<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 30, 1996
REGISTRATION NO. 333-03577
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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)
--------------------------
DELAWARE 86-0385884
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
--------------------------
1821 WEST IOMEGA WAY, ROY, UTAH 84067
(801) 778-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------------------
LEONARD C. PURKIS
SENIOR VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER
IOMEGA CORPORATION
1821 WEST IOMEGA WAY
ROY, UTAH 84067 (801) 778-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------------------
COPIES TO:
PATRICK J. RONDEAU, ESQ. BROOKS STOUGH, ESQ.
JONATHAN WOLFMAN, ESQ. ROBERT G. SPECKER, ESQ.
HALE AND DORR MARK P. LONG, ESQ.
60 State Street GUNDERSON DETTMER STOUGH
Boston, Massachusetts 02109 VILLENEUVE FRANKLIN & HACHIGIAN, LLP
(617) 526-6000 600 Hansen Way
Palo Alto, California 94306
(415) 843-0500
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date hereof.
--------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box, and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
------------------------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box, and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
OFFERING PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED (1) SHARE (2) OFFERING PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.03 1/3 par
value per share.............. 5,750,000 shares $43.375 $249,406,250 $86,002.16(3)
</TABLE>
(1) Includes 750,000 shares which the Underwriters have the option to purchase
from the Company to cover overallotments, if any. See "Underwriting." Number
of shares gives effect to the two-for-one stock split (effected in the form
of a 100% stock dividend) on May 20, 1996.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933 and based upon the closing
price of the Common Stock on the Nasdaq National Market on May 29, 1996.
(3) $60,474.14 was paid upon the initial filing of this Registration Statement.
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 MAY 30, 1996
PROSPECTUS
5,000,000 SHARES
[LOGO]
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by the
Company. The Company's Common Stock is quoted on the Nasdaq National Market
under the symbol IOMG. On May 10, 1996, the last reported sale price of the
Common Stock on the Nasdaq National Market was $31 per share. See "Price Range
of Common Stock and Dividend Policy."
--------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" 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 $450,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 750,000 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 several 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 J.P. MORGAN & CO.
, 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
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 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 generally sold by retailers for under $600, while the
internal version is generally sold by retailers for under $500. The 1-GB Jaz
disks typically sell for approximately $99 per disk 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 Hewlett-Packard Company, Micron Electronics and
Power Computing for the incorporation of Zip, Jaz or Ditto drives into certain
models of their computers, has OEM arrangements with audio/visual equipment
manufacturers such as Sony Pictures for the incorporation of Jaz drives into
certain products 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, Memorex, Sony 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 Zip, Jaz and Ditto products 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.......... 5,000,000 shares
Common Stock to be outstanding after the
offering..................................... 124,541,442 shares (1)
Use of proceeds.............................. Working capital needs and other general
corporate purposes, including the repayment of
a portion of the amounts outstanding under the
Company's bank loan agreements
Nasdaq National Market symbol................ IOMG
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ----------------------
---------------------------------- APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales....................................................... $ 147,123 $ 141,380 $ 326,225 $ 40,112 $ 221,988
Cost of sales............................................... 92,585 92,453 235,838 28,395 162,088
Gross margin................................................ 54,538 48,927 90,387 11,717 59,900
Restructuring costs (reversal).............................. 14,131 (2,491) -- -- --
Operating income (loss)..................................... (17,427) (882) 13,622 (1,758) 19,753
Net income (loss)........................................... (14,525) (1,882) 8,503 (1,498) 10,121
Net income (loss) per common share (2)...................... $ (0.13) $ (0.02) $ 0.07 $ (0.01) $ 0.08
Weighted average common shares outstanding (2).............. 108,636 110,838 120,360 112,602 128,838
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(3)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 701 $ 147,501
Working capital..................................................................... 54,397 201,197
Total assets........................................................................ 341,366 488,166
Stockholders' equity................................................................ 73,595 220,395
</TABLE>
- ------------------------
(1) Based upon number of shares outstanding as of April 30, 1996. Does not
include 13,199,534 shares reserved for issuance upon the exercise of stock
options outstanding as of April 30, 1996 at a weighted average exercise
price of $2.12 per share or approximately 4,658,228 shares issuable upon
conversion of the Company's 6 3/4% Convertible Subordinated Notes due 2001
(the "Convertible Notes").
(2) See Note 1 of Notes to Consolidated Financial Statements.
(3)
Adjusted to reflect the sale of the 5,000,000 shares of Common Stock offered
hereby at an assumed public offering price of $31.00 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, THE THREE-
FOR-ONE STOCK SPLIT (EFFECTED AS A 200% STOCK DIVIDEND) THAT OCCURRED IN JANUARY
1996 AND THE TWO-FOR-ONE STOCK SPLIT (EFFECTED AS A 100% STOCK DIVIDEND) THAT
OCCURRED ON MAY 20, 1996, AND (II) THE INFORMATION IN THIS PROSPECTUS ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
4
<PAGE>
RISK FACTORS
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE OTHER INFORMATION IN
THIS PROSPECTUS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS
PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL AS THOSE
DISCUSSED ELSEWHERE HEREIN.
ABSENCE OF SUPPLY CONTRACTS; DEPENDENCE ON SUPPLIERS; SHORTAGES OF CRITICAL
COMPONENTS. 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 some difficulty and expects to continue to experience difficulty in
the future, in obtaining a sufficient supply of many key components on a timely
basis. 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 at times been unable to obtain a sufficient supply of certain of
these integrated circuits due to industry-wide shortages, and there can be no
assurance that the Company will be able to obtain a sufficient supply to fully
satisfy the Company's demands for such integrated circuits. These component
shortages have limited the Company's ability to produce sufficient Zip and Jaz
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 and an internal IDE-interface
version of the Zip drive, the interface most commonly required by OEM vendors,
commenced commercial shipment in the first quarter of 1996. Although sales of
Zip products were the primary reason for the Company's revenue growth during
1995, such sales may be attributable in large part to the novelty of the product
and the initial publicity surrounding the introduction of Zip, and may not be
indicative of the long-term demand for the product. In an effort to improve
performance and reduce costs, the Company continues to refine the product design
for Zip, which could result in shipment delays or performance problems. As a
result of the Zip drive's recent introduction, 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 and the first quarter of 1996 is an indication of future sales.
5
<PAGE>
The Company began shipping Jaz drives and disks in December 1995. As is the
case with Zip, the Company cannot yet accurately assess the market acceptance
Jaz will achieve due to uncertainties regarding the market for Jaz and the
competition it will confront. Moreover, the Company is continuing to refine the
product design for Jaz, 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 higher volume. In addition, the Jaz drive incorporates hard disk technology
that has not previously been used in any other removable-media cartridge drives
with similar performance characteristics, and there can be no assurance that 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--Absence of Supply Contracts; Dependence on Suppliers; Shortages of
Critical Components" 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"), 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") and the success of the
Company in generating demand for Zip and Jaz by educating consumers about the
possible uses for such products. 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 $40.1 million in the
first quarter of 1995 to $222.0 million in the first quarter of 1996. 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 and 1996. 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, including its internal
operations, has placed significant demands on the systems and management of the
Company. For example, demand for the Company's Zip disk drives has generally
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, accounting 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 and for the first quarter of 1996,
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
6
<PAGE>
introduction and market acceptance of new products by the Company or its
competitors, product returns, the availability of critical components, the lower
gross margins associated with the Company's Zip, Jaz and Ditto products, the
ratio of sales of higher-margin Zip and Jaz disks to lower-margin Zip and Jaz
drives, seasonality, the success of the Company in reducing manufacturing costs,
the ratio between retail sales and sales to OEM customers and the condition of
retail markets could contribute to this variability. For example, as is common
in the industry, the Company expects to reduce the prices of its products in the
future, including its Zip, Jaz and Ditto products. 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 first quarter of 1996 and the change in
the nature of its business over the past year, the Company believes that
period-to-period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
The Company believes that its 1996 operating results are subject to a wide range
of possible outcomes because they will be heavily dependent on recently
introduced products and subject to a number of uncertainties. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's 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 and sales
slowdowns commonly occurring during the summer months. 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 revenues for any prior quarter 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, most of the Company's OEM arrangements and other
strategic alliances (including its recently announced OEM relationships with The
Acer Group and Packard Bell Electronics) are not covered by binding contracts,
contain no minimum purchase commitments and may be subject to unilateral
7
<PAGE>
termination by the Company's strategic partners, and there can be no assurance
as to the future success or significance of such alliances. Also, some strategic
alliances require or may require the Company to share control over its
manufacturing and marketing programs and technologies. See "Business--Company
Strategy--Broadening Distribution Through Strategic Alliances" and
"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 and Sentinel (Zip disks), Sequel (Jaz drives) and First Engineering
Plastics (Ditto drives). Currently, all of the Company's Jaz drives are
manufactured for the Company by Sequel. 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. The loss of any of the Company's existing
manufacturing relationships could have a material adverse effect on the Company.
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 has granted to Seiko Epson the right to sell for
its own account significant quantities of the Zip drives it produces and may
grant other third-party manufacturers, among others, the right to sell for their
own account significant quantities of the drives they produce, thereby reducing
the supply of such drives to the Company and increasing competition, including
price competition since the Company does not control the price at which such
third parties sell products for their own account. See
"Business--Manufacturing."
DECLINE IN LIQUIDITY; FUTURE CAPITAL NEEDS. The Company had cash and cash
equivalents of $1.0 million as of December 31, 1995 and $0.7 million as of March
31, 1996. During 1995, the Company used $27.0 million in operating activities
and an additional $45.2 million in the purchase of property and equipment.
During the first three months of 1996, the Company used $11.4 million in
operating activities and an additional $14.6 million in the purchase of property
and equipment. Also during 1995 and the first three months of 1996, the Company
experienced substantial increases in its accounts receivable and inventories.
Increases in these working capital components have resulted in a significant
decline in the Company's liquidity. The Company expects that the proceeds of
this offering, together with current sources of financing available to the
Company, will be sufficient to fund the Company's operations into 1997.
Thereafter, the Company 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, the success
of programs the Company is seeking to implement to improve its inventory
management, the Company's management of its cash and accounts payable, and the
Company's ability to refinance its outstanding debt, a significant portion of
which matures in late 1996. There can be no assurance that funds required by the
Company in the future will be available on terms satisfactory to the Company, if
at all. The inability to obtain needed funding on satisfactory terms may require
the Company to reduce planned capital expenditures, to reduce planned levels of
advertising and promotion, to scale back its manufacturing or other operations
or to enter into financing arrangements on terms which it would not otherwise
accept and 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."
COMPETITION. The data storage industry is highly competitive. The Company
believes that its Zip and Jaz products compete most directly with other
removable-media data storage devices, such as magnetic cartridge disk drives
offered by Syquest Technology, optical disk drives and "floptical" disk drives.
Although the Company believes that its Zip and Jaz products offer price,
performance or usability advantages over the other removable-media storage
devices available today, the Company believes that the price, performance and
usability levels of existing removable-media products will improve and that
other companies will introduce new removable-media storage devices. Accordingly,
the Company believes its Zip and Jaz products will face increasingly intense
competition. In particular, a consortium comprised of Compaq Computer, 3M and
MKE has announced the Floptical 120, a high-capacity floptical drive that is
compatible with conventional floppy disks. In addition, both
8
<PAGE>
Mitsumi and Swan Instruments are expected to introduce high-capacity,
removable-media disk drives in 1996 that would also directly compete with Zip
and Jaz. In addition, to the extent that Zip and Jaz drives are used for
incremental primary storage capacity, they also compete with conventional hard
disk drives. Also, the leading suppliers of conventional hard disk drives could
at any time determine to enter the removable-media storage market. The Company
believes that in order to compete successfully against current and future
sources of competition, it will be necessary to further reduce the manufacturing
costs of its products, thus enabling the Company to sell its products at lower
prices. Failure to achieve such reductions in manufacturing costs could have a
material adverse effect on the Company's business and financial results.
As new and competing removable-media storage solutions are introduced, it is
possible that any such solution that achieves a significant market presence or
establishes a number of significant OEM relationships will emerge as an industry
standard and achieve a dominant market position. If such is the case, there can
be no assurance that the Company's products would achieve significant market
acceptance, particularly given the Company's size and market position vis-a-vis
other competitors. See "Risk Factors--Recent Introduction of Zip and Jaz;
Uncertainty of Market Acceptance."
The Company's Ditto products compete with tape drives from companies such as
Conner Peripherals, Inc. (which was recently acquired by Seagate Technology) and
Colorado Memory Systems, a division of Hewlett-Packard Company, as well as
vendors of other backup storage devices. The Company may also compete in both
the removable disk drive and the tape market with licensees of the Company's
products. Many of the Company's current and potential competitors have
significantly greater financial, manufacturing and marketing resources than the
Company. There can be no assurance that the Company will be able to compete
successfully against current and future sources of competition or that the
competitive pressures faced by the Company will not adversely affect the
Company's operating results. See "Business--Competition."
DEPENDENCE ON PROPRIETARY TECHNOLOGY. The Company's success is heavily
dependent upon the establishment and maintenance of proprietary technologies.
The Company relies on a combination of patent, copyright and trade secret law to
protect the technology in its Zip, Jaz and Ditto products. Although the Company
has filed over 40 U.S. and foreign patent applications relating to its Zip and
Jaz drives and disks, the majority of such applications were filed in late 1994
or 1995 and are at relatively early stages in the review process. To date, two
patents relating to the Zip drive have been issued. There can be no assurance
that any additional patents with respect to Zip drives or any patents with
respect to Zip disks or the Company's other products will be issued in the
future. 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 (including the price at which the Company sells disks) 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 products. 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."
9
<PAGE>
STOCK MARKET VOLATILITY. There has been significant volatility in the
market price of the Company's Common Stock (see "Price Range of Common Stock and
Dividend Policy") as well as in the market price of securities of
technology-based companies similar in size to the Company. In addition, the
Company's Common Stock has recently experienced substantial levels of short
selling, which has also affected the volatility of the market price of the
Company's Common Stock. Factors such as announcements of new products by the
Company or its competitors, variations in the Company's quarterly operating
results, continued high levels of short selling of the Common Stock 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."
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 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. Any build up of inventory at the
Company or in its distribution channels that does not sell through to end users
could have a material adverse effect on the Company's operating results and
financial condition.
10
<PAGE>
As is typical in the industry, from time to time the Company experiences
product defects and product returns. There can be no assurance that the Company
will not experience quality or reliability problems in the future which have an
adverse effect on the Company's business or financial results.
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 March 31,
1996, the customers with the ten highest outstanding accounts receivable
balances totaled $57.0, million or 37%, of gross accounts receivable, with one
customer accounting for $20.7 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
continue 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."
DILUTION. The net tangible book value of the Common Stock as of March 31,
1996 was $0.62 per share. Assuming a public offering price of $31.00 per share,
investors purchasing shares of Common Stock in this offering will suffer an
immediate dilution of $29.22 per share. Moreover, as of March 31, 1996, there
were outstanding stock options for the purchase of 13,498,606 shares of Common
Stock at a weighted average exercise price of $1.94 per share and Convertible
Notes convertible into approximately 4,658,228 shares of Common Stock at a
conversion price of $9.875 per share. The exercise of such stock options or
conversion of such Convertible Notes 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 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 assumed public offering price of $31.00 per share are
estimated to be approximately $146,800,000 (approximately $168,887,500 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, including the repayment of a portion of
the amounts outstanding under its bank loan agreements. In particular, the net
proceeds may be used to expand manufacturing capacity, fund sales and marketing
and research and development activities, purchase capital equipment, and finance
increases in accounts receivable and inventory that may result from continued
growth in the Company's business. The amounts actually expended by the Company
for these purposes will vary significantly depending upon a number of factors,
including the market demand for the Company's products, the availability of
critical components, the Company's strategic alliances for the manufacture of
its products, the progress of the Company's product development efforts, the
success of the Company in improving its inventory management, the Company's
management of its cash and accounts payable and the Company's ability to
refinance its outstanding debt, a significant portion of which matures in late
1996. The Company does not believe it can at this time accurately estimate the
amounts to be used for each purpose. See "Risk Factors--Significant Unallocated
Net Proceeds."
Under its loan agreement with Wells Fargo Bank, N.A. ("Wells Fargo"), the
Company has outstanding revolving loans, which bear interest at the bank's prime
rate plus 0.5% and become due and payable on June 30, 1997, and term loans,
which bear interest at the bank's prime rate plus 0.75% and become due and
payable on June 30, 1997. As of April 28, 1996, borrowings under this loan
agreement were $20.7 million, consisting of $17.5 million under the revolving
credit facility and $3.2 million under the term loan facility. As of April 28,
1996, there was $24.4 million of borrowings outstanding under the loan agreement
between a foreign subsidiary of the Company and a German commercial bank at an
interest rate of 7.75%. The agreement expires on November 30, 1996. 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, the Company has no specific
agreements or commitments and is not currently engaged in any negotiations for
any such acquisition.
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. All amounts are adjusted to give effect to the two-for-one
stock split (effected as a 100% stock dividend) that occurred on May 20, 1996.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1994
- -----------------------------------------------------------------------------------------------
First Quarter.................................................................................. $ 0.41 $ 0.30
Second Quarter................................................................................. $ 0.35 $ 0.26
Third Quarter.................................................................................. $ 0.53 $ 0.35
Fourth Quarter................................................................................. $ 0.75 $ 0.38
<CAPTION>
1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
First Quarter.................................................................................. $ 1.30 $ 0.54
Second Quarter................................................................................. $ 4.35 $ 1.16
Third Quarter.................................................................................. $ 5.00 $ 3.39
Fourth Quarter................................................................................. $ 8.96 $ 2.75
<CAPTION>
1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
First Quarter.................................................................................. $ 13.63 $ 5.71
Second Quarter (through May 10, 1996).......................................................... $ 34.94 $ 12.31
</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 March
31, 1996 and as adjusted to give effect to the sale by the Company of the
5,000,000 shares of Common Stock offered hereby, at an assumed public offering
price of $31.00 per share, after deducting the estimated underwriting discount
and offering expenses.
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Convertible Subordinated Notes, 6 3/4%, due 2001......................................... $ 46,000 $ 46,000
---------- -----------
---------- -----------
Stockholders' equity:
Preferred Stock, $.01 par value;
4,750,000 shares authorized; no
shares outstanding.................................................................... -- --
Series C Junior Participating Preferred
Stock, $.01 par value; 250,000 shares
authorized; no shares outstanding..................................................... -- --
Common Stock, $.03 1/3 par value;
150,000,000 shares authorized; 119,046,218
shares outstanding (actual); 124,046,218 shares outstanding (as adjusted) (1)......... 3,968 4,135
Additional paid-in capital............................................................. 51,175 197,808
Deferred compensation.................................................................. (922) (922)
Retained earnings...................................................................... 19,374 19,374
---------- -----------
Total stockholders' equity........................................................... 73,595 220,395
---------- -----------
Total capitalization................................................................. $ 119,595 $ 266,395
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Number of outstanding shares gives effect to the two-for-one stock split
(effected as a 100% stock dividend) that occurred on May 20, 1996, and
excludes (i) an aggregate of 13,498,606 shares of Common Stock reserved for
issuance upon the exercise of stock options outstanding as of March 31, 1996
with a weighted average exercise price of $1.94 per share and (ii) an
aggregate of approximately 4,658,228 shares issuable upon conversion of the
Convertible Notes.
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 and for and as of the three months ended April 2, 1995 and March 31, 1996.
The selected consolidated financial data for and as of the years ended December
31, 1991, 1992, 1993, 1994 and 1995 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. The selected
consolidated financial data for and as of the three months ended April 2, 1995
and March 31, 1996 have been derived from the Company's unaudited consolidated
financial statements which, in the opinion of management of the Company, have
been prepared on the same basis as the audited consolidated financial statements
and include all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation of the results of operations and financial
position for and as of these periods. Operating results for the three months
ended March 31, 1996 are not necessarily indicative of the results to be
expected for the entire year. 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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ----------------------
----------------------------------------------------- APRIL 2, MARCH 31,
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales................................... $ 136,566 $ 139,174 $ 147,123 $ 141,380 $ 326,225 $ 40,112 $ 221,988
Cost of sales........................... 68,404 74,090 92,585 92,453 235,838 28,395 162,088
--------- --------- --------- --------- --------- --------- -----------
Gross margin........................ 68,162 65,084 54,538 48,927 90,387 11,717 59,900
--------- --------- --------- --------- --------- --------- -----------
Operating expenses:
Selling, general and administrative... 34,323 37,572 38,862 36,862 57,189 9,349 33,156
Research and development.............. 17,939 21,959 18,972 15,438 19,576 4,126 6,991
Restructuring costs (reversal)........ -- -- 14,131 (2,491) -- -- --
--------- --------- --------- --------- --------- --------- -----------
Total operating expenses............ 52,262 59,531 71,965 49,809 76,765 13,475 40,147
--------- --------- --------- --------- --------- --------- -----------
Operating income (loss)................. 15,900 5,553 (17,427) (882) 13,622 (1,758) 19,753
Interest and other income (expense)..... 1,661 592 771 908 (1,983) (20) (3,161)
--------- --------- --------- --------- --------- --------- -----------
Income (loss) before income taxes and
cumulative effect of accounting
change................................. 17,561 6,145 (16,656) 26 11,639 (1,778) 16,592
Benefit (provision) for income taxes
(1).................................... (5,236) (1,474) (206) (1,908) (3,136) 280 (6,471)
--------- --------- --------- --------- --------- --------- -----------
Net income (loss) before cumulative
effect of accounting change (1)........ 12,325 4,671 (16,862) (1,882) 8,503 (1,498) 10,121
Cumulative effect of accounting change
(1).................................... -- -- 2,337 -- -- -- --
--------- --------- --------- --------- --------- --------- -----------
Net income (loss)....................... $ 12,325 $ 4,671 $ (14,525) $ (1,882) $ 8,503 $ (1,498) $ 10,121
--------- --------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- --------- -----------
Net income (loss) per common share
(2).................................... $ 0.10 $ 0.04 $ (0.13) $ (0.02) $ 0.07 $ (0.01) $ 0.08
--------- --------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- --------- -----------
Weighted average common shares
outstanding (2)........................ 123,534 121,590 108,636 110,838 120,360 112,602 128,838
<CAPTION>
DECEMBER 31,
----------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and temporary investments... $ 31,611 $ 19,691 $ 18,804 $ 19,793 $ 1,023 $ 701
Working capital.................................... 43,165 35,038 30,550 34,818 12,623 54,397
Total assets....................................... 87,046 86,955 81,089 75,833 266,227 341,366
Stockholders' equity............................... 64,845 65,024 51,090 49,063 62,686 73,595
</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
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. Except for
the historical information contained herein, the discussion in this Prospectus
contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors," as
well as those discussed elsewhere herein.
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 $222.0 million in the first
quarter of 1996.
In 1994, Bernoulli products accounted for almost two-thirds of the Company's
sales, with Ditto products accounting for most of the balance. In 1995, Zip was
the Company's largest selling product line, with Bernoulli products accounting
for only approximately 20% of the Company's sales. During the first quarter of
1996, Bernoulli products accounted for less than 5% of 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.
16
<PAGE>
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 manufacturers and in educating consumers about
the existence and possible uses of Zip and Jaz products as storage devices. In
addition, component shortages or other factors limiting the supply of the
Company's products could 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," "--Absence of Supply Contracts; Dependence on Suppliers; Shortages
of Critical Components" "--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
its Zip, Jaz and Ditto products. 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. In March 1996, the Company lowered prices on
internal models of its Ditto Easy 800 and Ditto Easy 3200 products. As is common
in the industry, the Company expects to reduce the prices of its products in the
future, including its Zip, Jaz and Ditto products. In addition, the Company's
future operating results are significantly dependent on offsetting any such
price reductions with manufacturing cost reductions, and failure to achieve such
cost reductions could have an adverse effect on gross margins.
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 the sales mix between disks and drives is below levels
anticipated by the Company, 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 and sales of Zip and Jaz drives and disks
were the primary reason for the Company's revenue growth during the first
quarter of 1996, 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 Jaz, 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 sales slowdowns commonly occuring during the
summer months. In addition, some retailers have been experiencing sales
decreases and certain analysts have predicted continued softening of this
market. Accordingly, investors should not assume that the sales growth
experienced by the Company in 1995 or the first quarter of 1996 is an indication
of future sales. Moreover, in light of the Company's revenue growth in 1995 and
the first quarter of 1996 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 Factors--Recent Operating Losses; Quarterly
Fluctuations in Operating Results; Risk of Failure to Satisfy Market
Expectations."
17
<PAGE>
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."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of sales:
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
----------------------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------------
------------------------------------- APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales..................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................. 62.9 65.4 72.3 70.8 73.0
----- ----- ----- ----- -----
Gross margin............................................ 37.1 34.6 27.7 29.2 27.0
----- ----- ----- ----- -----
Operating expenses:
Selling, general and administrative..................... 26.4 26.1 17.5 23.3 14.9
Research and development................................ 12.9 10.9 6.0 10.3 3.2
Restructuring costs (reversal).......................... 9.6 (1.8) -- -- --
----- ----- ----- ----- -----
Total operating expenses.............................. 48.9 35.2 23.5 33.6 18.1
----- ----- ----- ----- -----
Operating income (loss)................................... (11.8) (0.6) 4.2 (4.4) 8.9
Interest and other income (expense)....................... 0.5 0.6 (0.6) -- (1.4)
----- ----- ----- ----- -----
Income (loss) before income taxes and cumulative effect of
accounting change........................................ (11.3) -- 3.6 (4.4) 7.5
Benefit (provision) for income taxes...................... (0.2) (1.3) (1.0) 0.7 (2.9)
----- ----- ----- ----- -----
Net income (loss) before cumulative effect of accounting
change................................................... (11.5) (1.3) 2.6 (3.7) 4.6
Cumulative effect of accounting change.................... 1.6 -- -- -- --
----- ----- ----- ----- -----
Net income (loss)......................................... (9.9)% (1.3)% 2.6% (3.7)% 4.6%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 AS COMPARED TO THREE MONTHS ENDED APRIL 2,
1995
SALES. Sales for the three months ended March 31, 1996 increased by $181.9
million, or 453%, when compared to the corresponding period of 1995. The primary
reason for the increase was sales of Zip and Jaz products, which began shipping
in March 1995 and December 1995, respectively. Increased sales of Ditto products
also contributed to the increased sales. These sales increases were partially
offset by reduced sales of Bernoulli products.
In the first quarter of 1996, sales of Zip and Jaz products accounted for
$185 million, or 84% of sales. Ditto products accounted for $28 million, or 12%,
of sales in the first quarter of 1996, an increase of 60% over the first quarter
of 1995. Bernoulli and other product sales totaled $9 million, or 4% of sales,
in the first quarter of 1996 compared to $21 million, or 52% of sales, in the
first quarter of 1995.
Sales outside of the United States in the first quarter of 1996 were $83.9
million, or 38% of sales, compared to $17.1 million, or 43%, for the
corresponding period in 1995. The reasons for the sales increase outside of the
United States were similar to the reasons for the total increase in consolidated
sales.
Management expects increased sales of Zip, Jaz and Ditto products through
the remainder of 1996. However, the Company is still experiencing some component
shortages which may continue to limit production and, therefore, sales. In
addition, future market demand for the Company's products cannot be predicted
with certainty. Accordingly, there can be no assurance that future sales will
materialize as expected.
18
<PAGE>
GROSS MARGIN. The Company's gross margin percentage for the three-month
period ended March 31, 1996 was 27%, compared to 29% for the comparable period
of 1995. The decline in gross margin percentage is due to a shift in product mix
from higher margin Bernoulli products to lower margin Zip, Jaz and Ditto
products. Start-up costs associated with Jaz products also contributed to the
decline in gross margin percentage.
Gross margins for the remainder of 1996 will depend in large part on sales
of Zip and Jaz disks, which generate significantly higher gross margins than the
corresponding drives, and on the sales mix between disks and drives.
Historically, the gross margin of Bernoulli products was generally in excess of
40%; the gross margin of Zip, Jaz and Ditto product lines have been
significantly lower. Although the Company expects the gross margins of Zip and
Jaz products to increase as production increases and start-up costs associated
with Jaz products decrease, it does not expect them to achieve the levels
historically achieved by Bernoulli. In addition, gross margins may be affected
significantly by the mix between OEM and retail sales, the Company's ability to
achieve planned cost reductions, the level of any future price reductions to the
Company's Zip, Jaz or Ditto products and other factors.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses represented 15% of sales for the first quarter of 1996,
compared to 23% for the corresponding period of 1995. The decline in this
percentage was due primarily to the increased sales volumes in 1996. The actual
selling, general and administrative expenses increased by $23.8 million for the
three-month period ended March 31, 1996, as compared to the corresponding prior
year period. The increased expenses were primarily the result of advertising
expenses incurred to increase awareness of Ditto and Zip, 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, in absolute dollars, to increase further in
the remainder of 1996 due to planned additional advertising expenses, trade show
expenses, variable selling expenses, and increased fixed administrative
expenses.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
3% of sales for the three-month period ended March 31, 1996, compared to 10% for
the three-month period ended April 2, 1995. The decline in percentages is
primarily due to the increased sales volumes in 1996. The actual research and
development expenses increased by $2.9 million for the first quarter of 1996,
compared to the corresponding period of 1995. These increases were primarily the
result of expenditures related to the continued development of the Zip, Ditto
and Jaz products. Management expects continued increases in research and
development expenses, in absolute dollars, in the remainder of 1996 as the
result of planned increases in resources dedicated to future product development
and enhancement.
OTHER. Interest expense increased by $2.3 million in the first quarter of
1996, as compared to the first quarter of 1995. This increase is primarily due
to interest expense associated with the Wells Fargo line of credit, financing of
European accounts receivable, capital leases, other term notes and the
Convertible Notes. Management expects continued increases in interest expenses,
in absolute dollars, in the remainder of 1996 as a result of the issuance of the
Convertible Notes in March 1996 and anticipated additional borrowings under the
Company's credit facilities.
During the first quarter of 1995, the Company recorded a net foreign
currency loss of $1.0 million as a result of the weakening of the U.S. dollar
against European currencies.
Other income in the first quarter of 1995 consisted primarily of royalty
income and other miscellaneous income. Other expense in the first quarter of
1996 consisted of various miscellaneous other expense items.
INCOME TAXES. For the first quarter of 1996, the Company recorded a tax
provision of $6.5 million representing an effective tax rate of 39%. The tax
rate has increased from an effective rate of 27% during 1995 due to the
Company's full utilization of available tax credits and foreign net operating
loss carryforwards in 1996. The Company anticipates that the effective tax rate
will remain at 39% throughout 1996. However, differences between the currently
anticipated mix of foreign income versus domestic income, and the actual mix,
will have an impact on the effective tax rate that is recorded in future
quarters.
19
<PAGE>
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.
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 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.
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.
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.
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.
20
<PAGE>
For 1995, the Company recorded a tax provision of $3.1 million representing
an effective income tax rate of 27%, which reflects utilization of available tax
credits and foreign net operating loss carryforwards.
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 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.
21
<PAGE>
In 1993, the Company increased its deferred tax assets as required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109). The deferred tax assets net value at December 31, 1993
was $5.0 million. The realizability of deferred tax assets was reevaluated
throughout 1994 in light of changing business conditions and uncertainties
regarding previously contemplated strategies. As a result, the Company recorded
a tax provision of $3.3 million to increase the valuation allowance to cover the
realizability of the deferred tax assets to its estimated realizable value as of
December 31, 1994. In addition to this tax provision which was recorded in 1994,
the Company recognized a tax benefit of $1.4 million in the third 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 and the first quarter of
1996. 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, MARCH 31,
1995 1995 1995 1995 1996
--------- --------- ----------- ------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Sales................................................ $ 40,112 $ 52,594 $ 84,721 $ 148,798 $ 221,988
Cost of sales........................................ 28,395 40,907 63,225 103,311 162,088
--------- --------- ----------- ------------- ----------
Gross margin....................................... 11,717 11,687 21,496 45,487 59,900
--------- --------- ----------- ------------- ----------
Operating expenses:
Selling, general and administrative................ 9,349 10,162 13,878 23,800 33,156
Research and development........................... 4,126 3,976 4,691 6,783 6,991
--------- --------- ----------- ------------- ----------
Total operating expenses........................... 13,475 14,138 18,569 30,583 40,147
--------- --------- ----------- ------------- ----------
Operating income (loss).............................. (1,758) (2,451) 2,927 14,904 19,753
Interest and other income (expense).................. (20) (55) (230) (1,678) (3,161)
--------- --------- ----------- ------------- ----------
Income (loss) before income taxes.................... (1,778) (2,506) 2,697 13,226 16,592
Benefit (provision) for income taxes................. 280 559 (672) (3,303) (6,471)
--------- --------- ----------- ------------- ----------
Net income (loss).................................... $ (1,498) $ (1,947) $ 2,025 $ 9,923 $ 10,121
--------- --------- ----------- ------------- ----------
--------- --------- ----------- ------------- ----------
Net income (loss) per common share................... $ (0.01) $ (0.02) $ 0.02 $ 0.08 $ 0.08
--------- --------- ----------- ------------- ----------
--------- --------- ----------- ------------- ----------
Weighted average common shares outstanding........... 112,602 114,036 127,236 127,560 128,838
</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 and the first quarter of 1996. Sales of Zip
products throughout 1995 and the first quarter of 1996 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 5% of total
sales by the first quarter of 1996. In the first quarter of 1996, Zip and Jaz
accounted for 84% of sales, and Ditto represented 12% 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
22
<PAGE>
quarter of 1995 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 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. In the first quarter of 1996, gross margin was 27%. The
decline in the first quarter of 1996 compared to the fourth quarter of 1995 was
primarily due to start up costs associated with the Company's Jaz products and
the relative mix in the quarter between lower margin and higher margin products.
Although sales of Zip products were the primary reason for the Company's
revenue growth during 1995 and sales of Zip and Jaz products were the primary
reason for the Company's revenue growth during the first quarter of 1996, such
sales may be attributable in large part to the novelty of the product and the
initial publicity surrounding the introduction of Zip and Jaz, and may not be
indicative of the long-term demand for such products. Accordingly, investors
should not assume that the sales growth experienced by the Company in 1995 or
the first quarter of 1996 is an indication of future sales. Moreover, in light
of the Company's revenue growth in 1995 and the first quarter of 1996 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; Risk of Failure to Satisfy Market Expectations."
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had cash and cash equivalents of $0.7
million, working capital of $54.4 million and a ratio of current assets to
current liabilities of 1.3 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. For the first three months of 1996, the
Company's cash position remained flat, with $11.4 million used in operating
activities and $14.5 million used in investing activities, offset by $25.6
million provided by financing activities.
On July 5, 1995, the Company entered into a loan agreement with the
Commercial Finance Division of Wells Fargo. Effective May 13, 1996, the Company
renewed and amended its loan agreement with Wells Fargo. The amended agreement
permits revolving loans, term loans and letters of credit up to an aggregate
outstanding principal amount equal to the lesser of $100 million or 80% of
eligible accounts receivable. Amounts outstanding are collateralized by accounts
receivable, inventory, equipment, general intangibles and certain other assets.
The new revolving line bears interest at the bank's prime rate plus 0.5% and the
term loans bear interest at the bank's prime rate plus 0.75%. This agreement
expires June 30, 1997. Under this agreement, the Company may also secure
financing of equipment purchases from third parties up to a maximum of $75
million, less term loans outstanding to Wells Fargo. Among other restrictions,
the agreement requires the Company to maintain minimum levels of working capital
and net worth. 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 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's balance sheet at March 31, 1996 reflected short-term
borrowings of $32.4 million, representing utilization of the revolving credit
line with Wells Fargo of $1.8 million, term loans with Wells Fargo of $3.3
million, borrowings under the German loan agreement of $23.9 million and the
short-term portion of capital lease obligations and other term loans of $3.4
million. At March 31, 1996, the Company's long-term borrowings were $52.6
million, consisting of $46.0 million of the Convertible Notes, $4.3 million in
capitalized leases and $2.3 million of other term notes. 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 $38.8 million at March 31, 1996 compared to
December 31, 1995, due to increased sales. Inventory increased by $6.9 million
during the first quarter of 1996 due to build-ups in
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<PAGE>
manufacturing capacity. The 7% increase in inventory, as compared to the 49%
increase in sales volume from the fourth quarter of 1995, reflects an increase
in inventory turnover in the first quarter of 1996 versus the fourth quarter of
1995. Also, the inventory balance at March 31, 1996 was reduced by the sale of
inventory, which had previously been consigned to one of the Company's
suppliers, to that supplier. The increases in receivables and inventory were
more than offset by increases in accounts payable and accrued liabilities of
$25.4 million and $43.2 million in net proceeds from issuance of the Convertible
Notes.
Fixed asset additions for the first quarter of 1996 totaled $19.4 million,
offset by $4.8 million of proceeds from capital leases. 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
current sources of financing available to the Company, will be sufficient to
fund the Company's operations into 1997, including any planned expense increases
or capital expenditures discussed above. Thereafter, the Company 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, the success of the Company in improving its inventory management, the
Company's management of its cash and accounts payable, and the Company's ability
to refinance its outstanding debt, a significant portion of which matures in
late 1996. 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, if at all.
See "Risk Factors-- Decline in Liquidity; Future Capital Needs."
24
<PAGE>
BUSINESS
The Company designs, manufactures and markets innovative data storage
solutions, based on removable-media technology, that help personal computer
users "manage their stuff." The Company's data storage solutions include disk
drives marketed under the tradenames Zip and Jaz and a family of tape drives
marketed under the tradename Ditto. The Company's Zip and Jaz disk drives are
designed to provide users with the benefits of high capacity and rapid access
generally associated with hard disk drives and the benefits of media
removability generally associated with floppy disk drives, including expandable
storage capacity and data transportability, management and security. The
Company's Ditto tape drives primarily address the market for backup data
storage. The Company began shipping Zip drives in March 1995 and Jaz drives in
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 generally sold by retailers for
under $600, while the internal version is generally sold by retailers for under
$500. The 1-GB Jaz disks typically sell for approximately $99 per disk in
five-packs. The Company's Ditto family of tape drives addresses the need of
personal computer users for an easy-to-use, dependable backup solution. The
Company offers internal and external Ditto tape drives based on leading industry
standards ranging in capacity from 420 MBs to 3.2 GBs (using data compression).
INDUSTRY OVERVIEW
The Company believes, based upon information in a 1995 report from
International Data Corporation ("IDC"), that there are in excess of 150 million
personal computers in use worldwide. Many of these personal computers
(particularly those in the home) are used by more than one person. Moreover,
many people make regular use of more than one personal computer; for example, an
individual may use one computer in his or her office, another at home, and a
laptop computer while traveling. Issues that each user of a personal computer
must confront are how to store, transport, share, manage, secure and backup
computer files and applications.
The vast majority of personal computers in use today incorporate both a
conventional hard disk drive (which is also known as a rigid disk drive or a
"Winchester" disk drive) and a floppy disk drive for data storage. Hard disk
drives use magnetic technology to store data on rigid rotating disks that are
generally fixed permanently in the drive mechanism. Hard disk drives are
characterized by their large storage capacities--capacities ranging from 540 MBs
to 2 GBs are becoming increasingly common in new personal computers--and fast
performance. Hard disk drives are the primary data storage device on most
personal computers. Floppy disk drives, which are also based on magnetic
technology, store data on thin plastic disks that are removable from the drive.
Floppy disk drives are typically used for software distribution and transporting
and sharing data. Most floppy disk drives in use today utilize 1.44-MB disks,
which is not sufficient capacity to store many files and programs on a single
disk.
In addition to hard disk drives and floppy disk drives, a number of other
data storage devices have come into use in recent years. In particular, a
growing number of new personal computers incorporate a CD-ROM (compact disk-read
only memory) drive. CD-ROM disks, which are read by the CD-ROM drive using
optical technology, are capable of storing up to 650 MBs of data and are
well-suited for distribution of information and software applications. However,
CD-ROM drives are not capable of recording the user's data. A variety of other
lesser-known removable storage technologies which are capable of reading and
recording data are also available for use with personal computers, including
disk drives systems using removable "hard" magnetic cartridge disks, which
generally either employ similar technology to hard disk drives or the Company's
proprietary Bernoulli technology; writable optical disk drives, which use
various technologies to read and record data in a
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<PAGE>
digital format that can be read by laser light; "floptical" disk drives, which
store data on a magnetic disk similar to a conventional floppy disk and use an
optical pattern for servotracking; and flash memory cards, which store data on
computer chips.
The Company estimates, based on information from 1995 reports of IDC and
Dataquest and its knowledge of the industry, that approximately 210 million data
storage devices for personal computers, representing approximately $30 billion
in revenue at the OEM level, were sold in 1995. Included in these sales figures
are hard disk drives, floppy disk drives, CD-ROM drives, removable disk drives
and tape drives. This market is principally comprised of conventional hard disk
drives, which the Company estimates represented over 40% of unit sales and
approximately two-thirds of dollar sales, and floppy disk drives, which the
Company estimates represented approximately 40% of unit sales but less than 10%
of dollar sales.
THE NEED FOR NEW DATA STORAGE SOLUTIONS
In recent years, advances in software, including memory-intensive graphical
operating systems, integrated suites of word processing, spreadsheet and
database applications, and multimedia applications, have dramatically increased
the storage needs of personal computer users. For example, a popular CD version
of Windows 95 (which includes certain pre-packaged software applications in
addition to the Windows 95 operating system) includes 629 MBs of data, which is
greater than the capacity of most hard drives in use today. In addition, data-
intensive, multimedia files are increasingly being made available to personal
computer users via on-line services and the Internet. For example, CD-quality
sound generally requires 2 MBs of storage capacity per minute, using data
compression software, and 9 MBs per minute without compression; and MPEG1
compressed DSS-satellite quality video generally requires approximately 8 MBs of
storage capacity per minute, while broadcast-quality video requires 250 MBs per
minute. Largely as a result of these trends, it has been estimated that the data
storage needs of personal computer users are doubling every year. Accordingly,
personal computer users increasingly need to expand the amount of their
available primary storage.
Personal computer users demand data storage solutions that do more than
simply provide additional storage capacity. For example, personal computer users
are increasingly seeking a reliable way to transport large files between
computers, thus allowing them to work on the same files using different
computers, and also enabling information to be provided to other computer users.
In addition, with many personal computers (particularly home computers) being
used by more than one person, many personal computer users are looking for an
effective means of organizing and segregating the files of different users of
the same computer. Personal computer users also need a reliable method of
securing sensitive files from unauthorized viewing or modification. Finally, the
increase in the data being used and stored on personal computers has heightened
the need for a practical method of backing up this data.
The Company believes that neither conventional hard disk drives nor floppy
disk drives are capable of adequately addressing all of the information storage
and management needs of personal computer users. A hard disk drive is an
effective product for primary data storage. However, using an additional hard
disk drive to provide additional storage capacity is an unattractive solution to
many personal computer users because the installation of the additional hard
drive (which generally involves selecting a compatible hard disk drive, opening
the computer case, and internally connecting the hard disk drive to the
appropriate controller card) may be difficult. More importantly, once the drive
is installed, the amount of additional available space is limited to the size of
the new hard disk drive. Furthermore, a new hard drive does not address the
issues of data transportability, management and security.
Removable-media storage devices, such as floppy disk drives, offer many of
the advantages that hard disk drives do not, such as future expandability
through the purchase of additional removable-media cartridges or disks; and data
transportability, management and security, since the media storing the data can
be removed from the drive, used in other computers and stored in a secure
location. However, the Company believes that expanding storage capacity through
conventional floppy disks, while inexpensive (floppy disks are generally sold by
retailers at less than $1.00 per disk in multi-packs), is not an adequate
solution because it is too slow and because each disk only stores up to 1.44 MBs
of data, making it too small for many of today's personal computer
26
<PAGE>
files and programs. Floppy disks are also not well-suited for backup purposes,
since approximately 70 floppy disks would be required for each 100 MBs of data
to be backed up and the user would have to be present during the backup
procedure in order to insert and remove each floppy disk.
Other types of removable-media data storage devices are now available for
use with personal computers, including magnetic cartridge disk drives, optical
disk drives, "floptical" disk drives and flash memory cards. However, these
devices, while popular in certain niche markets, have not gained widespread
market acceptance, in part because the Company believes that they have not been
able to match the price/performance levels offered by hard disk drives and
floppy disk drives.
The following table sets forth certain of the principal advantages and
disadvantages of various storage technologies currently available for users of
personal computers:
<TABLE>
<CAPTION>
TECHNOLOGY ADVANTAGES DISADVANTAGES
- --------------------- ---------------------------------------------- ----------------------------------------------
<S> <C> <C>
Hard Disk Drives - Very fast average access time - Fixed capacity
(generally 8 to 20 msec) and data - Disks storing data are not removable
transfer rate (generally 2 to 6 or transportable
MB/sec) - Less attractive aftermarket solution
- Large storage capacity (generally due to difficulty of installation
from 800MB to 4 GB)
- Inexpensive cost per MB of storage
- Proven technology/industry standard
Floppy Disk Drives - Inexpensive drives and media - Capacity is limited to 1.44 MB
- Disks are removable and per disk
transportable - Slow average access time (165 msec)
- Proven technology/industry standard and data transfer rate
CD-ROM Drives - High capacity (650 MB) - Read-only; users cannot store data
- Unlimited expansion - Very slow average access time
- Disks are removable and (230 msec)
transportable
- Inexpensive drives and media
- High durability
- Emerging industry standard for
multimedia applications
Optical Drives - Media is inexpensive - Drives are expensive
- Unlimited expansion - Several different formats exist, not
- Disks are removable and all of which are compatible
transportable - Some formats are not erasable
- Some formats are capable of reading - Average access times for
CD-ROM disks some formats are significantly
slower than hard disk drives
Floptical Drives - Capable of reading and writing to - Currently available in low capacities
traditional floppy disks (although a 120MB Floptical has
- Unlimited expansion been announced)
- Disks are removable and
transportable
Tape Drives - High capacity for backup purposes - Not capable of random access
- Tapes are removable and - Very slow average access time
transportable
- Inexpensive media
- Very low cost per MB of storage
Flash Cards - Fastest access time and data transfer - Very expensive
rate
- Removable and transportable
</TABLE>
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<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 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 satisfy these demands. In
developing and introducing the Zip and Jaz drives, the Company undertook a
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<PAGE>
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 Hewlett-Packard Company, 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 certain
models of their computers, and with Sony Pictures for the incorporation of Jaz
drives into certain products; and the Company 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,
Memorex, Sony 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.
The Company also plans to increase sales of Zip and Jaz disks by educating
consumers about the many possible uses for Zip and Jaz disks. For example, 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 (other
than the Jaz drive) 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 its Jaz products in Europe in February 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 and Fuji began selling
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<PAGE>
co-branded versions of the Zip drive in Japan, and the Company has expanded 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 Easy 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
Disks: Two rigid disk platters
Ditto 420 (1994) Ditto Tape $99 Drive: Direct drive mechanism
Ditto Easy 800 (1995) minicartridges $149 Media: Industry standard quarter
Ditto Easy 3200 (1996) (420-MB, 800-MB, $299 inch cartridges
3200-MB)
</TABLE>
- ------------------------
* Drives are available in internal and external versions. The indicated
capacities for Ditto drives represent the maximum capacity using data
compression.
** Indicates the typical price at which the external version of the drive and
the highest capacity media for that drive is sold at retail. Prices for the
internal version of a drive and for smaller capacity media are generally
lower. The price for the Ditto 420 is the internal version price. Disk
prices represent per unit purchase price in multi-packs. Media prices for
tape are not presented because revenues from tape minicartridge sales are
not material to the Company.
ZIP
The Company began shipping external Zip drives and 100-MB Zip disks in March
1995. Designed as an affordable mass-market product, the Zip drive addresses
multiple needs of personal computer users: hard drive expansion, data
transportability, management and security and data backup. The drive uses
interchangeable 100-MB Zip disks to provide users of IBM-compatible and Apple
Macintosh personal computers with 70 times the capacity of, and superior
performance to, traditional floppy disks. Zip drives were designed with 100-MB
disks based on the results of the Company's market research, which showed that
85% of the files stored on personal computers are 100 MBs or less.
Zip drives use durable, high-capacity flexible media and Winchester-style
nanoslide heads with a special airbearing surface combined with a linear voice
coil motor. The Zip drive provides high capacity and rapid access and can be
used for a number of data storage purposes. The SCSI version of the Zip drive,
which offers faster performance than the parallel port version of the drive,
features 29 millisecond average seek time and an average sustained data transfer
rate of 1.00 MB per second. Software included with the Zip drive provides a
total data storage solution by helping users organize and copy their data and
offers software read/write protect, which further enables users to secure and
protect their data.
The external, portable version of the Zip drive weighs approximately one
pound and is offered in a parallel port version for use with IBM PC-compatible
computers and a SCSI version for use with Apple Macintosh computers or IBM
PC-compatible computers which have a SCSI adapter board. The parallel port
version features printer pass through to allow normal operation of a printer in
the same port. The SCSI version has two connectors allowing it to be connected
with other SCSI devices. The external Zip drive has a unique compact
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<PAGE>
design, including a royal blue color, a window allowing visibility of the label
on the cartridge being used, rubber feet for positioning the drive flat or on
its side, operation lights and a finger slot for easy cartridge insertion and
removal.
Internal versions of the Zip drive include SCSI interface and IDE interface
models. In September 1995, Power Computing, the first Macintosh clone
manufacturer, began offering internal 5 1/4-inch Zip SCSI drives as an option on
its computers. Beginning in the first quarter of 1996, internal IDE interface
models of the Zip drive were sold by Hewlett-Packard Company, which is including
them in one model of its Pavilion line of home computers, and Micron
Electronics, which is offering them as a factory installable option on certain
of 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.
The Zip drive has received numerous awards from industry publications and
trade groups in select categories including: PC/COMPUTING'S Most Valuable
Product (1995); PUBLISH magazine's 1995 Publish Impact Award; CADENCE magazine's
Editor's Choice Award (1995); the International Digital Imaging Association's
"Best New Hardware" award (1995); listing in COMPUTER LIFE magazine's "Best of
Everything" list (1995); and the Millennium Hardware of the Year award in the
Product Excellence Category (1996).
The Zip drive carries a limited 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 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 half 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 generally sold by retailers for under $600, and is available in an
internal SCSI version, which is generally sold by retailers for under $500. Each
1-GB Jaz cartridge sells for approximately $99, in five-packs. The Company
expects an internal IDE version of the Jaz drive to be available beginning in
the second half 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 and operating lights. 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 was named as Storage Product of the Year at the COMDEX trade
show in November 1995.
The Jaz drive carries a limited 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
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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 enhances reliability. The storage
media used by Iomega's tape products is the industry-standard QIC-compatible
minicartridge. In addition, the Ditto Easy 800 and Ditto Easy 3200 support new
high-capacity Travan cartridge technology.
The Ditto family of tape drives has achieved several industry firsts. In
April 1992, the Iomega Tape 250 (later renamed the Ditto 250) became the
industry's first commercially available QIC-standard, one-inch high tape drive
and in March 1995 became the industry's first internal 250-MB tape drive to sell
for under $100. In June 1995, the Ditto 420 became the industry's first internal
420-MB tape drive to sell for under $100. In October 1995, the Company
introduced the Ditto Easy 800, which the Company believes was the industry's
first external parallel port 800-MB tape drive to sell for under $150. The Ditto
Easy 800 features an enhanced design similar to, and is stackable with, the Zip
and Jaz drives.
The Company's tape products are generally available in either internal or
external models. The internal versions attach to the standard floppy drive
interface in IBM PC-compatible computers, while the external versions attach to
the parallel printer port on IBM PC-compatible computers and offer pass-through
capability for a printer. The drives are shipped with backup software for both
DOS and Windows.
In connection with the introduction of the Ditto Easy 800 in October 1995,
the Company also introduced new 1-Step software designed to permit the backup of
an entire hard disk in a single step while the user continues working.
The Ditto Easy 800 and the Ditto Easy 3200 carry a limited two-year warranty
and the Ditto 420 carries a limited five-year warranty. Ditto media is sold with
a limited 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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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, Micron Electronics, a mail-order manufacturer of IBM PC-compatible
personal computers, is offering Zip, Ditto and Jaz drives as a
factory-installable option in certain of its new computers and Hewlett-Packard
is offering one model of its Pavilion line of home computers with a built-in Zip
drive. 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, Memorex, Sony
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 opened 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. 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. During the first quarter of 1996 the Company launched major
print and television advertising campaigns in support of its Zip and Ditto
products and the Company expects marketing and advertising expenses to continue
to increase significantly as the Company seeks to expand market awareness of its
products and educate consumers about the many possible uses for Zip and Jaz
disks.
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
33
<PAGE>
are due from computer product distributors and certain large retailers. At March
31, 1996, the customers with the ten highest outstanding accounts receivable
balances totaled $57.0 million, or 37%, of gross accounts receivable, with one
customer accounting for $20.7 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. During the quarter ended March 31,
1996, sales to Ingram Micro D, Inc. accounted for 11% of sales. No other single
customer accounted for more than 10% of the Company's sales in 1994, 1995 or the
first quarter of 1996.
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 (other than Jaz drives) 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. Currently, all of the Company's
Jaz drives are manufactured for the Company by a third-party manufacturer.
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 and Sentinel (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 has granted to
Seiko Epson the right to sell for its own account significant quantities of the
Zip drives it produces and may grant other third-party manufacturers, among
others, the right to sell for their own account significant quantities of the
drives they produce, thereby reducing the supply of such drives to the Company
and increasing competition, including price competition since the Company does
not control the price at which such third parties sell products for their own
account. 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 some difficulty, and expects to continue to experience difficulty
in the future, in obtaining a sufficient supply of many key components on a
timely basis. 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 at times been unable to obtain a sufficient supply of certain of
these integrated circuits due to industry-wide shortages, and there can be no
assurance that the Company will be able to obtain a sufficient supply to fully
satisfy the Company's demands for such integrated circuits. These component
shortages have limited the Company's ability to produce sufficient Zip and Jaz
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
34
<PAGE>
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 products to
achieve market acceptance and otherwise adversely affect the Company's business
and financial results. See "Risk Factors--Absence of Supply Contracts;
Dependence on Suppliers; Shortages of Critical
Components."
The Company had a backlog as of March 31, 1996 of approximately $146
million, compared to a backlog as of January 28, 1996 of approximately $157
million and a backlog at the end of the first quarter of 1995 of approximately
$23.5 million. Substantially all of the March 31, 1996 backlog was related to
the Company's Zip and Jaz products, for which the Company has experienced
component shortages. The Company believes that the decrease in backlog between
January 31, 1996 and March 31, 1996 is attributable to the Company's increased
ability to fulfill orders, due to increased manufacturing capabilities and less
severe supply constraints over recent months. Based in part on the Company's
current estimates regarding the expected availability of components (which
estimates are based on information provided to the Company by its suppliers, the
Company's current inventory of components, sales recorded since March 31, 1996
and the Company's experience in its business) and the Company's manufacturing
capabilities, the Company believes that it will be able to fill all orders in
the March 31, 1996 backlog during the next six months, unless such orders are
scheduled for delivery outside of this six months period or first cancelled or
rescheduled. However, there can be no assurance that the Company's current
estimates regarding the expected availability of components will in fact turn
out to be correct. See "Risk Factors--Absence of Supply Contracts; Dependence on
Suppliers; Shortages of Critical Components." In addition, the purchase
agreements or purchase orders pursuant to which orders are made generally allow
the customer to cancel orders without penalty, and the Company has experienced
some cancellations or reschedulings of orders in backlog. Moreover, it is common
in the industry during periods of product shortages for customers to engage in
practices such as double ordering in order to increase a customer's allowance of
available product. 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 an IDE interface version of 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
35
<PAGE>
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.
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 levels of existing removable-media products will
improve and that other companies will introduce new removable-media storage
devices. Accordingly, the Company believes its Zip and Jaz products will face
increasingly intense competition. In particular, a consortium comprised of
Compaq Computer, 3M and MKE has announced the Floptical 120, a high-capacity
floptical drive that is compatible with conventional floppy disks. In addition,
both Mitsumi and Swan Instruments are expected to introduce high-capacity,
removable-media disk drives in 1996 that would also directly compete with Zip
and Jaz. The Company believes that in order to compete successfully against
current and future sources of competition, it will be necessary to further
reduce the manufacturing costs of its products, thus enabling the Company to
sell its products at lower prices.
As new and competing removable-media storage solutions are introduced, it is
possible that any such solution that achieves a significant market presence or
establishes a number of significant OEM relationships will emerge as an industry
standard and achieve a dominant market position. If such is the case, there can
be no assurance that the Company's products would achieve significant market
acceptance, particularly given the Company's size and market position vis-a-vis
other competitors.
To the extent that Zip and Jaz drives are used for incremental primary
storage capacity, they also compete with conventional hard disk drives, which
are offered by companies such as Seagate Technology, Western Digital
Corporation, Quantum Corporation, Conner Peripherals (which was recently
acquired 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 Zip and Jaz 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.
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<PAGE>
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). Additional competitive
considerations, particularly in the OEM market, are the size (form factor) of
the drive and the interface type with which the drive is compatible. 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 most common system interface for the
OEM market is IDE. The Company currently offers internal Zip drives in IDE and
SCSI interface models and offers Jaz drives in a SCSI interface model. The
Company expects an internal IDE version of the Jaz drive to be available
beginning in the second half of 1996.
The data storage industry is highly competitive, and the Company expects
that competition will substantially increase in the future. In addition, the
data storage industry is characterized by rapid technological development. The
Company competes with a number of companies that have greater financial,
manufacturing and marketing resources than the Company. The introduction by a
competitor of products with superior performance or substantially lower prices
would adversely affect the Company's business.
PROPRIETARY RIGHTS
The Company relies on a combination of patent, copyright and trade secret
laws to protect its technology. The Company has filed approximately 40 U.S. and
foreign patent applications relating to its Zip and Jaz drives and disks,
although there can be no assurance that such patents will issue. The Company
holds over 50 U.S. and foreign patents, two of which relate to its Zip products,
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 the two issued Zip-related patents and 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 (including the price
at which the Company sells disks) 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 in addition to 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 or both. 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
products. The Company is in the process of negotiating a definitive license
agreement for the
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<PAGE>
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 March 31, 1996, the Company employed 1,972 persons, including 160 in
research and development, 1,453 in manufacturing, 148 in sales, marketing and
service, 128 in general management and administration, and 83 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. The Company has hired a large number of new employees in the last
year and 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 373,000 square
feet of space in 10 buildings located in the Roy, Utah area, 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 require an aggregate base rent of
approximately $2.3 million for 1996. The Company is in the process of
negotiating leases for two other buildings in the Roy, Utah area, aggregating
approximately 115,000 square feet of space. The rent for such additional space
is anticipated to be approximately $600,000 a year.
The Company leases a 27,000 square foot facility in San Diego, California
and a 51,000 square foot facility in Milpitas, California, each for certain
research and development activities. The Company has also rented a 20,000 square
foot facility in Freiburg, Germany for use as its European headquarters. In
addition, the Company leases small sales offices, typically on a short-term
basis, at 11 locations in the United States and in Canada, Austria, Belgium,
France, Ireland, Italy, Spain, the United Kingdom and Singapore.
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.
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<PAGE>
MANAGEMENT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --------- -------------------------------------------------------------
<S> <C> <C>
Kim B. Edwards (1) 48 President, Chief Executive Officer and Director
Leonard C. Purkis 47 Senior Vice President, Finance and Chief Financial Officer
Srini Nageshwar 54 Senior Vice President, Europe
Anton J. Radman, Jr. 44 Senior Vice President, Strategic Business Development
Leon J. Staciokas 68 Senior Vice President and Chief Internal Operating Officer
M. Wayne Stewart 50 Senior Vice President, Operations
Edward D. Briscoe 33 Vice President, Sales
Reed M. Brown 42 Vice President, Manufacturing
Timothy L. Hill 37 Vice President, Marketing
Willard C. Kennedy 49 Vice President, Worldwide Logistics and Materials
Donald R. Sterling 59 Vice President, Corporate Counsel and Secretary
Robert J. Simmons 33 Treasurer
David J. Dunn (1)(2) 65 Chairman of the Board of Directors
Willem H.J. Andersen (3) 55 Director
Robert P. Berkowitz (4) 60 Director
Anthony L. Craig (1)(3) 50 Director
Michael J. Kucha (1)(2)(4) 54 Director
John R. Myers (1)(3) 59 Director
John E. Nolan (4) 68 Director
The Honorable John E. Sheehan (3) 66 Director
</TABLE>
- ------------------------
(1) Member of the Executive Committee
(2) Member of the Nominating Committee
(3) Member of the Compensation Committee
(4) Member of the Audit Committee.
Kim B. Edwards joined the Company as President and Chief Executive Officer
on January 1, 1994. Mr. Edwards served as President and Chief Executive Officer
of Gates Energy Products Inc., a manufacturer of rechargeable batteries and the
successor of General Electric Battery Division, from March 1993 to December
1993. From January 1987 until March 1993, Mr. Edwards served in various other
executive positions for Gates Energy Products Inc., including Vice President and
General Manager of its Consumer Business Unit and Vice President of Marketing
and Sales. Prior to that Mr. Edwards was employed for 18 years at General
Electric Company in various marketing and sales positions.
Leonard C. Purkis joined the Company as Senior Vice President, Finance and
Chief Financial Officer in March 1995. Mr. Purkis also served as Treasurer of
the Company from March 1995 until January 1996. Mr. Purkis joined Iomega
following 12 years at General Electric Company, where his most recent assignment
was as Senior Vice President of Finance at GE Capital Fleet Services. He also
held positions in the Financial Services, Lighting and Plastics businesses, with
assignments in Europe and the U.S.
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<PAGE>
Srini Nageshwar was promoted to Senior Vice President, Europe in April 1991.
Mr. Nageshwar joined the Company in January 1991 as Vice President, Europe.
Prior to joining the Company, Mr. Nageshwar was Executive Vice President for
Marketing, Sales and Operations of OAZ Communications, a network fax server
company, from February 1990 to December 1990. Prior to that, he was President
and Chief Operating Officer of Cumulus Corp., a memory peripherals manufacturing
company, from January 1989 to February 1990. Prior to that, Mr. Nageshwar spent
24 years in marketing and general management positions with Hewlett-Packard, a
computer company, most recently as Value-Added Business Manager.
Anton J. Radman, Jr., has been Senior Vice President, Strategic Business
Development since April 1995. Mr. Radman joined the Company in April 1980 and
his previous positions with the Company have included Senior Vice President,
Sales and Marketing, Senior Vice President, Corporate Development, President of
the Bernoulli Optical Systems Co. (BOSCO) subsidiary of the Company, Vice
President, Research and Development, Vice President, OEM Products and Sales
Manager, and Senior Vice President, Micro Bernoulli Division.
Leon J. Staciokas has been Senior Vice President and Chief Internal
Operating Officer since April 1993. Mr. Staciokas joined the Company in August
1987 as Senior Vice President, Operations. He served as acting Chief Executive
Officer of the Company from October 1993 until January 1994. Mr. Staciokas plans
to retire during 1996, although he may continue with the Company for some period
of time in a consulting role.
M. Wayne Stewart joined the Company as Senior Vice President, Operations in
January 1996. Prior to that, Mr. Stewart was Vice President of Global
Manufacturing Concepts and Engineering Services at Whirlpool Corporation, a
consumer appliance company, from January 1995 to December 1995. From September
1970 to December 1994, Mr. Stewart was Manufacturing Manager for
Hewlett-Packard.
Edward D. Briscoe joined the Company as Vice President, Sales in January
1995. From May 1993 to January 1995, Mr. Briscoe was Director of Sales and
Marketing for Apple Computer's Personal Interactive Electronics Division. Prior
to that, Mr. Briscoe was Executive Assistant to the President of Apple USA. From
July 1987 to April 1992, he held various sales management positions with Apple
Computer, Inc. Previously, Mr. Briscoe was an Account Marketing Representative
for IBM, Inc. from June 1984 to July 1987.
Reed M. Brown joined the Company as Vice President, Manufacturing in
February 1996. Prior to that, Mr. Brown was Director of Manufacturing at Quantum
Corporation, a manufacturer of hard disk drives, from March 1994 to January
1996. From January 1979 to February 1994, Mr. Brown was Production Manager for
Hewlett-Packard.
Timothy L. Hill joined the Company as Vice President, Marketing in July
1994. Mr. Hill was Vice President, Marketing of Falcon Microsystems, a federal
reseller and systems integrator, from August 1993 to July 1994. Prior to that,
Mr. Hill was Director of Marketing and Sales for the Consumer Business Division
of Gates Energy Products from January 1988 to August 1993. Prior to January
1988, Mr. Hill was Marketing Manager for the Consumer Camera Products Division
of Polaroid Corporation, a producer of photography equipment and supplies.
Willard C. Kennedy joined the Company as Vice President, Worldwide Logistics
and Materials in November 1995. From January 1994 to November 1995, he was
Senior Vice President and General Manager of the Digital Videocommunications
Systems for Philips Consumer Electronics. He also held positions at Philips
Consumer Electronics as Vice President of Logistics from October 1992 to January
1994 and Vice President of Purchasing from September 1990 to October 1992.
Before joining Philips, Mr. Kennedy held a variety of management positions in
manufacturing, purchasing and engineering over a period of 20 years with General
Electric Company.
Donald R. Sterling was promoted to Vice President, Corporate Counsel and
Secretary in April 1994. Prior to that, he was Vice President for Legal Affairs
and Secretary from August 1993 to March 1994. Mr. Sterling joined the Company in
September 1988.
Robert J. Simmons has been Treasurer since January 1996. He was Assistant
Treasurer of Oracle Corporation, a software company, from June 1989 to January
1996.
40
<PAGE>
David J. Dunn has been Chairman of the Board of Directors since 1980. Mr.
Dunn has been Managing General Partner of Idanta Partners Ltd., a venture
capital firm, since 1971.
Willem H.J. Andersen has been a director of the Company since 1994. Mr.
Andersen has been a private consultant since February 1995. From June 1992 until
February 1995, he was Chief Executive Officer and a director of Comlinear
Corporation, a semi-conductor manufacturer. From November 1986 until June 1992,
he was Chief Executive Officer of Laser Magnetic Storage International Company,
a designer and manufacturer of optical and tape mass-storage equipment. Mr.
Andersen is a director of Analytical Survey, Inc.
Robert P. Berkowitz has been a director of the Company since 1983. Mr.
Berkowitz has been a private consultant since March 1992. From August 1991 until
March 1992, he was President and Chief Executive Officer of CimTelligence
Systems, a developer of process planning software for the manufacturing
industry. Previously, he had been a private investor and a writer since August
1988.
Anthony L. Craig has been a director of the Company since 1990. Mr. Craig
has been President and Chief Executive Officer of Global Knowledge Network
Incorporated, a worldwide provider of learning services for corporate
information systems and technology, since February 1996. From October 1993 to
January 1996, he was Vice President, Worldwide Sales Operations of Digital
Equipment Corporation, a computer manufacturer. 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. and a director of Mitel Corporation.
Michael J. Kucha has been a director of the Company since 1980. Mr. Kucha
has been President of Melvin C. Dill Co., Inc., a manufacturer of industrial
labels, since October 1990. He was also President and CEO of ERISS Corporation,
an information services company, from January 1996 to May 1996. Mr. Kucha 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 Aviation 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. He
is a director of Curtiss-Wright Corporation.
John E. Nolan has been a director since 1993. Mr. Nolan has been a Partner
at the law firm of Steptoe & Johnson since 1963. He is a director of Hooper
Holmes, Inc.
The Honorable John E. Sheehan has been a director of the Company since 1990.
Mr. Sheehan, an entrepreneur since 1976, is a director and the principal
stockholder of several of the privately owned enterprises which he founded. He
is Chairman and Chief Executive Officer of Rhome Management Co., which provides
oversight to his various corporate interests. He is also a member of the Board
of Trustees for the Harvard Business School Alumni Association and Chairman of
the Board of Trustees of the U.S. Naval Academy Alumni Association. Mr. Sheehan
is a former member, Board of Governors of the Federal Reserve System.
41
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of April 30, 1996 by (i)
each person or entity known to the Company to beneficially own 5% or more of the
outstanding shares of Common Stock, (ii) each of the Company's directors and
(iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED (1) SHARES (2)
-------------------- ---------------
<S> <C> <C>
Idanta Partners Ltd. (3)..................................................... 15,979,356 13.4%
4660 La Jolla Village Drive
Suite 775
San Diego, CA 92122
Willem H.J. Andersen (4)..................................................... 85,582 *
Robert P. Berkowitz.......................................................... 0 --
Anthony L. Craig............................................................. 67,500 *
David J. Dunn (5)............................................................ 16,662,828 13.9
Kim B. Edwards (6)........................................................... 1,471,050 1.2
Michael J. Kucha (7)......................................................... 75,516 *
John R. Myers (8)............................................................ 81,000 *
John E. Nolan (9)............................................................ 172,500 *
The Honorable John E. Sheehan (10)........................................... 612,000 *
All current directors and executive officers as a group
(20 persons) (11).......................................................... 22,947,158 18.6
</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 person is deemed
to beneficially own (i) any shares issuable upon the exercise of stock
options held by such person that are currently exercisable or that become
exercisable within 60 days after April 30, 1996 (and any reference in these
footnotes to shares subject to stock options held by the person in question
refers only to such shares) and (ii) any shares issuable upon conversion of
Convertible Notes held by such person.
(2) Number of shares deemed outstanding for purposes of calculating these
percentages is comprised of the 119,541,442 shares outstanding as of April
30, 1996, plus any shares subject to stock options held by the person in
question and any shares issuable upon conversion of Convertible Notes held
by the person in question.
(3) David J. Dunn, a director of the Company, Dev Purkayastha and Perse Failey
are the general partners of Idanta Partners Ltd. and share voting and
dispositive power with respect to such shares.
(4) Includes 75,000 shares subject to a stock option held by Mr. Andersen and
5,062 shares issuable upon conversion of Convertible Notes held by Mr.
Andersen.
(5) Includes 15,979,356 shares held by Idanta Partners Ltd., of which Mr. Dunn
is Managing General Partner, and 683,526 shares held by a family trust, of
which Mr. Dunn is trustee.
(6) Includes 993,750 shares subject to stock options held by Mr. Edwards. Also
includes 6,000 shares held by Mr. Edwards' wife, as to which shares Mr.
Edwards disclaims beneficial ownership.
(7) Includes 15,000 shares held by Mr. Kucha as custodian for his children, as
to which shares Mr. Kucha disclaims beneficial ownership. Also includes 516
shares held as co-trustee with his wife, as to which shares Mr. Kucha has
shared voting and investment power, and 60,000 shares subject to stock
options held by Mr. Kucha.
(8) Includes 75,000 shares subject to a stock option held by Mr. Myers.
(9) Includes 112,500 shares subject to a stock option held by Mr. Nolan.
42
<PAGE>
(10) Includes 187,500 shares subject to a stock option held by Mr. Sheehan. Also
includes 132,000 shares held by Mr. Sheehan's wife, as to which shares Mr.
Sheehan disclaims beneficial ownership.
(11) Includes 15,979,356 shares of Common Stock held by Idanta Partners Ltd.
Also includes an aggregate of 3,822,930 shares subject to stock options and
5,062 shares issuable upon conversion of Convertible Notes.
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 April 30, 1996, there were outstanding
119,541,442 shares of Common Stock held by 3,344 stockholders of record. Of the
5,000,000 authorized shares of Preferred Stock, 250,000 shares have been
designated as Series C Junior Participating Preferred Stock (none of which are
outstanding), and 4,750,000 shares remain available for designation by the Board
of Directors in the future.
The following summary of certain provisions of the Company's Common Stock,
Preferred Stock, Certificate of Incorporation and By-laws is not intended to be
complete and is qualified by reference to the provisions of applicable law and
to the Company's Certificate of Incorporation and By-laws included as exhibits
to the Registration Statement of which this Prospectus is a part. See "Available
Information."
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the outstanding shares of Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor, subject to any preferential dividend rights
of the holders of any outstanding Preferred Stock. Upon the liquidation,
dissolution or winding-up of the Company, holders of Common Stock are entitled
to receive ratably the net assets of the Company available for distribution
after the payment of all debts and other liabilities of the Company and subject
to the prior rights of the holders of any outstanding Preferred Stock. Holders
of Common Stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares of Common Stock are, and the shares offered
hereby will be, when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of holders of any shares of
Preferred Stock that the Company may issue in the future.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed
by law, without further stockholder approval, to issue from time to time up to
4,750,000 shares of Preferred Stock, in one or more series. Each such series of
Preferred Stock shall have such number of shares, designations, preferences,
voting powers, qualifications and special or relative rights or privileges as
shall be determined by the Board of Directors, which may include, among others,
dividend rights, voting rights, redemption and sinking fund provisions,
liquidation preferences, conversion rights and preemptive rights.
The stockholders of the Company have granted the Board of Directors
authority to issue the Preferred Stock and to determine its rights and
preferences in order to eliminate delays associated with a stockholder vote on
specific issuances. The rights of the holders of Common Stock will be subject to
the rights of holders of any Preferred Stock issued in the future. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, a majority of the outstanding voting
stock of the Company. The Company has no present plans to issue any shares of
Preferred Stock.
RIGHTS PLAN
In July 1989, the Company adopted a Shareholder Rights Plan and declared a
dividend of four-thirtieths of one preferred stock purchase right (a "Right")
for each outstanding share of Common Stock. Under certain
43
<PAGE>
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 three-thousandths of a share of
Series C Preferred Stock purchasable upon exercise of the four-thirtieths of a
Right associated with each share of Common Stock should approximate the value of
one share of Common Stock.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board of Directors of the Company, except pursuant
to an offer conditioned on a substantial number of Rights being acquired. The
Rights should not interfere with any merger or other business combination
approved by the Board of Directors.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. In general, Section 203 prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Company's Certificate of Incorporation and By-Laws provide that any
action required or permitted to be taken by the stockholders of the Company may
be taken only at a duly called annual or special meeting of stockholders or by a
written consent signed by all holders of outstanding voting stock, and that
special meetings of stockholders may be called only by the Board of Directors or
the President of the Company. These provisions could have the effect of delaying
until the next stockholders' meeting stockholder actions which are favored by
the holders of a majority of the outstanding voting securities of the Company.
These provisions may also discourage another person or entity from making a
tender offer for the Common Stock, because such person or entity, even if it
acquired a majority of the outstanding voting securities of the Company, would
be able to take action as a stockholder (such as electing new Directors or
approving a merger) only at a duly called stockholders meeting, and not by
written consent.
The Company's Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of Directors. The provisions eliminate a Director's liability to
stockholders for monetary damages for a breach of fiduciary duty, except in
certain circumstances involving wrongful acts, such as the breach of a
Director's duty of loyalty or acts or omissions which involve intentional
44
<PAGE>
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.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC
and J.P. Morgan Securities Inc., 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.................................................................................
J.P. Morgan Securities Inc............................................................................
----------
Total 5,000,000
----------
----------
</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
offering contemplated hereby, 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 750,000
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 of 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.
45
<PAGE>
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 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 or upon conversion of the Convertible Notes).
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 187,500 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 SEC maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as the Company, that file
electronically with the SEC. The Common Stock is quoted on the Nasdaq National
Market. Reports and other information concerning the Company may be inspected at
the office of The Nasdaq Stock Market, Inc., 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.
46
<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, 1995;
(2) the Company's Quarterly Report on Form 10-Q for the period ended March
31, 1996;
(3) the Company's Current Report on Form 8-K dated February 1, 1996;
(4) the Company's Form 10-C filed on February 6, 1996;
(5) the Company's Form 10-C filed on May 22, 1996; and
(6) the Company's Registration Statement on Form 8-A registering the Common
Stock under Section 12(g) of the Exchange Act, as amended.
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 May 13, 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).
47
<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 and March 31, 1996....... F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and
1995 and the three months ended April 2, 1995 and March 31, 1996..................... F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993,
1994 and 1995 and the three months ended March 31, 1996.............................. F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and the three months ended April 2, 1995 and March 31, 1996..................... F-8
Notes to Consolidated Financial Statements............................................ F-9
</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 (except with respect
to the matters discussed in Note 13,
as to which the date is April 23, 1996)
F-2
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1994 1995 1996
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 16,861 $ 1,023 $ 701
Temporary investments................................... 2,932 -- --
Trade receivables, less allowance for doubtful accounts
of $1,627, $1,861 and $4,051, respectively............. 18,892 105,955 144,746
Inventories............................................. 17,318 98,703 105,631
Deferred tax assets..................................... 477 2,778 9,929
Other current assets.................................... 4,077 3,673 8,537
--------- --------- ---------
Total current assets................................ 60,557 212,132 269,544
--------- --------- ---------
Property and equipment, at cost:
Machinery and equipment................................. 45,585 67,812 95,729
Leasehold improvements.................................. 6,034 6,475 7,625
Furniture and fixtures.................................. 4,737 4,805 5,364
Equipment and construction in process................... 2,837 24,057 12,883
--------- --------- ---------
59,193 103,149 121,601
Less: Accumulated depreciation and amortization......... (43,917) (49,779) (52,961)
--------- --------- ---------
15,276 53,370 68,640
--------- --------- ---------
Deferred tax assets....................................... -- 520 248
--------- --------- ---------
Other assets.............................................. -- 205 2,934
--------- --------- ---------
$ 75,833 $ 266,227 $341,366
--------- --------- ---------
--------- --------- ---------
</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,
-------------------- MARCH 31,
1994 1995 1996
-------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Current liabilities:
Current portion of notes payable......................... $ -- $ 47,640 $ 30,051
Accounts payable......................................... 7,228 94,782 116,643
Bank overdraft........................................... -- 11,833 6,582
Accrued payroll and bonus................................ 3,047 6,777 3,559
Deferred revenue......................................... 1,947 3,207 6,613
Accrued vacation......................................... 1,954 2,939 3,060
Accrued warranty......................................... 3,943 4,652 7,014
Other accrued liabilities................................ 7,620 21,756 27,922
Income taxes payable..................................... -- 5,141 11,364
Current portion of capitalized lease obligations......... -- 782 2,339
-------- --------- ---------
Total current liabilities............................ 25,739 199,509 215,147
-------- --------- ---------
Capitalized lease obligations, net of current portion...... -- 1,481 4,324
-------- --------- ---------
Notes payable, net of current portion...................... -- 2,551 2,300
-------- --------- ---------
Commitments and contingencies (Note 4)
Convertible subordinated notes, 6 3/4%, due 2001........... -- -- 46,000
-------- --------- ---------
Redeemable Series A Convertible Preferred Stock;
outstanding 258,816 shares in 1994........................ 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 111,118,494, 117,638,670 and 119,046,218
shares, respectively.................................... 3,704 3,921 3,968
Notes receivable from stockholders....................... (597) -- --
Additional paid-in capital............................... 45,171 49,512 51,175
Deferred compensation.................................... -- -- (922)
Retained earnings........................................ 785 9,253 19,374
-------- --------- ---------
Total stockholders' equity........................... 49,063 62,686 73,595
-------- --------- ---------
$ 75,833 $ 266,227 $341,366
-------- --------- ---------
-------- --------- ---------
</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>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, ---------------------
--------------------------------- APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales.......................................... $ 147,123 $ 141,380 $ 326,225 $ 40,112 $ 221,988
Cost of sales.................................. 92,585 92,453 235,838 28,395 162,088
--------- --------- --------- --------- ---------
Gross margin................................... 54,538 48,927 90,387 11,717 59,900
--------- --------- --------- --------- ---------
Operating expenses:
Selling, general and administrative.......... 38,862 36,862 57,189 9,349 33,156
Research and development..................... 18,972 15,438 19,576 4,126 6,991
Restructuring costs (reversal)............... 14,131 (2,491) -- -- --
--------- --------- --------- --------- ---------
Total operating expenses................. 71,965 49,809 76,765 13,475 40,147
--------- --------- --------- --------- ---------
Operating income (loss)........................ (17,427) (882) 13,622 (1,758) 19,753
Foreign currency gain (loss)................. 328 353 (1,243) (1,044) (93)
Interest income.............................. 620 871 537 241 13
Interest expense............................. (70) (15) (1,652) (6) (2,257)
Other income (expense)....................... (107) (301) 375 789 (824)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
cumulative effect of accounting change........ (16,656) 26 11,639 (1,778) 16,592
Benefit (provision) for income taxes........... (206) (1,908) (3,136) 280 (6,471)
--------- --------- --------- --------- ---------
Net income (loss) before cumulative effect of
accounting change............................. (16,862) (1,882) 8,503 (1,498) 10,121
Cumulative effect of accounting change......... 2,337 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss)............................ $ (14,525) $ (1,882) $ 8,503 $ (1,498) $ 10,121
--------- --------- --------- --------- ---------
Net income (loss) per common share:
Net income (loss) before cumulative effect of
accounting change........................... $ (0.15) $ (0.02) $ 0.07 $ (0.01) $ 0.08
Cumulative effect of accounting change....... 0.02 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss)............................ $ (0.13) $ (0.02) $ 0.07 $ (0.01) $ 0.08
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares outstanding..... 108,636 110,838 120,360 112,602 128,838
</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 DEFERRED RETAINED
SHARES AMOUNT STOCKHOLDERS CAPITAL COMPENSATION EARNINGS
---------- ------ ------------ ---------- ------------ -----------
Balances at December 31, 1992................ 107,265,312 $3,575 $ -- $55,959 $ -- $ 17,347
<S> <C> <C> <C> <C> <C> <C>
Sale of shares to employees at an average
price of $0.35 per share pursuant to
exercise of stock options................... 1,141,776 38 -- 354 -- --
Sale of shares to officer at an average price
of $0.34 per share for a note receivable.... 1,764,000 59 (597) 538 -- --
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 69,306 treasury shares under
Employee Stock Purchase Plan................ -- -- -- (30) -- --
Net loss..................................... -- -- -- -- -- (14,525)
---------- ------ ------ ---------- ------ -----------
Balances at December 31, 1993................ 110,171,088 3,672 (597) 57,068 -- 2,744
Sale of shares to employees at an average
price of $0.28 per share pursuant to
excercise of stock options.................. 947,406 32 -- 224 -- --
Purchase of 780,000 shares at an average cost
of $0.39 per share.......................... -- -- -- -- -- --
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 30,342 treasury shares under
Employee Stock Purchase Plan................ -- -- -- (17) -- --
Five-for-four Common Stock split effected in
the form of a 25% stock dividend............ -- -- -- (12,085) -- --
Net loss..................................... -- -- -- -- -- (1,882)
---------- ------ ------ ---------- ------ -----------
Balances at December 31, 1994................ 111,118,494 $3,704 $ (597) $45,171 $ -- $ 785
<CAPTION>
TREASURY
STOCK TOTAL
--------- --------
Balances at December 31, 1992................ $ (11,857) $ 65,024
<S> <C> <C>
Sale of shares to employees at an average
price of $0.35 per share pursuant to
exercise of stock options................... -- 392
Sale of shares to officer at an average price
of $0.34 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 69,306 treasury shares under
Employee Stock Purchase Plan................ 60 30
Net loss..................................... -- (14,525)
--------- --------
Balances at December 31, 1993................ (11,797) 51,090
Sale of shares to employees at an average
price of $0.28 per share pursuant to
excercise of stock options.................. -- 256
Purchase of 780,000 shares at an average cost
of $0.39 per share.......................... (305) (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 30,342 treasury shares under
Employee Stock Purchase Plan................ 17 --
Five-for-four Common Stock split effected in
the form of a 25% stock dividend............ 12,085 --
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-6
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK RECEIVABLE ADDITIONAL
------------------ FROM PAID-IN DEFERRED RETAINED
SHARES AMOUNT STOCKHOLDERS CAPITAL COMPENSATION EARNINGS
---------- ------ ------------ ---------- ------------ -----------
Sale of shares to employees at an average
price of $0.42 per share pursuant to
excercise of stock options.................. 4,859,502 162 -- 1,864 -- --
<S> <C> <C> <C> <C> <C> <C>
Sale of shares to an officer at an average
price of $0.29 per share for a note
receivable.................................. 993,750 33 (283) 250 -- --
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....................... 637,200 22 -- 1,183 -- --
Issuance of Common Shares under Employee
Stock Purchase Plan......................... 29,724 -- -- 13 -- --
Collection of notes receivable from
stockholders................................ -- -- 880 -- -- --
Net income................................... -- -- -- -- -- 8,503
---------- ------ ------ ---------- ------ -----------
Balances at December 31, 1995................ 117,638,670 3,921 -- 49,512 -- 9,253
(unaudited)
Sale of shares to employees at an average
price of $0.42 per share pursuant to
exercise of stock options................... 1,407,548 47 -- 548 -- --
Deferred compensation related to Executive
Compensation Agreement...................... -- -- -- 1,005 (1,005) --
Amortization of deferred compensation........ -- -- -- -- 83 --
Recognition of compensation from Employee
Stock Purchase Plan......................... -- -- -- 24 -- --
Tax benefit from early dispositions of
employee stock.............................. -- -- -- 86 -- --
Net income................................... -- -- -- -- -- 10,121
---------- ------ ------ ---------- ------ -----------
Balances at March 31, 1996 (unaudited)....... 119,046,218 $3,968 $ -- $51,175 $ (922) $ 19,374
---------- ------ ------ ---------- ------ -----------
---------- ------ ------ ---------- ------ -----------
<CAPTION>
TREASURY
STOCK TOTAL
--------- --------
Sale of shares to employees at an average
price of $0.42 per share pursuant to
excercise of stock options.................. -- 2,026
<S> <C> <C>
Sale of shares to an officer at an average
price of $0.29 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
(unaudited)
Sale of shares to employees at an average
price of $0.42 per share pursuant to
exercise of stock options................... -- 595
Deferred compensation related to Executive
Compensation Agreement...................... -- --
Amortization of deferred compensation........ -- 83
Recognition of compensation from Employee
Stock Purchase Plan......................... -- 24
Tax benefit from early dispositions of
employee stock.............................. -- 86
Net income................................... -- 10,121
--------- --------
Balances at March 31, 1996 (unaudited)....... $ -- $ 73,595
--------- --------
--------- --------
</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 CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, ---------------------
-------------------------------- APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
--------- -------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities:
Net Income (Loss)........................... $ (14,525) $ (1,882) $ 8,503 $ (1,498) $ 10,121
Non-Cash Revenue and Expense Adjustments:
Depreciation and amortization expense... 8,472 6,853 8,943 1,843 4,179
Cumulative effect of accounting
change................................ (2,337) -- -- -- --
Deferred income tax provision
(benefit)............................. -- 4,508 (2,821) (367) (6,879)
Change in restructuring reserves........ 5,554 1,590 -- -- --
Other................................... (751) (314) 926 432 107
Changes in Assets and Liabilities:
Trade receivables (net)................. (6,203) 2,793 (87,063) (3,485) (38,791)
Inventories............................. 3,786 (3,747) (81,385) (2,796) (6,928)
Income taxes payable.................... -- -- 6,823 (24) 6,223
Other current assets.................... (694) (1,135) (1,278) (1,316) (4,864)
Accounts payable and bank overdraft..... 1,696 161 87,554 5,744 16,610
Accrued liabilities..................... 6,333 (3,516) 32,808 804 8,837
--------- -------- --------- --------- ---------
Net cash provided from (used in)
operating activities.............. 1,331 5,311 (26,990) (663) (11,385)
--------- -------- --------- --------- ---------
Cash Flows from Investing Activities:
Purchase of property and equipment.......... (6,567) (7,083) (45,232) (4,302) (14,608)
Purchase of temporary investments........... -- (8,825) (2,090) (2,090) --
Sale of temporary investments............... -- 5,893 5,022 990 --
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) -- 108
--------- -------- --------- --------- ---------
Net cash used in investing
activities........................ (2,763) (7,233) (42,505) (5,402) (14,500)
--------- -------- --------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from sales of Common Stock......... 402 256 2,028 217 595
Proceeds from issuance of notes payable..... -- -- 259,667 -- 365,096
Payments on notes payable and capitalized
lease obligations......................... (11) -- (209,748) -- (383,377)
Tax benefit from early dispositions of
employee stock............................ 214 28 860 53 86
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.............................. -- -- 880 597 --
Net proceeds from issuance of convertible
notes..................................... -- -- -- -- 43,163
--------- -------- --------- --------- ---------
Net cash provided from (used in)
financing activities.............. 545 (21) 53,657 867 25,563
--------- -------- --------- --------- ---------
Net Change in Cash and Cash Equivalents......... (887) (1,943) (15,838) (5,198) (322)
Cash and Cash Equivalents at Beginning of the
Period.......................................... 19,691 18,804 16,861 16,861 1,023
--------- -------- --------- --------- ---------
Cash and Cash Equivalents at End of the
Period.......................................... $ 18,804 $ 16,861 $ 1,023 $ 11,663 $ 701
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Sale of Common Stock for a Note............. $ 597 $ -- $ 283 $ 283 $ --
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
Conversion of Series A Preferred Stock to
Common Stock.............................. $ -- $ -- $ 1,205 $ -- $ --
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
Machinery and equipment financed under
capitalized lease obligations............. $ -- $ -- $ 2,535 $ -- $ 4,841
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-8
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(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
specialty 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 and from $40.1
million in the first quarter of 1995 to $222.0 million in the first quarter of
1996. This business growth has resulted in substantial increases in accounts
receivable and inventories. Increases in these working capital components have
resulted in a significant decline in the Company's liquidity. The Company
expects that proceeds from an anticipated stock offering, together with current
sources of financing available to the Company, will be sufficient to fund the
Company's operations into 1997. Thereafter, the Company anticipates that it may
require additional funds to finance its operations.
SOURCES OF SUPPLY
Many components incorporated in, or used in the manufacture of, the
Company's products are currently only available from sole source suppliers. The
Company purchases all of its sole source and limited source components and
equipment pursuant to purchase orders placed from time to time and has no
guaranteed supply arrangements. Supply shortages resulting from a change in
suppliers could cause a delay in manufacturing and a possible loss of sales,
which would have an adverse effect on operating results.
MANUFACTURING RELATIONSHIPS
The Company uses independent parties to manufacture for the Company, on a
contract basis, a substantial portion of the Company's products. The Company's
manufacturing relationships are generally not covered by binding contracts and
may be subject to unilateral termination by the Company's manufacturing
partners. Shortages resulting from a change in manufacturing partners could
cause a delay in manufacturing and a possible loss of sales, which would have an
adverse affect on operating results.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries after elimination of all material intercompany
accounts and transactions.
F-9
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 normal customers' inventory requirements totaled $1,494,000,
$1,947,000, $3,207,000 and $6,613,000 at December 31, 1993, 1994, 1995, and
March 31, 1996, 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, $1,633,000 and $3,487,000 at December 31,
1994, 1995, and March 31, 1996, 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
------- ------- MARCH
31,
1996
-------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials........................................... $ 7,524 $89,030 $88,564
Work in process......................................... 4,839 5,680 8,299
Finished goods.......................................... 4,955 3,993 8,768
------- ------- -------
$17,318 $98,703 $105,631
------- ------- -------
------- ------- -------
</TABLE>
PROPERTY AND EQUIPMENT
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.
F-10
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. For the three month period ended March 31, 1996,
advertising expenses totaled approximately $10,539,000.
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.)
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 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 Notes 2 and 13.
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.
F-11
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the convertible subordinated notes was approximately $63.8
million at March 31, 1996. The book value of all other financial instruments
approximates fair value. The estimated fair values have been determined using
appropriate market information and valuation methodologies.
UNAUDITED INFORMATION
The accompanying financial data as of March 31, 1996 and for the three month
periods ended April 2, 1995 and March 31, 1996 is unaudited and has been
prepared on substantially the same basis as the annual financial statements. In
the opinion of management, the unaudited information contains all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
financial position and results of operations as of such date and for such
periods.
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 18,102,000 were treasury shares and the remainder were
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, which was effected in the form of a 200% Common Stock dividend paid on
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>
F-12
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(3) INCOME TAXES (CONTINUED)
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 Income 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.
Deferred tax assets and liabilities are determined based on the differences
between the financial reporting and tax bases of assets and liabilities. They
are measured by applying the enacted tax rates and laws in effect for the years
in which such differences are expected to reverse. The significant components of
the Company's deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserves.............................. $ 482 $ 1,158
Inventory reserves........................................ 940 2,378
Fixed asset reserves...................................... 36 64
Accrued expense reserves.................................. 4,596 7,188
Unrealized foreign currency loss.......................... -- 438
Inventory unicap adjustment............................... 160 375
Foreign net operating loss carryover...................... 1,493 1,921
Tax credit carryover...................................... 5,365 1,273
Intercompany profit in inventory.......................... 86 84
Other..................................................... 45 30
------------ ------------
Total deferred tax assets................................... 13,203 14,909
Valuation allowance......................................... (12,585) (11,341)
------------ ------------
Deferred tax asset net of valuation allowance............... 618 3,568
Deferred tax liabilities:
Accelerated depreciation.................................. (141) (270)
------------ ------------
Net deferred tax assets..................................... $ 477 $ 3,298
------------ ------------
------------ ------------
</TABLE>
F-13
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(3) INCOME TAXES (CONTINUED)
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. At March 31, 1996, the
valuation allowance was reduced to $6.2 million which represents the 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.
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, $71,000
in 1995 and $4,772,000 for the three month period ended March 31, 1996. The
Company received cash refunds of $2,247,000 in 1994 and $1,592,000 in 1995.
Income tax expense for the three months ended March 31, 1996 has been
provided at an effective rate of 39% compared to an effective rate of 27% for
1995. This tax rate is based on the Company's projected domestic and foreign
pre-tax income for 1996. The increase in the effective tax rate is due to the
Company's full utilization of available tax credits and foreign net operating
loss carryforwards in 1996, and because pre-tax income of certain foreign
operations is subject to foreign income taxes at a rate in excess of the U.S.
statutory rate. The higher tax on foreign operations is expected to offset the
benefits of the tax credits and net operating loss carryforwards.
For income tax purposes, the Company had approximately $5,056,000 in foreign
net operating loss carryforwards and $1,273,000 of tax credit carryforwards at
December 31, 1995. The tax credit carryforwards will begin expiring in 2008.
F-14
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(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 and
for the three-month period ended March 31, 1996 was approximately $2,336,000,
$1,989,000, $1,981,000 and $775,000, respectively.
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 were paid
in March 1996. 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 120,000 shares of stock,
subject to a three year vesting, contingent upon the
F-15
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(4) COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 120,000 shares of stock. The shares will be issued at a cost equal
to par value. Deferred compensation related to these shares has been reflected
in the accompanying consolidated financial statements.
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 accrued
approximately $600,000 for the 1995 profit sharing plan, which was paid in March
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.
The outstanding forward exchange sale and (purchase) contracts at December
31, 1995 and March 31, 1996 are as follows. The contracts mature in April
through June 1996.
<TABLE>
<CAPTION>
AMOUNT CONTRACTED FORWARD RATE
--------------------------------- --------------------------------
DECEMBER 31, DECEMBER 31,
1995 CURRENCY 1995
--------------- MARCH 31, 1996 -------- --------------- MARCH 31, 1996
--------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
German Deutsche
Mark............... -- (6,300,000) DM -- 1.4688
Great Britain Pound -- 4,900,000 GBP -- 1.5255
French Franc........ 1,939,000 15,500,000 FRF 5.169 5.017
Spanish Peseta...... 64,524,000 337,000,000 ESP 134.45 124.98
Italian Lira........ 363,000,000 5,700,000,000 ITL 1692.0 1584.8
Japanese Yen........ (1,109,678,923) (1,298,372,000) YEN 100.60 - 101.00 102.45 - 106.68
</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 and March 31, 1996, all of the Company's foreign
currency contracts are being used to hedge operating requirements. The Company's
theoretical risk in these transactions is the cost of replacing, at current
market rates, these contracts in the event of default by the counterparty.
(5) NOTES PAYABLE
LINE OF CREDIT
On July 5, 1995, the Company entered into a loan agreement with the
Commercial Finance Division of Wells Fargo Bank, N.A. The agreement permits
revolving loans, term loans and letters of credit up to an aggregate outstanding
principal amount equal to the lesser of $60 million or 80% of eligible accounts
receivable, with a 10% overadvance provision through April 12, 1996. Amounts
outstanding are collateralized by accounts receivable, inventory, equipment,
general intangibles and certain other assets. 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%.
F-16
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) NOTES PAYABLE (CONTINUED)
The Company segregated $25 million of the revolving line into a 60 day LIBOR
loan to achieve a lower interest rate at December 31, 1995. Effective May 13,
1996, the Company renewed and amended its loan agreement with Wells Fargo. The
amended agreement permits revolving loans, term loans and letters of credit up
to an aggregate outstanding principal amount equal to the lesser of $100 million
or 80% of eligible accounts receivable. Amounts outstanding are collateralized
by accounts receivable, inventory, equipment, general intangibles and certain
other assets. The new revolving line bears interest at the bank's prime rate
plus .5% and the term loans bear interest at the bank's prime rate plus .75%.
This agreement expires June 30, 1997. Under this agreement the Company may also
secure financing of equipment purchases from third parties up to a maximum of
$75 million, less term loans outstanding to Wells Fargo. Among other
restrictions, covenants within the agreement require the Company to maintain
minimum levels of working capital and net worth. 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. Total
availability under the Wells Fargo agreement at March 31, 1996 was $56.4
million, of which $5.1 million (exclusive of bank overdrafts of $6.6 million)
had been drawn. (See Note 1.) The weighted average outstanding balance was $23.3
million during 1995 and $41.7 million during the three month period ended March
31, 1996. The maximum amount outstanding during 1995 was $38.2 million. The
weighted average interest rate was 10.6% for the year ended December 31, 1995.
The maximum amount outstanding during 1996 was $58.5 million. The weighted
average interest rate was 9.2% for the three month period ended March 31, 1996.
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 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 15.0% at December 31, 1995 and at March
31, 1996. The loan is denominated in several different European currencies and
is dependent on the underlying receivable. The weighted average interest rate
was 11% for the year ended December 31, 1995 and 14% for the three month period
ended March 31, 1996. During 1995, the Company received a total of $17.8 million
in proceeds under the arrangement. During the three month period ended March 31,
1996, the Company received $63.5 million in proceeds under the agreement. At
December 31, 1995, $9.8 million was outstanding and at March 31, 1996, $23.9
million was outstanding and is included in notes payable in the accompanying
consolidated balance sheets.
F-17
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) NOTES PAYABLE (CONTINUED)
The following table summarizes the notes payable outstanding at December 31,
1995 and March 31, 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------- MARCH 31, 1996
--------------
(UNAUDITED)
<S> <C> <C>
LIBOR loan (8.875% Fixed interest rate) $ 25,000 $ --
Revolving credit line
(interest rate 9.5% and 9.25% at 12/31/95 and 3/31/96)..... 8,241 1,825
Term loan
(interest rate 9.75% and 9.50% at 12/31/95 and 3/31/96).... 3,612 3,284
Other term notes............................................ 3,537 3,301
European agreement.......................................... 9,801 23,941
------- -------
50,191 32,351
Less: Current portion....................................... (47,640) (30,051)
------- -------
$ 2,551 $ 2,300
------- -------
------- -------
</TABLE>
Maturities of notes payable as of December 31, 1995 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, and $1,524,000 during the first
quarter of 1996, 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 March
31, 1996, 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, 637,200 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)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(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 $750 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 750 votes per share.
(7) PREFERRED STOCK PURCHASE RIGHTS
In July 1989, the Company adopted a Shareholder Rights Plan and declared a
dividend of four-thirtieths 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 41,250,000 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 and March 31,
1996, the Company had reserved an aggregate of 22,269,180, and 20,861,812
shares, respectively, 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)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(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 and the three months ended March 31, 1996 at their
respective exercise price ranges. All options and option prices have been
restated for the stock splits (see Notes 2 and 13).
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
OPTIONS PER SHARE
---------- ---------------
<S> <C> <C>
Options outstanding at December 31, 1992... 17,868,306 $0.05 to $1.46
Granted.................................... 610,068 $0.35 to $0.95
Exercised.................................. (3,632,220) $0.05 to $0.50
Forfeited.................................. (747,816) $0.14 to $1.45
----------
Options outstanding at December 31, 1993... 14,098,338 $0.14 to $1.46
Granted.................................... 4,409,250 $0.30 to $0.53
Exercised.................................. (948,282) $0.14 to $0.40
Forfeited.................................. (2,836,782) $0.21 to $1.46
----------
Options outstanding at December 31, 1994... 14,722,524 $0.14 to $1.46
Granted.................................... 2,001,600 $0.57 to $7.11
Exercised.................................. (4,946,106) $0.14 to $1.46
Forfeited.................................. (114,064) $0.21 to $1.05
----------
Options outstanding at December 31, 1995... 11,663,954 $0.14 to $7.11
(unaudited)
Granted.................................... 2,521,000 $6.29 to $11.03
Exercised.................................. (1,407,368) $0.14 to $1.22
Forfeited.................................. (28,980) $0.35 to $0.82
----------
Options outstanding at March 31, 1996
(unaudited)............................... 12,748,606 $0.14 to $11.03
----------
----------
</TABLE>
Options to purchase 11,321,700, 9,772,122, 9,508,188 and 8,680,396 shares
were exercisable at December 31, 1993, 1994, 1995 and March 31, 1996,
respectively.
Options to purchase 10,605,226 and 8,113,206 shares were reserved for future
grant at December 31, 1995 and March 31, 1996, respectively.
DIRECTOR STOCK OPTION PLANS
The 1987 Director Stock Option Plan (the "Director Plan") covered 1,500,000
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 187,500 shares of Common Stock. The exercise price per share
of the option was 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 1,200,000 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 150,000 shares of Common Stock.
F-20
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(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, (there were no options granted, exercised or forfeited during the
three month period ended March 31, 1996) at their respective exercise price
ranges. All options and option prices have been restated for the stock splits
(see Notes 2 and 13).
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
OPTIONS PER SHARE
--------- --------------
<S> <C> <C>
Options outstanding at December 31, 1992.... 825,000 $0.29 to $0.46
Granted..................................... 187,500 $0.59
Exercised................................... --
Forfeited................................... --
---------
Options outstanding at December 31, 1993.... 1,012,500 $0.29 to $0.59
Granted..................................... 375,000 $0.27
Exercised................................... (187,500) $0.29
Forfeited................................... --
---------
Options outstanding at December 31, 1994.... 1,200,000 $0.27 to $0.59
Granted..................................... --
Exercised................................... (450,000) $0.37 to $0.44
Forfeited................................... --
---------
Options outstanding at December 31, 1995.... 750,000 $0.27 to $0.59
---------
---------
</TABLE>
Options to purchase 562,500, 600,000, 600,000 and 600,000 shares were
exercisable at December 31, 1993, 1994 and 1995 and March 31, 1996,
respectively.
Options to purchase 1,200,000 shares were reserved for future grant at
December 31, 1995 and March 31, 1996.
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 187,500 shares of Common Stock. The
exercise price of these options was $0.20 per share in the case of four options,
and $0.24 per share in the case of the other option. Each option is exercisable
in increments of 37,500 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 487,500 shares were exercised at
$0.20 and $0.24 per share. At December 31, 1994, options for the purchase of
487,500 shares were outstanding and exercisable at $0.20 and $0.24 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 9,000,000 shares were
approved for the three-year plan with 1,500,000 shares plus the premium of
1,500,000 shares approved for each
F-21
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(9) STOCK PURCHASE PLAN (CONTINUED)
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 261,846 shares have been purchased pursuant to this plan and a total of
82,740 of premium shares have been issued under this plan.
(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, $319,000
and $671,000 to the IRIS Plan for the years ended December 31, 1993, 1994 and
1995, respectively.
(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
and the three months ended March 31, 1996 were $7,534,000, $6,133,000,
$18,160,000 and $21,454,000, respectively. European operations are comprised of
a subsidiary in Germany and sales offices located in France, Belgium, the United
Kingdom, Spain, Italy, Germany, Ireland and Austria. The sales offices are
branches of U.S. subsidiaries. All European sales and substantially all
identifiable assets and operating expenses are recorded on the books of the
German subsidiary. Export sales from the European operation for the years ended
December 31, 1993, 1994 and 1995 and the three months ended March 31, 1996 were
approximately $23,868,000, $29,903,000, $49,526,000, and $39,460,000
respectively, primarily to European countries other than Germany. Sales to
European countries other than Germany are distributed relatively evenly across
countries in which sales offices are located. The characteristics of sales to
Germany and all other European countries are similar. The sales offices are
compensated through commission agreements. Inventory is transferred from
domestic operations to the German subsidiary at an arms-length price as
determined by an independent economic study. Following is a summary of the
Company's operations by geographic location.
FOR THE YEAR ENDED DECEMBER 31, 1993:
<TABLE>
<CAPTION>
DOMESTIC EUROPEAN INTERCOMPANY
OPERATIONS OPERATIONS TRANSACTIONS CONSOLIDATED
---------- ---------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Sales:
Unaffiliated
Customers........ $112,961 $ 34,162 $ -- $147,123
Affiliates........ 26,750 -- (26,750) --
Cost of Sales....... (89,984) (29,997) 27,396 (92,585)
---------- ---------- ------------ ------------
Gross Margin........ 49,727 4,165 646 54,538
---------- ---------- ------------ ------------
Operating
Expenses........... 58,454 13,511 -- 71,965
---------- ---------- ------------ ------------
Net Income (Loss)... $ (4,147) $(11,024) $ 646 $(14,525)
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Identifiable
Assets............. $ 68,004 $ 13,214 $ (129) $ 81,089
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Capital
Expenditures....... $ 4,920 $ 1,647 $ -- $ 6,567
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
</TABLE>
F-22
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(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>
F-23
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(11) OPERATIONS BY GEOGRAPHIC REGION (CONTINUED)
FOR THE PERIOD ENDED MARCH 31, 1996 (UNAUDITED):
<TABLE>
<CAPTION>
DOMESTIC EUROPEAN INTERCOMPANY
OPERATIONS OPERATIONS TRANSACTIONS CONSOLIDATED
---------- ---------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Sales:
Unaffiliated
Customers........ $ 159,520 $ 62,468 $ -- $221,988
Affiliates........ 54,585 -- (54,585) --
Cost of Sales....... (160,858) (55,693) 54,463 (162,088)
---------- ---------- ------------ ------------
Gross Margin........ 53,247 6,775 (122) 59,900
---------- ---------- ------------ ------------
Operating
Expenses........... 34,889 5,258 -- 40,147
---------- ---------- ------------ ------------
Net Income.......... $ 7,911 $ 2,332 $ (122) $ 10,121
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Identifiable
Assets............. $ 292,478 $ 59,019 $(10,131) $341,366
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Capital
Expenditures....... $ 13,956 $ 652 $ -- $ 14,608
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
</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. For the three month period ended March 31, 1996, sales to
Ingram Micro D, Inc. accounted for 11% of the Company's 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 outstanding accounts receivable balances totaled $47.1
million or 43% of gross accounts receivable. At March 31, 1996, the customers
with the ten highest outstanding accounts receivable balance totalled $57.0
million or 37% 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. At March 31, 1996, outstanding accounts
receivable balance from one customer was $20.7 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,
$1,130,000 and $634,000 for the years ended December 31, 1993, 1994, 1995 and
the three months ended March 31, 1996, 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 stockholders in the accompanying consolidated
balance
F-24
<PAGE>
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(12) OTHER MATTERS (CONTINUED)
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) EVENTS SUBSEQUENT TO DATE OF THE AUDITORS' REPORT
CONVERTIBLE SUBORDINATED NOTES
In March 1996, the Company issued $46,000,000 in convertible subordinated
notes. The net proceeds from the issuance of notes totaled $43.2 million and
were used to pay down other debts and for operating requirements. The notes
carry an interest rate of 6.75% and interest payments are payable semiannually
on March 15 and September 15 in each year commencing on September 15, 1996. The
notes mature on March 15, 2001. The notes are unsecured and subordinated to all
existing and future senior indebtedness of the Company and are effectively
subordinated to all existing and future indebtedness and other liabilities of
the Company's subsidiaries.
The notes are convertible into Common Stock of the Company at the option of
the holder at any time after 60 days following the latest date of original
issuance thereof and at or before maturity, unless previously redeemed or
repurchased, at a conversion price of $9.875 per share (equivalent to a
conversion rate of approximately 101.26 shares per $1,000 principal amount of
notes), subject to adjustment in certain events.
The notes are redeemable at any time on or after March 31, 1999, in whole or
in part, at the option of the Company, at declining redemption prices, 102.7%
for 1999 and 101.35% for 2000, together with accrued interest, if any, to the
redemption date.
In the event any repurchase event, as defined in the indenture agreement,
occurs, each holder of notes may require the Company to repurchase all or any
part of such holder's notes at 100% of the principal amount thereof plus accrued
interest to the repurchase date.
STOCK SPLIT
On April 23, 1996, the Company's Board of Directors declared a 2-for-1 stock
split which will be effected in the form of a 100% stock dividend. The dividend
will be paid on or about May 20, 1996 to stockholders of record on May 6, 1996.
This stock split has been retroactively reflected in the accompanying
consolidated financial statements.
F-25
<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....................................... 25
Management..................................... 39
Principal Stockholders......................... 42
Description of Capital Stock................... 43
Underwriting................................... 45
Legal Matters.................................. 46
Experts........................................ 46
Available Information.......................... 46
Incorporation of Certain Documents by
Reference..................................... 47
Index to Consolidated Financial Statements..... F-1
</TABLE>
5,000,000 SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
--------------
HAMBRECHT & QUIST
J.P. MORGAN & CO.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee and the NASD filing
fee.
<TABLE>
<S> <C>
SEC Registration Fee.............................................................. $ 60,475
NASD Filing Fee................................................................... 18,038
Nasdaq National Market Listing Fee................................................ 17,500
Blue Sky Fees and Expenses........................................................ 15,000
Accounting Fees and Expenses...................................................... 50,000
Legal Fees and Expenses........................................................... 150,000
Printing, Engraving and Mailing Expenses.......................................... 100,000
Miscellaneous..................................................................... 38,987
---------
Total............................................................................. $ 450,000
---------
---------
</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(1) Certificate of Incorporation
4.2(2) By-laws
4.3(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
</TABLE>
- ------------------------
* Previously filed.
(1) Incorporated by reference from the Company's Registration Statement on Form
S-3 (33-64995).
(2) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended July 4, 1993.
(3) Incorporated by reference from the Company's Current Report on Form 8-K
dated July 28, 1989.
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
has duly caused this Amendment No. 1 to Registration Statement 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 May, 1996.
IOMEGA CORPORATION
By: /s/ LEONARD C. PURKIS
--------------------------------------
Leonard C. Purkis
Senior Vice President, Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed below by the following persons
in the capacities indicated below on the 30th day of May, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ---------------------------------------------------------
<C> <S>
*
------------------------------------------- Chief Executive Officer and Director (principal executive
Kim B. Edwards officer)
/s/ LEONARD C. PURKIS
------------------------------------------- Senior Vice President, Finance and Chief Financial
Leonard C. Purkis Officer (principal financial and accounting officer)
*
------------------------------------------- Chairman of the Board of Directors
David J. Dunn
------------------------------------------- Director
Willem H.J. Andersen
*
------------------------------------------- Director
Robert P. Berkowitz
------------------------------------------- Director
Anthony L. Craig
*
------------------------------------------- Director
Michael J. Kucha
*
------------------------------------------- Director
John R. Myers
*
------------------------------------------- Director
John E. Nolan
*
------------------------------------------- Director
The Honorable John E. Sheehan
*By: /s/ Leonard C. Purkis
- --------------------------------------
Leonard C. Purkis
Attorney-in-fact
</TABLE>
II-3
<PAGE>
POWER OF ATTORNEY AND SIGNATURE
The undersigned director of Iomega Corporation hereby constitutes and
appoints Leonard C. Purkis, Patrick J. Rondeau and Jonathan Wolfman, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution in each of them, for him and in his name, place
and stead, and in any and all capacities, to sign (i) any and all amendments
(including post-effective amendments) to this Registration Statement on Form S-3
of Iomega Corporation and (ii) any and all registration statements (including
any amendments thereto) relating to the offering covered hereby which may be
filed with the Securities and Exchange Commission pursuant to Rule 462(b) under
the Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them or
their or his substitutes or substitute, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed below by the following person in
the capacity indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------- ----------------------
<S> <C> <C>
/s/ WILLEM H.J. ANDERSEN Director May 30, 1996
-------------------------------------------
Willem H.J. Andersen
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement
4.1(1) Certificate of Incorporation
4.2(2) By-laws
4.3(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
</TABLE>
- ------------------------
* Previously filed.
(1) Incorporated by reference from the Company's Registration Statement on Form
S-3 (No. 33-64995).
(2) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended July 4, 1993.
(3) Incorporated by reference from the Company's Current Report on Form 8-K
dated July 28, 1989.
<PAGE>
IOMEGA CORPORATION
5,000,000 Shares(1)
Common Stock
UNDERWRITING AGREEMENT
May __, 1996
HAMBRECHT & QUIST LLC
J.P. MORGAN & CO.
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 5,000,000 shares of its authorized
but unissued Common Stock, $.03 1/3 par value (herein called the "Common
Stock") (said 5,000,000 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 750,000
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. 333-03577), including the related preliminary
prospectus, for the registration under the
___________
(1) Plus an option to purchase from the Company up to 750,000 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
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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 shares of Common Stock granted to the
Company's employees, directors or consultants under the Company's stock plans
which are disclosed in the Registration Statement 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
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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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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 5,000,000 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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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 750,000 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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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 Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, 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 Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, 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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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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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, (b) shares
of Common Stock issued under the stock option and stock purchase plans of the
Company (the ""Stock Plans''), including Common Stock issued upon the
exercise of options granted under the Stock Plans, all as described through
incorporation by reference in the Preliminary Prospectus, and (c) shares of
Common Stock issued upon conversion of the Company's 6 3/4% Convertible
Subordinated Notes due 2001. 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
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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
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<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.
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<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 major hostilities involving the United States,
or a national or international calamity or emergency if the effect of such
outbreak calamity or emergency would, in the Underwriter's reasonable
judgment, make the offering or delivery of the Notes impracticable, (iii)
suspension of trading in securities generally or a material adverse decline
in value of securities generally on the New York Stock Exchange, the American
Stock Exchange, the NASD Automated Quotation System (""Nasdaq'') or the 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
occurrence of any change in the business or properties of the Company which
in the Underwriter's reasonable opinion materially and adversely impairs the
investment quality of the securities or (v) declaration of a banking
moratorium by either federal or New York State authorities. If this
Agreement shall be terminated pursuant to this Section 8, there shall be no
liability of the Company to the Underwriter and no liability of the
Underwriter to the Company; provided, however, that in the event of any such
termination the Company agrees to indemnify and hold harmless the Underwriter
from all costs or expenses incident to the performance of the obligations of
the Company under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
9. CONDITIONS OF 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 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
16
<PAGE>
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 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
17
<PAGE>
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
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.
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<PAGE>
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) 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.
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<PAGE>
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: Daniel H. Case, III (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 J. 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.
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Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement 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
J.P. MORGAN & CO.
By Hambrecht & Quist LLC
By: ___________________________
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
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SCHEDULE I
UNDERWRITERS
Underwriters Number of Shares
------------ to be Purchased
-----------------
Hambrecht & Quist LLC .........................
J.P. Morgan & Co. .............................
Total ....................................... 5,000,000
---------
---------
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<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 California,
Georgia, Massachusetts, Minnesota, Missouri, New Jersey, Ohio, Pennsylvania,
Texas, Utah, Virginia and Washington 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 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 of record, and to our knowledge owns beneficially
all of the outstanding shares of capital stock of each domestic subsidiary of
the Company, and each domestic subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the State of Delaware;
(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 as of the
close of business on ___________; proper corporate proceedings have been
taken validly to authorize such authorized capital stock; all of the
outstanding shares of such capital stock have been duly and validly issued
and are fully paid and nonassessable; all of the Underwritten Stock,
including any Option Stock purchased on or 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 granted to the Company's
employees, directors or consultants subsequent to March 31, 1996, to the
knowledge of such counsel, the Company does not have outstanding any options
to purchase, or any other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments
to issue or sell shares of its capital stock or any such options, rights,
convertible securities or obligations;
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(iv) The Registration Statement has become effective under the
Securities Act and, to such counsel's knowledge, 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) complied 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 the
beneficial ownership of shares of Common Stock of the Company by partners of
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 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 such 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 instrument known to such
counsel
24
<PAGE>
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 to which the Company is a party or by which the
Company or its assets are bound;
(x) The statements in the Prospectus under the caption ""Description
of Capital Stock'', insofar as such statements purport to summarize certain
provisions of documents or agreements specifically referred to therein or
matters of law, are correct in all material respects;
(xi) To 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;
(xii) 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 or under the rules of the National
Association of Securities Dealers, Inc. in connection with the purchase and
distribution of the Stock by the Underwriters.
(xiii) 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
(xiv) 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
25
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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
26
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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;
(iii) 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 Company's
business, and to the best of such counsel's knowledge there are no
infringements by others of any of the Company's patents, trade secrets or
other proprietary information or materials which in the judgment of such
counsel could affect materially the use thereof by the Company; and
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(iv) 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.
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HALE AND DORR
Counselors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 * FAX 617-526-5000
May 29, 1996
Iomega Corporation
1821 West Iomega Way
Roy, Utah 84067
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-3 (the "Registration Statement"), filed with the
Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended, for the registration of 5,750,000 shares of Common
Stock, $.03 1/3 par value per share (the "Shares"), of Iomega Corporation, a
Delaware corporation (the "Company"), including 750,000 shares issuable upon
exercise of an overallotment option granted to the Company.
The Shares are to be sold by the Company pursuant to an underwriting
agreement (the "Underwriting Agreement") to be entered into by and among the
Company, and Hambrecht & Quist LLC and J.P. Morgan Securities Inc., as
representatives of the several underwriters named in the Underwriting
Agreement (the "Representatives").
We have acted as counsel for the Company in connection with the issue and
sale by the Company of the Shares. We have examined signed copies of the
Registration Statement and all exhibits thereto, all as filed with the
Commission. We have also examined and relied upon the original or copies of
minutes of meetings of the stockholders and the Board of Directors of the
Company, stock record books of the Company, a copy of the By-Laws of the
Company, a copy of the Restated Certificate of Incorporation of the Company,
as amended, and such other documents as we have deemed
necessary for purposes of rendering the opinions hereinafter set forth.
Washington, D.C. Boston, MA Manchester, NH
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HALE AND DORR IS A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
<PAGE>
Iomega Corporation
May 29, 1996
Page 2
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures and the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as copies, and the authenticity of the originals of such
latter documents.
We assume that the appropriate action will be taken, prior to the offer and
sale of the Shares in accordance with the Underwriting Agreement, to register
and qualify the Shares for sale under all applicable state securities
or "blue sky" laws.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized and, when issued and sold by the Company
pursuant to the Underwriting Agreement, such Shares will be validly issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as part of the Registration
Statement and to the use of our name therein and in the related Prospectus under
the caption "Legal Matters."
It is understood that this opinion is to be used only in connection with
the offer and sale of the Shares while the Registration Statement is in
effect.
This opinion is based upon currently existing statutes, rules, regulations
and judicial decisions, and we disclaim any obligation to advise you of any
change in any of these sources of law or subsequent legal or factual
developments which might affect any matters or opinions set forth herein.
Please note that we are opining only as to the matters expressly set
forth herein, and no opinion should be inferred as to any other matters.
Very truly yours,
/s/ HALE AND DOOR
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HALE AND DORR
<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
May 29, 1996
