<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1996
REGISTRATION NO. 33-64995
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
IOMEGA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------------
DELAWARE 86-0385884
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
------------------------------
1821 WEST IOMEGA WAY, ROY, UTAH 84067
(801) 778-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------------------
LEONARD C. PURKIS
SENIOR VICE PRESIDENT, FINANCE, AND CHIEF FINANCIAL OFFICER
IOMEGA CORPORATION
1821 WEST IOMEGA WAY
ROY, UTAH 84067 (801) 778-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------------
COPIES TO:
PATRICK J. RONDEAU, ESQ. BROOKS STOUGH, ESQ.
JONATHAN WOLFMAN, ESQ. ROBERT G. SPECKER, ESQ.
HALE AND DORR GUNDERSON DETTMER STOUGH
60 State Street VILLENEUVE FRANKLIN & HACHIGIAN, LLP
Boston, Massachusetts 02109 600 Hansen Way
(617) 526-6000 Palo Alto, California 94306
(415) 843-0500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date hereof.
------------------------------
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. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS AMOUNT TO BE OFFERING OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE (1) PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
% Convertible Subordinated Notes
due 2001........................... $ 46,000,000(2) 100% $ 46,000,000 $ 15,862.07(3)
Common Stock, $.03 1/3 par value.... (4) -- -- --
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes $6,000,000 principal amount of Notes which the Underwriter has the
option to purchase from the Company to cover over-allotments.
(3) An amount in excess of such fee was paid with the original filing of this
Registration Statement. Accordingly, no additional payment is being made
with this filing.
(4) Such indeterminable number of shares of Common Stock as is required for
issuance upon conversion of the Notes being registered hereunder in
accordance with the terms thereof (which provide for adjustment of the
initial conversion price under certain circumstances). No additional
consideration will be received for the shares of Common Stock.
------------------------------
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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 27, 1996
PROSPECTUS
$40,000,000
[LOGO]
% CONVERTIBLE SUBORDINATED NOTES DUE 2001
The Notes are convertible into Common Stock of the Company at the option of
the holder at any time after 60 days following the latest date of original
issuance thereof and at or before maturity, unless previously redeemed or
repurchased, at a conversion price of $ per share (equivalent to a
conversion rate of approximately shares per $1,000 principal amount of
Notes), subject to adjustment in certain events. See "Description of
Notes--Conversion of Notes." Application has been made for the quotation of the
Notes on the Nasdaq Small-Cap Market. The Company's Common Stock is traded on
the Nasdaq National Market under the symbol IOMG. On February 26, 1996, the last
reported sale price of the Common Stock on the Nasdaq National Market was $15.88
per share.
Interest on the Notes is payable on March 15 and September 15 in each year
commencing on September 15, 1996. The Notes are redeemable at any time on or
after March 15, 1999, in whole or in part, at the option of the Company, at
declining redemption prices set forth herein, together with accrued interest. In
the event of a Repurchase Event (as defined), each holder of Notes may require
the Company to repurchase all or a portion of such holder's Notes at 100% of the
principal amount thereof plus accrued and unpaid interest. See "Description of
Notes--Optional Redemption by the Company" and "--Repurchase at Option of
Holders Upon Repurchase Event." The Notes are unsecured and subordinated to all
existing and future Senior Indebtedness (as defined) of the Company and are
effectively subordinated to all existing and future indebtedness and other
liabilities of subsidiaries of the Company. See "Description of Notes --
Subordination of Notes."
----------------
THE NOTES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT (2) COMPANY (3)
<S> <C> <C> <C>
Per Note...................................... $ $ $
Total (4)..................................... $ $ $
</TABLE>
(1) Plus accrued interest, if any, from March , 1996.
(2) See "Underwriting" for indemnification arrangements with the Underwriter.
(3) Before deducting estimated expenses of $650,000 payable by the Company.
(4) The Company has granted to the Underwriter a 30-day option to purchase up to
an additional $6,000,000 principal amount of Notes on the terms set forth
above solely to cover over-allotments, if any. If all such Notes are
purchased, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
----------------
The Notes are offered by the Underwriter, subject to prior sale, receipt and
acceptance by it and subject to the right of the Underwriter to reject any order
in whole or in part and certain other conditions. It is expected that the Notes
will be available for delivery on or about , 1996 at the office of
the agent of Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST
, 1996
<PAGE>
[Picture of Company products]
Iomega and Bernoulli are registered trademarks of the Company and Zip, Jaz,
Ditto and the Iomega logo are trademarks of the Company. All other trademarks
used are the property of their respective owners.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OR THE
COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS," APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Iomega Corporation designs, manufactures and markets innovative data storage
solutions, based on removable-media technology, that help personal computer
users "manage their stuff." The Company's data storage solutions include disk
drives marketed under the tradenames Zip and Jaz and a family of tape drives
marketed under the tradename Ditto. The Company's Zip and Jaz disk drives are
designed to provide users with the benefits of high capacity and rapid access
generally associated with hard disk drives and the benefits of media
removability generally associated with floppy disk drives, including expandable
storage capacity and data transportability, management and security. The
Company's Ditto tape drives primarily address the market for backup data
storage. Iomega's objective is to establish its Zip, Jaz and Ditto products as
industry-standard data storage solutions for personal computer users and to
capture an increasing share of the overall personal computer data storage
market. The Company began shipping Zip drives in March 1995 and Jaz drives in
limited quantities in December 1995.
In recent years, advances in software, including memory-intensive graphical
operating systems, integrated suites of word processing, spreadsheet and
database applications, and multimedia applications, have dramatically increased
the storage needs of personal computer users. In addition, data-intensive,
multimedia files are increasingly being made available to personal computer
users via on-line services and the Internet. Largely as a result of these
trends, personal computer users increasingly need to expand the amount of their
available primary storage, which is typically provided by a hard disk drive.
Personal computer users are also increasingly seeking a reliable way to
transport large files between computers (such as between a work and home
computer), to organize and segregate files of different users of the same
computer, to secure sensitive files from unauthorized viewing or modification,
and to backup data. The Company believes that neither conventional hard disk
drives nor floppy disk drives are capable of adequately addressing all of the
information storage and management needs of personal computer users.
The Company believes its recently-introduced Zip, Jaz and Ditto drives
address emerging data storage needs and provide customers what they want at
affordable price points. Designed as a mass-market product, the Zip drive is an
affordable storage device for hard drive expansion, data transportability,
management and security and data backup. The Zip drive uses 100-megabyte ("MB")
disks to provide 70 times the capacity of traditional floppy disks. The external
model of the Zip drive is generally sold by retailers for under $200 and the
100-MB disks are typically sold for under $15 per disk in ten-packs. The Jaz
drive, which features 1-gigabyte ("GB") removable disks and performance
specifications comparable to most current hard disk drives, is designed to
address the high-performance needs of personal computer users in three areas:
multimedia applications (audio, video and graphics), personal data management
and hard drive upgrade. The external model of the Jaz drive is expected to be
sold by retailers for approximately $599, while the internal version is expected
to be sold by retailers for approximately $499. Each 1-GB Jaz disk is expected
to sell for approximately $99 in five-packs. The Company's Ditto family of tape
drives addresses the need of personal computer users for an easy-to-use,
dependable backup solution. The Company offers internal and external Ditto tape
drives based on leading industry standards ranging in capacity from 420 MBs to
3.2 GBs (using data compression).
The Company believes that broadening the distribution of its products
through strategic alliances with a variety of companies within the computer
industry is a crucial element in the Company's objective of establishing its
products as industry standards. The Company has OEM arrangements with personal
computer manufacturers such as Micron Electronics and Power Computing for the
incorporation of Zip, Jaz or Ditto drives into their computers, and is seeking
to establish additional OEM relationships. The Company has also entered into
private or co-branding arrangements with several companies, including Maxell,
Seiko Epson, Fuji and Reveal Computer Products, which are selling private or
co-branded versions of Zip drives and disks. In addition, the Company's products
are sold by most of the leading retailers of computer products in the United
States, including Best Buy, Circuit City, CompUSA, Computer City, Electronics
Boutique and PC Warehouse.
During 1994 and 1995, the Company's new management led the Company through a
significant restructuring and repositioned the Company as a customer-driven
vendor to the broad personal computer market. The Company's development and
introduction of its new products over the last 18 months was facilitated by the
experience in removable-media storage technology developed by the Company in
connection with its Bernoulli disk drives, which were first introduced in 1982
and won numerous awards for design and performance.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ $40,000,000 aggregate principal amount of % Convertible
Subordinated Notes due 2001 (the "Notes") ($46,000,000
if the Underwriter's over-allotment option is exercised
in full).
Interest.......................... Interest is payable semiannually on March 15 and
September 15 of each year at % per annum commencing on
September 15, 1996. See "Description of Notes--General."
Maturity.......................... March 15, 2001.
Conversion Rights................. The Notes are convertible into Common Stock of the
Company at the option of the holder at any time after 60
days following the latest date of original issuance
thereof and at or before maturity, unless previously
redeemed or repurchased, at a conversion price of
$ per share (equivalent to a conversion rate of
approximately shares per $1,000 principal amount
of Notes), subject to adjustment in certain events. See
"Description of Notes--Conversion of Notes."
Redemption at Option of Company... The Notes are redeemable at any time on or after March
15, 1999, in whole or in part, at the option of the
Company, at declining redemption prices set forth
herein, together with accrued interest, if any, to the
redemption date. See "Description of Notes--Optional
Redemption by the Company."
Repurchase at Option of Holders
Upon Repurchase Event............ In the event any Repurchase Event (as defined) occurs,
each holder of Notes may require the Company to
repurchase all or any part of such holder's Notes at
100% of the principal amount thereof plus accrued
interest to the repurchase date. See "Description of
Notes--Repurchase at Option of Holders Upon Repurchase
Event."
Subordination..................... The Notes are unsecured and subordinated to all existing
and future Senior Indebtedness (as defined) and are
effectively subordinated to all existing and future
indebtedness and other liabilities of subsidiaries of
the Company. At January 28, 1996, (a) the Company had
approximately $60.3 million of outstanding indebtedness
that would have constituted Senior Indebtedness and (b)
subsidiaries of the Company had approximately $19.9
million of outstanding indebtedness and other
liabilities (excluding (i) intercompany liabilities,
(ii) indebtedness included in Senior Indebtedness
because it is guaranteed directly or indirectly by the
Company and (iii) liabilities of a type not required to
be reflected on the balance sheet of such subsidiaries
in accordance with generally accepted accounting
principles), as to which the Notes would have been
effectively subordinated. The Company intends to use a
portion of the net proceeds of this offering to repay a
portion of the amounts outstanding under its bank loan
agreements, which constitute Senior Indebtedness
(although it may subsequently borrow additional amounts
under such loan agreements). See "Use of Proceeds." The
Indenture contains no limitations on the incurrence of
additional indebtedness or other obligations by the
Company and its subsidiaries. See "Description of
Notes--Subordination of Notes."
Use of Proceeds................... Working capital needs and general corporate purposes,
including the repayment of a portion of the amounts
outstanding under the Company's bank loan agreements.
See "Use of Proceeds."
Trading Market.................... Application has been made for the quotation of the Notes
on the Nasdaq Small-Cap Market under the symbol IOMGG.
The Company's Common Stock is traded on the Nasdaq
National Market under the symbol IOMG.
</TABLE>
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales....................................................................... $ 147,123 $ 141,380 $ 326,225
Cost of sales............................................................... 92,585 92,453 235,838
Gross margin................................................................ 54,538 48,927 90,387
Restructuring costs (reversal).............................................. 14,131 (2,491) --
Operating income (loss)..................................................... (17,427) (882) 13,622
Net income (loss)........................................................... (14,525) (1,882) 8,503
Net income (loss) per common share (1)...................................... $ (0.27) $ (0.03) $ 0.14
Weighted average common shares outstanding (1).............................. 54,318 55,419 60,180
Ratio of earnings to fixed charges (2)...................................... - 1.0 6.0
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------
ACTUAL AS ADJUSTED(3)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 1,023 $ 38,373
Working capital..................................................................... 12,623 49,973
Total assets........................................................................ 266,227 303,577
Stockholders' equity................................................................ 62,686 62,686
</TABLE>
- ------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements.
(2) For purposes of determining the ratio of earnings to fixed charges, earnings
consist of net income (loss) before provision for income taxes and
cumulative effect of accounting change, plus fixed charges. Fixed charges
consist of interest expense and the estimated interest component of rental
expense. For 1993, earnings were insufficient to cover fixed charges by
$16.7 million.
(3) Adjusted to reflect the sale of the Notes offered hereby, after deducting
the estimated underwriting discount and offering expenses.
------------------------
EXCEPT AS OTHERWISE NOTED, (I) ALL SHARE AND PER SHARE INFORMATION IN THIS
PROSPECTUS HAS BEEN ADJUSTED TO GIVE EFFECT TO THE FIVE-FOR-FOUR STOCK SPLIT
(EFFECTED AS A 25% STOCK DIVIDEND) THAT OCCURRED IN NOVEMBER 1994 AND THE
THREE-FOR-ONE STOCK SPLIT (EFFECTED AS A 200% STOCK DIVIDEND) THAT OCCURRED IN
JANUARY 1996 AND (II) THE INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF
THE UNDERWRITER'S OVER-ALLOTMENT OPTION.
5
<PAGE>
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY, IN ADDITION TO
THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE PURCHASING THE NOTES
OFFERED HEREBY.
SHORTAGES OF CRITICAL COMPONENTS; ABSENCE OF SUPPLY CONTRACTS; DEPENDENCE ON
SUPPLIERS. Many components incorporated in, or used in the manufacture of, the
Company's products are currently only available from sole source suppliers.
Moreover, the Company has experienced difficulty in the past, is currently
experiencing difficulty and expects to continue to experience difficulty in the
future, in obtaining a sufficient supply of many key components. For example,
many of the integrated circuits used in the Company's Zip and Jaz drives are
currently available only from sole source suppliers. The Company has been unable
to obtain a sufficient supply of certain of these integrated circuits due to
industry-wide shortages. In addition, the Company has been advised by certain
sole source suppliers, including the manufacturers of critical integrated
circuits for Zip and Jaz, that they do not anticipate being able to fully
satisfy the Company's demand for components during 1996. These component
shortages have limited the Company's ability to produce sufficient Zip drives to
meet market demand and have limited the Company's ability to implement certain
cost reduction and productivity improvement plans, and the Company expects that
the shortage of components may limit production of Zip and Jaz products for the
foreseeable future. The Company also experienced difficulty during 1995 in
obtaining a sufficient supply of the servowriting equipment used in the
manufacture of Zip disks. Such equipment shortages in 1995 limited the Company's
production of Zip disks, and there can be no assurance that similar equipment
shortages will not occur in the future.
The Company purchases all of its sole and limited source components and
equipment pursuant to purchase orders placed from time to time and has no
guaranteed supply arrangements. The inability to obtain sufficient components
and equipment, to obtain or develop alternative sources of supply at competitive
prices and quality, or to avoid manufacturing delays could prevent the Company
from producing sufficient quantities of its products to satisfy market demand,
result in delays in product shipments, increase the Company's material or
manufacturing costs or cause an imbalance in the inventory level of certain
components. Moreover, difficulties in obtaining sufficient components may cause
the Company to modify the design of its products to use a more readily available
component, and such design modifications may result in product performance
problems. Any or all of these problems could in turn result in the loss of
customers, provide an opportunity for competing products to achieve market
acceptance and otherwise adversely affect the Company's business and financial
results. See "Business--Manufacturing."
RECENT INTRODUCTION OF ZIP AND JAZ; UNCERTAINTY OF MARKET ACCEPTANCE. Zip
products accounted for a substantial majority of the Company's sales in 1995 and
the Company expects that sales of Zip and Jaz products will account for a
substantial majority of the Company's sales in 1996. The Company's Zip products
commenced commercial shipment in March 1995. Although sales of Zip products were
the primary reason for the Company's revenue growth during 1995, such sales may
be attributable in large part to the novelty of the product and the initial
publicity surrounding the introduction of Zip, and may not be indicative of the
long-term demand for the product. In an effort to improve performance and reduce
costs, the Company continues to refine the product design for Zip, which could
result in shipment delays or performance problems. As a result of the Zip
drive's recent introduction and on-going supply shortages, it is difficult to
accurately assess the ultimate market acceptance of Zip because of uncertainty
concerning the size and characteristics of the market for Zip, the extent of the
market demand for Zip and the competition that Zip will confront. Accordingly,
investors should not assume that the sales growth experienced by the Company in
1995 is an indication of future sales.
The Company began shipping Jaz drives and disks in limited quantities in
December 1995. As is the case with Zip, the Company cannot yet accurately assess
the market acceptance Jaz will achieve due to uncertainties regarding the market
for Jaz and the competition it will confront. Moreover, the Company is
continuing to refine the product design for Jaz, which has not yet begun to ship
in volume, and there can be no assurance that the Company will not experience
problems or delays as it begins to manufacture and ship Jaz products in volume.
In addition, the Jaz drive incorporates hard disk technology that has not
previously been used in any other removable-media cartridge drives with similar
performance characteristics, and there can be no assurance that
6
<PAGE>
Jaz will perform as the Company expects or attain the lifespan the Company
anticipates. For the foregoing reasons, and because of differences in their
price and target markets, investors should not assume that Jaz will receive the
initial market acceptance that Zip has experienced.
In addition, the market acceptance Zip and Jaz will achieve is difficult to
assess because their product features are fundamentally different from the most
popular data storage devices today (hard disk drives, floppy disk drives and
CD-ROM drives). No new type of read/writable data storage device has achieved
widespread market acceptance in recent years, and there can be no assurance that
Zip and Jaz will achieve widespread market acceptance. Moreover, the two formats
of removable-media storage which have gained widespread market acceptance to
date--floppy disk drives and CD-ROM drives--are both used by software
manufacturers as a means of software distribution. The Company's products are
not intended for use in software distribution, and the Company does not expect
that its products will be so used. The market acceptance of Zip and Jaz will
also depend upon a number of other factors, including the ability of the Company
to produce a sufficient supply of Zip and Jaz products (see "Risk
Factors--Shortages of Critical Components; Absence of Supply Contracts;
Dependence on Suppliers" and "--Reliance on Non-Binding Contract Manufacturing
Relationships"), the price, performance and other characteristics of competing
solutions introduced by other vendors and the timing of such product
introductions (see "Risk Factors--Competition") and the success of the Company
in establishing OEM arrangements for Zip and Jaz with leading personal computer
manufacturers (see "Risk Factors-- Dependence on Non-Binding Strategic Marketing
Alliances; Need to Establish Additional Alliances"). The failure of Zip or Jaz
to achieve widespread commercial acceptance would have a material adverse effect
on the Company's business.
RISKS ASSOCIATED WITH GROWTH OF BUSINESS. The Company's business has grown
significantly in the past year, with sales increasing from $38.5 million in the
fourth quarter of 1994 to $148.8 million in the fourth quarter of 1995.
Moreover, the Company has significantly restructured its business over the past
two years, introducing the Zip drive in March 1995, the Jaz drive in December
1995 and several new Ditto products during 1995. Products introduced since
January 1, 1995 now generate the substantial majority of the Company's sales.
The growth and restructuring of the Company's business has placed significant
demands on the systems and management of the Company. For example, throughout
1995, demand for the Company's products, particularly its Zip disk drives,
exceeded the Company's manufacturing capacity. In addition, this business growth
and restructuring have resulted in additional personnel needs and an increased
level of responsibility for management personnel. To manage its growth
effectively, the Company will be required to continue to expand and improve its
internal operations and systems (including manufacturing, logistics, product
development, management information systems and sales and marketing) and to
expand and manage its employee base. The Company has recently added or expects
to add several key managers, including a new Senior Vice President, Operations,
and there can be no assurance as to the rate at which these managers will be
effectively assimilated into the Company's business or operate effectively as a
management team. The Company will also be required to effectively expand and
manage the independent contractors which the Company intends to use to
manufacture a majority of its products in the future. The Company's inability to
manage growth effectively could have a material adverse effect on the Company's
operating results. See "Selected Consolidated Financial Data,"
"Business--Employees" and "Management."
DECLINE IN LIQUIDITY; FUTURE CAPITAL NEEDS. The Company had cash and cash
equivalents of $1 million as of December 31, 1995 and $4.5 million as of January
28, 1996. During 1995, the Company used $27.0 million in operating activities
and an additional $45.2 million in the purchase of equipment and leasehold
improvements. Also during 1995, the Company experienced substantial increases in
its accounts receivable and inventories. Increases in these working capital
components have resulted in a significant decline in the Company's liquidity.
The Company expects the proceeds of this offering, together with current sources
of financing available to the Company, will be sufficient to fund the Company's
operations through at least June 30, 1996. Thereafter, the Company expects to
require additional funds to finance its operations. The precise amount and
timing of the Company's funding needs cannot be determined at this time, and
will depend upon a number of factors, including the market demand for the
Company's products, the availability of critical components, the Company's
strategic alliances for the manufacture of its products, the progress of the
Company's product development efforts, the Company's inventory management, the
Company's management of its cash and accounts
7
<PAGE>
payable, and the Company's ability to refinance its bank debt, a significant
portion of which matures in mid-1996. There can be no assurance that funds
required by the Company in the future will be available on terms satisfactory to
the Company. The inability to obtain needed funding on satisfactory terms would
have a material adverse effect on the Company's business and financial results.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
RECENT OPERATING LOSSES; QUARTERLY FLUCTUATIONS IN OPERATING RESULTS; RISK
OF FAILURE TO SATISFY MARKET EXPECTATIONS. The Company incurred net losses in
1993 and 1994, as well as in the first two quarters of 1995. Although the
Company was profitable for 1995 as a whole, there can be no assurance it will be
able to remain profitable in the future. The Company has experienced and may
experience in the future significant fluctuations in its quarterly operating
results. Factors such as price reductions, the introduction and market
acceptance of new products, product returns, the availability of critical
components, the lower gross margins associated with the Company's newly
introduced products, seasonality and the condition of retail markets could
contribute to this variability. For example, as is common in the industry, it is
likely that the Company will reduce the prices of certain of its products in the
future. Moreover, the Company's expense levels are based in part on expectations
of future sales levels, and a shortfall in expected sales could therefore result
in a disproportionate decrease in the Company's net income. As a result of these
and other factors, it is likely that in some future period the Company's
operating results will be below the expectations of investors, which would be
likely to result in a significant reduction in the market price of the Common
Stock. In light of the Company's revenue growth in 1995 and the change in the
nature of its business over the past year, the Company believes that
period-to-period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
The Company believes that its 1996 operating results are subject to a wide range
of possible outcomes because they will be heavily dependent on recently
introduced products and subject to a number of uncertainties. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's recently introduced Ditto, Zip and Jaz products are targeted
primarily to the retail consumer market. This market is generally seasonal, with
a substantial portion of total sales typically occurring in the fourth quarter.
In addition, some retailers have been experiencing sales decreases and certain
analysts have predicted continued softening of this market. Accordingly, in
light of the seasonal nature and general uncertainty of the consumer market,
investors should not assume fourth quarter of 1995 revenues are necessarily
indicative of the revenues to be expected in any future quarter.
TECHNOLOGICAL CHANGE AND NEW PRODUCTS. The Company operates in an industry
that is subject to both rapid technological change and rapid change in consumer
demands. For example, over the last 10 years the typical hard disk drive
included in a new personal computer has increased in capacity from approximately
40 MBs to over 1 GB, while the price of a hard disk drive has remained constant
or even decreased. The Company's future success will depend in significant part
on its ability to continually develop and introduce, in a timely manner, new
removable-media disk drives and tape products with improved features, and to
develop and manufacture those new products within a cost structure that enables
the Company to sell such products at lower prices than those of comparable
products today. There can be no assurance that the Company will be successful in
developing, manufacturing and marketing new and enhanced products that meet both
the performance and price demands of the data storage market. See
"Business--Product Development."
DEPENDENCE ON NON-BINDING STRATEGIC MARKETING ALLIANCES; NEED TO ESTABLISH
ADDITIONAL ALLIANCES. The Company's business strategy depends in significant
part on establishing successful strategic alliances with a variety of key
companies within the computer industry. Among the types of alliances
contemplated by the Company's business strategy are: OEM arrangements with
personal computer manufacturers that will include Zip, Jaz and Ditto products as
a standard feature or factory-installed option in their personal computers;
reseller arrangements (including private and co-branding arrangements) with
major vendors of computer products covering the resale of the Company's products
by such companies; and licensing arrangements under which the Company grants
certain computer manufacturers on a royalty-bearing basis the right to
manufacture and sell Zip, Jaz and Ditto drives or media. The Company is a party
to several such strategic alliances, is currently in the process of negotiating
additional strategic alliances, and expects to continue to establish strategic
alliances of this nature in the future. Most of the strategic alliances to which
the Company is now a party have been established
8
<PAGE>
only recently, and there can be no assurance that such relationships will
produce the benefits anticipated by the Company. Moreover, the Company believes
that establishing additional strategic alliances (especially OEM arrangements)
is critical to the success of its business, and there can be no assurance that
the Company will be successful in doing so. In addition, the Company's strategic
alliances are generally not covered by binding contracts and may be subject to
unilateral termination by the Company's strategic partners, and also may require
the Company to share control over its manufacturing and marketing programs and
technologies. See "Business--Company Strategy--Broadening Distribution Through
Strategic Alliances," "Business--Marketing and Sales."
RELIANCE ON NON-BINDING CONTRACT MANUFACTURING RELATIONSHIPS. The Company
plans to use independent parties to manufacture for the Company, on a contract
basis, a majority of the Company's products in the future. The Company currently
has manufacturing relationships with Seiko Epson (Zip drives), MegaMedia
Computer (Zip disks), Sequel (Jaz drives) and First Engineering Plastics (Ditto
drives). There can be no assurance that the Company will be successful in
maintaining such relationships or in establishing additional relationships in
the future, or in managing such manufacturing relationships. The Company's
manufacturing relationships are generally not covered by binding contracts and
may be subject to unilateral termination by the Company's manufacturing
partners. In addition, there can be no assurance that third-party manufacturers
will be able to meet the Company's quantity or quality requirements for
manufactured products. Moreover, the Company may grant certain of its
third-party manufacturers, among others, the right to sell significant
quantities of the Zip and Jaz drives they produce for their own account, thereby
potentially reducing the supply of such drives to the Company and increasing
competition. See "Business--Manufacturing."
COMPETITION. The data storage industry is highly competitive. The Company
believes that its Zip and Jaz products compete most directly with other
removable-media data storage devices, such as magnetic cartridge disk drives
offered by Syquest Technology, optical disk drives and "floptical" disk drives.
Although the Company believes that its Zip and Jaz products offer price,
performance or usability advantages over the other removable-media storage
devices available today, the Company believes that the price, performance and
usability levels of existing removable-media products will improve and that
other companies will introduce new removable-media storage devices. Accordingly,
the Company believes its Zip and Jaz products will face increasingly intense
competition. In particular, a consortium comprised of Compaq Computer, 3M and
MKE has announced the Floptical 120, a high-capacity floptical drive that is
compatible with conventional floppy disks. In addition, both Mitsumi and Swan
Instruments are expected to introduce high-capacity, removable-media disk drives
in 1996 that would also directly compete with Zip and Jaz. In addition, to the
extent that Zip and Jaz drives are used for incremental primary storage
capacity, they also compete with conventional hard disk drives. Also, the
leading suppliers of conventional hard disk drives could at any time determine
to enter the removable-media storage market.
As new and competing removable-media storage solutions are introduced, it is
possible that any such solution that achieves a significant market presence or
establishes a number of significant OEM relationships will emerge as an industry
standard and achieve a dominant market position. If such is the case, there can
be no assurance that the Company's products would achieve significant market
acceptance, particularly given the Company's size and market position vis-a-vis
other competitors. See "Risk Factors--Recent Introduction of Zip and Jaz;
Uncertainty of Market Acceptance."
The Company's Ditto products compete with tape drives from companies such as
Conner Peripherals, Inc. and Colorado Memory Systems, a division of
Hewlett-Packard Company, as well as vendors of other backup storage devices. The
Company may also compete in both the removable disk drive and the tape market
with licensees of the Company's products. Many of the Company's current and
potential competitors have significantly greater financial, manufacturing and
marketing resources than the Company. There can be no assurance that the Company
will be able to compete successfully against current and future sources of
competition or that the competitive pressures faced by the Company will not
adversely affect the Company's operating results. See "Business--Competition."
DEPENDENCE ON PROPRIETARY TECHNOLOGY. The Company's success is heavily
dependent upon the establishment and maintenance of proprietary technologies.
The Company relies on a combination of patent, copyright
9
<PAGE>
and trade secret law to protect the technology in its Zip, Jaz and Ditto
products. Although the Company has filed over 40 U.S. and foreign patent
applications relating to its Zip and Jaz drives and disks, the majority of such
applications were filed in late 1994 or 1995 and are at relatively early stages
in the review process, no such patents have as yet been issued and there can be
no assurance that they will issue in the future. For example, if some or all of
the pending Zip and Jaz patents are not granted, the Company may not be able to
legally prevent others from copying the technology incorporated in the Zip and
Jaz drives and disks or from producing and selling compatible products which
compete with the Company's products. If another party were to succeed in
producing and selling Zip- or Jaz-compatible disks, the Company's sales would be
materially adversely affected. Moreover, because the Company's Zip and Jaz disks
have significantly higher gross margins than the Zip and Jaz drives, the
Company's net income would be disproportionately affected by any such sales
shortfall. In addition, there can be no assurance that the steps taken by the
Company to protect its technology will be adequate to prevent misappropriation
of its technology by third parties, or that third parties will not be able to
independently develop similar technology.
From time to time the Company receives notices alleging that the Company's
products infringe third party proprietary rights. The Company, however, is not
currently aware of any threatened or pending legal challenge to the technology
which is incorporated in its products which it expects to have a material
adverse effect on its business or financial results. Patent and similar
litigation frequently is complex and expensive and its outcome can be difficult
to predict. There can be no assurance that the Company will prevail in any
proceedings that may be commenced against the Company. In addition, certain
technology used in the Company's products is licensed from third parties,
including the backup software included with the Company's Ditto products and
certain patent rights relating to Zip. The Company is in the process of
negotiating a definitive license agreement for the Ditto backup software and,
although it has entered into a letter agreement regarding the Zip patent rights,
is in the process of negotiating a more detailed license agreement for the Zip
patent rights. The failure to execute definitive agreements or the termination
of any such license arrangements could have a material adverse effect on the
Company's business and financial results. See "Business--Proprietary Rights."
INTERNATIONAL OPERATIONS. International sales generated a significant
portion of the Company's sales in 1994 and 1995 and the Company expects
international sales to continue to comprise a significant percentage of its
total sales in the future. The international portion of the Company's business
is subject to a number of inherent risks, including difficulties in building and
managing foreign operations and foreign reseller networks, the differing product
needs of foreign customers, fluctuations in the value of foreign currencies,
import/export duties and quotas, and unexpected regulatory, economic or
political changes in foreign markets. In addition, the Company relies on foreign
companies for the supply of certain critical components and is increasingly
relying on foreign companies for the manufacture of certain of its products, and
these relationships may be subject to some of the same risks affecting its
international sales. There can be no assurance that these factors will not
adversely affect the Company's international sales or its overall financial
performance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Marketing and Sales" and
"--Manufacturing."
The Company's international sales are predominantly denominated in foreign
currencies. Accordingly, a decrease in the value of foreign currencies relative
to the U.S. dollar could result in a significant decrease in U.S. dollar
revenues received by the Company for its international sales. Due to the number
of currencies involved in the Company's international sales and the volatility
of foreign currency exchange rates, the Company cannot predict the effect of
exchange rate fluctuations on future operating results. The Company enters into
forward exchange contracts to sell foreign currencies as a means of hedging its
currency translation exposure. In 1995, the Company recorded a net foreign
currency loss of $1.2 million in connection with the remeasurement to market
value of certain foreign currency contracts, which were purchased with the
intent of hedging operating cash flows. The majority of the loss was incurred in
the first quarter of 1995 as a result of the U.S. dollar weakening against
European currencies hedged by forward currency contracts in place at that time.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 4 of Notes to Consolidated Financial Statements.
CERTAIN MARKETING AND SALES RISKS. As is common practice in its industry,
the Company's arrangements with its customers generally allow customers, in the
event of a price decrease, credit equal to the difference
10
<PAGE>
between the price originally paid and the new decreased price on units in the
customers' inventories on the date of the price decrease. When a price decrease
is anticipated, the Company establishes reserves for amounts estimated to be
reimbursed to qualifying customers. There can be no assurance that these
reserves will be sufficient or that any future returns or price protection
charges will not have a material adverse effect on the Company's results of
operations, particularly because future results will be heavily dependent on
recently introduced products for which the Company has little or no operating
history. In addition, customers generally have the right to return excess
inventory within specified time periods. As a result, any build up of inventory
in the Company's distribution channels that does not sell through to end users
could result in product returns that have a material adverse effect on the
Company's operating results and financial condition.
The Company markets its products primarily through computer product
distributors and retailers. Distribution channels for personal computers and
accessories have been characterized by rapid change, including consolidation and
financial difficulties of distributors. The loss or ineffectiveness of any of
the Company's major distributors could have a material adverse effect on the
Company's results of operations. In addition, since the Company grants credit to
its customers, a substantial portion of outstanding accounts receivable are due
from computer product distributors and certain large retailers. At December 31,
1995, the customers with the ten highest outstanding accounts receivable
balances totaled $47.1 million or 43% of gross accounts receivable, with one
customer accounting for $15.2 million, or 14% of gross accounts receivable. If
any one or a group of these customers' receivable balances should be deemed
uncollectible, it would have a material adverse effect on the Company's results
of operations and financial condition. See "Business--Marketing and
Sales--Marketing."
SIGNIFICANT UNALLOCATED NET PROCEEDS. The Company has not yet quantified
the amount of the net proceeds of this offering that will be used for the
various purposes described under "Use of Proceeds." The exact uses of the net
proceeds, and the amount allocated for each use, will be subject to the
discretion of management. See "Use of Proceeds."
DEPENDENCE ON KEY PERSONNEL. The Company's success will depend in large
part upon the services of a number of key employees, including Kim B. Edwards,
its President and Chief Executive Officer. The loss of the services of one or
more of these key employees could have a material adverse effect on the Company.
The Company's success will also depend in significant part upon its ability to
attract and retain highly-skilled management and other personnel. Competition
for such personnel in the computer industry is intense, and the Company has from
time to time experienced difficulty in finding sufficient numbers of qualified
professional and production personnel in the greater Salt Lake City area. There
can be no assurance that the Company will be successful in attracting and
retaining the quantity and quality of personnel that it needs. See "Business--
Employees" and "Management."
MARKET VOLATILITY. There has been significant volatility in the market
price of securities of technology-based companies similar in size to the
Company. Factors such as announcements of new products by the Company or its
competitors, variations in the Company's quarterly operating results, or general
economic or stock market conditions unrelated to the Company's operating
performance may have a significant impact on the market price of the Common
Stock and the Notes. In addition, the Company believes that electronic bulletin
board postings regarding the Company on America Online and other similar
services, certain of which have in the past contained false information about
Company developments, including quotes falsely attributed to executive officers
of the Company, have in the past and may in the future contribute to volatility
in the market price of the Common Stock and the Notes. Any information
concerning the Company, including without limitation projections of future
operating results, appearing in such on-line bulletin boards or otherwise
emanating from a source other than the Company should not be relied upon as
having been supplied or endorsed by the Company. See "Price Range of Common
Stock and Dividend Policy."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND
SHAREHOLDER RIGHTS PLAN. The Company's Certificate of Incorporation and By-Laws
contain provisions permitting the Board of Directors to issue Preferred Stock
with rights senior to the Common Stock, limiting the right of stockholders to
act by written consent and requiring that special meetings of stockholders be
called only by the Board of Directors or the President. In addition, the Company
has a Shareholder Rights Plan that may make certain proposed acquisitions of the
Company prohibitively expensive. These charter and By-Law provisions and the
Shareholder Rights Plan
11
<PAGE>
could make it more difficult for a stockholder to effect certain actions and
make it more difficult for a third party to acquire, or discourage a third party
from attempting to acquire, control of the Company. As a result, they could
limit the price that certain investors might be willing to pay in the future for
shares of the Common Stock. See "Description of Capital Stock--Preferred Stock",
"--Rights Plan" and "--Delaware Law and Certain Charter and By-Law Provisions."
SUBORDINATION OF NOTES. The Notes will be unsecured and subordinated
obligations of the Company and will be subordinated in right of payment in full
of all Senior Indebtedness (as defined). The Notes will also be effectively
subordinated to all indebtedness and other liabilities of the subsidiaries of
the Company. At January 28, 1996, the Company had approximately $60.3 million of
outstanding indebtedness that would have constituted Senior Indebtedness. In
addition, at January 28, 1996, subsidiaries of the Company had outstanding an
aggregate of approximately $19.9 million of indebtedness and other liabilities
to which the Notes would have been effectively subordinated. The Indenture does
not limit the amount of additional indebtedness, including Senior Indebtedness,
which the Company or any of its subsidiaries can create, incur, assume or
guaranty. The Company anticipates that from time to time it and its subsidiaries
will incur additional indebtedness, including Senior Indebtedness. No payment on
account or principal, premium, if any, or interest on, or redemption or
repurchase of, the Notes may be made by the Company if there is a default in the
payment of principal, premium, if any, or interest (including a default under
any repurchase or redemption obligation) with respect to any Senior Indebtedness
or if any other event of default with respect to any Senior Indebtedness
permitting the holders thereof to accelerate the maturity thereof shall have
occurred and shall not have been cured or waived. Upon any acceleration of the
principal due on the Notes or payment or distribution of assets of the Company
to creditors upon any dissolution, winding-up, liquidation or reorganization,
all principal, premium, if any, and interest due on all Senior Indebtedness must
be paid in full before the holders of the Notes are entitled to receive any
payment. Moreover, the cash flow and consequent ability of the Company to
service debt, including the Notes, is partially dependent upon the earnings from
the Company's subsidiaries and the distribution of those earnings, or upon loans
or other payments of funds, by those subsidiaries to the Company. The
subsidiaries have no obligation to pay any amounts due pursuant to the Notes
(which are obligations exclusively of the Company), and their payment of
dividends or distributions and making of loans or other payments to the Company
could be subject to statutory or contractual restrictions, could be contingent
upon the subsidiaries' earnings and are subject to various business
considerations. See "Description of Notes--Subordination of Notes."
LIMITATION ON REPURCHASE OF NOTES. Upon the occurrence of a Repurchase
Event (as defined), each holder of Notes may require the Company to repurchase
all or a portion of such holder's Notes. If a Repurchase Event were to occur,
there can be no assurance that the Company would have sufficient financial
resources, or would be able to arrange financing, to pay the repurchase price
for all Notes tendered by holders thereof. In addition, the occurrence of
certain Repurchase Events would constitute an event of default under certain of
the Company's current debt agreements, and the Company's repurchase of Notes as
a result of the occurrence of a Repurchase Event may be prohibited or limited
by, or create an event of default under, the terms of future agreements relating
to borrowings of the Company, including agreements relating to Senior
Indebtedness. In the event a Repurchase Event occurs at a time when the Company
is prohibited from purchasing Notes, the Company could seek the consent of its
lenders to the purchase of the Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such a
consent or repay such borrowings, the Company would remain prohibited from
purchasing Notes. In such case, the Company's failure to purchase tendered Notes
would constitute an Event of Default under the Indenture which would, in turn,
constitute a further default under certain of the Company's existing debt
agreements and may constitute a default under the terms of other indebtedness
that the Company may incur from time to time. In such circumstances, the
subordination provisions in the Indenture would prohibit payments to the holders
of Notes. See "Description of Notes--Repurchase at Option of Holders Upon
Repurchase Event."
12
<PAGE>
THE COMPANY
Iomega Corporation was incorporated in Delaware in 1980. The Company's
principal executive offices are located at 1821 West Iomega Way, Roy, Utah
84067, and its telephone number is (801) 778-1000. As used in this Prospectus,
the terms the "Company" and "Iomega" refer to Iomega Corporation and its wholly
owned subsidiaries, unless the context otherwise requires.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby
are estimated to be approximately $37,350,000 (approximately $43,050,000 if the
Underwriter's over-allotment option is exercised in full), after deducting the
estimated underwriting discount and offering expenses.
The Company intends to use the net proceeds primarily for working capital
needs and general corporate purposes, including the repayment of a portion of
the amounts outstanding under its bank loan agreements. In particular, the net
proceeds may be used to expand manufacturing capacity, fund sales and marketing
and research and development activities, purchase capital equipment, and finance
increases in accounts receivable and inventory that may result from continued
growth in the Company's business. The amounts actually expended by the Company
for these purposes will vary significantly depending upon a number of factors,
including the market demand for the Company's products, the availability of
critical components, the Company's strategic alliances for the manufacture of
its products, the progress of the Company's product development efforts and the
Company's inventory management. The Company does not believe it can at this time
accurately estimate the amounts to be used for each purpose. See "Risk
Factors--Significant Unallocated Net Proceeds."
Under its loan agreement with Wells Fargo Bank, N.A. ("Wells Fargo"), the
Company has outstanding revolving loans, which bear interest at the bank's prime
rate plus 1% and become due and payable on June 30, 1996, and term loans, which
bear interest at the bank's prime rate plus 1.25% and become due and payable on
June 30, 1996. As of January 28, 1996, borrowings under this loan agreement were
$43.7 million, consisting of $40.2 million under the revolving credit facility
and $3.5 million under the term loan facility. As of January 28, 1996, there was
$10.7 million of borrowings outstanding under the loan agreement between a
foreign subsidiary of the Company and a German commercial bank at interest rates
ranging from 7.75% to 15.00%. The agreement expires on November 30, 1996. In
January 1996, the Company entered into a $6 million revolving credit facility
with First Security Bank of Utah, N.A., all of which was outstanding at January
28, 1996. The line matures on April 12, 1996 and bears interest at the bank's
prime rate plus 2%. Amounts borrowed under these loan agreements have been used
for working capital purposes and purchases of capital equipment. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and Notes 5 and 13 of Notes to
Consolidated Financial Statements for a further description of the Company's
loan agreements.
The Company may also use a portion of the net proceeds to make one or more
acquisitions of businesses, products or technologies which enhance or broaden
the Company's current product offerings. However, except as described below, the
Company has no specific agreements or commitments and is not currently engaged
in any negotiations for any such acquisition. The Company is currently engaged
in negotiations for a technology acquisition for a total purchase price (to be
paid over two years) of less than $2,000,000, which the Company does not
consider material to its business or financial condition.
Pending the uses described above, the net proceeds will be invested in
short-term, investment-grade, interest-bearing securities.
13
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol IOMG. The following table sets forth for the periods indicated the high
and low sales prices per share of the Common Stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1994
- -----------------------------------------------------------------------------------------------
First Quarter.................................................................................. $ 0.83 $ 0.60
Second Quarter................................................................................. $ 0.70 $ 0.53
Third Quarter.................................................................................. $ 1.07 $ 0.70
Fourth Quarter................................................................................. $ 1.50 $ 0.77
<CAPTION>
1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
First Quarter.................................................................................. $ 2.61 $ 1.08
Second Quarter................................................................................. $ 8.71 $ 2.33
Third Quarter.................................................................................. $ 10.00 $ 6.79
Fourth Quarter................................................................................. $ 17.92 $ 5.50
<CAPTION>
1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
First Quarter (through February 26, 1996)...................................................... $ 17.46 $ 11.42
</TABLE>
The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying any cash dividends in the foreseeable future. The Company
currently intends to retain future earnings to fund the development and growth
of its business. The Company's loan agreements prohibit the payment of dividends
without the prior written consent of the banks.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1995 and as adjusted to give effect to the sale by the Company of
the Notes offered hereby, after deducting the estimated underwriting discount
and offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
% Convertible Subordinated Notes due 2001................................................ $ -- $ 40,000
Stockholders' equity:
Preferred Stock, $.01 par value;
4,750,000 shares authorized; no
shares outstanding..................................................................... -- --
Series C Junior Participating Preferred
Stock, $.01 par value; 250,000 shares
authorized; no shares outstanding...................................................... -- --
Common Stock, $.03 1/3 par value;
150,000,000 shares authorized; 58,819,335
shares outstanding (1)................................................................. 1,960 1,960
Additional paid-in capital.............................................................. 51,473 51,473
Retained earnings....................................................................... 9,253 9,253
--------- -----------
Total stockholders' equity............................................................ 62,686 62,686
--------- -----------
Total capitalization.................................................................. $ 62,686 $ 102,686
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Number of authorized shares gives effect to an amendment to the Certificate
of Incorporation in January 1996 increasing the number of authorized shares
of Common Stock from 30,000,000 to 150,000,000. Numbers of outstanding
shares give effect to the 3-for-1 stock split (effected as a 200% stock
dividend) in January 1996, and excludes (i) an aggregate of 6,206,977 shares
of Common Stock reserved for issuance upon the exercise of stock options
outstanding as of December 31, 1995 with a weighted average exercise price
of $1.67 per share, and (ii) an aggregate of shares issuable upon
conversion of the Notes.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for and as of the years ended December 31, 1991, 1992, 1993, 1994 and
1995. These selected consolidated financial data have been derived from the
Company's consolidated financial statements which have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports.
These data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales......................................................... $ 136,566 $ 139,174 $ 147,123 $ 141,380 $ 326,225
Cost of sales............................................... 68,404 74,090 92,585 92,453 235,838
--------- --------- --------- --------- ---------
Gross margin.............................................. 68,162 65,084 54,538 48,927 90,387
Operating expenses:
Selling, general and administrative......................... 34,323 37,572 38,862 36,862 57,189
Research and development.................................... 17,939 21,959 18,972 15,438 19,576
Restructuring costs (reversal).............................. -- -- 14,131 (2,491) --
--------- --------- --------- --------- ---------
Total operating expenses.................................. 52,262 59,531 71,965 49,809 76,765
--------- --------- --------- --------- ---------
Operating income (loss)....................................... 15,900 5,553 (17,427) (882) 13,622
Interest and other income (expense)........................... 1,661 592 771 908 (1,983)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and cumulative effect of
accounting change............................................ 17,561 6,145 (16,656) 26 11,639
Provision for income taxes (1)................................ (5,236) (1,474) (206) (1,908) (3,136)
--------- --------- --------- --------- ---------
Net income (loss) before cumulative effect of accounting
change (1)................................................... 12,325 4,671 (16,862) (1,882) 8,503
Cumulative effect of accounting change (1).................... -- -- 2,337 -- --
--------- --------- --------- --------- ---------
Net income (loss)............................................. $ 12,325 $ 4,671 $ (14,525) $ (1,882) $ 8,503
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per common share (2)........................ $ 0.20 $ 0.08 $ (0.27) $ (0.03) $ 0.14
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares outstanding (2)................ 61,767 60,795 54,318 55,419 60,180
Ratio of earnings to fixed charges (3)........................ 30.0 9.1 - 1.0 6.0
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and temporary investments.............. $ 31,611 $ 19,691 $ 18,804 $ 19,793 $ 1,023
Working capital............................................... 43,165 35,038 30,550 34,818 12,623
Total assets.................................................. 87,046 86,955 81,089 75,833 266,227
Stockholders' equity.......................................... 64,845 65,024 51,090 49,063 62,686
</TABLE>
- ------------------------------
(1) See Note 3 of Notes to Consolidated Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements.
(3) For purposes of determining the ratio of earnings to fixed charges,
earnings consist of net income (loss) before provision for income taxes and
cumulative effect of accounting change, plus fixed charges. Fixed charges
consist of interest expense and the estimated interest component of rental
expense. For 1993, earnings were insufficient to cover fixed charges by
$16.7 million.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
BACKGROUND
The Company's business has undergone a significant transition over the past
three years. During 1993, the Company recorded $14.1 million in restructuring
costs relating to the write-off of certain assets and the establishment of
accruals and reserves for future restructuring of the Company's business,
including the disposal of a portion of the Company's research and development
operations, workforce reductions and other consolidation of operations, and
other restructuring actions necessary to make the Company more customer-driven.
These restructuring reserves and accruals totaled approximately $11.5 million at
December 31, 1993.
1994 was a year of transition for the Company as operations were
restructured and redirected towards new development and marketing activities. On
January 1, 1994, Mr. Edwards joined the Company as President and Chief Executive
Officer. During the first quarter of 1994, the Company sold its thin-film head
development operations and discontinued its Floptical development operations.
During the third quarter of 1994, the Company sold certain assets of its
Floptical development operations and also abandoned a Bernoulli-type product in
the development stage. During the fourth quarter of 1994, the Company disposed
of tooling and other manufacturing equipment which had become obsolete due to
product design changes to make the Company's products more consumer friendly.
The Company also reduced its workforce and paid out severance and outplacement
costs in connection with two reductions in workforce, one of which occurred in
January 1994 and the other in June 1994. These actions were included in the 1993
restructuring accruals and therefore had no impact on 1994 results of
operations.
In addition to restructuring and streamlining much of its historical
business during 1994, the Company took several steps towards introducing the
products that are currently generating most of the Company's revenues. In 1994,
the Company began the consumer research and product development efforts that
would lead to the introduction of its Zip disk drive, which was announced in
October 1994. The Company also began the development work that would culminate
in the Jaz drive. In addition, the Company successfully expanded and enhanced
its family of tape drives in 1994, adopting the Ditto name for the first time
and introducing the Ditto 420.
The Company's efforts during 1994 began to yield results in 1995. The Zip
drive began commercial shipment in March 1995. The Jaz drive began commercial
shipment in limited quantities in December 1995. The Company continued to
enhance its tape drive family in 1995, introducing the Ditto Easy 800 and the
Ditto 3200. As a result of these new products, the Company's sales increased
from $40.1 million in the first quarter of 1995 to $148.8 million in the fourth
quarter of 1995.
In 1994, Bernoulli products accounted for almost two-thirds of the Company's
sales, with Ditto products accounting for most of the balance. In 1995, Zip was
the Company's largest selling product line, with Bernoulli products accounting
for only approximately 20% of the Company's sales. The Company expects that Zip
and Jaz products will account for a substantial majority of its sales in 1996.
The Company does not expect Bernoulli products to represent a significant
portion of the Company's revenues or net income in the future.
FUTURE OPERATING RESULTS
Because the Company is relying on its Zip and Jaz products for the
substantial majority of its sales in 1996, the Company's future operating
results will depend in large part on the ability of those products to attain
widespread market acceptance. Although the Company believes there is a market
demand for new personal computer data storage solutions, there can be no
assurance that the Company will be successful in establishing Zip and Jaz as
accepted solutions for that market need. The extent to which Zip and Jaz achieve
a significant market presence will depend upon a number of factors, including
the price, performance and other characteristics of competing solutions
introduced by other vendors, the timing of the introduction of such solutions,
and the success of the Company in establishing OEM arrangements for Zip and Jaz
with leading personal computer
17
<PAGE>
manufacturers. In addition, the component shortages confronting the Company
could continue to limit the Company's sales and provide an opportunity for
competing products to achieve market acceptance. See "Risk Factors--Recent
Introduction of Zip and Jaz; Uncertainty of Market Acceptance," "--Competition,"
"--Shortages of Critical Components; Absence of Supply Contracts; Dependence on
Suppliers," "--Dependence on Non-Binding Strategic Marketing Alliances; Need to
Establish Additional Alliances" and "--Reliance on Non-Binding Contract
Manufacturing Relationships" and "Business--The Need for New Data Storage
Solutions," "--Marketing and Sales," "--Manufacturing" and "--Competition."
A number of elements of the Company's business strategy may also directly
impact the Company's future operating results. Because the Company's marketing
strategy is based in significant part on generating consumer awareness of and
demand for its products, the Company plans to incur significantly increased
marketing and advertising expenses in 1996. In addition, a critical element of
the Company's distribution strategy is the establishment of OEM arrangements for
Zip, Jaz and Ditto. OEM sales generally provide lower gross margins than sales
to other channels. Moreover, reductions in the prices of the Company's Zip, Jaz
and Ditto products, which the Company believes is likely at some point in the
future, would likely have an adverse effect on gross margins for those products.
The Company's business strategy is substantially dependent on maximizing
sales of its proprietary Zip and Jaz disks, which generate significantly higher
margins than its disk drives. If this strategy is not successful, either because
the Company does not establish a sufficiently large installed base of Zip and
Jaz drives, because another party succeeds in producing disks that are
compatible with Zip and Jaz drives without infringing the Company's proprietary
rights, or for any other reason, the Company's sales would be adversely
affected, and its net income would be disproportionately adversely affected. See
"Risk Factors--Dependence on Proprietary Technology."
Although sales of Zip drives and disks were the primary reason for the
Company's revenue growth during 1995, sales of such products may be attributable
in large part to the novelty of such products and the initial publicity
surrounding the introduction of Zip, and may not be indicative of the long-term
demand for such products. Moreover, the retail market to which the Company's
products are targeted is seasonal, with a substantial portion of total sales
typically occurring in the fourth quarter, and may be subject to continued
softening in 1996. Accordingly, investors should not assume that the sales
growth experienced by the Company in 1995 is an indication of future sales.
Moreover, in light of the Company's revenue growth in 1995 and the change in the
nature of its business over the past year, the Company believes that
period-to-period comparisons of its financial results are not necessarily
meaningful. In addition, the Company has experienced and may experience
significant fluctuations in its quarterly operating results. See "Risk
Factor--Recent Operating Losses; Quarterly Fluctuations in Operating Results;
Risk of Failure to Satisfy Market Expectations."
The Company's European sales are predominantly denominated in foreign
currencies. In addition, the Company purchases certain components in foreign
currencies. The Company enters into forward exchange contracts to sell and
purchase foreign currencies as a means of hedging its foreign operating cash
flows. Fluctuations in the value of foreign currencies relative to the U.S.
dollar would result in foreign currency gains and losses. See "Risk
Factors--International Operations."
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
sales for the years ended December 31, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
-------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Sales............................................................................ 100.0% 100.0% 100.0%
Cost of sales.................................................................... 62.9 65.4 72.3
----- ----- -----
Gross margin................................................................... 37.1 34.6 27.7
----- ----- -----
Operating expenses:
Selling, general and administrative............................................ 26.4 26.1 17.5
Research and development....................................................... 12.9 10.9 6.0
Restructuring costs (reversal)................................................. 9.6 (1.8) --
----- ----- -----
Total operating expenses..................................................... 48.9 35.2 23.5
----- ----- -----
Operating income (loss).......................................................... (11.8) (0.6) 4.2
Interest and other income (expense).............................................. 0.5 0.6 (0.6)
----- ----- -----
Income (loss) before income taxes and cumulative effect of accounting change..... (11.3) -- 3.6
Provision for income taxes....................................................... (0.2) (1.3) (1.0)
----- ----- -----
Net income (loss) before cumulative effect of accounting change.................. (11.5) (1.3) 2.6
Cumulative effect of accounting change........................................... 1.6 -- --
----- ----- -----
Net income (loss)................................................................ (9.9)% (1.3)% 2.6%
----- ----- -----
----- ----- -----
</TABLE>
1995 AS COMPARED TO 1994
SALES. Sales increased by $185 million, or 131%, in 1995 when compared to
1994. The primary reason for the increased sales was the introduction of the new
Zip product line, which began shipping at the end of the first quarter of 1995.
Increased sales of Ditto products also contributed to the increased sales. In
addition, the Company began shipping Jaz products in limited quantities in
December 1995. These sales increases were partially offset by reduced sales of
Bernoulli products.
In 1995, sales of Zip and Jaz products accounted for $174.2 million, or 53%,
of sales. Ditto products accounted for $86.5 million, or 27%, of sales in 1995
as compared to $42.1 million, or 30%, of sales in 1994. Bernoulli and other
product sales totaled $65.5 million, or 20%, of sales in 1995 as compared to
$99.3 million, or 70%, of 1994 sales. In the fourth quarter of 1995, sales of
Zip and Jaz increased to 68% of sales, Ditto represented 22% of sales and
Bernoulli and other products were 10% of sales.
Sales to the U.S. market increased by $133.5 million, or 149%, in 1995 when
compared to 1994. International sales, primarily to customers located in Europe,
increased by $51.3 million, or 99%, in 1995 when compared to 1994. In total,
sales outside of the United States represented 31.7% of sales in 1995 as
compared to 36.7% in 1994.
Management expects increased sales of Zip, Jaz and Ditto products in 1996,
which it expects to be partially offset by significant declines in sales of
Bernoulli products. However, the Company is experiencing component shortages
which may continue to limit production and therefore sales. Accordingly, there
can be no assurance that future sales will materialize as expected.
GROSS MARGIN. The Company's gross margin percentage in 1995 was 27.7%, as
compared to 34.6% in 1994. The decline in gross margin percentage was primarily
attributable to a shift in sales mix away from higher margin Bernoulli products
to lower margin Zip products. Start-up costs associated with the introduction of
Zip and Jaz products also contributed to the decline in gross margin percentage.
The Company's gross margin
19
<PAGE>
percentage increased from 25.4% in the third quarter of 1995 to 30.6% in the
fourth quarter of 1995, which is primarily attributable to an increase in sales
of Zip disks, which have significantly higher margins than drives, as a
percentage of total sales.
Gross margins in 1996 will depend in large part on sales of Zip and Jaz
disks, which generate significantly higher gross margin than the corresponding
drives, and on the sales mix between disks and drives. Historically, the gross
margin of Bernoulli products has generally been in excess of 40%; the gross
margins of the Zip, Jaz and Ditto product lines during 1995 were significantly
lower than that. Although the Company expects the gross margins of Zip and Jaz
products to increase as production increases, it does not expect them to achieve
the levels historically achieved by Bernoulli. In addition, gross margins will
be affected by the level of sales through OEMs, the Company's ability to achieve
planned cost reductions and by any future price reductions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by 55% in 1995 as compared to 1994. As a
percentage of sales, these expenses declined from 26.1% in 1994 to 17.5% in
1995. The decline in percentage is due to the increased sales volume in 1995.
The actual selling, general and administrative expenses increased by $20.3
million in 1995 as compared to 1994. The increased expenses were primarily the
result of advertising and promotion expenses incurred to launch new products,
variable selling expenses, and increased salaries and wages resulting from
increased headcount in all areas of sales, marketing and administration.
Management expects selling, general and administrative expenses to increase
further in 1996 in absolute dollars due to advertising and promotion expenses
expected to be incurred to help create demand for Zip, Jaz and Ditto products,
as well as increased variable selling expenses and increased fixed
administrative expenses.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
6.0% of sales in 1995, compared to 10.9% in 1994. The decline in percentages is
due to the increased sales volumes in 1995. The actual research and development
expenses increased by $4.1 million in 1995 compared to 1994. This increase was
primarily the result of expenditures related to the development of the Zip,
Ditto and Jaz products. Management expects continued increases in research and
development expenses in 1996 in absolute dollars as the result of the continued
growth in the resources needed for future product development and enhancement.
OTHER. In 1995, the Company recorded a net foreign currency loss of $1.2
million. This loss was primarily a result of losses incurred in connection with
the remeasurement of forward exchange contracts to market values. The majority
of the loss was incurred in the first quarter of 1995 as the U.S. dollar
weakened against foreign currencies (primarily European currencies) that were
hedged by the forward contracts in place at March 31, 1995. In the first quarter
of 1995, the Company bought more than its customary three months of forward
exchange contracts with the intent of hedging operating cash flows through the
remainder of the year and in anticipation of a strengthening dollar. However,
the dollar continued to weaken against the currencies that were hedged,
resulting in a $1.5 million charge to operations. The loss on the remeasurement
of forward exchange contracts was partially offset by translation gains recorded
in remeasurement of its foreign subsidiary's financial statements to the U.S.
dollar.
The Company recorded interest expense of $1.7 million in 1995 due to
borrowings on short-term credit lines as well as capital leases. Interest income
declined from $.9 million in 1994 to $.5 million in 1995 due to declining cash
balances. Other income of $.4 million recorded in 1995 is primarily attributable
to royalty payments received related to the Company's Ditto products.
For 1995, the Company recorded a tax provision of $3.1 million representing
an effective income tax rate of 27%. The Company expects the effective income
tax rate to increase in the future to the statutory rate of 35% for federal
income tax and approximately 5% for state income taxes. The timing of the rate
increase will depend on future taxable income, the utilization of available tax
credits, and changes in the valuation allowance associated with the deferred tax
assets.
1994 AS COMPARED TO 1993
Sales decreased by 4% in 1994 when compared to 1993. Significant declines in
sales of 5 1/4-inch 44- and 90-MB Bernoulli drive products were partially offset
by increased sales of 5 1/4-inch 150- and 230-MB Bernoulli
20
<PAGE>
drive products. Bernoulli drive sales dollars in total declined in 1994 as
compared to 1993. Unit sales of Bernoulli drives were relatively flat in 1994
versus 1993, but price reductions resulted in lower sales dollars. Bernoulli
disk sales also declined in 1994 as compared to 1993 in both dollars and units.
These declines in Bernoulli sales were partially offset by increased sales of
tape products. Tape drive unit sales doubled in 1994 as compared to 1993, while
sales dollars increased at a slightly lower rate due to a lower average price on
tape products in 1994. Sales of the Company's SyQuest-compatible removable hard
disk cartridges (which have been discontinued) increased in 1994, which offset a
decline in Floptical product sales.
Sales to the U.S. market declined in 1994 when compared to 1993 as a result
of decreasing sales of Bernoulli products, which were only partially offset by
increases in tape product sales. International sales, including export sales,
increased by approximately 25% and represented 37% of total consolidated sales
in 1994 compared to 28% in 1993. Substantial increases in sales of tape products
in Europe were the primary reason for the increased sales in the international
channels.
Cost of sales increased as a percentage of sales from 62.9% in 1993 to 65.4%
in 1994. The decline in the gross margin percentage was partially due to a
higher mix of tape products which have lower gross margins than the Bernoulli
products. In addition, all product lines continued to experience competitive
price pressures which resulted in lower selling prices in 1994 when compared to
1993. Partially offsetting these factors, both the Bernoulli and tape product
lines benefitted from significant production cost reductions which were realized
throughout 1994.
Selling, general and administrative expenses decreased by $2.0 million and
decreased slightly as a percentage of sales from 26.4% to 26.1%. Decreases in
selling, general and administrative expenses resulted from restructuring actions
which occurred in January and June of 1994, including the closing down of the
Floptical product line, as well as streamlining operations in both the U.S. and
Europe. Sales and marketing expenses were increased in the latter part of 1994
to introduce the Zip product line and to reposition the Company's marketing
strategy worldwide. In addition, selling, general and administrative expenses
increased in 1994 due to the payment of management bonuses.
Research and development expenses decreased by $3.5 million and declined as
a percentage of sales from 12.9% in 1993 to 10.9% in 1994. The major decline in
research and development expenses resulted from the sale of the Company's thin
film head development operation located in Fremont, California in the first
quarter of 1994 and from closing its Floptical development laboratory located in
Boulder, Colorado in the first quarter of 1994. Offsetting these decreases were
increased development spending on the Company's tape product line and
development costs for the Company's Zip product line.
The Company's operating expenses were reduced in 1994 due to the reversal of
restructuring reserves totaling $2.5 million. The Company had previously
recorded restructuring reserves totaling $11.5 million at December 31, 1993.
During 1993 and 1994, the Company effected most of the restructuring actions
that had been planned, but due to changing conditions, it elected to change the
scope and focus of other previously planned activities. As a result, the Company
no longer required $2.5 million of the previously recorded reserves and reversed
the unneeded reserves in the fourth quarter of 1994. The Company had no
remaining restructuring reserves on its balance sheet at December 31, 1994.
Interest income increased by $0.3 million in 1994 as compared to 1993 due to
a slight increase in cash and temporary investments, as well as higher interest
rates earned on available balances. Other income consisted primarily of
royalties received, offset in part by losses incurred on the writedown of
computer systems and foreign currency losses.
In 1993, the Company increased its deferred tax assets as required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109). The deferred tax assets net value at December 31, 1993
was $5.0 million. The realizability of deferred tax assets was reevaluated
throughout 1994 in light of changing business conditions and uncertainties
regarding previously contemplated strategies. As a result, the Company recorded
a tax provision of $3.3 million to increase the valuation allowance to cover the
realizability of the deferred tax assets to its estimated realizable value as of
December 31, 1994. In addition to this tax provision which was recorded in 1994,
the Company recognized a tax benefit of $1.4 million in the third
21
<PAGE>
quarter of 1994 as a result of a change in an estimate on the Company's 1993 tax
return due to a change in the transfer price on products between the Company and
its German subsidiary. The change in transfer price was a result of an
independent economic study. The above items resulted in a tax provision for 1994
totaling $1.9 million.
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth certain unaudited quarterly results of
operations of the Company for each quarter of 1995. In the opinion of
management, these financial data have been prepared on the same basis as the
audited consolidated financial statements of the Company and include all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the results of operations for these periods. These financial
data should be read in conjunction with the Consolidated Financial Statements
and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------
APRIL 2, JULY 2, OCTOBER 1, DECEMBER 31,
1995 1995 1995 1995
--------- --------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales......................................................... $ 40,112 $ 52,594 $ 84,721 $ 148,798
Cost of sales................................................. 28,395 40,907 63,225 103,311
--------- --------- ----------- -------------
Gross margin................................................ 11,717 11,687 21,496 45,487
Operating expenses:
Selling, general and administrative......................... 9,349 10,162 13,878 23,800
Research and development.................................... 4,126 3,976 4,691 6,783
--------- --------- ----------- -------------
Total operating expenses.................................... 13,475 14,138 18,569 30,583
--------- --------- ----------- -------------
Operating income (loss)....................................... (1,758) (2,451) 2,927 14,904
Interest and other income (expense)........................... (20) (55) (230) (1,678)
--------- --------- ----------- -------------
Income (loss) before income taxes............................. (1,778) (2,506) 2,697 13,226
Provision for income taxes.................................... 280 559 (672) (3,303)
--------- --------- ----------- -------------
Net income (loss)............................................. $ (1,498) $ (1,947) $ 2,025 $ 9,923
--------- --------- ----------- -------------
--------- --------- ----------- -------------
Net income (loss) per common share............................ $ (0.03) $ (0.03) $ 0.03 $ 0.16
--------- --------- ----------- -------------
--------- --------- ----------- -------------
Weighted average common shares outstanding.................... 56,301 57,018 63,618 63,780
</TABLE>
Sales in the first quarter of 1995 consisted primarily of sales of Bernoulli
and Ditto drives and media. Zip products, which began shipping late in the first
quarter of 1995, accounted for an increasing portion of sales over each of the
remaining three quarters of 1995. Sales of Zip products throughout 1995 were
affected by component shortages which limited production. The Company began
shipping Jaz drives in limited quantities during December 1995.
The losses incurred in the first and second quarters of 1995 were
predominantly a result of the start-up costs associated with the introduction of
Zip, component shortages relating to Zip and anticipated declines in sales of
Bernoulli products. Bernoulli products, which accounted for more than 60% of
total sales in the fourth quarter of 1994, declined to less than 10% of total
sales by the fourth quarter of 1995. In the fourth quarter of 1995, sales of Zip
and Jaz accounted for 68% of sales, a large portion of which occurred in the
final month of the quarter, and Ditto represented 22% of sales.
Quarterly fluctuations in gross margin percentages were primarily related to
the mix of products sold and start-up costs associated with the introduction of
new products. Gross margins declined from 29% in the first quarter to 22% in the
second quarter, primarily due to start-up costs associated with the introduction
of Zip products and a decline in sales of higher margin Bernoulli products.
Gross margins improved to 25% in the third quarter primarily due to the impact
of increased sales of Zip products, which more than offset the decline in sales
of higher margin Bernoulli products. In the fourth quarter, gross margins
improved to 31%, which was primarily attributable to an increase in sales of Zip
disks, which have significantly higher margins than drives, as
22
<PAGE>
a percentage of total sales. The increase in margins in the third and fourth
quarters, together with continued management of fixed costs, resulted in the
Company's profitability in the second half of 1995 and for the total year.
Although sales of Zip products were the primary reason for the Company's
revenue growth during 1995, such sales may be attributable in large part to the
novelty of the product and the initial publicity surrounding the introduction of
Zip, and may not be indicative of the long-term demand for the product.
Accordingly, investors should not assume that the sales growth experienced by
the Company in 1995 is an indication of future sales. Moreover, in light of the
Company's revenue growth in 1995 and the change in the nature of its business
over the past year, the Company believes that period-to-period comparisons of
its financial results are not necessarily meaningful. See "Risk Factors--Recent
Introduction of Zip and Jaz; Uncertainty of Market Acceptance" and "-- Recent
Operating Losses; Quarterly Fluctuations in Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had cash and cash equivalents of $1.0
million, working capital of $12.6 million and a ratio of current assets to
current liabilities of 1.1 to 1. During 1995, the Company used $15.8 million in
cash and cash equivalents consisting of $27.0 million used in operating
activities, and $42.5 million in investing activities, offset by $53.7 million
provided by financing activities.
On July 5, 1995, the Company entered into a loan agreement with the
Commercial Finance Division of Wells Fargo. The agreement permits revolving
loans, term loans and letters of credit up to an aggregate outstanding principal
amount equal to the lesser of $60 million or 80% of eligible accounts
receivable, with a 10% overadvance provision through April 12, 1996. There is an
aggregate sublimit of $10 million for letters of credit. The revolving credit
line bears interest at the bank's prime rate plus 1%, and the Wells Fargo term
loans bear interest at the bank's prime rate plus 1.25%. The agreement expires
June 30, 1996. Certain covenants within the agreement require the Company to
maintain minimum levels of working capital and net worth. Under the agreement
with Wells Fargo, the Company may also secure financing of equipment purchases
from third parties up to a maximum of $25 million, less term loans outstanding
to Wells Fargo. In November 1995, a foreign subsidiary of the Company entered
into an agreement with a German commercial bank for up to DM 50 million
(approximately $35 million), which involves the sale of a portion of the foreign
subsidiary's accounts receivable to the bank. In January 1996, the Company
entered into a $6.0 million short-term revolving credit facility with First
Security Bank of Utah. This facility matures on April 12, 1996 and contains
covenants similar to those contained in the Wells Fargo loan agreement. In
addition, the Company has entered into various agreements to provide capital
lease financing and other term loans for the purchase of certain manufacturing
equipment. The Company intends to refinance its loan with Wells Fargo upon its
maturity. There can be no assurance, however, that the Company will be able to
refinance such loan at acceptable terms.
The Company's balance sheet at December 31, 1995 reflected current notes
payable of $47.6 million, representing utilization of the revolving credit line
with Wells Fargo of $33.2 million, term loans with Wells Fargo of $3.6 million,
borrowings under the German loan agreement of $9.8 million and the short-term
portion of other term loans of $1.0 million. In addition, the short-term and
long-term portion of capital lease obligations totaled $0.8 million and $1.5
million, respectively, at December 31, 1995, and the long-term portion of notes
payable totaled $2.6 million at December 31, 1995. The borrowings have been used
to finance working capital needs, including increases in inventory and accounts
receivable and capital expenditures related to production volume increases.
Accounts receivable increased by $87.1 million at December 31, 1995 compared
to December 31, 1994, due to increased sales, particularly in the last portion
of the fourth quarter. Inventory increased by $81.4 million during 1995 due to
build-ups in manufacturing capacity at both the Company's facilities and those
of manufacturing partners. The Company's inventory is currently somewhat
imbalanced, with more than sufficient quantities of certain goods and
insufficient quantities of other goods, due in part to difficulties in obtaining
certain components. The increases in receivables and inventory were partially
offset by increases in accounts payable and accrued liabilities of $120.4
million.
23
<PAGE>
Cash expenditures for fixed asset additions for 1995 totaled $45.2 million.
These additions are primarily related to increased manufacturing capacity for
Zip, Ditto and Jaz products. The Company expects capital expenditures in future
quarters to continue to be significant as production capacity is added at the
Company's current manufacturing facility, as well as tooling at vendor
facilities and third-party manufacturing facilities.
The Company expects that the proceeds of this offering, together with the
current sources of financing available to the Company, will be sufficient to
fund the Company's operations at least through June 30, 1996, including any
planned expense increases or capital expenditures discussed above. Thereafter,
the Company anticipates that it will require additional funds to finance its
operations. The precise amount and timing of the Company's funding needs cannot
be determined at this time, and will depend upon a number of factors, including
the market demand for the Company's products, the availability of critical
components, the Company's strategic alliances for the manufacture of its
products, the progress of the Company's product development efforts and the
Company's inventory management. The Company currently expects that it would seek
to obtain such funds from additional borrowing arrangements and/or a public
offering of debt or equity securities. There can be no assurance that funds
required by the Company in the future will be available on terms satisfactory to
the Company. See "Risk Factors--Decline in Liquidity; Future Capital Needs."
RECENT ACCOUNTING PRONOUNCEMENT
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS No. 121).
SFAS No. 121 is effective for financial statement periods beginning after
December 31, 1995. Management does not expect that the adoption of SFAS No. 121
will have a material impact on the Company's financial position or results of
operations.
24
<PAGE>
BUSINESS
The Company designs, manufactures and markets innovative data storage
solutions, based on removable-media technology, that help personal computer
users "manage their stuff." The Company's data storage solutions include disk
drives marketed under the tradenames Zip and Jaz and a family of tape drives
marketed under the tradename Ditto. The Company's Zip and Jaz disk drives are
designed to provide users with the benefits of high capacity and rapid access
generally associated with hard disk drives and the benefits of media
removability generally associated with floppy disk drives, including expandable
storage capacity and data transportability, management and security. The
Company's Ditto tape drives primarily address the market for backup data
storage. The Company began shipping Zip drives in March 1995 and Jaz drives in
limited quantities in December 1995.
Designed as a mass-market product, the Zip drive addresses the needs of
personal computer users for an affordable storage device for hard drive
expansion, data transportability, management and security and data backup. The
drive uses 100-MB disks to provide 70 times the capacity of traditional floppy
disks. See "Business--Products--Zip." The external model of the Zip drive is
generally sold by retailers for under $200 and the 100-MB disks are typically
sold for under $15 per disk in ten-packs. The Jaz drive also provides hard drive
expansion, data transportability, management and security and data backup.
However, the Jaz drive, which features 1-GB removable disks and offers data
transfer rates comparable to those of most current hard disk drives, is targeted
to address the high-performance needs of computer users storing, transporting
and playing demanding multimedia applications, such as full-screen, full-motion
video. The external model of the Jaz drive is expected to be sold by retailers
for approximately $599, while the internal version is expected to be sold by
retailers for approximately $499. Each 1-GB Jaz disk is expected to sell for
approximately $99 in five-packs. The Company's Ditto family of tape drives
addresses the need of personal computer users for an easy-to-use, dependable
backup solution. The Company offers internal and external Ditto tape drives
based on leading industry standards ranging in capacity from 420 MBs to 3.2 GBs
(using data compression).
INDUSTRY OVERVIEW
The Company believes, based upon information in a 1995 report from
International Data Corporation ("IDC"), that there are in excess of 150 million
personal computers in use worldwide. Many of these personal computers
(particularly those in the home) are used by more than one person. Moreover,
many people make regular use of more than one personal computer; for example, an
individual may use one computer in his or her office, another at home, and a
laptop computer while traveling. Issues that each user of a personal computer
must confront are how to store, transport, share, manage, secure and backup
computer files and applications.
The vast majority of personal computers in use today incorporate both a
conventional hard disk drive (which is also known as a rigid disk drive or a
"Winchester" disk drive) and a floppy disk drive for data storage. Hard disk
drives use magnetic technology to store data on rigid rotating disks that are
generally fixed permanently in the drive mechanism. Hard disk drives are
characterized by their large storage capacities--capacities ranging from 540 MBs
to 1.6 GBs are becoming increasingly common in new personal computers--and fast
performance. Hard disk drives are the primary data storage device on most
personal computers. Floppy disk drives, which are also based on magnetic
technology, store data on thin plastic disks that are removable from the drive.
Floppy disk drives are typically used for software distribution and transporting
and sharing data. Most floppy disk drives in use today utilize 1.44-MB disks,
which is not sufficient capacity to store many files and programs on a single
disk.
In addition to hard disk drives and floppy disk drives, a number of other
data storage devices have come into use in recent years. In particular, a
growing number of new personal computers incorporate a CD-ROM (compact disk-read
only memory) drive. CD-ROM disks, which are read by the CD-ROM drive using
optical technology, are capable of storing up to 650 MBs of data and are
well-suited for distribution of information and software applications. However,
CD-ROM drives are not capable of recording the user's data. A variety of other
lesser-known removable storage technologies which are capable of reading and
recording data are also available for use with personal computers, including
disk drives systems using removable "hard" magnetic cartridge disks, which
generally either employ similar technology to hard disk drives or the Company's
proprietary Bernoulli technology; writable optical disk drives, which use
various technologies to read and record data in a
25
<PAGE>
digital format that can be read by laser light; "floptical" disk drives, which
store data on a magnetic disk similar to a conventional floppy disk and use an
optical pattern for servotracking; and flash memory cards, which store data on
computer chips.
The Company estimates, based on information from 1995 reports of IDC and
Dataquest and its knowledge of the industry, that approximately 210 million data
storage devices for personal computers, representing approximately $30 billion
in revenue at the OEM level, were sold in 1995. Included in these sales figures
are hard disk drives, floppy disk drives, CD-ROM drives, removable disk drives
and tape drives. This market is principally comprised of conventional hard disk
drives, which the Company estimates represented over 40% of unit sales and
approximately two-thirds of dollar sales, and floppy disk drives, which the
Company estimates represented approximately 40% of unit sales but less than 10%
of dollar sales.
THE NEED FOR NEW DATA STORAGE SOLUTIONS
In recent years, advances in software, including memory-intensive graphical
operating systems, integrated suites of word processing, spreadsheet and
database applications, and multimedia applications, have dramatically increased
the storage needs of personal computer users. For example, a popular CD version
of Windows 95 (which includes certain pre-packaged software applications in
addition to the Windows 95 operating system) includes 629 MBs of data, which is
greater than the capacity of most hard drives in use today. In addition, data-
intensive, multimedia files are increasingly being made available to personal
computer users via on-line services and the Internet. For example, CD-quality
sound generally requires 2 MBs of storage capacity per minute, using data
compression software, and 9 MBs per minute without compression; and MPEG1
compressed DSS-satellite quality video generally requires approximately 8 MBs of
storage capacity per minute, while broadcast-quality video requires 250 MBs per
minute. Largely as a result of these trends, it has been estimated that the data
storage needs of personal computer users are doubling every year. Accordingly,
personal computer users increasingly need to expand the amount of their
available primary storage.
Personal computer users demand data storage solutions that do more than
simply provide additional storage capacity. For example, personal computer users
are increasingly seeking a reliable way to transport large files between
computers, thus allowing them to work on the same files using different
computers, and also enabling information to be provided to other computer users.
In addition, with many personal computers (particularly home computers) being
used by more than one person, many personal computer users are looking for an
effective means of organizing and segregating the files of different users of
the same computer. Personal computer users also need a reliable method of
securing sensitive files from unauthorized viewing or modification. Finally, the
increase in the data being used and stored on personal computers has heightened
the need for a practical method of backing up this data.
The Company believes that neither conventional hard disk drives nor floppy
disk drives are capable of adequately addressing all of the information storage
and management needs of personal computer users. A hard disk drive is an
effective product for primary data storage. However, using an additional hard
disk drive to provide additional storage capacity is an unattractive solution to
many personal computer users because the installation of the additional hard
drive (which generally involves selecting a compatible hard disk drive, opening
the computer case, and internally connecting the hard disk drive to the
appropriate controller card) may be difficult. More importantly, once the drive
is installed, the amount of additional available space is limited to the size of
the new hard disk drive. Furthermore, a new hard drive does not address the
issues of data transportability, management and security.
Removable-media storage devices, such as floppy disk drives, offer many of
the advantages that hard disk drives do not, such as future expandability
through the purchase of additional removable-media cartridges or disks; and data
transportability, management and security, since the media storing the data can
be removed from the drive, used in other computers and stored in a secure
location. However, the Company believes that expanding storage capacity through
conventional floppy disks, while inexpensive (floppy disks are generally sold by
retailers at less than $1.00 per disk in multi-packs), is not an adequate
solution because it is too slow and because each disk only stores up to 1.44 MBs
of data, making it too small for many of today's personal computer
26
<PAGE>
files and programs. Floppy disks are also not well-suited for backup purposes,
since approximately 70 floppy disks would be required for each 100 MBs of data
to be backed up and the user would have to be present during the backup
procedure in order to insert and remove each floppy disk.
Other types of removable-media data storage devices are now available for
use with personal computers, including magnetic cartridge disk drives, optical
disk drives, "floptical" disk drives and flash memory cards. However, these
devices, while popular in certain niche markets, have not gained widespread
market acceptance, in part because the Company believes that they have not been
able to match the price/performance levels offered by hard disk drives and
floppy disk drives.
The following table sets forth certain of the principal advantages and
disadvantages of various storage technologies currently available for users of
personal computers:
<TABLE>
<CAPTION>
TECHNOLOGY ADVANTAGES DISADVANTAGES
- --------------------- ---------------------------------------------- ----------------------------------------------
<S> <C> <C>
Hard Disk Drives - Very fast average access time - Fixed capacity
(generally 8 to 20 msec) and data - Disks storing data are not removable
transfer rate (generally 2 to 6 or transportable
MB/sec) - Less attractive aftermarket solution
- Large storage capacity (generally due to difficulty of installation
from 800MB to 4 GB)
- Inexpensive cost per MB of storage
- Proven technology/industry standard
Floppy Disk Drives - Inexpensive drives and media - Capacity is limited to 1.44 MB
- Disks are removable and per disk
transportable - Slow average access time (165 msec)
- Proven technology/industry standard and data transfer rate
CD-ROM Drives - High capacity (650 MB) - Read-only; users cannot store data
- Unlimited expansion - Very slow average access time
- Disks are removable and (230 msec)
transportable
- Inexpensive drives and media
- High durability
- Emerging industry standard for
multimedia applications
Optical Drives - Media is inexpensive - Drives are expensive
- Unlimited expansion - Several different formats exist, not
- Disks are removable and all of which are compatible
transportable - Some formats are not erasable
- Some formats are capable of reading - Average access times for
CD-ROM disks some formats are significantly
slower than hard disk drives
Floptical Drives - Capable of reading and writing to - Currently available in low capacities
traditional floppy disks (although a 120MB Floptical has
- Unlimited expansion been announced)
- Disks are removable and
transportable
Tape Drives - High capacity for backup purposes - Not capable of random access
- Tapes are removable and - Very slow average access time
transportable
- Inexpensive media
- Very low cost per MB of storage
Flash Cards - Fastest access time and data transfer - Very expensive
rate
- Removable and transportable
</TABLE>
27
<PAGE>
The Company believes, based on its consumer research, that the market for
personal computer data storage solutions can be roughly divided into two market
segments, based on the characteristics computer users demand of a data storage
solution and the relative importance they place on the advantages and
disadvantages listed above. The first, referred to by the Company as the "mass
market", is characterized by computer users who are often uninterested in the
detailed technical specifications of a data storage solution and who simply want
a data storage solution to "manage their stuff." For these computer users, an
affordable price is generally the most important criterion. The second, referred
to by the Company as the "power user" or "high-performance market," is
characterized by persons who use their personal computers for demanding
applications and who are more focused on capacity, speed and other
state-of-the-art performance features than on price.
IOMEGA SOLUTIONS
The Company believes its recently introduced Zip and Jaz disk drives address
key information storage and management needs of today's personal computer users
by providing affordable, easy-to-use storage solutions that combine the high
capacity and rapid access of hard disk drives with the benefits of media
removability generally associated with floppy disk drives. Specifically, the
Company's products offer the following benefits to personal computer users.
EXPANDABLE STORAGE CAPACITY. As personal computer users are increasingly
forced to expand their primary storage capacity (generally provided by the hard
disk drive incorporated in the computer), Zip and Jaz provide an easy and
efficient way to do so. Both the Zip and the Jaz drive can be easily connected
or installed and offer unlimited additional storage capacity, in increments of
100 MBs (in the case of Zip) and 1 GB (in the case of Jaz).
MEDIA REMOVABILITY. Both Zip and Jaz store data on high-capacity removable
disks, thus enabling computer users to:
-take programs and files from an office computer and work with them on a
home or laptop computer;
-share programs and files with other personal computer users;
-organize data by storing different files on different disks;
-create a "separate personal computer" for each person using the computer
(such as different family members)--each user can store all of his or
her software and data on a single disk that can be removed from the
computer and privately stored when that person is not using the
computer; and
-remove particularly sensitive or valuable information from the computer
for storage in a different location, thus protecting it against viewing
or modification by another user of the computer and against damage to
the computer.
DATA BACKUP. The Company's family of Ditto tape drives, as well as the Zip
and the Jaz drive, offer a convenient and effective way for personal computer
users to create backup copies of their programs and files.
ATTRACTIVE PRICE, PERFORMANCE AND FEATURES. The Company believes that its
Zip and Jaz drives provide a combination of price, performance and features that
makes them attractive data storage solutions for their target markets. Zip
offers data access times and transfer rates and storage capacity that greatly
exceeds that offered by conventional floppy disk drives, along with the benefits
of removable media, at a price that is attractive to mass-market customers. Jaz
offers many performance features comparable to those of most other data storage
devices (including conventional hard disk drives), at a lower price than other
currently available comparably performing removable-media storage devices.
COMPANY STRATEGY
Iomega's objective is to establish its Zip, Jaz and Ditto products as
industry-standard data storage solutions for personal computer users and to
capture an increasing share of the overall personal computer data storage
market. The Company's strategy to achieve this objective includes the following
key elements:
UNDERSTANDING AND PROVIDING WHAT CUSTOMERS WANT. Iomega's product strategy
is based on identifying the product characteristics that personal computer users
desire and developing and marketing products that
28
<PAGE>
satisfy these demands. In developing and introducing the Zip and Jaz drives, the
Company undertook a consumer research program to determine the performance and
price characteristics of storage solutions demanded by personal computer users.
For example, this program revealed to Iomega the need for both the mass-market
Zip drive, which was cost-engineered by the Company to sell at a price level
attractive to casual users and the small office/home office market, and the
high-performance Jaz drive, which is primarily targeted at power users.
DELIVERING INTEGRATED SOLUTIONS. The Company's products are designed to
provide customers with a complete, easy-to-use solution to their data storage
needs. The Company's drives are shipped with everything needed to install or
connect the drive, including easy-to-use software which aids in set-up and
enhances the drive's functionality, and generally also include a media cartridge
for use in the drive.
BROADENING DISTRIBUTION THROUGH STRATEGIC MARKETING ALLIANCES. The Company
believes that broadening the distribution of its products through strategic
alliances with a variety of companies within the computer industry is a critical
element in establishing its products as industry standards. The Company has
recently established OEM arrangements with personal computer manufacturers such
as Micron Electronics (a mail-order manufacturer of IBM PC-compatible personal
computers) and Power Computing (the first Macintosh clone manufacturer) for the
incorporation of Zip, Jaz or Ditto drives into their computers, and is seeking
to establish additional OEM relationships. The Company also has entered into
private or co-branding arrangements with several companies, including Maxell,
Seiko Epson, Fuji and Reveal Computer Products, who are selling private or
co-branded versions of Zip drives and disks. In addition, the Company's products
are sold by most of the leading retailers of computer products in the United
States, including Best Buy, Circuit City, CompUSA, Computer City, Electronics
Boutique and PC Warehouse.
MAXIMIZING SALES OF REMOVABLE DISKS. The Company seeks to maximize sales of
its proprietary disks because they generate significantly higher margins than
its disk drives. The Company plans to accomplish this in part by increasing the
installed base of the Company's removable-media disk drives, through such
initiatives as OEM arrangements, licensing third-party manufacturers of drives
on a royalty-bearing basis and increasing the Company's own output of drives
both for sale by the Company and by others under private branding arrangements.
Also, the multimedia demonstration software included with the Zip and Jaz drives
informs users of the various applications for additional disks (such as
security, personal workspaces, backup) and suggests the number of additional
disks the user may need in response to questions the user answers as part of the
interactive demonstration.
CONTINUING TO ENHANCE PRODUCT FEATURES AND TECHNOLOGY. The Company plans to
use its experience in Bernoulli, tape, magneto-optical, floptical and thin-film
head technologies for the ongoing enhancement of existing products and the
development of new products. During 1994 and 1995, the Company's product
development efforts were primarily devoted to the development of its Zip and Jaz
products, which began commercial shipment in March 1995 and December 1995,
respectively. During 1996, the Company expects that its development efforts will
be primarily focused on enhancing the features, developing higher capacity
versions and reducing the production costs of its Zip, Jaz and Ditto products.
LEVERAGING MANUFACTURING CAPABILITIES THROUGH PARTNERING. In addition to
manufacturing or assembling a portion of each of the Company's products at its
Roy, Utah manufacturing facility, the Company has established strategic
relationships with various suppliers and manufacturers to increase the
production capacity of its new products and to establish a second source of
drive and disk production. The Company intends to continue to use third-party
manufacturing as a means of increasing the availability and market penetration
of the Company's drive products, to reduce costs of production, and to benefit
from the expertise of experienced high-volume manufacturing companies. The
Company plans to use third-party manufacturers to produce a majority of its
products in the future.
EXPANDING INTERNATIONAL SALES. The Company began offering its Zip products
in Europe in August 1995 and expects to offer its Jaz products in Europe
beginning in the first half of 1996. The Company believes that it is the leading
vendor of tape drives in Europe, and that its existing European distribution
channel is well-suited to selling the Zip and Jaz removable-media drive
products. During the third quarter of 1995, Maxell, Seiko Epson
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<PAGE>
and Fuji began selling co-branded versions of the Zip drive in Japan, and the
Company plans to expand its presence in the Far East by opening a Singapore
sales office in 1996. The Company expects international sales to increase as a
result of its introduction of Zip and Jaz into international markets.
PRODUCTS
The Company offers products targeted at both the mass market and the
high-performance market. The Zip drive and the Ditto 420 and Ditto Easy 800 tape
drives were designed to achieve price levels which the Company determined are
critical to mass-market consumers. The Jaz drive and Ditto 3200 tape drive, on
the other hand, are principally targeted to more technically demanding, high-end
customers, who the Company believes are less price sensitive than typical
mass-market consumers.
The following table lists the principal data storage devices currently being
offered by the Company:
<TABLE>
<CAPTION>
TYPICAL RETAIL
PRODUCT (YEAR PRICE
INTRODUCED)* MEDIA AND CAPACITY DRIVE/DISK** TECHNOLOGY
- ------------------------- -------------------- ------------------ ----------------------------------
<S> <C> <C> <C>
Zip (1995) 100-MB Zip Disks $199/$14.99 Drive: Winchester heads
Disks: Advanced flexible media
Jaz (1995) 1-GB Jaz Disks $599/$99.99 Drive: Thin-film heads
540-MB Jaz Disks Disks: Two rigid disk platters
Ditto 420 (1994) Ditto Tape $99 Drive: Direct drive mechanism
Ditto Easy 800 (1995) minicartridges $149 Media: Industry standard quarter
Ditto Easy 3200 (1996) (420-MB, 800-MB, $299 inch cartridges
3200-MB)
</TABLE>
- ------------------------
* Drives are available in internal and external versions. The indicated
capacities for Ditto drives represent the maximum capacity using data
compression.
** Indicates the typical price at which the external version of the drive and
the highest capacity media for that drive is sold at retail. Prices for the
internal version of a drive and for smaller capacity media are generally
lower. The price for the Ditto 420 is the internal version price. Disk
prices represent per unit purchase price in multi-packs. Media prices for
tape are not presented because revenues from tape minicartridge sales are
not material to the Company.
ZIP
The Company began shipping external Zip drives and 100-MB Zip disks in March
1995. Designed as an affordable mass-market product, the Zip drive addresses
multiple needs of personal computer users: hard drive expansion, data
transportability, management and security and data backup. The drive uses
interchangeable 100-MB Zip disks to provide users of IBM-compatible and Apple
Macintosh personal computers with 70 times the capacity of, and superior
performance to, traditional floppy disks. Zip drives were designed with 100-MB
disks based on the results of the Company's market research, which showed that
85% of the files stored on personal computers are 100 MBs or less.
Zip drives use durable, high-capacity flexible media and Winchester-style
nanoslide heads with a special airbearing surface combined with a linear voice
coil motor. The Zip drive provides high capacity and rapid access and can be
used for a number of data storage purposes. The SCSI version of the Zip drive,
which offers faster performance than the parallel port version of the drive,
features 29 millisecond average seek time and an average sustained data transfer
rate of 1.00 MB per second. Software included with the Zip drive provides a
total data storage solution by helping users organize and copy their data and
offers software read/write protect, which further enables users to secure and
protect their data.
The external, portable version of the Zip drive weighs approximately one
pound and is offered in a parallel port version for use with IBM PC-compatible
computers and a SCSI version for use with Apple Macintosh computers or IBM
PC-compatible computers which have a SCSI adapter board. The parallel port
version features printer pass through to allow normal operation of a printer in
the same port. The SCSI version has two connectors allowing it to be connected
with other SCSI devices. The external Zip drive has a unique compact
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<PAGE>
design, including a royal blue color, a window allowing visibility of the label
on the cartridge being used, rubber feet for positioning the drive flat or on
its side, operation lights and a finger slot for easy cartridge insertion and
removal.
In September 1995, Power Computing, the first Macintosh clone manufacturer,
began offering internal 5 1/4-inch Zip SCSI drives as a $159 option on its
computers. The Company has also designed an internal version of the Zip drive
which incorporates a conventional 3 1/2-inch floppy disk drive. In addition, the
Company has developed an internal 3 1/2-inch IDE version of the Zip drive, which
it expects will be available in the first quarter of 1996.
During 1995, Zip received numerous awards from industry publications in
select categories including: PC/ COMPUTING'S Most Valuable Product; PUBLISH
magazine's 1995 Publish Impact Award; CADENCE magazine's Editor's Choice Award;
the International Digital Imaging Association's "Best New Hardware" award; and,
listing in COMPUTER LIFE magazine's "Best of Everything" list.
The Zip drive carries a one-year warranty and Zip disks are sold with a
limited lifetime warranty.
JAZ
The Company began shipping Jaz drives and 1-GB Jaz disks in limited
quantities in December 1995. Jaz addresses the high-performance needs of
personal computer users in three areas: multimedia applications (audio, video
and graphics), personal data management, and hard drive upgrade. The Jaz drive
offers data transfer rates comparable to those of most current hard disk drives,
with an average sustained transfer rate of 5.4 MBs per second, 12 millisecond
average seek time and 17.5 millisecond average access time. Jaz disks are
currently available in a capacity of 1 GB, which the Company's market research
indicated was a capacity that many high-performance computer users demand, and
540-MB Jaz disks are expected to be available in the first quarter of 1996.
Using 1-GB disks, Jaz is capable of storing and playing up to two hours of MPEG1
compressed DSS satellite quality video, up to eight hours of CD-quality audio,
more than 20,000 scanned documents for document imaging or up to four minutes of
full-screen, full-motion broadcast-quality video. The Jaz drive is available in
an external SCSI version, which is expected to be sold by retailers for
approximately $599, and in an internal SCSI version, which is expected to be
sold by retailers for approximately $499. Each 1-GB and 540-MB Jaz cartridge is
expected to sell for approximately $99 and $69, respectively, in five-packs. The
Company expects an internal IDE version of the Jaz drive to be available
beginning in the first quarter of 1996.
The Jaz drive incorporates many innovative technological features including
tri-pad, thin-film recording heads, dynamic head loading and drag and drop
motorized cartridge ejection. Jaz disks feature a dual rigid platter cartridge
and a proprietary disk capture system which secures the dual disk platters when
not installed in a drive, eliminating rattle and reducing the possibility of
losing valuable information. The drive operates with leading operating systems
for personal computers and workstations, including Windows 95, Windows NT,
Windows 3.x, Macintosh and OS/2.
The external version of the drive, which weighs approximately two pounds,
features design enhancements similar to those introduced with the external Zip
drive, including a unique jade colored casing, a window to allow visibility of
the label on the cartridge being used, operating lights and a finger slot for
easy cartridge insertion and removal. Additional features include an
auto-switching power supply to allow operation in different countries,
auto-sensing SCSI termination and anti-gyro disk locking to increase durability.
The Jaz drive carries a one-year warranty and Jaz disks are sold with a
limited lifetime warranty.
DITTO
The Company's Ditto family of tape drives addresses the need of personal
computer users for an easy-to-use, dependable backup solution. In response to
the information learned from consumers regarding the characteristics demanded
from backup storage devices, beginning in 1994 the Company redesigned its family
of tape drives, which had first been introduced in 1992. The Company offers
internal and external models based on leading industry standards ranging in
capacity from 420 MBs to 3.2 GBs (using data compression). The tape drives are
primarily designed to backup and protect against loss of data stored on hard
disk drives in IBM PC-compatible computers. Iomega's tape drives have a patented
beltless design which the Company believes
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<PAGE>
enhances reliability. The storage media used by Iomega's tape products is the
industry-standard QIC-compatible minicartridge. In addition, the Ditto Easy 800
and Ditto Easy 3200 support new high-capacity Travan cartridge technology.
The Ditto family of tape drives has achieved several industry firsts. In
April 1992, the Iomega Tape 250 (later renamed the Ditto 250) became the
industry's first commercially available QIC-standard, one-inch high tape drive
and in March 1995 became the industry's first internal 250-MB tape drive to sell
for under $100. In June 1995, the Ditto 420 became the industry's first internal
420-MB tape drive to sell for under $100. In October 1995, the Company
introduced the Ditto Easy 800, which the Company believes was the industry's
first external parallel port 800-MB tape drive to sell for under $150. The Ditto
Easy 800 features an enhanced design similar to, and is stackable with, the Zip
and Jaz drives.
The Company's tape products are generally available in either internal or
external models. The internal versions attach to the standard floppy drive
interface in IBM PC-compatible computers, while the external versions attach to
the parallel printer port on IBM PC-compatible computers and offer pass-through
capability for a printer. The drives are shipped with backup software for both
DOS and Windows.
In connection with the introduction of the Ditto Easy 800 in October 1995,
the Company also introduced new 1-Step software designed to permit the backup of
an entire hard disk in a single step while the user continues working.
The Ditto Easy 800 and the Ditto Easy 3200 carry a two-year warranty and the
Ditto 420 carries a five-year warranty. Ditto media is sold with a two-year
warranty.
BERNOULLI
These 5 1/4-inch half-height drives are removable-media storage devices
based on the Company's proprietary Bernoulli technology. The Company's Bernoulli
drives and the associated disks are sold both in the form of a complete storage
subsystem for leading personal computers and workstations and in the form of
components for integration into larger systems by OEMs or value-added resellers
("VARs"). The Bernoulli MultiDisk-TM- 150 drive began shipping in October 1992
and was Iomega's first drive to use multiple capacity disks - 35, 65, 105 and
150 MBs. The Company began shipping the Bernoulli 230 drive in September 1994.
The Bernoulli drives are sold in internal and transportable versions.
The Company is now focusing its development and marketing efforts on its
Zip, Jaz and Ditto products, and does not expect Bernoulli products to represent
a significant portion of the Company's revenues in the future.
MARKETING AND SALES
The Company believes that broadening the distribution of its products
through strategic marketing alliances with a variety of key companies within the
computer industry is a critical element in establishing its products as industry
standards. The Company's initial marketing strategy for the introduction of its
new products during 1995 was to generate consumer awareness of and demand for
such products by focusing on aftermarket sales to existing users of personal
computers through leading computer retail channels. As the next step in its
strategy of promoting its products as new industry standards, the Company is
increasingly focusing its efforts on establishing OEM relationships with leading
personal computer manufacturers who will include the Company's products on a
factory-installed basis to purchasers of new personal computers.
RETAIL DISTRIBUTION
Retail outlets for the Company's products include mail order catalogs,
computer superstores, office supply superstores, consumer electronics
superstores and specialty computer stores. The Company sells its products to
32
<PAGE>
retail channels directly, as well as indirectly through distributors. The
Company's products are sold at a retail level by most of the leading retailers
of computer products in the United States. The following is a partial listing of
the retail chains carrying the Company's products.
<TABLE>
<S> <C>
Best Buy Electronics Boutique
CDW Computer Center Elek-Tek
Circuit City Fry's Electronics
CompUSA MicroCenter
Computer City NeoStar
Creative Computer OfficeMax
Egghead Software PC Warehouse
</TABLE>
STRATEGIC MARKETING ALLIANCES
In addition to sales through these retail channels, the Company has entered
into a number of strategic marketing alliances with a variety of companies
within the computer industry. These alliances include OEM arrangements providing
for certain of the Company's products to be incorporated in new computer systems
at the time of purchase. For example, Power Computing, the first Macintosh clone
manufacturer, is offering Zip drives as an option in certain of its new
computers, and Micron Electronics, a mail-order manufacturer of IBM
PC-compatible personal computers, has announced plans to offer Zip, Ditto and
Jaz drives as a factory-installable option in certain of its new computers. The
Company's strategic alliances also include private-branding and co-branding
arrangements with major vendors of computer products covering the resale of the
Company's products by such companies. For example, the Company has entered into
co-branding arrangements with Seiko Epson, Maxell and Fuji, which offer Zip
drives in Japan in packages which feature Iomega's name in addition to the
partner's name, and has entered into a private-branding arrangement with Reveal
Computer Products, which sells Zip drives and disks under Reveal's tradename.
INTERNATIONAL
The Company sells its products outside of North America primarily through
international distributors. The Company has increased its sales efforts in the
European market in the past several years. Sales are accomplished primarily
through offices located in Germany, Austria, Belgium, France, Ireland, Italy,
Norway, Spain and the United Kingdom. The Company plans to open a Singapore
office in 1996. The Company has been invoicing predominantly in foreign
currencies since January 1992.
MARKETING
The Company's marketing group is responsible for positioning and promoting
the Company's products. The Company participates in various industry tradeshows,
including MacWorld and COMDEX, and seeks to generate coverage of its products in
a wide variety of trade publications. Although the Company did not engage in
significant direct consumer marketing in 1995 in light of the large number of
favorable articles about the Company's products which appeared in newspapers and
computer magazines and constraints on the Company's ability to further increase
production levels, the Company expects marketing and advertising expenses to
increase significantly as the Company seeks to expand market awareness of its
products.
As is common practice in the industry, the Company's arrangements with its
customers generally allow customers, in the event of a price decrease, credit
equal to the difference between the price originally paid and the new decreased
price on units in the customers' inventories on the date of the price decrease.
When a price decrease is anticipated, the Company establishes reserves for
amounts estimated to be reimbursed to qualifying customers. In addition,
customers generally have the right to return excess inventory within specified
time periods. There can be no assurance that these reserves will be sufficient
or that any future returns or price protection charges will not have a material
adverse effect on the Company's results of operations.
The Company markets its products primarily through computer product
distributors and retailers. Accordingly, since the Company grants credit to its
customers, a substantial portion of outstanding accounts receivable are due from
computer product distributors and certain large retailers. At December 31, 1995,
the customers with the ten highest outstanding accounts receivable balances
totaled $47.1 million or 43% of gross accounts
33
<PAGE>
receivable, with one customer accounting for $15.2 million, or 14% of gross
accounts receivable. If any one or a group of these customers' receivable
balances should be deemed uncollectible, it would have a material adverse effect
on the Company's results of operations and financial condition.
During the year ended December 31, 1994, sales to Ingram Micro D, Inc., a
distributor, accounted for 11% of sales. No other single customer accounted for
more than 10% of the Company's sales in 1994 or 1995.
See "Risk Factors--Certain Marketing and Sales Risks" for a discussion of
certain risks relating to the marketing and sales of the Company's products.
MANUFACTURING
The Company's products are manufactured both by the Company at its
facilities in Roy, Utah and by independent parties manufacturing products for
the Company on a contract basis. Manufacturing activity generally consists of
assembling various components, subcomponents and prefabricated parts
manufactured by the Company or outside vendors. The Company currently has
third-party manufacturing relationships with Seiko Epson (Zip drives), MegaMedia
Computer (Zip disks), Sequel (Jaz drives) and First Engineering Plastics (Ditto
drives). Although the Company substantially increased its manufacturing capacity
(through both internal expansion and arrangements with third-party
manufacturers) during 1995, the Company was not able to produce enough Zip
drives and Zip disks in 1995 to fill all orders for such products due to
component supply constraints and normal manufacturing start-up issues. To
minimize its manufacturing costs, to take maximum advantage of its available
personnel and facilities and to benefit from the expertise of experienced
high-volume manufacturing companies, the Company plans to use third-party
manufacturers to produce a majority of its products in the future. There can be
no assurance that the Company will be successful in establishing and managing
such third-party manufacturing relationships, or that third-party manufacturers
will be able to meet the Company's quantity or quality requirements for
manufactured products. Moreover, the Company may grant certain of its
third-party manufacturers, among others, the right to sell significant
quantities of the Zip and Jaz drives they produce for their own account, thereby
reducing the supply of such drives to the Company and increasing competition.
See "Risk Factors--Reliance on Non-Binding Contract Manufacturing
Relationships."
Many components incorporated in, or used in the manufacture of, the
Company's products are currently only available from sole source suppliers.
Moreover, the Company has experienced difficulty in the past, is currently
experiencing difficulty, and expects to continue to experience difficulty in the
future, in obtaining a sufficient supply of many key components. For example,
many of the integrated circuits used in the Company's Zip and Jaz drives are
currently available only from sole source suppliers. The Company has been unable
to obtain a sufficient supply of certain of these integrated circuits due to
industry-wide shortages. In addition, the Company has been advised by certain
sole source suppliers, including the manufacturers of critical integrated
circuits for Zip and Jaz, that they do not anticipate being able to fully
satisfy the Company's demand for components during 1996. These component
shortages have limited the Company's ability to produce sufficient Zip drives to
meet market demand and have limited the Company's ability to implement certain
cost reduction and productivity improvement plans, and the Company expects that
the shortage of components may limit production of Zip and Jaz products for the
foreseeable future. The Company also experienced difficulty during 1995 in
obtaining a sufficient supply of the servowriting equipment used in the
manufacture of Zip disks. Such equipment shortages in 1995 limited the Company's
production of Zip disks, and there can be no assurance that similar equipment
shortages will not occur in the future.
The Company purchases all of its sole and limited source components and
equipment pursuant to purchase orders placed from time to time and has no
guaranteed supply arrangements. The inability to obtain sufficient components
and equipment, or to obtain or develop alternative sources of supply at
competitive prices and quality or to avoid manufacturing delays, could prevent
the Company from producing sufficient quantities of its products to satisfy
market demand, result in delays in product shipments, increase the Company's
material or manufacturing costs or cause an imbalance in the inventory level of
certain components. Moreover, difficulties in obtaining sufficient components
may cause the Company to modify the design of its products to use a more readily
available component, and such design modifications may result in product
performance problems. Any or all of these problems could in turn result in the
loss of customers, provide an opportunity for competing
34
<PAGE>
products to achieve market acceptance and otherwise adversely affect the
Company's business and financial results. See "Risk Factors--Shortages of
Critical Components; Absence of Supply Contracts; Dependence on Suppliers."
The Company had a backlog as of January 28, 1996 of approximately $157
million. The Company believes that it will be able to fill all orders currently
in backlog, unless such orders are first cancelled or rescheduled, during the
first half of the current fiscal year. However, the purchase agreements or
purchase orders pursuant to which orders are made generally allow the customer
to cancel orders without penalty, and, as it has in the past, the Company has
experienced some cancellations or reschedulings of orders in backlog. Moreover,
it is common in the industry during periods of product shortages for customers
to engage in practices such as double ordering, in order to increase the
customer's allowance of available product. In addition, the Company's January
28, 1995 backlog is in part due to the Company's component shortages and limited
production capability, and the Company's future shipments may continue to be
limited by its production capacity and component availability. Accordingly, the
Company's backlog as of any particular date should not be relied upon as an
indication of the Company's actual sales for any future period.
PRODUCT DEVELOPMENT
An important element of the Company's business strategy is the ongoing
enhancement of existing products and the development of new products. During
1994 and 1995, the Company's product development efforts were primarily devoted
to the development of its Zip and Jaz products, which began commercial shipment
in March 1995 and December 1995, respectively. During 1996 the Company expects
that its development efforts will be primarily focused on enhancing the
features, developing higher capacity versions and reducing the production costs
of its existing Zip, Jaz and Ditto products. In particular, there are projects
underway to develop higher capacity removable-media disk drives and tape
products, to develop different system interfaces for the Company's
removable-media disk drive products, such as IDE interface versions of Zip and
Jaz, and to develop smaller subsystem versions of the Company's products,
including a version of Zip which could be installed in laptop computers.
During 1993, 1994 and 1995, the Company's research and development expenses
were $18,972,000, $15,438,000 and $19,576,000, respectively (or 12.9%, 10.9% and
6.0%, respectively, of sales). The decline in research and development spending
from 1993 to 1994 was the result of the Company's decision to discontinue
certain research and development projects relating to floptical technology,
digital audiotape technology, and thin-film head development. Research and
development spending in 1995 was primarily related to efforts focused on the
Company's Zip, Jaz and Ditto product lines. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company operates in an industry that is subject to both rapid
technological change and rapid change in consumer demands. For example, over the
last 10 years the typical hard disk drive included in a new personal computer
has increased in capacity from approximately 40 MBs to over 1 GB while the price
of a hard disk drive has remained constant or even decreased. The Company's
future success will depend in significant part on its ability to continually
develop and introduce, in a timely manner, new removable disk drives and tape
products with improved features, and to develop and manufacture those new
products within a cost structure that enables the Company to sell such products
at lower prices than those of comparable products today. There can be no
assurance that the Company will be successful in developing, manufacturing and
marketing new and enhanced products that meet both the performance and price
demands of the data storage market.
COMPETITION
The Company believes that its Zip and Jaz products compete most directly
with other removable-media data storage devices, such as magnetic cartridge disk
drives, optical disk drives and "floptical" disk drives. Current suppliers of
removable-media data storage devices include Syquest Technology (which offers
magnetic disk drives with removable cartridges based on hard drive technology),
Panasonic (which offers the Power Drive, a removable optical drive) and Sony
(which offers the MD-DATA drive, a disk drive based on removable magneto-optical
technology). Although the Company believes that its Zip and Jaz products offer
price, performance or usability advantages over the other removable-media
storage devices available today, the Company believes that the price,
performance and usability of existing removable-media products will improve and
that
35
<PAGE>
other companies will introduce new removable-media storage devices. Accordingly,
the Company believes its Zip and Jaz products will face increasingly intense
competition. In particular, a consortium comprised of Compaq Computer, 3M and
MKE has announced the Floptical 120, a high-capacity floptical drive that is
compatible with conventional floppy disks. In addition, both Mitsumi and Swan
Instruments are expected to introduce high-capacity, removable-media disk drives
in 1996 that would also directly compete with Zip and Jaz. As new and competing
removable-media storage solutions are introduced, it is possible that any such
solution that achieves a significant market presence or establishes a number of
significant OEM relationships will emerge as an industry standard and achieve a
dominant market position. If such is the case, there can be no assurance that
the Company's products would achieve significant market acceptance, particularly
given the Company's size and market position vis-a-vis other competitors.
To the extent that Zip and Jaz drives are used for incremental primary
storage capacity, they also compete with conventional hard disk drives, which
are offered by companies such as Seagate Technology, Western Digital
Corporation, Quantum Corporation, Conner Peripherals (which has announced its
pending acquisition by Seagate Technology), Micropolis Corporation and Maxtor
Corporation, as well as integrated computer manufacturers such as
Hewlett-Packard, IBM, Fujitsu, Hitachi and Toshiba. In addition, the leading
suppliers of conventional hard disk drives could at any time determine to enter
the removable-media storage market.
The Company believes that it is currently the only source of supply for the
disks used in its disk drives. However, this situation may change either as a
result of another party succeeding in producing disks that are compatible with
Zip and Jaz drives without infringing the Company's proprietary rights, or as a
result of licenses granted by the Company to other parties.
The Company's tape drives compete in the market for backup data storage with
other QIC and DC2000-type products (which includes QIC and Irwin), including
parallel port interface products. DC2000-type products currently offer
capacities up to 4 GBs with compression. The Company's two major competitors in
the tape drive market are Conner Peripherals and Colorado Memory Systems, a
division of Hewlett-Packard. Tape drives may in the future encounter increased
competition from other forms of removable-media storage devices. The tapes used
in the Company's tape drives are available from a number of sources and the
Company is not the primary source of supply for these tapes.
In the OEM market for both its disk drives and tape drives, the Company
competes with the vendors mentioned above, as well as with the manufacturers of
personal computers, who may elect to manufacture data storage devices
themselves.
The Company intends to license its products or technology to other computer
manufacturers on a royalty-bearing basis in order to increase market use and
acceptance of its products and help promote them as industry standards.
Accordingly, the Company expects to compete in the future with licensees of the
Company's products.
The Company believes that most consumers distinguish among competitive data
storage products on the basis of some or all of the following criteria: price
(cost per unit and cost per megabyte of storage capacity), performance (speed
and capacity), functionality (reliability, product size and removability), ease
of installation and use, and security of data. Price is a particularly important
factor with respect to the Company's mass-market products (the Zip drive and the
Ditto 420 and Ditto Easy 800 tape drives). An additional competitive
consideration, particularly in the OEM market, is the size (form factor) of the
drive. Winchester drives are available in 5 1/4-inch, 3 1/2-inch, 2 1/2-inch and
1.8-inch form factors. The most common form factor for Winchester and floppy
drives is 3 1/2-inches. The Company currently offers 3 1/2-inch Zip, Jaz and
Ditto drives and 5 1/4-inch Bernoulli disk drives.
The data storage industry is highly competitive, and the Company expects
that competition will substantially increase in the future. In addition, the
data storage industry is characterized by rapid technological development. The
Company competes with a number of companies that have greater financial,
manufacturing and marketing resources than the Company. The introduction by a
competitor of products with superior performance or substantially lower prices
would adversely affect the Company's business.
36
<PAGE>
PROPRIETARY RIGHTS
The Company relies on a combination of patent, copyright and trade secret
laws to protect its technology. The Company has filed approximately 40 U.S. and
foreign patent applications relating to its Zip and Jaz drives and disks,
although there can be no assurance that such patents will issue. The Company
holds over 50 U.S. and foreign patents, three of which relate to its Ditto
products and the remainder of which relate to its Bernoulli products. Although
the Company believes that a combination of patent rights (pursuant to a number
of pending patent applications) and copyright protection should prevent another
party from manufacturing and selling disks that work effectively with the
Company's Zip and Jaz drives (except pursuant to a license from the Company),
there can be no assurance that the steps taken by the Company to protect such
technology will be successful. If another party were to succeed in producing and
selling Zip- or Jaz-compatible disks, the Company's sales would be materially
adversely affected. Moreover, because the Company's Zip and Jaz disks have
significantly higher gross margins than the Zip and Jaz drives, the Company's
net income would be disproportionately affected by any such sales shortfall. Due
to the rapid technological change that characterizes the Company's industry, the
Company believes that the success of its disk drives will also depend on the
technical competence and creative skill of its personnel than on the legal
protections afforded its existing drive technology.
As is typical in the data storage industry, from time to time the Company
has been, and may in the future be, notified that it may be infringing certain
patents and other intellectual property rights of others. The Company, however,
is not currently aware of any threatened or pending legal challenge to the
technology which is incorporated in its products which it expects to have a
material adverse effect on its business or financial results. The Company has in
the past been engaged in several patent infringement lawsuits, both as plaintiff
and defendant. There can be no assurance that future claims will not result in
litigation. If infringement were established, the Company could be required to
pay damages or be enjoined from selling the infringing product. In addition,
there can be no assurances that the Company will be able to obtain any necessary
licenses on satisfactory terms. See "Risk Factors--Dependence on Proprietary
Technology."
Certain technology used in the Company's products is licensed on a
royalty-bearing basis from third parties, including the backup software included
with the Company's Ditto products and certain patent rights relating to Zip. The
Company is in the process of negotiating a definitive license agreement for the
Ditto backup software and, although it has entered into a letter agreement
regarding the Zip patent rights, is in the process of negotiating a more
detailed license agreement for the Zip patent rights. The failure to execute
definitive agreements or the termination of any such license arrangements could
have a material adverse effect on the Company's business and financial results.
EMPLOYEES
As of December 31, 1995, the Company employed 1,667 persons (1,645 full-time
and 22 part-time), including 143 in research and development, 1,209 in
manufacturing, 139 in sales, marketing and service, 103 in general management
and administration, and 73 in its European operations.
The Company's business growth during 1995 has resulted in additional
personnel needs and an increased level of responsibility for management
personnel and the Company anticipates hiring a substantial number of new
employees in the near future. There can be no assurance that the Company will be
successful in hiring, integrating or retaining such personnel.
PROPERTIES
The Company currently leases an aggregate of approximately 210,000 square
feet of space in seven buildings located in Roy, Utah, where its executive
offices, manufacturing and distribution facilities, and primary research and
development facilities are located. The leases for these buildings expire at
various dates from 1998 to 2000 and provide for an aggregate base rent of
approximately $1,100,000 for 1996.
The Company expects to lease an additional 70,000 square feet of space in
the Roy area, which it estimates will cost an additional $765,000 in annual
rent, by the end of 1996. Pending the availability of that space, the Company
may rent additional space in the Roy area in 1996 on a temporary basis.
The Company leases an 11,000 square foot facility in San Diego, California
and a 10,000 square foot facility in San Jose, California, each for certain
research and development activities. The Company may seek to increase
37
<PAGE>
its leased space in San Jose to approximately 50,000 square feet during 1996.
The Company has also rented a 20,000 square foot facility in Freiburg, Germany
for use as its European headquarters. In addition, the Company leases small
sales offices, typically on a short-term basis, at 11 locations in the United
States and in Canada, Austria, Belgium, France, Ireland, Italy, Spain and the
United Kingdom.
LEGAL PROCEEDINGS
There are no legal proceedings, other than ordinary routine litigation
incidental to its business, to which the Company or its subsidiaries is a party
or of which any of their property is the subject.
38
<PAGE>
MANAGEMENT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --------- -------------------------------------------------------------
<S> <C> <C>
Kim B. Edwards (1) 48 President, Chief Executive Officer and Director
Leonard C. Purkis 47 Senior Vice President, Finance, and Chief Financial Officer
Srini Nageshwar 53 Senior Vice President, Europe
Anton J. Radman, Jr. 43 Senior Vice President, Strategic Business Development
Leon J. Staciokas 67 Senior Vice President and Chief Internal Operating Officer
M. Wayne Stewart 50 Senior Vice President, Operations
Edward D. Briscoe 33 Vice President, Sales
Reed M. Brown 42 Vice President, Manufacturing
Timothy L. Hill 37 Vice President, Marketing
Willard C. Kennedy 49 Vice President, Worldwide Logistics and Materials
Donald R. Sterling 59 Vice President, Corporate Counsel and Secretary
John G. Thompson 55 Vice President, Outsourcing
David J. Dunn (1)(2) 65 Chairman of the Board of Directors
Willem H.J. Andersen (3) 55 Director
Robert P. Berkowitz (4) 60 Director
Anthony L. Craig (1)(3) 50 Director
Michael J. Kucha (1)(2)(4) 54 Director
John R. Myers (1)(3) 58 Director
John E. Nolan, Jr. (4) 68 Director
The Honorable John E. Sheehan (3) 66 Director
</TABLE>
- ------------------------
(1) Member of the Executive Committee
(2) Member of the Nominating Committee
(3) Member of the Compensation Committee
(4) Member of the Audit Committee.
Kim B. Edwards joined the Company as President and Chief Executive Officer
on January 1, 1994. Mr. Edwards served as President and Chief Executive Officer
of Gates Energy Products Inc., a manufacturer of rechargeable batteries and the
successor of General Electric Battery Division, from March 1993 to December
1993. From January 1987 until March 1993, Mr. Edwards served in various other
executive positions for Gates Energy Products Inc., including Vice President and
General Manager of its Consumer Business Unit and Vice President of Marketing
and Sales. Prior to that Mr. Edwards was employed for 18 years at General
Electric Company in various marketing and sales positions.
Leonard C. Purkis joined the Company as Senior Vice President, Finance and
Chief Financial Officer in March 1995. Mr. Purkis also served as Treasurer of
the Company from March 1995 until January 1996. Mr. Purkis joined Iomega
following 12 years at General Electric Company, where his most recent assignment
was as Senior Vice President of Finance at GE Capital Fleet Services. He also
held positions in the Financial Services, Lighting and Plastics businesses, with
assignments in Europe and the U.S.
39
<PAGE>
Srini Nageshwar was promoted to Senior Vice President, Europe in April 1991.
Mr. Nageshwar joined the Company in January 1991 as Vice President, Europe.
Prior to joining the Company, Mr. Nageshwar was Executive Vice President for
Marketing, Sales and Operations of OAZ Communications, a network fax server
company, from February 1990 to December 1990. Prior to that, he was President
and Chief Operating Officer of Cumulus Corp., a memory peripherals manufacturing
company, from January 1989 to February 1990. Prior to that, Mr. Nageshwar spent
24 years in marketing and general management positions with Hewlett-Packard, a
computer company, most recently as Value-Added Business Manager.
Anton J. Radman, Jr., has been Senior Vice President, Strategic Business
Development since April 1995. Mr. Radman joined the Company in April 1980 and
his previous positions with the Company have included Senior Vice President,
Sales and Marketing, Senior Vice President, Corporate Development, President of
the Bernoulli Optical Systems Co. (BOSCO) subsidiary of the Company, Vice
President, Research and Development, Vice President, OEM Products and Sales
Manager, and Senior Vice President, Micro Bernoulli Division.
Leon J. Staciokas has been Senior Vice President and Chief Internal
Operating Officer since April 1993. Mr. Staciokas joined the Company in August
1987 as Senior Vice President - Operations. He served as acting Chief Executive
Officer of the Company from October 1993 until January 1994. Mr. Staciokas plans
to retire during 1996, although he may continue with the Company for some period
of time in a consulting role.
M. Wayne Stewart joined the Company as Senior Vice President, Operations in
January 1996. Prior to that, Mr. Stewart was Vice President of Global
Manufacturing Concepts and Engineering Services at Whirlpool Corporation, a
consumer appliance company, from January 1995 to December 1995. From September
1970 to December 1994, Mr. Stewart was Manufacturing Manager for
Hewlett-Packard.
Edward D. Briscoe joined the Company as Vice President, Sales in January
1995. From May 1993 to January 1995, Mr. Briscoe was Director of Sales and
Marketing for Apple Computer's Personal Interactive Electronics Division. Prior
to that, Mr. Briscoe was Executive Assistant to the President of Apple USA. From
July 1987 to April 1992, he held various sales management positions with Apple
Computer, Inc. Previously, Mr. Briscoe was an Account Marketing Representative
for IBM, Inc. from June 1984 to July 1987.
Reed M. Brown joined the Company as Vice President, Manufacturing in
February 1996. Prior to that, Mr. Brown was Director of Manufacturing at Quantum
Corporation, a manufacturer of hard disk drives, from March 1994 to January
1996. From January 1979 to February 1994, Mr. Brown was Production Manager for
Hewlett-Packard Company.
Timothy L. Hill joined the Company as Vice President, Marketing in July
1994. Mr. Hill was Vice President, Marketing of Falcon Microsystems, a federal
reseller and systems integrator, from August 1993 to July 1994. Prior to that,
Mr. Hill was Director of Marketing and Sales for the Consumer Business Division
of Gates Energy Products from January 1988 to August 1993. Prior to January
1988, Mr. Hill was Marketing Manager for the Consumer Camera Products Division
of Polaroid Corporation, a producer of photography equipment and supplies.
Willard C. Kennedy joined the Company as Vice President, Worldwide Logistics
and Materials in November 1995. From January 1994 to November 1995, he was
Senior Vice President and General Manager of the Digital Videocommunications
Systems for Philips Consumer Electronics. He also held positions at Philips
Consumer Electronics as Vice President of Logistics from October 1992 to January
1994 and Vice President of Purchasing from September 1990 to October 1992.
Before joining Philips, Mr. Kennedy held a variety of management positions in
manufacturing, purchasing and engineering over a period of 20 years with General
Electric Company.
Donald R. Sterling was promoted to Vice President, Corporate Counsel and
Secretary in April 1994. Prior to that, he was Vice President for Legal Affairs
and Secretary from August 1993 to March 1994. Mr. Sterling joined the Company in
September 1988.
40
<PAGE>
John G. Thompson has been Vice President, Outsourcing since January 1996. He
was Vice President, Corporate Manufacturing from January 1993 to January 1996.
Prior to that, Mr. Thompson was Vice President, Materials, Procurement and
Engineering Services from March 1988 until January 1992. Mr. Thompson was Vice
President/Controller of the Company from January 1988 until March 1988.
David J. Dunn has been Chairman of the Board of Directors since 1980. Mr.
Dunn has been Managing General Partner of Idanta Partners Ltd., a venture
capital firm, since 1971.
Willem H.J. Andersen has been a director of the Company since 1994. Mr.
Andersen has been a private consultant since February 1995. From June 1992 until
February 1995, he was Chief Executive Officer and a director of Comlinear
Corporation, a semi-conductor manufacturer. From November 1986 until June 1992,
he was Chief Executive Officer of Laser Magnetic Storage International Company,
a designer and manufacturer of optical and tape mass-storage equipment. Mr.
Andersen is a director of Analytical Survey, Inc.
Robert P. Berkowitz has been a director of the Company since 1983. Mr.
Berkowitz has been a private consultant since March 1992. From August 1991 until
March 1992, he was President and Chief Executive Officer of CimTelligence
Systems, a developer of process planning software for the manufacturing
industry. Previously, he had been a private investor and a writer since August
1988.
Anthony L. Craig has been a director of the Company since 1990. Mr. Craig
has been Vice President, Worldwide Sales Operations of Digital Equipment
Corporation, a computer manufacturer, since October 1993. He was Senior Vice
President, International of Oracle Corporation, a computer software company,
from June 1992 until June 1993. From March 1992 until June 1992, he was a
private investor. Previously, from June 1990 until February 1992, he was
President and Chief Executive Officer of C3 Inc., a manufacturer of custom
computing workstations. He is a director of Bell Industries, Inc.
Michael J. Kucha has been a director of the Company since 1980. Mr. Kucha
has been President and CEO of ERISS Corporation, an information services
company, since January 1996. He has also been President of Melvin C. Dill Co.,
Inc., a manufacturer of industrial labels, since October 1990. He was a private
investor from May 1989 until October 1990. He served as Chief Executive Officer
of the Company from January 1987 until May 1989.
John R. Myers has been a director of the Company since April 1994. Since
July 1994, Mr. Myers has been Chairman of Garrett Airline Services, a provider
of modification and upgrade services for corporate jet aircraft. From December
1993 to July 1994, he was a private consultant. From June 1992 until October
1993, he was an executive officer of Thiokol Corporation, a manufacturer of
rocket motors and specialty fastener devices, initially serving as Chief
Operating Officer and later as Chief Executive Officer. From 1980 until 1992, he
was President of Textron Lycoming, a producer of piston and turbine engines.
John E. Nolan, Jr. has been a director since 1993. Mr. Nolan has been a
Partner at the law firm of Steptoe & Johnson since 1963. He is a director of
Hooper Holmes, Inc.
The Honorable John E. Sheehan has been a director of the Company since 1990.
Mr. Sheehan, an entrepreneur since 1976, is a director and the principal
stockholder of several of the privately owned enterprises which he founded. He
is Chairman and Chief Executive Officer of Rhome Management Co., which provides
oversight to his various corporate interests. He is also a member of the Board
of Trustees for the Harvard Business School Alumni Association and Chairman of
the Board of Trustees of the U.S. Naval Academy Alumni Association. Mr. Sheehan
is a former member, Board of Governors of the Federal Reserve System.
41
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of January 31, 1996 by (i)
each person or entity known to the Company to beneficially own 5% or more of the
outstanding shares of Common Stock, (ii) each of the Company's directors and
(iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED (1) SHARES (2)
-------------------- ---------------
<S> <C> <C>
Idanta Partners Ltd. (3)..................................................... 7,989,678 13.6%
4660 La Jolla Village Drive
Suite 775
San Diego, CA 92122
William H.J. Andersen (4).................................................... 21,510 *
Robert P. Berkowitz.......................................................... 0 --
Anthony L. Craig............................................................. 63,750 *
David J. Dunn (5)............................................................ 8,331,414 14.1
Kim B. Edwards (6)........................................................... 735,525 1.2
Michael J. Kucha (7)......................................................... 37,758 *
John R. Myers (8)............................................................ 21,750 *
John E. Nolan, Jr. (9)....................................................... 67,500 *
The Honorable John E. Sheehan (10)........................................... 306,000 *
All current directors and executive officers as a group
(20 persons) (11).......................................................... 11,697,528 19.2
</TABLE>
- ------------------------
* Less than 1%.
(1) The inclusion herein of any shares of Common Stock as beneficially owned
does not constitute an admission of beneficial ownership of those shares.
Unless otherwise indicated, each person listed above has sole investment and
voting power with respect to the shares listed. In accordance with the rules
of the Securities and Exchange Commission (the "SEC"), each stockholder is
deemed to beneficially own any shares issuable upon the exercise of stock
options held by such person that are currently exercisable or that become
exercisable within 60 days after January 31, 1996 (and any reference in
these footnotes to shares subject to stock options held by the stockholder
in question refers only to such options) and any shares issuable to such
person under the Company's 1991 Stock Purchase Plan within 60 days after
January 31, 1996.
(2) Number of shares deemed outstanding for purposes of calculating these
percentages is comprised of the 58,923,372 shares outstanding as of January
31, 1996, plus any shares subject to stock options held by the person in
question and any shares issuable to the person in question under the 1991
Stock Purchase Plan.
(3) David J. Dunn, a director of the Company, Dev Purkayastha and Perse Failey
are the general partners of Idanta Partners Ltd. and share voting and
dispositive power with respect to such shares.
(4) Includes 18,750 shares subject to a stock option held by Mr. Andersen.
(5) Includes 7,989,678 shares held by Idanta Partners Ltd., of which Mr. Dunn
is Managing General Partner, and 341,736 shares held by a family trust, of
which Mr. Dunn is trustee.
(6) Includes 496,875 shares subject to stock options held by Mr. Edwards. Also
includes 3,000 shares held by Mr. Edwards' wife, as to which shares Mr.
Edwards disclaims beneficial ownership.
(7) Includes 7,500 shares held by Mr. Kucha as custodian for his children, as
to which shares Mr. Kucha disclaims beneficial ownership. Also includes 258
shares held as co-trustee with his wife, as to which shares Mr. Kucha has
shared voting and investment power, and 30,000 shares subject to stock
options held by Mr. Kucha.
(8) Includes 18,750 shares subject to a stock option held by Mr. Myers.
(9) Includes 37,500 shares subject to a stock option held by Mr. Nolan.
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<PAGE>
(10) Includes 93,750 shares subject to a stock option held by Mr. Sheehan. Also
includes 66,000 shares held by Mr. Sheehan's wife, as to which shares Mr.
Sheehan disclaims beneficial ownership.
(11) Includes 7,989,678 shares of Common Stock held by Idanta Partners Ltd. Also
includes an aggregate of 2,280,030 shares subject to stock options and an
aggregate of 1,191 shares issuable under the 1991 Stock Purchase Plan.
DESCRIPTION OF NOTES
The Notes are to be issued under an Indenture, to be dated as of March ,
1996 (the "Indenture"), between the Company and State Street Bank and Trust
Company, as Trustee (the "Trustee"), a copy of which is filed as an exhibit to
the Registration Statement. The following summaries of certain provisions of the
Notes and the Indenture, though accurate, do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Indenture, including the definitions therein of certain terms.
As used in this "Description of Notes," the "Company" refers to Iomega
Corporation and does not include its subsidiaries.
GENERAL
The Notes will represent unsecured general obligations of the Company
subordinate in right of payment to certain other obligations of the Company as
described under "Subordination of Notes" and convertible into Common Stock as
described under "Conversion of Notes." The Notes will be limited to $40,000,000
aggregate principal amount ($46,000,000 if the Underwriter's over-allotment
option is exercised in full), will be issued only in denominations of $1,000 or
any integral multiple thereof and will mature on March 15, 2001, unless earlier
redeemed at the option of the Company or repurchased upon a Repurchase Event (as
defined). The Notes will be issued only in fully registered form, without
coupons.
The Indenture does not contain any financial covenants or restrictions on
the payment of dividends, the incurrence of Senior Indebtedness or issuance or
repurchase of securities of the Company. The Indenture contains no covenants or
other provisions to afford protection to holders of Notes in the event of a
highly leveraged transaction or a change in control of the Company except to the
extent described under "Repurchase at Option of Holders Upon Repurchase Event"
below.
The Notes will bear interest at the annual rate set forth on the front cover
of this Prospectus from March , 1996, payable semiannually on March 15 and
September 15 of each year, commencing on September 15, 1996, to the holders of
record at the close of business on the preceding March 1 or September 1, as the
case may be (other than with respect to a Note or portion thereof redeemed on a
redemption date or repurchased in connection with a Repurchase Event after the
record date and prior to (but excluding) the next succeeding interest payment
date, in which case accrued interest shall be payable to the extent required as
part of the redemption or repurchase price). Principal of, and premium, if any,
and interest on the Notes will be payable at the offices or agencies of the
Company in New York, New York or Boston, Massachusetts, and the Notes may be
presented for registration of transfer and exchange, conversion or redemption at
the office of the Trustee in Boston, Massachusetts. In addition, payment of
interest may, at the option of the Company, be made by check mailed to the
address of the registered holder of the Note, provided that a holder of Notes
with an aggregate principal amount equal to or in excess of $5,000,000 will be
paid by wire transfer in immediately available funds at the election of such
holder. Interest will be computed on the basis of a 360-day year composed of
twelve 30-day months.
No service charge will be made for any registration of transfer or exchange,
conversion or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax, assessment or other governmental charge that may be
imposed in connection therewith (other than any tax solely in respect of the
issue of Common Stock upon conversion).
CONVERSION OF NOTES
The holders of Notes will be entitled at any time after 60 days following
the latest date of original issuance of the Notes through the close of business
on the final maturity date of the Notes, subject to prior redemption or
repurchase, to convert the principal amount of any Notes or portions thereof (in
denominations of $1,000 or
43
<PAGE>
integral multiples thereof) into Common Stock of the Company, at the conversion
price set forth on the cover page of this Prospectus, subject to adjustment as
described below. Except as described below, no adjustment will be made on
conversion of any Notes for interest accrued thereon or for dividends on any
shares of Common Stock issued upon conversion of such Notes. If any Notes not
called for redemption are surrendered for conversion after a record date for the
payment of interest and prior to the next succeeding interest payment date, such
Notes must be accompanied by funds payable to the Company equal to the interest
payable on such succeeding interest payment date on the principal amount being
converted. The Company is not required to issue fractional shares of Common
Stock upon conversion of Notes and, in lieu thereof, will pay a cash adjustment
based upon the market price of Common Stock on the last business day prior to
the date of conversion. In the case of Notes called for redemption, conversion
rights will expire at the close of business on the second business day preceding
the date fixed for redemption unless the Company defaults in payment of the
redemption price. In the case of a Note in respect of which a holder is
exercising its option to require repurchase upon a Repurchase Event, the
conversion right will expire at the close of business on the repurchase date
unless the Company defaults in payment of the repurchase price.
The initial conversion price of $ per share of Common Stock is subject
to adjustment (under formulae set forth in the Indenture) in certain events,
including: (i) the issuance of Common Stock as a dividend or distribution on
Common Stock of the Company; (ii) certain subdivisions and combinations of the
Common Stock; (iii) the issuance to all holders of Common Stock of certain
rights or warrants to purchase Common Stock at less than the Current Market
Price (as defined) of the Common Stock; (iv) the distribution to all holders of
Common Stock of shares of capital stock of the Company (other than Common Stock)
or evidences of indebtedness of the Company or assets (including securities, but
excluding those rights, warrants, dividends and distributions referred to above
and dividends and distributions in connection with the liquidation, dissolution
or winding up of the Company or paid in cash); (v) distributions consisting of
cash, excluding any quarterly cash dividend on the Common Stock to the extent
that the aggregate cash dividend per share of Common Stock in any quarter does
not exceed the greater of (x) the amount per share of Common Stock of the next
preceding quarterly cash dividend on the Common Stock to the extent that such
preceding quarterly dividend did not require an adjustment of the conversion
price pursuant to this clause (v) (as adjusted to reflect subdivisions or
combinations of the Common Stock) and (y) 3.75% of the average of the daily
Closing Prices (as defined) of the Common Stock for the ten consecutive Trading
Days (as defined) immediately prior to the date of declaration of such dividend,
and excluding any dividend or distribution in connection with the liquidation,
dissolution or winding up of the Company; (vi) payment in respect of a tender or
exchange offer made by the Company or any subsidiary of the Company for the
Common Stock to the extent that the cash and the value of any other
consideration included in such payment per share of Common Stock exceeds the
Current Market Price per share of Common Stock on the Trading Day next
succeeding the last date on which tenders or exchanges may be made pursuant to
such tender or exchange offer; and (vii) payment in respect of a tender offer or
exchange offer by a person other than the Company or any subsidiary of the
Company in which, as of the closing date of the offer, the Board of Directors is
not recommending rejection of the offer. If an adjustment is required to be made
as set forth in clause (v) above as a result of a distribution that is a
quarterly dividend, such adjustment would be based upon the amount by which such
distribution exceeds the amount of the quarterly cash dividend permitted to be
excluded pursuant to such clause (v). The adjustment referred to in clause (vii)
above will only be made if the tender offer or exchange offer is for an amount
which increases that person's ownership of Common Stock to more than 25% of the
total shares of Common Stock outstanding and if the cash and value of any other
consideration included in such payment per share of Common Stock exceeds the
Current Market Price per share of Common Stock on the business day next
succeeding the last date on which tenders or exchanges may be made pursuant to
such tender or exchange offer. The adjustment referred to in clause (vii) above
will not be made, however, if, as of the closing of the offer, the offering
documents with respect to such offer disclose a plan or an intention to cause
the Company to engage in a consolidation or merger of the Company or a sale of
all or substantially all of the Company's assets.
Upon conversion of the Notes, the holders will receive, in addition to the
Common Stock issuable upon such conversion, an appropriate number of Common
Stock purchase rights issuable under the Company's Rights Plan (as defined) and
described under "Description of Capital Stock -- Rights Plan"), whether or not
such rights have separated from the Common Stock at the time of conversion. In
addition, the Indenture
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<PAGE>
provides that if the Company implements a new stockholders' rights plan, such
new plan must provide that upon conversion of the Notes the holders will
receive, in addition to the Common Stock issuable upon such conversion, the
rights issuable under such plan (whether or not such rights have separated from
the Common Stock at the time of conversion).
In the case of (i) any reclassification or change of the Common Stock (other
than one described in clause (ii) of the first sentence of the second preceeding
paragraph) or (ii) a consolidation, merger or combination involving the Company
or a sale or conveyance to another person of the property and assets of the
Company as an entirety or substantially as an entirety, in each case as a result
of which holders of Common Stock shall be entitled to receive stock, securities,
or other property or assets (including cash) with respect to or in exchange for
such Common Stock, the holders of the Notes then outstanding will be entitled
thereafter to convert such Notes into the kind and amount of shares of stock,
other securities or other property or assets (including cash) which they would
have owned or been entitled to receive upon such reclassification, change,
consolidation, merger, combination, sale or conveyance had such Notes been
converted into Common Stock immediately prior to such reclassification, change,
consolidation, merger, combination, sale or conveyance, assuming that a holder
of Notes would not have exercised any rights of election as to the stock, other
securities or other property or assets receivable in connection therewith.
In the event of a taxable distribution to holders of Common Stock (or other
transaction) which results in any adjustment of the conversion price, the
holders of the Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend; in
certain other circumstances, the absence of such an adjustment may result in a
taxable dividend to the holders of Common Stock.
The Company, from time to time and to the extent permitted by law, may
reduce the conversion price by any amount for any period of at least 20 days, in
which case the Company shall give at least 15 days notice of such reduction, if
the Board of Directors has made a determination that such reduction would be in
the best interests of the Company, which determination shall be conclusive. The
Company may, at its option, make such reductions in the conversion price, in
addition to those set forth above, as the Board of Directors deems advisable to
avoid or diminish any income tax to holders of Common Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any event
treated as such for United States federal income tax purposes.
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then in
effect; provided that any adjustment that would otherwise be required to be made
shall be carried forward and taken in account in any subsequent adjustment.
Except as stated above, the conversion price will not be adjusted for the
issuance of Common Stock or any securities convertible into or exchangeable for
Common Stock or carrying the right to purchase any of the foregoing.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not entitled to any sinking fund. At any time on or after
March 15, 1999, the Notes will be redeemable at the Company's option on at least
30 and not more than 60 days' notice as a whole or, from time to time, in part
at the following prices (expressed as percentages of the principal amount),
together with accrued interest to, but excluding, the date fixed for redemption:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ----------------------------------------------------------------------- ----------------
<S> <C>
1999................................................................... %
2000...................................................................
</TABLE>
If fewer than all the Notes are to be redeemed, the Trustee will select the
Notes to be redeemed by lot. If any Note is to be redeemed in part only, a new
Note or Notes in principal amount equal to the unredeemed principal portion
thereof will be issued. If a portion of a holder's Notes are selected for
partial redemption and such holder converts a portion of such Notes, such
converted portion shall be deemed (so far as may be) to be taken from the
portion selected for redemption.
45
<PAGE>
REPURCHASE AT OPTION OF HOLDERS UPON REPURCHASE EVENT
The Indenture provides that if a Repurchase Event (as defined) occurs, each
holder of Notes shall have the right to require the Company to repurchase all of
such holder's Notes, or any portion of the principal amount thereof that is an
integral multiple of $1,000, on the date (the "Repurchase Date") that is 30 days
after the date of the Company Notice (as defined), at a price in cash equal to
100% of the principal amount thereof (the "Repurchase Price"), plus accrued and
unpaid interest to, but excluding, the Repurchase Date (subject to the right of
holders of record on the relevant record date to receive interest due on an
interest payment date that is on the Repurchase Date).
Within 30 days after the occurrence of a Repurchase Event, the Company or,
at the Company's request, the Trustee is obligated to give all holders of record
of the Notes a notice (the "Company Notice") of the occurrence of such
Repurchase Event and of the repurchase right arising as a result thereof (unless
the Company shall have theretofore called for redemption all of the outstanding
Notes). The Company must also deliver a copy of the Company Notice to the
Trustee. To exercise the repurchase right, a holder of Notes must deliver on or
before the 30th day after the date of the Company Notice written notice of the
holder's exercise of such right, together with the Notes with respect to which
the right is being exercised, duly endorsed for transfer to the Company.
A "Repurchase Event" shall be deemed to have occurred at such time as:
(i) any Person (including any syndicate or group which would be deemed
to be a "person" under Section 13(d)(3) of the Exchange Act), other than the
Company, any subsidiary of the Company, or any employee benefit plan of the
Company or any such subsidiary, is or becomes the beneficial owner, directly
or indirectly, through a purchase or other acquisition transaction or series
of transactions (other than a merger or consolidation involving the
Company), of shares of capital stock of the Company entitling such Person to
exercise in excess of 50% of the total voting power of all shares of capital
stock of the Company entitled to vote generally in elections of directors;
or
(ii) there occurs any consolidation of the Company with, or merger of
the Company into, any other Person, any merger of another Person into the
Company or any sale or transfer of all or substantially all of the assets of
the Company to another Person (other than (a) any such transaction pursuant
to which the holders of the Common Stock immediately prior to such
transaction have, directly or indirectly, shares of capital stock of the
continuing or surviving corporation immediately after such transaction which
entitle such holders to exercise in excess of 50% of the total voting power
of all shares of capital stock of the continuing or surviving corporation
entitled to vote generally in the election of directors and (b) any merger
(1) which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the Company, or (2)
which is effected solely to change the jurisdiction of incorporation of the
Company and results in a reclassification, conversion or exchange of
outstanding shares of Common Stock solely into shares of common stock);
provided, however, that a Repurchase Event shall not be deemed to have occurred
if either (a) the Closing Price per share of the Common Stock for any five
Trading Days within the period of ten consecutive Trading Days ending
immediately before the Repurchase Event shall equal or exceed 105% of the
conversion price of the Notes in effect on each such trading day or (b) at least
90% of the consideration (excluding cash payments for fractional shares) in the
transaction or transactions constituting the Repurchase Event consists of shares
of common stock traded on a national securities exchange or quoted on the Nasdaq
National Market (or which will be so traded or quoted when issued or exchanged
in connection with such Repurchase Event) and as a result of such transaction or
transactions the Notes become convertible solely into such common stock. The
term "beneficial owner" shall be determined in accordance with Rule 13d-3
promulgated by the Commission under the Exchange Act.
To the extent applicable, the Company will comply with the provisions of
Rule 13e-4 or any other tender offer rules, and will file a Schedule 13E-4 or
any other schedule required under such rules, in connection with any offer by
the Company to repurchase Notes at the option of the holders thereof upon a
Repurchase Event.
The Repurchase Event feature of the Notes may in certain circumstances make
more difficult or discourage a takeover of the Company and, thus, the removal of
incumbent management. The repurchase right is not the
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<PAGE>
result of management's knowledge of any effort to accumulate Common Stock or to
obtain control of the Company by means of a merger, tender offer, solicitation,
or otherwise, or part of a plan by management to adopt a series of anti-takeover
provisions. Instead, this right is the result of negotiations between the
Company and the Underwriter.
The foregoing provisions would not necessarily afford holders of the Notes
protection in the event of a highly leveraged transaction, a change in control
of the Company or other transactions involving the Company that may adversely
affect holders of the Notes.
The Company's ability to repurchase Notes upon the occurrence of a
Repurchase Event is subject to limitations. If a Repurchase Event were to occur,
there can be no assurance that the Company would have sufficient financial
resources, or would be able to arrange financing, to pay the repurchase price
for all Notes tendered by holders thereof. In addition, the occurrence of
certain Repurchase Events would constitute an event of default under certain of
the Company's current debt agreements, and the Company's repurchase of Notes as
a result of the occurrence of a Repurchase Event may be prohibited or limited
by, or create an event of default under, the terms of future agreements relating
to borrowings of the Company, including agreements relating to Senior
Indebtedness. In the event a Repurchase Event occurs at a time when the Company
is prohibited from purchasing Notes, the Company could seek the consent of its
lenders to the purchase of the Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such a
consent or repay such borrowings, the Company would remain prohibited from
purchasing Notes. Any failure by the Company to repurchase the Notes when
required following a Repurchase Event would result in an Event of Default under
the Indenture whether or not such repurchase is permitted by the subordination
provisions of the Indenture. Any such default may, in turn, cause a default
under Senior Indebtedness of the Company. As a result, in each case, any
repurchase of the Notes would, absent a waiver, be prohibited under the
subordination provisions of the Indenture until the Senior Indebtedness is paid
in full. See "Subordination of Notes" below and "Risk Factors -- Subordination."
SUBORDINATION OF NOTES
The indebtedness evidenced by the Notes is subordinated, to the extent
provided in the Indenture, to the prior payment in full of all Senior
Indebtedness (as defined). Upon any payment by the Company or distribution of
assets of the Company resulting from any dissolution, winding up, liquidation or
reorganization, the payment of the principal of, or premium, if any, or interest
on the Notes is subordinated, to the extent provided in the Indenture, in right
of payment to the prior payment in full in cash of all Senior Indebtedness. In
the event of any acceleration of the Notes because of an Event of Default (as
defined), the holders of any Senior Indebtedness then outstanding would be
entitled to payment in full in cash of all obligations in respect of such Senior
Indebtedness before the holders of the Notes are entitled to receive any payment
or distribution in respect thereof. The Indenture will require that the Company
promptly notify holders of Senior Indebtedness if payment of the Notes is
accelerated because of an Event of Default.
The Company also may not make any payment upon or in respect of the Notes if
(i) a default in the payment of the principal of, premium, if any, interest,
rent or other obligations in respect of Senior Indebtedness occurs and is
continuing beyond any applicable period of grace or (ii) any other default
occurs and is continuing with respect to Designated Senior Indebtedness (as
defined) that permits holders of the Designated Senior Indebtedness as to which
such default relates to accelerate its maturity and the Trustee receives a
notice of such default (a "Payment Blockage Notice") from the Company or other
person permitted to give such notice under the Indenture. Payments on the Notes
may and shall be resumed (a) in case of a payment default, upon the date on
which such default is cured or waived and (b) in case of a nonpayment default,
the earlier of the date on which such nonpayment default is cured or waived or
179 days after the date on which the applicable Payment Blockage Notice is
received if the maturity of such Designated Senior Indebtedness has not been
accelerated, unless the Indenture otherwise prohibits the payment at the time of
such payment. No new period of payment blockage may be commenced pursuant to a
Payment Blockage Notice unless and until (i) 365 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of
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<PAGE>
principal of, premium, if any, and interest on the Notes that have become due
have been paid in full in cash. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice.
By reason of the subordination provisions described above, holders of Senior
Indebtedness may, in the event of the Company's bankruptcy, dissolution or
reorganization, receive more, ratably, and holders of the Notes may receive
less, ratably, than the other creditors of the Company. Such subordination will
not prevent the occurrence of any Event of Default under the Indenture.
The term "Senior Indebtedness" means the principal of, premium, if any,
interest (including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and rent payable on or
in connection with, and all fees, costs, expenses and other amounts accrued or
due on or in connection with, Indebtedness of the Company, whether outstanding
on the date of the Indenture or thereafter created, incurred, assumed,
guaranteed or in effect guaranteed by the Company (including all deferrals,
renewals, extensions or refundings of, or amendments, modifications or
supplements to the foregoing), unless in the case of any particular Indebtedness
the instrument creating or evidencing the same or the assumption or guarantee
thereof expressly provides that such Indebtedness shall not be senior in right
of payment to the Notes or expressly provides that such Indebtedness is "pari
passu" or "junior" to the Notes. Notwithstanding the foregoing, Senior
Indebtedness shall not include any Indebtedness of the Company to any subsidiary
of the Company, a majority of the voting stock of which is owned, directly or
indirectly, by the Company. The term "Indebtedness" means, with respect to any
Person, and without duplication, (a) all indebtedness, obligations and other
liabilities (contingent or otherwise) of such Person for borrowed money
(including obligations of the Company in respect of overdrafts, foreign exchange
contracts, currency exchange agreements, interest rate protection agreements,
and any loans or advances from banks, whether or not evidenced by notes or
similar instruments) or evidenced by bonds, debentures, notes or similar
instruments (whether or not the recourse of the lender is to the whole of the
assets of such Person or to only a portion thereof) (other than any account
payable or other accrued current liability or obligation incurred in the
ordinary course of business in connection with the obtaining of materials or
services), (b) all reimbursement obligations and other liabilities (contingent
or otherwise) of such Person with respect to letters of credit, bank guarantees
or bankers' acceptances, (c) all obligations and liabilities (contingent or
otherwise) in respect of leases of such Person as lessee required, in conformity
with generally accepted accounting principles, to be accounted for as
capitalized lease obligations on the balance sheet of such Person, and all
obligations and other liabilities (contingent or otherwise) under any lease or
related document (including a purchase agreement) in connection with any lease
of real property which provides that such Person is contractually obligated to
purchase or cause a third party to purchase the leased property and thereby
guarantee a minimum residual value of the leased property to the lessor and the
obligations of such Person under such lease or related document to purchase or
to cause a third party to purchase such leased property, (d) all obligations of
such Person (contingent or otherwise) with respect to an interest rate or other
swap, cap or collar agreement or other similar instrument or agreement or
foreign currency hedge, exchange, purchase or similar instrument or agreement,
(e) all direct or indirect guaranties or similar agreements by such Person in
respect of, and obligations or liabilities (contingent or otherwise) of such
Person to purchase or otherwise acquire or otherwise assure a creditor against
loss in respect of, indebtedness, obligations or liabilities of another Person
of the kind described in clauses (a) through (d), (f) any indebtedness or other
obligations described in clauses (a) through (d) secured by any mortgage,
pledge, lien or other encumbrance existing on property which is owned or held by
such Person, regardless of whether the indebtedness or other obligation secured
thereby shall have been assumed by such Person and, (g) any and all deferrals,
renewals, extensions and refunding of, or amendments, modifications or
supplements to, any indebtedness, obligation or liability of the kind described
in clauses (a) through (f). The term "Designated Senior Indebtedness" means
Indebtedness under the Company's existing loan agreements with Wells Fargo and
First Security Bank of Utah, and any other Senior Indebtedness if the instrument
creating or evidencing the same or the assumption or guarantee thereof (or
related agreements or documents to which the Company is a party) expressly
provides that such Indebtedness shall be "Designated Senior Indebtedness" for
purposes of the Indenture (provided that such instrument, agreement or other
document may place limitations and conditions on the right of such Senior
Indebtedness to exercise the rights of Designated Senior Indebtedness).
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<PAGE>
The Notes are obligations exclusively of the Company. Since the operations
of the Company are partially conducted through its subsidiaries, the cash flow
and the consequent ability to service debt, including the Notes, of the Company
are partially dependent upon the earnings of such subsidiaries and the
distribution of those earnings, or upon loans or other payments of funds, by
those subsidiaries to the Company. The subsidiaries are separate and distinct
legal entities and have no obligation, contingent or otherwise, to pay any
amounts due pursuant to the Notes or to make any funds available therefor,
whether by dividends, distributions, loans or other payments. In addition, the
payment of dividends or distributions and the making of loans and other payments
to the Company by any such subsidiaries could be subject to statutory or
contractual restrictions, could be contingent upon the earnings of those
subsidiaries, and are subject to various business considerations.
Any right of the Company to receive any assets of any of its subsidiaries
upon their liquidation or reorganization (and the consequent right of the
holders of the Notes to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's creditors (including trade
creditors), except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would still
be subordinate to any security interest in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by the Company.
At January 28, 1996, the Company had approximately $60.3 million of
outstanding indebtedness which would have constituted Senior Indebtedness and
subsidiaries of the Company had approximately $19.9 million of outstanding
indebtedness and other liabilities (excluding (i) intercompany liabilities, (ii)
indebtedness included in Senior Indebtedness because it is guaranteed directly
or indirectly by the Company and (iii) liabilities of a type not required to be
reflected on the balance sheet of such subsidiaries in accordance with generally
accepted accounting principles) to which the Notes would have been effectively
subordinated. The Company intends to use a portion of the net proceeds of this
offering to repay a portion of the outstanding amounts under its bank loan
agreements, which constitute Senior Indebtedness (although it may subsequently
borrow additional amounts under such loan agreements). See "Use of Proceeds".
The Indenture contains no limitations on either (i) the amount of additional
indebtedness, including Senior Indebtedness, which the Company may create,
incur, assume or guarantee, or (ii) the amount of indebtedness and other
liabilities which any subsidiary may create, incur, assume or guarantee.
In the event that, notwithstanding the foregoing, the Trustee or any holder
of Notes receives any payment or distribution of assets of the Company of any
kind in contravention of any of the subordination provisions of the Indenture,
whether in cash, property or securities, including, without limitation, by way
of set-off or otherwise, in respect of the Notes before all Senior Indebtedness
is paid in full, then such payment or distribution will be held by the recipient
in trust for the benefit of and shall be paid over to the holders of Senior
Indebtedness or their representative or representatives to the extent necessary
to make payment in full of all Senior Indebtedness remaining unpaid, after
giving effect to any concurrent payment or distribution, or provision therefor,
to or for the holders of Senior Indebtedness.
The Company is obligated to pay reasonable compensation to the Trustee and
to indemnify the Trustee against any losses, liabilities or expenses incurred by
it in connection with its duties relating to the Notes. The Trustee's claims for
such payments will be senior to claims of holders of the Notes in respect of all
funds collected or held by the Trustee.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is defined in the Indenture as being: default in payment
of the principal of or premium, if any, on the Notes (including, without
limitation, any redemption price or repurchase price payable with respect to any
Note); default for 30 days in payment of any installment of interest on the
Notes; default by the Company for 60 days after notice in the observance or
performance of any other covenants in the Indenture; failure of the Company or
any subsidiary to make any payment at maturity in respect of Money Indebtedness
(as defined) in an amount in excess of $25,000,000 and continuance of such
failure for 180 days; default by the Company or any subsidiary with respect to
any Money Indebtedness, which default results in the acceleration of Money
Indebtedness in an amount in excess of $25,000,000 without such Money
Indebtedness having been discharged or such acceleration having been cured,
waived, rescinded or annulled within 30 days after notice as provided in the
Indenture; or certain events involving bankruptcy, insolvency or reorganization
of the Company.
49
<PAGE>
The Indenture provides that the Trustee may withhold notice to the holders of
Notes of any default (except in payment of principal, premium, if any, or
interest with respect to the Notes) if the Trustee in good faith determines it
in the interest of the holders of the Notes to do so.
The Indenture provides that if an Event of Default shall have occurred and
be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Notes then outstanding may declare the principal of and accrued
interest on the Notes to be due and payable immediately, but if the Company
shall cure all defaults (except the nonpayment of principal of, premium, if any,
and interest on any of the Notes which shall have become due by acceleration)
and certain other conditions are met, with certain exceptions, such declaration
may be canceled and past defaults may be waived by the holders of a majority of
the principal amount of the Notes then outstanding. In the case of certain
events of bankruptcy, insolvency or reorganization, the principal of and accrued
interest on the Notes shall automatically become and be immediately due and
payable.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to direct the time, method and place of conducting any
proceedings for any remedy available to the Trustee, subject to certain
limitations specified in the Indenture.
MODIFICATIONS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in principal amount
of the Notes at the time outstanding, to modify the Indenture or any
supplemental indenture or the rights of the holders of the Notes, except that no
such modification shall (i) extend the fixed maturity of any Note, reduce the
rate or extend the time for payment of interest thereon, reduce the principal
amount thereof or premium, if any, thereon, reduce any amount payable upon
redemption thereof, change the obligation of the Company to repurchase any Note
upon the happening of a Repurchase Event in a manner adverse to holders of
Notes, impair the right of a holder to institute suit for the payment thereof,
change the currency in which the Notes are payable, impair the right to convert
the Notes into Common Stock subject to the terms set forth in the Indenture or
modify the provisions of the Indenture with respect to the subordination of the
Notes in a manner adverse to the holders of the Notes in any material respect,
without the consent of the holder of each Note so affected, or (ii) reduce the
aforesaid percentage of Notes without the consent of the holders of all of the
Notes then outstanding.
SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Indenture while Notes
remain outstanding if (i) all outstanding Notes will become due and payable at
their scheduled maturity within one year or (ii) all outstanding Notes are
redeemed within one year, and, in either case, the Company has deposited with
the Trustee an amount sufficient to pay and discharge all outstanding Notes on
the date of their scheduled maturity or the scheduled date of redemption.
GOVERNING LAW
The Indenture and the Notes provide that they are to be governed in
accordance with the laws of the Commonwealth of Massachusetts.
THE TRUSTEE
The Trustee under the Indenture has been appointed by the Company as the
paying agent, conversion agent, registrar and custodian with regard to the
Notes. The Trustee or its affiliates may from time to time in the future provide
banking and other services to the Company in the ordinary course of their
business.
The Indenture contains certain limitations on the rights of the Trustee, in
the event it or any of its affiliates becomes a creditor of the Company, to
obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The Trustee and
its affiliates will be permitted to engage in other transactions with the
Company; provided, however, that if the Trustee or any such affiliate acquires
any conflicting interest (as defined), it must eliminate such conflict or
resign.
In case an Event of Default shall occur (and shall not be cured), the
Trustee will be required to use the same degree of care and skill as a prudent
person would use under the circumstances in the conduct of his own affairs.
50
<PAGE>
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any of the
holders of Notes, unless they shall have offered to the Trustee reasonable
security or indemnity.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 150,000,000 shares
of Common Stock, $.03 1/3 par value per share, and 5,000,000 shares of Preferred
Stock, $.01 par value per share. As of December 31, 1995, there were outstanding
58,819,335 shares of Common Stock held by 2,634 stockholders of record. Of the
5,000,000 authorized shares of Preferred Stock, 250,000 shares have been
designated as Series C Junior Participating Preferred Stock (none of which are
outstanding), and 4,750,000 shares remain available for designation by the Board
of Directors in the future.
The following summary of certain provisions of the Company's Common Stock,
Preferred Stock, Certificate of Incorporation and By-laws is not intended to be
complete and is qualified by reference to the provisions of applicable law and
to the Company's Certificate of Incorporation and By-laws included as exhibits
to the Registration Statement of which this Prospectus is a part. See "Available
Information."
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the outstanding shares of Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor, subject to any preferential dividend rights
of the holders of any outstanding Preferred Stock. Upon the liquidation,
dissolution or winding-up of the Company, holders of Common Stock are entitled
to receive ratably the net assets of the Company available for distribution
after the payment of all debts and other liabilities of the Company and subject
to the prior rights of the holders of any outstanding Preferred Stock. Holders
of Common Stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares of Common Stock are, and the shares offered
hereby will be, when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of holders of any shares of
Preferred Stock that the Company may issue in the future.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed
by law, without further stockholder approval, to issue from time to time up to
4,750,000 shares of Preferred Stock, in one or more series. Each such series of
Preferred Stock shall have such number of shares, designations, preferences,
voting powers, qualifications and special or relative rights or privileges as
shall be determined by the Board of Directors, which may include, among others,
dividend rights, voting rights, redemption and sinking fund provisions,
liquidation preferences, conversion rights and preemptive rights.
The stockholders of the Company have granted the Board of Directors
authority to issue the Preferred Stock and to determine its rights and
preferences in order to eliminate delays associated with a stockholder vote on
specific issuances. The rights of the holders of Common Stock will be subject to
the rights of holders of any Preferred Stock issued in the future. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, a majority of the outstanding voting
stock of the Company. The Company has no present plans to issue any shares of
Preferred Stock.
RIGHTS PLAN
In July 1989, the Company adopted a Shareholder Rights Plan and declared a
dividend of four-fifteenths of one preferred stock purchase right (a "Right")
for each outstanding share of Common Stock. Under certain conditions, each Right
may be exercised to purchase one one-hundredth of a share of Series C Junior
Participating Preferred Stock ("Series C Preference Stock") at an exercise price
of $15. The Rights will be exercisable only
51
<PAGE>
if a person or group has acquired beneficial ownership of 20% or more of the
Common Stock of the Company or announced a tender or exchange offer that would
result in such a person or group owning 30% or more of the Common Stock. The
Company generally will be entitled to redeem the Rights at $.01 per Right at any
time until the tenth day following public announcement that a 20% stock position
has been acquired and in certain other circumstances.
If any person or group becomes a beneficial owner of 25% or more of the
Common Stock (except pursuant to a tender or exchange offer for all shares at a
fair price as determined by the outside members of the Board of Directors) or if
a 20% stockholder consolidates or merges into or engages in certain self-dealing
transactions with the Company, each Right not owned by a 20% stockholder will
enable its holder to purchase such number of shares of Common Stock as is equal
to the exercise price of the Right divided by one-half of the market price of
the Common Stock on the date of the occurrence of the event. In addition, if the
Company engages in a merger or other business combination with another person or
group in which it is not the surviving corporation or in connection with which
its Common Stock is changed or converted, or if the Company sells or transfers
50% or more of its assets or earning power to another person, each Right that
has not previously been exercised will entitle its holder to purchase such
number of shares of Common Stock of such other person as is equal to the
exercise price of the Right divided by one-half of the market price of such
Common Stock on the date of the occurrence of the event.
Because of the nature of the Series C Preferred Stock's dividend,
liquidation and voting rights, the value of four fifteen-hundredths of a share
of Series C Preferred Stock purchasable upon exercise of the four-fifteenths of
a Right associated with each share of Common Stock should approximate the value
of one share of Common Stock.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board of Directors of the Company, except pursuant
to an offer conditioned on a substantial number of Rights being acquired. The
Rights should not interfere with any merger or other business combination
approved by the Board of Directors.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. In general, Section 203 prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Company's Certificate of Incorporation and By-Laws provide that any
action required or permitted to be taken by the stockholders of the Company may
be taken only at a duly called annual or special meeting of stockholders or by a
written consent signed by all holders of outstanding voting stock, and that
special meetings of stockholders may be called only by the Board of Directors or
the President of the Company. These provisions could have the effect of delaying
until the next stockholders' meeting stockholder actions which are favored by
the holders of a majority of the outstanding voting securities of the Company.
These provisions may also discourage another person or entity from making a
tender offer for the Common Stock, because such person or entity, even if it
acquired a majority of the outstanding voting securities of the Company, would
be able to take action as a stockholder (such as electing new Directors or
approving a merger) only at a duly called stockholders meeting, and not by
written consent.
The Company's Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of Directors. The provisions eliminate a Director's liability to
stockholders for monetary damages for a breach of fiduciary duty, except in
certain circumstances involving wrongful acts, such as the breach of a
Director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. The Company's Certificate of
Incorporation also contains provisions
52
<PAGE>
obligating the Company to indemnify its Directors and officers to the fullest
extent permitted by the General Corporation Law of Delaware. The Company
believes that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriter, Hambrecht & Quist LLC, has agreed to purchase all of the Notes from
the Company. The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, its counsel and the
Company's independent auditors. The nature of the Underwriter's obligation is
such that it is committed to purchase all of the Notes offered hereby if any of
such Notes are purchased. The Underwriter proposes to offer the Notes directly
to the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per Note. The Underwriter may allow, and such dealers may reallow, a
concession not in excess of $ per Note to certain other dealers. After the
offering contemplated hereby, the offering price and other selling terms may be
changed by the Underwriter.
The Company has granted to the Underwriter an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to an additional
$6,000,000 principal amount of Notes at the public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. The
Company will be obligated, pursuant to the option, to sell such Notes to the
Underwriter to the extent the option is exercised. The Underwriter may exercise
such option only to cover over-allotments made in connection with the sale of
Notes offered hereby.
The offering of the Notes is made for delivery when, as and if accepted by
the Underwriter and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriter reserves the right
to reject an order for the purchase of Notes in whole or in part.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, and to
contribute to payments the Underwriter may be required to make in respect
thereof.
The executive officers and directors of the Company have agreed, with
certain limited exceptions, that they will not, without the prior written
consent of the Underwriter, offer, sell, or otherwise dispose of any shares of
Common Stock or options to acquire shares of Common Stock owned by them during
the 90-day period following the date of this Prospectus. The Company has agreed
that it will not, without the prior written consent of the the Underwriter,
offer, sell, grant any option to purchase or otherwise dispose of any shares of
Common Stock during the 90-day period following the date of this Prospectus
(except pursuant to employee and director stock plans).
LEGAL MATTERS
The validity of the Notes offered hereby and the shares of Common Stock
issuable upon conversion thereof will be passed upon for the Company by Hale and
Dorr, Boston, Massachusetts. Partners of Hale and Dorr beneficially own 93,750
shares of Common Stock of the Company. Certain legal matters will be passed upon
for the Underwriter by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, Palo Alto, California.
53
<PAGE>
EXPERTS
The consolidated financial statements and schedule included or incorporated
by reference in this Prospectus and elsewhere in the Registration Statement, to
the extent and for the periods indicated in their reports, have been audited by
Arthur Andersen LLP, independent public accountants, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company is subject to the informational 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 SEC.
Such documents can be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following Regional Offices of the SEC: Seven World Trade Center, 13th Floor,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and copies of such material may be obtained from the SEC's
Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Common Stock is quoted on the Nasdaq Stock Market. Reports
and other information concerning the Company may be inspected at the office of
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the SEC a Registration Statement on Form S-3
under the Securities Act of 1933 with respect to the Notes offered hereby and
the Common Stock issuable upon conversion thereof. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company, the Notes and its Common Stock, reference is hereby made to such
Registration Statement, exhibits and schedules. Statements contained in this
Prospectus as to the contents of any contract or any other document are not
necessarily complete, and in each instance reference is hereby made to the copy
of such contract or document (if any) filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement and the exhibits and schedules thereto may
be examined without charge at the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549 and copies of such materials may be
obtained from the SEC at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the SEC are incorporated
herein by reference:
(1) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994;
(2) the Company's Quarterly Reports on Form 10-Q for the quarters ended
April 2, July 2 and October 1, 1995;
(3) the Company's Current Report on Form 8-K dated February 1, 1996;
(4) the Company's Form 10-C filed on February 6, 1996; and
(5) the Company's Registration Statement on Form 8-A registering the Common
Stock under Section 12(g) of the Exchange Act.
All documents filed by the Company with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to February 27, 1996 and prior
to the termination of the offering of the Common Stock registered hereby shall
be deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference 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. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
54
<PAGE>
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the foregoing documents incorporated by reference into this
Prospectus (without exhibits to such documents other than exhibits specifically
incorporated by reference into such documents). Requests for such copies should
be directed to the Secretary of the Company, 1821 West Iomega Way, Roy, Utah
84067 (telephone: (801) 778-1000).
55
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995.......................... F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and
1995................................................................................. F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993,
1994 and 1995........................................................................ F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995................................................................................. F-9
Notes to Consolidated Financial Statements............................................ F-10
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Iomega Corporation:
We have audited the accompanying consolidated balance sheets of Iomega
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Iomega
Corporation and subsidiaries as of December 31, 1994 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
As explained in Note 3 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 26, 1996
F-2
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 16,861 $ 1,023
Temporary investments................................... 2,932 --
Trade receivables, less allowance for doubtful accounts
of $1,627 and $1,861, respectively..................... 18,892 105,955
Inventories............................................. 17,318 98,703
Deferred tax assets..................................... 477 2,778
Other current assets.................................... 4,077 3,673
--------- ---------
Total current assets................................ 60,557 212,132
--------- ---------
Equipment and leasehold improvements, at cost:
Machinery and equipment................................. 45,585 67,812
Leasehold improvements.................................. 6,034 6,475
Furniture and fixtures.................................. 4,737 4,805
Equipment and construction in process................... 2,837 24,057
--------- ---------
59,193 103,149
Less: Accumulated depreciation and amortization......... (43,917) (49,779)
--------- ---------
15,276 53,370
--------- ---------
Deferred tax assets....................................... -- 520
--------- ---------
Other assets.............................................. -- 205
--------- ---------
$ 75,833 $ 266,227
--------- ---------
--------- ---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-3
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
-------- ---------
<S> <C> <C>
Current liabilities:
Notes payable............................................ $ -- $ 47,640
Accounts payable......................................... 7,228 94,782
Bank overdraft........................................... -- 11,833
Accrued payroll and bonus................................ 3,047 6,777
Deferred revenue......................................... 1,947 3,207
Accrued vacation......................................... 1,954 2,939
Accrued warranty......................................... 3,943 4,652
Other accrued liabilities................................ 7,620 21,756
Income taxes payable..................................... -- 5,141
Current portion of capitalized lease obligations......... -- 782
-------- ---------
Total current liabilities............................ 25,739 199,509
-------- ---------
Capitalized lease obligations, net of current portion...... -- 1,481
-------- ---------
Notes payable, net of current portion...................... -- 2,551
-------- ---------
Commitments and contingencies (Note 4)
Redeemable Series A Convertible Preferred Stock;
outstanding 258,816 shares................................ 1,031 --
-------- ---------
Stockholders' equity:
Preferred Stock, $0.01 par value; authorized 4,750,000
shares.................................................. -- --
Series C Junior Participating Preferred Stock; authorized
250,000 shares, none issued............................. -- --
Common Stock, $.03 1/3 par value; authorized 150,000,000
shares; issued 55,559,247 and 58,819,335 shares,
respectively............................................ 1,852 1,960
Notes receivable from stockholders....................... (597) --
Additional paid-in capital............................... 47,023 51,473
Retained earnings........................................ 785 9,253
-------- ---------
Total stockholders' equity........................... 49,063 62,686
-------- ---------
-------- ---------
$ 75,833 $ 266,227
-------- ---------
-------- ---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-4
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Sales.......................................... $ 147,123 $ 141,380 $ 326,225
Cost of sales.................................. 92,585 92,453 235,838
--------- --------- ---------
Gross margin................................... 54,538 48,927 90,387
--------- --------- ---------
Operating expenses:
Selling, general and administrative.......... 38,862 36,862 57,189
Research and development..................... 18,972 15,438 19,576
Restructuring costs (reversal)............... 14,131 (2,491) --
--------- --------- ---------
Total operating expenses................. 71,965 49,809 76,765
--------- --------- ---------
Operating income (loss)........................ (17,427) (882) 13,622
Foreign currency gain (loss)................. 328 353 (1,243)
Interest income.............................. 620 871 537
Interest expense............................. (70) (15) (1,652)
Other income (expense)....................... (107) (301) 375
--------- --------- ---------
Income (loss) before income taxes and
cumulative effect of accounting change........ (16,656) 26 11,639
Provision for income taxes..................... (206) (1,908) (3,136)
--------- --------- ---------
Net income (loss) before cumulative effect of
accounting change............................. (16,862) (1,882) 8,503
Cumulative effect of accounting change......... 2,337 -- --
--------- --------- ---------
Net income (loss)............................ $ (14,525) $ (1,882) $ 8,503
--------- --------- ---------
Net income (loss) per common share:
Net income (loss) before cumulative effect of
accounting change........................... $ (0.31) $ (0.03) $ 0.14
Cumulative effect of accounting change....... 0.04 -- --
--------- --------- ---------
Net income (loss)............................ $ (0.27) $ (0.03) $ 0.14
--------- --------- ---------
--------- --------- ---------
Weighted average common chares outstanding..... 54,318 55,419 60,180
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK RECEIVABLE ADDITIONAL
------------------ FROM PAID-IN RETAINED TREASURY
SHARES AMOUNT STOCKHOLDERS CAPITAL EARNINGS STOCK TOTAL
---------- ------ ------------ ---------- ----------- --------- --------
Balances at December 31, 1992................. 53,632,656 $1,788 $ -- $57,746 $ 17,347 $ (11,857) $ 65,024
<S> <C> <C> <C> <C> <C> <C> <C>
Sale of shares to employees at an average
price of $0.69 cash per share................ 570,888 19 -- 373 -- -- 392
Sale of shares to officer at an average price
of $0.68 per share for a note receivable..... 882,000 29 (597) 568 -- -- --
Accretion of Series A Convertible Preferred
Stock redemption premium..................... -- -- -- (51) -- -- (51)
Dividends on Series A Convertible Preferred
Stock........................................ -- -- -- -- (78) -- (78)
Tax benefit from early dispositions of
employee stock............................... -- -- -- 214 -- -- 214
Recognition of compensation from Employee
Stock Purchase Plan.......................... -- -- -- 84 -- -- 84
Issuance of 34,563 treasury shares under
Employee Stock Purchase Plan................. -- -- -- (30) -- 60 30
Net loss...................................... -- -- -- -- (14,525) -- (14,525)
---------- ------ ------ ---------- ----------- --------- --------
Balances at December 31, 1993................. 55,085,544 $1,836 $ (597) $58,904 $ 2,744 $ (11,797) $ 51,090
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE ADDITIONAL
FROM PAID-IN RETAINED TREASURY
SHARES AMOUNT STOCKHOLDERS CAPITAL EARNINGS STOCK TOTAL
---------- ------ ------------ ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sale of shares to employees at an average
price of $0.56 cash per share................ 473,703 16 -- 240 -- -- 256
Purchase of 390,000 shares at an average cost
of $0.78 cash per share...................... -- -- -- -- -- (305) (305)
Accretion of Series A Convertible Preferred
Stock redemption premium..................... -- -- -- (55) -- -- (55)
Dividends on Series A Convertible Preferred
Stock........................................ -- -- -- -- (77) -- (77)
Tax benefit from early dispositions of
employee stock............................... -- -- -- 28 -- -- 28
Recognition of compensation from Employee
Stock Purchase Plan.......................... -- -- -- 8 -- -- 8
Issuance of 15,171 treasury shares under
Employee Stock Purchase Plan................. -- -- -- (17) -- 17 --
Five-for-four Common Stock split effected in
the form of a 25% stock dividend............. -- -- -- (12,085) -- 12,085 --
Net loss...................................... -- -- -- -- (1,882) -- (1,882)
---------- ------ ------ ---------- ----------- --------- --------
Balances at December 31, 1994................. 55,559,247 $1,852 $ (597) $47,023 $ 785 $ -- $ 49,063
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-7
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE ADDITIONAL
FROM PAID-IN RETAINED TREASURY
SHARES AMOUNT STOCKHOLDERS CAPITAL EARNINGS STOCK TOTAL
---------- ------ ------------ ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sale of shares to employees at an average
price of $0.83 cash per share................ 2,429,751 81 -- 1,945 -- -- 2,026
Sale of shares to an officer at an average
price of $0.57 per share for a note
receivable................................... 496,875 16 (283) 267 -- -- --
Accretion of Series A Convertible Preferred
Stock redemption premium..................... -- -- -- (14) -- -- (14)
Dividends on Series A Convertible Preferred
Stock........................................ -- -- -- -- (35) -- (35)
Tax benefit from early dispositions of
employee stock............................... -- -- -- 860 -- -- 860
Recognition of compensation from Employee
Stock Purchase Plan.......................... -- -- -- 185 -- -- 185
Conversion of Series A Convertible Preferred
Stock to Common Stock........................ 318,600 11 -- 1,194 -- -- 1,205
Issuance of Common Shares under Employee Stock
Purchase Plan................................ 14,862 -- -- 13 -- -- 13
Collection of notes receivable from
stockholders................................. -- -- 880 -- -- -- 880
Net income.................................... -- -- -- -- 8,503 -- 8,503
---------- ------ ------ ---------- ----------- --------- --------
Balances at December 31, 1995................. 58,819,335 $1,960 $ -- $51,473 $ 9,253 $ -- $ 62,686
---------- ------ ------ ---------- ----------- --------- --------
---------- ------ ------ ---------- ----------- --------- --------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-8
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
--------- -------- ---------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities:
Net Income (Loss)........................... $ (14,525) $ (1,882) $ 8,503
Non-Cash Revenue and Expense Adjustments:
Depreciation and amortization expense... 8,472 6,853 8,943
Cumulative effect of accounting
change................................ (2,337) -- --
Deferred income tax provision
(benefit)............................. -- 4,508 (2,821)
Change in restructuring reserves........ 5,554 1,590 --
Other................................... (751) (314) 926
Changes in Assets and Liabilities:
Trade receivables (net)................. (6,203) 2,793 (87,063)
Inventories............................. 3,786 (3,747) (81,385)
Income taxes payable.................... -- -- 6,823
Other current assets.................... (694) (1,135) (1,278)
Accounts payable........................ 1,696 161 87,554
Accrued liabilities..................... 6,333 (3,516) 32,808
--------- -------- ---------
Net cash provided from (used in)
operating activities.............. 1,331 5,311 (26,990)
--------- -------- ---------
Cash Flows from Investing Activities:
Purchase of equipment and leasehold
improvements.............................. (6,567) (7,083) (45,232)
Purchase of temporary investments........... -- (8,825) (2,090)
Sale of temporary investments............... -- 5,893 5,022
Prepayment of royalties..................... (1,000) -- --
Proceeds from sale of property held for
resale.................................... 4,461 -- --
Proceeds from sale of research and
development assets........................ -- 2,792 --
Net (increase) decrease in other assets..... 343 (10) (205)
--------- -------- ---------
Net cash used in investing
activities........................ (2,763) (7,233) (42,505)
--------- -------- ---------
Cash Flows from Financing Activities:
Proceeds from sales of Common Stock......... 402 256 2,028
Proceeds from issuance of notes payable..... -- -- 259,667
Payments on notes payable and capitalized
lease obligations......................... (11) -- (209,748)
Tax benefit from early dispositions of
employee stock............................ 214 28 860
Redemption of Preferred Stock............... (2) -- (30)
Purchase of treasury stock.................. -- (305) --
Utilization of treasury stock for Stock
Purchase Plan............................. 20 -- --
Payment of dividends on Preferred Stock..... (78) -- --
Proceeds from notes receivable from
stockholders.............................. -- -- 880
--------- -------- ---------
Net cash provided from (used in)
financing activities.............. 545 (21) 53,657
--------- -------- ---------
Net Change in Cash and Cash Equivalents......... (887) (1,943) (15,838)
Cash and Cash Equivalents at Beginning of the
Year............................................ 19,691 18,804 16,861
--------- -------- ---------
Cash and Cash Equivalents at End of the Year.... $ 18,804 $ 16,861 $ 1,023
--------- -------- ---------
--------- -------- ---------
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Net receivable (payable) associated with
revaluation of forward exchange
contracts................................. $ 49 $ (111) $ (1,113)
--------- -------- ---------
--------- -------- ---------
Sale of Common Stock for a Note............. $ 597 $ -- $ 283
--------- -------- ---------
--------- -------- ---------
Conversion of Series A Preferred Stock to
Common Stock.............................. $ -- $ -- $ 1,205
--------- -------- ---------
--------- -------- ---------
Machinery and equipment financed under
capitalized lease obligations............. $ -- $ -- $ 2,535
--------- -------- ---------
--------- -------- ---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-9
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company designs, manufactures and markets innovative data storage
solutions, based on removable-media technology, that help personal computer
users "manage their stuff." The Company's data storage solutions include disk
drives marketed under the tradenames Zip and Jaz, a family of tape drives
marketed under the tradename Ditto, and a line of removable drives marketed
under the tradename Bernoulli. Retail outlets for the Company's products include
mail order catalogs, computer superstores, office supply superstores and
speciality computer stores. The Company sells its products to retail channels
directly as well as indirectly through distributors. The Company's products are
sold at the retail level by most of the leading retailers of computer products
in the United States. In addition to sales through these retail channels, the
Company has entered into a number of strategic marketing alliances with a
variety of companies within the computer industry. These alliances include OEM
arrangements providing for certain of the Company's products to be incorporated
in new computer systems at the time of purchase.
The Company's business has grown significantly in the past year, with sales
increasing from $141.4 million in 1994 to $326.2 million in 1995. This business
growth has resulted in substantial increases in accounts receivable and
inventories. Increases in these working capital components have resulted in a
significant decline in the Company's liquidity. The Company expects that
proceeds from an anticipated note offering, together with current sources of
financing available to the Company, will be sufficient to fund the Company's
operations through at least June 30, 1996. Thereafter, the Company anticipates
that it will require additional funds to finance its operations.
SOURCES OF SUPPLY
Many components incorporated in, or used in the manufacture of, the
Company's products are currently only available from sole source suppliers. The
Company purchases all of its sole source and limited source components and
equipment pursuant to purchase orders placed from time to time and has no
guaranteed supply arrangements. Supply shortages resulting from a change in
suppliers could cause a delay in manufacturing and a possible loss of sales,
which would have an adverse effect on operating results.
MANUFACTURING RELATIONSHIPS
The Company uses independent parties to manufacture for the Company, on a
contract basis, a substantial portion of the Company's products. The Company's
manufacturing relationships are generally not covered by binding contracts and
may be subject to unilateral termination by the Company's manufacturing
partners. Shortages resulting from a change in manufacturing partners could
cause a delay in manufacturing and a possible loss of sales, which would have an
adverse affect on operating results.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries after elimination of all material intercompany
accounts and transactions.
REVENUE RECOGNITION
Revenue is recognized when units are shipped to customers. However, revenue
recognition is deferred on shipments to customers with right of return
privileges whose inventory is in excess of estimated normal customers' inventory
requirements. The gross margin associated with deferral of sales in excess of
estimated
F-10
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
normal customers' inventory requirements totaled $1,494,000, $1,947,000 and
$3,207,000 at December 31, 1993, 1994 and 1995, respectively, and is included in
deferred revenue in the accompanying consolidated balance sheets.
In addition, the Company records reserves at the time of shipment for
estimated volume rebates and price protection credits to be issued to customers.
These reserves totalled $169,000 and $1,633,000 at December 31, 1994 and 1995,
respectively, and are netted against accounts receivable in the accompanying
consolidated balance sheets.
PRICE PROTECTION
The Company has agreements with certain of its customers which, in the event
of a price decrease, allow those customers (subject to certain limitations)
credit equal to the difference between the price originally paid and the reduced
price on units in the customers' inventories at the date of the price decrease.
When a price decrease is anticipated, the Company establishes reserves for
amounts estimated to be reimbursed to the qualifying customers.
INVENTORIES
Inventories include direct materials, direct labor, and manufacturing
overhead costs and are recorded at the lower of cost (first-in, first-out) or
market and consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
------- -------
<S> <C> <C>
Raw materials........................................... $ 7,524 $89,030
Work-in-process......................................... 4,839 5,680
Finished goods.......................................... 4,955 3,993
------- -------
$17,318 $98,703
------- -------
------- -------
</TABLE>
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
When property is retired or otherwise disposed of, the book value of the
property is removed from the asset and related accumulated depreciation and
amortization accounts, and the net gain or loss is included in the determination
of net income. Depreciation is provided based on the straight-line method over
the following estimated useful lives of the property.
<TABLE>
<S> <C>
Machinery and equipment.................................... 2 - 5 years
Leasehold improvements..................................... 5 years
Furniture and fixtures..................................... 10 years
</TABLE>
The Company has certain specialized manufacturing equipment used in its
operations.
PRODUCT DEVELOPMENT
Product research and development costs are expensed as incurred.
ADVERTISING
The Company expenses the cost of advertising the first time the advertising
takes place, except cooperative advertising with customers, which is accrued at
the time of sale. For the years ended December 31, 1993, 1994 and 1995,
advertising expenses totaled approximately $5,574,000, $6,348,000 and
$10,612,000, respectively.
BANK OVERDRAFT
The bank overdraft represents those checks which have been disbursed to
vendors but have not been presented to the bank for clearance. Upon presentment
to the bank, the bank overdraft will be funded by the revolving line of credit,
thereby reducing the availability under the line. (See Note 5.)
F-11
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
WARRANTY COSTS
A one-year limited warranty is generally provided on the Company's Zip and
Jaz drives. Zip and Jaz disks carry a limited lifetime warranty. A two to
five-year limited warranty is generally provided on Bernoulli disk drives and
disk drive subsystems. A two to five-year limited warranty is generally provided
on the tape drives and tape media.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is based on the weighted average number
of shares of Common Stock and dilutive common stock equivalent shares
outstanding during the year. Common stock equivalent shares consist primarily of
stock options and convertible preferred stock that have a dilutive effect when
applying the treasury stock method. In periods where losses are recorded, common
stock equivalents would decrease the loss per share and are therefore not added
to weighted average shares outstanding. The outstanding shares and earnings per
share have been restated for all periods presented to reflect the impact of the
stock splits described in Note 2.
FOREIGN CURRENCY TRANSLATION
For purposes of consolidating foreign operations, the Company has determined
the functional currency for its foreign operations is the U.S. dollar.
Therefore, translation gains and losses are included in the determination of
income.
INCOME TAXES
The Company recognizes a liability or asset for the deferred tax
consequences of temporary differences between the tax bases of assets or
liabilities and their reported amounts in the financial statements. These
temporary differences will result in taxable or deductible amounts in future
years when the reported amounts of the assets or liabilities are recovered or
settled.
General business tax credits are accounted for using the "liability" method,
which reduces Federal income tax expense in the year in which these credits are
generated.
CASH EQUIVALENTS AND TEMPORARY INVESTMENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with maturities of three or fewer
months to be cash equivalents. Instruments with maturities in excess of three
months are classified as temporary investments. At December 31, 1994, all
temporary investments had maturities of less than six months. Cash equivalents
and temporary investments primarily consist of certificates of deposit,
investments in money market mutual funds, commercial paper and bankers'
acceptances and are recorded at cost which approximates market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The book value of the Company's financial instruments approximates fair
value. The estimated fair values have been determined using appropriate market
information and valuation methodologies.
RECLASSIFICATIONS
Certain reclassifications have been made in prior periods' consolidated
financial statements to conform to the current presentation.
(2) STOCK SPLITS
On October 27, 1994, the Company's Board of Directors declared a 5-for-4
stock split which was effected in the form of a 25% Common Stock dividend paid
on November 23, 1994 to stockholders of record at the close of business on
November 9, 1994. The Company paid cash in lieu of issuing fractional shares.
The transaction has been accounted for as a stock split. Of the shares of Common
Stock distributed by the Company in connection with the November 1994 stock
split, approximately 9,051,000 were treasury shares and the remainder were
F-12
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) STOCK SPLITS (CONTINUED)
authorized but unissued shares. The cost of the treasury shares and authorized
but unissued shares were recorded as a reduction in additional paid-in capital.
All earnings per share and outstanding shares have been retroactively restated
in the financial statements for all periods presented.
In December 1995, the Board of Directors approved a 3-for-1 Common Stock
split, to be effected in the form of a 200% Common Stock dividend, subject to
stockholder approval of an increase in the authorized Common Stock to
150,000,000 shares at $.03 1/3 par value per share. On January 26, 1996, the
stockholders approved the charter amendment to increase the authorized Common
Stock. The stock dividend will be paid on or about January 31, 1996 to
stockholders of record at the close of business on January 15, 1996. This stock
split has been retroactively reflected in the accompanying consolidated
financial statements.
In connection with each stock split, proportional adjustments were made to
outstanding stock options and other outstanding obligations of the Company to
issue shares of Common Stock.
(3) INCOME TAXES
Income (loss) before income taxes and cumulative effect of accounting change
consisted of the following:
<TABLE>
<CAPTION>
December 31, 1993 1994 1995
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S..................................... $ (7,338) $ 208 $ 10,761
Non-U.S................................. (9,318) (182) 878
--------- -------- --------
$ (16,656) $ 26 $ 11,639
--------- -------- --------
--------- -------- --------
</TABLE>
The income tax provision consists of the following:
<TABLE>
<CAPTION>
December 31, 1993 1994 1995
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current Income Taxes:
Federal............................... $ (164) $ 1,217 $ (4,158)
State................................. (22) 208 (805)
Foreign............................... -- -- (156)
--------- -------- --------
(186) 1,425 (5,119)
--------- -------- --------
Deferred Taxes:
Federal............................... 5,989 (6) 189
State................................. 1,497 -- 47
Change in Valuation Allowance......... (7,506) (3,327) 1,747
--------- -------- --------
(20) (3,333) 1,983
--------- -------- --------
Provision for Income Taxes.............. $ (206) $ (1,908) $ (3,136)
--------- -------- --------
--------- -------- --------
</TABLE>
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). In
accordance with the provisions of SFAS No. 109, the Company recognized the
cumulative effect of this accounting change totaling $2.3 million in the
consolidated statement of operations for the year ended December 31, 1993.
F-13
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities are determined based on the differences
between the financial reporting and tax basis of assets and liabilities. They
are measured by applying the enacted tax rates and laws in effect for the years
in which such differences are expected to reverse. The significant components of
the Company's deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserves.............................. $ 482 $ 1,158
Inventory reserves........................................ 940 2,378
Fixed asset reserves...................................... 36 64
Accrued expense reserves.................................. 4,596 7,188
Unrealized foreign currency loss.......................... -- 438
Inventory unicap adjustment............................... 160 375
Foreign net operating loss carryover...................... 1,493 1,921
Tax credit carryover...................................... 5,365 1,273
Intercompany profit in inventory.......................... 86 84
Other..................................................... 45 30
------------ ------------
Total deferred tax assets................................... 13,203 14,909
Valuation allowance......................................... (12,585) (11,341)
------------ ------------
Deferred tax asset net of valuation allowance............... 618 3,568
Deferred tax liabilities:
Accelerated depreciation.................................. (141) (270)
------------ ------------
Net deferred tax assets..................................... $ 477 $ 3,298
------------ ------------
------------ ------------
</TABLE>
Management believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability of
the deferred tax asset such that a valuation allowance has been recorded. Such
factors include lack of cumulative operating profits in the previous three
years, recent increases in expense levels to support the Company's growth, and
the fact that the market in which the Company competes is intensely competitive
and characterized by rapidly changing technology. Accordingly, the deferred tax
assets have been reduced by a $11.3 million valuation allowance at December 31,
1995. This allowance has been established for the foreign net operating loss
carryforward and temporary differences which are not expected to be realized
through an income tax loss carryback to a prior period.
Although the realization of the net deferred tax assets are not assured,
management believes that it is more likely than not that all of the net deferred
tax assets will be realized. The amount of the net deferred tax assets
considered realizable, however, could be reduced in the near term based on
changing conditions.
F-14
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) INCOME TAXES (CONTINUED)
The differences between the provision for income taxes at the U.S. statutory
rate and the effective rate, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Benefit (provision) at U.S. statutory
rate..................................... $ 5,663 $ (9) $ (3,957)
Utilization of tax credits................ 947 4 --
Change in transfer price.................. -- 1,400 --
Non-Deductible items...................... 21 -- (95)
State income taxes........................ 669 (22) (596)
(Increase) decrease in deferred asset
valuation allowance...................... (7,506) (3,327) 1,747
Foreign income taxes...................... -- -- (156)
Other..................................... -- 46 (79)
-------- -------- --------
Provision for income taxes................ $ (206) $ (1,908) $ (3,136)
-------- -------- --------
-------- -------- --------
</TABLE>
Cash paid for income taxes was $1,322,000 in 1993, $94,000 in 1994, and
$71,000 in 1995. The Company received cash refunds of $2,247,000 in 1994 and
$1,592,000 in 1995.
For income tax purposes, the Company has approximately $5,056,000 in foreign
net operating loss carryforwards and $1,273,000 of tax credit carryforwards. The
tax credit carryforwards will begin expiring in 2008.
(4) COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is involved in lawsuits and claims generally incidental to its
business. It is the opinion of management, after discussions with legal counsel,
that the ultimate dispositions of these lawsuits and claims will not have a
material adverse effect on the Company's financial statements.
LEASE COMMITMENTS
The Company conducts its operations from leased facilities and leases
certain equipment used in its operations. Aggregate lease commitments under
non-cancelable operating leases in effect at December 31, 1995 are as follows
(in thousands):
<TABLE>
<CAPTION>
LEASE
YEARS ENDING DECEMBER 31, COMMITMENTS
------------------------------------------------------------ -----------
<S> <C>
1996........................................................ $ 3,063
1997........................................................ 2,456
1998........................................................ 2,108
1999........................................................ 1,683
2000........................................................ 1,289
Thereafter.................................................. 97
-----------
$10,696
-----------
-----------
</TABLE>
Total rent expense for the years ended December 31, 1993, 1994 and 1995 was
approximately $2,336,000, $1,989,000 and $1,981,000, respectively.
F-15
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) COMMITMENTS AND CONTINGENCIES (CONTINUED)
The following is a schedule of future minimum lease payments under capital
leases together with the present value of net minimum lease payments at December
31, 1995 (in thousands):
<TABLE>
<CAPTION>
FUTURE MINIMUM
YEARS ENDING DECEMBER 31, LEASE PAYMENTS
-------------------------------------------------------- --------------
<S> <C>
1996.................................................... $ 973
1997.................................................... 973
1998.................................................... 640
------
Total net minimum lease payments........................ 2,586
Less amount representing interest....................... (323)
------
Present value of net minimum lease payments............. 2,263
Less: current portion................................... (782)
------
$1,481
------
------
</TABLE>
BONUS PLAN
The Company has adopted a bonus plan that provides for bonus payments to
officers and key employees. The payment of the 1995 bonuses was contingent upon
the Company and the employees achieving certain objectives. At December 31,
1995, the Company has accrued $3,000,000 for management bonuses which will be
paid in March 1996 or after the First Security Bank Loan Agreement is paid in
full (see Note 13). At December 31, 1994, approximately $1,400,000 was accrued
for management bonuses, the majority of which was paid in February and March of
1995.
EXECUTIVE COMPENSATION AGREEMENT
In 1995, the Company adopted a bonus plan for the Chief Executive Officer
that provides for bonus payments of cash and up to 60,000 shares of stock,
subject to a three year vesting, contingent upon the achievement of certain
objectives. At December 31, 1995, the cash payment is fully accrued. In January
1996, the Compensation Committee approved the issuance of the full 60,000 shares
of stock. The shares will be issued at a cost equal to par value.
PROFIT SHARING PLAN
In 1991, the Company adopted a profit sharing plan that provided for
payments to all eligible employees of their share of a pool that equaled 6.0% of
the Company's annual income before income taxes. In 1994, the plan was amended
to 5.0% of the Company's annual income before income taxes. Employees must
complete one year of continuous employment to be eligible. Employees receive a
share of the profit sharing pool based upon their annual salary as a ratio to
total annual salaries of all eligible employees. The Company has accrued
approximately $600,000 for the 1995 profit sharing plan, which will be paid in
January 1996. There were no profit sharing payments for fiscal 1993 and 1994.
FOREIGN EXCHANGE CONTRACTS
The Company has commitments to sell foreign currencies relating to forward
exchange contracts in order to hedge against future currency fluctuations. In
addition, the Company purchases components denominated in Yen and has purchased
forward contracts to buy Yen.
F-16
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) COMMITMENTS AND CONTINGENCIES (CONTINUED)
The outstanding forward exchange sale and purchase contracts at December 31,
1995 are as follows. The contracts mature in January and February 1996.
<TABLE>
<CAPTION>
CONTRACTED
FORWARD
AMOUNT CURRENCY RATE
--------------- -------- ---------------
<S> <C> <C> <C>
French Franc........ 1,939,000 FRF 5.169
Spanish Peseta...... 64,524,000 ESP 134.45
Italian Lira........ 363,000,000 ITL 1692.0
Japanese Yen........ (1,109,678,923) YEN 100.60 - 101.0
</TABLE>
Gains and losses on foreign currency contracts intended to be used to hedge
operating requirements are reported currently in income. Gains and losses on
foreign currency contracts intended to meet firm commitments are deferred and
are recognized as part of the cost of the underlying transaction being hedged.
At December 31, 1994 and 1995, all of the Company's foreign currency contracts
are being used to hedge operating requirements. The Company's theoretical risk
in these transactions is the cost of replacing, at current market rates, these
contracts in the event of default by the counterparty.
(5) NOTES PAYABLE
LINE OF CREDIT
On July 5, 1995, the Company entered into a loan agreement with the
Commercial Finance Division of Wells Fargo Bank, N.A. The agreement permits
revolving loans, term loans and letters of credit up to an aggregate outstanding
principal amount equal to the lesser of $60 million or 80% of eligible accounts
receivable, with a 10% overadvance provision through April 12, 1996. Amounts
outstanding are collateralized by accounts receivable and equipment. The
revolving credit line bears interest at the bank's prime rate plus 1% and the
term loans bear interest at the bank's prime rate plus 1.25%. The Company has
segregated $25 million of the revolving line into a 60 day LIBOR loan to achieve
a lower interest rate. Total availability under the Wells Fargo agreement at
December 31, 1995 was $56.1 million, of which $36.8 million (exclusive of bank
overdrafts of $11.8 million) had been drawn. See Note 1. The agreement expires
June 30, 1996. Among other restrictions, covenants within the agreement require
the Company to maintain minimum levels of working capital and net worth. The
weighted average outstanding balance was $23,327,000 during 1995. The maximum
amount outstanding during 1995 was $38,184,000. The weighted average interest
rate was 10.6% for the year ended December 31, 1995.
Loss of Wells Fargo Bank as a lender would require the Company to find an
alternative source of funding, which could have a material adverse affect on
business and financial results.
OTHER TERM NOTES
During 1995, the Company has entered into term notes with financial
institutions. The proceeds from these notes were used to purchase manufacturing
equipment. The term notes have 36-month terms which mature at various dates from
November 1998 to January 1999. Principal and interest payments are payable
monthly. Interest rates are fixed and range from 8.89% to 9.11%. The notes are
secured by the equipment purchased. The term notes require the Company to
maintain minimum levels of working capital, net worth, and quarterly operating
income.
FINANCING OF EUROPEAN ACCOUNTS RECEIVABLE
In November 1995, a foreign subsidiary of the Company entered into an
agreement with a German commercial bank for up to DM 50 million (approximately
$35 million) which involves the sale of a portion of the foreign subsidiary's
accounts receivable to the bank. The agreement expires in November 1996. Such
sales of receivables are limited to 90% of eligible accounts receivable subject
to certain credit limits. The Company has retained the bad debt risk on the
receivables up to DM 1 million per customer. The interest rate varies
F-17
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) NOTES PAYABLE (CONTINUED)
depending on the currency and ranges from 7.75% to 15% at December 31, 1995. The
loan is denominated in several different European currencies and is dependent on
the underlying receivable. The weighted average interest rate was 11% for the
year ended December 31, 1995. During 1995, the Company received a total of
$17,849,000 in proceeds under the arrangement. At December 31, 1995, $9.8
million was outstanding and is included in notes payable in the accompanying
December 31, 1995 consolidated balance sheet.
The following table summarizes the notes payable outstanding at December 31,
1995 (in thousands):
<TABLE>
<S> <C>
LIBOR loan
(8.875% fixed interest rate)............................... $ 25,000
Revolving credit line
(9.5% interest rate at 12/31/95)........................... 8,241
Term loan
(9.75% interest rate at 12/31/95).......................... 3,612
Other term notes............................................ 3,537
European agreement.......................................... 9,801
---------
50,191
Less: Current portion....................................... (47,640)
---------
$ 2,551
---------
---------
</TABLE>
Maturities of notes payable by year are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
--------------------------------------------------------------
<S> <C>
1996.......................................................... $47,640
1997.......................................................... 1,119
1998.......................................................... 1,187
1999.......................................................... 245
-------
$50,191
-------
-------
</TABLE>
Cash paid for interest was $970,000 in 1995, including interest on capital
leases. There was no outstanding debt in 1993 and 1994. Included in interest
expense for 1995 was $267,000 of amortization of deferred charges associated
with obtaining the debt.
(6) PREFERRED STOCK
The Company has authorized the issuance of up to 5,000,000 shares of
Preferred Stock, $.01 par value per share. The Company's Board of Directors has
the authority, without further shareholder approval, to issue Preferred Stock in
one or more series and to fix the rights and preferences thereof. As of December
31, 1995, 250,000 shares were designated as Series C Junior Participating
Preferred Stock and the remaining 4,750,000 shares were undesignated.
SERIES A CONVERTIBLE PREFERRED STOCK
During 1987, in connection with the settlement of litigation, the Company
designated 1,200,000 shares of Preferred Stock as Redeemable Series A
Convertible Preferred Stock. These shares were issued in 1989.
Effective June 16, 1995, the Company exercised its right to require the
conversion of all outstanding Series A Stock into the Company's Common Stock
pursuant to the original conversion terms. Upon conversion, 318,600 shares of
Common Stock were issued to the Series A Stock shareholders. Any fractional
shares were paid with cash in lieu of stock.
Common shares issued on conversion of the Series A Stock shares were
recorded at the net carrying value of the Series A Convertible Preferred Stock,
plus accrued dividends.
F-18
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) PREFERRED STOCK (CONTINUED)
SERIES C JUNIOR PARTICIPATING PREFERRED STOCK
In July 1989, the Company designated 250,000 shares of Preferred Stock as
Series C Junior Participating Preferred Stock in connection with its Shareholder
Rights Plan (see Note 7). Each share of Series C Junior Participating Preferred
Stock (Series C Stock) will: (1) have a liquidation preference of $375 per
share; (2) have rights to dividends, subject to the rights of any series of
Preferred Stock ranking prior and superior to the Series C Stock, when and if
declared by the Board of Directors; (3) not be redeemable; and (4) have voting
rights which entitle the holder to 375 votes per share.
(7) PREFERRED STOCK PURCHASE RIGHTS
In July 1989, the Company adopted a Shareholder Rights Plan and declared a
dividend of four-fifteenths of one preferred stock purchase right for each
outstanding share of Common Stock. Under certain conditions, each right may be
exercised to purchase one one-hundredth of a share of Series C Stock at an
exercise price of $15. The rights will be exercisable only if a person or group
has acquired beneficial ownership of 20% or more of the Common Stock or
announced a tender or exchange offer that would result in such a person or group
owning 30% or more of the Common Stock. The Company generally will be entitled
to redeem the rights at $.01 per right at any time until the tenth day following
public announcement that a 20% stock position has been acquired and in certain
other circumstances.
If any person or group becomes a beneficial owner of 25% or more of the
Common Stock (except pursuant to a tender or exchange offer for all shares at a
fair price as determined by the outside members of the Board of Directors) or if
a 20% stockholder consolidates or merges into or engages in certain self-dealing
transactions with the Company, each right not owned by a 20% stockholder will
enable its holder to purchase such number of shares of Common Stock as is equal
to the exercise price of the right divided by one-half of the current market
price of the Common Stock on the date of the occurrence of the event. In
addition, if the Company engages in a merger or other business combination with
another person or group in which it is not the surviving corporation or in
connection with which its Common Stock is changed or converted, or if the
Company sells or transfers 50% or more of its assets or earning power to another
person, each right that has not previously been exercised will entitle its
holder to purchase such number of shares of Common Stock of such other person as
is equal to the exercise price of the right divided by one-half of the current
market price of such Common Stock on the date of the occurrence of the event.
(8) STOCK OPTIONS
STOCK OPTION PLANS
The Company has a 1981 Stock Option Plan (the "1981 Option Plan") and a 1987
Stock Option Plan (the "1987 Option Plan"). The 1981 Option Plan has expired and
no further options may be granted under this plan; however, outstanding options
previously granted under this plan remain in effect. Both plans permit the
granting of incentive and nonstatutory stock options. The plans cover an
aggregate of 20,625,000 shares of Common Stock. The exercise price of options
granted under the 1987 Option Plan may not be less than 100% of the fair market
value of the Common Stock at the date of grant in the case of incentive stock
options, and may not be less than 25% of the fair market value of the Common
Stock at the date of grant in the case of nonstatutory stock options.
Options under both plans must be exercised within ten years from the date of
grant in the case of incentive stock options and within ten years and one month
from the date of grant in the case of nonstatutory stock options, or sooner if
so specified within the option agreement. At December 31, 1995, the Company had
reserved an aggregate of 11,134,590 shares for issuance upon exercise of options
granted or to be granted under these plans.
F-19
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) STOCK OPTIONS (CONTINUED)
The following table presents the aggregate options granted, forfeited, and
exercised under the 1981 and 1987 Option Plans for the years ended December 31,
1993, 1994 and 1995 at their respective exercise price ranges. All options and
option prices have been restated for the stock splits (see Note 2).
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
OPTIONS PER SHARE
---------- ---------------
<S> <C> <C>
Options outstanding at December 31, 1992... 8,934,153 $0.11 to $2.92
Granted.................................... 305,034 $0.70 to $1.90
Exercised.................................. (1,816,110) $0.11 to $1.00
Forfeited.................................. (373,908) $0.27 to $2.90
----------
Options outstanding at December 31, 1993... 7,049,169 $0.27 to $2.92
Granted.................................... 2,204,625 $0.60 to $1.06
Exercised.................................. (474,141) $0.27 to $0.80
Forfeited.................................. (1,418,391) $0.41 to $2.92
----------
Options outstanding at December 31, 1994... 7,361,262 $0.27 to $2.92
Granted.................................... 1,000,800 $1.13 to $14.21
Exercised.................................. (2,473,053) $0.27 to $2.92
Forfeited.................................. (57,032) $0.42 to $2.10
----------
Options outstanding at December 31, 1995... 5,831,977 $0.27 to $14.21
----------
----------
</TABLE>
Options to purchase 5,660,850, 4,886,061 and 4,754,094 shares were
exercisable at December 31, 1993, 1994 and 1995, respectively.
Options to purchase 5,302,613 shares were reserved for future grant at
December 31, 1995.
DIRECTOR STOCK OPTION PLANS
The 1987 Director Stock Option Plan (the "Director Plan") covered 750,000
shares of Common Stock. The Director Plan provided for the grant to each
non-employee director of the Company, on his initial election as a director, an
option to purchase 93,750 shares of Common Stock. The exercise price per share
of the option is equal to the fair market value of the Company's Common Stock on
the date of grant of the option. Options become exercisable in five equal annual
installments, commencing one year from the date of grant, provided the holder
continues to serve as a director of the Company. Any option granted under the
Director Plan must be exercised no later than ten years from the date of grant.
All options granted under the Director Plan are nonstatutory options. In 1995
the Board adopted, and the stockholders approved, the 1995 Director Stock Option
Plan. This Plan covers 600,000 shares of Common Stock and provides for the grant
to each non-employee director of the Company, on his initial election as a
director, an option to purchase 75,000 shares of Common Stock.
F-20
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) STOCK OPTIONS (CONTINUED)
The following table presents the aggregate options granted, forfeited and
exercised under the Director Plans for the years ended December 31, 1993, 1994
and 1995, at their respective exercise price ranges. All options and option
prices have been restated for the stock splits (see Note 2).
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
OPTIONS PER SHARE
--------- --------------
<S> <C> <C>
Options outstanding at December 31, 1992.... 412,500 $0.57 to $0.92
Granted..................................... 93,750 $1.17
Exercised................................... 0
Forfeited................................... 0
---------
Options outstanding at December 31, 1993.... 506,250 $0.57 to $1.17
Granted..................................... 187,500 $0.53
Exercised................................... (93,750) $0.57
Forfeited................................... 0
---------
Options outstanding at December 31, 1994.... 600,000 $0.53 to $1.17
Granted..................................... 0
Exercised................................... (225,000) $0.73 to $0.87
Forfeited................................... 0
---------
Options outstanding at December 31, 1995.... 375,000 $0.53 to $1.17
---------
---------
</TABLE>
Options to purchase 281,250, 300,000 and 300,000 shares were exercisable at
December 31, 1993, 1994 and 1995, respectively.
Options to purchase 600,000 shares were reserved for future grant at
December 31, 1995.
OTHER STOCK OPTIONS
In December 1987, the Company granted to each of five of the six members of
the Board of Directors an option to purchase 93,750 shares of Common Stock. The
exercise price of these options was $0.40 per share in the case of four options,
and $0.47 per share in the case of the other option. Each option is exercisable
in increments of 18,750 shares per year beginning one year from the date of
grant and must be exercised no later than ten years and one month from the date
of grant. During 1995, options to purchase 243,750 shares were exercised at
$0.40 and $0.47 per share. At December 31, 1994, options for the purchase of
243,750 shares were outstanding and exercisable at $0.40 and $0.47 per share.
There were no options outstanding at December 31, 1995.
(9) STOCK PURCHASE PLAN
1991 STOCK PURCHASE PLAN
On January 25, 1991, the Company's Board of Directors approved an employee
stock purchase plan for 1991, 1992, and 1993. Eligible employees were allowed to
purchase Common Stock at market value on the date coincident with the
distribution of the semiannual profit sharing payments. The employee will earn a
premium equal to 25% of their original purchase on each of the first four
anniversaries of purchase provided the employee is still employed by the Company
and the shares are still held by the Company. A total of 4,500,000 shares were
approved for the three-year plan with 750,000 shares plus the premium of 750,000
shares approved for each year. Employees participating in the profit sharing
plan used up to 66 2/3% of their profit sharing payment to purchase stock. As of
December 31, 1995, a total of 130,923 shares have been purchased pursuant to
this plan and a total of 41,370 of premium shares have been issued under this
plan.
F-21
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) RETIREMENT PLAN
The Iomega Retirement and Investment Savings (IRIS) Plan permits eligible
employees to make tax deferred investments through payroll deductions. Each year
the Company may contribute to the IRIS Plan at the discretion of the Board of
Directors, based on the prior year's earnings of the Company. The IRIS Plan is
subject to compliance with Section 401(k) of the Internal Revenue Code and the
Employee Retirement Income Securities Act of 1974. Under the terms of the IRIS
Plan, all employee contributions and certain employer contributions are
immediately vested in full. Certain employer matching contributions become
vested over five years. The Company contributed approximately $398,000 and
$319,000 to the IRIS Plan for the years ended December 31, 1993 and 1994,
respectively. The Company has accrued $671,000 for contribution to the IRIS Plan
for the year ended December 31, 1995.
(11) OPERATIONS BY GEOGRAPHIC REGION
The Company has two primary geographic regions: domestic and European.
Domestic operations include all U.S. and export operations, primarily Canada and
Asia. Domestic export sales for the years ended December 31, 1993, 1994 and 1995
were $7,534,000, $6,133,000 and $18,160,000, respectively. European operations
are comprised of a subsidiary in Germany and sales offices located in France,
Belgium, the United Kingdom, Spain, Italy, Germany, Ireland and Austria. The
sales offices are branches of U.S. subsidiaries. All European sales and
substantially all identifiable assets and operating expenses are recorded on the
books of the German subsidiary. Export sales from the European operation for the
years ended December 31, 1993, 1994 and 1995 were approximately $23,868,000,
$29,903,000 and $49,526,000, respectively, primarily to European countries other
than Germany. Sales to European countries other than Germany are distributed
relatively evenly across countries in which sales offices are located. The
characteristics of sales to Germany and all other European countries are
similar. The sales offices are compensated through commission agreements.
Inventory is transferred from domestic operations to the German subsidiary at an
arms-length price as determined by an independent economic study. Following is a
summary of the Company's operations by geographic location.
FOR THE YEAR ENDED DECEMBER 31, 1993:
<TABLE>
<CAPTION>
DOMESTIC EUROPEAN INTERCOMPANY
OPERATIONS OPERATIONS TRANSACTIONS CONSOLIDATED
---------- ---------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Sales:
Unaffiliated
Customers........ $112,961 $ 34,162 $ -- $147,123
Affiliates........ 26,750 -- (26,750) --
Cost of Sales....... (89,984) (29,997) 27,396 (92,585)
---------- ---------- ------------ ------------
Gross Margin........ 49,727 4,165 646 54,538
---------- ---------- ------------ ------------
Operating
Expenses........... 58,454 13,511 -- 71,965
---------- ---------- ------------ ------------
Net Income (Loss)... $ (4,147) $(11,024) $ 646 $(14,525)
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Identifiable
Assets............. $ 68,004 $ 13,214 $ (129) $ 81,089
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Capital
Expenditures....... $ 4,920 $ 1,647 $ -- $ 6,567
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
</TABLE>
F-22
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) OPERATIONS BY GEOGRAPHIC REGION (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1994:
<TABLE>
<CAPTION>
DOMESTIC EUROPEAN INTERCOMPANY
OPERATIONS OPERATIONS TRANSACTIONS CONSOLIDATED
---------- ---------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Sales:
Unaffiliated
Customers........ $ 95,554 $ 45,826 $ -- $141,380
Affiliates........ 26,393 -- (26,393) --
Cost of Sales....... (87,305) (31,522) 26,374 (92,453)
---------- ---------- ------------ ------------
Gross Margin........ 34,642 14,304 (19) 48,927
---------- ---------- ------------ ------------
Operating
Expenses........... 45,049 4,760 -- 49,809
---------- ---------- ------------ ------------
Net Income (Loss)... $ (9,729) $ 7,866 $ (19) $ (1,882)
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Identifiable
Assets............. $ 61,696 $ 14,228 $ (91) $ 75,833
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Capital
Expenditures....... $ 5,894 $ 1,189 $ -- $ 7,083
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1995:
<TABLE>
<CAPTION>
DOMESTIC EUROPEAN INTERCOMPANY
OPERATIONS OPERATIONS TRANSACTIONS CONSOLIDATED
---------- ---------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Sales:
Unaffiliated
Customers........ $241,128 $ 85,097 $ -- $326,225
Affiliates........ 65,644 -- (65,644) --
Cost of Sales....... (229,134) (72,357) 65,653 (235,838)
---------- ---------- ------------ ------------
Gross Margin........ 77,638 12,740 9 90,387
---------- ---------- ------------ ------------
Operating
Expenses........... 66,072 10,693 -- 76,765
---------- ---------- ------------ ------------
Net Income.......... $ 8,475 $ 19 $ 9 $ 8,503
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Identifiable
Assets............. $226,696 $ 39,473 $ 58 $266,227
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Capital
Expenditures....... $ 44,223 $ 1,009 $ -- $ 45,232
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
</TABLE>
(12) OTHER MATTERS
SIGNIFICANT CUSTOMERS
During 1993, sales to Ingram Micro D, Inc. accounted for 14% of the
Company's sales. During 1994, sales to Ingram Micro D, Inc. accounted for 11% of
the Company's sales. In 1995, no single customer accounted for 10% or more of
consolidated sales.
CONCENTRATION OF CREDIT RISK
The Company markets its products primarily through computer product
distributors and retailers. Accordingly, as the Company grants credit to its
customers, a substantial portion of outstanding accounts receivable are due from
computer product distributors and certain large retailers. At December 31, 1994,
the customers with the ten highest outstanding accounts receivable balances
totaled $7.1 million or 34% of the gross accounts receivable. At December 31,
1994, the outstanding accounts receivable balance from one customer was $3.1
million or 15% of gross accounts receivable. At December 31, 1995, the customers
with the ten highest
F-23
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) OTHER MATTERS (CONTINUED)
outstanding accounts receivable balances totaled $47.1 million or 43% of gross
accounts receivable. At December 31, 1995, the outstanding accounts receivable
balance from one customer was $15.2 million or 14% of gross accounts receivable.
If any one or a group of these customers' receivable balances should be deemed
uncollectible, it would have a material adverse effect on the Company's results
of operations and financial condition.
PURCHASES FROM RELATED PARTIES
The Company purchased inventory items totaling $372,000, $398,000 and
$1,130,000 for the years ended December 31, 1993, 1994 and 1995, respectively,
from a vendor having a common director with the Company.
NOTES RECEIVABLE FROM RELATED PARTIES
In September 1993, the Company loaned an executive officer approximately
$679,000 as part of the officer's severance package; a portion of the loan was
used by the executive to exercise stock options. This amount of the loan is
included in notes receivable from shareholders in the accompanying consolidated
balance sheet at December 31, 1994. The Company received a note from the officer
which bore interest at an annual rate of 4.5% and was payable in two equal
annual installments of $340,000 which were due on or before January 1995 and
January 1996. The note was with full recourse and was collateralized by the
stock purchased. The loan was paid in full with accrued interest during the
first quarter of 1995.
In January 1995, the Company loaned another executive officer approximately
$283,000 as part of the officer's severance package. A portion of the loan was
used by the executive to exercise stock options. The Company received a note
from the officer which bore interest at an annual rate of 7.75% and was payable
in full on or before January 1996. The note was with full recourse and was
collateralized by the stock purchased. The loan was paid in full with accrued
interest during the second quarter of 1995.
(13) SUBSEQUENT EVENTS
REVOLVING CREDIT FACILITY
In January 1996, the Company entered into a $6 million revolving credit
facility with First Security Bank of Utah, N.A. The line matures on April 12,
1996 and bears interest at prime plus 2%. Interest is payable monthly and
principal is due at maturity. The facility is secured by accounts receivable and
inventory subject to a priority lien by Wells Fargo Bank, N.A. In addition, the
agreement prohibits the payment of certain bonuses until the facility expires or
is paid in full.
F-24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
The Company.................................... 13
Use of Proceeds................................ 13
Price Range of Common Stock and Dividend
Policy........................................ 14
Capitalization................................. 15
Selected Consolidated Financial Data........... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 17
Business....................................... 25
Management..................................... 39
Principal Stockholders......................... 42
Description of Notes........................... 43
Description of Capital Stock................... 51
Underwriting................................... 53
Legal Matters.................................. 53
Experts........................................ 54
Available Information.......................... 54
Incorporation of Certain Documents by
Reference..................................... 54
Index to Consolidated Financial Statements..... F-1
</TABLE>
$40,000,000
[LOGO]
% CONVERTIBLE SUBORDINATED NOTES DUE 2001
--------------
PROSPECTUS
--------------
HAMBRECHT & QUIST
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee and the NASD filing
fee.
<TABLE>
<S> <C>
SEC Registration Fee.............................................................. $ 34,048
NASD Filing Fee................................................................... 10,374
Nasdaq Listing Fee................................................................ 17,500
Blue Sky Fees and Expenses........................................................ 15,000
Accounting Fees and Expenses...................................................... 100,000
Legal Fees and Expenses........................................................... 300,000
Printing, Engraving and Mailing Expenses.......................................... 125,000
Miscellaneous..................................................................... 48,078
---------
Total............................................................................. $ 650,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Article Sixth of the Company's Restated Certificate of Incorporation
and Article Fifth of the Company's By-Laws, each person who is a director or
officer of the Company shall be indemnified by the Company to the full extent
permitted by Section 145 of the General Corporation Law of Delaware ("Section
145").
Section 145 provides a detailed statutory framework covering indemnification
of directors and officers of liabilities and expenses arising out of legal
proceedings brought against them by reason of their status or service as
directors or officers. This section provides that a director or officer of a
corporation (i) shall be indemnified by the corporation for all expenses of such
legal proceedings when he is successful on the merits, (ii) may be indemnified
by the corporation for the expenses, judgments, fines and amounts paid in
settlement of such proceedings (other than a derivative suit), even if he is not
successful on the merits, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation (and, in the case of a criminal proceeding, had no reasonable cause
to believe his conduct was unlawful), and (iii) may be indemnified by the
corporation for expenses of a derivative suit (a suit by a shareholder alleging
a breach by a director or officer of a duty owed to the corporation), even if he
is not successful on the merits, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. No indemnification may be made under clause (iii) above, however,
if the director or officer is adjudged liable for negligence or misconduct in
the performance of his duties to the corporation, unless a court determines
that, despite such adjudication and in view of all of the circumstances, he is
entitled to indemnification. The indemnification described in clauses (ii) and
(iii) above may be made only upon a determination that indemnification is proper
because the applicable standard of conduct has been met. Such a determination
may be made by a majority of a quorum of disinterested directors, independent
legal counsel or the stockholders. The board of directors may authorize
advancing litigation expenses to a director or officer upon receipt of an
undertaking by such director or officer to repay such expenses if it is
ultimately determined that he is not entitled to be indemnified for them.
The Company has entered into indemnification agreements with each of its
directors which supplement or clarify the statutory indemnity provisions of
Section 145 in the following respects: (i) the presumption that the director or
officer met the applicable standard of conduct is established, (ii) the
advancement of litigation expenses is provided upon request if the director or
officer agrees to repay them if it is ultimately determined that he is not
entitled to indemnification for them, (iii) indemnity is explicitly provided for
settlements of derivative actions, (iv) the director or officer is permitted to
petition a court to determine whether his actions met the standard required, and
(v) partial indemnification is permitted in the event that the director or
officer is not entitled to full indemnification.
II-1
<PAGE>
As permitted by Section 145, the Company has purchased a general liability
insurance policy which covers certain liabilities of directors and officers of
the Company arising out of claims based on acts or omissions in their capacity
as directors or officers and for which they are not indemnified by the Company.
Under the Underwriting Agreement filed as Exhibit 1 hereto, the Underwriter
is obligated, under certain circumstances, to indemnify directors and officers
of the Company against certain liabilities, including liabilities under the
Securities Act of 1933 (the "Securities Act").
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement.
4.1 Certificate of Incorporation.
4.2 By-Laws.
4.3 Rights Agreement between the Company and The First National Bank of Boston, as Rights Agent, dated July
28, 1989.
4.4 Form of Indenture.
5 Opinion of Hale and Dorr.
12 Statement re Computation of Ratios of Earnings to Fixed Charges.
23.1 Consent of Hale and Dorr.
23.2 Consent of Arthur Andersen LLP.
24 Powers of Attorney.
25 Statement on Form T-1 of Eligibility and Qualification of Trustee.
27 Financial Data Schedule.
99 Schedule of Valuation and Qualifying Accounts (including report of Arthur Andersen LLP).
</TABLE>
ITEM 17. UNDERTAKINGS
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to Section 13(a) or 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 the time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Corporation pursuant to the indemnification provisions described herein, or
otherwise, the Company 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 Company of expenses incurred or paid by a director, officer or
controlling person of the Company 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 Company 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 that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus 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.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the Town
of Roy and State of Utah on the 27th day of February, 1996.
IOMEGA CORPORATION
By: /s/ LEONARD C. PURKIS
--------------------------------------
Leonard C. Purkis
Senior Vice President, Finance, and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacities indicated below
on the 27th day of February, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ---------------------------------------------------------
<C> <S>
*
------------------------------------------- Chief Executive Officer and Director (principal executive
Kim B. Edwards officer)
/s/ LEONARD C. PURKIS
------------------------------------------- Senior Vice President, Finance, and Chief Financial
Leonard C. Purkis Officer (principal financial and accounting officer)
*
------------------------------------------- Chairman of the Board of Directors
David J. Dunn
*
------------------------------------------- Director
Willem H.J. Andersen
*
------------------------------------------- Director
Robert P. Berkowitz
*
------------------------------------------- Director
Anthony L. Craig
*
------------------------------------------- Director
Michael J. Kucha
*
------------------------------------------- Director
John R. Myers
*
------------------------------------------- Director
John E. Nolan, Jr.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
*
------------------------------------------- Director
The Honorable John E. Sheehan
*By: /s/ LEONARD C. PURKIS
--------------------------------------
Leonard C. Purkis
Attorney-in-fact
</TABLE>
II-4
<PAGE>
$40,000,000(1)
IOMEGA CORPORATION
% Convertible Subordinated
Notes due 2001
UNDERWRITING AGREEMENT
----------------------
_____________, 1996
HAMBRECHT & QUIST LLC
Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
Iomega Corporation, a Delaware corporation (herein called the "Company"),
proposes to issue and sell to you, as the underwriter (herein called the
"Underwriter"), an aggregate of $40,000,000 principal amount of its __%
Convertible Subordinated Notes (herein called the "Underwritten Notes"), to be
issued pursuant to the Indenture dated as of March __, 1996 (herein called the
"Indenture") between the Company and State Street Bank and Trust Company, as the
trustee (herein called the "Trustee"). The Company proposes to grant to the
Underwriter an option to purchase up to an additional $6,000,000 principal
amount of its __% Convertible Subordinated Notes (herein called the "Option
Notes;" with the Underwritten Notes, herein collectively called the "Notes") as
provided in Section 3(c) of this Underwriting Agreement (herein called the
"Agreement"). The Underwritten Notes and Option Notes will be convertible, on
the terms and subject to the conditions set forth in the Indenture and the
Notes, into shares of Common Stock, $0.03 1/3 par value, of the Company (the
"Common Stock"). The shares of Common Stock issuable upon conversion of the
Notes are referred to herein as the "Conversion Shares." The Notes are more
fully described in the Indenture and the Registration Statement and the
Prospectus hereinafter mentioned.
The Company hereby confirms the agreements made with respect to the
purchase of the Notes by the Underwriter.
- --------------------
(1) Plus a 30-day option to purchase from the Company up to an additional
$6,000,000 principal amount of Notes to cover over-allotments, if any.
<PAGE>
1. REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission (herein called the "Commission") a registration statement on
Form S-3 (No. 33-64995), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
"Securities Act"), of the Notes and Conversion Shares. Copies of such
registration statement and of each amendment thereto, if any, including the
related preliminary prospectus (meeting the requirements of Rule 430A of the
rules and regulations of the Commission) heretofore filed by the Company with
the Commission have been delivered to you.
The term Registration Statement as used in this Agreement shall mean such
registration statement, including all documents incorporated by reference
therein and all exhibits and financial statements and all information omitted
therefrom in reliance upon Rule 430A and contained in the Prospectus referred to
below, in the form in which it became effective, and any registration statement
filed pursuant to Rule 462(b) of the rules and regulations of the Commission
with respect to the Notes (herein called a 462(b) registration statement), and
in the event of any amendment thereto after the effective date of such
registration statement (herein called the "Effective Date"), shall also mean
(from and after the effectiveness of such amendment) such registration statement
as so amended (including any Rule 462(b) registration statement). The term
"Prospectus" as used in this Agreement shall mean the prospectus, including the
documents incorporated by reference therein, relating to the Notes first filed
with the Commission pursuant to Rule 424(b) and Rule 430A (or, if no such filing
is required, as included in the Registration Statement) and, in the event of any
supplement or amendment to such prospectus after the Effective Date, shall also
mean (from and after the filing with the Commission of such supplement or the
effectiveness of such amendment) such prospectus as so supplemented or amended.
The term "Preliminary Prospectus" as used in this Agreement shall mean each
preliminary prospectus, including the documents incorporated by reference
therein, included in such registration statement prior to the time it becomes
effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) The Company hereby represents and warrants as follows:
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware, has full
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement and the Prospectus and as
being conducted, and is duly qualified as a foreign corporation and in good
standing in all jurisdictions in which the character of the property owned or
leased or the nature of the business transacted by it makes qualification
2
<PAGE>
necessary (except where the failure to be so qualified would not have a material
adverse effect on the business, properties, condition (financial or otherwise)
or results of operations or prospects of the Company and its subsidiaries taken
as whole (a "Material Adverse Effect")).
(ii) The Company owns all of the shares of capital stock of each
subsidiary of the Company, and each of the Company's subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has full corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement and the Prospectus and as being conducted, and is
duly qualified as a foreign corporation and in good standing in all
jurisdictions in which the character of the property owned or leased or the
nature of the business transacted by it makes qualification necessary except
where the failure to be so qualified would not have a Material Adverse Effect.
(iii) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, properties, financial condition or
results of operations or prospects of the Company and its subsidiaries, taken as
a whole, whether or not arising from transactions in the ordinary course of
business, other than as set forth in the Registration Statement and the
Prospectus, and since such dates, except in the ordinary course of business,
neither the Company nor any of its subsidiaries has entered into any material
transaction not referred to in the Registration Statement and the Prospectus.
(iv) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus relating to the proposed offering of the
Notes nor instituted or, to the best knowledge of the Company, after due
inquiry, threatened instituting proceedings for that purpose. The Registration
Statement and the Prospectus comply, and on the Closing Date (as hereinafter
defined) and any later date on which Option Notes are to be purchased, the
Prospectus will comply, in all material respects, with the provisions of the
Securities Act, the Securities Exchange Act of 1934, as amended (herein called
the "Exchange Act"), and the Trust Indenture Act of 1939, as amended (herein
called the "Trust Indenture Act") and the rules and regulations of the
Commission thereunder. The Company has taken such actions as are necessary to
qualify the Indenture under the Trust Indenture Act, and the rules and
regulations of the Commission thereunder. On the Effective Date, the
Registration Statement (including the information incorporated by reference
therein) did not contain any untrue statement of a material fact and did not
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading; and, on the Effective Date
the Prospectus (including the information incorporated by reference therein) did
not and, on the Closing Date and any later date on which Option Notes are to be
purchased, will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
PROVIDED, HOWEVER, that none of the representations and warranties in this
subparagraph (iv) shall apply to statements in, or omissions from, the
Registration Statement or the Prospectus made in reliance upon and in conformity
with information herein or otherwise furnished in writing to the
3
<PAGE>
Company by or on behalf of the Underwriter for use in the Registration
Statement or the Prospectus.
(v) The outstanding shares of Common Stock have been duly authorized
and validly issued and are fully paid and nonassessable.
(vi) The Notes to be issued and sold by the Company have been duly
authorized by the Company and, when executed, authenticated, issued and
delivered in accordance with this Agreement and the Indenture, will be duly and
validly executed, authenticated, issued and delivered and will constitute valid
and binding obligations of the Company enforceable in accordance with their
terms, except as the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally, or by general equitable principles, and
will be entitled to the benefits of the Indenture. No further approval or
authority of the stockholders or the Board of Directors of the Company will be
required for the issuance and sale of the Notes as contemplated herein.
(vii) All of the Conversion Shares have been duly authorized and
duly reserved for issuance upon such conversion and, when issued upon conversion
of the Notes pursuant to the terms of the Indenture and the Notes, will be
validly issued and outstanding, fully paid and nonassessable with no personal
liability attached to the ownership thereof. None of the Conversion Shares,
when delivered, will be subject to any lien, claim, encumbrance, restriction
upon voting or transfer, preemptive right or any other claim of any third party,
except such as are described in the Prospectus.
(viii) The Notes and the capital stock of the Company conform in
all material respects to the statements concerning them in the Registration
Statement, and the form of certificate for the Notes conforms in all material
respects to the Indenture.
(ix) Prior to the Closing Date, the Notes to be issued and sold by the
Company and the Conversion Shares will be authorized for listing on the Nasdaq
System (herein called the "NS") upon official notice of issuance. The Company
shall use commercially reasonable efforts to cause the Conversion Shares to be
authorized for listing on the Nasdaq National Market prior to their initial
issuance.
(x) Except as specifically disclosed in the Registration Statement,
and except for options to purchase not more than an aggregate of
_________ shares of Common Stock granted to the Company's employees, directors
or consultants in the ordinary course of business subsequent to the date as of
which stock option data is presented in the Registration Statement, the Company
does not have outstanding any options to purchase, or any preemptive rights, or
other rights to subscribe or to purchase or rights of co-sale, any securities or
obligations convertible into, or any contracts or commitments to issue or sell
or register for sale, shares of its capital stock or any such options, rights,
convertible securities or obligations.
4
<PAGE>
(xi) The audited consolidated financial statements of the Company,
together with related notes and schedules as set forth in the Registration
Statement ("Financial Statements"), present fairly the financial position and
the results of operations of the Company and its subsidiaries, taken as a whole,
at the indicated dates and for the indicated periods. The Financial Statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied through the period involved, and all adjustments necessary
for a fair presentation of results for such periods have been made. The
selected and summary financial data and the tables set forth under "Results of
Operations" and "Selected Quarterly Operating Results" in the Management's
Discussion and Analysis of Financial Condition and Results of Operations
section, included in the Registration Statement, present fairly the information
shown therein and have been compiled on a basis consistent with the audited
financial statements presented in the Registration Statement.
(xii) Neither the Company nor any of its subsidiaries is in
violation or default under any provision of its charter documents or bylaws, as
currently in effect, or any indenture, license, mortgage, lease, franchise,
permit, deed of trust or other agreement or instrument to which such corporation
is a party or by which such corporation or any of its properties is bound or may
be affected, except where such violation or default would not have a Material
Adverse Effect.
(xiii) The Company has full legal right, power and authority to
enter into this Agreement, the Indenture and the Notes and perform the
transactions contemplated hereby and thereby. This Agreement and the Indenture
have been duly authorized by the Company and this Agreement has been duly
executed and delivered by the Company and is, and the Indenture, when duly
executed and delivered by the officers of the Company (assuming due execution
and delivery by the Trustee) will be valid and binding agreements on the part of
the Company, enforceable in accordance with their respective terms, except as
rights to indemnity and contribution hereunder may be limited by applicable law
and except as the enforcement hereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally, or by general equitable principles. The Indenture
will be duly qualified under, and conform to the requirements of, the Trust
Indenture Act. The execution and performance of this Agreement, the Indenture
and the Notes and the consummation of the transactions herein and therein
contemplated do not and will not: (A) conflict with, or result in a breach of,
or violation of, any of the terms or provisions of, or constitute, either by
itself or upon notice or the passage of time or both, a default under, any
indenture, license, mortgage, lease, franchise, permit, deed of trust or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which any such corporation or any of its properties is bound or may
be affected, except where such breach, violation or default would not have a
Material Adverse Effect, (B) violate any of the provisions of the charter
documents or bylaws of any such corporation, except where such violation would
not have a Material Adverse Effect, or (C) violate any material order, judgment,
statute, rule or regulation applicable to any such corporation or of any
regulatory, administrative or governmental body or agency having jurisdiction
over any such corporation or any of its properties, except where such violation
would not have a Material Adverse Effect.
5
<PAGE>
(xiv) Except as disclosed in the Prospectus, there is not any
pending or, to the Company's knowledge, threatened action, suit, claim or
proceeding against the Company or any of its subsidiaries or any of their
respective officers or any of their properties, assets or rights before any
court or governmental agency or body or otherwise which (A) might have a
Material Adverse Effect, or (B) might prevent consummation of the transactions
contemplated hereby or (C) is required to be disclosed in the Registration
Statement; and there are no contracts or documents of the Company or any of its
subsidiaries that are required to be described in the Prospectus or to be filed
as exhibits to the Registration Statement which have not been fairly and
accurately described in all material respects in the Prospectus and filed as
exhibits to the Registration Statement. The contracts so described in the
Prospectus are in full force and effect on the date hereof; and neither the
Company nor any of its subsidiaries nor, to the Company's knowledge any other
party, is in breach of or default under any of such contracts.
(xv) Except as disclosed in the Prospectus, the Company owns or
possesses adequate rights to use all patents, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names and copyrights
described or referred to in the Prospectus as owned or used by it or which are
necessary for the conduct of its businesses as described in the Prospectus; the
Company has not received any notice of, and the Company has no knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, might
reasonably have a Material Adverse Effect.
(xvi) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Notes.
3. PURCHASE OF THE NOTES BY THE UNDERWRITER.
(a) On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell the
Underwritten Notes to the Underwriter and the Underwriter agrees to purchase
from the Company the Underwritten Notes at the purchase price of ___% of the
principal amount thereof plus accrued interest, if any, from March ___, 1996 to
the date of payment and delivery.
(b) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the Company
grants an option to the Underwriter to purchase up to $6,000,000 principal
amount of Option Notes from the Company at the purchase price of ___% of the
principal amount thereof plus accrued interest, if any, from March ___, 1996 to
the date of payment and delivery. Said option may be exercised only to cover
over-allotments in the sale of the Underwritten Notes by the Underwriter and may
be exercised in whole or in part at any time (but not more than once) on or
before the thirtieth day after the date of this Agreement upon written or
telegraphic notice by you to the Company setting forth the aggregate principal
amount of the Option Notes as to which the Underwriter is
6
<PAGE>
exercising the option. Delivery of certificates for the Option Notes and
payment therefor shall be made as provided in Section 5 hereof.
4. OFFERING BY UNDERWRITER.
(a) The terms of the public offering by the Underwriter of the Notes to be
purchased by it shall be as set forth in the Prospectus. The Underwriter may
from time to time change the public offering price after the closing of the
public offering and increase or decrease the concessions and discounts to
dealers as they may determine.
(b) The information set forth in the last paragraph on the front cover
page and under "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus relating to the Notes filed by the Company
(insofar as such information relates to the Underwriter or the terms and
conditions upon which it will sell the Notes) constitutes the only information
furnished by the Underwriter to the Company for inclusion in the Registration
Statement, any Preliminary Prospectus, and the Prospectus, and you represent and
warrant to the Company that the statements made therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE NOTES.
(a) Delivery of certificates for the Underwritten Notes and the Option
Notes (if the option granted by Section 3(b) hereof shall have been exercised
not later than 7:00 A.M., California time, on the date two business days
preceding the Closing Date), and payment therefor, shall be made at the office
of ______________________________________, at 7:00 A.M., California time, on the
fourth business day after the date of this Agreement, or at such time on such
other day, not later than seven full business days after such fourth business
day, as shall be agreed upon in writing by the Company and you. The date and
hour of such delivery and payment (which may be postponed as provided in Section
3(b) hereof) are herein called the Closing Date.
(b) If the option granted by Section 3(b) hereof shall be exercised after
7:00 A.M., California time, on the date two business days preceding the Closing
Date, delivery of certificates for the Option Notes, and payment therefor, shall
be made at the office of ______________________________________________________,
at 7:00 A.M., California time, on the third business day after the exercise of
such option.
(c) Payment for the Notes purchased from the Company shall be made to the
Company or its order by one or more certified or official bank check or checks
in next day funds (and the Company agrees not to deposit any such check in the
bank on which drawn until the day following the date of its delivery to the
Company). Such payment shall be made upon delivery of certificates for the
Notes to you for the respective accounts of the several Underwriter against
receipt therefor signed by you. Certificates for the Notes to be delivered to
you shall be registered in such name or names and shall be in such denominations
as you may request at least two business days before the Closing Date, in the
case of Underwritten Notes, and at least two
7
<PAGE>
business days prior to the purchase thereof, in the case of the Option Notes.
Such certificates will be made available to the Underwriter for inspection,
checking and packaging at the offices of Lewco Securities Corporation, 2
Broadway, New York, New York, 10004 not less than one full business day prior
to the Closing Date or, in the case of the Option Notes, by 3:00 p.m., New
York time, on the business day preceding the date of purchase.
6. FURTHER AGREEMENTS OF THE COMPANY.
The Company covenants and agrees as follows:
(a) The Company will (i) prepare and timely file with the Commission under
Rule 424(b) a Prospectus containing information previously omitted at the time
of effectiveness of the Registration Statement in reliance on Rule 430A and (ii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which you shall not previously have been advised and furnished
with a copy or to which you shall have reasonably objected in writing or which
is not in compliance with the Securities Act or the rules and regulations of the
Commission.
(b) The Company will promptly notify the Representatives in the event of
(i) the request by the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Notes for sale in any jurisdiction, or (v) the receipt by it of notice of the
initiation or threatening of any proceeding for such purpose. The Company will
make every reasonable effort to prevent the issuance of such a stop order and,
if such an order shall at any time be issued, to obtain the withdrawal thereof
at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you a
signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each post-
effective amendment, if any, to the Registration Statement (together with, in
each case, all exhibits thereto unless previously furnished to you), (ii) as
promptly as possible deliver to you, at such office or offices as you may
designate, as many copies of the Prospectus as you may reasonably request, and
(iii) thereafter from time to time during the period in which a prospectus is
required by law to be delivered by the Underwriter or dealer, likewise send to
you as many additional copies of the Prospectus and as many copies of any
supplement to the Prospectus and of any amended Prospectus, filed by the Company
with the Commission, as you may reasonably request for the purposes contemplated
by the Securities Act.
(d) If at any time during the period in which a prospectus is required by
law to be delivered by the Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing by
you, shall occur as a result of which it is
8
<PAGE>
necessary, in the opinion of counsel for the Company or of counsel for the
Underwriter, to supplement or amend the Prospectus in order to make the
Prospectus not misleading in the light of the circumstances existing at the
time it is delivered to a purchaser of the Notes, the Company will forthwith
prepare and file with the Commission a supplement to the Prospectus or an
amended Prospectus so that the Prospectus as so supplemented or amended will
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light
of the circumstances existing at the time such Prospectus is delivered to
such purchaser, not misleading. If, after the public offering of the Notes
by the Underwriter and during such period, the Underwriter shall propose to
vary the terms of offering thereof by reason of changes in general market
conditions or otherwise, you will advise the Company in writing of the
proposed variation, and, if in the opinion either of counsel for the Company
or of counsel for the Underwriter such proposed variation requires that the
Prospectus be supplemented or amended, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended
Prospectus setting forth such variation. The Company authorizes the
Underwriter and all dealers to whom any of the Notes may be sold by the
Underwriter to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Notes in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
Prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Notes for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by the Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; PROVIDED, HOWEVER, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified. The Company will from time to
time, prepare and file such statements, reports, and other documents as are or
may be required to continue such qualifications in effect for so long a period
as you may reasonably request for distribution of the Notes.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you copies of all periodic and special reports furnished
to stockholders of the Company and of all information, documents and reports
filed with Commission.
(h) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the Effective Date, the Company
will make generally available to its security holders an earnings statement in
accordance with Section 11(a) of the Securities Act and Rule 158 thereunder.
(i) The Company agrees to pay all costs and expenses incident to the
performance of its obligations under this Agreement and the Indenture, including
all costs and expenses incident
9
<PAGE>
to (i) the preparation, printing and filing with the Commission and the
National Association of Securities Dealers, Inc. ("NASD") of the Registration
Statement, any Preliminary Prospectus, the Prospectus and the Form T-1 filed
in connection with the Notes (the "Form T-1"), (ii) the furnishing to the
Underwriter of copies of any Preliminary Prospectus and of the several
documents required by paragraph (c) of this Section 6 to be so furnished,
(iii) the printing of this Agreement and related documents delivered to the
Underwriter, (iv) the preparation, printing and filing of all supplements and
amendments to the Prospectus referred to in paragraph (d) of this Section 6
and the T-1, (v) the furnishing to you of the reports and information
referred to in paragraph (g) of this Section 6 and (vi) the printing and
issuance of the Indenture and the note certificates, including the transfer
agent's fees.
(j) The Company agrees to reimburse you, for the account of the several
Underwriter, for blue sky fees and related disbursements and costs of a legal
investment survey (including counsel fees and disbursements and cost of printing
memoranda for the Underwriter) paid by or for the account of the Underwriter or
its counsel in qualifying the Notes under state securities or blue sky laws, in
conducting a legal investment survey and in the review of the offering by the
NASD.
(k) The Company hereby agrees that, without the prior written consent of
the Underwriter, it will not, during the period ending ninety (90) days after
the date of the final Prospectus for the public offering, (1) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or (2) enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of Common Stock, whether any
such transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise;
PROVIDED, HOWEVER, that the foregoing provisions of this paragraph (k) shall not
apply to (a) the Notes to be sold to the Underwriter pursuant to this Agreement,
and (b) shares of Common Stock issued under the stock option and stock purchase
plans of the Company (the "Stock Plans"), including Common Stock issued upon the
exercise of options granted under the Stock Plans, all as described through
incorporation by reference in the Preliminary Prospectus and (c) shares of
Common Stock issued on conversion of the Notes. For purposes of this paragraph
(k), a sale, offer, or other disposition shall be deemed to include any sale to
an institution which can, following such sale, sell Common Stock to the public
in reliance on Rule 144A.
(l) The Company is familiar with the Investment Company Act of 1940, as
amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not and
will not be an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
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7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this Section 7, the
Company agrees to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls the Underwriter within
the meaning of Section 15 of the Securities Act from and against any and all
losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, the Trust Indenture Act, or the common law or otherwise, and
the Company agrees to reimburse the Underwriter and controlling person for any
legal or other expenses (including, except as otherwise hereinafter provided,
reasonable fees and disbursements of counsel) incurred by the respective
indemnified parties in connection with defending against any such losses,
claims, damages or liabilities or in connection with any investigation or
inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that (A) the indemnity agreements of the Company contained in this paragraph (a)
shall not apply to any such losses, claims, damages, liabilities or expenses if
such statement or omission was made in reliance upon and in conformity with
information furnished as herein stated or otherwise furnished in writing to the
Company by or on behalf of the Underwriter expressly for use in any Preliminary
Prospectus or the Registration Statement or the Prospectus or any such amendment
thereof or supplement thereto, and (B) the indemnity agreement contained in this
paragraph (a) with respect to any Preliminary Prospectus shall not inure to the
benefit of the Underwriter from whom the person asserting any such losses,
claims, damages, liabilities or expenses purchased the Notes which is the
subject thereof (or to the benefit of any person controlling the Underwriter) if
at or prior to the written confirmation of the sale of such Notes a copy of the
Prospectus (or the Prospectus as amended or supplemented) was not sent or
delivered to such person (excluding the documents incorporated therein by
reference) and the untrue statement or omission of a material fact contained in
such Preliminary Prospectus was corrected in the Prospectus (or the Prospectus
as amended or supplemented) unless the failure is the result of noncompliance by
the Company with this Agreement. The indemnity agreements of the Company
contained in this paragraph (a) and the representations and warranties of the
Company contained in Section 2 hereof shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Notes.
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<PAGE>
(b) The Underwriter agrees to indemnify and hold harmless the Company,
each of its officers who signs the Registration Statement on his own behalf or
pursuant to a power of attorney, each of its directors and each person
(including each partner or officer thereof) who controls the Company within the
meaning of Section 15 of the Securities Act from and against any and all losses,
claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Securities Act, the Exchange
Act, the Trust Indenture Act, or the common law or otherwise and to reimburse
each of them for any legal or other expenses (including, except as otherwise
hereinafter provided, reasonable fees and disbursements of counsel) incurred by
the respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, if such statement or
omission was made in reliance upon and in conformity with information furnished
as herein stated or otherwise furnished in writing to the Company by or on
behalf of the Underwriter expressly for use in the Registration Statement or in
any Preliminary Prospectus or the Prospectus or any such amendment thereof or
supplement thereto. The indemnity agreement of the Underwriter contained in
this paragraph (b) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified party
and shall survive the delivery of and payment for the Notes.
(c) Each party indemnified under the provisions of paragraphs (a) and (b)
of this Section 7 agrees that, upon the service of a summons or other initial
legal process upon it in any action or suit instituted against it or upon its
receipt of written notification of the commencement of any investigation or
inquiry of, or proceeding against, it in respect of which indemnity may be
sought on account of any indemnity agreement contained in such paragraphs, it
will promptly give written notice (herein called the Notice) of such service or
notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be
available to any party who shall fail so to give the Notice if the party to whom
such Notice was not given was unaware of the action, suit, investigation,
inquiry or proceeding to which the Notice would have related and was prejudiced
by the failure to give the Notice, but the omission so to notify such
indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of such indemnity agreement. Any indemnifying party shall be entitled at its
own expense to participate in the defense of any action, suit or proceeding
against, or investigation or inquiry of, an
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<PAGE>
indemnified party. Any indemnifying party shall be entitled, if it so elects
within a reasonable time after receipt of the Notice by giving written notice
(herein called the Notice of Defense) to the indemnified party, to assume
(alone or in conjunction with any other indemnifying party or parties) the
entire defense of such action, suit, investigation, inquiry or proceeding, in
which event such defense shall be conducted, at the expense of the
indemnifying party or parties, by counsel chosen by such indemnifying party
or parties and reasonably satisfactory to the indemnified party or parties;
PROVIDED, HOWEVER, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the
indemnifying party or parties and of the indemnified party or parties in
conducting the defense of such action, suit, investigation, inquiry or
proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then one counsel for the indemnified party or
parties shall be entitled to conduct the defense of the indemnified party or
parties to the extent reasonably determined by such counsel to be necessary
to protect the interests of the indemnified party or parties and (ii) in any
event, the indemnified party or parties shall be entitled to have counsel
chosen by such indemnified party or parties participate in, but not conduct,
the defense. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
paragraphs (a) through (c) of this Section 7 for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with
the defense of the action, suit, investigation, inquiry or proceeding, except
that (A) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred
to in clause (i) of the proviso to the preceding sentence and (B) the
indemnifying party or parties shall bear such other expenses as it or they
have authorized to be incurred by the indemnified party or parties. If,
within a reasonable time after receipt of the Notice, no Notice of Defense
has been given, the indemnifying party or parties shall be responsible for
any legal or other expenses incurred by the indemnified party or parties in
connection with the defense of the action, suit, investigation, inquiry or
proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable
or insufficient to hold harmless an indemnified party under paragraph (a) or (b)
of this Section 7, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities
referred to in paragraph (a) or (b) of this Section 7 (i) in such proportion as
is appropriate to reflect the relative benefits received by each indemnifying
party from the offering of the Notes or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each indemnifying party in connection with
the statements or omissions that resulted in such losses, claims, damages or
liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Notes
received by the Company and the total underwriting discount received by the
Underwriter, as set forth in the table on the cover page of the Prospectus, bear
to the aggregate public offering price
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<PAGE>
of the Notes. Relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by each indemnifying party and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation or
by any other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating,
preparing to defend or defending against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), the Underwriter shall not be required to contribute any amount in excess of
the underwriting discount applicable to the Notes purchased by the Underwriter.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) The Company will not, without the prior written consent of the
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not the Underwriter or any
person who controls the Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of the Underwriter and each controlling person
from all liability arising out of such claim, action, suit or proceeding.
8. TERMINATION. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company if after the
date of this Agreement trading in the Common Stock shall have been suspended, or
if there shall have occurred (i) the engagement in hostilities or an escalation
of major hostilities by the United States or the declaration of war or a
national emergency by the United States on or after the date hereof, (ii) any
outbreak of hostilities or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak
calamity, crisis or change in economic or political conditions in the financial
markets of the United States would, in the
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Underwriters' reasonable judgment, make the offering or delivery of the Notes
impracticable, (iii) suspension of trading in securities generally or a
material adverse decline in value of securities generally on the New York
Stock Exchange, the American Stock Exchange, the NASD Automated Quotation
System ("Nasdaq") or the NS, or limitations on prices (other than limitations
on hours or numbers of days of trading) for securities on either such
exchange or system, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of,
or commencement of any proceeding or investigation by, any court, legislative
body, agency or other governmental authority which in the Underwriter's
reasonable opinion materially and adversely affects or will materially or
adversely affect the business or operations of the Company, (v) declaration
of a banking moratorium by either federal or New York State authorities or
(vi) the taking of any action by any federal, state or local government or
agency in respect of its monetary or fiscal affairs which in the
Underwriter's reasonable opinion has a material adverse effect on the
securities markets in the United States. If this Agreement shall be
terminated pursuant to this Section 8, there shall be no liability of the
Company to the Underwriter and no liability of the Underwriter to the
Company; PROVIDED, HOWEVER, that in the event of any such termination the
Company agrees to indemnify and hold harmless the Underwriter from all costs
or expenses incident to the performance of the obligations of the Company
under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations of the
Underwriter to purchase and pay for the Notes shall be subject to the
performance by the Company of its obligations to be performed hereunder at or
prior to the Closing Date or any later date on which Option Notes are to be
purchased, as the case may be, and to the following further conditions:
(a) The Registration Statement shall have become effective; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission. The
Indenture shall have been qualified under the Trust Indenture Act and the
Form T-1 shall have become effective under the Trust Indenture Act.
(b) The legality and sufficiency of the sale of the Notes hereunder, the
validity and form of the certificates representing the Notes, and all corporate
proceedings and other legal matters incident to the foregoing and the
authorization, form and validity of this Agreement, the Indenture, the
Registration Statement and the Prospectus (except as to the financial statements
contained therein) and the Form T-1, shall have been approved at or prior to the
Closing Date by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
counsel for the Underwriter ("GDSVF&H").
(c) You shall have received from Hale and Dorr, counsel for the Company,
and from Woodcock Washburn Kurtz Mackiewicz & Norris, patent counsel for the
Company, opinions, addressed to the Underwriter and dated the Closing Date,
covering the matters set forth in Annex A and Annex B hereto, respectively, and
if Option Notes are purchased at any date after the Closing Date, additional
opinions from each such counsel addressed to the Underwriter and dated
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<PAGE>
such later date, confirming that the statements expressed as of the Closing
Date in such opinions remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true and
correct and neither the Registration Statement nor the Prospectus omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, respectively, not misleading, (ii) since the
Effective Date, no event has occurred which was required by law to have been set
forth in a supplement or amendment to the Prospectus which has not been set
forth in such a supplement or amendment, (iii) since the respective dates as of
which information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition, results of operations or prospects of the Company, whether or not
arising from transactions in the ordinary course of business, and, since such
dates, except in the ordinary course of business, the Company has not entered
into any material transaction not referred to in the Registration Statement in
the form in which it originally became effective and the Prospectus contained
therein, (iv) the Company does not have any material contingent obligations
which are not disclosed in the Registration Statement and the Prospectus, (v)
there are not any pending or known threatened legal proceedings to which the
Company is a party or of which property of the Company is the subject which are
material and which are not disclosed in the Registration Statement and the
Prospectus, (vi) there are not any franchises, contracts, leases or other
documents which are required to be filed as exhibits to the Registration
Statement which have not been filed as required, (vii) the representations and
warranties of the Company herein are true and correct in all material respects
as of the Closing Date or any later date on which Option Notes are to be
purchased, as the case may be, and (viii) there has not been any material change
in the market for securities in general or in political, financial or economic
conditions from those reasonably foreseeable as to render it impracticable, in
your reasonable judgment, to make a public offering of the Notes or a material
adverse change in market levels for securities in general (or those of companies
in particular) or financial or economic conditions which render it inadvisable
to proceed.
(e) You shall have received on the Closing Date and on any later date on
which Option Notes are purchased a certificate, dated the Closing Date or such
later date, as the case may be, and signed by the President and the Chief
Financial Officer of the Company, on behalf of the Company, stating that the
respective signers of said certificate have carefully examined the Registration
Statement in the form in which it originally became effective and the Prospectus
contained therein and any supplements or amendments thereto, and that the
statements included in clauses (i) through (vii) of paragraph (d) of this
Section 9 are true and correct.
(f) You shall have received from Arthur Andersen LLP, a letter or letters,
addressed to the Underwriter and dated the Closing Date and any later date on
which Option Notes are purchased, confirming that they are independent public
accountants with respect to the Company within the meaning of the Securities Act
and the applicable published rules and regulations
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<PAGE>
thereunder and based upon the procedures described in their letter delivered
to you concurrently with the execution of this Agreement (herein called the
Original Letter), but carried out to a date not more than five (5) business
days prior to the Closing Date or such later date on which Option Notes are
purchased (i) confirming, to the extent true, that the statements and
conclusions set forth in the Original Letter are accurate as of the Closing
Date or such later date, as the case may be, and (ii) setting forth any
revisions and additions to the statements and conclusions set forth in the
Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of the Original Letter or to
reflect the availability of more recent financial statements, data or
information. The letters shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties of
the Company which, in your reasonable judgment, makes it impractical or
inadvisable to proceed with the public offering of the Notes or the purchase
of the Option Notes as contemplated by the Prospectus.
(g) You shall have received from Arthur Andersen LLP a letter stating that
their review of the Company's system of internal accounting controls, to the
extent they deemed necessary in establishing the scope of their examination of
the Company's financial statements as at December 31, 1995, did not disclose any
weakness in internal controls that they considered to be material weaknesses.
(h) You shall have been furnished evidence in usual written or telegraphic
form from the appropriate authorities of the several jurisdictions, or other
evidence satisfactory to you, of the qualification referred to in paragraph (f)
of Section 6 hereof.
(i) On or prior to the Closing Date, you shall have received from all
directors, and executive officers of the Company and Idanta Partners Ltd.
agreements in a form reasonably satisfactory to the Underwriter that such
stockholders will not, without the prior written consent of Hambrecht & Quist
LLC, during the period ending ninety (90) days after the date of the final
Prospectus for the public offering, (1) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or (2) enter
into any swap or similar agreement that transfers, in whole or in part, the
economic risk of ownership of the Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise, and whether any such
transaction relates to Common Stock then owned or thereafter acquired by such
holder.
(j) Prior to the Closing Date, the Notes to be issued and sold by the
Company and the Conversion Shares will be authorized for listing on the NS upon
official notice of issuance.
(k) Subsequent to the execution and delivery of this Agreement, (i) no
downgrading shall have occurred in the rating accorded the Notes by any
"nationally recognized statistical rating organization," as that term is defined
by the Commission for purposes of Rule 436(g)(2) of
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the Rules and Regulations and (ii) no such organization shall have publicly
announced that it has under surveillance or review, with possible negative
implications, its rating of any of the Company's Notes.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if GDSVF&H, counsel for the Underwriter, shall be
reasonably satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriter and without liability of the Underwriter to the Company; PROVIDED,
HOWEVER, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriter from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein, to fulfill any of the conditions herein, or to comply with any
provision hereof other than by reason of a default by any of the Underwriter,
the Company will reimburse the Underwriter upon demand for all out-of-pocket
expenses (including reasonable fees and disbursements of counsel) that shall
have been incurred by them in connection with transactions contemplated hereby.
10. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to its other
obligations under Section 7 of this Agreement, the Company hereby agrees to
reimburse on a quarterly basis the Underwriter for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 10 and the possibility that such payments might later be held
to be improper; PROVIDED, HOWEVER, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them, (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due and (iii) such persons shall not be entitled to reimbursement under this
Section 10 if there shall have been a judicial determination or agreement among
the Company and such persons that they are not entitled to payment of their
reasonable legal expenses and other expenses pursuant to Section 7 of this
Agreement.
11. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of the Company and the Underwriter and, with respect to the
provisions of Section 7 hereof, the several parties (in addition to the Company
and the Underwriter) indemnified under the provisions of said Section 7, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement
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or any provision herein contained. The term "successors and assigns" as
herein used shall not include any purchaser, as such purchaser, of any of the
Notes from the Underwriter.
12. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing and, if to the Underwriter, shall be mailed,
copied or delivered to Hambrecht & Quist LLC, One Bush Street, San Francisco,
California 94104, Attention: Andrew Kahn (with a copy to the General Counsel);
and if to the Company, shall be mailed, telegraphed or delivered to it at its
office, Attention: Kim B. Edwards or Leonard C. Purkis (with a copy to Hale and
Dorr, Attention: Patrick Rondeau, Esq.). All notices given by telegraph shall
be promptly confirmed by letter.
13. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or its respective directors or officers, and (c) delivery and
payment for the Notes under this Agreement; PROVIDED, HOWEVER, that if this
Agreement is terminated prior to the Closing Date, the provisions of paragraph
(k) of Section 6 hereof shall be of no further force or effect. The engagement
letter dated February 9, 1996 between the Company and the Underwriter with
respect to the transaction contemplated by this Agreement shall terminate and be
of no further force and effect.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF CALIFORNIA.
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Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement between the
Company and the Underwriter in accordance with its terms.
Very truly yours,
IOMEGA CORPORATION
By: _____________________________________________
Kim B. Edwards
President and Chief Executive Officer
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
By: ____________________________________
Managing Director
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ANNEX A
Matters to be Covered in the Opinion of
Hale and Dorr
Counsel for the Company
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, is duly
qualified as a foreign corporation and in good standing in ______________,
______________, ______________, and is so qualified and in good standing in each
jurisdiction in which, to its knowledge, the ownership or leasing of property
requires such qualification (except where the failure to be so qualified would
not have a material adverse effect on the business, properties, condition
(financial or otherwise) or results of operations or prospects of the Company
and its subsidiaries taken as whole (a "Material Adverse Effect")), and has full
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement;
(ii) The Company owns beneficially and of record all of the shares of
capital stock of each subsidiary of the Company, and each subsidiary of the
Company has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation;
(iii) The authorized capital stock of the Company consists of
5,000,000 shares of Preferred Stock, $.01 par value, none of which are issued
and outstanding, and 150,000,000 shares of Common Stock, $.03 1/3 par value, of
which there are issued and outstanding of record __________ shares; proper
corporate proceedings have been taken validly to authorize such authorized
capital stock; all of the outstanding shares of such capital stock have been
duly and validly issued and are fully paid and nonassessable; all of the
Conversion Shares have been duly authorized and duly reserved for issuance upon
conversion of the Notes and, when issued and delivered upon conversion of the
Notes pursuant to the terms of the Indenture, will be validly issued and
outstanding, fully paid and nonassessable; no preemptive rights or rights of
refusal exist with respect to the Notes or Conversion Shares, or the issue and
sale thereof, pursuant to the Restated Certificate of Incorporation or Bylaws of
the Company; and, to the knowledge of such counsel, there are no contractual
preemptive rights, rights of first refusal or rights of co-sale which exist with
respect to the issue and sale of the Notes or Conversion Shares that have not
been waived. Except as disclosed in the Registration Statement and except for
options to purchase not more than an aggregate of _________ shares of Common
Stock granted to the Company's employees, directors or consultants subsequent to
the date as of which stock option data is presented in the Registration
Statement, to the knowledge of such counsel, the Company does not have
outstanding any options to purchase, or any other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell shares of its capital stock or any such options,
rights, convertible securities or obligations;
21
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(iv) The Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge after due inquiry,
no stop order suspending the effectiveness of the Registration Statement or
suspending or preventing the use of the Prospectus is in effect and no
proceedings for that purpose have been instituted or are pending or threatened
by the Commission. The Indenture has been qualified under the Trust Indenture
Act;
(v) The Registration Statement at the Effective Date and the Prospectus
and each amendment and supplement thereto (except as to the financial statements
and schedules and other financial data contained therein, as to which such
counsel need express no opinion) and the Form T-1 comply as to form in all
material respects with the requirements of the Securities Act, the Exchange Act,
the Trust Indenture Act, as applicable, and with the rules and regulations of
the Commission thereunder;
(vi) The information required to be set forth in the Registration Statement
in answer to Items 9 and 10 (insofar as Item 10 relates to such counsel) of
Form S-3 is accurately and adequately set forth therein in all material respects
or no response is required with respect to such Items; the statements (1) in the
Prospectus under the captions "Business -- Legal Proceedings," and
"Incorporation of Certain Documents by Reference" and (2) in the Registration
Statement in Items 14 and 15, in each case insofar as such statements constitute
summaries of legal matters, documents or proceedings referred to therein, fairly
and correctly present the information called for with respect to such legal
matters, documents and proceedings in all material aspects; and, to the best of
such counsel's knowledge, the description of the Company's stock option plans
and the options granted and which may be granted thereunder set forth or
incorporated by reference in the Prospectus accurately and fairly presents the
information required to be shown with respect to said plans and options to the
extent required by the Securities Act and the rules and regulations of the
Commission thereunder;
(vii) To counsel's knowledge, there are no franchises, contracts,
leases, documents or legal proceedings, pending or threatened, which in the
opinion of such counsel are of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not described and filed as required; such
franchises, contracts, leases, documents and legal proceedings as are summarized
in the Registration Statement or the Prospectus fairly and correctly present the
information disclosed with respect thereto in all material aspects;
(viii) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company;
(ix) The Notes have been duly authorized and, when duly executed,
authenticated and issued in accordance with the Indenture and delivered by the
Company and paid for in accordance the terms thereof will constitute valid and
legally binding obligations of the Company entitled to the benefits provided by
the Indenture, subject, as to enforcement, to bankruptcy, insolvency, fraudulent
transfer, moratorium, reorganization and similar laws of
22
<PAGE>
general applicability relating to or affecting creditors' rights and to
general equity principles; the form of certificate of the Notes conforms in
all material respects to the terms of the Indenture and the holders of the
Notes will not be subject to personal liability for acts or obligations of
the Company by reason of being such holders.
(x) The Indenture has been duly authorized, executed and delivered by the
Company and constitutes a valid and legally binding instrument, enforceable
against the Company in accordance with its terms, subject, as to enforcement to
bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles; and the Indenture has been duly qualified
under the Trust Indenture Act;
(xi) The statements in the Prospectus under the captions "Prospectus
Summary-The Offering", "Description of Notes" and "Description of Capital
Stock", insofar as such statements purport to summarize certain provisions of
documents or agreements specifically referred to therin or matters of law, are
correct in all material respects;
(xii) Except as described in the Prospectus with respect to the
repurchase of the Notes upon the occurrence of a Repurchase Event (as defined in
the Indenture), the issue and sale by the Company of the Notes as contemplated
by this Agreement and the compliance by the Company with all of the provisions
of the Notes, the Indenture and this Agreement and the consummations of the
transactions herein and therein contemplated will not conflict with, or result
in a breach of, the Restated Certificate of Incorporation or Bylaws of the
Company or any material agreement or instrument known to such counsel to which
the Company is a party or by which the Company or its assets are bound or any
applicable law or regulation, or so far as is known to such counsel, any order,
writ, injunction or decree, of any jurisdiction, court or governmental
instrumentality;
(xiii) To the best of such counsel's knowledge, all holders of
securities of the Company having rights to the registration of shares of Common
Stock, or other securities, because of the filing of the Registration Statement
by the Company have waived such rights or such rights have expired by reason of
lapse of time following notification of the Company's intent to file the
Registration Statement;
(xiv) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as have been obtained
under the Securities Act and the Trust Indenture Act and such as may be required
under state securities or blue sky laws in connection with the purchase and
distribution of the Notes by the Underwriter.
(xv) The Company is not an "investment company" or an entity "controlled"
by an "investment company," as such terms are defined in The Investment Company
Act of 1940, as amended; and
23
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Counsel rendering the foregoing opinion may rely as to questions of law not
involving the laws of the United States or of the State of Delaware, upon
opinions of local counsel satisfactory in form and scope to counsel for the
Underwriter. Copies of any opinions so relied upon shall be delivered to the
Representatives and to counsel for the Underwriter and the foregoing opinion
shall also state that counsel knows of no reason the Underwriter are not
entitled to rely upon the opinions of such local counsel.
In addition to the matters set forth above, counsel rendering the foregoing
opinion shall also include a statement to the effect that nothing has come to
the attention of such counsel that leads them to believe that the Registration
Statement (except as to the financial statements and schedules and other
financial and statistical data contained or incorporated by reference therein,
as to which such counsel need not express any opinion or belief) at the
Effective Date contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus (except as to the
financial statements and schedules and other financial and statistical data
contained or incorporated by reference therein, as to which such counsel need
not express any opinion or belief) as of its date or at the Closing Date (or any
later date on which Option Notes are purchased), contained or contains any
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the circumstances
as under which they were made, not misleading.
24
<PAGE>
ANNEX B
Matters to be Covered in the Opinion of
Woodcock Washburn Kurtz Mackiewicz & Norris
Patent Counsel for the Company
Such counsel are familiar with the technology used by the Company in its
business and the manner of its use thereof and have read the Registration
Statement and the Prospectus, including particularly the portions of the
Registration Statement and the Prospectus referring to patents, trade secrets,
or other proprietary information or materials and:
(i) The statements in the Registration Statement and the Prospectus under
the captions "Risk Factors--Dependence on Proprietary Technology" and
"Business--Proprietary Rights," to the best of such counsel's knowledge and
belief, are accurate and complete statements or summaries of the matters
therein set forth and nothing has come to such counsel's attention that
causes such counsel to believe that the above-described portions of the
Registration Statement and the Prospectus contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(ii) To the best of such counsel's knowledge and except as referred to
in the Prospectus under the captions and disclosures referred to in paragraph
(i) above, there are no legal or governmental proceedings pending relating to
patent rights that could materially affect the Company's business and, to the
best of such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or others;
(iv) To the best of such counsel's knowledge, the Company is not
infringing or otherwise violating any patents, trade secrets, trademarks,
service marks or other proprietary information or materials of others, which in
the judgment of such counsel could affect materially the use by the Company of
any of the Company's patents, trade secrets, trademarks, service marks or other
proprietary information or materials, and to the best of such counsel's
knowledge there are no infringements of any of the Company's patents, trade
secrets, trademarks, service marks or other proprietary information or materials
by others which in the judgment of such counsel could affect materially the
Company's business; and
(v) To the best of such counsel's knowledge, the Company owns or possesses
sufficient licenses or other rights to use all patents, trade secrets, or other
proprietary information or materials necessary to conduct the business now being
or proposed to be conducted by the Company as described in the Prospectus.
25
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IOMEGA CORPORATION
AND
STATE STREET BANK AND TRUST COMPANY
Trustee
INDENTURE
Dated as of March __, 1996
___% Convertible Subordinated Notes due 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 2
AFFILIATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
BUSINESS DAY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
CLOSING PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
COMMISSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CONVERSION PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CORPORATE TRUST OFFICE. . . . . . . . . . . . . . . . . . . . . . . . . . 3
CREDIT AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DEFAULTED INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DESIGNATED SENIOR INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . . 3
EXCHANGE ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
EVENT OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
MONEY INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
NEW RIGHTS PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
NOTE or NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
NOTEHOLDER or HOLDER. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
NOTE REGISTER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
OFFICERS' CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . 5
OPINION OF COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
PAYMENT BLOCKAGE NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . 5
PERSON. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
PREDECESSOR NOTE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
i
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REPURCHASE EVENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
REPURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
RESPONSIBLE OFFICER . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
RIGHTS PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECURITIES ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SENIOR INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SUBSIDIARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
TRADING DAY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
TRIGGER EVENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
TRUST INDENTURE ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
UNDERWRITER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE II ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES. 7
Section 2.1 DESIGNATION, AMOUNT AND ISSUE OF NOTES. . . . . . . . . . . . . 7
Section 2.2 FORM OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.3 DATE AND DENOMINATION OF NOTES; PAYMENTS OF INTEREST. . . . . . 8
Section 2.4 EXECUTION OF NOTES. . . . . . . . . . . . . . . . . . . . . . .10
Section 2.5 EXCHANGE AND REGISTRATION OF TRANSFER OF NOTES. . . . . . . . .10
Section 2.6 MUTILATED, DESTROYED, LOST OR STOLEN NOTES. . . . . . . . . . .11
Section 2.7 TEMPORARY NOTES . . . . . . . . . . . . . . . . . . . . . . . .12
Section 2.8 CANCELLATION OF NOTES PAID, ETC.. . . . . . . . . . . . . . . .12
ARTICLE III REDEMPTION OF NOTES . . . . . . . . . . . . . . . . . . . . . . .13
Section 3.1 REDEMPTION PRICES . . . . . . . . . . . . . . . . . . . . . . .13
Section 3.2 NOTICE OF REDEMPTION: SELECTION OF NOTES. . . . . . . . . . . .13
Section 3.3 PAYMENT OF NOTES CALLED FOR REDEMPTION. . . . . . . . . . . . .14
Section 3.4 CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION . . . . . . . . .15
ARTICLE IV SUBORDINATION OF NOTES . . . . . . . . . . . . . . . . . . . . . .16
Section 4.1 AGREEMENT OF SUBORDINATION. . . . . . . . . . . . . . . . . . .16
Section 4.2 PAYMENTS TO NOTEHOLDERS . . . . . . . . . . . . . . . . . . . .16
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Section 4.3 SUBROGATION OF NOTES. . . . . . . . . . . . . . . . . . . . . .19
Section 4.4 AUTHORIZATION TO EFFECT SUBORDINATION . . . . . . . . . . . . .20
Section 4.5 NOTICE TO TRUSTEE . . . . . . . . . . . . . . . . . . . . . . .20
Section 4.6 TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS . . . . . . . . . . .21
Section 4.7 NO IMPAIRMENT OF SUBORDINATION. . . . . . . . . . . . . . . . .21
Section 4.8 CERTAIN CONVERSIONS DEEMED PAYMENT. . . . . . . . . . . . . . .21
Section 4.9 ARTICLE APPLICABLE TO PAYING AGENTS . . . . . . . . . . . . . .22
Section 4.10 SENIOR INDEBTEDNESS ENTITLED TO RELY. . . . . . . . . . . . . .22
ARTICLE V PARTICULAR COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . .22
Section 5.1 PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. . . . . . . . . . .22
Section 5.2 MAINTENANCE OF OFFICE OR AGENCY . . . . . . . . . . . . . . . .22
Section 5.3 APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE. . . . . . .23
Section 5.4 PROVISIONS AS TO PAYING AGENT . . . . . . . . . . . . . . . . .23
Section 5.5 CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . . . . .24
Section 5.6 STAY, EXTENSION AND USURY LAWS. . . . . . . . . . . . . . . . .24
Section 5.7 COMPLIANCE CERTIFICATE. . . . . . . . . . . . . . . . . . . . .24
ARTICLE VI NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE. . .25
Section 6.1 NOTEHOLDERS' LISTS. . . . . . . . . . . . . . . . . . . . . . .25
Section 6.2 PRESERVATION AND DISCLOSURE OF LISTS. . . . . . . . . . . . . .25
Section 6.3 REPORTS BY TRUSTEE. . . . . . . . . . . . . . . . . . . . . . .25
Section 6.4 REPORTS BY COMPANY. . . . . . . . . . . . . . . . . . . . . . .26
ARTICLE VII REMEDIES OF THE TRUSTEE AND NOTEHOLDERS ON AN EVENT OF DEFAULT. .26
Section 7.1 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . .26
Section 7.2 PAYMENTS OF NOTES ON DEFAULT: SUIT THEREFOR . . . . . . . . . .28
Section 7.3 APPLICATION OF MONIES COLLECTED BY TRUSTEE. . . . . . . . . . .30
Section 7.4 PROCEEDINGS BY NOTEHOLDER . . . . . . . . . . . . . . . . . . .31
Section 7.5 PROCEEDINGS BY TRUSTEE. . . . . . . . . . . . . . . . . . . . .31
Section 7.6 REMEDIES CUMULATIVE AND CONTINUING. . . . . . . . . . . . . . .32
Section 7.7 DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS BY MAJORITY
OF NOTEHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
iii
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Section 7.8 NOTICE OF DEFAULTS. . . . . . . . . . . . . . . . . . . . . . .32
Section 7.9 UNDERTAKING TO PAY COSTS. . . . . . . . . . . . . . . . . . . .33
ARTICLE VIII CONCERNING THE TRUSTEE . . . . . . . . . . . . . . . . . . . . .33
Section 8.1 DUTIES AND RESPONSIBILITIES OF TRUSTEE. . . . . . . . . . . . .33
Section 8.2 RELIANCE ON DOCUMENTS, OPINIONS. ETC. . . . . . . . . . . . . .34
Section 8.3 NO RESPONSIBILITY FOR RECITALS, ETC.. . . . . . . . . . . . . .35
Section 8.4 TRUSTEE, PAYING AGENTS, CONVERSION AGENTS OR REGISTRAR MAY
OWN NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Section 8.5 MONIES TO BE HELD IN TRUST. . . . . . . . . . . . . . . . . . .36
Section 8.6 COMPENSATION AND EXPENSES OF TRUSTEE. . . . . . . . . . . . . .36
Section 8.7 OFFICERS' CERTIFICATE AS EVIDENCE . . . . . . . . . . . . . . .37
Section 8.8 CONFLICTING INTERESTS OF TRUSTEE. . . . . . . . . . . . . . . .37
Section 8.9 ELIGIBILITY OF TRUSTEE. . . . . . . . . . . . . . . . . . . . .37
Section 8.10 RESIGNATION OR REMOVAL OF TRUSTEE . . . . . . . . . . . . . . .37
Section 8.11 ACCEPTANCE BY SUCCESSOR TRUSTEE . . . . . . . . . . . . . . . .38
Section 8.12 SUCCESSION BY MERGER, ETC.. . . . . . . . . . . . . . . . . . .39
Section 8.13 LIMITATION ON RIGHTS OF TRUSTEE AS CREDITOR . . . . . . . . . .39
ARTICLE IX CONCERNING THE NOTEHOLDERS . . . . . . . . . . . . . . . . . . . .40
Section 9.1 ACTION BY NOTEHOLDERS . . . . . . . . . . . . . . . . . . . . .40
Section 9.2 PROOF OF EXECUTION BY NOTEHOLDERS . . . . . . . . . . . . . . .40
Section 9.3 WHO ARE DEEMED ABSOLUTE OWNERS. . . . . . . . . . . . . . . . .40
Section 9.4 COMPANY-OWNED NOTES DISREGARDED . . . . . . . . . . . . . . . .41
Section 9.5 REVOCATION OF CONSENTS: FUTURE HOLDERS BOUND. . . . . . . . . .41
ARTICLE X NOTEHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . .42
Section 10.1 PURPOSE OF MEETINGS. . . . . . . . . . . . . . . . . . . . . .42
Section 10.2 CALL OF MEETINGS BY TRUSTEE. . . . . . . . . . . . . . . . . .42
Section 10.3 CALL OF MEETINGS BY COMPANY OR NOTEHOLDERS . . . . . . . . . .42
Section 10.4 QUALIFICATIONS FOR VOTING. . . . . . . . . . . . . . . . . . .43
Section 10.5 REGULATIONS. . . . . . . . . . . . . . . . . . . . . . . . . .43
Section 10.6 VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Section 10.7 NO DELAY OF RIGHTS BY MEETING. . . . . . . . . . . . . . . . .44
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ARTICLE XI SUPPLEMENTAL INDENTURES. . . . . . . . . . . . . . . . . . . . . .44
Section 11.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS . . . .44
Section 11.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS. . . . . .45
Section 11.3 EFFECT OF SUPPLEMENTAL INDENTURE . . . . . . . . . . . . . . .46
Section 11.4 NOTATION ON NOTES. . . . . . . . . . . . . . . . . . . . . . .46
Section 11.5 EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO BE
FURNISHED TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
ARTICLE XII CONSOLIDATED, MERGER, SALE, CONVEYANCE AND LEASE. . . . . . . . .47
Section 12.1 COMPANY MAY CONSOLIDATE ETC. ON CERTAIN TERMS. . . . . . . . .47
Section 12.2 SUCCESSOR CORPORATION TO BE SUBSTITUTED. . . . . . . . . . . .47
Section 12.3 OPINION OF COUNSEL TO BE GIVEN TRUSTEE . . . . . . . . . . . .48
ARTICLE XIII SATISFACTION AND DISCHARGE OF INDENTURE. . . . . . . . . . . . .48
Section 13.1 DISCHARGE OF INDENTURE . . . . . . . . . . . . . . . . . . . .48
Section 13.2 DEPOSITED MONIES TO BE HELD IN TRUST BY TRUSTEE. . . . . . . .49
Section 13.3 PAYING AGENT TO REPAY MONIES HELD. . . . . . . . . . . . . . .49
Section 13.4 RETURN OF UNCLAIMED MONIES . . . . . . . . . . . . . . . . . .49
Section 13.5 REINSTATEMENT. . . . . . . . . . . . . . . . . . . . . . . . .49
ARTICLE XIV IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS .50
Section 14.1 INDENTURE AND NOTES SOLELY CORPORATE OBLIGATIONS . . . . . . .50
ARTICLE XV CONVERSION OF NOTES. . . . . . . . . . . . . . . . . . . . . . . .50
Section 15.1 RIGHT TO CONVERT . . . . . . . . . . . . . . . . . . . . . . .50
Section 15.2 EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON STOCK
ON CONVERSION; NO ADJUSTMENT FOR INTEREST OR DIVIDENDS. . . . . . . . . .50
Section 15.3 CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES . . . . . . . . . .52
Section 15.4 CONVERSION PRICE . . . . . . . . . . . . . . . . . . . . . . .52
Section 15.5 ADJUSTMENT OF CONVERSION PRICE . . . . . . . . . . . . . . . .52
Section 15.6 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. . .62
Section 15.7 TAXES ON SHARES ISSUED . . . . . . . . . . . . . . . . . . . .63
Section 15.8 RESERVATION OF SHARES; SHARES TO BE FULLY PAID; COMPLIANCE
WITH GOVERNMENTAL REQUIREMENTS; LISTING OF COMMON STOCK . . . . . . . . .63
Section 15.9 RESPONSIBILITY OF TRUSTEE. . . . . . . . . . . . . . . . . . .63
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Section 15.10 NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS . . . . . . . . . .64
ARTICLE XVI REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON REPURCHASE
EVENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Section 16.1 RIGHT TO REQUIRE REPURCHASE. . . . . . . . . . . . . . . . . .65
Section 16.2 NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC. . . . . .65
Section 16.3 CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . . . . .67
Section 16.4 REPURCHASE EVENT . . . . . . . . . . . . . . . . . . . . . . .67
ARTICLE XVII MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . .68
Section 17.1 PROVISIONS BINDING ON COMPANY'S SUCCESSORS . . . . . . . . . .68
Section 17.2 OFFICIAL ACTS BY SUCCESSOR CORPORATION . . . . . . . . . . . .68
Section 17.3 ADDRESSES FOR NOTICES, ETC.. . . . . . . . . . . . . . . . . .68
Section 17.4 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . .69
Section 17.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT;
CERTIFICATES TO TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . .69
Section 17.6 LEGAL HOLIDAYS . . . . . . . . . . . . . . . . . . . . . . . .69
Section 17.7 TRUST INDENTURE ACT. . . . . . . . . . . . . . . . . . . . . .69
Section 17.8 NO SECURITY INTEREST CREATED . . . . . . . . . . . . . . . . .69
Section 17.9 BENEFITS OF INDENTURE. . . . . . . . . . . . . . . . . . . . .70
Section 17.10 TABLE OF CONTENTS, HEADINGS, ETC.. . . . . . . . . . . . . . .70
Section 17.11 AUTHENTICATING AGENT . . . . . . . . . . . . . . . . . . . . .70
Section 17.12 EXECUTION IN COUNTERPARTS . . . . . . . . . . . . . . . . . .71
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INDENTURE dated as of March __, 1996, between Iomega Corporation, a
Delaware corporation (hereinafter sometimes called the "Company", as more fully
set forth in Section 1.1), and State Street Bank and Trust Company, a national
banking association duly organized and existing under the laws of the United
States, as trustee hereunder (hereinafter sometimes called the "Trustee", as
more fully set forth in Section 1.1).
W I T N E S S E T H:
WHEREAS, for its lawful corporate purposes, the Company has duly authorized
the issue of its ___% Convertible Subordinated Notes due 2001 (hereinafter
sometimes called the "Notes"), in an aggregate principal amount not to exceed
$46,000,000 and, to provide the terms and conditions upon which the Notes are to
be authenticated, issued and delivered, the Company has duly authorized the
execution and delivery of this Indenture; and
WHEREAS, the Notes, the certificate of authentication to be borne by the
Notes, a form of assignment, a form of option to elect repurchase upon a
Repurchase Event, a form of conversion notice and a certificate of transfer to
be borne by the Notes are to be substantially in the forms hereinafter provided
for; and
WHEREAS, all acts and things necessary to make the Notes, when executed by
the Company and authenticated and delivered by the Trustee or a duly authorized
authenticating agent, as in this Indenture provided, the valid, binding and
legal obligations of the Company, and to constitute these presents a valid
agreement according to its terms, have been done and performed, and the
execution of this Indenture and the issue hereunder of the Notes have in all
respects been duly authorized.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the Notes are, and
are to be, authenticated, issued and delivered, and in consideration of the
premises and of the purchase and acceptance of the Notes by the holders thereof,
the Company covenants and agrees with the Trustee for the equal and
proportionate benefit of the respective holders from time to time of the Notes
(except as otherwise provided below), as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. The terms defined in this Section 1.1 (except
as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Indenture and of any indenture
supplemental hereto shall have the respective meanings specified in this
Section 1.1. All other terms used in this Indenture that are defined in the
Trust Indenture Act or which are by reference therein defined in the
Securities Act (except as herein otherwise expressly provided or unless the
context otherwise requires) shall have the meanings assigned to such terms in
said Trust Indenture Act and in said Securities Act as in force at the date
of the execution of this Indenture. The words "herein," "hereof,"
"hereunder," and words of similar import refer to this Indenture as a whole
and not to any particular Article, Section or other Subdivision. The terms
defined in this Article include the plural as well as the singular.
AFFILIATE: The term "Affiliate" of any specified Person shall mean any
other Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person. For the purposes of this
definition, "control," when used with respect to any specified Person means the
power to direct or cause the direction of the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
BOARD OF DIRECTORS: The term "Board of Directors" shall mean the Board of
Directors of the Company or a committee of such Board duly authorized to act for
it hereunder.
BUSINESS DAY: The term "Business Day" means each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which the banking
institutions in The City of New York or the city in which the Corporate Trust
Office is located are authorized or obligated by law or executive order to close
or be closed.
CLOSING PRICE: The term "Closing Price" shall have the meaning specified
in Section 15.5(g)(1).
COMMISSION: The term "Commission" shall mean the Securities and Exchange
Commission.
COMMON STOCK: The term "Common Stock" shall mean any stock of any class
of the Company which has no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company and which is not subject to redemption by the
Company. Subject to the provisions of Section 15.6, however, shares issuable
on conversion of Notes shall include only shares of the class designated as
common stock of the Company at the date of this Indenture or shares of any
class or classes resulting from any reclassification or reclassifications
thereof and which have no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary
<PAGE>
liquidation, dissolution or winding up of the Company and which are not
subject to redemption by the Company; PROVIDED that if at any time there
shall be more than one such resulting class, the shares of each such class
then so issuable shall be substantially in the proportion which the total
number of shares of such class resulting from all such reclassifications
bears to the total number of shares of all such classes resulting from all
such reclassifications.
COMPANY: The term "Company" shall mean Iomega Corporation, a Delaware
corporation, and subject to the provisions of Article XII, shall include its
successors and assigns.
CONVERSION PRICE: The term "Conversion Price" shall have the meaning
specified in Section 15.4.
CORPORATE TRUST OFFICE: The term "Corporate Trust Office" or other similar
term, shall mean the office of the Trustee at which at any particular time its
corporate trust business shall be principally administered, which office is, at
the date as of which this Indenture is dated, located at 225 Franklin Street,
Boston, Massachusetts 02110, Attention: Corporate Trust Division (Iomega
Corporation, ___% Convertible Subordinated Notes due 2001).
CREDIT AGREEMENTS: The term "Credit Agreements" means that certain Loan
Agreement, dated July 5, 1995, between the Company, as borrower, and Wells Fargo
Bank, N.A., as lender, as amended, amended and restated, supplemented or
otherwise modified from time to time, and that certain Revolving Loan Agreement
dated January 12, 1996 between the Company, as lender, and First Security Bank
of Utah, N.A., as lender, as amended, amended and restated, supplemented or
otherwise modified from time to time.
DEFAULT: The term "default" shall mean any event that is, or after notice
or passage of time, or both, would be, an Event of Default.
DEFAULTED INTEREST: The term "Defaulted Interest" shall have the meaning
specified in Section 2.3.
DESIGNATED SENIOR INDEBTEDNESS: The term "Designated Senior Indebtedness"
means all amounts payable under the Credit Agreements and any other Senior
Indebtedness if the instrument creating or evidencing the same or the assumption
or guarantee thereof (or related agreements or documents to which the Company is
a party) expressly provides that such Indebtedness shall be "Designated Senior
Indebtedness" for purposes of this Indenture (provided that such instrument,
agreement or other document may place limitations and conditions on the right of
such Senior Indebtedness to exercise the rights of Designated Senior
Indebtedness).
EXCHANGE ACT: The term "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder,
as in effect from time to time.
EVENT OF DEFAULT: The term "Event of Default" shall mean any event
specified in Section 7.1(a), (b), (c), (d), (e) or (f).
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INDEBTEDNESS: The term "Indebtedness" means, with respect to any Person,
and without duplication, (a) all indebtedness, obligations and other liabilities
(contingent or otherwise) of such Person for borrowed money (including
obligations of the Company in respect of overdrafts, foreign exchange contracts,
currency exchange agreements, interest rate protection agreements, and any loans
or advances from banks, whether or not evidenced by notes or similar
instruments) or evidenced by bonds, debentures, notes or similar instruments
(whether or not the recourse of the lender is to the whole of the assets of such
Person or to only a portion thereof) (other than any account payable or other
accrued current liability or obligation incurred in the ordinary course of
business in connection with the obtaining of materials or services), (b) all
reimbursement obligations and other liabilities (contingent or otherwise) of
such Person with respect to letters of credit, bank guarantees or bankers'
acceptances, (c) all obligations and liabilities (contingent or otherwise) in
respect of leases of such Person as lessee required, in conformity with
generally accepted accounting principles, to be accounted for as capitalized
lease obligations on the balance sheet of such Person, and all obligations and
other liabilities (contingent or otherwise) under any lease or related document
(including a purchase agreement) in connection with any lease of real property
which provides that such Person is contractually obligated to purchase or cause
a third party to purchase the leased property and thereby guarantee a minimum
residual value of the leased property to the lessor and the obligations of such
Person under such lease or related document to purchase or to cause a third
party to purchase such leased property, (d) all obligations of such Person
(contingent or otherwise) with respect to an interest rate or other swap, cap or
collar agreement or other similar instrument or agreement or foreign currency
hedge, exchange, purchase or similar instrument or agreement, (e) all direct or
indirect guaranties or similar agreements by such Person in respect of, and
obligations or liabilities (contingent or otherwise) of such Person to purchase
or otherwise acquire or otherwise assure a creditor against loss in respect of,
indebtedness, obligations or liabilities of another Person of the kind described
in clauses (a) through (d), (f) any indebtedness or other obligations described
in clauses (a) through (d) secured by any mortgage, pledge, lien or other
encumbrance existing on property which is owned or held by such Person,
regardless of whether the indebtedness or other obligation secured thereby shall
have been assumed by such Person and (g) any and all deferrals, renewals,
extensions and refundings of, or amendments, modifications or supplements to,
any indebtedness, obligation or liability of the kind described in clauses (a)
through (f).
INDENTURE: The term "Indenture" shall mean this instrument as originally
executed or, if amended or supplemented as herein provided, as so amended or
supplemented.
MONEY INDEBTEDNESS: The term "Money Indebtedness" shall have the meaning
specified in Section 7.1(c).
NEW RIGHTS PLAN: The term "New Rights Plan" has the meaning specified in
Section 15.5(d).
NOTE or NOTES: The terms "Note" or "Notes" shall mean any Note or Notes,
as the case may be, authenticated and delivered under this Indenture.
4
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NOTEHOLDER or HOLDER: The terms "Noteholder" or "holder" as applied to any
Note, or other similar terms (but excluding the term "beneficial holder"), shall
mean any person in whose name at the time a particular Note is registered on the
Note registrar's books.
NOTE REGISTER: The term "Note register" shall have the meaning specified
in Section 2.5.
OFFICERS' CERTIFICATE: The term "Officers' Certificate," when used with
respect to the Company, shall mean a certificate signed by both (a) the
President, the Chief Executive Officer, Executive or Senior Vice President or
any Vice President (whether or not designated by a number or numbers or word or
words added before or after the title "Vice President") and (b) by the Treasurer
or any Assistant Treasurer or Secretary or any Assistant Secretary of the
Company.
OPINION OF COUNSEL: The term "Opinion of Counsel" shall mean an opinion in
writing signed by legal counsel, who may be an employee of or counsel to the
Company, or other counsel acceptable to the Trustee.
OUTSTANDING: The term "outstanding," when used with reference to Notes,
shall, subject to the provisions of Section 9.4, mean, as of any particular
time, all Notes authenticated and delivered by the Trustee under this Indenture,
except
(a) Notes theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(b) Notes, or portions thereof, for the redemption of which
monies in the necessary amount shall have been deposited in trust with
the Trustee or with any paying agent (other than the Company) or shall
have been set aside and segregated in trust by the Company (if the
Company shall act as its own paying agent); PROVIDED that if such
Notes are to be redeemed prior to the maturity thereof, notice of such
redemption shall have been given as in Article III provided, or
provision satisfactory to the Trustee shall have been made for giving
such notice;
(c) Notes in lieu of which, or in substitution for which, other
Notes shall have been authenticated and delivered pursuant to the
terms of Section 2.6 unless proof satisfactory to the Trustee is
presented that any such Notes are held by bona fide holders in due
course; and
(d) Notes converted into Common Stock pursuant to Article XV
and Notes deemed not outstanding pursuant to Article III or Article XVI.
PAYMENT BLOCKAGE NOTICE: The term "Payment Blockage Notice" has the
meaning specified in Section 4.2.
5
<PAGE>
PERSON: The term "Person" shall mean a corporation, an association, a
partnership, an individual, a joint venture, a joint stock company, a trust, an
unincorporated organization or a government or an agency or a political
subdivision thereof.
PREDECESSOR NOTE: The term "Predecessor Note" of any particular Note shall
mean every previous Note evidencing all or a portion of the same debt as that
evidenced by such particular Note; and, for the purposes of this definition, any
Note authenticated and delivered under Section 2.6 in lieu of a lost, destroyed
or stolen Note shall be deemed to evidence the same debt as the lost, destroyed
or stolen Note that it replaces.
REPURCHASE EVENT: The term "Repurchase Event" has the meaning specified in
Section 16.4.
REPURCHASE PRICE: The term "Repurchase Price" has the meaning specified in
Section 16.1.
RESPONSIBLE OFFICER: The term "Responsible Officer," when used with
respect to the Trustee, shall mean an officer of the Trustee in the Corporate
Trust Office assigned and duly authorized by the Trustee to administer its
corporate trust matters.
RIGHTS PLAN: The term "Rights Plan" means that certain Rights Agreement,
dated July 28, 1989, between the Company and The First National Bank of Boston,
as amended, supplemented or otherwise modified from time to time.
RIGHTS: The term "Rights" shall mean "Rights" as such term is defined in
the Rights Plan.
SECURITIES ACT: The term "Securities Act" shall mean the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
SENIOR INDEBTEDNESS: The term "Senior Indebtedness" means the principal of,
premium, if any, interest (including all interest accruing subsequent to the
commencement of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding) and rent
payable on or in connection with, and all fees, costs, expenses and other
amounts accrued or due on or in connection with, Indebtedness of the Company,
whether outstanding on the date of this Indenture or thereafter created,
incurred, assumed, guaranteed or in effect guaranteed by the Company (including
all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to the foregoing), unless in the case of any
particular Indebtedness the instrument creating or evidencing the same or the
assumption or guarantee thereof expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes or expressly provides that such
Indebtedness is "pari passu" or "junior" to the Notes. Notwithstanding the
foregoing, the term Senior Indebtedness shall not include any Indebtedness of
the Company to any subsidiary of the Company, a majority of the voting stock of
which is owned, directly or indirectly, by the Company.
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<PAGE>
SUBSIDIARY: The term "subsidiary" means, with respect to any person,
(i) any corporation, association or other business entity of which more than 50%
of the total voting power of shares of capital stock entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by such person or one or more of the other subsidiaries of that
person (or a combination thereof) and (ii) any partnership (a) the sole general
partner or managing general partner of which is such person or a subsidiary of
such person or (b) the only general partners of which are such person or one or
more subsidiaries of such person (or any combination thereof).
TRADING DAY: The term "Trading Day" shall have the meaning specified in
Section 15.5(g)(5).
TRIGGER EVENT: The term "Trigger Event" shall have the meaning specified
in Section 15.5(d).
TRUST INDENTURE ACT: The term "Trust Indenture Act" shall mean the Trust
Indenture Act of 1939, as amended, as it was in force at the date of execution
of this Indenture, except as provided in Sections 11.3 and 15.6; PROVIDED,
HOWEVER, that in the event the Trust Indenture Act of 1939 is amended after the
date hereof, the term "Trust Indenture Act" shall mean, to the extent required
by such amendment, the Trust Indenture Act of 1939 as so amended.
TRUSTEE: The term "Trustee" shall mean State Street Bank and Trust
Company, and its successors and any corporation resulting from or surviving any
consolidation or merger to which it or its successors may be a party and any
successor trustee at the time serving as successor trustee hereunder.
UNDERWRITER: Means Hambrecht & Quist LLC.
The definitions of certain other terms are as specified in Sections 2.3,
2.5, Article XV and Article XVI.
ARTICLE II
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES
Section 2.1 DESIGNATION, AMOUNT AND ISSUE OF NOTES. The Notes shall be
designated as "___% Convertible Subordinated Notes due 2001." Notes not to
exceed the aggregate principal amount of $40,000,000 (or $46,000,000 if the
over-allotment option set forth in Section 3(c) of the Underwriting Agreement
dated March __, 1996 (as amended from time to time by the parties thereto) by
and between the Company and the Underwriter is exercised in full) (except
pursuant to Sections 2.5, 2.6, 3.3, 15.2 and 16.2 hereof) upon the execution
of this Indenture, or from time to time thereafter, may be executed by the
Company and delivered to the Trustee for authentication, and the Trustee
shall thereupon authenticate and deliver said Notes to or upon the written
order of the Company, signed by its (a) Chairman of the Board, President,
7
<PAGE>
Executive or Senior Vice President or any Vice President (whether or not
designated by a number or numbers or word or words added before or after the
title "Vice President") and (b) Treasurer or Assistant Treasurer or its
Secretary or any Assistant Secretary, without any further action by the
Company hereunder.
Section 2.2 FORM OF NOTES. The Notes and the Trustee's certificate of
authentication to be borne by such Notes shall be substantially in the form
set forth in Exhibit A, which is incorporated in and made a part of this
Indenture.
Any of the Notes may have such letters, numbers or other marks of
identification and such notations, legends and endorsements as the officers
executing the same may approve (execution thereof to be conclusive evidence of
such approval) and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
securities exchange or automated quotation system on which the Notes may be
listed, or to conform to usage.
The terms and provisions contained in the form of Note attached as Exhibit
A hereto shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Section 2.3 DATE AND DENOMINATION OF NOTES; PAYMENTS OF INTEREST. The
Notes shall be issuable in registered form without coupons in denominations
of $1,000 principal amount and integral multiples thereof. Every Note shall
be dated the date of its authentication, shall bear interest from the
applicable date in each case as specified on the face of the form of Note
attached as Exhibit A hereto.
The person in whose name any Note (or its Predecessor Note) is registered
at the close of business on any record date with respect to any interest payment
date (including any Note that is converted after the record date and on or
before the interest payment date) shall be entitled to receive the interest
payable on such interest payment date notwithstanding the cancellation of such
Note upon any transfer, exchange or conversion subsequent to the record date and
on or prior to such interest payment date; PROVIDED, that in the case of any
Note, or portion thereof, called for redemption on a redemption date or
repurchased in connection with a Repurchase Event on a Repurchase Date that is
after a record date and prior to (but excluding) the next succeeding interest
payment date, interest shall not be paid to the person in whose name the Note,
or portion thereof, is registered on the close of business on such record date
and the Company shall have no obligation to pay interest on such Note or such
portion except to the extent required to be paid upon redemption or repurchase
of such Note or portion thereof, as the case may be, pursuant to Section 3.3 or
16.2 hereof. Interest may, at the option of the Company, be paid by check
mailed to the address of such person on the registry kept for such purposes;
PROVIDED that, with respect to any holder of Notes with an aggregate principal
amount equal to or in excess of $5,000,000, at the request of such holder in
writing to the Company (who shall then furnish written notice to such effect to
the Trustee), interest on such holder's Notes shall be paid by wire transfer
(the costs of such wire transfer to be borne by the Company) in immediately
8
<PAGE>
available funds in accordance with the wire transfer instructions supplied by
such holder to the Trustee and paying agent (if different from the Trustee).
The term "record date" with respect to any interest payment date shall mean the
March 1 or September 1 preceding said March 15 or September 15, respectively.
Interest on the Notes shall be computed on the basis of a 360-day year of
twelve 30-day months.
Any interest on any Note which is payable, but is not punctually paid or
duly provided for, on any said March 15 or September 15 (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Noteholder on
the relevant record date by virtue of his having been such Noteholder; and such
Defaulted Interest shall be paid by the Company, at its election in each case,
as provided in clause (1) or (2) below:
(A) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a special
record date for the payment of such Defaulted Interest, which shall be fixed
in the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest to be paid on each Note and the date of the
payment (which shall be not less than twenty-five (25) days after the receipt
by the Trustee of such notice, unless the Trustee shall consent to an earlier
date), and at the same time the Company shall deposit with the Trustee an
amount of money equal to the aggregate amount to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee for
such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to such
Defaulted Interest as in this clause provided. Thereupon the Trustee shall
fix a special record date for the payment of such Defaulted Interest which
shall be not more than fifteen (15) days and not less than ten (10) days
prior to the date of the proposed payment and not less than ten (10) days
after the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such special record date and, in
the name and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the special record date
therefor to be mailed, first-class postage prepaid, to each Noteholder as of
such special record date at his address as it appears in the Note register,
not less than ten (10) days prior to such special record date. Notice of the
proposed payment of such Defaulted Interest and the special record date
therefor having been so mailed, such Defaulted Interest shall be paid to the
Persons in whose names the Notes (or their respective Predecessor Notes) were
registered at the close of business on such special record date and shall no
longer be payable pursuant to the following clause (B).
(B) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any securities
exchange and automated quotation system on which the Notes may be listed or
designated for issuance, and upon such notice as may be required by such
exchange and automated quotation system, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.
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<PAGE>
Section 2.4 EXECUTION OF NOTES. The Notes shall be signed in the name
and on behalf of the Company by the facsimile signature of its Chairman of
the Board, President, any Executive or Senior Vice President or any Vice
President (whether or not designated by a number or numbers or word or words
added before or after the title "Vice President") and attested by the
facsimile signature of its Secretary or any of its Assistant Secretaries
(which may be printed, engraved or otherwise reproduced thereon, by facsimile
or otherwise). Only such Notes as shall bear thereon a certificate of
authentication substantially in the form set forth on the form of Note
attached as Exhibit A hereto, manually executed by the Trustee (or an
authenticating agent appointed by the Trustee as provided by Section 17.11),
shall be entitled to the benefits of this Indenture or be valid or obligatory
for any purpose. Such certificate by the Trustee (or such an authenticating
agent) upon any Note executed by the Company shall be conclusive evidence
that the Note so authenticated has been duly authenticated and delivered
hereunder and that the holder is entitled to the benefits of this Indenture.
In case any officer of the Company who shall have signed any of the Notes
shall cease to be such officer before the Notes so signed shall have been
authenticated and delivered by the Trustee, or disposed of by the Company, such
Notes nevertheless may be authenticated and delivered or disposed of as though
the person who signed such Notes had not ceased to be such officer of the
Company; and any Note may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Note, shall be the proper officers
of the Company, although at the date of the execution of this Indenture any such
person was not such an officer.
Section 2.5 EXCHANGE AND REGISTRATION OF TRANSFER OF NOTES. The
Company shall cause to be kept at the Corporate Trust Office a register (the
register maintained in such office and in any other office or agency of the
Company designated pursuant to Section 5.2 being herein sometimes
collectively referred to as the "Note register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Notes and of transfers of Notes. The Note register shall be
in written form or in any form capable of being converted into written form
within a reasonably prompt period of time. The Trustee is hereby appointed
"Note registrar" for the purpose of registering Notes and transfers of Notes
as herein provided. The Company may change the Note registrar or appoint one
or more co-registrars in accordance with Section 5.2 without any prior notice
to any holders, PROVIDED that a Note register shall be at all times
maintained at the Corporate Trust Office.
Upon surrender for registration of transfer of any Note to the Note
registrar or any co-registrar, and satisfaction of the requirements for
such transfer set forth in this Section 2.5, the Company shall execute, and
the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Notes of any authorized
denominations and of a like aggregate principal amount and bearing such
restrictive legends as may be required by this Indenture.
Notes may be exchanged for other Notes of any authorized denominations
and of a like aggregate principal amount, upon surrender of the Notes to be
exchanged at any such office or agency maintained by the Company pursuant
to Section 5.2. Whenever any Notes are so surrendered for exchange, the
Company shall execute, and the Trustee
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shall authenticate and deliver, the Notes which the Noteholder making the
exchange is entitled to receive bearing registration numbers not
contemporaneously outstanding.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
All Notes presented or surrendered for registration of transfer or for
exchange, redemption or conversion shall (if so required by the Company or
the Note registrar) be duly endorsed, or be accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company,
and the Notes shall be duly executed by the Noteholder thereof or his
attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient
to cover any tax, assessment or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of
Notes.
Neither the Company nor the Trustee nor any Note registrar or any
Company registrar shall be required to exchange or register a transfer of
(a) any Notes for a period of fifteen (15) days next preceding any
selection of Notes to be redeemed or (b) any Notes or portions thereof
called for redemption pursuant to Article III or (c) any Notes or portion
thereof surrendered for conversion pursuant to Article XV.
Section 2.6 MUTILATED, DESTROYED, LOST OR STOLEN NOTES. In case any Note
shall become mutilated or be destroyed, lost or stolen, the Company in its
discretion may execute, and upon its request the Trustee or an authenticating
agent appointed by the Trustee shall authenticate and deliver, a new Note,
bearing a number not contemporaneously outstanding, in exchange and
substitution for the mutilated Note, or in lieu of and in substitution for the
Note so destroyed, lost or stolen. In every case the applicant for a
substituted Note shall furnish to the Company, to the Trustee and, if
applicable, to such authenticating agent such security or indemnity as may be
required by them to save each of them harmless for any loss, liability, cost
or expense caused by or connected with such substitution, and, in every case
of destruction, loss or theft, the applicant shall also furnish to the Company,
to the Trustee and, if applicable, to such authenticating agent evidence to
their satisfaction of the destruction, loss or theft of such Note and of the
ownership thereof.
The Trustee or such authenticating agent may authenticate any such
substituted Note and deliver the same upon the receipt of such security or
indemnity as the Trustee, the Company and, if applicable, such authenticating
agent may require. Upon the issuance of any substituted Note, the Company may
require from the holder of such Note the payment of a sum sufficient to cover
the Company's reasonable out-of-pocket expenses and any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith. In case any Note which has matured or is about to
mature or has been called for redemption or is about to be converted into Common
Stock shall become mutilated or be destroyed, lost or stolen, the
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Company may, instead of issuing a substitute Note, pay or authorize the
payment of or convert or authorize the conversion of the same (without
surrender thereof except in the case of a mutilated Note), as the case may
be, if the applicant for such payment or conversion shall furnish to the
Company, to the Trustee and, if applicable, to such authenticating agent such
security or indemnity as may be required by them to save each of them
harmless for any loss, liability, cost or expense caused by or connected with
such substitution, and, in case of destruction, loss or theft, evidence
satisfactory to the Company, the Trustee and, if applicable, any paying agent
or conversion agent of the destruction, loss or theft of such Note and of the
ownership thereof.
Every substitute Note issued pursuant to the provisions of this Section 2.6
by virtue of the fact that any Note is destroyed, lost or stolen shall
constitute an additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Note shall be found at any time, and shall be
entitled to all the benefits of (but shall be subject to all the limitations set
forth in) this Indenture equally and proportionately with any and all other
Notes duly issued hereunder. To the extent permitted by law, all Notes shall be
held and owned upon the express condition that the foregoing provisions are
exclusive with respect to the replacement or payment or conversion of mutilated,
destroyed, lost or stolen Notes and shall preclude any and all other rights or
remedies notwithstanding any law or statute existing or hereafter enacted to the
contrary with respect to the replacement or payment or conversion of negotiable
instruments or other securities without their surrender.
Section 2.7 TEMPORARY NOTES. Pending the preparation of definitive Notes,
the Company may execute and the Trustee or an authenticating agent appointed
by the Trustee shall, upon the written request of the Company, authenticate
and deliver temporary Notes (printed or lithographed). Temporary Notes shall
be issuable in any authorized denomination, and substantially in the form of
the definitive Notes, but with such omissions, insertions and variations as
may be appropriate for temporary Notes, all as may be determined by the
Company. Every such temporary Note shall be executed by the Company and
authenticated by the Trustee or such authenticating agent upon the same
conditions and in substantially the same manner, and with the same effect, as
the definitive Notes. Without unreasonable delay the Company will execute
and deliver to the Trustee or such authenticating agent definitive Notes
(other than in the case of Notes in global form) and thereupon any or all
temporary Notes (other than any such Note in global form) may be surrendered
in exchange therefor, at each office or agency maintained by the Company
pursuant to Section 5.2 and the Trustee or such authenticating agent shall
authenticate and deliver in exchange for such temporary Notes an equal
aggregate principal amount of definitive Notes. Such exchange shall be made
by the Company at its own expense and without any charge therefor. Until so
exchanged, the temporary Notes shall in all respects be entitled to the same
benefits and subject to the same limitations under this Indenture as
definitive Notes authenticated and delivered hereunder.
Section 2.8 CANCELLATION OF NOTES PAID, ETC. All Notes surrendered for
the purpose of payment, redemption, conversion, exchange or registration of
transfer, shall, if surrendered to the Company or any paying agent or any
Note registrar or any conversion agent, be surrendered to the Trustee and
promptly canceled by it, or, if surrendered to the Trustee, shall be promptly
canceled by it (provided that in the case of any Note or portion thereof
submitted for repurchase,
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the Trustee shall not cancel such Note or portion thereof until after the
Repurchase Date), and no Notes shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Indenture. The Trustee
shall destroy canceled Notes (unless the Company directs it to do otherwise)
and, after such destruction, shall, if requested by the Company, deliver a
certificate of such destruction to the Company. If the Company shall acquire
any of the Notes, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Notes unless and until
the same are delivered to the Trustee for cancellation.
ARTICLE III
REDEMPTION OF NOTES
Section 3.1 REDEMPTION PRICES. The Company may not redeem the Notes prior
to March 15, 1999. At any time on or after March 15, 1999, the Company may,
at its option, redeem all or from time to time any part of the Notes on any
date prior to maturity, upon notice as set forth in Section 3.2, and at the
optional redemption prices set forth in the form of Note attached as Exhibit
A hereto, together with accrued interest to, but excluding, the date fixed
for redemption; PROVIDED that if the date fixed for redemption is March 15 or
September 15, then the interest payable on such date shall be paid to the
holder of record of the Note on the next preceding March 1 or September 1,
respectively.
Section 3.2 NOTICE OF REDEMPTION: SELECTION OF NOTES. In case the Company
shall desire to exercise the right to redeem all or, as the case may be, any
part of the Notes pursuant to Section 3.1, it shall fix a date for redemption
and it or, at its request, the Trustee in the name of and at the expense of
the Company, shall mail or cause to be mailed a notice of such redemption at
least 30 and not more than 60 days prior to the date fixed for redemption to
the holders of Notes so to be redeemed as a whole or in part at their most
recent available addresses as the same appear on the Note register (PROVIDED
that if the Company shall give such notice, it shall also give written
notice, and written notice of the Notes to be redeemed, to the Trustee).
Such mailing shall be by first class mail. The notice if mailed in the manner
herein provided shall be conclusively presumed to have been duly given,
whether or not the holder receives such notice. In any case, failure to give
such notice by mail or any defect in the notice to the holder of any Note
designated for redemption as a whole or in part shall not affect the validity
of the proceedings for the redemption of any other Note.
Each such notice of redemption shall specify the aggregate principal amount
of Notes to be redeemed, the date fixed for redemption, the redemption price at
which Notes are to be redeemed, the place or places of payment, that payment
will be made upon presentation and surrender of such Notes, that interest
accrued to, but excluding, the date fixed for redemption will be paid as
specified in said notice, and that on and after said date interest thereon or on
the portion thereof to be redeemed will cease to accrue. Such notice shall also
state the current Conversion Price and the date on which the right to convert
such Notes or portions thereof into Common Stock will expire. If fewer than all
the Notes are to be redeemed, the notice of redemption shall identify the Notes
to be redeemed. In case any Note is to be redeemed in part only, the notice of
redemption shall state the portion of the principal amount thereof to be
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redeemed and shall state that on and after the date fixed for redemption,
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion thereof will be issued.
On or prior to the redemption date specified in the notice of redemption
given as provided in this Section 3.2, the Company will deposit with the Trustee
or with one or more paying agents (or, if the Company is acting as its own
paying agent, set aside, segregate and hold in trust as provided in Section 5.4)
an amount of money sufficient to redeem on the redemption date all the Notes (or
portions thereof) so called for redemption (other than those theretofore
surrendered for conversion into Common Stock) at the appropriate redemption
price, together with accrued interest to, but excluding, the date fixed for
redemption; PROVIDED that if such payment is made on the redemption date it must
be received by the Trustee or paying agent, as the case may be, by 10:00 a.m.
New York City time, on such date. If any Note called for redemption is
converted pursuant hereto, any money deposited with the Trustee or any paying
agent or so segregated and held in trust for the redemption of such Note shall
be paid to the Company upon its written request, or, if then held by the
Company, shall be discharged from such trust. If fewer than all the Notes are
to be redeemed, the Company will give the Trustee written notice in the form of
an Officers' Certificate not fewer than forty-five (45) days (or such shorter
period of time as may be acceptable to the Trustee) prior to the redemption date
as to the aggregate principal amount of Notes to be redeemed.
If fewer than all the Notes are to be redeemed, the Trustee shall select
the Notes or portions thereof to be redeemed (in principal amounts of $1,000 or
integral multiples thereof), by lot. If any Note selected for partial
redemption is converted in part after such selection, the converted portion of
such Note shall be deemed (so far as may be) to be the portion to be selected
for redemption. The Notes (or portions thereof) so selected shall be deemed
duly selected for redemption for all purposes hereof, notwithstanding that any
such Note is converted as a whole or in part before the mailing of the notice of
redemption.
Upon any redemption of less than all Notes, the Company and the Trustee may
(but need not) treat as outstanding any Notes surrendered for conversion during
the period of fifteen (15) days next preceding the mailing of a notice of
redemption and may (but need not) treat as outstanding any Note authenticated
and delivered during such period in exchange for the unconverted portion of any
Note converted in part during such period.
Section 3.3 PAYMENT OF NOTES CALLED FOR REDEMPTION. If notice of
redemption has been given as above provided, the Notes or portion of Notes
with respect to which such notice has been given shall, unless converted into
Common Stock pursuant to the terms hereof, become due and payable on the
redemption date and at the place or places stated in such notice at the
applicable redemption price, together with interest accrued to (but
excluding) the date fixed for redemption, and on and after said date (unless
the Company shall default in the payment of such Notes at the redemption
price, together with interest accrued to, but excluding, said date) interest
on the Notes or portion of Notes so called for redemption shall cease to
accrue and such Notes shall cease after the close of business on the second
Business Day next preceding the date fixed for redemption to be convertible
into Common Stock and, except as provided in Sections 8.5 and
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13.4, to be entitled to any benefit or security under this Indenture, and the
holders thereof shall have no right in respect of such Notes except the right
to receive the redemption price thereof and unpaid interest to (but
excluding) the date fixed for redemption. On presentation and surrender of
such Notes at a place of payment in said notice specified, the said Notes or
the specified portions thereof shall be paid and redeemed by the Company at
the applicable redemption price, together with interest accrued thereon to
(but excluding) the date fixed for redemption; PROVIDED that, if the
applicable redemption date is an interest payment date, the semi-annual
payment of interest becoming due on such date shall be payable to the holders
of such Notes registered as such on the relevant record date instead of the
holders surrendering such Notes for redemption on such date.
Upon presentation of any Note redeemed in part only, the Company shall
execute and the Trustee shall authenticate and deliver to the holder thereof, at
the expense of the Company, a new Note or Notes, of authorized denominations, in
principal amount equal to the unredeemed portion of the Notes so presented.
Notwithstanding the foregoing, the Trustee shall not redeem any Notes or
mail any notice of optional redemption during the continuance of a default in
payment of interest or premium on the Notes or of any Event of Default of which,
in the case of any Event of Default other than under Sections 7.1(a) or 7.1(b),
a Responsible Officer of the Trustee has knowledge. If any Note called for
redemption shall not be so paid upon surrender thereof for redemption, the
principal and premium, if any, shall, until paid or duly provided for, bear
interest from the date fixed for redemption at the rate borne by the Note and
such Note shall remain convertible into Common Stock until the principal and
premium, if any, shall have been paid or duly provided for.
Section 3.4 CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION. In connection
with any redemption of Notes, the Company may arrange for the purchase and
conversion of any Notes by an agreement with one or more investment bankers
or other purchasers to purchase such Notes by paying to the Trustee in trust
for the Noteholders, on or before the date fixed for redemption, an amount
not less than the applicable redemption price, together with interest accrued
to (but excluding) the date fixed for redemption, of such Notes.
Notwithstanding anything to the contrary contained in this Article III, the
obligation of the Company to pay the redemption price of such Notes, together
with interest accrued to (but excluding) the date fixed for redemption, shall
be deemed to be satisfied and discharged to the extent such amount is so paid
by such purchasers. If such an agreement is entered into, a copy of which
will be filed with the Trustee prior to the date fixed for redemption, any
Notes not duly surrendered for conversion by the holders thereof may, at the
option of the Company, be deemed, to the fullest extent permitted by law,
acquired by such purchasers from such holders and (notwithstanding anything
to the contrary contained in Article XV) surrendered by such purchasers for
conversion, all as of immediately prior to the close of business on the date
fixed for redemption (and the right to convert any such Notes shall be
extended through such time), subject to payment of the above amount as
aforesaid. At the direction of the Company, the Trustee shall hold and
dispose of any such amount paid to it in the same manner as it would monies
deposited with it by the Company for the redemption of Notes. Without the
Trustee's prior written consent, no arrangement between the Company and such
purchasers for the purchase and conversion of any Notes shall
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increase or otherwise affect any of the powers, duties, responsibilities or
obligations of the Trustee as set forth in this Indenture, and the Company
agrees to indemnify the Trustee from, and hold it harmless against, any loss,
liability or expense arising out of or in connection with any such
arrangement for the purchase and conversion of any Notes between the Company
and such purchasers to which the Trustee has not consented in writing,
including the costs and expenses, including reasonable legal fees, incurred
by the Trustee in the defense of any claim or liability arising out of or in
connection with the exercise or performance of any of its powers, duties,
responsibilities or obligations under this Indenture.
ARTICLE IV
SUBORDINATION OF NOTES
Section 4.1 AGREEMENT OF SUBORDINATION. The Company covenants and agrees,
and each holder of Notes issued hereunder by his acceptance thereof likewise
covenants and agrees, that all Notes shall be issued subject to the
provisions of this Article IV; and each Person holding any Note, whether upon
original issue or upon transfer, assignment or exchange thereof, accepts and
agrees to be bound by such provisions.
The payment of the principal of, premium, if any, and interest on all Notes
(including, but not limited to, the redemption price with respect to the Notes
called for redemption in accordance with Section 3.2 or submitted for repurchase
in accordance with Section 16.2, as the case may be, as provided in the
Indenture) issued hereunder shall, to the extent and in the manner hereinafter
set forth, be subordinated and subject in right of payment to the prior payment
in full of all Senior Indebtedness, whether outstanding at the date of this
Indenture or thereafter incurred.
No provision of this Article IV shall prevent the occurrence of any default
or Event of Default hereunder.
Section 4.2 PAYMENTS TO NOTEHOLDERS. No payment shall be made with respect
to the principal of, or premium, if any, or interest on the Notes (including,
but not limited to, the redemption price or the Repurchase Price with respect
to the Notes to be called for redemption in accordance with Section 3.2 or
submitted for repurchase in accordance with Section 16.2, as the case may be,
as provided in the Indenture), except payments and distributions made by the
Trustee as permitted by the first or second paragraph of Section 4.5, if:
(1) a default in the payment of principal, premium,
interest, rent or other obligations due on any Senior Indebtedness
occurs and is continuing (or, in the case of Senior Indebtedness for
which there is a period of grace, in the event of such a default that
continues beyond the period of grace, if any, specified in the
instrument or lease evidencing such Senior Indebtedness), unless and
until such default shall have been cured or waived or shall have
ceased to exist; or
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(2) a default, other than a payment default, on a
Designated Senior Indebtedness occurs and is continuing that then
permits holders of such Designated Senior Indebtedness to accelerate
its maturity and the Trustee receives a notice of the default (a
"Payment Blockage Notice") from a Person who may give it pursuant to
Section 4.5 hereof.
If the Trustee receives any Payment Blockage Notice pursuant to clause (2)
above, no subsequent Payment Blockage Notice shall be effective for purposes of
this Section unless and until (A) at least 365 days shall have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice, and (B) all
scheduled payments of principal, premium, if any, and interest on the Notes that
have come due have been paid in full in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage Notice
to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
The Company may and shall resume payments on and distributions in respect
of the Notes upon the earlier of:
(1) the date upon which the default is cured or waived, or
(2) in the case of a default referred to in clause (ii)
above, 179 days pass after notice is received if the maturity of such
Designated Senior Indebtedness has not been accelerated,
unless this Article IV otherwise prohibits the payment or distribution at the
time of such payment or distribution.
Upon any payment by the Company, or distribution of assets of the Company
of any kind or character, whether in cash, property or securities, to creditors
upon any dissolution or winding-up or liquidation or reorganization of the
Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Indebtedness shall first be paid in full in cash or other payment
satisfactory to the holders of such Senior Indebtedness, or payment thereof in
accordance with its terms shall be provided for in cash or other payment
satisfactory to the holders of such Senior Indebtedness before any payment is
made on account of the principal of, premium, if any, or interest on the Notes
(except payments made pursuant to Article XIII from monies deposited with the
Trustee pursuant thereto prior to commencement of proceedings for such
dissolution, winding-up, liquidation or reorganization); and upon any such
dissolution or winding-up or liquidation or reorganization of the Company or
bankruptcy, insolvency, receivership or other proceeding, any payment by the
Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the holders of the Notes or
the Trustee would be entitled, except for the provision of this Article IV,
shall (except as aforesaid) be paid by the Company or by any receiver, trustee
in bankruptcy, liquidating trustee, agent or other Person making such payment or
distribution, or by the holders of the Notes or by the Trustee under this
Indenture if received by them or it, directly to the holders of Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
Senior Indebtedness held by such holders, or as otherwise required by law or a
court order) or their representative or representatives, or to
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the trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, to the extent necessary to pay all Senior Indebtedness
in full, in cash or other payment satisfactory to the holders of such Senior
Indebtedness, after giving effect to any concurrent payment or distribution
to or for the holders of Senior Indebtedness, before any payment or
distribution is made to the holders of the Notes or to the Trustee.
For purposes of this Article IV, the words, "cash, property or securities"
shall not be deemed to include shares of stock of the Company as reorganized or
readjusted, or securities of the Company or any other corporation provided for
by a plan of reorganization or readjustment, the payment of which is
subordinated at least to the extent provided in this Article IV with respect to
the Notes to the payment of all Senior Indebtedness which may at the time be
outstanding; PROVIDED that (i) the Senior Indebtedness is assumed by the new
corporation, if any, resulting from any reorganization or readjustment, and (ii)
the rights of the holders of Senior Indebtedness (other than leases which are
not assumed by the Company or the new corporation, as the case may be) are not,
without the consent of such holders, altered by such reorganization or
readjustment. The consolidation of the Company with, or the merger of the
Company into, another corporation or the liquidation or dissolution of the
Company following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided for in Article XII shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 4.2
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article XII.
In the event of the acceleration of the Notes because of an Event of
Default, no payment or distribution shall be made to the Trustee or any holder
of Notes in respect of the principal of, premium, if any, or interest on the
Notes (including, but not limited to, the redemption price with respect to the
Notes called for redemption in accordance with Section 3.2 or submitted for
repurchase in accordance with Section 16.2, as the case may be, as provided in
the Indenture), except payments and distributions made by the Trustee as
permitted by the first or second paragraph of Section 4.5, until all Senior
Indebtedness has been paid in full in cash or other payment satisfactory to the
holders of Senior Indebtedness or such acceleration is rescinded in accordance
with the terms of this Indenture. If payment of the Notes is accelerated
because of an Event of Default, the Company shall promptly notify holders of
Senior Indebtedness of the acceleration.
In the event that, notwithstanding the foregoing provisions, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities (including, without limitation, by way of setoff or
otherwise), prohibited by the foregoing, shall be received by the Trustee or the
holders of the Notes before all Senior Indebtedness is paid in full in cash or
other payment satisfactory to the holders of such Senior Indebtedness, or
provision is made for such payment thereof in accordance with its terms in cash
or other payment satisfactory to the holders of such Senior Indebtedness, such
payment or distribution shall be held in trust for the benefit of and shall be
paid over or delivered to the holders of Senior Indebtedness or their
representative or representatives, or to the trustee or trustees under any
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indenture pursuant to which any instruments evidencing any Senior Indebtedness
may have been issued, as their respective interests may appear, as calculated by
the Company, for application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay all Senior Indebtedness in full in cash or
other payment satisfactory to the holders of such Senior Indebtedness, after
giving effect to any concurrent payment or distribution to or for the holders of
such Senior Indebtedness.
Nothing in this Section 4.2 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 8.6. This Section 4.2 shall be subject to
the further provisions of Section 4.5.
Section 4.3 SUBROGATION OF NOTES. Subject to the payment in full of all
Senior Indebtedness, the rights of the holders of the Notes shall be
subrogated to the extent of the payments or distributions made to the holders
of such Senior Indebtedness pursuant to the provisions of this Article IV
(equally and ratably with the holders of all indebtedness of the Company
which by its express terms is subordinated to other indebtedness of the
Company to substantially the same extent as the Notes are subordinated and is
entitled to like rights of subrogation) to the rights of the holders of
Senior Indebtedness to receive payments or distributions of cash, property or
securities of the Company applicable to the Senior Indebtedness until the
principal, premium, if any, and interest on the Notes shall be paid in full;
and, for the purposes of such subrogation, no payments or distributions to
the holders of the Senior Indebtedness of any cash, property or securities to
which the holders of the Notes or the Trustee would be entitled except for
the provisions of this Article IV, and no payments pursuant to the provisions
of this Article IV, to or for the benefit of the holders of Senior
Indebtedness by holders of the Notes or the Trustee, shall, as between the
Company, its creditors other than holders of Senior Indebtedness, and the
holders of the Notes, be deemed to be a payment by the Company to or on
account of the Notes; and no payments or distributions of cash, property or
securities to or for the benefit of the holders of the Notes pursuant to the
subrogation provisions of this Article IV, which would otherwise have been
paid to the holders of Senior Indebtedness shall be deemed to be a payment by
the Company to or for the account of the Notes. It is understood that the
provisions of this Article IV are and are intended solely for the purposes of
defining the relative rights of the holders of the Notes, on the one hand,
and the holders of the Senior Indebtedness, on the other hand.
Nothing contained in this Article IV or elsewhere in this Indenture or in
the Notes is intended to or shall impair, as among the Company, its creditors
other than the holders of Senior Indebtedness, and the holders of the Notes, the
obligation of the Company, which is absolute and unconditional, to pay to the
holders of the Notes the principal of (and premium, if any) and interest on the
Notes as and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the holders of
the Notes and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent the Trustee or the
holder of any Note from exercising (subject to the provisions hereof) all
remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article IV of the holders
of Senior Indebtedness in respect of cash, property or securities of the Company
received upon the exercise of any such remedy.
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Upon any payment or distribution of assets of the Company referred to in
this Article IV, the Trustee, subject to the provisions of Section 8.1, and the
holders of the Notes shall be entitled to rely upon any order or decree made by
any court of competent jurisdiction in which such bankruptcy, dissolution,
winding-up, liquidation or reorganization proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent
or other person making such payment or distribution, delivered to the Trustee or
to the holders of the Notes, for the purpose of ascertaining the persons
entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon and all other facts pertinent thereto or to this Article IV.
Section 4.4 AUTHORIZATION TO EFFECT SUBORDINATION. Each holder of a Note
by the holder's acceptance thereof authorizes and directs the Trustee on the
holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in this Article IV and appoints the
Trustee to act as the holder's attorney-in-fact for any and all such
purposes. If the Trustee does not file a proper proof of claim or proof of
debt in the form required in any proceeding referred to in the third
paragraph of Section 7.2 hereof at least 30 days before the expiration of the
time to file such claim, the holders of any Senior Indebtedness or their
representatives are hereby authorized to file an appropriate claim for and on
behalf of the holders of the Notes.
Section 4.5 NOTICE TO TRUSTEE. The Company shall give prompt written
notice in the form of an Officers' Certificate to a Responsible Officer of
the Trustee and to any paying agent of any fact known to the Company which
would prohibit the making of any payment of monies to or by the Trustee or
any paying agent in respect of the Notes pursuant to the provisions of this
Article IV. Notwithstanding the provisions of this Article IV or any other
provision of this Indenture, the Trustee shall not be charged with knowledge
of the existence of any facts which would prohibit the making of any payment
of monies to or by the Trustee in respect of the Notes pursuant to the
provisions of this Article IV, unless and until a Responsible Officer of the
Trustee shall have received written notice thereof at the Corporate Trust
Office from the Company or a holder or holders of Senior Indebtedness or from
any trustee thereof; and before the receipt of any such written notice, the
Trustee, subject to the provisions of Section 8.1, shall be entitled in all
respects to assume that no such facts exist; PROVIDED that if on a date not
fewer than one Business Day prior to the date upon which by the terms hereof
any such monies may become payable for any purpose (including, without
limitation, the payment of the principal of, or premium, if any, or interest
on any Note) the Trustee shall not have received, with respect to such
monies, the notice provided for in this Section 4.5, then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power
and authority to receive such monies and to apply the same to the purpose for
which they were received, and shall not be affected by any notice to the
contrary which may be received by it on or after such prior date.
Notwithstanding anything in this Article IV to the contrary, nothing shall
prevent (a) any payment by the Company or the Trustee to the Trustee or
Noteholders of amounts in connection with a redemption of Notes (including a
redemption pursuant to Section 3.5) if (i) notice of such redemption has been
given pursuant to Article III prior to the receipt by the Trustee of written
notice as aforesaid, and (ii) such notice of redemption is given not earlier
than sixty (60) days
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before the redemption date or (b) any payment by the Trustee to the
Noteholders of monies deposited with it pursuant to Section 13.1, and any
such payment shall not be subject to the provisions of Section 4.1 or 4.2.
The Trustee, subject to the provisions of Section 8.1, shall be entitled to
rely on the delivery to it of a written notice by a person representing himself
to be a holder of Senior Indebtedness (or a trustee on behalf of such holder) to
establish that such notice has been given by a holder of Senior Indebtedness or
a trustee on behalf of any such holder or holders. In the event that the
Trustee determines in good faith that further evidence is required with respect
to the right of any person as a holder of Senior Indebtedness to participate in
any payment or distribution pursuant to this Article IV, the Trustee may request
such person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of Senior Indebtedness held by such person, the extent to which
such person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such person under this Article IV, and if
such evidence is not furnished the Trustee may defer any payment to such person
pending judicial determination as to the right of such person to receive such
payment.
Section 4.6 TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS. The Trustee in its
individual capacity shall be entitled to all the rights set forth in this
Article IV in respect of any Senior Indebtedness at any time held by it, to
the same extent as any other holder of Senior Indebtedness, and nothing in
Section 8.13 or elsewhere in this Indenture shall deprive the Trustee of any
of its rights as such holder.
With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article IV, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and, subject to the
provisions of Section 8.1, the Trustee shall not be liable to any holder of
Senior Indebtedness if it shall pay over or deliver to holders of Notes, the
Company or any other person money or assets to which any holder of Senior
Indebtedness shall be entitled by virtue of this Article IV or otherwise.
Section 4.7 NO IMPAIRMENT OF SUBORDINATION. No right of any present or
future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with
the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
Section 4.8 CERTAIN CONVERSIONS DEEMED PAYMENT. For the purposes of this
Article IV only, (1) the issuance and delivery of junior securities upon
conversion of Notes in accordance with Article XV shall not be deemed to
constitute a payment or distribution on account of the principal of (or
premium, if any) or interest on Notes or on account of the purchase or other
acquisition of Notes, and (2) the payment, issuance or delivery of cash,
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property or securities (other than junior securities) upon conversion of a
Note shall be deemed to constitute payment on account of the principal of
such Note. For the purposes of this Section 4.8, the term "junior
securities" means (a) shares of any stock of any class of the Company, or (b)
securities of the Company which are subordinated in right of payment to all
Senior Indebtedness which may be outstanding at the time of issuance or
delivery of such securities to substantially the same extent as, or to a
greater extent than, the Notes are so subordinated as provided in this
Article. Nothing contained in this Article IV or elsewhere in this Indenture
or in the Notes is intended to or shall impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the Noteholders, the
right, which is absolute and unconditional, of the Holder of any Note to
convert such Note in accordance with Article XV.
Section 4.9 ARTICLE APPLICABLE TO PAYING AGENTS. If at any time any
paying agent other than the Trustee shall have been appointed by the Company
and be then acting hereunder, the term "Trustee" as used in this Article
shall (unless the context otherwise requires) be construed as extending to
and including such paying agent within its meaning as fully for all intents
and purposes as if such paying agent were named in this Article in addition
to or in place of the Trustee; PROVIDED, HOWEVER, that the first paragraph of
Section 4.5 shall not apply to the Company or any Affiliate of the Company if
it or such Affiliate acts as paying agent.
Section 4.10 SENIOR INDEBTEDNESS ENTITLED TO RELY. The holders of Senior
Indebtedness (including, without limitation, Designated Senior Indebtedness)
shall have the right to rely upon this Article IV, and no amendment or
modification of the provisions contained herein shall diminish the rights of
such holders unless such holders shall have agreed in writing thereto.
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY
Section 5.1 PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of and premium, if any, and interest on each of the Notes at
the places, at the respective times and in the manner provided herein and in
the Notes. Each installment of interest on the Notes due on any semi-annual
interest payment date may be paid by mailing checks for the interest payable
to or upon the written order of the holders of Notes entitled thereto as they
shall appear on the registry books of the Company; PROVIDED, that; with
respect to any holder of Notes with an aggregate principal amount equal to or
in excess of $5,000,000, at the request of such holder in writing to the
Company (who shall then furnish notice to such effect to the Trustee),
interest on such holder's Notes shall be paid by wire transfer (the cost of
such wire transfer to be borne by the Company) in immediately available funds
in accordance with the wire transfer instructions supplied by such holder to
the Trustee and paying agent (if different from the Trustee).
Section 5.2 MAINTENANCE OF OFFICE OR AGENCY. The Company will maintain
in the Borough of Manhattan, The City of New York or in Boston,
Massachusetts, an office or agency where the Notes may be surrendered for
registration of transfer or exchange or for presentation for payment or for
conversion or redemption and where notices and demands to or upon the
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Company in respect of the Notes and this Indenture may be served. The
Company will give prompt written notice to the Trustee of the location, and
any change in the location, of such office or agency not designated or
appointed by the Trustee. If at any time the Company shall fail to maintain
any such required office or agency or shall fail to furnish the Trustee with
the address thereof, such presentations, surrenders, notices and demands may
be made or served at the Corporate Trust Office or agency of the Trustee in
Boston, Massachusetts.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; PROVIDED that no
such designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of Manhattan, The City
of New York or in Boston, Massachusetts, for such purposes. The Company will
give prompt written notice to any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby initially designates the Trustee as paying agent, Note
registrar and conversion agent, and the Corporate Trust Office of the Trustee is
located at 225 Franklin Street, Boston, Massachusetts.
So long as the Trustee is the Note registrar, the Trustee agrees to mail,
or cause to be mailed, the notices set forth in Section 8.10(a) and the third
paragraph of Section 8.11.
Section 5.3 APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE. The
Company, whenever necessary to avoid or fill a vacancy in the office of
Trustee, will appoint, in the manner provided in Section 8.10, a Trustee, so
that there shall at all times be a Trustee hereunder.
Section 5.4 PROVISIONS AS TO PAYING AGENT.
(a) If the Company shall appoint a paying agent other than the
Trustee, or if the Trustee shall appoint such a paying agent, it will
cause such paying agent to execute and deliver to the Trustee an
instrument in which such agent shall agree with the Trustee, subject
to the provisions of this Section 5.4:
(1) that it will hold all sums held by it as such agent for
the payment of the principal of and premium, if any, or interest on the
Notes (whether such sums have been paid to it by the Company or by any
other obligor on the Notes) in trust for the benefit of the holders of the
Notes;
(2) that it will give the Trustee notice of any failure by
the Company (or by any other obligor on the Notes) to make any payment of
the principal of and premium, if any, or interest on the Notes when the
same shall be due and payable; and
(3) that at any time during the continuance of an Event of
Default, upon request of the Trustee, it will forthwith pay to the Trustee
all sums so held in trust.
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The Company shall, on or before each due date of the principal of,
premium, if any, or interest on the Notes, deposit with the paying agent a
sum sufficient to pay such principal, premium, if any, or interest, and
(unless such paying agent is the Trustee) the Company will promptly notify
the Trustee of any failure to take such action; PROVIDED that if such
deposit is made on the due date, such deposit shall be received by the
paying agent by 10:00 a.m. New York City time, on such date.
(b) If the Company shall act as its own paying agent, it will,
on or before each due date of the principal of, premium, if any, or
interest on the Notes, set aside, segregate and hold in trust for the
benefit of the holders of the Notes a sum sufficient to pay such
principal, premium, if any, or interest so becoming due and will
notify the Trustee of any failure to take such action and of any
failure by the Company (or any other obligor under the Notes) to make
any payment of the principal of, premium, if any, or interest on the
Notes when the same shall become due and payable.
(c) Anything in this Section 5.4 to the contrary
notwithstanding, the Company may, at any time, for the purpose of
obtaining a satisfaction and discharge of this Indenture, or for any
other reason, pay or cause to be paid to the Trustee all sums held in
trust by the Company or any paying agent hereunder as required by this
Section 5.4, such sums to be held by the Trustee upon the trusts
herein contained and upon such payment by the Company or any paying
agent to the Trustee, the Company or such paying agent shall be
released from all further liability with respect to such sums.
(d) Anything in this Section 5.4 to the contrary
notwithstanding, the agreement to hold sums in trust as provided in
this Section 5.4 is subject to Sections 13.3 and 13.4.
Section 5.5 CORPORATE EXISTENCE. Subject to Article XII, the Company will
do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence.
Section 5.6 STAY, EXTENSION AND USURY LAWS. The Company covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law or other law which would prohibit or forgive
the Company from paying all or any portion of the principal of or interest on
the Notes as contemplated herein, wherever enacted, now or at any time
hereafter in force, or which may affect the covenants or the performance of
this Indenture and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that
it will not, by resort to any such law, hinder, delay or impede the execution
of any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law has been enacted.
Section 5.7 COMPLIANCE CERTIFICATE. The Company shall deliver to the
Trustee within 120 days after the end of each fiscal year of the Company
(beginning with the fiscal year ending
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on December 31, 1996) an Officers' Certificate stating whether or not the
signers know of any Event of Default that occurred during such period. If
such signers know of any Event of Default that occurred during such period,
such Officers' Certificate shall describe the Event of Default and its status.
ARTICLE VI
NOTEHOLDERS' LISTS AND REPORTS BY
THE COMPANY AND THE TRUSTEE
Section 6.1 NOTEHOLDERS' LISTS. The Company covenants and agrees that it
will furnish or cause to be furnished to the Trustee, semiannually, not more
than fifteen (15) days after each March 1 and September 1 in each year
beginning with September 1, 1996, and at such other times as the Trustee may
request in writing, within thirty (30) days after receipt by the Company of
any such request (or such lesser time as the Trustee may reasonably request
in order to enable it to timely provide any notice to be provided by it
hereunder), a list in such form as the Trustee may reasonably require of the
names and addresses of the holders of Notes as of a date not more than
fifteen (15) days (or such other date as the Trustee may reasonably request
in order to so provide any such notices) prior to the time such information
is furnished, except that no such list need be furnished so long as the
Trustee is acting as Note registrar.
Section 6.2 PRESERVATION AND DISCLOSURE OF LISTS.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses
of the holders of Notes contained in the most recent list furnished to
it as provided in Section 6.1 or maintained by the Trustee in its
capacity as Note registrar, if so acting. The Trustee may destroy any
list furnished to it as provided in Section 6.1 upon receipt of a new
list so furnished.
(b) The rights of Noteholders to communicate with other holders
of Notes with respect to their rights under this Indenture or under
the Notes, and the corresponding rights and duties of the Trustee,
shall be as provided by the Trust Indenture Act.
(c) Every Noteholder, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of either of them shall be held accountable by
reason of any disclosure of information as to names and addresses of
holders of Notes made pursuant to the Trust Indenture Act.
Section 6.3 REPORTS BY TRUSTEE.
(a) Within 60 days after August 1 of each year commencing with
the year 1996, the Trustee shall transmit to holders of Notes such
reports
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dated as of August 1 of the year in which such reports are made concerning
the Trustee and its actions under this Indenture as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant thereto.
(b) A copy of such report shall, at the time of such
transmission to holders of Notes, be filed by the Trustee with each
stock exchange and automated quotation system upon which the Notes are
listed and with the Company. The Company will notify the Trustee
within a reasonable time when the Notes are listed on any stock
exchange and automated quotation system.
Section 6.4 REPORTS BY COMPANY. The Company shall file with the Trustee
(and the Commission at any time after the Indenture becomes qualified under
the Trust Indenture Act), and transmit to holders of Notes, such information,
documents and other reports and such summaries thereof, as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant to such Act; PROVIDED that any such information, documents or
reports required to be filed with the Commission pursuant to Section 13 or
15(d) of the Exchange Act shall be filed with the Trustee within 15 days
after the same is so required to be filed with the Commission.
ARTICLE VII
REMEDIES OF THE TRUSTEE AND NOTEHOLDERS
ON AN EVENT OF DEFAULT
Section 7.1 EVENTS OF DEFAULT. In case one or more of the following Events
of Default (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body) shall have occurred
and be continuing:
(a) default in the payment of any installment of interest upon
any of the Notes as and when the same shall become due and payable,
and continuance of such default for a period of thirty (30) days,
whether or not such payment is permitted under Article IV hereof; or
(b) default in the payment of the principal of and premium, if
any, on any of the Notes as and when the same shall become due and
payable either at maturity or in connection with any redemption
pursuant to Article III or repurchase pursuant to Article XVI, by
acceleration or otherwise, whether or not such payment is permitted
under Article IV hereof; or
(c) a failure on the part of the Company or any Subsidiary of
the Company to make any payment at maturity in respect of any
obligations (other than non-recourse obligations) of, or guaranteed or
assumed by, the Company or any such subsidiary for borrowed money
("Money Indebtedness") in an amount in
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excess of $25,000,000 and continuance of such failure for thirty (30)
days, or a default by the Company or any such Subsidiary with
respect to any Money Indebtedness, which default results in the
acceleration of Money Indebtedness in an amount in excess of
$25,000,000 without such Indebtedness having been discharged or such
acceleration having been cured, waived, rescinded or annulled within
thirty (30) days after there shall have been given, by registered or
certified mail, to the Company by the Trustee or to the Company and
the Trustee by the holders of not less than 10% in aggregate principal
amount of the Notes then outstanding a written notice specifying such
default and requiring the Company to cause such Money Indebtedness to
be discharged or cause such default to be cured or waived or such
acceleration to be rescinded or annulled and stating that such notice
is a "Notice of Default" hereunder; or
(d) failure on the part of the Company duly to observe or
perform any other of the covenants or agreements on the part of the
Company in the Notes or in this Indenture (other than a covenant or
agreement a default in whose performance or whose breach is elsewhere
in this Section 7.1 specifically dealt with) continued for a period of
sixty (60) days after the date on which written notice of such failure,
requiring the Company to remedy the same, shall have been given to the
Company by the Trustee, or to the Company and a Responsible Officer of
the Trustee by the holders of at least 25 percent in aggregate principal
amount of the Notes at the time outstanding determined in accordance
with Section 9.4; or
(e) the Company shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment
for the benefit of creditors, or shall fail generally to pay its debts
as they become due; or
(f) an involuntary case or other proceeding shall be commenced
against the Company seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of ninety (90) consecutive days;
then, and in each and every such case (other than an Event of Default
specified in Section 7.1(e) or (f)), unless the principal of all of the Notes
shall have already become due and payable, either the Trustee or the holders
of not less than 25 percent in aggregate principal amount of the Notes
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then outstanding hereunder determined in accordance with Section 9.4, by
notice in writing to the Company (and to the Trustee if given by
Noteholders), may declare the principal of all the Notes and the interest
accrued thereon to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately due and payable,
anything in this Indenture or in the Notes contained to the contrary
notwithstanding. In the event a declaration of acceleration because of an
Event of Default specified in Section 7.1(c) hereof has occurred and is
continuing, such declaration of acceleration shall be automatically annulled
if such default is cured or waived or the holders of the Debentures have
rescinded their declaration of acceleration in respect of such indebtedness
within 60 days thereof and the Trustee has received written notice of such
cure, waiver or rescission and no other Event of Default described in Section
71(c) hereof has occurred that has not been cured or waived within 60 days of
the declaration of such acceleration in respect thereof. If an Event of
Default specified in Section 7.1(e) or (f) occurs, the principal of all the
Notes and the interest accrued thereon shall be immediately and automatically
due and payable without necessity of further action. This provision,
however, is subject to the conditions that if, at any time after the
principal of the Notes shall have been so declared due and payable, and
before any judgment or decree for the payment of the monies due shall have
been obtained or entered as hereinafter provided, the Company shall pay or
shall deposit with the Trustee a sum sufficient to pay all matured
installments of interest upon all Notes and the principal of and premium, if
any, on any and all Notes which shall have become due otherwise than by
acceleration (with interest on overdue installments of interest (to the
extent that payment of such interest is enforceable under applicable law) and
on such principal and premium, if any, at the rate borne by the Notes, to the
date of such payment or deposit) and amounts due to the Trustee pursuant to
Section 8.6, and if any and all defaults under this Indenture, other than the
nonpayment of principal of and premium, if any, and accrued interest on Notes
which shall have become due by acceleration, shall have been cured or waived
pursuant to Section 7.7 -- then and in every such case the holders of a
majority in aggregate principal amount of the Notes then outstanding, by
written notice to the Company and to the Trustee, may waive all defaults or
Events of Default and rescind and annul such declaration and its
consequences; but no such waiver or rescission and annulment shall extend to
or shall affect any subsequent default or Event of Default, or shall impair
any right consequent thereon. The Company shall notify a Responsible Officer
of the Trustee, promptly upon becoming aware thereof, of any Event of Default.
In case the Trustee shall have proceeded to enforce any right under this
Indenture and such proceedings shall have been discontinued or abandoned because
of such waiver or rescission and annulment or for any other reason or shall have
been determined adversely to the Trustee, then and in every such case the
Company, the holders of Notes, and the Trustee shall be restored respectively to
their several positions and rights hereunder, and all rights, remedies and
powers of the Company, the holders of Notes, and the Trustee shall continue as
though no such proceeding had been taken.
Section 7.2 PAYMENTS OF NOTES ON DEFAULT: SUIT THEREFOR. The Company
covenants that (a) in case default shall be made in the payment of any
installment of interest upon any of the Notes as and when the same shall
become due and payable, and such default shall have continued for a period of
thirty (30) days, or (b) in case default shall be made in the payment of
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the principal of or premium, if any, on any of the Notes as and when the same
shall have become due and payable, whether at maturity of the Notes or in
connection with any redemption, by or under this Indenture declaration or
otherwise -- then, upon demand of the Trustee, the Company will pay to the
Trustee, for the benefit of the holders of the Notes, the whole amount that
then shall have become due and payable on all such Notes for principal and
premium, if any, or interest, or both, as the case may be, with interest upon
the overdue principal and premium, if any, and (to the extent that payment of
such interest is enforceable under applicable law) upon the overdue
installments of interest at the rate borne by the Notes; and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including reasonable compensation to the Trustee, its
agents, attorneys and counsel, and any expenses or liabilities incurred by
the Trustee hereunder other than through its negligence or bad faith. Until
such demand by the Trustee, the Company may pay the principal of and premium,
if any, and interest on the Notes to the registered holders, whether or not
the Notes are overdue.
In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or any other obligor on the Notes
and collect in the manner provided by law out of the property of the Company or
any other obligor on the Notes wherever situated the monies adjudged or decreed
to be payable.
In the case there shall be pending proceedings for the bankruptcy or for
the reorganization of the Company or any other obligor on the Notes under Title
11 of the United States Code, or any other applicable law, or in case a
receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
sequestrator or similar official shall have been appointed for or taken
possession of the Company or such other obligor, the property of the Company or
such other obligor, or in the case of any other judicial proceedings relative to
the Company or such other obligor upon the Notes, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of the Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand pursuant to the provisions of this Section 7.2, shall
be entitled and empowered, by intervention in such proceedings or otherwise, to
file and prove a claim or claims for the whole amount of principal, premium, if
any, and interest owing and unpaid in respect of the Notes, and, in case of any
judicial proceedings, to file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee and
of the Noteholders allowed in such judicial proceedings relative to the Company
or any other obligor on the Notes, its or their creditors, or its or their
property, and to collect and receive any monies or other property payable or
deliverable on any such claims, and to distribute the same after the deduction
of any amounts due the Trustee under Section 8.6; and any receiver, assignee or
trustee in bankruptcy or reorganization, liquidator, custodian or similar
official is hereby authorized by each of the Noteholders to make such payments
to the Trustee, and, in the event that the Trustee shall consent to the making
of such payments directly to the Noteholders, to pay to the Trustee any amount
due it for reasonable compensation, expenses, advances and disbursements,
including counsel fees incurred by it up to the date of such distribution. To
the
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extent that such payment of reasonable compensation, expenses, advances and
disbursements out of the estate in any such proceedings shall be denied for any
reason, payment of the same shall be secured by a lien on, and shall be paid out
of, any and all distributions, dividends, monies, securities and other property
which the holders of the Notes may be entitled to receive in such proceedings,
whether in liquidation or under any plan of reorganization or arrangement or
otherwise.
All rights of action and of asserting claims under this Indenture, or under
any of the Notes, may be enforced by the Trustee without the possession of any
of the Notes, or the production thereof on any trial or other proceeding
relative thereto, and any such suit or proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the holders of the Notes.
In any proceedings brought by the Trustee (and in any proceedings involving
the interpretation of any provision of this Indenture to which the Trustee shall
be a party) the Trustee shall be held to represent all the holders of the Notes,
and it shall not be necessary to make any holders of the Notes parties to any
such proceedings.
Section 7.3 APPLICATION OF MONIES COLLECTED BY TRUSTEE. Any monies
collected by the Trustee pursuant to this Article VII shall be applied in the
order following, at the date or dates fixed by the Trustee for the distribution
of such monies, upon presentation of the several Notes, and stamping thereon
the payment, if only partially paid, and upon surrender thereof, if fully paid:
First: To the payment of all amounts due the Trustee under
Section 8.6;
Second: Subject to the provisions of Article IV, in case the
principal of the outstanding Notes shall not have become due and be unpaid,
to the payment of interest on the Notes in default in the order of the
maturity of the installments of such interest, with interest (to the extent
that such interest has been collected by the Trustee) upon the overdue
installments of interest at the rate borne by the Notes, such payments to
be made ratably to the persons entitled thereto;
Third: Subject to the provisions of Article IV, in case the principal
of the outstanding Notes shall have become due, by declaration or
otherwise, and be unpaid, to the payment of the whole amount then owing and
unpaid upon the Notes for principal and premium, if any, and interest, with
interest on the overdue principal and premium, if any, and (to the extent
that such interest has been collected by the Trustee) upon overdue
installments of interest at the rate borne by the Notes; and in case such
monies shall be insufficient to pay in full the whole amounts so due and
unpaid upon the Notes, then to the payment of such principal and premium,
if any, and interest without preference or priority of principal and
premium, if any, over interest, or of interest over principal and premium,
if any, or of any installment of interest over any other installment of
interest, or
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of any Note over any other Note, ratably to the aggregate of such principal
and premium, if any, and accrued and unpaid interest; and
Fourth: Subject to the provisions of Article IV, to the payment of
the remainder, if any, to the Company or any other person lawfully entitled
thereto.
Section 7.4 PROCEEDINGS BY NOTEHOLDER. No holder of any Note shall have
any right by virtue of or by availing of any provision of this Indenture to
institute any suit, action or proceeding in equity or at law upon or under or
with respect to this Indenture, or for the appointment of a receiver,
trustee, liquidator, custodian or other similar official, or for any other
remedy hereunder, unless such holder previously shall have given to the
Trustee written notice of an Event of Default and of the continuance thereof,
as hereinbefore provided, and unless also the holders of not less than 25
percent in aggregate principal amount of the Notes then outstanding shall
have made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred therein or thereby, and the Trustee
for sixty (60) days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit
or proceeding and no direction inconsistent with such written request shall
have been given to the Trustee pursuant to Section 7.7; it being understood
and intended, and being expressly covenanted by the taker and holder of every
Note with every other taker and holder and the Trustee, that no one or more
holders of Notes shall have any right in any manner whatever by virtue of or
by availing of any provision of this Indenture to affect, disturb or
prejudice the rights of any other holder of Notes, or to obtain or seek to
obtain priority over or preference to any other such holder, or to enforce
any right under this Indenture, except in the manner herein provided and for
the equal, ratable and common benefit of all holders of Notes (except as
otherwise provided herein). For the protection and enforcement of this
Section 7.4, each and every Noteholder and the Trustee shall be entitled to
such relief as can be given either at law or in equity.
Notwithstanding any other provision of this Indenture and any provision
of any Note, the right of any holder of any Note to receive payment of the
principal of and premium, if any, and interest on such Note, on or after the
respective due dates expressed in such Note, or to institute suit for the
enforcement of any such payment on or after such respective dates against the
Company shall not be impaired or affected without the consent of such holder.
Anything in this Indenture or the Notes to the contrary notwithstanding,
the holder of any Note, without the consent of either the Trustee or the holder
of any other Note, in his own behalf and for his own benefit, may enforce, and
may institute and maintain any proceeding suitable to enforce, his rights of
conversion as provided herein.
Section 7.5 PROCEEDINGS BY TRUSTEE. In case of an Event of Default the
Trustee may in its discretion proceed to protect and enforce the rights
vested in it by this Indenture by such appropriate judicial proceedings as
the Trustee shall deem most effectual to protect and enforce any of such
rights, either by suit in equity or by action at law or by proceeding in
bankruptcy or otherwise, whether for the specific enforcement of any covenant
or agreement contained in this
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Indenture or in aid of the exercise of any power granted in this Indenture,
or to enforce any other legal or equitable right vested in the Trustee by
this Indenture or by law.
Section 7.6 REMEDIES CUMULATIVE AND CONTINUING. Except as provided in
Section 2.6, all powers and remedies given by this Article VII to the Trustee
or to the Noteholders shall, to the extent permitted by law, be deemed
cumulative and not exclusive of any thereof or of any other powers and
remedies available to the Trustee or the holders of the Notes, by judicial
proceedings or otherwise, to enforce the performance or observance of the
covenants and agreements contained in this Indenture, and no delay or
omission of the Trustee or of any holder of any of the Notes to exercise any
right or power accruing upon any default or Event of Default occurring and
continuing as aforesaid shall impair any such right or power, or shall be
construed to be a waiver of any such default or any acquiescence therein;
and, subject to the provisions of Section 7.4, every power and remedy given
by this Article VII or by law to the Trustee or to the Noteholders may be
exercised from time to time, and as often as shall be deemed expedient, by
the Trustee or by the Noteholders.
Section 7.7 DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS BY MAJORITY OF
NOTEHOLDERS. The holders of a majority in aggregate principal amount of the
Notes at the time outstanding determined in accordance with Section 9.4 shall
have the right to direct the time, method, and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee; provided, however, that (a) such direction shall
not be in conflict with any rule of law or with this Indenture, and (b) the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction. The holders of a majority in aggregate
principal amount of the Notes at the time outstanding determined in accordance
with Section 9.4 may on behalf of the holders of all of the Notes waive any past
default or Event of Default hereunder and its consequences except (i) a default
in the payment of interest or premium, if any, on, or the principal of, the
Notes, (ii) a failure by the Company to convert any Notes into Common Stock,
(iii) a default in the payment of redemption price pursuant to Article III or
(iv) a default in respect of a covenant or provisions hereof which under
Article XI cannot be modified or amended without the consent of the holders of
all Notes then outstanding. Upon any such waiver the Company, the Trustee and
the holders of the Notes shall be restored to their former positions and rights
hereunder; but no such waiver shall extend to any subsequent or other default or
Event of Default or impair any right consequent thereon. Whenever any default
or Event of Default hereunder shall have been waived as permitted by this
Section 7.7, said default or Event of Default shall for all purposes of the
Notes and this Indenture be deemed to have been cured and to be not continuing;
but no such waiver shall extend to any subsequent or other default or Event of
Default or impair any right consequent thereon.
Section 7.8 NOTICE OF DEFAULTS. The Trustee shall, within ninety (90) days
after it has knowledge of the occurrence of a default, mail to all
Noteholders, as the names and addresses of such holders appear upon the Note
register, notice of all defaults known to a Responsible Officer, unless such
defaults shall have been cured or waived before the giving of such notice;
and PROVIDED that, except in the case of default in the payment of the
principal of, or premium, if any, or interest on any of the Notes, the
Trustee shall be protected in withholding such notice if and so
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long as a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determine that the withholding of such notice is in the
interests of the Noteholders.
Section 7.9 UNDERTAKING TO PAY COSTS. All parties to this Indenture agree,
and each holder of any Note by his acceptance thereof shall be deemed to have
agreed, that any court may, in its discretion, require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the costs
of such suit and that such court may in its discretion assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in
such suit, having due regard to the merits and good faith of the claims or
defenses made by such party litigant; PROVIDED that the provisions of this
Section 7.9 (to the extent permitted by law) shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Noteholder, or group
of Noteholders, holding in the aggregate more than ten percent in principal
amount of the Notes at the time outstanding determined in accordance with
Section 9.4, or to any suit instituted by any Noteholder for the enforcement
of the payment of the principal of or premium, if any, or interest on any
Note on or after the due date expressed in such Note or to any suit for the
enforcement of the right to convert any Note in accordance with the
provisions of Article XV.
ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.1 DUTIES AND RESPONSIBILITIES OF TRUSTEE. The Trustee, prior to
the occurrence of an Event of Default and after the curing of all Events of
Default which may have occurred, undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture. In case an
Event of Default has occurred (which has not been cured or waived) the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act
or its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default and after
the curing or waiving of all Events of Default which may have occurred:
(1) the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Indenture and the Trust
Indenture Act, and the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set forth in
this Indenture and no implied covenants or obligations shall be read into
this Indenture and the Trust Indenture Act against the Trustee; and
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(2) in the absence of bad faith and willful misconduct on
the part of the Trustee, the Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed therein,
upon any certificates or opinions furnished to the Trustee and conforming
to the requirements of this Indenture; but, in the case of any such
certificates or opinions which by any provisions hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty
to examine the same to determine whether or not they conform to the
requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or Officers of the
Trustee, unless the Trustee was negligent in ascertaining the
pertinent facts;
(c) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with
the direction of the holders of not less than a majority in principal
amount of the Notes at the time outstanding determined as provided in
Section 9.4 relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this Indenture; and
(d) whether or not therein provided, every provision of this
Indenture relating to the conduct or affecting the liability of, or
affording protection to, the Trustee shall be subject to the
provisions of this Section.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if there is reasonable ground for believing that the
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
Section 8.2 RELIANCE ON DOCUMENTS, OPINIONS. ETC. Except as otherwise
provided in Section 8.1:
(a) the Trustee may rely and shall be protected in acting upon
any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, debenture, note, coupon or
other paper or document believed by it in good faith to be genuine and
to have been signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by an Officers'
Certificate (unless other evidence in respect thereof be herein
specifically prescribed); and any resolution of the Board of Directors
may be evidenced to the Trustee by a copy thereof certified by the
Secretary or an Assistant Secretary of the Company;
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(c) the Trustee may consult with counsel and any advice or
Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or omitted by it hereunder
in good faith and in accordance with such advice or Opinion of
Counsel;
(d) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Noteholders pursuant to the
provisions of this Indenture, unless such Noteholders shall have
offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein or
thereby;
(e) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney; PROVIDED,
HOWEVER, that if the payment within a reasonable time to the Trustee
of the costs, expenses or liabilities likely to be incurred by it in
the making of such investigation is, in the opinion of the Trustee,
not reasonably assured to the Trustee by the security afforded to it
by the terms of this Indenture, the Trustee may require reasonable
indemnity against such expenses or liability as a condition to so
proceeding; the reasonable expenses of every such examination shall be
paid by the Company or, if paid by the Trustee or any predecessor
Trustee, shall be repaid by the Company upon demand; and
(f) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed by it with due care hereunder.
Section 8.3 NO RESPONSIBILITY FOR RECITALS, ETC. The recitals contained
herein and in the Notes (except in the Trustee's certificate of
authentication) shall be taken as the statements of the Company, and the
Trustee assumes no responsibility for the correctness of the same. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Notes. The Trustee shall not be accountable for the use
or application by the Company of any Notes or the proceeds of any Notes
authenticated and delivered by the Trustee in conformity with the provisions
of this Indenture.
Section 8.4 TRUSTEE, PAYING AGENTS, CONVERSION AGENTS OR REGISTRAR MAY OWN
NOTES. The Trustee, any paying agent, any authenticating agent, any
conversion agent or Note registrar,
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in its individual or any other capacity, may become the owner or pledgee of
Notes with the same rights it would have if it were not Trustee, paying
agent, conversion agent or Note registrar.
Section 8.5 MONIES TO BE HELD IN TRUST. Subject to the provisions of
Section 13.4, all monies received by the Trustee shall, until used or applied
as herein provided, be held in trust for the purposes for which they were
received. Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The
Trustee shall be under no liability for interest on any money received by it
hereunder except as may be agreed from time to time by the Company and the
Trustee.
Section 8.6 COMPENSATION AND EXPENSES OF TRUSTEE. The Company covenants
and agrees to pay to the Trustee from time to time, and the Trustee shall be
entitled to, reasonable compensation for all services rendered by it
hereunder in any capacity (which shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust), and the
Company will pay or reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances reasonably incurred or made by the
Trustee in accordance with any of the provisions of this Indenture (including
the reasonable compensation and the expenses and disbursements of its counsel
and of all persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence, willful misconduct,
recklessness or bad faith. The Company also covenants to indemnify the
Trustee in any capacity under this Indenture and its agents and any
authenticating agent for, and to hold them harmless against, any loss,
liability or expense incurred without negligence, willful misconduct,
recklessness, or bad faith on the part of the Trustee or such agent or
authenticating agent, as the case may be, and arising out of or in connection
with the acceptance or administration of this trust or in any other capacity
hereunder, including the reasonable costs and expenses of defending
themselves against any claim of liability in the premises, PROVIDED that (i)
each of the Trustee or such agent or authenticating agent, as the case may
be, shall notify the Company promptly of any claim or liability asserted
against such party for which it may seek indemnification, (ii) the Company
shall defend such claim and each of the Trustee, such agent or authenticating
agent, as the case may be, shall cooperate with the Company's defense of such
claim or liability, (iii) the Trustee, such agent and authenticating agent
may hire separate counsel and the Company shall pay the reasonable fees and
expenses of such counsel, but (A) the Company will not be required to pay
such fees and expenses if it assumes such parties' defense and there is no
conflict of interest between the Company and such parties in connection with
such defense and (B) the Company shall not be liable, in connection with any
such claim or liability or substantially similar or related claims or
liabilities, at any time, for the fees and expenses of more than one separate
firm of attorneys (in addition to local counsel). The Company need not pay
for any settlement made without its written consent. The obligations of the
Company under this Section 8.6 to compensate or indemnify the Trustee and to
pay or reimburse the Trustee for expenses, disbursements and advances shall
be secured by a lien prior to that of the Notes upon all property and funds
held or collected by the Trustee as such, except funds held in trust for the
benefit of the holders of particular Notes. The obligation of the Company
under this Section shall survive the satisfaction and discharge of this
Indenture.
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When the Trustee and its agents and any authenticating agent incur expenses
or render services after an Event of Default specified in Section 7.1(e) or (f)
occurs, the expenses and the compensation for the services are intended to
constitute expenses of administration under any bankruptcy, insolvency or
similar laws.
Section 8.7 OFFICERS' CERTIFICATE AS EVIDENCE. Except as otherwise
provided in Section 8.1, whenever in the administration of the provisions of
this Indenture the Trustee shall deem it necessary or desirable that a matter
be proved or established prior to taking or omitting any action hereunder,
such matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence, willful misconduct,
recklessness, or bad faith on the part of the Trustee, be deemed to be
conclusively proved and established by an Officers' Certificate delivered to
the Trustee.
Section 8.8 CONFLICTING INTERESTS OF TRUSTEE. If the Trustee has or shall
acquire a conflicting interest within the meaning of the Trust Indenture Act,
the Trustee shall either eliminate such interest or resign, to the extent and
in the manner provided by, and subject to the provisions of, the Trust
Indenture Act and this Indenture.
Section 8.9 ELIGIBILITY OF TRUSTEE. There shall at all times be a Trustee
hereunder which shall be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and has, together with its parent, a combined
capital and surplus of at least $50,000,000. If such person publishes
reports of condition at least annually, pursuant to law or to the
requirements of any supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such person shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to
be eligible in accordance with the provisions of this Section, it shall
resign immediately in the manner and with the effect hereinafter specified in
this Article.
Section 8.10 RESIGNATION OR REMOVAL OF TRUSTEE.
(a) The Trustee may at any time resign by giving written notice
of such resignation to the Company and to the holders of Notes. Upon
receiving such notice of resignation, the Company shall promptly
appoint a successor trustee by written instrument, in duplicate,
executed by order of the Board of Directors, one copy of which
instrument shall be delivered to the resigning Trustee and one copy to
the successor trustee. If no successor trustee shall have been so
appointed and have accepted appointment sixty (60) days after the
mailing of such notice of resignation to the Noteholders, the
resigning Trustee may petition any court of competent jurisdiction for
the appointment of a successor trustee, or any Noteholder who has been
a bona fide holder of a Note or Notes for at least six months may,
subject to the provisions of Section 7.9, on behalf of himself and all
others similarly situated, petition any such court for the appointment
of a successor trustee. Such court may thereupon, after such notice,
if any, as it may deem proper and prescribe, appoint a successor
trustee.
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(b) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with Section 8.8 after
written request therefor by the Company or by any Noteholder who has been a
bona fide holder of a Note or Notes for at least six months; or
(2) the Trustee shall cease to be eligible in accordance
with the provisions of Section 8.9 and shall fail to resign after written
request therefor by the Company or by any such Noteholder; or
(3) the Trustee shall become incapable of acting, or shall
be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation;
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of
the Board of Directors, one copy of which instrument shall be delivered to
the Trustee so removed and one copy to the successor trustee, or, subject
to the provisions of Section 7.9, any Noteholder who has been a bona fide
holder of a Note or Notes for at least six months may, on behalf of himself
and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a
successor trustee. Such court may thereupon, after such notice, if any, as
it may deem proper and prescribe, remove the Trustee and appoint a
successor trustee.
(c) The holders of a majority in aggregate principal amount
of the Notes at the time outstanding may at any time remove the Trustee
and nominate a successor trustee which shall be deemed appointed as
successor trustee unless within ten (10) days after notice to the
Company of such nomination the Company objects thereto, in which case
the Trustee so removed or any Noteholder, upon the terms and
conditions and otherwise as in Section 8.10(a) provided, may petition
any court of competent jurisdiction for an appointment of a successor
trustee.
(d) Any resignation or removal of the Trustee and appointment
of a successor trustee pursuant to any of the provisions of this
Section 8.10 shall become effective upon acceptance of appointment by
the successor trustee as provided in Section 8.11.
Section 8.11 ACCEPTANCE BY SUCCESSOR TRUSTEE. Any successor trustee
appointed as provided in Section 8.10 shall execute, acknowledge and deliver
to the Company and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, duties and obligations of its predecessor hereunder, with
like effect as if originally named as trustee herein; but, nevertheless, on
the written request of the Company or of the
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successor trustee, the trustee ceasing to act shall, upon payment of any
amounts then due it pursuant to the provisions of Section 8.6, execute and
deliver an instrument transferring to such successor trustee all the rights
and powers of the trustee so ceasing to act. Upon reasonable request of any
such successor trustee, the Company shall execute such instruments in writing
as necessary for fully and certainly vesting in and confirming to such
successor trustee all such rights and powers. Any trustee ceasing to act
shall, nevertheless, retain a lien upon all property and funds held or
collected by such trustee as such, except for funds held in trust for the
benefit of holders of particular Notes, to secure any amounts then due it
pursuant to the provisions of Section 8.6.
No successor trustee shall accept appointment as provided in this
Section 8.11 unless at the time of such acceptance such successor trustee
shall be qualified under the provisions of Section 8.8 and be eligible under
the provisions of Section 8.9.
Upon acceptance of appointment by a successor trustee as provided in
this Section 8.11, either the Company or the former trustee shall mail or
cause to be mailed notice of the succession of such trustee hereunder to the
holders of Notes at their addresses as they shall appear on the Note
register. If the Company or the former trustee fails to mail such notice
within ten (10) days after acceptance of appointment by the successor
trustee, the successor trustee shall mail or cause such notice to be mailed
to the holders of Notes.
Section 8.12 SUCCESSION BY MERGER, ETC. Any corporation into which the
Trustee may be merged or converted or with which it may be consolidated, or
any corporation resulting from any merger, conversion or consolidation to
which the Trustee shall be a party, or any corporation succeeding to all or
substantially all of the trust business of the Trustee, shall be the
successor to the Trustee hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, provided
that in the case of any corporation succeeding to all or substantially all of
the trust business of the Trustee such corporation shall be qualified under
the provisions of Section 8.8 and eligible under the provisions of Section 8.9.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture, any of the Notes shall have been
authenticated but not delivered, any such successor to the Trustee may adopt
the certificate of authentication of any predecessor trustee or
authenticating agent appointed by such predecessor trustee, and deliver such
Notes so authenticated; and in case at that time any of the Notes shall not
have been authenticated, any successor to the Trustee or an authenticating
agent appointed by such successor trustee may authenticate such Notes either
in the name of any predecessor trustee hereunder or in the name of the
successor trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Notes or in this Indenture provided
that the certificate of the Trustee shall have; PROVIDED, HOWEVER, that the
right to adopt the certificate of authentication of any predecessor Trustee
or authenticate Notes in the name of any predecessor Trustee shall apply only
to its successor or successors by merger, conversion or consolidation.
Section 8.13 LIMITATION ON RIGHTS OF TRUSTEE AS CREDITOR. If and when
the Trustee shall be or become a creditor of the Company (or any other
obligor upon the Notes), the Trustee shall
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be subject to the provisions of the Trust Indenture Act regarding the
collection of the claims against the Company (or any such other obligor).
ARTICLE IX
CONCERNING THE NOTEHOLDERS
Section 9.1 ACTION BY NOTEHOLDERS. Whenever in this Indenture it is
provided that the holders of a specified percentage in aggregate principal
amount of the Notes may take any action (including the making of any demand
or request, the giving of any notice, consent or waiver or the taking of any
other action), the fact that at the time of taking any such action, the
holders of such specified percentage have joined therein may be evidenced (a)
by any instrument or any number of instruments of similar tenor executed by
Noteholders in person or by agent or proxy appointed in writing, or (b) by
the record of the holders of Notes voting in favor thereof at any meeting of
Noteholders duly called and held in accordance with the provisions of Article
X, or (c) by a combination of such instrument or instruments and any such
record of such a meeting of Noteholders. Whenever the Company or the Trustee
solicits the taking of any action by the holders of the Notes by a written
instrument or at a meeting, the Company or the Trustee shall fix in advance
of such solicitation, a date as the record date for determining holders
entitled to execute such instrument or vote at such meeting. The record date
shall be not more than fifteen (15) days prior to the date of commencement of
solicitation of such action by written instrument and not more than sixty
(60) days prior to the date of such meeting, as the case may be. With respect
to any record date set pursuant to this Section 9.1, the party hereto which
sets such record date may designate any day as the "Expiration Date" and from
time to time may change the Expiration Date to any earlier or later day;
provided that no such change shall be effective unless notice of the proposed
new Expiration Date is given to the other party hereto in writing, and to
each Holder of Securities in the manner set forth in 17.3, on or prior to the
existing Expiration Date. If an Expiration Date is not designated with
respect to any record date set pursuant to this Section 9.1, the party hereto
which set such record date shall be deemed to have initially designated the
180th day after such record date as the Expiration Date with respect thereto,
subject to its right to change the Expiration Date as provided in this
paragraph. Notwithstanding the foregoing, no Expiration Date shall be later
than the 180th day after the applicable record date.
Section 9.2 PROOF OF EXECUTION BY NOTEHOLDERS. Subject to the
provisions of Sections 8.1, 8.2 and 10.5, proof of the execution of any
instrument by a Noteholder or his agent or proxy shall be sufficient if made
in accordance with such reasonable rules and regulations as may be prescribed
by the Trustee or in such manner as shall be satisfactory to the Trustee.
The holding of Notes shall be proved by the Note register or by a certificate
of the Note registrar.
The record of any Noteholders' meeting shall be proved in the manner
provided in Section 10.6.
Section 9.3 WHO ARE DEEMED ABSOLUTE OWNERS. The Company, the Trustee,
any paying agent, any conversion agent and any Note registrar may deem the
person in whose name
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such Note shall be registered upon the Note register to be, and may treat him
as, the absolute owner of such Note (whether or not such Note shall be
overdue and notwithstanding any notation of ownership or other writing
thereon) for the purpose of receiving payment of or on account of the
principal of, premium, if any, and interest on such Note, for conversion of
such Note and for all other purposes; and neither the Company nor the Trustee
nor any paying agent nor any conversion agent nor any Note registrar shall be
affected by any notice to the contrary. All such payments so made to any
holder for the time being, or upon his order, shall be valid, and, to the
extent of the sum or sums so paid, effectual to fully satisfy and discharge
the liability for monies payable upon any such Note.
Section 9.4 COMPANY-OWNED NOTES DISREGARDED. In determining whether
the holders of the requisite aggregate principal amount of Notes have
concurred in any direction, consent, waiver or other action under this
Indenture, Notes which are owned by the Company or any other obligor on the
Notes or by any person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company or any other obligor
on the Notes shall be disregarded and deemed not to be outstanding for the
purpose of any such determination; PROVIDED that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, consent, waiver or other action only Notes which a Responsible
Officer knows are so owned shall be so disregarded. Notes so owned which have
been pledged in good faith may be regarded as outstanding for the purposes of
this Section 9.4 if the pledgee shall establish to the satisfaction of the
Trustee the pledgee's right to vote such Notes and that the pledgee is not
the Company, any other obligor on the Notes or a person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company or any such other obligor. In the case of a dispute
as to such right, any decision by the Trustee taken upon the advice of
counsel shall be full protection to the Trustee. Upon request of the
Trustee, the Company shall furnish to the Trustee promptly an Officers'
Certificate listing and identifying all Notes, if any, known by the Company
to be owned or held by or for the account of any of the above described
persons; and, subject to Section 8.1, the Trustee shall be entitled to accept
such Officers' Certificate as conclusive evidence of the facts therein set
forth and of the fact that all Notes not listed therein are outstanding for
the purpose of any such determination.
Section 9.5 REVOCATION OF CONSENTS: FUTURE HOLDERS BOUND. At any time
prior to (but not after) the evidencing to the Trustee, as provided in
Section 9.1, of the taking of any action by the holders of the percentage in
aggregate principal amount of the Notes specified in this Indenture in
connection with such action, any holder of a Note which is shown by the
evidence to be included in the Notes the holders of which have consented to
such action may, by filing written notice with the Trustee at its Corporate
Trust Office and upon proof of holding as provided in Section 9.2, revoke
such action so far as concerns such Note. Except as aforesaid, any such
action taken by the holder of any Note shall be conclusive and binding upon
such holder and upon all future holders and owners of such Note and of any
Notes issued in exchange or substitution therefor, irrespective of whether
any notation in regard thereto is made upon such Note or any Note issued in
exchange or substitution therefor.
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ARTICLE X
NOTEHOLDERS' MEETINGS
Section 10.1 PURPOSE OF MEETINGS. A meeting of Noteholders may be
called at any time and from time to time pursuant to the provisions of this
Article X for any of the following purposes:
(1) to give any notice to the Company or to the Trustee or
to give any directions to the Trustee permitted under this Indenture, or to
consent to the waiving of any default or Event of Default hereunder and its
consequences, or to take any other action authorized to be taken by
Noteholders pursuant to any of the provisions of Article VII;
(2) to remove the Trustee and nominate a successor trustee
pursuant to the provisions of Article VIII;
(3) to consent to the execution of an indenture or
indentures supplemental hereto pursuant to the provisions of Section 11.2;
or
(4) to take any other action authorized to be taken by or
on behalf of the holders of any specified aggregate principal amount of the
Notes under any other provision of this Indenture or under applicable law.
Section 10.2 CALL OF MEETINGS BY TRUSTEE. The Trustee may at any time
call a meeting of Noteholders to take any action specified in Section 10.1,
to be held at such time and at such place at a location within 10 miles of
the Corporate Trust Office or the Borough of Manhattan, The City of New York,
as the Trustee shall determine. Notice of every meeting of the Noteholders,
setting forth the time and the place of such meeting and in general terms the
action proposed to be taken at such meeting and the establishment of any
record date pursuant to Section 9.1, shall be mailed to holders of Notes at
their addresses as they shall appear on the Note register. Such notice shall
also be mailed to the Company. Such notices shall be mailed not less than
twenty (20) nor more than ninety (90) days prior to the date fixed for the
meeting.
Any meeting of Noteholders shall be valid without notice if the holders
of all Notes then outstanding are present in person or by proxy or if notice
is waived before or after the meeting by the holders of all Notes
outstanding, and if the Company and the Trustee are either present by duly
authorized representatives or have, before or after the meeting, waived
notice.
Section 10.3 CALL OF MEETINGS BY COMPANY OR NOTEHOLDERS. In case at
any time the Company, pursuant to a resolution of its Board of Directors, or
the holders of at least ten percent in aggregate principal amount of the
Notes then outstanding, shall have requested the Trustee to call a meeting of
Noteholders, by written request setting forth in reasonable detail the action
proposed to be taken at the meeting, and the Trustee shall not have mailed
the notice of such meeting within twenty (20) days after receipt of such
request, then the Company or such Noteholders may determine the time and the
place at any location within 10 miles of the
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Corporate Trust Office or the Borough of Manhattan, The City of New York for
such meeting and may call such meeting to take any action authorized in
Section 10.1, by mailing notice thereof as provided in Section 10.2.
Section 10.4 QUALIFICATIONS FOR VOTING. To be entitled to vote at any
meeting of Noteholders a person shall (a) be a holder of one or more Notes on
the record date pertaining to such meeting or (b) be a person appointed by an
instrument in writing as proxy by a holder of one or more Notes. The only
persons who shall be entitled to be present or to speak at any meeting of
Noteholders shall be the persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.
Section 10.5 REGULATIONS. Notwithstanding any other provisions of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Noteholders, in regard to proof of the holding
of Notes and of the appointment of proxies, and in regard to the appointment
and duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Noteholders as provided in Section 10.3, in which case the
Company or the Noteholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a
permanent secretary of the meeting shall be elected by vote of the holders of
a majority in principal amount of the Notes represented at the meeting and
entitled to vote at the meeting.
Subject to the provisions of Section 9.4, at any meeting each Noteholder
or proxyholder shall be entitled to one vote for each $1,000 principal amount
of Notes held or represented by him; PROVIDED, HOWEVER, that no vote shall be
cast or counted at any meeting in respect of any Note challenged as not
outstanding and ruled by the chairman of the meeting to be not outstanding.
The chairman of the meeting shall have no right to vote other than by virtue
of Notes held by him or instruments in writing as aforesaid duly designating
him as the proxy to vote on behalf of other Noteholders. Any meeting of
Noteholders duly called pursuant to the provisions of Section 10.2 or 10.3
may be adjourned from time to time by the holders of a majority of the
aggregate principal amount of Notes represented at the meeting, whether or
not constituting a quorum, and the meeting may be held as so adjourned
without further notice.
Section 10.6 VOTING. The vote upon any resolution submitted to any
meeting of Noteholders shall be by written ballot on which shall be
subscribed the signatures of the holders of Notes or of their representatives
by proxy and the principal amount of the Notes held or represented by them.
The permanent chairman of the meeting shall appoint two inspectors of votes
who shall count all votes cast at the meeting for or against any resolution
and who shall make and file with the secretary of the meeting their verified
written reports in duplicate of all votes cast at the meeting. A record in
duplicate of the proceedings of each meeting of Noteholders shall be prepared
by the secretary of the meeting and there shall be attached to said
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record the original reports of the inspectors of votes on any vote by ballot
taken thereat and affidavits by one or more persons having knowledge of the
facts setting forth a copy of the notice of the meeting and showing that said
notice was mailed as provided in Section 10.2. The record shall show the
principal amount of the Notes voting in favor of or against any resolution.
The record shall be signed and verified by the affidavits of the permanent
chairman and secretary of the meeting and one of the duplicates shall be
delivered to the Company and the other to the Trustee to be preserved by the
Trustee, the latter to have attached thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
Section 10.7 NO DELAY OF RIGHTS BY MEETING. Nothing in this Article X
contained shall be deemed or construed to authorize or permit, by reason of
any call of a meeting of Noteholders or any rights expressly or impliedly
conferred hereunder to make such call, any hindrance or delay in the exercise
of any right or rights conferred upon or reserved to the Trustee or to the
Noteholders under any of the provisions of this Indenture or of the Notes.
ARTICLE XI
SUPPLEMENTAL INDENTURES
Section 11.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
The Company, when authorized by the resolutions of the Board of Directors,
and the Trustee may from time to time and at any time enter into an indenture
or indentures supplemental hereto for one or more of the following purposes:
(a) to make provision with respect to the conversion rights of
the holders of Notes pursuant to the requirements of Section 15.6;
(b) subject to Article IV, to convey, transfer, assign,
mortgage or pledge to the Trustee as security for the Notes, any
property or assets;
(c) to evidence the succession of another corporation to the
Company, or successive successions, and the assumption by the
successor corporation of the covenants, agreements and obligations of
the Company pursuant to Article XII;
(d) to add to the covenants of the Company such further
covenants, restrictions or conditions as the Board of Directors and
the Trustee shall consider to be for the benefit of the holders of
Notes, and to make the occurrence, or the occurrence and continuance,
of a default in any such additional covenants, restrictions or
conditions a default or an Event of Default permitting the enforcement
of all or any of the several remedies provided in this Indenture as
herein set forth; PROVIDED, HOWEVER, that in respect of any such
additional
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covenant, restriction or condition such supplemental indenture may
provide for a particular period of grace after default (which
period may be shorter or longer than that allowed in the case of
other defaults) or may provide for an immediate enforcement upon
such default or may limit the remedies available to the Trustee upon
such default;
(e) to provide for the issuance under this Indenture of Notes
in coupon form (including Notes registrable as to principal only) and
to provide for exchangeability of such Notes with the Notes issued
hereunder in fully registered form and to make all appropriate changes
for such purpose;
(f) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may
be defective or inconsistent with any other provision contained herein
or in any supplemental indenture, or to make such other provisions in
regard to matters or questions arising under this Indenture which
shall not materially adversely affect the interests of the holders of
the Notes;
(g) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Notes; or
(h) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualifications of this Indenture under the Trust Indenture Act, or
under any similar federal statute hereafter enacted.
Upon the request of the Company, accompanied by a copy of the
resolutions of the Board of Directors certified by its Secretary or Assistant
Secretary authorizing the execution of any such supplemental indenture, the
Trustee shall join with the Company in the execution of any such supplemental
indenture, to make any further appropriate agreements and stipulations which
may be therein contained and to accept the conveyance, transfer and
assignment of any property thereunder, but the Trustee shall not be obligated
to, but may in its discretion, enter into any supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture
or otherwise.
Any supplemental indenture authorized by the provisions of this Section
11.1 may be executed by the Company and the Trustee without the consent of
the holders of any of the Notes at the time outstanding, notwithstanding any
of the provisions of Section 11.2.
Section 11.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS. With
the consent (evidenced as provided in Article IX) of the holders of not less
than a majority in aggregate principal amount of the Notes at the time
outstanding, the Company, when authorized by the resolutions of the Board of
Directors, and the Trustee may from time to time and at any time enter into
an indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of this Indenture or any supplemental indenture or of modifying in any manner
the rights of the holders of the Notes;
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PROVIDED, HOWEVER, that no such supplemental indenture shall (i) extend the
fixed maturity of any Note, or reduce the rate or extend the time of payment
of interest thereon, or reduce the principal amount thereof or premium, if
any, thereon, or reduce any amount payable on redemption thereof, or impair
the right of any Noteholder to institute suit for the payment thereof, or
make the principal thereof or interest or premium, if any, thereon payable in
any coin or currency other than that provided in the Notes, or modify the
provisions of this Indenture with respect to the subordination of the Notes
in a manner adverse to the Noteholders in any material respect, or change the
obligation of the Company to repurchase any Note upon the happening of a
Repurchase Event in a manner adverse to the holder of Notes, or impair the
right to convert the Notes into Common Stock subject to the terms set forth
herein, including Section 15.6, in each case without the consent of the
holder of each Note so affected, or (ii) reduce the aforesaid percentage of
Notes, the holders of which are required to consent to any such supplemental
indenture, without the consent of the holders of all Notes then outstanding.
Upon the request of the Company, accompanied by a copy of the
resolutions of the Board of Directors certified by its Secretary or Assistant
Secretary authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of Noteholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise,
in which case the Trustee may in is discretion, but shall not be obligated
to, enter into such supplemental indenture.
It shall not be necessary for the consent of the Noteholders under this
Section 11.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
Section 11.3 EFFECT OF SUPPLEMENTAL INDENTURE. Any supplemental
indenture executed pursuant to the provisions of this Article XI shall comply
with the Trust Indenture Act, as then in effect; PROVIDED that this Section
11.3 shall not require such supplemental indenture or the Trustee to be
qualified under the Trust Indenture Act prior to the time such qualification
is in fact required under the terms of the Trust Indenture Act or the
Indenture has been qualified under the Trust Indenture Act, nor shall it
constitute any admission or acknowledgment by any party to such supplemental
indenture that any such qualification is required prior to the time such
qualification is in fact required under the terms of the Trust Indenture Act
or the Indenture has been qualified under the Trust Indenture Act. Upon the
execution of any supplemental indenture pursuant to the provisions of this
Article XI, this Indenture shall be and be deemed to be modified and amended
in accordance therewith and the respective rights, limitation of rights,
obligations, duties and immunities under this Indenture of the Trustee, the
Company and the holders of Notes shall thereafter be determined, exercised
and enforced hereunder subject in all respects to such modifications and
amendments and all the terms and conditions of any such supplemental
indenture shall be and be deemed to be part of the terms and conditions of
this Indenture for any and all purposes.
Section 11.4 NOTATION ON NOTES. Notes authenticated and delivered
after the execution of any supplemental indenture pursuant to the provisions
of this Article XI may bear a notation
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in form approved by the Trustee as to any matter provided for in such
supplemental indenture. If the Company or the Trustee shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Board of Directors, to any modification of this Indenture contained in any
such supplemental indenture may, at the Company's expense, be prepared and
executed by the Company, authenticated by the Trustee (or an authenticating
agent duly appointed by the Trustee pursuant to Section 17.11) and delivered
in exchange for the Notes then outstanding, upon surrender of such Notes then
outstanding.
Section 11.5 EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO BE
FURNISHED TRUSTEE. The Trustee, subject to the provisions of Sections 8.1 and
8.2, may receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto
complies with the requirements of this Article XI.
ARTICLE XII
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
Section 12.1 COMPANY MAY CONSOLIDATE ETC. ON CERTAIN TERMS. Subject to
the provisions of Section 12.2, nothing contained in this Indenture or in any
of the Notes shall prevent any consolidation or merger of the Company with or
into any other corporation or corporations (whether or not affiliated with
the Company), or successive consolidations or mergers in which the Company or
its successor or successors shall be a party or parties, or shall prevent any
sale, conveyance or lease (or successive sales, conveyances or leases) of all
or substantially all of the property of the Company, to any other corporation
(whether or not affiliated with the Company), authorized to acquire and
operate the same and which shall be organized under the laws of the United
States of America, any state thereof or the District of Columbia; PROVIDED,
that upon any such consolidation, merger, sale, conveyance or lease, the due
and punctual payment of the principal of and premium, if any, and interest on
all of the Notes, according to their tenor, and the due and punctual
performance and observance of all of the covenants and conditions of this
Indenture to be performed by the Company, shall be expressly assumed, by
supplemental indenture satisfactory in form to the Trustee, executed and
delivered to the Trustee by the corporation (if other than the Company)
formed by such consolidation, or into which the Company shall have been
merged, or by the corporation which shall have acquired or leased such
property, and such supplemental indenture shall provide for the applicable
conversion rights set forth in Section 15.6.
Section 12.2 SUCCESSOR CORPORATION TO BE SUBSTITUTED. In case of any such
consolidation, merger, sale, conveyance or lease and upon the assumption by the
successor corporation, by supplemental indenture, executed and delivered to the
Trustee and satisfactory in form to the Trustee, of the due and punctual payment
of the principal of and premium, if any, and interest on all of the Notes and
the due and punctual performance of all of the covenants and conditions of this
Indenture to be performed by the Company, such successor corporation shall
succeed to and be substituted for the Company, with the same effect as if it had
been named herein as the party of the first part. Such successor corporation
thereupon may cause to be signed, and may issue either in its own name or in the
name of Iomega Corporation any or all of
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the Notes issuable hereunder which theretofore shall not have been signed by
the Company and delivered to the Trustee; and, upon the order of such
successor corporation instead of the Company and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Trustee shall
authenticate and shall deliver, or cause to be authenticated and delivered,
any Notes which previously shall have been signed and delivered by the
officers of the Company to the Trustee for authentication, and any Notes
which such successor corporation thereafter shall cause to be signed and
delivered to the Trustee for that purpose. All the Notes so issued shall in
all respects have the same legal rank and benefit under this Indenture as the
Notes theretofore or thereafter issued in accordance with the terms of this
Indenture as though all of such Notes had been issued at the date of the
execution hereof. In the event of any such consolidation, merger, sale,
conveyance or lease, the person named as the "Company" in the first paragraph
of this Indenture or any successor which shall thereafter have become such in
the manner prescribed in this Article XII may be dissolved, wound up and
liquidated at any time thereafter and such person shall be released from its
liabilities as obligor and maker of the Notes and from its obligations under
this Indenture.
In case of any such consolidation, merger, sale, conveyance or lease,
such changes in phraseology and form (but not in substance) may be made in
the Notes thereafter to be issued as may be appropriate.
Section 12.3 OPINION OF COUNSEL TO BE GIVEN TRUSTEE. The Trustee,
subject to Sections 8.1 and 8.2, shall receive an Officers' Certificate and
an Opinion of Counsel as conclusive evidence that any such consolidation,
merger, sale, conveyance or lease and any such assumption complies with the
provisions of this Article XII.
ARTICLE XIII
SATISFACTION AND DISCHARGE OF INDENTURE
Section 13.1 DISCHARGE OF INDENTURE. When (a) the Company shall
deliver to the Trustee for cancellation all Notes theretofore authenticated
(other than any Notes which have been destroyed, lost or stolen and in lieu
of or in substitution for which other Notes shall have been authenticated and
delivered) and not theretofore canceled, or (b) all the Notes not theretofore
canceled or delivered to the Trustee for cancellation shall have become due
and payable, or are by their terms to become due and payable within one year
or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and the
Company shall deposit with the Trustee, in trust, funds sufficient to pay at
maturity or upon redemption of all of the Notes (other than any Notes which
shall have been mutilated, destroyed, lost or stolen and in lieu of or in
substitution for which other Notes shall have been authenticated and
delivered) not theretofore canceled or delivered to the Trustee for
cancellation, including principal and premium, if any, and interest due or to
become due to such date of maturity or redemption date, as the case may be,
and if in either case the Company shall also pay or cause to be paid all
other sums payable hereunder by the Company, then this Indenture shall cease
to be of further effect (except as to (i) remaining rights of registration of
transfer, substitution and exchange and conversion of Notes, (ii) rights
hereunder of Noteholders
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to receive payments of principal of and premium, if any, and interest on, the
Notes and the other rights, duties and obligations of Noteholders, as
beneficiaries hereof with respect to the amounts, if any, so deposited with
the Trustee and (iii) the rights, obligations and immunities of the Trustee
hereunder), and the Trustee, on demand of the Company accompanied by an
Officers' Certificate and an Opinion of Counsel as required by Section 17.5
and at the cost and expense of the Company, shall execute proper instruments
acknowledging satisfaction of and discharging this Indenture; the Company,
however, hereby agreeing to reimburse the Trustee for any costs or expenses
thereafter reasonably and properly incurred by the Trustee and to compensate
the Trustee for any services thereafter reasonably and properly rendered by
the Trustee in connection with this Indenture or the Notes.
Section 13.2 DEPOSITED MONIES TO BE HELD IN TRUST BY TRUSTEE. Subject
to Section 13.4, all monies deposited with the Trustee pursuant to Section
13.1 and not in violation of Article IV shall be held in trust for the sole
benefit of the Noteholders and not to be subject to the subordination
provisions of Article IV, and such monies shall be applied by the Trustee to
the payment, either directly or through any paying agent (including the
Company if acting as its own paying agent), to the holders of the particular
Notes for the payment or redemption of which such monies have been deposited
with the Trustee, of all sums due and to become due thereon for principal and
interest and premium, if any.
Section 13.3 PAYING AGENT TO REPAY MONIES HELD. Upon the satisfaction
and discharge of this Indenture, all monies then held by any paying agent of
the Notes (other than the Trustee) shall, upon written request of the
Company, be repaid to it or paid to the Trustee, and thereupon such paying
agent shall be released from all further liability with respect to such
monies.
Section 13.4 RETURN OF UNCLAIMED MONIES. Subject to the requirements
of applicable law, any monies deposited with or paid to the Trustee for
payment of the principal of, premium, if any, or interest on Notes and not
applied but remaining unclaimed by the holders of Notes for two years after
the date upon which the principal of, premium, if any, or interest on such
Notes, as the case may be, shall have become due and payable, shall be repaid
to the Company by the Trustee on demand and all liability of the Trustee
shall thereupon cease with respect to such monies; and the holder of any of
the Notes shall thereafter look only to the Company for any payment which
such holder may be entitled to collect unless an applicable abandoned
property law designates another Person.
Section 13.5 REINSTATEMENT. If the Trustee or the paying agent is
unable to apply any money in accordance with Section 13.2 by reason of any
order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's
obligations under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to Section 13.1 until
such time as the Trustee or the paying agent is permitted to apply all such
money in accordance with Section 13.2; PROVIDED, HOWEVER, that if the
Company makes any payment of interest on or principal of any Note following
the reinstatement of its obligations, the Company shall be subrogated to the
rights of the holders of such Notes to receive such payment from the money
held by the Trustee or paying agent.
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ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
Section 14.1 INDENTURE AND NOTES SOLELY CORPORATE OBLIGATIONS. No
recourse for the payment of the principal of or premium, if any, or interest
on any Note, or for any claim based thereon or otherwise in respect thereof,
and no recourse under or upon any obligation, covenant or agreement of the
Company in this Indenture or in any supplemental indenture or in any Note, or
because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, stockholder, employee, agent, officer, or director
or subsidiary, as such, past, present or future, of the Company or of any
successor corporation, either directly or through the Company or any
successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise; it
being expressly understood that all such liability is hereby expressly waived
and released as a condition of, and as a consideration for, the execution of
this Indenture and the issue of the Notes.
ARTICLE XV
CONVERSION OF NOTES
Section 15.1 RIGHT TO CONVERT. Subject to and upon compliance with
the provisions of this Indenture, the holder of any Note shall have the
right, at his option, at any time after sixty (60) days following the latest
date of original issuance of the Notes and prior to the close of business on
March 15, 2001 (except that, with respect to any Note or portion of a Note
which shall be called for redemption, such right shall terminate, except as
provided in Section 15.2 or Section 3.4, at the close of business on the
second Business Day next preceding the date fixed for redemption of such Note
or portion of a Note unless the Company shall default in the payment due upon
redemption thereof or that, with respect to a Note or portion of a Note
submitted for repurchase, such right shall terminate at the close of business
on the second Business Date next preceding the Repurchase Date unless the
Company shall default in the payment due on repurchase) to convert the
principal amount of any such Note, or any portion of such principal amount
which is $1,000 or an integral multiple thereof, into that number of fully
paid and non-assessable shares of Common Stock (as such shares shall then be
constituted) obtained by dividing the principal amount of the Note or portion
thereof surrendered for conversion by the Conversion Price in effect at such
time, by surrender of the Note so to be converted in whole or in part in the
manner provided, together with any required funds, in Section 15.2. A holder
of Notes is not entitled to any rights of a holder of Common Stock until such
holder has converted his Notes to Common Stock, and only to the extent such
Notes are deemed to have been converted to Common Stock under this Article XV.
Section 15.2 EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON STOCK
ON CONVERSION; NO ADJUSTMENT FOR INTEREST OR DIVIDENDS. In order to exercise
the conversion privilege with respect to any Note, the holder of any such
Note to be converted in whole or in part shall surrender such Note, duly
endorsed, at an office or agency maintained by the Company
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pursuant to Section 5.2, accompanied by the funds, if any, required by the
last paragraph of this Section 15.2, and shall give written notice of
conversion in the form provided on the Notes (or such other notice which is
acceptable to the Company) to the office or agency that the holder elects to
convert such Note or the portion thereof specified in said notice. Such
notice shall also state the name or names (with address or addresses) in
which the certificate or certificates for shares of Common Stock which shall
be issuable on such conversion shall be issued, and shall be accompanied by
transfer taxes, if required pursuant to Section 15.7. Each such Note
surrendered for conversion shall, unless the shares issuable on conversion
are to be issued in the same name as the registration of such Note, be duly
endorsed by, or be accompanied by instruments of transfer in form
satisfactory to the Company duly executed by, the holder or his duly
authorized attorney.
As promptly as practicable after satisfaction of the requirements for
conversion set forth above, subject to compliance with any restrictions on
transfer if shares issuable on conversion are to be issued in a name other
than that of the Noteholder (as if such transfer were a transfer of the Note
or Notes (or portion thereof) so converted), the Company shall issue and
shall deliver to such holder at the office or agency maintained by the
Company for such purpose pursuant to Section 5.2, a certificate or
certificates for the number of full shares of Common Stock issuable upon the
conversion of such Note or portion thereof in accordance with the provisions
of this Article and a check or cash in respect of any fractional interest in
respect of a share of Common Stock arising upon such conversion, as provided
in Section 15.3. In case any Note of a denomination greater than $1,000
shall be surrendered for partial conversion, and subject to Section 2.3, the
Company shall execute and the Trustee shall authenticate and deliver to the
holder of the Note so surrendered, without charge to him, a new Note or Notes
in authorized denominations in an aggregate principal amount equal to the
unconverted portion of the surrendered Note.
Each conversion shall be deemed to have been effected as to any such
Note (or portion thereof) on the date on which the requirements set forth
above in this Section 15.2 have been satisfied as to such Note (or portion
thereof), and the person in whose name any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed
to have become on said date the holder of record of the shares represented
thereby; PROVIDED, HOWEVER, that any such surrender on any date when the
stock transfer books of the Company shall be closed shall constitute the
person in whose name the certificates are to be issued as the record holder
thereof for all purposes on the next succeeding day on which such stock
transfer books are open, but such conversion shall be at the Conversion Price
in effect on the date upon which such Note shall be surrendered.
Any Note or portion thereof surrendered for conversion during the period
from the close of business on the record date for any interest payment date
to the close of business on the second Business Day next preceding the
following interest payment date shall (unless such Note or portion thereof
being converted shall have been called for redemption during the period from
the close of business on such record date to the close of business on the
Business Day next preceding the following interest payment date) be
accompanied by payment, in New York Clearing House funds or other funds
acceptable to the Company, of an amount equal to the
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interest otherwise payable on such interest payment date on the principal
amount being converted; PROVIDED, HOWEVER, that no such payment need be made
if there shall exist at the time of conversion a default in the payment of
interest on the Notes. Except as provided above in this Section 15.2 or the
second paragraph of Section 2.3, no adjustment shall be made for interest
accrued on any Note converted or for dividends on any shares issued upon the
conversion of such Note as provided in this Article.
Section 15.3 CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES. No fractional
shares of Common Stock or scrip representing fractional shares shall be
issued upon conversion of Notes. If more than one Note shall be surrendered
for conversion at one time by the same holder, the number of full shares
which shall be issuable upon conversion shall be computed on the basis of the
aggregate principal amount of the Notes (or specified portions thereof to the
extent permitted hereby) so surrendered. If any fractional share of stock
would be issuable upon the conversion of any Note or Notes, the Company shall
make an adjustment and payment therefor in cash at the current market value
thereof to the holder of Notes. The current market value of a share of
Common Stock shall be the Closing Price on the first Business Day immediately
preceding the day on which the Notes (or specified portions thereof) are
deemed to have been converted.
Section 15.4 CONVERSION PRICE. The conversion price shall be as
specified in the form of Note (herein called the "Conversion Price") attached
as Exhibit A hereto, subject to adjustment as provided in this Article XV.
Section 15.5 ADJUSTMENT OF CONVERSION PRICE. The Conversion Price
shall be adjusted from time to time by the Company as follows:
(a) In case the Company shall hereafter pay a dividend or
make a distribution to all holders of the outstanding Common Stock in
shares of Common Stock, the Conversion Price in effect at the opening
of business on the date following the date fixed for the determination
of stockholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such Conversion Price by
a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such
number of shares and the total number of shares constituting such
dividend or other distribution, such reduction to become effective
immediately after the opening of business on the day following the
date fixed for such determination. The Company will not pay any
dividend or make any distribution on shares of Common Stock held in
the treasury of the Company. If any dividend or distribution of the
type described in this Section 15.5(a) is declared but not so paid or
made, the Conversion Price shall again be adjusted to the Conversion
Price which would then be in effect if such dividend or distribution
had not been declared.
(b)In case the Company shall issue rights or warrants to all
holders of its outstanding shares of Common Stock entitling them (for
a period
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expiring within 45 days after the date fixed for determination
of stockholders entitled to receive such rights or warrants)
to subscribe for or purchase shares of Common Stock at a price
per share less than the Current Market Price (as defined below)
on the date fixed for determination of stockholders entitled to
receive such rights or warrants, the Conversion Price shall be
adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the
date fixed for determination of stockholders entitled to receive such
rights or warrants by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding at the close of business
on the date fixed for determination of stockholders entitled to
receive such rights and warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered
would purchase at such Current Market Price, and of which the
denominator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for determination of
stockholders entitled to receive such rights and warrants plus the
total number of additional shares of Common Stock offered for
subscription or purchase. Such adjustment shall be successively made
whenever any such rights and warrants are issued, and shall become
effective immediately after the opening of business on the day
following the date fixed for determination of stockholders entitled to
receive such rights or warrants. To the extent that shares of Common
Stock are not delivered after the expiration of such rights or
warrants, the Conversion Price shall be readjusted to the Conversion
Price which would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made on the basis of delivery
of only the number of shares of Common Stock actually delivered. In
the event that such rights or warrants are not so issued, the
Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such date fixed for the determination
of stockholders entitled to receive such rights or warrants had not
been fixed. In determining whether any rights or warrants entitle the
holders to subscribe for or purchase shares of Common Stock at less
than such Current Market Price, and in determining the aggregate
offering price of such shares of Common Stock, there shall be taken
into account any consideration received by the Company for such rights
or warrants, the value of such consideration, if other than cash, to
be determined by the Board of Directors.
(c) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall
be proportionately reduced, and conversely, in case outstanding shares
of Common Stock shall be combined into a smaller number of shares of
Common Stock, the Conversion Price in effect at the opening of
business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction
or increase, as the case may be, to become effective immediately after
the opening of business
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on the day following the day upon which such subdivision or combination
becomes effective.
(d) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock shares of any class of
capital stock of the Company (other than any dividends or
distributions to which Section 15.5(a) applies) or evidences of its
indebtedness or assets (including securities, but excluding any rights
or warrants referred to in Section 15.5(b), and excluding any dividend
or distribution (x) in connection with the liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, (y) paid
exclusively in cash or (z) referred to in Section 15.5(a) (any of the
foregoing hereinafter in this Section 15.5(d) called the
"Securities")), then, in each such case (unless the Company elects to
reserve such Securities for distribution to the Noteholders upon the
conversion of the Notes so that any such holder converting Notes will
receive upon such conversion, in addition to the shares of Common
Stock to which such holder is entitled, the amount and kind of such
Securities which such holder would have received if such holder had
converted its Notes into Common Stock immediately prior to the Record
Date (as defined in Section 15.5(h) for such distribution of the
Securities)), the Conversion Price shall be reduced so that the same
shall be equal to the price determined by multiplying the Conversion
Price in effect at the close of business on the Record Date with
respect to such distribution by a fraction of which the numerator
shall be the Current Market Price per share of the Common Stock on
such Record Date less the fair market value (as determined by the
Board of Directors, whose determination shall be conclusive, and
described in a resolution of the Board of Directors) on the Record
Date of the portion of the Securities so distributed applicable to one
share of Common Stock and the denominator shall be the Current Market
Price per share of the Common Stock, such reduction to become
effective immediately prior to the opening of business on the day
following such Record Date; PROVIDED, HOWEVER, that in the event the
then fair market value (as so determined) of the portion of the
Securities so distributed applicable to one share of Common Stock is
equal to or greater than the Current Market Price of the Common Stock
on the Record Date, in lieu of the foregoing adjustment, adequate
provision shall be made so that each Noteholder shall have the right
to receive upon conversion the amount of Securities such holder would
have received had such holder converted each Note on the Record Date.
In the event that such dividend or distribution is not so paid or
made, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such dividend or
distribution had not been declared. If the Board of Directors
determines the fair market value of any distribution for purposes of
this Section 15.5(d) by reference to the actual or when issued trading
market for any securities, it must in doing so consider the prices in
such market over the same period used in computing the Current Market
Price of the Common Stock.
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Each share of Common Stock issued upon conversion of Notes pursuant to
this Article XV shall be entitled to receive the appropriate number of
Rights, and the certificates representing the Common Stock issued upon such
conversion shall bear such legends, in each case as provided by and subject
to the terms of the Rights Plan as in effect at the time of such conversion
(whether or not such Rights have separated from the Common Stock at the
time of conversion). In the event that the Company implements any new
stockholders' rights plan, as amended, supplemented or modified from time
to time (a "New Rights Plan"), such New Rights Plan shall provide that upon
conversion of the Notes the holders will receive, in addition to the Common
Stock issuable upon such conversion, the rights (whether or not such rights
have separated from Common Stock at the time of the conversion) issuable
pursuant to the New Rights Plan.
Rights or warrants distributed by the Company to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of
the Company's capital stock (either initially or under certain
circumstances), which rights or warrants, until the occurrence of a
specified event or events ("Trigger Event"): (i) are deemed to be
transferred with such shares of Common Stock; (ii) are not exercisable; and
(iii) are also issued in respect of future issuances of Common Stock, shall
be deemed not to have been distributed for purposes of this Section 15.5
(and no adjustment to the Conversion Price under this Section 15.5 will be
required) until the occurrence of the earliest Trigger Event, whereupon
such rights and warrants shall be deemed to have been distributed and an
appropriate adjustment (if any is required) to the Conversion Price shall
be made under this Section 15.5(d). If any such right or warrant,
including any such existing rights or warrants distributed prior to the
date of this Indenture, are subject to events, upon the occurrence of which
such rights or warrants become exercisable to purchase different
securities, evidences of indebtedness or other assets, then the date of the
occurrence of any and each such event shall be deemed to be the date of
distribution and record date with respect to new rights or warrants with
such rights (and a termination or expiration of the existing rights or
warrants without exercise by any of the holders thereof). In addition, in
the event of any distribution (or deemed distribution) of rights or
warrants, or any Trigger Event or other event (of the type described in the
preceding sentence) with respect thereto that was counted for purposes of
calculating a distribution amount for which an adjustment to the Conversion
Price under this Section 15.5 was made, (1) in the case of any such rights
or warrants which shall all have been redeemed or repurchased without
exercise by any holders thereof, the Conversion Price shall be readjusted
upon such final redemption or repurchase to give effect to such
distribution or Trigger Event, as the case may be, as though it were a cash
distribution, equal to the per share redemption or repurchase price
received by a holder or holders of Common Stock with respect to such rights
or warrants (assuming such holder had retained such rights or warrants),
made to all holders of Common Stock as of the date of such redemption or
repurchase, and (2) in the case of such rights or warrants which shall have
expired or been terminated without exercise by any holders thereof, the
Conversion Price shall be readjusted as if such rights and warrants had not
been issued.
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For purposes of this Section 15.5(d) and Sections 15.5(a) and (b), any
dividend or distribution to which this Section 15.5(d) is applicable that
also includes shares of Common Stock, or rights or warrants to subscribe
for or purchase shares of Common Stock (or both), shall be deemed instead
to be (1) a dividend or distribution of the evidences of indebtedness,
assets or shares of capital stock other than such shares of Common Stock or
rights or warrants (and any Conversion Price reduction required by this
Section 15.5(d) with respect to such dividend or distribution shall then be
made) immediately followed by (2) a dividend or distribution of such shares
of Common Stock or such rights or warrants (and any further Conversion
Price reduction required by Sections 15.5(a) and (b) with respect to such
dividend or distribution shall then be made), except (A) the Record Date of
such dividend or distribution shall be substituted as "the date fixed for
the determination of stockholders entitled to receive such dividend or
other distribution" and "the date fixed for such determination" within the
meaning of Sections 15.5(a) and (b) and (B) any shares of Common Stock
included in such dividend or distribution shall not be deemed "outstanding
at the close of business on the date fixed for such determination" within
the meaning of Section 15.5(a).
(e) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock cash (excluding (x) any
quarterly cash dividend on the Common Stock to the extent the
aggregate cash dividend per share of Common Stock in any fiscal
quarter does not exceed the greater of (A) the amount per share of
Common Stock of the next preceding quarterly cash dividend on the
Common Stock to the extent that such preceding quarterly dividend did
not require any adjustment of the Conversion Price pursuant to this
Section 15.5(e) (as adjusted to reflect subdivisions or combinations
of the Common Stock), and (B) 3.75% of the arithmetic average of the
Closing Price (determined as set forth in Section 15.5(h)) during the
ten Trading Days (as defined in Section 15.5(h)) immediately prior to
the date of declaration of such dividend, and (y) any dividend or
distribution in connection with the liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary), then, in
such case, the Conversion Price shall be reduced so that the same
shall equal the price determined by multiplying the Conversion Price
in effect immediately prior to the close of business on such Record
Date by a fraction of which the numerator shall be the Current Market
Price of the Common Stock on the Record Date less the amount of cash
so distributed (and not excluded as provided above) applicable to one
share of Common Stock and the denominator shall be such Current Market
Price of the Common Stock, such reduction to be effective immediately
prior to the opening of business on the day following the Record Date;
PROVIDED, HOWEVER, that in the event the portion of the cash so
distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price of the Common Stock on the
Record Date, in lieu of the foregoing adjustment, adequate provision
shall be made so that each Noteholder shall have the right to receive
upon conversion the amount of cash such holder would have received had
such holder converted each Note on the Record Date. In the event that
such dividend or distribution is not so paid or made, the Conversion
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Price shall again be adjusted to be the Conversion Price which would
then be in effect if such dividend or distribution had not been
declared. If any adjustment is required to be made as set forth in
this Section 15.5(e) as a result of a distribution that is a quarterly
dividend, such adjustment shall be based upon the amount by which such
distribution exceeds the amount of the quarterly cash dividend
permitted to be excluded pursuant hereto. If an adjustment is
required to be made as set forth in this Section 15.5(e) above as a
result of a distribution that is not a quarterly dividend, such
adjustment shall be based upon the full amount of the distribution.
(f) In case a tender or exchange offer made by the Company
or any subsidiary of the Company for all or any portion of the Common
Stock shall expire and such tender or exchange offer (as amended upon
the expiration thereof) shall require the payment to stockholders of
consideration per share of Common Stock having a fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board if Directors)
that, as of the last time (the "Expiration Time") tenders or exchanges
may be made pursuant to such tender or exchange offer (as it may be
amended) exceeds the Current Market Price of the Common Stock on the
Trading Day next succeeding the Expiration Time, the Conversion Price
shall be reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the
Expiration Time by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding (including any tendered
or exchanged shares) on the Expiration Time multiplied by the Current
Market Price of the Common Stock on the Trading Day next succeeding
the Expiration Time and the denominator shall be the sum of (x) the
fair market value (determined as aforesaid) of the aggregate
consideration payable to shareholders based on the acceptance (up to
any maximum specified in the terms of the tender or exchange offer) of
all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such
maximum, being referred to as the "Purchased Shares") and (y) the
product of the number of shares of Common Stock outstanding (less any
Purchased Shares) on the Expiration Time and the Current Market Price
of the Common Stock on the Trading Day next succeeding the Expiration
Time, such reduction to become effective immediately prior to the
opening of business on the day following the Expiration Time. In the
event that the Company is obligated to purchase shares pursuant to any
such tender or exchange offer, but the Company is permanently
prevented by applicable law from effecting any such purchases or all
such purchases are rescinded, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if
such tender or exchange offer had not been made.
(g) In case of a tender or exchange offer made by a person
other than the Company or any subsidiary of the Company for an amount
which increases the offeror's ownership of Common Stock to more than
25% of the
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Common Stock outstanding and shall involve the payment by such
person of consideration per share of Common Stock having a fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive, and described in a resolution of
the Board of Directors) at the last time (the "Expiration Time")
tenders or exchanges may be made pursuant to such tender or exchange
offer (as it shall have been amended) that exceeds the Current Market
Price of the Common Stock on the Trading Day next succeeding the
Expiration Time, and in which, as of the Expiration Time the Board of
Directors is not recommending rejection of the offer, the Conversion
Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately
prior to the Expiration Time by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding (including
any tendered or exchanged shares) on the Expiration Time multiplied by
the current Market Price of the Common Stock on the Trading Day next
succeeding the Expiration Time and the denominator shall be the sum of
(x) the fair market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based on the acceptance (up to
any maximum specified in the terms of the tender or exchange offer) of
all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such
maximum, being referred to as the "Purchased Shares") and (y) the
product of the number of shares of Common Stock outstanding (less any
Purchased Shares) on the Expiration Time and the Current Market Price
of the Common Stock on the Trading Day next succeeding the Expiration
Time, such reduction to become effective as of immediately prior to
the opening of business on the day following the Expiration Time. In
the event that such person is obligated to purchase shares pursuant to
any such tender or exchange offer, but such person is permanently
prevented by applicable law from effecting any such purchases or all
such purchases are rescinded, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if
such tender or exchange offer had not been made. Notwithstanding the
foregoing, the adjustment described in this Section 15.5(g) shall not
be made if, as of the Expiration Time, the offering documents with
respect to such offer disclose a plan or intention to cause the
Company to engage in any transaction described in Article XII.
(h) For purposes of this Section 15.5, the following terms
shall have the meaning indicated:
(1) "Closing Price" with respect to any securities on any
day shall mean the closing sale price regular way on such day or, in case
no such sale takes place on such day, the average of the reported closing
bid and asked prices, regular way, in each case on the New York Stock
Exchange, or, if such security is not listed or admitted to trading on such
Exchange, on the principal national security exchange or quotation system
on which such security is quoted or listed or admitted to trading, or, if
not quoted or listed or admitted to trading on any national securities
exchange or
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quotation system, the average of the closing bid and asked prices of such
security on the over-the-counter market on the day in question as reported
by the National Quotation Bureau Incorporated, or a similar generally
accepted reporting service, or if not so available, in such manner as
furnished by any New York Stock Exchange member firm selected from time to
time by the Board of Directors for that purpose, or a price determined in
good faith by the Board of Directors or, to the extent permitted by
applicable law, a duly authorized committee thereof, whose determination
shall be conclusive.
(2) "Current Market Price" shall mean the average of the
daily Closing Prices per share of Common Stock for the ten consecutive
Trading Days immediately prior to the date in question; PROVIDED, HOWEVER,
that (1) if the "ex" date (as hereinafter defined) for any event (other
than the issuance or distribution or Repurchase Event requiring such
computation) that requires an adjustment to the Conversion Price pursuant
to Section 15.5(a), (b), (c), (d), (e), (f) or (g) occurs during such ten
consecutive Trading Days, the Closing Price for each Trading Day prior to
the "ex" date for such other event shall be adjusted by multiplying such
Closing Price by the same fraction by which the Conversion Price is so
required to be adjusted as a result of such other event, (2) if the "ex"
date for any event (other than the issuance, distribution or Repurchase
Event requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Section 15.5(a), (b), (c), (d), (e), (f) or
(g) occurs on or after the "ex" date for the issuance or distribution
requiring such computation and prior to the day in question, the Closing
Price for each Trading Day on and after the "ex" date for such other event
shall be adjusted by multiplying such Closing Price by the reciprocal of
the fraction by which the Conversion Price is so required to be adjusted as
a result of such other event, and (3) if the "ex" date for the issuance,
distribution or Repurchase Date requiring such computation is prior to the
day in question, after taking into account any adjustment required pursuant
to clause (1) or (2) of this proviso, the Closing Price for each Trading
Day on or after such "ex" date shall be adjusted by adding thereto the
amount of any cash and the fair market value (as determined by the Board of
Directors or, to the extent permitted by applicable law, a duly authorized
committee thereof in a manner consistent with any determination of such
value for purposes of Section 15.5(d) or (f), whose determination shall be
conclusive and described in a resolution of the Board of Directors or such
duly authorized committee thereof, as the case may be) of the evidences of
indebtedness, shares of capital stock or assets being distributed
applicable to one share of Common Stock as of the close of business on the
day before such "ex" date. For purposes of any computation under
Section 15.5(f), the Current Market Price of the Common Stock on any date
shall be deemed to be the average of the daily Closing Prices per share of
Common Stock for such day and the next two succeeding Trading Days;
PROVIDED, HOWEVER, that if the "ex" date for any event (other than the
tender or exchange offer requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section 15.5(a), (b), (c),
(d), (e), (f) or (g) occurs on or after the Expiration Time for the tender
or exchange offer requiring such computation and prior to the day in
question, the Closing Price for each Trading Day on and after the "ex" date
for such other event shall be adjusted by multiplying such Closing Price by
the reciprocal of the fraction
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by which the Conversion Price is so required to be adjusted as a
result of such other event. For purposes of this paragraph, the
term "ex" date, (1) when used with respect to any issuance or
distribution, means the first date on which the Common Stock trades
regular way on the relevant exchange or in the relevant market from which
the Closing Price was obtained without the right to receive such issuance
or distribution, (2) when used with respect to any subdivision or
combination of shares of Common Stock, means the first date on which the
Common Stock trades regular way on such exchange or in such market after
the time at which such subdivision or combination becomes effective, and
(3) when used with respect to any tender or exchange offer means the first
date on which the Common Stock trades regular way on such exchange or in
such market after the Expiration Time of such offer.
(3) "fair market value" shall mean the amount which a
willing buyer would pay a willing seller in an arm's length transaction.
(4) "Record Date" shall mean, with respect to any dividend,
distribution or other transaction or event in which the holders of Common
Stock have the right to receive any cash, securities or other property or
in which the Common Stock (or other applicable security) is exchanged for
or converted into any combination of cash, securities or other property,
the date fixed for determination of shareholders entitled to receive such
cash, securities or other property (whether such date is fixed by the Board
of Directors or by statute, contract or otherwise).
(5) "Trading Day" shall mean (x) if the applicable security
is listed or admitted for trading on the New York Stock Exchange or another
national security exchange, a day on which the New York Stock Exchange or
another national security exchange is open for business or (y) if the
applicable security is quoted on the Nasdaq National Market, a day on which
trades may be made on thereon or (z) if the applicable security is not so
listed, admitted for trading or quoted, any day other than a Saturday or
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(i) The Company may make such reductions in the Conversion
Price, in addition to those required by Sections 15.5 (a), (b), (c),
(d), (e), (f) and (g) as the Board of Directors considers to be
advisable to avoid or diminish any income tax to holders of Common
Stock or rights to purchase Common Stock resulting from any dividend
or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes.
To the extent permitted by applicable law, the Company from time to
time may reduce the Conversion Price by any amount for any period of time
if the period is at least twenty (20) days, the reduction is irrevocable
during the period and the Board of Directors shall have made a
determination that such reduction would be in the best interests of the
Company, which determination shall be conclusive. Whenever the Conversion
Price is reduced pursuant to the preceding sentence, the Company shall mail
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to holders of record of the Notes a notice of the reduction at least
fifteen (15) days prior to the date the reduced Conversion Price takes
effect, and such notice shall state the reduced Conversion Price and the
period during which it will be in effect.
(j) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in such price; PROVIDED, HOWEVER, that any adjustments which
by reason of this Section 15.5(j) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Article XV shall be made by the Company
and shall be made to the nearest cent or to the nearest one hundredth
of a share, as the case may be. No adjustment need be made for rights
to purchase Common Stock pursuant to a Company plan for reinvestment
of dividends or interest. To the extent the Notes become convertible
into cash, assets, property or securities (other than capital stock of
the Company), no adjustment need be made thereafter as to the cash,
assets, property or such securities. Interest will not accrue on the
cash.
(k) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the Trustee and any
conversion agent other than the Trustee an Officers' Certificate
setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
Promptly after delivery of such certificate, the Company shall prepare
a notice of such adjustment of the Conversion Price setting forth the
adjusted Conversion Price and the date on which each adjustment
becomes effective and shall mail such notice of such adjustment of the
Conversion Price to the holder of each Note at his last address
appearing on the Note register provided for in Section 2.5 of this
Indenture, within 20 days after execution thereof. Failure to deliver
such notice shall not affect the legality or validity of any such
adjustment.
(l) In any case in which this Section 15.5 provides that an
adjustment shall become effective immediately after a record date for
an event, the Company may defer until the occurrence of such event (i)
issuing to the holder of any Note converted after such record date and
before the occurrence of such event the additional shares of Common
Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon
such conversion before giving effect to such adjustment and (ii)
paying to such holder any amount in cash in lieu of any fraction
pursuant to Section 15.3.
(m) For purposes of this Section 15.5, the number of shares of
Common Stock at any time outstanding shall not include shares held in
the treasury of the Company but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of
Common Stock. The Company
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will not pay any dividend or make any distribution on shares of Common
Stock held in the treasury of the Company.
Section 15.6 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If any of the following events occur, namely (i) any reclassification or
change of the outstanding shares of Common Stock (other than a subdivision or
combination to which Section 15.5(c) applies), (ii) any consolidation, merger
or combination of the Company with another corporation as a result of which
holders of Common Stock shall be entitled to receive stock, securities or
other property or assets (including cash) with respect to or in exchange for
such Common Stock, or (iii) any sale or conveyance of the properties and
assets of the Company as, or substantially as, an entirety to any other
corporation as a result of which holders of Common Stock shall be entitled to
receive stock, securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock, then the Company or the
successor or purchasing corporation, as the case may be, shall execute with
the Trustee a supplemental indenture (which shall comply with the Trust
Indenture Act as in force at the date of execution of such supplemental
indenture) providing that such Note shall be convertible into the kind and
amount of shares of stock and other securities or property or assets
(including cash) receivable upon such reclassification, change,
consolidation, merger, combination, sale or conveyance by a holder of a
number of shares of Common Stock issuable upon conversion of such Notes
(assuming, for such purposes, a sufficient number of authorized shares of
Common Stock available to convert all such Notes) immediately prior to such
reclassification, change, consolidation, merger, combination, sale or
conveyance assuming such holder of Common Stock did not exercise his rights
of election, if any, as to the kind or amount of securities, cash or other
property receivable upon such consolidation, merger, statutory exchange, sale
or conveyance (provided that, if the kind or amount of securities, cash or
other property receivable upon such consolidation, merger, statutory
exchange, sale or conveyance is not the same for each share of Common Stock
in respect of which such rights of election shall not have been exercised
("nonelecting share")), then for the purposes of this Section 15.6 the kind
and amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance for each
non-electing share shall be deemed to be the kind and amount so receivable
per share by a plurality of the non-electing shares. Such supplemental
indenture shall provide for adjustments which shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Article.
The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each holder of Notes, at his address appearing on
the Note register provided for in Section 2.5 of this Indenture, within
twenty (20) days after execution thereof. Failure to deliver such notice
shall not affect the legality or validity of such supplemental indenture.
The above provisions of this Section shall similarly apply to successive
reclassifications, changes, consolidations, mergers, combinations, sales and
conveyances.
If this Section 15.6 applies to any event or occurrence, Section 15.5
shall not apply.
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Section 15.7 TAXES ON SHARES ISSUED. The issue of stock certificates
on conversions of Notes shall be made without charge to the converting
Noteholder for any tax in respect of the issue thereof. The Company shall
not, however, be required to pay any tax which may be payable in respect of
any transfer involved in the issue and delivery of stock in any name other
than that of the holder of any Note converted, and the Company shall not be
required to issue or deliver any such stock certificate unless and until the
person or persons requesting the issue thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
Section 15.8 RESERVATION OF SHARES; SHARES TO BE FULLY PAID; COMPLIANCE
WITH GOVERNMENTAL REQUIREMENTS; LISTING OF COMMON STOCK. The Company shall
reserve, free from preemptive rights, out of its authorized but unissued
shares or shares held in treasury, sufficient shares of Common Stock to
provide for the conversion of the Notes from time to time as such Notes are
presented for conversion.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common
Stock issuable upon conversion of the Notes, the Company will take all
corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue shares of such Common
Stock at such adjusted Conversion Price.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Notes will upon issue be fully paid and
non-assessable by the Company and free from all taxes, liens and charges with
respect to the issue thereof.
The Company covenants that if any shares of Common Stock to be provided
for the purpose of conversion of Notes hereunder require registration with or
approval of any governmental authority under any federal or state law before
such shares may be validly issued upon conversion transferred without
restriction under the Securities Act, including registering the issuance or
transfer of any such shares of Common Stock under the Securities Act, the
Company will in good faith and as expeditiously as possible endeavor to
secure such registration or approval, as the case may be.
The Company further covenants that if at any time the Common Stock shall
be listed on the Nasdaq National Market or any other national securities
exchange or automated quotation system the Company will, if permitted by the
rules of such exchange or automated quotation system, list and keep listed,
so long as the Common Stock shall be so listed on such exchange or automated
quotation system, all Common Stock issuable upon conversion of the Notes.
Section 15.9 RESPONSIBILITY OF TRUSTEE. The Trustee and any other
conversion agent shall not at any time be under any duty or responsibility to
any holder of Notes to determine whether any facts exist which may require
any adjustment of the Conversion Price, or with respect to the nature or
extent or calculation of any such adjustment when made, or with respect to
the method employed, or herein or in any supplemental indenture provided to
be employed, in making the same. The Trustee and any other conversion agent
shall not be accountable with respect to the validity or value (or the kind
or amount) of any shares of Common Stock, or of any
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securities or property, which may at any time be issued or delivered upon the
conversion of any Note; and the Trustee and any other conversion agent make
no representations with respect thereto. Subject to the provisions of
Section 8.1, neither the Trustee nor any conversion agent shall be
responsible for any failure of the Company to issue, transfer or deliver any
shares of Common Stock or stock certificates or other securities or property
or cash upon the surrender of any Note for the purpose of conversion or to
comply with any of the duties, responsibilities or covenants of the Company
contained in this Article. Without limiting the generality of the foregoing,
neither the Trustee nor any conversion agent shall be under any
responsibility to determine the correctness of any provisions contained in
any supplemental indenture entered into pursuant to Section 15.6 relating
either to the kind or amount of shares of stock or securities or property
(including cash) receivable by Noteholders upon the conversion of their Notes
after any event referred to in such Section 15.6 or to any adjustment to be
made with respect thereto, but, subject to the provisions of Section 8.1, may
accept as conclusive evidence of the correctness of any such provisions, and
shall be protected in relying upon, the Officers' Certificate (which the
Company shall be obligated to file with the Trustee prior to the execution of
any such supplemental indenture) with respect thereto.
Section 15.10 NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS. In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock that would require an adjustment in
the Conversion Price pursuant to Section 15.5; or
(b) the Company shall authorize the granting to the holders
of its Common Stock of rights or warrants to subscribe for or purchase any
share of any class or any other rights or warrants (other than the Rights
granted pursuant to the Rights Plan, provided that the holders of the
Notes receive the same notice received by all holders of Common Stock
regarding such grant in accordance with the applicable notice provisions
of the Rights Plan); or
(c) of any reclassification or reorganization of the Common
Stock of the Company (other than a subdivision or combination of its
outstanding Common Stock, or a change in par value, or from par value
to no par value, or from no par value to par value), or of any
consolidation or merger to which the Company is a party and for which
approval of any shareholders of the Company is required, or of the
sale or transfer of all or substantially all of the assets of the
Company; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
the Company shall cause to be filed with the Trustee and to be mailed to each
holder of Notes at his address appearing on the Note register provided for in
Section 2.5 of this Indenture, as promptly as possible but in any event at
least fifteen (15) days prior to the applicable date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose
of such dividend, distribution or rights or warrants, or, if a record is not
to be taken, the date as of
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which the holders of Common Stock of record to be entitled to such dividend,
distribution or rights are to be determined, or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective or occur, and the
date as of which it is expected that holders of Common Stock of record shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. Failure to give such
notice, or any defect therein, shall not affect the legality or validity of
such dividend, distribution, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up.
ARTICLE XVI
REPURCHASE OF NOTES AT THE
OPTION OF THE HOLDER UPON REPURCHASE EVENT
Section 16.1 RIGHT TO REQUIRE REPURCHASE. In the event that a
Repurchase Event (as hereinafter defined) shall occur, then each holder shall
have the right, at the holder's option, to require the Company to repurchase,
and upon the exercise of such right the Company shall repurchase, all of such
holder's Notes, or any portion of the principal amount thereof that is an
integral multiple of U.S. $1,000 (provided that no single Note may be
repurchased in part unless the portion of the principal amount of such Note
to be outstanding after such repurchase is equal to U.S. $1,000 or integral
multiples of U.S. $1,000), on the date (the "Repurchase Date") that is 30
days after the date of the Company Notice (as defined in Section 16.2) for
cash at a purchase price equal to 100% of the principal amount plus interest
accrued and unpaid interest to, but excluding, the Repurchase Date (the
"Repurchase Price"); PROVIDED that if the Repurchase date is March 15 or
September 15, then the interest payable on such date shall be paid to the
holder of record of the Note on the next preceding March 1 or September 1,
respectively. Whenever in this Indenture there is a reference, in any
context, to the principal of any Note as of any time, such reference shall be
deemed to include reference to the Repurchase Price payable in respect of
such Note to the extent that such Repurchase Price is, was or would be so
payable at such time, and express mention of the Repurchase Price in any
provision of this Indenture shall not be construed as excluding the
Repurchase Price in those provisions of this Indenture when such express
mention is not made.
Section 16.2 NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC.
(a) Unless the Company shall have theretofore called for
redemption all of the outstanding Notes pursuant to Article III, on or
before the 30th day after the occurrence of a Repurchase Event, the
Company or, at the request of the Company on or before the 15th day
after such occurrence, the Trustee shall give to all holders of Notes
notice (the "Company Notice") of the occurrence of the Repurchase
Event and of the repurchase right set forth herein arising as a result
thereof. The Company shall also deliver a copy of such notice of a
repurchase right to the Trustee.
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Each notice of a repurchase right shall state:
(1) the Repurchase Date,
(2) the date by which the repurchase right must be
exercised,
(3) the Repurchase Price,
(4) a description of the procedure which a holder
must follow to exercise a repurchase right,
(5) that on the Repurchase Date the Repurchase Price
will become due and payable upon each such Note designated by the holder
to be repurchased, and that interest thereon shall cease to accrue on and
after said date,
(6) the Conversion Price, the date on which the right
to convert the Notes to be repurchased will terminate and the places where
such Notes may be surrendered for conversion, and
(7) the place or places where such Notes are to be
surrendered for payment of the Repurchase Price and accrued interest,
if any.
No failure of the Company to give the foregoing notices or defect
therein shall limit any holder's right to exercise a repurchase right or
affect the validity of the proceedings for the repurchase of Notes.
If any of the foregoing provisions or other provisions of this Article
are inconsistent with applicable law, such law shall govern.
(b) To exercise a repurchase right, a holder shall deliver
to the Trustee or any paying agent on or before the 30th day after the date
of the Company Notice (i) written notice of the holder's exercise of such
right, which notice shall set forth the name of the holder, the principal
amount of the Notes to be repurchased (and, if any Note is to repurchased in
part, the serial number thereof, the portion of the principal amount thereof
to be repurchased and the name of the Person in which the portion thereof to
remain outstanding after such repurchase is to be registered) and a statement
that an election to exercise the repurchase right is being made thereby, and
(ii) the Notes with respect to which the repurchase right is being exercised.
(c) In the event a repurchase right shall be exercised in
accordance with the terms hereof, the Company shall pay or cause to be paid
to the Trustee or the paying agent the Repurchase Price in cash, for payment
to the holder on the Repurchase Date.
(d) If any Note (or portion thereof) surrendered for
repurchase shall not be so paid on the Repurchase Date, the principal amount
of such Note (or portion thereof, as the case may be) shall, until paid, bear
interest from the Repurchase Date at the rate of ____% per annum, and each
Note shall remain convertible into Common Stock until the principal of such
Note (or portion thereof, as the case may be) shall have been paid or duly
provided for.
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(e) Any Note which is to be repurchased only in part shall
be surrendered to the Trustee (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the holder
thereof or his attorney duly authorized in writing), and the Company shall
execute, and the Trustee shall authenticate and deliver to the holder of such
Note without service charge, a new Note or Notes, containing identical terms
and conditions, each in an authorized denomination in aggregate principal
amount equal to and in exchange for the unrepurchased portion of the
principal of the Note so surrendered.
Section 16.3 CERTAIN DEFINITIONS. For purposes of this Article XVI,
(a) the term "beneficial owner" shall be determined in
accordance with Rule 13d-3 promulgated by the Commission pursuant to
the Exchange Act; and
(b) the term "Person" shall include any syndicate or group
which would be deemed to be a "person" under Section 13(d)(3) of the
Exchange Act.
Section 16.4 REPURCHASE EVENT. A "Repurchase Event" shall be deemed to
have occurred at such time as:
(a) any Person, other than the Company, any subsidiary of
the Company, or any employee benefit plan of the Company or any such
subsidiary, is or becomes the beneficial owner, directly or indirectly,
through a purchase or other acquisition transaction or series of
transactions (other than a merger or consolidation involving the Company),
of shares of capital stock of the Company entitling such Person to
exercise in excess of 50% of the total voting power of all shares of
capital stock of the Company entitled to vote generally in the election
of directors; or
(b) there occurs any consolidation of the Company with, or
merger of the Company into, any other Person, any merger of another
Person into the Company, or any sale or transfer of all or
substantially all of the assets of the Company to another Person
(other than (i) any such transaction pursuant to which the holders of
the Common Stock immediately prior to such transaction have, directly
or indirectly, shares of capital stock of the continuing or surviving
corporation immediately after such transaction which entitle such holders
to exercise in excess of 50% of the total voting power of all shares of
capital stock of the continuing or surviving corporation entitled to vote
generally in the election of directors and (ii) any merger (1) which does
not result in any reclassification, conversion, exchange or cancellation
of outstanding shares of Common Stock or (2) which is effected solely to
change the jurisdiction of incorporation of the Company and results in a
reclassification, conversion or exchange of outstanding shares of Common
Stock solely into shares of common stock);
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provided, however, that a Repurchase Event shall not be deemed to have
occurred if either (a) the Closing Price per share of the Common Stock for
any five Trading Days within the period of ten consecutive Trading Days
ending immediately before the Repurchase Event shall equal or exceed 105% of
the Conversion Price in effect on each such trading day, or (b) at least 90%
of the consideration (excluding cash payments for fractional shares) in the
transaction or transactions constituting the Repurchase Event consists of
shares of common stock traded on a national securities exchange or quoted on
the Nasdaq National Market (or which will be so traded or quoted when issued
or exchanged in such connection with such Repurchase Event) and as a result
of such transaction or transactions such Notes become convertible solely into
such common stock.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
Section 17.1 PROVISIONS BINDING ON COMPANY'S SUCCESSORS. All the
covenants, stipulations, promises and agreements by the Company contained in
this Indenture shall bind its successors and assigns whether so expressed or
not.
Section 17.2 OFFICIAL ACTS BY SUCCESSOR CORPORATION. Any act or
proceeding by any provision of this Indenture authorized or required to be
done or performed by any board, committee or officer of the Company shall and
may be done and performed with like force and effect by the like board,
committee or officer of any corporation that shall at the time be the lawful
sole successor of the Company.
Section 17.3 ADDRESSES FOR NOTICES, ETC. Any notice or demand which by
any provision of this Indenture is required or permitted to be given or
served by the Trustee or by the holders of Notes on the Company shall be
deemed to have been sufficiently given or made, for all purposes, if given or
served by being deposited postage prepaid by registered or certified mail in
a post office letter box addressed (until another address is filed by the
Company with the Trustee) to Iomega Corporation, 1821 West Iomega Way, Roy
Utah, 84067, Attention: Chief Financial Officer. Any notice, direction,
request or demand hereunder to or upon the Trustee shall be deemed to have
been sufficiently given or made, for all purposes, if given or served by
being deposited postage prepaid by registered or certified mail in a post
office letter box addressed to the Corporate Trust Office, which office is,
at the date as of which this Indenture is dated, located at 225 Franklin
Street, Boston, Massachusetts 02110, Attention: Corporate Trust Division
(Iomega Corporation ___% Convertible Subordinated Notes due 2001).
The Trustee, by notice to the Company, may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication mailed to a Noteholder shall be mailed to
him by first class mail, postage prepaid, at his address as it appears on the
Note register and shall be sufficiently given to him if so mailed within the
time prescribed.
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Failure to mail a notice or communication to a Noteholder or any defect
in it shall not affect its sufficiency with respect to other Noteholders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
Section 17.4 GOVERNING LAW. This Indenture and each Note shall be
deemed to be a contract made under the laws of the Commonwealth of
Massachusetts, and for all purposes shall be construed in accordance with the
laws of the Commonwealth of Massachusetts.
Section 17.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT;
CERTIFICATES TO TRUSTEE. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating that
all conditions precedent, if any, provided for in this Indenture relating to
the proposed action have been complied with, and an Opinion of Counsel
stating that, in the opinion of such counsel, all such conditions precedent
have been complied with.
Each certificate or opinion provided for in this Indenture and delivered
to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include (1) a statement that the person
making such certificate or opinion has read such covenant or condition; (2) a
brief statement as to the nature and scope of the examination or
investigation upon which the statement or opinion contained in such
certificate or opinion is based; (3) a statement that, in the opinion of such
person, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and (4) a statement as to whether or
not, in the opinion of such person, such condition or covenant has been
complied with.
Section 17.6 LEGAL HOLIDAYS. In any case where the date of maturity of
interest on or principal of the Notes or the date fixed for redemption or
repurchase of any Note will not be a Business Day, then payment of such
interest on or principal of the Notes need not be made on such date, but may
be made on the next succeeding Business Day with the same force and effect as
if made on the date of maturity or the date fixed for redemption or
repurchase, and no interest shall accrue for the period from and after such
date.
Section 17.7 TRUST INDENTURE ACT. This Indenture is hereby made subject
to, and shall be governed by, the provisions of the Trust Indenture Act
required to be part of and to govern indentures qualified under the Trust
Indenture Act; PROVIDED, HOWEVER, that this Section 17.7 shall not require
this Indenture or the Trustee to be qualified under the Trust Indenture Act
prior to the time such qualification is in fact required under the terms of
the Trust Indenture Act, nor shall it constitute any admission or
acknowledgment by any party to such supplemental indenture that any such
qualification is required prior to the time such qualification is in fact
required under the terms of the Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof which is
required to be included in an indenture qualified under the Trust Indenture
Act, such required provision shall control.
Section 17.8 NO SECURITY INTEREST CREATED. Nothing in this Indenture or
in the Notes, whether expressed or implied, shall be construed to constitute,
create or perfect a security interest
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under the Uniform Commercial Code or similar legislation, as now or hereafter
enacted and in effect, in any jurisdiction where property of the Company or
its subsidiaries is located.
Section 17.9 BENEFITS OF INDENTURE. Nothing in this Indenture or in the
Notes, whether expressed or implied, shall give to any Person, other than the
parties hereto, any paying agent, any authenticating agent, any Note
registrar and their successors hereunder, the holders of Notes and the
holders of Senior Indebtedness, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
Section 17.10 TABLE OF CONTENTS, HEADINGS, ETC. The table of contents and
the titles and headings of the articles and sections of this Indenture have
been inserted for convenience of reference only, are not to be considered a
part hereof, and shall in no way modify or restrict any of the terms or
provisions hereof.
Section 17.11 AUTHENTICATING AGENT. The Trustee may appoint an
authenticating agent which shall be authorized to act on its behalf and
subject to its direction in the authentication and delivery of Notes in
connection with the original issuance thereof and transfers and exchanges of
Notes hereunder, including under Sections 2.4, 2.5, 2.6, 2.7, 3.3 and 16.2,
as fully to all intents and purposes as though the authenticating agent had
been expressly authorized by this Indenture and those Sections to
authenticate and deliver Notes. For all purposes of this Indenture, the
authentication and delivery of Notes by the authenticating agent shall be
deemed to be authentication and delivery of such Notes "by the Trustee" and a
certificate of authentication executed on behalf of the Trustee by an
authenticating agent shall be deemed to satisfy any requirement hereunder or
in the Notes for the Trustee's certificate of authentication. Such
authenticating agent shall at all times be a person eligible to serve as
trustee hereunder pursuant to Section 8.9.
Any corporation into which any authenticating agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any authenticating
agent shall be a party, or any corporation succeeding to the corporate trust
business of any authenticating agent, shall be the successor of the
authenticating agent hereunder, if such successor corporation is otherwise
eligible under this Section 17.11, without the execution or filing of any
paper or any further act on the part of the parties hereto or the
authenticating agent or such successor corporation.
Any authenticating agent may at any time resign by giving written notice
of resignation to the Trustee and to the Company. The Trustee may at any
time terminate the agency of any authenticating agent by giving written
notice of termination to such authenticating agent and to the Company. Upon
receiving such a notice of resignation or upon such a termination, or in case
at any time any authenticating agent shall cease to be eligible under this
Section, the Trustee shall promptly appoint a successor authenticating agent
(which may be the Trustee), shall give written notice of such appointment to
the Company and shall mail notice of such appointment to all holders of Notes
as the names and addresses of such holders appear on the Note register.
The Trustee agrees to pay to the authenticating agent from time to time
reasonable compensation for its services (to the extent pre-approved by the
Company in writing), and the
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Trustee shall be entitled to be reimbursed for such pre-approved payments,
subject to Section 8.6.
The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section 17.11
shall be applicable to any authenticating agent.
Section 17.12 EXECUTION IN COUNTERPARTS. This Indenture may be executed
in any number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
State Street Bank and Trust Company, hereby accepts the trusts in this
Indenture declared and provided, upon the terms and conditions hereinabove
set forth.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly signed, all as of the date first written above.
IOMEGA CORPORATION
By: ___________________________________
Name: _________________________________
Title: ________________________________
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: ___________________________________
Name: _________________________________
Title: ________________________________
<PAGE>
EXHIBIT A
IOMEGA CORPORATION
___% CONVERTIBLE SUBORDINATED NOTE DUE 2001
No. __ CUSIP__________
Iomega Corporation, a corporation duly organized and validly existing
under the laws of the State of Delaware (herein called the "Company"), which
term includes any successor corporation under the Indenture referred to on
the reverse hereof, for value received hereby promises to pay to
__________________ or registered assigns, the principal sum of
_______________ ($____________) on March 15, 2001, at the office or agency of
the Company maintained for that purpose in the Borough of Manhattan, The City
of New York or in Boston, Massachusetts, or, at the option of the holder of
this Note, at the Corporate Trust Office, in such coin or currency of the
United States of America as at the time of payment shall be legal tender for
the payment of public and private debts, and to pay interest, semi-annually
on March 15 and September 15 of each year, commencing September 15, 1996, on
said principal sum at said office or agency, in like coin or currency, at the
rate per annum of ___%, from March 15 or September 15, as the case may be,
next preceding the date of this Note to which interest has been paid or duly
provided for, unless the date hereof is a date to which interest has been
paid or duly provided for, in which case from the date of this Note, or
unless no interest has been paid or duly provided for on the Notes, in which
case from March __, 1996, until payment of said principal sum has been made
or duly provided for. Notwithstanding the foregoing, if the date hereof is
after any March 1 or September 1, as the case may be, and before the
following March 15 or September 15, this Note shall bear interest from such
March 15 or September 15; PROVIDED, HOWEVER, that if the Company shall
default in the payment of interest due on such March 15 or September 15, then
this Note shall bear interest from the next preceding March 15 or September
15 to which interest has been paid or duly provided for or, if no interest
has been paid or duly provided for on such Note, from March __, 1996. The
interest payable on the Note pursuant to the Indenture on any March 15 or
September 15 will be paid to the person in whose name this Note (or one or
more Predecessor Notes) is registered at the close of business on the record
date, which shall be the March 1 or September 1 (whether or not a Business
Day) next preceding such March 15 or September 15, as provided in the
Indenture; PROVIDED that any such interest not punctually paid or duly
provided for shall be payable as provided in the Indenture. Interest may, at
the option of the Company, be paid by check mailed to the registered address
of such person; PROVIDED that, with respect to any holder of Notes with an
aggregate principal amount equal to or in excess of $5,000,000, at the
request of such holder in writing to the Company (who shall then furnish
written notice to such effect to the Trustee), interest on such holder's
Notes shall be paid by wire transfer (the costs of such wire transfer to be
borne by the Company) in immediately available funds in accordance with the
wire transfer instructions supplied by such holder to the Trustee and paying
agent (if different from the Trustee).
<PAGE>
Reference is made to the further provisions of this Note set forth on
the reverse hereof, including, without limitation, provisions subordinating
the payment of principal of and premium, if any, and interest on the Notes to
the prior payment in full of all Senior Indebtedness, as defined in the
Indenture, and provisions giving the holder of this Note the right to convert
this Note into Common Stock of the Company on the terms and subject to the
limitations referred to on the reverse hereof and as more fully specified in
the Indenture. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place.
This Note shall be deemed to be a contract made under the laws of the
Commonwealth of Massachusetts, and for all purposes shall be construed in
accordance with and governed by the laws of said Commonwealth.
This Note shall not be valid or become obligatory for any purpose until
the certificate of authentication hereon shall have been manually signed by
the Trustee or a duly authorized authenticating agent under the Indenture.
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
under its corporate seal.
Dated: March __, 1996 IOMEGA CORPORATION
By: ___________________________________
Attest: _______________________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes described in the
within-named Indenture.
STATE STREET BANK AND TRUST COMPANY, as Trustee
By: __________________________________________________
Authorized Signatory
By: ___________________________________________________
As Authenticating Agent (if different from Trustee)
3
<PAGE>
[FORM OF REVERSE OF NOTE]
IOMEGA CORPORATION
____% CONVERTIBLE SUBORDINATED NOTE DUE 2001
This Note is one of a duly authorized issue of Notes of the Company,
designated as its ___% Convertible Subordinated Notes due 2001 (herein called
the "Notes"), limited to the aggregate principal amount of $46,000,000 all
issued or to be issued under and pursuant to an indenture dated as of March
__, 1996 (herein called the "Indenture"), between the Company and State
Street Bank and Trust Company, as trustee (herein called the "Trustee"), to
which Indenture and all indentures supplemental thereto reference is hereby
made for a description of the rights, limitations of rights, obligations,
duties and immunities thereunder of the Trustee, the Company and the holders
of the Notes.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of and accrued interest on all
Notes may be declared, and upon said declaration shall become, due and
payable, in the manner, with the effect and subject to the conditions
provided in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Notes at the time outstanding, evidenced as
in the Indenture provided, to execute supplemental indentures adding any
provisions to or changing in any manner or eliminating any of the provisions
of the Indenture or of any supplemental indenture or modifying in any manner
the rights of the holders of the Notes; PROVIDED, HOWEVER, that no such
supplemental indenture shall (i) extend the fixed maturity of any Note, or
reduce the rate or extend the time of payment of interest thereon, or reduce
the principal amount thereof or premium, if any, thereon, or reduce any
amount payable on redemption thereof, or impair the right of any Noteholder
to institute suit for the payment thereof, or make the principal thereof or
interest or premium, if any, thereon payable in any coin or currency other
than that provided in the Note, or modify the provisions of the Indenture
with respect to the subordination of the Notes in a manner adverse to the
Noteholders in any material respect, or change the obligation of the Company
to make repurchase of any Note upon the happening of a Repurchase Event in a
manner adverse to the holder of the Notes, or impair the right to convert the
Notes into Common Stock subject to the terms set forth in the Indenture,
including Section 15.6 thereof, without the consent of the holder of each
Note so affected or (ii) reduce the aforesaid percentage of Notes, the
holders of which are required to consent to any such supplemental indenture,
without the consent of the holders of all Notes then outstanding. It is also
provided in the Indenture that, prior to any declaration accelerating the
maturity of the Notes, the holders of a majority in aggregate principal
amount of the Notes at the time outstanding may on behalf of the holders of
all of the Notes waive any past default or Event of Default under the
Indenture and its consequences except a default in the payment of interest or
any premium on or the principal of any of the Notes, a default in the payment
of redemption price pursuant to Article III, a failure by the Company to
convert any
4
<PAGE>
Notes into Common Stock of the Company or a default in respect of a covenant
or provisions hereof which under Article XI cannot be modified or amended
without the consent of holders of all notes then outstanding. Any such
consent or waiver by the holder of this Note (unless revoked as provided in
the Indenture) shall be conclusive and binding upon such holder and upon all
future holders and owners of this Note and any Notes which may be issued in
exchange or substitute hereof, irrespective of whether or not any notation
thereof is made upon this Note or such other Notes.
The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, expressly subordinate and subject in right
of payment to the prior payment in full of all Senior Indebtedness of the
Company, as defined in the Indenture, whether outstanding at the date of the
Indenture or thereafter incurred, and this Note is issued subject to the
provisions of the Indenture with respect to such subordination. Each holder
of this Note, by accepting the same, agrees to and shall be bound by such
provisions and authorizes the Trustee on his behalf to take such action as
may be necessary or appropriate to effectuate the subordination so provided
and appoints the Trustee his attorney-in-fact for such purpose.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and
interest on this Note at the place, at the respective times, at the rate and
in the coin or currency herein prescribed.
Interest on the Notes shall be computed on the basis of a year of twelve
30-day months.
The Notes are issuable in registered form without coupons in
denominations of $1,000 and any integral multiple of $1,000. At the office
or agency of the Company referred to on the face hereof, and in the manner
and subject to the limitations provided in the Indenture, without payment of
any service charge but with payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with any
registration or exchange of Notes, Notes may be exchanged for a like
aggregate principal amount of Notes of other authorized denominations.
The Notes will not be redeemable at the option of the Company prior to
March 15, 1999. At any time on or after March 15, 1999, and prior to
maturity, the Notes may be redeemed at the option of the Company as a whole,
or from time to time in part, upon mailing a notice of such redemption not
less than 30 nor more than 60 days before the date fixed for redemption to
the holders of Notes at their last registered addresses, all as provided in
the Indenture, at the following optional redemption prices (expressed as
percentages of the principal amount), together in each case with accrued
interest to, but excluding, the date fixed for redemption.
If redeemed during the 12-month period beginning March 15:
5
<PAGE>
<TABLE>
<CAPTION>
YEAR PERCENTAGE
----- -----------
<S> <C>
1999.......................... __________%
2000.......................... __________%
</TABLE>
PROVIDED that if the date fixed for redemption is on March 15 or September
15, then the interest payable on such date shall be paid to the holder of
record on the next preceding March 1 or September 1, respectively.
The Notes are not subject to redemption through the operation of any
sinking fund.
If a Repurchase Event (as defined in the Indenture) occurs prior to
March 15, 2001, the holder of this Note shall have the right, in accordance
with the provisions of the Indenture, to require the Company to repurchase
this Note for cash at a Repurchase Price equal to 100% of the principal
amount plus accrued and unpaid interest to, but excluding, the Repurchase
Date; provided that if such Repurchase Date is March 15 or September 15, then
the interest payable on such date shall be to the holder of record of the
Note on the next preceding March 1 or September 1, respectively. Within 30
days after the occurrence of a Repurchase Event, the Company is obligated to
give all holders of record of Notes notice of the occurrence of such
Repurchase Event and of the repurchase right arising as a result thereof.
Subject to the provisions of the Indenture, the holder hereof has the
right, at its option, at any time after 60 days following the latest date of
original issuance of the Notes and prior to the close of business on March
15, 2001, or, as to all or any portion hereof called for redemption, prior to
the close of business on the second Business Day immediately preceding the
date fixed for redemption (unless the Company shall default in payment due
upon redemption thereof), to convert the principal hereof or any portion of
such principal which is $1,000 or an integral multiple thereof, into that
number of shares of Company's Common Stock, as said shares shall be
constituted at the date of conversion, obtained by dividing the principal
amount of this Note or portion thereof to be converted by the Conversion
Price of $_______ or such Conversion Price as adjusted from time to time as
provided in the Indenture, upon surrender of this Note, together with a
conversion notice as provided in the Indenture, to the Company at the office
or agency of the Company maintained for that purpose in the Borough of
Manhattan, The City of New York or Boston, Massachusetts, or at the option of
such holder, the Corporate Trust Office, and, unless the shares issuable on
conversion are to be issued in the same name as this Note, duly endorsed by,
or accompanied by instruments of transfer in form satisfactory to the Company
duly executed by, the holder or by his duly authorized attorney. No
adjustment in respect of interest or dividends will be made upon any
conversion; PROVIDED, HOWEVER, that if this Note shall be surrendered for
conversion during the period from the close of business on any record date
for the payment of interest to the close of business on the Business Day
preceding the interest payment date, this Note (unless it or the portion
being converted shall have been called for redemption during the period from
the close of business on any record date for the payment of interest to the
close of business on the Business Day preceding the interest payment date)
must
6
<PAGE>
be accompanied by an amount, in New York Clearing House funds or other funds
acceptable to the Company, equal to the interest payable on such interest
payment date on the principal amount being converted. No fractional shares
will be issued upon any conversion, but an adjustment in cash will be made,
as provided in the Indenture, in respect of any fraction of a share which
would otherwise be issuable upon the surrender of any Note or Notes for
conversion.
Any Notes called for redemption, unless surrendered for conversion on or
before the close of business on the second Business Day next preceding date
fixed for redemption, may be deemed to be purchased from the holder of such
Notes at an amount equal to the applicable redemption price, together with
accrued interest to, but excluding, the date fixed for redemption, by one or
more investment bankers or other purchasers who may agree with the Company to
purchase such Notes from the holders thereof and convert them into Common
Stock of the Company and to make payment for such Notes as aforesaid to the
Trustee in trust for such holders.
Upon due presentment for registration of transfer of this Note at the
office or agency of the Company in the Borough of Manhattan, The City of New
York or Boston, Massachusetts, or at the option of the holder of this Note,
at the Corporate Trust Office, a new Note or Notes of authorized
denominations for an equal aggregate principal amount will be issued to the
transferee in exchange thereof, subject to the limitations provided in the
Indenture, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company, the Trustee, any authenticating agent, any paying agent,
any conversion agent and any Note registrar may deem and treat the registered
holder hereof as the absolute owner of this Note (whether or not this Note
shall be overdue and notwithstanding any notation of ownership or other
writing hereon made by anyone other than the Company or any Note registrar),
for the purpose of receiving payment hereof, or on account hereof, for the
conversion hereof and for all other purposes, and neither the Company nor the
Trustee nor any other authenticating agent nor any paying agent nor any other
conversion agent nor any Note registrar shall be affected by any notice to
the contrary. All payments made to or upon the order of such registered
holder shall, to the extent of the sum or sums paid, satisfy and discharge
liability for monies payable on this Note.
No recourse for the payment of the principal of or any premium or
interest on this Note, or for any claim based hereon or otherwise in respect
hereof, and no recourse under or upon any obligation, covenant or agreement
of the Company in the Indenture or any indenture supplemental thereto or in
any Note, or because of the creation of any indebtedness represented thereby,
shall be had against any incorporator, stockholder, employee, agent, officer
or director or subsidiary, as such, past, present or future, of the Company
or of any successor corporation, either directly or through the Company or
any successor corporation, whether by virtue of any constitution, statute or
rule of law or by the enforcement of any assessment or penalty or otherwise,
all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
7
<PAGE>
Terms used in this Note and defined in the Indenture are used herein as
therein defined.
8
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face of
this Note, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM as tenants in UNIF GIFT MIN ACT -- ____________Custodian _______
common (Cust) (Minor)
under Uniform Gifts to Minors Act ________________
(State)
TEN ENT as tenants by
the entireties
JT TEN as joint tenants
with right of
survivorship
and not as
tenants in
common
Additional abbreviations may also be used
though not in the above list.
9
<PAGE>
CONVERSION NOTICE
To: IOMEGA CORPORATION
The undersigned registered owner of this Note hereby irrevocably
exercises the option to convert this Note, or the portion hereof (which is
$1,000 or an integral multiple thereof) below designated, into shares of
Common Stock of Iomega Corporation in accordance with the terms of the
Indenture referred to in this Note, and directs that the shares issuable and
deliverable upon such conversion, together with any check in payment for
fractional shares and any Notes representing any unconverted principal amount
hereof, be issued and delivered to the registered holder hereof unless a
different name has been indicated below. If shares or any portion of this
Note not converted are to be issued in the name of a person other than the
undersigned, the undersigned will check the appropriate box below and pay all
transfer taxes payable with respect thereto. Any amount required to be paid
to the undersigned on account of interest accompanies this Note.
Dated: ________________________
_______________________________________
_______________________________________
Signature(s)
Signature(s) must be guaranteed by a
commercial bank or trust company or a
member firm of a major stock exchange
if shares of Common Stock are to be
issued, or Notes to be delivered,
other than to and in the name of the
registered holder.
______________________________________________________________________________
Signature Guarantee
10
<PAGE>
Fill in for registration of
shares of Common Stock if to be issued, and
Notes if to be delivered,
other than to and in the name
of the registered holder:
_______________________________
(Name)
_______________________________
(Street Address)
_______________________________
(City, State and Zip Code)
Please print name and address
Principal amount to be converted
(if less than all): $_____________
__________________________________
Social Security or Other Taxpayer
Identification Number
11
<PAGE>
OPTION TO ELECT REPURCHASE
UPON A REPURCHASE EVENT
To: IOMEGA CORPORATION
The undersigned registered owner of this Note hereby acknowledges
receipt of a notice from Iomega Corporation (the "Company") as to the
occurrence of a Repurchase Event with respect to the Company and requests and
instructs the Company to repay the entire principal amount of this Note, or
the portion thereof (which is $1,000 or an integral multiple thereof) below
designated, in accordance with the terms of the Indenture referred to in this
Note at the repurchase price, together with accrued interest to, but
excluding, such date, to the registered holder hereof.
Dated: ________________________ _______________________________________
_______________________________________
Signature(s)
NOTICE: The above signatures of the
holder(s) hereof must correspond with
the name as written upon the face of
the Note in every particular without
alteration or enlargement or any change
whatever.
Principal amount to be converted
(if less than all):
$__________
_______________________________________
Social Security or Other Taxpayer
Identification Number
12
<PAGE>
ASSIGNMENT
For value received ____________________________ hereby sell(s),
assign(s) and transfer(s) unto _________________________________ (Please
insert social security or other Taxpayer Identification Number of assignee)
the within Note, and hereby irrevocably constitutes and appoints
_________________________________________________ attorney to transfer the
said Note on the books of the Company, with full power of substitution in the
premises.
Dated: ____________________ _______________________________________
_______________________________________
Signature(s)
Signature(s) must be guaranteed by a
commercial bank or trust company or a
member firm of a major stock exchange
if shares of Common Stock are to be
issued, or Notes to be delivered, other
than to or in the name of the
registered holder.
_______________________________________
Signature Guarantee
13
<PAGE>
HALE AND DORR
COUNSELLORS AT LAW
60 STATE STREET, BOSTON, MASSACHUSETTS 02109
617-526-6000 - FAX 617-526-5000
February 27, 1996
Iomega Corporation
1821 West Iomega Way
Roy, Utah 84067
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-3 (the "Registration Statement"), filed with the
Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended, for the registration of $46,000,000 in aggregate
principal amount of Convertible Subordinated Notes (the "Notes") of Iomega
Corporation, a Delaware corporation (the "Company"), including the Notes
issuable upon exercise of an overallotment option, and such indeterminable
number of shares of Common Stock of the Company as are required for issuance
upon conversion of such Notes (the "Shares"), each such share of Common Stock
including four-fifteenths of a right ("Right") issued under the Rights
Agreement, dated as of July 28, 1989, as amended, between the Company and The
First National Bank of Boston, as Rights Agent (the "Rights Agreement").
We have acted as counsel for the Company in connection with the issue and
sale by the Company of the Notes. We have examined signed copies of the
Registration Statement and all exhibits thereto, all as filed with the
Commission. We have also examined and relied upon the original or copies of
minutes of meetings of the stockholders and the Board of Directors of the
Company, stock record books of the Company, a copy of the By-Laws of the
Company, and a copy of the Restated Certificate of Incorporation of the
Company, as amended, the Rights Agreement and such other documents as we have
deemed necessary for purposes of rendering the opinions hereinafter set forth.
WASHINGTON, DC BOSTON, MA MANCHESTER, NH
- --------------------------------------------------------------------------------
HALE AND DORR IS A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
<PAGE>
Iomega Corporation
February 27, 1996
Page 2
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures and the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies, and the authenticity of
the originals of such latter documents.
We have not made any investigation of the laws of any jurisdiction other
than the Commonwealth of Massachusetts, and the federal laws of the United
States and the Delaware General Corporation Law statute, and we are opining
herein solely with respect to the laws of the Commonwealth of Massachusetts,
the federal laws of the United States and the Delaware General Corporation
Law statute. To the extent that the laws of any other jurisdiction govern
the agreements or transactions as to which we are opining herein, we have
assumed, with your permission, that such laws are identical to those of the
Commonwealth of Massachusetts, and we are expressing no opinion herein as to
whether such assumption is reasonable or correct.
Our opinions below are qualified to the extent that the validity or
enforceability of the documents referred to or of any of the rights granted
to any party pursuant thereto may be subject to or affected by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws affecting the rights of creditors generally, (ii) statutory or
decisional law concerning recourse by creditors to security in the absence of
notice or hearing, and (iii) duties and standards imposed on creditors and
parties to contracts, including, without limitation, requirements of good
faith, reasonableness and fair dealing. Furthermore, we express no opinion
as to the availability of any equitable or specific remedy upon any breach of
such documents or any of the agreements, documents or obligations referred to
therein, or as to the successful assertion of any equitable defense, inasmuch
as the availability of such remedies and defenses may be subject to the
discretion of a court.
<PAGE>
Iomega Corporation
February 27, 1996
Page 3
We are expressing no opinion herein as to the application of or compliance
with any federal or state law or regulation to the power, authority or
competence of any party to any agreement or document other than the Company.
We have assumed that such agreements and documents are the valid and binding
obligations of each party thereto other than the Company, and enforceable
against each such other party in accordance with their respective terms.
We assume that the appropriate action will be taken, prior to the offer
and sale of the Notes and the Shares in accordance with the Indenture, to
register and qualify the Notes and the Shares for sale under all applicable
state securities or "blue sky" laws.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Notes have been duly authorized and, when (i) the Indenture has been
duly executed and delivered and (ii) the Notes have been duly executed
and authenticated in accordance with the Indenture and issued and sold
by the Company as contemplated in the Registration Statement, the Notes
will constitute the binding obligations of the Company.
2. The Shares have been duly authorized and, when issued by the Company
upon conversion of the Notes, will be validly issued, fully paid and
non-assessable.
3. Assuming that the Rights Agreement has been duly authorized, executed
and delivered by the Rights Agent, when the Shares have been validly
issued upon conversion of the Notes, the Rights attributable to the
Shares will be validly issued.
We hereby consent to the filing of this opinion as part of the
Registration Statement and to the use of our name therein and in the related
Prospectus under the caption "Legal Matters."
This opinion is based upon currently existing statutes, rules, regulations
and judicial decisions, and we disclaim any obligation to advise you of any
change in any of these sources of law or subsequent legal or factual
developments which might affect any matters or opinions set forth herein.
<PAGE>
Iomega Corporation
February 27, 1996
Page 4
Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters. This
opinion is solely for your benefit in connection with the issuance and sale
of the Notes by the Company, and during the period commencing upon the
effective date of the Registration Statement, and continuing only for so long
as the Registration Statement remains effective, and may not be quoted or
relied upon by any other person, during any other period, or used for any
other purpose, without our prior written consent.
Very truly yours,
/s/ HALE AND DORR
HALE AND DORR
<PAGE>
IOMEGA CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1991 1992 1993 1994 1995
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
Net income (loss) before income
taxes and cumulative effect of
accounting change $17,561 $6,145 ($16,656) $ 26 $11,639
Fixed charges 606 763 849 678 2,312
---------------------------------------------------
$18,167 $6,908 ($15,807) $704 $13,951
---------------------------------------------------
---------------------------------------------------
Fixed charges:
Interest expense (including
amortization of debt issuance
costs) 55 54 70 15 1,652
Estimated interest component of
rental expense 551 709 779 663 660
---------------------------------------------------
$ 606 $ 763 $ 849 $678 $ 2,312
---------------------------------------------------
---------------------------------------------------
Ratio of Earnings to Fixed Charges 30.0 9.1 - (a) 1.0 6.0
</TABLE>
- -----------------------
(a) For the year ended December 31, 1993, earnings were inadequate to cover
fixed charges by $16.7 million.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
February 27, 1996
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-1867445
(JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER
ORGANIZATION IF NOT A U.S. NATIONAL BANK) IDENTIFICATION NO.)
225 FRANKLIN STREET, BOSTON, MASSACHUSETTS 02110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
JOHN R. TOWERS, ESQ. SENIOR VICE PRESIDENT AND CORPORATE SECRETARY
225 FRANKLIN STREET, BOSTON, MASSACHUSETTS 02110
(617)654-3253
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------
IOMEGA CORPORATION
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 86-0385884
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1821 WEST IOMEGA WAY
ROY, UTAH 84067
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
------------
% CONVERTIBLE SUBORDINATED NOTES DUE 2001
(TITLE OF INDENTURE SECURITIES)
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO WHICH
IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington, D.C.,
Federal Deposit Insurance Corporation, Washington, D.C.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its parent, State
Street Boston Corporation.
(See note on page 6.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN EFFECT.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission as
Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of Massachusetts
that no certificate of authority for the trustee to commence
business was necessary or issued is on file with the Securities and
Exchange Commission as Exhibit 2 to Amendment No. 1 to the Statement
of Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST
POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise corporate trust
powers is on file with the Securities and Exchange Commission as
Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on file
with the Securities and Exchange Commission as Exhibit 4 to the
Statement of Eligibility and Qualification of Trustee (Form T-1)
filed with the Registration Statement of Eastern Edison Company
(File No. 33-37823) and is incorporated herein by reference thereto.
1
<PAGE>
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(b) OF THE ACT.
The consent of the trustee required by Section 321(b) of the Act is
annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility and Qualification
which relates to matters peculiarly within the knowledge of the obligor or any
underwriter for the obligor, the trustee has relied upon information furnished
to it by the obligor and the underwriters, and the trustee disclaims
responsibility for the accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of Boston
and The Commonwealth of Massachusetts, on the 26th day of February, 1996.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Jill Olson
------------------------------------
Jill Olson
Assistant Vice President
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by Iomega
Corporation of its % Convertible Subordinated Notes Due 2001, we hereby
consent that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Jill Olson
------------------------------------
Jill Olson
Assistant Vice President
Dated: February 26, 1996
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<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company of
Boston, Massachusetts and foreign and domestic subsidiaries, a state banking
institution organized and operating under the banking laws of this commonwealth
and a member of the Federal Reserve System, at the close of business DECEMBER
31, 1995, published in accordance with a call made by the Federal Reserve Bank
of this District pursuant to the provisions of the Federal Reserve Act and in
accordance with a call made by the Commissioner of Banks under General Laws,
Chapter 172, Section 22(a).
<TABLE>
<CAPTION>
Thousands of
Dollars
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin............ 1,331,827
Interest-bearing balances..................................... 5,971,326
Securities......................................................... 6,325,054
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary.............................. 5,436,994
Loans and lease financing receivables:
Loans and leases, net of unearned income.......... 4,308,339
Allowance for loan and lease losses .............. 63,491
Loans and leases, net of unearned income and allowances....... 4,244,848
Assets held in trading accounts.................................... 1,042,846
Premises and fixed assets.......................................... 374,362
Other real estate owned............................................ 3,223
Investments in unconsolidated subsidiaries......................... 31,624
Customers' liability to this bank on acceptances outstanding....... 57,472
Intangible assets.................................................. 68,384
Other assets....................................................... 670,058
----------
Total assets....................................................... 25,558,018
----------
----------
LIABILITIES
Deposits:
In domestic offices........................................... 6,880,231
Noninterest-bearing ......................... 4,728,115
Interest-bearing ............................ 2,152,116
In foreign offices and Edge subsidiary........................ 9,607,427
Noninterest-bearing ......................... 28,265
Interest-bearing ............................ 9,579,162
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary............................... 5,913,969
Demand notes issued to the U.S. Treasury and Trading Liabilities.... 530,406
Other borrowed money................................................ 493,191
Bank's liability on acceptances executed and outstanding............ 57,387
Other liabilities................................................... 620,287
----------
Total liabilities................................................... 24,102,898
----------
EQUITY CAPITAL
Common stock........................................................ 29,176
Surplus............................................................. 228,448
Undivided profits................................................... 1,197,496
----------
Total equity capital................................................ 1,455,120
----------
Total liabilities and equity capital................................ 25,558,018
----------
----------
</TABLE>
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<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
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