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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 28, 1996
OR
[ ] Transition Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _________ to _________
Commission File No. 0-18033
EXABYTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-0988566
(State of Incorporation) (IRS Employer Identification No.)
1685 38th Street
Boulder, Colorado 80301
(Address of principal executive offices, including zip code)
Area Code(303) 442-4333
(Registrant's Telephone Number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
N/A N/A
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
(Title of Class)
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 ninety days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. (X)
The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 7, 1997 was $11.125 based on
the closing sale price on such date. The aggregate number of shares of
Common Stock outstanding on March 7, 1997 was 18,905,983(a).
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Document incorporated by reference: Proxy Statement for the 1997 Annual
Meeting of Stockholders scheduled to be held May 9, 1997: Part III, Items
10, 11, 12, and 13.
(a) Excludes 3,397,154 shares of Common Stock held by directors, executive
officers and stockholders whose ownership exceeds ten percent of the Common
Stock outstanding at March 7, 1997. Exclusion of shares held by any person
should not be construed to indicate that such person possesses the power,
direct or indirect, to direct or cause the direction of the management or
policies of registrant, or that such person is controlled by or under common
control with the registrant.
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PART I
Item 1.
BUSINESS.
THE COMPANY
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Exabyte Corporation ("Exabyte" or the "Company") was incorporated in June
1985 under the laws of the State of Delaware. Exabyte designs, develops,
manufactures, markets and services tape subsystems and robotic tape libraries
for data storage and interchange applications. The Company's early strategy
capitalized on its proprietary adaptation of 8mm helical scan recording
technology, originally developed by others for video applications. Exabyte
provided highly reliable, cost-effective, small form factor tape subsystems
with leading-edge capacity and superior performance characteristics. The
Company's current 8mm strategy includes the introduction of tape subsystems
based on mechanical deck assemblies developed by both Exabyte and third
parties. The Company also expanded its helical scan products to include 4mm
cartridge tape subsystems, which it discontinued in February 1996. The
Company currently offers, through its Eagle(TM) division, minicartridge
products based upon minicartridge linear and Travan(TM) minicartridge
technologies. The Company's various robotic tape libraries store and retrieve
multiple media cartridges and incorporate cartridge tape subsystems offered by
the Company as well as others. The Company also sells recording media and
cleaning cartridges and provides repair services for its products.
The Company's strategic focus is the market for information storage and
retrieval tape subsystems for workstations, midrange computer systems,
networks, and personal computers, particularly for data backup, archival
and interchange applications. As such needs increase, computer manufacturers
and solution providers require a variety of products with varying price,
performance, capacity and form-factor characteristics. Exabyte offers or
intends to offer a number of products to address a broad range of these
requirements. The Company markets all of its tape subsystems and robotic
tape libraries primarily to original equipment manufacturers ("OEMs"),
non-system OEMs ("NSOs") and resellers, which include distributors and
solution providers. In addition, the Company markets its minicartridge and
Travan(TM) products to retailers such as CompUSA. Among Exabyte's OEM
customers are Bull S.A., Control Data, Data General, Digital Equipment
Corporation, Hewlett-Packard, IBM, Intergraph, NCR, Sequent, Siemens Nixdorf,
Silicon Graphics, Sun Microsystems and Unisys. Among the Company's
distribution customers are Anthem, Avnet, Consan, Gates/FA, Ingram Micro,
Intelligent Electronics, Merisel, Micro Age, and Tech Data. See "Business--
Marketing and Customers."
In addition to the historical information contained in this document, the
following discussion contains forward-looking statements that involve risks
and uncertainties. The actual results that the Company achieves may differ
materially from any forward-looking statements due to such risks and
uncertainties. Words such as "believes," "anticipates," "expects," "intends,"
and similar expressions are intended to identify forward-looking statements,
but are not the exclusive means of identifying such statements. The Company
undertakes no obligation to revise any forward-looking statements in order to
reflect events or circumstances that may arise after the date of this report.
Factors that could cause or contribute to such differences include, but are
not limited to, those discussed in the section entitled "Risk Factors."
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RISK FACTORS
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Production Capability; Mammoth
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The Company began commercial shipment of the Mammoth product ("Mammoth") in
the first quarter of 1996. Mammoth incorporates a mechanical deck
manufactured by the Company. Exabyte's manufacturing experience in the
past has been largely limited to assembling and testing purchased components,
with limited experience in other phases of manufacturing. In particular, the
Company has had only limited experience in manufacturing mechanical decks and
certain critical components of the deck assembly, including the recording
heads, scanner assemblies and cartridge loader subsystems. There can be no
assurance that Exabyte will be able to manufacture Mammoth in commercial
quantities at commercially acceptable cost. In 1996, a supply shortage of
Mammoth head components resulted in a substantial quantity of unfilled
orders for the product and a failure to achieve planned production levels
for Mammoth. Any further inability to manufacture Mammoth and its components
in the required volumes would have a material adverse effect on the Company's
competitive position and on its results of operations. See "Business--
Manufacturing."
Further, there can be no assurance that the manufacture and sale of Mammoth
will not infringe the proprietary rights of third parties. The mechanized
deck assembly incorporated in Mammoth is produced by the Company rather than
supplied from a third party. As such, the Company does not benefit from
supplier indemnification regarding patent or other intellectual property
infringement. See "Business--Patent and Licensing."
The Company's ability to sustain growth in the Mammoth product line depends on
the availability of advanced tape media meeting the Company's specifications.
The advanced tape media is currently sourced exclusively from Sony Corporation
("Sony"), a competitor to the Company. See "Dependence on Key Vendors/
Competitors; Sony and Hitachi" below. Exabyte's ability to obtain an
adequate supply of advanced tape media which meets the Company's
specifications has been and may be further affected by any constraint in
Sony's media production capability, by the divergence of Sony's limited media
supply to third parties, by any change in Sony's media specifications which no
longer meet the Company's requirements, or otherwise as a result of Sony's
competitive position. See also "Business--Manufacturing" and "Business--
Competition."
Dependence on Key Vendors/Competitors; Sony and Hitachi
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The Company's ability to maintain cost-effective manufacturing volume depends
on uninterrupted access to high quality components in required volumes and
at competitive prices.
The Company's 8mm mechanical tape decks, other than Mammoth, are currently
supplied from two principal sources, Sony and Hitachi Ltd. ("Hitachi").
Sony supplies tape decks for the EXB-8205XL and EXB-8505XL, and Hitachi
supplies tape decks for the EXB-8700 and Eliant(TM) 820. While the Company
has contracts with Sony and Hitachi for the supply of their respective 8mm
decks, there can be no assurance either that the supply of decks will continue
or that prices will remain at their current levels. Exabyte is currently
negotiating with Sony regarding the expiration of Sony's supply agreement
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in 1998. In addition, Sony is currently the sole supplier of advanced media
for Mammoth. See "Business--Manufacturing."
Sony announced during the second quarter of 1996 and Hitachi announced
during the third quarter of 1996 the introduction of competitive 8mm
products. Sony's and Hitachi's competitive position may adversely affect
Exabyte's ability to obtain 8mm mechanical decks and tape media at
required volumes and competitive prices. While there are other manufacturers
of 8mm decks, customizing these decks for the Company's products would require
many months of effort. There can be no assurance that such effort would be
successful or, even if successful, that it would not result in a significant
delay in the shipment or termination of the Company's products.
In addition to its dependence on Sony and Hitachi, the Company has engaged
other third parties, including competitors and potential competitors, in the
joint development of products or components and may do so again in the future.
These relationships subject Exabyte to other supply or technology
dependencies. The Company further relies on other sole source vendors for
certain critical components, including but not limited to, printed circuit
boards, semiconductor circuits, reel motor assemblies and read/write heads.
The Company has executed master purchase agreements with some of its sole
source vendors and conducts business with the others on a purchase order
basis. A reliance on sole source vendors involves several risks, including
possible shortage of certain key components and reduced control over delivery
schedules, manufacturing yields, quality and costs. The Company has in the
past experienced problems with the quality of and interruptions in the supply
of sole source components. Any future yield, quality, delivery or supply
problems with any of these vendors could force Exabyte to delay shipments of
its products, which could have a material adverse effect on the Company's
competitive position and its results of operations. See "Business--
Manufacturing."
Exabyte is also dependent on third parties, including competitors, for the
supply of some of its interchangeable drives offered in its Eagle(TM) line.
See "Business--Business and Strategy--Tape Subsystem Products." Some of these
drives are solely sourced and any supply constraint of such drives could force
Exabyte to delay or cancel shipments of these products which could have a
material adverse effect on the Company's competitive position and results of
operations. See "Business--Business Strategy and Products."
The Company's minicartridge drive subsystems incorporate cartridge media
developed and produced by Imation, a media division spin-off of 3M
Corporation and other third party cartridge suppliers. Imation, owner of
DC 2000 and Travan(TM) technology, devotes substantial resources to the
development of further enhancements to the technology. The Company's ability
to successfully compete in the minicartridge business depends, in part, on
accessing and adapting to change in minicartridge technology. See
"Business--Research and Development."
Competition
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The tape storage market is highly competitive and the Company expects
competition to increase. Numerous companies are engaged in researching,
developing and commercializing data storage products. Such companies
include computer manufacturers, such as IBM and Hewlett-Packard, that
incorporate their own tape storage products in their systems. Competition
has resulted in price erosion of the Company's products in the past, and such
erosion is expected to occur in the future.
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Exabyte currently competes at the higher end of the tape subsystem market
against half-inch cartridge products produced by others. Such half-inch
products offer higher capacities and data transfer rates than do the Company's
current products. Quantum Corporation, with its introduction of digital
linear tape ("DLT"), serves the higher end of the tape subsystem market
addressed by the Company's current and announced products. In particular,
Quantum's DLT 4000 and DLT 7000 products have established a significant
presence in the market targeted by the Company with its Mammoth product.
Additionally, the DLT 7000 has data storage capacities and transfer rates
which exceed the Company's current or announced products. Among the
competitors currently offering other half-inch cartridge products are Fujitsu,
IBM, Overland Data and StorageTek. Other competitors may also enter the
half-inch market in the future.
Exabyte faces direct competition from companies offering 8mm tape
subsystems. In particular, Sony announced a competitive 8mm product in the
second quarter of 1996, and in the third quarter of 1996 Hitachi announced a
competitive 8mm product which has the potential to read data written by the
Company's products.
Additional competition in the tape subsystem market has come from companies
offering 4mm products using helical scan technology and companies offering
minicartridge tape products which utilize conventional tape technologies
that record on parallel tracks. At the low end of the market, the Company's
minicartridge products compete indirectly with 4mm products and directly with
the minicartridge products manufactured by Seagate, Hewlett-Packard, Iomega,
Tandberg, Tecmar, and other vendors.
Exabyte's family of library products competes at the low end with 4mm
library products offered by ADIC, Seagate, Qualstar and Hewlett-Packard; at
the midrange segment with products offered by IBM, Qualstar, Quantum,
SpectraLogic and StorageTek; and at the high end with libraries offered by
IBM, Quantum, Odetics and StorageTek. The Company may face significant
competitive challenges in the library market in the form of pricing pressure
and loss of business. Exabyte's library offerings currently represent
higher-margin business to the Company and, as such, any shortfall in the sale
of these products would have a negative effect on the Company's results of
operations. See "Business--Competition" and "Business--Business Strategy
and Products."
Some of the Company's current and prospective competitors have significantly
greater financial, technical, manufacturing and marketing resources than those
of the Company. There can be no assurance that these competitors will not
devote those resources to the aggressive marketing of helical scan,
minicartridge, half-inch cartridge, optical or other storage product
technologies. See "Business--Competition" and "Business--Research and
Development."
Product and Quality Performance
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The Company's products are designed and marketed primarily for applications
involving storage, backup and interchange of computer data. Any failure of
the Company's products to perform in accordance with specifications could
result in the loss of critical user data. Such a loss may result in claims
against the Company for damages arising from such data loss. In addition,
the Company may incur costs associated with a product recall or other
corrective action to address product defects, including latent or epidemic
defects. The Company's results of operations could be materially adversely
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affected by the costs related to such corrective action or the defense of
claims and the payment of any judgment or settlement in excess of any
insurance coverage. While the Company has in the past incurred certain costs
related to product defects, no such costs to date have resulted in a
material adverse effect to the Company's results of operations.
Product Development
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Exabyte participates in an industry that is subject to rapid technological
change. The Company believes that its future success will depend on its
ability to apply and extend its technology and further develop reliable tape
subsystems and robotic tape libraries with competitive price performance and
quality characteristics. Accordingly, Exabyte's ability to compete
successfully depends on continued enhancements to its existing products and
the timely development of new products that meet the changing needs of users.
The Company has experienced delays from time to time meeting internal product
development schedules. In the future, the Company may encounter difficulties
that could delay or prevent future product development.
In addition, the Company's ability to maintain its current products and to
introduce new products depends on access to high-quality tape media which is
produced by a small number of vendors including Sony, Imation and Verbatim.
In the event such advanced tape media is not available in sufficient
volume at an acceptable quality level and at a competitive price, the Company
could be forced to delay or cancel shipments or the introduction of announced
products which could have a material adverse effect on the Company's
competitive position and its results of operations.
There can be no assurance that any announced products will be successfully
developed, made commercially available on a timely basis or achieve market
acceptance. See "Business--Business Strategy and Products."
Management of Business and Product Transitions
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The Company is currently experiencing a period of rapid business and product
transition as it addresses the complexities of developing, manufacturing and
servicing multiple products which incorporate several different technologies
and which are sold through multiple marketing channels. This transition has
placed a significant strain on the Company's management, operational and
financial resources, and may continue to do so in the future. Effective
management of this business transition will require Exabyte to continually
implement and improve its operational, financial and information systems and
to expand, train and manage its employee base. In addition, the development
and manufacture of multiple product lines may cause product quality levels
to fall below acceptable standards.
Exabyte continually assesses its product cycles in terms of product
introduction and withdrawal. Any failure by the Company to accurately
estimate the timing of new product introductions may result in the premature
or delayed withdrawal of its existing product lines. The premature withdrawal
of an existing product line could result in the loss of revenue and earnings
contribution from that product line. The delayed withdrawal of an existing
product line could result in the Company's assumption of excess product
inventory. Additionally, the premature or delayed introduction of a product
could adversely affect the sales or withdrawal timing of an existing product.
Failure to accurately time product introductions and withdrawals could have a
material adverse effect on the Company's results of operations.
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Key Employees
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The development, introduction and success of Exabyte's products depend
largely on the continued employment of certain key employees. The loss of
key employees could delay internal product development schedules, interrupt
team continuity and subject Exabyte to the risk of losing proprietary
information to competitors or other third parties.
Exabyte has in the past lost key employees to competitors and other companies
and may likely lose key employees in the future. Although Exabyte has
incentive programs in place which are designed to encourage the continuous
employment of certain key employees, there can be no assurance that such
programs will be successful. The loss of key employees could have a material
adverse effect on the Company's results of operations. See "Business--
Employees."
Fluctuations in Quarterly Results
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The Company's results can fluctuate substantially from quarter to quarter for
various reasons. For example, the markets served by Exabyte are volatile
and subject to market shifts, which may or may not be discernible in advance
by the Company. A slowdown in the demand for workstations, midrange computer
systems, networks and personal computers could have a material adverse effect
on the demand for the Company's products in any given period. Also, the
Company has experienced delays in receipt of purchase orders and, on occasion,
anticipated purchase orders have been rescheduled or have not materialized
due to changes in customer requirements. Exabyte's customers may cancel
or delay purchase orders for a variety of reasons including the rescheduling
of new product introductions, changes in customer inventory practices or
forecasted demand, impact of general economic conditions affecting the
computer market, new product announcements by the Company or others, quality
or reliability problems related to the Company's products, or selection of
competitors as alternate sources of supply.
The Company's operations have in the past and will in the future reflect
substantial fluctuations from period to period as a consequence of such
industry shifts, price erosion, general economic conditions affecting the
timing of orders from customers, as well as other factors discussed herein.
In particular, Exabyte's ability to forecast sales to resellers, NSOs and OEMs
is especially limited as such customers typically provide the Company with
relatively short order lead times. See "Business--Marketing and Customers;
Principal Customers."
Inventory Write-Downs and Special Charges
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The Company may be unable to manage inventory levels to meet changing
patterns of product demand, product transitions and new product
introductions. Such inability may result in the Company incurring a special
charge or inventory write-down, or establishing a reserve which would have a
material adverse effect on its results of operations. The Company has in the
past incurred special charges or inventory write-downs which have had a
material adverse effect on the Company's results of operations. There can be
no assurance that additional reserves, write-downs or write-offs will not
be taken in the future and that such actions will not have a material adverse
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effect on the Company's results of operations. See "Business--Business
Strategy and Products."
Volatility of Stock Price
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The market price of the Company's Common Stock has historically been, and is
expected to continue to be, extremely volatile. The Company's operating
results have been below the expectations of investors and market analysts in
the past, and are likely to be below expectations again in some future
period. A shortfall in analyst or investor expectations of Exabyte's
operating results has had and could again have an immediate and significant
impact on the market price of the Company's Common Stock. Other factors could
also have an immediate and significant impact on the market price of the
Company's Common Stock, including without limitation, the Company's disclosure
of its assessment of its business prospects, new product announcements by the
Company's competitors and general conditions in the computer market.
Dependence on Key Customers
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During 1996, IBM accounted for almost 15% of the Company's sales. Exabyte's
three largest customers accounted for an aggregate of 35% of the Company's
sales. These customers are not required to purchase a minimum quantity of the
Company's products and may cancel or reschedule orders without significant
penalty. The loss of one or more of these customers or substantial
cancellations by these customers would have a material adverse effect on the
Company's results of operations. In addition, significant rescheduling or
deferrals of orders by any of these customers could cause substantial
fluctuations in the Company's quarterly results. See "Business--Marketing
and Customers; Principal Customers."
Risks Related to Foreign Sourcing
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Because many of Exabyte's key components and products are currently or
may be manufactured in Japan, Germany, The Netherlands, China, Hong Kong,
Malaysia or Singapore, the Company's results of operations may be materially
affected by fluctuations in currency exchange rates. See "Business--
Manufacturing." A substantial portion of the Company's products incorporate
subassemblies and components purchased from Japanese or other overseas
suppliers in yen or other foreign currencies. The Company enters into
foreign currency forward contracts to hedge the purchase of certain inventory
components from Japanese suppliers. See Note 1 of Notes to the Consolidated
Financial Statements. Additional contractual arrangements may be made
subjecting Exabyte to additional foreign exchange rate risks. See
"Business--Foreign Exchange and Import Restrictions."
The Company's international involvement is also subject to certain other
risks common to foreign operations in general, including government regulation
and import restrictions. In particular, an adverse foreign exchange movement
of the U.S. dollar versus Japanese yen or other currency, or the imposition of
import restrictions or tariffs by the United States government on products or
components shipped from Japan or another country could have a material adverse
effect on the Company's results of operations. Additionally, because
Exabyte's products incorporate components produced overseas, the sale of the
Company's products to domestic federal or state agencies may be restricted by
limitations imposed by the Buy American Act or the Trade Agreement Act.
See "Business--Foreign Exchange and Import Restrictions."
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Risks Related to Foreign Sales
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Direct international sales accounted for approximately 30% of sales in 1996
and Exabyte currently expects that direct international sales will
continue to represent a significant portion of the Company's revenue. See
"Business--Marketing and Customers; International Sales." In addition, many
of the Company's domestic customers ship a significant portion of Exabyte's
products to their customers overseas. Currently, a small percentage of sales
are denominated in foreign currencies and may be directly affected by foreign
exchange rate fluctuations. Changes in the foreign exchange rates may also
affect the volume of sales denominated in U.S. dollars to overseas customers
because such change would impact local currency pricing. The Company's sales
are also subject to risks common to export activities, including government
regulation, tariffs, and import and environmental restrictions. Exabyte's
international sales are subject to export licensing requirements. See
"Business--Foreign Exchange and Import Restrictions."
Risks Related to Foreign Operations
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The Company's subsidiaries in The Netherlands, Germany, Japan, Canada and
Singapore operate under their respective local currencies. See Note 1 to
the Company's Consolidated Financial Statements. As a result, any amounts
payable to a subsidiary or owed by a subsidiary are subject to the foreign
exchange rate between the U.S. dollar and the respective local currency, and
could have a material impact on the Company's results of operations. In
addition, the Company's foreign operations are subject to the risks generally
applicable to the conduct of business in such countries. See "Business--
Foreign Exchange and Import Restrictions."
Third Party Proprietary Rights
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The Company has received in the past, and may receive in the future,
communications from third parties asserting that the Company's products
infringe their proprietary rights or seeking indemnification from third
parties against infringement of others. There can be no assurance that
any of these claims will not result in prolonged and costly litigation.
While it may be necessary or desirable in the future to obtain licenses
relating to one or more of Exabyte's products or relating to current or
future technologies, there can be no assurance that the Company will be
able to do so on commercially reasonable terms. The inability to obtain
any required license or to obtain such license on commercially reasonable
terms could have a material adverse effect on the Company's results of
operations. See "Business--Patents and Licenses."
Third Party Contract Manufacturing
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The Company has entered into agreements with domestic and overseas third
parties to manufacture the Company's libraries and minicartridge drive
subsystems as well as components for a number of its products. Third party
manufacturing may impair the Company's ability to establish, maintain or
achieve adequate product manufacturing design standards or product quality
levels. Associated risks are particularly pronounced in the early stages of
manufacturing and may subject the Company to additional risks. A number of
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the Company's third party manufacturing programs involve such early-stage
manufacturing. See "Business--Manufacturing."
Third party manufacturing of the Company's products is based in part on
technology that the Company believes to be proprietary. Exabyte may license
this technology to contract manufacturers to enable them to manufacture
products for the Company. There can be no assurance that such manufacturers
will abide by any use limitations or confidentiality restrictions in licenses
with the Company. In addition, these manufacturers may develop processes
related to manufacturing the Company's products which they would then own
independently or jointly with the Company. Any such action would increase
Exabyte's reliance on such manufacturers or would require the Company
to obtain a license from such manufacturers in order to manufacture its
products. There can be no assurance that any necessary licenses would be
available on terms acceptable to the Company, if available at all. See
"Business--Patents and Licenses."
Regulation of Commercial Property
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The Company's principal place of business is Boulder, Colorado, where it
currently occupies leased space within the city in the total approximate
amount of 448,000 square feet. The City of Boulder has undertaken a rezoning
initiative which may include changes in the regulation of the use of existing
commercial space within city limits to address various city growth issues.
The imposition of local government restrictions which limit the Company's
ability to use its leased facility in accordance with its commercial
requirements could adversely affect the Company's performance and achievement
of its business objectives.
Anti-Takeover Provisions
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The Company has taken a number of actions which could have the effect of
deterring a hostile takeover or delaying or preventing a change in control
that could result in a premium payment to the Company's stockholders for their
shares or that might otherwise be beneficial to the stockholders. The Company
has adopted a stockholder rights plan which could cause substantial dilution
of stock to a person who attempts to acquire the Company on terms not approved
by the Board of Directors (the "Board"). In addition, the Company's Restated
Certificate of Incorporation and By-laws contain provisions which may delay or
prevent a change in control. These provisions include: (i) the classification
of the Board; (ii) the authority of the Board to issue preferred stock, without
further action by the stockholders, with such voting rights and other
provisions as the Board may determine; (iii) the requirement that actions by
stockholders be taken at a meeting of stockholders and not by written consent;
(iv) the requirement for advance notice of stockholder proposals and director
nomination; (v) the provision that only the Board may increase the authorized
number of directors; and (vi) the requirement that special meetings of
stockholders may be called only by the Chairman of the Board, President or
majority of directors.
Effective January 26, 1996, the Compensation Committee approved, and the Board
adopted, a severance compensation program ("Severance Program") under which
officers and other key employees of the Company would receive certain
severance payments if they are dismissed from Exabyte within one year
after certain changes in control of the Company occurred. The Severance
Program provides for a severance payment in varying amounts, not to exceed
18 months of compensation, depending upon: (i) the time of any such change in
<PAGE> 12
control; and (ii) the position level of the terminated officer or employee.
The Severance Program further allows, in certain circumstances, accelerating
the vesting of outstanding and unexercised stock options held by the affected
officer or employee.
Securities Suits
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A large number of companies, directors and officers in the high technology
industry have been subjected to class action and derivative action suits filed
in federal and state courts. These suits generally allege that the defendants
failed to adequately disclose certain risks. The Company's results of
operations could be materially affected by the legal costs of defending such
actions, the divergence of management's attention from the Company's
business, and the payment of any judgment or settlement arising out of any
such actions against the Company in the future. In 1993, the Company
successfully defended a series of such class actions at an immaterial cost
to the Company and it is the Company's belief there are no current or pending
actions against the Company at this time.
BUSINESS STRATEGY AND PRODUCTS
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The Company's strategic focus is the information storage and retrieval tape
subsystems market for workstations, midrange computer systems, networks and
personal computers, particularly for data backup, archival and interchange
applications. As the need for data backup and archival storage increases,
computer manufacturers and solution providers require a variety of products
which vary as to price, performance, capacity and form-factor characteristics.
Exabyte's strategy is to offer a number of products to address a broad
range of these requirements.
Exabyte currently offers two lines of its 8mm products: the Performance Line
and the Value Line. The Performance Line currently consists of the Mammoth
drive. Mammoth has a storage capacity of up to 40 gigabytes with
data compression. The Value Line consists of the EXB-8205XL, EXB-8505XL,
EXB-8700 and the Eliant(TM) 820. The Value Line has storage capacities
ranging from 5 gigabytes to 14 gigabytes with data compression. Both lines
address the midrange and a portion of the higher end of the market, the
remainder of which is largely served by 4mm and half-inch linear tape drive
subsystems produced by competitors.
The Company also offers minicartridge linear tape drive subsystems based on
the Travan(TM) technologies to address a portion of the lower end of the
market. Storage capacities for these products range from 1.6 gigabytes to
8 gigabytes with data compression. Also offered by Exabyte's Eagle(TM)
division are drives designed to be used interchangeably in a drive bay mounted
in a PC. Such drives include products produced by the Company or sourced from
third parties. See "Tape Subsystem Products" on page 13.
The Company offers various robotic libraries which incorporate its Value and
Performance Lines to extend the capacities of these products. Exabyte's
strategy also includes the development of libraries for use in conjunction
with 4mm and DLT drive subsystems offered by others.
The Company also offers consumables, including media and cleaning cartridges,
and provides service for all of its product lines.
<PAGE> 13
Tape Subsystem Products
- -----------------------
Current Products
The primary factors distinguishing the Company's tape subsystem products from
one another are base technology, form factor, interface, data capacity, data
transfer rate, and inclusion of the data compression feature. The 8mm
subsystems are based upon helical scan technology. Exabyte's minicartridge
products incorporate Travan(TM) minicartridge tape technology.
Form factor is the physical size of the device with respect to the industry
standard formats: 5 1/4" Half-High or 3 1/2" form factors. Data capacity is
the total amount of data which can be stored on a single media cartridge. Data
transfer rate is the speed data may be transferred to or from the subsystem.
Both data capacity and transfer rate are affected by the application of data
compression. The Company's 8mm data compression is accomplished by
incorporating the Improved Data Recording Capabilities (IDRC) compression
algorithm licensed from IBM. The data capacity and transfer rate reflected
in the accompanying table assumes a data compression ratio of two to one.
The actual compression ratio will vary depending upon the nature of the data
being compressed, and the quality of the media and drives used for
compression.
<TABLE>
<CAPTION>
Product Line/ Transfer
Product Media Technology Form Factor Capacity (Gb) Rate (Kb/s) Interface
- ------------- ----- ---------- ----------- ------------- ----------- ---------
<S> <C> <S> <C> <C> <C> <S>
Value Line
EXB-8505XL 8mm Helical Scan 5 1/4" HH 7.0/14.0* 500/1,000* SCSI
EXB-8205XL 8mm Helical Scan 5 1/4" HH 3.5/7.0* 250/500* SCSI
EXB-8700 8mm Helical Scan 5 1/4" HH 7.0/14.0* 500/1,000* SCSI
Eliant(TM) 820 8mm Helical Scan 5 1/4" HH 7.0/14.0* 1,000/2,000* SCSI
Performance Line
Mammoth 8mm Helical Scan 5 1/4" HH 20.0/40.0* 3,000/6,000* SCSI
Eagle(TM) Line
Eagle(TM) TR-3 Minicartr. Travan(TM) 3 1/2" or 1.6/3.2* 158/316* Floppy
5 1/4" HH
Eagle(TM) TR-4i Minicartr. Travan(TM) 3 1/2" or 4.0/8.0* 500/1,000* IDE
5 1/4" HH
</TABLE>
HH-- Half-High
* -- Denotes the application of data compression.
The Company also offers stand-alone versions of some of its 8mm products.
Each stand-alone version incorporates a power supply and is housed in a
desktop enclosure. These stand-alone products have received applicable
regulatory approvals, enabling the Company's customers to begin shipping
immediately without incurring their own design and regulatory agency approval
delays.
The Company's minicartridge products are also offered in a Nest(TM) version.
Nest(TM) drives are cordless and can be installed into and removed from any
Nest(TM) bay, which is installed in a PC. The Nest(TM) drives include the
Nest(TM) versions of Eagle(TM) TR-3 and TR-4i drives, a 100 megabyte Zip(TM)
drive, a 1.4 gigabyte hard drive, and the LS120, a 120 megabyte floppy drive.
<PAGE> 14
The cartridge tape subsystems listed below together accounted for 70%, 62%,
and 52% of revenue in 1996, 1995, and 1994, respectively, and represented,
by category, the following percentages of revenue:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
8mm Value Line............... 61% 60% 51%
8mm Performance Line......... 4% 0% 0%
Eagle(TM) Drives/Nest(TM).... 5% 2% 1%
Total ....................... 70% 62% 52%
</TABLE>
Sales percentages do not include Exabyte's discontinued 4mm or full-high tape
drive subsystems.
Announced Drive Products
- ------------------------
The Company has announced the following new tape subsystem products:
Exabyte announced in the first quarter of 1997 the Eagle(TM) TR-4i SCSI
minicartridge tape drive subsystem with commercial shipments expected in
the second quarter of 1997. The TR-4i SCSI utilizes a read-while-write
technology and a SCSI interface, rather than the IDE interface utilized
by the other Eagle(TM) drives. With a form factor of 3 1/2" or 5 1/4"
half-high, the storage capacity and transfer rate of the announced drive
will be identical to the TR-4i and TR-4i Nest(TM).
Exabyte also announced in the first quarter of 1997 the Eagle(TM) DMi(TM)
minicartridge tape drive subsystem. Commercial shipment of the Eagle(TM)
DMi(TM) drive is not expected until the fourth quarter of 1997. The
Eagle(TM) DMi(TM) drive utilizes Philips' DigaMax(TM) technology in a
3 1/2" or 5 1/4" half-high form factor. Storage capacity of the
announced drive is anticipated at 13 gigabytes without data compression
and transfer rate is anticipated at 2000 kilobytes per second, also
without data compression.
There can be no assurance that any of these or future announced products will
be successfully developed, made commercially available on a timely basis, or
achieve market acceptance. See "Risk Factors--Product Development."
Libraries
- ---------
Current Library Products
The Company offers a family of library subsystems which automates the storage
and retrieval of substantial amounts of data. Each library subsystem
incorporates one or more drive subsystems and multiple tape media cartridges.
The accompanying table lists the Company's current library offering in terms
of the technology, the form factor and the maximum number of drive subsystems
and tape media cartridges which may be incorporated in the library. The
EXB-218 and the EXB-018 are the Company's 4mm tape library products. The
EXB-218 is designed to incorporate Exabyte's discontinued 4mm tape drive
subsystems, and the EXB-018 is designed to incorporate 4mm tape drive
subsystems offered by others.
<PAGE> 15
<TABLE>
<CAPTION>
Product Drive Max. # Max. #
("EXB-") Technology Form Factor of Drives of Cartridges
-------- ---------- ----------- --------- -------------
<S> <C> <C> <C> <C>
10h 8mm 5 1/4" HH 1 10
210 8mm 5 1/4" HH 2 10
220 8mm 5 1/4" HH 2 20
440 8mm 5 1/4" HH 4 40
480 8mm 5 1/4" HH 4 80
218/018 4mm 3 1/2" 2 18
</TABLE>
________________
HH -- Half-High
Library products together accounted for 15%, 16% and 11% of revenue in 1996,
1995 and 1994, respectively.
The Company's library products provide relatively higher levels of profit
margin contribution to the Company's results of operations. Any shortfall
in the sale of the Company's higher-margin products, such as its library
offerings, would have a negative effect on the Company's results of
operations. See "Risk Factors--Competition."
Consumables
- -----------
The Company distributes 8mm and minicartridge data cartridges as well as
cleaning cartridges and data cartridge holders. The high-quality media,
produced by one or more third parties, is available in different lengths to
handle various data storage requirements. Sales of consumables accounted for
approximately 12%, 9% and 8% of sales in 1996, 1995 and 1994, respectively.
Service/Spare Parts
- -------------------
The Company provides various types of services to its customers, end-users and
other third parties. Such services include factory repair service and on-site
service repair. Factory repair services are provided for customers in North
America at Exabyte's headquarters in Boulder, Colorado and its facility in
Ontario, Canada. European customers receive these services from Exabyte's
facility in Scotland, and customers in the Pacific Rim region receive these
services from Exabyte's Singapore and Australian facilities.
On-site service repair is currently provided for customers in North America
through authorized on-site service providers. Exabyte provides on-site
services directly to its European customers.
Exabyte also sells spare parts through a number of spare parts distributors
and sells surplus and/or refurbished products through third parties.
Service and spare parts sales accounted for approximately 6%, 6% and 5% of
sales revenues in each of 1996, 1995 and 1994. Customer service is also
available from a third party depot in Japan under contract with the Company.
<PAGE> 16
MARKETING AND CUSTOMERS
- -----------------------
The Company markets its tape subsystems and robotic tape libraries primarily
to OEMs, NSOs, resellers and retailers. The reseller market includes solution
providers and distributors. The Company's initial sales of new products are
often made through distributors to solution providers who are generally
quicker to evaluate, integrate and adopt new technology. However, as a new
product successfully completes the qualification process, OEM sales have
generally represented an increasing proportion of sales of that product.
Marketing and Customers; Sales Channels
- ---------------------------------------
The Company's OEM and NSO customers incorporate Exabyte's drives as part of
their system offerings. The Company often works with these customers early
in the product development cycle in order to have its tape subsystems designed
into their computing systems. The sales cycle for OEM and NSO customers
involves extensive product and system evaluation and integration and typically
ranges from 6 to 18 months. A sales cycle typically consists of general
evaluation of the technology, qualification of the product specifications,
verification of product compliance with product specifications, integration
of the product into the customers' systems, and announcement and volume
shipment of the customers' systems. Exabyte's product shipments are linked
to the development cycle and introduction to the OEMs' and NSOs' new systems.
Sales of all products to OEMs represented 44%, 44% and 43% of sales in 1996,
1995 and 1994, respectively. Sales to NSOs represented 7%, 10% and 15% of
sales in 1996, 1995 and 1994, respectively.
The Company's reseller customers include both solution providers and
distributors. Solution providers often use the Company's tape subsystems to
upgrade various types of installed computer systems, including those
manufactured by IBM, Sun Microsystems and Digital Equipment Corporation.
These upgrades usually provide a more cost-effective tape backup solution for
these systems. Some solution providers package the Company's tape subsystems
into a stand-alone enclosure containing a power supply and software for
attachment to the end user's system and often combine the Company's products
with other storage devices, such as single or multiple disk drives, to deliver
a value-added storage subsystem solution. Direct sales to solution providers
accounted for approximately 2%, 4% and 5% of sales in 1996, 1995 and 1994,
respectively.
The Company also markets its products through a number of distributors to
OEMs, NSOs, solution providers and end users. The various classes of the
Company's distributors, including industrial, commercial and technical
distributors as well as national and regional resellers, provide various
levels of marketing, technical and sales support. As a result, the Company
often supports its distributors by providing marketing and technical support
directly to the distributors' customers, thereby incurring certain additional
costs for such sales. Other costs and risks associated with the distribution
business include various inventory price protections and stock rotation
obligations undertaken by the Company. The distribution business is also
characterized by relatively short order lead times which limit the Company's
ability to forecast sales to these customers. Sales to distributors accounted
for approximately 44%, 38% and 33% of sales in 1996, 1995 and 1994,
respectively.
Exabyte also began marketing its Eagle(TM) line through retailers
<PAGE> 17
in 1996, although direct sales to retailers accounted for less than
1% of total sales for the year.
Marketing and Customers; International Sales
- --------------------------------------------
The Company also markets its products overseas directly to OEMs, NSOs and
solution providers and through distributors to solution providers and end
users. Each major international market addressed by the Company is served by
distributors with rights to sell the Company's products in a country or group
of countries. The Company has established a wholly owned subsidiary in The
Netherlands to provide sales and technical support throughout Europe, and the
Singapore subsidiary provides sales and technical support for the Pacific
Rim region. The Company has also established a wholly owned subsidiary in
Scotland for the purpose of providing product repair services to European
customers as well as manufacturing certain products. See "Business--
Manufacturing." In 1996, Exabyte established repair service facilities in
Australia and Singapore, and established a wholly owned subsidiary in Canada
for repair services in North America. Several of the Company's independent
overseas distributors also provide repair services directly or through
their affiliates.
Direct international sales accounted for approximately 30%, 31% and 27% of
sales in 1996, 1995 and 1994, respectively. See Note 10 of Notes to
Consolidated Financial Statements. In addition, many of the Company's
domestic customers ship a significant portion of the Company's products to
their customers overseas. Currently a very small percentage of sales of the
Company's products are denominated in foreign currencies and may thus be
directly affected by foreign exchange rate fluctuations. In addition,
changes in the foreign exchange rates may adversely affect the volume of
sales denominated in U.S. dollars to overseas customers because the exchange
rate movement affects local currency pricing. The Company's sales are
also subject to risks common to export activities, including government
regulation or seizure of property, tariffs and import restrictions. The
Company's international sales are subject to export licensing requirements.
To date, the Company has not experienced any material difficulties in
obtaining export licenses. See "Risk Factors--Risks Related to Foreign
Sales."
Marketing and Customers; Principal Customers
- --------------------------------------------
IBM accounted for approximately 15%, 15% and 17% of sales in 1996, 1995 and
1994, respectively. Sun Microsystems accounted for approximately 11%, 11%
and 7% of sales during each of 1996, 1995 and 1994, respectively. No other
customer accounted for 10% or more of sales for any year during the three-
year period ending December 28, 1996. In addition, during 1996 Exabyte's
three largest customers accounted for an aggregate of 35% of the Company's
sales. These customers are not required to purchase a minimum quantity of
the Company's products and may cancel or reschedule orders without significant
penalty. The loss of one or more of these customers or substantial
cancellations by these customers would have a material adverse effect on the
Company's results of operations. Significant rescheduling or deferrals of
orders by any of these customers could cause substantial fluctuation in the
Company's quarterly results. In addition, Exabyte's agreements with some
of Exabyte's customers contain most favored customer provisions which have in
the past, and may in the future, result in price reductions or pricing
credits for such customers. See "Risk Factors--Fluctuations in Quarterly
Results" and "Risk Factors--Dependence on Key Customers."
<PAGE> 18
Marketing and Customers; Market Shift and Demand
- ------------------------------------------------
The Company believes that the demand for its tape subsystems and libraries
is substantially dependent upon the demand for workstations, midrange computer
systems, networks and personal computers. These markets are volatile and
subject to market shifts, which may or may not be discernible in advance by
the Company. A slowdown in the demand for such products could have a material
adverse effect on the demand for the Company's products in any given period.
In addition, the Company's OEM, NSO and reseller customers may cancel or
delay purchase orders for a variety of reasons, including rescheduling of
new product introductions, changes in their inventory practices or forecasted
demand, general economic conditions affecting the computer market, quality or
reliability problems related to the Company's products, or selection of
competitors as alternate sources of supply. Inaccuracies in market demand
forecasts can quickly result in either insufficient or excessive inventories
and disproportionate overhead expenses. The Company has experienced delays in
receipt of purchase orders and, on occasion, anticipated purchase orders have
been rescheduled or have not materialized due to changes in customer
requirements. In particular, any demand weakness in the reseller channel,
which generally represents higher-margin sales, tends to have a greater impact
on profitability and could have a material adverse effect on the Company's
results of operations. See "Risk Factors--Fluctuations in Quarterly Results,"
and "Risk Factors--Dependence on Key Customers."
MANUFACTURING
- -------------
Mammoth
- -------
The Company began commercial shipment of Mammoth in the first quarter of 1996.
Mammoth incorporates a mechanical deck manufactured by the Company. The
Company's previous manufacturing experience has been largely limited to
assembling and testing purchased components with limited experience in other
phases of manufacturing. In particular, the Company has had only limited
experience in manufacturing mechanical decks and certain critical components
of the deck assembly, including the head scanner assemblies. There can be no
assurance that the Company will be able to manufacture Mammoth in commercial
quantities at a commercially acceptable cost. Any inability of the Company to
manufacture the Mammoth product and components in the required volumes would
have a material adverse effect on the Company's competitive position and on
its results of operations. See "Risk Factors--Production Capability; Mammoth."
The Company's ability to sustain growth in the Mammoth product line depends
on the availability of advanced tape media which meets the Company's
specifications. The advanced tape media is currently sourced exclusively
from Sony, a competitor to the Company. See "Dependence on Key Vendors/
Competitors: Sony and Hitachi." The Company's ability to obtain an adequate
supply of advanced tape media which meets the Company's specifications has
been and may be further affected by any constraint in Sony's media production
capability, by the divergence of Sony's limited media supply to third parties,
by any change in Sony's media specifications which no longer meet the
Company's requirements, or otherwise as a result of Sony's competitive
position. See "Business--Competition." In addition, the Company believes
the manufacture of Mammoth will require the Company to increase its capital
assets and inventory requirements, thereby affecting the Company's financial
leverage. See "Risk Factors--Production Capability; Mammoth."
The Company currently manufactures and/or kits its 8mm, minicartridge and
<PAGE> 19
library products at its facility in Boulder, Colorado. The Company also
currently manufactures or expects to manufacture some of its products at its
Scotland facility. Exabyte's Scottish operation also customizes generic units
of the Company's other product lines to meet customer-specific requirements
for its European customers. The Company has increased the size of its
Scottish facility, as well as its capital asset and inventory base,
to accommodate the Company's expected manufacturing requirements.
The Company has contracts with third parties to manufacture certain products.
The Company currently anticipates that some or all of the Company's
minicartridge products will be manufactured by CAM Technology Center P.T.E.,
Ltd. at CAM's facility in Malaysia or elsewhere. Third party manufacturing
of the Company's products may impair the Company's ability to establish,
maintain or achieve adequate product manufacturing design standards or product
quality levels. Risks associated with the transfer of product manufacturing
to those or other third parties are particularly pronounced in the early
stages of the manufacture of the product. A number of the Company's third
party manufacturing programs involve such early-stage manufacturing. See
"Risk Factors--Third Party Contract Manufacturing."
Exabyte's inability to maintain cost-effective volume production of high-
quality products and to introduce announced products would have a material
adverse effect on the Company's results of operations. Exabyte employs
just-in-time manufacturing techniques with an emphasis on flexibility and
continuous flow. These techniques depend on uninterrupted access to high-
quality components in required volumes and at competitive prices. Many of
these components are manufactured to the Company's specifications and are
acquired from sole sources. The principal custom components for the Company's
current tape subsystems are the 8mm tape decks supplied by Sony and Hitachi
and internally by Exabyte, circuit boards from Solectron and EFTC, recording
heads from ReadRite and semiconductor circuits from various suppliers. The
Company has executed master purchase agreements with some of its sole-source
vendors and conducts business with the other vendors on a purchase order
basis. The Company's reliance on sole-source vendors involves several risks,
including the possibility of a shortage of certain key components and reduced
control over delivery schedules, manufacturing yields, quality and costs.
The Company has in the past experienced problems with the quality of and
interruptions in the supply of sole-source components. In the event of future
yield, quality, delivery, supply or availability problems with any of these
vendors, the Company could be forced to delay shipments of its current
products or the introduction of announced products, which could have a
material adverse effect on the Company's competitive position and its results
of operations. See "Risk Factors--Dependence on Key Vendors/Competitors;
Sony and Hitachi."
Sony Tape Deck Agreements
- -------------------------
Sony has been the Company's principal supplier of the tape deck for the
Company's 8mm tape subsystems since the commencement of product shipments in
1987. The tape decks incorporated in the Company's EXB-8205XL and EXB-8505XL
products are customized to meet the Company's specifications for data storage
applications. The Company and its wholly owned Japanese subsidiary, Nihon
Exabyte Corporation, entered into a supply agreement for the supply of the
customized tape decks for the Company's full-high 8mm products. Effective
January 1, 1992, the same parties entered into a separate agreement for the
supply of jointly-developed decks for incorporation into the Company's
half-high 8mm products.
<PAGE> 20
The supply agreement for the Company's half-high products provides that Sony
will not sell to third parties certain jointly-developed components. However,
neither of the supply agreements provides the Company with rights to preclude
Sony from selling to third parties similar products, nor does it prevent Sony
from incorporating such products into Sony's own 8mm product offerings.
Further, the half-high supply agreement, as amended, currently expires in
March 1998, subject to automatic renewal unless terminated by either party
upon 180 days' written notice. Exabyte does not anticipate renewing this
agreement and is currently negotiating with Sony regarding the expiration
of the agreement. See "Business--Competition" and "Risk Factors--Dependence
on Key Vendors/Competitors; Sony and Hitachi."
Hitachi Purchase Agreement
- --------------------------
Hitachi currently supplies the tape deck components for Exabyte's EXB-8700 and
Eliant(TM) 820 products. The components incorporated into these products are
also customized to the Company's specifications. The purchase agreement for
the EXB-8700 tape deck component was entered into among Exabyte, its wholly
owned Japanese subsidiary, Nihon Exabyte Corporation, and Hitachi on
February 22, 1995. The parties entered into a separate agreement on
December 11, 1996, for the supply of the Eliant(TM) 820 tape deck component.
Both agreements have a term of three years, subject to two 12-month extensions
at Exabyte's option.
While both purchase agreements contain certain restrictions regarding the sale
of Hitachi's tape decks or customized parts to third parties, such limitations
do not prevent Hitachi from individually developing similar components and
selling such components to third parties or using them in their own
competitive products.
There can be no assurance that either the supply of these decks will continue
or that prices will remain at their current levels. The Company's inability
to obtain decks at a commercially reasonable cost would cause a significant
delay or even termination of one or more products offered in Exabyte's Value
Line, and would have a material adverse effect on the Company's competitive
position and its results of operations. See "Risk Factors--Dependence on Key
Vendors/Competitors; Sony and Hitachi."
FOREIGN EXCHANGE AND IMPORT RESTRICTIONS
- ----------------------------------------
Because many of the Company's key components and products are currently or
may be manufactured in Japan, Germany, The Netherlands, China, Hong Kong,
Malaysia and Singapore, the Company's results of operations may be materially
affected by fluctuations in currency exchange rates. A substantial portion
of the Company's products incorporate subassemblies and components purchased
from Japanese or other overseas suppliers in yen or another foreign currency.
The Company enters into foreign currency forward contracts to hedge the
purchase of certain inventory components from Japanese suppliers. See
Note 1 of Notes to the Consolidated Financial Statements. Additional
contractual arrangements may be made subjecting Exabyte to some of the
foreign exchange rate risks. See "Risk Factors--Risks Related to Foreign
Sourcing."
The Company's international involvement is also subject to certain other
risks common to foreign operations in general, including government
regulation and import restrictions. In particular, an adverse foreign
<PAGE> 21
exchange movement of the U.S. dollar versus Japanese yen or other currency,
or the imposition of import restrictions or tariffs by the United States
government on products or components shipped from Japan or another country
could have a material adverse effect on the Company's results of operations.
Additionally, because of the Company's use of components produced overseas,
the sale of the Company's products to domestic federal or state agencies may
be restricted by limitations imposed by the Buy American Act or the Trade
Agreement Act. See "Risk Factors--Risks Related to Foreign Sourcing."
The Company's subsidiaries located in The Netherlands, Germany, Japan,
Canada and Singapore operate under their respective local currencies.
See Note 1 to the Company's Consolidated Financial Statements. As a result,
any amounts payable to a subsidiary or owed by a subsidiary are subject to the
foreign exchange rate between the U.S. dollar and the respective local
currency and could have a material impact on the Company's results of
operations. In addition, the Company's foreign operations are subject to the
risks generally applicable to the conduct of business in such countries.
See "Risk Factors--Risks Related to Foreign Operations."
RESEARCH AND DEVELOPMENT
- ------------------------
The Company participates in an industry that is subject to rapid
technological change. The Company believes that its future success will
depend on its ability to extend its technology and further the development
of highly reliable tape subsystems with competitive price performance
characteristics. The Company's research and development efforts are focused
toward the development of new products with improved price performance
characteristics. In addition, the Company is engaged in the ongoing
enhancement of its current products.
To date, most of the Company's sales have been derived from products based
on 8mm technology. There can be no assurance that other companies do not
have or will not develop technologies which are equivalent or superior to
the Company's technology or which render the Company's products obsolete or
non-competitive. Accordingly, Exabyte's ability to compete successfully
depends on continued enhancements of its existing products and timely
development of new products that meet the changing needs of users. The
Company has experienced delays from time to time meeting internal product
development schedules. In the future, Exabyte may encounter additional
difficulties that could delay or prevent product development. See "Risk
Factors--Product Development."
The Company's minicartridge drive subsystems incorporate cartridge media
developed and produced by, among others, Imation, a media division spin-off
of 3M Corporation. Imation, owner of DC 2000 and Travan(TM) technology,
devotes substantial resources to the development of further enhancements
to the technology. The Company's ability to successfully compete in the
minicartridge business depends, in part, on accessing and adapting to change
in minicartridge technology. See "Risk Factors--Dependence on Key
Vendors/Competitors; Sony and Hitachi."
The Company's research and development expenses were approximately $38.4
million, $37.0 million and $33.6 million in 1996, 1995 and 1994,
respectively. Except for certain software development costs, all of the
Company's research and development costs are expensed as incurred. The
Company's research and development organization consisted of 283 persons
as of December 28, 1996.
<PAGE> 22
COMPETITION
- -----------
The tape storage market is intensely competitive and subject to rapid
technological change. Manufacturers of alternative tape technologies compete
for a limited number of customers. Exabyte may face more significant
competitive challenges in the future in the form of loss of market share,
pricing pressure and otherwise.
The Company believes that the main competitive factors in this market are
storage capacity, data transfer rate, form factor, low cost, innovation,
product quality and reliability, timing of new product introductions, volume
availability, and customer support. Numerous companies are engaged in the
research, development and commercialization of data storage products,
including computer manufacturers, such as IBM and Hewlett-Packard, that
incorporate their own tape storage products into their systems. Some
of the Company's current and potential competitors have significantly greater
financial, technical and marketing resources than those of the Company.
See "Risk Factors--Competition."
The industry has experienced a number of consolidations which have increased
and may continue to increase the competitive pressures on the Company.
The Company faces direct competition in the market from companies offering 8mm
tape subsystems. Sony announced in the second quarter of 1996 a competitive
8mm product, and Hitachi announced in the third quarter of 1996 a competitive
product which has the potential to read data written by the Company's
products. See "Risk Factors--Dependence on Key Vendors; Sony and Hitachi" and
"Risk Factors--Competition." There can be no assurance that other companies
will not enter the 8mm market in the future.
The Company currently competes at the higher end of the tape subsystem market
against half-inch cartridge products produced by others. Such half-inch
products offer higher capacity and data transfer rates than do the Company's
current products. Quantum Corporation, with its introduction of DLT, serves
the higher end of the tape subsystem market addressed by the Company's current
and announced products. In particular, Quantum's DLT 4000 and DLT 7000
products have established a significant presence in the market targeted by
the Company with its Mammoth product. Additionally, the DLT 7000 has data
storage capacities and transfer rates which exceed Exabyte's current or
announced products. Among the competitors currently offering other half-inch
cartridge products are Fujitsu, IBM, Overland Data and StorageTek. Other
competitors may also enter the half-inch market in the future. See
"Risk Factors--Competition."
Additional competition in the tape subsystem market has come from companies
offering 4mm products using helical scan technology. The 4mm products
typically offer the advantages of lower price and smaller size, making 4mm
products more readily adaptable to computing systems using smaller form
factors. As a result, the Company's products have experienced competition
from 4mm-based products in the low-end file server and workstation markets.
In addition, Sony, one of the Company's key suppliers, currently offers a
competitive tape storage product based on 4mm technology. See "Risk Factors--
Competition."
At the low end of the market, the Company's minicartridge products compete
indirectly with 4mm products and directly with the minicartridge products
manufactured by Seagate, Hewlett-Packard, Tandberg, Iomega and Tecmar. The
Company's 8mm products also currently compete at the low end of the tape
<PAGE> 23
storage market with products using conventional tape technologies, such as
minicartridge products. Minicartridge technology typically offers advantages
over 8mm products, including low price and compatibility of new products with
the large installed base of earlier generation minicartridge products. As a
result, minicartridge drives have often been used to store data for desktop
personal computers and networks. Further, if higher capacity minicartridge
products are successfully introduced, such products could represent a more
significant competitive challenge, particularly to Exabyte's 8mm products.
The Company may face significant competitive challenges in the library market
in the form of pricing pressure, loss of business and otherwise. Exabyte's
library products currently represent higher-margin business to the Company
and, as such, any shortfall in the sale of these products would have a greater
impact on the Company's results of operations. The following chart represents
the Company's major competitors in library products:
<TABLE>
<CAPTION>
8mm DLT 4mm
--- --- ---
<S> <S> <S> <S>
IBM...................... X X
Qualstar................. X X
ADIC..................... X X X
Hewlett-Packard.......... X X
Quantum.................. X
Breece Hill.............. X
Odetics.................. X
StorageTek............... X X
SpectraLogic............. X X
Seagate.................. X
</TABLE>
Significant competition could also develop from companies offering erasable
and non-erasable optical disks. In addition, other companies in the future
may introduce competitive storage subsystems based on new technologies.
PATENTS AND LICENSES
- --------------------
The Company relies on a combination of patents, copyright and trade secret
protection, non-disclosure agreements and licensing arrangements to establish
and protect its proprietary rights. As of December 28, 1996, the Company owns
36 United States patents relating to technologies and certain aspects of the
Company's tape subsystems and robotic tape libraries and has taken steps to
establish certain protection in Asia and Europe. Also as of December 28,
1996, the Company had 16 patent applications pending in the United States and
intends to file additional applications for patents covering its products.
There can be no assurance that patents will issue from any of these pending
applications or, if patents do issue, that any claims allowed will be broad
enough to protect the Company's technology. In addition, there can be no
assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented, or that any rights granted thereunder would
provide proprietary protection to the Company. Although the Company continues
to implement protective measures and intends to defend its proprietary rights,
policing unauthorized use of the Company's technology or products is difficult
and there can be no assurance that these measures will be successful. In
addition, the laws of certain foreign countries may not protect the Company's
proprietary rights to the same extent as do the laws of the United States.
The Company believes that, because of the rapid pace of technological change
<PAGE> 24
in the tape storage industry, factors such as the knowledge, ability and
experience of the Company's personnel, new product introductions and frequent
product enhancements are more significant than patent and trade secret
protection.
The Company has received, and may receive in the future, communications from
third parties asserting that the Company's products infringe the proprietary
rights of third parties or seeking indemnification against any such
infringement. There can be no assurance that any of these claims will not
result in prolonged and costly litigation. While it may be necessary or
desirable in the future to obtain licenses relating to one or more of
Exabyte's products or relating to current or future technologies, there can
be no assurance that the Company will be able to do so on commercially
reasonable terms. See "Risk Factors--Third Party Proprietary Rights."
In particular, Mammoth incorporates a mechanical deck assembly to be
produced by the Company rather than be purchased from a third party.
The Company does not, therefore, benefit from supplier indemnification with
respect to patent or other intellectual property infringement. There can
be no assurance that the manufacture or sale of the Mammoth product will not
infringe the proprietary rights of third parties. The inability to obtain
any required license or to obtain such license on commercially reasonable
terms could have a material adverse effect on the Company's results of
operations. See "Risk Factors--Production Capability; Mammoth."
The manufacture of the Company's products by third parties under contract
with the Company is based in part on technology that the Company believes to
be proprietary. Exabyte may license this technology to contract manufacturers
enabling them to manufacture products for the Company. There can be no
assurance that such manufacturers will abide by any use limitations or
confidentiality restrictions in licenses with the Company. In addition, any
such manufacturer may develop processes related to manufacturing the Company's
products which it would then own independently or jointly with the Company.
Any such action would then increase the Company's reliance on the manufacturer
or require the Company to obtain a license from such manufacturer in order to
manufacture its products. There can be no assurance that such license, if
required, would be available on terms acceptable to the Company, if at all.
See "Risk Factors--Third Party Proprietary Rights."
The Company and Sony have entered into certain joint development agreements
with respect to tape decks and tape deck subassemblies. Under these
agreements, the Company and Sony have joint ownership of certain technology
related to these decks and subassemblies. See "Risk Factors--Dependence
on Key Vendors/Competitors; Sony and Hitachi." In addition, the Company
has granted manufacturing licenses to certain customers which enable them
to manufacture and sell the Company's products upon the occurrence of certain
events, including the failure of Exabyte to perform its supply obligations.
BACKLOG
- -------
Backlog consists of purchase orders for which a delivery schedule within six
months has been specified by the customer. The Company's backlog as of
December 28, 1996 and December 30, 1995 totaled approximately $28.9 million
and $21 million, respectively. The Company's customers typically execute
master purchase agreements with the Company. These agreements do not
generally require the customer to purchase minimum quantities of the Company's
products. Lead times for the release of purchase orders depend upon the
scheduling practices of each customer, and the Company anticipates that the
<PAGE> 25
rate of new orders will vary significantly from month to month. In addition,
the Company's actual shipments depend upon its production capacity and
component availability. Customers may cancel or reschedule orders without
significant penalty. For these reasons, the Company's backlog as of any
particular date may not be indicative of the Company's actual sales for any
succeeding fiscal period.
EMPLOYEES
- ---------
As of December 28, 1996, the Company had 1,493 full-time employees and 155
temporary, part-time or contract employees for a total of 1,648 employees.
Of the Company's total employees, 283 were employed in engineering, 278 in
sales, marketing and technical support, 917 in manufacturing and service,
and 170 in finance and administration. None of the Company's employees is
represented by a labor union although Exabyte Magnetics GmbH is subject to
an organized Works Council. In addition, the Company has experienced no
work stoppages and believes that its employee relations are good.
The Company's success depends to a significant extent upon the ability to
attract, retain and motivate key engineering, marketing, sales, manufacturing,
support and executive personnel. See "Risk Factors--Key Employees."
Item 2.
PROPERTIES.
The Company's corporate offices, research and development, and manufacturing
facilities are located in Boulder, Colorado, in leased buildings aggregating
approximately 448,000 square feet. The lease terms on these facilities
expire on various dates ranging from December 1997 to December 2004. The
Company believes that additional space will be available if needed for
further expansion.
The following chart identifies the location and type of each Exabyte property.
LOCATION
-------------------------------------
OFFICE TYPE DOMESTIC INTERNATIONAL
----------- -------- -------------
R&D & MFG. Boulder, CO Nuremberg, Germany
PROCUREMENT Tokyo, Japan
SERVICE & MFG. Falkirk, Scotland
SERVICE Mississauga, Ontario, Canada
Artarmon, Australia
Singapore
SALES & SUPPORT Campbell, CA Utrecht, The Netherlands
Mission Viejo, CA Woodbridge, Ontario, Canada
Oakbrook, IL Paris, France
Annapolis, MD Gwynedd, United Kingdom
Walpole, MA Frankfurt, Germany
Huntersville, NC Shanghai, China
Beaverton, OR Beijing, China
Dallas, TX Hong Kong
Houston, TX Singapore
<PAGE> 26
Item 3.
LEGAL PROCEEDINGS.
There are no material legal proceedings against the Company.
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Inapplicable.
EXECUTIVE OFFICERS OF THE COMPANY
=================================
The executive officers of the Company and their ages as of March 7, 1997 are
as follows:
Peter D. Behrendt(1) 58 Chairman of the Board
William L. Marriner 44 President (acting) and
Chief Executive Officer (acting),
Executive Vice President, Finance &
Administration, Chief Financial
Officer and Treasurer
Mark W. Canright 46 Senior Vice President
Sales & Customer Support
David L. Riegel 59 Executive Vice President of Operations and
Chief Operating Officer
(1) Member of the Stock Option Committee of the Board.
Mr. Peter D. Behrendt joined the Company in July 1987 as President, Chief
Operating Officer and director. He has served as Chairman of the Board since
January 1992 and currently holds that position. He served as President from
July 1987 until January 1997, Chief Operating Officer from July 1987 until
December 1994 and Chief Executive Officer from July 1990 until January 1997.
Prior to joining the Company, Mr. Behrendt held various executive positions
during 26 years with IBM, including Director of Quality and Product Assurance
for the Information Systems and Communications Group as well as Product
Manager of the electronic typewriter business, and was responsible for product
and business planning for IBM's tape and disk offerings. Mr. Behrendt is also
a director of Western Digital Corporation and Infocus Systems Corporation.
Mr. William L. Marriner joined the Company in March 1987 as Vice President,
Finance and Administration and Chief Financial Officer and has served as
Treasurer since July 1990, Senior Vice President since July 1991 and
Executive Vice President since December 1994. Mr. Marriner served as
Secretary from July 1989 to February 1995. He currently serves as President
(acting) and Chief Executive Officer (acting) after being appointed in January
1997. Prior to joining the Company, Mr. Marriner held various positions at
StorageTek from 1978 to 1987, including Vice President of Pacific and Latin
American Operations, Manager of Business Planning and Administration for
International Operations, and Assistant to the President.
Mr. Mark W. Canright joined Exabyte in 1987 as Western Region Sales Manager
and was promoted to Western Region Director in 1990, Vice President of North
American Sales in January 1992, Vice President of Worldwide Sales and Support
in July 1992, Vice President of Worldwide Sales and Marketing in January 1993
and Senior Vice President of Worldwide Sales and Marketing in January 1994.
<PAGE> 27
Mr. Canright has held the position of Senior Vice President of Sales and
Customer Support since February 1996. Prior to joining the Company,
Mr. Canright held various sales management positions at the Burroughs
Corporation, Data General and Convergent Technologies.
Mr. David L. Riegel joined the Company in November 1992 as Senior Vice
President of 8mm Operations. He became Senior Vice President of Operations
in July 1993 and has served as Executive Vice President and Chief Operating
Officer since December 1994. Prior to joining the Company, Mr. Riegel was
President and CEO, and has continued to serve on the Board of Directors, of
Bolder Technologies Corp. (previously Bolder Battery), a company engaged in
the development of batteries, from May 1992 until November 1992. Mr. Riegel
served as President and CEO of PrairieTek Corp., a disk drive manufacturer,
from July 1990 until November 1992. PrairieTek Corp. filed for protection
under the Federal bankruptcy laws in August 1991. Mr. Riegel previously
served as the Vice President of Component Operations for Imprimus Technology,
a subsidiary of Control Data Corporation, from September 1987 until October
1989.
Executive officers serve at the discretion of the Board. There are no family
relationships among any of the directors and officers.
<PAGE> 28
PART II
Item 5.
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter market and quoted
in the National Market System of the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") under the symbol EXBT. The
following table shows, for the calendar quarters indicated, the high and low
closing prices of the Company's Common Stock as reported on the NASDAQ
National Market System.
<TABLE>
<CAPTION>
Calendar Year High Low
- ------------- ----- -----
<S> <C> <C>
1995
First Quarter................................ 21-1/8 15-7/8
Second Quarter............................... 17-1/8 12
Third Quarter................................ 17 12-3/8
Fourth Quarter............................... 14-13/16 11-1/2
1996
First Quarter................................ 16-5/8 13-1/8
Second Quarter............................... 22-1/4 12-1/2
Third Quarter................................ 15 11-5/8
Fourth Quarter............................... 17-1/8 12-11/16
1997
First Quarter (through March 7, 1997)......... 14-3/4 9-1/2
</TABLE>
At March 7, 1997, the Company had 844 holders of record of its Common
Stock. The Company has never paid cash dividends on its Common Stock. In
addition, the Company's bank line of credit prohibits the payment of
dividends without prior bank approval. The Company presently intends to
retain any earnings for use in its business and does not anticipate paying
any cash dividends on its Common Stock in the foreseeable future.
Item 6.
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
The selected financial data set forth below with respect to the Company's
consolidated statements of operations for the fiscal years ended December 28,
1996, December 30, 1995, December 31, 1994, January 1, 1994 and January 2,
1993, and with respect to the consolidated balance sheets as of December 28,
1996, December 30, 1995, December 31, 1994, January 1, 1994 and January 2,
1993 are derived from consolidated financial statements audited by Price
Waterhouse LLP, independent accountants. The consolidated financial
statements for the years ended December 28, 1996, December 30, 1995 and
December 31, 1994 are included elsewhere in this report on Form 10-K and the
selected financial data shown below are qualified by reference to such
financial statements.
<PAGE> 29
<TABLE>
<CAPTION>
Fiscal Years Ended
(In thousands except per share amounts) Dec. 28, Dec. 30, Dec. 31, Jan. 1, Jan. 2,
Consolidated Statement of Operations Data: 1996 1995 1994 1994 1993
- ------------------------------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $362,891 $374,147 $381,844 $310,295 $287,444
Cost of goods sold........................... 265,002 311,891 257,365 219,053 183,380
-------- -------- -------- -------- --------
Gross profit................................. 97,889 62,256 124,479 91,242 104,064
Operating Expenses
Selling, general and administrative..... 47,929 49,896 42,560 37,169 30,790
Research and development................ 38,391 36,956 33,586 31,648 22,896
Purchased research and development...... -- -- 2,597(1) -- 13,469
-------- -------- -------- -------- --------
Income (loss) from operations................ 11,569 (24,596) 45,736 22,425 36,909
Other income, net............................ 1,114 1,568 2,069 1,507 1,954
-------- -------- -------- -------- --------
Income (loss) before income taxes............ 12,683 (23,028) 47,805 23,932 38,863
(Provision) benefit for income taxes......... (4,058) 10,593 (15,400) (7,750) (18,369)
-------- -------- -------- -------- --------
Net income (loss)............................ $ 8,625 $(12,435) $ 32,405 $ 16,182 $ 20,494
======== ======== ======== ======== ========
Net income (loss) per share.................. $0.39 $(0.57) $1.48 $0.76 $0.95
======== ======== ======== ======== ========
Common and common equivalent shares used in
the calculation of net income (loss)
per share(2)............................ 22,307 21,711 21,965 21,399 21,612
Consolidated Balance Sheet Data:
- -------------------------------
Working capital.............................. $143,730 $137,143 $157,978 $129,693 $112,688
Total assets................................. 256,126 250,336 242,765 197,307 183,066
Long-term obligations, excluding current
portion................................. 3,458 4,181 237 454 495
Stockholders' equity......................... 200,013 186,366 196,907 158,535 140,260
</TABLE>
(1) See Note 9 of Notes to Consolidated Financial Statements for an
explanation of the accounting for the Grundig Data Scanner GmbH
acquisition during 1994.
(2) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of shares used in computing net
income (loss) per share.
Quarterly Results of Operations (Unaudited)
- -------------------------------------------
The following table sets forth unaudited operating results for each quarter of
fiscal 1996 and 1995. This information has been prepared on the same basis as
the audited financial statements and, in the opinion of management, contains
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair statement thereof. The operating results for any quarter are not
necessarily indicative of results for any future period.
<PAGE> 30
<TABLE>
<CAPTION>
Quarters Ended
Dec. 28, Sep. 28, Jun. 29, Mar. 30,
1996 1996 1996 1996
------- ------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales.............................. $85,868 $92,741 $90,464 $93,818
Cost of goods sold..................... 65,005 66,079 65,641 68,277
------ ------ ------ ------
Gross profit........................... 20,863 26,662 24,823 25,541
Selling, general and administrative.... 13,865 11,921 11,634 10,509
Research and development............... 10,972 9,248 8,142 10,029
------ ------ ------ ------
Income (loss) from operations......... (3,974) 5,493 5,047 5,003
Other income (expense), net............ (11) 293 688 144
------ ------ ------- -------
Income (loss) before income taxes...... (3,985) 5,786 5,735 5,147
(Provision) benefit for income taxes... 1,943 (2,083) (2,065) (1,853)
------ ------ ------ ------
Net income (loss)...................... $(2,042) $ 3,703 $ 3,670 $ 3,294
====== ====== ====== ======
Net income (loss) per share............ $(0.09) $0.17 $0.16 $0.15
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
As a Percentage of Net Sales
<S> <C> <C> <C> <C>
Net sales.............................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold..................... 75.7 71.3 72.6 72.8
----- ----- ----- -----
Gross margin........................... 24.3 28.7 27.4 27.2
Selling, general and administrative.... 16.1 12.8 12.8 11.2
Research and development............... 12.8 10.0 9.0 10.7
----- ----- ----- -----
Income (loss) from operations.......... (4.6) 5.9 5.6 5.3
Other income (expense), net............ -- 0.3 0.8 0.2
----- ----- ----- -----
Income (loss) before income taxes...... (4.6) 6.2 6.4 5.5
(Provision) benefit for income taxes... 2.3 (2.2) (2.3) (2.0)
----- ----- ----- -----
Net income (loss)...................... (2.3)% 4.0% 4.1% 3.5%
===== ===== ===== =====
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
Quarters Ended
Dec. 30, Sep. 30, Jul. 1, Apr. 1,
1995 1995 1995 1995
------- ------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales.............................. $96,871 $84,100 $96,983 $96,193
Cost of goods sold..................... 71,947 99,772 73,728 66,444
------- ------- ------- -------
Gross profit (loss).................... 24,924 (15,672) 23,255 29,749
Selling, general and administrative.... 12,560 14,725 11,951 10,660
Research and development............... 8,855 10,007 9,237 8,857
------- ------- ------- -------
Income (loss) from operations.......... 3,509 (40,404) 2,067 10,232
Other income (expense), net............ 77 (93) 140 1,444
------- ------- ------- -------
Income (loss) before income taxes...... 3,586 (40,497) 2,207 11,676
(Provision) benefit for income taxes... (319) 15,632 (517) (4,203)
------- ------- ------- -------
Net income (loss)...................... $ 3,267 $(24,865) $ 1,690 $ 7,473
======= ======= ======= =======
Net income (loss) per share............ $0.15 $(1.13) $0.08 $0.34
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
As a Percentage of Net Sales
<S> <C> <C> <C> <C>
Net sales.............................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold..................... 74.3 118.7 76.0 69.1
----- ----- ----- -----
Gross margin........................... 25.7 (18.7) 24.0 30.9
Selling, general and administrative.... 13.0 17.5 12.3 11.1
Research and development............... 9.1 11.9 9.5 9.2
----- ----- ----- -----
Income (loss) from operations.......... 3.6 (48.1) 2.2 10.6
Other income (expense), net............ 0.1 (0.1) 0.1 1.5
----- ----- ----- -----
Income (loss) before income taxes...... 3.7 (48.2) 2.3 12.1
(Provision) benefit for income taxes... (0.3) 18.6 (0.6) (4.3)
----- ----- ----- -----
Net income (loss)...................... 3.4% (29.6)% 1.7% 7.8%
===== ===== ===== =====
</TABLE>
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following tables set forth items in the Exabyte Corporation and
Subsidiaries (the "Company") Consolidated Statements of Operations for the
three years ended December 28, 1996, December 30, 1995 and December 31, 1994
as a percentage of net sales.
<PAGE> 32
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Years
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................... 73.0 83.4 67.4
----- ----- -----
Gross margin................................ 27.0 16.6 32.6
Operating expenses:
Selling, general and administrative....... 13.2 13.3 11.1
Research and development.................. 10.6 9.8 8.8
Purchased research and development........ -- -- 0.7
----- ----- -----
Income (loss) from operations............... 3.2 (6.5) 12.0
Other income, net........................... 0.3 0.4 0.5
----- ----- -----
Income (loss) before income taxes........... 3.5 (6.1) 12.5
(Provision) benefit for income taxes........ (1.1) 2.8 (4.0)
----- ----- -----
Net income (loss)........................... 2.4% (3.3)% 8.5%
===== ===== =====
</TABLE>
PRODUCT MIX TABLE
<TABLE>
<CAPTION>
Fiscal Years
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
8mm half-high drives:
EXB-8205, 8505, 8700 and Mammoth......... 65.3% 59.7% 51.2%
8mm full-high drives:
EXB-8200 and 8500........................ 0.7 4.4 20.6
8mm half-high libraries:
EXB-10h, 210, 220, 440 and 480........... 14.4 13.9 2.8
8mm full-high libraries:
EXB-10, 10i, 10e, 60 and 120............. 0.0 1.6 7.8
4mm products:
EXB-4200.................................. 0.8 6.0 4.8
Minicartridge products:
TR3, TR4i, Eagle(TM) 96 and EXB-2501...... 4.8 1.9 1.5
Consumables................................. 11.9 9.5 8.1
Service, spares and other................... 5.8 5.6 4.9
Sales allowances............................ (3.7) (2.6) (1.7)
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
In addition to the historical information contained herein, the following
discussion contains forward-looking statements that include risks and
uncertainties. The Company has identified by **bold-face** various sentences
within this discussion which contain such forward-looking statements. The
<PAGE> 33
Company's results of operations may differ materially from results
contemplated or otherwise anticipated by each and every such forward-looking
statement. Factors that could cause actual results to differ include, but
are not limited to, those identified herein as well as those discussed in
the Company's filings on Form 10-K and Forms 10-Q.
FISCAL YEAR 1996 COMPARED TO 1995
- ---------------------------------
The Company's net sales of $362.9 million for fiscal 1996 decreased 3% from
net sales of $374.1 million for 1995. The overall decrease in sales resulted
from increases in sales of the Company's 8mm half-high drives, minicartridge
drives and consumables, which were more than offset by decreased sales of 8mm
full-high and 4mm drives which the Company discontinued in 1995 and 1996,
respectively. Sales in 1996 were also impacted by limited supply of the
Company's newest 8mm drive, Mammoth.
Sales of 8mm half-high drives increased to 65% of sales in 1996 from 60% in
1995. This increase was the result of increased sales of the Company's newer
8mm half-high products, such as Mammoth, and the transition away from 8mm
full-high products. Also included in 8mm half-high sales are more mature
products, such as the 8205 and 8505. Sales of these products remained
relatively stable representing 58% of sales in 1996 compared to 59% in 1995.
Sales of 8mm half-high libraries remained stable at 14% of total sales in both
1996 and 1995. Sales of 8mm full-high drives and libraries represented less
than 1% of sales in 1996, compared to 6% in 1995. Sales of 4mm products
decreased to 1% of sales in 1996 compared to 6% in 1995.
The relative customer mix during 1996 shifted to distributors from non-system
original equipment manufacturers ("NSOs"), solution providers and end-users.
Sales to original equipment manufacturers ("OEMs") remained at 44% of sales
for 1996 and 1995. Sales to distributors increased to 44% of sales in 1996
from 38% in 1995. NSO sales decreased to 7% of sales in 1996 from 10% in
1995. Sales to solution providers decreased to 2% of net sales in 1996 from
4% in 1995. End-users represented 3% of net sales in 1996, down from 4% in
1995. The change in customer mix was due, in part, to increased sales of
minicartridge products, which are currently sold predominantly through the
distribution channel.
The Company's gross margin percentage for 1996 increased to 27.0% compared to
16.6% for 1995. The 1995 margins were affected by special non-recurring
third quarter charges in cost of sales of $34.2 million. See the discussion
of fiscal year 1995 compared to 1994. Excluding such charges, the gross
margin for 1995 was 25.8%. Gross margin was affected by a number of
factors during the year. An increase in the value of the dollar versus
the yen resulted in reduced costs for certain Japanese components. **The
yen is expected to have a continuing positive impact on margins in 1997.**
Additionally, improved warranty costs had a positive impact on margins.
**Due to the competitive nature of the storage peripherals business, price
erosion on most products is expected to have an ongoing negative impact on
gross margins.**
Selling, general and administrative expenses decreased to $47.9 million in
1996 from $49.9 million in 1995. The decreases are primarily the result of
special non-recurring charges in 1995 totaling $2.6 million related to the
write-off of goodwill and end-of-life capitalized equipment. The principal
components of these selling, general and administrative costs include
salaries and benefits, sales commissions, advertising and promotion, travel
and related costs and depreciation expenses.
<PAGE> 34
Research and development expenditures increased to $38.4 million for 1996
compared to $37.0 million in 1995. The increases were attributed to
continuous engineering improvements on products released during the year,
such as Mammoth, as well as increased engineering efforts related to new 8mm,
minicartridge and library products which will be introduced in 1997.
Other income, net, consists primarily of interest income and expense, state
franchise taxes, foreign currency gains and losses and other miscellaneous
items.
The provision for income tax for 1996 was 32% compared to a benefit of
46.0% in the prior year. See Note 6 of Notes to Consolidated Financial
Statements for a description of the factors which resulted in the effective
tax rates being different from the statutory tax rate of 35%. **The Company
currently expects the 1997 effective tax rate to approximate 34%.**
FISCAL YEAR 1995 COMPARED TO 1994
- ---------------------------------
The Company's net sales of $374.1 million for fiscal 1995 decreased 2% from
net sales of $381.8 million for 1994. This decrease was the result of lower
shipments of 8mm full-high drive and library products. Partially offsetting
this decrease was an increase in the shipments of 8mm half-high, 4mm and
minicartridge drives and libraries. Consumable sales and service revenues
also grew.
During 1995, sales of the Company's half-high products increased as customer
demand shifted from the Company's full-high products. This shift was evident
in both drives and libraries. This shift is expected to continue until the
last of the full-high units are shipped. Demand for 8mm drives has shifted
to the half-high products whose sales increased to 60% of sales in 1995 from
51% in 1994. Sales of the Company's full-high drives decreased to 4% of sales
in 1995 from 21% in 1994. Sales of libraries have shifted to the half-high
EXB-10h, EXB-210, EXB-440 and EXB-480, which represented 14% of sales during
1995 compared to 3% in 1994. Sales of the full-high library products, the
EXB-10, EXB-60 and EXB-120 decreased to 2% of sales during 1995 compared to
8% in the prior year.
The relative customer mix during 1995 shifted to distributors and OEMs from
NSOs and solution providers. Sales to distributors increased to 38% of
sales in 1995 from 33% in 1994. OEM customers accounted for 44% of sales in
1995, compared to 43% in 1994. Sales to NSOs decreased to 10% of net sales
in 1995 from 15% in 1994. Solution provider sales decreased to 4% of sales
in 1995 from 5% in 1994. End-user sales remained at 4% of sales in 1995 and
1994. This shift in customer mix was primarily the result of greater sales
to existing distributor accounts and the addition of a large distributor in
December 1994.
The Company's gross margin percentage for 1995 decreased to 16.6% compared to
32.6% for 1994. The 1995 margins were affected by special non-recurring third
quarter charges in cost of sales of $34.2 million. Excluding such charges,
the gross margin for the year was 25.8%. The special charges resulted from:
(1) the write-off of raw material inventories associated with previously
announced end-of-life products; (2) the write-off of specialized fixed assets
utilized in the manufacture of these products; (3) the write-down of
end-of-life finished goods to their net realizable value; (4) the recording
of losses on certain vendor obligations related to these products; and
(5) losses on the sale of certain excess raw materials. Gross margin was
also affected by a number of other factors during the year. A decline in the
<PAGE> 35
value of the dollar versus the yen resulted in significantly higher dollar
costs for Japanese components in several products. A shift in product mix to
lower margin 4mm and minicartridge drives also adversely impacted the margin.
Additionally, full-high products were sold at discounted prices in an effort
to reduce inventory levels.
Selling, general and administrative expenses increased to $49.9 million in
1995 from $42.6 million in 1994. The increases were primarily the result of
overall growth in the Company's European sales operations and increased
promotional activity. Increases also include special non-recurring third
quarter charges of $2.6 million, comprised of a write-off of goodwill related
to two previous acquisitions and write-offs of capitalized evaluation and
demonstration equipment related to end-of-life products.
Research and development expenditures increased to $37.0 million for 1995
compared to $33.6 million in 1994. The increases were attributed to the
acquisition of an engineering subsidiary, Exabyte Magnetics GmbH, in October
of 1994, increased expenditures related to the development of the Mammoth
product and increased costs dedicated to software support.
Both selling, general and administrative and research and development
expenditures were modestly impacted by shutdown and severance costs related
to closure and consolidation of facilities in Ann Arbor, Michigan, San Jose,
California, and Lenexa, Kansas during 1995.
Other income, net, consists primarily of interest income, royalty income
and expense, state franchise taxes, foreign currency gains and losses and
other miscellaneous items.
The benefit for income tax for 1995 was 46.0% compared to a provision of
32.2% in the prior year. See Note 6 of Notes to Consolidated Financial
Statements for a description of the factors which resulted in the effective
tax rates being different from the statutory tax rate of 35%.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During 1996, the Company generated $13.5 million of cash from operating
activities, received $4.5 million from the issuance of Common Stock to Company
employees, expended $19.3 million for capital equipment and paid $0.8 million
on long-term liabilities. Together, these activities resulted in a decrease
in the combined balance of cash and short-term investments of $2.1 million to
a year-ending balance of $66.8 million.
The Company's working capital increased to $143.7 million on December 28, 1996
from $137.1 million on December 30, 1995.
The Company has a $7.5 million bank line of credit which expires April 30,
1997, with borrowings under the line limited to 80% of eligible accounts
receivable plus 25% of eligible inventory (limited to $3,000,000). On
December 28, 1996, the amount available under the line was $7.5 million and
no borrowings were outstanding. Borrowings under the line of credit bear
interest at the lower of the bank's prime rate or LIBOR + 2%. The ability to
borrow under this line of credit is dependent upon the Company's adherence to
a set of financial covenants. **The Company anticipates that it will renew
such line at comparable terms upon its expiration.**
**The Company currently expects to make capital expenditures of approximately
$20 million during 1997. The Company believes its existing sources of
<PAGE> 36
liquidity and funds expected to be generated from operations will provide
adequate cash to fund anticipated working capital and other cash requirements
through fiscal 1997.**
<PAGE> 37
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Accountants................................... 38
Consolidated Balance Sheets -
December 28, 1996 and December 30, 1995............................. 39
Consolidated Statements of Operations - for the years ended
December 28, 1996, December 30, 1995 and December 31, 1994.......... 40
Consolidated Statements of Changes in Stockholders' Equity -
for the years ended December 28, 1996, December 30, 1995 and
December 31, 1994................................................... 41
Consolidated Statements of Cash Flows -
for the years ended
December 28, 1996, December 30, 1995 and December 31, 1994.......... 42-43
Notes to Consolidated Financial Statements.......................... 44-55
<PAGE> 38
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Exabyte Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity and
of cash flows present fairly, in all material respects, the financial
position of Exabyte Corporation and its subsidiaries at December 28, 1996 and
December 30, 1995, and the results of their operations and their cash flows
for each of the three years in the period ended December 28, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
Boulder, Colorado
January 16, 1997
<PAGE> 39
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 28, December 30,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 46,223 $ 40,137
Short-term investments............. 20,600 28,800
Accounts receivable, net........... 56,414 56,785
Inventories, net................... 55,765 44,169
Deferred income taxes.............. 14,172 17,595
Other current assets............... 3,211 9,446
-------- --------
Total current assets................. 196,385 196,932
-------- --------
Property and equipment, net.......... 45,187 42,972
Deferred income taxes................ 10,055 7,703
Other assets......................... 4,499 2,729
-------- --------
59,741 53,404
-------- --------
$256,126 $250,336
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................... $ 18,916 $ 21,840
Accrued liabilities................ 31,900 32,945
Accrued income taxes............... 1,007 4,104
Current portion of long-term
obligations ..................... 832 900
-------- --------
Total current liabilities............ 52,655 59,789
Long-term obligations ............... 3,458 4,181
-------- --------
Commitments (Note 7).................
Stockholders' equity:
Preferred stock, $.001 par value;
14,000 shares authorized; no
shares issued and outstanding.... -- --
Common stock, $.001 par value;
50,000 shares authorized;
22,184 and 21,827 shares
issued........................... 22 22
Capital in excess of par value..... 64,124 59,102
Treasury stock, at cost, 15 shares. (9) (9)
Retained earnings.................. 135,876 127,251
-------- --------
Total stockholders' equity........... 200,013 186,366
-------- --------
$256,126 $250,336
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 40
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Years Ended
December 28, December 30, December 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales............................ $362,891 $374,147 $381,844
Cost of goods sold................... 265,002 311,891 257,365
-------- -------- --------
Gross profit......................... 97,889 62,256 124,479
Operating expenses:
Selling, general and administrative.. 47,929 49,896 42,560
Research and development............. 38,391 36,956 33,586
Purchased research and development... -- -- 2,597
-------- -------- --------
Income (loss) from operations........ 11,569 (24,596) 45,736
Other income, net.................... 1,114 1,568 2,069
-------- -------- --------
Income (loss) before income taxes.... 12,683 (23,028) 47,805
(Provision) benefit for income taxes. (4,058) 10,593 (15,400)
-------- -------- --------
Net income (loss).................... $ 8,625 $(12,435) $32,405
======== ======== ========
Net income (loss) per share.......... $ 0.39 $(0.57) $1.48
======== ======== ========
Common and common
equivalent shares used in the
calculation of net income (loss)
per share............................ 22,307 21,711 21,965
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 41
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except per share data)
<TABLE>
<CAPTION>
Common Stock Treasury Stock Capital in Excess Retained
Shares Amount Shares Amount of Par Value Earnings
------ ------ ------ ------ --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994............... 21,190 $21 (15) $(9) $51,242 $107,281
Common Stock options exercised ($.10
to $20.63 per share)................. 392 1 3,993
Common Stock issued pursuant to the
Employee Stock Purchase Plan
($12.11 per share)................... 75 906
Tax effect of disqualifying
dispositions of Common Stock......... 1,067
Net income for the year................ 32,405
------ ---- ---- ---- ------- --------
Balance, December 31, 1994 ............ 21,657 22 (15) (9) 57,208 139,686
Common Stock options exercised ($.10
to $18.38 per share)................. 85 825
Common Stock issued pursuant to the
Employee Stock Purchase Plan
($11.69 and $11.63 per share)........ 85 987
Tax effect of disqualifying
dispositions of Common Stock......... 82
Net loss for the year.................. (12,435)
------ ---- ---- ---- --------- --------
Balance, December 30, 1995 ............ 21,827 22 (15) (9) 59,102 127,251
Common Stock options exercised ($.10
to $20.63 per share)................. 257 3,347
Common Stock issued pursuant to the
Employee Stock Purchase Plan
($10.94 and $11.10 per share)........ 100 1,097
Tax effect of disqualifying
dispositions of Common Stock......... 578
Net income for the year................ 8,625
------ ---- ---- ---- -------- --------
Balance, December 28, 1996............. 22,184 $22 (15) $(9) $64,124 $135,876
====== ==== ==== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 42
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------
December 28, December 30, December 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers............ $363,804 $382,862 $371,046
Cash paid to suppliers and employees.... (354,209) (367,875) (325,868)
Interest received....................... 2,759 3,251 2,433
Interest paid........................... (529) (330) (156)
Income taxes paid....................... (2,476) (7,292) (21,104)
Income tax refund received.............. 4,160 -- --
Net cash provided by -------- -------- --------
operating activities............. 13,509 10,616 26,351
-------- -------- --------
Cash flows from investing activities:
(Purchase) sale of short-term
investments, net...................... 8,200 5,311 (13,111)
Capital expenditures.................... (19,276) (23,365) (13,568)
Acquisitions, net of cash acquired -- -- (3,035)
Net cash used for -------- -------- --------
investing activities............. (11,076) (18,054) (29,714)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from issuance of
Common Stock ......................... 4,444 1,812 4,900
Principal payments on long-term
obligations........................... (791) (470) (299)
Net cash provided by -------- -------- --------
financing activities............. 3,653 1,342 4,601
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................. 6,086 (6,096) 1,238
Cash and cash equivalents at beginning
of year................................. 40,137 46,233 44,995
-------- -------- --------
Cash and cash equivalents at end
of year................................. $46,223 $40,137 $46,233
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 43
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------
December 28, December 30, December 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net income (loss) to net
cash provided by operating activities:
Net income (loss)......................... $ 8,625 $(12,435) $32,405
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation, amortization
and other.......................... 17,059 17,153 13,697
Write-down of fixed assets........... -- 792 81
Deferred income tax provision (benefit) 1,071 (12,262) (6,212)
Provision for losses and reserves
on accounts receivable............. 11,159 8,723 5,442
Provision for end-of-life inventory
write-downs........................ -- 31,188 --
Purchased research and development... -- -- 2,597
Change in assets and liabilities, net of
acquisitions:
Accounts receivable.................. (10,788) (569) (17,187)
Inventories.......................... (11,596) (28,752) (10,669)
Other current assets................. 6,235 (6,695) (1,613)
Other assets......................... (1,770) (845) (103)
Accounts payable..................... (2,924) 1,382 790
Accrued liabilities.................. (1,045) 11,600 6,614
Accrued income taxes................. (2,517) 1,336 509
------- ------- -------
Net cash provided by
operating activities............... $13,509 $10,616 $26,351
======= ======= =======
Supplemental schedule of non-cash
investing and financing activities:
Transfer of inventories to
property and equipment.................. $ -- $ 2,605 $ 2,613
Capital lease obligations................. -- 4,042 --
Fair market value of acquisition assets,
including purchased research
and development and goodwill............ -- -- 3,605
Acquisition liabilities assumed........... -- -- 538
Income tax benefit of disqualifying
dispositions of Common Stock............ 578 82 1,067
Note payable issued to purchase software
licenses................................ -- 1,055 --
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 44
EXABYTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Exabyte Corporation (the "Company") was incorporated on June 5, 1985 under
the laws of the state of Delaware. The Company engages in the design,
development, manufacture and marketing of computer magnetic tape subsystems
for general commercial application. The Company reports its results of
operations on the basis of a fiscal year of 52 or 53 weeks ending on the
Saturday closest to December 31.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Exabyte FSC Ltd., a foreign sales
corporation, Nihon Exabyte Corporation (Japan), Exabyte Europe B.V. (The
Netherlands), Exabyte Scotland Limited (Scotland), Exabyte Magnetics GmbH
(Germany), Exabyte (Singapore) Pte. Ltd. (Singapore), and Exabyte (Canada)
Corporation (Canada). All intercompany accounts and transactions have been
eliminated.
Foreign Currency Translation
The U.S. dollar is the functional currency of the consolidated corporation.
For the Company's foreign subsidiaries, monetary assets and liabilities are
translated into U.S. dollars using the exchange rates in effect at the
balance sheet date and nonmonetary assets are translated at historical rates.
Results of operations are translated using the average exchange rates during
the period. Foreign exchange gains and losses included in the consolidated
statements of operations were not material in any year presented.
Foreign Currency Forward Contracts
The Company enters into foreign currency forward contracts in anticipation
of movements in the dollar/yen exchange rate which it uses to hedge the
purchase of certain inventory components from Japanese manufacturers. The
Company had outstanding contracts totaling $22.3 million and $21.7 million at
December 28, 1996 and December 30, 1995, respectively. The maturity dates
for these contracts for both years were within six months of the Company's
respective year-end. Hedged inventory transactions are included in the
Statement of Cash Flows as operating activities. At December 28, 1996 and
December 30, 1995, the Company had unrealized losses on forward contracts of
approximately $1.1 million and $1.3 million, respectively, based upon the
dollar/yen spot rates on those dates. Transaction gains or losses due to
exchange rate movements are recorded upon settlement of the transaction,
deferred into inventory, and recognized in income as the underlying inventory
is sold.
Revenue Recognition
Sales are recognized upon shipment of products to customers. Revenue from
sales to certain distributors is subject to agreements allowing certain rights
of return and price protection on unsold merchandise held by those
distributors. Accordingly, reserves for estimated future returns and for
price protection are provided in the period of the sale.
<PAGE> 45
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, short-term investments,
accounts receivable, accounts payable, accrued liabilities and the current
portion of long-term obligations in the consolidated financial statements
approximate fair value because of the short-term maturity of these
instruments. The fair value of long-term obligations under notes payable
was estimated by discounting the future cash flows using market interest
rates and does not differ significantly from that reflected in the
consolidated financial statements.
Concentration of Credit Risk
The Company's customers include original equipment manufacturers ("OEMs"),
non-system original equipment manufacturers ("NSOs"), solution providers,
distributors and end-users. Financial instruments which potentially subject
the Company to concentrations of credit risk are primarily accounts
receivable, cash equivalents and short-term investments. The Company performs
ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. Accounts receivable
are summarized as follows:
<TABLE>
<CAPTION>
December 28, December 30,
1996 1995
----------- -----------
(In thousands)
<S> <C> <C>
Accounts receivable.......................... $63,729 $63,617
Less: reserves and allowance for
non-collection............................. (7,315) (6,832)
------- -------
$56,414 $56,785
======= =======
</TABLE>
During the fiscal years ended December 28, 1996, December 30, 1995 and
December 31, 1994, one customer accounted for approximately 15%, 15% and 17%,
respectively, of sales. Another customer accounted for approximately 11% and
11% of sales during the fiscal years ended December 28, 1996 and December 30,
1995, respectively. No other customers accounted for 10% or more of sales in
any of the three years presented.
Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Such cash
equivalents aggregated $31,817,000 and $33,622,000 at December 28, 1996 and
December 30, 1995, respectively.
Inventories
Inventories are stated at the lower of cost or market, cost being determined
by the first-in, first-out method and include material, labor and
manufacturing overhead. Inventories consist of the following:
<PAGE> 46
<TABLE>
<CAPTION>
December 28, December 30,
1996 1995
----------- -----------
(In thousands)
<S> <C> <C>
Raw materials and component parts............ $34,865 $24,932
Work-in-process.............................. 2,692 2,033
Finished goods............................... 18,208 17,204
------- -------
$55,765 $44,169
======= =======
</TABLE>
During the third quarter of 1995, the Company recorded a lower of cost or
market write-down on certain end-of-life products aggregating $23,636,000.
At the same time, the Company accrued for losses on purchase commitments of
$7,552,000 related to such products. At December 28, 1996, no material
purchase commitment obligations exist.
Depreciation and Amortization
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the respective
depreciable assets (two to five years). Leasehold improvements are amortized
on a straight-line basis over the shorter of the useful life of the asset or
the lease term. Maintenance and repairs are expensed as incurred and
improvements are capitalized. Goodwill resulting from acquisitions is
amortized using the straight-line method over five years. All goodwill was
fully amortized prior to 1996. Amortization expense was $440,000 and
$880,000 in 1995 and 1994, respectively. In the third quarter of 1995,
the Company determined that remaining goodwill aggregating $2,273,000
related to two 1993 acquisitions had been impaired and, accordingly,
it was written off.
Warranty Costs
A provision for estimated future costs which may be incurred under the
Company's various product warranties is recorded when products are shipped.
Research and Development Costs
Software development costs for certain projects are capitalized from the time
technological feasibility is established to the time the resulting software
product is first shipped. Capitalized software costs are stated at the lower
of cost or net realizable value which totaled $2,334,000 at December 28, 1996
and are recorded as other non-current assets. Amortization had not yet
commenced at that date. All other research and development costs are expensed
as incurred.
Income Taxes
Deferred income taxes are provided for temporary differences between the
financial reporting basis and tax basis of the Company's assets and
liabilities. Income taxes are also provided for taxes currently payable
based on taxable income.
<PAGE> 47
Net Income (Loss) Per Share
Net income (loss) per common share is based on the weighted average number of
shares of Common Stock and Common Stock equivalents (dilutive stock options)
outstanding during each respective period. Proceeds from the exercise of the
dilutive stock options are assumed to be used to repurchase outstanding
shares of the Company's Common Stock at the average fair market value during
the period. In a period in which a loss is incurred, only the weighted
average number of common shares is used to compute the loss per share as the
inclusion of Common Stock equivalents would be antidilutive.
Use of Estimates
The Company has prepared these financial statements in conformity with
generally accepted accounting principles which require the use of
management's estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities, as well as
the reported amounts of revenue and expenses. Accordingly, actual results
could differ from the estimates used.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 28, December 30,
1996 1995
----------- -----------
(In thousands)
[S] [C] [C]
Equipment and furniture...................... $84,263 $66,280
Assets under capital leases.................. 5,825 5,968
Leasehold improvements....................... 17,334 16,417
Less: accumulated depreciation and
amortization............................... (62,235) (45,693)
------- -------
$45,187 $42,972
======= =======
Depreciation expense was $17,058,000, $14,443,000 and $12,956,000 in 1996,
1995 and 1994, respectively. Amortization of equipment and furniture under
capital leases is included in depreciation expense.
NOTE 3--ACCRUED LIABILITIES
Accrued liabilities consist of the following:
December 28, December 30,
1996 1995
----------- -----------
(In thousands)
[S] [C] [C]
Wages and employee benefits.................. $ 8,494 $ 5,603
Warranty and related costs................... 18,373 20,068
Loss on purchase commitments................. 82 4,212
Other........................................ 4,951 3,062
------- -------
$31,900 $32,945
======= =======
<PAGE> 48
NOTE 4--DEBT
Line of Credit
As of December 28, 1996, the Company maintained a $7,500,000 unsecured line of
credit. No borrowings were outstanding under the line as of that date. Under
the terms of the agreement, the Company may borrow the lesser of $7,500,000 or
80% of eligible accounts receivable plus 25% of eligible inventories (limited
to $3,000,000). Borrowings made under the agreement bear interest at the
lower of the bank's prime rate or LIBOR + 2%. The Company's bank line of
credit prohibits the payment of dividends without prior bank approval. The
line of credit agreement also includes certain financial and other covenants.
The agreement is currently scheduled to expire in April 1997.
Long-Term Obligations
In 1995, the Company entered into a note payable for $1,055,000 to purchase
certain software licenses. The note payable requires quarterly installments
of interest (7.5%) and principal through February 1998. The Company has also
entered into capital lease obligations related to the acquisition of certain
equipment and leasehold improvements. The following represents future
payments pursuant to these obligations as of December 28, 1996:
<TABLE>
<CAPTION>
Capital Lease
Note Payable Obligations Total
------------ ------------- -----
(In thousands)
<S> <C> <C> <C>
1997............................ $481 $ 868 $1,349
1998............................ 131 682 813
1999............................ -- 662 662
2000............................ -- 662 662
2001............................ -- 662 662
Thereafter...................... -- 1,656 1,656
---- ------ ------
612 5,192 5,804
Less: amount representing interest... (30) (1,484) (1,514)
---- ------ ------
Present value of payments............ 582 3,708 4,290
Less: current portion................ (454) (378) (832)
---- ------ ------
$128 $3,330 $3,458
==== ====== ======
</TABLE>
Interest expense aggregated $530,000, $330,000 and $156,000 in 1996, 1995 and
1994, respectively.
NOTE 5--CAPITAL STOCK AND STOCK COMPENSATION PLANS
At December 28, 1996, the Company had two stock-based compensation plans.
The Company applies APB Opinion 25 and related Interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for its
fixed stock option plan and its stock purchase plan. Had compensation cost
for the Company's two stock-based compensation plans been determined based on
the fair value at the grant dates for awards under those plans consistent with
the method of FASB Statement 123, the Company's pro forma results of operations
and pro forma net income (loss) per share would have been as follows:
<PAGE> 49
<TABLE>
<CAPTION>
(In thousands, except per share data) 1996 1995
---- ----
<S> <C> <C>
Net income (loss):
As reported...................... $8,625 $(12,435)
Pro forma........................ $4,798 $(14,323)
Net income (loss) per share:
As reported...................... $ 0.39 $ (0.57)
Pro forma........................ $ 0.22 $ (0.66)
</TABLE>
Fixed Stock Option Plan
Under the Incentive Stock Plan, the Company may grant options to its employees
and directors for up to 8 million shares of Common Stock. Under the Plan,
options are granted at an exercise price not less than the fair market value
of the stock on the date of grant. The options vest over periods up to 50
months and expire 10 years after the date of grant, except in the event of
the termination or death of the employee, whereupon vested shares must be
exercised within 90 days.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in 1995 and 1996, respectively: no
estimated dividends for both years; expected volatility of 57% for both
years; risk-free interest rates between 5.5% and 7.7% in 1995 and between
5.0% and 6.3% in 1996; and expected option lives of 0.41 years after the
vesting date for both years.
A summary of the status of the Company's fixed option plan as of December 28,
1996, December 30, 1995 and December 31, 1994, and changes during the years
ending on those dates is presented as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- -----------------------
Shares Weighted Avg. Shares Weighted Avg. Shares Weighted Avg.
(000's) Exercise Price (000's) Exercise Price (000's) Exercise Price
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year.................. 3,148 $16.97 2,614 $17.34 2,295 $16.00
Granted..................... 1,044 $15.49 898 $14.90 888 $17.78
Exercised................... (257) $13.02 (85) $ 9.68 (392) $10.18
Forfeited................... (317) $18.19 (279) $16.18 (177) $18.24
----- ------ ----- ------ ----- ------
Outstanding at end of year.. 3,618 $16.71 3,148 $16.97 2,614 $17.34
===== ====== ===== ====== ===== ======
Options exercisable
at year-end............... 1,940 $17.60 1,632 $17.66 1,157 $16.71
Weighted-average fair value
of options granted during
the year.................. $6.50 $6.37
</TABLE>
<PAGE> 50
The following table summarizes information about fixed stock options
outstanding at December 28, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- -----------------------------
Number Weighted Avg. Weighted Avg. Number Weighted Avg.
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices (000's) Contractual Life Price (000's) Price
- --------------- ----------- ---------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$ 0.10- 9.38 262 2.7 years $ 4.67 252 $ 4.50
$12.63-15.13 1,295 8.4 years $13.75 426 $13.69
$15.38-19.63 1,395 7.7 years $17.11 690 $16.90
$20.63-23.88 292 6.8 years $21.56 199 $21.47
$25.25-35.63 374 5.2 years $30.12 373 $30.12
----- --------- ------ ----- ------
3,618 7.3 years $16.71 1,940 $17.60
===== ========= ====== ===== ======
</TABLE>
Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan, the Company is authorized to issue up
to one million shares of Common Stock to its full-time employees, nearly all
of whom are eligible to participate. Under the terms of the Plan, employees
may elect to have up to 15% of their gross salaries withheld by payroll
deduction to purchase the Company's Common Stock. The purchase price of the
stock is 85% of the lower of market price at the beginning or end of each
six-month participation period. Under the Plan, the Company sold 100,000,
85,000 and 75,000 shares to employees in 1996, 1995 and 1994, respectively.
The fair value of each stock purchase plan grant is estimated on the date of
grant using the Black-Scholes model with the following assumptions for 1995
and 1996, respectively: no estimated dividends for both years; expected
volatility of 57% for both years; risk-free interest rates of 6.4% and 5.7%
in 1995 and 5.0% and 5.5% in 1996; and an expected life of 0.5 years for both
years. The weighted-average fair values of those purchase rights granted in
1995 and 1996 were $5.14 and $4.01, respectively.
Stockholder Rights Plan
The Board of Directors adopted on January 24, 1991 and amended on August 23,
1995 a Stockholder Rights Plan ("Rights Plan") in which preferred stock
purchase rights were distributed as a dividend at the rate of one right for
each share of Exabyte Common Stock held as of February 15, 1991. The Rights
Plan is designed to deter coercive or unfair takeover tactics and to prevent
an acquiring entity from gaining control of the Company without offering a
fair price to all of the Company's stockholders.
Each right will entitle the holders of the Company's Common Stock to purchase
one one-hundredth of a share of preferred stock at an exercise price of $75,
subject to adjustment in certain cases to prevent dilution. The rights are
evidenced by the Common Stock certificates and are not exercisable or
transferable apart from the Common Stock until the earlier of ten days after
the date on which a person or group has acquired beneficial ownership of 15%
or more of the Common Stock (an "Acquiring Entity") or ten business days
after the public announcement of the commencement of a tender or exchange
<PAGE> 51
offer that would result in the Acquiring Entity owning 15% or more of the
Common Stock. Further, the rights generally entitle each right holder
(except the Acquiring Entity) to purchase that number of shares of the
Company's Common Stock which equals the exercise price of the right divided
by one-half of the current market price of the Common Stock if any person
becomes the beneficial owner of 15% or more of the Common Stock. If an
Acquiring Entity purchases at least 15% of the Company's Common Stock, but
has not acquired 50%, the Board of Directors may exchange the rights (except
those of the Acquiring Entity) for one share of Common Stock per right. In
addition, under certain circumstances, if the Company is involved in a merger
or other business combination in which the Company is not the surviving
corporation, the rights entitle the holder to buy Common Stock of the
Acquiring Entity with a market value of twice the exercise price of each
right.
The Company is generally entitled to redeem the rights for $.01 per right at
any time until ten days following a public announcement that a 15% stock
position has been acquired and in certain other circumstances. The rights,
which do not have voting rights, will expire on February 15, 2001, unless
redeemed or exchanged earlier by the Company pursuant to the Rights Plan.
NOTE 6--INCOME TAXES
Pretax income (loss) was taxed in the following jurisdictions:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Domestic.......... $14,666 $(27,647) $43,865
Foreign........... (1,983) 4,619 3,940
------- -------- -------
$12,683 $(23,028) $47,805
======= ======== =======
</TABLE>
The provision (benefit) for income taxes consists of the following:
1996 1995 1994
-------- -------- --------
(In thousands)
[S] [C] [C] [C]
Current:
Federal......... $1,739 $ (275) $17,214
State........... 176 205 2,737
Foreign......... 1,072 1,739 1,661
Deferred:
Federal......... 2,927 (11,396) (5,891)
State........... 319 (866) (321)
Foreign......... (2,175) -- --
------- ------- -------
$4,058 $(10,593) $15,400
======= ======= =======
Total income tax provision (benefit) differs from the amount computed by
applying the U.S. federal income tax rate of 35% to income (loss) before
income taxes for the following reasons:
<PAGE> 52
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(In thousands)
<S> <C> <C> <C>
U.S. federal income tax
at statutory rate.......... $4,438 $ (8,060) $16,732
State income taxes, net
of federal benefit......... 436 (998) 1,776
Purchased research and
development................ -- -- 909
Research and development
credits.................... (304) (420) (875)
Tax exempt interest.......... (666) (414) (419)
Foreign Sales Corporation.... (105) (215) (534)
Net operating loss
carryforwards recognized... -- -- (2,650)
Other........................ 259 (486) 461
------ -------- -------
$4,058 $(10,593) $15,400
====== ======== =======
</TABLE>
Deferred tax assets are attributable to the following:
<TABLE>
<CAPTION>
December 28, December 30,
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Warranty reserves........................... $ 5,098 $ 5,349
Property and equipment...................... 3,470 3,995
Net operating loss carryforwards:
Domestic................................. 2,109 2,343
Foreign.................................. 2,175 --
Credit carryforwards........................ 1,291 --
Bad debt and revenue reserves............... 2,301 2,142
Goodwill.................................... 1,245 1,365
Vacation reserves........................... 554 504
Inventory reserves.......................... 4,517 8,532
Other....................................... 1,467 1,068
------- -------
$24,227 $25,298
======= =======
</TABLE>
At December 28, 1996, domestic net operating loss carryforwards of $6,026,000
are available to offset future taxable income. Utilization of the
carryforwards are subject to an annual limitation of $670,000 through 2005.
Foreign net operating loss carryforwards may be carried forward indefinitely.
In addition, the Company has unused research and development credits of
$723,000 which expire in 2010-2011 and alternative minimum tax credits of
$568,000 which may be carried forward indefinitely.
<PAGE> 53
NOTE 7--LEASE COMMITMENTS
The Company leases its office, production and sales facilities under various
operating lease arrangements. Most of the leases contain various provisions
for rental adjustments including, in certain cases, a provision based on
increases in the Consumer Price Index. In addition, most of the leases
require the Company to pay property taxes, insurance and normal maintenance
costs. Future minimum lease payments under these arrangements are as follows:
(In thousands)
1997................................... $ 5,828
1998................................... 5,057
1999................................... 4,945
2000................................... 4,530
2001................................... 4,114
Thereafter............................. 7,372
-------
$31,846
=======
Rent expense aggregated $5,906,000, $6,061,000 and $4,942,000 in 1996, 1995
and 1994, respectively.
NOTE 8-EMPLOYEE BENEFIT PLAN
The Company maintains a qualified Section 401(K) Savings Plan which allows
eligible employees to contribute up to 15% of their salaries on a pre-tax
basis. Company contributions to the Plan are discretionary. The Company
recorded as expense matching contributions totaling $801,000, $691,000 and
$652,000 in 1996, 1995 and 1994, respectively. Company contributions are
fully vested after six years of employment.
NOTE 9-ACQUISITIONS
On October 4, 1994, the Company acquired from Grundig A.G. all the outstanding
common shares of Grundig Data Scanner GmbH, subsequently renamed Exabyte
Magnetics GmbH ("EMG"), for a purchase price of $3.1 million. EMG is engaged
in the design and manufacture of heads and scanners for incorporation in
high-performance helical-scan tape drives and is located in Nuremberg,
Germany.
The results of operations of this entity have been included in the
accompanying Consolidated Financial Statements since its date of
acquisition. In addition, the acquisition was accounted for using the
purchase method; accordingly, assets and liabilities were recorded at their
estimated fair values at the date of acquisition. The excess of the purchase
price over the net assets acquired of EMG ($2,597,000) was charged to
operations as purchased research and development.
<PAGE> 54
NOTE 10--FOREIGN OPERATIONS AND GEOGRAPHIC INFORMATION
The following table summarizes the Company's operations in different
geographic areas:
<TABLE>
<CAPTION>
(In thousands)
YEAR ENDED DECEMBER 28, 1996 United
States Europe Elimination Consolidation
-------- -------- ----------- -------------
<S> <C> <C> <C>
Sales to unaffiliated customers..... $301,270 $61,621 $ -- $362,891
Transfers between geographic areas.. 20,466 7,049 (27,515) --
-------- ------- -------- --------
Total net sales..................... $321,736 $68,670 $(27,515) $362,891
======== ======= ======== ========
Net income (loss)................... $ 9,092 $ (467) $ -- $ 8,625
======== ======= ======== ========
Identifiable assets................. $239,656 $39,218 $(22,748) $256,126
======== ======= ======== ========
YEAR ENDED DECEMBER 30, 1995
Sales to unaffiliated customers..... $309,532 $64,615 $ -- $374,147
Transfers between geographic areas.. 23,151 9,854 (33,005) --
-------- ------- -------- --------
Total net sales..................... $332,683 $74,469 $(33,005) $374,147
======== ======= ======== ========
Net income (loss)................... $(15,085) $ 2,650 $ -- $(12,435)
======== ======= ======== ========
Identifiable assets................. $233,740 $40,017 $(23,421) $250,336
======== ======= ======== ========
YEAR ENDED DECEMBER 31, 1994
Sales to unaffiliated customers..... $354,904 $26,940 $ -- $381,844
Transfers between geographic areas.. 26,679 5,533 (32,212) --
-------- ------- -------- --------
Total net sales..................... $381,583 $32,473 $(32,212) $381,844
======== ======= ======== ========
Net income.......................... $ 30,906 $ 1,499 $ -- $ 32,405
======== ======= ======== ========
Identifiable assets................. $236,354 $32,665 $(26,254) $242,765
======== ======= ======== ========
</TABLE>
Sales and transfers between geographic areas are accounted for at arm's
length prices, which generally provide a profit after coverage of all
operating costs. The identifiable assets by geographic areas are those
assets used in the Company's operations in each area. The Company's Far East
operations have not been disclosed as a separate geographic area because
revenues from Far East sales are recorded by entities in other geographic
areas and Far East identifiable assets are less than 10% of consolidated
assets.
<PAGE> 55
United States export sales, which exclude revenues generated by European
operations, were made to the following geographic areas:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Europe............ $17,859 $18,426 $46,878
Other............. 28,227 31,086 27,732
------- ------- -------
$46,086 $49,512 $74,610
======= ======= =======
</TABLE>
<PAGE> 56
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
<PAGE> 57
PART III
Item 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Company's directors is incorporated by reference
from the information contained in the Section entitled "Election of Directors"
and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in
the Company's definitive Proxy Statement for the Company's 1997 Annual
Meeting of Stockholders to be filed within 120 days after December 28, 1996,
the close of its fiscal year ("Proxy Statement"). Information concerning the
executive officers of the Company is set forth in Part I of this Form 10-K.
Item 11.
EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference from the
Section entitled "Executive Compensation," contained in the Proxy Statement.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is incorporated by reference from the
Section entitled "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated by reference from the
Section entitled "Certain Transactions" contained in the Proxy Statement.
<PAGE> 58
PART IV
Item 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements of Exabyte Corporation and
Subsidiaries are included in Part II, Item 8.
Consolidated Financial Statements as of December 28, 1996 and December 30,
1995 and for each of the three fiscal years in the period ended
December 28, 1996.
***
Page
-----
Report of Independent Accountants............................... 38
Consolidated Balance Sheets..................................... 39
Consolidated Statements of Operations........................... 40
Consolidated Statements of Changes in Stockholders' Equity...... 41
Consolidated Statements of Cash Flows........................... 42-43
Notes to Consolidated Financial Statements...................... 44-55
(a) 2. Financial Statement Schedules
Schedules-Years ended December 28, 1996, December 30, 1995 and
December 31, 1994
VIII -Valuation and Qualifying Accounts and Reserves....... 62
All other schedules are omitted because they are inapplicable, not required
under the instructions, or the information is included in the financial
statements or notes thereto.
<PAGE> 59
(a) 3. Exhibit Index
Exhibit
Number Description
- ------------------------------
3.1 Restated Certificate of Incorporation. (1)
3.2 Certificate of Determination of Preference of Series
A Junior Participating Preferred Stock. (2)
3.3 By-laws of the Company, as amended.(14)
**10.1 Incentive Stock Plan, as amended and restated on
February 4, 1995. (16)
**10.2 Stock Option Agreements used in connection with the
Incentive Stock Plan. (3)
**10.3 1990 Employee Stock Purchase Plan. (3)
**10.4 Employee Stock Purchase Plan Offering used in
connection with the 1990 Employee Stock Purchase
Plan. (3)
**10.5 Form of participation agreement used in connection
with the 1990 Employee Stock Purchase Plan. (3)
10.6 Agreement for the sale and transfer of all shares in
Grundig Data Scanner GmbH dated September 13, 1994. (13)
10.7 Form of Indemnity Agreement entered into by the Company
with each director and executive officer of the Company.
(15)
10.8 8mm Mechanical Components Supply Agreement, dated April 1,
1990, among Sony Corporation, the Company and Nihon Exabyte
Corporation. (5)
10.9 First Amendment, 8mm Mechanical Components Supply
Agreement, dated July 9, 1992, among Sony Corporation,
the Company and Nihon Exabyte Corporation. (11)
10.10 Agreement, dated November 8, 1990, between Sony
Corporation and the Company.(6)
10.11 Lease Agreement, dated December 1, 1989, between the
Company and Eastpark Associates. (4)
10.12 First and Second Addenda, dated May and July 16, 1990
respectively, to the Lease Agreement, dated December 1,
1989, between the Company and Eastpark Associates. (5)
10.13 Lease Agreement, dated July 2, 1990, between the Company
and SBR Investments. (5)
10.14 Lease Agreement, dated July 2, 1990, between the Company
and The First National Bank in Boulder, Trustee for the
Barrell Family Trust and Frank R. Drexel. (5)
10.15 Lease Agreement, dated December 9, 1991, between the
Company and Eastpark Technology Center, Ltd. (7)
10.16 Option Contract, dated December 9, 1991, between the
Company and Eastpark Technology Center, Ltd. (7)
10.17 Lease Agreement, dated May 8, 1992, between the Company
and Eastpark Associates, Ltd. (8)
**10.18 1997 Officer Bonus Plan.
10.19 Rights Agreement, dated January 24, 1991, between the
Company and The First National Bank of Boston, as Rights
Agent. (2)
10.20 Amendment to the Rights Agreement, dated August 4, 1995,
between the Company and The First National Bank of Boston
as Rights Agent. (14)
10.21 Vail/Steamboat 8mm Mechanical Components Supply Agreement,
dated January 1, 1992, among Sony Corporation, Nihon
Exabyte Corporation and the Company. (9)
<PAGE> 60
10.22 First Amendment of Vail/Steamboat 8mm Mechanical Components
Supply Agreement, dated April 1, 1994. (15)
10.23 Agreement and Plan of Reorganization By and Among Exabyte
Corporation, EXB Merger Corporation, and R-Byte, Inc. (10)
10.24 Asset Purchase Agreement dated February 19, 1993 By
and Among Exabyte Corporation, Exabyte Acquisition
Subsidiary Corporation and Everex Systems, Inc. (11)
10.25 Asset Purchase Agreement dated February 12, 1993 By and
Among Exabyte Corporation, Tallgrass Corporation, a
Delaware corporation, and Tallgrass Technologies
Corporation, a Kansas corporation. (11)
10.26 8mm Mechanical Components Purchase Agreement, dated
February 22, 1995, among Hitachi Ltd. Electronic Sales
Office, the Company and Nihon Exabyte Corporation.
10.27 8mm Mechanical Components Purchase Agreement, dated
December 11, 1996, among Hitachi Ltd. Electronic Sales
Office, the Company and Nihon Exabyte Corporation.
21.1 List of Subsidiaries.
23.0 Consent of Price Waterhouse LLP.
** Indicates management contracts or compensation plans or
arrangements filed pursuant to Item 601(b)(10) of
Regulation S-K.
==============
(1) Filed as an Exhibit to the Company's Registration Statement on Form
S-1 (Registration No. 33-30941) filed with the Securities and
Exchange Commission (the "SEC") on September 8, 1989 or Amendments
Nos. 1 and 2 thereto (filed on October 12, 1989 and October 16, 1989
respectively), and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Report on Form 8-K, as filed
with the SEC on January 26, 1991 and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Registration Statement on Form
S-8 (Registration No. 33-33414), as filed with the SEC on February 9,
1990 and incorporated herein by reference.
(4) Filed as an Exhibit to the Company's 1989 Annual Report on Form 10-K,
as filed with the SEC on March 27, 1990 and incorporated herein by
reference.
(5) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q,
as filed with the SEC on November 9, 1990 and incorporated herein
by reference.
(6) Filed as an Exhibit to the Company's 1990 Annual Report on Form 10-K,
as filed with the SEC on February 27, 1991 and incorporated herein
by reference.
(7) Filed as an Exhibit to the Company's 1991 Annual Report on Form 10-K,
as filed with the SEC on March 6, 1992 and incorporated herein by
reference.
(8) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q,
as filed with the SEC on May 9, 1992 and incorporated herein by
reference.
<PAGE> 61
(9) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q,
as filed with the SEC on August 11, 1992 and incorporated herein by
reference.
(10) Filed as an Exhibit to the Company's Report on Form 8-K, as filed
with the SEC on October 15, 1992 and incorporated herein by reference.
(11) Filed as an Exhibit to the Company's 1992 Annual Report on Form 10-K,
as filed with the SEC on March 24, 1993 and incorporated herein by
reference.
(12) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q,
as filed with the SEC on November 17, 1994 and incorporated herein
by reference.
(13) Filed as an Exhibit to the Company's Report on Form 8-K, as filed
with the SEC on August 23, 1995 and incorporated herein by reference.
(14) Filed as an Exhibit to the Company's 1994 Annual Report on Form 10-K,
filed with the SEC on March 17, 1995 and revised and filed on
March 24, 1995, incorporated herein by reference.
(15) Filed as an Exhibit to the Company's Report on Form S-8 (Registration
No. 33-64591), as filed with the SEC on November 27, 1995 and
incorporated herein by reference.
(16) Filed as an Exhibit to the Company's Report on Form S-8, as filed with
the SEC on July 31, 1996 and incorporated herein by reference.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the fiscal quarter ended
December 28, 1996.
<PAGE> 62
EXABYTE CORPORATION AND SUBSIDIARIES
Schedule VIII - Valuation and Qualifying Accounts and Reserves
(In thousands)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E Col. F
- ----------------- ------------ -------- ------------ --------- ----------
Balance Charged
at to Charged Balance
Beginning Costs to at End
of and Other of
Description Period Expenses Accounts Deduction Period
- ----------------- ------------ -------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Allowance for doubtful accounts..... $ 835 $ 36 $ -- $ 152 (1) $ 1,023
Reserves for sales programs......... 1,423 -- 5,406 (3,398) (2) 3,431
Inventory valuation reserves........ 1,400 3,938 -- (2,578) (4) 2,760
Deferred tax valuation allowance.... 2,650 -- -- (2,650) (3) --
------ ------- ------- -------- -------
$6,308 $ 3,974 $ 5,406 $ (8,474) $ 7,214
====== ======= ======= ======== =======
Year Ended December 30, 1995:
Allowance for doubtful accounts..... $1,023 $ 88 $ -- $ (263) (1) $ 848
Reserves for sales programs......... 3,431 -- 8,635 (6,082) (2) 5,984
Inventory valuation reserves........ 2,760 34,269 -- (25,647) (4) 11,382
------ ------- ------- ------- -------
$7,214 $34,357 $ 8,635 $(31,992) $18,214
====== ======= ======= ======== =======
Year Ended December 28, 1996:
Allowance for doubtful accounts..... $ 848 $ 39 $ -- $ 632 (1) $ 1,519
Reserves for sales programs......... 5,984 -- 11,121 (11,309) (2) 5,796
Inventory valuation reserves........ 11,382 2,495 -- (5,927) (4) 7,950
------ ------- ------- -------- -------
$18,214 $ 2,534 $11,121 $(16,604) $15,265
======= ======= ======= ======== =======
</TABLE>
(1) Accounts written off, net of recoveries.
(2) Net credits issued to customers for sales programs.
(3) Reduction in income tax expense related to the liquidation of R-Byte.
(4) Use of inventory reserves against inventory.
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Boulder, State of Colorado, on March 20, 1997.
EXABYTE CORPORATION
By: /s/ William L. Marriner
-----------------------
William L. Marriner
Title: President (acting) and
Chief Executive Officer (acting)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter D. Behrendt and William L. Marriner, and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place, and
stead, in any and all capacities, to sign any and all amendments to this
report, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Peter D. Behrendt Chairman of the Board March 20, 1997
- ---------------------
Peter D. Behrendt
/s/ William L. Marriner President (acting) and Chief March 20, 1997
- ----------------------- Executive Officer (acting)
William L. Marriner (Principal Executive Officer)
Executive Vice President,
Finance & Administration,
Chief Financial Officer
/s/ David L. Riegel Executive Vice President March 20, 1997
- ------------------- and Chief Operating Officer
David L. Riegel
<PAGE> 64
/s/ Bruce M. Holland Director March 20, 1997
- --------------------
Bruce M. Holland
/s/ Thomas E. Pardun Director March 20, 1997
- ---------------------
Thomas E. Pardun
/s/ Mark W. Perry Director March 20, 1997
- -----------------
Mark W. Perry
/s/ Ralph Z. Sorenson Director March 20, 1997
- ---------------------
Ralph Z. Sorenson
/s/ Thomas G. Washing Director March 20, 1997
- ---------------------
Thomas G. Washing
Exhibit 10.19 - 1997 OFFICER BONUS PLAN
The Company has adopted a 1997 Officer Bonus Plan under which all executive
officers are awarded cash bonuses based on the Company's operating results.
The respective bonus payments are calculated with reference to the actual
pre-tax income (and revenue for the Senior Vice President Sales and Customer
Support) results as measured against the 1997 Operating Plan presented
and approved at the Board of Directors meeting on January 16, 1997. The
pre-tax income level is measured prior to any accruals reflecting the
Company's bonus payments. The pre-tax income level will be measured prior
to any accruals reflecting the Company's bonus payments. No profit bonus
will be paid for achievement of 50% or less of the planned objective. At
100% achievement, 100% of the profit bonus will be paid. At 150% achievement,
200% of the profit bonus will be awarded. For results between 50% and 100%
and between 100% and 150%, the profit bonus will scale in a linear fashion
(e.g., 50% profit bonus at 75% achievement of plan and 150% profit bonus at
125% of plan.
The "On-Plan" revenue commissions for the Senior Vice President, Sales and
Customer Support, shall be measured against the revenue plan of $337.6 million
(excludes Service and Eagle(TM) division revenue for which the Senior Vice
President is not responsible). Revenue commissions shall be calculated at
.033% of annual revenue without regard to a cap.
<PAGE> 1
PAGE(1)
EXABYTE PURCHASE AGREEMENT
- --------------------------
THIS EXABYTE PURCHASE AGREEMENT ("Agreement"), dated this twenty-second
day of February 1995 among Hitachi, Ltd. Electronic Sales Office, a Japanese
corporation having its principal place of business at 5-1, Marunouchi 1-chome,
Chiyoda-ku, Tokyo 100, Japan ("Seller"), Nihon Exabyte Corporation, a Japanese
corporation having its principal place of business at Kioicho TBR Building
1214, 5-7 Koujimachi, Chiyoda-ku, Tokyo 102, Japan ("Buyer"), and Exabyte
Corporation, a Delaware Corporation of the United States of America, located
at 1685 38th Street, Boulder, Colorado 80301 U.S.A. ("Exabyte"), also known
as the parties, agree as follows:
WHEREAS, the Buyer is a wholly-owned subsidiary of Exabyte in Japan,
engaged in the business of purchasing various components for resale to Exabyte
and to other approved parties; and
WHEREAS, Seller and Exabyte entered into a Development Agreement (as
hereinafter defined) on the 28th day of September, 1994, for the design and
development of an 8MM deck for data storage applications for use in certain
Exabyte products ("Development Agreement"), said Development Agreement being
incorporated by reference as if fully set forth herein; and
WHEREAS, Seller desires to sell to Exabyte and Buyer, and Exabyte and
Buyer desire to purchase from Seller such 8MM data storage devices developed
under the Development Agreement for the purpose of integrating in the
manufacture of Exabyte's products or systems upon the terms and conditions
hereafter set forth.
1. DEFINITIONS
1.1. Affiliate shall mean any entity in which Hitachi's Division has
directly or indirectly a majority equity interest.
1.2. Development Agreement shall mean the agreement entered into by and
between Hitachi's Division and Exabyte on the 28th day of September,
1994 for the design and development of an 8mm deck for data storage
applications.
1.3. Funded Hard Tooling shall mean any tooling purchased or paid for by
Buyer or Exabyte pursuant to this Agreement or the Development
Agreement.
1.4. Hitachi's Division shall mean the division engaged in the commercial
production of Product during the term of this Agreement. Upon
execution of this Agreement, it shall mean Video and Personal Media
Systems Division.
1.5. Product shall mean the product and other items manufactured, assembled
at Hitachi's Division and sold by the Seller which are listed in
Appendix I of this Agreement (and those items, if any, hereafter added
by the parties to Appendix I), including the Product defined by the
specifications included in Exhibit A.
1.6. Spare Parts shall mean all parts or components of Product which are
listed in Appendix II of the Agreement (and those items, if any,
hereafter added by the parties to Appendix II).
<PAGE> 2
PAGE(2)
2. SCOPE OF AGREEMENT
2.1. Term of Agreement
This Agreement shall become effective upon its execution by both
parties by their authorized representatives. The Agreement shall
expire thirty-six (36) months thereafter unless the Agreement is
terminated earlier pursuant to Section 8 and shall be automatically
extended for two additional twelve (12) month periods, unless Buyer
notifies Seller in writing at least ninety (90) days prior to the
beginning of such period that it desires not to renew.
2.2. Marketing Rights
Subject to all terms and conditions of the Agreement, Seller grants
Buyer the right to purchase Products from Seller and for Buyer and
Exabyte to promote, lease, rent or re-sell such Products in modified
form or otherwise throughout the world.
2.3. Exclusivity
Seller and Seller's Affiliates agree not to sell any products to third
parties which would violate the terms of Section 5.1 of the
Development Agreement. The terms of the letter of October 31, 1994
attached as Appendix IV, shall be incorporated herein by reference.
3. TERMS OF PRODUCT SALE
3.1. Title and Risk of Loss
Title and risk of loss shall pass to Exabyte and Buyer upon delivery
of Product to Buyer's receiving dock or as otherwise identified in the
Purchase Order specified in Section 3.3.1. All claims for shipping
damages shall be resolved between Seller, carriers or freight
forwarders handling the Product and the insurance companies and agents
responsible for adjusting such claims, and Exabyte and Buyer shall
have no responsibility with respect thereto.
3.2. Price for Products
The prices which the Buyer shall pay the Seller for the Product sold
pursuant to this Agreement are set out in Appendix I to this
Agreement. All prices listed in Appendix I are in Japanese yen,
Freight on Rail ("F.O.R."), Buyer's dock. The pricing for Product
defined by the specifications set forth in Exhibit A shall in no event
be greater than that specified by Appendix I to the Development
Agreement. Any change to the prices set forth in Appendix I shall be
identified by an amendment to Appendix I which shall be approved by
authorized representatives of the parties.
PAGE(3)
3.2.1. Price Increases
The prices to be paid by Buyer for Product shall remain in effect for
the time period set forth in Appendix I. Seller may decrease prices
at any time, without notice to Buyer. Such prices are subject to
increase only in accordance with Section 5.1.2.2 and Section 3.2.3.
Orders for Product placed by Buyer shall, provided delivery is to be
<PAGE> 3
made within ninety (90) days of placement of order, be filled at the
price in effect at the time of order.
3.2.2. Product Price
3.2.2.1. Price Reviews
Exabyte and Buyer will provide to Seller quarterly
price targets as a continuous effort toward a cost/
price reduction program. Seller agrees to exercise
reasonable efforts to meet these targeted reductions.
Supplier agrees to a cost/price reduction review
meeting every 90 days. Supplier will formally provide
Exabyte and Buyer with specific information for price
reduction opportunities.
3.2.2.2. Approval of Unique Charges
All non-recurring related expenses shall be approved
in advance by Exabyte, and the cost shall be amortized
over the Product units purchased by Buyer over a
twelve (12) month period. No charges beyond those
defined in Exhibit C to the Development Agreement
shall be deemed to be approved except as otherwise
agreed by the parties in writing.
3.2.3. Foreign Exchange
All prices shall be in Japanese yen. The parties agree that at
the time of execution of this Agreement the exchange rate is
ninety-seven and one-half (97.5) Japanese yen to one (1) U.S.
dollar. At such time as the yen-to-dollar exchange rate varies
by more than an average of five percent (5%) in either
direction over a ninety (90) day period, such exchange rate
being that indicated in The Wall Street Journal, the parties
agree to share equally in the effects of any such variance
beyond such five percent (5%), and will adjust the Product
price accordingly.
3.3. Purchase Order and Acceptance
3.3.1. Purchase Orders
Purchase orders ("Purchase Orders") issued by the Buyer ninety
(90) days prior to initial shipment relating to such Purchase
Order for the purchase of Product and/or spare parts shall
include the following information:
a. Model of Product.
b. Quantity to be purchased.
PAGE(4)
c. Unit price and total order price.
d. Delivery instructions.
Delivery Dates shall be separately provided by the Shipment Request
Form pursuant to Section 3.3.3.
<PAGE> 4
PAGE(4)
3.3.2. Acceptance of Orders
Orders shall not be considered as accepted until written
acceptance (may be a facsimile) has been made at the principal
office of Seller or assignee as appropriate. It is agreed
that all such orders shall be governed by the provisions of
this Agreement and that none of the provisions of Buyer's
Purchase Order or Seller's acknowledgment thereof (either
printed, stamped, typed or written) except those specifying
the quantity and identification of the Product, the price,
invoice information and shipping instructions shall be
applicable to the purchase if in conflict with this Agreement,
unless specifically accepted or approved in writing and signed
on behalf of Seller by an authorized officer. A general or
standard acknowledgment of any such order or the making of
deliveries with respect thereto shall in no case be construed
as an acceptance or approval of the type required of provisions
in conflict with the terms of this Agreement. Fulfillment of
any Purchase Order accepted by the Seller shall be dependent
upon the grant of appropriate licenses, permits and the like
from the countries of export and import.
3.3.3. Delivery Dates
Delivery Dates shall be reflected on a shipment request form
("Shipment Request Form") for quantities not to exceed the
total Product units provided on Purchase Orders which have
been previously accepted by Seller. Such Delivery Dates shall
not extend beyond one hundred twenty (120) days from the date
of the Purchase Orders.
3.3.4. Changes to Quantities to be Delivered
Upon Seller's acceptance of Buyer's or Exabyte's Purchase
Order, and any Shipment Request Forms thereto, Buyer and/or
Exabyte may not change any quantities to be delivered during
the first four (4) weeks from the date of Buyer's request for
changes.
PAGE(5)
Buyer and/or Exabyte may decrease the quantities by up to
twenty-five percent (25%) of the total orders in the second
four-week period and/or may increase the quantities by up to
twenty percent (20%) of the total orders in the second four-
week period.
Weeks 1-4 Weeks 5-8 Weeks 9-12
+/-0% +20% +/-50%
-25%
Seller agrees to accept both increases and decreases in the
quantities, provided that these changes do not exceed fifty
percent (50%) of the total order for the third four-week
period. All of the parties hereto agree to negotiate in good
faith any requests for additional changes in quantities, based
on materials availability.
<PAGE> 5
3.4. Postponement
Notwithstanding the provisions of Sections 3.3.3 and 3.3.4, Buyer
shall be entitled to postpone delivery of all or part of Product units
then on order. Such postponement may defer delivery for a maximum of
ninety (90) days. Notice of such postponement must be received at
least thirty (30) days prior to the beginning of the month in which
such Product units were originally scheduled for delivery.
3.5. Shipments
3.5.1. Terms
Product shall be shipped at Seller's expense to Buyer's
specified location in the vicinity of Tokyo.
3.5.2. Packaging
Seller will provide proposed deck and Spare Parts packaging
specifications for Exabyte's review and approval. Seller will
package each Product according to approved specifications.
3.5.3. Charges
The cost for packaging for normal shipment to Buyer's dock is
included in the quoted price provided, however, expedited
deliveries will be subject to additional transportation and
packaging charges to be paid by Exabyte and Buyer unless
expedited deliveries are caused by Seller's inability to
deliver to agreed-upon schedules.
3.5.4. Delinquencies
If Seller has knowledge that it will not meet the agreed-upon
Delivery Dates, Seller shall notify Exabyte in writing a
minimum of fifteen (15) days prior to the occurrence of the
expected delinquency and provide Exabyte with a schedule to
remedy the delinquency. Exabyte shall provide written
acceptance or rejection of the proposed revision to the
delivery schedule within three (3) business days of such
notification. If Exabyte rejects with reasonable cause
Seller's remedy schedule, the original or the latest Order
schedule shall remain in force. During the period of
delinquency by Seller, Seller may either, at Seller's sole
option ship the Product to Exabyte's or Buyer's designated
destination at Seller's sole expense, or Seller will ship all
Product to a location in Japan designated by Exabyte or Buyer
in the most expeditious manner. Buyer or Exabyte will then
expedite shipment of such Product from Japan to Exabyte's
designated plant, and Seller agrees to reimburse Buyer or
Exabyte for the additional shipping expense incurred due to
Seller's delinquency.
PAGE(6)
3.6. Inspection, Acceptance, Rejection
3.6.1. Source Inspection
With advance conference with Seller, Buyer and Exabyte may
conduct, at its own expense, source inspection to confirm that
<PAGE> 6
each Product unit substantially meets the requirements of this
Agreement. Such source inspections do not relieve Seller of
its obligation to deliver Product conforming to this Agreement
and do not constitute acceptance of such Product. Seller will
provide adequate space within reasonable proximity to factory
and/or required inspection equipment to complete such
inspections, at no cost to Exabyte.
3.6.2. Rights of Rejection
Upon receipt of shipment hereunder, Buyer shall inspect the
Product under such shipment. Claims by Buyer for shortages,
incorrect materials or invoicing errors must be made within
forty-five (45) days after receipt of shipment by Buyer.
Claims for defects in materials, workmanship or failure to
meet specifications must be made in accordance with Section
3.6.3.
3.6.3. Acceptance
Exabyte may reject Product units not in accordance with the
specifications provided by Exhibit B. Product delivered to
Exabyte shall be deemed to be accepted by Exabyte unless
notice of rejection in writing is given by Buyer or Exabyte to
Seller within ninety (90) days after receipt of Product by
Exabyte at Exabyte's acceptance location. Payment by the
Buyer or Exabyte does not constitute or evidence acceptance.
3.6.4. Return of Rejected Products
All defective and suspect defective Products and Spare Parts
will be returned for credit to Seller for failure analysis
and corrective action and Seller shall exercise its best
efforts to ship to Buyer or Exabyte a replacement Product or
Spare Part as soon as possible, but in any event not later
than sixty (60) days from Seller's receipt of such Product
or Spare Parts. In the event that Seller reasonably determines
that such defects and/or failures are the fault of Seller,
Seller shall be responsible for all freight charges to return
the Product to Seller and to ship repaired or replaced Product
to Buyer or Exabyte. Defects are defined as commodities/parts
that do not meet print or specifications. Failure reports or
preliminary analysis shall be due within ten (10) business days
after receipt of returned Product by Seller. Each failure
analysis report shall determine the root cause and corrective
action to be taken.
PAGE(7)
3.7. Payment for Product
3.7.1. Invoicing
Seller will submit invoices to Buyer after shipment of Products
as described on the Purchase Orders. Invoicing by Seller shall
not occur more frequently than once per month.
3.7.2. Payment Method
Buyer will make payment to Seller within thirty (30) days
following the receipt by Buyer of an invoice from Seller.
<PAGE> 7
Payment shall be made by check or wire transfer to:
Daiichi Kangyo Bank
Head Office #1167845
3.7.3. Exabyte as Guarantor
Exabyte hereby agrees to act as guarantor for all payments to
be made by Buyer hereunder.
4. BUYER'S OBLIGATIONS
4.1. Reports and Estimates
Exabyte will provide Seller with a twelve-month rolling forecast
of Product and Spare Parts to be purchased hereunder. Such forecast
is for planning purposes only, and does not represent any commitment
to purchase on Exabyte's or Buyer's part, and is not to be relied upon
by Seller as a commitment to purchase.
5. SELLER'S OBLIGATIONS
5.1. Supply of Product
5.1.1. Terms of Product Sale
All sales of Product shall be made pursuant to the terms of
Section 3.
5.1.2. Product Modification
Engineering Change Orders: the parties recognize that from
time to time Seller will request or will be requested by Buyer
to implement Engineering Change Orders ("ECO's"). The
following outlines the proper procedures.
PAGE(8)
5.1.2.1. Seller Requests Buyer
For all proposed ECO's which do not affect form, fit
or function of the Product, Seller will communicate
with Buyer via a telephone conference to discuss such
proposed changes. No further action shall be required
of either party unless mutually agreed to during such
telephone conference. For all proposed ECO's which do
affect form, fit or function, or safety certification
requirements, Seller is to notify Buyer in writing of
all such proposed ECO's and will provide Buyer with
samples of all such ECO's. This notification will
include the appropriate documentation to support
Buyer's investigation of the impact of this proposal,
as well as costs that are involved for obsolete
material in work-in-process, in the stockroom, and
what is on order. Buyer will review the labor cost and
impact for the implementation of the proposed ECO. If
lead time or new costs are required for the ECO, lead
time and new costs will be reviewed.
a. Buyer is to report to Seller within ten (10)
business days.
<PAGE> 8
b. Seller is to notify Buyer in writing within ten
(10) business days of its decision as to the
ECO-associated proposed costs and the commencement
dates.
c. Buyer reserves the right to accept or reject all
such proposed ECO's which in its reasonable opinion
affect form, fit, function or safety certification
requirements.
5.1.2.2. Buyer Requests Seller
a. Buyer agrees to notify Seller in writing of all
proposed Engineering Change Orders (ECO's). This
notification will include the appropriate
documentation to support Seller's investigation of
the impact of this proposal.
b. Seller is to report to Buyer within ten (10)
business days of Buyer's request the costs that are
involved for obsolete material in work-in-process,
in the stockroom, and what is on order. Buyer will
review the labor cost and impact for the
implementation of the proposed ECO. If new
material is required for the ECO, lead time and new
cost will be reviewed and mutually agreed upon.
c. Buyer is to notify Seller in writing within ten
(10) business days of its decision as to the
proposed ECO associated costs and the commencement
dates.
5.2. Supply of Spare Parts
The Seller shall offer for sale Spare Parts necessary for the
maintenance of the Product during the term of this Agreement and for
a period of five (5) years after the date of delivery of the last
Product unit under this Agreement. The Spare Parts shall be
interchangeable with and of the same quality as those installed in
the Product and will be produced or inspected by the Seller, in the
same manner and according to the same procedure as the Seller uses for
parts installed in the Product.
PAGE(9)
5.2.1. Terms of Sale of Spare Parts
5.2.1.1. Title and Risk of Loss
Title and Risk of Loss to Spare Parts shall pass to
Buyer at Buyer's dock.
5.2.1.2. Shipments
Shipment terms for Spare Parts shall be identical to
the shipment terms for Product. Section 3.5 shall be
incorporated by reference into this Section with the
term Product replaced herein by the term Spare Parts.
<PAGE> 9
5.2.1.3. Payment
Section 3.7 shall be incorporated herein with the term
Product replaced by the term Spare Parts.
5.2.1.4. Price
Seller to provide Spare Parts pricing to include
recommended items, quantity of issue and lead times.
The price for Spare Parts shall be identified in
Appendix II.
5.3. Maintenance and Disposition of Funded Hard Tooling
The Funded Hard Tooling developed by Seller and paid for entirely by
Exabyte pursuant to the Development Agreement and as identified in
Exhibit C to the Development Agreement, shall be deemed to be
exclusively owned by Exabyte. Seller, at its own expense, shall be
responsible to store, protect, preserve, repair and maintain such
Funded Hard Tooling in accordance with Seller's usual practice (wear
and tear excepted). Upon termination or expiration of this Agreement,
Seller shall request disposition instructions for all Funded Hard
Tooling. Seller agrees to make such Funded Hard Tooling available to
Exabyte according to the disposition instructions of Exabyte,
including preparation, packaging and shipping. Preparation, packaging
and shipment shall be at Exabyte's expense. The use of Funded Hard
Tooling by Seller shall be expressly limited to the manufacture of
Products for Buyer under this Agreement or as otherwise provided in
the Development Agreement or as otherwise agreed to by Exabyte in
writing. Exabyte will be responsible for the necessary insurance
coverage of specified tooling items in Exhibit C in the Development
Agreement.
5.4. Technical Training and Support
Seller and Exabyte agree to discuss in good faith the appropriate
level of technical training and support provided by Seller to Exabyte.
PAGE(10)
5.5. Documentation
Seller and Exabyte agree to discuss in good faith the appropriate
level of documentation provided by Seller to Exabyte.
6. SELLER'S REPRESENTATION, WARRANTY AND INDEMNIFICATION
6.1. Product Testing
Prior to delivery, Seller shall conduct an acceptance test at its
plant on each Product unit manufactured by Seller. A complete record
of inspections and tests performed on each such Product unit shall be
kept by the Seller for a reasonable period and made available to the
Buyer upon request. The Buyer's representative may, upon reasonable
request and at its sole expense, witness the final inspection tests
carried out by the Seller, but Buyer's failure to witness such tests
shall not be grounds for refusing delivery or for a refusal to accept
any Product unit.
<PAGE> 10
6.1.1. Quality Plan
Seller will provide to Buyer documentation of all related
manufacturing, maintenance, and quality control processes,
including explanations of what types of data are maintained
and what type of information is available, given such processes
("Quality Plan"), to be furnished as Exhibit C hereto. Seller
will provide Exabyte with such final Quality Plan no later than
thirty (30) days after the execution of this Agreement. Seller
must provide Product that is of an Acceptable Quality Level and
both the Product and the manufacturing process must meet the
quality requirements set forth in Exhibit C of this Agreement.
Seller agrees to accommodate Buyer's requests for any
additional or different testing and Buyer agrees to be
responsible for all additional expenses for such testing.
6.2. Product Warranty and Epidemic Failure
6.2.1. Warranty
6.2.1.1. Representation
Seller warrants that for a period of eighteen (18)
months from the date of shipment by Seller, no more
than five percent (5%) of any and all Products within
each weekly Product lot shall be defective in design,
material and/or workmanship which would cause a
Product failure ("Epidemic Failure"). In the event
that any weekly Product lot qualifies hereunder as
Epidemic Failure as herein defined, Buyer has the
right to reject such entire Products. In case of such
a failure, Seller shall take one or more of the
following corrective actions, at Seller's sole cost
and expense and at its sole option: (1) repair such
Products; (2) replace such Products; (3) credit
Buyer for such Products at Buyer's landed cost;
(4) reimburse Buyer for its expense including labor
and materials in correcting such Products. Buyer
shall notify Seller of any such defects within sixty
(60) days after discovery thereof. Buyer shall notify
Seller of the total liability chargeable to Seller for
a particular incident within twenty (20) months after
the date of such shipment from Seller. Seller is
responsible for all freight charges to return the
Product to Seller and to ship repaired or replaced
Product to Buyer or Exabyte. From time to time Seller
and Buyer shall mutually agree on the minimum quantity
of Product to be returned in each such shipment.
Seller shall perform all such repairs, replacements,
credits or reimbursements as soon as reasonably
possible, but not later than sixty (60) days from
Buyer's or Exabyte's notice to Seller of such defects.
PAGE(11)
6.2.1.2. Exclusions
Seller is free from any warranty obligation in the
following cases:
<PAGE> 11
a. Defects and damages caused by storage,
transportation or use exceeding the limits of the
Specifications after delivery of the Products by
Seller to Buyer;
b. Defects and damages caused by modifications without
approval by Seller;
c. Defects and damages caused by the software created
solely by Buyer and/or unique feature and
specification incorporated in the Products at the
direction of Buyer.
Seller reserves the right to inspect allegedly
defective Product.
6.2.1.3. Clear Title
Seller warrants that at the time of delivery by Seller
to Buyer hereunder title to all Product delivered by
Buyer shall be free and clear of all liens,
encumbrances or other claims.
6.3. Patent Indemnification
For any product wholly designed by Seller and sold hereunder, Seller
shall indemnify and hold harmless Buyer and/or Exabyte against any
liability arising out of or in connection with any claim or action
that the Product infringes any third party patent provided that (i)
Seller shall be promptly notified in writing of such claim or action
within five (5) days after Buyer and/or Exabyte shall have received
actual notice thereof; (ii) Seller shall have the sole control of the
defense of any suit on such claim and all negotiations for settlement
or compromise; and (iii) Buyer and/or Exabyte shall provide all
reasonable assistance at Seller's expense in defending any suit.
For any product wholly designed by Buyer and/or Exabyte, Buyer and/or
Exabyte shall indemnify and hold harmless Seller against any liability
arising out of or in connection with any claim or action that the
Product infringes any third party patent provided that (i) Buyer
and/or Exabyte shall be promptly notified in writing of such claim or
action within five (5) days after Seller shall have received actual
notice thereof; (ii) Buyer and/or Exabyte shall have the sole control
of the defense of any suit on such claim and all negotiations for
settlement or compromise; and (iii) Seller shall provide all
reasonable assistance at Buyer's and/or Exabyte's expense in defending
any suit. Such indemnification shall extend only to actual damages
assessed against or incurred by Buyer and/or Exabyte, or Seller as
appropriate. Buyer and/or Exabyte shall not be entitled to recover
from Seller any loss of profits suffered by Buyer and/or Exabyte as a
result of said infringement; nor shall Seller be entitled to recover
from Buyer and/or Exabyte any loss of profits suffered by Seller as a
result of said infringement. Seller shall not indemnify Buyer and/or
Exabyte against and shall not hold Buyer and/or Exabyte harmless from
any other claims or actions including, but not limited to, a claim
involving any Product manufactured in accordance with Buyer's and/or
Exabyte's specifications or manufactured by a process specified by
Buyer and/or Exabyte, or a claim involving any combination of the
Product with other equipment or parts to form an allegedly infringing
system or product. Buyer and/or Exabyte shall not indemnify Seller
<PAGE> 12
against and shall not hold Seller harmless from any other claims or
actions including, but not limited to, a claim involving any
combination of the Product with other equipment or parts to form an
allegedly infringing system or product. In no event shall Seller be
liable to Buyer and/or Exabyte, nor shall Buyer and/or Exabyte be
liable to Seller for any special or incidental or consequential
damages arising from infringement or alleged infringement hereunder.
For any product jointly designed by Seller and Buyer and/or Exabyte
and sold hereunder, neither party shall indemnify nor hold harmless
the other against any liability arising out of or in connection with
any claim or action that the product infringes any third-party patent
unless it be judicially determined that one party contributed all
elements of the design necessary to infringe all claims of the patent,
in which case the all-contributing party shall indemnify and hold
harmless the other in accordance with the terms hereof. The foregoing
states the entire liability of both parties for infringement on third
party rights which arises out of the Product sold to Buyer and/or
Exabyte hereunder.
PAGE(12)
6.4. Intellectual Property Ownership
In connection with any idea (whether or not patentable or protectable
by copyright), designs, improvements, inventions (whether or not
patentable), discoveries, and copyrightable works relating to the
business of Exabyte, which are made, authored, co-authored, reduced to
practice, devised or conceived either solely by Seller using funds or
proprietary information of Exabyte or jointly by Seller and Exabyte,
such idea, designs, improvements, inventions, discoveries and
copyrightable works shall be disclosed to Exabyte, and be jointly
owned by Exabyte and Seller. Seller agrees that Seller and Seller's
employees, agents, and contractors will execute any instruments and
to do all things reasonable requested by Exabyte in order to more
fully vest in Exabyte the joint ownership rights and those items
mentioned in the preceding sentence to Exabyte. Seller also agrees to
provide Exabyte with all documents necessary in connection with the
filing of any patent application of the idea, designs, improvements,
inventions, discoveries and copyrightable works which are made,
authored, co-authored, reduced to practice, devised or conceived
either solely by Seller using funds or proprietary information of
Exabyte or jointly by Seller and Exabyte. Seller further agrees that
Seller will not independently file any patent application of the idea,
designs, improvements, inventions, discoveries and copyrightable works
which are made, authored, co-authored, reduced to practice, devised or
conceived either solely by Seller using funds or proprietary
information of Exabyte or jointly by Seller and Exabyte.
PAGE(13)
6.5. Continuity of Supply, Disaster Recovery
6.5.1. Procurement of Components
Should Seller require more than the defined lead time to
acquire certain raw materials, Seller shall identify such raw
materials and required lead times. Exabyte will then authorize
in writing Seller's procurement of such raw materials and, in
the event of termination of this Agreement, Exabyte's liability
for the cost of such raw materials and the associated work-in-
process, is limited to the quantity which Exabyte approved in
writing. Seller shall provide unique long-lead time components
exception list in Appendix III.
<PAGE> 13
6.5.2. Disaster Recovery Plan
Seller agrees to develop a suitable Disaster Recovery Plan to
assure the continued supply of Product to Buyer and Exabyte.
Such Disaster Recovery Plan shall be submitted to Exabyte
concurrent with shipment to Buyer of first production units.
7. MUTUAL REPRESENTATIONS
7.1. Non-Disclosure of Agreement
Seller and Buyer and/or Exabyte agree not to disclose the existence of
the relationship between Buyer and/or Exabyte and Seller arising under
this Agreement or the fact that Seller is performing services for
Buyer and/or Exabyte without the advance written permission of the
other party.
7.2. Confidentiality
The terms provided in Section 6.1 of the Development Agreement shall
apply with the term "Exabyte" replaced by "Exabyte and/or Buyer".
8. TERMINATION
8.1. Initial Term
This Agreement shall extend for the period provided in Section 2.1.
8.2. Termination by Mutual Consent
This Agreement shall be subject to termination prior to the Initial
Term at any time by mutual consent of the parties, evidenced by a
written agreement provided for termination.
8.3. Termination by Bankruptcy
This Agreement may be immediately terminated by the Seller if Exabyte,
or by Exabyte if Seller, files a voluntary petition in bankruptcy or
under any similar insolvency law, makes an assignment for the benefit
of its creditors, or if any involuntary petition in bankruptcy or
under any similar insolvency law is filed against it, or if a receiver
is appointed for, or a levy or attachment is made against all or
substantially all of its assets, and such involuntary petition is
not dismissed or such receiver or levy or attachment is not discharged
within sixty (60) days after the filing or appointment thereof.
PAGE(14)
8.4. Termination by Exabyte
Exabyte shall have the right to terminate this Agreement without cause
upon six (6) months' advance written notice to Seller. In the event
of such termination, all Purchase Orders issued hereunder may be
canceled by Exabyte as of the effective date of such termination
without further notice to Seller.
8.5. Effects of Termination by Exabyte
In the event Exabyte terminates pursuant to Section 8.3, Seller's sole
obligations shall be as follows:
<PAGE> 14
8.5.1. Seller shall, upon the effective date of such termination,
cease all assembly operation and production required by
purchase orders issued under this Agreement.
8.5.2. Seller shall deliver promptly all completed acceptable Products
manufactured pursuant to Exabyte and Buyer purchase orders.
8.5.3. Seller shall return immediately at Exabyte's expense all loaned
or leased equipment provided to Seller by Exabyte under this
Agreement.
8.5.4. Seller shall prepare and submit to Exabyte and Buyer an
itemization of all partially completed Products, assemblies and
process and parts inventories (including parts which Seller is
committed to purchase from its subcontractors) which are
allocated to the Exabyte and Buyer purchase order releases
placed and Section 6.5.1 under this Agreement.
9. FORCE MAJEURE
The Seller shall not be liable for delays in delivery or failure to
manufacture or deliver Product or to otherwise perform any obligation
due to the Buyer under this Agreement due to any cause beyond the Seller's
reasonable control, such as acts of God, acts of civil or military
authority, labor disputes, fire, riots, civil commotions, sabotage, war,
embargo, blockage, floods, epidemics, power shortages, or when due to
governmental restrictions or failure of a supplier to deliver. The rights
of Buyer under this Agreement shall not be affected by Buyer's failure to
meet any condition contained herein where such failure is directly and
primarily due to any cause beyond its reasonable control such as acts of
God, acts of civil or military authority, labor disputes, fire, riots,
civil commotions, sabotage, war, embargo, blockage, floods, epidemics,
power shortages, or when due to governmental restrictions.
PAGE(15)
10. CONSTRUCTION OF AGREEMENT
10.1. Headings
Headings, which include the underlined portion following the Section
number, have been used for reference purposes only and shall have no
operative effect in the construction of the rights or obligations
pursuant to this Agreement.
10.2. References
Any reference to a Section number shall include all subsections of
such Sections.
10.3. Controlling Law
This Agreement shall be construed under and governed by the laws of
the State of New York, United States of America and any disputes
between the parties in respect to this Development Agreement shall
be decided by the competent federal courts in the State of New York.
10.4. Arbitration
All disputes, controversies or differences which may arise between
the parties in relation to or in connection with this Agreement
<PAGE> 15
shall be settled by amicable negotiation by both parties. If both
parties are unable to settle such disputes, then, such disputes
shall be referred to and finally settled by arbitration under the
Rules of Conciliation and Arbitration of the International Chamber
of Commerce. The arbitration shall be conducted in English and take
place in Japan if it is initiated by Buyer and or Exabyte or in the
U.S.A. if it is initiated by Seller. The award of arbitration shall
bind both parties.
PAGE(15-16)
11. GENERAL PROVISIONS
11.1. Entire Agreement: Counterparts
This Agreement, as implemented by Purchase Orders for Products, is
intended to be the sole and complete statement of the obligations of
the parties as to the sale and purchase of the Products and
supersedes all previous understandings, negotiations and proposals
as to such sale and purchase provided, however, that the terms of
the Development Agreement shall be deemed to survive. In the event
of any conflict between the terms and conditions contained in the
Development Agreement and this Agreement, the terms and conditions
contained in this Agreement shall prevail. This Agreement may not
be altered, amended, or modified except in writing signed by duly
authorized representatives of Seller, Buyer and Exabyte. Any
printed conditions on Purchase Orders and acceptance forms are
superseded by this Agreement and shall be of no effect. This
Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all of which together shall
constitute one and the same Agreement.
11.2. Enforcement
In the event any provisions of this Agreement are declared
non-enforceable by a duly authorized court having jurisdiction, then
this Agreement with respect to enforceable provision shall continue
in force and all rights and remedies under the remaining enforceable
provisions shall survive any such judicial declarations; provided
that this Agreement still expresses the general intent of the
parties. In the event the general intent of the parties cannot be
preserved, this Agreement shall either be renegotiated or rendered
null and void.
PAGE(17)
11.3. Notices
Notices and other communication by a party under this Agreement
shall be given in writing by mail, postage prepaid, certified,
recorded, or registered, and addressed to the parties at their
respective addresses as set forth below:
<PAGE> 16
SELLER:
Hitachi, Ltd. Electronic Sales Office
5-1, Marunouchi 1-chome
Chiyoda-ku, Tokyo
100 Japan
Attn: Mr. Natsuki Kogiso
BUYER:
Nihon Exabyte Corporation
Kioicho TBR Building 1214
5-7 Koujimachi, Chiyoda-kuTokyo 102, Japan
Attn: Mr. Hisahiro Endo
EXABYTE:
Exabyte Corporation
1685 38th Street
Boulder, Colorado 80301 U.S.A.
Attn: Mr. Stephen F. Smith
Such notices shall be deemed to have been given upon mailing. Notices also
may be given by facsimile, if in the case of the Buyer, they are sent to the
following facsimile number: 03-3237-2910, and in the case of the Seller, they
are sent to the following number: 03-3214-7269. If given by facsimile,
notices shall be deemed to have been given on the date of transmission.
All facsimile notices shall be confirmed by written notice mail, as provided
above, within five (5) days of the date the telex is sent.
11.4. Assignment
This Agreement is not assignable by either party without the written
permission of the other party.
11.5. Waiver
A waiver by either party of its rights under this Agreement with
respect to a breach of the other party's obligations hereunder
shall not be construed as a continuing waiver with respect to other
breaches of the same or of other provisions of this Agreement.
PAGE(18)
11.6. No Agency Created
Neither Exabyte nor Buyer is a partner, joint venturer, agent, legal
representative, or employee of the Seller. Neither party is granted
the right or authority to assume or to create any obligation or
responsibility, express or implied, on behalf of or in the name of
the other party or to bind such other party in any manner to
anything whatsoever.
11.7. Official Language
The official language of this Agreement is English. Documents or
notices not originally written in English shall have no effect under
this Agreement until they have been translated into English by the
<PAGE> 17
party providing the notice or document and the English translation
shall then be the controlling form of the document or notice.
PAGE(19)
IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized representatives, effective as of the date first set forth
above.
Hitachi, Ltd. Electronic Sales Office
5-1, Marunouchi 1-chome
Chiyoda-ku, Tokyo
100 Japan
By:-------------------------------------
Mr. Natsuki Kogiso
Title: Director/General Manager, Electronic Devices Trade Division
WITNESSED BY:---------------------------
Hitachi, Ltd. Video and Personal Media Systems Division
By:-------------------------------------
Mr. Toru Funatsu
Title: General Manager
NIHON EXABYTE CORPORATION
Kioicho TBR Building 1214
5-7 Koujimachi, Chiyoda-ku
Tokyo 102, Japan
By:
-----------------------------
Title:
--------------------------
EXABYTE CORPORATION
1685 38th Street
Boulder, Colorado 80301 U.S.A.
By:
-----------------------------
Title:
--------------------------
<PAGE> 1
PAGE(1)
EXABYTE PURCHASE AGREEMENT
- --------------------------
THIS EXABYTE PURCHASE AGREEMENT ("Agreement"), dated this 11th day of
December, 1996 among Hitachi, Ltd. Electronic Sales Office, a Japanese
corporation having its principal place of business at Nippon Building, 6-2,
Otemachi 2-chome, Chiyoda-ku, Tokyo 100, Japan ("Seller"), Nihon Exabyte
Corporation, a Japanese corporation having its principal place of business
at Kioicho TBR Building 1214, 5-7 Koujimachi, Chiyoda-ku, Tokyo 102, Japan
("Buyer"), and Exabyte Corporation, a Delaware Corporation of the United
States of America, located at 1685 38th Street, Boulder, Colorado 80301
U.S.A. ("Exabyte"), also known as the parties, agree as follows:
WHEREAS, Buyer is a wholly-owned subsidiary of Exabyte in Japan, engaged
in the business of purchasing various components for resale to Exabyte and to
other approved parties; and
WHEREAS, Seller and Exabyte entered into a Development Agreement (as
hereinafter defined) on the 22nd day of February 1995, for the design and
development of an 8mm deck for data storage applications for use in certain
Exabyte products ("Development Agreement"), said Development Agreement being
incorporated by reference as if fully set forth herein; and
WHEREAS, Seller desires to sell to Buyer and/or Exabyte, and Buyer and/or
Exabyte desires to purchase from Seller such 8mm data storage devices
developed under the Development Agreement for the purpose of integrating in
the manufacture of Exabyte's products or systems upon the terms and conditions
hereafter set forth.
1. DEFINITIONS
1.1. Buyer and Seller shall also mean Buyer's Affiliates and Seller's
Affiliates, respectively.
1.2. Development Agreement shall mean the agreement entered into by and
between Hitachi's Division and Exabyte on the 22nd day of February
1995 for the design and development of an 8mm deck for data storage
applications.
1.3. Funded Hard Tooling shall mean any tooling purchased or paid for by
Buyer and/or Exabyte pursuant to this Agreement or the Development
Agreement.
1.4. Hitachi's Division shall mean the division engaged in the commercial
production of Product during the term of this Agreement. Upon
execution of this Agreement, it shall mean Image and Information Media
Systems Division.
1.5. Product shall mean the product and other items manufactured, assembled
at Hitachi's Division and sold by Seller which are listed in Appendix
I of this Agreement (and those items, if any, hereafter added by the
parties to Appendix I), including Product defined by the
specifications included in Exhibit A, "Product Specifications".
1.6. Spare Parts shall mean all parts or components of Product which are
listed in Appendix II of the Agreement (and those items, if any,
hereafter added by the parties to Appendix II).
<PAGE> 2
PAGE(2)
2. SCOPE OF AGREEMENT
2.1. Term of Agreement
This Agreement shall become effective upon its execution by both
parties by their authorized representatives. The Agreement shall
expire thirty-six (36) months thereafter unless the Agreement is
terminated earlier pursuant to Section 8. and shall be automatically
extended for two (2) additional twelve (12) month periods, unless
Exabyte notifies Seller in writing at least ninety (90) days prior
to the beginning of such period that it desires not to renew.
2.2. Marketing Rights
Subject to all terms and conditions of the Agreement, Seller grants
Buyer and/or Exabyte the right to purchase Product from Seller and
for Buyer and/or Exabyte to promote, lease, rent or re-sell such
Product in modified form or otherwise throughout the world.
2.3. Exclusivity
Seller and Seller's Affiliates agree not to sell Product to third
parties which would violate the terms of Section 5.1. of the
Development Agreement. The terms of the letter of October 31,
1994 attached as Appendix IV, shall be incorporated herein by
reference.
3. TERMS OF PRODUCT SALE
3.1. Title and Risk of Loss
Title and risk of loss shall pass to Buyer and/or Exabyte upon
delivery of Product to Buyer's receiving dock or as otherwise
identified in the purchase order specified in Section 3.3.1.
All claims for shipping damages shall be resolved between Seller,
carriers or freight forwarders handling Product and the insurance
companies and agents responsible for adjusting such claims, and
Buyer and/or Exabyte shall have no responsibility with respect
thereto.
3.2. Price for Product
The prices which Buyer and/or Exabyte shall pay Seller for Product
sold pursuant to this Agreement are set out in Appendix I to this
Agreement. All prices listed in Appendix I are in Japanese yen,
Freight on Rail ("F.O.R."), Buyer's dock. The pricing for Product
defined by the Specifications set forth in Exhibit A shall in no
event be greater than that specified by Appendix I to the Development
Agreement. Any change to the prices set forth in Appendix I shall be
identified by an amendment to Appendix I which shall be approved by
authorized representatives of the parties.
3.2.1. Price Increases
The prices to be paid by Buyer and/or Exabyte for Product shall remain
in effect for the time period set forth in Appendix I. Seller may
decrease prices at any time, without notice to Buyer and/or Exabyte.
Such prices are subject to increase only in accordance with Section
<PAGE> 3
5.1.2.2. and Section 3.2.3. Orders for Product placed by Buyer and/or
Exabyte shall, provided delivery is to be made within ninety (90) days
of placement of order, be filled at the price in effect at the time of
order.
PAGE(3)
3.2.2. Product Price
3.2.2.1. Price Reviews
Buyer and/or Exabyte will provide to Seller quarterly
price targets as a continuous effort toward a
cost/price reduction program. Seller agrees to
exercise reasonable efforts to meet these targeted
reductions.
Supplier agrees to a cost/price reduction review
meeting every ninety (90) days. Supplier will formally
provide Buyer and/or Exabyte with specific information
for price reduction opportunities.
3.2.2.2. Approval of Unique Charges
All non-recurring related expenses shall be approved
in advance by Buyer and/or Exabyte, and the cost shall
be amortized over Product purchased by Buyer and/or
Exabyte over a twelve (12) month period. No charges
beyond those defined in Exhibit C to the Development
Agreement shall be deemed to be approved except as
otherwise agreed by the parties in writing.
3.2.3. Foreign Exchange
All prices shall be in Japanese yen. The parties agree that at
the time of execution of this Agreement the exchange rate is
one hundred seven (107) Japanese yen to one (1) U.S. dollar.
At such time as the yen/dollar exchange rate, indicated in The
Wall Street Journal, on average, drops below 92.625 yen/dollar
or exceeds 121.375 yen/dollar over the previous ninety (90)
day period, the parties agree to share equally in the effects
of such exchange rate variance, and will adjust Product price
accordingly.
3.3. Purchase Order and Acceptance
3.3.1. Purchase Orders
Purchase orders issued by Buyer and/or Exabyte ninety (90)
days prior to initial shipment relating to such purchase order
for the purchase of Product shall include the following
information:
a. Model and revision level of Product.
b. Quantity to be purchased.
c. Unit price and total purchase price.
d. Delivery dates and instructions.
<PAGE> 4
3.3.2. Acceptance of Orders
Orders shall not be considered as accepted until written
acceptance (may be a facsimile) has been made at the principal
office of Seller or assignee as appropriate. It is agreed that
all such orders shall be governed by the provisions of this
Agreement and that none of the provisions of Buyer's and/or
Exabyte's purchase order or Seller's acknowledgment thereof
(either printed, stamped, typed or written) except those
specifying the quantity and identification of Product, the
price, invoice information and shipping instructions shall be
applicable to the purchase if in conflict with this Agreement,
unless specifically accepted or approved in writing and signed
on behalf of Seller by an authorized officer. A general or
standard acknowledgment of any such order or the making of
deliveries with respect thereto shall in no case be construed
as an acceptance or approval of the type required of provisions
in conflict with the terms of this Agreement. Fulfillment of
any purchase order accepted by Seller shall be dependent upon
the grant of appropriate licenses, permits and the like from
the countries of export and import.
Each month, Buyer and/or Exabyte will furnish Seller a
forecast. Seller will advise Buyer and/or Exabyte within seven
(7) business days, in writing, of its acceptance of the latest
schedule iteration, or will propose a revision to Buyer's
and/or Exabyte's schedule.
Buyer and/or Exabyte will provide Seller with a minimum of
three (3) months' purchase orders plus a minimum six (6)
month forecast. Seller will purchase materials against Buyer's
and/or Exabyte's purchase orders and forecast based upon a
purchase policy consistent with Appendix III, Unique Long-Lead
Time Components List.
PAGE(4)
3.3.3. Delivery Dates
Delivery dates shall be reflected on a purchase order for
quantities not to exceed the total Product provided on purchase
orders which have been previously accepted by Seller. Such
delivery dates shall not extend beyond one hundred twenty (120)
days from the date of the purchase orders.
3.3.4. Changes to Quantities to be Delivered
Upon Seller's acceptance of Buyer's and/or Exabyte's purchase
order, Buyer and/or Exabyte may not change any quantities to
be delivered during the first four (4) weeks from the date of
Buyer's and/or Exabyte's request for changes.
Buyer and/or Exabyte may decrease the quantities by up to
twenty-five percent (25%) of the total orders in the second
four-week period and/or may increase the quantities by up to
twenty percent (20%) of the total orders in the second
four-week period.
Weeks 1-4 Weeks 5-8 Weeks 9-12
+/-0% +20% +/-50%
-25%
<PAGE> 5
Seller agrees to accept both increases and decreases in the
quantities, provided that these changes do not exceed fifty
percent (50%) of the total order for the third four-week
period. All of the parties hereto agree to negotiate in good
faith any requests for additional changes in quantities.
PAGE(5)
3.4. Postponement
Notwithstanding the provisions of Sections 3.3.3. and 3.3.4., Buyer
and/or Exabyte shall be entitled to postpone delivery of all or part
of Product then on order. Such postponement may defer delivery for a
maximum of ninety (90) days. Notice of such postponement must be
received at least thirty (30) days prior to the beginning of the month
in which such Product was originally scheduled for delivery.
3.5. Shipments
3.5.1. Terms
Product shall be shipped at Seller's expense to Buyer's and/or
Exabyte's specified location in the vicinity of Tokyo.
3.5.2. Packaging
Seller will provide proposed deck and Spare Parts packaging
specifications for Buyer's and/or Exabyte's review and
approval. Seller will package Product according to approved
specifications.
3.5.3. Charges
The cost for packaging for normal shipment to Buyer's dock is
included in the quoted price provided, however, expedited
deliveries will be subject to additional transportation and
packaging charges to be paid by Buyer and/or Exabyte unless
expedited deliveries are caused by Seller's inability to
deliver to agreed-upon schedules.
3.5.4. Delinquencies
If Seller has knowledge that it will not meet the agreed-upon
delivery dates, Seller shall notify Buyer and/or Exabyte in
writing a minimum of fifteen (15) days prior to the occurrence
of the expected delinquency and provide Buyer and/or Exabyte
with a schedule to remedy the delinquency. Buyer and/or
Exabyte shall provide written acceptance or rejection of the
proposed revision to the delivery schedule within three (3)
business days of such notification. If Buyer and/or Exabyte
rejects with reasonable cause Seller's remedy schedule, the
original or the latest purchase order schedule shall remain in
force. During the period of delinquency by Seller, Seller may
either, at Seller's sole option ship Product to Buyer's and/or
Exabyte's designated destination at Seller's sole expense, or
Seller will ship Product to a location in Japan designated by
Buyer and/or Exabyte in the most expeditious manner. Buyer
and/or Exabyte will then expedite shipment of such Product from
Japan to Buyer's and/or Exabyte's designated plant, and Seller
agrees to reimburse Buyer and/or Exabyte for the additional
shipping expense incurred due to Seller's delinquency.
<PAGE> 6
3.6. Inspection, Acceptance, Rejection
3.6.1. Source Inspection
With advance conference with Seller, Buyer and/or Exabyte may
conduct, at its own expense, source inspection to confirm that
Product substantially meets the requirements of this Agreement.
Such source inspections do not relieve Seller of its obligation
to deliver Product conforming to this Agreement and do not
constitute Product acceptance. Seller will provide adequate
space within reasonable proximity to factory and/or required
inspection equipment to complete such inspections, at no cost
to Buyer and/or Exabyte.
PAGE(6)
3.6.2. Rights of Rejection
Upon receipt of shipment hereunder, Buyer and/or Exabyte shall
inspect Product under such shipment. Claims by Buyer and/or
Exabyte for shortages, incorrect materials or invoicing errors
must be made within forty-five (45) days after receipt of
shipment by Buyer and/or Exabyte. Claims for defects in
materials, workmanship or failure to meet Specifications must
be made in accordance with Section 3.6.3.
3.6.3. Acceptance
Buyer and/or Exabyte may reject Product not in accordance with
the Specifications provided by Exhibit A and Product Acceptance
Specifications set forth in Exhibit B. Product delivered to
Buyer and/or Exabyte shall be deemed to be accepted by Buyer
and/or Exabyte unless notice of rejection in writing is given
by Buyer and/or Exabyte to Seller within ninety (90) days after
receipt of Product by Buyer and/or Exabyte at Buyer's and/or
Exabyte's acceptance location. Payment by Buyer and/or Exabyte
does not constitute or evidence acceptance.
3.6.4. Return of Rejected Product
All defective and suspect defective Product and Spare Parts
will be returned for credit to Seller for failure analysis
and corrective action and Seller shall exercise its best effort
to ship to Buyer and/or Exabyte replacement Product or Spare
Part as soon as possible, yet in any event not later than sixty
(60) days from Seller's receipt of such Product or Spare Part.
In the event that Seller reasonably determines that such
defects and/or failures are the fault of Seller, Seller shall
be responsible for all freight charges to return Product to
Seller and to ship repaired or replaced Product to Buyer and/or
Exabyte. Defects are defined as commodities/parts that do not
meet print or Specifications. Failure reports or preliminary
analysis shall be due within ten (10) business days after
receipt of returned Product by Seller. Each failure analysis
report shall determine the root cause and corrective action to
be taken.
<PAGE> 7
3.7. Payment for Product
3.7.1. Invoicing
Seller will submit invoices to Buyer and/or Exabyte after
shipment of Product as described on the purchase orders.
Invoicing by Seller shall not occur more frequently than once
per month.
PAGE(7)
3.7.2. Payment Method
Buyer and/or Exabyte will make payment to Seller within thirty
(30) days following the receipt by Buyer and/or Exabyte of an
invoice from Seller. Payment shall be made by check or wire
transfer to:
Daiichi Kangyo Bank
Head Office #1167845
3.7.3. Exabyte as Guarantor
Exabyte hereby agrees to act as guarantor for all payments to
be made by Buyer.
4. BUYER'S OBLIGATIONS
4.1. Reports and Estimates
Buyer and/or Exabyte will provide Seller with a twelve-month rolling
forecast of Product and Spare Parts to be purchased hereunder. Such
forecast is for planning purposes only, and does not represent any
commitment to purchase on Buyer's and/or Exabyte's part, and is not
to be relied upon by Seller as a commitment to purchase.
5. SELLER'S OBLIGATIONS
5.1. Supply of Product
5.1.1. Terms of Product Sale
All sales of Product shall be made pursuant to the terms of
Section 3.
5.1.2. Product Modification
Engineering Change Orders: the parties recognize that from
time to time Seller will request or will be requested by Buyer
and/or Exabyte to implement Engineering Change Orders
("ECO's"). The following outlines the proper procedures.
5.1.2.1. Seller Requests Buyer and/or Exabyte
For all proposed ECO's which do not affect form, fit
or function of Product, Seller will communicate with
Buyer and/or Exabyte via a telephone conference to
discuss such proposed changes. No further action
shall be required of either party unless mutually
agreed to during such telephone conference. For all
proposed ECO's which do affect form, fit or function,
<PAGE> 8
or safety certification requirements, Seller is to
notify Buyer and/or Exabyte in writing of all such
proposed ECO's and will provide Buyer and/or Exabyte
with samples of all such ECO's. This notification
will include the appropriate documentation to support
Buyer's and/or Exabyte's investigation of the impact
of this proposal, as well as costs that are involved
for obsolete material in work-in-process, in the
stockroom, and what is on order. Buyer and/or Exabyte
will review the labor cost and impact for the
implementation of the proposed ECO. If lead time or
new costs are required for the ECO, lead time and new
costs will be reviewed.
a. Buyer and/or Exabyte will advise Seller of its
decision with respect to the proposed ECO within
ten (10) business days.
b. Seller will notify Buyer and/or Exabyte in writing
within ten (10) business days of its decision as
to the ECO-associated proposed costs and the
commencement dates.
c. Buyer and/or Exabyte reserves the right to accept
or reject all such proposed ECO's which in its
reasonable opinion affect form, fit, function or
safety certification requirements.
PAGE(8)
5.1.2.2. Buyer and/or Exabyte Requests Seller
a. Buyer and/or Exabyte agrees to notify Seller in
writing of all proposed Engineering Change Orders
(ECO's). This notification will include the
appropriate documentation to support Seller's
investigation of the impact of this proposal.
b. Seller is to report to Buyer and/or Exabyte within
ten (10) business days of Buyer's and/or Exabyte's
request the costs that are involved for obsolete
material in work-in-process, in the stockroom, and
what is on order. Buyer and/or Exabyte will review
the labor cost and impact for the implementation of
the proposed ECO. If new material is required for
the ECO, lead time and new cost will be reviewed
and mutually agreed upon.
c. Buyer and/or Exabyte is to notify Seller in writing
within ten (10) business days of its decision as
to the proposed ECO associated costs and the
commencement dates.
5.2. Supply of Spare Parts
Seller shall offer for sale Spare Parts necessary for the maintenance
of Product during the term of this Agreement and for a period of five
(5) years after the date of delivery of the last Product under this
Agreement. The Spare Parts shall be interchangeable with and of the
same quality as those installed in Product and will be produced or
<PAGE> 9
inspected by Seller, in the same manner and according to the same
procedure as Seller uses for parts installed in Product.
5.2.1. Terms of Sale of Spare Parts
5.2.1.1. Title and Risk of Loss
Title and Risk of Loss to Spare Parts shall pass to
Buyer at Buyer's dock.
5.2.1.2. Shipments
Shipment terms for Spare Parts shall be identical to
the shipment terms for Product. Section 3.5. shall be
incorporated by reference into this Section with the
term Product replaced herein by the term Spare Parts.
PAGE(9)
5.2.1.3. Payment
Section 3.7. shall be incorporated herein with the
term Product replaced by the term Spare Parts.
5.2.1.4. Price
Seller to provide Spare Parts pricing to include
recommended items, quantity of issue and lead times.
The price for Spare Parts shall be identified in
Appendix II.
5.3. Maintenance and Disposition of Funded Hard Tooling
The Funded Hard Tooling developed by Seller and paid for entirely by
Buyer and/or Exabyte pursuant to the Development Agreement and as
identified in Exhibit C to the Development Agreement, shall be deemed
to be exclusively owned by Exabyte. Seller agrees that if will not
encumber any Funded Hard Tooling which is owned by Exabyte, and will
take all actions necessary to assure that all such Exabyte-owned
Funded Hard Tooling shall remain free of any and all liens. Seller,
at its own expense, shall be responsible to store, protect, preserve,
repair and maintain such Funded Hard Tooling in accordance with
Seller's usual practice (wear and tear excepted). Upon termination
or expiration of this Agreement, Seller shall request disposition
instructions for all Funded Hard Tooling. Seller agrees to make such
Funded Hard Tooling available to Buyer and/or Exabyte according to the
disposition instructions of Exabyte, including preparation, packaging
and shipping. Preparation, packaging and shipment shall be at
Exabyte's expense. The use of Funded Hard Tooling by Seller shall be
expressly limited to the manufacture of Product for Buyer and/or
Exabyte under this Agreement or as otherwise provided in the
Development Agreement or as otherwise agreed to by Buyer and/or
Exabyte in writing. Exabyte will be responsible for the necessary
insurance coverage of specified tooling items in Exhibit C in the
Development Agreement.
5.4. Technical Training and Support
Seller and Buyer and/or Exabyte agree to discuss in good faith the
appropriate level of technical training and support provided by Seller
to Buyer and/or Exabyte.
<PAGE> 10
PAGE(10)
5.5. Documentation
Seller and Buyer and/or Exabyte agree to discuss in good faith the
appropriate level of documentation provided by Seller to Buyer and/or
Exabyte.
6. SELLER'S REPRESENTATION, WARRANTY AND INDEMNIFICATION
6.1. Product Testing
Prior to delivery, Seller shall conduct acceptance testing on Product.
A complete record of inspections and tests performed on Product shall
be kept by Seller for a minimum of six (6) months and made available
to Buyer and/or Exabyte upon request. Buyer's and/or Exabyte's
representative may, upon reasonable request and at its sole expense,
witness the final inspection tests carried out by Seller, however,
Buyer's and/or Exabyte's failure to witness such tests shall not be
grounds for refusing delivery or for a refusal to accept Product.
6.1.1. Quality Plan
Seller will provide to Buyer and/or Exabyte documentation of
all related manufacturing, maintenance, and quality control
processes, including explanations of what types of data are
maintained and what type of information is available, given
such processes ("Quality Plan"), to be furnished as Exhibit C
hereto. Seller will provide Buyer and/or Exabyte with such
final Quality Plan no later than thirty (30) days after the
execution of this Agreement. Seller must provide Product
that is of an acceptable quality level and both Product and
the manufacturing process must meet the quality requirements
set forth in Exhibit C of this Agreement. Seller agrees to
accommodate Buyer's and/or Exabyte's requests for any
additional or different testing and Buyer and/or Exabyte agrees
to be responsible for all additional expenses for such testing.
6.2. Product Warranty and Epidemic Failure
6.2.1. Warranty
6.2.1.1. Representation
Seller warrants that for a period of eighteen (18)
months from the date of shipment by Seller, no more
than five percent (5%) of any and all Product within
each weekly Product lot shall be defective in design,
material and/or workmanship which would cause Product
failure ("Epidemic Failure"). In the event that any
weekly Product lot qualifies hereunder as Epidemic
Failure as herein defined, Buyer and/or Exabyte has
the right to reject such Product. In case of such a
failure, Seller shall take one (1) or more of the
following corrective actions, at Seller's sole cost
and expense and at its sole option: (1) repair such
Product; (2) replace such Product; (3) credit Buyer
and/or Exabyte for such Product at Buyer's and/or
Exabyte's landed cost; (4) reimburse Buyer and/or
Exabyte for its expense including labor and materials
<PAGE> 11
in correcting such Product. Buyer and/or Exabyte
shall notify Seller of any such defects within sixty
(60) days after discovery thereof. Buyer and/or
Exabyte shall notify Seller of the total liability
chargeable to Seller for a particular incident within
twenty (20) months after the date of such shipment
from Seller. Seller is responsible for all freight
charges to return Product to Seller and to ship
repaired or replaced Product to Buyer and/or Exabyte.
From time to time Seller and Buyer and/or Exabyte
shall mutually agree on the minimum quantity of
Product to be returned in each such shipment.
Seller shall perform all such repairs, replacements,
credits or reimbursements as soon as reasonably
possible, yet not later than sixty (60) days from
Buyer's and/or Exabyte's notice to Seller of such
defects.
PAGE(11)
6.2.1.2. Exclusions
Seller is free from any warranty obligation in the
following cases:
a. Defects and damages caused by storage,
transportation or use exceeding the limits of the
Specifications after delivery of Product by Seller
to Buyer and/or Exabyte;
b. Defects and damages caused by modifications without
approval by Seller;
c. Defects and damages caused by the software created
solely by Buyer and/or Exabyte and/or unique
feature and specification incorporated in Product
at the direction of Buyer and/or Exabyte.
Seller reserves the right to inspect allegedly
defective Product.
6.2.1.3. Clear Title
Seller warrants that at the time of delivery by Seller
to Buyer and/or Exabyte hereunder title to all Product
delivered by Seller shall be free and clear of all
liens, encumbrances or other claims.
6.3. Patent Indemnification
For any Product wholly designed by Seller and sold hereunder, Seller
shall indemnify and hold harmless Buyer and/or Exabyte against any
liability arising out of or in connection with any claim or action
that Product infringes any third party patent provided that (i) Seller
shall be promptly notified in writing of such claim or action within
five (5) days after Buyer and/or Exabyte shall have received actual
notice thereof; (ii) Seller shall have the sole control of the
defense of any suit on such claim and all negotiations for settlement
or compromise; and (iii) Buyer and/or Exabyte shall provide all
reasonable assistance at Seller's expense in defending any suit.
<PAGE> 12
For any Product wholly designed by Buyer and/or Exabyte, Buyer and/or
Exabyte shall indemnify and hold harmless Seller against any liability
arising out of or in connection with any claim or action that Product
infringes any third party patent provided that (i) Buyer and/or
Exabyte shall be promptly notified in writing of such claim or action
within five (5) days after Seller shall have received actual notice
thereof; (ii) Buyer and/or Exabyte shall have the sole control of the
defense of any suit on such claim and all negotiations for settlement
or compromise; and (iii) Seller shall provide all reasonable
assistance at Buyer's and/or Exabyte's expense in defending any
suit. Such indemnification shall extend only to actual damages
assessed against or incurred by Buyer and/or Exabyte, or Seller as
appropriate. Buyer and/or Exabyte shall not be entitled to recover
from Seller any loss of profits suffered by Buyer and/or Exabyte as
a result of said infringement; nor shall Seller be entitled to recover
from Buyer and/or Exabyte any loss of profits suffered by Seller as a
result of said infringement. Seller shall not indemnify Buyer and/or
Exabyte against and shall not hold Buyer and/or Exabyte harmless from
any other claims or actions including, though not limited to, a claim
involving any Product manufactured in accordance with Buyer's and/or
Exabyte's Specifications or manufactured by a process specified by
Buyer and/or Exabyte, or a claim involving any combination of Product
with other equipment or parts to form an allegedly infringing system
or product. Buyer and/or Exabyte shall not indemnify Seller against
and shall not hold Seller harmless from any other claims or actions
including, though not limited to, a claim involving any combination of
Product with other equipment or parts to form an allegedly infringing
system or product. In no event shall Seller be liable to Buyer and/or
Exabyte, nor shall Buyer and/or Exabyte be liable to Seller for any
special or incidental or consequential damages arising from
infringement or alleged infringement hereunder. For any Product
jointly designed by Seller and Buyer and/or Exabyte and sold
hereunder, neither party shall indemnify nor hold harmless the other
against any liability arising out of or in connection with any claim
or action that Product infringes any third-party patent unless it be
judicially determined that one party contributed all elements of the
design necessary to infringe all claims of the patent, in which case
the all-contributing party shall indemnify and hold harmless the other
in accordance with the terms hereof. The foregoing states the entire
liability of both parties for infringement on third party rights which
arises out of Product sold to Buyer and/or Exabyte hereunder.
PAGE(12)
6.4. Intellectual Property Ownership
In connection with any idea (whether or not patentable or protectable
by copyright), designs, improvements, inventions (whether or not
patentable), discoveries, and copyrightable works relating to the
business of Buyer and/or Exabyte, which are made, authored,
co-authored, reduced to practice, devised or conceived either solely
by Seller using funds or proprietary information of Exabyte or jointly
by Seller and Exabyte, such idea, designs, improvements, inventions,
discoveries and copyrightable works shall be disclosed to Exabyte, and
be jointly owned by Exabyte and Seller. Seller agrees that Seller and
Seller's employees, agents, and contractors will execute any
instruments and to do all things reasonably requested by Exabyte in
order to more fully vest in Exabyte the joint ownership rights and
those items mentioned in the preceding sentence to Exabyte. Seller
also agrees to provide Exabyte with all documents necessary in
connection with the filing of any patent application of the idea,
<PAGE> 13
designs, improvements, inventions, discoveries and copyrightable works
which are made, authored, co-authored, reduced to practice, devised or
conceived either solely by Seller using funds or proprietary
information of Exabyte or jointly by Seller and Exabyte. Seller
further agrees that Seller will not independently file any patent
application of the idea, designs, improvements, inventions,
discoveries and copyrightable works which are made, authored,
co-authored, reduced to practice, devised or conceived either solely
by Seller using funds or proprietary information of Exabyte or jointly
by Seller and Exabyte.
PAGE(13)
6.5. Continuity of Supply, Disaster Recovery
6.5.1. Procurement of Components
Should Seller require more than the defined lead time to
acquire certain raw materials, Seller shall identify such raw
materials and required lead times. Buyer and/or Exabyte will
then authorize in writing Seller's procurement of such raw
materials and, in the event of termination of this Agreement,
Buyer's and/or Exabyte's liability for the cost of such raw
materials and the associated work-in-process, is limited to the
quantity which Buyer and/or Exabyte approved in writing. Seller
shall provide Unique Long-Lead Time Components exception list
in Appendix III.
6.5.2. Disaster Recovery Plan
Seller agrees to develop a suitable disaster recovery plan to
assure the continued supply of Product to Buyer and/or Exabyte.
Such disaster recovery plan shall be submitted to Buyer and/or
Exabyte concurrent with shipment to Buyer and/or Exabyte of
first production units.
7. MUTUAL REPRESENTATIONS
7.1. Non-Disclosure of Agreement
Seller and Buyer and/or Exabyte agree not to disclose the existence of
the relationship between Buyer and/or Exabyte and Seller arising under
this Agreement or the fact that Seller is performing services for
Buyer and/or Exabyte without the advance written permission of the
other party.
7.2. Confidentiality
The terms provided in Section 6.1. of the Development Agreement shall
apply with the term "Exabyte" replaced by "Buyer and/or Exabyte".
8. TERMINATION
8.1. Initial Term
This Agreement shall extend for the period provided in Section 2.1.
8.2. Termination by Mutual Consent
This Agreement shall be subject to termination prior to the initial
term at any time by mutual consent of the parties, evidenced by a
<PAGE> 14
written agreement provided for termination.
8.3. Termination by Bankruptcy
This Agreement may be immediately terminated by Seller if Exabyte,
or by Exabyte if Seller, files a voluntary petition in bankruptcy or
under any similar insolvency law, makes an assignment for the benefit
of its creditors, or if any involuntary petition in bankruptcy or
under any similar insolvency law is filed against it, or if a receiver
is appointed for, or a levy or attachment is made against all or
substantially all of its assets, and such involuntary petition is
not dismissed or such receiver or levy or attachment is not discharged
within sixty (60) days after the filing or appointment thereof.
PAGE(14)
8.4. Termination by Buyer and/or Exabyte
Buyer and/or Exabyte shall have the right to terminate this Agreement
without cause upon six (6) months' advance written notice to Seller.
In the event of such termination, all purchase orders issued hereunder
may be canceled by Buyer and/or Exabyte as of the effective date of
such termination without further notice to Seller.
8.5. Termination for Cause
Either party shall be entitled, without prejudice to any other rights
accruing under this Agreement or in law, to terminate this Agreement
in the event the other party fails to meet any of its material
obligations stipulated herein provided that the former party has
given written notice of the alleged default to the failing party
and that during a ninety (90) day period following said notice, said
failing party has not remedied such default to the reasonable
satisfaction of the other party. Should such event occur, termination
shall become effective at the end of the said ninety (90) day period.
8.6. Effects of Termination by Buyer and/or Exabyte
In the event Buyer and/or Exabyte terminates pursuant to Section 8.4.,
Seller's sole obligations shall be as follows:
8.6.1. Seller shall, upon the effective date of such termination,
cease all assembly operation and production required by
purchase orders issued under this Agreement.
8.6.2. Seller shall deliver promptly all completed acceptable Product
manufactured pursuant to Buyer and/or Exabyte purchase orders.
8.6.3. Seller shall return immediately at Buyer and/or Exabyte's
expense all loaned or leased equipment provided to Seller by
Buyer and/or Exabyte under this Agreement.
8.6.4. Seller shall prepare and submit to Buyer and/or Exabyte an
itemization of all partially completed Product, assemblies and
process and parts inventories (including parts which Seller is
committed to purchase from its subcontractors) which are
allocated to the Buyer and/or Exabyte purchase order releases
placed and Section 6.5.1. under this Agreement.
<PAGE> 15
9. FORCE MAJEURE
Seller shall not be liable for delays in delivery or failure to
manufacture or deliver Product or to otherwise perform any
obligation due to Buyer and/or Exabyte under this Agreement due
to any cause beyond Seller's reasonable control, such as acts
of God, acts of civil or military authority, labor disputes,
fire, riots, civil commotions, sabotage, war, embargo,
blockage, floods, epidemics, power shortages, or when due to
governmental restrictions or failure of a supplier to deliver.
The rights of Buyer and/or Exabyte under this Agreement shall
not be affected by Buyer's and/or Exabyte's failure to meet any
condition contained herein where such failure is directly and
primarily due to any cause beyond its reasonable control such
as acts of God, acts of civil or military authority, labor
disputes, fire, riots, civil commotions, sabotage, war,
embargo, blockages, floods, epidemics, power shortages, or when
due to governmental restrictions.
PAGE(15)
10. CONSTRUCTION OF AGREEMENT
10.1. Headings
Headings, which include the underlined portion following the Section
number, have been used for reference purposes only and shall have no
operative effect in the construction of the rights or obligations
pursuant to this Agreement.
10.2. References
Any reference to a Section number shall include all subsections of
such Sections.
10.3. Controlling Law
This Agreement shall be construed under and governed by the laws of
the State of New York, United States of America and any disputes
between the parties in respect to this Development Agreement shall
be decided by the competent federal courts in the State of New York.
10.4. Arbitration
All disputes, controversies or differences which may arise between
the parties in relation to or in connection with this Agreement
shall be settled by amicable negotiation by both parties. If both
parties are unable to settle such disputes, then, such disputes
shall be referred to and finally settled by arbitration under the
Rules of Conciliation and Arbitration of the International Chamber
of Commerce. The arbitration shall be conducted in English and take
place in Japan if it is initiated by Buyer and/or Exabyte or in the
U.S.A. if it is initiated by Seller. The award of arbitration shall
bind both parties.
11. GENERAL PROVISIONS
11.1. Entire Agreement: Counterparts
This Agreement, as implemented by purchase orders for Product, is
intended to be the sole and complete statement of the obligations of
<PAGE> 16
the parties as to the sale and purchase of Product and supersedes
all previous understandings, negotiations and proposals as to such
sale and purchase provided, however, that the terms of the
Development Agreement shall be deemed to survive. In the event of
any conflict between the terms and conditions contained in the
Development Agreement and this Agreement, the terms and conditions
contained in this Agreement shall prevail. This Agreement may not
be altered, amended, or modified except in writing signed by duly
authorized representatives of Seller, Buyer and/or Exabyte. Any
printed conditions on purchase orders and acceptance forms are
superseded by this Agreement and shall be of no effect. This
Agreement may be executed in several counterparts, each of which
shall be deemed an original, all of which together shall constitute
one and the same Agreement.
PAGE(16)
11.2. Enforcement
In the event any provisions of this Agreement are declared
non-enforceable by a duly authorized court having jurisdiction, then
this Agreement with respect to enforceable provision shall continue
in force and all rights and remedies under the remaining enforceable
provisions shall survive any such judicial declarations; provided
that this Agreement still expresses the general intent of the
parties. In the event the general intent of the parties cannot be
preserved, this Agreement shall either be renegotiated or rendered
null and void.
11.3. Notices
Notices and other communication by a party under this Agreement
shall be given in writing by mail, postage prepaid, certified,
recorded, or registered, and addressed to the parties at their
respective addresses as set forth below:
SELLER:
Hitachi, Ltd. Electronic Sales Office
Nippon Building, 6-2, Otemachi 2-chome
Chiyoda-ku, Tokyo
100 Japan
Attn: Mr. Makoto Sakamoto
BUYER:
Nihon Exabyte Corporation
Kioicho TBR Building 1214
5-7 Koujimachi, Chiyoda-ku
Tokyo 102, Japan
Attn: Mr. Hisahiro Endo
EXABYTE:
Exabyte Corporation
1685 38th Street
Boulder, Colorado 80301 U.S.A.
Attn: Mr. Stephen F. Smith
<PAGE> 17
Such notices shall be deemed to have been given upon mailing.
Notices also may be given by facsimile, if in the case of Buyer
and/or Exabyte, they are sent to the following facsimile number:
03-3237-2910, and in the case of Seller, they are sent to the
following number: 03-3270-7101. If given by facsimile, notices
shall be deemed to have been given on the date of transmission.
All facsimile notices shall be confirmed by written notice mail,
as provided above, within five (5) days of the date the facsimile
is sent.
11.4. Assignment
This Agreement is not assignable by either party without the written
permission of the other party.
11.5. Waiver
A waiver by either party of its rights under this Agreement with
respect to a breach of the other party's obligations hereunder shall
not be construed as a continuing waiver with respect to other
breaches of the same or of other provisions of this Agreement.
PAGE(17)
11.6. No Agency Created
Neither Buyer nor Exabyte is a partner, joint venturer, agent,
legal representative, or employee of Seller. Neither party is
granted the right or authority to assume or to create any
obligation or responsibility, express or implied, on behalf of or
in the name of the other party or to bind such other party in any
manner to anything whatsoever.
11.7. Official Language
The official language of this Agreement is English. Documents or
notices not originally written in English shall have no effect
under this Agreement until they have been translated into English
by the party providing the notice or document and the English
translation shall then be the controlling form of the document or
notice.
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives, effective as of the date first set forth above.
Hitachi, Ltd. Electronic Sales Office
Nippon Building, 6-2, Otemachi 2-chome
Chiyoda-ku, Tokyo,
100 Japan
By:------------------------------------
Mr. Makoto Sakamoto
Title: General Manager, Electronic Devices Trade Division
WITNESSED BY:--------------------------
Hitachi, Ltd. Image and Information Media Systems Division
<PAGE> 18
By:------------------------------------
Mr. Isao Fukushima
Title: Deputy General Manager, AV Consumer Products Operation
NIHON EXABYTE CORPORATION
Kioicho TBR Building 1214
5-7 Koujimachi, Chiyoda-ku
Tokyo 102, Japan
By:
--------------------------
Title:
-----------------------
EXABYTE CORPORATION
1685 38th Street
Boulder, Colorado 80301 U.S.A.
By:
--------------------------
Title:
-----------------------
Exhibit 21.1 - LIST OF SUBSIDIARIES
1. Exabyte FSC Ltd.
2. Nihon Exabyte Corporation
3. Exabyte (Scotland) Ltd.
4. Exabyte (Europe) B.V.
5. Exabyte Magnetics GmbH
6. Exabyte (Singapore) Pte. Ltd.
7. Exabyte (Canada) Corporation
Exhibit 23.0 - CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (Nos. 33-33414
and 33-42182) of Exabyte Corporation of our report dated January 16, 1997
appearing on page 38 of this Form 10-K.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
Boulder, Colorado
March 20, 1997
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<ARTICLE> 5
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FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 28, 1996 AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 28, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-START> DEC-31-1995
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 46,223
<SECURITIES> 20,600
<RECEIVABLES> 63,729
<ALLOWANCES> 7,315
<INVENTORY> 55,765
<CURRENT-ASSETS> 196,385
<PP&E> 107,422
<DEPRECIATION> 62,235
<TOTAL-ASSETS> 256,126
<CURRENT-LIABILITIES> 52,655
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0
0
<COMMON> 22
<OTHER-SE> 199,991
<TOTAL-LIABILITY-AND-EQUITY> 256,126
<SALES> 362,891
<TOTAL-REVENUES> 362,891
<CGS> 265,002
<TOTAL-COSTS> 265,002
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13,655
<INTEREST-EXPENSE> 529
<INCOME-PRETAX> 12,683
<INCOME-TAX> 4,058
<INCOME-CONTINUING> 8,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 8,625
<EPS-PRIMARY> 0.39
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