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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

Portions of the registrant's definitive proxy statement for the 2002 Annual Meeting are incorporated by reference into Part III of this report. The registrant's definitive proxy statement will be filed with the SEC on or before April 28, 2002.

In addition to the historical information contained in this document, this report contains forward-looking statements that involve future risks and uncertainties. We may achieve different results than those anticipated in these forward-looking statements. The actual results that we achieve may differ materially from any forward-looking statements due to such risks and uncertainties. Words such as "believes," "anticipates," "expects," "intends," "plans" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this report. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section below entitled "Risk Factors."

 Historical financial information in this report includes the historical operations of Ecrix Corporation

As discussed below, in November 2001, we completed a business combination with Ecrix Corporation. Prior to that transaction, Exabyte and Ecrix were independent companies. Because the transaction resulted in Ecrix becoming a wholly-owned subsidiary of Exabyte, Ecrix's financial results for the period from November 9, 2001 to December 29, 2001 are included in Exabyte's consolidated financial statements and results of operations for fiscal year 2001.

Exabyte Corporation designs, manufactures and markets a range of VXA®, 8mm and MammothTape™ tape drives and automated tape libraries as well as DLTtape™, LTO™ (Ultrium™) and Advanced Intelligent Tape™ (AIT™) automated tape libraries. We also provide our own brand of recording media and provide worldwide service and customer support to our customers and end users. We were incorporated in June 1985 under the laws of the State of Delaware.

We focus on the information storage and retrieval tape drive and library market for workstations, midrange computer systems and networks, primarily for data backup and archival applications. Computer manufacturers and resellers require a variety of storage products which vary in price, performance, capacity and form-factor characteristics as their needs for data backup and archival storage increase. Additionally, end users require reliable data backup and archival applications. Our strategy is to offer a number of products to address a broad range of these requirements.

On August 22, 2001 we entered into an Agreement and Plan of Merger with Ecrix Corporation ("Ecrix"), Bronco Acquisition, Inc. (our wholly owned subsidiary formed for the purpose of completing this transaction), certain lenders and certain investors. On November 9, 2001, our stockholders approved this acquisition and we closed the business combination. At the closing of the transaction, Ecrix became a wholly-owned subsidiary of Exabyte and the combined companies have been doing business as Exabyte Corporation since that date. Under this agreement, we issued 10,000,000 shares of our common stock in exchange for all of the outstanding common and preferred shares of Ecrix. In addition, as part of the acquisition, certain Ecrix stockholders purchased 9,650,000 shares of our Series H preferred stock.

Ecrix Corporation was founded in April 1996 in Boulder, Colorado to commercialize a new family of high-capacity, high-performance data storage tape drive products. It began shipping products in May 1999, with general availability in September 1999. Ecrix's tape storage products are based on a technology called VXA® which incorporates variable speed, overscanning technology and discrete packet format. This VXA® architecture incorporates new, patentable technologies that result in improvements in tape drive reliability and cost-effectiveness.

There were several important changes in our business during fiscal year 2001. Many of them previously have been disclosed in the reports we file from time to time with the SEC on Forms 10-Q and 8-K. However, following is a discussion of certain important events that happened during the fourth quarter of 2001. Additional information about these and other 2001 events may also be found in our prior filings as well as included elsewhere in this report on Form 10-K.

On November 9, 2001, Exabyte and Ecrix completed a previously announced business combination (the "Acquisition"). The Acquisition was effected pursuant to the terms of an Agreement and Plan of Merger, dated as of August 22, 2001, among Exabyte, Ecrix, Bronco Acquisition, Inc., a wholly-owned subsidiary of Exabyte, certain lenders and certain investors named therein (the "Acquisition Agreement"). At the closing of the Acquisition, Bronco Acquisition, Inc. was merged into Ecrix, as a result of which Ecrix became a wholly-owned subsidiary of Exabyte. All of the shares of Ecrix capital stock outstanding at the effective time of the Acquisition were cancelled and, in exchange, former holders of Ecrix capital stock became entitled to receive 10 million shares of Exabyte common stock. The issuance of the 10 million shares of Exabyte Common Stock pursuant to the Acquisition was registered on a Form S-4 (SEC File No. 333-69808), which was declared effective by the U.S. Securities and Exchange Commis sion on October 10, 2001. Exabyte's stockholders also approved the issuance of these shares in the Acquisition, among other things, at a special meeting held on November 9, 2001. The Acquisition was completed on November 9, 2001 immediately after the special meeting.

In connection with the Acquisition, Exabyte also issued 9,650,000 shares of its Series H Convertible Preferred Stock to certain former investors in Ecrix. These shares were issued in a separate transaction, although the obligation to issue the shares was subject to the closing of the Acquisition. The shares were issued in a private placement exempt from registration under the Securities Act of 1933, as amended, pursuant to Regulation D promulgated thereunder. Holders of Exabyte Series H Preferred Stock have the right to cause Exabyte, at its cost, to file a registration statement with the SEC covering the resale of all shares of Exabyte Common Stock held by them, including shares underlying their preferred stock. A copy of the registration rights agreement relating to these rights has been filed as an exhibit to this report.

As a result of these transactions, in November, 2001, Meritage Investment Partners LLC became a beneficial owner of approximately 22% of our common stock. Other former stockholders of Ecrix also became significant stockholders of Exabyte.

Immediately following the Acquisition, the size of Exabyte's Board of Directors was increased to seven members and two of Exabyte's directors resigned, as required by the terms of the Acquisition Agreement. Three persons designated by Ecrix were then appointed to fill these vacancies on Exabyte's Board. In January 2002, Mr. William L. Marriner resigned as President, Chief Executive Officer and Chairman of the Board and a director of Exabyte. The Board appointed Mr. Juan A. Rodriguez as interim President and Chief Executive Officer and Mr. A. Laurence Jones as non-executive Chairman of the Board while a search for a new CEO is underway.

In January 2002, we also announced a corporate restructuring that will result in closure of our service and final assembly facility in Scotland and service depots in Australia and Canada, as well as a reduction in our domestic workforce of approximately 200 persons worldwide (including regular full-time employees and temporary or contract workers). Approximately 70 positions were eliminated in February 2002. We expect the remaining reductions, including the reductions resulting from the shutdown of our overseas operations, to occur by the end of the second quarter of 2002.

We market our products exclusively through resellers and original equipment manufacturer ("OEM") partners around the world. Additionally, our VXA® retail customers can purchase our VXA® media directly through a Buy Direct program located on our website. Our products address the need for reliable, high-performance and affordable data storage in the fastest growing segments of the computer industry - Windows NT, UNIX, MacOS and Linux application and database servers, workstations and computer networks.

We concentrate on the midrange application and database server market, manufacturing tape backup and network storage solutions for small, medium and large businesses. We provide cost-effective solutions incorporating a range of technologies, including VXA®, MammothTape™, LTO™ Ultrium™, 8mm, DLTtape™ and AIT™.

Throughout the past decade, our products have found widespread use in attended and unattended network backup, automated storage management, near-online storage, archiving, data collection, software distribution and interchange.

We cannot assure that any of the current or announced products or services listed below will be successfully developed, made commercially available on a timely basis or achieve market acceptance. We encounter a number of risks in producing and selling our products and services. See Risk Factor sections 4.5, 4.9 - 4.12, 4.15 - 4.17, 4.19, 4.21 - 4.24 below.

We originally focused our business on producing tape drives to back up or archive computer data. Our original tape drives were modified versions of the video camcorder mechanisms produced by Sony Corporation. We produced the electronics that allowed these devices to store data rather than video pictures. Our manufacturing process was simple. We would install our electronic boards into the modified consumer tape decks and test the product. We succeeded because we modified and enhanced a mass-produced video deck and engaged in little manufacturing. We succeeded because we had a superior technology compared to our competition. Ease of manufacturing allowed us to be cost effective and realize profits. In turn, this allowed us to produce a lower-cost product with ten times more data capacity than any other data storage technology available at that time.

Following the acquisition of Ecrix in November 2001, we added VXA® technology to our existing MammothTape™ line of products. Following is a discussion on the two types of technologies that we currently produce.

We believe that the VXA® design is a low cost, competitive alternative to competing products when compared on the basis of performance, functionality and reliability. The features incorporated in our VXA® technology position it in the DDS (DAT) replacement market. Former DDS (DAT) drive manufacturers have announced that they will not develop future DDS (DAT) products. With DDS technology at the end of its product lifecycle, we believe an opportunity exists for our VXA® technology to replace DDS technology. See Risk Factor sections 4.3 and 4.11 below.

Our VXA® technology is best understood by contrasting VXA® technology with other existing tape drive technology. The technology used in other tape drives (including our own MammothTape™ tape drives) incorporates a technique known as "streaming." In streaming drives, data is recorded on tape in "tracks" which must be read from end-to-end in a single pass of a read head. Tape passes over a read head and the read head reads data from the tape. Streaming tape technologies require track-following to maintain proper head-to-track alignment while the tape track is read in its entirety at a fixed tape speed. The drive mechanism and media tolerances must be tightly controlled to maintain a precise alignment between the path of the head and the data tracks written on the tape or data errors can result.

While streaming tape drives are designed to operate efficiently at a constant tape speed and data transfer rate, the host system may not send or receive at the specific fixed rate the tape drive expects. This is because data is transmitted in "bursts," resulting in fluctuating transfer rates. Whenever the flow of data is interrupted, the drive stops the tape, backs up, accelerates to the appropriate speed, and then continues the data transfer in the same orientation as before. This process is known as "backhitching."

VXA® incorporates three innovations in tape drive data storage: Discrete Packet Format™, Variable Speed Operation ™and OverScan™ operation.

Discrete Packet Format™. Discrete Packet Format™ organizes each track of the VXA® tape into small digital data packets. Rather than read a track from end-to-end in one pass, Discrete Packet Format™ allows each packet to be read independently and at different times and reassembled later in a data buffer. This data arrangement allows tapes to be read backwards as well as forwards.

Variable Speed Operation™. Variable Speed Operation™ is a real-time speed adjustment to match the tape drive speed to the host computer's data throughput, eliminating backhitching and associated delays and wear on media caused by data-rate-matching problems. Variable Speed Operation™ optimizes backup and restore times without compromising data integrity or tape drive reliability.

OverScan™ operation. OverScan™ operation eliminates the drive's dependence on critical alignment geometry between the tape path and the recording head. The area scanned by the heads is greater than the recorded area ensuring that all data packets are read at least once even when the track is not aligned or distorted. This results in a reduction in the number of errors during data retrieval and interchange. OverScan™ operation also makes the drive and alignment systems simpler and easier to manufacture.

In the early 1990's, we determined that our market required a more rugged deck mechanism that was designed for heavy commercial use rather than occasional consumer use. As a result, we began designing our own tape deck mechanism, anticipating that we would manufacture the mechanism itself. We offered this drive (called Mammoth) for sale in 1995. We invested heavily in designing, developing and manufacturing the drives. This investment included acquiring our German subsidiary, Exabyte Magnetics GmbH ("EMG") to supply a key component of our product. During this time we became much more vertically integrated and developed a more expensive infrastructure.

During this research and development stage, our business was adversely impacted by two factors: Quantum Corporation's competitive technological developments and a late introduction of our Mammoth tape drive. Quantum introduced a competitive tape drive using different tape technology, referred to as DLT. The DLT tape drive provided data capacities and data transfer rates that exceeded those of its original tape drive products. We also introduced our Mammoth tape drive in late 1995, over a year later than its anticipated introduction. At the time of introduction, Mammoth was only marginally competitive against the DLT products. As a result, we lost a significant amount of market share and felt significant pricing pressure at the same time as we funded our manufacturing and other infrastructures. This combination of decreasing revenues and increasing fixed costs resulted in significant operating losses.

Despite the competitive factors faced by our original Mammoth tape drive, we continued in the tape drive business believing that our Mammoth technology represented an entire platform of products, called MammothTape™, rather than a single product. We began developing the first follow-on product for the MammothTape™ platform. This product, known as M2™, was introduced in late 1999. See Risk Factor sections 4.8 and 4.9 below.

In an effort to reduce our fixed operating costs we have engaged third party partners to assist us in designing, developing and manufacturing some of our products. The most significant partner is Hitachi Digital Media Products Division of Hitachi, Ltd. Our history with Hitachi goes back many years. They have supplied us with the drive mechanism for our Eliant™820 tape drive since 1996. More recently we engaged Hitachi to jointly develop our M3™ tape drive, the follow-on product to our M2™ tape drive. However, in light of the VXA® technology we acquired as a result of the business combination with Ecrix, we are redirecting much of this development effort towards developing a tape drive platform that integrates our VXA® and MammothTape™ technologies. See "Future Tape Drive Products" below.

Hitachi is also beginning to manufacture our current M2™ and VXA®-1 tape drives and some of the components, such as the scanner mechanism for our M2™ drive. Previously, EMG exclusively produced the scanner for us, but we have phased out that operation because of Hitachi's new scanner supplier role, and anticipate completing the shutdown of the EMG facility in the third quarter of 2002. We further expect that Hitachi will jointly develop and manufacture most, if not all, of our future tape drive products. There are many risks associated with outsourcing the development and manufacture of products or product components. Many of these risks are highlighted in the Risk Factor sections 4.4 - 4.7, 4.16, 4.17 and 4.25 below.

The primary factors distinguishing our tape drive products from one another are data capacity and transfer rate. Data capacity refers to the total amount of data that can be stored on a single media cartridge. Transfer rate refers to the speed at which data may be transferred to or from the tape drive.

Our tape drives offer data capacities ranging from 12GB to 150GB and transfer rates ranging from 2MB per second to 30MB per second (assuming data compression ratios as stated below).

Sales of tape drive products, including end-of-life drives, represented the following percentages of net revenue:

The following table sets forth specific information about each of our tape drives:

*Data capacities and transfer rates for the VXA®-1, Mammoth, Mammoth-LT and EliantÔ 820 tape drives assume a compression ratio of two-to-one, while M2Ô assumes a compression ratio of two-and-a-half-to-one. Actual compression will vary depending on the nature of the data and the drive and media quality.

VXA®-2

We plan to introduce our second generation VXA® product, the VXA®-2, in the first half of 2002. We anticipate that the VXA®-2 will deliver 160 GB of compressed capacity (80 GB uncompressed) and a transfer rate of 12 MB/s (6 MB/s uncompressed).

We expect the third generation VXA® product, VXA®-3, will offer 320 GB of compressed capacity (160 GB uncompressed) at 16 MB/s compressed (8 MB/s uncompressed). The VXA®-3 is currently scheduled for introduction approximately 18 to 24 months after VXA®-2.

We are currently reevaluating our MammothTape roadmap, including our M3™ tape drive development. At this time we currently anticipate developing a tape drive platform that integrates the VXA® and MammothTape™ technologies, but will maintain backward read compatibility with both technologies. This will allow us to introduce a new tape drive platform which ensures the longevity of our VXA® and MammothTape™ technologies and provides our customers with a continuous roadmap for their investment in our technologies. As such, we are discussing alternatives with Hitachi regarding the development of this new tape drive technology. See Risk Factor sections 4.3 and 4.7 below.

We cannot assure that these or any other announced product or unannounced product in development will be successfully developed, if at all, made commercially available on a timely basis or achieve market acceptance. See Risk Factor sections 4,3, 4.9, 4.11, 4.15 and 4.19 below.

We design, develop, manufacture, sell and support automated tape drive libraries. These libraries incorporate one or more tape drives and multiple media cartridges to provide much higher data capacities than using a single drive and, with more than one drive, higher data transfer rates. For example, we offer one library that holds up to ten of our tape drives and two hundred media cartridges, which offers a compressed transfer rate of 1 terabyte per hour and a compressed data capacity of 30 terabytes.

We began the Exabyte library business in the early 1990's when we introduced library products incorporating our own tape drives. We later produced libraries incorporating competitors' tape drives, primarily Quantum's DLT tape drives. We now offer library products also incorporating VXA®, DLTtape™, LTO™ (Ultrium™) and AIT™ tape drives. See Risk Factor section 4.3 below.

We believe that one of our competitive advantages lies with the physical dimensions of our tape drives and media cartridges. They are smaller than some of our competitors' drives. This smaller size means we can place more drives and media cartridges in the same library size. For example, the same library described above which holds ten of our drives and two hundred media cartridges is also offered in a DLTtape™ version, which holds only six DLTtape™ drives and ninety media cartridges.

We are engaging a third party manufacturer, Shinei International ("Shinei"), to manufacture part or all of our library products, including our EZ17, 215 and 430 series libraries. There are risks associated with outsourcing the development and manufacture of products or components. See Risk Factor sections 4.5, 4.6, 4.17 and 4.25 below.

We engineer our libraries to work with multiple tape drive technologies. This flexibility allows us to quickly address changing market conditions and respond to requests from our customers for automation solutions involving different tape technologies. The current Exabyte library family includes VXA®, MammothTape™, DLTtape™, LTO™ Ultrium™ and AIT™ technologies.

We design our libraries to be scalable, allowing us to develop different sized libraries based on the same model, with room inside each box for expansion. This capability enables our designs to accommodate increases in customers' data storage needs and allows our end users to protect their library investment.

We engineer our library products to satisfy the reliability, service-ability and management requirements of storage networking. They combine the reliability of our robotics with features such as optional Ethernet ports, hot-pluggable tape drive carriers designed to be serviced during library operation, optional bar code scanners and removable magazines.

Sales of library products, including end-of-life, represented the following percentages of net revenues:

The following table sets forth specific information about our automated tape library products. Capacity and transfer rates reported assume each library is running at full capacity, as indicated in the column heading, "Full Capacity."

*Data capacities and transfer rates for M2™ assume a compression ratio of two-and-a-half-to-one, and for VXA® assume a compression ratio of two-to-one. Data capacity and transfer rate compression for the other technologies assume compression ratios consistent with those technologies. All data capacities and transfer rates are subject to change.

VXA® AutoPak 110

We plan to introduce the AutoPak 110 in the second quarter of 2002. We anticipate that the AutoPak 110 will offer 660 GB of compressed capacity (330 GB uncompressed) and a compressed transfer rate of 6 MB/s (3 MB/s uncompressed). The AutoPak 110 will hold one VXA®-1 tape drive and up to 10 VXA® media cartridges.

We provide various types of media cartridges, as well as cleaning cartridges and data cartridge holders, for our tape drive products. The high-quality media, produced by multiple third parties, is available in different lengths to handle various data storage requirements.

Sales of media and media related products represented the following percentages of net revenue, excluding sales allowances:

If our media sales decline and are not replaced with additional revenue from our other products or services, our financial results, including our gross margin and revenues, may be adversely affected.

We depend on a continuous supply of Advanced Metal Evaporative ("AME") media in order to grow sales of our current and future MammothTape™ and VXA® drives. There are several risks associated with dependence on this type of media, including having to delay or cancel product shipments if the media is not received on a timely basis or at an acceptable quality level. See Risk Factor sections 4.14 and 4.15 below.

AME media with SmartClean™ technology is only available for use with M2™ tape drives and includes a section of cleaning tape at the beginning of each data cartridge. We specifically designed this cleaning tape to remove chemical films that can build up on recording heads. These films are caused by organic compounds and cannot be removed by other cleaning methods. The M2™ drive keeps statistics on its own operation and activates the SmartClean™ technology when the drive needs cleaning. With normal use, extra cleaning cartridges are not needed.

Formulated specifically for our VXA® and MammothTape™ tape drives, AME tape offers expanded recording capacity and low abrasivity, which reduces mechanical wear. AME magnetic material is vertically aligned. This unique orientation and the absence of binder components on the media gives AME higher capacity and superior signal strength. AME's specially formulated backcoating dramatically reduces the buildup of static electricity and debris, greatly reducing the chance of read/write errors.

Exatape 8mm data-grade metal particle, or MP, media is designed to optimize drive performance and increases data integrity. Exatape is laboratory certified and is the only media recommended for use in Exabyte Eliant™820 tape drives and libraries.

We offer a full range of warranty and post-warranty support services for our library, tape drive, and media products. We deliver these services through a worldwide network of service center partners and authorized service providers and support our OEM and reseller customers, as well as end users, in the deployment, operation and maintenance of our products. We also sell spare parts to OEMs and end users.

Revenue from services, spares and support programs represented the following percentages of net revenue:

In December 1999, we formed a wholly-owned subsidiary, CreekPath Systems, Inc. to leverage our investments and expertise in Storage Area Networks ("SANs"), Fibre Channel and Java-based software for storage resource management. CreekPath's operations throughout 2000 were limited to development of a business plan, obtaining third-party funding and development of products and services designed to create a data storage business to serve the needs of third-party internet companies. In December 2000 and January 2001, CreekPath completed a $17 million convertible preferred stock financing. As a result of that financing, we no longer consolidate CreekPath's financial results into our consolidated financial statements and instead account for our investment using the equity method. In addition, we maintain a representative on CreekPath's board of directors. Please refer to Risk Factor section 4.30 below for a discussion of certain risks associated with our investment in CreekPath.

We market our products worldwide through OEMs and resellers, and provide services directly to OEMs and to our reseller customers' consumers. We usually sell our new products initially to resellers who are quicker to evaluate, integrate, and adopt new technology. OEM sales generally increase (relative to reseller sales) as the new product successfully completes the necessary qualification process. Over the last several years, our sales have been principally to reseller customers as compared to OEM customers. However, in order to be successful, we believe we will need to increase the number of our OEM customers as well as the volume of products we sell to them. For a description of the risks associated with our customers and customer dependence, see Risk Factor sections 4.10 - 4.12 below.

OEM customers incorporate our products as part of their own systems, which they then sell to their customers under their own brand name. We work closely with our OEM customers during early product development stages to help ensure our products will readily integrate into the OEM's systems. See Risk Factor section 4.11 below.

The sales cycle for an OEM typically covers many months. During this time, the OEM may:

     -     evaluate the technology;
     -     qualify the product specifications;
     -     verify our compliance with product specifications;
     -     integrate the product into its system; and
     -     publicly announce the integration. This step typically occurs toward the end of the sales cycle before volume shipments of our products are made to the OEM.

Product sales to OEMs represented the following percentages of net revenue:

Our reseller channel customers purchase products for resale and they may provide services to their customers , such as:

     -     distribution;
     -     financial terms and conditions;
     -     pre-sales, sales and/or post-sales system upgrades; or
     -     other value-added products and/or services.

Even though we have no obligation, we support some reseller channel customers by providing marketing and technical support directly to them or their consumers. As a result, we may incur certain additional costs for these sales. Other costs and risks associated with our reseller channel customers may include:

     -     inventory price protections;
     -     stock rotation obligations;
     -     short term marketing promotions; and
     -     customer and end user rebates.

The reseller business is also characterized by relatively short order lead times which limit our ability to forecast sales to these customers. See Risk Factor section 4.10 below.

Sales to resellers represented the following percentages of net revenue:

We market our products overseas directly to international OEMs and resellers. We also serve OEMs and end users through our international resellers. International resellers, which have rights to sell our products in a country or group of countries, serve each of our international markets. In addition, many of our domestic customers ship a significant portion of our products to their overseas customers.

Direct international sales accounted for the following percentages of net revenue:

Currently, a very small percentage of our international sales are denominated in foreign currencies and are affected by foreign exchange rate fluctuations. In addition, changes in the foreign exchange rates may adversely affect the volume of sales denominated in U.S. dollars to overseas customers. Our sales are also subject to risks common to export activities, including government regulation or seizure of property, tariffs, and import restrictions. For a description of these and other risks associated with international sales, see Risk Factor sections 4.31 and 4.35 below.

A partial list of our OEM and reseller customers includes Arrow North American Computer Products, Bull S.A., Fujitsu Siemens Computers, IBM, Ingram Micro, NCR, Sun Microsystems and Tech Data. We have several customers whose sales account for 10% or more of our net revenue. The chart below sets forth the percentages of sales for customers that exceeded 10% of annual sales over the past three years:

Losing a key customer, or a reduction in sales to a key customer would materially and adversely effect our results of operations. For a description of these and other risks associated with our customers and customer dependence. See Risk Factor sections 4.10 - 4.12 below.

The data storage market is extremely competitive and subject to rapid technological change. We believe that competition in the data storage market will continue to increase, particularly because manufacturers of all types of storage technologies compete for a limited number of customers. We also believe that our customers consider the following main competitive factors:

     -     storage capacity;
     -     data transfer rate;
     -     price/performance;
     -     innovation;
     -     product quality and reliability;
     -     timing of new product introductions;
     -     volume availability;
     -     customer support; and
     -     the company's financial strength.

Many companies engage in researching, developing and commercially-organizing data storage products (including computer manufacturers, such as IBM and Hewlett-Packard, which incorporate their own storage products into their systems). Many of our current and potential competitors have significantly greater financial, technical, and marketing resources than us. We cannot assure that they will not devote those resources to the aggressive marketing of helical scan, mini cartridge, half-inch cartridge, optical or other storage product technologies. Future developments of tape and optical technologies, as well as new forms of storage technologies, could create additional, significant competition. Other risks include loss of market share, timing to market, price erosion and pricing pressure. For a description of these and other risks associated with our competition, see Risk Factor sections 4.20 - 4.23 below.

Our M2™ and VXA® tape drives face significant competition from current and announced tape drive products manufactured by Quantum, Sony and the LTO™ Consortium. We believe that our VXA® tape drives are a low cost, competitive alternative to competing products when compared on the basis of performance, functionality and reliability. Our library products face competition from companies such as Advanced Digital Information Corporation ("ADIC"), Quantum Corporation/ATL, Overland Data, StorageTek and QualStar.

There are several companies which offer competitive media products. Our service programs compete with those offered by independent service providers.

As stated above, we are currently outsourcing or attempting to outsource much of our manufacturing process. However, until our outsourcing efforts are complete, we continue to manufacture part or complete units of our tape drive and library products in our Boulder, Colorado headquarters. We currently employ just-in- time manufacturing techniques emphasizing flexibility and continuous product flow. These techniques depend on uninterrupted access to high-quality, competitively priced components in required volumes.

We manufacture a mechanical deck mechanism for our MammothTape™ tape drive products. Production of these deck assemblies requires a more complex manufacturing process than we had previously undertaken. Difficulties in manufacturing this deck assembly caused production constraints in the past. There can be no assurance that such problems will not occur again in the future. For a description of the risks associated with the production of our MammothTape™ product line, see Risk Factor sections 4.6, 4.8 and 4.9 below.

We have a large number of sole-source suppliers of components necessary for manufacturing our products. We have executed master purchase agreements with some of our sole-source suppliers and conduct business with the rest of our suppliers on a purchase order basis. Reliance on sole-source suppliers can result in possible shortages or discontinuance of key components and reduced control over delivery schedules, manufacturing yields, quality and costs. If our sole-source suppliers are unable to meet our supply requirements or discontinue production of a key component, our ability to fill orders and results of operations would be adversely impacted. See Risk Factors sections 4.5, 4.7, 4.16 and 4.17 below.

Further, we obtain many components from suppliers located outside the U.S. We obtain key materials and components necessary for manufacturing our products from a number of third-party suppliers, including Hitachi. Many of these key components are made to our specifications and are acquired from sole-sources. See Risk Factor sections 4.5, 4.7, 4.16, 4.17, 4.32 and 4.35 below.

The following table identifies some of the key components for our products and the sole-source supplier supplying the components:

For a description of the risks associated with manufacturing, see Risk Factor sections 4.4 - 4.8, 4.16, 4.25 and 4.32 below.

In 1999, we entered into a joint development agreement with Hitachi for the development of a scanner for our M2™ tape drive. In 2001, we entered into a joint development agreement with Hitachi for the development of our future M3™ tape drive. We are currently reevaluating our MammothTape™ roadmap, including our M3™ tape drive development, and anticipate jointly developing a tape drive platform that integrates the VXA® and MammothTape™ technologies. We are discussing alternatives with Hitachi regarding the development of this new tape drive technology. See Risk Factor sections 4.3 and 4.7 below.

Our joint development agreements provide that we retain ownership rights to any jointly developed product under the agreements. However, the agreements further provide that Hitachi has the right to license the technology, royalty-free, from us for any non-data storage purpose. Additionally, both agreements provide that either party may terminate the agreement for any reason upon written notice.

We cannot assure that the joint development agreements will be successful or that any component developed under these agreements will meet our specifications or be developed at a cost acceptable to us. This may cause the production of our tape drives to be significantly delayed or even terminated, which would materially and adversely harm our financial and competitive positions as well as our results of operations. See Risk Factor sections 4.4, 4.5 and 4.7 below.

Hitachi also supplies the tape deck components for our Eliant™820 tape drives under an agreement entered into in 1996. This agreement expired on December 11, 2001. Although we have not formally extended this agreement, we are continuing to purchase product from Hitachi under the agreement's existing terms and conditions. We are discontinuing production of the Eliant™820 by the end of 2002 and do not expect to purchase additional product from Hitachi under this agreement after the second quarter of 2002.

We cannot assure that Hitachi will continue to supply decks or other components, or that they will continue to be available at current supply levels or prices. Our inability to obtain decks or components at a commercially reasonable cost would cause a significant delay or even termination of the production of some of our tape drive products, and would materially and adversely harm our competitive position and our results of operations.

Hitachi also manufactures our VXA®-1 tape drive that was previously manufactured by AIWA. Pursuant to the terms of the technology transfer and license agreement entered into with AIWA, we agreed to purchase 9,000 VXA® parts kits (which parts could be used to build 9,000 VXA® drives). The price for these kits would have been approximately $370 per kit if these kits had been built into drives. Instead, we have negotiated a settlement with AIWA whereby we will purchase these parts kits, as well as AIWA's remaining VXA® parts and components for a total cost of $3.3 million and the parts kits will be assembled by Hitachi. We will also purchase all production jigs, equipment and toolings from AIWA and expect the cost of this purchase to be approximately $995,000. Finally, AIWA granted us a non-exclusive license to utilize certain AIWA related VXA® technologies related to design and production of the VXA®-1 and VXA®-2 tape drives for a royalty of between 1 and 4% of the invoice price to us of each VXA®-1 and VXA®-2 drive we purchase from another manufacturer.

We are currently operating under a memorandum of understanding that provides for the supply of VXA® products by Hitachi while we complete and sign the manufacturing and supply agreement.

For a description of these and other risks associated with Hitachi or our other suppliers, see Risk Factor sections 4.4, 4.5, 4.7, 4.16, 4.17, 4.25 and 4.32 below.

The market for data storage devices is highly competitive. We believe that this competition will increase as new technology increases speed and reliability of storage products while at the same time reduces the cost of those products. With this in mind, we have concentrated our research and development on enhancing existing products and developing new products that will improve the performance and cost of current tape drives we offer. Our research and development expenses were approximately $35.7 million, $36.5 million, and $25.2 million in 1999, 2000 and 2001, respectively.

We rely on a combination of patents, copyright and trade secret protections, non-disclosure agreements, and licensing arrangements to establish and protect our proprietary rights. As of March 4, 2002, we held a total of 92 patents and 21 pending applications in the United States, of which 10 were issued in 2001 and 4 which have been allowed but have not yet issued, all relating to technologies and other aspects of our tape drive and automated tape library products. However, we believe that, because of the rapid pace of technological change in the tape storage industry, factors such as knowledge, ability and experience of our employees, new product introductions and frequent product enhancements are often more significant than patent and trade secret protection.

We license our technology to third party manufacturers to allow them to manufacture our products. Additionally, we have granted manufacturing licenses to certain customers which allow them to manufacture and sell our products should specific events occur, such as our inability to perform our supply obligations. We also enter into joint development agreements with third parties for the development of product components. Under these agreements, the third parties generally have joint ownership of certain technologies related to the component being developed. The dissolution of these agreements could result in significant costs and other risks to us. See Risk Factors section 4,4, 4.5, 4.7, 4.24 and 4.25 below.

Effective October, 2001, we terminated an agreement under which we supplied data storage library products to Plasmon LMS, Inc. In connection with termination of that agreement, we granted a non-exclusive license to Plasmon to use certain, existing library technologies to manufacture and sell versions of the library products which we previously sold to Plasmon. In return, we will recognize income of approximately $1,200,000 following the delivery of all of our obligations under the agreement.

There are a number of risks associated with our proprietary rights. For a description of these risks, see Risk Factor sections 4.24 and 4.25 below.

Backlog consists of purchase orders for which a delivery schedule within six months has been specified by the customer. Our total backlog as of December 30, 2000 and December 29, 2001 totaled approximately $11.8 million and $7.8 million, respectively. Our customers typically are not obligated to purchase minimum quantities of our products. Lead times for the release of purchase orders depend upon the scheduling practices of each customer. We believe that, based upon past order histories, the rate of new orders will vary significantly from month to month. Customers may cancel or reschedule orders without significant penalty. In addition, our actual shipments depend upon our production capacity and component availability. For these reasons, our backlog as of any particular date may not be indicative of our actual sales for any succeeding fiscal period.

For a description of these and other risks associated with our backlog management, see Risk Factor sections 4.18 and 4.19 below.

We manufacture, or may in the future manufacture, many of our key components and products overseas in countries such as Japan, Germany, China, Singapore, Indonesia and Malaysia. Additionally, a substantial portion of our products incorporate subassemblies and components purchased from Japanese or other overseas suppliers in yen or another foreign currency. We currently do not hedge this exposure. Fluctuations in currency exchange rates may materially affect our results of operations. See Risk Factor sections 4.31 - 4.35 below.

Our international involvement is also subject to other risks common to foreign operations, including government regulations, foreign exchange or import restrictions or tariffs imposed by the U.S. Government on products or components shipped from another country. Additionally, the sale of our products to domestic federal or state agencies may be limited by the Buy America Act or the Trade Agreement Act to the extent that we incorporate components produced overseas into our products.

Our functional currency and the functional currency of our subsidiaries is the U.S. dollar. However, our subsidiaries located in The Netherlands, Germany, Japan, Canada and Singapore also enter into transactions in their respective local currencies. As a result, any amounts payable to a subsidiary or owed by a subsidiary are subject to the foreign exchange rate applicable between the U.S. dollar and the local currency and could materially and adversely affect our results of operations. In addition, our foreign operations are subject to the risks generally applicable to the conduct of business in such countries. For a description of these and other risks associated with our foreign involvement, see Risk Factor sections 4.33 - 4.35 below.

As of February 5, 2002, we had 628 full-time and part-time employees worldwide, including:

Our employees are not represented by a labor union, although our German subsidiary is subject to an organized Works Council.

On January 29, 2002, we announced a corporate restructuring that will result in the closing of our service and final assembly facility in Scotland and our service depots in Canada and Australia. We plan to reduce our workforce by approximately 200 persons worldwide, comprised of regular full-time employees and temporary or contract workers. Of these reductions, approximately 70 positions were eliminated in February 2002, most of which have been reflected in the numbers listed in the chart above. We expect the remaining reductions, including the reductions resulting from the shutdown of our overseas operations, to occur by the end of the second quarter of 2002. We cannot assure that we will not reduce our workforce further than currently anticipated, or reduce our workforce again in the future. Factors which could cause us to further reduce our workforce include successfully outsourcing our manufacturing processes and continued losses. See Risk Factor sections 3.1 - 3.3, 4.5 and 4.6 below and Note 17 of No tes to Consolidated Financial Statements.

With a slight slowdown in the labor market, the competition for key employees is somewhat lessened. Despite this slowdown, our success continues to depend to a significant extent upon our ability to attract, retain and motivate key engineering, marketing, sales, manufacturing, support and executive personnel. For a description of the risks associated with retaining key employees, see Risk Factor section 4.27 below.

You should carefully consider the risks described below. If any of the following risks should actually occur, our business, prospects, financial condition or results of operations would likely suffer. In such case, the trading price of Exabyte common stock or other securities could fall, and you may lose all or part of your investment. We furnish you these risk factors to describe how you may be financially hurt by owning Exabyte securities rather than how you may be financially benefited by taking a short position in our securities or by taking any other position which results in profits upon a drop in the securities price. If you are in a short position you face different risks that are not contemplated in this document.

You should look at all of the risk factors in total. Some risk factors may stand on their own. Some risk factors may affect (or be affected by) other risk factors. For example, the risk factor relating to our possible inability to properly forecast our customer demand would likely result in excess inventory, which is another risk factor. You should not assume we have identified these connections.

Exabyte intends to periodically update and describe these and future risk factors in reports filed with the Securities and Exchange Commission. However, you should not assume that we will always update these and future risk factors in a timely manner. We are not undertaking any obligation to update these risk factors to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

Exabyte is integrating Ecrix's technology into its own products and services offerings. If Exabyte cannot integrate the technology effectively or if management spends too much time on integration issues, it could harm the combined company's business, financial condition and results of operations. The difficulties, costs and delays involved in integrating the companies, which could be substantial, include the following:

     -   distraction of management and other key personnel from the business of the combined company;
     -   integrating complex technology, product lines, services and development plans;
     -   inability to demonstrate to customers and suppliers that the business combination will not result in adverse changes in client service standards or business focus;
     -   inability to retain and integrate key personnel;
     -   disruptions in the combined sales forces that may result in a loss of current customers or the inability to close sales with potential customers;
     -   expending time, money and attention on integration that would otherwise be spent on developing either company's own products and services;
     -   additional financial resources that may be needed to fund the combined operations; and
     -   impairment of relationships with employees and customers as a result of changes in
          management.

Exabyte has no experience in integrating operations on the scale represented by the business combination, and we are not certain that Exabyte and Ecrix can be successfully integrated in a timely or efficient manner or that any of the anticipated benefits of the business combination will be realized. Failure to do so could have a material adverse effect on the business, financial condition and operating results of the combined company.

If the benefits of the business combination do not exceed the associated costs, the combined company could be adversely affected by incurring additional or increased losses from its operations. The survival of Exabyte during this post-business combination period depends on making the combined operations profitable through increased revenues and reduced expenses.

The investors in Exabyte Series H preferred stock have entered into contractual arrangements that limit the amount of shares of Exabyte common stock that they may sell into the public market after closing of the proposed business combination. Based on the number of shares of Exabyte common stock outstanding as of March 6, 2002, approximately 94% of the outstanding shares of Exabyte are currently eligible for resale, a total of approximately 97% will be eligible 180 days after the business combination and the balance of the shares will be eligible for resale 270 days after the business combination, subject to certain limitations that will apply to affiliates of Exabyte. Many of the former Ecrix stockholders that have received shares of Exabyte as a result of the business combination held restricted shares in Ecrix. These persons, as well as others, may use the business combination as a means to liquidate their investment. The sale of substantial amounts of Exabyte common stock following the business combination may cause substantial fluctuations in the price of Exabyte common stock.

Ecrix's former headquarters was located in Boulder, Colorado under two leases that expire in 2005 and 2006. Exabyte has consolidated the operations of Ecrix and Exabyte under Exabyte's current facilities. As a result, we are attempting to lease the facilities formerly occupied by Ecrix. There can be no assurance that we will be able to find a third party willing to lease the Ecrix properties on terms favorable to us. If we are unable to sublease the properties, we will be required to continue making annual lease payments through the duration of the leases.

We have incurred operating losses and declining revenues over the last five years. As a result, we have been and are continuing to investigate various strategic alternatives that could increase our liquidity. These alternatives may include one or more of the following:

     -     sale of all or part of our operating assets;
     -     restructuring of current operations;
     -     additional equity infusions; or
     -     strategic alliance, acquisition or business combination.

We will continue to explore these and other options that would provide additional capital for longer-term objectives and operating needs. It will be necessary for us to take one or more of these actions in order to have sufficient funds to support our operations. If we cannot raise additional capital through debt or equity, it is possible that we would be unable to achieve our currently contemplated business objectives or have enough funds to support our operations, which could affect our ability to continue as a going concern. As a result of our current liquidity constraints, the report of our independent accountants on our consolidated financial statements contains an explanatory paragraph related to this matter.

Such an opinion by our independent accountants may impact our dealings with third parties, such as customers, suppliers and creditors, because of concerns about our financial condition. Any such impact could have a material adverse effect on our business and results of operations.

Our current cash needs depend on a number of factors, including whether we achieve significant sales growth of Ecrix's VXA® drives, revenue growth of our existing products, the successful introduction and sales of our future tape drive products, and cost containment. We will continue to seek external financing through debt or equity.

Recently, the data storage industry has experienced reduced sales as a result of general economic conditions and other factors. This slowdown has impacted our net sales. Even if we reduce our costs as planned, we may be unable to generate sufficient revenue because of industry conditions in order to become profitable.

In May 2000, we entered into a bank line of credit agreement with Congress Financial Corporation, a subsidiary of First Union Bank Corporation. Currently, we can borrow up to the lesser of 80% of eligible accounts receivable plus 25 % of eligible finished goods inventory (as defined in the agreement and amendment) or $25,000,000. The line of credit prohibits the payment of dividends without prior bank approval and has a minimum net worth covenant and certain other covenants. The agreement contains certain acceleration clauses that may cause any outstanding balance to become immediately due in the event of default. The amount available to borrow under the line of credit varies each day based upon the levels of the underlying accounts receivable and inventories. As of December 29, 2001, the overall amount available to borrow was $13,588,000 and we had $12,291,000 in borrowings outstanding, $426,000 reserved under an outstanding letter of credit and a remaining borrowing capacity of $871,000. This loan is secured by our accounts receivable, inventory and other assets. The agreement contains a number of covenants that, among other things:

-     restrict certain financial and other activities;
- -     requires us to maintain a minimum net worth; and
- -     eliminates the borrowing line if we experience any material adverse change.

We are currently in compliance with all covenants; however, if our losses are larger than expected and we are unable to raise additional equity to counteract these losses, we could be in default of the net worth covenant as early as the end of the first quarter. We are currently negotiating certain amendments to our line of credit. Because of the covenants and conditions to borrowing, our line of credit may not always be available to us. See "Liquidity and Capital Resources" under "Exabyte Management's Discussion and Analysis of Financial Condition and Results of Operations" below.

Our common stock is listed on the Nasdaq National Market. In order to maintain our listing on the Nasdaq National Market we must meet minimum financial and other requirements. Previously, we received a notice from Nasdaq that we had failed to meet the $1 minimum bid price requirement for continued listing. Although Nasdaq has declared a temporary moratorium on delisting for failure to meet the $1 minimum bid price requirement, if the minimum bid price of our common stock is below $1 for 30 consecutive trading days after the moratorium is lifted, our common stock may be delisted. As of March 1, 2002, the closing bid price of our common stock was below $1 for 30 trading days. Although we intend to request an appeal of any potential delisting notice and undertake measures, such as a reverse split, there can be no assurance that our common stock will remain listed on the Nasdaq National Market. Additional reasons for delisting include failure to maintain a minimum amount of net tangible assets, and failure to timely file various reports with the SEC, as well as other requirements. There are also circumstances where Nasdaq may exercise broad discretionary authority for continued inclusion. If our common stock were delisted from Nasdaq for any reason, it could seriously reduce the value of our common stock and its liquidity.

We are currently experiencing liquidity constraints which effect the amount of cash available to pay our vendors and suppliers pursuant to our contractual obligations. This constraint has in the past and will likely in the future cause our vendors to restrict shipments of key components necessary to build and sell our products. Any inability to obtain key components in a timely manner will restrict our ability to ship products and, as a result, harm our revenues and results of operations and financial condition.

We believe that our success currently depends in part on our VXA® and M2™ tape drives. In turn, the success of these drives depends, among other things, on:

     -   successfully outsourcing the manufacturing processes;
     -   satisfactorily addressing design issues;
     -   customer acceptance of our tape drive formats, particularly the new VXA® platform;
     -   customers transitioning from our earlier products to VXA®-2 and M2™;
     -   OEM qualification and adoption; and
     -   media availability.

We believe our success additionally depends on our ability to develop and introduce future tape drive products, particularly tape drive products which integrate our VXA® and MammothTape™ technologies. Our inability to integrate these two technologies would directly impact the longevity of our VXA® and MammothTape™ technologies. Similarly, the successful introduction of any new tape drive platform could be impacted by our inability to develop a new tape drive platform that supports backward read compatibility with our existing drives. If we cannot successfully address any of these or other developmental issues, our current and future sales could be negatively impacted, which would harm our competitive and financial positions, as well as our results of operations.

We also believe that our future success depends upon the success of our library products. However, our ability to be successful in this market will depend upon a number of factors, including:

     -   our ability to successfully sell libraries independent of our tape drives;
     -   availability of media;
     -   introduction of competitive products;
     -   acquiring sufficient market share;
     -   customer acceptance and original equipment manufacturer ("OEM") adoptions;
     -   compatibility with tape drives used by our customers; and
     -   ability to service and support our library products.

Our inability to successfully effect any of these factors could negatively impact our competitive position, which would have a material adverse impact on our results of operations and our financial condition.

We currently purchase technology from AIWA for use in our VXA® tape drives. To the extent that AIWA decides to no longer license this technology to us, we will be unable to produce these drives without considerable time and engineering effort. Even with this development, we can not assure that we would be able to duplicate this technology. Additionally, our ability to renegotiate our outstanding purchase obligations with AIWA is directly impacted by AIWA's ownership of our VXA® technology. We are still negotiating with Hitachi over the terms and conditions of a manufacturing and supply agreement for our VXA® drives. If we are unable to secure commercially reasonable terms for this manufacturing and supply agreement, our financial condition and results of operations would be harmed.

We may be unable to complete the transition between AIWA and Hitachi, or may experience difficulties successfully transferring the technology from AIWA to Hitachi. These difficulties include, without limitation, Hitachi being able to use all of the part sets and tooling being purchased from AIWA. If Hitachi is unable to use all of the part sets and tooling, we may be forced to buy additional parts and tooling at significant additional cost, which may adversely affect our results of operation and financial condition. Additionally, the transition may not be completed in a timely manner. Should we encounter any difficulties in the transition, our sales, revenue and customer acceptance could be adversely effected.

We currently outsource the manufacturing of some of our library products to Shinei and portions of our M2™ manufacturing process to Hitachi and we may transfer the manufacture of some of our other products to Hitachi in the future. We plan to complete the outsourcing of all our low-end libraries and the remaining portion of our M2™ tape drive manufacturing to the respective manufacturers by the middle of 2002. Hitachi currently manufacturers our VXA®-1 tape drive and will manufacture our VXA®-2 tape drive when we start production of that drive. We may be unsuccessful with our current outsourcing efforts, which could negatively impact our ability to fill customer orders and compete successfully, as well as harm our results of operations and financial condition.

Outsourcing our manufacturing to a third party takes many months and involves, among other details, extensive employee training. Due to the time and expense involved, and the inability to easily move the manufacturing to another party, we heavily depend on our existing third party manufacturers for our products. If Hitachi or Shinei cannot meet our product demand, or cannot or will not implement product changes on a timely basis, we would be unable to fill customer orders and our results of operations and financial condition would be materially and adversely impacted. Additionally, should Hitachi or Shinei be unable to produce the product at a commercially reasonable cost to us, our margins would be negatively impacted, which would result in material harm to our results of operations and financial condition. Our dependence on third party manufacturers can also adversely affect our ability to negotiate the terms of our future business relationships with these parties.

Our manufacturers rely in part on volume in order to create efficiencies in their manufacturing processes. If our sales do not increase to a volume level that enables our manufacturers to capitalize on these efficiencies, they may not be able to manufacture the product at a commercially viable cost to them, and could terminate their manufacturing and supply agreement with us. If we had to bring these manufacturing processes back to Exabyte or outsource to another third party it would be prohibitively difficult for us to accomplish without significant impact to our customer relationships, revenue and results of operations. In addition, the cost to us for terminating one of these supply agreements could be significant, which would have a materially adverse impact on our results of operations and financial condition.

Hitachi and Shinei will be our sole source manufacturer for the products which are outsourced to them. Their inability to successfully manufacture any of these products or manufacture enough products to meet our customer demand would adversely affect our results of operations.

If either of these suppliers cannot successfully manufacture the respective products, bringing the manufacturing process back to Exabyte or outsourcing to another third party manufacturer would negatively impact our ability to fill customer orders and would harm our results of operations.

We highly value our proprietary information, including trade secrets, patents and manufacturing processes. We make substantial efforts to protect these assets. Outsourcing our manufacturing to a third party requires us to share some of this proprietary information with our third party manufacturer. Although these parties would generally enter into agreements intended to protect our proprietary information, we can not assure that these agreements will provide adequate protection. This would weaken our protection of our proprietary information and could harm our future results of operations.

During the transition period for our M2™ tape drive and library products, we must maintain redundant manufacturing capability at our Boulder, Colorado facilities, the Hitachi facilities in Japan and the Shinei facilities in Singapore. There are several factors that would increase our expenses during the transition period, including:

     -   maintaining a double infrastructure;
     -   creating additional tooling;
     -   adding additional technical personnel; and
     -   creating additional inventory; and training Hitachi and Shinei technical and manufacturing personnel.

Expense increases for these or any other reasons could harm our results of operations. Upon completion of the outsourcing to these third parties, we may be unsuccessful in reducing our infrastructure costs at our facilities, which would cause us to incur higher total operation costs.

When we complete the outsourcing of tape drive manufacturing to Hitachi, they will be our sole source manufacturer for our VXA® and M2™ tape drives. As these tape drives contribute significantly to our revenue, Hitachi's inability to successfully manufacture any of these tape drives or manufacture enough tape drives to meet our customer demand would adversely affect our results of operations. Additionally, should Hitachi terminate its relationship with us for any reason, we would be forced to bring manufacturing operations back to Exabyte or outsource to another third party, which would be prohibitively difficult for us to accomplish without significant impact to our customer relationships, revenue and results of operations.

Should we or Hitachi terminate our supply and manufacturing agreements before the end of the stated agreement term, we could incur significant payments to Hitachi associated with the tooling and nonrecurring engineering costs associated with the outsourcing. Among other problems associated with early termination of the agreements, these payments could negatively impact our financial position, revenues and results of operations. We are currently reevaluating our MammothTape™ roadmap, including our M3™ tape drive development, and anticipate jointly developing a tape drive platform that integrates the VXA® and MammothTape™ technologies. We are discussing alternatives with Hitachi regarding the development of this new tape drive technology. However, we have not begun significant discussions with Hitachi regarding the negotiation of a new joint development agreement. We cannot assure that we will successfully enter into a new joint development agreement for the development of an integrate d tape drive technology, or that any new agreement will be on terms beneficial to us. Also, the M3™ joint development agreement provides for significant termination costs. We cannot assure that we will not incur significant costs associated with terminating this agreement. If we cannot successfully negotiate these costs down to an appropriate level for us, our financial position and results of operations could be materially and adversely affected.

Hitachi recently announced that it is implementing emergency management measures aimed at bringing about a prompt improvement in its business results. We do not know what impact these measures will have upon our relationship with Hitachi, and our ability to receive products from Hitachi on a timely manner, in sufficient quantities, of an adequate quality and on favorable terms.

The MammothTape™ platform designs are extremely complex, which may result in lower than anticipated manufacturing yields, field reliability issues and increased inventory levels. We experienced these issues with the introduction of M2™. We experienced similar issues with the introduction of our original MammothTape™ drive and were able to successfully address them. Although we have made significant progress in addressing these issues as they relate to M2™, we cannot assure that we will completely resolve any of these issues or, if resolved, they will be done in a timely manner. In addition, when we encounter these kinds of manufacturing problems, we must make changes to the product design. Implementing these changes can be troublesome and costly and could cause additional design or manufacturing flaws. Any difficulties manufacturing our products or designing our products for manufacturing could harm our results of operations.

As previously stated, we brought our original Mammoth tape drive to market late and as a result lost market share and credibility with our customers. We may experience development and/or manufacturing problems with our future MammothTape™ or VXA® products that would delay their introduction. A late introduction for any future tape drive may again affect our market share position and/or credibility, which would negatively impact sales. We are currently addressing issues regarding the reliability of our M2™ tape drive. Our inability to address these issues in a timely manner may delay the introduction of our future tape drives.

The following chart expresses the sales percentages of Exabyte's three largest customers for the fiscal year ended December 29, 2001:

We have customers who are also competitors, including IBM with their LTO™ Ultrium™ tape drive.

We do not require minimum purchase obligations from our customers. They may also cancel or reschedule orders at any time, prior to shipment, without significant penalty. Losing one or more key customers would adversely affect our results of operations. A key customer canceling orders or decreasing the volume in orders would adversely affect our results of operations. Contractually, our reseller customers may return a portion of their Exabyte product inventory as part of their stock rotation rights, but must also issue a simultaneous offsetting purchase order.

In the past, we have experienced delays in receiving purchase orders and, on occasion, anticipated orders have either not materialized or been rescheduled because of changes in customer requirements. These types of changes from our key customers may cause our revenue to change significantly from quarter to quarter. If the change involves higher-margin products, then the impact is greater on the results of operations.

Our product sales depend heavily on OEM qualification, adoption and integration. Many reseller and smaller OEM customers delay their orders until key OEMs adopt and integrate our products. Our competitive position and results of operations may be significantly harmed if a key OEM failed to adopt and integrate our products.

We have announced adoption of VXA®-1 and M2™ by several OEM customers, but our success depends on additional OEMs adopting our VXA®-1, VXA®-2 and M2™ tape drives, as well as existing OEMs increasing their purchases of current products.

OEM demand for our M2™ and VXA®-1 tape drives could increase suddenly. We, our suppliers, and our third party manufacturers may be limited in our ability to meet a sudden significant increase in demand due to limitations in manufacturing capacity and long lead times to acquire certain parts. If our suppliers and third party manufacturers are not able to meet the increased demand, our inability to fulfill our customers' orders could adversely affect our results of operations.

We lost market share in the library market because we delayed our decision to automate competitive DLT technology. Our inability to successfully automate future technologies could again negatively affect our library market share position, as well as our results of operations.

Sales of media accounted for approximately 37% of our net revenue during fiscal 2001. A significant portion of these sales were the result of backlog accrued during the end of 2000 and the beginning of 2001 due to media supply constraints. To the extent media sales decline and are not replaced with additional revenue from our other products or services, our financial results, including our gross margin and revenues, may be adversely affected.

We depend on a continuous supply of Advanced Metal Evaporative ("AME") media to use with our MammothTape™ and VXA® products. We cannot sell our products, or grow our product lines without a sufficient supply of AME media. Currently, we obtain AME media from three suppliers:

     -   Matsushita Electric Industrial Co. Ltd. ("MEI");
     -   TDK Corporation ("TDK"); and
     -   Sony Corporation ("Sony").

If these suppliers cannot provide us with enough high-quality, competitively priced media, we may have to delay or cancel product shipments and/or orders. We may also have to delay future product introductions. We have previously encountered difficulties obtaining enough media from our suppliers to fill orders. Should we again experience such problems, our future results of operations, as well as our ability to sell or introduce products, could be harmed. Any inability to sell or introduce our products would materially and adversely affect our competitive position as well as our results of operations.

Our M2™ tape drives and associated libraries specifically depend on AME media with SmartClean™ technology. Even with multiple media suppliers, we may not receive enough AME media with SmartClean™ to fill current or backlog orders for products and media. Should this happen, we may have to delay or cancel M2™ tape drive and/or library shipments and orders. This would materially and adversely affect our results of operations.

We obtain all the components to make our products from third parties. A shortage of any component would directly affect our ability to manufacture the product. Some key components, such as scanners and recording heads, are developed and manufactured to our specifications, which limits our ability to quickly find another supplier for these components if we experience a supply shortage. There are long lead-times associated with the availability of many components that make obtaining these components sometimes difficult. For example, the ASIC chips we use in our MammothTape™ products are produced from several suppliers. However, because it takes many months to qualify suppliers to produce ASIC chips for us, any shortfall or inability to obtain an adequate supply of ASIC chips from any of our current suppliers would adversely affect our results of operations and financial condition.

We rely heavily on sole-source suppliers (one supplier providing us with one or more components) to develop and/or manufacture critical components to use in our tape drives or libraries. If a sole-source supplier is unable to provide us with a sufficient supply of their components we may be unable to manufacture the drive or library. This could cause us to delay or cancel shipments, which would adversely affect our results of operations and financial condition.

In addition, by relying on sole-source suppliers, we may see a reduction in our level of control over many component items, including:

     -   delivering components on schedule;
     -   manufacturing a high number of components for delivery;
     -   maintaining the highest possible quality when manufacturing the components; and
     -   managing the costs of manufacturing the components.

Hitachi is one of our primary sole source suppliers. They supply us with many key components for our M2™ and Eliant™820 tape drives. We have contracts with Hitachi to develop, manufacture and supply these components. However, the contracts do not necessarily guarantee that the components will be continuously supplied to us at a reasonable cost. Additionally, if Hitachi makes an error in manufacturing a component, we may be unable to incorporate the components into our drives. If any of these or other problems arise, we may experience difficulties manufacturing our M2™ or Eliant™820 tape drives, making a profit on these drives, or developing and successfully introducing our future MammothTape™ tape drives. Any material issues that may arise with Hitachi could adversely affect our sales and profit margins and therefore our results of operations.

It is important for us to maintain appropriate levels of inventory. Excessive amounts of inventory reduces our cash available for operations and may cause us to write-off a significant amount as excess or obsolete. Inadequate inventory levels may make it difficult for us to meet customer product demand, resulting in lost revenues.

We face many challenges in effectively managing our inventory, which may materially affect our results of operations if we do not manage them properly. These challenges include:

     -   keeping inventory levels low;
     -   managing unexpected increases in inventory due to stock rotation obligations or cancelled orders;
     -   meeting changing product demands;
     -   transitioning our product lines effectively; and
     -   successfully introducing new products.

Particularly, introducing new products may negatively affect our product inventory value by requiring us to write down or make allowances for inventory devaluation, which may materially affect our results of operations. We have experienced increased inventory levels in connection with the introduction of our M2™ tape drives. In the past we have experienced special charges and write downs which harmed our results of operations. In the future we may again incur special charges or make allowances for an inventory devaluation that will materially affect our results of operations and financial condition.

Accurately timing the release of new products is important to the sales of existing products. Prematurely withdrawing an existing product could result in revenue loss from that product, and delaying the withdrawal of a product could result in excess product inventory and subsequent inventory write-downs. We continually evaluate our product life cycles. Any timing mistakes or inability to successfully introduce a new product could adversely affect our results of operations.

Our ability to compete with other tape drive manufacturers is directly impacted by the rapid development of tape drive technologies. Our ability to compete with other tape drive technologies is impacted by, among other things:

     -   customer and OEM adoption of VXA® and MammothTape™ technology;
     -   integration of our VXA® and MammothTape™ technologies into a compelling tape drive platform;
     -   compatibility of tape drives to other data storage products;
     -   data storage density;
     -   data transfer rate;
     -   customer confidence and familiarity;
     -   product reliability; and
     -   price.

The tape storage market is highly competitive and subject to rapid technological changes. We currently expect competition to increase. The tape storage market has experienced a number of consolidations, thereby increasing our competitive pressures. Competitive pressures impact us in many ways, including:

Price Erosion. Price erosion of our products has occurred in the past and is likely to occur again in the future.

Loss of Market Share. We have lost market share to competitors in the past. We may lose additional market share in the future.

Additionally, some of our competitors have financial, technical, manufacturing and marketing resources that are much greater than our own. These competitors may devote their superior resources to aggressively developing and marketing their own storage technologies. These technologies may be equivalent or superior to our own technologies, or may render some of our products non-competitive or obsolete. In order to compete under these pressures, we must adapt our technologies to these changes in an efficient, cost-effective manner.

Our M2™ and VXA®-1 tape drives face significant competition from current and announced tape drive products offered by Quantum, Tandberg, Sony and the LTO™ Consortium (IBM, Hewlett Packard and Seagate). The specifications of some of the announced drives show greater data capacities and transfer rates than M2™, VXA®-1 and VXA®-2.

Our other tape drives and automated tape libraries face competition from companies offering 8mm, half-inch, 4mm and mini-cartridge products. Significant competition may also develop from companies offering erasable and non-erasable optical disks, as well as other technologies.

Technology usually changes and advances quickly in the high technology industry. In order to successfully compete in this industry, our future products must apply and extend our current technology, as well as keep pace with new technology developments.

Although tape has historically been the preferred medium for data storage backup, companies are developing new technologies for this market. Some of the new technologies are:

     -   Optical Disk (including three dimensional Optical Disk)
     -   Optical Tape
     -   DVD
     -   Holographic Storage
     -   Magnetic Optics

We may also experience competition from new storage architectures, such as SANs, network attached storage and virtual storage.

If any new technology offers users the same or greater benefits than tape, tape technology could become obsolete. In order to compete under market pressures, we must be able to adapt our technologies to changes in an efficient, cost-effective manner. Our inability to adapt would severely harm our competitive position and our results of operations.

We believe our future success depends in significant part on future library and other products and services. The success of these future products depends, among other things, on:

     -   timely development;
     -   customer acceptance;
     -   supply capacity;
     -   customer transition to these future products; and
     -   OEM qualification and adoption; and media availability.

We rely on a combination of methods to protect our proprietary rights, including:

     -   patents;
     -   trademarks;
     -   trade secret protections;
     -   non-disclosure agreements; and
     -   license agreements.

Although we file patent applications for our products when appropriate, patents may not result from these applications, or they may not be broad enough to protect our technology. Someone may also challenge, invalidate or circumvent our patents. Sometimes other companies and individuals assert that our patents infringe their proprietary rights. Occasionally, third parties ask us to indemnify them from infringement claims. Defending these infringement claims may result in long and costly litigation, and potentially invalidate a patent.

Although we may try to secure a license from third parties to protect our technology, we may not succeed. This may adversely affect our ability to use such technology and, as a result, our results of operations.

We implement measures to protect our proprietary rights. We intend to defend ourselves against infringement claims. However, protecting these rights is sometimes difficult. Some foreign laws may not fully protect these rights.

We designed our own mechanized deck assembly incorporated in our MammothTape™ products. Because we did not obtain the design of this deck from a third party, we do not benefit from supplier indemnification should an infringement claim arise. Manufacturing and/or selling our MammothTape™ drives may infringe on someone else's proprietary rights, even though we believe we have taken appropriate measures to avoid it.

We rely on a number of third party manufacturers for various stages of our manufacturing process, particularly the early stages. This practice may impair our ability to establish, maintain or achieve adequate product design standards or product quality levels.

Much of our third party manufacturing utilizes proprietary technology. To protect our proprietary information, we may extend licenses to our third party manufacturers. However, we cannot assure that our third party manufacturers will adhere to the limitations or confidentiality restrictions of their license.

Our third party manufacturers may develop processes related to manufacturing our products independently or jointly with us. This would increase our reliance on these manufacturers or may require us to obtain a license from them. We may be unable to obtain a license on terms acceptable to us, if at all.

Many of our third party contracts are with manufacturers outside the United States. In addition to typical market risks associated with utilizing third party manufacturers, contracting with foreign manufacturers subjects us to additional exposures, including:

     -   political instability;
     -   currency controls and fluctuations;
     -   tariffs, customs and other duties;
     -   reduced intellectual property protections; and
     -   import controls, trade barriers and other trade restrictions and regulations.

Additionally, U.S. federal and state agency restrictions imposed by the Buy American Act or the Trade Agreement Act may apply to our products manufactured outside the United States.

Our product demand depends substantially on the purchases and use of work stations, mid-range computer systems and network servers. These markets tend to be volatile and subject to market shifts, which we may be unable to determine in advance. A slowdown in the demand for these types of products has in the past and could continue to materially affect our business. Any demand weakness affecting sales in the reseller channel, which generally represents higher margin sales, could have a greater impact on our results of operations.

Rapid business and product transitions could create a strain on our resources. We are experiencing a period of rapid business and product transition. We must address the complexities of developing, manufacturing and servicing multiple products. Our products incorporate several different technologies and are sold through multiple marketing channels.

Dealing with this transition has placed a