UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: JUNE 30, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-22071
OVERLAND DATA, INC.
(Exact name of registrant as specified in its charter)
| CALIFORNIA | 95-3535285 |
| (State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
8975 Balboa Avenue, San Diego, California 92123-1599
(Address of principal executive offices, including zip code)
(858) 571-5555
(Registrant's telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /x/
The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 21, 2001 was $34,581,000 based on the closing price reported on such date by The Nasdaq Stock Market. Shares of Common Stock held by officers and directors and by persons who hold 5% or more of the outstanding Common Stock have been excluded from the calculation of this amount because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive.
As of September 21, 2001, the number of outstanding shares of the registrant's Common Stock was 10,541,962.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed in connection with registrant's Annual Meeting of Shareholders to be held on November 19, 2001 (the "Proxy Statement") are incorporated herein by reference into Part III of this Report.
This Report contains certain statements of a forward-looking nature relating to future events or the future performance of the Company. Prospective investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider various factors identified in this Report, including the matters set forth below under the caption "Risk Factors," which could cause actual results to differ materially from those indicated by such forward-looking statements.
ITEM 1. Business
General
Founded in 1980, Overland Data, Inc. (hereinafter "Overland Data", "Overland" or the "Company") designs, develops, manufactures, markets and supports magnetic tape data automation solutions. Businesses use these solutions for backup, archival and data interchange functions in high-availability network computing environments. Overland's products address the data storage needs of businesses, from small businesses and branch offices to large enterprises, that have become increasingly dependent upon their stored digital computer data. Increasingly, the management and protection of that data has moved from a peripheral concern to a central issue in computing, due to several factors, including:
Overland's storage system solutions are designed to reliably and efficiently capture, protect, manage, back up and archive stored digital content, so that it is recoverable and available 24 hours a day, seven days a week.
The Company's primary products are automated tape libraries, minilibraries and loaders which combine electro-mechanical robotics, electronic hardware and firmware developed by the Company with an emphasis on efficiency of design, functionality and reliability. Overland also distributes products manufactured by other original equipment manufacturers ("OEMs") and markets various other products including storage management software supplied by third parties, spare parts and tape media. The Company also licenses a proprietary tape encoding technology that it developed and patented under the name Variable Rate Randomizer or "VR 2 "®.
During fiscal year 2000, the Company embarked on a strategy to capture a portion of the entry-level server tape backup market. This strategy was based on the concept of developing a next generation tape drive which would incorporate the Company's proprietary VR 2 tape encoding technique onto a Travan NS tape drive. To this end, in February 2000, the Company's subsidiary, Tecmar, Inc., acquired certain inventories, fixed assets, supplies, intellectual property, trademarks and Internet addresses from Tecmar Technologies International, Inc. and certain of its affiliates, including Tecmar Technologies, Inc. (collectively, "Tecmar"), in a prepackaged bankruptcy plan.
During fiscal year 2001, the Company worked toward finalization of the development of next generation Travan drives using VR 2 , but was unsuccessful in its efforts to sign any significant OEM customers for the products. In June 2001, the Company decided to terminate this entry-level tape drive strategy and sold its WS30 and EDT40 tape drive designs and related assets to Seagate Removable Storage Solutions LLC ("Seagate") in exchange for future royalty payments based on sales of the resulting tape drive products and related tape media cartridges.
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Products
Overland is one of the leading suppliers of automated tape storage solutions based on DLTtape, a half-inch tape technology supplied by Quantum Corporation that is the industry standard for data back-up in the mid-range network server market. The Company also offers products based on "AIT" (Advanced Intelligent Tape) tape drives supplied by Sony Electronics, Inc. and "LTO" (Linear Tape Open) tape drives supplied by Seagate Technology, Inc., as well as a line of IBM compatible 36-track products called TapeXpress® that serve the large installed base of AS400 and RS6000 minicomputers. With the assets acquired from Tecmar in February 2000, the Company manufactured tape drives for the entry-level server market using DAT and Travan-based technologies through the end of fiscal year 2001. In fiscal year 2001 the Company sold its next generation Travan-based tape drive designs and related assets to Seagate Removable Storage Solutions and has essentially exited the entry-level server market all together.
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The Company's drives, loaders and libraries are installed on specific computer platforms with the appropriate backup, data interchange or storage management software. Overland actively works with a number of backup and storage management software companies to confirm that its products are properly supported. Currently, more than 80 different software packages support the Company's products. For example, on the Novell NetWare and Microsoft Windows NT platforms, the software packages include products from Computer Associates International, Inc., Veritas Software Corporation,
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Legato Systems Incorporated ("Legato Systems"), and Dantz Development Corp. On UNIX platforms, the software packages include products from Legato Systems, IBM/Tivoli, Hewlett Packard Company and Veritas Software Corporation. On Linux platforms, software packages supported include Knox Software and BakBone Software, Inc.
Sales and Marketing
The Company sells its products primarily through three channels: (i) OEMs; (ii) commercial distributors; and (iii) volume, consisting of systems integrators, technical distributors and value added resellers ("VARs"). Overland's products are sold both domestically and internationally. Regardless of the channel through which they are sold, all of Overland's products are designed and manufactured to meet OEM level requirements and reliability standards. Because the OEM qualification process can take six to 18 months to complete, the Company often makes initial sales of new products to non-OEM customers that typically evaluate, integrate and adopt new technologies and products more quickly. After qualification and acceptance, OEM sales generally represent an increasing proportion of a product's unit sales and are important to the Company in terms of validating its products in the marketplace and achieving desirable production volume. In an attempt to capitalize on the apparent market acceptance of the recently introduced Neo series libraries, the Company will redirect resources from other areas within the Company to fund additional sales representatives within the Company's non-OEM channels and other sales and marketing efforts.
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combined with other storage devices, such as redundant array of independent disks (RAID) systems, to deliver a complete storage subsystem. These customers also recommend the Company's products as replacement solutions when backup systems are upgraded, and bundle its products with storage management software specific to the end-user's system. The Company supports this channel through its field sales representatives.
Overland supports its sales efforts with various marketing programs designed to build its brand name and attract new customers. Its channel partners are provided with a full range of marketing materials, including product specification literature, software connectivity information and application notes. The Company's sales management and engineering personnel provide support to the channel partners and, in certain instances, visit potential customer sites to explain and demonstrate the technical advantages of the Company's products. In addition, the Company holds two conferences each year to inform its channel partners of new product developments and programs and to discuss emerging trends in their markets. The Company also maintains press relations both domestically and in Europe, advertises in computer systems publications targeted to its end-users and channel partners, and offers market development funds to its channel partners. Overland participates in national and regional trade shows both domestically and internationally, including displaying its products at the CeBIT show in Germany and domestically at NetWorld+Interop, PC Expo and at a private suite in conjunction with Comdex. The Company also maintains a website (http://www.overlanddata.com) that features marketing information, product specifications, news releases and application, service and technical support notes and investor relations information.
Customer Service and Support
Overland's technical support personnel are trained with respect to the Company's products and assist customers with "plug-and-play" compatibility between multiple hardware platforms, operating systems and backup, data interchange and storage management software. The Company's application engineers are available to solve more complex customer problems and visit customer sites when necessary. Customers that need service and support can contact the Company through its toll-free telephone lines, facsimile and Internet e-mail. Application notes and user manuals can be obtained directly from the Company's website.
The Company's standard warranty is a three-year (two years for non-LibraryXpress products) return-to-factory policy that covers both parts and labor. For products that it distributes and for drives and tapes used in its products that are manufactured by a third party, the Company passes on to the customer the warranty provided by the manufacturer. The Company also offers two year on-site service for many of its scalable LibraryXpress products, including 24-hour service, seven days a week, for which it contracts with third-party service providers. The Company offers the XchangeNOW® program on its Overland-branded drives, minilibraries, loaders, LibraryPro and Neo series libraries, enabling customers to receive a replacement unit free of charge within one to two business days after placing a service request. Overland offers this warranty service during the three-year return-to-factory warranty period.
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In addition, the Company has instituted the GUTS Guaranteed Up Time™ service program for its LibraryXpress products. The guarantee has two features: (1) the end-user customer receives an additional year of return to factory warranty if the customer experiences more than 1% down-time during any one year period, and (2) a guarantee that all data written to tape using a covered Overland product will be recoverable or the customer can return the product for a full refund.
Research and Development
The Company currently employs 52 people in its research and development ("R&D") department who have extensive experience in the tape industry, including nine engineers located at the Company's Longmont, Colorado facility who are dedicated to and funded by Seagate in connection with the sale of the WS30 and EDT40 tape drive design and services agreement. At the conclusion of the Seagate development project, the Company expects to terminate the Longmont engineering team. Many of the Company's San Diego-based engineers are former employees of tape drive companies such as Cipher Data Products ("Cipher"), Archive Corporation and Conner Peripherals, Inc. They have developed significant expertise in electrical, mechanical and firmware design.
The Company's R&D department is capable of developing both tape drives and robotic mechanisms, including the development of various aspects of data channels, data compression, intelligent interfaces and firmware (embedded systems software). This department also has the ability to develop and test a tape path, the core of any tape technology. Overland believes that these capabilities distinguish it from its competitors by providing it with a better understanding of tape technologies in general and enabling it to provide higher value-added content by designing reliable products that better utilize the advantages of specific technologies.
During fiscal 2001, the majority of the Company's R&D efforts were focused on the development and introduction of its new Neo series line of automated tape libraries. This next generation development involved significant development materials and evaluation units. In fiscal 2002, the Company intends to focus its R&D efforts on developing follow-on products that will extend the Neo series product line into larger systems and integrate additional tape drive technologies and developing more intelligent automation devices. The Company's R&D expenditures amounted to $10.1 million, $7.3 million and $5.4 million in fiscal years 2001, 2000 and 1999, respectively, representing 6.5%, 5.9% and 5.8% of net sales, respectively. Despite its R&D focus, the Company may not be able to identify, develop, manufacture, market or support new or enhanced products successfully or on a timely basis and any new products may not gain market acceptance.
Manufacturing
The Company has a fully integrated factory in San Diego, California. Major OEM customers have certified all of its production lines and manufacturing processes. Overland performs product assembly, integration and testing, while leaving component and piece-part manufacturing to its supplier partners. The Company works closely with a group of regional, national and international suppliers, which are carefully selected based on their ability to provide quality parts and components that meet the Company's specifications, as well as meet present and future volume requirements. Key suppliers are under contract to provide just-in-time deliveries. The Company specifically designs a number of its parts and components that are not available off the shelf for integration into its products. The Company maintains a minimum number of suppliers and utilizes their specific capabilities across several product lines.
In general, products are not manufactured until an order is received. The typical lead-time for manufacturing products is three days. The Company's largest OEM customer, Compaq, provides weekly forecast information that allows Overland to closely manage both raw material and finished goods inventories. As part of its agreement with Compaq, the Company ships products to various distribution hubs around the world and retains ownership of that inventory until it is pulled by Compaq to fulfill
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customer orders, at which time Overland records a sale. As a result, backlog is not a significant factor to Overland's business.
In June 2001, the Company discontinued manufacturing operations at its UK subsidiary. However, the Company will continue to warehouse, stage and ship product locally from the UK facility.
The lease on the Company's San Diego headquarters and additional San Diego warehouse facilities are due to expire in approximately 12 months. The Company currently plans to consolidate both facilities in a larger and more appropriately configured space in the same general area within San Diego, which it expects to occupy in February 2002. In both its current and planned facilities, the Company believes that it has and will have the capacity to support unit production levels several times greater than its current rate of production.
During fiscal year 2001, the Company continued to operate a partial second shift in addition to the traditional single shift to handle greater production levels and could expand further by adding to its second shift or moving to a full-time factory. Staffing levels are carefully controlled and adjusted to meet the requirements at any specific time.
Proprietary Rights
General— The Company believes that, because of the rapid pace of technological change in the tape storage industry, patent, copyright, trademark and trade secret protection are less significant than factors such as the knowledge, ability and experience of the Company's personnel, new product introductions and product enhancements. Despite these factors, the Company still relies on a combination of patent, copyright, trademark and trade secret protection, non-disclosure agreements and licensing arrangements to establish and protect its proprietary rights. These rights, however, may not prevent competitors from developing substantially equivalent or superior products to those of the Company. In addition, there can be no assurance that any patents held by, or that may be issued to, the Company will not be challenged, invalidated or circumvented, or that any rights granted would provide proprietary protection to the Company.
VR 2 Technology —The Company has entered into various intellectual property licensing agreements relating to its VR 2 technology. These agreements typically call for an initial payment to Overland for the delivery of the VR 2 technology platform and royalty fees based on sales by licensees of products containing VR 2 . In certain instances, Overland may elect to sell to the licensee ASIC chips embodying VR 2 priced to include the cost of the chip plus an embedded royalty fee.
IBM License —The Company entered into a cross-license agreement with IBM, effective January 1, 1996. Pursuant to the terms of the agreement, the Company may use any of the patents owned by IBM within certain designated areas of technology, and IBM may use any of the patents of the Company that were in existence at the effective date of the agreement or which are issued during the term of the agreement. In consideration for this agreement, the Company is required to pay royalty fees to IBM in an amount equal to 2.7% of worldwide revenues generated from the Company's 18- and 36-track product sales, exclusive of those sold to IBM.
Employees
The Company had 314 employees as of June 30, 2001, including 65 in sales and marketing, 52 in research and development, 151 in manufacturing and operations and 46 in finance, information systems, human resources and other management. There are no collective bargaining contracts covering any of the Company's employees and management believes that its relationship with its employees is good.
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An investment in the Company's Common Stock involves a high degree of risk. This Report contains forward-looking statements, the accuracy of which is subject to many risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, the following risk factors, which should be considered carefully in evaluating the Company and its business.
Rapid Technological Change and Dependence on New Product Development
The market for the Company's products is generally characterized by rapid technological change and evolving industry standards and is highly competitive with respect to timely innovation. The future success of the Company will depend on its ability to anticipate changes in technology, to develop new and enhanced products on a timely and cost-effective basis and to introduce, manufacture and achieve market acceptance of these new and enhanced products. In particular, the Company's future success will likely depend on the market acceptance of the recently introduced Neo series, a "next generation" tape automation product line to succeed its LibraryXpress product line. LibraryXpress and the Neo series are facing increasing competition from automated tape library products, and likely will face competition from other storage devices that may be developed in the future. Development schedules for high technology products are inherently subject to uncertainty and there can be no assurance that the Company will be able to meet its product development schedules, including those for products based on its VR 2 tape coding technique (both by the Company and its licensees), or that development costs will be within budgeted amounts. If the products or product enhancements that the Company develops are not deliverable due to developmental problems, quality issues or component shortage problems, or if such products or product enhancements do not achieve market acceptance or are unreliable, then the Company's business, financial condition and results of operations may be materially and adversely affected. The introduction (whether by the Company or its competitors) of new products embodying new technologies such as new sequential or random access mass storage devices and the emergence of new industry standards could render existing products obsolete or not marketable.
Competition and Price Pressure
The worldwide tape storage market is intensely competitive as a large number of manufacturers of alternative tape technologies and library systems compete for a limited number of customers. In addition, barriers to entry are relatively low in the market for library systems. The Company currently participates in three segments of the tape backup market: (1) enterprise-level applications; (2) mid-sized applications for workgroups, departments and small enterprises; and (3) interchange based applications on IBM compatible 3480/3490 technology. In all of these areas, many of the Company's competitors have substantially greater financial and other resources, larger research and development staffs, and more experience and capabilities in manufacturing, marketing and distributing products than the Company. In the enterprise and mid-range markets, the Company's products currently compete with products made by Advanced Digital Information Corporation, ATL (the DLT & Storage Systems group of Quantum), Hewlett-Packard Company ("HP"), Exabyte Corporation, Qualstar Corporation, and StorageTek. For the market based on IBM compatible 3480/3490 technology, the Company's products compete primarily with products made by Fujitsu Computer Products of America, Inc., Hitachi Data Systems Corporation, Plasmon Laser Magnetic Storage (LMS), a division of Plasmon, Plc., Qualstar and StorageTek. The markets for the Company's products are characterized by significant price competition, and the Company anticipates that its products will face increasing price pressure. This pressure could result in significant price erosion, reduced profit margins and loss of market share, which could have a material adverse effect on the Company's business, financial condition and results of operations.
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Dependence on Certain Customers
The Company's revenues are highly dependent upon the level of sales to certain major OEM customers. The Company's largest customer, Compaq, accounted for approximately 63%, 54% and 25% of sales in fiscal years 2001, 2000 and 1999, respectively. Shipments to IBM, which became a customer during fiscal year 1997, accounted for 4%, 8% and 20% of sales in fiscal years 2001, 2000 and 1999, respectively. No other customer accounted for more than 10% of sales in any year during the three-year period. No customer is presently obligated to purchase a specific amount of products or provide binding forecasts of purchases for any period.
The Company expects that Compaq will continue to represent a significant portion of the Company's revenues in future periods. Consequently, the Company's future operating results would be materially adversely impacted by the loss of the Compaq account, or the reduction, delay or cancellation of Compaq orders.
On September 4, 2001, Compaq announced a definitive agreement to merge with HP. It is unclear at this time what effect the recently announced merger pending between Compaq and HP will have on the Company's sales to Compaq and its business generally. The merger, if consummated, could result in a decline in product sales to Compaq that could impact materially the Company's business, results of operations and financial condition. Furthermore, because HP currently has its own data storage division, the merger could result in more direct competition for Compaq's data storage business.
Dependence on Tape Technology
The Company derives a majority of its revenue from products that incorporate some form of tape technology, including DLT. Typically, these tape drive products are available from only a single manufacturer, and the Company expects to continue to derive a substantial amount of revenue from these products for the foreseeable future. As a result, the Company's future operating results depend on the continued availability and market acceptance of products employing tape drive technology. If products incorporating other technologies gain comparable or superior market acceptance, then the Company may face declining sales of tape drive products, which could have a material adverse effect on the Company's business, financial condition and results of operations.
Dependence on Certain Suppliers
The Company's products have a large number of components and subassemblies produced by outside suppliers. Accordingly, Overland is highly dependent on these suppliers for tape drives, read-write heads, printed circuit boards and integrated circuits, which are essential to the manufacture of the Company's products. In addition, for certain of these items, the Company qualifies only a single source, which can magnify the risk of shortages and decrease the Company's ability to negotiate with its suppliers on the basis of price. If such shortages occur, or if the Company experiences quality problems with suppliers, shipments of products could be significantly delayed or costs significantly increased, which would have a material adverse effect on the Company's business, financial condition and results of operations. Specifically, a large portion of the Company's products incorporate DLTtape drives manufactured by Quantum, which is also a competitor of the Company because Quantum markets its own tape drives and tape automation products. Although Quantum has licensed Tandberg Data to be a second source manufacturer of DLTtape drives, Overland has not qualified Tandberg as its alternative supplier. The Company does not have a long-term contract with Quantum, which could cease supplying DLTtape drives directly to the Company. From time to time in the past, the Company has not been able to obtain as many drives as it has needed from Quantum due to drive shortages or quality issues. Any prolonged inability to obtain adequate deliveries could require the Company to pay more for components, parts and other supplies, seek alternative sources of supply, delay shipment of products and damage relationships with current and prospective customers. Any such delay or damage could have a material adverse effect on the Company's business, financial condition and results of operations. In the past, the Company experienced problems with the supply of a newly introduced DLTtape drive
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and such problems adversely affected the Company's sales and earnings. No assurance can be given that such problems will not reoccur, or that the Company will not experience similar or more serious disruptions in supply in the future with current versions of DLT drives, the new Super DLT drive or any future DLT drive version.
Fluctuation in Results
The Company's results can fluctuate substantially from time to time for various reasons. All of the markets served by the Company are volatile and subject to market shifts, which may or may not be discernible in advance by the Company. A slowdown in the demand for workstations, mid-range computer systems, networks and servers could have a significant adverse effect on the demand for the Company's products in any given period. The Company has experienced delays in receipt of purchase orders and, on occasion, anticipated purchase orders have been rescheduled or have not materialized due to changes in customer requirements. The Company's customers may cancel or delay purchase orders for a variety of reasons, including the rescheduling of new product introductions, changes in their inventory practices or forecasted demand, general economic conditions affecting the computer market, changes in pricing by the Company and its competitors, new product announcements by the Company or others, quality or reliability problems related to the Company's products or selection of competitive products as alternate sources of supply.
In addition, because a portion of the Company's sales are generated by its European channel, the first fiscal quarter (July through September) is commonly impacted by seasonally slow European orders, reflecting the summer holiday period in Europe. The Company's operations may reflect substantial fluctuations from period to period as a consequence of such industry shifts, price erosion, general economic conditions affecting the timing of orders from customers, the supply of tape drives, as well as other factors discussed herein. In particular, the Company's ability to forecast sales to distributors, integrators and VARs is especially limited as such customers typically provide the Company with relatively short order lead times or are permitted to change orders on short notice.
Portions of the Company's expenses are fixed and difficult to reduce should revenues not meet the Company's expectations, thus magnifying the material adverse effect of any revenue shortfall. The Company's gross profit has fluctuated and will continue to fluctuate quarterly and annually based upon a variety of factors such as:
Generally, new products have higher gross margins than more mature products. Therefore, the Company's ability to introduce new products in a timely fashion is an important factor to its profitability. Based upon all of the foregoing, the Company believes that period-to-period comparisons of its revenues and operating results will continue to fluctuate and are not necessarily meaningful and should not be relied on as indications of future performance. Furthermore, in some future quarters, the Company's revenues and operating results could be below the expectations of public market analysts or investors, which could result in a material adverse effect on the price of the Common Stock.
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International Operations
Direct international sales accounted for 47%, 43% and 28% of sales in fiscal years 2001, 2000 and 1999, respectively. Sales to customers outside the U.S. are subject to various risks, including:
Furthermore, there can be no assurance that the Company will be able to comply with changes in foreign standards in the future, even though the Company endeavors to meet standards established by foreign regulatory bodies. The inability of the Company to design products that comply with foreign standards could have a material adverse effect on the Company's business, financial condition and results of operations. Currently, nearly 100% of the Company's international sales are denominated in U.S. dollars and fluctuations in the value of foreign currencies relative to the U.S. Dollar could, therefore, make the Company's products less price competitive. Additionally, the expenses of the Company's international subsidiaries are denominated in their local currencies. The Company currently does not engage in foreign currency hedging transactions, and is therefore exposed to some level of currency risk.
Dependence on Key Employees
Overland experienced a number of changes in its senior management during fiscal year 2001. In particular, Christopher Calisi succeeded Scott McClendon as President and Chief Executive Officer, Chet Baffa joined the Company as Vice President of Sales, and Martin Gray resigned from his position as Vice President and Chief Technical Officer. The Company also intends to hire a new Vice President of Marketing. In order to successfully operate, the Company must integrate its new executive team in a timely and effective manner. Failure to successfully integrate its new executive team could have a material adverse effect on the Company's business, financial condition and results of operations.
The Company's future success depends in large part on its ability to attract and retain its key executives and other key personnel, many of whom have been instrumental in developing new technologies and setting strategic plans. The Company's growth also depends in large part on its continuing ability to hire, motivate and retain highly qualified management, technical, sales and marketing team members. Competition for such personnel is intense and there can be no assurance that the Company will retain existing personnel or attract additional qualified personnel in the future.
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Technology and Intellectual Property
The Company's ability to compete effectively depends in part on its ability to develop and maintain proprietary aspects of its technology. There can be no assurance that any future patents will be granted or that any patents will be valid or provide meaningful protection for the Company's product innovations. In addition, the laws of certain foreign countries may not protect the Company's intellectual property to the same extent as U.S. laws. Furthermore, competitors may independently develop similar products, duplicate the Company's products or, if patents are issued to the Company, design around the patents issued to the Company. The Company also relies on a combination of copyright, trademark, trade secret and other intellectual property laws to protect its proprietary rights. These rights, however, may not prevent competitors from developing substantially equivalent or superior products to those of the Company's. While the Company is not currently engaged in any intellectual property litigation or proceedings, there can be no assurance that the Company will not become involved in any such litigation in the future or that its products or other trademarks do not infringe any intellectual property or other proprietary right of any third party. An adverse outcome in litigation or similar proceedings could subject the Company to significant liabilities to third parties, require disputed rights to be licensed from others or require the Company to cease marketing or using certain products, any of which could have a material adverse effect on the Company's business, financial condition and results of operations.
Risks Associated with Possible Mergers and Acquisitions
In the future, the Company may pursue mergers and acquisitions of complementary businesses, products or technologies as it seeks to expand and increase the value-added component of its product offerings. Mergers and acquisitions involve numerous risks, including difficulties in the assimilation of the operations and personnel of the acquired business, the diversion of management's attention from other business concerns, risks of entering markets in which the Company has no direct prior experience, and the potential loss of key employees of the acquired business.
Future mergers and acquisitions by the Company may also result in dilutive issuances of equity securities and the incurrence of additional debt and amortization expenses related to intangible assets, which could adversely affect the Company's business, financial condition and results of operations.
Warranty Exposure
The Company generally provides three-year (two years for non-LibraryXpress products), return-to-factory warranty on its products. For certain products, it provides or offers for sale a two-year on-site warranty, which is supplied by a third party service provider. The Company pays the negotiated price of the contract to the service provider in advance and the service provider is then responsible for the costs of providing onsite labor during the three-year warranty period and all costs for the term of the contract thereafter. For products which the Company distributes and for tape drives used in the Company's products but manufactured by a third party, the Company passes on to the customer the related manufacturer's warranty. Although the Company has established reserves for the estimated liability associated with product warranties, there can be no assurance that such reserves will be adequate or that the Company will not incur substantial warranty expenses in the future with respect to new or established products.
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Limited Trading History; Possible Volatility of Stock Price
The market price of the Common Stock has experienced significant fluctuations since it commenced trading in February 1997. There can be no assurance that the market price of the Common Stock will not fluctuate significantly in the future. Many factors could cause the market price of the Common Stock to fluctuate substantially, including: announcements concerning the Company or its competitors, quarterly variations in operating results, the introduction of new technology or products, changes in product pricing policies by the Company or its competitors, changes in earnings estimates by analysts and the purchasing decisions of our significant customers. In addition, stock markets have experienced extreme price and volume volatility in recent years. This volatility has had a substantial effect on the market prices of securities of many smaller public companies for reasons frequently unrelated or disproportionate to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of the Common Stock.
ITEM 2. Properties
The Company leases all facilities used in its business. Its headquarters are located in San Diego, California in a three-building light industrial complex comprising approximately 121,000 square feet. The lease expires in August 2002. This San Diego facility houses all of the Company's research and development and administrative functions as well as a major portion of manufacturing, sales, sales administration, marketing and customer support. The Company leases an additional 22,000 square foot warehouse facility to house, stage and ship finished goods in San Diego. The lease on this facility expires in February 2002. During fiscal year 2001, the Company entered into an operating lease agreement for a new 158,000 square foot headquarter facility to be constructed in San Diego, California. The Company plans to consolidate all San Diego operations into this facility. The lease commences upon the Company's occupancy of the building, scheduled for February 2002. The lease is for a period of twelve years and can be renewed for one additional five-year period. In its current and planned facilities, the Company believes that it has and will have the capacity to support unit production levels several times greater than its current rate of production.
The Company leases a 17,000 square foot facility located in Wokingham, England, which houses sales, technical support, repair and, through June 30, 2001, manufacturing integration for the European marketplace. The lease expires in January 2018. Beginning July 1, 2001, manufacturing functions for worldwide shipments will be performed in San Diego. The Company also maintains small sales offices located close to Paris, France and Munich, Germany.
The lease on the facility located in Longmont, Colorado expires in November 2005. The Company currently is working with the lessor to mitigate the rental expense once the Longmont operations have been wound-down, projected to be January 2002. The Company also leases two other small facilities located in Longmont, Colorado and in Nashua, New Hampshire for the development of R&D prototypes and an OEM sales office, respectively.
ITEM 3. Legal Proceedings
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
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ITEM 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's Common Stock trades on The Nasdaq Stock Market under the symbol "OVRL". As of September 21, 2001, there were approximately 120 shareholders of record. The Company has not paid any dividends on its Common Stock and does not anticipate paying any dividends in the foreseeable future. The high and low closing prices of Overland Data Common Stock from July 1, 1999 through June 30, 2001 were as follows:
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Low
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| Fiscal Year 2001: | |||||||
| Fourth quarter | $ | 8.20 | $ | 5.40 | |||
| Third quarter | 13.75 | 7.88 | |||||
| Second quarter | 11.00 | 6.50 | |||||
| First quarter | 13.56 | 8.63 | |||||
| Fiscal Year 2000: | |||||||
| Fourth quarter | $ | 15.00 | $ | 7.56 | |||
| Third quarter | 16.69 | 7.50 | |||||
| Second quarter | 9.00 | 4.75 | |||||
| First quarter | 7.47 | 5.19 | |||||
ITEM 6. Selected Financial Data
The following selected financial data has been derived from the Company's audited consolidated financial statements and the notes thereto. This information should be read in conjunction with Item 7 of this Report—"Management's Discussion and Analysis of Financial Condition and Results of Operations," and with the Company's consolidated financial statements and the related notes thereto set forth at the pages indicated in Item 14(a)(1).
|
|
At or for Years Ended June 30,
|
|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2001
|
2000
|
1999
|
1998
|
1997
|
|||||||||||
|
|
(in thousands, except for per share data)
|
|||||||||||||||
| Income Statement Data | ||||||||||||||||
| Net revenue | $ | 155,696 | $ | 122,979 | $ | 92,227 | $ | 75,164 | $ | 59,146 | ||||||
| Gross profit | 39,034 | 30,519 | 27,891 | 23,199 | 20,371 | |||||||||||
| Income from operations | 3,699 | 2,811 | 5,614 | 3,640 | 4,736 | |||||||||||
| Income before income taxes | 4,017 | 3,416 | 6,581 | 4,543 | 4,987 | |||||||||||
| Net income | 2,494 | 2,067 | 3,982 | 2,792 | 3,100 | |||||||||||
| Net income per share (1): | ||||||||||||||||
| Basic | $ | 0.24 | $ | 0.20 | $ | 0.39 | $ | 0.27 | $ | 0.44 | ||||||
| Diluted | $ | 0.23 | $ | 0.19 | $ | 0.37 | $ | 0.25 | $ | 0.33 | ||||||
| Balance Sheet Data | ||||||||||||||||
| Cash and cash equivalents | $ | 10,844 | $ | 15,774 | $ | 16,199 | $ | 15,550 | $ | 18,926 | ||||||
| Working capital | 46,999 | 43,257 | 40,981 | 39,498 | 36,733 | |||||||||||
| Total assets | 70,171 | 71,383 | 56,230 | 53,996 | 48,260 | |||||||||||
| Shareholders' equity | 51,679 | 47,497 | 44,807 | 43,368 | 40,317 | |||||||||||
15
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
This Report contains certain statements of a forward-looking nature relating to future events or the future performance of the Company. Prospective investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider various factors identified in this Report, including the matters set forth under the caption "Risk Factors," which could cause actual results to differ materially from those indicated by such forward-looking statements.
General
Overland Data designs, develops, manufactures, markets and supports magnetic tape data storage systems and tape drives used by businesses for backup, archival and data interchange functions in environments from small businesses to large enterprises requiring high-availability networks. The Company's primary products are automated tape libraries, minilibraries and loaders, which combine electromechanical robotics, electronic hardware and firmware developed by the Company. Its products are based on a number of different tape technologies including DLTtape, AIT, DLT1, SLR, IBM compatible 3480/3490/3490E, and during fiscal years 2000 and 2001 Travan and DAT. The Travan and DAT products were acquired as part of the acquisition of Tecmar assets in February 2000. In June 2001 the Company abandoned its introduction of a next generation Travan-based product aimed at capturing a share of the entry-level server tape backup market and sold its Travan-based WS30 and EDT40 tape drive designs and related assets. See "Business-General."
During the third quarter of fiscal year 2001 the Company sold certain rights and assets (including the product design and all documentation, manufacturing rights, tooling and inventory) of its automated SLR loader product to Tandberg Data for $1,135,000. As a result of this transaction, the Company recorded a pre-tax gain of $810,000 included in "other income." In connection with this sale, the Company also will receive a per unit royalty on the first 6,000 SLR loader units that are manufactured and sold by Tandberg Data.
During the three-year period ended June 30, 2001, the Company experienced a significant shift in the composition of its product mix. Before that period, more than 50% of the Company's sales were derived from products based on IBM compatible 3480/3490/3490E technologies and less than 30% of its sales were based on DLT products. By June 30, 2001, IBM compatible products have become "legacy" products and sales of such products have declined significantly to approximately 6% of the Company's fiscal year 2001 sales. Conversely, sales of DLT-based products now represent approximately 75% of the Company's revenues. This change is primarily the result of the progressive dominance of DLT in the marketplace, as well as Compaq's decision in June 1999 to have Overland fill its mid-range tape automation requirement with the Company's DLT LibraryXpress and the extension of that agreement in fiscal year 2001 to include the Company's Neo series. In addition, other tape-based technologies (primarily AIT) have grown to account for approximately 10% of the Company's fiscal year 2001 revenues.
In addition to its own products, the Company also distributes products supplied by third parties, including controller cards, interchange software, storage management software, spare parts and tape media. Finally, the Company licenses its proprietary tape encoding technology, which it developed and patented under the name VR 2 .
16
Results of Operations
The following tables set forth certain financial data as a percentage of net sales:
|
|
Fiscal Years Ended June 30,
|
|||||||
|---|---|---|---|---|---|---|---|---|
|
|
2001
|
2000
|
1999
|
|||||
| Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||
| Cost of goods sold | 74.9 | % | 75.2 | % | 69.8 | % | ||
|
|
|
|
||||||
| Gross profit | 25.1 | % | 24.8 | % | 30.2 | % | ||
|
|
|
|
||||||
| Operating expenses: | ||||||||
| Sales and marketing | 10.5 | % | 11.6 | % | 12.8 | % | ||
| Research and development | 6.5 | % | 5.9 | % | 5.8 | % | ||
| General and administrative | 5.7 | % | 5.0 | % | 5.5 | % | ||
|
|
|
|
||||||
| 22.7 | % | 22.5 | % | 24.1 | % | |||
|
|
|
|
||||||
| Income from operations | 2.4 | % | 2.3 | % | 6.1 | % | ||
| Other income, net | 0.2 | % | 0.5 | % | 1.0 | % | ||
|
|
|
|
||||||
| Income before income taxes | 2.6 | % | 2.8 | % | 7.1 | % | ||
| Provision for income taxes | 1.0 | % | 1.1 | % | 2.8 | % | ||
|
|
|
|
||||||
| Net income | 1.6 | % | 1.7 | % | 4.3 | % | ||
|
|
|
|
||||||
Product Mix Table
|
|
Fiscal Years Ended June 30,
|
|||||||
|---|---|---|---|---|---|---|---|---|
|
|
2001
|
2000
|
1999
|
|||||
| LibraryXpress products: | ||||||||
| LibraryXpress | 57.5 | % | 62.1 | % | 41.7 | % | ||
| LibraryPro | 9.2 | % | 1.0 | % | 0.0 | % | ||
| Autoloaders | 7.4 | % | 8.8 | % | 9.1 | % | ||
| Neo series | 3.8 | % | 0.0 | % | 0.0 | % | ||
| MinilibraryXpress | 3.0 | % | 6.0 | % | 6.4 | % | ||
|
|
|
|
||||||
| 80.9 | % | 77.9 | % | 57.2 | % | |||
|
Spare parts, drives, other |
|
10.0 |
% |
9.6 |
% |
11.7 |
% |
|
| 36-track | 6.1 | % | 10.2 | % | 26.3 | % | ||
| Discontinued products | 2.2 | % | 2.0 | % | 4.3 | % | ||
| VR 2 | 0.8 | % | 0.3 | % | 0.5 | % | ||
|
|
|
|
||||||
| 100.0 | % | 100.0 | % | 100.0 | % | |||
|
|
|
|
||||||
Fiscal Year 2001 Compared to Fiscal Year 2000
Net Sales. The Company's net sales of $155.7 million in fiscal year 2001 grew by $32.7 million or 26.6% over net sales of $123.0 million in fiscal year 2000. Sales within the Company's LibraryXpress product line grew 31.3% to 125.9 million, compared to $95.9 million in fiscal year 2000, due to increased shipments to Compaq and the incremental growth of the LibraryPro and the recently launched Neo series products. Sales to Compaq accounted for 63% of total net sales in fiscal year 2001, compared to 54% in fiscal year 2000. As expected, sales of the Company's 36-track products continued to decline and amounted to $9.5 million in fiscal year 2001, compared to $12.4 million in fiscal year 2000, due primarily to lower shipments to IBM.
17
Non-recurring Charges. During the fourth quarter of fiscal year 2001, the Company incurred several one-time pre-tax charges, including a $2.5 million charge related to the sale of its Travan-based WS30 and EDT40 tape drive designs and related assets and the exit of the entry-level tape drive business, a $711,000 charge as a result of the Company's reduction in force in April 2001 and a $406,000 charge related to the write-off of an optical product design and two lawsuit settlements. The charge related to the sale of the Travan design and exit of the entry-level tape drive business included a $2.0 million inventory write down, recorded in costs of goods sold, related to the remaining Travan-based inventory, $365,000 classified as research and development related to the closing of the Company's Longmont, Colorado facility, including severance expenses associated with the remaining employees formerly employed by Tecmar and other costs including the write-down of the remaining Travan-based fixed assets and legal fees associated with the sale. The severance costs resulting from the reduction of the Company's workforce to reflect current and expected business conditions include one officer and 26 middle manager and staff level positions. The severance costs were classified as follows: $485,000 to general and administrative expense; $114,000 to cost of sales; $65,000 to sales and marketing expense; and $47,000 to research and development expense. These severance costs include payments under the Company's severance policy or, in the case of the officer, an individual severance agreement, related payroll taxes and outplacement expenses.
The Company incurred a $1.7 million write down within cost of goods sold for discontinued Ditto® inventory in the fourth quarter of fiscal year 2000.
Gross Profit. The Company's gross profit amounted to $39.0 million in fiscal year 2001, an increase of $8.5 million or 27.9% from $30.5 million in fiscal year 2000, resulting primarily from higher sales volumes. Including the non-recurring charges discussed above, the gross margin percentage increased slightly to 25.1% in fiscal year 2001 from 24.8% in fiscal year 2000. Excluding such charges, gross margin as a percent of revenue rose slightly from 26.2% in fiscal year 2000 to 26.4% in fiscal year 2001. Although average selling prices decreased in fiscal year 2001, product cost reductions and a favorable product mix towards higher margin products offset the lower average selling prices.
Sales and Marketing Expenses. Sales and marketing expenses amounted to $16.4 million, representing 10.5% of net sales in fiscal year 2001, compared to $14.3 million or 11.6% of net sales in fiscal year 2000. Increased expenditures were due primarily to a full year of salary and related expenses associated with employees hired near the end of fiscal year 2000 and costs associated with the launch of the new Neo series product line during the year. The Company continued to focus efforts in fiscal year 2001 on building its brand name and the expansion of its commercial distribution channel.
Research and Development Expenses. R&D expenses amounted to $10.1 million or 6.5% of net sales in fiscal year 2001, compared to $7.3 million or 5.9% of net sales in fiscal year 2000. The increased expenses were attributable to a full year of costs associated with the personnel formerly employed by Tecmar and higher developmental material costs related primarily to the Neo series development program. Also included in the fiscal year 2001 amount were the costs associated with the effective termination of the Longmont operations as a result of the sale of the Company's Travan-based products design and the discontinuance of the remaining Travan-based products.
General and Administrative Expenses. General and administrative expenses amounted to $8.9 million or 5.7% of net sales in fiscal year 2001, compared to $6.2 million or 5.0% of net sales in fiscal year 2000. The increased level of expenses in fiscal year 2001 included an increase in salary and related expenses associated with the hiring of a new president and chief executive officer, additional information technology resources to support the increased level of business, an increase in bad debt expense, severance expenses resulting from the fourth quarter reduction in force and increased legal fees related primarily to the settlement of two lawsuits.
Interest Income/Expense. In fiscal year 2001, the Company generated net interest income of $473,000, compared to net interest income of $714,000 in fiscal year 2000. The lower net interest income in fiscal year 2001 is due to reduced cash balances during the year combined with lower yields on the Company's investments.
18
Income Taxes. The Company's fiscal year 2001 provision for state and federal income taxes amounted to $1.5 million. This equated to an effective tax rate of 37.9% in fiscal year 2001, down from 39.5% in fiscal year 2000. The decrease in the effective tax rate from the prior year is due primarily to a larger benefit from the Company's foreign sales corporation as a result of an increase in qualified export sales.
Fiscal Year 2000 Compared to Fiscal Year 1999
Net Sales. The Company's net sales of $123.0 million in fiscal year 2000 grew by $30.8 million or 33.4% over net sales of $92.2 million in fiscal year 1999. Sales within the Company's LibraryXpress product line grew 81.8% to $95.9 million, compared to $52.7 million in fiscal year 1999, due primarily to increased shipments to Compaq. Sales to Compaq accounted for 54% of total net sales in fiscal year 2000, compared to 25% in fiscal year 1999. Sales of the Company's 36-track products decreased by 48.8% to $12.4 million in fiscal year 2000, compared to $24.3 million in fiscal year 1999, due primarily to lower shipments to IBM. Sales to IBM accounted for 8% of total net sales in fiscal year 2000, compared to 20% in fiscal year 1999.
Gross Profit. The Company's gross profit amounted to $30.5 million in fiscal year 2000, an increase of $2.6 million or 9.3% from $27.9 million in fiscal year 1999, resulting from the higher sales volumes, offset by lower average sales prices. The gross margin percentage declined to 24.8% in fiscal year 2000 from 30.2% in fiscal year 1999, reflecting a greater mix of sales to OEM customers, which are typically at lower margins compared to other channel business, as well as a $1.7 million write down for discontinued Ditto inventory.
Sales and Marketing Expenses. Sales and marketing expenses amounted to $14.3 million, representing 11.6% of net sales in fiscal year 2000, compared to $11.8 million or 12.8% of net sales in fiscal year 1999. Increased expenditures were due primarily to additional personnel and increased travel, a higher level of advertising and promotional programs and the addition of expenses relating to the assets acquired from Tecmar. The Company continued to focus in fiscal year 2000 on building its brand name and expansion of its commercial distribution channel.
Research and Development Expenses. R&D expenses amounted to $7.3 million or 5.9% of net sales in fiscal year 2000, compared to $5.4 million or 5.8% of net sales in fiscal year 1999. The increased expenses were attributable to the hiring of additional personnel to support new product development, including primarily the personnel formerly employed by Tecmar, and higher developmental material costs related to new product development programs.
General and Administrative Expenses. General and administrative expenses amounted to $6.2 million or 5.0% of net sales in fiscal year 2000, compared to $5.1 million or 5.5% of net sales in fiscal year 1999. The increased level of expenses in fiscal year 2000 was due primarily to the addition of former Tecmar personnel and increased legal fees relating primarily to the Company's licensing, patent and business development activities. Offsetting this increase was a decrease in the Company's bad debt provision due to a higher concentration of OEM accounts receivable balances, reflecting a reduced credit risk.
Interest Income/Expense. In fiscal year 2000, the Company generated net interest income of $714,000, compared to net interest income of $810,000 in fiscal year 1999. The lower net interest income in fiscal year 2000 is due primarily to the reduced cash balances resulting from the $3.4 million purchase of certain Tecmar assets on February 23, 2000.
Income Taxes. The Company's fiscal year 2000 provision for state and federal income taxes amounted to $1.3 million. This equated to an effective tax rate of 39.5% in fiscal year 2000, unchanged from fiscal year 1999.
19
Liquidity and Capital Resources
During fiscal year 2001, the Company's cash balances decreased by $4.9 million as operating cash outflows of $4.6 million and capital expenditures of $2.1 million exceeded net inflows from financing activities of $1.1 million and proceeds from the sales of assets of $833,000. Operating cash outflows during fiscal year 2001 resulted primarily from a pay down of accounts payable and accrued liabilities and an increase in inventories and accounts receivable, partially offset by net income before depreciation. Capital expenditures during fiscal year 2001 were comprised primarily of tooling, computers and related systems. Financing cash inflows during the year were a result of the proceeds from the issuance of common stock under the Company's employee stock purchase plan and the exercise of stock options.
At June 30, 2001, the Company had $10.8 million of cash and cash equivalents, $47.0 million of net working capital, an unused bank line of credit of $5 million and no other funded debt. The Company believes that these resources will be sufficient to fund its operations and to provide for its growth into the foreseeable future.
Inflation
Inflation has not had a significant negative impact on the Company's operations during the periods presented. With the exception of its OEM contracts, which contain fixed pricing for up to one year, the Company historically has been able to pass on to its customers increases in raw material prices caused by inflation. There can be no assurance, however, that the Company will be able to continue to pass on any future increases should they occur. Although the Company's exposure to the effects of inflation will be magnified by the expected increase in OEM business, the Company believes that its continuous efforts at material and labor cost reductions will minimize such effects.
Year 2000
Beginning in 1999, the Company took steps designed to ensure that its products, information technology and facilities computer systems were Year 2000 compliant. To date, the Company has not experienced Year 2000 issues with regard to its internal systems, any third party systems or any of the Company's products. The Company's expenditures relating directly to Year 2000 compliance have not been material. Despite the fact that the Year 2000 has passed and the Company has experienced no problems to date, there can be no assurance that the risks posed by Year 2000 issues will not adversely affect the Company's business in the future, either as a result of unanticipated difficulties related to its systems or those of third parties.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact the financial position, results of operations or cash flows of the Company due to adverse changes in financial and commodity market prices and rates. The Company is exposed to market risk in the areas of changes in United States interest rates and changes in foreign currency exchange rates as measured against the U.S. dollar. These exposures are directly related to its normal operating and funding activities. Historically, the Company has not used derivative instruments or engaged in hedging activities.
Interest Rate Risk. The Company's financial instruments with market risk exposure are the Company's cash equivalents, short-term investments and, to the extent utilized, revolving credit borrowings, of which no amounts were outstanding during or as of June 30, 2001. The primary objective of the Company's investment activities is to preserve principal while maximizing yields without significantly increasing risk. To achieve this objective, the Company currently maintains a portfolio of high-grade commercial paper and money market funds.
20
The Company's revolving line of credit facility carries interest at the bank's prime rate or at the bank's banker's acceptance rate plus 2.25%. The Company's objective in maintaining access to these variable rate borrowings is the flexibility obtained regarding early repayment without penalties and lower overall costs as compared with fixed rate borrowings.
Under the Company's current policies, it does not use interest rate derivatives instruments to manage its exposure to interest rate changes. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would result in no material change in the Company's pre-tax earnings and cash flow.
Foreign Currency Risk. The Company conducts business on a global basis and essentially all of its products sold in international markets are denominated in U.S. dollars. Historically, export sales have represented a significant portion of the Company's sales and is expected to continue to represent a significant portion of sales.
The Company's wholly-owned subsidiaries in the United Kingdom, France and Germany incur costs which are denominated in local currencies. As exchange rates vary, these results when translated may vary from expectations and adversely impact overall expected results. The effect of exchange rate fluctuations on the Company's results during fiscal year 2001 was a $398,000 expense.
ITEM 8. Financial Statements and Supplementary Data
The consolidated financial statements and supplementary data of the Company required by this item are set forth at the pages indicated in Item 14(a)(1).
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
21
ITEM 10. Directors and Executive Officers of the Registrant
The information required by this item is included under the captions entitled "Election of Directors", "Executive Officers", and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement to be filed for our 2001 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 11. Executive Compensation
The information required by this item is included under the caption entitled "Compensation of Executive Officers", "Non-Employee Director Compensation" and "Report of the Compensation Committee of the Board of Directors on Executive Compensation" in the Company's Proxy Statement to be filed for our 2001 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is included under the caption entitled "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement to be filed for our 2001 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
The information required by this item is included under the caption entitled "Certain Relationships and Related Transactions" in the Company's Proxy Statement to be filed for our 2001 Annual Meeting of Shareholders and is incorporated herein by reference.
22
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements . The following Consolidated Financial Statements of Overland Data, Inc. and Report of Independent Accountants are included in a separate section of this Report at the page numbers so indicated:
| Report of Independent Accountants | F-1 | |
| Consolidated Balance Sheet as of June 30, 2001 and 2000 | F-2 | |
| Consolidated Statement of Operations for the Years Ended June 30, 2001, 2000 and 1999 | F-3 | |
| Consolidated Statement of Shareholders' Equity and Comprehensive Income for Years Ended June 30, 2001, 2000, and 1999 | F-4 | |
| Consolidated Statement of Cash Flows for the Years Ended June 30, 2001, 2000 and 1999 | F-5 | |
| Notes to Consolidated Financial Statements | F-6 to F-18 |
(a)(2) Financial Statement Schedule. The following financial statement schedule of Overland Data, Inc. for the years ended June 30, 2001, 2000 and 1999 is filed as part of this Report on the page number so indicated and should be read in conjunction with the Consolidated Financial Statements of Overland Data, Inc.:
| Schedule II—Valuation and Qualifying Accounts | S-1 |
Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto.
(a)(3) Exhibits
| 3.1 | Registrant's Amended and Restated Articles of Incorporation. (1) | |
| 3.2 | Registrant's Bylaws. (9) | |
| 4.1 | Specimen stock certificate. (1) | |
| 4.2 | Investors' Rights Agreement dated May 21, 1993 by and between Overland Data, Inc. and the parties named therein. (1) | |
| 10.1 | Standard Industrial Lease—Multi-Tenant dated May 26, 1993 by and between Overland Data, Inc. and Mitsui/SBD America Fund 87-1. (1) | |
| 10.2 | Build-to-Suit Single Tenant Lease dated October 12, 2000 by and between Overland Data, Inc. and LBA-VIF One, LLC. (8) | |
| 10.3 | First Amendment to Lease dated January 18, 2001 by and between Overland Data, Inc. and LBA Overland, LLC, as successor-in-interest to LBA-VIF One, LLC. | |
| 10.4 | Second Amendment to Lease dated March 8, 2001 by and between Overland Data, Inc. and LBA Overland, LLC. | |
| 10.5 | Credit Agreement dated November 9, 1999 by and between Overland Data and Imperial Bank. (2) + | |
| 10.6 | First Amendment to Credit Agreement dated November 15, 2000 by and between Overland Data, Inc. and Imperial Bank. | |
| 10.7 | Production Procurement Agreement #RMSS-ODI-96-01-0 dated October 25, 1996 by and between Overland Data, Inc. and International Business Machines Corporation. (1) + |
23
| 10.8 | Design Purchase and Services Agreement dated June 15, 2001 by and between Overland Data, Inc. and Seagate Removable Storage Solutions LLC. (10) + | |
| 10.9 | Supply Agreement dated June 15, 2001 by and between Overland Data, Inc. and Seagate Removable Storage Solutions LLC. (10) + | |
| 10.10 | VR 2 Technology License Agreement dated April 27, 2000 by and between Overland Data, Inc. and Storage Technology Corp. (5) + | |
| 10.11 | Corporate Purchase Agreement dated June 7, 2000 by and between Overland Data, Inc. and Compaq Computer Corporation and its Affiliates. (6) + | |
| 10.12 | * | Form of Indemnification Agreement entered into by and between Overland Data, Inc. and each of its directors and officers. (1) |
| 10.13 | * | Form of Retention Agreement entered into by and between Overland Data, Inc. and each of its executive officers. |
| 10.14 | * | Employment Agreement dated March 12, 2001 by and between Overland Data, Inc. and Christopher Calisi. (9) |
| 10.15 | * | Employment Agreement dated December 4, 2000 by and between Overland Data, Inc. and Vernon A. LoForti. (8) |
| 10.16 | * | Employment Agreement dated January 1, 2001 by and between Overland Data, Inc. and Robert J. Scroop. (9) |
| 10.17 | * | Employment Agreement dated January 1, 2001 by and between Overland Data, Inc. and Michael Gawarecki. (9) |
| 10.18 | * | Employment Agreement dated April 2, 2001 by and between Overland Data, Inc. and Chet Baffa. |
| 10.19 | * | Employment Agreement dated January 1, 2001 by and between Overland Data, Inc. and Scott McClendon. (9) |
| 10.20 | * | Second Amendment to 1995 Stock Option Plan. (4) |
| 10.21 | * | Form of Stock Option Agreement for options granted under the 1995 Stock Option Plan. |
| 10.22 | * | First Amendment to 1997 Executive Stock Option Plan. (4) |
| 10.23 | * | Form of Stock Option Agreement for options granted under the 1997 Executive Stock Option Plan. |
| 10.24 | * | 2000 Stock Option Plan. (7) |
| 10.25 | * | Form of Notice of Stock Option Award and Stock Option Award Agreement for options granted under 2000 Stock Option Plan. (9) |
| 10.26 | * | First Amendment to 1996 Employee Stock Purchase Plan. (4) |
| 21.1 | Subsidiaries of the Registrant. | |
| 23.1 | Consent of PricewaterhouseCoopers LLP, Independent Accountants. | |
| 24.1 | Power of Attorney (included on signature page). |
24
(b) Reports on Form 8-K . The Company filed the following Current Report on Form 8-K during the fourth quarter of the year ended June 30, 2001:
(1) Current Report on Form 8-K, filed on July 2, 2001, reporting under Item 2 the sale of the Company's Travan-based WS30 and EDT40 tape drive designs and the Company's plans to exit the entry-level tape drive business. Filed as an exhibit to the report were the pro forma financial statements required by Item 7(b) of Form 8-K.
25
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| OVERLAND DATA, INC. | ||||
|
Dated: September 28, 2001 |
|
By: |
|
/s/ CHRISTOPHER CALISI Christopher Calisi President & Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Christopher Calisi and Vernon A. LoForti, jointly and severally, as his or her attorney-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in- fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
||
|---|---|---|---|---|
|
|
|
|
|
|
|
/s/
CHRISTOPHER CALISI
Christopher Calisi |
President, Chief Executive Officer and Director | September 28, 2001 | ||
|
/s/ VERNON A. LOFORTI Vernon A. LoForti |
|
Vice President, Chief Financial Officer and Secretary |
|
September 28, 2001 |
|
/s/ ROBERT A. DEGAN Robert A. Degan |
|
Director |
|
September 28, 2001 |
|
/s/ MARTIN D. GRAY Martin D. Gray |
|
Director |
|
September 28, 2001 |
|
/s/ SCOTT MCCLENDON Scott McClendon |
|
Director |
|
September 28, 2001 |
|
/s/ PETER PREUSS Peter Preuss |
|
Director |
|
September 28, 2001 |
|
/s/ JOHN A. SHANE John A. Shane |
|
Director |
|
September 28, 2001 |
26
OVERLAND DATA, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To
the Board of Directors and Shareholders
of Overland Data, Inc.:
In our opinion, the accompanying consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 23 present fairly, in all material respects, the financial position of Overland Data, Inc. and its subsidiaries at June 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) on page 23 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers
LLP
San Diego, California
August 7, 2001
F–1
OVERLAND DATA, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
|
|
June 30,
|
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2001
|
2000
|
||||||||
| Assets | ||||||||||
|
Current assets: |
|
|
|
|
|
|
|
|||
| Cash and cash equivalents | $ | 10,844 | $ | 15,774 | ||||||
| Accounts receivable, less allowance for doubtful accounts of $603 and $389, respectively | 24,090 | 22,798 | ||||||||
| Inventories | 23,329 | 22,108 | ||||||||
| Deferred income taxes | 3,436 | 3,391 | ||||||||
| Other current assets | 2,940 | 1,684 | ||||||||
|
|
|
|||||||||
| Total current assets | 64,639 | 65,755 | ||||||||
|
Property and equipment, net |
|
|
4,795 |
|
|
5,033 |
|
|||
| Other assets | 737 | 595 | ||||||||
|
|
|
|||||||||
| $ | 70,171 | $ | 71,383 | |||||||
|
|
|
|||||||||
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|||
|
Current liabilities: |
|
|
|
|
|
|
|
|||
| Accounts payable | $ | 10,525 | $ | 13,965 | ||||||
| Accrued liabilities | 4,339 | 6,262 | ||||||||
| Accrued payroll and employee compensation | 2,776 | 2,271 | ||||||||
|
|
|
|||||||||
| Total current liabilities | 17,640 | 22,498 | ||||||||
|
Other liabilities |
|
|
852 |
|
|
1,388 |
|
|||
|
|
|
|||||||||
| Total liabilities | 18,492 | 23,886 | ||||||||
|
|
|
|||||||||
| Commitments and contingencies (Note 8) | ||||||||||
|
Shareholders' equity: |
|
|
|
|
|
|
|
|||
| Common stock, no par value, 25,000 shares authorized; 10,513 and 10,270 shares issued and outstanding at June 30, 2001 and 2000, respectively | 33,614 | 31,753 | ||||||||
| Accumulated other comprehensive loss | (332 | ) | (159 | ) | ||||||
| Retained earnings | 18,397 | 15,903 | ||||||||
|
|
|
|||||||||
| Total shareholders' equity | 51,679 | 47,497 | ||||||||
|
|
|
|||||||||
| $ | 70,171 | $ | 71,383 | |||||||
|
|
|
|||||||||
See accompanying notes to consolidated financial statements.
F–2
OVERLAND DATA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
|
|
Year Ended June 30,
|
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2001
|
2000
|
1999
|
|||||||
| Net revenue: | ||||||||||
| Product sales | $ | 154,928 | $ | 122,703 | $ | 91,777 | ||||
| License fees and royalties | 768 | 276 | 450 | |||||||
|
|
|
|
||||||||
| 155,696 | 122,979 | 92,227 | ||||||||
| Cost of product sales | 116,662 | 92,460 | 64,336 | |||||||
|
|
|
|
||||||||
| Gross profit | 39,034 | 30,519 | 27,891 | |||||||
| Operating expenses: | ||||||||||
| Sales and marketing | 16,392 | 14,272 | 11,825 | |||||||
| Research and development | 10,093 | 7,253 | 5,373 | |||||||
| General and administrative | 8,850 | 6,183 | 5,079 | |||||||
|
|
|
|
||||||||
| 35,335 | 27,708 | 22,277 | ||||||||
|
|
|
|
||||||||
| Income from operations | 3,699 | 2,811 | 5,614 | |||||||
| Other income (expense): | ||||||||||
| Interest income, net | 473 | 714 | 810 | |||||||
| Other (expense) income, net | (156 | ) | (109 | ) | 157 | |||||
|
|
|
|
||||||||
| Income before income taxes | 4,016 | 3,416 | 6,581 | |||||||
| Provision for income taxes | 1,522 | 1,349 | 2,599 | |||||||
|
|
|
|
||||||||
| Net income | $ | 2,494 | $ | 2,067 | $ | 3,982 | ||||
|
|
|
|
||||||||
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
| Basic | $ | 0.24 | $ | 0.20 | $ | 0.39 | ||||
|
|
|
|
||||||||
| Diluted | $ | 0.23 | $ | 0.19 | $ | 0.37 | ||||
|
|
|
|
||||||||
|
Shares used in computing net income per share: |
|
|
|
|
|
|
|
|
|
|
| Basic | 10,382 | 10,123 | 10,222 | |||||||
|
|
|
|
||||||||
| Diluted | 10,884 | 10,688 | 11,652 | |||||||
|
|
|
|
||||||||
See accompanying notes to consolidated financial statements.
F–3
OVERLAND DATA, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(in thousands)
|
|
Common Stock
|
Accumulated
Other Comprehensive Income (Loss) |
|
|
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Retained
Earnings |
|
|||||||||||||||
|
|
Shares
|
Amount
|
Total
|
||||||||||||||
| Balance at June 30, 1998 | 10,549 | $ | 33,496 | $ | 18 | $ | 9,854 | $ | 43,368 | ||||||||
| Exercise of stock options | 56 | 98 | 98 | ||||||||||||||
| Sale of stock through the Company's Employee stock purchase plan | 92 | 338 | 338 | ||||||||||||||
| Company repurchases of stock | (607 | ) | (3,006 | ) | (3,006 | ) | |||||||||||
| Tax benefits from exercise of stock options | 104 | 104 | |||||||||||||||
| Comprehensive income: | |||||||||||||||||
| Net income | 3,982 | 3,982 | |||||||||||||||
| Foreign currency translation | (77 | ) | (77 | ) | |||||||||||||
|
|
|
|
|
|
|||||||||||||
| Balance at June 30, 1999 | 10,090 | 31,030 | (59 | ) | 13,836 | 44,807 | |||||||||||
|
|
|
|
|
|
|||||||||||||
| Exercise of stock options | 187 | 365 | 365 | ||||||||||||||
| Sale of stock through the Company's Employee stock purchase plan | 63 | 300 | 300 | ||||||||||||||
| Company repurchases of stock | (70 | ) | (415 | ) | (415 | ) | |||||||||||
| Tax benefits from exercise of stock options | 473 | 473 | |||||||||||||||
| Comprehensive income: | |||||||||||||||||
| Net income | 2,067 | 2,067 | |||||||||||||||
| Foreign currency translation | (100 | ) | (100 | ) | |||||||||||||
|
|
|
|
|
|
|||||||||||||
| Balance at June 30, 2000 | 10,270 | 31,753 | (159 | ) | 15,903 | 47,497 | |||||||||||
|
|
|
|
|
|
|||||||||||||
| Exercise of stock options | 171 | 457 | 457 | ||||||||||||||
| Sale of stock through the Company's Employee stock purchase plan | 72 | 601 | 601 | ||||||||||||||
| Stock-based compensation | 97 | 97 | |||||||||||||||
| Tax benefits from exercise of stock options | 706 | 706 | |||||||||||||||
| Comprehensive income: | |||||||||||||||||
| Net income | 2,494 | 2,494 | |||||||||||||||
| Foreign currency translation | (173 | ) | (173 | ) | |||||||||||||
|
|
|
|
|
|
|||||||||||||
| Balance at June 30, 2001 | 10,513 | $ | 33,614 | $ | (332 | ) | $ | 18,397 | $ | 51,679 | |||||||
|
|
|
|
|
|
|||||||||||||
See accompanying notes to consolidated financial statements.
F–4
OVERLAND DATA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
|
|
Year Ended June 30,
|
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2001
|
2000
|
1999
|
|||||||||||
| Operating activities: | ||||||||||||||
| Net income | $ | 2,494 | $ | 2,067 | $ | 3,982 | ||||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||||||||
| Deferred tax (benefit) provision | (761 | ) | (1,991 | ) | 437 | |||||||||
| Depreciation and amortization | 1,915 | 1,619 | 1,462 | |||||||||||
| Bad debt expense (benefit) | 277 | (447 | ) | 7 | ||||||||||
| Tax benefits from exercise of stock options | 706 | 473 | 104 | |||||||||||
| (Gain) loss on disposition of assets | (442 | ) | (187 | ) | 55 | |||||||||
| Non-cash compensation | 97 | 12 | 6 | |||||||||||
| Changes in assets and liabilities: | ||||||||||||||
| Accounts receivable | (1,569 | ) | (8,466 | ) | 1,791 | |||||||||
| Inventories | (1,221 | ) | (592 | ) | (1,627 | ) | ||||||||
| Other assets | (1,104 | ) | 131 | (1,489 | ) | |||||||||
| Accounts payable and accrued/other liabilities | (5,477 | ) | 11,592 | (88 | ) | |||||||||
| Accrued payroll and employee compensation | 505 | 444 | 629 | |||||||||||
|
|
|
|
||||||||||||
| Net cash (used in) provided by operating activities | (4,580 | ) | 4,655 | 5,269 | ||||||||||
|
|
|
|
||||||||||||
| Investing activities: | ||||||||||||||
| Capital expenditures | (2,068 | ) | (1,908 | ) | (1,967 | ) | ||||||||
| Proceeds from sale of assets | 833 | 100 | — | |||||||||||
| Acquisition of certain Tecmar assets | — | (3,410 | ) | — | ||||||||||
|
|
|
|
||||||||||||
| Net cash used in investing activities | (1,235 | ) | (5,218 | ) | (1,967 | ) | ||||||||
|
|
|
|
||||||||||||
| Financing activities: | ||||||||||||||
| Proceeds from issuance of common stock | 601 | 300 | 338 | |||||||||||
| Proceeds from exercise of stock options | 457 | 353 | 98 | |||||||||||
| Stock repurchases | 0 | (415 | ) | (3,012 | ) | |||||||||
|
|
|
|
||||||||||||
| Net cash provided by (used in) financing activities | 1,058 | 238 | (2,576 | ) | ||||||||||
|
|
|
|
||||||||||||
| Effect of exchange rate changes on cash | (173 | ) | (100 | ) | (77 | ) | ||||||||
|
|
|
|
||||||||||||
| Net (decrease) increase in cash and cash equivalents | (4,930 | ) | (425 | ) | 649 | |||||||||
| Cash and cash equivalents, beginning of year | 15,774 | 16,199 | 15,550 | |||||||||||
|
|
|
|
||||||||||||
| Cash and cash equivalents, end of year | $ | 10,844 | $ | 15,774 | $ | 16,199 | ||||||||
|
|
|
|
||||||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||||
| Cash paid for income taxes | $ | 4,468 | $ | 648 | $ | 2,578 | ||||||||
| Acquisition of businesses: | ||||||||||||||
| Fair value of: | ||||||||||||||
| Assets acquired | $ | 3,812 | ||||||||||||
| Liabilities assumed | (402 | ) | ||||||||||||
|
|
||||||||||||||
| Cash paid for acquisitions | $ | 3,410 | ||||||||||||
|
|
||||||||||||||
See accompanying notes to consolidated financial statements
F–5
OVERLAND DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Overland Data, Inc. (the "Company") was incorporated on September 8, 1980 under the laws of the State of California. The Company designs, develops, manufactures, markets and supports magnetic tape data storage systems and tape drives used by businesses for backup, archival and data interchange functions in environments from small businesses to large enterprises requiring high-availability networks. The Company's fiscal year ends on the Sunday closest to June 30. For ease of presentation, the Company's year-end is deemed to be June 30. Fiscal years 2001 and 1999 each included 52 weeks, while fiscal year 2000 included 53 weeks.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Overland Data (Europe) Ltd., Overland Data SARL, Overland Data GmbH, Tecmar, Inc. and Overland Data Export Limited, a foreign sales corporation. All significant intercompany accounts and transactions have been eliminated.
Management Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue on direct product sales (excluding sales to commercial distributors and Compaq) is recognized upon shipment of products to such customers as they are not subject to any specific right of return or price protection, except for any defective product which may be returned under the Company's warranty policy. Title and risk of loss transfer to the customer when the product leaves the Company's dock. Product sales to commercial distribution customers are subject to certain rights of return, stock rotation privileges and price protection. Revenue from shipments to these customers is not recognized until the related products are in turn sold to the ultimate customer by the commercial distributor. At June 30, 2001, there was approximately $875,000 of product that had been shipped to the Company's commercial distributors, but not yet shipped to ultimate customers. As part of its agreement with Compaq, the Company ships products to various distribution hubs around the world and retains ownership of that inventory until it is pulled by Compaq to fulfill customer orders, at which time, generally the same business day, the Overland sale is recorded.
Shipping and Handling Costs
In accordance with Emerging Issues Task Force No. 00-10, the Company includes the costs of shipping and handling, when incurred, in cost of goods sold. The adoption of this EITF has no effect on the Company's results of operations.
F–6
Warranty Costs
The Company generally provides a three-year return-to-factory warranty on its LibraryXpress, MiniLibraryXpress and LoaderXpress products and a two-year return-to-factory warranty on its other products. In addition, with the exception of sales to OEM customers, on-site warranties are provided for certain of the Company's line of LibraryXpress products. The Company records a provision for estimated future warranty costs at the time of shipment for both the return-to-factory and on-site warranties. Separately priced on-site warranties are offered for sale to customers of other product lines. The Company contracts with outside vendors to provide service relating to all on-site warranties. Warranty revenues and amounts paid in advance to outside service organizations are recognized in the financial statements in sales and cost of goods sold, respectively, over the warranty period.
Research and Development Costs
Research and development costs are expensed as incurred.
Fair Value of Financial Instruments
It is management's belief that the carrying amounts shown for the Company's financial instruments are reasonable estimates of their related fair values based on their terms or short-term nature.
Comprehensive Income
Comprehensive income for the Company includes net income and foreign currency translation adjustments, which are charged or credited to accumulated other comprehensive income within shareholders' equity.
Segment Data
The Company reports segment data based on the management approach. The management approach designates the internal reporting that is used by management for making operating and investment decisions and evaluating performance as the source of the Company's reportable segments. The Company also discloses information about products and services, geographic areas and major customers. The Company's U.S. and foreign operations are considered a single operating segment.
Information about Geographic Areas
Export sales by the Company, principally in Europe, for the years ended June 30, 2001, 2000 and 1999 were $73,754,000, $52,451,000 and $25,769,000, respectively. Long-lived assets other than deferred tax assets located in the Company's foreign subsidiaries, principally in Europe, at June 30, 2001, 2000 and 1999 were $819,000, $829,000 and $113,000, respectively.
Concentrations of Risks
The Company's customers include original equipment manufacturers, integrators, distributors, and value added resellers. Financial instruments which potentially subject the Company to concentrations of credit risk are primarily accounts receivable. The Company performs ongoing credit evaluations of its customers, generally requires no collateral and maintains allowances for potential credit losses and sales returns.
The Company's largest single customer accounted for approximately 63%, 54% and 25% of sales in fiscal years 2001, 2000 and 1999, respectively, and approximately 62%, 56% and 23% of accounts receivable at June 30, 2001, 2000 and 1999, respectively. The second largest customer accounted for 4%, 8% and 20% of sales in fiscal year 2001, 2000 and 1999, respectively, and 2%, 9% and 18% of accounts receivable at June 30, 2000, 1999 and 1998, respectively. No other customer accounted for 10% or more of sales in any of the three years presented.
F–7
On September 4, 2001, the Company's largest single customer announced a definitive agreement to merge with a competitor of the Company. It is unclear at this time what effect the pending merger could have on the Company's sales. The merger, if consumated, could result in a decline in product sales to this customer that could impact materially the Company's business, results of operations and financial condition.
Cash Equivalents
Highly liquid investments with original maturities of three months or less are classified as cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in-first-out method) or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets (generally two to five years). Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the asset or the lease term. Expenditures for normal maintenance and repair are charged to expense as incurred, and improvements are capitalized. Upon the sale or retirement of property or equipment, the asset cost and related accumulated depreciation are removed from the respective accounts and any gain or loss is included in the results of operations.
Long-Lived Assets
The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances have made recovery of an asset's carrying value unlikely. An impairment loss would be recognized when the sum of the expected future net undiscounted cash flows is less than the carrying amount of the asset. The Company has not recorded any material impairment losses.
Foreign Currency Translation
The financial statements of foreign subsidiaries, for which the functional currency is the local currency, are translated into U.S. dollars using the exchange rate at the balance sheet date for assets and liabilities and the weighted average exchange rate during the year for revenues, expenses, gains and losses. Translation adjustments are recorded as accumulated other comprehensive income within shareholders' equity. Gains or losses from foreign currency transactions are recognized currently in income. Such transactions resulted in losses of $398,000, $118,000 and a gain of $188,000 for the years ended June 30, 2001, 2000 and 1999, respectively.
Income Taxes
The Company provides for income taxes utilizing the liability method. Under the liability method, a deferred tax asset and/or liability is computed for both the expected future impact of differences between the financial statement and tax bases of assets and liabilities, and for the expected future tax benefit to be derived from tax credits and loss carryforwards. Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current year. A valuation allowance is established when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
F–8
Stock-Based Compensation
The Company measures compensation expense for its stock-based employee compensation plans using the intrinsic value method and provides pro forma disclosures of net income and earnings per share as if the fair value-based method had been applied in measuring compensation expense. Compensation charges related to non-employee stock-based compensation are measured using fair value methods and recognized as earned.
Net Income Per Share
Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period increased by the weighted average number of dilutive common stock equivalents outstanding during the period, using the treasury stock method. Anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share amounted to 682,000, 337,000 and 573,000 in the fiscal years ended June 30, 2001, 2000 and 1999, respectively.
F–9
A reconciliation of the calculation of basic and diluted earnings per share is as follows:
|
|
Year Ended June 30,
|
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2001
|
2000
|
1999
|
|||||||
|
|
(in thousands, except per share data)
|
|||||||||
| Net income | $ | 2,494 | $ | 2,067 | $ | 3,982 | ||||
| Basic: | ||||||||||
| Weighted average number of common shares outstanding | 10,382 | 10,123 | 10,222 | |||||||
| Basic net income per share | $ | 0.24 | $ | 0.20 | $ | 0.39 | ||||
| Diluted: | ||||||||||
| Weighted average number of common shares outstanding | 10,382 | 10,123 | 10,222 | |||||||
| Common stock equivalents using the treasury stock method | 502 | 565 | 430 | |||||||
| Shares used in computing net income per share | 10,884 | 10,688 | 10,652 | |||||||
| Diluted net income per share | $ | 0.23 | $ | 0.19 | $ | 0.37 | ||||
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation.
NOTE 2—ACQUISITION AND DISPOSITION OF CERTAIN ASSETS
On February 23, 2000, the Company, through its subsidiary Tecmar, Inc., purchased certain inventories, fixed assets, supplies, intellectual property, trademarks and Internet addresses (the "Acquisition") from Tecmar Technologies International, Inc. and certain of its affiliates, including Tecmar Technologies, Inc. (collectively, "Tecmar"), in an acquisition accounted for as a purchase. Tecmar, based in Longmont, Colorado, developed and manufactured tape drives for the entry-level network storage market. Total consideration for the Acquisition amounted to approximately $3,410,000 in cash. The assets were acquired on a discounted basis free and clear of all liens, interests and claims pursuant to a bankruptcy court order, and the Company assumed no liabilities of Tecmar, other than customer warranty and payroll-related obligations. The Company's reported statement of operations includes the results of Tecmar from the February 23, 2000 acquisition date.
Total consideration was preliminarily allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Based on the preliminary allocation, the estimated fair value of the assets acquired exceeded the total consideration paid and the Company allocated the excess amount to first reduce the value of non-current assets to zero and then to negative goodwill. The negative goodwill was amortized to reduce general and administrative expenses on a straight-line basis over three years, the estimated period of benefit.
In the fourth quarter of fiscal year 2000, the Company finalized the Tecmar purchase price allocation. The reallocation of the purchase price resulted in a reduction of the value assigned to inventories and a corresponding reversal of negative goodwill previously recorded. Additionally, the Company elected to discontinue the Ditto line of products, which was included in the Tecmar purchase. The Company recorded a $1.7 million pre-tax charge to cost of goods sold, recorded in the fourth quarter of fiscal year 2000, to write off the related Ditto inventories.
In June 2001, the Company sold its Travan-based WS30 and EDT40 tape drive designs (the "Designs"), which were based upon the design included in the Tecmar purchase, to Seagate Removable Storage Solutions LLC, a Delaware limited liability company ("Seagate"), in exchange for future royalty payments based on the sales of certain tape drive products and related tape media cartridges based on the Designs. In connection with this transaction, the Company has given to Seagate the option to acquire certain fixed assets and inventories required to manufacture products based on the Designs, and Seagate has engaged the Company to perform certain services for Seagate with respect to the Designs.
F–10
As a result of the sale of the Designs and the related exit of the entry-level tape drive business in June 2001, the Company recorded a pretax charge of $2,535,000, including: $1,979,000 in inventory impairments; $205,000 of lease exit costs related to the Company's Longmont facility; $160,000 of severance costs; $142,000 in fixed asset impairments; and legal fees. All accrued amounts are expected to be paid during calendar year 2002.
The following supplemental pro forma financial information is presented for illustrative purposes only. The pro forma results for the Company's fiscal year ended June 30, 2000 present the results for the Company as if the Acquisition occurred on July 1, 1999. The pro forma results are not necessarily indicative of the results of the combined operations which actually would have been reported had the Acquisition occurred as of the date, nor are they necessarily indicative of the Company's future financial results of operations.
|
|
Year ended
June 30, 2000 |
|||
|---|---|---|---|---|
|
(In thousands)
|
(unaudited)
|
|||
| Net sales | $ | 138,088 | ||
| Net income | (4,484 | ) | ||
| Diluted loss per share | (0.42 | ) | ||
During the third quarter of fiscal year 2001, the Company sold certain rights and assets (including the product design together with all documentation, manufacturing rights, tooling and inventory) of its automated SLR loader product to Tandberg Data for a purchase price of $1,135,000. As a result of this transaction, the Company recorded a pre-tax gain of $810,000 within other income during the quarter. In connection with the sale, the Company also will receive a per unit royalty on the first 6,000 SLR loader units that are manufactured and sold by Tandberg Data.
NOTE 3—COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
|
|
June 30,
|
|||||||
|---|---|---|---|---|---|---|---|---|
|
|
2001
|
2000
|
||||||
|
|
(in thousands)
|
|||||||
| Inventories: | ||||||||
| Raw materials | $ | 15,113 | $ | 15,857 | ||||
| Work in process | 1,518 | 2,767 | ||||||
| Finished goods | 6,698 | 3,484 | ||||||
|
|
|
|||||||
| $ | 23,329 | $ | 22,108 | |||||
|
|
|
|||||||
| Property and equipment: | ||||||||
| Machinery and equipment | $ | 4,984 | $ | 4,759 | ||||
| Computer equipment | 5,073 | 4,502 | ||||||
| Furniture and fixtures | 545 | 454 | ||||||
| Leasehold improvements | 1,594 | 1,584 | ||||||
|
|
|
|||||||
| 12,196 | 11,299 | |||||||
| Less accumulated depreciation and amortization | (7,401 | ) | (6,266 | ) | ||||
|
|
|
|||||||
| $ | 4,795 | $ | 5,033 | |||||
|
|
|
|||||||
Depreciation expense was $1,915,000, $1,619,000 and $1,462,000 in fiscal years 2001, 2000 and 1999, respectively.
F–11
NOTE 4—LONG-TERM DEBT
The Company has a $5,000,000 unsecured revolving credit facility at June 30, 2001, as amended during fiscal year 2001 to extend the expiration date to November 5, 2002 and to adjust certain financial covenants. Borrowings under the line may be in the form of working capital loans, which bear interest at the bank's prime rate, or banker's acceptances ("BA") priced at the bank's BA rate plus 2.25%. The Company is required to maintain certain covenants and financial ratios, including working capital and net worth ratios. The Company is in compliance with all financial covenants of the agreement. As of, and during the years ended June 30, 2001 and 2000, there were no borrowings outstanding under the credit line.
The Company also had available at June 30, 2001 a $2,500,000 Standby Letter of Credit facility, which expires on November 5, 2002. Guarantees under the Standby Letter of Credit facility are secured by all the personal property of the Company. At June 30, 2001, $1,500,000 was guaranteed under the Standby Letter of Credit facility.
F–12
The components of income before income tax provisions were as follows:
|
|
Year ended June 30,
|
||||||||
|---|---|---|---|---|---|---|---|---|---|
|
|
2001
|
2000
|
1999
|
||||||
|
|
(in thousands)
|
||||||||
| Domestic | $ | 3,779 | $ | 2,455 | $ | 4,958 | |||
| Foreign | 238 | 961 | 1,623 | ||||||
|
|
|
|
|||||||
| $ | 4,017 | $ | 3,416 | $ | 6,581 | ||||
|
|
|
|
|||||||
The provision for income taxes includes the following:
A reconciliation of income taxes computed by applying the federal statutory income tax rate of 34% to income before income taxes to the total income tax provision reported in the Consolidated Statement of Operations is as follows:
|
|
Year ended June 30,
|
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2001
|
2000
|
1999
|
|||||||
|
|
(in thousands)
|
|||||||||
| U.S. Federal income tax at statutory rate | $ | 1,366 | $ | 1,162 | $ | 2,238 | ||||
| State income taxes, net of federal benefit | 190 | 151 | 377 | |||||||
| Foreign sales corporation benefit | (169 | ) | (47 | ) | (73 | ) | ||||
| Permanent differences | 39 | 31 | 25 | |||||||
| Other | 96 | 52 | 32 | |||||||
|
|
|
|
||||||||
| Provision for income taxes | $ | 1,522 | $ | 1,349 | $ | 2,599 | ||||
|
|
|
|
||||||||
F–13
Deferred income taxes at June 30, 2001 and 2000 comprised:
|
|
Year ended June 30,
|
||||||||
|---|---|---|---|---|---|---|---|---|---|
|
|
2001
|
2000
|
|||||||
|
|
(in thousands)
|
||||||||
| Deferred tax assets: | |||||||||
| Inventory | $ | 1,782 | $ | 1,862 | |||||
| Warranty reserves | 899 | 761 | |||||||
| State income taxes | 151 | 222 | |||||||
| Barter credits | 459 | — | |||||||
| Vacation and deferred compensation | 207 | 217 | |||||||
| Reserve for doubtful accounts and returns | 193 | 140 | |||||||
| Other | 152 | 189 | |||||||
|
|
|
||||||||
| Gross deferred tax asset | 3,843 | 3,391 | |||||||
|
|
|
||||||||
| Deferred tax liabilities | |||||||||
| Property and equipment depreciation | — | (181 | ) | ||||||
| Other | (157 | ) | (285 | ) | |||||
|
|
|
||||||||
| Gross deferred tax liability | (157 | ) | (466 | ) | |||||
|
|
|
||||||||
| Net deferred income taxes | $ | 3,686 | $ | 2,925 | |||||
|
|
|
||||||||
NOTE 6—STOCK OPTIONS
The Company has nine active stock option plans, administered by the Compensation Committee of the Board of Directors, which provide for the issuance of options to employees, officers, directors and consultants. Under the terms of the plans, 4,410,000 shares of Common Stock were authorized for issuance. The exercise price of a stock option is generally equal to the fair market value of the Company's Common Stock on the date the option is granted. Three of the plans permit options granted to qualify as "Incentive Stock Options" under the Internal Revenue Code. Certain options issued under selected plans call for 100% vesting of outstanding options upon a change of control of the Company. Options granted in the last fiscal year 2001 generally vest over a three-year period, with monthly vesting from the date of grant. Options granted in prior years generally vested at a rate of 25 percent per year over a four-year period from the date of grant. Options expire after a period not to exceed ten years, except in the event of termination, whereupon vested shares must be exercised generally within 30 days, or upon death or disability, where an extended six or twelve-month exercise period is specified.
F–14
Option activity for the three years ended June 30, 2001 is summarized as follows:
|
|
Shares
|
Weighted-Average
Exercise Price |
|||
|---|---|---|---|---|---|
| Options outstanding at June 30, 1998 | 1,105,729 | $4.09 | |||
| Options granted | 525,500 | 6.03 | |||
| Options exercised | (55,975 | ) | 1.65 | ||
| Options canceled | (95,625 | ) | 6.36 | ||
|
|
|||||
| Options outstanding at June 30, 1999 | 1,479,629 | $4.73 | |||
| Options granted | 720,500 | 7.68 | |||
| Options exercised | (186,771 | ) | 1.89 | ||
| Options canceled | (128,000 | ) | 6.00 | ||
|
|
|||||
| Options outstanding at June 30, 2000 | 1,885,358 | $6.05 | |||
| Options granted | 1,459,050 | 8.52 | |||
| Options exercised | (170,789 | ) | 2.67 | ||
| Options canceled | (399,898 | ) | 7.13 | ||
|
|
|||||
| Options outstanding at June 30, 2001 | 2,773,721 | $7.40 | |||
|
|
|||||
The following table summarizes all options outstanding and exercisable by price range as of June 30, 2001:
|
|
|
|
Options Outstanding
|
Options Exercisable
|
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Range of
Exercise Prices |
Number
Outstanding at June 30, 2001 |
Weighted-Average
Remaining Contractual Life |
Weighted-Average
Exercise Price |
Number
Exercisable at June 30, 2001 |
Weighted-Average
Exercise Price |
|||||||||
| $ 0.20 | — | 3.34 | 191,275 | 3.7 | $ 1.73 | 191,275 | $ 1.73 | |||||||
| 3.35 | — | 8.34 | 1,306,001 | 7.1 | 6.47 | 597,792 | 6.27 | |||||||
| 8.35 | — | 10.01 | 1,193,445 | 8.8 | 9.01 | 229,204 | 9.52 | |||||||
| $10.02 | — | 16.69 | 83,000 | 7.6 | 11.97 | 22,279 | 12.20 | |||||||
|
|
|
|||||||||||||
| $ 0.20 | — | 16.69 | 2,773,721 | 7.6 | $ 7.40 | 1,040,550 | $ 6.28 | |||||||
|
|
|
|||||||||||||
Shares available for future grant were 303,430, 245,250 and 837,750 at June 30, 2001, 2000 and 1999, respectively.
F–15
1996 Employee Stock Purchase Plan
In February 1997, the Company adopted the 1996 Employee Stock Purchase Plan (the "ESPP") whereby 250,000 shares of Common Stock were reserved for issuance and purchase by employees of the Company to assist them in acquiring a stock ownership interest in the Company and to encourage them to remain employees of the Company. In November 1998, the shareholders approved an amendment to increase the total number of shares of Common Stock from 250,000 to 500,000 shares. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code and permits eligible employees to purchase Common Stock at a discount through payroll deductions during specified six-month offering periods. No employee may purchase more than $25,000 worth of stock in any calendar year or 1,500 shares in any one offering period. The ESPP is administered by an Administrative Committee appointed by the Board of Directors and provides generally that the purchase price must not be less than 85% of the fair market value of the Common Stock on the first or last day of the offering period, whichever is lower. During fiscal year 2001, a total of 71,634 shares were issued for combined proceeds of $601,000.
Pro Forma Information
The Company accounts for employee stock-based compensation using the intrinsic value method. In most cases, no compensation expense has been recognized for its employee stock option grants, as they have been granted at the fair market value of the underlying Common Stock at the date of grant. No compensation expense has been recognized for purchase rights under the ESPP as they have been granted in accordance with the terms of the ESPP. Had compensation expense for the Company's employee stock-based compensation awards issued during 2001, 2000 and 1999 been determined based on a fair value method, the Company's net income and net income per share would have been reduced to the pro forma amounts indicated below:
|
|
Year Ended June 30,
|
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2001
|
2001
|
1999
|
|||||||
|
|
(in thousands, except per share amounts)
|
|||||||||
| Net income: | ||||||||||
| As reported | $ | 2,494 | $ | 2,067 | $ | 3,982 | ||||
| Pro forma | 974 | 1,410 | 3,248 | |||||||
| Diluted net income per share: | ||||||||||
| As reported | $ | .23 | $ | .19 | $ | .37 | ||||
| Pro forma | .09 | .13 | .30 | |||||||
The fair value of each option grant is estimated on the date of grant using a Black-Scholes option-pricing model. The weighted-average estimated fair value of employee stock options granted during fiscal years 2001, 2000 and 1999 were $1.62, $1.29 and $2.07 per share, respectively. The weighted average assumptions used for grants during the fiscal years 2001, 2000 and 1999 were: no dividend yield for all years, risk-free interest rates of 5.5%, 6.4% and 5.2%, respectively, expected volatility of 81%, 80% and 60%, respectively, and expected lives of 7.0 years for all fiscal years.
F–16
The fair value of each share purchase right under the ESPP is estimated at the inception of each offering period also using a Black-Scholes option-pricing model. The weighted-average estimated fair value of each share purchase right granted during fiscal years 2001, 2000 and 1999 were $4.32, $3.39 and $1.86 per share, respectively. The weighted average assumptions used during fiscal years 2001, 2000 and 1999 were: no dividend yield for all years, risk-free interest rates of 5.5%, 6.4% and 5.2%, respectively, expected volatility of 94%, 118% and 60%, respectively, and an expected life of 6 months for all fiscal years.
NOTE 7 — 401(k) PLAN
In January 1994, the Company adopted an employee savings and retirement plan (the "401(k) Plan") covering all of the Company's employees. The 401(k) Plan permits but does not require matching contributions by the Company on behalf of all participants. In January 1998, the Company began matching employee contributions at 50%, and in July 2000 increased the matching contribution to 75%, for up to 6% of an employee's pretax income. The totals of these employer contributions were $562,000, $290,000 and $252,000 in fiscal years 2001, 2000 and 1999, respectively.
NOTE 8—COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases its office, production and sales facilities under non-cancelable operating leases, which expire in various years through fiscal year 2015. The leases provide for annual rent escalations intended to approximate increases in cost of living indices, and certain of the leases provide for rent abatement. At June 30, 2001, future minimum lease payments under these arrangements are as follows:
|
Year Ending
June 30, |
Minimum Lease
Payments |
|
|---|---|---|
|
|
(in thousands)
|
|
| 2002 | $1,373 | |
| 2003 | 505 | |
| 2004 | 405 | |
| 2005 | 410 | |
| 2006 | 313 | |
| Thereafter | 2,087 | |
|
|
||
| $5,093 | ||
|
|
During fiscal year 2001, the Company entered into an operating lease agreement for a new 158,000 square foot headquarter facility to be constructed in San Diego, California. The lease commences upon the Company's occupancy of the building, scheduled for February 2002. The lease is for a period of twelve years and can be renewed for one additional five-year period. The Company can terminate the lease for failure by the landlord to meet certain construction dates. As security for the lease, the Company has issued to the landlord a $1,500,000 letter of credit which is subject to reduction upon the maintenance of certain financial covenants and the passage of time. Monthly lease payments under this agreement are contingent upon actual costs incurred to build the facility. As the building is currently under construction, the actual costs to build the facility and the resulting payment amounts have yet to be determined. Therefore, future minimum lease payments under this agreement have been excluded from the above schedule.
Rental expense is recognized ratably over the respective lease terms and aggregated $1,780,000, $1,072,000 and $983,000 for fiscal years 2001, 1999 and 1998, respectively.
F–17
Contingencies
The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. In the opinion of management, the amount of any ultimate liability with respect to these actions will not materially affect the Company's consolidated financial statements or results of operations.
F–18
NOTE 9—SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents selected quarterly financial information for the periods indicated. This information has been derived from the Company's unaudited quarterly consolidated financial statements, which in the opinion of management includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such information. The quarterly per share data presented below was calculated separately and may not sum to the annual figures presented in item 14 of this report. These operating results are also not necessarily indicative of results for any future period.
|
|
Quarters Ended
|
|||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Fiscal Year 2000
|
Fiscal Year 2001
|
||||||||||||||||||||||||
|
|
Sept. 30
1999 |
Dec. 31
1999 |
Mar. 31
2000 |
Jun. 30
2000 |
Sept. 30
2000 |
Dec. 31
2000 |
Mar. 31
2001 |
Jun. 30
2001 |
||||||||||||||||||
|
|
(in thousands, except per share amounts)
|
|||||||||||||||||||||||||
| Net sales | $ | 22,845 | $ | 27,469 | $ | 34,354 | $ | 38,311 | $ | 37,727 | $ | 43,586 | $ | 37,018 | $ | 37,365 | ||||||||||
| Gross profit | 6,242 | 6,976 | 8,825 | 8,476 | 10,550 | 11,557 | 9,516 | 7,411 | ||||||||||||||||||
| (Loss) income from operations | (107 | ) | 740 | 1,711 | 467 | 2,180 | 2,975 | 715 | (2,171 | ) | ||||||||||||||||
| Income (loss) before income taxes | 64 | 1,007 | 1,919 | 426 | 2,157 | 3,053 | 1,405 | (2,598 | ) | |||||||||||||||||
| Net income (loss) | 39 | 609 | 1,161 | 258 | 1,305 | 1,847 | 850 | (1,508 | ) | |||||||||||||||||
| Net income (loss) per share: | ||||||||||||||||||||||||||
| Basic | $ | — | $ | 0.06 | $ | 0.11 | $ | 0.03 | $ | 0.13 | $ | 0.18 | $ | 0.08 | $ | (0.14 | ) | |||||||||
| Diluted | — | 0.06 | 0.11 | 0.02 | 0.12 | 0.17 | 0.08 | (0.14 | ) | |||||||||||||||||
F–18
OVERLAND DATA, INC.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED JUNE 30, 2001, 2000 and 1999
|
|
Balance at Beginning
of Year |
Additions
Charged to Income |
Deductions*
|
Deductions
Credited to Income |
Balance at
End of Year |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Allowance for Doubtful Accounts Receivable | |||||||||||||||
| 2001 | $ | 389 | $ | 277 | $ | 63 | $ | — | $ | 603 | |||||
| 2000 | 885 | 43 | 49 | 490 | 389 | ||||||||||
| 1999 | 922 | 7 | 44 | — | 885 | ||||||||||
|
Reserve for Inventory Obsolescence |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2001 | $ | 2,693 | $ | 2,996 | $ | 1,494 | $ | — | $ | 4,195 | |||||
| 2000 | 1,175 | 2,674 | 1,156 | — | 2,693 | ||||||||||
| 1999 | 1,848 | 315 | 988 | — | 1,175 | ||||||||||
S–1
|
10.19 |
* |
Employment Agreement dated January 1, 2001 by and between Overland Data, Inc. and Scott McClendon. (9) |
|
10.20 |
* |
Second Amendment to 1995 Stock Option Plan. (4) |
|
10.21 |
* |
Form of Stock Option Agreement for options granted under the 1995 Stock Option Plan. |
|
10.22 |
* |
First Amendment to 1997 Executive Stock Option Plan. (4) |
|
10.23 |
* |
Form of Stock Option Agreement for options granted under the 1997 Executive Stock Option Plan. |
|
10.24 |
* |
2000 Stock Option Plan. (7) |
|
10.25 |
* |
Form of Notice of Stock Option Award and Stock Option Award Agreement for options granted under 2000 Stock Option Plan. (9) |
|
10.26 |
* |
First Amendment to 1996 Employee Stock Purchase Plan. (4) |
|
21.1 |
|
Subsidiaries of the Registrant. |
|
23.1 |
|
Consent of PricewaterhouseCoopers LLP, Independent Accountants. |
|
24.1 |
|
Power of Attorney (included on signature page). |
EXHIBIT 10.3
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("FIRST AMENDMENT") is made and entered into as of the 18th day of January, 2001, by and between LBA OVERLAND, LLC, a California limited liability company ("LANDLORD") and OVERLAND DATA, INC., a California corporation ("TENANT").
A. LBA-VIF ONE, LLC, a California limited liability company ("LBA-VIF ONE") and Tenant entered into that certain Build-To-Suit Single-Tenant Lease (Triple Net) dated as of October 12, 2000 ("LEASE"), whereby LBA-VIF One leased to Tenant and Tenant leased from LBA-VIF One those certain Premises located in the City of San Diego, County of San Diego, all as more particularly described in the Lease. As provided below, Landlord is the successor-in-interest in the Lease to LBA, Inc., a California corporation ("LBA, INC."), the legal entity that, as provided below, the parties hereto intended to be the "Landlord" under the Lease.
B. By this First Amendment, Landlord and Tenant desire to amend the
Lease to (i) correct the name of the "Landlord" entity described therein, and
(ii) otherwise modify the Lease as provided herein.
C. Unless otherwise defined herein, capitalized terms as used herein shall have the same meanings as given thereto in the Lease.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. DESIGNATION OF LANDLORD AND LANDLORD'S ASSIGNMENT OF LEASE.
1.1. DESIGNATION OF LANDLORD. Landlord and Tenant acknowledge and agree that it has been the intent of the parties hereto that LBA, Inc. be the original "Landlord" under the Lease. As such, the Lease is hereby amended so that the name of "Landlord" under the Lease is LBA, Inc.
1.2. LANDLORD'S ASSIGNMENT OF LEASE. LBA, Inc. has heretofore assigned all of its right, title and interest in and to the Lease to LBA Overland, LLC, a California limited liability company. Based on the foregoing (and notwithstanding Section 1.1 above to the contrary), the parties hereto acknowledge and agree that (i) effective as of October 12, 2000, LBA, Inc. is released of all obligations under the Lease and (ii) the Lease is hereby further amended so that the name of "Landlord" under the Lease is LBA Overland, LLC and the execution of this First Amendment shall confirm that LBA Overland, LLC, as Landlord under the Lease, is bound by all of the terms and provisions of the Lease as of the date of the Lease, October 12, 2000.
2. THE PREMISES. Subject to further remeasurement pursuant to Section 1.2 of the Lease, Landlord and Tenant acknowledge and agree that the Buildings to be located on the real property comprising the Premises shall consist of 158,585 rentable square feet as follows: (i) 60,335 rentable square feet in the Office Building, and (ii) 98,250 rentable square feet in the R&D Building, which R&D Building includes 18,250 rentable square feet of mezzanine area (the "MEZZANINE AREA") to be constructed by Landlord in accordance with the Work Letter attached to the Lease. Landlord and Tenant acknowledge and agree that, subject to Section 1.2 of the Lease, all references in the Lease to rentable square feet of the Buildings and/or rentable square feet of the Office Building and/or rentable square feet of the R&D Building shall mean the square footage amounts set forth above and all terms in the Lease which are based on the
rentable square feet in the Buildings and/or the Office Building and/or the R&D Building shall be modified based on such square foot numbers, subject, however, to the remeasurement provisions set forth in Section 1.2 of the Lease, except with respect to the Development Fee (as defined in Section 1.6(d) of the Summary to the Lease) which shall not be charged by Landlord with respect to the rentable square footage of the Mezzanine Area. Except for the Development Fee (which shall not apply to the rentable square footage comprising the Mezzanine Area), the Improvements pertaining to the Mezzanine Area shall be constructed by Landlord in accordance with, and subject to, all of the terms and conditions of the Work Letter.
3. BROKERS. Each party represents and warrants to the other that no broker, agent or finder negotiated or was instrumental in negotiating or consummating this First Amendment. Each party further agrees to defend, indemnify and hold harmless the other party from and against any claim for commission or finder's fee by any entity who claims or alleges that they were retained or engaged by the first party or at the request of such party in connection with this First Amendment.
4. DEFAULTS. Landlord and Tenant hereby represent and warrant to the other that, as of the date of this First Amendment, Landlord and Tenant, as applicable, are in full compliance with all terms, covenants and conditions of the Lease and that there are no breaches or defaults under the Lease by Landlord or Tenant, and that neither party knows of no events or circumstances which, given the passage of time, would constitute a default under the Lease by either Landlord or Tenant.
5. AUTHORITY. If either Landlord or Tenant executes this First Amendment as a limited liability company, partnership or corporation, then such party and the persons and/or entities executing this Lease on behalf of such party represents and warrants that: (a) it is a duly organized and validly existing limited liability company, partnership or corporation, as the case may be, and is qualified to do business in the state in which the Premises are located; (b) such persons and/or entities executing this First Amendment are duly authorized to execute and deliver this First Amendment on such party's behalf in accordance with its operating agreement (if Landlord or Tenant is a limited liability company), Landlord's or Tenant's partnership agreement (if Landlord or Tenant is a partnership), or a duly adopted resolution of Landlord's or Tenant's board of directors and its by-laws (if Landlord or Tenant is a corporation); and (c) this First Amendment is binding upon Landlord and Tenant in accordance with its terms.
6. WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION SEEKING SPECIFIC PERFORMANCE OF ANY PROVISION OF THE LEASE (AS AMENDED BY THIS FIRST AMENDMENT), FOR DAMAGES FOR ANY BREACH UNDER THE LEASE (AS AMENDED BY THIS FIRST AMENDMENT), OR OTHERWISE FOR ENFORCEMENT OF ANY RIGHT OR REMEDY UNDER THE LEASE (AS AMENDED BY THIS FIRST AMENDMENT).
7. NO FURTHER MODIFICATION. Except as set forth in this First Amendment, all of the terms and provisions of the Lease shall apply during the Extended Term and shall remain unmodified and in full force and effect. Effective as of the date hereof, all references to the "Lease" shall refer to the Lease as amended by this First Amendment.
[THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.]
IN WITNESS WHEREOF, this First Amendment has been executed as of the day and year first above written.
"TENANT" OVERLAND DATA, INC.,
a California corporation
*By: /s/ Vernon A. LoForti
----------------------------------------------
Name: Vernon A. LoForti
Title: Vice President and Chief Financial
Officer
By: /s/ Scott McClendon
----------------------------------------------
Name: Scott McClendon
Title: President and Chief Executive Officer
"LANDLORD" LBA OVERLAND, LLC,
a California limited liability company
By: Spectrum Overland, L.P., a California limited
partnership, its Member-Manager
By: LBA Fund I, Inc., a California
corporation, its General Partner
By: /s/ Phil A. Belling
----------------------------
Name: Phil A. Belling
Title: Authorized Signatory
|
IF TENANT IS A CALIFORNIA CORPORATION, then one of the following alternative requirements must be satisfied:
(A) This Lease must be signed by two (2) officers of such corporation: one being the chairman of the board, the president or a vice president, AND the other being the secretary, an assistant secretary, the chief financial officer or an assistant treasurer. If one (1) individual is signing in two (2) of the foregoing capacities, that individual must sign twice; once as one officer and again as the other officer.
(B) If there is only one (1) individual signing in two (2) capacities, or if the two (2) signatories do not satisfy the requirements of (A) above, then Tenant shall deliver to Landlord a certified copy of a corporate resolution in the form reasonably acceptable to Landlord authorizing the signatory(ies) to execute this Lease.
IF TENANT IS A CORPORATION INCORPORATED IN A STATE OTHER THAN CALIFORNIA, then Tenant shall deliver to Landlord a certified copy of a corporate resolution in the form reasonably acceptable to Landlord authorizing the signatory(ies) to execute this Lease.
EXHIBIT 10.4
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE ("SECOND AMENDMENT") is made and entered into as of the 8th day of March, 2001, by and between LBA OVERLAND, LLC, a California limited liability company ("LANDLORD") and OVERLAND DATA, INC., a California corporation ("TENANT").
A. LBA-VIF ONE, LLC, a California limited liability company ("LBA-VIF ONE") and Tenant entered into that certain Build-To-Suit Single-Tenant Lease (Triple Net) dated as of October 12, 2000 ("ORIGINAL LEASE"), as amended by that certain First Amendment to Lease dated January 18, 2001 ("FIRST AMENDMENT") whereby LBA-VIF One leased to Tenant and Tenant leased from LBA-VIF One those certain Premises located in the City of San Diego, County of San Diego, all as more particularly described in the Lease. The Original Lease, as amended by the First Amendment, may be referred to herein as the "LEASE." Landlord is successor-in-interest in the Lease to LBA-VIF One.
B. By this Second Amendment, Landlord and Tenant desire to amend the Lease to (i) restate Landlord's and Tenant's obligations pertaining to the Other Lease (as described below), and (ii) otherwise modify the Lease as provided herein.
C. Unless otherwise defined herein, capitalized terms as used herein shall have the same meanings as given thereto in the Lease.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. RESTATEMENT OF "OTHER LEASE" PROVISIONS. Effective as of the date hereof, Landlord and Tenant acknowledge and agree that Section 33 of the Lease is deemed deleted in its entirety and replaced with the following:
"33. OTHER LEASE.
33.1 TERMINATION OF OTHER LEASE. Landlord and Tenant acknowledge the existence of that certain other lease (as amended, the "OTHER LEASE") dated May 26, 1993 executed by and between Tenant and LBA-VFII, LLC a Delaware limited liability company, as successor-in-interest in the Other Lease to Mitsui/SBD America Fund 87-1 (the "OTHER
LANDLORD") pursuant to which Other Lease, Tenant is leasing the following
buildings: (i) that certain building located at 8975 Balboa Avenue and
containing approximately 65,765 rentable square feet (the "8975 PREMISES"),
(ii) that certain building located at 8985 Balboa Avenue and containing
approximately 27,761 rentable square feet (the "8985 PREMISES"), and (iii)
that certain building located at 8965 Balboa Avenue and containing
approximately 27,761 rentable square feet (the "8965 PREMISES"). The 8975
Premises, the 8985 Premises and the 8965 Premises are collectively referred
to herein as the "OTHER PREMISES." The Other Landlord (by its execution
below) and Tenant acknowledge and agree that effective as of February 1,
2001, the Other Lease (pertaining to the entire second (2nd) floor portion of
the 8965 Premises (consisting of 13,881 rentable square feet) and 6,880
rentable square feet of the first (1st) floor portion of the 8965 Premises
only) was terminated; provided, however, that Tenant acknowledges and agrees
that Tenant shall continue to be liable under the Other Lease for (i) those
obligations under the Other Lease pertaining to the remaining portion of the
Other Premises and (ii) those obligations pertaining to the terminated
portions of the 8965 Premises that are intended to survive termination
including, without limitation, Tenant's indemnity obligations and Tenant's
reconciliation obligations for accrued operating expenses (that accrued prior
to February 1, 2001) under the Other Lease pertaining to the terminated
portions of the 8965 Premises, all of which obligations Tenant acknowledges
and agrees shall survive the expiration of the Other Lease pertaining to such
terminated portions of the 8965 Premises. The Other Landlord and Tenant
acknowledge and agree that effective as of February 1, 2001, the Other Lease
(as it pertains to the remaining portion of the first (1st) floor portion of
the 8965 Premises covered thereunder (which remaining portion is stipulated
by the parties to contain 7,000 rentable square feet)) shall be deemed
converted into a month-to-month tenancy, terminable by either party on thirty
(30) days prior written notice to the other, which month-to-month tenancy
shall be subject to all of the other terms and conditions of the Other Lease
(and such month-to-month tenancy shall not be deemed a holdover under such
Other Lease). Tenant shall, within ten (10) days of Other Landlord's written
request, execute a letter confirming the terms and conditions of such
month-to-month tenancy. On the Commencement Date of this Lease, the Other
Landlord and Tenant acknowledge and agree that the Other Lease shall be
terminated in its entirety (as to all of the remaining portion of the Other
Premises then being leased by Tenant); provided, however, that Tenant shall
continue to be liable under the Other Lease for those obligations under the
Other Lease that are intended to survive termination including, without
limitation, Tenant's indemnity obligations and Tenant's reconciliation
obligations for accrued operating expenses under the Other Lease (that
accrued prior to such termination date), all of which obligations Tenant
acknowledges and agrees will survive the expiration of the Other Lease.
Effective as of the date of the full execution and delivery of this Lease by
Landlord and Tenant, Tenant acknowledges and agrees that it shall provide
Landlord and Other Landlord with access to the remaining portion of the first
(1st) floor portion of the 8965 Premises in order for Landlord and/or the
Other Landlord to install an elevator and ancillary improvements in the 8965
Premises (collectively, the "WORK"). Tenant acknowledges and agrees that
Landlord's and/or the Other Landlord's performance of the Work shall not
entitle Tenant to any abatement of rent under the Other Lease nor will it
constitute a construction eviction of Tenant from the Other Premises.
Landlord and Other Landlord (by its execution below) acknowledges and agrees
that such Work shall be performed by Landlord and/or Other Landlord in a
manner so as to minimize any adverse interference with Tenant's business in
the remaining portions of the Other Premises. Landlord agrees to reimburse to
Tenant, up to Thirty
Thousand Dollars ($30,000.00) ("LANDLORD'S REIMBURSEMENT CAP") of the actual, documented and reasonable moving costs incurred by Tenant in moving from the second (2nd) floor portion of the 8965 Premises to the balance of the Other Premises (and to other locations in San Diego County) within thirty (30) days after Landlord's receipt of a reasonably particularized invoice evidencing such costs.
33.2 ADDITIONAL MODIFICATIONS TO OTHER LEASE. By its execution below, the Other Landlord and Tenant acknowledge and agree that effective as of the date of the full execution and delivery of this Lease by Landlord and Tenant, Paragraph 56 of the Addendum to the Other Lease (pertaining to Tenant's renewal options) is hereby deemed deleted in its entirety and shall be of no further force and effect whatsoever. The Other Landlord and Tenant acknowledge and agree that the modifications to the Other Lease set forth in this Section 33 shall survive the expiration or earlier termination of this Lease."
2. BROKERS. Each party represents and warrants to the other that no broker, agent or finder negotiated or was instrumental in negotiating or consummating this Second Amendment. Each party further agrees to defend, indemnify and hold harmless the other party from and against any claim for commission or finder's fee by any entity who claims or alleges that they were retained or engaged by the first party or at the request of such party in connection with this Second Amendment.
3. DEFAULTS. Landlord and Tenant hereby represent and warrant to the other that, as of the date of this Second Amendment, Landlord and Tenant, as applicable, are in full compliance with all terms, covenants and conditions of the Lease and that there are no breaches or defaults under the Lease by Landlord or Tenant, and that neither party knows of no events or circumstances which, given the passage of time, would constitute a default under the Lease by either Landlord or Tenant.
4. AUTHORITY. If either Landlord or Tenant executes this Second Amendment as a limited liability company, partnership or corporation, then such party and the persons and/or entities executing this Lease on behalf of such party represents and warrants that: (a) it is a duly organized and validly existing limited liability company, partnership or corporation, as the case may be, and is qualified to do business in the state in which the Premises are located; (b) such persons and/or entities executing this Second Amendment are duly authorized to execute and deliver this Second Amendment on such party's behalf in accordance with its operating agreement (if Landlord or Tenant is a limited liability company), Landlord's or Tenant's partnership agreement (if Landlord or Tenant is a partnership), or a duly adopted resolution of Landlord's or Tenant's board of directors and its by-laws (if Landlord or Tenant is a corporation); and (c) this Second Amendment is binding upon Landlord and Tenant in accordance with its terms.
5. NO FURTHER MODIFICATION. Except as set forth in this Second Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect. Effective as of the date hereof, all references to the "Lease" shall refer to the Lease as amended by this Second Amendment.
IN WITNESS WHEREOF, this Second Amendment has been executed as of the day and year first above written.
"TENANT" OVERLAND DATA, INC.,
a California corporation
*By: /s/ Vernon A. LoForti
-------------------------------------------
Name: Vernon A. LoForti
Title: Vice President and Chief Financial
Officer
By: /s/ Scott McClendon
-------------------------------------------
Name: Scott McClendon
Title: President and Chief Executive
Officer
"LANDLORD" LBA OVERLAND, LLC,
a California limited liability company
By: Spectrum Overland, L.P., a California
limited partnership, its Member-Manager
By: LBA Fund I, Inc., a California
corporation, its General Partner
By: /s/ Phil A. Belling
---------------------------
Name: Phil A. Belling
----------------------
Title: Authorized Signatory
---------------------
|
IF TENANT IS A CALIFORNIA CORPORATION, then one of the following alternative
requirements must be satisfied:
(A) This Lease must be signed by two (2) officers of such corporation: one
being the chairman of the board, the president or a vice president, AND
the other being the secretary, an assistant secretary, the chief
financial officer or an assistant treasurer. If one (1) individual is
signing in two (2) of the foregoing capacities, that individual must
sign twice; once as one officer and again as the other officer.
(B) If there is only one (1) individual signing in two (2) capacities, or
if the two (2) signatories do not satisfy the requirements of (A)
above, then Tenant shall deliver to Landlord a certified copy of a
corporate resolution in the form reasonably acceptable to Landlord
authorizing the signatory(ies) to execute this Lease.
IF TENANT IS A CORPORATION INCORPORATED IN A STATE OTHER THAN CALIFORNIA, then
Tenant shall deliver to Landlord a certified copy of a corporate resolution in
the form reasonably acceptable to Landlord authorizing the signatory(ies) to
execute this Lease.
ACKNOWLEDGMENT OF OTHER LANDLORD
By its execution below, Other Landlord hereby consents to the modification to the Lease set forth in the foregoing Second Amendment.
"OTHER LANDLORD" LBA-VFI, LLC,
a California limited liability company
By: LBA, Inc., a California corporation, its agent
By: /s/ Phil A. Belling
------------------------------------------
Name: Phil A. Belling
------------------------------------
Title: Authorized Signatory
-----------------------------------
|
EXHIBIT 10.6
FIRST AMENDMENT TO
CREDIT AGREEMENT
This First Amendment to Credit Agreement is entered into as of November 15, 2000 (this "Amendment"), by and between IMPERIAL BANK, a California banking corporation ("Bank") and Overland Data, Inc., a California corporation ("Borrower").
RECITALS
WHEREAS, Borrower and Bank are parties to that certain Credit Agreement dated as of November 10, 1999, as amended (the "Agreement"); and
WHEREAS, each of the parties to this Amendment desire to amend the Agreement in accordance herewith.
AGREEMENT
NOW, THEREFORE, the parties agree as follows:
A. AMENDMENTS TO THE AGREEMENT.
1. The Revolving Line of Credit Maturity Date referenced in Section 1.01(a) of the Agreement is hereby amended to read as "November 5, 2002."
2. Section 1.01(c) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
"1.01 (c) LETTER OF CREDIT USAGE AND SUBLIMIT. Subject to availability under the Revolving Line of Credit, at any time and from time to time from the date hereof through the banking day immediately prior to the Revolving Line of Credit Maturity Date, Bank shall issue for the account of Borrower such standby and commercial letters of credit ("Letters of Credit") as Borrower may request, which requests shall be made by delivering to Bank a duly executed letter of credit application on Bank's standard form; provided, however, that the outstanding and undrawn amounts under all such Letters of Credit (i) shall not at any time exceed $500,000 ("Letter of Credit Sublimit") and (ii) shall be deemed to constitute Revolving Loans for the purpose of calculating availability under the Revolving Line of Credit. Unless agreed to in writing by Bank, no Letter of Credit shall have an expiration date that is later than Ninety days after the Revolving Line of Credit Maturity' Date. All Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank's form application and letter of credit agreement and other agreements required by Bank. Borrower will pay all usual issuance and other fees that Bank notifies Borrower it will be charged for issuing and processing Letters of Credit for Borrower."
3. Section 1.04 of the Credit Agreement shall be added and shall read in its entirety as follows:
"1.04 STANDBY LETTER OF CREDIT. Bank shall issue for the account of Borrower such standby letters of credit ("Standby Letters of Credit") as Borrower may request, which requests shall be made by delivering to Bank a duly executed letter of credit application on Banks standard form; provided, however, that the outstanding and undrawn amounts under all such Letters of Credit shall not at any time exceed $2,500,000 ("Standby Letter of Credit Limit"). Unless agreed to in writing by Bank, no Standby Letter of Credit shall have an expiration date that is later than Ninety days after November 5, 2002. All Standby Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank's form application and letter of credit agreement and other agreements required by Bank. Borrower will pay all usual issuance and
other fees that Bank notifies Borrower it will be charged for issuing and processing Standby Letters of Credit for Borrower."
4. Section 4.05 of the Agreement is hereby amended to read as follows:
"4.05 WORKING CAPITAL. Maintain on a quarterly basis working capital, meaning current assets (excluding all amounts due from stockholders, officers and affiliates) minus total current liabilities(including all amounts due to stockholders, officers, and affiliates) of not less than Thirty Five Million Dollars ($35,000,000.00)."
5. Section 4.06 of the Agreement is hereby amended to read as follows:
"4.06 QUICK RATIO. Maintain on a quarterly basis a consolidated quick ratio of cash and accounts receivable to current liabilities of at least 1.00:1.00."
6. Section 4.07 of the Agreement is hereby amended to read as follows:
"4.07 TANGIBLE NET WORTH. Maintain on a quarterly basis a consolidated Tangible Net Worth (defined as stockholder's equity less any value for goodwill, trademarks, patents, copyrights, leaseholds, organization expense and other similar intangible items, and any amounts due from stockholders, officers and affiliates) of not less than Forty Million Dollars ($40,000,000.00)."
B. EFFECT OF AMENDMENT, REPRESENTATIONS AND WARRANTIES.
1. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof Borrower ratifies and reaffirms the continuing effectiveness of all promissory notes, guaranties, security agreements, mortgages, deeds of trust, environmental agreements, and all other instruments, documents and agreements entered into in connection with the Agreement.
2. Borrower represents and warrants that the Representations and Warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.
C. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AMENDMENT
I. As a condition to the effectiveness of this Amendment, Bank shall have received, inform and substance satisfactory to Bank, the following:
(a.) this Amendment, duly executed by Borrower;
(b.) a non-refundable documentation fee of Two Hundred Fifty Dollars ($250.00), plus any Bank Expenses incurred through the date of this Amendment;
(c.) Corporate Resolutions to Borrow;
(d.) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
D. MISCELLANEOUS PROVISIONS.
1. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as
defined in the Agreement.
2. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
Overland Data, Inc., a California corporation
By: /s/ SCOTT McCLENDON
---------------------
Scott McClendon
Title: President/CEO
By: /s/ VERNON A. LOFORTI
-----------------------
Vernon A. LoForti
Title: Vice President/CFO
|
IMPERIAL BANK,
A California banking corporation
By: /s/ TRACY FREDRICKS
------------------------
Tracy Fredricks
Title: Vice President
|
EXHIBIT 10.13
RETENTION AGREEMENT
THIS RETENTION AGREEMENT (the "AGREEMENT"), dated _____________, is made by and between Overland Data Inc., a California corporation having its principal offices at 8975 Balboa Avenue, San Diego, California 92123-1599 (the "COMPANY") and _____________ ("EMPLOYEE").
AGREEMENT
WHEREAS, Employee is a key employee of the Company;
WHEREAS, the Company considers that providing Employee with certain employment termination benefits will operate as an incentive for Employee to remain employed by the Company in the event of a Change of Control.
NOW THEREFORE, to induce Employee to remain employed by the Company, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and Employee agree as follows:
1. DEFINITIONS.
1.1 "BASE SALARY" shall mean the Employee's gross annual salary at the time of a Change of Control or the Termination Date, whichever is higher.
1.2 "CHANGE OF CONTROL" is defined to have occurred if, and only if, during Employee's employment:
(a) any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity or person, or any syndicate or group deemed to be a person under Section 14(d)(2) of the Exchange Act is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 of the General Rules and Regulations under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities entitled to vote in the election of directors of the Company;
(b) there occurs a reorganization, merger, consolidation or other corporate transaction involving the Company ("TRANSACTION"), in each case, with respect to which the stockholders of the Company immediately prior to such Transaction do not, immediately after the Transaction, own more than fifty (50) percent of the combined voting power of the Company or other corporation resulting from such Transaction; or
(c) all or substantially all of the assets of the Company are sold, liquidated or distributed.
1.3 "CAUSE" shall mean
(a) Employee's gross neglect of his duties to the Company, where Employee has been given a reasonable opportunity to cure his gross neglect (which reasonable opportunity must be granted during the thirty-day period preceding termination);
(b) any violation by Employee of Employee's obligations under this Agreement or any employment agreement which Employee may have with the Company;
(c) Employee taking any role in any buy-out of the Company without the approval of the Company's majority shareholder; or
(d) Employee's commission of any act of fraud, theft or embezzlement against the Company.
1.4 "COMPENSATION" shall mean Base Salary plus Target Bonus.
1.5 "RESIGNATION FOR GOOD REASON" shall mean the voluntary resignation by Employee of his employment with the Company within two years following a Change of Control and within three (3) months of the following Good Reasons:
(a) any reduction in Employee's Base Salary or Target Bonus; or
(b) any reduction in Employee's title; or
(c) any significant reduction in Employee's responsibilities and authority;
(d) any failure by the Company to pay Employee's Base Salary; or
(e) a relocation by the Company of Employee's place of Employment outside a fifty (50) mile radius of Employee's current place of employment.
An event described in Section 1.5(a) through (e) will not constitute Good Reason unless Employee provides written notice to the Company of his intention to resign for Good Reason and unless the Company does not cure the Good Reason within ten (10) days of the Company's receipt of the written notice.
1.6 "SEVERANCE PERIOD" shall begin on the Termination Date and extend for twelve months following the Termination Date
1.7 "TARGET BONUS" shall mean the variable annual compensation represented by the percentage of Base Salary Employee is eligible to receive, prior to a Change of Control, in the event targeted goals are achieved for the year.
1.8 "TERMINATION DATE" shall mean the date of termination of Employee's employment relationship with the Company.
1.9 "TERMINATION PAYMENTS" shall mean any payment or distribution of Compensation or benefits made pursuant to SECTION 4.1(a)-(c) of this Agreement.
2. TITLE AND DUTIES. Employee will hold the position of____________________. His primary duties will include such duties as are assigned or delegated to Employee by the President and Chief Executive Officer of the Company (the "PRESIDENT"). Employee will: (i) devote his entire business time, attention, skill, and energy exclusively to the business of the Company; (ii) use his best efforts to promote the success of the Company's business; and (iii) cooperate fully with the President and the Board of Directors of the Company in the advancement of the best interests of the Company.
3. AT-WILL EMPLOYMENT. Employee reaffirms that Employee's employment relationship with the Company is at-will, terminable at any time and for any reason by either the Company or Employee. While certain paragraphs of this Agreement describe events that could occur at a particular time in the future, nothing in this Agreement may be construed as a guarantee of employment of any length.
4. TERMINATION PAYMENTS.
4.1 If, within two (2) years immediately following a Change of Control, Employee's employment terminates as the result of (i) termination by the Company of Employee's employment for a reason other than Cause; or (ii) Employee's Resignation for Good Reason
(a) Employee will receive a pro-rata share of Base Salary and accrued but unused vacation through the Termination Date, less applicable state and federal taxes or other payroll deduction;
(b) Employee is eligible for Severance under this Agreement in a lump-sum amount equal to Base Salary plus Target Bonus, less applicable state and federal taxes or other payroll deduction;
(c) If Employee elects to continue insurance coverage as afforded to Employee according to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), Company will reimburse Employee the amount of the premiums incurred by Employee during the Severance Period. Nothing in this Agreement will extend Employee's COBRA period beyond the period allowed under COBRA, nor is Company assuming any responsibility which Employee has for formally electing to continue coverage;
4.2 The payments set forth in SECTION 4.1(b) AND (c) above are in exchange for, and contingent upon Employee's execution of a release of all claims as of the Termination Date, in substantially the form attached to this Agreement as Exhibit 1.
4.3 If Employee's employment terminates for any reason after the two year period immediately following a Change of Control or terminates during that two year period for any reason other than (i) termination by the Company of Employee's employment for a reason other than Cause; or (ii) Employee's Resignation for Good Reason, the Company will pay Employee a pro-rata share of Base Salary and accrued but unused vacation through the Termination Date.
5. RETIREMENT AND PROFIT-SHARING PLANS. Notwithstanding anything in this Agreement to the contrary, Employee's rights in any retirement, pension or profit-sharing plans offered by the Company shall be governed by the rules of such plans as well as by applicable law; provided, however, that on the Termination Date, Employee shall become fully vested in all pension and 401(k) account balances.
6. TAX CONSEQUENCES. The Company makes no representations regarding the tax consequence of any provision of this Agreement. Employee is advised to consult with his own tax advisor with respect to the tax treatment of any payment contained in this Agreement.
7. TAX ADJUSTMENT. Notwithstanding the foregoing or any other provision of this Agreement to the contrary, if tax counsel selected by the Company and acceptable to Employee determines that any portion of any payment under this Agreement would constitute an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), the payments to be made to Employee under this Agreement shall be reduced (but not below zero) such that the value of the aggregate payments that Employee is entitled to receive under this Agreement and any other agreement or plan or program of the Company shall be one dollar ($1) less than the maximum amount of payments which Employee may receive without becoming subject to the tax imposed by Section 4999 of the Code.
8. DISPUTE RESOLUTION PROCEDURES. Any dispute or claim arising out of this agreement shall be subject to final and binding arbitration. The arbitration will be conducted by one arbitrator who is a member of the American Arbitration Association ("AAA") or of the Judicial Arbitration and Mediation Services ("JAMS"). The arbitration shall be held in San Diego, California. The arbitrator shall have all authority to determine the arbitrability of any claim and enter a final and binding judgment at the conclusion of any proceedings in respect of the arbitration. Any final judgment only may be appealed on the grounds of improper bias or improper conduct of the arbitrator. The parties will be entitled to conduct discovery (i.e., investigation of facts through depositions and other means) which shall be governed by the California Code of Civil Procedure (the "CCP") section 1283.05. The arbitrator shall have all power and authority to enter orders relating to such discovery as are allowed under the CCP. The arbitrator will apply California substantive law in all respects. The party prevailing in the resolution of any such claim will be entitled, in addition to such other relief as may be granted, to an award of all reasonable attorneys fees and costs incurred in pursuit of the claim, without regard to any statute, schedule, or rule of court purported to restrict such award.
9. GENERAL PROVISIONS.
9.1 GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of California.
9.2 ASSIGNMENT. Employee may not assign, pledge or encumber his interest in this Agreement or any part thereof.
9.3 NO WAIVER OF BREACH. The failure to enforce any provision of this Agreement will not be construed as a waiver of any such provision, nor prevent a party from enforcing the provision or any other provision of this Agreement. The rights granted the parties are
cumulative, and the election of one will not constitute a waiver of such party's right to assert all other legal and equitable remedies available under the circumstances.
9.4 SEVERABILITY. The provisions of this Agreement are severable, and if any provision will be held to be invalid or otherwise unenforceable, in whole or in part, the remainder of the provisions, or enforceable parts of this Agreement, will not be affected.
9.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous negotiations, agreements and understandings between the parties, oral or written.
9.6 MODIFICATION; WAIVERS. No modification, termination or attempted waiver of this Agreement will be valid unless in writing, signed by the party against whom such modification, termination or waiver is sought to be enforced.
9.7 FEES AND EXPENSES. If any proceeding is brought for the enforcement or interpretation of this Agreement, or because of any alleged dispute, breach, default or misrepresentation in connection with any provisions of this Agreement, the successful or prevailing party will be entitled to recover from the other party reasonable attorneys' fees and other costs incurred in that proceeding (including, in the case of an arbitration, arbitration fees and expenses), in addition to any other relief to which such party may be entitled.
9.8 AMENDMENT. This Agreement may be amended or supplemented only by a writing signed by both of the parties hereto.
9.9 DUPLICATE COUNTERPARTS. This Agreement may be executed in duplicate counterparts; each of which shall be deemed an original; provided, however, such counterparts shall together constitute only one instrument.
9.10 INTERPRETATION. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
9.11 DRAFTING AMBIGUITIES. Each party to this Agreement and its counsel have reviewed and revised this Agreement. The rule of construction that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any of the amendments to this Agreement.
OVERLAND DATA, INC.
Dated: By:
------------------------------ --------------------------------
Name:
------------------------------
Title:
-----------------------------
Dated:
------------------------------ -----------------------------------
Printed Name:
----------------------
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EXHIBIT 1
GENERAL RELEASE
This GENERAL RELEASE ("RELEASE") is entered into effective as of ______________, (the "EFFECTIVE DATE") by and between Overland Data, Inc., a California corporation, having its principal offices at 8975 Balboa Avenue, San Diego, California 92123-1599 ("COMPANY") and _____________________, an individual residing at ____________________ ("EMPLOYEE") with reference to the following facts:
RECITALS
A. The parties entered into a Retention Agreement ("the Agreement") dated ____________, by which the parties agreed that upon the occurrence of certain conditions, Employee would become eligible for Termination Payments as defined in the Agreement in exchange for Employee's release of the Company from all claims which Employee may have against the Company as of the Termination Date.
B. The parties desire to dispose of, fully and completely, all claims, which Employee may have against the Company in, the manner set forth in this Release.
AGREEMENT
1. RELEASE. Employee, for himself and his heirs, successors and assigns, each fully releases, and discharges Company, its officers, directors, employees, shareholders, attorneys, accountants, other professionals, insurers and agents of the other (collectively "Agents"), and all entities related to each party, including, but not limited to, heirs, executors, administrators, personal representatives, assigns, parent, subsidiary and sister corporations, affiliates, partners and co-venturers (collectively "Related Entities"), from all rights, claims, demands, actions, causes of action, liabilities and obligations of every kind, nature and description whatsoever, Employee now has, owns or holds or has at anytime had, owned or held or may have against the Company, Agents or Related Entities from any source whatsoever, whether or not arising from or related to the facts recited in this Release. Employee specifically releases and waives any and all claims arising under any express or implied contract, rule, regulation or ordinance, including, without limitation, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act, the California Fair Employment and Housing Act, and the Age Discrimination in Employment Act, as amended ("ADEA").
2. SECTION 1542 WAIVER. This Release is intended as a full and complete release and discharge of any and all claims that Employee may have against the Company, Agents or Related Entities. In making this release, Employee intends to release the Company, Agents and Related Entities from liability of any nature whatsoever for any claim of damages or injury or for equitable or declaratory relief of any kind, whether the claim, or any facts on which such claim might be based, is known or unknown to him. Employee expressly waives all rights under Section 1542 of the California Civil Code, which Employee understands provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
Employee acknowledges that he may discover facts different from or in addition to those that he now believes to be true with respect to this Release. Employee agrees that this Release shall remain effective notwithstanding the discovery of any different or additional facts.
3. WAIVER OF CERTAIN CLAIMS. Employee acknowledges that he has been advised in writing of his right to consult with an attorney prior to executing the waivers set out in this Release, and that he has been given a 21-day period in which to consider entering into the release of ADEA claims, if any. In addition, Employee acknowledges that he has been informed that he may revoke a signed waiver of the ADEA claims for up to seven (7) days after executing this Release.
4. NO UNDUE INFLUENCE. This Release is executed voluntarily and without any duress or undue influence. Employee acknowledges he has read this Release and executed it with his full and free consent. No provision of this Release shall be construed against any party by virtue of the fact that such party or its counsel drafted such provision or the entirety of this Release.
5. GOVERNING LAW. This Release is made and entered into in the State of California and accordingly the rights and obligations of the parties hereunder shall in all respects be construed, interpreted, enforced and governed in accordance with the laws of the State of California as applied to contracts entered into by and between residents of California to be wholly performed within California.
6. SEVERABILITY. If any provision of this Release is held to be invalid, void or unenforceable, the balance of the provisions of this Release shall, nevertheless, remain in full force and effect and shall in no way be affected, impaired or invalidated.
7. COUNTERPARTS. This Release may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Release may be executed by facsimile, with originals to follow by overnight courier.
8. DISPUTE RESOLUTION PROCEDURES. Any dispute or claim arising out of this agreement shall be subject to final and binding arbitration. The arbitration will be conducted by one arbitrator who is a member of the American Arbitration Association ("AAA") or of the Judicial Arbitration and Mediation Services ("JAMS"). The arbitration shall be held in San Diego, California. The arbitrator shall have all authority to determine the arbitrability of any claim and enter a final and binding judgment at the conclusion of any proceedings in respect of the arbitration. Any final judgment only may be appealed on the grounds of improper bias or improper conduct of the arbitrator. The parties will be entitled to conduct discovery (i.e., investigation of facts through depositions and other means) which shall be governed by the Code
of Civil Procedure ("CCP") section 1283.05. The arbitrator shall have all power and authority to enter orders relating to such discovery as are allowed under the CCP. The arbitrator will apply California substantive law in all respects. The party prevailing in the resolution of any such claim will be entitled, in addition to such other relief as may be granted, to an award of all reasonable attorneys fees and costs incurred in pursuit of the claim, without regard to any statute, schedule, or rule of court purported to restrict such award.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous negotiations, agreements and understandings between the parties, oral or written.
10. MODIFICATION; WAIVERS. No modification, termination or attempted waiver of this Agreement will be valid unless in writing, signed by the party against whom such modification, termination or waiver is sought to be enforced.
11. AMENDMENT. This Agreement may be amended or supplemented only by a writing signed by Employee and the Company.
Dated:
----------------------------- --------------------------------------
Printed Name:
-------------------------
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EXHIBIT 10.18
[OVERLAND LOGO]
Overland Data, Inc.
8975 Balboa Avenue
San Diego, CA 92123-1599
(858) 571-5555
(858) 495-4267 fax
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), which shall become effective on April 2, 2001 (the "Effective Date"), finalizes the terms and conditions of employment agreed upon by and between Overland Data, Inc. ("Employer" or the "Company") and Chester Baffa ("Executive").
The parties agree as follows:
1. POSITIONS AND DUTIES. Executive will be employed by the Company in the position of Vice President of Sales, reporting to the Company's President and Chief Executive Officer ("CEO"), and shall do and perform all services, acts or things necessary or advisable to manage and conduct the business of the Company and which are normally associated with the position of Vice President of Sales consistent with the bylaws of the Company and as required by the Company's President & CEO and by the Company's Board of Directors (the "Board").
1.1 BEST EFFORTS/FULL-TIME. During the Employment Term (as defined in paragraph 1.2 herein), Executive will act in the best interests of Employer and devote his full business time and best efforts to the performance of his duties under this Agreement. Executive agrees to be available to render such services at all reasonable times and places and in accordance with Employer's directives.
Executive shall be assigned to work in the Company's corporate offices in San Diego, California, but may be required to travel in connection with his duties. Executive will abide by all policies, procedures, and decisions made by Employer, as well as all federal, state and local laws, regulations or ordinances applicable to his employment.
During his employment, Executive must not engage in any work, paid or unpaid, that creates an actual or potential conflict of interest with Employer's business interests and if, in the opinion of the Board, an actual or potential conflict exists, the Board may in its sole discretion require Executive to choose to either (i) discontinue the other work or (ii) resign from his employment with Employer. The foregoing restriction shall not preclude Executive from engaging in civic, charitable or religious activities, or from serving on boards of directors of companies or organizations so long as he notifies the Board of
such services in writing, and such services do not pose a conflict or interfere with his responsibilities to Employer. It is anticipated that Executive shall generally devote no less than 40 hours per week to his duties for Employer.
1.2 TERM OF EMPLOYMENT. This Agreement shall commence on April 2, 2001, and, unless terminated by either party in accordance with paragraph 5 herein, shall continue until October 8, 2002 (the period of employment hereunder shall be referred to herein as the "Employment Term"). Except as provided in paragraph 6, this Agreement shall continue during the Employment Term to govern the terms and conditions of Executive's employment, unless modified by the parties hereto in writing.
2. COMPENSATION.
2.1 BASE SALARY. As compensation for the proper and satisfactory performance of all duties under this Agreement, Executive shall earn a gross annual base salary of $250,000.00 ($9,615.38 gross per bi-weekly payroll period), less all legally required payroll deductions, payable in accordance with Employer's normal payroll practices ("Base Salary").
2.2 BONUS/COMMISSION. Executive will be eligible to receive potential annual bonus earnings of up to $75,000 or such other amount as determined by the Board, based on reasonable and obtainable performance criteria to be mutually determined by the Board and the President & CEO. This bonus will be based on the Company's June 30 fiscal year. Also, Executive will be eligible to receive potential commission compensation of up to $12,500 per quarter, or such other amount as determined by the Board and the President & CEO, based upon 100% achievement of the Company's quarterly sales goals.
2.3 STOCK OPTIONS. Subject to the approval of the Board, Executive will be granted an option to purchase 150,000 shares of Employer's Common Stock under Employer's 2000 Stock Option Plan (the "2000 Plan"). The option exercise price will be equal to the closing market price of the Company's Common Stock on April 2, 2001. Except as otherwise provided in this Agreement, shares subject to this option will be governed by the terms and conditions of the 2000 Plan and the standard form of Stock Option Agreement that Executive will be required to sign as a condition of receiving this option. This option will be an incentive stock option to the maximum amount allowable by the Internal Revenue Code of 1986, as amended; the remainder of this option will be a non-qualified stock option. A total of 50,000 shares of Common Stock underlying this option shall vest on April 2, 2002, and an additional 4,166 shares shall vest on the 2nd of each subsequent month until March 2004, and 4,182 shares shall vest on the 2nd of April 2004. Notwithstanding the foregoing, all outstanding shares underlying this option shall vest in full and be fully exercisable upon a "Change of Control" as defined in Section 1.2 of the Retention Agreement, dated as of April 2, 2001, (the "Retention Agreement"), by and between the Company and Executive.
2.4 MOVING EXPENSE REIMBURSEMENT. It is agreed that within twelve months of the Effective Date, Executive will relocate his primary residence to the
San Diego, California area. Employer agrees to either pay or reimburse Executive for the expenses listed below which are associated with such relocation. The aggregate amount of such payments and reimbursements, which shall be taxable to Executive, shall not exceed $75,000.
o Temporary living accomodations in California for Executive and his family for up to 180 days;
o Realtor fees and closing costs directly associated with the sale of Executive's current residence and the purchase of a new residence.
o Travel, meals and lodging en route to California for Executive and his family; and
o Shipment of household goods and personal belongings to California, plus storage of such items while Executive is in temporary living accommodations.
Should Executive's employment with the Company during the Employment Term be terminated for Cause as defined in Section 5.1 below, or should Executive resign during the Employment Term without Good Reason as defined in Section 5.4 below, then an aggregate amount equal to the sum of all amounts in respect of relocation paid to or on behalf of Executive pursuant to this Section, and reduced by 1/18 per full month starting from the Effective Date until the termination or resignation date, shall be repaid by the Executive to the Company within thirty days of such termination or resignation date.
2.5 UNILATERAL MODIFICATION OF COMPENSATION. Employer reserves the right to modify Executive's compensation, at any time, at its sole and absolute discretion.
3. CUSTOMARY FRINGE BENEFITS. Executive shall be eligible for all customary and usual benefits generally available to all executive level employees of Employer, as determined in the sole and absolute discretion of Employer and subject to the terms and conditions set forth in the applicable benefit plan or policy. Employer reserves the right to change or eliminate any of the fringe benefits provided to executive level employees on a prospective basis at any time, at Employer's sole and absolute discretion. Executive understands that all benefits provided in this paragraph may be reduced by, or subject to, all legally required taxes.
4. BUSINESS EXPENSES. Executive will be reimbursed for all reasonable, out-of-pocket business expenses incurred in the performance of his duties on behalf of Employer subject to Executive's compliance with the Company's established expense reimbursement policy.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE BY EMPLOYER. Employer may terminate Executive's employment under this Agreement immediately at any time for "Cause", which shall include, but is not limited to: (a) acts or omissions constituting gross negligence, recklessness or willful misconduct on the part of Executive with respect to his obligations or otherwise relating to the business of Employer; (b) Executive's material breach of this Agreement; (c) Executive's conviction or entry of a plea of nolo
contendere for fraud, misappropriation or embezzlement, or any felony or crime of moral turpitude; (d) Executive's dishonesty or involvement in any conduct that adversely affects Employer's name or public image or is otherwise detrimental to Employer's business interests; (e) Executive's willful neglect of duties as determined in the sole and exclusive discretion of Employer; or (f) Executive's death.
5.1.1. ENTITLEMENTS UPON TERMINATION FOR CAUSE. In the event that Executive's employment is terminated for Cause in accordance with paragraph 5.1, Executive shall be entitled to receive: (a) the Base Salary then in effect, prorated to the date of termination; (b) any performance bonuses or commissions earned prior to the date of termination; and (c) any expense reimbursements to which Executive is entitled by virtue of his prior employment with Employer (collectively, (a), (b) and (c) above are referred to herein as the "Standard Entitlements"). In the event of such termination for Cause, Executive shall not be entitled to receive (i) the Severance Payment (as defined in paragraph 5.2 below), or any part thereof, or (ii) any further vesting of stock options; and all other obligations of Employer to Executive pursuant to this Agreement shall automatically terminate and be completely extinguished.
5.2 TERMINATION WITHOUT CAUSE BY EMPLOYER. Employer may terminate Executive's employment without Cause at any time. If Employer terminates Executive's employment without Cause, Executive shall be entitled to receive the Standard Entitlements. In addition to the above, in the event that (i) Employer terminates Executive's employment without Cause during the Employment Term, and (ii) Executive complies with all of the conditions in paragraph 5.2.1 below, Executive will be entitled to an aggregate severance payment equal to Executive's then Base Salary, payable on a pro-rated basis in accordance with Employer's regular payroll practices for the twelve (12) months immediately following such termination date (the "Severance Payment"). Upon Executive's termination without Cause, subject to the conditions specified above, any shares of Common Stock underlying Executive's then outstanding stock options that otherwise would vest during the twelve (12) months following the date of such termination shall vest in full and shall be immediately exercisable as of the date of such termination, and such stock options may be exercised in whole or in part at any time within thirty (30) days of the date of such termination without Cause. In the event of such termination without Cause, all of Employer's other obligations pursuant to this Agreement shall terminate automatically and extinguish completely following the date of such termination without Cause.
5.2.1. CONDITIONS TO RECEIVE SEVERANCE PAYMENTS. The Severance Payment will be paid provided that the following conditions are met:
(a) Executive complies with all surviving provisions of this Agreement as specified in paragraph 11.8 below; and
(b) Executive executes a full general release in the form attached hereto as EXHIBIT A, releasing all claims, known or unknown, that Executive may have against Employer arising out of or in any way related to Executive's employment or termination of employment with Employer.
5.3 VOLUNTARY RESIGNATION BY EXECUTIVE FOR GOOD REASON. Executive may voluntarily resign his position with Employer at any time provided that he delivers to the Board at least thirty (30) days' advance written notice of his resignation. In the event that (i) his resignation is for Good Reason (as defined below) and (ii) such resignation for Good Reason occurs on or before the Final Severance Date, Executive will be entitled to receive the Severance Payment, provided that Executive complies with all of the conditions in paragraph 5.2.1 above. In the event of such resignation for Good Reason, all of Employer's other obligations pursuant to this Agreement shall terminate automatically and extinguish completely following the date of such resignation for Good Reason. Executive will be deemed to have resigned for "Good Reason" in the following circumstances: (a) Employer reduces Executive's Base Salary and potential annual bonus earnings by more than ten percent (10%), unless the reduction is made as part of, and is generally consistent with, a general reduction of other senior executive salaries and incentive compensation; (b) Executive's position and/or duties are modified so that his duties are no longer consistent with the position of Vice President of Sales or (c) Employer relocates Executive's principal place of work to a location more than fifty (50) miles from Employer's current location without his prior written approval.
5.4 VOLUNTARY RESIGNATION BY EXECUTIVE WITHOUT GOOD REASON. In the event that Executive's resignation is without Good Reason, Executive will be entitled to receive the Standard Entitlements, but Executive shall not be entitled to receive (i) the Severance Payment, or any part thereof, or (ii) any further vesting of stock options; and all other obligations of Employer to Executive pursuant to this Agreement shall automatically terminate and be completely extinguished.
5.5 TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON AFTER THE EMPLOYMENT TERM. If Executive is terminated without Cause after the Employment Term, or if Executive resigns for Good Reason after the Employment Term, then Executive shall not be entitled to the Severance Payment, or any part thereof, as defined in this Agreement.
6. TERMINATION UPON CHANGE OF CONTROL. In the event of a "Change of Control" (as defined in the Retention Agreement), Employer's obligations to Executive pursuant to paragraph 5 above shall terminate automatically and extinguish completely, and the consequences of any termination or resignation of Executive following a Change of Control will be as governed by the Retention Agreement.
7. CONFIDENTIALITY/INTELLECTUAL PROPERTY AGREEMENT AND INSIDER TRADING POLICY. Executive agrees that he has read, signed, and will abide by the terms and conditions of Employer's Confidentiality/Intellectual Property Agreement and Employer's Insider Trading Policy.
Executive recognizes that his employment with the Company will involve contact with information of substantial value to the Company which gives the Company an advantage over its competitors who do not know or use it, including but not limited to, techniques, designs, drawings, processes, inventions, developments, equipment, prototypes, sales and customer information, and business and financial information
relating to the business, products, practices and techniques of the Company (hereinafter referred to as "Confidential and Proprietary Information"). Executive will at all times regard and preserve as confidential such Confidential and Proprietary Information obtained by Executive from whatever source and will not, either during his employment with the Company or thereafter, publish or disclose any part of such Confidential and Proprietary Information in any manner at any time, or use the same except on behalf of the Company, without the prior written consent of the Company.
8. NON-COMPETITION. During the Employment Term, Executive shall devote Executive's full business energies, interest, abilities and productive time to the proper and efficient performance of Executive's duties under this Agreement. The foregoing requirement shall not preclude Executive from engaging in civic, charitable or religious activities, or from serving on boards of directors of companies or organizations which will not present any direct conflict with the interest of Employer or affect the performance of Executive's duties hereunder.
Except with the prior written consent of Employer, Executive will not, during the Employment Term, or any period during which Executive is receiving compensation or any other consideration from Employer, engage in competition with Employer, either directly or indirectly, in any manner or capacity, as adviser, principal, agent, partner, officer, director, employee, member of any association or otherwise, in any phase of the business of developing, manufacturing and marketing of products which are in the same field of use or which otherwise compete with the product or products actively under development by Employer.
Except as permitted herein, Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by Executive to be adverse or antagonistic to Employer, its business or prospects, financial or otherwise. Ownership by Executive, as a passive investment, of less than one percent (1%) of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock listed on a national securities exchange or publicly traded in the over-the-counter market shall not constitute a breach of this paragraph 8.
9. NONSOLICITATION. During the Employment Term and for a period of one year thereafter, irrespective of the manner of termination of employment, Executive agrees not to, directly or indirectly, separately, or in association with others: (a) interfere with, impair, disrupt, or damage Employer's relationship with any of its customers or prospective customers by soliciting, encouraging, or causing others to solicit or encourage any of them, for the purpose of diverting or taking away the business such customers have with Employer; or (b) interfere with, impair, disrupt, or damage Employer's business by soliciting, encouraging, or causing others to solicit or encourage, any of Employer's employees to discontinue their employment with Employer.
10. AGREEMENT TO ARBITRATE. Executive and Employer agree to arbitrate any claim or dispute ("Dispute") arising out of or in any way related to this Agreement, the employment relationship between Employer and Executive or the termination of
Executive's employment, except as provided in paragraph 10.1 below, to the fullest extent permitted by law. Except as provided above, this method of resolving Disputes shall be the sole and exclusive remedy of the parties. Accordingly, the parties understand that, except as provided herein, they are giving up their rights to have their disputes decided in a court of law and, if applicable, by a jury, and instead agree that their disputes shall be decided by an arbitrator.
10.1 SCOPE OF THE AGREEMENT. A Dispute shall include all disputes or claims between Executive and Employer arising out of, concerning or relating to Executive's employment by Employer, including, without limitation: claims for breach of contract, tort, discrimination, harassment, wrongful termination, demotion, discipline, failure to accommodate, compensation or benefits claims, constitutional claims and claims for violation of any local, state or federal law, or common law, to the fullest extent permitted by law. A Dispute shall not include any dispute or claim, whether brought by either Executive or Employer, for: (a) workers' compensation or unemployment insurance benefits; or (b) the exclusions from arbitration specified in the California Arbitration Act, California Code of Civil Procedure section 1281.8. For the purpose of this paragraph 10, references to "Employer" include Employer and all related or affiliated entities and their employees, supervisors, officers, directors, owners, stockholders, agents, pension or benefit plans, pension or benefit plan sponsors, fiduciaries, administrators, and the successors and assigns of any of them, and this paragraph 10 shall apply to them to the extent that Executive's claims arise out of or relate to their actions on behalf of Employer.
10.2 CONSIDERATION. The parties agree that their mutual promise to arbitrate any and all disputes between them, except as provided in paragraph 10.1, rather than litigate them before the courts or other bodies, provides adequate consideration for this paragraph 10.
10.3 INITIATION OF ARBITRATION. Either party may initiate an arbitration proceeding by providing the other party with written notice of any and all claims forming the basis of such proceeding in sufficient detail to inform the other party of the substance of such claims. In no event shall the request for arbitration be made after the date when institution or legal or equitable proceedings based on such claims would be barred by the applicable statute of limitations.
10.4 ARBITRATION PROCEDURE. The arbitration will be conducted by the American Arbitration Association pursuant to its Commercial Arbitration Rules in San Diego, California by a single, neutral arbitrator. The parties are entitled to representation by an attorney or other representative of their choosing. The arbitrator shall have the power to enter any award that could be entered by a judge of the Superior Court of the State of California, as applicable to the cause of action, and only such power. The parties agree to abide by and perform any award rendered by the arbitrator. Judgment on the award may be entered in any court having jurisdiction thereof.
10.5 COSTS OF ARBITRATION. Each of the parties hereto shall initially pay fifty percent (50%) of the arbitration filing, hearing fees and costs of the arbitrator. The
arbitrator, as part of its final award, shall have the power to reallocate such fees and costs in favor of the prevailing party in the arbitration. In addition, each party will bear its own attorneys' fees, unless otherwise required or allowed by law and awarded by the arbitrator.
10.6 GOVERNING LAW. All Disputes between the parties shall be governed, determined and resolved by the internal laws of the State of California, including the California Arbitration Act, California Code of Civil Procedure 1280 et seq.
11. GENERAL PROVISIONS.
11.1 SUCCESSORS AND ASSIGNS. The rights and obligations of Employer under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Employer. Executive shall not be entitled to assign any of Executive's rights or obligations under this Agreement.
11.2 INDEMNIFICATION. The indemnification provisions for Officers and Directors under Employer's Bylaws will (to the maximum extent permitted by law) be extended to Executive.
11.3 WAIVER. This Agreement may not be modified or amended except by an instrument in writing, signed by Executive and by a duly authorized representative of Employer other than Executive. Either party's failure to enforce any provision of this Agreement shall not in any way be construed as an amendment or waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Agreement.
11.4 SEVERABILITY. If any provision of this Agreement is held by an
arbitrator or a court of law to be illegal, invalid or unenforceable, then:
(a) that provision shall be deemed amended to achieve as nearly as possible
the same economic effect as the original provision; and (b) the legality,
validity and enforceability of the remaining provisions of this Agreement
shall not be affected or impaired thereby.
11.5 INTERPRETATION; CONSTRUCTION. This Agreement has been drafted by Employer, but Executive has participated in the negotiation of its terms. Furthermore, Executive acknowledges that he has had an opportunity to review and revise the Agreement and have it reviewed by legal counsel, if desired. Therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.
11.6 GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of California.
11.7 NOTICES. All notices or demands of any kind required or permitted to be given by the Company or Executive under this Agreement shall be given in writing and shall be personally delivered (and receipted for) or mailed by certified mail, return receipt requested, postage prepaid, addressed as follows:
IF TO THE COMPANY: IF TO EXECUTIVE: Overland Data, Inc. Chester Baffa 8975 Balboa Avenue 15071 Clinton Street San Diego, CA 92123-4124 Brighton, CO 80601 Attn: President & CEO |
Any such written notice shall be deemed received when personally delivered or three (3) days after its deposit in the United States mail as specified above. Either party may change its address for notices by giving notice to the other party in the manner specified in this paragraph 11.7.
11.8 SURVIVAL. The rights and obligations contained in paragraph 9 ("Nonsolicitation") shall survive any termination or expiration of this Agreement for a period of one year, and paragraphs 7 ("Confidentiality/Intellectual Property Agreement and Insider Trading Policy"), 10 ("Agreement to Arbitrate") and 11 ("General Provisions") shall survive any termination or expiration of this Agreement.
11.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties relating to the subject matter herein and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral.
11.10 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT IN ITS ENTIRETY AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN, WHEREFORE, THE PARTIES HAVE FREELY AND VOLUNTARILY EXECUTED THIS AGREEMENT AS OF THE DATE FIRST ABOVE WRITTEN.
EXECUTIVE:
/s/ Chester Baffa
-----------------------------------
Chester Baffa
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COMPANY:
OVERLAND DATA, INC.
/s/ Christopher Calisi
-----------------------------------
Christopher Calisi
President and Chief Executive Officer
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EXHIBIT A
GENERAL RELEASE
This GENERAL RELEASE ("RELEASE") is entered into effective as of ______________, ____, (the "EFFECTIVE DATE") by and between Overland Data, Inc., a California corporation, having its principal offices at 8975 Balboa Avenue, San Diego, California 92123-1599 (the "COMPANY") and Chester Baffa, an individual residing at [_____________] ("EMPLOYEE") with reference to the following facts:
RECITALS
A. The parties entered into an Employment Agreement (the "AGREEMENT") dated as of April 2, 2001, by which the parties agreed that upon the occurrence of certain conditions, Employee would become eligible for the Severance Payment as defined in the Agreement in exchange for Employee's release of the Company from all claims which Employee may have against the Company as of the date of the termination of Employee's employment.
B. The parties desire to dispose of, fully and completely, all claims which Employee may have against the Company in the manner set forth in this Release.
AGREEMENT
1. RELEASE. Employee, for himself and his heirs, successors and assigns, fully releases and discharges the Company, its officers, directors, employees, shareholders, attorneys, accountants, other professionals, insurers and agents (collectively, "Agents"), and all entities related to each party, including, but not limited to, heirs, executors, administrators, personal representatives, assigns, parent, subsidiary and sister corporations, affiliates, partners and co-venturers (collectively, "Related Entities"), from all rights, claims, demands, actions, causes of action, liabilities and obligations of every kind, nature and description whatsoever, Employee now has, owns or holds or has at anytime had, owned or held or may have against the Company, Agents or Related Entities from any source whatsoever, whether or not arising from or related to the facts recited in this Release. Employee specifically releases and waives any and all claims arising under any express or implied contract, rule, regulation or ordinance, including, without limitation, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act, the California Fair Employment and Housing Act, and the Age Discrimination in Employment Act, as amended ("ADEA").
2. SECTION 1542 WAIVER. This Release is intended as a full and complete release and discharge of any and all claims that Employee may have against the Company, Agents or Related Entities. In making this release, Employee intends to release each of the Company, Agents and Related Entities from liability of any nature whatsoever for any claim of damages or injury or for equitable or declaratory relief of any kind, whether the claim, or any facts on which such claim might be based, is known
or unknown to him. Employee expressly waives all rights under Section 1542 of the California Civil Code, which Employee understands provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
Employee acknowledges that he may discover facts different from or in addition to those that he now believes to be true with respect to this Release. Employee agrees that this Release shall remain effective notwithstanding the discovery of any different or additional facts.
3. WAIVER OF CERTAIN CLAIMS. Employee acknowledges that he has been advised in writing of his right to consult with an attorney prior to executing the waivers set out in this Release, and that he has been given a 21-day period in which to consider entering into the release of ADEA claims, if any. In addition, Employee acknowledges that he has been informed that he may revoke a signed waiver of the ADEA claims for up to seven (7) days after executing this Release.
4. NO UNDUE INFLUENCE. This Release is executed voluntarily and without any duress or undue influence. Employee acknowledges that he has read this Release and executed it with his full and free consent. No provision of this Release shall be construed against any party by virtue of the fact that such party or its counsel drafted such provision or the entirety of this Release.
5. GOVERNING LAW. This Release is made and entered into in the State of California and accordingly the rights and obligations of the parties hereunder shall in all respects be construed, interpreted, enforced and governed in accordance with the laws of the State of California as applied to contracts entered into by and between residents of California to be wholly performed within California.
6. SEVERABILITY. If any provision of this Release is held to be invalid, void or unenforceable, the balance of the provisions of this Release shall, nevertheless, remain in full force and effect and shall in no way be affected, impaired or invalidated.
7. COUNTERPARTS. This Release may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Release may be executed by facsimile, with originals to follow by overnight courier.
8. DISPUTE RESOLUTION PROCEDURES. Any dispute or claim arising out of this Release shall be subject to final and binding arbitration. The arbitration will be conducted by one arbitrator who is a member of the American Arbitration Association ("AAA") or of the Judicial Arbitration and Mediation Services ("JAMS") and will be
governed by the Model Employment Arbitration rules of AAA. The arbitration shall be held in San Diego, California. The arbitrator shall have all authority to determine the arbitrability of any claim and enter a final and binding judgment at the conclusion of any proceedings in respect of the arbitration. Any final judgment only may be appealed on the grounds of improper bias or improper conduct of the arbitrator. Notwithstanding any rule of AAA to the contrary, the parties will be entitled to conduct discovery (i.e. investigation of facts through depositions and other means) which shall be governed by California Code of Civil Procedure Section 1283.05 (the "CCP"). The arbitrator shall have all power and authority to enter orders relating to such discovery as are allowed under the CCP. The arbitrator will apply California substantive law in all respects. The party prevailing in the resolution of any such claim will be entitled, in addition to such other relief as may be granted, to an award of all actual attorneys fees and costs incurred in pursuit of the claim, without regard to any statute, schedule, or rule of court purported to restrict such award.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous negotiations, agreements and understandings between the parties, oral or written.
10. MODIFICATION; WAIVERS. No modification, termination or attempted waiver of this Agreement will be valid unless in writing, signed by the party against whom such modification, termination or waiver is sought to be enforced.
11. AMENDMENT. This Agreement may be amended or supplemented only by a writing signed by Employee and the Company.
Dated:
-------------------------------- -----------------------------------
Chester Baffa
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EXHIBIT 10.21
OVERLAND DATA, INC.
[INCENTIVE/NON-STATUTORY] STOCK OPTION AGREEMENT
1997 Executive Stock Option Plan
NAME:
DATE OF GRANT:
THIS [INCENTIVE/NON-STATUTORY] STOCK OPTION AGREEMENT (this "Agreement") is made and entered into effective as of the date set forth above (the "Commencement Date") by and between Overland Data, Inc., a California corporation (the "Company"), and the above-named Employee/Consultant of the Company ("Optionee").
RECITALS
The Company's Board of Directors has approved the grant to Optionee of an option to purchase shares of the Company's Common Stock, no par value per share ("Stock"), under the Company's 1997 Executive Stock Option Plan, as amended, attached hereto as EXHIBIT A (the "Plan"), in the belief that the interests of the Company and Optionee will be advanced by encouraging and enabling Optionee to acquire an ownership interest in the Company. Terms not defined herein shall have the meanings ascribed to such terms in the Plan. This Option is intended by the Company and Optionee to be [an incentive stock option, qualifying for special tax benefits to Optionee/a nonstatutory stock option, and does not qualify for any special tax benefits to Optionee This Option is not an incentive stock option].
NOW THEREFORE, in consideration of the mutual premises herein set forth, it is agreed:
1. GRANT OF OPTION; NUMBER OF OPTION SHARES; EXERCISE PRICE. The Company hereby grants to Optionee an option (the "Option") to purchase, on the terms and conditions herein set forth, all or any part of the number of shares of Stock ("Option Shares"), at the purchase price per share (the "Exercise Price") set forth below:
AGGREGATE EXERCISE
NUMBER OF SHARES PRICE PER SHARE
---------------- ---------------
$
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2. TERM OF OPTION. The Option shall be extended for 120 months (in no
event more than 120 months) from the Commencement Date of this Agreement, except
as and to the extent that the term of the Option may be reduced as provided in
Section 4 hereof. Notice of expiration shall not be the responsibility of the
Company.
3. EXERCISE OF OPTION. Optionee shall have the right to exercise the Option in the amounts set forth in SCHEDULE 1 attached hereto. The rights to exercise the Option, as specified in SCHEDULE 1, shall be cumulative. Optionee may buy all, or from time to time any part, of the maximum number of Option Shares which are subject to an exercisable option, but in no case may Optionee exercise the Option in regard to any fraction of an Option Share. In no event shall the Option or any portion thereof be exercisable beyond the 120-month term stated in Section 2 hereof. The Option granted hereby shall be exercisable by delivery to the Company of a duly executed Notice of Exercise and Stock Purchase Agreement in the form attached to this Agreement as EXHIBIT B (the "Stock Purchase Agreement"), specifying the number of Option Shares in regard to which the Option is being exercised and accompanying such notice with payment of the full purchase price therefor in the manner permitted under the Plan. The Stock Purchase Agreement and exercise price shall be delivered in person or by certified mail to the Secretary of the Company, and the Option shall be deemed to be exercised on receipt of the same.
In the event of a CHANGE IN CONTROL (as defined below), each Option which is at the time outstanding under this Agreement automatically shall become fully vested and exercisable and be released from any restrictions on transfer (other than transfer restrictions applicable to Options) and repurchase or forfeiture rights, immediately prior to the specified effective date of such Change in Control, for all of the Option Shares at the time represented by such Option. Effective upon the consummation of such Change in Control, all outstanding Options under this Agreement shall terminate. However, all such Options shall not terminate if the Options are, in connection with such Change in Control, assumed by the successor corporation or its parent corporation thereof.
As used in this subsection, "CHANGE IN CONTROL" means any of the following transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company (including the capital stock of the Company's subsidiary corporations);
(iii) approval by the Company's shareholders of any plan or proposal for the complete liquidation or dissolution of the Company;
(iv) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger; or
(v) acquisition by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's outstanding securities, but excluding any such transaction that the Committee determines shall not be a Change in Control.
4. RIGHTS, RESTRICTIONS AND LIMITATIONS. The Option may not be transferred or assigned in any manner other than by will or by the laws of descent or distribution. The Option may only be exercised (i) after the Plan has been approved by the shareholders of the Company and (ii) if the issuance of such Option Shares upon such exercise or the method of payment of consideration for such Option Shares would not constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Regulation G or any requirements of any stock exchange on which the Stock may then be listed. Furthermore, the exercise of the Option is subject to Section 6 of the Plan which contains certain provisions restricting exercisability upon the occurrence of certain events (including, without limitation, termination of Service with the Company, death, leave of absence and Permanent and Total Disability). Notwithstanding the provisions of Section 6(g)(2) of the Plan, should the termination of Optionee's Service occur during a "trading blackout period" as outlined in the Company's Insider Trading Policy, any vested and outstanding Option which Optionee may hold at that time will expire on the date which is thirty (30) days after the trading blackout then in effect has ended.
5. RESTRICTIONS UNDER STATE LAW. All Option Shares covered by this Agreement are subject to any restrictions which may be imposed under applicable state securities laws and are subject to obtaining all necessary consents which may be required by, or any condition which may be imposed in accordance with, applicable state securities laws or regulations. As a condition to the exercise of the Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation.
6. CAPITAL ADJUSTMENTS. The Exercise Price, number of Option Shares and the number of shares subject to any applicable restrictions and rights of the Company imposed by the Committee, if any, shall be appropriately adjusted for any increase or decrease in the number of shares of Stock which the Company has issued and outstanding resulting from certain transactions as set forth in Section 8 of the Plan, including, without limitation, any subdivision of outstanding Stock, any declaration of a dividend (whether payable in Stock or a form other than Stock), any combination or consolidation of outstanding Stock or any reclassification, recapitalization, spinoff or similar occurrence.
7. INCORPORATION OF STOCK OPTION PLAN. The Option granted hereby is granted pursuant to the Plan. In the event of any inconsistency between the terms and conditions contained herein and those set forth in the Plan, the terms and conditions of the Plan, all of which are hereby incorporated by reference, shall prevail.
[8. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE STOCK OPTION. Because
the Option is an ISO as specified in the Plan, the following terms and conditions shall also apply to the grant:
(a) DISQUALIFICATION. The Option shall cease to qualify for favorable tax treatment as an ISO under the federal tax laws if (and to the extent) the Option is exercised for
one or more Option Shares: (i) more than three months after the date when the Optionee ceases to be an Employee for any reason other than death or Total and Permanent Disability or (ii) more than one year after the date when the Optionee ceases to be an Employee, by reason of death or Total and Permanent Disability.
(b) LIMITS ON EXERCISABILITY. In the event the Option is immediately exercisable as specified in this Agreement, the Option shall not become exercisable in the calendar year in which granted if (and to the extent) the aggregate Fair Market Value (determined at the date of the grant) of the Option Shares for which the Option would otherwise first become exercisable in such calendar year would, when added to the aggregate Fair Market Value (determined as of the respective date or dates of grant) of the capital stock for which the Option or one or more other ISOs granted to Optionee prior to the date of the grant (whether under the Plan or any other option plan of the Company or a Subsidiary) first becomes exercisable during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate. To the extent the exercisability of the Option is deferred by reason of the foregoing limitation, the deferred portion will first become exercisable in the first calendar year or years thereafter in which the One Hundred Thousand Dollar ($100,000) limitation of this Section 8(b) would not be contravened. To the extent such dollar limitation is exceeded in any one calendar year, the Option shall nevertheless be exercisable for the excess number of Option Shares as a Nonstatutory Option.
(c) INSTALLMENTS. In the event that the Option is exercisable in installments as specified in this Agreement, no installment under the Option (whether annual or monthly) shall qualify for favorable tax treatment as an ISO under the federal tax laws if (and to the extent) the aggregate Fair Market Value (determined at the date of the grant of the Option Shares for which such installment first becomes exercisable under this Agreement) will, when added to the aggregate Fair Market Value (determined as of the respective date or dates of grant) of the capital stock for which one or more other ISOs granted to Optionee prior to the date of the grant (whether under the Plan or any other option plan of the Company or any Subsidiary) first become exercisable during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate.
(d) FAILURE TO QUALIFY. To the extent the Option should fail to qualify as an ISO under the federal tax laws, Optionee will recognize compensation income in connection with the acquisition of one or more Option Shares upon exercise of the Option, and Optionee must make appropriate arrangements for the satisfaction of all federal, state or local income tax withholding requirements and federal social security employee tax requirements applicable to such compensation income.
8. ADDITIONAL TERMS APPLICABLE TO NON-STATUTORY STOCK OPTION. Optionee will be required to make appropriate arrangements with the Company (or a Subsidiary, if applicable) for the satisfaction of all federal, state or local income tax withholding requirements and federal social security employee tax requirements applicable to the exercise of this Option.]
9. MISCELLANEOUS. This Agreement (together with the Plan) contains the entire agreement between the parties with respect to its subject matter. Optionee is an Employee or
Consultant and this Agreement in no way implies a guaranty of Optionee's continued association with the Company. This Agreement shall be binding upon and shall inure to the benefit of the respective parties, the successors and assigns of the Company, and the heirs, legatees and personal representatives of Optionee. This Agreement may not be modified, amended or waived except by a written instrument signed by the party against whom enforcement of any such modification, amendment or waiver is sought.
10. GOVERNING LAW. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of California without reference to such state's principles of conflict of laws.
IN WITNESS WHEREOF, this Agreement is entered into and effective as of the date first set forth above.
COMPANY:
Overland Data, Inc.,
a California corporation
VESTING OF OPTION SHARES PURSUANT TO SECTION 3 OF THIS AGREEMENT IS EARNED ONLY BY CONTINUING AS AN EMPLOYEE OR AS A CONSULTANT OF THE COMPANY AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING ENGAGED, BEING GRANTED THE OPTION OR ACQUIRING OPTION SHARES HEREUNDER).
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED UNDER IT AND THE VESTING SCHEDULE SET FORTH IN THIS AGREEMENT DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL.
Optionee acknowledges receipt of a copy of the Plan, which is attached to this Agreement, and represents that Optionee is familiar with the terms and provisions of this Agreement, and hereby accepts the Option subject to all of the terms and provisions of this Agreement. Optionee has reviewed the Plan, this Agreement and the Stock Purchase Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement, fully understands all provisions of the Option and the Stock Purchase Agreement, and specifically acknowledges that the vesting of Option Shares under this Agreement is earned only by continuing as an Employee or as a Consultant at the will of the Company (and not through the act of being hired, being granted the Option or acquiring shares pursuant to the Option). Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board or the Committee, if one has been appointed by the Board, upon any questions arising under the Plan.
OPTIONEE:
EXHIBIT A
FIRST AMENDMENT
TO
1997 EXECUTIVE STOCK OPTION PLAN
OF
OVERLAND DATA, INC.
SCHEDULE 1
Vesting Schedule
Except as otherwise provided in the Plan, the Option may be exercised with respect to the following vesting schedule:
EXHIBIT B
NOTICE OF EXERCISE AND STOCK PURCHASE AGREEMENT
EXHIBIT 10.23
OVERLAND DATA, INC.
[INCENTIVE/NON-STATUTORY] STOCK OPTION AGREEMENT
1995 Stock Option Plan
NAME:
DATE OF GRANT:
THIS INCENTIVE STOCK OPTION AGREEMENT (this "Agreement") is made and entered into effective as of the date set forth above (the "Commencement Date") by and between Overland Data, Inc., a California corporation (the "Company"), and the above-named Employee/Consultant of the Company ("Optionee").
RECITALS
The Company's Board of Directors has approved the grant to Optionee of an option to purchase shares of the Company's Common Stock, no par value per share ("Stock"), under the Company's 1995 Stock Option Plan, as amended, attached hereto as EXHIBIT A (the "Plan"), in the belief that the interests of the Company and Optionee will be advanced by encouraging and enabling Optionee to acquire an ownership interest in the Company. Terms not defined herein shall have the meanings ascribed to such terms in the Plan. This Option is intended by the Company and Optionee to be [an incentive stock option, qualifying for special tax benefits to Optionee/a nonstatutory stock option, and does not qualify for any special tax benefits to Optionee. This Option is not an incentive stock option].
NOW THEREFORE, in consideration of the mutual premises herein set forth, it is agreed:
1. GRANT OF OPTION; NUMBER OF OPTION SHARES; EXERCISE PRICE. The Company hereby grants to Optionee an option (the "Option") to purchase, on the terms and conditions herein set forth, all or any part of the number of shares of Stock ("Option Shares"), at the purchase price per share (the "Exercise Price") set forth below:
AGGREGATE EXERCISE
NUMBER OF OPTION SHARES PRICE PER SHARE
----------------------- ---------------
|
2. TERM OF OPTION. The Option shall be extended for 120 months (in no event more than 120 months) from the Commencement Date of this Agreement, except as and to the extent that the term of the Option may be reduced as provided in Section 4 hereof. Notice of expiration shall not be the responsibility of the Company.
3. EXERCISE OF OPTION. Optionee shall have the right to exercise the
Option in the amounts set forth in SCHEDULE 1 attached hereto. The rights to
exercise the Option, as specified in SCHEDULE 1, shall be cumulative.
Optionee may buy all, or from time to time any part, of the maximum number of
Option Shares which are subject to an exercisable option, but in no case may
Optionee exercise the Option in regard to any fraction of an Option Share. In
no event shall the Option or any portion thereof be exercisable beyond the
120 -month term stated in Section 2 hereof. The Option granted hereby shall
be exercisable by delivery to the Company of a duly executed Notice of
Exercise and Stock Purchase Agreement in the form attached to this Agreement
as EXHIBIT B (the "Stock Purchase Agreement"), specifying the number of
Option Shares in regard to which the Option is being exercised and
accompanying such notice with payment of the full purchase price therefor in
the manner permitted under the Plan. The Stock Purchase Agreement and
exercise price shall be delivered in person or by certified mail to the
Secretary of the Company, and the Option shall be deemed to be exercised on
receipt of the same.
In the event of a CHANGE IN CONTROL (as defined below), each Option which is at the time outstanding under this Agreement automatically shall become fully vested and exercisable and be released from any restrictions on transfer (other than transfer restrictions applicable to Options) and repurchase or forfeiture rights, immediately prior to the specified effective date of such Change in Control, for all of the Option Shares at the time represented by such Option. Effective upon the consummation of such Change in Control, all outstanding Options under this Agreement shall terminate. However, all such Options shall not terminate if the Options are, in connection with such Change in Control, assumed by the successor corporation or its parent corporation thereof.
As used in this subsection, "CHANGE IN CONTROL" means any of the following transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company (including the capital stock of the Company's subsidiary corporations);
(iii) approval by the Company's shareholders of any plan or proposal for the complete liquidation or dissolution of the Company;
(iv) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger; or
(v) acquisition by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's outstanding securities, but excluding any such transaction that the Committee determines shall not be a Change in Control.
4. RIGHTS, RESTRICTIONS AND LIMITATIONS. The Option may not be transferred or assigned in any manner other than by will or by the laws of descent or distribution. The Option may only be exercised (i) after the Plan has been approved by the shareholders of the Company and (ii) if the issuance of such Option Shares upon such exercise or the method of payment of consideration for such Option Shares would not constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Regulation G or any requirements of any stock exchange on which the Stock may then be listed. Furthermore, the exercise of the Option is subject to Section 6 of the Plan which contains certain provisions restricting exercisability upon the occurrence of certain events (including, without limitation, termination of Service with the Company, death, leave of absence and Permanent and Total Disability). Notwithstanding the provisions of Section 6(g)(2) of the Plan, should the termination of Optionee's Service occur during a "trading blackout period" as outlined in the Company's Insider Trading Policy, any vested and outstanding Option which Optionee may hold at that time will expire on the date which is thirty (30) days after the trading blackout then in effect has ended.
5. RESTRICTIONS UNDER STATE LAW. All Option Shares covered by this Agreement are subject to any restrictions which may be imposed under applicable state securities laws and are subject to obtaining all necessary consents which may be required by, or any condition which may be imposed in accordance with, applicable state securities laws or regulations. As a condition to the exercise of the Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation.
6. CAPITAL ADJUSTMENTS. The Exercise Price, number of Option Shares and the number of Option Shares subject to any applicable restrictions and rights of the Company imposed by the Committee, if any, shall be appropriately adjusted for any increase or decrease in the number of shares of Stock which the Company has issued and outstanding resulting from certain transactions as set forth in Section 8 of the Plan, including, without limitation, any subdivision of outstanding Stock, any declaration of a dividend (whether payable in Stock or a form other than Stock), any combination or consolidation of outstanding Stock or any reclassification, recapitalization, spin-off or similar occurrence.
7. INCORPORATION OF STOCK OPTION PLAN. The Option granted hereby is granted pursuant to the Plan. In the event of any inconsistency between the terms and conditions contained herein and those set forth in the Plan, the terms and conditions of the Plan, all of which are hereby incorporated by reference, shall prevail.
[8. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE STOCK OPTION. Because
the Option is an ISO as specified in the Plan, the following terms and conditions shall also apply to the grant:
(a) DISQUALIFICATION. The Option shall cease to qualify for favorable tax treatment as an ISO under the federal tax laws if (and to the extent) the Option is exercised for
one or more Option Shares: (i) more than three months after the date when Optionee ceases to be an Employee for any reason other than death or Total and Permanent Disability or (ii) more than one year after the date when Optionee ceases to be an Employee, by reason of death or Total and Permanent Disability.
(b) LIMITS ON EXERCISABILITY. In the event the Option is immediately exercisable as specified in this Agreement, the Option shall not become exercisable in the calendar year in which granted if (and to the extent) the aggregate Fair Market Value (determined at the date of the grant) of the Option Shares for which the Option would otherwise first become exercisable in such calendar year would, when added to the aggregate Fair Market Value (determined as of the respective date or dates of grant) of the capital stock for which the Option or one or more other ISOs granted to Optionee prior to the date of the grant (whether under the Plan or any other option plan of the Company or a Subsidiary) first becomes exercisable during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate. To the extent the exercisability of the Option is deferred by reason of the foregoing limitation, the deferred portion will first become exercisable in the first calendar year or years thereafter in which the One Hundred Thousand Dollar ($100,000) limitation of this Section 8(b) would not be contravened. To the extent such dollar limitation is exceeded in any one calendar year, the Option shall nevertheless be exercisable for the excess number of Option Shares as a Nonstatutory Option.
(c) INSTALLMENTS. In the event that the Option is exercisable in installments as specified in this Agreement, no installment under the Option (whether annual or monthly) shall qualify for favorable tax treatment as an ISO under the federal tax laws if (and to the extent) the aggregate Fair Market Value (determined at the date of the grant of the Option Shares for which such installment first becomes exercisable under this Agreement) will, when added to the aggregate Fair Market Value (determined as of the respective date or dates of grant) of the capital stock for which one or more other ISOs granted to Optionee prior to the date of the grant (whether under the Plan or any other option plan of the Company or any Subsidiary) first become exercisable during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate.
(d) FAILURE TO QUALIFY. To the extent the Option should fail to qualify as an ISO under the federal tax laws, Optionee will recognize compensation income in connection with the acquisition of one or more Option Shares upon exercise of the Option, and Optionee must make appropriate arrangements for the satisfaction of all federal, state or local income tax withholding requirements and federal social security employee tax requirements applicable to such compensation income.
8. ADDITIONAL TERMS APPLICABLE TO A NON-STATUTORY STOCK OPTION. Optionee will be required to make appropriate arrangements with the Company (or a Subsidiary, if applicable) for the satisfaction of all federal, state or local income tax withholding requirements and federal social security employee tax requirements applicable to the exercise of this Option.]
9. MISCELLANEOUS. This Agreement (together with the Plan) contains the entire agreement between the parties with respect to its subject matter. Optionee is an Employee or
Consultant and this Agreement in no way implies a guaranty of Optionee's continued association with the Company. This Agreement shall be binding upon and shall inure to the benefit of the respective parties, the successors and assigns of the Company, and the heirs, legatees and personal representatives of Optionee. This Agreement may not be modified, amended or waived except by a written instrument signed by the party against whom enforcement of any such modification, amendment or waiver is sought.
10. GOVERNING LAW. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of California without reference to such state's principles of conflict of laws.
IN WITNESS WHEREOF, this Agreement is entered into and effective as of the date first set forth above.
COMPANY:
Overland Data, Inc.,
a California corporation
VESTING OF OPTION SHARES PURSUANT TO SECTION 3 OF THIS AGREEMENT IS EARNED ONLY BY CONTINUING AS AN EMPLOYEE OR AS A CONSULTANT OF THE COMPANY AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING ENGAGED, BEING GRANTED THE OPTION OR ACQUIRING OPTION SHARES HEREUNDER).
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED UNDER IT AND THE VESTING SCHEDULE SET FORTH IN THIS AGREEMENT DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL.
Optionee acknowledges receipt of a copy of the Plan, which is attached to this Agreement, and represents that Optionee is familiar with the terms and provisions of this Agreement, and hereby accepts the Option subject to all of the terms and provisions of this Agreement. Optionee has reviewed the Plan, this Agreement and the Stock Purchase Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement, fully understands all provisions of the Option and the Stock Purchase Agreement, and specifically acknowledges that the vesting of Option Shares under this Agreement is earned only by continuing as an Employee or as a Consultant at the will of the Company (and not through the act of being hired, being granted the Option or acquiring Option Shares pursuant to the Option). Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board or the Committee, if one has been appointed by the Board, upon any questions arising under the Plan.
OPTIONEE:
EXHIBIT A
SECOND AMENDMENT
TO
THE 1995 STOCK OPTION PLAN
OF
OVERLAND DATA, INC.
SCHEDULE 1
Vesting Schedule
Except as otherwise provided in the Plan, the Option may be exercised with respect to the following vesting schedule:
EXHIBIT B
NOTICE OF EXERCISE AND STOCK PURCHASE AGREEMENT
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
NAME OF SUBSIDIARY PLACE OF INCORPORATION ------------------ ---------------------- Overland Data (Europe) Ltd. United Kingdom Overland Data Export Limited Barbados Overland Data SARL France Overland Data GmbH Germany Tecmar, Inc. Delaware |
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-22217, No. 333-41754 and No. 333-53380) of Overland Data, Inc. of our report dated August 7, 2001 relating to the financial statements and financial statement schedule, which appear in this Form 10-K.
/s/ PricewaterhouseCoopers LLP ------------------------------- PRICEWATERHOUSECOOPERS LLP San Diego, California September 28, 2001 |