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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 2, 1999
OR
[ ] Transition Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _________ to ___________
Commission File No. 0-18033
EXABYTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-0988566
(State of Incorporation) (IRS Employer Identification No.)
1685 38th Street
Boulder, Colorado 80301
(Address of principal executive offices, including zip code)
Area Code(303) 442-4333
(Registrant's Telephone Number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
N/A N/A
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. (x)
The approximate aggregate market value of the voting stock held by non-
affiliates of the registrant as of March 3, 1999 was $78,848,562 based on
the closing sale price on such date. The aggregate number of shares of
common stock outstanding on March 3, 1999 was 16,174,064(a).
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Document incorporated by reference: Proxy Statement for the 1999 Annual
Meeting of Stockholders scheduled to be held May 10, 1999: Part III, Items
10, 11, 12, and 13.
(a) Excludes 6,472,119 shares of common stock held by directors, executive
officers and stockholders whose ownership exceeds ten percent of the common
stock outstanding at March 3, 1999. 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 as well as 8mm and DLTtape(TM) robotic
tape libraries. Exabyte also provides its own brand of recording media,
software utilities and worldwide service and customer 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.
Exabyte's operations are segmented into three divisions, each responsible
for a specific line of products or services. The Drives & Media division is
responsible for Exabyte's line of 8mm tape drive products and media. The
Storage Automation Solutions division is responsible for Exabyte's robotic tape
libraries, systems offerings and related products. The Worldwide Quality and
Customer Services division is responsible for all corporate and product
quality, service operations, technical support, training and education,
and service and customer support programs.
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 below 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 and DLTtape(TM) drives manufactured
by Quantum Corporation ("Quantum"). Exabyte's 8mm tape drive products offer
data capacities ranging from 5GB to 40GB with standard data compression
(described below). When commercially available, the Company's upcoming
Mammoth 2 tape drive will offer a data capacity of up to 150GB (assuming a
data compression of two and a half to one). These tape drive products address
the mid-range to high-end server markets, the remainder of the market is
largely served by 4mm and half-inch linear tape drives produced by competitors.
Exabyte's robotic tape libraries incorporate one or more tape
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drives and multiple media cartridges to offer data capacities ranging from
280GB to 8TB with standard compression, and up to 30TB with the Company's
upcoming Mammoth 2 tape drive. In addition, Exabyte provides a variety of
support services, as well as recording media and cleaning cartridges for its
products.
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 such risks see "RISK FACTORS--Product Development," "RISK
FACTORS--Media Constraints," "RISK FACTORS--Product Quality and Performance,"
"RISK FACTORS--Management of Business and Product Transitions" and "RISK
FACTORS--Customer Dependence" below.
Drives & Media Division
=======================
Exabyte's 8mm tape drive products and media are the responsibility of Exabyte's
Drives & Media 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. Additionally,
all of the Company's 8mm tape drives can be incorporated into one or more of
Exabyte's 8mm robotic tape library offerings. In 1998, sales of 8mm tape drive
products represented 53% of revenue, while in 1997 and 1996, sales represented
59% and 65% of total revenue, respectively.
Exabyte's 8mm tape drive products are based on helical scan technology,
utilize a SCSI interface and incorporate a licensed compression algorithm
for data compression.
The primary factors distinguishing the Company's tape drive products from one
another are data capacity and transfer rate. Data Capacity refers to the total
amount of data that can be stored on a single media cartridge. Transfer Rate
refers to the speed at which data may be transferred to or from the tape drive.
All data capacities and transfer rates indicated for the products listed
below are compressed and assume a compression ratio of two to one unless
stated otherwise. Actual compression will vary depending on the nature of
the data and the drive and media quality.
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. Mammoth is Exabyte's fastest, highest capacity 8mm tape
drive, with a data capacity of 40GB and a transfer rate of 6MB per second, and
is backward 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 drives. AME
media is supplied to Exabyte primarily by Sony Corporation, a competitor of the
Company. The Company has previously experienced constraints in the supply of
AME media. See "RISK FACTORS--Media Constraints" and "RISK FACTORS--Supplier
Dependence" below.
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Mammoth-LT
Exabyte's Mammoth-LT 8mm tape drive is the Company's newest drive in the
Mammoth product line. Mammoth-LT targets low-end to high-end application
servers and features a 28GB data capacity and a transfer rate of 4MB per
second. Mammoth-LT is backward read compatible with most of Exabyte's line
of 8mm tape drives and is dependant upon and only writes to AME media. See
"RISK FACTORS--Media Constraints" and "RISK FACTORS--Supplier Dependence"
below.
Exabyte Eliant(TM) 820
The Eliant(TM) 820 tape drive, which targets mid-range networks and smaller
workstations, features a 14GB data capacity and a transfer rate of 2MB per
second.
Upcoming 8mm Tape Drive Products
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Mammoth 2
The Exabyte Mammoth 2 8mm tape drive, currently in development, will be the
second generation of Exabyte's original Mammoth drive. It targets large
department networks and application servers and will feature a data capacity
of 150GB and a transfer rate of 30MB per second (assuming a compression ratio
of two and a half to one, although actual compression may vary depending on
the nature of the data and the drive and media quality). Mammoth 2 will be
backward compatible with Mammoth and will exclusively use AME media. See
"RISK FACTORS-Product Development," "RISK FACTORS--Media Constraints" and
"RISK FACTORS--Supplier Dependence" below. Worldwide shipment of Mammoth 2
to customers is expected to begin in mid-1999.
There can be no assurance that this or any other announced product or
unannounced product in development will be successfully developed, made
commercially available on a timely basis or achieve market acceptance.
See "RISK FACTORS--Product Development" section below.
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, Mammoth-LT, Mammoth 2 and other follow-on Mammoth drives is
dependent upon the continuous supply of AME media. There are several risks
associated with dependence on this type of media, including possible delays or
cancellations of shipments by the Company if these components are not received
on a timely basis or at an acceptable quality level. See "RISK FACTORS--Media
Constraints" below. Sales of media and media related products represented
approximately 23%, 15% and 12% of sales in 1998, 1997 and 1996, respectively.
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Storage Automation Solutions Division
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Exabyte's robotic tape libraries, systems offerings 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 1998, revenues from library sales were 20%
of total revenue, while in 1997 and 1996, sales represented 18% and 14% of
revenues, respectively.
All data capacities and transfer rates indicated for the products listed below
are compressed and assume a compression ratio of two to one unless stated
otherwise. Actual compression will vary depending on the nature of the data
and the drive and media quality.
Current 8mm Robotic Tape Library Systems
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Exabyte X200
The Exabyte X200 is Exabyte's most recent 8mm library offering. The Exabyte
X200 targets large application servers and networks. This library features a
scalable design which can incorporate from two to ten Mammoth tape drives and
40, 80, 120, 160 or 200 AME media cartridges. At full capacity, (10 Mammoth
drives and 200 media cartridges) the Exabyte X200 offers a data capacity of
8TB and an aggregate transfer rate of 60MB per second.
Exabyte 440/480
The Exabyte 440 and 480 libraries target large enterprise application servers
and networks. 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. It is possible to upgrade the Exabyte 440
to an 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 an
aggregate transfer rate of 24MB per second.
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. 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. At full capacity (two Mammoth tape
drives and 20 media cartridges), the Exabyte 220 offers a data capacity of
800GB and an aggregate transfer rate of 12MB per second.
Exabyte 10h
The Exabyte 10h library targets small department networks. 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.
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Exabyte EZ17(TM) Autoloader
The Exabyte EZ17(TM) Autoloader is Exabyte's 8mm library alternative to a
stand-alone tape drive. It incorporates one Mammoth tape drive and up to
seven media cartridges. The Exabyte EZ17(TM) targets small departmental
workgroups to midrange file and application servers. At full capacity, the
EZ17(TM) offers a capacity of 280GB and a transfer rate of 6MB per second.
Current DLTtape(TM) Robotic Tape Library Systems
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Exabyte 690D
The Exabyte 690D is Exabyte's most recent DLTtape(TM) library offering. The
Exabyte 690D targets large client-server networks as well as large departmental
application servers. This library features a scalable design which can
incorporate from two to six Quantum DLT4000 or DLT7000 tape drives and 30,
60 or 90 DLTtape(TM) media cartridges. At full capacity (six DLT7000 drives
and 90 media cartridges) the 690D offers a data capacity of 6.3TB and an
aggregate transfer rate of 60MB per second.
Exabyte 230D
The Exabyte 230D targets large client-server and department networks. The
Exabyte 230D incorporates up to two DLT4000 or DLT7000 tape drives and up to
30 media cartridges. At full capacity (with two DLT7000 tape drives), the
Exabyte 230D offers a data capacity of 2.1TB and an aggregate transfer rate
of 20MB per second.
Exabyte 18D
The Exabyte 18D targets small department networks and mid-range file and
application servers. The Exabyte 18D library incorporates a single DLT4000 or
DLT7000 tape drive and up to eight media cartridges. At full capacity (with
a DLT7000 drive), the Exabyte 18D offers a data capacity of up to 560GB and
an aggregate transfer rate of up to 10MB per second.
Exabyte 17D Autoloader
The Exabyte 17D Autoloader is Exabyte's DLTtape(TM) library alternative to a
stand-alone tape drive. It incorporates one DLT4000 or DLT7000 tape drive
and up to seven media cartridges. The Exabyte 17D targets small departmental
workgroups to midrange file and application servers. At full capacity (with
a DLT7000 drive), the 17D offers a capacity of 490GB and an aggregate transfer
rate of 10MB per second.
Future Storage Area Network Offerings
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The Company intends to introduce products targeted at the emerging Storage
Area Network market. The Company's NetStorm(TM) product is in the early
stages of development and its successful launch is subject to a number of
third party dependencies, including the supply by third parties of party
fibre switches, hubs, host bus adapters and backup and archive applications,
as well as the Company's ability to recruit and train channel parties. See
"RISK FACTORS--Product Development," "RISK FACTORS--Supplier Dependence" and
"RISK FACTORS--Product and Quality Performance" below.
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Worldwide Quality and Customer Services Division
================================================
Exabyte's Worldwide Quality and Customer Services division provides a full
range of warranty and post-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's OEM, reseller and end-user customers in the deployment,
operation and maintenance of Exabyte products.
The service programs offered by the Worldwide Quality and Customer Services
division 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
Advance exchange options
Media........................................Warranty exchange
Data recovery
Media conversions
Data Migration
In 1998, revenue from service and support programs accounted for 7% of total
revenue, while in 1997 and 1996 these programs accounted for 7% and 6% of
revenues, respectively.
MARKETING AND CUSTOMERS
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Because the Company's marketing and sales functions are not unified under the
general corporate function, marketing and sales are not carried out separately
by division. As a result, the sales data set forth below represents total
sales of all products.
The Company markets its products worldwide to OEMs and resellers, and provides
services directly to OEMs and to the customers of Exabyte's reseller customers.
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 (relative to reseller sales) as the new product successfully completes
the necessary qualification process. For a description of the risks associated
with Exabyte's customers and customer dependence, see "RISK FACTORS--Customer
Dependence," "RISK FACTORS--Market Demand" and "RISK FACTORS--Year 2000
Compliance" below.
OEMs
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OEM customers incorporate Exabyte products as part of their own systems.
Exabyte works closely with its OEM customers during early product development
stages to help ensure Exabyte's products will readily integrate into the OEM's
systems.
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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 46% of total sales in
1998. In 1997 and 1996, these sales were 49% and 51%, respectively, of total
sales.
Resellers
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The Company's reseller customers purchase products for resale and may provide,
for example, 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 Compaq 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. See "RISK FACTORS--Market Demand" below.
The Company recently created a new category of reseller customers for the
specific purpose of selling the Company's high-end libraries. Exabyte Solution
Partners ("ESPs") are generally larger resellers who derive a significant
portion of their overall revenues from the sale of storage products and
services, and are therefore better suited to sell Exabyte's high-end library
products. The Company relies significantly on ESPs for the sale of its
high-end libraries. Any short-fall in sales to ESPs could have a material
adverse impact on the Company's results of operations.
Sales to resellers represented approximately 50%, 46% and 45% of sales in
1998, 1997 and 1996, respectively.
International
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Exabyte also markets its products overseas directly to international OEMs and
resellers. In addition, the Company also serves OEMs and end-users through
its international resellers. 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. In addition, many of Exabyte's domestic customers ship
a significant portion of Exabyte's products to their overseas customers. Direct
international sales accounted for approximately 30%, 32%, and 30% of sales in
1998, 1997, and 1996, respectively. (See Note 9 of Notes to Consolidated
Financial Statements.)
Currently, a very small percentage of the Company's international sales are
denominated in foreign currencies and are affected by foreign exchange rate
fluctuations, as well as the European conversion to the euro. In addition,
changes in the foreign exchange rates or the euro conversion may adversely
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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, See "RISK FACTORS--Foreign Sales" below.
Principal Customers
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A partial list of Exabyte's customers includes Bull S.A., Compaq, Consan,
IBM, Ingram Micro, Merisel, NCR, Siemens Nixdorf, Sun Microsystems and
Tech Data.
IBM, Sun Microsystems and Ingram were the only three customers accounting
for 10% or more of Exabyte's sales during fiscal 1998, while IBM and Sun
Microsystems were the only two customers who accounted for 10% or more of
sales during fiscal years 1997 and 1996. IBM accounted for 15% of sales in
1998 and 17% and 15% of sales in 1997 and 1996, respectively. Sun Microsystems
accounted for 11% of sales in 1998 and 13% and 11% of sales in 1997 and 1996
respectively. Ingram accounted for 13% of sales in 1998. These three customers
accounted for an aggregate of 39% of sales in 1998.
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 sections "RISK FACTORS--Customer Dependence" and "RISK FACTORS--Market
Demand" 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, particularly because 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
- 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 commercial-
ization 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. Future developments
of tape and optical technologies, as well as new forms of storage technologies,
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could create additional, significant competition to Exabyte. Other risks
include loss of market share, timing to market, price erosion and pricing
pressure. For a description of these and other risks associated with Exabyte's
competition, see "RISK FACTORS--Competition" below.
Drives & Media Division
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Exabyte's 8mm tape drive products face competition from companies offering
8mm, half-inch, 4mm and minicartridge tape drive products. Exabyte's most
significant 8mm competitor is currently Sony with its 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. These 4mm tape drives
are typically lower in price and smaller in size, making them more attractive
to the low end of the market.
Among Exabyte's competitors that offer half-inch tape drive products are
Quantum, Fujitsu, IBM, Overland Data, StorageTek and Tandberg. The half-
inch products currently being offered generally have higher capacities and
transfer rates than Exabyte's products. Specifically, Quantum's DLT7000 tape
drive competes in the same market segment as Exabyte's Mammoth drive, and
offers storage capacities and transfer rates greater than Mammoth or any of
Exabyte's other current tape drive products. There are several companies
which offer competitive media products, as well.
Storage Automation Solutions Division
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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 DLTtape(TM) library competitors are ADIC, ATL, Hewlett-Packard,
Quantum, Breece Hill, and StorageTek.
Worldwide Quality and Customer Services Division
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Exabyte's service programs suffer competitive pressures from other tape drive
and library manufacturers, as well as independent service providers.
MANUFACTURING
- -------------
Both the Drives & Media division and the Storage Automation Solutions division
manufacture parts or complete units of their 8mm tape drive and library
products at the Company's 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 for such components. Exabyte has executed master purchase
agreements with some of its sole-source suppliers and conducts business with
the rest of its suppliers on a purchase order basis. Reliance on sole-source
suppliers can result in possible shortages of key components, reduced control
over delivery schedules, manufacturing yields, quality and costs. See "RISK
FACTORS--Supplier Dependence" below. Further, many such components are sourced
from suppliers located outside the U.S. See "RISK FACTORS--Foreign Exchange
and Import Restrictions" below.
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Exabyte obtains key materials and components necessary for manufacturing its
products from its German subsidiary, Exabyte Magnetics GmbH ("EMG"), as well
as from a number of third-party suppliers. Many of these key components are
made to the Company's specifications and are acquired from sole sources.
See "RISK FACTORS--Supplier Dependence" and "RISK FACTORS--Mammoth" below.
The Company manufactures a mechanical deck mechanism for the Company's Mammoth
line of products (including its upcoming Mammoth 2 tape drive). 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 or with
future Mammoth products. For a description of the risks associated with the
production of the Company's Mammoth product line, see "RISK FACTORS--Product
Development" and "RISK FACTORS--Media Constraints" below.
Among the many key components for Exabyte's products and the supplier(s)
supplying the components are:
Component Supplier(s)
--------- ---------
8mm tape decks.....................Hitachi
Circuit boards.....................Solectron
Recording heads....................Alps
EMG
Reel Motor.........................Kumagaya
Cartridge Loader...................Yano
Misc. Deck Components..............Kenseisha
AME Media..........................Sony
Two of Exabyte's biggest sole-source suppliers are Hitachi Corporation
("Hitachi"), supplying customized 8mm tape decks to the Company and Sony
Corporation ("Sony"), supplying spare parts for the tape decks they previously
supplied to the Company.
Hitachi currently supplies the tape deck components for Exabyte's Eliant(TM)820
8mm tape drives. The components incorporated into this product are customized
to the Company's specifications. The parties entered into an agreement on
December 11, 1996, for the supply of the Eliant(TM)820 tape deck component.
The agreement has a term of three years, subject to two automatic 12-month
extensions. While the purchase agreement contains 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.
The relationship with Sony as a supplier of 8mm tape decks began in 1987. Sony
supplied customized tape decks for Exabyte's 8205XL and 8505XL 8mm tape drives
through July 1998. The parties negotiated a contract amendment to terminate
the contract and end the supply of 8mm tape decks as of July 1998. The
amendment provides for the supply of spare parts related to the tape decks
supplied by Sony through July 31, 2003.
There can be no assurance that the supply of these decks or spare parts from
Hitachi or Sony 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
<PAGE> 13
termination of the production of the 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,
see "RISK FACTORS--Year 2000 Compliance", "RISK FACTORS--Supplier Dependence"
and "RISK FACTORS--Foreign Sourcing" below.
Exabyte also contracts with third parties to manufacture certain product
components. For a description of the risks associated with manufacturing,
see "RISK FACTORS--Third Party Contract Manufacturing" and "RISK FACTORS--
Patent Infringement and Proprietary Rights" 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, see "RISK FACTORS--Product Development"
below.
The Company's research and development expenses were approximately $29.9
million, $40.9 million and $38.4 million in 1998, 1997 and 1996, 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 March 4, 1999, Exabyte owned 57
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
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. See "RISK FACTORS--Patent Infringement
and Proprietary Rights" below.
<PAGE> 14
There are a number of risks associated with Exabyte's proprietary rights.
For a description of these risks, see "RISK FACTORS--Patent Infringement and
Proprietary Rights" and "RISK FACTORS--Third Party Contract Manufacturing"
below.
BACKLOG
- -------
Backlog consists of purchase orders for which a delivery schedule within six
months has been specified by the customer. Although the Company's backlog is
not reported by division, it is possible to estimate each division's backlog.
The Company's total backlog as of January 2, 1999 and January 3, 1998 totaled
approximately $19.8 million and $22.0 million, respectively. Backlog as of
January 2, 1999 was approximately $17.8 million for the Drives & Media
division, $1.7 million for the Storage Automation Solutions division and
$148,000 for the Worldwide Quality and Customer Services division. Exabyte'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. Exabyte 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 availa-
bility. For these reasons, the Company's backlog as of any particular date may
not be indicative of its actual sales for any succeeding fiscal period. For
a description of these and other risks associated with Exabyte's backlog
management, see "RISK FACTORS--Inventory Write-downs and Special Charges" and
"RISK FACTORS-Customer Dependence" 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, Singapore, Indonesia and Malaysia. 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.) See "RISK FACTORS-Market Risk" below.
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
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
components produced overseas into its products.
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 Consolidated Financial Statements.) As a result, any amounts payable
to a subsidiary or owed by a subsidiary are subject to the foreign exchange
rate applicable between the U.S. dollar and the local currency and could have
a material adverse effect on the Company's results of operations. In addition,
the Company's foreign operations are subject to the risks generally applicable
<PAGE> 15
to the conduct of business in such countries. For a description of these and
other risks associated with Exabyte's foreign involvement, see "RISK FACTORS--
Foreign Operations," "RISK FACTORS--Foreign Sourcing" and "RISK FACTORS--
Foreign Sales" below.
EMPLOYEES
- ---------
As of February 27, 1999, the Company had 1,212 full-time and part-time
employees worldwide. None of the Company's employees is represented by a
labor union although Exabyte's German subsidiary is subject to an organized
Works Council.
The Company reduced its workforce in October 1997 and again in January 1998,
partially as a result of its decision to close its Eagle(RTM) division. These
reductions resulted in the involuntary termination of approximately 200
employees.
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, see
"RISK FACTORS--Key Employees" below.
RISK FACTORS
- ------------
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.
The Company is currently developing Mammoth 2, a follow-on product to its
Mammoth drive. Any inability or delay of the Company to develop and
manufacture this product would have a material adverse impact on its sales,
as well as the sale of Mammoth tape drives and would have a material adverse
effect on the Company's results of operations.
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. Additionally,
the Company's inability to successfully introduce announced products would
have a material adverse effect on the Company's results of operations.
<PAGE> 16
Media Constraints
- -----------------
The Company has in the past experienced a shortage of the AME media used for
its Mammoth product. 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, AME media is sourced primarily 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 delay the introduction of future
Mammoth tape drive products, including Mammoth 2, which could have a material
adverse effect on the Company's competitive position and its results of
operations.
The Company's ability to obtain an adequate supply of AME media has been, and
may be further affected by any constraint in Sony's production of the media,
the diversion 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 has obtained a second source for the production of AME media, although
the media from this second source has not passed Exabyte's qualification
process. In addition, Exabyte is in the beginning stages of evaluating a third
source for the production of AME media. However, there can be no assurance
that any media from these suppliers will pass the Company's qualification
processes or that the supplier's production of the media will be in the volume
or of the quality required by Exabyte.
The Company has also engaged AME sources in an effort to procure the supply
of AME media for its Mammoth 2 product. This evaluation and qualification
process is in the early stages. There can be no assurance that any media from
these suppliers will pass the Company's qualification processes or that the
supplier's production of the media will be in the volume or of the quality
required by Exabyte. Any failure of the Company to obtain such media in
sufficient volume, at an acceptable quality level and at a competitive price,
could force the Company to delay or cancel shipments of Mammoth 2, including
associated libraries, which could have a material adverse effect on the
Company's competitive position and its results of operations.
Supplier Dependence
- -------------------
The Company relies on sole-source suppliers for certain critical components.
A reliance on sole-source suppliers involves several risks, including possible
shortages 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 Exabyte depends on Hitachi as the principal source for
its 8mm mechanical tape decks in Exabyte's 8mm tape drive products (excluding
the Mammoth product line), the Company may encounter delays in or termination
of the production of these 8mm tape drive products should supply problems arise
with Hitachi. While Exabyte has supply contracts with Hitachi, there can be
no assurance that the supply of tape decks will continue at required levels,
or that prices will remain at the current levels. Additionally, while there
<PAGE> 17
are other suppliers of 8mm decks, there can be no assurance 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 obtains its ASIC chips for its Mammoth line of tape drives from
several different sources. However, because of the substantial lead-time
necessary for Exabyte to qualify other suppliers, Exabyte's inability to
obtain an adequate supply of chips at a competitive price and high quality
from any of its ASIC chip suppliers could cause the Company to delay or cancel
shipments of its Mammoth products, which could have a material adverse effect
on the Company's competitive position and its results of operations.
The Company relies solely on Quantum, a competitor of the Company, to supply
the DLTtape(TM) tape drives for Exabyte's DLTtape(TM) libraries. The Company
may encounter delays in shipping or termination of the production of its
DLTtape(TM) libraries should supply problems arise with Quantum. While Exabyte
has a purchase agreement with Quantum, there can be no assurance that the
supply or price of the 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."
Exabyte's German subsidiary, EMG, develops, manufactures and supplies scanners
and recording heads, key components of Exabyte's Mammoth and Mammoth 2
products. These components require a high degree of manufacturing and
technical expertise. The Company 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, in particular
with its upcoming Mammoth 2 product, which could have a material adverse
effect on the Company's results of operations.
Exabyte's Mammoth and Mammoth 2 tape drives incorporate a deck assembly
mechanism manufactured by 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 this deck
assembly requires a complex manufacturing process that the Company had never
undertaken before.
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.
<PAGE> 18
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
resources than Exabyte. There can be no assurance that these competitors will
not devote their resources to the aggressive marketing of storage product
technologies. There can be no assurance that these technologies will
not be equivalent or superior to the Company's technology or 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 AME media for Exabyte) and in-
directly 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 DLT7000 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.
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. The Company is also in the process of addressing 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.
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> 19
Exabyte has in the past lost key employees to competitors, including start-up
companies in direct competition with Exabyte, and other companies and may
likely lose key employees in the future. Although Exabyte has incentive
programs in place that 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.
Year 2000 Compliance
- --------------------
The phenomenon, known generally as the Year 2000 problem, involves the
potential inability of information or other data-dependent systems to
properly distinguish year references as of the turn of the century.
The Company believes the Year 2000 problem represents a material risk
to the Company.
The Company itself is heavily dependent upon the proper functioning of its own
computer or data-dependent systems, including, but not limited to, its systems
in areas such as information, business, financial, operations, manufacturing
and service. 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 an internal 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 "Plan").
To date, the Company is executing according to its Plan. An inventory of all
critical systems has been completed. Systems upgrades, that are Year 2000
compliant, have been completed, or are planned during 1999 in response to
normal business needs. The Company anticipates completing the remaining
portions of the Plan during the first half of 1999, with testing of these
systems being completed during the fourth quarter of 1999. In addition, the
Company's subsidiaries are in the process of being incorporated into the
Company's Plan to become Year 2000 compliant. Exabyte anticipates that all
subsidiaries are or will be Year 2000 compliant by the first quarter of 1999.
There can be no assurance that the Company will be able to upgrade any or all
of its, or its subsidiaries', major systems in accordance with the Plan or,
once upgraded, that the systems will be Year 2000 compliant. Should the
Company fail to upgrade such systems in a timely manner, or should those
upgrades fail to be Year 2000 compliant, the Company may be unable to conduct
business or manufacture its products, which could cause a material adverse
effect on the Company's results of operations.
The Company's suppliers (particularly sole-source and long lead-time
suppliers) and key customers 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 them 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. Additionally, 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 also have a material adverse effect on the Company's results of
operations. The Company is currently addressing the Year 2000 readiness of
its suppliers and customers, as well as each of their respective suppliers,
<PAGE> 20
to address their Year 2000 readiness in a timely manner; however, there can
be no assurance that any such effort will be successful. Letters have been
sent to critical suppliers for information to assess their readiness. The
Company anticipates that this effort will continue throughout 1999.
Exabyte has incurred to date no incremental material costs associated with its
efforts to become Year 2000 compliant, as the majority of the costs have
occurred as a result of normal upgrade procedures. Furthermore, the Company
believes that future costs associated with its Year 2000 compliance effort will
not be material.
Currently, the Company is developing a contingency plan should the Company be
unsuccessful in its efforts to become Year 2000 compliant. The Company
anticipates that its contingency plan should be finalized by the third
quarter of 1999. The Company could incur significant material costs related
to its contingency plan. Such material costs are currently unknown but may
include costs associated with creating a buffer stock of the Company's products
or other such measures the Company feels is necessary to maintain operations
should the Company face adverse difficulties relating to the Year 2000 problem.
The Company believes that the tape drives and tape libraries manufactured or
produced by the Company do not use and have not used date data in order to
meet stated functional performance characteristics. The Company further
believes such products accurately process date data (including, but not
limited to, calculating, comparing and sequencing) from, into and between the
twentieth and twenty-first centuries, including leap year calculations,
provided such products operate in accordance with the Company's published
specifications, and further provided that all hardware, third-party software
and firmware used in combination with the Company's products properly exchange
date data with such products. However, there can be no assurance that the
Company's products will function in this manner. Any failure of the Company's
product to perform in accordance with specifications could result in the loss
of critical user data, resulting in claims against the Company for damages
arising from such data loss, which could have a material adverse effect on the
Company's results of operations.
In addition, Exabyte believes that many companies in the high technology
industry will face significant litigation in the future regarding problems
caused by Year 2000 noncompliance. Because Exabyte operates in the high
technology industry, the Company believes that it may be the subject of such
litigation, which could have a material adverse effect on the Company's
results of operations.
Customer Dependence
- -------------------
IBM, Sun Microsystems and Ingram accounted for 15%, 11%, and 13% respectively,
of Exabyte's sales in 1998, accounting for an aggregate of 39% of sales. None
of Exabyte's customers is required to purchase a minimum quantity of the
Company's products, and any customer may cancel or reschedule orders without
significant penalty. The loss of one or more of these key customers or
substantial cancellations by Exabyte's 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
<PAGE> 21
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.
Furthermore, many of the Company's customers and end-users of Exabyte products
are currently completing testing of their existing business products (including
the Company's products) for Year 2000 compliance. Because of the nature of the
Year 2000 problem, as well as the complexity and costs associated with such
testing procedures, it is possible that some of these customers and/or end-
users will not purchase additional products (including the Company's products)
following the completion of their Year 2000 testing until after the fourth
quarter of 1999. Should this occur, Exabyte may experience a substantial
shortfall in the sale of its products during the latter part of 1999, which
could have a material adverse effect 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. 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 Exabyte 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 Exabyte's
<PAGE> 22
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 the Mammoth line of
tape drives is produced by Exabyte 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 these tape drives will not infringe the
proprietary rights of third parties.
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.
Exabyte's operating results have in the past and may again in the future fall
short of analyst or investor expectations. Any such shortfall could have an
immediate and significant impact on the market price of the Company's common
stock. In addition, should any future business volatility result in a
protracted period of financial under-performance, generally accepted accounting
principles would require that some or all of the Company's deferred tax assets,
totally $36,945,000 at January 2, 1999, be written off. Any such action could
have a material adverse 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.
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's incurring a special charge or inventory
write-down, or establishing a reserve, any of which would have a material
adverse effect on its results of operations. The Company has incurred special
charges and/or inventory write-downs in the past 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.
Fluctuations In Quarterly Results
- ---------------------------------
The Company's quarterly results can fluctuate substantially from quarter to
quarter for various reasons. 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.
<PAGE> 23
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 third party 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, Singapore, Indonesia
or Malaysia, the Company's results of operations may be materially affected
by fluctuations in currency exchange rates or Europe's conversion to the euro.
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.
Additional contractual arrangements may be made, subjecting Exabyte to
additional foreign exchange rate risks. The Company's international involvement
is also subject to certain other risks common to foreign operations, including
government regulation, import restrictions or economic instability. 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 30% of sales in 1998,
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
<PAGE> 24
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. 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 applicable 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.
Market Risk
- -----------
In the ordinary course of its operations, the Company is exposed to certain
market risks, primarily changes in foreign currency exchange rates and interest
rates. Uncertainties that are either nonfinancial or nonquantifiable, such as
political, economic, tax, other regulatory or credit risks are not included in
the following assessment of the Company's market risks.
Foreign Currency Exchange Rates:
The Company has foreign subsidiaries whose operations expose the Company to
foreign currency exchange rate changes (See Note 1 of Notes to Consolidated
Financial Statements). Changes could impact translations of foreign
denominated assets and liabilities into U.S. dollars and future earnings
and cash flows from transactions denominated in different currencies. At
January 2, 1999, 6% of the Company's total assets were denominated in foreign
currencies. During 1998, 1% of sales and 13% of operating expenses were
denominated in foreign currencies. The Company's exposure to currency exchange
rate changes is diversified due to the number of different countries in which
it conducts business. The Company has subsidiaries in Germany, the
Netherlands, Japan, Singapore and Canada whose functional currencies are their
local currency. Foreign currency gains and losses will continue to result
from fluctuations in the exchange rates of these subsidiaries' operations
compared to the U.S. dollar thereby impacting future operating results.
The Company enters into foreign currency forward contracts in anticipation of
movements in the dollar/yen exchange rate to hedge the purchase of certain
inventory components from Japanese manufacturers (See Note 1 of Notes to
Consolidated Financial Statements). Contracts are established with a maturity
date within six months of the purchase date. To be considered a hedge,
contracts must be established for future purchases denominated in yen. In
circumstances where the timing of hedged purchases is deferred, the contract
maturity dates are extended to cover the deferred payment. At January 2, 1999,
there were no contracts outstanding.
The Company prepared sensitivity analyses of its exposures from foreign assets
and foreign exchange forward contracts as of January 2, 1999, and of exposure
from anticipated foreign revenue in 1999 to assess the impact of hypothetical
changes in foreign currency exchange rates. Based upon the results of these
analyses, a material adverse effect on the Company's results of operations,
cash flows or financial condition for the next year due to a 10% adverse change
in foreign currency exchange rates from the 1998 year end rates is unlikely.
<PAGE> 25
Interest Rates:
At January 2, 1999, investments, including cash equivalents, consist of held-
to-maturity debt securities with maturity dates of six months or less (see
Note 1 of Notes to Consolidated Financial Statements). Changes in interest
rates could impact the Company's anticipated interest income. The Company
prepared sensitivity analyses of its interest rate exposures to assess the
impact of hypothetical changes in interest rates. Based on the results of
these analyses, a 10% adverse change in interest rates from the 1998 year
end rates would not have a material adverse effect on the Company's results
of operations, cash flows or financial condition for the next year.
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
nominations;(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 12 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 diversion 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> 26
EXECUTIVE OFFICERS OF THE COMPANY
=================================
The executive officers of the Company and their ages as of April 1, 1999, are
as follows:
William L. Marriner 46 Chairman of the Board
President and Chief Executive Officer
Stephen F. Smith 49 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 December
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. Stephen F. Smith joined the Company in June 1989 as Exabyte's General
Counsel, and currently holds this position. Mr. Smith was appointed 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 Storage Technology Corporation 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> 27
Item 2.
PROPERTIES
The Company's corporate offices, including the offices of its divisions, as
well as the Company's research and development, and manufacturing facilities
are located in Boulder, Colorado, in leased buildings aggregating approximately
470,000 square feet. The lease terms on these facilities expire on various
dates ranging from October 1999 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
Falkirk, Scotland
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
Atlanta, GA Gwynedd, United Kingdom
Oakbrook, IL Frankfurt, Germany
Annapolis, MD Shanghai, China
Walpole, MA Beijing, China
St. Louis, MO Hong Kong, China
Houston, TX Singapore
Dallas, 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> 28
PART II
Item 5.
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock has been traded in the over-the-counter market and
has been quoted in the National Market System of the Nasdaq Stock Market
("Nasdaq")under the symbol EXBT since the Company's initial public offering on
October 19, 1989. For the calendar quarters indicated, the following table
shows 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>
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................................ $ 9-5/8 $ 6-7/16
Second Quarter............................... 12-3/4 6-3/4
Third Quarter................................ 8-3/8 5
Fourth Quarter............................... 9-1/16 4-1/2
1999
First Quarter (through February 22, 1999).... $ 6-5/8 $ 5
</TABLE>
On February 22, 1999, the Company had 622 holders of record of its common
stock. The reported closing price of the common stock was $5.31. 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 2,
1999, January 3, 1998, December 28, 1996, December 30, 1995 and December 31,
1994 and with respect to the consolidated balance sheets as of January 2, 1999,
January 3, 1998, December 28, 1996, December 30, 1995 and December 31, 1994 are
derived from audited consolidated financial statements. The consolidated
financial statements for the years ended January 2, 1999, January 3, 1998 and
December 28, 1996 are included elsewhere in this report on Form 10-K and the
selected financial data shown below are qualified by reference to such
financial statements.
<PAGE> 29
<TABLE>
<CAPTION>
(In thousands, except per share data) Fiscal Years Ended
Jan. 2, Jan. 3, Dec. 28, Dec. 30, Dec. 31,
Consolidated Statement of Operations Data: 1999 1998 1996 1995 1994
- ------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $286,505 $335,684 $362,891 $374,147 $381,844
Cost of goods sold........................... 207,604 288,053 265,002 311,891 257,365
-------- -------- -------- -------- --------
Gross profit................................. 78,901 47,631 97,889 62,256 124,479
Operating expenses:
Selling, general and administrative..... 56,978 59,211 47,929 49,896 42,560
Research and development................ 29,888 40,909 38,391 36,956 33,586
Purchased research and development(1)... -- -- -- -- 2,597
-------- -------- -------- -------- --------
Income (loss) from operations................ (7,965) (52,489) 11,569 (24,596) 45,736
Other income (expense), net.................. 1,816 (634) 1,114 1,568 2,069
-------- -------- -------- -------- --------
Income (loss) before income taxes(2)......... (6,149) (53,123) 12,683 (23,028) 47,805
(Provision) benefit for income taxes......... 3,382 22,312 (4,058) 10,593 (15,400)
-------- -------- -------- -------- --------
Net income (loss)............................ $ (2,767) $(30,811) $ 8,625 $(12,435) $ 32,405
======== ======== ======== ======== ========
Basic net income (loss) per share............ $ (0.12) $ (1.38) $ 0.39 $ (0.57) $ 1.52
======== ======== ======== ======== ========
Common shares used in the calculation of
basic net income (loss) per share(3).... 22,285 22,326 22,003 21,711 21,378
======== ======== ======== ======== ========
Diluted net income (loss) per share.......... $ (0.12) $ (1.38) $ 0.39 $ (0.57) $ 1.48
Common and potential common shares used ======== ======== ======== ======== ========
in the calculation of diluted net
income (loss) per share(3).............. 22,285 22,326 22,307 21,711 21,965
======== ======== ======== ======== ========
Consolidated Balance Sheet Data:
- --------------------------------
Working capital.............................. $121,529 $134,357 $150,713 $143,071 $164,624
Total assets................................. 207,836 221,346 256,126 250,336 242,765
Long-term obligations, excluding current
portion................................. 7,461 9,049 10,441 10,109 6,883
Stockholders' equity......................... 166,272 170,796 200,013 186,366 196,907
</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.
<PAGE> 30
Quarterly Results of Operations (Unaudited)
- -------------------------------------------
The following table sets forth unaudited operating results for each quarter of
fiscal 1998 and 1997. 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.
<TABLE>
<CAPTION>
(In thousands, except per share data) Quarters Ended
Jan. 2, Oct. 3, Jul. 4, Apr. 4,
1999 1998 1998 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales.............................. $63,196 $72,805 $69,754 $80,750
Cost of goods sold..................... 49,657 51,639 49,404 56,904
------- ------- ------- -------
Gross profit........................... 13,539 21,166 20,350 23,846
Selling, general and administrative.... 15,335 13,723 14,476 13,444
Research and development............... 8,801 7,880 6,076 7,131
------- ------- ------- -------
Income (loss) from operations.......... (10,597) (437) (202) 3,271
Other income (expense), net............ 633 949 430 (196)
------- ------- ------- -------
Income (loss) before income taxes...... (9,964) 512 228 3,075
(Provision) benefit for income taxes... 4,679 (174) (77) (1,046)
------- ------- ------- -------
Net income (loss)...................... $(5,285) $ 338 $ 151 $ 2,029
======= ======= ======= =======
Basic net income (loss) per share...... $ (0.24) $ 0.02 $ 0.01 $ 0.09
======= ======= ======= =======
Diluted net income (loss) per share.... $ (0.24) $ 0.02 $ 0.01 $ 0.09
======= ======= ======= =======
</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..................... 78.6 70.9 70.8 70.5
----- ----- ----- -----
Gross margin........................... 21.4 29.1 29.2 29.5
Selling, general and administrative.... 24.3 18.9 20.8 16.7
Research and development............... 13.9 10.8 8.7 8.8
----- ----- ----- -----
Income (loss) from operations.......... (16.8) (0.6) (0.3) 4.0
Other income (expense), net............ 1.0 1.3 0.6 (0.2)
----- ----- ----- -----
Income (loss) before income taxes...... (15.8) 0.7 0.3 3.8
(Provision) benefit for income taxes... 7.4 (0.2) (0.1) (1.3)
----- ----- ----- -----
Net income (loss)...................... (8.4)% 0.5% 0.2% 2.5%
===== ===== ===== =====
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
(In thousands, except per share data) 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 decisions to exit the desktop and low-end server
market including closure of its Eagle(RTM) division. See Note 10 of Notes to
Consolidated Financial Statements.
<PAGE> 32
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 2, 1999, January 3, 1998 and December 28, 1996 as a
percentage of net sales.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Years
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................... 72.5 85.8 73.0
----- ----- -----
Gross margin................................ 27.5 14.2 27.0
Operating expenses:
Selling, general and administrative....... 19.9 17.6 13.2
Research and development.................. 10.4 12.2 10.6
----- ----- -----
Income (loss) from operations............... (2.8) (15.6) 3.2
Other income (expense), net................. 0.6 (0.2) 0.3
----- ----- -----
Income (loss) before income taxes........... (2.2) (15.8) 3.5
(Provision) benefit for income taxes........ 1.2 6.6 (1.1)
----- ----- -----
Net income (loss)........................... (1.0)% (9.2)% 2.4%
===== ===== =====
</TABLE>
PRODUCT MIX TABLE
<TABLE>
<CAPTION>
Fiscal Years
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
8mm drives:
8205, 8505, 8700, Eliant(TM)820,
and Mammoth............................... 53.2% 59.1% 65.3%
Libraries:
EZ17(TM), 10h, 210, 220, 440, 480, 17D,
18D, 230D, 690D and mirroring solutions.. 19.6 18.2 14.4
Media....................................... 23.4 14.6 11.9
Service, spares and other................... 6.7 6.6 5.8
Other end-of-life drives and libraries...... 1.1 6.6 6.3
Sales allowances............................ (4.0) (5.1) (3.7)
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
<PAGE> 33
CUSTOMER MIX TABLE
<TABLE>
<CAPTION>
Fiscal Years
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
OEM......................................... 46.3% 48.7% 50.6%
Reseller.................................... 49.5 46.1 45.3
End-user and other.......................... 4.2 5.2 4.1
----- ----- -----
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 1998 COMPARED TO 1997
- ---------------------------------
The Company's net sales of $286.5 million during 1998 represent a decrease of
14.7% from net sales of $335.7 million during 1997. In general, this decrease
is the result of decreased sales of 8205/8505 drives and Eagle (RTM) products.
Sales of 8205/8505 drives decreased to $22.9 million in 1998 from $111.5
million in 1997. Sales of Eagle(RTM) products, which were discontinued in
1998, decreased to $2.1 million in 1998 from $19.6 million in 1997.
Additionally, sales of current library products decreased to $56.1 million in
1998 compared to $61.0 million in 1997. These decreases were partially offset
by increased sales of newer 8mm products and media. Sales of newer 8mm
products increased to $129.5 million in 1998 from $87.0 million in 1997.
Sales of media increased to $67.1 million in 1998 compared to $49.1 million in
1997.
The relative customer mix during 1998 shifted slightly to resellers from
original equipment manufacturers ("OEMs") and end-users/others.
Domestic sales represented 70.5% of net sales during 1998 compared to 68.3% in
1997. International sales represented 29.5% of net sales in 1998 compared to
31.7% in 1997.
The Company's gross margin percentage for 1998 increased to 27.5% compared to
14.2% for 1997. Gross margin in 1997 excluding restructuring charges was 22.8%
(see Note 10 of Notes to Consolidated Financial Statements). Gross margins
were favorably impacted in 1998 by lower manufacturing expenses resulting from
headcount and cost reduction efforts during the latter part of 1997.
Additionally, product margins improved due to decreased sales of lower-margin
Eagle(RTM) products. Margins were also favorably impacted by a stronger
dollar/yen relationship in 1998 than in 1997.
<PAGE> 34
Selling, general and administrative expenses decreased to $57.0 million in 1998
from $59.2 million in 1997. Excluding restructuring charges, 1997 expenses
were $57.7 million (see Note 10 of Notes to Consolidated Financial Statements).
These expenses represent 19.9% of revenue in 1998 compared to 17.6% of revenue
in 1997 and 17.2% of revenue in 1997 without restructuring charges. The
absolute dollar decrease is the result of headcount and cost reduction efforts
during the latter part of 1997 which are offset by increased advertising
expenditures during 1998. The increased 1998 advertising resulted from a
reintroduction of the Mammoth product as well as the introduction of several
new library products.
Research and development expenditures decreased to $29.9 million and 10.4% of
revenue for 1998 from $40.9 million and 12.2% of revenue in 1997. Excluding
restructuring charges (see Note 10 of Notes to Consolidated Financial
Statements) these expenses in 1997 were $37.4 million and 11.1% of revenue.
The decrease in both absolute dollars and as a percentage of revenue is mainly
due to the decision to exit the desktop and low-end server market including
closure of the Eagle(RTM) division late in 1997.
Other income, net, consists primarily of interest income and expense, state
franchise taxes, foreign currency gains and losses, the translation impact of
the Company's foreign subsidiaries' balance sheets and other miscellaneous
items. Other income in 1998 was $1.8 million compared to expense of $634,000
in 1997. The change relates mainly to foreign translation gains and losses.
The income tax benefit for 1998 was 55.0% compared to a benefit of
42.0% in the prior year. See Note 6 of Notes to Consolidated Financial
Statements for a description of the factors which resulted in the effective
tax rates being different from the statutory tax rate of 35%. **The Company
currently expects the 1999 effective tax rate to approximate 34%. Management
has evaluated the available evidence about future taxable income. Based on the
weight of available evidence, both positive and negative, management considers
it to be more likely than not that the deferred tax assets of $36.9 million at
January 2, 1999 will be fully realized.**
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 8205 and 8505.
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 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
<PAGE> 35
products, (2) lower than expected manufacturing volumes, (3) increasing levels
of Eagle(RTM) product 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.
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.
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%.
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 including 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> 36
The following table summarizes the activity in the Company's restructuring
reserves during 1998 and 1997:
<TABLE>
<CAPTION> Workforce Inventory Asset
Reduction Write-downs Write-downs Total
(In thousands) --------- ----------- ----------- -------
<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
Cash payments................... (1,391) (5,531) (282) (7,204)
Additional charges/
reclassifications........... (56) (1,883) (628) (2,567)
------ ------ ------ -------
Balance, January 2, 1999........ $ -- $ 374 $ 90 $ 464
====== ====== ====== =======
</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 cash payments took place in 1998. Other cash
payments in 1998 related to the settlement of Eagle(RTM) division purchase
commitments and shutdown costs as well as settlement of accrued liabilities
related to a discontinued project.
During 1998, the Company concluded negotiations with several of its former
Eagle(RTM) division suppliers. As a result of these successful negotiations,
previously recorded accrued liabilities of $1,875,000 were no longer required
and were reversed to income.
Also during 1998, the Company successfully sublet certain Eagle(RTM) facilities
at terms more favorable than initially estimated. As a result, accrued
liabilities of $628,000 were no longer required and were reversed to income.
**The Company currently expects to complete all restructuring acts during 1999
except for certain lease commitments.**
YEAR 2000 COMPLIANCE
- --------------------
The phenomenon, known generally as the Year 2000 problem, involves the
potential inability of information or other data-dependent systems to properly
distinguish year references as of the turn of the century. **The Company
believes the Year 2000 problem represents a material risk to the Company.**
The Company itself is heavily dependent upon the proper functioning of its own
computer or data-dependent systems, including, but not limited to, its systems
in areas such as information, business, financial, operations, manufacturing
and service. 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.
<PAGE> 37
In mid-1997, Exabyte formed an internal 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 "Plan").
To date, the Company is executing according to its Plan. An inventory of all
critical systems has been completed. Systems upgrades, that are Year 2000
compliant, have been completed, or are planned during 1999 in response to
normal business needs. **The Company anticipates completing the remaining
portions of the Plan during the first half of 1999, with testing of these
systems being completed during the fourth quarter of 1999.** In addition, the
Company's subsidiaries are in the process of being incorporated into the
Company's Plan to become Year 2000 compliant. **Exabyte anticipates that all
subsidiaries are or will be Year 2000 compliant by the first quarter of 1999.**
There can be no assurance that the Company will be able to upgrade any or all
of its, or its subsidiaries', major systems in accordance with the Plan or,
once upgraded, that the systems will be Year 2000 compliant. Should the
Company fail to upgrade such systems in a timely manner, or should those
upgrades fail to be Year 2000 compliant, the Company may be unable to conduct
business or manufacture its products, which could cause a material adverse
effect on the Company's results of operations.
The Company's suppliers (particularly sole-source and long lead-time
suppliers) and key customers 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 them 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. Additionally, 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 also have a material adverse effect on the Company's results of
operations. The Company is currently addressing the Year 2000 readiness of
its suppliers and customers, as well as each of their respective suppliers,
to address their Year 2000 readiness in a timely manner; however, there can
be no assurance that any such effort will be successful. Letters have been
sent to critical suppliers for information to assess their readiness. **The
Company anticipates that this effort will continue throughout 1999.**
Exabyte has incurred to date no incremental material costs associated with its
efforts to become Year 2000 compliant, as the majority of the costs have
occurred as a result of normal upgrade procedures. **Furthermore, the Company
believes that future costs associated with its Year 2000 compliance effort will
not be material.**
Currently, the Company is developing a contingency plan should the Company be
unsuccessful in its efforts to become Year 2000 compliant. **The Company
anticipates that its contingency plan should be finalized by the third
quarter of 1999.** The Company could incur significant material costs related
to its contingency plan. Such material costs are currently unknown but may
include costs associated with creating a buffer stock of the Company's products
or other such measures the Company feels is necessary to maintain operations
should the Company face adverse difficulties relating to the Year 2000 problem.
**The Company believes that the tape drives and tape libraries manufactured or
produced by the Company do not use and have not used date data in order to
meet stated functional performance characteristics. The Company further
believes such products accurately process date data (including, but not
limited to, calculating, comparing and sequencing) from, into and between the
twentieth and twenty-first centuries, including leap year calculations,
<PAGE> 38
provided such products operate in accordance with the Company's published
specifications, and further provided that all hardware, third-party software
and firmware used in combination with the Company's products properly exchange
date data with such products.** However, there can be no assurance that the
Company's products will function in this manner. Any failure of the Company's
product to perform in accordance with specifications could result in the loss
of critical user data, resulting in claims against the Company for damages
arising from such data loss, which could have a material adverse effect on the
Company's results of operations.
**In addition, Exabyte believes that many companies in the high technology
industry will face significant litigation in the future regarding problems
caused by Year 2000 noncompliance. Because Exabyte operates in the high
technology industry, the Company believes that it may be the subject of such
litigation, which could have a material adverse effect on the Company's
results of operations.**
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 supercedes SFAS 14, "Financial Reporting
for Segments of a Business Enterprise", replacing the "industry segment"
approach with the "management" approach. The management approach designates
the internal organization that is used by management for making operating
decisions and assessing performance as the source of the Company's reportable
segments. SFAS 131 also requires disclosure about products and services,
geographic areas and major customers. The adoption of SFAS 131 did not affect
results of operations or financial position but did affect the disclosure of
segment information (see Note 9 of Notes to Consolidated Financial Statements).
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 prescribes accounting for
changes in the fair value of derivatives. This statement is effective for
all fiscal quarters of all fiscal years beginning after June 15, 1999. **The
Company is in the process of assessing the effects of application of this
statement, and believes it will not have a material impact on the Company's
consolidated results of operations. Application may result in the recognition
of components of comprehensive income which are discussed in Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income".**
MARKET RISK
- -----------
In the ordinary course of its operations, the Company is exposed to certain
market risks, primarily changes in foreign currency exchange rates and interest
rates. Uncertainties that are either nonfinancial or nonquantifiable, such as
political, economic, tax, other regulatory or credit risks are not included in
the following assessment of the Company's market risks.
Foreign Currency Exchange Rates:
The Company has foreign subsidiaries whose operations expose the Company to
foreign currency exchange rate changes (See Note 1 of Notes to Consolidated
Financial Statements). **Changes could impact translations of foreign
denominated assets and liabilities into U.S. dollars and future earnings and
cash flows from transactions denominated in different currencies.** At
<PAGE> 39
January 2, 1999, 6% of the Company's total assets were denominated in foreign
currencies. During 1998, 1% of sales and 13% of operating expenses were
denominated in foreign currencies. The Company's exposure to currency exchange
rate changes is diversified due to the number of different countries in which
it conducts business. The Company has subsidiaries in Germany, the
Netherlands, Japan, Singapore and Canada whose functional currencies are their
local currency. **Foreign currency gains and losses will continue to result
from fluctuations in the exchange rates of these subsidiaries' operations
compared to the U.S. dollar thereby impacting future operating results.**
The Company enters into foreign currency forward contracts in anticipation of
movements in the dollar/yen exchange rate to hedge the purchase of certain
inventory components from Japanese manufacturers (See Note 1 of Notes to
Consolidated Financial Statements). Contracts are established with a maturity
date within six months of the purchase date. To be considered a hedge,
contracts must be established for future purchases denominated in yen. In
circumstances where the timing of hedged purchases is deferred, the contract
maturity dates are extended to cover the deferred payment. At January 2, 1999,
there were no contracts outstanding.
The Company prepared sensitivity analyses of its exposures from foreign assets
and foreign exchange forward contracts as of January 2, 1999, and of exposure
from anticipated foreign revenue in 1999 to assess the impact of hypothetical
changes in foreign currency exchange rates. **Based upon the results of these
analyses, a material adverse effect on the Company's results of operations,
cash flows or financial condition for the next year due to a 10% adverse change
in foreign currency exchange rates from the 1998 year end rates is unlikely.**
Interest Rates:
At January 2, 1999, investments, including cash equivalents, consist of
held-to-maturity debt securities with maturity dates of six months or less
(see Note 1 of Notes to Consolidated Financial Statements). **Changes in
interest rates could impact the Company's anticipated interest income.
The Company prepared sensitivity analyses of its interest rate exposures to
assess the impact of hypothetical changes in interest rates. **Based on the
results of these analyses, a 10% adverse change in interest rates from the 1998
year end rates would not have a material adverse effect on the Company's
results of operations, cash flows or financial condition for the next year.**
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During 1998, the Company generated $34.5 million of cash from operating
activities, received $948,000 from the issuance of common stock to
Company employees, expended $2.7 million to repurchase outstanding shares of
common stock, expended $9.4 million for capital equipment and paid $1.1
million on long-term liabilities. Together, these activities resulted in an
increase in the combined balance of cash and short-term investments of $22.2
million to a year-ending balance of $70.7 million. The Company's working
capital decreased to $121.5 million on January 2, 1999 from $134.4 million on
January 3, 1998.
The Company has a $7.5 million unsecured line of credit which expires May 15,
1999, with borrowings under the line limited to 80% of eligible accounts
receivable plus 25% of eligible inventory (limited to $3,000,000). 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
<PAGE> 40
the Company's adherence to a set of financial covenants. Additionally,
payment of dividends is prohibited without prior bank approval. **The
Company anticipates that it will renew this line at comparable terms upon
its expiration.** On January 2, 1999, the amount available under the line
was $7.5 million and no borrowings were outstanding. 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 1,200,000 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
$14.9 million during 1999. 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 1999.**
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information concerning the Company's market risk is incorporated by reference
from Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operation," under the caption, "Market Risk."
<PAGE> 41
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Accountants................................... 42
Consolidated Balance Sheets -
January 2, 1999 and January 3, 1998................................. 43
Consolidated Statements of Operations - for the years ended
January 2, 1999, January 3, 1998 and December 28, 1996.............. 44
Consolidated Statements of Changes in Stockholders' Equity -
for the years ended January 2, 1999, January 3, 1998,
December 28, 1996 .................................................. 45
Consolidated Statements of Cash Flows -
for the years ended January 2, 1999, January 3, 1998 and
December 28, 1996................................................... 46-47
Notes to Consolidated Financial Statements.......................... 48-63
<PAGE> 42
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 2, 1999 and January 3,
1998, and the results of their operations and their cash flows for each of the
three years in the period ended January 2, 1999, 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/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Denver, Colorado
January 20, 1999
<PAGE> 43
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 56,571 $ 47,014
Short-term investments............. 14,145 1,470
Accounts receivable, net........... 38,014 41,577
Inventories, net................... 26,997 44,551
Income tax receivable.............. 2,563 15,873
Deferred income taxes.............. 14,213 20,678
Other current assets............... 3,129 4,695
-------- --------
Total current assets................. 155,632 175,858
-------- --------
Property and equipment, net.......... 28,396 35,152
Deferred income taxes................ 22,732 8,900
Other assets......................... 1,076 1,436
-------- --------
Total long-term assets............... 52,204 45,488
-------- --------
$207,836 $221,346
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................... $ 16,032 $ 13,992
Accrued liabilities................ 14,002 25,946
Accrued income taxes............... 2,370 1,044
Current portion of long-term
obligations ..................... 1,699 519
------- --------
Total current liabilities............ 34,103 41,501
Long-term obligations................ 7,461 9,049
Commitments and contingencies
(Notes 7 and 11).................
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; 22,647
and 22,466 shares issued......... 23 22
Capital in excess of par value..... 66,693 65,718
Treasury stock, at cost, 455 and
15 shares........................ (2,742) (9)
Retained earnings.................. 102,298 105,065
-------- --------
Total stockholders' equity........... 166,272 170,796
-------- --------
$207,836 $221,346
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 44
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Years Ended
January 2, January 3, December 28,
1999 1998 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales............................ $286,505 $335,684 $362,891
Cost of goods sold................... 207,604 288,053 265,002
-------- -------- --------
Gross profit......................... 78,901 47,631 97,889
Operating expenses:
Selling, general and administrative.. 56,978 59,211 47,929
Research and development............. 29,888 40,909 38,391
-------- ------- --------
Income (loss) from operations........ (7,965) (52,489) 11,569
Other income (expense), net.......... 1,816 (634) 1,114
-------- -------- --------
Income (loss) before income taxes.... (6,149) (53,123) 12,683
(Provision) benefit for income taxes. 3,382 22,312 (4,058)
-------- -------- --------
Net income (loss).................... $ (2,767) $(30,811) $ 8,625
======== ======== ========
Basic net income (loss) per share.... $ (0.12) $ (1.38) $ 0.39
======== ======== ========
Common shares used in the
calculation of basic net income
(loss) per share............... 22,285 22,326 22,003
======== ======== ========
Diluted net income (loss) per share.. $ (0.12) $ (1.38) $ 0.39
======== ======== ========
Common and potential common shares
used in the calculation of
diluted net income (loss) per
share........................... 22,285 22,326 22,307
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 45
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except per share data)
<TABLE>
<CAPTION>
Capital
Common Stock Treasury Stock in Excess Retained
Shares Amount Shares Amount of Par Value Earnings
------ ------ ------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
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 $10.89 per share)......... 139 1,075
Tax effect of disqualifying
dispositions of common stock......... 164
Stock compensation expense............. 119
Net loss for the year.................. (30,811)
------ -- --- ---- ------ -------
Balance, January 3, 1998 ............. 22,466 22 (15) (9) 65,718 105,065
Common stock options exercised ($.50 19 94
to $9.00 per share)..................
Common stock issued pursuant to the
Employee Stock Purchase Plan
($4.68 and $5.95 per share).......... 162 1 853
Tax effect of disqualifying
dispositions of common stock......... 28
Purchases of treasury stock............ (440) (2,733)
Net loss for the year.................. (2,767)
------ --- --- ------- ------- --------
Balance, January 2, 1999............... 22,647 $ 23 (455) $(2,742) $66,693 $102,298
====== === === ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 46
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------
January 2, January 3, December 28,
1999 1998 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers............ $291,422 $350,833 $363,804
Cash paid to suppliers and employees.... (269,301) (359,975) (354,209)
Interest received....................... 2,314 2,216 2,759
Interest paid........................... (607) (637) (529)
Income taxes paid....................... (1,093) (1,732) (2,476)
Income tax refund received.............. 11,771 3,020 4,160
Net cash provided (used) by -------- -------- --------
operating activities............. 34,506 (6,275) 13,509
-------- -------- --------
Cash flows from investing activities:
(Purchase) sale of short-term
investments, net...................... (12,675) 19,130 8,200
Capital expenditures.................... (9,414) (11,810) (19,276)
Cash provided (used) by investing -------- -------- --------
activities............................ (22,089) 7,320 (11,076)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of
common stock ......................... 948 1,311 4,444
Purchase of treasury stock.............. (2,733) -- --
Principal payments on long-term
obligations........................... (1,075) (1,565) (791)
Net cash provided (used) by -------- -------- --------
financing activities............. (2,860) (254) 3,653
-------- -------- --------
Net increase in cash and cash
equivalents............................. 9,557 791 6,086
Cash and cash equivalents at beginning
of year................................. 47,014 46,223 40,137
-------- -------- --------
Cash and cash equivalents at end
of year................................. $ 56,571 $ 47,014 $ 46,223
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 47
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------
January 2, January 3, December 28,
1999 1998 1996
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net income (loss) to net
cash provided (used) by operating activities:
Net income (loss)............................ $(2,767) $(30,811) $ 8,625
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation, amortization
and other............................. 16,619 19,742 17,059
Write-down of assets.................... 1,961 6,054 --
Deferred income tax provision
(benefit)............................. (7,367) (5,351) 1,071
Provision for losses and reserves
on accounts receivable................ 8,521 14,486 11,159
Provision for inventory write-downs..... -- 15,236 --
Stock compensation expense.............. -- 119 --
Change in assets and liabilities:
Accounts receivable..................... (4,958) 351 (10,788)
Inventories, net........................ 17,554 (4,022) (11,596)
Income tax receivable................... 13,310 (15,873) --
Other current assets.................... 1,566 (1,484) 6,235
Other assets............................ (43) (171) (1,770)
Accounts payable........................ 2,040 (4,923) (2,924)
Accrued liabilities..................... (11,944) 1,028 (2,100)
Accrued income taxes.................... 1,353 201 (2,517)
Other long-term obligations............. (1,339) (857) 1,055
------- --------- -------
Net cash provided (used) by
operating activities.................. $34,506 $ (6,275) $13,509
======= ========= =======
Supplemental schedule of non-cash
investing and financing activities:
Note payable issued to purchase machinery
and equipment or software licenses......... $ 1,102 $ 626 $ --
Income tax benefit of disqualifying
dispositions of common stock............... 28 164 578
Capital lease obligations.................... 904 137 --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 48
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. Exabyte designs, manufactures and markets a
full range of 8mm tape drives as well as 8mm and DLTtape(TM) robotic tape
libraries. Exabyte also provides its own brand of recording media, software
utilities and worldwide service and customer support. 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. There were 52 weeks in 1998 and
1996. There were 53 weeks in 1997.
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. At January 2, 1999 there
were no contracts outstanding. The Company had outstanding contracts totaling
$16,663,000 at January 3, 1998. Contracts are established with a maturity date
within six months of the purchase date. Hedged inventory transactions are
included in the Statement of Cash Flows as operating activities. At January 3,
1998 the Company had unrealized losses on forward contracts of approximately
$1,185,000 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> 49
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, 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. At January 2, 1999 and January 3, 1998, one
customer accounted for approximately 17% and 21%, respectively, of accounts
receivable. At January 2, 1999, two other customers accounted for
approximately 16% each of accounts receivable. No other customers accounted
for 10% or more of accounts receivable at year end for the two years presented.
Accounts receivable are summarized as follows:
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
----------- -----------
(In thousands)
<S> <C> <C>
Accounts receivable.......................... $45,844 $49,323
Less: reserves and allowance for
non-collection............................. (7,830) (7,746)
------- -------
$38,014 $41,577
======= =======
</TABLE>
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 $45,136,000 and $35,246,000 at January 2, 1999 and January 3, 1998,
respectively.
The Company invests in held-to-maturity debt securities which are recorded at
amortized cost. At January 2, 1999 these investments had maturity dates of six
months or less. There were no unrealized gains or losses on such investments
for the three years then ended.
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, net of $8,426,000 and $18,868,000 in total reserves for
1998 and 1997, respectively, consist of the following:
<PAGE> 50
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
---------- ---------
(In thousands)
<S> <C> <C>
Raw materials and component parts............ $16,851 $29,266
Work-in-process.............................. 1,931 2,447
Finished goods............................... 8,215 12,838
------- -------
$26,997 $44,551
======= =======
</TABLE>
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.
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 $37,000 and $440,000 at
January 2, 1999 and January 3, 1998, 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 1998 or prior to 1997. During 1998, certain capitalized software
development efforts were determined to be impaired, and $403,000 in costs
were written off. In conjunction with the Company's restructuring in 1997,
certain capitalized software development efforts were canceled and costs
capitalized through that date were written off (See Note 10). All other
research and development costs are expensed as incurred.
Net Income (Loss) Per Share
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
<PAGE> 51
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)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Basic EPS computation:
Net income (loss)............ $(2,767) $(30,811) $8,625
======= ======== ======
Common shares outstanding.... 22,285 22,326 22,003
======= ======== ======
Basic EPS.................... $ (0.12) $ (1.38) $ 0.39
======= ======== ======
Diluted EPS computation:
Net income (loss)............ $(2,767) $(30,811) $8,625
======= ======== ======
Shares:
Common shares outstanding.. 22,285 22,326 22,003
Dilutive stock options..... -- -- 304
------- -------- ------
22,285 22,326 22,307
======= ======== ======
Diluted EPS.................. $ (0.12) $ (1.38) $ 0.39
======= ======== ======
</TABLE>
Options to purchase 2,742,000, 3,204,000 and 2,317,000 shares of common stock
were excluded from dilutive stock option calculations for 1998, 1997 and 1996,
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 1998 and 1997, options to purchase 1,102,000 and 494,000
shares of common stock, respectively, were excluded from the diluted
computation above because of their antidilutive effect on net loss per share.
Inclusion of these shares would have resulted in additional dilutive stock
options outstanding of 117,000 and 97,000, respectively.
Since January 2, 1999, the Company has issued 1,149,000 stock options which
could have a dilutive effect on diluted net income per common share.
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.
<PAGE> 52
New Accounting Pronouncements
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 supercedes SFAS 14, "Financial Reporting
for Segments of a Business Enterprise," replacing the "industry segment"
approach with the "management" approach. The management approach designates
the internal organization that is used by management for making operating
decisions and assessing performance as the source of the Company's reportable
segments. SFAS 131 also requires disclosure about products and services,
geographic areas and major customers. The adoption of SFAS 131 did not affect
results of operations or financial position but did affect the disclosure of
segment information (see Note 9).
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 prescribes
accounting for changes in the fair value of derivatives. This statement
is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999. The Company is in the process of assessing the effects of
application of this statement, and believes it will not have a material impact
on the Company's consolidated results of operations. Application may result
in the recognition of components of comprehensive income which are discussed
in Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income".
Reclassifications
Certain reclassifications have been made to historical information to
correspond to the 1998 financial statement presentation.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
----------- -----------
(In thousands)
<S> <C> <C>
Equipment and furniture...................... $96,692 $90,711
Assets under capital leases.................. 6,124 5,222
Leasehold improvements....................... 16,507 17,586
Less: accumulated depreciation and
amortization............................... (90,927) (78,367)
------- -------
$28,396 $35,152
======= =======
</TABLE>
Depreciation expense was $16,619,000, $19,503,000 and $17,058,000 in 1998, 1997
and 1996, 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).
<PAGE> 53
NOTE 3--ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
Wages and employee benefits.................. $ 6,047 $ 7,943
Warranty and related costs, current portion.. 4,650 5,370
Purchase commitments......................... -- 4,528
Other........................................ 3,305 8,105
------- -------
$14,002 $25,946
======= =======
</TABLE>
NOTE 4--DEBT
Line of Credit
As of January 2, 1999, the Company maintained a $7,500,000 unsecured line of
credit. No borrowings were outstanding under the line as of that date. Under
the terms of the agreement, the Company may borrow the lesser of $7,500,000 or
80% of eligible accounts receivable plus 25% of eligible inventories (limited
to $3,000,000). Borrowings made under the agreement bear interest at the lower
of the bank's prime rate or LIBOR + 2%. The Company's bank line of credit
prohibits the payment of dividends without prior bank approval. The line of
credit agreement also includes certain financial and other covenants. The
agreement is currently scheduled to expire in May 1999.
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 1,200,000 and decreases by DM 100,000 in
August of each year until it is fully depleted.
Long-Term Obligations
In 1998, the Company entered into a note payable for $1,102,000 to finance
the purchase of certain equipment. The note payable requires monthly
installments of interest (7.7%) and principal through January 2001. 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 2, 1999:
<PAGE> 54
<TABLE>
<CAPTION>
Capital Lease
Note Payable Obligations Total
------------ ------------- -----
(In thousands)
<S> <C> <C> <C>
1999............................ $411 $1,014 $1,425
2000............................ 410 1,040 1,450
2001............................ 34 805 839
2002............................ -- 661 661
2003............................ -- 657 657
Thereafter...................... -- 329 329
---- ------ ------
855 4,506 5,361
Less: amount representing interest... (68) (920) (988)
---- ------ ------
Present value of payments............ 787 3,586 4,373
Less: current portion................ (362) (709) (1,071)
---- ------ ------
$425 $2,877 $3,302
==== ====== ======
</TABLE>
Also included as current and long-term obligations in the accompanying balance
sheet for 1998 and 1997 are $4,787,000 and $6,126,000, respectively, which
represent long-term warranty obligations and deferred revenue on extended
warranty contracts. Interest expense aggregated $607,000, $637,000 and
$530,000 in 1998, 1997 and 1996, respectively.
NOTE 5--CAPITAL STOCK AND STOCK COMPENSATION PLANS
At January 2, 1999, 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 options
granted at fair market value under 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) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss):
As reported...................... $(2,767) $(30,811) $8,625
Pro forma........................ $(5,929) $(34,953) $4,798
Basic net income (loss) per share:
As reported...................... $ (0.12) $(1.38) $ 0.39
Pro forma........................ $ (0.27) $(1.57) $ 0.22
Diluted net income (loss) per share:
As reported...................... $ (0.12) $(1.38) $ 0.39
Pro forma........................ $ (0.27) $(1.57) $ 0.22
</TABLE>
<PAGE> 55
Fixed Stock Option Plans
Under the Incentive Stock 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 two 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, or
they are canceled. Under the 1997 Non-Officer Stock Option Plan, vesting for
certain of these options may accelerate upon the optionee achieving 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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Estimated dividends................... none none none
Expected volatility................... 57% 55% 57%
Risk-free interest rate............... 4.4%-5.9% 5.6%-6.9% 5.0%-6.3%
Expected life from vest date (years).. 0.29 0.29 0.41
</TABLE>
A summary of the status of the Company's fixed stock option plans as of
January 2, 1999, January 3, 1998 and December 28, 1996, and changes during the
years then ended is presented as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- -----------------------
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.................. 3,698 $15.98 3,618 $16.71 3,148 $16.97
Granted..................... 1,326 7.09 1,190 12.51 1,044 15.49
Exercised................... (19) 5.07 (143) 1.65 (257) 13.02
Forfeited................... (1,161) 14.82 (967) 16.58 (317) 18.19
----- ------ ----- ------ ----- ------
Outstanding at end of year.. 3,844 $13.32 3,698 $15.98 3,618 $16.71
===== ====== ===== ====== ===== ======
Options exercisable
at year-end............... 2,215 $15.97 2,103 $17.63 1,940 $17.60
Weighted-average fair value
of options granted during
the year.................. $ 2.86 $ 4.91 $ 6.50
</TABLE>
<PAGE> 56
The following table summarizes information about fixed stock options
outstanding at January 2, 1999:
<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>
$ 1.00- 6.81 953 9.1 years $ 6.74 183 $ 6.72
6.88-12.38 838 7.7 years 10.40 355 10.47
12.63-15.88 1,083 6.5 years 14.22 786 14.17
16.13-35.63 970 4.4 years 21.32 891 21.64
----- --------- ------ ----- ------
3,844 6.9 years $13.32 2,215 $15.97
===== ========= ====== ===== ======
</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 162,000, 139,000
and 100,000 shares in 1998, 1997 and 1996, 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> 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Estimated dividends.................. none none none
Expected volatility.................. 57% 55% 57%
Risk-free interest rate.............. 4.7-5.4% 5.3%-5.6% 5.0%-5.5%
Expected life (years)................ 0.5 0.5 0.5
Weighted-average fair value of
purchase rights granted............ $2.34 $4.14 $4.01
</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> 57
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:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Domestic.......... $(5,374) $(50,899) $ 14,666
Foreign........... (775) (2,224) (1,983)
-------- -------- --------
$(6,149) $(53,123) $ 12,683
======== ======== ========
</TABLE>
<PAGE> 58
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Current:
Federal......... $ 2,443 $(15,607) $1,739
State........... 1,428 (1,535) 176
Foreign......... 114 182 1,072
Deferred:
Federal......... (6,180) (4,988) 2,927
State........... (1,187) (364) 319
Foreign......... -- -- (2,175)
------- -------- ------
$(3,382) $(22,312) $4,058
======= ======== ======
</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>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
U.S. federal income tax
at statutory rate.......... $(2,152) $(18,593) $4,438
State income taxes, net
of federal benefit......... (63) (1,362) 436
Research and development
credits.................... (1,500) (1,500) (304)
Tax exempt interest.......... (397) (465) (666)
Foreign sales corporation.... (88) -- (105)
Prior year filing effects.... 364 (1,210) --
Foreign taxes in excess
of 35%..................... 376 904 381
Other........................ 78 (86) (122)
------- -------- ------
$(3,382) $(22,312) $4,058
======= ======== ======
</TABLE>
<PAGE> 59
Deferred tax assets are attributable to the following:
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
----------- -----------
(In thousands)
<S> <C> <C>
Warranty reserves........................... $ 2,507 $ 5,358
Property and equipment...................... 4,939 2,895
Net operating loss carryforwards:
Domestic................................. 13,925 2,109
Foreign.................................. 2,175 2,175
Credit carryforwards........................ 5,152 2,096
Bad debt and revenue reserves............... 2,634 2,667
Goodwill.................................... 1,017 1,131
Inventory reserves.......................... 2,931 6,991
Other....................................... 1,665 4,156
------- -------
$36,945 $29,578
======= =======
</TABLE>
At January 2, 1999, domestic net operating loss carryforwards of $36,373,000
are available to offset future taxable income. Utilization of $6,695,000 of
the carryforwards is 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
$4,576,000 which expire between 2009 and 2018 and alternative minimum tax
credits of $576,000 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. The
Company has sublet certain of these leased spaces to third parties.
Future minimum lease payments under non-cancelable operating lease arrangements
are as follows:
<TABLE>
<CAPTION>
Gross Amount Sublease Net Amount
------------ -------- ----------
(In thousands)
<S> <C> <C> <C>
1999................................... $ 6,259 $ 625 $ 5,634
2000................................... 5,250 624 4,626
2001................................... 4,659 86 4,573
2002................................... 3,734 10 3,724
2003................................... 2,475 -- 2,475
Thereafter............................. 1,844 -- 1,844
------- ------- -------
$24,221 $1,345 $22,876
======= ======= =======
</TABLE>
<PAGE> 60
Rent expense aggregated $5,871,000, $5,971,000 and $5,906,000 in 1998, 1997
and 1996, respectively.
NOTE 8-EMPLOYEE BENEFIT PLAN
The Company maintains a qualified Section 401(k) Savings Plan which allows
eligible employees to contribute up to 15% of their salaries on a pre-tax
basis. Company contributions to the plan are discretionary. The Company
recorded as expense matching contributions totaling $917,000, $920,000 and
$801,000 in 1998, 1997 and 1996, respectively. Company contributions are
fully vested after six years of employment.
NOTE 9-SEGMENT INFORMATION
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131 "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"). The Company is organized on a divisional basis by product
line. The Company's segments are determined by these product lines which are
engineered, manufactured and marketed by each group. Segments include
8mm drives and media, libraries and service. Certain costs including
administrative, sales, technical support and corporate marketing are not
allocated to the segments and are considered corporate costs. During the
periods presented below, service segment results of operations include a
cross-charge to the other reported segments for actual in-warranty repairs.
The 8mm drive segment engineers, manufactures and markets 8mm technology tape
drives. They also market 8mm and other media. The library segment engineers,
manufactures and markets 8mm and DLTtape(TM) automated tape libraries and
solutions. The service segment provides repair services on drives and
libraries which can be both in and out of warranty.
The Company has restated prior years' segment data where it was practicable to
do so. A segmented internal reporting structure was adopted by the Company in
July of 1997. Accordingly, only six months of data is presented for 1997.
Prior to this, the Company had only one reportable segment.
The Company evaluates the performance of its segments and allocates resources
to them based on pre-tax income. The accounting policies of the segments are
the same as those described in Note 1. All revenues reported herein represent
revenue from external customers and there are no intersegment revenues.
The table below presents information about segments as of and for the
respective fiscal periods:
<PAGE> 61
<TABLE>
<CAPTION>
8mm
Drives
and Reconciling Consolidated
Media Libraries Service Other Items Totals
-------- --------- -------- --------- ----------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED 1/2/99
Revenues................. $216,068 $56,780 $22,291 $ 1,189 $(9,823)(a) $286,505
Pre-tax results.......... 48,681 2,722 1,820 734 (56,724)(b) (2,767)
Inventory................ 16,217 8,526 2,139 115 -- 26,997
Depreciation/amortization
expense included in
pre-tax results........ 5,387 1,035 1,179 -- 9,018 (c) 16,619
SIX MONTHS ENDED 1/3/98
Revenues................. 113,671 26,670 11,372 9,598 (8,195)(a) 153,115
Pre-tax results.......... 12,006 (2,494) (3,301) (28,190) (34,285)(b) (56,264)
Inventory................ 29,696 10,517 3,161 1,177 -- 44,551
Depreciation/amortization
expense included in
pre-tax results........ 2,787 498 712 1,341 4,418 (c) 9,756
</TABLE>
(a) Unallocated reserves for corporate programs
(b) Pretax results in corporate departments
(c) Depreciation in corporate departments
Total assets by segment are not reported since this information is not readily
available and it is not practicable to obtain.
The following table details sales and long-lived-asset information by
geographic area as of and for the respective fiscal years:
<TABLE>
<CAPTION>
Sales Long-lived assets
------------------------------- -------------------------
1998 1997 1996 1998 1997 1996
-------- -------- -------- ------- ------- -------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
United States............... $201,973 $229,200 $255,324 $22,021 $26,308 $37,857
Europe/Middle East.......... 63,797 74,695 79,341 6,878 9,528 11,458
Pacific Rim................. 17,020 25,085 22,078 430 522 371
Other....................... 3,715 6,704 6,148 143 230 --
-------- -------- -------- ------- ------- -------
$286,505 $335,684 $362,891 $29,472 $36,588 $49,686
======== ======== ======== ======= ======= =======
</TABLE>
Foreign revenue is based on the country in which the customer is located.
<PAGE> 62
During the fiscal years ended January 2, 1999, January 3, 1998 and December 28,
1996, one customer accounted for approximately 15%, 17% and 15%, respectively,
of sales. Another customer accounted for approximately 11%, 13% and 11% of
sales during the same periods. A third customer accounted for approximately
13% of sales during fiscal 1998. No other customers accounted for 10% or more
of sales in any of the three years presented. Two of these customers purchase
from all reported segments. The other customer purchases primarily from the
8mm drives segment and the library segment.
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 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.
The Company incurred $3,123,000 in workforce reduction costs, including
severance, outplacement and benefits. The workforce reductions were
concluded by the second quarter of 1998 and resulted 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.
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 cash payments took place in 1998. Other cash
payments in 1998 related to the settlement of Eagle(RTM) division purchase
commitments and shutdown costs as well as settlement of accrued liabilities
related to a discontinued project.
During 1998, the Company concluded negotiations with several of its former
Eagle(RTM) division suppliers. As a result of these successful negotiations
previously recorded accrued liabilities of $1,875,000 were no longer required
and were reversed to income.
Also during 1998, the Company successfully sublet certain Eagle(RTM) facilities
at terms more favorable than initially estimated. As a result, accrued
liabilities of $628,000 were no longer required and were reversed to income.
At January 2, 1999, the remaining accruals associated with this restructuring
were $464,000. The Company currently expects to complete all restructuring
acts during 1999 except for certain lease commitments.
The following table summarizes the activity in the Company's restructuring
reserves during 1998 and 1997:
<PAGE> 63
<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
Cash payments................... (1,391) (5,531) (282) (7,204)
Additional charges/
reclassifications........... (56) (1,883) (628) (2,567)
------ ------- ------ -------
Balance, January 2, 1999 $ -- $ 374 $ 90 $ 464
====== ======= ====== =======
</TABLE>
NOTE 11 - CONTINGENCIES
The Company is, from time to time, subjected to certain claims, assertions or
litigation by outside parties as part of its ongoing business operations. The
outcomes of any such contingencies are not expected to have a material adverse
impact on the financial condition or results of the operations of the Company.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None reported.
<PAGE> 64
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 1999 Annual
Meeting of Stockholders to be filed within 120 days after January 2, 1999, 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 with Section
16(a) of the Securities Exchange Act of 1934" 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> 65
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 2, 1999, January 3, 1998
and for each of the three fiscal years in the period ended January 2, 1999.
Page
-----
Report of Independent Accountants............................... 42
Consolidated Balance Sheets..................................... 43
Consolidated Statements of Operations........................... 44
Consolidated Statements of Changes in Stockholders' Equity...... 45
Consolidated Statements of Cash Flows........................... 46-47
Notes to Consolidated Financial Statements...................... 48-63
(a)2. Financial Statement Schedules
Schedules-Years ended January 2, 1999, January 3, 1998 and December 28, 1996.
II Valuation and Qualifying Accounts and Reserves........ 68
All other schedules are omitted because they are inapplicable, not required
under the instructions, or the information is included in the financial
statements or notes thereto.
<PAGE> 66
(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.
**10.1 Incentive Stock Plan, as amended and restated on
January 16, 1997. (9)
**10.2 Stock Option Agreement used in connection with the
Incentive Stock Plan. (12)
**10.3 1990 Employee Stock Purchase Plan. (8)
**10.4 Employee Stock Purchase Plan Offering used in connection
with the 1990 Employee Stock Purchase Plan. (8)
**10.5 Form of participation agreement used in connection with the
1990 Employee Stock Purchase Plan. (3)
**10.6 1997 Non-officer Stock Option Plan, as adopted by the Board
of Directors on December 23, 1997. (11)
**10.7 Stock Option Agreement used in connection with the 1997 Non-
Officer Stock Option Plan. (11)
10.8 Agreement for the sale and transfer of all shares in Grundig
Data Scanner GmbH dated September 13, 1994. (5)
10.9 Form of Indemnity Agreement entered into by the Company
with each director and executive officer of the Company. (7)
**10.10 1999 Officer Bonus Plan.
10.11 Rights Agreement, dated January 24, 1991, between the
Company and The First National Bank of Boston, as Rights
Agent. (2)
10.12 Amendment to the Rights Agreement, dated August 4, 1995,
between the Company and The First National Bank of Boston
as Rights Agent. (6)
10.13 Vail/Steamboat 8mm Mechanical Components Supply Agreement,
dated January 1, 1992, among Sony Corporation, Nihon
Exabyte Corporation and the Company. (4)
10.14 First Amendment of Vail/Steamboat 8mm Mechanical Components
Supply Agreement, dated April 1, 1994. (7)
10.15 Second Amendment of Vail/Steamboat 8mm Mechanical Components
Supply Agreement, dated May 1, 1998.
10.16 8mm Mechanical Components Purchase Agreement, dated
December 11, 1996, among Hitachi Ltd. Electronic Sales
Office, the Company and Nihon Exabyte Corporation. (10)
21.1 List of Subsidiaries. (10)
23.1 Consent of PricewaterhouseCoopers 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.
<PAGE> 67
==============
(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 Quarterly Report on Form 10-Q,
as filed with the SEC on August 11, 1992 and incorporated herein by
reference.
(5) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q,
filed with the SEC on November 14, 1994 and incorporated herein by
reference.
(6) 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.
(7) 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.
(8) Filed as an Exhibit to the Company's Report on Form S-8 (Registration
No. 333-09279), as filed with the SEC on July 31, 1996 and
incorporated herein by reference.
(9) 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.
(10) 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.
(11) Filed as an Exhibit to the Company's Report on Form S-8 (Registration
No. 333-45853), as filed with the SEC on February 9, 1998 and
incorporated herein by reference.
(12) Filed as an Exhibit to the Company's Annual Report on Form 10-K,
filed with the SEC on March 25, 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 2,
1999.
<PAGE> 68
EXABYTE CORPORATION AND SUBSIDIARIES
Schedule II - 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 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
======= ======= ======= ======== =======
Year Ended January 2, 1999:
Allowance for doubtful accounts..... $ 1,016 (713) -- 330 (1) 633
Reserves for sales programs......... 6,730 9,234 (8,767) (2) 7,197
Inventory valuation reserves........ 18,868 (1,752) -- (8,690) (3) 8,426
------- -------- ------- -------- -------
$26,614 $(2,465) $ 9,227 $(17,120) $16,256
======= ======= ======= ======== =======
</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> 69
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 April 1, 1999.
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, April 1, 1999
- ----------------------- President and Chief -----------------
William L. Marriner Executive Officer
(Principal Executive
Officer)
/s/ Stephen F. Smith Vice President, Chief April 1, 1999
- ----------------------- Financial Officer, General -----------------
Stephen F. Smith Counsel and Secretary
(Principal Financial
and Accounting Officer)
<PAGE> 71
/s/ Peter D. Behrendt Director April 1, 1999
- ----------------------- -----------------
Peter D. Behrendt
/s/ Stephen C. Johnson Director April 1, 1999
- ----------------------- -----------------
Stephen C. Johnson
/s/ A. Laurence Jones Director April 1, 1999
- ----------------------- -----------------
A. Laurence Jones
/s/ Thomas E. Pardun Director April 1, 1999
- ----------------------- -----------------
Thomas E. Pardun
/s/ Mark W. Perry Director April 1, 1999
- ----------------------- -----------------
Mark W. Perry
/s/ Ralph Z. Sorenson Director April 1, 1999
- ----------------------- -----------------
Ralph Z. Sorenson
Exhibit 3.3 - BY-LAWS OF EXABYTE CORPORATION
TABLE OF CONTENTS
-----------------
Page
ARTICLE 1 - STOCKHOLDERS.....................................................4
1.1 Place of Meetings...................................................4
1.2 Annual Meeting......................................................4
1.3 Special Meetings....................................................5
1.4 Notice of Meetings..................................................5
1.5 Voting List.........................................................5
1.6 Quorum..............................................................5
1.7 Adjournments........................................................6
1.8 Voting and Proxies..................................................6
1.9 Action at Meeting...................................................6
1.10 Action Without Meeting..............................................6
ARTICLE 2 - DIRECTORS........................................................6
2.1 General Powers......................................................6
2.2 Number; Election and Qualification; Classes of Directors............6
2.3 Enlargement of the Board............................................7
2.4 Term of Office......................................................7
2.5 Resignation.........................................................7
2.6 Regular Meetings....................................................7
2.7 Special Meetings....................................................8
2.8 Notice of Special Meetings..........................................8
2.9 Meetings by Telephone Conference Calls..............................8
2.10 Quorum..............................................................8
2.11 Action at Meeting...................................................8
2.12 Action by Consent...................................................8
2.13 Removal.............................................................8
2.14 Committees..........................................................9
2.15 Compensation of Directors...........................................9
ARTICLE 3 - OFFICERS.........................................................9
3.1 Enumeration.........................................................9
3.2 Election............................................................9
3.3 Qualification.......................................................9
3.4 Tenure..............................................................9
3.5 Resignation and Removal............................................10
3.6 Vacancies..........................................................10
3.7 Chairman of the Board and Vice-Chairman of the Board...............10
3.8 President..........................................................10
3.9 Vice Presidents....................................................10
3.10 Secretary and Assistant Secretaries................................10
3.11 Treasurer and Assistant Treasurers.................................11
3.12 Salaries...........................................................11
ARTICLE 4 - CAPITAL STOCK...................................................11
4.1 Issuance of Stock..................................................11
4.2 Certificates of Stock..............................................11
4.3 Transfers..........................................................12
4.4 Lost, Stolen or Destroyed Certificates.............................12
4.5 Record Date........................................................12
<PAGE> 2
ARTICLE 5 - INDEMNIFICATION.................................................12
5.1 Directors..........................................................12
5.2 Officers, Employees and Other Agents...............................13
5.3 Good Faith.........................................................13
5.4 Expenses...........................................................13
5.5 Enforcement........................................................13
5.6 Non-Exclusivity of Rights..........................................14
5.7 Survival of Rights.................................................14
5.8 Insurance..........................................................14
5.9 Amendments.........................................................14
5.10 Saving Clause......................................................15
5.11 Certain Definitions................................................15
ARTICLE 6 - RESTRICTIONS ON TRANSFER OF COMMON STOCK........................15
6.1 Restrictions on Transfer...........................................15
6.2 Notice and Offer...................................................15
6.3 Effect of Failure to Purchase Shares and of Tender
of Purchase Price; Prohibited Transfers.........................16
6.4 Exceptions to Transfer Restrictions................................17
6.5 Termination of Restrictions........................................17
6.6 Stock Restriction Agreements.......................................17
6.7 Restrictive Legend.................................................17
6.8 Waiver.............................................................17
ARTICLE 7 - GENERAL PROVISIONS..............................................17
7.1 Fiscal Year........................................................17
7.2 Corporate Seal.....................................................17
7.3 Waiver of Notice...................................................18
7.4 Voting of Securities...............................................18
7.5 Evidence of Authority..............................................18
7.6 Certificate of Incorporation.......................................18
7.7 Transactions with Interested Parties...............................18
7.8 Severability.......................................................18
7.9 Pronouns...........................................................19
ARTICLE 8 - AMENDMENTS......................................................19
8.1 By the Board of Directors..........................................19
8.3 By the Stockholders................................................19
<PAGE> 3
ARTICLE 1 - STOCKHOLDERS
1.1 Place of Meetings
All meetings of stockholders shall be held at such place within or
without the State of Delaware as may be designated from time to time by the
Board of Directors or the President or, if not so designated, at the
registered office of the corporation.
1.2 Annual Meeting
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting
by or at the direction of the Board of Directors, or (C) otherwise properly
brought before the meeting by a stockholder. For business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the corporation not less than
one hundred twenty (120) calendar days in advance of the date of the
corporation's proxy statement released to stockholders in connection with the
previous year's annual meeting of stockholders; provided, however, that in the
event that no annual meeting was held in the previous year or the date of the
annual meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received a reasonable time before the
solicitation is made. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting:
(i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the corporation's books,
of the stockholder proposing such business, (iii) the class and number of
shares of the corporation which are beneficially owned by the stockholder,
(iv) any material interest of the stockholder in such business and (v) any
other information that is required to be provided by the stockholder pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as amended, in
his capacity as a proponent to a stockholder proposal. Notwithstanding the
foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholders' meeting,
stockholders must provide notice as required by the regulations promulgated
under the Securities and Exchange Act of 1934, as amended. Notwithstanding
anything in these By-Laws to the contrary, no business shall be conducted at
any annual meeting except in accordance with the procedures set forth in this
paragraph (b). The chairman of the annual meeting shall, if the facts
warrant, determine and declare at the meeting that business was not properly
brought before the meeting and in accordance with the provisions of this
paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall
not be transacted.
<PAGE> 4
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction
of the Board of Directors or by any stockholder of the corporation entitled
to vote in the election of directors at the meeting who complies with the
notice procedures set forth in this paragraph (c). Such nominations, other
than those made by or at the direction of the Board of Directors, shall be
made pursuant to timely notice in writing to the Secretary of the corporation
in accordance with the provisions of paragraph (b) of this Section 1.2. Such
stockholder's notice shall set forth (i) as to each person, if any, whom the
stockholder proposes to nominate for election or re-election as director:
(A) the name, age, business address and residence address of such person,
(B) the principal occupation or employment of such person, (C) the class and
number of shares of the corporation which are beneficially owned by such
person, (D) a description of all arrangements of understandings between the
stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nominations are to be made by the
stockholder, and (E) any other information relating to such person that is
required, in each case pursuant to Regulation 14A under the 1934 Act (including
without limitation such person's written consent to being named in the proxy
statement, if any, as a nominee and to serving as a director if elected); and
(ii) as to such stockholder giving notice, the information required to be
provided pursuant to paragraph (b) of this Section 1.2. At the request of
the board of Directors, any person nominated by a stockholder for election as
a director shall furnish to the Secretary of the corporation that information
required to be set forth in the stockholder's notice of nomination which
pertains to the nominee. No person shall be eligible for election as a
director of the corporation unless nominated in accordance with the procedures
set forth in this paragraph (c). The chairman of the meeting shall, if the
facts warrant, determine and declare at the meeting that a nomination was not
made in accordance with the procedures prescribed by these By-laws, and if he
should so determine, he shall so declare at the meeting, and the defective
nominations shall be disregarded.
1.3 Special Meetings
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board, (ii) the
President, or (iii) the Board of Directors pursuant to a resolution adopted by
a majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any
such resolution is presented to the Board for adoption) and shall be held at
such place, on such date, and at such time as they or he shall fix.
(b) If a special meeting is called by any person or persons other than
the Board of Directors, the request shall be in writing, specifying the time
of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or
by telegraphic or other facsimile transmission to the Chairman of the Board,
the President, any Vice President, or the Secretary of the corporation.
No business may be transacted at such special meeting otherwise than specified
in such notice. The officer receiving the request shall cause notice to be
promptly given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these By-Laws, that a meeting will be held not less
than thirty-five (35) nor more than sixty (60) days after the receipt of the
request. If the notice is not given within twenty (20) days after the receipt
of the request, the person or persons requesting the meeting may give the
notice. Nothing contained in this paragraph (b) shall be construed as
<PAGE> 5
limiting, fixing, or affecting the time when a meeting of stockholders called
by action of the Board of Directors may be held.
1.4 Notice of Meetings
Except as otherwise provided by law, written notice of each meeting of
stockholders, whether annual or special, shall be given not less than 10 nor
more than 60 days before the date of the meeting to each stockholder entitled
to vote at such meeting. The notices of all meetings shall state the place,
date and hour of the meeting. The notice of a special meeting shall state, in
addition, the purpose or purposes for which the meeting is called. If mailed,
notice is given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of
the corporation.
1.5 Voting List
The officer who has charge of the stock ledger of the corporation shall
prepare, at least 10 days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, at a place within the city where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during
the whole time of the meeting, and may be inspected by any stockholder who is
present.
1.6 Quorum
Except as otherwise provided by law, the Certificate of Incorporation or
these By-Laws, the holders of a majority of the shares of the capital stock of
the corporation issued and outstanding and entitled to vote at the meeting,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business.
1.7 Adjournments
Any meeting of stockholders may be adjourned to any other time and to
any other place at which a meeting of stockholders may be held under these
By-Laws by the stockholders present or represented at the meeting and entitled
to vote, although less than a quorum, or, if no stockholder is present, by
any officer entitled to preside at or to act as Secretary of such meeting.
It shall not be necessary to notify any stockholder of any adjournment of less
than 30 days if the time and place of the adjourned meeting are announced at
the meeting at which adjournment is taken, unless after the adjournment a new
record date is fixed for the adjourned meeting. At the adjourned meeting,
the corporation may transact any business which might have been transacted at
the original meeting.
1.8 Voting and Proxies
Each stockholder shall have one vote for each share of stock entitled
to vote held of record by such stockholder and a proportionate vote for each
fractional share so held, unless otherwise provided in the Certificate of
Incorporation. Each stockholder of record entitled to vote at a meeting of
stockholders, or to express consent or dissent to corporate action in writing
without a meeting, may vote or express such consent or dissent in person or
<PAGE> 6
may authorize another person or persons to vote or act for him by proxy
granted in accordance with Delaware law and delivered to the Secretary of
the corporation. No such proxy shall be voted or acted upon after three years
from the date of its execution, unless the proxy expressly provides for a
longer period.
1.9 Action at Meeting
When a quorum is present at any meeting, the holders of a majority of
the stock present or represented and voting on a matter (or if there are two
or more classes of stock entitled to vote as separate classes, then in the
case of each such class, the holders of a majority of the stock of that class
present or represented and voting on a matter) shall decide any matter to be
voted upon by the stockholders at such meeting, except when a different vote
is required by express provision of law, the Certificate of Incorporation or
these By-Laws. Any election by stockholders shall be determined by a plurality
of the votes cast by the stockholders entitled to vote at the election.
1.10 Action without Meeting
(a) Any action required or permitted to be taken at any annual or
special meeting of stockholders of the corporation may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote on such action were present and voted. Prompt notice of the taking of
corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
(b) Notwithstanding the foregoing, no such action by written consent
may be taken following the effectiveness of the registration of any class of
securities of the corporation under the Securities Exchange Act of 1934, as
amended.
ARTICLE 2 - DIRECTORS
2.1 General Powers
The business and affairs of the corporation shall be managed by or under
the direction of a Board of Directors, who may exercise all of the powers of
the corporation except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification; Classes of Directors
(a) The number of directors which shall constitute the whole Board of
Directors shall be determined by resolution of the stockholders or the Board
of Directors, but in no event shall be less than one. The number of directors
may be decreased at any time and from time to time either by the stockholders
or by a majority of the directors then in office, but only to eliminate
vacancies existing by reason of the death, resignation, removal or expiration
of the term of one or more directors. The directors shall be elected at the
annual meeting of stockholders by such stockholders as have the right to vote
on such election. Directors need not be stockholders of the corporation.
<PAGE> 7
(b) The Board of Directors shall be divided into three classes:
Class I, Class II, and Class III, which shall be as nearly equal in number
as possible. Each director shall serve for a term ending on the date of the
third annual meeting of stockholders following the annual meeting at which
the director was elected; provided, however, that each initial director in
Class I shall hold office until the annual meeting of stockholders in 1990;
each initial director in Class II shall hold office until the annual meeting
of stockholders in 1991; and each initial director in Class III shall hold
office until the annual meeting of stockholders in 1992. Notwithstanding the
foregoing provisions of this section, each director shall serve until his
successor is duly elected and qualified or until his death, resignation or
removal.
(c) In the event of any increase or decrease in the authorized number
of directors, the newly created or eliminated directorships resulting from
such increase or decrease shall be apportioned by the Board of Directors among
the three classes of directors so as to maintain such classes as nearly equal
in number as possible. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director. Newly
created directorships resulting from any increase in the number of directors
and any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled either (i) by the
affirmative vote of the holders of a majority of the voting power of the then
outstanding shares of the corporation's capital stock; or (ii) by the
affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the authorized Board of Directors. Any
director elected in accordance with the preceding sentence shall hold office
for the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successors shall have been elected and qualified.
2.3 Enlargement of the Board
The number of directors may be increased at any time and from time to
time by a majority of the directors then in office.
2.4 Term of Office
If for any cause, the Directors shall not have been elected at an annual
meeting, they may be elected as soon thereafter as convenient at a special
meeting of the stockholders called for that purpose in the manner provided in
these By-Laws. No reduction of the authorized number of Directors shall have
the effect of removing any Director before the Director's term of office
expires, unless such removal is made pursuant to the provisions of Section 2.4
hereof.
2.5 Resignation
Any director may resign by delivering his written resignation to the
corporation at its principal office or to the President or Secretary. Such
resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
2.6 Regular Meetings
Regular meetings of the Board of Directors may be held without notice
at such time and place, either within or without the State of Delaware, as
shall be determined from time to time by the Board of Directors; provided that
any director who is absent when such a determination is made shall be given
<PAGE> 8
notice of the determination. A regular meeting of the Board of Directors may
be held without notice immediately after and at the same place as the annual
meeting of stockholders.
2.7 Special Meetings
Special meetings of the Board of Directors may be held at any time and
place, within or without the State of Delaware, designated in a call by the
Chairman of the Board, President, two or more directors, or by one director in
the event that there is only a single director in office.
2.8 Notice of Special Meetings
Notice of any special meeting of directors shall be given to each
director by the Secretary or by the officer or one of the directors calling
the meeting. Notice shall be duly given to each director (i) by giving notice
to such director in person or by telephone at least 48 hours in advance of the
meeting, (ii) by sending a telegram or telex, or delivering written notice by
hand, to his last known business or home address at least 48 hours in advance
of the meeting, or (iii) by mailing written notice to his last known business
or home address at least 72 hours in advance of the meeting. A notice or
waiver of notice of a meeting of the Board of Directors need not specify the
purposes of the meeting.
2.9 Meetings by Telephone Conference Calls
Directors or any members of any committee designated by the directors
may participate in a meeting of the Board of Directors or such committee by
means of conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other, and
participation by such means shall constitute presence in person at such
meeting.
2.10 Quorum
A majority of the total number of the whole Board of Directors shall
constitute a quorum at all meetings of the Board of Directors. In the event
one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each such director so
disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum
at any such meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice other than announcement at
the meeting, until a quorum shall be present.
2.11 Action at Meeting
At any meeting of the Board of Directors at which a quorum is present,
the vote of a majority of those present shall be sufficient to take any action,
unless a different vote is specified by law, the Certificate of Incorporation
or these By-Laws.
2.12 Action by Consent
Any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee of the Board of Directors may be taken without
a meeting, if all members of the Board or committee, as the case may be,
consent to the action in writing, and the written consents are filed with the
minutes of proceedings of the Board or committee.
<PAGE> 9
2.13 Removal
Any director, or the entire Board of Directors, may be removed from
office, (a) with cause by the affirmative vote of the holders of a majority
of the voting power of all of the then-outstanding shares of the Company's
capital stock, voting together as a single class; or (b) without cause, by
the affirmative vote of the holders of at least sixty-six and two-thirds
percent (66-2/3%) of the voting power of the Company's capital stock.
2.14 Committees
The Board of Directors may, by resolution passed by a majority of the
whole Board, designate one or more committees, each committee to consist of
one or more of the directors of the corporation. The Board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence
or disqualification of a member of a committee, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent
or disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors and subject to the provisions of the
General Corporation Law of the State of Delaware, shall have and may exercise
all the powers and authority of the Board of Directors in the management of
the business and affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it. Each such
committee shall keep minutes and make such reports as the Board of Directors
may from time to time request. Except as the Board of Directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by the directors or in such rules, its business
shall be conducted as nearly as possible in the same manner as is provided in
these By-Laws for the Board of Directors.
2.15 Compensation of Directors
Directors may be paid such compensation for their services and such
reimbursement for expenses of attendance at meetings as the Board of Directors
may from time to time determine. No such payment shall preclude any director
from serving the corporation or any of its parent or subsidiary corporations
in any other capacity and receiving compensation for such service.
ARTICLE 3 - OFFICERS
3.1 Enumeration
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer and such other officers with such other titles as
the Board of Directors shall determine, including a Chairman of the Board,
a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint
such other officers as it may deem appropriate.
3.2 Election
The President, Treasurer and Secretary shall be elected annually by the
Board of Directors at its first meeting following the annual meeting of stock-
holders. Other officers may be appointed by the Board of Directors at such
meeting or at any other meeting.
<PAGE> 10
3.3 Qualification
No officer need be a stockholder. Any two or more offices may be held
by the same person.
3.4 Tenure
Except as otherwise provided by law, by the Certificate of Incorporation
or by these By-Laws, each officer shall hold office until his successor is
elected and qualified, unless a different term is specified in the vote
choosing or appointing him, or until his earlier death, resignation or removal.
3.5 Resignation and Removal
Any officer may resign by delivering his written resignation to the
corporation at its principal office or to the President or Secretary. Such
resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an
officer for any period following his resignation or removal, or any right to
damages on account of such removal, whether his compensation be by the month
or by the year or otherwise, unless such compensation is expressly provided
in a duly authorized written agreement with the corporation.
3.6 Vacancies
The Board of Directors may fill any vacancy occurring in any office for
any reason and may, in its discretion, leave unfilled for such period as it
may determine any offices other than those of President, Treasurer and
Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until
his earlier death, resignation or removal.
3.7 Chairman of the Board and Vice-Chairman of the Board
The Board of Directors may appoint a Chairman of the Board and may
designate the Chairman of the Board as Chief Executive Officer. If the Board
of Directors appoints a Chairman of the Board, he shall perform such duties
and possess such powers as are assigned to him by the Board of Directors.
If the Board of Directors appoints a Vice-Chairman of the Board, he shall, in
the absence or disability of the Chairman of the Board, perform the duties and
exercise the powers of the Chairman of the Board and shall perform such other
duties and possess such other powers as may from time to time be vested in him
by the Board of Directors.
3.8 President
The President shall be the Chief Operating Officer of the corporation.
Unless the Board of Directors has designated the Chairman of the Board as
Chief Executive Officer, the President shall also be the Chief Executive
Officer of the corporation. The President shall, subject to the direction of
the Board of Directors, have general charge and supervision of the business of
the corporation. Unless otherwise provided by the Board of Directors, he
shall preside at all meetings of the stockholders, if he is a director, at all
<PAGE> 11
meetings of the Board of Directors. The President shall perform such other
duties and shall have such other powers as the Board of Directors may from
time to time prescribe.
3.9 Vice Presidents
Any Vice President shall perform such duties and possess such powers as
the Board of Directors or the President may from time to time prescribe. In
the event of the absence, inability or refusal to act of the President, the
Vice President (or if there shall be more than one, the Vice Presidents in the
order determined by the Board of Directors) shall perform the duties of the
President and when so performing shall have all the powers of and be subject
to all the restrictions upon the President. The Board of Directors may assign
to any Vice President the title of Executive Vice President, Senior Vice
President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries
The Secretary shall perform such duties and shall have such powers as
the Board of Directors or the President may from time to time prescribe.
In addition, the Secretary shall perform such duties and have such powers as
are incident to the office of the secretary, including without limitation the
duty and power to give notices of all meetings of stockholders and special
meetings of the Board of Directors, to attend all meetings of stockholders
and the Board of Directors and keep a record of the proceedings, to maintain
a stock ledger and prepare lists of stockholders and their addresses as
required, to be custodian of corporate records and the corporate seal and to
affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the Secretary, the Assistant Secretary, (or if there shall be more
than one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting
shall designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers
The Treasurer shall perform such duties and shall have such powers as
may from time to time be assigned to him by the Board of Directors or the
President. In addition, the Treasurer shall perform such duties and have such
powers as are incident to the office of treasurer, including without limitation
the duty and power to keep and be responsible for all funds and securities of
the corporation, to deposit funds of the corporation in depositories selected
in accordance with these By-Laws, to disburse such funds as ordered by the
Board of Directors, to make proper accounts of such funds, and to render as
required by the Board of Directors statements of all such transactions and of
the financial condition of the corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act
of the Treasurer, the Assistant Treasurer, (or if there shall be more than
one, the Assistant Treasurers in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Treasurer.
<PAGE> 12
3.12 Salaries
Officers of the corporation shall be entitled to such salaries,
compensation or reimbursement as shall be fixed or allowed from time to time
by the Board of Directors.
ARTICLE 4 - CAPITAL STOCK
4.1 Issuance of Stock
Unless otherwise voted by the stockholders and subject to the provisions
of the Certificate of Incorporation, the whole or any part of any unissued
balance of the authorized capital stock of the corporation or the whole or any
part of any unissued balance of the authorized capital stock of the corporation
held in its treasury may be issued, sold, transferred or otherwise disposed of
by vote of the Board of Directors in such manner, for such consideration and
on such terms as the Board of Directors may determine.
4.2 Certificates of Stock
Every holder of stock of the corporation shall be entitled to have a
certificate, in such form as may be prescribed by law and by the Board of
Directors, certifying the number and class of shares owned by him in the
corporation. Each such certificate shall be signed by, or in the name of
the corporation by, the Chairman or Vice-Chairman, if any, of the Board of
Directors, or the President or a Vice President, and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation,
the By-Laws, applicable securities laws or any agreement among any number
of shareholders or among such holders and the corporation shall have
conspicuously noted on the face or back of the certificate either the full
text of the restriction or a statement of the existence of such restriction.
4.3 Transfers
Except as otherwise established by rules and regulations adopted by the
Board of Directors, and subject to applicable law, shares of stock may be
transferred on the books of the corporation by the surrender to the corporation
or its transfer agent of the certificate representing such shares properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, and with such proof of authority or the authenticity of signature as
the corporation or its transfer agent may reasonably require. Except as may
be otherwise required by law, by the Certificate of Incorporation or by these
By-Laws, the corporation shall be entitled to treat the record holder of stock
as shown on its books as the owner of such stock for all purposes, including
the payment of dividends and the right to vote with respect to such stock,
regardless of any transfer, pledge or other disposition of such stock until
the shares have been transferred on the books of the corporation in accordance
with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates
The corporation may issue a new certificate of stock in place of any
previously issued certificate alleged to have been lost, stolen, or destroyed,
upon such terms and conditions as the Board of Directors may prescribe,
<PAGE> 13
including the presentation of reasonable evidence of such loss, theft or
destruction and the giving of such indemnity as the Board of Directors may
require for the protection of the corporation or any transfer agent or
registrar.
4.5 Record Date
The Board of Directors may fix in advance a date as a record date for
the determination of the stockholders entitled to notice of or to vote at any
meeting of stockholders or to express consent (or dissent) to corporate action
in writing without a meeting, or entitled to receive payment of any dividend
or other distribution or allotment of any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action.
Such record date shall not be more than 60 nor less than 10 days before the
date of such meeting, nor more than 60 days prior to any other action to which
such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining stock-
holders for any other purpose shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
ARTICLE 5 - INDEMNIFICATION
5.1 Directors
The corporation shall indemnify its directors and executive officers to
the fullest extent not prohibited by the Delaware General Corporation Law;
provided, however, that the corporation may limit the extent of such indemnifi-
cation by individual contracts with its directors and executive officers; and,
provided, further, that the corporation shall not be required to indemnify any
director or executive officer in connection with any proceeding (or part
thereof) initiated by such person or any proceeding by such person against
the corporation or its directors, officers, employees or other agents unless
(a) such indemnification is expressly required to be made by law, (b) the
proceeding was authorized by the Board of Directors of the corporation or
(c) such indemnification is provided by the corporation, in its sole
discretion, pursuant to the powers vested in the corporation under the
Delaware General Corporation Law.
5.2 Officers, Employees and Other Agents
The corporation shall have power to indemnify its other officers,
employees and other agents as set forth in the Delaware General Corporation
Law.
<PAGE> 14
5.3 Good Faith
(a) For purposes of any determination under this By-Law, a director
or executive officer shall be deemed to have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
to have had no reasonable cause to believe that his conduct was unlawful, if
his action is based on information, opinions, reports and statements, including
financial statements and other financial data, in each case prepared or
presented by:
(i) one or more officers or employees of the corporation whom
the director or executive officer believed to be reliable and competent in
the matters presented;
(ii) counsel, independent accountants or other persons as to
matters which the director or executive officer believed to be within such
person's professional competence; and
(iii) with respect to a director, a committee of the Board upon
which such director does not serve, as to matters within such Committee's
designated authority, which committee the director believes to merit
confidence;
so long as, in each case, the director or executive officer
acts without knowledge that would cause such reliance to be unwarranted.
(b) The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal proceeding,
that he had reasonable cause to believe that his conduct was unlawful.
(c) The provisions of this Section 5.3 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the Delaware
General Corporation Law.
5.4 Expenses
The corporation shall advance, prior to the final disposition of any
proceeding, promptly following request therefor, all expenses incurred by any
director or executive officer in connection with such proceeding upon receipt
of an undertaking by or on behalf of such person to repay said amounts if it
should be determined ultimately that such person is not entitled to be
indemnified under this By-Law or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 5.5 of this By-Law, no advance shall be made by the corporation if a
determination is reasonably and promptly made (a) by the Board of Directors by
a majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (b) if such quorum is not obtainable, or, even if obtainable,
a quorum of disinterested directors so directs, by independent legal counsel
in a written opinion, that the facts known to the decision making party at
the time such determination is made demonstrate clearly and convincingly that
such person acted in bad faith or in a manner that such person did not believe
to be in or not opposed to the best interests of the corporation.
<PAGE> 15
5.5 Enforcement
Without the necessity of entering into an express contract, all rights
to indemnification and advances to directors and executive officers under this
By-Law shall be deemed to be contractual rights and be effective to the same
extent and as if provided for in a contract between the corporation and the
director or executive officer. Any right to indemnification or advances
granted by this By-Law to a director or executive officer shall be enforceable
by or on behalf of the person holding such right in any court of competent
jurisdiction if (a) the claim for indemnification or advances is denied, in
whole or in part, or (b) no disposition of such claim is made within ninety
(90) days of request therefor. The claimant in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. The corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law
for the corporation to indemnify the claimant for the amount claimed. Neither
the failure of the corporation (including its Board of Directors, independent
legal counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel
or its stockholders) that the claimant has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that
claimant has not met the applicable standard of conduct.
5.6 Non-Exclusivity of Rights
The rights conferred on any person by this By-Law shall not be exclusive
of any other right which such person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, By-Laws, agreement,
vote of stockholders or disinterested directors or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding office. The corporation is specifically authorized to enter into
individual contracts with any or all of its directors, officers, employees or
agents respecting indemnification and advances, to the fullest extent not
prohibited by the Delaware General Corporation Law.
5.7 Survival of Rights
The rights conferred on any person by this By-Law shall continue as to
a person who has ceased to be a director, officer, employee or other agent
and shall inure to the benefit of the heirs, executors and administrators of
such a person.
5.8 Insurance
To the fullest extent permitted by the Delaware General Corporation Law,
the corporation, upon approval by the Board of Directors, may purchase
insurance on behalf of any person required or permitted to be indemnified
pursuant to this By-Law.
5.9 Amendments
Any repeal or modification of this By-Law shall only be prospective and
shall not affect the rights under this By-Law in effect at the time of the
alleged occurrence of any action or omission to act that is the cause of any
proceeding against any agent of the corporation.
<PAGE> 16
5.10 Saving Clause
If this By-Law or any portion hereof shall be invalidated on any ground
by any court of competent jurisdiction, then the corporation shall nevertheless
indemnify each director and executive officer to the full extent not prohibited
by any applicable portion of this By-Law that shall not have been invalidated,
or by any other applicable law.
5.11 Certain Definitions
For the purposes of this By-Law, the following definitions shall apply:
(a) The term "proceeding" shall be broadly construed and shall include,
without limitation, the investigation, preparation, prosecution, defense,
settlement, arbitration and appeal of, and the giving of testimony in, any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(b) The term "expenses" shall be broadly construed and shall include,
without limitation, court costs, attorneys' fees, witness fees, fines, amounts
paid in settlement or judgment and any other costs and expenses of any nature
or kind incurred in connection with any proceeding.
(c) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was
a director, officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the
provisions of this By-Law with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if
its separate existence had continued.
(d) References to a "director," "officer," "employee," or "agent" of
the corporation shall include, without limitation, situations where such person
is serving at the request of the corporation as a director, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(e) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests
of the corporation" as referred to in this By-Law.
<PAGE> 17
ARTICLE 6 - RESTRICTIONS on TRANSFER of COMMON STOCK
6.1 Restrictions on Transfer
No stockholder shall sell, pledge, transfer, donate, assign or otherwise
dispose of (collectively "transfer"), whether voluntarily or by operation of
law, any shares of Common Stock of the corporation held by such stockholder,
or any beneficial interest therein, except as permitted by this Article 6.
The provisions of this Article 6 shall not apply to any shares of Preferred
Stock of the corporation or any shares of Common Stock of the corporation
issued upon the conversion of such Preferred Stock.
6.2 Notice and Offer
(a) If any stockholder intends to transfer any shares of Common Stock
of the corporation ("Shares"), he shall deliver to the corporation a written
notice ("Notice") of his intention to transfer such Shares, setting forth in
reasonable detail: (i) the proposed price, (ii) the identity of the proposed
transferee, (iii) the other terms and conditions of the proposed transfer of
such Shares, and (iv) an offer to sell such Shares to the corporation as
provided in this Article 6. The stockholder intending to transfer such Shares
is hereinafter referred to as the "Offering Stockholder" and the shares so
offered are hereinafter referred to as the "Offered Shares".
(b) The corporation shall have the right to accept the Offering Stock-
holder's offer, in whole or in part, at any time during the 30-day period
following its receipt of the Offering Stockholder's Notice. If the corporation
fails to respond to such offer within such 30-day period, it shall be deemed
to have rejected the offer. The corporation shall be entitled to purchase all
or any of the Offered Shares from the Offering Stockholder at the same price
and on the same terms and conditions as the Offering Stockholder proposes to
transfer the Offered Shares to the proposed transferee identified in the
Notice.
(c) Unless the Offering Stockholder and the corporation otherwise
agree, the closing of the purchase of the Offered Shares to be purchased by
the corporation shall take place at the principal offices of the corporation
at 10:00 a.m. on the tenth day after the expiration of the 30-day period
referred to in subsection (b) above. At such closing, the Offering Stock-
holder shall tender the Shares to be sold to the corporation, together with
appropriate instruments of transfer endorsed to the corporation, and the
corporation shall tender a bank check in the amount of the purchase price
therefor.
(d) If all of the Offered Shares offered by the Offering Stockholder
are not purchased by the corporation pursuant to this Article 6, the remaining
Offered Shares not purchased by the corporation may be transferred by the
Offering Stockholder to the proposed transferee identified by the Offering
Stockholder in his Notice on terms and conditions which are no more favorable
to such transferee than the terms stated in such Notice, any time within a
period of 120 days after the earlier of the rejection by the corporation of
the Offering Stockholder's offer or the expiration of the 30-day period
referred to in subsection (b) above. If any such Offered Shares are trans-
ferred to the transferee named in the Offering Stockholder's Notice, provided
in this Article 6, the restrictions on transfer contained in this Article 6
shall again be applicable to the Shares so acquired by such transferee, and
such transferee shall not again transfer such Shares without first offering
such Shares to the corporation in accordance with this Article 6.
<PAGE> 18
6.3 Effect of Failure to Purchase Shares and of Tender of Purchase Price;
Prohibited Transfers
(a) Any portion of the Offered Shares which is not purchased by the
corporation or by the proposed transferee pursuant to Section 6.2 above may
be retained by the Offering Stockholder, but shall remain subject to the
restrictions on transfer set forth herein and may not thereafter be transferred
unless they are again offered to the corporation pursuant to this Article 6.
(b) After tender to an Offering Stockholder of the purchase price of
any Shares by the corporation in accordance with the provisions of this
Article 6, the corporation shall not pay any dividends to the Offering Stock-
holder or permit it to exercise any privileges of a stockholder of the
corporation with respect to such Shares, but shall treat the corporation as
the owner of the Shares to the extent permitted by law.
(c) If any transfer of Shares is made or attempted by a stockholder
contrary to the terms of this Article 6, the corporation shall have the right
to purchase the Shares from the transferee at any time before or after the
transfer, at the price and on the terms established herein and, in such event,
the transferee shall be bound by all the terms and provisions of this
Article 6. In addition to any other legal or equitable rights which it may
have, the corporation may enforce its rights by specific performance to the
extent permitted by law. The corporation may refuse for any purpose to
recognize any transferee who receives Shares contrary to the provisions of
this Article 6 as a stockholder of the corporation any may retain and/or
recover all dividends on such Shares which were paid or payable subsequent
to the date on which the prohibited transfer was made or attempted.
6.4 Exceptions to Transfer Restrictions
Notwithstanding anything to the contrary in this Article 6, the restric-
tions upon transfer set forth in this Article 6 shall not apply to any
transfer of Shares by a stockholder to (i) such stockholder's heirs, executors,
administrators or other personal representatives upon the death of such
stockholder; (ii) the spouse, children or grandchildren of the stockholder of
a trust or trusts for the benefit of such spouse, children or grandchildren,
or (iii) if such stockholder is a partnership, any partner or partners of such
partnership, provided that these restrictions on transfer shall continue to
apply to any Shares received by any such permitted transferee and such
permitted transferee shall not again transfer such Shares without first
offering such Shares to the corporation in accordance with this Article 6
(except as otherwise provided in this Section 6.4).
6.5 Termination of Restrictions
All restrictions contained in this Article 6 shall terminate in their
entirety on (and shall not apply to any transfer of Shares in connection with)
the earliest to occur of the following: (i) the merger or consolidation of the
corporation with or into another corporation if the corporation is not the
survivor of such merger or consolidation, or the sale of all or substantially
all of the assets of the corporation, or (ii) the completion of the first
underwritten public offering of Common Stock pursuant to an effective
registration statement under the Securities Act of 1933 resulting in at
least $2,000,000 of gross proceeds to the corporation.
<PAGE> 19
6.6 Stock Restriction Agreements
Notwithstanding anything to the contrary herein, the restrictions
contained in this Article 6 shall not apply to any sale of Shares by an
employee of the corporation to the corporation pursuant to a Stock Restriction
Agreement between the corporation and such employee, and the restrictions
contained in any such Agreement are in addition to, and not in lieu of, any
restrictions on transfer set forth in this Article 6.
6.7 Restrictive Legend
Until the termination of the restrictions set forth in this Article 6,
all certificates representing outstanding shares of Common Stock of the
Corporation shall have affixed thereto a legend substantially in the following
form:
"The shares of stock represented by this certificate are subject to
certain restrictions on transfer set forth in the By-Laws of the corporation,
said By-Laws being available for inspection without charge at the offices of
the Treasurer or the Company.
6.8 Waiver
The restrictions on transfer set forth in this Article 6 may be waived
in any particular instance or instances by a majority of the Board of Directors
of the corporation.
ARTICLE 7 - GENERAL PROVISIONS
7.1 Fiscal Year
Except as from time to time otherwise designated by the Board of
Directors, the fiscal year of the corporation shall begin on the first day
of January in each year and end on the last day of December in each year.
7.2 Corporate Seal
The corporate seal shall be in such form as shall be approved by the
Board of Directors.
7.3 Waiver of Notice
Whenever any notice whatsoever is required to be given by law, by the
Certificate of Incorporation or by these By-Laws, a waiver of such notice
either in writing signed by the person entitled to such notice or such person's
duly authorized attorney, or by telegraph, cable or any other available method,
whether before, at or after the time stated in such waiver, or the appearance
of such person or persons at such meeting in person or by proxy, shall be
deemed equivalent to such notice.
7.4 Voting of Securities
Except as the directors may otherwise designate, the President or
Treasurer may waive notice of, and act as, or appoint any person or persons
to act as, proxy or attorney-in-fact for this corporation (with or without
power of substitution) at, any meeting of stockholders or shareholders of any
other corporation or organization, the securities of which may be held by this
corporation.
<PAGE> 20
7.5 Evidence of Authority
A certificate by the Secretary, or an Assistant Secretary, or a temporary
Secretary, as to any action taken by the stockholders, directors, a committee
or any officer or representative of the corporation shall as to all persons who
rely on the certificate in good faith be conclusive evidence of such action.
7.6 Certificate of Incorporation
All references in these By-Laws to the Certificate of Incorporation shall
be deemed to refer to the Certificate of Incorporation of the corporation, as
amended and in effect from time to time.
7.7 Transactions with Interested Parties
No contract or transaction between the corporation and one or more of
the directors or officers, or between the corporation and any other corpor-
ation, partnership, association, or other organization in which one or more
of the directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or a committee of the Board of Directors which authorizes
the contract or transaction or solely because his or their votes are counted
for such purpose, if:
(1) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority
of the disinterested directors, even though the disinterested directors be
less than a quorum;
(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the Board of Directors,
a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
7.8 Severability
Any determination that any provision of these By-Laws is for any reason
inapplicable, illegal or ineffective shall not affect or invalidate any other
provision of these By-Laws.
7.9 Pronouns
All pronouns used in these By-Laws shall be deemed to refer to the
masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
<PAGE> 21
ARTICLE 8 - AMENDMENTS
8.1 By the Board of Directors
These By-Laws may be altered, amended or repealed or new by-laws may be
adopted by the affirmative vote of a majority of the directors present at any
regular or special meeting of the Board of Directors at which a quorum is
present.
8.2 By the Stockholders
These By-Laws may be altered, amended or repealed or new by-laws may be
adopted by the affirmative vote of the holders of a majority of the shares of
the capital stock of the corporation issued and outstanding and entitled to
vote at any regular meeting of stockholders, or at any special meeting of
stockholders, provided notice of such alteration, amendment, repeal or
adoption of new by-laws shall have been stated in the notice of such special
meeting.
Exhibit 10.20 - SECOND AMENDMENT OF VAIL/STEAMBOAT 8MM MECHANICAL COMPONENTS
SUPPLY AGREEMENT
<PAGE> 1
SECOND AMENDMENT OF
-------------------
VAIL/STEAMBOAT 8MM MECHANICAL COMPONENTS SUPPLY AGREEMENT
---------------------------------------------------------
THIS SECOND AMENDMENT ("Second Amendment"), made as of the 1st day of
May, 1998, among Sony Corporation, a Japanese corporation, having its principal
place of business at 7-35 Kitashinagawa 6-chome, Shinagawa-ku, Tokyo 141-0001,
Japan ("Sony"), Nihon Exabyte Corporation, a Japanese corporation, having its
principal place of business at Kioicho TBR Building 1214, 5-7 Koujimachi,
Chiyoda-ku, Tokyo 102-0083, Japan ("Buyer") and Exabyte Corporation, a
Delaware corporation, having its principal place of business at 1685 38th
Street, Boulder, Colorado, 80301, U.S.A. ("Exabyte"),
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, the parties hereto entered into the Vail/Steamboat 8MM Mechanical
Components Supply Agreement on the 1st day of January, 1992, for the sale (by
Sony) and the purchase (by Buyer) of certain component products, as amended
by the First Amendment of Vail/Steamboat 8MM Mechanical Components Supply
Agreement on the 1st day of April, 1994 ("Agreement");
WHEREAS, the manufacturing of certain models of the subject products of
the Agreement was discontinued by March 31, 1995; and
WHEREAS, the parties hereto wish to amend the Agreement upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the above recitals and of the mutual
promises provided hereinbelow, the parties hereto agree as follows:
1. The parties hereto confirm that the manufacturing and supply of EVU-350
Mecha deck, EVU-370 Mecha deck, EVU-350 Subassembly, EVU-360 Subassembly and
EVU-370 Series Subassemblies was discontinued by March 31, 1995 and as of the
date of this Second Amendment only EVU-390 Subassembly is being manufactured
and supplied under the Agreement. Based upon this, Items 1), 2), 3), 4),
and 5) of Sub-paragraph 1(a) of the Agreement shall be deleted in their
entireties.
2. The following provision shall be added as new Sub-paragraph 1(d) after
Sub-paragraph 1(c) of the Agreement:
"(d) The parties hereto agree that notwithstanding Sub-paragraph 1(b)
hereof, after the Termination Date, Buyer, instead of Supplier, shall supply
to Sony and Sony will purchase from Buyer the Components pursuant to this
Sub-paragraph 1(d). Such Components purchased pursuant to this Sub-paragraph
1(d) shall be used exclusively by Sony in the manufacture of the Parts for
sale to Buyer pursuant to the provision of Section 13 hereof. The sale and
purchase of the Components after the Termination Date shall be on the terms
and conditions set forth in Appendix II attached hereto. Notwithstanding any
provisions herein contained to the contrary, under no circumstances shall
Sony be liable or responsible for any defects in the Components supplied by
Buyer or any of such defects in the Parts of any other equipment as caused
thereby, nor shall Sony be liable or responsible for Sony's failure or delay
in production, shipment or delivery of the Parts due to Buyer's failure to
deliver Sony non-defective Components in the quantity sufficient for Sony to
<PAGE> 2
meet the requirements of the purchase orders for such Parts issued by Buyer
and accepted by Sony hereunder, in a timely manner. It is expressly understood
and agreed that the foregoing shall in no event relieve Sony from the
obligation to make correct installation (process and solder quality) of the
Components into the Parts."
3. Sub-paragraph 11(a) of the Agreement shall be deleted in its entirety and
the following new Sub-paragraph 11(a) shall be substituted in lieu thereof:
"(a) This Agreement shall become effective as of the date first above
written and shall continue in full force and effect until the Termination Date.
"Termination Date" shall mean July 31, 1998 or any earlier date on which this
Agreement is terminated as provided for in Sub-paragraph 11(b). If any of the
parties hereto desires to continue the transaction after the term of this
Agreement, i.e. after the Termination Date, the parties hereto shall discuss
and determine whether to continue the transaction or not, and if the
continuance is agreed upon, the parties hereto shall determine in writing
the terms and conditions applicable thereto prior to or by the Termination
Date."
4. The word "Sub-paragraph 1(d)" shall be added before the word "Paragraph 9.
WARRANTY" of Sub-paragraph 11(g) of the Agreement.
5. The following provision shall be added as new Paragraph 13.1 of the
Agreement:
"13.1 Supply and Purchase of the Parts after the Termination Date
-----------------------------------------------------------
(a) General
-------
Notwithstanding the provision of Paragraph 13, after the
Termination Date, the provisions of this Paragraph 13.1 shall govern the
supply and purchase of the Parts between Sony and Buyer.
(b) Gp.1, Gp.2 and Gp.3 Parts
-------------------------
After the Termination Date, only such Parts as specified in
Exhibit D-1 attached hereto (i.e. Gp.1, Gp.2 and Gp.3 Parts) shall be
available for purchase by Buyer from Sony as follows:
1) The Gp.1 Parts will be sold and supplied for a period of five
(5) years after the Termination Date in accordance with the following ordering
and forecasting procedures:
-Buyer shall issue to Sony by the fifth (5th) work day of Sony of
each calendar month via facsimile (i) a firm purchase order for the Parts
which Buyer requests Sony to deliver in a month with the applicable delivery
lead time specified in Exhibit D-1 attached hereto and (ii) a forecast of
monthly purchases of the Parts for delivery during the following three (3)
calendar month periods.
-The quantity specified for the delivery in the forecast shall be
mere forecast for the planning purpose only and by no means be construed as a
commitment of purchase.
<PAGE> 3
-Sony shall, within ten (10) working days after its receipt of such
purchase order, notify Buyer in writing as to whether or not Sony accepts the
purchase order so issued by Buyer. Sony shall not reject the purchase orders
by Buyer without reasonable cause, to the extent such purchase orders shall
be consistent with the provisions of this Agreement.
2) The Gp.2 Parts will be sold and supplied only one time on the
delivery date separately agreed upon between Sony and Buyer; provided that
Buyer shall accept the delivery date not later than the first anniversary of
the Termination Date and all quantity specified in Exhibit D-1 attached hereto
shall be purchased and delivered by such one time delivery.
3) The Gp.3 Parts will be sold and supplied for a period of five
(5) years after the Termination Date in accordance with the same ordering and
forecasting procedures as those applicable to Gp.1 Parts under item 1) above
as long as Sony maintains continuous production of those Parts. If Sony
decides to discontinue any Gp.3 Parts, it shall immediately notify Buyer to
that effect. At the point Sony no longer maintains continuous production,
the lead time shall be reduced to one (1) month and no forecast shall be
required. However, as for the Gp.3 Parts, Buyer shall have a duty to purchase
from Sony at least the Minimum Quantity as specified in Exhibit D-1 attached
hereto in total for each item during the said five (5) year period, and has no
right to order for more than Maximum Quantity as specified in Exhibit D-1
attached hereto in total, unless otherwise agreed in writing, during the said
five (5) year period.
(c) Warranty for Parts
------------------
1) Sony warrants that the Parts sold by Sony to Buyer hereunder
will, at the time of delivery and for a period of one hundred eighty (180)
days from the date of such delivery, be free from defects in materials and
workmanship under normal use and service and will conform to the applicable
specification.
2) Should any parts prove defective by reason of improper material
or workmanship or fail to meet the applicable specifications, and if Buyer
shall have so notified Sony within the said one hundred eighty (180) day
period and shall have specified in such notice the alleged defects, and if such
Parts are found to Sony's reasonable satisfaction to be defective, Sony shall,
at Sony's option, either repair or replace such defective Parts at Sony's cost
with the applicable delivery lead time as specified in Exhibit D-1 attached
hereto after Sony's receipt of such defective Parts. Sony shall not be
required to remove or install any Parts from or into Buyer's product(s) or
system(s) for the purpose of such repair or replacement. Sony shall separately
manufacture and store extra quantities of Parts for the purpose of warranty
repair or replacement. Such Parts shall not be included with the Minimum or
Maximum Quantities as specified in Exhibit D-1.
3) EXCEPT AS EXPRESSLY PROVIDED HEREINABOVE, NO WARRANTIES, EXPRESS
OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO, ANY
WARRANTIES OR MERCHANTIABLITY OR FITNESS FOR A PARTICULAR PURPOSE, ARE MADE
WITH REPSECT TO ANY PARTS AND ANY AND ALL SUCH WARRANTIES ARE HEREBY EXPRESSLY
EXCLUDED.
<PAGE> 4
(d) Miscellaneous
-------------
1) Forecasts and firm purchase orders for the Parts shall be sent
to the following address:
Sony Corporation
1-9-13 Chuominato, Chuo-ku, Chiba 260-0024, Japan
Attention: General Manager
World Repair Parts Operation Department
Customer Satisfaction Center
2) Delivery for Parts shall be made at the Buyer's warehouse
"Futamata Aircargo Center", Baraki Operation Department, International Cargo
Division, Tokyo air service branch, Nippon Express Co., LTD., located at
497 Futamata, Ichikawa-shi, Chiba 272-0001, Japan, unless otherwise agreed
in writing by Sony and Buyer.
3) Except for as specifically and expressly provided in this
Paragraph 13, all terms and conditions applicable to the Products under
this Agreement shall apply to such supply of the Parts."
6. Paragraph 16 of the Agreement shall be deleted in its entirely and the
following new Paragraph 16 shall be substituted in lieu thereof:
"16. Funded Hard Tooling
-------------------
The hard tooling developed by Sony and paid for by Exabyte pursuant to
Section 3.2 of the Development Agreement, which shall be specified in Exhibit
E hereto, ("Funded Hard Tooling"), shall be property of Exabyte. Sony, at its
own expense, shall be responsible to store, protect, preserve, repair and
maintain such Funded Hard Tooling in accordance with Sony's usual practice
(wear and tear excepted), subject to the life of each Funded Hard Tooling
which shall be separately notified by Sony to Buyer in writing. Upon the
termination or expiration of this Agreement, Sony shall request disposition
instructions for all Funded Hard Tooling. Sony agrees to scrap, disassemble,
make available to Exabyte or otherwise dispose of such Funded Hard Tooling
according to the disposition instructions of Exabyte, including preparation,
packing and shipping. Preparation, packing and shipment shall be made at
Exabyte's expenses, and scrapping and disassembling shall be made at Sony's
expenses; provided that Baking Equipment (Tag No.20109), Washing Equipment
(Tag No.20110) and Burn-in Equipment (Tag No.20111) shall be scrapped or
otherwise disposed of at Exabyte's cost. Sony shall furnish Exabyte with
a list of all Funded Hard Tooling which shall have been scrapped or otherwise
disposed by Sony and documentation which identifies disposal method and
disposition. If Exabyte fails to give Sony appropriate disposition
instructions of the Funded Hard Tooling in writing within 25 days from Sony's
written inquiry after the Termination Date, Sony may dispose of such Funded
Hard Tooling at its own expense; provided that such disposal by Sony shall
by no means release Exabyte from its obligation to bear the cost for scrapping
Baking Equipment (Tag No.20109), Washing Equipment (Tag No.20110) and Burn-in
Equipment (Tag No.20111). The use of Funded Hard Tooling by Sony shall be
expressly limited to the manufacture of Products for Buyer under this Agreement
or as otherwise agreed to by Exabyte in writing."
<PAGE> 5
7. New Appendix II attached hereto shall be added to the Agreement after
Appendix I.
8. Exhibit C of the Agreement shall be deleted in its entirety and the new
Exhibit C attached hereto shall be substituted in lieu thereof.
9. New Exhibit D-1 attached hereto shall be added to the Agreement after
Exhibit D.
10. Exhibit G of the Agreement shall be deleted in its entirety and the new
Exhibit G attached hereto shall be substituted in lieu thereof.
11. Except as specifically amended hereby, any and all provisions of the
Agreement shall remain full force and effect and are hereby ratified and
confirmed.
12. This Second Amendment shall become effective as of May 1, 1998.
IN WITTNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the date and year first above written.
Sony: Buyer:
Sony Corporation Nihon Exabyte Corporation
By: /s/ Mitsuyuki Watanabe By: /s/ Hisahiro Endo
------------------------- ------------------------
Mitsuyuki Watanabe Hisahiro Endo
President Representative Director
Electronic Devices Marketing Group
Exabyte:
Exabyte Corporation
By: /s/ William L. Marriner
--------------------------
William L. Marriner
President / Chief Executive Officer
Exhibit 10.20 - 1999 OFFICER BONUS PLAN
The Company has adopted a 1999 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 results as measured against the 1999 Operating Plan presented
and approved at the Board of Directors meeting on January 29, 1999. 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).
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 20, 1999
appearing on page 42 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Denver, Colorado
April 1, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AS OF JANUARY 2, 1999 AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY 2, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
PLEASE NOTE THAT THE ITEM TAGGED AS EPS-PRIMARY IS BASIC EPS AS REPORTED
BY THE COMPANY.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-START> JAN-04-1998
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JAN-02-1999
<CASH> 56,571
<SECURITIES> 14,145
<RECEIVABLES> 45,844
<ALLOWANCES> 7,830
<INVENTORY> 26,997
<CURRENT-ASSETS> 155,632
<PP&E> 119,323
<DEPRECIATION> (90,927)
<TOTAL-ASSETS> 207,836
<CURRENT-LIABILITIES> 34,103
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 166,249
<TOTAL-LIABILITY-AND-EQUITY> 207,836
<SALES> 286,505
<TOTAL-REVENUES> 286,505
<CGS> 207,604
<TOTAL-COSTS> 207,604
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (713)
<INTEREST-EXPENSE> 607
<INCOME-PRETAX> (6,149)
<INCOME-TAX> (3,382)
<INCOME-CONTINUING> (2,767)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,767)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
