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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED: JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 0-22071
OVERLAND DATA, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3535285 (State or other jurisdiction of
incorporation) (IRS Employer Identification No.)
8975 Balboa Avenue, San Diego, California 92123-1599
(Address of principal executive offices, including zip code)
(619) 571-5555
(Registrant's telephone number, including area code)
---------------------------
Securities registered pursuant to Section 12(b)of the Act:
None
Securities registered pursuant to Section 12(g)of the Act:
Common Stock, no Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 15, 1998 was $34,924,000 based on the closing price
reported on such date by the NASDAQ National Market System. Shares of Common
Stock held by officers and directors and by persons who hold 5% or more of the
outstanding Common Stock have been excluded from the calculation of this amount
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily conclusive.
As of June 30, 1998, the number of outstanding shares of the registrant's Common
Stock was 10,550,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed in connection with registrant's
Annual Meeting of Shareholders to be held on November 12, 1998 (the "Proxy
Statement") are incorporated herein by reference into Part III of this Report.
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PART I
THIS REPORT CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE PERFORMANCE OF THE COMPANY. PROSPECTIVE
INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS AND THAT
ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS,
PROSPECTIVE INVESTORS SHOULD SPECIFICALLY CONSIDER VARIOUS FACTORS IDENTIFIED IN
THIS REPORT, INCLUDING THE MATTERS SET FORTH BELOW UNDER THE CAPTION "RISK
FACTORS," WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.
ITEM 1. BUSINESS
Overland Data, Inc. (herein "Overland Data", "Overland" or the
"Company") designs, develops, manufactures, markets and supports magnetic tape
data storage systems used by businesses for backup, archival and data
interchange functions with mini-computers, workstations, PC/LAN (Microsoft
Windows NT and Novell Netware) and UNIX client/server networks, and personal
computers. The Company's primary products, automated tape libraries, combine
electro-mechanical robotics, electronic hardware and firmware which are
developed by the Company with an emphasis on efficiency of design, functionality
and reliability. The Company offers three product lines which are all based on
one-half inch, linear magnetic tape technologies and, with the exception of the
tape drives in its LibraryXpress product line, are designed and manufactured
in-house. It also distributes products manufactured by other original equipment
manufacturers ("OEM's") 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. The Company also licenses a proprietary tape
encoding technology which it developed and patented under the name Variable Rate
Randomizer or "VR2".
PRODUCTS
The Company produces tape drives, tape loaders and automated tape
libraries based on removable tape technologies. It currently provides turnkey
data storage solutions to 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/loader 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 Company's VR2
encoding technology is licensed to tape drive manufacturers to enable them to
significantly improve drive performance.
- - LIBRARYXPRESS - The LibraryXpress product line of automated tape
libraries is based on DLT technology and tape drives supplied by Quantum
Corporation. In March 1996, the Company commenced shipment of the LXB
base unit, which consists of one or two DLT drives and a ten-cartridge
removable magazine. In March 1997, the Company commenced shipment of (i)
the LXG global control module which provides an additional 16-cartridge
magazine, library control from a single point and the ability to
modularly stack up to eight LXB or LXC capacity modules, and (ii) the
LXC capacity module which consists of a 16-cartridge magazine and no
drives. The LXG enables 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 LXB investment. In May
1997, the Company began shipping the LXS MiniLibrary, a single-drive,
15-cartridge, non-scalable version of the LibraryXpress to serve the
lower end of the network market. In February 1998, the Company commenced
shipment of the LoaderXpress, a single-drive DLT tape loader which
offers a five or ten cartridge magazine, designed for the commercial
distribution channel. The Company currently offers the LXB, the LXS Mini
Library, and the LoaderXpress with DLT4000 or DLT7000 tape drives.
- - TAPEXPRESS - The TapeXpress product line of 18/36-track drives and loaders
is based on IBM's 3480/3490/3490E technologies. The Company's single-drive,
single-cartridge T490E and its one-drive, ten-cartridge L490E MiniLibrary
are compatible with the 36-track IBM 3490E format, are used extensively on
AS400 and RS6000 minicomputers, and are the first 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. During fiscal year 1997, IBM selected
the Company to be its supplier of 36-track products. During fiscal year
1998, the Company announced end-of-life on all of its 18-track products and
its L60E 36-track data vault.
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- - TAPEPRO - The TapePro product line consists of compact, lightweight and
low-cost desktop tape drives, and a legacy tape drive sold primarily to
Digital Equipment Corporation/Compaq ("DEC/CPQ") 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 available 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.
- - Variable Rate Randomizer - In December 1997, the Company introduced its VR2
encoding technology, an implementation based on Partial Response Maximum
Likelihood ("PRML"). The technology, which can be embedded in an ASIC chip,
is capable of producing up to two times the native capacity and native data
transfer rate performance of existing linear tape technologies without
requiring any changes in tape path design, recording heads, and/or media.
This performance is accomplished by achieving encoding efficiency of
greater than 99%. In April 1998, the Company licensed VR2 to Tandberg Data
ASA for use in their Scaleable-Channel Linear Recording ("SLR") tape
drives. The Company plans to license VR2 to other customers.
The Company's drives, loaders and libraries are 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 80 different software packages support the
Company's products. For instance, 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.
SALES AND MARKETING
The Company sells its products primarily through three channels: (i)
original equipment manufacturers ("OEMs"), (ii) commercial distributors, and
(iii) volume, consisting of systems integrators, technical distributors and
value added resellers ("VARs"). Overland's products are sold both domestically
and internationally. 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 non-OEM customers, who 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 validating its products in the marketplace and achieving desirable production
volume.
- - OEM CHANNEL - The Company currently has supply agreements with DEC (now
part of Compaq Computer Corporation and hereafter referred to as DEC/CPQ),
IBM, Siemens Nixdorf Informationssysteme AG, Groupe Bull S.A., Intergraph
Corporation, NCR Corporation and Symbios Logic, Inc., all of which
incorporate Overland's products into their system offerings. Although DEC
had been an OEM customer of the Company since 1993, the relationship was
expanded twice during fiscal year 1998. In July 1997, DEC added the
Company's 36-track products to its offerings and in September 1997, added
the LibraryXpress. 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/CPQ has
been the Company's largest customer, accounting for approximately 25%, 14%
and 23% of sales in fiscal years 1998, 1997 and 1996, respectively.
Shipments to IBM, who became a customer during fiscal year 1997, accounted
for 15% and 10% of sales in fiscal years 1998 and 1997, respectively. No
other customer accounted for more than 10% of sales in any year during the
three-year period. The Company supports this channel through a field sales
office and other Company field representatives.
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- - COMMERCIAL DISTRIBUTION CHANNEL - In April 1998 the Company signed
distribution agreements with two commercial distribution customers: Bell
Microproducts and Tech Data Corp. Both distributors will sell the Company's
DLT LibraryXpress products to resellers nationwide. Tech Data is the
preferred master distributor for Overland in Latin America. The agreements
include provisions for stock rotation and price protection, common terms in
the commercial distribution area. To guard against exposure to returned
product or price adjustments, the Company does not record revenue in this
channel until the related inventory is sold by the distributor.
- - 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 or medical industries, and
offer a variety of value-added services relating to the Company's products.
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
bundle its products 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.
- - INTERNATIONAL BUSINESS - The Company has a wholly-owned subsidiary located
in Wokingham, England which provides sales, technical support, repair and
manufacturing integration for the European marketplace, and a sales office
in Paris, France. 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. 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. Export sales by the Company, principally
in Europe, for the years ended June 30, 1998, 1997 and 1996 were
approximately $20,175,000, $14,391,000 and $12,775,000, respectively.
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. Overland participates in
national and regional trade shows both domestically and internationally
including displaying 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 marketing information,
product specifications, news releases and application, service and technical
support notes and investor relations information.
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CUSTOMER SERVICE AND SUPPORT
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 three-year (two years for
non-LibraryXpress products) return-to-factory policy which covers both parts and
labor. For products that it distributes and for drives and tapes used in the
Company's products that are manufactured by a third party, the Company passes on
to the customer the warranty provided by the manufacturer. The Company also
offers on-site service for certain of its products, including 24-hour service,
seven days a week, for which it contracts with third-party service providers.
In addition, the Company has instituted the Guaranteed Up Time Service
(GUTS(TM)) program for its LibraryXpress products. The guarantee has two
features. First, the end-user customer will receive an additional year of return
to factory warranty if the customer experiences more than 1% down-time during
any one year period. Second, all data written to tape using a covered Overland
product will be recoverable or the customer can return the product for a full
refund.
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
category. The Company currently participates in three market areas which are
defined by different tape technologies: (i) network data storage; (ii) data
backup and interchange based on IBM compatible 3480/3490 technology; and (iii)
data interchange based on 9-track reel-to-reel technology. In each of these
areas, many of the Company's competitors have substantially greater financial
and other resources, larger research and development staffs, and more experience
and capabilities in manufacturing, marketing and distributing products than the
Company. For network data storage, the LibraryXpress products currently compete
with products made by Advanced Digital Information Corporation ("ADIC"), ATL
Products, Inc. ("ATL") (now part of Quantum), 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 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.
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RESEARCH AND DEVELOPMENT
The Company currently employs 35 people in its research and development
("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 Data Products, Archive Corporation and Conner
Peripherals, Inc., and have developed significant expertise in electrical,
mechanical and firmware design. Martin D. Gray, the Company's co-founder and
Chief Technical Officer, formerly served as Manager of R&D at Cipher, has over
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 department is capable of developing both tape
drives and robotic mechanisms, including the development of various aspects
of data channels, data compression, intelligent interfaces and firmware
(embedded systems software). This includes the ability to develop and test a
tape path, which is the core of any tape technology. Overland believes that
these capabilities distinguish the Company from its competitors by providing
it with a better understanding of tape technologies in general and enabling
the Company to provide higher value-added content by designing reliable
products that better utilize the advantages of specific technologies.
Current R&D efforts are focused on the joint development with Tandberg
Data to implement the Company's new VR2 tape encoding technology on Tandberg's
SLR tape drives. Other projects include the development of automated tape
libraries using other tape technologies, new software and hardware solutions to
enhance the value of the Company's products and enhancements to certain of its
36-track products to increase their speed and performance. The Company's R&D
expenditures amounted to $4.1 million, $4.1 million and $3.7 million in fiscal
years 1998, 1997 and 1996, respectively, representing 5.4%, 7.0% and 7.8% of net
sales, respectively. The Company intends to spend between 5% and 6% of sales on
R&D on a sustained basis. 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.
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 its 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 performs 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 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.
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 are coordinated closely
with suppliers and customers to match the Company's production to market demand.
The Company receives rolling 90-day forecasts from its major OEM customers and
monitors inventory levels at those customers on a weekly basis. Product orders
from other channel customers are confirmed and, in most cases, shipped to the
customer within two weeks. During fiscal year 1998, the Company's OEM sales
grew significantly and, as a result, backlog became a more important factor to
its overall business. At June 30, 1998, backlog amounted to $10.3 million,
which is expected to be filled in the fiscal quarter ending September 30, 1998.
In its current facility, the Company believes that it has the capacity
to support unit output several times greater than its current run rate. The
Company currently uses a single shift which is capable of greater production
levels, and could expand further by adding multiple shifts or moving to a
full-time factory. Staffing levels are carefully controlled and adjusted to meet
the requirements at any specific time.
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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 foregoing, 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. In addition, there can be no assurance that any patents held by, or
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.
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 233 employees as of June 30, 1998, including 50 in
sales and marketing, 35 in research and development, 116 in manufacturing and
operations and 32 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.
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RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. THIS
REPORT CONTAINS FORWARD-LOOKING STATEMENTS, THE ACCURACY OF WHICH IS SUBJECT TO
MANY RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THE
FOLLOWING RISK FACTORS, WHICH SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE
COMPANY AND ITS BUSINESS..
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. Certain products within the line, such as the LoaderXpress, are
relatively new and have not yet achieved widespread market acceptance.
LibraryXpress is facing increasing competition both from competitive automated
tape library products, and can be expected to face competition from 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"). From time to time, Quantum customers such as
the Company (and its competitors) have been unable to obtain as many DLT tape
drives as needed due to drive shortages or quality issues. 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
products based on its new VR2 tape coding technique, 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.
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 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 products currently compete
with products made by ADIC, ATL, Breece Hill, Hewlett-Packard, Quantum and
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 line of
36-track products, which the Company believes compete primarily with products
made by Fujitsu, 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.
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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. Although Quantum announced on September 9, 1998 that it
had signed an agreement with Tandberg Data to become a second source
manufacturer of DLT tape drives within a year, currently, there are no
alternative sources for DLT drives. 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 fiscal 1997 and in the first quarter
of fiscal 1998, the Company experienced problems with the supply of DLT7000
drives and such problems adversely affected the Company's sales and earnings.
While the Company believes that these problems relating to the supply of DLT7000
drives have been solved by Quantum, 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 with the DLT7000 drive or any future
DLT drive version.
FLUCTUATION 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 channel, the
first fiscal quarter (July through September) has been 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, the supply of DLT
drives, as well as other factors discussed herein. In particular, the Company's
ability to forecast sales to distributors, integrators and VARs 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. 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, 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. 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.
9
<PAGE>
RISKS RELATED TO FOREIGN SOURCING AND FOREIGN SALES
Because certain 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, either positive or
negative. The Company's international procurement is also subject to certain
other risks common to foreign operations in general, including government
regulation and import restrictions. However, during fiscal year 1998, only
approximately 4% of the Company's cost of goods sold consisted of materials
purchased from suppliers in Singapore and Malaysia. 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.
Direct international sales accounted for 27% of sales in fiscal year
1998, and the Company expects that international sales will continue to grow and
represent an even greater proportion of the Company's revenues in the future.
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, as well as 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.
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 will also 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.
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, 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 competitors 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.
10
<PAGE>
RISKS ASSOCIATED WITH POSSIBLE MERGERS AND ACQUISITIONS
The Company may in the future pursue mergers and acquisitions of
complementary businesses, products or technologies as it seeks to expand and
increase the value-added component of its product offerings. Mergers and
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 mergers and
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 three-year (two years for
non-LibraryXpress products), return-to-factory warranty on its products. For
certain products, it provides or offers for sale a two-year on-site warranty
which is supplied by a third party service provider. The Company pays the
negotiated price of the contract to the service provider in advance 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.
ITEM 2. PROPERTIES
The Company leases all facilities used in its business. Its
headquarters are located in San Diego, California in a 3-building light
industrial complex comprising approximately 121,000 square feet. The lease
expires in August 2002. The San Diego facility houses all of the Company's
research and development and administrative functions as well as a major portion
of manufacturing, sales, sales administration, marketing and customer support.
The Company also leases a small facility located in Wokingham, England which
houses some light manufacturing, sales, sales administration and customer
support for the European marketplace, and a small sales office located in Paris,
France to service Southern European customers. 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.
ITEM 3. LEGAL PROCEEDINGS
The Company, its directors and certain of its officers were named as
defendants in two putative class action lawsuits filed on April 21, 1997 and May
2, 1997 in the U.S. District Court for the Southern District of California. In
both cases, the plaintiffs purported to represent a class of all persons who
purchased the Company's Common Stock between February 21, 1997 and March 14,
1997. The complaints alleged that the defendants violated various federal
securities laws through material misrepresentation and omissions in connection
with the Company's initial public offering and its registration statement on
Form S-1 which was declared effective by the Securities and Exchange Commission
on February 21, 1997. The suits seek rescission of their share purchases or
rescissory damages if their shares have been sold, as well as attorneys' fees
and other costs and expenses.
On September 16, 1997, the Court entered an Order permitting the
voluntary dismissal of the first-filed lawsuit without prejudice and the
plaintiff in the second lawsuit was appointed as the Lead Plaintiff in this
litigation. That person now has resigned as the Lead Plaintiff, and the
shareholder who had filed the first of the two lawsuits has petitioned the Court
for permission to intervene and serve as the Lead Plaintiff. That application is
pending.
The defendants have answered the second complaint, have denied the
material allegations and have disavowed any wrongdoing. The litigation currently
is in the discovery phase, and trial has been scheduled for Summer of 1999.
Although the outcome of the lawsuit cannot be determined, management believes it
has meritorious defenses and intends to defend against the lawsuit vigorously.
The Company maintains directors' and officers' liability insurance to provide
coverage against suits of this nature, and other than legal fees incurred to
date, no amounts have been recorded in the financial statements for any losses
which may result from this litigation.
11
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock commenced trading on the Nasdaq National
Market under the symbol "OVRL" on February 21, 1997, the effective date of its
initial public offering. As of September 11, 1998, there were approximately 112
shareholders of record. The Company has not paid any dividends on its Common
Stock and does not anticipate paying any dividends in the foreseeable future.
The high and low closing prices of Overland Data Common Stock from June 1, 1997
through June 30, 1998 were as follows:
PRICE RANGE OF COMMON STOCK:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1998:
First quarter $7.88 $5.38
Second quarter 8.44 4.88
Third quarter 6.41 5.00
Fourth quarter 6.31 4.75
Fiscal 1997:
Third quarter 13.00 4.75
Fourth quarter 7.00 4.75
</TABLE>
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from the audited
consolidated financial statements of the Company and the notes thereto. This
information should be read in conjunction with Item 7 of this Report -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and with the consolidated financial statements of the Company and
the related notes thereto set forth at the pages indicated in Item 14(a)(1).
<TABLE>
<CAPTION>
AT OR FOR YEARS ENDED JUNE 30,
------------------------------------------------------
1998 1997 1996 1995 1994
---------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $ 75,164 $59,146 $47,226 $38,156 $34,044
Gross profit 23,199 20,371 16,081 11,115 11,154
Income from operations 3,640 4,736 3,541 980 587
Income before income taxes 4,543 4,987 3,413 770 356
Net income (1) 2,792 3,100 3,159 501 137
Net income per share (2):
Basic .27 .44 .71 .13 .04
Diluted .25 .33 .41 .07 .02
BALANCE SHEET DATA
Cash and cash equivalents $ 15,550 $18,926 $ 19 $ 101 $ 1,332
Working capital 39,498 36,733 10,307 6,430 5,097
Total assets 53,996 48,260 19,771 14,453 14,329
Long-term debt,
net of current portion -- -- 1,500 1,400 747
Convertible redeemable
preferred stock -- -- 5,200 5,567 5,879
Shareholders' equity 43,368 40,317 5,858 1,767 900
</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 $.13 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 $.28, respectively.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of shares used in computing net income per share.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THIS REPORT CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE PERFORMANCE OF THE COMPANY. PROSPECTIVE
INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS AND THAT
ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS,
PROSPECTIVE INVESTORS SHOULD SPECIFICALLY CONSIDER VARIOUS FACTORS IDENTIFIED IN
THIS REPORT, INCLUDING THE MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS,"
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY
SUCH FORWARD-LOOKING STATEMENTS.
GENERAL
Overland Data designs, develops, manufactures, markets and supports
magnetic tape data storage systems used by businesses for backup, archival and
data interchange functions. The Company's primary products are currently based
on three different half-inch magnetic tape technologies: (i) DLT, (ii) 18 &
36-track and (iii) 9-track. In March 1996, the Company introduced the
LibraryXpress, a scaleable automated tape library system incorporating DLT tape
drives, and began shipping the LXB base module. In the second half of fiscal
1997, the Company introduced two additional modules: the LXG global control unit
and the LXC capacity module. In May 1997, the LXS MiniLibrary, a single-drive,
non-scalable version of the LibraryXpress, was introduced to serve the lower end
of the network market. In February 1998, the Company commenced shipment of the
LoaderXpress, a single-drive DLT tape loader which offers a five or ten
cartridge magazine, designed for the commercial distribution channel. The
Company's second product line, TapeXpress, consists of 18 and 36-track products
based on the IBM 3480/3490/3490E technologies. During fiscal year 1998, the
Company announced end-of-life on all of its 18-track products and its L60E
36-track data vault. Its third product line, TapePro, consists of 9-track
reel-to-reel tape drives which are used exclusively for data interchange. The
Company also distributes products manufactured by other OEM's and markets other
items supplied by third parties including controller cards, interchange
software, storage management software, spare parts and tape media. Finally, the
Company licenses a new proprietary tape encoding technology which it developed
and patented under the name Variable Rate Randomizer or "VR2". One license
agreement was announced during fiscal year 1998; however, because the licensee
has not completed the development project which uses VR2, no royalty revenues
have yet been received.
14
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth certain data as a percentage of net
sales:
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 69.2 65.6 65.9
----- ----- -----
Gross profit 30.8 34.4 34.1
----- ----- -----
Operating expenses:
Sales and marketing 12.2 12.3 12.6
Research and development 5.5 7.0 7.8
General and administrative 8.3 7.1 6.2
----- ----- -----
26.0 26.4 26.6
----- ----- -----
Income from operations 4.8 8.0 7.5
Interest and other, net 1.3 .4 (.3)
----- ----- -----
Income before income taxes 6.1 8.4 7.2
Provision for income taxes 2.4 3.2 .5
----- ----- -----
Net income 3.7% 5.2% 6.7%
----- ----- -----
----- ----- -----
</TABLE>
PRODUCT MIX TABLE
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Company products:
LibraryXpress 49.9% 28.6% 2.6%
36-track 26.1 28.1 19.6
18-track 2.8 9.7 15.3
9-track 7.4 18.2 29.4
Spare parts, controllers, other 7.2 8.4 10.3
Other parts:
DLT distributed products 6.6 6.9 21.5
Other distributed products 0.0 0.1 1.3
----- ----- -----
100.0% 100.0% 100.0%
----- ----- -----
----- ----- -----
</TABLE>
15
<PAGE>
FISCAL 1998 COMPARED TO FISCAL 1997
NET SALES. The Company's net sales of $75.2 million in fiscal year 1998
grew by $16.1 million or 27.2% over net sales of $59.1 million in fiscal year
1997. Significant growth in sales of the Company's flagship LibraryXpress
product line, together with modest growth of 36-track product sales, more than
offset declines in other mature product lines. LibraryXpress sales grew by 122%
to $37.5 million compared to $16.9 million in fiscal year 1997, due principally
to strong demand from DEC/CPQ for the LXB7110 model. Although DEC had been a
buyer of the Company's 9-track products since 1993, it did not begin ordering
LibraryXpress products until late in the first quarter of fiscal year 1998. Also
contributing to the LibraryXpress growth were sales of several new products. The
LXG global control unit, the LXC capacity module and LXS MiniLibrary were all
introduced late in fiscal year 1997, but contributed a full year of revenues in
1998. Another new product, the LoaderXpress, was introduced in February 1998,
and made a small contribution to fiscal year 1998 revenues. Sales of the
Company's 36-track products grew by 18.1% to $19.6 million in fiscal year 1998
compared to $16.6 million in fiscal year 1997. This growth resulted principally
from increased sales to IBM of the L490E model pursuant to a new supply
agreement entered into in the second quarter of fiscal year 1997. Sales of
18-track products of $2.1 million in fiscal year 1998 fell by $3.6 million or
63.2% from $5.7 million in the prior year. This decline was the result of an
upward migration by the Company's customers from 18-track products to its
36-track products and the Company's announced end-of-life on all 18-track
products at the end of fiscal year 1998. Sales of 9-track products of $5.6
million in fiscal year 1998 fell by $5.3 million or 48.6% from $10.9 million in
fiscal year 1997. This reflects the general maturity of the 9-track technology,
a trend which the Company expects will continue. As of the end of fiscal 1998,
the 9-track product line has been narrowed to two products.
GROSS PROFIT. The Company's gross profit amounted to $23.2 million in
fiscal year 1998, up from $20.4 million in fiscal year 1997, as a result of the
higher sales volumes. The gross margin, however, fell from 34.4% in fiscal year
1997 to 30.9% in fiscal year 1998 due principally to a higher concentration of
OEM business, which is typically at lower margins compared to other channel
business. Sales to OEM customers rose from 23% of revenues in fiscal year 1997
to 40% of revenues in fiscal year 1998. Also contributing to lower margins was
the effect of competitive pressures which resulted in reduced selling prices for
certain products.
SALES AND MARKETING EXPENSES. Sales and marketing expenses amounted to
$9.2 million or 12.2% of net sales in fiscal year 1998 compared to $7.3 million
or 12.3% of net sales in 1997. This increase in total expenditures resulted
primarily from a higher level of advertising and promotional programs,
additional personnel and greater travel expenses. The Company's marketing
efforts are focused on creating an awareness in the marketplace at both the
reseller and end-user level for the Overland name and the Company's new
products, including the LoaderXpress. The goal is to create pull-through for the
new commercial distribution channel and for the existing volume sales channel.
RESEARCH AND DEVELOPMENT EXPENSES. R&D expenses were flat with the
prior year and amounted to $4.1 million or 5.5% of net sales in fiscal year 1998
compared to $4.1 million or 7.0% of net sales in 1997. In fiscal year 1998, the
R&D efforts included the design and support of the new LoaderXpress product,
design of a new automated tape library based on a new tape technology, and the
joint development project with Tandberg Data announced in April 1998 to
implement the Company's VR2 technology onto Tandberg's SLR tape drives.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses amounted to $6.2 million or 8.3% of net sales in fiscal year 1998
compared to $4.2 million or 7.1% of net sales in 1997. The higher level of
expenses in 1998 included an increase in depreciation for the Company's new ERP
system, increased legal fees, increased MIS staffing levels, higher facility
costs and other incremental costs incidental to being a public company for
a full year.
INTEREST INCOME/EXPENSE. In fiscal year 1998, the Company generated net
interest income of $940,000, compared to net interest income of $223,000 in
fiscal 1997. The higher income in fiscal 1998 resulted from earnings on
investment of funds generated by the Company's initial public offering and the
elimination of interest expense on bank borrowings. Immediately following the
IPO in February 1997, the Company fully repaid the borrowings under its
revolving bank line of credit.
INCOME TAXES. The Company's fiscal year 1998 provision for state and
federal income taxes amounted to $1.8 million, or an effective tax rate of
38.5%. The effective rate in 1998 was higher than the fiscal year 1997 rate
of 37.8% due primarily to reduced state R&D tax credits.
16
<PAGE>
FISCAL 1997 COMPARED TO FISCAL 1996
NET SALES. The Company's net sales of $59.1 million in fiscal year 1997
grew by $11.9 million or 25.2% over net sales of $47.2 million in fiscal year
1996. Sales growth in certain of the Company's products were partially offset by
declines in other product lines. The strongest growth over the prior year was
experienced in the LibraryXpress product line, which began shipping in March
1996. Sales of LibraryXpress in fiscal year 1997, the first full year of
shipments, amounted to $16.9 million compared to $1.2 million in 1996. Although
the majority of the growth was generated by sales of the LibraryXpress LXB base
module, additional sales were generated in the last half of the year when the
Company introduced three new products: the LXG global control unit, the LXC
capacity module and the LXS MiniLibrary. Offsetting this growth, however, was a
$6.1 million decline in sales of DLT distributed product, due principally to a
replacement of sales of Quantum DLT loaders by sales of the Company's own
LibraryXpress products. Sales of the Company's 36-track products of $16.6
million in fiscal year 1997 grew by $7.3 million or 78.5% from $9.3 million in
1996. This growth resulted principally from increased sales to IBM of the L490E
model pursuant to a new supply agreement entered into in the second quarter of
fiscal year 1997. Sales of 18-track products of $5.7 million fell by $1.5
million or 20.8% from $7.2 million in the prior year. This decline was the
result of an upward migration by the Company's customers from 18-track products
to its 36-track products and to a general decline in the use of 18-track
products in favor of other technologies. Sales of 9-track products of $10.9
million in fiscal year 1997 fell by $3.5 million or 24.3% from $14.4 million in
1996. This reflects the general maturity of the 9-track technology, a trend
which the Company expects to continue in the foreseeable future. Additionally,
during fiscal year 1997, the Company made end-of-life announcements on certain
of its 9-track products to narrow its 9-track product offerings.
GROSS PROFIT. The Company's gross profit amounted to $20.4 million in
fiscal year 1997, up from $16.1 million in fiscal year 1996, which represented
gross margins of 34.4% and 34.1%, respectively. The gross margins were improved
by the shift from sales of DLT distributed product at lower margins, to sales of
LibraryXpress products at relatively higher margins. However, this was offset by
growth in sales to the Company's OEM customers, which are typically at
relatively lower margins than offered to its other customers.
SALES AND MARKETING EXPENSES. Sales and marketing expenses amounted to
$7.3 million or 12.3% of net sales in fiscal year 1997 compared to $5.9 million
or 12.6% of net sales in 1996. 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.
RESEARCH AND DEVELOPMENT EXPENSES. R&D expenses amounted to $4.1
million or 7.0% of net sales in fiscal year 1997 compared to $3.7 million or
7.8% of net sales in 1996. The R&D efforts during 1997 and the increased
expenses compared to 1996 related to the development of the LXG, LXC and LXS
products within the LibraryXpress product family. The Company also incurred
expenses in both years related to the development of its new tape recording
technology and coding scheme using the concept of partial response maximum
likelihood.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses amounted to $4.2 million or 7.1% of net sales in fiscal year 1997
compared to $2.9 million or 6.2% of net sales in 1996. The higher level of
expenses in 1997 included an increase in support personnel, computer related
expenses, legal fees related to the class action lawsuits filed against the
Company and to patent work related to the Company's new tape coding technique,
increased bad debt reserves related to the higher level of sales and increased
facility costs.
INTEREST INCOME/EXPENSE. In fiscal year 1997, the Company generated net
interest income of $223,000, compared to fiscal year 1996 when net interest
expense amounted to $154,000. The net interest income in 1997 resulted from
earnings on investment of funds generated by the Company's initial public
offering and elimination of interest expense after repayment of bank borrowings.
The interest expense in 1996 included $124,000 related to borrowings under the
Company's revolving bank line of credit and $30,000 of interest expense related
to an installment 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.
INCOME TAXES. The Company's fiscal year 1997 provision for state and
federal income taxes amounted to $1.9 million or an effective tax rate of 37.8%.
In fiscal year 1996, the tax provision amounted to $254,000, resulting in an
abnormally low effective tax rate of 7.4%. 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 which is discussed below and in Note 5 to the Consolidated
Financial Statements.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During fiscal year 1998, the Company used $1.5 million to fund its
operating activities, primarily to build receivables and inventories in support
of the higher sales levels. An additional $2.1 million was invested in capital
expenditures, primarily for the Company's new enterprise wide computer system,
network computers, leasehold improvements and tooling.
At June 30, 1998, the Company had $15.6 million of cash and cash
equivalents, $39.5 million of net working capital, an unused bank line of credit
of $5 million and no other funded debt. The Company believes that these
resources will be sufficient to fund its operations and to provide for its
growth for the foreseeable future.
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.
YEAR 2000
Many computer systems experience problems handling dates in and beyond
the year 1999. Therefore, some computer hardware and software will need to be
modified prior to the year 2000 in order to remain functional. During fiscal
year 1998 the Company replaced its internal enterprise wide computer system and
believes that the system is year 2000 compliant. The Company's internally
manufactured products have no date functionality built into them with the
exception that certain products have a display-only date/time function. This
function, which is year 2000 compliant, allows the operator to set the LCD
front panel display date and time from the front panel. Although not used in
any way when reading/writing data or otherwise operating the products, it is
also used for date/time stamping entries into the internal history and error
logs.
The Company is also assessing and addressing the possible effects on
the Company's operations of the year 2000 readiness of its other internal
systems and the systems of its key suppliers and subcontractors. The Company's
reliance on suppliers and subcontractors, and therefore, on the proper
functioning of their information systems and software, means that their failure
to address year 2000 issues could have a material impact on the Company's
operations and financial results. The potential impact and related costs of
year 2000 readiness for both the remaining internal and external systems are
not known at this time.
It is unknown how customer spending patterns may be impacted by year
2000 programs. As customers focus on preparing their business for the year 2000
in the near term, capital budgets may be spent on remediation efforts,
potentially delaying the purchase and implementation of new systems, thereby
creating less demand for the Company's products and services. Conversely,
demand for the Company's products could accelerate as customers focus on
the need to protect their stored data by enhancing their backup capabilities.
The impact on the Company's revenues is not known at this time.
18
<PAGE>
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 1997 FISCAL YEAR 1998
--------------------------------------------- --------------------------------------------
SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
1996 1996 1997 1997 1997 1997 1998 1998
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 12,013 $ 15,220 $ 15,404 $ 16,509 $ 13,998 $ 18,071 $ 18,659 $ 24,436
Gross profit 4,440 5,372 5,237 5,322 4,660 5,704 5,469 7,366
Income from operations 593 1,817 1,317 1,009 76 1,014 515 2,035
Income before income taxes 541 1,740 1,329 1,377 286 1,272 808 2,177
Net income 324 1,044 797 935 177 789 501 1,325
Net income per share:
Basic $.06 $.20 $.11 $.09 $.02 $.07 $.05 $.13
Diluted .04 .13 .09 .08 .02 .07 .05 .12
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of the
Company required by this item are set forth at the pages indicated in Item
14(a)(1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item is included under the captions entitled
"Election of Directors" and "Information Concerning Directors and Executive
Officers" in the Company's Proxy Statement and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the caption
entitled "Executive Compensation" in the Company's Proxy Statement and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the caption
entitled "Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN TRANSACTIONS
The information required by this item is included under the caption
entitled "Certain Relationships and Transactions" in the Company's Proxy
Statement and is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS. The following Consolidated Financial
Statements of Overland Data, Inc. and Report of Independent Accountants are
included in a separate section of this Report at the page numbers so indicated:
<TABLE>
<S> <C>
Consolidated Balance Sheet as of June 30, 1998 and 1997 . . .F1
Consolidated Statement of Operations for the Years
Ended June 30, 1998, 1997 and 1996. . . . . . . . . . . .F2
Consolidated Statement of Shareholders' Equity for the
Years Ended June 30, 1998, 1997 and 1996. . . . . . . . .F3
Consolidated Statement of Cash Flows for the Years Ended
June 30, 1998, 1997 and 1996. . . . . . . . . . . . . . .F4
Notes to Consolidated Financial Statements. . . . . . . . . .F5 to F13
Report of Independent Accountants . . . . . . . . . . . . . .F14
</TABLE>
(a)(2) FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedule of Overland Data, Inc. for the years ended June 30, 1998, 1997 and 1996
is filed as part of this Report on the page number so indicated and should be
read in conjunction with the Consolidated Financial Statements of Overland Data,
Inc.:
Schedule II - Valuation and Qualifying Accounts...................S-1
Schedules not listed above have been omitted because they are not applicable or
are not required or the information required to be set forth therein is included
in the Consolidated Financial Statements or Notes thereto.
20
<PAGE>
<TABLE>
<S> <C>
(a)(3) EXHIBITS
3.1 Registrant's Amended and Restated Articles of Incorporation.*
3.2 ByLaws.*
4.1 Specimen stock certificate.*
4.2 Investors' Rights Agreement, dated May 21, 1993, between the Registrant
and the parties named therein.*
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 Credit Agreement effective as of June 27, 1997 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 First Amendment to the 1995 Stock Option Plan dated January 21, 1997. *
10.6 1996 Employee Stock Purchase Plan adopted December 12, 1996.*
10.7 Agreement between Overland Data and Tandberg Data Concerning MLR
and VR2 Technology***
11.1 Statement Re: Computation of Earnings Per Share.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1 Power of Attorney (included on Signature Page).
27.1 Financial Data Schedule (for EDGAR use only).
</TABLE>
- ----------------------
* Incorporated by reference to the Company's Registration Statement No.
333-18583 dated February 21, 1997.
** Incorporated by reference to the Company's Form 10-K dated June 30, 1997.
*** The Company has requested confidential treatment for certain portions
of this Agreement.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the
Company during the fourth quarter of the year ended June 30, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OVERLAND DATA, INC.
By: /s/ SCOTT McCLENDON
-----------------------------
Scott McClendon
President & Chief Executive
Officer
21
<PAGE>
Dated: September 25, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Scott McClendon and Vernon A. LoForti,
jointly and severally, as his or her attorney-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Annual Report on Form 10-K and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his substitute or substitutes, may do or cause to be done by virtue
hereof. Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ SCOTT McCLENDON President, Chief Executive September 25, 1998
- --------------------- Officer and Director
Scott McClendon
/s/ MARTIN D. GRAY Vice President, Chief Technical September 25, 1998
- --------------------- Officer, Asst. Secretary and
Martin D. Gray Director
/s/ VERNON A. LOFORTI Vice President, Chief September 25, 1998
- --------------------- Financial Officer and
Vernon A. LoForti Secretary
/s/ WILLIAM W. OTTERSON Director September 25, 1998
- ---------------------
William W. Otterson
/s/ JOSEPH D. RIZZI Director September 25, 1998
- ---------------------
Joseph D. Rizzi
/s/ JOHN A. SHANE Director September 25, 1998
- ---------------------
John A. Shane
</TABLE>
22
<PAGE>
OVERLAND DATA, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30
------------------------
1998 1997
---------- ----------
(IN THOUSANDS EXCEPT
NUMBER OF SHARES)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . $ 15,550 $ 18,926
Accounts receivable, less allowance for doubtful accounts
and returns of $922 and $774, respectively. . . . . . . . . . . 15,683 11,151
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,077 12,101
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . 1,558 1,743
Other current assets . . . . . . . . . . . . . . . . . . . . . . . 873 607
---------- ----------
Total current assets. . . . . . . . . . . . . . . . . . . . . 49,741 44,528
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . 4,207 3,499
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . -- 77
Intangible and other assets. . . . . . . . . . . . . . . . . . . . .. 48 156
---------- ----------
$ 53,996 $ 48,260
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,970 $ 5,372
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . 2,075 1,377
Accrued payroll and employee compensation. . . . . . . . . . . . . 1,198 1,046
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . 10,243 7,795
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . 187 --
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 198 148
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 10,628 7,943
Commitments and contingencies (Note 8)
Shareholders' equity:
Common stock, no par value, 25,000,000 shares
authorized; 10,549,486 and 10,434,593 shares
issued and outstanding in 1998 and 1997, respectively. . . . . 33,496 33,246
Cumulative translation adjustment. . . . . . . . . . . . . . . . . 18 9
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . 9,854 7,062
---------- ----------
Total shareholders' equity. . . . . . . . . . . . . . . . . . . . 43,368 40,317
---------- ----------
$ 53,996 $48,260
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE>
OVERLAND DATA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . $ 75,164 $ 59,146 $ 47,226
Cost of goods sold . . . . . . . . . . . . . 51,965 38,775 31,145
-------- -------- --------
Gross profit . . . . . . . . . . . . . . . 23,199 20,371 16,081
Operating expenses:
Sales and marketing. . . . . . . . . . . . 9,245 7,298 5,935
Research and development . . . . . . . . . 4,093 4,125 3,697
General and administrative . . . . . . . . 6,221 4,212 2,908
-------- -------- --------
19,559 15,635 12,540
-------- -------- --------
Income from operations . . . . . . . . . . . 3,640 4,736 3,541
Other income (expense):
Interest income. . . . . . . . . . . . . . 942 408 1
Interest expense . . . . . . . . . . . . . (2) (185) (155)
Other income (expense), net. . . . . . . . (37) 28 26
-------- -------- --------
Income before income taxes . . . . . . . . . 4,543 4,987 3,413
Provision for income taxes . . . . . . . . . 1,751 1,887 254
-------- -------- --------
Net income . . . . . . . . . . . . . . . . . $ 2,792 $ 3,100 $ 3,159
-------- -------- --------
-------- -------- --------
Net income per share:
Basic . . . . . . . . . . . . . . . . . $ 0.27 $ 0.44 $ 0.71
-------- -------- --------
-------- -------- --------
Diluted . . . . . . . . . . . . . . . . $ 0.25 $ 0.33 $ 0.41
-------- -------- --------
-------- -------- --------
Shares used in computing net income per share:
Basic . . . . . . . . . . . . . . . . . 10,525 7,054 4,442
-------- -------- --------
-------- -------- --------
Diluted . . . . . . . . . . . . . . . . 11,069 9,295 7,857
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
OVERLAND DATA, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
---------------------------- TRANSLATION RETAINED
SHARES AMOUNT ADJUSTMENT EARNINGS TOTAL
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995 . . . . . . . . . . 4,291,097 $ 964 $ 803 $ 1,767
Preferred stock conversion . . . . . . . 318,397 367 367
Exercise of stock options . . . . . . . 280,481 220 220
Issuance of common stock . . . . . . . . 172,350 345 345
Net income . . . . . . . . . . . . . . . 3,159 3,159
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1996 . . . . . . . . . . 5,062,325 1,896 3,962 5,858
Preferred stock conversion . . . . . . . 2,336,574 5,200 5,200
Exercise of stock options . . . . . . . 168,630 142 142
Issuance of common stock in
initial public offering . . . . . . 2,836,364 25,659 25,659
Other issuances of common stock . . . . 30,700 92 92
Foreign currency translation . . . . . . $ 9 9
Tax benefits from exercise of
stock options . . . . . . . . . . . 257 257
Net income . . . . . . . . . . . . . . . 3,100 3,100
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1997 . . . . . . . . . . 10,434,593 33,246 9 7,062 40,317
Exercise of stock options . . . . . . . 135,287 152 152
Exercise of stock warrants . . . . . . . 5,934 -- --
Sale of stock through the Company's
Employee Stock Purchase Plan . . . . 73,172 383 383
Company repurchases of stock . . . . . . (99,500) (509) (509)
Foreign currency translation . . . . . . 9 9
Tax benefits from exercise of
stock options . . . . . . . . . . . 224 224
Net income . . . . . . . . . . . . . . . 2,792 2,792
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1998 . . . . . . . . . . 10,549,486 $ 33,496 $ 18 $ 9,854 $ 43,368
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
OVERLAND DATA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income $ 2,792 $ 3,100 $ 3,159
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Deferred tax expense (benefit) 449 (487) (1,237)
Depreciation and amortization 1,479 1,050 862
Loss on disposal of property and equipment 9 7 50
Changes in assets and liabilities:
Accounts receivable (4,532) (3,925) (926)
Inventories (3,976) (3,676) (3,069)
Other assets (266) (243) (278)
Accounts payable and accrued liabilities 2,346 813 1,931
Accrued payroll and employee compensation 152 (1) 349
-------- -------- --------
Net cash (used in) provided by operating activities (1,547) (3,362) 841
-------- -------- --------
Investing activities:
Capital expenditures, net (2,088) (2,308) (841)
-------- -------- --------
Net cash used in investing activities (2,088) (2,308) (841)
-------- -------- --------
Financing activities:
Proceeds from issuance of common stock 383 25,751 345
Proceeds from exercise of stock options/warrants 152 60 220
Stock repurchases (509) -- --
Net (payments) proceeds under bank line of credit -- (1,500) 100
Principal payments on notes payable -- -- (747)
Tax benefits from exercise of stock options 224 257 --
-------- -------- --------
Net cash provided by (used in) financing activities 250 24,568 (82)
-------- -------- --------
Effect of exchange rate changes on cash 9 9 --
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (3,376) 18,907 (82)
Cash and cash equivalents, beginning of year 18,926 19 101
-------- -------- --------
Cash and cash equivalents, end of year $ 15,550 $ 18,926 $ 19
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 854 $ 2,314 $ 1,150
-------- -------- --------
-------- -------- --------
Cash paid for interest $ 1 $ 186 $ 155
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL NONCASH ACTIVITIES:
Noncash common stock issuance $ -- $ 92 $ --
-------- -------- --------
-------- -------- --------
Compensation recognized as equity upon exercise
of common stock options $ 38 $ 82 $ --
-------- -------- --------
-------- -------- --------
Conversion of Series A preferred stock to common stock $ -- $ 367 $ 367
-------- -------- --------
-------- -------- --------
Conversion of Series B preferred stock to common stock $ -- $ 1,281 $ --
-------- -------- --------
-------- -------- --------
Conversion of Series C preferred stock to common stock $ -- $ 3,552 $ --
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - OPERATIONS AND SUMMARY OF 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 high performance network backup and archival solutions as well as
data interchange. 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.
Fiscal years 1998, 1997 and 1996 each included 52 weeks.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Overland Data (Europe) Ltd., Overland Data SARL
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 to commercial distribution customers are subject to certain rights of
return, stock rotation privileges and price protection. Revenue from shipments
to these customers is not recognized until the related products are in turn sold
through by the commercial distributor. At June 30, 1998, there was approximately
$800,000 of deferred revenue that had been shipped to the Company's commercial
distributors, but not yet shipped to ultimate customers. Revenue on direct sales
to other customers is recognized upon shipment of products to such customers as
they are not generally 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 provides a three-year return-to-factory warranty on its
LibraryXpress products and a two-year return-to-factory warranty on its other
products. In addition, with the exception of sales to OEM customers, on-site
warranties are provided for certain of the Company's line of LibraryXpress
products. The Company records a provision for estimated future warranty costs
at the time of shipment for both the return-to-factory and on-site
warranties. Separately priced on-site warranties are offered for sale to
customers of other product lines. The Company contracts with outside vendors
to provide service relating to all on-site warranties. Warranty revenues and
amounts paid in advance to outside service organizations are recognized in
the financial statements in sales and cost of goods sold, respectively, over
the warranty period.
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 values
based on their terms or short-term nature.
F-5
<PAGE>
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
EXPORT SALES
Export sales by the Company, principally in Europe, for the years ended June 30,
1998, 1997 and 1996 were $20,175,000, $14,391,000 and $12,775,000, respectively.
CONCENTRATIONS OF CREDIT RISK
The Company's customers include original equipment manufacturers,
integrators, distributors, and value added resellers. 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 25%, 14% and 23% of sales
in fiscal 1998, 1997 and 1996, respectively, and approximately 28% and 12% of
accounts receivable at June 30, 1998 and 1997, respectively. The second
largest customer accounted for 15% and 10% of sales in 1998 and 1997,
respectively, and 17% and 11% of accounts receivable at June 30, 1998 and
1997, 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, are amortized using the straight-line method over five years (the
estimated life of the products). Accumulated amortization was $800,000 and
$690,000 in 1998 and 1997, respectively. These assets are fully amortized as of
June 30, 1998.
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 an
asset's carrying value unlikely. An impairment loss would be recognized when the
sum of the expected future net undiscounted cash flows is less than the carrying
amount of the asset. No such impairment losses have been recorded by the
Company.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries are translated
into U.S. dollars using period-end exchange rates for assets and liabilities and
weighted average exchange rates during the period for revenues and expenses.
Gains or losses from foreign currency transactions are recognized currently in
income. Such gains and losses were not significant in any year presented.
F-6
<PAGE>
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
INCOME TAXES
The Company provides for income taxes utilizing the liability method. Under the
liability method, 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. A valuation allowance is
established when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
STOCK-BASED COMPENSATION
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net income and earnings per share as if the fair value-based
method had been applied in measuring compensation expense (Note 6).
NET INCOME PER SHARE
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share" as required in the second quarter of fiscal 1998. Basic
earnings per share is computed based on the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per share is
computed based on the weighted average number of shares of common stock
outstanding during the period increased by the weighted average number of common
stock equivalents outstanding during the period, using the treasury stock
method.
A reconciliation of the calculation of basic and diluted earnings per share
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C>
Net income $2,792 $3,100 $3,159
------ ------ -----
------ ------ -----
Basic:
Weighted average number
of common stock shares
outstanding 10,525 7,054 4,442
------ ------ -----
------ ------ -----
Basic earnings per share $ 0.27 $ 0.44 $0.71
------ ------ -----
------ ------ -----
Diluted:
Weighted average number of common
stock shares outstanding 10,525 7,054 4,442
Weighted average number of
preferred stock shares
outstanding -- 1,478 2,336
Common stock equivalents from the
issuance of options using the
treasury stock method 544 632 757
Cheap stock adjustment -- 131 131
------ ------ -----
Shares used in computing net
income per share 11,069 9,295 7,666
------ ------ -----
------ ------ -----
Diluted earnings per share $0.25 $0.33 $0.41
------ ------ -----
------ ------ -----
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued. The
Company will adopt SFAS No. 130 as required in fiscal 1999. This statement
establishes standards for reporting and presenting comprehensive income and its
components in the financial statements. Comprehensive income is defined as "the
change in equity (net assets) of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. It
includes all changes in equity during a period except those resulting from
investments by owners or distributions to owners." The Company expects that
adoption will have no material impact on the Company's statement of operations.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued. This statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. The Company
will adopt SFAS No. 133 as required in fiscal 2000. The Company expects that
adoption will have no material impact on the Company's financial statements.
NOTE 2 - COMPLETION OF INITIAL PUBLIC OFFERING
On February 21, 1997, the Company completed its initial public offering of
3,450,000 shares of common stock (of which 2,836,364 shares were sold by the
Company and 613,636 shares were sold by certain shareholders) at a price to the
public of $10 per share. Net proceeds to the Company were $26,659,000 after
payment of the underwriters' commissions and deduction of offering expenses.
F-7
<PAGE>
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 3 - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
JUNE 30,
--------
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Raw materials . . . . . . . . $ 10,195 $ 8,160
Work in process . . . . . . . 3,259 2,839
Finished goods. . . . . . . . 2,623 1,102
---------- ----------
$ 16,077 $ 12,101
---------- ----------
---------- ----------
Property and equipment:
Machinery and equipment . . . $ 3,226 $ 3,171
Computer equipment. . . . . . 3,792 2,288
Furniture and fixtures. . . . 302 210
Leasehold improvements. . . . 1,170 779
---------- ----------
8,490 6,448
Less accumulated depreciation
and amortization. . . . . . . (4,283) (2,949)
---------- ----------
$ 4,207 $ 3,499
---------- ----------
---------- ----------
</TABLE>
Depreciation expense was $1,371,000, $930,000 and $724,000 in 1998, 1997 and
1996, respectively.
NOTE 4 - LONG-TERM DEBT
The Company has a $5,000,000 unsecured revolving credit facility which expires
on November 5, 1999. Borrowings under the line may be in the form of working
capital loans, which bear interest at the bank's prime rate, or banker's
acceptances ("BA") priced at the bank's BA rate plus 2.25%. The Company is
required to maintain certain covenants and financial ratios including working
capital and net worth ratios, and pays a .5% annual commitment fee on the unused
credit. The Company is in compliance with all terms of the agreement. At June
30, 1998 and 1997, there were no borrowings outstanding under the credit line.
F-8
<PAGE>
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 5 - INCOME TAXES
The provision (benefit) for income taxes includes the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal . . . . . . . . $ 757 $ 1,993 $ 1,246
State . . . . . . . . . 171 377 236
Foreign . . . . . . . . 374 4 9
------- ------- -------
1,302 2,374 1,491
------- ------- -------
Deferred:
Federal . . . . . . . . 360 (347) (1,053)
State . . . . . . . . . 89 (140) (184)
------- ------- -------
449 (487) (1,237)
------- ------- -------
$ 1,751 $ 1,887 $ 254
------- ------- -------
------- ------- -------
</TABLE>
A reconciliation of income taxes computed by applying the federal statutory
income tax rate of 34% to income before income taxes to the total income tax
provision reported in the Consolidated Statement of Operations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Federal income tax at statutory rate . . . $ 1,545 $ 1,696 $ 1,160
Release of valuation allowance . . . . . . . . . - - (997)
State income taxes, net of federal benefit . . . 172 156 165
Foreign sales corporation benefit . . . . . . . (37) (68) (65)
Permanent differences . . . . . . . . . . . . . 28 32 --
Other . . . . . . . . . . . . . . . . . . . . . 43 71 (9)
------- ------- -------
Provision for income taxes . . . . . . . . . . . $ 1,751 $ 1,887 $ 254
------- ------- -------
------- ------- -------
</TABLE>
During fiscal 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 history of profitability, management believes it is more
likely than not that its deferred tax assets will be realized through future
taxable earnings or alternative tax strategies.
F-9
<PAGE>
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Deferred income taxes at June 30, 1998 and 1997 comprised:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1998 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Inventory. . . . . . . . . . . . . . . . . . . . $ 791 $ 805
Reserve for doubtful accounts and returns. . . . - 331
Warranty reserves. . . . . . . . . . . . . . . . 261 202
Vacation and deferred compensation . . . . . . . 228 193
License fee accrual. . . . . . . . . . . . . . . 69 69
Intangible assets. . . . . . . . . . . . . . . . 168 139
State income taxes . . . . . . . . . . . . . . . 64 122
Other. . . . . . . . . . . . . . . . . . . . . . - 21
------- --------
Gross deferred tax asset . . . . . . . . . . . 1,581 1,882
------- --------
Deferred tax liabilities:
Lawsuit expenses . . . . . . . . . . . . . . . . (18) -
Property and equipment depreciation. . . . . . . (192) (62)
------- --------
Gross deferred tax liability . . . . . . . . . (210) (62)
------- --------
Net deferred income taxes. . . . . . . . . . . . . . . $ 1,371 $ 1,820
------- --------
------- --------
</TABLE>
NOTE 6 - STOCK OPTIONS
The Company has a number of stock option plans, administered by the Compensation
Committee of the Board of Directors, 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 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. Additionally, 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-10
<PAGE>
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Option activity for the three years ended June 30, 1998 is summarized as
follows:
<TABLE>
<CAPTION>
SHARES SHARE PRICE
------ -----------
<S> <C> <C>
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 . . . . . . . . . . . . . 100,000 3.00 - 6.19
Options exercised . . . . . . . . . . . . (168,630) .20 - 2.00
Options canceled . . . . . . . . . . . . (23,775) .80 - 6.19
---------
Options outstanding at June 30, 1997 . . . . 756,191 .12 - 6.19
Options granted . . . . . . . . . . . . . 572,768 5.31 - 8.25
Options exercised . . . . . . . . . . . . (135,287) .12 - 3.00
Options canceled . . . . . . . . . . . . (87,943) .80 - 7.50
---------
Options outstanding at June 30, 1998 . . . . 1,105,729 $ .12 - 8.25
---------
---------
</TABLE>
The following table summarizes all options outstanding and exercisable by price
range as of June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISABLE OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE
PRICES JUNE 30, 1998 LIFE PRICE JUNE 30, 1998 PRICE
----------- -------------- ------------ --------- -------------- ----------
<S> <C> <C> <C> <C> <C>
$ .12 - .88 392,303 4.8 years $ .65 365,878 $ .63
2.00 - 3.00 180,525 7.6 2.39 72,700 2.26
4.50 - 6.63 152,000 9.1 6.43 2,500 4.67
7.50 - 8.25 380,901 9.1 7.50 34,901 7.54
-------------- --------------
1,105,729 475,979
-------------- --------------
-------------- --------------
</TABLE>
Shares available for future grant were 592,500 and 446,457 at June 30, 1998 and
1997, respectively.
F-11
<PAGE>
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
1996 EMPLOYEE STOCK PURCHASE PLAN
In February 1997, the Company adopted the 1996 Employee Stock Purchase Plan (the
"ESPP") whereby 250,000 shares of common stock were reserved for issuance and
purchase by employees of the Company to assist them in acquiring a stock
ownership interest in the Company and to encourage them to remain employees of
the Company. The ESPP is intended to qualify under Section 423 of the Internal
Revenue Code and permits eligible employees to purchase common stock at a
discount through payroll deductions during specified six-month offering periods.
No employee may purchase more than $25,000 worth of stock in any calendar year
or 1,500 shares in any one offering period. The ESPP is administered by an
Administrative Committee appointed by the Board of Directors and provides
generally that the purchase price must not be less than 85% of the fair market
value of the common stock on the first or last day of the offering period,
whichever is lower. During fiscal 1998, 73,172 shares were issued for combined
proceeds of $383,000.
PRO FORMA INFORMATION
The Company accounts for stock-based compensation using the intrinsic value
method. No compensation expense has been recognized for purchase rights under
the ESPP or for its stock option grants, as they have been granted at the fair
market value at the date of grant. Had compensation expense for the Company's
stock-based compensation awards issued during 1998 and 1997 been determined
based on a fair value method, the Company's net income and net income per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1998 1997
---- ----
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net income:
As reported $ 2,792 $ 3,100
Pro forma 2,343 3,022
Net income per share:
As reported $ .25 $ .33
Pro forma .21 .33
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model. The weighted average estimated fair value of
employee stock options granted during 1998 and 1997 was $1.16 and $1.04 per
share, respectively. The weighted average assumptions used for grants during the
years ended June 30, 1998 and 1997 were: no dividend yield for both years,
average risk-free interest rates equal to the current yield on seven and five
year maturity Treasury Bills for the month of grant, respectively (range from
5.53 to 6.76%), expected volatility of 33% post-IPO and no volatility pre-IPO,
and expected lives of 7.0 and 5.0 years, respectively.
The fair value of each share purchase right under the ESPP is estimated at
the inception of each offering period also using the Black-Scholes option
pricing model. The weighted average estimated fair value of each share
purchase right granted during 1998 and 1997 was $1.45 and $2.41 per share,
respectively. The weighted average assumptions used during fiscal 1998 and
1997 were: no dividend yield, risk-free interest rates of 5.9% and 5.1%,
respectively, expected volatility of 33%, and an expected life of 6 months.
NOTE 7 - 401 (k) PLAN
In January 1994, the Company adopted an employee savings and retirement plan
(the "401(k) Plan") covering all of the Company's employees. The 401(k) Plan
permits but does not require matching contributions by the Company on behalf of
all participants. In January 1998, the company began matching employee
contributions at 50% for up to 6% of an employee's pretax income. The total of
these employer contributions was $118,000 in fiscal 1998. No contributions were
made during fiscal 1997 and 1996.
F-12
<PAGE>
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases its office, production and sales facilities under
non-cancelable operating leases which expire in various years through fiscal
2003. 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, 1998, future minimum lease payments under these
arrangements are as follows:
<TABLE>
<CAPTION>
MINIMUM
YEAR ENDING LEASE
JUNE 30, PAYMENTS
-------- --------
(IN THOUSANDS)
<S> <C>
1999 $ 937
2000 964
2001 1,003
2002 1,043
2003 160
------
$4,107
------
------
</TABLE>
Rental expense is recognized ratably over the respective lease terms and
aggregated $1,001,000, $703,000 and $554,000 for fiscal 1998, 1997 and 1996,
respectively.
CONTINGENCIES
The Company, its directors and certain of its officers were named as defendants
in two putative class action lawsuits filed on April 21, 1997 and May 2, 1997 in
the U.S. District Court for the Southern District of California. In both cases,
the plaintiffs purported to represent a class of all persons who purchased the
Company's common stock between February 21, 1997 and March 14, 1997. The
complaints alleged that the defendants violated various federal securities laws
through material misrepresentation and omissions in connection with the
Company's initial public offering and its registration statement on Form S-1
filed with the Securities and Exchange Commission on February 21, 1997. The
suits seek rescission of their share purchases or rescissory damages if their
shares have been sold, as well as attorney's fees and other costs and expenses.
On September 16, 1997, the Court entered an Order permitting the voluntary
dismissal of the first-filed lawsuit without prejudice and the plaintiff in the
second lawsuit was appointed as the Lead Plaintiff in this litigation. That
person now has resigned as the Lead Plaintiff, and the shareholder who had filed
the first of the two lawsuits has petitioned the Court for permission to
intervene and serve as the Lead Plaintiff. That application is pending.
The defendants have answered the second complaint, have denied the material
allegations and have disavowed any wrongdoing. The litigation currently is in
the discovery phase, and trial has been scheduled for Summer of 1999. Although
the outcome of the lawsuit cannot be determined, management believes it has
meritorious defenses and intends to defend against the lawsuit vigorously. The
Company maintains directors' and officers' liability insurance to provide
coverage against suits of this nature, and other than legal fees incurred to
date, no amounts have been recorded in the financial statements for any losses
which may result from this litigation.
F-13
<PAGE>
OVERLAND DATA, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Overland Data, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) of this Form 10-K present fairly, in all
material respects, the financial position of Overland Data, Inc. and its
subsidiaries at June 30, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1998, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a)(2) of this Form 10-K presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule 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.
PricewaterhouseCoopers LLP
San Diego, California
July 29, 1998
F-14
<PAGE>
OVERLAND DATA, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED JUNE 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO BALANCE AT
OF YEAR INCOME DEDUCTIONS* END OF YEAR
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
1998 $ 774 $ 243 $ 95 $ 922
1997 624 280 130 774
1996 446 333 155 624
ALLOWANCE FOR INVENTORY OBSOLESCENCE
1998 $ 1,879 $ 300 $ 331 $ 1,848
1997 1,318 968 407 1,879
1996 505 1,050 237 1,318
</TABLE>
- --------------------------
* Deductions represent amounts written off against the allowance, net of
recoveries.
S-1
<PAGE>
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
AGREEMENT BETWEEN OVERLAND DATA AND TANDBERG DATA CONCERNING
MLR AND VR(2) TECHNOLOGY
- -------------------------------------------------------------------------------
This Agreement is effective March 30, 1998, (hereinafter the "Effective
Date") between Overland Data, Inc. of 8975 Balboa Ave, San Diego, California,
USA ("Overland"), and Tandberg Data ASA, PO Box 134, Kjelsas, 0411 Oslo, Norway
("Tandberg").
WHEREAS, Tandberg intends to include VR(2) Technology developed by Overland
into its MLR Drives and future tape drives based upon MLR technology and other
future tape drives developed by Tandberg to manufacture, market and sell
worldwide such competitive tape drive systems for the market;
WHEREAS, Overland intends to become a second source manufacturer of MLR
Drives and MLR VR(2) Drives developed by Tandberg and is prepared to commit
to become a second source manufacturer of such Drives, and wishes to be a
second source manufacturer of other future tape drives incorporating VR(2)
Technology developed by Tandberg;
WHEREAS, to achieve this, the parties intend to leverage their
respective resources, technologies, and capabilities to implement VR(2)
Technology quickly and efficiently into MLR Drives;
WHEREAS, Overland intends, in stages, to OEM, assemble and test and
thereafter enter into full manufacturing of MLR Drives and/or MLR VR(2)
Drives and to sell as stand alone drives and/or incorporate the same as a
part of their own Libraries and/or Loaders; and
WHEREAS, Tandberg wishes to have the right to OEM and offer solutions
incorporating tape drives and automated tape Libraries and/or Loaders
manufactured by Overland to its customers world wide;
NOW, THEREFORE, the parties agree as follows:
1
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE 1 -- DEFINITIONS
1.1 "Affiliate" means, with respect to a party, any corporation,
firm, partnership, individual or other form of business organisation which
controls, is controlled by, or is under common control with such party. A
corporation shall be regarded as in control of another corporation if it owns
or directly or indirectly controls at least fifty percent (50%) of the voting
stock of the other corporation, or in the absence of ownership of at least
fifty (50%) of the voting stock of a corporation, if it possesses, directly
or indirectly, the power to direct or cause the direction of the management
and policies of the corporation.
1.2 "Confidential Information" is any information, data or know-how
of either party (including such party's parent, subsidiaries and Affiliates),
written or verbal that is specifically identified by the disclosing party as
confidential at the time of disclosure including reports, drawings,
documents, test results, schematics, specifications, hardware, software,
procedures, supplied electronically, by fax or e-mail, or by hard copy
format, including the verbal dialogue that takes place including the
explanation or clarification of the supplied and disclosed information;
provided, however, that when disclosed orally, information will only be
considered to be "Confidential Information" if summarized by the disclosing
party in writing to the other party within thirty (30) days after such
disclosure.
1.3 "Copyrights" are exclusive of Project Rights and means those
rights granted under the law of one or more jurisdictions that protect the
expression of an idea, and may be applied to software code and documentation
and which exist prior to the Effective Date hereof.
1.4 "Development Period" means the period commencing with the
Effective Date hereof and ending at that point in time when the first MLR
Drive employing VR(2) Technology reaches "general availability" or the first
general availability shipment from a Tandberg OEM customer or *** from the
Effective Date hereof whichever comes first.
1.5 "Effective Date" means the date first above written.
1.6 "Library" means a tape system including multiple tape drives and
multiple cartridges and robotic means to load one or another of said
cartridges into any of said tape drives as desired by an operator.
1.7 "Loader" means a tape system including a single tape drive and
multiple
2
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
cartridges and robotic means to load one or another of said cartridges into
said tape drive as desired by an operator.
1.8 "Media" means both magnetic recording tape and the cartridge
system containing one or two reels and other apparatus for containing such
recording tape.
1.9 "MLR" is a trademark of Tandberg which is utilized on tape drives
and Media incorporating certain Tandberg technology.
1.10 "MLR Drives" means standard tape drives utilising 1/4" tape
cartridge technology (including either 1/4" and/or 8 mm Media) incorporating
MLR Format and Technology Patents, including SLR and HLR drives, and
improvements thereon. The definition of MLR Drives will be defined by
Tandberg exclusively, provided that the definition of such MLR Drives will
always utilise 1/4" tape cartridge technology including 1/4" and/or 8 mm
Media.
1.11 "MLR Format and Technology Patents" means present and future
Tandberg patents and patent applications owned by Tandberg relating to the
MLR technology and necessary to produce a commercially feasible MLR Drive.
1.12 "MLR VR(2) Development Program" means the joint development
program to implement VR(2) Technology into MLR Drives as described in EXHIBIT
B and as modified by the parties by mutual agreement from time to time.
1.13 "MLR VR(2) Drives" means MLR Drives and improvements thereon
which are based on the existing Tandberg MLR technology and which incorporate
the Overland VR(2) Technology as described in EXHIBIT A, and as modified by
Tandberg from time to time.
1.14 "MLR and MLR VR(2) Loader Development Program" means the
development program to be performed by Overland to make its Loaders suitable
for use with MLR Drives and MLR VR(2) Drives and corresponding Media.
1.15 "OEM-Agreement MLR" means the OEM terms described in EXHIBIT C.
1.16 "Parent" is a person or entity that owns, legally or
beneficially, more than 50% of the equity of Tandberg or Overland, as
applicable.
3
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
1.17 "Patent Rights" are exclusive of Project Rights, and means all
patent applications and patents of either party having a priority date prior
to the Termination Date of this Agreement, including any continuations,
continuations-in-part, divisions, reissues, reexamined patents, foreign
counterparts, and other equivalents and extensions thereof owned or
controlled by a party.
1.18 "Project Rights" means all intellectual property rights (which
include, by way of example, invention rights, patents, patent applications,
know-how, trade secrets, copyrights, and confidential information) relating
to VR(2) Technology conceived by either party, either solely or jointly,
during the term of the Development Period and directly resulting from work
conducted in accordance with the MLR VR(2) Development Program.
1.19 In addition to the definitions in the preamble hereof, "Tandberg"
also includes Tandberg's Affiliates and "Overland" also includes Overland's
Affiliates.
1.20 "VR(2)" is a trademark of Overland.
1.21 "VR(2) Format and Technology Patents" means present and future
Overland patents and patent applications owned by Overland relating to the
VR(2) Technology and necessary to produce and use a commercially feasible
tape drive incorporating VR(2) technology.
1.22 "VR(2) Technology" means the technology described in EXHIBIT A or
covered by the claims of patents and/or pending applications for patent of
Overland (including but not limited to US Patent 5,712,863 ***) existing as
of the Effective date hereof as well as improvements thereon.
ARTICLE 2 -- SCOPE
2.1 The parties intend to work cooperatively to adapt Overland's
VR(2) Technology so that it can be successfully implemented in Tandberg's MLR
Drive, all for the purpose of increasing the storage capacity and data
throughput rates of the MLR Drive.
2.2 Overland commits, as of the Effective Date hereof, to become a
second source manufacturer of MLR Drives.
2.3 If Imation shall not provide Tandberg with the necessary rights
to sublicense
4
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
the final assembly or full manufacturing of all MLR Drives covered by this
Agreement, then Tandberg shall not be obliged to grant assembly or
manufacturing licenses to Overland as provided herein but in such
circumstances, the parties shall not be bound by any of the exclusivities of
Article 10 but Overland shall remain obliged to grant Tandberg the rights to
VR(2) Technology provided in this Agreement, subject to the price increases
in EXHIBIT D. Tandberg shall make every reasonable effort to obtain the
necessary release or grant from Imation within three months from the
Effective Date hereof but within said three month term, each of the parties
shall be bound by the remaining terms of this Agreement.
ARTICLE 3 -- LICENSES AND KNOW-HOW TRANSFER
3.1 It is agreed that upon completion of the adaptation of VR(2)
Technology in the first product, Tandberg shall have the right, subject to
Section 7.9, to develop necessary improvements in and manufacture and market
MLR VR(2) Drives, as well as improvements thereon, and future tape drives
developed and manufactured by Tandberg employing VR(2) Technology.
3.2 Effective ***, Tandberg grants to Overland a worldwide,
non-transferrable, non-exclusive license without the right to grant sub
licenses, under all of its MLR Format and Technology Patents, and other
patents, Copyrights and maskworks which are technically and commercially
required in order to assemble, test, offer for sale, sell, and otherwise
dispose of only MLR Drives and MLR VR(2) Drives but without the right to
fully manufacture or perform any development or make changes to such drives
and with a royalty payment as specified in EXHIBIT D. Tandberg shall in
accordance with EXHIBIT G transmit to Overland by ***, Tandberg's know-how
sufficient to assemble and test said MLR Drives. Within *** after the
completion of the development of each of the MLR VR(2) Drives described in
Exhibit B, Tandberg shall transmit to Overland Tandberg's know-how sufficient
to assemble and test each of said MLR VR(2) Drives. This grant does not
include the right to fully manufacture MLR Drives and it is given with the
understanding that the principle component parts thereof shall be of
Tandberg's manufacture or any third party making such parts on behalf of
Tandberg.
3.3 Effective as of the date that Overland's sales of MLR Drives
(with or without a VR(2) Technology enhancement and whether based on its own
assembly or sale of drives as an OEM, excluding SLR5) ***, Tandberg grants to
Overland a worldwide, non-transferrable, non-exclusive right and license
without the right to grant sub licenses, under
5
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
all of its MLR Format and Technology Patents (including any improvements made
by Tandberg to VR(2) Technology), and other patents, Copyrights and maskworks
to make, have made, use, and sell, and otherwise dispose of MLR Drives and
MLR VR(2) Drives according to the Tandberg designs and specifications and
using only Tandberg approved parts, with a royalty payment as specified in
EXHIBIT D. Upon reaching such average sales volume, Overland shall commence
the full manufacture of MLR Drives and MLR VR(2) Drives and Tandberg shall,
in accordance with EXHIBIT G, start to transmit to Overland at such time, the
necessary manufacturing know-how to fully manufacture and test said MLR
Drives and MLR VR(2) Drives. "Full manufacture" as used herein shall exclude
the manufacture of the actuator mechanism which will be provided by Tandberg.
Overland agrees to establish its MLR manufacturing to be consistent with
Tandberg's MLR manufacturing, and adapt to the changes specified from time to
time by Tandberg.
3.4 Each of the parties hereto grants to the other a worldwide,
non-transferrable, non-exclusive right and license under all of its Project
Rights to make, have made, use, and sell, and otherwise dispose of MLR Drives
and any drives incorporating VR(2) Technology. This grant shall include the
right of Tandberg to grant manufacturing sublicenses, subject to SECTION
7.10. Tandberg will pay to Overland the royalties specified in EXHIBIT D for
all MLR VR(2) Drives and future tape drives developed by Tandberg
incorporating VR(2) Technology sold by Overland, Tandberg and Tandberg's
sublicensees.
3.5 Overland grants Tandberg a worldwide, non-exclusive license under
all of its VR(2) Format and Technology Patents as well as all of its other
patents, Copyrights and maskworks which are technically and commercially
required in order to make, use, offer for sale, sell, and otherwise dispose
of drives covered by this Agreement with a royalty payment according to
EXHIBIT D and with the rights to sublicense the VR(2) Technology, subject to
SECTION 7.10, as incorporated in drives covered by this Agreement and
improvements thereon.
3.6 The license defined in SECTION 3.4 does not include the right of
Overland to sublicense.
3.7 Overland grants to Tandberg a worldwide, non-exclusive license to
utilize Overland's VR(2) Technology in Tandberg's own ASICs and to make, have
made, use, and sell, and otherwise dispose of drives including Tandberg ASICs
incorporating such VR(2) Technology for a royalty as set forth in EXHIBIT D
attached hereto.
3.8 Overland shall transfer all requisite know-how and trade secrets
concerning
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CONFIDENTIAL TREATMENT REQUESTED
the VR(2) Technology as set forth in EXHIBIT H at the conclusion of the
Development Period. Tandberg shall protect this know-how and trade secret
information as it protects its own know-how and trade secret information and
shall not disclose it to any third party. If the MLR VR(2) Development
Program is not finalized successfully after *** from the Effective Date
hereof, but if the parties agree it is commercially reasonable to finalize
such program, then Overland shall grant to Tandberg the necessary resources
to finalize the MLR VR(2) Development Program even if Tandberg has received
the necessary know how for VR(2) Technology.
3.9 The parties agree that while Overland may at any time during the
term of this Agreement (if they are available from Tandberg) acquire from
Tandberg the currently existing SLR5 drives, Overland shall not have the
right to fully manufacture or assemble the SLR5 drives and that Tandberg
shall therefore not be required to pass on to Overland the necessary know-how
regarding manufacture and assembly of the SLR5 drives (this is because the
SLR5 is a significantly different drive than its successors and because the
manufacturing line for such drives is significantly different than for
current model MLR Drives).
3.10 Tandberg shall have the right to utilize Overland's VR(2)
Technology for any purpose in any drive manufactured by Tandberg. If it does
so by utilizing an application specific integrated circuit ("ASIC") supplied
by Overland pursuant to the terms of EXHIBIT E, Tandberg shall pay royalties
as set forth in EXHIBIT D. If Tandberg utilizes Overland's VR(2) Technology
in an ASIC made by Tandberg, then, subject to the terms of SECTION 3.4,
Tandberg shall pay to Overland the royalties specified in EXHIBIT D.
Tandberg shall have the right to sublicense the VR(2) Technology included in
all drives covered by this Agreement subject to the provisions of SECTION
7.10 hereof.
3.11 Tandberg hereby grants to Overland a non-exclusive license under
Tandberg's rights in the MLR trademark to use the MLR trademark in connection
with the making and selling of MLR Drives or MLR VR(2) Drives or Libraries
having MLR Drives or MLR VR(2) Drives, provided that such use shall be in
accordance with the requirements set forth in EXHIBIT K. Overland shall use
the MLR trademark on such MLR Drives or MLR VR(2) Drives consistent with
Tandberg's use.
3.12 Overland hereby grants to Tandberg a non-exclusive license under
Overland's rights in the VR(2) trademark to use the VR(2) trademark in
connection with the making and selling of products incorporating VR(2)
Technology, provided that such use shall be in accordance with the
requirements set forth in EXHIBIT K. Tandberg shall use the VR(2)
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CONFIDENTIAL TREATMENT REQUESTED
trademark in marketing materials pertaining to products employing VR(2)
Technology and shall have the right to use the VR(2) trademark on all
products employing VR(2) Technology.
3.13 The intellectual property grants and transfers of know how from
Tandberg to Overland set forth in this Agreement are intended to relate only
to MLR Drives (with or without VR(2) Technology enhancements) and are not
given or transferred for any other purpose.
3.14 To the extent that Tandberg is requested to and does supply
manufacturing support to Overland, it shall be limited to providing the
necessary software, tooling and know-how to operate the line. It is
specifically not to include know-how regarding source code for the software
or know how concerning the building of the tooling.
3.15 Tandberg will supply reasonable manufacturing support and
training in accordance with the provisions of EXHIBIT G.
3.16 In the event Tandberg should commence manufacturing of other
drives than MLR or MLR VR(2) Drives, which include VR(2) Technology, Overland
has expressed an interest to manufacture and OEM such drives. Tandberg will
look favorably upon such request from Overland, and will be willing to
discuss the possibility to manufacture and OEM such drives and consider
allowing Overland to obtain such rights given that this is within the spirit
of cooperation of the Agreement and provided that it is commercially viable
to Tandberg.
3.17 It is further agreed that either party's on-going obligation to
pay royalties to the other based on the use of know-how or trade secret
information received from such other (exclusive of patent rights) shall not
continue beyond *** from the date such know-how or trade secret information
was first transmitted to the know-how/trade secret licensee party.
3.18 Overland shall grant to Tandberg for use in the manufacture of
non-MLR VR(2) Drives a non-exclusive, world-wide, royalty-free license solely
for those portions of Overland's VR(2) Format and Technology Patents which
relate to the manufacturing processes used by Tandberg in its own production
lines for the manufacture of MLR VR(2) Drives. Tandberg may also sublicense
third parties without accounting to Overland to use such manufacturing
process know-how and/or patent rights in such third parties' drive
manufacturing processes.
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ARTICLE 4 -- SUPPLY
4.1 Subject to the provisions of Sections 12.3 and 12.4, throughout
the term of this Agreement, Tandberg agrees to supply Overland with current
and future MLR Drives and MLR VR(2) Drives according to the OEM-Agreement MLR
as specified in EXHIBIT C, and Overland may sell these drives as single stand
alone units and/or incorporate these drives as part of its own Libraries and
Loaders worldwide. Tandberg agrees to begin supplying these drives at a
favorable OEM price to Overland sufficiently early, if Overland so requests,
that Overland can begin to offer these MLR Drives no later than Q3/98. ***
For all other sales of Loaders or Libraries incorporating an MLR or MLR VR(2)
Drive or as a standalone drive sale, Overland shall be charged ***. In the
event that Overland continues to OEM MLR or MLR VR(2) Drives for a period
longer than approximately *** before the start of full manufacturing of said
drives, then the price shall be ***.
4.2 Subject to the provisions of Sections 12.3 and 12.4, commencing
***, Tandberg agrees to supply Overland upon request with assemblies and
components for any MLR Drives or MLR VR(2) Drives which Overland wishes to
assemble and test a complete standard MLR Drive or MLR VR(2) Drive. Tandberg
will supply these assemblies and components (if available) according to the
principles and terms set forth in EXHIBIT E.
4.3 When Overland commences full manufacturing of MLR Drives in
accordance with Section 3.3, Overland will, unless otherwise mutually agreed,
place all orders for assemblies and components through Tandberg in accordance
with the principles and terms of Exhibit E so that Tandberg can get best prices
from its suppliers for the benefit of the parties. *** It is agreed that the
process of ordering third party manufactured drive parts through Tandberg is for
the primary benefit of Overland and that, as a consequence, no liability will
attach to Tandberg for performing this function. In the event that the
suppliers will not accept recourse directly from Overland when Overland orders
through Tandberg, then, unless otherwise mutually agreed, Overland will have to
order from the suppliers directly.
4.4 Subject to the provisions of Sections 12.3 and 12.4, when Overland
purchases ***.
4.5 Overland commits to develop Loaders and Libraries to work with MLR
Drives and MLR VR(2) Drives and Media. Overland will manufacture these Loaders
and Libraries and offer them through its worldwide sales channel. It is the goal
of the parties
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CONFIDENTIAL TREATMENT REQUESTED
that ***. Overland will supply Tandberg such Loaders and Libraries as an OEM
at Tandberg's request. From and after the date when ***.
4.6 Overland agrees to supply Tandberg with ASICs incorporating VR(2)
Technology as needed to manufacture MLR VR(2) Drives and related
subassemblies according to the principles and terms set forth in EXHIBIT E.
*** In addition to the price of such ASICs, Tandberg agrees to pay to
Overland the royalties specified in EXHIBIT D in accordance with the terms of
SECTION 3.10. Tandberg shall have the right to audit the quality of ASICs
produced for Tandberg to ensure compliance with Tandberg's quality standards.
It is agreed that Overland shall transfer sufficient know how to Tandberg
regarding Overland's VR(2) Technology and Tandberg shall cooperate with
Overland so that Tandberg can modify Tandberg's production test programs to
effectively build and test MLR VR(2) Drives.
4.7 Overland agrees to supply Tandberg with the necessary VHDL source
code of the VR(2) Technology for Tandberg to implement in one or more of its
own ASICs on the ***. During the Development Period, Overland will transfer
know-how as necessary to complete the implementation task.
4.8 In the event of an end-of-life situation for a given MLR Drive,
Overland has the right to continue producing a discontinued version of said
MLR Drive for a period of ***. If Overland wants to continue beyond this
period, Overland will have the right to do so, and if Tandberg cannot or will
not supply Overland, then Overland has the rights to approach each supplier
directly to get necessary components previously approved by Tandberg to
continue its own manufacturing of such drive for a period of *** thereafter.
4.9 If there is a shortage of critical materials, parts, assemblies or
components which causes either party to allocate its supply of products among
its customers, such party agrees that it will (i) provide immediate notice to
the other party of such shortage; (ii) keep the other party apprised of the
ongoing issues related to inventory and delivery; and (iii) grant the other
party a priority in the allocation of its constrained product supply.
4.10 The parties agree that when Tandberg starts up a new product
into manufacturing following general availability, Tandberg will be allowed
to focus its resources on stabilizing its processes prior to assisting
Overland in building this product. This process may take ***. During this
period, Overland will get early units for test and release in its Loaders and
Libraries and Overland will be able to purchase the new products at the
special price defined in Section 4.1.
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ARTICLE 5 -- CONTINUITY OF DEVELOPMENT
5.1 Each of the parties hereto recognizes that the other will make a
considerable investment in money and in resources including manpower, equipment
and plant allocation to complete its obligations under this Agreement. ***
5.2 ***
5.3 ***
5.4 ***
5.5 ***
5.6 ***
5.7 To the extent that Overland's know-how, design criteria and test
data concerning its VR(2) Technology has been reduced to documentary form as
defined in EXHIBIT H (hereinafter "VR(2) Technology Information"), all such
"VR(2) Technology Information" shall, during the Development Period, be
deposited in a third party escrow commencing as soon after the Effective Date
hereof as is reasonably practicable (but no later than 30 days following the
Effective Date hereof) and this third party escrow shall be updated to be
reasonably current throughout the term of the Development Period. Overland
shall advise Tandberg promptly of the identity of such third party escrowee.
The third party escrowee shall be instructed to turn over all such "VR(2)
Technology Information" to Tandberg in the event, and only in the event, that
during the Development Period, (a) the Overland contracting party, or its
Parent, if any, declares bankruptcy or (b) a Takeover of the Overland
contracting party, or its Parent, if any, has occurred. In this event,
Overland will continue to support Tandberg on a "best efforts" basis.
Tandberg will control this know-how as a trade secret and will not pass this
know-how to any other party except as a necessary part of a manufacturing
sublicense. Failure to turn over all such "VR(2) Technology Information" to
the escrowee as provided herein or to disclose to Tandberg the identity of
such third party escrowee shall constitute a material breach of this
Agreement.
5.8 To the extent that Tandberg's know-how, manufacturing criteria and
test
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data concerning the manufacture of its MLR Drives has been reduced to
documentary form as defined in EXHIBIT I (hereinafter "MLR Manufacturing
Technology Information"), all such "MLR Manufacturing Technology Information"
shall, throughout the period preceding full manufacturing by Overland be
deposited in a third party escrow commencing as soon after the Effective Date
hereof as is reasonably practicable (but no later than 30 days following the
Effective Date hereof) and this third party escrow shall be updated to be
reasonably current throughout the period preceding full manufacturing by
Overland. Tandberg shall advise Overland promptly of the identity of such
third party escrowee. The third party escrowee shall be instructed to turn
over all such "MLR Manufacturing Technology Information" to Overland in the
event, and only in the event, that (a) the Tandberg contracting party, or
its Parent, if any, declares bankruptcy or (b) a Takeover of the Tandberg
contracting party, or its Parent, if any, has occurred. In this event,
Tandberg will continue to support Overland on a "best efforts" basis.
Overland will control this know-how as a trade secret and will not pass this
know-how to any other party. Failure to turn over all such "MLR
Manufacturing Technology Information" to the escrowee as provided herein or
to disclose to Overland the identity of such third party escrowee shall
constitute a material breach of this Agreement.
5.9 In the event that either of the parties hereto gains access to
escrowed information of the other, prior to the planned transfer of such
information pursuant to the Agreement, neither will use the information
unless absolutely required to maintain the operation of permitted programs
after all reasonable alternatives to gain a solution without utilizing this
information have been exhausted. In all cases, either party's use of such
escrowed information shall be subject to the licenses and other terms and
conditions of this Agreement. In the event that Overland does not require
usage of the escrowed information (because Tandberg is supporting Overland),
then all such information shall be immediately returned to escrow following
full manufacturing by Overland as described herein.
5.10 Tandberg shall determine how much of its know-how will be shared
with Overland engineers during the Development Period. Tandberg will make
available to Overland all know-how required by Overland to support Overland's
assembly and test and full manufacturing efforts. Overland will control all
know-how received as trade secret and will not pass this know-how on to any
third party or use it for design of tape drives.
5.11 It is agreed that each party shall use the other party's know-how
and intellectual property only to the extent required to implement the MLR
VR(2) Development Program except that Tandberg may use VR(2) Technology know
how for the purpose of designing and manufacturing other tape drives.
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5.12 Neither party shall be obligated to disclose to the other party any
know-how, trade secrets or Confidential Information unless it is required by the
other party to discharge its obligations and duties under this Agreement.
ARTICLE 6 -- USE OF RESOURCES AND PARTS SUPPLY
6.1 The parties agree that they will cooperate to utilize necessary
resources to achieve the shortest possible development times for the MLR VR(2)
Drive. The parties agree that it shall be their joint goal to have an MLR VR(2)
Drive available for the market by *** and each of the parties hereto has the
capacity to and shall make sufficient resources available to achieve this end.
6.2 Overland agrees to Tandberg's MLR roadmap(s) (as shown in EXHIBIT
J and as updated from time to time) and agrees during the Development Period
to make available a number of skilled engineers for general design work and
critical component development and ASIC design for integrating the VR(2)
Technology into the read/write channel of the MLR Drive design either in the
US or in Oslo (by mutual agreement) for the necessary time it takes to
complete the defined work for the MLR road map.
6.3 It is agreed that Overland may buy manufacturing process tooling
from Tandberg and that the price charged to Overland by Tandberg shall be
fair and equitable. ***
ARTICLE 7 -- INTELLECTUAL PROPERTY
7.1 Each party shall retain the sole ownership on any know how, Patent
Rights, Copyrights or maskworks it has developed or acquired prior to the
signing of this Agreement.
7.2 Each party shall retain the sole ownership of any know how, Patent
Rights, Copyrights or maskworks it has developed or acquired independently of
the MLR VR(2) Development Program.
7.3 All Project Rights which are related to MLR Drive technology shall
be owned by or assigned to Tandberg.
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7.4 All Project Rights which are related to VR(2) Technology shall be
owned by or assigned to Overland. Tandberg shall have the right to use and
sublicense, subject to SECTION 7.10, such Project Rights but only for use in
its manufacturing of tape drives contemplated by this Agreement.
7.5 Each party shall have and retain sole and exclusive title to all
Project Rights which are conceived solely by its employees or agents other than
as specified in SECTIONS 7.3 and 7.4.
7.6 The parties shall jointly own patents, invention rights,
copyrights, mask works which are jointly conceived by their employees or agents
other than as specified in SECTIONS 7.3, 7.4 and 7.5.
7.7 Neither party shall withdraw an application for, or allow to
lapse, any jointly-created patents or other jointly-created appropriate
registerable rights unless it has given the other party at least two (2)
months written notice of its intention in this respect to allow such other
party the possibility to prosecute, maintain, and extend such patents or
other appropriate registerable rights.
7.8 Each party shall, at its own expense, provide reasonable
assistance to the other party to facilitate filing of all patents or other
registerable rights covering Project Rights referred to in this ARTICLE 7 and
shall execute all documents necessary or desirable for that purpose.
7.9 In the event that Tandberg wants to make an improvement to the
VR(2) Technology following the Development Period, Tandberg may make such
change independently of Overland and use it for any purpose. Overland will
provide sufficient design information to allow Tandberg to effectively make
such improvement. If Tandberg requests that Overland assist, and Overland
agrees to assist, in making the improvement, then Tandberg will pay for
Overland's development costs. Tandberg will own the intellectual property
relating to the improvement, and Overland may license or sub-license such
improvement to the VR(2) Technology for use on any tape drive other than an MLR
VR(2) Drive or a future tape drive developed by Tandberg which employs VR(2)
Technology, by entering into a written license agreement with Tandberg on
mutually agreed reasonable terms and conditions. If either Overland or
Tandberg makes an improvement to VR(2) Technology, and such improvement is
utilized within MLR VR(2) Drives or future tape drives developed by Tandberg
which employ VR(2) Technology, then no royalty will be
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payable on such improvement used in such drives built by either party.
7.10 Tandberg only has the right to grant sublicenses under the VR(2)
Technology to other companies to make, have made, use and sell, and otherwise
dispose of drives covered by this Agreement. Tandberg shall not be entitled to
sublicense to other companies any rights or know-how to make ASICs incorporating
the VR(2) Technology, but shall be entitled to subcontract the design and
manufacturing of such ASICs for Tandberg for use in drives covered by this
Agreement. Tandberg shall have the right to grant sublicenses under the VR(2)
Technology to other companies to make, have made, use and sell, and otherwise
dispose of future drives which incorporate VR(2) Technology.
ARTICLE 8 -- MANUFACTURE, ASSEMBLY AND SALES RIGHTS
8.1 Overland shall ensure that all Overland products utilizing
Tandberg's MLR and SLR trademarks shall conform to Tandberg's commercially
acceptable product quality standards. Failure to comply with these quality
standards shall result, following a 30-day cure period, in immediate
termination of the MLR trademark license from Tandberg to Overland unless,
within a 30 day period from notification that such standards are not being
met, Overland shall have cured the quality problem to the reasonable
satisfaction of Tandberg.
8.2 Tandberg shall ensure that all Tandberg products utilizing
Overland's VR(2) trademark shall conform to Overland's commercially
acceptable product quality standards. Failure to comply with these quality
standards shall result, following a 30-day cure period, in immediate
termination of the Overland's VR(2) trademark license from Overland to
Tandberg unless, within a 30 day period from notification that such standards
are not being met, Tandberg shall have cured the quality problem to the
reasonable satisfaction of Overland.
8.3 As specified herein, Tandberg may audit on a regular basis that
MLR drives assembled or manufactured by Overland meet the minimum product
quality standards (compatibility, etc.) and that Overland keep the necessary
documentation to prove that they adhere to these quality requirements. Both
companies agree that the quality of the MLR drives are critical for the
success of the products in the market place.
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ARTICLE 9 -- FUNDING
9.1 Each party will independently fund its respective development costs
for the development programs defined by this Agreement.
9.2 In the event that one party decides to have a third party to
undertake a development of one or more components instead of itself providing
engineering resources to do so, such party will cover the cost of such a
program.
9.3 Shared funding will be considered (subject to mutual agreement) for
significant expenses, third-party technology acquisition and/or marketing
programs.
ARTICLE 10 ***
ARTICLE 11 -- CONFIDENTIALITY AND PUBLICATIONS
11.1 Unless as otherwise expressly provided in this Agreement, neither
party shall disclose to any third party (other than a third party engaged as an
independent consultant who has bound himself to a confidential agreement) any
Confidential Information of the other party or shall use such Confidential
Information for the purpose other than the purpose contemplated in this
Agreement, without prior written permission from the other party. Each party
shall cause its directors, officers, agents, attorneys, employees, and its
Affiliates to abide by the secrecy obligations set forth herein.
11.2 This Agreement imposes no obligation upon recipient with respect to
Confidential Information that recipient can establish:
(a) was in recipient's possession before receipt from discloser;
(b) is or becomes available to the public through no fault of
recipient;
(c) is received in good faith by recipient from a third party and is
not subject to an obligation of confidentiality owed to the third
party; or
(d) is independently developed by recipient without reference to
Confidential Information received hereunder.
11.3 A recipient of Confidential Information agrees not to disclose
such Confidential Information to a third party (including disclosing such
Confidential Information in a patent application), without the written
consent of the discloser of the
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Confidential Information. Each party shall protect the Confidential
Information by using the same degree of care, but no less than a reasonable
degree of care, to prevent the unauthorised disclosure of the Confidential
Information, as such party uses to protect its own Confidential Information
of a like nature.
11.4 If any party is required by judicial or administrative process to
disclose the Confidential Information, such party shall promptly notify the
other party and allow the other party a reasonable time to oppose such process.
11.5 Recipient's duties under this Article expire five (5) years from
the date of termination of this Agreement.
11.6 The terms of this Agreement, are also Confidential Information
under the terms of this Article.
11.7 The parties will work together to coordinate press releases
relating to the products and activities resulting from this Agreement.
Furthermore, the parties shall agree on the wording for the first such press
release.
11.8 Confidential document handling shall be as specified in EXHIBIT F
and shall be such that Confidential Information existing in documentary form
shall have Registered Confidential status, meaning that such documents must be
signed out to individuals and who are aware of these confidentiality provisions
and must be tracked at all times.
11.9 A list of individuals of the prospective receiving party deemed to
require access to Registered Confidential documents must be approved by the
owner of the Registered Confidential documents. Only these individuals may
request access to a Registered Confidential document and such request must be
justified and approved by the Registered Confidential Document Manager who shall
be a single individual in each company such as the Manager of the MLR VR(2)
Development Program Engineering Team.
11.10 Each recipient of a Confidential Document shall sign a
Non-Disclosure (and non-use) agreement (acceptable in form to both parties)
prior to receiving any Registered Confidential document.
11.11 Upon termination of this Agreement for any reason, all Registered
Confidential documents will be returned to their owners with the detailed
request and access logs.
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ARTICLE 12 -- TERM AND TERMINATION
12.1 This Agreement shall begin on the Effective Date and shall remain
in effect until terminated by the parties by mutual agreement or by the other
termination provisions of this Agreement, provided however that following two
years from the Effective Date hereof, either party may terminate this Agreement
without cause as provided in this Article by giving one hundred eighty (180)
days' written notice. In the event of a breach, the breaching party will have
ninety (90) days after receipt of notice from the non-breaching party to cure
any such breach.
12.2 The effect of termination of this Agreement on the licenses granted
herein and certain obligations of the parties are set forth in EXHIBIT L. The
obligations of the parties with respect to maintenance of trade secret
information, know-how protection and confidentiality shall survive termination
of this Agreement.
12.3 Should a situation occur, related to the MLR VR(2) Drive which
makes it practically unrealistic to complete the MLR VR(2) Development
Program within any kind of reasonable time and cost limits, either party
shall have the right to terminate this Agreement on one hundred eighty days
notice unless otherwise mutually agreed. The test shall be whether it
objectively appears that the project is commercially reasonably possible
within a reasonable period of time. The two companies shall consult and
advise each other prior to such a decision, and also agree that they will do
their best to avoid that such a situation shall occur. However, the parties
may agree to terminate the development work if the product will become so
severely delayed or so expensive that it will become obviously
non-competitive in the market. The parties agree to consider reasonable
solutions before the work is eventually terminated. In the event that the
VR(2) Technology is successfully implemented in an MLR Drive and MLR VR(2)
Drives can be effectively produced at Tandberg but for any reason the set up
of a manufacturing line for MLR or MLR VR(2) Drives at Overland cannot be
successfully completed, then and in that event, Tandberg shall continue to
have the rights to the VR(2) Technology subject to the price increases in
Exhibit D.
12.4 In the event that the implementation of the VR(2) Technology in the
MLR Drives is not successful within *** of the Effective Date hereof, either
party may declare this Agreement terminated and such termination shall take
place *** following such declaration and in such event, the obligations of the
parties with respect to maintenance of
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REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
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<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
trade secret information, know-how protection and confidentiality, and those
obligations specified in Section 3.8 and Exhibit L, shall continue.
12.5 In the event of any good-faith termination, each party agrees that
it shall absorb all costs it incurred with respect to the Development Program to
the date of termination without seeking indemnification from the other party.
12.6 If either of the parties fails to exercise a good faith effort to
fulfill its commitments under this Agreement as fast as is reasonably
commercially feasible, then after written notice specifically identifying such
party's failure to exercise good faith and failure to cure the specified problem
within a ninety-day (90-day) period of time, the Agreement is terminated and the
effects of such termination are set forth in Exhibit L.
ARTICLE 13 -- ASSIGNMENT
13.1 This Agreement and the rights and obligations hereunder may not be
assigned by either party without the express written consent of the other party,
unless as a part of the sale or other transfer of all or substantially all of
the business of a party to which this Agreement relates.
ARTICLE 14 -- COMMUNICATIONS
14.1 Communications or notices required or permitted under this
Agreement shall be in writing, shall identify this Agreement, and shall be hand
delivered, sent by express or first class mail, or sent by facsimile, and
addressed as follows:
To Tandberg: To Overland:
President President
Tandberg ASA Overland Data, Inc.
P.O. Box 134, Kjelsas 8975 Balboa Avenue
N-0411 Oslo, Norway San Diego, CA 92123-1599, USA
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE 15 -- RELEASE, REPRESENTATIONS,
WARRANTIES, AND INDEMNIFICATIONS
15.1 Unless otherwise noted, each party represents and warrants that it
has the right to grant the license rights granted under this Agreement.
15.2 Nothing contained in this Agreement shall be construed as:
(a) a warranty or representation by either party as to the validity or
scope of any patent;
(b) a warranty or representation that the exercise of rights and
licenses granted under this Agreement shall be free from
infringement of patents, other than those patents licensed
hereunder (except that both parties hereby represent and warrant
that they have no actual knowledge of any actual infringement or
claim thereof); or
(c) an agreement, understanding, or obligation of any kind by either
party to maintain or enforce its patents, to bring or prosecute
actions or suits against any third parties for infringement, or
conferring any rights to bring or prosecute actions or suits
against third parties for infringement.
15.3 IT IS AGREED THAT NEITHER PARTY SHALL BE LIABLE TO THE OTHER UNDER
BREACH OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR ANY OTHER LEGAL
THEORY FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL LOSS, EXPENSE,
DAMAGES, DEMANDS, ACTIONS OR CAUSES OF ACTION OR ANY OTHER CLAIMS WHATSOEVER
(INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFIT, INVESTMENT, GOODWILL, BUSINESS
OR BUSINESS OPPORTUNITY) OR FOR ANY PUNITIVE DAMAGES ARISING OUT OF OR RESULTING
FROM THE RISKS REFERRED TO IN THIS ARTICLE 12 OR OTHERWISE FROM THIS AGREEMENT
OR THE TERMINATION OF THIS AGREEMENT. Notwithstanding anything else to the
contrary contained in this Agreement, neither party shall be liable to the other
for any amounts in excess of $ ***.
15.4 Each party shall indemnify and hold the other party harmless from
any and all loss or liability for any and all claims, causes of action, suits,
proceedings, losses, damages, demands, fees, expenses, fines, penalties and
costs (including, without limitation, reasonable attorney's fees, costs and
disbursements) arising from any injury or alleged injury to any third person or
business for property damage or personal injury caused by any MLR Drives, MLR
VR(2) Drives or related products made or processes
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<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
performed by said each party.
15.5 A party (the "indemnitee") which intends to claim indemnification
under this Article 15 shall promptly notify the other party ("the
indemnitor") in writing of any action, claims, or liability in respect of
which the indemnitee or any of its employees or agents intend to claim such
indemnification. The indemnitee shall permit, and shall cause its employees
and agents to permit, the indemnitor to settle any such action, claims, or
liability and agrees to the control of such defence or settlement by the
indemnitor; provided, however, that such settlement does not adversely affect
the indemnitee's rights hereunder or impose any obligations on the indemnitee
in addition to those set forth herein. No action, claim, or liability shall
be settled without the prior written consent of the indemnitor, and the
indemnitor shall not be responsible for any attorneys' fees or other costs
incurred other than as provided herein. The indemnitee, its employees and
agents, shall cooperate fully with the indemnitor and its legal
representatives in the investigation and defence of any action, claim, or
liability covered by this indemnification. The indemnitee shall have the
right, but not the obligation, to be represented by counsel of its own
selection and at its own expense.
15.6 Neither party guarantees the success of any of the development
programs or that the performance or work under this Agreement will result in
the development of commercial products. Both parties assume the risk that
the development programs will not produce the results required.
ARTICLE 16 -- MISCELLANEOUS PROVISIONS
16.1 Arbitration.
a. Governing Law. This Agreement will be governed in all respects
solely and exclusively by the laws of the State of California, U.S.A. without
regard to conflict of laws principles. The United Nations Convention on the
International Sale of Goods will not apply to this Agreement.
b. Mandatory Arbitration. All disputes, controversies, or claims
arising out of, relating to or in connection with this contract including the
determination of the scope of the agreement to arbitrate, will be finally
settled by arbitration in accordance with the Arbitration Rules of the United
Nations Commission on International Trade Law (UNCITRAL), applicable at the time
of submission of the dispute to arbitration. The
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<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
American Arbitration Association, ("AAA") will be the Appointing Authority
and will appoint a single arbitrator. The arbitration case will be
administered by the AAA in accordance with its "Procedures for Cases Under
the UNCITRAL Arbitration Rules" ("Rules"). The place of arbitration will be
Chicago, Illinois, and the exclusive language to be used for the arbitral
proceedings will be English.
c. Ancillary Relief. Nothing herein will prevent a party, prior to
appointment of the arbitrator, from making application to any court of
competent jurisdiction, for a temporary restraining order or any other
provisional remedy available at law or in equity not cognizable by
arbitration. Such application for relief will not constitute a waiver of
this agreement to arbitrate. Upon appointment, the arbitrator will have
exclusive authority to order provisional or interim relief, except that any
relief ordered by the arbitrator may be immediately and specifically enforced
by a court otherwise having jurisdiction. The parties waive objection to
venue and consent to the personal jurisdiction of the federal courts of
Chicago, Illinois, U.S.A. in any action to enforce this agreement to
arbitrate or any order or award of the arbitrator, or for the provisional or
interim remedies provided for in this Agreement.
d. Expenses. In any arbitration proceeding pursuant to this
Agreement, each party will bear the expenses of its witnesses. All other costs
of arbitration, including, without limitation, the fees and expenses of the
arbitrators, the cost of the record or transcripts thereof, if any,
administrative fees, the attorneys' fees of the parties, and all other fees and
costs will be allocated to the parties to the arbitration as determined by the
arbitrator, except that the prevailing party in such arbitration will be
entitled to recover its reasonable attorneys' fees and expenses.
e. Discovery. Discovery will be limited to written requests for the
production of specific documents. The period for requesting documents will
be 60 days commencing upon the day that the answer is due under the Rules.
The responding party will have 30 days to produce the requested documents by
sending copies to the requesting party or its representative via a recognized
international courier service. The parties will also voluntarily produce all
documents that they intend to use at the arbitration hearing and a list of
intended witnesses before the close of discovery subject to supplementation
for purposes of rebuttal or good cause shown. The parties waive any right to
seek any discovery not provided for in this Agreement irrespective of whether
the laws of any country provide for different or additional discovery in
international arbitration. The arbitrator will hold a pre-hearing conference
within three days of the close of discovery and will schedule and hold the
final hearing within 30 days of the close of discovery.
22
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EACH PARTY HERETO HEREBY AGREES THAT THE ARBITRATION PROCEDURE PROVIDED IN
THIS AGREEMENT WILL BE THE SOLE AND EXCLUSIVE METHOD OF RESOLVING ANY
DISPUTES, CONTROVERSIES OR CLAIMS ARISING IN CONNECTION WITH, OR OUT OF THIS
AGREEMENT.
16.2 Any provision of this Agreement which may be deemed invalid or
unenforceable by a court of competent jurisdiction shall in no way invalidate or
render unenforceable the remainder of this Agreement, which shall remain in full
force and effect.
16.3 The failure or delay of a party at any time to enforce performance
of this Agreement shall not be construed as a waiver of the right of such party
to enforce performance of this Agreement at any subsequent time.
16.4 The parties agree that during the term of this Agreement and within
two years thereafter, neither will solicit as its own employee or consultant any
person who was at any time during the term of this Agreement both associated in
any way with the subject matter of this Agreement and also an employee or
consultant of the other (excepting those who may have been consultants of both
parties jointly).
16.5 This Agreement contains the complete and entire agreement between
the parties, and supersedes any previous relevant communication, representation
or agreement, verbal or written. No modification or renewal of this Agreement
will be binding upon the parties unless it is made in writing by authorised
representatives of both parties.
16.6 The parties shall adhere to the U.S. and European export
administration laws and regulations and shall not export or re-export any
technical data or products received from the other party or the direct product
of such technical data to any proscribed country listed in the U.S. or European
regulations unless properly authorised by the U.S. or European governmental
agency, respectively.
16.7 All reports, data, information, notices, schedules, plans, records
and other information required to be provided pursuant to this Agreement by
either party to this Agreement will be in the English language. If a
translation is made of this Agreement, it will be made for the convenience of
the translating party and the English version of this Agreement, rather than the
translated version, will be deemed controlling.
16.8 Neither party shall be liable for its failure to perform any of its
obligations hereunder during any period in which performance is delayed by fire,
flood, war,
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<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
embargo, riot strike, or an unforeseeable intervention of any government
authority and other such causes beyond the control of either party that
causes complete business interruption ("Force Majeure"), provided that the
party suffering such delay immediately notifies the other party of the delay.
In such circumstances, the party suffering such delay shall lose no
previously granted rights as a consequence of such delay.
<TABLE>
<S> <C>
OVERLAND DATA, INC.: TANDBERG DATA ASA:
By: /s/ Scott Mcclendon By: /s/ Hans Christian Qvist
-------------------------- --------------------------
Name: Scott McClendon Name: Hans Christian Qvist
-------------------------- --------------------------
Title: President & CEO Title: President & CEO
-------------------------- --------------------------
Date: March 30, 1998 Date: March 31, 1998
-------------------------- --------------------------
</TABLE>
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REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBITS
- -------------------------------------------------------------------------------
<TABLE>
<C> <S>
EXHIBIT A DEFINITION OF VR(2) TECHNOLOGY
EXHIBIT B MLR VR(2) DEVELOPMENT PROGRAM
EXHIBIT C OEM AGREEMENT FROM TANDBERG TO OVERLAND
EXHIBIT D MLR AND VR(2) ROYALTIES
EXHIBIT E SUPPLY OF ASSEMBLIES AND COMPONENTS BY TANDBERG TO OVERLAND
EXHIBIT F CONFIDENTIAL DOCUMENT HANDLING
EXHIBIT G MANUFACTURING KNOW-HOW AND PROCESS TOOLING
EXHIBIT H ESCROW CONTENTS BY OVERLAND
EXHIBIT I ESCROW CONTENTS BY TANDBERG
EXHIBIT J MLR DRIVE ROADMAP(S)
EXHIBIT K TRADEMARK USE AND QUALITY CONTROL
EXHIBIT L EFFECTS OF TERMINATION
</TABLE>
25
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REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
DEFINITION OF VR(2) TECHNOLOGY
VR(2) Technology is a magnetic data channel technology including the subject
matter disclosed in U.S. PATENT #5,712,863 *** and any reissues,
continuations, continuations in part, divisionals, regular U.S. patent
applications (relating to improvements), provisional U.S. patent
applications, counterpart foreign applications, and reexaminations thereof
(collectively the "VR(2) Patent/Applications"). VR(2) Technology provides
approximately a 50% increase in user bit density for the same symbol spacing
density.
U.S. PATENT #5,712,863 discloses a non-deterministic randomizer which
eliminates the need for worst case data pattern design testing.
***
VR(2) Technology also includes (1) Overland's VDHL models, and (2) know-how,
trade secrets and other proprietary and confidential information of Overland
which directly relates to the inventions disclosed in the VR(2)
Patent/Applications. It is understood by the parties that VR(2) Technology
shall not include any PRML or similar technology which is (1) already
generally known, and (2) not disclosed in the VR(2) Patent/Applications and
shall not include any portion of the write and/or read data channels or
corresponding data format(s) already used by Tandberg or any natural
extension of these write and/or read data channels and corresponding data
format(s) resulting from the implementation of such PRML-based technology
into these channels and formats.
26
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REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT B
MLR VR(2) DEVELOPMENT PROGRAM
***
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REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT C
OEM AGREEMENT
FROM
TANDBERG TO OVERLAND
The parties have agreed that the OEM Agreement shall be entered into within 90
days of the Effective Date of the Agreement.
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REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT D
MLR AND VR(2) ROYALTIES
***
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REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT E
SUPPLY
OF
ASSEMBLIES AND COMPONENTS
BY
TANDBERG TO OVERLAND
I. SUPPLY
1.1 With reference to Section 3.2 and 4.2 of the Agreement, Overland
shall be supplied assemblies and/or components by Tandberg or by Tandberg's
approved suppliers ("Suppliers") for final assembly and test of MLR Drives and
MLR VR(2) Drives.
1.2 With reference to Section 3.3, 4.3 and 4.4 of the Agreement,
Overland shall be supplied assemblies and/or components by Tandberg or by the
Suppliers for full manufacturing of MLR Drives and MLR VR(2) Drives.
1.3 With reference to Section 4.6 of the Agreement, Tandberg shall be
supplied ASICs incorporating VR(2) Technology by Overland as needed to
manufacture drives covered by the Agreement and related subassemblies.
II. ASSEMBLIES AND COMPONENTS TO BE SUPPLIED TO OVERLAND ACCORDING TO
SECTION 3.2
The following may be supplied to Overland as components or as module assemblies
by Tandberg or the Suppliers:
***
III ORDERING AND DELIVERY.
Overland may either order assemblies and components from Tandberg or from the
Suppliers as follows:
3.1 SUPPLY BY TANDBERG
3.1.1 Overland will issue purchase orders ("PO") to Tandberg for supply
of the Bridge and PC Board as assemblies.
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REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
3.1.2 Tandberg will confirm the PO and supply the Bridge and PC Board in
accordance with the confirmed PO and Tandberg's terms and conditions for supply,
including its standard warranty.
3.1.3 ***
3.2 SUPPLY BY SUPPLIERS.
3.2.1 For ordering of Front, Frame and Top Cover as components or
assemblies, Overland will issue POs to Tandberg for supply of such components by
the Suppliers. Tandberg will confirm and forward the PO to its Suppliers so that
Tandberg may obtain its best pricing from the Suppliers for the benefit of
Overland and Tandberg.
3.2.2 The Supplier will supply the components or assemblies directly to
Overland in accordance with the confirmed PO and Supplier's terms and conditions
for supply, including its warranty provisions. The Supplier will invoice
Overland directly. ***
3.2.3 If the above arrangement with the Suppliers is not feasible, the
parties will follow the following procedures:
* Overland will place POs according to clause 3.2.1.
* The Suppliers will supply the components or assemblies directly to
Overland in accordance with the confirmed PO and Supplier's terms and
conditions for supply, including its warranty provisions, but will make out
its invoices to Tandberg. *** Overland shall make payment of invoices so
that payment is received by Tandberg at least 3 days prior to the invoice
due date.
3.3 Supply in accordance with this section III shall be subject to
credit approval of Overland by Tandberg.
3.4 In the event the Suppliers will not accept recourse directly from
Overland when Overland orders through Tandberg, then, unless otherwise mutually
agreed, Overland will have to order from the Suppliers directly. In this case,
Tandberg will not bill Overland a handling fee.
3.4 For the right to assemble and test, Overland shall pay a royalty as
specified in Exhibit D, paragraph 2.2.
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<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
IV. SUPPLY OF ASSEMBLIES AND COMPONENTS FOR FULL MANUFACTURING ACCORDING
TO SECTION 3.3
Overland may either order assemblies and components from Tandberg or from the
Suppliers as follows:
4.1 SUPPLY BY TANDBERG
4.1.1 Overland will issue PO to Tandberg for supply of the assemblies and
components.
4.1.2 Tandberg will confirm the PO and supply the assemblies and
components in accordance with the confirmed PO and Tandberg's terms and
conditions for supply, including its standard warranty.
4.2 SUPPLY BY SUPPLIERS.
4.2.1 For ordering of supplies of components or assemblies from the
Suppliers, Overland will issue POs to Tandberg for supply of such components or
assemblies by the Suppliers. Tandberg will confirm and forward the PO to the
Suppliers so that Tandberg may obtain its best pricing from the Suppliers for
the benefit of Overland and Tandberg.
4.2.2 The Supplier will supply the components or assemblies directly to
Overland in accordance with the confirmed PO and Supplier's terms and conditions
for supply, including its warranty provisions. The Supplier will invoice
Overland directly. ***
4.2.3 If the above arrangement with the Suppliers is not feasible, the
parties will follow the following procedures:
* Overland will place POs according to clause 4.2.1.
* The Suppliers will supply the components or assemblies directly to
Overland in accordance with the confirmed PO and the Supplier's terms and
conditions for supply, including its warranty provisions, but will make out
its invoices to Tandberg. *** Overland shall make payment of invoices so
that payment is received by Tandberg at least 3 days prior to the invoice
due date.
4.3 Supply in accordance with this section IV shall be subject to
credit approval of Overland by Tandberg.
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<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
4.4 In the event the Suppliers will not accept recourse directly from
Overland when Overland orders through Tandberg, then, unless otherwise mutually
agreed, Overland will have to order from the Suppliers directly. In this case,
Tandberg will not bill Overland a handling fee.
4.5 For full manufacturing, Overland shall pay a royalty as specified
in Exhibit D, paragraph 2.1.
V. SUPPLY BY OVERLAND.
5.1 Tandberg will issue POs to Overland for supply of ASICs
incorporating VR(2) Technology as needed to manufacture MLR Drives and related
subassemblies.
5.2 Overland will confirm the PO and supply the ASICs in accordance
with the confirmed PO and Overland's terms and conditions for supply, including
its standard warranty.
5.3 *** Tandberg shall make payment of invoices so that payment is
received by Overland at least 3 days prior to the invoice due date of its
supplier. In the event that Tandberg is allowed to order directly from
Overland's supplier, Overland will not bill Tandberg a handling fee.
5.4 Supply in accordance with this section V shall be subject to credit
approval of Tandberg by Overland.
VI GENERAL
6.1 It is agreed that the arrangement of ordering Supplier's
manufactured assemblies and components through Tandberg is for the primary
benefit of Overland, and that, as a consequence, no liability will attach to
Tandberg for performing this function.
6.2 Each party shall provide the other party with adequate information
regarding its purchasing arrangements with its suppliers.
6.3 It is further agreed as a general principle that the parties will
cooperate in good faith within the spirit of this Agreement to ensure that each
party may efficiently carry out its work and obligations hereunder.
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT F
CONFIDENTIAL DOCUMENT HANDLING
1. Each party will adhere to the procedures in this Exhibit for the transfer
of any know-how, trade secrets, and Confidential Information to the other
party. Such know-how, trade secrets and Confidential Information will be
accorded a "Registered Confidential" status and will be identified as
"Registered Confidential Documents."
2. Each party will identify a "Registered Confidential Document Manager."
3. The Document Manager will be responsible for transporting or receipt of a
Registered Confidential Document. All transportation and receipt of
documents via e-mail, fax, US Mail, International Mail, courier services,
etc., must be routed through the Document Manager who will disperse to the
required individual(s). The Registered Confidential Document will be
controlled via an alphanumeric system to be determined by the Document
Manager.
4. All originals and copies will be stamped or printed with an alphanumeric
code in ink other than black, on the first page of every document.
5. Registered Confidential Documents will be dispersed by the Document Manager
in a manner best befitting the confidentiality of the document. Copies
made of a Registered Confidential Document are to be logged and tracked in
such a manner as to include the following, the date received by Document
Manager, the printed name of the receiving party, the date received by
party, along with the signature of the receiving party, as well as, the
alphanumeric code for that document. Every copy and original will have its
own unique number.
6. The original Registered Confidential Document will be kept in a locked
cabinet along with all controlled lists. The key will be maintained by the
Document Manager.
7. Controlled lists will include, but not be limited to, a listing of
Registered Confidential Documents sent and/or received by either party.
8. Any individual receiving a Registered Confidential Document must sign a
non-disclosure and non-use Agreement acceptable in form to both parties
prior to receiving any Registered Confidential Document. Such Agreement
will reference the terms and conditions of this Exhibit.
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<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
9. Either party can request at any time a listing of said controlled
alphanumeric Registered Confidential Documents and those individuals who
have access and/or copies of said documents.
10. Registered Confidential Documents will be held by individual employees and
when not in use must be stored in a secured locked area.
11. Individuals returning Registered Confidential Documents to the Document
Manager must sign and date the control log showing items returned. The
Document Manager will shred said copies.
12. When an employee terminates from the company, said individual must return
all Registered Confidential Documents to the Document Manager prior to
exiting.
35
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT G
MANUFACTURING KNOW-HOW
AND
PROCESS TOOLING
***
36
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT H
ESCROW CONTENTS BY OVERLAND
1. In accordance with Section 5.8 of the Agreement, Overland shall deposit the
VR(2) Technology Information listed in clause 5 hereof ("Information") in escrow
with the escrow agent specified in clause 4 hereof ("Escrow Agent").
2. Overland shall update the Information to become reasonably current during
the term of the Development Period.
3. Overland will enter into an agreement with the Escrow Agent ("Escrow
Agreement") which, among other things, shall contain the following provisions:
3.1 The following events shall constitute release conditions ("Release
Conditions"):
a) the Overland contracting party, or its Parent, if any, declares
bankruptcy; or
b) a Takeover of the Overland contracting party, or its Parent, if
any, has occurred.
3.2 Upon the occurrence of a Release Condition, and only then, the Escrow Agent
shall be instructed to turn all Information over to Tandberg.
4. Overland has appointed the following Escrow Agent:
Name: Fort Knox Escrow Services, Inc.
Address: 3539A Church Street
Clarkston, GA 30021-1717
5. Overland shall deposit the following Information in escrow:
***
37
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT I
ESCROW CONTENTS BY TANDBERG
1. In accordance with Section 5.9 of the Agreement, Tandberg shall deposit the
MLR Manufacturing Technology Information listed in clause 5 hereof in escrow
with the escrow agent specified in clause 4 hereof ("Escrow Agent").
2. Tandberg will update the Information to become reasonably current
throughout the period preceding full manufacturing by Overland.
3. Tandberg shall enter into an agreement with the Escrow Agent ("Escrow
Agreement") which, among other things, shall contain the following provisions:
3.1 The following events shall constitute release conditions ("Release
Conditions"):
a) the Tandberg contracting party, or its Parent, if any, declares
bankruptcy; or
b) a Takeover of the Tandberg contracting party, or its Parent, if
any, has occurred.
3.2 Upon the occurrence of a Release Condition, and only then, the Escrow Agent
shall be instructed to turn all Information over to Overland.
4. Tandberg has appointed the following Escrow Agent:
Name: Wikborg, Rein & Co.
Address: Post Office Box 1513 Vika
Olav V's Gate 6
N-0117 Oslo, Norway
5. Tandberg will deposit the following information in escrow:
***
38
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT K
TRADEMARK USE AND QUALITY CONTROL
1. Overland will at all times use all reasonable efforts to ensure that all
products in relation to which it uses the MLR Trademark conform to the
guidelines provided in this Exhibit.
2. Overland is authorized to use the MLR Trademark only in connection with
the promotion and sale of MLR Drives, MLR VR(2) Drives or Libraries having
MLR or MLR VR(2) Drives.
3. Overland shall cooperate with Tandberg in making or facilitating any
governmental registrations or submissions that are necessary to protect the
MLR Trademark and Tandberg's rights therein, including, but not limited to,
registration of Overland as a registered user of the MLR Trademark. Upon
termination of Overland's right to use the MLR Trademark under this
Agreement, Overland shall cooperate with Tandberg in revocation of any such
registered user registration.
4. Overland shall comply with all applicable laws and governmental
regulations pertaining to the proper use and designation of trademarks.
5. Overland admits the validity of the MLR Trademark.
6. Tandberg does not warrant or represent that the use of the MLR Trademark
shall be free from infringement of third party trademarks. Tandberg does
represent, however, that it is not aware of any such infringement.
7. Overland further agrees not to use or register in any country any
trademarks resembling, diluting, or confusingly similar to the MLR Trademark.
Whenever the attention of Overland is called by Tandberg to any such
resemblance, dilution, confusion, or risk of confusion, Overland agrees to
take appropriate steps immediately to remedy or avoid such situations.
8. Overland shall give Tandberg notice of any known or presumed
infringements of the MLR Trademark, and Overland shall give Tandberg full
cooperation in the protection of the MLR Trademark. If Tandberg decides to
enforce the MLR Trademark against an infringer, all costs incurred and all
recoveries made shall be for the account of Tandberg.
39
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
9. Tandberg will at all times use all reasonable efforts to ensure that all
products in relation to which it uses the VR(2) Trademark conform to the
guidelines provided in this Exhibit.
10. Tandberg is authorized to use the VR(2) Trademark only in connection
with the promotion and sale of products incorporating VR(2) Technology.
11. Tandberg shall cooperate with Overland in making or facilitating any
governmental registrations or submissions that are necessary to protect the
VR(2) Trademark and Overland's rights therein, including, but not limited to,
registration of Tandberg as a registered user of the VR(2) Trademark. Upon
termination of Tandberg's right to use the VR(2) Trademark under this
Agreement, Tandberg shall cooperate with Overland in revocation of any such
registered user registration.
12. Tandberg shall comply with all applicable laws and governmental
regulations pertaining to the proper use and designation of trademarks.
13. Tandberg admits the validity of the VR(2) Trademark.
14. Overland does not warrant or represent that the use of the VR(2)
Trademark shall be free from infringement of third party trademarks.
Overland does represent, however, that it is not aware of any such
infringement.
15. Tandberg further agrees not to use or register in any country any
trademarks resembling, diluting, or confusingly similar to the VR(2)
Trademark. Whenever the attention of Tandberg is called by Overland to any
such resemblance, dilution, confusion, or risk of confusion, Tandberg agrees
to take appropriate steps immediately to remedy or avoid such situations.
16. Tandberg shall give Overland notice of any known or presumed
infringements of the VR(2) Trademark, and Tandberg shall give Overland full
cooperation in the protection of the VR(2) Trademark. If Overland decides to
enforce the VR(2) Trademark against an infringer, all costs incurred and all
recoveries made shall be for the account of Overland.
17. The parties will not combine the MLR Trademark and the VR(2) Trademark
into a single mark or a composite mark.
40
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
18. Upon termination of this Agreement, Overland will immediately
discontinue all use of the MLR trademark and any term confusingly similar
thereto, and Tandberg will immediately discontinue all use of the VR(2)
trademark and any term confusingly similar thereto. The parties will at that
time exchange information relating to inventory of materials and products and
agree upon an orderly and limited schedule to exhaust such inventories.
41
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT L
EFFECTS OF TERMINATION
***
42
<PAGE>
EXHIBIT 11.1
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C>
Net income $2,792 $3,100 $3,159
------ ------ -----
------ ------ -----
Basic:
Weighted average number
of common stock shares
outstanding 10,525 7,054 4,442
------ ------ -----
------ ------ -----
Basic earnings per share $ 0.27 $ 0.44 $0.71
------ ------ -----
------ ------ -----
Diluted:
Weighted average number of common
stock shares outstanding 10,525 7,054 4,442
Weighted average number of
preferred stock shares
outstanding -- 1,478 2,336
Common stock equivalents from the
issuance of options using the
treasury stock method 544 632 757
Cheap stock adjustment -- 131 131
------ ------ -----
Shares used in computing net
income per share 11,069 9,295 7,666
------ ------ -----
------ ------ -----
Diluted earnings per share $0.25 $0.33 $0.41
------ ------ -----
------ ------ -----
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Place of
Name of Subsidiary Incorporation
- -------------------- ----------------------
<S> <C>
Overland Data (Europe) Ltd. United Kingdom
Overland Data Export Limited Barbados
Overland Data SARL France
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-22217) of Overland Data, Inc. of our report dated
July 29, 1998 appearing on page F-14 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ---------------------
PRICEWATERHOUSECOOPERS LLP
San Diego, California
September 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED
JUNE 30, 1998, THE CONSOLIDATED CONDENSED BALANCE SHEET AS OF JUNE 30, 1998
AND THE CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS FOR THE TWELVE MONTHS
ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 15,550
<SECURITIES> 0
<RECEIVABLES> 15,683
<ALLOWANCES> 0
<INVENTORY> 16,077
<CURRENT-ASSETS> 49,741
<PP&E> 4,207
<DEPRECIATION> 0
<TOTAL-ASSETS> 53,996
<CURRENT-LIABILITIES> 10,243
<BONDS> 0
0
0
<COMMON> 33,496
<OTHER-SE> 9,872
<TOTAL-LIABILITY-AND-EQUITY> 53,996
<SALES> 75,164
<TOTAL-REVENUES> 75,164
<CGS> 51,965
<TOTAL-COSTS> 51,965
<OTHER-EXPENSES> 19,559
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (940)
<INCOME-PRETAX> 4,543
<INCOME-TAX> 1,751
<INCOME-CONTINUING> 2,792
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,792
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.25
</TABLE>
