and (ii) in respect of any period (or partial period) prior to the Maxtor Merger Effective Time, DSS Combined Financial Statements for such quarter end; in each case, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail and certified by a Responsible Officer of Borrower as fairly presenting the financial condition, results of operations and cash flows of Borrower and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes; and (c) Reports required to be delivered pursuant to clauses (a) and (b) of this Section 6.01 shall be deemed to have been delivered on the date on which ------------ Borrower posts such reports on Borrower's website on the Internet at the website address listed on Schedule 10.02 hereof or when such report is posted on the -------------- Securities and Exchange Commission's website at www.sec.gov.; provided that -------- (x)Borrower shall deliver paper copies of the reports referred to in such clauses (a) and (b) of this Section 6.01 to Administrative Agent or any Lender ------------ who requests Borrower to deliver such paper copies until written request to cease delivering paper copies is given by Administrative Agent or such Lender, (y) Borrower shall notify Administrative Agent and Lenders of the posting of any such new material, and (z) in every instance Borrower shall provide paper copies of the Compliance Certificates required by clause (a) of Section 6.02 to ------------ Administrative Agent and each Lender. Except for the Compliance Certificates referred to in such clause (a) of Section 6.02, Administrative Agent shall have ------------ no obligation to request the delivery or to maintain copies of the reports referred to in clauses (a) and (b) of this Section 6.01, and in any event shall ------------ have no responsibility to monitor compliance by Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such reports. 6.02 Certificates, Notices and Other Information. Deliver to Administrative Agent and each Lender, in form and detail satisfactory to Administrative Agent and Requisite Lenders: (a) concurrently with the delivery of the financial statements referred to in Sections 6.01(a) and (b), a duly completed Compliance Certificate signed by a ---------------- --- Responsible Officer of Borrower; (b) promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of Borrower, and copies of all annual, regular, periodic and special reports and registration statements which Borrower may file or be required to file with the Securities and Exchange Commission under Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and not otherwise required to be delivered to Administrative Agent pursuant hereto; (c) promptly after the occurrence thereof, notice of any Default or Event of Default; -47- (d) notice of any change in accounting policies or financial reporting practices by Borrower or any Subsidiary that is material to Borrower or to Borrower and its Subsidiaries on a consolidated basis; (e) promptly after the commencement thereof, notice of any litigation, investigation or proceeding affecting Borrower where the reasonably expected damages to Borrower exceed the Threshold Amount, or in which injunctive relief or similar relief is sought, which relief, if granted, has a Material Adverse Effect; (f) promptly after the occurrence thereof, notice of any Reportable Event with respect to any Plan or the intent to terminate any Plan, or the institution of proceedings or the taking or expected taking of any other action to terminate any Plan or withdraw from any Plan; (g) promptly after the occurrence thereof, notice of any Material Adverse Effect; (h) promptly after the occurrence thereof, notice of (i) any material amendment of or supplement to, or the occurrence of any material breach under, any of the Maxtor Merger Documents or the Snap Spin-Off Documents, and (ii) the consummation of each step in the Snap Spin-Off; and (i) promptly, such other data and information as from time to time may be reasonably requested by Administrative Agent, or, through Administrative Agent or any Lender. Notwithstanding any provision of this Agreement to the contrary, so long as no Default or Event of Default shall have occurred and be continuing, neither Borrower nor any of its Subsidiaries shall be required to disclose, permit the inspection, examination, photocopying or making extracts of, or discuss, any document, information or other matter that (i) constitutes non- financial trade secrets or non-financial proprietary information, or (ii) the disclosure of which to any Lender, or their designated representative, is then prohibited by law or any agreement binding on Borrower or any of its Subsidiaries that was not entered into by Borrower or any such Subsidiary for the purpose of concealing information from the Lenders. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of Borrower setting forth details of the occurrence referred to therein and stating what action Borrower has taken and proposes to take with respect thereto. 6.03 Payment of Taxes. Pay and discharge when due all material taxes, assessments, and governmental charges, except for any such tax, assessment, charge, or levy which is an Ordinary Course Lien under subsection (b) of the definition of such term. 6.04 Preservation of Existence. Preserve and maintain its existence, licenses, permits, rights, franchises and privileges necessary or desirable in the normal conduct of its business, except (i) as permitted by Section 7.03, or (ii) where failure to do so does not have a Material Adverse Effect. 6.05 Maintenance of Properties. Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good order and condition, subject to wear and tear in the ordinary course of business, and not permit any waste of its -48- properties, except where failure to do so would not reasonably be expected to have a Material Adverse Effect. 6.06 Maintenance of Insurance. Maintain liability and casualty insurance with responsible insurance companies satisfactory to Lender in such amounts and against such risks as is customary for similarly situated businesses. 6.07 Compliance With Laws. (a) Comply with the requirements of all applicable Laws and orders of any Governmental Authority, noncompliance with which has a Material Adverse Effect. (b) Conduct its operations and keep and maintain its property in material compliance with all Environmental Laws. 6.08 Inspection Rights. At any time during regular business hours and as often as reasonably requested upon reasonable notice, permit Administrative Agent or any Lender, or any employee, agent or representative thereof, to examine, audit and make copies and abstracts from Borrower's records and books of account and to visit and inspect its properties and to discuss its affairs, finances and accounts with any of its officers and key employees, and, upon request, furnish promptly to Administrative Agent or any Lender true copies of all financial information and internal management reports made available to their senior management. 6.09 Keeping of Records and Books of Account. Keep adequate records and books of account reflecting all financial transactions in conformity with GAAP, consistently applied, and in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over Borrower or any applicable Subsidiary. 6.10 Compliance with ERISA. Cause, and cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law; (b) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; and (c) make all required contributions to any Plan subject to Section 412 of the Code. 6.11 Compliance With Agreements. Promptly and fully comply with all Contractual Obligations to which any one or more of them is a party, except for any such Contractual Obligations (a) the nonperformance of which would not cause a Default or Event of Default, (b) then being contested by any of them in good faith by appropriate proceedings, or (c) if the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect. 6.12 Use of Proceeds. Use the proceeds of Extensions of Credit for lawful general corporate purposes including working capital and capital expenditures not otherwise in contravention of this Agreement. 6.13 Maxtor Merger and Snap Spin-Off Matters. (a) Without the consent of Administrative Agent and the Requisite Lenders, Borrower shall not, and shall not permit any Subsidiary or Affiliate to (i) amend or supplement the terms of -49- any Maxtor Merger Document to which it is a party in a manner that could reasonably be expected to be materially adverse to the Lenders, (ii) agree to transfer any asset or assume any liability pursuant to Section 1.1(d) of the HDD General Assignment Agreement, (iii) agree to transfer any asset or assume any liability pursuant to an Ancillary Agreement (as defined in Section 2.1(h) of the HDD Separation Agreement), (iv) agree that any asset is an HDD Asset pursuant to Section 1.2(l) of the HDD General Assignment Agreement, (v) agree that any liability is an Excluded HDD Liability pursuant to Section 1.5(f) of the HDD General Assignment Agreement (other than those set forth on Schedule 1.5 thereto) or (vi) otherwise agree to transfer assets to or assume liabilities of Maxtor or Spinco in a manner not set forth in the Maxtor Merger Documents; provided that Borrower may, and may permit any Subsidiary or Affiliate to, take - -------- any of the actions described in clauses (ii) through (vi) above if after giving effect to the same, in the aggregate (and assuming that any of the same consisting of contingent or off-balance sheet liabilities are incurred and accounted for in an amount equal to that which could reasonably be expected to be paid by Borrower or its Subsidiary or Affiliate in connection therewith), Borrower will remain in compliance with the covenants set forth in Section 7.12. ------------ (b) Without the consent of Administrative Agent and the Requisite Lenders, Borrower shall not, and shall not permit any Subsidiary or Affiliate to (i) amend or supplement the terms of any Snap Spin-Off Document to which it is a party in a manner that could reasonably be expected to be materially adverse to the Lenders, (ii) agree to transfer any asset or assume any liability pursuant to Section 1.1(d) or 1.4(b) of the Snap General Assignment Agreement, (iii) agree to transfer any asset or assume any liability pursuant to an Ancillary Agreement (as defined in Section 2.1(h) of the Snap General Assignment Agreement), (iv) agree that any asset is an Snap Asset pursuant to Section 1.2(a)(iv) of the Snap General Assignment Agreement, (v) agree to assume any liability pursuant to Section 2.1 of the Snap Employment Matters Agreement or (vi) otherwise agree to transfer Snap assets to or assume liabilities of Snap Appliances in a manner not set forth in the Snap Spin-Off Documents; provided -------- that Borrower may, and may permit any Subsidiary or Affiliate to, take any of the actions described in clauses (ii) through (vi) above after giving effect to the same, in the aggregate (and assuming that any of the same consisting of contingent or off-balance sheet liabilities are incurred and accounted for in an amount equal to that which could reasonably be expected to be paid by Borrower or its Subsidiary or Affiliate in connection therewith), Borrower will remain in compliance with the covenants set forth in Section 7.12. ------------ SECTION 7. NEGATIVE COVENANTS So long as any Obligations remain unpaid or unperformed, or any portion of the Commitments remains outstanding, Borrower shall not, nor shall it permit any Subsidiary to, directly or indirectly: 7.01 Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except for the following ("Permitted Indebtedness"): ------ ---------------------- (a) Indebtedness outstanding on the date hereof and listed on Schedule 7.01 ------------- and any refinancings, refundings, renewals or extensions thereof, provided that -------- the amount of such -50- Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to the premium or other amount paid, and fees and expenses incurred, in connection with such refinancing and by an amount equal to any utilized commitments thereunder; (b) Ordinary Course Indebtedness; (c) Indebtedness of Borrower under the Convertible Subordinated Debentures; (d) Indebtedness of Borrower and its Subsidiaries under loans and Capital Leases incurred by Borrower or any of its Subsidiaries to finance the acquisition by such Person of real property, improvements, fixtures, equipment or other fixed assets (together with attachments, ascensions, additions, "soft costs" and proceeds thereof), provided that in each case, (i) such Indebtedness -------- is incurred by such Person at the time of, or not later than 6 months after, the acquisition by such Person of the property so financed, and (ii) such Indebtedness does not exceed the purchase price of the property so financed; (e) Indebtedness of Borrower and any of its Subsidiaries under Synthetic Lease Obligations incurred by such Person; (f) Indebtedness of Borrower and its Subsidiaries in respect of any Permitted Receivables Facility; (g) Indebtedness of Borrower and its Subsidiaries under initial or successive refinancings, refundings, renewals or extensions of any Indebtedness permitted by subsections (d) and (e) above, provided that the amount of such -------- Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to the premium or other amount paid, and fees and expenses incurred, in connection with such refinancing; (h) Indebtedness of Borrower to any of Borrower's Subsidiaries, Indebtedness of any of Borrower's Subsidiaries (other than Snap Appliances, except as permitted pursuant to Section 7.05(i)) to Borrower or Indebtedness of any of Borrower's Subsidiaries (other than Snap Appliances, except as permitted pursuant to Section 7.05(i)) to any of Borrower's other Subsidiaries; (i) Subordinated Indebtedness of Borrower to any Person, provided that (A) -------- such Indebtedness contains subordination provisions no less favorable to Administrative Agent and Lenders than those set forth in Schedule 7.13 or as ------------- otherwise approved by Requisite Lenders and (B) the aggregate principal amount of all Subordinated Debt of Borrower outstanding (including the Convertible Subordinated Debentures) does not exceed $350,000,000 at any time; and (j) Indebtedness not exceeding, in the aggregate at any time, 10% of the total consolidated assets of Borrower and its Subsidiaries determined as of the end of the most recent fiscal quarter; provided that if such fiscal quarter end -------- date is prior to the Maxtor Merger Effective Time, such Indebtedness shall not exceed 10% of the combined assets of DSS, based upon the most-recent DSS Combined Financial Statements; and -51- (k) Indebtedness in the form of Guarantee Obligations set forth in the terms of the Maxtor Merger Agreement. 7.02 Liens. Incur, assume or suffer to exist, any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except ------ for the following ("Permitted Liens"): --------------- (a) Liens existing on the date hereof and listed on Schedule 7.01 and any ------------- renewals or extensions thereof, provided that the property covered thereby is -------- not increased and any renewal or extension of the obligations secured or benefited thereby is permitted by Section 7.01(a); --------------- (b) Ordinary Course Liens; (c) Liens granted by a Person securing Investments of such Person which constitute Permitted Investments under Section 7.05(d); --------------- (d) Liens on cash or cash equivalents securing reimbursement obligations of Borrower under letters of credit (other than any Letters of Credit) in an aggregate amount of all such cash and cash equivalents not to exceed $50,000,000; (e) Liens in respect accounts receivable and any related property that are the subject of a Permitted Receivables Facility; (f) Liens on the property or assets of any corporation which becomes a Subsidiary of Borrower after the date of this Agreement, provided that (i) such -------- Liens exist at the time such corporation became a Subsidiary, and (ii) such Liens were not created in contemplation of such acquisition by Borrower; (g) Rights of vendors or lessors under conditional sale agreements, Capital Leases or other title retention agreements, provided that in each case, (i) such -------- rights secure or otherwise relate to Permitted Indebtedness, (ii) such rights do not extend to any property other than property acquired with the proceeds of such Permitted Indebtedness (together with accessions, additions, replacements and proceeds thereof), and (iii) such rights do not secure any Indebtedness other than Permitted Indebtedness; (h) Liens securing Indebtedness and any related obligations of Borrower or any of its Subsidiaries which constitutes Permitted Indebtedness under Section ------- 7.01(f) (or refinancings of such Indebtedness under Section 7.01(g)), provided - ------- --------------- -------- that such Liens cover only those assets subject to Synthetic Lease Obligations (together with accessions, additions, replacements and proceeds thereof); (i) Liens incurred in connection with leases, subleases, licenses and sublicenses granted to Persons not interfering in any material respect with the business of Borrower and its Subsidiaries and any interest or title of a lessee or licensee under any such leases, subleases, licenses or sublicenses; (j) Liens in favor of Lenders in connection with the Letter of Credit Cash Collateral Account; and -52- (k) Liens not otherwise permitted hereunder on the property or assets of Borrower and any of its Subsidiaries securing (i) borrowed money Indebtedness of the Person granting such Lien, (ii) all obligations of Borrower arising other than in connection with any securitization which are evidenced by bonds, debentures, notes or other similar instruments, or (iii) Indebtedness consisting of letter of credit reimbursement obligations, provided that, in each case, (x) -------- the aggregate principal amount of all Indebtedness secured by such Liens does not exceed at any time 10% of the total assets of Borrower and its Subsidiaries determined as of the end of the fiscal quarter immediately preceding the date of determination (provided that if such fiscal quarter end date is prior to the -------- Maxtor Merger Effective Time, the aggregate principal amount of all Indebtedness secured by such Liens shall not exceed 10% of the combined assets of DSS, based upon the most-recent DSS Combined Financial Statements) and (y) such Liens do not encumber current assets of Borrower and its Subsidiaries in excess of $50,000,000. 7.03 Fundamental Changes. Merge or consolidate with or into any Person or liquidate, wind-up or dissolve itself, or permit or suffer any liquidation or dissolution or sell all or substantially all of its assets, except that: ------ (a) any Subsidiary may merge with (i) Borrower, provided that Borrower -------- shall be the continuing or surviving corporation, (ii) any one or more Subsidiaries, and (iii) any joint venture, partnership or other Person, so long as such joint venture, partnership and other Person will, as a result of making such merger and all other contemporaneous related transactions, become a Subsidiary; (b) any Subsidiary may sell all or substantially all of its assets (upon voluntary liquidation or otherwise), to Borrower or to another Subsidiary; (c) Borrower may merge with any other corporation, provided that (i) -------- Borrower is the surviving corporation, and (ii) immediately after giving effect to such merger, no Default or Event of Default shall have occurred and be continuing; (d) any Subsidiary may merge or consolidate with or into any other Person or sell all or substantially all of its assets to the extent such transaction is a Disposition otherwise permitted under Section 7.04 or an Investment otherwise ------------ permitted under Section 7.05 and immediately after giving effect to such merger ------------ or consolidation, no Default or Event of Default shall have occurred and be continuing; and (e) Spinco may merge with Maxtor pursuant to and as set forth in Section 2.2 of the Maxtor Merger Agreement. 7.04 Dispositions. Make any Dispositions, except: ------ (a) Ordinary Course Dispositions; (b) Dispositions permitted by Section 7.03; ------------ (c) Dispositions which constitute the making of or liquidation of Permitted Investments; -53- (d) Dispositions to Snap Appliances of assets and liabilities of Borrower related to the Snap Business pursuant to the Snap Spin-Off Documents that are permitted pursuant to Section 7.05(i); (e) Disposition of Snap Appliances stock permitted by Section 7.06(f); (f) Dispositions not otherwise permitted hereunder not exceeding 20% of Consolidated Tangible Net Worth for the four fiscal quarter period ending as of the end of the fiscal quarter immediately preceding the date of determination, other than Dispositions by Borrower or any Subsidiary to Snap Appliances or relating to stock of Snap Appliances; (g) Dispositions of accounts receivables and any related property that are the subject of a Permitted Receivables Facility by Borrower and its Subsidiaries; and (h) Dispositions of the HDD Business pursuant to the Maxtor Merger Documents and ancillary documents executed contemporaneously therewith. 7.05 Investments. Make any Investments, except for the following ("Permitted Investments"): --------------------- (a) Investments existing on the date hereof; (b) Ordinary Course Investments; (c) Investments permitted by Section 7.01 or Section 7.03; ------------ ---- (d) Investments arising from rights received by Borrower and its Subsidiaries upon the required payment of any permitted contingent obligations of Borrower and its Subsidiaries; (e) Investments in the nature of Acquisitions, provided that the aggregate -------- amount of such Acquisitions in any period of four consecutive fiscal quarters does not exceed 20% of Consolidated Tangible Net Worth as determined as of the fiscal quarter immediately preceding the date of determination; (f) Investments of Borrower and its Subsidiaries in Swap Contracts, provided that all such arrangements are entered into in connection with bona - -------- fide hedging operations and not for speculation; (g) Investments by Quantum Technology Ventures (or any other Subsidiary of Borrower with the primary purpose of making venture investments) and other Investments which Borrower's Board of Directors determines to be strategic for Borrower in an aggregate cost basis, at any time invested for all such entities and investments together, not to exceed the sum of (x) $150,000,000 and (y) the aggregate gain or loss on such Investments previously made under this clause (g); (h) Investments not otherwise permitted hereunder, provided that the -------- aggregate amount of such other Investments made after the Closing Date (less any return on any such Investments) -54- does not exceed 20% of Consolidated Tangible Net Worth as determined as of the fiscal quarter immediately preceding the date of determination; and (i) Investments in Snap Appliances from and after the Restatement Date but prior to the consummation of the Snap Spin Off in an aggregate amount not exceeding $100,000,000. 7.06 Restricted Payments. Make any Restricted Payments, except as follows: ------ (a) (i) Borrower may pay dividends or other distributions payable solely in shares of capital stock of Borrower and (ii) any Subsidiary of Borrower may make Restricted Payments to (A) Borrower or (B) any other Subsidiary of Borrower (other than Snap Appliances, except that any Subsidiary of Snap Appliances may make Restricted Payments to Snap Appliances); (b) Borrower may distribute rights pursuant to a shareholder rights plan or redeem such rights, provided that such redemption is in accordance with the -------- terms of such shareholder rights plan; (c) Borrower may make Restricted Payments in connection with or pursuant to any of its Employee Benefits Plans or in connection with the employment, termination or compensation of its employees, officers or directors; (d) Borrower may make Restricted Payments with the Net Proceeds received from a substantially concurrent issuance of Equity Securities or capital stock or with its Equity Securities or capital stock or Borrower may convert any Equity Securities in accordance with their terms into other Equity Securities; (e) Borrower may purchase Equity Securities pursuant to one or more stock repurchase programs, provided that (i) no Default or Event of Default shall have -------- occurred and be continuing, and (ii) after giving effect to any such repurchases Borrower shall be in compliance with Section 7.12; ------------ (f) Borrower may, on or before the date twelve months subsequent to the Restatement Date, dividend or distribute to its shareholders all or substantially all stock of Snap Appliances held by it pursuant to the Snap Spin- Off, provided there exists no Default or Exist of Default; and (g) Borrower may declare or pay any dividends in respect of its Equity Securities or purchase or redeem shares of its Equity Securities or make distributions to shareholders not otherwise permitted hereunder, provided that -------- the aggregate amount paid or distributed in any period of four consecutive quarters (excluding any amounts covered by subsection (b) above) does not exceed 5% of Consolidated Tangible Net Worth as determined as of the fiscal quarter immediately preceding the date of determination. 7.07 ERISA. At any time engage in a transaction which could be subject to Sections 4069 or 4212(c) of ERISA, or permit any Pension Plan to (a) engage in any non-exempt "prohibited transaction" (as defined in Section 4975 of the Code); (b) fail to comply with ERISA or any other applicable Laws; or (c) incur any material "accumulated funding deficiency" (as -55- defined in Section 302 of ERISA), which, with respect to each event listed above, has a Material Adverse Effect. 7.08 Change in Nature of Business. Engage, either directly or indirectly through Affiliates, in any line of business other than the digital storage business, any other business incidental or reasonably related thereto, or any businesses that are, as determined by the Board of Directors of Borrower, appropriate extensions thereof. 7.09 Transactions with Affiliates. Enter into any transaction of any kind with any Affiliate (other than transactions among Borrower or any of its Subsidiaries and any Subsidiary) of Borrower other than arm's-length transactions with Affiliates that are otherwise permitted hereunder. 7.10 Use of Proceeds. Borrower shall not, and shall not suffer or permit any Subsidiary to, use any portion of the Loan proceeds or any Letter of Credit, directly or indirectly, (i) for any Acquisition unless the prior, effective written consent or approval to such Acquisition of the board of directors or equivalent governing body of the acquiree is obtained, or (ii) to acquire any security in any transaction that is subject to Section 13 (other than an Investment Transaction) or Section 14 of the Securities Exchange Act of 1934, as amended, unless, prior to the time such transaction becomes subject to such Section 13 or 14, the board of directors or other applicable governing body of the Person that is the issuer of such securities has adopted a resolution approving such transaction and approving any "change in control" with respect to such Person whereby Borrower or such Subsidiary may acquire control of such Person. For purposes of this Section 7.10, (x) an "Investment Transaction" means ------------ ---------------------- a transaction subject to Section 13(d), but not Section 16, of the Securities Exchange Act of 1934, as amended, provided that in connection with such transaction Borrower or its Subsidiary (as the case may be) has reported and at all times continues to report to the SEC that such transaction is undertaken for investment purposes only and not for any of the purposes specified in clauses 4(a) through (j), inclusive, of the special instructions for complying with Schedule 13D under the Securities Exchange Act of 1934, as amended, and (y) "change in control" means, for any Person, an Acquisition with respect to such Person. 7.11 Certain Indebtedness Payments, Etc. Neither Borrower nor any of its Subsidiaries shall pay, prepay, redeem, purchase, defease or otherwise satisfy in any manner prior to the scheduled payment thereof any Subordinated Debt except as otherwise permitted under this Section 7.11; amend, modify or ------------ otherwise change the terms of any document, instrument or agreement evidencing Subordinated Debt such that such amendment, modification or change would (i) cause the outstanding aggregate principal amount of all such Subordinated Debt so amended, modified or changed to be increased as a consequence of such amendment, modification or change, (ii) cause the subordination provisions applicable to such Subordinated Debt to be less favorable to Administrative Agent and Lenders than those set forth on Schedule 7.13, (iii) increase the ------------- interest rate applicable thereto, or (iv) accelerate the scheduled payment thereof, except that, subject to the other terms and provisions hereof, Borrower may: (a) (1) call for redemption of the entire outstanding amount of the Convertible Subordinated Debentures; and -56- (2) to the extent such Convertible Subordinated Debentures are not converted prior to the redemption date, redeem up to 30% of any such outstanding Convertible Subordinated Debentures less the amount of Subordinated Debt purchased by Borrower pursuant to clause (b)(2) of this Section, provided that -------- (A) no Default or Event of Default has occurred and is continuing or would result from such call for redemption or redemption; and (B) the closing price of a share a common stock of Borrower shall have exceeded 120% of the then applicable conversion price for 20 trading days within a period of 30 consecutive trading days ending within 5 trading days prior to the notice of redemption. Borrower shall not cause or permit any of its obligations, except the obligations constituting Senior Indebtedness to constitute "Designated Senior Indebtedness" under the Indenture governing the Convertible Subordinated Debentures (it being understood that the Obligations of Borrower under this Agreement shall at all times constitute "Designated Senior Indebtedness"); or (b) (1) pay, prepay, redeem, purchase, defease or otherwise satisfy in any manner any Subordinated Debt, with the Net Proceeds from the substantially contemporaneous issuance of Equity Securities by Borrower or in exchange for Equity Securities of Borrower; and (2) otherwise purchase outstanding Subordinated Debt, provided -------- that the aggregate value of all such Subordinated Debt repurchased, together with the amount of all redemptions undertaken pursuant to clause (a) of this Section, does not at any time exceed 30% of the total amount of any Convertible Subordinated Debentures outstanding as of the Closing Date; and (c) Borrower may convert, or honor a conversion request with respect to, any such Subordinated Debt into Equity Securities of Borrower in accordance with the terms of, and pay any cash to holders of such Subordinated Debt in connection with, such a conversion solely to the extent representing the value of any fractional shares. 7.12 Financial Covenants. (a) Consolidated Tangible Net Worth. Permit Consolidated Tangible Net Worth on the last day of any fiscal quarter (such date to be referred to herein as a "determination date"), commencing with the fiscal quarter ended March 31, 2000, to be less than the greater of: (i) 75% of Consolidated Tangible Net Worth as of March 31, 2000, or (ii) the sum of: (A) an amount equal to 75% of Consolidated Tangible Net Worth as of March 31, 2000; plus ---- -57- (B) an amount equal to 75% of the sum of positive Consolidated Net Income (ignoring any quarterly losses and any charge for In-Process Research and Development described in clause (F) below) for each fiscal quarter after the quarter ended March 31, 2000, through and including the quarter ending on the determination date; plus ---- (C) an amount equal to 75% of the Net Proceeds of all Equity Securities issued by Borrower (excluding any issuance where the Net Proceeds to the Borrower therefor are less than $10,000,000) during the period commencing on March 31, 2000 and ending on the determination date; plus ---- (D) an amount equal to 75% of the increase in shareholders' equity resulting, in accordance with GAAP, from any conversion of Convertible Subordinated Debentures into Equity Securities; minus ----- (E) the lesser of (x) the aggregate amount paid by Borrower to repurchase Equity Securities during the period commencing on March 31, 2000 and ending on the determination date and (y) $200,000,000; minus ----- (F) the lesser of (x) the aggregate amount of charges taken by Borrower for In-Process Research & Development associated with Acquisitions during the period commencing on March 31, 2000 and ending on the determination date, and (y) $100,000,000, provided -------- that any such charges were taken by Borrower during the quarter in which any such Acquisition was completed; and minus ----- (G) for any fiscal quarter ending after the Snap Spin-Off is consummated, the lesser of (x) net book value of Snap Appliances as of the Restatement Date (as determined in accordance with GAAP and reflected on Borrowers' financial statements for the fiscal quarter ending March 30, 2001) and (y) $150,000,000. (b) Minimum Quick Ratio. Permit the Quick Ratio determined as of the last day of any fiscal quarter of Borrower (commencing with the quarter ending March 31, 2000) to be less than 1.10:1. (c) Maximum Leverage Ratio. Permit the Leverage Ratio, determined as of the last day of any fiscal quarter of Borrower, commencing with the fiscal quarter ending March 31, 2000 (measured on a rolling four quarter basis for the four fiscal quarters then ended), to be greater than 2.00:1. (d) Minimum Profitability. Suffer or permit there to exist, as of the last day of any fiscal quarter, for the four fiscal quarters ending on such date, commencing with the fiscal quarter ending March 31, 2000, (i) any two fiscal quarters in which the aggregate negative Consolidated Net Income for such fiscal quarters exceeds 5% of Consolidated Tangible Net Worth as of such date, or (ii) cumulative Consolidated Net Income for such four-quarter period of less than $1.00. For purposes of calculating this covenant, charges for In-Process Research & Development associated with Acquisitions shall be excluded, (x) provided that any such charges for In-Process Research & Development are taken - -------- during the quarter in which any such Acquisitions are completed, and (y) to the extent that the aggregate amount of any such charges -58- for In-Process Research & Development taken does not exceed $100,000,000 from and after the Closing Date. 7.13 Accounting Changes. Change (i) its fiscal year (currently April 1 to March 31), or (ii) its accounting practices except as permitted by GAAP. SECTION 8. EVENTS OF DEFAULT AND REMEDIES 8.01 Events of Default. Any one or more of the following events shall constitute an Event of Default: (a) Borrower fails to pay any principal on any Outstanding Obligation (other than fees) as and on the date when due; or (b) Borrower fails to pay any interest on any Outstanding Obligation or any commitment fees due hereunder within three days after the date when due; or fails to pay any other fees or amount payable to Administrative Agent or any Lender under any Loan Document within five days after the date due; or (c) Any default occurs in the observance or performance of any agreement contained in Section 6.12 or 7; or ------------ - (d) The occurrence of an Event of Default (as such term is or may hereafter be specifically defined in any other Loan Document) under any other Loan Document; or Borrower fails to perform or observe any other covenant or agreement (not specified in subsections (a), (b) or (c) above) contained in any Loan Document on its part to be performed or observed and such failure continues for 30 days; or (e) Any representation or warranty in any Loan Document proves to have been incorrect in any material respect when made or deemed made; or (f) (i) Borrower (x) defaults in any payment when due of principal of or interest on any Indebtedness (other than Indebtedness hereunder) having an aggregate principal amount in excess of the Threshold Amount, or (y) defaults in the observance or performance of any other agreement or covenant relating to any Indebtedness (other than Indebtedness hereunder) or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, (I) Indebtedness having an aggregate principal amount in excess of the Threshold Amount to become due (automatically or otherwise) prior to its stated maturity, or (II) if in respect of a Guaranty Obligation, any Guaranty Obligation in excess of the Threshold Amount to become payable or cash collateral in respect thereof to be demanded on account of such default or other event; (ii) Borrower is unable or admits in writing its inability to pay its debts generally as they mature; or (iii) the occurrence under any Swap Contract of an Early Termination Date (as defined in such Swap Contract) resulting from (x) any event of default under such Swap Contract as to which -59- Borrower or any Subsidiary is the Defaulting Party (as defined in such Swap Contract) or (y) any termination event under any Swap Contract (as defined therein) as to which Borrower or any Subsidiary is an affected party (as so defined) (other than termination events resulting solely from changes in the value of Borrower's stock price or other rates, prices or indices underlying any such Swap Contract), and as to which, in either event, the Swap Termination Value owed by Borrower or such Subsidiary as a result thereof is greater than the Threshold Amount; provided, however, that a Voluntary Redemption Event shall -------- ------- not constitute an Event of Default under this Section 8.01(f); or --------------- (g) Any Loan Document, at any time after its execution and delivery and for any reason other than the agreement of all Lenders or satisfaction in full of all the Obligations, ceases to be in full force and effect or is declared by a court of competent jurisdiction to be null and void, invalid or unenforceable in any respect; or Borrower denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any Loan Document; or (h) (i) A final judgment against Borrower is entered for the payment of money in excess of the Threshold Amount, or any non-monetary final judgment is entered against Borrower which has a Material Adverse Effect and, in each case if such judgment remains unsatisfied without procurement of a stay of execution within 30 calendar days after the date of entry of judgment; or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded (A) within 30 calendar days after its issue or levy or (B) if earlier, five days prior to the date of any proposed sale. (i) Borrower or any of its Material Subsidiaries institutes or consents to the institution of any proceeding under Debtor Relief Laws, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of that Person and the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding under Debtor Relief Laws relating to any such Person or to all or any part of its property is instituted without the consent of that Person and continues undismissed or unstayed for 60 calendar days, or an order for relief is entered in any such proceeding; or (j) (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of the Threshold Amount; (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds the Threshold Amount; or (iii) Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of the Threshold Amount; or (k) There occurs (i) any Change of Control, or (ii) any event relating to a change in the corporate ownership, control or governance of Borrower or any Subsidiary as issuer ("Issuer") of ------ -60- any notes, bonds, debentures, Subordinated Debt or other debt securities, the result of which is to cause Indebtedness evidenced by any such notes, bonds, debentures, Subordinated Debt or other debt securities to be subject to mandatory redemption or repurchase by Issuer, provided the outstanding amount of -------- such outstanding Indebtedness exceeds the Threshold Amount; or (l) Borrower, one or more Subsidiaries of Borrower, or Borrower together with one or more of its Subsidiaries incurs a Tax Loss and the portion of such Tax Loss (individually, or together with all other prior Tax Losses) which is not insured is in excess of the Threshold Amount, where an "insured" Tax Loss means a Tax Loss which is the subject of a bona fide insurance policy or contract with an insurer or syndicate of insurers of national repute and as to which such insurer or insurers have not disputed or disclaimed contractual liability for such Tax Loss or otherwise breached the terms of such policy or contract. 8.02 Certain Financial Covenant Defaults. In the event that, after taking into account any extraordinary charge to earnings taken or to be taken as of the end of any fiscal period of Borrower (a "Charge"), and if solely by ------ virtue of such Charge, there would exist an Event of Default due to breach of Section 7.12 as of such fiscal period end date, such Event of Default shall be - ------------ deemed to arise upon the earlier of (i) the date after such fiscal period end date on which Borrower announces publicly it will take, is taking or has taken such Charge (including an announcement in the form of a statement in a report filed with the SEC) or, if such announcement is made prior to such fiscal period end date, the date that is such fiscal period end date, and (ii) the date Borrower delivers to Administrative Agent its audited annual or unaudited quarterly financial statements in respect of such fiscal period reflecting such Charge as taken. 8.03 Remedies Upon Event of Default. Without limiting any other rights or remedies of Administrative Agent or Lenders provided for elsewhere in this Agreement, or the other Loan Documents, or by applicable Law, or in equity, or otherwise: (a) Upon the occurrence, and during the continuance, of any Event of Default other than an Event of Default described in Section 8.01(i): ---- --------------- (i) Requisite Lenders may request Administrative Agent to, and Administrative Agent thereupon shall, terminate the Commitments and/or declare all or any part of the unpaid principal of all Loans, all interest accrued and unpaid thereon and all other amounts payable under the Loan Documents to be immediately due and payable, whereupon the same shall become and be immediately due and payable, without protest, presentment, notice of dishonor, demand or further notice of any kind, all of which are expressly waived by Borrower; and (ii) Issuing Lender may, with the approval of Administrative Agent on behalf of Requisite Lenders, demand immediate payment by Borrower of an amount equal to the aggregate amount of all outstanding Letters of Credit Usage to be held in a Letter of Credit Cash Collateral Account. -61- (b) Upon the occurrence of any Event of Default described in Section ------- 8.01(i): - ------- (i) the Commitments and all other obligations of Administrative Agent or Lenders shall automatically terminate without notice to or demand upon Borrower, which are expressly waived by Borrower; (ii) the unpaid principal of all Loans, all interest accrued and unpaid thereon and all other amounts payable under the Loan Documents shall be immediately due and payable, without protest, presentment, notice of dishonor, demand or further notice of any kind, all of which are expressly waived by Borrower; and (iii) an amount equal to the aggregate amount of all outstanding Letters of Credit Usage shall be immediately due and payable to Issuing Lender without notice to or demand upon Borrower, which are expressly waived by Borrower, to be held in a Letter of Credit Cash Collateral Account. (c) Upon the occurrence of any Event of Default, Lenders and Administrative Agent, or any of them, without notice to (except as expressly provided for in any Loan Document) or demand upon Borrower, which are expressly waived by Borrower (except as to notices expressly provided for in any Loan Document), may proceed to (but only with the consent of Requisite Lenders) protect, exercise and enforce their rights and remedies under the Loan Documents against Borrower and such other rights and remedies as are provided by Law or equity. (d) Except as permitted by Section 10.05, no Lender may exercise any rights ------------- or remedies with respect to the Obligations without the consent of Requisite Lenders in their sole and absolute discretion. The order and manner in which Administrative Agent's and Lenders' rights and remedies are to be exercised shall be determined by Requisite Lenders in their sole and absolute discretion. Regardless of how a Lender may treat payments for the purpose of its own accounting, for the purpose of computing the Obligations hereunder, payments shall be applied first, to costs and expenses (including Attorney Costs) incurred by Administrative Agent and each Lender, second, to the payment of accrued and unpaid interest on the Loans to and including the date of such application, third, to the payment of the unpaid principal of the Loans, and fourth, to the payment of all other amounts (including fees) then owing to Administrative Agent and Lenders under the Loan Documents, in each case paid pro rata to each Lender in the same proportions that the aggregate Obligations owed to each Lender under the Loan Documents bear to the aggregate Obligations owed under the Loan Documents to all Lenders, without priority or preference among Lenders. No application of payments will cure any Event of Default, or prevent acceleration, or continued acceleration, of amounts payable under the Loan Documents, or prevent the exercise, or continued exercise, of rights or remedies of Administrative Agent and Lenders hereunder or thereunder or at Law or in equity. SECTION 9. ADMINISTRATIVE AGENT 9.01 Appointment and Authorization of Administrative Agent. -62- (a) Each Lender hereby irrevocably (subject to Section 9.09) appoints, ------------ designates and authorizes Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall Administrative Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Administrative Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. (b) Issuing Lender shall act on behalf of Lenders with respect to any Letters of Credit issued by it and the documents associated therewith until such time and except for so long as Administrative Agent may agree at the request of Requisite Lenders to act for such Issuing Lender with respect thereto; provided, -------- however, that Issuing Lender shall have all of the benefits and immunities (i) - ------- provided to Administrative Agent in this Section 9 with respect to any acts --------- taken or omissions suffered by Issuing Lender in connection with Letters of Credit issued by it or proposed to be issued by it and the application and agreements for letters of credit pertaining to the Letters of Credit as fully as if the term "Administrative Agent" as used in this Section 9 included Issuing --------- Lender with respect to such acts or omissions, and (ii) as additionally provided in this Agreement with respect to Issuing Lender. 9.02 Delegation of Duties. Administrative Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Administrative Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 9.03 Liability of Administrative Agent. No Administrative Agent-Related Person shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any Lender for any recital, statement, representation or warranty made by Borrower or any Subsidiary or Affiliate of Borrower, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Administrative Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Administrative Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements -63- contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of Borrower or any of Borrower's Subsidiaries or Affiliates. 9.04 Reliance by Administrative Agent. (a) Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, representation, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to Borrower), independent accountants and other experts selected by Administrative Agent. Administrative Agent shall be fully justified in failing or refusing to take any action under any other Loan Document unless it shall first receive such advice or concurrence of Requisite Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of Requisite Lenders or all Lenders, if required hereunder, and such request and any action taken or failure to act pursuant thereto shall be binding upon all of Lenders. Where this Agreement expressly permits or prohibits an action unless Requisite Lenders otherwise determine, and in all other instances, Administrative Agent may, but shall not be required to, initiate any solicitation for the consent or a vote of Lenders. (b) For purposes of determining compliance with the conditions specified in Section 4.01, each Lender that has executed this Agreement shall be deemed to ------------ have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by Administrative Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Lender. (c) Each Lender hereby authorizes Administrative Agent, upon payment of the amount certified by Borrower as the full and final payment of all principal, interest, fees and other charges outstanding under this Agreement, and following termination of the Commitments, to execute with and in favor of Borrower a termination letter that, inter alia, terminates Borrower's obligation to observe ----- ---- any or all of the covenants in Sections 3, 6 and 7 hereof. ---------- - - 9.05 Notice of Default. Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to Administrative Agent for the account of Lenders, unless Administrative Agent shall have received written notice from a Lender or Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". Administrative Agent will notify Lenders of its receipt of any such notice. Administrative Agent shall take such action with respect to such Default or Event of Default as may be directed by Requisite Lenders in accordance with Section 8; provided, --------- -------- however, that unless and until Administrative Agent has received any such - ------- direction, Administrative Agent may (but shall not be obligated to) take such action, or refrain -64- from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of Lenders. 9.06 Credit Decision; Disclosure of Information by Administrative Agent. Each Lender acknowledges that no Administrative Agent-Related Person has made any representation or warranty to it, and that no act by Administrative Agent hereinafter taken, including any consent to and acceptance of any assignment or review of the affairs of Borrower and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Administrative Agent-Related Person to any Lender as to any matter, including whether Administrative Agent-Related Persons have disclosed material information in their possession. Each Lender, including any Lender by assignment, represents to Administrative Agent that it has, independently and without reliance upon any Administrative Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrower hereunder. Each Lender also represents that it will, independently and without reliance upon any Administrative Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower. Except for notices, reports and other documents expressly required to be furnished to Lenders by Administrative Agent herein, Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of Borrower or any of its Subsidiaries which may come into the possession of any Administrative Agent-Related Person. 9.07 Indemnification of Administrative Agent. Whether or not the transactions contemplated hereby are consummated, Lenders shall indemnify upon demand each Administrative Agent-Related Person (to the extent not reimbursed by or on behalf of Borrower and without limiting the obligation of Borrower to do so), pro rata, and hold harmless each Administrative Agent-Related Person from and against any and all Indemnified Liabilities incurred by it; provided, -------- however, that no Lender shall be liable for the payment to any Administrative - ------- Agent-Related Person of any portion of such Indemnified Liabilities resulting from such Person's gross negligence or willful misconduct; provided, however, -------- ------- that no action taken in accordance with the directions of Requisite Lenders shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section. Without limitation of the foregoing, each Lender shall reimburse Administrative Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that Administrative Agent is not reimbursed for such expenses by or on behalf of Borrower. The -65- undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of Administrative Agent. 9.08 Administrative Agent in Individual Capacity. Bank of America and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with Borrower and its Subsidiaries and Affiliates as though Bank of America were not Administrative Agent or Issuing Lender hereunder and without notice to or consent of Lenders. Lenders acknowledge that, pursuant to such activities, Bank of America or its Affiliates may receive information regarding Borrower or its Affiliates (including information that may be subject to confidentiality obligations in favor of Borrower or such Affiliate) and acknowledge that Administrative Agent shall be under no obligation to provide such information to them. With respect to its Loans, Bank of America shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not Administrative Agent or Issuing Lender. 9.09 Successor Administrative Agent. Administrative Agent may, and at the request of Requisite Lenders shall, resign as Administrative Agent upon 30 days' notice to Lenders. If Administrative Agent resigns under this Agreement, Requisite Lenders shall appoint from among Lenders a successor administrative agent for Lenders which successor administrative agent shall be approved by Borrower. If no successor administrative agent is appointed prior to the effective date of the resignation of Administrative Agent, Administrative Agent may appoint, after consulting with Lenders and Borrower and upon approval of Borrower (other than at any time as there exists an Event of Default) which will not be unreasonably withheld, a successor administrative agent from among Lenders. Upon the acceptance of its appointment as successor administrative agent hereunder, such successor administrative agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent and the term "Administrative Agent" shall mean such successor administrative agent and the retiring Administrative Agent's appointment, powers and duties as Administrative Agent shall be terminated. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Section 9 and Sections --------- -------- 10.03 and 10.11 shall inure to its benefit as to any actions taken or omitted to - ----- ----- be taken by it while it was Administrative Agent under this Agreement. If no successor administrative agent has accepted appointment as Administrative Agent (whether due to absence of Borrower approval or otherwise) by the date which is 30 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and Lenders shall perform all of the duties of Administrative Agent hereunder until such time, if any, as Requisite Lenders appoint a successor agent as provided for above. Notwithstanding the foregoing, however, Bank of America may not be removed as Administrative Agent at the request of Requisite Lenders unless Bank of America shall also simultaneously be replaced as "Issuing Lender" hereunder pursuant to documentation in form and substance reasonably satisfactory to Bank of America. 9.10 Syndication Agent; Documentation Agent. None of Lenders (or Affiliates of Lenders) identified on the facing page or signature pages of this Agreement as a "Syndication Agent" or "Documentation Agent" shall have any right, power, obligation, liability, responsibility or duty under this Agreement in such capacity. Without limiting the foregoing, none of Lenders (or Affiliates of Lenders) so identified shall have or be deemed to have any -66- fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of Lenders (or Affiliates of Lenders) so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. SECTION 10. MISCELLANEOUS 10.01 Amendments; Consents. No amendment, modification, supplement, extension, termination or waiver of any provision of this Agreement or any other Loan Document, no approval or consent thereunder, and no consent to any departure by Borrower therefrom shall be effective unless in writing signed by Requisite Lenders and acknowledged by Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Except as otherwise expressly provided herein, without the approval in writing of Administrative Agent and all Lenders, no amendment, modification, supplement, termination, waiver or consent may be effective: (a) To reduce the amount of principal, principal prepayments or the rate of interest payable on, any Loan, or the amount of any fee or other amount payable to any Lender under the Loan Documents (unless such modification is consented to by each Lender entitled to receive such fee ) or to waive an Event of Default consisting of the failure of Borrower to pay when due principal, interest or any commitment fee; (b) To postpone any date fixed for any payment of principal of, prepayment of principal of, or any installment of interest on, any Loan or any installment of any commitment fee, to extend the term of, or increase the amount of, any Lender's Commitment (it being understood that a waiver of an Event of Default shall not constitute an extension or increase in the Commitment of any Lender) or modify the Pro Rata Share of any Lender; (c) To amend the definition of "Requisite Lenders" or the provisions of Section 4, Section 9, this Section 10.01 or Section 10.06; or - --------- --------- ------------- ------------- (d) To amend any provision of this Agreement that expressly requires the consent or approval of all Lenders; provided, however, that (i) no amendment, -------- ------- waiver or consent shall, unless in writing and signed by Issuing Lender in addition to Requisite Lenders or all Lenders, as the case may be, affect the rights or duties of Issuing Lender, (ii) no amendment, waiver or consent shall, unless in writing and signed by Administrative Agent in addition to Requisite Lenders or all Lenders, as the case may be, affect the rights or duties of Administrative Agent, and (iii) the fee letters may be amended, or rights or privileges thereunder waived, in a writing executed by the parties thereto. Any amendment, modification, supplement, termination, waiver or consent pursuant to this Section shall apply equally to, and shall be binding upon, all Lenders and Administrative Agent. -67- 10.02 Transmission and Effectiveness of Communications and Signatures. (a) Modes of Delivery. Except as otherwise provided in any Loan Document, notices, requests, demands, directions, agreements and documents delivered in connection with the Loan Documents (collectively, "communications") shall be -------------- transmitted by Requisite Notice to the number and address set forth on Schedule -------- 10.02, may be delivered by the following modes of delivery, and shall be - ----- effective as follows: Mode of Delivery Effective on earlier of actual receipt and: ---------------------------------------------------------------------- Courier Scheduled delivery date Facsimile When transmission in legible form complete Mail Fourth Business Day after deposit in U.S. mail first class postage pre-paid Personal delivery When received Telephone When conversation completed provided, however, that communications delivered to Administrative Agent - -------- ------- pursuant to Section 2 must be in writing and shall not be effective until --------- actually received by Administrative Agent. (b) Reliance by Administrative Agent and Lenders. Administrative Agent and Lenders shall be entitled to rely and act on any communications purportedly given by or on behalf of Borrower even if (i) such communications (A) were not made in a manner specified herein, (B) were incomplete or (C) were not preceded or followed by any other notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any subsequent related communications provided for herein. Borrower shall indemnify Administrative Agent and Lenders from any loss, cost, expense or liability as a result of relying on any communications permitted herein. (c) Effectiveness of Facsimile Documents and Signatures. Documents and agreements delivered from time to time in connection with the Loan Documents may be transmitted and/or signed by facsimile. The effectiveness of any such documents and signatures shall, subject to applicable Law, have the same force and effect as hardcopies with manual signatures and shall be binding on all Borrower Parties and Administrative Agent and Lenders. Administrative Agent may also request that any such documents and signature be confirmed by a manually-signed hardcopy thereof; provided, however, that the failure to request -------- ------- or deliver any such manually-signed hardcopy shall not affect the effectiveness of any facsimile documents or signatures. 10.03 Attorney Costs, Expenses and Taxes. Borrower agrees (a) to pay or reimburse Administrative Agent for all reasonable costs and expenses incurred in connection with the development, preparation, negotiation and execution of the Loan Documents, and the development, preparation, negotiation and execution of any amendment, waiver, consent, supplement or modification to, any Loan Documents, and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions -68- contemplated hereby and thereby, including all reasonable Attorney Costs, and (b) to pay or reimburse Administrative Agent and each Lender for all costs and expenses incurred in connection with any refinancing, restructuring, reorganization (including a bankruptcy reorganization) and enforcement or attempted enforcement, or preservation of any rights under any Loan Documents, and any other documents prepared in connection herewith or therewith, or in connection with any refinancing, or restructuring of any such documents in the nature of a "workout" or of any insolvency or bankruptcy proceeding, including Attorney Costs. The foregoing costs and expenses shall include all reasonable search, filing, recording, title insurance and appraisal charges and fees and taxes related thereto, and other out-of-pocket expenses incurred by Administrative Agent and the cost of independent public accountants and other outside experts retained by Administrative Agent or any Lender. Such costs and expenses shall also include administrative costs of Administrative Agent reasonably attributable to the administration of the Loan Documents. Any amount payable by Borrower under this Section shall bear interest from the second Business Day following the date of demand for payment at the Default Rate, unless waived by Administrative Agent. The agreements in this Section shall survive repayment of all Obligations. 10.04 Binding Effect; Assignment. (a) This Agreement and the other Loan Documents to which Borrower is a party will be binding upon and inure to the benefit of Borrower, Administrative Agent, Lenders and their respective successors and assigns, except that, Borrower may not assign its rights hereunder or thereunder or any interest herein or therein without the prior written consent of all Lenders and any such attempted assignment shall be void. Any Lender may at any time pledge its Note or any other instrument evidencing its rights as a Lender under this Agreement to a Federal Reserve Bank, but no such pledge shall release such Lender from its obligations hereunder or grant to such Federal Reserve Bank the rights of a Lender hereunder absent foreclosure of such pledge. (b) From time to time following the Closing Date, each Lender may assign to one or more Eligible Assignees all or any portion of its Commitment and/or Extensions of Credit; provided that (i) such assignment, if not to a Lender or -------- an Affiliate of the assigning Lender, shall be consented to by Borrower at all times other than during the existence of a Default or Event of Default and by Administrative Agent and Issuing Lender (which approval of Borrower shall not be unreasonably withheld), (ii) a copy of a duly signed and completed Assignment and Acceptance shall be delivered to Administrative Agent, (iii) except in the case of an assignment (A) to an Affiliate of the assigning Lender or to another Lender or (B) of the entire remaining Commitment of the assigning Lender, the portion of the Commitment assigned shall not be less than the Minimum Amount therefor, and (iv) the effective date of any such assignment shall be as specified in the Assignment and Acceptance, but not earlier than the date which is five Business Days after the date Administrative Agent has received the Assignment and Acceptance. Upon any required consent by Administrative Agent, Issuing Lender and Borrower to such assignment and payment of the requisite fee described below, the assignee named therein shall be a Lender for all purposes of this Agreement, with the Pro Rata Share therein set forth and, to the extent of such Pro Rata Share, the assigning Lender shall be released from its further obligations under this Agreement. Borrower agrees that it shall execute and deliver upon request (against delivery by the assigning Lender to Borrower of any Note) to such assignee Lender, one or more Notes evidencing such assignee Lender's Loans, and to the assigning Lender if -69- requested, one or more Notes evidencing Loans under any Commitment retained by the assigning Lender. Administrative Agent's consent to any assignment shall not be deemed to constitute any representation or warranty by any Administrative Agent-Related Person as to any matter. For purposes hereof, each mutual fund that is an Affiliate of a Lender shall be deemed to be a single Eligible Assignee, whether or not such fund is managed by the same fund manager as other mutual funds that are Affiliates of the same Lender. (c) After receipt of a completed Assignment and Acceptance, and receipt of an assignment fee of $4,000 from such Eligible Assignee (including in the case of assignments to Affiliates of assigning Lenders), Administrative Agent shall, promptly following the effective date thereof, provide to Borrower and Lenders a revised Schedule 10.02 giving effect thereto. -------------- (d) Each Lender may from time to time, without the consent of any other Person, grant participations to one or more other Person (including another Lender) of all or any portion of its Pro Rata Share of its Commitment or Extensions of Credit; provided, however, that (i) such Lender's obligations -------- ------- under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other financial institutions shall not be a Lender hereunder for any purpose except, if the participation agreement so provides, for the purposes of Section 3 (but only to the extent that the cost --------- of such benefits to Borrower does not exceed the cost which Borrower would have incurred in respect of such Lender absent the participation) and subject to Sections 10.05 and 10.06, (iv) Borrower, Administrative Agent and the other - -------------- ----- Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, (v) the participation agreement shall not restrict an increase in the combined Commitments or in granting Lender's Pro Rata Share, so long as the amount of the participation interest is not affected thereby, and (vi) the consent of the holder of such participation interest shall not be required for amendments or waivers of provisions of the Loan Documents; provided, however, that the -------- ------- assigning Lender may, in any agreement with a participant, give such participant the right to consent to any matter which (A) extends the Maturity Date as to such participant or any other date upon which any payment of money is due to such participant, (B) reduces the rate of interest owing to such participant, any fee or any other monetary amount owing to such participant, or (C) reduces the amount of any installment of principal owing to such participant. Any Lender that sells a participation to any Person that is a "foreign corporation, partnership or trust" within the meaning of the Code shall include in its participation agreement with such Person a covenant by such Person that such Person will comply with the provisions of Section 10.21 as if such Person were a ------------- Lender and provide that Administrative Agent and Borrower shall be third party beneficiaries of such covenant. 10.05 Set-off. In addition to any rights and remedies of Administrative Agent and Lenders or any assignee or participant of any Lender or any Affiliate thereof (each, a "Proceeding Party") provided by law, upon the occurrence and ---------------- during the continuance of any Event of Default, each Proceeding Party is authorized at any time and from time to time, without prior notice to Borrower, any such notice being waived by Borrower to the fullest extent permitted by law, to proceed directly, by right of set-off, banker's lien, or otherwise, against any assets of Borrower Parties which may be in the hands of such Proceeding Party (including all general or special, time or demand, provisional or other deposits and other indebtedness owing by such Proceeding Party to or for the credit or the account of Borrower) and apply such assets -70- against the Obligations, irrespective of whether such Proceeding Party shall have made any demand therefor and although such Obligations may be unmatured. Each Lender agrees promptly to notify Borrower and Administrative Agent after any such set-off and application made by such Lender; provided, however, that -------- ------- the failure to give such notice shall not affect the validity of such set-off and application. 10.06 Sharing of Payments. Each Lender severally agrees that if it, through the exercise of any right of setoff, banker's lien or counterclaim against Borrower or otherwise, receives payment on account of the Outstanding Obligations held by it that is ratably more than any other Lender receives in payment on account of the Outstanding Obligations held by such other Lender, then, subject to applicable Laws: (a) the Lender exercising the right of setoff, banker's lien or counterclaim or otherwise receiving such payment shall purchase, and shall be deemed to have simultaneously purchased, from the other Lender a participation in the Outstanding Obligations held by the other Lender and shall pay to the other Lender a purchase price in an amount so that the share of the Outstanding Obligations held by each Lender after the exercise of the right of setoff, banker's lien or counterclaim or receipt of payment shall be in the same proportion that existed prior to the exercise of the right of setoff, banker's lien or counterclaim or receipt of payment; and (b) such other adjustments and purchases of participations shall be made from time to time as shall be equitable to ensure that all Lenders share any payment obtained in respect of the Outstanding Obligations ratably in accordance with each Lender's share of the Outstanding Obligations immediately prior to, and without taking into account, the payment; provided that, if all or any portion of a -------- disproportionate payment obtained as a result of the exercise of the right of setoff, banker's lien, counterclaim or otherwise is thereafter recovered from the purchasing Lender by Borrower or any Person claiming through or succeeding to the rights of Borrower, the purchase of a participation shall be rescinded and the purchase price thereof shall be restored to the extent of the recovery, but without interest. Each Lender that purchases a participation in the Outstanding Obligations pursuant to this Section shall from and after the purchase have the right to give all notices, requests, demands, directions and other communications under this Agreement with respect to the portion of the Outstanding Obligations purchased to the same extent as though the purchasing Lender were the original owner of the Outstanding Obligations purchased. Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in an Obligation so purchased may exercise any and all rights of setoff, banker's lien or counterclaim with respect to the participation as fully as if Lender were the original owner of the Obligation purchased. 10.07 No Waiver; Cumulative Remedies. (a) No failure by any Lender or Administrative Agent to exercise, and no delay by any Lender or Administrative Agent in exercising, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege under any Loan Document preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. Without limiting the generality of the foregoing, the terms and conditions of Section 4 may be waived in whole or --------- in part, with or without terms or conditions, in respect of any Extension of Credit without prejudicing Administrative Agent's or Lenders' rights to assert them in whole or in part in respect of any other Extension of Credit. -71- (b) The rights, remedies, powers and privileges herein or therein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by Law. Any decision by Administrative Agent or any Lender not to require payment of any interest (including Default Interest), fee, cost or other amount payable under any Loan Document or to calculate any amount payable by a particular method on any occasion shall in no way limit or be deemed a waiver of Administrative Agent's or such Lender's right to require full payment thereof, or to calculate an amount payable by another method that is not inconsistent with this Agreement, on any other or subsequent occasion. (c) The terms and conditions of Section 9 are for the sole benefit of --------- Administrative Agent and Lenders. 10.08 Usury. Notwithstanding anything to the contrary contained in any Loan Document, the interest and fees paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the "Maximum Rate"). If Administrative Agent or any Lender ------------ shall receive interest or a fee in an amount that exceeds the Maximum Rate, the excessive interest or fee shall be applied to the principal of the Outstanding Obligations or, if it exceeds the unpaid principal, refunded to Borrower. In determining whether the interest or a fee contracted for, charged, or received by Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations. 10.09 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.10 Integration. This Agreement, together with the other Loan Documents and any letter agreements referred to herein, comprises the complete and integrated agreement of the parties on the subject matter hereof and supersedes all prior agreements, written or oral, on the subject matter hereof. In the event of any conflict between the provisions of this Agreement and those of any other Loan Document, the provisions of this Agreement shall control and govern; provided that the inclusion of supplemental rights or remedies in favor of - -------- Administrative Agent or Lenders in any other Loan Document shall not be deemed a conflict with this Agreement. Each Loan Document was drafted with the joint participation of the respective parties thereto and shall be construed neither against nor in favor of any party, but rather in accordance with the fair meaning thereof. 10.11 Nature of Lenders' Obligations. Nothing contained in this Agreement or any other Loan Document and no action taken by Administrative Agent or Lenders or any of them pursuant hereto or thereto may, or may be deemed to, make Lenders a partnership, an association, a joint venture or other entity, either among themselves or with Borrower or any Affiliate of Borrower. Each Lender's obligation to make any Extension of Credit pursuant hereto is several and not joint or joint and several, and in the case of the initial Extension of Credit only is conditioned upon the performance by all other Lenders of their obligations to -72- make the initial Extension of Credit. A default by any Lender will not increase the Pro Rata Share attributable to any other Lender. 10.12 Survival of Representations and Warranties. All representations and warranties made hereunder and in any Loan Document, certificate or statement delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery thereof but shall terminate the later of (a) when the Commitments are terminated and (b) when no Obligations remain outstanding under any Loan Document. Such representations and warranties have been or will be relied upon by Administrative Agent and each Lender, notwithstanding any investigation made by Administrative Agent or any Lender or on their behalf. 10.13 Indemnity by Borrower. Borrower agrees to indemnify, save and hold harmless each Administrative Agent-Related Person and each Lender and their respective Affiliates, directors, officers, agents, attorneys and employees (collectively, the "Indemnitees") from and against: (a) any and all claims, ----------- demands, actions or causes of action that are asserted against any Indemnitee by any Person (other than Administrative Agent or any Lender) relating directly or indirectly to a claim, demand, action or cause of action that such Person asserts or may assert against Borrower, any of its Affiliates or any its officers or directors; (b) any and all claims, demands, actions or causes of action arising out of or relating to, the Loan Documents, any predecessor loan documents, the Commitments, the use or contemplated use of the proceeds of any Loan, or the relationship of Borrower, Administrative Agent and Lenders under this Agreement; (c) any administrative or investigative proceeding by any Governmental Authority arising out of or related to a claim, demand, action or cause of action described in subsection (a) or (b) above; and (d) any and all liabilities, losses, costs or expenses (including Attorney Costs) that any Indemnitee suffers or incurs as a result of the assertion of any foregoing claim, demand, action, cause of action or proceeding, or as a result of the preparation of any defense in connection with any foregoing claim, demand, action, cause of action or proceeding, in all cases, whether or not an Indemnitee is a party to such claim, demand, action, cause of action or proceeding, including those liabilities caused by an Indemnitee's own negligence (all the foregoing, collectively, the "Indemnified Liabilities"); provided that ----------------------- -------- no Indemnitee shall be entitled to indemnification for any loss caused by its own gross negligence or willful misconduct or for any loss asserted against it by another Indemnitee. 10.14 Nonliability of Lenders. Borrower acknowledges and agrees that: (a) Any inspections of any property of Borrower made by or through Administrative Agent or Lenders are for purposes of administration of the Loan Documents only, and Borrower is not entitled to rely upon the same (whether or not such inspections are at the expense of Borrower); (b) By accepting or approving anything required to be observed, performed, fulfilled or given to Administrative Agent or Lenders pursuant to the Loan Documents, neither Administrative Agent nor Lenders shall be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance or approval thereof shall not constitute a warranty or representation to anyone with respect thereto by Administrative Agent or Lenders; -73- (c) The relationship between Borrower and Administrative Agent and Lenders is, and shall at all times remain, solely that of borrower and lenders; neither Administrative Agent nor any Lender shall under any circumstance be deemed to be in a relationship of confidence or trust or a fiduciary relationship with Borrower or its Affiliates, or to owe any fiduciary duty to Borrower or its Affiliates; neither Administrative Agent nor any Lender undertakes or assumes any responsibility or duty to Borrower or its Affiliates to select, review, inspect, supervise, pass judgment upon or inform Borrower or its Affiliates of any matter in connection with their property or the operations of Borrower or its Affiliates; Borrower and its Affiliates shall rely entirely upon their own judgment with respect to such matters; and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by Administrative Agent or any Lender in connection with such matters is solely for the protection of Administrative Agent and Lenders and neither Borrower nor any other Person is entitled to rely thereon; and (d) Neither Administrative Agent nor any Lender shall be responsible or liable to any Person for any loss, damage, liability or claim of any kind relating to injury or death to Persons or damage to property caused by the actions, inaction or negligence of Borrower and/or its Affiliates and Borrower hereby indemnifies and holds Administrative Agent and Lenders harmless from any such loss, damage, liability or claim. 10.15 No Third Parties Benefited. This Agreement is made for the purpose of defining and setting forth certain obligations, rights and duties of Borrower, Administrative Agent and Lenders in connection with the Extensions of Credit, and is made for the sole benefit of Borrower, Administrative Agent and Lenders, and Administrative Agent's and Lenders' successors and assigns. Except as provided in Sections 10.04 and 10.13, no other Person shall have any rights -------------- ----- of any nature hereunder or by reason hereof. 10.16 Severability. Any provision of the Loan Documents that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10.17 Confidentiality. Administrative Agent and each Lender shall use any confidential non-public information concerning Borrower and its Subsidiaries that is furnished to Administrative Agent or such Lender by or on behalf of Borrower and its Subsidiaries in connection with the Loan Documents (collectively, "Confidential Information") solely for the purpose of evaluating ------------------------ and providing products and services to them and administering and enforcing the Loan Documents, and it will hold the Confidential Information in confidence. Notwithstanding the foregoing, Administrative Agent and each Lender may disclose Confidential Information (a) to their Affiliates or any of their or their Affiliates' directors, officers, employees, advisors, or representatives (collectively, the "Representatives") whom it determines need to know such --------------- information for the purposes set forth in this Section; (b) to any bank or financial institution or other entity to which such Lender has assigned or desires to assign an interest or participation in the Loan Documents or the Obligations, provided that any such foregoing recipient of such Confidential -------- Information agrees to keep such Confidential Information confidential as specified herein; (c) to any governmental agency or regulatory body -74- having or claiming to have authority to regulate or oversee any aspect of Administrative Agent's or such Lender's business or that of its Representatives in connection with the exercise of such authority or claimed authority; (d) to the extent necessary or appropriate to effect or preserve Administrative Agent's or such Lender's or any of their Affiliates' security (if any) for any Obligation or to enforce any right or remedy or in connection with any claims asserted by or against Administrative Agent or such Lender or any of their Representatives; and (e) pursuant to any subpoena or any similar legal process. For purposes hereof, the term "Confidential Information" shall not include information that (x) is in Administrative Agent's or a Lender's possession prior to its being provided by or on behalf of the Borrower Parties, provided that -------- such information is not known by Administrative Agent or such Lender to be subject to another confidentiality agreement with, or other legal or contractual obligation of confidentiality to, Borrower, (y) is or becomes publicly available (other than through a breach hereof by Administrative Agent or such Lender), or (z) becomes available to Administrative Agent or such Lender on a nonconfidential basis, provided that the source of such information was not -------- known by Administrative Agent or such Lender to be bound by a confidentiality agreement or other legal or contractual obligation of confidentiality with respect to such information. 10.18 Further Assurances. Borrower and its Subsidiaries shall, at their expense and without expense to Lenders or Administrative Agent, do, execute and deliver such further acts and documents as any Lender or Administrative Agent from time to time reasonably requires for the assuring and confirming unto Lenders or Administrative Agent of the rights hereby created or intended now or hereafter so to be, or for carrying out the intention or facilitating the performance of the terms of any Loan Document. 10.19 Headings. Section headings in this Agreement and the other Loan Documents are included for convenience of reference only and are not part of this Agreement or the other Loan Documents for any other purpose. 10.20 Time of the Essence. Time is of the essence of the Loan Documents. 10.21 Foreign Lenders. Each Lender that is a "foreign corporation, partnership or trust" within the meaning of the Code shall deliver to Administrative Agent, prior to receipt of any payment subject to withholding under the Code (or after accepting an assignment of an interest herein), two duly signed completed copies of either Form W-8BEN or any successor thereto (relating to such Person and entitling it to a complete exemption from withholding on all payments to be made to such Person by Borrower pursuant to this Agreement) or Form W-8ECI or any successor thereto (relating to all payments to be made to such Person by Borrower pursuant to this Agreement) of the United States Internal Revenue Service or such other evidence satisfactory to Borrower and Administrative Agent that no withholding under the federal income tax laws is required with respect to such Person. Thereafter and from time to time, each such Person shall (a) promptly submit to Administrative Agent such additional duly completed and signed copies of one of such forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may then be available under then current United States laws and regulations to avoid, or such evidence as is satisfactory to Borrower and Administrative Agent of any available exemption from, United States withholding taxes in respect of all payments to be made to such Person by Borrower pursuant to this Agreement, and (b) take such steps as shall not be materially disadvantageous to it, in the reasonable judgment of -75- such Lender, and as may be reasonably necessary (including the re-designation of its Lending Office) to avoid any requirement of applicable Laws that Borrower make any deduction or withholding for taxes from amounts payable to such Person. If such Persons fails to deliver the above forms or other documentation, then Administrative Agent may withhold from any interest payment to such Person an amount equivalent to the applicable withholding tax imposed by Sections 1441 and 1442 of the Code, without reduction. If any Governmental Authority asserts that Administrative Agent did not properly withhold any tax or other amount from payments made in respect of such Person, such Person shall indemnify Administrative Agent therefor, including all penalties and interest and costs and expenses (including Attorney Costs) of Administrative Agent. The obligation of Lenders under this Section shall survive the payment of all Obligations and the resignation or replacement of Administrative Agent. 10.22 Removal and Replacement of Lenders. (a) Under any circumstances set forth in this Agreement providing that Borrower shall have the right to remove and replace a Lender as a party to this Agreement, Borrower may, upon notice to such Lender and Administrative Agent, remove such Lender by (i) non ratably terminating such Lender's Commitment, and (ii) if being replaced, causing such Lender to assign its Commitment to one or more other Lenders or Eligible Assignees acceptable to Borrower, Administrative Agent and Issuing Lender; provided, however, that during the existence of any -------- ------- Event of Default, Borrower may not remove or replace a Lender pursuant to this Section 10.22. Any removed or replaced Lender shall be entitled to (x) payment - ------------- in full of all principal, interest, fees and other amounts owing to such Lender or such Lender's affiliated Indemnitees under any Loan Document through the date of termination or assignment (including any amounts payable pursuant to Section ------- 3.05), (y) appropriate assurances and indemnities (which may include letters of - ---- credit) as such Lender may reasonably require with respect to its participation interest in any Letters of Credit and (z) a release of such Lender from its obligations under the Loan Documents. Any Lender being replaced shall execute and deliver an Assignment and Acceptance covering such Lender's Commitment, and shall otherwise comply with Section 10.04. Administrative Agent shall distribute ------------- an amended Schedule 2.01, which shall thereafter be incorporated into this ------------- Agreement, to reflect adjustments to Lenders and their Commitments. (b) In order to make all Lender's interests in any outstanding Extensions of Credit ratable in accordance with any revised Pro Rata Shares after giving effect to the removal or replacement of a Lender, Borrower shall pay or prepay, if necessary, on the effective date thereof, all outstanding Extensions of Credit of all Lenders, together with any amounts due under Section 3.05. ------------ Borrower may then request Extensions of Credit from Lenders in accordance with their revised Pro Rata Shares. 10.23 Governing Law. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED THAT ADMINISTRATIVE AGENT AND -------- EACH LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. -76- (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE CENTRAL DISTRICT OF SUCH STATE, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWER, ADMINISTRATIVE AGENT AND EACH LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. BORROWER, ADMINISTRATIVE AGENT AND EACH LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED HERETO. BORROWER, ADMINISTRATIVE AGENT AND EACH LENDER WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF SUCH STATE. 10.24 Waiver of Right to Trial by Jury. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 10.25 Entire Agreement. This Agreement and the other Loan Documents represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. 10.26 Effect of Amendment and Restatement. (a) This Agreement is intended to amend the April 2000 Credit Agreement, without novation, and, solely for convenience of reference, to restate it. Borrower hereby acknowledges, certifies and agrees that if, pursuant to the April 2000 Credit Agreement the Lenders have made advances to Borrower that are outstanding as of the Restatement Date, or Issuing Lender has issued letters of credit that are outstanding as of the Restatement Date, (i) Borrower's obligation to repay such advances to Lenders and to reimburse Issuing Lender in respect of drawings under such letters of credit is not subject to any defense, counterclaim, set-off, right of recoupment, abatement or other claim, and (ii) such loans and advances shall continue and constitute Loans and such letters of credit shall continue and constitute Letters of Credit of Borrower under and subject to the terms and provisions of this Agreement. -77- (b) The Requisite Lenders hereby waive any Default or Event of Default arising under the April 2000 Credit Agreement as a result of the Maxtor Merger solely to the extent that any such Default or Event of Default would not have arisen under the terms of this Agreement had the terms of this Agreement been in effect at all times from and after the execution and delivery by the parties thereto of the Maxtor Merger Agreement. [Remainder of this page intentionally left blank.] -78- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. QUANTUM CORPORATION By: /s/ Richard L. Clemmer Name: Richard L. Clemmer Title: Executive Vice President Finance and Chief Financial Officer -79- BANK OF AMERICA, N.A., as Administrative Agent, Issuing Lender, and Lender By:____________________________ Name:__________________________ Title:_________________________ -80- THE BANK OF NOVA SCOTIA, as Lender By:__________________________ Name:________________________ Title:_______________________ -81- FLEET NATIONAL BANK, as Lender By:__________________________ Name:________________________ Title:_______________________ -82- THE INDUSTRIAL BANK OF JAPAN, LIMITED, as Lender By:_________________________ Name:_______________________ Title:______________________ -83- BNP PARIBAS, as Lender By:__________________________ Name:________________________ Title:_______________________ -84- CITICORP USA, INC., as Lender By:____________________________ Name:__________________________ Title:_________________________ -85- KEYBANK NATIONAL ASSOCIATION, as Lender By:__________________________ Name:________________________ Title:_______________________ -86- THE SUMITOMO BANK, LIMITED, as Lender By:___________________________ Name:_________________________ Title:________________________ -87- UNION BANK OF CALIFORNIA, N.A., as Lender By:_____________________________ Name:___________________________ Title:__________________________ -88- THE FUJI BANK, LIMITED, as Lender By:_____________________________ Name:___________________________ Title:__________________________ -89- EXHIBIT A FORM OF REQUEST FOR EXTENSION OF CREDIT Date: ___________, ____ To: Bank of America, N.A., as Administrative Agent Ladies and Gentlemen: Reference is made to that certain Credit Agreement (3-Year) dated as of April 19, 2000 between Quantum Corporation, a Delaware corporation ("Borrower"), Lenders from time to time party thereto, Bank of America, N.A., as Administrative Agent and Issuing Lender (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the "Agreement;" the terms defined therein being used herein as therein defined). --------- The undersigned hereby requests (select one): [_] A Borrowing of Loans [_] A Conversion or Continuation of Loans 1. On ______________________________________ 2. In the amount of $_______________________ 3. Comprised of ____________________________ [type of Loan requested] 4. If applicable: with an Interest Period of __________ months. The foregoing request complies with the requirements of Section 2.01 of ------------ the Agreement. Other than in connection with a Conversion or Continuation of Loans, the undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the above date, before and after giving effect to the Extension of Credit: (a) The representations and warranties made by Borrower in the Agreement, or which are contained in any certificate, document or financial or other statement furnished at any time under or in connection therewith, are and will be correct on and as of the date of this Extension of Credit, except to the extent that such representations and warranties specifically refer to any earlier date; and A-1 (b) no Default or Event of Default has occurred and is continuing on the date hereof or after giving effect to this Extension of Credit. QUANTUM CORPORATION By: __________________________ Name: ________________________ Title: _______________________ A-2 EXHIBIT B FORM OF COMPLIANCE CERTIFICATE Financial Statement Date: _________________,___ To: Bank of America, N.A., as Administrative Agent Ladies and Gentlemen: Reference is made to that certain Credit Agreement (3-Year) dated as of April 19, 2000 between Quantum Corporation, a Delaware corporation ("Borrower"), Lenders from time to time party thereto, Bank of America, N.A., as Administrative Agent and Issuing Lender (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the "Agreement;" the terms defined therein being used herein as therein defined). The undersigned Responsible Officer hereby certifies as of the date hereof that he is the ____________________________________ of Borrower, and that, as such, he is authorized to execute and deliver this Certificate to Administrative Agent on the behalf of Borrower, and that: [Use following for fiscal year-end financial statements] 1. Attached hereto as Schedule 1 are the year-end audited financial statements required by Section 6.01(a) of the Agreement for the fiscal year of -------------- Borrower ended as of the above date, together with the report and opinion of an independent certified public accountant required by such section. [Use following for fiscal quarter-end financial statements] 1. Attached hereto as Schedule 1 are the unaudited financial statements ---------- required by Section 6.01(b) of the Agreement for the fiscal quarter of Borrower --------------- ended as of the above date. Such financial statements fairly present the financial condition, results of operations and changes in financial position of Borrower and its Subsidiaries in accordance with GAAP as at such date and for such periods, subject only to normal year-end audit adjustments and the absence of footnotes. 2. The undersigned has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under his supervision, a detailed review of the transactions and conditions (financial or otherwise) of Borrower during the accounting period covered by the attached financial statements. 3. A review of the activities of the Borrower Parties during such fiscal period has been made under my supervision with a view to determining whether during such fiscal period Borrower performed and observed all its respective Obligations under the Loan Documents, and B-1 [select one:] [to the best knowledge of the undersigned during such fiscal period, Borrower performed and observed each covenant and condition of the Loan Documents applicable to it.] --or-- [the following covenants or conditions have not been performed or observed and the following is a list of all such Defaults and its nature and status:] 1. The following financial covenant analyses and information set forth on Schedule 2 attached hereto are true and accurate on and as of the date of this Certificate. IN WITNESS WHEREOF, the undersigned has executed this Certificate as of ________________, ___________. QUANTUM CORPORATION By: ___________________________ Name: _________________________ Title: ________________________ B-2 For the Quarter Year ended ("Statement Date") SCHEDULE 2 to the Compliance Certificate ($ in 000's) [NOTE: With respect to any period (or partial period) prior to the Maxtor Merger Effective Time, certain of the ratios and amounts described herein shall be determined solely in respect of the DSS Business on a stand-alone basis, based upon the then-current DSS Combined Financial Statements] I. Section 6.13(a) Please indicate whether Borrower remains in compliance with the covenants set forth in Section 7.12 after taking into account the aggregate amount of any transfers of assets or assumptions of liabilities (assuming that any contingent or YES / NO off-balance sheet liabilities are incurred and accounted for in an amount equal to that which could reasonably be expected to be paid) pursuant to Section 6.13(a). II. Section 6.13(b)(iv) Please indicate whether Borrower remains in compliance with the covenants set forth in Section 7.12 after taking into account the aggregate amount of any transfers of assets or assumptions of liabilities (assuming that any contingent or YES / NO off-balance sheet liabilities are incurred and accounted for in an amount equal to that which could reasonably be expected to be paid) pursuant to Section 6.13(b)(iv). III. Section 7.05(i) Note: Please indicate whether Borrower or any of its Subsidiaries ---- made any Investment in Snap Appliances pursuant to Section 7.05 YES / NO (i) in the period to which this Compliance Certificate relates, and if so complete this section. Aggregate Investments in Snap Appliances from and after Restatement Date but prior to consummation of the Snap Spin Off. $__________ B-3 Form of Compliance Certificate Maximum permitted: $100,000,000 IV. Section 7.12(a) - Minimum Consolidated Tangible Net Worth. A. Actual Consolidated Tangible Net Worth at Statement Date: 1. Shareholders' Equity: $______________ 2. Intangible Assets: $______________ 3. Consolidated Tangible Net Worth (Line IV.A.1 less Line IV.A.2): $______________ B. 75% of Consolidated Tangible Net Worth as of March 31, 2000 $______________ C. Amount equal to 75% of the sum of positive Consolidated Net Income (ignoring any quarterly losses and any charge for In-Process Research and Development described in Line IV.F below) for each fiscal quarter after the quarter ended March 31, 2000, through and including the quarter ending on the Statement Date: $______________ D. Amount equal to 75% of the Net Proceeds of all Equity Securities issued by Borrower (excluding any issuance where the Net Proceeds to Borrower are less than $10,000,000) during the period commencing on March 31, 2000 and ending on the Statement Date: $______________ E. Amount equal to 75% of the increase in shareholders' equity resulting from any conversion of Convertible Subordinated Debentures into Equity Securities during the period commencing on March 31, 2000 and ending on the Statement Date: $______________ F. Lesser of (i) the aggregate amount paid by Borrower to repurchase Equity Securities during the period commencing on March 31, 2000 and ending on the Statement Date, and (ii) $200,000,000: $============== G. Lesser of (i) the aggregate amount of charges taken by Borrower for In Process Research & Development associated with Acquisitions during the period commencing on March 31, 2000 and ending on the $============== B-4 Form of Compliance Certificate Statement Date, and (ii) $100,000,000; provided -------- that any such amounts were paid during the quarter in which any such Acquisition was completed: H. For any fiscal quarter ending after the Snap Spin-Off is consummated, the lesser of (i) net book value of Snap Appliances as of the Restatement Date and (ii) $150,000,000. $______________ I. Sum of: Lines IV.B + IV.C + IV.D + IV.E less IV.F less IV.G less IV.H: $______________ J. Greater of Line IV.B and IV.I: $______________ K. Excess (deficiency) for covenant compliance (Line IV.A.3 less IV.J): $______________ V. Section 7.12(b) - Minimum Quick Ratio. A. Quick Assets: 1. Amount of cash and cash equivalents of Borrower and its Subsidiaries (excluding restricted cash) as of the Statement Date: $______________ 2. Amount of all accounts receivable of Borrower and its Subsidiaries, less all reserves therefor, as of the Statement Date: $______________ 3. Amount of Quick Assets as of Statement Date (Lines V.A.1 + 2): $______________ B. Current Liabilities: 1. Amount of current liabilities of Borrower and its Subsidiaries as of the Statement Date: $______________ 2. Amount of Outstanding Obligations (to the extent not included in Line V.B.1): $______________ 3. Amount of total current liabilities of Borrower and its Subsidiaries as of the Statement Date (Line V.B.1 + 2): $______________ B-5 Form of Compliance Certificate C. Quick Ratio (Line V.A.3 / Line V.B.3): ___________to 1 Minimum required: 1.10 to 1 VI. Section 7.12(c) - Maximum Leverage Ratio. A. Consolidated EBITDA measured on a rolling four quarter basis for the four fiscal quarters ended as of the Statement Date ("Subject Period"): 1. Consolidated Net income for Subject Period: $______________ 2. Consolidated Interest Charges for Subject Period: $______________ 3. Provision for income taxes for Subject Period: $______________ 4. Depreciation expenses for Subject Period: $______________ 5. Amortization expenses for intangibles for Subject Period: $______________ 6. Amount written off in connection with In-Process Research & Development related to the Meridian Acquisition (in the second fiscal quarter of year 2000 only): $______________ 7. Amount of charge taken in connection with DSS (in the fourth fiscal quarter of year 2000 only): $______________ 8. Lesser of (i) the aggregate amount of charges taken by Borrower for In Process Research & Development associated with Acquisitions during the period commencing on March 31, 2000 and ending on the Statement Date, and (ii) $100,000,000; provided that any such amounts were paid -------- during the quarter in which any such Acquisition was completed: $______________ 9. Consolidated EBITDA (Lines VI.A.1 + 2 + 3 + 4 + 5 + 6 + 7 + 8): $______________ B. Consolidated Funded Indebtedness at Statement Date: $______________ C. Leverage Ratio (Line VI.B / Line VI.A.9): ___________to 1 Maximum permitted: 2.00 to 1 B-6 Form of Compliance Certificate VII. Section 7.12(d) - Minimum Profitability. A. 5% of Consolidated Tangible Net Worth as of Statement Date: $______________ B. Aggregate amount of the two greatest quarterly losses incurred during the four quarters immediately preceding the Statement Date: $______________ C. Excess (deficiency) for covenant compliance (Line VII.A less Line VII.B): $______________ D. Cumulative Consolidated Net Income for the four quarters immediately preceding the Statement Date: $______________ E. Excess (deficiency) for covenant compliance (Line VII.D less $1.00): $______________ B-7 Form of Compliance Certificate EXHIBIT C FORM OF NOTE _____________________ April 19, 2000 FOR VALUE RECEIVED, the undersigned (the "Borrower"), hereby promises to -------- pay to the order of ________________. (the "Lender"), on the Maturity Date (as ------ defined in the Credit Agreement referred to below) the principal amount of ___________________ ($____________), or such lesser principal amount of Loans (as defined in the Credit Agreement referred to below) payable by Borrower to Lender on such Maturity Date under that certain Credit Agreement (3-Year), dated as of April 19, 2000, among Borrower, Lenders from time to time party thereto, Bank of America, N.A., as Administrative Agent and Issuing Lender (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the "Agreement;" the terms defined therein being used herein as therein --------- defined). Borrower promises to pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount is paid in full, at such interest rates, and payable at such times as are specified in the Credit Agreement. All payments of principal and interest shall be made to Administrative Agent for the account of Lender in United States dollars in immediately available funds at Administrative Agent's Payment office. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set forth in the Credit Agreement. This Note is one of the "Notes" referred to in the Credit Agreement. ----- Reference is hereby made to the Credit Agreement for rights and obligations of payment and prepayment, events of default and the right of Lender to accelerate the maturity hereof upon the occurrence of such events. Loans made by Lender shall be evidenced by one or more loan accounts or records maintained by Lender in the ordinary course of business. Lender may also attach schedules to this Note and endorse thereon the date, amount and maturity of its Loans and payments with respect thereto. Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non- payment of this Note. Borrower agrees to pay all collection expenses, court costs and Attorney Costs (whether or not litigation is commenced) which may be incurred by Lender in connection with the collection or enforcement of this Note. C-1 Form of Note THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. QUANTUM CORPORATION By:__________________________ Name:________________________ Title:_______________________ C-2 Form of Note LOANS AND PAYMENTS WITH RESPECT THERETO
Amount of Outstanding End of Principal or Principal Type of Amount of Interest Interest Paid Balance This Notation Date Loan Made Loan Made Period This Date Date Made by - ------------------------------------------------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
C-3 Form of Note EXHIBIT D FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to that certain Credit Agreement (3-Year) dated as of April 19, 2000 between Quantum Corporation, a Delaware corporation ("Borrower"), -------- Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent and Issuing Lender (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the "Agreement;" the terms defined therein being used herein as therein defined). --------- The Assignor identified on Schedule 1 hereto ("Assignor") and the Assignee -------- identified on Schedule l hereto ("Assignee") agree as follows: -------- 1. Assignor hereby irrevocably sells and assigns to Assignee without recourse to Assignor, and Assignee hereby irrevocably purchases and assumes from Assignor without recourse to Assignor, as of the Effective Date (as defined below), the interest described in Schedule 1 hereto (the "Assigned Interest") in ----------------- and to Assignor's rights and obligations under the Agreement with respect to those Commitment(s) and Outstanding Obligations contained in the Agreement as are set forth on Schedule 1 hereto (individually, an "Assigned Commitment"; ------------------- collectively, the "Assigned Commitments"), in the principal amount for each -------------------- Assigned Commitment as set forth on Schedule 1 hereto. 2. Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Agreement or with respect to the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto, other than that Assignor has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim; and (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or any of its Subsidiaries or any other obligor or the performance or observance by Borrower or any of its Subsidiaries or any other obligor of any of its respective obligations under the Agreement or any other Loan Document or any other instrument or document furnished pursuant hereto or thereto. 3. Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (b) confirms that it has received a copy of the Agreement, together with copies of the most recent financial statements delivered pursuant to Section 4.01 or 6.02 thereof, as applicable, ------------ ---- and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (c) agrees that it will, independently and without reliance upon Assignor, Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (d) appoints and authorizes Administrative Agent to take such action as agent D-1 Form of Assignment and Acceptance on its behalf and to exercise such powers and discretion under the Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto as are delegated to Administrative Agent by the terms thereof, together with such powers as are incidental thereto; and (e) agrees that it will be bound by the provisions of the Agreement and will perform in accordance with its terms all the obligations which by the terms of the Agreement are required to be performed by it as a Lender. 4. The effective date of this Assignment and Acceptance shall be the Effective Date of Assignment described in Schedule 1 hereto (the "Effective --------- Date"). Following the execution of this Assignment and Acceptance, it will be - ---- delivered to Administrative Agent and to the Borrower for its consent (if such consent is required) and, if such consent is granted, for acceptance and recording by Administrative Agent pursuant to the Agreement, effective as of the Effective Date (which shall not, unless otherwise agreed to by Administrative Agent, be earlier than five Business Days after the date of such acceptance and recording by Administrative Agent. 5. Upon such consent, acceptance and recording, from and after the Effective Date, Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to Assignee whether such amounts have accrued prior to or on or after the Effective Date. Assignor and Assignee shall make all appropriate adjustments in payments by Administrative Agent for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves. 6. From and after the Effective Date, (a) Assignee shall be a party to the Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and under the other Loan Documents and shall be bound by the provisions thereof and (b) Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Agreement. 7. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed as of the date first above written by their respective duly authorized officers on Schedule 1 hereto. D-2 Form of Assignment and Acceptance SCHEDULE 1 TO ASSIGNMENT AND ACCEPTANCE - -------------------------------------------------------------------------------- Amount of Outstanding Pro Rata Share Assigned (set Commitment Assigned Obligations Assigned forth to at least 8 decimals) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Effective Date of Assignment: ____________, ________ ASSIGNOR By:___________________________ Name:_________________________ Title:________________________ ASSIGNEE By:___________________________ Name:_________________________ Title:________________________ The undersigned hereby consent to the within assignment: QUANTUM CORPORATION By:___________________________ Name:_________________________ Title:________________________ BANK OF AMERICA, N.A., as Administrative Agent and as Issuing Lender By:___________________________ Name:_________________________ Title:________________________ D-3 Form of Assignment and Acceptance SCHEDULE 1.01 HDD CONVERTIBLE DEBT PORTION; MAXTOR MERGER DOCUMENTS; SNAP SPIN-OFF DOCUMENTS HDD Convertible Debt Portion - ---------------------------- The HDD Convertible Debt Portion shall be 33.33%. Maxtor Merger Documents - ----------------------- . Maxtor Merger Agreement. . HDD Separation Agreement. . HDD General Assignment Agreement. . Tax Sharing and Indemnity Agreement among Borrower, Spinco and Maxtor. . Transitional Services Agreement among Borrower, Spinco and Maxtor. . Intellectual Property Agreement among Borrower, Spinco and Maxtor. . Indemnification Agreement among Borrower, Spinco and Maxtor. . Reimbursement Agreement, dated as of a date on prior to the Maxtor Merger Effective Date between Borrower and Maxtor. Snap Spin-Off Documents - ----------------------- . Snap Master Agreement. . Snap General Assignment Agreement. . Master Intellectual Property Agreement between Borrower and Snap Appliances. . Snap Employee Matters Agreement. . Tax Sharing Agreement between Borrower and Snap Appliances. . Master Transitional Services Agreement between Borrower and Snap Appliances. . Indemnification and Insurance Matters Agreement between Borrower and Snap Appliances. . Hard Disk Drive Supply Agreement dated as of June 30, 2000, entered into by Snap Appliances and Borrower. -1- SCHEDULE 2.01 COMMITMENTS AND PRO RATA SHARES
Lender Commitment Pro Rata Share - --------------------------------------------------------------------------------------------------------------------- Bank of America, N.A. $32,500,000 17.333333333% The Bank of Nova Scotia $25,000,000 13.333333333% Fleet National Bank $25,000,000 13.333333333% BNP Paribas $20,000,000 10.666666667% Citicorp USA, Inc. $20,000,000 10.666666667% KeyBank National Association $20,000,000 10.666666667% The Industrial Bank of Japan, Limited $15,000,000 8.000000000% The Fuji Bank, Limited $10,000,000 5.333333333% The Sumitomo Bank, Limited $10,000,000 5.333333333% Union Bank of California, N.A. $10,000,000 5.333333333% - ------------------------------------------------------------------------------------------------------------------- Total $187,500,000 100.000000000% ------------ --------------
-1- SCHEDULE 5.05 LITIGATION On August 7, 1998, the Company was named as one of several defendants in a patent infringement lawsuit filed in the U.S. District Court for the Northern District of Illinois, Eastern Division. The plaintiff, Papst Licensing GmbH, owns at least 26 U.S. patents, which it asserts that the Company has infringed. In October 1999 the case was transferred to a federal district court in New Orleans, Louisiana, where it has been joined with suits involving Maxtor Corporation and Minebea Company, Ltd. for the purposes of coordinated discovery under multi-district litigation rules. IBM has recently been sued by Papst and has been added to the multi-district proceedings. The final results of this litigation, as with any litigation, are uncertain. In addition, the costs of engaging in litigation with Papst will be substantial. The Company is also subject to other legal proceedings and claims that arise in the ordinary course of its business. For example, in fiscal year 2000, Discovision Associates brought patents they hold to the Company's attention. While management currently believes the amount of ultimate liability, if any, with respect to these actions will not materially affect the financial position, results of operations, or liquidity of the Company, the ultimate outcome of any litigation is uncertain. Were an unfavorable outcome to occur, the impact could be material to the Company. -1- SCHEDULE 7.01 EXISTING INDEBTEDNESS AND LIENS INDEBTEDNESS 1. Reimbursement Agreement between Sumitomo Bank, Ltd. and Quantum Peripherals (Europe), S.A., dated September 14, 1998, related to outstanding letters of credit in an amount not to exceed $85,000,000. 2. Tax Ownership Operating Lease (Colorado Springs, CO) between Quantum Corporation and Lease Plan North America, Inc., dated August 25, 1997. 3. _______ Mortgage (Louisville, CO and Shrewsbury, MA), dated August 22, 1995, between Quantum Corporation and QD Investors securing $39,226,000 in outstanding principal as of December 31, 1999. 4. Reimbursement Agreement between Fleet National Bank and ATL Products, Inc., a Subsidiary of Borrower, dated February 3, 1999, related to an outstanding letter of credit in favor of National Westminster Bank, plc in the amount of (Pounds)300,000. LIENS 1. Lien (State: CO, file # 19992029330, dated 5/19/99) established under the Equipment Lease Agreement between Quantum Corporation and Prentiss Property Services, as Debtor, and BCL Capital. 2. Lien (State: CO, file # 19992024197, dated 4/29/99) established under the Equipment Lease Agreement between Quantum Corporation and Colorado Business Leasing, Inc. 3. Lien (State: CO, file # 19982060561, dated 9/24/98) established under the Master Lease Agreement between Quantum Corporation and Avnet Computer, a division of Avnet, Inc. 4. Lien (State: CO, file # 19972076228, dated 9/5/97) established under the Financing Statement between Quantum Corporation and Lease Plan North America, Inc. 5. Lien (State: CO, file # 199F0722387, dated 9/5/97) established under the Financing Statement between Quantum Corporation and Lease Plan North America, Inc. 6. Lien (State: CO, file # 962097106, dated 12/30/96) established under the Agreement between Quantum Corporation and American Leasing, Inc. -1- 7. Lien (State: CO, file # 962081967, dated 10/31/96) established under the Agreement between Quantum Corporation and Finzer Leasing, Inc. 8. Lien (State: CA, file # 9732260586, dated 11/18/97) established under the Lease Agreement between ATL Products, Inc. and Sun Microsystems Finance. 9. Lien (State: CA, file # 9807660402, dated 3/16/98) established under the Lease Agreement between ATL Products, Inc. and Union Bank of California, N.A. 10. Lien (State: CA, file # 9821760711, dated 8/4/98) established under the Subordination Agreement between ATL Products, Inc. and Mellon US Leasing, a Division of Mellon Leasing Corporation. 11. Lien (State: CA, file # 9830060877, dated 10/23/98) established under the Equipment Schedule between ATL Products, Inc. and Mellon US Leasing, a Division of Mellon Leasing Corporation. 12. Lien (State: CA, file # 9903660704, dated 2/4/99) established under the Equipment Schedule between ATL Products, Inc. and Mellon US Leasing, a Division of Mellon Leasing Corporation. 13. Lien (State: CA, file # 9714961077, dated 5/27/97) established under rental between ATL Products, Inc. and Inter-Tel Leasing, Inc. 14. Lien (State: CA, file # 9719760464, dated 7/11/97) established under the Agreement between ATL Products, Inc. and Imperial Bank. 15. Lien (State: CA, file # 9510460180, dated 4/10/95) established under the Financing Agreement between Quantum Corporation and Hewlett-Packard Company. 16. Lien (State: CA, file # 9510460187, dated 4/10/95) established under the Financing Agreement between Quantum Corporation and Hewlett-Packard Company. 17. Lien (State: CA, file # 9526460720, dated 9/18/95) established under the Alternative Purchase Plan between Quantum Corporation and AT&T Capital Services Corporation. 18. Lien (State: CA, file # 9620660866, dated 6/22/96) established under the Financing Agreement between Quantum Corporation and Hewlett-Packard Company. 19. Lien (State: CA, file # 9623360189, dated 8/16/96) established under the Security Agreement between Quantum Corporation and Orix Credit Alliance, Inc. -2- 20. Lien (State: CA, file # 9636660392, dated 12/30/96) established under the Equipment Lease Agreement between Quantum Corporation and American Leasing, Inc. 21. Lien (State: CA, file # 9724660679, dated 9/2/97) established under the Financing Statement between Quantum Corporation and ABN AMRO Bank, N.V. San Francisco International Branch, as Agent. 22. Lien (State: CA, file # 9733960635, dated 12/1/97) established under the Security Agreement between Quantum Corporation and Unisource Worldwide, Inc. 23. Lien (State: CA, file # 9813360891, dated 5/12/98) established under the Agreement between Quantum Corporation and AT&T Capital Corporation, Instrument and Data Services. 24. Lien (State: CA, file # 9818960462, dated 7/6/98) established under the Agreement between Quantum Corporation and Employment Development Department. 25. Lien (State: CA, file # 9934060376, dated 12/1/99) established under the Agreement between Quantum Corporation and Newcourt Technologies Corp (dba Newcourt Financial-Technology Rentals & Services. 26. Lien (State: CA, file # 9934060391, dated 12/1/99) established under the Agreement between Quantum Corporation and Newcourt Technologies Corp (dba Newcourt Financial-Technology Rentals & Services). 27. Lien (State: CA, file # 0003860457, dated 2/2/00) established under the Equipment Agreement between Quantum Corporation and ATEL Business Credit, Inc. 28. Lien (State: MA, file # 345962, dated 5/25/95) established under the Schedule between Quantum Corporation and Comdisco, Inc. 29. Lien (State: MA, file # 343626, dated 10/11/95) established under the Agreement between Quantum Corporation and Comdisco, Inc. 30. Lien (State: MA, file # 371364, dated 2/23/96) established under the Agreement between Quantum Corporation and Business Credit Leasing. 31. Lien (State: MA, file # 425668, dated 10/25/96) established under the Financing Agreement between Quantum Corporation and Hewlett-Packard Company. 32. Lien (State: MA, file # 456959, dated 3/25/97) established under the Agreement between Quantum Corporation and Sanwa Leasing Corporation. 33. Lien (State: MA, file # 449499, dated 2/18/97) established under the Financing Agreement between Quantum Corporation and Hewlett-Packard Company. -3- 34. Lien (State: MA, file # 459264, dated 4/7/97) established under the Agreement between Quantum Corporation and Sanwa Leasing Corporation. 35. Lien (State: MA, file # 468158, dated 5/12/97) established under the Financing Agreement between Quantum Corporation and Hewlett-Packard Company. 36. Lien (State: MA, file # 518464, dated 12/22/97) established under the Agreement between Quantum Corporation and Sanwa Leasing Corporation. 37. Lien (State: MA, file # 582939, dated 10/9/98) established under the Agreement between Quantum Corporation and Hewlett-Packard Company. -4- SCHEDULE 7.13 SUBORDINATION PROVISIONS Section [__].1 Agreement of Subordination. [Quantum Corporation] -------------------------- covenants and agrees, and each holder of Notes issued hereunder by his acceptance thereof likewise covenants and agrees, that all Notes shall be issued subject to the provisions of this Article [__]; and each Person holding any Note, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees to be bound by such provisions. The payment of the principal of, premium, if any, and interest on all Notes (including, but not limited to, the redemption price with respect to the Notes called for redemption in accordance with Section [__] [Notice of Redemption: Selection of Notes] or submitted for redemption in accordance with Section [__] [Redemption at Option of Holders], as the case may be, as provided in this Indenture) issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article [__] shall prevent the occurrence of any default or Event of Default hereunder. Section [__].2 Payments to Noteholders. No payment shall be made with ----------------------- respect to the principal of, or premium, if any, or interest on the Notes (including, but not limited to, the redemption price with respect to the Notes to be called for redemption in accordance with Section [__] [Notice of Redemption: Selection of Notes] or submitted for redemption in accordance with Section [__] [Redemption at Option of Holders], as the case may be, as provided in this Indenture), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section [__].5, if: (i) a default in the payment of principal, premium, interest, rent or other obligations due on any Senior Indebtedness occurs and is continuing (or, in the case of Senior Indebtedness for which there is a period of grace, in the event of such a default that continues beyond the period of grace, if any, specified in the instrument or lease evidencing such Senior Indebtedness), unless and until such default shall have been cured or waived or shall have ceased to exist; or (ii) a default, other than a payment default, on a Designated Senior Indebtedness occurs and is continuing that then permits holders of such Designated Senior Indebtedness to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from a Representative or [Quantum Corporation]. If the Trustee receives any Payment Blockage Notice pursuant to clause (ii) above, no subsequent Payment Blockage Notice shall be effective for purposes of this Section [__].2 unless -1- and until (A) at least 365 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice, and (B) all scheduled payments of principal, premium, if any, and interest on the Notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. [Quantum Corporation] may and shall resume payments on and distributions in respect of the Notes upon the earlier of: (1) the date upon which the default is cured or waived or ceases to exist, or (2) in the case of a default referred to in clause (ii) above, 179 days pass after notice is received if the maturity of such Designated Senior Indebtedness has not been accelerated, unless this Article [__] otherwise prohibits the payment or distribution at the time of such payment or distribution. Upon any payment by [Quantum Corporation], or distribution of assets of [Quantum Corporation] of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or liquidation or reorganization of [Quantum Corporation], whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due upon all Senior Indebtedness shall first be paid in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, or payment thereof in accordance with its terms provided for in cash or other payment satisfactory to the holders of such Senior Indebtedness before any payment is made on account of the principal of, premium, if any, or interest on the Notes (except payments made pursuant to Article [__] [Trustee Provisions] from monies deposited with the Trustee pursuant thereto prior to commencement of proceedings for such dissolution, winding-up, liquidation or reorganization); and upon any such dissolution or winding-up or liquidation or reorganization of [Quantum Corporation] or bankruptcy, insolvency, receivership or other proceeding, any payment by [Quantum Corporation], or distribution of assets of [Quantum Corporation] of any kind or character, whether in cash, property or securities, to which the holders of the Notes or the Trustee would be entitled, except for the provision of this Article [__], shall (except as aforesaid) be paid by [Quantum Corporation] or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the holders of the Notes or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, or as otherwise required by law or a court order) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all Senior Indebtedness in full, in cash or other payment satisfactory to the holders of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness, before any payment or distribution is made to the holders of the Notes or to the Trustee. -2- For purposes of this Article [__], the words, "cash, property or securities" shall not be deemed to include shares of stock of [Quantum Corporation] as reorganized or readjusted, or securities of [Quantum Corporation] or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article [__] with respect to the Notes to the payment of all Senior Indebtedness which may at the time be outstanding; provided that (i) the -------- Senior Indebtedness is assumed by the new corporation, if any, resulting from any reorganization or readjustment, and (ii) the rights of the holders of Senior Indebtedness (other than leases which are not assumed by [Quantum Corporation] or the new corporation, as the case may be) are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of [Quantum Corporation] with, or the merger of [Quantum Corporation] into, another corporation or the liquidation or dissolution of [Quantum Corporation] following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article [__] [Consolidation, Merger, Sale, Conveyance and Lease] shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section [__].2 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article [__] [Consolidation, Merger, Sale, Conveyance and Lease]. In the event of the acceleration of the Notes because of an Event of Default, no payment or distribution shall be made to the Trustee or any holder of Notes in respect of the principal of, premium, if any, or interest on the Notes (including, but not limited to, the redemption price with respect to the Notes called for redemption in accordance with Section [__] [Notice of Redemption; Selection of Notes] or submitted for redemption in accordance with Section [__] [Redemption at Option of Holders], as the case may be, as provided in this Indenture), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section [__].5, until all Senior Indebtedness has been paid in full in cash or other payment satisfactory to the holders of Senior Indebtedness or such acceleration is rescinded in accordance with the terms of this Indenture. If payment of the Notes is accelerated because of an Event of Default, [Quantum Corporation] shall promptly notify holders of Senior Indebtedness of the acceleration. In the event that, notwithstanding the foregoing provisions, any payment or distribution of assets of [Quantum Corporation] of any kind or character, whether in cash, property or securities (including, without limitation, by way of setoff or otherwise), prohibited by the foregoing, shall be received by the Trustee or the holders of the Notes before all Senior Indebtedness is paid in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, or provision is made for such payment thereof in accordance with its terms in cash or other payment satisfactory to the holders of such Senior Indebtedness, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness . may have been issued, as their respective interests may appear, as calculated by [Quantum Corporation], for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness. -3- Nothing in this Section [__].2 shall apply to claims of, or payments to, the Trustee under or pursuant to Section [__] [Compensation and Expenses of Trustee]. This Section [__].2 shall be subject to the further provisions of Section [__].5. Section [__].3 Subrogation of Notes. Subject to the payment in full of -------------------- all Senior Indebtedness, the rights of the holders of the Notes shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article [__] (equally and ratably with the holders of all indebtedness of [Quantum Corporation] which by its express terms is subordinated to other indebtedness of [Quantum Corporation] to substantially the same extent as the Notes are subordinated and is entitled to like rights of subrogation) to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of [Quantum Corporation] applicable to the Senior Indebtedness until the principal, premium, if any, and interest on the Notes shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the holders of the Notes or the Trustee would be entitled except for the provisions of this Article [__] and no payment over pursuant to the provisions of this Article [__] to or for the benefit of the holders of Senior Indebtedness by holders of the Notes or the Trustee, shall, as between [Quantum Corporation], its creditors other than holders of Senior Indebtedness, and the holders of the Notes, be deemed to be a payment by [Quantum Corporation] to or on account of the Senior Indebtedness; and no payments or distributions of cash, property or securities to or for the benefit of the holders of the Notes pursuant to the subrogation provisions of this Article [__], which would otherwise have been paid to the holders of Senior Indebtedness shall be deemed to be a payment by [Quantum Corporation] to or for the account of the Notes. It is understood that the provisions of this Article [__] are and are intended solely for the purposes of defining the relative rights of the holders of the Notes, on the one hand, and the holders of the Senior Indebtedness, on the other hand. Nothing contained in this Article [__] or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among [Quantum Corporation] its creditors other than the holders of Senior Indebtedness, and the holders of the Notes, the obligation of [Quantum Corporation], which is absolute and unconditional, to pay to the holders of the Notes the principal of (and premium, if any) and interest on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Notes and creditors of [Quantum Corporation] other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the holder of any Note from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article [__] of the holders of Senior Indebtedness in respect of cash, property or securities of [Quantum Corporation] received upon the exercise of any such remedy. Upon any payment or distribution of assets of [Quantum Corporation] referred to in this Article [__], the Trustee, subject to the provisions of Section [__] [Duties and Responsibilities of Trustee], and the holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or to the holders of the Notes, for the purpose of ascertaining the persons -4- entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of [Quantum Corporation], the amount thereof or payable thereon and all other facts pertinent thereto or to this Article [__]. Section [__].4 Authorization to Effect Subordination. Each holder of a ------------------------------------- Note by the holder's acceptance thereof authorizes and directs the Trustee on the holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article [__] and appoints the Trustee to act as the holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in the third paragraph of Section [__] [Payments of Notes on Default; Suit Therefor] hereof at least 30 days before the expiration of the-time to file such claim, the holders of any Senior Indebtedness or their representatives are hereby authorized to file an appropriate claim for and on behalf of the holders of the Notes. Section [__].5 Notice to Trustee. [Quantum Corporation] shall give ----------------- prompt written notice in the form of an Officers' Certificate to a Responsible Officer of the Trustee and to any paying agent of any fact known to [Quantum Corporation] which would prohibit the making of any payment of monies to or by the Trustee or any paying agent in respect of the Notes pursuant to the provisions of this Article [__]. Notwithstanding the provisions of this Article [__] or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment of monies to or by the Trustee in respect of the Notes pursuant to the provisions of this Article [__], unless and until a Responsible Officer of the Trustee shall have received written notice thereof at the Corporate Trust Office from [Quantum Corporation] (in the form of an Officers Certificate) or a Representative or a holder or holders of Senior Indebtedness or from-any trustee thereof; and before the receipt of any such written notice, the Trustee, subject to the provisions of Section [__] [Duties and Responsibilities of Trustee], shall be entitled in all respects to assume that no such facts exist; provided that if on a date not fewer than one Business Day prior to the date upon which by the terms hereof any such monies may become payable for any purpose (including, without limitation, the payment of the principal of, or premium, if any, or interest on any Note) the Trustee shall not have received, with respect to such monies, the notice provided for in this Section [__].5, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such monies and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such prior date. Notwithstanding anything in this Article [__] to the contrary, nothing shall prevent any payment by the Trustee to the Noteholders of monies deposited with it pursuant to Section [__] [Discharge of Indenture], and any such payment shall not be subject to the provisions of Section [__].1 or [__].2. The Trustee, subject to the provisions of Section [__] [Duties and Obligations of Trustee], shall be entitled to rely on the delivery to it of a written notice by a Representative or a person representing himself to be a holder of Senior Indebtedness (or a trustee on behalf of such holder) to establish that such notice has been given by a Representative or a holder of Senior Indebtedness or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any person -5- as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article [__], the Trustee may request such person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such person under this Article [__] and if such evidence is not furnished the Trustee may defer any payment to such person pending judicial determination as to the right of such person to receive such payment. Section [__].6 Trustee Is Relation to Senior Indebtedness. The Trustee ------------------------------------------ in its individual capacity shall be entitled to all the rights set forth in this Article [__] in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in Section [__] [Limitations on Rights of Trustee as Creditor] or elsewhere in this Indenture shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article [__], and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and subject to the provisions of Section [__] [Duties and Obligations of Trustee], the Trustee shall not be liable to any holder of Senior Indebtedness if it shall pay over or deliver to holders of Notes, [Quantum Corporation] or any other person money or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article [__] or otherwise. Section [__].7 No Impairment of Subordination. No right of any present ------------------------------ or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of [Quantum Corporation] or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by [Quantum Corporation] with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Section [__].8 Certain Conversions Deemed Payment. For the purposes of ---------------------------------- this Article [__] only, (1) the issuance and delivery of junior securities upon conversion of Notes in accordance with Article [__] [Conversion of Notes] shall not be deemed to constitute a payment or distribution on account of the principal of (or premium, if any) or interest on Notes or on account of the purchase or other acquisition of Notes, and (2) the payment, issuance or delivery of cash (except in satisfaction of fractional shares pursuant to Section 15.[__] [Cash Payment in Lieu of Fractional Shares]), property or securities (other than junior securities) upon conversion of a Note shall be deemed to constitute payment on account of the principal of such Note. For the purposes of this Section [__].8, the term "junior securities" means (a) shares of any stock of any class of [Quantum Corporation], or (b) securities of [Quantum Corporation] which are subordinated in right of payment to all Senior Indebtedness which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Notes are so subordinated as provided in this Article [__]. Nothing contained in this Article [__] or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among [Quantum Corporation], its creditors other than holders of Senior Indebtedness and the -6- Noteholders, the right, which is absolute and unconditional, of the Holder of any Note to convert such Note in accordance with Article [__] [Conversion of Notes]. Section [__].9 Article Applicable to Paying Agents. If at any time any ----------------------------------- paying agent other than the Trustee shall have been appointed by [Quantum Corporation] and be then acting hereunder, the term "Trustee" as used in this Article [__] shall (unless the context otherwise requires) be construed as extending to and including such paying agent within its meaning as fully for all intents and purposes as if such paying agent were named in this Article [__] in addition to or in place of the Trustee; provided, however, E-hat the first paragraph of Section [__].5 shall not apply to [Quantum Corporation] or any Affiliate of [Quantum Corporation] if it or such Affiliate acts as paying agent. Section [__].10 Senior Indebtedness Entitled to Rely. The holders of ------------------------------------ Senior Indebtedness (including, without limitation, Designated Senior Indebtedness) shall have the right to rely upon this Article [__], and no amendment or modification of the provisions contained herein shall diminish the rights of such holders unless such holders shall have agreed in writing thereto. Definitions: Designated Senior Indebtedness: The term "Designated Senior ------------------------------ Indebtedness" means the Bank of America Credit Agreement and any particular Senior Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which [Quantum Corporation] is a party) expressly provides that such Indebtedness shall be "Designated Senior Indebtedness" for purposes of the Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Indebtedness to exercise the rights of Designated Senior Indebtedness). If any payment made to any holder of any Designated Senior Indebtedness or its Representative with respect to such Designated Senior Indebtedness is rescinded or must otherwise be returned by such holder or Representative upon the insolvency, bankruptcy or reorganization of [Quantum Corporation] or otherwise, the reinstated Indebtedness of [Quantum Corporation] arising as a result of such rescission or return shall constitute Designated Senior Indebtedness effective as of the date of such rescission or return. Senior Indebtedness: The term "Senior Indebtedness" means the principal ------------------- of, premium, if any, interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding) and rent payable on or in connection with, and all fees, costs, expenses and other amounts accrued or due on or in connection with, Indebtedness of [Quantum Corporation], whether outstanding on the date of this Indenture or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by [Quantum Corporation] (including all deferrals, renewals, extensions or refundings of, or amendments, modifications or supplements to, the foregoing), unless in the case of any particular Indebtedness the instrument creating or evidencing the same or the assumption or guarantee thereof expressly provides that such Indebtedness shall not be senior in right of payment to the Notes or expressly provides that such Indebtedness is "pari passu" or "junior" to the Notes. Notwithstanding the foregoing, the term Senior Indebtedness shall not include any Indebtedness of [Quantum Corporation] to any subsidiary of [Quantum Corporation], a majority of the voting stock of which is owned, directly or indirectly, by -7- [Quantum Corporation] or [Quantum Corporation]'s 5% Convertible Subordinated Debentures due April 1, 2002. If any payment made to any holder of any Senior Indebtedness or its Representative with respect to such Senior Indebtedness is rescinded or must otherwise be returned by such holder or Representative upon the insolvency, bankruptcy or reorganization of [Quantum Corporation] or otherwise, the reinstated Indebtedness of [Quantum Corporation] arising as a result of such rescission or return shall constitute Senior Indebtedness effective as of the date of such rescission or return. Bank of America Credit Agreement: The term "Bank of America Credit -------------------------------- Agreement" means that certain Credit Agreement (3-Year), dated as of April 19, 2000, by and among [Quantum Corporation], Bank of America, N.A. as administrative agent and Issuing Lender thereunder, and each lender from time to time party thereto, as amended, amended and restated, supplemented or otherwise modified from time to time. -8- SCHEDULE 10.02 OFFSHORE AND DOMESTIC LENDING OFFICES, ADDRESSES FOR NOTICES QUANTUM CORPORATION 500 McCarthy Boulevard Milpitas, CA 95035 Attn: Lauren Halden, Assistant Treasurer Telephone: (408) 894-4906 Facsimile: (408) 232-6870 E-mail: lauren.halden@quantum.com ADMINISTRATIVE AGENT'S OFFICE: Notices for Borrowing, Conversions/Continuations, and Payments: Bank of America, N.A. Mail Code: CA4-706-05-09 Agency Administrative Services #5596 1850 Gateway Boulevard, 5th Floor Concord, CA 94520 Attn: Crickett Kanouff Telephone: (925) 675-8416 Facsimile: (925) 969-2621 E-mail: crickett.kanouff@bankofamerica.com Other Notices: Bank of America, N.A. Technology #3697 Mail Code: CA5-705-12-08 555 California Street, 12th Floor San Francisco, CA 94104 Attn: Kevin McMahon Telephone: (415) 622-8088 Facsimile: (415) 622-4057 E-mail: kevin.mcmahon@bankofamerica.com -1- Agent's Payment Office: Bank of America, N.A. 1850 Gateway Boulevard Concord, CA 94520 Attn: Agency Services--West #5596 Reference: Quantum Corporation (3-yr) For credit to FTA Acct. No. 3750836479 ABA Number: 111-000-012 BANK OF AMERICA, N.A., as Issuing Lender Trade Operations-Los Angeles #226521 333 S. Beaudry Avenue, 19th Floor Mail Code: CA9-703-19-23 Los Angeles, CA 90017-1466 Attn: Sandra Leon Telephone: (212) 345-5231 Facsimile: (212) 345-6694 E-mail: sandra.leon@bankofamerica.com BANK OF AMERICA, N.A., as Lender Domestic and Offshore Lending Office: (Borrowing Notices, Notices of Conversion/Continuation and Payments) Bank of America, N.A. Mail Code: CA4-706-05-09 Agency Administrative Services #5596 1850 Gateway Boulevard, 5th Floor Concord, CA 94520 Attn: Crickett Kanouff Telephone: (925) 675-8416 Facsimile: (925) 969-2621 E-mail: crickett.kanouff@bankofamerica.com -2- BNP PARIBAS Domestic and Offshore Lending Office: BNP Paribas 180 Montgomery Street San Francisco, CA 94104 Attn: Donald A. Hart Telephone: (415) 772-1300 Facsimile: (415) 989-9041 E-mail: donald.hart@usa.bnpgroup.com Notices (other than Borrowing Notices and Notices of Conversion/Continuation): BNP Paribas 180 Montgomery Street San Francisco, CA 94104 Attn: Michael D. McCorriston Telephone: (415) 772-1324 Facsimile: (415) 296-8954 E-mail: michael.mccorriston@usa.bnpgroup.com THE BANK OF NOVA SCOTIA Domestic and Offshore Lending Office: The Bank of Nova Scotia 600 Peachtree Street N.E., Suite 2700 Atlanta, GA 30308 Attn: Joseph Legista Telephone: (404) 877-1563 Facsimile: (404) 888-8998 E-mail: jlegista@scotiacapital.com Notices (other than Borrowing Notices and Notices of Conversion/Continuation): The Bank of Nova Scotia 580 California Street San Francisco, CA 94104 Attn: Liz Hanson Telephone: (415) 616-4153 Facsimile: (415) 397-0791 E-mail: lhanson@scotiacapital.com -3- CITICORP USA, INC. Domestic and Offshore Lending Office: Citicorp USA, Inc. 2 Penn's Way, Suite 200 Newcastle, DE 19720 Attn: Sally Schoenleber Telephone: (302) 894-6061 Facsimile: (302) 894-6120 E-mail: sally.schoenleber@citicorp.com Notices (other than Borrowing Notices and Notices of Conversion/Continuation): Citicorp USA, Inc. Citicorp Center One Sansome Street - 25th Floor 27th Floor San Francisco, CA 94104 Attn: Avrum Spiegel Telephone: (415) 627-6358 Facsimile: (415) 433-0307 E-mail: avrum.spiegel@citi.com FLEET NATIONAL BANK Domestic and Offshore Lending Office: Fleet National Bank 100 Federal Street Boston, MA 02110 Attn: Karen Francoeur Telephone: (617) 346-5424 Facsimile: (617) 346-0151 E-mail: karen_i_francoeur@fleet.com Notices (other than Borrowing Notices and Notices of Conversion/Continuation): Fleet National Bank 435 Tasso Street, Suite 250 Palo Alto, CA 94301 Attn: Greg Roux Telephone: (650) 470-4180 Facsimile: (650) 853-1425 E-mail: gregory_roux@fleet.com -4- THE FUJI BANK, LIMITED Domestic and Offshore Lending Office: The Fuji Bank, Limited 333 South Hope Street 39th Fl. - US Corp. Finance Los Angeles, CA 90071 Attn: Mary Lee Telephone: (213) 253-4193 Facsimile: (213) 253-4178 E-mail: n/a Notices (other than Borrowing Notices and Notices of Conversion/Continuation): The Fuji Bank, Limited 333 South Hope Street 39th Fl. - US Corp. Finance Los Angeles, CA 90071 Attn: Richard G. Bushman Telephone: (213) 253-4182 Facsimile: (213) 253-4175 E-mail: rg_bushman@fujibank.co.jp THE INDUSTRIAL BANK OF JAPAN, LIMITED Domestic and Offshore Lending Office: The Industrial Bank of Japan, Limited 1251 Avenue of the Americas New York, NY 10020 Attn: Richard Emmich Telephone: (212) 282-3000 Facsimile: (212) 282-4478 E-mail: remmich@ibjsf.com -5- Notices (other than Borrowing Notices and Notices of Conversion/Continuation): The Industrial Bank of Japan, Limited One Market Spear Street Tower, 1610 San Francisco, CA 94105 Attn: Joe Endoso Telephone: (415) 693-1822 Facsimile: (415) 982-1917 E-mail: jendoso@ibjsf.com KEYBANK NATIONAL ASSOCIATION Domestic and Offshore Lending Office: KeyBank National Association 831 South Parkcenter Blvd. Boise, ID 83705 Attn: Andrea Eaton/Specialty Services Team Telephone: (800) 297-5518 Facsimile: (800) 297-5495 E-mail: andrea_eaton@keybank.com Notices (other than Borrowing Notices and Notices of Conversion/Continuation): Key Corporate Capital, Inc. 3 Embarcadero Center, Suite 2900 San Francisco, California 94111 Attn: Julien Michaels Telephone: (415) 733-2483 Facsimile: (415) 733-2480 E-mail: Julien_Michaels@keybank.com THE SUMITOMO BANK, LIMITED Domestic and Offshore Lending Office: The Sumitomo Bank, Limited 277 Park Avenue New York, NY 10172 Attn: Claire Kowalski Telephone: (212) 224-4278 Facsimile: (212) 224-5197 E-mail: clair_kowalski@sumitomobank.com -6- Notices (other than Borrowing Notices and Notices of Conversion/Continuation): The Sumitomo Bank, Limited 555 California Street San Francisco, CA 94104 Attn: Azar Shakeri Telephone: (415) 616-3010 Facsimile: (415) 362-6527 E-mail: azar_shakeri@sumitomobank.com UNION BANK OF CALIFORNIA, N.A. Domestic and Offshore Lending Office: Union Bank of California, N.A. 1980 Saturn Street Monterey Park, CA 91755 Attn: Gohar Karapetyan Telephone: (323) 720-2679 Facsimile: (323) 724-6198 E-mail: gohar.karapetyan@uboc.com Notices (other than Borrowing Notices and Notices of Conversion/Continuation): Union Bank of California, N.A. Technology Banking Group 99 Almaden Blvd., Suite 200 San Jose, CA 95113 Attn: Sarabelle Hitchner Telephone: (408) 279-7208 Facsimile: (408) 280-7163 E-mail: sarabelle.hitchner@uboc.com -7- EX-12 12 dex12.txt STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS Exhibit 12 QUANTUM CORPORATION STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Year Ended March 31, ------------------- 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- (In thousands) Income (loss) from continuing operations before income taxes.. $261,635 $267,351 $264,318 $366,654 $179,100 Add fixed charges............................................. 23,325 22,645 21,655 23,835 30,680 -------- -------- -------- -------- -------- Earnings (as defined).................................... $284,960 $289,996 $285,973 $390,489 $209,780 ======== ======== ======== ======== ======== Fixed charges Interest expense......................................... $ 17,658 $ 18,978 $ 18,322 $ 21,835 $ 28,347 Amortization of debt issuance costs...................... (i) (i) (i (i) (i) Estimated interest component of rent expenses............ 5,667 3,667 3,333 2,000 2,333 -------- -------- -------- -------- -------- Total fixed charges........................................... $ 23,325 $ 22,645 $ 21,655 $ 23,835 $ 30,680 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 12.2 12.8 13.2 16.4 6.8 ======== ======== ======== ======== ========
(i) In 1997, 1998, 1999, 2000 and 2001, the amortization of debt issuance costs is included in interest expense. EX-21 13 dex21.txt SUBSIDIARIES OF REGISTRANT Exhibit 21 QUANTUM CORPORATION SUBSIDIARIES OF REGISTRANT 1. ATL Products, Inc., a Delaware Corporation 2. Quantum Data Storage B.V., a Netherlands corporation 3. Quantum Foreign Sales Corporation, a Barbados corporation 4. Quantum International Inc., a California corporation 5. Quantum International DISC Inc., a California corporation 6. Quantum Peripheral Products (Ireland) Ltd., an Ireland corporation 7. Quantum Peripherals (Europe) S.A., a Swiss corporation 8. Quantum Peripherals (Malaysia) Sdn. Bhd., a Malaysian corporation 9. Quantum Peripherals Realty Corporation, a Delaware corporation 10. Quantum Storage France SARL, a French corporation 11. Quantum Storage GmbH, a German corporation 12. Quantum Storage Japan Corporation, a Japanese corporation 13. Quantum Storage Singapore Pte. Ltd., a Singapore private company 14. Quantum Storage UK Ltd., a United Kingdom corporation 15. Quantum Storage (Malaysia) Sdn. Bhd., a Malaysian corporation 16. Quantum Technology Ventures, Inc. 17. Quantum Technology Ventures Limited 18. Snap Appliances, Inc. EX-23.1 14 dex231.txt CONSENT OF ERNST & YOUNG LLP Exhibit 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-30623, 333-30627, 333-32691, 333-58193, 333-65043, 333- 83219, 333-84851, 333-89249, 333-42358, 333-44706) pertaining to the 1996 Board of Directors Stock Option Plan; 1993 Long-Term Incentive Plan; Employee Stock Purchase Plan; 1993 Long-term Incentive Plan; ATL Products, Inc. 1996 Stock Incentive Plan, ATL Products, Inc. 1997 Stock Incentive Plan; 1993 Long-Term Incentive Plan; 1986 Stock Option Plan, 1993 Long-Term Incentive Plan, 1996 Board of Directors Stock Option Plan, ATL Products, Inc. 1996 Stock Incentive Plan, ATL Products, Inc. 1997 Stock Incentive Plan, Employee Stock Purchase Plan; Meridian Data, Inc.1987 Meridian Data Incentive Stock Option Plan,1988 Incentive Stock Plan, 1995 Director Option Plan, 1997 Incentive Stock plan; 1993 Long-Term Incentive Plan, Employee Stock Purchase Plan; Supplemental Stock Option Plan of our report dated April 27, 2001, with respect to the consolidated financial statements and schedule of Quantum Corporation, included in Quantum Corporation's Annual Report (Form 10-K) for the year ended March 31, 2001. /s/ Ernst & Young LLP Palo Alto, California June 26, 2001 -----END PRIVACY-ENHANCED MESSAGE-----