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 MARCH 29, 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 March 29, 1998.
Common Stock, par value $.03 1/3 263,253,504
(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 March 29, 1998
and December 31, 1997.................................... 3
Condensed consolidated statements of operations for the three months
ended March 29, 1998 and March 30, 1997.................. 5
Condensed consolidated statements of cash flows for the three months
ended March 29, 1998 and March 30, 1997.................. 6
Notes to condensed consolidated financial statements.......... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................. 23
Item 2. Changes in Securities and Use of Proceeds..................... 25
Item 4. Submission of Matters to a Vote of Security Holders............ 26
Item 6. Exhibits and Reports on 8-K......................... ......... 26
Signatures............................................................. 27
Exhibit Index.......................................................... 28
This Quarterly Report on Form 10-Q contains a number of forward-looking
statements, including statements relating to anticipated second and third
quarter results; the expected return to profitability in the fourth quarter of
1998; the sufficiency of cash and cash equivalent balances and available sources
of financing; projected effective tax rates; expected further declines in
component and manufacturing costs; expected decreases in inventory levels and
increases in inventory turns; the 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 (including expenditures
for print and television advertising) and research and development activities;
delays in price decreases; the anticipated negative impact on gross margins due
to Clik! start-up costs; the possible effects on future sales due to potential
quality issues or component shortages; the possible effects of an adverse
outcome in legal proceedings; described in Item 1 of Part II; the Company's
efforts to protect its intellectual property rights; estimated additional
expenditures associated with the Company's transition to new computer systems;
and the anticipated Year 2000 compliance of such systems. Any statements
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" 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, and in the paragraph
immediately preceding, the caption "Factors Affecting Future Operating Results"
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)
March 29, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 80,491 $ 159,922
Temporary investments - 36,319
Trade receivables, net 249,270 280,182
Inventories 313,632 246,383
Deferred tax assets 56,939 47,996
Other current assets 13,792 11,982
---------- ---------
Total current assets 714,124 782,784
---------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost 295,361 272,219
Less: Accumulated depreciation and
amortization (107,943) (96,550)
---------- ---------
Net property, plant and equipment 187,418 175,669
---------- ---------
OTHER ASSETS 3,176 3,186
---------- ---------
$ 904,718 $ 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>
March 29, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 219,650 $ 257,281
Accrued payroll, vacation and bonus 16,461 31,728
Deferred revenue 35,235 42,423
Income taxes payable 13,545 22,440
Accrued advertising 37,776 32,628
Other accrued liabilities 54,872 52,613
Current portion of capitalized lease
obligations 5,259 5,505
--------- ---------
Total current liabilities 382,798 444,618
--------- ---------
CAPITALIZED LEASE OBLIGATIONS,
net of current portion 2,884 2,939
--------- ----------
NOTES PAYABLE 30,000 -
--------- ----------
DEFERRED INCOME TAXES 1,702 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 264,060,257 and
262,264,830 shares at March 29, 1998
and December 31, 1997, respectively 8,801 8,741
Additional paid-in capital 75,814 273,826
Less: 806,753 and 829,210 Common
Stock treasury shares
at March 29, 1998 and
December 31, 1997, respectively,
at cost (6,070) (6,099)
Deferred compensation (251) (336)
Retained earnings 163,357 181,933
--------- ----------
Total stockholders' equity 441,651 458,065
--------- ----------
$ 904,718 $ 961,639
========= ==========
</TABLE>
The accompanying notes to condensed
consolidated financial statements are an integral part
of these balance sheets.
<PAGE>
IOMEGA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
For the Three Months Ended
March 29, March 30,
1998 1997
(Unaudited)
<S> <C> <C>
SALES $ 407,500 $ 361,344
COST OF SALES 305,364 254,065
--------- ---------
Gross margin 102,136 107,279
--------- ---------
OPERATING EXPENSES:
Selling, general and administrative 107,942 54,360
Research and development 23,133 14,717
--------- ---------
Total operating expenses 131,075 69,077
--------- ---------
OPERATING INCOME (LOSS) (28,939) 38,202
Interest and other income (expense), net 437 (2,872)
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (28,502) 35,330
Benefit (provision) for income taxes 9,926 (12,316)
--------- ---------
NET INCOME (LOSS) $ (18,576) $ 23,014
========= =========
NET INCOME (LOSS) PER COMMON SHARE
Basic $ (0.07) $ 0.09
========= =========
Diluted $ (0.07) $ 0.08
========= =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING (Notes 1 and 2) 262,238 257,286
========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - Assuming Dilution (Notes 1 and 2) 262,238 280,668
========= =========
</TABLE>
The accompanying notes to condensed
consolidated financial statements are an integral part
of these statements.
<PAGE>
IOMEGA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
For the Three Months Ended
March 29, March 30,
1998 1997
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ (18,576) $ 23,014
Non-Cash Revenue and Expense Adjustments:
Depreciation and amortization expense 12,885 7,964
Deferred income tax provision (benefit) (17,575) 257
Tax benefit from dispositions of employee
stock 696 1,056
Other 741 197
Changes in Assets and Liabilities:
Trade receivables, net 30,912 59
Inventories (67,249) 16,594
Other current assets (1,423) (1,592)
Accounts payable (37,631) (16,922)
Accrued liabilities (15,048) (6,934)
Income taxes (8,895) 7,716
---------- ---------
Net cash provided by (used in) operating
activities (121,163) 31,409
---------- ---------
Cash Flows from Investing Activities:
Purchase of property, plant and equipment (24,068) (14,489)
Sale of temporary investments 36,319 -
Net decrease in other assets 10 360
---------- ---------
Net cash provided by (used in)
investing activities 12,261 (14,129)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from sales of Common Stock 1,353 1,168
Proceeds from issuance of notes payable 30,000 86,725
Payments on notes payable and capitalized
lease obligations (1,524) (94,982)
Purchase of Common Stock (358) (1,736)
---------- ---------
Net cash provided by (used in) financing
activities 29,471 (8,825)
---------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents (79,431) 8,455
Cash and Cash Equivalents at Beginning of Period 159,922 108,312
---------- ---------
Cash and Cash Equivalents at End of Period $ 80,491 $ 116,767
========== =========
</TABLE>
The accompanying notes to condensed
consolidated financial statements are an integral part
of these statements.
<PAGE>
IOMEGA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd.)
(In thousands)
<TABLE>
For the Three Months Ended
March 29, March 30,
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 $ 1,321
========== =========
Issuance of Common Stock in lieu of
compensation $ 360 $ -
========== =========
</TABLE>
The accompanying notes to condensed
consolidated financial statements are an integral part
of these statements.
<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 March 29, 1998 and
December 31, 1997, the results of operations for the three-month
periods ended March 29, 1998 and March 30, 1997, and cash flows for the
three-month periods ended March 29, 1998 and March 30, 1997.
The results of operations for the three-month period ended March 29,
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.
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.
Principles of Consolidation - The condensed consolidated financial
statements include the accounts of Iomega Corporation and its wholly
owned subsidiaries after elimination of all material intercompany
accounts and transactions.
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
returns and estimated excess channel inventory totaled $35.2 million
and $42.4 million at March 29, 1998 and December 31, 1997,
respectively, and is included in deferred revenue in the accompanying
condensed consolidated balance sheets.
<PAGE>
IOMEGA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $32.5 million and $28.5 million at March 29,
1998 and December 31, 1997, respectively, and are netted against
accounts receivable in the accompanying condensed consolidated balance
sheets.
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.
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 consist
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 March 29, 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>
March 29, December 31,
<S> <C> <C>
1998 1997
Raw materials $ 186,170 $ 130,049
Work-in-process 20,194 18,714
Finished goods 107,268 97,620
----------- ----------
$ 313,632 $ 246,383
=========== ==========
</TABLE>
<PAGE>
IOMEGA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reclassifications - Certain reclassifications were made to the prior
periods' condensed consolidated financial statements to conform with
the current period presentation.
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 quarter ended March
30, 1997, was 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 all periods presented 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>
March 29, 1998
Basic EPS $ (18,576) 262,238 $ (0.07)
Effect of options - -
Effect of convertible
subordinated notes - -
---------- -------
Diluted EPS $ (18,576) 262,238 $ (0.07)
========== =======
March 30, 1997
Basic EPS $ 23,014 257,286 $ 0.09
Effect of options - 14,120
Effect of convertible
subordinated notes 501 9,262
---------- -------
Diluted EPS $ 23,515 280,668 $ 0.08
========== =======
</TABLE>
Recent Accounting Pronouncements - In June 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" (SFAS 130) and No.
131 "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). SFAS 130 establishes standards for the
reporting and display of comprehensive income and its components and
SFAS 131 establishes new standards for public companies to report
information about their operating segments, products and services,
geographic areas and major customers. These statements are effective
for financial statements issued for fiscal years beginning after
December 15, 1997.
The Company adopted SFAS 130 in the quarter ended March 29, 1998, and
plans to adopt SFAS 131 in its December 31, 1998 financial statements.
<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) INCOME TAXES
Income tax benefit for the three months ended March 29, 1998 has been
provided for at an effective rate of 35%. This tax rate is based on the
Company's projected mix of domestic and foreign pre-tax income 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 $16.5 million for the first three
months of 1998 and $3.3 million for the corresponding period in 1997.
(4) DEBT
Notes Payable - On March 11, 1997, the Company entered into a $200
million Senior Secured Credit Facility ("Credit Facility") with Morgan
Guaranty Trust Company of New York, Citibank, N.A. and a syndicate of
other lenders. During January 1998, the Company amended the Credit
Facility. The amended Credit Facility is a three-year unsecured
revolving line of credit from the amendment date. Borrowings under the
Credit Facility were limited to $200 million for the first quarter of
1998 and thereafter are limited to the lesser of 70% of the prior
quarter's eligible accounts receivable or $200 million. Under the
Credit Facility, the Company may borrow at a base rate, which is the
higher of prime or federal funds plus a margin of 0.0% to 0.38%,
depending on the Company's debt-to-equity ratio, or at LIBOR plus a
margin of 1.0% to 1.75%, depending on the Company's debt-to-equity
ratio. Total availability under the Credit Facility at March 29, 1998,
was $200 million, of which $30 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. Prior to March
29, 1998 the Company requested, and on March 29, 1998 it received, a
one-quarter waiver of a covenant within the Credit Facility requiring
cash conversion days to be 80 days or less. Cash conversion days in the
first quarter of 1998 were 83 days. The Company was in compliance with
all applicable covenants as of March 29, 1998.
<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.
(5) OTHER MATTERS
Significant Customers - During the fiscal quarter ended March 29, 1998,
sales to Ingram Micro, Inc. accounted for approximately 14.3% of
consolidated sales. During the fiscal quarter ended March 30, 1997,
sales to Ingram Micro, Inc. accounted for 13.2% 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 March 29, 1998 outstanding forward exchange sales (purchase)
contracts, which all mature in June 1998, were as follows:
<TABLE>
Contracted
Currency Amount Forward Rate
<S> <C> <C>
Australian Dollar 100,000 1.49
British Pound (1,600,000) .60
Dutch Guilder (7,300,000) 2.05
French Franc (1,000,000) 6.10
German Mark (2,100,000) 1.82
Irish Punt (80,000) .73
Japanese Yen 550,000,000 127.25
Malaysian Ringgit (14,400,000) 3.61
Singapore Dollar (2,450,000) 1.60
Swiss Franc (2,500,000) 1.48
</TABLE>
<PAGE>
IOMEGA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 March 29, 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 $407.5 million and a net loss of $18.6 million, or
$(0.07) per diluted share, in the first quarter of 1998. This compares to sales
of $361.3 million and net income of $23.0 million, or $0.08 per diluted share,
in the first quarter of 1997. Management expects results in the range of a small
loss to breakeven for the second and third quarters of 1998 and expects to
return to profitability in the fourth quarter of 1998. However, there can be no
assurance that the expected results will be realized.
SALES
Sales for the three months ended March 29, 1998 increased by $46.2 million, or
12.8%, when compared to the corresponding period of 1997. Sales of Zip products
totaled $266.1 million representing a 24.3% increase from the first quarter of
1997. Jaz product sales in the first quarter of 1998 were $110.3 million which
is approximately equal to the comparable period of 1997. Ditto sales were $30.8
million representing a 13.9% decline from the first quarter of 1997. Total unit
drive shipments increased by 47% as compared to the first quarter of 1997. Zip
unit drive shipments increased by 61% and Jaz unit drive shipments increased by
20% while Ditto unit drive shipments decreased by 7%. Sales of Zip OEM drives
accounted for over 50% of total Zip drive shipments in the first quarter of 1998
compared to 22% in the first quarter of 1997. International aftermarket unit
volume decreased, while aftermarket unit volume in the Americas increased when
compared to the first quarter of 1997.
Sales in the Americas were $298.5 million or 73.3% of total sales, in the first
quarter of 1998, as compared to $227.0 million, or 62.8% of total sales, in the
first quarter of 1997. Sales in Europe were $89.3 million, or 22% of total
sales, in the first quarter of 1998, as compared to $107.2 million, or 29.7% of
total sales, in the first quarter of 1997. Sales in Asia were $19.8 million, or
4.8% of total sales, in the first quarter of 1998, as compared to $28.0 million,
or 7.7% of total sales, in the first quarter of 1997.
GROSS MARGIN
The Company's overall gross margin was 25.1% in the first quarter of 1998, as
compared to 29.7% in the first quarter of 1997. This decrease in gross margin
was due primarily to 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. In addition, decreased prices on Zip and Jaz products, as
compared to the first quarter of 1997, contributed to the decline in the gross
margin percentage. The ratios of disk sales to drive sales for both the Zip and
Jaz product lines were down slightly versus the first quarter of 1997, which
also contributed to the lower 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
<PAGE>
drives, and on the mix between disks and drives, and between Zip, Jaz and Ditto
products. Also, the Company's ability to realize future cost reductions will be
negatively impacted by the higher than desired levels of inventory at the end of
the first quarter as that inventory will be utilized before lower cost
components are incorporated in drive and disk products. Additionally, management
expects that the planned introduction of Clik! products 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $53.6 million in the
first quarter of 1998, when compared to the first quarter of 1997, and increased
as a percentage of sales to 26.5% in the first quarter of 1998 from 15.0% in the
first quarter of 1997. The increase was primarily due to substantial marketing
and advertising program expenditures in the first quarter of 1998 which
increased by approximately $20 million versus the first quarter of 1997. Other,
non-advertising related sales and marketing expenses increased by approximately
an additional $10 million, primarily due to international expansion and other
fixed and variable expenses. Spending on customer satisfaction programs
increased by approximately $10 million and other general and administrative
expenses, comprised mainly of information system expenditures, increased by
approximately $10 million. During the second quarter of 1998, the Company plans
to spend a substantial amount on advertising campaigns. The Company is currently
evaluating future advertising spending for the second half of 1998 in relation
to demand that is generated by the incremental expenses. Management is focused
on bringing selling, general and administrative expenses back to a range of 15%
to 20% of sales. However, there can be no assurance that 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 first quarter of 1998 increased by
$8.4 million, or 57%, when compared to the first quarter of 1997, and increased
as a percentage of sales to 5.7% in the first quarter of 1998, from 4.1% in the
first quarter of 1997. The increase was primarily the result of expenditures
related to the continued development and enhancement of Zip, Jaz and Ditto
products lines, as well as continued development expenses related to new
products, including Clik! and Buz. Management is targeting the level of spending
for research and development during the remainder of 1998 to be in the range of
between 3% to 5% of sales to support planned new product development and
existing product enhancements. However, there can be no assurance that efforts
to reduce the percentage of sales represented by research and development
expenses will be successful.
OTHER INCOME AND EXPENSE
The Company recorded interest income of $1.7 million in the first quarter of
1998, as compared to $1.1 million in the first quarter of 1997, due to increased
average cash balances during the first quarter of 1998. Interest expense was
$1.2 million in the first quarter of 1998, as compared to $2.5 million in the
<PAGE>
first quarter of 1997. The decrease in interest expense was primarily due to
decreased average borrowings outstanding during the first quarter of 1998,
resulting in large part from the repayment during March 1997 of amounts borrowed
under a European financing agreement, 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, royalty income,
gains and losses on disposal of assets and foreign currency gains and losses.
INCOME TAXES
For the first three months of 1998, the Company recorded an income tax benefit
of $9.9 million, representing an effective income tax rate of 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., could
impact the Company's effective tax rate.
SEASONALITY
The Company's Zip products are targeted to the retail consumer market and to
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.
LIQUIDITY AND CAPITAL RESOURCES
At March 29, 1998, the Company had cash and cash equivalents of $80.5 million,
working capital of $331.3 million, and a ratio of current assets to current
liabilities of 1.9 to 1. During the first three months of 1998, the Company used
$121.2 million of cash for operating activities. The primary components of cash
used for operating activities were the net operating loss, increased inventory
and reductions in accounts payable and accrued liabilities that were partially
offset by decreases in accounts receivable. Inventory increased by $67.2 million
due primarily to lower than anticipated sales in the first quarter of 1998 and
the fourth quarter of 1997. Inventory turns were 3.9 for the first quarter of
1998 as compared to 6.5 for the first quarter of 1997. Management expects
inventory levels to decrease and inventory turns to increase in future quarters.
However, there can be no assurance as to the success or the timing of the
intended reductions in inventory levels or increases in inventory turns.
Accounts payable decreased by $37.6 million, due primarily to
<PAGE>
timing of inventory receipts and related payments to vendors. Accrued
liabilities decreased by $15.0 million due primarily to decreases in accrued
payroll and related liabilities. These uses of cash were partially offset by a
$30.9 million decrease in net accounts receivable, due primarily to decreased
sales and the timing of sales and collections during the respective periods. The
Company generated $12.3 million of cash in investing activities during the first
quarter of 1998, primarily from the sale of temporary investments that was
partially offset by the purchase of property, plant and equipment. Cash provided
by financing activities totaled $29.5 million during the first quarter of 1998,
and included $30.0 million of proceeds from borrowings on the Company's Credit
Facility, and proceeds of $1.4 million from sales of Common Stock, partially
offset by $1.5 million in net payments on capitalized lease obligations.
On March 11, 1997, the Company entered into a $200 million Senior Secured Credit
Facility ("Credit Facility") with Morgan Guaranty Trust Company of New York,
Citibank, N.A. and a syndicate of other lenders. During January 1998, the
Company amended the Credit Facility. The amended Credit Facility is a three-year
unsecured revolving line of credit from the amendment date. Borrowings under the
Credit Facility were limited to $200 million for the first quarter of 1998 and
thereafter are limited to the lesser of 70% of the prior quarter's eligible
accounts receivable or $200 million. Under the Credit Facility, the Company may
borrow at a base rate, which is the higher of prime or federal funds plus a
margin of 0.0% to 0.38% , depending on the Company's debt-to-equity ratio, or at
LIBOR plus a margin of 1.0% to 1.75%, depending on the Company's debt-to-equity
ratio. Total availability under the Credit Facility at March 29, 1998 was $200
million, of which $30 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. Prior to March 29, 1998 the Company requested, and on March
29, 1998 received, a one-quarter waiver of a covenant within the Credit Facility
requiring cash conversion days to be 80 days or less. Cash conversion days in
the first quarter of 1998 were 83 days. The Company was in compliance with all
applicable covenants as of March 29, 1998. 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 required 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 March 29,
1998 were $5.3 million and $2.9 million, respectively. During March 1997, the
Company repaid all amounts outstanding under its agreement with a German
commercial bank that involved the factoring of a portion of the Company's
European accounts receivable. 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.
<PAGE>
The Company had $45.7 million of convertible subordinated notes outstanding at
March 29, 1998, which bear interest at 6.75% per year and mature on March 15,
2001. Additions to property, plant and equipment during the first quarter of
1998 totaled $25.3 million, partially offset by $1.2 million in proceeds from
capital leases.
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, the precise
amount and timing of the Company's future financing needs, if any, 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.
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, the Company's future operating results will
depend in large part on the ability of those products to attain widespread
market acceptance. Although the Company believes there is a market demand for
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, including: the price, performance, quality and other characteristics of
the Company's products and of competing solutions or media for use with the
Company's drives (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.),
products of Nomai S.A., the new 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 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 the 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 regarding problems
or perceived problems experienced in using the Company's products 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. In addition, component problems,
<PAGE>
shortages, quality issues or other factors affecting the supply of the Company's
products could limit the Company's sales and provide an opportunity for
competing products to achieve market acceptance. For example, sales were
adversely affected during the second and third quarters of 1997 due to a
shortage of certain integrated circuits for Zip drives and supplier quality
problems, and were adversely affected in the fourth quarter due to a shortage of
components for notebook Zip drives that became commercially available during
November 1997 and may also be adversely affected for these and similar reasons
in the future.
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 (see "Legal Proceedings"). As the
Company's mix of drive sales between OEM and retail customers continues to shift
towards a higher percentage of OEM sales, the ratio of disk sales to drive sales
are expected to continue to decrease from the levels experienced for 1997, which
could have an adverse effect on gross margin and net income.
Future market demand for the Company's products cannot be predicted with
certainty. Sales of Zip products in 1997 and the first quarter of 1998 were the
primary reasons for 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 quarter 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. For
example, in the first quarter 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 quarter.
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.
<PAGE>
During the second quarter of 1998, the Company plans to spend a substantial
amount on print and television advertising campaigns which are designed to
create greater consumer awareness of and demand for both its aftermarket and OEM
drives and to educate users on the potential uses for multiple disks so as to
increase demand for disks. The Company is currently evaluating future
advertising spending for the second half of 1998 in relation to demand that is
generated by the incremental expenses. Management cannot predict the success or
failure of these marketing efforts. To the extent that the increased spending
does not generate additional demand, the spending would have an adverse effect
on net income. Additionally, in order to help offset the expenses associated
with the additional advertising, the Company has delayed or is planning to delay
certain price decreases that would have otherwise been effected earlier in 1998.
This strategy to delay price decreases could allow competing solutions to gain
market share.
The Company has significant international operations with sales transactions
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 quarter
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.
A significant portion of the Company's revenues are currently being 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 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.
All of the factors described above for Zip and Jaz products are, or will be,
relevant to Clik!. In addition to such factors, demand from digital camera and
other consumer electronics manufacturers will affect the extent to which Clik!
achieves a significant market presence. The Company will be entering into
additional or alternate channels with the introduction of Clik!. Because the
Company does not have prior experience in these new channels, there could be
additional risk that the Company or product will not be successful.
<PAGE>
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, including ZipPlus, the 15mm and 12.7mm
notebook Zip drives, the Jaz 2 GB drive, the Ditto Max and Ditto Max
Professional multiple capacity drives, Clik!, and Buz. 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 2GB product, previously 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.
James E. Sierk, a member of the Company's Board of Directors, has assumed the
role of interim President and Chief Executive Officer while the Company conducts
a search for a new President and Chief Executive Officer. The Company is also
seeking to fill a number of other key management vacancies, including the
appointment of General Managers of the Company's Europe and Mobile Storage
Divisions. There can be no assurance that the Company will be successful in
attracting and/or retaining key employees.
The Company is currently in the process of transitioning to new computer
hardware and software for its financial, accounting, inventory control, order
processing, supply chain management and other management information systems.
The successful implementation of these new systems is crucial to the efficient
operation of the Company's business. There can be no assurance that the Company
will implement its new systems in an efficient and timely manner or that the new
systems will be adequate to support the Company's operations. Problems with
installation or 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. In addition to addressing the Company's
increased computing needs, the Company's transition to new computer hardware and
software systems will achieve Year 2000 compliance for these systems. The
Company has incurred approximately $20 million related to the transition to the
new computer hardware and software systems of which approximately 50% was
capitalized and approximately 50% was expensed. The Company estimates it will
incur an additional $10 million for this transition of which approximately 50%
will be capitalized and approximately 50% will be expensed.
<PAGE>
In general, the Company expects to resolve Year 2000 issues affecting its
internal use software through planned replacement or upgrades of its software
applications and hardware with a goal of having all internal systems Year 2000
compliant by the end of 1998.
In addition to addressing Year 2000 compliance for its own internal use systems,
the Company is addressing other "Year 2000 issues" on several different fronts.
The Company is in the process of assessing all Iomega-branded products for Year
2000 compliance. The Company has assigned a team to monitor and determine
product compliance. Additionally, the Company has requested Year 2000 compliance
certification from each of its major vendors and suppliers for their hardware or
software products and for their internal business applications and processes.
Achieving Year 2000 compliance is dependent on many factors, some of which are
not completely within the Company's control. Should either the Company's
internal systems or the internal systems of one or more significant vendors or
suppliers fail to achieve Year 2000 compliance, the Company's business, results
of operations or financial condition could be adversely affected. In addition,
there can be no assurance that the Company will not become the subject of
lawsuits regarding the failure of any of the Company's products (former or
present) to be Year 2000 compliant. Any such suits, if adversely determined,
could have a material adverse affect on the Company's business, results of
operation or financial condition.
Other factors 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 growth and an increasingly complex business,
transportation issues, product and component pricing, competition, intellectual
property rights, litigation (see "Legal Proceedings"), general economic
conditions and changes or slowdowns in overall market demand for personal
computer products.
<PAGE>
IOMEGA CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Except as set forth below, 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.
As described in prior filings by the Company, including its Annual Report on
Form 10-K for 1997, the Company is engaged in ongoing litigation in several
jurisdictions against Nomai S.A., a French company, Nomai's U.S. subsidiary and
several Nomai distributors in connection with Nomai's XHD disk products, which
Nomai claims to be compatible with certain of the Company's Zip drives, and a
disk product planned by Nomai, but not yet introduced, purportedly for use with
the Company's Jaz drives, and in connection with various claims asserted by
Nomai, including claims of patent and copyright invalidity, abuse of dominant
position, and improper patent markings and warranty terms in Germany. The
principal ongoing proceedings are as follows:
Iomega Corporation v. Nomai S.A. filed in the Paris District Court on March 25,
1997 and on September 30, 1997; Nomai S.A. v. Iomega International S.A. and
Iomega Corporation filed in the District Court of Hamburg on October 13, 1997;
Nomus, Inc., and Nomai S.A. v. Iomega Corporation filed in the United States
District Court for the Northern District of California on October 15, 1997, and
amended counterclaims in such action filed by Iomega on December 17, 1997; a
confidential complaint submitted by Nomai S.A. against Iomega Corporation on
October 15, 1997, to the European Commission in Brussels; Iomega Corporation v.
Mac and More Limited, Nomai S.A. and Marc-Andre Frouin filed in the London High
Court of Justice Chancery Division on October 29, 1997, and Iomega Corporation
v. Nomai S.A. filed in the London High Court of Justice Chancery Division on
March 9, 1998; Iomega Corporation v. Nomai S.A. filed in the Paris District
Court on November 12, 1997, (with respect to Nomai's so-called "DUO" product in
development that purports to be compatible with Iomega Jaz drives); Iomega
Corporation v Triangel Computer GmbH filed in the Dusseldorf District Court on
November 19, 1997; Iomega Corporation v. Prutting (MediaCom) filed in the
Mannheim District Court on November 12, 1997; Iomega Corporation v. Speirings
Computers & Supplies B.V. and Nomai S.A. filed in the Amsterdam Regional Court
on December 24, 1997, and counterclaims in such action filed by the defendants
on January 28, 1998; Iomega Corporation v. boeder Deutschland GmbH filed in the
Frankfurt District Court on December 11, 1997 and on February 6, 1998; Nomai
S.A. v. Misco Germany, Inc. filed in the Frankfurt District Court on January 16,
1998 and Iomega Corporation v. Nomai S.A., et al. filed in the Federal Court of
Australia Victoria District, Registry General Division on March 6, 1998.
In these proceedings the Company has maintained that Nomai's products infringe
the Company's copyrights, patents, trademarks or other intellectual property
rights and/or that Nomai and its distributors have engaged in unfair competition
or passing off. Nomai has denied such infringement, contested the validity of
the underlying intellectual property right and/or denied such unfair competition
and passing off, and in certain European proceedings has asserted antitrust
claims against the Company. The Company has also applied for declaratory relief
against Nomai in respect of certain antitrust allegations under English and
European law. The proceedings are at various stages. In a number of the
proceedings, the court has declined to enjoin preliminarily or to continue to
enjoin preliminarily sales of the XHD cartridge, subject in many cases to
certain restrictions on advertising claims made with respect to XHD cartridges,
or on use by Nomai or its distributors of Iomega trademarks and/or logos. In
<PAGE>
February 1998, the Amsterdam Regional Court issued a preliminary order requiring
the Company to remove the light baffle from notebook Zip drives in the
possession of European Union distributors and enjoining Iomega from including in
Zip drives, sold in the future in the European Union market, any device which
has no purpose other than to prevent the compatibility of the XHD disks with Zip
storage systems. The court also preliminarily enjoined Nomai from using certain
graphics in its packaging. The Company has appealed this preliminary order and,
pending a final decision by the appellate court, Nomai and the Company have
agreed not to enforce the preliminary order.
An adverse outcome in these proceedings could result in the continuing sale by
Nomai in one or more countries, or the introduction for sale in the United
Kingdom (or other countries where the product is not presently offered for
sale), of a disk product claimed to be compatible with certain Zip drives, and
could result in the introduction and sale by Nomai of a disk product claimed to
be compatible with the Company's Jaz drives. Any such continuing sales or
introductions would adversely affect the Company's sales and would have a
disproportionately negative effect on the Company's net income. Such adverse
effects could be material. In addition, Nomai has asserted various antitrust
claims against the Company, which if decided against the Company could
materially and adversely affect the Company.
On July 23, 1997, the Company initiated litigation against SyQuest Technology,
Inc. ("SyQuest") 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 is scheduled for trial in January 1999. On March 6,
1998, the Company also initiated litigation against SyQuest, its French
subsidiary and a French distributor of SyQuest products, in the Paris District
Court, based on claims of copyright and patent infringement. On April 29, 1998,
the Company initiated a second suit against SyQuest and its French subsidiary in
the Paris District Court based on claims of infringement by SyQuest's SparQ
product.
The Company continues to be committed to vigorously protecting and enforcing its
intellectual property rights and to attacking unfair competition in the
proceedings referenced above.
During 1997, two consumer class-action suits against the Company, Pizzimenti, et
al. v. Iomega Corporation, filed in the Chancery Court of the State of Delaware
in and for New Castle County on March 10, 1997, relating to administration of
consumer rebate programs and Cox v. Iomega Corporation, filed in the Chancery
Court of the State of Delaware in and for New Castle County on July 16, 1997,
relating to technical support, were settled. A settlement of the rebate related
Pizzimenti class-action suit was approved by the Chancery Court on March 24,
1998, and a settlement of the technical support related Cox class-action suit
was approved by the Chancery Court on April 3, 1998. The Company has also
responded to inquiries received from the Federal Trade Commission relating to
certain rebate and registration card programs and certain product
advertisements. The Company is engaged in discussions with the Commission staff
concerning alleged violations by the Company of the FTC Act and the Mail Order
Rule and is attempting to reach a resolution with the Commission that would
avoid the necessity of litigating these matters. In the event such discussions
do not lead to a mutually acceptable resolution, management of the Company does
not believe an adverse outcome in any resulting litigation would be material.
<PAGE>
Beginning on February 10, 1998, several purported class-action complaints were
filed in the United States District Court for the District of Utah against the
Company and certain of its officers on behalf of certain persons who purchased
the Company's common stock during the period from September 22, 1997 to January
22, 1998. The complaints allege that the Company and certain of its officers
violated certain federal securities laws. The complaints seek an unspecified
amount of damages. Management believes that the named defendants have highly
meritorious defenses to the allegations made in the lawsuits and the Company
intends to vigorously defend against such allegations.
On February 25, 1998, the Company was served with a complaint in a purported
class action filed in the Supreme Court of the State of New York, entitled
Christian Champod v. Iomega Corporation. The named plaintiff claims to have
commenced the action on behalf of a purported class consisting of certain
persons who purchased Iomega Ditto tape drives since February 18, 1992, and a
subclass consisting of such purchasers who called the Company's "800" or "888"
telephone number for technical assistance and/or customer service and were
charged a fee for the call. The complaint claims violations of certain
provisions of the New York General Business Law and fraudulent inducement, based
on, among other things, alleged advertising and product packaging
representations regarding the Ditto products' ability to "read" certain
non-Ditto cartridges. Additionally, the complaint alleges that Iomega's product
packaging, indicating that a customer could call a toll free "800" or "888"
telephone number for technical assistance, implicitly, but falsely, represented
that the customer could receive free telephone technical support. It is the
Company's belief that these latter claims, at least through September 1, 1997,
i.e., the end of the class period for the Cox action discussed above, have been
released pursuant to the settlement of the Cox action. As for the remainder of
the action, the Company is assessing the maintainability of the suit as a class
action and intends to defend itself vigorously against the claims asserted.
Item 2. Change in Securities and Use of Proceeds
The Company did not sell any equity securities during the first quarter of 1998
that were not registered under the Securities Act of 1933.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Stockholders was commenced on April 21, 1998.
The following proposals were adopted by the vote specified below:
<TABLE>
Against/ Broker
Proposal For Withheld Abstain Non-Votes
<S> <C> <C> <C> <C>
1. Election of Directors:
David A. Duke 230,183,138 4,901,770 - -
David J. Dunn 229,519,378 5,565,530 - -
James E. Sierk 230,648,817 4,436,091 - -
2. Approval of amendments to
the Company's 1995
Director Stock Option Plan. 219,241,317 13,981,901 1,860,687 1,003
3. Approval of the Company's
1998 Employee Stock
Purchase Plan and 1998
International Employee
Stock Purchase Plan and
reservation of 3,000,000
shares of Common Stock
for issuance thereunder. 225,346,563 8,117,819 1,619,526 1,000
4. Ratification of Arthur
Andersen LLP as
Independent Auditors 231,724,940 2,450,658 909,310 -
</TABLE>
In addition to the three directors listed above who were elected at the meeting,
the terms of the following directors continued after the meeting: John E. Nolan,
The Honorable John E. Sheehan, Robert P. Berkowitz, John R. Myers, Kim B.
Edwards, Willem H. J. Andersen and Michael J. Kucha. Messrs. Edwards, Andersen
and Kucha resigned as directors effective April 21, 1998.
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. The Company filed a current report on Form 8-K dated
March 27, 1998 incorporating under Item 5 (Other Events) a press release
issued by the Company on March 25, 1998 entitled "Iomega Chief Executive
Officer Resigns".
<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/ James E. Sierk
---------------------
Dated: May 11, 1998 James E. Sierk
President and Chief Executive Officer
/s/ Leonard C. Purkis
----------------------
Dated: May 11, 1998 Leonard C. Purkis
Senior Vice President, Finance
and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
<TABLE>
Exhibit No. Description
<S> <C>
10.14(d) Waiver of Credit Agreement dated March 29, 1998.
10.18 Letter Agreement between the Company and James E. Sierk dated
March 25, 1998.
10.19(a) Severance Agreement and General Release between the Company
and Kim B. Edwards dated April 15, 1998.
10.19(b) Secured Promissory Note dated April 15, 1998.
10.19(c) Pledge Agreement between the Company and Kim B. Edwards dated
April 15, 1998.
10.19(d) Non-Competition and Non-Recruitment Agreement between the
Company and Kim B. Edwards dated April 15, 1998.
27 Financial Data Schedule (only filed as part of electronic copy).
</TABLE>
WAIVER OF CREDIT AGREEMENT
WAIVER dated as of March 29, 1998 to the Amended and Restated Credit
Agreement dated as of January 23, 1998 (the Credit Agreement) among IOMEGA
CORPORATION (the Borrower), the BANKS party thereto (the Banks), CITIBANK, N.A.,
as Administrative Agent and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Documentation Agent (the Documentation Agent).
W I T N E S S E T H :
The parties hereto agree as follows:
SECTION 1. Defined Terms; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Credit Agreement
has the meaning assigned to such term in the Credit Agreement. Each reference to
hereof, hereunder, herein and hereby and each other similar reference and each
reference to this Agreement, and each other similar reference contained in the
Credit Agreement shall, after this Amendment becomes effective, refer to the
Credit Agreement as amended hereby.
SECTION 2. Waiver of Maximum Cash Conversion Days Covenant. The Banks
waive compliance with Section 5.14 of the Credit Agreement for the Fiscal
Quarter ended March 29, 1998, provided that Cash Conversion Days for such Fiscal
Quarter do not exceed 100.
SECTION 3. Governing Law. This Waiver shall be governed by and construed in
accordance with the laws of the State of New York.
SECTION 4. Counterparts. This Waiver may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
SECTION 5. Effectiveness. This Waiver shall become effective as of the
date hereof on the date when the Documentation Agent shall have received (i)
from each of the Borrower and the Required Banks a counterpart hereof signed by
such party or facsimile or other written confirmation (in form satisfactory to
the Documentation Agent) that such party has signed a counterpart hereof and
(ii) from the Borrower for the account of each Bank which has signed this Waiver
a waiver fee of .05% of such Bank=s Commitment on such date.
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be
duly executed as of the date first above written.
IOMEGA CORPORATION
By: /s/ Robert J. Simmons
Name: Robert J. Simmons
Title: Vice President and Treasurer
CITIBANK, N.A.
By: /s/ Carolyn A. Kee
Name: Carolyn A. Kee
Title: Attorney-in-Fact
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ John M. Mikolay
Name: John M. Mikolay
Title: Vice President
FLEET NATIONAL BANK
By: /s/ William E. Rurode, Jr.
Name: William E. Rurode, Jr.
Title: Senior Vice President
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION
By: /s/ Kevin Mc Mahon
Name: Kevin Mc Mahon
Title: Managing Director
<PAGE>
FIRST SECURITY BANK, N.A.
By: /s/ Taft G. Meyer
Name: Taft G. Meyer
Title: Vice President
KEYBANK NATIONAL ASSOCIATION
By: /s/ Richard J. Ameny, Jr.
Name: Richard J. Ameny, Jr.
Title: Assistant Vice President
ABN AMRO BANK N.V.
By: /s/ Janice Dillon
Name: Janice Dillon
Title: Vice President
By: /s/ Richard R. DaCosta
Name: Richard R. DaCosta
Title: Vice President
<PAGE>
THE SUMITOMO TRUST & BANKING
CO., LTD., LOS ANGELES AGENCY
By: /s/ Tsukasa Tanigawa
Name: Tsukasa Tanigawa
Title: Vice President & Manager
THE NORTHERN TRUST COMPANY
By: /s/ Jaron Grimm
Name: Jaron Grimm
Title: Vice President
ISTITUTO BANCARIO SAN PAOLO DI
TORINO S.P.A
By: /s/ Robert Wurster
Name: Robert Wurster
Title: First Vice President
By: /s/ Carlo Persico
Name: Carlo Persico
Title: DGM
THE SANWA BANK, LIMITED, LOS
ANGELES BRANCH
By:
Name:
Title:
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Tai M. Pham
Name: Tai M. Pham
Title: Vice President
IOMEGA CORPORATION
1821 West 4000 south
Roy, Utah 84067
March 25, 1998
Mr. James E. Sierk
Henderson, Nevada 89011
Dear Jim:
This letter will serve as the agreement between Iomega Corporation
("Iomega") and you regarding the following:
1. Effective March 24, 1998, you will serve as Interim President and
Chief Executive Officer of Iomega. You will serve in that capacity until
the earlier of (a) the date that Iomega employs a new Chief Executive
Officer or (b) March 25, 1999.
2. In consideration of your services, Iomega agrees to the following:
(a) Initial Shares. Effective March 25, 1998, Iomega will issue
to you (from its treasury) that number of shares of common stock of
Iomega ("Initial Shares") equal to the quotient of $360,000 divided by
the closing price of the common stock of Iomega ("Iomega Stock") on
the New York Stock Exchange ("Exchange") on March 25, 1998.
(b) Monthly Shares. On October 25, 1998 and on the 25th day of
each of the succeeding five months thereafter (each such 25th day, an
"Award Date"), Iomega will issue to you (from its treasury) that
number of shares of Iomega Stock ("Monthly Shares") equal to the
quotient of $60,000 divided by the closing price of Iomega Stock on
the Exchange on the applicable Award Date, provided, however, that
each award of Monthly Shares shall be subject to your continued
service, on the applicable Award Date, as Interim President and Chief
Executive Officer of Iomega. Iomega's obligation to issue Monthly
Shares to you on each Award Date shall terminate from and after the
date that you cease serving as Interim President and Chief Executive
Officer of Iomega (whether such cessation is voluntary or
involuntary). In the event you cease serving as Interim President and
Chief Executive Officer of Iomega between the 25th day of one month
and the 25th day of the succeeding month, you will be entitled to a
prorata portion of the shares that you would have otherwise received
had you continued to serve for the entire monthly period, such prorata
portion to be determined by multiplying $60,000 by a fraction of which
the numerator is the number of days served during that period and the
denominator is 30, and the "Award Date" for this purpose shall be the
date that you cease serving as Interim President and Chief Executive
Officer.
<PAGE>
Mr. James E. Sierk
March 25, 1998
Page 2
(c) Initial Option Grant. Effective March 25, 1998, Iomega will
grant to you a non-statutory stock option for the purchase of 50,000
shares of Iomega Stock pursuant to the terms of Iomega's 1997 Stock
Incentive Plan ("Initial Option Grant") exercisable at a price per
share equal to the closing price of the Iomega Stock on the Exchange
on March 25, 1998. The Initial Option Grant may be exercised by you
after, but not prior to, March 25, 1999.
(d) Monthly Option Grant. On April 25, 1998 and on the 25th day
of each of the succeeding eleven months thereafter (each such 25th
day, an "Option Grant Date"), Iomega will grant you a non-statutory
stock option for the purchase of 7,500 shares of Iomega Stock
("Monthly Option Grant"), provided, however, that each Monthly Option
Grant shall be subject to your continued service, on the applicable
Option Grant Date, as Interim President and Chief Executive Officer of
Iomega. Each such option shall be exercisable at a price per share
equal to the closing price of Iomega Stock on the Exchange on the
applicable Option Grant Date. Each Monthly Option Grant may be
exercised by you after, but not before, the expiration of the
twelve-month period following the applicable Option Grant Date.
Iomega's obligation to grant you a Monthly Option Grant on each Option
Grant Date shall terminate from and after the date you cease serving
as Interim President and Chief Executive Officer of Iomega (whether
such cessation is voluntary or involuntary). In the event you cease
serving as Interim President and Chief Executive Officer of Iomega
between the 25th day of one month and the 25th day of the succeeding
month, you will be entitled to a prorata portion of the Monthly Option
Grant that you would have otherwise received had you continued to
serve for the entire monthly period, such prorata portion to be
determined by multiplying 7,500 by a fraction of which the numerator
is the number of days served during that period and the denominator is
30, and the "Option Grant Date" for this purpose shall be the date
that you cease serving as Interim President and Chief Executive
Officer.
3. In the event that you are continuing to serve as Interim President
and Chief Executive Officer on March 25, 1999, Iomega agrees that you shall
be entitled to participate in the Iomega Executive Bonus Plan, based upon
the performance of Iomega for the last three quarters of 1998 and the first
quarter of 1999.
4. If required, Iomega agrees to register for resale the shares of
Iomega Stock issued pursuant to Section 2(a) and 2(b) under the federal
securities laws.
<PAGE>
Mr. James E. Sierk
March 25, 1998
Page 3
If this letter accurately sets forth the terms and provisions regarding
your service as Interim President and Chief Executive Office, please sign the
duplicate copy of this letter and return it to me, whereupon (i) this letter
will constitute a binding agreement between Iomega and you and (ii) Iomega will
deliver to you a certificate for the Initial Restricted Shares described in
Section 2(a) and a stock option agreement for the Initial Option Grant described
in Section 2(c).
Very truly yours,
AGREED AND ACCEPTED IOMEGA CORPORATION
/s/ James E. Sierk By /s/ David J. Dunn
James E. Sierk David J. Dunn
Chairman of the Board
Severance Agreement and General Release
1. This Severance Agreement and General Release ("Agreement") is entered into
by and between Iomega Corporation, a Delaware corporation with its
principal headquarters in Roy, Utah, on behalf of itself and each of its
subsidiaries ("Iomega" or the "Company"), and Kim B. Edwards ("Edwards")
for the purposes of amicably concluding their employment relationship. By
entering into this agreement neither party admits any deficiency,
wrongdoing or liability, expressly or by implication.
2. Edwards and Iomega hereby agree as follows:
(1) Edwards ceased to serve as an executive officer of the Company
effective March 24, 1998 upon his resignation as President and Chief
Executive Officer of the Company. Edwards will cease to be employed by
the Company effective April 15, 1998 (the "Termination Date").
(2) On the Termination Date, Iomega will pay Edwards a lump-sum amount of
$500,000, less any required and authorized payroll deductions and any
applicable withholding requirements. Such payment represents Edwards'
compensation as an employee for the period from March 24, 1998 until
the Termination Date and a severance allowance.
(3) Until March 25, 1999, Iomega will continue to provide healthcare,
dental, optical and insurance benefits (to the extent permitted under
the applicable policies) to Edwards and his family which are
substantially equivalent to those being provided to Edwards and his
family as of March 24, 1998; provided, however, that if Edwards
becomes employed prior to March 25, 1999 and is eligible to receive a
particular type of benefits (e.g., healthcare) from his new employer
on terms substantially as favorable to Edwards and his family as those
being provided by the Company, then the Company shall no longer be
required to provide those particular benefits to Edwards and his
family.
(4) Until the earlier of (i) the date on which Edwards commences
employment with another employer or (ii) March 25, 1999, Iomega will
provide Edwards with the following outplacement and administrative
support services: (1) continued use of the home computer, laptop
computer and home fax machine previously provided to Edwards by the
Company; (2) continued use of Edwards' current Company-provided cell
phone and AT&T phone credit card for Iomega and job search related
calls with Iomega to pay the charges; (3) continued use of the
Company's voice mail and e-mail systems in accordance with Company
policies; (4) office supplies, postage and limited secretarial support
to be coordinated by Juanita Kosoff or another executive
administrative assistant designated by the Company; (5) continued use
of Edwards' corporate American Express card, provided Edwards shall
have full and exclusive responsibility for the payment of all charges
made to the card; (6) reimbursement of up to $10,000 of job
search-related transportation expenses not reimbursed by the
prospective employer; and (7) subscriptions sent to Edwards' home for
the periodicals previously identified by Edwards to the Company.
Edwards shall promptly notify Iomega upon commencing employment with
another employer.
<PAGE>
(5) Except as otherwise provided in this Agreement, no bonuses or other
incentive compensation will be due or paid to Edwards. All
unreimbursed travel and business expenses for which Edwards is
entitled to reimbursement as of the Termination Date will be promptly
paid to Edwards after submission of expense reports in accordance with
standard Iomega policy.
(6) Edwards acknowledges and agrees that under the terms of any
outstanding stock option agreement(s) between Edwards and the Company,
the vesting of any options to purchase shares of the Company's Common
Stock granted to Edwards will cease as of the Termination Date, and
Edwards has a period of three months following the Termination Date
within which to exercise any options which were vested as of the
Termination Date. Any options not exercised within said three-month
period shall expire and thereafter not be exercisable.
(7) On the Termination Date, Iomega shall issue to Edwards 40,000 shares
of Common Stock (representing one-half of the total number of share
remaining unissued under Edwards' 1995 bonus arrangement) at a
purchase price per share equal to par value. Edwards may pay the
aggregate purchase price of $1,333 (40,000 x 0.03a) and required
withholding taxes with respect to such 40,000 shares by surrendering
to Iomega shares of Common Stock having a fair market value equal to
the purchase price and withholding taxes. Edwards acknowledges that he
shall have no right to receive the other 40,000 shares remaining
unissued under his 1995 bonus arrangement.
(8) On the Termination Date, Iomega shall loan $5,000,000 to Edwards on
the terms set forth in the form of Secured Promissory Note attached
hereto as Exhibit A. No proceeds from such loan shall be used by
Edwards to pay the exercise price of any stock options. Edwards'
obligations under the Promissory Note shall be secured pursuant to a
Pledge Agreement in the form attached hereto as Exhibit B.
(9) Edwards and Iomega shall, simultaneously with the execution hereof,
and as a condition to the effectiveness hereof, enter into a
Non-Competition and Non-Recruitment Agreement in the form attached
hereto as Exhibit C.
<PAGE>
(10) All amounts paid to Edwards hereunder will be subject to any required
and authorized payroll deductions and any applicable withholding
requirements.
3. Edwards may elect optional health insurance continuation under COBRA
following the Termination Date at Edwards' expense. Procedures for electing
to continue such benefits will be provided under separate cover by the
Human Resources Department.
4. Edwards acknowledges that the payments and benefits described in this
Agreement exceed any amount to which Edwards would be entitled under
Iomega's standard policies, procedures and benefit programs and that such
payments and benefits are in lieu of any amounts to which he may otherwise
have been entitled to receive pursuant to a certain letter agreement dated
November 29, 1993, which letter agreement is hereby terminated. In
consideration for entering into this Agreement and for the payments and
benefits described herein, and subject to the terms and conditions of this
Agreement, (i) Iomega Corporation, its subsidiaries and each of their
respective officers, directors, successors and assigns, hereby release and
forever discharge Edwards, his heirs, legal representatives, estates and
successors in interest and (ii) Edwards, his heirs, legal representatives,
estates and successors in interest hereby release and forever discharge
Iomega Corporation, its subsidiaries and each of their respective officers,
directors, employees, successors and assigns from any and all claims,
demands, obligations and causes of action of any and every kind, known or
unknown, which the releasing parties may have against the released parties
as of the date and time of signing this Agreement which arise out of
Edwards' employment by Iomega or the termination of that employment,
including without limitation all wrongful discharge actions; all actions
arising under the Americans with Disabilities Act, 42 U.S.C., ' 12101 et
seq., the Age Discrimination in Employment Act, 29 U.S.C., ' 621 et seq.,
Title VII of the Civil Rights Act of 1964, 42 U.S.C. ' 2000e et seq., and
the Utah Anti-Discrimination Act, Utah Code Ann '34-35-1, et seq. or any
other federal or state statute which may be held applicable; all actions
for breach of contract or the covenant of good faith and fair dealing; all
tort claims; and any and all claims for compensation, wages, bonuses,
severance pay, commissions, vacation pay, or reimbursement for expenses,
attorneys' fees and costs, except for claims for workers' compensation
insurance benefits. Notwithstanding the foregoing, nothing in this
Agreement shall be construed as a waiver or release of rights to enforce
the provisions of this Agreement (including the exhibits referred to
herein).
THIS MEANS THAT BY SIGNING THIS AGREEMENT, EACH PARTY WILL HAVE WAIVED ANY
RIGHT TO BRING A LAWSUIT AGAINST THE OTHER PARTY BASED ON ANY ACTIONS TAKEN
BY ANY OF THEM UP TO THE DATE AND TIME OF SIGNING THIS AGREEMENT, AND THAT
THE PARTIES WILL HAVE RELEASED EACH OTHER FROM ANY AND ALL CLAIMS OF ANY
NATURE RELATING TO EDWARDS' EMPLOYMENT, ARISING UP TO THE DATE AND TIME OF
SIGNING THIS AGREEMENT.
<PAGE>
The parties acknowledge that this is a full and final release, and that
they intend and expressly agree that it shall be effective as a bar to each
and every claim, demand and cause of action each party has against the
other party as of the date of this Agreement with respect to Edwards'
employment with the Company.
5. Iomega acknowledges and agrees that the Indemnification Agreement dated
January 1, 1994 between Iomega and the Employee shall remain in full force
and effect in accordance with its terms. Edwards agrees to reasonably
cooperate with and assist Iomega in matters relating to, or arising in
connection with, any pending or future litigation in which the Company is
or may become involved.
6. Edwards understands and acknowledges his continuing obligations toward
Iomega under the non-disclosure agreement he previously executed, a copy of
which is attached hereto as Exhibit D ("Nondisclosure Agreement"). Edwards
further agrees that any and all information obtained by or disclosed to him
at any time during his employment with Iomega which is not generally known
outside of Iomega on an unrestricted basis, including but not limited to
information concerning Iomega's products, research and development
projects, customers, prospects, discounts, unreleased products, methods of
operation, processes, practices, programs and procedures, are confidential
and proprietary to Iomega and subject to protection under the Nondisclosure
Agreement and under applicable law. Edwards expressly acknowledges that the
Company is prepared to vigorously enforce these promises, and that
violation of this provision could result in the assessment of damages and
other legal remedies against him and any of his subsequent employers. Any
breach by Edwards of this provision shall result in the immediate release
of the Company from any obligations it may have to provide further
payments, or benefits under this Agreement, or any agreement referenced
herein, except as may be required by applicable law.
7. In the event Edwards fails to return to Iomega any Company property, the
Company shall have the right to offset against payments or benefits owing
to Edwards hereunder the replacement value of any and all such unreturned
property. Edwards shall have the right to purchase from the Company the
home computer, laptop computer, home fax machine and other equipment
previously provided to him by the Company at a purchase price equal to the
depreciated book value of such equipment.
8. As further mutual consideration for this Agreement, the parties agree that
each party shall bear the cost of, and shall be responsible for its own
attorneys' and accountants' fees and costs, if any, in connection with the
negotiation and execution of this Agreement.
9. Edwards acknowledges that he has full responsibility for compliance with
all applicable obligations (including, but not limited to, all applicable
reporting obligations) under the Securities Exchange Act of 1934, as
amended, and all regulations thereunder, and any other applicable federal
and state securities laws and agrees to make all required filings and to
furnish the Company with any information the Company may reasonably request
to satisfy its obligations under the Securities Exchange Act of 1934, as
amended, and all regulations thereunder, and any other applicable federal
and state securities laws.
<PAGE>
10. This Agreement shall be governed by and construed in accordance with the
law of the State of Utah.
11. The parties agree that any dispute of any kind whatsoever arising from the
subject matter of this Agreement, including claims regarding this Agreement
(other than claims for workers' compensation benefits), shall be resolved
under the following procedure:
(1) The party claiming to be aggrieved shall furnish the other party,
within fifteen (15) days of the disputed action, a written statement
of the grievance identifying any witnesses or documents that support
the grievance and the relief requested or proposed. Edwards is
required to furnish the written statement of grievance to Iomega's
General Counsel.
(2) If the grievance is denied, the parties agree that the dispute shall
be resolved by final and binding arbitration. A single arbitrator
shall be mutually selected by the parties. If no agreement on the
selection is reached within fifteen (15) days, then a neutral
arbitrator shall be selected under the Expedited Labor Arbitration
Rules of the American Arbitration Association, except that the
arbitrator shall be selected by alternately striking names from the
panel of five (5) neutral labor or employment arbitrators designated
by the American Arbitration Association. The arbitrator shall have the
authority to grant the requested relief if authorized by law provided,
however, that nothing herein shall limit the right of Iomega to obtain
injunctive relief in a court of competent jurisdiction to prevent a
violation of the Nondisclosure Agreement or the Non-Competition and
Non-Solicitation Agreement.
(3) Arbitration shall be exclusive and final remedy for any dispute
between the parties, and the parties agree that no dispute shall be
submitted to arbitration where the party claiming to be aggrieved has
not complied with the preliminary steps provided for above.
12. This Agreement (including the exhibits referred to herein) constitutes the
entire understanding of the parties with respect to the subject hereof.
Edwards warrants that he: (a) has read and fully understands this
Agreement; (b) has had the opportunity to consult with legal counsel of his
own choosing and have the terms of this Agreement fully explained; (c) is
not executing this Agreement in reliance on any promises, representations
or inducements other than those contained herein; and (d) is executing this
Agreement voluntarily, free of any duress or coercion.
<PAGE>
I understand this document and have been given ample opportunity to consult with
someone whose opinion I trust before signing it. By my signature, I agree to the
terms set forth above.
Date: April 15, 1998 /s/ Kim B. Edwards
Kim B. Edwards
Date: April 15, 1998 IOMEGA CORPORATION
By: /s/ David J. Dunn
Name: David J. Dunn
Title:Chairman of the Board
Exhibit A - Secured Promissory Note
Exhibit B - Pledge Agreement
Exhibit C - Non-Competition and Non-Recruitment Agreement
Exhibit D - Nondisclosure Agreement
SECURED PROMISSORY NOTE
April 15, 1998
$5,000,000 Roy, Utah
FOR VALUE RECEIVED, Kim B. Edwards (the "Maker"), promises to pay to Iomega
Corporation or its assigns at the principal offices of Iomega Corporation or at
such other place as Iomega Corporation or its assigns may designate, the
principal sum of Five Million Dollars ($5,000,000.00), together with interest on
the unpaid principal balance of this Note from time to time outstanding at the
rate of 5.7% per year until paid in full. Principal and interest shall be paid
as follows:
Principal: $1,000,000 on April 15, 1999;
$1,000,000 on April 15, 2000;
$1,000,000 on April 15, 2001;
$1,000,000 on April 15, 2002; and
$1,000,000 on April 15, 2003.
Interest: Annually in arrears on each anniversary date of this
Note, beginning April 15, 1999.
Interest on this Note shall be computed on the basis of a year of 365 days
for the actual number of days elapsed. All payments by the Maker under this Note
shall be in immediately available funds.
Payment of this Note is secured by a security interest in certain property
of the Maker (the "Collateral") pursuant to a pledge agreement of even date
herewith between the Maker and Iomega Corporation (the "Pledge Agreement").
This Note shall become immediately due and payable without notice or demand
upon the occurrence at any time of any of the following events of default
(individually, "an Event of Default" and collectively, "Events of Default"):
(1) default in the payment when due of any principal, premium or interest
under this Note;
(2) the occurrence of any event of default under the Pledge Agreement;
(3) the appointment of a receiver or custodian for the Maker or any part
of its property if such appointment is not terminated or dismissed
within thirty (30) days;
<PAGE>
-2-
(4) the institution by or against the Maker of any proceedings under the
United States Bankruptcy Code or any other federal or state
bankruptcy, reorganization, receivership, insolvency or other similar
law affecting the rights of creditors generally or the making by the
Maker of a composition or an assignment or trust mortgage for the
benefit of creditors;
(5) the commencement by the Maker of employment or any other activity
which is prohibited by Section 1(a) of the Non-Competition and
Non-Recruitment Agreement dated April 15, 1998 (the "Non-Competition
Agreement"), unless the Maker has given written notice to the Chairman
of the Board, President or General Counsel of Iomega of his
commencement of such employment or activity within two business days
of such commencement;
(6) sixty (60) days after any breach by the Maker of his obligations under
the Severance Agreement and General Release dated April 15, 1998 or
the Non-Competition Agreement; or
(7) the commencement by or on behalf of the Maker of any legal proceeding
seeking to invalidate, or limit in any way adverse to the Company, the
Non-Competition Agreement.
Upon the occurrence of an Event of Default, the holder shall have then, or
at any time thereafter, all of the rights and remedies afforded by the Uniform
Commercial Code as from time to time in effect in the State of Utah or afforded
by other applicable law.
Every amount overdue under this Note shall bear interest from and after the
date on which such amount first became overdue at an annual rate which is two
percentage points above the rate per year specified in the first paragraph of
this Note. Such interest on overdue amounts under this Note shall be payable on
demand and shall accrue and be compounded monthly until the obligation of the
Maker with respect to the payment of such interest has been discharged (whether
before or after judgment).
In no event shall any interest charged, collected or reserved under this
Note exceed the maximum rate then permitted by applicable law and if any such
payment is paid by the Maker, then such excess sum shall be credited by the
holder as a payment of principal.
<PAGE>
-3-
All payments by the Maker 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. The Maker shall pay and save the
holder harmless from all liabilities with respect to or resulting from any delay
or omission to make any such deduction or withholding required by law.
Whenever any amount is paid under this Note, all or part of the amount paid
may be applied to principal, premium or interest in such order and manner as
shall be determined by the holder in its discretion.
No reference in this Note to the Pledge Agreement or any guaranty shall
impair the obligation of the Maker, which is absolute and unconditional, to pay
all amounts under this Note strictly in accordance with the terms of this Note.
The Maker agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the holder in enforcing the obligations
of the Maker under this Note.
No delay or omission on the part of the holder in exercising any right
under this Note or the Pledge Agreement 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. The Maker and every indorser or guarantor of this Note
regardless of the time, order or place of signing waives presentment, demand,
protest and notices of every kind and assents to any extension or postponement
of the time of payment or any other indulgence, to any substitution, exchange or
release of collateral, and to the addition or release of any other party or
person primarily or secondarily liable.
This Note may be prepaid in whole or in part at any time or from time to
time. Any such prepayment shall be without premium or penalty.
None of the terms or provisions of this Note may be excluded, modified or
amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so excluded,
modified or amended.
All rights and obligations hereunder shall be governed by the laws of the
State of Utah.
/s/ Kim B. Edwards
Kim B. Edwards
PLEDGE AGREEMENT
This Pledge Agreement is made as of the 15th day of April, 1998 between Kim
B. Edwards, Layton, Utah, ("Pledgor") and Iomega Corporation, a Delaware
corporation having a principal place of business at 1821 West Iomega Way, Roy,
Utah 84067 ("Pledgee").
WITNESSETH:
WHEREAS, the Pledgor has issued a Secured Promissory Note (the "Note") of
even date herewith in the original principal amount of Five Million Dollars
($5,000,000.00) payable to the Pledgee; and
WHEREAS, as collateral security for the obligations of the Pledgor under
the Note, the Pledgor has agreed to pledge and grant to the Pledgee a first
priority security interest in certain shares of common stock which the Pledgor
owns in the Pledgee, as more fully set forth herein;
NOW THEREFORE, the parties hereto agree and acknowledge that the foregoing
recitals are true and correct and to the following:
1. Pledge of Collateral. As collateral security for the performance of the
obligations of the Pledgor under the Note and this Pledge Agreement (the
"Obligations"), the Pledgor hereby pledges and grants to the Pledgee a security
interest in and to 2,561,000 shares of the common stock of the Pledgee held or
owned by the Pledgor, as identified in Schedule I annexed hereto, and any and
all stock rights, powers and other distributions, dividends or proceeds thereof
(the "Shares"). In addition, any stock rights, dividends, powers or other
distributions or proceeds received by the Pledgor with respect to the Shares
shall be held in trust for and delivered to the Pledgee to be held in accordance
with the terms of this Agreement, and shall be included in the Shares described
above.
2. Delivery of the Shares. The Shares will be delivered to the Pledgee
within four business days hereof together with undated stock powers executed in
blank. Upon payment in full of the Note and the other Obligations, the Pledgee
shall return to the Pledgor the Shares, undated stock powers as well as such
other instruments, documents, stock certificates, money and goods as may come
into Pledgee's possession from time to time in accordance with the terms of this
Pledge Agreement, whether through delivery by Pledgor or otherwise.
<PAGE>
-2-
3. Pledgee's Rights and Duties with Respect to the Collateral. Pledgee's
only duty with respect to the Shares shall be to exercise reasonable care to
secure the safe custody thereof, all other duties being hereby expressly
disclaimed. Pledgee shall be relieved of all responsibility for the Shares upon
surrendering them to Pledgor.
4. Pledgor's Warranties and Indemnity.
4.1 Pledgor represents, warrants and covenants (a) that Pledgor is the
lawful owner of the Shares, (b) the Shares are free and clear of all liens,
encumbrances, and security interests, other than the security interest granted
by the Pledgor hereunder, and that, upon delivery of the Shares to the Pledgee
in accordance with Section 2, this pledge constitutes a valid and perfected
security interest in the Shares enforceable against the Pledgor, (c) that the
Shares are not subject to any outstanding rights of redemption or options to
purchase or sell, (d) that the Pledgor has the sole right and lawful authority
to pledge the Shares and otherwise to comply with the provisions hereof, (e)
except as described in the Pledgee's SEC filings, no litigation is pending or
threatened against the Pledgor, which if adversely determined, would have a
material adverse effect against the Pledgor or the Pledgee's rights in respect
of the Shares, (f) that the Pledgor agrees to defend the Pledgee's title in the
Shares and the security interest therein against any and all claims and demands,
(g) the Pledgor shall not sell, transfer or assign any portion of the Shares,
unless the Net Proceeds (as defined below) from such sale, transfer or
assignment are paid to the Pledgee to reduce the Obligations, and (h) this
Pledge Agreement constitutes the legal, valid and binding obligation of the
Pledgor, enforceable against the Pledgor in accordance with its terms. For
purposes of this Pledge Agreement, Net Proceeds shall mean the gross proceeds
net of any sales commissions actually incurred.
4.2 If any adverse claim is asserted in respect of the Shares or any
portion thereof, except as such may arise from the wanton, reckless or
unauthorized acts of the Pledgee, the Pledgor agrees to indemnify the Pledgee
and hold the Pledgee harmless from and against any reasonable liabilities or
damages, and reasonable attorney's fees incurred by the Pledgee in exercising
any right, power or remedy of the Pledgee hereunder.
5. Voting and Disposition of Shares; Release of Shares.
5.1 While Pledgor is not in default hereunder, Pledgor may vote the Shares.
While Pledgor is not in default hereunder, Pledgor may sell any portion of the
Shares, provided the Net Proceeds from such sale are paid to the Pledgee to
reduce the Obligations.
<PAGE>
5.2 The Pledgor may at any time request that a portion of the Shares be
released from this Pledge Agreement by submitting a written request to the
Pledgee accompanied by a payment equal to fifty percent of the fair market value
(determined on the basis on the closing price of the Pledgee's common stock on
the day prior to such request) of the Shares to be released. If, but only if,
the fair market value (determined on the same basis as above) of the Shares to
remain subject to this Pledge Agreement is equal to or greater than two times
the amount of the then outstanding Obligations, the Pledgee shall release the
Shares requested to be released.
5.3 At any time that the Pledgor makes a payment or prepayment of principal
under the Note, the Pledgee shall, within three business days thereafter,
release from this Pledge Agreement Shares having a fair market value (determined
on the basis on the closing price of the Pledgee's common stock on the day prior
to such payment or prepayment) equal to two times the amount of such payment or
prepayment; provided, however, that the Pledgee shall not be required to release
any Shares pursuant to this Section 5.3 if as a result of such release the fair
market value (determined on the same basis as above) of the Shares to remain
subject to this Pledge Agreement would be less than two times the amount of the
then outstanding Obligations.
6. Pledgor's Default. Pledgor shall be in default hereunder upon the
occurrence of any of the following events: (a) Any Event of Default (as defined
in the Note) shall occur under the Note; (b) If any lien, encumbrance or adverse
claim of any nature whatsoever is imposed or comes into existence with respect
to any Shares; (c) If any warranty of Pledgor hereunder is or shall become
false; or (d) If Pledgor fails to fulfill any obligation hereunder.
7. Pledgee's Rights upon Default. Upon the occurrence of any default as
defined in Section 6 hereof, Pledgee may, if Pledgee so elects in its sole
discretion, take any one or more of the following (provided however, that
Pledgee shall not take any such action that would result in the sale of a
greater number of Shares than is required to satisfy the Obligations in full):
<PAGE>
(a) at any time and from time to time sell, assign and deliver all or any
part of the Shares, or any interest therein, at any public or private sale, for
cash, on credit or for other property, for immediate or future delivery without
any assumption of credit risk, and for such price or prices and on such terms as
Pledgee in its absolute discretion may determine; provided that (i) at least ten
(10) days' notice of the time and place of any such sale shall be given to
Pledgor, and (ii) in the case of any private sale, such notice shall also
contain the terms of the proposed sale and Pledgee shall sell the Collateral
proposed to be sold to any purchaser procured by Pledgor who is ready, willing
and able to purchase, and who prior to the time of such sale tenders the
purchase price of, such Collateral on terms more favorable to Pledgee than the
terms contained in such notice; provided, further, the Pledgor acknowledges that
the Pledgee may be unable to effect a public sale of all or part of the Shares
by reason of certain prohibitions contained in the Securities Act of 1933, as
amended, and may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obligated to agree, among other
things, to acquire such securities for their own account, for investment, and
not with a view to the distribution or resale thereof. The Pledgor acknowledges
that any such private sale may be at prices and on terms less favorable to the
seller than if sold at public sales and that private sales shall be deemed to be
made in a commercially reasonable manner notwithstanding that such a private
sale may result in a lower sale price;
(b) on the 15th business day after the occurrence of the default, the
Pledgee may (but shall not be obligated to) purchase as treasury stock all or
any part of the Shares at a purchase price equal to the closing price of the
Pledgee's common stock on the New York Stock Exchange (or such other exchange or
automated quotation system on which the Pledgee's common stock may then be
traded) on the 14th business day after the occurrence of the default;
(c) exercise the right to vote, the right to receive cash dividends and
other distributions, and all other rights with respect to the Collateral as
though Pledgee were the absolute owner thereof, whether or not such rights were
retained by Pledgor as against Pledgee before default; and
(d) exercise all other rights available to a secured party under the
Uniform Commercial Code and other applicable law.
The rights and remedies available pursuant to this Pledge Agreement are
cumulative, and not exclusive of any other rights or remedies otherwise
available to the Pledgee.
8. Application of Sale Proceeds. Notwithstanding anything to the contrary
contained herein, in the event of a sale of Shares by the Pledgee pursuant to
Section 7 hereof, the proceeds shall first be applied to the payment of the
expenses of the sale, including brokers' commissions, counsel fees, any taxes or
other charges imposed by law upon the Shares or the transfer thereof and all
other charges paid or incurred by Pledgee pertaining to the sale; and, second,
to satisfy outstanding Obligations, in the order in which Pledgee elects in its
sole discretion; and, third, the surplus (if any) shall be paid to Pledgor.
9. Notices. All notices made or required to be made hereunder shall be sent
by United States first class or certified or registered mail, with postage
prepaid, or delivered by hand to Pledgee or to Pledgor at the addresses first
above written. Notice by mail shall be deemed to have been made on the date when
the notice is deposited in the mail.
<PAGE>
10. Heirs, Successors, Etc. This Pledge Agreement and all of its terms and
provisions shall benefit and bind the heirs, successors, assigns, transferees,
executors and administrators of each of the parties hereto.
11. Pledgee's Forbearance. Any forbearance, failure or delay by Pledgee in
exercising any right, power or remedy hereunder shall not be deemed a waiver of
such right, power or remedy. Any single or partial exercise of any right, power
or remedy of Pledgee shall continue in full force and effect until such right,
power or remedy is specifically waived in writing by Pledgee.
12. Further Assurances. The Pledgor covenants and agrees to execute and
deliver, or cause to be executed or delivered, all such other stock powers,
proxies, instruments, and documents, and will take such other action or actions
as the Pledgee may reasonably request from time to time in order to carry out
the provisions and purposes hereof.
13. Miscellaneous. (a) This Agreement or any part thereof cannot be
changed, waived, or amended except by an instrument in writing signed by Pledgee
and Pledgor; and waiver on one occasion shall not operate as a waiver on any
other occasion. (b) The Uniform Commercial Code and other laws of the State of
Utah shall govern the construction and enforcement of this Pledge Agreement. (c)
If any part of this Pledge Agreement or any agreement, document, or instrument
executed in connection herewith shall be deemed invalid or unenforceable by a
court of competent jurisdiction, the remaining provisions shall remain in full
force and effect, and shall continue to be binding upon the parties. (d) This
Pledge Agreement may be executed in one or more counterparts, each of which
shall constitute an original, but all of which, when taken together, shall
constitute one and the same instrument.
EXECUTED under seal as of the date first above written.
PLEDGOR:
/s/ Kim B. Edwards
Kim B. Edwards
PLEDGEE:
IOMEGA CORPORATION
By: /s/ David J. Dunn
Its: Chairman of the Board
NON-COMPETITION AND NON-RECRUITMENT AGREEMENT
This Agreement is made as of the 15th day of April, 1998 by and between
Iomega Corporation, a Delaware corporation (hereinafter referred to collectively
with its subsidiaries as the "Company"), and Kim B. Edwards ("Edwards").
For good and valuable consideration, including without limitation, the
mutual covenants and agreements of the parties pursuant to that certain
Severance Agreement and General Release dated of even date herewith (the
"Severance Agreement") and the payments made or to be made by the Company to
Edwards pursuant to the Severance Agreement and this Agreement, Edwards and the
Company agree as follows:
1. Non-Competition and Non-Recruitment. Until the earlier of (i) April 14,
2003 and (ii) the date upon which Edwards pays in full all amounts owed to the
Company pursuant to the Secured Promissory Note of even date herewith (the
"Secured Promissory Note"), Edwards will not directly or indirectly, anywhere in
the world:
(a) Engage in any business or enterprise (whether as owner, partner,
officer, director, employee, consultant, investor, lender or otherwise, except
as the holder of not more than 1% of the outstanding stock of a publicly-held
company) that (i) develops, (ii) manufactures and sells, and/or (iii) sells as a
significant part of its business, any removable media storage product that
competes with any of the Specified Company Products (which term shall have the
meaning previously agreed to by the parties); or
(b) Either alone or in association with others (i) solicit any employee of
the Company to leave the employ of the Company or (ii) hire, or permit any
organization directly or indirectly controlled by Edwards to hire, any person
who is at the time employed by the Company or who was employed by the Company at
any time during the term of Edwards' employment with the Company or at any time
during the term of this Agreement; provided, that clause (ii) shall not apply to
any individual whose employment with the Company has been terminated for a
period of twelve months or longer.
<PAGE>
-2-
2. Payments. As additional consideration for the covenants of Edwards set
forth in Section 1, the Company shall make the payments set forth on Schedule I
hereto; provided, however, that the Company's obligation to make such payments
shall terminate in the event Employee breaches his obligations under this
Agreement and; provided, further, that the Company shall not be obligated to
make any such payments after the date upon which Edwards pays in full all
amounts owed to the Company pursuant to the Secured Promissory Note and;
provided, further, that in the event Edwards prepays in full all amounts owed
under the Secured Promissory Note on any date other than April 15, then the
Company shall make a pro-rata payment to Edwards equal to the interest accrued
under the Secured Promissory Note for the period from the preceding April 15
until the date of such prepayment.
3. Miscellaneous.
(a) Acknowledgment. The Company and Edwards acknowledge that this Agreement
is being entered into in connection with the Severance Agreement, pursuant to
which Edwards will receive significant benefits, and that the execution of this
Agreement is a condition and inducement to the Company entering into the
Severance Agreement.
(b) Interpretation. If any restriction set forth in Section 1 is found by
any court of competent jurisdiction to be unenforceable because it extends for
too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
(c) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(d) Waiver of Rights. No delay or omission by the Company in exercising any
right under this Agreement will operate as a waiver of that or any other right.
A waiver or consent given by the Company on any one occasion is effective only
in that instance and will not be construed as a bar to or waiver of any right on
any other occasion.
<PAGE>
-3-
(e) Equitable Remedies. The restrictions contained in this Agreement are
necessary for the protection of the business and goodwill of the Company and are
considered by Edwards to be reasonable for such purpose. Edwards agrees that any
breach of this Agreement is likely to cause the Company substantial and
irrevocable damage and therefore, in the event of any such breach, Edwards
agrees that the Company, in addition to such other remedies which may be
available, shall be entitled to specific performance and other injunctive
relief.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah. Any action, suit, or other legal
proceeding which is commenced to resolve any matter arising under or relating to
any provision of this Agreement shall be commenced only in a court of the State
of Utah (or, if appropriate, a federal court located within the State of Utah),
and the Company and Edwards each consents to the jurisdiction of such a court.
EDWARDS ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT AND
UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
IOMEGA CORPORATION
Date: April 15, 1998 By: /s/ David J. Dunn
Chairman of the Board
EMPLOYEE:
Date: April 15, 1998 /s/ Kim B. Edwards
Kim B. Edwards
<PAGE>
-4-
SCHEDULE I
- ------------------------------------------- ------------------------------------
Date Payment Amount
- -------------------------------------- -----------------------------------------
- -------------------------------------- -----------------------------------------
April 14, 1999 An amount equal to the interest payable
by Edwards on April 15, 1999 under the
Secured Promissory Note, but in no event
more than $285,000
- -------------------------------------- -----------------------------------------
- -------------------------------------- -----------------------------------------
April 14, 2000 An amount equal to the interest payable
by Edwards on April 15, 2000 under the
Secured Promissory Note, but in no event
more than $228,000
- -------------------------------------- -----------------------------------------
- -------------------------------------- -----------------------------------------
April 14, 2001 An amount equal to the interest payable
by Edwards on April 15, 2001 under the
Secured Promissory Note, but in no event
more than $171,000
- -------------------------------------- -----------------------------------------
- -------------------------------------- -----------------------------------------
April 14, 2002 An amount equal to the interest payable
by Edwards on April 15, 2002 under the
Secured Promissory Note, but in no event
more than $114,000
- -------------------------------------- -----------------------------------------
- -------------------------------------- -----------------------------------------
April 14, 2003 An amount equal to the interest payable
by Edwards on April 15, 2003 under the
Secured Promissory Note, but in no event
more than $57,000
- -------------------------------------- -----------------------------------------
<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
PERIODS ENDING MARCH 29, 1998 AND MARCH 30, 1996 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 PERIODS' AMOUNTS TO CONFORM TO THE CURRENT PERIOD'S PRESENTATION.
</LEGEND>
<MULTIPLIER> 1,000
<CIK> 0000352789
<NAME> Iomega Corporation
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-29-1998 MAR-30-1997
<CASH> 80,491 116,767
<SECURITIES> 0 0
<RECEIVABLES> 296,824 260,934
<ALLOWANCES> 47,554 50,260
<INVENTORY> 313,632 155,326
<CURRENT-ASSETS> 714,124 549,805
<PP&E> 295,361 202,472
<DEPRECIATION> 107,943 68,494
<TOTAL-ASSETS> 904,718 686,855
<CURRENT-LIABILITIES> 382,798 244,705
<BONDS> 45,683 45,722
0 0
0 0
<COMMON> 284,615 274,992
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 904,718 686,855
<SALES> 407,500 361,344
<TOTAL-REVENUES> 407,500 361,344
<CGS> 305,364 254,065
<TOTAL-COSTS> 436,439 323,142
<OTHER-EXPENSES> 21 1,507
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,213 2,461
<INCOME-PRETAX> (28,502) 35,330
<INCOME-TAX> (9,926) 12,316
<INCOME-CONTINUING> (18,576) 23,014
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (18,576) 23,014
<EPS-PRIMARY> (.07) .09
<EPS-DILUTED> (.07) .08
</TABLE>
