AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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QUANTUM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2665054
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
500 MCCARTHY BOULEVARD
MILPITAS, CALIFORNIA 95035
(408) 894-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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MICHAEL A. BROWN
PRESIDENT AND CEO
500 MCCARTHY BOULEVARD
MILPITAS, CALIFORNIA 95035
(408) 894-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
STEVEN E. BOCHNER, ESQ. ANDREW KRYDER, ESQ. CHRISTOPHER L. KAUFMAN, ESQ.
JOHN A. FORE, ESQ. VICE PRESIDENT, FINANCE ROBERT S. MICHITARIAN, ESQ.
JEFFREY A. HERBST, ESQ. AND CORPORATE GENERAL COUNSEL LATHAM & WATKINS
GILBERT M. LABRUCHERIE, JR., ESQ. 500 MCCARTHY BOULEVARD 505 MONTGOMERY STREET, SUITE 1900
WILSON SONSINI GOODRICH & ROSATI MILPITAS, CALIFORNIA 95035 SAN FRANCISCO, CA 94111
PROFESSIONAL CORPORATION (415) 391-0600
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC UNDER THIS
REGISTRATION STATEMENT: as soon as practicable after this registration statement
becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE REGISTRATION FEE(3)
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Common Stock, $0.01 par value...... 5,110,690 $26.375 $134,794,449 $40,847
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(1) Represents the maximum number of shares issuable to Salomon Brothers Inc
upon conversion of Debentures held or to be purchased by it pursuant to the
standby arrangements described herein.
(2) Represents the closing price of the Registrant's Common Stock on the Nasdaq
Stock Market on December 17, 1996.
(3) Computed in accordance with Rule 457 under the Securities Act of 1933 solely
for purposes of calculating the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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DATED DECEMBER 20, 1996
PROSPECTUS
5,110,690 SHARES
LOGO
QUANTUM CORPORATION
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
This prospectus relates to the issuance of a maximum of 5,110,690 shares of
Common Stock, $0.01 par value (the "Common Stock"), of Quantum Corporation, a
Delaware corporation ("Quantum" or the "Company"), either (i) upon conversion of
the Company's outstanding 6 3/8% Convertible Subordinated Debentures due April
1, 2002 (the "Debentures"), or (ii) to Salomon Brothers Inc (the "Purchaser")
under the standby arrangements described herein, and the resale by the Purchaser
of such Common Stock. The Debentures and the Common Stock are quoted on the
Nasdaq Stock Market under the symbols QNTMG and QNTM, respectively.
The Company has called all the Debentures for redemption on January 19, 1997
(the "Redemption Date") at a redemption price of $1,038.25 per $1,000 principal
amount of Debentures, plus accrued interest of $19.13 from October 1, 1996 to
the Redemption Date, for a total of $1,057.38 for each $1,000 principal amount
of Debentures (the "Redemption Price"). The Debentures are convertible prior to
5:00 p.m., Chicago, Illinois time, on January 17, 1997 (the last trading day
preceding the Redemption Date) (the "Conversion Expiration Date"), at a
conversion rate of 55.10 shares of Common Stock (equivalent to a conversion
price of approximately $18.15 per share) for each $1,000 principal amount of
Debentures. On December 18, 1996, the last reported sale price of the Common
Stock on the Nasdaq Stock Market was $27.875 per share.
So long as the market price of the Common Stock is at least $19.20 per share, a
holder of the Debentures who converts will receive Common Stock with a market
value plus cash in lieu of any fractional share greater than the amount of cash
the holder would otherwise be entitled to receive upon redemption. Holders of
Debentures are urged to obtain current market quotations for the Company's
Common Stock.
The convertability of the Debentures will expire at 5:00 p.m., Chicago, Illinois
time, on January 17, 1997.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE RISK FACTORS
COMMENCING AT PAGE 5.
In the event that less than all of the Debentures are surrendered for conversion
prior to the Conversion Expiration Date, the Company has made arrangements for
the Purchaser to purchase from the Company such number of shares of Common Stock
as would have been issuable upon conversion of the Debentures that have not been
surrendered for conversion prior to 5:00 p.m., Chicago, Illinois time, on
January 17, 1997. The purchase price per share of such shares of Common Stock
will be $19.20, and the proceeds of sale will be used by the Company to effect
redemption of the Debentures not converted. In addition, the Purchaser has
agreed in certain circumstances to remit to the Company 50% of the excess, if
any, of the aggregate net proceeds received on sale of such shares of Common
Stock over the aggregate price paid to the Company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prior to and after the Redemption Date, the Purchaser may offer to the public
Common Stock, including shares acquired through the purchase and conversion of
the Debentures, at prices set from time to time by the Purchaser. It is intended
that each such price when set will not exceed the greater of the last sale or
current asked price per share of the Common Stock on the Nasdaq Stock Market
plus the amount of any concession to dealers, and it is intended that an
offering price set on any calendar day will not be increased more than once
during such day. As a result, and subject to the preceding paragraph, the
Purchaser may realize profits or losses independent of the compensation referred
to under "Standby Arrangements."
The Purchaser may also make sales to dealers at prices which represent
concessions from the prices at which such shares are then being offered to the
public. Any shares of Common Stock so offered are offered subject to receipt and
acceptance by the Purchaser, to prior sale and to the Purchaser's right to
reject any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that delivery of the Common Stock acquired by the
Purchaser from the Company will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company.
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SALOMON BROTHERS INC
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The date of this Prospectus is December 20, 1996.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THE SHARES BY ANY PERSON IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER,
SOLICITATION OR SALE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission" or the "SEC"). Such
reports, proxy statements and other information can be inspected and copied at
the offices of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, as well as at the following regional offices of
the Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Such reports, proxy statements and other information
concerning the Company may be inspected at the office of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006. The Common Stock and the Debentures of the Company are traded on the
Nasdaq Stock Market.
The Company has filed with the Commission a Registration Statement (which
term shall include all amendments, exhibits and schedules thereto) on Form S-3
under the Securities Act with respect to the Shares offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission, and to which reference is hereby made. Statements
made in this Prospectus as to the contents of any document referred to are not
necessarily complete. With respect to each such document filed as an exhibit to
the Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. Copies of the Registration
Statement and the exhibits and schedules thereto may be inspected, without
charge, at the offices of the Commission, or obtained from the Public Reference
section of the Commission at 450 Fifth Street, N.W., Washington D.C. 20549. The
SEC maintains a website that contains reports, proxy and other information
regarding Quantum. The address of the website is http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission and are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996;
(c) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 29, 1996;
(d) The Company's Registration Statement on Form 8-A filed on August 1,
1983, as may be amended from time to time, relating to the description
of the Company's Common Stock; and
(e) The Company's Registration Statement on Form 8-A filed on August 5,
1988 relating to the Company's Preferred Share purchase rights.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement incorporated herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement and any statement contained herein shall
be deemed to be modified or superseded for all purposes to the extent that a
statement contained in any subsequently filed document which is deemed to be
incorporated by reference modifies or supersedes such statement.
The Company will provide without charge to such person to whom this
Prospectus is delivered, upon the request of such person, a copy of any or all
of the foregoing documents incorporated herein by reference, other than exhibits
to such documents (unless such exhibits are specifically incorporated by
reference into such documents). Requests for such documents should be directed
to Investor Relations, Quantum Corporation, at the Company's executive offices
located at 500 McCarthy Boulevard, Milpitas, California 95035, telephone (408)
894-4000.
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2
THE COMPANY
The following contains certain forward-looking statements and potential
investors should carefully review the "Risk Factors" commencing on page 5 with
respect to such forward-looking statements.
Quantum designs, develops and markets mass storage products, including
high-performance, high quality hard disk drives, recording heads and tape
drives. The Company combines its engineering and design expertise with the high
volume hard disk drive manufacturing capabilities of its exclusive manufacturing
partner, Matsushita Kotubuki Electronics Industries, Ltd. ("MKE") of Japan, to
produce high quality hard disk drives designed to meet the storage requirements
of workstations, servers, disk arrays, entry-level to high-end desktop PCs and
minicomputers. In addition, the Company utilizes its own design and
manufacturing operations for its linear tape drive products as well as for
recording heads which are used in the Company's disk drive products. The
Company's customers include leading OEMs such as Acer, Apple, Compaq, Dell,
Digital, Hewlett-Packard, IBM, NEC, Silicon Graphics and Sun Microsystems.
The Company's strategy is to offer a diversified product portfolio which
features leading edge technology and high quality manufacturing for a broad
range of market applications. The Company is currently structured into the
following four main operating divisions:
DESKTOP AND PORTABLE STORAGE GROUP (DPSG). The Desktop and Portable
Storage Group designs, develops and markets hard disk drives primarily
designed to meet the storage needs of desktop systems. The Company's DPSG
products are designed for entry-level to high-end desktop PCs for use in
both home and business environments.
WORKSTATION AND SYSTEMS STORAGE GROUP (WSSG). The Workstation and
Systems Storage Group designs, develops and markets the Company's most
technologically advanced hard disk drives for the demanding storage needs
of servers, workstations, storage subsystems, high-end desktop systems and
minicomputers. The Company's WSSG products are designed for storage-
intensive applications such as graphics, disk arrays, desktop publishing
systems, multimedia computing systems and networked data bases and file
servers.
SPECIALTY STORAGE PRODUCTS GROUP (SSPG). The Specialty Storage
Products Group designs, develops, manufactures and markets linear tape
drives and solid state disk drives. The tape drives use advanced linear
recording technology and a highly accurate tape guide system to perform
data backup for mid-range and high-end computer systems. The solid state
disk drives have the high execution speeds required for applications such
as imaging, multimedia, video-on-demand, on-line transaction processing,
material requirements planning and scientific modeling.
RECORDING HEADS GROUP (RHG). The Recording Heads Group designs,
develops and manufactures magnetoresistive ("MR") recording heads used in
the Company's products. The Company believes that MR head technology, which
provides higher capacity per disk than thin film inductive heads, will
replace thin film inductive heads as the leading recording head technology.
The Company does not currently market thin film inductive or MR heads to
other companies. The Company's expectations regarding MR head technology
constitute forward-looking information and actual results could vary for
the reasons described in "Risk Factors -- MR Recording Heads Development
and Manufacturing."
Quantum operates in an industry characterized by rapid technological
change. The Company is currently concentrating its product development efforts
on broadening its existing disk and tape drive product lines through the
introduction of new products, including new high-capacity hard disk drive
products to be manufactured by MKE for WSSG as well as new products targeted
specifically for the increasing storage needs of the consumer market served by
DPSG. The Company is also focusing its efforts on applying its MR head
technology to new generations of disk drives.
3
Over the past twelve years, Quantum has established a strong business
relationship with MKE, and the Company now relies on MKE's advanced, highly
automated hard disk drive manufacturing process which emphasizes consistency and
repeatability. In fiscal 1997, the Company transitioned the manufacturing of its
high-capacity hard disk drive products to MKE, and MKE has only recently begun
volume production of the Company's high-capacity products. As a result of this
transition, MKE now has the exclusive right to manufacture all of the Company's
hard disk drive products. The Company believes that its strategy of outsourcing
manufacturing to MKE gives it a competitive advantage in product quality, time
to volume production and lower capital requirements. However, the Company's
expectations regarding its relationship with MKE constitute forward-looking
information, and actual results could vary for the reasons set forth in "Risk
Factors -- Transition of High-Capacity Manufacturing Operations to MKE,"
" -- Dependence on MKE Relationship."
The Company was incorporated as a California corporation in February 1980,
and reincorporated as a Delaware corporation in April 1987.
4
RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Actual results could differ materially from those projected in the
forward-looking statements as a result of certain of the risk factors set forth
below and elsewhere in this Prospectus. In addition to the other information
contained and incorporated by reference in this Prospectus the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the Common Stock offered hereby:
FLUCTUATION IN RESULTS OF OPERATIONS. The Company's results of operations
are subject to fluctuations from period to period. In this regard, the demand
for the Company's hard disk drive products depends on the demand for the
computer systems manufactured by its customers, which is affected by computer
system product cycles and by prevailing economic conditions. Growth in demand
for computer systems, especially in the personal computer ("PC") market segment,
where the Company derives a significant amount of its disk drive sales, has
historically been subject to significant fluctuations. Such fluctuations in end
user demand have in the past, and may in the future, result in the deferral or
cancellation of orders for the Company's products, each of which would have a
material adverse effect on the Company. During the past several years, there has
been significant growth in the demand for PCs, a portion of which represented
sales of PCs for use in the home. However, many analysts predict that future
growth may be at a slower rate than the rate experienced in recent years.
In the first and second quarters of fiscal 1997, the Company experienced
weak demand for its mix of drive products for the PC market and this resulted in
pricing pressure on the Company's products and had an adverse impact on revenue
and earnings for the first six months of fiscal 1997. The Company lost some
desktop business to competitors with strong 1.6 gigabyte desktop programs at
different price points. In response to the declining demand, the Company reduced
its drive build plan at MKE through the second quarter of fiscal 1997. There can
be no assurance that this decline in demand is temporary, and the Company could
experience additional decreases in demand for its products in the near future.
Any such additional slowdowns in demand could have a material adverse effect on
the Company.
The hard disk drive industry has also been subject, from time to time, to
seasonal fluctuations in demand. Because shipments have tended to be highest in
the third month of each quarter, the Company is taking steps to improve the
linearity of shipments throughout the quarter. If the linearity of shipments
does not improve, any failure by the Company to complete shipments in the final
month of the quarter could adversely affect the Company's operating results for
the quarter.
TRANSITION OF HIGH-CAPACITY MANUFACTURING OPERATIONS TO MKE. Since the
Company's acquisition of Digital's high-capacity disk drive operations in late
1994, the Company experienced significant difficulties in integrating these
operations into its high-capacity business. These difficulties included problems
involving both the development and manufacturing of its high-capacity products
and resulted in, among other things, significant delays in meeting the
qualification standards imposed by certain major customers of the Company's
high-capacity disk drive products. As part of its strategy to address these
problems, in fiscal 1996, the Company decided to transition its high-capacity
disk drive product manufacturing to MKE. As a result, in the fourth quarter of
fiscal 1996 the Company incurred a charge of $209 million associated with the
closure of the Company's two high-capacity disk drive manufacturing facilities
in Milpitas, California and Penang, Malaysia. These two facilities were closed
during the quarter ended September 29, 1996.
Several risks are associated with the Company's transition of its
high-capacity manufacturing operations to MKE. Although the Company has had a
continuous manufacturing relationship with MKE since 1984, the Company's
high-capacity products are more complex to manufacture than its desktop
products. Prior to the transition, MKE had not previously manufactured any
significant amount of the
5
Company's high-capacity products and there can be no assurance that the
Company's previous difficulties with its high-capacity products will be resolved
or that new problems will not arise as a result of the transition of this
manufacturing to MKE. Any failure of the Company to successfully manage this
transition would have a material adverse effect on the Company.
DEPENDENCE ON MKE RELATIONSHIP. The Company is dependent upon MKE for the
manufacture of its disk drive products. During fiscal 1996 and the first two
quarters of fiscal 1997, approximately 75% and 77%, respectively, of the
Company's sales were derived from products manufactured by MKE. The transition
of the manufacturing of the Company's high-capacity product manufacturing to MKE
has resulted in an increased dependence on MKE. The Company's relationship with
MKE is therefore critical to the Company's business and financial performance.
The Company's dependence on MKE entails, among others, the following
principal risks:
Quality and Delivery. The Company relies on MKE's ability to bring
new products rapidly to volume production at low cost, to meet the
Company's stringent quality requirements and to respond quickly to changing
product delivery schedules from the Company. This requires, among other
things, close and continuous collaboration between the Company and MKE in
all phases of design, engineering, and production. The Company's business
and financial results would be adversely affected if products manufactured
by MKE fail to satisfy the Company's quality requirements or if MKE is
unable to meet the Company's delivery commitments. In the event MKE is
unable to satisfy Quantum's production requirements, the Company would not
have an alternative manufacturing source to meet the demand without
substantial delay and disruption of the Company's operations. As a result,
the Company would be materially adversely affected.
Extension of Relationship. The Company's relationship with MKE, which
has been continuous since 1984, is currently governed by a master agreement
that, unless extended, will expire in December 1997. The failure of the
parties to extend their relationship on terms favorable to the Company
would have a material adverse effect on the Company.
Volume and Pricing. MKE's production schedule is based on the
Company's forecasts of its product purchase requirements and the Company
has only limited rights to modify short-term purchase orders issued to MKE.
Further, the demand in the desktop business is inherently volatile and
there is no assurance that the Company's forecasts are accurate. In
addition, the Company periodically renegotiates pricing arrangements with
MKE. The failure of the Company to accurately forecast its requirements,
which could lead to inventory shortages or surpluses, or the failure to
reach pricing agreements reasonable to the Company would have a material
adverse effect on the Company.
Manufacturing Capacity and Capital Commitment. The Company believes
that MKE's current and committed manufacturing capacity should be adequate
to meet the Company's requirements at least through the end of fiscal 1997.
The Company's future growth will require, however, that MKE continue to
devote substantial financial resources to property, plant and equipment and
working capital to support manufacture of the Company's products, as to
which there can be no assurance. In the event that MKE is unable or
unwilling to meet the Company's manufacturing requirements, there can be no
assurance that the Company would be able to obtain an alternate source of
supply. Any such failure to obtain an alternative source would have a
material adverse effect on the Company.
DEPENDENCE ON SUPPLIERS OF COMPONENTS AND SUB-ASSEMBLIES; COMPONENT
SHORTAGES. The Company and its manufacturing partner, MKE, are dependent upon
qualified suppliers for components and sub-assemblies, including recording
heads, media and integrated circuits, which are essential to the manufacture of
the Company's products. In connection with certain products, the Company and MKE
qualify only a single source for certain components and sub-assemblies, which
can magnify the risk of shortages. Component shortages have constrained the
Company's sales growth in the past, and the Company believes that the industry
will periodically experience component shortages. If such shortages occur, or if
the Company experiences quality problems with component suppliers, shipments of
products
6
could be significantly delayed or costs significantly increased, which would
have a material adverse effect on the Company.
RAPID TECHNOLOGICAL CHANGE; NEW PRODUCT DEVELOPMENT AND
QUALIFICATION. Quantum operates in an industry characterized by increasingly
rapid technological changes and short product life cycles. For these and other
reasons, including competitive pressures, gross margins on specific products can
decrease rapidly. Any delay in introduction of more advanced and more
cost-effective products can result in significantly lower sales and gross
margins. The Company's future is therefore dependent on its ability to
anticipate what the customers will demand and to develop the new products to
meet this demand. The Company must also qualify these new products with its
customers, successfully introduce these products to the market on a timely basis
and commence volume production to meet customer demands. Due to these factors,
the Company expects that sales of new products will continue to account for a
significant portion of its future sales and that sales of older products will
decline accordingly. However, there can be no assurance that such new products
will achieve or sustain market acceptance and failure to achieve acceptance
could have a material adverse effect on the Company.
The Company is currently in the process of qualifying two of its new
high-capacity products. The customer qualification process for disk drive
products, particularly high-capacity products, can be lengthy and complex, and
the Company has in the past experienced difficulties in obtaining qualifications
of its high-capacity products from certain customers. In addition, the Company
transitioned the manufacturing of its high capacity products to MKE during the
first half of fiscal 1997, and MKE has only recently begun volume production of
such high-capacity products. In the event that the Company is unable to obtain
customer qualifications for these new products in a timely manner, or at all, or
in the event MKE is unable to manufacture such products in volume, the Company
would be materially adversely affected.
There can be no assurance that the Company will be successful in the
development and marketing of these and other new products and components that
seek to respond to technological change or evolving industry standards, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these products and
components, or that the Company's new products and components will adequately
meet the requirements of the marketplace and achieve market acceptance. In
addition, technological advances in magnetic, optical or other technologies, or
the development of new technologies, could result in the introduction of
competitive products with superior performance to and substantially lower prices
than the Company's products. Further, the Company's new products and components
are subject to significant technical risks. If the Company experiences delays in
the commencement of commercial shipments of new products or components, the
Company could experience delays or loss of product sales. If the Company is
unable, for technological or other reasons, to develop and introduce new
products in a timely manner in response to changing market conditions or
customer requirements, the Company would be materially adversely affected.
MR RECORDING HEADS DEVELOPMENT AND MANUFACTURING. The Company is currently
engaged in a substantial effort to advance the development of its MR recording
heads. The Company believes that MR head technology, which enables higher
capacity per disk than conventional thin film inductive heads, will replace
inductive heads as the leading recording head technology. Although the Company
currently obtains the majority of its MR heads from outside sources, the Company
believes that by establishing its own supply of MR heads it can lower the risk
of supply shortages of MR heads that may occur in the future as a result of
increased requirements for disk drive products which utilize MR recording heads.
However, MR technology is relatively complex and, to date, the Company's
manufacturing yields for its MR heads have been relatively low as compared to
the Company's manufacturing yields for its thin film inductive heads. In the
event that yields do not improve, the Company will continue to occur losses
associated with its MR heads manufacturing operations, which losses would
negatively affect the Company's operating results. In addition, since there are
limited alternative sources of supply for MR recording heads, and there can be
no assurance that the Company will be able to locate and obtain adequate supply
from such alternative sources, the Company would be materially adversely
affected in the event that its yields for MR heads do not improve.
7
CUSTOMER CONCENTRATION. As is typical in the information storage industry,
the Company's customer base is concentrated with a small number of computer
systems manufacturers. In general, the customers are not obligated to purchase
any minimum volume of the Company's products, and the Company's relationships
with its customers are generally terminable at will by the customers.
Sales of the Company's desktop products, which comprise a significant
majority of its overall sales, were concentrated with several key customers
during the six months ended September 29, 1996, and the fiscal year ended March
31, 1996. Sales to the top five customers of the Company represented 40% of
total sales for the first six months of fiscal 1997 and 44% of sales for the
1996 fiscal year. For the first six months of fiscal 1997, sales to Compaq were
approximately 11% of total sales. Apple's share of the Company's sales, which
was 11% in fiscal 1996, has declined to approximately 7% in the first six months
of fiscal 1997. In addition, the Company is unable to predict whether or not
there will be any significant change in demand for any of its customers'
products in the future. In the event that any such changes result in decreased
demand for the Company's products, whether by loss or delays in orders, the
Company could be materially adversely affected.
INTENSELY COMPETITIVE INDUSTRY. The information storage products industry
in general, and the disk drive industry in particular, is characterized by
intense competition which results in rapid price erosion, short product life
cycles, and continuous introduction of new, more cost-effective products
offering increased levels of capacity and performance. In this regard, the
Company intends to introduce new products during the latter half of fiscal 1997,
and there can be no assurance that it will be successful. If this does not
occur, the Company would be materially and adversely affected. The hard disk
drive industry also tends to experience periods of excess product inventory and
intense price competition. If price competition intensifies, the Company may be
forced to lower prices further than expected, which could materially adversely
affect the Company.
Quantum faces direct competition from a number of companies, including
Seagate, Western Digital, IBM, (which recently announced increased investment in
its storage business), Maxtor and Exabyte. In the event that the Company is
unable to compete effectively with these or any other companies, the Company
would be materially adversely affected.
Desktop Storage Products. In the market for desktop products, Quantum
competes primarily with Seagate, Western Digital, and Maxtor. Quantum and
its competitors have developed and are developing a number of products
targeted at particular segments of this market, such as home PC buyers, and
factors such as time to market can have a significant effect on the success
of any particular product. The desktop market is characterized by more
competitors and shorter product life cycles than the hard disk drive market
in general.
Workstation and System Storage Products. The Company faces
competition in the high-capacity disk drive market primarily from Seagate
and IBM. Seagate has the largest share of the market for high-capacity disk
drives. Although the same competitive factors identified above as being
generally applicable to the overall disk drive industry apply to
high-capacity disk drives, the Company believes that the performance and
quality of its products are more important to the users in this market than
to users in the desktop market. The Company's success in the high-capacity
market during the foreseeable future is dependent on the successful
development, timely introduction and market acceptance of key new products,
as to which there can be no assurance.
Specialty Storage Products. In the market for tape drives, the
Company competes with a large number of companies, which have tape drive
product offerings, including Exabyte. The Company targets a market segment
which requires a mission critical backup system and the Company competes in
this segment based upon the reliability and durability of its tape drives.
Although the Company has experienced market acceptance of its tape drive
products, the market could become significantly more competitive at any
time during the remainder of fiscal 1997 or beyond. As a result, the
Company could experience increased price competition. If price competition
occurs, the Company may be forced to lower prices, in which case the
Company could be materially adversely affected.
8
Finally, the Company's customers could commence the manufacture of disk and
tape drives for their own use or for sale to others. Any such loss of customers
could have a material adverse effect on the Company.
RISKS ASSOCIATED WITH FOREIGN MANUFACTURING. Many of the Company's
products are currently manufactured outside the United States. As a result, the
Company is subject to certain risks associated with contracting with foreign
manufacturers, including obtaining requisite United States and foreign
governmental permits and approvals, currency exchange fluctuations, currency
restrictions, political instability, labor problems, trade restrictions and
changes in tariff and freight rates.
INTELLECTUAL PROPERTY MATTERS. The hard disk drive industry has been
characterized by significant litigation relating to patent and other
intellectual property rights. From time to time, the Company is approached by
companies and individuals alleging Quantum's need for a license under patented
technology that Quantum assertedly uses. If required, there can be no assurance
that licenses to any such technology could be obtained or obtained on
commercially reasonable terms. Adverse resolution of any intellectual property
litigation could subject the Company to substantial liabilities and require it
to refrain from manufacturing certain products. In addition, the costs of
engaging in such litigation may be substantial, regardless of the outcome.
LITIGATION. The Company and certain of its current and former officers and
directors have been named as defendants in two class action lawsuits, one filed
on August 28, 1996 in the Superior Court of Santa Clara County, California, and
one filed on August 30, 1996 in the U.S. District Court for the Northern
District of California. The plaintiff in both class actions purports to
represent a class of all persons who purchased the Company's common stock
between February 26, 1996 and June 13, 1996. The complaints allege that the
defendants violated various federal securities laws and California statutes by
concealing and/or misrepresenting material adverse information about the Company
and that individual defendants sold shares of the Company's stock based upon
material nonpublic information. On October 23, 1996, the Company filed a
demurrer requesting dismissal of the state action, and on November 21, 1996, the
Company moved for a determination that the action not be permitted to proceed as
a class action. There has been no decision on either motion to date. In the
federal action, the defendants have not yet responded to the complaint.
Certain of the Company's current and former officers and directors have
also been named as defendants in a derivative lawsuit, which was filed on
November 8, 1996 in the Superior Court of Santa Clara County, California. The
derivative complaint is based on factual allegations substantially similar to
those alleged in the class action lawsuits. The complaint alleges that the
defendants violated the California Corporations Code and state common law by
concealing and/or misrepresenting material adverse information about the Company
and by selling shares of the Company's stock based upon material nonpublic
information. The complaint has not been served on the defendants.
The Company believes that the pending actions are without merit and intends
to defend against them vigorously. Nevertheless, litigation is subject to
inherent uncertainties and thus there can be no assurance that these suits will
be resolved favorably to the Company or will not have a material adverse effect
on the Company.
FUTURE CAPITAL NEEDS. The information storage business is
capital-intensive and competitive. Although the Company has recently
transitioned the manufacturing of all of its hard disk drive products to MKE,
the Company believes that in order to remain competitive in the information
storage business, it will need significant additional financial resources over
the next several years for capital expenditures, working capital and research
and development. The Company believes that it will be able to fund these capital
requirements at least through fiscal 1997. However, if the Company decides to
increase its capital expenditures further or sooner than presently contemplated,
or if results of operations do not meet the Company's expectations, the Company
will require additional debt or equity financing. There can be no assurance that
such additional funds will be available to the Company or will be available on
favorable terms. In addition, the Company may require additional capital for
other purposes not presently contemplated. If the Company is unable to obtain
sufficient capital, it could be required to curtail its
9
capital equipment and research and development expenditures, which could
adversely affect the Company.
VOLATILITY OF STOCK PRICE. The market price of the Company's common stock
has been, and may continue to be, extremely volatile. Factors such as new
product announcements by the Company or its competitors, quarterly fluctuations
in the operating results of the Company, its competitors and other technology
companies and general conditions in the computer market may have a significant
impact on the market price of the common stock. In particular, if the Company
were to report operating results that did not meet the expectations of research
analysts, the market price of the common stock could be materially adversely
affected.
10
USE OF PROCEEDS
There will be no proceeds to the Company from the issuance of the Common
Stock upon conversion of Debentures by the holders thereof. The net proceeds
from the sale of any Common Stock to the Purchaser pursuant to the standby
arrangements described herein will be used to effect redemption of any
Debentures not tendered for conversion. Any excess net proceeds resulting from
the Purchaser remitting certain amounts to the Company pursuant to the standby
arrangements described herein will be added to working capital and used for
general business purposes.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is listed and traded on the Nasdaq Stock Market under the
symbol QNTM. The following table sets forth, for the periods indicated, the high
and low closing sales prices per share of the Common Stock, as reported on the
Nasdaq Stock Market.
HIGH LOW
------ ------
Fiscal year ended March 31, 1994:
First quarter.................................................. $141/2 $101/2
Second quarter................................................. 131/2 91/2
Third quarter.................................................. 143/4 97/8
Fourth quarter................................................. 191/4 141/8
Fiscal year ended March 31, 1995:
First quarter.................................................. $183/16 $113/4
Second quarter................................................. 175/8 1213/16
Third quarter.................................................. 163/4 137/8
Fourth quarter................................................. 1513/16 137/8
Fiscal year ended March 31, 1996:
First quarter.................................................. $265/16 $15
Second quarter................................................. 279/16 207/8
Third quarter.................................................. 207/8 161/8
Fourth quarter................................................. 197/8 165/8
Fiscal year ended March 31, 1997:
First quarter.................................................. 26 141/8
Second quarter................................................. 183/8 11
Third quarter (through December 18, 1996)...................... 293/4 175/16
On December 18, 1996 the last reported sale price of the Common Stock was
$27.875 per share, as reported on the Nasdaq National Market.
The Company has never paid cash dividends on its Common Stock, and the
Company's credit agreement dated October 3, 1994, as amended, currently
prohibits the Company from paying dividends while the debt is outstanding. The
Company currently intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends in the foreseeable future.
11
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 29, 1996, as adjusted to give effect to the assumed conversion of all
outstanding Debentures into shares of Common Stock.
SEPTEMBER 29, 1996
---------------------------
ACTUAL AS ADJUSTED(1)
---------- --------------
(IN THOUSANDS)
Subordinated debt:
6 3/8% convertible subordinated debentures(2)................. $ 97,350 $ 0
5% convertible subordinated notes............................. 241,350 241,350
Long-term debt, excluding current portion....................... 388,365 388,365
Shareholders' equity:
Preferred stock, $0.01 par value; 4,000,000 shares authorized;
none issued and outstanding, actual, and as adjusted....... -- --
Common stock, $0.01 par value, 150,000,000 shares authorized;
actual: 57,792,108 shares issued and outstanding; as
adjusted: 63,156,093 shares issued and outstanding(3)...... 578 632
Capital in excess of par value................................ 325,609 422,235
Retained earnings............................................. 286,293 286,293
------- -------
Total shareholders' equity................................. 612,480 709,160
------- -------
Total capitalization....................................... $1,339,545 $1,338,875
======= =======
- ---------------
(1) As adjusted information also includes an increase to capital reflecting
interest accrued to the Redemption Date, a decrease to capital reflecting
previously unamortized costs associated with issuance of the Debentures; and
a decrease to capital reflecting costs of the transactions contemplated
hereby.
(2) Between September 29, 1996 and December 18, 1996, 253,292 shares of Common
Stock were issued upon conversion of $4,597,000 principal amount of
Debentures. Such activity is also reflected in the "as adjusted"
information.
(3) Does not include 9,515,996 shares of Common Stock issuable upon exercise of
outstanding options as of September 29, 1996.
12
REDEMPTION OF DEBENTURES AND EXPIRATION OF
CONVERSION PRIVILEGE
The Company has called all its outstanding Debentures for redemption on the
Redemption Date pursuant to the terms of the Indenture dated as of April 1, 1992
(the "Indenture"), between the Company and LaSalle National Bank, as Trustee
(the "Trustee"). As a result of the call for redemption, holders of the
Debentures are entitled to receive from the Company upon redemption the sum of
$1,038.25 plus accrued interest of $19.13 from October 1, 1996 to the Redemption
Date for each $1,000 principal amount of Debentures. The total amount payable
upon redemption for each $1,000 principal amount of Debentures is thus $1,057.38
(the "Redemption Price"). After the Redemption Date, the Debentures will be
deemed to be no longer outstanding, and all rights of the holders of the
Debentures will cease, except the right to receive the Redemption Price without
interest, upon surrender of the Debentures to the Trustee.
ALTERNATIVES AVAILABLE TO HOLDERS OF DEBENTURES
Holders of the Debentures have the following alternatives, each of which
should be carefully considered:
1. Conversion of Debentures into Common Stock. Until 5:00 p.m., Chicago,
Illinois time, on January 17, 1997, which is one trading day prior to the
Redemption Date (the "Conversion Date"), the Debentures are convertible at the
option of the holder, in part or in whole, into 55.10 fully paid and
nonassessable shares (equivalent to an effective conversion price of
approximately $18.15 per share of the Company's Common Stock), for each $1,000
principal amount of Debentures. In the event such conversion would result in a
fractional share of Common Stock, an amount equivalent to the value of the
fractional share will be paid in cash by the Company. Such amount will be
determined on the basis of the last reported sales price as reported by the
Nasdaq Stock Market on the day the Debentures are converted. On the basis of the
closing price of the Common Stock as reported on the Nasdaq Stock Market on
December 18, 1996 of $27.875, 55.10 shares had a market value (including cash in
lieu of the fractional share) equivalent to $1,535.91. No payment or adjustment
will be made on conversion for interest accrued on the Debentures surrendered
for the conversion. Accordingly, any holder surrendering Debentures for
conversion will not receive any interest with respect to such Debentures accrued
since October 1, 1996.
SO LONG AS THE MARKET PRICE OF THE COMMON STOCK IS AT LEAST $19.20 PER
SHARE, A HOLDER OF THE DEBENTURES WHO CONVERTS WILL RECEIVE COMMON STOCK WITH A
MARKET VALUE, PLUS CASH IN LIEU OF ANY FRACTIONAL SHARE, EQUAL TO OR GREATER
THAN THE AMOUNT OF CASH THE HOLDER WOULD OTHERWISE BE ENTITLED TO RECEIVE UPON
REDEMPTION. SEE "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS." HOLDERS OF
DEBENTURES ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE COMMON STOCK.
THE CONVERSION RIGHT EXPIRES AT 5:00 P.M. CHICAGO, ILLINOIS TIME, ON THE
CONVERSION DATE. FROM AND AFTER THAT DATE AND TIME, HOLDERS OF DEBENTURES WILL
BE ENTITLED ONLY TO THE REDEMPTION PAYMENT. IT SHOULD BE NOTED, HOWEVER, THAT
THE PRICE OF THE COMMON STOCK RECEIVED UPON CONVERSION WILL FLUCTUATE IN THE
MARKET. NO ASSURANCE IS GIVEN AS TO THE PRICE OF THE COMMON STOCK AT ANY FUTURE
TIME, AND THE HOLDERS SHOULD EXPECT TO INCUR VARIOUS EXPENSES OF SALE IF THE
COMMON STOCK RECEIVED UPON CONVERSION OF THE DEBENTURES IS SOLD.
2. Redemption of Debentures on January 19, 1997. Any Debentures that have
not been converted into Common Stock on or prior to 5:00 p.m., Chicago, Illinois
time, on the Conversion Date, will be redeemed on the Redemption Date. Upon
redemption a holder will receive $1,057.38 per $1,000 principal amount of
Debentures. On and after the Redemption Date, interest will cease to accrue and
holders of Debentures will not have any rights as such holders other than the
right to receive payment of the Redemption Payment, without interest, upon
surrender of their Debentures. Under the Indenture, because the Redemption Date
is not a business day, the first day that any payments need be made on
Debentures submitted for redemption is January 21, 1997 (the first business day
following the Redemption Date); however, no additional interest will accrue as a
result of such delayed payment.
3. Sale of Debentures Through Ordinary Brokerage Transactions. Sales of
Debentures may be made through open market brokerage transactions and, if made
sufficiently in advance of the Conversion Date, buyers thereof may convert
Debentures into Common Stock in the manner described below. After
13
5:00 p.m., Chicago, Illinois time, on the Conversion Date, no holder of
Debentures will be entitled to convert Debentures into Common Stock. This is
expected to have an adverse impact on the market for Debentures. Holders of
Debentures who wish to make sales should consult with their own brokers
concerning if and when their Debentures should be sold.
MANNER OF CONVERSION
To convert Debentures into Common Stock, the holder thereof must surrender
such Debentures, endorsed or assigned to the Company or in blank, prior to 5:00
p.m., Chicago, Illinois time, on the Conversion Date to the Company or its
offices maintained for that purpose at LaSalle National Bank, 135 S. LaSalle
St., Corporate Trust Operations, Suite 1811, Chicago, Illinois 60603,
accompanied by written notice (a form of which is set forth on the reverse of
the Debenture certificate) to the Company that the holder elects to convert such
Debentures, or if less than the entire principal amount thereof is to be
converted, the portion thereof to be converted. Each Debenture surrendered for
conversion must, unless the shares issuable on the conversion are to be issued
in the same name as the name in which such Debenture is registered, be
accompanied by instruments of transfer, in form satisfactory to the Company and
the Trustee, duly executed by the holder or his or her duly authorized attorney.
The notice that must be given to the Company may be provided by surrendering
Debentures accompanied by the Letter of Transmittal provided to all record
holders of the Debentures. As promptly as practicable after the surrender of
such Debenture, as aforesaid, the Company will issue and deliver at the office
of the Trustee to such holder, or on such holder's written order, a certificate
or certificates for the number of full shares of Common Stock issuable upon the
conversion of such Debenture and a check for the amount payable in lieu of any
fractional share. Holders are also entitled to convert fewer than all Debentures
they hold provided that any conversions are for principal amounts of Debentures
in integral multiples of $1,000, in accordance with the terms of the Indenture.
No payment or adjustment will be made on conversion for interest accrued on the
Debentures surrendered for conversion.
The Debentures may be converted into Common Stock only by delivery of
Debentures, accompanied by the notice as described above, to the Company prior
to 5:00 p.m., Chicago, Illinois time, on the Conversion Date. SINCE IT IS THE
TIME OF RECEIPT, NOT THE TIME OF MAILING, THAT DETERMINES WHETHER DEBENTURES
HAVE BEEN PROPERLY TENDERED FOR CONVERSION, SUFFICIENT TIME SHOULD BE ALLOWED
FOR DEBENTURES SENT BY MAIL TO BE RECEIVED BY THE TRUSTEE PRIOR TO 5:00 P.M.,
CHICAGO, ILLINOIS TIME, ON THE CONVERSION DATE.
ANY DEBENTURES THAT HAVE NOT BEEN PROPERLY PRESENTED TO THE COMPANY FOR
CONVERSION PRIOR TO 5:00 P.M., CHICAGO, ILLINOIS TIME, ON THE CONVERSION DATE
WILL BE AUTOMATICALLY REDEEMED AS SET FORTH ABOVE.
MANNER OF REDEMPTION
To receive the Redemption Price specified above for any Debentures being
redeemed, the holder thereof must surrender such Debentures to LaSalle National
Bank, at the address stated above.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is for general information and is based on the
provisions of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), the applicable regulations promulgated thereunder, and published
administrative and judicial decisions, all as they exist at the date of this
Prospectus. Changes in the law could affect the federal income tax consequences
discussed herein below.
Certain holders (including insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, foreign corporations and persons who are
not citizens or residents of the United States) may be subject to special rules
not discussed below. EACH HOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES OF THE SALE OR CONVERSION
14
OF THE DEBENTURES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS, AND ANY CHANGES IN APPLICABLE TAX LAWS.
For federal income tax purposes the conversion of Debentures into Common
Stock will not result in a taxable gain or loss with respect to the Common Stock
received, except that gain or loss must be recognized with respect to cash
received in lieu of fractional shares upon conversion. The amount of such gain
or loss will be equal to the amount of cash received less the basis attributable
to such fractional shares and will be capital gain or loss if the Debentures are
capital assets in the hands of the holder. A holder's basis for the Common Stock
received upon conversion of Debentures will be equal to the basis of the
Debentures surrendered reduced by the portion of the basis allocated to any
fractional share. Assuming that the Debentures are capital assets in the
holder's hands, the holding period for the Common Stock will include the holding
period for those Debentures.
A sale of Debentures or surrender of Debentures for redemption will be a
taxable transaction on which gain or loss, if any, will be recognized. The gain
or loss will ordinarily be a capital gain or loss, provided the Debentures are a
capital asset in the hands of the holder. The gain or loss recognized upon sale
of Debentures or surrender thereof for redemption will be the difference between
the holder's basis in the Debentures and the sale price or Redemption Price, as
the case may be, received in respect thereof, exclusive of accrued interest
which will be taxable as ordinary income. If a holder purchased the Debentures
for an amount below the stated redemption price at maturity, a portion of the
gain may be treated as ordinary interest income as a result of the market
discount provisions of the Internal Revenue Code. To the extent the Debentures
converted are subject to accrued market discount not previously included in the
income of the holder, the amount of the accrued market discount will carry over
to the Common Stock acquired on conversion and will be taxed as ordinary income
upon the subsequent disposition of the Common Stock.
The federal income tax discussion set forth above is included for general
information only. Holders should consult their tax advisors to determine
particular tax consequences to them (including the application and effect of
market discount and backup withholding rules, state and local income and other
tax laws) prior to any conversion, sale or surrender for redemption of the
Debentures. Holders who do not provide a Taxpayer Identification Number or who
provide an incorrect Taxpayer Identification Number on the substitute W-9
provided in the Letter of Transmittal provided with this Prospectus may be
subject to a 31% backup withholding tax and other penalties.
STANDBY ARRANGEMENTS
Upon the terms and subject to the conditions contained in the Standby
Agreement, dated December 20, 1996, between the Company and the Purchaser (the
"Standby Agreement"), the Purchaser has agreed to purchase from the Company such
number of whole shares of Common Stock (the "Purchased Shares") as would have
been issuable upon conversion of Debentures that have not been surrendered for
conversion prior to the close of business on the Conversion Date. The purchase
price of such shares of Common Stock will be $19.20 per share, an amount
equivalent to $1,057.38 per $1,000 principal amount of Debentures. The Purchaser
may also purchase Debentures in the open market or otherwise prior to the
Redemption Date. The Purchaser has agreed to convert into Common Stock all
Debentures so purchased.
The Purchaser has agreed to pay to the Company 50% of the excess, if any,
of the aggregate proceeds received on sale of the Purchased Shares (net of
selling concessions, transfer taxes and other expenses of sale) over the
aggregate purchase price paid therefor.
The Company has been advised by the Purchaser that it proposes to offer any
shares of Common Stock purchased from the Company or acquired on conversion of
purchased Debentures for resale as set forth on the cover page of this
Prospectus. The Purchaser may also make sales of such shares to certain
securities dealers at prices which may reflect concessions from the prices at
which such shares are being offered to the public. The amount of such
concessions may be determined from time to time.
15
Pursuant to the terms of the Standby Agreement and as compensation for the
commitment of the Purchaser thereunder, the Company has agreed to pay the
Purchaser the sum of $974,047 plus an additional sum for certain Compensable
Shares (as defined below). The additional sum will be paid as follows: (i) no
additional sum will be paid if the total number of Compensable Shares is less
than or equal to 255,534; (ii) if the total number of Compensable Shares is
greater than 255,534 but less than 766,603, the additional sum will equal $0.58
per share for all Compensable Shares; and (iii) if the total number of
Compensable Shares equals or exceeds 766,603, the additional sum will equal
$0.77 for all Compensable Shares. Compensable Shares consist of Purchased
Shares, plus any Shares of Common Stock which are issued to the Purchaser upon
the conversion of the Debentures, which are resold by the Purchaser for less
than $19.20 per share. The Company has also agreed to pay certain out-of-pocket
expenses of the Purchaser and to pay Blue Sky fees and expenses.
Pursuant to the Standby Agreement, the Company has agreed that it will not,
without the written consent of the Purchaser, sell, contract to sell or
otherwise dispose of any shares of Common Stock, with certain exceptions, for a
period commencing on the date of this Prospectus and ending 60 days after the
Redemption Date, provided that if the Purchaser does not acquire 255,534
Purchased Shares pursuant to the Standby Agreement, the Company will no longer
be bound by such restriction.
The Company has agreed to indemnify the Purchaser against certain
liabilities, including liabilities under the Securities Act.
The Purchaser may assist in the solicitation of conversions by holders of
the Debentures, but will receive no additional compensation therefor.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Certain legal matters will be passed upon
for the Purchaser by Latham & Watkins, San Francisco, California.
EXPERTS
The consolidated financial statements of Quantum Corporation, appearing in
Quantum Corporation's Annual Report (Form 10-K) for the year ended March 31,
1996, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
16
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE PURCHASER. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY BY ANY PERSON OR IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
PAGE
----
Available Information................. 1
Incorporation of Certain Documents By
Reference........................... 1
The Company........................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 11
Price Range of Common Stock and
Dividend Policy..................... 11
Capitalization........................ 12
Redemption of Debentures and
Expiration of Conversion
Privilege........................... 13
Certain Federal Income Tax
Considerations...................... 14
Standby Arrangements.................. 15
Legal Matters......................... 16
Experts............................... 16
5,110,690 SHARES
QUANTUM CORPORATION
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
LOGO
- ---------------------------------------------------
SALOMON BROTHERS INC
- ---------------------------------------------------------------
PROSPECTUS
DATED DECEMBER 20, 1996
QUANTUM CORPORATION
REGISTRATION STATEMENT ON FORM S-3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14 OTHER EXPENSES OF REGISTRATION AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than standby
fees, payable in connection with the sale of the Common Stock being registered
hereby. All amounts are estimates except the SEC registration fee and the Nasdaq
Stock Market application fee.
AMOUNT TO BE
PAID BY
COMPANY
------------
SEC registration fee................................................... $ 40,847
Printing............................................................... 50,000
Legal fees and expenses................................................ 150,000
Accounting fees and expenses........................................... 70,000
Blue sky fees and expenses............................................. 10,000
Conversion Agent and Trustee fees...................................... 5,000
Miscellaneous.......................................................... 21,863
-------
Total................................................................ $347,710
=======
ITEM 15 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a
corporation to grant indemnity to directors and officers in terms sufficiently
broad to permit such indemnification under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Securities
Act. Section 11 of the Registrant's Restated Certificate of Incorporation
provides for indemnification of its directors against the Registrant or its
Stockholders to the maximum extent permitted by the Delaware General Corporation
Law for monetary damages for breach of fiduciary duty as a director. Article VI
of the Company's Bylaws, as amended, permits the Company to indemnify directors,
officers, employees and agents to the maximum extent permitted by the Delaware
General Corporation Law. In addition, the Registrant has entered into
Indemnification Agreements with its officers and directors. The Standby
Agreement (Exhibit 1.1) also provides for cross-indemnification among the
Company and the Purchaser with respect to certain matters, including matters
arising under the Securities Act.
ITEM 16 EXHIBITS.
EXHIBIT
NUMBER
- -------
1.1 Form of Standby Agreement
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, as to
legality of securities being registered.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2 Consent of Counsel (contained in Exhibit 5.1 hereto).
24.1 Power of Attorney (contained on Page II-3).
II-1
ITEM 17 UNDERTAKINGS.
1. The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
provided, however, that the undertakings set forth in paragraph (i) and
(ii) above shall not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") that are incorporated
by reference in this Registration Statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
2. The undersigned hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
in this Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
3. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Purchaser at
the closing, as specified in the Standby Agreement, certificates in such
denomination and registered in such names as required by the Purchaser to permit
prompt delivery to each purchaser.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Milpitas, State of California, on this 20th day of
December, 1996.
QUANTUM CORPORATION
/s/ MICHAEL A. BROWN
--------------------------------------
Michael A. Brown
President and Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each such person whose signature
appears below constitutes and appoints, jointly and severally, Michael A. Brown
and Andrew Kryder his attorneys-in-fact, each with the power of substitution,
for him in any and all capacities, to sign any amendments to this Registration
Statement on Form S-3 (including post-effective amendments), and to file the
same, with all 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 Act of 1933, as amended, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ---------------------------------------- ---------------------------- ------------------
/s/ MICHAEL A. BROWN President, Chief Executive December 20, 1996
- ---------------------------------------- Officer and Director
Michael A. Brown (Principal Executive
Officer)
/s/ RICHARD L. CLEMMER Executive Vice President, December 20, 1996
- ---------------------------------------- Finance and Chief Financial
Richard L. Clemmer Officer (Principal Financial
Officer and Principal
Accounting Officer)
/s/ EDWARD M. ESBER Director December 20, 1996
- ----------------------------------------
Edward M. Esber
/s/ DAVID A. BROWN Director December 20, 1996
- ----------------------------------------
David A. Brown
/s/ STEPHEN M. BERKLEY Director December 20, 1996
- ----------------------------------------
Stephen M. Berkley
/s/ ROBERT J. CASALE Director December 20, 1996
- ----------------------------------------
Robert J. Casale
/s/ STEVEN C. WHEELWRIGHT Director December 20, 1996
- ----------------------------------------
Steven C. Wheelwright
II-3
QUANTUM CORPORATION
REGISTRATION STATEMENT ON FORM S-3
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -------------------------------------------------------------------------------------
1.1 Form of Standby Agreement............................................................
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, as to legality
of securities being registered.......................................................
23.1 Consent of Ernst & Young LLP, independent auditors...................................
23.2 Consent of Counsel (contained in Exhibit 5.1 above)..................................
24.1 Power of Attorney (see page II-3)....................................................