Form 10-Q
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
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Commission File Number 1-7534
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STORAGE TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-0593263
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One StorageTek Drive, Louisville, 80028-4309
Colorado
(Address of principal executive (Zip Code)
offices)
Registrant's Telephone Number, including area code: (303) 673-5151
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. /X/ YES / / NO
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock ($.10 Par Value) - 100,717,973 shares outstanding at May 5, 2000.
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Page 2, Form 10-Q
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
March 31, 2000
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Operations 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 26
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 27
Item 6 - Exhibits and Reports on Form 8-K 29
Exhibit Index 32
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Page 3, Form 10-Q
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
03/31/00 12/31/99
------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 228,467 $ 215,421
Accounts receivable 482,586 627,435
Inventories (Note 2) 231,575 260,642
Deferred income tax assets 123,857 124,588
---------- ---------
Total current assets 1,066,485 1,228,086
Property, plant and equipment, net 301,016 322,061
Spare parts for maintenance, net 45,777 41,995
Deferred income tax assets 41,285 40,882
Other assets 111,362 102,451
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Total assets $1,565,925 $1,735,475
========= =========
LIABILITIES
Current liabilities:
Credit facilities $ 194,475 $ 286,152
Current portion of long-term debt 10,148 13,943
Accounts payable 82,684 111,253
Accrued liabilities 314,961 303,110
Income taxes payable 53,437 72,865
----------- -----------
Total current liabilities 655,705 787,323
Long-term debt 27,798 28,953
----------- -----------
Total liabilities 683,503 816,276
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Commitments and contingencies (Note 4)
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 300,000,000 shares authorized;
100,840,939 shares issued at March 31, 2000, and
100,825,390 shares issued at December 31, 1999 10,084 10,083
Capital in excess of par value 832,682 830,780
Retained earnings 45,166 84,704
Treasury stock of 113,774 shares at March 31, 2000,
and at December 31, 1999 (2,334) (2,334)
Unearned compensation (3,176) (4,034)
------------ -----------
Total stockholders' equity 882,422 919,199
------------ -----------
$1,565,925 $1,735,475
============ ===========
The accompanying notes are an integral part of the
consolidated financial statements.
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Page 4, Form 10-Q
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
Quarter Ended
-------------------------
03/31/00 03/26/99
-------------------------
Revenue
Storage products $301,112 $357,027
Storage services 158,557 160,476
------- -------
Total revenue 459,669 517,503
------- -------
Cost of revenue
Storage products 196,754 199,723
Storage services 108,362 94,363
------- --------
Total cost of revenue 305,116 294,086
------- -------
Gross profit 154,553 223,417
Research and product development costs 65,180 73,476
Selling, general, administrative and
other income and expense, net 134,120 137,859
Restructuring expense (Note 5) 11,442
------- -------
Operating profit (loss) (56,189) 12,082
Interest expense (6,325) (3,899)
Interest income 1,676 930
------- -------
Income (loss) before income taxes (60,838) 9,113
Benefit (provision) for income taxes 21,300 (3,300)
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Net income (loss) $(39,538) $ 5,813
======= =======
EARNINGS (LOSS) PER COMMON SHARE (Note 8)
Basic earnings (loss) per share $ (0.39) $ 0.06
======= ========
Weighted-average shares 100,387 99,804
======= ========
Diluted earnings (loss) per share $ (0.39) $ 0.06
======= ========
Weighted-average and dilutive
potential shares 100,387 101,982
======= ========
The accompanying notes are an integral part of the
consolidated financial statements.
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Page 5, Form 10-Q
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands of Dollars)
Quarter Ended
------------------------
03/31/00 03/26/99
------------------------
OPERATING ACTIVITIES
Cash received from customers $ 615,104 $ 628,897
Cash paid to suppliers and employees (465,310) (573,249)
Cash paid for restructuring activities (Note 5) (10,142)
Interest paid (5,927) (3,356)
Interest received 1,676 930
Income tax refunded, net 2,547 16,144
-------- --------
Net cash provided by operating activities 137,948 69,366
-------- --------
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (20,955) (32,498)
Other assets, net (7,588) (2,582)
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Net cash used in investing activities (28,543) (35,080)
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FINANCING ACTIVITIES
Repayments of credit facilities, net (92,992) (26,887)
Repayments of other debt, net (426) (1,527)
Repurchases of common stock (17,427)
Proceeds from employee stock plans 183 3,820
-------- --------
Net cash used in financing activities (93,235) (42,021)
-------- --------
Effect of exchange rate changes on cash (3,124) (6,472)
-------- --------
Increase (decrease) in cash and cash equivalents 13,046 (14,207)
Cash and cash equivalents - beginning of the period 215,421 231,985
-------- --------
Cash and cash equivalents - end of the period $ 228,467 $ 217,778
======== ========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $ (39,538) $ 5,813
Depreciation and amortization expense 38,521 26,901
Inventory write downs 33,831 9,501
Non-cash restructuring expense (Note 5) 1,300
Translation loss 7,902 11,201
Other non-cash adjustments to income 10,558 (7,803)
Decrease in accounts receivable 157,914 110,039
(Increase) decrease in inventories, net (3,543) (71,322)
Increase in spare parts (11,511) (997)
(Increase) decrease in deferred income tax assets, net 2,334 (3,031)
Decrease in accounts payable and accrued liabilities (38,221) (32,459)
Increase (decrease) in income taxes payable (21,599) 21,523
-------- --------
Net cash provided by operating activities $ 137,948 $ 69,366
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
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Page 6, Form 10-Q
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PREPARATION
- ------------------------------
The accompanying consolidated financial statements of Storage Technology
Corporation and its subsidiaries (StorageTek or the Company) have been prepared
in accordance with the Securities and Exchange Commission requirements for Form
10-Q. In the opinion of management, these statements reflect all adjustments
necessary for the fair presentation of results for the periods presented, and
such adjustments are of a normal, recurring nature. For further information,
refer to the consolidated financial statements and footnotes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
NOTE 2 - INVENTORIES
- --------------------
Inventories, net of the associated reserves, consist of the following (in
thousands of dollars):
03/31/00 12/31/99
---------------------------
Raw materials $ 63,376 $ 59,141
Work-in-process 40,070 45,717
Finished goods 128,129 155,784
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$231,575 $260,642
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NOTE 3 - DEBT AND FINANCING ARRANGEMENTS
- ----------------------------------------
The Company has a financing agreement with a bank that provides for the sale of
promissory notes in the principal amount of up to $120,000,000 at any one time.
The agreement, which expires in January 2001, provides for commitments by the
bank to purchase the Company's promissory notes denominated in a number of
foreign currencies. As of March 31, 2000, the Company had promissory notes of
$49,475,000 outstanding under this financing agreement and had committed to
borrowings between April 2000 and January 2001 in the cumulative principal
amount of approximately $276,922,000. The notes must be repaid only to the
extent of future revenue. Obligations under the agreement are not cancelable by
the Company or the bank. Gains and losses associated with changes in the
underlying foreign currencies are deferred during the commitment period and
recognized as an adjustment to the revenue supporting the note repayment at the
time the bank purchases the promissory notes. The promissory notes, together
with accrued interest, are payable in U.S. dollars within 40 days from the date
of issuance. The weighted average interest rate associated with the promissory
notes outstanding as of March 31, 2000, was 8.47%. Under the terms of the
agreement, the Company is required to comply with certain covenants and, under
certain circumstances, may be required to maintain a collateral account,
including cash and qualifying investments, in an amount up to the outstanding
balance of the promissory notes.
See the Company's 1999 Form 10-K for additional information regarding the
Company's debt and financing arrangements.
<PAGE>
Page 7, Form 10-Q
NOTE 4 - LITIGATION
- -------------------
In January 1994, Stuff Technology Partners II, a Colorado Limited Partnership
(Stuff), filed suit in Boulder County, Colorado, District Court (the District
Court) against the Company and certain subsidiaries. The suit alleged that the
Company breached a 1990 settlement agreement that had resolved earlier
litigation between the parties concerning an optical disk drive storage
development project entered into in 1981 which was unsuccessful and terminated
in 1985. The suit sought injunctive relief and damages in the amount of
$2,400,000,000. On December 28, 1995, the District Court granted the Company's
motion for summary judgment and dismissed the complaint. Stuff appealed the
dismissal to the Colorado Court of Appeals (the Court of Appeals). In March
1997, the Court of Appeals reversed the District Court's judgment and remanded
the case to the District Court for further proceedings. On July 15, 1999, the
District Court again dismissed, with prejudice, all of Stuff's material claims
against the Company. On August 30, 1999, Stuff filed a notice of appeal with the
Appeals Court seeking to overturn the decision of the District Court.
Subsequently, the parties have filed various appellate briefs. No oral argument
date has been set. The Company continues to believe that Stuff's claims are
wholly without merit and intends to defend vigorously any further actions
arising from this complaint.
The Company is also involved in various other less significant legal actions.
While the Company currently believes that the amount of any ultimate potential
loss would not be material to the Company's financial position, the outcome of
these actions is inherently difficult to predict. In the event of an adverse
outcome, the ultimate potential loss could have a material adverse effect on the
Company's financial position or reported results of operations in a particular
quarter. An unfavorable decision, particularly in patent litigation, could
require material changes in production processes and products or result in the
Company's inability to ship products or components found to have violated
third-party patent rights.
NOTE 5 - RESTRUCTURING
- ----------------------
On October 28, 1999, the Company announced a broad restructuring program
intended to return the Company to profitability. Key elements of the
restructuring plan include:
o an anticipated reduction of approximately 1,200 to 1,400 positions, with
approximately 550 positions eliminated during fiscal year 1999 and the
majority of the remaining reductions projected to be completed by the end of
the second quarter of 2000;
o a reduction in investment in certain businesses, including consulting and
integration services and managed storage services;
o a recommitment to the Company's core strengths of tape automation, virtual
storage and open storage area networks (including related maintenance and
professional services);
o modifications to the sales model for the United States and Canada intended to
improve productivity and increase account coverage and growth;
o other organizational and operational changes intended to improve
efficiency and competitiveness.
<PAGE>
Page 8, Form 10-Q
The elements of the restructuring included an involuntary reduction in
headcount, the elimination of a significant number of temporary employee
positions, and managing the replacement of terminating employees due to normal
attrition. The headcount reductions were targeted in all areas of the Company.
The following table summarizes the reserves in connection with the first quarter
of 2000 restructuring activities (in thousands of dollars):
Employee Asset Other Exit
Severance Writedowns Costs Total
---------------------------------------------
Balances, December 31, 1999 $ 3,917 $ 3,917
Restructuring expense 10,429 $ 760 $ 253 11,442
Cash payments (10,142) (10,142)
Asset writedowns (760) (760)
------- ---- ------ -------
Balances, March 31, 2000 $ 4,204 $ 0 $ 253 $ 4,457
======= ==== ====== =======
Employee severance expense of $10,429,000 was recognized during the first
quarter of 2000 in connection with the restructuring. This expense is comprised
of separation charges related to the fixed and determinable severance payments
owed to approximately 550 employees who were involuntarily terminated during the
first quarter of 2000 in connection with the restructuring. Substantially all of
the $4,204,000 of severance charges incurred, but not paid, as of March 31,
2000, relate to severance payments which are expected to be paid within the next
three months.
On March 30, 2000, the Company spun off its managed storage services business.
The Company contributed various assets into a company, including accounts
receivable, storage hardware and software products, intellectual property, and
fixed assets. In consideration for its contribution, the Company received
redeemable preferred stock and a minority interest in the common stock of the
new company. The common stock investment will be accounted for using the cost
method of accounting. An asset writedown of $760,000 was recognized as part of
the restructuring charges in the first quarter of 2000 to reflect the excess of
the carrying value of the assets contributed over the carrying value of the
investment received by the Company.
Other exit costs of $253,000 were recognized during the first quarter of 2000
associated with legal expenses incurred in connection with the spin-off of the
managed storage services business.
NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires all derivatives to be
recognized as either assets or liabilities on the Consolidated Balance Sheet at
their fair value. The corresponding change in fair value of the derivative
instrument will be recognized either in the Consolidated Statement of
Operations, net of any change in fair value of the related hedged item, or as a
component of comprehensive income depending upon the intended use and
designation.
<PAGE>
Page 9, Form 10-Q
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133 -- an amendment of FASB Statement No. 133." SFAS No. 137 has
the effect of delaying the required adoption date of SFAS No. 133 for the
Company until January 2001. The Company continues to evaluate the impact of
SFAS No. 133 and its associated interpretations on its consolidated financial
statements and its plans for adopting the new accounting standard.
In December 1999, the Securities and Exchange Commission (SEC) staff issued
Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance regarding the recognition, presentation
and disclosure of revenue in financial statements filed with the SEC. In March
2000, the SEC issued SAB 101A that delayed the required implementation of SAB
101 until the second quarter of 2000. The Company is currently evaluating the
impact, if any, of adopting SAB 101.
NOTE 7 - OPERATIONS OF BUSINESS SEGMENTS
- ----------------------------------------
In the first quarter of 2000, the Company changed its reportable segments to
reflect changes in its business operations resulting from its restructuring
activities. The Company is now organized into two reportable segments based on
the definitions of segments provided under SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information": storage products and storage
services. The principle effect of this change was the reclassification of
storage management software from a separate reportable segment to its inclusion
within the storage products segment, and the reclassification of storage
integration products from the storage services segment to the storage products
segment. The 1999 quarterly segment data has been restated to conform to the
current year presentation.
The storage products segment sells tape, disk, network, and other products for
the enterprise and client-server computing environment including storage area
networks (SAN) and licenses software tools and applications for improving
storage product performance and simplifying information storage management. The
storage services segment provides maintenance services for the Company's and
third party products, as well as storage consulting services associated mainly
with SAN's, virtual technologies and software solutions.
The Company does not have any intersegment revenue and evaluates segment
performance based on gross profit. The sum of the segment gross profits equals
the consolidated gross profit and the Company does not allocate research and
product development costs; selling, general, administrative and other income and
expense; interest expense; interest income; or provision for income taxes to the
segments. The revenue and gross profit by segment are as follows (in thousands
of dollars):
Quarter Ended
----------------------
03/31/00 03/26/99
----------------------
Revenue:
Storage products $301,112 $357,027
Storage services 158,557 160,476
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Total revenue $459,669 $517,503
======= =======
Gross profit:
Storage products $104,358 $157,304
Storage services 50,195 66,113
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Total gross profit $154,553 $223,417
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Page 10, Form 10-Q
The following table provides supplemental financial data regarding revenue from
the Company's storage products segment (in thousands of dollars):
Quarter Ended
----------------------
03/31/00 03/26/99
----------------------
Tape products $233,668 $251,433
Disk products 31,828 88,186
Network and other 35,616 17,408
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Total storage products
revenue $301,112 $357,027
======= =======
NOTE 8 - EARNINGS (LOSS) PER COMMON SHARE
- -----------------------------------------
The following table presents the calculation of basic and diluted earnings
(loss) per share (in thousands of dollars, except per share amounts):
Quarter Ended
--------------------------
03/31/00 03/26/99
--------------------------
Net income (loss) $(39,538) $ 5,813
======= =======
Denominator:
Basic weighted-average shares 100,387 99,804
Effect of dilutive shares 2,178
------- -------
Diluted weighted-average shares 100,387 101,982
======= =======
Basic earnings (loss) per share $ (0.39) $ 0.06
======= =======
Diluted earnings (loss) per share $ (0.39) $ 0.06
======= =======
Options to purchase 12,481,628 shares of common stock were outstanding as of
March 31, 2000, but not included as common stock equivalents in the computation
of diluted EPS, as these options are antidilutive as a result of the net loss
incurred for the first quarter ended March 31, 2000.
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Page 11, Form 10-Q
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 2000
All assumptions, anticipations, expectations and forecasts contained in the
following discussion regarding the Company's future product and business plans,
financial results, performance and events are forward-looking statements within
the meaning of the Private Securities Reform Act of 1995. The Company's actual
results may differ materially because of a number of risks and uncertainties.
Some of these risks are detailed below in "Factors That May Affect Future
Results" and elsewhere in this Form 10-Q. The forward-looking statements
contained herein represent a good-faith assessment of the Company's future
performance for which management believes there is a reasonable basis. The
Company disclaims any obligation to update information on forecasts contained
herein, except as may be otherwise required by law.
GENERAL
- -------
The Company reported a net loss for the first quarter ended March 31, 2000, of
$39.5 million, or $0.39 per share, on revenue of $459.7 million, compared to net
income for the first quarter of 1999 of $5.8 million, or $0.06 per share, on
revenue of $517.5 million. The Company's reported results for the first quarter
of 2000 included one-time pre-tax expenses associated with restructuring and
other related charges of $26.3 million. Excluding the one-time expense, net of
tax, the Company would have reported a net loss of $22.5 million or $0.22 per
share for the quarter ended March 31, 2000.
Many of the Company's customers undertake detailed procedures relating to the
evaluation, testing, implementation and acceptance of the Company's products and
services. This evaluation process results in a variable sales cycle, and makes
it difficult to predict if or when revenue will be earned. Further, gross
margins may be adversely impacted in an effort to complete the sales cycle. The
Company's financial results may be adversely impacted in future periods by its
variable sales cycle, particularly during 2000 as it completes the
implementation of changes to the sales model in the United States and Canada.
Future financial results are also dependent upon the Company's ability to manage
its costs and operating expenses in line with revenue; the timely development,
manufacture and introduction of new products and services; successfully managing
the development of new direct and indirect sales channels; the implementation of
its storage area network (SAN) strategy; and the execution of its ongoing
restructuring activities. For the discussion of these and other risk factors,
see "Factors That May Affect Future Results," below.
In April 1999, the Company first announced plans to restructure its business. In
October 1999, the Company announced further restructuring plans. These
restructuring activities are intended to return the Company to profitability.
The Company currently anticipates it will incur an additional $5 million to $10
million in restructuring costs in the second quarter of 2000, at which time the
majority of the Company's restructuring activities are expected to be complete.
The Company's sales revenue in 2000 may be adversely effected by disruptions to
its sales organizations and customers associated with its restructuring
activities. The Company estimates annual savings of approximately $40 million
were realized in connection with the April 1999 restructuring and the October
1999 restructuring is expected to yield annualized savings of approximately $150
million when fully implemented. There can be no assurance that the restructuring
activities described above will be successful or sufficient to allow the Company
to
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Page 12, Form 10-Q
realize the expected annualized savings or that additional restructuring
activities may not be required in future periods. See "Restructuring," below for
further discussion of the restructuring activities.
The Company's operating activities provided cash of $137.9 million during the
first quarter of 2000 compared to cash of $69.4 million generated from
operations during the same period in 1999. The increase in cash generated from
operations during the first quarter of 2000, compared to the same period in
1999, was primarily the result of progress in the Company's efforts to more
effectively manage working capital. Benefits were realized during the quarter in
the form of reductions in accounts receivable days sales outstanding and reduced
spending on inventory. See "Liquidity and Capital Resources -- Working Capital"
for additional discussion of working capital. Cash used in investing activities
decreased from $35.1 million during the first quarter of 1999 to $28.5 million
during the first quarter of 2000 primarily due to efforts to control capital
spending on property, plant and equipment. Cash used in financing activities of
$93.2 million during the first quarter of 2000 reflects debt repayments of $93.4
million.
The following table, stated as a percentage of total revenue, presents
Consolidated Statement of Operations information and revenue by segment.
Quarter Ended
--------------------------
03/31/00 03/26/99
--------------------------
Storage products:
Tape products 50.8% 48.6%
Disk products 6.9 17.0
Network and other products 7.8 3.4
----- -----
Total storage products 65.5 69.0
Storage services 34.5 31.0
----- -----
Total revenue 100.0 100.0
Cost of revenue 66.4 56.8
----- -----
Gross profit 33.6 43.2
Research and product development costs 14.2 14.2
Selling, general, administrative and other
income and expense, net 29.1 26.7
Restructuring expense 2.5
----- -----
Operating profit (loss) (12.2) 2.3
Interest income (expense), net (1.0) (0.5)
----- -----
Income (loss) before income taxes (13.2) 1.8
Benefit (provision) for income taxes 4.6 (0.7)
----- -----
Net income (loss) (8.6)% 1.1%
===== =====
REVENUE
- -------
STORAGE PRODUCTS
The Company's storage products revenue includes sales of tape, disk, and network
and other products for the enterprise and client-server markets, including SANs.
Revenue generated from storage products decreased 16% during the first quarter
of 2000, compared to the same period in 1999.
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Page 13, Form 10-Q
Tape Products
Tape product revenue decreased 7% during the first quarter of 2000, compared to
the same period in 1999, primarily due to decreased revenue from TimberLine(R)
9490, a 36-track cartridge subsystem; PowderHorn(R) 9310, an automated cartridge
system library; and other earlier generation enterprise tape products. The
decrease in revenue for these products reflects both lower selling prices and
decreases in the number of units sold. These revenue declines also reflect the
continued shift in the marketplace from enterprise to client-server tape
products. These declines were partially offset by increased sales of the 9840
high-performance tape drive and Virtual Storage Manager(R) (VSM). VSM is a data
storage software solution designed for the enterprise tape market to improve
performance, cartridge utilization, and overall management of data storage.
Initial sales of the Company's recently introduced L-180 tape library during the
first quarter of 2000 offset declines in the sale of earlier generation
Timberwolf automated tape products.
Future revenue growth from tape products is dependent upon increasing market
acceptance for VSM as well as the timely introduction of new tape products and
enhancements which are in the design, preliminary engineering or engineering
validation testing phase. Because VSM is a complex system, it is difficult to
predict the timing and extent that VSM will gain further market acceptance.
There can be no assurances that the Company will be successful in increasing
market acceptance for VSM. See "Factors That May Effect Future Results - New
Products and Services; Emerging Markets," for a discussion of the risks
associated with the introduction of new products.
Disk Products
Disk product revenue decreased 64% during the first quarter of 2000, compared to
the same period in 1999, primarily due to a decrease in OEM sales to
International Business Machines Corporation (IBM) of disk storage products and
software designed for the enterprise market. The Company does not anticipate any
significant sales revenue from IBM in 2000. Sales of OPENstorage Disk products
also decreased during the first quarter of 2000 as the Company transitioned away
from products supplied by Data General. In the third quarter of 1999, Data
General was acquired by EMC Corporation, a competitor of the Company. These
decreases were partially offset by direct sales of the Company's Shared Virtual
Arrary (SVA) disk products, the next generation of SVA disk products that became
available in February 2000. There can be no assurance that the Company will not
continue to experience decreased sales of disk products as it shifts emphasis to
direct sales, or that the Company's current and future products will gain
additional market acceptance.
Network and Other Products
Network and other product revenue increased 105% during the first quarter of
2000, compared to the same period in 1999, primarily due to increased sales of
StorageTek and third-party network products designed for the SAN market. This
increase was partially offset by decreased revenue from the earlier generation
connectivity products.
The Company's storage products revenue during 2000 may be adversely impacted by
its variable sales cycle and by disruptions to its sales organization and
customers associated with its restructuring activities. Future revenue growth in
the Company's storage products segment is significantly dependent upon the
continued demand for its client-server tape automation products, successfully
replacing OEM sales of disk products to IBM with direct sales of disk products,
and gaining greater market acceptance of
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Page 14, Form 10-Q
the Company's SAN network products. There can be no assurances that the
Company will be successful in these endeavors. See "Factors That May Affect
Future Results -- New Products, Markets and Distribution Channels; Emerging
Markets," for a discussion of the risks associated with the introduction
and manufacture of new products and distribution channels.
STORAGE SERVICES
The Company's storage services revenue primarily includes revenue associated
with the maintenance of the Company's and third party storage products, as well
as storage consulting and integration services revenue. Storage services revenue
decreased 1% during the first quarter of 2000, compared to the same period in
1999, primarily due to reduced revenue from storage consulting services.
The Company anticipates decreased revenue from storage services during 2000 due
to the Company's exit from managed storage services and certain lower-margin
consulting and integration service activities in connection with its
restructuring. There can be no assurance that maintenance revenue will not
decline in future periods as the customer base continues to shift to the
client-server marketplace and the Company places increased emphasis on indirect
distribution channels. Maintenance revenue may also be adversely affected in
future periods to the extent older products currently under maintenance
contracts are replaced by newer products with extended warranties.
GROSS PROFIT
- ------------
Gross profit margins decreased to 34% during the first quarter of 2000, compared
to 43% in the same period in 1999, as a result of declines in profit margins for
both the product and services segments. Gross margins for the Company's products
segment decreased from 44% in the first quarter of 1999 to 35% in the first
quarter of 2000. This decline reflects a decline in the selling prices for disk
products and earlier generation tape products; increased sales of tape
cartridges for use in the 9840; and third-party network products which have
lower profit margins; a decline in sales of software to IBM; unfavorable
manufacturing variances associated with excess manufacturing capacity; and
one-time inventory writedowns incurred in connection with the Company's
restructuring activities. Gross margins from the services segment decreased from
41% in the first quarter of 1999 to 32% in the first quarter of 2000. Storage
service margins in the first quarter of 2000 were adversely impacted by
increased pricing pressures associated with the maintenance of storage products
in the client-server market, increased maintenance costs associated with certain
tape products, and losses associated with storage consulting and integration
service activities.
The markets for the Company's products and services are subject to intense price
competition. The Company anticipates that price competition for its products and
services will continue to have a significant impact on the Company's gross
profit margins. The Company's ability to sustain or improve gross margins is
significantly dependent upon gaining operational efficiencies in connection with
the restructuring activities, achieving cost improvements associated with the
sourcing of production materials, the implementation of pricing controls and
asset management disciplines, and driving improved profitability from the
Company's continuing consulting services and integration activities. Storage
product gross margins may be affected in future periods by inventory reserves
and writedowns resulting from rapid technological changes or delays in gaining
market acceptance for products.
<PAGE>
Page 15, Form 10-Q
RESEARCH AND PRODUCT DEVELOPMENT
- --------------------------------
Research and product development expenses decreased 11% during the first quarter
of 2000, compared to the same period in 1999, due to the elimination of several
lower priority research and product development programs in connection with the
restructuring. The Company is focusing research and development activities on
the core businesses of tape and automation, virtual technologies, and SAN
implementations. See "Restructuring," below, for discussion of the restructuring
activities.
SELLING, GENERAL, ADMINISTRATIVE AND OTHER
- ------------------------------------------
Selling, general, administrative and other income and expense (SG&A) decreased
3% during the first quarter of 2000, compared to the same period in 1999.
General and Administrative expenses decreased during the first quarter of 2000
due to reduced headcount and a reduction in spending on internal information
systems. Selling expenses decreased during the first quarter of 2000 as a result
of reduced spending on product marketing activities, as well as reduced bonus
and commission expenses. The decrease in bonus and commissions reflects reduced
U.S. sales revenue as well as benefits associated with modifications in these
plans in connection with the restructuring. These decreases were partially
offset by increased selling expenses from international operations due to a
shift from OEM sales to IBM during the first quarter of 1999 to direct sales
during the first quarter of 2000 which require associated bonus and commission
payments.
LITIGATION
- ----------
In January 1994, Stuff Technology Partners II, a Colorado Limited Partnership
(Stuff), filed suit in Boulder County, Colorado, District Court (the District
Court) against the Company and certain subsidiaries. The suit alleged that the
Company breached a 1990 settlement agreement that had resolved earlier
litigation between the parties concerning an optical disk drive storage
development project entered into in 1981 which was unsuccessful and terminated
in 1985. The suit sought injunctive relief and damages in the amount of $2.4
billion. On December 28, 1995, the District Court granted the Company's motion
for summary judgment and dismissed the complaint. Stuff appealed the dismissal
to the Colorado Court of Appeals (the Court of Appeals). In March 1997, the
Court of Appeals reversed the District Court's judgment and remanded the case to
the District Court for further proceedings. On July 15, 1999, the District Court
again dismissed, with prejudice, all of Stuff's material claims against the
Company. On August 30, 1999, Stuff filed a notice of appeal with the Appeals
Court seeking to overturn the decision of the District Court. Subsequently, the
parties have filed various appellate briefs. No oral argument date has been set.
The Company continues to believe that Stuff's claims are wholly without merit
and intends to defend vigorously any further actions arising from this
complaint.
The Company is also involved in various other less significant legal actions.
While the Company currently believes that the amount of any ultimate potential
loss would not be material to the Company's financial position, the outcome of
these actions is inherently difficult to predict. In the event of an adverse
outcome, the ultimate potential loss could have a material adverse effect on the
Company's financial position or reported results of operations in a particular
quarter. An unfavorable decision, particularly in patent litigation, could
require material changes in production processes and products or result in the
Company's inability to ship products or components found to have violated
third-party patent rights.
<PAGE>
Page 16, Form 10-Q
RESTRUCTURING
- -------------
On October 28, 1999, the Company announced a broad restructuring program
intended to return the Company to profitability. Key elements of the
restructuring plan include:
o an anticipated reduction of approximately 1,200 to 1,400 positions, with
approximately 550 positions eliminated during fiscal year 1999 and the
majority of the remaining reductions projected to be completed by the end of
the second quarter of 2000;
o a reduction in investment in certain businesses, including consulting and
integration services and managed storage services;
o a recommitment to the Company's core strengths of tape automation, virtual
storage and open storage area networks (including related maintenance and
professional services);
o modifications to the sales model for the United States and Canada intended to
improve productivity and increase account coverage and growth;
o other organizational and operational changes intended to improve
efficiency and competitiveness.
The elements of the restructuring included an involuntary reduction in
headcount, the elimination of a significant number of temporary employee
positions, and managing the replacement of terminating employees due to normal
attrition. The headcount reductions were targeted in all areas of the Company.
The following table summarizes the reserves in connection with the first quarter
of 2000 restructuring activities (in thousands of dollars):
Employee Asset Other Exit
Severance Writedowns Costs Total
---------------------------------------------
Balances, December 31, 1999 $ 3,917 $ 3,917
Restructuring expense 10,429 $ 760 $ 253 11,442
Cash payments (10,142) (10,142)
Asset writedowns (760) (760)
------- ---- ------ -------
Balances, March 31, 2000 $ 4,204 $ 0 $ 253 $ 4,457
======= ==== ====== =======
Employee severance expense of $10.4 million was recognized during the first
quarter of 2000 in connection with the October 1999 restructuring. This expense
is comprised of separation charges related to the fixed and determinable
severance payments owed to approximately 550 employees who were involuntarily
terminated during the first quarter of 2000 in connection with the
restructuring. Substantially all of the $4.2 million of severance charges
incurred, but not paid, as of March 31, 2000, relate to severance payments
associated with the October 1999 restructuring and are expected to be paid
within the next three months.
On March 30, 2000, the Company spun off its managed storage services business.
The Company contributed various assets into a company, including accounts
receivable, storage hardware and software products, intellectual property, and
fixed assets. In consideration for its contribution, the Company received
redeemable preferred stock and a minority interest in the common stock of the
new company. The common stock investment will be accounted for using the cost
method of accounting. An asset writedown of $760,000 was recognized as part of
the restructuring charges in the first quarter of 2000 to
<PAGE>
Page 17, Form 10-Q
reflect the excess of the carrying value of the assets contributed over
carrying value of the investment received by the Company.
Other exit costs of $253,000 were recognized during the first quarter of 2000
associated with legal expenses incurred in connection with the spin-off of the
managed storage services business.
The Company currently anticipates it will incur an additional $5 million to $10
million in restructuring charges during the second quarter of 2000 at which time
the majority of the Company's restructuring activities are expected to be
complete. The majority of these charges are expected to relate to employee
severance payments to approximately 300 employees.
The Company has now reached its goal of reducing 1,200 to 1,400 positions. A net
reduction of approximately 1,250 positions was achieved through a combination of
involuntary severances, limiting the replacement of terminating employees due to
normal attrition, and eliminating certain contractors, temporary employees and
other non-permanent positions. In the first quarter of 2000 the Company also
completed modifications to its bonus and commission plans to better align the
sales organization in order to drive operating profits. Restructuring activities
which remain to be completed as of the end of the first quarter of 2000 in order
to achieve the anticipated savings include implementing operating improvements
which emphasize the efficient management of working capital.
The Company estimates annual savings of approximately $40 million were realized
in connection with the April 1999 restructuring. The Company anticipates annual
savings of approximately $150 million will result from the restructuring
activities initiated in October 1999. Because the restructuring activities will
be ongoing throughout the year, the Company anticipates the realized savings for
the year 2000 will be slightly in excess of $100 million. Based on the
restructuring activities completed to date and the remaining restructuring
activities, the Company does not anticipate any material incremental operating
expenses will be incurred on an on-going basis.
The complexity of the Company's restructuring activities and the rapidly
changing business environment in which the Company operates make it difficult to
predict the amount and timing of restructuring charges which will be incurred,
and the amount and timing of anticipated benefits which will be realized. The
Company's sales revenue in 2000 may be adversely effected by disruptions to its
sales organization and customers as it completes the implementation of
restructuring activities.
The Company has restructured its business in the past in order to re-align its
business with its products and market strategies, or establish a more cost
efficient business structure. There can be no assurance that the restructuring
activities described above will be successful or sufficient to allow the Company
to generate improved operating results in future periods. It is possible that
additional changes in the Company's business or in its industry may necessitate
additional restructuring expense in the future. The necessity for additional
restructuring activities may result in expenses that adversely affect reported
results of operations in the period the restructuring plan is adopted, and
require incremental cash payments.
INTEREST INCOME AND EXPENSE
- ---------------------------
Interest expense increased $2.4 million during the first quarter of 2000,
compared to the same period in 1999, due to higher interest rates and an
increase in outstanding debt. Interest income increased $746,000 during the
first quarter of 2000, compared to the same period in 1999, primarily as a
result of an increase in cash available for investment.
<PAGE>
Page 18, Form 10-Q
INCOME TAXES
- ------------
The Company's effective tax rate decreased from 36% the first quarter of 1999,
to 35% for the first quarter of 2000.
Statement of Financial Accounting Standards (SFAS) No. 109 requires that
deferred income tax assets be recognized to the extent realization of such
assets is more likely than not. Based on the currently available information,
management has determined that the Company will more likely than not realize
$165.1 million of deferred income tax assets as of March 31, 2000. The Company's
valuation allowance of approximately $14.5 million as of March 31, 2000, relates
principally to net deductible temporary differences, tax credit carryforwards
and net operating loss carryforwards associated with the Company's foreign
subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working Capital
The Company's operating activities provided cash of $137.9 million during the
first quarter of 2000 compared to cash of $69.4 million generated from
operations during the same period in 1999. The increase in cash generated from
operations during the first quarter of 2000, compared to the same period in
1999, was primarily the result of progress in the Company's efforts to more
effectively manage working capital. Benefits were realized during the quarter in
the form of reductions in accounts receivable days sales outstanding and reduced
spending on inventory. See "Liquidity and Capital Resources -- Working Capital"
for additional discussion of working capital. Cash used in investing activities
decreased from $35.1 million during the first quarter of 1999 to $28.5 million
during the first quarter of 2000 primarily due to efforts to control capital
spending on property, plant and equipment. Cash used in financing activities of
$93.2 million during the first quarter of 2000 reflects debt repayments of $93.4
million.
Available Financing Lines
The Company has a revolving credit facility (the Primary Revolver) which expires
in October 2001. The credit limit available under the Primary Revolver ($275
million as of March 31, 2000) is reduced by $12.5 million on the last day of
each calendar quarter. The terms of the Primary Revolver were amended in January
2000 to be secured by the Company's U.S. accounts receivable and U.S. inventory.
The interest rates under the Primary Revolver depend upon the repayment period
of the advance selected and the Company's rolling four quarter Total Debt to
Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) ratio.
The rate may range from LIBOR plus 2.0% to 2.5% or the agent bank's base rate
plus 0% to .5%. The weighted average interest rate on the advances as of March
31, 2000, was 8.39%. The Company had borrowings of $145 million and issued
letters of credit for approximately $50,000 under the Primary Revolver as of
March 31, 2000. The remaining available credit under the Primary Revolver as of
March 31, 2000, was approximately $130 million. The Primary Revolver contains
certain financial and other covenants, including restrictions on payment of cash
dividends on the Company's common stock.
In January 2000, the Company entered into a new $150 million revolving credit
facility (the Supplemental Revolver) which expires in January 2001. The
Supplemental Revolver replaced a $150 million revolving credit facility which
expired in January 2000. The Supplemental Revolver is secured
<PAGE>
Page 19, Form 10-Q
by the Company's U.S. accounts receivable and U.S. inventory. The Supplemental
Revolver contains certain financial and other covenants, including restrictions
on the payment of cash dividends on the Company's common stock. The
interest rates under the Supplemental Revolver depend upon the repayment
period of the advance selected and the Company's EBITDA ratio. The rate may
range from LIBOR plus 2.0% to 2.5% or the agent bank's base rate plus 0% to
.5%. The Company had no borrowings outstanding under the Supplemental
Revolver as of March 31, 2000. Available credit under the Supplemental
Revolver as of March 31, 2000, was $150 million.
The Company has a financing agreement with a bank that provides for the sale of
promissory notes in the principal amount of up to $120 million at any one time.
The agreement, which expires in January 2001, provides for commitments by the
bank to purchase the Company's promissory notes denominated in a number of
foreign currencies. As of March 31, 2000, the Company had promissory notes of
$49.5 million outstanding under this financing agreement and had committed to
borrowings between April 2000 and January 2001 in the cumulative principal
amount of approximately $276.9 million. The notes must be repaid only to the
extent of future revenue. Obligations under the agreement are not cancelable by
the Company or the bank. Gains and losses associated with changes in the
underlying foreign currencies are deferred during the commitment period and
recognized as an adjustment to the revenue supporting the note repayment at the
time the bank purchases the promissory notes. The promissory notes, together
with accrued interest, are payable in U.S. dollars within 40 days from the date
of issuance. The weighted average interest rate associated with the promissory
notes outstanding as of March 31, 2000, was 8.47%. Under the terms of the
agreement, the Company is required to comply with certain covenants and, under
certain circumstances, may be required to maintain a collateral account,
including cash and qualifying investments, in an amount up to the outstanding
balance of the promissory notes.
The Company believes it has adequate working capital and financing capabilities
to meet its anticipated operating and capital requirements for the next 12
months. Over the longer term, the Company may choose to fund these activities
through the issuance of additional equity or debt financing. The issuance of
equity or convertible debt securities could result in dilution to the Company's
stockholders. There can be no assurance that any additional long-term financing,
if required, can be completed on terms acceptable to the Company.
Total Debt-to-Total Capitalization
The Company's total debt-to-capitalization ratio decreased from 26% as of
December 31, 1999, to 21% as of March 31, 2000, primarily due to a net decrease
in borrowings of $91.7 million under the Company's credit facilities. See
"Working Capital," above, for discussion of cash sources and uses.
INTERNATIONAL OPERATIONS
- ------------------------
During the first quarter of 2000 and 1999, approximately 49% and 40%,
respectively, of the Company's revenue was generated by its international
operations. The Company also sells products through domestic indirect
distribution channels that have end-user customers located outside the United
States. The Company expects that it will continue to generate a significant
portion of its revenue from international operations in the future. The majority
of the Company's international operations involve transactions denominated in
the local currencies of countries within Western Europe, principally Germany,
France and the United Kingdom; Japan; Canada and Australia. An increase in the
exchange value of the U.S. dollar reduces the value of revenue and profits
generated by the Company's international operations. As a result, the Company's
operating and financial results can be materially affected by fluctuations in
foreign currency exchange rates. In an attempt to mitigate the impact of foreign
currency fluctuations, the
<PAGE>
Page 20, Form 10-Q
Company employs a foreign currency hedging program. See "Market Risk
Management/Foreign Currency Exchange Risk," below.
The Company's international business may be affected by changes in demand
resulting from global and localized economic, business and political conditions.
The Company is subject to the risks of conducting business outside the United
States, including changes in, or impositions of, legislative or regulatory
requirements, tariffs, quotas, difficulty in obtaining export licenses,
potentially adverse taxes, the burdens of complying with a variety of foreign
laws, and other factors outside the Company's control. There can be no
assurances these factors will not have a material adverse effect on the
Company's business or financial results in the future.
MARKET RISK MANAGEMENT/FOREIGN CURRENCY EXCHANGE RISK
- -----------------------------------------------------
The market risk inherent in the Company's financial instruments relates
primarily to changes in foreign currency exchange rates. To mitigate the impact
of foreign currency fluctuations, the Company seeks opportunities to reduce
exposures through financing activities. Foreign currency options and forward
exchange contracts are also used to reduce foreign currency exposures. All
foreign currency options and forward exchange contracts are authorized and
executed pursuant to the Company's policies. Foreign currency options and
forward exchange contracts that are designated as and qualify as hedging
transactions are subject to hedge accounting treatment. The Company does not
hold or issue derivatives or any other financial instruments for trading
purposes.
The Company has a financing agreement with a bank that provides for commitments
by the bank to purchase promissory notes denominated in a number of foreign
currencies. Gains and losses associated with changes in the underlying foreign
currencies are deferred during the commitment period and recognized as an
adjustment to the revenue supporting the note repayment at the time the bank
purchases the promissory notes. See "Liquidity and Capital Resources --
Available Financing Lines" for a description of the financing agreement.
The Company periodically utilizes foreign currency options, generally with
maturities of less than one year, to hedge a portion of its exposure to
exchange-rate fluctuations in connection with anticipated revenue from its
international operations. Gains and losses associated with the options are
deferred and recognized as an adjustment to the underlying revenue transactions.
To the extent an option is terminated or ceases to be effective as a hedge, any
gains and losses as of that date are deferred and recognized as an adjustment to
the underlying revenue transaction.
The Company also utilizes forward exchange contracts, generally with maturities
of less than two months, to hedge its exposure to exchange-rate fluctuations
associated with monetary assets and liabilities held in foreign currencies and
anticipated revenue from its international operations. The carrying amounts of
these forward exchange contracts equal their fair values as the contracts are
adjusted at each balance sheet date for changes in exchange rates. Gains and
losses on the forward exchange contracts used to hedge monetary assets and
liabilities are recognized as incurred within SG&A on the Consolidated Statement
of Operations as adjustments to the foreign exchange gains and losses on the
translation of net monetary assets. Gains and losses on the forward contracts
used to hedge anticipated revenue are recognized as incurred as adjustments to
revenue.
A hypothetical 10% adverse movement in foreign exchange rates applied to the
Company's foreign currency exchange rate sensitive instruments held as of March
31, 2000, and as of December 31, 1999, would result in a hypothetical loss of
approximately $53.8 million and $54.9 million, respectively. The
<PAGE>
Page 21, Form 10-Q
decrease in the hypothetical loss for the first quarter of 2000 is primarily
due to a decrease in outstanding commitments under the financing agreement.
These hypothetical losses do not take into consideration the Company's
underlying international operations. The Company anticipates that any
hypothetical loss associated with the Company's foreign currency exchange
rate sensitive instruments would be offset by gains associated with its
underlying international operations.
The Company had outstanding borrowings under its Primary Revolver of $145
million as of March 31, 2000. The interest rate on these borrowings is dependent
on the LIBOR, which is sensitive to interest rate changes. A hypothetical 10%
adverse movement in the LIBOR applied to the borrowings would not have a
material adverse effect on the Company's results of operations, cash flows, or
financial position in 2000.
FACTORS THAT MAY AFFECT FUTURE RESULTS
- --------------------------------------
New Products and Services; Emerging Markets
The Company's results of operations and competitive strength depend upon its
ability to successfully develop, manufacture and market innovative new products
and services. Short product life cycles are inherent in the high-technology
market. The Company must devote significant resources to research and product
development projects and effectively manage the risks inherent in new product
transitions. Developing new technology, products and services is complex and
involves uncertainties. Delays in product development, manufacturing, or in
customer evaluation and purchasing decisions may make product transitions
difficult. The manufacture of new products involves integrating complex designs
and processes, collaborating with sole source suppliers for key components, and
increasing manufacturing capacities to accommodate demand. A design flaw, the
failure to obtain sufficient quantities of key components, or manufacturing
constraints could adversely affect the Company's operating and financial
results. The Company has experienced product development delays in the past that
adversely affected the Company's financial results and competitive position.
There can be no assurances that the Company will be able to manage successfully
the development and introduction of new products and services in the future.
The Company's future financial results are significantly dependent upon
successfully competing in the rapidly growing emerging client-server and SANs
markets and replacing its earlier generation products in the enterprise
environment with new technologies. The Company currently is making significant
investments in developing new products for these markets, particularly in
products directed towards the internet and e-commerce businesses. There can be
no assurances that the Company will be successful in these activities. The SANs
market is new and rapidly evolving. The Company's operating and financial
results may be adversely impacted in the event the SANs market develops slower
than expected or the Company's products fail to gain acceptance in this market.
The Company's traditional maintenance revenue base may be adversely impacted as
a result of the shift from the enterprise to the client-server marketplace.
Competition
The markets for the Company's products and services are intensely competitive
and are subject to continuous, rapid technological change, frequent product
performance improvements, short product life cycles, and aggressive pricing. The
Company believes that its ability to remain competitive involves factors such as
price and cost of the Company's and its competitors' product offerings, the
timing and success of new products and offerings, new product introductions by
competitors, and the ability to
<PAGE>
Page 22, Form 10-Q
establish more effective distribution channels. This competitive environment
gives rise to aggressive pricing strategies and puts pressure on gross profit
margins. The Company's competitors include, among others, Compaq Computer
Corporation, EMC Corporation, Hewlett-Packard Company, Hitachi Ltd., IBM,
Quantum Corporation, and Sun Microsystems, Inc. A number of the Company's
competitors have significantly greater name recognition and financial
resources than the Company. In the highly competitive client-server market,
a number of the Company's competitors are able to offer customers a bundled
server and storage product, which may provide them with a competitive
advantage. The Company expects to address these competitive issues, in part,
through its SAN strategy.
From time-to-time, two or more of the Company's competitors may form business
alliances that compete with the Company. For example, during the third quarter
of 1999 EMC Corporation acquired Data General, a supplier of the Company's
OPENstorage Disk products. The alliance of two of the Company's major
competitors could adversely affect the Company's ability to compete. A number of
the Company's competitors have formed alliances with the stated objective of
developing interoperable SAN solutions. In addition, the Company competes with
vendors with which it has established relationships, including Legato Systems,
Inc. and VERITAS Software Corporation. The Company also anticipates that it will
continue to establish distribution alliances with other equipment manufacturers,
software vendors and service providers to address competitive factors. There can
be no assurances that the Company will be able to compete successfully against
other companies in these markets.
Significant Personnel Changes
During 1999 and the first quarter of 2000, the Company has experienced
significant changes in its management team, including the hiring, resignation
and retirement of members of its executive sales and marketing management. The
Company announced in February 2000 that David E. Weiss, the Company's Chairman
of the Board of Directors, President and Chief Executive Officer, recommended
that the Board ask him to resign from all positions. The Board accepted Mr.
Weiss's proposal and asked him to resign from all such positions upon the
election of a successor or at such earlier date as the Board deems appropriate.
The search for a successor to Mr. Weiss is currently underway and the Company is
unable to predict when a successor will be elected. In February 2000, the
Company also announced significant changes to its operating management,
including the planned departure of Victor Perez, the Company's Chief Operating
Officer. Further, the Company may experience a delay between the time the
management team is formed and the time the team becomes fully productive.
The Company has also experienced changes in the remainder of its employee base
during 1999 and the first quarter of 2000 as a result of the voluntary and
involuntary severance programs implemented in connection with its restructuring
activities, as well as increased levels of employee attrition. The future
success of the Company depends in large part on its ability to attract, retain
and motivate highly skilled employees. The Company faces significant competition
for individuals with the skills required to deliver the products and services
offered to its customers. An inability to successfully deliver products and
services required by its customers, or an inability to implement the
restructuring activities while the Company completes the significant personnel
changes currently underway, could have an adverse effect on future operating
results.
Changes in Sales Model for the United States and Canada
The Company historically has emphasized the use of its direct sales force in the
United States and Canada, complemented by indirect distribution channels, such
as OEMs, value-added resellers and value-added distributors. In connection with
its current restructuring activities, the Company is implementing
<PAGE>
Page 23, Form 10-Q
changes to its sales model for the United States and Canada that the Company
expects will improve market penetration, increase sales profitability, reduce
sales expense, and expand the use of the indirect sales channel. This new
sales model is intended to provide better coverage for new and existing end
user customers, as well as enhancing reseller, distributor and OEM
alliances. The Company is currently reorganizing its field sales organization
with the objective of better serving Fortune 500 customers with enterprise-
level product and service requirements. A new sales organization was also
formed to address the needs of small and medium-sized customers with
particular emphasis on internet and e-commerce businesses. There is no
assurance that the Company will not encounter short term disruptions to its
sales as it implements this new sales model or that the new emphasis on
indirect sales channels will result in increased sales or productivity over
the long-term. The Company's operating and financial results may be
adversely affected by reduced margins on sales typically experienced in
indirect sales channels.
Decline in Enterprise Revenue; Variable Sales Cycle
The Company historically has generated a significant portion of its revenue and
operating profits from the enterprise market. The Company's revenue from the
enterprise market continued to decline during the first quarter of 2000,
primarily due to the transition of customers' purchase patterns to the
client-server environment, the decline in disk product sales to IBM, and price
competition. In addition, the Company believes its revenue during 1999 was
adversely impacted as some customers delayed testing and purchasing decisions in
anticipation of the year 2000, particularly with respect to tape products
targeted for the enterprise market. Because of the multiple dynamics within the
enterprise marketplace, it is difficult to predict future demand for the
Company's enterprise products. The demand for the Company's products,
particularly in the enterprise market, will be adversely affected to the extent
these patterns continue.
Many of the Company's customers undertake significant procedures relating to the
evaluation, testing, implementation and acceptance of the Company's products and
services. This evaluation process results in a variable sales cycle, and makes
it difficult to predict if or when revenue will be earned.
Ability to Develop and Protect Intellectual Property Rights
The Company relies heavily upon its ability to develop new intellectual property
rights that do not infringe upon the rights of others in order to remain
competitive and develop and manufacture products that are competitive in terms
of technology and cost. There is no assurance that the Company will continue to
be able to develop such new intellectual property.
The Company relies upon a combination of U.S. patent, copyright, trademark and
trade secret laws to protect its intellectual property rights. With respect to
certain of the Company's international operations, the Company does file patent
applications with foreign government. However, many foreign countries do not
have as well-developed laws as the United States in protecting intellectual
property. The Company enters into confidentiality agreements relating to its
intellectual property with its employees and consultants. In addition, the
Company includes confidentiality provisions in license and non-exclusive sales
agreements with its indirect distributors and its customers.
Despite all of the Company's efforts to protect its intellectual property
rights, unauthorized parties may attempt to copy or otherwise obtain or use the
Company's intellectual property. Monitoring the unauthorized use of the
Company's intellectual property rights is difficult, particularly in foreign
countries. There is no assurance that the Company will be able to protect its
intellectual property rights, particularly in foreign countries.
<PAGE>
Page 24, Form 10-Q
Sole Source Suppliers
The Company generally uses standard parts and components for its products and
believes that, in most cases, there are a number of alternative, competent
vendors for most of those parts and components. Many non-standard parts are
obtained from a single source or a limited group of suppliers; however, there
are other vendors who could produce these parts in satisfactory quantities after
a period of pre-qualification and product ramping. Certain key components and
products are purchased from single source suppliers that the Company believes
are currently the only manufacturers of the particular components that meet the
Company's qualification requirements and other specifications or for which
alternative sources of supply are not readily available. Imation Corporation is
a single source supplier for the 9840 tape cartridges and the Company is
dependent on Imation to economically produce large volumes of high-quality tape
cartridges for the 9840 product at a cost acceptable to the Company and its
customers. IBM is a single source supplier for the disk drives used in the
Company's SVA disk product.
Certain suppliers have experienced occasional technical, financial or other
problems in the past that have delayed deliveries, but without significant
effect on the Company. An unanticipated failure of any sole source supplier to
meet the Company's requirements for an extended period, or the inability to
secure comparable components in a timely manner, could result in a shortage of
key components, longer lead times, and reduced control over production and
delivery schedules. These factors could have a material adverse effect on
revenue and operating results. In the event a sole source supplier was unable or
unwilling to continue to supply components, the Company would need to identify
and qualify other acceptable suppliers. This process could take an extended
period, and no assurance can be given that any additional source would become
available or would be able to satisfy production requirements on a timely basis
or at a price acceptable to the Company.
The Company is dependent upon a sole sub contractor, Herald Datanetics LTD.
(HDL), to manufacture a key component used in certain tape products. HDL is
located in the People's Republic of China (PRC). To date, the Company has not
experienced any material problems with HDL, however, HDL is subject to
additional risks beyond those associated with other sole suppliers, including
the lack of a well-established court system or acceptance of the rule of law in
the PRC, the degree to which the PRC permits economic reform policies to
continue, the political relationship between the PRC and the United States and
broader political and economic factors, such as whether the PRC is admitted to
the World Trade Organization.
Manufacturing
A significant portion of the Company's products are manufactured in facilities
located in Puerto Rico. The Company's ability to manufacture product may be
impacted by weather related risks beyond the control of the Company. If the
Puerto Rico manufacturing facility were impacted by such an event, the Company
may not have an alternative source to meet the demand for its products without
substantial delays and disruption to its operations. The Company carries
interruption insurance to mitigate some of the risk. There is no assurance that
the Company could obtain sufficient alternate manufacturing sources or repair
the facilities in a timely manner to satisfy the demand for its products.
Failure to fulfill manufacture demands could adversely affect the Company's
operating and financial results in the future.
<PAGE>
Page 25, Form 10-Q
Information Systems and Business Process Transitions
The Company replaced many of its internal information systems outside the United
States during 1999 with new, integrated information systems. The Company also
introduced significant new business processes in conjunction with these new
systems, particularly within its European operations. The implementation of
these information systems and business processes has been complex and has
affected numerous operational, transactional, financial, and reporting
processes. The establishment of processes and training associated with these
information systems are continuing and involve a number of risks and
uncertainties. The Company must successfully manage the business process changes
and employee training programs. There can be no assurance that the transition to
the new information systems and business processes will not cause delays or
interruptions in the Company's business. Failure to successfully manage the
transition could adversely affect the Company's operating and financial results
in the future.
Volatility of Stock Price/Earnings Fluctuations
The Company's common stock is subject to significant fluctuations in trading
price. The Company's stock price may be impacted if the Company's revenue or
earnings fail to meet the expectations of the investment community. The
Company's stock price may also be affected by broad economic and market trends,
which are unrelated to the Company's performance.
The Company's financial and operating results may fluctuate from quarter to
quarter due to a number of reasons. In the past, the Company's results have
followed a seasonal pattern, which reflects the tendency of customers to make
their purchase decisions at the end of a calendar year. During any fiscal
quarter, a disproportionately large portion of the total product sales is
recognized in the last weeks and days of the quarter. These factors make the
forecasting of revenue inherently difficult. Because the Company plans its
operating expenses on expected revenue, a shortfall in revenue may cause
earnings to be below expectations in that period. A number of factors may cause
revenue to fall below expectations, such as product and technology transitions
announced by the Company or its competitors; delays in the availability of new
products; changes in the purchasing patterns of the Company's customers and
distribution partners; the timing of customers' acceptance of products; rapid
price erosion; or adverse global economic conditions. The mix of sales among the
Company's business segments and sales concentration in particular geographic
regions may carry different gross profit margins and may cause the Company's
operating margins to fluctuate and impact earnings.
Risks Associated with the Year 2000
The Company's product lines include information storage products which collect,
move, store, share, and protect data. In order to process data properly, the
Company's products must successfully manage and manipulate data that includes
both 20th and 21st century dates (Year 2000 Issue). As of this date, there has
not been any significant product warranty claims, business disruptions or
internal information system failures as a result of the Year 2000 Issue.
Additionally, to the best of the Company's knowledge, none of its significant
suppliers or business partners experienced any serious problems.
<PAGE>
Page 26, Form 10-Q
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required under this Item 3 is included in the section above
entitled "Market Risk Management / Foreign Currency Exchange Rate."
<PAGE>
Page 27, Form 10-Q
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
- --------------------------
See Part I, Item 3 - Legal Proceedings, of the Company's Form 10-K for the
fiscal year ended December 31, 1999, filed with the Commission on March 10,
2000.
In January 1994, Stuff Technology Partners II, a Colorado Limited Partnership
(Stuff), filed suit in Boulder County, Colorado, District Court (the District
Court) against the Company and certain subsidiaries. The suit alleged that the
Company breached a 1990 settlement agreement that had resolved earlier
litigation between the parties concerning an optical disk drive storage
development project entered into in 1981 which was unsuccessful and terminated
in 1985. The suit sought injunctive relief and damages in the amount of $2.4
billion. On December 28, 1995, the District Court granted the Company's motion
for summary judgment and dismissed the complaint. Stuff appealed the dismissal
to the Colorado Court of Appeals (the Court of Appeals). In March 1997, the
Court of Appeals reversed the District Court's judgment and remanded the case to
the District Court for further proceedings. On July 15, 1999, the District Court
again dismissed, with prejudice, all of Stuff's material claims against the
Company. On August 30, 1999, Stuff filed a notice of appeal with the Appeals
Court seeking to overturn the decision of the District Court. Subsequently, the
parties have filed various appellate briefs. No oral argument date has been set.
The Company continues to believe that Stuff's claims are wholly without merit
and intends to defend vigorously any further actions arising from this
complaint.
Certain former employees of the Company sued the Company in the United States
District Court for the District of Colorado (the "Federal Court"), alleging that
the Company had violated the Age Discrimination in Employment Act of 1967, as
amended (ADEA) and the Employee Retirement Income Security Act of 1974 (ERISA),
regarding there involuntary terminations between the period of April 1993
through December 1996. The plaintiffs and the Company entered into settlement
discussions, which led to a settlement agreement, which was signed by the
parties on December 3, 1999. The Federal Court gave its preliminary approval of
the proposed settlement agreement on December 15, 1999 and final approval of the
proposed settlement agreement on March 8, 2000. Pursuant to the settlement
agreement, the Company agreed to pay $5 million for the settlement of all claims
arising out of litigation. The settlement agreement states that it shall not be
construed as an admission by the Company that it violated any law. The Company
funded the settlement with a $5 million payment into an escrow account in
December 1999. A pre-tax expense of $5 million was recognized in connection with
the proposed settlement during 1999.
In December 1999, the Company filed suit in the U.S. District Court for the
Western District of Wisconsin against Cisco Systems, Inc. (Cisco), alleging that
Cisco infringed upon a certain patent of the Company that Cisco used in its
products. The Company filed an amended complaint on December 30, 1999, in which
the Company alleged that Cisco had infringed upon a second patent of the Company
used in its products. Cisco filed an answer in January 2000 denying the
Company's claims, alleging that the Company's patents are invalid and asserting
that a microchip used in one of the Company's network security products
infringed upon one of Cisco's patents. Cisco is seeking unspecified compensatory
damages that it asserts should be trebled, along with injunctive relief. The
Company purchases the alleged infringing microchip from Level One, a subsidiary
of Intel Corporation. In March 2000, the case was transferred to the U.S.
District Court for the Northern District of California. The Company believes
that it has valid claims against Cisco and valid defenses against Cisco's
counterclaim.
<PAGE>
Page 28, Form 10-Q
The Company is also involved in various other less significant legal actions.
While the Company currently believes that the amount of any ultimate potential
loss would not be material to the Company's financial position, the outcome of
these actions is inherently difficult to predict. In the event of an adverse
outcome, the ultimate potential loss could have a material adverse effect on the
Company's financial position or reported results of operations in a particular
quarter. An unfavorable decision, particularly in patent litigation, could
require material changes in production processes and products or result in the
Company's inability to ship products or components found to have violated
third-party patent rights.
<PAGE>
Page 29, Form 10-Q
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
--------
The exhibits listed below are filed as part of this Quarterly Report on Form
10-Q or are incorporated by reference into this Quarterly Report on Form 10-Q:
3.1 Restated Certificate of Incorporation of Storage Technology
Corporation dated July 28, 1987 (filed as Exhibit 3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 25,
1987, and as Exhibit 3.1(ii) to the Company's Quarterly Report on
Form 10-Q, for the quarter ended September 29, 1995, filed on
November 13, 1995, and incorporated herein by reference).
3.2 Certificate of Amendment dated May 22, 1989, to the Restated
Certificate of Incorporation dated July 28, 1987 (filed as Exhibit
(c)(1) to the Company's Current Report on Form 8-K dated June 2,
1989, and incorporated herein by reference).
3.3 Certificate of Second Amendment dated June 2, 1992, to the Restated
Certificate of Incorporation dated July 28, 1987 (filed as Exhibit 3
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 26, 1992, and incorporated herein by reference).
3.4 Restated Bylaws of Storage Technology Corporation, as amended
through November 11, 998 (filed as Exhibit 3.1 to the Company's
Current Report on Form 8-K dated November 19, 1998, and incorporated
herein by reference).
4.1 Specimen Certificate of Common Stock, $0.10 par value of Registrant
(filed as Exhibit (c)(2) as to the Company's Current Report on Form
8-K dated June 2, 1989, and incorporated herein by reference).
4.2 Rights Agreement dated as of August 20, 1990, between Storage
Technology Corporation and First Fidelity Bank, N.A., New Jersey,
Rights Agent (filed as Exhibit 4.1 to the Company's Current Report
on Form 8-K dated August 20, 1990, and incorporated herein by
reference).
4.3 Certificate of Designations of Series B Junior Participating
Preferred Stock (filed as Exhibit A to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated August 8, 1990, and incorporated
herein by reference).
10.1(1)(2) Retention Agreement, dated as of January 18, 2000, by and
between the Company and Gary Anderson.
10.2 (1)(2) Offer Letter, dated January 24, 2000, from the Company to Alain
Andreoli.
10.3 (1)(2) Corporate Officer Employment Agreement, dated as of January
1, 2000, by and between the Company and Alain Andreoli.
<PAGE>
Page 30, Form 10-Q
10.4 (1)(2) Offer Letter, dated January 17, 2000 from the Company to Pierre
Cousin.
10.5 (1)(2) Retention and Separation Agreement, dated as of January 27,
2000, by and between the Company and Robert Kocol.
10.6 (1)(2) Separation Agreement, dated as of January 22, 2000, by and
between the Company and Victor Perez.
10.7 (1)(2) Separation and Mutual Release, dated as of March 22, 2000, by
and between the Company and Jean Reiczyk.
10.8 (1)(2) Amendment No. 1, dated March 9, 2000, to the Company's 1995
Equity Participation Plan, as amended through March 5, 1999.
10.9 (1)(2) Amendment No. 2, dated March 9, 2000 to the Company's 1995 Equity
Participation Plan.
27.0 (2) Financial Data Schedule.
(b) Reports on Form 8-K.
--------------------
The Company filed on February 3, 2000, a Report on Form 8-K relating to an
Item 5, Other Matter, consisting of two press releases, one relating to the
Board of Directors of the Company commencing the search process for a new
Chairman, President and Chief Executive Officer, and the other relating to an
update of the Company's restructuring and a pre-announcement of earnings for the
Company's Fiscal Quarter ending December 31, 1999.
- ----------------------------------------------------------------------------
(1) Contract or compensatory plan or arrangement in which directors
and/or officers participate.
(2) Indicates exhibits filed with this Quarterly Report on Form 10-Q.
<PAGE>
Page 31, Form 10-Q
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 thereunto duly authorized.
STORAGE TECHNOLOGY CORPORATION
(Registrant)
May 12, 2000 /s/ ROBERT S. KOCOL
- ------------------------------- -------------------------------------------
(Date) Robert S. Kocol
Corporate Vice President
and Chief Financial Officer
(Principal Financial Officer)
May 12, 2000 /s/ THOMAS G. ARNOLD
- ------------------------------- -------------------------------------------
(Date) Thomas G. Arnold
Vice President and Corporate Controller
(Principal Accounting Officer)
<PAGE>
Page 32, Form 10-Q
EXHIBIT INDEX
-------------
Exhibit No. Description
- ---------- ------------
3.1 Restated Certificate of Incorporation of Storage Technology
Corporation dated July 28, 1987 (filed as Exhibit 3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 25,
1987, and as Exhibit 3.1(ii) to the Company's Quarterly Report on
Form 10-Q, for the quarter ended September 29, 1995, filed on
November 13, 1995, and incorporated herein by reference).
3.2 Certificate of Amendment dated May 22, 1989, to the Restated
Certificate of Incorporation dated July 28, 1987 (filed as Exhibit
(c)(1) to the Company's Current Report on Form 8-K dated June 2,
1989, and incorporated herein by reference).
3.3 Certificate of Second Amendment dated June 2, 1992, to the Restated
Certificate of Incorporation dated July 28, 1987 (filed as Exhibit 3
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 26, 1992, and incorporated herein by reference).
3.4 Restated Bylaws of Storage Technology Corporation, as amended
through November 11, 998 (filed as Exhibit 3.1 to the Company's
Current Report on Form 8-K dated November 19, 1998, and incorporated
herein by reference).
4.1 Specimen Certificate of Common Stock, $0.10 par value of Registrant
(filed as Exhibit (c)(2) as to the Company's Current Report on Form
8-K dated June 2, 1989, and incorporated herein by reference).
4.2 Rights Agreement dated as of August 20, 1990, between Storage
Technology Corporation and First Fidelity Bank, N.A., New Jersey,
Rights Agent (filed as Exhibit 4.1 to the Company's Current Report
on Form 8-K dated August 20, 1990, and incorporated herein by
reference).
4.3 Certificate of Designations of Series B Junior Participating
Preferred Stock (filed as Exhibit A to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated August 8, 1990, and incorporated
herein by reference).
10.1(1)(2) Retention Agreement, dated as of January 18, 2000, by and
between the Company and Gary Anderson.
10.2 (1)(2) Offer Letter, dated January 24, 2000, from the Company to Alain
Andreoli.
10.3(1)(2) Corporate Officer Employment Agreement, dated as of January
1, 2000, by and between the Company and Alain Andreoli.
10.4 (1)(2) Offer Letter, dated January 17, 2000 from the Company to Pierre
Cousin.
<PAGE>
Page 33, Form 10-Q
10.5 (1)(2) Retention and Separation Agreement, dated as of January 27,
2000, by and between the Company and Robert Kocol.
10.6 (1)(2) Separation Agreement, dated as of January 22, 2000, by and
between the Company and Victor Perez.
10.7 (1)(2) Separation and Mutual Release, dated as of March 22, 2000, by
and between the Company and Jean Reiczyk.
10.8 (1)(2) Amendment No. 1, dated March 9, 2000, to the Company's 1995
Equity Participation Plan, as amended through March 5, 1999.
10.9 (1)(2) Amendment No. 2, dated March 9, 2000 to the Company's 1995 Equity
Participation Plan.
27.0 (2) Financial Data Schedule.
- -------------------------------------------------------------------------------
(1) Contract or compensatory plan or arrangement in which directors
and/or officers participate.
(2) Indicates exhibits filed with this Quarterly Report on Form 10-Q.
January 18, 2000
Mr. Gary R. Anderson
1604 Foothills Drive South
Golden, Colorado 80401
RE: Retention Agreement
Dear Gary:
You have agreed to remain an employee of Storage Technology Corporation
("StorageTek" or the "Company") through at least March 31, 2001. In
consideration of your willingness to stay with the Company until at least March
31, 2001, this letter will confirm our agreement concerning the possible
termination of your employment with StorageTek on that date. In that regard,
this letter will define the terms of your severance under this Retention
Agreement (the "Retention Agreement") and your Executive Employment Agreement
dated September 30, 1999 (the "Employment Agreement") at the date of your
termination (the "Termination Date"). This Retention Agreement supersedes all
previous oral and written agreements regarding your employment with StorageTek,
including the understanding that the terms and conditions of this Retention
Agreement, to the degree that they may conflict with the terms and conditions of
your Employment Agreement, shall in all cases supersede the terms of the
Employment Agreement, which agreement shall, unless otherwise stated herein,
remain in full force and effect.
REPORTING RELATIONSHIP AND DUITES: During your period of continued
employment with the Company, you will remain a Corporate Vice President.
Although it is envisioned that in such capacity you will report to the
CEO, this reporting relationship may be changed at any time by the
Company. You further understand that your present and future duties and
responsibilities could also be substantially changed by the Company. It is
further understood and agreed by you that such changes will not, in
combination or in and of themselves, constitute and Involutary Termination
under the terms of the Employment Agreement.
GOALS AND OBJECTIVES: During your period of continued employment with the
Company you have agreed to focus on: (i) assisting in defining and
implementing the on-going corporate restructuring, (ii) assisting in the
continued refinement and implementation of corporate-wide cost reductions,
(iii) helping to improve the cycle time for implementing business
processes improvements, (iv) working to enhance supply chain management
(SLM) efficiencies, and (v) such other tasks as may be reasonably
requested of you, from time-to-time, by the Board of Directors, the CEO,
President or COO as the case may be.
SEPARATION: After your successful participation in the attainment of the
objectives stated above, and your continued employment through the
Termination Date, the Company will pay, within 30 days of the Termination
Date, a separation payment to you equal to: (i) one and one-half times
your then current annual salary, and (ii) one and one-half times your then
current target annual MBO bonus. Additionally, all of your outstanding and
unvested stock options will vest on the Termination Date (according to the
terms of your Stock Option Agreements and the Company's 1995 Stock Option
Plan) and the Company's right to repurchase any of your previously granted
restricted stock will terminate. Pursuant to the terms of StorageTek's
Stock Option Plan, you will have 90 days from the Termination Date to
exercise all of your vested options.
NO ADVERSE COMMENT: You agree that during your employment with the Company
through the Termination Date and for at least one year following the
Termination Date, you will not, except as specifically required by law or
court process or consented to in writing by the Company, (a) communicate
to any person or entity any adverse information, written or oral,
concerning the Company, its officers, directors, employees, attorneys,
agents or advisers (including any communication concerning information
that related to the business, operations, prospects or affairs of the
Company or any of its subsidiaries or affiliates) under the circumstances
in which there is a reasonable possibility that such information might be
publicly reported or disclosed or otherwise made available to third
parties (regardless of whether the communication of such information is
intended to have or cause that result is within your control), or (b)
provide to any person (other than your attorney or accountant) or entity
any information that concerns or related to the negotiations or
circumstances leading to the execution of this Retention Agreement.
NON-SOLICITATION PROVISIONS: Per the terms of Section 8 of your Employment
Agreement, you confirm that during the two-year period commencing with the
Termination Date, you will not, directly, or indirectly, hire, solicit, or
encourage any then-current Company employees to apply for employment with
any person or entity (a) with which you are (or intend to be) employed,
(b) by whom you or an entity in which you are employed or have a financial
interest is engaged as a consultant, recruited, independent contractor or
otherwise, or (c) in which you further covenant and agree that you will
not provide to any other person or entity the names of any person who is
then employed by the Company.
NON-COMPETE PROVISIONS: Per the terms of Section 8 of your Employment
Agreement, you confirm that for a period of eighteen months from the
Termination Date that you will not, either directly or indirectly, engage
in any activity in competition with any product or service of the Company
(said competitive activities to be determined and identified at the
reasonable discretion of the Company), or harmful or contrary to the best
interest of the Company, including accepting employment with or serving as
a consultant to any entity that is in competition with the Company. Per
Section 8, those companies deemed to be competitors to StorageTek will be
identified at the time of your termination.
EARLY TERMINATION: In the event of your Involuntary Termination, prior to
the Termination Date, the Company will pay you the separation pay and
benefits identified above at the time of your termination, provided that
you sign the Settlement and Release Agreement attached as Exhibit A to
your Employment Agreement. During the period of your employment with the
Company, all other terms of your employment as stated in your Employment
Agreement, including the "Change in Control" and termination for "Cause"
provisions will remain in effect through the Termination Date. If you
voluntarily terminate your employment with the Company before the
Termination Date, then you will not be entitled to receive any of the
separation benefits set forth in this Retention Agreement.
EMPLOYMENT EXTENSION: Should you and the Company reach an agreement on or
before the Termination Date whereby you would remain an employee of the
Company beyond the Termination Date, then you and the Company will enter
into a new employment agreement at that time. The terms and conditions of
that new employment agreement will then supersede the terms and conditions
of both this Retention Agreement and the Employment Agreement.
SETTELMENT AND RELEASE: The payments recited in this Retention Agreement
are contingent upon your execution and delivery to the Company a
Settlement and Release Agreement substantially in the form attached as
Exhibit A to your Employment Agreement.
NONDISCLOSURE: Unless otherwise required to do so by law, subpoena or
court order, you will not in any way communicate or discuss the terms of
this Retention Agreement or the circumstances of its execution with any
person, other than your attorneys or authorized Company personnel, said
personnel to be explicitly designated by the Company's President and CEO.
You understand that this nondisclosure provision applies particularly to
current and former employees of the Company and the Company's customers,
clients and vendors.
Please sign both copies of this letter below, indicating your acceptance,
and return one copy for our files.
Accepted and Agreed: Very truly yours,
STORAGE TECHNOLOGY CORP.
- -------------------------- ------------------------------
GARY R. ANDERSON David E. Weiss
Chairman, President and
Chief Executive Officer
January 24, 2000
Mr. Alain Andreoli
14 Esmond Road
Bedford Park,
London
Dear Alain,
I am pleased to extend to you an offer of Corporate Vice President, General
Manager for International Operations, Global Services, and e-Business effective
January 1, 2000, reporting directly to David Weiss, the Chairman or the Chief
Executive Officer or the President. The compensation and benefit package being
offered with this corporate officer position is outlined below, and is subject
to approval of the Board of Directors. Upon acceptance of your offer letter, you
will be asked to sign an Employment Agreement for Corporate Officers that will
further define benefits and responsibilities which will include the terms and
conditions contained in this offer letter. A draft of this agreement is
submitted for your review.
Your annual base salary will be $325,000, and you will be considered for a merit
increase effective January 2001. You will be eligible to participate in the
StorageTek MBO Plan. For 2000, your MBO target incentive will be 60% of your
base salary at the target level of performance, 120% at the stretch level. This
MBO incentive plan is measured based upon 75% for your geographic area
performance and 25% on corporate performance. Currently, a portion, 25%, of any
MBO bonus will be paid in the form of equity, including shares of common stock,
or common stock equivalents. The details of this plan will be contained in a
separate MBO document and will be jointly agreed upon by you and me. Your bonus
will be paid if earned, on the normal payment schedule in February 2001.
Also, subject to the approval of the Board of Directors, you will receive 7,500
shares of StorageTek restricted common stock at par value, $0.10 per share.
These 7,500 shares will vest six years from the date of grant, unless
accelerated. The vesting can accelerate to the first, second, and third
anniversaries of the grant date through accomplishment of certain objectives
through the year. You and I will jointly define the performance criteria for
these restricted shares.
Further, subject to the approval of the Board of Directors, StorageTek will
grant to you a stock option to purchase 200,000 shares of StorageTek common
stock, at a price to be determined on the day the option is granted. The option
will be granted pursuant to the terms and conditions of the Company's 1995
Equity Participation Plan which is attached for your review. 140,000 of the
stock options will vest in increments of 33%, 33%, and 34% on the first through
the third anniversaries of the grant. 60,000 of the stock options will vest on
the sixth anniversary of the date of grant; however, the vesting schedule for
these options may be accelerated based upon the appreciation of the StorageTek
stock price. A portion of the shares, 30,000 shares, will vest if the closing
price of a share of StorageTek common stock on the NYSE, for 20 consecutive
trading days, equals or exceed 150% of the closing price of the stock on the
date the stock is granted, as reported in The Wall Street Journal; and the
remaining 30,000 shares will be accelerated if the closing price of a share, for
20 consecutive trading days, equals or exceeds 200% of the closing price of the
stock on date the stock is granted.
Subject to the approval of the Board of Directors and then current market
conditions, you may participate in the annual Stock Option Plan. The current
allocation model projects annual options grants. The actual amount will be based
upon current methodology at the time of the grant.
As a corporate officer, you are expected to comply with the Corporate Officer
Ownership Guideline for corporate vice presidents, which is currently 2,500
shares. You have three (3) years to accumulate the shares. You need to retain
ownership of 2,500 shares or common stock equivalent, during the course of your
employment to comply with the Corporate Officer Ownership Guideline as amended
from time to time.
Appropriate passports and visa(s) will be obtained for you and your family, and
the cost paid for by StorageTek. Human Resources will assist you with the
development and filing of these applications.
StorageTek will also provide the relocation for you and your family from London
to Colorado in accordance with the attached international transfer policy. The
policy also includes repatriation benefits, if needed.
To assist you with your relocation, StorageTek will provide a forgivable loan
which will be grossed up for tax purposes, in the amount of $300,000 plus
imputed prime + 1%, forgiven over a three year period, in order for you to
obtain permanent housing in the United States. This loan will be payable when
and if you purchase a home in the Louisville area. If you leave StorageTek
voluntarily or StorageTek terminates your employment for cause at any time
during the term of the loan for reasons other than change of control, you will
be responsible for repayment of the loan including tax gross- up, pro-rated for
the period of time you were in the position, at a rate of 8.33% per quarter. Any
tax gross-up due will be based upon actual gross-up amounts paid and incurred as
of that point in time.
StorageTek will directly pay into the French Social Security System on your
behalf to provide you coverage for disability and pension for a period of up to
three years beginning upon your date of transfer to the United States while you
are employed by StorageTek. Attachment #1 lists the agreed categories of
coverage and amounts estimated based upon your actual earnings. It is understood
the amounts will be adjusted every year with your earnings growth. If you leave
StorageTek voluntarily or StorageTek terminates your employment for cause at any
time during the three year period, you will be responsible for repayment of all
monies paid on your behalf, pro-rated for the period of time you were in the
position. Your maximum repayment exposure is $ 100,000.
StorageTek also offers a deferred compensation program. Under this program you
may defer up to 50% of your base salary and 75% of your bonus amount. Your
deferred income is credited with an interest rate equal to the ten-year T-Bill
rate plus 2.5 points. You will be provided further information regarding this
program.
You are also eligible to participate in the 401(k) plan immediately upon
transfer and begin contributions in the next available payroll cycle. You may
defer up to 18 percent of your base income into the 401(k) plan. StorageTek will
match 100 percent of the first three percent of your annual base pay and 50
percent of the next four percent of your base pay. You will have immediate
ownership (be fully vested) of the first three percent match. StorageTek's 50
percent match of your next four percent contribution will be vested after two
years of service.
You will receive life insurance coverage in the amount of three times your
initial base salary effective January 1, 2000. Subject to approval by the Board
of Directors, $850,000 of this coverage will be provided through an individually
owned life insurance coverage with the premium paid by the Company. Your group
term life insurance coverage will be $50,000. The individually owned policy is a
universal life policy that you own and that earns cash surrender value. A member
of StorageTek's compensation team will contact you regarding enrollment after
your employment date.
As a corporate vice president, you are eligible to receive severance benefits
under the terms of the Corporate Officer Agreement, which is attached for your
review.
In addition, the following executive perquisites are currently in effect for
corporate officers:
o First class air travel domestically, business class internationally.
o Financial and tax consulting expenses up to 1% of your base pay annually.
As part of your relocation benefit, StorageTek will pay for your tax preparation
for the 3 year period in France, the UK and the USA.
o Car allowance for a leased-quality vehicle of $550.00 per month, plus
reimbursement for maintenance and insurance.
o Executive vacation program allowing vacation as business conditions dictate.
There is no defined limit, and therefore, no vacation accrual.
o Supplemental executive health insurance program which will reimburse
qualified health and welfare expenses for you and your family which are not
covered by our standard plan. This has an annual limitation of $5,000.00.
You will be eligible for the standard United States benefits package upon your
date of transfer to the United States. While in Europe (until your transfer
date), you will remain entitled to your current benefits package, including
medical, insurance, housing, social security, pension, autos, etc. ( no
duplicate but continued benefits ).
You will be eligible for reimbursement of your maternity medical expenses that
occur in the US at the same level available to you in the UK through your
participation in the US medical plan, combined with the $5000 officer medical
benefit and any supplemental reimbursement that may be needed to keep you whole
with the UK benefit currently available to you.
We will honor your current assignment agreement (France to the UK) relative to
your tax situation, and provide protection for tax exposure that results of your
subsequent relocation from the UK to the US. We will evaluate your tax situation
during your assignment in the UK assuming there is no significant additional
cost to STK.
The offer is contingent upon your signing StorageTek's proprietary rights
agreement and identification of pre-employment commitments form which are
enclosed for your review. These enclosures define your obligations to StorageTek
with regard to disclosure and dissemination of confidential information,
ownership of intellectual property, disclosure of existing obligations and
commitments, and non-raiding obligations.
Please review and sign the enclosed documents, and return them along with a
signed acceptance copy of this letter in the enclosed self-addressed stamped
envelope.
If you have any questions regarding the conditions of this offer, please do not
hesitate to contact me at 303-673-7199 or Karen Niparko at 303-673-3460. This
offer is valid through January 27th, 2000. If you accept this offer, your date
of transfer, as we discussed, will be approximately April 2000.
I look forward to working with you as a key member of the StorageTek team!
Very truly yours,
David Weiss
Chairman, Chief Executive Officer and President
Enclosures:
Acceptance Copy
Proprietary Rights Agreement
1995 Equity Participation Plan
Employment Agreement for Corporate Officers
International Assignment Policy
I accept the offer as outlined above and understand that my acceptance does not
create an employment contract and the detailed terms of my employment contract
will be agreed following appropriate legal advise.
Alain Andreoli Date
G:\legal\ljs\emp-ag1.frm StorageTek
Protected
STORAGE TECHNOLOGY CORPORATION
Employment Agreement
January 1, 2000
<PAGE>
G:\legal\ljs\emp-ag1.frm StorageTek
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page 14
CORPORATE OFFICER EMPLOYMENT AGREEMENT
This Corporate Officer Employment Agreement (the "Agreement") is entered into as
of January 1, 2000 (the "Effective Date") by and between Storage Technology
Corporation (the "Company"), a Delaware corporation, and Alain Andreoli
(hereinafter, "you" or "your") and sets forth the terms and conditions of your
employment with the Company. Previously, you and the Company entered into a
letter agreement dated January 7, 2000 concerning your employment with the
Company (the "Letter Agreement"). This Agreement shall supplement that Letter
Agreement. However, wherever there may be a conflict between the terms of this
Agreement and the Letter Agreement, the terms of the Letter Agreement shall
prevail. All prior agreements, other than the Letter Agreement, between you and
the Company concerning your employment with the Company are superseded by this
Agreement and shall henceforth be null and void. In consideration of your
employment by the Company on the terms and conditions set forth below, and the
mutual covenants and agreements contained herein, you and the Company agree as
follows:
1. Position. You will be employed full-time by the Company in the position
of Corporate Vice President, International Operations, Global Services and
E-Business of the Company, which is an executive and management level position,
initially reporting to David Weiss, the Chairman, President and CEO of the
Company. During your employment, you shall devote your entire working time,
attention and energies to the business of the Company and shall be bound by the
Company?s Corporate Policies and Practices from time to time in effect. You
shall not engage in any other business or personal activity or activities that
require services by you that may conflict with the proper performance of your
duties hereunder.
2. Certain Defined Terms.
<PAGE>
a. Cause. ?Cause? means any of the following: (i) willful failure to
perform your duties and responsibilities as an officer of the Company; (ii) your
willful breach of any provision of this Agreement; (iii) your willful breach of
any other written agreement between you and the Company; (iv) gross negligence
or dishonesty in the performance of your duties hereunder; (v) your willful
violation of any of the Corporate Policies and Practices as in effect from time
to time; (vi) your engaging in conduct or activities that materially conflict
with the interests of or injure the Company, or materially interfere with your
duties owed to the Company; (vii) your refusal to comply with or material
neglect of instructions received from your manager; and (viii) your conviction
(including any plea of guilty or nolo contendere) for a felony.
b. Change of Control. "Change of Control" means the occurrence of
any of the following events:
(i) The acquisition by any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended),
other than the Company or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Company, of the "beneficial
ownership" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing thirty-five percent (35%) or more of the
total voting power represented by the Company's then outstanding voting
securities; or
(ii) A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity [including the parent corporation
of such surviving entity]) at least fifty percent (50%) of the total voting
power represented by the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
approval by the stockholders of the Company of a plan of complete liquidation of
the Company, or the sale or disposition by the Company of all or substantially
all the Company's assets.
c. Disability. "Disability" means that you have been unable to
substantially perform your duties under this Agreement as the result of your
incapacity due to physical or mental illness for a period of twenty-six weeks,
consecutive or otherwise, after its commencement. This definition is for
purposes of this agreement only and does not address company short term or long
term benefit policies.
<PAGE>
d. Involuntary Termination. "Involuntary Termination" means any of the
following: (i) termination of your employment by the Company which is not
effected for Cause; (ii) termination of your employment with the Company by
reason of your death or Disability; (iii) during the twenty-four month period
following a Change of Control, termination of your employment for any reason
other than for Cause; (iv) the failure of the Company to obtain the assumption
of this Agreement by any successors contemplated in Section 10 below; (v)
without your express written consent, your relocation to a facility or a
location more than 50 miles from your present office location; (vi) without your
express written consent, a material reduction in your Base Salary and Target
Bonus opportunity, stated as a percentage of your Base Salary, as defined below,
as in effect immediately prior to such reduction, where a material reduction
shall be deemed to be a cumulative reduction of greater than fifteen percent
(15%), except as provided in Section 4 below; or (vii) without your written
consent, a significant reduction of your duties, authority, responsibilities.
e. Termination Date. "Termination Date" means any of the following: (i)
the date on which the Company delivers to you a written notice of termination or
such later date as may be specified in the notice of termination; (ii) in the
event employment ends by reason of your death or Disability, the date of death
or determination of Disability; and (iii) in the event this Agreement is
terminated by you, the date on which you deliver a written notice of termination
to the Company or such effective date as you and the Company may agree. Any
notice of termination shall specify the provision(s) in this Agreement claimed
to provide a basis for termination.
3. Base Compensation. For your services during your employment, the Company
will pay you a base salary at the annualized rate equal to $ 325,000.00. Such
salary shall be paid periodically in accordance with the normal payroll
practices of the Company in effect from time to time, less any withholding taxes
as set forth below. The amount of your base salary may be increased from time to
time during your employment, and may be reduced, consistent with Section 2.d,
above, if the Board of Directors of the Company (?Board?) requires a decrease in
base salary for all corporate officers and business unit managers, or as may be
mutually agreed upon by you and the Company (such annualized base salary as may
be adjusted from time to time is referred to in this Agreement as ?Base
Salary?).
<PAGE>
4. Incentive Bonuses. The Company currently maintains a Management By Objective
Bonus Program (the "MBO Program") as may be modified from time to time. During
your employment, you shall be eligible to receive bonuses under the terms and
conditions of the MBO Program approved by the Board and/or the Human Resources
and Compensation Committee of the Board, based upon the achievement of
pre-established financial and other performance goals. In particular, you are
specifically eligible to receive a bonus under the MBO Program equal to 60% of
your Base Salary at the target level of performance. The amount of your target
bonus opportunity, stated as a percentage of your Base Salary, may be increased
from time to time during your employment, and may be reduced if the Board
requires a decrease in the target bonus opportunity for all corporate officers
and business unit managers, or as may be mutually agreed upon by you and the
Company (such annualized target bonus as may be adjusted from time to time is
referred to in this Agreement as ?Target Bonus?). Any payments under the MBO
Program shall be made in accordance with the provisions of, and under the
conditions contained in, the MBO Program, and may be subject to achieving
pre-established individual performance goals. Failure to achieve your individual
performance goals may result in a reduced payment or no Target Bonus payment.
5. Termination of Employment; Severance Benefits.
<PAGE>
a. Involuntary Termination. If your employment terminates as a
result of an Involuntary Termination other than for Cause, you shall be entitled
to receive a severance payment equal to the sum of (i) one times your Base
Salary for the fiscal year then in effect, plus (ii) one times your Target Bonus
for the fiscal year then in effect, whether or not such bonus would otherwise be
payable (or, if no Target Bonus is in effect for such year, the highest Target
Bonus in the three preceding fiscal years); provided, that in the event of an
Involuntary Termination upon a Change of Control, you shall be entitled to
receive a severance payment equal to the sum of (x) two times your Base Salary
for the fiscal year then in effect, plus (y) two times your Target Bonus,
whether or not such bonus would otherwise be payable (or, if no Target Bonus is
in effect for such year, the highest Target Bonus in the three preceding fiscal
years). Any severance payments to which you become entitled pursuant to this
Section shall be paid to you (or your estate or beneficiary in the event of your
death) in a lump sum within thirty calendar days of your Termination Date and
shall be paid contingent upon your execution and delivery to the Company of a
Settlement and Release Agreement substantially in the form attached hereto as
Exhibit A.
b. Restricted Stock and Stock Options. In the event you are entitled
to receive severance pursuant to this Section, then, in addition to such
severance, all unvested stock options granted to you under the Company's stock
option plans (or under any successor company's stock option plans) on or after
the Effective Date shall vest and become exercisable in full, and the Company?s
right to repurchase any shares of restricted stock purchased under any of the
Company?s stock plans on or after the Effective Date shall terminate and all
such stock shall become fully vested.
c. Voluntary Resignation; Termination For Cause. If you voluntarily
resign from the Company (other than as an Involuntary Termination), or if the
Company terminates your employment for Cause, then you shall not be entitled to
receive any severance or other benefits except for those benefits, if any, as
may then be established under then existing benefits plans at the time of your
resignation or termination.
d. Notice of Termination. Any termination (of your employment with
the Company other than by reason of your Death or Disability) shall be
communicated by a notice of termination given to the other in accordance with
the Notice Provisions of this Agreement. Such notice shall indicate the specific
termination provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the Termination
Date.
6. Employee Benefit Programs.
<PAGE>
a. You shall be eligible to participate in the employee and
executive benefit programs maintained by the Company, including (without
limitation) any qualified or non-qualified retirement plans or programs, savings
and profit-sharing plans, stock option, restricted stock and other equity plans,
bonus plans, deferred compensation plans, life, short-term and long-term
disability, medical, accident and other insurance programs, paid vacations in
accordance with the policy for executive officers as may be in effect from time
to time, and similar plans or programs, subject in each case to the generally
applicable terms and conditions of any such plan or program and to the sole
determination of the Board, or any committee of the Board, or other committee
administering such plan or program. During your employment, the Company shall
provide you with (i) an annual reimbursement for financial and tax and estate
planning expenses incurred by you in an amount not to exceed 1% of your Base
Salary; and (ii) the various executive officer perquisites to the extent the
Company continues to offer them from time to time.
b. Stock option, restricted stock or other equity benefits, if any,
shall be awarded by the Board pursuant to the terms and conditions of the
Company?s equity plans for employees, as may be in effect from time to time. The
Company?s 1995 Equity Participation Plan, as amended, provides that stock option
and stock appreciation rights may be subject to forfeiture and any option gain
may be payable by you to the Company during a period specified in the plan in
the event you may engage in activities that are in competition with the Company
following your termination. You are encouraged to carefully review the terms of
the plan and any other equity plans that may be in effect from time to time, and
any stock option agreements in their entirety.
<PAGE>
7. Limitation on Payments. In the event that the severance and other
benefits provided for in this Agreement or otherwise payable to you (i) would
constitute ?parachute payments? within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the ?Code?) and (ii) but for this
Section, would be subject to the excise tax imposed by Section 4999 of the Code,
then such severance and other benefits shall be either (i) delivered in full, or
(ii) delivered as to such lesser extent which would result in no portion of such
severance and other benefits being subject to excise tax under Section 4999 of
the Code, whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by Section
4999, results in the receipt by you on an after-tax basis, of the greatest
amount of benefits, notwithstanding that all or some portion of such benefits
may be taxable under Section 4999 of the Code. Unless you and the Company agree
otherwise in writing, any determination required under this Section shall be
made in writing by the Company?s independent public accountants (the
?Accountants?). Such determination shall be conclusive and binding upon you and
the Company for all purposes. For purposes of making the calculations required
by this Section, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999 of
the Code. You and the Company shall furnish to the Accountants such information
and documents as the Accountants may reasonably request in order to make a
determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section.
8. Non-Compete; Non-Solicit.
a. Each of the parties hereto recognize that your services are
special and unique and that the level of compensation and the other provisions
herein for compensation and benefits are partly in consideration of and
conditioned upon your agreement not to compete with the Company, and that your
covenant not to compete or solicit as set forth in this Section during and after
your employment with the Company is essential to protect the business and good
will of the Company.
<PAGE>
b. You agree that during your employment with the Company and for a
period ending twelve months following the Termination Date, you will not either
directly or indirectly, engage in any activity in competition with any product,
service or other activity of the Company (said competing products, services or
activities to be determined and identified at the Company?s reasonable
discretion at the Termination Date, which competition will be defined to include
the design, manufacture or sale of products and services in markets that the
Company is either actively involved in or has expressed its positive intent to
enter into at the Termination Date), or harmful or contrary to the interests of
the Company, including, but not limited to: accepting employment with or serving
as a consultant or advisor or director to any employer that is in competition
with the Company or acting against the interests of the Company; or disclosing
or misusing any confidential, proprietary or material information concerning the
Company (such information includes, without limitation, information regarding
the Company?s operations, its products and services, product designs, business
plans, strategic plans, marketing and distribution plans and arrangements,
customers, and financial statements, budgets and forecasts, and employee names,
titles, compensation, skills and performance); or participating in any hostile
takeover attempt of the Company.
c. You agree that for a period of twenty four months following the
Termination Date that you will not, either directly or indirectly: (i) induce or
attempt to influence any employee of the Company to leave his/her employ with
the Company; (ii) solicit or encourage then-current employees of the Company to
apply for employment with any person or entity with which you are employed or
with which you intend to become employed, or in which you have or intend to have
a financial interest, as a consultant, recruiter, independent contractor or
otherwise, or in which you have a substantial financial or equity interest; or
(iii) provide to any other person or entity the names of any employee who is
employed by the Company on the Termination Date. For purposes of this Section,
the term "Company" shall mean and include the Company, any subsidiary or
affiliate of the Company, any successor to the business of the Company (by
merger, consolidation, sale of assets or stock or otherwise) and any other
corporation or entity for which you may serve as a director, officer or employee
at the request of the Company or any successor of the Company.
d. You agree that if you breach the covenants contained in this
Section, you will forfeit your right to receive any severance benefits under
this Agreement. Further, you agree that if any severance payments have been paid
to you, the total amount of such payments shall be returned and paid to the
Company promptly upon the Company notifying you of such breach. Nothing
contained in this paragraph (d) shall preclude injunctive relief.
e. You agree that the Company would suffer an irreparable injury if
you were to breach the covenants contained in this Section and that the Company
would by reason of such breach or threatened breach be entitled to injunctive
relief in a court of appropriate jurisdiction and you hereby stipulate to the
entering of such injunctive relief prohibiting you from engaging in such breach.
<PAGE>
f. If any of the restrictions contained in this Section shall be
deemed to be unenforceable by reason of the extent, duration or geographical
scope or other provisions thereof, then the parties hereto contemplate that the
court shall reduce such extent, duration, geographical scope or other provision
hereof and enforce this Section 8 in its reduced form for all purposes in the
manner contemplated hereby.
9. Successors.
a. Company's Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and assets shall assume the obligations under this Agreement and agree expressly
to perform the obligations under this Agreement in the same manner and to the
same extent as the Company would be required to perform such obligations in the
absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and assets which
executes and delivers the assumption agreement described in this Section or
which becomes bound by the terms of this Agreement by operation of law.
b. Employee's Successors. The terms of this Agreement and all your
rights hereunder shall inure to the benefit of, and be enforceable by, your
personal or legal representatives, executors, administrators, successors, heirs,
devisees and legatees.
10. Miscellaneous Provisions.
a. Withholding. All payments to you pursuant to this Agreement shall
be subject to withholding of all amounts required to be withheld by applicable
Internal Revenue Service and State tax authorities by the Company and shall be
conditioned upon your submission of all information or execution of all
instruments necessary to enable the Company to comply with such withholding
requirements.
<PAGE>
b. Confidentiality Agreement. As a condition of your employment, you
have executed the Company's standard form Proprietary Rights Agreement or any
other confidential inventions and trade secrets agreement. You hereby reaffirm
that during your employment with the Company and thereafter you will comply with
all provisions of such agreement and agree that you will enter into such
modifications or amendments thereof as the Company may reasonably request from
time to time.
c. Stock Ownership Guidelines. During your employment with the
Company, you agree to comply with the corporate officer stock ownership
guidelines approved by the Board or any committee of the Board, as may be
amended from time to time.
d. Notice. Any notice required to be given under this Agreement
shall be given in writing, either by personal delivery or by causing such
written notice to be mailed, first class postage prepaid, in the United States
mail, to the parties at the addresses set forth below, or at such other address
for a party as shall be specified by like notice, provided that notices of
change of address shall be effective only upon receipt thereof.
Company: Storage Technology Corporation
One StorageTek Drive
Louisville, Colorado 80028
Attention: General Counsel
Alain Andreoli
14 Esmond Road
Bedford Park, London
e. Amendment or Modification. This Agreement may not be amended or
modified and no provision shall be waived unless agreed to in writing and signed
by you and the Company. No waiver by either party of any breach of this
Agreement shall be deemed a waiver of any other provision or condition at
another time.
<PAGE>
f. Assignment. The rights of any person to payments or benefits
under this Agreement shall not be made subject to option or assignment, either
by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other creditor's
process, and any action in violation of this Section shall be void. The Company
may assign its rights under this Agreement to an affiliate.
g. Governing Law. This Agreement is entered into in
accordance with, and shall be interpreted pursuant to the provisions of, the
laws of the State of Colorado.
h. Arbitration. Any controversy or claim arising between you and the
Company including, without limitation, any claims, demands or causes of action
alleging wrongful discharge; unlawful discrimination based on sex, age, race,
national origin, disability, religion or other unlawful basis; breach of
contract; or any claims seeking damages under any federal, state or local law,
rule, regulation or common law theory; but excluding any claims by you for
worker?s compensation or unemployment compensation, and excluding any claims by
the Company for injunctive relief (for instance, for breach of confidentiality,
breach of a covenant not to compete, violation of trade secrets, or unfair
competition), shall be resolved by final and binding arbitration. By signing
below, you voluntarily waive any right to submit claims to a judge or jury in
either state or federal court. The arbitration shall be held in Denver,
Colorado, or elsewhere by mutual agreement. The selection of the arbitrator and
procedure shall be governed by the Employment Arbitration Rules of the American
Arbitration Association, as amended. The arbitrator shall be someone with a
minimum seven years of employment law background and from the AAA Commercial
Arbitration Panel or, if both parties agree, the Judicial Arbiters Group. The
arbitrator shall apply the applicable substantive law to any claim; for any
state law claim or damages issues, the law of Colorado shall govern, including
but not limited to the provisions of C.R.S. Sections 13-21-102(5). Judgment upon
an award rendered by an arbitration may be entered by any court having
jurisdiction. The Company will pay the cost normally associated with the
arbitration, including the arbitrator?s fee and any fee for a hearing facility.
Following resolution of all claims between the parties in an arbitration
proceeding, if the arbitrator so determines, the Company shall reimburse you for
all reasonable legal fees and expenses that you incurred in connection with a
successful claim to enforce your rights under this Agreement.
<PAGE>
i. Severability. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect or impair the validity or enforceability of the remaining provisions of
this Agreement, which shall remain in full force and effect in accordance with
their terms.
j. Entire Agreement. This Agreement, together with the other
agreements referenced herein, embody the entire agreement between the parties
relating to the subject matter hereof, and supersede all previous agreements or
understandings, whether oral or written.
k. Knowledge and Representation. By signing below, you acknowledge
that the terms of this Agreement have been fully explained to you, that you
understand the nature and extent of the rights and obligations provided under
this Agreement, and that you have been encouraged to and have had an opportunity
to consult legal counsel prior to signing this Agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer or representative, as of
the day and year first above written.
STORAGE TECHNOLOGY CORPORATION
By:
Title: _______________________________
ALAIN ANDREOLI:
<PAGE>
EXHIBIT A
SETTLEMENT AND RELEASE
1. In exchange for payment of salary (in the amount of ________) and bonus
(in the amount of _________) to ___________ ("Employee"), by Storage
Technology Corporation ("Company") and other good and valuable
consideration, Employee hereby irrevocably and unconditionally releases
and discharges the Company, its past and present subsidiaries,
divisions, officers, directors, agents, employees, successors, and
assigns (separately and collectively, "releasees") jointly and
individually, from any and all claims, known or unknown, which he/she,
his/her heirs, successors or assigns have or may have against releasees
and any and all liability which releasees may have to him/her whether
denominated claims, demands, causes of action, obligations, damages, or
liabilities arising from any and all bases, however denominated,
including but not limited to, any claims of discrimination under the Age
Discrimination in Employment Act ("ADEA"), the Older Workers Benefit
Protection Act, the Rehabilitation Act, the Family Medical Leave Act,
the Americans with Disabilities Act, Title VII of the Civil Rights Act
of 1964, the Civil Rights Act of 1991 or any federal or state civil
rights act, claims for wrongful discharge, breach of contract, or for
damages under any other federal, state or local law, rule or regulation,
or common law under any theory; provided, however, that this release
does not affect (1) any claims for benefits which have vested or shall
vest on or before the effective date of this Settlement and Release
(?Release?) under any of the Company's benefit plans; (2) any claims for
indemnification for acts of Employee which have occurred or may occur as
an officer or employee of the Company; or (3) any claims which may arise
after the execution of this Release. This release specifically excepts
any claim Employee may wish to make for unemployment compensation, and
the Company agrees not to contest any claim made by Employee for
unemployment compensation. This release is for any relief, no matter
how denominated, including, but not limited to, back pay, front pay,
compensatory damages, punitive damages, or damages for pain and
suffering. Employee further agrees that he/she will not file or permit
to be filed on his/her behalf any such claim, will not permit
himself/herself to be a member of any class seeking relief against the
releasees and will not counsel or assist in the prosecution of claims
against the releasees, whether those claims are on behalf of
himself/herself or others, unless he/she is under a court order to do
so.
<PAGE>
2. Employee agrees that by signing this Release, he/she is giving up the
right to sue for age discrimination, and that under this Release
Employee shall receive consideration to which he/she is not otherwise
entitled, and would not receive but for his/her release of rights under
the ADEA. Employee has up to twenty-one (21) days after delivery of
this Release to consider whether to sign this Release. Employee agrees
that, after he/she has signed and delivered this Release to the Company,
this Release will not be effective or enforceable until the end of a
seven (7) day revocation period beginning the day after the Employee
signs this Release, and that Employee will not receive the severance
payment due under the Employment Agreement until this seven-day period
has expired. During this seven-day period, Employee may revoke this
Release, without reason and in his/her sole judgment, but he/she may do
so only by delivering a written statement of revocation to the Company
to the attention of General Counsel. If the Company does not receive a
written statement of revocation from Employee by the end of the
revocation period, then this Release will become legally enforceable and
Employee may not thereafter revoke this Release.
3. Employee agrees that this Release shall be governed by federal law and the
internal laws of the State of Colorado, irrespective of the choice of law
rules of any state.
ACKNOWLEDGMENT:
Employee's signature below acknowledges that he/she has read this document
fully, that he/she understands and agrees to its contents, that he/she
understands that it is a legally binding document, and that he/she has been
advised to consult a lawyer of his/her choosing before signing this Release, and
has had the opportunity to do so.
- -------------------------- -----------------------------------
Date EMPLOYEE
This Release presented to Employee on __________________________.
01/17/00
January 17, 2000
Mr. Pierre Cousin
3 Avenue du 8 Mai, 1945
Guyancourt, France 78280
Dear Pierre:
I am pleased to extend to you an offer of Vice President and General Manager of
the Client Server Business Group, effective February 15, 2000, reporting
directly to Victor Perez, EVP and Chief Operating Officer. The compensation and
benefit package being offered with this position is outlined below, and is
subject to approval of the Board of Directors. Upon acceptance of your offer
letter, you will be asked to sign a Senior Manager Employment Agreement that
will further define benefits and responsibilities that include the terms and
conditions contained in this offer letter.
Your annual base salary will be $275,000, and you will be considered for a merit
increase effective January 2001. You will be eligible to participate in the
StorageTek MBO Plan. For 2000, your MBO target incentive will be 45% of your
base salary at the target level of performance, 90% at the stretch level. This
MBO incentive plan is measured on corporate performance and achievement of the
MBO goals. A portion of any MBO bonus will be paid in the form of equity,
including shares of common stock, or common stock equivalents. The details of
this plan are contained in a separate MBO document. Your bonus will be prorated
from your date of transfer and paid if earned, on the normal payment schedule.
In the event of your involuntary termination from StorageTek, other than for
cause, you will be entitled to receive a severance payment equal to the sum of
one time your base salary for the fiscal year then in effect, plus one time your
target bonus, whether or not such bonus would otherwise be payable. If you
accept this offer, the current performance-based retention bonus that was
negotiated with Alain Andreoli will be measured based upon client/server/SAN
business objectives that we will agree upon. If earned, this bonus will be paid
in February 2001.
Also, subject to the approval of the Board of Directors, you will receive 5,000
shares of StorageTek restricted common stock at par value, $ .10 per share.
These 5,000 shares will vest six years from the date of grant, unless
accelerated. The vesting can accelerate to the first, second, and third
anniversaries of the grant date through accomplishment of certain objectives
through the year. You and I will jointly define the performance criteria for
these restricted shares.
Further, subject to the approval of the Board of Directors, StorageTek will
grant to you a stock option to purchase 75,000 shares of StorageTek common
stock, at a price to be determined on the day the option is granted. The option
will be granted pursuant to the terms and conditions of the Company's 1995
Equity Participation Plan, which is attached for your review. Seventy percent of
your options, or 52,500 shares, will vest in equal increments of 33%, 33% and
34% on the first through the third anniversaries of the grant. Thirty percent,
or 22,500 shares, will vest in six years from the date of the grant. However,
the vesting schedule for these options can be accelerated in one-third
increments if the Human Resource and Compensation Committee of the Board of
Directors determines that our financial goal (target corporate NAT) have been
met. If we do not achieve our financial goals in a particular year, the vesting
of that portion of the option will occur in the sixth year.
Subject to the approval of the Board of Directors and then current market
conditions, you may participate in the annual Stock Option Plan. The current
allocation model projects annual options grants. The actual amount will be based
upon current methodology at the time of the grant.
Appropriate passports and visa(s) will be obtained for you and your family,
and the cost paid for by StorageTek. International Human Resources will
assist you in these endeavors.
You will receive a car allowance for a leased vehicle of $550.00 per month, plus
reimbursement for maintenance and insurance during the term of your assignment.
StorageTek will reimburse you for your voluntary contributions into the French
Social Security System and any consequent U.S. taxes up to a maximum of $100,000
per year for the term of your assignment. If you leave StorageTek voluntarily or
StorageTek terminates your employment for cause at any time during the two-year
period, you will be responsible for repayment of all monies paid on your behalf
including the tax gross up.
StorageTek will also provide the relocation for you and your family from France
to Colorado in accordance with the attached international assignment policy. The
policy also includes repatriation benefits, if needed.
StorageTek will cover the following additional expenses for your move from
France:
o StorageTek will provide up to $4,500 per month to help you to obtain suitable
housing in the United States. You will be responsible for any U.
S. taxes resulting from this benefit.
o The Company will provide an education allowance up to a total of
$14,000 per year to assist with the education of your accompanying
dependent children and any resulting U. S. taxes while you are on this
assignment.
o Monthly air travel (advanced business purchase fares for International, coach
class in the United States) from Denver to Paris, not to exceed seven (7)
months.
o Temporary living for you during the time you are commuting, not to exceed
seven (7) months.
If you leave StorageTek voluntarily or StorageTek terminates your employment for
cause at any time the two year assignment for reasons other than change of
control, you will be responsible for repayment of the relocation expenses
(except your temporary living and travel home to France, not to exceed seven (7)
months) pro-rated for the period of time you were in the position.
StorageTek also offers a deferred compensation program. Under this program you
may defer up to 50% of your base salary and 75% of your bonus amount. Your
deferred income is credited with an interest rate equal to the ten-year T-Bill
rate plus 2.5 points. You will be provided further information regarding this
program.
You are eligible to participate in the 401(k) plan immediately upon transfer and
begin contributions in the next available payroll cycle. You may defer up to 18
percent of your base income into the 401(k) plan. As of Jan. 1, 2000 StorageTek
will match 100 percent of the first three percent of your annual base pay and 50
percent of the next four percent of your base pay. You will have immediate
ownership (be fully vested) of the first three percent match. StorageTek's 50
percent match of your next four percent contribution will be vested after two
years of service.
You will receive life insurance coverage in the amount of two times your initial
base salary. At the beginning of the next quarter after your transfer date,
$500,000 of this coverage will be provided through an individually owned life
insurance coverage with the premium paid by the Company. Your group term life
insurance coverage will be $50,000. The individually owned policy is a universal
life policy that you own and that earns cash surrender value. A member of
StorageTek's compensation team will contact you regarding enrollment after your
employment date.
The offer is contingent upon your signing StorageTek's proprietary rights
agreement and identification of pre-employment commitments form which are
enclosed for your review. These enclosures define your obligations to StorageTek
with regard to disclosure and dissemination of confidential information,
ownership of intellectual property, disclosure of existing obligations and
commitments, and non-raiding obligations.
Please review and sign the enclosed documents, and return them along with a
signed acceptance copy of this letter in the enclosed self-addressed stamped
envelope.
If you have any questions regarding the conditions of this offer, please do not
hesitate to contact me at 303-673-3132 or Tony Picardi at 303-661-6825.
This offer is valid through 1/18/00.
I look forward to working with you as a key member of the StorageTek team!
Very truly yours,
Victor Perez
EVP and Chief Operating Officer
Enclosures:
Acceptance Copy
Proprietary Rights Agreement
1995 Equity Participation Plan
International Assignment Policy
I accept the offer as outlined above and understand that my acceptance does not
create an employment contract for a definite term or alter at-will employment.
Pierre Cousin Date
<PAGE>
APPROVALS:
David Weiss Date
Chairman, Chief Executive Officer and
President
Karen Niparko Date
Chief Administrative Officer
January 27, 2000
Mr. Robert Kocol
577 Manorwood Lane
Louisville, Colorado 80027
RE: Retention and Separation Agreement
Dear Bobby:
You have agreed to remain an employee of Storage Technology Corporation
("StorageTek" or the "Company") through at least July 31, 2000 (the "Termination
Date"). In consideration of your willingness to stay with the Company until the
Termination Date, this letter will confirm our agreement concerning the
termination of your employment with StorageTek on that date. In that regard,
this letter will define the terms of your severance under this Retention and
Separation Agreement (the "Retention and Separation Agreement") and your
Executive Employment Agreement dated October 1, 1999 (the "Employment
Agreement") at the Termination Date. This Retention and Separation Agreement
supersedes all previous oral and written agreements regarding your employment
with StorageTek, it being understood that the terms and conditions of this
Retention and Separation Agreement, to the degree that they may conflict with
the terms and conditions of your Employment Agreement, shall in all cases
supersede the terms of the Employment Agreement, which agreement shall unless
otherwise stated herein, remain in full force and effect.
REPORTING RELATIONSHIP AND DUITES: During your period of continued
employment with the Company, you will remain a Corporate Vice President.
Although it is envisioned that in such capacity you will report to the
Chief Executive Officer (CEO), this reporting relationship may be changed
at any time by the Company. You further understand that your present and
future duties and responsibilities could also be substantially changed by
the Company, particularly if a successor as Chief Financial Officer (CFO)
is hired. If a new CFO is hired before the Termination Date, then you will
remain an employee of the Company as a non-officer employee supporting the
transition to the new CFO. During this transition assistance period as a
non-officer employee, you will continue with your then current salary and
with your then current officer benefit package through the Termination
Date. It is further understood and agreed by you that such changes will
not, in combination or in and of themselves, constitute an Involuntary
Termination under the terms of the Employment Agreement.
GOALS AND OBJECTIVES: During your period of continued employment with the
Company you have agreed to focus on: (i) assisting in defining and
implementing the on-going corporate restructuring, (ii) assisting in the
continued refinement and implementation of corporate-wide cost reductions,
(iii) defining the Company's year 2000 business and operating plan, (iv)
improving the processes and performance of the Shared Services Center in
Atlanta, (v) completing the transition of the financial reporting systems
in Europe, and (vi) such other tasks as may be reasonably requested of
you, from time-to-time, by the Board of Directors, the CEO, or President,
as the case may be.
SEPARATION PAYMENT: After your successful participation in the attainment
of the objectives stated above, and your continued employment through the
Termination Date, the Company will pay, within 30 days of the Termination
Date, a separation payment to you equal to: (i) one and one-half times
your then current annual salary, and (ii) one and one-half times your then
current target annual MBO bonus. In this regard, it should be noted that
if you were to terminate on the Termination Date, then you would be
entitled to receive your first half year MBO bonus payment as if you were
an officer of the Company eligible for such bonus in an amount equal to
that which you would have received based on the Company's performance
against targeted objectives, as approved by the Board. This first half
year MBO bonus payment would be paid to you in addition to the one and
one-half times annual MBO bonus payment included in your severance
package.
STOCK OPTIONS AND RESTRICTED STOCK: After your successful participation in
the attainment of the objectives stated above, and your continued
employment through the Termination Date, all of your outstanding and
unvested stock options will vest on the Termination Date (according to the
terms of your Stock Option Agreements and the Company's 1995 Stock Option
Plan) and the Company's right to repurchase any of your previously granted
restricted stock will terminate. Pursuant to the terms of StorageTek's
Stock Option Plan, you will have normally have 90 days from the
Termination Date to exercise all of your vested options. However, because
of your responsibilities at the Company, your knowledge of the Company's
activities may render you ineligible to trade in the Company's stock due
to the possession of "material inside information" after the Termination
Date, therefore the Company will enter into a consulting agreement with
you starting on the Termination Date and ending on September 30, 2000
whereby your eligible 90 day "trading window" will end on December 31,
2000. Should your actual termination be extended beyond the Termination
Date or should you still not be eligible to trade in the Company's stock
at the start of the delayed 90-day trading window starting on September
30, 2000, then by mutual agreement your consulting agreement may be
extended accordingly to insure that you have a 90-day trading window, free
from SEC prohibitions.
COBRA PAYMENTS: Starting from the Termination Date, you will be entitled
to receive COBRA benefits for the equivalent medical and dental coverage
for you and your family as may be in effect at the Termination Date, such
COBRA benefits will be paid for in full on your behalf by the Company.
These COBRA benefits will be paid for by the Company until the earlier to
occur of either (i) a date 18 months from the Termination Date, or (ii)
such time as you shall have entered into permanent employment with an
employer with a medical and dental plan.
OUT PLACEMENT SERVICES: Starting on the Termination Date, you shall be
eligible to participate in and receive the Company's standard executive
job placement assistance, such assistance to be paid for on your behalf by
the Company.
NO ADVERSE COMMENT: You agree that during your employment with the Company
through the Termination Date and for at least two years following the
Termination Date, you will not, except as specifically required by law or
court process or consented to in writing by the Company, (a) communicate
to any person or entity any adverse information, written or oral,
concerning the Company, its officers, directors, employees, attorneys,
agents or advisers (including any communication concerning information
that related to the business, operations, prospects or affairs of the
Company or any of its subsidiaries or affiliates) under the circumstances
in which there is a reasonable possibility that such information might be
publicly reported or disclosed or otherwise made available to third
parties (regardless of whether the communication of such information is
intended to have or cause that result is within your control), or (b)
provide to any person (other than your attorney or accountant) or entity
any information that concerns or related to the negotiations or
circumstances leading to the execution of this Retention and Separation
Agreement. Likewise, the Company shall refrain, for a similar period of
time, from communicating any adverse comments relating to you and/or your
tenure with the Company or the circumstances leading to the execution of
this Retention and Separation Agreement.
NON-SOLICITATION PROVISIONS: Per the terms of Section 8 of your Employment
Agreement, you confirm that during the two-year period commencing with the
Termination Date, you will not, directly, or indirectly, solicit, or
encourage any then-current Company employees to apply for employment with
any person or entity (a) with which you are (or intend to be) employed,
(b) by whom you or an entity in which you are employed or have a financial
interest is engaged as a consultant, recruited, independent contractor or
otherwise, or (c) in which you further covenant and agree that you will
not provide to any other person or entity the names of any person who is
then employed by the Company.
NON-COMPETE PROVISIONS: Per the terms of Section 8 of your Employment
Agreement, you confirm that for a period of eighteen months from the
Termination Date that you will not, either directly or indirectly, engage
in any activity in competition with any product or service of the Company
(said competitive activities to be determined and identified at the
reasonable discretion of the Company), or harmful or contrary to the best
interest of the Company, including accepting employment with or serving as
a consultant to any entity that is in competition with the Company. Per
Section 8, and for the purposes of Section 8, those companies deemed to be
competitors to StorageTek are EMC and IBM.
EARLY TERMINATION: In the event of your Involuntary Termination, prior to
the Termination Date, the Company will pay you the separation pay and
benefits identified above at the time of your termination, provided that
you sign the Settlement and Release Agreement attached as Exhibit A to
your Employment Agreement. During the period of your employment with the
Company, all other terms of your employment as stated in your Employment
Agreement, including termination for "Cause" provisions will remain in
effect through the Termination Date. If you voluntarily terminate your
employment with the Company before the Termination Date, then you will not
be entitled to receive any of the separation benefits set forth in this
Retention and Separation Agreement.
CHANGE IN CONTROL: If during your employment with the Company, the Company
should be acquired under a "Change in Control" event as that term has been
defined in your Employment Agreement, then you will receive the full
severance benefit as defined in the Employment Agreement. If a "Change in
Control" event were to occur after your employment with the Company had
been terminated, but prior to midnight December 31, 2000, then you will
receive an additional severance payment equal to one-half times your
salary and one-half times your on plan MBO bonus, as they were in effect
on the Termination Date.
EMPLOYMENT EXTENSION: Should you and the Company reach an agreement on or
before the Termination Date whereby you would remain an employee of the
Company beyond the Termination Date, then you and the Company will enter
into a new employment agreement at that time. The terms and conditions of
that new employment agreement will then supersede the terms and conditions
of both this Retention and Separation Agreement and the Employment
Agreement.
SETTELMENT AND RELEASE: The payments recited in this Retention and
Separation Agreement are contingent upon your execution and delivery to
the Company a Settlement and Release Agreement substantially in the form
attached as Exhibit A to your Employment Agreement.
COMPANY RELEASE: The Company hereby irrevocably and unconditionally
releases and discharges you and your heirs, successors, and assigns
(separately and collectively, "Releasees"), jointly and individually, from
any and all claims, known or unknown, which it, its past and present
subsidiaries, divisions, officers, directors, agents, employees,
successors, and assigns have or may have against Releasees and any and all
liability which Releasees may have to it, whether denominated claims,
demands, causes of action, obligations, damages or liabilities arising
from any and all bases, however denominated, provided, however, that this
release does not affect any claims which are based on Releasees'
dishonesty in the performance of duties as an employee of the Company, nor
any claims which may arise after the execution of this Retention and
Separation Agreement. The Company further agrees that it will not file or
permit to be filed on its behalf any claim against you which is released
hereby
NONDISCLOSURE: Unless otherwise required to do so by law, subpoena or
court order, you will not in any way communicate or discuss the terms of
this Retention Agreement or the circumstances of its execution with any
person, other than your attorneys or authorized Company personnel, said
personnel to be explicitly designated by the Company's President and CEO.
You understand that this nondisclosure provision applies particularly to
current and former employees of the Company and the Company's customers,
clients and vendors.
Please sign both copies of this letter below, indicating your acceptance,
and return one copy for our files.
Accepted and Agreed: Very truly yours,
STORAGE TECHNOLOGY CORP.
- -------------------------- ------------------------------
Robert S. Kocol David E. Weiss
Chairman, President and
Chief Executive Officer
January 22, 2000
Mr. Victor M. Perez
2066 Navajo Trail
Lafayette, CO 80026
RE: Separation Agreement
Dear Victor:
You have agreed to remain an employee of Storage Technology Corporation
("StorageTek" or the "Company") through March 31, 2000 or such earlier date as
you may be terminated for "Cause" (the "Termination Date"). This letter will
confirm our agreement concerning the termination of your employment with
StorageTek on that date and will define the terms of your severance under this
Separation Agreement (the "Separation Agreement") and your Executive Employment
Agreement dated October 1, 1999 (the "Employment Agreement") at the Termination
Date. This Separation Agreement supersedes all previous oral and written
agreements regarding your employment with StorageTek, it being understood that
the terms and conditions of this Separation Agreement, to the degree that they
may conflict with the terms and conditions of your Employment Agreement, shall
in all cases supersede the terms of the Employment Agreement, which agreement
shall unless otherwise stated herein, remain in full force and effect.
REPORTING RELATIONSHIP AND DUITES: You will retain the title of Executive
Vice President and Chief Operating Officer (COO) through the Termination
Date. However, your current duties as COO will end on January 31, 2000.
For the period from January 31, 2000 through the Termination Date, your
duties and responsibilities will be significantly altered, including the
understanding that you will no longer have operational responsibility for
any portion of the Company. During your period of continued employment and
up until the Termination Date, you will continue to receive your current
salary, which amounts will be Grossed Up (as defined below) and your
current officer benefit package, including, but not limited to, your auto
allowance, executive life insurance and 1999 income tax preparation
expenses and 1999 income tax equalization with respect to Puerto Rico.
During your employment with the Company through the Termination Date, you
will report to the President and Chief Executive Officer (CEO). However,
this reporting relationship may be changed at any time before the
Termination Date by the Company.
GOALS AND OBJECTIVES: During your period of continued employment with the
Company you have agreed to focus on: (i) assisting in defining,
implementing and achieving the on-going corporate restructuring and
corporate-wide cost reductions, (ii) assisting in the disposition of
certain Company assets, including its facilities in Toulouse, France,
(iii) assisting in the negotiation of and entering into definitive
agreements regarding strategic business alliances, and (iv) such other
tasks as may be reasonably requested of you, from time-to-time, by the
Board of Directors, the CEO, or President, as the case may be. On the
Termination Date you will also execute such documents or letters as may be
necessary to resign from any positions you may then hold as an officer
and/or director of any subsidiaries or affiliates of the Company.
SEPARATION PAYMENT: The Company will pay, within 30 days of the
Termination Date, a separation payment to you equal to: (i) one and
one-half times your then current annual salary, and (ii) one and one-half
times your then current target annual MBO bonus. It is further agreed that
you will submit a pro forma tax return for the year 2000 to the Company on
the Termination Date and that the Company will use such pro forma
information to gross up your income tax payments vis-a-vis Puerto Rico as
has been the past practice in your employment relationship with the
Company (hereafter to be called the "Gross Up" or to be "Grossed up" as
the case may be), said amounts to be paid by StorageTek Puerto Rico as
directed by you and no later than 30 days after the Termination Date
subject to a reconciliation between you and the Company based on actual
tax amounts owed as though you were working in Puerto Rico. This
reconciliation is agreed to have been completed on or before April 15,
2001.
CONSULTING AGREEMENT: Effective from the Termination Date, you will be
offered a consulting agreement with the Company, which consulting
agreement will end on September 30, 2000 (the "Consulting Period
Termination Date"). Under the terms of this consulting agreement, you will
be paid a consulting fee equal to $50,000 per quarter for the two quarters
ending June 30, 2000 and September 30, 2000. During this consulting period
one of your primary objectives will be to resolve the matters pertaining
to the Toulouse, France facility project. In regard to the Toulouse
project, should you successfully conclude this project to the satisfaction
of StorageTek via one or more definitive agreements that will have been
entered into on or before September 30, 2000, then you shall be entitled
to receive an incentive bonus equal to $50,000. If during the term of your
consulting agreement, the Company determines, for reasons that are not
related to the lack of attractive transaction proposals, that the Toulouse
project should be terminated, then you will be entitled to receive the
$50,000 incentive bonus as though you had successfully completed the
project in addition to your full consulting fee for the period ended
September 30, 2000. In all respects regarding your consulting agreement,
you will be reimbursed for all reasonable out of pocket expenses by
StorageTek. Additionally, all consulting fees shall be Grossed Up for the
year 2000.
STOCK OPTIONS AND RESTRICTED STOCK: Due to your "Involuntary Termination"
on the Termination Date, in accordance with the terms of Section 5 of your
Employment Agreement all of your outstanding and unvested stock options
will immediately vest (according to the terms of your Stock Option
Agreements and the Company's 1995 Stock Option Plan) and the Company's
right to repurchase any of your previously granted restricted stock will
terminate on the Termination Date. Pursuant to the terms of StorageTek's
Stock Option Plan, you will have 90 days from the Consulting Period
Termination Date to exercise all of your vested options, which "exercise
window" will therefore remain open until December 31, 2000. However, if
because of your consulting responsibilities to the Company, your knowledge
of the Company's activities may render you ineligible to trade in the
Company's stock due to the possession of "material inside information",
the Company will extend its consulting agreement with you such that your
eligible "trading window" will be moved back to insure that you have a
90-day trading window, free from SEC trading prohibitions.
COBRA PAYMENTS: Starting from the Termination Date, you will be entitled
to receive COBRA benefits for the equivalent medical and dental coverage
for you and your family as may be in effect at the Termination Date, such
COBRA benefits will be paid for in full on your behalf by the Company.
These COBRA benefits will be paid for by the Company until the earlier to
occur of either (i) a date 18 months from the Termination Date, or (ii)
such time as you shall have entered into permanent employment with an
employer with a medical and dental plan.
DEFERRED COMPENSATION ACCOUNT: Per elections you have made under the
Storage Technology Corporation Deferred Compensation Plan (the "Plan"), at
the Termination Date you shall be entitled to receive a lump sum
distribution of your Plan account balances, said payments to be subject to
such federal, state and local income tax withholdings and other requisite
payments as may be required by the Plan and/or the relevant laws, it being
understood that no amendment to the Plan shall, in and of itself, cause
you to pay any penalties for receiving such lump sum distribution
immediately following the Termination Date. To the degree that your
contributions to your Plan account were subject to a tax equalization
Gross Up at the time they were made, then upon distribution those same
amounts, and all interest earned thereon, shall be Grossed Up for the year
of distribution, provided said contributions were not previously Grossed
Up.
OUT PLACEMENT SERVICES, ETC.: Starting on the Termination Date, you shall
be eligible to participate in and receive the Company's standard executive
job placement assistance, such assistance to be paid for on your behalf by
the Company. You will also receive tax preparation assistance in an amount
of up to 2% of your annual salary for the preparation of you 2000 tax
returns. You will also be authorized to purchase you office PC at its book
value on your Termination Date.
CHANGE IN CONTROL: If during your employment with the Company, the Company
should be acquired under a "Change in Control" event as that term has been
defined in your Employment Agreement, then you will receive the full
severance benefit as defined in the Employment Agreement. If a "Change in
Control" event were to occur after your employment with the Company had
been terminated, but prior to midnight December 31, 2000, then you will
receive an additional severance payment equal to one-half times your
salary and one-half times your on plan MBO bonus, as they were in effect
on the Termination Date. All amounts received by you on account of a
"Change in Control" shall be Grossed Up in the year received.
NO ADVERSE COMMENT: You agree that during your employment with the Company
through the Termination Date and for at least two years following the
Termination Date, you will not, except as specifically required by law or
court process or consented to in writing by the Company, (a) communicate
to any person or entity any adverse information, written or oral,
concerning the Company, its officers, directors, employees, attorneys,
agents or advisers (including any communication concerning information
that related to the business, operations, prospects or affairs of the
Company or any of its subsidiaries or affiliates) under the circumstances
in which there is a reasonable possibility that such information might be
publicly reported or disclosed or otherwise made available to third
parties (regardless of whether the communication of such information is
intended to have or cause that result is within your control), or (b)
provide to any person (other than your attorney, accountant and/or spouse)
or entity any information that concerns or related to the negotiations or
circumstances leading to the execution of this Separation Agreement.
Likewise, the Company shall refrain, for a similar period of time, from
communicating any adverse comments relating to you and/or your tenure with
the Company or the circumstances leading to the execution of this
Separation Agreement.
NON-SOLICITATION PROVISIONS: Per the terms of Section 8 of your Employment
Agreement, you confirm that during the two-year period commencing with the
Termination Date, you will not, directly, or indirectly, solicit, or
encourage any then-current Company employees to apply for employment with
any person or entity (a) with which you are (or intend to be) employed,
(b) by whom you or an entity in which you are employed or have a financial
interest is engaged as a consultant, recruited, independent contractor or
otherwise, or (c) in which you further covenant and agree that you will
not provide to any other person or entity the names of any person who is
then employed by the Company.
NON-COMPETE PROVISIONS: Per the terms of Section 8 of your Employment
Agreement, you confirm that for a period of eighteen months from the
Termination Date that you will not, either directly or indirectly, engage
in any activity in competition with any product or service of the Company,
or harmful or contrary to the best interest of the Company, including
accepting employment with or serving as a consultant to any entity that is
in competition with the Company, provided however that if at any time
during this eighteen month prohibitionary period the Company shall have a
"Change in Control" event as defined in your Employment Agreement, then
this employment prohibition shall be retroactively reset so as to run
chronologically for a period of one year from the Termination Date. Per
Section 8, those companies deemed to be competitors to StorageTek are
ATL/Quantum, Exabyte, Breece Hill, EMC, Hewlett-Packard, Sun Microsystems
and IBM. Provided however, you may at any time request permission from the
Company, in writing, to accept employment with any of these designated
competitor companies. If the product areas or business units with which
you seek to affiliate do not compete with StorageTek, and StorageTek at
its reasonable discretion determines that such employment would not be
adverse to the interest of StorageTek, then the Company shall approve such
employment, such approval not to be unreasonably withheld or delayed and
such approval only to be effective if communicated in writing.
EARLY TERMINATION: In the event of your Involuntary Termination, prior to
the Termination Date, the Company will pay you the separation pay and
benefits identified above at the time of your termination, including but
not limited to the vesting of your stock options and restricted stock and
the lump sum distribution of your Plan account balance, provided that you
sign the Settlement and Release Agreement attached as Exhibit A to your
Employment Agreement. During the period of your employment with the
Company, all other terms of your employment as stated in your Employment
Agreement, including termination for "Cause" provisions will remain in
effect through the Termination Date. If you voluntarily terminate your
employment with the Company before the Termination Date, then you will not
be entitled to receive any of the separation benefits set forth in this
Separation Agreement.
SETTELMENT AND RELEASE: The payments recited in this Separation Agreement
are contingent upon your execution and delivery to the Company a
Settlement and Release Agreement substantially in the form attached as
Exhibit A to your Employment Agreement.
COMPANY RELEASE: The Company hereby irrevocably and unconditionally
releases and discharges you and your heirs, successors, and assigns
(separately and collectively, "Releasees"), jointly and individually, from
any and all claims, known or unknown, which it, its past and present
subsidiaries, divisions, officers, directors, agents, employees,
successors, and assigns have or may have against Releasees and any and all
liability which Releasees may have to it, whether denominated claims,
demands, causes of action, obligations, damages or liabilities arising
from any and all bases, however denominated, provided, however, that this
release does not affect any claims which are based on Releasees'
dishonesty in the performance of duties as an employee of the Company, nor
any claims which may arise after the execution of this Agreement. The
Company further agrees that it will not file or permit to be filed on its
behalf any claim against you which is released hereby
NONDISCLOSURE: Unless otherwise required to do so by law, subpoena or
court order, you will not in any way communicate or discuss the terms of
this Separation Agreement or the circumstances of its execution with any
person, other than your attorneys, accountants, immediate family members,
prospective employers, or authorized Company personnel (said personnel to
be explicitly designated by the Company's President and CEO). You
understand that this nondisclosure provision applies particularly to
current and former employees of the Company and the Company's customers,
clients and vendors. As to matters related to an anticipated announcement
via news releases, internal electronic postings and other communications
regarding your new reporting relationships, your new duties and your
pending departure from the Company and any subsequent news releases or
other announcements that may make reference to the fact of your
termination from the Company, the Company will work with you to insure
that suitable communications are drafted such that announcements do not
reflect adversely on your professional reputation or tenure with the
Company.
This Separation Agreement shall be deemed for purposes of the Older
Workers Benefits Protection Act to have been delivered to you for your
consideration on the date set forth above. You have 21 days from that date
to decide whether or not to accept this agreement. If you accept this
agreement, you will then have seven days from the date you sign and
deliver an executed copy of this agreement to the Company to revoke your
acceptance by notifying the Company in writing of your desire to do so. No
amounts otherwise due to you under this Separation Agreement will be paid
to you until the expiration of the seven day revocation period. When you
are ready to do so, please sign both copies of this letter below,
indicating your acceptance, and return one copy for our files.
Accepted and Agreed: Very truly yours,
STORAGE TECHNOLOGY CORP.
- -------------------------- ------------------------------
Victor M. Perez David E. Weiss
Chairman, President and
Chief Executive Officer
SEPARATION AND MUTUAL RELEASE
It is acknowledged that as a result of a corporate restructuring of the
Solutions Business Group at Storage Technology Corporation ("StorageTek" or the
"Company") and in light of your election not to be a member of the executive
management team of NewCo, as described in paragraph 5 below, and as communicated
by you to StorageTek on March 7, 2000, that you, Jean Reiczyk ("Reiczyk" or
"you" or "'your", as the case may be) will be involuntarily terminated from
StorageTek effective March ___, 2000 ("Termination Date"). This Separation and
Mutual Release ("Release") will confirm the agreement concerning the termination
of your employment with the Company as Corporate Vice President, Solutions
Business Group. In that regard, this Release will confirm the terms of your
severance under your Executive Employment Agreement with the Company which was
entered into on October 13, 1999 (the "Employment Agreement"). To the degree
that the terms of this Release do not conflict with the terms and conditions of
the Employment Agreement, the terms of the Employment Agreement shall remain in
full force and effect.
1. Contingent upon your signing this Release and the expiration of the seven day
revocation period described below, the Company will pay to you, within 30
days of the Termination Date, a separation payment equal to the amounts set
forth in Section 5(a) of the Employment Agreement, including one year?s base
salary ($315,000.00), and one year?s target MBO bonus for 2000 equal to
forty-five percent (45%) of your base salary ($141,750.00). And, per the
terms in Section 5(c) of the Employment Agreement, your stock options will
vest upon the Termination Date and the Company?s right of repurchase on
restricted stock will be void. Pursuant to the terms of StorageTek's Stock
Option Plan, you will have 90 days from the Termination Date to exercise
these options.
2. In exchange for payments to you of $456,750.00, less applicable withholding
taxes, pursuant to Section 5(a) of the Employment Agreement, by the Company
and other good and valuable consideration, Reiczyk hereby irrevocably and
unconditionally releases and discharges the Company, its past and present
subsidiaries, divisions, officers, directors, agents, employees, successors,
and assigns (separately and collectively, "releasees") jointly and
individually, from any and all claims, known or unknown, which he, his heirs,
successors or assigns have or may have against releasees and any and all
liability which releasees may have to him whether denominated claims,
demands, causes of action, obligations, damages, or liabilities arising from
any and all bases, however denominated, including but not limited to, any
claims of discrimination under the Age Discrimination in Employment Act
("ADEA"), the Older Workers Benefit Protection Act, the Rehabilitation Act,
the Family Medical Leave Act, the Americans with Disabilities Act, Title VII
of the Civil Rights Act of 1964, the Civil Rights Act of 1991 or any federal
or state civil rights act, claims for wrongful discharge, breach of contract,
or for damages under any other federal, state or local law, rule or
regulation, or common law under any theory; provided, however, that this
release does not affect (1) any claims for benefits which have vested or
shall vest on or before the effective date of this Settlement and Release
("Release") under any of the Company's benefit plans; (2) any claims for
indemnification for acts of Reiczyk which have occurred or may occur as an
officer or employee of the Company; or (3) any claims which may arise after
the execution of this Release. This release specifically excepts any claim
Reiczyk may wish to make for unemployment compensation, and the Company
agrees not to contest any claim made by Reiczyk for unemployment
compensation. This release is for any relief, no matter how denominated,
including, but not limited to, back pay, front pay, compensatory damages,
punitive damages, or damages for pain and suffering. Reiczyk further agrees
that he will not file or permit to be filed on his behalf any such claim,
will not permit himself to be a member of any class seeking relief against
the releasees and will not counsel or assist in the prosecution of claims
against the releasees, whether those claims are on behalf of himself or
others, unless he is under a court order to do so.
3. The Company hereby irrevocably and unconditionally releases and discharges
you and your heirs, successors, and assigns (separately and collectively,
"Your Releasees"), jointly and individually, from any and all claims, known
or unknown, which it, its past and present subsidiaries, divisions, officers,
directors, agents, employees, successors, and assigns have or may have
against Your Releasees and any and all liability which Your Releasees may
have to them, whether denominated claims, demands, causes of action,
obligations, damages or liabilities arising from any and all bases, however
denominated, provided, however, that this release does not affect any claims
which are based on your material dishonesty in the performance of duties as
an employee of the Company, nor any claims which may arise after the
execution of this Agreement. The Company further agrees that it will not file
or permit to be filed on its behalf any claim against you which is released
hereby.
<PAGE>
4. Reiczyk agrees that by signing this Release, he is giving up the right to sue
for age discrimination, and that under this Release Reiczyk shall receive
consideration to which he is not otherwise entitled, and would not receive
but for his release of rights under the ADEA. Reiczyk has up to twenty-one
(21) days after delivery of this Release to consider whether to sign this
Release. Reiczyk agrees that, after he has signed and delivered this Release
to the Company, this Release will not be effective or enforceable until the
end of a seven (7) day revocation period beginning the day after the Reiczyk
signs this Release, and that Reiczyk will not receive the severance payment
due under the Employment Agreement until this seven-day period has expired.
During this seven-day period, Reiczyk may revoke this Release, without reason
and in his sole judgment, but he may do so only by delivering a written
statement of revocation to the Company to the attention of General Counsel.
If the Company does not receive a written statement of revocation from
Reiczyk by the end of the revocation period, then this Release will become
legally enforceable and Reiczyk may not thereafter revoke this Release.
5. Per the terms of Section 8 of your Employment Agreement, you confirm that for
a period of one year from the Termination Date that you will not, either
directly or indirectly, engage in any activity in competition with any
product or service of the Company (said competitive activities to be
determined and identified at the reasonable discretion of the Company), or
harmful or contrary to the best interest of the Company, including accepting
employment with or serving as a consultant to any entity that is in
competition with the Company. In particular, you agree that competitor
companies include, Storage Networks. Inc. (SNI), EMC Corp., Hewlett-Packard
(H-P), Sun Microsystems and IBM. You further agree that during this one year
non-compete period you will not accept a position as an employee with,
consultant to, director of, or greater than 5% investor in any entity,
anywhere in the world, that provides data storage services in either vertical
application markets (such as in banking, medical imaging, geophysical
research, video broadcasting, etc.) or in public or private storage utility
markets (where "storage utility" refers to the offering of a combination of
storage hardware and software in concert with storage management services as
a service to end user customers, directly or via resale). Notwithstanding the
foregoing, it is understood that you may enter into a consulting or
employment arrangement with "NewCo" (as that entity is presently known)
following the spin-off of the StorageTek Managed Storage Services entity
where such arrangement would be of a limited scope and for a limited period
of time, provided that StorageTek first receives a copy of the contract
embodying such arrangement and approves the terms of such contract prior to
commencing such employment or consulting in light of potential competitive
impacts on StorageTek, such approval not to be unreasonably withheld or
delayed. Furthermore, the provisions of Paragraph 8 (c) of the Employment
Agreement shall not apply to efforts made by you on behalf of or in
connection with NewCo.
6. Reiczyk agrees that this Release shall be governed by federal law and the
internal laws of the State of Colorado, irrespective of the choice of law
rules of any state.
ACKNOWLEDGMENT:
By your signature below you acknowledge that you have read this document fully,
that you understand and agree to its contents, that you understand that this is
a legally binding document, and that you have been advised to consult a lawyer
of your choosing before signing this Release, and have had the opportunity to do
so.
UNDERSTOOD AND AGREED:
- --------------------------
JEAN REICZYK
- --------------------------
Date
- ---------------------------
STORAGE TECHNLOLGY CORPORATION
DAVID E. WEISS
CHAIRMAN, PRESIDENT & CEO
This Release presented to Jean Reiczyk on __________________________.
AMENDMENT NO. 1 TO THE
STORAGE TECHNOLOGY CORPORATION
1995 EQUITY PARTICIPATION PLAN,
AS AMENDED THROUGH MARCH 5, 1999 (the "Plan")
(As adopted by the Board of Directors on March 9, 2000)
Section 3.1(ix) of the Plan shall be deleted in its entirety and replaced. in
lieu thereof, with the following:
"(ix) [INTENTIONALLY DELETED]"
AMENDMENT NO. 2 TO THE
STORAGE TECHNOLOGY CORPORATION
1995 EQUITY PARTICIPATION PLAN,
AS AMENDED THROUGH MARCH 5, 1999 (the "Plan")
(As adopted by the Board of Directors on March 9, 2000)
Section 8.1 of the Plan shall be deleted in its entirety and replaced, in lieu
thereof, with the following:
"8.1 Option Exercise Price. The per share price to be paid by the
Participant at the time a Non-qualified Option is exercised shall be determined
by the Committee at the time the Stock Option is granted or amended, but in no
event shall such exercise price per share be less than one hundred percent of
the Fair Market Value of one share of Common Stock on the date the Stock Option
is granted or amended."
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S FORM 10-Q DATED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000094673
<NAME> STORAGE TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-2000
<PERIOD-END> MAR-31-2000
<CASH> 228,467
<SECURITIES> 0
<RECEIVABLES> 482,586 <F1>
<ALLOWANCES> 0
<INVENTORY> 231,575
<CURRENT-ASSETS> 1,066,485
<PP&E> 301,016 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,565,925
<CURRENT-LIABILITIES> 655,705
<BONDS> 0
0
0
<COMMON> 10,084
<OTHER-SE> 872,338
<TOTAL-LIABILITY-AND-EQUITY> 1,565,925
<SALES> 301,112
<TOTAL-REVENUES> 459,669
<CGS> 196,754
<TOTAL-COSTS> 305,116
<OTHER-EXPENSES> 199,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,325
<INCOME-PRETAX> (60,838)
<INCOME-TAX> (21,300)
<INCOME-CONTINUING> (39,538)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,538)
<EPS-BASIC> (0.39)
<EPS-DILUTED> (0.39)
<FN>
<F1> Asset values for the interim period represent net amounts.
</FN>
</TABLE>
