<PAGE> 1
- -----------------------------------------------------------------------------
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 1, 2000
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 1, 2000 was $150,667,958 based on
the closing sale price on such date(a). The aggregate number of shares of
common stock outstanding on March 1, 2000 was 22,935,732.
<PAGE> 2
Document incorporated by reference: Proxy Statement for the 2000 Annual
Meeting of Stockholders scheduled to be held April 28, 2000: Part III, Items
10, 11, 12, and 13.
(a) Excludes 3,953,942 shares of common stock held by directors, executive
officers and stockholders whose ownership exceeds ten percent of the common
stock outstanding at March 1, 2000. 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.
<PAGE> 3
PART I
Item 1.
BUSINESS.
THE COMPANY
===========
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 and MammothTape(TM) tape drives and robotic tape
libraries as well as 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 and library market for workstations, midrange 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. Additionally, end users require
reliable data backup and archival applications. Exabyte's current strategy is
to offer a number of products to address a broad range of these requirements.
In 1999, the Company restructured its operations and consolidated its
automation, drives and service divisions to reduce the redundancy in the
management structure. The Company also established a wholly-owned subsidiary,
CreekPath Systems, Inc., to provide high data availability solutions to
Internet companies through Internet service providers and application service
providers.
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
=====================
Exabyte's products, marketed exclusively through resellers and original
equipment manufacturer ("OEM") partners around the world, address the need
for reliable, high-performance data storage in the fastest growing segments
of the computer industry - NT, UNIX and Linux application and database servers.
Exabyte concentrates on the midrange application and database server market,
manufacturing tape backup and network storage solutions for small, medium and
large businesses. Exabyte provides cost-effective solutions in a range of
technologies, including MammothTape(TM), 8mm and DLTtape(TM).
Throughout the past decade, Exabyte's products have found widespread use in
attended and unattended network backup, automated storage management, near-
<PAGE> 4
online storage, archiving, data collection, software distribution and
interchange.
In 1994, Exabyte announced a new technology, known today as MammothTape(TM)
technology. MammothTape(TM) technology is an integrated system encompassing
both tape drive design and advanced metal evaporated ("AME") media. All aspects
of the technology are designed to work together to optimize recording
performance and to help ensure the integrity of vital data.
Although based on 8mm helical-scan recording technology, the first-generation
MammothTape(TM) drives incorporated several significant improvements: faster
transfer rates, higher capacity, more immediate SCSI response, gentle tape
handling, extensive error recovery, automated storage solutions and high-
performance AME media.
There are currently three MammothTape(TM) technology tape drives, each scalable
and suitable for specific business needs. Exabyte's Mammoth-2 ("M2(TM)") tape
drives are made for the midrange market. Appropriate for NT, UNIX and Linux
environments, they automatically scale their performance to match the host
system, without impacting server performance. The original Mammoth tape
drives provide consistent performance and reliability at a modest price.
Mammoth-LT drives offer economical entry into MammothTape(TM) technology.
Combining MammothTape(TM) drives with Exabyte libraries creates automated
data backup for businesses of all kinds. Exabyte's MammothTape(TM) technology
libraries incorporate the elements needed to protect data and provide a solid
growth path to the future.
Exabyte's Eliant(TM)820 tape drive is the Company's only 8mm "non-
MammothTape(TM)" product offering. However, data recorded on Eliant(TM)820
tape drives are backward readable by Mammoth and Mammoth-LT tape drives,
giving the Eliant(TM)820 end-users an easy migration path into Exabyte's
MammothTape(TM) technology.
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--Mammoth-2," "RISK FACTORS--Product
Development," "RISK FACTORS--Media Dependence," "RISK FACTORS--Product
Quality and Performance," "RISK FACTORS--Management of Business and Product
Transitions" and "RISK FACTORS--Customer Dependence" below.
Tape Drive Products
===================
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.
Exabyte's tape drives offer data capacities* ranging from 14GB to 150GB and
transfer rates* ranging from 2MB per second to 30MB per second. In 1999,
<PAGE> 5
sales of Exabyte's current tape drive products represented 45% of revenue,
while in 1998 and 1997, sales represented 43% and 23% of total revenue,
respectively.
The following table sets forth specific information about each of the Company's
tape drives:
MammothTape(TM)Technology:
- --------------------------
Drive Capacity* Transfer Rate*
----- -------- -------------
Mammoth-2 150GB 30MB/sec
Mammoth 40GB 6MB/sec
Mammoth-LT 28GB 4MB/sec
8mm Technology:
- ---------------
Eliant(TM)820 14GB 2MB/sec
*Data capacities and transfer rates for the Mammoth, Mammoth-LT and
Eliant(TM)820 tape drives assume a compression ratio of two-to-one,
while M2(TM) assumes a compression ratio of two-and-a-half-to-one.
Future Tape Drive Products
- --------------------------
Mammoth-3
The Company is currently developing its Mammoth-3 ("M3(TM)") tape drive. The
Company anticipates that this drive will feature a compressed data capacity
of approximately 300GB and a compressed transfer rate of 50MB 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). M3(TM) is designed to be backward compatible with the Mammoth-
Tape(TM) product line and will exclusively use AME media. See "RISK FACTORS--
Product Development," "RISK FACTORS--Media Dependence" and "RISK FACTORS--
Supplier Dependence" below. Worldwide shipment of M3(TM) to customers is
expected to begin in 2001.
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.
Robotic Tape Libraries
======================
Exabyte libraries are engineered to work with multiple tape drive technologies.
This flexibility is designed to allow Exabyte to quickly address changing
market conditions and respond to requests from our customers for automation
solutions involving different tape technologies. The current Exabyte library
family includes MammothTape(TM), DLTtape(TM) and, in the near future, LTO(RTM)
technologies.
Exabyte libraries are designed to be scalable, allowing Exabyte to develop
different sized libraries based on the same model, with room inside each box
for expansion. This capability is intended to enable Exabyte designs to
accommodate increases in customers' data storage needs, allowing customers to
protect their library investment.
<PAGE> 6
Exabyte engineered its library products to satisfy the reliability, service-
ability and management requirements of storage networking. They combine the
reliability of Exabyte robotics with features such as optional Ethernet ports,
hot-pluggable tape drive carriers designed to be serviced during library
operation, standard bar code scanners and removable magazines.
In 1999, revenues from current library sales were 13% of total revenue, while
in 1998 and 1997, sales represented 14% and 15% 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.
The following table sets forth specific information about Exabyte's robotic
tape library products. Capacity and transfer rates reported assume each
library is running at full capacity, as indicated in the column heading,
"Full Capacity."
<TABLE>
<CAPTION>
MammothTape(TM) Libraries:
- --------------------------
Library Full Capacity Capacity* Transfer Rate*
------- ------------- -------- -------------
<S> <C> <C> <C>
X200 10 M2(TM) drives and 30TB 1TB/hour
200 media cartridges
X80 8 M2(TM) drives and 12TB 864GB/hour
80 media cartridges
220 2 M2(TM) drives and 3TB 216GB/hour
20 media cartridges
EZ17 1 M2(TM) drive and 1TB 108GB/hour
7 media cartridges
440/480 4 Mammoth drives and 3TB 86GB/hour
80 media cartridges
DLTtape(TM) Libraries:
- ----------------------
Library Full Capacity Capacity* Transfer Rate*
------- ------------- -------- -------------
690D 6 DLT7000 drives and 6TB 216GB/hour
90 media cartridges
230D 2 DLT7000 drives and 2TB 72GB/hour
30 media cartridges
17D 1 DLT7000 drive and 490GB 36GB/hour
7 media cartridges
</TABLE>
*Data capacities and transfer rates for the M2(TM) drive assume a compression
ratio of two-and-a-half-to-one. All other data capacities and transfer rates
assume a compression ratio of two-to-one,
<PAGE> 7
Future Library Product Offerings
- --------------------------------
The Company is currently developing a number of new library product offerings.
Some of the products listed in the tables below represent library offerings
which are designed to incorporate drives that are not yet available from the
respective manufacturers. The Company intends to make the libraries available
to its customers once the drives are available for the Company to incorporate
into its libraries. The expected availability dates listed are estimated dates
which the Company currently expects such drives to become available, but are
subject to delays from the manufacturer which are beyond the control of the
Company.
There can be no assurance that these 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.
<TABLE>
<CAPTION>
Future Announced MammothTape(TM) Libraries:
- -------------------------------------------
Library Full Capacity Capacity* Transfer Rate* Availability
------- ------------- -------- ------------- ------------
<S> <C> <C> <C> <C>
430 4 M2(TM) drives and 4TB 432GB/hour 2nd Half 2000
30 media cartridges
215 2 M2(TM) drives and 2TB 216GB/hour 2nd Half 2000
15 media cartridges
Future Announced LTO Ultrium(TM) Libraries:
- -------------------------------------------
Library Full Capacity Capacity* Transfer Rate* Availability
------- ------------- -------- ------------- ------------
110L 1 drive and 2.5TB 144GB/hour 2nd Half 2000
10 media cartridges
221L 2 drives and 5TB 288GB/hour 2nd Half 2000
20 media cartridges
6108L 6 drives and 22TB 648GB/hour 2nd Half 2000
108 media cartridges
</TABLE>
*Data capacities and transfer rates for M2(TM) assume a compression ratio
of two-and-a-half-to-one, while data capacity and transfer rate compression
for the other technologies assume compression ratios consistent with those
technologies. All data capacities and transfer rates are subject to change.
Media
=====
Exabyte provides various types of media cartridges, as well as cleaning
cartridges and data cartridge holders, for its tape drive products. The high-
quality media, produced by multiple third parties, is available in different
lengths to handle various data storage requirements. Sales of media and media
related products represented approximately 30%, 23% and 15% of sales in 1999,
1998 and 1997, respectively.
<PAGE> 8
The growth of Exabyte's current and future MammothTape(TM) 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 product shipments by the Company if the media is not received
on a timely basis or at an acceptable quality level. See "RISK FACTORS--Media
Dependence" below.
AME with SmartClean(TM)
- -----------------------
AME media with SmartClean(TM) technology is used exclusively by M2(TM) and
includes a section of cleaning tape at the beginning of each data cartridge.
This cleaning tape is specifically designed to remove chemical films that can
build up on heads. These films are caused by organic compounds and cannot be
removed by other cleaning methods. The M2(TM) drive keeps statistics on its
own operation and activates the SmartClean(TM) technology only when the drive
needs cleaning. With normal use, extra cleaning cartridges are not needed.
AME Media
- ---------
Formulated specifically for Exabyte MammothTape(TM) tape drives, Exabyte AME
tape offers expanded recording capacity and low abrasivity, which reduces
mechanical wear. AME magnetic material is vertically aligned. This unique
orientation and the absence of binder components on the media gives AME higher
capacity and superior signal strength. AME's specially formulated backcoating
dramatically reduces the buildup of static electricity and debris, greatly
reducing the chance of read/write errors.
MP Media
- --------
Exatape 8mm data-grade metal particle ("MP") media is designed to optimize
drive performance and increases data integrity. The only media recommended for
use in Exabyte Eliant(TM)820 tape drives and libraries, Exatape is laboratory
certified. A special cartridge design resists contamination for prolonged shelf
life.
The following table shows the compatibility of Exabyte's media with Exabyte's
MammothTape(TM) and 8mm technology drives:
<TABLE>
<CAPTION>
Exabyte Media Compatibility
- ---------------------------
Media M2(TM) Mammoth Mammoth-LT Eliant(TM)820
===== ====== ======= ========== =============
<S> <C> <C> <C> <C>
Metal Particle NS* Read Only Read Only Read/Write
AME Read Read/Write Read/Write NS*
AME with SmartClean(TM) Read/Write NS* NS* NS*
</TABLE>
*NS = Not Supported
NetStorM(TM)
============
NetStorm(TM), Exabyte's network storage management initiative, is designed
to optimize the performance and management capabilities of Exabyte's drives,
and libraries, each being certified with other vendors' products. From network
backup through complex storage networks (SANs), NetStorM(TM) is designed to
provide reliable, high-performance data solutions.
<PAGE> 9
A SAN is a secondary network dedicated to backup and storage functions. The
main purpose of a SAN is to centralize the storage function and relieve the
primary network of massive data transfers that can slow it down. A SAN provides
all the benefits of network backup with the ability to transport data over long
distances. It also provides increased manageability and high performance.
Exabyte's library monitor provides Fibre Channel connectivity and Internet-
enabled, Java-based out-of-band device management. The library monitor offers
certified interoperability and end-to-end storage management capabilities,
relying on compatibility with leading Internet service providers including
CreekPath, Computer Associates, Veritas, and Hewlett-Packard to deliver
management functions.
Service and Support
===================
Exabyte 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 and reseller customers, as well as end
users, in the deployment, operation and maintenance of Exabyte products.
The service programs offered by the Company include those listed below:
Products Service Programs
-------- ----------------
Robotic Tape Libraries................Hardware conversions
Parts support
Depot repair
On-site service
Exabyte Tape Drive Products...........Hardware upgrades
Depot repair
Advance exchange options
Media.................................Warranty exchange
Data recovery
Media conversions
Data migration
In addition to Exabyte's standard service and support offerings, the Company
offers a support package, SupportSuite(TM), which consists of award-winning,
international service and support offerings to help customers integrate the
Company's products while protecting the customer's investment in Exabyte
technology. Exabyte's SupportSuite(TM) spans entire product life cycles,
providing a full range of data storage, migration, recovery, and storage
automation services to ensure ongoing data protection.
In 1999, revenue from service and support programs accounted for 7% of total
revenue, while in 1998 and 1997 these programs accounted for 7% and 6% of
revenues, respectively.
CreekPath Systems
=================
The Company's wholly-owned subsidiary, CreekPath Systems, Inc. ("CreekPath"),
was created in December 1999 to leverage Exabyte's investments and
expertise in Storage Area Networks (SANs), Fibre Channel and Java-based
software for storage resource management. CreekPath delivers high performance
and high availability data solutions behind web servers by integrating SAN
<PAGE> 10
solutions, including switches, routers, tape libraries and RAID, together with
Java-based management software and leading SAN data management solutions.
CreekPath will use these technologies to deliver a storage service to Internet
companies. As with any new venture, risks include the ability to hire
appropriate personnel, capitalization of the plan, acceptance of products and
services in a new market, and the availability of competitive products and
services in the target market.
MARKETING AND CUSTOMERS
=======================
The Company markets its products worldwide to OEMs and resellers, and provides
services directly to OEMs and to the consumers 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. In particular, Exabyte's M2(TM) tape
drive is dependent upon OEM adoption for its success. For a description of
the risks associated with Exabyte's customers and customer dependence, see
"RISK FACTORS--Mammoth-2," "RISK FACTORS--Customer Dependence," "RISK FACTORS--
Market Demand" and "RISK FACTORS--Year 2000 Compliance" below.
OEMs
====
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.
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 38% of total sales in
1999. In 1998 and 1997, these sales were 46% and 49%, respectively, of total
sales.
Resellers
=========
The Company's reseller channel customers purchase products for resale and
may provide, for example, distribution, financial terms and conditions,
pre-sales, sales, post-sales system upgrades, or other value-added products
and/or services. The Company supports authorized key account reseller channel
customers by providing marketing and technical support directly to them as
well as to their consumers, thereby incurring certain additional costs for
such sales. Other costs and risks associated with Exabyte's distributors
and/or authorized key account reseller channel customers may include inventory
price protections, stock rotation obligations, short term marketing promotions,
as well as customer and consumer 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.
Sales to resellers represented approximately 58%, 50% and 46% of sales in
1999, 1998 and 1997, respectively.
<PAGE> 11
International
=============
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 34%, 30%, and 32% of sales in
1999, 1998, and 1997, 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
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
===================
A partial list of Exabyte's OEM and reseller customers includes Bull S.A.,
Fujitsu Siemens Computers, IBM, Ingram Micro, Merisel, NCR, Sun Microsystems
and Tech Data.
IBM, Sun Microsystems and Ingram Micro were the only three customers accounting
for 10% or more of Exabyte's sales during fiscal 1999 and 1998, while IBM and
Sun Microsystems were the only two customers who accounted for 10% or more of
sales during fiscal year 1997. IBM accounted for 15% of sales in 1999 and 15%
and 17% of sales in 1998 and 1997, respectively. Sun Microsystems accounted for
11% of sales in 1999 and 11% and 13% of sales in 1998 and 1997 respectively.
Ingram Micro accounted for 14% of sales in 1999 and 13% of sales in 1998.
These three customers accounted for an aggregate of 40% of sales in 1999.
Loss of, or a significant reduction in sales to, any of Exabyte's key customers
would have a material adverse effect on the Company's results of operations.
For a description of these and other risks associated with Exabyte's customers
and customer dependence, see "RISK FACTORS--Customer Dependence" and "RISK
FACTORS--Market Demand" below.
COMPETITION
===========
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 and the company's
financial strength.
<PAGE> 12
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, mini cartridge, half-inch
cartridge, optical or other storage product technologies. Future developments
of tape and optical technologies, as well as new forms of storage technologies,
could create additional, significant competition to Exabyte. Other risks
include loss of market share, timing to market, price erosion and pricing
pressure. For a description of these and other risks associated with Exabyte's
competition, see "RISK FACTORS--Mammoth-2" and "RISK FACTORS--Competition"
below.
Exabyte's M2(TM) tape drive faces significant competition from current and
announced tape drive products manufactured by Quantum, Sony and the LTO(RTM)
Consortium. Some of these future products assert greater data capacities and
transfer rates than M2(TM). The following table sets forth a comparison of
Exabyte's M2(TM) and its competitors. The Company believes all data and
expected availability dates shown below are accurate as of the date of filing.
However, there can be no assurance that any of the below information will not
change in the future.
<TABLE>
<CAPTION>
CAPACITY TRANSFER RATE
DRIVE MANUFACTURER (Native) (Native) AVAILABILITY
- ----- ------------ -------- ------------- ------------
<S> <C> <C> <C> <C>
M2(TM) Exabyte 60GB 12GB/sec Now Shipping
DLT8000 Quantum 40GB 6GB/sec Now Shipping
AIT-2 Sony 50GB 6GB/sec Now Shipping
LTO(RTM) LTO(RTM) Consortium 100GB 15GB/sec 2nd Half of 2000
SuperDLT Quantum 100GB 10GB/sec 2nd Half of 2000
M3(TM) Exabyte 120GB 20GB/sec 2001
AIT-3 Sony 100GB 12GB/sec 2001
</TABLE>
Further, the Company faces competition for its tape drives (excluding M2(TM))
and robotic tape library products from companies offering 8mm, half-inch, 4mm
and mini-cartridge products.
There are several companies which offer competitive media products. Exabyte's
service programs compete with those offered by independent service providers.
MANUFACTURING
=============
Exabyte manufactures parts or complete units of its tape drive and library
products. 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
<PAGE> 13
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 Sourcing" below.
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-2" below.
The Company manufactures a mechanical deck mechanism for its MammothTape(TM)
tape drive products. Production of these deck assemblies requires a more
complex manufacturing process than the Company had previously undertaken.
Difficulties in manufacturing this deck assembly caused production constraints
for Exabyte's Mammoth tape drive in the past. There can be no assurance that
such problems will not occur again in the future, particularly with M2(TM) or
future MammothTape(TM) products. For a description of the risks associated
with the production of the Company's MammothTape(TM) product line, see "RISK
FACTORS--Mammoth-2," "RISK FACTORS--Product Development" and "RISK FACTORS--
Media Dependence" 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
SCI Systems
Recording heads....................Alps
EMG
Reel Motor.........................Kumagaya
Cartridge Loader...................Yano
Misc. Deck Components..............Kenseisha
AME Media..........................Sony
MEI
TDK
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.
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.
Hitachi
=======
On April 22, 1999, Exabyte entered into a joint development agreement with
Hitachi, Ltd. ("Hitachi") for the development of Exabyte's future Mammoth-3
tape drive. The development and introduction of M3(TM) depends heavily upon
the success of this joint development relationship.
In addition, on December 20, 1999, the Company entered into a second joint
development agreement with Hitachi for the development of a scanner for
Exabyte's M2(TM) tape drive. Although scanners for Exabyte's MammothTape(TM)
drives are currently supplied by EMG, the procurement of a second source for
<PAGE> 14
the supply of scanners for M2(TM) is intended to reduce the risk of the
development of this tape drive.
Both agreements provide that Exabyte shall retain ownership rights to any
jointly developed product under the agreements. However, the agreements
further provide that Hitachi has the right to license the technology, royalty-
free, from Exabyte for any non-data storage purpose.
There can be no assurance that the joint development agreements will be
successful or that any component developed under such agreements will meet
the Company's specifications or be developed at an acceptable cost to the
Company, which may cause a significant delay or even termination of the
production of the tape drives, and would have a material adverse effect on
the Company's competitive position and its results of operations. See "RISK
FACTORS--Mammoth-2," "RISK FACTORS--Supplier Dependence" "RISK FACTORS--Third
Party Contract Manufacturing" and "RISK FACTORS--Foreign Sourcing" below.
In addition, Hitachi also supplies the tape deck components for Exabyte's
Eliant(TM)820 tape drives pursuant to an agreement dated December 11, 1996.
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.
There can be no assurance that the decks or other components supplied or
developed by Hitachi will be successful or continue to be available at current
supply levels or prices. The Company's inability to obtain decks or components
at a commercially reasonable cost would cause a significant delay or even
termination of the production of certain of the Company's tape drive products,
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 Hitachi or
Exabyte's other suppliers, see "RISK FACTORS--Mammoth-2," "RISK FACTORS--
Supplier Dependence" and "RISK FACTORS--Foreign Sourcing" 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 $35.7
million, $29.9 million and $40.9 million in 1999, 1998 and 1997, respectively.
Except for certain software development costs, the Company's research and
development costs are expensed as incurred.
<PAGE> 15
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. During 1999, 18 patents were issued for
Exabyte in the United States, of which four 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.
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. The Company's total backlog as of
January 1, 2000 and January 2, 1999 totaled approximately $15.5 million and
$19.8 million, respectively. 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 availability. 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, 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
<PAGE> 16
results of operations, therefore, may be materially affected by fluctuations
in currency exchange rates. The Company, from time to time, 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
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 January 29, 2000, the Company had 1,021 full-time and part-time
employees worldwide, including 132 in engineering, 139 in manufacturing, 35
in marketing, 65 in quality control, 64 in general and administrative, 40 in
information systems, 53 in services, 63 in logistics, 69 in technical support,
121 in sales, 225 in its German, Japan and Scotland subsidiaries and 15 in
CreekPath Systems, Inc. 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. In August 1999, the Company reduced its workforce again, as a
result of the re-consolidation of its segments and the outsourcing of certain
service functions to third parties, resulting in the involuntary termination
of approximately 200 employees at the end of 1999.
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.
<PAGE> 17
RISK FACTORS
============
Mammoth-2
=========
The Company believes that its future success depends largely on the success
of its Mammoth-2 tape drive. There are several risks related to the success
of M2(TM), including supply, product transition, OEM qualification and
adoption, and media availability.
Manufacturing
- -------------
Should the Company be unable to manufacture M2(TM) in sufficient enough
quantities to fulfill current or potential backlog orders, it could have a
material adverse effect on the Company's results of operations. Exabyte's
German subsidiary, EMG, develops, manufactures and supplies scanners and
recording heads, key components of M2(TM), to the Company. These components
require a high degree of manufacturing and technical expertise. The Company
is highly dependent upon the continuous supply of these components for the
success of its M2(TM) tape drive. Any inability of EMG to supply a sufficient
number of high-quality components could have a material adverse effect on the
Company's results of operations.
Product Transition
- ------------------
The Company is experiencing a period of business and product transition
related to its M2(TM) product. Due to the recent release of M2(TM), customers
may delay or cancel orders of Mammoth tape drives, which would have a material
adverse effect on the Company's results of operations.
OEM Qualification and Adoption
- ------------------------------
The success of M2(TM) is heavily dependent upon the qualification and adoption
of the drive by existing and potential OEM customers. Should M2(TM) not pass
the qualification process of key OEM's, or should any key OEM fail to adopt
M2(TM), it could have a material adverse impact on the Company's results of
operations and may adversely affect Exabyte's competitive position.
One factor in the adoption of M2(TM) by potential OEM customers is the
availability of a feature in the M2(TM) product to enable it to read data
written by the earlier generation Mammoth tape drives. The Company expects
that this backward-read feature will be available in the second quarter
of 2000. Failure to achieve this backward-read feature on a timely basis
could adversely affect OEM adoption of the M2(TM) product, the Company's
competitive position and its results of operations.
Product Development
===================
Exabyte participates in an industry that is subject to rapid technological
change. The Company believes that its future success will depend on its
ability to apply and extend its technology and further develop reliable tape
subsystems and robotic tape libraries with competitive price performance and
quality characteristics. Accordingly, Exabyte's ability to compete
successfully depends on continued enhancements to its existing products and the
timely development of new products that meet the changing needs of users. The
<PAGE> 18
Company has experienced delays from time to time meeting internal product
development schedules. In the future, the Company may encounter difficulties
that could delay or prevent future product development.
Exabyte continually assesses its product cycles in terms of product
introduction and withdrawal. Any failure by the Company to accurately
estimate the timing of new product introductions may result in the premature
or delayed withdrawal of its existing product lines. The premature withdrawal
of an existing product line could result in the loss of revenue and earnings
contribution from that product line. The delayed withdrawal of an existing
product line could result in the Company's assumption of excess product
inventory. Additionally, the premature or delayed introduction of a product
could adversely affect the sales or withdrawal timing of an existing product.
Failure to accurately time product introductions and withdrawals could have a
material adverse effect on the Company's results of operations. Additionally,
the Company's inability to successfully introduce announced products would
have a material adverse effect on the Company's results of operations.
Exabyte's Mammoth and M2(TM) 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 is partially derived
from its previous experience in manufacturing the deck assembly for its Mammoth
tape drive. There can be no assurance that any such manufacturing efforts will
be successful. Should the Company experience any difficulties in the
manufacture of the M2(TM) deck assembly, it could cause the Company to delay
or cancel shipments of the M2(TM) drive, which would have a material adverse
effect on the Company's results of operations, and would have a material impact
on the Company's competitive position.
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.
These relationships subject Exabyte to supply or technology dependencies. See
"RISK FACTORS--Patent Infringement and Proprietary Rights."
Hitachi
- -------
Should Hitachi be unable to develop or produce the necessary components
pursuant to the joint development agreements entered into by the Company
and Hitachi to the Company's specifications or at an acceptable cost to the
Company, it could adversely affect Exabyte's ability to successfully develop
and/or introduce its Mammoth-3 tape drive or manufacture its M2(TM) tape drive.
Additionally, even if Hitachi does successfully develop and produce the
necessary components, there can be no assurance that the Company will be able
to incorporate such components into its drives, or that any such incorporation
will be at an acceptable cost to the Company. Any inability to incorporate
<PAGE> 19
the components developed by Hitachi, for any of the above reasons or otherwise,
could have a material adverse effect on the Company's results of operations and
could adversely impact its competitive position.
Additionally, Hitachi supplies mechanical tape decks for Exabyte's
Eliant(TM)820 tape drive products. The Company may encounter delays in or
termination of the production of these tape drives should supply problems
arise with Hitachi. While Exabyte has a supply contract 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.
ASIC Chips
- ----------
The Company obtains its ASIC chips for its MammothTape(TM) product line 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 MammothTape(TM) products, which could have a material adverse
effect on the Company's competitive position and its results of operations.
EMG
- ---
Exabyte's German subsidiary, EMG, develops, manufactures and supplies scanners
and recording heads, key components of Exabyte's Mammoth and M2(TM) products.
These components require a high degree of manufacturing and technical
expertise. There can be no assurance that the Company will not experience
production constraints in connection with its M2(TM) product, which would
have a material adverse effect on the Company's results of operations.
Liquidity
=========
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 2000 and on a long
term basis. On April 4, 2000, the Company obtained a commitment on a new $20.0
million line of credit with Congress Financial Corporation, a subsidiary of
First Union National Bank. Under the terms of the commitment, Exabyte may
borrow up to 80% of eligible accounts receivable. The line will be secured
by accounts receivable and inventory. Borrowings under the line will bear
interest at the lower of prime plus .5% or LIBOR plus 2.5%. The formal
agreement is expected to close during April 2000. If actual operating results
differ from projected results, the Company may be required to secure additional
sources of financing. There can be no assurance that the Company will be able
to procure any necessary additional financing or that such financing will be
on terms acceptable or beneficial to the Company. (See MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, "LIQUIDITY AND
CAPITAL RESOURCES")
Inventory/Logistics
===================
Some of Exabyte's customers may require as a part of the supplier relationship
that Exabyte maintain inventory on behalf of the customer at one or more third
party warehouse locations. Exabyte would be further required to retain title
and ownership of any such inventory until it is physically pulled by the
customer from the warehouse inventory stock.
<PAGE> 20
Operating under this business model would cause the Company to incur additional
costs associated with the shipment, maintenance and carrying costs of its
inventory. Although the Company may attempt to pass these increased costs
to the customer through increased product pricing, there can be no assurance
that any such attempt would be successful. Should the Company be forced to
internally absorb these additional costs, it could have a material adverse
effect on the Company's results of operations.
In addition, the Company may be required to increase its inventory
levels to assure compliance with the customer's new inventory requirements.
Should the Company be unable to adequately manage such an increase in its
inventory, it may result in the Company incurring special charges or inventory
write-downs, or establishing additional inventory reserves, which would have a
material adverse effect on the Company's results of operations.
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.
Exabyte's M2(TM) tape drive faces significant competition from current and
announced tape drive products manufactured by Quantum, Sony and the LTO(RTM)
Consortium. Some of these future products assert greater data capacities and
transfer rates than M2(TM). Further, the Company faces competition for its tape
drives (excluding M2(TM)) and robotic tape library products from companies
offering 8mm, half-inch, 4mm and mini-cartridge products. Significant
competition may also develop 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.
Key Employees
=============
The development, introduction and success of Exabyte's products depend largely
on the continued employment of certain key employees. The loss of or inability
to recruit key employees could delay internal product development schedules,
interrupt team continuity and subject Exabyte to the risk of losing proprietary
information to competitors or other third parties.
Exabyte has in the past lost key employees to competitors, 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
<PAGE> 21
programs in place that are designed to encourage the continuous employment
and recruitment 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.
Media Dependence
================
Exabyte's MammothTape(TM) family is exclusively dependent upon the continuous
supply of high-quality AME media. Exabyte's ability to sustain growth in the
MammothTape(TM) product family depends on the availability of this media, which
is produced to the Company's specifications. Currently, AME media is sourced
from Matsushita Electric Industrial Co. Ltd. ("MEI"), TDK Corporation ("TDK")
and Sony. 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 and
associated libraries, or delay the introduction of future MammothTape(TM) tape
drive products, which could have a material adverse effect on the Company's
competitive position and its results of operations.
Additionally, M2(TM) is heavily dependent upon the supply of AME media with
SmartClean(TM) technology. This media is currently supplied solely from MEI.
Exabyte is currently working with TDK in the early stages of its qualification
process for this media. There can be no assurance that any media supplied by
TDK 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. Should Exabyte be unable to procure AME media with SmartClean(TM) in
sufficient quantities and at acceptable quality levels, the Company may be
forced to delay or cancel shipments of M2, which would have an adverse affect
on the Company's competitive position and would have a material adverse impact
on the Company's results of operations.
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 MammothTape(TM)
product line 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.
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.
The Company may enter into contracts with third parties outside the United
States to manufacture certain products or components for Exabyte, which may
impair the Company's ability to establish, maintain or achieve adequate
manufacturing design standards or quality levels. In addition to normal market
risks for utilizing third party manufacturers, contracting with foreign third
party manufacturers subjects the Company to certain additional exposures,
including political instability, currency controls and fluctuations, and
tariff, import and other restrictions and regulations. Additionally, the sale
of such products manufactured overseas to domestic federal or state agencies
may be restricted by limitations imposed by the Buy American Act or the Trade
Agreement Act.
Customer Dependence
===================
IBM, Sun Microsystems and Ingram Micro accounted for 15%, 14%, and 11%
respectively, of Exabyte's sales in 1999, accounting for an aggregate of 40%
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 adverseeffect on the Company's results of operations. The Company
has experienced delays in receipt of purchase orders and, on occasion,
<PAGE> 23
anticipated purchase orders have been rescheduled or have not materialized
due to changes in customer requirements. In addition, significant rescheduling
or deferrals of orders by any of these customers could cause substantial
fluctuations in the Company's quarterly results. Additionally, Exabyte's
library products represent higher-margin business to the Company. Any
shortfall in the sale of these products would have a greater adverse impact
on the Company's results of operations.
Market Demand
=============
The Company believes that the demand for its products is substantially
dependent upon the demand for workstations, mid-range computer systems and
networks. These markets tend to be volatile and subject to market shifts,
which may or may not be discernible in advance by Exabyte. A slowdown in the
demand for such products could have a material adverse effect on the demand
for the Company's products in any given period. Any demand weakness,
particularly in the reseller channel, which generally represents higher-
margin sales, could have a greater impact on profitability and a material
adverse effect on the Company's results of operations. Additionally,
inaccuracies in market demand forecasts can quickly result in either
insufficient or excessive inventories and disproportionate overhead expenses.
In particular, the short order lead time characteristic of stales to resellers
limits the Company's ability to forecast these sales. In 1999, 58% of the
Company's sales were to resellers.
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. 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.
In addition, the stock market in recent years has experienced extreme price
and volume fluctuations that have affected the market price of many high
technology companies and that have often been unrelated or disproportionate
to the operating performances of these companies.
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 and revenues have in the past and will
in the future reflect substantial fluctuations from period to period as a
consequence of delays in product introduction, industry shifts, price erosion,
general economic conditions affecting the timing of orders from customers, as
well as other factors discussed herein.
<PAGE> 24
Management of Business and Product Transitions
==============================================
The Company is currently experiencing a period of rapid business and product
transition. 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.
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.
Product Quality and 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.
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
<PAGE> 25
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.
Foreign Sales
=============
Direct international sales accounted for approximately 34% of sales in 1999,
and Exabyte currently expects that direct international sales will continue
to represent a significant portion of the Company's revenue. In addition, many
of the Company's domestic customers ship a significant portion of Exabyte's
products to their customers overseas. Currently, a very small percentage of
sales are denominated in foreign currencies and may be directly affected by
foreign exchange rate fluctuations. Changes in the foreign exchange rates
may also affect the volume of sales denominated in U.S. dollars to overseas
customers. The Company's sales are also subject to risks common to export
activities, including government regulation, tariffs, and import and
environmental restrictions. Exabyte's international sales may also be
subject to export licensing requirements.
Foreign Operations
==================
The Company's subsidiaries in The Netherlands, Germany, Japan, Canada and
Singapore operate under their respective local currencies. 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.
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
<PAGE> 26
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 securities related actions
against the Company at this time.
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). Foreign currency exchange rate 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 1, 2000, 8% of the Company's total assets were
denominated in foreign currencies. During 1999, 1% of revenue 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
books of record are maintained in 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 purchases certain inventory components and services, denominated
in yen, from Japanese manufacturers. Generally, such payments are settled at
the prevailing spot rate. However, from time to time, the Company enters
into foreign currency forward contracts in anticipation of movements in the
dollar/yen exchange rate to hedge these purchases. Such 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 1, 2000, there were no contracts outstanding.
<PAGE> 27
The Company prepared sensitivity analyses of its exposures from foreign assets
as of January 1, 2000, and of exposure from anticipated foreign revenue,
and operating expenses in 2000 using historical data and anticipated future
activity to assess the impact of hypothetical changes in foreign currency
exchange rates. Based upon the results of these analyses, the Company
estimates that a 10% change in foreign currency exchange rates from the 1999
year end rates could have a $1.3 million impact on net assets, a $161,000
impact on net sales and a $1.2 million impact on operating expenses. These
risks are materially similar to the risks presented in the prior year, and
could have a material effect on the Company's results of operations, cash
flows or financial condition for the next year.
The Company also prepared sensitivity analyses of its exposure related to yen
denominated purchases. Using a hypothetical 10% change in the dollar/yen
exchange rate from the year end rate, and projected 2000 purchases
denominated in yen, the Company estimates a potential $6.3 million impact.
The impact could affect a combination of net income and inventory, and could
have a material effect on the Company's results of operations, cash
flows or financial condition for the next year.
Interest Rates:
At January 1, 2000, investments, including cash equivalents, consist of
held-to-maturity debt securities with maturity dates of nine 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, the Company estimates that a 10% change in
interest rates from the 1999 year end rates could have a $265,000 impact on
results of operations. This risk is materially similar to the risk presented
in the prior year, and could have a material effect on the Company's results
of operations, cash flows or financial condition for the next year.
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 experienced no disruption of operations during the rollover from
December 31, 1999 to January 1, 2000. There can be no assurance, however,
that critical system failures will not occur at other critical dates during
the Year 2000. Should such system failure occur, 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.
For a full disclosure of the risks associated with the Company's Year 2000
Compliance, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Year 2000 Compliance" below.
<PAGE> 28
EXECUTIVE OFFICERS OF THE COMPANY
=================================
The executive officers of the Company and their ages as of March 31, 2000,
are as follows:
William L. Marriner 47 Chairman of the Board
President and Chief Executive Officer
Stephen F. Smith 50 Vice President, Chief Financial Officer,
Corporate Secretary and General Counsel
Farouk Al-Nasser 60 Vice President, General Manager, Data Storage
Products
Manfred Benecken 55 Vice President, General Manager, Quality and
Support Services
Michael P. Koclanes 43 President, CEO, CreekPath Systems, Inc.
Mr. William L. Marriner, age 47, joined Exabyte in March 1987 as Vice President
of 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, age 50, 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.
Dr. Farouk Al-Nasser, age 60, joined Exabyte in May 1997 as the Vice President
and General Manager of the Drives and Storage Media division with over 30 years
of experience in the high technology industry, and was subsequently appointed
Vice President and General Manager of the Data Storage Products division after
the Company's August 1999 restructuring. Previously, he served as founder,
owner, chairman, president & CEO of 4MATT, Inc., a privately held company
specializing in formatting data storage tape cartridges, from January 1994 to
May 1997. From January 1990 to January 1994, he served as founder and
president of IOTAPE (Iomega Tape Business Unit), a leading supplier of mini-
cartridge tape drives for the desktop market. Prior to IOTAPE, Dr. Al-Nasser
held various senior engineering, management, and executive positions at Cipher
Data Products, SyQuest Technology, and Storage Technology Corporation.
Dr.Al-Nasser holds a Ph.D. in Electrical Engineering.
Mr. Manfred Benecken, age 55, joined Exabyte in August 1995 as the Director
for European Services. In November 1996 he relocated to the Company's Boulder
facility. Mr. Benecken was promoted to Vice President and General Manager of
Exabyte's Worldwide Customer and Support Services division in April 1997 and
was subsequently appointed as Vice President and General Manager of the Quality
and Support Services division after the Company's August 1999 restructuring.
<PAGE> 29
Prior to joining Exabyte as a full-time employee, Mr. Benecken worked for
Exabyte as a consultant in Europe from 1994 to 1995. Previously, Mr. Benecken
spent 26 years with IBM in a variety of management positions in various areas
within the company, including disk drive engineering and manufacturing,
firmware development and management consulting.
Mr. Michael P. Koclanes, age 43 joined Exabyte in October 1994 as Vice
President of Information Systems. In October 1996, Mr. Koclanes was appointed
to the position of Vice President of Marketing and in May 1997 he was promoted
to Vice President and General Manager of Exabyte's Storage Automation and
Solutions division. In January 2000, Mr. Koclanes was appointed President and
Chief Executive Officer of CreekPath Systems, Inc., a wholly-owned subsidiary
of Exabyte, formed in December 1999. Prior to joining Exabyte, Mr. Koclanes
worked for Sun Microsystems Computer Corp. in a variety of management
positions, including director of new product introductions for graphics and
desktop products and director of Sun European information systems. Prior to
Sun Microsystems, Mr. Koclanes held a variety of management positions with
Schlumberger, GM and McDonnell Douglas.
Executive officers serve at the discretion of the Board. There are no family
relationships among any of the directors and officers.
Item 2.
PROPERTIES
The Company's corporate offices as well as the Company's research and
development, and manufacturing facilities are located in Boulder, Colorado,
in leased buildings aggregating approximately 358,898 square feet. The lease
terms on these facilities expire on various dates ranging from December 31,
1999 to September 30, 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
San Diego, CA Falkirk, Scotland
Procurement Boulder, CO 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
<PAGE> 30
Item 3.
LEGAL PROCEEDINGS
On June 18, 1999, Ecrix Corporation filed a Complaint in the United States
District Court for the District of Colorado seeking judgment declaring seven
patents owned by Exabyte to be invalid or not infringed by certain tape drive
products manufactured by Ecrix. Although Exabyte engaged in settlement
discussions both before and after June 18, 1999, Ecrix rejected Exabyte's
settlement offers. Therefore, on October 7, 1999, Exabyte filed an Answer and
Counterclaim asserting infringement by Ecrix of eight patents. In response,
Ecrix filed an Amended Complaint, which was effectively filed October 21, 1999,
asserting additional antitrust claims under the Sherman Act and Colorado
Antitrust Act, as well as claims of patent misuse, estoppel, unfair competition
under Section 43(a) of the Lanham Act and common law, violation of Colorado
Consumer Protection Act, and tortious interference. Exabyte has responded to
Ecrix's Amended Complaint. Discovery is proceeding. It is not possible to
predict the outcome of this action. However, the Company believes that Ecrix's
claims will not have a material adverse effect on the Company's results of
operations.
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Inapplicable.
<PAGE> 31
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>
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................................ $ 6-5/8 $ 4-7/16
Second Quarter............................... 6-3/32 3-11/16
Third Quarter................................ 5-3/32 3-3/8
Fourth Quarter............................... 9-1/8 4-1/4
2000
First Quarter (through February 1, 2000)..... $ 8-3/4 $ 7
</TABLE>
On February 1, 2000, the Company had 593 holders of record of its common
stock. The reported closing price of the common stock was $7-7/8. The Company
has never paid cash dividends on its common stock. 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
The selected financial data set forth below with respect to the Company's
consolidated statements of operations for the fiscal years ended January 1,
2000, January 2, 1999, January 3, 1998, December 28, 1996 and December 30,
1995 and with respect to the consolidated balance sheets as of January 1, 2000,
January 2, 1999, January 3, 1998, December 28, 1996 and December 30, 1995 are
derived from audited consolidated financial statements. The consolidated
financial statements for the years ended January 1, 2000, January 2, 1999 and
January 3, 1998 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> 32
<TABLE>
<CAPTION>
(In thousands, except per share data) Fiscal Years Ended
Jan. 1, Jan. 2, Jan. 3, Dec. 28, Dec. 30,
Consolidated Statement of Operations Data: 2000 1999 1998 1996 1995
- ------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $222,827 $286,505 $335,684 $362,891 $374,147
Cost of goods sold........................... 182,875 207,604 288,053 265,002 311,891
-------- -------- -------- -------- --------
Gross profit................................. 39,952 78,901 47,631 97,889 62,256
Operating expenses:
Selling, general and administrative..... 56,650 56,978 59,211 47,929 49,896
Research and development................ 35,725 29,888 40,909 38,391 36,956
-------- -------- -------- -------- --------
Income (loss) from operations................ (52,423) (7,965) (52,489) 11,569 (24,596)
Other income (expense), net.................. 1,235 1,816 (634) 1,114 1,568
-------- -------- -------- -------- --------
Income (loss) before income taxes(1)......... (51,188) (6,149) (53,123) 12,683 (23,028)
(Provision) benefit for income taxes......... 1,401 3,382 22,312 (4,058) 10,593
-------- -------- -------- -------- --------
Net income (loss)............................ $(49,787) $ (2,767) $(30,811) $ 8,625 $(12,435)
======== ======== ======== ======== ========
Basic net income (loss) per share............ $ (2.24) $ (0.12) $ (1.38) $ 0.39 $ (0.57)
======== ======== ======== ======== ========
Common shares used in the calculation of
basic net income (loss) per share(2).... 22,256 22,285 22,326 22,003 21,711
======== ======== ======== ======== ========
Diluted net income (loss) per share.......... $ (2.24) $ (0.12) $ (1.38) $ 0.39 $ (0.57)
Common and potential common shares used ======== ======== ======== ======== ========
in the calculation of diluted net
income (loss) per share(2).............. 22,256 22,285 22,326 22,307 21,711
======== ======== ======== ======== ========
Consolidated Balance Sheet Data:
- --------------------------------
Working capital.............................. $ 67,730 $116,953 $134,357 $150,713 $143,071
Total assets................................. 165,896 207,836 221,346 256,126 250,336
Long-term obligations, excluding current
portion................................. 6,570 7,461 9,049 10,441 10,109
Stockholders' equity......................... 117,376 166,272 170,796 200,013 186,366
</TABLE>
(1) The Company recorded restructuring charges in 1999 and 1997 totaling
$2,446,000 and $34,947,000, respectively. See Note 10 of Notes to
Consolidated Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of shares used in computing net income
(loss) per share.
<PAGE> 33
Quarterly Results of Operations (Unaudited)
- -------------------------------------------
The following table sets forth unaudited operating results for each quarter of
fiscal 1999 and 1998. 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 presentation thereof. These unaudited quarterly results should be read
in conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this annual report on Form 10-K. 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. 1, Oct. 2, Jul. 3, Apr. 3,
2000 1999 1999 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.............................. $ 58,617 $ 53,041 $ 48,519 $ 62,650
Cost of goods sold..................... 47,809 45,755 42,200 47,111
-------- -------- -------- --------
Gross profit........................... 10,808 7,286 6,319 15,539
Selling, general and administrative.... 12,949 15,973 14,478 13,250
Research and development............... 9,593 9,658 8,690 7,784
-------- -------- -------- --------
Loss from operations(1)................ (11,734) (18,345) (16,849) (5,495)
Other income (expense), net............ (29) 900 172 192
-------- -------- -------- --------
Loss before income taxes............... (11,763) (17,445) (16,677) (5,303)
(Provision) benefit for income taxes... (150) (58) (194) 1,803
-------- -------- -------- --------
Net loss............................... $(11,913) $(17,503) $(16,871) $ (3,500)
======== ======== ======== ========
Basic net loss per share............... $ (0.53) $ (0.78) $ (0.76) $ (0.16)
======== ======== ======== ========
Diluted net loss per share............. $ (0.53) $ (0.78) $ (0.76) $ (0.16)
======== ======== ======== ========
As a Percentage of Net Sales
Net sales.............................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold..................... 81.6 86.3 87.0 75.2
----- ----- ----- -----
Gross margin........................... 18.4 13.7 13.0 24.8
Selling, general and administrative.... 22.1 30.1 29.8 21.2
Research and development............... 16.3 18.2 17.9 12.4
----- ----- ----- -----
Loss from operations(1)................ (20.0) (34.6) (34.7) (8.8)
Other income (expense), net............ (0.1) 1.7 0.3 0.3
----- ----- ----- -----
Loss before income taxes............... (20.1) (32.9) (34.4) (8.5)
(Provision) benefit for income taxes... (0.2) (0.1) (0.4) 2.9
----- ----- ----- -----
Net loss............................... (20.3)% (33.0)% (34.8)% (5.6)%
===== ===== ===== =====
</TABLE>
(1) In the quarter ended October 2, 1999, the Company recorded pre-tax
restructuring charges of $2,446,000 related to the consolidation of its
operating structure. See Note 10 of Notes to Consolidated Financial Statements.
<PAGE> 34
<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> 35
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 1, 2000, January 2, 1999 and January 3, 1998 as a
percentage of net sales.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Years
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................... 82.1 72.5 85.8
----- ----- -----
Gross margin................................ 17.9 27.5 14.2
Operating expenses:
Selling, general and administrative....... 25.4 19.9 17.6
Research and development.................. 16.0 10.4 12.2
----- ----- -----
Loss from operations........................ (23.5) (2.8) (15.6)
Other income (expense), net................. 0.6 0.6 (0.2)
----- ----- -----
Loss before income taxes.................... (22.9) (2.2) (15.8)
Benefit for income taxes.................... 0.6 1.2 6.6
----- ----- -----
Net loss.................................... (22.3)% (1.0)% (9.2)%
===== ===== =====
</TABLE>
PRODUCT MIX TABLE
<TABLE>
<CAPTION>
Fiscal Years
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
8mm drives:
Eliant(TM)820, Mammoth-LT, Mammoth
and Mammoth-2........................... 44.9% 42.6% 23.1%
8mm Libraries:
EZ17(TM), 210, 220, 440, 480, X80
and X200.................................. 13.2 13.9 15.3
DLTtape(TM) Libraries:
17D, 230D and 690D........................ 5.7 2.1 --
Media....................................... 30.4 23.4 14.6
Service, spares and other................... 6.9 6.7 6.6
End-of-life drives and libraries(x)......... 2.3 15.3 45.5
Sales allowances............................ (3.4) (4.0) (5.1)
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
(x)Prior year percentages reflect current year
classifications of end-of-life products.
</TABLE>
<PAGE> 36
CUSTOMER MIX TABLE
<TABLE>
<CAPTION>
Fiscal Years
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
OEM......................................... 38.1% 46.3% 48.7%
Reseller.................................... 57.7 49.5 46.1
End user and other.......................... 4.2 4.2 5.2
----- ----- -----
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
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 my arise after the date of this report. 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.
PRELIMINARY FIRST QUARTER 2000 RESULTS
- --------------------------------------
The Company reported on April 6, 2000 that it expects revenue for the first
quarter of 2000 to be approximately $50,000,000 compared to $62,650,000 for
the first quarter of 1999 and $58,617,000 for the fourth quarter of 1999.
The net loss of the first quarter of 2000 was estimated in the range of
$13,000,000 to $14,000,000 or $0.58 to $0.62 per share compared to a net loss
of $3,500,000 or $0.16 per share in the first quarter of 1999 and a net loss
of $11,913,000 or $0.52 per share in the fourth quarter of 1999.
FISCAL YEAR 1999 COMPARED TO 1998
- ---------------------------------
The Company's net sales of $222.8 million during 1999 represent a decrease of
22.2% from net sales of $286.5 million during 1998. In general, sales of end-
of-life and maturing products have decreased and such decreases have not been
fully offset by increases in sales of newer products.
Sales of end-of-life products (primarily the 8505XL, 8700, 10h and 18D)
decreased to $5.2 million in 1999 from $43.5 million in 1998. Sales of
current 8mm drive products decreased to $99.9 million in 1999 from $122.0
million in 1998. Sales of current 8mm library products decreased to $29.4
million in 1999 from $40.0 million in 1998. Sales of services, spare parts
and other decreased to $15.4 million in 1999 from $19.3 million in 1998.
Offsetting these decreases were increased sales of current DLTtape(TM)
libraries to $12.7 million in 1999 from $6.1 million in 1998. Sales of media
also increased slightly to $67.7 million in 1999 from $67.1 million in 1998.
Sales allowances decreased to $7.6 million in 1999 from $11.5 million in 1998,
having a positive impact on net sales.
<PAGE> 37
During 1999, the customer mix shifted to reseller customers from original
equipment manufacturers ("OEMs"). Reseller channel sales decreased 9.5% in
absolute dollars in 1999 from 1998 while OEM sales decreased 36% in 1999 from
1998. The Company undertook a number of initiatives during 1999 to position
the Company in its reseller channel in anticipation of the introduction of the
M2(TM) (Mammoth-2) tape drive late in the year.
Domestic sales represented 66.0% of net sales during 1999 compared to 70.5% in
1998. International sales represented 34.0% of net sales in 1999 compared to
29.5% during 1998.
The Company's gross margin percentage for 1999 decreased to 17.9% compared to
27.5% for 1998. Excluding restructuring charges, the 1999 gross margin was
18.2% (see Note 10 of Notes to Consolidated Financial Statements). Gross
margins were negatively impacted by lower net sales which are tied to a
relatively fixed manufacturing cost structure. During 1999, the Company
had significantly more plant capacity than was being utilized at current
manufacturing volumes. Additionally, product margins were negatively impacted
by lower pricing as certain products approached end-of-life status.
Selling, general and administrative expenses decreased in absolute dollars to
$56.7 million and 25.4% of total net sales in 1999 from $57.0 million and 19.9%
of total net sales in 1998. Excluding restructuring charges, 1999 expenses
were $55.2 million and 24.8% of total net sales (see Note 10 of Notes to
Consolidated Financial Statements). The decrease in absolute dollars is mainly
the result of advertising costs, which were higher in 1998 due to spending on
reintroduction of the Mammoth tape drive as well as the introduction of several
new library products. During 1999, there were fewer and smaller-scale product
introductions.
Research and development expenditures increased to $35.7 million and 16.0% of
total net sales in 1999 from $29.9 million and 10.4% of total net sales in
1998. Excluding restructuring charges, 1999 expenses were $35.4 million and
15.9% of total net sales (see Note 10 of Notes to Consolidated Financial
Statements). Spending increased in 1999 to support the development and release
of the M2(TM) tape drive, which the Company began selling in December 1999.
In addition, the Company has contracted with a third party for the development
of technology related to future generations of the Company's MammothTape(TM)
technology tape drive products. During 1999, the Company incurred $2.2 million
of engineering expenses under this contract.
Other income, net consists primarily of interest income and expense, foreign
currency translation gains and losses, state franchise taxes and other
miscellaneous items. Other income was $1.2 million in 1999 compared to $1.8
million in 1998. This fluctuation was the result of unfavorable translation
impacts partially offset by increased interest income in 1999 compared to 1998.
The income tax benefit for 1999 was 2.7% compared to a benefit of
55.0% 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%.
At January 1, 2000, domestic net operating loss carryforwards of $75.5
million, which expire between 2018 and 2019, are available to offset future
taxable income. Utilization of $6.1 million 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
<PAGE> 38
has unused research and development credits of $3,405,000 which expire between
2012 and 2019 and alternative minimum tax credits of $1,113,000 which may be
carried forward indefinitely.
At January 1, 2000, the Company has a deferred tax valuation reserve equal to
31.2% of total deferred tax assets. *Management believes that based on the
available evidence, both positive and negative, it is more likely than not that
currently recorded deferred tax assets ($38.6 million at January 1, 2000) will
be fully realized. The minimum amount of future taxable income required to
realize this asset is $110.3 million. Should projected results fall short of
expectations, an additional valuation allowance against existing deferred tax
assets may be required, which could have a material effect on the results of
operations of the Company. The Company anticipates that it will continue to
record future valuation reserves until the Company is able to demonstrate an
ongoing profitable trend.
Additional information concerning the deferred tax asset valuation reserve
is incorporated by reference from Item 1, "Notes to Consolidated Financial
Statements," under the caption, "Note 6 - Income Taxes".
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
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.
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
<PAGE> 39
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%.
RESTRUCTURING CHARGES
- ---------------------
During the third quarter of 1999, the Company incurred $2.4 million in pretax
charges related to a restructuring which simplified the Company's structure by
combining the Company's three operating segments under common management.
*The Company anticipates annual savings of approximately $11.0 million as a
result of the third quarter 1999 restructuring. These savings include
decreased payroll and fringe benefits, as well as savings on building rent,
utilities and taxes. Expected payroll savings are the result of reductions in
workforce and open positions that will not be filled as a result of the
restructuring. At January 1, 2000, $292,000 of severance and related cost
accruals remain and are expected to be paid during the first half of 2000.*
Additional information concerning the restructuring is incorporated by
reference from Item 1, "Notes to Consolidated Financial Statements," under the
caption, "Note 10 - Restructuring".
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). *Foreign currency exchange rate 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 1, 2000, 7.7% of the Company's total assets were
denominated in foreign currencies. During 1999, 0.7% of revenue and 13.4% of
operating expenses were denominated in foreign currencies. The Company's
<PAGE> 40
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
books of record are maintained in 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 purchases certain inventory components and services, denominated
in yen, from Japanese manufacturers. Generally, such payments are settled at
the prevailing spot rate. However, from time to time, the Company enters
into foreign currency forward contracts in anticipation of movements in the
dollar/yen exchange rate to hedge these purchases. Such 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 1, 2000, there were no contracts outstanding.
The Company prepared sensitivity analyses of its exposures from foreign assets
as of January 1, 2000, and of exposure from anticipated foreign revenue,
and operating expenses in 2000 using historical data and anticipated future
activity to assess the impact of hypothetical changes in foreign currency
exchange rates. *Based upon the results of these analyses, the Company
estimates that a 10% change in foreign currency exchange rates from the 1999
year end rates could have a $1.3 million impact on net assets, a $161,000
impact on net sales and a $1.2 million impact on operating expenses. These
risks are materially similar to the risks presented in the prior year, and
could have a material effect on the Company's results of operations, cash
flows or financial condition for the next year.*
The Company also prepared sensitivity analyses of its exposure related to yen
denominated purchases. *Using a hypothetical 10% change in the dollar/yen
exchange rate from the year end rate, and projected 2000 purchases denominated
in yen, the Company estimates a potential $6.3 million impact. The impact
could affect a combination of net income and inventory, and could have a
material effect on the Company's results of operations, cash flows or financial
condition for the next year.*
Interest Rates:
At January 1, 2000, investments, including cash equivalents, consist of
held-to-maturity debt securities with maturity dates of nine 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, the Company estimates that a 10% change in
interest rates from the 1999 year end rates could have a $265,000 impact on
results of operations. This risk is materially similar to the risk presented in
the prior year, and could have a material effect on the Company's results of
operations, cash flows or financial condition for the next year.*
EMPLOYEE STOCK PURCHASE PLAN
- ----------------------------
The Company currently has 9,000 shares available for issue under the Employee
Stock Purchase Plan. As a result, more shares must be authorized in order to
fulfill any future issuances under the plan, including those for the purchase
<PAGE> 41
period from January 1, 2000 to June 30, 2000. *For shares that will be issued
during this period, if there is a net increase in the market value of the
Company's stock between grant date (January 1, 2000) and the date which shares
are formally authorized, the Company will recognize this increase as
compensation expense.*
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During 1999, the Company expended $23.8 million of cash for operating
activities, received $891,000 from the issuance of common stock to Company
employees, expended $11.0 million for capital equipment and paid $4.2
million on long-term liabilities. Together, these activities resulted in a
decrease in the combined balance of cash and short-term investments of $38.1
million to a year-ending balance of $32.6 million. The Company's working
capital decreased to $67.7 million on January 1, 2000 from $117.0 million on
January 2, 1999.
The Company maintains a $7.5 million bank line of credit which expires
August 1, 2000. This line of credit is secured by $7.5 million in marketable
securities held by an affiliate of the lender. The line of credit has no
financial covenants. Use of the invested funds is not legally restricted.
On January 1, 2000, the amount available under the line was $7.5 million and
no borrowings were outstanding. Borrowings made under the agreement bear
interest at the lower of the bank's prime rate or LIBOR + 2%.
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 currently for DM 1.1 million and
decreases by DM 100,000 in August of each year until it is fully depleted.
On April 4, 2000, the Company obtained a commitment on a new $20.0 million
line of credit with Congress Financial Corporation, a subsidiary of First
Union National Bank. Under the terms of the commitment, Exabyte may borrow
up to 80% of eligible accounts receivable. The line will be secured by
accounts receivable and inventory. Borrowings under the line will bear
interest at the lower of prime plus .5% or LIBOR plus 2.5%. *The formal
agreement is expected to close during April 2000.*
*The Company currently expects to make capital expenditures of approximately
$14.0 to $18.0 million during 2000. 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 2000 and on a long term basis.*
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
Information concerning new accounting pronouncements is incorporated by
reference from Item 1, "Notes to Consolidated Financial Statements," under the
caption, "Note 1 - Operations and Summary of Significant Accounting Policies",
"New Accounting Pronouncement."
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.
<PAGE> 42
*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 might 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").
An inventory of all critical systems was completed during 1999. Year 2000
compliant system upgrades were completed prior to December 31, 1999. Testing
of these systems was completed during the fourth quarter of 1999. The
Company's subsidiaries were also incorporated into the Company's Plan to
become Year 2000 compliant.
The Company experienced no disruption of operations during the rollover from
December 31, 1999 to January 1, 2000. *There can be no assurance, however,
that critical system failures will not occur at other critical dates during the
year 2000. Should such system failure occur, 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 have, to date, not been adversely affected by any Year 2000
problem. *There can be no assurance, however, that any of the Company's
suppliers will not experience a Year 2000 related problem during the balance
of the year 2000. 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, Exabyte's key customers may experience Year 2000
problems at critical dates during the year which would cause them to delay or
cancel substantial purchase orders or delivery of Exabyte's products which
would also have a material adverse effect on the Company's results of
operations.*
Exabyte incurred costs of approximately $200,000 in upgrading its systems to
become Year 2000 compliant. The Company has developed a contingency plan should
the Company experience a Year 2000 problem. No material costs were incurred
during the development of the contingency plan.
*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
products 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
<PAGE> 43
Company's results of operations.* We have not been notified of any date data
failure to date as the result of any Year 2000 problem.
*In addition, Exabyte believes that many companies in the high technology
industry will face significant litigation in the future should problems
caused by Year 2000 noncompliance arise. 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.*
<PAGE> 44
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."
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Accountants................................... 45
Consolidated Balance Sheets -
January 1, 2000 and January 2, 1999............................... 46
Consolidated Statements of Operations - for the years ended
January 1, 2000, January 2, 1999 and January 3, 1998.............. 47
Consolidated Statements of Changes in Stockholders' Equity -
for the years ended January 1, 2000, January 2, 1999 and
January 3, 1998................................................... 48
Consolidated Statements of Cash Flows -
for the years ended January 1, 2000, January 2, 1999 and
January 3, 1998................................................... 49-50
Notes to Consolidated Financial Statements.......................... 51-65
<PAGE> 45
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Exabyte Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)1 on page 67, present fairly in all material
respects, the financial position of Exabyte Corporation and its subsidiaries
at January 1, 2000 and January 2, 1999, and the results of their operations
and their cash flows for each of the three years in the period ended January 1,
2000, in conformity with accounting principles generally accepted in the United
States. In addition, in our opinion, the financial statement schedule listed
in the index appearing under Item 14(a)2 on page 67 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and the financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, 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, 2000
<PAGE> 46
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)
<TABLE>
<CAPTION>
January 1, January 2,
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 25,610 $ 56,571
Short-term investments.................. 7,039 14,145
Accounts receivable, net................ 37,163 38,014
Inventories, net........................ 26,805 26,997
Income tax receivable................... 1,431 2,563
Deferred income taxes................... 8,136 9,637
Other current assets.................... 3,496 3,129
-------- --------
Total current assets...................... 109,680 151,056
-------- --------
Property and equipment, net............... 24,708 28,396
Deferred income taxes..................... 30,484 27,308
Other assets.............................. 1,024 1,076
-------- --------
Total long-term assets.................... 56,216 56,780
-------- --------
$165,896 $207,836
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 23,327 $ 16,032
Accrued liabilities..................... 13,815 14,002
Accrued income taxes.................... 1,877 2,370
Current portion of long-term
obligations .......................... 2,931 1,699
-------- --------
Total current liabilities................. 41,950 34,103
Long-term obligations..................... 6,570 7,461
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; 22,886
and 22,647 shares issued.............. 23 23
Capital in excess of par value.......... 67,584 66,693
Treasury stock, at cost, 455 and
455 shares............................ (2,742) (2,742)
Retained earnings....................... 52,511 102,298
-------- --------
Total stockholders' equity................ 117,376 166,272
-------- --------
$165,896 $207,836
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 47
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Years Ended
January 1, January 2, January 3,
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales............................ $222,827 $286,505 $335,684
Cost of goods sold................... 182,875 207,604 288,053
-------- -------- --------
Gross profit......................... 39,952 78,901 47,631
Operating expenses:
Selling, general and administrative.. 56,650 56,978 59,211
Research and development............. 35,725 29,888 40,909
-------- -------- --------
Loss from operations................. (52,423) (7,965) (52,489)
Other income (expense), net.......... 1,235 1,816 (634)
-------- -------- --------
Loss before income taxes............. (51,188) (6,149) (53,123)
Benefit for income taxes............. 1,401 3,382 22,312
-------- -------- --------
Net loss............................. $(49,787) $ (2,767) $(30,811)
======== ======== ========
Basic net loss per share............. $ (2.24) $ (0.12) $ (1.38)
======== ======== ========
Common shares used in the
calculation of basic net loss
per share...................... 22,256 22,285 22,326
======== ======== ========
Diluted net loss per share........... $ (2.24) $ (0.12) $ (1.38)
======== ======== ========
Common and potential common shares
used in the calculation of
diluted net loss per share...... 22,256 22,285 22,326
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 48
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 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
Common stock options exercised ($1.00
to $6.81 per share).................. 33 202
Common stock issued pursuant to the
Employee Stock Purchase Plan
($3.30 and $3.40 per share).......... 206 689
Net loss for the year.................. (49,787)
------ --- --- ------- ------- --------
Balance, January 1, 2000............... 22,886 $23 (455) $(2,742) $67,584 $ 52,511
====== === === ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 49
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------
January 1, January 2, January 3,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers............ $223,624 $291,422 $350,833
Cash paid to suppliers and employees.... (249,910) (269,301) (359,975)
Interest received....................... 2,628 2,314 2,216
Interest paid........................... (477) (607) (637)
Income taxes paid....................... (297) (1,093) (1,732)
Income tax refund received.............. 663 11,771 3,020
Net cash (used) provided by -------- -------- --------
operating activities............. (23,769) 34,506 (6,275)
-------- -------- --------
Cash flows from investing activities:
Sale (purchase) of short-term
investments, net...................... 7,106 (12,675) 19,130
Capital expenditures.................... (11,002) (9,414) (11,810)
Cash (used) provided by investing -------- -------- --------
activities............................ (3,896) (22,089) 7,320
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of
common stock ......................... 891 948 1,311
Purchase of treasury stock.............. -- (2,733) --
Principal payments on long-term
obligations........................... (4,187) (1,075) (1,565)
Net cash used by financing -------- -------- --------
activities....................... (3,296) (2,860) (254)
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents............................. (30,961) 9,557 791
Cash and cash equivalents at beginning
of year................................. 56,571 47,014 46,223
-------- -------- --------
Cash and cash equivalents at end
of year................................. $ 25,610 $ 56,571 $ 47,014
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 50
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------
January 1, January 2, January 3,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net loss to net cash
(used) provided by operating activities:
Net loss..................................... $(49,787) $ (2,767) $(30,811)
Adjustments to reconcile net loss
to net cash (used) provided by operating
activities:
Depreciation, amortization
and other............................. 15,647 16,619 19,742
Write-down of assets.................... -- 1,961 6,054
Deferred income tax benefit............. (1,674) (7,367) (5,351)
Provision for losses and reserves
on accounts receivable................ 6,666 8,521 14,486
Provision for inventory write-downs..... -- -- 15,236
Stock compensation expense.............. -- -- 119
Change in assets and liabilities:
Accounts receivable..................... (5,815) (4,958) 351
Inventories, net........................ 192 17,554 (4,022)
Income tax receivable................... 1,132 13,310 (15,873)
Other current assets.................... 804 1,566 (1,484)
Other assets............................ 15 (43) (171)
Accounts payable........................ 7,295 2,040 (4,923)
Accrued liabilities..................... (187) (11,944) 1,028
Accrued income taxes.................... (493) 1,353 201
Other long-term obligations............. 2,436 (1,339) (857)
-------- -------- --------
Net cash (used) provided by
operating activities.................. $(23,769) $ 34,506 $ (6,275)
======== ======== ========
Supplemental schedule of non-cash
investing and financing activities:
Notes payable issued to purchase property
and equipment and services................. $ 2,092 $ 1,102 $ 626
Income tax benefit of disqualifying
dispositions of common stock............... -- 28 164
Capital lease obligations.................... -- 904 137
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 51
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 1999 and
1998. 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.
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.
Foreign Currency Translation
The U.S. dollar is the functional currency of the consolidated corporation
including its subsidiaries. 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 related to these translations which are included in the consolidated
statements of operations were not material in any year presented.
The Company enters into transactions that are denominated in foreign
currencies. These transactions are translated at the prevailing spot rate
upon payment and recorded in the operating account to which the payment
relates.
Foreign Currency Forward Contracts
The Company, from time to time, 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 1, 2000 and January 2, 1999 there were no contracts outstanding.
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. 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.
<PAGE> 52
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 for notes payable and capital leases
was estimated by discounting the future cash flows using market interest rates
and does not differ significantly from that reflected in the consolidated
financial statements.
Concentration of Credit Risk
The Company's customers include original equipment manufacturers ("OEMs"),
resellers and end users. Financial instruments which potentially subject the
Company to concentrations of credit risk are primarily accounts receivable,
cash equivalents and short-term investments. The Company performs ongoing
credit evaluations of its customers' financial condition and, generally,
requires no collateral from its customers. At January 1, 2000 and January 2,
1999, one customer accounted for approximately 21% and 16%, respectively, of
net accounts receivable. Another customer accounted for 15% and 16%,
respectively, of net accounts receivable at January 1, 2000 and January 2,
For these same periods, a third customer accounted for 10% and 17%,
respectively, of net accounts receivable. No other customers accounted for
10% or more of net accounts receivable at year end for the two years presented.
Accounts receivable are summarized as follows:
<TABLE>
<CAPTION>
January 1, January 2,
2000 1999
--------- ---------
(In thousands)
<S> <C> <C>
Accounts receivable.......................... $45,018 $45,844
Less: reserves and allowance for
non-collection............................. (7,855) (7,830)
------- -------
$37,163 $38,014
======= =======
</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 $18,797,000 and $45,136,000 at January 1, 2000 and January 2, 1999,
respectively.
The Company invests in held-to-maturity debt securities which are recorded at
amortized cost. These include corporate bonds, government bonds and
certificates of deposit. At January 1, 2000 these investments had maturity
dates of eleven months or less. There were no unrealized gains or losses on
such investments for the three years then ended.
<PAGE> 53
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 $9,569,000 and $8,426,000 in total reserves for
1999 and 1998, respectively, consist of the following:
<TABLE>
<CAPTION>
January 1, January 2,
2000 1999
--------- ---------
(In thousands)
<S> <C> <C>
Raw materials and component parts............ $15,694 $16,851
Work-in-process.............................. 1,874 1,931
Finished goods............................... 9,237 8,215
------- -------
$26,805 $26,997
======= =======
</TABLE>
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. Software, computers, furniture and machinery/equipment
are depreciated over three years. Leasehold improvements are amortized on
a straight-line basis over the shorter of the useful life of the asset or the
lease term (three to twelve years). Maintenance and repairs are expensed as
incurred and improvements are capitalized. The Company continually evaluates
long-lived assets, based on fair values or undiscounted cash flows, whichever
is more readily determinable, whenever significant events or changes in
circumstances occur which indicate the carrying amount may not be recoverable.
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.
Advertising Costs
Advertising costs are expensed as incurred.
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. There were no capitalized software
costs at January 1, 2000. At January 2, 1999 there were $37,000 in
capitalized software costs. These items are recorded as other noncurrent
assets. During 1999 and 1998, certain capitalized software development efforts
were determined to be impaired, and $37,000 and $403,000 in costs,
respectively, were written off. All other research and development costs are
expensed as incurred.
<PAGE> 54
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 (dilutive stock
options) outstanding during each respective period. Proceeds from the exercise
of the potential common shares are assumed to be used to repurchase outstanding
shares of the Company's common stock at the average fair market value during
the period. In a period in which a loss is incurred, only the weighted-average
number of common shares is used to compute the diluted loss per share as the
inclusion of potential common shares would be antidilutive. The calculation of
basic and diluted earnings per share (EPS) is as follows:
<TABLE>
<CAPTION>
(In thousands, except per share data)
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Basic and diluted EPS computation:
Net loss..................... $(49,787) $ (2,767) $(30,811)
======== ======== ========
Common shares outstanding.... 22,256 22,285 22,326
======== ======== ========
Basic and diluted EPS........ $ (2.24) $ (0.12) $ (1.38)
======== ======== ========
</TABLE>
In all years presented, basic shares equal diluted shares because inclusion of
potential common shares would be antidilutive.
Options to purchase 2,941,000, 2,742,000 and 3,204,000 shares of common stock
were excluded from dilutive stock option calculations for 1999, 1998 and 1997,
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 1999, 1998 and 1997, options to purchase 1,099,000, 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 45,000, 117,000 and 97,000, respectively.
Since January 1, 2000, the Company has issued 1,446,000 stock options with an
exercise price between $7.81 and $8.00, 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> 55
Reclassifications
Certain reclassifications have been made to historical information to
correspond to the 1999 financial statement presentation.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board (FASB) 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. In July 1999, the
FASB delayed the implementation date of this standard to all fiscal quarters of
all fiscal years beginning after June 15, 2000. This delay was published as
Statement of Financial Accounting Standards No. 137 ("SFAS 137"). 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."
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
January 1, January 2,
2000 1999
--------- ---------
(In thousands)
<S> <C> <C>
Equipment and furniture...................... $108,056 $100,432
Equipment under capital leases............... 1,826 2,384
Leasehold improvements....................... 17,572 16,507
Less: accumulated depreciation and
amortization............................... (102,746) (90,927)
-------- --------
$ 24,708 $ 28,396
======== ========
</TABLE>
Depreciation expense was $15,583,000, $16,619,000 and $19,503,000 in
1999, 1998 and 1997, respectively. Accumulated amortization of equipment
under capital leases was $1,446,000 and $1,657,000 at January 1, 2000 and
January 2, 1999, respectively. Amortization of equipment 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> 56
NOTE 3 - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
January 1, January 2,
2000 1999
--------- ---------
(In thousands)
<S> <C> <C>
Wages and employee benefits.................. $ 6,083 $ 6,047
Warranty and related costs, current portion.. 3,536 4,650
Other........................................ 4,196 3,305
------- -------
$13,815 $14,002
======= =======
</TABLE>
NOTE 4 - DEBT
Line of Credit
The Company maintains a $7,500,000 bank line of credit which expires
August 1, 2000. This line of credit is secured by $7,500,000 in
marketable securities held by an affiliate of the lender. The line of credit
has no financial covenants. Use of the invested funds is not legally
restricted. On January 1, 2000, the amount available under the line was
$7,500,000 and no borrowings were outstanding. Borrowings made under the
agreement bear interest at the lower of the bank's prime rate or LIBOR + 2%.
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 currently for DM 1,100,000 and
decreases by DM 100,000 in August of each year until it is fully depleted.
Long-Term Obligations
In 1999 and 1998, the Company entered into notes payable for $2,092,000 and
$1,102,000, respectively to finance the purchase of certain equipment,
computer software and services. The 1999 note payable requires quarterly
installments of interest (7.2%) and principal through April 2001. The 1998
note payable requires monthly installments of interest (7.7%) and principal
through January 2001 and is collateralized by the respective equipment.
The Company has also entered into capital lease obligations related to the
acquisition of certain equipment.
Other long-term obligations include the long-term portion of estimated
warranty obligations and deferred revenue on extended warranty contracts.
The following represents future payments pursuant to these obligations as
of January 1, 2000:
<PAGE> 57
<TABLE>
<CAPTION>
Capital
Notes Lease
Payable Obligations Other Total
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
2000....................... $1,565 $383 $1,113 $3,061
2001....................... 331 148 2,633 3,112
2002....................... -- 4 3,441 3,445
2003....................... -- -- 35 35
2004....................... -- -- -- --
Thereafter................. -- -- -- --
------ ---- ------ ------
1,896 535 7,222 9,653
Less: amount representing
interest................. (92) (60) -- (152)
------ ---- ------ ------
Present value of payments.. 1,804 475 7,222 9,501
Less: current portion...... (1,478) (340) (1,113) (2,931)
------ ---- ------ ------
$ 326 $135 $6,109 $6,570
====== ==== ====== ======
</TABLE>
Interest expense aggregated $477,000, $607,000 and $637,000 in 1999, 1998
and 1997, respectively.
NOTE 5 - CAPITAL STOCK AND STOCK COMPENSATION PLANS
At January 1, 2000, 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 loss per share
would have been as follows:
<TABLE>
<CAPTION>
(In thousands, except per share data) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net loss:
As reported...................... $(49,787) $(2,767) $(30,811)
Pro forma........................ $(51,938) $(5,929) $(34,953)
Basic and diluted net loss per share:
As reported...................... $(2.24) $(0.12) $(1.38)
Pro forma........................ $(2.33) $(0.27) $(1.57)
</TABLE>
In all years presented, basic loss per share equals diluted loss per share
because inclusion of potential common shares would be antidilutive.
<PAGE> 58
Fixed Stock Option Plans
Under the Incentive Stock Plan, the Company may grant options to its
employees and directors for up to 9,500,000 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 2,750,000 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.
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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Estimated dividends................... none none none
Expected volatility................... 57% 57% 55%
Risk-free interest rate............... 4.7%-6.6% 4.4%-5.9% 5.6%-6.9%
Expected life from vest date (years).. 0.28 0.29 0.29
</TABLE>
A summary of the status of the Company's fixed stock option plans as of
January 1, 2000, January 2, 1999 and January 3, 1998, and changes during the
years then ended is presented as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- -----------------------
Shares Weighted-Avg. Shares Weighted-Avg. Shares Weighted-Avg.
(000s) Exercise Price (000s) Exercise Price (000s) Exercise Price
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year.................. 3,844 $13.32 3,698 $15.98 3,618 $16.71
Granted..................... 1,462 5.30 1,326 7.09 1,190 12.51
Exercised................... (33) 6.16 (19) 5.07 (143) 1.65
Forfeited................... (1,233) 10.76 (1,161) 14.82 (967) 16.58
----- ------ ----- ------ ----- ------
Outstanding at end of year.. 4,040 $11.26 3,844 $13.32 3,698 $15.98
===== ====== ===== ====== ===== ======
Options exercisable
at year-end............... 2,394 $14.29 2,215 $15.97 2,103 $17.63
Weighted-average fair value
of options granted during
the year.................. $ 2.12 $ 2.86 $ 4.91
</TABLE>
<PAGE> 59
The following table summarizes information about fixed stock options
outstanding at January 1, 2000:
<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>
$ 3.97- 5.50 1,033 9.2 years $ 5.19 173 $ 5.50
6.88-12.38 1,115 7.5 years 7.33 554 7.78
12.63-15.88 1,099 5.9 years 13.61 892 13.75
16.13-35.63 793 3.2 years 21.44 775 21.52
----- --------- ------ ----- ------
4,040 6.7 years $11.26 2,394 $14.29
===== ========= ====== ===== ======
</TABLE>
Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan, the Company is authorized to issue up
to 1,000,000 shares of common stock to its full-time employees, nearly all of
whom are eligible to participate. The Company currently has 9,000 shares
available for issue under this plan. As a result, more shares must be
authorized in order to fulfill any future issuances, including those for the
purchase period from January 1, 2000 to June 30, 2000. 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 206,000, 162,000 and 139,000 shares in 1999, 1998 and 1997,
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> 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Estimated dividends.................. none none none
Expected volatility.................. 57% 57% 55%
Risk-free interest rate.............. 4.7%-4.9% 4.7%-5.4% 5.3%-5.6%
Expected life (years)................ 0.5 0.5 0.5
Weighted-average fair value of
purchase rights granted............ $1.49 $2.34 $4.14
</TABLE>
Stockholder Rights Plan
The Board of Directors adopted on January 24, 1991 and amended on August 23,
1995 a Stockholder Rights Plan ("Rights Plan") in which preferred stock
purchase rights were distributed as a dividend at the rate of one right for
each share of Exabyte common stock held as of February 15, 1991. The Rights
Plan is designed to deter coercive or unfair takeover tactics and to prevent an
acquiring entity from gaining control of the Company without offering a fair
price to all of the Company's stockholders.
<PAGE> 60
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 loss is subject to tax in the following jurisdictions:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Domestic.......... $(48,681) $ (5,374) $(50,899)
Foreign........... (2,507) (775) (2,224)
-------- -------- --------
$(51,188) $ (6,149) $(53,123)
======== ======== ========
</TABLE>
<PAGE> 61
The provision for (benefit from) income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- --------
(In thousands)
<S> <C> <C> <C>
Current:
Federal......... $ -- $ 2,443 $(15,607)
State........... -- 1,428 (1,535)
Foreign......... 344 114 182
Deferred:
Federal......... (1,857) (6,180) (4,988)
State........... (63) (1,187) (364)
Foreign......... 175 -- --
------- ------- --------
$(1,401) $(3,382) $(22,312)
======= ======= ========
</TABLE>
Total income tax benefit differs from the amount computed by
applying the U.S. federal income tax rate of 35% to loss before
income taxes for the following reasons:
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
(In thousands)
<S> <C> <C> <C>
U.S. federal income tax
at statutory rate.......... $(17,916) $ (2,152) $(18,593)
State income taxes, net
of federal benefit......... (1,084) (63) (1,362)
Valuation allowance.......... 17,529 -- --
Research and development
credits.................... (1,000) (1,500) (1,500)
Tax exempt interest.......... (9) (397) (465)
Prior year filing effects.... -- 364 (1,210)
Foreign taxes in excess
of 35%..................... 1,396 376 904
Other........................ (317) (10) (86)
-------- -------- --------
$ (1,401) $ (3,382) $(22,312)
======== ======== ========
</TABLE>
<PAGE> 62
Deferred tax assets are attributable to the following:
<TABLE>
<CAPTION>
January 1, January 2,
2000 1999
----------- -----------
(In thousands)
<S> <C> <C>
Current assets:
Warranty reserve.......................... $ 2,681 $ 2,507
Bad debt and revenue reserves............. 2,772 2,634
Inventory reserves........................ 4,009 2,931
Other..................................... 2,367 1,565
------- -------
11,829 9,637
Less valuation allowance.................. (3,693) --
------- -------
$ 8,136 $ 9,637
======= =======
Noncurrent assets:
Property and equipment.................... $ 4,375 $ 4,939
Net operating loss carryforwards:
Domestic................................ 31,672 13,925
Foreign................................. 2,000 2,175
Credit carryforwards...................... 4,517 5,152
Goodwill.................................. 928 1,017
Other..................................... 828 100
------- -------
44,320 27,308
Less valuation allowance.................. (13,836) --
------- -------
$30,484 $27,308
======= =======
</TABLE>
At January 1, 2000, the Company has a deferred tax valuation reserve equal
to 31.2% of total deferred tax assets. Management believes that based on the
available evidence, both positive and negative, it is more likely than not
that currently recorded deferred tax assets ($38,620,000 at January 1, 2000)
will be fully realized.
The Company had recorded changes in the estimates of deferred tax
assets on a monthly basis through the first quarter of 1999 without any
reserve. During the second quarter of 1999, the Company concluded that is was
no longer appropriate to record additional tax benefits for its continuing
losses based on operating losses in the current and preceding periods as well
as the projected impact of delays in the release of the M2(TM) product.
At that time, management determined that a valuation allowance was required
for a portion of the deferred tax assets. Management's analysis of the
deferred tax assets at January 1, 2000 included analysis of historical
results, projections of future operating results, and an assessment of the
market conditions that have and are expected to affect the Company in the
future. The carryforward periods on net operating losses and tax credit
carryforwards were also considered. The Company will continue to assess the
need for deferred tax valuation reserves on existing assets in the future, and
should projected results fall short of expectations, an additional valuation
allowance may be required.
<PAGE> 63
In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", deferred tax assets are recorded as current or
noncurrent based on the classification of the financial statement component to
which they relate. Also, the valuation allowance has been prorated between
current and noncurrent deferred tax assets.
At January 1, 2000, domestic net operating loss carryforwards of $75,539,000,
which expire between 2018 and 2019, are available to offset future taxable
income. Utilization of $6,025,000 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 $3,405,000 which expire between 2012 and
2019 and alternative minimum tax credits of $1,113,000 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. The Company also leases certain equipment under operating leases.
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>
2000................................... $ 5,601 $382 $ 5,219
2001................................... 4,947 94 4,853
2002................................... 4,577 10 4,567
2003................................... 3,683 -- 3,683
2004................................... 2,163 -- 2,163
Thereafter............................. 258 -- 258
------- ---- -------
$21,229 $486 $20,743
======= ==== =======
</TABLE>
Rent expense aggregated $5,917,000, $5,971,000 and $5,906,000 in 1999,
1998 and 1997, 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 $761,000, $917,000 and
$920,000 in 1999, 1998 and 1997, respectively. Company contributions are
fully vested after six years of employment.
<PAGE> 64
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"). At the time, the Company was organized on a divisional basis by
product lines. Each product line was engineered, manufactured and marketed in
one of three different operating segments. Certain other costs including
administrative, sales, technical support and corporate marketing were not
allocated to the segments and were considered corporate costs. During the
third quarter of 1999, the Company underwent a restructuring (see Note 10)
and as a result collapsed the three separate operating segments into one.
Currently, all operations of the Company are considered one operating segment.
Therefore, no segment disclosures have been presented. The Company will
continue to review the internal reporting structure for future changes that
could result in disclosure of segments under SFAS 131.
The following table details revenues from external customers by geographic
area:
<TABLE>
<CAPTION>
Revenues form External Customers
--------------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
United States............... $147,149 $201,973 $229,200
Europe/Middle East.......... 56,435 63,797 74,695
Pacific Rim................. 14,715 17,020 25,085
Other....................... 4,528 3,715 6,704
-------- -------- --------
$222,827 $286,505 $335,684
======== ======== ========
</TABLE>
Foreign revenue is based on the country in which the customer is located.
The following table details long-lived asset information by geographic
area:
<TABLE>
<CAPTION>
Long-lived Assets
---------------------------------
January 1, January 2, January 3,
2000 1999 1998
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
United States............... $18,281 $22,021 $26,308
Scotland.................... 3,703 3,429 5,278
Germany..................... 3,132 3,313 4,035
Pacific Rim................. 331 430 522
Other....................... 285 279 445
------- ------- -------
$25,732 $29,472 $36,588
======= ======= =======
</TABLE>
<PAGE> 65
The following table summarizes sales to major customers:
<TABLE>
<CAPTION>
Net Sales % of Total Net Sales
---------------------------- -------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
OEM A....................... $33,790 $43,405 $56,015 15.2% 15.2% 16.7%
Reseller B.................. 29,967 36,138 33,292 13.5 12.6 (x)
OEM C....................... 24,400 31,505 44,581 11.0 11.0 13.3
(x) Sales to this customer did not meet or exceed 10% of total sales in this period.
</TABLE>
No other customers accounted for 10% or more of sales in any of these periods.
NOTE 10 - RESTRUCTURING
During the third quarter of 1999 the Company incurred $2,446,000 in pre-tax
charges related to a restructuring which simplified the Company's structure by
combining the Company's three operating segments under common management.
These charges were related to workforce reductions including severance,
outplacement and benefits. Severance and related costs of $2,154,000 were
paid in cash during 1999. At January 1, 2000, $292,000 of severance and
related cost accruals remain and are expected to be paid during the first
half of 2000.
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 markets and establish a more competitive
cost structure in those markets. These charges include workforce reduction
costs of $3,123,000, inventory write-downs of $16,890,000, non-cancelable
supplier/customer commitments of $7,794,000 and asset write-downs of $7,140,000.
At January 1, 2000 all costs of this restructuring have been settled
or paid except for certain future lease commitments totaling $61,000.
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> 66
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 2000 Annual
Meeting of Stockholders to be filed within 120 days after January 1, 2000, 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> 67
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 1, 2000, January 2, 1999
and for each of the three fiscal years in the period ended January 1, 2000.
Page
-----
Report of Independent Accountants............................... 45
Consolidated Balance Sheets..................................... 46
Consolidated Statements of Operations........................... 47
Consolidated Statements of Changes in Stockholders' Equity...... 48
Consolidated Statements of Cash Flows........................... 49-50
Notes to Consolidated Financial Statements...................... 51-65
(a)2. Financial Statement Schedules
Schedules-Years ended January 1, 2000, January 2, 1999
and January 3, 1998.
II Valuation and Qualifying Accounts and Reserves........ 70
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> 68
(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. (12)
**10.1 Incentive Stock Plan, as amended and restated on
January 16, 1997. (8)
**10.2 Stock Option Agreement used in connection with the
Incentive Stock Plan. (11)
**10.3 1990 Employee Stock Purchase Plan. (7)
**10.4 Employee Stock Purchase Plan Offering used in connection
with the 1990 Employee Stock Purchase Plan. (7)
**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. (10)
**10.7 Stock Option Agreement used in connection with the 1997 Non-
Officer Stock Option Plan. (10)
10.8 Agreement for the sale and transfer of all shares in Grundig
Data Scanner GmbH dated September 13, 1994. (4)
10.9 Form of Indemnity Agreement entered into by the Company
with each director and executive officer of the Company. (6)
**10.10 2000 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. (5)
10.13 Development Agreement, dated April 22, 1999, among
Hitachi Digital Media Products Division of Hitachi, Ltd.
and Exabyte Corporation.
10.14 Development Agreement, dated December 20, 1999, among
Hitachi Digital Media Products Division of Hitachi, Ltd.
and Exabyte Corporation.
10.15 8mm Mechanical Components Purchase Agreement, dated
December 11, 1996, among Hitachi Ltd. Electronic Sales
Office, Exabyte Corporation and Nihon Exabyte
Corporation. (9)
10.16 Commitment Letter regarding Line of Credit, between the
Company and Congress Financial Corporation, a subsidiary
of First Union National Bank, accepted April 4, 2000.
21.1 List of Subsidiaries.
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> 69
(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,
filed with the SEC on November 14, 1994 and incorporated herein by
reference.
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) 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.
(10) Filed as an Exhibit to the Company's Report on Form S-8 (Registration
No. 333-73011), as filed with the SEC on March 1, 2000 and
incorporated herein by reference.
(11) 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.
(12) Filed as an Exhibit to the Company's Annual Report on 10-K, filed
with the SEC on April 1, 1999, and incorporated herein by
reference.
Reports on Form 8-K
No report on Form 8-K was filed during the fiscal quarter ended January 1,
2000.
<PAGE> 70
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 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 $21,348 $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) $ 9,234 $(17,127) $16,256
======= ======= ======= ======== =======
Year Ended December 1, 2000:
Allowance for doubtful accounts..... $ 633 $ (430) $ -- $ 442 (1) $ 645
Reserves for sales programs......... 7,197 -- 7,097 (7,084) (2) 7,210
Inventory valuation reserves........ 8,426 3,612 -- (2,469) (3) 9,569
------ ------- ------- -------- -------
$16,256 $ 3,182 $ 7,097 $ (9,111) $17,424
======= ======= ======= ======== =======
</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> 71
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 6, 2000.
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 6, 2000
- ----------------------- President and Chief -----------------
William L. Marriner Executive Officer
(Principal Executive
Officer)
/s/ Stephen F. Smith Vice President, Chief April 6, 2000
- ----------------------- Financial Officer, General -----------------
Stephen F. Smith Counsel and Secretary
(Principal Financial
and Accounting Officer)
<PAGE> 72
/s/ Peter D. Behrendt Director April 6, 2000
- ----------------------- -----------------
Peter D. Behrendt
/s/ Stephen C. Johnson Director April 6, 2000
- ----------------------- -----------------
Stephen C. Johnson
/s/ A. Laurence Jones Director April 6, 2000
- ----------------------- -----------------
A. Laurence Jones
/s/ Thomas E. Pardun Director April 6, 2000
- ----------------------- -----------------
Thomas E. Pardun
/s/ Mark W. Perry Director April 6, 2000
- ----------------------- -----------------
Mark W. Perry
/s/ Ralph Z. Sorenson Director April 6, 2000
- ----------------------- -----------------
Ralph Z. Sorenson
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SEC. 200.80(b)(4),
200.83 AND 240.24b-2
DEVELOPMENT AGREEMENT
THIS AGREEMENT ("Development Agreement") dated this 22nd day of April,
1999, between Hitachi Digital Media Products Division of Hitachi, Ltd., a
Japanese corporation having its principal place of business at 1410 Inada,
Hitachinaka-shi, Ibaraki-ken, 312-8505 Japan ("Hitachi"), and Exabyte
Corporation, a Delaware corporation, having its principal place of business
at 1685 38th Street, Boulder, Colorado 80301 ("Exabyte").
W I T N E S S E T H :
---------------------
WHEREAS, Exabyte desires to have designed and developed an 8mm data
storage device; and
WHEREAS, Hitachi has previously designed an 8mm deck for video storage
applications; and
WHEREAS, Hitachi has facilities, equipment and employees which permit it
to undertake the development of the unique components to adapt the existing
deck to a data storage device; and
WHEREAS, Exabyte and Hitachi are willing to enter into an agreement under
which Hitachi will undertake such design and development for Exabyte;
NOW THEREFORE, in consideration of the covenants and agreements contained
herein, Exabyte and Hitachi hereby agree as follows:
1. DEFINITIONS
1.1 "Base Product" as used herein shall mean Hitachi's existing 8mm TH
Consumer deck system for video storage applications.
1.2 "Development" as used herein shall mean the design and development
of heads, drum, transformers, reel motor, front load mechanism, and other
components for the conversion of Base Product into Product as set forth in
Exhibit A.
1.3 "Development Prototypes" as used herein shall mean the prototypes
identified in Exhibit A.
1.4 "Final Specifications" as used herein shall mean a complete detailed
statement of design of and functions to be performed by the Product, to be
provided pursuant to Section 2.3.
1.5 "Payment Term" as used herein shall mean the term of payments by
Exabyte to Hitachi as set forth in Exhibit B.
1.6 "Preliminary Specifications" as used herein shall mean an initial
statement of design and function to be performed by Product as shown in
Exhibit C.
1.7 "Product" as used herein shall mean the 8mm data storage device
consisting of the Base Product as modified by the development carried out
pursuant to this Development Agreement and as described in and limited by the
Preliminary Specifications until Final Specifications are available at which
time Final Specifications shall apply.
2. DEVELOPMENT
2.1 Performance of Tasks. Subject to the terms and conditions contained
in this Development Agreement, Hitachi hereby agrees to carry out the
Development of the Product in accordance with Exhibit A and to deliver
Development Prototypes in accordance with Section 2.2.
2.2 Delivery of Development Prototypes. Hitachi agrees to deliver to
Exabyte Development Prototypes in accordance with the schedule set forth in
Exhibit A. Exabyte agrees to notify Hitachi within thirty (30) days if, in
Exabyte's reasonable opinion, Development Prototypes fail to meet applicable
specifications. Failure of Exabyte to so notify Hitachi within such thirty
(30) days shall constitute agreement by Exabyte that such Development Prototype
meets all the pertinent requirements. Upon receipt by Hitachi of such written
notification that an item delivered does not, in Exabyte's reasonable opinion,
meet the requirements of a Development Prototype, Hitachi shall commence
diligently and in good faith to rectify any specified deficiencies and to
deliver an item as to which such specified deficiencies are corrected.
Exabyte shall give Hitachi access to all test and other evaluation data
generated by or for Exabyte with respect to Exabyte's evaluation of Development
Prototype delivered to Exabyte under this Development Agreement.
2.3 Specifications. Exabyte and Hitachi shall act diligently and as
expeditiously as possible in reaching an agreement on Final Specifications.
The Final Specifications shall replace entirely all previous specifications,
including Preliminary Specifications.
3. PAYMENT
3.1 Exabyte agrees to pay Hitachi for development of Product in
accordance with this Development Agreement. Engineering costs (NRE) shall be
paid in quarterly installments in accordance with the Payment Terms set forth
in Exhibit B. [***] Tooling shall be owned by Exabyte upon payment for such
tooling by Exabyte to Hitachi.
- -------------
*CONFIDENTIAL TREATMENT REQUESTED
4. TERMINATION
4.1 Termination
4.1.1 Phase Termination. Exabyte may terminate this Development
Agreement if Exabyte and Hitachi reasonably conclude that Hitachi is unable
to either (1) deliver a Development Prototype on a timely basis, or (2) in a
timely manner correct a deficiency in accordance with Section 2.2.
4.1.2 Noticed Termination. Either party may unilaterally terminate
this Development Agreement at any time by giving written notice of such
termination to the other party provided that Hitachi agrees to provide Exabyte
at least one year advance written notice of any termination by Hitachi that is
not the result of Exabyte's material breach of this Development Agreement
after a reasonable cure period.
4.1.3 Expiration. This Development Agreement shall expire under
its normal terms upon satisfactory completion of Development Verification
Testing as set forth in Exhibit A.
4.2 Rights and Obligations Upon Termination. Termination shall not
relieve Exabyte from an obligation to make any payments under this Development
Agreement for Development Prototypes which have been accepted by Exabyte.
Upon any termination by Hitachi, Hitachi agrees to deliver to Exabyte all
technical information produced prior to termination relating to Product
including documentation and other tangible manifestation of development,
provided, however, that nothing herein shall provide Exabyte with rights to
Base Product. The rights and obligations set forth in Sections 5 and 6 shall
survive the termination of this Development Agreement.
5. INTELLECTUAL PROPERTY
5.1 Inventions and Test Data. Any design, developments, inventions,
know-how, computer programs or technical information which result from the
Development including, without limitation, the copyright, patent and all other
proprietary rights, including intellectual property rights relating thereto
("Development Rights"), shall be owned by Exabyte subject to the rights of the
parties as set forth below:
1) Exabyte and its affiliates shall own and may perpetually use the
Development Rights for any application;
2) Hitachi and its affiliates shall be licensed and may perpetually
use the Development Rights on a royalty-free basis for any and all VCR and
Camcorder and image storage applications and for any other applications that
are not primarily directed to data storage;
3) Except for the supply of Product to Exabyte as set forth in
Section 7, Hitachi and its affiliates agree not to use or license the
Development Rights on behalf of itself or third parties for data storage
applications without the prior written consent of Exabyte.
4) Neither party shall have any rights in any other inventions made
by the other party outside of the Development Agreement including any rights
by Exabyte with respect to Base Product.
5) Each party grants to the other party a limited, non-exclusive,
royalty-free license, without the right to sublicense, of all patents and
other proprietary rights owned by such party as is reasonably necessary for
the development of Development Prototypes and Product. The patents and other
proprietary rights licensed by Hitachi to Exabyte hereunder shall be limited
to those owned by the Hitachi Digital Media Products Division provided,
however Hitachi represents that the Development Prototype and Product shall
not infringe the patent rights or other proprietary rights owned by any other
Hitachi division or affiliates and agrees to hold Exabyte harmless with regard
to any such claim. Such representation and agreement to hold harmless shall
apply only to the subject matter of this Development Agreement and shall not
apply to any other Exabyte product.
6) Hitachi shall report to Exabyte any potentially patentable
developments arising out of the Development and Exabyte shall have the right
of first refusal to obtain, at Exabyte's cost and in its name, patent or other
legal protection for such developments in those countries of Exabyte's choice
and Hitachi shall have the right to obtain, at Hitachi's cost and in its name,
patent or other legal protection for such developments for which Exabyte does
not exercise its rights of first refusal provided that any such protection by
either party shall be subject to a royalty-free license to the other party in
accordance with the terms and understandings of this Section 5.1.
Exabyte shall inform Hitachi of Exabyte's interest in obtaining
patent protection within two weeks of actual receipt by Exabyte of a
reasonably detailed description of any potentially patentable developments
and failure by Exabyte to inform Hitachi of such interest shall provide
Hitachi the right to obtain patent protection in its own name for such
potentially patentable developments.
Exabyte agrees to procure patents in its name with assignment to
Hitachi where necessary for Hitachi to obtain patent protection for those
potentially patentable developments for which Exabyte has not exercised its
right of first refusal provided Hitachi shall pay for all costs of patent
procurement and assignment.
7) Each party agrees that any transfer of technology by one party
to a third party shall be limited by and subject to the rights of the other
party as established pursuant to this Section 5.
5.2 Base Product. Hitachi reserves all rights in any design,
developments, inventions, know how, computer programs or technical information
of Hitachi including, without limitation, the copyright, patent and all other
proprietary rights with respect to the Base Product.
6. CONFIDENTIALITY AND NON-USE
6.1 Confidentiality. Hitachi and Exabyte shall receive from the other
party certain components, parts, drawings, data sketches, plans, programs,
specifications, techniques, processes, inventions and other information of a
secret, confidential or proprietary nature relating to development of Product
and marked as "Confidential" (hereinafter collectively referred to as
"Proprietary Information"). Each party shall hold in trust and confidence,
and shall not disclose to any person outside its organization, any Proprietary
Information which is disclosed by one party to the other party under this
Development Agreement. Proprietary Information disclosed under this
Development Agreement may be used by the receiving party(ies) only for the
purpose for which it was disclosed. The receiving party(ies) shall disclose
Proprietary Information to persons within its organization only if such
persons are bound to protect the confidentiality of such Proprietary
Information. The undertaking and obligations of the receiving party(ies)
under this Development Agreement shall not apply to any Proprietary
Information which is disclosed in printed publication available to the public,
is described in a patent anywhere in the world, or is otherwise in the public
domain at the time of disclosure, is generally disclosed to third parties by
the disclosing party without restriction on such third parties, is approved
for release by written authorization of the disclosing party(ies), or is not
designated by the disclosing party(ies) in writing or by the appropriate stamp
or legend to be of a secret, confidential or proprietary nature. After
termination and/or expiration of the Agreement, the receiving party(ies):
1) will return or certify a destruction of, all tangible Proprietary
Information received from the disclosing party(ies), without retaining any
copy, and; 2) upon return or destruction of such Proprietary Information,
will be free to use the Residuals of such Proprietary Information for any
purpose. The term Residuals shall mean information in non-tangible form
relating to general engineering know-how. Any obligation pursuant to this
Section 6.1 shall expire three (3) years after the date of the disclosure of
the subject information.
6.2 Non-Disclosure of Development Agreement. Hitachi and Exabyte each
agree not to disclose the existence of the relationship between Exabyte and
Hitachi arising under this Development Agreement or the fact that Hitachi is
performing services for Exabyte without the advance written permission of the
other party.
7. SUPPLY OF PRODUCT
The parties contemplate that Hitachi will supply Product to Exabyte
following completion of the Development Agreement. Exabyte agrees that
Hitachi shall have the first right of refusal with regard to the supply of
Product. Any such supply of Product shall be subject to separate negotiation
of terms and conditions relating to Product price, quantity, configuration,
and test requirements. Any obligation on the part of Exabyte to purchase
Product from Hitachi shall be subject to the successful conclusion of a
separate supply agreement.
8. INDEPENDENT CONTRACTOR
Each party represents that it is an independent company that has its own
regular place of business and maintains a set of books and records that
reflect all items of income and expense. Each party shall operate as an
independent entity and is not, and shall not represent itself to be the agent,
employee, partner, joint venturer of the other party and may not obligate the
other party or otherwise cause the other party to be liable under any contract
or otherwise.
9. OBLIGATION UPON ESTATE OR LEGAL REPRESENTATIVE
The rights and obligations of the parties under this Development
Agreement shall be binding upon the successors and assigns of the parties.
10. SUPERSEDES PRIOR AGREEMENTS
This Development Agreement supersedes any oral or written agreement
previously executed by Hitachi and Exabyte relating to the subject matter of
this Development Agreement.
11. CHANGES TO THIS DEVELOPMENT AGREEMENT
This Development Agreement may be amended, terminated or superseded only
by written agreement between Hitachi and Exabyte that expressly amends,
terminates or supersedes this Development Agreement. The controlling language
of this Development Agreement and any amendments shall be English.
12. MAINTENANCE OF AGREEMENT
If one or more provisions of this Development Agreement should be
invalid, illegal or unenforceable in any respect, the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
13. EXPORT CONTROL
The parties agree not to export or re-export, directly or indirectly,
(i) any technical data received from the other party under this Development
Agreement, or (ii) any product, process or technical data using such received
technical data, to any country to which such export or re-export is restricted
or prohibited by Japanese, U.S. or other relevant laws, without obtaining
prior authorization from the competent government authorities as required by
those laws. This export control clause shall survive any termination or
expiration of the Development Agreement.
14. ARBITRATION
All disputes, controversies or differences which may arise between
Exabyte and Hitachi ("Parties") in relation to or in connection with this
Development Agreement shall be settled by amicable negotiation by both
Parties. If both Parties are unable to settle such disputes, then, such
disputes shall be referred to and finally settled by arbitration under the
Rules of Conciliation and Arbitration of the International Chamber of Commerce
applying the laws of the State of New York, U.S.A. The arbitration shall be
conducted in English and take place in Japan if it is initiated by Exabyte or
in the U.S.A. if it is initiated by Hitachi. The award of arbitration shall
bind both Parties.
15. NOTICES
All notices, requests and other communications called for by this
Development Agreement shall be deemed to have been given if made in writing
and mailed, postage prepaid, to the following address:
TO: Mr. Michio Masuda. TO: Mr. Stephen F. Smith
General Manager Vice President
Hitachi, Ltd., Exabyte Corporation
Digital Media Products Division 1685 38th Street
Video Equipments Operation Boulder, Colorado 80301
1410 Inada, Hitachinaka-shi
Ibariki-ken, 312 8505 Japan
IN WITNESS WHEREOF, each party has caused this Development Agreement to
be executed by its duly authorized representative.
HITACHI, LTD. EXABYTE CORPORATION
Digital Media Products Division
BY---------------------------- BY---------------------------
TITLE------------------------- TITLE------------------------
DATE-------------------------- DATE-------------------------
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SEC. 200.80(b)(4),
200.83 AND 240.24b-2
DEVELOPMENT AGREEMENT
THIS AGREEMENT ("Development Agreement") dated this 20th of December,
1999 between Hitachi Digital Media Products Division of Hitachi, Ltd., a
Japanese corporation having its principal place of business at 1410 Inada,
Hitachinaka-shi, Ibaraki-ken, 312-8505 Japan ("Hitachi"), and Exabyte
Corporation, a Delaware corporation, having its principal place of business
at 1685 38th Street, Boulder, Colorado 80301 ("Exabyte").
W I T N E S S E T H :
---------------------
WHEREAS, Exabyte desires to have designed and developed an 8mm data
storage device; and
WHEREAS, Hitachi has previously designed an 8mm drum for video storage
applications; and
WHEREAS, Hitachi has facilities, equipment and employees which permit it
to undertake the development of the unique components to adapt its existing
drum to a data storage component; and
WHEREAS, Exabyte and Hitachi are willing to enter into an agreement under
which Hitachi will undertake such design and development for Exabyte;
NOW THEREFORE, in consideration of the covenants and agreements contained
herein, Exabyte and Hitachi hereby agree as follows:
1. DEFINITIONS
1.1 "Base Product" as used herein shall mean Hitachi's existing 8mm TH
Consumer drum system for video storage applications.
1.2 "Development" as used herein shall mean the design and development
of the head, drum, transformer and other components for the conversion of Base
Product into Product as set forth in Exhibit A.
1.3 "Development Prototypes" as used herein shall mean the prototypes
identified in Exhibit A.
1.4 "Final Specifications" as used herein shall mean a complete
detailed statement of design of and functions to be performed by the Product,
to be provided pursuant to Section 2.3.
1.5 "Payment Term" as used herein shall mean the term of payments by
Exabyte to Hitachi as set forth in Exhibit B.
1.6 "Preliminary Specifications" as used herein shall mean an initial
statement of design and function to be performed by Product as shown in
Exhibit C.
1.7 "Product" as used herein shall mean the 8mm data storage component
consisting of the Base Product as modified by the development carried out
pursuant to this Development Agreement and as described in and limited by the
Preliminary Specifications until Final Specifications are available at which
time Final Specifications shall apply.
2. DEVELOPMENT
2.1 Performance of Tasks. Subject to the terms and conditions
contained in this Development Agreement, Hitachi hereby agrees to carry out
the Development of the Product in accordance with Exhibit A and to deliver
Development Prototypes in accordance with Section 2.2.
2.2 Delivery of Development Prototypes. Hitachi agrees to deliver to
Exabyte Development Prototypes in accordance with the schedule set forth in
Exhibit A. Exabyte agrees to notify Hitachi within the timeframe set forth in
Exhibit A if, in Exabyte's reasonable opinion, Development Prototypes fail to
meet applicable specifications. Failure of Exabyte to so notify Hitachi within
the timeframe set forth in Exhibit A shall constitute agreement by Exabyte that
such Development Prototype meets all the pertinent requirements. Upon receipt
by Hitachi of such written notification that an item delivered does not, in
Exabyte's reasonable opinion, meet the requirements of a Development Prototype,
Hitachi shall commence diligently and in good faith to rectify any specified
deficiencies and to deliver an item as to which such specified deficiencies are
corrected. Exabyte shall give Hitachi access to all test and other evaluation
data generated by or for Exabyte with respect to Exabyte's evaluation of
Development Prototype delivered to Exabyte under this Development Agreement.
2.3 Specifications. Exabyte and Hitachi shall act diligently and as
expeditiously as possible in reaching an agreement on Final Specifications.
The Final Specifications shall replace entirely all previous specifications,
including Preliminary Specifications.
3. PAYMENT
3.1 Exabyte agrees to pay Hitachi for development of Product in
accordance with this Development Agreement. Price for prototypes (EVT/DVT)
and engineering costs (NRE) shall be paid in accordance with the Payment Terms
set forth in Exhibit A and Exhibit B. [...***...] Tooling shall be owned by
Exabyte upon payment for such tooling by Exabyte to Hitachi.
- -------------
*CONFIDENTIAL TREATMENT REQUESTED
4. TERMINATION
4.1 Termination
4.1.1 Phase Termination. Exabyte may terminate this Development
Agreement if Exabyte and Hitachi reasonably conclude that Hitachi is unable
to either (1) deliver a Development Prototype on a timely basis, or (2) in a
timely manner correct a deficiency in accordance with Section 2.2.
4.1.2 Noticed Termination. Either party may unilaterally
terminate this Development Agreement at any time by giving written notice
of such termination to the other party provided that Hitachi agrees to provide
Exabyte at least 6 months advance written notice of any termination by Hitachi
that is not the result of Exabyte's material breach of this Development
Agreement after a reasonable cure period.
4.1.3 Expiration. This Development Agreement shall expire under
its normal terms upon satisfactory completion of Development Verification
Testing as set forth in Exhibit A.
4.2 Rights and Obligations Upon Termination. Termination shall not
relieve Exabyte from an obligation to make any payments under this Development
Agreement for Development Prototypes which have been accepted by Exabyte. Upon
any termination by Hitachi, Hitachi agrees to deliver to Exabyte all technical
information produced prior to termination relating to Product including
documentation and other tangible manifestation of development, provided,
however, that nothing herein shall provide Exabyte with rights to Base Product.
The rights and obligations set forth in Sections 5 and 6 shall survive the
termination of this Development Agreement.
5. INTELLECTUAL PROPERTY
5.1 Inventions and Test Data. Any design, developments, inventions,
know-how, computer programs or technical information which result from the
Development including, without limitation, the copyright, patent and all other
proprietary rights, including intellectual property rights relating thereto
("Development Rights") shall be owned by Exabyte subject to the rights of the
parties as set forth below:
1) Exabyte and its affiliates shall own and may perpetually use
the Development Rights for any application;
2) Hitachi and its affiliates shall be licensed and may
perpetually use the Development Rights on a royalty-free basis for any and
all VCR and Camcorder and image storage applications and for any other
applications that are not primarily directed to data storage;
3) Except for the supply of Product to Exabyte as set forth
in Section 7, Hitachi and its affiliates agree not to use or license the
Development Rights on behalf of itself or third parties, for data storage
applications without the prior written consent of Exabyte.
4) Neither party shall have any rights in any other inventions
made by the other party outside of the Development Agreement including any
rights by Exabyte with respect to Base Product.
5) Each party grants to the other party a limited, non-exclusive,
royalty-free license, without the right to sublicense, of all patents and other
proprietary rights owned by such party as is reasonably necessary for the
development of Development Prototypes and Product. The patents and other
proprietary rights licensed by Hitachi to Exabyte hereunder shall be limited
to those owned by the Hitachi Digital Media Products Division provided,
however Hitachi represents that the Development Prototype and Product shall
not infringe the patent rights or other proprietary rights owned by any other
Hitachi division or affiliates and agrees to hold Exabyte harmless with regard
to any such claim. Such representation with agreement to hold harmless shall
apply only to the subject matter of this Development Agreement and shall not
apply to any other Exabyte product.
6) Hitachi shall report to Exabyte any potentially patentable
developments arising out of the Development and Exabyte shall have the right
of first refusal to obtain, at Exabyte's cost and in its name, patent or other
legal protection for such developments in those countries of Exabyte's choice
and Hitachi shall have the right to obtain, at Hitachi's cost and in its name,
patent or other legal protection for such developments for which Exabyte does
not exercise its rights of first refusal provided that any such protection by
either party shall be subject to a royalty-free license to the other party in
accordance with the terms and understandings of this Section.
Exabyte shall inform Hitachi of Exabyte's interest in obtaining
patent protection within two weeks of actual receipt by Exabyte of a reasonably
detailed description of any potentially patentable developments and failure by
Exabyte to inform Hitachi of such interest shall provide Hitachi the right to
obtain patent protection in its own name for such potentially patentable
developments.
Exabyte agrees to procure patents in its name with assignment
to Hitachi where necessary for Hitachi to obtain patent protection for those
potentially patentable developments for which Exabyte has not exercised its
right of first refusal provided Hitachi shall pay for all costs of patent
procurement and assignment.
7) Each party agrees that any transfer of technology by one party
to a third party shall be limited by and subject to the rights of the other
party as established pursuant to this Section 5.
5.2 Base Product. Hitachi reserves all rights in any design,
developments, inventions, know how, computer programs or technical information
of Hitachi including, without limitation, the copyright, patent and all other
proprietary rights with respect to the Base Product.
6. CONFIDENTIALITY AND NON-USE
6.1 Confidentiality. Hitachi and Exabyte shall receive from the other
party certain components, parts, drawings, data sketches, plans, programs,
specifications, techniques, processes, inventions and other information of a
secret, confidential or proprietary nature relating to development of Product
and marked as "Confidential" (hereinafter collectively referred to as
"Proprietary Information"). Each party shall hold in trust and confidence,
and shall not disclose to any person outside its organization, any Proprietary
Information which is disclosed by one party to the other party under this
Development Agreement. Proprietary Information disclosed under this
Development Agreement may be used by the receiving party(ies) only for the
purpose for which it was disclosed. The receiving party(ies) shall disclose
Proprietary Information to persons within its organization only if such persons
are bound to protect the confidentiality of such Proprietary Information. The
undertaking and obligations of the receiving party(ies) under this Development
Agreement shall not apply to any Proprietary Information which is disclosed in
printed publication available to the public, is described in a patent anywhere
in the world, or is otherwise in the public domain at the time of disclosure,
is generally disclosed to third parties by the disclosing party without
restriction on such third parties, is approved for release by written
authorization of the disclosing party(ies), or is not designated by the
disclosing party(ies) in writing or by the appropriate stamp or legend to be
of a secret, confidential or proprietary nature. After termination and/or
expiration of the Agreement, the receiving party(ies): 1) will return or
certify a destruction of, all tangible Proprietary Information received from
the disclosing party(ies), without retaining any copy, and; 2) upon return or
destruction of such Proprietary Information, will be free to use the Residuals
of such Proprietary Information for any purpose. The term Residuals shall mean
information in non-tangible form relating to general engineering know-how.
Any obligation pursuant to this Section 6.1 shall expire three (3) years after
the date of the disclosure of the subject information.
6.2 Non-Disclosure of Development Agreement. Hitachi and Exabyte each
agree not to disclose the existence of the relationship between Exabyte and
Hitachi arising under this Development Agreement or the fact that Hitachi is
performing services for Exabyte without the advance written permission of the
other party.
7. SUPPLY OF PRODUCT
The parties contemplate that Hitachi will supply Product to Exabyte
following completion of this Development Agreement. Exabyte agrees that
Hitachi shall have the first right of refusal with regard to the supply of
Product. Any such supply of Product shall be subject to separate negotiation
of terms and conditions relating to Product price, quantity, configuration,
and test requirements. Any obligation on the part of Exabyte to purchase
Product from Hitachi shall be subject to the successful conclusion of a
separate supply agreement.
8. INDEPENDENT CONTRACTOR
Each party represents that it is an independent company that has its own
regular place of business and maintains a set of books and records that reflect
all items of income and expense. Each party shall operate as an independent
entity and is not, and shall not represent itself to be the agent, employee,
partner, joint venturer of the other party and may not obligate the other party
or otherwise cause the other party to be liable under any contract or
otherwise.
9. OBLIGATION UPON ESTATE OR LEGAL REPRESENTATIVE
The rights and obligations of the parties under this Development Agreement
shall be binding upon the successors and assigns of the parties.
10. SUPERSEDES PRIOR AGREEMENTS
This Development Agreement supersedes any oral or written agreement
previously executed by Hitachi and Exabyte relating to the subject matter of
this Development Agreement.
11. CHANGES TO THIS DEVELOPMENT AGREEMENT
This Development Agreement may be amended, terminated or superseded only
by written agreement between Hitachi and Exabyte that expressly amends,
terminates or supersedes this Development Agreement. The controlling language
of this Development Agreement and any amendments shall be English.
12. MAINTENANCE OF AGREEMENT
If one or more provisions of this Development Agreement should be invalid,
illegal or unenforceable in any respect, the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
13. EXPORT CONTROL
The parties agree not to export or re-export, directly or indirectly,
(i) any technical data received from the other party under this Development
Agreement, or (ii) any product, process or technical data using such received
technical data, to any country to which such export or re-export is restricted
or prohibited by Japanese, U.S. or other relevant laws, without obtaining prior
authorization from the competent government authorities as required by those
laws. This export control clause shall survive any termination or expiration
of the Development Agreement.
14. ARBITRATION
All disputes, controversies or differences which may arise between Exabyte
and Hitachi ("Parties") in relation to or in connection with this Development
Agreement shall be settled by amicable negotiation by both Parties. If both
Parties are unable to settle such disputes, then, such disputes shall be
referred to and finally settled by arbitration under the Rules of Conciliation
and Arbitration of the International Chamber of Commerce applying the laws of
the State of New York, U.S.A. The arbitration shall be conducted in English
and take place in Japan if it is initiated by Exabyte or in the U.S.A. if it
is initiated by Hitachi. The award of arbitration shall bind both Parties.
15. NOTICES
All notices, requests and other communications called for by this
Development Agreement shall be deemed to have been given if made in writing
and mailed, postage prepaid, to the following address:
TO: Mr. Michio Masuda. TO: Mr. Stephen F. Smith
General Manager Vice President
Hitachi, Ltd., Exabyte Corporation
Digital Media Products Division 1685 38th Street
Video Equipments Operation Boulder, Colorado 80301
1410 Inada, Hitachinaka-shi
Ibariki-ken, 312 8505 Japan
IN WITNESS WHEREOF, each party has caused this Development Agreement to
be executed by its duly authorized representative.
HITACHI, LTD. EXABYTE CORPORATION
Digital Media Products Division
BY---------------------------- BY---------------------------
TITLE------------------------- TITLE------------------------
DATE-------------------------- DATE-------------------------
COMMITMENT LETTER
-----------------
March 3O, 2000
Mr. Bernie Herrmann
Director of Finance and Accounting
Exabyte Corporation
1685 38th Street
Boulder, CO 80229
Dear Mr. Herrmann:
Based on the information that you have supplied to Congress Financial
Corporation (Southwest) ("Lender"), Lender is pleased to confirm its
commitment to provide a secured credit facility (the "Credit Facility") to
Exabyte Corporation (the "Company"), as described below. The Credit Facility
shall be in the maximum amount of $20,000,000, and shall be subject to the
terms and conditions set forth herein and in the Term Sheet (as defined
below). The Credit Facility is to be used to refinance certain existing debt
owed to the Company's existing secured lender, to provide for letters of
credit and to provide future working capital for the Company, as described
below.
The Credit Facility will be available pursuant to the terms and
conditions of a loan and security agreement and other definitive loan
documentation, incorporating provisions that are customary in similar
financings by Lender or deemed by Lender to be appropriate in the context of
the contemplated transactions, including Lender's customary and appropriate
closing conditions. Certain of those terms and conditions are specified in the
Summary of Principal Terms and Conditions attached to this letter (such
Summary, the "Term Sheet"; and together with this letter, collectively, this
"Commitment Letter").
Lender may terminate this Commitment Letter if, in Lender's judgment, any
condition to Lender's obligations set forth in this Commitment Letter or in
the proposed definitive documentation is or becomes incapable of satisfaction,
or any material adverse change in the assets, business, financial condition or
prospects of the Company occurs. In addition, if any business or legal issues
arise during the course of documentation or Lender's continuing review of the
transaction, they must be resolved to Lender's satisfaction, or Lender may
terminate this Commitment Letter without liability to you or the Company.
You will promptly reimburse Lender or pay directly all reasonable legal
and other costs and expenses incurred by Lender in connection with its
continuing review of the transaction and the preparation and negotiation of
this Commitment Letter (including any amendment or modification hereof) and
the loan documentation, including reasonable attorneys' fees and legal
expenses, filing and search charges, documentary stamp and intangibles taxes,
recording taxes and fees and field examination charges and expenses (including
per diem charges of $750 per person per day plus the out-of-pocket expenses
incurred by Lender's examiners in the field and in the office, including
travel, hotel and all other reasonable out-of-pocket expenses), in each case
whether or not the Credit Facility closes. All such charges and expenses shall
be paid to Lender upon its demand, together with such advance funds on account
of such charges and expenses as have been previously deposited with Lender and
as Lender may from time to time request. Lender has the right to apply to such
charges and expenses any sums received by Lender or its affiliates from or on
behalf of you or the Company.
You will indemnify and hold Lender and its officers, directors, agents
and affiliates harmless from and against any loss, claim, liability or
expense, including, but not limited to, reasonable attorneys' fees and legal
expenses, incurred by any of them in connection with, arising out of, or in
any way related to this Commitment Letter or any of the transactions
contemplated hereby. Lender will not, in any case, be liable for any special,
indirect or consequential damages in respect of any breach or alleged breach
of any obligations of Lender arising under this Commitment Letter.
This Commitment Letter contains Lender's entire commitment for this
transaction, and, upon acceptance by you, supersedes all prior proposals,
negotiations, discussions and correspondence from or with Lender or its
affiliates, including the proposal letter from Lender to you dated March 1,
2000, except for the provisions of paragraph 8 thereof, which paragraph shall
remain in full force and effect. This Commitment Letter may not be
contradicted by evidence of any alleged oral agreement.
NOTICE UNDER SECTION 26.02 OF TEXAS BUSINESS AND COMMERCE CODE:
- --------------------------------------------------------------
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
This Commitment Letter is for your sole benefit and may not be relied on
by any third party. This Commitment Letter shall not be assigned by you
without the prior written consent of Lender, and may not be amended, nor may
any provision of this Commitment Letter be waived or modified, except in
writing signed by the party against whom such amendment, waiver or
modification is sought to be enforced. This Commitment Letter shall be
governed by and construed in accordance with the internal laws of the State
of Texas, without regard to principles of conflicts of law.
This Commitment Letter will be of no force and effect unless a
counterpart hereof is accepted and agreed to by you and, as so accepted and
agreed to, received by Lender, together with payment to Lender of its entire
$150,000 Commitment Fee (as defined in the Term Sheet) in immediately
available funds, all by the close of business in Dallas, Texas, on April 6,
2000. The commitment of Lender under this Commitment Letter, if timely
accepted and agreed to by you, accompanied by payment of the Commitment Fees
will terminate as of the close of business on April 22, 2000, if the Loan
Documentation (as defined in the Term Sheet) is not executed and all
conditions precedent to the initial borrowing under the Credit Facility have
not been satisfied on or prior to such date. All your indemnification and
other obligations hereunder shall survive any such termination. Following any
termination hereof, the Credit Facility will require reapproval by Lender's
credit committee even if Lender continues to work on the transaction. Such
reapproval, if obtained, may result in different terms or conditions, or
Lender may determine not to consummate the transaction, without liability to
you or the Company.
EACH OF LENDER AND YOU WAIVES ITS RIGHT TO A JURY TRIAL IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR 1N ANY WAY RELATING TO THIS COMMITMENT LETTER OR
THE TRANSACTIONS REFERRED TO 1N THIS COMMITMENT LETTER.
If you accept and agree to the foregoing, please so indicate by executing
one counterpart of this letter and returning it to Lender, together with
payment of Lender's Commitment Fee. Such Commitment Fee shall be sent by
Federal funds wire transfer to Lender's account as listed on the attachment to
this Commitment Letter.
We look forward to working with you to complete this transaction.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
(SOUTHWEST)
By: -------------------------
Title: ----------------------
ACCEPTED AND AGREED THIS 4th DAY
OF April, 2000:
EXABYTE CORPORATION
By: -------------------------
Title: ----------------------
EXHIBIT A
---------
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS
-----------------------------------------
BORROWER: Exabyte Corporation and its subsidiaries as determined
- -------- by Lender.
LENDER: CONGRESS FINANCIAL CORPORATION (SOUTHWEST)
- ------
Each term used but not defined in this Exhibit A shall have the meaning
assigned to such term in the letter to which this Exhibit A is attached.
I. REVOLVING CREDIT:
A. AMOUNT. Revolving loans ("Revolving Loans") to be provided by Lender
of up to $20,000,000 (the "Maximum Credit"), available based upon the lending
formulas and subject to the sublimits and other terms described below.
B. DOMESTIC ACCOUNTS LENDING FORMULA: Revolving Loans of up to eighty
percent (80%) of the net amount of eligible accounts receivable of Borrower;
provided, however, that in no event will such Revolving Loans at any time
exceed an amount equal to Borrower's trailing two (2) months' collections.
Eligible accounts receivable and the net amounts thereof will be determined by
Lender pursuant to general criteria which will be set forth in the Loan
Documentation (as defined below). Generally, eligible accounts receivable will
exclude accounts which are unpaid more than ninety (90) days past the original
invoice date or more than sixty (60) days past the original due date, accounts
owed by an account debtor which has more than fifty percent (50%) of the
aggregate amount thereof unpaid more than ninety (90) days past the original
invoice date or more than sixty (60) days past the original due date, accounts
owed by an account debtor whose accounts equal or exceed twenty-five percent
(25%) of all otherwise eligible accounts of Borrower, accounts receivable of
the United States or any agency or department thereof for which the applicable
Borrower has not complied with the Federal Assignment of Claims Act, foreign
accounts receivable (other than to the extent eligible pursuant to paragraphs
I.C and I.D hereof), contra accounts, poor credits, employee or affiliate
accounts receivable, unbilled accounts receivable, and those other accounts
which do not constitute collateral acceptable for lending purposes pursuant to
criteria established by Lender.
C. FOREIGN ACCOUNTS LENDING FORMULA. Revolving loans of up to the lesser
of $2,000,000 or eighty percent (80%) of the net amount of accounts receivable
of Borrower owing by specified foreign account debtors approved by Lender.
Eligible foreign accounts receivables and the net amounts thereof will be
determined by Lender pursuant to general criteria which will be set forth in
the Loan Documentation. Generally, eligible foreign accounts receivable will
exclude accounts that are not billed from the United States, are not payable
in U.S. dollars only, or fail to meet the other eligibility criteria
applicable to non-foreign accounts of Borrower.
D. U.K. SUBSIDIARY ACCOUNTS LENDING FORMULA. Revolving Loans of up to the
lesser of $3,000,000 or eighty percent (80%) of the net amount of eligible
accounts receivable of a wholly-owned subsidiary of Borrower organized under
the laws of the United Kingdom approved by Lender (the "U.K. Subsidiary"),
provided that the U.K. Subsidiary shall have become a co-borrower or guarantor
under the Credit Facility, and shall have granted Lender a lien on its assets
(all on items and conditions, and pursuant to documents in form and substance
acceptable to Lender). Eligible accounts receivable of the U.K. Subsidiary and
the net amounts thereof will be determined by Lender pursuant to general
criteria which will be set forth in the Loan Documentation. Generally,
eligible accounts receivable of the U.K. Subsidiary will exclude accounts that
fail to meet the other eligibility criteria applicable to accounts receivable
of Borrower.
E. LETTERS OF CREDIT.
1. Amount: Standby letters of credit arranged through Lender ("LCs")
of up to an aggregate amount at any time outstanding of $4,000,000, included
within the overall revolving credit.
2. LC Reserves Against Availability: A reserve against the Revolving
Loans available under the lending formulas (subject to applicable sublimits)
equal to one hundred percent (100%) percent of the amount of such LCs.
3. Letter of Credit Fees: Lender shall receive a letter of credit fee
calculated at the rate of one and one-half percent (1.50%) per annum on the
daily outstanding balance of the LCs, payable monthly in arrears. All
applicable bank and opening charges shall be in addition to Lender's fees and
charged to Borrower's loan account(s).
F. AVAILABILITY RESERVES, LENDING FORMULAS. Lender will have a continuing
right to reserve against the loan availability under the lending formulas set
forth above (i) to reflect events, conditions, contingencies or risks which,
as determined by Lender in good faith, do or may affect either the Collateral
or its value, or the assets or business of Borrower or the U.K. Subsidiary, or
Lender's security interests, liens and other rights in the Collateral
(including the enforceability, perfection and priority thereof), or (ii) to
reflect Lender's good faith belief that any Collateral report or financial
information furnished by or on behalf of Borrower or the U.K. Subsidiary to
Lender is or may have been incomplete, inaccurate or misleading in any
material respect, (iii) in respect of any state of facts which Lender
determines in good faith constitutes an event of default under the Loan
Documentation or may, with notice or passage of time or both, constitute such
an event of default, or (iv) to reflect reserves for LCs. Without limiting the
foregoing, Lender shall establish on the closing date reserves to reflect the
tax and accounts payable liabilities of the U.K. Subsidiary, to reflect
dilution of accounts receivable in excess of five percent (5%) and a permanent
availability reserve in the amount of $1,500,000. Lender may from time to time
reduce the lending formula(s) applicable to eligible accounts based on
Lender's good faith determination that, and to the proportionate extent that,
dilution has increased or the general creditworthiness of account debtors has
declined.
II. COLLATERAL: First priority perfected security interests in and liens upon
all of Borrower's present and future assets and properties including accounts,
contract rights, general intangibles (including, without limitation,
trademarks, service marks, tradenames, patents and licenses thereof), chattel
paper, documents, instruments, inventory, the capital stock of the U.K.
Subsidiary, products and proceeds thereof (the "Collateral").
III. USE OF PROCEEDS: All Revolving Loans, LCs and other credit accommodations
(if any) provided to Borrower shall be used exclusively for (i) the
satisfaction and termination of the existing credit facility provided to the
Borrower by Bank One, including arrangements acceptable to Lender for the
replacement of standby letters of credit outstanding under the Bank One credit
facility, (ii) expenses of the transaction, and (iii) the future working
capital of the Borrower.
IV. INTEREST RATES:
A. The interest rate on the Revolving Loans shall be (i) one-half of one
percent (.50%) in excess of the prime rate per annum announced from time to
time by First Union National Bank as its "prime rate" (the "Prime Rate"), and
shall increase or decrease by an amount equal to each increase or decrease in
such Prime Rate, effective as of the first day of the month after any such
change occurs, or (ii) a rate of two and one-half percent (2.50%) per annum in
excess of the "Adjusted Eurodollar Rate", if the applicability of such rate is
elected by Borrower, subject to Lender's customary terms applicable to
Eurodollar rate based loans, provided that, in the event that Excess
Availability as determined by Lender under (and as defined) in the Loan
Documentation, at any time falls below $7,500,000, the interest rate
applicable to the Revolving Loans shall increase by one-quarter percent (.25%)
per annum. The Adjusted Eurodollar Rate will be calculated based on the
average of rates of interest per annum at which First Union National Bank is
offered deposits of U.S. dollars in the London interbank market for the
applicable period of one, two or three months elected by Borrower, adjusted by
the reserve percentage prescribed by governmental authorities, as determined
by Lender. Eurodollar rate based loans shall not exceed eighty percent (80%)
of Revolving Loans outstanding.
B. All interest will be computed on the basis of actual days elapsed over
a three hundred sixty (360) day year, will be payable monthly to Lender and
may be charged by Lender to the Revolving Loan account(s) of Borrower.
Collections in respect of the accounts of Borrower will be credited to the
Revolving Loan account(s) of Borrower on a daily basis, allowing one (1)
business day after Lender's receipt of a wire transfer(s) of federal funds to
Lender's payment account designated for such purpose, unless Lender waives
such one (1) business day requirement upon, among other things, Borrower
maintaining Excess Availability of at least $7,500,000 and available,
unencumbered cash in excess of $10,000,000 and no event of default having
occurred under the Loan Documentation.
V. DEFAULT RATES: While an event of default is continuing under the Loan
Documentation or any termination or non-renewal of the Credit Facility, the
applicable rates of interest and fees in respect of LCs, shall be increased by
two percent (2%) per annum above the pre-default rates. Such increased rates
shall also be applicable to Revolving Loans and LCs outstanding in excess of
the lending formula availability or any applicable limits or sublimits,
whether or not such excess(es) are permitted by Lender at any time.
VI. TERM: The Credit Facility shall be for an initial term of three (3) years
from the date of closing. Thereafter, the Credit Facility shall be subject to
successive one (1) year automatic renewals, unless notice of non-renewal is
timely given as provided in the Loan Documentation.
VII. FEES: All fees listed below are in addition to interest, letter of credit
fees and other charges and expenses provided for herein and may, in the case
of such amounts payable to Lender, at Lender's option, be charged directly to
the Revolving Loan account(s) of Borrower:
A. CCMMITMENT FEES. Lender shall receive a commitment fee of $150,000
upon your acceptance of this Commitment Letter (the "Commitment Fee"), which
is fully earned upon your acceptance of this Commitment Letter and is non-
refundable.
B. SERVICING FEE. Lender shall receive a servicing fee of $2,000 per
month (or part thereof), earned and payable monthly, in advance, commencing on
the date of closing.
C. UNUSED LINE FEE. Lender shall receive an unused line fee, payable
monthly during the term of the Credit Facility, calculated at the rate of
three eighths of one percent (.375%) per annum upon the amount (if any) by
which $16,000,000 exceeds the average daily aggregate principal balance of the
Revolving Loans, LCs outstanding under the Credit Facility during the prior
month (or part thereof).
D. EARLY TERMINATION FEE. If the Credit Facility is terminated, for any
reason, prior to the end of the then current term, Lender shall receive an
early termination fee as follows:
1. One and one-quarter percent (1.25%) of the Maximum Credit, if
terminated on or prior to the first anniversary of the date of closing;
2. Three-quarters percent (.75%) of the Maximum Credit, if terminated
after the first anniversary and on or prior to the second anniversary of the
date of closing; and
3. One-quarter percent (.25%) of the Maximum Credit, if terminated
after the second anniversary and prior to the end of the then current term.
Lender agrees to waive the early termination fee otherwise applicable if,
prior to a default that has not been previously cured or waived, the Credit
Facility is terminated and all obligations to Lender are satisfied with the
proceeds of, and contemporaneously with the closing of, either (i) a credit
facility led or provided solely by First Union National Bank, or (ii) the sale
of equity interests in, or subordinate debt obligations of, Borrower.
VIII. EXPENSES: In addition to fees and expenses payable under this Commitment
Letter, the Borrower will, from and after closing, pay all of the reasonable
out-of-pocket expenses and customary administrative charges incurred from time
to time by Lender during the course of the financing arrangements, including,
without limitation, reasonable out-of-pocket expenses for recurring field
examinations, and, in addition, per diem field examination charges at the rate
of $750 per person per day), and reasonable attorneys' fees and legal
expenses, filing fees, title insurance premiums, documentary stamp and
intangibles taxes, recording taxes and fees, search fees and appraisal fees,
provided that Borrower shall not be obligated to pay fees of Lender's counsel
associated with the initial Loan Documentation and the closing of this
transaction between Borrower and Lender in excess of $25,000.
IX. LOAN DOCUMENTATION:
A. DOCUMENTS. Definitive loan documentation, (the "Loan Documentation"),
including, without limitation a loan and security agreement, supplemental
security agreements, a stock pledge agreement, lien waivers and access
agreements in Lender's favor and required in good faith by Lender from
mortgagees, landlords, warehousemen, repairmen and customers who have
possession of or on whose property any Collateral is located, and other third
party waivers and access agreements in Lender's favor (or in lieu of such lien
waivers and access agreements, availability reserves established in good faith
by Lender), UCC financing statements and related documentation, legal opinions
from Borrower's counsel. All of the Loan Documentation shall be prepared or
approved by Lender's counsel incorporating Lender's customary terms and
provisions, including, without limitation, the absence of any default or
incipient default as a condition of all loans and advances, and the right to
establish reserves against the loan availability under the lending formulas
set forth above, and such other provisions as Lender may require as to its
Loan Documentation in the context of the transactions contemplated hereby. The
Loan Documentation will also provide that Lender may syndicate and/or sell
participations in the Credit Facility.
B. REPRESENTATIONS AND WARRANTIES. To include, but not be limited to:
representations and warranties concerning the Collateral; corporate existence
and good standing, power and authority; accuracy of financial information;
absence of material adverse changes; locations of chief executive offices and
Collateral; priority of Lender's security interests and liens, ownership of
properties, and absence of other liens; filing of tax returns and payment of
taxes; absence of material litigation or investigations; compliance under and
non-contravention with other agreements and applicable law, regulation, etc.;
identification of bank accounts; environmental matters; employee benefit
matters; accuracy and completeness of information furnished to Lender;
survival and continuing nature of representations and warranties.
C. AFFIRMATIVE COVENANTS. To include, but not be limited to: maintenance
of corporate existence and rights; requirements for new locations; compliance
with laws (including environmental and employee benefit laws); performance of
obligations; maintenance of property in good repair; maintenance of
appropriate and insurance deemed adequate by Lender; Lender's rights to
inspect books and properties; payment of taxes and claims; delivery of
financial statements, financial projections and other information; Collateral
reporting; end further assurances.
D. NEGATIVE COVENANTS. To include, but not be limited to, prohibitions or
limitations on: dividends; redemptions and repurchases of capital stock;
capital leases) and guarantees; operating leases; repurchases or prepayment of
debt; creation or suffering of liens (including, without limitation, a
prohibition of liens on property of Borrower, other than (i) the liens granted
in favor of Lender and (ii) existing and permitted future purchase money liens
on, and capital leases of, equipment; loans, investments and acquisitions;
affiliate transactions; asset sales, mergers and consolidations; opening new
bank accounts.
E. FINANCIAL COVENANT. A Minimum Tangible Net Worth covenant will be
included in the Loan Documentation, in amounts determined by Lender consistent
with the projections delivered to Lender prior to the date of this Commitment
Letter. The amounts measured by such covenant shall, unless - otherwise
provided below, be calculated according to definitions and shall be required
to be satisfied at the times and/or for the periods to be set forth in the
Loan Documentation.
F. EVENTS OF DEFAULT. To include, but not be limited to: payment and
performance defaults under any of the Loan Documentation, cross-defaults with
other indebtedness and other material agreements and documents, breach of
representations and warranties, insolvency, voluntary and involuntary
bankruptcy, judgments and attachments, revocation of any guaranty,
dissolution, change in control, and any material adverse change in Borrower's
business, assets or prospects.
G. WAIVERS. To include, but not be limited to: A WAIVER BY EACH OF LENDER
AND BORROWER OF ITS RIGHTS TO JURY TRIAL; a waiver by Borrower of claims for
special, indirect or consequential damages in respect any breach or alleged
breach by Lender under any of its Loan Documents.
X. CONDITIONS PRECEDENT: Those conditions precedent customarily required by
Lender in similar financings and any additional conditions precedent deemed
appropriate by Lender in good faith in the context of this transaction
including, without limitation, the following:
A. Execution and delivery of the Loan Documentation, in form and
substance satisfactory to Lender.
B. Lender shall hold perfected, security interests in and liens upon the
Collateral having the priority set forth above, free and clear of all other
liens, claims and encumbrances. All UCC financing statements and other
perfection instruments relating to the Collateral shall have been duly
prefiled against Borrower before closing, and Lender shall have received UCC
and other lien search results from the - various jurisdictions showing the
financing statements and other perfection instruments in favor of Lender filed
of record prior to closing. Borrower shall have pledged to Lender certificates
evidencing its shares of the capital stock of the U.K. Subsidiary, along with
appropriate stock certificates, executed in blank.
C. Termination of Borrower's existing credit facility with Bank One, and
the release of all security interests and liens held by such lender in any
assets and properties of Borrower.
D. The Excess Availability determined by Lender under (and as defined in)
the Loan Documentation as at the closing of the Credit Facility, subject to
applicable sublimits and reserves, shall be not less than $7,500,000 after the
payment of or provision for costs, fees and expenses of the transaction
(including in connection with the Credit Facility), and after giving effect to
the initial loans and LCs under the Credit Facility as provided herein, and
provided the accounts payable of Borrower are then in a condition acceptable
to Lender.
E. There shall exist no event of default or incipient default under any
of the Loan Documentation F. Lender and its counsel will have had the
opportunity to conduct customary legal due diligence (all of which shall be
satisfactory to Lender and its counsel). Without limiting the foregoing Lender
and its counsel shall be satisfied with the structure of the Credit Facility.
F. Lender and its counsel will have had the opportunity to conduct
customary legal due diligence (all of which shall be satisfactory to Lender
and its counsel). Without limiting the foregoing Lender and its counsel shall
be satisfied with the structure of the Credit Facility.
G. Lender shall have received current accounts receivable agings,
perpetual inventory records and/or roll-forwards of accounts and inventory
through the date of closing, together with supporting documentation, and other
documents and information that will enable Lender to accurately identify and
verify the eligible accounts of the Borrower, all of the foregoing to be
delivered at or before closing in a manner satisfactory to Lender.
H. Delivery to Lender of evidence of insurance coverage deemed adequate
by Lender, including lender's loss payee endorsements in Lender's favor, as
their interests may appear, as to, casualty and, if carried, business
interruption insurance and endorsements naming Lender as additional insured as
to liability insurance.
I. No material adverse change in the business operations or prospects of
Borrower or in the assets of Borrower shall have occurred since the date of
Lender's most recent field examination(s) conducted prior to the date of this
Commitment Letter. Lender may conduct additional or updated field
examinations, at Borrower's expense, prior to closing and/or commencing
financing, the results of which must be satisfactory to Lender. Without
limiting the generality of the foregoing (i) no material investigation,
litigation, bankruptcy or other proceedings shall be pending or threatened
against Borrower as of the closing, and (ii) the Collateral shall not have
materially declined in value from the values set forth in any of the
appraisals or field examination(s) completed prior to the date of this
Commitment Letter.
J. Lender shall have received, in form and substance satisfactory to
Lender, an agreement (a "Blocked Account Agreement") with each of the
depository banks at which bank accounts and/or lockboxes are maintained for
receipt of the proceeds of accounts or other Collateral, providing that all
remittances and amounts received in the lockboxes and/or bank accounts are the
property of Lender and collected funds thereon shall be sent by federal funds
wire transfer on a daily basis to Lender's bank account designated for such
purposes (unless Lender has waived such requirement upon, among other things,
Borrower maintaining Excess Availability of at least $7,500,000 and available,
unencumbered cash in excess of $10,000,000, and no Event of Default having
occurred under the Loan Documentation) and that the depository bank has no
lien on or right of setoff against such remittances or amounts on deposit or
held in such bank accounts and shall only follow the instructions of Lender
with respect to such remittances and amounts on deposit.
K. With respect to U. K. Subsidiary Accounts, Lender shall have completed
its field examinations, credit investigations and analysis and review of
certain other information all with results satisfactory to Lender.
L. With respect to the initial advance under the Credit Facility, Lender
shall have received, three (3) days' prior written notice.
XI. INDEMNITY: Borrower shall indemnify and hold harmless Lender and its
directors, officers, agents, and employees from and against all losses,
claims, damages, expenses, or liabilities including, but not limited to, legal
or other expenses incurred in connection with investigating, preparing to
defend, or defending any such loss, claim, damage, expenses or liability,
incurred in respect of the Credit Facility or the relationship between Lender
and Borrower.
XII. GOVERNING LAW: The Loan Documentation and the Credit Facility shall be
governed by Texas law, without regard to principles of conflicts of law.
XIII. CONSENT TO JURISDICTION: As to the Loan Documentation and the Credit
Facility, Texas courts.
* * *
Note: This Summary of Principal Terms and Conditions is not meant to be, nor
shall it be construed as an attempt to describe the specific phrasing of
documentation clauses. Rather, it is intended only to outline the principal
terms to be included in the Loan Documentation.
Exhibit 10.20 - 2000 OFFICER BONUS PLAN
The Company has adopted a 2000 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 2000 Operating Plan presented
and approved at the Board of Directors meeting on January 17, 2000, excluding
results from its wholly-owned subsidiary, CreekPath Systems, Inc. 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.
If the 2000 Operating Plan is fully achieved, 200% of the executive's bonus
will be paid. If the Company shows a profit in its year-end results, 150% of
bonus will be paid. If the Company is profitable for both the third and fourth
quarters, 100% of bonus will be paid. If the Company is profitable for the
fourth quarter only, 50% of bonus will be paid. No bonus will be paid if the
Company shows no profitability in fiscal 2000.
Exhibit 21.1 - LIST OF SUBSIDIARIES
1. Exabyte FSC Ltd.
2. Nihon Exabyte Corporation
3. Exabyte (Scotland) Ltd.
4. Exabyte (Europe) B.V.
5. Exabyte Magnetics GmbH
6. Exabyte (Singapore) Pte. Ltd.
7. Exabyte (Canada) Corporation
8. CreekPath Systems, Inc.
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, 2000
appearing on page 45 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Denver, Colorado
April 6, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AS OF JANUARY 1, 2000 AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY 1, 2000
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-03-1999
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 25,610
<SECURITIES> 7,039
<RECEIVABLES> 45,018
<ALLOWANCES> 7,855
<INVENTORY> 26,805
<CURRENT-ASSETS> 109,680
<PP&E> 127,454
<DEPRECIATION> 102,746
<TOTAL-ASSETS> 165,896
<CURRENT-LIABILITIES> 41,950
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 64,842
<TOTAL-LIABILITY-AND-EQUITY> 165,896
<SALES> 222,827
<TOTAL-REVENUES> 222,827
<CGS> 182,875
<TOTAL-COSTS> 182,875
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (430)
<INTEREST-EXPENSE> 477
<INCOME-PRETAX> (51,188)
<INCOME-TAX> (1,401)
<INCOME-CONTINUING> (49,787)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,787)
<EPS-BASIC> (2.24)
<EPS-DILUTED> (2.24)
</TABLE>
