<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER , 1996
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OVERLAND DATA, INC.
(Exact name of registrant as specified in Its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 7389 95-3535285
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
</TABLE>
8975 BALBOA AVENUE
SAN DIEGO, CALIFORNIA 92123-1599
(619) 571-5555
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
SCOTT MCCLENDON
PRESIDENT
8975 BALBOA AVENUE
SAN DIEGO, CALIFORNIA 92123-1599
(619) 571-5555
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN J. HENTRICH, ESQ. GEORGE D. TUTTLE, ESQ.
CARLOS D. HEREDIA, ESQ. WILLIAM L. HUDSON, ESQ.
Baker & McKenzie Brobeck, Phleger & Harrison LLP
101 West Broadway, Twelfth Floor One Market Plaza
San Diego, California 92101 San Francisco, California 94105
(619) 236-1441 (415) 442-0900
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PER UNIT(2) PRICE(1)(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.001 per share 3,105,000 $10.00 $31,050,000 $9,409.10
</TABLE>
(1) Includes 405,000 shares of Common Stock subject to an over-allotment option
granted to the Underwriters.
(2) Estimated solely for the purposes of calculating the registration fee in
accordance with Rule 457(a).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER , 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
2,700,000 SHARES
(LOGO)
COMMON STOCK
--------------
OF THE 2,700,000 SHARES OF COMMON STOCK, NO PAR VALUE (THE "COMMON STOCK"),
OFFERED HEREBY (THE "OFFERING"), 2,200,000 SHARES ARE BEING SOLD BY OVERLAND
DATA, INC., A CALIFORNIA CORPORATION ("OVERLAND" OR THE "COMPANY"), AND 500,000
SHARES ARE BEING SOLD BY CERTAIN SHAREHOLDERS OF THE COMPANY (THE "SELLING
SHAREHOLDERS"). THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE
OF SHARES BY THE SELLING SHAREHOLDERS. SEE "PRINCIPAL AND SELLING SHAREHOLDERS."
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK. IT
IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$ AND $ PER SHARE. SEE "UNDERWRITING" FOR A DISCUSSION OF THE FACTORS TO
BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE. APPLICATION HAS
BEEN MADE FOR QUOTATION OF THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER
THE SYMBOL "OVRL."
-------------------
SEE "RISK FACTORS," BEGINNING ON PAGE 6 HEREIN FOR A DISCUSSION OF
CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Per Share............................ $ $ $ $
Total(3)............................. $ $ $ $
</TABLE>
- -------------
(1) The Company and the Selling Shareholders have agreed to indemnify the
several underwriters identified elsewhere herein (the "Underwriters")
against certain liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
405,000 additional shares of Common Stock on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If all such
shares are purchased from the Company, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
---------------------
THE SHARES OF COMMON STOCK ARE OFFERED BY THE UNDERWRITERS, SUBJECT TO PRIOR
SALE, WHEN, AS AND IF ISSUED TO AND ACCEPTED BY THE UNDERWRITERS AND SUBJECT TO
APPROVAL OF CERTAIN LEGAL MATTERS BY COUNSEL FOR THE UNDERWRITERS. IT IS
EXPECTED THAT DELIVERY OF THE COMMON STOCK WILL BE MADE AGAINST PAYMENT THEREFOR
ON OR ABOUT , 1997, IN NEW YORK, NEW YORK.
-------------------
JEFFERIES & COMPANY, INC. CRUTTENDEN ROTH
INCORPORATED
, 1997
<PAGE>
INSIDE FRONT COVER -- PHOTOGRAPHS
PHOTOGRAPH DESCRIPTIONS AND CAPTIONS
1. Background: Black and blue Company logos serpentine upward from bottom left
corner to top right corner.
2. Top center: Company logo and name.
3. Middle center: Color photo of three units of the Library Xpress product line
in rack mount cabinet with an LXG unit on top, one LXB unit pulled out and a
second LXB unit on the bottom. Caption: DLT Library Xpress, LXG (to commence
shipment first quarter calendar year 1997), LXB, LXB.
4. Bottom left: Color photos of Tape Xpress T490E and Tape Xpress L490E side by
side. Caption: Tape Xpress L490E, Tape Xpress T490E.
5. Bottom right: Color photo of Tape Xpress L60E cabinet. Caption: Tape Xpress
L60E.
Overland Data, ODI, TapeXpress, MCT Mainframe Class Tape and TapePro are
federally registered trademarks of the Company. The Company has applied for
federal registration of the trademarks LibraryXpress and SmartScale Storage.
This Prospectus also contains the registered trademarks of other companies.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. FOR A DISCUSSION OF CERTAIN MATTERS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY, SEE "RISK FACTORS."
THE COMPANY
Overland designs, develops, manufactures, markets and supports magnetic tape
data storage systems used by businesses for backup, archival and data
interchange functions. The Company primarily offers three product lines --
LibraryXpress, TapeXpress and TapePro -- which are designed to meet the data
storage needs of client/server networks, workstations, minicomputers and
personal computers. Overland believes that it is well positioned to take
advantage of the rapidly increasing demand for storage capacity, particularly
that created by the growth in client/server networks. To address this growing
network storage demand, Overland introduced the LXB in March 1996, the first
product of its LibraryXpress line of automated tape libraries. In August 1996,
BYTE Magazine selected the LXB as the "Best Overall DLT Tape Library." The
Company believes that, with the anticipated delivery of the related LXG control
unit during the first quarter of calendar year 1997, LibraryXpress will
constitute the first automated tape library in its capacity class that is truly
"scalable," in that it is designed to allow end-users to configure combinations
of drives and cartridges as their storage requirements change without having to
replace their existing Overland units. Management believes that LibraryXpress
has significant market potential because it is designed to enable companies to
increase their storage capacity in a cost effective manner as their businesses
grow.
The Company's TapeXpress product line consists of 18/36-track tape drives
and loaders based on an IBM standard and, in October 1996, IBM selected the
Company to be a supplier of 36-track products. With its TapePro product line,
Overland is a leading supplier of 9-track reel-to-reel products used in data
interchange. In addition, the Company distributes a line of DLT-based products
manufactured by Quantum and markets various other products, including controller
cards which connect its tape drives to personal computers, interchange software,
storage management software supplied by third parties, spare parts and tape
media. With the exception of the tape drives in its LibraryXpress product line,
all of the Company's products are designed and manufactured in-house. The
Company's products combine electro-mechanical robotics, electronic hardware and
firmware, which are developed by the Company with an emphasis on efficiency of
design, functionality and reliability.
INDUSTRY OVERVIEW
The data storage industry has experienced rapid growth in recent years in
response to the significant increase in the amount of electronically stored
data. Overland believes that this growth will continue due to (i) the
introduction of increasingly powerful computing platforms, (ii) the spreading
use of computers for tasks that previously were performed manually, (iii) the
increasing number, size, bandwidth and complexity of computer networks,
particularly client/server networks, (iv) the rapid growth of data-intensive
applications and (v) the growth of intranet and Internet based computing. In
addition, emerging data intensive applications, such as still image, motion
video, check imaging and other multimedia and character recognition uses, are
accelerating the demand for data storage solutions.
Current data storage solutions provide secure, high capacity data
repositories based primarily on three technologies -- magnetic tape, magnetic
disk and optical disk. Magnetic tape remains the most cost effective storage
medium (at approximately one-fifth of the cost per megabyte stored as compared
to magnetic or optical disk), and is used most often for backup and archival
functions. The development of automated tape libraries, which address the
historically high degree of costly human intervention involved in using tape
storage, is helping to drive the expanded use of magnetic tape. Automated tape
libraries also provide improved throughput, increased data capacity and
unattended operation through the use of multiple drives and cartridges. In
addition, business managers are increasingly perceiving data to be critical at a
company-wide level as opposed to only being important at the individual
workstation level. As a result, central management of data has been increasing.
3
<PAGE>
The Company believes that the factors noted above will greatly increase the
number of sites worldwide requiring large amounts of backup and, therefore, the
need for advanced storage solutions. According to Strategic Research Corp., a
storage management industry consultant, the number of centralized storage sites
worldwide requiring more than 200GB of backup is projected to grow from
approximately 116,000 sites in 1996 to 660,000 sites by the year 2000. The
Company believes that it is in a strong position to capitalize on the
opportunities created by this projected growth.
COMPANY STRATEGY
Overland intends to continue building a leadership position in the magnetic
tape segment of the data storage industry. The Company believes that it
possesses certain core competencies which will help it attain this leadership
position, including: (i) advanced knowledge of hardware/software integration and
connectivity, due to its experience in designing and developing both tape drives
and libraries; (ii) experience in the magnetic tape industry, particularly with
respect to innovative mechanical, electrical and firmware designs; (iii)
comprehensive understanding of, and close contact with, end-user needs; and (iv)
experienced management and developed management processes in each functional
area of its business operations. The Company intends to leverage these core
competencies in the execution of its business strategy, which includes the
following elements:
- EMPHASIZE DEVELOPMENT OF ADVANCED STORAGE SOLUTIONS. Overland invests
extensively in research and development in order to deliver technologies
for the "next generation" of magnetic tape drives and automated tape
libraries. The Company intends to continue its research and development
efforts in areas that build upon its manufacturing, engineering and
operational strengths in order to offer products which serve emerging data
storage needs.
- MAINTAIN LEADERSHIP IN PRODUCT RELIABILITY. The Company believes that
product dependability is crucial for its customers. Overland believes that
it has achieved a reputation for reliability and intends to continue to
develop and offer high quality and reliable products and augment this
reliability with comprehensive technical support.
- LEVERAGE CLOSE RELATIONSHIPS WITH END-USERS. The Company believes that
its interaction with end-users enables it to better understand the
evolving product and application needs of its customers. Overland intends
to continue its close contact with end-users by selling its products
directly to them, by involving them in ongoing market research activities
regarding future products, and by responding to their technical support
requirements.
- FURTHER DEVELOP WORLDWIDE DISTRIBUTION. Overland intends to increase the
number of distributors in its existing international markets, develop
additional distribution channels in these markets for new product
introductions and establish appropriate distribution channels for its
current and future products in new international markets.
- HARVEST LEGACY MARKETS. The markets served by the Company's 9-track and
18-track product lines are characterized by mature technologies and large
installed customer bases. Overland intends to capitalize on its position
in these markets in order to capture additional market share and expects
to realize improved operating margins as such products require limited
research and development support as compared to newer technology.
- PURSUE ALLIANCES OR ACQUISITIONS. Overland believes that it may be able
to expand and increase the value-added component of its product offerings
through alliances with, or acquisitions of, complementary businesses. The
Company intends to evaluate strategic product and technology acquisitions
and may pursue second source manufacturing arrangements to further
capitalize upon its engineering, manufacturing and quality process
capabilities.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company......................... 2,200,000 shares
Common Stock offered by the
Selling Shareholders............ 500,000 shares
Common Stock to be outstanding
after the Offering.............. 9,742,898 shares(1)
Use of proceeds................... Repayment of outstanding indebtedness,
working capital and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol.......................... OVRL
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $ 34,044 $ 38,156 $ 47,226 $ 11,023 $ 12,013
Gross profit.............................................. 11,154 11,115 16,081 3,925 4,440
Income from operations.................................... 587 980 3,541 759 593
Net income................................................ 137 501 3,159 472 324
Net income per share(2)...................................
Shares used in computing net income per share(2)..........
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------
ACTUAL AS ADJUSTED(3)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $ 2 $
Working capital...................................................................... 12,382
Total assets......................................................................... 21,195
Long-term debt, net of current portion............................................... 3,300
Convertible redeemable preferred stock............................................... 5,200
Shareholders' equity................................................................. 6,365
</TABLE>
- ------------------------
(1) Excludes (i) 815,296 shares of Common Stock issuable pursuant to stock
options outstanding at September 30, 1996 (of which options to purchase
457,223 shares are exercisable) with a weighted average exercise price of
$1.15 per share and (ii) 17,046 shares of Common Stock issuable upon
exercise of an outstanding warrant at a price of $4.40 per share. See
"Management-- Stock and Employee Benefit Plans" and "Description of Capital
Stock--Warrant" and Note 7 of Notes to Consolidated Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for information
concerning calculation of net income per share.
(3) Adjusted to give effect to (i) the conversion of all shares of Preferred
Stock into Common Stock upon completion of this Offering and (ii) the
application of the estimated net proceeds of this Offering based upon an
assumed initial public offering price of $ per share. See "Use of
Proceeds."
------------------------------
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED IN THIS PROSPECTUS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS,"
"BUSINESS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS." UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN
THIS PROSPECTUS TO "OVERLAND" AND THE "COMPANY" REFER TO OVERLAND DATA, INC., A
CALIFORNIA CORPORATION, AND ITS SUBSIDIARIES. EXCEPT AS OTHERWISE NOTED, ALL
INFORMATION IN THIS PROSPECTUS, INCLUDING FINANCIAL INFORMATION, ASSUMES (I) NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION AND (II) THE AUTOMATIC
CONVERSION OF ALL OUTSTANDING SHARES OF PREFERRED STOCK INTO COMMON STOCK UPON
THE COMPLETION OF THIS OFFERING.
5
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE RISK FACTORS SET FORTH
BELOW, AS WELL AS OTHER INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS,
BEFORE MAKING A DECISION TO PURCHASE THE COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED IN THIS PROSPECTUS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS SECTION,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.
RAPID TECHNOLOGICAL CHANGE AND DEPENDENCE ON NEW PRODUCT DEVELOPMENT
The market for the Company's products is generally characterized by rapid
technological change and evolving industry standards and is highly competitive
with respect to timely innovation. The future success of the Company will depend
on its ability to anticipate changes in technology, to develop new and enhanced
products on a timely and cost-effective basis and to introduce, manufacture and
achieve market acceptance of such new and enhanced products. In particular, the
Company's future success is dependent on its LibraryXpress product line, the
initial product of which, the LXB, commenced shipment in March 1996. During the
first quarter of calendar year 1997, the Company intends to commence shipment of
the LXG global control unit of the LibraryXpress product line, which will create
what the Company believes will be the first automated tape library in its
capacity class which is truly "scalable." Prototypes of the LXG were shipped in
November 1996. The LXB and the other planned units of the LibraryXpress product
line have not yet achieved widespread market acceptance and are anticipated to
confront increasing competition both from competitive automated tape library
products, as well as other storage devices that may be developed in the future.
The DLT tape drives used by the Company in its LibraryXpress products are
obtained from a sole supplier, Quantum Corporation ("Quantum"), which from time
to time has placed customers such as the Company (and its competitors) on
allocation due to shortages of its components. See "--Dependence on Certain
Suppliers." Development schedules for high technology products are inherently
subject to uncertainty and there can be no assurance that the Company will be
able to meet its product development schedules, including those for the
LibraryXpress product line, or that development costs will be within budgeted
amounts. If the products or product enhancements that the Company develops are
not deliverable due to developmental problems, quality issues or component
shortage problems or if such products or product enhancements do not achieve
market acceptance or are unreliable, the Company's business, financial condition
and results of operations may be materially and adversely affected. The
introduction (whether by the Company or its competitors) of new products
embodying new technology such as new sequential or random access mass storage
devices and the emergence of new industry standards can render existing products
obsolete or not marketable. For example, the Company believes that its sales of
Quantum products which it distributes declined from $2.5 million in the first
quarter of fiscal year 1996 to $819,000 in the first quarter of fiscal year
1997, largely as a result of a decline in sales of the Quantum DLT
2500/2700/4500/4700 loaders which have been replaced by the Company's sales of
the LXB, which amounted to approximately $1.9 million in revenues during the
first quarter of fiscal year 1997. Similarly, the Company anticipates a
continued migration by users of its 18-track products to its 36-track products.
In addition, 9-track product sales of $3.1 million in the first quarter of
fiscal year 1997 declined 32.5% from the first quarter of fiscal year 1996,
reflecting the general maturity of the 9-track tape technology and a movement by
the Company's customers to more technologically advanced products. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Products" and "--Research and Development."
COMPETITION AND PRICE PRESSURE
The worldwide tape storage market is intensely competitive as a large number
of manufacturers of alternative tape technologies compete for a limited number
of customers and barriers to entry are
6
<PAGE>
relatively low in the library category. The Company currently participates in
three market areas which are defined by different tape technologies: (i) network
data storage; (ii) data backup and interchange based on IBM compatible 3480/3490
technology; and (iii) data interchange based on 9-track reel-to-reel technology.
In each of these areas, many of the Company's competitors have substantially
greater financial and other resources, larger research and development staffs,
and more experience and capabilities in manufacturing, marketing and
distributing products than the Company. For network data storage, the
LibraryXpress LXB product currently competes with products made by Advanced
Digital Information Corporation ("ADIC"), ATL Products, Inc. ("ATL/Odetics"),
Breece Hill Technologies, Inc. ("Breece Hill"), Hewlett-Packard Company
("Hewlett-Packard"), Quantum and Storage Technology Corporation ("Storage
Technology"), and the Company believes that additional competitors can be
expected to enter the market. For the data backup and interchange market, which
is based on IBM compatible 3480/3490 technology, the Company offers a product
line of 18 and 36-track products, which the Company believes compete primarily
with products made by Fujitsu Computer Products of America, Inc. ("Fujitsu"),
Hitachi Data Systems Corporation ("Hitachi"), Laser Magnetic Storage and Storage
Technology. For the 9-track data interchange market, the Company believes it
competes with Anritsu American Incorporated, Hewlett-Packard and M4 Data, Inc.
Except for the 9-track data interchange market, the markets for the Company's
products are characterized by significant price competition, and the Company
anticipates that its products will face increasing price pressure. This pressure
could result in significant price erosion, reduced profit margins and loss of
market share, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Competition."
DEPENDENCE ON CERTAIN SUPPLIERS
The Company's products have a large number of components and subassemblies
produced by outside suppliers and it is highly dependent on such suppliers for
components and subassemblies, including DLT tape drives, read-write heads,
printed circuit boards and integrated circuits, which are essential to the
manufacture of the Company's products. In addition, for certain of these items,
the Company qualifies only a single source, which can magnify the risk of
shortages and decrease the Company's ability to negotiate with its suppliers on
the basis of price. If such shortages occur, or if the Company experiences
quality problems with suppliers, shipments of products could be significantly
delayed or costs significantly increased, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
Specifically, the Company's new LibraryXpress automated tape libraries
incorporate DLT tape drives manufactured by Quantum, which is also a competitor
of the Company in that Quantum markets its own tape drives and tape loader
products. Currently, there are no alternative sources for the DLT tape drives
supplied by Quantum. The Company does not have a long-term contract with
Quantum, which could cease supplying DLT tape drives directly to the Company.
From time to time in the past, the Company has not been able to obtain as many
drives as it has needed from Quantum due to drive shortages or quality issues.
Any prolonged inability to obtain adequate deliveries could require the Company
to pay more for components, parts and other supplies, seek alternative sources
of supply, delay shipment of products and damage relationships with current and
prospective customers. Any such delay or damage could have a material adverse
effect on the Company's business, financial condition and results of operations.
During the past 12 months, the Company has experienced problems with the quality
and timeliness of the supply of DLT drives and read-write heads, each of which
is a sole source component. Such problems have adversely affected the Company's
sales during this period. While the Company believes that the problems relating
to these components have been resolved, no assurance can be given that such
problems will not re-occur or that the Company will not experience similar or
more serious disruptions in supply in the future. See "Business--Products" and
"--Manufacturing."
DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS
The Company markets its products to original equipment manufacturers
("OEMs"), value-added resellers ("VARs"), systems integrators, distributors,
resellers and end-user customers. The Company's
7
<PAGE>
sales to its top five customers accounted for 34% of the Company's total sales
in fiscal year 1996, with Digital Equipment Corporation ("DEC"), a major
customer since 1993, accounting for 23% of such sales. In October 1996, the
Company signed a five-year agreement with IBM to supply its 36-track products.
The Company anticipates that the percentage of its sales to these top two
customers will increase significantly during fiscal year 1997 and could account
for as much as 30% of the Company's sales. As is typical in the industry, the
Company's OEM contracts provide for annual price reviews and the customers are
not required to purchase minimum quantities. Orders may be rescheduled or
canceled outside 30 days of shipment without penalty. The loss of one or more of
these customers due to competition from other vendors, consolidation,
substantial cancellations by them, or the receipt of orders below anticipated
amounts would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Sales and
Marketing."
FLUCTUATIONS IN RESULTS
The Company's results can fluctuate substantially from time to time for
various reasons. All of the markets served by the Company are volatile and
subject to market shifts, which may or may not be discernible in advance by the
Company. A slowdown in the demand for workstations, mid-range computer systems
and networks could have a significant adverse effect on the demand for the
Company's products in any given period. The Company has experienced delays in
receipt of purchase orders and, on occasion, anticipated purchase orders have
been rescheduled or have not materialized due to changes in customer
requirements. The Company's customers may cancel or delay purchase orders for a
variety of reasons, including the rescheduling of new product introductions,
changes in their inventory practices or forecasted demand, general economic
conditions affecting the computer market, changes in pricing by the Company and
its competitors, new product announcements by the Company or others, quality or
reliability problems related to the Company's products, or selection of
competitive products as alternate sources of supply. In addition, because a
large portion of the Company's sales are generated by its European distributor
channel (20% in fiscal year 1996), the first fiscal quarter (July through
September) is impacted by seasonally slow European orders, reflecting the summer
holiday period in Europe. The Company's operations may reflect substantial
fluctuations from period to period as a consequence of such industry shifts,
price erosion, general economic conditions affecting the timing of orders from
customers, as well as other factors discussed herein. In particular, the
Company's ability to forecast sales to distributors and VARs and, increasingly
to OEMs, is especially limited as such customers typically provide the Company
with relatively short order lead times or are permitted to change orders on
short notice, respectively. A portion of the Company's expenses are fixed and
difficult to reduce should revenues not meet the Company's expectations, thus
magnifying the material adverse effect of any revenue shortfall. The Company's
gross profit has fluctuated and will continue to fluctuate quarterly and
annually based upon a variety of factors such as the level of utilization of the
Company's production capacity, changes in product mix, average selling prices,
demand or manufacturing yields, increases in production and engineering costs
associated with initial production of new programs, changes in the cost of or
limitations on availability of materials and labor shortages. During the first
quarter of fiscal year 1997, the Company reported a gross margin of 37% which
was higher than its average quarterly gross margin during fiscal years 1994,
1995 and 1996. Management does not believe that this gross margin level, which
was positively affected by an increase in the sales of the LibraryXpress and a
decrease in sales of distributed product, will be maintained. Generally, new
products have higher gross margins than more mature products. Therefore, the
Company's ability to introduce new products in a timely fashion is an important
factor to its profitability. Based upon all of the foregoing, the Company
believes that period-to-period comparisons of its revenues and operating results
will continue to fluctuate and are not necessarily meaningful and should not be
relied on as indications of future performance. Furthermore, in some future
quarter the Company's revenues and operating results could be below the
expectations of public market analysts or investors, which could result in a
material adverse effect on the price of the Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
8
<PAGE>
REPLACEMENT OF INFORMATION SYSTEMS
In July 1996, the Company began a project to replace its enterprise-wide
information and business systems by the end of fiscal year 1997 to more
effectively address the complexities of the Company's business and to support
its growth in the next five years. Although the Company has not experienced any
delays in this effort to date, there can be no assurance that future delays in
the implementation process will not occur. The failure to successfully
accomplish the replacement of these systems in a timely manner, or any failure
otherwise to achieve the necessary levels of information and business system
support, could have a material adverse effect on the Company's business,
financial condition and results of operations.
RISKS RELATED TO FOREIGN SOURCING AND FOREIGN SALES
Because a number of the Company's key components are currently manufactured
in Singapore and Korea, its results of operations can be affected by
fluctuations in currency exchange rates. The Company's international procurement
is also subject to certain other risks common to foreign operations in general,
including government regulation and import restrictions. In particular, an
adverse foreign exchange movement of the U.S. dollar versus the Singapore dollar
or other currency, or the imposition of import restrictions or tariffs by the
U.S. government on products or components shipped from Singapore, Korea or
another country could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, because of the
Company's use of components produced overseas, the sale of the Company's
products to domestic federal or state agencies may be restricted by limitations
imposed by the Buy American Act or the Trade Agreement Act. See
"Business--Manufacturing."
Direct international sales accounted for 27% of sales in fiscal year 1996
and the Company expects that international sales will continue to grow and
represent an even greater proportion of the Company's revenue. Sales to
customers outside the U.S. are subject to various risks, including the
imposition of governmental controls, the need to comply with a wide variety of
foreign and U.S. export laws, political and economic instability, trade
restrictions, changes in tariffs and taxes, longer payment cycles typically
associated with international sales, the greater difficulty of administering
business overseas. Furthermore, although the Company endeavors to meet standards
established by foreign regulatory bodies, there can be no assurance that the
Company will be able to comply with changes in foreign standards in the future.
The inability of the Company to design products that comply with foreign
standards could have a material adverse effect on the Company. Currently, all of
the Company's sales are U.S. dollar denominated and fluctuations in the value of
foreign currencies relative to the U.S. dollar could therefore make the
Company's products less price competitive. However, the Company has plans to
expand its presence in Europe through its operation in the United Kingdom in the
last half of fiscal year 1997 and to bill customers for product shipped from
England in other foreign currencies. When this occurs, a decrease in the value
of the other foreign currencies in relation to the U.S. dollar after
establishing prices and before receipt of payment by the Company would have an
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Sales and Marketing."
DEPENDENCE ON KEY EMPLOYEES
The Company's future success depends in large part on its ability to retain
certain key executives and other key personnel, many of whom have been
instrumental in developing new technologies and setting strategic plans. The
Company's growth and future success will depend in large part on its continuing
ability to hire, motivate and retain highly qualified management, technical,
sales and marketing team members. Competition for such personnel is intense and
there can be no assurance that the Company will be able to retain its existing
personnel or attract additional qualified personnel in the future. See
"Management."
TECHNOLOGY AND INTELLECTUAL PROPERTY
The Company believes that, because of the rapid pace of technological change
in the tape storage industry, patent and trade secret protection are less
significant than factors such as the knowledge, ability
9
<PAGE>
and experience of the Company's personnel, new product introductions and product
enhancements. Nonetheless, the Company's ability to compete effectively depends
in part on its ability to develop and maintain proprietary aspects of its
technology. There can be no assurance that any future patents will be granted or
that any patents will be valid or provide meaningful protection for the
Company's product innovations. In addition, the laws of certain foreign
countries may not protect the Company's intellectual property to the same extent
as U.S. laws. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate the Company's products or, if
patents are issued to the Company, design around the patents issued to the
Company. The Company also relies on a combination of copyright, trademark, trade
secret and other intellectual property laws to protect its proprietary rights.
Such rights, however, may not preclude competitors from developing substantially
equivalent or superior products to those of the Company's. In addition, many
aspects of the Company's products are not subject to significant intellectual
property protection. While the Company is not currently engaged in any
intellectual property litigation or proceedings, there can be no assurance that
it will not become so involved in the future or that its products do not
infringe any intellectual property or other proprietary right of any third
party. An adverse outcome in litigation or similar proceedings could subject the
Company to significant liabilities to third parties, require disputed rights to
be licensed from others or require the Company to cease marketing or using
certain products, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business-- Proprietary Rights."
RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS
The Company may in the future pursue acquisitions of complementary
businesses, products or technologies as it seeks to expand and increase the
value-added component of its product offerings. Acquisitions involve numerous
risks, including difficulties in the assimilation of the operations and
personnel of the acquired business, the diversion of management's attention from
other business concerns, risks of entering markets in which the Company has no
direct prior experience, and the potential loss of key employees of the acquired
business. In addition, future acquisitions by the Company may result in
potentially dilutive issuances of equity securities and the incurrence of
additional debt and amortization expenses related to goodwill and other
intangible assets which could adversely affect the Company's business, financial
condition and results of operations.
WARRANTY EXPOSURE
The Company generally provides a two-year, return-to-factory warranty on its
products. For certain products, it provides a two-year on-site warranty which is
supplied by a third party service provider. The Company pays the service
provider in advance the negotiated price of the contract and the service
provider is then responsible for the costs of providing warranty service during
the term of the contract. For products which the Company distributes and for
tape drives used in the Company's products but manufactured by a third party,
the Company passes on to the customer the related manufacturer's warranty.
Although the Company has established reserves for the estimated liability
associated with product warranties, there can be no assurance that such reserves
will be adequate or that the Company will not incur substantial warranty
expenses in the future with respect to new or established products. See
"Business--Customer Service and Support."
MANAGEMENT DISCRETION OVER PROCEEDS OF THE OFFERING
The Company intends to use approximately $3.3 million of the net proceeds of
this Offering to repay outstanding indebtedness and approximately $ million for
general corporate purposes, including working capital and possible acquisitions
of complementary businesses, products and technologies, although the Company
currently has no agreements or commitments with respect to any such
transactions. Accordingly, the Company will have broad discretion as to the
application of such proceeds. An investor will not have an opportunity to
evaluate the economic, financial and other relevant information which will be
utilized by the Company in determining the application of such proceeds. See
"Use of Proceeds."
10
<PAGE>
ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE
Prior to this Offering, there has been no public trading market for the
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after this Offering. The stock market has from time to
time experienced extreme price and volume fluctuations which often have been
unrelated to the operating performance of particular companies. Announcements of
new products or accounts by the Company or its competitors, changes in earnings
estimated by analysts and economic and other external factors, as well as
period-to-period fluctuations in financial results of the Company, may have a
significant impact on the market price and marketability of the Common Stock.
Fluctuations or decreases in the trading price of the Common Stock may adversely
affect the liquidity of the trading market for the Common Stock and the
Company's ability to raise capital through future equity financing.
See--"Fluctuations in Results." The initial public offering price of the Common
Stock in this Offering will be determined by negotiations among the Company, the
Selling Shareholders and the Representatives of the Underwriters based on
several factors and may not be indicative of prices that will prevail in the
trading market. See "Principal and Selling Shareholders," "Shares Eligible for
Future Sale" and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION; ABSENCE OF DIVIDENDS
The initial public offering price per share of the Common Stock will exceed
the net tangible book value per share of the Common Stock. Accordingly, the
purchasers of shares of Common Stock in this Offering will experience immediate
and substantial dilution of net tangible book value per share of $ . The
Company has not paid any dividends on its Common Stock and does not anticipate
paying any dividends on such stock in the foreseeable future. In addition, the
Company's current bank credit line prohibits the payment of dividends. See
"Dilution" and "Dividend Policy."
EFFECT ON SHARE PRICE OF SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the 2,700,000 shares offered hereby
(3,105,000 shares if the over-allotment option is exercised in full) will be
eligible for immediate sale in the public market without restriction unless they
are held by affiliates of the Company. After the completion of this Offering,
7,042,898 of the outstanding shares will be "restricted securities" within the
meaning of Rule 144 ("Rule 144") promulgated under the Securities Act of 1933,
as amended, and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available. However,
substantially all of these shares will be eligible for sale pursuant to Rule 144
beginning 90 days after the completion of this Offering, subject to the volume
and manner of sale limitations of Rule 144. The directors, officers and current
shareholders of the Company, beneficially holding (upon completion of this
Offering) an aggregate of 6,306,985 shares, have agreed not to sell or otherwise
dispose of any such shares for at least 180 days from the date of this
Prospectus without the prior written consent of Jefferies & Company, Inc.
Thereafter, these shares will generally be eligible for immediate sale in the
public market without restriction. Furthermore, certain of the Company's current
shareholders and the holder of the Company's outstanding warrant have been
granted certain "piggy-back" registration rights with respect to the shares of
Common Stock owned by them or to be issued to them. The Company intends to file
a registration statement under the Securities Act concurrent with this Offering
covering the sale of shares of Common Stock under its 1996 Employee Stock
Purchase Plan and its various stock option plans. No predictions can be made as
to the effect, if any, that public sales of shares or the availability of shares
for sale will have on the market price prevailing from time to time.
Nevertheless, sales of substantial amounts of the Common Stock in the public
market, particularly by directors and officers of the Company, or the perception
that such sales could occur, could have an adverse impact on the market price of
the Common Stock. See "Principal and Selling Shareholders," "Shares Eligible for
Future Sale" and "Underwriting."
FAIR PRICE PROVISION
The Company anticipates amending its Articles of Incorporation prior to the
completion of this Offering to include a "fair price" provision that may have
the effect of discouraging persons from pursuing a non-negotiated takeover of
the Company and preventing certain changes of control. See "Description of
Capital Stock."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,200,000 shares of
Common Stock being offered by the Company hereby are estimated to be
approximately $ , based upon an assumed initial offering price of
$ per share and after deducting underwriting discounts and estimated
offering expenses ($ if the Underwriters' over-allotment option is
exercised in full and such shares are purchased from the Company). All shares
purchased pursuant to the exercise of the Underwriters' over-allotment option
will be sold by the Company. The Company will not receive any proceeds from the
sale of Common Stock by the Selling Shareholders.
Approximately $3.3 million of the net proceeds of this Offering will be used
by the Company for the repayment of outstanding indebtedness under its revolving
line of credit as of September 30, 1996, which bears interest at the bank's
prime rate plus 0.50%. The remaining net proceeds will be used by the Company
for general corporate purposes including working capital, development of new
technologies and possible acquisitions of complementary businesses, products or
technology, although no such acquisitions are being negotiated by the Company at
the present time and there can be no assurance that such acquisitions will be
made. Pending the use of the net proceeds for the above purposes, the Company
intends to invest the net proceeds from this Offering in investment-grade,
short-term, interest-bearing securities.
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock to date and does
not anticipate doing so in the foreseeable future. The Company currently intends
to retain its earnings to provide funds for the operation and expansion of its
business. In addition, the Company's current bank line of credit prohibits the
payment of cash dividends on its capital stock without the bank's prior written
consent. See Note 4 of the Notes to Consolidated Financial Statements.
12
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of September 30, 1996 (i) on a historical basis and (ii) as adjusted to give
effect to the conversion of all of the Company's Preferred Stock into Common
Stock and the application of the net proceeds from the sale of 2,200,000 shares
of Common Stock offered by the Company hereby at an assumed initial offering
price of $ per share and after deducting the underwriting discount and
estimated offering expenses payable by the Company. See "Use of Proceeds." This
table should be read in conjunction with the Company's Consolidated Financial
Statements, and the notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
<S> <C> <C>
Cash and cash equivalents.............................................................. $ 2 $
--------- -------
--------- -------
Long-term debt, net of current portion................................................. $ 3,300 $
Convertible redeemable preferred stock
Series A............................................................................. 367
Series B............................................................................. 1,281
Series C............................................................................. 3,552
Shareholders' equity(1):
Common stock, no par value, 25,000,000 shares authorized, 5,206,325 shares issued,
9,742,898 shares issued as adjusted................................................ 2,079
Retained earnings.................................................................... 4,286
--------- -------
Total shareholders' equity......................................................... 6,365
--------- -------
Total capitalization............................................................... $ 14,865 $
--------- -------
--------- -------
</TABLE>
- ------------------------
(1) Excludes (i) 815,296 shares of Common Stock issuable pursuant to stock
options outstanding at September 30, 1996 (of which options to purchase
457,223 shares are exercisable) with a weighted average exercise price of
$1.15 per share and (ii) 17,046 shares of Common Stock issuable upon
exercise of an outstanding warrant at a price of $4.40 per share. See
"Management--Stock and Employee Benefit Plans," "Description of Capital
Stock--Warrant" and Note 7 of Notes to Consolidated Financial Statements.
13
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1996 was $11,366,000, or $1.51 per share. Pro forma net tangible book value per
share is determined by dividing the tangible net worth of the Company (total
assets less intangible assets and total liabilities) by the number of
outstanding shares of Common Stock after giving effect to the conversion of all
outstanding shares of the Company's Preferred Stock into Common Stock upon the
completion of this Offering. Without taking into account any changes in such net
tangible book value after September 30, 1996, other than to give effect to the
sale of the 2,200,000 shares of Common Stock offered by the Company at an
assumed initial public offering price of $ per share, pro forma net
tangible book value of the Company as of would have been approximately
$ or $ per share (after deducting the estimated underwriting discount
and offering expenses payable by the Company). This represents an immediate
increase in net tangible book value of $ per share to existing shareholders
and an immediate dilution of $ per share to new investors. Dilution to new
investors is determined by subtracting the net pro forma tangible book value per
share after this Offering from the initial public offering price per share. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................... $
Pro forma net tangible book value per share before this Offering............ $ 1.51
Increase per share attributable to sale of Common Stock in this Offering....
---------
Pro forma net tangible book value per share after this Offering...............
---------
Dilution per share to new investors........................................... $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis, as of September 30,
1996, the number of shares of Common Stock sold by the Company, the total
consideration paid to the Company and the average price per share paid by the
existing shareholders and by the new investors purchasing shares of Common Stock
in this Offering at an assumed initial public offering price of $ per share,
before deducting the estimated underwriting discount and offering expenses
payable by the Company.
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED(1)(2) CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<C> <C> <C> <C> <C>
Existing
shareholders... 7,542,898 77.4% $7,279,000 % $0.97
New
investors... 2,200,000 22.6
--------- ------- ---------- -------
Total... 9,742,898 100.0% $ 100.0%
--------- ------- ---------- -------
--------- ------- ---------- -------
</TABLE>
- ------------------------
(1) Excludes (i) 815,296 shares of Common Stock issuable pursuant to stock
options outstanding at September 30, 1996 (of which options to purchase
457,223 shares are exercisable) with a weighted average exercise price of
$1.15 per share and (ii) 17,046 shares of Common Stock issuable upon
exercise of an outstanding warrant at a price of $4.40 per share. See
"Management--Stock and Employee Benefit Plans," "Description of Capital
Stock--Warrant" and Note 7 of Notes to Consolidated Financial Statements.
(2) Sales by the Selling Shareholders in this Offering will reduce the number of
shares of Common Stock held by existing shareholders to 7,042,898 shares or
72.3% of the total number of shares of Common Stock to be outstanding after
this Offering, and will increase the number of shares held by new investors
to 2,700,000 shares, or approximately 27.7% of the total number of shares of
Common Stock to be outstanding after this Offering. See "Principal and
Selling Shareholders."
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus. The consolidated statement
of operations data for each of the three years in the period ended June 30, 1996
and the consolidated balance sheet data at June 30, 1995 and 1996 are derived
from consolidated financial statements of the Company that have been audited by
Price Waterhouse LLP, independent accountants, and included elsewhere in this
Prospectus. The consolidated statement of operations data for each of the two
years in the period ended August 31, 1992 and the ten months ended June 30, 1993
and the consolidated balance sheet data at August 31, 1991 and 1992 and June 30,
1993 and 1994 are derived from audited consolidated financial statements not
included in this Prospectus. The consolidated statement of operations data for
the three months ended September 30, 1995 and 1996 and the consolidated balance
sheet data at September 30, 1996 are derived from unaudited consolidated
financial statements included elsewhere in this Prospectus that have been
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the Company's
consolidated operating results and financial position for such periods. The
consolidated operating results for the three months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for any other
interim period or the fiscal year. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Selected Financial Data."
<TABLE>
<CAPTION>
TEN THREE MONTHS
YEAR ENDED MONTHS YEAR ENDED ENDED
AUGUST 31, ENDED JUNE 30, SEPTEMBER 30,
-------------- JUNE 30, ------------------------- ----------------
1991 1992 1993(3) 1994 1995 1996 1995 1996
------ ------ -------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT
OF
OPERATIONS
DATA:
Net
sales... $8,004 $9,855 $ 11,892 $34,044 $38,156 $47,226 $11,023 $12,013
Cost
of
goods
sold... 4,344 5,535 7,044 22,890 27,041 31,145 7,098 7,573
------ ------ -------- ------- ------- ------- ------- -------
Gross
profit... 3,660 4,320 4,848 11,154 11,115 16,081 3,925 4,440
------ ------ -------- ------- ------- ------- ------- -------
Operating
expenses:
Sales
and
marketing... 1,715 1,674 1,842 4,730 4,891 5,935 1,439 1,780
Research
and
development... 852 1,982 1,660 3,402 3,076 3,697 977 1,116
General
and
administrative... 1,080 1,328 1,802 2,435 2,168 2,908 750 951
------ ------ -------- ------- ------- ------- ------- -------
3,647 4,984 5,304 10,567 10,135 12,540 3,166 3,847
------ ------ -------- ------- ------- ------- ------- -------
Income
(loss)
from
operations... 13 (664) (456) 587 980 3,541 759 593
Interest
income... 36 11 24 34 10 1 -- 1
Interest
expense... (2) (3) (11) (248) (214) (155) (31) (58)
Other
income
(expense),
net... 60 110 31 (17) (6) 26 16 5
------ ------ -------- ------- ------- ------- ------- -------
Income
(loss)
before
income
taxes... 107 (546) (412) 356 770 3,413 744 541
Provision
for
income
taxes(1)... -- (60) 72 219 269 254 272 217
------ ------ -------- ------- ------- ------- ------- -------
Net
income
(loss)... $ 107 $ (486) $ (484) $ 137 $ 501 $ 3,159 $ 472 $ 324
------ ------ -------- ------- ------- ------- ------- -------
------ ------ -------- ------- ------- ------- ------- -------
Net
income
(loss)
per
share... $ $ $ $ $ $ $ $
------ ------ -------- ------- ------- ------- ------- -------
------ ------ -------- ------- ------- ------- ------- -------
Shares
used
in
computing
net
income
(loss)
per
share(2)...
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AUGUST 31, JUNE 30,
-------------------- ------------------------------------------ SEPTEMBER 30,
1991 1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 436 $ 1,170 $ 79 $ 1,332 $ 101 $ 19 $ 2
Working capital............................... 1,884 2,649 4,063 5,097 6,430 10,307 12,382
Total assets.................................. 3,186 4,280 8,950 14,329 14,453 19,771 21,195
Long-term debt, net of current portion........ -- -- 1,255 747 1,400 1,500 3,300
Convertible redeemable preferred stock........ 1,079 2,327 4,315 5,879 5,567 5,200 5,200
Shareholders' equity.......................... 1,395 1,100 682 900 1,767 5,858 6,365
</TABLE>
- ------------------------
(1) The Company's effective tax rate for the year ended June 30, 1996 was
affected in the fourth quarter of the year by a one-time tax valuation
allowance adjustment, which reduced income tax expense and correspondingly
increased net income by $997,000, or $ per share. Without this
adjustment, for the year ended June 30, 1996 net income and net income per
share would have been $2,162,000 and $ , respectively.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of shares used in computing net income (loss) per share.
(3) In 1993, the Board of Directors approved a change in the Company's fiscal
year to June 30 from August 31. Consequently, the consolidated financial
statements for the period ended June 30, 1993 reflect ten months of actual
results.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS SECTION, "RISK FACTORS"
AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. THE
FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS, AND NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS.
GENERAL
Overland designs, develops, manufactures, markets and supports magnetic tape
data storage systems used by businesses for backup, archival and data
interchange functions. The Company's products are based on three different
half-inch magnetic tape technologies. In March 1996, the Company commenced
shipment of the LXB, an automated tape library base unit and the first product
in its LibraryXpress product line. The LXB is an expandable automated tape
library based on DLT tape drive technology. The Company's second product line,
TapeXpress, consists of 18 and 36-track products based on the IBM
3480/3490/3490E technologies. In addition, under its TapePro product line, the
Company produces 9-track reel-to-reel tape drives which are used exclusively for
data interchange. The Company also distributes a line of DLT products
manufactured by Quantum and markets other items, including controller cards
which connect its TapePro and TapeXpress products to personal computers,
interchange software, storage management software supplied by third parties,
spare parts and tape media.
The Company was formed in 1980 and thereafter, through a series of
financings and two acquisitions, the Company built its equity base and expanded
its manufacturing and engineering capabilities. Initially, the Company marketed
a controller card and software which enabled data interchange between personal
computers and 9-track tape drives. In 1986, the Company became a VAR and bundled
its products with 9-track tape drives manufactured by third parties. Through a
private offering of Series A Preferred Stock in May 1989, the Company raised
$1.1 million, which it used to develop and manufacture its own 9-track tape
drives. In May 1992, to expand into the 18/36-track business, the Company
acquired Mountain Engineering, Inc., an independent design team of 18-track
products, for stock valued at $133,000. In July 1992, the Company raised an
additional $1.3 million in a private offering of Series B Preferred Stock in
order to fund product development. In May 1993, the Company acquired from
Archive Corporation, a wholly owned subsidiary of Conner Peripherals, Inc.
("Conner"), in a transaction accounted for as a purchase (the "Cipher
Acquisition"), all of the engineering, manufacturing and marketing rights of
Cipher Data Products, Inc. ("Cipher") to the half-inch tape drive product lines
(the 9-track "995" product and the 18-track "T480" product) with annual revenues
of approximately $20 million. Total consideration for the Cipher Acquisition,
which was completed in October 1993 of the next fiscal year, amounted to $8.3
million, consisting of $1 million of cash borrowed under the Company's revolving
line of credit, $3.7 million under the subordinated installment note payable to
Archive Corporation (the "Archive Note"), and $3.6 million of Series C Preferred
Stock.
17
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth items in the statements of operations as a
percentage of net sales for the periods presented:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
------------------------------------- ------------------------
STATEMENTS OF OPERATIONS 1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...................................... 67.2 70.9 65.9 64.4 63.0
----- ----- ----- ----- -----
Gross profit............................................ 32.8 29.1 34.1 35.6 37.0
----- ----- ----- ----- -----
Operating expenses:
Sales and marketing..................................... 13.9 12.8 12.6 13.1 14.8
Research and development................................ 10.0 8.1 7.8 8.9 9.3
General and administrative.............................. 7.1 5.7 6.2 6.8 7.9
----- ----- ----- ----- -----
31.0 26.6 26.6 28.8 32.0
----- ----- ----- ----- -----
Income from operations.................................. 1.8 2.5 7.5 6.8 5.0
Interest and other, net................................. (0.7) (0.5) (0.3) (0.2) (0.5)
----- ----- ----- ----- -----
Income before income taxes.............................. 1.1 2.0 7.2 6.6 4.5
Provision for income taxes.............................. 0.7 0.7 0.5 2.5 1.8
----- ----- ----- ----- -----
Net income.............................................. 0.4% 1.3% 6.7% 4.1% 2.7%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
------------------------------------- ------------------------
PRODUCT MIX TABLE 1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Company products:
LibraryXpress........................................... --% --% 2.6% --% 16.2%
36-track................................................ -- 6.1 19.6 12.7 29.3
18-track................................................ 15.6 20.3 15.3 14.1 13.1
9-track................................................. 70.0 48.0 29.4 38.3 25.3
Spare parts, controllers, other......................... 7.8 7.0 10.3 8.5 8.8
Other parts:
DLT distributed products................................ 2.1 17.8 21.5 23.0 6.8
Hewlett-Packard distributed products.................... 4.5 0.8 1.3 3.4 0.5
----- ----- ----- ----- -----
Total..................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO 1995
NET SALES. The Company's net sales of $12.0 million in the first quarter of
fiscal year 1997 (the "1997 First Quarter") grew by $1.0 million or 9.1% over
net sales of $11.0 million in the first quarter of fiscal year 1996 (the "1996
First Quarter"). The sales growth was primarily attributable to new product
introductions, partially offset by declines in the dollar value of Quantum DLT
products distributed by the Company and declines in 9-track sales. In March
1996, the Company began shipments of the first base unit product in its new DLT
LibraryXpress line which contributed $1.9 million in sales to the 1997 First
Quarter. The Company expects this product and follow-on products to generate a
significant portion of its revenues in fiscal year 1997. Offsetting this
increase, however, was a $1.7 million decline in sales of DLT distributed
product from $2.5 million in the 1996 First Quarter to $819,000 in the 1997
First Quarter. This decline was the result of the fact that the Quantum DLT
products have become commodities in the marketplace and
18
<PAGE>
are available from other suppliers at prices below those offered by the Company.
In addition, a majority of the sales of the Quantum DLT 4500/4700 loaders have
been replaced by sales of the Company's own LibraryXpress products. The Company
expects these trends to continue. The largest sales growth of $2.1 million was
reported in the Company's 36-track products for which 1997 First Quarter sales
of $3.5 million grew to 2.5 times their 1996 First Quarter level of $1.4
million, principally as a result of increased sales of the L490E, mainly to DEC,
and sales attributable to the introduction of two new 36-track products after
the 1996 First Quarter, the L60E in November 1995 and the T490E in March 1996.
The Company expects that revenues from its 36-track products will increase in
fiscal year 1997 as it commences shipments to IBM beginning in the second
quarter. Sales of 18-track products ($1.6 million) were level with the prior
year. Shipment of 18-track products had been constrained in the fourth quarter
of fiscal year 1996 by a shortage of read-write head components which was
substantially resolved during the 1997 First Quarter. Without the realization of
the delayed sales related to this shortage, 1997 First Quarter 18-track sales
would have declined in comparison to the prior year, reflecting a customer
migration to 36-track products, which trend the Company expects to continue
throughout fiscal year 1997. Sales of 9-track products of $3.1 million in the
1997 First Quarter fell by $1.5 million or 32.6% from $4.6 million in the 1996
First Quarter. The decline across most of the 9-track products reflected the
general maturity of the 9-track technology, a trend which is also expected to
continue in the foreseeable future. The Company made end-of-life announcements
during the quarter on certain of the products within the 9-track product line
with the effect of narrowing the product offerings to four by the end of the
third quarter of fiscal year 1997.
GROSS PROFIT. The Company's gross profit amounted to $4.4 million in the
1997 First Quarter, up from $3.9 million in the 1996 First Quarter and
represented gross margins of 37.0% and 35.6%, respectively. The increased
profitability resulted from higher margins on newly introduced products,
principally the LibraryXpress, and the reduction in sales of DLT distributed
product at substantially lower margins than the Company's other products.
Management does not believe that this gross margin level will be maintained.
SALES AND MARKETING EXPENSES. Sales and marketing expenses amounted to $1.8
million or 14.8% of net sales in the 1997 First Quarter compared to $1.4 million
or 13.1% of sales in 1996. The increased level of expenditures is principally
related to the Company's introduction of its new LibraryXpress product line.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
amounted to $1.1 million or 9.3% of net sales in the 1997 First Quarter, up
slightly from $1.0 million or 8.9% of net sales in 1996. During fiscal year
1996, development efforts were focused on the new LibraryXpress base unit. In
fiscal year 1997, the focus was shifted to the follow-on products in the
LibraryXpress line and to refinements of the 36-track products to be shipped to
IBM beginning in the second quarter. Expenses were also incurred in the first
quarters of both fiscal years 1996 and 1997 relating to the development of a
completely new tape recording technology which will be the basis for a new
product line. The Company intends to continue this development in fiscal year
1997 and spend 7% to 8% of net sales on research and development during such
year.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
amounted to $951,000 or 7.9% of net sales in the 1997 First Quarter, up from
$750,000 or 6.8% of sales in the 1996 First Quarter. The higher level of
expenses in 1997 was related to an increase in support personnel, including a
strengthening of the Company's data processing department, as well as higher
levels of consulting fees and computer related expenses.
INTEREST EXPENSE. Net interest expense amounted to $57,000 in the 1997
First Quarter and was comprised principally of interest related to borrowings
under the Company's revolving bank line of credit. Average borrowings during the
quarter amounted to $2.3 million. In the 1996 First Quarter, net interest
expense amounted to $31,000 consisting of $16,000 of interest expense related to
$760,000 of average bank
19
<PAGE>
borrowings and $15,000 related to the final installment of the Archive Note. The
Archive Note was repaid in full in November 1995.
INCOME TAXES. The Company's provision for state and federal income taxes in
the 1997 First Quarter amounted to $217,000 or an effective tax rate of 40%,
which the Company believes to be representative of its normalized effective tax
rate. In the 1996 First Quarter, the tax provision amounted to $272,000 or an
effective tax rate of 37%.
FISCAL YEAR 1996 COMPARED TO 1995
NET SALES. The Company's net sales of $47.2 million in fiscal year 1996
grew by $9.0 million or 23.6% over net sales of $38.2 million in fiscal year
1995. This sales growth was driven by new product introductions which more than
offset declines in both 18-track and 9-track sales. In particular, the first
shipments of the LXB, the base unit product in the Company's new LibraryXpress
product line, were made in March 1996. Shipments of the LXB during the last four
months of fiscal year 1996 generated $1.2 million in sales. An additional $3.4
million in fiscal year 1996 growth was generated from a 50.0% increase in sales
of DLT distributed products, including the DLT 4500/4700 loaders which were
introduced during the year by Quantum. The largest portion of sales growth, $7.0
million, was reported in the Company's 36-track products, with fiscal year 1996
sales of $9.3 million growing to four times its fiscal year 1995 level of $2.3
million. This growth was the result of (i) strong sales of the inaugural
36-track product, the L490E, which was introduced midway through fiscal year
1995, and (ii) two new 36-track product introductions, the 60-cartridge L60E,
which began shipping in November 1995, and the single cartridge T490E, which
began shipping in March 1996. In the 18-track product line, sales declined by
6.8% in fiscal year 1996, reflecting the market's general migration to 36-track
products. Sales of 9-track products of $14.4 million in fiscal year 1996
declined by $4.2 million or 22.6% from $18.6 million in fiscal year 1995,
reflecting the general maturity of the 9-track technology. Finally, fiscal year
1996 sales of controllers, spare parts, software and other products amounted to
$4.9 million, an increase of 81.5% over the fiscal year 1995 level of $2.7
million. This growth was attributable to increased sales of spare parts and tape
media, mainly DLT tape.
GROSS PROFIT. The Company's gross profit amounted to $16.1 million in
fiscal year 1996, up from $11.1 million in fiscal year 1995, and represented
gross margins of 34.1% and 29.1%, respectively. The increased profitability
resulted from higher margins on newly introduced products, and improved margins
on DLT distributed product because more product was sold through the VAR and
European channels compared to a concentration in the distributor channel in the
prior year. In addition, fiscal year 1996 gross margins were significantly
improved on 18-track products as material cost savings were realized from an
investment in re-engineering certain electrical components.
SALES AND MARKETING EXPENSES. Sales and marketing expenses amounted to $5.9
million or 12.6% of net sales in fiscal year 1996 compared to $4.9 million or
12.8% of sales in 1995. This increase in total expenditures resulted from costs
needed to support the higher sales level, including salaries and benefits, sales
commissions, advertising and promotion and travel and related costs. In
addition, higher costs were incurred for prototype units, advertising and
promotions related to new product introductions.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
amounted to $3.7 million or 7.8% of net sales in fiscal year 1996 compared to
$3.1 million or 8.1% of net sales in 1995. The increased expenses related to the
development of the Company's two new 36-track products, the T490E and the L60E,
and to a greater extent, the development of the new LibraryXpress products. The
development of the two 36-track products required a lower level of expense than
the LibraryXpress products because they were derivative products using common
electrical components and robotics. The Company also incurred expenses in fiscal
year 1996 related to the development of a new tape recording technology and
coding scheme using the partial response maximum likelihood concept.
20
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
amounted to $2.9 million or 6.2% of net sales in fiscal year 1996 compared to
$2.2 million or 5.7% of net sales in 1995. The higher level of expenses in 1996
included legal fees related to the filing of a number of patent applications,
increased bad debt reserves related to the higher level of sales and increased
facility costs and computer related expenses.
INTEREST EXPENSE. Net interest expense amounted to $154,000 in fiscal year
1996 and included $124,000 of interest expense related to borrowings under the
Company's revolving bank line of credit and $30,000 of interest expense related
to the final installment of the Archive Note which was repaid in full in
November 1995. Average borrowings under the Company's bank line of credit in
fiscal year 1996 amounted to $1.4 million. In fiscal year 1995, net interest
expense amounted to $204,000 consisting of $214,000 of interest expense and
$10,000 of interest income. The portion of the interest expense relating to the
Archive Note amounted to $145,000 and the remaining $69,000 of interest expense
related to borrowings under the Company's revolving bank line of credit, which
borrowings averaged $725,000 in fiscal year 1995.
INCOME TAXES. The Company's fiscal year 1996 provision for state and
federal income taxes amounted to $254,000 or an effective tax rate of 7.4%. In
fiscal year 1995, the tax provision amounted to $269,000 resulting in a more
normalized effective tax rate of 35%. The low tax rate in 1996 was the result of
the release of a deferred tax valuation allowance of $997,000 in the fourth
fiscal quarter. As discussed in Note 5 to the Consolidated Financial Statements,
in prior years the Company established the reserve in accordance with SFAS No.
109, "Accounting for Income Taxes," which requires that a valuation allowance be
recorded "when it is more likely than not" that any portion of a deferred tax
asset will not be realized. The reserve had been established to reduce the net
deferred tax asset to a minimal amount, because of the Company's past history of
operating losses and marginal profitability and due to the inherent uncertainty
in forecasts of future events and operating results. However, in the fourth
quarter of fiscal year 1996, due to the significant profitability in that
quarter and based on management's expectations of future results, the Company
determined that it was more likely than not that deferred tax assets would be
realized through future taxable earnings or alternative tax strategies. As a
result, the valuation allowance was reduced to zero in that quarter.
FISCAL YEAR 1995 COMPARED TO 1994
NET SALES. The Company's net sales of $38.2 million in fiscal year 1995
grew by $4.2 million or 12.4% over net sales of $34.0 million in fiscal year
1994. Sales growth in DLT distributed products and in 36 and 18-track products
more than offset a decline in 9-track sales. The Company began distributing DLT
products in December 1993, midway through fiscal year 1994. Sales of DLT
products grew rapidly in the succeeding year and rose from $723,000 in fiscal
year 1994 to $6.8 million in fiscal year 1995. In December 1994, the Company
introduced the L490E, its first 36-track product. Shipments of this new product
during the remainder of fiscal year 1995 amounted to $2.3 million. In the
18-track product line, sales of $7.7 million in fiscal year 1995 grew by $2.4
million or 45.3% over net sales of $5.3 million in fiscal year 1994. This growth
was also the result of new product introductions, including the T490 single
cartridge 18-track product developed for DEC, which began shipping in April
1994, and the L490, the Company's 10-cartridge 18-track product which began
shipping in December 1994. Sales of 9-track products of $18.6 million in fiscal
year 1995 fell by $6.8 million or 26.8% from $25.4 million in fiscal year 1994,
despite the addition of $13.8 million in 9-track sales in fiscal year 1994 from
the acquisition of the 995 product.
GROSS PROFIT. The Company's gross profit amounted to $11.1 million in both
fiscal year 1995 and 1994, while the gross margin declined to 29.1% in 1995
compared to 32.8% in 1994. The largest factor contributing to the decline was
the increase in sales of DLT distributed product through distributor and VAR
channels at relatively low margins. Typical of distributor margins, sales of DLT
products through the distributor and VAR channels were made at 23% margins in
1994 and 21% margins in 1995. The application of these lower margins to DLT
revenues which grew from $723,000 in fiscal year 1994 to
21
<PAGE>
$6.8 million in fiscal year 1995 caused the reduction in overall gross margins.
The reduction in the concentration of OEM sales and the increase in
international sales partially offset this decline.
SALES AND MARKETING EXPENSES. Sales and marketing expenses amounted to $4.9
million or 12.8% of net sales in fiscal year 1995 compared to $4.7 million or
13.9% of net sales in 1994. Such expenses did not grow proportionately to sales
in fiscal year 1995, because fiscal year 1994 included a relatively higher level
of spending for advertising and promotions pertaining to new product
introductions.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
amounted to $3.1 million or 8.1% of net sales in fiscal year 1995, down from
$3.4 million or 10.0% of net sales in 1994. The higher level of spending in 1994
related to the concurrent development of three new products (T490, L490 and
L490E), and the merging of the Overland and Cipher technologies, which included
the development of a common electrical and firmware set and investment in
tooling, ASIC development and other non-recurring expenditures.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
amounted to $2.2 million or 5.7% of net sales in fiscal year 1995, down from
$2.4 million or 7.1% of net sales in 1994. The level of expenses in fiscal year
1994 were higher because they included certain costs relating to the relocation
of the Company's headquarters and manufacturing facilities.
INTEREST EXPENSE. Net interest expense amounted to $204,000 in fiscal year
1995 and consisted of $145,000 of interest expense relating to the Archive Note,
$69,000 of interest expense related to borrowings under the Company's revolving
bank line of credit and $10,000 of interest income. In fiscal year 1994, net
interest expense of $214,000 consisted of $248,000 of interest expense related
principally to the Archive Note and $34,000 of interest income.
INCOME TAXES. The Company's fiscal year 1995 provision for state and
federal income taxes amounted to $269,000 or an effective tax rate of 35%. In
fiscal year 1994, the tax provision amounted to $219,000 resulting in an
effective tax rate of 62%. The higher tax rate in 1994 resulted from the
increase in the deferred tax valuation allowance, offset partially by research
and development tax credits.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal year 1996, the Company generated $841,000 of cash from
operating activities, received $565,000 from the sale and issuance of Common
Stock to the Company's employees and borrowed an additional $100,000 against the
Company's bank line of credit. The Company also spent $841,000 on capital
expenditures and made the final installment payment on the Archive Note. These
activities caused a decrease in the Company's cash balance of $82,000 to a
year-end balance of $19,000.
The Company's working capital increased to $10.3 million at June 30, 1996,
up from $6.4 million at June 30, 1995. The increased working capital was needed
to support the accelerated revenue rate and consisted of higher receivable
balances, which grew from $6.3 million in 1995 to $7.2 million in 1996, and
higher inventory balances, which grew from $5.4 million to $8.4 million during
the same period. Deferred tax assets also rose by $1.2 million in 1996.
Offsetting these increases was a higher balance of accounts payable and accrued
liabilities/compensation totaling $2.3 million. The Company's working capital
increased further to $12.4 million at September 30, 1996.
The Company has a bank line of credit of up to $5 million based upon
eligible accounts receivable, with interest on borrowed funds at prime plus
0.5%. See Note 4 of Notes to the Consolidated Financial Statements. The bank
line of credit is collateralized by substantially all of the Company's assets
and expires in November 1998. The credit agreement prohibits the payment of
dividends without prior approval of the lender and requires the Company to
maintain certain covenants and financial ratios including working capital and
net worth ratios, all of which the Company has satisfied for the periods
presented. As of September 30, 1996, the Company had outstanding borrowings
thereunder of $3.3 million and had
22
<PAGE>
additional borrowing capacity of $1.1 million. The Company is currently
negotiating and has received a preliminary commitment for additional bank
financing of up to $3 million in the form of a term loan which would be
available to finance capital expenditures.
The Company currently expects to make capital expenditures of approximately
$3 million during fiscal year 1997. There were no significant capital
commitments, however, as of September 30, 1996. The Company believes that the
net proceeds from this Offering, the funds expected to be generated from
operations, its bank line of credit and the pending capital expenditure line,
will provide sufficient cash to fund its working capital needs and planned
capital expenditures for the foreseeable future. See "Use of Proceeds."
INFLATION
Inflation has not had a significant negative impact on the Company's
operations during the periods presented. With the exception of its OEM
contracts, which contain fixed pricing for up to one year, the Company has
historically been able to pass on to its customers increases in raw material
prices caused by inflation. There can be no assurance, however, that the Company
will be able to continue to pass on any future increases should they occur.
Although the Company's exposure to the effects of inflation will be magnified by
the expected increase in OEM business, the Company believes that its continuous
efforts at material and labor cost reductions will minimize such effects.
SELECTED QUARTERLY FINANCIAL DATA
The following table presents selected quarterly financial information for
the periods indicated. This information has been derived from unaudited
consolidated financial statements which, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of such information. These operating results are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------
FISCAL YEAR 1995
---------------------------------------------
SEPT. 30 DEC. 31 MAR. 31 JUNE 30
1994 1994 1994 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales............................... $ 8,854 $ 9,169 $ 9,657 $ 10,476
Cost of goods sold...................... 6,261 6,628 6,947 7,205
--------- --------- --------- ---------
Gross profit............................ 2,593 2,541 2,710 3,271
--------- --------- --------- ---------
Other expenses:
Sales and marketing................... 1,205 1,407 1,112 1,167
Research and development.............. 776 779 671 850
General and administrative............ 518 573 484 593
--------- --------- --------- ---------
2,499 2,759 2,267 2,610
--------- --------- --------- ---------
Income (loss) from operations........... 94 (218) 443 661
Interest, net........................... (54) (60) (49) (41)
Other income (expense), net............. (20) 1 21 (8)
--------- --------- --------- ---------
Income (loss) before income taxes....... 20 (277) 415 612
Provision for income taxes.............. 12 (94) 141 210
--------- --------- --------- ---------
Net income (loss)....................... $ 8 $ (183) $ 274 $ 402
--------- --------- --------- ---------
--------- --------- --------- ---------
<CAPTION>
FISCAL YEAR 1996
---------------------------------------------
SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30
1995 1995 1996 1996 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............................... $ 11,023 $ 12,296 $ 10,889 $ 13,018 $ 12,013
Cost of goods sold...................... 7,098 8,281 7,254 8,512 7,573
--------- --------- --------- --------- ---------
Gross profit............................ 3,925 4,015 3,635 4,506 4,440
--------- --------- --------- --------- ---------
Other expenses:
Sales and marketing................... 1,439 1,429 1,542 1,525 1,780
Research and development.............. 977 931 858 931 1,116
General and administrative............ 750 651 742 765 951
--------- --------- --------- --------- ---------
3,166 3,011 3,142 3,221 3,847
--------- --------- --------- --------- ---------
Income (loss) from operations........... 759 1,004 493 1,285 593
Interest, net........................... (29) (32) (38) (55) (57)
Other income (expense), net............. 14 10 (6) 8 5
--------- --------- --------- --------- ---------
Income (loss) before income taxes....... 744 982 449 1,238 541
Provision for income taxes.............. 272 342 165 (525) 217
--------- --------- --------- --------- ---------
Net income (loss)....................... $ 472 $ 640 $ 284 $ 1,763 $ 324
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Revenues in the Company's third quarter ended March 31, 1996 of $10.9
million declined by $1.4 million or 11.4% from the sales in the previous quarter
of $12.3 million. During this quarter, the Company, as well as many of its
competitors, experienced a general slow-down in the marketplace. In addition,
the Company's sales of Quantum DLT drives which the Company distributes were
limited by a supply shortage of these drives which also delayed introduction of
the Company's new LXB product.
23
<PAGE>
Revenues in the Company's 1997 First Quarter of $12.0 million declined by
$1.0 million or 7.7% from the sales in the previous quarter of $13.0 million.
The reduction in sales was caused by a supply constraint with the read-write
heads for its 18-track products and a decrease in sales of distributed Quantum
DLT products in light of increased price competition. Income from operations was
also reduced in the 1997 First Quarter because of higher advertising and
promotional spending related to new product introductions and a higher level of
research and development spending for product enhancements. An alternate
supplier was subsequently qualified for the 18-track heads.
The Company's results can fluctuate substantially from time to time for
various reasons. All of the markets served by the Company are volatile and
subject to market shifts, which may or may not be discernible in advance by the
Company. A slowdown in the demand for workstations, mid-range computer systems
and networks could have a significant adverse effect on the demand for the
Company's products in any given period. The Company has experienced delays in
receipt of purchase orders and, on occasion, anticipated purchase orders have
been rescheduled or have not materialized due to changes in customer
requirements. The Company's customers may cancel or delay purchase orders for a
variety of reasons, including the rescheduling of new product introductions,
changes in their inventory practices or forecasted demand, general economic
conditions affecting the computer market, changes in pricing by the Company and
its competitors, new product announcements by the Company or others, quality or
reliability problems related to the Company's products, or selection of
competitive products as alternate sources of supply. In addition, because a
large portion of the Company's sales are generated by its European distributor
channel (20% in fiscal year 1996), the first fiscal quarter (July through
September) is impacted by seasonally slow European orders, reflecting the summer
holiday period in Europe. The Company's operations may reflect substantial
fluctuations from period to period as a consequence of such industry shifts,
price erosion, general economic conditions affecting the timing of orders from
customers, as well as other factors discussed herein. In particular, the
Company's ability to forecast sales to distributors and VARs and, increasingly
to OEMs, is especially limited as such customers typically provide the Company
with relatively short order lead times or are permitted to change orders on
short notice, respectively. A portion of the Company's expenses are fixed and
difficult to reduce should revenues not meet the Company's expectations, thus
magnifying the material adverse effect of any revenue shortfall. The Company's
gross profit has fluctuated and will continue to fluctuate quarterly and
annually based upon a variety of factors such as the level of utilization of the
Company's production capacity, changes in product mix, average selling prices,
demand or manufacturing yields, increases in production and engineering costs
associated with initial production of new programs, changes in the cost of or
limitations on availability of materials and labor shortages. During the first
quarter of fiscal year 1997, the Company reported a gross margin of 37% which
was higher than its average quarterly gross margin during fiscal years 1994,
1995 and 1996. Management does not believe that this gross margin level, which
was positively affected by an increase in the sales of the LibraryXpress and a
decrease in sales of distributed product, will be maintained. Generally, new
products have higher gross margins than more mature products. Therefore, the
Company's ability to introduce new products in a timely fashion is an important
factor to its profitability. Based upon all of the foregoing, the Company
believes that period-to-period comparisons of its revenues and operating results
will continue to fluctuate and are not necessarily meaningful and should not be
relied on as indications of future performance. Furthermore, in some future
quarter the Company's revenues and operating results could be below the
expectations of public market analysts or investors, which could result in a
material adverse effect on the price of the Common Stock.
24
<PAGE>
BUSINESS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED IN THIS PROSPECTUS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS SECTION,
"RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.
COMPANY
Overland designs, develops, manufactures, markets and supports magnetic tape
data storage systems used by businesses for backup, archival and data
interchange functions. The Company primarily offers three product
lines--LibraryXpress, TapeXpress and TapePro--which are designed to meet the
data storage needs of client/server networks, workstations, minicomputers and
personal computers. Overland believes that it is well positioned to take
advantage of the rapidly increasing demand for storage capacity, particularly
that created by the growth in client/server networks. To address this growing
network storage demand, Overland introduced the LXB in March 1996, the first
product of its LibraryXpress line of automated tape libraries. In August 1996,
BYTE Magazine selected the LXB as the "Best Overall DLT Tape Library." The
Company believes that, with the anticipated delivery of the LXG control unit
during the first quarter of calendar year 1997, LibraryXpress will constitute
the first automated tape library in its capacity class that is truly "scalable,"
in that it is designed to allow end-users to configure specific combinations of
drives and cartridges as their storage requirements change without having to
replace their existing Overland units. Management believes that LibraryXpress
has significant market potential because it is designed to enable companies to
increase their storage capacity in a cost effective manner as their businesses
grow.
The Company's TapeXpress product line consists of 18/36-track tape drives
and loaders based on an IBM standard and, in October 1996, IBM selected the
Company to be a supplier of 36-track products. With its TapePro product line,
Overland is a leading supplier of 9-track reel-to-reel products used in data
interchange. In addition, the Company distributes a line of DLT-based products
manufactured by Quantum and markets various other products, including controller
cards which connect its tape drives to personal computers, interchange software
developed by the Company, storage management software supplied by third parties,
spare parts and tape media. With the exception of the tape drives in its
LibraryXpress product line, all of the Company's products are designed and
manufactured in-house. The Company's products combine electro-mechanical
robotics, electronic hardware and firmware, which are developed by the Company
with an emphasis on efficiency of design, functionality and reliability.
Overland's principal executive offices are located at 8975 Balboa Avenue,
San Diego, California, 92123-1599. Its telephone number is (619) 571-5555.
HISTORY
Overland was formed in 1980 and became a VAR in 1986, when it began
providing customers with a total data storage solution by bundling its
controller cards and software with third party 9-track tape drives. In 1991, the
Company recruited professional senior management and expanded its manufacturing
and development operations. Since that time, Overland has experienced rapid
growth, with revenue and operating income increasing at compound annual growth
rates of 43% and 207%, respectively. The Company's most significant source of
growth occurred in 1993 when it acquired certain Cipher 9-track and 18-track
product lines from Archive Corporation, a wholly owned subsidiary of Conner,
with annual revenues of approximately $20 million.
Throughout its history, the Company has designed and developed innovative
product offerings beginning with (i) the first controller card to allow personal
computers to connect to 9-track tape drives, thereby facilitating data
interchange between personal computers and mainframes or minicomputers, and
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(ii) DataTools, a specialized software package which facilitates data
interchange. In 1989, the Company began developing TapePro, the first truly
desktop-based 9-track tape drive. Overland's internal development efforts and
its acquisition of the Cipher product lines led to the introduction of its 18
and 36-track product lines. In March 1996, the Company commenced shipment of the
LXB, the first product in the LibraryXpress product line.
INDUSTRY OVERVIEW
The data storage industry has experienced rapid growth in recent years in
response to the significant increase in the amount of electronically stored
data. Overland believes that this growth will continue due to (i) the
introduction of increasingly powerful computing platforms, (ii) the spreading
use of computers for tasks that previously were performed manually, (iii) the
increasing number, size, bandwidth and complexity of computer networks,
particularly client/server networks, (iv) the rapid growth of data-intensive
applications and (v) the growth of intranet and Internet based computing. In
addition, emerging data-intensive applications, such as still image, motion
video, check imaging, and other multimedia and character recognition uses, are
accelerating the demand for data storage solutions.
Corporations, governments and other large enterprises increasingly are
recognizing the critical nature and strategic importance of stored data and the
need to safely backup and efficiently manage that data. These enterprises are
demanding data storage solutions which provide fast and reliable storage and
retrieval capabilities for rapidly increasing amounts of data. In addition,
business managers are increasingly perceiving data to be critical at a
company-wide level as opposed to only being important at the individual
workstation level. As a result, central management of data has increased both in
distributed and centralized client/server environments. Centralization of
storage has also become more desirable because of cost factors.
The Company believes that the factors noted above will greatly increase the
number of sites worldwide requiring large amounts of backup and, therefore, the
need for advanced storage solutions. According to the Strategic Research Corp.,
a storage management industry consultant, the number of centralized storage
sites worldwide requiring more than 200GB backup is projected to grow from
approximately 116,000 sites in 1996 to 660,000 sites by the year 2000.
Current data storage solutions provide secure, high capacity data
repositories based primarily on three technologies--magnetic tape, magnetic disk
and optical disk. Magnetic tape remains the most cost-effective storage medium
(at approximately one-fifth of the cost per megabyte stored as compared to
magnetic and optical disk), and is used most often for backup and archival
functions. Magnetic disk and optical disk provide relatively quick access to
stored data and are generally used for online and immediately offline storage
functions. Utilization of magnetic tape for backup, archive and data interchange
historically has required a high degree of human intervention, the cost of which
is reduced in a centralized storage environment, particularly those that utilize
automated tape storage systems. In addition, as the amount of data has grown,
the backup "window," or amount of time allocated to backup, has continued to
decrease, which has heightened demand for greater backup performance as
companies require less downtime from their computer systems. Consequently, tape
libraries have been developed which provide multiple drives in order to increase
throughput, multiple cartridges in order to increase data capacity and the
capability to function unattended in both backup and restore modes. According to
Strategic Research Corp., the quantity of tape libraries sold worldwide will
grow from an estimated 32,000 units in 1996 to 94,700 units in the year 2000.
The Company believes that market demand is growing especially for expandable
or "scalable" tape libraries because managers increasingly face difficulties in
predicting their needs for data storage and backup. Scalability allows the
end-user to satisfy its current data storage requirements and protect its
original investment when faced with handling future growth, because scalability
permits the end-user to
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buy only the storage equipment that is presently needed. Scalability then allows
the end-user to add to this configuration in a manner that incorporates and
fully utilizes the previously purchased equipment.
COMPANY STRATEGY
Overland intends to continue building a leadership position in the magnetic
tape segment of the data storage industry. The Company believes that it
possesses certain core competencies which will help it attain this leadership
position, including: (i) advanced knowledge of hardware/software integration and
connectivity, due to its experience in designing and developing both tape drives
and libraries; (ii) experience in the magnetic tape industry, particularly with
respect to innovative mechanical, electrical and firmware designs; (iii)
comprehensive understanding of, and close contact with, end-user needs; and (iv)
experienced management and developed management processes in each functional
area of its business operations. The Company intends to leverage these core
competencies in the execution of its business strategy, which includes the
following elements:
- EMPHASIZE DEVELOPMENT OF ADVANCED STORAGE SOLUTIONS. Overland invests
extensively in research and development in order to deliver technologies
for the "next generation" of magnetic tape drives and automated tape
libraries. The Company intends to continue its research and development
efforts in areas that build upon its manufacturing, engineering and
operational strengths in order to offer products which serve emerging data
storage needs.
- MAINTAIN LEADERSHIP IN PRODUCT RELIABILITY. The Company believes that
product dependability is crucial, given the critical nature of its
customers' information and the frequent operation of backup systems during
hours when few personnel are available to address problems. Overland
believes that it has achieved a reputation for reliability and intends to
continue to develop and offer high quality and reliable products. The
Company augments this product reliability by providing comprehensive
technical support to its customers, including online technical assistance
and engineering support for more complex applications.
- LEVERAGE CLOSE RELATIONSHIPS WITH END-USERS. The Company believes that
its interaction with end-users enables it to better understand the
evolving product and application needs of its customers. Overland intends
to continue its close contact with end-users by selling its products
directly to them, by involving them in ongoing market research activities
regarding future products, and by responding to their technical support
requirements.
- FURTHER DEVELOP WORLDWIDE DISTRIBUTION. The Company believes that the
range of data storage solutions provided by its three primary product
lines offers significant international sales opportunities. Overland
intends to increase the number of distributors in its existing
international markets, develop additional distribution channels in these
markets for new product introductions and establish appropriate
distribution channels for its current and future products in new
international markets.
- HARVEST LEGACY MARKETS. The markets served by the Company's 9-track and
18-track product lines are characterized by mature technologies and large
installed customer bases. Overland intends to capitalize on its position
in these markets in order to capture additional market share and expects
to realize improved operating margins as such products require limited
research and development support as compared to newer technology.
- PURSUE ALLIANCES OR ACQUISITIONS. Overland believes that it may be able
to expand and increase the value-added component of its product offerings
through alliances with, or acquisitions of, complementary businesses. The
Company intends to evaluate strategic product and technology acquisitions
and may pursue second source manufacturing arrangements to further
capitalize upon its engineering, manufacturing and quality process
capabilities.
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PRODUCTS
The Company produces tape drives, tape loaders and automated tape libraries
based on removable tape technologies. A tape drive is a device used to read or
write data to a single magnetic tape cartridge or reel on multiple tracks of the
tape. A tape loader includes a single tape drive and contains multiple tape
cartridges which can be randomly accessed, thus permitting unattended backup of
larger data sets. The backup and restore process of a tape loader can also be
handled randomly in order to write or read a specific data file to or from a
given cartridge. A tape library is a tape loader with multiple drives. Both tape
loaders and tape libraries house tape cartridges and utilize an
electro-mechanical robotic mechanism to manipulate the tape cartridges, loading
and unloading specific tape cartridges into and out of the tape drive or drives
as directed by the storage management software.
The Company currently provides turnkey data storage solutions to its
customers in distinct markets through three product lines that utilize three
generations of half-inch magnetic tape technologies. The network backup market
is served by LibraryXpress, the Company's DLT-based automated tape library
product line, which provides automated backup as companies migrate to
enterprise-wide client/server networks. The mid-range data interchange and
backup market is served by TapeXpress, the Company's 18/36-track product line.
The desktop data interchange market is served by TapePro, the Company's 9-track
product line, which targets personal computer and workstation users who need
access to data created on legacy systems.
The LibraryXpress product line combines electro-mechanical robotics,
electronic hardware and firmware developed by the Company, with industry
standard tape drives supplied by Quantum, into a desktop or rack-mount
configuration. Overland's standalone tape drives and loaders also incorporate
designs of electro-mechanical robotics, electronic hardware and firmware
developed by the Company. When operated in conjunction with storage management
and interchange software, the Company's products provide a wide range of data
storage solutions for client/server networks, personal computers, workstations
and mid-range computers.
Each of the Company's products is installed on specific computer platforms
with the appropriate backup, data interchange or storage management software.
Overland actively works with a number of backup and storage management software
companies to confirm that its products are properly supported. Currently, more
than 40 different software packages support the Company's products. For example,
on the Novell Netware and Microsoft Windows NT platforms, the software packages
include products from Cheyenne Software, Seagate Software, Inc. (Arcada and
Palindrome), Legato Systems Incorporated ("Legato Systems"), and STAC Inc. On
UNIX platforms, the software packages include products from Legato Systems, IBM,
Cheyenne Software and Peripheral Device Corporation.
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The following table summarizes the performance and configuration
specifications of the products in the Company's three product lines:
<TABLE>
<CAPTION>
NUMBER NUMBER
TAPE OF TAPE OF TAPE DATA DATA
PRODUCT TECHNOLOGY DRIVES CARTRIDGES RATE(1) CAPACITY(1) PLATFORMS(2)
- ------------------- ----------- ----------- --------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
LIBRARYXPRESS(3):
LXB-2110/2210 DLT 1 to 2 10 4.3 GB/hr 150 GB N,W,M
LXB-4110/4210 DLT 1 to 2 10 5.4 GB/hr 200 GB N,W,M
LXB-7110/7210(4) DLT 1 to 2 10 18.0 GB/hr 350 GB N,W,M
LXG-16(5) DLT N/A 16 N/A 240-560 GB N,W,M
LXC-16(5) DLT N/A 16 N/A 240-560 GB N,W,M
TAPEXPRESS(6):
T490-3 18-track 1 1 10.8 GB/hr 0.2 GB P,W,M,AS
T490E 36-track 1 1 10.8 GB/hr 0.8 GB P,W,M,AS
L490 18-track 1 10 10.8 GB/hr 0.2 GB P,W,M,AS
L490E 36-track 1 10 10.8 GB/hr 0.8 GB P,W,M,AS
L60E 36-track 1 60 10.8 GB/hr 50.0 GB M,AS
TAPEPRO(7):
3210 9-track 1 1 0.3 GB/hr 0.15 GB P,W
3610 9-track 1 1 1.3 GB/hr 0.15 GB P,W
5622 9-track 1 1 1.3 GB/hr 0.15 GB P,W,M
995 9-track 1 1 2.2 GB/hr 0.15 GB P,W,M
</TABLE>
- ------------------------------
(1) Assumes no data compression.
(2) Platform legend: N = network; W = workstation; M = mid-range computer; AS =
AS/400; P = personal computer.
(3) One or two drives, fast or fast/wide SCSI, expandable modular library based
on DLT technology.
(4) The Company intends to commence shipment of this product in January 1997.
(5) The Company intends to commence shipment of this product during the first
quarter of calendar year 1997.
(6) Single drive, fast or fast/wide SCSI, 10-cartridge mini-library and
60-cartridge systems based on the IBM compatible 3480, 3490 and 3490E
technologies.
(7) Pertec or SCSI 9-track products for workstations to mid-range computers.
The end-user list price for the Company's products range from $4,400 for a
TapePro 3210 to $29,950 for the TapeXpress L60E. The LibraryXpress products can
be purchased in lower cost configurations based on the desired type and number
of DLT drives, and can also be modularly stacked in higher cost configurations
based on a customer's growing needs. Overland's three product lines are
described below in more detail.
LIBRARYXPRESS PRODUCTS. The LibraryXpress product line of automated tape
libraries is based on DLT technology, which was developed in the 1980's as a DEC
system component. In 1994, Quantum purchased the DLT technology and marketed it
as a multi-platform network backup solution. Today, DLT is becoming a common
tape backup technology for computer network systems, due to its high tape
cartridge capacity, high performance and low cost of storage. In addition, DLT
cartridges are well suited for robotic movement, which facilitates the
development of loaders and libraries.
In March 1996, the Company commenced shipment of the LXB automated tape
library base unit, which consists of one or two DLT drives and a ten-cartridge
removable magazine. The Company currently offers the LXB with Quantum's 2000XT
and 4000 DLT tape drives and it expects to offer the LXB with Quantum's new 7000
DLT tape drive in January 1997. During the first quarter of calendar year 1997,
the Company intends to commence shipment of (i) the LXG control unit which will
provide library control from a single point and the ability to modularly stack
up to eight LXB or LXC capacity modules, and
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(ii) the LXC capacity module which will consist of 16 cartridges and no drives.
The LXG will allow users to pass cartridges from module to module as one
integrated unit, providing true scalability and allowing end-users to expand
their storage capacity to meet their growing business needs while protecting
their original investment in the LXB. The Company shipped prototype units of the
LXG in November 1996.
In August 1996, BYTE Magazine selected the LXB as the "Best Overall DLT Tape
Library." The Company believes that, with the anticipated delivery of the
related LXG control unit during the first quarter of calendar year 1997,
LibraryXpress will constitute the first automated tape library in its capacity
class that is truly "scalable," in that it is designed to allow end-users to
configure combinations of drives and cartridges as their storage requirements
change without having to replace their existing Overland units. Management
believes that LibraryXpress has significant market potential because it is
designed to enable companies to increase their storage capacity in a cost
effective manner as their businesses grow.
TAPEXPRESS (18/36-TRACK) PRODUCTS. The TapeXpress product line of
18/36-track drives and loaders is based on IBM's 3480/3490/3490E technologies.
The 3480 technology was introduced in 1984 to replace 9-track tape for backup,
archival and data interchange functions. In response to the need for more
capacity per cartridge, the 3490 and 3490E technologies subsequently were
introduced. The installed base of 3480 and 3490 drives and cartridges is very
large and their primary function currently is for data interchange. Based on the
size of this installed base and the mature nature of this technology, the
Company considers its 18-track products to be legacy products. The Company's
T490E, L490E and L60E products are compatible with the 36-track IBM 3490E format
and are the only products in the marketplace that are capable of reading and
writing in both 18 and 36-track formats. Overland's products connect easily to
numerous hardware platforms and are supported by many popular backup and
hierarchical storage management ("HSM") software packages. IBM recently selected
the Company to be a supplier of 36-track products.
TAPEPRO (9-TRACK) PRODUCTS. The TapePro product line consists of compact,
lightweight and low-cost desktop tape drives, and a legacy tape drive sold
primarily to DEC for replacement purposes. Nine-track tape once was the only
tape technology used for archive, backup and data interchange functions. Today,
9-track tape is used only for data interchange, a limited function used to
access data that generally was stored when 9-track was the only tape technology.
Data interchange continues to be important for end-users who need to access data
on the estimated 250 million 9-track reels worldwide. Although new information
currently is not stored on 9-track tape, end-users need to access information
stored on these tapes periodically and it generally is not cost-efficient to
transfer this information to another storage medium. The Company has not
recently, and will not in the future, invest additional research and development
resources in the 9-track product line.
SALES AND MARKETING
SALES
The Company sells its products domestically through four channels: (i) OEM,
(ii) volume, consisting of system integrators, technical distributors and VARs,
(iii) resellers, and (iv) end-users. Overland also sells its products
internationally, and is experiencing strong growth in the European market. The
Company believes that, in fiscal year 1997, its new LibraryXpress products will
be sold principally through its volume and international channels. In fiscal
1997, the Company expects that a significant portion of its 9-track, 18-track
and 36-track products will be sold through the OEM channel principally to IBM
and DEC. Regardless of the channel through which they are sold, all of
Overland's products are designed and manufactured to meet OEM level requirements
and reliability standards. Because the OEM qualification process can take six to
18 months to complete, the Company's initial sales of new products are often
made to other volume and reseller customers and end-users, which typically
evaluate, integrate and adopt new technologies and products more quickly. After
qualification and acceptance, OEM sales generally represent an increasing
proportion of a product's unit sales and are important to the Company in terms
of
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validating its products in the marketplace and achieving desirable production
volume. The table below sets forth the distribution of the Company's net sales
by channel on a percentage basis for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------------- QUARTER ENDED
CHANNEL 1994 1995 1996 SEPT. 30, 1996
- ---------------------------------------------------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
OEM............................................... 36.5% 25.6% 26.1% 22.8%
Volume............................................ 18.6 26.2 19.1 20.4
Resellers......................................... 15.5 17.7 18.9 15.2
End-Users......................................... 12.5 10.2 8.9 12.4
International..................................... 16.9 20.3 27.0 29.2
----- ----- ----- -----
Total........................................... 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
OEM CHANNEL. The Company currently has supply agreements with Bull S.A.,
DEC, IBM, Intergraph Corporation, NCR Corporation and Symbios Logic, Inc., each
of which incorporates Overland's products into their system offerings. Overland
often works with its OEM customers early in a new product development cycle in
order to design its products to meet their specifications. The OEM sales cycle
is often lengthy and typically consists of a general technology evaluation,
qualification of product specifications, verification of product performance
against these specifications, integration testing of the product within the
customers' systems, product announcement and volume shipment. As is typical in
the industry, the Company's OEM contracts provide for annual price reviews and
the customers are not required to purchase minimum quantities. DEC has been the
Company's largest customer, accounting for approximately 36%, 21% and 23% of
sales in fiscal years 1994, 1995 and 1996, respectively. Although no other
customer accounted for ten percent (10%) or more of sales for any year during
the three-year period ended June 30, 1996, the Company anticipates that IBM will
account for over 10% of sales in fiscal year 1997. The Company supports this
channel through a field sales office and other field representatives.
VOLUME CHANNEL. The Company's volume channel includes systems integrators,
technical distributors and VARs, each of which sells to both resellers and
end-users. Certain of the Company's volume channel customers specialize in the
insurance, banking, financial, geophysical and medical industries, and offer a
variety of value-added services relating to the Company's products. For example,
Overland's products frequently are packaged by these customers as part of a
complete data processing system or combined with other storage devices, such as
redundant array of independent disks ("RAID") systems, to deliver a complete
storage subsystem. These customers also recommend the Company's products as
replacement solutions when backup systems are upgraded, and are bundled with
storage management software specific to the end-user's system. The Company
supports this channel through a field sales office and other field
representatives.
RESELLER AND END-USER CHANNELS. The Company regards sales to the reseller
and end-user channels as an important part of its strategy. The Company believes
that direct sales and contact with end-users and the resellers which sell to
them, provide the Company with important information about the performance of
its products on various platforms and with various software applications.
Consequently, the Company intends to maintain internal capabilities to serve
end-user customers when its other channel partners are unable to do so, even
though the end-user channel as a percentage of sales is decreasing. The Company
supports this channel through its in-house sales force.
INTERNATIONAL CHANNELS. The Company's international sales have shown strong
growth during the last three years, and the Company believes that its three
product lines offer additional international sales opportunities. Accordingly,
Overland intends to increase the number of distributors in its existing
international markets, develop additional distribution channels in these markets
for new product introductions
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and establish appropriate distribution channels for its current and future
products in new international markets. Overland currently sells its products
overseas primarily to technical distributors and VARs, and has recently
developed a new OEM relationship in Europe. Although all sales are currently
denominated in U.S. dollars, the Company may bill its international customers in
other currencies in the near future. The Company assigns to its international
distributors the right to sell Overland's products in a country or group of
countries. These distributors then sell the Company's products to systems
integrators, VARs and end-users. In addition, many domestic customers ship a
portion of the Company's products to their overseas customers. The Company has
established a wholly-owned subsidiary in the United Kingdom to provide sales and
technical support to the European market and intends to provide product repair
and manufacturing integration services for certain products at the same site.
Sales personnel are located in various cities throughout Europe, while sales
personnel located in the Company's corporate offices serve the Pacific Rim,
South America, Australia, New Zealand and Mexico.
MARKETING
Overland supports its sales efforts with various marketing programs designed
to build the Company's brand name and attract new customers. Its channel
partners are provided with a full range of marketing materials, including
product specification literature, software connectivity information and
application notes. The Company's management and engineering personnel work with
the channel partners to provide support and, in certain instances, visit
potential customer sites to explain and demonstrate the technical advantages of
the Company's products. In addition, the Company holds two conferences each year
to inform its channel partners of new product developments and programs and to
discuss emerging trends in their markets. The Company also maintains press
relations both domestically and in Europe, advertises in computer systems
publications targeted to its channels and offers market development funds to all
of its channel partners except for OEM customers and end-users.
The Company participates in national and regional trade shows both
domestically and internationally and displays its products at the CEBIT show in
Europe and domestically at COMDEX, NetWorld/InterOp and AIIM. The Company also
maintains a World Wide Web site (http://www.overlanddata.com), which features
comprehensive marketing information, includes news releases and product
specifications, and has a computer BBS from which customers can download
application, service and technical support notes. In the future, the Company
intends to expand its Web site to incorporate its BBS information, provide
information on and links to its channel partners and to develop Internet
commerce capabilities which will be linked to the Company's other
enterprise-wide systems. Information contained in the Company's World Wide Web
site shall not be deemed to be a part of this Prospectus.
CUSTOMER SERVICE AND SUPPORT
The Company believes that strong customer service and support is essential
to maintain its leadership in product reliability. Sales support personnel
ensure that customer orders are filled on a timely basis, delivery problems are
resolved quickly and warranty returns are promptly authorized. Overland's
technical support personnel, located both in its headquarters facility and its
U.K. office, are trained with respect to the Company's products and assist
customers with "plug-and-play" compatibility between multiple hardware
platforms, operating systems and backup, data interchange and storage management
software. The Company's application engineers are available to solve more
complex customer problems and visit customer sites when necessary. Customers
that need service and support can contact the Company through its toll-free
telephone lines, facsimile and Internet e-mail.
The Company's standard warranty is a two-year return-to-factory policy which
covers both parts and labor. For products that it distributes and for drives and
tapes used in the Company's products that are manufactured by a third party, the
Company passes on to the customer the warranty provided by the manufacturer. The
Company also offers on-site service for certain of its products, including
24-hour service, seven-days-a-week, for which it contracts with third-party
service providers.
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COMPETITION
The worldwide tape storage market is intensely competitive as a large number
of manufacturers of alternative tape technologies compete for a limited number
of customers and barriers to entry are relatively low in the library product
category. The Company believes that the significant competitive factors
affecting its business are price, performance, reliability, support and
reputation, and that it competes favorably with regard to each of these factors.
Overland currently participates in three market areas which are defined by
different tape technologies: (i) network data storage; (ii) data backup and
interchange based on IBM compatible 3480/3490/3490E technology; and (iii) data
interchange based on 9-track reel-to-reel technology. In each of these areas,
many of the Company's competitors have substantially greater financial and other
resources, larger research and development staffs, and more experience and
capabilities in manufacturing, marketing and distributing products than the
Company.
For network data storage, the Company's LibraryXpress LXB product currently
competes with products made by ADIC, ATL/Odetics, Breece Hill, Hewlett-Packard,
Quantum and Storage Technology and the Company believes that additional
competitors will enter the market. The Company, and all of its current
competitors with the exception of Quantum, design and manufacturer only the
robotic portion of the library and purchase the DLT tape drives from Quantum.
Quantum purchases the robotic portion of its product from a third party.
For the data backup and interchange market, which is based on IBM compatible
3480/3490/3490E technology, the Company offers a product line of 18 and 36-track
products, which the Company believes compete primarily with products made by
Fujitsu, Hitachi, Laser Magnetic Storage and Storage Technology. Unlike the
automated tape library market, there is a relatively high barrier to entry in
the IBM compatible backup and interchange market because each of the companies
has developed the entire product, both the drive and any robotic mechanisms. For
the 9-track data interchange market, the Company is currently a market leader.
The Company believes it competes with Anritsu American Incorporated,
Hewlett-Packard and M4 Data, Inc. This mature market is steadily declining, and,
similar to the 18 and 36-track market, there is a relatively high barrier to
entry.
RESEARCH AND DEVELOPMENT
The Company believes that its ongoing success will depend upon its ability
to develop new technologies or adapt existing technologies to produce removable
storage automation products that meet the backup, archival and HSM needs of
large network users. Consequently, the Company dedicates significant resources
to its research and development ("R&D") efforts and currently employs 36 people
in its R&D department, including 22 engineers who have extensive experience in
the tape industry. Many of these engineers are former employees of tape drive
companies such as Cipher, Archive Corporation and Conner, and have developed
significant expertise in electrical, mechanical and firmware design. Martin
Gray, the Company's co-founder, formerly served as Manager of R&D at Cipher, has
25 years of experience in the tape industry, is the inventor of several tape
patents and leads the Company's R&D efforts to develop new technologies.
The Company's R&D focus allows it to develop both tape drives and robotics.
Overland believes that this capability provides the following advantages: (i)
the Company is not dependent on purchasing tape drives manufactured by third
parties other than Quantum's DLT drive; (ii) it has a better understanding of
tape technologies; and (iii) it can provide higher value-added content by
designing reliable products that better utilize the advantages of a specific
technology. The Company estimates that approximately two-thirds of its R&D
efforts relate to various aspects of data channels, data compression,
intelligent interfaces and firmware (embedded systems software) for the
management of electronic hardware and mechanical systems. The remaining
one-third of its R&D efforts relate to the development of reliable mechanisms
for robotics. In addition, Overland's work on tape drive architecture and
implementation includes the ability to develop and test a tape path, which is
the core of any tape technology.
33
<PAGE>
The Company's current robotic R&D efforts are focused on the LXG and the
LXC, added modules for the LibraryXpress product line. The Company shipped
prototype units of the LXG in November 1996 and expects to commence commercial
shipment of the LXG and the LXC before the end of the first quarter of calendar
year 1997. In addition, the Company has developed a new tape coding technique
utilizing the concept of "partial response maximum likelihood," which has the
capability of significantly expanding the capacity and throughput of any linear
tape technology. The Company has filed for a series of patents related to this
technique and expects to commence shipment of products utilizing this technique
by the end of the fourth quarter of calendar year 1997. No prototypes currently
exist for these products and there can be no assurance that the Company will
succeed in its efforts to commence shipment of these products within its
expected time frame or at all. In addition, enhancements to certain of the
Company's 36-track products are being made to increase their speed and
performance. R&D expenditures amounted to $3.4 million, $3.1 million and $3.7
million in fiscal years 1994, 1995 and 1996, respectively, representing 10.0%,
8.1% and 7.8% of net sales, respectively. The Company intends to spend 7.0% to
8.0% of net sales on research and development in fiscal year 1997.
In addition, Overland believes that it benefits from its close relationship
with the University of California at San Diego ("UCSD"). For example, as a
member of the UCSD Center for Magnetic Recording Research ("CMRR"), the Company
has access to all of the published research of CMRR and uses the CMRR staff in
an advisory capacity regarding Overland's new concepts and technologies.
Despite its R&D focus, there can be no assurance that the Company will be
able to identify, develop, manufacture, market or support new or enhanced
products successfully or on a timely basis or that new products will gain market
acceptance. See "Risk Factors--Rapid Technological Change and Dependence on New
Product Development."
MANUFACTURING
The Company has a fully integrated factory in San Diego, California with
three separate production lines. Its newest line, set up in January 1996, was
established for the production of the LibraryXpress products. A second line is
used for the production of both 18-track and 36-track products and a third line
is used for 9-track products. All of the Company's production lines and
manufacturing processes have been certified by major OEM customers.
Overland's manufacturing strategy is to perform product assembly,
integration and testing, while leaving component and piece-part manufacturing to
its supplier partners. The Company works closely with a group of regional,
national and international suppliers, which are carefully selected based on
their ability to provide quality parts and components that consistently meet the
Company's specifications and present and future volume requirements. A number of
the Company's parts and components are not available off the shelf, and are
specifically designed by the Company for integration into its products. The
number of suppliers is kept to a minimum to utilize their specific capabilities
across several product lines. Management of this supply chain is critical,
because the average material content of the Company's products represents
approximately 80% of cost of goods sold.
Another important element of the Company's manufacturing strategy is related
to product design. In general, products are built to an intermediate stage or
standard module and are customized at the end of the manufacturing process to
meet specific customer needs or variations in product profiles. The Company
believes that this capability represents an effective way for the Company to
minimize its inventory levels while maintaining the ability to fill specific
customer orders in short lead times. Inventory planning and management is
coordinated closely with suppliers and customers to match the Company's
production to market demand. Product orders are confirmed and, in most cases,
shipped to the customer within one week. The Company fills orders as they are
received and therefore believes that its backlog levels are not indicative of
future sales. The backlog of firm orders deliverable within three months,
amounted to $2.0 million and $3.3 million at September 30, 1995 and 1996,
respectively.
34
<PAGE>
In its current facility, the Company has the capacity to support unit output
several times greater than its current run rate. All of its manufacturing lines
are capable of producing on a single shift double the capacity of the current
fiscal year forecast. The Company carefully controls and adjusts the staffing of
this capacity to meet the requirements at any specific time. Further capacity
increases could be achieved by adding multiple shifts or moving to a full-time
factory.
The Company's products have a large number of components and subassemblies
produced by outside suppliers and it is highly dependent on such suppliers for
components and sub-assemblies, including read/ write heads, printed circuit
boards and integrated circuits, which are essential to the manufacture of the
Company's products. In addition, for certain of these items, the Company
qualifies only a single source of supply, which can magnify the risk of
shortages and decrease the Company's ability to negotiate with its suppliers on
the basis of price. Specifically, the Company's new LibraryXpress automated tape
libraries incorporate tape drives manufactured by Quantum, which is also a
competitor of the Company in that Quantum markets its own tape drives and tape
loader products. Currently, there are no alternative sources for the DLT tape
drives supplied by Quantum. The Company does not have a long-term contract with
Quantum, which could cease supplying DLT tape drives directly to the Company, in
which case the Company would be forced to obtain these drives from distributors,
if available, and at prices that would probably be higher. From time to time in
the past, the Company (and its competitors) have not been able to obtain as many
drives as they needed from Quantum due to drive shortages or quality issues. Any
prolonged inability to obtain adequate deliveries of DLT drives or other
critical component parts or supplies could have a material adverse effect on the
Company's business, financial condition and results of operations. During the
last 12 months, the Company has experienced problems with the quality and
timeliness of the supply of DLT drives and read-write heads, each of which is a
sole source component. Such problems have adversely affected the Company's sales
during this period. While the Company believes that the problems relating to
these components have been resolved, no assurance can be given that such
problems will not re-occur or that the Company will not experience similar or
more serious disruptions in supply in the future. See "Risk Factors--Dependence
on Certain Suppliers."
PROPRIETARY RIGHTS
The Company believes that, because of the rapid pace of technological change
in the tape storage industry, patent, copyright, trademark and trade secret
protection are less significant than factors such as the knowledge, ability and
experience of the Company's personnel, new product introductions and product
enhancements. Notwithstanding, the Company relies on a combination of patent,
copyright, trademark and trade secret protection, non-disclosure agreements and
licensing arrangements to establish and protect its proprietary rights. Such
rights, however, may not preclude competitors from developing substantially
equivalent or superior products to those of the Company. As of December 1996,
the Company owns one United States patent and has six patent applications
pending in the United States and one internationally under the provisions of the
Patent Cooperation Treaty. There can be no assurance that patents will issue
from any of these pending applications or, if patents do issue, that any claims
allowed will be sufficiently broad to protect the Company's technology. In
addition, there can be no assurance that any patents that may be issued to the
Company will not be challenged, invalidated or circumvented, or that any rights
granted thereunder would provide proprietary protection to the Company. Although
the Company continues to implement protective measures and intends to defend its
proprietary rights, policing unauthorized use of the Company's technology or
products is difficult and there can be no assurance that these measures will be
successful. In addition, the laws of certain foreign countries may not protect
the Company's proprietary rights to the same extent as do the laws of the United
States.
The Company has entered into a five-year cross-license agreement with IBM,
effective January 1, 1996. Pursuant to the terms of the agreement, the Company
may use any of the patents owned by IBM within certain designated areas of
technology and IBM may use any of the patents of the Company that were in
existence at the effective date of the agreement or which are issued during the
term of the
35
<PAGE>
agreement. In consideration for this agreement, the Company is required to pay
royalty fees to IBM in an amount equal to 2.7% of world-wide revenues generated
from the Company's 18 and 36-track product sales, exclusive of those sold to
IBM.
EMPLOYEES
The Company had 192 employees (full-time equivalent) as of September 30,
1996, including 44 in sales and marketing, 36 in research and development, 87 in
manufacturing and operations and 25 in finance, information systems, human
resources and other management. There are no collective bargaining contracts
covering any of the Company's employees and management believes that its
relationship with its employees is good.
PROPERTIES
The Company leases all facilities used in its business. The Company's
headquarters are located in San Diego, California in a 3-building light
industrial complex, of which it currently occupies two buildings comprising
approximately 93,500 square feet. The Company also has a right of first refusal
on the third building which comprises an additional 27,000 square feet. The San
Diego facility houses all of the Company's manufacturing, research and
development and administrative functions as well as a major portion of sales,
sales administration, marketing and customer support. The Company also leases a
7,000 square foot facility located in Wokingham, England which houses sales,
sales administration and customer support for the European marketplace. Two
other small facilities are leased in Longmont, Colorado and in Nashua, New
Hampshire for the development of R&D prototypes and an OEM sales office,
respectively. The Company believes that its facilities are suitable for their
uses and are, in general, adequate for the Company's current and identified
future needs.
LEGAL PROCEEDINGS
There are no legal proceedings pending, or, to the knowledge of management,
threatened against the Company.
36
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
- --------------------- --- --------------------------------------------------
<S> <C> <C>
Scott McClendon 57 President, Chief Executive Officer and Director
Martin D. Gray 48 Vice President, Secretary and Director
Frank R. Kirchhoff 53 Vice President of Sales
Charles R. Earnhart 50 Vice President of Operations
Robert J. Scroop 48 Vice President of Engineering
Vernon A. LoForti 43 Vice President and Chief Financial Officer and
Assistant Secretary
William W. 66 Director
Otterson(1)
Joseph D. Rizzi(1) 54 Director
John A. Shane(1) 63 Director
Michael L. Huntley 56 Director
</TABLE>
- ------------------------
(1) Member of the Compensation and Audit Committees.
SCOTT MCCLENDON. Mr. McClendon has served as President, Chief Executive
Officer and a director since joining the Company in October 1991. Prior thereto,
he was employed by Hewlett-Packard, a global manufacturer of computing,
communications and measurement products and services, for over 32 years in
various positions in engineering, manufacturing, sales and marketing and last
served as the General Manager of the San Diego Technical Graphics Division and
Site Manager of Hewlett-Packard in San Diego, California. Mr. McClendon holds
B.S. and M.S. degrees in Electrical Engineering from Stanford University.
MARTIN D. GRAY. Mr. Gray, one of the co-founders of the Company, has served
as Secretary and a director since the Company's inception in September 1980. He
has served as staff engineer at the Company since January 1986. From January
1977 to July 1985, Mr. Gray was Manager of Research and Development at Cipher, a
tape drive manufacturer. From August 1971 to December 1976, he was Chief
Electrical Engineer at Kennedy Corporation, a tape drive manufacturer. Mr. Gray
has several patents in the tape drive industry and holds a B.S. degree in
Electrical Engineering from the California Institute of Technology.
FRANK R. KIRCHHOFF. Mr. Kirchhoff has served as Vice President of Sales
since joining the Company in July 1993. From June 1987 to June 1993, he served
in various sales and marketing capacities at Western Digital Corporation, an
information storage products and services provider including Vice-President of
International Marketing from June 1987 to June 1988, Vice President of Domestic
Sales from July 1988 to August 1990 and Vice President of European Operations
for Western Digital Corporation from September 1990 to June 1993. From October
1983 to June 1987, Mr. Kirchhoff was Vice President of Sales for Cipher. He
holds a B.S. degree in Marketing from Hofstra University, New York and an M.B.A.
from Pepperdine University.
CHARLES R. EARNHART. Mr. Earnhart joined the Company as a consultant in
July 1995 and has served as Vice President of Operations since December 1995.
From August 1993 to June 1995, he was Vice President of Operations at the Conner
Tape Group, a division of Conner, a provider of information storage solutions
products. From December 1988 to August 1993, Mr. Earnhart was Director of
Operations,
37
<PAGE>
Services and Cost Improvement Programs for Archive Corporation, a tape drive
manufacturer. He holds a B.S. degree in Mathematics and Physics from the
University of Texas at Arlington and an M.B.A. from the University of Dallas.
ROBERT J. SCROOP. Mr. Scroop has served as Vice President of Engineering
since joining the Company in February 1993. From April 1990 to February 1993, he
was Vice President of Engineering of the Cipher Division of Archive Corporation.
From April 1985 to April 1990, he was Director of Engineering for Cipher. Mr.
Scroop holds a First Class Honours degree in Electrical Engineering from Brunel
University, England.
VERNON A. LOFORTI. Mr. LoForti has served as Vice President, Chief
Financial Officer and Assistant Secretary since joining the Company in December
1995. From August 1992 to December 1995, he was the Chief Financial Officer for
Priority Pharmacy, a privately held pharmacy company. From 1981 to 1992, Mr.
LoForti was Vice President of Finance for Intermark, Inc., a publicly-held
conglomerate. He holds a B.S. degree in Accounting from Brigham Young
University.
WILLIAM W. OTTERSON. Mr. Otterson has served as a director of the Company
since 1982. Since March 1986, he has been the Director of the UCSD CONNECT
program. From August 1980 to November 1985, he was president of Lexacorp
Corporation, a computer peripheral manufacturer. From June 1971 to June 1979, he
was President of Cipher. From June 1970 to June, 1971, Mr. Otterson was Vice
President of Marketing for Standard Computer and prior thereto, he spent 13
years in Sales and Marketing with IBM. He holds a B.S. degree in Engineering and
an M.B.A. from Stanford University.
JOSEPH D. RIZZI. Mr. Rizzi has served as a director of the Company since
May 1989. Since March 1986, he has been a general partner of Matrix Partners, a
venture capital firm. From January 1980 to March 1986, Mr. Rizzi was a founder
of ELXSI, Inc., a parallel processor computer company, where he served as Chief
Executive Officer. From February 1970 to September 1978, he was a founder and
Vice President of Intersil, Inc., a merchant market semiconductor company.
Currently, he is a director of Veritas Software Corporation and Sandisk
Corporation. Mr. Rizzi holds B.S. and M.S. degrees in Electrical Engineering
from the University of New Hampshire.
JOHN A. SHANE. Mr. Shane has served as a director of the Company since July
1992. He is the founder
and has served as President of Palmer Service Corporation since 1972.
Concurrently, Mr. Shane has been a General Partner of the Palmer Organization, a
venture capital firm, since 1973 and a General Partner of Palmer Partners L.P.
since 1981. He is a director of Arch Communications Group, Inc., Gensym
Corporation, Summa Four, Inc. and United Asset Management Corporation, each of
which is a public corporation. Mr. Shane holds a B.A. degree in Economics from
Princeton University and an M.B.A. from Harvard Business School.
MICHAEL L. HUNTLEY. Mr. Huntley has served as a director of the Company
since December 1996. Since March 1996, he has served as Senior Vice President
and General Manager of Tape Operations for Seagate Technologies, Inc.
("Seagate"), a data storage company. From May 1993 to March 1996, he was Vice
President of Americas Sales for Seagate. From August 1990 to April 1993, he was
Vice President of Sales for the Americas for Archive Corporation, a tape drive
manufacturer. Mr. Huntley has more than 25 years of executive experience in the
data storage industry in product line management, marketing and sales positions.
He holds a B.S. in Business Administration from Mankato State University in
Minnesota.
BOARD OF DIRECTORS COMMITTEES AND COMPENSATION
The Board of Directors has appointed two committees, the Audit Committee and
the Compensation Committee. The Audit Committee, composed of Messrs. Otterson,
Rizzi and Shane, is responsible for reviewing financial statements, accounting
and financial policies and internal controls and reviewing the scope of the
independent auditor's activities and fees. The Compensation Committee, composed
of Messrs. Otterson, Rizzi and Shane, is responsible for reviewing and
approving, within its authority, compensation, benefits, training and other
human resource policies.
38
<PAGE>
Each non-employee director receives cash compensation of $3,000 per quarter
and the Company reimburses such directors' expenses relating to their activities
as directors. Non-employee directors are also eligible to participate in the
Company's stock option plans. No grants have been made, however, to such
directors to date.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1996, the Compensation Committee of the Board of
Directors (the "Compensation Committee") consisted of Messrs. Otterson, Rizzi
and Shane. Since the Company's inception, entities affiliated with Messrs.
Otterson, Rizzi and Shane have purchased 698,360, 1,154,074 and 428,571 shares
of Common Stock, respectively. No executive officer of the Company served on the
compensation committee of another entity or on any other committee of the board
of directors of another entity performing similar functions during the last
fiscal year.
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended June 30, 1995 and
1996, the cash compensation for services in all capacities to the Company of
those persons who were, as of June 30, 1996, the Company's Chief Executive
Officer and the four other most highly compensated executive officers of the
Company whose total annual salary and bonus exceeded $100,000 during the fiscal
year (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------------------------ COMPENSATION
OTHER AWARDS ALL OTHER
SALARY BONUS COMPENSATION(1) # OF OPTIONS COMPENSATION(2)
---------- --------- ------------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Scott McClendon......................... $ 210,000 $ 63,000 -- -- $ 44
President and Chief
Executive Officer
Frank R. Kirchhoff...................... 165,000 24,750 -- -- 44
Vice President of Sales
Robert J. Scroop........................ 125,000 12,500 -- -- 44
Vice President of Engineering
Martin D. Gray.......................... 125,000 18,750 -- -- 44
Vice President and Secretary
Charles R. Earnhart(3).................. 78,077 10,500 -- 52,150 26
Vice President of Operations
Vernon A LoForti(4)..................... 56,058 8,625 -- 52,150 26
Vice President, Chief Financial
Officer and Asst. Secretary
</TABLE>
- ------------------------
(1) The costs of certain benefits are not included because they did not exceed,
in the case of each Named Executive, the lesser of $50,000 or 10% of the
total annual salary and bonus reported in the table above.
(2) Consists of premiums for term life insurance with no cash surrender value.
(3) Charles R. Earnhart became Vice President of Operations effective December
14, 1995. His annual base salary was $140,000 at June 30, 1996.
(4) Vernon A. LoForti became Vice President and Chief Financial Officer
effective December 14, 1995. His annual base salary was $115,000 at June 30,
1996.
39
<PAGE>
The following table sets forth information for the Named Executive Officers
with respect to grants of options to purchase Common Stock of the Company made
during the fiscal year ended June 30, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NO. OF OPTIONS FAIR STOCK PRICE
SECURITIES GRANTED TO MARKET APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE VALUE ON OPTION TERM(3)
OPTIONS FISCAL PRICE DATE OF EXPIRATION ---------------------
GRANTED(1) 1996(2) PER SHARE GRANT DATE 5% 10%
----------- ------------- ----------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Scott McClendon -- -- -- -- -- -- --
Frank R. Kirchhoff -- -- -- -- -- -- --
Robert J. Scroop -- -- -- -- -- -- --
Martin D. Gray -- -- -- -- -- -- --
Charles R. Earnhart 52,150 28.2% $ 2.00 $ 2.00 7/1/05 $ 65,709 $ 166,359
Vernon A. LoForti 52,150 28.2% 2.00 2.00 12/14/05 65,709 166,359
</TABLE>
- ------------------------
(1) The options granted to Mr. Earnhart and Mr. LoForti vest over four years at
the rate of 25% per year. See "Stock and Employee Benefit Plans" for a
description of the material terms of the options.
(2) Based on a total of 184,800 options granted to all employees during fiscal
year 1996.
(3) In accordance with the rules of the Securities and Exchange Commission, the
potential realizable values for the options are based on assumed rates of
stock price appreciation of 5% and 10% compounded annually from the date the
respective options were granted to their expiration dates. The gains shown
are net of the option exercise price and do not include deductions for taxes
or other expenses associated with their exercise. These assumed rates of
appreciation do not represent the Company's estimate or projection of the
appreciation of shares of the Common Stock and actual gains, if any, on
stock option exercises will depend on the future performance of the Common
Stock.
The following table sets forth information for the Named Executive Officers
with respect to exercises of options to purchase Common Stock of the Company
during fiscal year 1996 and the number and value of unexercised stock options
held at June 30, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT JUNE 30,
SHARES OPTIONS AT JUNE 30, 1996 1996(1)
ACQUIRED ON VALUE -------------------------- --------------------------
EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Scott McClendon 196,011 $ -- 21,369 $ $
Frank R. Kirchhoff 59,222 -- 64,221
Robert J. Scroop -- -- 23,750 11,250
Martin D. Gray -- -- 21,550 3,750
Charles R. Earnhart -- -- -- 52,150
Vernon A. LoForti -- -- -- 52,150
</TABLE>
- ------------------------
(1) There was no public trading market for the Common Stock as of June 30, 1996.
Accordingly, these values have been calculated on the basis of an assumed
initial public offering price of $ per share, minus the applicable per
share exercise price.
40
<PAGE>
STOCK AND EMPLOYEE BENEFIT PLANS
1995 STOCK OPTION PLAN. The Company's 1995 Stock Option Plan (the "1995
Plan") was adopted by the Board of Directors in October 1995 to attract, retain
and provide additional incentive to directors, employees and consultants of the
Company. Options granted under the 1995 Plan may be either incentive stock
options as defined in Section 422A of the Internal Revenue Code of 1986, as
amended (the "IRC"), or non-statutory stock options. A total of 372,500 shares
of Common Stock have been reserved for issuance under the 1995 Plan.
The 1995 Plan is administered by the Compensation Committee which has the
authority to determine the terms of the options granted. In the event of option
grants or stock purchase rights awarded to directors of the Company, the
administration of such grants or awards must comply with Rule 16 promulgated
under the Securities Exchange Act of 1934, as amended. Each option has a term
specified in its option agreement; provided, however, that no term can exceed
ten years from the date of grant and options must be exercisable at the rate of
at least 20% per year over five years from the date of grant. In the case of an
incentive stock option granted to an optionee who, at the time the option is
granted, owns stock representing more than 10% of the voting power of all
outstanding classes of stock of the Company or any of its subsidiaries (a "10%
Optionee"), the term of the option cannot exceed five years from the grant date.
No option granted under the 1995 Plan may be transferred by the optionee other
than by will or the laws of descent or distribution and each option may be
exercised, during the lifetime of the optionee, only by such optionee. In the
event an optionee's service terminates for any reason other than death or total
disability, any options held which have not yet vested will expire and become
unexercisable. All of the optionee's options which have vested shall expire and
become unexercisable on the earliest of the expiration date stated in the
agreement or the date 30 days (or six months after total disability) after the
termination of the optionee's service. The number of shares under each option
and the price of any shares under such option may be adjusted in a manner
consistent with any capital adjustment resulting from a stock dividend, stock
split, recapitalization, reorganization, merger, consolidation, liquidation, or
a combination or exchange of shares.
The exercise price of all incentive stock options granted under the 1995
Plan must be no less than 100% of the fair market value per share on the date of
grant. In the case of non-statutory stock options, the per share exercise price
may be no less than 85% of the fair market value per share on the date of grant.
With respect to a 10% Optionee, the exercise price of any option granted must be
no less than 110% of the fair market value per share on the date of grant. Each
option is designated in the written option agreement as either an incentive
stock option or a non-statutory stock option. However, to the extent that the
aggregate fair market value of shares subject to an optionee's incentive stock
options, which become exercisable for the first time during any year exceeds
$100,000, such excess options shall be treated as non-statutory stock options.
At September 30, 1996, there were outstanding options under the 1995 Plan to
purchase an aggregate of 14,000 shares of Common Stock at an exercise price of
$3.00. The 1995 Plan will expire in 2005 unless terminated at an earlier date by
action of the Board of Directors. At September 30, 1996, there were outstanding
options under other stock option plans, which were previously terminated by the
Company, to purchase an aggregate of 801,296 shares of Common Stock at a
weighted average exercise price of $1.11.
1996 EMPLOYEE STOCK PURCHASE PLAN. In December 1996, the Board of Directors
adopted the 1996 Employee Stock Purchase Plan (the "Purchase Plan"), the purpose
of which is to provide an opportunity for the Company's employees to purchase
shares of the Company's Common Stock and thereby have an additional incentive to
contribute to the prosperity of the Company. After the completion of this
Offering, the Purchase Plan will allow employees to purchase shares of Common
Stock through payroll deductions. An administrative committee appointed by the
Board of Directors (the "Administrative Committee") will determine periods of up
to 27 months (each an "Option Period"), during which each participant in the
Purchase Plan will be granted an option to purchase that number of shares of
Common Stock which may
41
<PAGE>
be purchased with the payroll deductions accumulated on behalf of such
participant during each six-month period within a particular Option Period, as
approved by the Board of Directors. The Purchase Plan provides that (i) no
employee shall be entitled to accrue rights to purchase shares under the
Purchase Plan at a rate which exceeds $25,000 of the fair market value of such
stock (determined at the time the option is granted) for any calendar year in
which such option is outstanding at any time, and (ii) the maximum number of
shares subject to any option shall not exceed 1,500. Employees participating in
the Purchase Plan may purchase shares of Common Stock under each option at a
price per share equal to the lower of (x) 85% of the fair market value of the
Common Stock on the date of commencement of participation in the Purchase Plan
offering period or (y) 85% of the fair market value of a share of Common Stock
on the date of purchase. Generally, any employee, including executive officers,
regularly employed on a full-time basis by the Company or by Overland Data
(Europe) Limited, a wholly owned subsidiary of the Company ("Overland Data
Europe"), on the first day of each Option Period is eligible to participate in
the Purchase Plan, subject to minimum eligibility periods, if any, as
established by the Administrative Committee. Participants may authorize payroll
deductions of up to 15% of their compensation, including base, overtime and
commissions, for the purchase of shares of Common Stock under the Purchase Plan.
The Purchase Plan authorizes the Company to issue up to 250,000 shares of Common
Stock pursuant to the Purchase Plan. As of the date hereof, no shares of Common
Stock have been purchased under the Purchase Plan. The Purchase Plan will
terminate in January 2007.
401(K) PLAN. In February 1994, the Company adopted the Overland Data, Inc.
On-Track 401(k) Savings Plan (the "401(k) Plan"), that covers all eligible
employees of the Company who complete six months of service and are at least 21
years old. Employees may elect to defer up to 15% of their eligible compensation
(not to exceed the statutorially prescribed annual limit) in the form of
elective deferral contributions to the 401(k) Plan. The elective deferral
contributions are fully vested and nonforfeitable at all times and are invested
in accordance with the directions of the participants. The 401(k) Plan is
intended to qualify under Section 401 of the IRC, so that employee contributions
and income earned on such contributions are not taxable to employees until
withdrawn. The Company currently does not make matching contributions under the
401(k) Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation (the "Articles") include a provision
that eliminates the personal liability of its directors for monetary damages to
the fullest extent permissible under California law. This limitation has no
effect on a director's liability (i) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law, (ii) for acts
or omissions that a director believes to be contrary to the best interests of
the Company or its shareholders or that involve the absence of good faith on the
part of the director, (iii) for any transaction from which a director derived an
improper personal benefit, (iv) for acts or omissions that show a reckless
disregard for the director's duty to the Company or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of a serious injury
to the Company or its shareholders, (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Company or its shareholders, (vi) under Section 310 of the
California Corporations Code (the "California Code"), concerning contracts or
transactions in which the director has material financial interest or (vii)
under Section 316 of the California Code concerning directors' liability for
approval of certain corporate actions. The provision does not extend to acts or
omissions of a director in his capacity as an officer.
The Articles also include an authorization for the Company to indemnify its
agents (as defined in Section 317 of the California Code), through bylaw
provisions, by agreement or otherwise, to the fullest extent permitted by law.
Pursuant to this provision, the Company's Bylaws (the "Bylaws") provide for
indemnification of the Company's directors, officers and agents. In addition,
the Company, has entered into indemnification agreements with all directors and
executive officers and provide the maximum
42
<PAGE>
indemnification permitted by law. These agreements, together with the Articles
and the Bylaws, may require the Company, among other things, to indemnify these
directors or executive officers (other than liability resulting from willful
misconduct of a culpable nature), to advance expenses to them as they are
incurred, provided that they undertake to repay the amount advanced if it is
ultimately determined by a court that they are not entitled to indemnification,
and to obtain directors' and officers' insurance if available on reasonable
terms. Section 317 of the California Code and the Bylaws make provision for the
indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances, for
liabilities (including reimbursement of expense incurred) arising under the
Securities Act.
The Company, with the approval of the Board of Directors, intends to obtain
directors' and officers' liability insurance prior to the effectiveness of this
Offering.
CERTAIN TRANSACTIONS
Seagate is the owner of 17.1% of the outstanding shares of Common Stock
immediately prior to this Offering and is a Selling Shareholder in the Offering.
Seagate has been a supplier to the Company of certain components used in the
production of its 18-track products. In addition, Michael L. Huntley, Senior
Vice President and General Manager, Tape Operations of Seagate Storage Products,
has served on the Company's Board of Directors since December 1996 and is
expected to continue to serve on the Board of Directors after the closing of
this Offering. During the fiscal year ended June 30, 1996, the Company purchased
approximately $1.3 million of products from Seagate under standard purchase
orders at prices and terms which the Company believes are no less favorable than
could be obtained from an independent third party.
In addition, Overland Data Europe entered into a lease agreement in June
1996 with Seagate Distribution (UK) Limited, a subsidiary of Seagate. The lease
is for a 7,000 square foot facility located in Wokingham, England, which houses
sales, sales administration and customer support for the Company's European
operations. The lease has a three-year term and a monthly rent of approximately
$5,100. The Company believes that the lease was obtained at rental rates and
terms which are no less favorable than could be obtained from an independent
third party.
During the three months ended September 30, 1996, the Company sold shares of
Common Stock to three of its executive officers at the then fair market value as
set by the Board of Directors of $3.00 per share. Scott McClendon, the Company's
President and Chief Executive Officer, purchased 21,000 shares for total
consideration of $63,000; Martin D. Gray, the Company's Vice President and
Secretary, purchased 6,250 shares for total consideration of $18,750; and
Charles R. Earnhart, the Company's Vice President of Operations, purchased 1,500
shares for total consideration of $4,500.
During fiscal year 1996, the Company sold shares of Common Stock to three of
its executive officers pursuant to purchase transactions or the exercise of
stock options. Scott McClendon purchased a total of 271,011 shares at an average
price of $1.13 per share for total consideration of $306,809. Frank R.
Kirchhoff, the Company's Vice President of Sales, purchased 79,222 shares at an
average price of $1.10 per share for total consideration of $87,378. Charles
Earnhart, the Company's Vice President of Operations, purchased 22,350 shares at
$2.00 per share for total consideration of $44,700.
During fiscal year 1994, the Company sold shares of Common Stock to three of
its executive officers at the then fair market value as set by the Board of
Directors of $0.80 per share. Scott McClendon purchased 56,250 shares for total
consideration of $45,000; Martin D. Gray purchased 12,700 shares for total
consideration of $10,160; and Robert J. Scroop, the Company's Vice President of
Engineering, purchased 6,600 shares for total consideration of $5,280.
43
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of September 30, 1996 (i) by each person who is
known by the Company to own beneficially more than 5% of the Company's Common
Stock, (ii) by each of the Company's directors, (iii) by each of the Named
Executive Officers, (iv) by all directors and executive officers a group and (v)
by each Selling Shareholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
------------------------ SHARES BEING ------------------------
NAME AND ADDRESS NUMBER PERCENT(1) OFFERED NUMBER PERCENT(1)
- -------------------------------------------------- ---------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Martin Gray(2).................................... 1,756,840 23.21% -- 1,756,840 17.98%
3236 Caminito Ameca
La Jolla, CA 92037
Seagate Technologies, Inc......................... 1,286,747 17.05% 150,000 1,136,747 11.66%
920 Disc Drive
Scotts Valley, CA 95066
Matrix Partners II, L.P........................... 1,154,074 15.29% 100,000 1,054,074 11.49%
1000 Winter Street, Suite 4500
Waltham, MA 02154
William W. Otterson(3)............................ 698,360 9.25% 134,100 564,260 5.79%
6119 Vista de la Mesa
La Jolla, CA 92037
Scott McClendon(4)................................ 460,880 6.10% -- 460,880 4.72%
1 East Roseland Drive
La Jolla, CA 92037
Robert M. and Barsha M. Long...................... 437,510 5.80% -- 437,510 4.49%
615 Paseo Rio
Vista, CA 92083
The Palmer Organization III L.P................... 428,571 5.68% 100,000 328,571 3.37%
300 Unicorn Park Drive
Woburn, MA 01801
Frank R. Kirchhoff(5)............................. 137,669 1.82% -- 137,669 1.41%
Charles R. Earnhart(6)............................ 69,887 * -- 69,887 *
Robert J. Scroop.................................. 61,600 * -- 61,600 *
Vernon A. LoForti(7).............................. 13,037 * -- 13,037 *
All current directors and officers as a group (10
persons)(8)..................................... 6,067,665 79.16% 484,100 5,583,565 56.60%
Other Selling Shareholders:
Barbara Bry(9).................................. 19,610 * 5,000 14,610 *
Thomas W. Turney................................ 14,405 * 5,000 9,405 *
Robert L. Shaver................................ 28,670 * 4,900 23,770 *
Timothy R. & Susan B. Dowty..................... 24,315 * 1,000 23,315 *
</TABLE>
- ------------------------
* Indicates ownership of less than one percent.
44
<PAGE>
(1) Except as otherwise indicated, each beneficial owner has the sole power to
vote and, as applicable, dispose of all shares of Common Stock owned by such
beneficial owner, subject to community property laws where applicable.
Amounts shown for each shareholder include all shares of Common Stock
issuable upon the exercise of options which are exercisable as of, or will
become exercisable within 60 days of September 30, 1996.
(2) Includes 22,800 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days of September 30, 1996.
(3) Consists of 666,600 shares of Common Stock held by Anne S. Otterson, spouse
of Mr. Otterson, Trustee, Otterson Family Trust u/t/d February 8, 1980, over
which Mrs. Otterson holds voting and dispositive power, and 36,760, 30,000
and 25,000 shares held by Eric Otterson, John Otterson and Helen Ann
Otterson, respectively, children of Mr. Otterson.
(4) Includes 223,261 shares of Common Stock held by Scott McClendon, Trustee,
McClendon Trust u/t/d December 31, 1991, over which Mr. McClendon holds
voting and dispositive power and 13,869 shares issuable pursuant to stock
options exercisable within 60 days of September 30, 1996.
(5) Includes 27,586 shares of Common Stock held by Frank and JoAnne Kirchhoff
and 30,861 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days of September 30, 1996.
(6) Includes 16,200 shares of Common Stock held by Smith Barney, Inc. Custodian
FBO Charles R. Earnhart, IRA, of which Mr. Earnhart is the beneficial owner,
and 13,037 shares issuable pursuant to stock options exercisable within 60
days of September 30, 1996.
(7) Includes 13,037 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days of September 30, 1996.
(8) Includes 126,104 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days of September 30, 1996.
(9) Includes 13,074 shares of Common Stock held by Barbara Bry, Trustee, Bry
Family Trust u/t/d April 7, 1986, over which Ms. Bry holds voting and
dispositive power.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The authorized capital stock of the Company consists of 25,000,000 shares of
Common Stock, no par value ("Common Stock"). As of September 30, 1996, 5,206,325
shares of Common Stock were issued and outstanding and were held of record by 83
shareholders. Each holder of Common Stock is entitled to one vote for each share
held of record on each matter submitted to a vote of shareholders. Subject to
preferences that may be granted to the holders of Preferred Stock, each holder
of Common Stock is entitled to share ratably in distributions to shareholders
and to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor and, in the event of the
liquidation or dissolution of the Company, is entitled to share ratably in all
assets of the Company remaining after payment of liabilities. Holders of Common
Stock have no conversion, preemptive or other subscription rights, and there are
no redemption rights or sinking fund provisions with respect to the Common
Stock. The outstanding Common Stock is, validly issued, fully paid and
non-assessable.
Additional shares of Common Stock may be issued from time to time by the
Company. The Articles provide that the Board of Directors has no power to alter
the rights of any outstanding shares of Common Stock. Certain other provisions
of the Articles affect the rights of holders of Common Stock and may have the
effect of delaying, deferring or preventing a change in control of the Company.
PREFERRED STOCK
As of September 30, 1996, 318,397 shares of Series A Preferred Stock,
731,429 shares of Series B Preferred Stock and 1,286,747 shares of Series C
Preferred Stock were issued and outstanding and held of record by 12, six and
one shareholders, respectively. All outstanding shares of Series A, B and C
Preferred Stock will be converted into an aggregate of 2,336,573 shares of
Common Stock upon the closing of this Offering and such shares of Preferred
Stock will no longer be authorized, issued or outstanding.
WARRANT
In connection with the establishment of its bank line of credit in May 1995,
the Company issued to Imperial Bank (the "Bank") a warrant (the "Warrant")
exercisable to purchase 17,046 shares of Common Stock at $4.40 per share.
Pursuant to its terms, the Warrant is exercisable at any time on or after May
15, 1995 and unless exercised, the Warrant will automatically expire on May 15,
2000.
CALIFORNIA LAW AND CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION
The Board of Directors has authorized, subject to shareholder approval, an
amendment to the Articles which provides for fair price provisions (the "Fair
Price Provisions"), that require the approval of the holders of two-thirds of
the Voting Stock (as defined therein) and satisfaction of certain minimum price
criteria and procedural conditions as a condition to specified business
combinations (each a "Business Combination") with any beneficial owner of shares
possessing 10% or more of the Voting Stock (a "Major Shareholder").
A Business Combination includes, among other transactions, the following:
(i) any merger or consolidation of the Company with or into a Major Shareholder;
(ii) any sale, lease, exchange, transfer or distribution to Shareholders or
other disposition of a substantial part of the assets of the Company; (iii) the
purchase, exchange, lease or other acquisition by the Company of substantially
all of the assets of a Major Shareholder; (iv) the issuance of any securities of
the Company, 80% or more of which are issued to a Major Shareholder, and (v) any
reclassification of the Voting Stock which has the effect of increasing the
proportionate amount of Voting Stock which is owned by a Major Shareholder.
46
<PAGE>
The Fair Price Provisions require, among other things, that the
consideration to be paid to the Company's Shareholders in a Business Combination
be not less than the higher of (i) the highest price per share paid by the Major
Shareholder in acquiring any of the Voting Stock or (ii) an amount which bears
the same or greater percentage relationship to the market price of the Voting
Stock as the highest price per share determined in item (i) bears to the market
price of the Voting Stock prior to the acquisition of the Voting Stock by such
Major Shareholder.
Under Section 710 of the General Corporation Law, the Fair Price Provisions
constitute a supermajority vote requirement. Section 710 provides that
amendments to the articles of incorporation of a California corporation that
include a supermajority vote requirement cease to be effective two years after
the filing of the most recent filing of the amendment to adopt or readopt the
supermajority vote requirement. However, at any time within one year before the
expiration date, a supermajority vote requirement may be renewed unless: (i) the
Business Combination was approved by the Board of Directors of the corporation
prior to the Major Shareholder involved in the Business Combination becoming
such; (ii) the Major Shareholder involved in the Business Combination sought and
obtained the unanimous prior approval of the Board of Directors to become a
Major Shareholder and the Business Combination was approved by not less than
eighty percent (80%) of the directors of the corporation; or (iii) the Business
Combination was approved by not less than ninety percent (90%) of the directors
of the corporation.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Norwest Bank
Minnesota, N.A. Its telephone number is (800) 767-3330.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares or the availability of such shares for sales will have on
the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect the prevailing market price of the common Stock
and the ability of the Company to raise capital through a sale of its
securities.
Upon completion of this Offering, the Company will have 9,742,898 shares of
Common Stock outstanding (assuming no exercise of the Underwriters'
over-allotment option to purchase up to an additional 405,000 shares). The
2,700,000 shares sold in this Offering (3,105,000 shares if the Underwriters'
over-allotment option is exercised in full) will be freely tradable without
restriction under the Securities Act, except for any such shares held at any
time by an "affiliate" of the Company, as such term is defined under Rule 144
promulgated under the Securities Act.
The remaining 7,042,898 shares were issued and sold by the Company in
private transactions and may be publicly sold only if registered under the
Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144. In general, under Rule 144, as currently in
effect, a person who has beneficially owned shares for at least two years,
including an "affiliate," as that term is defined in Rule 144, is entitled to
sell, within any three-month period, a number of "restricted" shares that does
not exceed the greater of one percent (1%) of the then outstanding shares of
Common Stock (97,429 shares immediately after this Offering) or the average
weekly trading volume during the four calendar weeks preceding such sale. Sales
under Rule 144 are subject to certain manner of sale limitations, notice
requirements and the availability of current public information about the
Company. Rule 144(k) provides that a person who is not deemed an "affiliate" and
who has beneficially owned shares for at least three years is entitled to sell
such shares at any time under Rule 144 without regard to the limitations
described above.
The parties to the Investor's Rights Agreement, who in the aggregate will
hold 2,605,726 shares of Common Stock after the completion of this Offering,
have been granted certain demand and "piggy-back" registration rights if the
Company proposes to register any of its equity securities under the Securities
Act (other than registration of employee benefit plans or in connection with an
acquisition), subject to customary underwriting cut-back and hold-back
provisions. The registration rights granted under the Investor's Rights
Agreement will terminate upon the closing of this Offering; provided, however,
that the parties to the Investor's Rights Agreement which continue to own more
than two percent (2%) of the outstanding shares of Common Stock will have such
registration rights until the fifth anniversary of the closing of this Offering.
The Company will pay all expenses relating to any such registration other than
underwriting discounts and commissions.
The holder of the Warrant will be entitled to publicly resell the 17,046
shares of Common Stock issuable upon exercise thereof, subject to the provisions
of Rule 144, beginning 180 days after the date of the Underwriting Agreement
relating to this Offering (or sooner with the consent of Jefferies & Company,
Inc.). Pursuant to the terms of the Warrant, the holder of the Warrant has been
granted the same registration rights as those granted to the parties to the
Investors' Rights Agreement. Upon the closing of this Offering, the holder will
enter into a new registration rights agreement with the Company, which will, at
a minimum, grant to the holder certain "piggyback" registration rights.
The Company has agreed with the Underwriters not to sell or otherwise
dispose of any shares of Common Stock for a period of 180 days from the date of
this Prospectus without the prior written consent of Jefferies & Company, Inc.
In addition, the directors, officers and current shareholders of the Company,
beneficially holding (upon completion of this Offering) an aggregate of
6,306,985 shares, have agreed not to sell or otherwise dispose of any such
shares for a period of 180 days from the date of this Prospectus without the
prior written consent of Jefferies & Company, Inc.
48
<PAGE>
The Company is unable to estimate the number of shares that may be sold in
the future by its existing shareholders or the effect, if any, that sales of
shares by such shareholders will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock by
existing shareholders could adversely affect prevailing market prices.
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company and the Selling Shareholders have agreed to sell to the Underwriters
named below, for whom Jefferies & Company, Inc. and Cruttenden Roth Incorporated
are acting as representatives (the "Representatives"), and the Underwriters have
severally agreed to purchase from the Company and the Selling Shareholders the
number of shares of Common Stock set forth opposite their respective names in
the table below at the initial public offering price less the underwriting
discount set forth on the cover page of the Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------------------------------ ----------
<S> <C>
Jefferies & Company, Inc..................................
Cruttenden Roth Incorporated..............................
----------
Total................................................... 2,700,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligation of the Underwriters
is subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinion and letters from the Company and its counsel. The nature
of the Underwriters' obligation is such that they are committed to purchase all
shares of the Common Stock offered hereby (other than those covered by the
over-allotment option described below), if any such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public initially at the public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such price less a discount not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other dealers.
After the initial public offering of the Common Stock, the public offering price
and other selling terms may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable at any
time during the 30-day period from the date of the Prospectus, to purchase up to
405,000 additional shares of the Common Stock at the public offering price set
forth on the cover page of this Prospectus, less the underwriting discount. Such
shares will be sold, in whole or in part, either by the Company or the Selling
Shareholders, at the option of the Company. To the extent such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase additional shares of Common Stock proportionate to such
Underwriter's initial commitment as indicated in the preceding table. The
Underwriters may exercise such right of purchase only for the purpose of
covering over-allotments, if any, made in connection with the sale of the shares
of Common Stock. If purchased, the Underwriters will offer such additional
shares on the same terms as those on which the 2,700,000 shares are being
offered hereby.
The Company, executive officers, directors and certain other shareholders
have agreed that they will not, without the prior written consent of Jefferies &
Company, Inc., offer, sell or otherwise dispose of any
50
<PAGE>
shares of Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock owned by
them for a period of 180 days after the date of this Prospectus.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price has been determined by negotiations
among the Company, the Selling Shareholders and the Representatives. Among the
factors considered in such negotiations were the history of, and the prospects
for, the Company and the industries in which it competes, an assessment of the
Company's management, the Company's past and present operations, its past and
present earnings and the trend of such earnings, the general condition of the
securities market at the time of its offering and the market prices of publicly
traded common stock of comparable companies in recent periods.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities that may be incurred in connection with
this Offering, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
The Company has been advised by the Representatives that the Representatives
presently intend to make a market in the Common Stock offered hereby; however,
the Representatives are not obligated to do so, and any market making activity
may be discontinued at any time without notice. There can be no assurance that
an active public market for the Common Stock will develop and continue after
this Offering.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Baker & McKenzie, San Diego, California.
Brobeck, Phleger & Harrison LLP, San Francisco, California, will pass upon
certain legal matters for the Underwriters. Two partners of Baker & McKenzie own
an aggregate of 10,715 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements as of June 30, 1995 and 1996 and for
each of the three years in the period ended June 30, 1996 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (the "Registration Statement") under the
Securities Act of 1933, as amended, and the rules promulgated thereunder, with
respect to the Common Stock offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement, certain items of which are omitted as
permitted by the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any agreement or other document referred
to herein are not necessarily complete, and reference is made to the copy of
such agreement or other document filed as an exhibit or schedule to the
Registration Statement and each such statement shall be deemed qualified in its
entirety by such reference. For further information, reference is made to the
Registration Statement and to the exhibits and schedules filed therewith, which
are available for inspection without charge at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of the material containing this information
may be obtained from the Commission upon payment of the prescribed fees. The
Commission also maintains a Web site that contains reports, proxy and
information statements and other materials that are filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
This Web site can be accessed at http://www.sec.gov. After this Offering, the
51
<PAGE>
Company will be subject to the periodic reporting and other information
requirements of the Securities Exchange Act of 1934, as amended. Such reports
may also be inspected and obtained from the Commission as noted above.
The Company intends to furnish to its shareholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm accompanied by an opinion expressed by such independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing unaudited consolidated financial information in each case prepared in
accordance with generally accepted accounting principles.
52
<PAGE>
OVERLAND DATA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
AND SUBSEQUENT TO JUNE 30, 1996 IS UNAUDITED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheet as of June 30, 1995 and 1996 and September 30,
1996.................................................................... F-3
Consolidated Statement of Operations for the Fiscal Years Ended June 30,
1994, 1995 and 1996 and the Three Months Ended September 30, 1995 and
1996.................................................................... F-4
Consolidated Statement of Shareholders' Equity for the Fiscal Years Ended
June 30, 1994, 1995 and 1996 and the Three Months Ended September 30,
1996.................................................................... F-5
Consolidated Statement of Cash Flows for the Fiscal Years Ended June 30,
1994, 1995 and 1996 and the Three Months Ended September 30, 1995 and
1996.................................................................... F-6
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Overland Data, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Overland
Data, Inc. and its subsidiaries at June 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Diego, California
September 30, 1996
F-2
<PAGE>
OVERLAND DATA, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, PRO FORMA
------------------------ SEPTEMBER 30, SHAREHOLDERS'
1995 1996 1996 EQUITY
----------- ----------- ------------- -------------
(UNAUDITED) (UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 101,000 $ 19,000 $ 2,000
Accounts receivable, less allowance for doubtful
accounts and returns of $446,000, $624,000 and
$665,000, respectively.............................. 6,300,000 7,226,000 6,512,000
Inventories........................................... 5,356,000 8,425,000 10,319,000
Deferred income taxes................................. 135,000 1,328,000 1,328,000
Other current assets.................................. 86,000 364,000 392,000
----------- ----------- -------------
Total current assets.............................. 11,978,000 17,362,000 18,553,000
Property and equipment, net............................. 2,062,000 2,128,000 2,392,000
Deferred income taxes................................... -- 5,000 5,000
Intangible and other assets............................. 413,000 276,000 245,000
----------- ----------- -------------
$14,453,000 $19,771,000 $21,195,000
----------- ----------- -------------
----------- ----------- -------------
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 2,983,000 $ 4,433,000 $ 4,106,000
Accrued liabilities................................... 1,038,000 1,493,000 1,080,000
Accrued payroll and employee compensation............. 780,000 1,129,000 985,000
Current portion of long-term debt..................... 747,000 -- --
----------- ----------- -------------
Total current liabilities......................... 5,548,000 7,055,000 6,171,000
Long-term debt, net of current portion.................. 1,400,000 1,500,000 3,300,000
Deferred income taxes................................... 39,000 -- --
Other liabilities....................................... 132,000 158,000 159,000
----------- ----------- -------------
Total liabilities................................. 7,119,000 8,713,000 9,630,000
----------- ----------- -------------
Convertible redeemable preferred stock, at liquidation
value:
Series A preferred stock, no par value, 955,190 shares
authorized; 636,794, 318,397, and 318,397 shares
issued and outstanding actual, respectively, no
shares outstanding pro forma (unaudited)............ 734,000 367,000 367,000
Series B preferred stock, no par value, 731,429 shares
authorized; 731,429 shares issued and outstanding
actual, no shares outstanding pro forma
(unaudited)......................................... 1,281,000 1,281,000 1,281,000
Series C preferred stock, no par value, 1,286,747
shares authorized; 1,286,747 shares issued and
outstanding actual, no shares outstanding pro forma
(unaudited)......................................... 3,552,000 3,552,000 3,552,000
Commitments (Note 8)
Shareholders' equity:
Common stock, no par value, 25,000,000 shares
authorized; 4,291,097, 5,062,325, and 5,206,325
shares issued and outstanding actual, respectively;
7,542,898 shares outstanding pro forma
(unaudited)......................................... 964,000 1,896,000 2,079,000 $ 7,279,000
Retained earnings..................................... 803,000 3,962,000 4,286,000 4,286,000
----------- ----------- ------------- -------------
Total shareholders' equity........................ 1,767,000 5,858,000 6,365,000 $11,565,000
----------- ----------- ------------- -------------
-------------
$14,453,000 $19,771,000 $21,195,000
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
OVERLAND DATA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, THREE MONTHS ENDED
---------------------------------- SEPTEMBER 30,
1994 1995 1996 ------------------------
---------- ---------- ---------- 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.............................. $34,044,000 $38,156,000 $47,226,000 1$1,023,000 1$2,013,000
Cost of goods sold..................... 22,890,000 27,041,000 31,145,000 7,098,000 7,573,000
---------- ---------- ---------- ----------- -----------
Gross profit......................... 11,154,000 11,115,000 16,081,000 3,925,000 4,440,000
Operating expenses:
Sales and marketing.................. 4,730,000 4,891,000 5,935,000 1,439,000 1,780,000
Research and development............. 3,402,000 3,076,000 3,697,000 977,000 1,116,000
General and administrative........... 2,435,000 2,168,000 2,908,000 750,000 951,000
---------- ---------- ---------- ----------- -----------
10,567,000 10,135,000 12,540,000 3,166,000 3,847,000
---------- ---------- ---------- ----------- -----------
Income from operations............... 587,000 980,000 3,541,000 759,000 593,000
Other income (expense):
Interest income...................... 34,000 10,000 1,000 -- 1,000
Interest expense..................... (248,000) (214,000) (155,000) (31,000) (58,000)
Other income (expense), net.......... (17,000) (6,000) 26,000 16,000 5,000
---------- ---------- ---------- ----------- -----------
Income before income taxes............. 356,000 770,000 3,413,000 744,000 541,000
Provision for income taxes............. 219,000 269,000 254,000 272,000 217,000
---------- ---------- ---------- ----------- -----------
Net income............................. $ 137,000 $ 501,000 $3,159,000 $ 472,000 $ 324,000
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
Net income per share................... $ $ $ $ $
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
Shares used in computing net income per
share................................
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
OVERLAND DATA, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at June 30, 1993....................... 3,784,095 $ 462,000 $ 165,000 $ 627,000
Exercise of stock options.................... 26,216 6,000 6,000
Issuance of common stock..................... 93,350 75,000 75,000
Net income................................... 137,000 137,000
--------- --------- --------- ---------
Balance at June 30, 1994....................... 3,903,661 543,000 302,000 845,000
Preferred stock conversion................... 318,396 367,000 367,000
Exercise of stock options.................... 39,040 30,000 30,000
Issuance of common stock..................... 30,000 24,000 24,000
Net income................................... 501,000 501,000
--------- --------- --------- ---------
Balance at June 30, 1995....................... 4,291,097 964,000 803,000 1,767,000
Preferred stock conversion................... 318,397 367,000 367,000
Exercise of stock options.................... 280,481 220,000 220,000
Issuance of common stock..................... 172,350 345,000 345,000
Net income................................... 3,159,000 3,159,000
--------- --------- --------- ---------
Balance at June 30, 1996....................... 5,062,325 1,896,000 3,962,000 5,858,000
Exercise of stock options (unaudited)........ 113,300 91,000 91,000
Issuance of common stock (unaudited)......... 30,700 92,000 92,000
Net income (unaudited)....................... 324,000 324,000
--------- --------- --------- ---------
Balance at September 30, 1996 (unaudited)...... 5,206,325 $2,079,000 $4,286,000 $6,365,000
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
OVERLAND DATA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, THREE MONTHS ENDED
---------------------------------- SEPTEMBER 30,
1994 1995 1996 ------------------------
---------- ---------- ---------- 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income........................... $ 137,000 $ 501,000 $3,159,000 $ 472,000 $ 324,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Deferred tax benefit............. -- (66,000) (1,237,000) -- --
Depreciation and amortization.... 607,000 725,000 862,000 197,000 237,000
Loss on disposal of property and
equipment...................... 87,000 10,000 50,000 -- --
Non-cash compensation charge..... 132,000 8,000 -- -- --
Changes in assets and
liabilities, net of Cipher
acquisition:
Accounts receivable.......... (1,885,000) (1,701,000) (926,000) 209,000 714,000
Inventories.................. 1,108,000 309,000 (3,069,000) (351,000) (1,894,000)
Other current assets......... (33,000) 77,000 (278,000) (169,000) (28,000)
Accounts payable and accrued
liabilities................ 2,519,000 296,000 1,931,000 915,000 (671,000)
Accrued payroll and employee
compensation............... 171,000 28,000 349,000 (65,000) (144,000)
---------- ---------- ---------- ----------- -----------
Net cash provided by
(used in) operating
activities............. 2,843,000 187,000 841,000 1,208,000 (1,462,000)
---------- ---------- ---------- ----------- -----------
Investing activities:
Capital expenditures................. (809,000) (670,000) (841,000) (78,000) (470,000)
Proceeds from sale of property and
equipment.......................... 7,000 -- -- -- --
---------- ---------- ---------- ----------- -----------
Net cash used in investing
activities................... (802,000) (670,000) (841,000) (78,000) (470,000)
---------- ---------- ---------- ----------- -----------
Financing activities:
Principal payments on notes
payable............................ (1,494,000) (1,494,000) (747,000) -- --
Proceeds from issuance of common
stock.............................. -- 16,000 345,000 -- 92,000
Proceeds from exercise of stock
options............................ 6,000 30,000 220,000 8,000 23,000
Net proceeds (payments) under bank
line of credit..................... 700,000 700,000 100,000 (900,000) 1,800,000
---------- ---------- ---------- ----------- -----------
Net cash (used in) provided by
financing activities......... (788,000) (748,000) (82,000) (892,000) 1,915,000
---------- ---------- ---------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents..................... 1,253,000 (1,231,000) (82,000) 238,000 (17,000)
Cash and cash equivalents, beginning of
period............................... 79,000 1,332,000 101,000 101,000 19,000
---------- ---------- ---------- ----------- -----------
Cash and cash equivalents, end of
period............................... $1,332,000 $ 101,000 $ 19,000 $ 339,000 $ 2,000
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
</TABLE>
F-6
<PAGE>
OVERLAND DATA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, THREE MONTHS ENDED
---------------------------------- SEPTEMBER 30,
1994 1995 1996 ------------------------
---------- ---------- ---------- 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for income taxes......... $ 53,000 $ 411,000 $1,150,000 $ 114,000 $ 407,000
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
Cash paid for interest............. $ 237,000 $ 215,000 $ 155,000 $ 14,000 $ 2,000
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
Non-cash common stock issuance..... $ 75,000 $ 8,000 -- -- --
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
Reclassification of deferred
compensation to equity upon
exercise of common stock
options.......................... -- -- -- -- $ 68,000
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
Conversion of Series A preferred
stock to common stock............ -- $ 367,000 $ 367,000 -- --
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
Issuance of Series C preferred
stock for Cipher assets.......... $1,564,000 -- -- -- --
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
Issuance of notes payable in
exchange for Cipher assets....... $1,651,000 -- -- -- --
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--OPERATIONS AND SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Overland Data, Inc. (the "Company") was incorporated on September 8, 1980 under
the laws of the state of California. The Company designs, develops,
manufactures, markets and supports magnetic tape data storage systems used by
businesses for backup, archival and data interchange functions. The Company's
fiscal year ends on the Sunday closest to June 30. For ease of presentation the
Company's year end is deemed to be June 30. Each of fiscal years 1994, 1995 and
1996 included 52 weeks.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Overland Data (Europe) Limited and Overland Data
Export Limited, a foreign sales corporation. All significant intercompany
accounts and transactions have been eliminated.
MANAGEMENT ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
REVENUE RECOGNITION
Sales are recognized upon shipment of products to customers and are not subject
to any specific right of return or price protection, except for any defective
product which may be returned under the Company's warranty policy.
WARRANTY COSTS
The Company generally offers a two-year return-to-factory warranty on its
products and records a provision for estimated future warranty costs at the time
of shipment. It also contracts with outside vendors to provide service relating
to various on-site and extended warranties which are offered for sale to
customers. Warranty revenues and amounts paid in advance to outside service
organizations for the entire warranty period are included in the financial
statements in sales and cost of goods sold, respectively.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
It is management's belief that the carrying amounts shown for the Company's
financial instruments are reasonable estimates of their related fair value based
on their terms or short-term nature.
F-8
<PAGE>
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--OPERATIONS AND SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
EXPORT SALES
Export sales by the Company, principally in Europe, for the fiscal years ended
June 30, 1994, 1995 and 1996 were approximately $5,753,000, $7,737,000 and
$12,775,000, respectively. Substantially all export sales are denominated in
U.S. dollars.
CONCENTRATION OF CREDIT RISK
The Company's customers include original equipment manufacturers, integrators,
distributors, value added resellers and end users. Financial instruments which
potentially subject the Company to concentrations of credit risk are primarily
accounts receivable. The Company performs ongoing credit evaluations of its
customers, generally requires no collateral and maintains allowances for
potential credit losses and sales returns. The Company's largest single customer
accounted for approximately 36%, 21% and 23% of sales in fiscal years 1994, 1995
and 1996, respectively, and approximately 18% and 33% of accounts receivable at
June 30, 1995 and 1996, respectively. No other customer accounted for 10% or
more of sales in any of the three years presented.
CASH EQUIVALENTS
Highly liquid investments with original maturities of three months or less are
classified as cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in-first-out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the depreciable assets
(generally two to five years). Leasehold improvements are amortized on a
straight-line basis over the shorter of the useful life of the asset or the
lease term. Expenditures for normal maintenance and repair are charged to
expense as incurred and improvements are capitalized. Upon the sale or
retirement of property or equipment, the asset cost and related accumulated
depreciation are removed from the respective accounts and any gain or loss is
included in the results of operations.
INTANGIBLE ASSETS
Intangible assets, resulting from the acquisition of assets relating to certain
product lines (Note 2), are amortized using the straight-line method over five
years (the estimated life of the products). Accumulated amortization was
$432,000 in 1995 and $570,000 in 1996. The Company periodically considers
whether the sum of the estimated future net cash flows generated from the sale
of related products is in excess of the carrying amount of the intangible asset
(net realizable value). The carrying amount would be reported as the lower of
cost (net of amortization) or net realizable value. No such impairment losses
have been recorded by the Company.
F-9
<PAGE>
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--OPERATIONS AND SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
LONG-LIVED ASSETS
The Company assesses potential impairments to its long-lived assets when there
is evidence that events or changes in circumstances have made recovery of the
asset's carrying value unlikely. An impairment loss would be recognized when the
sum of the expected future net cash flows is less than the carrying amount of
the asset. No such impairment losses have been identified by the Company.
FOREIGN CURRENCY REMEASUREMENT
The assets and liabilities of the foreign subsidiaries have been remeasured into
U.S. dollars at year-end exchange rates. Revenues and expenses have been
remeasured at average exchange rates during the year. Gains or losses resulting
from remeasurement and from foreign currency transactions are recognized
currently in operating results and were not significant in any year presented.
INCOME TAXES
The Company provides for income taxes utilizing the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109). Under the asset and liability
method of SFAS 109, a deferred tax asset and/ or liability is computed for both
the expected future impact of differences between the financial statement and
tax bases of assets and liabilities, and for the expected future tax benefit to
be derived from tax credits and loss carryforwards. SFAS 109 also requires the
establishment of a valuation allowance to reflect the likelihood of realization
of deferred tax assets.
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123). The Company does not
intend to adopt the measurement provisions of SFAS 123 with regard to
employee-based stock compensation, but will adopt the required disclosure
provisions during the year ending June 30, 1997.
NET INCOME PER SHARE
Net income per share is computed based on the weighted average number of shares
of Common Stock and common stock equivalents, using the treasury stock method,
outstanding during the respective periods. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83, all issuances of Common Stock and
all stock options granted within one year prior to the filing of the Company's
registration statement for its planned initial public offering and through the
effective date thereof have been included as outstanding for all periods
presented using the treasury stock method.
INTERIM RESULTS (UNAUDITED)
The accompanying balance sheet at September 30, 1996 and the related statements
of operations and of cash flows for the three months ended September 30, 1995
and 1996, and the statement of shareholders' equity for the three months ended
September 30, 1996 are unaudited. In the opinion of management, these statements
have been prepared on the same basis as the audited financial statements and
include all adjustments, consisting only of normal recurring adjustments,
necessary for the fair statement of results of the interim periods. The data
disclosed in these notes to the financial statements at such date and for such
periods are also unaudited.
F-10
<PAGE>
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--OPERATIONS AND SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PRO FORMA SHAREHOLDERS' EQUITY (UNAUDITED)
The unaudited pro forma information presented in the accompanying balance sheet
as of September 30, 1996 reflects the conversion of all outstanding shares of
Preferred Stock into 2,336,573 shares of Common Stock, which will occur upon
completion of the Company's planned initial public offering.
NOTE 2--ACQUISITIONS
CIPHER ACQUISITION
In May 1993 and October 1993, the Company acquired certain assets from Archive
Corporation, a wholly owned subsidiary of Conner Peripherals, Inc., relating to
the half-inch tape drive product lines of Cipher Data Products, Inc., for total
consideration of $8,294,000 comprised of cash ($1,000,000), notes payable
($3,742,000) and a total of 1,286,747 shares of Series C Preferred Stock
($3,552,000). Under the terms of the agreement, machinery and equipment,
intangible assets (patent and trademark rights) and inventory aggregating
$5,079,000 were purchased in fiscal year 1993 and additional inventory of
approximately $3,215,000 was acquired during fiscal year 1994. The acquisition
has been accounted for as a purchase transaction and, accordingly, the purchase
price has been allocated to the fair market value of the assets acquired.
NOTE 3--COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
JUNE 30,
---------------------- SEPT. 30,
1995 1996 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Inventories:
Raw materials....................................... $2,970,000 $5,167,000 $6,211,000
Work in process..................................... 692,000 1,816,000 2,360,000
Finished goods...................................... 1,694,000 1,442,000 1,748,000
---------- ---------- -----------
$5,356,000 $8,425,000 1$0,319,000
---------- ---------- -----------
---------- ---------- -----------
Property and equipment:
Machinery and equipment............................. $2,076,000 $2,433,000 $2,572,000
Computer equipment.................................. 1,039,000 1,141,000 1,386,000
Furniture and fixtures.............................. 115,000 165,000 178,000
Leasehold improvements.............................. 202,000 429,000 503,000
---------- ---------- -----------
3,432,000 4,168,000 4,639,000
Less accumulated depreciation and amortization........ (1,370,000) (2,040,000) (2,247,000)
---------- ---------- -----------
$2,062,000 $2,128,000 $2,392,000
---------- ---------- -----------
---------- ---------- -----------
Depreciation expense was $456,000, $574,000, and $724,000 in fiscal years 1994, 1995 and
1996, respectively.
</TABLE>
F-11
<PAGE>
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- SEPT. 30,
1995 1996 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Bank line of credit......................................... $1,400,000 $1,500,000 $3,300,000
Subordinated installment note payable to Archive Corporation
(Note 2).................................................. 747,000 -- --
--------- --------- -----------
2,147,000 1,500,000 3,300,000
Less current portion........................................ (747,000) -- --
--------- --------- -----------
$1,400,000 $1,500,000 $3,300,000
--------- --------- -----------
--------- --------- -----------
</TABLE>
The Company has a $5,000,000 revolving credit facility which is collateralized
by substantially all of the Company's assets and expires on November 5, 1998.
Under terms of the agreement, the Company may borrow the lesser of (1)
$5,000,000 or (2) 80% of eligible accounts receivable plus an overadvance at
June 30, 1996 of $1,200,000. The overadvance amount is reduced semi-annually by
$150,000 on November 1 and May 1. Borrowings under the line may be in the form
of working capital loans, which bear interest at the bank's prime rate plus 0.5%
(8.75% at June 30, 1996), or banker's acceptances priced at the banker's
acceptance rate plus 2.5%. The Company is required to maintain certain covenants
and financial ratios including working capital and net worth ratios, and pays a
0.5% annual commitment fee on the unused credit if the average amount borrowed
for any quarter is less than $2,500,000. The agreement also prohibits the
payment of dividends without prior bank approval. The Company is in compliance
with the terms of the agreement. As of June 30, 1996, $3,200,000 was available
for borrowing under this credit facility.
NOTE 5--INCOME TAXES
The provision (benefit) for income taxes includes the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Current:
Federal................................................... $ 218,000 $ 306,000 $1,246,000
State..................................................... 1,000 17,000 236,000
Foreign................................................... -- 12,000 9,000
Deferred:
Federal................................................... -- (66,000) (1,053,000)
State..................................................... -- -- (184,000)
--------- --------- ----------
$ 219,000 $ 269,000 $ 254,000
--------- --------- ----------
--------- --------- ----------
</TABLE>
F-12
<PAGE>
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--INCOME TAXES (CONTINUED)
The total income tax provision differs from the amount computed by applying the
U.S. Federal statutory income tax rate of 34% to income before income taxes as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
U.S. Federal income tax at statutory rate................... $ 121,000 $ 262,000 $1,160,000
Increase in (release of) valuation allowance................ 249,000 48,000 (997,000)
Research and development credits............................ (147,000) (39,000) --
State income taxes, net of federal benefit.................. -- 11,000 165,000
Foreign sales corporation benefit........................... -- (8,000) (65,000)
Other....................................................... (4,000) (5,000) (9,000)
--------- --------- ---------
Provision for income taxes.................................. $ 219,000 $ 269,000 $ 254,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
During the fiscal year ended June 30, 1996, the Company reduced the deferred tax
valuation allowance by $997,000 to recognize deferred tax assets. Based on
management's assessment and the Company's current profitability, management
believes it is more likely than not that the deferred tax asset will be realized
through future taxable earnings or alternative tax strategies. The 1996
provision does not reflect a research and development credit due to a federally
imposed one year suspension.
Deferred income taxes at June 30, 1995 and 1996 comprised:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Inventory.......................................................... $ 253,000 $ 570,000
Research and development credit carryforwards...................... 291,000 --
Warranty reserves.................................................. 142,000 141,000
Reserve for doubtful accounts and returns.......................... 179,000 195,000
Vacation and deferred compensation................................. 147,000 170,000
License fee accrual................................................ 120,000 101,000
Intangible assets.................................................. 65,000 97,000
State income taxes................................................. -- 80,000
Other.............................................................. -- 71,000
--------- ---------
Gross deferred tax asset........................................... 1,197,000 1,425,000
--------- ---------
Deferred tax liabilities:
Fixed asset depreciation........................................... (104,000) (92,000)
--------- ---------
Gross deferred tax liability....................................... (104,000) (92,000)
--------- ---------
Valuation allowance.................................................. (997,000) --
--------- ---------
Net deferred income taxes............................................ $ 96,000 $1,333,000
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--CONVERTIBLE REDEEMABLE PREFERRED STOCK
The Company has outstanding three series of Preferred Stock which have no par
value and are stated in the balance sheet at their original issue price, which
is equivalent to their redemption value. Each share of Series A, B and C
Preferred Stock (i) is voting, (ii) is convertible at any time at the option of
the holder into one share of Common Stock subject to certain anti-dilution and
automatic conversion provisions, (iii) participates equally with Common Stock
with respect to dividends, (iv) is redeemable at the option of the holder at a
price of $1.15, $1.75 and $2.76 per share, respectively, (v) upon liquidation of
the Company is entitled to receive $1.15, $1.75 and $2.76, per share,
respectively, in preference to any distributions to common shareholders, and
(vi) in the event of a sale of the Company's Common Stock in an initial public
offering, each unredeemed share will be automatically converted to one share of
Common Stock.
The Preferred Stock is redeemable in three equal annual installments and any
unredeemed shares automatically convert to Common Stock. Scheduled redemption
dates are as follows: Series A--May 1995, 1996 and 1997; Series B--December
1996, 1997 and 1998 and Series C--May 1997, 1998 and 1999. None of the holders
of Series A Preferred Stock elected to redeem their shares at the first two
installment dates and, therefore, the shares were converted into Common Stock. A
total of 318,396 and 318,397 shares with a value of $367,000 and $367,000 were
converted at each installment date in 1995 and 1996, respectively. The combined
aggregate amount of future redemption requirements for the Preferred Stock is
$1,978,000 (991,123 shares) in 1997, $1,611,000 (672,726 shares) in 1998 and
$1,611,000 (672,724 shares) in 1999.
NOTE 7--STOCK OPTIONS AND WARRANT
The Company has a number of stock option plans which provide for the issuance of
options to employees, officers and directors. The exercise price of a stock
option is generally equal to the fair market value of the Company's Common Stock
as determined by its Board of Directors on the date the option is granted.
Certain of the plans permit options granted to qualify as "Incentive Stock
Options" under the Internal Revenue Code while other plans are specified as
non-qualified. In addition, certain of the non-qualified plans call for 100%
vesting of outstanding options upon a change of control of the Company. Options
generally vest at a rate of 25 percent per year over a period of four years from
the date of grant and expire after a period not to exceed ten years, except in
the event of termination, whereupon vested shares must be exercised within 30
days, or upon death or disability, where a six month exercise period is
specified.
F-14
<PAGE>
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--STOCK OPTIONS AND WARRANT (CONTINUED)
Option activity is summarized as follows:
<TABLE>
<CAPTION>
SHARES SHARE PRICE
--------- -----------
<S> <C> <C>
Options outstanding at June 30, 1993................................. 800,660 $.12 - .80
Options granted.................................................... 347,943 .80
Options exercised.................................................. (26,216) .24 - .80
Options canceled................................................... (206,139) .20 - .80
--------- -----------
Options outstanding at June 30, 1994................................. 916,248 .12 - .80
Options granted.................................................... 285,950 .80 - .88
Options exercised.................................................. (39,040) .42 - .80
Options canceled................................................... (124,799) .12 - .80
--------- -----------
Options outstanding at June 30, 1995................................. 1,038,359 .12 - .88
Options granted.................................................... 184,810 2.00
Options exercised.................................................. (280,481) .12 - .80
Options canceled................................................... (94,092) .80 - 2.00
--------- -----------
Options outstanding at June 30, 1996................................. 848,596 .12 - 2.00
Options granted (unaudited)........................................ 80,000 3.00
Options exercised (unaudited)...................................... (113,300) .20
Options canceled (unaudited)....................................... -- --
--------- -----------
Options outstanding at September 30, 1996 (unaudited)................ 815,296 .$12 - 3.00
--------- -----------
--------- -----------
</TABLE>
Options on 461,458 shares were exercisable at prices ranging from $.12-$2.00 at
June 30, 1996. Shares available for future grant were 284,667 and 566,382 at
June 30, 1995 and 1996, respectively.
In connection with the bank line of credit, the Company issued a common stock
warrant to the bank. The warrant will allow the bank to purchase 17,046 shares
of the Company's common stock over a five-year period through May 15, 2000 at an
exercise price of $4.40 per share. The Company has determined that the value of
the warrant is not significant.
NOTE 8--COMMITMENTS
The Company leases its office, production and sales facilities under
non-cancelable operating leases which expire in various years through fiscal
year 2001. The leases provide for annual rent escalations intended to
approximate increases in cost of living indices, and certain of the leases
provide for rent abatement. At June 30, 1996, future minimum lease payments
under these arrangements are as follows:
<TABLE>
<CAPTION>
MINIMUM
YEAR ENDING LEASE
JUNE 30, PAYMENTS
- ------------------------- -----------
<S> <C>
1997................. $ 656,000
1998................. 709,000
1999................. 737,000
2000................. 766,000
2001................. 78,000
-----------
Total................ $2,946,000
-----------
-----------
</TABLE>
Rental expense is recognized ratably over the respective lease terms, and
aggregated $508,000, $562,000 and $554,000 for fiscal years 1994, 1995 and 1996,
respectively.
F-15
<PAGE>
INSIDE REAR COVER -- PHOTOGRAPHS
PHOTOGRAPH DESCRIPTIONS AND CAPTIONS
1. Background: Black and blue Company logos serpentine upward from bottom left
corner to top right corner.
2. Top left corner: Company logo and name.
3. Middle left: Color photo of manufacturing employee on production line. No
caption.
4. Middle right: Color photo of quality assurance person at test station. No
caption.
5. Center: Color photo of engineering personnel performing design work. No
caption.
6. Bottom left: Color photo of management team. No caption.
7. Bottom right: Color photo of end-user performing network backup. No caption.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR
ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
Capitalization............................................................ 13
Dilution.................................................................. 14
Selected Consolidated Financial Data...................................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 17
Business.................................................................. 25
Management................................................................ 37
Certain Transactions...................................................... 43
Principal and Selling Shareholders........................................ 44
Description of Capital Stock.............................................. 46
Shares Eligible for Future Sale........................................... 48
Underwriting.............................................................. 50
Legal Matters............................................................. 51
Experts................................................................... 51
Additional Information.................................................... 51
Index to Consolidated Financial Statements................................ F-1
</TABLE>
-------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED
HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,700,000 SHARES
(LOGO)
COMMON STOCK
PROSPECTUS
JEFFERIES & COMPANY, INC.
CRUTTENDEN ROTH
INCORPORATED
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, in connection with the sale of Common
Stock being registered. All amounts are estimated except the SEC registration
fee, the NASD filing fee and the Nasdaq listing fee.
<TABLE>
<CAPTION>
AMOUNT
------------
<S> <C>
SEC Registration Fee........................................ $ 9,409.10
NASD Filing Fee............................................. 3,605.00
Nasdaq Listing Fee.......................................... 41,857.25
Printing and Engraving Expenses............................. *
Legal Fees and Expenses..................................... *
Blue Sky Fees and Expenses.................................. *
Accounting Fees and Expenses................................ *
Transfer Agent and Registrar Fees and Expenses.............. *
Miscellaneous Expenses...................................... *
------------
Total................................................... $ *
------------
------------
</TABLE>
- ------------------------
* To be completed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 317 of the California Corporations Code permits a corporation to
indemnify its directors, officers, employees and other agents in terms
sufficiently broad to permit indemnification (including reimbursement for
expenses) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act").
The Registrant's Articles of Incorporation (the "Articles") and Bylaws (the
"Bylaws") provide for the indemnification of directors and officers to the
maximum permitted by the California Corporations Code and authorize the
indemnification by the Registrant of other officers, employees and other agents
as set forth in the California Corporations Code. The Registrant has entered
into indemnification agreements with its directors and executive officers, in
addition to the indemnification provided for in the Articles and Bylaws.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since December 1993, the Registrant has sold and issued the following
securities without registration under the Securities Act:
During the period from December 1993 to December 1996, the Company granted
to its employees, officers, directors and consultants under its various stock
option plans incentive and non-statutory stock options which were exercisable
into an aggregate of 854,193 shares of Common Stock. During the same period, the
Company also sold 690,622 shares of Common Stock to its employees, former
employees, officers and directors for total cash consideration of $751,177.
The sales and issuances of the securities in the transactions described in
the above paragraph were deemed to be exempt from registration under the
Securities Act in reliance upon (i) Rule 701 promulgated
II-1
<PAGE>
thereunder as transactions pursuant to a compensatory benefit plan or a written
contract relating to compensation, or (ii) Section 4(2) thereof and Regulation D
promulgated thereunder as transactions by an issuer not involving a public
offering.
The recipients represented their intention to acquire the securities for
investment only and not with a view to the distribution thereof. Appropriate
legends are affixed to the stock certificates issued in such transactions.
Similar legends were imposed in connection with any subsequent sales of such
securities. All recipients either received adequate information about the
Registrant or had access, through employment or other relationships, to such
information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<C> <C> <S>
1.1* -- Form of Underwriting Agreement.
3.1 -- Registrant's Articles of Incorporation.
3.2 -- Registrant's Bylaws.
4.1 -- Reference is made to Exhibits 3.1 and 3.2.
4.2* -- Specimen stock certificate.
4.3 -- Investors' Rights Agreement, dated May 23, 1993, between the Registrant and
the parties named therein.
4.4 -- Warrant to Purchase Stock, dated May 15, 1995, between the Registrant and
Imperial Bancorp.
5.1* -- Opinion of Baker & McKenzie.
10.1+ -- Basic Order Agreement #16529, dated July 1, 1993 and as amended through
November 10, 1995, between the Registrant and Digital Equipment Corporation.
10.2+ -- Production Procurement Agreement #RMSS-ODI-96-01-0, dated October 25, 1996,
between the Registrant and International Business Machines Corporation.
10.3 -- Security and Loan Agreement and Addendum thereto, dated May 2, 1995 and May
8, 1995, respectively, between the Registrant and Imperial Bank.
10.4 -- Standard Industrial Lease--Multi-Tenant, dated May 26, 1993, between the
Registrant and Mitsui/SBD America Fund 87-1.
10.5 -- 1995 Stock Option Plan adopted October 10, 1995.
10.6 -- 1996 Employee Stock Purchase Plan adopted December 12, 1996.
10.7* -- Form of Indemnification Agreement.
11.1 -- Statement regarding computation of per share earnings.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Price Waterhouse LLP, independent accountants.
23.2* -- Consent of Baker & McKenzie--Included in Exhibit 5.1.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <C> <S>
24.1 -- Power of Attorney--Reference is made to page II-4.
27.1 -- Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ The Registrant is applying for confidential treatment of portions of this
exhibit.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance upon Rule
430A and contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared effective,
and (2) for the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the Closing, as specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, State of
California on the 23rd of December, 1996.
OVERLAND DATA, INC.
By: /s/ SCOTT MCCLENDON
------------------------------------------
Scott McClendon,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Scott McClendon and Vernon A. LoForti, and
each of them acting individually, as his attorney-in-fact, each with full power
of substitution, for him in any and all capacities, to sign any and all
amendments to this Registration Statement, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorney to any and all amendments to this Registration
Statement.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ---------------------- ------------------
<C> <S> <C>
/s/ SCOTT MCCLENDON President, Chief
- ------------------------------------ Executive Officer December 23, 1996
Scott McClendon and Director
/s/ MARTIN D. GRAY Vice President,
- ------------------------------------ Secretary and December 23, 1996
Martin D. Gray Director
Vice President, Chief
/s/ VERNON A. LOFORTI Financial Officer
- ------------------------------------ and Assistant December 23, 1996
Vernon A. LoForti Secretary
/s/ WILLIAM W. OTTERSON
- ------------------------------------ Director December 23, 1996
William W. Otterson
/s/ JOSEPH D. RIZZI
- ------------------------------------ Director December 23, 1996
Joseph D. Rizzi
/s/ JOHN A. SHANE
- ------------------------------------ Director December 23, 1996
John A. Shane
/s/ MICHAEL L. HUNTLEY
- ------------------------------------ Director December 23, 1996
Michael L. Huntley
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. EXHIBIT PAGES
- ----------- ---------------------------------------------------------------------------------- -----------------
<C> <C> <S> <C>
1.1* -- Form of Underwriting Agreement.
3.1 -- Registrant's Articles of Incorporation.
3.2 -- Registrant's Bylaws.
4.1 -- Reference is made to Exhibits 3.1 and 3.2.
4.2* -- Specimen stock certificate.
4.3 -- Investors' Rights Agreement, dated May 23, 1993, between the Registrant and the
parties named therein.
4.4 -- Warrant to Purchase Stock, dated May 15, 1995, between the Registrant and Imperial
Bancorp.
5.1* -- Opinion of Baker & McKenzie.
10.1+ -- Basic Order Agreement #16529, dated July 1, 1993 and as amended through November
10, 1995, between the Registrant and Digital Equipment Corporation.
10.2+ -- Production Procurement Agreement #RMSS-ODI-96-01-0, dated October 25, 1996,
between the Registrant and International Business Machines Corporation.
10.3 -- Security and Loan Agreement and Addendum thereto, dated May 2, 1995 and May 8,
1995, respectively, between the Registrant and Imperial Bank.
10.4 -- Standard Industrial Lease--Multi-Tenant, dated May 26, 1993, between the
Registrant and Mitsui/SBD America Fund 87-1.
10.5 -- 1995 Stock Option Plan adopted October 10, 1995.
10.6 -- 1996 Employee Stock Purchase Plan adopted December 12, 1996.
10.7* -- Form of Indemnification Agreement.
11.1* -- Statement regarding computation of per share earnings.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Price Waterhouse LLP, independent accountants.
23.2* -- Consent of Baker & McKenzie--Included in Exhibit 5.1.
24.1 -- Power of Attorney--Reference is made to page II-4 of the Registration Statement.
27.1 -- Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ The Registrant is applying for confidential treatment of portions of this
exhibit.
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
OVERLAND DATA INC.
ONE: The name of this corporation is OVERLAND DATA INC.
TWO: The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the general Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
THREE: The name and address in this state of the corporation's initial agent for
service is:
Robert M. Long
1425 Monte Rico Dr.
El Cajon, California 92021
FOUR: This corporation is authorized to issue only one class of stock which
shall be designated common stock. The total number of shares it is authorized to
issue is 100,000.
FIVE: This corporation is a close corporation. All of the Corporation's issued
shares of all classes shall be held of record by not more than 9 persons.
<PAGE>
SIX: The names and addresses of the persons who are appointed to act as initial
directors of this corporation are:
Name Address
Martin D. Gray 3236 Caminito Ameca
La Jolla California 92017
Robert M. Long 1425 Monte Rico Dr.
E1 Cajon, California 92021
IN WITNESS WHEREOF, the undersigned, being all the persons named above as
initial directors, have executed these Articles of Incorporation.
DATED September 3, 1980 /s/ Martin D. Gray
----------------- -------------------------
/s/ Robert M. Long
-------------------------
The undersigned, being all the persons named above as the initial directors,
declare that they are the persons who executed the foregoing Articles of
Incorporation, which execution is their act and deed.
DATED September 3, 1980 /s/ Martin D. Gray
-------------------------
/s/ Robert M. Long
-------------------------
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
OF OVERLAND DATA, INC.
Robert M. Long and Martin D. Gray certify that:
1. They are the President and Secretary, respectively, of Overland Data,
Inc., a California corporation.
2. Article FOUR of the articles of incorporation of this corporation is
amended to read as follows:
"FOUR: This corporation is authorized to issue only one class of shares of
stock; and the total number of shares which this corporation is authorized to
issue is 1,000,000. Upon the amendment of this article to read as herein set
forth, each outstanding share is split and converted into 20 shares."
3. Article FIVE of the articles of incorporation of this corporation is
amended to read as follows:
"FIVE: (a) The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
(b) The corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the Corporations Code) for breach of duty to the
corporation and its stockholders through bylaw provisions or through agreements
with the agents, or both, in excess of the indemnification otherwise permitted
by Section 317 of the Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the Corporations Code."
4. The foregoing amendments of articles of incorporation have been duly
approved by the board of directors.
5. The foregoing amendments of articles of incorporation have been duly
approved by the required vote of the shareholders in accordance with Section 902
of the California Corporations Code. The total number of outstanding shares of
the corporation is 16,461. The number of shares voting in favor of the Amendment
<PAGE>
equaled or exceeded the vote required. The percentage vote required was more
than two-thirds (2/3).
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Date: July 14, 1988
/s/ Robert M. Long
- -------------------------
President
/s/ Martin D. Gray
- -------------------------
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION
OF
OVERLAND DATA INC.
Robert M. Long and Martin D. Gray certify the:
1. They are the President and Secretary, respectively, of Overland
Data Inc. (the "Corporation").
2. Article FOUR of the articles of incorporation of the Corporation
is amended to read as follows:
"FOUR:
A. This Corporation is authorized to issue two classes of shares to
be designated respectively Series A Preferred Stock ("Series A Preferred Stock")
and Common Stock ("Common Stock"). The total number of shares of capital stock
that the Corporation is authorized to issue is one million, ninety five
thousand, five hundred nineteen (1,095,519). The total number of shares of
Series A Preferred Stock this Corporation shall have authority to issue is
ninety five thousand, five hundred nineteen (95,519). The total number of shares
of Common Stock this Corporation shall have the authority to issue is one
million (1,000,000).
B. The powers, preference, rights, restrictions and other matters
relating to the Series A Preferred Stock are as follows:
1. DIVIDENDS. No dividend shall be paid on or declared and set apart
for the shares of Common Stock for any dividend period unless at the same time a
like dividend for the same dividend period, shall be paid on or declared and set
apart for the shares of Series A Preferred Stock, on an as converted basis.
2. LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution, or winding up of
the Corporation, whether voluntary or involuntary, the holders of each share
of Series A Preferred Stock then outstanding shall be entitled to be paid Out
of the assets of the Corporation available for distribution to its
shareholders, before any payment or declaration and setting
<PAGE>
apart for payment of any amount shall be made in respect of the Common Stock,
an amount equal to $11.516 per share plus all declared but unpaid dividends
on each share, of Series A Preferred Stock, and no more. If upon liquidation
dissolution, or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed to the holders of the Series A
Preferred Stock shall be insufficient to permit the payment to such
shareholders of the full preferential amount aforesaid, then all of the
assets of the corporation to be distributed shall be distributed ratably to
the holders of the Series A Preferred Stock. For the purposes of this Section
B.2(a), any acquisition of the Corporation by means of merger or other form
of corporate reorganization in which outstanding shares of the Corpora-.on
are exchanged for securities or other consideration issued, or caused to be
issued, by the acquiring corporation or its subsidiary (a "Corporate
Reorganization") other than a transaction with a subsidiary of the
Corporation or an entity under common control with the Corporation (and other
than a transaction set forth in Section B.5(b)(ii)) shall be deemed to be a
liquidation, dissolution or winding up of the Corporation.
(b) After the payment or distribution to the holders of the Series
A Preferred Stock of the full preferential amounts aforesaid, the holders of
the Common Stock then outstanding shall be entitled to receive ratably all
the remaining assets of the Corporation.
3. REDEMPTION.
(a) At the individual option of each holder of shares of Series A
Preferred Stock, the Corporation shall redeem on the sixth, seventh and eighth
anniversary dates from the date of the first issuance of Series A Preferred
Stock (each a "Redemption Date"), at a price per shares equal to $11.516 (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) plus declared but unpaid dividends on such shares (the "Redemption
Price"), at the rate of 33 1/3% of such holders, outstanding shares of Series A
Preferred Stock per year for each of the three Redemption Dates. The holders of
the Series A Preferred Stock will give written notice to the Corporation of
their election to be redeemed not less than ninety (90) days prior to each
anniversary date (the "Redemption Notice"). If any holders of Series A Preferred
Stock do not timely elect to be redeemed on any of the three Redemption Dates,
one-third of such holder's shares of series A Preferred Stock will automatically
be converted into Common Stock in accordance with the provisions set forth in
Section
<PAGE>
B.5 below to effect the result that following the last Redemption Date all
outstanding shares of Series A Preferred Stock shall either be redeemed or
converted into Common Stock.
(b) Except as provided in Section B.3(c), on or after the
Redemption Date, each holder of Series A Preferred Stock shall surrender to
this Corporation the certificate or certificates representing such shares,
and thereupon each surrendered certificate will be cancelled and either (i)
the appropriate Redemption Price of such shares shall be payable to the order
of the person whose name appears on such certificate or certificates as the
owner thereof, or (ii) the appropriate number of shares of Common Stock shall
be issued for such shares to the owner thereof. In the event less than all
the shares represented by any such certificate are redeemed or converted into
Common Stock, a new certificate shall be issued representing the unredeemed
or unconverted shares.
(c) From and after the Redemption Date, unless there shall have been
a default in payment of the requested Redemption Price, all rights of the
holders of Series A Preferred Stock (except the right to receive the Redemption
Price without interest or shares of Common Stock upon surrender of their
certificate or certificates) shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of the Corporation or be
deemed to be outstanding for any purpose whatsoever. If the funds of the
Corporation legally available for redemption of shares of Series A Preferred
Stock on any Redemption Date are insufficient to redeem the total number of
shares of Series A Preferred Stock to be redeemed on such date, those funds
which are legally available will be used to redeem the maximum possible number
of such shares ratably among the holders of such shares electing to be redeemed
based upon their holdings of Series A Preferred Stock. The shares of Series A
Preferred Stock not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein. At any time thereafter when additional
funds of the Corporation are legally available for the redemption of shares of
Series A Preferred Stock such funds will immediately be used to redeem the
balance of the shares which the Corporation has become obliged to redeem on any
Redemption Date, but which it has not redeemed.
(d) On or prior to each Redemption Date, the Corporation shall deposit the
Redemption Price of all shares of Series A Preferred Stock held by
Shareholders who elect to be redeemed by giving the Redemption Notice and not
yet redeemed with a bank or trust corporation having aggregate capital and
surplus
<PAGE>
in excess of $100,000,000 as a trust fund for the benefit of the respective
holders of the shares electing redemption and not yet redeemed, with
irrevocable instructions and authority to the bank or trust corporation to
pay the Redemption Price for such shares to their respective holders on or
after the Redemption Date upon receipt of notification from the Corporation
that such holder has surrendered his share certificate to the Corporation
pursuant to Section B.3(b) above. As of the Redemption Date, the deposit
shall constitute full payment for the shares to their holders, and from and
after the Redemption Date the shares so called for redemption shall be
redeemed and shall be deemed to be no longer outstanding, and the holders
thereof shall cease to be shareholders with respect to such shares and shall
have no rights with respect thereto except the rights to receive from the
bank or trust corporation payment of the Redemption Price for the shares,
without interest, upon surrender of their certificates therefor. Such
instructions shall also provide that any moneys deposited by the Corporation
pursuant to this Section B.3(d) for the redemption of shares thereafter
converted into shares of the Corporation's Common Stock pursuant to Section
B.5 hereof prior to the Redemption Date shall be returned to the Corporation
forthwith upon such conversion. The balance of any moneys deposited by the
Corporation pursuant to this Section B.3(d) remaining unclaimed at the
expiration of two (2) years following the Redemption Date shall thereafter be
returned to the Corporation upon its request expressed in a resolution of its
Board of Directors.
4. VOTING RIGHTS. Except as otherwise expressly provided herein or
as required by law, the holder of each share of Series A Preferred Stock
shall be entitled to vote on all matters and shall be entitled to the number
of votes equal to the largest number of full shares of Common Stock into
which such shares of Series A Preferred Stock could be converted, pursuant to
the provisions of Section 5 hereof, at the record date for the determination
of shareholders entitled to vote on such matters or, if no such record date
is established, at the date such vote is taken or any written consent of
shareholders is solicited. Except as otherwise expressly provided herein or
as required by law, the holders of shares of Series A Preferred Stock and
holders of Common Stock shall vote together and not as separate classes. Each
holder of Common Stock shall be entitled to one (1) vote for each share of
Common Stock held.
5. CONVERSION. The holders of the Series A Preferred Stock shall
have the following conversion rights (the "Conversion Rights"):
<PAGE>
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date
of issuance of such share, with respect to the Series A Preferred Stock, at
the office of the Corporation or any transfer agent for such stock, into such
number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $11.516 by the Conversion Price applicable to such
share, determined as hereinafter provided, in effect on the date the
certificate is surrendered for conversion. The price at which shares of
Common Stock shall be deliverable upon conversion of shares of the Series A
Preferred Stock (the "Series A Conversion Price") shall initially be $11.516
per share of Common Stock. Such initial Series A Conversion Price shall be
adjusted hereinafter provided.
(b) AUTOMATIC CONVERSION. Each share of the Series A Preferred
Stock shall automatically be converted into shares of Common Stock at the
then-effective Series A Conversion Price upon the earlier of (i) immediately
upon the closing of the sale of the Corporation's Common Stock in a firm
commitment, underwritten public offering by an underwriter of nationally
recognized standing registered under the Securities Act of 1933, as amended
(the "Securities Act"), other than a registration relating solely to a
transaction under Rule 145 under such Act (or any successor thereto) or to an
employee benefit plan of the Corporation, at a public offering price (prior
to underwriters' discounts and expenses) equal to or exceeding $34.55 per
share of Common Stock (as adjusted for any stock dividends, combinations or
splits with respect to such shares) and the aggregate proceeds to the
Corporation and/or any selling shareholders (after deduction for
underwriters' discounts but excluding expenses relating to the issuance) of
which exceed $5,000,000; (ii) immediately upon the closing of a Corporate
Reorganization, as defined in Section B.2(a), at a price per share of Common
Stock of not less than $23.03 (as adjusted for any stock dividends,
combinations or splits with respect to such shares), valued as set forth in
Section 5.(c) below; (iii) after thirty (30) days notice following release of
audited financial statements by the Corporation for the fiscal year reporting
at least $2,000,000 in earnings before taxes and before extraordinary items;
and (iv) pursuant to the provisions set forth in Section B.3(a) above.
(c) VALUATION OF CONSIDERATION. Whenever the distribution provided
for in Section B.5(b)(ii) above shall be payable in securities of a
privately-held corporation or other entity or property other than cash, the
value of such
<PAGE>
distribution shall be the fair market value of such securities
or other property as determined by mutual agreement of a majority of the
holders of Series A Preferred Stock and the Board of Directors.
(d) MECHANICS OF CONVERSION.
(1) Before any holder of Series A Preferred Stock shall be
entitled to voluntarily convert the same into shares of Common Stock, he
shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Corporation or of any transfer agent for the capital stock
of the Corporation, and shall give written notice to the Corporation at such
office that he elects to convert the same and shall state therein the number
of shares of Series A Preferred Stock being converted. Thereupon, the
Corporation shall as soon as reasonably possible issue and deliver or cause
to be issued and delivered at such office to such holder of Series A
Preferred Stock a certificate or certificates for the number of shares of
Common Stock to which he shall be entitled. Such conversion shall be deemed
to have been made immediately prior to the close of business on the date of
such surrender of the shares of Series A Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on such date.
(2) If the conversion is in connection with an underwritten
offering of securities pursuant to the Securities Act, the conversion may, at
the option of any holder tendering shares of Series A Preferred Stock for
conversion, be conditioned upon the closing with the underwriters of the sale
of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock upon conversion of the Series A
Preferred Stock shall not be deemed to have converted such Series A Preferred
Stock until immediately prior to the closing of such sale of securities.
(e) ADJUSTMENTS TO CONVERSION PRICE FOR STOCK DIVIDENDS AND FOR COMBINATIONS
OF SUBDIVISIONS OF COMMON STOCK. In the event that this Corporation at any
time or from time to time after the date the first share of Series A
Preferred Stock was issued (the "Original Issue Date") shall declare or pay,
without consideration, any dividend on the Common Stock payable in Common
Stock or in any right to acquire Common Stock for no consideration, or shall
effect a subdivision of the outstanding shares of Common Stock into a greater
number of shares of
<PAGE>
Common Stock (by stock split, reclassification or otherwise than by payment
of a dividend in Common Stock or in any right to acquire Common Stock) or in
the event the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of
shares of Common Stock, then the Conversion Price for the Series A Preferred
Stock in effect immediately prior to such event shall, concurrently with the
effectiveness of such event, be proportionately decreased or increased, as
appropriate. In the event that this Corporation shall declare or pay, without
consideration, any dividend on the Common Stock payable in any right to
acquire Common Stock for no consideration, then the Corporation shall be
deemed to have made a dividend payable in Common Stock in an amount of shares
equal to the maximum number of shares issuable upon exercise of such rights
to acquire Common Stock.
(f) ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION. If the
Common Stock issuable upon conversion of the Series A Preferred Stock shall be
changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for in
Section B.5(e) above or Corporate Reorganization referred to in Section B.2(a)
above), the Series A Conversion Price then in effect shall, concurrently with
the effectiveness of such reorganization or reclassification, be proportionately
adjusted so that the Series A Preferred Stock shall be convertible into, in lieu
of the number of shares of Common Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other class or classes of
stock equivalent to the number of shares of Common Stock that would have been
subject to receipt by the holders upon conversion of the Series A Preferred
Stock immediately before that change.
(g) NO IMPAIRMENT. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section B.5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
<PAGE>
(h) CERTIFICATES OF ADJUSTMENT. Upon the occurrence of each adjustment or
readjustment of any Conversion Price pursuant to this Section B.5, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate executed by the Corporation's
President or Chief Financial Officer setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price for such Series A Preferred Stock at
the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon the
conversion of the Series A Preferred stock.
(i) Notices of Record Date. In the event that the Corporation shall
propose at any time: (i) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus; (ii)
to offer for subscription pro rata to the holders of any class or series of its
stock any additional shares of stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of its Common Stock
outstanding involving a change in the Common Stock; or (iv) to effect any
Corporate Reorganization, as defined in Section B.2(a) above, or sell, lease or
convey all or substantially all of its assets, or to liquidate, dissolve or wind
up; then, in connection with each such event, the Corporation shall send to the
holders of Series A Preferred Stock:
(1) at least twenty (20) days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote, if any, in respect of the
matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in (iii) and (iv)
above, at least twenty (20) days' prior written notice of the date when the
same shall take place (and specifying the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).
<PAGE>
(j) ISSUE TAXES. The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series A Preferred Stock pursuant hereto;
provided, however, that the Corporation shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder in connection
with any such conversion.
(k) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series A Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose, including, without limitation, engaging in best efforts to obtain the
requisite shareholder approval of any necessary amendment to these Articles of
Incorporation.
(l) Fractional Shares. No fractional share shall be issued upon the
conversion of any share or shares of Series A Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A Preferred Stock by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in good
faith by the Board of Directors).
(m) NOTICES. Any notice required by the provisions of this Section
B.5 to be given to the holders of shares of the Series A Preferred Stock
shall be deemed given when personally delivered to such holder or five (5)
business days after the same has been deposited in the United States mail,
certified or registered mail, return receipt requested, postage prepaid, and
<PAGE>
addressed to each holder of record at its address appearing on the books of
the Corporation.
6. Restrictive Covenants. So long as any shares of the Series A
Preferred Stock shall be issued and outstanding, the Corporation shall not,
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of not less than a majority of the total number of shares of
Series A Preferred Stock then outstanding:
(a) repurchase any Common Stock or any Series A Preferred Stock other
than pursuant to the provisions set forth in Section B.3 above;
(b) authorize or issue any equity securities with any rights or
preferences senior to or pari passu with those of the Series A Preferred
Stock; or
(c) take any corporate action which materially or adversely affects
the powers, preferences or special rights of the series A Preferred Stock."
3. Article FIVE of the articles of incorporation of this corporation
is amended to read as follows:
"FIVE:
A. The liability of the directors of this corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law.
B. This corporation is authorized to provide indemnification of
agents (as defined in section 317 of the California Corporations Code)
through bylaw provisions, agreements with the agents, vote of shareholders or
disinterested directors, or otherwise, in excess of the indemnification
otherwise permitted by section 317 of the California Corporations Code,
subject only to the applicable limits set forth in section 204 of the
California Corporations Code with respect to actions for breach of duty to
the corporation or its shareholders. This corporation is further authorized
to provide insurance for agents as set forth in section 317 of the California
Corporations Code, provided that, in cases where this corporation owns all or
a portion of the shares of the company issuing the insurance policy, the
company and/or the policy must meet one of the two sets of conditions set
forth in section 317, as amended.
<PAGE>
C. Any repeal or modification of the foregoing provisions of this
Article Five or by the shareholders of this corporation shall not adversely
affect any right or protection of an agent of this corporation existing at
the time of such repeal or modification."
4. The foregoing amendments of articles of incorporation have been
approved by the Board of Directors of this corporation.
5. The foregoing amendments of articles of incorporation have been approved
by the required vote of the shareholders of this corporation, in accordance
with section 902 of the California General Corporation Law; the total number
of outstanding shares entitled to vote with respect to the foregoing
amendment was 332,862 shares of Common Stock; and the number of shares of
Common Stock voting in favor of the foregoing amendment equalled or exceeded
the vote required, such required vote being a majority of the outstanding
shares.
We further declare, under penalty of perjury under the laws of the
State of California, that the matters set forth in this certificate are true
and correct of our own knowledge.
Dated: May 19, 1989.
/s/Robert M. Long
- ------------------------
President
/s/ Martin D. Gray
- ------------------------
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION
OF
OVERLAND DATA INC.
William M. Barton, Jr. and Martin D. Gray certify that:
1. They are the President and Secretary,
respectively, of Overland Data Inc. (the "Corporation").
2. Paragraph A of Article FOUR of the articles of
incorporation of the Corporation is amended to read in its entirety
as follows:
"A. This Corporation is authorized to issue two classes of
shares to be designated respectively Series A Preferred Stock ("Series A
Preferred Stock") and Common Stock ("Common Stock"). The total number of shares
of capital stock that the Corporation is authorized to issue is six million,
ninety five thousand, five hundred nineteen (6,095,519). The total number of
shares of Series A Preferred Stock this Corporation shall have authority to
issue is ninety five thousand, five hundred nineteen (95,519). The total number
of shares of Common Stock this Corporation shall have the authority to issue is
six million (6,000,000). Upon the amendment of this article to read as herein
set forth, each outstanding share of Common Stock is split up and converted into
ten (10) shares of Common Stock."
3. The foregoing amendment to the articles of incorporation has been
approved by the Board of Directors of this corporation.
<PAGE>
4. The foregoing amendment to the articles of incorporation has been
approved by the required vote of the shareholders of this corporation, in
accordance with Section 902 of the California General Corporation Law; the
total number of outstanding shares entitled to vote with respect to the
foregoing amendment was 337,308 shares of Common Stock and 95,519 shares of
Series A Preferred Stock; and the number of shares of Common Stock and
Preferred Stock voting in favor of the foregoing amendment equalled or
exceeded the vote required, such required vote being a majority of the
outstanding shares of Common Stock and Preferred Stock voting together as a
class.
We further declare, under penalty of perjury under the laws of the
State of California, that the matters set forth in this certificate are
true and correct of our own knowledge.
DATED: June 12, 1991.
/s/ William M. Barton, Jr.
- --------------------------
President
/s/ Martin D. Gray
- --------------------------
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION
OVERLAND DATA INC.
Scott McClendon and Martin D. Gray certify that:
1. They are the President and Secretary, respectively, of Overland Data
Inc. (the "Corporation").
2. Article FOUR of the articles of incorporation of the Corporation is
amended to read as follows:
"FOUR:
A. This Corporation is authorized to issue two classes of shares to be
designated, respectively, Preferred Stock ("Preferred Stock") and Common Stock
("Common Stock").
The total number of shares of capital stock that the Corporation is
authorized to issue is eight million eight hundred five thousand one hundred and
ninety (8,805,190). The total number of shares of Common Stock this Corporation
shall have the authority to issue is seven million (7,000,000) and the total
number of shares of Preferred Stock this Corporation shall have the authority to
issue is one million eight hundred five thousand one hundred ninety (1,805,190).
The Preferred Stock may be issued in series designated Series A Preferred Stock
and Series B Preferred Stock. The total number of shares of Series A Preferred
Stock this Corporation shall have authority to issue is nine hundred fifty-five
thousand one hundred ninety (955,190). The total number of shares of Series B
Preferred Stock this Corporation shall have authority to issue is eight hundred
fifty thousand (850,000). Upon the amendment of the articles of incorporation of
this Corporation as set forth herein, each outstanding share of the class of
shares previously designated Series A Preferred Stock is converted into and
reconstituted as ten shares of the series of shares designated Series A
Preferred Stock.
B. The powers, preference, rights, restrictions and other matters relating
to the Preferred Stock are as follows:
1. DIVIDENDS. No dividend shall be paid on or declared and set apart
for the shares of Common Stock for any dividend period unless at the same time a
like proportionate dividend for the same dividend period, ratably in proportion
to the respective annual dividend rates fixed therefor, shall be paid on or
declared and set apart for the shares of Preferred Stock.
<PAGE>
2. LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution, or winding up
of the Corporation, whether voluntary or involuntary, the holders of each share
of Series A Preferred Stock and Series B Preferred Stock then outstanding shall
be entitled to be paid out of the assets of the Corporation available for
distribution to its shareholders, before any payment or declaration and setting
apart for payment of any amount shall be made in respect of the Common Stock, an
amount equal to $1.1516 per share and $1.75 per share, respectively, plus all
declared but unpaid dividends on each share of Series A Preferred Stock and
Series B Preferred Stock, respectively, and no more. If upon liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
the assets to be distributed to the holders of the Preferred Stock shall be
insufficient to permit the payment to such shareholders of the full preferential
amount aforesaid, then all of the assets of the Corporation to be distributed
shall be distributed ratably to the holders of the Preferred Stock so that each
holder receives the same percentage of the applicable preferential amount). For
the purposes of this Section B.2(a), any acquisition of the Corporation by means
of merger or other form of corporate reorganization in which outstanding shares
of the Corporation are exchanged for securities or other consideration issued,
or caused to be issued, by the acquiring corporation or its subsidiary (a
"Corporate Reorganization") other than a transaction with a subsidiary of the
Corporation or an entity under common control with the Corporation (and other
than a transaction set forth in Section B.5(b)(ii)) shall be deemed to be a
liquidation, dissolution or winding up of the Corporation.
(b) After the payment or distribution to the holders of the
Preferred Stock of the full preferential amounts aforesaid, the holders of the
Common Stock then outstanding shall be entitled to receive ratably all the
remaining assets of the Corporation.
3. REDEMPTION.
(a) At the individual option of each holder of shares of Series A Preferred
Stock, the Corporation shall redeem on the sixth, seventh and eighth anniversary
dates from the date of the first issuance of Series A Preferred Stock (each a
"Series A Redemption Date"), at a price per share equal to $1.1516 (as adjusted
for any stock dividends, combinations or splits with respect to such shares)
plus declared but unpaid dividends on such shares (the "Series A Redemption
Price"), at the rate of 33 1/3% of such holders' outstanding shares of Series A
Preferred Stock per year for each of the Series A Redemption Dates. At the
individual option of each
<PAGE>
holder of shares of Series B Preferred Stock, the Corporation shall redeem on
December 31, 1996, December 31, 1997 and December 31, 1998 (each a "Series B
Redemption Date"), at a price per share equal to $1.75 (as adjusted for any
stock dividends, combinations or splits with respect to such shares) plus
declared but unpaid dividends on such shares (the "Series B Redemption
Price"), at the rate of 33 1/3% of such holders' outstanding shares of Series
B Preferred Stock per year for each of the three Series B Redemption Dates.
The holders of the Series A Preferred Stock and Series B Preferred Stock will
give written notice of their election to be redeemed not less than ninety
(90) days prior to each anniversary date (the "Redemption Notice"). If any
holders of Series A Preferred Stock or Series B Preferred Stock, as
applicable, do not timely elect to be redeemed on any of the applicable three
Redemption Dates, one-third of such holder's shares of Series A Preferred
Stock or Series B Preferred Stock, as applicable, will automatically be
converted into Common Stock in accordance with the provisions set forth in
Section B.5, below, to effect the result that following the last applicable
Redemption Date all outstanding shares of Series A Preferred Stock and Series
B Preferred Stock, as applicable, shall either be redeemed or converted into
common Stock.
(b) Except as provided in Section B.3(c), on or after each
applicable Redemption Date, each holder of Preferred Stock shall surrender to
this Corporation the certificate or certificates representing the applicable
shares to be redeemed or converted, and thereupon each surrendered certificate
will be canceled and either (i) the appropriate Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof, or (ii) the appropriate number
of shares of Common Stock shall be issued for such shares to the owner thereof.
In the event less than all the shares represented by any such certificate are
redeemed or converted into Common Stock, a new certificate shall be issued
representing the unredeemed or unconverted shares.
(c) From and after each Redemption Date, unless there shall have
been a default in payment of the requested Redemption Price, all rights of the
holders of Preferred Stock (except the right to receive the applicable
Redemption Price without interest or shares of Common Stock upon surrender of
their certificate or certificates) shall cease with respect to such shares, and
such shares shall not thereafter be transferred on the books of the Corporation
or be deemed to be outstanding for any purpose whatsoever. If the funds of the
Corporation legally available for redemption of shares of Series A Preferred
Stock or Series B Preferred Stock on any Redemption Date are insufficient to
<PAGE>
redeem the total number of shares of Series A Preferred Stock or Series B
Preferred Stock to be redeemed on such date, those funds which are legally
available will be used to redeem the maximum possible number of such shares
ratably among the holders of such shares electing to be redeemed based upon
their holdings of Series A Preferred Stock or Series B Preferred Stock, as
applicable. The shares of Series A Preferred Stock and Series B Preferred Stock
not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of shares of Series A
Preferred Stock or Series B Preferred Stock, as applicable, such funds will
immediately be used to redeem ratably the balance of the shares which the
Corporation has become obliged to redeem on any Redemption Date, but which it
has not redeemed.
(d) On or prior to each Redemption Date, the Corporation shall
deposit the Redemption Price of all shares of the applicable series of Preferred
Stock held by Shareholders who elect to be redeemed by giving the Redemption
Notice and not yet redeemed with a bank or trust corporation having aggregate
capital and surplus in excess of $100,000,000 as a trust fund for the benefit of
the respective holders of the shares electing redemption and not yet redeemed,
with irrevocable instructions and authority to the bank or trust corporation to
pay the applicable Redemption Price for such shares to their respective holders
on or after such Redemption Date upon receipt of notification from the
Corporation that such holder has surrendered his share certificate to the
Corporation pursuant to Section B.3(b) above. As of such Redemption Date, the
deposit shall constitute full payment for the shares to their holders, and from
and after such Redemption Date the shares so called for redemption shall be
redeemed and shall be deemed to be no longer outstanding, and the holders
thereof shall cease to be shareholders with respect to such shares and shall
have no rights with respect thereto except the rights to receive from the bank
or trust corporation payment of the applicable Redemption Price for the shares,
without interest, upon surrender of their certificates therefor. Such
instructions shall also provide that any moneys deposited by the Corporation
pursuant to this Section B.3(d) for the redemption of shares thereafter
converted into shares of the Corporation's Common Stock pursuant to Section B.5
hereof prior to the applicable Redemption Date shall be returned to the
Corporation forthwith upon such conversion. The balance of any moneys deposited
by the Corporation pursuant to this Section B.3(d) remaining unclaimed at the
expiration of two (2) years following the applicable Redemption Date shall
thereafter be returned to the Corporation upon its request expressed in a
resolution of its Board of Directors.
<PAGE>
4. VOTING RIGHTS. Except as otherwise expressly provided herein or as
required by law, each holder of shares of Preferred Stock shall be entitled to
vote on all matters and shall be entitled to the number of votes equal to the
largest number of full shares of Common Stock into which such shares of
Preferred Stock could be converted. pursuant to the provisions of Section 5
hereof, at the record date for the determination of shareholders entitled to
vote on such matters or, if no such record date is established, at the date such
vote is taken or any written consent of shareholders is solicited. Except as
otherwise expressly provided herein or as required by law, the holders of shares
of Preferred Stock and holders of Common Stock shall vote together and not as
separate classes. Each holder of Common Stock shall be entitled to one (1) vote
for each share of Common Stock held.
5. CONVERSION. The holders of the Preferred Stock shall have the
following conversion rights (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock and
Series B Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
the Corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing
$1.1516 and $1.75, respectively, by the Conversion Price applicable to the
shares of Series A Preferred Stock and Series B Preferred Stock, respectively,
determined as hereinafter provided, in effect on the date the certificate is
surrendered for conversion. The price at which shares of Common Stock shall be
deliverable upon conversion of shares of the Series A Preferred Stock (the
"Series A Conversion Price") and the Series B Preferred Stock (the "Series B
Conversion Price") shall initially be $1.1516 and $1.75 per share of Common
Stock, respectively. Such initial Series A Conversion Price and Series B
Conversion Price (collectively, the "Conversion Prices") shall be adjusted as
hereinafter provided.
(b) AUTOMATIC CONVERSION. Each share of the Preferred Stock
shall automatically be converted into shares of Common Stock at the
then-effective applicable Conversion Price upon the earlier of (i)
immediately upon the closing of the sale of the Corporation's Common Stock in
a firm commitment, underwritten public offering by an underwriter of
nationally recognized standing registered under the Securities Act of 1933,
as amended (the "Securities Act"), other than a registration relating solely
to a transaction under Rule 145 under such Act (or any successor thereto) or
to an employee benefit plan of the Corporation, at a public offering price
(prior to underwriters' discounts and expenses) equal to or exceeding $4.00
per share of Common Stock (as adjusted for any
<PAGE>
stock dividends, combinations or splits with respect to such shares) and the
aggregate proceeds to the Corporation and/or any selling shareholders (after
deduction for underwriters' discounts but excluding expenses relating to the
issuance) of which exceed $5,000,000; (ii) immediately upon the closing of a
merger, reorganization, sale of control, or any transaction in which all or
substantially all of the assets of the Company are sold (other than a merger
into a wholly-owned subsidiary), and in which the aggregate net proceeds
available for distribution to shareholders of the Corporation (exclusive of
commission and other payments and expenses) per share of Common Stock issued
or issuable upon conversion of outstanding convertible securities or upon
exercise of outstanding warrants and options is not less than $4.00 (as
adjusted for any stock dividends, combinations or splits with respect to such
shares), valued as set forth in Section B.5(c) below; and (iii) after
thirty(30) days' notice following release of audited financial statements by
the Corporation for the first fiscal year in which the Corporation reports at
least $7,000,000 in earnings before taxes and before extraordinary items; and
(iv) pursuant to the provisions set forth in Section B.3(a) above.
(c) VALUATION OF CONSIDERATION. Whenever a transaction described
in Section B.5(b)(ii) above shall provide for payment in securities of a
privately-held corporation or other entity or property other than cash, the
value of such securities or other property shall be deemed to be the fair market
value of such securities or other property as determined by mutual agreement of
a majority of the holders of Series A Preferred Stock, a majority of the holders
of Series B Preferred Stock and the Board of Directors of the Corporation.
(d) MECHANICS OF CONVERSION.
(i) Before any holder of Preferred Stock shall be entitled
to voluntarily convert the same into shares of Common Stock, he shall surrender
the certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the capital stock of the Corporation,
and shall give written notice to the Corporation at such office that he elects
to convert the same and shall state therein the number of shares of Preferred
Stock being converted. Thereupon, the Corporation shall as soon as reasonably
possible issue and deliver or cause to be issued and delivered at such office to
such holder of Preferred Stock a certificate or certificates for the number of
shares of Common Stock to which he shall be entitled. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock to be converted, and the
person or persons entitled to
<PAGE>
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
(ii) If the conversion is in connection with an
underwritten offering of securities pursuant to the Securities Act, the
conversion may, at the option of any holder tendering shares of Preferred Stock
for conversion, be conditioned upon the closing with the underwriters of the
sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock upon conversion of the Preferred Stock
shall not be deemed to have converted such Preferred Stock until immediately
prior to the closing of such sale of securities.
(e) ADJUSTMENTS TO CONVERSION PRICE FOR STOCK DIVIDENDS AND FOR
COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event that this Corporation
at any time or from time to time after the date the first share of Series B
Preferred Stock was issued (the "Original Issue Date") shall declare or pay,
without consideration, any dividend on the Common Stock payable in Common Stock
or in any right to acquire Common Stock for no consideration, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or otherwise than by
payment of a dividend in Common Stock or in any right to acquire Common Stock)
or in the event the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Common Stock, then the Conversion Price for each series of Preferred Stock in
effect immediately prior to such event shall, concurrently with the
effectiveness of such event, be proportionately decreased or increased, as
appropriate. In the event that this Corporation shall declare or pay, without
consideration, any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration, then the Corporation shall be deemed to have
made a dividend payable in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to acquire Common
Stock.
(f) ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION. If the
Common Stock issuable upon conversion of the Preferred Stock shall be changed
into the same or a different number of shares of any other class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares provided for in Section B.5(e) above
or Corporate Reorganization referred to in Section B.2 (a) above), the
applicable Conversion Price for each series of Preferred Stock then in effect
shall, concurrently with the
<PAGE>
effectiveness of such reorganization or reclassification, be proportionately
adjusted so that the Preferred Stock shall be convertible into, in lieu of
the number of shares of Common Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other class or classes
of stock equivalent to the number of shares of Common Stock that would have
been subject to receipt by the holders upon conversion of the Preferred Stock
immediately before that change.
(g) NO IMPAIRMENT. The Corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out
of all the provisions of this Section B.5 and in the taking of all such
action as may be necessary or appropriate in order to protect the Conversion
Rights of the holders of the Preferred Stock against impairment.
(h) CERTIFICATES OF ADJUSTMENT. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section B.5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate executed by the Corporation's President
or Chief Financial Officer setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price for such Preferred Stock at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of such Preferred Stock .
(i) NOTICES OF RECORD DATE. In the event that the Corporation
shall propose at any time: (i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus; (ii) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common stock; or (iv) to
effect any Corporate
<PAGE>
Reorganization, as defined in Section B.2(a) above, or sell, lease or convey
all or substantially all of its assets, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of Preferred Stock:
(1) at least twenty (20) days' prior written notice of the date
on which a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote, if any, in respect of the
matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in (iii) and (iv)
above, at least twenty (20) days' prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event).
(j) ISSUE TAXES. The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Preferred Stock pursuant hereto; provided,
however, that the Corporation shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with any such
conversion.
(k) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain the requisite
shareholder approval of any necessary amendment to these Articles of
Incorporation.
(l) FRACTIONAL SHARES. No fractional share shall be issued upon
the conversion of any share of Preferred Stock. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
a series of Preferred Stock by
<PAGE>
a holder thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional share. If, after
the aforementioned aggregation, the conversion would result in the issuance
of a fraction of a share of Common Stock, the Corporation shall, in lieu of
issuing any fractional shares, pay the holder otherwise entitled to such
fraction a sum in cash equal to the fair market value of such fraction on the
date of conversion (as determined in good faith by the Board of Directors).
(m) NOTICES. Any notice required by the provisions of this
Section B.5 to be given to a holder of Preferred Stock shall be deemed given
when personally delivered to such holder or five (5) business days after the
same has been deposited in the United States mail, certified or registered mail,
return receipt requested, postage prepaid, and addressed to such holder at its
address appearing on the books of the Corporation.
6. SERIES A RESTRICTIVE COVENANTS. So long as any shares of the Series
A Preferred Stock shall be issued and outstanding, the Corporation shall not,
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of not less than a majority of the total number of shares of
Series A Preferred Stock then outstanding:
(a) repurchase any Common Stock or any Preferred Stock other
than pursuant to the provisions set forth in Section B.3 above;
(b) authorize or issue any equity securities with any rights or
preferences senior to or pari passu with those of the Series A Preferred Stock;
or
(c) take any corporate action which materially or adversely
affects the powers, preferences or special rights of the .C Pr; m;: A Preferred
Stock.
7. SERIES B RESTRICTIVE COVENANTS. So long as any shares of the Series
B Preferred Stock shall be issued and outstanding, the Corporation shall not,
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of not less than a majority of the total number of shares of
Series B Preferred Stock then outstanding:
(a) repurchase any Common Stock or any Preferred Stock other
than pursuant to the provisions set forth in Section B.3 above;
<PAGE>
(b) authorize or issue any equity securities with any rights or
preferences senior to or pari passu with those of the Series B Preferred Stock;
or
(c) take any corporate action which materially or adversely
affects the powers, preferences or special rights of the Series B Preferred
Stock.
3. The foregoing amendments of articles of incorporation have been approved
by the Board of Directors of this corporation.
4. The foregoing amendments of articles of incorporation have been approved
by the required vote of the shareholders of this corporation, in accordance with
section 902 of the California General Corporation Law; the total number of
outstanding shares entitled to vote with respect to the foregoing amendment was
3,446,580 shares of Common Stock and 95,519 shares of Series A Preferred Stock;
and the number of shares voting in favor of the foregoing amendment equalled or
exceeded the vote required, such required vote being a majority of the
outstanding shares of Common Stock and a majority of the outstanding shares of
Series A Preferred Stock.
We further declare, under penalty of perjury under the laws of the
State California, that the matters set forth in this certificate are true and
correct of our own knowledge.
Date July 1, 1992.
-------------
/s/ Scott McClendon
- ------------------------
President
/s/ Martin D. Gray
- ------------------------
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION
OF
OVERLAND DATA INC.
Scott McClendon and Martin D. Gray certify that:
1. They are the President and Secretary, respectively, of Overland Data
Inc. (the "Corporation").
2. Article FOUR of the articles of incorporation of the Corporation is
amended to read as follows:
"FOUR:
A. This Corporation is authorized to issue two classes of shares to be
designated, respectively, Preferred Stock ("Preferred Stock") and Common Stock
("Common Stock").
The total number of shares of capital stock that the Corporation is
authorized to issue is twelve million ninety-nine thousand one hundred one
(12,099,101). The total number of shares of Common Stock this Corporation shall
have the authority to issue is nine million (9,000,000) and the total number of
shares of Preferred Stock this Corporation shall have the authority to issue is
three million ninety-nine thousand one hundred one (3,099,101). The Preferred
Stock may be issued in series designated Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock. The total number of shares of
Series A Preferred Stock this Corporation shall have authority to issue is nine
hundred fifty-five thousand one hundred ninety (955,190). The total number of
shares of Series B Preferred Stock this Corporation shall have authority to
issue is seven hundred thirty-one thousand four hundred twenty-nine (731,429).
The total number of shares of Series C Preferred Stock that this Corporation
shall have authority to issue is one million four hundred twelve thousand four
hundred eighty-two (1,412,482)
B. The powers, preference, rights, restrictions and other matters relating
to the Preferred Stock are as follows:
1. DIVIDENDS. No dividend shall be paid on or declared and set apart
for the shares of Common Stock for any dividend period unless at the same time a
like proportionate dividend for the same dividend period, ratably in proportion
to the respective annual dividend rates fixed therefor, shall be paid on or
declared and set apart for the shares of Preferred Stock.
<PAGE>
2. LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution, or winding
up of the Corporation, whether voluntary or involuntary, the holders of each
share of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its shareholders,
before any payment or declaration and setting apart for payment of any amount
shall be made in respect of the Common Stock, an amount equal to (i) $1.1516
per share of Series A Preferred Stock, plus all declared and unpaid dividends
on each share of Series A Preferred Stock, and no more, (ii) $1.75 per share
of Series B Preferred Stock, plus all declared and unpaid dividends on each
share of Series B Preferred Stock, and no more, and (iii) $2.7611 per share
of Series C Preferred Stock, plus all declared and unpaid dividends on each
share of Series C Preferred Stock, and no more. If upon liquidation,
dissolution, or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed to the holders of the Preferred
Stock shall be insufficient to permit the payment to such shareholders of the
full preferential amount aforesaid, then all of the assets of the Corporation
to be distributed shall be distributed ratably to the holders of the
Preferred Stock (so that each holder receives the same percentage of the
applicable preferential amount). For the purposes of this Section B.2(a), any
acquisition of the Corporation by means of merger or other form of corporate
reorganization in which outstanding shares of the Corporation are exchanged
for securities or other consideration issued, or caused to be issued, by the
acquiring corporation or its subsidiary (a "Corporate Reorganization") other
than a transaction with a subsidiary of the Corporation or an entity under
common control with the Corporation (and other than a transaction set forth
in Section B.5(b)(ii)) shall be deemed to be a liquidation, dissolution or
winding up of the Corporation.
(b) After the payment or distribution to the holders of the
Preferred Stock of the full preferential amounts aforesaid, the holders of the
Common Stock then outstanding shall be entitled to receive ratably all the
remaining assets of the Corporation.
3. REDEMPTION.
(a) At the individual option of each holder of shares of Series
A Preferred Stock, the Corporation shall redeem on the sixth (the "First Series
A Redemption Date"), seventh (the Second Series A Redemption Date") and eighth
(the "Third Series A Redemption Date") anniversary dates from the date of the
first issuance of Series A Preferred Stock, at a price per share equal to
$1.1516 (as adjusted for any stock dividends, combinations or splits with
respect
<PAGE>
to such shares) plus declared but unpaid dividends on such shares (the
"Series A Redemption Price"), at the rate of 33 1/3% of such holders' then
outstanding shares of Series A Preferred Stock at the First Series A Redemption
Date, 50% of such holders' then outstanding shares of Series A Preferred Stock
at the Second Series A Redemption Date, and 100% of such holders' then
outstanding shares of Series A Preferred Stock at the Third Series A Redemption
Date. At the individual option of each holder of shares of Series B Preferred
Stock, the Corporation shall redeem on December 31, 1996 (the "First Series B
Redemption Date"), December 31, 1997 (the "Second Series B Redemption Date") and
December 31, 1998 (the "Third Series B Redemption Date"), at a price per share
equal to $1.75 (as adjusted for any stock dividends, combinations or splits with
respect to such shares) plus declared but unpaid dividends on such shares (the
"Series B Redemption Price"), at the rate of 33 1/3% of such holders' then
outstanding shares of Series B Preferred Stock at the First Series B Redemption
Date, 50% of such holders' then outstanding shares of Series B Preferred Stock
at the Second Series B Redemption Date and 100% of such holders' then
outstanding shares of Series B Preferred Stock at the Third Series B Redemption
Date. At the individual option of each holder of shares of Series C Preferred
Stock, the Corporation shall redeem on May 31, 1997 (the "First Series C
Redemption Date"), May 31, 1998 (the "Second Series C Redemption Date") and May
31, 1999 (the "Third Series C Redemption Date"), at a price per share equal to
$2.7611 (as adjusted for any stock dividends, combinations or splits with
respect to such shares) plus declared but unpaid dividends on such shares (the
"Series C Redemption Price"), at the rate of 33 1/3% of such holders' then
outstanding shares of Series C Preferred Stock at the First Series C Redemption
Date, 50% of such holders' then outstanding shares of Series C Preferred Stock
at the Second Series C Redemption Date, and 100% of such holders' then
outstanding shares at the Third Series C Redemption Date. The holders of the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
will give written notice of their election to be redeemed not less than ninety
(90) days prior to a Redemption Date applicable to such series of Preferred
Stock (the "Redemption Notice"). If any holder of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock, as applicable, does not
timely elect to be redeemed on any of the applicable three Redemption Dates, the
number of such holder's shares of Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock, as applicable, which would otherwise be
redeemed on the applicable Redemption Date will automatically be converted into
Common Stock in accordance with the provisions set forth in Section B.5, below,
to effect the result that following the last applicable Redemption Date all
outstanding shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred
<PAGE>
Stock, as applicable, shall either be redeemed or converted into Common Stock.
(b) Except as provided in Section B.3(c), on or after each
applicable Redemption Date, each holder of Preferred Stock shall surrender to
this Corporation the certificate or certificates representing the applicable
shares to be redeemed or converted, and thereupon each surrendered certificate
will be canceled and either (i) the appropriate Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof, or (ii) the appropriate number
of shares of Common Stock shall be issued for such shares to the owner thereof.
In the event less than all the shares represented by any such certificate are
redeemed or converted into Common Stock, a new certificate shall be issued
representing the unredeemed or unconverted shares.
(c) From and after each Redemption Date, unless there shall have
been a default in payment of the requested Redemption Price, all rights of the
holders of Preferred Stock (except the right to receive the applicable
Redemption Price without interest or shares of Common Stock upon surrender of
their certificate or certificates) shall cease with respect to such shares, and
such shares shall not thereafter be transferred on the books of the Corporation
or be deemed to be outstanding for any purpose whatsoever. If the funds of the
Corporation legally available for redemption of shares of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock on any Redemption
Date are insufficient to redeem the total number of shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock to be redeemed on
such date, those funds which are legally available will be used to redeem the
maximum possible number of such shares ratably among the holders of such shares
electing to be redeemed based upon their holdings of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock, as applicable. The shares
of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, as
applicable, such funds will immediately be used to redeem ratably the balance of
the shares which the Corporation has become obliged to redeem on any Redemption
Date, but which it has not redeemed.
(d) On or prior to each Redemption Date, the Corporation shall
deposit the Redemption Price of all shares of the applicable series of Preferred
Stock held by shareholders who elect
<PAGE>
to be redeemed by giving the Redemption Notice and not yet redeemed with a
bank or trust corporation having aggregate capital and surplus in excess of
$100,000,000 as a trust fund for the benefit of the respective holders of the
shares electing redemption and not yet redeemed, with irrevocable
instructions and authority to the bank or trust corporation to pay the
applicable Redemption Price for such shares to their respective holders on or
after such Redemption Date upon receipt of notification from the Corporation
that such holder has surrendered his share certificate to the Corporation
pursuant to Section B.3(b) above. As of such Redemption Date, the deposit
shall constitute full payment for the shares to their holders, and from and
after such Redemption Date the shares so called for redemption shall be
redeemed and shall be deemed to be no longer outstanding, and the holders
thereof shall cease to be shareholders with respect to such shares and shall
have no rights with respect thereto except the rights to receive from the
bank or trust corporation payment of the applicable Redemption Price for the
shares, without interest, upon surrender of their certificates therefor. Such
instructions shall also provide that any moneys deposited by the Corporation
pursuant to this Section B.3 (d) for the redemption of shares thereafter
converted into shares of the Corporation's Common Stock pursuant to Section
B.5 hereof prior to the applicable Redemption Date shall be returned to the
Corporation forthwith upon such conversion. The balance of any moneys
deposited by the Corporation pursuant to this Section B.3(d) remaining
unclaimed at the expiration of two (2) years following the applicable
Redemption Date shall thereafter be returned to the Corporation upon its
request expressed in a resolution of its Board of Directors.
4. VOTING RIGHTS.
(a) GENERAL. Except as otherwise expressly provided herein or as
required by law, each holder of shares of Preferred Stock shall be entitled to
vote on all matters and shall be entitled to the number of votes equal to the
largest number of full shares of Common Stock into which such shares of
Preferred Stock could be converted, pursuant to the provisions of Section B.5
hereof, at the record date for the determination of shareholders entitled to
vote on such matters or, if no such record date is established, at the date such
vote is taken or any written consent of shareholders is solicited. Except as
otherwise expressly provided herein or as required by law, the holders of shares
of Preferred Stock and holders of Common Stock shall vote together and not as
separate classes. Each holder of Common Stock shall be entitled to one (1) vote
for each share of Common stock held.
(b) DIRECTORS. The holders of the Series A Preferred Stock,
voting separately as a class, shall be entitled to elect one
<PAGE>
(1) member of the Board of Directors of this Corporation. The holders of the
Series B Preferred Stock, voting separately as a class, shall be entitled to
elect one (1) member of the Board of Directors of this Corporation. The
holders of the Series C Preferred Stock, voting separately as a class, shall
be entitled to elect one (1) member of the Board of Directors of this
Corporation. The holders of the Common Stock, voting separately from all
other classes and series, shall be entitled to elect the remaining members of
the Board of Directors of this Corporation. In the case of any vacancy in the
office of a director elected by the holders of a particular class or series
of stock, such vacancy may be filled only by the vote of the holders of such
class or series of stock. Any director who shall have been elected by the
holders of a particular class or series of stock may be removed without cause
by, and only by, the applicable vote of the holders of such class or series
of stock
5. CONVERSION. The holders of the Preferred Stock shall have the
following conversion rights (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock shall be convertible, at
the option of the holder thereof, at any time after the date of issuance of such
share, at the office of the Corporation or any transfer agent for such stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $1.1516, $1.75 and $2.7611, respectively, by the
Conversion Price applicable to the shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, respectively, determined as
hereinafter provided, in effect on the date the certificate is surrendered for
conversion. The price at which shares of Common Stock shall be deliverable upon
conversion of shares of the Series A Preferred Stock (the "Series A Conversion
Price"), the Series B Preferred Stock (the "Series B Conversion Price") and
Series C Preferred Stock (the "Series C Conversion Price") shall initially be
$1.1516, $1.75 and $2.7611 per share of Common Stock, respectively. Such initial
Series A Conversion Price, Series B Conversion Price and Series C Conversion
Price (collectively, the "Conversion Prices") shall be adjusted as hereinafter
Provided.
(b) AUTOMATIC CONVERSION. Each share of the Preferred Stock
shall automatically be converted into shares of Common Stock at the
then-effective applicable Conversion Price upon the earliest of (i) immediately
upon the closing of the sale of the Corporation's Common Stock in a firm
commitment, underwritten public offering by an underwriter of nationally
recognized standing registered under the Securities Act of 1933, as amended (the
"Securities Act"), other than a registration relating solely to a transaction
under Rule 145 under
<PAGE>
such Act (or any successor thereto) or to an employee benefit plan of the
Corporation, at a public offering price (prior to underwriters' discounts and
expenses) equal to or exceeding $4.00 per share of Common Stock (as adjusted
for any stock dividends, combinations or splits with respect to such shares)
and the aggregate proceeds to the Corporation and/or any selling shareholders
(after deduction for underwriters' discounts but excluding expenses relating
to the issuance) of which exceed $5,000,000; (ii) immediately upon the
closing of a merger, reorganization, sale of control, or any transaction in
which all or substantially all of the assets of the Company are sold (other
than a merger into a wholly-owned subsidiary or any other merger or
consolidation in which the holders of equity securities of the Corporation
immediately prior thereto hold a majority of the voting securities of the
surviving corporation immediately thereafter), and in which the aggregate net
proceeds available for distribution to shareholders of the Corporation
(exclusive of commission and other payments and expenses) per share of Common
Stock issued or issuable upon conversion of outstanding convertible
securities or upon exercise of outstanding warrants and options is not less
than $4.00 (as adjusted for any stock dividends, combinations or splits with
respect to such shares), valued as set forth in Section B.5(c) below; (iii)
after thirty (30) days' notice following release of audited financial
statements by the Corporation for the first fiscal year in which the
Corporation reports at least $7,000,000 in earnings before taxes and before
extraordinary items; or (iv) pursuant to the provisions set forth in Section
B.3 (a) above.
(c) VALUATION OF CONSIDERATION. Whenever a transaction described
in Section B.5(b)(ii) above shall provide for payment in securities of a
privately-held corporation or other entity or property other than cash, the
value of such securities or other property shall be deemed to be the fair market
value of such securities or other property as determined by mutual agreement of
the holders of a majority of the Series A Preferred Stock, the holders of a
majority of the Series B Preferred Stock, and the holders of a majority of the
Series C Preferred Stock and the Board of Directors of the Corporation.
(d) MECHANICS OF CONVERSION.
(i) Before any holder of Preferred Stock shall be entitled
to voluntarily convert the same into shares of Common Stock, he shall surrender
the certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the capital stock of the Corporation,
and shall give written notice to the Corporation at such office that he elects
to convert the same and shall state therein the number of shares of Preferred
<PAGE>
Stock being converted. Thereupon, the Corporation shall as soon as reasonably
possible issue and deliver or cause to be issued and delivered at such office to
such holder of Preferred Stock a certificate or certificates for the number of
shares of Common Stock to which he shall be entitled. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
(ii) If the conversion is in connection with an
underwritten offering of securities pursuant to the Securities Act, the
conversion may, at the option of any holder tenderinq shares of Preferred Stock
for conversion, be conditioned upon the closing with the underwriters of the
sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock upon conversion of the Preferred Stock
shall not be deemed to have converted such Preferred Stock until immediately
prior to the closing of such sale of securities.
(e) ADJUSTMENTS TO CONVERSION PRICE FOR STOCK DIVIDENDS AND FOR
COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event that this Corporation
at any time or from time to time after the date the first share of Series C
Preferred Stock was issued (the "Original Issue Date") shall declare or pay,
without consideration, any dividend on the Common Stock payable in Common Stock
or in any right to acquire Common Stock for no consideration, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or otherwise than by
payment of a dividend in Common Stock or in any right to acquire Common Stock)
or in the event the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Common Stock, then the Conversion Price for each series of Preferred Stock in
effect immediately prior to such event shall, concurrently with the
effectiveness of such event, be proportionately decreased or increased, as
appropriate. In the event that this Corporation shall declare or pay, without
consideration, any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration, then the Corporation shall be deemed to have
made a dividend payable in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to acquire Common
Stock.
<PAGE>
(f) ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION. If the
Common Stock issuable upon conversion of the Preferred Stock shall be changed
into the same or a different number of shares of any other class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares provided for in Section B.5(e) above
or Corporate Reorganization referred to in Section B.2(a) above), the applicable
Conversion Price for each series of Preferred Stock then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted so that the Preferred Stock shall be convertible
into, in lieu of the number of shares of Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of such other class
or classes of stock equivalent to the number of shares of Common Stock that
would have been subject to receipt by the holders upon conversion of the
Preferred Stock immediately before that change.
(g) ADDITIONAL SERIES C PREFERRED STOCK ADJUSTMENT.
(i) In the event the Corporation issues at any time or from
time to time an aggregate of more than two hundred fifty thousand (250,000)
shares of Additional Stock (as defined in Section B.5(g)(ii) hereof) during the
one (1) year period following the Original Issue Date for a consideration per
share less than the Series C Conversion Price in effect immediately prior to the
issuance of such Additional Stock, then the Series C Conversion Price in effect
immediately prior to such issuance shall forthwith be reduced to the price per
share at which such Additional Stock is issued and sold. The Conversion Price
adjustment referred to in this Section B.5(g) shall not be applicable to any
shares of Preferred Stock other than the Series C Preferred Stock, nor shall any
other shares of Preferred Stock receive any Conversion Price adjustment on
account of any Series C Conversion Price adjustment effected pursuant to this
Section B.5(g). Any consideration received by the Corporation shall be
calculated as follows:
(A) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by the Corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(B) In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
<PAGE>
(C) In the case of the issuance of options to purchase
or rights to subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock or options to purchase or rights to
subscribe for such convertible or exchangeable securities (which are not
excluded from the definition of Additional Stock), the following provisions
shall apply:
(x) The aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the consideration
(determined in the manner provided in Section B.5(g)(i)(A) and B.5(g)(i)(B)), if
any, received by the Corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for the
Common Stock covered thereby; and
(y) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the Corporation
for any such securities and related options or rights, plus the additional
consideration, if any, to be received by the Corporation upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
Sections B.5(g)(i)(A) and B.5(g)(i)(B)).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to Section B.5(g)(i)(C) by the
Corporation, other than (A) Common Stock issued or issuable to officers,
directors or employees of or consultants to the Corporation, primarily for the
purpose of soliciting or retaining their services to the Corporation, directly
or pursuant to a stock option plan, restricted stock purchase plan or other
arrangement approved by the Board of Directors of the Corporation, in such
amount as shall be approved by the directors of the Corporation plus any shares
or additional shares repurchased by the Corporation from employees, officers,
directors or consultants at cost pursuant to the terms of stock repurchase
agreements approved by the Board of Directors of the Corporation that are
reissued by the Corporation in accordance with this clause (A); (B) Common Stock
issued or issuable upon conversion of any shares of Preferred Stock,
<PAGE>
including any additional shares of Common Stock which may be issued or
issuable upon any adjustment in the Conversion Price of any shares of
Preferred Stock; or (C) Common Stock issued pursuant to a transaction
described in Section B.5(e).
(h) NO IMPAIRMENT The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section B.5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
(i) CERTIFICATES OF ADJUSTMENT. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section B.5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate executed by the Corporation's President
or Chief Financial Officer setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price for such Preferred Stock at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of such Preferred Stock.
(j) NOTICES OF RECORD DATE. In the event that the Corporation
shall propose at any time: (i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus; (ii) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or (iv) to
effect any Corporate Reorganization, as defined in Section B.2(a) above, or to
sell, lease or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; then, in connection with each such event, the Corporation
shall send to the holders of Preferred Stock:
<PAGE>
(1) at least twenty (20) days' prior written notice of the date
on which a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote, if any, in respect of the
matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in (iii) and (iv)
above, at least twenty (20) days' prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event).
(k) ISSUE TAXES. The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Preferred Stock pursuant hereto; provided,
however, that the Corporation shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with any such
conversion.
(l) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain the requisite
shareholder approval of any necessary amendment to these Articles of
Incorporation.
(m) FRACTIONAL SHARES. No fractional share shall be issued upon
the conversion of any share of Preferred Stock. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
a series of Preferred Stock by a holder thereof shall be aggregated for purposes
of determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of a fraction of a share of Common Stock, the Corporation
shall, in lieu of issuing any fractional shares, pay the
<PAGE>
holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in
good faith by the Board of Directors).
(n) NOTICES. Any notice required by the provisions of this
Section B.5 to be given to a holder of Preferred Stock shall be deemed given
when personally delivered to such holder or five (5) business days after the
same has been deposited in the United States mail, certified or registered mail,
return receipt requested, postage prepaid, and addressed to such holder at its
address appearing on the books of the Corporation.
6. SERIES A RESTRICTIVE COVENANTS. So long as any shares of the Series
A Preferred Stock shall be issued and outstanding, the Corporation shall not,
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of not less than a majority of the total number of shares of
Series A Preferred Stock then outstanding:
(a) repurchase any Common Stock (except repurchases of Common
Stock issued to or held by employees, officers, directors and consultants
upon termination of their employment or services pursuant to agreements
between the Corporation and such persons approved by the Board of Directors
of the Corporation providing for the right of said repurchase) or any
Preferred Stock other than pursuant to the provisions set forth in Section
B.3 above;
(b) authorize or issue any equity securities with any rights or
preferences senior to or pari passu with those of the Series A Preferred Stock;
or
(c) take any corporate action which materially or adversely
affects the powers, preferences or special rights of the Series A Preferred
Stock.
7. SERIES B RESTRICTIVE COVENANTS. So long as any shares of the Series
B Preferred Stock shall be issued and outstanding, the Corporation shall not,
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of not less than a majority of the total number of shares of
Series B Preferred Stock then outstanding:
(a) repurchase any Common Stock (except repurchases of Common
Stock issued to or held by employees, officers, directors and consultants upon
termination of their employment or services pursuant to agreements between the
Corporation and such persons approved by the Board of Directors of the
Corporation providing for
<PAGE>
the right of said repurchase) or any Preferred Stock other than pursuant to
the provisions set forth in Section B.3 above;
(b) authorize or issue any equity securities with any rights or
preferences senior to or pari passu with those of the Series B Preferred Stock;
or
(c) take any corporate action which materially or adversely
affects the powers, preferences or special rights of the Series B Preferred
Stock
8. SERIES C RESTRICTIVE COVENANTS. So long as any shares of the Series
C Preferred Stock shall be issued and outstanding, the Corporation shall not,
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of not less than a majority of the total number of shares of
Series C Preferred Stock then outstanding:
(a) repurchase any Common Stock (except repurchases of Common
Stock issued to or held by employees, officers, directors and consultants upon
termination of their employment or services pursuant to agreements between the
Corporation and such persons approved by the Board of Directors of the
Corporation providing for the right of said repurchase) or any Preferred Stock
other than pursuant to the provisions set forth in Section B.3 above;
(b) authorize or issue any equity securities with any rights or
preferences senior to or pari passu with those of the Series C Preferred Stock;
or
(c) take any corporate action which materially or adversely
affects the powers, preferences or special rights of the Series C Preferred
Stock.
9. CONSENT FOR CERTAIN REPURCHASES OF COMMON STOCK DEEMED TO BE
DISTRIBUTIONS. Each holder of Preferred Stock shall be deemed to have consented,
for purposes of Sections 502, 503 and 506 of the California General Corporation
Law, to distributions made by the Corporation in connection with the repurchase
of shares of Common Stock issued to or held by employees, officers, directors
and consultants of the Corporation upon termination of their employment or
services pursuant to agreements between the Corporation and such persons
approved by the Corporation's Board of Directors providing for the right of said
repurchase.
3. The foregoing amendments of articles of incorporation have been approved
by the Board of Directors of this Corporation.
<PAGE>
4. The foregoing amendments of articles of incorporation have been approved
by the required vote of the shareholders of this corporation, in accordance with
section 902 of the California General Corporation Law; the total number of
outstanding shares entitled to vote with respect to the foregoing amendment was
3,783,920 shares of Common Stock, 955,190 shares of Series A Preferred Stock and
731,429 shares of Series B Preferred Stock; and the number of shares voting in
favor of the foregoing amendment equalled or exceeded the vote required, such
required vote being a majority of the outstanding shares of Common Stock, a
majority of the outstanding shares of Series A Preferred Stock and a majority of
the outstanding shares of Series B Preferred Stock.
We further declare, under penalty of perjury under the laws of the State
California, that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: May 14, 1993.
/s/ Scott McClendon
- ----------------------
President
/s/ Martin D. Gray
- ----------------------
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION
OF
OVERLAND DATA INC.
Scott McClendon and Martin D. Gray certify that:
1. They are the President and Secretary, respectively, of Overland
Data Inc. (the "Corporation").
2. Article FOUR, Paragraph A of the Articles of Incorporation of the
Corporation is amended to read as follows:
"A. This Corporation is authorized to issue two classes of shares to
be designated, respectively, Preferred Stock ("Preferred Stock") and Common
Stock ("Common Stock").
The total number of shares of capital stock that the Corporation
is authorized to issue is eleven million nine hundred seventy-three thousand
three hundred sixty-six (11,973,366). The total number of shares of Common Stock
this Corporation shall have the authority to issue is nine million (9,000,000)
and the total number of shares of Preferred Stock this Corporation shall have
the authority to issue is two million nine hundred seventy-three thousand three
hundred sixty-six (2,973,366). The Preferred Stock may be issued in series
designated Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock. The total number of shares of Series A Preferred Stock this
Corporation shall have authority to issue is nine hundred fifty-five thousand
one hundred ninety (955,190). The total number of shares of Series B Preferred
Stock this Corporation shall have authority to issue is seven hundred thirty-one
thousand four hundred twenty-nine (731,429). The total number of shares of
Series C Preferred Stock that this Corporation shall have authority to issue is
one million two hundred eighty-six thousand seven hundred forty-seven
(1,286,747)."
3. The foregoing amendment of the Articles of Incorporation has been
approved by the Board of Directors of this Corporation.
4. The foregoing amendment of the Articles of Incorporation has been approved by
the required vote of the shareholders of this corporation, in accordance with
section 902 of the California General Corporation Law; the total number of
outstanding shares entitled to vote with respect to the foregoing amendment was
3,882,510 shares of Common Stock, 955,190 shares of Series A Preferred Stock,
731,429 shares of Series B Preferred Stock and 1,286,747 shares of Series C
Preferred Stock; and the number of
<PAGE>
shares voting in favor of the foregoing amendment equalled or exceeded the
vote required, such required vote being a majority of the outstanding shares
of Common Stock, a majority of the outstanding shares of Series A Preferred
Stock, a majority of the outstanding shares of Series B Preferred Stock and a
majority of the outstanding shares of Series C Preferred Stock.
We further declare, under penalty of perjury under the laws of the
State California, that the matters set forth in this certificate are true and
correct of our own knowledge.
Date: February 3 1994
/s/ Scott McClendon
- ------------------------
President
/s/ Martin D. Gray
- ------------------------
Secretary
<PAGE>
EXHIBIT 3.2
OVERLAND DATA. INC. BYLAWS
ARTICLE 1. OFFICES
SECTION 1. PRINCIPAL EXECUTIVE OFFICE
The principal executive office of the corporation shall be in the city of San
Diego, county of San Diego, state of California.
The corporation may also have offices at such other places as the Board of
Directors may from time to time designate, or as the business of the corporation
may require.
ARTICLE II. SHAREHOLDERS' MEETING
SECTION 1. PLACE OF MEETINGS
All meetings of the shareholders shall be held at the principal executive
office of the corporation or at such other place as may be determined by the
Board of Directors.
SECTION 2. ANNUAL MEETINGS
The annual meeting of the shareholders shall be held on the 15th of November
in each year, if not a holiday, at 10:00 A.M., at which time the shareholders
shall elect a Board of Directors and transact any other proper business. If this
date falls on a holiday, then the meeting shall be held on the following
business day at the same hour.
SECTION 3. SPECIAL MEETINGS
Special meetings of the shareholders may be called by the Board of Directors,
the Chairman of the Board of Directors, the President or by one or more
shareholders holding at least 10 percent of the voting power of the corporation.
SECTION 4. NOTICE OF MEETINGS
Notices of meetings, annual or special, shall be given in writing to
shareholders entitled to vote at the meeting by the Secretary or an Assistant
Secretary, or, if there be no such officer. or in the case of his neglect or
refusal, by any Director or shareholder.
Such notices shall be given either personally or by mail or other means of
written communication, addressed to the shareholder at the address of such
shareholder appearing on the books of the corporation or given by the
shareholder to the
<PAGE>
corporation for the purpose of notice. Notice shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting.
Such notice shall state the place, date, and hour of the meeting and (1), in
the case of a special meeting, the general nature of the business to be
transacted, and that no other business may be transacted, or (2), in the case of
an annual meeting, those matters which the Board at the time of the mailing of
the notice, intends to present for action by the shareholders, but subject to
the provisions of Section 6 of this Article that any proper matter may be
presented at the meeting for such action. The notice of any meeting at which
Directors are to be elected shall include the names of nominees which at the
time of the notice, management intends to present for election. Notice of any
adjourned meeting need not be given unless a meeting is adjourned for forty-five
(45) days or more from the date set for the original meeting.
SECTION 5. WAIVER OF NOTICE
The transactions of any meeting of shareholders, however called and noticed,
and wherever held, are as valid as though had at a meeting duly held after
regular call and notice, if a quorum is present, whether in person or by proxy,
and if, either before or after the meeting, each of the persons entitled to
vote, not present in person or by proxy, signs a written waiver of notice or a
consent to the holding of the meeting or an approval of the minutes thereof. All
such waivers or consents and approvals shall be filed with the corporate records
or made a part of the minutes of the meeting. Neither the business to be
transacted at the meeting, nor the purpose of any regular or special meeting of
shareholders need be specified in any written waiver or notice, except as
provided in Section 6 of this Article.
SECTION 6. SPECIAL NOTICE AND WAIVER OF NOTICE REQUIREMENT
Except as provided below, any shareholder approval at a meeting, with respect
to the following proposals, shall be valid only if the general nature of the
proposal so approved was stated in the notice of meeting, or in any written
waiver of notice:
1. Approval of a contract or other transaction between the corporation and
one or more of its Directors or between the corporation and any corporation,
firm or association in which one or more of the Directors has a material
financial
<PAGE>
interest, pursuant to Section 310 of the California Corporations Code;
2. Amendment of the Articles of Incorporation after any shares have been
issued pursuant to Section 909 of the California Corporations Code;
3. Approval of the principal terms of reorganization pursuant to Section
1201 of the California Corporations Code:
4. Election to voluntarily wind up and dissolve the corporation pursuant to
Section 1900 of the California Corporations Code; and
5. Approval of a plan of distribution of shares as part of the winding up
of the corporation pursuant to Section 9007 of the California Corporations
Code.
6. Approval of the above proposals at a meeting shall be valid with or
without such notice, if by the unanimous approval of those entitled to vote
at the meeting.
SECTION 7. ACTION WITHOUT MEETING
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice if a
consent, in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.
Unless the consents of all shareholders entitled to vote have been solicited
in writing, notice of any shareholders' approval, with respect to any one of the
following proposals, without a meeting, by less than unanimous written consent
shall be given at least ten (10) days before the consummation of the action
authorized by such approval:
1. Approval of a contract or other transaction between the corporation and
one or more of its Directors or between the corporation and any corporation,
firm or association in which one or more of the Directors has a material
financial interest, pursuant to Section 310 of the California Corporations
Code;
<PAGE>
2. To indemnify an agent of the corporation pursuant to Section 317 of the
California Corporations Code:
3. To approve the principal terms of reorganization. pursuant to Section
1201 of the California Corporations Code, or
4. Approval of a plan of distribution as part of the winding up of the
corporation pursuant to Section 9007 of the California Corporations Code.
Prompt notice shall be given of the taking of any other corporate action
approved by shareholders without a meeting by less than a unanimous written
consent to those shareholders entitled to vote who have not consented in writing
Notwithstanding any of the foregoing provisions of this section, Directors
may not be elected by written consent except by the unanimous written consent of
all shares entitled to vote for the election of Directors.
A written consent may be revoked by a writing received by the corporation
prior to the time of written consents of the number of shares required to
authorize the proposed action have been filed with the Secretary of the
Corporation, but may not be revoked thereafter. Such revocation is effective
upon its receipt by the Secretary of the Corporation.
SECTION 8. QUORUM
The holders of a majority of shares entitled to vote, represented in person
or by proxy, shall constitute a quorum at a meeting of shareholders. If a quorum
is present, the affirmative vote of a majority of shareholders represented at
the meeting and entitled to vote on any matter shall be the act of the
shareholders, unless the vote of a greater number is required by law and except
as provided in the following provisions of this section.
The shareholders present at a duly called or held meeting, at which a quorum
is present may continue to transact business until adjournment notwithstanding
the withdrawal of enough shareholders to leave less than a quorum, if any action
is approved by at least a majority of the shares required to constitute a
quorum.
In the absence of a quorum, any meeting of shareholders may be adjourned from
time to time by the vote of a majority of the
<PAGE>
shares represented either in person or by proxy, but no other business may be
transacted except as provided in the foregoing provisions of this section.
SECTION 9. VOTING
Only persons in whose names shares entitled to vote stand on the record date
for voting purposes fixed by the Board of Directors pursuant to Article VIII.
Section 3 of these Bylaws, or, if there be no such date so fixed, on the record
dated given below, shall be entitled to vote at such meeting
If no record date is fixed:
1. The record Date for determining shareholders entitled to notice of, or
to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business next day preceding the day
on which the meeting is held.
2. The record date for determining the shareholders entitled to give
consent to corporate actions in writing without a meeting, when no prior
action by the board is necessary, shall be the day on which the first written
consent is given.
3. The record date for determining shareholders for any other purpose shall
be at the close of business on the day on which the Board adopts the
resolution relating thereto, or on the 60th day prior to the date of such
other action, whichever is later.
4. Every shareholder entitled to vote shall be entitled to one vote for
each share held, except that for the election of Directors, every shareholder
entitled to vote at any election of Directors, if a candidate's name has been
placed in nomination prior to the voting, and one or more shareholders has
given notice at the meeting prior to the voting of the shareholder's intent
to cumulate the shareholder's votes, shall be entitled to cumulate his votes
and give one candidate a number of votes equal to the number of Directors to
be elected multiplied by the number of shares which he is entitled to vote,
or distribute his vote on the same principle among as many candidates as the
shareholder thinks fit. The candidates receiving the highest number of votes
up to the number of Directors to be elected shall be elected.
<PAGE>
Upon the demand of any shareholder made before the voting begins, the
election of Directors shall be by ballot.
SECTION 10. PROXIES
Every person entitled to vote shares may authorize another person or persons
to act by proxy with respect to such shares by filing a written proxy executed
by such person or his duly authorized agent, with the Secretary of the
corporation.
A proxy shall not be valid after the expiration of eleven (11) months from
the date thereof unless otherwise provided in the proxy. Every proxy continues
in full force and effect until revoked by the person executing it prior to the
vote pursuant thereto, except as otherwise provided in Section 705 of the
California Corporations Code.
ARTICLE III. DIRECTORS, MANAGEMENT
SECTION 1. POWERS
Subject to any limitations in the Articles of Incorporation and to the
provisions of the California Corporations Code, and further subject to any
shareholder's agreement relating to any of the affairs of this corporation so
long as it remains a close corporation, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by, or
under the direction of, the Board of Directors.
SECTION 2. NUMBER(1)
The authorized number of directors shall be not less than six (6) and not
more than seven (7), the specific number to be set by resolution of the board of
directors or the shareholders. The initial authorized number of directors shall
be six (6).
Any amendment to these bylaws hereby the minimum number of authorized
directors is set at less than five (5) shall not take effect if votes cast
against it exceed 16 2/3% of outstanding shares entitled to vote.
___________
(1) This section amended by vote of the shareholders on Nov 1, 1990 at an
annual meeting. Amended by unanimous written consent of directors June 1992
whereby the range of directors was expanded to 5 to 7 from 4 to 5. Amended May
1993 by written consent of shareholders to change authorized directors range to
6 to 7.
<PAGE>
Should any portion of this section 2 of article iii be found invalid by a
court of competent jurisdiction, the whole this section shall be revoked, and
the authorized number of directors shall be seven (7).
SECTION 3. ELECTION AND TENURE OF OFFICE
The Directors shall be elected at the annual meeting of the shareholders and
hold office until the next annual meeting and until their successors have been
elected and qualified.
SECTION 4. VACANCIES
A vacancy in the Board of Directors shall exist in the case of death,
resignation, or removal of any director, or in case the authorized number of
directors is increased, or in case the shareholders fail to elect the full,
authorized number of directors at any annual or special meeting of the
shareholders at which any Director is elected, or in case the authorized number
of directors is increased. The Board of Directors may declare vacant the office
of a Director who has been declared of unsound mind by an order of court, or who
has been convicted of a felony.
Except for a vacancy created by the removal of a director, vacancies on the
Board of Directors may be filled by majority vote off directors then in office,
whether or not less than a quorum, or by a sole remaining director, and each
director so elected shall hold office until the next annual meeting of the
shareholders and until his successor has been elected and qualified. The
shareholders may elect a director at any time to fill a vacancy not filled by
the Board of Directors. Any such election by written consent requires the
consent of a majority of the outstanding shares entitled to vote. Any director
may resign effective upon giving written notice to the Chairman of the Board,
President, or Secretary unless the notice specifies a later time for the
effectiveness of such resignation. If the resignation is effective at a further
time, a successor may be elected to take office when the resignation becomes
effective. Any reduction of the authorized number of directors does not remove
any director prior to the expiration of the director's term in office.
<PAGE>
SECTION 5. REMOVAL
Any or all of the directors may be removed with or without cause if such
removal is approved by the majority of the outstanding shares entitled to vote,
subject to the provisions of Section 303 of the California Corporations Code.
Except as provided in sections 302, 303, and 304 of the California
Corporations Code, a director may not be removed prior to the expiration of such
director's term of office.
The Superior Court of the proper county may, on suit of the shareholders holding
at least 10 percent of the outstanding shares of any class, remove from office
any director in case of fraudulent or dishonest acts or gross abuse of authority
or discretion with reference to the corporation and may bar from re-election and
director so removed for a period prescribed by the court. The corporation shall
be made a party to such action.
SECTION 6. PLACE OF MEETINGS
Meetings of the Board of Directors shall be held at any place, within or
without the State of California which has been designated in the notice of the
meeting, or, if not stated in the notice or there is no notice, at the principal
executive office of the corporation or as designated from time to time by
resolution of the Board of Directors.
SECTION 7. CALL AND NOTICE OF MEETINGS
Meetings of the Board of Directors may be called by the Chairman of the
Board, or the President, or Vice-President, or Secretary, or any two (2)
directors.
Regular annual meetings of the Board of Directors shall be held without
notice immediately after and at the same place as the annual meeting of
shareholders. Special meetings of the Board of Directors shall be held upon four
(4) days' notice by mail, or 48 hours' notice delivered personally or by
telephone or telegraph. A notice or waiver of notice need not specify the
purpose of any special meeting of the Board of Directors.
SECTION 8. QUORUM
A Quorum of all meetings of the Board of Directors shall be 51 percent of the
authorized number of directors.
<PAGE>
Every act or decision done or made by a majority of the Directors present at
a meeting duly held at which a quorum is present is the act of the Board,
subject to the provisions of Section 310 and subdivision (e) of Section 317 of
the California Corporations Code. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
Directors, if any action taken is approved by at least a majority of the
required quorum for such meeting.
SECTION 9. WAIVER OF NOTICE
The transactions of any meeting of the Board, however called and noticed or
wherever held, are as valid as though had at a meeting duly held after regular
call and notice if a quorum is present and if, either before or after the
meeting, each of the Directors not present signs a written waiver of notice, a
consent to holding the meeting or an approval of the minutes thereof. All such
waivers, consents, and approvals shall be filed with the corporate records or
made a part of' the minutes of the meeting.
SECTION 10. ACTION WITHOUT MEETING
Any action required or permitted to be taken by the Board may be taken
without a meeting, if all members of the Board shall individually or collective
consent in writing to such action. Such written consent or consents shall be
filed with the minutes of the proceedings of the Board. Such action by written
consent shall have the same force and effect as a unanimous vote of such
Directors.
SECTION 11. COMPENSATION
No salary shall be paid Directors, as such, for their services, but, by
resolution, the Board of Directors may allow a fixed sum and expenses to be paid
for attendance at regular or special meetings. Nothing contained herein shall
prevent a director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attendance at meetings.
<PAGE>
ARTICLE IV. OFFICERS
SECTION 1. OFFICERS
The officers of the corporation shall be a President, Vice- President,
Secretary, and Treasurer, who shall be the chief financial officer of the
corporation. The corporation may also have such other officers with such titles
and duties as shall be determined by the Board of Directors. Any number of
offices may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity.
SECTION 2. ELECTION
All officers of the corporation shall be chosen by the Board. Each officer
shall hold office until his death, resignation, or removal or until his
successor shall be chosen and qualified. A vacancy in any office for any cause
shall be filled by the Board.
SECTION 3. REMOVAL AND RESIGNATION
An officer may be removed at any time, either with or without cause, by the
Board. An officer may resign at any time upon written notice to the corporation
given to the Board, the President, or the Secretary of the corporation. Any such
resignation shall take effect at the day of the receipt of such notice or at any
other time specified therein. The acceptance of a resignation shall not be
necessary to make it effective.
SECTION 4. CHAIRMAN OF THE BOARD
The Chairman of the Board, if such an officer be elected, shall, if present,
preside at meetings of the Board of Directors and exercise and perform such
other powers as may be assigned to him by the Board of Directors or prescribed
by the Bylaws. If there is no President, the Chairman of the Board shall in
addition be the Chief Executive Officer of the corporation and shall have the
powers and duties prescribed in section 5 of this article.
SECTION 5. PRESIDENT
Subject to such supervisory powers, if any, as may be given by the Board of
Directors to the Chairman of the Board, if there be such an officer, the
President shall be the Chief Executive Officer of the corporation and shall,
subject to the direction
<PAGE>
and control of the Board of Directors, have general supervision, direction and
control of the business and affairs of the corporation. He shall preside at all
meetings of the shareholders and, in the absence of the Chairman of the Board,
or if there be none, at all meetings of the Board of Directors. He shall be an
ex-officio member of all standing committees, including the executive committee,
if any, and shall have the general powers and duties of management generally
vested in the office of President of a corporation, and shall have other powers
and duties as may from time to time be prescribed by the Board of Directors or
the Bylaws.
SECTION 6. VICE-PRESIDENT
In the absence or disability of the President, the Vice- Presidents, in order
of their rank as fixed by the Board of Directors, or if not ranked, the
Vice-President designated by the Board of Directors, shall perform all the
duties of the President. Each Vice-President shall have other powers and perform
such other duties as may from time to time be prescribed by the Board of
Directors, or the Bylaws.
SECTION 7. SECRETARY
The Secretary shall keep, or cause to be kept, at the principle executive
office of the corporation, a book of minutes of all meetings of Directors and
shareholders, with the time and place of holding, whether regular or special,
and, if special, how authorized, the notice thereof given, the names of those
present at Director's meetings, the number of shares present or represented at
shareholder's meetings and the proceedings thereof.
SECTION 8. TREASURER
The Treasurer shall keep and maintain or cause to be maintained, adequate and
correct books and records of accounts of the properties and business
transactions of the corporation.
The Treasurer shall deposit moneys and other valuables in the name and to the
credit of the corporation with such depositaries as may be designated by the
Board of Directors. He shall disburse the funds of the corporation in payment of
the just demands against the corporation or as may be ordered by the Board of
Directors; shall render to the President and or Directors, whenever they request
it, an account of all his
<PAGE>
transactions as Treasurer and of the financial condition of the corporation, and
shall have such other powers and perform such duties as may from time to time be
prescribed by the Board of Directors or the Bylaws.
In the absence or disability of the Treasurer, the Assistant Treasurers, if
any, in order of their rank as fixed by the Board of Directors or if not ranked,
the Assistant Treasurer designated by the Board of Directors, shall perform all
the duties of the Treasurer, and when so acting, shall have all the powers of,
and be subject to, all the restrictions upon the Treasurer. The Assistant
Treasurers, if any, shall have such other powers and perform such other duties
as may from time to time be prescribed by the Board of Directors or the Bylaws.
ARTICLE V. EXECUTIVE COMMITTEES
SECTION 1
The Board may, by resolution adopted by a majority of the Authorized number
of directors, designate one or more committees, each consisting of two or more
Directors, to serve at the pleasure of the Board, except with respect to:
1. The approval of any action for which this division also requires
shareholders' approval or approval of the outstanding shares.
2. The filling of vacancies on the Board or in any committee.
3. The fixing of compensation of the Directors for serving on the Board or
on any committee.
4. The amendment or repeal of Bylaws or the adoption of new Bylaws.
5. The amendment or repeal of any resolution of the Board which by its
express terms is not so amendable or repealable.
6. A distribution to the shareholders of the corporation, except at a rate
or in a periodic amount or within a price range determined by the Board.
7. The appointment of other committees of the Board or the members thereof.
<PAGE>
SECTION 2. COMPENSATION
The salaries of the officers shall be fixed, from time to time, by the Board of
Directors.
ARTICLE VI. CORPORATE RECORDS AND REPORTS
SECTION 1. INSPECTION BY SHAREHOLDERS
The share register shall be open to inspection and copying by any shareholder
or holder of a voting trust certificate at any time during usual business hours
upon written demand on the corporation, for a purpose reasonably related to such
holder's interest as a shareholder or holder of a voting trust certificate. Such
inspection and copying under this section may be made in person or by agent or
attorney.
The accounting books and records and minutes of proceedings of the
shareholders and the Board and committees of the Board also shall be open to
inspection upon the written demand on the corporation of any shareholder or any
holder of a voting trust certificate at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interests as a
shareholder or holder of such voting trust certificate. Such inspection shall be
made in person or by agent or attorney, and the right of inspection includes the
right to copy and make extracts.
Shareholders shall also have the right to inspect the original or copy of
these Bylaws, as amended to date, kept at the corporation's principal executive
office, at all reasonable times during business hours.
SECTION 2. INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records, and documents of every kind and to inspect
the physical properties of the corporation of which such person is director and
also of its subsidiary corporations, domestic and foreign. Such inspection shall
be made in person or by agent or attorney and the right to inspection includes
the right to copy and make extracts. Upon specific request, every director shall
have the absolute right to receive, at no cost and in a timely manner, copies of
any regular report or document produced within the company. Upon refusal of
demand for inspection by a director the superior court of the proper county may
enforce such inspection
<PAGE>
and order the payment of reasonable attorneys feces and other court costs to the
complaining director, agent or attorney.
The performance of each officer is directly subject to the review of the
board of directors. As an extension of directors rights of inspection, any
director, their agent or attorney may initiate their own performance review at
any time by interviewing any officer, his/her peers, and his/her subordinates.
Such interviewing by directors shall not imply any executive authority by such
persons(s) not otherwise authorized, but is merely an information gathering
device in furtherance of corporate governance. The company will request that
such officers and employees speak candidly and openly to any questions presented
by any director, agent, or attorney pertaining to any actual or potential
company business. This paragraph shall not be deemed to increase directors
liability nor shall it be deemed to restrict or inhibit any rights directors
otherwise have.(2)
SECTION 3. RIGHT TO INSPECT WRITTEN RECORDS
If any record subject to inspection pursuant to this chapter is not
maintained in written form, a request for inspection is not complied with unless
and until the corporation, at its expense, makes such record available in
written form.
SECTION 4. WAIVER OF ANNUAL REPORT
The annual report to shareholders, described in Section 1501 of the
California Corporations Code, is hereby expressly waived. Nothing in this
section shall prevent the corporation from issuing said report upon direction of
the Board.
SECTION 5. CONTRACTS, ETC.
The Board of Directors, except as otherwise provided in the Bylaws, may
authorize any officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name and on the behalf of the corporation. Such
authority may be general or confined to specific instances. Unless so
authorized, no officer, agent or employee shall have any power or authority to
bind the corporation by any contract or engagement, or to pledge its credit, or
to render it liable for any purpose or to any amount.
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(2) This section amended May 1993 by written consent of shareholders.
<PAGE>
ARTICLE VII. INDEMNIFICATION OF CORPORATE AGENTS
SECTION 1
The corporation shall indemnify each of its agents against expenses, judgments,
fines, settlements and other amounts, actually and reasonably incurred by such
person by reason of such person's having been made or having been threatened to
be made a party to a proceeding, to the fullest extent permissible by the
provisions of Section 317 of the California Corporations Code. The corporation
shall advance the expenses reasonably expected to be incurred by such agent in
defending any such proceeding upon receipt of the undertaking required by
subdivision (f) of such section. The terms "agent", "proceeding" and "expenses"
used in this section I shall have the same meaning as such terms in said Section
317 of the California Corporations Code.
ARTICLE VIII. SHARES
SECTION 1. CERTIFICATES
The corporation shall issue certificates for its shares when fully paid.
Certificates of stock shall be issued in numerical order, and state the name of
the holder of the shares represented thereby; the number, designation, if any,
and class or series of shares represented thereby; and contain any statement or
summary required by an applicable provision of the California Corporations Code.
Every certificate for shares shall be signed in the name of the corporation by
the Chairman or Vice-Chairman of the Board or the President, or a
Vice-President, and the Treasurer, the Secretary or an Assistant Secretary.
SECTION 2. TRANSFER OF SHARES
Upon surrender to the Secretary or transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment, or authority to transfer, it shall be the duty of the
Secretary of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its share
register.
<PAGE>
SECTION 3. RECORD DATE AND CLOSING OF TRANSFER BOOKS
The Board of Directors may fix a time in the future as record date for the
determination of the shareholders entitled to notice of and to vote at any
meeting of shareholders or entitled to receive payment of any dividend or
distribution, or any allotment of rights, or to exercise rights in respect to
any other lawful action. The record date so fixed shall be not more than sixty
(60) nor less than ten (10) days prior to the date of the meeting or event for
the purpose of which it is fixed. When a record date is so fixed, only the
shareholders of record on that date are entitled to notice of end to vote at the
meeting or receive the dividend, distribution, or allotment of rights, or to
exercise the rights as the case may be, notwithstanding any transfer of shares
on the books of the corporation after the record date.
The Board of Directors may close the books of the corporation against
transfers of shares during the whole or any part of a period of not more than
sixty (60) days prior to the date of a shareholders' meeting, the date when any
right to any dividend, distribution or allotment of rights vests, or the
effective date of any change, conversion or exchange of shares.
ARTICLE IX. AMENDMENT OF BYLAWS
SECTION 1. BY SHAREHOLDERS
Bylaws may be adopted, amended or repealed by vote or the written consent of
shareholders entitled to exercise a majority of the voting power of the
corporation.
SECTION 2. DIRECTORS
Subject to the right of shareholders to adopt, amend or repeal Bylaws, Bylaws
may be adopted, amended, or repealed by the board of directors, except that a
Bylaw amendment thereof changing the number of authorized Directors may be
adopted by the Board of Directors only if prior to the issuance of shares.
<PAGE>
EXHIBIT 4.3
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (this "Agreement") is made and entered
into as of the 21st day of May, 1993, by and among OVERLAND DATA INC., a
California corporation (the "Company"), the parties identified on Exhibit A
attached hereto (collectively, the "Shareholders"), and Scott McClendon, Martin
D. Gray and Anne S. Otterson, as Trustee for the Otterson Family Trust (the
"Founders").
The Founders, the Company and certain of the Shareholders (the "1992
Shareholders") are parties to an Investors' Rights Agreement (the "1992
Investors' Rights Agreement") dated as of July 2, 1992. As an inducement to
Archive Corporation, a Delaware corporation ("Archive"), to purchase shares of
Series C Preferred Stock of the Company, the Founders, the Company and the 1992
Shareholders desire to amend and restate the 1992 Investors' Rights Agreement to
provide, among other things, for the grant of rights to the Shareholders as set
forth herein.
The parties hereby agree as follows:
SECTION 1
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES:
REGISTRATION RIGHTS: AMENDMENT AND
RESTATEMENT OF INVESTORS' RIGHTS AGREEMENT
1.1 CERTAIN DEFINITIONS. The 1992 Investors' Rights Agreement is hereby
amended and restated in its entirety, as set forth herein, and is superseded in
its entirety by this Agreement; except that (i) the Investors' Rights Agreement
dated as of May 30, 1989 among the Company and the Founders and Shareholders
referenced therein shall remain in full force and effect solely with respect to
the obligations of Robert M. Long as set forth in Section 1.12 thereof and (ii)
the 1992 Investors' Rights Agreement shall remain in full force and effect
solely with respect to the obligations of William M. Barton, Jr. as set forth in
Section 1.12 thereof. As used in this Agreement, the following terms shall have
the meanings set forth below:
(a) "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the securities Act.
(b) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
<PAGE>
(c) "Holder" shall mean any investor who holds Registrable Securities
and any holder of Registrable Securities to whom the registration rights
conferred by this Agreement have been transferred in compliance with Section
1.11 hereof.
(d) "Initiating Holders" shall mean either the Initiating Series A
Holders, the Initiating Series B Holders or the Initiating Series C Holders.
(e) "Initiating Series A Holders" shall mean any Holder or Holders
who in the aggregate hold not less than fifty percent (50%) of the outstanding
Registrable Series A Securities. For purposes of such calculation, holders of
Series A Shares shall be considered to hold the shares of Common Stock then
issuable upon conversion of such Series A Shares.
(f) "Initiating Series B Holders" shall mean any Holder or Holders
who in the aggregate hold not less than fifty percent (50%) of the outstanding
Registrable Series B Securities. For purposes of such calculation, holders of
Series B Shares shall be considered to hold the shares of Common Stock then
issuable upon conversion of such Series B Shares.
(g) "Initiating Series C Holders" shall mean any Holder or Holders
who in the aggregate hold not less than fifty percent (50%) of the outstanding
Registrable Series C Securities. For purposes of such calculation, holders of
Series C Shares shall be considered to hold the shares of Common Stock then
issuable upon conversion of such Series C Shares.
(h) "Other Shareholders" shall mean persons other than Holders who,
by virtue of agreements with the Company, are also entitled to include their
securities in certain registrations referenced hereunder.
(i) "Registrable Securities" shall mean the Registrable Series A
Securities, the Registrable Series B Securities and the Registrable Series C
Securities.
(j) "Registrable Series A Securities" shall mean (i) shares of Common
Stock issued or issuable pursuant to the conversion of the Series A Shares and
(ii) any Common Stock issued as a dividend or other distribution with respect to
or in exchange for or in replacement of the shares referenced in (i) above,
provided, however, that Registrable Series A Securities shall not include any
shares of Common Stock which have previously been registered or which have been
sold to the public.
<PAGE>
(k) "Registrable Series B Securities" shall mean (i) shares of Common
Stock issued or issuable pursuant to the conversion of the Series B Shares and
(ii) any Common Stock issued as a dividend or other distribution with respect to
or in exchange for or in replacement of the shares referenced in (i) above,
provided, however, that Registrable Series B Securities shall not include any
shares of Common Stock which have previously been registered or which have been
sold to the public.
(l) "Registrable Series C Securities" shall mean (i) shares of Common
Stock issued or issuable pursuant to the conversion of the Series C Shares and
(ii) any Common Stock issued as a dividend or other distribution with respect to
or in exchange for or in replacement of the shares referenced in (i) above,
provided, however, that Registrable Series C Securities shall not include any
shares of Common Stock which have previously been registered or which have been
sold to the public.
(m) The terms "register," "registered" and "registration" shall refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
(n) "Registration Expenses" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, and expenses of any regular or special audits incident to or
required by any such registration, but shall not include Selling Expenses and
fees and disbursements of counsel for the Holders (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).
(o) "Rule 144" shall mean Rule 144 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(p) "Rule 145" shall mean Rule 145 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(q) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the
<PAGE>
rules and regulations thereunder, all as the same shall be in effect from time
to time.
(r) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for any Holder (other than the fees and
disbursements of counsel included in Registration Expenses).
(s) "Series A Agreement" shall mean the Series A Preferred Stock
Purchase Agreement between the Company and certain of the Shareholders dated as
of May 30, 1989.
(t) "Series B Agreement" shall mean the Series B Preferred Stock
Purchase Agreement between the Company and certain of the Shareholders dated as
of July 2, 1992.
(u) "Series C Agreement" shall mean the Series C Preferred Stock
Purchase Agreement between the Company and Archive dated as of the date hereof.
(v) "Series A Shares" shall mean the Company's Series A Preferred
Stock issued pursuant to the Series A Agreement.
(w) "Series B Shares" shall mean the Company's Series B Preferred
Stock issued pursuant to the Series B Agreement.
(x) "Series C Shares" shall mean the Company's Series C Preferred
Stock issued pursuant to the Series C Agreement.
(y) "Shares" shall mean the Series A Shares, the Series B Shares and
the Series C Shares.
1.2 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. If the Company shall receive from
Initiating Holders at any time or times not earlier than the earlier of (i) July
1, 1995 or (ii) one year after the effective date of the first registration
statement filed by the Company covering an underwritten offering of any of its
securities to the general public, a written request that the Company effect any
registration with respect to all or a part of the Registrable Securities having
an aggregate offering price, net of underwriting discounts and expenses, equal
to or exceeding Four Dollars ($4.00) per share of Common Stock (as adjusted for
any stock dividends, combinations or splits with respect to such shares) and the
aggregate proceeds to the Company and/or any selling shareholders (after
deduction for underwriting discounts but excluding expenses
<PAGE>
related to the issuance of such securities) exceed Five Million Dollars
($5,000,000) the Company will:
(i) promptly give written notice of the proposed registration to
all other Holders; and
(ii) as soon as practicable, use its best efforts to effect
such registration (including, without limitation, filing post-effective
amendments, appropriate qualifications under applicable blue sky or other
state securities laws, and appropriate compliance with the Securities Act) as
would permit or facilitate the sale and distribution of all or such portion
of such Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request
received by the Company within twenty (20) days after such written notice
from the Company is given.
The Company shall not be obligated to effect, or to take
any action to effect, any such registration pursuant to this Section 1.2:
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification, or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act and applicable Blue Sky laws;
(B) As to a request by the Initiating Series A Holders,
after the Company has initiated one such registration pursuant to this Section
1.2(a) at the request of the Initiating Series A Holders, and, as to a request
by the Initiating Series B Holders, after the Company has initiated one such
registration pursuant to this Section 1.2(a) at the request of the Initiating
Series B Holders and, as to a request by the Initiating Series C Holders, after
the Company has initiated one such registration pursuant to this Section 1.2(a)
at the request of the Initiating Series C Holders (counting for these purposes
only (x) a registration which has been declared or ordered effective and
pursuant to which securities have been sold and (y) registrations which have
been withdrawn by the Holders as to which the Holders have not elected to bear
the Registration Expenses pursuant to Section 1.4 hereof and would, absent such
election, have been required to bear such expenses);
(C) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the
<PAGE>
date of filing of, and ending on a date one hundred eighty (180) days after the
effective date of, a Company-initiated registration; provided that the Company
is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;
(D) If the Initiating Holders propose to dispose of shares
of Registrable Securities which may be immediately registered on Form S-3
pursuant to a request made under Section 1.5 hereof;
(E) If the Initiating Holders do not request that such
offering be firmly underwritten by underwriters selected by the Initiating
Holders (subject to the consent of the Company, which consent will not be
unreasonably withheld); or
(F) If the Company and the Initiating Holders are unable to
obtain the commitment of the underwriter described in clause (E) above to firmly
underwrite the offer.
(b) FILING. Subject to the foregoing clauses (A) through (F), the
Company shall file a registration statement covering the Registrable Securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Initiating Holders; provided, however, that if (i) in
the good faith judgment of the Board of Directors of the Company, such
registration would be seriously detrimental to the Company and the Board of
Directors of the Company concludes, as a result, that it is essential to defer
the filing of such registration statement at such time, and (ii) the Company
shall furnish to such Holders a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company for such registration
statement to be filed in the near future and that it is, therefore, essential to
defer the filing of such registration statement, then the Company shall have the
right to defer such filing for the period during which such disclosure would be
seriously detrimental, provided that (except as provided in clause (C) above)
the Company may not defer the filing for a period of more than one hundred
eighty (180) days after receipt of the request of the Initiating Holders, and,
provided further, that the Company shall not defer its obligation in this manner
more than once in any twelve-month period.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Sections 1.2(d) and 1.13
hereof, include other securities of the Company, with respect to which
registration rights have been
<PAGE>
granted, and may include securities of the Company being sold for the account of
the Company.
(c) UNDERWRITING. The right of any Holder to registration pursuant to
Section 1.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
(d) PROCEDURES. If the Company shall request inclusion in any
registration pursuant to Section 1.2 of securities being sold for its own
account, or if other persons shall request inclusion in any registration
pursuant to Section 1.2, the Initiating Holders shall, on behalf of all Holders,
offer to include such securities in the underwriting and may condition such
offer on their acceptance of the further applicable provisions of this Section 1
(including Section 1.12). The Company shall (together with all Holders and other
persons proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for such underwriting by a majority
in interest of the Initiating Holders, which underwriters are reasonably
acceptable to the Company. Notwithstanding any other provision of this Section
1.2, if the representative of the underwriters advises the Initiating Holders in
writing that marketing factors require a limitation on the number of shares to
be underwritten, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 1.13 hereof. If a person
who has requested inclusion in such registration as provided above does not
agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company, the underwriter or the Initiating
Holders. The securities so excluded shall also be withdrawn from registration.
Any Registrable Securities or other securities excluded shall also be withdrawn
from such registration. If shares are so withdrawn from the registration and if
the number of shares to be included in such registration was previously reduced
as a result of marketing factors pursuant to this Section 1.2(d), then the
Company shall offer to all holders who have retained rights to include
securities in the registration the right to include additional securities in the
registration in an aggregate amount equal to the number of shares so withdrawn,
with such shares to be allocated among such Holders requesting additional
inclusion in accordance with the provisions of Section 1.13.
<PAGE>
1.3 COMPANY REGISTRATION.
(a) If the Company shall determine to register any of its securities
either for its own account or the account of a security holder or holders
exercising their respective demand registration rights (other than pursuant to
Section 1.2 or 1.5 hereof), other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Rule 145
transaction, or a registration on any registration form that does not permit
secondary sales, the Company will:
(i) promptly give to each Holder written notice
thereof: and
(ii) use its best efforts to include in such registration (and any
related qualification under blue sky laws or other compliance), except as set
forth in Section 1.3(b) below, and in any underwriting involved therein, all the
Registrable Securities specified in a written recluse or requests made by any
Holder within twenty (20) days after the written notice from the Company
described in clause (i) above is given. Such written request may specify the
inclusion of all or a part of a Holder's Registrable Securities in such
registration.
(b) UNDERWRITING. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.3(a)(i). In such event, the right of any Holder to
registration pursuant to this Section 1.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders of securities of the Company
with registration rights to participate therein distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters selected by the
Company.
Notwithstanding any other provision of this Section 1.3, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all
Registrable Securities from, or limit the number of Registrable Securities to be
included in, the registration and underwriting. If the registration is the first
Company-initiated registered offering of the Company's
<PAGE>
securities to the general public, the Company may limit, to the extent so
advised by the underwriters, the amount of securities (including Registrable
Securities) to be included in the registration by the Company's shareholders
(including the Holders), or may exclude, to the extent so advised by the
underwriters, such underwritten securities entirely from such registration. If
such registration is the second or any subsequent Company-initiated registered
offering of the Company's securities to the general public, the Company may
limit, to the extent so advised by the underwriters, the amount of securities to
be included in the registration by the Company's shareholders (including the
Holders); provided, however, that the aggregate value of securities (including
Registrable Securities) to be included in such registration by the Company's
shareholders (including the Holders) may not be so reduced to less than twenty-
five percent (25%) of the total value of all securities included in such
registration; PROVIDED FURTHER, however, that the aforementioned 25% shall be
reduced, pro rata, to accommodate the comparable rights of Other Shares as
referenced in Section 1.13 of this Agreement.
The Company shall so advise all holders of securities requesting
registration, and the number of securities that are entitled to be included in
the registration and underwriting shall be allocated first to the Company for
securities being sold for its own account and thereafter as set forth in Section
1.13. If any person does not agree to the terms of any such underwriting, he
shall be excluded therefrom by written notice from the Company or the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
If shares are so withdrawn from the registration or if the
number of shares of Registrable Securities to be included in such registration
was previously reduced as a result of marketing factors, the Company shall then
offer to all persons who have retained the right to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among the persons requesting additional inclusion in accordance
with Section 1.13 hereof.
1.4 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 1.2, 1.3, and 1.5 hereof, and reasonable fees of one counsel for the
selling shareholders in the case of registrations pursuant to Section 1.2 or
Section 1.3, shall be borne by the Company except as otherwise required by law;
provided, however, that if the Holders bear the Registration Expenses
<PAGE>
for any registration proceeding begun pursuant to Section 1.2 and subsequently
withdrawn by the Holders registering shares therein, such registration
proceeding shall not be counted as a requested registration pursuant to Section
1.2 hereof, except in the event that such withdrawal is based upon material
adverse information relating to the Company that is different from the
information known or available (upon request from the Company or otherwise) to
the Holders requesting registration at the time of their request for
registration under Section 1.2, in which event such registration shall not be
treated as a counted registration for purposes of Section 1.2 hereof, even
though the Holders do not bear the Registration Expenses for such registration.
Except as provided in the first sentence of this Section 1.4, all Selling
Expenses relating to securities so registered shall be borne by the holders of
such securities pro rata on the basis of the number of shares of securities so
registered on their behalf.
1.5 REGISTRATION ON FORM S-3.
(a) After its initial public offering, the Company shall use its best
efforts to qualify for registration on Form S-3 or any comparable or successor
form or forms. After the Company has qualified for the use of Form S-3, in
addition to the rights contained in the foregoing provisions of this Section 1,
the Holders of Registrable Securities shall have the right to request
registrations on Form S-3 (such requests shall be in writing and shall state the
number of shares of Registrable Securities to be disposed of and the intended
methods of disposition of such shares by such Holder or Holders); provided,
however, that the Company shall not be obligated to effect any such registration
if (i) the Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) on Form S-3 at an aggregate price
to the public of less than One Million Dollars ($1,000,000), or (ii) in the
event that the Company shall furnish the certification described in Section
1.2(b) (but subject to the limitations set forth therein) or (iii) in a given
twelve (12)-month period, after the Company has effected two (2) such
registrations in any such period or (iv) it is to be effected more than five (5)
years after the Company's initial public offering.
(b) If a request complying with the requirements of Section 1.5(a)
hereof is delivered to the Company, the provisions of Sections 1.2(a)(i) and
(ii) and Section 1.2(b) hereof shall apply to such registration. If the
registration is for an underwritten offering, the provisions of Sections 1.2(c)
and 1.2(d) hereof shall apply to such registration.
<PAGE>
1.6 REGISTRATION PROCEDURES. In the case of each registration effected by
the Company pursuant to Section 1, the Company will keep each Holder advised in
writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for a period of one hundred
twenty (120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such 120-day period shall be extended for a
period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company; and (ii) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such 320-day period shall be extended,
if necessary, to keep the registration statement effective until all such
Registrable Securities are sold. provided that Rule 145, or any successor rule
under the Securities Act, permits an offering on a continuous or delayed basis,
and provided further that applicable rules under the Securities Act governing
the obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment that (I) includes any prospectus required by Section
10(a)(3) of the Securities Act or (II) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (I) and (II) above to be contained in periodic reports filed pursuant to
Section 13 or l5 (d) of the Exchange Act in the registration statement:
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a Holder
from time to time may reasonably request;
(d) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in
<PAGE>
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or is incomplete in the light of the circumstances then
existing, and at the request of any such seller, prepare and furnish to such
seller a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or incomplete
in the light of the circumstances then existing;
(e) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed;
(f) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration;
(g) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months, but not more than eighteen months, beginning
with the first month after the effective date of the Registration Statement,
which earnings statement shall satisfy the provisions of Section ll(a) of the
Securities Act: and
(h) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 1.2 hereof, the Company will
enter into an underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further that if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions.
1.7 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, legal counsel and accountants and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification, or compliance has been
effected pursuant to this Section 1, and each underwriter, if any, and each
person who
<PAGE>
controls within the meaning of Section 15 of the Securities Act any underwriter,
against all expenses, claims, losses, damages, and liabilities (or actions,
proceedings, or settlements in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular, or other document (including any related
registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification, or compliance, and will
reimburse each such Holder, each of its officers, directors, partners, legal
counsel, and accountants and each person controlling such Holder, each such
underwriter, and each person who controls any such underwriter, for any legal
and any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability, or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by such Holder or underwriter and stated
<PAGE>
to be specifically for use therein. It is agreed that the indemnity agreement
contained in this Section 1.7(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent has not been
unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by him are
included in the securities as to which such registration, qualification, or
compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel, and accountants and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, each other such Holder and Other shareholders
participating in such registration, and each of their officers, directors, and
partners, and each person controlling such Holder or Other Shareholder, against
all expenses, claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular, or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and such Holders, Other Shareholders, directors, officers, partners,
legal counsel, and accountants, persons, underwriters, or control persons for
any legal or any other expenses reasonably incurred in connection with
investigating or defending or settling any such claim, loss, damage, liability,
or action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular, or other
document in reliance upon and in conformity with written information furnished
to the Company by such Holder; provided, however, that the obligations of such
Holder hereunder shall not apply to amounts paid in settlement of any such
claims, losses, damages, or liabilities (or actions in respect thereof) if such
settlement is effected without the consent of such Holder (which consent shall
not be unreasonably withheld). Notwithstanding the foregoing, the liability of
each Holder under this Section 1.7 shall be limited to an amount equal to the
aggregate public offering price of the Registrable Securities sold by such
Holder, unless such liability arises out of or is based upon willful misconduct
by such Holder.
(c) Each party entitled to indemnification under this Section 1.7
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying
<PAGE>
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 1, to the extent such failure is not prejudicial. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the claim
in question as an Indemnifying Party may reasonably request in writing and as
shall be reasonably required in connection with defense of such claim and
litigation resulting therefrom.
(d) If the indemnification provided for in this Section 1.7 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
<PAGE>
1.8 INFORMATION BY HOLDER. Each Holder of Registrable Securities shall
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any
registration, qualification, or compliance referred to in this Section 1.
1.9 LIMITATIONS ON REGISTRATION OF ISSUES OF SECURITIES. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of a majority in interest of the Holders, enter into any agreement with any
holder or prospective holder of any securities of the Company giving such holder
or prospective holder any registration rights the terms of which are more
favorable than the registration rights granted to the Holders hereunder.
1.10 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission that may permit the sale of the
Registrable Securities to the public without registration, the Company agrees to
use its best efforts to
(a) Make and keep public information regarding the Company available
as those terms are understood and defined in Rule 144 under the Securities Act,
at all times from and after ninety (90) days following the effective date of the
first registration under the Securities Act filed by the Company for an offering
of its securities to the general public;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
at any time after it has become subject to such reporting requirements;
(c) So long as a Holder owns any Registrable Securities, furnish to
the Holder forthwith upon written request a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 (at any time from
and after ninety (90) days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed as a Holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing a holder to sell any such
securities without registration.
<PAGE>
1.11 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted to a Holder by the Company under this
Section 1 may be transferred or assigned by a Holder only to (i) a transferee or
assignee of not less than fifty thousand (50,000) shares of Registrable
Securities (as presently constituted and subject to subsequent adjustments for
stock splits, stock dividends, reverse stock splits, and the like) or (ii) an
affiliate of a Holder, provided that the Company is given written notice at the
time of or within a reasonable time after said transfer or assignment, stating
the name and address of the transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned, and, provided further, that the transferee or assignee of such
rights assumes the obligations of such Holder under this Section 1.
1.12 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, each
Shareholder and Founder shall not sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by such Shareholder
(other than those included in the registration) during the one hundred eighty
(180) day period following the effective date of a registration statement of the
Company filed under the Securities Act, provided that:
(a) such agreement shall only apply to the first such registration
statement of the Company, including securities to be sold on its behalf to the
public in an underwritten offering; and
(b) all Holders and officers and directors of the Company enter into
similar agreements.
The obligations described in this Section 1.12 shall not apply
to a registration relating solely to employee benefit plans on Form S-1 or Form
S-8 or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose stoptransfer
instructions with respect to the shares (or securities) subject to the foregoing
restriction until the end of said one hundred eighty (180) day period.
1.13 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in
which all of the Registrable Securities and other shares of Common Stock of the
Company (including shares of Common Stock issued or issuable upon conversion of
shares of any currently unissued series of Preferred Stock of the Company) with
registration rights (the "Other Shares") requested to be included in a
registration on behalf of the Holders or other selling shareholders
<PAGE>
cannot be so included as a result of limitations on the aggregate number of
shares of Registrable Securities and Other Shares that may be so included, the
number of shares of Registrable Securities and Other Shares that may be so
included shall be allocated among the Holders and other selling shareholders
requesting inclusion of shares pro rata on the basis of the number of shares of
Registrable Securities and Other Shares that would be held by such Holders and
other selling shareholders, assuming conversion into Common Stock; provided,
however, that such allocation shall not operate to reduce the aggregate number
of Registrable Securities and Other Shares to be included in such registration.
If any Holder or other selling shareholder does not request inclusion of the
maximum number of shares of Registrable Securities and Other Shares allocated to
him pursuant to the above-described procedure, the remaining portion of his
allocation shall be reallocated among those requesting Holders and other selling
shareholders whose allocations did not satisfy their requests pro rata on the
basis of the number of shares of Registrable Securities and Other Shares which
would be held by such Holders and other selling shareholders, assuming
conversion into Common Stock, and this procedure shall be repeated until all the
shares of Registrable Securities and Other Shares which may be included in the
registration on behalf of the Holders and other selling shareholders have been
so allocated. The Company shall not limit the number of Registrable Securities
to be included in a registration pursuant to this Agreement in order to include
shares held by shareholders with no registration rights or to include founder's
stock or any other shares of stock issued to employees, officers, directors, or
consultants, or with respect to registrations under Section 1.2 or 1.5 hereof,
in order to include in such registration securities registered for the Company's
own account.
1.14 DELAY OF REGISTRATION. No Holder shall have any right to take any
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
1.15 TERMINATION OF REGISTRATION RIGHTS. The right of any Holder to request
registration or inclusion in any registration pursuant to Section 1.2, 1.3 or
1.5 shall terminate on the closing of the first Company-initiated registered
public offering of Common Stock of the Company, provided that all shares of
Registrable Securities held or entitled to be held upon conversion by such
Holder may immediately be sold under Rule 144 during any 90-day period, or on
such date after the closing of the first Companyinitiated registered public
offering of Common Stock of the Company as all shares of Registrable Securities
held or entitled to be held upon conversion by such Holder may immediately be
sold under Rule 144 during any 90-day period; provided, however, that the
provisions
<PAGE>
of this Section 1.15 shall not apply to any Holder who owns more than two
percent (2%) of the Company's outstanding stock until the earlier of (x) such
time as such Holder owns less than two percent (2%) of the outstanding stock of
the Company, or (y) the expiration of five (5) years after the closing of the
first registered public offering of Common Stock of the Company.
<PAGE>
SECTION 2
COVENANTS OF THE COMPANY
The Company hereby covenants and agrees, so long as any Holder owns any
Registrable Securities, as follows:
2.1 BASIC FINANCIAL INFORMATION. The Company will furnish the following
reports to any Holder, so long as such Holder (or its representative) owns at
least 191,000 Shares, or such number of shares of Common Stock issued upon
conversion of 191,000 or more Shares, or any combination thereof (as presently
constituted and subject to subsequent adjustment for stock splits, stock
dividends, reverse stock splits, recapitalizations and the like (a "Significant
Holder"):
(a) As soon as practicable after the end of each fiscal] year of the
Company, and in any event within ninety (90) days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as at the end of such
fiscal year, and consolidated statements of income and sources and applications
of funds of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles consistently applied
and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and certified by independent public
accountants of recognized national standing selected by the Company, and a
Company-prepared comparison to the Company's operating plan for such year.
(b) As soon as practicable after the end of the first, second, and
third quarterly accounting periods in each fiscal year of the Company, and in
any event within forty-five (45) days thereafter, a consolidated balance sheet
of the Company and its subsidiaries, if any, as of the end of each such
quarterly period, and consolidated statements of income and sources and
applications of funds of the Company and its subsidiaries for such period and
for the current fiscal year to date, prepared in accordance with generally
accepting accounting principles consistently applied and setting forth in
comparative form the figures for the corresponding periods of the previous
fiscal year subject to changes resulting from normal year-end audit adjustments,
all in reasonable detail and certified by the principal financial or accounting
officer of the Company, except that such financial statements need not contain
the notes required by generally accepted accounting principles.
(c) From the date the Company becomes subject to the reporting
requirements of the Exchange Act (which shall include any successor federal
statute), and in lieu of the financial information required pursuant to Sections
2.1(a) and (b), copies of its
<PAGE>
annual reports on Form 10-K and its quarterly reports on Form 10-Q,
respectively.
2.2 ADDITIONAL INFORMATION AND RIGHTS.
(a) The Company will permit any Significant Holder (or a
representative of a Significant Holder) to visit and inspect any of the
properties of the Company, including its books of account and other records (and
make copies thereof and take extracts therefrom), and to discuss its affairs,
finances and accounts with the Company's officers and its independent public
accountants, all at such reasonable times and as often as any such person may
reasonably request.
(b) The Company will deliver the reports described below in this
Section 2.2 to each Significant Holder:
(i) Annually (but in any event at least thirty (30) days prior
to the commencement of each fiscal year of the Company) the financial plan of
the Company, in such manner and form as approved by the Board of Directors of
the Company, which financial plan shall include a projection of income and a
projected cash flow statement for such fiscal year and a projected balance sheet
as of the end of such fiscal year. Any material changes in such business plan
shall be submitted as promptly as practicable after such changes have been
approved by the Board of Directors of the Company.
(ii) With reasonable promptness, such other information and data
with respect to the Company and its subsidiaries as any such person may from
time to time reasonably request.
(iii) As soon as practicable after the end of each fiscal year and
in any event within ninety (90) days thereafter, (a) a report from the Company
reporting on compliance with the terms and conditions of this Agreement and any
other agreement pursuant to which the Company has borrowed money or sold its
securities and (b) a copy of the annual management review letter of the
Company's independent public accountants.
(iv) As soon as practicable after transmission or occurrence and
in any event within ten (10) days thereof, copies of any reports or
communications delivered to any class of the Company's security holders or
broadly to the financial community, including any filings by the Company with
any securities exchange, the Securities and Exchange Commission or the National
Association of Securities Dealers, Inc.
<PAGE>
(c) The provisions of Section 2.1 and this Section 2.2 shall not be
in limitation of any rights which any Holder or Significant Holder may have with
respect to the books and records of the Company and its subsidiaries, or to
inspect their properties or discuss their affairs, finances and accounts, under
the laws of the jurisdictions in which they are incorporated.
(d) Anything in Section 2 to the contrary notwithstanding, no Holder
or Significant Holder by reason of this Agreement shall have access to any trade
secrets or classified information of the Company. Each Significant Holder hereby
agrees to hold in confidence and trust and not to misuse or disclose any
confidential information provided pursuant to this Section 2.2. The Company
shall not be required to comply with this Section 2.2 in respect of any Holder
whom the Company reasonably determines to be a competitor or an officer,
employee, director or greater than five percent (5%) shareholder of a
competitor.
(e) Each Holder who represents to the Company that it is a "venture
capital operating company" for purposes of Department of Labor Regulation
Section 2510.3-101 shall in addition have the right to consult with and advise
the officers of the Company as to management of the Company.
2.3 RIGHT OF FIRST REFUSAL. The Company hereby grants ;o each of Matrix
Partners II, L.P. ("Matrix"), The Palmer Organization III, L.P. ("Palmer")
and Archive and their respective successors and assignees holding at least
one hundred thousand (100,000) shares of Common Stock of the Company
(assuming conversion into Common Stock of Shares held by it) (Matrix, Palmer
Archive and such successors and assignees are referred to collectively herein
as the "Matrix/Palmer/Archive Holders") the right of first refusal to
purchase a pro rata share of New Securities (as defined in this Section 2.3)
which the Company ,may, from time to time, propose to sell and issue. A
Matrix/Palmer/Archive Holder's pro rata share, for purposes of this right of
first refusal, is the ratio of the number of shares of Common Stock owned by
such Matrix/Palmer/Archive Holder immediately prior to the issuance of New
Securities, assuming conversion into Common Stock of the Shares, to the total
number of shares of Common Stock outstanding immediately prior to the
issuance of New Securities, assuming full conversion of the Shares and
exercise of all outstanding rights, options and warrants to acquire Common
Stock of the Company. Each Matrix/Palmer/Archive Holder shall have a right of
over-allotment such that if any Matrix/Palmer/Archive Holder fails to
exercise its right hereunder to purchase its pro rata shares of New
Securities, the other Matrix/Palmer/Archive Holders may purchase the
nonpurchasing Matrix/Palmer/Archive Holder's portion on a pro rata basis
within
<PAGE>
ten (10) days from the date such Matrix/Palmer/Archive Holders are notified by
the Company that such nonpurchasing Matrix/Palmer/Archive Holder has failed to
exercise its right hereunder to purchase its pro rata share of New Securities.
This right of first refusal shall be subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including Common
Stock and/or Preferred Stock) of the Company whether now authorized or not, and
rights, options or warrants to purchase such capital stock, and securities of
any type whatsoever that are, or may become, convertible into capital stock;
provided that the term "New Securities" does not include (i) securities
purchased under the Series C Agreement: (ii) securities issued upon conversion
of the Shares; (iii) securities issued pursuant to the acquisition of another
business entity or business segment of any such entity by the Company by merger,
purchase of substantially all the assets or other reorganization whereby the
Company will own not less than fifty-one percent (51%) of the voting power of
such business entity or business segment of any such entity; (iv) any
borrowings, direct or indirect, from financial institutions or other persons by
the Company, whether or not presently authorized, including any type of loan or
payment evidenced by any type of debt instrument, provided such borrowings do
not have any equity features including warrants, options or other rights to
purchase capital stock and are not convertible into capital stock of the
Company; (v) securities issued to employees, consultants, officers or directors
of the Company pursuant to any stock option, stock purchase or stock bonus plan,
agreement or arrangement approved by the Board of Directors; (vi) securities
issued to vendors or customers or to other persons in similar commercial
situations with the Company if such issuance is approved by the Board of
Directors; (vii) securities issued in connection with obtaining lease financing,
whether issued to a lessor, guarantor or other person; (viii) securities issued
in a firm commitment underwritten public offering pursuant to a registration
under the Securities Act other than a registration relating solely to a
transaction under Rule 145 under such Act (or any successor thereto) or to an
employee benefit plan of the Company, at a public offering price (prior to
underwriting discounts and expenses) equal to or exceeding Five Dollars and
Twenty Five Cents ($5.25) per share of Common Stock (as adjusted for any stock
dividends, combinations or splits with respect to such shares) and the aggregate
proceeds to the Company and/or any selling shareholders (after deduction for
underwriting discounts but excluding expenses relating to the issuance) of which
exceed Five Million Dollars ($5,000,000) (a "Qualified Public Offering"); (ix)
securities issued in connection with any stock split, stock dividend or
recapitalization of the Company; and (x) any right, option or warrant to acquire
any security convertible into the securities
<PAGE>
excluded from the definition of New Securities pursuant to subsections (i)
through (ix) above.
(b) In the event the Company proposes to undertake an issuance of
New Securities, it shall give each Matrix/Palmer/ Archive Holder written notice
of its intention, describing the type of New Securities, and their price and the
general terms upon which the Company proposes to issue the same. Each
Matrix/Palmer/Archive Holder shall have twenty (20) days after any such notice
is effective to agree to purchase such Matrix/Palmer/Archive Holder's pro rata
share of such New Securities for the price and upon the terms specified in the
notice by giving written notice to the Company and stating therein the quantity
of New Securities to be purchased.
(c) In the event a Matrix/Palmer/Archive Holder fails to exercise
fully the right of first refusal within said twenty (20) day period and after
the expiration of the ten-day period for the exercise of the over-allotment
provisions of this Section 2.3, the Company shall have one hundred twenty (120)
days thereafter to sell or enter into an agreement (pursuant to which the sale
of New Securities covered thereby shall be closed, if at all, within one hundred
twenty (120) days from the date of said agreement) to sell the New Securities
respecting which said Matrix/Palmer/Archive Holder's right of first refusal
option set forth in this Section 2.3 was not exercised, at a price and upon
terms no more favorable to the purchasers thereof than specified in the
Company's notice to the Matrix/Palmer/Archive Holders pursuant to Section
2.3(b). In the event the Company has not sold within said 120-day period or
entered into an agreement to sell the New Securities in accordance with the
foregoing within one hundred twenty (120) days from the date of said agreement),
the Company shall not thereafter issue or sell any New Securities, without first
again offering such securities to the Matrix/Palmer/Archive Holders in the
manner provided in Section 2.3(b) above.
(d) The right of first refusal granted under this Agreement shall
expire upon, and shall not be applicable to, the first sale of Common Stock of
the Company to the public effected pursuant to a Qualified Public Offering, as
defined in Section 2.3(a)(viii) above.
2.4 TRANSACTIONS WITH AFFILIATES. The Company shall not, without the
approval of the disinterested members of the Company's Board of Directors,
engage in any loans, leases, contracts or other transactions with any director,
officer or key employee of the Company, or any member of any such person's
immediate family, including the parents, spouse, children and other relatives of
any such person, on terms less favorable than the Company would obtain
<PAGE>
in a transaction with an unrelated party, as determined in good faith by the
Board of Directors.
2.5 TERMINATION OF COVENANTS. The covenants set forth in this Section
2 shall terminate and be of no further force and effect after the time of
effectiveness of the Company's first Qualified Public offering, as defined in
Section 2.3(a)(viii) above.
<PAGE>
SECTION 3
MISCELLANEOUS
3.1 GOVERNING LAW. This Agreement shall be governed in all respects by the
laws of the State of California, as if entered into by and between California
residents exclusively for performance entirely within California.
3.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
3.3 ENTIRE AGREEMENT: AMENDMENT: WAIVER. This Agreement (including the
Exhibits hereto) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof. Neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated,
except by a written instrument signed by the Company and the holders of at least
seventy-five percent (75%) of the Registrable Securities and any such amendment,
waiver, discharge or termination shall be binding on all the Holders; provided,
however, that in no event shall the obligations of any Holder hereunder be
materially increased, except upon the written consent of such Holder; and,
provided further, that the provisions of Section 2.4(b) hereof may not be
amended waived, discharged or terminated without the written consent of Archive.
3.4 NOTICES. ETC., All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by United States
first-class mail, postage prepaid, or delivered personally addressed by hand or
special courier (a) if to a Holder or Founder, as indicated on the list of
Holders and Founders attached hereto as Exhibit A, or at such other address as
such Holders or permitted assignee shall have furnished to the Company in
writing, or (b) if to the Company, at 5600 Kearny Mesa Road, San Diego, CA
92111, or at such other address as the Company shall have furnished to each
Holder in writing. All such notices and other written communications shall be
effective (i) if mailed, five (5) days after mailing and (ii) if delivered, upon
delivery.
3.5 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power
or remedy accruing to any Holder, upon any breach or default of the Company
under this Agreement shall impair any such right, power or remedy of such Holder
nor shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or
<PAGE>
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any Holder of any breach or default under this
Agreement or any waiver on the part of any Holder of any provisions or
conditions of this Agreement must be made in writing and shall be effective only
to the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any Holder, shall be
cumulative and not alternative.
3.6 RIGHTS. SEPARABILITY. Unless otherwise expressly provided herein, a
Holder's rights hereunder are several rights, not rights jointly held with any
of the other Holders. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
3.7 INFORMATION CONFIDENTIAL. Each Holder acknowledges that the information
received by it pursuant hereto may be confidential and for its use only, and it
will not use such confidential information in violation of the Exchange Act or
reproduce, disclose or disseminate such information to any other person (other
than its employees or agents having a need to know the contents of such
information, and its attorneys), except in connection with the exercise of
rights under this Agreement, unless the Company has made such information
available to the public generally or such Holder is required to disclose such
information by a governmental body.
3.8 TITLES AND SUBTITLES. The titles of the sections and paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
3.9 ATTORNEYS' FEES. In the event that any dispute among the parties to
this Investors' Rights Agreement should result in litigation, the prevailing
party in such dispute shall be entitled to recover from the losing party all
fees, costs and expenses of enforcing any right of such prevailing party under
or with respect to this Investors' Rights Agreement, including without
limitation, such reasonable fees and expenses of attorneys and accountants,
which shall include, without limitation, all fees, costs and expenses of
appeals.
3.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights
Agreement effective as of the day and year first above written.
OVERLAND DATA INC.
By: /s/ Scott McClendon
---------------------------
Title: President
Address: 5600 Kearny Mesa Road
San Diego, CA 92111
THE PALMER ORGANIZATION III L.P.
By: Palmer Partner L.P.,
General Partner
By:
---------------------------
John A. Shane
Title: General Partner
Address: 300 Unicorn Park Drive
Woburn, MA 01801
MATRIX PARTNERS II, L.P.
By:
---------------------------
Joseph D. Rizzi
Title: General Partner
Address: 2500 Sand Hill Road
Suite 113
Menlo Park CA 94025
<PAGE>
FOUNDERS:
- ---------------------------
William M. Barton, Jr.
Address:
-------------------
-------------------
/s/Martin D. Gray
- ---------------------------
Address: 3236 Caminito Ameca
La Jolla, CA 92037
- ---------------------------
Anne S. Otterson, as Trustee for the Otterson Family Trust By William Otterson
Under Power of Attorney
Address:
-------------------
-------------------
-------------------
- ---------------------------
Abby B. Silverman
Address: 1390 Park Row
La Jolla, CA 92037
- ---------------------------
Thomas Turney
Address: 2600 Bell Avenue
Manhattan Beach. CA 90266
<PAGE>
- -------------------------------
Mark A. Medearis
Address:
-----------------------
-----------------------
-----------------------
WS INVESTMENT COMPANY 92B
By:
---------------------------
Title:
------------------------
Address: Two Palo Alto Square
Palo Alto, CA 94306
By: /s/ Scott McClendon
---------------------------
Address: 1 East Roseland Drive
La Jolla, CA 92037
----------------------
ARCHIVE CORP
By: /s/ William J. Schroeder
---------------------------
Title: President
Address: 1650 Sunflower Avenue
Costa Mesa, CA 92626
<PAGE>
EXHIBIT A TO
INVESTORS' RIGHTS AGREEMENT
1. THE PALMER ORGANIZATION III L.P.
2. MATRIX PARTNERS II L.P.
3. SHAREHOLDERS PARTY TO THE INVESTORS' RIGHTS AGREEMENT DATED AS OF MAY
30, 1989 AMONG THE COMPANY AND THE FOUNDERS AND SHAREHOLDERS
REFERENCED THEREIN
4. FOUNDERS
5. WS INVESTMENT COMPANY 92B
6. MARK A. MEDEARIS
7. THOMAS TURNEY
8. ABBY B. SILVERMAN
9. ARCHIVE CORPORATION
<PAGE>
EXHIBIT 4.4
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWlSE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Company: Overland Data, Inc., a California corporation
Number of Shares: 17,046
Class of Stock: Common
Initial Exercise Price: $4.40 per share
Issue Date: May 15, 1995
Expiration Date: May 15, 2000 (subject to Article 4.1)
THIS WARRANT CERTIFIES THAT, in consideration of an extension of credit to
Corporation and for other good and valuable consideration, IMPERIAL BANCORP
("Holder") is entitled to purchase the number of fully paid and non-assessable
shares of the class of securities (the "Shares) of Overland Data, Inc. (the
"Company") at the initial exercise price per Share (the "Warrant Price") all as
set forth above and as adjusted pursuant to Article 2 of this Warrant, subject
to the provisions and upon the terms and conditions set forth of this Warrant.
ARTICLE 1. EXERCISE
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering this
Warrant and a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company payment for the aggregate Warrant price for the Shares
being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares minus the aggregate Warrant Price of such Shares by
(b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Section 1 3
1.3 FAIR MARKET VALUE. If the Shares are traded regularly in a public
market, the fair market value of the Shares shall be the closing price of the
Shares reported for the business day immediately before Holder delivers its
Notice of Exercise to the Company. If the Shares are not regularly beaded in a
public market, the Board of Directors of the Company shall determine fair market
value in its reasonable good faith judgment subject to Holder's right to seek
judicial review of such determination
<PAGE>
1.4 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.5 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, on delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company or, in the
case of mutilation, or surrender and cancellation of this Warrant, the Company
at its expense shall execute and deliver, in lieu of this Warrant, a new warrant
of like tenor.
1.6 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
1.6.1. "ACQUISITION". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets (including intellectual property) of the
Company, or any reorganization, consolidation, or merger of the Company where
the holders of the Company's securities before the transaction beneficially
own less than 50% of the outstanding voting securities of the surviving
entity after the transaction.
1.6.2. ASSUMPTION OF WARRANT. If upon the closing of any Acquisition
the successor entity assumes the obligations of this Warrant, then this
Warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be
adjusted accordingly. The Company shall use reasonable efforts to cause the
surviving corporation to assume the obligations of this Warrant.
1.6.3. NONASSUMPTION. If upon the closing of any acquisition the
successor entity does not assume the obligations of his Warrant and Holder
has not otherwise exercised this Warrant in full, then the unexercised
portion of this Warrant shall be deemed to have been automatically converted
pursuant to Section 1.2 and thereafter Holder shall participate in the
acquisition on the same terms as other holders of the same class of
securities of the Company.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend or subdivision occurred
<PAGE>
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any reclassification,
exchange, substitution, or other event that results in a change of the number
and/or class of the securities issuable upon exercise or conversion of this
Warrant, Holder shall be entitled to receive, upon exercise or conversion of
this Warrant, the number and kind of securities and property that Holder would
have received for the Shares if this Warrant had been exercised immediately
before such reclassification, exchange, substitution, or other event. The
Company or its successor shall promptly issue to Holder a new Warrant for such
new securities or other property. The new Warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article 2 including, without limitation, adjustments to the
Warrant Price and to the number of securities or property issuable upon exercise
of the new Warrant. The provisions of this Section 2.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price and the number of
Shares issuable upon exercise of this Warrant shall be subject to adjustment,
from time to time, in the manner set forth on Exhibit A in the event of Diluting
Issuances (as defined on Exhibit A).
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its Articles of
Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out all the provisions of this Article 2 and in
taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any corporate
action affecting the Shares other than as specifically described above that
materially and adversely affects Holder's rights under this Warrant, the Warrant
Price shall be adjusted downward and the number of Shares issuable upon exercise
of this Warrant shall be adjusted upward in such a manner that the aggregate
Warrant Price of this Warrant is unchanged.
2.6 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
<PAGE>
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this
Warrant is not greater than (i) the price per share at which the Shares were
last issued in an arms-length transaction in which at least $50,000 of the
Shares were sold and (ii) the fair market value of the Shares as of the date
of this Warrant.
(b) All Shares which may be issued upon the exercise of the purchase
right represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (a) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or any
of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all communiqu s to the shareholders of the Company, (b)
within ninety (90) days after the end of each fiscal year of the Company, the
annual audited financial statements of the Company certified by independent
public accountants of recognized standing and (c) within forty-five (45) days
after the end of each of the first three quarters of each fiscal year, the
Company's quarterly, unaudited financial statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The Company
agrees that the Shares shall be subject to the registration rights set forth
on Exhibit B.
<PAGE>
ARTICLE 4. MISCELLANEOUS.
4.1 TERM. This Warrant is exercisable, in whole or in part, at any time and
from time to time on or before the Expiration Date set forth above.
4.2 LEGENDS. This Warrant and the Shares shall be imprinted with a legend
in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise this Warrant may not be transferred or assigned in
whole or in part without compliance with applicable federal and state securities
laws by the transferor and the transferee (including, without limitation, the
delivery of investment representation letters and legal opinions reasonably
satisfactory to the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.2, Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant by giving the Company notice of the portion of the Warrant being
transferred setting forth the name, address and taxpayer identification number
of the transferee and surrendering this Warrant to the Company for reissuance to
the transferee(s) (and Holder, if applicable). Unless the Company is filing
financial information with the SEC pursuant to the Securities Exchange Act of
1934, the Company shall have the right to refuse to transfer any portion of this
Warrant to any person who directly competes with the Company.
4.5 NOTICES. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time.
4.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged, or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge, or termination is
sought.
<PAGE>
4.7 ATTORNEYS' FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorney's fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
OVERLAND DATA, INC.
"COMPANY"
By: /s/ Scott McClendon
------------------------------
Name: Scott McClendon
Title: President and CEO
By: /s/ Vernon A. LoForti
------------------------------
Name: Vernon A. LoForti
Title: Vice President and CFO
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase shares of the Common Stock of
Overland Data, Inc. pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash (strike one) in the manner specified in the Warrant. This conversion
is exercised with respect to of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
(Name)
--------------------------------------
(Address)
-----------------------------------
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other parry and not with a view
toward the resale or distribution thereof except in compliance with
applicable securities laws.
IMPERIAL BANCORP
"Holder"
1.) By: 2.) By:
Name: Name:
Title: Title:
Date: Date:
<PAGE>
EXHIBIT A
Anti-Dilution Provisions
In the event of the issuance (a "Diluting Issuance") by the Company, after
the Issue Date of the Warrant, of Common Shares or equity securities convertible
into Common Shares at a price per share less than the Warrant Price, the number
of Shares issuable upon exercise of the Warrant, shall be adjusted as a result
of Diluting Issuances such that the Holder shall receive additional shares of
Common Stock such that the effective Warrant Price shall be no greater than the
price at which the Diluting Issuance was made.
Under no circumstances shall the aggregate Warrant Price payable by the
Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.
Notwithstanding anything to the contrary, Company may issue options to
employees for up to an aggregate one million shares without such options being
Diluting Issuances.
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS
The Shares shall be deemed "registrable securities" or otherwise
entitled to "piggy back" registration rights in accordance with the terms
of any agreement between the Company and any of its investors (the
"Agreement"), provided Holder shall not exercise such registration rights
more than twice.
The Company agrees that no amendments will be made to the Agreement which
would have a material adverse impact on Holder's registration rights thereunder
without the consent of Holder. By acceptance of the Warrant to which this
Exhibit B is attached. Holder shall be deemed to be a party to the Agreement
solely for purposes of the registration rights.
If no Agreement exists, then the Company and the Holder shall enter into a
form of Registration Rights Agreement which shall be no less favorable than any
such agreement subsequently entered into between the Company and any investors
and in no event providing less than piggy back registration rights.
<PAGE>
EXHIBIT 10.1
INDEX
1. BASIC ORDER AGREEMENT
2. PURCHASE ORDERS
3. PURCHASE ORDERS - EDI
4. PURCHASE PERIOD
5. PRICING
6. DELIVERY/LEADTIME/FLEXIBILITY
7. QUALITY, INSPECTION, AND ACCEPTANCE
8. PAYMENT AND SET-OFF
9. WARRANTY
10. CONFIDENTIAL INFORMATION AND ADVERTISING
11. INTELLECTUAL PROPERTY INDEMNITY
12. CHANGES
13. TERM OF AVAILABILITY
14. U.S. CUSTOMS, MARKING, AND DUTY DRAWBACK
15. FORCE MAJEURE
16. COMPLIANCE WITH LAWS
17. TERMINATION FOR CAUSE
18. NOTICES
19. DOCUMENTATION, TRAINING - TECH SUPPORT
20. BUYER OWNED MATERIAL
21. RIGHTS AND ASSISTANCE TO REPAIR
22. SIMILAR PRODUCTS
23. SURVIVAL
24. GENERAL
25. HOLD HARMLESS AND INDEMNITY
26. LIMITATION OF LIABILITY
. NO IMPLIED LICENSE
. TERMINATION FOR CONVENIENCE
. MANUFACTURING SITE FLEXIBILITY
. QUARTERLY REPORTS
. ENVIRONMENTAL REQUIREMENTS
. GENERAL - CONTINUED
EXHIBITS:
A - PRODUCTS, PRICING AND SPARES
B - CLEAN AIR AND WATER CERTIFICATION
C - EEO CERTIFICATION
D - QUALITY REQUIREMENTS
E - PRODUCT SPECIFICATIONS
<PAGE>
1. BASIC ORDER AGREEMENT
A. This Basic Order Agreement and all attachments (called the "Agreement")
is made by Digital Equipment Corporation ("Buyer"'') and Overland Data
("Seller"). The Terms and Conditions herein exclusively govern the
purchase and sale of the Material, Spare Parts, Repair Parts, and
Expendable Parts more fully described in Exhibit A, Products, Pricing,
and Lead-time, and in applicable specifications,-attached hereto and
incorporated herein by reference ("Material, Snares, Repairs and
Expendables").
B. This Agreement does not specify a quantity of Material, Spares,
Repairs, and Expendables to be procured by Buyer, NOR DOES THIS
AGREEMENT OBLIGATE BUYER TO PURCHASE ANY MATERIAL, SPARES, REPAIRS, AND
EXPENDABLES. All such quantities will be specified on Buyer's Purchase
Orders as defined in Clause A of Section II, Purchase Orders, issued
under the provisions of this Agreement and incorporated herein by
reference.
C. If any term of this Agreement conflicts with any term of an issued
Purchase Order, this Agreement shall take precedence.
D. It is understood by the Seller that Material, Spares, Repairs, and
Expendables listed in Exhibit A of this Agreement may relate to
products that are under development by Buyer. Except as expressly
provided otherwise, Buyer accepts no responsibility for any expenses,
losses or action incurred or undertaken by Seller as a result of work
performed in anticipation of purchases of said Material Snares,
Repairs, and Expendables by Buyer.
E. Notwithstanding the requirement in Section 23, General, for two
signatures to amend this Agreement, Buyer may add products of Seller
to the list of Material, Spares, Repairs, and Expendables available
for purchase hereunder by adding such products on a Purchase Order
which is accepted by Seller. Such added products shall be deemed
Material, Spares, Repairs, and Expendables, as defined herein as
though listed in Exhibit A, Products, Pricing, and Leadtime, at the
time of execution of this Agreement. The price for which such added
products shall be available for purchase under this Agreement shall be
as stated on such accepted Purchase Order, subject to the provisions
of this Agreement. The Buyer shall subsequently memorialize the
addition to this Agreement of the added products in an amendment
pursuant to Section 23, General.
<PAGE>
F. Seller grants buyer all necessary rights and licenses for Buyer to
market, promote, resell, distribute and service the Material and
including without limitation, rights and licenses under any applicable
patents, copyrights, trademarks, trade secrets, mask works, and other
intellectual property fights. Buyer shall have the right to use
Seller's name or trademarks in connections with any distribution of
the Material under this agreement.
2. PURCHASE ORDERS
A. The term "Purchase Order" shall mean Buyer's written Purchase Order
form and any documents incorporated therein by reference.
B. Buyer will order Material, Spares, Repairs; and Expendables by issuing
telex, facsimile, or telephonic orders or Purchase Orders. Buyer will
issue confirming written Purchase Orders within ten (10) days after
issuing such telex, facsimile or telephonic orders. Each Purchase
Order will specify items such as: item description, quantity, delivery
schedule, destination, total price of the Purchase Order. Each
Purchase Order issued under this Agreement shall be made part of, and
be incorporated into, this Agreement. Provided, however, that the only
binding terms of such Purchase Order if accepted, shall be the
specific terms such as," material, quantity, delivery, schedule,
delivery method. Seller shall have five (5)days after receipt to
reject the Purchase Order. By not rejecting the Purchase Order within
five (5) days, Seller will have accepted the Purchase Order. Buyer
may, at its option, order spare parts on a priority-one (.P-1-) basis
by issuing facsimile, electronic mail, or telephonic orders for P-1
orders only, or by issuing its Purchase Order form (collectively
referred to as "P-1 Purchase Orders").
Seller shall confirm and acknowledge P 1 Purchase Orders placed via
telex, facsimile or telephonic within one (1) business day of receipt
of such Purchase Orders. Seller shall be obligated to comply with all
P-1 Purchase Orders issued in accordance with this Agreement.
Accordingly, any failure of Seller to acknowledge any such P-1
Purchase Orders shall not be deemed a rejection of such order.
Acceptance by Seller is limited to the provisions of the Agreement and
the Purchase Order. No additional or different provisions proposed by
Seller shall apply. In addition, the parties agree that this Agreement
and issued Purchase Orders constitute a Contract for the Sale of Goods
and satisfy all statutory and legal formalities of a contract.
<PAGE>
C. If Buyer's Purchase Order specifies export after passage of title,
Seller shall furnish Buyer with all necessary Export/Import
documentation. If Buyer's Purchase Order specifies export before
passage of title, Seller shall prepare all export/import documentation
and furnish a copy to Buyer. Export/Import documentation shall be in
accordance with the INCOTERMS then in force.
D. If Seller has more than one (1) geographic location which could supply
Spares and/or Repairs, Seller shall make such Spares and/or Repairs
available to Buyer from Seller's closest location to Buyer's ship to
location. Any of Buyer's locations outside the United States may place
orders with Seller's specified United States and/or foreign facilities
for such Spares and Repairs.
3. PURCHASE ORDERS - EDI
A. Purchase Orders
For the purposes of this Agreement, Purchase Order shall mean Buyer's
written Purchase Order form and Purchase Orders transmitted
electronically via Electronic Data Interchange (EDI), and any
documents incorporated therein by reference. Written Purchase Order
shall mean Digital's standard Purchase Order form. Electronic Purchase
Order shall mean only those Purchase Orders transmitted
electronically.
B. Written Purchase Orders
Buyer will order Material, Spares, Repairs, and Expendables by issuing
telex, facsimile, or telephonic orders or Purchase Orders. Buyer will
issue confirming written Purchase Orders within ten (10) days after
issuing such telex, facsimile, or telephonic orders. Each Purchase
Order will specify items such as: item description, quantity, delivery
schedule, destination, total price of the Purchase Order. Each
Purchase Order issued under this Agreement shall be made part of, and
be incorporated into, this Agreement. Seller shall have five (5) days
after receipt to reject the Purchase Order. By not rejecting the
Purchase Order within five (5) days, Seller will have accepted the
Purchase Order. Acceptance by Seller is limited to the provisions of
this Agreement and the Purchase Order.
<PAGE>
No additional or different provisions proposed by Seller shall apply.
In addition, the parties agree that this Agreement and issued Purchase
Orders constitute a Contract for the Sale of Goods and satisfy all
statutory and legal formalities of a contract.
C. Electronic Purchase Orders
1. Buyer may order Material, Spares, Repairs, and Expendables by
issuing Electronic Purchase Orders, which include, without
limitation, EDI Purchase Orders. Each Electronic Purchase Order
will specify items such as: item description, quantity, delivery
schedule, destination, and total price of the Electronic Purchase
Order. Each Electronic Purchase Order issued under this Agreement
shall be made part of, and be incorporated into, this Agreement.
2. Seller shall electronically "Verify" receipt of the Electronic
Purchase Orders within one (1) day of Electronic Purchase Order
transmission by Buyer. As used herein, "Verify" shall mean
Seller's notification to Buyer that all necessary Electronic
Purchase Order information has been received in a readable and
understandable format. or that discrepancies, as noted, require
clarification.
3. Seller shall have five (5) days after receipt to reject the
Electronic Purchase Order. By not rejecting the Electronic
Purchase Order within five (5) days, Seller will have accepted
the Purchase Order. Acceptance by Seller is limited to the
provisions of this Agreement and the Purchase Order. No
additional or different provisions proposed by Seller shall
apply.
4. Electronic Purchase Order transmissions shall contain information
in a specified format, in accordance with prevailing applicable
Buyer policies, or as otherwise mutually agreed in writing. Such
policies will state specific generally available non-proprietary
content and transmission standards.
5. The parties acknowledge that hard (written) copies of Electronic
Purchase Orders will not be issued. The parties agree not to
contest the validity or enforceability of Electronic Purchase
Orders under the provisions of applicable law requiring that
contracts be in writing and signed by the party to be bound. In
addition, the parties further agree that this Agreement and
transmitted Electronic Purchase Orders constitute a Contract for
the Sale of Goods and
<PAGE>
satisfy all statutory and legal formalities of a contract,
including, without limitation, the Statute of Frauds.
<PAGE>
6. The parties acknowledge that the Electronic Purchase Orders
covered by this Agreement may be offered in evidence at any trial
or other evidentiary proceeding. The parties agree that
Electronic Purchase Orders, when produced in hard copy, shall
constitute business records, and shall be admissible to the same
extent as other generally recognized business records.
D. Export/Import Documentation
If Buyer's Purchase Order specifies export after passage of title,
Seller shall furnish Buyer with all necessary Export/Import
documentation. If Buyer's Purchase Order specifies export before
passage of title, Seller shall prepare all Export/Import
documentation and furnish a copy to Buyer. Export/Import
documentation shall be in accordance with the INCOTERMS then in
force.
4. PURCHASE PERIOD
A. The period during which Buyer may issue Purchase Orders for
Material, under this Agreement (Purchase Period) shall last five
(5) years beginning on 7/1/93 and expiring on 6/30/98.
B. The period during which Buyer may issue Purchase Orders for
Spares, Repairs, and Expendables under this Agreement (Spares
Purchase Period) shall last five (5) years beginning on 7/1/93 and
expiring on 6/30/98.
C. The Purchase Period may be extended for one (1) additional year
upon mutual written consent of the parties hereto.
5. PRICING
A. The prices set forth in Exhibit A, Products, Pricing, and Lead
time, shall remain fixed for the period set forth therein (Pricing
Period), and any agreed upon extensions. Sixty (60) days prior to
the end of the then current Pricing Period, Buyer and Seller shall
meet to review the pricing of Material, Spares, Repairs, and
Expendables for the next Pricing Period. Upon expiration of the
initial Pricing Period, Seller may change prices for Material,
Spares and Repairs no more frequently that once in every twelve
( 12 )
<PAGE>
month period. Additionally, such price change requests must be
submitted to Buyer for review and approval and such proposed price
changes must be consistent with the following conditions:
1. All proposed price increases must be accompanied by financial
justification as part of such written notice and shall include,
at a minimum, data regarding increased labor and material costs.
Price increases must be authorized and accepted by the Buyer, in
writing, to Seller, before Seller implementation.
2. Price increases only apply to Purchase Orders issued on or after
the agreed upon effective date of increase.
4. Under no circumstance shall the Seller's price increase for any
material sold to Buyer exceed the percentage change in:
B. The prices for Material, Spares, Repairs, and Expendables are set forth
in Exhibit A, Products, Pricing, and Leadtime, and shall remain fixed
during the Purchase Period and any extension.
C. Prices include all charges such as packaging, packing, customs duties
imposed before passage of title, and all taxes except sales, use, and
other such taxes imposed upon the sale or transfer of Material,
Spares, Repairs and Expendables for which Buyer is solely responsible
under applicable law and for which Buyer is properly invoiced by
Seller.
D. Seller represents that prices established herein, to be paid by Buyer,
shall not exceed the prices charged to any other customer of Seller
for materials which are the same or substantially similar to the
Material, Spares, Repairs, and Expendables, taking into account the
quantities and the Terms and Conditions of this Agreement, and Seller
will forthwith refund any excess amounts paid by Buyer. With the
exception of Model # 966358-001 and # 967046-002.
6 DELIVERY/LEADTIME/FLEXIBILITY
A. Buyer's Purchase Orders shall state Seller's committed delivery dates
for Material, Spares, Repairs, and Expendables. TIME AND RATE OF
DELIVERY ARE OF THE ESSENCE OF ALL PURCHASES MADE UNDER
<PAGE>
THIS AGREEMENT. The minimum agreed period between Buyer's issuance of
a Purchase Order and the scheduled delivery date ("Leadtime") shall be
as stated in Exhibit A, Products, Pricing, and Leadtime.
B. All deliveries shall be FOB Origin. Buyer shall select the carrier and
shall not transportation charges on a freight collect. basis.
C. If Seller delivers Material, Spares, Repairs, and Expendables more than
three (3) days in advance of the scheduled delivery date, Buyer may
either return such Material Spares, Repairs, and Expendables at
Seller's expense for subsequent delivery on the original delivery date
or retain such Material, Spares, Repairs, and Expendables and postpone
payment until it would have been due if Seller had delivered Material
Spares, Repairs, and Expendables as scheduled. Without limiting any of
Buyer's rights and remedies in equity or at law, if Seller is more
than one (1) day late in meeting the scheduled delivery date, Buyer
may require that Seller ship the Material Spares, Repairs, and
Expendables via premium means at Seller's expense, or may cancel the
order for such Material, Spares, Repairs, and Expendables without
liability to the Buyer.
D. Seller shall deliver the exact quantity of Material, Spares, Repairs,
and Expendables scheduled. If Seller delivers less than the scheduled
requirement, Seller shall correct the shortage within a two (2) day
period. If Seller fails to correct such shortage within this period,
without limiting any of Buyer's rights and remedies in equity or at
law, Buyer may cancel and/or return all or part of the order without
cost or liability. If Seller delivers more than the quantity ordered,
Buyer may return any excess Material, Spares, Repairs, and Expendables
at Seller's expense.
E. Buyer may without cost or liability: cancel/reschedule orders of any
Material, Spares, Repairs, and Expendables with a forty-five (45) day
notice before delivery for cancellation and a thirty (30) day notice
for reschedule. A buyer may cancel or reschedule orally provided it
issues written notice in two (2) weeks.
F. Buyer may require that shipments of Material, Spares and/or repairs
under this Agreement be shipped by Seller to various destinations. The
Purchase Order will clearly specify the -SHIP TO- location for each
order placed with Seller.
<PAGE>
G. Buyer will measure Seller's performance against commitments, for the
purpose of establishing Seller's rate of timely delivery and leadtime
improvement against Buyer's requirements. Timely delivery shall mean
delivery of scheduled quantities no more than one (1) day early, or
one (1) day late.
H. Buyer may, without cost or liability, increase or decrease the Quantity
of Material, Spares and/or Repairs ordered under this Agreement in
accordance with the following schedule.
Leadtime Before Delivery % Increase % Decrease
Shipment Shipment
0 to 30 calendar days 0 % 0%
31 to 60 calendar days 25 % 50%
61 to 90 calendar days 50 % 100%
91 + calendar days 100 % 100%
SUPPLIER TO GIVE BEST EFFORT TO IMPROVE THE ABOVE
RATES AND OR PERCENTAGES.
I. P-1 Purchase Orders
1. Seller shall accept and process Purchase Order(s) for P-1
requirements eight (8) hours a day, five (5) business days per
week, fifty two (52) weeks per year. All P-1 purchase orders will
be delivered to Buyer's designated carrier or freight agent
within twenty-four (24) hours of authorization.
2. Invoice(s) for P-1 purchase order(s) must be accompanied by a
copy of the waybill(s) for the shipment(s).
3. If Buyer places a P-1 purchase order because Seller has failed to
meet any requirement this Agreement or of Buyer's Purchase
Order(s) as they relate to the required delivery date or quantity
of conforming Material, Spares, Repairs, and Expendables to be
delivered, Seller shall pay all transportation charges for such
order.
<PAGE>
J. Buyer shall use its reasonable efforts to forecast its intended
purchases for a twelve (12) month period on a monthly basis. Such
forecast is for Seller's convenience only, and shall not create any
liability for Buyer or obligation to purchase Material, Spares,
Repairs, and Expendables.
K. A copy of Seller's packing list shall accompany all Material, Spares,
Repairs, and Expendables shipments and shall indicate Buyer's Purchase
Order Number, Part Number, and Serial Number.
L. Seller shall notify Buyer and Agent, where applicable, of availability
of Material, Spares, Repairs, and Expendables at least twenty-four
(24) hours prior to delivery to the designated place of delivery, as
specified on Buyer's Purchase Order.
M. Where Seller has agreed to responsibility for carriage, Buyer retains
the right to reject Material, Spares, Repairs, and Expendables
delivered outside normal working hours (8:30 a.m. to 4:45 p.m. Monday
to Friday, inclusive).
7. QUALITY, INSPECTION, AND ACCEPTANCE
A. Prior to delivery Seller shall insure that all Material, Spares,
Repairs, and Expendables are in accordance with the provisions of this
Agreement, including but not limited to Exhibit E, Product
Specification and Exhibit D, Quality Requirements.
B. Seller authorizes and agrees to assist Buyer in performing source
inspection and quality assurance reviews at Seller's manufacturing
facilities, but this shall in no way relieve Seller of its obligation
to deliver conforming Material, Spares, Repairs, and Expendables nor
waive Buyer's right of inspection; nor does said right of inspection
waive any rights under the warranty provisions.
<PAGE>
C. During the Inspection Period of thirty (30) days after Buyer's receipt
of the shipment of Material or Spares, Repairs and Expendables Buyer
will return Material Spares, Repairs, and Expendables which fails to
pass inspection per Acceptance Quality Level (AQL) criteria defined in
Exhibit D for, at Buyer's option, credit, refund of purchase price, or
repair/replacement within five (5) days of Buyer's notice to Seller of
nonconformance. Seller shall designate carrier and pickup of rejected
Material, Spares, Repairs, and Expendables and the pickup shall occur
within five (5) days of notice, or Buyer may select a carrier and
return rejected Material, Spares, Repairs, and Expendables COD, and
risk of loss will pass to Seller for rejected Material, Spares,
Repairs, and Expendables FOB Buyer's dock.
D. In the event that Buyer supplies any outgoing test station(s) for
Seller's use, the terms of supplying such test station(s) are set
forth in the Bailment Agreement.
E. In the event Material, Spares, Repairs, and Expendables fail to meet
Buyer's quality requirements as stated in the Quality Requirements,
Exhibit D, hereto, Buyer may invoice Seller for Buyer's labor, for
screening of defective product, until the quality levels are met.
Seller shall not be liable for the costs associated with routine
audits performed by Buyer.
8. PAYMENT AND SET-OFF
A. Buyer shall issue payment net thirty (30) calendar days after the later
of the scheduled delivery date and receipt of a correct packing list,
correct invoice, and conforming Material, Spares, Repairs, and
Expendables.
B. Amounts owed to Buyer due to rejections of Material, Spares, Repairs,
and Expendables, or discrepancies on paid invoices will be, at
Buyer's option, fully credited against future invoices payable by
Buyer, or paid by Seller within thirty (30) calendar days from
Seller's receipt of a debit memo or other written request for
payment from Buyer.
<PAGE>
C. Buyer shall have the right at any time to set-off any amount owed from
Seller to Buyer or its subsidiaries or affiliates against any amount
payable by Buyer pursuant to this Agreement and/or any Purchase Order
issued hereunder, provided such set-off does not contravene applicable
exchange control laws or any other applicable statute.
D. Seller and Buyer agree that Buyer may at its sole discretion utilize
for its own purpose or assign to third-parties all content credits for
the value, in whole or in part, of purchases made pursuant to this
Agreement. Such utilization or assignment of offset credits may be in
furtherance of fulfilling international offset obligations to any
government. Seller agrees to make available the maximum offset
credits, by the laws of the government in question and for which Buyer
is entitled, including those assignable to either party.
9. WARRANTY
A. Seller warrants for twelve (12) months from date of acceptance by Buyer
that all Material, Spares, Repairs, and Expendables shall be free from
defects in material, workmanship, and design, shall conform to
applicable specifications, drawings, samples, and descriptions
referred to in this Agreement and shall be suitable for the purpose
for which intended. Seller warrants it has the right to convey the
Material, Spares, Repairs, and Expendables and that the Material,
Spares, Repairs, and Expendables are free of all liens and
encumbrances, and that the Material, Spares, Repairs, and Expendables,
does not infringe on any intellectual property interest. These
warranties shall survive any inspection, delivery, payment, and
termination of this Agreement, and shall run to Buyer, its customers,
successors, and assigns. Seller agrees to date code with the
expiration date of warranty, on all Spares. Seller agrees to date code
with expiration date of warranty on all spares for new products added
to this agreement. Seller will use best effort. to add date codes to
all existing spares.
B. Seller shall correct defects in Material, Spares, Repairs, and
Expendables at its facility. At Buyer's option, Seller shall repair or
replace all defective Material, Spares, Repairs, and Expendables
within five (5) working days of receipt of such Material, Spares,
Repairs, and Expendables. Seller shall bear all warranty
<PAGE>
costs such as labor, material, inspection, and shipping to and from -'
Buyer's facility or Buyer's customer's facility, whichever is the location
of the Material, Spares, Repairs, and Expendables. If Buyer or Buyer's
customer incurs any such costs, Buyer may either recover them directly from
Seller or deduct them from any amounts due Seller. Seller agrees to date
code with expiration date of warranty on all Spares. Seller agrees to date
code with expiration date of warranty on all spares for new products added
to this agreement. Seller will use "best effort" to add date codes to all
existing spares.
C. In no event will either party be responsible to the other for any
incidental or consequential damages arising out of this warranty.
However, nothing herein shall be deemed an assumption by either party
of liability which the other party has in contract or at law, with
record to any third-party claims.
D. In addition to the above remedies, at Buyer's option, Seller, at its
expense , shall provide technical assistance and any parts necessary
to repair Material, Spares, Repairs still under warranty, at Buyer's
facility. Seller shall provide this within forty eight (48) hours
after it receives Buyer's request for on-site support.
E. Out Of Warranty Material, Spares, Repairs. During the purchase period
of this agreement or any extension thereof, Seller agrees to refurbish
to a "Like New" condition, and to latest shippable revision level ( if
requested by Buyer) the out - of- warranty Material, Spare, Repair
parts at the re-furbishment prices listed in Exhibit A. Such
refurbished Materials, Spares, and Repairs will have the same warranty
as found in Section 9, Warranty. Materials, Spares, Repairs submitted
by Buyer for said refurbishment will be in reasonable good condition
as mutually agreed upon by both parties. "Like New" condition means a
product refurbished to meet the electrical and mechanical requirements
of the applicable Buyer's specification including the replacement of
non-functional parts, and new plastic/metal cover sets, as applicable,
as well as to latest Seller shippable revision level ( if requested by
Buyer). A process will be documented that identifies the steps the
Seller will use to estimate the refurbishment cost, and any units
exceeding a refurbishment cost benchmark established by the Buyer,
will be returned to buyer, with no refurbishment, for Buyer final
disposition.
<PAGE>
10. CONFIDENTIAL INFORMATION AND ADVERTISING
A. Seller shall maintain as confidential and shall not disclose to any
person outside its employ, nor use for purposes other than performance
of this Agreement, any specifications, drawings, blueprints, data,
business information, or other confidential information which Seller
learns by virtue of this Agreement, except as required by law, and
after written notice to Buyer. Upon termination of this Agreement,
Seller shall promptly return to Buyer all confidential material and
all copies.
B. Without Buyer's prior written consent, Seller shall not in any manner
disclose, advertise, or publish the existence or terms of transactions
under this Agreement.
C. Buyer may reproduce and use Seller's manuals, schematics, and
merchandising literature provided by Seller under this Agreement.
11. INTELLECTUAL PROPERTY INDEMNITY
Seller shall defend, at its expense, any claim against Buyer alleging that
Material, Spares, Repairs, or Expendables, or any part thereof infringes any
patent, copyright, trademark, trade secret, mask work, or other intellectual
property interest in any country and shall pay all costs and damages awarded, if
Seller is notified promptly in writing of such a claim. If an injunction against
Buyer's or Buyer's customer's use, sale, lease, license, or other distribution
of the Material, Spares, Repairs, or Expendables or any part thereof results
from such a claim (or if Buyer reasonably believes such an injunction is
likely), Seller shall, at its expense, (and in addition to the Seller's other
obligations, hereunder) and as Buyer requests: obtain for Buyer and/or Buyer's
customers the right to continue using, selling, leasing, licensing, or otherwise
distributing the Material, Spares, Repairs, or Expendables, or replace or modify
it so it becomes noninfringing but functionally equivalent. The provisions of
this Section shall not apply to any claim for infringement resulting solely from
Seller's compliance with Buyer's detailed written design specifications, where
provided.
<PAGE>
12. CHANGES
A. Buyer must be advised in writing of ANY and ALL product or process changes
prior to implementation. Seller shall make no changes during the Purchase
Period for Material, Spares, Repairs, and Expendables which affect design,
form, fit, or function, appearance, reliability, place and process
manufacture, or packing and packaging specified by this Agreement without
Buyer's prior written approval. Buyer will review Seller's written request
for such changes within forty (40) days of Buyer's receipt of such request
and whatever documentation Buyer reasonably requires to evaluate such
request, which shall include all maintenance related information and
samples which incorporate the proposed change(s). Buyer agrees to use
reasonable efforts to issue to Seller, Buyer's final acceptance or
rejection of Seller's proposed change within an additional forty (40) day
period.
B. As a part of Seller's internal engineering process, prior to release of any
change, Seller shall demonstrate, to Buyer's satisfaction, that the change
has not affected the operation and functional performance of the Material,
Spares, Repairs, and Expendables listed in Exhibit A, hereto.
C. For all changes approved by Buyer, Seller shall furnish to Buyer all
necessary documentation to enable installation and implementation of the
changes and make available for purchase by Buyer hereunder, parts in kit
form and at reasonable prices for nonmandatory changes.
D. Any significant change in manufacturing process or place of manufacture must
be certified per the procedure set forth in Exhibit D, Quality
Requirements, hereto, and prior to Buyer's written acceptance thereof. If
Seller proposed to transfer the manufacture of Material, Spares, Repairs,
Expendables to another manufacturing or repair facility, or to another
manufacturing line from a currently operating and qualified manufacturing
line, Seller shall notify Buyer of the intent in writing forty (40) days
prior to the proposed commencement of any such plan. Seller's notice shall
include a transfer plan acceptable to Buyer and shall include as a minimum
a detailed schedule for the technical qualification, managerial
responsibility and program support for the Material, Spares, Repairs,
Expendables. The plan shall include the formation of a manufacturing team
made up of representatives of both Buyer and Seller which will monitor and
report Buyer's conformance to the
<PAGE>
schedule and implementation of the transition plan. Buyer shall use _-
reasonable efforts to review and approve the plan in a timely manner, but Seller
shall not commence to implement the plan until ten (10) days after Buyer's
approval.
Seller shall continue utilizing the previously approved manufacturing or repair
line to meet Buyer's Purchase Order requirements until Seller proves the product
produced in the new line or facility meets the requirements of Exhibits D and E,
hereto, as well as proving to be reliable to delivery and program completion of
the transition plan and after satisfactory demonstration of qualification and
reliability of delivery performance, Buyer will supply in writing notice of the
approval status of the new facility or line.
E. If Seller fails to comply with Clauses A through D of this Section, then
Seller shall bear all of Buyer's costs to correct all changes affecting
Material, Scares, and Repairs.
F. A "Mandatory" Change as used herein shall be defined as: any change required
to insure that the Material, Spares, Repairs, and Expendables, (1) meets
the applicable Product Purchase Specification(s), (2) is safe, and
(3)complies with all applicable laws.
1. After written Seller notification of change to Buyer, and Buyer review
of change and written approval to Seller, Seller shall start
implementation of Mandatory Changes to the Material, Spares, Repairs,
and Expendables, per a mutually agreed upon schedule(s) and shall not
ship said Material, Spares and Repairs until brought into conformance,
unless authorized by Buyer to do otherwise.
2. For implementing Mandatory Change(s) to product already delivered to
Buyer, Seller shall supply to Buyer material which contains such
Mandatory Change(s) ( H Seed Stock" ), which shall be delivered to
Buyer per the schedule following:
3. Seller is to allocate, at no charge to Buyer, Seed Stock equal to 25%
percent of the total product delivered to Buyer to date in which
Seller requires Mandatory Change(s), Product so replaced with Seed
stock will be repaired by Seller to comply with Mandatory Change(s)
and delivered again to Buyer as Seed Stock. The percentage represents
what is required to implement the Mandatory Change(s) in one (1) year
after receipt by Seller of Buyer's approval of such Mandatory
Change(s). At end of one (1) year period, or upon completion of such
Mandatory Change(s) to all units delivered to
<PAGE>
Buyer, which ever comes later, Buyer will return remaining Seed Stock to
Seller.
4. Seller shall deliver the Seed Stock within thirty (30) days after
having implementing the Mandatory Change(s) in manufactured units.
Seller shall deliver Seed Stock pursuant to the Buyer's Purchase Order
form which shall be consistent to this Agreement. Purchase Order
number may be provided via telephone, with facsimile transmission
within twenty four (24) hours.
G. Change Notices: Any notice given under this Section shall be initially
transmitted by means agreed to between the parties, to addressees
specified in Section 17, Notices herein.
13. TERM OF AVAILABILITY
A. In consideration for Buyer's purchase of any Material, Spares,
Repairs, and Expendables, hereunder, Seller grants to Buyer the option
to purchase Material, Spares, Repairs, and Expendables, at the last
revision level purchased under this Agreement, for the period of five
(5) years after the expiration date of this Agreement or any extension
thereof, or for as long as said Material, Spares, Repairs, and
Expendables, are made available to any of Seller's other customers,
whichever is the later. Seller to provide a one (1) year advance
written notice period for a last time buy at the end of the product
manufacture life.
14. U.S. CUSTOMS, MARKING, AND DUTY DRAWBACK
A. Country of Origin
1. "Country of Origin" Marking: The Seller shall mark, in English, all
Material, Spares, Expendables, Repairs with the Country of Origin
(manufacture), in compliance with Section 304 of the United States
Tariff Act. Both the Material, Spares, Expendables, Repairs and its
container must be conspicuously marked with the Country of Origin. If
the Material, Spares, Repairs, and Expendables, itself cannot be
marked legibly due to size, then its immediate container must he
marked
2. For each delivery against purchases made under this Agreement, Seller
shall furnish Buyer with a signed certificate stating Country of
Origin (manufacture) by quantity and part number (Buyer's and
Seller's)
<PAGE>
B. Duty Drawback
1. For each purchase under this Agreement, and for each item of Material,
Spares, Repairs, Expendables delivered hereunder for which U.S.
Customs import duties have been paid upon importation, or for
Materials, that contain parts for which import duties have been paid,
Seller shall furnish Buyer with a signed -MANUFACTURING DRAWBACK ENTRY
and/or CERTIFICATE- (U.S. Customs Form #CF331 or its successor).
Seller warrants that information contained in such Form #CF33 shall be
accurate and shall comply with United States Duty Drawback and Customs
laws and regulations. Seller shall indemnify and hold Buyer harmless
from and against any claims, costs, or damages resulting from or
arising out of Buyer's reliance on such information and/or Form
#CF331.
2. Seller shall provide such required Form(s) #CF331, and/or information,
at the end of each fiscal quarter, unless otherwise agreed in writing
by both parties.
3. Buyer reserves its first right to claim Duty Drawback on all purchases
made under this Agreement.
C. Commercial Invoices: Seller shall provide a Commercial Invoice to
accompany each shipment made against any Purchase Order placed
hereunder. This Commercial Invoice shall be used for U.S. Customs
clearance. The Commercial Invoice must contain the following
information (in English): Name and address of Manufacturer/Seller
(where the manufacturer is not the seller the name and address of the
seller); Country of Origin (manufacture) of the product; name and
address of Buyer; a description of the product; the quantity and unit
price; the purchase price in the currency of the purchase; the kind of
currency involved; the terms of sale (i.e., FOB named point, CIF,
Works); breakdown of insurance and freight charges (if CIF terms are
used); Buyer's part number(s): Buyer's contact name; Buyer's cost
center code.
D. Prealerts: If Buyer is the importer of record Seller shall provide
Buyer with prealerts on all shipments of Material, Spares, and
Expendables to Buyer's designated Import Group and/or Broker.
<PAGE>
15. FORCE MAJEURE
Neither party shall be liable for failure to perform any of its obligations
under this Agreement during any period in which such party cannot perform
due to fire, flood, or other natural disaster, war, embargo, riot, or the
intervention of any government authority, provided that the party so
delayed immediately notifies the other party of such delay. If Seller's
performance is delayed for these reasons for a cumulative period of
twenty-five (25) days or more, Buyer may terminate this Agreement and/or
any Purchase Order hereunder by giving Seller written notice, which
termination shall become effective upon receipt of such notice. If Buyer
terminates, its sole liability under this Agreement or any Purchase Orders
issued hereunder will be to pay any balance due for conforming Material (1)
delivered by Seller before receipt of Buyer's termination notice; and (2)
ordered by Buyer for delivery and actually delivered within twenty (20)
days' after receipt of Buyer's termination notice.
16. COMPLIANCE WITH LAWS
A. All Material, Spares, Repairs, and Expendables supplied and work performed
under this Agreement shall comply with all applicable United States and
foreign laws and regulations including, but not limited to, emission and
safety standards, the Occupational Safety and Health Act (29 U.S.C.
Sections 651 et seq.), the Fair Labor Standards Act of 1938 (29 U.S.C.
Sections 201-219), the Toxic Substance Control Act of 1976 (15 U.S.C.
Section 2601), all laws restraining the use of convict labor, and Worker's
Compensation Laws. Upon request, Seller agrees to certify compliance with
any applicable law or regulations. Seller's failure to comply with any of
the requirements of this Section may result in a material breach of this
Agreement.
<PAGE>
B. The following provisions and clauses of the Federal Acquisition Regulation
(FAR), 48 CFR Chapter 1, are hereby incorporated by reference, with the
same force and effect as if they were given in full text and are hereby
made binding upon the subcontractor or vendor. Where the clauses or
provisions say "Contractor", substitute "subcontractor or vendor."
1) Nonexempt Subcontracts and Purchase Orders over $2,500:
52.222-36 Affirmative Action for Handicapped Workers (APR 1984)
2) Nonexempt Subcontracts and Purchase Orders over $10,000 or
subcontracts and purchase orders the aggregate value of which in any
twelve month period exceeds or can be expected to exceed 910.000:
52.222-26 Equa1 Opportunity (APR 198'4)
3) Nonexempt Subcontracts and Purchase Orders over $10,000:
52.222-21 Certification of Nonsegregated Facilities (APR 1984)
52.222-35 Affirmative Action for Special Disabled and Vietnam Era
Veterans (APR 1984) -
4) Subcontracts and Purchase Orders over the small purchase limitation.
$25.000:
52.219-13 Utilization of Women-Owned Small Business (AUG 1986)
5) Subcontracts over $500,000, except for small business concerns:
52.219-8 Utilization of Small Business Concerns and Small
Disadvantaged Business Concerns (FEB 1990)
A copy of the Filing Standard Form 100 (EEO-1) and Development of
Affirmative Action Compliance Program is attached as an Exhibit to this
Agreement, and incorporated herein by reference.
C. The provisions of the Clean Air Act (42 U.S.C. Sections 7401 et seq.)
and the Clean Water Act (33 U.S.C. Sections 1251 et seq.) are made a
part of this Agreement. A copy of the Certification required under
these statutes is attached as an Exhibit to this Agreement and
incorporated herein by reference.
<PAGE>
D. The provisions of any applicable State "Right-to-Know. laws and
regulations are made a part of this Agreement. A copy of the
applicable Material Safety Data Sheets as required under such laws and
regulations shall be provided by Seller upon delivery of Material,
Spares, Repairs, and Expendables and updated as necessary.
E. This Agreement is subject to all applicable United States laws and
regulations relating to exports and to all administrative acts of the
U.S. Government pursuant to such laws and regulations.
F. All Material, Spares, Repairs, and Expendables supplied and work
performed under this Agreement shall comply with all applicable laws
and regulations. Without limiting the foregoing, Seller shall comply
with the Occupational Safety and Health Act ("OSHA") 29 C.F.R.
Sections 1910, 1200(b), and (g)(8); the Toxic Substance Control Act
("TSCA") 15 U.S.C. Section 2612(a); and laws restraining the use of
convict labor: 18 U.S.C. Sections 1761 and 1762. Seller's failure to
comply with any of the requirements of this Section may result in a
material breach of this Agreement.
G. The 1980 United Nations Convention on contracts for the international
sale of goods shall not apply to this agreement or any order issued
under this agreement.
H. Seller agrees to comply with the United Stated Federal requirements
contained at Title 40, Code of Federal Regulations Part 82 "Protection
of Stratospheric Ozone: Labeling".
I. Moreover, Seller shall not supply to Buyer any product or part that
contains or has been manufactured using a Class 1 ozone depleting
substance, as that term is defined in the Regulations, unless Seller
has provided prior written notice to Buyer.
17. TERMINATION FOR CAUSE
A. The occurrence of any of the following constitutes a breach and is
cause for Buyer's termination of this Agreement and or/its Purchase
Orders
1. Seller fails to deliver Material, Spares, Repairs, and
Expendables on time.
<PAGE>
2. Material, Spares, Repairs, and Expendables, do not conform to the
applicable descriptions or specifications.
3. Seller fails to perform any material provision of this Agreement.
4. Seller assigns this Agreement, or any obligation or right hereunder.
(The word "assign" to include, without limitation, a transfer of major
interest in Seller.)
5. Seller merges with a third-party (not a parent or subsidiary company),
without the prior written consent of Buyer.
6. Seller becomes insolvent or makes an assignment for the benefit of
creditors, or a receiver or similar officer is appointed to take
charge of all or part of Seller's assets.
B. Seller must cure any of the above breaches except late delivery
pursuant to Clause A., paragraph 1 above, for which there shall be no
cure period, and notify Buyer of such cure within ten (10) days from
receipt of a notice to cure from Buyer. If Seller fails to so cure,
Buyer may terminate this Agreement and/or any Purchase Orders under it
by giving Seller written notice. Buyer shall have no liability except
for payment of any balance due for conforming Material, Spares,
Repairs, and Expendables delivered before the date of Buyer's notice
to cure.
18. NOTICES
Any notice given under this Agreement shall be written or sent by telex or
facsimile. Written notice shall be sent by registered mail or certified mail,
postage prepaid, return receipt requested, or by any other overnight delivery
service which delivers to the noticed destination, and provides proof of
delivery to the sender. Any telex or facsimile notice must be followed within
three (3) days by written notice. All notices shall be effective when first
received at the following addresses:
If to Seller: If to Buyer:
Overland Data Digital Equipment Corporation
5600 Kearny Mesa Rd. 9 Northeastern Blvd.
San Diego, Ca 92111 Salem, New Hampshire 03079
ATTN: Vice President ATTN: Purchasing Manager
Sales and Marketing
19. DOCUMENTATION, TRAINING & TECH SUPPORT
<PAGE>
Seller hereby grants to Buyer the right to reproduce, in whole or in part, all
documentation and training material provided to Buyer in order for Buyer to
effectively service Seller's products.
20. BUYER OWNED MATERIAL
If any Material, Spares, Repairs, and Expendables ( "Buyer Owned Material" ) is
returned to Seller, it will be identified in Buyer's accompanying Shipping and
Billing Authorization form ( "SBA.). Buyer will retain title to all such items.
While Buyer Owned Material is in Seller's care, custody, and control, Seller
shall insure it at Seller's own expense in the amount of the Buyer Owned
Material's full replacement value against all risks of physical loss excluding
nuclear risks or acts of war. Seller shall keep such material separate and
identified as Buyer Owned Material and shall use such material solely under the
terms of this Agreement. Upon request from Buyer, Seller shall promptly return
all Buyer Owned Material.
21. RIGHTS AND ASSISTANCE TO REPAIR
It is mutually agreed between Buyer and Seller that Seller-grants to Buyer the
right to repair or have repaired Material, Spares and Seller will provide the
Buyer, at Buyer's request, a list of components and the list of Seller approved
Suppliers for those components. The components that are not available to Buyer
from sources other that Seller are to be listed and unit prices identified with
quantity discounts, if any. Those parts having generic industry identification
(not proprietary to Seller) and available to Buyer shall be cross referenced to
generic part numbers. Seller further agrees to provide Buyer with the available
test specifications and test procedures and drawings required for testing the
finished Material, Spares, Repairs along with a full description, manufacturer's
model numbers, etc., of the test equipment involved/required to perform such
tests.
<PAGE>
All requested information will be provided to the Buyer by Seller within ninety
(90) days from such written requests by Buyer.
22. SIMILAR PRODUCTS
Seller understands that Buyer designs, develops and acquires hardware and
software for use with its own computer system products, and that existing or
planned hardware and software independently developed or acquired by Buyer may
contain ideas and concepts similar or identical to those contained in the
Seller's product. Seller agrees that entering this Agreement shall not preclude
Buyer in any way, from using such ideas and concepts to develop or acquire
similar hardware and software for any purpose, without obligation to the Seller,
provided Buyer does not copy for such use, in whole or in part, the Seller's
product.
23. SURVIVAL
The provisions of this Agreement dealing with Delivery, Payment and Set-off,
Warranty, Confidential Information and Advertising, Intellectual Property
Indemnity, Changes, Term of Availability, U.S. Customs, Marking, and Duty
Drawback Requirements, Compliance with Laws, General, and all other sections
which by their language, context or nature are intended to survive, shall
survive termination or expiration of this Agreement.
The terms, provisions, representations, and warranties contained in the
Agreement shall survive expiration or earlier termination of this Agreement
notwithstanding delivery, acceptance of and/or payment for the Material, Spares,
Repairs, and Expendables ordered hereunder.
24. GENERAL
A. This Agreement is the complete and entire understanding between the parties
on this subject matter and supersedes all prior agreements, proposals,
representations, statements, or understandings whether written or oral on
this subject between them. The provisions of this Agreement may be amended
or waived only by a writing executed by the authorized representatives of
the parties hereto.
<PAGE>
B. In the event that either party to this Agreement shall, on any occasion,
fail to perform any provision of this Agreement, and the other party does not
enforce that provision, the failure to enforce shall not prevent enforcement of
the provision on any other occasion.
C. As used in this Agreement, except where otherwise noted, the term "days"
shall mean business days.
D. Seller, including its servants, agents, and employees, is an independent
contractor and not an agent or employee of Buyer. Without limiting the
generality of the foregoing, Seller is not authorized to represent or make
any commitments on behalf of Buyer, and Buyer expressly disclaims any
liability therefore.
E. Supplemental terms are included in Exhibit A through Exhibit E and are
incorporated herein by reference.
F. All rights and remedies conferred by this Agreement, by any other
instrument, or by law are cumulative and may be exercised singularly or
concurrently. If any provision of this Agreement is held invalid by any law
or regulation of any government or by any court, such invalidity shall not
effect the enforceability of any other provisions hereof. This Agreement
and any Purchase Orders issued hereunder shall be governed by and
interpreted in accordance with the laws of the Commonwealth of
Massachusetts
25. HOLD HARMLESS AND INDEMNITY
A. Seller shall defend, indemnify, and hold Buyer, its officers, directors,
agents, and employees harmless from and against any and all claims, losses,
expenses (including reasonable attorney's fees), demands, settlements, or
judgments ("Claims") which result from or arise out of:
1. The presence of the Seller, equipment, or tools used by Seller in the
performance of this Agreement on the property of Buyer or its customers; or
<PAGE>
2. The acts, errors, omissions, or negligence of Seller while on the property
of Buyer or its customers, regardless of whether the loss, damage, or
injury resulting from same occurs after the Seller has left such property:
or
3. The use by Seller of Buyer's equipment, tools, or facilities ("Equipment")
whether or not any Claims are based upon the condition of the Equipment or
Buyer's, its agent's, or employee's alleged negligence in permitting its
use. Permission by Buyer to use the Equipment shall be gratuitous; or
4. The nonpayment by Seller of any monies due and owing a third-party with
whom Seller has contracted, at anytime during the Purchase Period or any
extension thereof.
B. Insurance:
1. Seller agrees to carry at all times, and with companies acceptable to Buyer,
insurance of the kinds and in the amounts listed below:
a. Worker's Compensation statutory limits in each state in which Seller is
required to provide Worker's Compensation coverage.
b. Employer's Liability not less than $500,000 per employee.
c. Comprehensive General Liability - including Contractual Liability,
Independent Contractor's Liability, Products and/or Completed Operations
Liability, and Personal Injury/Property Damage Coverages in a combined
single limit of not less than $1,000,000.
d. Automobile Liability for owned, non-owned, and hired vehicles in a combined
single limit of not less than $1,000,000.
e. Umbrella Liability a combined single limit of not less than $2,000,000.
C. Seller shall indemnify, hold harmless, and defend Buyer from and against any
and all claims, suits, actions, damages, judgments, costs, losses, expenses
(including settlement awards and reasonable attorney's fees) and other
liabilities arising from or in connection with any product liability claims
related to the Material including, but not limited to, personal injury as
well as damage to real or personal property arising out of the use or sale
of the Material, and regardless of the theory upon which the claim is based
including, but not limited to, negligence, strict liability, and breech of
warranty.
<PAGE>
26. LIMITATION OF LIABILITY
Except as otherwise provided in this Agreement, neither party shall be liable
for special, indirect, incidental, or consequential damages. The foregoing
limitation shall not limit Seller's liability for any costs, expenses, and
damages arising out of or in connection with: claims brought by third-parties;
Seller's unauthorized disclosure of Buyer's confidential information; or any
indemnification granted by Seller in connection with this Agreement.
27. NO IMPLIED LICENSE
The parties understand that, except as may be otherwise expressly stated herein,
neither the Terms and Conditions of this Agreement, nor the acts of either party
arising out of this Agreement or related to Buyer's purchase, use, sale, or
other distribution of Material, Spares, Repairs, or Expendables may be
considered in any way as a grant of any license whatsoever under any of Buyer's
present or future patents, copyrights, trademarks, trade secrets, or other
proprietary rights, nor is any such license granted by implication, estoppel, or
otherwise.
28. TERMINATION FOR CONVENIENCE
Buyer may terminate this Agreement for convenience sixty (60) days after giving
Seller written notice.
<PAGE>
29. MANUFACURING SITE FLEXIBILITY
A. Seller agrees to manufacture and supply Material under this Agreement from
its San Diego, Ca. facility.
B. Seller agrees to manufacture and supply Spares, Repairs, Expendables, from
its San Diego, Ca. facility.
C. Seller may not change the manufacturing location for either Material,
Spares, Repairs, Expendables, without prior written Buyer authorization.
D. In the event that Seller desires to change any above referenced manufacture
or supply site, Seller shall submit a written request to that effect to
Buyer, and such request shall contain a Transition Plan which shall
address, but not be limited to the following issues:
1. Major " Milestone Schedule".
2. Manufacturing site - Qualification Procedure''.
3. Assembly instructions.
4. Tool Strategy.
5. Resource Plan.
6. Raw Material re-sourcing plan.
7. Dual manufacturing strategy ( if applicable )
8. Phase In/Phase out manufacturing plan.
9. Contingency Plan
Seller may implement such plan only after it receives the Buyer's written
authorization.
30. GOVERNMENT CONTRACTS
If any Material, Spares or Repairs are incorporated into products sold under a
United States Government Contract or Subcontract , the subcontractor terms of
that Contract or Subcontract shall apply to this Agreement for such material.
<PAGE>
31. EXHIBIT CLEAN AIR & WATER CERTIFICATION
EXHIBIT B
Clean Air and Water Certification
The undersigned Contractor as a supplier of materials or services to Digital
Equipment Corporation agrees and certifies as follows:
1. any facility to be utilized in the performance of this proposed order or
subcontract is not listed on the Environmental Protection Agency List of
Violating Facilities;
2. it will promptly notify Digital, prior to award, of the receipt of any
communication from the Director, Office of Federal Activities, U.S.
Environmental Protection Agency, indicating that any facility which it
proposes to use for the performance of a purchase order or subcontract is
under consideration to be listed on the Environmental Agency List of
Violating Facilities; and
3. it will comply with the applicable provisions of the Clean Air Act (42
U.S.C. 7401 et. seq.) and the Clean Water Act (33 U.S.C. 1251 et. seq.);and
4. it will include substantially this certification, including this Paragraph
(IV), in every non-exempt subcontract.
- - or
5. compliance with the provisions of the Clean Air Act (42 U.S.C. 7401 et seq.)
and the Clean Water Act (33 U.S.C. 1251 et seq.) [ ] is not applicable
Company Name Overland Data, Inc.
Signed By /s/ Scott McClendon Date: 9/29/93
Title President & CEO
<PAGE>
Once completed, return this form to the Digital Equipment Corporation Purchasing
Department which issued the Purchase Order or Agreement to which it was
attached.
32. EXHIBIT EEO CERTIFICATION
EXHIBIT C
EQUAL EMPLOYMENT OPPORTUNITY
FILING STANDARD FORM 100 (EEO-1) AND DEVELOPMENT OF
AFFTRMATTVE ACTION COMPLIANCE PROGRAM
Contractor agrees and certifies that, if the value of any contract or purchase
order is $50,000 or more and the Contractor has 50 or more employees, Contractor
shall be bound by and agree to:
A. File a complete and accurate report on Standard From 100 (EEO-1) with the
appropriate Federal Agency within thirty (30) days after either the signing
of this instrument, or the award of the contract or purchase order, as the
case may be (unless such a report has been filed in the last twelve (12)
months), and will continue to otherwise comply with and file such reports
annually as may be required under Executive Order 11246, as amended, and
the regulations in 41 CFR 60-1.40 and 60-2.
B. Certify to the maintenance of a written and signed Affirmative Action Plan
as specified in Section 60-1.40 of Rules and Regulations, Office of Federal
Contract Compliance (EEO), Department of Labor, for each of its
establishments, and certifies further the requirement of a similar
certification from each of its nonexempt Contractors, and if no such
Affirmative Action Plan is maintained, contractor agrees to develop and
maintain a written Affirmative Action Compliance Program within 120 days
for EACH of its facilities unless at such time it is not required by law or
regulation to develop such a program.
<PAGE>
33. ENVIRONMENTAL REQUIREMENTS
Packaging Materials - Seller certifies that all packaging materials and
packaging components supplied to Buyer under this Agreement, including those
supplied in connection with any materials or goods, shall meet the following
standard: The sum of the concentration levels of lead, mercury, haxavalent
chromium and cadmium shall not exceed 100 parts per million (ppm) by weight.
34. GENERAL
IN WITNESS WHEROF, the authorized representatives of the parties have executed
this Agreement under seal as of the date (s) set forth below
<PAGE>
MODIFICATION TO BASIC ORDER AGREEMENT
DIGITAL BOA#: 16529, AMENDMENT ONE Effective: 04/01/94
1. This supplement shall govern modifications in accordance with the terms of
the original Agreement.
2. All terms will remain as in the original Agreement unless specifically
identified by this or subsequent modifications.
3. The following modifications are being made to the Agreement as shown below:
- --------------------------------------------------------------------------------
Basic order agreement number 16529, dated 07/01/93 between Digital Equipment
Corporation and its subsidiaries, worldwide (Buyer) and Overland Data Inc.
(Seller) is hereby amended as follows:
EXHIBIT A, MATERIAL PRODUCT AND PRICE SCHEDULE replace page one with the
attached revision which updates part numbers, pricing and extends Exhibit A,
pricing through June 30, 1995.
SECTION 18, NOTICES update contract to reflect new supplier address of 8975
Balboa Avenue, San Diego, California, zip 92123.
The authorized representatives of the parties have executed this agreement as
set forth below:
OVERLAND DATA INCORPORATED DIGITAL EQUIPMENT CORPORATION
/s/ Scott McClendon 3/28/94 /s/ Pat Duffett 3/22/94
- ----------------------------------- ------------------------------
Scott McLendon Date Pat Duffett Date
President and CEO Purchasing Specialist
<PAGE>
EXHIBIT A
MATERIAL PRODUCT AND PRICE SCHEDULE
[*]
Pricing is effective through June 30, 1995.
* Confidential Treatment Requested
<PAGE>
MODIFICATION TO BASIC ORDER AGREEMENT
DIGITAL BOA#: 16529, AMENDMENT TWO Effective: 06/24/94
1. This supplement shall govern modifications in accordance with the terms of
the original Agreement.
2. All terms will remain as in the original Agreement unless specifically
identified by this or subsequent modifications.
3. The following modifications are being made to the Agreement as shown below:
- --------------------------------------------------------------------------------
Basic order agreement number 16529, dated 07/01/93 between Digital Equipment
Corporation and its subsidiaries, worldwide (Buyer) and Overland Data Inc.
(Seller) is hereby amended as follows:
EXHIBIT A, MATERIAL PRODUCT AND PRICE SCHEDULE replace page one with the
attached revision which adds differential TKZ60 part numbers to Exhibit A,
Material Product and Price Schedule which is effective through June 30, 1995.
The differential part numbers are more fully described in Exhibit A and may be
purchased by Buyer subject to the provisions of the Agreement.
EXHIBIT E, PRODUCT SPECIFICATIONS add attached REV D, TKZ60 cartridge tape drive
specification which contains the new IDRC variations.
The authorized representatives of the parties have executed this agreement as
set forth below:
OVERLAND DATA INCORPORATED DIGITAL EQUIPMENT CORPORATION
/s/ Scott McClendon 6/27/94 /s/ Pat Duffett 06/24/94
- ----------------------------------- ------------------------------
Scott McLendon Date Pat Duffett Date
President and CEO Purchasing Specialist
<PAGE>
EXHIBIT A
MATERIAL PRODUCT AND PRICE SCHEDULE
[*]
Pricing is effective through June 30, 1995.
* Confidential Treatment Requested
<PAGE>
AMENDMENT 03, CONTRACT 16529, OVERLAND DATA INC. EFFECTIVE 03/31/95
1. This supplement shall govern modifications in accordance with the terms of
the original Agreement.
2. All terms will remain as in the original Agreement unless specifically
identified by this or subsequent modifications.
3. The following modifications are being made to the Agreement as shown below:
- --------------------------------------------------------------------------------
Basic order agreement number 16529, dated 07/01/93 between Digital Equipment
Corporation and its subsidiaries, worldwide (Buyer) and Overland Data Inc.
(Seller) is hereby amended as follows:
EXHIBIT A, MATERIAL PRODUCT AND PRICE SCHEDULE replace page one with the
attached revision which adds firmware, rackmount, 18 and 36 track part numbers
to Exhibit A, Material Product and Price Schedule which is effective through
June 30, 1996. The part numbers are more fully described in Exhibit A and may
be purchased by Buyer subject to the provisions of the Agreement.
The authorized representatives of the parties have executed this agreement as of
the dates as set forth below:
OVERLAND DATA INCORPORATED DIGITAL EQUIPMENT CORPORATION
/s/ Scott McClendon 4/4/95 /s/ Pat Duffett 03/27/95
- ----------------------------------- ------------------------------
Scott McClendon Date Pat Duffett Date
President and CEO Purchasing Specialist
<PAGE>
EXHIBIT A
MATERIAL PRODUCT AND PRICE SCHEDULE
[*]
Pricing is effective through June 30, 1996.
* Confidential Treatment Requested
<PAGE>
AMENDMENT 04, CONTRACT 16529, OVERLAND DATA INC, EFFECTIVE 11/10/95
1. This supplement shall govern modifications in accordance with the terms of
the original Agreement.
2. All terms will remain as in the original Agreement unless specifically
identified by this or subsequent modifications.
3. The following modifications are being made to the Agreement as shown below:
Basic Order Agreement Number 16529, dated 07/01/93 between Digital Equipment
Corporation and its subsidiaries, worldwide (Buyer) and Overland Data Inc.
(Seller) is hereby amended as follows:
Exhibit A, MATERIAL PRODUCT AND PRICE SCHEDULE replace page one with the
attached revision which adds firmware, rackmount, 18 and 36 track part numbers
to Exhibit A, Material Product and Price Schedule which is effective through
June 30, 1996. The part numbers are more fully described in Exhibit A and may be
purchased by Buyer subject to the provisions of the Agreement.
The authorized representatives of the parties have executed this agreement as of
the dates as set forth below:
OVERLAND DATA INCORPORATED DIGITAL EQUIPMENT CORPORATION
/s/ Scott McClendon 11/10/95 /s/ Pat Duffett 11/10/95
- ------------------------------ -------------------------------
Scott McClendon Date Pat Duffett Date
President and CEO Purchasing Specialist
<PAGE>
EXHIBIT A
MATERIAL PRODUCT AND PRICE SCHEDULE
AMENDMENT 04, CONTRACT 16529, OVERLAND DATA INC, EFFECTIVE 11/10/95
[CONFIDENTIAL TREATMENT REQUESTED]
[*]
Pricing is effective through June 30, 1996.
* Confidential Treatment Requested
<PAGE>
* * * COMPANY CONFIDENTIAL * * *
AMENDMENT 05, CONTRACT 16529, OVERLAND DATA INC
1. This supplement shall govern modifications in accordance with the terms of
the original Agreement.
2. All terms will remain as in the original Agreement unless specifically
identified by this or subsequent modifications.
3. The following modifications are being made to the Agreement as shown below:
- --------------------------------------------------------------------------------
Basic order agreement number 16529, dated 07/01/93 between Digital Equipment
Corporation and its subsidiaries, worldwide (Buyer) and Overland Data Inc.
(Seller) is hereby amended as follows:
EXHIBIT A, MATERIAL PRODUCT AND PRICE SCHEDULE replace page one with the
attached revision which adds TKZ63 and TKZ64 part numbers to Exhibit A, Material
Product and Price Schedule which is effective through June 30, 1997. The part
numbers are more fully described in Exhibit A and may be purchased by Buyer
subject to the provisions of the Agreement.
The authorized representatives of the parties have executed this agreement as
set forth below:
OVERLAND DATA INCORPORATED DIGITAL EQUIPMENT CORPORATION
/s/ Scott McClendon 12/6/96 /s/ Pat Duffett 11/27/96
- ----------------------------------- ------------------------------
Scott McClendon Date Pat Duffett Date
President and CEO Purchasing Specialist
* * * DIGITAL CONFIDENTIAL * * *
<PAGE>
* * * COMPANY CONFIDENTIAL * * *
AMENDMENT 05, CONTRACT 16529, OVERLAND DATA INC
EXHIBIT A
MATERIAL PRODUCT AND PRICE SCHEDULE
[*]
Pricing is effective through June 30, 1997.
* * * COMPANY CONFIDENTIAL * * *
* Confidential Treatment Requested
<PAGE>
EXHIBIT D - QUALITY REQUIREMENTS
[*]
* Confidential Treatment Requested
<PAGE>
EXHIBIT E - PRODUCT SPECIFICATIONS
[*]
* Confidential Treatment Requested
<PAGE>
EXHIBIT 10.2
PRODUCTION PROCUREMENT AGREEMENT # RMSS-ODI-96-01-0
This is an Agreement, dated as of October 25, 1996, by and between International
Business Machines Corporation (IBM), a New York corporation and Overland Data,
Incorporated (Supplier), a California corporation.
Statement of Intent
It is IBM's intention to do business with Suppliers who remain competitive in
providing IBM with leading-edge technology at favorable prices on acceptable
terms and conditions. Accordingly, from time to time, IBM intends to assess
Suppliers' competitiveness in terms of pricing, continuity of supply, quality
improvement, and cost reduction, and to notify Supplier if IBM determines that
the Supplier is not competitive with its fully qualified competitors so that the
Supplier can remedy the situation.
1.0 Product:
In return for the prices paid by IBM under this Agreement, Supplier shall
provide IBM with materials, products, components, code, documentation, spare
parts and/or related services (Products) according to the terms and conditions
of the Product Specification and Price List (PSPL) which is an Attachment to
this Agreement and the Work Authorizations issued under Section 3.0 below.
2.0 Term and Termination:
This Agreement shall commence on the date of execution by the parties and shall
continue in full force and effect for a period of five years unless earlier
terminated as provided in this Agreement. Either party may terminate this
Agreement for material breach of the other party upon sixty (60) days written
notice.
3.0 Work Authorization:
Only a Work Authorization issued by IBM or its subsidiaries (i.e. a Purchase
Order, or other document or transaction defined in the PSPL as a Work
Authorization), in either electronic or hard copy form, provides authorization
to the Supplier to perform any work or produce any products under this
Agreement. Only procurement personnel of IBM or its subsidiaries have the
authority to issue Work Authorizations or direct work activity under the terms
and conditions of this Agreement.
4.0 [*]
In accordance with the IBM/Overland Data Inc. Patent Cross License Agreement
effective January 1, 1996, [*]
5.0 Supplier Actions:
5.1 Product Modifications: No changes of any kind shall be made by
Supplier in the form, fit or function of Products without IBM's prior
written approval.
Any safety changes or concerns brought up on their product must be reported
to IBM within two working days.
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* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
5.2 Withdrawal of Products: Supplier shall notify IBM nine months prior to
a withdrawal of any Product(s). IBM will then have six months to place
orders and Supplier shall deliver such Product(s) before the withdrawal
date or upon mutually agreed upon delivery terms.
5.3 Change of Control: [*]
5.4 [*]
5.5 [*]
6.0 Supplier Representations/Warranties:
6.1 Representations and Warranties: Supplier represents and warrants:
(i) it has the right to enter into this Agreement;
(ii) Supplier's performance of this Agreement will not violate the
terms of any license, contract, note or other obligation to which
Supplier is a party, or any statute, law, regulation or ordinance to
which Supplier is subject, including, without limitation, all health
and safety and environmental statutes, laws, regulations and
ordinances;
(iii) no claim, lien, or action is pending or threatened against
Supplier or
its suppliers, subsidiaries, affiliates or parent company which would
interfere with IBM's, its subsidiaries', distributors' or customers'
use of the Products;
(iv) the Products do not infringe any patent, trademark, copyright or
other intellectual property rights of a third party:
(v) none of the Products contain nor are any of the Products
manufactured using ozone depleting substances including, without
limitation, chloroflurocarbons, halons, methyl chloroform and carbon
tetrachloride;
(vi) each of the Products is safe for its intended use, and
(vii) all Products provided to IBM under this Agreement are new and do
not contain anything used or reconditioned.
6.2 Product Warranty: The Supplier warrants that all Products provided to
IBM are free from defects in design (except for designs provided by IBM),
material and workmanship, and will conform to all of
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* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Supplier's Product representations and specifications, the representations
in Section 6.1 and in Attachment RMSS-ODI-96-01-A Section 2.1 and
agreed-upon specifications. THE WARRANTIES IN THIS AGREEMENT ARE IN LIEU OF
ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THOSE WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE.
7.0 Intellectual Property Rights and Indemnification:
Supplier shall own or have all rights and licenses under all U.S. and foreign
copyrights and patents applicable to the Products, and Supplier grants IBM all
rights and licenses necessary for IBM and its subsidiaries to exercise its
rights under this Agreement. Supplier agrees to defend, hold harmless, and
indemnify IBM from and against any claim that the Product infringes any
intellectual property rights or any claim arising from the failure of Supplier
to comply with its representations or warranties under this Agreement. If such
a claim of infringement is made, the Supplier shall obtain for IBM the right to
continue to use and market the Product or replace it with noninfringing product.
8.0 Trademarks and Trade Names:
Neither party may use any of the other party's or its subsidiaries' trademarks,
trade names or brand names without the other party's written consent.
9.0 Limitation of Liability
In no event will either party be liable for any lost revenue, lost profits or
consequential, incidental or punitive damages, even if advised in advance of the
possibility of such damages. In no event shall IBM or its subsidiaries be
liable to Supplier
(i) under a Work Authorization for an amount greater than the amount due
and unpaid under such Work Authorization, or
(ii) under this Agreement for an amount greater than the amount due and
unpaid under all outstanding Work Authorizations hereunder, as applicable.
This limitation shall not apply to any liability of Supplier or IBM under
the sections dealing with indemnification, intellectual property rights,
and any confidentiality agreement entered into between Supplier and IBM.
10.0 General:
10.1 Confidentiality: IBM and Supplier agree that the pricing terms of
this Agreement are confidential. All other exchanges of confidential
information between the parties pursuant to this Agreement shall be subject
to and governed by AECI # TCU-0785 and AECI # TCU-1785 currently in place.
10.2 No Agent: Supplier is an independent contractor and is not an agent
of IBM for any purpose whatsoever. Each party is solely responsible for
the acts of its employees and agents, including any negligent acts.
10.3 Choice of Law, Waiver of Jury Trial: This Agreement shall be governed
by the substantive laws of New York, without regard to its principles of
conflicts of laws. The parties expressly waive any right they may have to a
jury trial regarding disputes arising out of or related to this Agreement.
10.4 Force Majeure: Neither IBM nor Supplier shall be in default or liable
for any delay or failure to comply with this Agreement due to an act of
nature, public enemy, government action, or freight
Page 3
<PAGE>
embargo beyond the control of the defaulting party, and the defaulting
party shall provide the non-defaulting party immediate notice of any such
anticipated delay or failure of compliance; provided, however, that any
such act shall not relieve the defaulting party's obligations hereunder and
such party hereby agrees to perform its obligations as soon as practicable
after the conditions causing such delay or failure have subsided.
10.5 Assignment: IBM and Supplier shall not assign their rights or
delegate or subcontract their duties under this Agreement without the prior
written consent of the other party. Any attempt to do so shall be void and
of no effect.
10.6 Rights of Subsidiaries: IBM and its subsidiaries may exercise any of
the rights under this Agreement.
10.7 Survival: The provisions set forth in Sections 6, 7, 8, 9, 10.3,
10.5, 10.6 and 10.7 shall survive and continue after any expiration,
termination or cancellation of this Agreement and shall remain in effect
until fulfilled, and apply to respective successors and permitted assigns.
10.8 Waiver: In order for a waiver to be effective under this Agreement,
it must be in writing signed by the party so waiving its rights. The
waiver by either party of any instance of the other party's noncompliance
with any obligation or responsibility herein shall not be deemed a waiver
of subsequent instances.
10.9 Severability: If any Section or Subsection of the Agreement,
including this Attachment, is found by competent judicial authority to be
invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of any such Section or Subsection in every other respect
and the remainder of this Agreement shall continue in effect.
10.10 No Publicity: Supplier may reference the fact that IBM is a customer
of the Supplier with IBM's prior written consent. The Supplier agrees not
to disclose the specific terms of the Agreement (including this
Attachment), except as may be required by law or government regulation.
10.11 Entire Agreement and Order of Precedence: This Agreement and its
PSPL, together with Work Authorizations issued hereunder, constitute the
entire Agreement between the parties with respect to the subject matter
hereof and supersedes any prior or contemporaneous communications and
understandings, whether written or oral, between the parties with respect
to the subject matter hereof. In the event of any conflict in these
various documents, the order of precedence will be:
(i) the quantity, price, payment and delivery terms of a Work
Authorization;
(ii) the PSPL;
(iii) this Agreement; and
(iv) the remaining terms of the Work Authorization.
10.12 Amendments: This Agreement may only be amended in writing signed by
authorized representatives of each of the parties. To be effective, such
amendment must specifically reference this Agreement.
Page 4
<PAGE>
10.13 Counter Parts: This Agreement may be signed in one or more
counterparts, each of which shall be deemed to be an original and all of
which when taken together shall constitute the same agreement. Any signed
copy of this Agreement made by reliable means (e.g. photocopy or facsimile)
is considered an original.
IN WITNESS WHEREOF, the parties hereto have caused this Attachment to be signed
by their respective duly authorized representatives.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
INTERNATIONAL BUSINESS
MACHINES CORPORATION OVERLAND DATA, INCORPORATED
/s/ Kenneth R. Niblett 10/26/96 /s/ Scott McClendon 10/29/96
- ---------------------------------- -----------------------------------
Authorized Signature Date Authorized Signature Date
Kenneth R. Niblett Scott McClendon
- ---------------------------------- -----------------------------------
Printed Name Printed Name
W.W. Matls Mgr - Tape President & CEO
- ---------------------------------- -----------------------------------
Title Title
Page 5
<PAGE>
EXHIBIT 10.2 ATTACHMENT
PRODUCT SPECIFICATION & PRICE LIST ATTACHMENT # RMSS-ODI-96-01-A
TO PRODUCTION PROCUREMENT AGREEMENT # RMSS-ODI-96-01-0
This Product Specification & Price List Attachment # RMSS-ODI-96-01-A
(Attachment) incorporated under Agreement # RMSS-ODI-96-01-0 ("Agreement") is
entered into by and between Overland Data, Incorporated ("Supplier") and
International Business Machines Corporation (IBM). All terms of the Agreement,
including the defined terms, shall apply to this Attachment unless stated
otherwise in the Attachment The term of this Attachment shall be from October
25, 1996 to October 25, 2001 (Attachment-Term).
1.0 PRODUCT DESCRIPTION
The Products are 3490E class 1/2" tape drives. The Product part numbers are set
forth in Subsection 3.1. The Product is further described by the requirements
set forth in the following specifications which are incorporated herein by
reference:
- - IBM Purchase Specification for 3490E Model Fxx Tape Drive - P/N 05H6880
- - 3490E Model Fxx SCSI-2 Specification - P/N 05H6881
- - Supplier Packaging and Materials Handling Specification # GA-219261-10.
2.0 PRODUCT REQUIREMENTS
2.1 Product Warranties: Notwithstanding anything to the contrary, Supplier
represents and warrants that at all times:
(i) for a period of [*] in accordance with the Products shall operate
in all specifications and requirements in this Attachment. Those
Products that do not conform to this or any Other Product warranties
shall, at IBM's option, be repaired or replaced (or the purchase price
paid shall be credited or refunded) by Supplier within [*] of IBM's
notification to Supplier, and Supplier agrees to reimburse IBM for
all costs associated with such repair or replacement of Products;
(ii) for Products that have a defect rate of [*](Epidemic Defect
Rate), Supplier shall, at IBM's option and within 5 Days of IBM's
notification to Supplier, repair or replace all Products (or, if
IBM elects, the purchase price paid shall be credited or refunded)
and Supplier shall, at IBM's option, reimburse IBM for all costs
associated with such repair or replacement of Products of IBM, IBM
subsidiaries, and its and their distributors and end users; (iii)
Supplier shall, at IBM's option and within [*] of IBM's
notification to Supplier, repair or replace Products (or the
purchase price paid shall be credited or refunded) that are part of
products that IBM, in its discretion, has recalled or provided
other corrective actions for safety reasons associated with the
Products, and Supplier shall, at IBM's option, reimburse IBM for
all costs associated with such repair or replacement of Products of
IBM. IBM subsidiaries, and its and their distributors and end
users; (iv) any combination of the Products with other programs or
products do not infringe any patent of a third party; (v) Supplier
has, will maintain, and will submit to IBM, written evidence of the
certifications and approvals specified in this Attachment for all
Products, and that
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* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Supplier will affix all required labels regarding such certifications
and approvals on the appropriate area of each Product and packaging.
The warranties in this Subsection 2.1 shall be considered to be part of the
warranties in Subsection 6.1 of the Agreement and supplement any other
warranties in Section 6.0.
2.2 Product Field Support: In addition to the Product warranties, Supplier
shall provide the following services in support of the Product during the
warranty period as set forth in Subsection 2.1 above:
(1) support IBM on all end user telephone calls regarding the Product;
(2) support IBM regarding the determination of whether there is a
defect (patent or latent), error or other problem ("Defects") with the
Product; and
(3) isolate and promptly correct all Defects with the Products, and
provide such corrections to IBM in accordance with the parameters set
forth below (these parameters are "time of the essence"):
(a) for Defects that result in an emergency condition that causes
critical impact to IBM schedule or that makes performance or
continued performance of any feature or function impossible or
impractical ("Severity Level 1 Defect" or "SL1 Defect"), Supplier
shall use best efforts to provide corrections within [*] of the
earlier of Supplier discovering the SL1 Defect or being
informed of the SL1 Defect;
(b) for Defects that significantly affect an IBM schedule or
that make the performance or continued performance of any
feature or function difficult and that cannot easily be
circumvented or avoided on a temporary basis by the end user
("Severity Level 2 Defect" or "SL2 Defect"), Supplier shall use
best efforts to provide corrections [*] of the earlier of
Supplier discovering the SL2 Defect or being informed of the
SL2 Defect;
(c) for Defects that are not critical in that performance can be
continued without difficulty or loss of data by easy
circumvention or avoidance by the end user ("Severity Level 3
Defect" or "SL3 Defect"), Supplier shall use best efforts to
provide correction [*] of the earlier of Supplier discovering the
SL3 Defect or being informed of the SL3 Defect; and
(d) for Defects that are minor which can be easily avoided or
circumvented by the end user ("Severity Level 4 Defect" or "SL4
Defect"), Supplier shall use best efforts to provide corrections
[*] of the earlier of Supplier discovering the SL4 Defect or being
informed of the SL4 Defect.
(4) comply with requirements in paragraph 2.6 and requirements put
forth in attachment # RMSS-ODI-96-01-B from IBM Field Services related
to spare parts sourcing and pricing. (The attachment #
RMSS-ODI-96-01-B will be completed after the written approvals of the
Production Procurement Agreement # RMSS-ODI-96-01-0 and the Product
Specification and Price List Attachment # RMSS-ODI-96-01-A )
IBM has the right to withhold all payments due to Supplier upon notice to
Supplier of an SL1 or SL2 Defect, until such Defect is corrected to IBM's
satisfaction.
2.3 Product Certifications: The Products shall be delivered with proper
product certifications as defined in the IBM Purchase Specifications listed
in Section 1.0. IBM will be responsible for obtaining the NOM
certification.
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2.4 COO Product Certification: Supplier hereby certifies that the Products
purchased hereunder have the following country(ies) of origin. If there
are any changes to this information, Supplier will notify IBM by providing
a new country of origin certification signed by an authorized Supplier
representative before shipping any Products other than those with the
country of origin listed below for such Product. Supplier acknowledges
that IBM will rely upon this certification, and timely updates to it, in
making representations to IBM customers and to comply with various laws and
regulations. If any part number listed has more than one country of
origin, Supplier certifies that each country of origin is listed below, and
Supplier agrees to deliver to IBM, within thirty (30) days of signing and
within thirty (30) days prior to a sourcing origin change, instructions
regarding how IBM can distinguish each country of origin for part numbers
with more than one country of origin.
[CONFIDENTIAL TREATMENT REQUESTED]
2.5 Compatibility Requirements: The Products shall be compatible with IBM's
system units, peripherals and operating systems as defined in the IBM
supplied "SCSI-2 Specification" and "Purchase Specification" listed in
Section 1.0.
2.6 Spare Parts Availability: Notwithstanding anything to the contrary,
Supplier shall maintain the capability to supply Spare Parts (i.e. the
entire Product or portions of the Product as described herein or as
subsequently described by IBM) during the term of this Attachment and for a
period of 5 years thereafter. Spare Parts supply and pricing beyond the
5 year period will be negotiated on a year to year basis by the Supplier
and IBM Field Service. Spare Parts which are portions of the Product
(Field Replacement Units (FRUS)) and their prices will be defined in the
Attachment #RMSS-ODI-96-01-B. Spare Parts ordering by IBM Field Service
will have the same terms as the Product defined in paragraph 4.0. Orders
for initial stocking by IBM Field Service will be discounted 10% from the
standard FRU price.
The Supplier shall not be required to provide "Code A" parts support to IBM
on a twenty-four (24) hours / seven (7) days a week basis. "Code A"
support requirements will be handled by a third party source defined by
IBM. Supplier shall provide spare parts on a routine basis to the defined
IBM "Code A" support third party at the same prices, terms and lead-times
provided IBM as a part of this agreement. Emergency orders submitted by
the defined IBM "Code A" support third party will be fulfilled by the
supplier within 24 hours of receipt of order on the next general business
day. Emergency orders will be at suppliers full list price.
3.0 PRICING
3.1 Product Pricing: Supplier shall make the Product available to IBM at the
pricing specified below. The pricing in this Subsection 3.1 below as expressed
in Work Authorizations ("WAS," i.e. written or electronic IBM purchase orders
or other electronic transactions that are expressly identified as an
authorization to perform work under the Agreement or this Attachment) shall be
the only charges due to the Supplier from IBM. Supplier warrants that the
pricing in Subsection 3.1 does not include sales taxes and that Supplier will
not include any sales taxes on any Products purchased by IBM.
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<PAGE>
[*]
3.2 PAYMENTS:
[*]
4.0 WORK AUTHORIZATION LOGISTICS
Supplier will deliver Products as specified in WAs. The agreed to lead-time
for IBM to issue WAs prior to delivery shall be 4 weeks. Supplier agrees
to cooperate and use best efforts for cases where IBM requests a
shorter lead-time. The following changes to Product order
quantities on existing WAs may be made by IBM without cost or
liability to IBM:
Product Product
Number of Days Prior to Quantity Quantity Cancellation
Scheduled Delivery Date Increase Decrease Charge
---------------------------------------------------------------------------
0 to 30 Calendar Days 0% 0% 0%
31 to 60 Calendar Days 25% 50% 0%
61 to 90 Calendar Days 50% 100% 0%
91 Plus Calendar Days 100% 100% 0%
IBM may provide a 12 month rolling estimated forecast for any quantities of
Product that may be required. THESE FORCASTS ARE FOR PLANNING PURPOSE ONLY AND
ARE NON-BINDING, IN NO EVENT SHALL THEY BE CONSTRUED AS A COMMITTMENT BY IBM TO
PURCHASE PRODUCTS.. IBM MAKES NO REPRESENTATION OR WARRANTY AS TO THE QUANTITY
OF PRODUCTS THAT IT WILL PURCHASE, IF ANY.
5.0 DELIVERY LOGISTICS
5.1 Delivery Point: All references to delivery as it applies to this
Attachment shall mean delivery to an IBM designated location that will be
further specified by IBM in a WA or separate letter.. The delivery point
shall be FOB Dock- Overland Data, San Diego, CA.
5.2 On-Time Delivery: Products and FRUs must be delivered no more than [*].
Time is of the essence. If Supplier cannot meet a scheduled delivery date,
Supplier shall promptly notify IBM of Supplier's revised delivery date and
IBM may, at its option, without limitation
(i) cancel Products not delivered without charge,
(ii) buy elsewhere and charge Supplier any cost differential,
(iii) charge the Supplier for any premium costs (including, without
limitation, shipping and handling costs) incurred as a result of the
late delivery and
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(iv) exercise all other remedies provided at law, in equity and in the
Agreement (including this Attachment).
5.3 Supplier agrees that the date of manufacture for all Products
purchased by IBM shall be less than [*] from the date of delivery.
6.0 COMMUNICATIONS
All communications between the parties shall be carried out through the
designated coordinators:
- - All procurement, business and administrative communications between the
parties shall be conducted through the following "Business Coordinators":
IBM: Supplier:
- ------------------------------ -------------------------
William M. Johnston Robert E. Lidberg
IBM Corporation Overland Data Incorporated
9000 S. Rita Road 8975 Balboa Avenue
Tucson, Arizona 85744 San Diego, California 92123-1599
Phone: (520) 799-2732 Phone: (619) 571-5555
FAX: (520) 799-2510 FAX: (619) 571-0982
- - Technical communications between the parties shall be conducted through the
following "Technical Coordinators":
IBM: Supplier:
- ------------------------------ -------------------------
W Allen Wright Chuck Stead or Robert E. Lidberg
IBM Corporation Overland Data Incorporated
9000 S. Rita Road 8975 Balboa Avenue
Tucson, Arizona 85744 San Diego, California 92123-1599
Phone: (520) 799-7246 Phone: (619) 571-5555
FAX: (520) 799-2090 FAX: (619) 571-0982
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- - All legal notices shall be sent to the following addresses and shall be deemed
received (a) 2 Days after mailing if sent by certified mail, return receipt
requested or (b) on the date confirmation is received if sent by facsimile
transmittal, to the party set forth below.
IBM: Supplier:
- ------------------------------ -------------------------
William M. Johnston Robert E. Lidberg
IBM Corporation Overland Data Incorporated
9000 S. Rita Road 8975 Balboa Avenue
Tucson, Arizona 85744 San Diego, California 92123-1599
Phone: (520) 799-2732 Phone: (619) 571-5555
FAX: (520) 799-2510 FAX: (619) 571-0982
Each party may change its designated coordinators and/or addresses any time
during the Attachment-Term by notifying the Business Coordinator (with a carbon
copy to the Technical Coordinator or legal notice coordinator, as applicable) of
the other party in writing.
7.0 TERMINATION
7.1 Termination for Cause: Either party may terminate this Attachment for
material breach by the other party or in the event that the other party becomes
insolvent, files, or has filed against it, a petition in bankruptcy or undergoes
a reorganization pursuant to a petition in bankruptcy. Such termination shall
become effective 30 Days after receipt of such notice, unless the party
receiving notice remedies the cause cited in such notice within such 30 Day
period. In the event Supplier terminates an Attachment as set forth in this
Subsection 7.1, Supplier shall have the right to cancel all outstanding WAs. In
the event IBM terminates an Attachment as set forth in this Subsection 7.1,
Supplier shall immediately
(a) cease all work and shall treat all applicable outstanding WAs in
accordance with Subsection 7.2 as if all outstanding WAs were canceled for
cause,
(b) prepare and submit to IBM an itemization of all completed and partially
completed Products under such WAs, and at IBM's sole option and only upon
IBM's written direction, Supplier shall deliver to IBM the
(i) number of IBM requested completed Products at the prices set forth
in the applicable WA and
(ii) IBM requested partially completed Products at a price to be
agreed to by the parties, but in no event shall such price be greater
than the per unit price of the Product ,
(c) allow IBM access to Supplier's premises to take possession of all IBM
owned property or to file a security interest in such property,
(d) return to IBM all IBM confidential information or property, if any, and
(e) reimburse IBM for all costs associated with IBM locating and securing
another supplier of the Product or a product that is a suitable substitute
to the Product. IBM shall also have all other remedies available at law,
in equity and in the Agreement (including this Attachment).
7.2 Work Authorization Cancellation:
IBM may at any time cancel WAs in total or in part, for convenience or cause by
notifying Supplier, in writing. Cancellation will be effective immediately upon
Supplier's receipt of the notice. Supplier will immediately cease all work
under such WA in accordance with the cancellation notice. IBM shall have no
liability if it cancels WAs for cause, and IBM shall have the right to return
all Products that have not been used for a full refund. IBM shall also have any
other remedies available at law, equity or in this Agreement. If IBM cancels
WA(s) for convenience, IBM's total and maximum liability, and Supplier's sole
and exclusive remedy, shall be limited to the actual and reasonable costs
substantiated by Supplier within any authorization limits and cancellation
schedules set forth in the Agreement, Attachment and WA, provided,
Page 6
<PAGE>
however, in no event, shall IBM's liability exceed the total outstanding balance
of the canceled WAs. Supplier shall use all reasonable efforts to mitigate any
IBM liabilities by returning to its suppliers, selling to others, or otherwise
using any applicable materials, parts and subassemblies acquired or produced by
Supplier in connection with the canceled WAs.
All amounts previously paid to Supplier shall be deducted from any amount so
payable to Supplier and if such prior payments exceed the amount payable to
Supplier under the applicable WA, Supplier agrees to refund the difference to
IBM within 30 Days of the effective date of cancellation. The results of all
work paid for by IBM under the applicable WA are the sole property of IBM, and
upon cancellation, the disposition of all such IBM property shall be in
accordance with IBM's written instructions.
8.0 SURVIVAL
The rights and obligations of Sections and Subsections 2.1, 2.2, 2.6, 6.0, 7.0,
8.0 and 9.0 of this Attachment shall survive and continue after termination or
expiration of this Attachment and shall remain in full force and effect, and
shall bind the parties and their legal representatives, successors, heirs and
assigns. The rights and obligations of this entire Attachment as they apply to
WAs that are not terminated or canceled shall survive and continue after
expiration of this Attachment and shall bind the parties and their legal
representatives, successors, heirs and assigns until expiration or cancellation
of such WAs.
9.0 ORDER OF PRECEDENCE
In accordance with the Agreement RMSS-ODI-96-01-0 Subsection 10.9, "Entire
Agreement and Order of Precedence" of the Agreement, any terms in any Supplier
documents such as acknowledgments, shipping instructions or other Supplier forms
shall be void and of no effect.
IN WITNESS WHEREOF, the parties hereto have caused this Attachment to be signed
by their respective duly authorized representatives.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
INTERNATIONAL BUSINESS OVERLAND DATA, INCORPORATED
MACHINES CORPORATION
/s/ Kenneth R. Niggett 10/25/96 /s/ Scott McClendon 10/29/96
- ---------------------------------- -----------------------------------
Authorized Signature Date Authorized Signature Date
Kenneth R. Niggett Scott McClendon
- ---------------------------------- -----------------------------------
Printed Name Printed Name
W.W. Materials Manager - Tape President & CEO
- ---------------------------------- -----------------------------------
Title Title
Page 7
<PAGE>
EXHIBIT 10.3
IMPERIAL BANK
MEMBER FDIC
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE)
1. This Agreement is entered into between OVERLAND DATA INC., a Corporation
(herein called "Borrower") and IMPERIAL BANK (herein called "Bank"):
80.000 % of Eligible Accounts
and in no event more than $5,000,000.00
2. The amount of each loan made by Bank to Borrower hereunder shall be
debited to the loan ledger account of Borrower maintained by Bank (herein
called "Loan Account") and Bank shall credit the Loan Account with all
loan repayments made by Borrower. Borrower promises to pay Bank(a) the
unpaid balance of Borrower's Loan Account on demand and (b) on or before
the tenth day of each month, interest on the average daily unpaid balance
of the Loan Account during the immediately preceding month at the rate of
NO & 500/1000THS percent (0.500%) per annum in excess of the rate of
interest which Bank has announced as its prime lending rate ("Prime Rate")
which shall vary concurrently with any change in such Prime Rate. Interest
shall be computed at the above rate on the basis of the actual number of
days during which the principal balance of the loan account is outstanding
divided by 360, which shall for Interest computation purposes be
considered one year. Bank at its option may demand payment of any or all
of the amount due under the Loan Account including accrued but unpaid
interest at any time. Such notice may be given verbally or in writing and
should be effective upon receipt by Borrower. The amount of interest
payable each month by Borrower shall not be less than a minimum monthly
charge of $0.00. Bank is hereby authorized to charge Borrower's deposit
account(s) with Bank for all sums due Bank under this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by
Borrower in a form satisfactory to Bank and shall contain a certification
setting forth the matters referred to in Section 1 which shall disclose
that Borrower is entitled to the amount of loan being requested.
4. As used in this Agreement, the following terms shall have the following
meanings:
<PAGE>
A. "Accounts" means any right to payment for goods sold or leased, or
to be sold or to be leased, or for services rendered or to be
rendered no matter how evidenced, including accounts receivable,
contract rights, chattel paper, instruments, purchase orders, notes,
drafts, acceptances, general intangibles and other forms of
obligations and receivables.
B. "Collateral" means any and all personal property of Borrower which
is assigned or hereafter is assigned to Bank as security or in which
Bank now has or hereafter acquires a security interest.
C. "Eligible Accounts" means all of Borrower(s) Accounts excluding,
however, (1) all Accounts under which payment is not received within
90 days from any invoice date, (2) all Accounts against which the
account debtor or any other person obligated to make payment thereon
asserts any defense, offset, counterclaim or other right to avoid or
reduce the liability represented by the account and (3) any Accounts
if the account debtor or any other person liable in connection
therewith is insolvent, subject to bankruptcy or receivership
proceedings or has made an assignment for the benefit of creditors or
whose credit standing is unacceptable to Bank and Bank has so
notified Borrower. Eligible Accounts shall only include such accounts
as Bank in its sole discretion shall determine are eligible from time
to time.
5. Borrower hereby assigns to Bank all Borrower's present and future
Accounts, including all proceeds due thereunder, all guaranties and
security therefor, and hereby grants to Bank a continuing security
interest in all moneys in the Collateral Account referred to Section 6
hereof, as security for any and all obligations of Borrower to Bank,
whether now owing or hereafter incurred and whether direct, indirect,
absolute or contingent. So long as Borrower is indebted to Bank or Bank is
committed to extend credit to Borrower, Borrower will execute and deliver
to Bank such assignments, including Bank's standard forms of Specific or
General Assignment covering individual Accounts, notices, financing
statements, and other documents and papers as Bank may require in order to
affirm, effectuate or further assure the assignment to Bank of the
Collateral or to give any third party, including the account debtors
obligated on the Accounts, notice of Bank's interest in the Collateral.
<PAGE>
6. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower will collect with diligence all Borrower's Accounts
provided that no legal action shall be maintained thereon or in connection
therewith without Bank's prior written consent. Any collection of Accounts
by Borrower, whether in the form of cash, checks, notes, or other
instruments for the payment of money (properly endorsed or assigned where
required to enable Bank to collect same), shall be in trust for Bank. and
Borrower shall keep all such collections separate and apart from all other
funds and property so as to be capable of identification as the property
of Bank and deliver said collections daily to Bank in the identical form
received. The proceeds of such collections when received by Bank may be
applied by Bank directly to the payment of Borrower's Loan Account or any
other obligation secured hereby. Any credit given by Bank upon receipt of
said proceeds shall be conditional credit subject to collection. Returned
Items at Bank's option may be charged to Borrower's general account. All
collections of the Accounts shall be set forth on an itemized schedule,
showing the name of the account debtor, the amount of each payment and
such other information as Bank may request.
7. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower may continue its present policies with respect to
returned merchandise and adjustments. However, Borrower shall immediately
notify Bank of all cases involving returns, repossessions, and loss or
damage of or to merchandise represented by the Accounts and, of any
credits, adjustments or disputes arising in connection with the goods or
services represented by the Accounts and, in any of such events, Borrower
will immediately pay to Bank from its own funds (and not from the proceeds
of Accounts or Inventory) for application to Borrower's Loan Account or
any other obligation secured hereby the amount of any credit for such
returned or repossessed merchandise and adjustments made to any of the
Accounts.
8. Borrower represents and warrants to Bank: (i) If Borrower is a
corporation, the Borrower is duly organized and existing in the State of
its incorporation and the execution, delivery and performance hereof are
within Borrower's corporate powers, have been duly authorized and are not
in conflict with law or the terms of any charter, by-law or other
incorporation papers, or of any indenture, agreement or undertaking to
which Borrower is found or affected; (ii) Borrower is or at the time the
collateral becomes subject to Bank's security interest will be, the true
and lawful owner of and has, or at the time
<PAGE>
the Collateral becomes subject to Bank's security interest will have,
good and clear title to the Collateral, subject only to Bank's rights
therein; (iii) Each Account is, or at the time the Account comes into
existence will be a true and correct statement of a bona fide indebtedness
incurred by the debtor named therein in the amount of the Account for
either merchandise sold or delivered (or being held subject to Borrower's
delivery instructions) to, or services rendered, performed and accepted by
the account debtor; (iv) That there are or will be no defenses,
counterclaims, or setoffs which may be asserted against the Accounts; and
(v) any and all financial information, including information relating to
the Collateral, submitted by Borrower to Bank, whether previously or in
the future, is or will be true and correct.
9. Borrower will (i) Furnish Bank from time to time such financial
statements and information as Bank may reasonably request and inform Bank
immediately upon the occurrence of a material adverse change therein: (ii)
Furnish Bank periodically, in such form and detail and at such times as
Bank may require, statements showing aging and reconciliation of the
Accounts and collections thereon: (iii) Permit representatives of Bank to
inspect the Borrower's books and records relating to the Collateral and
make extracts therefrom at any reasonable time and to arrange for
verification of the Accounts, under reasonable procedures, acceptable to
Bank, directly with the account debtors or otherwise at Borrower's
expense; (iv) Promptly notify Bank of any attachment or other legal
process levied against any of the Collateral and any information received
by Borrower relative to the Collateral, including the Accounts, the
account debtors or other persons obligated in connection therewith, which
may in any way affect the value of the Collateral or the rights and
remedies of Bank in respect thereto; (v) Reimburse Bank upon demand for
any and all legal costs, including reasonable attorneys' fees, and other
expense incurred in collecting any sums payable by Borrower under
Borrower's Loan Account or any other obligation secured hereby, enforcing
any term or provision of this Security Agreement or otherwise or in the
checking, handling and collection the Collateral and the preparation and
enforcement of any agreement relating thereto; (vi) Notify Bank of each
location and of each office of Borrower at which records of Borrower
relating to the Accounts are kept; (vii) Provide, maintain and deliver to
Bank policies insuring the Collateral against loss or damage by such risks
and in such amounts, forms and companies as Bank may require and with loss
payable solely to Bank, and, in the event Bank takes possession of the
Collateral, the insurance policy or policies
<PAGE>
and any unearned or returned premium thereon shall at the option of Bank
become the sole property of Bank, such policies and the proceeds of any
other insurance covering or in any way relating to the Collateral,
whether now in existence or hereafter obtained, being hereby assigned to
Bank; and (viii) In the event the unpaid balance of Borrower's Loan
Account shall exceed the maximum amount of outstanding loans to which
Borrower is entitle under Section 1 hereof, Borrower shall immediately pay
to Bank, from its own funds and not from the proceeds of Collateral, for
credit to Borrower's Loan Account the amount of such excess.
10. Bank may at any time, without prior notice to Borrower, collect the
Accounts and may give notice of assignment to any and all account debtors,
and Borrower does hereby make, constitute and appoint Bank its
irrevocable, true and lawful attorney with power to receive, open and
dispose of all mail addressed to Borrower to endorse the name of Borrower
upon any checks or other evidences of payment that may come into the
possession of Bank upon the Accounts to endorse the name of the
undersigned upon any document or instrument relating to the Collateral; In
its name or otherwise, to demand, sue for, collect and give acquittances
for any and all moneys due or to become due upon the Accounts; to
compromise, prosecute or defend any action, claim or proceeding with
respect thereto; and to do any and all things necessary and proper to
carry out the purpose herein contemplated.
11. Until Borrower's Loan Account and all other obligations secured hereby
shall have been repaid in full, Borrower shall not sell, dispose of or
grant a security interest in any of the Collateral other than to Bank, or
execute any financing statements covering the Collateral in favor of any
secured party or person other than Bank.
12. Should: (i) Default be made in the payment of any obligation, or reach
be made in any warranty, statement, promise, term or condition, contained
herein or hereby secured; (ii) Any statement or representation made for
the purpose of obtaining credit hereunder prove false; (iii) Bank deem the
Collateral inadequate or unsafe or in danger of misuse; (iv) Borrower
become insolvent or make any assignment for the benefit of creditors; or
(v) Any proceeding be commended by or against Borrower under any
bankruptcy, reorganization, arrangement, readjustment of debt or
moratorium, law or statute; then in any such event, Bank may, at its
option and without demand first made and without notice to Borrower, do
any one or more of the following: (a) Terminate its obligation to make
loans
<PAGE>
to Borrower as provided in Section 1 hereof; (b) Declare all sums
secured hereby immediately due and payable; (c) immediately take
possession of the Collateral wherever it may be found, using all necessary
force so to do, or require Borrower to assemble the Collateral and make it
available to Bank at a place designated by Bank which is reasonably
convenient to Borrower and Bank, and Borrower waives all claims for
damages due to or arising from or connected with any such taking;
(d) Proceed in the foreclosure of Bank's security interest and sale of the
Collateral in any manner permitted by law, or provided for herein;
(e) Sell, lease or otherwise dispose of the Collateral at public or
private sale, with or without having the Collateral at the place of
sale, and upon terms and in such manner as Bank may determine, and Bank
may purchase same at any such sale: (f) Retain the Collateral in full
satisfaction of the obligations secured thereby; (g) Exercise any remedies
of a secured party under the Uniform Commercial Code. Prior to any such
disposition, Bank may, at its option, cause any of the Collateral to be
repaired or reconditioned in such manner and to such extent as Bank may
deem advisable, and any sums expanded therefor by Bank shall be repaid by
Borrower and secured hereby. Bank shall have the right to enforce one or
more remedies hereunder successively or concurrently, and any such action
shall not estop or prevent Bank from pursuing any further remedy which it
may have hereunder or by law. If a sufficient sum is not realized from
any such disposition of Collateral to pay all obligations secured by this
Security Agreement, Borrower hereby promises and agrees to pay Bank any
deficiency.
13. If any writ of attachment, garnishment, execution or other legal process
be issued against any property of Borrower, or if any assessment for taxes
against Borrower, other than real property is made by the Federal or State
government or any department thereof, the obligation of Bank to make loans
to Borrower as provided in Section 1 hereof shall immediately terminate
and the unpaid balance of the Loan Account, all other obligations secured
hereby and all other sums due hereunder shall immediately become due and
payable without demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts,
reports and other types of documents and records submitted to Bank in
connection with the transactions contemplated herein at any time
subsequent to four months from the time such items are delivered to Bank.
<PAGE>
15. Nothing herein shall in any way limit the effect of the conditions set
forth in any other security or other agreement executed by Borrower, but
each and every condition hereof shall be in addition thereto.
*16. Additional Provisions: SEE "EXHIBIT A" ATTACHED
Executed this 2nd day of May 1995
OVERLAND DATA INC.
BY: /s/ Scott McClendon
---------------------------------
IMPERIAL BANK Scott McClendon
BY: /s/ Jed Harris, V.P. BY: /s/ Dale Hornback
--------------------------------- ---------------------------------
Dale Hornback
<PAGE>
EXHIBIT "A"
ADDENDUM TO SECURITY AND LOAN AGREEMENT
("SECURITY AND LOAN AGREEMENT") BETWEEN
OVERLAND DATA, Inc. AND IMPERIAL BANK
Dated: May 8, 1995
- -
This Addendum is made and entered into May 8, 1995, between OVERLAND DATA,
INC.("Borrower")and Imperial Bank ("Bank").
This Addendum amends and supplements the Security and Loan Agreement. In the
event of any inconsistency between the terms herein and the terms of the
Security and Loan Agreement, the terms herein shall in all cases govern and
control. All capitalized terms herein, unless otherwise defined herein, shall
have the meaning set forth in the Security and Loan Agreement.
1. a. Any commitment of Bank, pursuant to the terms of the Security and Loan
Agreement, to make advances against Eligible Accounts shall expire on
November 5, 1998, subject to Bank's right to renew said commitment at its
sole discretion. Any renewal of the commitment shall not be binding upon the
Bank unless it is in writing and signed by an officer of the Bank.
b. Notwithstanding anything in the Security and Loan Agreement to the
contrary, Borrower may borrow by way of loans and Bankers Acceptances up to
$1,500,000 in excess of the Borrowing Base availability (the "Overadvance").
The maximum Overadvance shall reduce by $150,000 every six months commencing
November 1, 1995
2. Borrower represents and warrants that:
a. Litigation. There is no litigation or other proceeding pending or
threatened against of affecting Borrower, and Borrower is not in default with
respect to any order, writ, injunction, decree or demand of any court or
other governmental or regulatory authority.
b. Financial Condition. The balance sheet of Borrower of February 28,
1995, and the related profit and loss statement on that date, a copy of which
has heretofore been delivered to Bank by Borrower, and all other statements
and data submitted in writing by Borrower to Bank in connection with this
request for credit are true and correct, and said balance sheet and profit
and loss statement truly present the financial condition of Borrower as of
the date thereof and the results of the operations of Borrower for the period
covered thereby, and have been prepared in accordance with generally accepted
accounting principles on a basis consistently maintained. Since such date,
there have been no materially adverse changes. Borrower has no knowledge of
any liabilities, contingent or otherwise, at such date not reflected in said
balance sheet, and Borrower has not entered into any special
<PAGE>
EXHIBIT A
Page 2
commitments or substantial contracts which are not reflected in said balance
sheet, other than in the ordinary and normal course of its business, which
may have materially adverse effect upon its financial condition, operations
or business as now conducted.
c. Trademarks, Patents. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with valid trademarks, trade names, copyrights patents and license rights of
others.
d. Tax Status. Borrower has no liability for any delinquent state,
local or federal taxes, and, if Borrower has contracted with any government
agency, Borrower has no liability for renegotiation of profits.
3. Borrower agrees that so long as it is indebted to Bank, it will not,
without Bank written consent:
a. Type of Business. Management. Make any substantial change in the
character of its business; or make any change in its executive management.
b. Outside Indebtedness. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than loans from Bank except
obligations now existing as shown in financial statement dated February 28,
1995, excluding those being refinanced by Bank; or sell or transfer, wither
with or without recourse, any accounts or notes receivable or any moneys due
to become due.
c. Liens and Encumbrances. Create, incur, assume any mortgage, pledge,
encumbrance, lien or charge of any kind (including the charge upon property
at any time purchased or acquired under conditional sale or other title
retention agreement) upon any asset now owned or hereafter acquired by it,
other than liens for taxes not delinquent and liens in Bank's favor.
d. Loans, Investments, Secondary Liabilities, Make any loans or advances
to any person or other entity other than in the normal and ordinary course of
its business as now conducted or make any investment in the securities of any
person or other entity other than the United States Government; or guarantee
or otherwise become liable upon the obligation of any person or other entity,
except by endorsement of negotiable instruments for deposit or collection in
the ordinary and normal course of its business.
<PAGE>
EXHIBIT A
Page 3
3. e. Acquisition or Sale of Business; Merger or Consolidation. Purchase or
otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings
therefore; or sell any assets except in the ordinary and normal course of its
business or fixed assets, or any property or other assets necessary for the
continuance of its business as now conducted, including without limitation
the selling of any property or other asset accompanied by the leasing back of
the same.
f. Dividends, Stock Payments. Declare or pay any dividend (other than
dividends payable in common stock of Borrower)or make any other distribution
on any of its capital stock now outstanding or hereafter issued or purchase,
redeem or retire any of such stock.
4. Should there be a default under the Security and Loan Agreement, the
General Security Agreement or under the Note, all obligations, loans and
liabilities of Borrower to Bank, due or to become due, whether now existing
or hereafter arising, shall at the option of the Bank, become immediately due
and payable without notice or demand, and Bank shall thereupon have the right
to exercise all of its default rights and remedies.
5. In addition to the provisions in the Security and Loan Agreement,
Eligible Accounts shall only include such accounts as Bank in its sole
discretion shall determine are eligible from time to time. "Eligible
Accounts" shall also NOT include any of the following:
a. Accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrower.
b. Accounts with respect to which 50% or more of the account debtors
total accounts or obligations outstanding to Borrower are more than 90 days
from invoice date are not eligible.
c. For accounts representing more than 20% of total accounts receivable,
the balance in excess of the 20% is not eligible. However, the Bank may
deem, at its sole discretion, the entire amount eligible.
d. Accounts with respect to international transactions unless insured by
an insurance company acceptable to the Bank or covered by letters of credit
issued or confirmed by a bank acceptable to the Bank, or those otherwise
deemed acceptable to Bank.
e. Credit balances greater than 90 days from invoice date.
<PAGE>
EXHIBIT A
Page 4
5. f. Government receivables, unless assigned to the Bank.
g. Accounts where the account debtor is a seller to Borrower, whereby a
potential offset exists.
h. Accounts over 90 days from invoice date.
6. All financial covenants and financial information referenced herein shall
be interpreted and prepared in accordance with generally accepted accounting
principles applied on basis consistent with previous years. Compliance with
financial covenants shall be calculated and monitored on a quarterly basis.
7. Borrower affirmatively covenants that so long as any loans, obligations
or liabilities remain outstanding or unpaid to Bank, it will:
a. Maintain a minimum tangible net worth (meaning the excess of all
assets, excluding any value for goodwill, trademarks, patents, copyrights,
organization expense and other similar intangible items, over its
liabilities, less subordinated debt) on a quarterly basis, of not less than
$6,000,000 as of FYE 6/30/95, stepping up to $7,000,000 as of FYE 6/30/96,
$8,000,000 as of FYE 6/30/97 and $9,000,000 as of FYE 6/30/98.
b. Maintain minimum working capital ( meaning the excess of current
assets over current liabilities) of $4MM.
c. Maintain a minimum ratio of current assets to current liabilities of
1.5 to 1.0.
d. Maintain a maximum ratio of total debt to tangible net worth not to
exceed 1.3 to 1.0.
e. Maintain all significant bank accounts and banking relationship with
Bank.
f. Reduce the "overadvance" by $150,000 every six months until maturity,
commencing 11/1/95.
<PAGE>
EXHIBIT A
Page 5
7. g. Within 15 working days from each month-end, deliver to Bank an
accounts receivable aging, a detailed accounts payable aging. All the
foregoing will be in form satisfactory to the Bank.
h. Within 30 days after the end of each month, deliver to Bank a profit
and loss statement and a balance sheet in form satisfactory to Bank all
certified by an officer of Borrower.
i. Within 90 days after end of Borrower's fiscal year, deliver to Bank
deliver to Bank the same financial statements as otherwise provided monthly
and quarterly together with Changes in Financial Position Statement,
certified without qualification by an independent certified public accountant
selected by Borrower but acceptable to Bank.
j. Rights and Facilities. Maintain and preserve all rights, franchises
and other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business or partnership, maintain and preserve its existence.
k. Insurance. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against
fire and other hazards with responsible insurance carriers to the extent
usually maintained by similar businesses. Borrower shall provide evidence of
property insurance in amounts and types acceptable to the Bank. Bank to be
named as loss payee.
l. Taxes and Other Liabilities. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and any of
its liabilities at any time existing, except to the extent and so long as:
(a) The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse affect upon
its financial condition or the loss of any right of redemption from any sale
thereunder; and
<PAGE>
EXHIBIT A
Page 6
7. l. (b) It shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting practice) deemed it
adequate with respect thereto.
m. Records and Reports. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit Bank's representatives to have access
to, and to examine its properties, books and records at all reasonable times.
8. The loans under the Security and Loan Agreement will provide for the
following usage:
a. Up to $5,000,000 in direct drawings.
b. Up to $4,000,000 for Bankers' Acceptances ("BAs")in amount not less
than $250,000. The maturity of each BA is not to exceed 90 days.
c. The combined outstandings of (a) and (b) cannot exceed $5,000,000.
9. Loan fees and interest:
a. Borrower will pay 0.50% on the unused portion of the commitment, a
non-utilization fee on a quarterly average basis should average loan
outstanding, inclusive of Banker Acceptances, be less then $2,500,000 for any
quarter.
b. The rate of interest applicable to the Loan Account shall be .50% per year
in excess of the rate of interest which Bank has announced as its prime
lending rate ("Prime Rate") which shall vary concurrently with any change in
such Prime Rate. Interest shall be computed at the above rate on the basis of
the actual number of days during which the principal balance of the loan
account is outstanding divided by 360, which shall, for interest computation
purposes, be considered one year. Bank at its option may demand payment of
any or all of the amount due under the Loan Account including accrued but
unpaid interest, at any time. Such notice may be given verbally or in writing
and should be effective upon receipt by Borrower. The default rate shall be
two percent per year in excess of the rate otherwise applicable
c. Bankers' Acceptances to be priced at the Imperial Bank prevailing BA
rate plus 250 basis points.
<PAGE>
EXHIBIT A
Page 7
10. Miscellaneous Provisions. Failure or Indulgence Not Waiver. No failure or
delay on the part of your Bank or any holder or Notes Issued hereunder, in
the exercise of any power, right or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof or of any
other right, power or privilege. All rights and remedies existing under this
agreement or any not issued in connection with a loan that your Bank may make
hereunder, are cumulative to, not exclusive of, any rights or remedies
otherwise available.
11. This Addendum is executed by and on behalf of the parties as of the date
first above written.
OVERLAND DATA, INC. "BORROWER"
By: /s/ Scott McClendon
---------------------------------
Title: President & CEO
IMPERIAL BANK "Bank"
By: /s/ Jed Harris
---------------------------------
Title: Vice President
<PAGE>
IMPERIAL BANK
MEMBER FDIC
CORPORATE RESOLUTION REGARDING CREDIT
OFFICE: San Diego Regional ADDRESS: 701 B Street
San Diego, California 92101
RESOLVED, that OVERLAND DATA, INC. borrow from IMPERIAL BANK,
hereinafter referred to as "Bank", from time to time, such sums of money as,
in the judgement of the officer or officers hereinafter authorized, this
corporation may require; provided that the aggregate amount of such
borrowing, pursuant to this resolution, shall not at any one time exceed the
principal sum of Five Million and No/100 DOLLARS ($5,000,000.00), in
addition to such amount as may be otherwise authorized:
RESOLVED FURTHER, that any 2 of the following named officers
Scott McClendon the President/CEO
------------------- ---------------------
Dale Hornback the Vice President
------------------- ---------------------
Martin D. Gray the Vice Pres./Secretary
------------------- ---------------------
of this corporation (the officer or officers acting in combination,
authorized to act pursuant hereto being hereinafter designated as "authorized
officers"), be and they are hereby authorized, directed and empowered, for
and on behalf and in the name of this corporation (1) to execute and deliver
to the Bank such notes or other evidences of indebtedness of this corporation
for the monies so borrowed, with interest thereon, as the Bank may require,
and to execute and deliver, from time to time, renewals or extensions of such
notes or other evidences of indebtedness; (2) to grant a security interest
in, transfer, or otherwise hypothecate or deed in trust for Bank's benefit
and deliver by such instruments in writing or otherwise as may be demanded by
the Bank, any of the property of this corporation as may be required by the
Bank to secure the payment of any notes or other indebtedness of this
corporation or third parties to the Bank, whether arising pursuant to this
resolution or otherwise; and (3) to perform all acts and execute and deliver
all instruments which the Bank may deem necessary to carry out the purposes
of this resolution;
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized and empowered, and that any one of said authorized officers be and
he/she is hereby authorized and empowered (1) to discount with or sell to the
Bank conditional sales contracts, notes, acceptances, drafts, bailment
agreements,
<PAGE>
leases, receivables and evidences of indebtedness payable to this
corporation, upon such terms as may be agreed upon by them and the Bank, and
to endorse in the name of this corporation said notes, acceptances, drafts,
bailment agreements, leases, receivables and evidences of indebtedness so
discounted, and to guarantee the payment of the same to the Bank, and (2) to
apply for and obtain from the Bank letters of credit and in connection
therewith to execute such agreement, applications, guarantees, indemnities
and other financial undertakings as Bank may require;
RESOLVED FURTHER, that said authorized officers are also authorized to
direct the disposition of the proceeds of any such obligation, and to accept
or direct delivery from the Bank of any property of this corporation at any
time held by the Bank;
RESOLVED FURTHER, that the authority given hereunder shall be deemed
retroactive and any and all acts authorized hereunder performed prior to the
passage of this resolution are hereby ratified and affirmed;
RESOLVED FURTHER, that the resolution will continue in full force and
effect until the Bank shall receive official notice in writing from this
corporation of the revocation thereof by a resolution duly adopted by the
Board of Directors of this corporation, and that the certification of the
Secretary of this corporation as to the signatures of the above names persons
shall be binding on this corporation.
I MARTIN D. GRAY, Secretary of the above named corporation, duly
organized and existing under the laws of the State of CALIFORNIA, do hereby
certify that the foregoing is a full, true and correct copy of a resolution
of the Board of Directors of said corporation, duly and regularly passed and
adopted by the Board of Directors of said corporation.
I further certify that said resolution is still in full force and effect
and has not been amended or revoked, and that the specimen signatures
appearing below are the signatures of the officers authorized to sign for
this corporation by virtue of said resolution.
EXECUTED ON
AUTHORIZED SIGNATURES
Signature /s/ Scott McClendon /s/ Martin D. Gray
--------------------------------- ---------------------------------
Scott McClendon (Secretary)
Martin D. Gray
Signature /s/ Dale Hornback
---------------------------------
Dale Hornback
Signature /s/ Martin D. Gray
---------------------------------
Martin D. Gray
Signature
---------------------------------
<PAGE>
Attachment to Agreement to Provide Insurance
dtd. 5/2/95, consisting of one page
OVERLAND DATA, INC.
collateral description
EXHIBIT A
ALL PERSONAL PROPERTY, WHETHER PRESENTLY EXISTING OR HEREAFTER CREATED OR
ACQUIRED, INCLUDING BUT NOT LIMITED TO: ALL ACCOUNTS, CHATTEL PAPER,
DOCUMENTS, INSTRUMENTS, MONEY, DEPOSIT ACCOUNTS AND GENERAL INTANGIBLES
INCLUDING RETURNS, REPOSSESSIONS, BOOKS AND RECORDS RELATING THERETO, AND
EQUIPMENT CONTAINING SAID BOOKS AND RECORDS. ALL GOODS INCLUDING EQUIPMENT
AND INVENTORY. ALL PROCEEDS INCLUDING WITHOUT LIMITATION, INSURANCE
PROCEEDS. ALL GUARANTEES AND OTHER SECURITY THEREFOR.
<PAGE>
IMPERIAL BANK
MEMBER FDIC
AGREEMENT TO PROVIDE INSURANCE
(REAL OR PERSONAL PROPERTY)
TO: IMPERIAL BANK Date: May 2, 1995
701 "B" Street Borrower:
San Diego, California 92101 OVERLAND DATA INC.
In consideration of a loan in the amount of $ 5,000,000.00, secured by
Accounts Receivable, Inventory and Equipment as described on the attached
"EXHIBIT A", consisting of one page.
I/We agree to obtain adequate insurance coverage to remain in force during
the term of the loan.
I/We also agree to advise the below named agent to add Imperial Bank as loss
payee on the new or existing insurance policy, and to furnish Bank at above
address with a copy of said policy/endorsements and any subsequent renewal
policies.
I/We understand that the policy must contain:
1. Fire and extended coverage in an amount sufficient to cover:
a) The amount of the loan, OR
b) All existing encumbrances, whichever is greater,
But not in excess of the replacement value of the improvements on the
real property.
2. Lender's "Loss Payable" Endorsement Form 438 BFU in favor of Imperial
Bank, or any other form acceptable to Bank.
INSURANCE INFORMATION
Insurance Co./ Agent BARNEY & BARNEY Telephone No: (619) 457-3414
Agent's Address: 9171 TOWN CENTRE DRIVE, SUITE 200
SAN DIEGO, CA 92122
OVERLAND DATA INC.
Signature of Obligor: By
----------------------------
Scott McClendon
Signature of Obligor: By
----------------------------
Dale Hornback, VP
<PAGE>
IMPERIAL BANK
MEMBER FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
Name(s): OVERLAND DATA INC. Date: May 2, 1995
$ paid to you directly by Cashiers Check No.
$ 4,600,000.00 credited to deposit account No. 11-047-777 when advances are
requested
$ 400,000.00 paid on Loan(s) No. 11-15108-0003
$ to Title Insurance Company
$ to Public Officials
$ to
$ to
$ to
$ to
$ 5,000,000.00 SUBTOTAL (NOTE AMOUNT)
LESS $ 0.00 Prepaid Finance Charge (Loan Fee(s))
$ 5,000,000.00 TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as the
authorization for Imperial Bank to disburse the loan proceeds as stated above.
OVERLAND DATA INC.
BY/s/ Scott McClendon, President & CEO
------------------------------------ ------------------------------------
Signature Signature
BY /s/ Dale Hornback, VP
------------------------------------ ------------------------------------
Signature Signature
<PAGE>
EXHIBIT 10.4
STANDARD INDUSTRIAL LEASE--MULTI-TENANT
AMERICAN lNDUSTRIAL REAL ESTATE Association
1. Parties. This Lease, dated, for reference purposes only, May 26 , 1993, is
made by and between Mitsui/SBD/ America Fund 87-1 (herein called "Lessor") and
Overland Data., Inc. a California Corporation (herein called "Lessee").
2. Premises. Parking and Common Areas.
2.1 Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
real property situation in the County of San Diego , State of California
commonly known as 8975 Balboa Avenue
------------------
and described as on approximate 65.765 sq. ft. R&D building herein referred
to as the "Premises", as may be outlined on an Exhibit attached hereto,
including rights to the Common Areas as hereinafter; specified but not
including any rights to the roof of the Premises or to any Building in the
Industrial Center. The Premises are a portion of a building, herein referred
to as the "Building". The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and
improvements thereon, are herein collectively referred to as the "Industrial
Center".
2.2 Vehicle Parking. Lessee shall be entitled to APPROX. 260 vehicle
parking spaces, unreserved and unassigned, on those portions of the Common Areas
designated by Lessor for parking. Lessee shall not use more parking spaces than
said number. Said parking spaces shall be used only for parking by vehicles no
larger than full size passenger automobiles or pick-up trucks, herin called
"Permitted Size Vehicles". Vehicles other than Permitted Size Vehicles are
herein referred to as "Oversized Vehicles".
2.2.1 Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
2.2.2 If Lessee permits or allows any of the prohibited activities
described in paragraph 2.2 of this Lease, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
2.3 Common Areas--Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center that are provided and designated by the Lessor from
time to time for the general non-exclusive use of Lessor, Lessee and of other
lessees of the Industrial Center and their respective employees, suppliers,
shippers, customers and invitees, including parking areas, loading and unloading
areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and
landscaped areas.
2.4 Common Areas--Lessee's Rights. Lessor hereby grants to Lessee, for the
benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herin granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at in time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.5 Common Areas--Rules and Regulations*- Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control and management of the Common
Areas and shall have the right, from to time, to establish, modify, amend and
enforce reasonable rules and "regulations with respect thereto. Lessee agrees to
abide by and conform to all such rules and regulations, and to cause its
employees, suppliers, shippers, customers, and invitees to so abide and conform.
Lessor shall not be responsible to Lessee for the non-compliance with said rules
and regulations by other lessees of the Industrial Center. *See addendum,
Paragraph 63.
2.6 Common Areas--Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes, to the Common Areas, including, without limitation,
changes in the location, size, shape and number of driveways, entrance, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas and walkways; (b) To close temporarily any of the
Common Areas for maintenance purposes, so long as reasonable access to the
Premises remains available; (c) To designate other land outside the boundaries
of the Industrial Center to be a part of the Common Areas; (d) To add additional
buildings and improvements to the Common Areas; (e) To use the Common Areas
while engaged in making additional improvements, repairs or alterations to the
Industrial Center, or any portion thereof; (f) To do and perform such other acts
and make such other changes in, to or with respect to the Common Areas and
Industrial Center as Lessor may, in the exercise of sound business judgment,
deem to be appropriate.
2.6.1 Lessor shall at all times provide the parking facilities required by
applicable law and in no event shall the number of parking spaces that Lessee is
entitled to under paragraph 2.2 be reduced.
<PAGE>
3. Term.
3.1. Term. The term of this Lease shall be for SEVEN YEARS (EIGHTY FOUR (84)
MONTHS)
commencing on AUGUST 15, 1993 and ending on AUGUST 14 2000 unless sooner
terminated pursuant to any provision hereof.
3.2 Delay In Possession. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent or perform any other obligation of Lessee under the terms of this
Lease, except as may be otherwise provided in this Lease, until possession of
the Premises is tendered to Lessee; provided, however, that if Lessor shall not
have delivered possession of the Premises within sixty (60) days from said
commencement date. Lessee may, at Lessee's option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect.
3.3 Early Possession. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not advance the termination date, and Lessee shall
pay rent for such period at the initial monthly rates set forth below.
4. Rent.
4.1 Base Rent. Lessee shall pay to Lessor, as Base Rent for the Premises,
without any offset or deduction, except as may be otherwise expressly provided
in the Lease, on the 15TH day of each month of the term hereof, monthly payments
in advance of $ SEE ADDENDUM, PARAGRAPH 49
Lessee shall pay Lessor upon execution hereof $ 36,828.40 as Base Rent for THE
FIRST MONTH. Rent for any period during the term hereof which is for less than
one month shall be a pro rata portion of the Base Rent. Rent shall be payable
in lawful money of the United States to Lessor at the address stated herein as
to such other persons or at such other places as Lessor may designate in
writing.
4.2 Operating Expenses. Lessee shall pay to Lessor during the term hereof,
in addition to the Base Rent, Lessee's Share, as hereinafter defined, of all
Operating Expenses, as hereinafter defined, during each calendar year of the
term of this Lease, in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as 54.2
percent.
(b) "Operating Expenses" is defined, for purposes of this Lease, as all
costs incurred by Lessor, if any, for:
(i) The operation, repair and maintenance, in neat, clean, good order
and condition, of the following:
(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkway parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common
Area lighting facilities and fences and gates;
(bb) Trash disposal services;
(cc) Tenant directories;
(dd) Fire detection systems including sprinkler system maintenance
and repair;
(ee) Security services;
(ff) Any other service to be provided by Lessor that is elsewhere
in thisLease stated to be an "Operating Expense".
(ii) Any deductible portion of an insured loss concerning any of the
items or matters described in this paragraph 4.2.
(iii) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof.
(iv) The amount of real property tax to be paid by Lessor under
paragraph 10.1 hereof.
(v) The cost of water, gas and electricity to service the Common
Areas.
(c) The inclusion of the improvements, facilities and services set forth
in paragraph 4.2(b)(i) of the definition of Operating Expenses shall not be
deemed to impose an obligation upon Lessor to either have said improvements or
facilities or to provide those services unless the Industrial Center already has
the same, Lessor already provides the services, or Lessor has agreed elsewhere
in the Lease to provide the same or some of them.
<PAGE>
(d) Lessee's Share of Operating Expenses shall be payable by Lessee within
ten (10) days after a reasonably detailed statement of actual expenses is
presented to Lessee by Lessor. At Lessor's option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual Operating
Expenses and the same shall be payable monthly or quarterly, as Lessor shall
designate, during each twelve-month period of the Lease term, on the same day as
the Base Rent is due hereunder. In the event that Lessee pays Lessor's estimate
of Lessee's Share of Operating Expenses as aforesaid, Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Operating
Expenses incurred during the preceding year. If Lessee's payments under this
paragraph 4.2(d) during said preceding year exceed Lessee's Share as indicated
on said statement, Lessee shall be entitled to credit the amount of such
overpayment against Lessee's Share of Operating Expenses next falling due. If
Lessee's payments under this paragraph during said preceding year were less than
Lessee's Share as indicated on said statement, Lessee shall pay to Lessor the
amount of the deficiency within ten (10) days after delivery by Lessor to Lessee
of said statement.
5. Security Deposit. Lessee shall deposit with Lessor upon execution
hereof $36,828.40 as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any
other sum to which Lessor may become obligated by reason of Lessee's default,
or to compensate Lessor for any loss or damage which Lessor may suffer
thereby. If Lessor so uses or applies all or any portion of said deposit,
Lessee shall within ten (10) days after written demand therefor deposit cash
with Lessor in an amount sufficient to restore said deposit to the full
amount then required of Lessee. If the monthly rent shall, from time to
time, increase during the term of this Lease, Lessee shall, at the time of
such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all
times bear the same proportion to the then current Base Rent as the initial
security deposit bears to the initial Base Rent set forth in paragraph 4.
Lessor shall not be required to keep said security deposit separate from its
general accounts. If Lessee performs all of Lessee's obligations hereunder,
said deposit, or so much thereof as has not theretofore been applied by
Lessor, shall be returned, without payment of interest or other increment for
its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of
Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein
between Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for GENERAL OFFICE,
AND LIGHT MANUFACTURING OF COMPUTER TYPE DRIVES AND RELATED ACCESSORIES or any
other use which is reasonably comparable and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will occupy the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, to promptly, at Lessor's sole cost and expense, rectify any such
violation. The warranty contained in this paragraph 6.2(a) shall be of no force
or effect if, prior to the date of this Lease, Lessee was an owner or occupant
of the Premises and, in such event, Lessor shall correct any such violation
Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises
and of the Common Areas. Lessee shall not use nor permit the use of the
Premises of the Common Areas in any manner that will tend to create waste or a
nuisance or shall tend to disturb other occupants of the Industrial Center.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on the Lease commencement date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the
obligation of Lessor, after receipt of written notice from Lessee setting
forth with specificity the nature of the violation, to promptly, at Lessor's
sole cost, rectify such violation. Lessee's failure to give such written
notice to Lessor within one hundred eighty (180) days after the Lease
commencement date shall cause the conclusive presumption that Lessor has
complied with all of Lessor's obligations hereunder. The warranty contained
in this paragraph 6.3(a) shall be of no force or effect if prior to the date
of this Lease, Lessee was an owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
<PAGE>
7. Maintenance, Repairs, Alternations and Common Area Services.
7.1 Lessor's Obligations. Subject to the provisions of paragraphs 4.2
(Operating Expenses), 6(Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's employees, suppliers , shippers, customers, or
invitees, in which event Lessee shall repair the damage, Lessor, at Lessor's
expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in good
condition and repair the foundations, exterior walls, structural condition of
interior bearing walls, and roof of the Premises, as well as the parking lots,
walkways, driveways, landscaping, fences, signs and utility installations of the
Common Areas and all parts thereof, as well as providing the services for which
there is an Operating Expense pursuant to paragraph 4.2. Lessor shall not,
however, be obligated to paint the exterior or interior surface of exterior
walls, nor shall Lessor be required to maintain, repair or replace windows,
doors or plate glass of the Premises. Lessor shall have no obligation to make
repairs under paragraph 7.1 until a reasonable time after receipt of written
notice from lessee of the need for such repairs. Lessee expressly waives the
benefits of any statute now or hereafter in effect which would otherwise afford
Lessee the right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the Premises in good order, condition and
repair. Lessor shall not be liable for damages or loss of any kind or nature
by reason of Lessor's failure to furnish any Common Area Services when such
failure is caused by accident, breakage, repairs, strikes, lockout, or other
labor disturbance or disputes of any character, or by any other cause beyond the
reasonable control of Lessor.
7.2 Lessee's Obligations
(a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee , at Lessee's expense, shall
keep in good order, condition and repair the Premises and every part thereof
(whether or not the damaged portion of the Premises or the means of repairing
the same are reasonably or readily accessible to Lessee) including, without
limiting the generality of the foregoing plumbing, heating, ventilating and air
conditioning systems (Lessee shall procure and maintain, at Lessee's expense, a
ventilating air conditioning system maintenance contract), electrical and
lighting facilities and equipment within the Premises, fixtures, interior walls
and interior surfaces of exterior walls, ceilings, windows, doors, plate glass,
and skylights located within the Premises. Lessor reserves the right to procure
and maintain the ventilating and air conditioning system maintenance contract
and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the
cost thereof.
(b) If Lessee fails to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter upon
the Premises after ten (10) days' prior written noticed to Lessee (except in the
case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum rate
then allowable by law shall be due and payable as additional rent to Lessor
together with Lessee's next Base Rent installment.
(c) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices. Lessee shall
repair any damage to the Premises occasioned by the installation or removal of
Lessee's trade fixtures, alterations, furnishings and equipment.
Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee
shall leave the air lines, power panels, electrical distribution systems,
lighting fixtures, space heaters, air conditioning, plumbing and fencing on the
Premises in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installation in , on or about
the Premises, or the Industrial Center, except for nonstructural alterations to
the Premises not exceeding $50,000 in cumulative costs, during the term of this
Lease. In any event, whether or not in excess of $50,000 in cumulative costs,
Lessee shall make no change or alteration to the exterior of the Premises nor
the exterior of the Building nor the Industrial Center without Lessor's prior
written consent. As used in this paragraph 7.3 the term "Utility Installation"
shall mean carpeting, window coverings, air lines, power panels, electrical
distribution systems, lighting fixtures, space heaters, air conditioning,
plumbing, and fencing. Lessor may require that Lessee remove any or all of
said alterations, improvements, additions or Utility Installations except those
improvements located in the Premises prior to lease execution at the expiration
of the term, and restore the Premises and the Industrial Center to their prior
condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost
and expense, a lien and completion bond in an amount equal to one and one-half
times the estimated cost of such improvements, to insure Lessor against any
liability for mechanic's and materialmen's liens and to insure completion of the
work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may, at any time
during the term of this Lease, require that Lessee remove any or all of the
same.
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Industrial Center that Lessee shall desire to
make and which requires the consent of the Lessor shall be presented to Lessor
in written form, with proposed detailed plans. If Lessor shall give its
consent, the consent shall be deemed conditioned upon Lessee acquiring a permit
to do so from appropriate governmental agencies, the furnishing of a copy
thereof to Lessor prior to the commencement of the work and the compliance by
Lessee of all conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, or the Industrial Center, or any
interest therein. Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good
<PAGE>
faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend itself and Lessor against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof against the Lessor or the Premises or the
Industrial Center, upon the condition that if Lessor shall require, Lessee
shall furnish to Lessor a surety bond satisfactory to Lessor in an amount
equal to such contested lien claim or demand indemnifying Lessor against
liability for the same and holding the Premises and the Industrial Center
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's attorneys' fees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest to do so.
(d) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, shall be the property of
Lessor and shall remain upon and be surrendered with the Premises at the
expiration of the Lease term, unless Lessor requires their removal pursuant to
paragraph 7.3(a). Notwithstanding the provisions of this paragraph 7.3(d),
Lessee's machinery and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damage to the Premises,
and other than Utility Installations, shall remain the property of Lessee and
may be removed by Lessee subject to the provisions of paragraph 7.2.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Building and the Common Areas for
the benefit of Lessor or Lessee, or any other lessee of the Industrial Center,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.
8. Insurance: Indemnity.
8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Combined
Single Limit Bodily Injury and Property Damage insurance insuring Lessee and
Lessor against any liability arising out of the use, occupancy or maintenance of
the Premises and the Industrial Center. Such insurance shall be in an amount
not less than $500,000.00 per occurrence. The policy shall insure performance
by Lessee of the indemnity provisions of this paragraph 8. The limits of said
insurance shall not, however, limit the liability of Lessee hereunder.
8.2 Liability Insurance - Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Industrial Center in an amount not less than $500,000.00 per occurrence.
8.3 Property Insurance. Lessor shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or
damage to the Industrial Center improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in an amount not to
exceed the full replacement value thereof, as the same may exist from time to
time, providing protection against all perils included within the
classification of fire extended coverage, vandalism, malicious mischief,
flood (in the event the same is required by a lender having a lien on the
Premises) special extended perils ("all risk", as such term is used in the
insurance industry), plate glass insurance and such other insurance as Lessor
deems advisable. In addition, Lessor shall obtain and keep in force, during
the term of this Lease, a policy of rental value insurance covering a period
of one year, with loss payable to Lessor, which insurance shall also cover
all Operating Expenses for said period. In the event that the Premises shall
suffer an insured loss as defined in paragraph 9.1(g) hereof, the deductible
amounts under the casualty insurance policies relating to the Premises shall
be paid by Lessee, not to exceed $10,000.
8.4 Payment of Premium Increase.
(a) After the term of this Lease has commenced, Lessee shall not be
responsible for paying Lessee's Share of any increase in the property insurance
premium for the Industrial Center specified by Lessor's insurance carrier as
being caused by the use, acts or omissions of any other lessee of the Industrial
Center, or by the nature of such other lessee's occupancy which create an
extraordinary or unusual risk.
(b) Lessee, however, shall pay the entirety of any increase in the
property insurance premium for the Industrial Center over what it was
immediately prior to the commencement of the term of this Lease if the increase
is specified by Lessor's insurance carrier as being caused by the nature of
Lessee's occupancy or any act or omission of Lessee.
8.5 Insurance Policies. Insurance required hereunder shall be companies
holding a "General Policyholders Rating" of at least B plus, or such other
rating as may be required by a lender having a lien on the Premises, as set
forth in the most current issue of "Best's Insurance Guide". Lessee shall not
do or permit to be done anything which shall invalidate the insurance policies
carried by Lessor. Lessee shall deliver to Lessor copies of liability insurance
policies required under paragraph 8.1 or certificates evidencing the existence
and amounts of such insurance within seven (7) days after the commencement date
of this Lease. No such policy shall be cancellable or subject to reduction of
coverage or other modification except after thirty (30) days prior written
notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with renewals or "binders thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
which perils occur in, on or about the Premises, whether due to the negligence
of Lessor or Lessee or their agents, employees, contractors and/or invitees.
Lessee and Lessor shall, upon obtaining the policies of insurance required
hereunder, give notice to the insurance carrier or carriers that the foregoing
mutual waiver of subrogation is contained in this Lease.
<PAGE>
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Industrial Center,
or from the conduct of Lessee's business or from any activity, work or things
done, permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims arising from any breach default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
act or omission of Lessee, or any of Lessee's agents, contractors, or
employees, and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon; and in case any action or proceeding be brought
against Lessor by reason of any such claim. Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessee, as a
material part of the consideration to Lessor, hereby assumes all risk of damage
to property of Lessee or injury to persons, in, upon or about the Industrial
Center arising from any cause and Lessee hereby waives all claims in respect
thereof against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises or the Industrial Center, nor shall Lessor be liable for injury to
the person of Lessee, Lessee's employees, agents or contractors, whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other defects of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said damage or injury results from
conditions arising upon the Premises or upon other portions of the Industrial
Center, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other lessee, occupant or user of the industrial Center, nor from
the failure of Lessor to enforce the provisions of any other lease of the
Industrial Center.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean if the Premises are damaged
or destroyed to the extent that the cost of repair is less than fifty percent of
the then replacement cost of the Premises.
(b) "Premises Total Destruction" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is fifty percent or
more of the then replacement cost of the Premises.
(c) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent of the then replacement cost of the
Building.
(d) "Premises Building Total Destruction" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent or more of the then replacement cost of the
Building.
(e) "Industrial Center Buildings" shall mean all of the buildings on
the Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall mean if the
Industrial Center Buildings are damaged or destroyed to the extent that the cost
of repair is fifty percent or more of the then replacement cost of the
Industrial Center Buildings.
(g) "Insured Loss" shall mean damage or destruction which was caused
by an event required to be covered by the insurance described in paragraph 8.
The fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(h) "Replacement Cost" shall mean the amount of money necessary to
be spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring excluding all improvements
made by lessees.
9.2 Premises Partial Damage: Premises Building Partial Damage. See
addendum #60.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises Partial
Damage or Premises Building Partial Damage, then Lessor shall, at Lessor's
expense, repair such damage to the Premises, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible and this Lease
shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Partial
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from using the Premises, Lessor may at
Lessor's option either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after the
date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's intention to
repair such damage at Lessee's expense, without reimbursement from Lessor, in
which event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon
<PAGE>
as reasonably possible. If Lessee does not give such notice within such
10-day period this Lease shall be cancelled and terminated as of the date of
the occurrence of such damage.
9.3 Premises Total Destruction; Premises Building Total Destruction;
Industrial Center Buildings Total Destruction.
(a) Subject to the provisions of paragraphs 9.4 and 9.5, if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, and which falls into the classifications of either (i) Premises
Total Destruction, or (ii) Premises Building Total Destruction, or (iii)
Industrial Center Buildings Total Destruction, then Lessor may at Lessor's
option either (i) repair such damage or destruction, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible at Lessor's
expense, and this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after the date of occurrence of
such damage of Lessor's intention to cancel and terminate this Lease shall be
cancelled and terminated as of the date of the occurrence of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the last six
months of the term of this Lease there is substantial damage, whether or not an
Insured Loss, which falls within the classification of Premises Partial Damage,
Lessor may at Lessor's option cancel and terminate this Lease as of the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Partial Damage during
the last six months of the term of this Lease. If Lessee duly exercises such
option during said twenty (20) day period, Lessor shall, at Lessor's expense,
repair such damage, but not Lessee's fixtures, equipment or tenant improvements,
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said twenty (20) day
period, then Lessor may , at Lessor's option terminate and cancel this Lease as
of the expiration of said twenty (20) day period by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of said twenty (20) day period, notwithstanding any term or provision in the
grant of option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Premises pursuant to
the provisions of this paragraph 9, the rent payable hereunder for the period
during which such damage, repair or restoration continues shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of rent, if any, Lessee shall have no claim against Lessor
for any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this paragraph 9, and shall not commence such repair or
restoration within ninety (90) days after such obligation shall accrue, Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time prior to the commencement of
such repair or restoration. In such event this Lease shall terminate as of the
date of such notice.
9.6 Termination - Advance Payments. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee as much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes
10.1 Payment of Taxes. Lessor shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Industrial Center subject to reimbursement
by Lessee of Lessee's Share of such taxes in accordance with the provisions of
paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 Additional Improvements. Lessee shall not be responsible for paying
Lessee's Share of any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional improvements
placed upon the Industrial Center by other lessees or by Lessor for the
exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor
at the time that Operating Expenses are payable under paragraph 4.2(c) the
entirety of any increase in real property tax if assessed solely by reason of
additional improvements placed upon the Premises by Lessee or at Lessee's
request.
10.3 Definition of "Real Property Tax". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Industrial Center or any portion thereof by any
authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Industrial Center or in an y
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Industrial Center. The term
"real property tax" shall also include any tax, fee, levy, assessment or charge
(i) in substitution of, partially or totally, any tax, fee, levy, assessment or
charge hereinabove included within the definition of "real property
<PAGE>
tax", or (ii) the nature of which was hereinbefore included within the
definition of "real property tax", or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or , if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a
transfer, either partial or total, of Lessor's interest in the Industrial
Center or which is added to a tax or charge hereinbefore included within the
definition of real property tax by reason of such transfer, or (v) which is
imposed by reason of this transaction , any modifications or changes hereto,
or any transfers hereof.
10.4 Joint Assessment. If the Industrial Center is not separately
assessed, Lessee's Share of the real property tax liability shall be an
equitable proportion of the real property taxes for all of the land and
improvements included within the tax parcel assessed, such proportion to be
determined by Lessor from the respective valuations assigned in the assessor's
work sheets or such other information as may be reasonably available. Lessor's
reasonable determination thereof, in good faith, shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible,
Lessee shall cause said trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property of
Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to the
Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
12. Assignment and Subletting.
12.1 Lessor's Consent Required*. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease without the need for notice to Lessee under paragraph 13.1. *See
addendum #59.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate",
provided that before such assignment shall be effective said assignee shall
assume, in full, the obligations of Lessee under this Lease. Any such
assignment shall not, in any way, affect or limit the liability of Lessee under
the terms of this Lease even if after such assignment or subletting the terms of
this Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 Terms and Conditions of Assignment. Regardless of Lessor's consent,
no assignment shall release Lessee of Lessee's obligations hereunder or alter
the primary liability of Lessee to pay the Base Rent and Lessee's Share of
Operating Expenses, and to perform all other obligations to be performed by
Lessee hereunder. Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment. Neither a delay in the
approval or disapproval of such assignment nor the acceptance of rent shall
constitute a waiver or estoppel of Lessor's right to exercise its remedies
for the breach of any of the terms or conditions of this paragraph 12 of this
Lease. Consent to one assignment shall not be deemed consent to any
subsequent assignment. In the event of default by any assignee of Lessee or
any successor of Lessee, in the performance of any of the terms hereof,
Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to the
subsequent assignments of this Lease or amendments or modifications to this
Lease with assignees of Lessee, without notifying Lessee, or any successor of
Lessee, and without obtaining its or their consent thereto and such action
shall not relieve Lessee of liability under this Lease.
12.4 Terms and Conditions Applicable to Subletting. Regardless of Lessor's
consent, the following terms and conditions shall apply to any subletting by
Lessee of all or any part of the Premises and shall be included in subleases:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or
<PAGE>
right to inquire as to whether such default exists and notwithstanding any
notice from or claim from Lessee to the contrary. Lessee shall have no right
or claim against such sublessee or Lessor for any such rents so paid by said
sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublease as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublessee shall, by reason of entering into
a sublease under this Lease, be deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) If Lessee's obligations under this Lease have been guaranteed by
third parties, then a sublease, and Lessor's consent thereto, shall not be
effective unless said guarantors give their written consent to such sublease
and the terms thereof.
(d) The consent by Lessor to any subletting shall not release Lessee
from its obligations or alter the primary liability of Lessee to pay the rent
and perform and comply with all of the obligations of Lessee to be performed
under this Lease.
(e) The consent by Lessor to any subletting shall not constitute a
consent to any subsequent subletting by Lessee or to any assignment or
subletting by the sublessee. However, Lessor may consent to subsequent
sublettings and assignments of the sublease or any amendments or modifications
thereto without notifying Lessee or anyone else liable on the Lease or sublease
and without obtaining their consent and such action shall not relieve such
persons from liability.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Leases, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefore to
Lessor, or any security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Leases or for any other prior defaults of Lessee under
such sublease.
(h) Each and every consent required of Lessee under a sublease shall
also require the consent of Lessor.
(i) No sublessees shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises by
Lessee shall not constitute an acknowledgement that no default then exists under
this Lease of the obligations to be performed by Lessee nor shall such consent
be deemed a waiver of any then existing default, except as may be otherwise
stated by lessor at the time.
(k) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within ten (10) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 Attorney's Fees. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorney's fees incurred in connection
therewith, such attorney's fees not to exceed $350.00 for each such request.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(c) Except as otherwise provided in this Lease, the failure by Lessee
to observe or perform any of the covenants, conditions or provisions of this
Lease to be observed or performed by Lessee, other than described in paragraph
(b) above, where such failure shall continue for a period of thirty (30) days
after written notice thereof from lessor to Lessee; provided, however, that if
the nature of Lessee's noncompliance is such that more than thirty (30) days are
reasonably required for its cure, then Lessee shall not be deemed to be in
default if Lessee commenced such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion. To the extent
<PAGE>
permitted by law, such thirty (30) day notice shall constitute the sole and
exclusive notice required to be given to Lessee under applicable Unlawful
Detainer statutes.
(d) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. } 101 or any successor statute thereto (unless, in the case
of a petition filed against Lessee, the same is dismissed within sixty (60)
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(d) is contrary to
any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor
in interest of Lessee or any guarantor of Lessee's obligation hereunder, was
materially false.
13.2 Remedies. In the event of any such material default by Lessee, Lessor
may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such aware exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expenses or other sums due
hereunder will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Property. Accordingly, if any installment of Base Rent,
Operating Expenses, or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to 6% of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by lessor shall in no event constitute a waiver of Lessee's default with respect
to such overdue amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of any of the aforesaid monetary obligations of Lessee, then Base
Rent shall automatically become due and payable quarterly in advance, rather
than monthly, notwithstanding paragraph 4.1 or any other provision of this Lease
to the contrary.
14. Condemnation. If the Premises or any portion thereof or the
Industrial Center are taken under the power of eminent domain, or sold under
the threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of
the date the condemning authority takes title or possession, whichever first
occurs. If more than ten percent of the floor area of the Premises, or more
than twenty-five percent of that portion of the Common Areas designated as
parking for the Industrial Center is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of
such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and
effect as to the portion of the premises remaining, except that the rent
shall be reduced in the proportion that the floor area of the Premises taken
bears to the total floor area of the Premises. No reduction of rent shall
occur if the only area taken is that which does not have the Premises located
thereon. Any award for the taking of all or any part of the Premises under
the power of eminent domain or any payment made under threat of the exercise
of such power shall be the property of Lessor, whether such award shall be
made as compensation for diminution in value of the leasehold or for the
taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any
<PAGE>
award for loss of or damage to Lessee's trade fixtures and removable personal
property. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefor by the condemning authority, Lessee shall pay any
amount in excess of such severance damages required to complete such repair.
15. Broker's Fee.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
SEE ADDENDUM #58
Licensed real estate broker(s), a fee as set forth in a separate agreement
between Lessor and said broker(s), or in the event there is no separate
agreement between Lessor and said broker(s), the sum of $_____ , for brokerage
services rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that if Lessee exercises an Option, as
defined in paragraph 40.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the term of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sale
entered into between the parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, then as to any of said transactions,
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but
also on behalf of any person, corporation, association, or other entity having
an ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this paragraph 15. Said broker shall be a
third party beneficiary of the provisions of this paragraph 15.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not
less than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party or specifying such defaults
if any are claimed. Any such statement may be conclusively relied upon by any
prospective purchaser r encumbrancer of the Premises or of the business of the
requesting party.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Property, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three (3) years' financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Industrial Center, and except as expressly
provided in paragraph 15, in the event of any transfer of such title or
interest. Lessor herein named (and in case of any subsequent transfers then the
grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall,
subject as aforesaid, be binding on Lessor's successors and assigns, only during
their respective periods of ownership.
18. Severability. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease; provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expenses and insurance and tax expenses payable shall be deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any
<PAGE>
such matter shall be effective. This lease may be modified in writing only,
signed by the parties in interest at the time of the modification. Except
as otherwise stated in this Lease, Lessee hereby acknowledges that neither
the real estate broker listed in paragraph 15 hereof nor any cooperating
broker on this transaction nor the Lessor or any employee or agents of any of
said persons has made an oral or written warranties or representations to
Lessee relative to the condition or use by Lessee of the Premises or the
Property and Lessee acknowledges that Lessee assumes all responsibility
regarding the Occupational Safety Health Act, the legal use and adaptability
of the Premises and the compliance thereof with all applicable laws and
regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified mail, and if
given personally or by mail, shall be deemed sufficiently given if addressed to
Lessee or to Lessor at the address noted below the signature of the respective
parties, as the case may be. Either party may by notice to the other specify a
different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by note to
Lessee.
24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any another provision hereof or of any subsequent breach by Lessee
of the same or any other provision. Lessor's consent to, or approval of, any
act shall not be deemed to render unnecessary the obtaining of Lessor's
consent to or approval of any subsequent act by lessee. The acceptance of
rent hereunder by Lessor shall not be a waiver of any preceding breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted, regardless of Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all Options, if any , granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Industrial Center is located and any litigation concerning this Lease
between the parties hereto shall be initiated in the county in which the
Industrial Center is located.
30. Subordination. See addendum #62.
(a) This Lease, and any Option granted hereby, at Lessor's option, shall
be subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Industrial Center and
to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee
or ground lessor shall elect to have the Lease and any Options granted hereby
prior to the lien of its mortgage, deed of trust or ground lease, and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such mortgage, deed of trust or ground lease, whether this Lease or
such Options are dated prior or subsequent to the date of said mortgage, deed of
trust or ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. Attorney's Fees. If either party or the broker(s) named herein bring an
action to enforce the terms hereof or declare rights hereunder, the
prevailing party in any such action, on trial or appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as fixed by the
court. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
32. Lessor's Access. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises or the Building any
ordinary "For Sale" signs and Lessor may at any time during the last 120 days of
the term hereof place on or about the Premises any ordinary "For Lease" signs.
All activities of Lessor pursuant to this paragraph shall be without abatement
of rent, nor shall Lessor have any liability to Lessee for the same.
<PAGE>
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent.
34. Signs. Lessee shall not place any sign upon the Premises or the Industrial
Center without Lessor's prior written consent. Under no circumstances shall
Lessee place a sign on any roof of the Industrial Center.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. Consents. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent
shall not be unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Property.
39. Options.
39.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Industrial Center or other property of
Lessor or the right of first offer to lease other space within the Industrial
Center or other property of Lessor; (3) the right or option to purchase the
Premises or the Industrial Center, or the right of first refusal to purchase the
Premises or the Industrial Center, or the right of first offer to purchase the
Premises or the Industrial Center, or the right or option to purchase other
property of Lessor, or the right of first refusal to purchase other property of
Lessor or the right of first offer to purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily, or involuntarily, by or to any
person or entity other than Lessee, provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(b) or 13.1(c) and continuing until the noncompliance alleged in
said notice of default is cured, or (ii) during the period of time commencing on
the date after a monetary obligation to Lessor is due from Lessee and unpaid
(without any necessity for notice thereof to Lessee) and continuing until the
obligation is paid, or (iii) at any time after an event of default described in
paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give
notice of such default to Lessee), or (iv) in the event that Lessor has given to
Lessee three or more notices of default under paragraph 13.1(b), or paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period of
time immediately prior to the time that Lessee attempts to exercise the subject
Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(c) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessee commits a default described in paragraphs 13.1(a), 13.1(d) or
13.1(e) (without any necessity of Lessor to give notice of such default to
Lessee), or (iv) Lessor gives to Lessee three or more notices of default under
paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured.
40. Security Measures. Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Industrial Center. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents
<PAGE>
and invitees from acts of third parties. Nothing herein contained shall
prevent Lessor, at Lessor's sole option, from providing security protection
for the Industrial Center or any part thereof, in which event the cost
thereof shall be included within the definition of Operating Expenses, as set
forth in paragraph 4.2(b)
41. Easements. Lessor reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so long
as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure to
do so shall constitute a material default of this Lease by Lessee without the
need for further notice to Lessee.
42. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. Authority. If Lessee is a corporation, trust or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
45. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease. This Lease shall become
binding upon Lessor and Lessee only when fully executive by Lessor and Lessee.
46. Addendum. Attached hereto is an addendum or addenda containing paragraphs
49 through 63 which constitute a part of this Lease.
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR
APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR
ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR
TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO.
THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
MITSUI/SBD America Fund 87-1, Overland Data, Inc., a California
a California limited partnership corporation
By: By: /s/ Scott McClendon
-------------------------------- --------------------------------
SBD Properties, a California Scott McClendon - President
general partnership
By: By:
-------------------------------- --------------------------------
SBD Properties, a California
general partnership
By: /s/ James L. Hirsen Executed on July 2, 1993
-------------------------------- ------------------------
James L. Hirsen, Vice President (Corporate Seal)
Executed on July 7, 1993
-----------------------
ADDRESS FOR NOTICES AND RENT ADDRESS
907 Civic Center Drive 5600 Kearney Mesa Rd.
- ----------------------------------- ----------------------------------
Santa Ana, CA 92703 San Diego, CA 92111
- ----------------------------------- ----------------------------------
- ----------------------------------- ----------------------------------
anderson/relstimkorb/fee-overland
d 1991 - By American Industrial Real Estate Association
All rights reserved. No part of these words may be reproduced in any form
without permission in writing.
For these forms write the American Industrial Real Estate Association
350 South Figueroa Street, Suite 275, Los Angeles, CA 90071 (213) 687-8777
Form 100MT 8
<PAGE>
EXHIBIT A
RULES AND REGULATIONS
A. THE LESSEE AGREES AS FOLLOWS:
1. All garbage and refuse shall be kept in the kind of container specified
by Lessor, and shall be placed outside of the Premises prepared for collection
in the manner and at the times and places specified by Lessor. If Lessor shall
provide or designate a service for picking up refuse and garbage, Lessee shall
use same at Lessee's cost. Lessee shall pay the cost of removal of any of
Lessee's refuse or rubbish.
2. No aerial shall be erected on the roof or exterior walls of the
Premises, or on the grounds, without in each instance, the written consent of
Lessor. Any aerial so installed without such written consent shall be subject to
removal without notice at any time.
3. No loud speakers, televisions, phonographs, radios, or other devices
shall be used in a manner so as to be heard or seen outside of the Premises
without the Prior written consent of Lessor.
4. The outside areas immediately adjoining the Premises shall be kept clean
and free from dirt and rubbish by the Lessee to the satisfaction of Lessor, and
Lessee shall not place or permit any obstruction or materials in such areas. If
outside areas are not so maintained within 12 hours after verbal notice of same,
Lessee agrees to pay a fee of $25.00 for each such infraction to cover this
cost. No exterior storage shall be allowed without permission in writing from
Lessor.
5. Lessee and Lessee's employees shall park only the number of cars
approved and only in those portions of the parking area designated for that
purpose by Lessor, and shall not block access ways and shall not cause the
leased Premises to be occupied by employees or agents in excess of one person
per 125 sq. ft. of leased area.
6. The plumbing facilities shall not be used for any other purpose than
that for which they are constructed, and no foreign substance of any kind shall
be thrown therein. The expense of any breakage, stoppage, or damage resulting
from a violation of this provision shall be bome by Lessee, who shall, or whose
employees, agents or invitees shall have caused it.
7. Lessee shall use, at Lessee's cost, such pest extermination contractor
as Lessor may direct and at such intervals as Lessor may require.
8. Lessee shall not bum any trash or garbage of any kind in or about the
Ieased Premises.
9. Lessee shall be responsible for repair of any damage occasioned by the
moving of freight, furniture or other objects into, within, or out of the
building. No heavy objects of any nature shall be placed upon any floor without
Lessor's prior written approval as to the adequacy of the allowable floor
loading at the point where the objects are intended to be moved or stored.
Lessor may specify the time of moving to minimize inconvenience to other
tenants. if any.
10. No drapes or sunscreens of any nature shall be installed without
Lessor's prior written approval. The sash doors, sashes, windows, glass doors,
lights and skylight that reflect or admit light into the building shall not be
covered or obstructed. Waste and excessive or unusual use of water shall not be
allowed. Lessee shall not mark, drive nails, screw or drill into, paint, or in
any way deface any surface or part of the building except that Lessee may hang
pictures, blackboards, or similar objects, providing that prior to end of the
term, Lessee shall restore the Premises to its condition at the commencement of
the form, less reasonable wear and tear. The expense of repairing any breakage,
stoppage, or damage resulting from a violation of
<PAGE>
this rule shall be borne by Lessee who has caused such breakage, stoppage or
damage.
11. No additional lock or locks shall be placed or changed by Lessee on any
door unless written consent of Lessor shall first have been obtained. Two keys
will be furnished by Lessor. All keys shall be surrendered to Lessor upon
termination or expiration of the Lease Term.
12. No materials, supplies, equipment, finished products, or semi-finished
products, raw materials, or articles of any nature shall be stored or permitted
to remain on any portion of the leased Premises outside the building constructed
thereon, except with the prior written consent of Lessor.
B. Lessor reserves the right from time to time to amend or supplement the
foregoing' rules and regulations applicable to the Premises. Notice of SUCH
rules and regulations and amendments and supplements thereto, if any, shall be
given to Lessee.
C. Lessee agrees to comply with all such rules and regulations upon notice to
Lessee from Lessor, provided that such rules and regulations apply uniformly to
all tenants of the Center.
<PAGE>
ADDENDUM TO LEASE
THIS ADDENDUM TO LEASE AGREEMENT DATED MAY 26, 1993 BY AND BETWEEN MITSUI/S.B.D.
AMERICA FUND 87-I ("LESSOR") AND OVERLAND DATA, INCORPORATED, A CALIFORNIA
CORPORATION ("LESSEE")
49. Rental Rate: The monthly rent payable under Paragraph 4 shall be:
Year 1
August 15, 1993 through August 14, 1994 $36,828.40 per month, NNN
Year 2
August 15, 1994 through August 14, 1995 $38,301.53 per month, NNN
Year 3
August 15, 1995 through August 14, 1996 $39,833.59 per month, NNN
Year 4
August 15, 1996 through August 14, 1997 $41,426.94 per month, NNN
Year 5
August 15, 1997 through August 14, 1998 $43,084.01 per month, NNN
Year 6
August 15, 1998 through August 14, 1999 $44,807.37 per month, NNN
Year 7
August 15, 1999 through August 14, 2000 $46,599.67 per month, NNN
50. OPERATING EXPENSES: Any increases in the Operating Expenses, with the
exception of insurance, after the first year shall not exceed the annual
Consumer Price Index during the preceding twelve (12) month period. If,
during the term of the lease or any options exercised, the State of
California or local government bodies change the method of taxing
commercial properties in order to generate additional tax revenue, those
additional expenditures shall be passed on to Lessee.
Operating expenses shall not include any of the following:
A. Costs incurred by Lessor for the repair or replacement of damage to the
Premises or its contents caused by fire or other casualty for which Lessor
is reimbursed under applicable insurance policies (or under insurance
policies Lessor would have had if it had maintained policies in accordance
with its obligations under this Lease).
B. Costs (including permit' license, and inspection costs) incurred with
respect to the installation of tenant improvements to any other building
in the industrial park (the "Park").
C. Attorneys' fees, space planning costs, and costs and expense in connection
with negotiation of this Lease and of the leases of other present and
prospective tenants of the Park.
D. Costs incurred by Lessor outside the ordinary course of business due to
the VIOLATION BY LESSOR OR ANY OTHER tenant of the Park (other than
Lessee) of the terms and conditions of any lease for space in the Park.
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E. Interest, principal, points, and fees on debts or amortization on any
mortgage or mortgages or any other debt instrument encumbering the
Premises or the Park.
F. Any taxes OR Lessor's net income, state franchise taxes, or any
inheritance, estate, of gift taxes.
G. Costs incurred to correct any failure of the Premises or the Park, on the
date of execution of the Lease, to comply with handicapped, hazardous
material, fire, and safety codes in effect on such dates.
H. Tax penalties incurred or interest charges as a result of Lessor's
negligence, inability, or unwillingness to make payments when due, not
attributable to Lessee's failure to make payments to Lessor for such items
in accordance with the lease
I. All governmental assessments which can be paid by Lessor in installments
shall be paid or deemed paid by Lessor in the maximum number of
installments permitted by law and not included as Operating Expenses
except in the year in which the assessment installment is actually paid or
deemed paid. Insurance premiums paid by Lessor shall be included in
Operating Expenses on an accrual basis.
J. Any costs for clean-up and removal of Toxic or Hazardous Substances (as
defined in Section 60 hereof), to the extent that Section 60 of this Lease
spares Lessee for liability for such costs.
K. Costs to repair defects in or on maintain the structural portions of the
Premises or the Park (except for those capital improvements and capital
improvement replacement costs that are described as exceptions in
Subsection R below) or costs to repair defects in or maintain any of the
tenant improvements installed in the Premises.
L. Costs (including all related attorneys' fees and costs of settlements,
judgements, or any payments in lieu thereof) arising from claims,
disputes, or potential disputes between Lessor and other tenants of the
Park.
M. Lessor's general corporate overhead and general and administrative
expenses.
N. Costs of overtime or other expenses incurred by Lessor in curing its
defaults or performing work expressly provided in the Lease to be borne at
Lessor's expense.
O. Any legal fees associated with the sale or refinancing of the Premises or
the Park.
P. Costs for separate utility meters Lessor may install for other tenants of
the Park unless the installation is required by a utility company or
governmental entity.
Q. Costs for construction in compliance with, or penalties assessed for
noncompliance with, the Americans with Disabilities Act of 1990 (42 U.S.C.
1281-1283) (the "ADA") if SUCH COSTS ARE CAUSED BY any failure OF THE
Building, on the date of execution of this Lease, to comply with the ADA
as in effect on such date.
Costs of capital improvement replacements EXCEPT FOR those that are
installed in the Premises and with a reasonable and good faith expectation
by Lessor that the same will reduce Operating Expenses except for Items in
4.2 and 7.1 in this Lease. The cost of any capital improvement or
replacement described above shall be "amortized" by including in Operating
Expenses amounts reasonably and in good faith expected to be saved in each
calendar year throughout the Term (as determined at the time Lessor
elected to proceed with the capital improvement or replacement to reduce
Operating Expenses).
<PAGE>
S. Rentals for items (except when needed in connection with normal repairs
and maintenance of the Premises, which shall be permitted) which! if
purchased rather than Rented, would constitute a capital improvement
specifically excluded in Subsection R, above.
T. Expenses in connection with services or benefits other than normal
operating expenses and common area charges, which are not offered to
Lessee but which arc provided to another tenant of the Park.
U. Costs of any items except for normal operating expenses for which Lessor
is reimbursed by insurance or otherwise compensated by parties other than
lessees of the Park.
51. For any services for which Lessor is obligated to provide herein, Lessor
will utilize their best effort to provide quality services on a competitive
basis.
52. Tax on Sale: Lessor shall not pass on any increase in taxes due to the sale
of this property during the first sixty (60) months of Lessee's occupancy.
53. Rental Concessions: Lessor shall provide Lessee with four (4) months of half
rent to be structured as months two (2) through five (5) of the initial
term. Lessee shall be responsible for Triple Net costs during this rental
reduction period.
54. LESSOR REPAIRS AND IMPROVEMENT AND LESSEE IMPROVEMENT ALLOWANCE:
A. Lessor shall provide Lessee $3.00 per square foot for retrofit tenant
improvements to the Premises. Any unused portion of this $3.00 per
square foot allowance may be utilized by Overland Data as a moving
allowance. Lessor understands that it is Lessor's responsibility to
have this facility comply with the American's with Disabilities Act
and/or any other Federal, State or Local building codes or regulations.
All tenant improvements shall be mutually agreed upon by Lessee and
Lessor and constructed by a licensed general contractor. In addition,
Lessor shall also provide Lessee up to $30,000.00 for the installation
of an elevator to the Premises. It shall be understood by Lessor and
Lessee that Lessee will be responsible for the actual construction of
any and all tenant improvements to said Premises with Lessor's
approval. Lessee shall determine the State of California licensed
general contractor who will perform the tenant improvement construction
work to the Premises.
B. LESSOR REPAIRS AND IMPROVEMENTS. It is mutually understood and agreed
that the second floor of the Premises needs repair and shall be
repaired at the sole expense of Lessor without regard to Lessee's
tenant improvement allowance. The repairs shall be made in such a
manner that the second floor is to be completely level and shall meet
the standard office load-bearing capacity to the mutual satisfaction of
Lessee and Lessor. If for some reason the repair of the flooring causes
non-repairable damage to the existing carpeting, then Lessor at
Lessor's cost will replace the carpeting. Lessor will make every effort
to have the second floor repairs completed by July 15, 1993 in order
for commencement of said Lease to occur August 15, 1993. Should their
be any delays beyond July 15, 1993 and the repair of the second floor,
then said lease commencement date shall extend from August 15, 1993
commensurate with the delays associated with repairing the second
floor. The extension of the lease commencement date pursuant to
Section 54b shall be in addition to any extension required due to
delays by Lessor in approving Lessee's tenant improvement plans for
said facility.
It is also understood that should the City of San Diego require any
changes to any of the existing improvements due to building code
issues, then Lessor shall be responsible for any and all costs
associated therewith. Should any building code requirements be
implemented by the City of San Diego relating to the existing tenant
improvements due to Lessee's addition of improvements, then Lessee
shall be responsible for all costs associated therewith.
<PAGE>
55. FIRST RIGHT OF REFUSAL: Provided Lessee is not in default of any provisions
of this Lease, Lessee shall have a right of first refusal to lease the
entire facility or any portion thereof located at 8985 Balboa Avenue for the
entire lease term at any time during the lease term that any remaining
vacant space becomes available. Upon Lessor's notification in writing or
written evidence signed by both Lessor and the proposed tenant evidencing
the proposed tenant's interest to occupy any portion of the facility at
8985 Balboa Avenue, Lessee shall have five (5) business days to respond in
writing of its intent to exercise its right of first refusal to occupy the
Premises under the same terms and conditions as contained in the mutually
executed offer to lease. Lessor's release of space to a subsequent tenant
shall not be deemed to have terminated any other right of first refusal on
the part of Lessee that might occur subsequent to the initial lease.
Notwithstanding the foregoing, all other lease terms and conditions shall be
in effect for the space.
56. RENEWAL OPTIONS: Lessor hereby grants Lessee two (2) options to renew of
five (5) years each at ninety percent (90%) of the then prevailing market
rate. The rental rate for these option periods shall be negotiated between
the Lessee and the Lessor. Should Lessee and Lessor be unable to agree upon
a rental rate, then an MAI appraiser shall be utilized to determine the
rental rate. These options shall be exercised by written notice delivered to
the Lessor eight (8) months prior to lease expiration. If Lessee and Lessor
fail to reach an agreement within ninety (90) days of written notification
to Lessor, then this option shall lapse and there shall be no further right
to extend the lease term.
57. Signage: Project signage similar to what Sundstrand currently has at the
front of the project will be granted to Lessee as well as building signage.
All signage shall be at Lessee's sole cost and expense and shall be
mutually agreed upon by Lessee and Lessor and shall comply with all City
sign ordinances.
58. Broker Commission: a commission will be paid to John Burnham & Company (to
be split 50/50 with CB Commercial) per the following terms and conditions:
1. Leasing Commission Schedule:
Six percent (6%) of all rental payments for the first sixty (60)
months; plus
Four Percent (4%) of all rental payments for the next twenty-four
(24) months.
Leasing commission shall be paid by Lessor 100% upon occupancy by
Lessee. However, no later than one-half on August 15, 1993 and the
remaining one-half upon Lessee's occupancy should it be later than
August 15, 1993.
59. ASSIGNMENT AND SUBLETTING (CONTINUED): For purposes of Section 12.1, no
assignment shall be deeded to have occurred upon any sale or other transfer
of less than 50% of the capital stock of Lessee. Notwithstanding anything in
Section 12 to the contrary, Lessor shall be obligated to consent subject in
all cases to the provisions of Section 6, to any assignment or subletting by
Lessee to an affiliated entity which: a) is Lessee's parent organization; b)
is any corporation, a majority of whose voting stock is owned, directly or
indirectly, by Lessee, Lessee's parent organization or the owner of a
majority of Lessee's voting stock; c) as a result of the consolidation,
merger or other reorganization with Lessee or Lessee's parent organization,
will own all or substantially all of the voting stock of Lessee or Lessee's
parent organization; or d) acquires all or substantially all of the voting
stock or all or substantially all of the assets of Lessee. At least twenty
(20) days prior to any such assignment, Lessee shall deliver written
notification of the proposed assignment to Lessor, and Lessor shall not
withhold its consent to any such assignment.
60. DAMAGE) OR DESTRUCTION (CONTINUED): If the Premises should be partially or
wholly destroyed or damaged by fire or other casualty in such damage or
destruction cannot in Lessor's architect's judgement, be repaired or
substantially restored within thirty (30) days of such damages or
destruction, then within fifteen (15) days after the date of such damage or
destruction, Lessor shall notify Lessee; and either party hereto may, at its
option, terminate this Lease by giving written notice thereof to the other
party within thirty (30) days after date of Lessee's receipt of such notice.
<PAGE>
61. ENVIRONMENTAL INDEMNIFICATION: To the best of Lessor's knowledge, there
exist no hazardous or toxic substances on the Premises as of the
commencement date, and the Premises are in compliance with all applicable
laws with respect to such substances. Lessor agrees to indemnify, defend and
hold Lessee harmless from and against any and all loss, costs, liability, or
expense, including reasonable attorneys and consultants fees, arising out of
the presence, removal, clean-up, spill, release, discharge or use of any
such hazardous or toxic substances on the Premises not attributable to the
activities of Lessee or its agents, contractors, or employees. Lessor agrees
to pay any costs of bring the Premises into compliance with all applicable
laws with respect to such hazardous or toxic substances.
62. SUBORDINATION AND NON-DISTURBANCE: Notwithstanding the provisions of
Section 30b, this Lease shall, at Lessor's option, be either superior or
subordinate to any mortgage or deed of trust that may exist or hereafter be
placed upon the Premises or the park or any part thereof and to any and all
advances to be made thereunder and the interest thereon and to all renewals,
replacements and extensions thereof. Lessee shall, upon written demand by
Lessor, execute such instruments as may be required at any time and from
time to time to subordinate the rights and interests of Lessee under this
Lease to the lean of any such mortgage or deed of trust or, if requested by
Lessor, to subordinate any such mortgage or deed of trust to this Lease.
However, before signing any subordination agreement and as a condition
president thereto, Lessee shall have the right to obtain from the mortgagee
or beneficiary of the deed of trust requesting such subordination, an
agreement in writing prepared by such mortgagee or beneficiary acceptable to
Lessee, in its sole discretion, providing that, as long as Lessee is not in
default hereunder, this Lease shall remain in effect for the full term.
Lessee shall, in the event any proceedings are brought for the foreclosure
of any such mortgage or deed of trust, attorney to the Purchaser upon
foreclosure sale or sale under power of sale, and shall recognize such
purchaser as lessor under this Lease, again subject to obtaining from such
purchaser requesting such attornment and agreement in writing prepared by
such purchaser acceptable to Lessee in its sole discretion providing that,
as long as Lessee is not in default hereunder, this Lease shall remain in
effect for the full term.
63. CC&R'S AND RULES AND REGULATIONS: There are no existing CC&R's associated
with said Premises. The rules and regulations for the Premises are attached
as "Exhibit A".
<PAGE>
EXHIBIT 10.5
OVERLAND DATA, INC.
1995 STOCK OPTION PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The Plan was established in 1995 to offer selected employees, directors,
advisors and consultants an opportunity to acquire a proprietary interest in the
success of Overland Data, Inc., a California corporation (the "Company"), or to
increase such interest, by purchasing Shares of the Company's Common Stock. The
Plan provides for the grant of Options to purchase Shares. Options granted
under the Plan may include Nonstatutory Options as well as ISOs intended to
qualify under section 422 of the Code. The Plan is intended to comply in all
respects with Rule 16b-3 (or its successor) under the Exchange Act.
SECTION 2. DEFINITIONS.
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the Company,
as constituted from time to time.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" shall mean a committee of the Board of Directors,
consisting of Disinterested Directors as appointed by the Board of Directors
from time to time, or, if no such committee is appointed, all members of the
Board of Directors who are not employees of the Company, in either case, as
described in Section 3(a).
(d) "COMPANY" shall mean Overland Data, Inc., a California corporation.
(e) "CONSULTANT" shall mean any individual who is (i) a member of the
Board of Directors but who is not an Employee, (ii) an affiliate of a member of
the Board of Directors, (iii) a member of the board of directors of a Subsidiary
or (iv) an independent contractor who performs services for the Company or a
Subsidiary.
(f) "DISINTERESTED DIRECTOR" shall mean a member of the Board of Directors
who is not, during the one year prior to service as an administrator under this
Plan (as described in Section 3 of this Plan), granted or awarded Stock pursuant
to the terms of this Plan (or any other plan of the Company or a Subsidiary) and
who is not eligible to participate in this Plan, except that participation in
this Plan shall not disqualify a director for the purpose of administering
another plan that does not permit participation by the Board of Directors.
(g) "EMPLOYEE" shall include every individual performing Service to the
Company or its Subsidiaries if the relationship between such individual and the
Company or its Subsidiaries is the legal relationship of employer and employee.
This definition of "Employee" is qualified in its entirety and is subject to the
definition set forth in Section 3401(c) of the Code and the applicable
regulations thereunder.
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(h) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(j) "FAIR MARKET VALUE" shall mean the market price of Stock, determined
by the Committee as follows:
(i) If Stock was traded over-the-counter on the date in question but
was not classified as a national market issue, then the Fair Market Value shall
be equal to the mean between the last reported representative bid and asked
prices quoted by the NASDAQ system for such date;
(ii) If Stock was traded over-the-counter on the date in question and
was classified as a national market issue, then the Fair Market Value shall be
equal to the last-transaction price quoted by the NASDAQ system for such date;
(iii) If Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite-transaction report for such date; and
(iv) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith and in
accordance with Section 260.140.50, Title 10 of the California Code of
Regulations, or with respect to the determination of Fair Market Value in
connection with the exercise of any Options granted to Disinterested Directors
under Section 4(b) of this Plan, by an independent appraiser, selected by the
Committee in its sole discretion.
In all cases, the determination of Fair Market Value by the Committee shall be
conclusive and binding on all persons.
(k) "ISO" shall mean an incentive stock option described in section 422(b)
of the Code.
(l) "NONSTATUTORY OPTION" shall mean a stock option not described in
sections 422(b) or 423(b) of the Code.
(m) "OPTION" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(n) "OPTIONEE" shall mean an individual who holds an Option.
(o) "PLAN" shall mean this 1995 Stock Option Plan of the Company
(p) "SERVICE" shall mean service as an Employee or Consultant.
(q) "SHARE" shall mean one share of Stock, as adjusted in accordance with
Section 8 (if applicable).
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(r) "STOCK" shall mean the Common Stock of the Company.
(s) "STOCK OPTION AGREEMENT" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.
(t) "STOCK PURCHASE AGREEMENT" shall mean the Notice of Exercise and Stock
Purchase Agreement to be delivered by an Optionee to the Company upon exercise
of an Option.
(u) "SUBSIDIARY" shall mean any corporation, if the Company and/or one or
more other Subsidiaries own not less than 50 percent of the total combined
voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
(v) "TOTAL AND PERMANENT DISABILITY" shall mean that the Optionee is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted, or can be expected to last, for a continuous period
of not less than one year.
SECTION 3. ADMINISTRATION.
(a) COMMITTEE MEMBERSHIP. The Plan shall be administered by the
Committee. The Committee shall consist only of Disinterested Directors of the
Company and shall have at least two members. The Committee shall meet such
other requirements as may be established from time to time by the Securities and
Exchange Commission for plans intended to qualify for exemption under Rule 16b-3
(or its successor) under the Exchange Act. The Board of Directors may appoint
a separate committee of the Board of Directors, composed of one or more
directors of the Company who need not be Disinterested Directors, who may
administer the Plan with respect to Employees or Consultants who are not
officers or directors of the Company or incoming new directors of the Company,
may grant Options under the Plan to such persons and may determine the timing,
number of Shares subject to such Options and other terms of such grants.
(b) DISINTERESTED DIRECTORS. A member of the Board of Directors shall be
deemed "disinterested" only if he or she satisfies such requirements as the
Securities and Exchange Commission may establish for disinterested
administrators of plans designed to qualify for exemption under Rule 16b-3 (or
its successor) under the Exchange Act.
(c) COMMITTEE PROCEDURES. The Committee shall designate one of its
members as chairman. The Committee may hold meetings at such times and places
as it shall determine. The acts of a majority of the Committee members present
at meetings at which a quorum exists, or acts reduced to or approved in writing
by all Committee members, shall be valid acts of the Committee.
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(d) COMMITTEE RESPONSIBILITIES. Subject to the provisions of the Plan,
and without further approval of the Board of Directors, the Committee shall have
full authority and discretion to take the following actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms relating
to the Plan;
(iii) To authorize any person to execute, on behalf of the
Company, any instrument required to carry out the purposes of the Plan;
(iv) To determine when Options are to be granted under the Plan;
(v) To select the Optionees;
(vi) To determine the number of Shares to be made subject to each
Option;
(vii) To prescribe the terms and conditions of each Option,
including, without limitation, the Exercise Price, to determine whether such
Option is to be classified as an ISO or as a Nonstatutory Option, and to specify
the provisions of the Stock Option Agreement relating to such Option;
(viii) To amend any outstanding Stock Option Agreement, subject to
applicable legal restrictions and to the consent of the Optionee who entered
into such agreement;
(ix) To accelerate or defer, with the consent of the Optionee, the
exercise date of any Option;
(x) With the consent of the Optionee, to reprice, cancel and
regrant, or otherwise adjust the Exercise Price of an option previously granted
by the Committee;
(xi) To prescribe the consideration for the grant of each Option or
other right under the Plan and to determine the sufficiency of such
consideration; and
(xii) To take any other actions deemed necessary or advisable for
the administration of the Plan.
All decisions, interpretations and other actions of the Committee shall be final
and binding on all Optionees, and all persons deriving their rights from an
Optionee. No member of the Committee shall be liable for any action that he or
she has taken or has failed to take in good faith with respect to the Plan, any
Option, or any other right to acquire Shares under the Plan.
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<PAGE>
SECTION 4. ELIGIBILITY.
(a) GENERAL RULE. Employees and Consultants shall be eligible to receive
Options. However, only Employees shall be eligible for the grant of ISOs.
(b) DISINTERESTED DIRECTORS. Disinterested Directors shall not be
eligible to receive Options under this Plan.
(c) TEN-PERCENT STOCKHOLDERS. An Employee who owns more than 10 percent
of the total combined voting power of all classes of outstanding stock of the
Company or any of its Subsidiaries shall not be eligible for the grant of an
option unless (i) the Exercise Price is at least 110 percent of the Fair Market
Value of the shares underlying the Option on the date of grant of the Option and
(ii) if such Option is an ISO, such ISO is not exercisable after the expiration
of five years from the date of grant.
(d) ATTRIBUTION RULES. For purposes of Subsection (c) above, in
determining stock ownership, an Employee shall be deemed to own the stock owned,
directly or indirectly, by or for such Employee's brothers, sisters, spouse,
ancestors and lineal descendants. Stock owned, directly or indirectly, by or
for a corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its stockholders, partners or beneficiaries. Stock
with respect to which such Employee holds an option shall be counted.
(e) OUTSTANDING STOCK. For purposes of Subsection (c) above, "outstanding
stock" shall include all stock actually issued and outstanding immediately after
the grant. "Outstanding stock" shall not include shares authorized for issuance
under outstanding options held by the Employee or by any other person.
SECTION 5. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. Shares subject to Options granted under the Plan
shall be authorized but unissued Shares. The aggregate number of shares which
may be issued under the Plan (upon exercise of Options or other rights to
acquire Shares) shall not exceed 372,500 Shares, subject to adjustment pursuant
to Section 8. The number of Shares which are subject to Options or other rights
outstanding at any time under the Plan shall not exceed the number of Shares
which then remain available for issuance under the Plan. The Company, during
the term of the Plan, shall at all times reserve and keep available sufficient
Shares to satisfy the requirements of the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the Shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purpose of the Plan.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Committee
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<PAGE>
deems appropriate for inclusion in a Stock Option Agreement. The provisions of
the various Stock Option Agreements entered into under the Plan need not be
identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than 100 percent
of the Fair Market Value of a Share on the date of grant of the Option, except
as otherwise provided in Section 4(c). The Exercise Price of a Nonstatutory
Option shall not be less than 85 percent of the Fair Market Value of a Share on
the date of grant. Subject to the preceding two sentences, the Exercise Price
under any Option shall be determined by the Committee at its sole discretion.
The Exercise Price shall be payable in a form described in Section 7.
(d) WITHHOLDING TAXES. The Company's obligation to deliver Shares or cash
upon the exercise of Options shall be subject to the satisfaction of all
applicable Federal, State and local income tax and employment tax withholding
requirements.
1. The Committee may, in its discretion and in accordance with the
provisions of this Section 6(d) and such supplemental rules as the Committee may
from time to time adopt, provide any or all Optionees holding Nonstatutory
Options with the right to use Shares in satisfaction of all or part of the
Federal, State and local income tax and employment tax liabilities incurred by
such Optionees in connection with the exercise of their Options (the "Taxes").
The Optionee holding a Nonstatutory Option may be provided with the election to
have the Company withhold, from the Shares otherwise issuable upon the exercise
of such Nonstatutory Option, a portion of such Shares with an aggregate Fair
Market Value equal to the designated percentage (up to 100% as specified by the
Optionee) of the applicable Taxes. Any such withholding election shall be
subject to the following terms and conditions:
(i) The election must be made on or before the date the amount of the
Taxes incurred by the Optionee in connection with the exercise of the Option is
determined (the "Tax Determination Date").
(ii) The election shall be irrevocable.
(iii) The election shall be subject to the approval of the Committee
and none of the Shares for which the Option is exercised shall be withheld in
satisfaction of the Taxes incurred by the Optionee in connection with such
exercise, except to the extent the election is approved by the Committee.
(iv) The Shares withheld pursuant to the election shall be valued at
Fair Market Value on the Tax Determination Date.
(v) In no event may the number of Shares requested to be withheld
exceed in value the dollar amount of Taxes incurred by the Optionee in
connection with the exercise of the Non-statutory Option.
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(vi) If the withholding election is to be made by an Optionee who is
at the time an officer or director of the Company subject to the short-swing
profit restrictions of Section 16(b) of the Exchange Act, then the following
limitations, in addition to the preceding provisions of this Section 6(d), shall
also be applicable:
(A) The election shall not become effective at any time prior to
the expiration of the six month period measured from the LATER of the grant date
of the Non-statutory Option to which such election pertains or the actual grant
date of the withholding election, and no Shares shall accordingly be withheld in
connection with any Tax Determination Date which occurs before the expiration of
such six month period.
(B) The election must be effected in accordance with either of
the following guidelines: (1) the election must be made six months or more
prior to the Tax Determination Date, and (2) the exercise of such election and
the exercise of the Non-statutory Option to which such election relates must
occur concurrently within a quarterly "window" period. Quarterly window periods
shall begin on the third business day following the date of public release of
each quarterly or annual summary statement of the Company's sales and earning
and end on the EARLIER of the 12th business day following such release date or
the Tax Determination Date.
(C) The six-month period specified in clauses (A) and (B) shall
not be applicable in the event of the Optionee's death or disability.
2. The Committee may also in its discretion and applying relevant
law in accordance with the provisions of this Section 6(d) and such supplemental
rules as the Committee may from time to time adopt, require as a condition of
delivery of the Shares upon exercise of Options, that the Optionee remit to the
Company an amount in cash or check sufficient to satisfy the Company's and the
Optionee's Taxes.
(e) EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become exercisable.
The vesting of any Option shall be determined by the Committee in its sole
discretion, provided, however, the Optionee's right to exercise the Option shall
be at the rate of at least 20% per year over five years from the date the Option
is granted. A Stock Option Agreement may provide for accelerated exercisability
in the event of the Optionee's death, Total and Permanent Disability or
retirement or other events determined from time-to-time by the Committee. The
Stock Option Agreement shall also specify the term of the Option. The term
shall not exceed ten years from the date of grant, except as otherwise provided
in Section 4(c). Subject to the preceding sentence, the Committee at its sole
discretion shall determine when an Option is to expire. An Option shall be
deemed exercised when the Company receives from the Optionee (i) an executed
Stock Purchase Agreement in accordance with the terms of the Option by the
person entitled to exercise the Option and (ii) full payment for the Shares with
respect to which the Option is exercised. Full payment may, as authorized by
the Committee, consist of any consideration and method of payment allowable
under Section 7 of this Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 8 of this Plan. With respect to any ISOs granted under
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this Plan, the aggregate Fair Market Value (determined as of the respective date
or dates of grant) of the Shares for which one or more Options granted to any
Employee under this Plan (or any other option plan of the Company or its parent
or subsidiary corporations) may for the first time become exercisable as ISOs
during any one calendar year shall not exceed the sum of One Hundred Thousand
Dollars ($100,000). To the extent the Employee holds two or more such Options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability thereof as ISOs shall be applied on
the basis of the order in which such Options are granted. To the extent such
dollar limitation is exceeded in any one calendar year the Option shall
nevertheless be exercisable for the excess number of Shares as a Non-statutory
Option.
(f) NONTRANSFERABILITY. During an Optionee's lifetime, such Optionee's
Option(s) shall be exercisable only by him or her and shall not be transferable.
In the event of an Optionee's death, such Optionee's Option(s) shall not be
transferable other than by will or by the laws of descent and distribution.
(g) TERMINATION OF SERVICE (EXCEPT BY DEATH). If an Optionee's Service
terminates for any reason other than the Optionee's death, then such Optionee's
Option(s) shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (e) above;
(ii) The date thirty (30) days after the termination of the Optionee's
Service for any reason other than Total and Permanent Disability; or
(iii) The date six (6) months after the termination of the Optionee's
Service by reason of Total and Permanent Disability.
The Optionee may exercise all or part of his or her Option(s) at any
time before the expiration of such Option(s) under the preceding sentence, but
only to the extent that such Option(s) had become exercisable before the
Optionee's Service terminated or became exercisable as a result of the
termination. The balance of such Option(s) shall lapse when the Optionee's
Service terminates. In the event that the Optionee dies after the termination
of the Optionee's Service but before the expiration of the Optionee's Option(s),
all or part of such Option(s) may be exercised (prior to expiration) by the
executors or administrators of the Optionee's estate or by any person who has
acquired such Option(s) directly from the Optionee by bequest or inheritance,
but only to the extent that such Option(s) had become exercisable before the
Optionee's Service terminated or became exercisable as a result of the
termination. For purposes of the foregoing provisions of this Section 6(g), the
Optionee shall be deemed to be providing Service to the Company for so long as
the Optionee renders Service on a periodic basis to the Company or a Subsidiary
in the capacity of an Employee or Consultant. The Optionee shall be considered
to be an Employee for so long as the Optionee remains in the employ of the
Company or a Subsidiary.
(h) LEAVES OF ABSENCE. For purposes of Subsection (g) above, Service
shall be deemed to continue while the Optionee is on military leave, sick leave
or other bona fide leave of absence (as determined by the Committee). The
foregoing notwithstanding, in the case of an ISO granted under the Plan, Service
shall not be deemed to continue beyond the first 90 days of such leave, unless
the Optionee's reemployment rights are guaranteed by statute or by contract.
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(i) DEATH OF OPTIONEE. If an Optionee dies while he or she is providing
Service to the Company, then such Optionee's Option(s) shall expire on the
earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (e) above;
or
(ii) The date six (6) months after the Optionee's death.
All or part of the Optionee's Option(s) may be exercised at any time before the
expiration of such Option(s) under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired such
Option(s) directly from the Optionee by bequest or inheritance, but only to the
extent that such Option(s) had become exercisable before the Optionee's death or
became exercisable as a result of the Optionee's death. The balance of such
Option(s) shall lapse when the Optionee dies.
(j) NO RIGHTS AS A STOCKHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustments shall be made, except as provided
in Section 8.
(k) MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Within the
limitations of the Plan, the Committee may modify, extend or renew outstanding
Options or may accept the cancellation of outstanding Options (to the extent not
previously exercised) in return for the grant of new Options at the same or a
different price. The foregoing notwithstanding, no modification of an Option
shall, without the consent of the Optionee, impair such Optionee's rights or
increase his or her obligations under such Option.
(l) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares issued upon exercise
of an Option shall be subject to such transfer restrictions as the Committee
shall determine so long as such restrictions do not unfairly prejudice the
opportunity of the Optionee to receive the fair value of the securities as
required under Rule 260.140.8, Title 10 of the California Code of Regulations,
in addition to any general restrictions that may apply to all holders of shares.
(i) Options may not be transferred or assigned in any manner other than
by will or by the laws of descent or distribution.
(m) RULE 16b-3. Options granted to persons who are subject to Section 16
of the Exchange Act must comply with the applicable provisions of Rule 16b-3
promulgated therein and shall contain such additional conditions or restrictions
as may be required thereunder to qualify for the maximum exemption from
Section 16 of the Exchange Act with respect to Plan transactions, provided,
however, that this provision shall not apply if at the time of such option grant
the Plan, as it relates to such grant, is not administered by a Committee
consisting solely of Disinterested Directors.
SECTION 7. PAYMENT FOR SHARES.
(a) GENERAL RULE. The entire Exercise Price of Shares issued under the
Plan shall be payable in lawful money of the United States of America at the
time when such Shares are purchased, except as follows:
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(i) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock Option
Agreement. However, the Committee (at its sole discretion) may specify in the
Stock Option Agreement that payment may be made pursuant to Subsections (b), (c)
or (d) below.
(ii) In the case of a Nonstatutory Option granted under the Plan, the
Committee (at its sole discretion) may accept payment pursuant to
Subsections (b), (c) or (d) below.
(b) SURRENDER OF STOCK. To the extent that this Subsection (b) is
applicable, payment may be made all or in part with Shares which have already
been owned by the Optionee or his or her representative for more than 12 months
and which are surrendered to the Company in good form for transfer. Such Shares
shall be valued at their Fair Market Value on the date when the new Shares are
purchased under the Plan.
(c) EXERCISE/SALE. To the extent that this Subsection (c) is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Shares and to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price and any withholding taxes.
(d) EXERCISE/PLEDGE. To the extent that this Subsection (d) is
applicable, payment may be made by the delivery (on a form prescribed by the
Company) of an irrevocable direction to pledge Shares to a securities broker or
lender approved by the Company, as security for a loan, and to deliver all or
part of the loan proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.
SECTION 8. ADJUSTMENT OF SHARES.
(a) GENERAL. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Stock in an amount that has a material effect on the value
of Stock, a combination or consolidation of the outstanding Stock (by
reclassification or otherwise) into a lesser number of Shares, a
recapitalization, a spinoff or a similar occurrence, the Committee shall make
appropriate adjustments in one or more of (i) the number of Shares available for
future grants under Section 5, (ii) the number of Shares covered by each
outstanding Option or (iv) the Exercise Price under each outstanding Option.
(b) RESERVATION OF RIGHTS. Except as provided in this Section 8, an
Optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class, the payment of any dividend or any other increase
or decrease in the number of shares of stock of any class. Any issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or Exercise Price of Shares subject to
an Option. The grant of an Option pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassification,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
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SECTION 9. SECURITIES LAWS.
Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations, and the regulations of any stock exchange on which the Company's
securities may then be listed.
SECTION 10. NO EMPLOYMENT RIGHTS.
No provision of the Plan, nor any right or Option granted under the Plan,
shall be construed to give any person any right to become, to be treated as, or
to remain an Employee or Consultant or in any way to amend, modify, waive or
terminate the Company's (or its Subsidiary's) right to terminate any person's
Service at any time and for any reason.
SECTION 11. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective October 10, 1995, the date the Board of Directors adopted the Plan.
Notwithstanding the foregoing, no Option granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the
shareholders of the Company. The Plan shall terminate automatically 10 years
after its initial adoption by the Board of Directors on October 10, 2005, and
may be terminated on any earlier date pursuant to Subsection (b) below.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason; provided,
however, that any amendment of the Plan which: (i) materially increases the
number of Shares available for issuance under the Plan (except as provided in
Section 8); (ii) materially changes the class of persons who are eligible for
the grant of ISOs; or (iii) if required by Rule 16b-3 (or any successor) under
the Exchange Act, would materially increase the benefits accruing to
participants under the Plan or would materially modify the requirements as to
eligibility for participation in the Plan, shall be subject to the approval of
the Company's stockholders by the affirmative vote of the holders of a majority
of the securities of the Company present, or represented and entitled to vote at
a duly held stockholders' meeting. Stockholder approval shall not be required
for any other amendment of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.
SECTION 12. INFORMATION TO EMPLOYEES AND CONSULTANTS.
During such times as Options remain outstanding hereunder, the Company
shall deliver to the Optionees on an annual basis, financial and other
information regarding the Company in accordance with Rule 260.140.46 of Title
10, Chapter 3 of the California Code of Regulations.
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SECTION 13. EXECUTION.
To record the adoption of the Plan by the Board of Directors on October 10,
1995, the Company has caused its authorized officer to execute the same.
OVERLAND DATA, INC.,
a California corporation
By: /s/ Scott McClendon
---------------------
Scott McClendon, President
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EXHIBIT 10.6
OVERLAND DATA, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
TABLE OF CONTENTS
PAGE
I. PURPOSE.................................................................1
2. DEFINITIONS.............................................................1
3. ELIGIBILITY.............................................................3
4. PARTICIPATION...........................................................3
5. OFFERING................................................................4
6. PURCHASE OF STOCK.......................................................5
7. PAYMENT AND DELIVERY....................................................6
8. RECAPITULATION..........................................................6
9. MERGER, LIQUIDATION, OTHER CORPORATION TRANSACTIONS.....................7
10. TRANSFERABILITY.........................................................7
11. AMENDMENT OR TERMINATION OF THE PLAN....................................7
12. ADMINISTRATION..........................................................8
13. COMMITTEE RULES FOR FOREIGN JURISDICTIONS...............................8
14. SECURITIES LAWS REQUIREMENTS............................................8
15. GOVERNMENT REGULATIONS..................................................9
16. NO ENLARGEMENT OF EMPLOYEE RIGHTS.......................................9
17. GOVERNING LAW...........................................................9
18. EFFECTIVE DATE..........................................................9
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OVERLAND DATA, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
The purpose of this Plan is to provide an opportunity for Employees of
Overland Data, Inc. (the "Corporation") and its Designated Subsidiaries, to
purchase Common Stock of the Corporation and thereby to have an additional
incentive to contribute to the prosperity of the Corporation. It is the
intention of the Corporation that the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended, although the Corporation makes no undertaking nor representation to
maintain such qualification.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Corporation.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" shall mean the committee appointed by the Board in
accordance with Section 12 of the Plan.
(d) "COMMON STOCK" shall mean the Common Stock of the Corporation, or any
stock into which such Common Stock may be converted.
(e) "COMPENSATION" shall mean an Employee's wages or salary and other
amounts payable to an Employee on account of personal services rendered by the
Employee to the Corporation or a Designated Subsidiary and which are reportable
as wages or other compensation on the Employee's Form W-2, plus pre-tax
contributions of the Employee under a cash or deferred arrangement (401(k) plan)
or cafeteria plan maintained by the Corporation or a Designated Subsidiary, but
excluding, however, (1) non-cash fringe benefits, (2) special payments as
determined by the Committee (e.g., moving expenses, unused vacation, severance
pay), (3) income from the exercise of stock options or other stock purchases and
(4) any other items of Compensation as determined by the Committee.
(f) "CORPORATION" shall mean Overland Data, Inc., a California
corporation.
(g) "DESIGNATED SUBSIDIARY" shall mean a Subsidiary which has been
designated by the Board as eligible to participate in the Plan.
(h) "EMPLOYEE" shall mean an individual classified as an employee (within
the meaning of Code Section 3401(c) and the regulations thereunder) by the
Corporation or a
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Designated Subsidiary on the Corporation payroll records during the relevant
participation period.
(i) "ENTRY DATE" shall mean the first day of each Option Period.
(j) "EXERCISE DATE" shall mean the last business day of each Exercise
Period.
(k) "EXERCISE PERIOD" shall mean a three-month, six-month or other period
as determined by the Board. The first Exercise Period during an Option Period
shall commence on the first day of such Option Period. Subsequent Exercise
Periods, if any, shall run consecutively after the termination of the preceding
Exercise Period. The last Exercise Period in an Option Period shall terminate
on the last day of such Option Period.
(l) "FAIR MARKET VALUE" shall mean the value of one (1) share of Common
Stock on the relevant date, determined as follows:
(1) If the shares are traded on an exchange, the reported "closing
price" on the next preceding trading day;
(2) If the shares are traded over-the-counter on the NASDAQ System or
on the NASDAQ National Market System, the mean between the highest bid and the
highest asked prices on said System on the next preceding trading day; and
(3) If neither (1) nor (2) applies, the fair market value as
determined by the Committee in good faith. Such determination shall be
conclusive and binding on all persons.
(m) "OPTION PERIOD" shall mean a period of up to twenty-seven (27) months
as determined by the Committee. The Board may determine that the Option Period
and the Exercise Period are the same.
(n) "PARTICIPANT" shall mean a participant in the Plan as described in
Section 4 of the Plan.
(o) "PLAN" shall mean this employee stock purchase plan.
(p) "SHAREHOLDER" shall mean a record holder of shares entitled to vote
shares of Common Stock under the Corporation's by-laws.
(q) "SUBSIDIARY" shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, as
described in Code Section 424(f).
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3. ELIGIBILITY.
Any Employee regularly employed on a full-time basis by the Corporation or
by any Designated Subsidiary on an Entry Date shall be eligible to participate
in the Plan with respect to the Option Period commencing on such Entry Date,
provided that the Committee may establish administrative rules requiring that
employment commence some minimum period (e.g., one pay period) prior to an Entry
Date to be eligible to participate with respect to that Entry Date and provided
further that (1) the Board may extend eligibility to part-time Employees
pursuant to criteria and procedures established by the Committee and (2) the
Board may impose an eligibility period on participation of up to two years with
respect to participation on any prospective Entry Date. The Board may also
determine that a designated group of highly compensated Employees (e.g.,
Employees subject to Section 16(b) of the Securities Exchange Act of 1934) are
ineligible to participate in the Plan. An Employee shall be considered employed
on a full-time basis unless his or her customary employment is less than 20
hours per week or five months per year. No Employee may participate in the Plan
if immediately after an option is granted the Employee owns or is considered to
own (within the meaning of Code Section 424(d)), shares of stock, including
stock which the Employee may purchase by conversion of convertible securities or
under outstanding options granted by the Corporation, possessing five percent
(5%) or more of the total combined voting power or value of all classes of stock
of the Corporation or of any of its Subsidiaries. All Employees who participate
in the Plan shall have the same rights and privileges under the Plan except for
differences which may be mandated by local law and which are consistent with
Code Section 423(b)(5). The Board may impose restrictions on eligibility and
participation of Employees who are officers and directors to facilitate
compliance with federal or state securities laws or foreign laws.
4. PARTICIPATION.
4.1 An Employee who is eligible to participate in the Plan in accordance
with Section 3 may become a Participant by filing, on a date prescribed by the
Committee prior to an applicable Entry Date, a completed payroll deduction
authorization and Plan enrollment form provided by the Corporation. An eligible
Employee may authorize payroll deductions at the rate of any whole percentage of
the Employee's Compensation, not to exceed fifteen percent (15%) of the
Employee's Compensation, or such lesser percentage as specified by the Committee
as applied to an Entry Date or Option Period. All payroll deductions may be
held by the Corporation and commingled with its other corporate funds. No
interest shall be paid or credited to the Participant with respect to such
payroll deductions except where required by local law as determined by the
Committee. A separate bookkeeping account for each Participant shall be
maintained by the Corporation under the Plan and the amount of each
Participant's payroll deductions shall be credited to such account. A
Participant may not make any additional payments into such account.
4.2 Under procedures established by the Committee, a Participant may
suspend or discontinue participation in the Plan at any time during an Exercise
Period by completing and
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filing a new payroll deduction authorization and Plan enrollment form with the
Corporation. A Participant may increase or decrease his or her rate of payroll
deductions only effective on an Entry Date by filing a new payroll deduction
authorization and Plan enrollment form. If a new payroll deduction
authorization and Plan enrollment form is not filed with the Corporation, the
rate of payroll deductions shall continue at the originally elected rate
throughout the Option Period unless the Board determines to change the
permissible rate.
If a Participant suspends participation during an Exercise Period, his or
her accumulated payroll deductions will remain in the Plan for purchase of
shares as specified in Section 6 on the following Exercise Date, but the
Participant will not again participate until he or she completes a new payroll
deduction authorization and Plan enrollment form. The Committee may establish
rules limiting the frequency with which Participants may suspend and resume
payroll deductions under the Plan and may impose a waiting period on
Participants wishing to resume suspended payroll deductions. If a Participant
discontinues participation in the Plan, the amount credited to the Participant's
individual account shall be paid to the Participant without interest (except
where required by local law). In the event any Participant terminates
employment with the Corporation or any Subsidiary for any reason (including
death) prior to the expiration of an Option Period, the Participant's
participation in the Plan shall terminate and all amounts credited to the
Participant's account shall be paid to the Participant or the Participant's
estate without interest (except where required by local law). Whether a
termination of employment has occurred shall be determined by the Committee.
The Committee may also establish rules regarding when leaves of absence or
change of employment status (e.g., from full-time to part-time) will be
considered to be a termination of employment, and the Committee may establish
termination of employment procedures for this Plan which are independent of
similar rules established under other benefit plans of the Corporation and its
Subsidiaries.
In the event of a Participant's death, any accumulated payroll deductions
will be paid, without interest, to the estate of the Participant.
5. OFFERING.
5.1 The maximum number of shares of Common Stock which may be issued
pursuant to the Plan shall be 250,000 shares. The Board may designate any
amount of available shares for offering for any Option Period determined
pursuant to Section 5.2.
5.2 Each Option Period, Entry Date and Exercise Period shall be determined
by the Board. The Board shall have the power to change the duration of future
Option Periods or future Exercise Periods, and to determine whether or not to
have overlapping Option Periods, with respect to any prospective offering,
without shareholder approval, and without regard to the expectations of any
Participants.
5.3 With respect to each Option Period, each eligible Employee who has
elected to participate as provided in Section 4.1 shall be granted an option to
purchase that number of shares of Common Stock which may be purchased with the
payroll deductions accumulated on
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behalf of such Employee (assuming payroll deductions at a rate of 15% of
Compensation) during each Exercise Period within such Option Period at the
purchase price specified in Section 5.4 below; provided, however, (1) in no
event shall the Employee be entitled to accrue rights to purchase shares under
the Plan (and all other employee stock purchase plans, as defined in Code
Section 423, of the Corporation and its subsidiaries) at a rate which exceeds
$25,000 of the Fair Market Value of such stock (determined at the time the
option is granted) for any calendar year in which such option is outstanding at
any time, and (2) the maximum shares subject to any option shall in no event
exceed 1,500.
5.4 The option price under each option shall be the lower of: (i) a
percentage (not less than eighty-five percent (85%)) established by the Board
("Designated Percentage") of the Fair Market Value of the Common Stock on the
Entry Date on which an option is granted, or (ii) the Designated Percentage of
the Fair Market Value on the Exercise Date on which the Common Stock is
purchased. The Board may change the Designated Percentage with respect to any
future Option Period, but not below eighty-five percent (85%).
5.5 If the total number of shares of Common Stock for which options
granted under the Plan are exercisable exceeds the maximum number of shares
offered on any Entry Date, the number of shares which may be purchased under
options granted on the Entry Date shall be reduced on a pro rata basis in as
nearly a uniform manner as shall be practicable and equitable. In this event,
payroll deductions shall also be reduced or refunded accordingly. If an
Employee's payroll deductions during any Exercise Period exceeds the purchase
price for the maximum number of shares permitted to be purchased under Section
5.3, the excess shall be refunded to the Participant without interest (except
where otherwise required by local law).
5.6 In the event that the Fair Market Value of the Corporation's Common
Stock is lower on the first day of an Exercise Period within an Option Period
(subsequent "Reassessment Date") than it was on the Entry Date for such Option
Period, all Employees participating in the Plan on the Reassessment Date shall
be deemed to have relinquished the unexercised portion of the option granted on
the Entry Date and to have enrolled in and received a new option commencing on
such Reassessment Date, unless the Board has determined not to permit
overlapping Option Periods or to restrict such transfers to lower price Option
Periods.
6. PURCHASE OF STOCK.
Upon the expiration of each Exercise Period, a Participant's option shall
be exercised automatically for the purchase of that number of full shares of
Common Stock which the accumulated payroll deductions credited to the
Participant's account at that time shall purchase at the applicable price
specified in Section 5.4.
-5-
<PAGE>
7. PAYMENT AND DELIVERY.
Upon the exercise of an option, the Corporation shall deliver to the
Participant the Common Stock purchased and the balance of any amount of payroll
deductions credited to the Participant's account not used for the purchase. The
Board may permit or require that shares be deposited directly with a broker
designated by the Participant (or a broker selected by the Committee) or to a
designated agent of the Company, and the Committee may utilize electronic or
automated methods of share transfer. The Board may require that shares be
retained with such broker or agent for a designated period of time (and may
restrict dispositions during that period) and/or may establish other procedures
to permit tracking of disqualifying dispositions of such shares or to restrict
transfer of such shares. To the extent the unused cash balance represents a
fractional share, the unused cash balance credited to the Participant's account
shall be carried over to the next Exercise Period, if the Participant is also a
Participant in the Plan at that time or refunded to the Participant, as
determined by the Committee. The Corporation shall retain the amount of payroll
deductions used to purchase Common Stock as full payment for the Common Stock
and the Common Stock shall then be fully paid and non-assessable. No
Participant shall have any voting, dividend, or other stockholder rights with
respect to shares subject to any option granted under the Plan until the option
has been exercised and shares issued.
8. RECAPITALIZATION.
If after the grant of an option, but prior to the purchase of Common Stock
under the option, there is any increase or decrease in the number of outstanding
shares of Common Stock because of a stock split, stock dividend, combination or
recapitalization of shares subject to options, the number of shares to be
purchased pursuant to an option, the share limit of Section 5.3 and the maximum
number of shares specified in Section 5.1 shall be proportionately increased or
decreased, the terms relating to the purchase price with respect to the option
shall be appropriately adjusted by the Board, and the Board shall take any
further actions which, in the exercise of its discretion, may be necessary or
appropriate under the circumstances.
The Board, if it so determines in the exercise of its sole discretion, also
may adjust the number of shares specified in Section 5.1, as well as the price
per share of Common Stock covered by each outstanding option and the maximum
number of shares subject to any individual option, in the event the Corporation
effects one or more reorganizations, recapitalizations, spin-offs, split-ups,
rights offerings or reductions of shares of its outstanding Common Stock.
The Board's determinations under this Section 8 shall be conclusive and
binding on all parties.
-6-
<PAGE>
9. MERGER, LIQUIDATION, OTHER CORPORATION TRANSACTIONS.
In the event of the proposed liquidation or dissolution of the Corporation,
the Option Period will terminate immediately prior to the consummation of such
proposed transaction, unless otherwise provided by the Board in its sole
discretion, and all outstanding options shall automatically terminate and the
amounts of all payroll deductions will be refunded without interest to the
Participants.
In the event of a proposed sale of all or substantially all of the assets
of the Corporation, or the merger or consolidation of the Corporation with or
into another corporation, then in the sole discretion of the Board, (1) each
option shall be assumed or an equivalent option shall be substituted by the
successor corporation or parent or subsidiary of such successor corporation, (2)
a date established by the Board on or before the date of consummation of such
merger, consolidation or sale shall be treated as an Exercise Date, and all
outstanding options shall be deemed exercisable on such date or (3) all
outstanding options shall terminate and the accumulated payroll deductions shall
be returned to the Participants.
10. TRANSFERABILITY.
Options granted to Participants may not be voluntarily or involuntarily
assigned, transferred, pledged, or otherwise disposed of in any way, and any
attempted assignment, transfer, pledge, or other disposition shall be null and
void and without effect. If a Participant in any manner attempts to transfer,
assign or otherwise encumber his or her rights or interest under the Plan, other
than as permitted by the Code, such act shall be treated as an election by the
participant to discontinue participation in the Plan pursuant to Section 4.2.
11. AMENDMENT OR TERMINATION OF THE PLAN.
11.1 The Plan shall continue until, January 31, 2007 unless previously
terminated in accordance with Section 11.2.
11.2 The Board may, in its sole discretion, insofar as permitted by law,
terminate or suspend the Plan, or revise or amend it in any respect whatsoever,
except that, without approval of the shareholders, no such revision or amendment
shall:
(a) materially increase the number of shares subject to the Plan,
other than an adjustment under Section 8 of the Plan;
(b) materially modify the requirements as to eligibility for
participation in the Plan, except as otherwise specified in this Plan;
(c) materially increase the benefits accruing to Participants;
-7-
<PAGE>
(d) reduce the purchase price specified in Section 5.4, except as
specified in Section 8;
(e) extend the term of the Plan beyond the date specified in Section
11.1; or
(f) amend this Section 11.2 to defeat its purpose.
12. ADMINISTRATION.
The Board shall appoint a Committee consisting of at least two members who
will serve for such period of time as the Board may specify and who may be
removed by the Board at any time. The Committee will have the authority and
responsibility for the day-to-day administration of the Plan, the authority and
responsibility specifically provided in this Plan and any additional duties,
responsibility and authority delegated to the Committee by the Board, which may
include any of the functions assigned to the Board in this Plan. The Committee
shall have full power and authority to promulgate any rules and regulations
which it deems necessary for the proper administration of the Plan, to interpret
the provisions and supervise the administration of the Plan, and to take all
action in connection with administration of the Plan as it deems necessary or
advisable, consistent with the delegation from the Board. Decisions of the
Board and the Committee shall be final and binding upon all participants. Any
decision reduced to writing and signed by a majority of the members of the
Committee shall be fully effective as if it had been made at a meeting of the
Committee duly held. The Corporation shall pay all expenses incurred in the
administration of the Plan. No Board or Committee member shall be liable for
any action or determination made in good faith with respect to the Plan or any
option granted thereunder.
13. COMMITTEE RULES FOR FOREIGN JURISDICTIONS.
The Committee may adopt rules or procedures relating to the operation and
administration of the Plan in non-United States jurisdictions to accommodate the
specific requirements of local laws and procedures. Without limiting the
generality of the foregoing, the Committee is specifically authorized to adopt
rules and procedures regarding handling of payroll deductions, payment of
interest, conversion of local currency, withholding procedures and handling of
stock certificates which vary with local requirements.
14. SECURITIES LAWS REQUIREMENTS.
The Corporation shall not be under any obligation to issue Common Stock
upon the exercise of any option unless and until the Corporation has determined
that: (i) it and the Participant have taken all actions required to register the
Common Stock under the Securities Act of 1933, or to perfect an exemption from
the registration requirements thereof; (ii) any applicable listing requirement
of any stock exchange on which the Common Stock is listed has been satisfied;
and (iii) all other applicable provisions of state, federal and applicable
foreign law have been satisfied.
-8-
<PAGE>
15. GOVERNMENTAL REGULATIONS.
This Plan and the Corporation's obligation to sell and deliver shares of
its stock under the Plan shall be subject to the approval of any governmental
authority required in connection with the Plan or the authorization, issuance,
sale, or delivery of stock hereunder.
16. NO ENLARGEMENT OF EMPLOYEE RIGHTS.
Nothing contained in this Plan shall be deemed to give any Employee the
right to be retained in the employ of the Corporation or any Designated
Subsidiary or to interfere with the right of the Corporation or Designated
Subsidiary to discharge any Employee at any time.
17. GOVERNING LAW.
This Plan shall be governed by California law.
18. EFFECTIVE DATE.
This Plan shall be effective on the first date in 1997 in which the Common
Stock trades on the NASDAQ System or NASDAQ National Market System, subject to
approval of the shareholders of the Corporation within 12 months of its adoption
by the Board of Directors.
-9-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Place of
Name of Subsidiary Incorporation
- ------------------ -------------
Overland Data (Europe) Limited United Kingdom
Overland Data Export Limited Barbados
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated September 30, 1996,
relating to the financial statements of Overland Data, Inc., which appears in
such Prospectus. We also consent to the reference to us under the headings
"Experts" and "Selected Consolidated Financial Data", respectively, in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Consolidated Financial Data."
PRICE WATERHOUSE LLP
San Diego, California
December 18, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS AT JUNE 30, 1996 AND THE 3 YEARS THEN
ENDED AND THE UNAUDITED FINANCIAL STATEMENTS AT SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1997
<PERIOD-END> JUN-30-1996 SEP-30-1996
<CASH> 19 2
<SECURITIES> 0 0
<RECEIVABLES> 7,226 6,512
<ALLOWANCES> 0 0
<INVENTORY> 8,425 10,319
<CURRENT-ASSETS> 17,362 18,553
<PP&E> 2,128 2,392
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 19,771 21,195
<CURRENT-LIABILITIES> 7,055 6,171
<BONDS> 0 0
5,200 5,200
0 0
<COMMON> 1,896 2,079
<OTHER-SE> 3,962 4,286
<TOTAL-LIABILITY-AND-EQUITY> 19,771 21,195
<SALES> 47,226 12,013
<TOTAL-REVENUES> 47,226 12,013
<CGS> 31,145 7,573
<TOTAL-COSTS> 31,145 7,573
<OTHER-EXPENSES> 12,540 3,847
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (155) (58)
<INCOME-PRETAX> 3,413 541
<INCOME-TAX> 254 217
<INCOME-CONTINUING> 3,159 324
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,159 324
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
