`
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 1998
COMMISSION FILE NUMBER 1-12333
Iomega Corporation
(Exact name of registrant as specified in its charter)
Delaware 86-0385884
(State or other jurisdiction (IRS employer identification number)
of incorporation or organization)
1821 West Iomega Way, Roy, UT 84067 (Address of principal
executive offices)
(801) 778-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of September 27, 1998.
Common Stock, par value $.03 1/3 267,087,105
(Title of each class) (Number of shares)
<PAGE>
IOMEGA CORPORATION
TABLE OF CONTENTS
Page
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements
Condensed consolidated balance sheets at September 27, 1998
and December 31, 1997...................................... 3
Condensed consolidated statements of operations for the three months
ended September 27, 1998 and September 28, 1997............ 5
Condensed consolidated statements of operations for the nine months
ended September 27, 1998 and September 28, 1997 ........... 6
Condensed consolidated statements of cash flows for the nine months
ended September 27, 1998 and September 28, 1997............ 7
Notes to condensed consolidated financial statements............ 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................... 32
Item 2. Changes in Securities and Use of Proceeds....................... 33
Item 6. Exhibits and Reports on 8-K..................................... 33
Signatures............................................................... 34
Exhibit Index............................................................ 35
This Quarterly Report on Form 10-Q contains a number of forward-looking
statements, including statements relating to the expected return to
profitability in the fourth quarter of 1998; the expected sufficiency of cash
and cash equivalent balances and available sources of financing; projected
effective tax rates; the anticipated impact on gross margins of the sales
volumes of disks, sales mix between disks and drives, the mix between OEM sales
and sales through other channels, and the mix between Zip, Jaz and Ditto
products; anticipated expenditures (and the level of such expenditures as a
percentage of sales) for selling, general and administrative purposes and
research and development activities; timetable for introducing Clik! products;
the anticipated negative impact on gross margins due to Clik! start-up costs;
the possible impact on future sales of potential quality issues or component
shortages; expected gross margin percentages for the remainder of 1998; expected
sales levels due to seasonal demand; possible effects of Asian economic downturn
on future sales; expected cash flows in the fourth quarter of 1998; the possible
effects of an adverse outcome in legal proceedings described in Item 1 of Part
II; estimated additional expenditures associated with the Company's transition
to new computer systems; and the anticipated Year 2000 compliance of such
systems and the Company's hardware and utility software products. Any statements
<PAGE>
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"believes", "anticipates", "plans", "expects", "intends" and similar expressions
are intended to identify forward-looking statements. There are a number of
important factors that could cause actual events or the Company's actual results
to differ materially from those indicated by such forward-looking statements.
These factors include, without limitation, those set forth under the captions
"Liquidity and Capital Resources," "Factors Affecting Future Operating Results"
and "Year 2000 Readiness" included under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in Item 2 of Part I of this
Quarterly Report on Form 10-Q, and those set forth in Item 1 of Part II of this
Quarterly Report on Form 10-Q.
<PAGE>
<TABLE>
IOMEGA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
September 27, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 45,557 $ 159,922
Temporary investments - 36,319
Trade receivables, net 225,016 280,182
Inventories 195,571 246,383
Income taxes receivable 47,536 -
Deferred tax assets 54,518 47,996
Other current assets 20,716 11,982
------------- ------------
Total current assets 588,914 782,784
------------- ------------
PROPERTY, PLANT AND EQUIPMENT, at cost 348,656 272,219
Less: Accumulated depreciation and
amortization (147,921) (96,550)
------------- ------------
Net property, plant and equipment 200,735 175,669
------------- ------------
INTANGIBLE AND OTHER ASSETS, net 39,460 3,186
------------- ------------
$ 829,109 $ 961,639
============= ============
</TABLE>
The accompanying notes to condensed consolidated
financial statements are an integral part of these balance sheets.
<PAGE>
IOMEGA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
September 27, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Related party notes payable (Note 5) $ 40,000 $ -
Current portion of notes payable 500 -
Accounts payable 133,798 257,281
Accrued payroll, vacation and bonus 19,784 31,728
Deferred revenue 17,848 42,423
Income taxes payable - 22,440
Accrued advertising 31,663 32,628
Other accrued liabilities 60,448 52,613
Current portion of capitalized
lease obligations 5,060 5,505
------------- ------------
Total current liabilities 309,101 444,618
------------- ------------
CAPITALIZED LEASE OBLIGATIONS,
net of current portion 3,542 2,939
------------- ------------
NOTES PAYABLE, net of current portion 61,091 -
------------- ------------
DEFERRED INCOME TAXES 13,580 10,334
------------- ------------
CONVERTIBLE SUBORDINATED NOTES,
6.75%, due 2001 45,683 45,683
------------- ------------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value;
authorized 4,750,000 shares,
none issued - -
Series C, Junior Participating
Preferred Stock, authorized
250,000 shares, none issued - -
Common Stock, $.03 1/3 par value;
authorized 400,000,000 shares,
issued 267,908,354 and
262,264,830 shares at September 27, 1998
and December 31, 1997, respectively 8,929 8,741
Additional paid-in capital 284,690 273,826
Less: 821,249 and 829,210 Common
Stock treasury shares
at September 27, 1998 and
December 31, 1997, respectively,
at cost (6,177) (6,099)
Deferred compensation - (336)
Retained earnings 108,670 181,933
------------- ------------
Total stockholders' equity 396,112 458,065
------------- ------------
$ 829,109 $ 961,639
============= ============
</TABLE>
The accompanying notes to condensed consolidated
financial statements are an integral part of these balance sheets.
<PAGE>
<TABLE>
IOMEGA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
For the Three Months Ended
September 27, September 28,
1998 1997
------------ ------------
<S> <C> <C>
(Unaudited)
SALES $ 391,766 $ 431,700
COST OF SALES 304,119 291,373
------------ ------------
Gross margin 87,647 140,327
------------ ------------
OPERATING EXPENSES:
Selling, general and administrative 72,587 72,631
Research and development 23,741 22,571
Purchased in-process technology 11,100 -
------------ ------------
Total operating expenses 107,428 95,202
------------ ------------
OPERATING INCOME (LOSS) (19,781) 45,125
Interest and other income
(expense), net (2,877) 1,055
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (22,658) 46,180
Benefit (provision) for income taxes 7,881 (16,172)
------------ ------------
NET INCOME (LOSS) $ (14,777) $ 30,008
============ ============
NET INCOME (LOSS) PER COMMON SHARE (Note 1):
Basic $ (0.06) $ 0.12
============ ============
Diluted $ (0.06) $ 0.11
============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING (Notes 1 and 2) 266,920 259,688
============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - Assuming Dilution
(Notes 1 and 2) 266,920 283,322
============ ============
</TABLE>
The accompanying notes to condensed consolidated
financial statements are an integral part of these balance sheets.
<PAGE>
<TABLE>
IOMEGA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
For the Nine Months Ended
September 27, September 28,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
SALES $ 1,193,097 $ 1,193,206
COST OF SALES 909,090 828,141
------------ ------------
Gross margin 284,007 365,065
------------ ------------
OPERATING EXPENSES:
Selling, general and administrative 304,928 187,807
Research and development 77,177 54,295
Purchased in-process technology 11,100 -
------------ ------------
Total operating expenses 393,205 242,102
------------ ------------
OPERATING INCOME (LOSS) (109,198) 122,963
Interest and other income (expense), net (3,358) (1,219)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (112,556) 121,744
Benefit (provision) for income taxes 39,293 (42,513)
------------ ------------
NET INCOME (LOSS) $ (73,263) $ 79,231
============ ============
NET INCOME (LOSS) PER COMMON SHARE (Note 1):
Basic $ (0.28) $ 0.31
============ ============
Diluted $ (0.28) $ 0.29
============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING (Notes 1 and 2) 265,032 258,673
============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - Assuming Dilution
(Notes 1 and 2) 265,032 282,048
============ ============
</TABLE>
The accompanying notes to condensed consolidated
financial statements are an integral part of these balance sheets.
<PAGE>
<TABLE>
IOMEGA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Nine Months Ended
September 27, September 28,
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ (73,263) $ 79,231
Non-Cash Revenue and Expense Adjustments:
Depreciation and amortization 48,379 26,701
Purchased in-process technology 11,100 -
Deferred income tax benefit (3,276) (1,513)
Tax benefit from dispositions of
employee stock 6,462 2,616
Other 5,583 19
Changes in Assets and Liabilities:
Trade receivables, net 62,875 (53,451)
Inventories 53,896 (16,504)
Other current assets (6,677) 15,996
Accounts payable (135,503) 60,413
Accrued liabilities (36,823) 22,364
Income taxes (69,976) 23,431
--------- ---------
Net cash provided by (used in)
operating activities (137,223) 159,303
--------- ---------
Cash Flows from Investing Activities:
Purchase of property, plant and equipment (67,617) (52,094)
Purchase of Nomai S.A., net of cash acquired (41,579) -
Sale of temporary investments 36,319 -
Net (increase) decrease in other assets (3,410) 173
--------- ---------
Net cash used in investing activities (76,287) (51,921)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from sale of Common Stock 4,758 2,564
Proceeds from issuance of notes payable 120,000 87,295
Payments on notes payable and capitalized
lease obligations (25,148) (137,793)
Purchase of Common Stock (465) (1,736)
--------- ---------
Net cash provided by (used in)
financing activities 99,145 (49,670)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (114,365) 57,712
Cash and Cash Equivalents at Beginning of Period 159,922 108,312
--------- ---------
Cash and Cash Equivalents at End of Period $ 45,557 $ 166,024
========= =========
</TABLE>
The accompanying notes to condensed consolidated
financial statements are an integral part of these balance sheets.
<PAGE>
<TABLE>
IOMEGA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd.)
(In thousands)
For the Nine Months Ended
September 27, September 28,
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Property, plant and equipment financed under
capitalized lease obligations $ 1,223 $ 3,342
========= =========
Issuance of Common Stock for compensation $ 360 $ -
========= =========
Conversion of Subordinated Notes to Common Stock $ - $ 50
========= =========
</TABLE>
The accompanying notes to condensed consolidated
financial statements are an integral part of these balance sheets.
<PAGE>
IOMEGA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
In the opinion of the Company's management, the accompanying condensed
consolidated financial statements reflect all adjustments (consisting
only of normal recurring adjustments) which are necessary to present
fairly the financial position of the Company as of September 27, 1998
and December 31, 1997, the results of operations for the three- and
nine-month periods ended September 27, 1998 and September 28, 1997, and
cash flows for the nine-month periods ended September 27, 1998 and
September 28, 1997.
The results of operations for the three- and nine-month periods ended
September 27, 1998 are not necessarily indicative of the results to be
expected for the entire year or for any future period.
These unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and
notes included in or incorporated into the Company's latest Annual
Report on Form 10-K.
Principles of Consolidation - The condensed consolidated financial
statements include the accounts of Iomega Corporation and its
majority-owned subsidiaries after elimination of all material
intercompany accounts and transactions.
Foreign Currency Translation - For purposes of consolidating foreign
operations, the Company has determined the functional currency for its
foreign operations to be the U.S. dollar. Therefore, translation gains
and losses are included in the determination of income.
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 disclosures 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.
Reclassifications - Certain reclassifications were made to the prior
periods' condensed consolidated financial statements to conform with
the current period presentation.
Revenue Recognition - The Company's customers include original
equipment manufacturers, end users, retailers, distributors and value
added manufacturers. Revenue, less reserves for returns, is generally
recognized upon shipment to the customer.
In addition to reserves for returns, the Company defers recognition of
revenue on estimated excess inventory in the distribution and retail
channels. For this purpose, excess inventory is the amount of inventory
which exceeds the channels' 30 day requirements as estimated by
management. The gross margin associated with deferral of revenue for
<PAGE>
IOMEGA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
returns and estimated excess channel inventory totaled $17.8 million
and $42.4 million at September 27, 1998 and December 31, 1997,
respectively, and is included in deferred revenue in the accompanying
condensed consolidated balance sheets.
Price Protection and Volume Rebates - 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
against gross accounts receivable for amounts estimated to be
reimbursed to the qualifying customers.
In addition, the Company records reserves at the time of shipment for
estimated volume rebates. These reserves for volume rebates and price
protection credits totaled $52.3 million and $28.5 million at September
27, 1998 and December 31, 1997, respectively, and are netted against
accounts receivable in the accompanying condensed consolidated balance
sheets.
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. Cash equivalents primarily consist of investments in
money market mutual funds, commercial paper, option rate preferred
stock and taxable municipal bonds and notes and are recorded at cost,
which approximates market. Instruments with maturities in excess of
three months are classified as temporary investments. The Company has
classified its entire portfolio of temporary investments at December
31, 1997, as held-to-maturity. These temporary investments consisted
primarily of commercial paper and municipal bonds. At December 31,
1997, all temporary investments had maturities of less than six months.
There were no temporary investments at September 27, 1998.
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>
September 27, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Raw materials $ 93,013 $ 130,049
Work-in-process 11,489 18,714
Finished goods 91,069 97,620
----------- -----------
$ 195,571 $ 246,383
=========== ===========
</TABLE>
<PAGE>
IOMEGA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net Income (Loss) Per Common Share - Basic net income (loss) per common
share (Basic EPS) excludes dilution and is computed by dividing net
income (loss) by the weighted average number of common shares
outstanding during the period. Diluted net income per common share
(Diluted EPS) reflects the potential dilution that could occur if stock
options or other contracts to issue common stock were exercised or
converted into common stock. Diluted EPS for the three- and nine-month
periods ended September 28, 1997, were determined under the assumption
that the convertible subordinated notes were converted on January 1,
1997. The computation of Diluted EPS does not assume exercise or
conversion of securities that would have an antidilutive effect on net
income per common share. In periods where losses are recorded, common
stock equivalents would decrease the loss per share and are therefore
not added to the weighted average shares outstanding. Net income (loss)
per common share amounts and share data have been restated for 1997 to
reflect Basic and Diluted EPS and the stock split described in Note 2.
Following is a reconciliation of the numerator and denominator of Basic
EPS to the numerator and denominator of Diluted EPS for all periods
presented (in thousands, except per share data):
<TABLE>
Net
Income (Loss) Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ---------
<S> <C> <C> <C>
For the Three Months Ended
September 27, 1998
Basic EPS $ (14,777) 266,920 $ (0.06)
Effect of options - -
Effect of convertible
subordinated notes - -
------------ ------------
Diluted EPS $ (14,777) 266,920 $ (0.06)
============ ============
September 28, 1997
Basic EPS $ 30,008 259,688 $ 0.12
Effect of options - 14,382
Effect of convertible
subordinated notes 501 9,252
------------ ------------
Diluted EPS $ 30,509 283,322 $ 0.11
============ ============
</TABLE>
<PAGE>
IOMEGA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net Income (loss) Per Common Share (continued)
<TABLE>
Net
Income (Loss) Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ---------
<S> <C> <C> <C>
For the Nine Months Ended
September 27, 1998
Basic EPS $ (73,263) 265,032 $ (0.28)
Effect of options - -
Effect of convertible
subordinated notes - -
------------ ------------
Diluted EPS $ (73,263) 265,032 $ (0.28)
============ ============
September 28, 1997
Basic EPS $ 79,231 258,673 $ 0.31
Effect of options - 14,120
Effect of convertible
subordinated notes 1,503 9,255
------------ ------------
Diluted EPS $ 80,734 282,048 $ 0.29
============ ============
</TABLE>
Recent Accounting Pronouncements - In June 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131). SFAS 131 establishes new standards for
public companies to report information about their operating segments,
products and services, geographic areas and major customers. This
statement is effective for financial statements issued for fiscal years
beginning after December 15, 1997. In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). SFAS 133 establishes new accounting and
reporting standards for companies to report information about
derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives)
and for hedging activities. This statement is effective for financial
statements issued for all fiscal quarters of fiscal years beginning
after June 15, 1999.
The Company plans to adopt SFAS 131 in its December 31, 1998 financial
statements. The Company has not determined when it will adopt SFAS 133.
The Company does not expect these pronouncements to have a material
impact on the Company's results of operations, financial position or
liquidity.
<PAGE>
IOMEGA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) STOCK SPLIT
In November 1997, the Board of Directors declared a two-for-one Common
Stock split which was effected in the form of a 100% Common Stock
dividend paid on December 22, 1997 to stockholders of record at the
close of business on December 1, 1997.
This stock dividend was accounted for as a stock split and has been
retroactively reflected in the accompanying condensed consolidated
financial statements. In connection with this stock split, proportional
adjustments were made to outstanding stock options and other
outstanding obligations of the Company to issue shares of Common Stock.
(3) ACQUISITION
On July 1, 1998, the Company purchased a majority interest in Nomai,
S.A. ("Nomai"), a France-based manufacturer of removable storage
systems, from Nomai's principal and other major shareholders, for 188
French francs per share, or approximately $21 million. The interest in
Nomai owned by Iomega as of July 1, 1998 constituted approximately 54%
of the total shares of Nomai outstanding on that date. As required by
French law, the Company conducted a tender offer, offering all other
shareholders of Nomai the opportunity to sell their shares to Iomega
for 188 French francs per share. The tender offer was completed in
August 1998, and resulted in the Company owning approximately 98% of
Nomai's outstanding shares. On July 1, 1998, Iomega also acquired, for
a purchase price of $3 million, certain non-infringing technology owned
by Nomai and used in the manufacture of disk products Nomai claimed to
be compatible with certain of the Company's Zip and Jaz drives. The
total purchase price of the acquisition was approximately $45 million
($42 million, net of cash acquired).
The transaction was accounted for as a purchase and, on this basis, the
excess purchase price over the estimated fair value of net tangible
assets has been allocated, based upon an independent third-party
valuation, to purchased in-process technology and goodwill. During the
third quarter, the Company recorded a non-cash pre-tax charge of $11.1
million related to purchased in-process technology, representing the
appraised value of technology still in the development stage that was
not considered to have reached technological feasibility and had no
alternative future use. Goodwill of approximately $32 million arising
from the acquisition is being amortized on a straight-line basis over
seven years. The results of operations of Nomai are included in the
Company's consolidated condensed financial statements from the date of
acquisition. Nomai's sales of approximately $24.1 million for the year
ended December 31, 1997 are not considered material to the Company's
consolidated financial statements.
<PAGE>
IOMEGA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) INCOME TAXES
For the three- and nine-months ended September 27, 1998, the Company
recorded an income tax benefit at an effective rate of approximately
35%. This tax rate is based on the Company's projected mix of domestic
and foreign pre-tax income (loss) for 1998.
U.S. taxes have not been provided for unremitted foreign earnings
which are considered to be permanently reinvested in non-U.S.
operations.
Cash paid for income taxes was $28.3 million for the first nine months
of 1998 and $16.9 million for the corresponding period in 1997.
(5) DEBT
Notes Payable - On March 11, 1997, the Company entered into a $200
million Senior Secured Credit Facility with Morgan Guaranty Trust
Company of New York, Citibank, N.A. and a syndicate of other lenders.
During 1998, the Company and the lenders have agreed to several
amendments to and waivers under the Senior Secured Credit Facility (as
most recently amended, effective July 15, 1998, the "Credit Facility").
The Credit Facility is a $150 million secured revolving line of credit
that expires on July 14, 2000, and is secured by accounts receivable,
domestic inventory, domestic intellectual property, general
intangibles, equipment, personal property, investment property, and a
pledge of 65% of the stock of certain of the Company's subsidiaries.
Borrowing availability under the Credit Facility is based on an agreed
upon advance rate on receivables and inventory not to exceed $150
million with a floor of $110 million through May 1999. Under the Credit
Facility, the Company may borrow at a base rate, which is the higher of
prime or the sum of 0.5% plus the Federal funds rate plus a margin of
.88% to 1.63%, for the first year, and thereafter between 0.0% and
1.63% depending on the Company's profitability and utilization of the
Credit Facility, or at LIBOR plus a margin of 2.0% to 2.75%, for the
first year, and thereafter between 1.25% and 2.75% depending on the
Company's profitability and utilization of the Credit Facility. Total
availability under the Credit Facility at September 27, 1998 was $150
million of which $60 million was outstanding. Among other restrictions,
the Credit Facility treats a change of control (as defined) as an event
of default and requires the maintenance of minimum levels of
consolidated tangible net worth and earnings.
In July 1998, the Company borrowed a total of $40 million from Idanta
Partners Ltd. and another entity affiliated with David J. Dunn,
Chairman of the Board, Iomega Corporation, pursuant to a series of
three senior subordinated notes. The principal and interest associated
with these notes are payable on March 31, 1999. The initial interest
rate is 8.7% per annum, increasing through January 1, 1999 to the
greater of 12.7% per annum or the weighted-average interest rate
charged under the Credit Facility at January 1, 1999 plus 2% per annum.
The proceeds of these notes were used for the cash purchase of Nomai.
In addition, the Company assumed debt obligations as part of the
purchase of Nomai. The Company assumed $1.6 million of notes payable,
of which the current and long-term portions at September 27, 1998,
were $0.5 million and $1.1 million, respectively.
<PAGE>
IOMEGA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Capital Leases - The Company has entered into various agreements to
obtain capital lease financing for the purchase of certain
manufacturing equipment, software, office furniture and other
equipment. The leases have terms ranging from 36- to 60-months and
mature at various dates from July 1998 to January 2001. Principal and
interest payments under the various agreements are payable monthly or
quarterly. Interest rates are fixed and range from 7.1% to 10.2%. The
leases are secured by the underlying leased equipment, software and
furniture. The Company assumed $3.8 million of capitalized lease
obligations as a part of the purchase of Nomai, of which the current
and long-term portions at September 27, 1998, were $1.0 million and
$2.8 million, respectively.
Cash paid for interest was $6.5 million and $4.8 million, respectively,
for the first nine months of 1998 and 1997, including interest on
capital leases. Included in interest expense for the first nine months
of 1998 and 1997, respectively, was $0.7 million and $0.6 million of
amortization of deferred charges associated with obtaining the debt.
(6) OTHER MATTERS
Significant Customers - During the three months and nine months ended
September 27, 1998, sales to Ingram Micro, Inc. accounted for
approximately 19.0% and 14.8%, respectively, of consolidated sales.
During the three months and nine months ended September 28, 1997, sales
to Ingram Micro, Inc. accounted for 12.0% of consolidated sales. No
other single customer accounted for more than 10% of the Company's
sales for these periods.
Forward Exchange Contracts - The Company has commitments to sell and
purchase foreign currencies relating to forward exchange contracts in
order to hedge against future currency fluctuations.
At September 27, 1998 outstanding forward exchange sales (purchase)
contracts, which all mature in December 1998, were as follows:
<PAGE>
IOMEGA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
Contracted
Currency Amount Forward Rate
<S> <C> <C>
British Pound (1,350,000) 1.67
Dutch Guilder (6,050,000) 1.89
French Franc 33,600,000 5.63
German Mark (2,500,000) 1.68
Irish Punt (300,000) 1.48
Japanese Yen 465,000,000 134.40
Singapore Dollar (3,100,000) 1.73
Swiss Franc (2,100,000) 1.38
</TABLE>
The contracts are revalued at the month-end spot rate. 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 September 27, 1998, all of the Company's
foreign currency contracts were 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.
<PAGE>
IOMEGA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported sales of $391.8 million and a net loss, before a non-cash
special charge, of $7.6 million, or $(0.03) per diluted share, in the third
quarter of 1998. This compares to sales of $431.7 million and net income of
$30.0 million, or $0.11 per diluted share, in the third quarter of 1997. In the
third quarter of 1998, the Company recorded a pre-tax non-cash special charge of
$11.1 million, related to purchased in-process technology, as part of its
acquisition of Nomai, S.A., ("Nomai"). The total after-tax loss for the third
quarter of 1998, including this special charge, was $14.8 million or $(0.06) per
diluted share. For the first nine months of 1998, sales were $1.2 billion with a
net loss, including the third quarter special charge and a special charge in the
second quarter relating to cost reduction efforts, of $73.3 million, or $(0.28)
per diluted share, compared to sales of $1.2 billion and net income of $79.2
million or $0.29 per diluted share for the first nine months of 1997.
SALES
Sales for the three months ended September 27, 1998 decreased by $39.9 million,
or 9.3%, when compared to the corresponding period of 1997, primarily as a
result of price reductions on Zip and Jaz disk and drive products. Total drive
sales of $228.1 million decreased by 10.6% as compared to the third quarter of
1997. Total unit drive shipments for the three months ended September 27, 1998
increased by 23.2% as compared to the third quarter of 1997. Total disk sales of
$164.0 million decreased by 7.2% as compared to the third quarter of 1997. Total
unit disk shipments for the three months ended September 27, 1998 increased by
25.4% as compared to the third quarter of 1997.
Sales of Zip products in the third quarter of 1998 totaled $279.2 million, or
71.3% of total sales, and were flat with the third quarter of 1997. Zip unit
drive shipments increased by 38.7% from the third quarter of 1997, while Zip
unit disk shipments increased by 30.1%. Sales of Zip OEM drives accounted for
over 50% of total Zip drive shipments in the third quarter of 1998, compared to
approximately 40% in the third quarter of 1997.
Jaz product sales in the third quarter of 1998 were $95.5 million, or 24.4% of
total sales, representing a 23.9% decrease from the third quarter of 1997. Jaz
unit drive shipments decreased by 33.9% as compared to the third quarter of
1997, while Jaz unit disk shipments decreased by 8.9%.
Ditto product sales in the third quarter of 1998 were $13.2 million, or 3.4% of
total sales, representing a 49.2% decline from the third quarter of 1997. Ditto
unit drive shipments decreased by 59.9% as compared to the third quarter of
1997, while Ditto unit disk shipments decreased by 36.6%.
Geographically, sales in the Americas were $268.2 million, or 68.5% of total
sales, in the third quarter of 1998, as compared to $286.7 million, or 66.4% of
total sales, in the third quarter of 1997. Sales in Europe were $90.6 million,
or 23.1% of total sales, in the third quarter of 1998, as compared to $108.2
million, or 25.1% of total sales, in the third quarter of 1997. Sales in Asia
were $33.0 million, or 8.4% of total sales, in the third quarter of 1998, as
compared to $36.8 million, or 8.5% of total sales, in the third quarter of 1997.
<PAGE>
IOMEGA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales for the nine months ended September 27, 1998 were equal with the
corresponding period of 1997 despite price reductions or rebates for all product
lines. Sales of Zip products totaled $829.8 million, or 69.5% of total sales,
representing a 10.3% increase from the corresponding period of 1997. Jaz product
sales totaled $292.6 million, or 24.5% of total sales, representing an 15.8%
decrease from the corresponding period of 1997. Sales of Ditto products totaled
$64.7 million, or 5.4% of total sales, representing a 28.5% decrease from the
corresponding period of 1997.
By geographic region, sales in the Americas were $823.8 million, or 69.0% of
total sales in the first nine months of 1998, as compared to $760.5 million, or
63.7% of total sales, for the first nine months of 1997. Sales in Europe were
$273.1 million, or 22.9% of total sales, in the first nine months of 1998, as
compared to $323.0 million, or 27.1% of total sales, for the first nine months
of 1997. Sales in Asia were $96.2 million, or 8.1% of total sales, in the first
nine months of 1998, as compared to $109.6 million, or 9.2% of total sales, for
the first nine months of 1997.
GROSS MARGIN
The Company's overall gross margin was 22.4% in the third quarter of 1998, as
compared to 32.5% in the third quarter of 1997. Overall gross margin percentage
for the first nine months of 1998 was 23.8%, as compared to 30.6% for the first
nine months of 1997. This decrease in gross margin for both the third quarter
and the first nine months of 1998, when compared to the corresponding periods of
1997, was due primarily to price decreases on Zip and Jaz drive and disk
products. In addition, a higher percentage of Zip drives shipped to the OEM
channel, where prices and margins are lower than drives sold to distribution and
retail channels, contributed to the decline in the gross margin percentage.
Future gross margin percentage will continue to be impacted by the percentage of
OEM drive sales versus retail and distribution sales. Gross margins for the
remainder of 1998 will also depend on sales volumes of Zip and Jaz disks, which
generate significantly higher gross margins than the corresponding drives, and
on the mix between disks and drives, and between Zip, Jaz and Ditto products.
Additionally, management expects that the planned introduction of Clik! products
during the fourth quarter of 1998 will initially have a negative impact on gross
margins due to start-up costs associated with early production volumes. In the
event of a delay in the planned commercial availability of Clik!, such negative
impact may be greater. The Company expects gross margin percentages to be in the
mid twenty percent range for the remainder of 1998. However, there can be no
assurance that such expected margin percentages will be realized.
<PAGE>
IOMEGA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were flat in the third quarter and
increased by $117.1 million in the first nine months of 1998, respectively, when
compared to the corresponding periods of 1997, and increased as a percentage of
sales to 18.5% and 25.6% in the third quarter and first nine months of 1998,
respectively, from 16.8% and 15.7%, respectively, in the corresponding periods
of 1997. Included in selling, general and administrative expenses in the first
nine months of 1998 was a special pre-tax charge of $9.4 million in the second
quarter, representing expenses associated with cost reduction measures
implemented by the Company to improve financial performance and included
employee severance and outplacement charges, cash and non-cash write-offs for
facility related assets and other miscellaneous charges. Excluding this charge,
selling, general and administrative expenses increased by $107.7 million and
represented 24.8% of sales in the first nine months of 1998, respectively. The
increase was primarily due to a combination of substantial marketing and
advertising program expenditures in the first and second quarters of 1998,
increased spending on other, non-advertising related sales and marketing
activities primarily due to international expansion, increased spending on
customer satisfaction programs and an increase in other general and
administrative expenses, comprised mainly of information system expenditures and
legal fees. Management is focused on maintaining selling, general and
administrative expenses at a range of 15% to 20% of sales. However, the
Company's success in achieving this depends in part on the levels of sales
achieved during the remainder of 1998 and there can be no assurance that the
Company's cost reduction measures, reorganization and other efforts to reduce
the percentage of sales represented by selling, general and administrative
expenses will be successful.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the third quarter and first nine months of
1998 increased by $1.2 million, or 5.2%, and $22.9 million, or 42.1%,
respectively, when compared to the third quarter and first nine months of 1997,
and increased as a percentage of sales to 6.1% and 6.5%, respectively, in the
third quarter and first nine months of 1998, from 5.2% and 4.6%, respectively,
in the third quarter and first nine months of 1997. The increase in research and
development expense for the third quarter and first nine months of 1998, when
compared to the corresponding periods of 1997, was primarily due to increased
spending for Clik! development during the periods. The remainder of the increase
was the result of expenditures related to the continued development and
enhancement of Zip and Jaz products. Management is targeting the level of
spending for research and development during the remainder of 1998 to be in the
range of 3% to 5% of sales to support planned new product development and
existing product enhancements. However, the Company's success in achieving this
depends in part on the levels of sales achieved during the remainder of 1998 and
there can be no assurance that efforts to reduce the percentage of sales
represented by research and development expenses will be successful.
ACQUISITION AND PURCHASED IN-PROCESS TECHNOLOGY
During the quarter, the Company acquired a majority interest in Nomai for
approximately $45 million of which approximately $32 million was classified as
goodwill. The goodwill is being amortized on a straight-line basis over seven
years. The Company's current plans for Nomai include: 1) enhancement and
distribution of Nomai's existing CD-RW drive, 2) production of Iomega's Clik!
disks following their introduction, 3) continued production of 1.44 MB floppy
disks and 4) development and production of other potential products. However,
there can be no assurance that the Company will be successful in implementing
these plans or achieving profitability from Nomai operations. In the event that
the Company is not successful, the goodwill may not be realizable and therefore
may require a writedown.
<PAGE>
IOMEGA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Upon completion of the Nomai acquisition, the Company immediately expensed $11.1
million representing purchased in-process technology that has not yet reached
technological feasibility and has no alternative future use (see Note 3 to
condensed consolidated financial statements). The value of the technology was
based upon an independent third-party valuation.
OTHER INCOME AND EXPENSE
The Company recorded interest income of $0.8 million and $3.4 million in the
third quarter and first nine months of 1998, as compared to $2.2 million and
$4.7 million in the third quarter and first nine months of 1997, respectively.
Lower average cash balances during the third quarter and the first nine months
of 1998, resulted in a decrease in interest income when compared to the
corresponding periods of 1997. Interest expense was $3.6 million and $7.0
million in the third quarter and first nine months of 1998, respectively, as
compared to $1.4 million and $5.1 million in the third quarter and first nine
months of 1997, respectively. The increase in interest expense during the third
quarter and the first nine months of 1998 was primarily due to the Company
entering into a debt agreement with Idanta Partners, Ltd. and another entity
affiliated with David J. Dunn, Chairman of the Board, Iomega Corporation, under
which the Company borrowed $40 million pursuant to a series of three notes. The
increase was also due to increased average borrowings outstanding under the
Company's Credit Facility during the period. These factors were partially offset
by the retirement of a promissory note for the purchase of the Company's
manufacturing facility in Malaysia and the repayment of other term notes during
1997.
Also included in other income and expense were bank charges, miscellaneous
royalty income, gains and losses on disposal of assets and foreign currency
gains and losses.
INCOME TAXES
For the first nine months of 1998, the Company recorded an income tax benefit of
$39.3 million, representing an effective income tax rate of approximately 35%.
The Company expects its effective tax rate to remain at approximately 35% for
the remainder of 1998. However, differences between the currently anticipated
mix and the actual mix of foreign income versus domestic income, along with the
ability of the Company to permanently invest foreign earnings outside of the
U.S. and its ability to meet the requirements for favorable tax treatment in
certain jurisdictions outside of the U.S. could impact the Company's effective
tax rate.
SEASONALITY
The Company's Zip products are targeted primarily to the retail consumer market
and personal computer OEMs. The Company's Jaz and Ditto products are targeted
primarily to the retail consumer market. Management believes the markets for the
Company's products are generally seasonal, with a higher proportional share of
total sales occurring in the fourth quarter and sales slowdowns commonly
occurring during the first quarter and summer months. Accordingly, revenues and
growth rates for any prior quarter are not necessarily indicative of the
revenues or growth rates to be expected in any future quarter.
<PAGE>
IOMEGA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At September 27, 1998, the Company had cash and cash equivalents of $45.6
million, working capital of $279.8 million, and a ratio of current assets to
current liabilities of 1.9 to 1. During the first nine months of 1998, the
Company used a total of $114.4 million of cash and cash equivalents. The primary
components were the acquisition of Nomai, the purchase of property, plant and
equipment and the reduction of accounts payable, accrued liabilities and income
taxes payable that were partially offset by decreases in accounts receivable and
inventory. These items were partially funded by debt and the sale of temporary
investments.
Accounts payable decreased by $135.5 million, due primarily to timing of
inventory receipts and related payments to vendors. Accrued liabilities
decreased by $36.8 million due primarily to decreases in deferred revenue,
accrued payroll and related liabilities. Income taxes payable decreased and
income taxes receivable increased as a result of the payment of 1997 income
taxes and the Company recognizing a benefit for income taxes during 1998. These
uses of cash were partially offset by a $62.9 million decrease in net accounts
receivable, due primarily to decreased sales and the timing of sales and
collections during the respective periods and a decrease in inventory of $53.9
million. The decrease in inventory was due primarily to improved supply chain
management and changes to the Company's procurement and manufacturing processes
to a demand pull model in the first nine months of 1998.
The Company used $76.3 million of cash in investing activities during the first
nine months of 1998, primarily in the purchase of property, plant and equipment
and the Company's acquisition of Nomai during the third quarter of 1998 that was
partially offset by the sale of temporary investments. Cash provided by
financing activities totaled $99.1 million during the first nine months of 1998,
and included $80.0 million of proceeds from borrowings on the Company's Credit
Facility that were partially offset by $25.1 million in payments on the
Company's Credit facility and capitalized lease obligations for a net increase
in borrowings on the Credit Facility of $60 million. The Company also borrowed
$40.0 million from Idanta Partners Ltd., and another entity affiliated with
David J. Dunn, Chairman of the Board, Iomega Corporation, to finance the
acquisition of Nomai.
On March 11, 1997, the Company entered into a $200 million Senior Secured Credit
Facility with Morgan Guaranty Trust Company of New York, Citibank, N.A. and a
syndicate of other lenders. During 1998, the Company and the lenders have agreed
to several amendments to and waivers under the Credit Facility (as most recently
amended, effective July 15, 1998, the "Credit Facility"). The Credit Facility is
a $150 million secured revolving line of credit that expires on July 14, 2000,
and is secured by accounts receivable, domestic inventory, domestic intellectual
property, general intangibles, equipment, personal property, investment
property, and a pledge of 65% of the stock of certain of the Company's
<PAGE>
IOMEGA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
subsidiaries. Borrowing availability under the Credit Facility is based on an
agreed upon advance rate on receivables and inventory not to exceed $150 million
with a floor of $110 million through May 1999. Under the Credit Facility, the
Company may borrow at a base rate, which is the higher of prime or the sum of
0.5% plus the Federal funds rate plus a margin of .88% to 1.63%, for the first
year, and thereafter between 0.0% and 1.63% depending on the Company's
profitability and utilization of the Credit Facility, or at LIBOR plus a margin
of 2.0% to 2.75%, for the first year, and thereafter between 1.25% and 2.75%
depending on the Company's profitability and utilization of the Credit Facility.
Total availability under the Credit Facility at September 27, 1998 was $150
million of which $60 million was outstanding. Among other restrictions, the
Credit Facility treats a change of control (as defined) as an event of default
and requires the maintenance of minimum levels of consolidated tangible net
worth and earnings. Depending on its financial performance in future quarters,
the Company may be required to seek further covenant waivers under the Credit
Facility. There can be no assurance that the Company will be able to obtain any
such waivers on terms acceptable to the Company, if at all. Loss of the Credit
Facility would require the Company to find an alternative source of funding
which could have a material adverse effect on the Company's business and
financial results.
The current and long-term portions of capitalized lease obligations at September
27, 1998 were $5.1 million and $3.5 million, respectively. During the third
quarter of 1998, the Company assumed $3.8 million of capitalized lease
obligations as part of the Company's acquisition of Nomai. The current and
long-term portions of such lease obligations at September 27, 1998, were $1.0
million and $2.8 million, respectively. During the second quarter of 1997, the
Company paid the entire $18 million obligation, plus accrued interest, relating
to the purchase of its Malaysian manufacturing facility. In addition, during the
second and third quarters of 1997, the Company paid off all remaining other term
notes relating to equipment purchases.
The current and long-term portions of notes payable at September 27, 1998 were
$40.5 million and $61.1 million, respectively. In July, 1998, the Company
borrowed a total of $40 million from Idanta Partners Ltd. and another entity
affiliated with David J. Dunn, Chairman of the Board, Iomega Corporation,
pursuant to a series of three senior subordinated notes. The principal and
interest associated with these notes are payable on March 31, 1999. The initial
interest rate is 8.7% per annum, increasing through January 1, 1999 to the
greater of 12.7% per annum or the weighted-average interest rate charged under
the Credit Facility at January 1, 1999 plus 2% per annum. The proceeds of these
notes were used for the cash purchase of Nomai. In addition, the Company assumed
$1.6 million of notes payable from the purchase of Nomai, of which the current
and long-term portions at September 27, 1998, were $0.5 million and $1.1
million, respectively.
The Company had $45.7 million of convertible subordinated notes outstanding at
September 27, 1998, which bear interest at 6.75% per year and mature on March
15, 2001. Additions to property, plant and equipment during the first nine
months of 1998 totaled $68.8 million, partially offset by $1.2 million in
proceeds from capital leases.
<PAGE>
IOMEGA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company expects to generate positive cash flow for the fourth quarter of
1998, but anticipates being cash flow negative for the year. The Company expects
that its balance of cash and cash equivalents, together with current and future
sources of available financing, will be sufficient to fund the Company's
operations during the next twelve months. However, whether the Company will
achieve a positive cash flow for the fourth quarter of 1998, and the precise
amount and timing of the Company's future financing needs, including the funds
necessary to repay the senior subordinated notes due March 31, 1999 related to
the Nomai transaction, cannot be determined at this time, and will depend on a
number of factors, including the market demand for the Company's products, the
availability of critical components, the progress of the Company's product
development efforts and the success of the Company in managing its inventory,
accounts receivable and accounts payable.
OTHER MATTERS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes new
standards for public companies to report information about their operating
segments, products and services, geographic areas and major customers. This
statement is effective for financial statements issued for fiscal years
beginning after December 15, 1997. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS
133 establishes new accounting and reporting standards for companies to report
information about derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. This statement is effective for
financial statements issued for all fiscal quarters of fiscal years beginning
after June 15, 1999.
The Company plans to adopt SFAS 131 in its December 31, 1998, financial
statements. The Company has not determined when it will adopt SFAS 133. The
Company does not expect these statements to have a material impact on the
Company's results of operations, financial position or liquidity.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Because the Company is relying on its Zip and Jaz products for the substantial
majority of its sales in 1998 and 1999, the Company's future operating results
will depend in large part on the success of those products in the market.
Although the Company believes there is a market demand for removable data
storage solutions for personal computers, there can be no assurance that the
Company will be successful in establishing Zip and Jaz as the preferred
solutions for that market need. The extent to which Zip and Jaz achieve and
maintain a significant market presence will depend upon a number of factors,
<PAGE>
IOMEGA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
including: the price, performance, quality and other characteristics of the
Company's products and of competing solutions (existing, announced or
unannounced) introduced by other vendors, including, without limitation, the
LS-120, or SuperDisk (product co-developed by the consortium of Compaq Computer,
Imation O.R. Technology and MKE), the SyJet 1.5 GB, EZ Flyer 230 and SparQ 1.0
GB (products of Syquest Technology, Inc.), the Shark 250 (product of Avatar
Peripherals, Inc.), HiFD (product in development by Sony Corporation and Fuji
Photo Film Co., Ltd.), the UHD144 (Product in development by Caleb Technology
Corporation), CD-R and CD-RW drives, announced developments of rewritable DVD
drives and media, and announced products in development by Terastor Corporation;
the success of any third party in creating and marketing media intended for use
with the Company's drive products; the success of the Company in meeting
targeted availability dates for enhanced products; the success of the Company in
establishing and maintaining OEM arrangements and meeting OEM quality, supply
and other requirements; the willingness of OEMs to promote computer products
containing the Company's drives; the ability of the Company to create demand for
Zip and Jaz, including demand from leading personal computer and other
manufacturers; the success of the Company in educating consumers about the
existence and possible uses of Zip and Jaz products as storage devices; the
success of the Company's efforts to make continued improvements to customer
service and satisfaction; the public perception of the Company and its products,
including statements made by industry analysts or consumers and adverse
publicity resulting from such statements or from consumer class action suits
filed against the Company; and the overall market demand for personal computers
with which the Company's products can be used.
The Company's business strategy is substantially dependent on maximizing sales
of its proprietary Zip and Jaz disks, which generate significantly higher
margins than the related 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
or marketing disks that are compatible with any of the Company's drive products
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.
Sales of Zip products in 1997 and the first nine months of 1998 accounted for a
significant majority of the Company's revenues in these periods. However, these
sales may not be indicative of the long-term demand for Zip products.
Accordingly, the sales levels experienced by the Company in 1997 and in the
first nine months of 1998 should not be assumed to be an indication of future
sales levels. In addition, the Company has experienced and may in the future
experience significant fluctuations in its quarterly operating results.
Moreover, because the Company's expense levels (including budgeted selling,
general, and administrative and research and development expenses) are based in
part on expectations of future sales levels, a shortfall in expected sales could
result in a disproportionate adverse effect on the Company's net income and cash
flow. For example, in the first nine months of 1998, the Company's operating
expenses as a percentage of sales fell outside of management's operating model
resulting in a net operating loss for the period. In addition, the Company's
stock price, like other high-technology companies' stock prices, could be
subject to fluctuations in response to actual or anticipated variations in
operating results, as well as changes in analysts' earnings estimates,
announcements of new products or developments by the Company or its competitors,
market conditions in the information technology industry, as well as general
economic conditions and other factors external to the Company.
<PAGE>
IOMEGA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Inventory management has become increasingly complex. The Company's customers
constantly adjust their ordering patterns in response to various factors
including: the Company's perceived ability to meet demand, the Company's and
competitors' inventory supply in the retail and distribution channel, timing of
new product introductions, seasonal fluctuations, Company and customer
promotions, and the consolidation of customer distribution centers. Customers
may increase orders during times of shortages, cancel orders if the channel is
filled with currently available products, or delay orders in anticipation of new
products. Any excess supply could result in price reductions and inventory
writedowns, which in turn could adversely affect the Company's results of
operations.
The Company is in the process of evolving from an aftermarket business to an OEM
business. In an OEM business, a high proportion of sales are concentrated among
a small number of customers. Although the Company believes its relationships
with OEM customers are generally good, as the concentration of sales to OEM
customers continues to evolve, a relatively small number of major customers will
represent a business risk that loss of one or more accounts could adversely
affect the Company's financial condition or operating results. The Company's
customers are generally not obligated to purchase any minimum volume and are
generally able to terminate their relationship with the Company at will. If
changes in purchase volume or customer relationships resulted in decreased
demand for the Company's drives, whether by loss of or delays in orders, the
Company's financial condition or operating results could be adversely affected.
During the second quarter of 1998, the Company announced the implementation of a
comprehensive series of cost reductions intended to improve financial
performance. During the third quarter of 1998, the Company reduced operating
expenses by approximately $49 million when compared to the second quarter of
1998 as a result of efforts to decrease advertising and other sales and
marketing expenses, legal expenses, information system costs and other
discretionary spending. Although the Company was successful in reducing
operating expenses during the third quarter, there can be no assurance that the
Company will be successful in maintaining these cost reduction measures, and
other efforts to reduce operating expenses in future periods. The Company is
also in the process of implementing Six Sigma quality initiatives intended to
make substantial product and process quality improvements and reduce costs.
However, there can be no assurance that the Company's quality initiatives will
be successful in providing substantial product and process improvements and in
reducing costs.
A significant portion of the Company's revenues are generated in Europe and
Asia. The Company's existing infrastructure outside of the United States is less
mature and developed than in the United States. Consequently, future sales and
operating income from these regions are less predictable than in the United
States. In addition, operating expenses may increase as those operations mature
and increase in size. The Company's international sales transactions are
generally denominated in U.S. dollars. Fluctuation in the value of foreign
currencies relative to the U.S. dollar that are not sufficiently hedged by
foreign customers could result in lower sales and have an adverse effect on
future operating results. For example, management believes that sales in Asia
were adversely affected during the fourth quarter of 1997 and the first nine
months of 1998 and will continue to be adversely affected due to a regional
economic downturn and the devaluation of certain Asian currencies vis-a-vis the
U.S. dollar. The Company cannot predict with any certainty the impact that these
or other such events could have on its foreign operations.
<PAGE>
IOMEGA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On January 1, 1999, several member countries of the European Union will
establish fixed conversion rates between their existing currencies, and adopt
the Euro as their new common legal currency. As of that date, the Euro will
trade on currency exchanges and the legacy currencies will remain legal tender
in the participating countries for a transition period between January 1, 1999
and January 1, 2002. During the transition period, parties can elect to pay for
goods and services and transact business using either the Euro or a legacy
currency. Between January 1, 2002 and July 1, 2002, the participating countries
will introduce Euro bills and coins and withdraw all legacy currencies so that
they will no longer be available. The Euro conversion may affect cross-border
competition by creating cross-border price transparency. Iomega is assessing its
pricing/marketing strategy in order to insure that it remains competitive in a
broader European market. Iomega is also assessing whether certain existing
contracts may require modification in addition to assessing its information
technology systems to allow for transactions to take place in both the legacy
currencies and the Euro and the eventual elimination of the legacy currencies.
Iomega's currency risk and risk management for operations in participating
countries may be reduced as the legacy currencies are converted to the Euro. The
Company will continue to evaluate issues involving introduction of the Euro.
Based on the Company's assessment from current information, the Company does not
expect the Euro conversion to have a material adverse effect on the Company's
business or financial condition. There can be no assurance, however, that the
Euro conversion will not have a material adverse effect on the Company's
European sales or otherwise adversely affect the Company's business, results of
operations or financial condition.
The Company continues to refine the design of its Zip and Jaz products in an
effort to improve product performance and reduce manufacturing costs. In
addition, the Company depends on independent parties for the supply of critical
components for its Zip and Jaz products. Certain of these suppliers are or may
become competitors of the Company. As a result of these and other factors, the
Company may experience problems relating to the quality, reliability and/or
availability of certain of its products. For example, in the second quarter of
1997 the Company recalled a limited number of its Jaz disks and in the third
quarter of 1997 the Company experienced manufacturing interruptions due to
supplier quality problems. Any product availability, quality or reliability
problems experienced by the Company, or consumer class action suits filed
against the Company as a result of these problems, could have an adverse effect
on the Company's sales and net income, result in damage to the Company's
reputation in the marketplace, and/or subject the Company to damage claims from
its customers. In addition, component problems, shortages, quality issues or
other factors affecting the supply of the Company's products could provide an
opportunity for competing products to increase market share.
All of the factors described above for Zip and Jaz products are, or will be,
relevant to new products introduced by the Company in future periods, including
Clik!, a miniaturized removable-media storage solution for use in a variety of
handheld electronic devices. In addition to such factors, demand from digital
camera and other similar consumer electronics manufacturers will affect the
extent to which Clik! achieves a significant market presence. The Company will
be entering in to additional or alternate sales channels with the introduction
of Clik! products. Because the Company does not have prior experience in these
new channels, there are additional risks that the Company or the Clik! products
will not be successful.
<PAGE>
IOMEGA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to the risks surrounding existing products, the Company faces
development, manufacturing, demand and market acceptance risks with regard to
recently introduced and future products. The Company's future operating results
will depend in part on its success in introducing enhanced and new products in a
timely and competitively effective manner. For example, the Company's Jaz 2 GB
product, originally scheduled for shipment in the fourth quarter of 1997, did
not ship until February 1998 and thus had a material adverse effect on the
results of operations for the fourth quarter of 1997 and the first quarter of
1998. Future operating results will also depend on the Company's ability to
effectively manage obsolescence risks associated with products that are phased
out, and its success in ramping to volume production of new or enhanced
products. Future operating results will also depend on intellectual property and
antitrust matters including the possibility that infringement claims asserted
from time to time against the Company could require the Company to pay royalties
to a third party in order to continue to market and distribute one or more of
the Company's current or future products, and the possibility that the Company
would be required to devote unplanned resources to developing modifications to
its products or marketing programs.
The Company's success will depend in large part upon the services of a number of
key employees. 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 highly
skilled personnel to fill a number of vacancies. Effective March 24, 1998, Kim
B. Edwards resigned as President and Chief Executive Officer of the Company.
Effective October 22, 1998, the Company announced the appointment of Jodie K.
Glore as President and Chief Executive Officer of the Company. Mr. Glore was
also elected to serve as a member of the Company's Board of Directors. Effective
June 5, 1998, Leonard C. Purkis resigned as Senior Vice President, Finance and
Chief Financial Officer. Dan E. Strong, Vice President and Corporate Controller,
has assumed the role of interim Chief Financial Officer while the Company
conducts a search for a new Senior Vice President, Finance and Chief Financial
Officer. The Company is also seeking to fill other key management vacancies.
There can be no assurance that the Company will be successful in attracting
and/or retaining key employees.
The Company recently transitioned to new computer hardware and software for its
financial, accounting, inventory control, order processing, supply chain
management and other management information systems. The successful operation of
these new systems is crucial to the efficient operation of the Company's
business. There can be no assurance that the new systems will be adequate to
support the Company's operations or that they will operate without interruption
or failure. Problems with initial operation of the new systems could cause
substantial difficulties in operations, planning, financial reporting and
management and thus could have a material adverse effect on the Company's
business, financial condition and results of operations.
<PAGE>
IOMEGA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Factors other than those discussed above that could cause actual events or
actual results to differ materially from those indicated by any forward-looking
statements include the ability of management to manage increasing volumes of
production and an increasingly complex business, transportation issues, product
and component pricing, competition, technological changes and advances, adoption
of technology standards affecting the Company's products, intellectual property
rights, litigation (see "Legal Proceedings"), general economic conditions,
changes or slowdowns in overall market demand for personal computer products and
any difficulties experienced by the Company as a result of the Year 2000 issue
(see "Year 2000 Readiness" below).
YEAR 2000 READINESS
In general, the Year 2000 issue relates to computers and other systems being
unable to distinguish between the years 1900 and 2000 because they use two
digits, rather than four, to define the applicable year. The Company is
currently addressing the Year 2000 issue in the following areas: (i) hardware
and software products sold by the Company; (ii) the Company's information
technology ("IT") systems; (iii) the Company's non-IT systems (i.e., machinery,
equipment and devices which utilize technology which is "built-in" such as
embedded microcontrollers); and (iv) third-party suppliers and customers. The
Company is undertaking its Year 2000 review in the following phases: Awareness
(education and sensitivity to the Year 2000 issue), Inventory (identifying the
equipment, processes or systems which are susceptible to the Year 2000 issue),
Assessment (determining the potential impact of Year 2000 on the equipment,
processes and systems identified during the Inventory phase and assessing the
need for testing and remediation), Testing/Verification (testing to determine if
an item is Year 2000 ready or the degree to which it is deficient), and
Implementation (carrying out necessary remedial efforts to address Year 2000
readiness, including validation of upgrades, patches or other Year 2000 fixes).
The Company has completed testing of the current release versions of its Zip,
Jaz and Ditto drive products and the related software tools and drivers for
windows based personal computers (with the exception of Windows 98 as noted
below). The hardware products were tested by the National Software Testing
Laboratories ("NSTL") according to NSTL developed standards or guidelines (NSTL
YMark 2000 test, Version 97.08.15). NSTL is an independent organization
dedicated exclusively to testing the functionality, usability and performance of
hardware and software. The software tools were tested internally by the Company
according to the Software Engineering Institute / Capability Maturity Model
("SEI/CMM") standards and guidelines. In general, the results of these tests
indicate that such products are Year 2000 ready when used in an operating system
or with other products which are themselves Year 2000 ready. Specifically, NSTL
has tested and verified as Year 2000 ready the Company's Zip, Jaz and Ditto
drive products (except for the Ditto 2 GB external drive which is expected to be
tested during the first quarter of 1999). With respect to the Company's software
utility tools, the Company has tested the following software tools on Windows
3.1, Windows 95, Windows 95 R2, NT 3.5.1 and NT 4.0 operating systems and has
<PAGE>
IOMEGA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
confirmed Year 2000 readiness for each based on SEI/CMM guidelines, or, where
necessary, has provided Year 2000 updates (except for the Findit and Copy
Machine software tools for which an upgrade is anticipated by the end of 1998):
Zip software tools versions 5.2, 5.3 and 5.3.1; Zip Plus software tools version
5.4.1; Jaz 1 GB software tools versions 5.2 and 5.3.1; Jaz 2 GB software tools
version 5.5.1; Ditto software tools version 3.2 (English version only); and
Iomegaware software tools version 1.0. Testing of the Company's current release
versions of its software tools on the Macintosh, Windows 98 and IBM OS/2
operating systems is expected to be completed by the first quarter of 1999.
Testing of the Buz Multimedia Producer product should be completed by the end of
the first quarter of 1999. The Company is also in the process of assessing the
Year 2000 readiness of prior release versions of its products, including
Bernoulli products. Software upgrades and drivers developed by the Company to
address Year 2000 issues are available on the Company's web site without charge.
In addition, the Company plans to continue to post on its web site updated
information about the Year 2000 readiness of the Company's products.
During 1998, the Company implemented new HP computer hardware and Oracle
software for its financial, accounting, inventory control, order processing,
supply chain management and other management information systems. According to
the respective vendors, the currently installed hardware operating systems and
software are in various stages of Year 2000 readiness, and, when identified, the
respective vendors are providing Year 2000 software upgrades. The Company
anticipates to start testing the hardware operating systems and software
applications in January 1999 to confirm Year 2000 readiness. The Company has
identified other hardware and applications software used in its IT systems and
is in the process of obtaining Year 2000 compliance information from the
providers of such hardware and applications software. The Company has identified
one internally developed software application for time management which is
currently being modified to make the software application Year 2000 ready. Upon
completion of the planned modifications, the software application will be tested
for Year 2000 readiness.
The Company has substantially completed inventorying its non-IT systems. Once
completed, the Company will assess the Year 2000 issues regarding its non-IT
systems and determine appropriate testing and remediation. The Company
anticipates completing the inventorying and assessment of its major non-IT
systems by the end of 1998 and to start any necessary testing and implementation
efforts for business critical non-IT systems in the first quarter of 1999.
The Company has significant relationships with various third parties (many
located outside of the U.S.) and the failure of any of these third parties to
achieve Year 2000 compliance could have a material impact on the Company's
business, operating results and financial condition. These third parties include
energy and utility suppliers, financial institutions, material and product
suppliers, transportation providers, communications vendors, including value
added network vendors, and the Company's significant customers. While the
Company has received Year 2000 readiness statements from its major third-party
suppliers which in general indicate Year 2000 readiness, the Company is in the
process of conducting an audit/questionnaire with each major supplier and vendor
to confirm their Year 2000 readiness. The audit/questionnaire process will
continue into the first and second quarters of 1999.
<PAGE>
IOMEGA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Through the third quarter of 1998, the Company has incurred approximately $33
million in costs to improve the Company's IT systems and for Year 2000 readiness
efforts. Of this amount, 98% represents the costs of transitioning to new
computer hardware and software for its financial, accounting, inventory control,
order processing, supply chain management and other management information
systems, of which approximately one-half is being capitalized and one-half
expensed. This system hardware and software was implemented to upgrade and
improve the Company's IT systems and to facilitate Year 2000 readiness. The
Company anticipates incurring an additional $8 million in connection with the
Year 2000 readiness efforts, including professional fees and testing costs. The
Company has set a goal of having substantially all Year 2000 readiness efforts
completed by the third quarter of 1999.
The Company is in the process of preparing contingency plans for critical areas
to address Year 2000 failures if remedial efforts are not fully successful. The
Company's contingency plans are expected to target the Company's most reasonably
likely worst case scenarios and to include items such as maintaining an
inventory buffer, providing for redundant IT systems and establishing
alternative third-party logistics. The Company's contingency plans will be based
in part on the results of third-party supplier audits, and thus are not fully
developed at this time. Completion of initial contingency plans is targeted for
the third quarter of 1999 (which plans will thereafter be revised from time to
time as deemed appropriate).
To supplement the Company's efforts described above, the Company has engaged
outside IT and legal advisors to conduct independent reviews of the Company's
Year 2000 plans.
The Company recently acquired approximately 98% of Nomai S.A. and is presently
in the process of raising the awareness of, as well as inventorying and
assessing, the Year 2000 issues applicable to Nomai and its operations. The
Company anticipates having substantially completed in the first quarter of 1999
the inventory and assessment of Year 2000 issues for its subsidiary Nomai.
No assurance can be given that the Company will not be materially adversely
affected by Year 2000 issues. Although the Company is not currently aware of any
material operational issues with preparing its internal IT and non-IT systems
for the Year 2000, the Company may experience material unanticipated problems
and costs caused by undetected errors or defects in its internal IT and non-IT
systems. In addition, the failure of third-parties to timely address their Year
2000 issues could have a material adverse impact on the Company's business,
operations and financial condition. If, for example, third party suppliers
become unable to deliver necessary components, the Company would be unable to
timely manufacture products. Similarly, if international shipping and freight
forwarders were unable to ship product, the Company would be unable to deliver
product to sales channels.
Additionally, there can be no assurance that the Company will not be the subject
of lawsuits regarding the failure of the Company's products (former or present)
in the event they are not Year 2000 ready. Despite the testing and remediation
efforts undertaken by the Company, the Company's products may contain errors or
defects associated with the Year 2000. Known or unknown errors or defects in the
Company's products could result in delay or loss of revenue, diversion of
development resources, damage to the Company's reputation or increased service
and warranty costs, any of which could materially adversely affect the Company's
business, operating results and financial condition. In addition, because the
computer systems in which the Company's products are used involve different
hardware, software and firmware components from different manufacturers, it may
be difficult to determine which component in a system caused a Year 2000 issue.
As a result, the Company may be subjected to Year 2000 related lawsuits
independent of whether its products are Year 2000 ready. Any Year 2000 related
suits, if adversely determined, could have a material adverse affect on the
Company's business, operating results and financial condition.
<PAGE>
IOMEGA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The foregoing discussion of the Company's Year 2000 readiness includes
forward-looking statements, including estimates of the timeframes and costs for
addressing the known Year 2000 issues confronting the Company, and is based on
management's current estimates, which were derived using numerous assumptions.
There can be no assurance that these estimates will be achieved and actual
events and results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but are not limited
to, the availability of personnel with required remediation skills, the ability
of the Company to identify and correct all relevant computer code and the
success of third parties with whom the Company does business in addressing their
Year 2000 issues.
<PAGE>
IOMEGA CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Except as set forth below, or in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 and Quarterly Reports on Form 10-Q for the
periods ended March 29, 1998 and June 28, 1998, in management's opinion, there
are no material pending legal proceedings, other than ordinary routine
litigation incidental to its business, to which the Company or any of its
subsidiaries is a party or to which any of their property is subject.
On June 29, 1998, the Company announced that it had entered into a definitive
settlement agreement with Nomai S.A. ("Nomai"), a French manufacturer of
removable storage systems, settling all litigation, in several jurisdictions,
between Iomega and Nomai and their respective affiliates. The litigation was
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and Quarterly Report on Form 10-Q for the period ended March
29, 1998 and the settlement was described in the Company's Quarterly Report on
Form 10-Q for the period ended June 28, 1998.
In accordance with the terms of the settlement agreement between Nomai and
Iomega, all legal actions between the companies and/or their affiliates have
either been dismissed or are expected to be dismissed shortly, following
approval by the local court of the proposed dismissal. On August 31, 1998, the
European Commission issued a letter closing the claims filed by Nomai in October
and December 1997.
As reported in the Company's Quarterly Report on Form 10-Q for the period ended
March 29, 1998, the Company initiated litigation against SyQuest Technology,
Inc. ("SyQuest") on July 23,1997 in the United States District Court in the
District of Delaware for infringing the Company's U.S. Patent No. 5,644,444,
U.S. Design Patent No. D378,518 and the Company's registered trademark "JET".
The complaint requests monetary damages and injunctive relief enjoining SyQuest
from further infringement. The matter was scheduled for trial in January 1999,
but the trial date has been rescheduled to April 1999. On November 2, 1998,
SyQuest announced that it suspended operations and is considering alternatives
including the filing of a case under Chapter 11 of the U.S. Bankruptcy Code.
These recent events could delay the trial date further and could impact the
Company's ability to recover any damages awarded to it against SyQuest.
The Company continues to be committed to vigorously protecting and enforcing its
intellectual property rights and to attacking unfair competition.
On September 10, 1998, a purported class action lawsuit, Rinaldi et al. v.
Iomega Corporation, was filed against Iomega in the Superior Court of Delaware,
New Castle County. The suit alleges that a defect in Iomega Zip drives causes a
clicking noise that may damage a Zip drive or disk. The Company intends to
vigorously defend against this lawsuit.
<PAGE>
Hi-Val, Inc. filed a complaint on October 9, 1998 against Iomega and other
parties, Hi-Val, Inc. v. Nomai, S.A., Nomus, Inc., Kevin Scheier and Iomega, in
the Superior Court of California, County of Santa Clara. The complaint alleges
tortious interference with contract, tortious interference with prospective
economic advantage, unfair business practices, and conspiracy against Iomega,
and other claims against the other parties. The claims are related to an alleged
arrangement between Nomai, S.A. and Hi-Val for Hi-Val to distribute Nomai's XHD
cartridges. Plaintiff seeks to recover $26 million in alleged damages. Iomega
intends to vigorously defend against these claims.
Item 2. Change in Securities and Use of Proceeds
The Company did not sell any equity securities during the third quarter of 1998
that were not registered under the Securities Act of 1933.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The exhibits listed on the Exhibit Index filed as a part of
this Quarterly Report on Form 10-Q are incorporated herein by
reference.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter for which this report on Form 10-Q is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IOMEGA CORPORATION
(Registrant)
/s/ Jodie K. Glore
------------------
Dated: November 10, 1998 Jodie K. Glore
President and
Chief Executive Officer
/s/ Dan E. Strong
------------------
Dated: November 10, 1998 Dan E. Strong
Vice President and
Corporate Controller
and Acting Chief
Financial Officer
<PAGE>
<TABLE>
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
Exhibit No. Description
<S> <C>
10.21(a) Senior Subordinated Promissory Note Agreement, Idanta Partners Ltd.
And Dunn Family Trust dated July 8, 1998
10.21(b) $20 Million Senior Subordinated Promissory Note, Idanta Partners
Ltd., dated July 1, 1998
10.21(c) $7.5 Million Senior Subordinated Promissory Note, Idanta Partners
Ltd., dated July 8, 1998
10.21(d) $12.5 Million Senior Subordinated Promissory Note, Dunn Family
Trust, dated July 8, 1998
27 Financial Data Schedule (only filed as part of electronic copy)
</TABLE>
IOMEGA CORPORATION
1821 West Iomega Way
Roy, Utah 84067
July 8, 1998
Idanta Partners Ltd.
4660 La Jolla Village Drive
San Diego, CA 92122
Dunn Family Trust,
dated October 28, 1998
David J. Dunn, Trustee
4660 La Jolla Village Drive
San Diego, CA 92122
Reference is made to the following three Senior Subordinated Promissory
Notes made by Iomega Corporation ("Iomega"):
(i) Senior Subordinated Promissory Note dated July 1, 1998 in the
original principal amount of $20,000,000 issued to Idanta
Partners Ltd. (the "First Note");
(ii) Senior Subordinated Promissory Note dated July 8, 1998 in the
original principal amount of $7,500,000 issued to Idanta
Partners Ltd. (the "Second Note"); and
(iii) Senior Subordinated Promissory Note dated July 8, 1998 in the
original principal amount of $12,500,000 issued to Dunn Family
Trust dated October 28, 1998, David J. Dunn, trustee (the
"Third Note").
The purpose of this letter agreement is to memorialize our agreement
with respect to the matters set forth below.
1. Section 2 of the Second Note and the Third Note contemplates the
repayment or prepayment to the holders of the Second Note and the Third Note of
amounts borrowed under such notes but not used to acquire shares of capital
stock of Nomai S.A. The holders of the Second Note and the Third Note, on behalf
of themselves and any future holders, and Iomega agree that any such repayment
or prepayment shall be made pro-rata amount the holders of the Second Note and
the Third Note, based on an allocation of 68.75% to the holders of the Second
Note and 31.25% to the holders of the Third Note, until such time as the Second
Note is paid in full and, thereafter, 100% to the holders of the Third Note.
2. The holders of the First Note, the Second Note and the Third Note,
on behalf of themselves and any future holders, and iomega agree that, except as
contemplated by paragraph 1 above, any repayment or prepayment by Iomega with
respect to any of the notes shall be made pro-rata among the holders of the
First Note, the Second Note and the Third Note, based on the principal amount of
each such note outstanding at the time of such repayment or prepayment.
3. The holders of the First Note, the Second Note and the Third Note,
on behalf of themselves and any future holders, agree that they will hold for
the benefit of the other holders any amounts received by them from Iomega which,
in accordance with paragraphs 1 or 2 above, should have been received by another
holder and promptly pay over such amounts to the intended recipient.
4. The holders of the First Note, the Second Note and the Third Note
each agree to attach a copy of this letter agreement to their respective note
and to require any assignee or other transferee of such note to acknowledge in
writing that it is bound by the terms hereof.
5. Iomega agrees to use commercially reasonable efforts during 1999 to
obtain the funds necessary to prepay or repay the First Note, the Second Note
and the Third Note out of proceeds from the issuance of equity interests in the
Company or subordinated notes
6. This letter agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the laws of the State
of Delaware.
7. This letter 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 letter agreement may be executed by
facsimile signature.
Please sign below to indicate your agreement with the foregoing.
Very truly yours,
IOMEGA CORPORATION
By:/s/ Robert J. Simmons
---------------------
Robert J. Simmons
Vice President and Treasurer
Agreed:
IDANTA PARTNERS LTD.
By: /s/ David J. Dunn
-----------------
David J. Dunn
Managing General Partner
DUNN FAMILY TRUST
DATED OCTOBER 28, 1998
DAVID J. DUNN, TRUSTEE
By: /s/ David J. Dunn
-----------------
David J. Dunn
Trustee
IOMEGA CORPORATION
Senior Subordinated Promissory Note
$20,000,000 Roy, Utah
July 1, 1998
---------------------
Iomega Corporation, a Delaware corporation (the "Company"), for value
received, hereby promises to pay to Idanta Partners, or assigns, the principal
sum of $20,000,000 (Twenty Million Dollars), together with interest (computed on
the basis of a 365-day year) from the date hereof on the unpaid balance of such
principal amount from time to time outstanding at the following rates:
1. from the date hereof through September 30, 1998, the greater
of (i) the weighted-average interest rate charged under the
Credit Agreement (as defined below) at the beginning of such
period plus 2% per annum and (ii) 8.6875%;
2. from October 1, 1998 through December 31, 1998, the greater of
(i) the weighted-average interest rate charged under the
Credit Agreement at the beginning of such period plus 2% per
annum and (ii) 10.6875%; and
3. from January 1, 1999 until paid in full the greater of (i) the
weighted-average interest rate charged under the Credit
Agreement at the beginning of such period plus 2% per annum
and (ii) 12.6875%.
All principal and interest shall be due and payable on March 31, 1999.
1. Subordination.
(a) Subordination to Senior Indebtedness. The indebtedness evidenced by
this Note, and the payment of the principal hereof, and any interest hereon, is
wholly subordinated, junior and subject in right of payment, to the extent and
in the manner hereinafter provided, to the prior payment of all Senior
Indebtedness of the Company now outstanding or hereinafter incurred but is
senior to the Company's 6-3/4% Convertible Subordinated Notes due 2001. "Senior
Indebtedness" means all principal, premium (if any), interest (including,
without limitation, interest accruing on or after, or which would accrue but
for, the filing of any petition in bankruptcy or for reorganization relating to
the Company, whether or not a claim for post-petition interest is allowed in
such proceeding), bank fees and other amounts (including attorneys' fees and
other costs of collection) owed by the Company with respect to the Amended and
Restated Credit Agreement And Collateral Release dated as of January 23, 1998
among the Company, the Banks named therein, Citibank, N.A., as Administrative
Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent
(the "Credit Agreement"), as the Credit Agreement may be amended or extended
from time to time, and any related documents.
(b) (b1) No Payment if Default in Senior Indebtedness. No payment on
account of principal of or interest on this Note shall be made, and this Note
shall not be redeemed or purchased directly or indirectly by the Company (or any
of its subsidiaries), if at the time of such payment or purchase or immediately
after giving effect thereto, (i) there shall exist a default in any payment with
respect to any Senior Indebtedness or (ii) there shall have occurred an event of
default (other than a default in the payment of amounts due thereon) with
respect to any Senior Indebtedness, as defined in the instrument under which the
same is outstanding, permitting the holders thereof to accelerate the maturity
thereof, and such event of default shall not have been cured or waived or shall
not have ceased to exist.
(b2) No Payment if Loans Outstanding Under Senior Indebtedness. Except for
payments permitted by Section 2 of this Note, no payment on account of principal
of or interest on this Note shall be made, and this Note shall not be redeemed
or purchased directly or indirectly by the Company (or any of its subsidiaries),
if at the time of such payment or purchase or immediately after giving effect
thereto loans would be outstanding under the Credit Agreement.
(c) Payment upon Dissolution, Etc.
(i)In the event of any bankruptcy, insolvency, reorganization,
receivership, composition, assignment for benefit of creditors or other similar
proceeding initiated by or against the Company or any dissolution or winding up
or total or partial liquidation or reorganization of the Company (being
hereinafter referred to as a "Proceeding"), all claims of the holder of this
Note with respect to this Note in such Proceeding shall be deemed assigned, pro
rata, to the then holders of the Senior Indebtedness on the basis of the
respective amounts of such Senior Indebtedness held by such holder, and the
holder of this Note hereby agrees to execute all documents that such holders
request in order to evidence such assignment, provided, however, that such
assignment shall terminate upon receipt by such holders of payment in full of
all of the Senior Indebtedness. While such assignment is in effect, the then
holders of the Senior Indebtedness shall have the exclusive right to exercise
all rights of the holder of this Note arising from their claims with respect to
this Note in the Proceeding, including but not limited to the right to vote for
a trustee and to accept or reject a proposed plan of reorganization or
composition, and the holder of this Note hereby agrees to execute all documents
reasonably requested by the then holders of the Senior Indebtedness in order to
exercise any such rights whether (at the sole discretion of such holders) in the
holder's own name or in the name of the holder of this Note. While such
assignment is in effect, the holder of this Note also agrees that it shall, upon
request of a holder of Senior Indebtedness, and at its own expense take all
reasonable actions (including but not limited to the execution and filing of
documents and the giving of testimony in any Proceeding, whether or not such
testimony could have been compelled by process) necessary to prove the full
amount of all its claims in any Proceeding, and the holder of this Note shall
not expressly, by implication or by inaction waive any claim in any Proceeding
with respect to this Note without the written consent of such holder.
(ii)Upon payment or distribution to creditors in a Proceeding
of assets of the Company of any kind or character, whether in cash, property or
securities, all principal and interest due upon any Senior Indebtedness shall
first be paid in full, or payment thereof in full duly provided for, before the
holder of this Note shall be entitled to receive or, if received, to retain any
payment or distribution on account of this Note; and upon any such Proceeding,
any payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the holder of this Note would
be entitled except for the provisions of this Section 1 shall be paid by the
Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or
other person making such payment or distribution, or by the holder of this Note
who shall have received such payment or distribution, directly to the holders of
the Senior Indebtedness (pro rata to each such holder on the basis of the
respective amounts of such Senior Indebtedness held by such holder) or their
representatives to the extent necessary to pay all such Senior Indebtedness in
full after giving effect to any concurrent payment or distribution to or for the
holders of such Senior Indebtedness, before any payment or distribution is made
to the holder of this Note. In the event of any Proceeding, the holder of this
Notes shall be entitled to be paid one hundred percent (100%) of the principal
amount thereof and accrued interest thereon before any distribution of assets
shall be made among the holders of any class of shares of the capital stock of
the Company in their capacities as holders of such shares.
(iii)For purposes of this Section 1(c), the words "assets" and
"cash, property or securities" shall not be deemed to include shares of Common
Stock of the Company as reorganized or readjusted, or securities of the Company
or any other person provided for by a plan of reorganization or readjustment,
the payment of which is subordinated at least to the extent provided in this
Section 1 with respect to this Note to the payment of all Senior Indebtedness
which may at the time be outstanding, if (x) the Senior Indebtedness is assumed
by the new person, if any, resulting from any such reorganization or
readjustment, and (y) the rights of the holders of Senior Indebtedness are not,
without the consent of such holders, altered by such reorganization or
readjustment.
(d) Subrogation. Subject to payment in full of all Senior Indebtedness, the
holder of this Note shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of the assets of the Company
made on such Senior Indebtedness until all principal and interest on this Note
shall be paid in full; and for purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of any cash, property or
securities to which any holder of this Note would be entitled except for the
subordination provisions of this Section 1 shall, as between the holder of this
Note and the Company and/or its creditors other than the holders of the Senior
Indebtedness, be deemed to be a payment on account of the Senior Indebtedness.
(e) Rights of Holders Unimpaired. The provisions of this Section 1 are and
are intended solely for the purposes of defining the relative rights of the
holder of this Note and the holders of Senior Indebtedness and nothing in this
Section 1 shall impair, as between the Company and the holder of this Note, the
obligation of the Company, which is unconditional and absolute, to pay to the
holder of this Note the principal thereof and interest thereon, in accordance
with the terms of this Note, nor shall anything herein prevent the holder of
this Note from exercising all remedies otherwise permitted by applicable law or
hereunder upon default, subject to the rights set forth above of holders of
Senior Indebtedness to receive cash, property or securities otherwise payable or
deliverable to the holder of this Note.
(f) Payments on Subordinated Notes. Subject to Section 1(c), the Company
may make payments of the principal of, and any interest or premium on, this
Note, if at the time of payment, and immediately after giving effect thereto,
(i) there exists no default in any payment with respect to any Senior
Indebtedness and (ii) there shall not have occurred an event of default (other
than a default in the payment of amounts due thereon) with respect to any Senior
Indebtedness, as defined in the instrument under which the same is outstanding,
permitting the holders thereof to accelerate the maturity thereof, other than an
event of default which shall have been cured or waived or shall have ceased to
exist.
2. Repayment and Prepayment of Principal. Subject to the subordination
provisions of Sections 1(a), 1(b1) and 1(c) (but, for purposes of clarity, not
Section 1(b2)) and the following sentence, all amounts due under this Note may
be prepaid in whole or in part, without the prior written consent of the holder
of this Note. This Note may not be repaid at any time that there are loans
outstanding under the Credit Agreement or prepaid at any time without the
written consent of the holders of Senior Indebtedness unless such repayment or
prepayment is made solely out of the proceeds from the issuance of equity
interests in the Company or notes containing subordination provisions
subordinating the notes to the Senior Indebtedness at least to the extent
provided in Section 1 (other than Section 1(b2)). Notwithstanding any other
provision hereof, the Company shall repay or prepay to the holder promptly
following the expiration of the tender offer to be conducted by the Company for
shares of Nomai S.A. any amount not used to acquire shares of capital stock of
Nomai S.A. in such tender offer.]
3. Default. Subject to the subordination provisions of Section 1, the entire
unpaid principal of this Note and the interest then accrued on this Note shall
become and be immediately due and payable upon written demand of the holder of
this Note, without any other notice or demand of any kind or any presentment or
protest, and the holder shall have all of the rights and remedies afforded by
applicable law, if any one of the following events shall occur and be continuing
at the time of such demand, whether voluntarily or involuntarily, or, without
limitation, occurring or brought about by operation of law or pursuant to or in
compliance with any judgment, decree or order of any court or any order, rule or
regulation of any governmental body:
(a) If default shall be made in the payment of principal or interest on
this Note, and such default shall remain unremedied for thirty (30) days; or
(b) If the Company (i) makes a composition or an assignment for the benefit
of creditors or trust mortgage, (ii) applies for, consents to, acquiesces in,
files a petition seeking or admits (by answer, default or otherwise) the
material allegations of a petition filed against it seeking the appointment of a
trustee, receiver or liquidator, in bankruptcy or otherwise, of itself or of all
or a substantial portion of its assets, or a reorganization, arrangement with
creditors or other remedy, relief or adjudication available to or against a
bankrupt, insolvent or debtor under any bankruptcy or insolvency law or any law
affecting the rights of creditors generally, or (iii) admits in writing its
inability to pay its debts generally as they become due; or
(c) If the Company shall not have granted to the holder hereof a valid and
enforceable security interest in all of the Company's now owned or hereafter
acquired material intellectual property and a perfected security interest in the
Company's issued and pending United States patents, United States registered
trademarks and intellectual property constituting general intangibles (within
the meaning of the Uniform Commercial Code, as adopted in the State of Utah)
which is deemed located in the United States, which is junior and subordinate to
a security interest in the same property in favor of the holders of the Senior
Indebtedness within the earlier of forty-five (45) days from the date that
written demand for the security interest described herein is made in writing and
ten (10) days of the granting and perfecting of a security interest in any of
the property described herein to secure payment of amounts owing under the
Credit Agreement; or
(d) If the indebtedness represented by the Credit Agreement becomes due and
payable prior to the stated maturity thereof; or
(e) If an order for relief shall have been entered by a bankruptcy court or
if a decree, order or judgment shall have been entered adjudging the Company
insolvent, or appointing a receiver, liquidator, custodian or trustee, in
bankruptcy or otherwise, for it or for all or a substantial portion of its
assets, or approving the winding-up or liquidation of its affairs on the grounds
of insolvency or nonpayment of debts, and such order for relief, decree, order
or judgment shall remain undischarged or unstayed for a period of sixty (60)
days; or if any substantial part of the property of the Company is sequestered
or attached and shall not be returned to the possession of the Company or such
subsidiary or released from such attachment within sixty (60) days.
4. General.
(a) Successors and Assigns. This Note, and the obligations and rights of
the Company hereunder, shall be binding upon and inure to the benefit of the
Company, the holder of this Note, and their respective heirs, successors and
assigns; provided however, that the original holder of this Note shall not
transfer or assign any interest herein to any other person or entity prior to
the time, if any, that a default has occurred hereunder, except for
distributions by the holder to its partners or by its partners to their estates,
heirs or partners.
(b) Recourse. Recourse under this Note shall be to the general unsecured
assets of the Company only and in no event to the officers, directors or
stockholders of the Company.
(c) Changes. Changes in or additions to this Note may be made or compliance
with any term, covenant, agreement, condition or provision set forth herein may
be omitted or waived (either generally or in a particular instance and either
retroactively or prospectively), upon written consent of the Company and the
holder of this Note.
(d) Currency. All payments shall be made in such coin or currency of the
United States of America as at the time of payment shall be legal tender therein
for the payment of public and private debts.
(e) Set-off. All payments by the Company under this Note shall be made
without set-off or counterclaim and be free and clear and without any deduction
or withholding for any taxes or fees of any nature whatever, unless the
obligation to make such deduction or withholding is imposed by law.
(f) Costs of Collection. The Company agrees to pay on demand all costs of
collection, including reasonable attorneys' fees, incurred by the holder of this
Note in enforcing the obligations of the Company under this Note.
(g) Waivers. No delay or omission on the part of the holder of this Note in
exercising any right under this Note shall operate as a waiver of such right or
of any other right of such holder, nor shall any delay, omission or waiver on
any one occasion be deemed a bar to or waiver of the same or any other right on
any future occasion.
(h) Notices. All notices, requests, consents and demands shall be made in
writing and shall be mailed postage prepaid, or delivered by hand, to the
Company or to the holder hereof at their respective addresses set forth below or
to such other address as may be furnished in writing to the other party hereto:
If to the holder:
Idanta Partners
4660 La Jolla Village Drive
San Diego, CA 92122
Attention: Controller
If to the Company:
Iomega Corporation
1821 West Iomega Way
Roy, UT 84067
Attention: General Counsel
(i) Saturdays, Sundays, Holidays. If any date that may at any time be
specified in this Note as a date for the making of any payment of principal or
interest under this Note shall fall on Saturday, Sunday or on a day which in
Roy, Utah shall be a legal holiday, then the date for the making of that payment
shall be the next subsequent day which is not a Saturday, Sunday or legal
holiday.
<PAGE>
(j) Governing Law. This Note shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the laws of the State
of Delaware.
IN WITNESS WHEREOF, this Note has been executed and delivered as a
sealed instrument on the date first above written by the duly authorized
representative of the Company.
IOMEGA CORPORATION
By:/s/ Robert J. Simmons
Robert J. Simmons
Vice President and Treasurer
/s/ Laurie B. Keating
ATTEST:________________________
Secretary
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SO REGISTERED OR AN EXEMPTIONFROM
REGISTRATION UNDER SAID ACT IS AVAILABLE.
IOMEGA CORPORATION
Senior Subordinated Promissory Note
$7,500,000 Roy, Utah
July 8, 1998
---------------------
Iomega Corporation, a Delaware corporation (the "Company"), for value
received, hereby promises to pay to Idanta Partners, or assigns, the principal
sum of $7,500,000 (Seven Million Five Hundred Thousand Dollars), together with
interest (computed on the basis of a 365-day year) from the date hereof on the
unpaid balance of such principal amount from time to time outstanding at the
following rates:
a. from the date hereof through September 30, 1998, the greater
of (i) the weighted-average interest rate charged under the
Credit Agreement (as defined below) at the beginning of such
period plus 2% per annum and (ii) 8.6875%;
b. from October 1, 1998 through December 31, 1998, the greater of
(i) the weighted-average interest rate charged under the
Credit Agreement at the beginning of such period plus 2% per
annum and (ii) 10.6875%; and
c. from January 1, 1999 until paid in full the greater of (i) the
weighted-average interest rate charged under the Credit
Agreement at the beginning of such period plus 2% per annum
and (ii) 12.6875%.
All principal and interest shall be due and payable on March 31, 1999.
1. Subordination.
(a) Subordination to Senior Indebtedness. The indebtedness evidenced by
this Note, and the payment of the principal hereof, and any interest hereon, is
wholly subordinated, junior and subject in right of payment, to the extent and
in the manner hereinafter provided, to the prior payment of all Senior
Indebtedness of the Company now outstanding or hereinafter incurred but is
senior to the Company's 6-3/4% Convertible Subordinated Notes due 2001. "Senior
Indebtedness" means all principal, premium (if any), interest (including,
without limitation, interest accruing on or after, or which would accrue but
for, the filing of any petition in bankruptcy or for reorganization relating to
the Company, whether or not a claim for post-petition interest is allowed in
such proceeding), bank fees and other amounts (including attorneys' fees and
other costs of collection) owed by the Company with respect to the Amended and
Restated Credit Agreement And Collateral Release dated as of January 23, 1998
among the Company, the Banks named therein, Citibank, N.A., as Administrative
Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent
(the "Credit Agreement"), as the Credit Agreement may be amended or extended
from time to time, and any related documents.
(b) (b1) No Payment if Default in Senior Indebtedness. No payment on
account of principal of or interest on this Note shall be made, and this Note
shall not be redeemed or purchased directly or indirectly by the Company (or any
of its subsidiaries), if at the time of such payment or purchase or immediately
after giving effect thereto, (i) there shall exist a default in any payment with
respect to any Senior Indebtedness or (ii) there shall have occurred an event of
default (other than a default in the payment of amounts due thereon) with
respect to any Senior Indebtedness, as defined in the instrument under which the
same is outstanding, permitting the holders thereof to accelerate the maturity
thereof, and such event of default shall not have been cured or waived or shall
not have ceased to exist.
(b2) No Payment if Loans Outstanding Under Senior Indebtedness. Except for
payments permitted by Section 2 of this Note, no payment on account of principal
of or interest on this Note shall be made, and this Note shall not be redeemed
or purchased directly or indirectly by the Company (or any of its subsidiaries),
if at the time of such payment or purchase or immediately after giving effect
thereto loans would be outstanding under the Credit Agreement.
(c) Payment upon Dissolution, Etc.
(i)In the event of any bankruptcy, insolvency, reorganization,
receivership, composition, assignment for benefit of creditors or other similar
proceeding initiated by or against the Company or any dissolution or winding up
or total or partial liquidation or reorganization of the Company (being
hereinafter referred to as a "Proceeding"), all claims of the holder of this
Note with respect to this Note in such Proceeding shall be deemed assigned, pro
rata, to the then holders of the Senior Indebtedness on the basis of the
respective amounts of such Senior Indebtedness held by such holder, and the
holder of this Note hereby agrees to execute all documents that such holders
request in order to evidence such assignment, provided, however, that such
assignment shall terminate upon receipt by such holders of payment in full of
all of the Senior Indebtedness. While such assignment is in effect, the then
holders of the Senior Indebtedness shall have the exclusive right to exercise
all rights of the holder of this Note arising from their claims with respect to
this Note in the Proceeding, including but not limited to the right to vote for
a trustee and to accept or reject a proposed plan of reorganization or
composition, and the holder of this Note hereby agrees to execute all documents
reasonably requested by the then holders of the Senior Indebtedness in order to
exercise any such rights whether (at the sole discretion of such holders) in the
holder's own name or in the name of the holder of this Note. While such
assignment is in effect, the holder of this Note also agrees that it shall, upon
request of a holder of Senior Indebtedness, and at its own expense take all
reasonable actions (including but not limited to the execution and filing of
documents and the giving of testimony in any Proceeding, whether or not such
testimony could have been compelled by process) necessary to prove the full
amount of all its claims in any Proceeding, and the holder of this Note shall
not expressly, by implication or by inaction waive any claim in any Proceeding
with respect to this Note without the written consent of such holder.
(ii)Upon payment or distribution to creditors in a Proceeding of assets of
the Company of any kind or character, whether in cash, property or securities,
all principal and interest due upon any Senior Indebtedness shall first be paid
in full, or payment thereof in full duly provided for, before the holder of this
Note shall be entitled to receive or, if received, to retain any payment or
distribution on account of this Note; and upon any such Proceeding, any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to which the holder of this Note would be entitled
except for the provisions of this Section 1 shall be paid by the Company or by
any receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, or by the holder of this Note who shall
have received such payment or distribution, directly to the holders of the
Senior Indebtedness (pro rata to each such holder on the basis of the respective
amounts of such Senior Indebtedness held by such holder) or their
representatives to the extent necessary to pay all such Senior Indebtedness in
full after giving effect to any concurrent payment or distribution to or for the
holders of such Senior Indebtedness, before any payment or distribution is made
to the holder of this Note. In the event of any Proceeding, the holder of this
Notes shall be entitled to be paid one hundred percent (100%) of the principal
amount thereof and accrued interest thereon before any distribution of assets
shall be made among the holders of any class of shares of the capital stock of
the Company in their capacities as holders of such shares.
(iii) For purposes of this Section 1(c), the words "assets" and "cash,
property or securities" shall not be deemed to include shares of Common Stock of
the Company as reorganized or readjusted, or securities of the Company or any
other person provided for by a plan of reorganization or readjustment, the
payment of which is subordinated at least to the extent provided in this Section
1 with respect to this Note to the payment of all Senior Indebtedness which may
at the time be outstanding, if (x) the Senior Indebtedness is assumed by the new
person, if any, resulting from any such reorganization or readjustment, and (y)
the rights of the holders of Senior Indebtedness are not, without the consent of
such holders, altered by such reorganization or readjustment.
(d) Subrogation. Subject to payment in full of all Senior Indebtedness, the
holder of this Note shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of the assets of the Company
made on such Senior Indebtedness until all principal and interest on this Note
shall be paid in full; and for purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of any cash, property or
securities to which any holder of this Note would be entitled except for the
subordination provisions of this Section 1 shall, as between the holder of this
Note and the Company and/or its creditors other than the holders of the Senior
Indebtedness, be deemed to be a payment on account of the Senior Indebtedness.
(e) Rights of Holders Unimpaired. The provisions of this Section 1 are and
are intended solely for the purposes of defining the relative rights of the
holder of this Note and the holders of Senior Indebtedness and nothing in this
Section 1 shall impair, as between the Company and the holder of this Note, the
obligation of the Company, which is unconditional and absolute, to pay to the
holder of this Note the principal thereof and interest thereon, in accordance
with the terms of this Note, nor shall anything herein prevent the holder of
this Note from exercising all remedies otherwise permitted by applicable law or
hereunder upon default, subject to the rights set forth above of holders of
Senior Indebtedness to receive cash, property or securities otherwise payable or
deliverable to the holder of this Note.
(f) Payments on Subordinated Notes. Subject to Section 1(c), the Company
may make payments of the principal of, and any interest or premium on, this
Note, if at the time of payment, and immediately after giving effect thereto,
(i) there exists no default in any payment with respect to any Senior
Indebtedness and (ii) there shall not have occurred an event of default (other
than a default in the payment of amounts due thereon) with respect to any Senior
Indebtedness, as defined in the instrument under which the same is outstanding,
permitting the holders thereof to accelerate the maturity thereof, other than an
event of default which shall have been cured or waived or shall have ceased to
exist.
2. Repayment and Prepayment of Principal. Subject to the subordination
provisions of Sections 1(a), 1(b1) and 1(c) (but, for purposes of clarity, not
Section 1(b2)) and the following sentence, all amounts due under this Note may
be prepaid in whole or in part, without the prior written consent of the holder
of this Note. This Note may not be repaid at any time that there are loans
outstanding under the Credit Agreement or prepaid at any time without the
written consent of the holders of Senior Indebtedness unless such repayment or
prepayment is made solely out of the proceeds from the issuance of equity
interests in the Company or notes containing subordination provisions
subordinating the notes to the Senior Indebtedness at least to the extent
provided in Section 1 (other than Section 1(b2)). Notwithstanding any other
provision hereof, the Company shall repay or prepay to the holder promptly
following the expiration of the tender offer to be conducted by the Company for
shares of Nomai S.A. any amount not used to acquire shares of capital stock of
Nomai S.A. in such tender offer.]
3. Default. Subject to the subordination provisions of Section 1, the entire
unpaid principal of this Note and the interest then accrued on this Note shall
become and be immediately due and payable upon written demand of the holder of
this Note, without any other notice or demand of any kind or any presentment or
protest, and the holder shall have all of the rights and remedies afforded by
applicable law, if any one of the following events shall occur and be continuing
at the time of such demand, whether voluntarily or involuntarily, or, without
limitation, occurring or brought about by operation of law or pursuant to or in
compliance with any judgment, decree or order of any court or any order, rule or
regulation of any governmental body:
(a) If default shall be made in the payment of principal or interest on
this Note, and such default shall remain unremedied for thirty (30) days; or
(b) If the Company (i) makes a composition or an assignment for the benefit
of creditors or trust mortgage, (ii) applies for, consents to, acquiesces in,
files a petition seeking or admits (by answer, default or otherwise) the
material allegations of a petition filed against it seeking the appointment of a
trustee, receiver or liquidator, in bankruptcy or otherwise, of itself or of all
or a substantial portion of its assets, or a reorganization, arrangement with
creditors or other remedy, relief or adjudication available to or against a
bankrupt, insolvent or debtor under any bankruptcy or insolvency law or any law
affecting the rights of creditors generally, or (iii) admits in writing its
inability to pay its debts generally as they become due; or
(c) If the Company shall not have granted to the holder hereof a valid and
enforceable security interest in all of the Company's now owned or hereafter
acquired material intellectual property and a perfected security interest in the
Company's issued and pending United States patents, United States registered
trademarks and intellectual property constituting general intangibles (within
the meaning of the Uniform Commercial Code, as adopted in the State of Utah)
which is deemed located in the United States, which is junior and subordinate to
a security interest in the same property in favor of the holders of the Senior
Indebtedness within the earlier of forty-five (45) days from the date that
written demand for the security interest described herein is made in writing and
ten (10) days of the granting and perfecting of a security interest in any of
the property described herein to secure payment of amounts owing under the
Credit Agreement; or
(d) If the indebtedness represented by the Credit Agreement becomes due and
payable prior to the stated maturity thereof; or
(e) If an order for relief shall have been entered by a bankruptcy court or
if a decree, order or judgment shall have been entered adjudging the Company
insolvent, or appointing a receiver, liquidator, custodian or trustee, in
bankruptcy or otherwise, for it or for all or a substantial portion of its
assets, or approving the winding-up or liquidation of its affairs on the grounds
of insolvency or nonpayment of debts, and such order for relief, decree, order
or judgment shall remain undischarged or unstayed for a period of sixty (60)
days; or if any substantial part of the property of the Company is sequestered
or attached and shall not be returned to the possession of the Company or such
subsidiary or released from such attachment within sixty (60) days.
4. General.
(a) Successors and Assigns. This Note, and the obligations and rights of
the Company hereunder, shall be binding upon and inure to the benefit of the
Company, the holder of this Note, and their respective heirs, successors and
assigns; provided however, that the original holder of this Note shall not
transfer or assign any interest herein to any other person or entity prior to
the time, if any, that a default has occurred hereunder, except for
distributions by the holder to its partners or by its partners to their estates,
heirs or partners.
(b) Recourse. Recourse under this Note shall be to the general unsecured
assets of the Company only and in no event to the officers, directors or
stockholders of the Company.
(c) Changes. Changes in or additions to this Note may be made or compliance
with any term, covenant, agreement, condition or provision set forth herein may
be omitted or waived (either generally or in a particular instance and either
retroactively or prospectively), upon written consent of the Company and the
holder of this Note.
(d) Currency. All payments shall be made in such coin or currency of the
United States of America as at the time of payment shall be legal tender therein
for the payment of public and private debts.
(e) Set-off. All payments by the Company under this Note shall be made
without set-off or counterclaim and be free and clear and without any deduction
or withholding for any taxes or fees of any nature whatever, unless the
obligation to make such deduction or withholding is imposed by law.
(f) Costs of Collection. The Company agrees to pay on demand all costs of
collection, including reasonable attorneys' fees, incurred by the holder of this
Note in enforcing the obligations of the Company under this Note.
(g) Waivers. No delay or omission on the part of the holder of this Note in
exercising any right under this Note shall operate as a waiver of such right or
of any other right of such holder, nor shall any delay, omission or waiver on
any one occasion be deemed a bar to or waiver of the same or any other right on
any future occasion.
(h) Notices. All notices, requests, consents and demands shall be made in
writing and shall be mailed postage prepaid, or delivered by hand, to the
Company or to the holder hereof at their respective addresses set forth below or
to such other address as may be furnished in writing to the other party hereto:
If to the holder:
Idanta Partners
4660 La Jolla Village Drive
San Diego, CA 92122
Attention: Controller
If to the Company:
Iomega Corporation
1821 West Iomega Way
Roy, UT 84067
Attention: General Counsel
(i) Saturdays, Sundays, Holidays. If any date that may at any time be
specified in this Note as a date for the making of any payment of principal or
interest under this Note shall fall on Saturday, Sunday or on a day which in
Roy, Utah shall be a legal holiday, then the date for the making of that payment
shall be the next subsequent day which is not a Saturday, Sunday or legal
holiday.
(j) Governing Law. This Note shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the laws of the State
of Delaware.
<PAGE>
IN WITNESS WHEREOF, this Note has been executed and delivered as a
sealed instrument on the date first above written by the duly authorized
representative of the Company.
IOMEGA CORPORATION
By:/s/ Robert J. Simmons
Robert J. Simmons
Vice President and Treasurer
ATTEST: /s/ Laurie B. Keating
Secretary
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SO REGISTERED OR AN EXEMPTIONFROM
REGISTRATION UNDER SAID ACT IS AVAILABLE.
IOMEGA CORPORATION
Senior Subordinated Promissory Note
$12,500,000 Roy, Utah
July 8, 1998
---------------------
Iomega Corporation, a Delaware corporation (the "Company"), for value
received, hereby promises to pay to Idanta Partners, or assigns, the principal
sum of $12,500,000 (Twelve Million Five Hundred Thousand Dollars), together with
interest (computed on the basis of a 365-day year) from the date hereof on the
unpaid balance of such principal amount from time to time outstanding at the
following rates:
a. from the date hereof through September 30, 1998, the greater
of (i) the weighted-average interest rate charged under the
Credit Agreement (as defined below) at the beginning of such
period plus 2% per annum and (ii) 8.6875%;
b. from October 1, 1998 through December 31, 1998, the greater of
(i) the weighted-average interest rate charged under the
Credit Agreement at the beginning of such period plus 2% per
annum and (ii) 10.6875%; and
c. from January 1, 1999 until paid in full the greater of (i) the
weighted-average interest rate charged under the Credit
Agreement at the beginning of such period plus 2% per annum
and (ii) 12.6875%.
All principal and interest shall be due and payable on March 31, 1999.
1. Subordination.
(a) Subordination to Senior Indebtedness. The indebtedness evidenced by
this Note, and the payment of the principal hereof, and any interest hereon, is
wholly subordinated, junior and subject in right of payment, to the extent and
in the manner hereinafter provided, to the prior payment of all Senior
Indebtedness of the Company now outstanding or hereinafter incurred but is
senior to the Company's 6-3/4% Convertible Subordinated Notes due 2001. "Senior
Indebtedness" means all principal, premium (if any), interest (including,
without limitation, interest accruing on or after, or which would accrue but
for, the filing of any petition in bankruptcy or for reorganization relating to
the Company, whether or not a claim for post-petition interest is allowed in
such proceeding), bank fees and other amounts (including attorneys' fees and
other costs of collection) owed by the Company with respect to the Amended and
Restated Credit Agreement And Collateral Release dated as of January 23, 1998
among the Company, the Banks named therein, Citibank, N.A., as Administrative
Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent
(the "Credit Agreement"), as the Credit Agreement may be amended or extended
from time to time, and any related documents.
(b) (b1) No Payment if Default in Senior Indebtedness. No payment on
account of principal of or interest on this Note shall be made, and this Note
shall not be redeemed or purchased directly or indirectly by the Company (or any
of its subsidiaries), if at the time of such payment or purchase or immediately
after giving effect thereto, (i) there shall exist a default in any payment with
respect to any Senior Indebtedness or (ii) there shall have occurred an event of
default (other than a default in the payment of amounts due thereon) with
respect to any Senior Indebtedness, as defined in the instrument under which the
same is outstanding, permitting the holders thereof to accelerate the maturity
thereof, and such event of default shall not have been cured or waived or shall
not have ceased to exist.
(b2) No Payment if Loans Outstanding Under Senior Indebtedness. Except for
payments permitted by Section 2 of this Note, no payment on account of principal
of or interest on this Note shall be made, and this Note shall not be redeemed
or purchased directly or indirectly by the Company (or any of its subsidiaries),
if at the time of such payment or purchase or immediately after giving effect
thereto loans would be outstanding under the Credit Agreement.
(c) Payment upon Dissolution, Etc.
(i)In the event of any bankruptcy, insolvency, reorganization,
receivership, composition, assignment for benefit of creditors or other similar
proceeding initiated by or against the Company or any dissolution or winding up
or total or partial liquidation or reorganization of the Company (being
hereinafter referred to as a "Proceeding"), all claims of the holder of this
Note with respect to this Note in such Proceeding shall be deemed assigned, pro
rata, to the then holders of the Senior Indebtedness on the basis of the
respective amounts of such Senior Indebtedness held by such holder, and the
holder of this Note hereby agrees to execute all documents that such holders
request in order to evidence such assignment, provided, however, that such
assignment shall terminate upon receipt by such holders of payment in full of
all of the Senior Indebtedness. While such assignment is in effect, the then
holders of the Senior Indebtedness shall have the exclusive right to exercise
all rights of the holder of this Note arising from their claims with respect to
this Note in the Proceeding, including but not limited to the right to vote for
a trustee and to accept or reject a proposed plan of reorganization or
composition, and the holder of this Note hereby agrees to execute all documents
reasonably requested by the then holders of the Senior Indebtedness in order to
exercise any such rights whether (at the sole discretion of such holders) in the
holder's own name or in the name of the holder of this Note. While such
assignment is in effect, the holder of this Note also agrees that it shall, upon
request of a holder of Senior Indebtedness, and at its own expense take all
reasonable actions (including but not limited to the execution and filing of
documents and the giving of testimony in any Proceeding, whether or not such
testimony could have been compelled by process) necessary to prove the full
amount of all its claims in any Proceeding, and the holder of this Note shall
not expressly, by implication or by inaction waive any claim in any Proceeding
with respect to this Note without the written consent of such holder.
(ii)Upon payment or distribution to creditors in a Proceeding of assets of
the Company of any kind or character, whether in cash, property or securities,
all principal and interest due upon any Senior Indebtedness shall first be paid
in full, or payment thereof in full duly provided for, before the holder of this
Note shall be entitled to receive or, if received, to retain any payment or
distribution on account of this Note; and upon any such Proceeding, any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to which the holder of this Note would be entitled
except for the provisions of this Section 1 shall be paid by the Company or by
any receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, or by the holder of this Note who shall
have received such payment or distribution, directly to the holders of the
Senior Indebtedness (pro rata to each such holder on the basis of the respective
amounts of such Senior Indebtedness held by such holder) or their
representatives to the extent necessary to pay all such Senior Indebtedness in
full after giving effect to any concurrent payment or distribution to or for the
holders of such Senior Indebtedness, before any payment or distribution is made
to the holder of this Note. In the event of any Proceeding, the holder of this
Notes shall be entitled to be paid one hundred percent (100%) of the principal
amount thereof and accrued interest thereon before any distribution of assets
shall be made among the holders of any class of shares of the capital stock of
the Company in their capacities as holders of such shares.
(iii) For purposes of this Section 1(c), the words "assets" and "cash,
property or securities" shall not be deemed to include shares of Common Stock of
the Company as reorganized or readjusted, or securities of the Company or any
other person provided for by a plan of reorganization or readjustment, the
payment of which is subordinated at least to the extent provided in this Section
1 with respect to this Note to the payment of all Senior Indebtedness which may
at the time be outstanding, if (x) the Senior Indebtedness is assumed by the new
person, if any, resulting from any such reorganization or readjustment, and (y)
the rights of the holders of Senior Indebtedness are not, without the consent of
such holders, altered by such reorganization or readjustment.
(d) Subrogation. Subject to payment in full of all Senior Indebtedness, the
holder of this Note shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of the assets of the Company
made on such Senior Indebtedness until all principal and interest on this Note
shall be paid in full; and for purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of any cash, property or
securities to which any holder of this Note would be entitled except for the
subordination provisions of this Section 1 shall, as between the holder of this
Note and the Company and/or its creditors other than the holders of the Senior
Indebtedness, be deemed to be a payment on account of the Senior Indebtedness.
(e) Rights of Holders Unimpaired. The provisions of this Section 1 are and
are intended solely for the purposes of defining the relative rights of the
holder of this Note and the holders of Senior Indebtedness and nothing in this
Section 1 shall impair, as between the Company and the holder of this Note, the
obligation of the Company, which is unconditional and absolute, to pay to the
holder of this Note the principal thereof and interest thereon, in accordance
with the terms of this Note, nor shall anything herein prevent the holder of
this Note from exercising all remedies otherwise permitted by applicable law or
hereunder upon default, subject to the rights set forth above of holders of
Senior Indebtedness to receive cash, property or securities otherwise payable or
deliverable to the holder of this Note.
(f) Payments on Subordinated Notes. Subject to Section 1(c), the Company
may make payments of the principal of, and any interest or premium on, this
Note, if at the time of payment, and immediately after giving effect thereto,
(i) there exists no default in any payment with respect to any Senior
Indebtedness and (ii) there shall not have occurred an event of default (other
than a default in the payment of amounts due thereon) with respect to any Senior
Indebtedness, as defined in the instrument under which the same is outstanding,
permitting the holders thereof to accelerate the maturity thereof, other than an
event of default which shall have been cured or waived or shall have ceased to
exist.
2. Repayment and Prepayment of Principal. Subject to the subordination
provisions of Sections 1(a), 1(b1) and 1(c) (but, for purposes of clarity, not
Section 1(b2)) and the following sentence, all amounts due under this Note may
be prepaid in whole or in part, without the prior written consent of the holder
of this Note. This Note may not be repaid at any time that there are loans
outstanding under the Credit Agreement or prepaid at any time without the
written consent of the holders of Senior Indebtedness unless such repayment or
prepayment is made solely out of the proceeds from the issuance of equity
interests in the Company or notes containing subordination provisions
subordinating the notes to the Senior Indebtedness at least to the extent
provided in Section 1 (other than Section 1(b2)). Notwithstanding any other
provision hereof, the Company shall repay or prepay to the holder promptly
following the expiration of the tender offer to be conducted by the Company for
shares of Nomai S.A. any amount not used to acquire shares of capital stock of
Nomai S.A. in such tender offer.]
3. Default. Subject to the subordination provisions of Section 1, the entire
unpaid principal of this Note and the interest then accrued on this Note shall
become and be immediately due and payable upon written demand of the holder of
this Note, without any other notice or demand of any kind or any presentment or
protest, and the holder shall have all of the rights and remedies afforded by
applicable law, if any one of the following events shall occur and be continuing
at the time of such demand, whether voluntarily or involuntarily, or, without
limitation, occurring or brought about by operation of law or pursuant to or in
compliance with any judgment, decree or order of any court or any order, rule or
regulation of any governmental body:
(a) If default shall be made in the payment of principal or interest on
this Note, and such default shall remain unremedied for thirty (30) days; or
(b) If the Company (i) makes a composition or an assignment for the benefit
of creditors or trust mortgage, (ii) applies for, consents to, acquiesces in,
files a petition seeking or admits (by answer, default or otherwise) the
material allegations of a petition filed against it seeking the appointment of a
trustee, receiver or liquidator, in bankruptcy or otherwise, of itself or of all
or a substantial portion of its assets, or a reorganization, arrangement with
creditors or other remedy, relief or adjudication available to or against a
bankrupt, insolvent or debtor under any bankruptcy or insolvency law or any law
affecting the rights of creditors generally, or (iii) admits in writing its
inability to pay its debts generally as they become due; or
(c) If the Company shall not have granted to the holder hereof a valid and
enforceable security interest in all of the Company's now owned or hereafter
acquired material intellectual property and a perfected security interest in the
Company's issued and pending United States patents, United States registered
trademarks and intellectual property constituting general intangibles (within
the meaning of the Uniform Commercial Code, as adopted in the State of Utah)
which is deemed located in the United States, which is junior and subordinate to
a security interest in the same property in favor of the holders of the Senior
Indebtedness within the earlier of forty-five (45) days from the date that
written demand for the security interest described herein is made in writing and
ten (10) days of the granting and perfecting of a security interest in any of
the property described herein to secure payment of amounts owing under the
Credit Agreement; or
(d) If the indebtedness represented by the Credit Agreement becomes due and
payable prior to the stated maturity thereof; or
(e) If an order for relief shall have been entered by a bankruptcy court or
if a decree, order or judgment shall have been entered adjudging the Company
insolvent, or appointing a receiver, liquidator, custodian or trustee, in
bankruptcy or otherwise, for it or for all or a substantial portion of its
assets, or approving the winding-up or liquidation of its affairs on the grounds
of insolvency or nonpayment of debts, and such order for relief, decree, order
or judgment shall remain undischarged or unstayed for a period of sixty (60)
days; or if any substantial part of the property of the Company is sequestered
or attached and shall not be returned to the possession of the Company or such
subsidiary or released from such attachment within sixty (60) days.
4. General.
(a) Successors and Assigns. This Note, and the obligations and rights of
the Company hereunder, shall be binding upon and inure to the benefit of the
Company, the holder of this Note, and their respective heirs, successors and
assigns; provided however, that the original holder of this Note shall not
transfer or assign any interest herein to any other person or entity prior to
the time, if any, that a default has occurred hereunder, except for
distributions by the holder to its partners or by its partners to their estates,
heirs or partners.
(b) Recourse. Recourse under this Note shall be to the general unsecured
assets of the Company only and in no event to the officers, directors or
stockholders of the Company.
(c) Changes. Changes in or additions to this Note may be made or compliance
with any term, covenant, agreement, condition or provision set forth herein may
be omitted or waived (either generally or in a particular instance and either
retroactively or prospectively), upon written consent of the Company and the
holder of this Note.
(d) Currency. All payments shall be made in such coin or currency of the
United States of America as at the time of payment shall be legal tender therein
for the payment of public and private debts.
(e) Set-off. All payments by the Company under this Note shall be made
without set-off or counterclaim and be free and clear and without any deduction
or withholding for any taxes or fees of any nature whatever, unless the
obligation to make such deduction or withholding is imposed by law.
(f) Costs of Collection. The Company agrees to pay on demand all costs of
collection, including reasonable attorneys' fees, incurred by the holder of this
Note in enforcing the obligations of the Company under this Note.
(g) Waivers. No delay or omission on the part of the holder of this Note in
exercising any right under this Note shall operate as a waiver of such right or
of any other right of such holder, nor shall any delay, omission or waiver on
any one occasion be deemed a bar to or waiver of the same or any other right on
any future occasion.
(h) Notices. All notices, requests, consents and demands shall be made in
writing and shall be mailed postage prepaid, or delivered by hand, to the
Company or to the holder hereof at their respective addresses set forth below or
to such other address as may be furnished in writing to the other party hereto:
If to the holder:
Idanta Partners
4660 La Jolla Village Drive
San Diego, CA 92122
Attention: Controller
If to the Company:
Iomega Corporation
1821 West Iomega Way
Roy, UT 84067
Attention: General Counsel
(i) Saturdays, Sundays, Holidays. If any date that may at any time be
specified in this Note as a date for the making of any payment of principal or
interest under this Note shall fall on Saturday, Sunday or on a day which in
Roy, Utah shall be a legal holiday, then the date for the making of that payment
shall be the next subsequent day which is not a Saturday, Sunday or legal
holiday.
(j) Governing Law. This Note shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the laws of the State
of Delaware.
<PAGE>
IN WITNESS WHEREOF, this Note has been executed and delivered as a
sealed instrument on the date first above written by the duly authorized
representative of the Company.
IOMEGA CORPORATION
By:/s/ Robert J. Simmons
Robert J. Simmons
Vice President and Treasurer
ATTEST: /s/ Laurie B. Keating
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS. THE COMPANY HAS RESTATED EARNINGS PER SHARE FOR
THE FISCAL QUARTER AND NINE MONTHS ENDED SEPTEMBER 28, 1997 TO BASIC AND DILUTED
EARNINGS PER SHARE TO BE IN ACCORDANCE WITH STATEMENTS OF FINANCIAL ACCOUNTING
STANDARDS (SFAS) SFAS NO. 128: EARNINGS PER SHARE. CERTAIN RECLASSIFICATION HAVE
BEEN MADE IN PRIOR YEARS' AMOUNTS TO CONFORM TO THE CURRENT YEAR'S PRESENTATION.
</LEGEND>
<MULTIPLIER> 1,000
<CIK> 0000352789
<NAME> Iomega Corporation
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1998 DEC-31-1997
<PERIOD-START> JUN-28-1998 JUN-29-1997 JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-27-1998 SEP-28-1997 SEP-27-1998 SEP-28-1997
<CASH> 45,557 166,024 45,557 166,024
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<RECEIVABLES> 288,394 302,937 288,394 302,937
<ALLOWANCES> 63,378 38,753 63,378 38,753
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<CURRENT-ASSETS> 588,914 669,852 588,914 669,852
<PP&E> 348,656 241,440 348,656 241,440
<DEPRECIATION> 147,921 86,377 147,921 86,377
<TOTAL-ASSETS> 829,109 828,174 829,109 828,174
<CURRENT-LIABILITIES> 309,101 360,772 309,101 360,772
<BONDS> 45,683 45,683 45,683 45,683
0 0 0 0
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<OTHER-SE> (6,177) (6,517) (6,177) (6,517)
<TOTAL-LIABILITY-AND-EQUITY> 829,109 828,174 829,109 828,174
<SALES> 391,766 431,700 1,193,097 1,193,206
<TOTAL-REVENUES> 391,766 431,700 1,193,097 1,193,206
<CGS> 304,119 291,373 909,090 828,141
<TOTAL-COSTS> 411,547 386,575 1,302,295 1,070,243
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<INTEREST-EXPENSE> 3,587 1,371 6,957 5,076
<INCOME-PRETAX> (22,658) 46,180 (112,556) 121,744
<INCOME-TAX> (7,881) 16,172 (39,293) 42,513
<INCOME-CONTINUING> (14,777) 30,008 (73,263) 79,231
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<NET-INCOME> (14,777) 30,008 (73,263) 79,231
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