Quantum Corporation (QTM)

Note 22: Subsequent Events

Tender Offer for Convertible Subordinated Notes

The tender offer for our notes, described in Note 2 “Convertible Debt Refinancing,” closed on June 3, 2009 with $87.2 million of aggregate principal amount of the notes tendered in exchange for $850 per $1,000 principal amount. We paid $74.1 million plus accrued interest for these notes and will recognize a gain in our first quarter of fiscal 2010.

Private Transaction to Purchase Additional Convertible Subordinated Notes

As described in Note 2 “Convertible Debt Refinancing,” on June 26, 2009, we entered into a private transaction with a noteholder to purchase $50.7 million of aggregate principal amount of the notes for $950 per $1,000 principal amount, or $48.2 million. We anticipate this transaction will be funded in July 2009, at which time we will recognize the reduction of outstanding notes and any associated gain on extinguishment.

EMC Loan Agreements

As described in Note 2, “Convertible Debt Refinancing,” we entered into two term loan agreements with EMC International Company during June 2009. On June 5, 2009, under the first EMC loan agreement, we borrowed $75.4 million of which $74.1 million was used to purchase the notes tendered and $1.3 million for payment of the associated accrued interest. We anticipate borrowing under the second EMC loan agreement in July 2009 to fund the private transaction described above.

Amendment to Current Credit Agreement

We amended our current credit agreement (the “Amendment”) on April 15, 2009. The Amendment will permit us to refinance through issuance of equity or repurchase with our or any other funds the final $25.0 million outstanding convertible notes. The Amendment also eliminated certain requirements to make mandatory prepayments with excess cash flow. As a condition of the Amendment, we made a prepayment of $40.0 million on the term loan on April 22, 2009. We funded the $40.0 million prepayment with $20.0 million of our cash on hand and $20.0 million from prepaid license fees under an OEM agreement. Once we have refinanced a total of $135.0 million aggregate principal amount of the notes, under the Amendment we are required to prepay another $20.0 million of principal on our current credit agreement term loan.

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Warrants

On June 17, 2009, we entered into an agreement with EMC Corporation (“EMC”) which provides for the issuance of certain warrants. The first warrant was issued on June 23, 2009 in a private transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, and allows EMC to purchase 10,000,000 shares of Quantum’s common stock at a per share exercise price of $0.38 per share. This warrant will vest and be exercised only in the event of a change of control of Quantum (including a sale of all or substantially all of Quantum’s business or of certain assets, any person or group acquiring beneficial ownership of more than 50% of Quantum’s common stock, and a merger, consolidation, reorganization or similar business combination with respect to Quantum). This warrant will expire on the earlier to occur of (i) seven years from the date of issuance and (ii) three years following the occurrence of a change of control of the Company.

In addition, we will grant additional warrants to EMC to purchase a number of shares of Quantum common stock calculated based on a formula as described in the license agreement, as amended, which are issuable to EMC within 30 days following each of August 31, 2010 and August 31, 2011 with the same vesting and exercise conditions as the warrant issued June 23, 2009. In no event shall warrants issued to EMC under the amended purchase agreement be issued or exercisable to the extent that issuance or exercise thereof would result in EMC holding, or being deemed to hold, more than fifteen percent (15%) of the issued and outstanding capital stock of Quantum.

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QUANTUM CORPORATION

Note 22: Subsequent Events

FACE="Times New Roman" SIZE="2">Tender Offer for Convertible Subordinated Notes

The tender offer for our notes, described in Note 2
“Convertible Debt Refinancing,” closed on June 3, 2009 with $87.2 million of aggregate principal amount of the notes tendered in exchange for $850 per $1,000 principal amount. We paid $74.1 million plus accrued interest for these
notes and will recognize a gain in our first quarter of fiscal 2010.

Private Transaction to Purchase Additional Convertible Subordinated Notes

As described in Note 2 “Convertible Debt Refinancing,” on June 26, 2009, we entered into a private transaction with a noteholder to purchase
$50.7 million of aggregate principal amount of the notes for $950 per $1,000 principal amount, or $48.2 million. We anticipate this transaction will be funded in July 2009, at which time we will recognize the reduction of outstanding notes and any
associated gain on extinguishment.

EMC Loan Agreements

SIZE="2">As described in Note 2, “Convertible Debt Refinancing,” we entered into two term loan agreements with EMC International Company during June 2009. On June 5, 2009, under the first EMC loan agreement, we borrowed $75.4 million
of which $74.1 million was used to purchase the notes tendered and $1.3 million for payment of the associated accrued interest. We anticipate borrowing under the second EMC loan agreement in July 2009 to fund the private transaction described above.

Amendment to Current Credit Agreement

We amended our
current credit agreement (the “Amendment”) on April 15, 2009. The Amendment will permit us to refinance through issuance of equity or repurchase with our or any other funds the final $25.0 million outstanding convertible notes. The
Amendment also eliminated certain requirements to make mandatory prepayments with excess cash flow. As a condition of the Amendment, we made a prepayment of $40.0 million on the term loan on April 22, 2009. We funded the $40.0 million
prepayment with $20.0 million of our cash on hand and $20.0 million from prepaid license fees under an OEM agreement. Once we have refinanced a total of $135.0 million aggregate principal amount of the notes, under the Amendment we are required to
prepay another $20.0 million of principal on our current credit agreement term loan.

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Warrants

On
June 17, 2009, we entered into an agreement with EMC Corporation (“EMC”) which provides for the issuance of certain warrants. The first warrant was issued on June 23, 2009 in a private transaction pursuant to Section 4(2) of
the Securities Act of 1933, as amended, and allows EMC to purchase 10,000,000 shares of Quantum’s common stock at a per share exercise price of $0.38 per share. This warrant will vest and be exercised only in the event of a change of control of
Quantum (including a sale of all or substantially all of Quantum’s business or of certain assets, any person or group acquiring beneficial ownership of more than 50% of Quantum’s common stock, and a merger, consolidation, reorganization or
similar business combination with respect to Quantum). This warrant will expire on the earlier to occur of (i) seven years from the date of issuance and (ii) three years following the occurrence of a change of control of the Company.

In addition, we will grant additional warrants to EMC to purchase a number of shares of Quantum common stock calculated based on a formula as described in
the license agreement, as amended, which are issuable to EMC within 30 days following each of August 31, 2010 and August 31, 2011 with the same vesting and exercise conditions as the warrant issued June 23, 2009. In no event shall
warrants issued to EMC under the amended purchase agreement be issued or exercisable to the extent that issuance or exercise thereof would result in EMC holding, or being deemed to hold, more than fifteen percent (15%) of the issued and
outstanding capital stock of Quantum.

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Note 18 Subsequent Events

Malaysia Subsidiary Sale

On July 1, 2007 we completed an agreement for the sale of a Malaysia subsidiary to a third party contract manufacturer for approximately $8.2 million in cash. We effectively sold the assets of our Malaysian manufacturing operation, including the facility, inventory and other assets at book value offset by certain liabilities assumed in the sale. In connection with this agreement, the approximately 600 employees employed by us at June 30, 2007 transferred their employment to the third party contract manufacturer on July 1, 2007. Net assets held for sale at June 30, 2007 related to this transaction were as follows (in thousands):

Debt Refinancing

On July 12, 2007, we entered into a senior secured credit agreement (“the new credit agreement”) with a group of lenders, providing a $50 million revolving credit facility and a $400 million term loan and borrowed $400 million on the term loan to repay all borrowings under our secured senior credit facility dated August 22, 2006. We have incurred loan fees for this debt refinancing which will be capitalized and included in other long-term assets and then amortized to interest expense over the loan term commencing in the second quarter of fiscal 2008. In conjunction with the repayment of our existing secured senior credit facility, the unamortized debt costs of $8.1 million related to that borrowing will be expensed in the second quarter of fiscal 2008.

The $400 million term loan matures on July 12, 2014, but is subject to accelerated maturity on February 1, 2010 if we do not repay, refinance to extend the maturity date of, or convert into equity the existing $160 million convertible subordinated debt prior to February 1, 2010. Interest accrues on the term loan at either, at our option, a prime rate plus a margin of 2.5% or LIBOR plus a margin of 3.5%. As of July 12, 2007, the interest rate on the term loan was 8.82%. Beginning on September 30, 2007, a principal payment on the term loan in an amount equal to $1.0 million will be payable quarterly with a final payment of all outstanding principal and interest to be paid at maturity. The term loan may be prepaid at any time, subject to an additional payment of 1.0% of the principal amount being prepaid for any prepayment made before July 12, 2008. In addition, on an annual basis commencing with the fiscal year ending March 31, 2008, we are required to perform a calculation of excess cash flow which may result in additional prepayment of the principal amount.

Under the new credit agreement, we have the ability to borrow up to $50 million under a senior secured revolving credit facility, of which up to $35 million is available in the form of letters of credit and up to $5 million is available for short-term borrowings under a swing line facility. Interest accrues on the revolving credit facility at either, at our option, a prime rate plus a margin of 2.5% or LIBOR plus a margin of 3.5%. We did not borrow under the revolving credit facility. Annually, we are required to pay a 0.5% commitment fee on undrawn amounts under the revolving credit facility.

The revolving credit facility and term loan under the new credit agreement are secured by a blanket lien on all of our assets and contain certain financial and reporting covenants which we are required to satisfy as a condition of the credit facility and term loan.

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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 in this report usually contain the words “will,” “estimate,” “anticipate,” “expect”, “believe” or similar expressions and variations or negatives of these words. All such forward-looking statements including, but not limited to, (1) our expectation that we will continue to derive a substantial majority of our revenue from products based on our tape technology; (2) our expectations regarding the amounts and timing of any future restructuring charges, including cost savings resulting therefrom; (3) our belief that strong competition in the tape drive, tape media and tape automation systems markets will result in further price erosion; (4) our belief that we have sufficient resources to cover the remaining tax liability under the Tax Sharing and Indemnity Agreement with Maxtor; (5) our belief that our existing cash and capital resources will be sufficient to meet all currently planned expenditures and sustain our operations for the next 12 months; (6) our expectation that we will return to profitability; (7) our goals for our future operating performance, including our revenue growth, amount and mix, our expectations regarding revenue, gross margin and operating expenses for fiscal 2008 and our cash flows; (8) our belief that our ultimate liability in any infringement claims made by any third parties against us will not be material to us; (9) our belief that we may make additional acquisitions in the future; (10) our belief that our total foreign exchange rate exposure is not material; (11) our expectations regarding the benefits of our acquisition of ADIC, including that the combined company will allow us to grow our business and improve our results of operations; (12) our expectations regarding the timing of recognized compensation costs related to our equity awards; (13) our expectations relating to our growth into disk, software and services markets; and (14) our business objectives, key focuses, opportunities and prospects are inherently uncertain as they are based on management’s expectations and assumptions concerning future events, and they are subject to numerous known and unknown risks and uncertainties. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. As a result, our 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, but are not limited to, (1) the amount of orders received in future periods; (2) our ability to timely ship our products; (3) uncertainty regarding IT spending and the corresponding uncertainty in the demand for tape drives and tape automation products; (4) our ability to realize anticipated benefits from the ADIC acquisition; (5) our ability to achieve anticipated pricing, cost and gross margin levels, particularly on tape drives, given lower volumes and continuing price and cost pressures; (6) the successful execution of our strategy to expand our businesses into new directions; (7) our ability to successfully introduce new products; (8) our ability to achieve and capitalize on changes in market demand; (9) our ability to pay down the principal and interest on our indebtedness; (10) our ability to maintain supplier relationships; and (11) those factors discussed under “Risk Factors” in Part II of this Quarterly Report on Form 10-Q. Our forward-looking statements are not guarantees of future performance. We disclaim any obligation to update information in any forward-looking statement.

Note 21:           Subsequent Events

On May 2, 2006, Quantum announced that it entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) to acquire Advanced Digital Information Corporation, a Washington corporation (“ADIC”), for approximately $803 million in cash paid to ADIC shareholders plus $8 million in direct costs of the acquisition. Pursuant to the terms of the Merger Agreement, each outstanding share of ADIC common stock will be exchanged for cash equal to $12.25 without interest, with the right to elect, in lieu of cash, 3.461 shares of Quantum common stock. The stock election is subject to pro-ration such that Quantum will issue no more than approximately 10% of the total merger consideration in Quantum stock.   In addition, Quantum will assume all of ADIC’s outstanding employee stock options according to an option ratio defined in the Merger Agreement.  Consummation of the Merger is subject to customary conditions, including approval of the shareholders of ADIC, and expiration or termination of the applicable Hart-Scott-Rodino waiting period and receipt of certain foreign antitrust approvals. 

On April 27, 2006, Quantum entered into a commitment letter (the “Commitment Letter”) for a $500 million senior credit facility with Keybank National Association (“KeyBank”). Quantum intends to use the proceeds from the Senior Credit Facility (i) to fund a portion of the proposed Merger pursuant to the Merger Agreement, (ii) for working capital, and (iii) for other general corporate purposes. 

Certain of the officers and directors of ADIC have entered into a voting agreement with Quantum (the “Voting Agreements”). The Voting Agreements provide that each of the ADIC officers and directors party to such Voting Agreements will vote all shares of capital stock of ADIC over which such person has voting control in favor of the approval of the Merger Agreement and the Merger and against approval of any proposal made in opposition to or in competition with the consummation of the Merger. The Voting Agreement terminates on the earlier of (i) the date of the Merger, (ii) the date that the Merger Agreement has been validly terminated and (iii) May 2, 2007.

On May 3, 2006, Quantum Peripheral Products (Ireland) Limited (“QPPI”), a wholly owned subsidiary of Quantum, sold its facility located in Dundalk, Ireland to a third party.  The purchase price was 5 million Euro, which, after conversion into US currency, amounted to $6.3 million.  As part of the transaction, QPPI will have rent free exclusive possession of the property through August 1, 2006.  All VAT related fees will be borne by the purchasers.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of

Quantum Corporation

We have audited the accompanying consolidated balance sheets of Quantum Corporation as of March 31, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended March 31, 2006. Our audits also included the financial statement schedule listed in the index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company’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 the standards of the Public Company Accounting Oversight Board (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, 2006 and 2005 and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 2006, in conformity with U.S. generally accepted accounting principles. 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.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Quantum Corporation’s internal control over financial reporting as of March 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 9, 2006 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Palo Alto, California

June 9, 2006

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Note 18:     Subsequent Events

On August 2, 2005, Quantum approved a plan to terminate employees in the engineering organization to streamline its product development processes, align skills with its future product roadmaps and to reduce costs and investment to the appropriate level following product platform transitions.  These actions are part of the Company’s continuing work to further strengthen its operational platform and reduce its cost structure.  The Company expects to complete these actions by the end of the third quarter of fiscal year 2006.  The costs associated with these actions consist of one-time termination benefits.  The Company’s preliminary estimate of these costs is approximately $1.8 million and substantially all of these charges will result in future cash expenditures.

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