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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 January 3, 1998
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. ( )
The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 2, 1998 was $152,250,509 based
on the closing sale price on such date. The aggregate number of shares of
common stock outstanding on March 2, 1998 was 19,333,398(a).
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Document incorporated by reference: Proxy Statement for the 1998 Annual
Meeting of Stockholders scheduled to be held May 4, 1998: Part III, Items
10, 11, 12, and 13.
(a) Excludes 3,146,515 shares of common stock held by directors, executive
officers and stockholders whose ownership exceeds ten percent of the common
stock outstanding at March 2, 1998. 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, manufactures and
markets a full range of 8mm tape drives and 8mm, DLT(TM) and 4mm tape
libraries. Exabyte also provides its own brand of recording media, software
utilities and worldwide service and support.
The Company's strategic focus is the information storage and retrieval tape
drive market for workstations, mid-range computer systems and networks,
primarily for data backup and archival applications. Computer manufacturers
and resellers require a variety of storage products which vary in price,
performance, capacity and form-factor characteristics as their needs for data
backup and archival storage increase. Exabyte's current strategy is to offer a
number of products to address a broad range of these requirements.
In June 1997, Exabyte segmented its operations into four divisions, each
responsible for a specific line of products or services: the Enterprise
division, responsible for Exabyte's line of 8mm tape drive products and media;
the Storage Automation Solutions division, responsible for robotic tape
libraries; the Worldwide Service division, responsible for service programs and
support for Exabyte's products and customers; and the Eagle(RTM) division,
created in 1995, responsible for Exabyte's line of minicartridge drives and
media. In December 1997, Exabyte announced the closure of its Eagle(RTM)
division.
In addition to the historical information contained in this document, the
following discussion contains forward-looking statements that involve future
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,"
"plans" 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."
PRODUCTS AND SERVICES
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The Company manufactures 8mm tape drive products and robotic libraries, which
incorporate Exabyte's own 8mm tape drives, as well as 4mm and DLT(TM) tape
drives manufactured by others. Exabyte's 8mm tape drives products offer data
capacities ranging from 5GB to 40GB with data compression (described below).
These tape drive products address the mid-range to high-end server markets, the
remainder of which is largely served by 4mm and half-inch linear tape drives
produced by competitors. Exabyte's robotic tape libraries incorporate one or
more tape drives and multiple media cartridges. In addition, Exabyte provides
a variety of services for its products, as well as recording media and
cleaning cartridges for its products.
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There can be no assurance that any of the current or announced products or
services listed below will be successfully developed, made commercially
available on a timely basis or achieve market acceptance. Exabyte encounters
a number of risks in producing and selling its products and services. For a
description of the risks associated with Exabyte's products and services
please refer to the "RISK FACTORS--Product Development," "RISK FACTORS--Media
Constraints," "RISK FACTORS--Product Quality and Performance" and "RISK
FACTORS--Management of Business and Product Transitions" sections below.
8mm Tape Drive Products
=======================
Exabyte's 8mm tape drive products and media are the responsibility of the
Enterprise division. These products address the mid-range markets including
UNIX, and NT server markets and are sold primarily to Exabyte's reseller and
original equipment manufacturer ("OEM") customers. In 1997, sales of 8mm tape
drive products represented 59% of revenue, while in 1996 and 1995, sales
represented 65% and 60% of total revenue, respectively. Exabyte's 8mm tape
drive products are based on helical scan technology and utilize a SCSI
interface. The tape drive products also incorporate a licensed compression
algorithm for data compression. All data capacities and transfer rates
indicated for the products listed below assume a compression ratio of two to
one. Actual compression will vary depending on the nature of the data and the
drive and media quality.
The primary factors distinguishing the Company's tape drive products from one
another are form factor, data capacity, and transfer rate.
Form Factor - the physical size of the device with respect to
industry standard formats.
Data Capacity - the total amount of data which can be stored on a
single media cartridge.
Transfer Rate - the speed that data may be transferred to or from the
tape drive.
Current 8mm Tape Drive Products
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Exabyte Mammoth
The Company's Mammoth 8mm tape drive targets large department networks and
application servers and may be incorporated into most of Exabyte's 8mm
libraries. Mammoth is Exabyte's fastest, highest capacity 8mm tape drive with a
data capacity of 40GB and a transfer rate of 6MB per second. Mammoth features
an industry-standard 5 1/4" half-high form factor and is compatible with all
Exabyte 8mm tape drive products. Mammoth is dependent upon and only writes to
Advanced Metal Evaporated ("AME") media, but can read media cartridges written
by Exabyte's other 8mm tape drive products. AME media is supplied to Exabyte
exclusively by Sony Corporation, a competitor to the Company. The Company has
experienced constraints in the supply of AME media. Please refer to the "RISK
FACTORS--Media Constraints" and "RISK FACTORS--Supplier Dependence" sections
below.
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Exabyte Eliant(TM) 820
The Eliant(TM) 820 tape drive, which targets mid-range networks and smaller
mixed workstations, features a 14GB data capacity and a transfer rate of 2MB
per second. The Eliant(TM) 820 may be incorporated into Exabyte's 8mm
libraries and comes in an industry-standard 5 1/4" half-high form factor.
Exabyte 8700
The Exabyte 8700, which targets entry-level networks, features a data capacity
of 14GB and a 1MB-per-second transfer rate. The Exabyte 8700 comes in a stand-
alone design that includes its own power supply and is housed in a desktop
enclosure.
Media
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Exabyte provides various types of media cartridges, as well as cleaning
cartridges and data cartridge holders, for its 8mm tape drive products. The
high-quality media, produced by one or more third parties, is available in
different lengths to handle various data storage requirements. The growth of
Exabyte's Mammoth and follow-on Mammoth drives is dependent upon the supply of
AME media. There are several risks associated with Mammoth media dependence.
For a description of those risks, please refer to the "RISK FACTORS-- Media
Constraints" section below. Sales of media and media related products
represented approximately 15%, 12% and 9% of sales in 1997, 1996 and 1995,
respectively.
Robotic Tape Library Products
=============================
Exabyte's robotic tape libraries and associated products are the responsibility
of the Storage Automation Solutions division. Exabyte offers a family of
robotic tape libraries which automate the storage and retrieval of substantial
amounts of data. Each library incorporates one or more tape drives and
multiple media cartridges. The primary sales channels for Exabyte's robotic
tape libraries are OEMs and resellers. The libraries are targeted for use in
applications ranging from small department networks to large application
servers. In 1997, revenues from robotic tape library sales were 18% of total
revenue, while in both 1996 and 1995, sales represented 14% of revenues. The
Company's robotic tape libraries typically provide relatively higher levels of
profit margin contribution to the Company's results of operations. Any
shortfall in the sale of these products would have a relatively higher negative
effect on the Company's margins than the Company's other products. All data
capacities and transfer rates indicated for the products listed below assume a
compression ratio of two to one. Actual compression will vary depending on the
nature of the data and the drive and media quality.
Current Robotic Tape Library Systems
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Exabyte 440/480
The Exabyte 440 and 480 libraries target large enterprise application servers
and networks and support applications such as unattended network backup/
restore. These libraries represent Exabyte's largest capacity library
offerings. The Exabyte 440 incorporates up to four 8mm tape drives and up to
40 media cartridges, while the Exabyte 480 incorporates up to four 8mm tape
drives and up to 80 media cartridges (the Exabyte 440 can be upgraded to an
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Exabyte 480 library.) At full capacity (four Mammoth tape drives and 80 media
cartridges) the Exabyte 480 offers a data capacity of 3.2TB and a transfer rate
of 24MB per second. The libraries feature a standard bar code scanner and come
in both rack and tower configurations.
Exabyte 210/220
The Exabyte 210 and 220 libraries target small and large department networks,
respectively, as well as mid-range file and application servers. Their
applications include unattended network backup/restore. The Exabyte 210
library incorporates up to two 8mm tape drives and up to 10 media cartridges,
while the Exabyte 220 library incorporates up to two 8mm tape drives and up
to 20 media cartridges (the Exabyte 210 can be upgraded to an Exabyte 220
library). At full capacity (two Mammoth tape drives and 20 media cartridges),
the Exabyte 220 offers a data capacity of 800GB and a transfer rate of 12MB per
second. The libraries feature a bar code scanner (standard on the Exabyte
220) and come in both rack and tower configurations.
Exabyte 10h
The Exabyte 10h library targets small department networks and supports
applications such as network backup/restore. The Exabyte 10h incorporates one
Eliant(TM) 820 tape drive and up to 10 media cartridges. At full capacity, the
Exabyte 10h library offers a data capacity of 144GB and a transfer rate of 2MB
per second.
Exabyte 218
The Exabyte 218 library, Exabyte's 4mm tape library, targets small to mid-sized
department networks and supports applications such as network backup/restore.
The Exabyte 218 incorporates up to two DDS-2 4mm tape drives and up to 18 media
cartridges, and comes in both rack and tower configurations. At full capacity,
the Exabyte 218 offers a data capacity of 144GB and a transfer rate of 2MB per
second.
Exabyte 18D
The Exabyte 18D is Exabyte's first DLT(TM) library. The Exabyte 18D targets
small department networks and mid-range file and application servers. The
Exabyte 18D supports such applications as unattended network backup/restore.
The Exabyte 18D library incorporates a single DLT(TM) 4000 or DLT(TM) 7000 tape
drive from Quantum Corporation ("Quantum") and up to eight media cartridges.
At full capacity (with a DLT(TM) 7000 drive), the Exabyte 18D offers a data
capacity of up to 560GB and a transfer rate of up to 10MB per second. The
Exabyte 18D also comes in both rack and tower configurations.
Announced Robotic Tape Library Systems
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Exabyte 230D
The Exabyte 230D is Exabyte's most recent DLT(TM) library offering. The
Exabyte 230D targets large client-server and department networks and supports
applications such as unattended network backup/restore. The Exabyte 230D
incorporates up to two Quantum DLT(TM) 4000 or DLT(TM) 7000 tape drives and
up to 30 media cartridges. At full capacity (with two DLT(TM) 7000 tape
drives), the Exabyte 230D offers a data capacity of 1.2TB and a transfer rate
of 20MB per second. The Exabyte 230D features a standard bar code scanner,
comes in both rack and tower configurations and is field upgradable to future
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DLT(TM) library offerings. Worldwide shipping of the Exabyte 230D to customers
is scheduled to begin in the first half of 1998.
There can be no assurance that this or any announced or unannounced product
will be successfully developed, made commercially available on a timely basis
or achieve market acceptance. Please refer to the "RISK FACTORS--Product
Development" section below.
Service
=======
Exabyte's Worldwide Service division provides a full range of in-warranty and
out-of-warranty support services for Exabyte's library, tape drive, and media
products. These services, which are delivered through a worldwide network of
service centers and authorized service providers, support Exabyte OEM, reseller
and end-user customers in the deployment, operation and maintenance of Exabyte
products.
The service programs offered by the Worldwide Service division for Exabyte's
products and media include those listed below:
Products Service Programs
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Robotic Tape Libraries.......................Hardware conversions
Parts support
Depot repair
On-site service
8mm Tape Drive Products......................Extended warranties
Hardware upgrades
Depot repair
Next-day advance exchange
Media........................................Warranty exchange
Data recovery
Media conversions
In 1997, revenue from service and support programs accounted for 7% of total
revenue, while in both 1996 and 1995 these programs accounted for 6% of
revenues.
Minicartridge Tape Drive Products
=================================
During 1997, Exabyte's Eagle(RTM) division was responsible for the Eagle(RTM)
line of minicartridge tape drive products and related media. These products
targeted the desktop PC and PC server markets. The Eagle(RTM) division's
primary sales channels were resellers and retailers, although the division
began marketing its products to OEMs in 1997.
The Company announced the closure of its Eagle(RTM) division in December 1997
and took certain restructuring charges related to the closure. See
RESTRUCTURING CHARGES in the Management's Discussion and Analysis section
below.
In 1997, sales of minicartridge tape drive products represented 6% of total
revenue, while in 1996 and 1995, sales accounted for 5% and 2% of revenue,
respectively.
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MARKETING AND CUSTOMERS
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Exabyte markets its products worldwide to OEMs and resellers. Initial sales of
new products are often made to resellers who are usually quicker to evaluate,
integrate, and adopt new technology. OEM sales generally increase as the new
product successfully completes the necessary qualification process. For a
description of the risks associated with Exabyte's customers and customer
dependence, please refer to the "RISK FACTORS--Customer Dependence," "RISK
FACTORS--Market Demand" and "RISK FACTORS--Year 2000" sections below.
OEMs
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OEM customers incorporate Exabyte drives as part of their own systems. Exabyte
works with its OEM customers during early product development stages to help
ensure its products will readily integrate into these customers' systems.
The sales cycle for an OEM typically covers many months. During this time,
the OEM evaluates the technology, qualifies the product specifications and
verifies Exabyte's compliance with product specifications. The OEM then
integrates the product into its system and publicly announces the integration
toward the end of the sales cycle before volume shipments of Exabyte's products
are made to the OEM. Product sales to OEMs represented 49% of total sales in
1997. In 1996 and 1995, these sales were 51% and 55%, respectively, of total
sales.
Resellers
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The Company's reseller customers purchase products for resale and may provide
all or some of the following services: distribution, system upgrades, value-add
or other services. Resellers may use the Company's tape drive products to
upgrade various types of installed computer systems, including those
manufactured by IBM, Sun Microsystems and Digital Equipment Corporation.
Some resellers package the Company's tape drives into a stand-alone enclosure
containing a power supply and software for attachment to the end-user's system.
Resellers may also combine the Company's products with other storage devices,
such as single or multiple disk drives, to deliver a value-added storage
solution. Resellers also distribute Exabyte's products to OEMs and end-users.
The Company often supports some of its reseller customers by providing
marketing and technical support directly to their customers, thereby
incurring certain additional costs for such sales. Other costs and risks
associated with the reseller business include inventory price protections,
stock rotation obligations and customer rebates. The reseller business is
also characterized by relatively short order lead times which limit the
Company's ability to forecast sales to these customers. Please refer to the
"RISK FACTORS--Market Demand" section below. Sales to resellers represented
approximately 46%, 45% and 42% of sales in 1997, 1996 and 1995, respectively.
International
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Exabyte also markets its products overseas directly to OEMs, as well as through
resellers to OEMs and end-users. Each of the Company's international markets
is served by resellers with rights to sell the Company's products in a country
or group of countries. Direct international sales accounted for approximately
32%, 30%, and 31% of sales in 1997, 1996, and 1995, respectively. (See Note 9
of Notes to Consolidated Financial Statements.) In addition, many of Exabyte's
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domestic customers ship a significant portion of Exabyte's products to their
overseas customers. Currently, a very small percentage of the Company's
international sales are denominated in foreign currencies and are 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. Exabyte's sales are also subject to risks
common to export activities, including government regulation or seizure of
property, tariffs, and import restrictions. For a description of these and
other risks associated with international sales, please refer to the "RISK
FACTORS--Foreign Sales" section below.
Principal Customers
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A partial list of Exabyte's customers includes Anthem, Bull S.A., Consan,
Digital Equipment Corporation, IBM, Ingram Micro, Merisel, NCR, Siemens
Nixdorf, Sun Microsystems and Tech Data.
IBM and Sun Microsystems were the only two customers accounting for 10% or more
of Exabyte's sales during the previous three fiscal years. IBM accounted for
17% of sales in 1997 and 15% of sales in both 1996 and 1995. Sun Microsystems
accounted for 13% of sales in 1997 and 11% of sales in both 1996 and 1995.
In addition, Exabyte's three largest customers accounted for 39% of sales in
1997. There are many risks associated with Exabyte's dependence on its key
customers, including the loss of a key customer and substantial cancellations
or rescheduling of customer orders. For a description of these and other risks
associated with Exabyte's customers and customer dependence, please refer to
the "RISK FACTORS--Customer Dependence" and "RISK FACTORS--Market Demand"
sections below.
COMPETITION
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The data storage market is extremely competitive and subject to rapid
technological change. The Company believes that competition in the data
storage market will continue to increase. Manufacturers of all types of
storage technologies compete for a limited number of customers. The Company
believes that the main competitive factors considered by these customers are:
- storage capacity
- data transfer rate
- form factor
- price/performance
- innovation
- product quality and reliability
- timing of new product introductions
- volume availability
- customer support
- the Company's financial strength
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 storage products
into their systems. Some of the Company's current and potential competitors
have significantly greater financial, technical, and marketing resources than
Exabyte. There can be no assurance that they will not devote those resources
to the aggressive marketing of helical scan, minicartridge, half-inch
cartridge, optical or other storage product technologies.
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Future developments of tape and optical technologies, as well as new forms of
storage technologies, could create additional, significant competition to
Exabyte. Other risks include loss of market share, price erosion and pricing
pressure. For a description of these and other risks associated with Exabyte's
competition, please refer to the "RISK FACTORS--Competition" section below.
Exabyte's 8mm tape drive products face competition from companies offering
8mm, half-inch, 4mm and minicartridge tape drive products. Exabyte's largest
8mm competitor is currently Sony with its new AIT tape drive. There can be
no assurance that other companies will not enter the 8mm market in the future.
Sony also offers a competitive 4mm tape drive. 4mm tape drives are typically
lower in price and smaller in size, making them more attractive to the low end
of the market and those systems with a smaller form factor.
Among Exabyte's competitors which offer half-inch tape drive products are
Quantum, Fujitsu, IBM, Overland Data and StorageTek. The half-inch products
currently being offered generally have higher capacities and transfer rates
than Exabyte's products. Specifically, Quantum's DLT(TM) 7000 drive competes
in the same market segment as Exabyte's Mammoth drive, but offers storage
capacities and transfer rates greater than Mammoth or any of Exabyte's other
current tape drive products.
Additionally, certain of the Company's low-end 8mm tape drive products compete
with minicartridge tape drives. Minicartridge products offer some advantages
over the Company's low-end 8mm tape drive products, including compatibility of
new products with the larger installed base of earlier generation minicartridge
tape drives, and are generally lower in price and better suited for this market
segment. If higher capacity minicartridge tape drive products are successfully
introduced, such products could represent a more significant competitive
challenge to Exabyte's 8mm tape drive products. Exabyte's primary
minicartridge competitors are Seagate, Hewlett-Packard, Tandberg, Iomega and
Tecmar.
The Company's library product offerings face direct competition from other
companies manufacturing their own library offerings. Some of Exabyte's major
8mm library competitors are IBM, Qualstar, ADIC and Spectralogic. Among
Exabyte's DLT(TM) library competitors are ADIC, ATL, Hewlett-Packard, Quantum,
Breece Hill, and StorageTek. Major 4mm library competitors are IBM, Qualstar,
ADIC, Hewlett-Packard, StorageTek, Spectralogic and Seagate. Because
Exabyte's library products represent higher-margin business to the Company,
any shortfall in the sale of these products, due to competition or otherwise,
would have a proportionately greater impact on the Company's results of
operations.
Additionally, Exabyte's service programs are under competition from third party
service providers, including Tech Support Services International, RC
Electronics and ElectroService Labs.
MANUFACTURING
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Exabyte currently manufactures parts or complete units of its 8mm tape drive
and library products at its Boulder, Colorado facility. Exabyte's Scotland
facility customizes generic tape drives to meet customer-specific requirements
for Exabyte's European customers. The Company currently employs just-in-time
manufacturing techniques emphasizing flexibility and continuous product flow.
These techniques depend on uninterrupted access to high-quality, competitively
priced components in required volumes. The Company has a large number of sole-
source dependencies. Exabyte has executed master purchase agreements with some
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of its sole-source suppliers, and conducts business with the rest of its
suppliers on a purchase order basis. Please refer to the "RISK FACTORS--
Supplier Dependence" section below. Further, many such components are sourced
from suppliers located outside the U.S. Please refer to the "RISK FACTORS--
Foreign Exchange and Import Restrictions" section below.
Exabyte obtains much of the materials and components necessary for
manufacturing its products from its German subsidiary, Exabyte Magnetics GmbH
("EMG"), as well as from a number of suppliers. Many of the key components
are made to the Company's specifications and are acquired from sole sources.
Please refer to the "RISK FACTORS--Supplier Dependence" and "RISK FACTORS--
Mammoth" sections below.
The Company manufactures a mechanical deck mechanism for the Company's Mammoth
product. Production of this deck assembly requires a more complex
manufacturing process than the Company had previously undertaken. Difficulties
in manufacturing this deck assembly have caused production constraints for
Mammoth in the past. There can be no assurance that such problems will not
occur again in the future. For a description of the risks associated with the
Company's Mammoth product, please refer to the "RISK FACTORS--Mammoth" and
"RISK FACTORS--Media Constraints" sections below.
Among the many key components for Exabyte's products, and the supplier(s)
supplying the components are:
Sole-Source
Component Supplier(s)
--------- ---------
8mm tape decks.....................Sony
Hitachi
Circuit boards.....................Solectron
EFTC
Recording heads....................ReadRite
EMG
AME Media..........................Sony
Two of Exabyte's biggest sole-source suppliers are Sony Corporation ("Sony")
and Hitachi Corporation ("Hitachi"), both supplying customized 8mm tape decks
to the Company.
The relationship with Sony as a supplier of 8mm tape decks began in 1987. Sony
currently supplies customized tape decks for Exabyte's 8205XL and 8505XL 8mm
tape drives. In April 1997, the Company initiated end-of-life programs with
respect to these two products. The controlling supply agreement, entered into
by Exabyte, Nihon Exabyte Corporation (Exabyte's wholly owned Japanese
subsidiary) and Sony, terminates in March 1998. Exabyte does not intend to
renew this agreement. The parties are currently negotiating an amendment to
the contract to terminate the contract and end the supply of 8mm tape decks as
of August 1998. The Company expects that the amendment, if executed, would
provide for the supply of spare parts related to the tape decks supplied by
Sony. Such spare parts are of importance to Exabyte's Worldwide Service
division. Exabyte does not currently have a second source for these spare
parts, and any constraint in the supply could affect the Worldwide Services
division's ability to successfully service and maintain Exabyte's 8205XL and
8505XL tape drives, both in- and out-of-warranty, and could have a material
adverse effect on the Company's results of operations.
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Hitachi currently supplies the tape deck components for Exabyte's 8700 and
Eliant(TM)820 8mm tape drives. The components incorporated into these products
are customized to the Company's specifications. The purchase agreement for the
Exabyte 8700 tape deck component was entered into among Exabyte, Nihon Exabyte
Corporation, and Hitachi on February 22, 1995 and was automatically renewed in
February 1998 for an additional 12 months, per the terms of the agreement. 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 automatic 12-month extensions.
While both Hitachi 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 incorporating such
components into its own competitive products.
There can be no assurance that the supply of these decks or spare parts from
Sony or Hitachi will continue or that prices will remain at their current
levels. The Company's inability to obtain decks or spare parts at a
commercially reasonable cost would cause a significant delay or even
termination of the production of these 8mm tape drives, and would have a
material adverse effect on the Company's competitive position and its results
of operations.
For a description of these and other risks associated with Exabyte's suppliers,
please refer to the "RISK FACTORS--Year 2000","RISK FACTORS--Supplier
Dependence" and "RISK FACTORS--Foreign Sourcing" sections below.
Exabyte also contracts with third parties to manufacture product components.
For a description of the risks associated with manufacturing, please refer to
the "RISK FACTORS--Third Party Contract Manufacturing" and "RISK FACTORS--
Patent Infringement and Proprietary Rights" sections below.
RESEARCH AND DEVELOPMENT
- ------------------------
Exabyte participates in an industry that is subject to rapid technological
changes and believes its future success depends on its ability to extend its
technology and further the development of highly reliable tape drive products
with competitive price performance characteristics. The Company focuses its
research and development efforts primarily on developing new products with
improved price performance and enhancing its current products. There are
numerous risks associated with Exabyte's research and development efforts. For
a description of these risks, please refer to the "RISK FACTORS--Product
Development" section below.
The Company's research and development expenses were approximately $40.9
million, $38.4 million and $37.0 million in 1997, 1996 and 1995, respectively.
Except for certain software development costs, the Company's research and
development costs are expensed as incurred.
PATENTS AND PROPRIETARY INFORMATION
- -----------------------------------
Exabyte relies on a combination of patents, copyright and trade secret
protections, non-disclosure agreements, and licensing arrangements to establish
and protect its proprietary rights. As of February 23, 1998, Exabyte owned 46
United States patents and had 36 United States patent applications pending
(five of which have been allowed but have not yet issued), all relating to
<PAGE> 13
technologies and other aspects of Exabyte tape drive and robotic tape library
products. However, the Company believes that, because of the rapid pace of
technological change in the tape storage industry, factors such as knowledge,
ability and experience of Exabyte's employees, new product introductions and
frequent product enhancements are often more significant than patent and trade
secret protection.
Exabyte licenses its technology to third party manufacturers to allow them to
manufacture Exabyte's products. Additionally, Exabyte has granted
manufacturing licenses to certain customers which allow them to manufacture and
sell the Company's products should specific events occur, such as the Company's
inability to perform its supply obligations. Exabyte also enters into joint
development agreements with third parties for the development of product
components. Under these agreements, the third parties generally have joint
ownership of certain technologies related to the component being developed.
The dissolution of these agreements could result in significant costs and other
risks to the Company. Please refer to the "RISK FACTORS--Patent Infringement
and Proprietary Rights" section below.
There are a number of risks associated with Exabyte's proprietary rights. For
a description of these risks, please refer to the "RISK FACTORS--Patent
Infringement and Proprietary Rights" and "RISK FACTORS--Third Party Contract
Manufacturing" sections below.
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
January 3, 1998 and December 28, 1996 totaled approximately $22.0 million and
$28.9 million, respectively. The Company's customers typically are not
obligated 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. The Company believes that the rate of new orders will vary
significantly from month to month. Customers may cancel or reschedule orders
without significant penalty. In addition, the Company's actual shipments
depend upon its production capacity and component availability. 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. For a
description of these and other risks associated with Exabyte's backlog
management, please refer to the "RISK FACTORS--Inventory Write-downs and
Special Charges" and "RISK FACTORS--Customer Dependence" sections below.
FOREIGN EXCHANGE AND IMPORT RESTRICTIONS
- ----------------------------------------
Many of the Company's key components and products are currently or may be
manufactured overseas in countries such as Japan, Germany, The Netherlands,
China and Singapore. Additionally, a substantial portion of Exabyte's products
incorporate subassemblies and components purchased from Japanese or other
overseas suppliers in yen or another foreign currency. The Company's results
of operations, therefore, may be materially affected by fluctuations in
currency exchange rates. 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.)
Exabyte's international involvement is also subject to other risks common to
foreign operations, including government regulations, foreign exchange or
import restrictions or tariffs imposed by the U.S. Government on products or
<PAGE> 14
components shipped from another country. Additionally, the sale of Exabyte's
products to domestic federal or state agencies may be limited by the Buy
America Act or the Trade Agreement Act to the extent the Company incorporates
into its products components produced overseas.
The Company's subsidiaries located in The Netherlands, Germany, Japan, Canada
and Singapore operate under their respective local currencies. (See Note 1
of Notes 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 effect 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.
For a description of these and other risks associated with Exabyte's foreign
involvement, please see the "RISK FACTORS--Foreign Operations," "RISK FACTORS--
Foreign Sourcing" and "RISK FACTORS--Foreign Sales" sections below.
EMPLOYEES
- ---------
As of February 28, 1998, the Company had 1,229 full-time and part-time
employees and 94 temporary or contract employees for a total of 1,323
employees. Of the Company's total employees, 110 were employed in the
Automation Solutions division, 360 in the Enterprise division, 374 in the
Worldwide Service division, 26 in the Eagle(RTM) division, 114 in sales, 90
in customer/technical support, 40 in marketing, 136 in quality and business
systems and 73 in general and administration. None of the Company's employees
is represented by a labor union although EMG is subject to an organized Works
Council.
The Company reduced its workforce in October 1997 and again in January 1998,
primarily as a result of its decision to close the Eagle(RTM) division. These
reductions have resulted in the involuntary termination of approximately 163
employees, to date.
The Company faces extreme competition for key employees. Success depends to a
significant extent upon the ability to attract, retain and motivate key
engineering, marketing, sales, manufacturing, support and executive personnel.
For a description of the risks associated with retaining key employees, please
refer to the "RISK FACTORS--Key Employees" section below.
RISK FACTORS
- ------------
Media Constraints
- -----------------
The Company is currently experiencing a shortage of the AME media used in its
Mammoth tape drive. Exabyte's ability to sustain growth in the Mammoth line
depends on the availability of this media, which is produced to the Company's
specifications. Currently, the AME media is sourced exclusively from Sony, a
direct competitor of Exabyte. In the event such 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 of current Mammoth
tape drive products, including associated libraries, or the introduction of
future Mammoth tape drive products, which could have a material adverse effect
on the Company's competitive position and its results of operations.
<PAGE> 15
The Company's ability to obtain an adequate supply of this media has been, is
currently and may be further affected by any constraint in Sony's production
of the media, the divergence of Sony's limited media supply to other third
parties, any change in Sony's media specification which would no longer meet
the Company's requirements, or otherwise as a result of Sony's competitive
position. The Company is currently attempting to obtain a second source for
the production of advance tape media. However, there can be no assurance that
its production of the media will be in the volume or of the quality required by
the Company.
Supplier Dependence
- -----------------
The Company relies on sole-source suppliers for certain critical components. A
reliance on sole-source suppliers involves several risks, including possible
shortage of certain key components and reduced control over delivery schedules,
manufacturing yields, quality and costs. The Company has experienced problems
with the quality of and interruptions in the supply of sole-source components
in the past. Any future yield, quality, delivery or supply problems with any
of these suppliers could force Exabyte to delay or cancel shipments of its
products, which could have a material adverse effect on the Company's
competitive position and its results of operations.
Specifically, because the Company depends on Sony and Hitachi as principal
sources for their 8mm mechanical tape decks in Exabyte's 8mm tape drive
products (excluding Mammoth), the Company may encounter delays in or
termination of the production of these 8mm tape drive products should Sony
and/or Hitachi encounter any of the problems previously listed regarding sole-
source suppliers. While Exabyte has supply contracts with both Sony and
Hitachi, there can be no assurance that the supply of tape decks or spare
parts will continue at required levels, or that prices will remain at the
current levels.
Additionally, while there are other suppliers of 8mm decks, the Company has no
assurances these parties would enter into supply agreements for the tape decks.
Customizing tape decks for the Company's tape drive products would require many
months of effort. There can be no certainty that such efforts would be
successful, or, even if successful, that they would not result in a significant
delay in the shipment or even termination of the production of one or more of
the Company's tape drive products.
The Company relies solely on Quantum, a competitor of the Company, to supply
the DLT(TM) tape drives for Exabyte's DLT(TM) libraries. The Company may
encounter delays in shipping or termination of the production of its DLT(TM)
libraries should Quantum encounter any of the problems described above
regarding sole-source suppliers. Exabyte does not have a purchase agreement
with Quantum for the supply of its DLT(TM) tape drives, and as such, there can
be no assurance that the supply or price of the DLT(TM) tape drives will
continue at their current levels.
The Company has also 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 supply
or technology dependencies (see "RISK FACTORS--Patent Infringement and
Proprietary Rights").
<PAGE> 16
Mammoth
- -------
Mammoth incorporates a deck assembly mechanism manufactured the Company. Prior
to the introduction of Mammoth, the Company's manufacturing experience was
largely limited to assembling and testing components purchased from third
parties. Production of the Mammoth deck assembly requires a complex
manufacturing process that the Company had never undertaken before.
EMG develops, manufactures and supplies scanners and recording heads, a key
component of Exabyte's Mammoth product. This component requires a high degree
of manufacturing and technical expertise. The Company has previously
experienced a delay in the introduction of Mammoth caused in part by the
inability of EMG to supply a sufficient number of high-quality parts. There
can be no assurance that the Company will not again experience such production
constraints, which could have a material adverse effect on the Company's
results of operations.
Customer Dependence
- -------------------
IBM and Sun Microsystems accounted for 17% and 13%, respectively, of Exabyte's
sales in 1997. In addition, Exabyte's three largest customers accounted for an
aggregate of 39% of sales in 1997. 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. 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 addition, significant rescheduling or
deferrals of orders by any of these customers could cause substantial
fluctuations in the Company's quarterly results. Additionally, Exabyte's
library products represent higher-margin business to the Company. Any
shortfall in the sale of these products would have a greater adverse impact on
the Company's results of operations.
Market Demand
- -------------
The Company believes that the demand for its products is substantially
dependent upon the demand for workstations, mid-range computer systems and
networks. These markets tend to be volatile and subject to market shifts,
which may or may not be discernible in advance by Exabyte. 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. Any demand weakness,
particularly in the reseller channel, which generally represents higher-
margin sales, could have a greater impact on profitability and a material
adverse effect on the Company's results of operations. Additionally,
inaccuracies in market demand forecasts can quickly result in either
insufficient or excessive inventories and disproportionate overhead expenses.
Patent Infringement and Propriety Rights
- ----------------------------------------
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. However, the Company believes that because
of the rapid pace of technological change in the tape storage industry, factors
<PAGE> 17
such as knowledge, ability and experience of Exabyte's employees, new product
introductions and frequent product enhancements are often more significant than
patent and trade secret protection.
Although Exabyte continues to file patent applications for its products, there
can be no assurance that patents will issue from any 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.
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. The Company has also received letters from
third parties seeking indemnification from infringement against other third
parties. 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
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.
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.
Additionally, 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. There can be no assurance that the
manufacture and/or sale of Mammoth will not infringe the proprietary rights of
third parties.
The Company has entered into agreements with third parties providing for the
joint development of certain products or components. The termination or
dissolution of such agreements could result in disputes over the respective
ownership of the underlying technology. The Company entered into a joint
development agreement with Philips Electronics for the development of certain
key components. The Company is currently in discussions with Philips
Electronics regarding the terms and conditions of the dissolution of this
agreement.
Competition
- -----------
The tape storage market is highly competitive and subject to rapid technology
change, and the Company expects competition to increase. Competition has
resulted in price erosion of Exabyte's products in the past and is expected to
occur in the future. The Company may also face more significant competitive
challenges in the future in the form of loss of market share, pricing pressure
and otherwise, particularly in the library market. Numerous companies are
engaged in researching, developing, and commercializing data storage products.
Additionally, some of the Company's current and prospective competitors have
significantly greater financial, technical, manufacturing and marketing
<PAGE> 18
resources than Exabyte. There can be no assurance that these competitors will
not devote their resources to the aggressive marketing of storage product
technologies, to which there can be no assurance that these technologies will
not be equivalent or superior to the Company's technology or which render the
Company's products obsolete or non-competitive. The Company's ability to
successfully compete in the tape storage market depends, in part, on accessing
and adapting to any such technological changes. In addition, the industry has
experienced a number of consolidations which have increased and may continue to
increase the competitive pressures on Exabyte.
The Company faces competition directly from 8mm tape drives produced by other
companies, particularly Sony (who also produces tape decks and AME media for
Exabyte) and indirectly from half-inch, 4mm and minicartridge tape drives
produced by others. Some of these products offer greater data capacities and
transfer rates than do Exabyte's products, particularly Quantum's DLT(TM)7000
half-inch tape drive. Significant competition is also developing from
companies offering erasable and non-erasable optical disks. In addition, other
companies may introduce in the future competitive storage tape drives based on
new technologies that may render the Company's products obsolete or
non-competitive.
Product and Quality Performance
- -------------------------------
Any failure of the Company's products, including media, 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 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.
Year 2000
- ---------
The phenomenon, known generally as the Year 2000 problem, involving the
potential inability of information or other data-dependent systems to properly
distinguish year references as of the turn of the century, represents a
material risk to the Company in a number of ways.
First, the Company itself is heavily dependent upon the proper functioning of
its own computer or data-dependent systems, including, but not limited to, its
orders entry, payroll, engineering changes and manufacturing systems. Any
failure or malfunctioning on the part of these or other systems could adversely
affect the Company in ways that are not currently known, discernable,
quantifiable or otherwise anticipated by the Company. In mid-1997, Exabyte
formed a task force to evaluate those areas of the Company that may be affected
by the Year 2000 problem and devised a plan for the Company to become Year 2000
compliant in a timely manner. The task force established a plan designed to
upgrade all of the Company's major information systems and supporting software
programs for Year 2000 compliance by the end of 1998. There can be no
assurance that any such plan will be successful, that the Company will be able
to upgrade any or all of its major systems in accordance with the plan or, once
upgraded, that the systems will be Year 2000 compliant. Should the Company fail
<PAGE> 19
to upgrade its information systems in a timely manner, the Company could face
potential problems with the manufacture of its products, which could cause a
material adverse effect on the Company's results of operations.
Second, the Company's suppliers, particularly sole-source and long lead-time
suppliers, may be adversely affected by their respective failure to address the
Year 2000 problem. Should any of the Company's suppliers encounter Year 2000
problems that cause the company to delay manufacturing or shipments of key
components to Exabyte, the Company may be forced to delay or cancel shipments
of its products, which would have a material adverse effect on the Company's
results of operations. The Company has to date undertaken no assessment of any
of its suppliers' efforts to become Year 2000 compliant.
Third, the Company's customers may be adversely affected by their respective
failure to address the Year 2000 problem. Any inability of Exabyte's key
customers to become Year 2000 compliant which would cause them to delay or
cancel substantial purchase orders or delivery of Exabyte's products would have
a material adverse effect on the Company's results of operations. The Company
has to date undertaken no assessment of any of its key customers' efforts to
become Year 2000 compliant.
Fourth, the Company's products are typically integrated into information
systems which may be date sensitive. Exabyte's products rely on such systems
in order to function properly. Should these systems or supporting software not
function properly due to the Year 2000 problem, there can be no assurance that
the Company's products would function properly. 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. See "RISK FACTORS--Product and
Quality Performance".
The Company believes that many companies in the high technology industry will
face significant litigation in the future regarding problems caused by
Year 2000 noncompliance. Because the Company operates in the high technology
industry, it is the Company's belief that it may be the subject of such
litigation. Any such litigation could have a material adverse effect on the
Company's results of operations.
Management of Business and Product Transitions
- ----------------------------------------------
The Company is currently experiencing a period of rapid business and product
transition associated in part with its decision to restructure the Company into
divisions, close the Eagle(RTM) division and exit the low-end server and
desktop markets 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.
<PAGE> 20
Inventory Write-downs and Special Charges
- -----------------------------------------
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. In the third quarter of 1995 and the
third and fourth quarters of 1997, the Company 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 effect on the Company's results of operations.
Product Development
- -------------------
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.
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.
The Company is currently developing a follow-on product to Mammoth. Any
inability or delay of the Company to develop and manufacture this product would
have a significant impact on the sale of the Mammoth tape drive and would have
a material adverse effect on the Company's results of operations.
Additionally, the Company'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.
Key Employees
- -------------
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.
<PAGE> 21
Exabyte has in the past lost key employees to competitors and to 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. Any such loss of key employees could have a
material adverse effect on the Company's results of operations.
Fluctuations In Quarterly Results
- ---------------------------------
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. The Company's operations have in the past and will in the future
reflect substantial fluctuations from period to period as a consequence of
industry shifts, price erosion, general economic conditions affecting the
timing of orders from customers, as well as other factors discussed herein.
Third Party Contract Manufacturing
- ----------------------------------
The Company has contracts with third parties to manufacture certain products.
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 third parties are particularly pronounced in the early
stages of the manufacturing of the product. A number of the Company's third
party manufacturing programs involve such early-stage 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 such
licenses. 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.
Foreign Sourcing
- ----------------
Because many of Exabyte's key components and products are currently or may be
manufactured in Japan, Germany, The Netherlands, China or 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 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.
<PAGE> 22
The Company's international involvement is also subject to certain other risks
common to foreign operations, 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.
Foreign Sales
- -------------
Direct international sales accounted for approximately 32% of sales in 1997 and
Exabyte currently expects that direct international sales will continue to
represent a significant portion of the Company's revenue. In addition, many of
the Company's domestic customers ship a significant portion of Exabyte's
products to their customers overseas. Currently, a very 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. 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 may also be subject
to export licensing requirements.
Foreign Operations
- ------------------
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.
Volatility Of Stock Price
- -------------------------
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.
<PAGE> 23
Anti-Takeover Provisions
- ------------------------
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. 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 twelve months of
compensation, depending upon: (i) the time of any such change in 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
- ----------------
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.
<PAGE> 24
Item 2.
PROPERTIES.
The Company's corporate offices, research and development, and manufacturing
facilities are located in Boulder, Colorado, in leased buildings aggregating
approximately 469,996 square feet. The lease terms on these facilities expire
on various dates ranging from March 1998 to September 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 Boulder, CO Falkirk, Scotland
Mississauga, Ontario, Canada
Artarmon, Australia
Singapore
SALES & SUPPORT Boulder, CO Utrecht, The Netherlands
Campbell, CA Mississauga, Ontario, Canada
Mission Viejo, CA Paris, France
Oakbrook, IL Gwynedd, United Kingdom
Annapolis, MD Frankfurt, Germany
Walpole, MA Shanghai, China
Huntersville, NC Beijing, China
Beaverton, OR Hong Kong, China
Dallas, TX Singapore
Houston, TX
Item 3.
LEGAL PROCEEDINGS.
The Company is not currently aware of any material legal
proceedings against the Company.
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Inapplicable.
<PAGE> 25
EXECUTIVE OFFICERS OF THE COMPANY
=================================
The executive officers of the Company and their ages as of March 2, 1998 are
as follows:
William L. Marriner 44 Chairman of the Board
President and Chief Executive Officer
Mark W. Canright 46 Senior Vice President,
Sales & Customer Support
Stephen F. Smith 48 Vice President, Chief Financial Officer,
Corporate Secretary and General Counsel
Mr. William L. Marriner joined the Company in March 1987 as Vice President,
Finance and Administration and Chief Financial Officer. He was subsequently
promoted to Senior Vice President in July 1991 and Executive Vice President in
December 1994 and continued to serve as Chief Financial Officer until January
1997. Mr. Marriner was elected acting President and Chief Executive Officer in
January 1997, President, Chief Executive Officer and director in July 1997 and
Chairman of the Board in January 1998. Prior to joining the Company,
Mr. Marriner held various positions at Storage Technology Corporation 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.
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. Stephen F. Smith joined the Company in June 1989 as Exabyte's General
Counsel, and currently holds this position. Mr. Smith was appointed as Vice
President and Chief Financial Officer in December 1997. Mr. Smith has also
served as Secretary since February 1995. Prior to joining Exabyte, Mr. Smith
held various positions at StorageTek from 1977 to 1989, including General
Counsel, Senior Counsel and Director of International Financial Operations.
Executive officers serve at the discretion of the Board. There are no family
relationships among any of the directors and officers.
<PAGE> 26
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 Nasdaq Stock Market("Nasdaq") under the
symbol EXBT. The following table shows, for the calendar quarters indicated,
the high and low trading prices of the Company's common stock as reported on
Nasdaq.
<TABLE>
<CAPTION>
Calendar Year High Low
- ------------- ----- -----
<S> <C> <C>
1996
First Quarter................................ $17 $13
Second Quarter............................... 22-3/4 12-3/8
Third Quarter................................ 15-1/2 11-5/8
Fourth Quarter............................... 17-1/2 12-5/8
1997
First Quarter................................ $14-3/4 $ 9-1/2
Second Quarter............................... 16-1/2 11-3/4
Third Quarter................................ 14-1/8 10
Fourth Quarter............................... 11-15/16 5-5/8
1998
First Quarter (through March 2, 1998)........ $ 8-3/8 $ 6-7/16
</TABLE>
At March 2, 1998, the Company had 719 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 January 3,
1998, December 28, 1996, December 30, 1995, December 31, 1994 and January 1,
1994, and with respect to the consolidated balance sheets as of January 3,
1998, December 28, 1996, December 30, 1995, December 31, 1994 and January 1,
1994 are derived from consolidated financial statements audited by Price
Waterhouse LLP, independent accountants. The consolidated financial statements
for the years ended January 3, 1998, December 28, 1996 and December 30, 1995
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> 27
<TABLE>
<CAPTION>
(In thousands except per share amounts) Fiscal Years Ended
Jan. 3, Dec. 28, Dec. 30, Dec. 31, Jan. 1,
Consolidated Statement of Operations Data: 1998 1996 1995 1994 1994
- ------------------------------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $335,684 $362,891 $374,147 $381,844 $310,295
Cost of goods sold........................... 288,053 265,002 311,891 257,365 219,053
-------- -------- -------- -------- --------
Gross profit................................. 47,631 97,889 62,256 124,479 91,242
Operating expenses:
Selling, general and administrative..... 59,211 47,929 49,896 42,560 37,169
Research and development................ 40,909 38,391 36,956 33,586 31,648
Purchased research and development(1)... -- -- -- 2,597 --
-------- -------- -------- -------- --------
Income (loss) from operations................ (52,489) 11,569 (24,596) 45,736 22,425
Other income (expense), net.................. (634) 1,114 1,568 2,069 1,507
-------- -------- -------- -------- --------
Income (loss) before income taxes(2)......... (53,123) 12,683 (23,028) 47,805 23,932
(Provision) benefit for income taxes......... 22,312 (4,058) 10,593 (15,400) (7,750)
-------- -------- -------- -------- --------
Net income (loss)............................ $(30,811) $ 8,625 $(12,435) $ 32,405 $ 16,182
======== ======== ======== ======== ========
Basic net income (loss) per share............ $(1.38) $0.39 $(0.57) $1.52 $0.77
======== ======== ======== ======== ========
Common shares used in the calculation of
basic net income (loss) per share(3).... 22,326 22,003 21,711 21,378 21,001
======== ======== ======== ======== ========
Diluted net income (loss) per share.......... $(1.38) $0.39 $(0.57) $1.48 $0.76
Common and potential common shares used ======== ======== ======== ======== ========
in the calculation of diluted net
income (loss) per share(3).............. 22,326 22,307 21,711 21,965 21,399
======== ======== ======== ======== ========
Consolidated Balance Sheet Data:
- --------------------------------
Working capital.............................. $128,282 $143,730 $137,143 $157,978 $129,693
Total assets................................. 221,346 256,126 250,336 242,765 197,307
Long-term obligations, excluding current
portion................................. 2,974 3,458 4,181 237 454
Stockholders' equity......................... 170,796 200,013 186,366 196,907 158,535
</TABLE>
(1) Purchased research and development relates to the Grundig Data Scanner
GmbH acquisition during 1994.
(2) The Company recorded restructuring charges in 1997 totaling $34.9 million.
See Note 10 of Notes to Consolidated Financial Statements.
(3) 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 1997 and 1996. 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> 28
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Quarters Ended
Jan. 3, Sep. 27, Jun. 28, Mar. 29,
1998 1997 1997 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales.............................. $74,641 $78,474 $97,144 $85,425
Cost of goods sold..................... 74,771 79,643 71,452 62,187
------- ------- ------- -------
Gross profit (loss).................... (130) (1,169) 25,692 23,238
Selling, general and administrative.... 15,778 15,612 15,083 12,738
Research and development............... 12,207 10,463 8,894 9,345
------- ------- ------- -------
Income (loss) from operations(1)....... (28,115) (27,244) 1,715 1,155
Other income (expense), net............ (943) 38 (171) 442
------- ------- ------- -------
Income (loss) before income taxes...... (29,058) (27,206) 1,544 1,597
(Provision) benefit for income taxes... 11,466 11,914 (525) (543)
------- ------- ------- -------
Net income (loss)...................... $(17,592) $(15,292) $ 1,019 $ 1,054
======== ======== ======= =======
Basic net income (loss) per share...... $(0.79) $(0.68) $0.05 $0.05
======== ======== ======= =======
Diluted net income (loss) per share.... $(0.79) $(0.68) $0.05 $0.05
======== ======== ======= =======
</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..................... 100.2 101.5 73.6 72.8
----- ----- ----- -----
Gross margin........................... (0.2) (1.5) 26.4 27.2
Selling, general and administrative.... 21.1 19.9 15.5 14.9
Research and development............... 16.4 13.3 9.1 10.9
----- ----- ----- -----
Income (loss) from operations(1)....... (37.7) (34.7) 1.8 1.4
Other income (expense), net............ (1.3) 0.0 (0.2) 0.5
----- ----- ----- -----
Income (loss) before income taxes...... (39.0) (34.7) 1.6 1.9
(Provision) benefit for income taxes... 15.4 15.2 (0.6) (0.7)
----- ----- ----- -----
Net income (loss)...................... (23.6)% (19.5)% 1.0% 1.2%
===== ===== ===== =====
</TABLE>
(1) In the quarters ended January 3, 1998 and September 27, 1997 the Company
recorded pre-tax restructuring charges of $15.5 million and $19.4 million,
respectively, related to its decision to exit the desktop and low-end server
market. See Note 10 of Notes to Consolidated Financial Statements.
<PAGE> 29
<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
======= ======= ======= =======
Basic net income (loss) per share...... $(0.09) $0.17 $0.17 $0.15
======= ======= ======= =======
Diluted 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> 30
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 January 3, 1998, December 28, 1996 and December 30, 1995 as a
percentage of net sales.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Years
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................... 85.8 73.0 83.4
----- ----- -----
Gross margin................................ 14.2 27.0 16.6
Operating expenses:
Selling, general and administrative....... 17.6 13.2 13.3
Research and development.................. 12.2 10.6 9.8
----- ----- -----
Income (loss) from operations............... (15.6) 3.2 (6.5)
Other income (expense), net................. (0.2) 0.3 0.4
----- ----- -----
Income (loss) before income taxes........... (15.8) 3.5 (6.1)
(Provision) benefit for income taxes........ 6.6 (1.1) 2.8
----- ----- -----
Net income (loss)........................... (9.2)% 2.4% (3.3)%
===== ===== =====
</TABLE>
PRODUCT MIX TABLE
<TABLE>
<CAPTION>
Fiscal Years
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
8mm drives:
EXB-8205, 8505, 8700, Eliant(TM)820,
and Mammoth............................... 59.1% 65.3% 59.7%
Libraries:
10h, 210, 220, 440, 480 and 18D........... 18.2 14.4 13.9
Media....................................... 14.6 11.9 9.5
Service, spares and other................... 6.6 5.8 5.6
Minicartridge products:
TR-3, TR-4i, TR-4s, Eagle(RTM)96, NS8(TM),
2501 and Nest(TM) products................ 5.8 4.8 1.9
Other end-of-life drives and libraries...... 0.8 1.5 12.0
Sales allowances............................ (5.1) (3.7) (2.6)
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
<PAGE> 31
CUSTOMER MIX TABLE
<TABLE>
<CAPTION>
Fiscal Years
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
OEM......................................... 48.7% 50.6% 54.5%
Reseller.................................... 46.1 45.3 41.6
End-user and other.......................... 5.2 4.1 3.9
----- ----- -----
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
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 1997 COMPARED TO 1996
- ---------------------------------
In 1997, the Company's net sales of $335.7 million represented a 7.5% decrease
from 1996 sales of $362.9 million. In 1997, sales of 8mm products decreased to
$198.5 million from $236.9 million in 1996. This 16.2% change resulted from
decreased sales of 8mm half-high products, specifically the 8505 and 8205.
Sales of library products increased in both absolute dollars and as a
percentage of sales from 14.4% in 1996 to 18.2% in 1997. Media sales also
increased in absolute dollars and represented 14.6% of sales in 1997 compared
to 11.9% of sales in 1996. Other components of revenues did not vary
materially either in absolute dollars or as a percentage of sales.
The relative customer mix during 1997 shifted slightly to resellers, end-users
and others from original equipment manufacturers ("OEMs").
The Company's gross margin percentage for 1997 decreased to 14.2% compared to
27.0% for 1996. The 1997 margins were affected by 1997 restructuring charges
which impacted cost of sales by $29.0 million (see Note 10 of Notes to
Consolidated Financial Statements). Excluding such charges, the gross margin
for 1997 was 22.8%. Decreased gross margin percentages resulted from the
impact of (1) start-up manufacturing costs and inefficiencies on several new
products, (2) lower than expected manufacturing volumes, (3) increasing levels
of mini-cartridge sales, which were made at lower gross margins, and (4) higher
levels of program expenditures aimed at retailers through the Eagle(RTM)
division. These impacts were partially offset by lower warranty costs in 1997
versus 1996 and the impact of a stronger dollar versus the yen, which reduced
the cost of certain Japanese components. **The yen is expected to have a
continuing positive impact on margins in 1998. Due to the competitive nature
of the storage peripherals business, price erosion on most products is expected
to have a commensurate negative impact on gross margins unless manufacturing
costs can be reduced at the same time.**
<PAGE> 32
Selling, general and administrative expenses increased to $59.2 million in
1997 from $47.9 million in 1996. These dollar amounts represent 17.6% and
13.2%, respectively, of revenue in each year. Excluding 1997 restructuring
charges (see Note 10 of Notes to Consolidated Financial Statements), these
expenses were $57.7 million and 17.2% of revenue. The increase is largely the
result of increased marketing expenditures on certain of the Company's newer
products, such as Mammoth and Eliant(TM)820, and a corporate branding awareness
program. These expenses were also modestly impacted by the opening of
subsidiaries in Singapore and Canada during the latter part of 1996 and early
part of 1997.
Research and development expenditures increased to $40.9 million in 1997
compared to $38.4 million in 1996. These dollar amounts represent 12.2% and
10.6%, respectively, of revenue for each year. Excluding 1997 restructuring
charges (see Note 10 of Notes to Consolidated Financial Statements), these
expenses were $37.4 million and 11.1% of revenue. Recurring research and
development expenditures were adversely impacted in 1996 by higher than normal
levels of spending in connection with completion of the Mammoth development
effort. **The Company expects 1998 research and development expenses to
decrease from 1997 levels due to the decision to close the Eagle(RTM) division
and cancel its Eagle(RTM) development projects.**
Other income (expense), net, consists of interest income and expense, state
franchise taxes, foreign currency translation gains and losses and other
miscellaneous items. Other income (expense), net, was impacted in 1997 by the
write-off of an investment, which was considered impaired, of $900,000.
The income tax benefit for 1997 was 42.0% compared to expense of 32.0% in the
prior year. The 1997 tax benefit also reflects the benefit of filing amended
tax returns for 1993-1995 to claim additional research and development tax
credits. 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 35.0%. **The Company currently
expects the 1998 effective tax rate to approximate 34.0%.**
The change from net income of $8.6 million in 1996 to a net loss of $30.8
million in 1997 resulted from the impacts of lower sales and gross margins in
1997, combined with higher operating expenses and the impact of restructuring
charges related to the decision to close the Eagle(RTM) division and exit the
desktop and low-end server markets.
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 65.3% of sales in 1996 from 59.7% 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 57.8% of sales in 1996 compared to 58.8% in 1995. Sales of 8mm
half-high libraries remained stable at 14.4% of total sales in 1996 and 13.9%
<PAGE> 33
in 1995. Sales of 8mm full-high drives and libraries represented 0.8% of sales
in 1996 compared to 6.2% in 1995. Sales of 4mm products decreased to 0.7% of
sales in 1996 compared to 5.8% in 1995.
The relative customer mix during 1996 shifted to resellers from OEMs. Reseller
sales increased to 45.3% of sales in 1996 from 41.6% in 1995. OEM sales
decreased to 50.6% of sales in 1996 from 54.5% in 1995. End-user and other
sales represented 4.1% of net sales in 1996 and 3.9% in 1995.
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 related to the write-down of
full-high inventories pursuant to an end-of-life announcement. 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.
Additionally, improved warranty costs had a positive impact on 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.
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 were 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 32.0% 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 35.0%.
A net loss of $12.4 million in 1995 changed to net income of $8.6 million in
1996. This change reflects the impact of certain inventory and other
write-downs in 1995.
RESTRUCTURING CHARGES
- ---------------------
During 1997, the Company recorded pre-tax restructuring charges of $34.9
million related to formal decisions by the Company's Board of Directors to exit
the desktop and low-end server market through the closure of its Eagle(RTM)
division. These decisions were made in order to focus the Company on mid-range
application server markets and establish a more competitive cost structure in
those markets.
<PAGE> 34
The following table summarizes the activity in the Company's restructuring
reserves during 1997:
<TABLE>
<CAPTION> Workforce Inventory Asset
(In thousands) Reduction Write-downs Write-downs Total
--------- ----------- ----------- -----
<S> <C> <C> <C> <C>
Restructuring charges........... $3,123 $24,684 $7,140 $34,947
Asset write-downs............... -- (16,890) (6,140) (23,030)
Cash payments................... (1,480) (134) -- (1,614)
Additional charges/
reclassifications........... (196) 128 -- (68)
------ ------ ------ -------
Balance, January 3, 1998........ $1,447 $7,788 $1,000 $10,235
====== ====== ====== =======
</TABLE>
Cash payments in 1997 relate primarily to termination payments for the first of
two reductions in workforce. A second reduction in force resulted from a
formal action in December and took place in January 1998. Additional charges/
reclassifications resulted from the write-off of a note receivable, net
additional charges impacting earnings of $58,000 and reclassifications among
reserves. **The majority of remaining reserve balances are expected to result
in future cash outflows. The workforce reduction and related recurring expense
reductions are expected to yield annual savings of at least $20 million.**
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive
Income" ("SFAS 130") and "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"), respectively (collectively, the
"Statements"). The Statements are effective for fiscal years beginning after
December 15, 1997. SFAS 130 establishes standards for reporting of
comprehensive income and its components in annual financial statements. SFAS
131 establishes standards for reporting financial and descriptive information
about an enterprise's operating segments in its annual financial statements and
selected segment information in interim financial reports. Reclassification or
restatement of comparative financial statements or financial information for
earlier periods is required upon adoption of SFAS 130 and SFAS 131,
respectively. **Application of the Statements' requirements is not expected to
have a material impact on the Company's consolidated financial position,
results of operations or earnings per share data as currently reported,
although its disclosures on business segments may change.**
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During 1997, the Company expended $6.3 million of cash for operating
activities, received $1.3 million from the issuance of common stock to Company
employees, expended $11.8 million for capital equipment and paid $1.5 million
on long-term liabilities. Together, these activities resulted in a decrease in
the combined balance of cash and short-term investments of $18.3 million to a
year-ending balance of $48.5 million. The Company's working capital decreased
to $128.3 million on January 3, 1998 from $143.7 million on December 28, 1996.
<PAGE> 35
The Company has a $7.5 million bank line of credit which expires May 15, 1998,
with borrowings under the line limited to 80% of eligible accounts receivable
plus 25% of eligible inventory (limited to $3,000,000). On January 3, 1998,
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 was in technical violation of certain of these
covenants at the end of the fourth quarter. This violation was subsequently
waived by the lender. **The Company anticipates that it will renew this line
at comparable terms upon its expiration.** Offsetting the amount available
under the line of credit is a letter of credit which secures certain leasehold
improvements made by the Company's subsidiary in Germany. This letter is for
DM 1,300,000 and decreases by DM 100,000 in August of each year until it is
fully depleted.
**The Company currently expects to make capital expenditures of approximately
$11.1 million during 1998. The Company believes its existing sources of
liquidity and funds expected to be generated from operations will provide
adequate cash to fund anticipated working capital and other cash requirements
through fiscal 1998.**
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Accountants................................... 36
Consolidated Balance Sheets -
January 3, 1998 and December 28, 1996............................... 37
Consolidated Statements of Operations - for the years ended
January 3, 1998, December 28, 1996 and December 30, 1995............ 38
Consolidated Statements of Changes in Stockholders' Equity -
for the years ended January 3, 1998, December 28, 1996 and
December 30, 1995................................................... 39
Consolidated Statements of Cash Flows -
for the years ended
January 3, 1998, December 28, 1996 and December 30, 1995............ 40-41
Notes to Consolidated Financial Statements.......................... 42-56
<PAGE> 36
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 January 3, 1998 and December 28,
1996, and the results of their operations and their cash flows for each of the
three years in the period ended January 3, 1998, 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 21, 1998
<PAGE> 37
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (In thousands)
<TABLE>
<CAPTION>
January 3, December 28,
1998 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 47,014 $ 46,223
Short-term investments............. 1,470 20,600
Accounts receivable, net........... 41,577 56,414
Inventories, net................... 44,551 55,765
Income tax receivable.............. 15,873 --
Deferred income taxes.............. 20,678 14,172
Other current assets............... 4,695 3,211
-------- --------
Total current assets................. 175,858 196,385
-------- --------
Property and equipment, net.......... 35,152 45,187
Deferred income taxes................ 8,900 10,055
Other assets......................... 1,436 4,499
-------- --------
45,488 59,741
-------- --------
$221,346 $256,126
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................... $ 13,992 $ 18,916
Accrued liabilities................ 32,021 31,900
Accrued income taxes............... 1,044 1,007
Current portion of long-term
obligations ..................... 519 832
-------- --------
Total current liabilities............ 47,576 52,655
Long-term obligations ............... 2,974 3,458
-------- --------
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;
22,466 and 22,184 shares
issued........................... 22 22
Capital in excess of par value..... 65,718 64,124
Treasury stock, at cost, 15 shares. (9) (9)
Retained earnings.................. 105,065 135,876
-------- --------
Total stockholders' equity........... 170,796 200,013
-------- --------
$221,346 $256,126
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 38
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Years Ended
January 3, December 28, December 30,
1998 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales............................ $335,684 $362,891 $374,147
Cost of goods sold................... 288,053 265,002 311,891
-------- -------- --------
Gross profit......................... 47,631 97,889 62,256
Operating expenses:
Selling, general and administrative.. 59,211 47,929 49,896
Research and development............. 40,909 38,391 36,956
-------- -------- --------
Income (loss) from operations........ (52,489) 11,569 (24,596)
Other income (expense), net.......... (634) 1,114 1,568
-------- -------- --------
Income (loss) before income taxes.... (53,123) 12,683 (23,028)
(Provision) benefit for income taxes. 22,312 (4,058) 10,593
-------- -------- --------
Net income (loss).................... $(30,811) $ 8,625 $(12,435)
======== ======== ========
Basic net income (loss) per share.... $(1.38) $0.39 $(0.57)
======== ======== ========
Common shares used in the
calculation of basic net income
(loss) per share..................... 22,326 22,003 21,711
======== ======== ========
Diluted net income (loss) per share.. $(1.38) $0.39 $(0.57)
======== ======== ========
Common and potential common shares
used in the calculation of diluted
net income (loss) per share.......... 22,326 22,307 21,711
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 39
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, 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 $11.10 per share)........ 100 1,097
Tax effect of disqualifying
dispositions of common stock......... 578
Net income for the year................ 8,625
------ ---- ---- ---- ------- --------
Balance, December 28, 1996............. 22,184 22 (15) (9) 64,124 135,876
Common stock options exercised ($.10
to $15.13 per share)................. 143 236
Common stock issued pursuant to the
Employee Stock Purchase Plan
($5.47 and $10.89 per share)......... 139 1,075
Tax effect of disqualifying
dispositions of common stock......... 164
Stock compensation expense............. 119
Net loss for the year.................. (30,811)
------ ---- ---- ---- ------- --------
Balance, January 3, 1998............... 22,466 $22 (15) $(9) $65,718 $105,065
====== ==== ==== ==== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 40
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------
January 3, December 28, December 30,
1998 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers............ $350,833 $363,804 $382,862
Cash paid to suppliers and employees.... (359,975) (354,209) (367,875)
Interest received....................... 2,216 2,759 3,251
Interest paid........................... (637) (529) (330)
Income taxes paid....................... (1,732) (2,476) (7,292)
Income tax refund received.............. 3,020 4,160 --
Net cash provided (used) by -------- -------- --------
operating activities............. (6,275) 13,509 10,616
-------- -------- --------
Cash flows from investing activities:
Sale of short-term investments, net..... 19,130 8,200 5,311
Capital expenditures.................... (11,810) (19,276) (23,365)
Cash provided (used) by investing -------- -------- --------
activities............................ 7,320 (11,076) (18,054)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from issuance of
common stock ......................... 1,311 4,444 1,812
Principal payments on long-term
obligations........................... (1,565) (791) (470)
Net cash provided (used) by -------- -------- --------
financing activities............. (254) 3,653 1,342
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................. 791 6,086 (6,096)
Cash and cash equivalents at beginning
of year................................. 46,223 40,137 46,233
-------- -------- --------
Cash and cash equivalents at end
of year................................. $47,014 $46,223 $40,137
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 41
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------
January 3, December 28, December 30,
1998 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net income (loss) to net
cash provided (used) by operating activities:
Net income (loss)............................ $(30,811) $ 8,625 $(12,435)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation, amortization
and other............................. 19,742 17,059 17,153
Write-down of assets.................... 6,054 -- 792
Deferred income tax provision
(benefit)............................. (5,351) 1,071 (12,262)
Provision for losses and reserves
on accounts receivable................ 14,486 11,159 8,723
Provision for inventory write-downs..... 15,236 -- 31,188
Stock compensation expense.............. 119 -- --
Change in assets and liabilities:
Accounts receivable..................... 351 (10,788) (569)
Inventories............................. (4,022) (11,596) (28,752)
Income tax receivable................... (15,873) -- --
Other current assets.................... (1,484) 6,235 (6,695)
Other assets............................ (171) (1,770) (845)
Accounts payable........................ (4,923) (2,924) 1,382
Accrued liabilities..................... 120 (1,045) 11,600
Accrued income taxes.................... 201 (2,517) 1,336
Other long-term obligations............. 51 -- --
------- ------- -------
Net cash provided (used) by
operating activities.................. $(6,275) $13,509 $10,616
======= ======= =======
Supplemental schedule of non-cash
investing and financing activities:
Note payable issued to purchase software
licenses................................... $ 626 $ -- $ 1,055
Income tax benefit of disqualifying
dispositions of common stock............... 164 578 82
Capital lease obligations.................... 137 -- 4,042
Transfer of inventories to
property and equipment..................... -- -- 2,605
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 42
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 throughout the world. 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. 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 non-monetary 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 does
not enter into these contracts for trading purposes. The Company had
outstanding contracts totaling $16,663,000 and $22,325,000 at January 3, 1998
and December 28, 1996, 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 January 3, 1998, and December 28, 1996, the Company
had unrealized losses on forward contracts of approximately $1,185,000 and
$1,146,000 based on the dollar/yen spot rate on that date. 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 resellers is subject to agreements allowing certain rights of
return and price protection on unsold merchandise held by those resellers.
Accordingly, reserves for estimated future returns and for price protection are
provided in the period of the sale.
<PAGE> 43
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"),
resellers 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>
January 3, December 28,
1998 1996
----------- -----------
(In thousands)
<S> <C> <C>
Accounts receivable.......................... $49,323 $63,729
Less: reserves and allowance for
non-collection............................. (7,746) (7,315)
------- -------
$41,577 $56,414
======= =======
</TABLE>
During the fiscal years ended January 3, 1998, December 28, 1996 and
December 30, 1995, one customer accounted for approximately 17%, 15% and 15%,
respectively, of sales. Another customer accounted for approximately 13%, 11%
and 11% of sales during the same periods. 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 $35,246,000 and $31,817,000 at January 3, 1998 and December 28,
1996, 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> 44
<TABLE>
<CAPTION>
January 3, December 28,
1998 1996
----------- -----------
(In thousands)
<S> <C> <C>
Raw materials and component parts............ $29,266 $34,865
Work-in-process.............................. 2,447 2,692
Finished goods............................... 12,838 18,208
------- -------
$44,551 $55,765
======= =======
</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. In 1997, the Company incurred
restructuring charges which included inventory write-downs (see Note 10).
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 in 1995. 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 $440,000 and $2,334,000 at
January 3, 1998 and December 28, 1996, respectively. These items are recorded
as other non-current assets. Amortization expense related to capitalized
software development costs was $170,000 in 1997. There was no amortization in
prior periods. In conjunction with the Company's restructuring in 1997,
certain capitalized software development efforts were cancelled and costs
capitalized through that date were written off (See Note 10). All other
research and development costs are expensed as incurred.
<PAGE> 45
Net Income (Loss) Per Share
In 1997, the Company adopted the guidelines of Statement of Financial
Accounting Standards No. 128 "Earnings per Share." 1996 and 1995 earnings per
share data were restated to reflect the new pronouncement. Basic net income
(loss) per common share is based on the weighted-average number of shares of
common stock outstanding during each respective period. Diluted net income
(loss) per common share adds to basic weighted shares the weighted-average
number of shares of potential common shares (diluted stock options) outstanding
during each respective period. Proceeds from the exercise of the potential
common shares 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 diluted loss per share as the inclusion of
potential common shares would be antidilutive. The calculation of basic and
diluted earnings per share (EPS) is as follows:
<TABLE>
<CAPTION>
In thousands, except per share data
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic EPS computation:
Net income (loss)............ $(30,811) $8,625 $(12,435)
======== ====== ========
Common shares outstanding.... 22,326 22,003 21,711
======== ====== ========
Basic EPS........................ $ (1.38) $ 0.39 $ (0.57)
======== ====== ========
Diluted EPS computation:
Net income (loss)............ $(30,811) $8,625 $(12,435)
======== ====== ========
Shares:
Common shares outstanding.... 22,326 22,003 21,711
Dilutive stock options....... -- 304 --
-------- ------ -------
22,326 22,307 21,711
======== ====== ========
Diluted EPS...................... $(1.38) $ 0.39 $(0.57)
======== ====== ========
</TABLE>
Options of 3,204,000, 2,317,000, and 2,173,000 were excluded from dilutive
stock option calculations for 1997, 1996 and 1995, respectively, because their
exercise prices were greater than the average fair market value of the
Company's stock for the period, and as such they would be antidilutive.
In addition, for 1997 and 1995, 494,000 and 975,000 options, respectively, were
excluded from the diluted computation above because of their antidilutive
effect on net loss per share. Inclusions of these shares would have resulted
in additional dilutive stock options outstanding of 97,000 and 312,000,
respectively.
Since January 3, 1998, the Company has issued 1,096,000 stock options which
could have a dilutive effect on diluted net income per common share.
Additionally, the Company has repurchased 137,000 shares of common stock.
<PAGE> 46
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.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive
Income" ("SFAS 130") and "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"), respectively (collectively, the
"Statements"). The Statements are effective for fiscal years beginning after
December 15, 1997. SFAS 130 establishes standards for reporting of
comprehensive income and its components in annual financial statements. SFAS
131 establishes standards for reporting financial and descriptive information
about an enterprise's operating segments in its annual financial statements and
selected segment information in interim financial reports. Reclassification or
restatement of comparative financial statements or financial information for
earlier periods is required upon adoption of SFAS 130 and SFAS 131,
respectively. Application of the Statements' requirements is not expected to
have a material impact on the Company's consolidated financial position,
results of operations or earnings per share data as currently reported,
although its disclosures on business segments may change.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
January 3, December 28,
1998 1996
----------- -----------
(In thousands)
Equipment and furniture...................... $90,711 $84,263
Assets under capital leases.................. 5,222 5,825
Leasehold improvements....................... 17,586 17,334
Less: accumulated depreciation and
amortization............................... (78,367) (62,235)
------- -------
$35,152 $45,187
======= =======
Depreciation expense was $19,503,000, $17,058,000 and $14,443,000 in 1997, 1996
and 1995, respectively. Amortization of equipment and furniture under capital
leases is included in depreciation expense. In 1997, the Company incurred
restructuring charges which included fixed asset write-downs (see Note 10 of
Notes to Consolidated Financial Statements).
<PAGE> 47
NOTE 3--ACCRUED LIABILITIES
Accrued liabilities consist of the following:
January 3, December 28,
1998 1996
----------- -----------
(In thousands)
Wages and employee benefits.................. $ 7,943 $ 8,494
Warranty and related costs................... 11,445 18,373
Purchase commitments......................... 4,528 82
Other........................................ 8,105 4,951
------- -------
$32,021 $31,900
======= =======
NOTE 4--DEBT
Line of Credit
As of January 3, 1998, 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. At
January 3, 1998, the Company was in technical violation of certain of these
covenants; these violations were subsequently waived by the lender. The
agreement is currently scheduled to expire in May 1998.
Offsetting the amount available under the line of credit is a letter of credit
which secures certain leasehold improvements made by the Company's subsidiary
in Germany. This letter is for DM 1,300,000 and decreases by DM 100,000 in
August of each year until it is fully depleted.
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 note was paid off in
January 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
January 3, 1998:
<PAGE> 48
<TABLE>
<CAPTION>
Capital Lease
Note Payable Obligations Total
------------ ------------- -----
(In thousands)
<S> <C> <C> <C>
1998............................ $131 $725 $856
1999............................ -- 725 725
2000............................ -- 726 726
2001............................ -- 726 726
2002............................ -- 659 659
Thereafter...................... -- 983 983
---- ------ ------
131 4,544 4,675
Less: amount representing interest... (2) (1,231) (1,233)
---- ------ ------
Present value of payments............ 129 3,313 3,442
Less: current portion................ (129) (390) (519)
---- ------ ------
$ 0 $2,923 $2,923
==== ====== ======
</TABLE>
Long-term obligations in the accompanying balance sheet also include extended
warranty obligations of $51,000 at January 3, 1998. Interest expense
aggregated $637,000, $530,000 and $330,000 in 1997, 1996 and 1995,
respectively.
NOTE 5--CAPITAL STOCK AND STOCK COMPENSATION PLANS
At January 3, 1998, the Company had three 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 plans and its stock purchase plan. Had compensation cost for the
Company's three 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:
<TABLE>
<CAPTION>
(In thousands, except per share data) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income (loss):
As reported...................... $(30,811) $8,625 $(12,435)
Pro forma........................ $(36,102) $4,798 $(14,323)
Basic net income (loss) per share:
As reported...................... $(1.38) $ 0.39 $(0.57)
Pro forma........................ $(1.62) $ 0.22 $(0.66)
Diluted net income (loss) per share:
As reported...................... $(1.38) $ 0.39 $(0.57)
Pro forma........................ $(1.62) $ 0.22 $(0.66)
</TABLE>
<PAGE> 49
Fixed Stock Option Plans
Under the Incentive Stock Option Plan, the Company may grant options to its
employees and directors for up to 9.5 million shares of common stock. Under
the 1997 Non-Officer Stock Option Plan, the Company may grant options to its
employees (who are not officers or directors) for up to one million shares of
common stock. Under both plans, 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 or six months, respectively.
Under the 1997 Non-Officer Stock Option Plan, vesting for these options may
accelerate upon the optionee meeting certain pre-determined goals.
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:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Estimated dividends................... none none none
Expected volatility................... 55% 57% 57%
Risk-free interest rate............... 5.6%-6.9% 5.0%-6.3% 5.5%-7.7%
Expected life from vest date (years).. 0.29 0.41 0.41
</TABLE>
A summary of the status of the Company's fixed option plans as of January 3,
1998, December 28, 1996, and December 30, 1995 and changes during the years
ending on those dates is presented as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ----------------------- -----------------------
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.................. 3,618 $16.71 3,148 $16.97 2,614 $17.34
Granted..................... 1,190 12.51 1,044 15.49 898 14.90
Exercised................... (143) 1.65 (257) 13.02 (85) 9.68
Forfeited................... (967) 16.58 (317) 18.19 (279) 16.18
----- ------ ----- ------ ----- ------
Outstanding at end of year.. 3,698 $15.98 3,618 $16.71 3,148 $16.97
===== ====== ===== ====== ===== ======
Options exercisable
at year-end............... 2,103 $17.63 1,940 $17.60 1,632 $17.66
Weighted-average fair value
of options granted during
the year.................. $ 4.91 $ 6.50 $ 6.37
</TABLE>
<PAGE> 50
The following table summarizes information about fixed stock options
outstanding at January 3, 1998:
<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>
$ 0.50-12.38 863 7.8 years $10.99 242 $10.08
12.63-13.75 712 7.3 years 13.28 404 13.21
14.00-15.44 650 6.7 years 14.78 402 14.92
15.88-17.63 773 6.9 years 17.04 408 17.17
17.88-35.63 700 4.7 years 24.82 647 25.18
----- --------- ------ ----- ------
3,698 6.7 years $15.98 2,103 $17.63
===== ========= ====== ===== ======
</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, employees purchased 139,000, 100,000 and
85,000 shares in 1997, 1996 and 1995, 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:
<TABLE>
<CAPTION> 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Estimated dividends.................. none none none
Expected volatility.................. 55% 57% 57%
Risk-free interest rate.............. 5.3%-5.6% 5.0%-5.5% 6.4%-5.7%
Expected life (years)................ 0.5 0.5 0.5
Weighted-average fair value of
purchase rights granted............ $4.14 $4.01 $5.14
</TABLE>
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.
<PAGE> 51
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 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:
1997 1996 1995
-------- -------- --------
(In thousands)
Domestic.......... $(50,899) $ 14,666 $(27,647)
Foreign........... (2,224) (1,983) 4,619
-------- -------- -------
$(53,123) $ 12,683 $(23,028)
======== ========= =========
<PAGE> 52
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Current:
Federal......... $(15,607) $1,739 $ (275)
State........... (1,535) 176 205
Foreign......... 182 1,072 1,739
Deferred:
Federal......... (4,988) 2,927 (11,396)
State........... (364) 319 (866)
Foreign......... -- (2,175) --
-------- ------ --------
$(22,312) $4,058 $(10,593)
======== ====== ========
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(In thousands)
<S> <C> <C> <C>
U.S. federal income tax
at statutory rate.......... $(18,593) $4,438 $ (8,060)
State income taxes, net
of federal benefit......... (1,362) 436 (998)
Research and development
credits.................... (1,500) (304) (420)
Tax exempt interest.......... (465) (666) (414)
Foreign sales corporation.... -- (105) (215)
Prior year filing effects.... (1,210) -- --
Other........................ 818 259 (486)
-------- ------ --------
$(22,312) $4,058 $(10,593)
======== ====== ========
</TABLE>
<PAGE> 53
Deferred tax assets are attributable to the following:
<TABLE>
<CAPTION>
January 3, December 28,
1998 1996
---------- ------------
(In thousands)
<S> <C> <C>
Warranty reserves........................... $5,358 $5,098
Property and equipment...................... 2,895 3,470
Net operating loss carryforwards:
Domestic................................. 2,109 2,109
Foreign.................................. 2,175 2,175
Credit carryforwards........................ 2,096 1,291
Bad debt and revenue reserves............... 2,667 2,301
Goodwill.................................... 1,131 1,245
Inventory reserves.......................... 6,991 4,517
Other....................................... 4,156 2,021
------- -------
$29,578 $24,227
======= =======
</TABLE>
At January 3, 1998, 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 $1,500,000 which
expire in 2012 and alternative minimum tax credits of $539,000 which may be
carried forward indefinitely.
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:
<TABLE>
(In thousands)
<S> <C>
1998................................... $ 6,133
1999................................... 5,917
2000................................... 4,957
2001................................... 4,682
2002................................... 3,824
Thereafter............................. 4,413
-------
$29,926
=======
</TABLE>
Rent expense aggregated $5,971,000, $5,906,000 and $6,061,000 in 1997, 1996 and
1995, respectively.
<PAGE> 54
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 $920,000, $801,000 and
$691,000 in 1997, 1996 and 1995, respectively. Company contributions are fully
vested after six years of employment.
NOTE 9-FOREIGN OPERATIONS AND GEOGRAPHIC INFORMATION
The following table summarizes the Company's operations in different
geographic areas:
<TABLE>
<CAPTION>
(In thousands) United
States Europe Eliminations Consolidated
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
YEAR ENDED JANUARY 3, 1998
Sales to unaffiliated customers..... $260,989 $74,695 $ -- $335,684
Transfers between geographic areas.. 13,079 2,626 (15,705) --
-------- ------- -------- --------
Total net sales..................... $274,068 $77,321 $(15,705) $335,684
======== ======= ======== ========
Net income(loss).................... $(29,370) $(1,441) $ -- $(30,811)
======== ======= ======== ========
Identifiable assets................. $218,328 $34,334 $(31,316) $221,346
======== ======= ======== ========
YEAR ENDED DECEMBER 28, 1996
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
======== ======= ======== ========
</TABLE>
<PAGE> 55
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.
United States export sales, which exclude revenues generated by European
operations, were made to the following geographic areas:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Europe............ $27,023 $17,859 $18,426
Other............. 29,676 28,227 31,086
------- ------- -------
$56,699 $46,086 $49,512
======= ======= =======
</TABLE>
NOTE 10-RESTRUCTURING
During 1997, the Company incurred $34,947,000 in pre-tax restructuring charges
related to formal decisions by the Company's Board of Directors to exit the
desktop and low-end server market, which included closure of its (RTM)
division. These decisions were made in order to focus the Company on mid-range
application server markets and establish a more competitive cost structure in
those markets.
The Company incurred $3,123,000 in workforce reduction costs, including
severance, outplacement and benefits. The workforce reductions will be
concluded by the second quarter of 1998 and result in worldwide involuntary
terminations of approximately 200 employees.
Inventory write-downs include charges of $16,890,000 relating to excess and
obsolete inventory associated with the decision to exit the desktop and low-end
server markets as well as non-cancelable supplier and customer commitments of
$7,794,000. Asset write-downs of $7,140,000 include $3,075,000 of fixed assets
to be scrapped or sold, $3,065,000 of capitalized software development costs
and investment write-downs on projects to be discontinued and $1,000,000 of
lease abandonment costs.
At January 3, 1998, the remaining accruals associated with this restructuring
were $10,235,000, the majority of which will be paid out in the first half of
1998.
The following table summarizes the activity in the Company's restructuring
reserves during 1997:
<PAGE> 56
<TABLE>
<CAPTION>
(In thousands) Workforce Inventory Asset
Reduction Write-downs Write-downs Total
--------- ----------- ----------- -----
<S> <C> <C> <C> <C>
Restructuring charges........... $3,123 $24,684 $7,140 $34,947
Asset write-downs............... -- (16,890) (6,140) (23,030)
Cash payments................... (1,480) (134) -- (1,614)
Additional charges/
reclassifications........... (196) 128 -- (68)
------ ------ ------ -------
Balance, January 3, 1998........ $1,447 $7,788 $1,000 $10,235
====== ====== ====== =======
</TABLE>
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None reported.
<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"
in the Company's definitive Proxy Statement for the Company's 1998 Annual
Meeting of Stockholders to be filed within 120 days after January 3, 1998, the
close of its fiscal year ("Proxy Statement"). Information concerning
compliance with Section 16(a) of the Securities Exchange Act of 1934 is
incorporated by reference from the Section entitled "Compliance..." in the
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 "Summary of 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
Not applicable.
<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 January 3, 1998 and December 28, 1996
and for each of the three fiscal years in the period ended January 3, 1998.
Page
-----
Report of Independent Accountants............................... 36
Consolidated Balance Sheets..................................... 37
Consolidated Statements of Operations........................... 38
Consolidated Statements of Changes in Stockholders' Equity...... 39
Consolidated Statements of Cash Flows........................... 40-41
Notes to Consolidated Financial Statements...................... 42-56
(a) 2. Financial Statement Schedules
Schedules-Years ended January 3, 1998, December 28, 1996 and December 30, 1995.
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.
(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.(13)
**10.1 Incentive Stock Plan, as amended and restated on
January 16, 1997. (15)
**10.2 Stock Option Agreement used in connection with the
Incentive Stock Plan.
**10.3 1990 Employee Stock Purchase Plan. (16)
**10.4 Employee Stock Purchase Plan Offering used in connection
with the 1990 Employee Stock Purchase Plan. (16)
**10.5 Form of participation agreement used in connection with the
1990 Employee Stock Purchase Plan. (3)
<PAGE> 59
**10.6 1997 Non-officer Stock Option Plan, as adopted by the Board
of Directors on December 23, 1997. (17)
**10.7 Stock Option Agreement used in connection with the 1997 Non-
Officer Stock Option Plan. (17)
10.8 Agreement for the sale and transfer of all shares in Grundig
Data Scanner GmbH dated September 13, 1994. (12)
10.9 Form of Indemnity Agreement entered into by the Company
with each director and executive officer of the Company.(14)
10.10 8mm Mechanical Components Supply Agreement, dated April 1,
1990, among Sony Corporation, the Company and Nihon Exabyte
Corporation. (5)
10.11 First Amendment, 8mm Mechanical Components Supply Agreement,
dated July 9, 1992, among Sony Corporation, the Company and
Nihon Exabyte Corporation. (11)
10.12 Agreement, dated November 8, 1990, between Sony Corporation
and the Company.(6)
10.13 Lease Agreement, dated December 1, 1989, between the Company
and Eastpark Associates. (4)
10.14 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)
10.15 Lease Agreement, dated July 2, 1990, between the Company
and SBR Investments. (5)
10.16 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)
10.17 Lease Agreement, dated December 9, 1991, between the
Company and Eastpark Technology Center, Ltd. (7)
10.18 Option Contract, dated December 9, 1991, between the
Company and Eastpark Technology Center, Ltd. (7)
10.19 Lease Agreement, dated May 8, 1992, between the Company
and Eastpark Associates, Ltd. (8)
**10.20 1998 Officer Bonus Plan.
10.21 Rights Agreement, dated January 24, 1991, between the
Company and The First National Bank of Boston, as Rights
Agent. (2)
10.22 Amendment to the Rights Agreement, dated August 4, 1995,
between the Company and The First National Bank of Boston
as Rights Agent. (13)
10.23 Vail/Steamboat 8mm Mechanical Components Supply Agreement,
dated January 1, 1992, among Sony Corporation, Nihon
Exabyte Corporation and the Company. (9)
10.24 First Amendment of Vail/Steamboat 8mm Mechanical Components
Supply Agreement, dated April 1, 1994. (14)
10.25 Agreement and Plan of Reorganization By and Among Exabyte
Corporation, EXB Merger Corporation, and R-Byte, Inc. (10)
10.26 Asset Purchase Agreement dated February 19, 1993 By
and Among Exabyte Corporation, Exabyte Acquisition
Subsidiary Corporation and Everex Systems, Inc. (11)
10.27 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)
10.28 8mm Mechanical Components Purchase Agreement, dated
December 11, 1996, among Hitachi Ltd. Electronic Sales
Office, the Company and Nihon Exabyte Corporation.
**10.29 Separation and Consulting Agreement, effective July 11,
1998, by and among Peter D. Behrendt and the Company.
21.1 List of Subsidiaries. (16)
<PAGE> 60
23.1 Consent of Price Waterhouse LLP.
24.1 Power of Attorney. Reference is made to the signature page.
** 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.
(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 Report on Form 8-K, as filed
with the SEC on August 23, 1995 and incorporated herein by reference.
(13) 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.
<PAGE> 61
(14) 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.
(15) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q,
filed with the SEC on November 12, 1997 and incorporated herein by
reference.
(16) Filed as an Exhibit to the Company's Annual Report on Form 10-K,
filed with the SEC on March 19, 1997, and incorporated herein by
reference.
(17) Filed as an Exhibit to the Company's Report on Form S-8, as filed with
the SEC on February 9, 1998 and incorporated herein by reference.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the fiscal quarter ended
January 3, 1998.
<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 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) (3) 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) (3) 7,950
------ ------- ------- -------- -------
$18,214 $ 2,534 $11,121 $(16,604) $15,265
======= ======= ======= ======== =======
Year Ended January 3, 1998:
Allowance for doubtful accounts..... $1,519 $ 310 $ -- $ (813) (1) $ 1,016
Reserves for sales programs......... 5,796 -- 14,176 (13,242) (2) 6,730
Inventory valuation reserves........ 7,950 21,038 -- (10,120) (3) 18,868
------ ------- ------- -------- -------
$15,265 $35,553 $14,176 $(24,175) $26,614
======= ======= ======= ======== =======
</TABLE>
(1) Accounts written off, net of recoveries.
(2) Net credits issued to customers for sales programs.
(3) 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 23, 1998.
EXABYTE CORPORATION
By: /s/ Stephen F. Smith
-----------------------
Stephen F. Smith
Title: Chief Financial Officer, Vice President,
General Counsel and Secretary
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William L. Marriner and Stephen F. Smith, 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/ William L. Marriner Chairman of the Board,
- ----------------------- President, and Chief March 23, 1998
William L. Marriner Executive Officer
(Principal Executive
Officer)
/s/ Stephen F. Smith Vice President, Chief
- ----------------------- Financial Officer, General March 23, 1998
Stephen F. Smith Counsel and Secretary
(Principal Financial
and Accounting Officer)
/s/ Peter D. Behrendt Director
- ----------------------- March 23, 1998
Peter D. Behrendt
<PAGE> 64
/s/ Bruce M. Holland Director
- ----------------------- March 23, 1998
Bruce M. Holland
Director
- ----------------------- March 23, 1998
Thomas E. Pardun
Director
- ----------------------- March 23, 1998
Mark W. Perry
/s/ Ralph Z. Sorenson Director
- ----------------------- March 23, 1998
Ralph Z. Sorenson
/s/ Thomas G. Washing Director
- ----------------------- March 23, 1998
Thomas G. Washing
Exhibit 10.2 - STOCK OPTION AGREEMENT USED IN CONNECTION WITH THE
INCENTIVE STOCK PLAN
TERMS AND CONDITIONS OF THIS STOCK OPTION
We, Exabyte Corporation, have granted you, __________, an option to purchase
_____ shares of our common stock. The conditions of this option are stated
entirely in these terms and conditions and the Incentive Stock Plan.
1. THIS OPTION
Our Board of Directors granted you this option on _____, 19__. The exercise
(or purchase) price of this option is $_____ per share. (This is what it will
cost you per share to exercise this option.) You are never obligated to
exercise this option.
You can only exercise this option after the shares have vested (vesting is the
rate at which your shares become available to exercise). The shares for this
option vest as follows:
_____ shares will be available to exercise on the ___ day of each month
starting on _____, 19__ until 100% of this option has vested, or until
the option has been terminated, whichever comes first.
You cannot exercise this option until we have registered these shares under the
Securities Act of 1933. You may exercise this option, even if those shares
have not been registered, if we have determined that they do not need to be
registered. To the best of our knowledge, we have registered these shares
under the Securities Act of 1933.
This option qualifies for tax purposes as an "incentive stock option" as stated
in Section 422A of the Internal Revenue Code of 1986.
You cannot transfer this option to someone else, except after death through a
will or by the laws of descent and distribution. This means that you are the
only person who can exercise this option during your lifetime, but your estate
may exercise it per these terms and conditions following your death.
2. TERM AND TERMINATION OF THIS OPTION
This option is effective from _____, 19__, through _____, 20__ (the expiration
date), unless it is terminated earlier by one of these conditions:
-You terminate from Exabyte because of your death or total and permanent
disability (as defined in Section 422A(c)7 of the Internal Revenue Code
of 1986). If this happens, your estate or you may exercise the total
number of shares that were available for you to exercise on your last
working day at Exabyte (your termination date) for up to 6 months after
your termination date.
-You terminate from Exabyte for any other reason. If this happens, you
may exercise the total number of shares that were available for you to
exercise on your termination date for up to 90 days after your termination
date.
<PAGE> 2
If, during that 90 day period, your shares become unexercisable because we did
not register the shares under the Securities Act of 1933 and should have, you
have until the earlier of the following dates to exercise those shares:
-the expiration date; or
-an aggregate of 90 days after your termination date and following the
proper registration of those shares.
If, during that 90-day period, the exercise of your shares would result in a
short swing profit liability under Section 16(b) of the Securities Exchange
Act of 1934, you have until the earlier of the following dates to exercise
those shares:
-the expiration date;
-10 days after the last date that you would incur a short swing profit
liability; or
-6 months and 10 days after your termination date.
3. EXERCISING THIS OPTION
We will assume your acceptance of these terms and conditions the first time
you exercise this option.
When you exercise this option, you must arrange for the payment of those
shares. You may pay by check or cash. You may also arrange for a transaction
to occur through a broker. However, you must fill out the proper paperwork
and have the exercise approved in advance by either the Corporate Secretary
or another designated person.
We may require you to enter into an additional agreement with us to pay any
taxes required by the exercise or sale of this option.
You must also notify us in writing within 15 days of any sale of these shares
that occurs within 2 years after the date this option was granted to you and
within 1 year after these shares were exercised.
4. MISCELLANEOUS
This option does not constitute an employment contract between us. It does
not obligate you in any way to continue working at Exabyte, nor does it
obligate Exabyte to continue employing you.
Any notices we give to each other concerning this option must be given in
writing. All notices are validly given when either we receive your notice or
5 days after we deposit a notice to you in the United States mail (postage
pre-paid and addressed to you at your address listed in our employee database).
You can find the most recent electronic copy of the Form 10-K and Proxy
Statement on the cc:Mail Exabyte Daily Stock Information Bulletin Board.
Exhibit 10.20 - 1998 OFFICER BONUS PLAN
The Company has adopted a 1998 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, Worldwide Sales and
Customer Support) results as measured against the 1998 Operating Plan presented
and approved at the Board of Directors meeting on January 26, 1998. The
pre-tax income level is 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, Worldwide
Sales and Customer Support, shall be measured against the revenue (excludes
Worldwide Service division revenue for which the Senior Vice President is not
responsible).
Exhibit 10.29 - SEPARATION AND CONSULTING AGREEMENT
This Separation and Consulting Agreement ("Agreement") is made and entered into
by and between Peter D. Behrendt ("Executive") and Exabyte Corporation (the
"Company"), as of the last date on which either party signs this Agreement
("Effective Date").
WITNESSETH
Whereas, Executive is currently a Director and Chairman of the Board and has
tendered his resignation as a full-time employee of the Company and wishes to
enter into a consulting relationship with the Company, in consideration of the
promises and covenants contained herein;
Whereas, the Company has accepted Executive's resignation and wishes to provide
Executive with certain benefits in consideration of his service to the Company
and the promises and covenants of Executive as contained herein;
Now, Therefore, in consideration of the mutual promises and covenants contained
herein, it is hereby agreed by and between the parties hereto as follows:
1. Resignation. Executive has tendered, and the Company has accepted,
Executive's resignation as an employee effective as of July 11, 1997 (the
"Separation Date"). Executive shall continue to serve as Chairman of the Board
through December 31, 1997 and as Director through his normal term ending with
the 1998 Annual Meeting of Shareholders and thereafter subject to the
discretion of the Chief Executive Officer and to shareholder election.
2. Accrued Salary, Vacation, And Future Payment. Within a reasonable
time following the Separation Date, the Company will pay Executive all accrued
salary as well as all accrued and unused vacation earned prior to the
Separation Date at Executive's pay rate prior to Separation Date, subject to
standard payroll deductions and tax withholdings. Executive shall be entitled
to participate in the Executive Bonus Plan for 1997 with salary adjustment in
accordance with the Consulting Fees (80% of previous salary rate) for an "on-
plan" pre-tax bonus of $170,982(1). Executive's sole compensation subsequent
to the Separation Date shall be as set forth in this Paragraph 2 together with
the consulting fees as set forth in Paragraph 6(b). Executive shall not be
entitled to additional compensation relating to his service as Director and
Chairman of the Board of Directors through December 31, 1997. For any services
as Director after December 31, 1997, Executive will be entitled to the normal
compensation awarded to continuing outside Directors in accordance with the
plan in effect as of such date.
3. Health Insurance. The Company agrees to make a grossed-up lump sum
payment to Executive such that the net amount is equal to the cost for a six
(6) month period of COBRA benefits representing coverage comparable to, but no
greater than, coverage provided under existing plans of the Company.
4. Expense Reimbursement. Executive will submit his final documented
expense reimbursement statement reflecting all business expenses he incurred
through the Separation Date, if any, for which he seeks reimbursement. The
(1) Compared to previous annual salary rate of $427,413 and "on-plan" bonus
of $213,727.
<PAGE> 2
Company shall reimburse Executive's expenses pursuant to Company policy and
regular business practice. During the term of this Agreement, the Company
shall reimburse Executive for all out-of-pocket expenses reasonably incurred by
Executive, subject to the approval of the Chief Executive Officer of the
Company.
5. Section 401(k). Executive's 401(k) benefits shall cease as of
Separation Date. Executive shall be entitled to continued enrollment in the
401(k) without imposition of an administrative fee.
6. Consulting Agreement. Executive shall serve as a consultant to the
Company under the terms specified below. The consulting relationship shall
commence on the Separation Date and continue through December 31, 1997
("Consulting Period") unless terminated earlier pursuant to Paragraph 6 herein.
The term of this Agreement cannot be extended except in a writing executed by
the Chief Executive Officer of the Company.
(a) Consulting Services. Executive agrees to provide consulting
services to the Company in any area of his expertise upon request by the Chief
Executive Officer of the Company. Executive agrees to exercise the highest
degree of professionalism and utilize his expertise and creative talents in
performing these services. Executive agrees to make himself available to
perform such consulting services throughout the Consulting Period. Executive
agrees that he will render services to the Company during the term of this
Agreement at a level of up to approximately twenty percent (20%) of full-time
employment ("FTE"), or approximately thirty-five (35) work hours per month.
Any services rendered in excess of this amount shall not entitle Executive to
payment in excess of that amount set forth in paragraph 6(b). If the Company
does not give Executive sufficient work to occupy him for the foregoing work
hours, he still will be paid his consulting fees as set forth in paragraph 6(b)
herein, without any deduction or penalty for the shortfall in work hours.
Nothing herein is intended to impair Executive's efforts to obtain employment
not in competition with the Company, as defined below.
(b) Consulting Fees and Benefits.
(i) Consulting Fees. In consideration for Executive's
consulting services, the Company shall make payments until December 31, 1997,
at the rate of eighty percent (80%) of the rate of Executive's salary
immediately prior to the Separation Date ("Consulting Fees").
(ii) Taxes and Withholding. The Company will process the
payment of Consulting Fees through the Company's normal payroll system and
subject to withholding for taxes, social security or other payroll deductions.
The parties agree that the payment procedure through the Company's payroll
system shall not in any way be deemed to affect Executive's status as
consultant. Executive acknowledges that he is ultimately responsible for
payment of any taxes, and he hereby indemnifies and holds harmless the Company
from any liability for any taxes, penalties or interest which may be assessed
by any taxing authority.
(iii) Stock Vesting. Executive's options shall continue to
vest until the term provided by the terms of the respective grant or
December 31, 1997, whichever is earlier. The Exercise Date for each option
which has not been exercised within ninety (90) days of the Separation Date
shall be amended to read July 11, 2000 or the end of the respective grant
agreement, whichever is earlier. Executive understands that amendment of the
foregoing option grants as described in paragraph 6(b)(iii) will disqualify
such options for favorable tax treatment as incentive stock options ("ISOs").
<PAGE> 3
(iv) Disability and Life Insurance. The Company will
reimburse Executive for the cost of obtaining comparable but no greater
coverage than under existing disability and life insurance plans of the
Company.
(v) Attorneys' or Accountants' Fees. The Company agrees to
reimburse or pay directly Executive for his reasonable attorneys' or
accountants' fees directly related to the negotiation of this Agreement, within
a reasonable time after presentation of itemized statements for such services,
provided that this Agreement is executed by Executive on or before
September 15, 1997.
(vi) Other Compensation. Except as expressly provided
herein, Executive acknowledges that he will not receive (nor is he entitled to)
any additional compensation, severance or benefits after the Separation Date.
(c) Reporting Relationship, Office, and Support. Executive will
report directly to the Chief Executive Officer of the Company. Executive shall
be provided with a private, standard-sized office as well as basic secretarial
support during the Consulting Period and thereafter at the discretion of the
Chief Executive Officer.
7. Termination of Agreement. This Agreement may be terminated prior
to December 31, 1997 by Executive upon thirty (30) days' written notice, in
which case the Company's obligations under paragraph 6(b) shall cease, or by a
change of control in the Company as defined below, or by the Company, for
cause, as defined below. If this Agreement is terminated due to a change of
control (as defined below) prior to December 31, 1997, Executive will receive a
one-time lump sum payment from the Company equal to the amount Executive would
have been paid under this Agreement between the date of its termination due to
a change of control and December 31, 1997. This Agreement supersedes any other
agreement with respect to payment obligations related to a change in control or
otherwise.
For purposes of this Agreement, "change of control" means the occurrence of one
or more of the following events:
(a) The Company sells substantially all of its assets to a single
purchaser or to a group of associated purchasers;
(b) At least two-thirds of the outstanding corporate shares of
the Company are sold, exchanged or otherwise disposed of, in one transaction;
(c) The Company elects to terminate its business or liquidate
its assets; or
(d) There is a merger or consolidation of the Company in a
transaction in which the Company's shareholders receive less than fifty percent
(50%) of the outstanding voting shares of the new or continuing corporation.
If Executive's consulting relationship is terminated for cause, all
compensation and benefits shall cease as of the date of his termination. For
purposes of this Agreement, "cause" shall mean misconduct, including:
(i) conviction of any felony or any crime involving moral turpitude or
dishonesty; (ii) participation in a fraud or act of dishonesty against the
Company; (iii) intentional damage to the Company's property or reputation; or
(iv) breach of any term of this Agreement, including but not limited to breach
of the noncompetition provision, provided, however, Executive shall be provided
with a 30-day right to cure any such breach after notice.
<PAGE> 4
Executive will not be entitled to any additional compensation or benefits
beyond what is expressly provided to him in this Agreement.
8. Limitations on Authority. Executive shall have no responsibilities
or authority as a consultant to the Company other than as provided for above.
Executive hereby agrees not to represent or purport to represent the Company
in any manner whatsoever to any third party unless authorized by the Chief
Executive Officer of the Company to do so.
9. Other Work Activities. Throughout the Consulting Period, Executive
retains the right to engage in employment, consulting, or other work
relationships in addition to his work for the Company, subject to the
limitations set forth in this Agreement.
10. Noncompetition. In order to protect the trade secrets and
confidential and proprietary information of the company, Executive agrees
that from Separation Date through July 11, 1999 ("Restricted Period") he will
not obtain employment, perform work for any business entity, or engage in any
other work activity which is in competition, or is preparing to compete, with
the business of the Company as conducted or contemplated by the Company as of
the Effective Date ("Competitive Activity"). During the Restricted Period,
Executive shall not, directly or indirectly, without the prior written consent
of the Company, own manage, operate, join, control, finance or participate in
the ownership, management, operation, control or financing of, or be connected
as an officer, director, employee, partner, principal, agent, representative,
consultant, licensor, licensee or otherwise with, any business or enterprise
engaged in any Competitive Activity.
For purposes of this Agreement, "Competitive Activity" shall include any
activity involving removable tape storage. Executive shall have the right to
advise the Company regarding any activities he wishes to pursue for the purpose
of seeking an exception from the foregoing definition of Competitive Activity,
and the Company will discuss any such requests in good faith. For purposes of
this paragraph, the holding of less than one percent of the outstanding voting
securities of any firm or business organization in competition with the Company
shall not constitute activities or services precluded by this paragraph.
Executive agrees to notify the Company, in writing, at least ten (10) business
days prior to engaging in any work substantially full-time for any business
purpose other than work for the Company. In the event that Executive engages
in any Competitive Activity, the Company's obligation to pay Executive
consulting fees or any other compensation set forth in this Agreement shall
cease immediately, the vesting of any stock options pursuant to this Agreement
shall also cease, and the Exercise Date of any stock options shall be amended
to read the date ninety (90) days after the date of determination of any such
Competitive Activity.
Executive acknowledges that by virtue of his position with the Company he has
developed considerable expertise in the business operations of the Company and
has had access to extensive confidential information with respect to the
Company. Executive also acknowledges that this is a contract of personal
services wherein his services are of a unique character. Executive
acknowledges that the Company would be irreparably damaged, and its substantial
investment materially impaired, if he were to enter into an activity competing
with the Company's business as of Effective Date in violation of the terms of
this Agreement or if he were to disclose or make unauthorized use of any
confidential information concerning the business of the Company. Executive
<PAGE> 5
expressly acknowledges that he is voluntarily entering into this Agreement and
that the terms and conditions of this Agreement are fair and reasonable to him
in all respects.
11. Independent Contractor. Executive's relationship with the Company
shall be that of an independent contractor and nothing in this Agreement shall
be construed to create an employer-employee relationship between the parties
hereto. Executive shall be solely responsible for and shall maintain adequate
records of expenses Executive shall incur in the course of performing services
hereunder and shall be solely responsible for and shall file, on a timely
basis, all tax returns and payments required to be filed with or made to any
federal, state or local tax authority with respect to Executive's performance
of services hereunder. Since Executive will not be an employee of the Company,
it is understood that Executive will not be entitled to any of the benefits
which the Company may make available to its employees, such as group insurance,
profit-sharing or retirement benefits, nor will any part of Executive's
compensation be subject to withholding by the Company for the payment of any
social security, federal, state or any other employee payroll taxes except as
set forth in this Agreement. In the performance of all services hereunder,
Executive shall comply with all applicable laws and regulations.
12. Nonsolicitation. Executive agrees that during the Restricted
Period he will not, either directly or through others, solicit or attempt to
solicit any employee, consultant, or independent contractor of the Company to
terminate his or her relationship with the Company in order to become an
employee, consultant or independent contractor to or for any other person or
entity.
13. Company Property. On or before December 31, 1997, except for
Company documents and property required by Executive to carry out his duties
as a Board member, Executive agrees to return to the Company all Company
documents (and all copies thereof) and any other Company property in his
possession, custody or control, including, but not limited to, Company files,
notes, drawings, records, business plans and forecasts, financial information,
specifications, computer-recorded information, tangible property, credit cards,
entry cards, identification badges and keys; and, any materials of any kind
which contain or embody any proprietary or confidential material of the Company
(and all reproductions thereof).
14. Proprietary Information Obligations. Executive hereby agrees to
be bound throughout the Consulting Period by the terms of his Proprietary
Information and Inventions Agreement ("Proprietary Information Agreement") and
thereafter by certain obligations which continue after the termination of the
Consulting Period, as specified in the Proprietary Information Agreement.
15. Nondisparagement. Executive and the Company agree that neither
party will at any time disparage the other in any manner likely to be harmful
to the other party, its business reputation, or the personal or business
reputation of its directors, shareholders, and employees, provided that each
party shall respond accurately and fully to any question, inquiry, or request
for information when required by legal process. Executive shall have the right
to review and comment upon any press releases issued by the Company that refer
to his departure from the Company.
16. Confidentiality. The provisions of this Agreement shall be deemed
confidential by Executive and the Company and shall not be publicized or
disclosed in any manner whatsoever. Notwithstanding the prohibition in the
preceding sentence: (i) Executive may disclose this Agreement, in confidence,
to his immediate family; (ii) the parties may disclose this Agreement in
<PAGE> 6
confidence to their respective attorneys, accountants, auditors, tax preparers,
and financial advisors; (iii) the Company may disclose this Agreement as
necessary to fulfill standard or legally required corporate reporting or
disclosure requirements; and (iv) the parties may disclose this Agreement
insofar as such disclosure may be necessary to enforce its terms or as
otherwise required by law. In particular (and without limitation), Executive
agrees not to discuss this Agreement with present or former Company employees
or other personnel. Notwithstanding the foregoing provisions, the parties may
respond to inquiries concerning the reasons for the consulting relationship
between Executive and the Company by stating that the Company and Executive
came to a mutual understanding that the consulting relationship would best
serve the interests of both Executive and the Company, or words to that effect
agreed upon by the parties.
17. Hold Harmless. Executive shall exonerate, indemnify and hold
harmless the Company, its officers, agents and employees from and against any
and all liability, loss, cost, damage, claims, demands, or expenses of every
kind on account of injuries (including death) to Executive or any third party,
or loss of or damage to Executive's or any third party's property arising out
of or resulting in any manner from or occurring in connection with Executive's
performance of services hereunder unless caused by the negligence or
intentional acts of the Company or its servants or employees.
18. Release of Claims. Except as otherwise set forth in this
Agreement, Executive and the Company each hereby releases, acquits and forever
discharges the other party, its officers, directors, agents, servants,
employees, shareholders, attorneys, successors, assigns and affiliates, of and
from any and all claims, liabilities, demands, causes of action, costs,
expenses, attorneys' fees, damages, indemnities and obligations of every kind
and nature, in law, equity, or otherwise, known and unknown, suspected and
unsuspected, disclosed and undisclosed, arising out of or in any way related
to agreements, events, acts or conduct at any time prior to and including the
Effective Date, including but not limited to: (i) any and all such claims
and demands directly or indirectly arising out of or in any way connected with
Executive's employment with the Company or the termination of that employment;
(ii) claims or demands related to salary, bonuses, commissions, stock, stock
options, or any other ownership interests in the Company, vacation pay, fringe
benefits, expense reimbursements, severance benefits, or any other form of
compensation; (iii) claims pursuant to any federal, state or local law, statute
or cause of action including, but not limited to, tort law, contract law,
wrongful discharge, discrimination, fraud, defamation, emotional distress; and
(iv) breach of the implied covenant of good faith and fair dealing.
19. OWBPA Notice. Executive acknowledges that, among other rights, he
is waiving and releasing any rights he may have under the federal Age
Discrimination in Employment Act of 1967 as amended, that this waiver and
release is knowing and voluntary, and that the consideration given for this
waiver and release is in addition to anything of value to which he was already
entitled as an employee of the Company. Executive further acknowledges that he
has been advised, as required by the Older Workers Benefit Protection Act,
that: (i) the waiver and release granted herein does not relate to claims
which may arise after this Agreement becomes effective; (ii) he has the right
to consult with an attorney prior to executing this Agreement (although he may
choose voluntarily not to do so); (iii) he has twenty-one (21) days from the
date he receives this Agreement, in which to consider this Agreement (although
he may choose voluntarily to execute this Agreement earlier); (iv) he has seven
(7) days following the execution of this Agreement to revoke his consent to the
Agreement; and (v) this Agreement shall not be effective until the seven (7)
day revocation period has expired.
<PAGE> 7
20. Confidential Arbitration. Any disputes arising from this
Agreement shall be submitted to binding, confidential arbitration with the
Judicial Arbiter Group ("JAG"), Denver, Colorado, in accordance with the then
existing rules issued by JAG applicable to employment disputes with the
prevailing party paying costs and the attorneys' fees. Any such arbitration
shall be conducted in the utmost secrecy.
21. Entire Agreement. This Agreement constitutes the complete, final
and exclusive embodiment of the entire agreement between Executive and the
Company with regard to the subject matter hereof. It is entered into without
reliance on any promise or representation, written or oral, other than those
expressly contained herein. It may not be modified except in a writing signed
by Executive and a duly authorized officer of the Company. Each party has
carefully read this Agreement, has been afforded the opportunity to be advised
of its meaning and consequences by his or its respective attorneys, and signed
the same of his or its own free will.
22. Successors and Assigns. This Agreement shall bind the heirs,
personal representatives, successors, assigns, executors, and administrators
of each party, and inure to the benefit of each party, its heirs, successors
and assigns. However, because of the personal nature of Executive's duties
under this Agreement, Executive agrees not to delegate the performance of his
duties under this Agreement.
23. Applicable Law. This Agreement shall be deemed to have been
entered into and shall be construed and enforced in accordance with the laws of
the State of Colorado as applied to contracts made and to be performed entirely
within Colorado.
24. Severability. If a court of competent jurisdiction determines
that any term or provision of this Agreement is invalid or unenforceable, in
whole or in part, then the remaining terms and provisions hereof shall be
unimpaired. Such court will have the authority to modify or replace the
invalid or unenforceable term or provision with a valid and enforceable term
or provision that most accurately represents the parties' intention with
respect to the invalid or unenforceable term or provision.
25. Section Headings. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
26. Counterparts. This Agreement may be executed in two counter-
parts, each of which shall be deemed an original, all of which together shall
constitute one and the same instrument.
In Witness Whereof, the parties have duly authorized and caused this Agreement
to be executed as follows:
- ----------------------------------- -----------------------------------
Peter D. Behrendt Exabyte Corporation
By:-------------------------------- By:--------------------------------
Date:------------------------------ Date:------------------------------
Exhibit 23.1 - 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 21, 1998
appearing on page 36 of this Form 10-K.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
Boulder, Colorado
March 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AS OF JANUARY 3, 1998 AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY 3, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
PLEASE NOTE THAT THE ITEM TAGGED EPS-PRIMARY IS BASIC EPS AS REPORTED BY THE
COMPANY.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-START> DEC-29-1996
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JAN-03-1998
<CASH> 47,014
<SECURITIES> 1,470
<RECEIVABLES> 49,323
<ALLOWANCES> 7,746
<INVENTORY> 44,551
<CURRENT-ASSETS> 175,858
<PP&E> 113,519
<DEPRECIATION> 78,367
<TOTAL-ASSETS> 221,346
<CURRENT-LIABILITIES> 47,576
<BONDS> 0
0
0
<COMMON> 22
<OTHER-SE> 170,774
<TOTAL-LIABILITY-AND-EQUITY> 221,346
<SALES> 335,684
<TOTAL-REVENUES> 335,684
<CGS> 288,053
<TOTAL-COSTS> 288,053
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 35,552
<INTEREST-EXPENSE> 637
<INCOME-PRETAX> (53,123)
<INCOME-TAX> (22,312)
<INCOME-CONTINUING> (30,811)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,811)
<EPS-PRIMARY> (1.38)
<EPS-DILUTED> 0
</TABLE>
