<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 1997
REGISTRATION STATEMENT NO. 333-18583
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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. / /
------------------------
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 JANUARY 13, 1997
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 LibraryXpress 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 LibraryXpress, Top Unit: LXG (to
commence shipment first quarter calendar year 1997), Middle and Bottom
Units: LXB.
4. Bottom left: Color photos of TapeXpress T490E and TapeXpress L490E side by
side. Caption: TapeXpress L490E, TapeXpress T490E.
5. Bottom right: Color photo of TapeXpress L60E cabinet. Caption: TapeXpress
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.............. 9,746,498 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 SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
------------------------------- --------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $ 34,044 $ 38,156 $ 47,226 $ 23,319 $ 27,233
Gross profit.............................................. 11,154 11,115 16,081 7,940 9,812
Income from operations.................................... 587 980 3,541 1,763 2,410
Net income................................................ 137 501 3,159 1,112 1,368
Net income per share(2)...................................
Shares used in computing net income per share(2)..........
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
ACTUAL AS ADJUSTED(3)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $ 28 $
Working capital...................................................................... 13,066
Total assets......................................................................... 23,004
Long-term debt, net of current portion............................................... 3,100
Convertible redeemable preferred stock............................................... 5,200
Shareholders' equity................................................................. 7,415
</TABLE>
- ------------------------
(1) Excludes (i) 805,921 shares of Common Stock issuable pursuant to stock
options outstanding at December 31, 1996 (of which options to purchase
472,431 shares are exercisable) with a weighted average exercise price of
$1.18 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 $6.0 million in the first
half of fiscal year 1996 to $1.8 million in the first half 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 $5.4 million in revenues during the first half 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 $5.8 million in the first half of fiscal year 1997 declined
30.1% from the first half 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 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
6
<PAGE>
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 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. During the first half of fiscal year 1997, the Company's sales to
its top five customers and to DEC
7
<PAGE>
accounted for 34% and 21% of total sales, respectively. 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
half of fiscal year 1997, the Company reported a gross margin of 36% 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 Malaysia, 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, Malaysia 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 and experience of the
Company's personnel, new product introductions and product enhancements.
Nonetheless,
9
<PAGE>
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 $3.1 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,
7,046,498 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 6,098,921 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 $3.1 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 December 31, 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 December 31, 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>
DECEMBER 31, 1996
-------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
<S> <C> <C>
Cash and cash equivalents.............................................................. $ 28 $
--------- -------
--------- -------
Long-term debt, net of current portion................................................. $ 3,100 $
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, 5,209,925 shares issued,
9,746,498 shares issued as adjusted................................................ 2,085
Retained earnings.................................................................... 5,330
--------- -------
Total shareholders' equity......................................................... 7,415
--------- -------
Total capitalization............................................................... $ 15,715 $
--------- -------
--------- -------
</TABLE>
- ------------------------
(1) Excludes (i) 805,921 shares of Common Stock issuable pursuant to stock
options outstanding at December 31, 1996 (of which options to purchase
472,431 shares are exercisable) with a weighted average exercise price of
$1.18 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 December 31, 1996
was $12,446,000, or $1.65 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 December 31, 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............ $ 1.65
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 December 31,
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>
TOTAL
SHARES PURCHASED(1)(2) CONSIDERATION AVERAGE
------------------------- ------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing shareholders............................. 7,546,498 77.4% $ 7,285,000 % $ 0.97
New investors..................................... 2,200,000 22.6
----------- ----- ----------- -----
Total......................................... 9,746,498 100.0% $ 100.0%
----------- ----- ----------- -----
----------- ----- ----------- -----
</TABLE>
- ------------------------
(1) Excludes (i) 805,921 shares of Common Stock issuable pursuant to stock
options outstanding at December 31, 1996 (of which options to purchase
472,431 shares are exercisable) with a weighted average exercise price of
$1.18 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 7,046,498 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 six months ended December 31, 1995 and 1996 and the consolidated balance
sheet data at December 31, 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 six months ended December 31, 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
YEAR ENDED MONTHS YEAR ENDED SIX MONTHS ENDED
AUGUST 31, ENDED JUNE 30, DECEMBER 31,
------------------- JUNE 30, ------------------------------ -------------------
1991 1992 1993(3) 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <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 $ 23,319 $ 27,233
Cost of goods sold........................ 4,344 5,535 7,044 22,890 27,041 31,145 15,379 17,421
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit.............................. 3,660 4,320 4,848 11,154 11,115 16,081 7,940 9,812
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Sales and marketing..................... 1,715 1,674 1,842 4,730 4,891 5,935 2,868 3,558
Research and development................ 852 1,982 1,660 3,402 3,076 3,697 1,908 2,095
General and administrative.............. 1,080 1,328 1,802 2,435 2,168 2,908 1,401 1,749
-------- -------- -------- -------- -------- -------- -------- --------
3,647 4,984 5,304 10,567 10,135 12,540 6,177 7,402
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from operations............. 13 (664) (456) 587 980 3,541 1,763 2,410
Interest income........................... 36 11 24 34 10 1 -- 1
Interest expense.......................... (2) (3) (11) (248) (214) (155) (63) (135)
Other income (expense), net............... 60 110 31 (17) (6) 26 26 5
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes......... 107 (546) (412) 356 770 3,413 1,726 2,281
Provision for income taxes(1)............. -- (60) 72 219 269 254 614 913
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)......................... $ 107 $ (486) $ (484) $ 137 $ 501 $ 3,159 $ 1,112 $ 1,368
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) per share............... $ $ $ $ $ $ $ $
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Shares used in computing net income (loss)
per share(2)............................
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AUGUST 31, JUNE 30,
-------------------- ------------------------------------------ DECEMBER 31,
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 $ 28
Working capital............................... 1,884 2,649 4,063 5,097 6,430 10,307 13,066
Total assets.................................. 3,186 4,280 8,950 14,329 14,453 19,771 23,004
Long-term debt, net of current portion........ -- -- 1,255 747 1,400 1,500 3,100
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 7,415
</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 SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
------------------------------------- ------------------------
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 66.0 64.0
----- ----- ----- ----- -----
Gross profit............................................ 32.8 29.1 34.1 34.0 36.0
----- ----- ----- ----- -----
Operating expenses:
Sales and marketing..................................... 13.9 12.8 12.6 12.3 13.1
Research and development................................ 10.0 8.1 7.8 8.2 7.7
General and administrative.............................. 7.1 5.7 6.2 6.0 6.4
----- ----- ----- ----- -----
31.0 26.6 26.6 26.5 27.2
----- ----- ----- ----- -----
Income from operations.................................. 1.8 2.5 7.5 7.5 8.8
Interest and other, net................................. (0.7) (0.5) (0.3) (0.1) (0.4)
----- ----- ----- ----- -----
Income before income taxes.............................. 1.1 2.0 7.2 7.4 8.4
Provision for income taxes.............................. 0.7 0.7 0.5 2.6 3.4
----- ----- ----- ----- -----
Net income.............................................. 0.4% 1.3% 6.7% 4.8% 5.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
------------------------------------- ------------------------
PRODUCT MIX TABLE 1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Company products:
LibraryXpress........................................... --% --% 2.6% --% 19.6%
36-track................................................ -- 6.1 19.6 14.9 30.6
18-track................................................ 15.6 20.3 15.3 15.0 14.4
9-track................................................. 70.0 48.0 29.4 33.7 21.2
Spare parts, controllers, other......................... 7.8 7.0 10.3 8.6 7.5
Other parts:
DLT distributed products................................ 2.1 17.8 21.5 25.6 6.5
Hewlett-Packard distributed products.................... 4.5 0.8 1.3 2.2 0.2
----- ----- ----- ----- -----
Total..................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO 1995
NET SALES. The Company's net sales of $27.2 million in the first six months
of fiscal year 1997 (the "1997 First Half") grew by $3.9 million or 16.8% over
net sales of $23.3 million in the first six months of fiscal year 1996 (the
"1996 First Half"). This sales growth was attributable primarily to new product
introductions, partially offset by declines in the dollar amount of Quantum DLT
products distributed by the Company as well as declines in 9-track sales. In
March 1996, the Company began shipments of the LXB, the first product in its new
LibraryXpress product line, which contributed sales of $5.4 million in the 1997
First Half. The Company expects this product and follow-on LibraryXpress
products to generate a significant portion of its revenues in fiscal year 1997.
Offsetting this increase, however, there was a $4.2 million decline in sales of
DLT distributed products from $6.0 million in the 1996 First Half to $1.8
million in the 1997 First Half. This decline resulted from the Quantum DLT
products becoming
18
<PAGE>
commodities in the marketplace and the availability of these products 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. Sales of the Company's 36-track products of $8.3 million in the 1997
First Half grew by $4.8 million or 137.1% from $3.5 million in the 1996 First
Half. This growth resulted principally from increased sales of the L490E, mainly
to DEC and IBM, and sales attributable to the introduction of two new 36-track
products, the L60E in November 1995 and the T490E in March 1996. The Company
expects that revenues from its 36-track products will increase as shipments to
IBM are expected to grow in the second half of fiscal year 1997. Sales of
18-track products of $3.9 million in the 1997 First Half grew by 11.4% over $3.5
million in the 1996 First Half. Shipments of 18-track products were constrained
in the fourth quarter of fiscal year 1996 due to a shortage of read-write head
components, which shortage was substantially resolved during the first quarter
of fiscal year 1997. Without the realization of the delayed sales related to
this shortage, 18-track sales in the 1997 First Half would have remained level
in comparison to the prior year. However, the Company expects an upward
migration by its customers during the remainder of fiscal year 1997 from
18-track products to 36-track products which are 18-track compatible. Sales of
9-track products of $5.8 million in the 1997 First Half fell by $2.5 million or
30.1% from $8.3 million in the 1996 First Half. The decline across most of the
9-track products reflected the general maturity of the 9-track technology, a
trend which the Company expects to continue in the foreseeable future. The
Company made end-of-life announcements during the 1997 First Half on certain
9-track products which will reduce 9-track product offerings to four by the end
of the third quarter of fiscal year 1997.
GROSS PROFIT. The Company's gross profit amounted to $9.8 million in the
1997 First Half, compared to $7.9 million in the 1996 First Half, representing
gross margins of 36.0% and 34.0%, respectively. The increased profitability
resulted from higher margins on newly introduced products, principally the LXB
and the reduction in sales of DLT distributed products at substantially lower
margins than the Company's other products. The Company does not believe that
this higher gross margin level will be maintained because of the expected growth
in sales of 36-track products to IBM, generally at lower margins.
SALES AND MARKETING EXPENSES. Sales and marketing expenses amounted to $3.6
million or 13.1% of net sales in the 1997 First Half compared to $2.9 million or
12.3% of sales in the 1996 First Half. 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 $2.1 million or 7.7% of net sales in the 1997 First Half, compared
to $1.9 million or 8.2% of net sales in the 1996 First Half. During fiscal year
1996, development efforts focused on the LXB. In the 1997 First Half, the focus
shifted to the follow-on products in the LibraryXpress product line and to
refinements of the 36-track products which the Company began shipping to IBM in
the second quarter of fiscal year 1997. Expenses were also incurred in the 1996
First Half and the 1997 First Half relating to the development of a completely
new tape recording technology which the Company expects will be the basis for a
new product line. The Company intends to continue this development during the
remainder of fiscal year 1997 and anticipates spending 7% to 8% of net sales on
research and development during such year.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
amounted to $1.7 million or 6.4% of net sales in the 1997 First Half, up from
$1.4 million or 6.0% of sales in the 1996 First Half. This higher level of
expenses in the 1997 First Half resulted from an increase in support personnel,
including an expansion 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 $134,000 in the 1997
First Half and was comprised principally of interest related to borrowings under
the Company's revolving bank line of credit. Average borrowings during the 1997
First Half amounted to $2.9 million. In the 1996 First Half, net
19
<PAGE>
interest expense amounted to $63,000 consisting of $38,000 of interest expense
related to average bank borrowings of $1.0 million and $25,000 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 Half amounted to $913,000 for an effective tax rate of 40%, which
the Company believes to be representative of its normalized effective tax rate.
In the 1996 First Half, the tax provision amounted to $614,000 for an effective
tax rate of 36%.
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
balance of $19,000 at June 30, 1996.
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 growth in revenues and consisted of higher receivable balances,
which grew from $6.3 million at June 30, 1995 to $7.2 million at June 30, 1996,
and higher inventory balances, which grew from $5.4 million to $8.4 million at
such dates, respectively. Deferred tax assets also rose by $1.2 million during
fiscal year 1996. Offsetting these increases in current assets, there was an
increase in accounts payable and accrued liabilities/compensation totaling $2.3
million. The Company's working capital increased further to $13.1 million at
December 31, 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 the bank's
prime rate 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 related credit agreement
prohibits the payment of dividends without prior approval of the lender and
requires the Company to maintain certain financial ratios including working
capital and net worth ratios, all of which the Company has satisfied for the
periods presented. As of December 31, 1996, the Company had outstanding
borrowings thereunder of $3.1 million
22
<PAGE>
and had additional borrowing capacity of $1.9 million. The Company is currently
negotiating, and has received a preliminary commitment for, additional bank
financing of up to $2 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
$2 million during the remainder of fiscal year 1997. As of December 31, 1996,
the Company had outstanding capital commitments of approximately $500,000. 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 FISCAL YEAR 1996 FISCAL YEAR 1997
-------------------------------------- -------------------------------------- ------------------
SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
1994 1994 1994 1995 1995 1995 1996 1996 1996 1996
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $ 8,854 $ 9,169 $ 9,657 $10,476 $11,023 $ 12,296 $10,889 $13,018 $12,013 $ 15,220
Cost of goods sold...... 6,261 6,628 6,947 7,205 7,098 8,281 7,254 8,512 7,573 9,848
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit............ 2,593 2,541 2,710 3,271 3,925 4,015 3,635 4,506 4,440 5,372
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Other expenses:
Sales and marketing... 1,205 1,407 1,112 1,167 1,439 1,429 1,542 1,525 1,780 1,778
Research and
development......... 776 779 671 850 977 931 858 931 1,116 979
General and
administrative...... 518 573 484 593 750 651 742 765 951 798
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
2,499 2,759 2,267 2,610 3,166 3,011 3,142 3,221 3,847 3,555
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations............ 94 (218) 443 661 759 1,004 493 1,285 593 1,817
Interest, net........... (54) (60) (49) (41) (29) (32) (38) (55) (57) (77)
Other income (expense),
net................... (20) 1 21 (8) 14 10 (6) 8 5 --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes.......... 20 (277) 415 612 744 982 449 1,238 541 1,740
Provision for income
taxes................. 12 (94) 141 210 272 342 165 (525) 217 696
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 8 $ (183) $ 274 $ 402 $ 472 $ 640 $ 284 $ 1,763 $ 324 $ 1,044
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
23
<PAGE>
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.
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
half of fiscal year 1997, the Company reported a gross margin of 36% 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 (for the five-year period ended June 30, 1996) 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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<PAGE>
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 4.5/9.0 GB/hr 150 GB N,W,M
LXB-4110/4210 DLT 1 to 2 10 5.4/10.8 GB/hr 200 GB N,W,M
18.0/36.0
LXB-7110/7210(4) DLT 1 to 2 10 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 2.0 GB P,W,M,AS
L490E 36-track 1 10 10.8 GB/hr 8.0 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 0.046 GB P,W
3610 9-track 1 1 1.3 GB/hr 0.18 GB P,W
5622 9-track 1 1 1.3 GB/hr 0.18 GB P,W,M
995 9-track 1 1 2.2 GB/hr 0.18 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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<PAGE>
(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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<PAGE>
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 FISCAL HALF
JUNE 30, ENDED
---------------------------------- DEC. 31,
CHANNEL 1994 1995 1996 1996
- ------------------------------------------------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
OEM.................................................. 36.5% 25.6% 26.1% 26.7%
Volume............................................... 18.6 26.2 19.1 18.2
Resellers............................................ 15.5 17.7 18.9 15.6
End-Users............................................ 12.5 10.2 8.9 10.4
International........................................ 16.9 20.3 27.0 29.1
----- ----- ----- -----
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, and 21% of sales in the
first half of fiscal year 1997. 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
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<PAGE>
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 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
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<PAGE>
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.
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 35 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 D.
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
33
<PAGE>
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.
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 spent 7.7% of net sales on
research and development in the first half of fiscal year 1997 and intends to
spend 7.0% to 8.0% of net sales in the remainder of 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
34
<PAGE>
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 $2.2
million and $3.8 million at December 31, 1995 and 1996, respectively.
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.
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<PAGE>
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 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 197 employees (full-time equivalent) as of December 31,
1996, including 44 in sales and marketing, 35 in research and development, 93 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. Otterson(1) 66 Director
Joseph D. Rizzi(1) 54 Director
John A. Shane(1) 63 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, Services and Cost Improvement Programs for Archive Corporation, a
tape drive manufacturer. He holds a
37
<PAGE>
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.
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.
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.
38
<PAGE>
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 December 31, 1996, there were outstanding options under the 1995 Plan to
purchase an aggregate of 25,000 shares of Common Stock at an exercise price of
$3.66. The 1995 Plan will expire in 2005 unless terminated at an earlier date by
action of the Board of Directors. At December 31, 1996, there were outstanding
options under other stock option plans, which were previously terminated by the
Company, to purchase an aggregate of 780,921 shares of Common Stock at a
weighted average exercise price of $1.10.
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. 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 six months ended December 31, 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 December 31, 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 Technology, 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 10.81%
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)................................ 467,626 6.18% -- 467,626 4.79%
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(7)............................... 61,600 * -- 61,600 *
Vernon A. LoForti(8).............................. 13,037 * -- 13,037 *
All current directors and officers as a group (10
persons)(9)..................................... 6,074,411 79.18% 484,100 5,590,311 56.63%
Other Selling Shareholders:
Barbara Bry(10)................................. 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 December 31, 1996.
(2) Includes 22,800 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days of December 31, 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 December 31, 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 December 31, 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 December 31, 1996.
(7) Includes 4,000, 3,000 and 3,000 shares of Common Stock held by Amanda L.
Scroop, Catherine E. Scroop and Christopher D. Scroop, respectively, and
32,500 shares issuable pursuant to stock options exercisable within 60 days
of December 31, 1996.
(8) Includes 13,037 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days of December 31, 1996.
(9) Includes 126,104 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days of December 31, 1996.
(10) 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 December 31, 1996, 5,209,925
shares of Common Stock were issued and outstanding and were held of record by 94
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 December 31, 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 9,746,498 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 7,046,498 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 (97,465 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
6,098,921 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 SIX MONTHS ENDED DECEMBER 31, 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 December 31,
1996.................................................................... F-3
Consolidated Statement of Operations for the Fiscal Years Ended June 30,
1994, 1995 and 1996 and the Six Months Ended December 31, 1995 and
1996.................................................................... F-4
Consolidated Statement of Shareholders' Equity for the Fiscal Years Ended
June 30, 1994, 1995 and 1996 and the Six Months Ended December 31,
1996.................................................................... F-5
Consolidated Statement of Cash Flows for the Fiscal Years Ended June 30,
1994, 1995 and 1996 and the Six Months Ended December 31, 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
------------------------ DECEMBER 31, 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 $ 28,000
Accounts receivable, less allowance for doubtful
accounts and returns of $446,000, $624,000 and
$719,000, respectively............................... 6,300,000 7,226,000 8,706,000
Inventories............................................ 5,356,000 8,425,000 9,971,000
Deferred income taxes.................................. 135,000 1,328,000 1,328,000
Other current assets................................... 86,000 364,000 182,000
----------- ----------- -------------
Total current assets............................... 11,978,000 17,362,000 20,215,000
Property and equipment, net.............................. 2,062,000 2,128,000 2,569,000
Deferred income taxes.................................... -- 5,000 5,000
Intangible and other assets.............................. 413,000 276,000 215,000
----------- ----------- -------------
$14,453,000 $19,771,000 $23,004,000
----------- ----------- -------------
----------- ----------- -------------
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 2,983,000 $ 4,433,000 $ 4,488,000
Accrued liabilities.................................... 1,038,000 1,493,000 1,934,000
Accrued payroll and employee compensation.............. 780,000 1,129,000 727,000
Current portion of long-term debt...................... 747,000 -- --
----------- ----------- -------------
Total current liabilities.......................... 5,548,000 7,055,000 7,149,000
Long-term debt, net of current portion................... 1,400,000 1,500,000 3,100,000
Deferred income taxes.................................... 39,000 -- --
Other liabilities........................................ 132,000 158,000 140,000
----------- ----------- -------------
Total liabilities.................................. 7,119,000 8,713,000 10,389,000
----------- ----------- -------------
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 5,209,925
shares issued and outstanding actual, respectively;
7,546,498 shares outstanding pro forma (unaudited)... 964,000 1,896,000 2,085,000 $ 7,285,000
Retained earnings...................................... 803,000 3,962,000 5,330,000 5,330,000
----------- ----------- ------------- -------------
Total shareholders' equity......................... 1,767,000 5,858,000 7,415,000 $12,615,000
----------- ----------- ------------- -------------
-------------
$14,453,000 $19,771,000 $23,004,000
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
OVERLAND DATA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, SIX MONTHS ENDED
--------------------------------------------- DECEMBER 31,
1994 1995 1996 -----------------------------
------------- ------------- ------------- 1995 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.............................. $ 34,044,000 $ 38,156,000 $ 47,226,000 $ 23,319,000 $ 27,233,000
Cost of goods sold..................... 22,890,000 27,041,000 31,145,000 15,379,000 17,421,000
------------- ------------- ------------- ------------- -------------
Gross profit......................... 11,154,000 11,115,000 16,081,000 7,940,000 9,812,000
Operating expenses:
Sales and marketing.................. 4,730,000 4,891,000 5,935,000 2,868,000 3,558,000
Research and development............. 3,402,000 3,076,000 3,697,000 1,908,000 2,095,000
General and administrative........... 2,435,000 2,168,000 2,908,000 1,401,000 1,749,000
------------- ------------- ------------- ------------- -------------
10,567,000 10,135,000 12,540,000 6,177,000 7,402,000
------------- ------------- ------------- ------------- -------------
Income from operations............... 587,000 980,000 3,541,000 1,763,000 2,410,000
Other income (expense):
Interest income...................... 34,000 10,000 1,000 -- 1,000
Interest expense..................... (248,000) (214,000) (155,000) (63,000) (135,000)
Other income (expense), net.......... (17,000) (6,000) 26,000 26,000 5,000
------------- ------------- ------------- ------------- -------------
Income before income taxes............. 356,000 770,000 3,413,000 1,726,000 2,281,000
Provision for income taxes............. 219,000 269,000 254,000 614,000 913,000
------------- ------------- ------------- ------------- -------------
Net income............................. $ 137,000 $ 501,000 $ 3,159,000 $ 1,112,000 $ 1,368,000
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
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)........ 116,900 97,000 97,000
Issuance of common stock (unaudited)......... 30,700 92,000 92,000
Net income (unaudited)....................... 1,368,000 1,368,000
------------- ------------- ------------- -------------
Balance at December 31, 1996 (unaudited)....... 5,209,925 $ 2,085,000 $ 5,330,000 $ 7,415,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</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, SIX MONTHS ENDED
--------------------------------------------- DECEMBER 31,
1994 1995 1996 -----------------------------
------------- ------------- ------------- 1995 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income........................... $ 137,000 $ 501,000 $ 3,159,000 $ 1,112,000 $ 1,368,000
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.... 607,000 725,000 862,000 389,000 491,000
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) 8,000 (1,480,000)
Inventories.................. 1,108,000 309,000 (3,069,000) (778,000) (1,546,000)
Other assets................. (33,000) 77,000 (278,000) (436,000) 182,000
Accounts payable and accrued
liabilities................ 2,519,000 296,000 1,931,000 626,000 546,000
Accrued payroll and employee
compensation............... 171,000 28,000 349,000 81,000 (402,000)
------------- ------------- ------------- ------------- -------------
Net cash provided by
(used in) operating
activities............. 2,843,000 187,000 841,000 1,002,000 (841,000)
------------- ------------- ------------- ------------- -------------
Investing activities:
Capital expenditures................. (809,000) (670,000) (841,000) (339,000) (871,000)
Proceeds from sale of property and
equipment.......................... 7,000 -- -- -- --
------------- ------------- ------------- ------------- -------------
Net cash used in investing
activities................... (802,000) (670,000) (841,000) (339,000) (871,000)
------------- ------------- ------------- ------------- -------------
Financing activities:
Principal payments on notes
payable............................ (1,494,000) (1,494,000) (747,000) -- --
Proceeds from issuance of common
stock.............................. -- 16,000 345,000 344,000 92,000
Proceeds from exercise of stock
options............................ 6,000 30,000 220,000 9,000 29,000
Net proceeds (payments) under bank
line of credit..................... 700,000 700,000 100,000 (947,000) 1,600,000
------------- ------------- ------------- ------------- -------------
Net cash (used in) provided by
financing activities......... (788,000) (748,000) (82,000) (594,000) 1,721,000
------------- ------------- ------------- ------------- -------------
Net (decrease) increase in cash and
cash equivalents..................... 1,253,000 (1,231,000) (82,000) 69,000 9,000
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 $ 170,000 $ 28,000
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
F-6
<PAGE>
OVERLAND DATA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, SIX MONTHS ENDED
--------------------------------------------- DECEMBER 31,
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 $ 648,000 $ 736,000
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Cash paid for interest............. $ 237,000 $ 215,000 $ 155,000 $ 63,000 $ 138,000
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
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 December 31, 1996 and the related statements
of operations and of cash flows for the six months ended December 31, 1995 and
1996, and the statement of shareholders' equity for the six months ended
December 31, 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 December 31, 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,
----------------------------- DEC. 31,
1995 1996 1996
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Inventories:
Raw materials....................................... $ 2,970,000 $ 5,167,000 $ 5,825,000
Work in process..................................... 692,000 1,816,000 2,185,000
Finished goods...................................... 1,694,000 1,442,000 1,961,000
------------- ------------- -------------
$ 5,356,000 $ 8,425,000 $ 9,971,000
------------- ------------- -------------
------------- ------------- -------------
Property and equipment:
Machinery and equipment............................. $ 2,076,000 $ 2,433,000 $ 2,549,000
Computer equipment.................................. 1,039,000 1,141,000 1,585,000
Furniture and fixtures.............................. 115,000 165,000 210,000
Leasehold improvements.............................. 202,000 429,000 695,000
------------- ------------- -------------
3,432,000 4,168,000 5,039,000
Less accumulated depreciation and amortization........ (1,370,000) (2,040,000) (2,470,000)
------------- ------------- -------------
$ 2,062,000 $ 2,128,000 $ 2,569,000
------------- ------------- -------------
------------- ------------- -------------
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,
----------------------------- DEC. 31,
1995 1996 1996
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Bank line of credit......................................... $ 1,400,000 $ 1,500,000 $ 3,100,000
Subordinated installment note payable to Archive Corporation
(Note 2).................................................. 747,000 -- --
------------- ------------- -------------
2,147,000 1,500,000 3,100,000
Less current portion........................................ (747,000) -- --
------------- ------------- -------------
$ 1,400,000 $ 1,500,000 $ 3,100,000
------------- ------------- -------------
------------- ------------- -------------
</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)........................................ 91,000 3.00 - 4.50
Options exercised (unaudited)...................................... (116,900) .20 - 2.00
Options canceled (unaudited)....................................... (16,775) 1.20 - 2.00
------------- -------------
Options outstanding at December 31, 1996 (unaudited)................. 805,921 $ .12 - 4.50
------------- -------------
------------- -------------
</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>
YEAR ENDING MINIMUM 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 center: Company logo and name.
3. Middle left: Color photo of management team. No caption.
4. Middle right: Color photo of quality assurance person at test station. No
caption.
5. Center: Color photo of end-user performing network backup. No caption.
6. Bottom left: Color photo of manufacturing employee on production line. No
caption.
7. Bottom right: Color photo of engineering personnel performing design work.
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 January 1994, the Registrant has sold and issued the following
securities without registration under the Securities Act:
During the period from January 1994 to January 1997, 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 579,250 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 $745,177.
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 Amended and Restated Articles of Incorporation.
3.3** -- Registrant's Bylaws.
4.1 -- Reference is made to Exhibits 3.1, 3.2 and 3.3.
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 has applied for confidential treatment of portions of this
exhibit.
** Previously filed.
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 13th of January, 1997.
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 indicated on January 13, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------------- ------------------------------
<C> <S> <C>
/s/ SCOTT MCCLENDON President, Chief Executive
---------------------------------------- Officer and Director
Scott McClendon
* Vice President, Secretary and
---------------------------------------- Director
Martin D. Gray
/s/ VERNON A. LOFORTI Vice President, Chief
---------------------------------------- Financial Officer and
Vernon A. LoForti Assistant Secretary
*
---------------------------------------- Director
William W. Otterson
*
---------------------------------------- Director
Joseph D. Rizzi
*
---------------------------------------- Director
John A. Shane
*By /S/ SCOTT MCCLENDON
------------------------------------
Scott McClendon, Attorney-in-fact
</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 Amended and Restated Articles of Incorporation.
3.3** -- Registrant's Bylaws.
4.1 -- Reference is made to Exhibits 3.1, 3.2 and 3.3.
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 has applied for confidential treatment of portions of this
exhibit.
** Previously filed.
<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
January 13, 1997
