UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 0-21200
MERIDIAN DATA, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0188708
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5615 Scotts Valley Drive, California 95066
------------------------------------ ----------
(Address of principal executive office) (Zip Code)
(831) 438-3100
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report.)
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 in 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X , No .
The number of shares of Common Stock, no par value, outstanding on August 11,
1999, was 8,700,170.
Exhibit index on page 23. Page 1 of 29
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
MERIDIAN DATA, INC.
BALANCE SHEETS June 30, December 31,
(in thousands, except per share data ) 1999 1998
- -------------------------------------------------------------------------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 7,225 $11,049
Marketable securities 4,659 7,794
Accounts receivable (net of allowance
for returns and doubtful accounts of $412
and $351, respectively) 2,149 2,632
Inventories 3,258 2,687
Other assets 184 132
------ ------
Total current assets 17,475 24,294
Property and equipment at cost,
less accumulated depreciation 427 579
Other assets 11 15
------ ------
$17,913 $24,888
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,482 $ 2,895
Accrued payroll and related expenses 1,446 1,675
Accrued advertising and promotion 1,908 2,283
Other accrued liabilities 1,638 1,794
------ ------
Total current liabilities 7,474 8,647
------ ------
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000 shares
authorized, and no shares issued and outstanding -- --
Common stock, $0.001 par value, 35,000 shares
authorized, 8,443 and 8,134 shares issued
and outstanding, respectively 8 8
Additional paid-in capital 65,963 65,525
Accumulated deficit (55,532) (49,292)
------ ------
Total stockholders' equity 10,439 16,241
------ ------
$17,913 $24,888
====== ======
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN DATA, INC.
STATEMENT OF OPERATIONS
(In thousands, except per share data, unaudited)
<S> <C> <C> <C> <C>
Three months ended June 30, Six months ended June 30,
1999 1998 1999 1998
------ ------ ------ ------
Revenues
Product sales $ 3,893 $ 4,237 $ 7,945 $ 7,560
------ ------ ------ ------
Costs and expenses:
Cost of product sales 2,581 2,367 5,187 4,120
Research and development 1,073 1,852 2,169 3,491
Sales and marketing 2,574 4,554 5,290 6,469
General and administrative 1,207 702 1,888 1,346
------ ------ ------ ------
Total costs and expenses 7,435 9,475 14,534 15,426
------ ------ ------ ------
Loss from operations (3,542) (5,238) (6,589) (7,866)
Interest income, net 149 374 349 776
------ ------ ------ ------
Loss before income taxes (3,393) (4,864) (6,240) (7,090)
------ ------ ------ ------
Net loss $(3,393) $(4,864) $(6,240) $(7,090)
====== ====== ====== ======
Net loss per share:
Basic $ (0.41) $ (0.55) $ (0.76) $ (0.80)
====== ====== ====== ======
Diluted $ (0.41) $ (0.55) $ (0.76) $ (0.80)
====== ====== ====== ======
Weighted average common
shares and equivalents:
Basic 8,342 8,837 8,239 8,817
====== ====== ====== ======
Diluted 8,342 8,837 8,239 8,817
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MERIDIAN DATA, INC.
STATEMENTS OF CASH FLOWS
Six months ended June 30,
(In thousands) 1999 1998
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(6,240) $(7,090)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 242 255
Changes in assets and liabilities:
Accounts receivable 483 (603)
Inventories (571) (536)
Other assets (48) (118)
Accounts payable (413) 710
Accrued payroll and related expenses (229) (76)
Accrued advertising and promotion (375) 501
Other accrued liabilities (156) 615
------ ------
Net cash used in operating activities (7,307) (6,342)
------ ------
Cash flows from investing activities:
Purchases of property and equipment (90) (295)
Redemption of marketable securities 13,946 31,538
Additions to marketable securities (10,812) (27,869)
------ ------
Net cash provided by investing activities 3,045 3,374
------ ------
Cash flows from financing activities:
Issuance of common stock related to stock plans 438 190
------ ------
Net cash provided by financing activities 438 190
------ ------
Net decrease in cash and cash equivalents (3,824) (2,778)
Cash and cash equivalents at:
Beginning of period 11,049 15,167
------ ------
End of period $ 7,225 $12,389
====== ======
Statement of cash flow supplemental disclosure:
Total cash paid for interest during the period $ 15 $ 19
Total cash paid for taxes during the period $ 12 $ 38
The accompanying notes are an integral part of these financial statements.
<PAGE>
MERIDIAN DATA, INC.
NOTES TO FINANCIAL STATEMENTS
For The Six Months Ended June 30, 1999, and June 30, 1998
Note 1. General
The accompanying financial information is unaudited, but, in the opinion of
management, reflects all adjustments (which include only normally recurring
adjustments) necessary to present fairly the financial position of Meridian
Data, Inc. (the "Company") as of the dates indicated and the results of
operations for the periods then ended. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
While the Company believes that the disclosures are adequate to make the
information presented not misleading, the financial information should be read
in conjunction with the audited financial statements, and notes thereto, for the
year ended December 31, 1998, included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998. Results for the interim period are
not necessarily indicative of the results for the entire year.
Note 2. Income taxes
The Company made no provision for income taxes in the second quarter of 1999 due
to its net operating losses. The Company computes income taxes using the asset
and liability method. Under this method, deferred income tax assets and
liabilities are determined based on the differences between the financial
reporting and tax bases of assets and liabilities and are measured using
currently enacted tax rules and laws. Based on the Company's evaluation of the
weight of available evidence it can not conclude that it is more likely than not
that deferred income tax assets will be realized and therefore the Company has
provided a full deferred income tax valuation allowance at June 30, 1999.
Note 3. Inventories consist of the following (in thousands):
June 30, 1999 December 31, 1998
------------- -----------------
(unaudited)
Raw materials $ 742 $ 891
Work-in-progress 1,248 797
Finished goods 1,268 999
----- -----
$3,258 $2,687
===== =====
Note 4. Acquisition:
On May 10, 1999 the Company signed a definitive merger agreement with Quantum
Corporation ("Quantum"). The transaction is subject to the approval of Meridian
Data's stockholders and certain other closing conditions. Under the terms of the
agreement, which was amended on June 28, 1999, Meridian Data stockholders will
receive 0.489 of a share of Quantum DLT & Storage Systems Group common stock and
half as many shares (or 0.2445 shares) of Quantum Hard Disk Drive Group common
stock for each share of Meridian Data common stock that they own, subject to
adjustment based on the trading range of Quantum stock prior to the completion
of the merger.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The words "anticipate," "believe," "estimate," "expect," "intend," "will," and
similar expressions, as they relate to the Company or the Company's management,
including such items discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" set forth below, are intended to
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary significantly from those described. In accordance with
provisions of Section 27A of the Securities Act of 1933, as amended, and Section
21G of the Securities Exchange Act of 1934, as amended, we are making investors
aware that such forward-looking statements, because they relate to future
events, are by their very nature subject to many important factors which could
cause actual results to differ materially from those contained in the
forward-looking statements. Factors that might cause such differences include,
but are not limited to, the risk factors beginning on page 11.
General
The Company develops and markets network-attached storage ("NAS")
devices utilizing both optical disk and conventional hard drive technologies for
the PC LAN environment, as well as CD-ROM enterprise servers. In response to a
decrease in the market for its CD-ROM enterprise servers, Meridian embarked on
the development of its first non-CD-ROM NAS device, the Snap! Server, in late
1996. The Company shipped its first Snap! Server in May of 1998. Meridian's
expenses related to product development and marketing of the Snap! Server
resulted in the Company posting substantial net operating losses for 1998 and
the first six months of 1999 and the Company anticipates a loss for the second
half of 1999. See "Risk Factors - New Product Development"; "- Rapid
Technological Change"; "- Potential for Product Defects"; "- Competition"; "-
Emerging markets"; "- Product concentration." The Snap! Server is a
protocol-independent, NAS device targeted for the PC LAN environment. The
Company believes that the Snap! Server provides superior ease-of-use and
installation of any competitive product or competing method for adding storage
to PC LAN networks. The Company's Snap! Server retails for under $1,000. There
can be no assurance that the Company's current or potential competitors will not
develop products comparable or superior to the Snap! Server or adapt more
quickly than the Company to new or emerging technologies, evolving industry
trends or changing customer requirements. The Snap! Server requires different
marketing, sales and distribution strategies than those for the Company's CD-ROM
products. There can be no assurance that the Company's distributors and VARs
will be able to effectively market the Snap! Server, nor that the Company will
be successful in developing alternate channels of distribution. Nor can there be
any assurance that the Snap! Server will be a commercial success. A failure of
the Company's distributors and VARs to successfully market the Company's new
products, or the failure to develop new channels of distribution, or the failure
to obtain market acceptance for the Snap! Server, would have a material adverse
effect on the Company's business, financial condition and results of operations.
Because the Company generally ships its products within a short period
after receipt of an order, the Company typically does not have a material
backlog of unfilled orders, and total revenues in any quarter are substantially
dependent on orders booked in that quarter. The Company's quarterly operating
results may also vary significantly depending on other factors, including the
introduction of new products by the Company's current and potential new
competitors; market acceptance of new products; seasonality; mix of software and
systems sales; adoption of new technologies and standards; price and other forms
of competition; the cost, quality and availability of third party components
used in the Company's systems; changes in the Company's distribution
arrangements; and the inability of the Company to accurately monitor end user
demand for its products due to the sale of products through distributors and
VARs. In 1998, identifiable sales to federal governmental agencies accounted for
approximately 8% of the Company's product sales, and the Company anticipates
that such sales will continue to account for a significant percentage of the
Company's revenues for the foreseeable future. In the event that there is any
reduction or deferral in spending by such governmental agencies, the Company's
quarterly results would be adversely affected. Similarly, if such government
agencies reduced their purchases of Meridian products in favor of those of its
competitors, the Company's quarterly results would be adversely affected. The
Company's operating results will also be affected by the economic condition of
the personal computer industry, which has from time to time experienced
cyclical, depressed business conditions, often in connection with or in
anticipation of a decline in general economic conditions.
On May 10, 1999 the Company signed a definitive merger agreement with
Quantum Corporation ("Quantum"). The transaction is subject to the approval of
Meridian Data's stockholders and certain other closing conditions. Under the
terms of the agreement, which was amended on June 28, 1999, Meridian Data
stockholders will receive 0.489 of a share of Quantum DLT & Storage Systems
Group common stock and half as many shares (or 0.2445 shares) of Quantum Hard
Disk Drive Group common stock for each share of Meridian Data common stock that
they own, subject to adjustment based on the trading range of Quantum stock
prior to the completion of the merger. The merger with Quantum will provide the
Company with the financial and marketing resources to realize greater success
with the Snap! Server than the Company could otherwise achieve.
Results of operations
Revenues
Product sales
Product sales in the second quarter and first six months of 1999 were
$3.9 million and $7.9 million, respectively, a decrease of approximately $0.3
million and an increase of $0.4 million from the corresponding periods of 1998.
Included in the Company's sales for the second quarter and first six months of
1999 were approximately $1.2 million and $2.9 million, respectively, in revenues
related to sales of Meridian's Snap! Server. There were no revenues related to
the Snap! Server in the corresponding periods of 1998. The decrease in total
sales was due to the continuing decline in the overall market for CD ROM/DVD
products. Due to the increasing use of the Internet as a medium for distributing
data that was once only available on CD ROM/DVD, Meridian believes that the
decline in the CD ROM/DVD market will continue for the foreseeable future. As
such, CD ROM/DVD revenues in 1999 will be less than in 1998. Future increases in
Snap! Server revenues will be dependent on increasing market acceptance of Snap!
Server technology. If this acceptance were not to develop, or to develop more
slowly than the Company anticipates, Meridian's results of operations and
liquidity would be adversely affected.
The Company does not have a material backlog of orders for the Snap!
Server or its other products and total revenues in any quarter are substantially
dependent on orders booked in that quarter. The markets for Meridian's products
are extremely competitive, and the Company expects that competition will
continue to increase as existing competitors consolidate, change and expand
their product offerings, and as new competitors enter the market for NAS.
For a discussion of certain other risks that may affect the Company's
future product sales, see "Risk Factors-Operating Losses; Fluctuations in
Quarterly Operating Results," "-Rapid Technological Change; -Potential for
Product Defects" and "-Emerging Markets; Product Concentration."
Gross Margin
The Company's gross margin decreased to 34% and 35% in the second
quarter and first six months of 1999, respectively, from 44% and 46% for the
comparable periods of 1998. The decrease in gross margin was primarily due to
lower total sales against relatively fixed manufacturing costs and a shift in
sales towards Snap! Server products which have overall lower gross margins then
the Company's CD ROM/DVD products.
As a result of the continuing shift in the Company's product sales
towards Snap! Server products from higher margin CD ROM /DVD products, Meridian
anticipates that its overall gross margins will continue to decrease in the
second half of 1999.
For a discussion of certain other risks that may affect the Company's
future cost of product sales, see "Risk Factors-Dependence on Third party
Suppliers" and "-Expansion of International Operations; Foreign Currency
Fluctuations."
Operating Expenses
Research and development
Research and development expense decreased to $1.1 million and $2.2
million in the second quarter and first six months of 1999, respectively, from
$1.9 million and $3.5 million for the comparable periods of 1998. These
decreases were related primarily to completion of the development of the Snap!
Server in 1998. The Company anticipates that research and development expenses
will continue to decrease in the second half of 1999.
The Company's inability to anticipate and respond to technological and
market changes or Meridian's failure to incorporate new technologies in a timely
manner could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, there can be no assurance that
Meridian's research and development efforts will result in the introduction of
new products or that any of such products, if developed, will be commercially
successful. For a discussion of certain other risks that may relate to the
Company's research and development, see "Risk Factors-Rapid Technological
Change; Potential for Product Defects."
Sales and marketing
Sales and marketing expense decreased to $2.6 million and $5.3 million
in the second quarter and first six months of 1999, respectively, from $4.6
million and $6.5 million for the corresponding periods of 1998. Meridian's sales
and marketing expenses in 1998 were primarily driven by expenses related to the
introduction of the Snap! Server. There were no comparable product launch
programs of this magnitude in 1999. Sales and marketing expense consists
primarily of payroll and related expenses (including commissions), and
advertising and promotional related expenses.
There can be no assurance that Meridian's sales and marketing efforts
will result in the successful introduction of new products or that any of such
products, if developed, will be commercially successful. For a discussion of
certain other risks that may relate to the Company's sales and marketing, see
"Risk Factors-Dependence on Third Party Distributors" and "- Product
Concentration."
General and administrative
General and administrative expenses consist primarily of payroll,
payroll related expenses and occupancy expenses. General and administrative
expense increased to $1.2 million and $1.9 million in the second quarter and
first six months of 1999, respectively, from $0.7 million and $1.3 million in
the second quarter of 1998, respectively. These increases were primarily due to
costs related to the company's pending merger with Quantum. See "- General."
Interest income
Interest income decreased to $149,000 and $349,000 in the second
quarter and first six months of 1999, respectively, from $374,000 and $776,000
for the corresponding periods of 1998. These decreases were due to lower
invested cash balances. Future interest income will vary depending on the
average invested balance and interest rates.
Income taxes
The Company made no provision for income taxes in the first six months
of 1999 due to its net operating losses. The Company computes income taxes using
the asset and liability method. Under this method, deferred income tax assets
and liabilities are determined based on the differences between the financial
reporting and tax bases of assets and liabilities and are measured using
currently enacted tax rules and laws. Based on the Company's evaluation of the
weight of available evidence it can not conclude that it is more likely than not
that deferred income tax assets will be realized and therefore the Company has
provided a full deferred income tax valuation allowance at June 30, 1999.
Capital resources and liquidity
Meridian's negative cash flow from operations for the first six months
of 1999 was primarily due to the net operating loss of $6.2 million and an
increase in inventory. At June 30, 1999, the Company's principal source of
liquidity consisted of cash and marketable securities totaling $11.9 million and
accounts receivable of $2.1 million. To be successful in the NAS market, the
Company believes that it will need to substantially increase its marketing
related expenditures and increase its working capital to support higher
inventory levels. Absent the pending merger with Quantum, the Company's current
sources of liquidity would be insufficient to meet those higher working capital
requirements. As such, if the merger with Quantum does not receive the required
stockholder approvals, the Company will need to raise additional debt or equity
capital within the next twelve months. The issuance of debt would substantially
increase the Company's leverage and business risk, while the sale of additional
equity would be dilutive to the Company's current stockholders. In addition,
there can be no assurance that such debt or equity would be available to
Meridian on terms acceptable to the Company. See "Risk Factors - Failure to
Obtain Stockholder Approval of the Quantum Merger."
Year 2000 Issue
The Year 2000 ("Y2K") Issue refers to computer programs which use two
digits rather than four to define a given year and which therefore might read a
date using "00" as the year 1900 rather than the year 2000. The critical areas
being addressed by Meridian are its internal computer systems, products made by
the Company and relationships with external organizations. Meridian is
addressing both information technology ("IT") and non-IT systems, which
typically include embedded technology, such as microcontrollers. There are no
known non-IT issues that will materially adversely impact the Company's
information systems or manufacturing capabilities.
Meridian considers a product to be "Y2K ready" if the product's
performance and functionality are unaffected by processing of dates prior to,
during and after the Year 2000, but only if the product and all of its component
products (for example hardware, software and firmware) properly exchange
accurate date data. The Company believes that its Snap! Servers, CD-ROM/DVD
systems, and CD-ROM/DVD networking software manufactured or released after
December 31, 1997 are transparent to Year 2000 requirements, and rely primarily
on software found in operating systems and applications to function properly.
The assessment of whether Meridian's software products will operate
correctly depends on the computer system and/or network on which the software is
installed. For many end-users this will include BIOS, software and components
provided by companies other than Meridian Data. After testing, the Company
believes its products manufactured or released after December 31, 1997 are Y2K
ready, although products manufactured or released prior to that date may not be
Y2K ready.
In early 1999, the Company initiated formal communications with its significant
suppliers, contract manufacturers and financial institutions to evaluate their
Y2K compliance plans and state of readiness and to determine whether any Y2K
issues will impede the ability of such suppliers, contract manufacturers, or
financial institutions (collectively "Providers") to continue to provide goods
and services to the Company. To date, all key Providers have assured Meridian
that the Providers goods and services and internal systems are Y2K compliant.
However, our Providers are under no contractual obligation to provide such
information to the Company. Accordingly, the Company may not be able to
accurately evaluate the Y2K impact on its operations of products and services
delivered by these third parties. Meridian has established procedures to ensure
that products and internal systems from new suppliers are Y2K compliant. As a
general matter, Meridian is vulnerable to any failure by its key suppliers and
contract manufacturers to remedy their own Y2K issues, which could delay
shipments of essential components and systems, thereby disrupting or halting the
Company's manufacturing operations. Further, Meridian also relies upon
governmental agencies, utility companies, telecommunication service companies
and other service providers outside of the Company's control. There is no
assurance that such suppliers, governmental agencies, financial institutions, or
other third parties will not suffer business disruptions caused by a Y2K issue,
and there is little practical opportunity for Meridian to test or require Y2K
compliance from many of those large agencies, companies or providers. Such
failures could have a material adverse effect on the Company's business,
financial condition and results of operations. During 1999, Meridian plans to
continue development of a contingency plan designed to address problems which
might arise from the failure of its suppliers or contract manufacturers to
timely and adequately address their Y2K issues.
To date, the Company has not incurred any costs related to assessment
and remediation of Y2K readiness. A formal budget has not been established, and
the cost to Meridian of achieving Y2K readiness is evolving; however, it is not
currently expected to have a material effect on the Company's business,
financial condition, or results of operations. During 1998, Meridian completed
the installation of upgraded computer software for the Company's financial,
accounting, inventory control, order processing and other management information
systems which the vendors maintain are Y2K ready.
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition
to the other information presented in this report. This report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21G of the Securities Exchange Act of 1934,
as amended, that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, the following risk factors.
Failure to Obtain Stockholder Approval of the Quantum Merger. To be successful
in the NAS market, the Company believes that it will need to substantially
increase its marketing related expenditures and increase its working capital to
support higher inventory levels. Currently, the Company's cash, marketable
securities, and accounts receivable are insufficient to meet those project
liquidity needs over the next twelve months. The consummation of the Company's
planned merger with Quantum will provide Meridian with the financial and
marketing resources to meet these needs. Absent the proposed merger with
Quantum, the Company must obtain either debt or equity financing in order to
meet these anticipated liquidity needs. The issuance of debt would significantly
increase the Company's leverage. The issuance of any additional equity
securities would result in significant dilution to the Company's existing
stockholders. In addition, there can be no assurance that such debt or equity
financing would be available on terms acceptable to the Company. In addition,
the failure to complete the merger with Quantum could result in a reduction in
employee morale and a reduction in revenues as customers evaluate the potential
viability of Meridian Data. The failure by the Company to adequately address
these and similar issues would have a material adverse effect on the Company's
business, financial condition, and results of operations.
Operating Losses; Fluctuations in Quarterly Operating Results. The Company (then
known as Parallan Computer, Inc.) fundamentally changed its business in December
1994 with the purchase of Meridian Data, Inc. During 1994, the Company exited
its prior business and product line, which had generated substantial losses. In
the first half of 1995, the Company incurred an operating loss, excluding
certain non-recurring revenue. From that point the Company operated profitably
until the first quarter of 1997, when it again began incurring net losses. The
Company has failed to meet its expectations of future revenues in the past and
may not meet future expectations. As a result of these and other factors, the
Company believes that its revenues and operating results are difficult to
predict and are subject to fluctuations from period to period. There can be no
assurance that the Company will return to profitability, or that if
profitability is achieved, will be able to sustain profitability. In order to
address its disappointing systems revenue growth, Meridian increased its sales
and promotional expenditures in 1996 and, at the end of January 1997,
significantly reduced system prices in response to competitive pressures. Unit
shipments did not increase and there can be no assurance that prices for the
Company's products will not decrease further due to competitive pricing
pressures. Accordingly, the Company may not meet its total revenue goals and the
Company's business, financial condition and results of operations would be
materially adversely affected. As a result of expenses related to the
engineering and marketing campaign of Meridian's Snap! Server, the Company
anticipates that it will operate at a substantial net operating loss through the
end of 1999.
The Company generally ships its software and systems within a short
period after receipt of an order, therefore the Company typically does not have
a material backlog of unfilled orders. Accordingly, total revenues in any
quarter are substantially dependent on orders booked in that quarter. This may
result in quarterly fluctuations in revenue. The Company's expense levels are
based, in part, on its expectations as to future sales. As a result, if sales
levels are below expectations, net income may be disproportionately affected.
The Company's quarterly operating results may also vary significantly depending
on other factors, including the introduction of new products by the Company's
competitors; market acceptance of the Company's new products; mix of software
and systems sales; adoption of new technologies and standards; price and other
forms of competition; the long and complex sales cycle for site licenses; the
timing of site license revenue; the cost, quality and availability of third
party components used in the Company's systems; changes in the Company's
distribution arrangements; and the inability of the Company to accurately
monitor end user demand for its products due to the sale of products through
distributors and VARs.
In 1998, identifiable sales to federal governmental agencies accounted
for approximately 8% of the Company's product sales, and the Company anticipates
that such sales will continue to account for a significant percentage of the
Company's revenues for the foreseeable future. In the event that there is any
reduction or deferral in spending by such governmental agencies, the Company's
quarterly and annual results would be adversely affected. Similarly, if such
government agencies reduced their purchases of Meridian products in favor of
those of its competitors, the Company's quarterly and annual results would be
adversely affected. The Company's operating results will also be affected by the
economic condition of the personal computer industry, which has from time to
time experienced cyclical, depressed business conditions, often in connection
with or in anticipation of a decline in general economic conditions. Due to all
of the foregoing factors, the Company's total revenues or operating results may
in one or more future quarters be below the expectations of stock market
analysts and investors. In such event, the price of the Company's Common Stock
would likely decline, perhaps substantially. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Product Concentration. The Company's future financial performance continues to
be contingent primarily on the success of, and growth in demand for its NAS
products. The market for NAS appliances is new and undeveloped. There can be no
assurance that the Company's products will be widely accepted in this emerging
market. If demand for the Snap! Server, or other NAS devices, fails to develop,
or develops more slowly than the Company currently anticipates, the Company's
business, financial condition and results of operations would be materially
adversely affected. In addition, while there is a substantial installed base of
CD-ROM/DVD drives in the United States, growth in the CD-ROM/DVD networking
market is primarily in entry-level systems with low price points. There can be
no assurance that the Company's products will be widely accepted in this market.
If demand for the Company's CD-ROM/DVD networking products continues to
decrease, and demand for NAS products does not develop, the Company's business,
financial condition and results of operations would be materially adversely
affected.
Snap Server. The Company is actively developing additional products for its
Snap! Server family of products. This entails further expansion into
non-CD-ROM/DVD networking markets, in which the Company has minimal experience.
Such entry entails substantially higher costs and risks to the Company in the
form of new and well established competition, and competitive dynamics different
than those experienced in the CD-ROM/DVD networking market. In attempting to
successfully enter the NAS market and other new markets, the Company will have
to commit to significant levels of engineering, sales and marketing
expenditures. With respect to NAS, Meridian must also successfully educate the
market concerning the practicality of changing from conventional means of adding
storage capacity to PC networks to installing its Snap! Server, or related
products. There can be no assurance that the Company will be successful in
marketing its Snap! Server or other new products, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of future Snap! Server products or other new
products, or that its Snap! Server or other new products will adequately meet
the requirements of the marketplace and achieve market acceptance. If the
Company is unable, for technological or other reasons, to develop and introduce
current and future Snap! Server products or other new products in a timely
manner in response to changing market conditions or customer requirements, the
Company's business, financial condition and results of operations will all be
materially adversely affected. It is likely that the Company's potential new
products will be subject to significant technical risk due to their complexity
and the difficulty in gauging the engineering effort required to produce such
products. There can be no assurance that future Snap! Server products and other
potential new products will be introduced on a timely basis or at all. In
addition, there can be no assurance that the Company will be able to continue to
offer the functionality and ease-of-use that it believes future Snap! Server
products require for a successful introduction. If the new products are delayed,
do not offer the functionality and ease-of-use envisioned, or do not achieve
market acceptance, the Company's business, financial condition and operating
results will be materially adversely affected. As a result of uncertainty with
respect to Snap! Server revenues and anticipated expenses required to
successfully develop and market this product, the Company anticipates that it
may operate at a substantial net operating loss through the end of 1999.
Negative Impacts of Accelerating NAS Market Growth. IDC and Dataquest have
predicted that the market for NAS devices will grow from between $398 million
and $918 million, respectively, in 1999, to between $4.4 billion and $5.1
billion, respectively, in 2003. Meridian's business plan is centered around this
market and the Company's ability to achieve a significant share of this
predicted growth. The failure of the NAS market to grow as anticipated, or the
failure of the Company to obtain a share of this growth could potentially have a
material, adverse impact on the Company's liquidity and results of operations,
including resulting in a default on any debt that the Company may be required to
issue in order to meet its projected liquidity needs in the event that the
Company's stockholders were to fail to approve the pending merger with Quantum.
Dependence on New Distribution Channels. The Company's VARs, catalogs, and
business-to-business retailers play a significant role in its Snap! Server sales
strategy. In addition, as the market for the Company's CD-ROM/DVD products
transition from enterprise-servers to workgroup-servers, the Company anticipates
that catalogs and business-to-business retailers will account for an
increasingly greater proportion of the Company's CD ROM/DVD revenues. Early in
1998, some of the Company's existing CD-ROM/DVD workgroup-server products began
utilizing the same new distribution channels as the Company's Snap! Server, in
addition to the Company's traditional channels, distributors, VARs and direct
sales/telemarketing. To increase its revenues, the Company must implement
marketing strategies designed to indirectly generate end-user demand through
such new distribution channels. There can be no assurance that the Company will
be able to effectively design and implement such strategies or that such
strategies will be successful in generating such end-user demand. The Company's
agreements or purchase orders with its catalog and business-to-business
retailers typically allow for extended payment terms and substantial rights of
return. While the Company will provide for a reserve for future returns, there
can be no assurance that the reserve will adequately cover actual product
returns. Excessive or unanticipated returns could materially adversely affect
the Company's business, financial condition and results of operations. The
Company's business, financial condition and results of operations could also be
materially adversely affected by changes in catalog or business-to-business
retailers' inventory strategies, which could occur rapidly, and may be unrelated
to end user demand. A failure of the Company's new distribution channels to
successfully market the Company's products would have a material adverse effect
on the Company's business, financial condition and results of operations. As a
result of the extended payment terms required by these customers, the Company's
liquidity may be adversely impacted by the timing of payments required by its
vendors preceding the receipt of payments from retail customers.
Competition. Initially, the Company's Snap! Server competes with alternative
methods of adding storage to PC LAN networks such as adding new PC servers from
companies such as Dell, Compaq, Hewlett Packard and International Business
Machines Corporation ("IBM"), adding additional disk drives from manufacturers
such as Seagate and Maxtor to existing servers, and potential new competition.
Recently, many large, established companies, such as Intel and the Netgear
Division of Nortel Networks, have either entered the network-attached storage
market, or announced their intention to do so. These companies in particular and
others similar to them, and the Company's competitors in general, include large
domestic and international companies, many of which have significantly greater
financial, technical, manufacturing, marketing, sales and distribution resources
than the Company. There can be no assurance that the Company's current or
potential competitors will not develop products comparable or superior to the
Snap! Server or adapt more quickly than the Company to new or emerging
technologies, evolving industry trends or changing customer requirements. There
can be no assurance that the Company will have the financial resources,
technical expertise, or marketing, sales, distribution and customer service and
technical support capabilities to compete successfully.
The markets for the Company's CD-ROM/DVD products are extremely competitive. The
Company expects that competition will increase if more companies enter the
market and as existing competitors continue to change and expand their product
offerings. Pricing is very aggressive in the Company's industry, and the Company
expects pricing pressures to continue to intensify. The Company's current
competitors in the CD-ROM/DVD networking market include other suppliers of
CD-ROM/DVD networking software and hardware such as Procom Technology, Inc., and
Hewlett Packard, Inc. The Company also competes indirectly with suppliers of
personal computers, such as Dell, Compaq, and IBM, and network operating systems
such as Microsoft Corporation and Novell, Inc., to the extent such companies
include CD-ROM/DVD networking utilities as part of their operating systems. The
Company's potential competitors in the hardware area include companies in the
personal computer market and certain CD-ROM/DVD manufacturers. These companies
in particular, and the Company's competitors in general, include large domestic
and international companies, many of which have significantly greater financial,
technical, manufacturing, marketing, sales and distribution resources than the
Company. There can be no assurance that the Company's current or potential
competitors will not develop products comparable or superior to those developed
by the Company or adapt more quickly than the Company to new or emerging
technologies, evolving industry trends or changing customer requirements. There
can be no assurance that the Company will have the financial resources,
technical expertise, or marketing, sales, distribution and customer service and
technical support capabilities to compete successfully.
The Company believes that its ability to compete successfully in the
CD-ROM/DVD networking and NAS markets will depend upon a number of factors both
within and outside of its control, including price, quality, product performance
and features; timing of new product introductions by the Company, its customers
and competitors; customer service and technical support; and the ability of the
Company to respond more quickly than current or potential competitors to new or
emerging technologies, evolving industry trends and changes in customer
requirements and to devote greater resources than current or potential
competitors to the development, promotion and sale of products. The Company
believes that it competes favorably with respect to these factors. There can be
no assurance however that the Company will have the financial resources,
technical expertise, or marketing, sales, distribution and customer service and
technical support capabilities to compete successfully.
Dependence on Third Party Distributors. The Company derives substantially all of
its product sales through distributors, VARs, and business-to-business
retailers. Two distributors accounted for 41% and 23%, respectively, of the
Company's 1998 product sales. The loss of either of these distributors, or
certain other distributors, VARs, or retailers would have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's contractual relationships with its distributors, VARs, and
retailers can generally be canceled upon notice to the Company. Certain of the
Company's distributors, VARs, and retailers also act as distributors for
competitors of the Company and could devote greater effort and resources to
marketing competitive products. In addition, effective distributors, VARs, and
retailers must devote significant technical, marketing and sales resources to an
often lengthy sales cycle. There can be no assurance that the Company's current
distributors, VARs, and retailers will continue to market the Company's products
effectively or that economic or industry conditions will not adversely affect
such distributors, VARs, and retailers. Because the Company sells a significant
portion of its products through distributors, VARs, and retailers it is
difficult for the Company to monitor end user demand for its products on a
current basis. Initial stocking orders from distributors or retailers may not be
indicative of long-term end user demand. The Company's distributors and
retailers typically are allowed by contract to return products, subject to
certain limitations, without charge or penalty. While the Company provides for a
reserve for future returns, there can be no assurance that the reserve will
adequately cover actual product returns. Excessive or unanticipated returns
could materially adversely affect the Company's business, financial condition
and results of operations. The Company's business, financial condition and
results of operations could also be materially adversely affected by changes in
distributors' or retailers inventory strategies, which could occur rapidly, and
may be unrelated to end user demand. There can be no assurance that the
Company's distributors, VARs, and retailers will continue to market the
Company's existing products. A failure of the Company's distributors, VARs, and
retailers to successfully market the Company's products would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company began shipping its Snap! Server in the second quarter of
1998. The Snap! Server requires different marketing, sales and distribution
strategies than those for the Company's current CD-ROM/DVD products. As such, it
entails significant new risks to Meridian. There can be no assurance that the
Company's distributors, VARs, and retailers will choose or be able to
effectively market this new product or that the Company will be successful in
developing alternate channels of distribution. Initial stocking orders from
distributors or retailers may not be indicative of long-term end user demand.
The Company's contracts with distributors and purchase orders from retailers
typically allow distributors and retailers of the Snap! Server and other new
products to return products, subject to certain limitations, without charge or
penalty. The Company provides for a reserve for returns based on its contractual
obligations. A failure of the Company's distributors, VARs, and retailers to
successfully market this product, or the failure to establish other means of
marketing, sales, and distribution, would have a material adverse effect on the
Company's business, financial condition and results of operations.
Dependence on Third Party Suppliers. The Company is dependent on a small number
of suppliers for certain key components used in its products, including CD-ROM
and DVD drives, microprocessors, integrated circuits and power modules. The
Company purchases these components pursuant to periodic purchase orders, does
not carry significant inventories of these components, and has no long-term
supply arrangements. In addition, certain subassemblies used in the Company's
products are manufactured by a single third party vendor. The loss of a key
supplier or a disruption to the business of a key supplier could have a material
adverse effect upon the Company's business, financial condition and results of
operations. Although the Company believes that alternative sources of components
or subassemblies could be arranged, the process of qualifying new suppliers
could be lengthy and could require substantial modification of the Company's
products to ensure compatibility. There can be no assurance that any additional
source would be available to the Company at all or on a timely basis or at a
cost acceptable to the Company. Any disruption or reduction or termination in
the future supply of any key components currently obtained from limited sources
could have a material adverse effect on the Company's business, financial
condition and results of operations. In the past, there has been significant
unexpected growth in the demand for CD-ROM/DVD drives, which has caused
temporary supply disruptions. These components are only available from a limited
number of manufacturers, most of which are Japanese manufacturers. The Company
has experienced in the past, and may experience in the future, an adverse impact
on the cost in dollars of certain components purchased from Japanese
manufacturers due to fluctuations in the exchange rate for the yen. Moreover,
the Company has been required to make spot market purchases for certain
components at premium prices. In the third quarter of 1995, the Company
experienced temporary delays in obtaining the drives required for its products.
If such delays reoccur or the Company is required to purchase components at a
higher cost due to fluctuating currency exchange rates, spot market shortages or
other factors, the Company may be unable to ship products on the schedule
anticipated or may sustain higher product costs with a resulting adverse effect
on the Company's business, financial condition and results of operations.
The Company manufacturing of the Snap! Server, including final assembly
and testing, is contracted out to third party vendors, some of whom may be
located in Asia. Meridian is currently dependent on a few third party
contractors. Like its CD-ROM/DVD counterparts, the Snap! Server is also
dependent on a small number of suppliers for certain key components and parts,
including microprocessors, integrated circuits and power modules. In addition,
certain subassemblies used are manufactured by a single third party vendor.
Financial, market or other developments adversely affecting the Company's key
component suppliers, or the loss of a key subassembly manufacturer, could have
an adverse effect on their ability to supply the Company with components or
assemblies and, consequently, could have a material adverse effect upon the
Company's business, financial condition and results of operations. The process
of qualifying new suppliers or subassembly manufacturers would be lengthy, and
there can be no assurance that any additional source would be available to the
Company on a timely basis or at a cost acceptable to the Company. Any disruption
or reduction in the future supply of any key components currently obtained from
limited sources could have a material adverse effect on the Company's business,
financial condition and results of operations
Rapid Technological Change; Potential for Product Defects; and Obsolesce. The
market for the Company's products is characterized by rapid technological
advances, evolving industry standards in computer hardware and software
technology, changes in customer requirements and frequent new product
introductions and enhancements. The Company's future success will depend on its
ability to continue to enhance its current product line and to continue to
develop and introduce new products that keep pace with competitive product
introductions and technological developments, satisfy diverse and evolving
customer requirements and otherwise achieve market acceptance. There can be no
assurance that the Company will be successful in continuing to develop and
market on a timely and cost-effective basis new products or product enhancements
that respond to technological advances by others, or that these products will
achieve market acceptance. In addition, companies in the industry have in the
past experienced delays in the development, introduction and marketing of new
and enhanced products, and there can be no assurance that the Company will not
experience delays in the future. Any failure by the Company to anticipate or
respond adequately to changes in technology and customer preferences, or any
significant delays in product development or introduction, would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Due to their complexity and sophistication, the Company's products from
time to time may contain hardware or software defects or "bugs" which can be
difficult to correct. Furthermore, as the Company continues to develop and
enhance its products, there can be no assurance that the Company will be able to
identify and correct defects in a manner that will permit the timely
introduction of such products. Moreover, despite extensive testing, the Company
has from time to time discovered defects only after its products have been
commercially released. There can be no assurance that such defects will not
cause delays in product introductions and shipments or loss of or delay in
market acceptance, result in increased costs, require design modifications,
impair customer satisfaction, or result in customer returns. Any such event
could materially adversely affect the Company's business, financial condition
and results of operations.
Over the past two years, CD-ROM/DVD drive technology has advanced
significantly. Additionally, the pace of new drive introductions has increased.
As a result, the Company may find itself holding an inventory of obsolete
drives. Further, the Company's contracts with its distributors and retailers
allow for product return, or price protection credits, based on their inventory
levels of current products and, under certain circumstances, obsolete products.
Meridian estimates and accrues its required allowance for such occurrences, but
there can be no assurance that actual inventory writedowns, product returns, or
price protection credits will not exceed the Company's estimate. Such an event
could materially adversely affect the Company's business, financial condition
and results of operations.
Expansion of International Operations. There can be no assurance that the
Company will be able to successfully localize, market, sell and deliver its
products internationally. The inability of the Company to successfully expand
its international operations in a timely and cost effective manner could
materially adversely affect the Company's business, financial condition and
results of operations. International product sales were approximately 11% of
total product sales in 1998. The Company's business, financial condition and
results of operations could be materially adversely affected by risks inherent
in conducting business internationally, such as changes in currency exchange
rates, longer payment cycles, difficulties in staffing and managing
international operations, problems in collecting accounts receivable, slower
acceptance of technology advances compared with the United States, lack of
published CD-ROM/DVD content, seasonal reductions in business activity during
the summer months in Europe and certain other parts of the world, and tariffs,
duties and other trade barriers. For a discussion of the effect of fluctuations
in the exchange rate of the Japanese yen on the cost of certain components used
in the Company's products, see "Risk Factors - Dependence on Third Party
Suppliers."
Dependence on Key Personnel; Management of Growth. Due to the specialized nature
of the Company's business, the Company's future success is highly dependent upon
the continued services of its key engineering personnel and executive officers
and upon its ability to attract and retain qualified engineering, sales and
marketing, management and manufacturing personnel for its operations.
Competition for such personnel is intense. There can be no assurance that the
Company will be successful in attracting or retaining such personnel. The loss
of any key personnel or the Company's inability to attract and retain qualified
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. None of the Company's key
employees has an employment agreement with the Company, and the Company does not
maintain key man insurance policies on the lives of its key employees. Although
the Company's senior executives have lengthy experience in the computer
industry, they have no experience with the NAS market that the Company has
entered. To manage its growth, the Company must continue to implement and
improve its operational, financial and management information systems and
expand, train and manage its workforce. Meridian believes that success in its
industry requires substantial capital in order to maintain the flexibility to
take advantage of opportunities as they may arise. The Company may, from time to
time, as market and business conditions warrant, invest in or acquire
complementary businesses, products or technologies. Such investment or
acquisitions may be funded by internally generated cash, marketable securities,
debt, or the sale of additional equity. The sale of additional equity would
result in dilution in the equity ownership of Meridian's stockholders. The
Company's failure to manage growth effectively could have a material adverse
effect on the Company's business, financial condition and results of operations.
Employees. Competition in the recruiting of personnel in the computer and
networking industry is intense. The Company believes that its future success
will depend, in part, upon the continued services of its key engineering
personnel and executive officers and upon its ability to attract and retain
qualified engineering, sales and marketing, management and manufacturing
personnel for its operations. None of the Company's employees are represented by
a labor union or are subject to a collective bargaining agreement. The Company
believes that relations with its employees are good.
To manage its growth, the Company must continue to implement and
improve its operational, financial and management information systems and
expand, train and manage its workforce. The Company's failure to manage growth
effectively could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors - Dependence on
Key Personnel; Management of Growth."
Dependence on Proprietary Rights. The Company's success depends in part upon
protecting its proprietary technology. The Company relies on a combination of
intellectual property laws, nondisclosure agreements and other protective
measures to protect its proprietary information. There can be no assurance,
however, that the steps taken by the Company will be adequate to deter
misappropriation or independent third party development of its technology or
that its intellectual property rights can be successfully defended if
challenged. Litigation may be necessary to protect the Company's proprietary
rights. Any such litigation may be time-consuming and costly. In addition, the
laws of certain foreign countries do not protect the Company's intellectual
property rights to the same extent as the laws of the United States. Given the
rapid development of technology, there can be no assurance that certain aspects
of the Company's products do not or will not infringe upon the existing or
future proprietary rights of others or that, if licenses or rights are required
to avoid infringement, such licenses or rights could be obtained or obtained on
terms that are acceptable to the Company. The Company is not currently aware of
any infringement of its proprietary rights, nor is it aware of any claims that
its products infringe the rights of others.
Possible Volatility of Stock Price. Following the announcement of the Company's
pending merger with Quantum, the market price of the Company's common stock has
primarily been affected by the market price for Quantum's common stock. The
Company believes that prior to the announcement of the pending Quantum merger
the market price of Company's common stock has been, and following any failure
to consummate the Quantum merger the market price of the Company's common stock
may continue to be, affected by factors such as announcements of developments
related to the Company's business, announcements by competitors, quarterly
fluctuations in the Company's financial results, conditions in the CD-ROM/DVD
networking and NAS industries, and changes in the general economy. These and
other factors could cause the price of the Company's common stock to fluctuate,
perhaps substantially. In addition, in recent years the stock market in general,
and the market for shares of small capitalization technology stocks in
particular, have experienced extreme price fluctuations, which have often been
unrelated to the operating performance of affected companies. Such fluctuations
could have a material adverse effect on the market price of the Company's common
stock.
Anti-Takeover Effect of Stockholder Rights Plan and Certain Charter and Bylaw
Provisions. In July 1997, the Company's Board of Directors adopted a Preferred
Shares Rights Plan (the "Rights Plan"). The Rights Plan provides for a dividend
distribution of one Preferred Shares Purchase Right (a "Right") on each
outstanding share of the Company's Common Stock. The Rights will become
exercisable following the tenth day after a person or group announces
acquisition of 15% or more of the Company's Common Stock, or announces
commencement of a tender offer, the consummation of which would result in
ownership by the person or group of 15% or more of the Company's Common Stock.
The Company will be entitled to redeem the Rights at $0.01 per Right at any time
on or before the tenth day following acquisition by a person or group of 15% of
more of the Company's Common Stock. On May 9, 1999, the Company amended the
Rights Plan to create an exception in the Rights Plan for the proposed merger
with Quantum and make certain other changes.
The Rights Plan and certain provisions of the Company's Certificate of
Incorporation and Bylaws may have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. The Company's Certificate of Incorporation
allows the Company to issue Preferred Stock without any vote or further action
by the stockholders, and certain provisions of the Company's Certificate of
Incorporation and Bylaws specify procedures for director nominations by
stockholders and submission of other proposals for consideration at stockholder
meetings, and eliminate cumulative voting in the election of directors. Certain
provisions of Delaware law could also delay or make more difficult a merger,
tender offer or proxy contest involving the Company, including Section 203,
which prohibits a Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years unless certain
conditions are met. The Rights Plan, the possible issuance of Preferred Stock,
the procedures required for director nominations and stockholder proposals and
Delaware law could have the effect of delaying, deferring or preventing a change
in control of the Company, including without limitation, discouraging a proxy
contest or making more difficult the acquisition of a substantial block of the
Company's Common Stock. These provisions could also limit the price that
investors might be willing to pay in the future for shares of the Company's
Common Stock.
Potential Seismic Disturbances. The Company's research and development
activities, its corporate headquarters, other critical business operations and
certain of its suppliers are located near major earthquake faults. The ultimate
impact on the Company, its significant suppliers and the general infrastructure
is unknown, but operating results could be materially affected in the event of a
major earthquake. The Company is predominantly uninsured for losses and
interruptions caused by earthquakes.
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
2.0 Agreement and Plan of Reorganization among Parallan Computer, Inc., PAC
Acquisition Subsidiary, Inc. and Meridian Data, Inc. dated December 1, 1994
previously filed as Exhibit 2 to the Current Report on Form 8-K and
incorporated herein by reference.
2.2 Agreement and Plan of Merger between Meridian Data, Inc., a California
corporation, and Meridian Data, Inc., a Delaware corporation, dated May
29,1997 previously filed as Exhibit 2.2 to Registration of Securities of
Certain Successor Issues on Form 8-B and incorporated herein by reference.
2.3 Agreement and Plan of Merger and Reorganization, dated as of May 10, 1999,
among Quantum Corporation, Defiant Acquisition Sub, Inc., and Meridian
Data, Inc., previously filed as Exhibit 2.1 to the Company's Current Report
on form 8-K dated may 21, 1999 and incorporated herein by reference.
2.4 First amendment to the Agreement and Plan of Merger and Reorganization
among Quantum Corporation, Defiant Acquisition Sub, Inc., and Meridian
Data, Inc., dated as of June 28, 1999.
3.1 Certificate of Incorporation of Meridian Data, Inc., a Delaware
corporation, previously filed as Exhibit 3.1 to Registration of Securities
of Certain Successor Issues on Form 8-B and incorporated herein by
reference.
3.2 Bylaws of Meridian Data, Inc., a Delaware corporation, as amended,
previously filed as exhibit 3.2 to the Quarterly Report on Form 10-Q for
the period ended March 31, 1999, and incorporated herein by reference.
4.1 Specimen Common Stock certificate of Meridian Data, Inc., a Delaware
corporation, previously filed as Exhibit 4.1 to the Quarterly Report on
Form 10-Q for the period ended September 30, 1997, and incorporated herein
by reference.
4.2 Amended and restated Preferred Shares Purchase Rights Plan dated May 9,
1999, previously filed on Form 8-A dated May 14, 1999.
9.1 Stockholders Agreement, dated as of June 1, 1992, among IBM Corporation,
Parallan Computer, Inc. and certain stockholders of Parallan Computer, Inc.
previously filed as Exhibit 9.1 to Registration Statement on Form S-1
(Registration No. 33-57976) and incorporated herein by reference.
10.1 Form of Indemnification Agreement by and among Meridian Data, Inc., a
Delaware corporation, and its directors and officers previously filed as
Exhibit 10.1B to Registration of Securities of Certain Successor Issues on
Form 8-B and incorporated herein by reference.
10.2 Restated and Amended 1988 Incentive Stock Plan and forms of agreements
thereunder previously filed under Registration Statement on Form S-8
(Registration No. 333-3934) and incorporated herein by reference.
10.3 1992 Incentive Stock Plan and form of agreement thereunder previously filed
as Exhibit 10.3 to Registration Statement on Form S-1 (Registration No.
33-57976) and incorporated herein by reference.
10.4 1992 Key Employee Stock Plan and form of agreement thereunder previously
filed as Exhibit 10.4 to Registration Statement on Form S-1 (Registration
No. 33-57976) and incorporated herein by reference.
10.5 Amended and Restated 1992 Employee Stock Purchase Plan and form of
subscription agreement thereunder filed as Exhibit 10.5, previously filed
as exhibit 10.5 to the Quarterly Report on Form 10-Q for the period ended
March 31, 1999, and incorporated herein by reference.
10.6 Registration Rights Agreement between the Registrant and certain of the
Registrant's stockholders previously filed as Exhibit 10.6 to Registration
Statement on Form S-1 (Registration No. 33-57976) and incorporated herein
by reference.
10.7 Custodial Agreement dated as of May 12, 1992 between Parallan Computer,
Inc., IBM Corporation and File-PROTEK, Inc. previously filed as Exhibit
10.7 to Registration Statement on Form S-1 (Registration No. 33-57976) and
incorporated herein by reference.
10.8 Share Purchase Agreement dated as of May 15, 1992 between Parallan
Computer, Inc., and IBM Corporation, as amended, previously filed as
Exhibit 10.8 to Registration Statement on Form S-1 (Registration No.
33-57976) and incorporated herein by reference.
10.9 Marketing Agreement dated as of June 1, 1992 between Parallan Computer,
Inc. and IBM Corporation previously filed as Exhibit 10.9 to Registration
Statement on Form S-1 (Registration No. 33-57976) and incorporated herein
by reference.
10.10Master Work Agreement dated as of June 1, 1992 between Parallan
Computer, Inc. and IBM Corporation previously filed as Exhibit 10.10 to
Registration Statement on Form S-1 (Registration No. 33-57976) and
incorporated herein by reference.
10.11Secured Loan Agreement dated as of June 1, 1992 between Parallan
Computer, Inc. and IBM Credit Corporation previously filed as Exhibit 10.11
to Registration Statement on Form S-1 (Registration No. 33-57976) and
incorporated herein by reference.
10.13Master Equipment Lease dated as of June 29, 1990 between Parallan Computer,
Inc. and Western Technology Investment previously filed as Exhibit 10.13 to
Registration Statement on Form S-1 (Registration No. 33-57976) and
incorporated herein by reference.
10.14Master Equipment Lease dated as of January 15, 1993 between Parallan
Computer, Inc. and Phoenix Leasing Incorporated previously filed as Exhibit
10.14 to Registration Statement on Form S-1 (Registration No. 33-57976) and
incorporated herein by reference.
10.15Amendment to the Master Work Agreement and Marketing Agreement dated as of
March 31, 1994, between Parallan Computer, Inc. and IBM Corporation
previously filed as Exhibit 10.15 to the Company's Quarterly Report on Form
10-Q for the period ended March 31, 1994 and incorporated herein by
reference.
10.16Meridian Data, Inc. 1987 Incentive Stock Plan and form of subscription
agreement thereunder previously filed as Exhibit 4.3 to Registration
Statement on Form S-8 (Registration No. 33-89162) and incorporated herein
by reference.
10.17Stock Option Assignment and Exercise Agreement between the Registrant,
International Business Machines Corporation and certain stockholders of the
Registrant dated March 6, 1996 previously filed as Exhibit 10.17 to the
Annual Report on Form 10-K for the year ended December 31, 1995, and
incorporated herein by reference.
10.18Meridian Data, Inc. 1995 Director Stock Plan and form of subscription
agreement thereunder previously filed as Exhibit 4.3 to the Registration
Statement on Form S-8 (Registration No, 333-2622) and incorporated herein
by reference.
10.19Meridian Data, Inc. 1997 Incentive Stock Plan and form of agreement
thereunder filed as Exhibit 10.19. . Previously filed as exhibit 10.19 to
the Quarterly Report on form 10Q for the period ended March 31, 1999, and
incorporated herein by reference.
10.20Loan and Security Agreement dated July 31, 1998 between Silicon Valley Bank
and Meridian Data, Inc., previously filed as Exhibit 10.20 to the Quarterly
Report on Form 10-Q for the quarter ended September, 30, 1998, and
incorporated herein by reference.
27 Financial Data Schedule
(b) Reports on Form 8-K.
1. Current report on Form 8-K, dated May 21, 1999.
2. Current report on Form 8-K, dated July 16, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
MERIDIAN DATA, INC.
Date: August 16, 1999 /s/ GIANLUCA U. RATTAZZI
====================
Gianluca U. Rattazzi,
President and Chief
Executive Officer.
Date: August 16, 1999 /s/ ERIK E. MILLER
====================
Erik E. Miller, Sr.
Vice President, Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer).
<PAGE>
MERIDIAN DATA, INC.
INDEX TO EXHIBITS
Exhibit Item Page
2.4 First amendment to the Agreement and Plan of Merger
and Reorganization among Quantum Corporation, Defiant
Acquisition Sub, Inv., and Meridian Data, Inc., dated as
of June 28, 1999. 24
27 Financial Data Schedule 29
<PAGE>
FIRST AMENDMENT
TO
AGREEMENT AND PLAN
OF
MERGER AND REORGANIZATION
THIS FIRST AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION (this "First Amendment") made and entered into as of June 28,
1999, by and among: QUANTUM CORPORATION, a Delaware corporation ("Parent");
DEFIANT ACQUISITION SUB, INC., a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub"); and MERIDIAN DATA, INC., a Delaware
corporation (the "Delaware Company") and MERIDIAN DATA, INC., a California
corporation, to the extent such corporation is in existence, (the "California
Company"), (the Delaware Company and the California Company are referred to
collectively herein as the "Company", and "Principal Company" shall mean, as
between the California Company and the Delaware Company, that corporation the
shares of which are registered under Section 12(g) of the Securities Act
immediately prior to the Closing), amends that certain Agreement and Plan of
Merger and Reorganization, dated as of May 10, 1999, by and among Parent, Merger
Sub, the Delaware Company and the California Company (the "Original Agreement").
Capitalized terms used but not defined herein shall have the meanings assigned
to them in the Original Agreement.
W I T N E S S E T H
WHEREAS, the parties have entered into the Original Agreement on May 10, 1999;
and
WHEREAS, subject to the terms and conditions provided herein, the parties desire
to amend the Original Agreement in accordance with Section 9.1 thereof. NOW,
THEREFORE, in consideration of the premises and mutual covenants herein
contained, and other good and valuable consideration, the receipt of which is
acknowledged by the parties, the parties hereby agree as follows:
1. Section 1.5(d) of the Original Agreement is hereby amended and
restated in its entirety to read as follows:
(d) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and no certificates or scrip for any such
fractional shares shall be issued. Any holder of Company Common Stock
who would otherwise be entitled to receive a fraction of a share of
Parent Common Stock (after aggregating all fractional shares of Parent
Common Stock issuable to such holder) shall, in lieu of such fraction
of a share and upon surrender of such holder's Company Stock
Certificate(s) (as defined in Section 1.6), be paid in cash the dollar
amount (rounded to the nearest whole cent), without interest,
determined by multiplying such fraction by the closing price of a
share of Parent Common Stock on the principal securities exchange or
market on which the Parent Common Stock is then listed or quoted
(which shall either be the Nasdaq National Market or the New York
Stock Exchange ("NYSE")) on the Effective Date (or, if such date is
not a trading day, then the trading day immediately preceding the
Effective Date).
2. Section 3.8 of the Original Agreement is hereby amended and restated in its
entirety to read as follows:
3.8 Valid Issuance. The shares of Parent Common Stock to be issued in the
Merger will, when issued in accordance with the provisions of this
Agreement, be duly authorized, validly issued, fully paid and
nonassessable and issued in compliance with all applicable Federal and
state securities laws and the rules and regulations of the principal
securities exchange or market on which the Parent Common Stock is then
listed or quoted (which shall either be the Nasdaq National Market or
the NYSE).
3. Section 4.7 of the Original Agreement is hereby amended and restated in its
entirety to read as follows:
4.7 Approval of Delaware Reincorporation. The Company shall take all
action necessary under all applicable Legal Requirements to obtain the
Required Company Stockholder Vote to ratify the filing of the
Agreement and Plan of Merger, dated as of May 29, 1997, between the
California Company and the Delaware Company (the "1997
Reincorporation") under the CCC and the DGCL, such that the Delaware
Company shall be the Principal Company. The Company shall obtain such
Required Company Stockholder Vote no later than the date of the
Company Stockholders' Meeting.
4. Section 5.2(a) of the Original Agreement is hereby amended and restated in
its entirety to read as follows:
(a) The Company shall take all action necessary under all applicable Legal
Requirements to call, give notice of, convene and hold a meeting of
the holders of Company Common Stock to (1) consider, act upon and vote
upon the adoption and approval of this Agreement and the approval of
the Merger and (2) to ratify the 1997 Reincorporation (the "Company
Stockholders' Meeting"). The Company Stockholders' Meeting shall not
be held fewer than twelve trading days following the Parent
stockholders' meeting related to the tracking stock proposal (the
"Parent Meeting") but will be held as promptly as practicable after
the twelfth day following the Parent Meeting, and in any event within
forty-five (45) days after the latest of (A) the date the Form S-4
Registration Statement is declared effective under the Securities Act
or (B) the Parent Meeting; provided, however, that if the proxy
materials for the Parent Meeting have not been mailed by August 31,
1999, then on August 31, 1999 the date for the Company Stockholders'
Meeting shall be set for as soon as practicable thereafter and in any
event no later than the later of (1) October 31, 1999 or (2)
forty-five (45) days after the effective date of the Form S-4
Registration Statement; provided, however, that notwithstanding
anything to the contrary contained in this Agreement, the Company may
adjourn or postpone the Company Shareholders' Meeting to the extent
necessary to ensure that any necessary supplement or amendment to the
Joint Proxy Statement/Prospectus is provided to the Company's
shareholders in advance of a vote on the Merger and this Agreement or,
if as of the time for which Company Shareholders' Meeting is
originally scheduled (as set forth in the Joint Proxy
Statement/Prospectus) there are insufficient shares of Company Common
Stock represented (either in person or by proxy) to constitute a
quorum necessary to conduct the business of the Company's
Shareholders' Meeting. The Company shall ensure that the Company
Stockholders' Meeting is called, noticed, convened, held and
conducted, and that all proxies solicited in connection with the
Company Stockholders' Meeting are solicited, in compliance with all
applicable Legal Requirements. The Company's obligation to call, give
notice of, convene and hold the Company Stockholders' Meeting in
accordance with this Section 5.2(a) shall not be limited or otherwise
affected by the commencement, disclosure, announcement or submission
of any Superior Offer or other Acquisition Proposal, or by any
withdrawal, amendment or modification of the recommendation of the
board of directors of the Company with respect to the Merger.
5. Section 5.10 of the Original Agreement is hereby amended and restated in
its entirety to read as follows:
5.10 Listing. Parent shall use its best efforts to cause the shares of
Parent Common Stock being issued in the Merger to be approved for
listing (subject to notice of issuance) on the principal securities
exchange or market on which the Parent Common Stock is then listed or
quoted (which shall either be the Nasdaq National Market or the NYSE).
6. Section 6.4 of the Original Agreement is hereby amended and restated in its
entirety to read as follows:
6.4 Stockholder Approval. This Agreement shall have been duly adopted and
approved, and the Merger shall have been duly approved and the
ratification of the 1997 Reincorporation shall have been duly
approved, by the Required Company Stockholder Vote.
7. Section 6.5(e) of the Original Agreement is hereby amended and restated in
its entirety to read as follows:
(e) a legal opinion of Cooley Godward LLP dated as of the Closing Date and
addressed to Parent, to the effect that the Merger should constitute a
reorganization within the meaning of Section 368 of the Code (it being
understood that, in rendering such opinion, Cooley Godward LLP may
rely upon the tax representation letters referred to in Section 5.9);
8. Section 6.13 of the Original Agreement is hereby amended and restated in
its entirety to read as follows:
6.13 Reincorporation in Delaware. The Company shall have taken all action
required under Section 4.7 hereof such that the Company's stockholders
shall have ratified the 1997 Reincorporation and such that the
Principal Company shall have succeeded to all of the rights,
privileges, powers and franchises of the California Company, and if
any capital stock shall have been issued by the Principal Company in
the 1997 Reincorporation, such issuance shall have been in compliance
with all applicable state securities or blue sky laws and shall have
been exempt from registration under the Securities Act.
9. Section 7.5(a) of the Original Agreement is hereby amended and restated in
its entirety to read as follows:
(a) a legal opinion of Brobeck, Phleger Harrison LLP, dated as of the
Closing Date, to the effect that the Merger should constitute a
reorganization within the meaning of Section 368 of the Code (it being
understood that, in rendering such opinion, Brobeck, Phleger Harrison
LLP may rely upon the tax representation letters referred to in
Section 5.9), provided, however, that if Brobeck, Phleger & Harrison
LLP fails to deliver such opinion, Cooley Godward LLP may deliver it
and rely upon the tax representation letter referred to in Section
5.9; and
10. Section 7.7 of the Original Agreement is hereby amended and restated in its
entirety to read as follows:
7.7 Listing. The shares of Parent Common Stock to be issued in the Merger
shall have been approved for listing (subject to notice of issuance)
on the principal securities exchange or market on which the Parent
Common Stock is then listed or quoted (which shall either be the
Nasdaq National Market or the NYSE).
11. The definition of "Legal Requirement" in the Original Agreement is hereby
amended and restated in its entirety to read as follows: Legal Requirement.
"Legal Requirement" shall mean any federal, state, local, municipal,
foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body (or
under the authority of the principal securities exchange or market on which
the Parent Common Stock is then listed or quoted (which shall either be the
Nasdaq National Market or NYSE).
12. The definition of "Parent Average Stock Price" in the Original Agreement is
hereby amended and restated in its entirety to read as follows: Parent
Average Stock Price. "Parent Average Stock Price" shall mean the average of
the closing sales price of a share of Parent Common Stock as reported on
the principal securities exchange on which the Parent Common Stock is then
listed or quoted (which shall either be the Nasdaq National Market or the
NYSE) for each of the five (5) consecutive trading days ending on and
including the second trading day immediately preceding the date on which a
final vote of the stockholders of the Company on the adoption and approval
of this Agreement and the approval of the Merger shall have been held. For
example, if one share of Parent Common Stock, as constituted on the date
hereof, is reconstituted into one share of Class A Common Stock and
one-half of a share of Class B Common Stock, and the average of the closing
sales price of a share of Class A Common Stock for such consecutive trading
days is $15.00 and the average of the closing sales price of a share of
Class B Common Stock for such five trading days is $10.00, then the Parent
Average Stock Price would be $20.00 (i.e. $15.00 per Class A share plus the
product of 0.5 of a Class B share times $10.00 per Class B share).
13. Clause (vi) of the definition of "Triggering Event" in the Original
Agreement is hereby amended and restated in its entirety to read as
follows: (vi) the Company shall have failed to hold the Company
Stockholders' Meeting within forty-five (45) days after the later of (A)
the date the Form S-4 Registration Statement is declared effective under
the Securities Act or (B) either the Parent Meeting (if the proxy materials
for the Parent Meeting shall have been mailed by August 31, 1999) or
October 31, 1999 (if the proxy materials for the Parent Meeting shall not
have been mailed by August 31, 1999);
14. Any reference in the Original Agreement to the term "Agreement" is deemed
to refer to both the Original Agreement as well as the Original Agreement,
as amended by this First Amendment.
15. Except as amended by this First Amendment, the Original Agreement remains
in full force and effect.
16. This First Amendment is made under, and shall be construed and enforced in
accordance with, the laws of the State of Delaware applicable to agreements
made and to be performed solely therein, without giving effect to
principles of conflicts of law.
17. This First Amendment may be executed in several counterparts, each of which
shall be deemed an original and all of which shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties have each caused this First Amendment to be
executed as of the date first written above.
QUANTUM CORPORATION
By:/s/ MICHAEL BROWN
Michael Brown, Chairman, Chief Executive Officer and President
DEFIANT ACQUISITION SUB, INC.
By:/s/ PETER VAN CUYLENBURG
Peter van Cuylenburg, Chairman, Chief Executive Officer and President
MERIDIAN DATA, INC. (DELAWARE)
By:/s/ GIANLUCA U. RATTAZZI
Gianluca U. Rattazzi, President and Chief Executive Officer
MERIDIAN DATA, INC. (CALIFORNIA)
By:/s/GIANLUCA U. RATTAZZI
Gianluca U. Rattazzi, President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
MERIDIAN DATA, INC.
Financial Data Schedule
Article 5 of Regulation SX
This schedule contains summary financial information extracted from the
Quarterly Report on Form 10-Q for the period ended June 30, 1999 and is
qualified in its entirety by reference to such financial statements
</LEGEND>
<S> <C>
<CIK> 0000864568
<NAME> Meridian Data, Inc.
<MULTIPLIER> 1000
<CURRENCY> US dollars
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 7,225
<SECURITIES> 4,659
<RECEIVABLES> 2,149
<ALLOWANCES> 412
<INVENTORY> 3,258
<CURRENT-ASSETS> 17,475
<PP&E> 2,395
<DEPRECIATION> 1,968
<TOTAL-ASSETS> 17,913
<CURRENT-LIABILITIES> 7,474
<BONDS> 0
0
0
<COMMON> 65,971
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,913
<SALES> 7,945
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<CGS> 5,187
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<OTHER-EXPENSES> 9,347
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (349)
<INCOME-PRETAX> (6,240)
<INCOME-TAX> 0
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<NET-INCOME> (6,240)
<EPS-BASIC> (0.41)
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</TABLE>
