<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1996
REGISTRATION NO. 33-64995
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
IOMEGA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------------
<TABLE>
<S> <C>
DELAWARE 86-0385884
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION
ORGANIZATION) NUMBER)
</TABLE>
--------------------------
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, CHIEF FINANCIAL OFFICER AND TREASURER
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:
<TABLE>
<S> <C>
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
</TABLE>
--------------------------
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 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.
/ /
--------------------------
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 JANUARY 30, 1996
PROSPECTUS
5,250,000 SHARES
[LOGO]
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by the
Company. The Common Stock is quoted on the Nasdaq National Market under the
symbol IOMG. On January 29, 1996, the last reported sale price of the Common
Stock on the Nasdaq National Market was $15.63 per share. See "Price Range of
Common Stock and Dividend Policy."
--------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 5 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 DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total (3)..................................... $ $ $
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting estimated expenses of $575,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 787,500 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
--------------
The shares of Common Stock are offered by the Underwriters subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares 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 MONTGOMERY SECURITIES
, 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 UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF 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>
Common Stock offered by the Company.......... 5,250,000 shares
Common Stock to be outstanding after the 64,069,335 shares (1)
offering...................................
Use of proceeds.............................. Working capital and other general corporate
purposes
Nasdaq National Market symbol................ IOMG
</TABLE>
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 (2) $ (0.27) $ (0.03) $ 0.14
Weighted average common shares outstanding (2).............................. 54,318 55,419 60,180
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------
ACTUAL AS ADJUSTED(3)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 1,023 $ 78,173
Working capital..................................................................... 12,623 89,773
Total assets........................................................................ 266,227 343,377
Stockholders' equity................................................................ 62,686 139,836
</TABLE>
- ------------------------
(1) Based upon number of shares outstanding as of December 31, 1995. Does not
include 6,206,977 shares reserved for issuance upon the exercise of stock
options outstanding as of December 31, 1995 at a weighted average exercise
price of $1.67 per share.
(2) See Note 1 of Notes to Consolidated Financial Statements.
(3) Adjusted to reflect the sale of the 5,250,000 shares of Common Stock offered
hereby at an assumed public offering price of $15.63 per share, 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 UNDERWRITERS' OVER-ALLOTMENT OPTION.
4
<PAGE>
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY, IN ADDITION TO
THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE PURCHASING THE COMMON
STOCK 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, 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. 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, as is typical in the
industry, 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
5
<PAGE>
can be no assurance that 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."
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. 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
6
<PAGE>
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 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
7
<PAGE>
grant certain of its third-party manufacturers, among others, the right to sell
a portion 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. If successfully introduced, Floptical
120 would directly compete with Zip. 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 the first such solution to achieve a significant market presence
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.
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."
DECLINE IN LIQUIDITY; FUTURE CAPITAL NEEDS. As of December 31, 1995, the
Company had cash and cash equivalents of $1 million. 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. Although 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
1996, the Company may require additional funds during 1996 or thereafter 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 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."
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 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
8
<PAGE>
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 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
9
<PAGE>
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."
STOCK 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. 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. 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."
DILUTION. The net tangible book value of the Common Stock as of December
31, 1995 was $1.07 per share. Assuming a public offering price of $15.63 per
share, investors purchasing shares of Common Stock in this offering will suffer
an immediate dilution of $13.45 per share. Moreover, as of December 31, 1995
there were outstanding stock options for the purchase of 6,206,977 shares of
Common Stock at a weighted average exercise price of $1.67 per share. The
exercise of such stock options will result in further dilution to purchasers of
shares in this offering. See "Capitalization."
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
10
<PAGE>
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 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."
11
<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 shares of Common Stock
offered hereby at an estimated public offering price of $15.63 per share are
estimated to be approximately $77,150,000 (approximately $88,800,000 if the
Underwriters' 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. In particular, the net proceeds will 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." The Company may also use a
significant portion of the net proceeds to reduce amounts outstanding under its
loan agreements.
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 December 31, 1995, borrowings under this loan agreement
were $36.8 million, consisting of $33.2 million under the revolving credit
facility and $3.6 million under the term loan facility (exclusive of bank
overdrafts of $11.8 million). As of December 31, 1995, there was $9.8 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 30, 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 Note 5 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.
12
<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 January 29, 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.
13
<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 5,250,000 shares of Common Stock offered hereby, at an assumed public
offering price of $15.63 per share, after deducting the estimated underwriting
discount and offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
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 (actual); 64,069,335 shares
outstanding (as adjusted) (1).......................................................... 1,960 2,135
Additional paid-in capital.............................................................. 51,473 128,448
Retained earnings....................................................................... 9,253 9,253
--------- -----------
Total stockholders' equity............................................................ 62,686 139,836
--------- -----------
Total capitalization.................................................................. $ 62,686 $ 139,836
--------- -----------
--------- -----------
</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 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.
14
<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
<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.
15
<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 and other 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
16
<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 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."
17
<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
18
<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
19
<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 were 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
20
<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
21
<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 90% of eligible accounts
receivable. 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.
22
<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 through 1996, including any planned expense
increases or capital expenditures discussed above. Thereafter, the Company
anticipates that it may 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.
23
<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). Iomega believes, based on industry data, that it is
the third largest seller of tape drives in the United States and the largest
seller of tape drives in Europe.
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
24
<PAGE>
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 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
25
<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 maximum
traditional floppy disks capacity of 21 MBs (although a 120MB
- Unlimited expansion Floptical has 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>
26
<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
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<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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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 3200 (1995) (420-MB, 800-MB, $399 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 3200 support new high-capacity Travan cartridge technology. The
Company believes that, during the first nine months of 1995, Iomega was the
third largest seller of tape drives in the United States and the largest seller
of tape drives in Europe.
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 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
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<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
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<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 a portion 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, 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
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<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 December 31, 1995 of approximately $165
million. However, the purchase agreements or purchase orders pursuant to which
orders are made generally allow the customer to cancel orders without penalty.
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 customers allowance of available product. In addition, the Company's actual
shipments may 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 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. If
successfully introduced, Floptical 120 would directly compete
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<PAGE>
with Zip. As new and competing removable-media storage solutions are introduced,
it is possible that the first such solution to achieve a significant market
presence 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 believes
that it faced more direct competition in 1995 than in any previous year and
expects that competition will continue to 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.
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
35
<PAGE>
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 is in the process of seeking an additional 75,000 square feet of
space in the Roy area, which it estimates will cost an additional $700,000 in
annual rent. The Company expects that such additional space will be ready for
occupancy 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 its leased
space in San Jose to approximately 50,000 square feet during 1996. The Company
has also rented a
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<PAGE>
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.
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, Chief Financial Officer and
Treasurer
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
Timothy L. Hill 37 Vice President, Marketing
John G. Thompson 55 Vice President, Outsourcing
Willard C. Kennedy 49 Vice President, Worldwide Logistics and Materials
Donald R. Sterling 59 Vice President, Corporate Counsel and Secretary
David J. Dunn (1)(2) 65 Chairman of the Board of Directors
Willem H.J. Andersen (3) 54 Director
Robert P. Berkowitz (4) 60 Director
Anthony L. Craig (1) 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.
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<PAGE>
Leonard C. Purkis joined the Company as Senior Vice President, Finance and
Chief Financial Officer in March 1995. 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.
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.
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.
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.
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.
38
<PAGE>
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.
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 consultant to National Semiconductor Corporation, a
semiconductor manufacturer, since its February 1995 acquisition of Comlinear
Corporation, also a semiconductor manufacturer. From June 1992 until February
1995, he was Chief Executive Officer and a director of Comlinear Corporation.
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.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of November 30, 1995, and
as adjusted to reflect the sale of the shares of Common Stock offered hereby, 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>
PERCENTAGE OF
OUTSTANDING SHARES (2)
NUMBER OF SHARES --------------------------
BENEFICIALLY BEFORE AFTER
OWNED (1) OFFERING OFFERING
-------------------- ------------ ------------
<S> <C> <C> <C>
Idanta Partners Ltd. (3)............................................. 7,989,678 13.7% 12.5%
4660 LaJolla Village Drive
Suite 775
San Diego, CA 92122
Dimensional Fund Advisors Inc. (4)................................... 3,325,575 5.7 5.2
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
William H.J. Andersen (5)............................................ 21,900 * *
Robert P. Berkowitz.................................................. 0 -- --
Anthony L. Craig..................................................... 63,750 * *
David J. Dunn (6).................................................... 8,331,414 14.3 13.1
Kim B. Edwards (7)................................................... 735,525 1.2 1.1
Michael J. Kucha (8)................................................. 37,758 * *
John R. Myers (9).................................................... 21,750 * *
John E. Nolan, Jr. (10).............................................. 67,500 * *
The Honorable John E. Sheehan (11)................................... 306,000 * *
All current directors and executive officers as a group
(19 persons) (12).................................................. 11,697,453 19.2 17.7
</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 that are currently exercisable or that become exercisable within 60
days after November 30, 1995, and any reference in these footnotes to shares
subject to stock options held by the stockholder in question refers only to
such options.
(2) Number of shares deemed outstanding for purposes of calculating these
percentages is comprised of the 58,427,559 shares outstanding as of November
30, 1995, plus any shares subject to stock options held by the person in
question. Number of shares deemed outstanding after this offering includes
the additional 5,250,000 shares of Common Stock offered hereby.
(3) David J. Dunn, a director of the Company, and 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) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, has filed a Schedule 13G with the SEC reporting the beneficial
ownership of Common Stock as of December 31, 1994, and the foregoing
information is derived from such Schedule 13G. Dimensional is deemed to have
beneficial ownership of 3,325,575 shares, all of which are held in
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
investment company, or in a series of DFA Investment Trust Company, a
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<PAGE>
Delaware business trust, or the DFA Group Trust and DFA Participation Group
Trust, investment vehicles for qualified employee benefit plans, for all of
which Dimensional serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares.
(5) Includes 18,750 shares subject to a stock option held by Mr. Andersen.
(6) 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.
(7) 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 Mr. Edwards
disclaims beneficial ownership.
(8) Includes 7,500 shares held by Mr. Kucha as custodian for his children, as to
which 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.
(9) Includes 18,750 shares subject to a stock option held by Mr. Myers.
(10) Includes 37,500 shares subject to a stock option held by Mr. Nolan.
(11) 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 Mr. Sheehan
disclaims beneficial ownership.
(12) Includes 2,416,086 shares subject to stock options and 7,989,678 shares
held by Idanta Partners Ltd.
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.
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<PAGE>
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 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
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<PAGE>
"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 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.
43
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC
and Montgomery Securities, have severally agreed to purchase from the Company
the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------------------------------------------------------------------ ----------
<S> <C>
Hambrecht & Quist LLC.................................................................................
Montgomery Securities.................................................................................
----------
Total............................................................................................. 5,250,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
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 Underwriters' obligation is
such that they are committed to purchase all shares of Common Stock offered
hereby if any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock 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 share. The Underwriters may allow and such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After the
public offering of the shares, the offering price and other selling terms may be
changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 787,500
additional shares of Common Stock at the public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number shares of Common Stock offered hereby. The
Company will be obligated, pursuant to the option, to sell such shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, and to
contribute to payments the Underwriters may be required to make in respect
thereof.
The executive officers and directors of the Company have agreed that they
will not, without the prior written consent of Hambrecht & Quist LLC, 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 Hambrecht & Quist LLC, 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).
44
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby 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 Underwriters by Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, Palo Alto, California.
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 Common Stock offered
hereby. 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 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.
45
<PAGE>
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; and
(3) 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 January 30, 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.
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).
46
<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 UNDERWRITERS.
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.................................... 5
The Company..................................... 12
Use of Proceeds................................. 12
Price Range of Common Stock and Dividend
Policy......................................... 13
Capitalization.................................. 14
Selected Consolidated Financial Data............ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................... 16
Business........................................ 24
Management...................................... 37
Principal Stockholders.......................... 40
Description of Capital Stock.................... 41
Underwriting.................................... 44
Legal Matters................................... 45
Experts......................................... 45
Available Information........................... 45
Incorporation of Certain Documents by
Reference...................................... 46
Index to Consolidated Financial Statements...... F-1
</TABLE>
5,250,000 SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
--------------
HAMBRECHT & QUIST
MONTGOMERY SECURITIES
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<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
---------- ------ ------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992............................... 53,632,656 $1,788 $ -- $57,746 $ 17,347 $ (11,857)
Sale of shares to employees at an average price of $0.69
cash per share............................................. 570,888 19 -- 373 -- --
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) -- --
Dividends on Series A Convertible Preferred Stock........... -- -- -- -- (78) --
Tax benefit from early dispositions of employee stock....... -- -- -- 214 -- --
Recognition of compensation from Employee Stock Purchase
Plan....................................................... -- -- -- 84 -- --
Issuance of 34,563 treasury shares under Employee Stock
Purchase Plan.............................................. -- -- -- (30) -- 60
Net loss.................................................... -- -- -- -- (14,525) --
---------- ------ ------ -------- --------- ---------
Balances at December 31, 1993............................... 55,085,544 $1,836 $(597) $58,904 $ 2,744 $ (11,797)
<CAPTION>
TOTAL
---------
<S> <C>
Balances at December 31, 1992............................... $ 65,024
Sale of shares to employees at an average price of $0.69
cash per share............................................. 392
Sale of shares to officer at an average price of $0.68 per
share for a note receivable................................ --
Accretion of Series A Convertible Preferred Stock redemption
premium.................................................... (51)
Dividends on Series A Convertible Preferred Stock........... (78)
Tax benefit from early dispositions of employee stock....... 214
Recognition of compensation from Employee Stock Purchase
Plan....................................................... 84
Issuance of 34,563 treasury shares under Employee Stock
Purchase Plan.............................................. 30
Net loss.................................................... (14,525)
---------
Balances at December 31, 1993............................... $ 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
---------- ------ ------ -------- --------- ---------
Sale of shares to employees at an average price of $0.56
cash per share............................................. 473,703 16 -- 240 -- --
<S> <C> <C> <C> <C> <C> <C>
Purchase of 390,000 shares at an average cost of $0.78 cash
per share.................................................. -- -- -- -- -- (305)
Accretion of Series A Convertible Preferred Stock redemption
premium.................................................... -- -- -- (55) -- --
Dividends on Series A Convertible Preferred Stock........... -- -- -- -- (77) --
Tax benefit from early dispositions of employee stock....... -- -- -- 28 -- --
Recognition of compensation from Employee Stock Purchase
Plan....................................................... -- -- -- 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) --
---------- ------ ------ -------- --------- ---------
Balances at December 31, 1994............................... 55,559,247 $1,852 $(597) $47,023 $ 785 $ --
<CAPTION>
TOTAL
---------
Sale of shares to employees at an average price of $0.56
cash per share............................................. 256
<S> <C>
Purchase of 390,000 shares at an average cost of $0.78 cash
per share.................................................. (305)
Accretion of Series A Convertible Preferred Stock redemption
premium.................................................... (55)
Dividends on Series A Convertible Preferred Stock........... (77)
Tax benefit from early dispositions of employee stock....... 28
Recognition of compensation from Employee Stock Purchase
Plan....................................................... 8
Issuance of 15,171 treasury shares under Employee Stock
Purchase Plan.............................................. --
Five-for-four Common Stock split effected in the form of a
25% stock dividend......................................... --
Net loss.................................................... (1,882)
---------
Balances at December 31, 1994............................... $ 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
---------- ------ ------ -------- --------- ---------
Sale of shares to employees at an average price of $0.83
cash per share............................................. 2,429,751 81 -- 1,945 -- --
<S> <C> <C> <C> <C> <C> <C>
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) -- --
Dividends on Series A Convertible Preferred Stock........... -- -- -- -- (35) --
Tax benefit from early dispositions of employee stock....... -- -- -- 860 -- --
Recognition of compensation from Employee Stock Purchase
Plan....................................................... -- -- -- 185 -- --
Conversion of Series A Convertible Preferred Stock to Common
Stock...................................................... 318,600 11 -- 1,194 -- --
Issuance of Common Shares under Employee Stock Purchase
Plan....................................................... 14,862 -- -- 13 -- --
Collection of notes receivable from stockholders............ -- -- 880 -- -- --
Net income.................................................. -- -- -- -- 8,503 --
---------- ------ ------ -------- --------- ---------
Balances at December 31, 1995............................... 58,819,335 $1,960 $ -- $51,473 $ 9,253 $ --
---------- ------ ------ -------- --------- ---------
---------- ------ ------ -------- --------- ---------
<CAPTION>
TOTAL
---------
Sale of shares to employees at an average price of $0.83
cash per share............................................. 2,026
<S> <C>
Sale of shares to an officer at an average price of $0.57
per share for a note receivable............................ --
Accretion of Series A Convertible Preferred Stock redemption
premium.................................................... (14)
Dividends on Series A Convertible Preferred Stock........... (35)
Tax benefit from early dispositions of employee stock....... 860
Recognition of compensation from Employee Stock Purchase
Plan....................................................... 185
Conversion of Series A Convertible Preferred Stock to Common
Stock...................................................... 1,205
Issuance of Common Shares under Employee Stock Purchase
Plan....................................................... 13
Collection of notes receivable from stockholders............ 880
Net income.................................................. 8,503
---------
Balances at December 31, 1995............................... $ 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. Although the Company expects
that proceeds from an anticipated stock offering, together with current sources
of financing available to the Company, will be sufficient to fund the Company's
operations through 1996, the Company may require additional funds during 1996 or
thereafter 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
1994 31, 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Bad debt 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 90% of eligible accounts
receivable. 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 depending
on the currency and ranges from 7.75% to 15% at December 31, 1995. The loan is
denominated in
F-17
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) NOTES PAYABLE (CONTINUED)
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 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, and $29,903,000 and $49,526,000, respectively, primarily to
European countries other than Germany. 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>
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........................................................... 250,000
Printing, Engraving and Mailing Expenses.......................................... 125,000
Miscellaneous..................................................................... 23,078
---------
Total............................................................................. $ 575,000
---------
---------
</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 Underwriters
are 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.
5 Opinion of Hale and Dorr.
23.1 Consent of Hale and Dorr.
23.2 Consent of Arthur Andersen LLP.
24 Powers of Attorney.
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 30th day of January, 1996.
IOMEGA CORPORATION
By: /s/ LEONARD C. PURKIS
--------------------------------------
Leonard C. Purkis
Senior Vice President, Finance,
Chief Financial Officer and
Treasurer
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 30th day of January, 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, Chief Financial Officer
------------------------------------------- and Treasurer (principal financial and accounting
Leonard C. Purkis 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
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
*
------------------------------------------- Director
John E. Nolan, Jr.
*
------------------------------------------- Director
The Honorable John E. Sheehan
*By: /s/ LEONARD C. PURKIS
--------------------------------------
Leonard C. Purkis
Attorney-in-fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<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
5* Opinion of Hale and Dorr
23.1* Consent of Hale and Dorr (included in Exhibit 5)
23.2 Consent of Arthur Andersen LLP
24* Powers of Attorney
27 Financial Data Schedule
99 Schedule of Valuation and Qualifying Accounts (including report of Arthur Andersen LLP)
</TABLE>
- ------------------------
* Previously filed
** Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended July 4, 1993.
*** Incorporated by reference from the Company's Current Report on Form 8-K
dated July 28, 1989.
<PAGE>
IOMEGA CORPORATION
5,250,000 Shares(1)
Common Stock
UNDERWRITING AGREEMENT
, 1996
-------------
HAMBRECHT & QUIST LLC
MONTGOMERY SECURITIES
As Representatives of the Several Underwriters
c/o 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 5,250,000 shares of its authorized but unissued
Common Stock, $.03 1/3 par value (herein called the "Common Stock") (said
5,250,000 shares of Common Stock being herein called the "Underwritten Stock").
The Company proposes to grant to the "Underwriters" (as hereinafter defined) an
option to purchase up to 787,500 additional shares of Common Stock (herein
called the "Option Stock" and with the Underwritten Stock herein collectively
called the "Stock"). The Common Stock is more fully described in the
Registration Statement and the Prospectus hereinafter mentioned.
The Company hereby confirms the agreements made with respect to the
purchase of the Stock by the several underwriters, for whom you are acting,
named in Schedule I hereto (herein collectively called the Underwriters, which
term shall also include any underwriter purchasing Stock pursuant to Section
3(b) hereof). You represent and warrant that you have been authorized by each
of the other Underwriters to enter into this Agreement on its behalf and to act
for it in the manner herein provided.
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
- -----------------------
(1) Plus an option to purchase form the Company up to 787,500 additional shares
to cover over-allotments.
<PAGE>
Securities Act of 1933, as amended (herein called the "Securities Act"), of the
Stock. 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 Stock (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 Stock 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
necessary (except where the failure to be so qualified would not have a material
adverse effect on
2
<PAGE>
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 Stock 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 Stock is to be
purchased, the Prospectus will comply, in all material respects, with the
provisions of the Securities Act and the Securities Exchange Act of 1934, as
amended (herein called the "Exchange Act"), and the rules and regulations of the
Commission thereunder. On the Effective Date, the Registration Statement 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
did not and, on the Closing Date and any later date on which Option Stock is 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 Company by or
on behalf of the Underwriters for use in the Registration Statement or the
Prospectus.
(v) The Stock is duly and validly authorized, is (or, in the case
of shares of the Stock to be sold by the Company, will be, when issued and sold
to the Underwriters as provided
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herein) duly and validly issued, fully paid and nonassessable and conforms to
the description thereof in the Prospectus. 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 Stock as contemplated herein. The authorized
capital stock of the Company conforms as to legal matters to the description
thereof contained in the Prospectus. The shares of Common Stock outstanding
prior to the issuance of the Underwritten Stock and, if any, the Option Stock
have been duly authorized and are validly issued, fully paid and non-assessable.
(vi) Prior to the Closing Date, the Stock to be issued and sold by
the Company will be authorized for listing on the Nasdaq National Market (herein
called "NNM") upon official notice of issuance.
(vii) 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.
(viii) 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.
(ix) 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.
(x) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly
4
<PAGE>
authorized, executed and delivered by the Company and is a valid and binding
agreement on the part of the Company, enforceable in accordance with its 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
execution and performance of this Agreement and the consummation of the
transactions herein contemplated do not and will not: (i) 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, (ii) 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 (iii) 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.
(xi) 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 (i) might have a Material Adverse
Effect, or (ii) might prevent consummation of the transactions contemplated
hereby or (iii) 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.
(xii) 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.
(xiii) 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 Stock.
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<PAGE>
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(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
5,250,000 shares of the Underwritten Stock to the several Underwriters and each
of the Underwriters agrees to purchase from the Company the respective aggregate
number of shares of Stock set forth opposite its name in Schedule I. The price
at which such shares of Underwritten Stock shall be sold by the Company and
purchased by the several Underwriters shall be $___ per share. The obligation
of each Underwriter to the Company shall be to purchase from the Company that
number of shares of the Underwritten Stock set forth opposite the name of such
Underwriter in Schedule I hereto. In making this Agreement, each Underwriter is
contracting severally and not jointly; except as provided in paragraphs (b) and
(c) of this Section 3, the agreement of each Underwriter is to purchase only the
respective number of shares of the Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 8 or 9 hereof) to purchase and pay for
the number of shares of the Stock agreed to be purchased by such Underwriter or
Underwriters, the Company shall immediately give notice thereof to you, and the
non-defaulting Underwriters shall have the right within 24 hours after the
receipt by you of such notice to purchase, or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon between you
and such purchasing Underwriter or Underwriters and upon the terms herein set
forth, all or any part of the shares of the Stock which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares,
the number of shares of the Stock which each non-defaulting Underwriter is
otherwise obligated to purchase under this Agreement shall be automatically
increased on a pro rata basis to absorb the remaining shares which the
defaulting Underwriter or Underwriters agreed to purchase; PROVIDED, HOWEVER,
that the non-defaulting Underwriters shall not be obligated to purchase the
shares which the defaulting Underwriter or Underwriters agreed to purchase if
the aggregate number of such shares of the Stock exceeds 10% of the total number
of shares of the Stock which all Underwriters agreed to purchase hereunder. If
the total number of shares of the Stock which the defaulting Underwriter or
Underwriters agreed to purchase shall not be purchased or absorbed in accordance
with the two preceding sentences, the Company shall have the right, within 24
hours next succeeding the 24-hour period above referred to, to make arrangements
with other underwriters or purchasers satisfactory to you for purchase of such
shares on the terms herein set forth. In any such case, either you or the
Company shall have the right to postpone the Closing Date determined as provided
in Section 5 hereof for not more than seven business days after the date
originally fixed as the Closing Date pursuant to said Section 5 in order that
any necessary changes in the Registration Statement, the Prospectus or any other
documents or arrangements may be made. If neither the non-defaulting
Underwriters nor the Company shall make arrangements within the 24 hour periods
stated above for the purchase of all the shares of the Stock which the
defaulting Underwriter or Underwriters agreed to purchase hereunder, this
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<PAGE>
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company to any non-defaulting Underwriter and
without any liability on the part of any non-defaulting Underwriter to the
Company. Nothing in this paragraph (b), and no action taken hereunder, shall
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
(c) 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 several Underwriters to purchase, severally and not
jointly, up to 787,500 shares of Option Stock from the Company at the same price
per share as the Underwriters shall pay for the Underwritten Stock. Said option
may be exercised only to cover over-allotments in the sale of the Underwritten
Stock by the Underwriters 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 number of shares of the Option Stock as to which the several
Underwriters are exercising the option. Delivery of certificates for the shares
of Option Stock and payment therefor shall be made as provided in Section 5
hereof. The number of shares of the Option Stock to be purchased by each
Underwriter shall be the same percentage of the total number of shares of the
Option Stock to be purchased by the several Underwriters as such Underwriter is
purchasing of the Underwritten Stock as adjusted by you in such manner as you
deem advisable to avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the public offering by the Underwriters of the Stock to
be purchased by them shall be as set forth in the Prospectus. The Underwriters
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 Stock filed by the Company
(insofar as such information relates to the Underwriters or the terms and
conditions upon which they will sell the Stock) constitutes the only information
furnished by the Underwriters to the Company for inclusion in the Registration
Statement, any Preliminary Prospectus, and the Prospectus, and you on behalf of
the respective Underwriters represent and warrant to the Company that the
statements made therein are correct.
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<PAGE>
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten Stock and
the Option Stock (if the option granted by Section 3(c) 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(c) 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 shares of Option Stock, 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 stock 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
Stock to you for the respective accounts of the several Underwriters against
receipt therefor signed by you. Certificates for the Stock 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 Stock, and at least two business days prior to the purchase
thereof, in the case of the Option Stock. Such certificates will be made
available to the Underwriters for inspection, checking and packaging at the
offices of Lewco Securities Corporation, 2 Broadway, New York, New York, 100004
not less than one full business day prior to the Closing Date or, in the case of
the Option Stock, by 3:00 p.m., New York time, on the business day preceding the
date of purchase.
It is understood that you, individually and not on the behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or on any later date on which Option Stock
is purchased for the account of such Underwriter. Any such payment by you shall
not relieve such Underwriter from any of its obligations hereunder.
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<PAGE>
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
Stock 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) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, 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 an
Underwriter or dealer, likewise send to the Underwriters 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 an 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 necessary, in the opinion of counsel
for the Company or of counsel for the Underwriters, to
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<PAGE>
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 Stock, 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 Stock by the Underwriters and during such
period, the Underwriters 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 Underwriters 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 Underwriters and all dealers to whom any of the Stock may be sold
by the several Underwriters to use the Prospectus, as from time to time amended
or supplemented, in connection with the sale of the Stock 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 Stock 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 an 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 Stock.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, 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.
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(i) The Company agrees to pay all costs and expenses incident to the
performance of its obligations under this Agreement, including all costs and
expenses incident 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 and the Prospectus, (ii)
the furnishing to the Underwriters 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 Underwriters, (iv) the preparation, printing and filing of all
supplements and amendments to the Prospectus referred to in paragraph (d) of
this Section 6, (v) the furnishing to you and the Underwriters of the reports
and information referred to in paragraph (g) of this Section 6 and (vi) the
printing and issuance of stock certificates, including the transfer agent's
fees.
(j) The Company agrees to reimburse you, for the account of the several
Underwriters, for blue sky fees and related disbursements (including counsel
fees and disbursements and cost of printing memoranda for the Underwriters) paid
by or for the account of the Underwriters or their counsel in qualifying the
Stock under state securities or blue sky laws and in the review of the offering
by the NASD.
(k) The Company hereby agrees that, without the prior written consent of
Hambrecht & Quist LLC on behalf of the Underwriters, 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 Stock to be sold to
the Underwriters 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. 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 any 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, or the common law or otherwise, and the Company agrees to
reimburse each such 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 any 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 any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Stock which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Stock 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 Stock.
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(b) Each Underwriter severally 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, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other 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, 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 such indemnifying 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 each 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 Stock.
(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
13
<PAGE>
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 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 Stock 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 Underwriters on the other shall be deemed to
14
<PAGE>
be in the same respective proportions as the total net proceeds from the
offering of the Stock received by the Company and the total underwriting
discount received by the Underwriters, as set forth in the table on the cover
page of the Prospectus, bear to the aggregate public offering price of the
Stock. 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
(even if the Underwriters were treated as one entity for such purpose) 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), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Stock purchased by such 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. The Underwriters'
obligations in this paragraph (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
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
Representatives, 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 an Underwriter or any
person who controls such 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 each Underwriter and each controlling
person from all liability arising out of such claim, action, suit or proceeding.
15
<PAGE>
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 Underwriters' reasonable judgment,
make the offering or delivery of the Stock 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 NNM, 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 Underwriters' 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
Underwriters' 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 Underwriters
and no liability of the Underwriters to the Company; PROVIDED, HOWEVER, that in
the event of any such termination the Company agrees to indemnify and hold
harmless the Underwriters 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 UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Stock 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 Stock is 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.
(b) The legality and sufficiency of the sale of the Stock hereunder and
the validity and form of the certificates representing the Stock, all corporate
proceedings and other legal matters incident to the foregoing, and the form of
the Registration Statement and of the Prospectus (except as to the financial
statements contained therein), shall have been approved at or prior to
16
<PAGE>
the Closing Date by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, counsel for the Underwriters ("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 Underwriters and dated the Closing Date,
covering the matters set forth in Annex A and Annex B hereto, respectively, and
if Option Stock is purchased at any date after the Closing Date, additional
opinions from each such counsel addressed to the Underwriters and dated 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 Stock is 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 Stock 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 Stock is 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
17
<PAGE>
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 Underwriters and dated the Closing Date and any later date on
which Option Stock is 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 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 Stock is 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 Stock or the purchase of
the Option Stock 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) Prior to the Closing Date, the Stock to be issued and sold by the
Company shall have been duly authorized for listing by the NNM upon official
notice of issuance.
(j) 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 Representatives that such
stockholders will not, without the prior written consent of Hambrecht & Quist
LLC on behalf of the Underwriters, 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
18
<PAGE>
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.
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 Underwriters, 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
Underwriters and without liability of the Underwriters to the Company; PROVIDED,
HOWEVER, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters 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 Underwriters,
the Company will reimburse the Underwriters severally 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 Underwriters 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 several Underwriters and, with respect to
the provisions of Section 7 hereof, the several parties (in addition to the
Company and the several Underwriters)
19
<PAGE>
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 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 Stock
from any of the several Underwriters.
12. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing and, if to the Underwriters, 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 Stock 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.
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.
20
<PAGE>
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the Company
and the several Underwriters 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
MONTGOMERY SECURITIES
By Hambrecht & Quist LLC
By:
-------------------------------------
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
21
<PAGE>
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
to be Purchased
---------------
<S> <C>
Hambrecht & Quist LLC . . . . . . . . . . . . . . . . . . . .
Montgomery Securities . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,250,000
-------------
-------------
</TABLE>
22
<PAGE>
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 (including
the Underwritten Stock plus the number of shares of Option Stock issued on the
date hereof); proper corporate proceedings have been taken validly to authorize
such authorized capital stock; all of the outstanding shares of such capital
stock (including the Underwritten Stock and the shares of Option Stock issued,
if any) have been duly and validly issued and are fully paid and nonassessable;
any Option Stock purchased after the Closing Date, when issued and delivered to
and paid for by the Underwriters as provided in the Underwriting Agreement, will
have been duly and validly issued and be fully paid and nonassessable; no
preemptive rights or rights of refusal exist with respect to the Stock, 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 Stock 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
23
<PAGE>
to issue or sell shares of its capital stock or any such options, rights,
convertible securities or obligations;
(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.
(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) comply as to form in all material respects with
the requirements of the Securities Act, the Exchange Act 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 issue and sale by the Company of the shares of Stock sold by
the Company as contemplated by the Underwriting Agreement 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
24
<PAGE>
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;
(x) 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;
(xi) 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 such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Stock by
the Underwriters.
(xii) 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
(xiii) The Stock to be sold under the Agreement to the Underwriters is
duly authorized for quotation on the Nasdaq National Market.
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
Underwriters. Copies of any opinions so relied upon shall be delivered to the
Representatives and to counsel for the Underwriters and the foregoing opinion
shall also state that counsel knows of no reason the Underwriters 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 Stock is 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.
25
<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
26
<PAGE>
(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.
27
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
IOMEGA CORPORATION
PURSUANT TO SECTIONS 242 AND 245 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
IOMEGA CORPORATION (hereinafter called the "Corporation"), a
corporation originally organized and incorporated under the name "Databyte
Corporation" by the filing of a Certificate of Incorporation in the office of
the Secretary of State of the State of Delaware on April 2, 1980, and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify that (a) at a meeting of the Board of Directors
of the Corporation, the Board of Directors duly adopted a resolution pursuant
to Sections 242 and 245 of the General Corporation Law of the State of
Delaware proposing an amendment to and restatement of the Certificate of
Incorporation of the Corporation and declaring said amendment and restatement
to be advisable; (b) the stockholders of the Corporation duly approved said
proposed amendment and restatement by written consent in accordance with
Sections 228 and 242 of the General Corporation Law of the State of Delaware,
and written notice of such consent has been given to all stockholders who
have not consented in writing to said amendment and restatement; and (c) the
capital of the Corporation will not be reduced under or by reason of this
amendment and restatement.
<PAGE>
The resolution setting forth the amendment and restatement is as
follows:
RESOLVED: That the Restated Certificate of Incorporation of the
Corporation shall read as follows:
FIRST: The name of the Corporation is
IOMEGA CORPORATION
SECOND: The registered office of the Corporation is to be
located at No. 100 West Tenth Street, in the City of Wilmington, in the
County of New Castle, in the State of Delaware. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of Delaware.
Without limiting in any manner the scope and generality of the
foregoing, it is hereby provided that the Corporation shall have the
following purposes, objects and powers:
To purchase, manufacture, produce, assemble, receive, lease or in
any manner acquire, hold, own, use, operate, install, maintain, service,
repair, process, alter, improve, import, export, sell, lease, assign,
transfer and generally to trade and deal in and with computers and computer
systems, equipment, devices, apparatus, components, parts and supplies of
every type and description, natural or manufactured articles or products,
machinery, equipment, devices, systems, parts, supplies, apparatus, goods,
wares, merchandise and personal property of every kind, nature or
description, tangible or intangible, used or capable of being used for any
purpose whatsoever; and to engage and participate in any mercantile,
manufacturing or trading business of any kind or character.
To improve, manage, develop, sell, assign, transfer, lease,
mortgage, pledge or otherwise dispose of or turn to account or deal with all
or any part of the property of the corporation and from time to time to vary
any investment or employment of capital of the corporation.
To borrow money, and to make and issue notes, bonds, debentures,
obligations and evidences of indebtedness of all
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<PAGE>
kinds, whether secured by mortgage, pledge or otherwise, without limit as to
amount, and to secure the same by mortgage, pledge or otherwise; and
generally to make and perform agreements and contracts of every kind and
description, including contracts of guaranty and suretyship.
To lend money for its corporate purposes, invest and reinvest its
funds, and take, hold and deal with real and personal property as security
for the payment of funds so loaned or invested.
To the same extent as natural persons might or could do, to
purchase or otherwise acquire, and to hold, own, maintain, work, develop,
sell, lease, exchange, hire, convey, mortgage or otherwise dispose of and
deal in lands and leaseholds, and any interest, estate and rights in real
property, and any personal or mixed property, and any franchises, rights,
licenses or privileges necessary, convenient or appropriate for any of the
purposes herein expressed.
To apply for, obtain, register, purchase, lease or otherwise to
acquire and to hold, own, use, develop, operate and introduce and to sell,
assign, grant licenses or territorial rights in respect to, or otherwise to
turn to account or dispose of, any copyrights, trade marks, trade names,
brands, labels, patent rights, letters patent of the United States or of any
other country or government, inventions, improvements and processes, whether
used in connection with or secured under letters patent or otherwise.
To participate with others in any corporation, partnership,
limited partnership, joint venture, or other association of any kind, or in
any transaction, undertaking or arrangement which the participating
corporation would have power to conduct by itself, whether or not such
participation involves sharing or delegation of control with or to others;
and to be an incorporator, promoter or manager of other corporations of any
type or kind.
To pay pensions and establish and carry out pension, profit
sharing, stock option, stock purchase, restricted stock, stock bonus,
retirement, benefit, incentive and commission plans, trusts and provisions
for any or all of its directors, officers and employees, and for any or all
of the directors, officers and employees of its subsidiaries; and to provide
insurance for its benefit on the life of any of its directors, officers or
employees, or on the life of any stockholder for the purpose of acquiring at
his death shares of its stock owned by such stockholders.
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<PAGE>
To acquire by purchase, subscription or otherwise, and to hold
for investment or otherwise and to use, sell, assign, transfer, mortgage,
pledge or otherwise deal with or dispose of stocks, bonds or any other
obligations or securities of any corporation or corporations; to merge or
consolidate with any corporation in such manner as may be permitted by law;
to aid in any manner any corporation whose stocks, bonds or other obligations
are held or in any manner guaranteed by this corporation, or in which this
corporation is in any way interested; and to do any other acts or things for
the preservation, protection, improvement or enhancement of the value of any
such stock, bonds of other obligations; and while owner of any such stock,
bonds or other obligations to exercise all the rights, powers and privileges
of ownership thereof, and to exercise any and all voting powers thereon; and
to guarantee the payment of dividends upon any stock, the principal or
interest or both, of any bonds or other obligations, and the performance of
any contracts.
To do all and everything necessary, suitable and proper for the
accomplishment of any of the purposes or the attainment of any of the objects
or the furtherance of any of the powers hereinbefore set forth, either alone
or in association with other corporations, firms or individuals, and to do
every other act or acts, thing or things incidental or appurtenant to or
growing out of or connected with the aforesaid business or powers or any part
or parts thereof, provided the same be not inconsistent with the laws under
which this corporation is organized.
The business or purpose of the Corporation is from time to time
to do any one or more of the acts and things hereinabove set forth, and it
shall have power to conduct and carry on its said business, or any part
thereof, and to have one or more offices, and to exercise any or all of its
corporate powers and rights, in the State of Delaware, and in the various
other states, territories, colonies and dependencies of the United States, in
the District of Columbia, and in all or any foreign countries.
The enumeration herein of the objects and purposes of the
Corporation shall be construed as powers as well as objects and purposes and
shall not be deemed to exclude by inference any powers, objects or purposes
which the corporation is empowered to exercise, whether expressly by force of
the laws of the State of Delaware now or hereafter in effect, or impliedly
by the reasonable construction of the said laws.
-4-
<PAGE>
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 30,000,000 shares of Common
Stock, $.03 1/3 par value per share.
FIFTH: The following provisions are inserted for the
management of the business and for the conduct of the affairs of the
Corporation and for further definition, limitation and regulation of the
powers of the Corporation and of its directors and stockholders:
(1) The number of directors of the Corporation shall be such as
from time to time shall be fixed by, or in the manner provided in the
by-laws. Election of directors need not be by ballot unless the by-laws so
provide.
(2) The Board of Directors shall have power without the assent
or vote of the stockholders to make, alter, amend, change, add to or repeal
the by-laws of the Corporation; to fix and vary the amount to be reserved for
any proper purpose; to authorize and cause to be executed mortgages and liens
upon all or any part of the property of the Corporation; to determine the use
and disposition of any surplus or net profits; and to fix the times for the
declaration and payment of dividends.
(3) In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised
or done by the Corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this certificate, and to any by-laws from time to
time made by the stockholders; provided, however, that no by-laws so made
shall invalidate any prior act of the directors which would have been valid
if such by-law had not been made.
SIXTH: The Corporation shall, to the full extent permitted by
Section 145 of the Delaware General Corporation Law, as amended from time to
time, indemnify all directors and officers of the Corporation whom it may
indemnify pursuant thereto.
SEVENTH: Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them and/or
between this corporation and its stockholders or any class of them, any court
of equitable jurisdiction within the State of Delaware may, on the
application in a summary way of this corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for this corporation under the provisions of Section 291 of Title 8
of the Delaware Code or on the application of trustees in dissolution or
-5-
<PAGE>
of any receiver or receivers appointed for this corporation under the
provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may
be, agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
EIGHTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation
in the manner now or hereafter prescribed by law, and all rights and powers
conferred herein on stockholders, directors, and officers are subject to this
reserved power.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereto affixed and this Certificate of Amendment and Restatement to be
signed by its President and attested by its Secretary this 14th day of July,
1983.
IOMEGA CORPORATION
By: /s/ Gabriel P. Fusco
------------------------------------
President
ATTEST: /s/ Paul P. Brountas
------------------------------
Secretary
(CORPORATE SEAL)
-6-
<PAGE>
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION OF
IOMEGA CORPORATION
IOMEGA CORPORATION (the "Corporation"), a corporation originally
organized and incorporated under the name "Databyte Corporation" by the filing
of a Certificate of Incorporation in the office of the Secretary of State of
the State of Delaware on April 2, 1980, and existing under and by virtue of
the General Corporation Law of the State of Delaware, does hereby certify as
follows:
1. The Restated Certificate of Incorporation of the Corporation is
hereby amended by deleting, in its entirety, Article FOURTH, and inserting in
lieu thereof a new Article FOURTH, which shall read in its entirety as follows:
"FOURTH. The total number of shares of capital stock of all
classes which the Corporation shall have authority to issue is
35,000,000, consisting of 30,000,000 shares of Common Stock, $.03 1/3 par
value per share, and 5,000,000 shares of Preferred Stock, $.01 par value
per share.
The following is a statement of the designations, powers,
preferences and rights, and the relative, participating, optional or
other special rights, and the qualifications, limitations and
restrictions granted to or imposed upon the respective classes of shares
of capital stock of the Corporation or the holders thereof:
A. COMMON STOCK
The voting and dividend rights, and the rights in the event of
the liquidation of the Corporation, of the holders of Common Stock are
subject to and qualified by such rights of the holders of any series of
Preferred Stock as set forth herein or as the Board of Directors may
designate upon the issuance of shares of any series of Preferred Stock.
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<PAGE>
The holders of Common Stock are entitled to one vote for each
share held at all meetings of stockholders. There shall be no cumulative
voting.
Dividends may be declared and paid on Common Stock from funds
lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding shares of Preferred Stock.
Upon the dissolution or liquidation of the Corporation, whether
voluntary or involuntary, holders of Common Stock will be entitled to
receive pro rata all net assets of the Corporation available for
distribution after payment of creditors and payment of any preferential
liquidation rights of any then outstanding shares of Preferred Stock.
B. PREFERRED STOCK
Preferred Stock may be issued from time to time in one or more
series, each of such series to have such terms as stated or expressed
herein and in the resolution or resolutions providing for the issuance
of shares of such series adopted by the Board of Directors of the
Corporation as hereinafter provided. Any shares of Preferred Stock which
may be redeemed, purchased or acquired by the Corporation may be reissued
except as otherwise provided by law. Different series of Preferred Stock
shall not be construed to constitute different classes of shares for the
purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors to
issue from time to time shares of Preferred Stock in one or more series,
and in connection with the creation of any such series, by resolution or
resolutions providing for the issuance of the shares thereof, to
determine and fix such voting powers, full or limited, or no voting
powers, and such designation, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, including without limitation dividend rights,
conversion rights, redemption privileges and liquidation preferences, as
shall be stated and expressed in such resolutions, all to the full extent
now or hereafter permitted by the General Corporation Law of Delaware.
Without limiting the generality of the foregoing, the resolutions
providing for the issuance of shares of any series of Preferred
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<PAGE>
Stock may provide that such series shall be superior or rank equally
or be junior to shares of any other series of Preferred Stock to the
extent permitted by law. Unless otherwise expressly provided, no vote
of the holders of shares of Preferred Stock or Common Stock shall be a
prerequisite to the issuance of any shares of any series of Preferred
Stock authorized by and complying with the conditions of the Restated
Certificate of Incorporation."
2. The Restated Certificate of Incorporation of the Corporation is
hereby amended by adding a new Article NINTH, which shall read in its
entirety as follows:
"NINTH: Except to the extent that the General Corporation
Law of the State of Delaware prohibits the elimination of
liability of directors for breaches of fiduciary duty, no director
of the Corporation shall be liable for any breach of fiduciary
duty. No amendment to or repeal of this provision shall apply to
or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment."
3. Pursuant to the requirements of Section 242 of the General
Corporation Law of the State of Delaware, (i) the Board of Directors of the
Corporation adopted resolutions setting forth the foregoing amendments to the
Restated Certificate of Incorporation of the Corporation, declaring their
advisability, and directing that they be presented to the stockholders of the
Corporation for consideration, and (ii) the stockholders of the Corporation
duly approved the foregoing amendments.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate
of Amendment to be signed by its Senior Vice President - Finance and Planning
and attested by its Assistant Secretary, and its corporate seal to be affixed,
this 20th day of May, 1987.
IOMEGA CORPORATION
By: /s/ E. Kevin Dahill
-----------------------------------
E. Kevin Dahill
Senior Vice President -
Finance and Planning
Attest: /s/ Gwenn Newbold
-------------------------------
Gwenn Newbold
Assistant Secretary
(Corporate Seal)
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<PAGE>
IOMEGA CORPORATION
CERTIFICATE OF DESIGNATION OF SERIES A AND
SERIES B CONVERTIBLE PREFERRED STOCK
------------------------------------------
Iomega Corporation, a Delaware corporation (the "Corporation"),
pursuant to authority conferred on the Board of Directors of the Corporation
by the Restated Certificate of Incorporation, as amended, of the Corporation
and in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, certifies that the Board of
Directors of the Corporation, at a meeting thereof duly called and held on
October 13, 1987, duly adopted the following resolutions providing for the
establishment of two series of Preferred Stock of the Corporation, one to be
designated "Series A Convertible Preferred Stock" and consisting of 1,200,000
shares and one to be designated "Series B Convertible Preferred Stock" and
consisting of 250,000 shares, as follows:
"RESOLVED: That, pursuant to the authority expressly granted and vested in
the Board of Directors of the Company in accordance with the provisions of
its Restated Certificate of Incorporation, there are hereby established (i) a
series of Preferred Stock of the Company, consisting of 1,200,000 shares
designated "Series A Convertible Preferred Stock" ("Series A Preferred
Stock") and (ii) a series of Preferred Stock of the Company, consisting of
250,000 shares designated "Series B Convertible Preferred Stock" ("Series B
Preferred Stock"); and subject to the limitations provided by law and by the
Restated Certificate of Incorporation, the powers, designations, preferences
and relative, participating, optional or other special rights of, and the
qualifications, limitations or restrictions upon, the Series A Preferred
Stock and Series B Preferred Stock shall be as follows:
A. SERIES A CONVERTIBLE PREFERRED STOCK.
One million two hundred thousand (1,200,000) shares of the authorized
and unissued Preferred Stock of the Corporation are hereby designated "Series A
Convertible Preferred Stock" (the "Series A Preferred Stock") with the
following rights, preferences, powers, privileges and restrictions,
qualifications and limitations.
1. DIVIDENDS.
(a) The holders of record of shares of the Series A Preferred Stock
shall be entitled to receive, when and as declared by the Board of Directors
of the Corporation, out of any funds legally available therefor, dividends at
the rate of five percent (5%)
<PAGE>
per annum of the Series A Preference (as defined in Subsection 2(a) below) of
such shares for the 1989 calendar year and at the rate of six percent (6%)
per annum of the Series A Preference thereafter. Accrued dividends for each
calendar year shall be paid annually on the March 31 (a "dividend payment
date") following the end of such calendar year (commencing March 31, 1990) to
holders of record of shares of Series A Preferred Stock on such record date
(not more than 60 days prior to March 31) as is established by the Board of
Directors for such dividend.
Dividends at the applicable rates set forth above shall accrue daily
and be cumulative from January 1, 1989. For purposes of the payment of
dividends in cash, the amount of any dividends accrued on any shares of
Series A Preferred Stock at any dividend payment date shall be deemed to be
the amount of any unpaid dividends accumulated thereon to and including the
last day of the preceding calendar year, whether or not earned or declared.
Notwithstanding anything to the contrary herein, accrued dividends for
any calendar year shall not be required to be paid unless the Corporation's
after-tax net income (before any extraordinary benefits) for such year, as
shown on the Company's audited consolidated financial statements, is equal to
or greater than the sum of the aggregate amount of such accrued dividends.
Any accrued dividends that are not paid shall be paid on the dividend payment
date following the end of the first succeeding calendar year in which the
Corporation's after-tax net income, before any extraordinary benefits
(determined as set forth above), is sufficient to pay all of such accrued but
unpaid dividends and the regular dividend on the Series A Preferred Stock for
such year.
(b) So long as shares of Series A Preferred Stock are outstanding, no
cash dividends shall be paid or declared on the Common Stock of the
Corporation or any security ranking junior to the Series A Preferred Stock as
to the payment of dividends, unless all dividends on the Series A Preferred
Stock for all past dividend payment dates shall have been paid and the full
dividend payment for the dividend payment date next succeeding the payment
date of such cash dividend shall have been paid or declared and set apart for
payment.
2. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its stockholders,
after and subject to the payment in full of all amounts required to be
distributed to the holders of any other class or series of stock of the
Corporation
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<PAGE>
ranking on liquidation prior and in preference to the Series A Preferred
Stock (collectively referred to as "Senior Preferred Stock"), but before any
payment shall be made to the holders of Common Stock or any other class or
series of stock ranking on liquidation junior to the Series A Preferred Stock
(such Common Stock and other stock being collectively referred to as "Junior
Stock") by reason of their ownership thereof, an amount equal to $5.00 per
share (the "Series A Preference"). The Series A Preferred Stock shall rank
on a parity with the Series B Preferred Stock upon any liquidation,
dissolution or winding up of the Corporation. If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series A Preferred Stock the
full amount to which they shall be entitled, the holders of shares of Series A
Preferred Stock, Series B Preferred Stock and any other class or series of
stock ranking on liquidation on a parity with the Series A Preferred Stock
shall share ratably in any distribution of the remaining assets and funds of
the Corporation in proportion to the respective amounts which would otherwise
be payable in respect of the shares held by them upon such distribution if
all amounts payable on or with respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to
be paid to the holders of Senior Preferred Stock, Series A Preferred Stock
and any other class or series of stock of the Corporation ranking on
liquidation on a parity with the Series A Preferred Stock, upon the
liquidation, dissolution or winding up of the Corporation, the holders of
shares of Junior Stock then outstanding shall be entitled to receive the
remaining assets and funds of the Corporation available for distribution to
its stockholders.
(c) A consolidation or merger of the Corporation with or into
another corporation or entity, or a sale of all or substantially all of the
assets of the Corporation, shall not be regarded as a liquidation,
dissolution or winding up of the Corporation within the meaning of this
Section 2.
3. VOTING. Except as otherwise required by law, holders of Series A
Preferred Stock shall have no voting rights.
4. OPTIONAL CONVERSION. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Series A Conversion Rights"):
(a) As used herein, the following items shall have the following
respective meanings:
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<PAGE>
(i) "CONVERSION DATE" shall have the meaning set forth in
Subsection 4(d)(i).
(ii) "MARKET VALUE" shall mean (A) if the Common Stock of
the Corporation is listed on any national securities exchange or the NASDAQ
National Market System, the reported last sale price of the Common Stock on
such exchange or system, or, if the Common Stock shall not be so listed,
(B) the average of the closing bid and asked prices for the Common Stock, as
reported by NASDAQ, or (C) if there are no such closing bid and asked prices,
the fair market value of the Common Stock as determined by the Board of
Directors of the Corporation.
(iii) "SERIES A MINIMUM CONVERSION PRICE" shall mean
$15.00 per share, subject to adjustment pursuant to the provisions of this
Section 4.
(iv) "SERIES A CONVERSION PRICE" shall mean, as of the
applicable Conversion Date, the greater of (A) the average of the Market
Values of the Common Stock for the five consecutive Trading Days preceding
(but not including) such Conversion Date, or (B) the then effective Series A
Minimum Conversion Price.
(v) "TRADING DAY" shall mean any day on which the
New York Stock Exchange is generally open for trading.
(b) RIGHT TO CONVERT. If (but only if) the Market Value of
Common Stock of the Corporation shall have been equal to or greater than the
Series A Minimum Conversion Price for at least 20 of the 30 Trading Days
preceding the Conversion Date, holders of shares of Series A Preferred Stock
may convert all or any of such shares, on such Conversion Date, into such
number of fully paid and nonassessable shares of Common Stock as is
determined by (i) multiplying the aggregate Series A Preferences of the
shares so converted by 1.5, (ii) adding to such sum the aggregate amount of
any accrued but unpaid dividends on such shares, excluding any such dividends
declared for payment by the Board of Directors to holders of Series A
Preferred Stock on a record date occurring prior to or on the Conversion
Date, and (iii) dividing the sum so obtained by the Series A Conversion
Price in effect on such Conversion Date.
In the event of a notice of redemption of any shares of Series A
Preferred Stock pursuant to Section 6 hereof, the Series A Conversion Rights
of the shares designated for redemption shall terminate at the close of
business on the fifth Trading Day preceding the date fixed for redemption. In
the event of a liquidation, dissolution or winding up of the Corporation, the
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<PAGE>
Series A Conversion Rights shall terminate at the close of business on the
first Trading Day preceding the date fixed for the payment of any amounts
distributable on liquidation to the holders of Series A Preferred Stock.
(c) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series A Conversion Price.
(d) MECHANICS OF CONVERSION.
(i) In order for a holder of Series A Preferred Stock to
convert shares of Series A Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of
Series A Preferred Stock, at the office of the transfer agent for the Series A
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice
that such holder elects to convert all or any number of the shares of the
Series A Preferred Stock represented by such certificate or certificates.
Such notice shall state such holder's name or the names of the nominees in
which such holder wishes the certificate or certificates for shares of Common
Stock to be issued. If required by the Corporation, certificates surrendered
for conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly
executed by the registered holder or his or its attorney duly authorized in
writing. The date of receipt of such certificates and notice by the transfer
agent (or by the Corporation if the Corporation serves as its own transfer
agent) shall be the Conversion Date, provided, however, that in the event
that the shares tendered for conversion are not eligible for conversion on
the date of receipt of such certificates and notice by the transfer agent (or
by the Corporation if the Corporation serves as its own transfer agent), the
transfer agent or Corporation shall promptly return such certificates to the
registered holder. The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series A
Preferred Stock, or to his or its nominees, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be
entitled, together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series A
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the pur-
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<PAGE>
pose of effecting the conversion of the Series A Preferred Stock, such number
of its duly authorized shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding Series A Preferred
Stock.
(iii) All shares of Series A Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed
to be outstanding and all rights with respect to such shares, including the
rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the holders
thereof to receive (A) shares of Common Stock in exchange therefor pursuant
to Subsection 4(b), (B) payments of accrued but unpaid dividends in
accordance with Subsection 4(d)(iv) and (C) payments in lieu of any
fractional shares pursuant to Subsection 4(c). Any shares of Series A
Preferred Stock so converted shall be retired and cancelled and shall not be
reissued, and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized Series A Preferred Stock
accordingly.
(iv) In the case of any share of Series A Preferred Stock which
is converted after any dividend record date and on or prior to the
corresponding dividend payment date (except shares of Series A Preferred
Stock called for redemption during such period as to which any accrued and
unpaid dividends shall have been paid), the dividend payable on such dividend
payment date shall be paid on such date notwithstanding such conversion and
such dividend shall be paid to the person who is the holder of such shares of
Series A Preferred Stock at the close of business on such dividend record
date.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall at any time or from time to time after the date on which a share of
Series A Preferred Stock was first issued (the "Series A Original Issue Date")
effect a subdivision of the outstanding Common Stock, the Series A Minimum
Conversion Price then in effect immediately before that subdivision shall be
proportionately decreased. If the Corporation shall at any time or from time
to time after the Series A Original Issue Date combine the outstanding shares
of Common Stock, the Series A Minimum Conversion Price then in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(f) ADJUSTMENT FOR DIVIDENDS AND DISTRIBUTIONS. In the event the
Corporation at any time, or from time to time after the Series A Original
Issue Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to
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receive, a dividend or other distribution payable in additional shares of
Common Stock, then and in each such event the Series A Minimum Conversion
Price then in effect shall be decreased as of the time of such issuance or, in
the event such a record date shall have been fixed, as of the close of
business on such record date, by multiplying the Series A Minimum Conversion
Price then in effect by a fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend
or distribution;
provided, however, if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Series A Minimum Conversion Price shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Series A Minimum Conversion Price shall be adjusted pursuant
to this paragraph as of the time of actual payment of such dividends or
distributions.
(g) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation
(other than a merger or consolidation in which the Corporation is the
surviving corporation and which does not result in any reclassification of the
outstanding shares of Common Stock) or the sale of all or substantially all
of the assets of the Corporation to another corporation, entity or person,
each share of Series A Preferred Stock shall thereafter be convertible into
the kind and amount of shares of stock or other securities or assets to which
a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series A Preferred Stock would have been
entitled upon such consolidation, merger or sale (assuming for this purpose
the conversion of the Series A Preferred Stock into Common Stock pursuant to
Subsection 4(b) at the then effective Series A Conversion Price).
(h) CERTIFICATE AS TO ADJUSTMENTS. The Corporation shall, upon the
written request at any time of any holder of Series A Preferred Stock,
furnish or cause to be furnished to such holder a certificate setting forth
(i) such adjustments and read-
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justments, (ii) the Series A Minimum Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of Series A
Preferred Stock.
5. MANDATORY CONVERSION.
(a) The Corporation may, at its option, require all, but not
less than all, holders of shares of Series A Preferred Stock then outstanding
to convert their shares of Series A Preferred Stock into shares of Common
Stock, at the then effective Series A Conversion price and otherwise in
accordance with the terms of Section 4, if the Market Value of the Common
Stock has been equal to or greater than the Series A Minimum Conversion Price
for at least 20 of the 30 Trading Days prior to notice of such required
conversion by the Corporation.
(b) All holders of record of shares of Series A Preferred Stock
will be given at least 10 days' prior written notice of the date fixed and
the place designated for mandatory conversion of shares of Series A Preferred
Stock pursuant to this Section 5. Such notice will be sent by first class or
registered mail, postage prepaid, to each record holder of Series A Preferred
Stock at such holder's address last shown on the records of the transfer
agent for the Series A Preferred Stock (or the records of the Corporation, if
it serves as its own transfer agent). On or before the date fixed for
conversion, each holder of shares of Series A Preferred Stock shall surrender
his or its certificate or certificates for all such shares to the Corporation
at the place designated in such notice, and shall thereafter receive
certificates for the number of shares of Common Stock to which such holder is
entitled pursuant to this Section 5. On the date fixed for conversion, all
rights with respect to the Series A Preferred Stock so converted, including
the rights, if any, to receive notices and vote, will terminate, except only
the rights of the holders thereof, upon surrender of their certificate or
certificates therefor, to receive (i) certificates for the number of shares
of Common Stock into which such Series A Preferred Stock has been converted,
(ii) payments of any accrued but unpaid dividends in accordance with
Subsection 4(d)(iv) and (iii) payments in lieu of any fractional shares
pursuant to Subsection 4(c). If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his or its attorney
duly authorized in writing. As soon as practicable after the date of such
mandatory conversion and the surrender of the certificate or certificates for
Series A Preferred Stock, the Corporation shall cause to be issued and
delivered to such holder, or on his
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or its written order, a certificate or certificates for the number of full
shares of Common Stock issuable on such conversion in accordance with the
provisions hereof and cash as provided in Subsection 4(c) in respect of any
fraction of a share of Common Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series A Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the date such certificates are so
required to be surrendered, be deemed to have been retired and cancelled and
the shares of Series A Preferred Stock represented thereby converted into
Common Stock for all purposes, notwithstanding the failure of the holder or
holders thereof to surrender such certificates on or prior to such date. The
Corporation may thereafter take such appropriate action as may be necessary
to reduce the authorized Series A Preferred Stock accordingly.
6. MANDATORY REDEMPTION.
(a) The Corporation will, subject to the conditions set forth in
Subsection 6(b) below, on the date ten years after the Series A Original
Issue Date (the "Series A Redemption Date"), redeem from each holder of
shares of Series A Preferred Stock, at a price per share equal to the Series A
Preference, plus an amount equal to all accrued but unpaid dividends thereon
(the "Series A Redemption Price"), all of the shares of Series A Preferred
Stock held by such holder on the Series A Redemption Date.
(b) If the funds of the Corporation legally available for
redemption of Series A Preferred Stock on the Series A Redemption Date are
insufficient to redeem all of the shares of Series A Preferred Stock then
outstanding, those funds which are legally available will be used to redeem
the maximum possible number of such shares of Series A Preferred Stock
ratably on the basis of the number of shares of Series A Preferred Stock which
would be redeemed on such date if the funds of the Corporation legally
available therefor had been sufficient to redeem all shares of Series A
Preferred Stock. At any time thereafter when additional funds of the
Corporation become legally available for the redemption of Series A Preferred
Stock, such funds will be used, after the end of the next succeeding fiscal
quarter (also referred to as a "Series A Redemption Date"), to redeem the
balance of the shares, ratably on the basis set forth in the preceding
sentence.
(c) The Corporation shall provide notice of any redemption of
Series A Preferred Stock pursuant to this Section 6 specifying the time and
place of redemption and the Series A Redemption Price, by first class or
registered mail, postage
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prepaid, to each holder of record of Series A Preferred Stock at the address
for such holder last shown on the records of the transfer agent therefor (or
the records of the Corporation, if it serves as its own transfer agent), not
more than 60 nor less than 30 days prior to the date on which such redemption
is to be made. If less than all Series A Preferred Stock owned by such
holder is then to be redeemed, the notice will also specify the number of
shares which are to be redeemed. Upon mailing any such notice of redemption,
the Corporation will become obligated to redeem at the time of redemption
specified therein all Series A Preferred Stock specified therein (other than
such shares of Series A Preferred Stock as are duly converted pursuant to
Section 4 or Section 5 prior to the close of business on the fifth Trading
Day preceding the Series A Redemption Date). In case less than all Series A
Preferred Stock represented by any certificate is redeemed in any redemption
pursuant to this Section 6, a new certificate will be issued representing the
unredeemed Series A Preferred Stock to the holder thereof.
(d) No share of Series A Preferred Stock is entitled to any
dividends declared after its Series A Redemption Date, and on such Series A
Redemption Date all rights of the holder of such share as a stockholder of
the Corporation by reason of the ownership of such share will cease, except
the right to receive the Series A Redemption Price of such share, without
interest, upon presentation and surrender of the certificate representing
such share, and such share will not from and after such Series A Redemption
Date be deemed to be outstanding.
(e) Any Series A Preferred Stock redeemed pursuant to this
Section 6 will be cancelled and will not under any circumstances be reissued,
sold or transferred and the Corporation may from time to time take such
appropriate action as may be necessary to reduce the authorized Series A
Preferred Stock accordingly.
B. SERIES B CONVERTIBLE PREFERRED STOCK.
Two hundred fifty thousand (250,000) shares of the authorized and
unissued Preferred Stock of the Corporation are hereby designated "Series B
Convertible Preferred Stock" (the "Series B Preferred Stock") with the
following rights, preferences, powers, privileges and restrictions,
qualifications and limitations.
1. DIVIDENDS.
(a) The holders of record of shares of the Series B Preferred Stock
shall be entitled to receive, when and as declared by the Board of Directors
of the Corporation, out of any funds legally available therefor, dividends at
the rate of five percent (5%)
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per annum of the Series B Preference (as defined in Subsection 2(a) below) of
such shares for the 1989 calendar year and at the rate of six percent (6%)
per annum of the Series B Preference thereafter. Accrued dividends for each
calendar year shall be paid annually on the March 31 (a "dividend payment
date") following the end of such calendar year (commencing March 31, 1990) to
holders of record of shares of Series B Preferred Stock on such record date
(not more than 60 days prior to March 31) as is established by the Board of
Directors for such dividend.
Dividends at the applicable rates set forth above shall accrue daily and be
cumulative from January 1, 1989. The amount of any dividends accrued on any
shares of Series B Preferred Stock at any dividend payment date shall be
deemed to be the amount of any unpaid dividends accumulated thereon to and
including the last day of the preceding calendar year, whether or not earned
or declared.
Notwithstanding anything to the contrary herein, accrued dividends for any
calendar year shall not be required to be paid unless the Corporation's
after-tax net income (before any extraordinary benefits) for such year, as
shown on the Company's audited consolidated financial statements, is equal to
or greater than the sum of the aggregate amount of such accrued dividends
and the aggregate amount of all dividends required to be paid on the Series A
Preferred Stock for such year. Any accrued dividends that are not paid shall
be paid on the dividend payment date following the end of the first
succeeding calendar year in which the Corporation's after-tax net income,
before any extraordinary benefits (determined as set forth above), is
sufficient to pay all of such accrued but unpaid dividends, the regular
dividend on the Series B Preferred Stock for such year and all accrued but
unpaid dividends required to be paid on such dividend payment date with
respect to the Series A Preferred Stock.
(b) So long as shares of Series B Preferred Stock are outstanding, no cash
dividends shall be paid or declared on the Common Stock of the Corporation or
any security ranking junior to the Series B Preferred Stock as to the payment
of dividends, unless all dividends on the Series B Preferred Stock for all
past dividend payment dates shall have been paid and the full dividend
payment for the dividend payment date next succeeding the payment date of
such cash dividend shall have been paid or declared and set apart for payment.
2. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the holders of shares of Series B Preferred
Stock then outstanding shall be
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entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, after and subject to the payment in full of
all amounts required to be distributed to the holders of any other class or
series of stock of the Corporation ranking on liquidation prior and in
preference to the Series B Preferred Stock (collectively referred to as
"Senior Preferred Common Stock"), but before any payment shall be made to
the holders of Common Stock or any other class or series of stock ranking on
liquidation junior to the Series B Preferred Stock (such Common Stock and
other stock being collectively referred to as "Junior Stock") by reason of
their ownership thereof, an amount equal to $5.00 per share (the "Series B
Preference"). The Series B Preferred Stock shall rank on a parity with the
Series A Preferred Stock upon any liquidation, dissolution or winding up of
the Corporation. If upon any such liquidation, dissolution or winding up of
the Corporation the remaining assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the holders of
shares of Series B Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Series B Preferred Stock, Series A
Preferred Stock and any other class or series of stock ranking on liquidation
on a parity with the Series B Preferred Stock shall share ratably in any
distribution of the remaining assets and funds of the Corporation in
proportion to the respective amounts which would otherwise be payable in
respect of the shares held by them upon such distribution if all amounts
payable on or with respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to be paid to
the holders of Senior Preferred Stock, Series B Preferred Stock and any other
class or series of stock of the Corporation ranking on liquidation on a
parity with the Series B Preferred Stock, upon the liquidation, dissolution
or winding up of the Corporation, the holders of shares of Junior Stock then
outstanding shall be entitled to receive the remaining assets and funds of
the Corporation available for distribution to its stockholders.
(c) A consolidation or merger of the Corporation with or into another
corporation or entity, or a sale of all or substantially all of the assets of
the Corporation, shall not be regarded as a liquidation, dissolution or
winding up of the Corporation within the meaning of this Section 2.
3. VOTING. The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series B Preferred Stock so as to
affect adversely the Series B Preferred Stock, or authorize any class or
series of capital stock having a preference over the Series B Preferred Stock
with respect
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to liquidation or redemption rights or dividends, without the written consent
or affirmative vote of the holders of a majority of the then outstanding
shares of Series B Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. Except as
expressly set forth above or as otherwise required by law, holders of Series
B Preferred Stock shall have no voting rights.
4. OPTIONAL CONVERSION. The holders of the Series B Preferred Stock shall
have conversion rights as follows (the "Series B Conversion Rights"):
(a) As used herein, the following terms shall have the following
respective meanings:
(i) "CONVERSION DATE" shall have the meaning set forth in Subsection
4(d)(i).
(ii) "MARKET VALUE" shall mean (A) if the Common Stock of the
Corporation is listed on any national securities exchange or the NASDAQ
National Market System, the reported last sale price of the Common Stock on
such exchange or system, or (B) if the Common Stock shall not be so listed,
the average of the closing bid and asked prices for the Common Stock, as
reported by NASDAQ, or (C) if there are no such closing bid and asked
prices, the fair market value of the Common Stock as determined by the Board
of Directors of the Corporation.
(iii) "SERIES B MINIMUM CONVERSION PRICE" shall mean $7.50 per share,
subject to adjustment pursuant to the provisions of this Section 4.
(iv) "SERIES B CONVERSION PRICE" shall mean, as of the applicable
Conversion Date, the greater of (A) the average of the Market Values of the
Common Stock for the five consecutive Trading Days preceeding (but not
including) such Conversion Date, or (B) the then effective Series B Minimum
Conversion Price.
(v) "TRADING DAY" shall mean any day on which the New York Stock
Exchange is generally open for trading.
(b) RIGHT TO CONVERT. If (but only if) the Market Value of Common Stock
of the Corporation shall have been equal to or greater than the Series B
Minimum Conversion Price for at least 20 of the 30 Trading Days preceding the
Conversion Date, holders
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of shares of Series B Preferred Stock may convert all or any of such shares,
on such Conversion Date, into such number of fully paid and nonassessable
shares of Common Stock as is determined by (i) multiplying the aggregate
Series B Preferences of the shares so converted by 1.5, (ii) adding to such
sum the aggregate amount of any accrued but unpaid dividends on such shares,
excluding any such dividends declared for payment by the Board of Directors
to holders of Series B Preferred Stock on a record date occurring prior to or
on the Conversion Date, and (iii) dividing the sum so obtained by the Series
B Conversion Price in effect on such Conversion Date.
In the event of a notice of redemption of any shares of Series B
Preferred Stock pursuant to Section 6 hereof, the Series B Conversion Rights
of the shares designated for redemption shall terminate at the close of
business on the fifth Trading Day preceding the date fixed for redemption.
In the event of a liquidation, dissolution or winding up of the Corporation,
the Series B Conversion Rights shall terminate at the close of business on
the first Trading Day preceding the date fixed for the payment of any amounts
distributable on liquidation to the holders of Series B Preferred Stock.
(c) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Series B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series B Conversion Price.
(d) MECHANICS OF CONVERSION.
(i) In order for a holder of Series B Preferred Stock to convert
shares of Series B Preferred Stock into shares of Common Stock, such holder
shall surrender the certificate or certificates for such shares of Series B
Preferred Stock, at the office of the transfer agent for the Series B
Preferred Stock (or at the principal office of the Corporation, if the
Corporation serves as its own transfer agent), together with written notice
that such holder elects to convert all or any number of the shares of the
Series B Preferred Stock represented by such certificate or certificates.
Such notice shall state such holder's name or the names of the nominees in
which such holder wishes the certificate
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or certificates for shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the Conversion Date,
provided, however, that in the event that the shares tendered for conversion
are not eligible for conversion on the date of receipt of such certificates
and notice by the transfer agent (or by the Corporation if the Corporation
serves as its own transfer agent), the transfer agent or Corporation shall
promptly return such certificates to the registered holder. The Corporation
shall, as soon as practicable after the Conversion Date, issue and deliver at
such office to such holder of Series B Preferred Stock, or to his or its
nominees, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled, together with cash in lieu of
any fraction of a share.
(ii) The Corporation shall at all times when the Series B Preferred
Stock shall be outstanding, reserve and keep available out of its authorized
but unissued stock, for the purpose of effecting the conversion of the Series
B Preferred Stock, such number of its duly authorized shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding Series B Preferred Stock.
(iii) All shares of Series B Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights,
if any, to receive notices and to vote, shall immediately cease and terminate
on the Conversion Date, except only the right of the holders thereof to
receive (A) shares of Common Stock in exchange therefor pursuant to
Subsection 4(b), (B) payments of accrued but unpaid dividends in accordance
with Subsection 4(d)(iv) and (C) payments in lieu of any fractional shares
pursuant to Subsection 4(c). Any shares of Series B Preferred Stock so
converted shall be retired and cancelled and shall not be reissued, and the
Corporation may from time to time take such appropriate action as may be
necessary to
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reduce the authorized Series B Preferred Stock accordingly.
(iv) In the case of any share of Series B Preferred Stock
which is converted after any dividend record date and on or prior to the
corresponding dividend payment date (except shares of Series B Preferred
Stock called for redemption during such period as to which any accrued and
unpaid dividends shall have been paid), the dividend payable on such dividend
payment date shall be paid on such date notwithstanding such conversion and
such dividend shall be paid to the person who is the holder of such shares of
Series B Preferred Stock at the close of business on such dividend record
date.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the date on which a
share of Series B Preferred Stock was first issued (the "Series B Original
Issue Date") effect a subdivision of the outstanding Common Stock, the
Series B Minimum Conversion Price then in effect immediately before that
subdivision shall be proportionately decreased. If the Corporation shall at
any time or from time to time after the Series B Original Issue Date
combine the outstanding shares of Common Stock, the Series B Minimum
Conversion Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this paragraph shall become
effective at the close of business on the date the subdivision or
combination becomes effective.
(f) ADJUSTMENT FOR DIVIDENDS AND DISTRIBUTIONS. In the event the
Corporation at any time, or from time to time after the Series B Original
Issue Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, then and in each such event the
Series B Minimum Conversion Price then in effect shall be decreased as of the
time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Series B Minimum Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date, and
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(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus
the number of shares of Common Stock issuable in payment of such
dividend or distribution;
provided, however, if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Series B Minimum Conversion Price shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Series B Minimum Conversion Price shall be adjusted pursuant
to this paragraph as of the time of actual payment of such dividends or
distributions.
(g) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation
(other than a merger or consolidation in which the Corporation is the
surviving corporation and which does not result in any reclassification of
the outstanding shares of Common Stock) or the sale of all or substantially
all of the assets of the Corporation to another corporation, entity or
person, each share of Series B Preferred Stock shall thereafter be
convertible into the kind and amount of shares of stock or other securities
or assets to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series B Preferred Stock
would have been entitled upon such consolidation, merger or sale (assuming
for this purpose the conversion of the Series B Preferred Stock into Common
Stock pursuant to Subsection 4(b) at the then effective Series B Conversion
Price).
(h) CERTIFICATE AS TO ADJUSTMENTS. The Corporation shall, upon the
written request at any time of any holder of Series B Preferred Stock,
furnish or cause to be furnished to such holder a certificate setting forth
(i) such adjustments and readjustments, (ii) the Series B Minimum Conversion
Price then in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which then would be received upon the
conversion of Series B Preferred Stock.
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5. MANDATORY CONVERSION.
(a) The Corporation may, at its option, require all, but not less
than all, holders of shares of Series B Preferred Stock then outstanding to
convert their shares of Series B Preferred Stock into shares of Common Stock,
at the then effective Series B Conversion Price and otherwise in accordance
with the terms of Section 4, if the Market Value of the Common Stock has been
equal to or greater than the Series B Minimum Conversion Price for at least
20 of the 30 Trading Days prior to notice of such required conversion by the
Corporation.
(b) All holders of record of shares of Series B Preferred Stock
will be given at least 10 days' prior written notice of the date fixed and
the place designated for mandatory conversion of shares of Series B Preferred
Stock pursuant to this Section 5. Such notice will be sent by first class or
registered mail, postage prepaid, to each record holder of Series B Preferred
Stock at such holder's address last shown on the records of the transfer
agent for the Series B Preferred Stock (or the records of the Corporation, if
it serves as its own transfer agent). On or before the date fixed for
conversion, each holder of shares of Series B Preferred Stock shall surrender
his or its certificate or certificates for all such shares to the Corporation
at the place designated in such notice, and shall thereafter receive
certificates for the number of shares of Common Stock to which such holder is
entitled pursuant to this Section 5. On the date fixed for conversion, all
rights with respect to the Series B Preferred Stock so converted, including
the rights, if any, to receive notices and vote, will terminate, except only
the rights of the holders thereof, upon surrender of their certificate or
certificates therefor, to receive (i) certificates for the number of shares
of Common Stock into which such Series B Preferred Stock has been converted,
(ii) payments of any accrued but unpaid dividends in accordance with
Subsection 4(d)(iv) and (iii) payments in lieu of any fractional shares
pursuant to Subsection 4(c). If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his or its attorney
duly authorized in writing. As soon as practicable after the date of such
mandatory conversion and the surrender of the certificate
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or certificates for Series B Preferred Stock, the Corporation shall cause to
be issued and delivered to such holder, or on his or its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the provisions hereof and cash
as provided in Subsection 4(c) in respect of any fraction of a share of
Common Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series B Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the date such certificates are so
required to be surrendered, be deemed to have been retired and cancelled and
the shares of Series B Preferred Stock represented thereby converted into
Common Stock for all purposes, notwithstanding the failure of the holder or
holders thereof to surrender such certificates on or prior to such date. The
Corporation may thereafter take such appropriate action as may be necessary
to reduce the authorized Series B Preferred Stock accordingly.
6. MANDATORY REDEMPTION.
(a) The Corporation will, subject to the conditions set forth in
Subsection 6(b) below, on the date ten years after the Series B Original
Issue Date (the "Series B Redemption Date"), redeem from each holder of
shares of Series B Preferred Stock, at a price per share equal to the Series
B Preference, plus an amount equal to all accrued but unpaid dividends
thereon (the "Series B Redemption Price"), all of the shares of Series B
Preferred Stock held by such holder on the Series B Redemption Date.
(b) If the funds of the Corporation legally available for
redemption of Series B Preferred Stock on the Series B Redemption Date are
insufficient to redeem all of the shares of Series B Preferred Stock then
outstanding, those funds which are legally available will be used to redeem
the maximum possible number of such shares of Series B Preferred Stock
ratably on the basis of the number of shares of Series B Preferred Stock
which would be redeemed on such date if the funds of the Corporation legally
available therefor had been sufficient to redeem all shares of Series B
Preferred Stock. At any time thereafter when additional funds of the
Corporation become legally available for the redemp-
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<PAGE>
tion of Series B Preferred Stock, such funds will be used, after the end of
the next succeeding fiscal quarter (also referred to as a "Series B
Redemption Date"), to redeem the balance of the shares, ratably on the basis
set forth in the preceding sentence.
(c) The Corporation shall provide notice of any redemption of
Series B Preferred Stock pursuant to this Section 6 specifying the time and
place of redemption and the Series B Redemption Price, by first class or
registered mail, postage prepaid, to each holder of record of Series B
Preferred Stock at the address for such holder last shown on the records of
the transfer agent therefor (or the records of the Corporation, if it serves
as its own transfer agent), not more than 60 nor less than 30 days prior to
the date on which such redemption is to be made. If less than all Series B
Preferred Stock owned by such holder is then to be redeemed, the notice will
also specify the number of shares which are to be redeemed. Upon mailing any
such notice of redemption, the Corporation will become obligated to redeem at
the time of redemption specified therein all Series B Preferred Stock
specified therein (other than such shares of Series B Preferred Stock as are
duly converted pursuant to Section 4 or Section 5 prior to the close of
business on the fifth Trading Day preceding the Series B Redemption Date). In
case less than all Series B Preferred Stock represented by any certificate is
redeemed in any redemption pursuant to this Section 6, a new certificate will
be issued representing the unredeemed Series B Preferred Stock to the holder
thereof.
(d) No share of Series B Preferred Stock is entitled to any
dividends declared after its Series B Redemption Date, and on such Series B
Redemption Date all rights of the holder of such share as a stockholder of
the Corporation by reason of the ownership of such share will cease, except
the right to receive the Series B Redemption Price of such share, without
interest, upon presentation and surrender of the certificate representing
such share, and such share will not from and after such Series B Redemption
Date be deemed to be outstanding.
(e) Any Series B Preferred Stock redeemed pursuant to this Section
6 will be cancelled and will not under any circumstances be reissued, sold or
transferred and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized Series B Preferred Stock
accordingly.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be duly executed by its Chief Executive Officer and attested
by its Assistant Secretary, and its corporate seal to be affixed this 27th
day of October, 1987.
IOMEGA CORPORATION
By: /s/ Michael J. Kucha
-----------------------------
Michael J. Kucha
Chief Executive Officer
Attest:
/s/ Gwenn Newbold
- -----------------------------
Gwenn Newbold
Assistant Secretary
[Corporate Seal]
-21-
<PAGE>
CERTIFICATE OF DESIGNATIONS
of
SERIES C JUNIOR PARTICIPATING PREFERRED STOCK
of
IOMEGA CORPORATION
------------------------------
Iomega Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), pursuant to the authority conferred on the Board of Directors
of the Corporation by the Restated Certificate of Incorporation, as amended,
and in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, hereby certifies that the following
resolution was adopted by the Board of Directors of the Corporation at a
meeting duly called and held on July 28, 1989:
RESOLVED, that pursuant to the authority expressly granted to and vested
in the Board of Directors of this Corporation in accordance with the
provisions of its Restated Certificate of Incorporation, as amended, there is
hereby created a series of preferred stock, $.01 par value (the "Preferred
Stock"), of the Corporation to be designated as "Series C Junior
Participating Preferred Stock"; and, subject to the limitations provided by
law and by the Restated Certificate of Incorporation, the powers, preferences
and relative, participating, optional or other rights of, and the
qualifications, limitations or restrictions upon, the Series C Junior
Participating Preferred Stock shall be as follows:
SERIES C JUNIOR PARTICIPATING PREFERRED STOCK:
1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series C Junior Participating Preferred Stock" (the "Series C
Preferred Stock") and the number of shares constituting the Series C
Preferred Stock shall be 250,000. Such number of shares shall be increased or
decreased by resolution of the Board of Directors of the Corporation
(hereinafter, the "Board of Directors" or the "Board"); PROVIDED, that no
decrease shall reduce the number of shares of Series C Preferred Stock to a
number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options, rights
or warrants or upon the conversion of any outstanding securities issued by
the Corporation convertible into Series C Preferred Stock.
<PAGE>
2. DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the
Series C Preferred Stock with respect to dividends, the holders of shares of
Series C Preferred Stock, in preference to the holders of Common Stock, par
value $.03 1/3 per share (the "Common Stock"), of the Corporation, and of any
other security ranking junior to the Series C Preferred Stock as to the
payment of dividends, shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds of the Corporation legally available
for the payment of dividends, quarterly dividends payable in cash on March 31,
June 30, September 30 and December 31 in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series C Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (i) $1 or (ii) subject
to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series C Preferred Stock. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision, combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount to which
holders of shares of Series C Preferred Stock were entitled immediately prior
to such event under clause (ii) of the preceding sentence shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the
Series C Preferred Stock as provided in paragraph (a) of this Section 2
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in
-2-
<PAGE>
shares of Common Stock) and the Corporation shall pay such dividend or
distribution on the Series C Preferred Stock before the dividend or
distribution declared on the Common Stock is paid or set apart; provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$1 per share on the Series C Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series C Preferred Stock from the Quarterly Dividend Payment date
next preceding the date of issue of such shares, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series C Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series C
Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board
of Directors may fix a record date for the determination of holders of shares
of Series C Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60
days prior to the date fixed for the payment thereof.
3. VOTING RIGHTS. The holders of shares of Series C Preferred Stock
shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth, each
share of Series C Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or effect
a subdivision, combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the number of votes per share to which
holders of shares of Series C Preferred Stock were entitled immediately prior
to such event
-3-
<PAGE>
shall be adjusted by multiplying such number by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(b) Except as otherwise provided herein, in the Certificate of
Incorporation or by law, the holders of shares of Series C Preferred Stock
and the holders of shares of Common Stock shall vote together as one class on
all matters submitted to a vote of stockholders of the Corporation.
(c) (i) If any time dividends on any Series C Preferred Stock shall be
in arrears in an amount equal to six quarterly dividends thereon, the holders
of the Series C Preferred Stock, voting as a separate series from all other
series of Preferred Stock and classes of capital stock, shall be entitled to
elect two members of the Board of Directors in addition to any Directors
elected by any other series, class or classes of securities and the
authorized number of Directors will automatically be increased by two.
Promptly thereafter, the Board of Directors of this Corporation shall, as
soon as may be practicable, call a special meeting of holders of Series C
Preferred Stock for the purpose of electing such members of the Board of
Directors. Said special meeting shall in any event be held within 45 days of
the occurrence of such arrearage.
(ii) During any period when the holders of Series C Preferred
Stock, voting as a separate series, shall be entitled and shall have
exercised their right to elect two Directors, then and during such time as
such right continues (A) the then authorized number of Directors shall be
increased by two, and the holders of Series C Preferred Stock, voting as a
separate series, shall be entitled to elect the additional Director so
provided for, and (B) each such additional Director shall not be a member of
any existing class of the Board of Directors, but shall serve until the next
annual meeting of stockholders for the election of Directors, or until his
successor shall be elected and shall qualify, or until his right to hold such
office terminates pursuant to the provisions of this paragraph (c).
(iii) A Director elected pursuant to the terms hereof may be
removed with or without cause by the holders of Series C Preferred Stock
entitled to vote in an election of such Director.
(iv) If, during any interval between annual meetings of
stockholders for the election of Directors and while the holders of Series C
Preferred Stock shall be entitled to elect two
-4-
<PAGE>
Directors, there is no such Director in office by reason of resignation,
death or removal, then, promptly thereafter, the Board of Directors shall
cause a special meeting of the holders of Series C Preferred Stock for the
purpose of filling such vacancy and such vacancy shall be filled at such
special meeting. Such special meeting shall in any event be held within 45
days of the occurrence of such vacancy.
(v) At such time as the arrearage is fully cured, and all
dividends accumulated and unpaid on any shares of Series C Preferred Stock
outstanding are paid, and, in addition thereto, at least one regular dividend
has been paid subsequent to curing such arrearage, the term of office of any
Director elected pursuant to this paragraph (c), or his successor, shall
automatically terminate, and the authorized number of Directors shall
automatically decrease by two, the rights of the holders of the shares of the
Series C Preferred Stock to vote as provided in this paragraph (c) shall
cease, subject to renewal from time to time upon the same terms and
conditions, and the holders of shares of the Series C Preferred Stock shall
have only the limited voting rights elsewhere herein set forth.
(d) Except as set forth herein, or as otherwise provided by law, holders
of Series C Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
4. CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series C Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series C Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series
C Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series C Preferred Stock, except dividends paid ratably on the Series C
Preferred Stock and all such parity stock on which dividends are payable
or in
-5-
<PAGE>
arrears in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series C
Preferred Stock, provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such junior stock in exchange
for shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series
C Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series C Preferred Stock, or any shares of stock ranking
on a parity with the Series C Preferred Stock, except in accordance with
a purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (a) of this Section
4, purchase or otherwise acquire such shares at such time and in such manner.
5. REACQUIRED SHARES. Any shares of Series C Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, in the Certificate of Incorporation, or in any other
Certificate of Designations creating a series of Preferred Stock or any
similar stock or as otherwise required by law.
6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) Upon any liquidation, dissolution or winding up of the Corporation,
no distribution shall be made (i) to the holders of shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding
up) to the Series C Preferred
-6-
<PAGE>
Stock unless, prior thereto, the holders of shares of Series C Preferred
Stock shall have received $100 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment, provided that the holders of shares of Series C
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares
of Common Stock, or (ii) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with
the Series C Preferred Stock, except distributions made ratably on the Series
C Preferred Stock and all such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
(b) Neither the consolidation, merger or other business combination of
the Corporation with or into any other corporation nor the sale, lease,
exchange or conveyance of all or any part of the property, assets or business
of the Corporation shall be deemed to be a liquidation, dissolution or winding
up of the Corporation for purposes of this Section 6.
(c) In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision, combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the aggregate amount to which holders of
shares of Series C Preferred Stock were entitled immediately prior to such
event under the proviso in clause (i) of paragraph (a) of this Section 6
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
7. CONSOLIDATION, MERGER, ETC. Notwithstanding anything to the
contrary contained herein, in case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case each share of Series C
Preferred Stock shall at the same time be similarly exchanged or changed into
an amount per shares subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as
-7-
<PAGE>
the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision, combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series
C Preferred Stock shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
8. NO REDEMPTION. The shares of Series C Preferred Stock shall not be
redeemable.
9. RANK. The Series C Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all series of
any other class of the Preferred Stock issued either before of after the
issuance of the Series C Preferred Stock, unless the terms of any such series
shall provide otherwise.
10. AMENDMENT. The Certificate of Incorporation of the Corporation
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series C Preferred Stock so as
to affect them adversely without the affirmative vote of the holders of a
majority of the then outstanding shares of Series C Preferred Stock, voting
as a single class.
11. FRACTIONAL SHARES. Series C Preferred stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and have the benefit of all other rights of
holders of Series C Preferred Stock.
-8-
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its President and Chief Executive Officer and
attested by its Secretary this 7th day of August, 1989.
IOMEGA CORPORATION
By: /s/ Fred Wenninger
---------------------------
Name: Fred Wenninger
Title: President and Chief
Executive Officer
Attest:
/s/ Paul D. Slack
- -------------------------
Paul D. Slack
Title: Secretary
-9-
<PAGE>
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
0F
IOMEGA CORPORATION
IOMEGA CORPORATION (the "Corporation"), a corporation originally
incorporated under the General Corporation law of the State of Delaware,
under the name "Databyte Corporation," on April 2, 1980, does hereby certify
as follows:
1. The Restated Certificate of Incorporation of the Corporation, as
filed with the Delaware Secretary of State on July 18, 1983, as amended to
date, is hereby further amended by the addition of a new Article TENTH and
Article ELEVENTH, which shall read in their entirety as follows:
TENTH: This Article is inserted for the management of the business
and for the conduct of the affairs of the Corporation.
SECTION 1. NUMBER OF DIRECTORS. The number of directors of the
Corporation shall not be less than three. The exact number of directors
within the limitations specified in the preceding sentence shall be fixed
from time to time pursuant to a resolution adopted by the Board of
Directors.
SECTION 2. CLASSES OF DIRECTORS. The Board of Directors shall be
and is divided into three classes: Class I, Class II and Class III. No one
class shall have more than one director more than any other class. If a
fraction is contained in the quotient arrived at by dividing the designated
number of directors by three, then, if such fraction is one-third, the
extra director shall be a member of Class III, and if such fraction is
two-thirds, one of the extra directors shall be a member of Class III and
one of the extra directors shall be a member of Class II, unless otherwise
provided from time to time by resolution adopted by the Board of Directors.
<PAGE>
SECTION 3. ELECTION OF DIRECTORS. Elections of directors need not
be by written ballot except as and to the extent provided in the By-laws of
the Corporation.
SECTION 4. TERMS OF OFFICE. Each director shall serve for a term
ending on the date of the third annual meeting following the annual meeting
at which such director was elected; PROVIDED that each initial director in
Class I shall serve for a term ending on the date of the annual meeting
next following the end of the Corporation's 1990 fiscal year; and each
initial director in Class II shall serve for a term ending on the date of
the annual meeting next following the end of the Corporation's 1991 fiscal
year; and PROVIDED FURTHER, that the term of each director shall be subject
to the election and qualification of his/her successor and to his/her
earlier death, resignation or removal.
SECTION 5. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF
INCREASES OR DECREASES IN THE NUMBER OF DIRECTORS. In the event of any
increase or decrease in the authorized number of directors, (i) each
director then serving as such shall nevertheless continue as a director of
the class of which he/she is a member and (ii) the newly created or
eliminated directorships resulting from such increase or decrease shall be
apportioned by the Board of Directors among the three classes of directors
so as to ensure that no one class has more than one director more than any
other class. To the extent possible, consistent with the foregoing rule,
any newly created directorships shall be added to those classes whose terms
of office are to expire at the latest dates following such allocation, and
any newly eliminated directorships shall be subtracted from those classes
whose terms of office are to expire at the earliest dates following such
allocation, unless otherwise provided from time to time by resolution
adopted by the Board of Directors.
SECTION 6. QUORUM; ACTION AT MEETING. A majority of the directors
at any time in office shall constitute a quorum for the transaction of
business. In the event one or more of the directors shall be disqualified
to vote at any meeting, then the required quorum shall be reduced by one
for each such director so disqualified, provided that in no case shall
less than one-third of the number of directors fixed pursuant to Section 1
above constitute a quorum. If at any meeting of the Board of Directors
there shall be less than such a quorum, a majority of those present may
adjourn the meeting from time to time. Every act or decision done or made
by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the
-2-
<PAGE>
Board of Directors unless a greater number is required by law, by the
By-laws of the Corporation or by this Certificate of Incorporation.
SECTION 7. REMOVAL. Any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided that,
if and for so long as the Board of Directors is classified pursuant to
Section 141(d) of the Delaware General Corporation Law, stockholders may
effect such removal only for cause, unless this Certificate of
Incorporation otherwise provides.
SECTION 8. VACANCIES. Unless and until filled by the stockholders,
any vacancy in the Board of Directors, however occurring, including a
vacancy resulting from an enlargement of the Board, may be filled by a vote
of a majority of the directors then in office, although less than a quorum,
or by a sole remaining director. A director elected to filled a vacancy
shall be elected to hold office until the next election of the class for
which such director shall have chosen, subject to the election and
qualification of his/her successor and to his/her earlier death,
resignation or removal.
SECTION 9. AMENDMENTS. Notwithstanding any other provisions of
law, this Certificate of Incorporation or the By-laws of the Corporation,
and notwithstanding the fact that a lesser percentage may be specified by
law, the affirmative vote of the holders of at least eighty percent (80%)
of the votes which all of the stockholders would be entitled to cast at an
annual election of directors or class of directors shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
Tenth.
ELEVENTH: Any action which is required to be taken or which may be
taken at any annual or specified meeting of stockholders of the Corporation
may be taken without a meeting, without prior notice and without a vote,
if a consent in writing, setting forth the action so taken, shall be signed
by the holders of all of the outstanding shares of stock that would be
entitled to vote thereon at a meeting of stockholders. Notwithstanding any
other provisions of law, this Certificates of Incorporation or the By-laws
of the Corporation, and notwithstanding the fact that a lesser percentage
may be specified by law, the affirmative vote of the holders of at least
eighty percent (80%) of the votes which all of the stockholders would be
entitled to cast at an annual election of directors or class of directors
shall be
-3-
<PAGE>
required to amend or repeal, or to adopt any provision inconsistent with,
this Article Eleventh.
2. The foregoing amendments to the Corporation's Restated Certificate of
Incorporation were duly adopted by the Board of Directors and the
stockholders of the Corporation in accordance with Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed and acknowledged as set forth below on this 24th day
of April, 1990.
IOMEGA CORPORATION
By: /s/ Fred Wenninger
--------------------------------
Fred Wenninger
President and Chief Executive
Officer
Attest: /s/ Paul D. Slack
--------------------------------
Paul D. Slack
Senior Vice President
Administration and Secretary
-4-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
IOMEGA CORPORATION
Pursuant to Section 242 of the
General Corporation Law of
the State of Delaware
------------------------------
IOMEGA CORPORATION (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
1. The Restated Certificate of Incorporation of the Corporation, as
filed with the Delaware Secretary of State on July 18, 1983, as amended to
date, is hereby further amended by (i) deleting Article TENTH in its entirety
and (ii) renumbering Article ELEVENTH as Article TENTH.
2. The foregoing amendment to the Corporation's Restated Certificate of
Incorporation was duly adopted by the Board of Directors and the Stockholders
of the Corporation in accordance with Section 242 of the General Corporation
Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its
President and attested by its Secretary on this 20th day of April, 1993.
IOMEGA CORPORATION
By: /s/ Fred Wenninger
--------------------------------
Fred Wenninger
President and Chief Executive
Officer
Attest: /s/ Paul D. Slack
--------------------------------
Paul D. Slack
Senior Vice President
Administration and Secretary
[Corporate Seal]
<PAGE>
IOMEGA CORPORATION
CERTIFICATE OF DECREASE
OF NUMBER OF SHARES OF PREFERRED STOCK
DESIGNATED AS
SERIES A CONVERTIBLE PREFERRED STOCK
AND SERIES B CONVERTIBLE PREFERRED STOCK
Iomega Corporation, a Delaware corporation (the "Corporation"), pursuant
to authority conferred upon the Board of Directors of the Corporation by the
Corporation's Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), and in accordance with the provisions of
Section 151(g) of the General Corporation Law of the State of Delaware (the
"Delaware Law"), certifies that the Board of Directors of the Corporation, by
unanimous written consent in accordance with Section 141(f) of the Delaware
Law, duly adopted the following resolutions:
"RESOLVED: That no shares of the Corporation's Series A Convertible
Preferred Stock (the "Series A Preferred Stock") are outstanding
and no shares of Series A Preferred Stock will be issued subject
to the Certificate of Designation previously filed with respect
to such series (the "Series A Certificate of Designation"); and
that the proper officers of the Corporation be and hereby are
authorized and directed in the name and on behalf of the
Corporation to execute and file a certificate with the Secretary
of State of the State of Delaware pursuant to Section 151(g) of
the Delaware Law setting forth the text of this resolution, upon
the filing and effectiveness of which all matters set forth in
the Series A Certificate of Designation shall be deemed to have
been eliminated from the Certificate of Incorporation and the
1,200,000 shares of Preferred Stock previously designated as
Series A Preferred
<PAGE>
Stock shall resume their status as undesignated shares of
Preferred Stock available for future issuance in accordance
with the Certificate of Incorporation.
RESOLVED: That no shares of the Corporation's Series B Convertible
Preferred Stock (the "Series B Preferred Stock") are
outstanding and no shares of Series B Preferred Stock will be
issued subject to the Certificate of Designation previously filed
with respect to such series (the "Series B Certificate of
Designation"); and that the proper officers of the Corporation be
and hereby are authorized and directed in the name and on behalf
of the Corporation to execute and file a certificate with the
Secretary of State of the State of Delaware pursuant to
Section 151(g) of the Delaware Law setting forth the text of this
resolution, upon the filing and effectiveness of which all
matters are set forth in the Series B Certificate of Designation
shall be deemed to have been eliminated from the Certificate of
Incorporation and the 250,000 shares of Preferred Stock
previously designated as Series B Preferred Stock shall resume
their status as undesignated shares of Preferred Stock available
for future issuance in accordance with the Certificate of
Incorporation."
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate to be signed by its President this 14th
day of December, 1995.
IOMEGA CORPORATION
By: /s/ Kim B. Edwards
-------------------------------
President
-2-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
IOMEGA CORPORATION
PURSUANT TO SECTION 242 OF THE
GENERAL CORPORATION OF LAW OF
THE STATE OF DELAWARE
IOMEGA CORPORATION (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
1. The Restated Certificate of Incorporation of the Corporation, as
filed with the Delaware Secretary of State on July 18, 1983, as amended to
date, is hereby further amended by deleting the first paragraph of Article
FOURTH in its entirety and replacing it with the following paragraph:
"FOURTH. The total number of shares of capital stock of all
classes which the Corporation shall have authority to issue is
155,000,000 consisting 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."
<PAGE>
2. The foregoing amendment to the Corporation's Restated Certificate
of Incorporation was duly adopted by the Board of Directors and the
Stockholders of the Corporation in accordance with Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its
President on this 26th day of January, 1996.
IOMEGA CORPORATION
By: /s/ Kim B. Edwards
-------------------------------
Kim B. Edwards
President and Chief Executive
Officer
<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
January 30, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-END> DEC-31-1995 DEC-31-1995
<CASH> 1023 1023
<SECURITIES> 0 0
<RECEIVABLES> 109449 109449
<ALLOWANCES> 3494 3494
<INVENTORY> 98703 98703
<CURRENT-ASSETS> 212132 212132
<PP&E> 103149 103149
<DEPRECIATION> 49779 49779
<TOTAL-ASSETS> 266227 266227
<CURRENT-LIABILITIES> 195509 199509
<BONDS> 0 0
0 0
0 0
<COMMON> 53433 53433
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 266227 266227
<SALES> 148798 326225
<TOTAL-REVENUES> 148798 326225
<CGS> 103311 235838
<TOTAL-COSTS> 103311 235838
<OTHER-EXPENSES> 30583 70765
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1273 1652
<INCOME-PRETAX> 13226 11639
<INCOME-TAX> 3303 3136
<INCOME-CONTINUING> 9923 8503
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 9923 8503
<EPS-PRIMARY> .16<F1> .14<F1>
<EPS-DILUTED> .16<F2> .14<F2>
<FN>
<F1>After stock split
<F2>After stock split
</FN>
</TABLE>
<PAGE>
EXHIBIT 99
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
To Iomega Corporation:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of Iomega Corporation and
subsidiaries included in this registration statement and have issued our
report thereon dated January 26, 1996. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule of Valuation and Qualifying Accounts filed as an exhibit to this
registration statement is the responsibility of the Company's management and
is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 26, 1996
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
Additions
Balance at charged to Balance
beginning costs and at end
Description of period expenses Deductions of period
______________________________________ __________ __________ __________ _________
(in thousands)
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31, 1995 $1,627 $ 799 $ 565* $1,861
______ ______ _______ ______
______ ______ _______ ______
Year ended December 31, 1994 $1,547 $ 323 $ (243)* $1,627
______ ______ _______ ______
______ ______ _______ ______
Year ended December 31, 1993 $ 901 $ 792 $ (146)* $1,547
______ ______ _______ ______
______ ______ _______ ______
PRICE PROTECTION AND PROMOTION RESERVE:
Year ended December 31, 1995 $ 169 $7,104 $(5,640) $1,633
______ ______ _______ ** ______
______ ______ _______ ______
Year ended December 31, 1994 $ 67 $1,143 $(1,041)** $ 169
______ ______ _______ ______
______ ______ _______ ______
Year ended December 31, 1993 $ 73 $2,403 $(2,409)** $ 67
______ ______ _______ ______
______ ______ _______ ______
ACCRUED RESTRUCTURING COSTS:
Year ended December 31, 1994 $6,818 $ 875 $(7,693) $ -
______ ______ _______ ______
______ ______ _______ ______
Year ended December 31, 1993 $ - $8,080 $(1,262) $6,818
______ ______ _______ ______
______ ______ _______ ______
OTHER RESTRUCTURING RESERVES:
Year ended December 31, 1994 $4,649 $2,063 $(6,712) $ -
______ ______ _______ ______
______ ______ _______ ______
Year ended December 31, 1993 $ - $4,649 $ - $4,649
______ ______ _______ ______
______ ______ _______ ______
</TABLE>
___________________
* Represents write-offs of Accounts Receivable
** Credits granted against Accounts Receivable
