SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) December 18, 1997
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STORAGE TECHNOLOGY CORPORATION
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(Exact Name of Registrant As Specified In Charter)
Delaware 1-7534 84-0593263
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(State or other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
2270 South 88th Street, Louisville, Colorado 80028-4309
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (303) 673-5151
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Not applicable
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS
On December 18, 1997, the Company and International Business Machines
Corporation (IBM) announced that they had reached a settlement with the United
States Department of Justice (DOJ) resolving the DOJ's investigation of a
1996 original equipment manufacturer (OEM) agreement between the Company and
IBM. The DOJ filed a complaint and the proposed settlement with the U.S.
District Court for the District of Columbia ("Court") on December 18, 1997.
The complaint alleges violations of the federal antitrust laws. The
settlement is set forth in a proposed consent decree, which will be effective
upon approval by the Court. Concurrently, the Company and IBM announced that
they had entered into a new OEM agreement for mainframe disk storage products
which replaces the 1996 OEM agreement.
The terms of the consent decree filed with the Court permit the Company
and IBM to continue their relationship, subject to certain prohibitions and
constraints. The consent decree only covers disk storage products that are
configured for attachment to IBM System 390 and compatible mainframe
computers. Under the consent decree, the parties are prohibited from entering
into certain types of agreements that would create a substantial economic
incentive for the Company to sell mainframe disk storage products only to IBM
or prevent competition between the Company and IBM for sales of disk storage
products. Such prohibited agreements include, among others, long-term volume
purchase commitments by IBM, recovery payments or liquidated damages from IBM
as a consequence of its failure to purchase a certain volume of disk storage
products, and agreements that condition any obligation of IBM to the Company
upon the Company's sales of disk storage products through other distribution
channels. The parties are also prohibited from making any changes to the
terms of their contractual OEM relationship, or entering into any other
agreement, that would be inconsistent with the terms of the consent decree.
In addition, commencing in 1999, the DOJ may impose constraints on the
Company's annual volume of disk storage product sales to IBM if the Company
does not achieve certain disk storage product sales volumes through other
distribution channels. Pursuant to the terms of the consent decree, IBM has
granted the Company both royalty-free and royalty-bearing licenses to use the
technology developed by the Company and funded by IBM. The consent decree
will expire at the end of 2002.
The new worldwide, non-exclusive OEM agreement ("OEM Agreement") expires
in December 2000. Under the terms of the OEM Agreement, the Company will
continue to manufacture for IBM disk storage subsystems currently sold by IBM
as RAMAC Virtual Storage Array, RAMAC Scalable Storage Array and RAMAC
Electronic Storage Array, including the related software (collectively, the
"Products"). IBM will continue to consign disk drives for integration into
the Products, service the Products that it distributes and fund certain
research and development activities associated with the development of certain
enhancements to the Products. Technology developed under the OEM Agreement
will be owned by IBM, subject to both royalty-free and royalty-bearing storage
and other products which the Company may market and distribute either
directly under its own trademarks, or indirectly through OEM and other
indirect channel arrangements. In addition, the Company has the right to
purchase from IBM disk drives to use in certain products outside the scope of
the OEM Agreement.
The OEM Agreement includes Product performance, warranty, delivery and
pricing terms, representations and warranties, and indemnities by the parties.
Under the OEM Agreement, IBM is not subject to any long-term volume purchase
commitments. IBM is obligated to make a payment to the Company in 1998 in
consideration for the Company maintaining manufacturing capacity for the
Products.
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The OEM Agreement includes termination provisions. IBM may elect to
terminate the OEM agreement for convenience or for cause, or upon certain
instances of change in control or the occurrence of certain other conditions.
Upon a termination by IBM for cause, the Company may be required to pay
amounts to IBM, certain licenses granted to IBM will become fully paid-up
licenses and IBM will have the right to manufacture the Products. The Company
may elect to terminate the OEM Agreement for cause. Upon a termination by the
Company for cause, IBM may be required to pay amounts to the Company and
certain licenses granted to the Company will become fully paid-up irrevocable
licenses.
The Company's success in its mainframe disk storage products business is
significantly dependent upon achieving certain product development and
delivery milestones contained in the OEM Agreement. The Company's success is
also dependent upon IBM continuing to support and successfully market and
distribute the Products, and developing and delivering to the Company disk
drives for inclusion in the Products. The Company must continue to reduce
costs and expenses associated with manufacturing the Products in order to
achieve the expected benefits under the OEM Agreement. The OEM arrangement
may also cause the Company to incur additional costs associated with
unanticipated increases or decreases in manufacturing volumes. As a result of
certain provisions included in the consent decree concerning the Company's OEM
relationship with IBM, the Company's success in this market is also dependent
upon successfully developing new disk storage products and distribution
channels for these products. There can be no assurances that the Company will
achieve the milestones contained in the OEM Agreement or will be successful
in its efforts to develop new disk storage products and distribution channels.
Failure to achieve such milestones or develop new products and distribution
channels may have a material adverse effect on the Company's business.
ITEM 7. EXHIBITS
The following financial statements, pro forma financial information and
exhibits, if any, are filed as part of this report:
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Not applicable
(B) PRO FORMA FINANCIAL INFORMATION.
Not applicable
(C) EXHIBITS.
None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Storage Technology Corporation
By: /s/ Thomas G. Arnold
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Thomas G. Arnold
Vice President
and Corporate Controller
Date: January 9, 1998
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