-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VY2xLy17GpsaydmCyZNZlJ310NjjkS6nszKIKu5KXGA3YuA5JRbRCK2NueFJXEEm tnWNdh1IPwa1zNqRwfLKoQ== 0000891020-96-000041.txt : 19960131 0000891020-96-000041.hdr.sgml : 19960131 ACCESSION NUMBER: 0000891020-96-000041 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951031 FILED AS OF DATE: 19960129 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERPOINT CORP /NEW/ CENTRAL INDEX KEY: 0000050842 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 910850556 STATE OF INCORPORATION: WA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11069 FILM NUMBER: 96507822 BUSINESS ADDRESS: STREET 1: 10301 WILLOWS RD STREET 2: PO BOX 97005 CITY: REDMOND STATE: WA ZIP: 98073-9705 BUSINESS PHONE: 2068823100 MAIL ADDRESS: STREET 1: 10301 WILLOWS ROAD STREET 2: PO BOX 97005 CITY: REDMOND STATE: WA ZIP: 98073-9705 FORMER COMPANY: FORMER CONFORMED NAME: INTEGRATED CIRCUITS INC DATE OF NAME CHANGE: 19890321 10-K 1 INTERPOINT CORPORATION FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------- FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-11069 ------------------------------ INTERPOINT CORPORATION (Exact name of registrant as specified in its charter) WASHINGTON 91-0850556 (State or other jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 10301 WILLOWS ROAD, P.O. BOX 97005 REDMOND, WASHINGTON 98073-9705 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (206) 882-3100 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- None None Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK (Title of Class) 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 voting stock held by nonaffiliates of the registrant is $29,182,622 as of December 31, 1995, based on the average of the closing bid and ask prices of such stock in the over-the-counter market on that date. There were 3,827,841 shares of common stock outstanding as of December 31, 1995. The Index to Exhibits appears on page 28. Part III is incorporated by reference from the proxy statement to be filed in connection with the 1996 Annual Meeting of Shareholders. 2 PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS Interpoint Corporation (Interpoint or the Company) was incorporated in 1969 to manufacture customized hybrid microelectronics used primarily in aerospace and defense markets. The Company has sought to sustain a high rate of revenue growth and substantial profitability in five ways: (1) increasing the proprietary content of its products; (2) developing or acquiring additional niche products; (3) increasing market share in existing markets; (4) establishing and maintaining cost advantaged manufacturing; and (5) diversifying its customer base. This strategy has resulted in revenue growth from $12 million in fiscal 1985 to $71 million in fiscal 1995, a compounded annual rate of 19 percent. Over the same period, Interpoint has been consistently profitable, with net income growing from $363,000 to $3,088,000, despite the effects of economic and political cycles in the Company's original aerospace and defense markets. The 1985 amounts referred to are prior to the Company's restatement of financial results done in connection with two subsequent pooling-of-interest transactions. Users of financial information may be well served to review results as originally stated, as well as reported herein, for this ten-year period. The Company currently has two principal business segments, microelectronics products and data storage products. Cash is allocated between the two segments depending on the relative return on the opportunities presented. Over the past two years, profits from the more mature microelectronics business have been redeployed to sustain growth in the data storage market. The microelectronics product segment is dominated by the manufacture of proprietary, standardized DC-to-DC power supplies which use microcircuit technology to serve primarily aerospace and defense applications. The remaining original custom microelectronics business now represents approximately 38 percent of the microelectronics segment and is divided between a rapidly-growing medical device market and the traditional aerospace market. The data storage product segment is based upon the acquisitions of Advanced Digital Information Corporation (ADIC) and ADIC Europe in 1994. ADIC designs, manufactures and markets specialized, automated high-performance data storage products used to file or archive electronic data in conjunction with integrated computer systems, including local area networks, workstations and other microcomputer systems. ADIC offers automated tape libraries in 4mm (DAT), 8mm, QIC and DLT tape technologies. These libraries support drives from multiple manufacturers and are compatible with a variety of system and back-up software configurations. Interpoint directors and management have been involved with ADIC since 1984. All products are manufactured in ISO 9001 certified and qualified facilities. Approximately 43 percent of microelectronics products are manufactured in Taiwan. Additional information including net sales, operating profit and total assets specific to the microelectronics and data storage segments is presented in Note 12 to the Consolidated Financial Statements. DESCRIPTION OF MICROELECTRONICS BUSINESS Power Products represent 62 percent of the microelectronics business and include proprietary DC-to-DC power supplies which enjoy a large market share in a specialized market that the Company believes to be growing. Custom Products represent the remaining 38 percent and compete in a highly fragmented market, including high growth medical microcircuit applications, as well as traditional defense and aerospace applications. 2 3 The Company's Power Products are complex high-density DC-to-DC (direct current to direct current) power conversion circuits that rely on power supply design and testing expertise developed by its engineering team over the last 15 years. Such products are completely designed by the Company to meet the needs of a general market or a specific customer. Custom Products are based upon a customer's electronic specification and intended to meet a specific application. The Company's designers work with the customer to transform the customer's concept or design into a microcircuit. Custom circuits frequently make use of application specific integrated circuits (ASICs) which perform complex electronic functions and require specialized testing expertise. All microelectronics products, including power, custom and medical applications, are manufactured utilizing hybrid or a combination of hybrid and surface mount microcircuit technology. Hybrid microcircuit technology produces electrical circuits of a small size and high reliability by mounting unpackaged integrated circuits (ICs) and other electronic components on specially designed substrates and sealing the entire assembly in a durable, often hermetic package. Because they eliminate the separate packages and duplicate interconnections for each semiconductor and electronic component, such as is characterized by standard printed circuit board (PCB) assembly, hybrid microcircuits offer a substantial reduction in size and weight as well as improved device reliability and stability over PCBs. Surface mount technology is a widely used method of packaging integrated circuits for incorporation in electronic systems where size is at a premium. Microelectronics sales comprised 55 percent of total Company sales in 1995. All processes and methods are controlled to stringent quality assurance procedures and specifications. Interpoint's Redmond, Washington manufacturing facilities have been certified as being in compliance with MIL-STD-1772, a comprehensive U.S. government quality standard recognized internationally by designers of both military and commercial high-reliability electronic systems. Both Redmond facilities are also certified to ISO 9001 standards. In addition to its Redmond, Washington facilities, the Microelectronics business operates a manufacturing facility in Taiwan. Products manufactured in the Taiwan facility must meet the same overall quality standard as those manufactured in the Redmond plants. The Taiwan facility serves as a primary or alternative manufacturing site for both Power Products and Custom Products. MIL-STD-1772 certification is not available in Taiwan but the Company has also obtained ISO 9001 approval for this facility. Raw materials are obtainable from several suppliers and the Company allows for appropriate lead times for delivery of materials. The manufacturing process includes substantial reliance on robotic or semiautomatic equipment for the attachment of individual components and interconnection or wirebonding of such components to the substrate. Products The Company is a worldwide supplier of high-density, high-reliability DC-to-DC power converters and believes it is the largest supplier of such DC-to-DC power supplies for critical applications. Interpoint's DC-to-DC power converters convert single direct current input voltage to one or more different direct current output voltages. Distributed power, a major trend in complex electronic systems, uses multiple converters to supply power for a system. Distributed power can reduce device and circuitry redundancies, save weight and space, increase reliability and make it easier for systems engineers to design independent subsystems. Pioneered in the aerospace sector, distributed power designs have expanded to numerous applications such as telecommunications and computers and have made high density DC-to-DC power converters among the highest growth areas in the power supply industry. The Company's power converters are sold primarily to high end markets, such as the commercial aerospace and military electronics industries, where high reliability and small size are critical. New products include power converters using surface mount technology, which the Company began shipping in 1995. 3 4 Most of the Company's power converters are standard devices; however, in some cases they may be customized to meet a customer's individual needs. Certain of the Company's converters are fully compliant with MIL-STD-883, the U.S. government's highest quality rating for military electronic components. Power Products sales have experienced growth during the last three years, showing a compound annual growth rate of 13% since 1992 and a higher growth rate in new orders and backlog. Custom Products are designed to meet customer specifications. Medical applications for these products include an implantable defibrillator, an electronic heart-assist pump and surgical tools. Such applications typically involve a greater degree of partnership between Interpoint and its customer than is typical with the Company's traditional military/aerospace customers. Such a partnership may include significant co-development of products, sole source procurement, shared clinical qualification and shared market or inventory risk. Where the risk of product liability exposure has been deemed to be different than that for the Company's other products, Interpoint seeks indemnification from its customers and appropriate insurance coverage. Interpoint manufactures other custom microcircuits principally for use in military electronics applications such as surveillance devices, avionics and missile systems, in addition to industrial equipment and commercial aircraft applications where small size is important. Typically, a customer designs the circuit for a product and furnishes the Company with specifications relating to the electrical, mechanical and functional requirements of the circuit. The Company then develops a custom microcircuit product that conforms to the specifications. The Company's business relationships with its Custom Products customers usually develop through a competitive bidding process, which generally involves several competitors. Factors considered by customers in awarding contracts include component price, timeliness of delivery, quality control, reliability, production capability and service support. Sales of custom products to the military/aerospace industry declined over the period from 1992 to 1994, stabilizing in 1995. Growth in custom products in 1995 and anticipated growth in 1996 result primarily from products serving the medical market. Sales and Distribution Microelectronics products are sold through direct sales activities, independent sales representatives and stocking agents. Domestic direct sales are conducted out of the Company's offices in Redmond, Washington and out of its sales offices located in key market areas. Sales engineers in Redmond also manage the domestic independent sales representatives. Independent sales representatives solicit orders on behalf of Interpoint, with shipments made directly to the customer by the Company. International microelectronics sales are comprised primarily of Power Products. A United Kingdom sales office staff manages certain European, Middle East, Australian and Asian representatives as well as directly selling to U.K. customers. The staffs of sales offices in Paris, France and Frankfurt, Germany solicit orders from their customers in these markets as well as overseeing representatives in certain other European markets. Shipments are made directly to European customers from the Company. In some areas, stocking representatives buy from the Company and resell to their customers. Order Backlog Orders for the Company's Custom Products, and for Power Products which are customized to a customer's particular needs, generally involve contracts scheduling deliveries over a period of time. Orders for standard Power Products may also be scheduled out over a specified period of time. At October 31, 1995, the Company had firm contracts with Microelectronics customers for products aggregating approximately $41.9 million, of which approximately 60% is scheduled for shipment during fiscal 1996. Backlog at October 31, 1994, was approximately $34.9 million. 4 5 The backlog includes orders on which the Company is subcontractor to a U.S. government prime contractor. Pursuant to the terms with the prime contractors, the Company would be compensated by the prime contractor for costs expended and profits earned to date if any of these contracts were cancelled. Patents Individuals within the power products team have applied for and been granted patents on behalf of the Company for various aspects of converter design. The Company recognizes the value of patents in electrical designs and processes and expects to seek additional such patents. The Company also seeks to protect its technology and proprietary information through trademarks, copyrights, licenses and trade secret protection measures. Competition The ability of Interpoint's Power Products to compete depends on, among other things, the Company's development and timely introduction of products that withstand rapid changes in technology and whose product lifecycles exceed their product development cycle. The Company continues new product development efforts which are designed to maintain or increase market share in the high reliability, board-mountable DC-to-DC converter world market, and which can protect that share advantage in the future. The Company has built on its highest volume sales lines by generating smaller, more powerful versions of those products, as well as by producing a complete line of products which are fully compliant to MIL-STD 883, an exacting military standard. Power Products based on the new technology provide users with improved performance and more power per dollar of product price. The microcircuit market for Custom Products is highly fragmented and competition among the various manufacturers is intense. While the overall market is large, many of the potential customers for these products have internal manufacturing capacity. Military and aerospace markets, which in the past which have been the primary users of Custom Products, have been shrinking recently and the Company has actively pursued a strategy of focusing on those customers and projects which provide better profit margins and greater cash generation. Medical products are sold to a small number of commercial customers and the Company generally enjoys close working relationships with these customers as described above. DESCRIPTION OF DATA STORAGE BUSINESS Advances in microprocessor technology, the increasing complexity of application software, the expanding role of networks and the increasing use of graphics and other data-intensive applications have accelerated the demand for greater data storage capabilities. Because critical data is expensive to maintain on disk and data can be lost for many reasons, regular archiving and rapid access to stored data have become essential. ADIC is a leading drive independent manufacturer of tape libraries integrating proprietary robotic changing mechanisms with multiple choices of tape drive technology. Numerous companies are involved in the design and manufacture of data storage devices for this market which is intensely competitive and subject to rapid technological change. Potential competitors, who also represent current and prospective OEM customers for ADIC's products, include these suppliers of storage devices that ADIC incorporates into its libraries. Libraries vary considerably in configuration, price and capabilities, and are typically differentiated by capacity, access time and configuration. Total storage capacity and access time depend on the model and tape technology chosen. Products ADIC offers a full range of desktop or rack-mountable automated tape libraries in 4mm Digital Audio Tape (DAT), 8mm, QIC and Digital Linear Tape (DLT) tape technologies. Throughout most of fiscal year 1995, ADIC's principal product has been the DAT Library. This is a software-controlled, robotic data storage subsystem that provides access to multiple storage tapes housed in a desktop enclosure. When bundled with storage management software, the DAT Library provides a complete solution for automating data storage and retrieval in network and workstation environments. 5 6 In the fall of 1993, ADIC introduced the VLS-8 (Virtual Library System). The VLS-8 utilizes dual 8mm helical scan tape drives accessing an 11 cassette magazine to provide over 150 gigabytes of storage capacity (a gigabyte is one billion bytes), three times the capacity of the original 4mm DAT Library. In the last quarter of 1995, the VLS DLT and Scalar products were introduced and began to ship. The Company believes that the VLS DLT library offers the highest sustained throughput of any desktop library currently available and is ideal for high capacity backup and restore solutions for large networks with up to 500 users. The Scalar series of DLT libraries is designed to provide data centers with scaleable, multiple-drive libraries for multi-tasking hierarchical storage management applications. The Scalar libraries offer up to four DLT drives and up to 48 cartridges providing total capacity of up to 1.92 terabytes (a terabyte is one thousand gigabytes). Sales of these library products comprised approximately 65 percent of ADIC sales in 1995. Other products include related stand alone drives and external backup solutions, both of which generally have lower margins. Each new library version capitalizes on the development of the previous design, which ADIC believes yields higher reliability and shorter development cycles. It has been ADIC's policy to retain all intellectual property rights in connection with the development of new OEM configurations of its library products, which may then also be marketed under ADIC's brand. Sales and Distribution ADIC's products are sold through multiple channels including original equipment manufacturers (OEMs), value-added resellers (VARs) and commercial distribution. Regional sales offices are located in New York, Illinois, Georgia, Texas and California; all other domestic personnel are located at its Redmond, Washington facility. In June 1994, the Company acquired ADIC Europe (ADE) to market and distribute ADIC's data storage products throughout Europe. Based outside Paris, ADE sells and supports ADIC products in Europe, Middle East and Africa. Competition ADIC believes that its products presently enjoy a competitive advantage in versatility and adaptability with respect to device technologies, media types, and operating systems. ADIC does not, however, possess proprietary drive technology and consequently is dependent upon a limited number of third-party manufacturers of storage devices for incorporation in its libraries. ADIC's strategy for launching new products is to initiate market penetration through OEMs in proprietary markets, through integrators in specific system markets and through ADIC distributor channels in the PC based markets. In certain instances, ADIC will make direct sales to large companies that have in-house integration departments that are able to directly support ADIC products. ADIC provides sales leads, training, technical service and support for its resellers. ADIC expects to continue to rely on OEMs and VARs to provide additional value-added services to their respective markets. Patents ADIC has patented some of its early library systems designs and expects to patent some of the specific characteristics of its new Scalar product. The product name "Scalar" is a trademark of ADIC. 6 7 RESEARCH AND DEVELOPMENT Significant research and development costs are expended by both ADIC and Microelectronics in the design and test of new products. Additional, often significant, costs are incurred in connection with new manufacturing processes. Of these total costs, a portion are undertaken in connection with custom programs and are compensated in part by the customer. For Federal income tax purposes, the Company believes that substantial costs in excess of those reported for financial statement purposes, qualify as research expenses. FOREIGN OPERATIONS AND EXPORT SALES Export sales of Interpoint products during fiscal 1995, 1994 and 1993 represented approximately 33%, 26% and 20%, respectively, of net sales. Such sales are made both in U.S. dollars and in foreign currencies. The Company takes appropriate actions to minimize exposure to fluctuations in foreign currencies. Interpoint Taiwan Corporation (ITC) serves as a manufacturing facility for the Microelectronics Group. Personnel located in Redmond procure raw materials and send them to Kaohsiung, Taiwan for assembly. When completed and fully tested, the finished goods are returned to Redmond for shipment to the customer. ITC has no direct sales. See Footnote 13 to the Consolidated Financial Statements for further information. TEAM MEMBERS (EMPLOYEES) At October 31, 1995, the Company had 480 domestic team members. These team members are located primarily in Redmond, Washington. In addition, 120 team members are located in Kaohsiung at ITC and another 24 at the Company's facilities in Europe. ITEM 2. PROPERTIES The Company owns a 7-acre parcel of land and a 40,000 square foot building in Redmond, Washington. This site houses the Company's executive operations and a portion of the administrative and assembly operations of the Microelectronics business. The property is encumbered by a $2,350,000 deed of trust in favor of a bank providing a standby letter of credit, which is the security for the purchasers of Industrial Development Revenue Bonds issued by the Redmond Public Corporation. Adjacent to this site is the ADIC facility which houses all of its domestic operations. This facility is 41,000 square feet and is leased through 2005. Additionally, the Company has leased 25,000 square feet through June 1998 at a nearby location to house additional Microelectronics administrative and assembly operations. ITC owns its building in Kaohsiung and leases the land for this facility under a long-term agreement. In addition, the Company leases sales offices at various sites in the United States and Europe. ITEM 3. LEGAL PROCEEDINGS The Company has no pending legal proceedings of a material nature. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the Company's fourth quarter. 7 8 PART II ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the Nasdaq National Market. As of October 31, 1995, there were 281 shareholders of record. The following table shows the range of high and low market prices as reported by the Nasdaq National Market. The Company has never paid cash dividends on its common shares. It is not anticipated that any cash dividends will be paid on its common shares in the foreseeable future. NATIONAL MARKET SYMBOL: INTP
Years ended October 31 1995 1994 ---------------------- ---- ---- 1st Quarter........................ 9 1/2 - 6 3/4 $13 3/4 - 7 2nd Quarter......................... 9 1/4 - 7 13 - 7 3rd Quarter......................... 10 3/4 - 7 1/2 11 - 7 4th Quarter......................... 12 1/2 - 9 11 1/2 - 8
ITEM 6. SELECTED FINANCIAL DATA CONSOLIDATED STATEMENTS OF INCOME
Year ended October 31, ---------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- (In thousands, except for per share amounts) Net sales .............. $71,056 $54,755 $52,081 $47,832 $42,089 Acquisition expenses ... $ -- $ 729 $ -- $ -- $ -- Net income ............. $ 3,088 $ 1,726 $ 2,320 $ 2,143 $ 41 Average number of common and common equivalent shares outstanding ... 4,002 3,995 3,921 3,861 3,871 Net income per share ... $ .77 $ .43 $ .59 $ .56 $ .01
CONSOLIDATED BALANCE SHEETS
October 31, ----------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- (In thousands) Total assets ............ $47,920 $39,139 $34,100 $34,006 $30,356 Long-term debt, excluding current portion ....... $ 3,551 $ 4,029 $ 5,935 $ 7,372 $ 5,775 Stockholders' equity .... $21,351 $18,023 $15,784 $13,298 $11,014
In February 1994, Interpoint acquired ADIC in a merger accounted for as a pooling-of-interests. Consequently, all amounts presented are as if the companies had been combined as of the beginning of the periods presented. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Interpoint Corporation manufactures specialized technology products targeting high share growth markets. Its operations are comprised of two business segments which operate in different industries. ADIC manufactures and sells automated tape library products for data storage as well as complementary data storage products. The 8 9 Microelectronics business designs, manufactures and sells DC-to-DC power supplies as well as custom medical and military/aerospace products. Corporate growth has been achieved and is expected to continue through a combination of internal growth and acquisitions. The acquisition of ADIC in February 1994 was accounted for as a pooling-of-interests, consequently, all amounts are presented as if the companies had been combined as of the beginning of the periods presented. RESULTS OF OPERATIONS Net sales. For the fiscal year ended October 31, 1995, sales increased 30 percent to $71.1 million from $54.8 million in 1994. While there was growth in both business units, the increase in sales was primarily attributable to ADIC data storage products which had revenue growth of 58 percent. At ADIC, sales of library systems and other storage products totaled $31.7 million in the most recent fiscal year. Within this data storage segment, libraries represent the Company's proprietary technology. These libraries have doubled from $10.3 million in sales in 1994 to $20.4 million in 1995. Part of the growth is due to increased international sales due to the 1994 acquisition of ADIC Europe which has become a significant distributor of these products. Related but lower margin complementary products also comprise a significant growth area. Sales of ADIC products increased 17 percent from 1993 to 1994 as a result of increased volumes of library products which was partially offset by price decreases in these products and a sales decline in certain discontinued integration and peripheral products. Sales for Microelectronics increased with proprietary power products growing by seven percent to a total of $24.6 million for 1995, while custom products, led by medical microelectronics, grew by 27 percent, to $14.8 million. Fiscal year 1994 sales were essentially flat as compared to 1993 at $35 million. This lack of growth in fiscal 1994 was the product of an increase in sales of proprietary power products being offset by a decline in custom military/aerospace products. Fiscal 1995 bookings for Microelectronics were strong, resulting in a year-end backlog of $42 million. This compares to a backlog at October 31, 1994 of $35 million. These orders are scheduled to be shipped over the next several years, as customers continue to look for single supplier, long-term relationships. Gross profit. Gross profit as a percent of sales for the fiscal year ended October 31, 1995, remained equivalent to the previous year at 31 percent. 1994 showed an increase to 31 percent from the 1993 level of 29 percent. Gross profit for Microelectronics increased in 1995 due primarily to the increased volumes. The gross profit percentage at ADIC decreased in 1995 as compared to 1994 based upon a product mix change which included sales of lower margin, non-library products. The 1994 percentage growth as compared to 1993 reflected the shift in sales toward the high margin power products. Selling and administrative. Selling and administrative costs have remained consistent at 21 percent of sales in 1995 and 1994. These costs represented 18 percent of sales in 1993. The principal dollar increases were at ADIC and ADIC Europe which invested heavily to support expected future sales increases. Additionally, ADIC Europe has undertaken efforts beginning in 1994 and continuing in 1995 to build a more extensive distribution channel network. Research and development. Research and development costs remained at comparable levels throughout 1995, 1994 and 1993, decreasing slightly in 1995 as a percentage of sales. The Company has introduced a significant number of new products in the last quarter of 1995, a portion of which costs are considered cost of sales for financial statement purposes. Acquisition expense. Acquisition expenses in 1994 relate to the merger of Interpoint Corporation and ADIC. Interest expense. Interest expenses have increased in 1995 as compared to 1994 due both to higher interest rates and higher short-term borrowings. The 1994 decrease as compared to fiscal 1993 related to the repayment of an ADIC note payable which had been at the prime rate plus 2.75 percent. 9 10 Income taxes. The effective tax rate in 1995 is 27 percent. The rate benefited from the combination of research and development credits available for federal tax purposes and the recognition of a net operating loss carryforward at ADIC Europe. The 1994 effective tax rate was higher due to lower research and development credits and the non-deductibility of certain of the acquisition expenses. Inflation. The Company believes inflation has not had a material effect on its operations in the most recent three year period. LIQUIDITY AND CAPITAL RESOURCES The Company's cash was $778,000 at October 31, 1995, compared with $542,000 at October 31, 1994. Cash provided by operating activities was minimal due primarily to growth in inventories and accounts receivable. Inventory growth resides primarily at ADIC which has strived to have a greater amount of product in work and available for immediate shipment, and which also has purchased significant quantities of DLT-based products. Receivable growth relates directly to the growth in sales much of which was concentrated in the later part of the year. The Company's available sources of credit at October 31, 1995 included a $10.5 million line of credit which bears interest at the bank's prime rate or adjusted LIBOR rate. This line is subject to certain restrictive covenants on working capital etc., the Company is well within acceptable limits regarding these covenants. Interpoint had no material or unusual commitment for capital expenditures as of October 31, 1995. The Company has a line of credit of $750,000 with which to fund capital expenditures, none of which was used at year-end. The Company expects that cash flow from operations, existing cash balances and borrowings available under its credit lines will be adequate to meet the Company's cash requirements for 1996. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE ---- Report of Independent Accountants........................................... 11 Consolidated Statements of Income........................................... 12 Consolidated Balance Sheets................................................. 13 Consolidated Statements of Stockholders' Equity............................. 14 Consolidated Statements of Cash Flows....................................... 15 Notes to Consolidated Financial Statements.................................. 16
10 11 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Interpoint Corporation In our opinion, based upon our audits and the report of other auditors, the accompanying consolidated financial statements listed in the index appearing under Item 14(a)(1) and (2) present fairly, in all material respects, the financial position of Interpoint Corporation and its subsidiaries at October 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Advanced Digital Information Corporation for the year ended October 31, 1993, which statements reflect total revenues of $17,108,522. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the 1993 amounts included for Advanced Digital Information Corporation, is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Seattle, Washington December 5, 1995 11 12 CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
1995 1994 1993 -------------- -------------- -------------- Net sales ................................. $ 71,055,680 $ 54,754,560 $ 52,080,552 Cost of sales ............................. 49,250,027 37,732,445 36,830,085 ------------ ------------ ------------ Gross profit ......................... 21,805,653 17,022,115 15,250,467 Operating expenses: Selling and administrative ........... 14,856,539 11,362,127 9,358,354 Research and development ............. 1,991,320 1,728,069 1,929,436 Acquisition expenses ................. -- 728,743 -- ------------ ------------ ------------ 16,847,859 13,818,939 11,287,790 ------------ ------------ ------------ Operating profit .......................... 4,957,794 3,203,176 3,962,677 Non-operating income (expense): Interest expense ..................... (978,167) (798,462) (817,969) Interest income ...................... 2,801 10,835 8,911 Foreign currency transaction losses... (28,482) (1,227) (55,618) Equity in net income of an affiliate.. 297,971 103,081 83,619 ------------ ------------ ------------ (705,877) (685,773) (781,057) ------------ ------------ ------------ Income before provision for income taxes... 4,251,917 2,517,403 3,181,620 Provision for income taxes: Current .............................. 1,493,871 509,732 829,725 Deferred ............................. (329,627) 281,968 32,191 ------------ ------------ ------------ 1,164,244 791,700 861,916 ------------ ------------ ------------ Net income ................................ $ 3,087,673 $ 1,725,703 $ 2,319,704 ============ ============ ============ Average number of common and common equivalent shares outstanding ........ 4,002,421 3,994,905 3,920,704 ============ ============ ============ Net income per share ...................... $ 0.77 $ 0.43 $ 0.59 ============ ============ ============
See accompanying notes. 12 13 CONSOLIDATED BALANCE SHEETS OCTOBER 31, 1995 AND 1994 ASSETS
1995 1994 ----------- ----------- Current assets: Cash ................................................................. $ 777,844 $ 541,805 Trade accounts receivable, less allowance for doubtful accounts of $133,000 in 1995 ($108,000 in 1994) .................... 16,963,322 12,095,295 Inventories (Note 3) ................................................. 18,008,496 14,453,920 Prepaid expenses and other ........................................... 418,447 399,206 Deferred income taxes (Note 9) ....................................... 764,253 467,830 ----------- ----------- Total current assets ........................................ 36,932,362 27,958,056 Property, plant and equipment, at cost (Note 6): Land ................................................................. 1,334,988 1,324,988 Buildings and improvements ........................................... 4,538,204 4,890,474 Machinery and equipment .............................................. 12,961,154 11,946,535 Office equipment ..................................................... 2,630,205 2,620,412 Leasehold improvements ............................................... 526,940 405,929 ----------- ----------- 21,991,491 21,188,338 Less accumulated depreciation and amortization ....................... 13,275,299 11,950,335 ----------- ----------- Net property, plant and equipment ........................... 8,716,192 9,238,003 Investment in common stock (Note 4) ....................................... 1,629,640 1,331,669 Other assets .............................................................. 641,932 611,593 ----------- ----------- $47,920,126 $39,139,321 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Loans payable (Note 5) ............................................... $ 8,583,680 $ 6,253,840 Accounts payable ..................................................... 6,799,365 4,584,858 Income taxes payable (Note 9) ........................................ 1,335,080 230,409 Accrued wages and commissions ........................................ 2,919,042 2,484,036 Other current liabilities ............................................ 576,604 564,131 Long-term debt, current portion (Note 6) ............................. 1,342,464 1,504,502 ----------- ----------- Total current liabilities ................................... 21,556,235 15,621,776 Long-term debt (Note 6) ................................................... 3,551,357 4,029,172 Accrued retirement benefits (Note 8) ...................................... 572,260 518,451 Other liabilities ......................................................... 85,503 112,870 Deferred income taxes (Note 9) ............................................ 804,232 834,387 Commitments (Note 11) Stockholders' equity (Note 7): Preferred stock, 500,000 shares authorized, none issued .............. -- -- Common stock, 10,000,000 shares authorized, 3,827,754 shares issued and outstanding (3,802,272 in 1994), 502,287 shares reserved ............................................ 4,707,331 4,561,859 Retained earnings .................................................... 16,212,902 13,125,229 Cumulative translation adjustments ................................... 430,306 335,577 ----------- ----------- Total stockholders' equity .................................. 21,350,539 18,022,665 ----------- ----------- $47,920,126 $39,139,321 =========== ===========
See accompanying notes. 13 14 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
COMMON STOCK CUMULATIVE ------------------------------ RETAINED TRANSLATION SHARES AMOUNT EARNINGS ADJUSTMENT TOTAL ------------ ------------ ------------ ------------ ------------ Balance, October 31, 1992 ........ 3,691,301 $ 4,029,351 $ 8,972,637 $ 296,472 $ 13,298,460 Exercise of stock options, including tax benefit of $92,000 ................... 68,332 379,807 379,807 Shares returned to the Company as payment for stock option exercise ..... (18,475) (164,797) (164,797) Net income .................. 2,319,704 2,319,704 Translation adjustment ...... (48,707) (48,707) ------------ ------------ ------------ ------------ ------------ Balance, October 31, 1993 ........ 3,741,158 4,244,361 11,292,341 247,765 15,784,467 Exercise of stock options, including tax benefit of $114,000 .................. 60,905 334,170 334,170 Shares returned to the Company as payment for stock option exercise ..... (10,791) (104,672) (104,672) Shares granted in acquisition (Note 14) ................. 11,000 88,000 88,000 Net income .................. 1,725,703 1,725,703 Translation adjustment ...... 87,812 87,812 ADIC net income for October 1993 .............. 107,185 107,185 ------------ ------------ ------------ ------------ ------------ Balance, October 31, 1994 ........ 3,802,272 4,561,859 13,125,229 335,577 18,022,665 Exercise of stock options, including tax benefit of $36,600 ................... 27,507 161,421 161,421 Shares returned to the Company as payment for stock option exercise ..... (2,025) (15,949) (15,949) Net income .................. 3,087,673 3,087,673 Translation adjustment ...... 94,729 94,729 ------------ ------------ ------------ ------------ ------------ Balance, October 31, 1995 ........ 3,827,754 $ 4,707,331 $ 16,212,902 $ 430,306 $ 21,350,539 ============ ============ ============ ============ ============
See accompanying notes. 14 15 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
1995 1994 1993 ----------- ----------- ----------- Cash flows from operating activities: Net income ............................... $ 3,087,673 $ 1,725,703 $ 2,319,704 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ........ 2,005,241 1,827,149 1,699,741 Deferred income tax .................. (329,487) 233,365 32,191 Equity in net income of an affiliate . (297,971) (103,081) (83,619) Net book value of assets retired ..... 245,037 124,373 23,274 Change in assets and liabilities: Receivables .......................... (4,802,852) (3,294,592) 986,040 Inventories .......................... (3,509,756) (1,506,036) (1,304,620) Prepaid expenses and other ........... (14,935) 125,649 (147,183) Other assets ......................... (108,551) (10,444) 5,758 Accounts payable ..................... 2,190,205 1,424,204 (912,525) Income taxes payable ................. 1,141,434 (225,846) 291,776 Accrued liabilities .................. 432,841 327,129 (214,109) Accrued retirement benefits .......... 72,961 71,249 110,140 Other liabilities .................... (27,366) (11,649) 93,756 ----------- ----------- ----------- Net cash provided by operating activities .......... 84,474 707,173 2,900,324 Cash used in investing activities: Purchases of property, plant and equipment .............................. (1,662,273) (1,431,923) (1,185,201) Investment in business equipment and assets ............................. -- (49,035) (125,275) Acquisition of ADIC Europe, net of cash acquired ....................... -- (493,553) -- ----------- ----------- ----------- Net cash used in investing activities .................... (1,662,273) (1,974,511) (1,310,476) Cash flows provided by (used in) financing activities: Net proceeds from (repayments of) loans payable .......................... 2,329,840 2,336,305 (382,465) Proceeds from long-term borrowings ....... 757,505 272,664 333,198 Repayment of long-term debt .............. (1,397,358) (2,270,595) (1,579,115) Proceeds from issuance of common stock for stock options ................ 108,871 115,499 123,010 ----------- ----------- ----------- Net cash provided by (used in) financing activities .......... 1,798,858 453,873 (1,505,372) Effect of exchange rate changes on cash ....... 14,980 5,113 (2,109) ----------- ----------- ----------- Net increase (decrease) in cash ............... 236,039 (808,352) 82,367 Cash at beginning of period ................... 541,805 1,185,106 1,102,739 Adjustment to conform fiscal year of ADIC (Note 2) ............................ -- 165,051 -- ----------- ----------- ----------- Cash at end of period ......................... $ 777,844 $ 541,805 $ 1,185,106 =========== =========== =========== Supplemental disclosures of cash flow information: Cash paid during period for: Interest ............................. $ 992,875 $ 807,110 $ 854,748 Income taxes ......................... $ 352,600 $ 732,848 $ 551,491
See accompanying notes. 15 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1995, 1994 AND 1993 NOTE 1. SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation. The financial statements consolidate the accounts of Interpoint Corporation (Interpoint) and its wholly-owned subsidiaries, Advanced Digital Information Corporation (ADIC), Interpoint Taiwan Corporation (ITC), Interpoint (UK) Ltd., Interpoint France SARL (incorporated in 1993), ADIC Europe (ADE), Interpoint GmbH (incorporated in 1995) and Interpoint Trade Corp., a foreign sales corporation. All intercompany transactions have been eliminated. The consolidated group is collectively referred to as the "Company." Inventories. Inventories are stated at the lower of cost (first-in, first-out) or market, and include certain nonrecurring engineering costs associated with orders for non-proprietary items. The costs are charged to cost of sales as the order is shipped. Depreciation and amortization. Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the assets as follows: building, 40 years; machinery and equipment, 3 to 10 years; office equipment, 3 to 10 years; leasehold improvements, life of lease. Foreign currency translations. The financial statements of non-U.S. subsidiaries have been translated into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation." Under the provisions of this Statement, all assets and liabilities in the balance sheets of ITC and ADE, whose functional currency is other than the U.S. dollar, are translated at year-end exchange rates, and translation gains and losses are accumulated in a separate component of stockholders' equity. Because Interpoint (UK) Ltd., Interpoint France SARL and Interpoint GmbH are effectively extensions of Interpoint operations, their records are consolidated using the U.S. dollar as the functional currency. In an effort to minimize the effect of exchange rate fluctuations on the results of its operations, the Company hedges its foreign currency exposure by using forward exchange contracts and by incurring non-U.S. dollar denominated debt to offset same currency receivables. Market value gains and losses of these hedges offset foreign currency transaction gains or losses. Per share data. Per share calculations are determined on the weighted average number of common and common equivalent shares outstanding during each period. Cash and cash equivalents. The Company considers short-term investments with maturities from the date of purchase of three months or less to be cash equivalents. Concentration of credit risk. The Company sells products to a wide variety of industries on a worldwide basis. In countries or industries where the Company is exposed to material credit risk, sufficient collateral, including cash deposits and/or letters of credit, is required prior to the completion of a transaction. The Company does not believe there is a material credit risk beyond that provided for in the financial statements in the ordinary course of business. In the fiscal years ended October 31, 1995, 1994 and 1993, no customer accounted for more than 10% of sales. Income taxes. Provision for income taxes have been recorded in accordance with Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes". Under the liability method of FAS 109, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to be recovered or settled. Reclassification. Certain items in the previous year financial statements have been reclassified to conform with the current year presentation. 16 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1995, 1994 AND 1993 NOTE 2. MERGER AGREEMENT WITH ADIC On February 11, 1994, Interpoint acquired ADIC pursuant to an Agreement and Plan of Merger dated October 29, 1993, in which ADIC was merged into a wholly-owned subsidiary of Interpoint. Pursuant to the terms of the merger agreement, each outstanding share of Common Stock of ADIC was converted into .55 shares of Interpoint Common Stock. A total of 1,340,255 shares of Common Stock of Interpoint were issued to ADIC shareholders. The acquisition was accounted for as a pooling-of-interests in accordance with Accounting Principles Board Opinion No. 16 "Business Combinations." ADIC had a September 30 year end and, accordingly, the ADIC Statements of Income and Cash Flows for the fiscal year ended September 30, 1993 have been combined with the corresponding Interpoint statements for the fiscal year ended October 31, 1993. In order to conform ADIC's year end to Interpoint's year end, ADIC's financial statements for the month of October 1993 are not included in the Statements of Income or Cash Flows for either fiscal year 1993 or fiscal year 1994. ADIC net income from October 1993 has increased retained earnings. Results of this month are as follows: Net sales.............................. $1,826,744 Gross profit........................... 673,861 Income before provision for income taxes..................... 162,402 Net income............................. $ 107,185
Results of operations prior to acquisition. Results of operations of Interpoint and ADIC for the period from November 1, 1993 to January 31, 1994 are as follows:
INTERPOINT ADIC TOTAL ---------- ---------- ----------- Net sales.............................. $7,724,335 $ 4,702,734 $12,427,069 Gross profit........................... 2,096,827 1,605,135 3,701,962 Acquisition expense.................... 138,743 590,000 728,743 Income (loss) before provision for income taxes..................... 15,556 (303,656) (288,100) Net loss .............................. $ (30,944) $ (222,156) $ (253,100)
Amounts previously reported. Amounts for the year ended October 31, 1993 as previously reported for Interpoint are as follows: Net sales.............................................. $34,972,030 Net income............................................. $ 1,239,355
NOTE 3. INVENTORIES Inventory is comprised as follows:
1995 1994 ----------- ----------- Finished goods ....................... $ 4,736,490 $ 3,667,549 Work-in-process ...................... 6,483,072 4,488,689 Raw materials ........................ 7,693,764 6,901,990 ----------- ----------- 18,913,326 15,058,228 Allowance for inventory obsolescence.. 904,830 604,308 ----------- ----------- $18,008,496 $14,453,920 =========== ===========
17 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1995, 1994 AND 1993 NOTE 4. INVESTMENT IN COMMON STOCK In 1990, the Company purchased 1,000,000 shares of common stock of Apex Microtechnology Corporation (Apex) at a cash price of $904,200. This investment represents approximately one-third of the outstanding stock of Apex, a privately-held company, and is accounted for using the equity method. A total of $725,440 of undistributed earnings of Apex are included in retained earnings. NOTE 5. LOANS PAYABLE Loans payable is comprised as follows:
1995 1994 ---------- ---------- Revolving lines of credit: Interpoint .......... $8,350,000 $6,250,000 ITC ................. 233,680 3,840 ---------- ---------- $8,583,680 $6,253,840 ========== ==========
Interpoint has $10.5 million in unsecured lines of credit with a bank expiring February 28, 1996. $2,150,000 was available at October 31, 1995. Borrowings against the line of credit bear interest at the bank's prime rate or adjusted LIBOR rate. At October 31, 1995, these rates were 8.75 and 8.01 percent, respectively. At October 31, 1994, these rates were 7.75 and 7.30 percent, respectively. In addition, ITC has $538,000 total lines of credit of which approximately $304,000 was available at October 31, 1995. Borrowings under these lines of credit bear interest at variable bank rates, 8.34 percent at October 31, 1995, and are collateralized by certain of ITC's assets. NOTE 6. LONG-TERM DEBT Long-term debt consists of the following:
1995 1994 ---------- ---------- Variable Rate Industrial Development Revenue Bonds, payable in increasing amounts to $400,000 annually through July 2003 ............................ $2,350,000 $2,550,000 Various equipment notes payable, secured by equipment, due $90,554 per month, including interest, at rates from 7.15% to 10.06% through August 2000 .. 1,946,899 2,060,752 Bank note payable, secured by business equipment and assets acquired, due $27,167 per month plus interest at prime plus 3/8%, through August 1997 . 596,922 922,922 ---------- ---------- 4,893,821 5,533,674 Less long-term debt, current portion ... 1,342,464 1,504,502 ---------- ---------- $3,551,357 $4,029,172 ========== ==========
Principal payments on long-term debt are as follows: 1997...................... $ 903,902 1998...................... 628,264 1999...................... 505,441 2000...................... 413,750 Thereafter................ 1,100,000 ---------- $3,551,357 ==========
18 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1995, 1994 AND 1993 The net book value of property, plant and equipment pledged as collateral on the above long-term debt aggregates approximately $5,827,000 at October 31, 1995. The Variable Rate Industrial Development Revenue Bonds were issued in 1988 to repay previously outstanding bonds issued for the construction of the Company's manufacturing and headquarters facility. The Bond loan provides for annual principal payments and monthly interest payments based upon an interest rate established weekly, 3.9 percent average during 1995. The bonds are enhanced by a bank letter of credit. The agreement with the bank prohibits the Company from either buying capital equipment or incurring debt of greater than $2 million in any twelve month period without approval. The bondholders have the right, on seven days notice, to tender their bonds back to the issuer. In the event the bonds could not be re-marketed, the letter of credit bank would pay the bondholders, and the Company in turn, would reimburse the letter of credit bank at the end of one year. If, during the year, the bonds are placed with a new bondholder, the proceeds from such placement would reimburse the letter of credit bank and relieve the Company's obligation. Costs incurred in connection with the Variable Rate Industrial Development Revenue Bonds have been capitalized and are being amortized through 2003. NOTE 7. STOCK OPTIONS At October 31, 1995, a total of 439,700 shares of common stock were reserved under two incentive stock option plans for officers and key team members. Currently, the plans provide that either qualified or non-qualified options may be issued. All of the existing outstanding options are non-qualified. Other terms require the option price to be equal to the fair market value on the date of grant. Options may be exercisable for all or part of the shares as determined by the option. All options issued under these plans expire 10 years from the date of grant or earlier as determined by the Compensation and Stock Option Committee of the Board of Directors. The majority of the options vest over a four-year period. In 1993 and 1995, grants were made to certain key team members which vest upon the earlier of the date on which the market price of the Company's stock has been at a certain level per share for 40 days, or ten years from the date of grant. Options granted under ADIC's stock option plan prior to the merger were replaced with options to purchase Interpoint common shares. In addition, at October 31, 1995, 62,587 shares of common stock were reserved under a non-qualified stock option plan for directors, key team members, agents, consultants and independent contractors of the Company. Terms of the plan are substantially the same as the incentive stock option plans described above. The stock option plans expire at December 31, 1995. A new plan is expected to be put into place in fiscal 1996, subject to shareholder approval. The following summarizes the activity of the option plans for the year ended October 31, 1995:
OPTION PRICE TOTAL ------------------------------------ OPTIONS PER SHARE TOTAL ------- ---------------- ------------ Outstanding, October 31, 1994................. 444,546 $0.745 - 10.500 $ 2,160,276 Options granted............................ 101,800 $8.625 - 11.000 937,516 Options forfeited.......................... (59,392) $3.130 - 11.000 (453,833) Options exercised.......................... (27,507) $3.130 - 8.125 (123,598) ------- ------------ Outstanding, October 31, 1995................. 459,447 $0.745 - 11.000 $ 2,520,361 ======= ============
At October 31, 1995, a total of 313,873 option shares were exercisable. 19 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1995, 1994 AND 1993 NOTE 8. RETIREMENT BENEFITS ITC has a retirement plan covering all Taiwan team members. The plan provides for normal retirement at age 60, with benefits based on length of service and base pay at time of retirement. Accrued retirement benefits are funded in accordance with government policy. Net periodic pension cost included the following components:
1995 1994 1993 --------- --------- --------- Service cost, benefits earned during the period.. $ 67,117 $ 65,920 $ 90,861 Interest cost on projected benefit obligation ... 60,791 64,433 93,795 Actual return on plan assets .................... (4,921) (6,616) (8,660) Net amortization ................................ 25,404 20,653 38,131 --------- --------- --------- Net pension expense ............................. $ 148,391 $ 144,390 $ 214,127 ========= ========= =========
The following table sets forth the plan's funded status and amounts recorded in the Company's consolidated balance sheets at October 31, 1995 and 1994:
1995 1994 ----------- ----------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $42,082 ($32,668 in 1994) .......................... $ 532,218 $ 458,721 =========== =========== Projected benefit obligation for service rendered to date $ 1,165,163 $ 934,834 Plan assets at fair value (principally cash) ................ (97,521) (87,830) ----------- ----------- Projected benefit obligation in excess of plan assets ....... 1,067,642 847,004 Unrecognized net gain ....................................... 81,452 308,213 Unrecognized net transitional obligation .................... (576,834) (636,766) ----------- ----------- Retirement benefits liability ............................... $ 572,260 $ 518,451 =========== ===========
Significant assumptions used in determining pension expense and related pension obligations as of October 31, 1995 and 1994, are as follows:
1995 1994 ---- ---- Long-term rate of return on assets............... 7% 7% Discount rate for obligation..................... 7% 7% Rate of compensation increase.................... 7% 6%
NOTE 9. FEDERAL INCOME TAX Income before provision for income taxes was taxed under the following jurisdictions:
1995 1994 1993 ----------- ----------- ----------- Current income tax: U.S. Federal ..................... $ 1,298,304 $ 344,879 $ 789,656 State and local .................. 75,000 10,000 2,000 Foreign .......................... 120,567 154,853 38,069 ----------- ----------- ----------- Total current .................... 1,493,871 509,732 829,725 Deferred income tax: U.S. Federal ..................... (154,183) 295,248 32,191 Foreign .......................... (175,444) (13,280) -- ----------- ----------- ----------- Total deferred ................... (329,627) 281,968 32,191 ----------- ----------- ----------- Total provision for income taxes.. $ 1,164,244 $ 791,700 $ 861,916 =========== =========== ===========
20 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1995, 1994 AND 1993 The provision for Federal income tax differs from the amount computed by applying the statutory Federal income tax rate to income before provision for income taxes for the following reasons:
1995 1994 1993 ----------- ----------- ----------- Federal income tax at statutory rate of 34% ... $ 1,445,652 $ 855,917 $ 1,081,751 Utilization of net operating loss carryforward/ removal of valuation allowance ............ (139,326) (61,373) -- Tax credits ................................... (166,345) 42,089 (150,000) Activity of domestic subsidiaries ............. (86,114) (29,790) (24,166) Non-deductible acquisition expenses ........... -- 67,913 -- Activity of foreign subsidiaries .............. 22,821 (75,259) (87,599) State income taxes ............................ 75,000 10,000 2,000 Other ......................................... 12,556 (17,797) 39,930 ----------- ----------- ----------- $ 1,164,244 $ 791,700 $ 861,916 =========== =========== ===========
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at October 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993 ----------- ----------- ----------- Deferred tax assets: Inventory and other allowances............ $ 441,960 $ 319,886 $ 316,289 Team member benefits, primarily compensated absences ................... 220,382 187,036 163,728 Pension benefits ......................... 63,253 49,613 -- Research and development and alternative minimum tax credit carryforwards ....... -- -- 265,999 Net operating loss carryforwards ......... 97,114 300,919 -- Other .................................... 55,783 99,962 23,002 ----------- ----------- ----------- Gross deferred tax assets ........... 878,492 957,416 769,018 Deferred tax assets valuation allowance... -- (300,919) -- ----------- ----------- ----------- Net deferred tax assets ........... 878,492 656,497 769,018 Deferred tax liabilities: Plan and equipment excess of tax depreciation over book depreciation .... (891,490) (936,148) (903,931) Other .................................... (26,981) (86,906) (6,069) ----------- ----------- ----------- Gross deferred tax liabilities ...... (918,471) (1,023,054) (910,000) ----------- ----------- ----------- Net deferred tax liability .......... $ (39,979) $ (366,557) $ (140,982) =========== =========== ===========
At October 31, 1995, ADE had net operating loss carryforwards of approximately $300,000 which are available to offset future ADE taxable income. The October 31, 1994, deferred tax assets valuation allowance has been removed based upon expectations of future ADE operating income. Deferred U.S. income taxes are not provided for the earnings of foreign subsidiaries because the Company expects those earnings will be permanently reinvested. Net pretax operating results from foreign subsidiaries are $187,000 for 1995, $748,000 for 1994, and $337,000 for 1993. NOTE 10. PROFIT INCENTIVE AND BONUS PLANS The Company has a non-contributory profit incentive plan for key microelectronics and ADIC team members and a non-contributory profit sharing plan for all regular full-time domestic team members. These plans are generally based upon pretax profits. 21 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1995, 1994 AND 1993 The profit incentive plan allows the Board of Directors to provide up to 10 percent of the pretax profits, after a set minimum profitability is achieved, for distribution to the plan's participants. There were no contributions in 1993. The profit sharing plan provides that 15 percent of pretax profits will be contributed to the plan. Prior to 1995, ADIC team members had a separate plan based on certain ADIC financial performance criteria. The Company's contribution to all plans was $800,432, $657,602, and $340,483 for the fiscal years ended October 31, 1995, 1994 and 1993, respectively. NOTE 11. COMMITMENTS The Company has leased facilities of approximately 66,000 square feet in Redmond, Washington. In addition, ITC leases the land for its operating facility under an agreement expiring May 19, 1996, with an option to renew the lease. Sales offices are leased at various sites in the United States and Europe. Minimum annual rental commitments at October 31, 1995, for noncancelable operating leases are as follows:
Year ended October 31 Amount --------------------- -------- 1996......................................... $671,000 1997......................................... 743,000 1998......................................... 664,000 1999......................................... 515,000 2000......................................... 473,000
Rent expense aggregated $570,000 in 1995, $508,100 in 1994, and $360,000 in 1993. NOTE 12. INDUSTRY SEGMENT INFORMATION Information by identifiable business segment is presented in the tables below. The Company operates principally in two industries. Operations in the Microelectronics industry include the design, sale and manufacture of DC-to-DC power supplies as well as custom medical and military/aerospace products. The second industry is served by ADIC which designs, manufactures and markets automated, high performance data storage products. There are no sales between industry segments. Operating profit by segment is calculated on a basis consistent with operating profit on the Consolidated Statements of Income. Identifiable assets by industry are those assets that are used in the Company's operations in each industry. Corporate assets relate to the investment in common stock of Apex. 22 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1995, 1994 AND 1993
1995 1994 1993 ------------ ------------ ------------ Net sales: Microelectronics ................. $ 39,339,308 $ 34,671,285 $ 34,972,030 Data Storage ..................... 31,716,372 20,083,275 17,108,522 ------------ ------------ ------------ 71,055,680 54,754,560 52,080,552 Operating profit: Microelectronics ................. 4,271,744 3,272,091 2,304,316 Data Storage ..................... 686,050 659,828 1,658,361 Acquisition expenses ............. -- (728,743) -- ------------ ------------ ------------ 4,957,794 3,203,176 3,962,677 Total assets: Microelectronics ................. 32,393,465 29,318,105 26,977,069 Data Storage ..................... 13,897,021 8,489,547 5,894,501 Corporate ........................ 1,629,640 1,331,669 1,228,588 ------------ ------------ ------------ 47,920,126 39,139,321 34,100,158 Depreciation and amortization expense: Microelectronics ................. 1,521,502 1,495,996 1,535,602 Data Storage ..................... 483,739 331,153 164,139 ------------ ------------ ------------ 2,005,241 1,827,149 1,699,741 Capital expenditures: Microelectronics ................. 905,338 981,221 901,098 Data Storage ..................... 756,935 450,702 284,103 ------------ ------------ ------------ 1,662,273 1,431,923 1,185,201
NOTE 13. GEOGRAPHIC SEGMENT INFORMATION Major operations outside the United States include sales subsidiaries in the United Kingdom, France and Germany; a sales and distribution subsidiary in France; and a manufacturing subsidiary in Taiwan. Certain information regarding operations in these geographic segments is presented in the table below. Transfers between geographic areas are made at arms-length prices consistent with rules and regulations of governing tax authorities. The profit on these transfers are not recognized until sales are made to non-affiliated customers. Excluded from U.S. net sales are transfers from the U.S. to European subsidiaries of $5,180,000, $2,416,000 and $1,424,000 in 1995, 1994 and 1993, respectively. Included in U.S. sales are export sales to unaffiliated customers of $7,571,000, $8,149,000 and $8,574,000 in 1995, 1994 and 1993, respectively. As the Company has expanded its European presence by opening direct offices, certain sales transactions previously considered to be export sales of the United States are now being served by European subsidiaries and are considered to be European sales in the table below. ITC, located in Kaohsiung, Taiwan, serves as a manufacturing facility for the Microelectronics business. As such, it has no direct sales and minimal operating income. 23 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OCTOBER 31, 1995, 1994 AND 1993
1995 1994 1993 ----------- ----------- ----------- Net sales: United States .. $55,291,013 $48,598,717 $50,255,362 Europe ......... 15,764,667 6,155,843 1,825,190 ----------- ----------- ----------- 71,055,680 54,754,560 52,080,552 Operating profit: United States .. 4,804,213 2,544,194 3,731,532 Europe ......... 153,581 658,982 231,145 ----------- ----------- ----------- 4,957,794 3,203,176 3,962,677 Identifiable assets: United States .. 41,414,566 34,872,203 33,032,378 Europe ......... 6,505,560 4,267,118 1,067,780 ----------- ----------- ----------- 47,920,126 39,139,321 34,100,158
NOTE 14. PURCHASE OF ADIC EUROPE On June 17, 1994, Interpoint acquired ADIC Europe (ADE), formerly known as GigaTrend Europe SARL, a manufacturer and integrator of tape storage products for the computer network and workstation markets. The total purchase price of ADE was approximately $628,000 paid in a combination of cash, equipment and stock. The acquisition is accounted for as a purchase. NOTE 15. QUARTERLY INFORMATION (UNAUDITED)
1995 1994 ---------------------------------------- ------------------------------------------ Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ------- ------- ------- ------- ------- ------- ------- ------- (In thousands, except per share amounts) Sales.................... $13,542 $16,041 $18,890 $22,583 $12,427 $11,359 $14,307 $16,661 Gross profit............. $ 4,222 $ 5,094 $ 6,020 $ 6,470 $ 3,702 $ 2,967 $ 4,682 $ 5,671 Net income (loss)........ $ 109 $ 618 $ 1,094 $ 1,267 $ (253) $ 1 $ 911 $ 1,067 Net income (loss) per share.............. $ .03 $ .16 $ .27 $ .31 $ (.07) $ .00 $ .23 $ .27
All amounts are presented as if Interpoint and ADIC had been combined as of the beginning of the period presented. Consequently, amounts above differ from amounts previously reported for quarters ending prior to the merger date of February 1994. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III The information called for by Part III (Items 10, 11, 12 and 13) will be included in the Registrant's Proxy Statement and is incorporated herein by reference. Such Proxy Statement will be filed within 120 days of the Registrant's last fiscal year end, October 31, 1995. 24 25 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES PAGE ---------------------------------------------------------------------------- ---- a. The following documents are filed as part of this report: (1) Financial Statements: Report of Independent Accountants............................................................ 11 Consolidated Statements of Income for each of the three years in the period ended October 31, 1995.......................................................................... 12 Consolidated Balance Sheets at October 31, 1995 and 1994..................................... 13 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended October 31, 1995............................................................. 14 Consolidated Statements of Cash Flows for each of the three years in the period ended October 31, 1995.................................................................... 12 Notes to Consolidated Financial Statements................................................... 16 (2) Supplemental Financial Statement Schedules for each of the three years in the period ended October 31, 1995 VIII -- Valuation and Qualifying Accounts.............................................. 26 Independent Auditors' Report of Advanced Digital Information Corporation..................... 27
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto. b. Reports on Form 8-K. None. c. Exhibits. See page 28 for index to exhibits. 25 26 INTERPOINT CORPORATION SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
Balance at Additions beginning charged to Balance at of year income Deductions Other end of year ---------- ---------- ---------- -------- ----------- Allowance for doubtful accounts receivable: 1995 ............. $108,247 $ 67,994 $ 43,405 $ -- $132,836 ======== ======== ======== ======== ======== 1994 ............. $127,140 $ 11,959 $ 30,852 $ -- $108,247 ======== ======== ======== ======== ======== 1993 ............. $ 95,000 $ 91,606 $ 59,466 $ -- $127,140 ======== ======== ======== ======== ======== Allowance for inventory obsolescence: 1995 ............. $604,308 $379,000 $ 77,780 $ (698) $904,830 ======== ======== ======== ======== ======== 1994 ............. $816,639 $384,686 $597,674 $ 657 $604,308 ======== ======== ======== ======== ======== 1993 ............. $630,307 $455,570 $268,138 $ (1,100) $816,639 ======== ======== ======== ======== ========
"Deductions" represents amounts written off against the allowance, net of recoveries. 26 27 INDEPENDENT AUDITORS' REPORT The Board of Directors Interpoint Corporation: We have audited the statements of income, stockholders' equity, and cash flows of Advanced Digital Information Corporation for the year ended September 30, 1993 not presented separately herein. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted accounting standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Advanced Digital Information Corporation for the year ended September 30, 1993, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Seattle, Washington November 9, 1993 27 28 INTERPOINT CORPORATION INDEX TO EXHIBITS (ITEM 14C)
EXHIBIT NUMBER DESCRIPTION PAGE - ------ ----------- ---- (3.1) Restated Articles of Incorporation and Amendment (A) (3.2) Bylaws and Amendments (10.1) Management Incentive Plan (A) (10.2) Registration Rights Agreement among the Company and Certain Shareholders of ADIC, dated as of February 11, 1994 (B) (10.3) Lease Agreement between K-M Properties and Advanced Digital Information Corporation (21) Subsidiaries of Registrant (23) Consent of Independent Auditors (23.1) Consent of Independent Auditors (27) Financial Data Schedule - -----------------------
(A) Incorporated herein by reference to 1989 10-K Statement filed January 26, 1990. (B) Incorporated herein by reference to Current Report on Form 8-K filed February 11, 1994. 28 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERPOINT CORPORATION (REGISTRANT) Date: January 8, 1996 By /s/Peter H. van Oppen -------------------------- Peter H. van Oppen Chief Executive Officer 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.
Name Title Date ---- ----- ---- By /s/Leslie S. Rock Vice President, January 8, 1996 ----------------------------------- Chief Accounting Officer Leslie S. Rock By /s/Christopher T. Bayley Director January 8, 1996 ----------------------------------- Christopher T. Bayley By /s/Walter P. Kistler Director January 8, 1996 ----------------------------------- Walter P. Kistler By /s/Russell F. McNeill Director January 8, 1996 ----------------------------------- Russell F. McNeill By /s/John W. Stanton Director January 8, 1996 ----------------------------------- John W. Stanton By /s/Peter H. van Oppen Chairman and Chief January 8, 1996 ----------------------------------- Executive Officer Peter H. van Oppen By /s/David A. Uvelli Senior Vice President and January 8, 1996 ----------------------------------- General Manager, Director David A. Uvelli By /s/Walter F. Walker Director January 8, 1996 ----------------------------------- Walter F. Walker By /s/Calvin A.H. Waller Director January 8, 1996 ----------------------------------- Calvin A.H. Waller
EX-3.2 2 INTERPOINT CORPORATION EXHIBIT 3.2 1 EXHIBIT 3.2 RESTATED BYLAWS OF INTERPOINT CORPORATION Article I. Offices The principal office of the corporation in the State of Washington shall be located in the city of Bellevue. The corporation may have such other offices, either within or without the State of Washington as the Board of Directors may designate or as the business of the corporation may require from time to time. The registered office of the corporation required by the Washington Business Corporation Act to be maintained in the State of Washington may be, but need not be, identical with the principal office in the State of Washington, and the address of the registered office may be changed from time to time by the Board of Directors or by officers designated by the Board of Directors. Article II. Shareholders Section 1. Annual Meeting. The annual meeting of the shareholders shall be held in the month of February in each year, or any other time as may be fixed by action of the shareholders, for the purpose of electing Directors and the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the State of Washington, such meeting shall be held on the next succeeding business day. If the election of Directors shall not be held on the day designated herein for any annual meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as conveniently may be. Section 2. Special Meeting. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by stature, may be called by the President or by the Board of Directors, or the holders of not less than one-tenth of all outstanding shares of the corporation entitled to vote at the meeting. 2 Section 3. Place of Meeting. The Board of Directors may designate any place within or without the State of Washington as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. A waiver of notice signed by all shareholders entitled to vote at a meeting may designate any place, either within or without the State of Washington, as the place for the holding of such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal office of the corporation in the State of Washington. Section 4. Notice of Meeting. Written notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall, unless otherwise prescribed by statute, be delivered not less than ten nor more than fifty days before the date of the meeting, either personally or by mail, by or at the direction of the President, or the Secretary, or the persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his adress as it appears on the stock transfer books of the corporation, with postage thereon prepaid. Section 5. Closing of Transfer Books or Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, fifty days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than fifty days and, in case of a meeting of shareholders, not less than ten days prior to the determination of shareholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the -2- 3 case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. Section 6. Voting Record. For at least ten days before each meeting, the officer or agent having charge of the stock transfer books for shares of the corporation shall make and keep on file at the registered office of the corporation a complete record of the shareholders entitled to vote at that meeting of shareholders or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each. That record shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting for the purposes thereof. Section 7. Quorum. A majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 8. Proxies. At all meetings of shareholders, a shareholder may vote in person or by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. Section 9. Voting of Shares. Each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders and, if a quorum is present, the affirmative vote of the majority of such shares represented at the meeting shall be the act of the shareholders. Section 10. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by -3- 4 such officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver is appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Neither shares of its own stock held by the corporation, nor those held by another corporation if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting. Section 11. Informal Action by Shareholders. Any action required to be taken at a meeting of the shareholders, or any action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the shareholders entitled to vote with respect to the subject matter thereof. Article III. Board of Directors Section 1. General Powers. The business and affairs of the corporation shall be managed by its Board of Directors. Section 2. Number, Tenure and Qualifications. The Board shall be composed of not less than six nor more than ten Directors, the specific number to be set by resolution of the Board. The Board of Directors of the corporation shall be divided into three classes which shall be as nearly equal in number as is possible, with any director or directors in excess of the -4- 5 number divisible by three being assigned to Class 3 or to Class 3 and Class 2, as the case may be. At the first election of directors to such classified Board, each Class 1 director shall be elected to serve until the next ensuing annual meeting of shareholders, each Class 2 director shall be elected to serve until the second ensuing annual meeting of shareholders and each Class 3 director shall be elected to serve until the third ensuing annual meeting of shareholders, and in each case until his or her successor is elected and qualified or until his or her earlier death, resignation or removal from office. At each annual meeting of shareholders following the meeting at which the Board of Directors is initially classified, the number of directors equal to the number of the class whose term expires at the time of such meeting shall be elected to serve until the third ensuing annual meeting of shareholders. Notwithstanding any of the foregoing provisions of this Section 9, directors shall serve until their successors are elected and qualified or until their earlier death, resignation or removal from office. In the event of any change in the authorized number of directors, the number of directors in each class shall be adjusted so that thereafter each of the three classes shall be composed, as nearly as may be possible, of one-third of the authorized number of directors, any director or directors in excess of the number divisible by three being assigned to the class or classes having the shortest unexpired terms; provided, that any change in the authorized number of directors shall not increase or shorten the term of any director, and any decrease shall become effective only as and when their term or terms of office of the class or classes of directors affected thereby shall expire, or a vacancy or vacancies in such class or classes shall occur. Section 3. Regular Meeting. A regular meeting of the Board of Directors shall be held without other notice than this bylaw immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Washington, for the holding of additional regular meetings without other notice than such resolution. Section 4. Special Meeting. Special meetings of the Board of Directors or any committee designated by the Board of Directors may be called by or at the request of the President or any two Directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Washington, as the place) for holding any special meeting of the Board of Directors called by them. -5- 6 Section 5. Notice. Notice of any special meeting shall be given at least two days previously thereto by written notice delivered personally or mailed to each Director at his business address, or by telegram. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any Director may waive notice of any meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Section 6. Quorum. A majority of the number of Directors fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice. Section 7. Manner of Acting. The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 8. Action Without a Meeting. Any action that may be taken by the Board of Directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the Directors. Section 9. Removal. Any director or the entire Board of Directors may be removed, with or without cause, by affirmative vote of a majority of the outstanding shares entitled to vote at a meeting of shareholders called expressly for that purpose. Section 10. Vacancies. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining Directors though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of Directors may be filled by election by the Board of Directors for a term of office continuing only until the next election of Directors by the shareholders. -6- 7 Section 11. Compensation. Except by resolution of the Board of Directors, no salary or fees shall be payable to the Directors for their services as Directors or in connection with their attendance at meetings of Directors. Section 12. Presumption of Assent. A director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting, or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof, or shall forward such dissent by registered mail to the Secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. Section 13. Telephonic Meetings. Members of the Board of Directors or any committee designated by the Bylaws or appointed by the Board of Directors may participate in a meeting of such board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time, and participation by such means shall constitute presence in person at a meeting. Article IV. Officers Section 1. Number. The officers of the corporation shall be a Chairman, a President, any number or no Vice Presidents (the number thereof to be determined by the Board of Directors), a Secretary, and a Treasurer (which latter two offices may be combined as determined by the Board of Directors), each of whom shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. Any two or more offices may be held by the same person, except the offices of President and Secretary, except that when all of the issued and outstanding stock of the corporation is owned of record by one shareholder, one person may hold all or any combination of offices. Section 2. Election and Term of Office. The officers of the corporation to be elected by the Board of Directors shall be elected annually be the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold -7- 8 office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Section 3. Resignation or Removal. Any officer or agent may be removed, with or without cause, by the Board of Directors whenever in its judgment the best interests of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Section 4. Chairman of the Board. The Chairman of the Board shall preside at all meetings of Directors and meetings of Shareholders and shall also perform such other duties as may be assigned to him by the Board of Directors in a duly enacted resolution, the Chairman of the Board shall be the Chief Executive Officer and in such capacity shall have general supervision and control over the business and affairs of the corporation subject to the authority of the Board of Directors. Section 5. President. The President shall be the Chief Operating Officer of the corporation reporting to the Chairman of the Board unless designated as the Chief Executive Officer in a duly enacted resolution. The Chief Executive Officer or the President, when so directed, may sign with the Secretary or any other proper officer of the corporation thereunto authorized by the Board of Directors, certificates for shares of the corporation, any deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed. In general, the President shall perform all duties incident to the office of Chief Operating Officer and such other duties as may be prescribed by the Chairman of the Board from time to time. Section 6. The Vice President. In the absence of the President or in the event of his death, inability or refusal to act, the Executive Vice President, if one is designated, and otherwise the Vice Presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election shall perform the duties of the President and when so acting, shall have all the powers of the President and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President may sign, with the Secretary or an Assistant Secretary, certificates for shares of the corporation; and -8- 9 shall perform such other duties as from time to time may be assigned to him by the President or by the Board of Directors. Section 7. The Secretary. The Secretary shall: (a) keep the minutes of the proceedings of the shareholders and of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (d) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholders; (e) sign with the President, or a Vice President, certificates for shares of the corporation, or contracts, deeds or mortgages the issuance or execution of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the corporation subject to the authority delegated to a transfer agent or registrar if appointed; and (g) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. Section 8. The Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Article VI of these bylaws; and (c) in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. Section 9. Assistant Secretaries and Assistant Treasurer. The Assistant Secretaries, when authorized by the Board of Directors, may sign with the President or a Vice President certificates for shares of the corporation or contracts, deeds or mortgages the issuance or execution of which shall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers shall respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sum and with such surety or sureties as the Board of Directors shall determine. The -9- 10 Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties as shall be assigned to them by the Secretary of the Treasurer, respectively, or by the President or the Board of Directors. Section 10. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a Director of the corporation. Section 11. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. Article V. Executive Committee Section 1. Appointment. The Board of Directors by resolution adopted by a majority of the full board, may designate two or more of its members to constitute an Executive Committee. The designation of such committee and the delegation thereof of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed by law. Section 2. Authority. The Executive Committee, when the Board of Directors is not in session, shall have and may exercise all of the authority of the Board of Directors except to the extent, if any, that such authority shall be limited by the resolution appointing the Executive Committee and except also that the Executive Committee shall not have the authority of the Board of Directors in reference to amending the articles of incorporation, adopting a plan of merger or consolidation, recommending to the shareholders the sale, lease or other disposition of all or substantially all of the property and assets of the corporation otherwise than in the usual and regular course of its business, recommending to the shareholders a voluntary dissolution of the corporation or a revocation thereof, or amending the bylaws of the corporation. Section 3. Tenure and Qualifications. Each member of the Executive Committee shall hold office until the next regular annual meeting of the Board of Directors following his designation and until his successor is designated as a member of the Executive Committee and is elected and qualified. Section 4. Meetings. Regular meetings of the Executive Committee may be held without notice at such times and places as the Executive Committee may fix from time to time by -10- 11 resolution. Special meetings of the Executive Committee may be called by any member thereof upon not less than one day's notice stating the place, date and hour of the meeting, which notice may be written or oral, and if mailed, shall be deemed to be delivered when deposited in the United States mail addressed to the member of the Executive Committee at his business address. Any member of the Executive Committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of the Executive Committee need not state the business proposed to be transacted at the meeting. Section 5. Quorum. A majority of the members of the Executive Committee shall constitute a quorum for the transaction of business at any meeting thereof and action of the Executive Committee must be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present. Section 6. Action Without a Meeting. Any action that may be taken by the Executive Committee at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the members of the Executive Committee. Section 7. Vacancies. Any vacancy in the Executive Committee may be filled by a resolution adopted by a majority of the full Board of Directors. Section 8. Resignations and Removal. Any member of the Executive Committee may be removed at any time or without cause by resolution adopted by a majority of the full Board of Directors. Any member of the Executive Committee may resign from the Executive Committee at any time by giving written notice to the President or Secretary of the corporation, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 9. Procedure. The Executive Committee shall elect a presiding officer from its members and may fix its own rules of procedure which shall not be inconsistent with these bylaws. It shall keep regular minutes of its proceedings and report the same to the Board of Directors for its information at the meeting thereof held next after the proceedings shall have been taken. -11- 12 Article VI. Contracts, Loans, Checks and Deposits Section 1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instruments in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 2. Loans. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. Section 3. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 4. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the Board of Directors may select. Article VII. Certificates for Shares and Their Transfer Section 1. Certificates for Shares. Certificates representing shares of the corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent, or registered by a registrar, other than the corporation itself or one of its employees. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued 13 therefor upon such terms and indemnity to the corporation as the Board of Directors may prescribe. Section 2. Transfer of Shares. Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation, or with its transfer agent, if any, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. Article VIII. Fiscal Year The fiscal year of the corporation shall begin on the first day of November and end on the 31st day of October in each year. Article IX. Dividends The Board of Directors may, from time to time, declare and the corporation may pay dividends on its outstanding shares in the manner, and upon the terms and conditions provided by law and its articles of incorporation. Article X. Corporate Seal The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the state of incorporation and the words, "Corporate Seal." Article XI. Waiver of Notice Whenever any notice is required to be given to any shareholder or director of the corporation under the provisions of these bylaws or under the provisions of the Articles of Incorporation or under the provisions of the Washington Business Corporation Act, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. -13- 14 Article XII. Indemnification Section 1. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved (including, without limitation, as a witness) in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or officer of the corporation or, being or having been such a director or officer, he or she is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the full extent permitted by applicable law as then in effect, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that no indemnification shall be provided to any such person if the corporation is prohibited by the nonexclusive provisions of the Washington Business Corporation Act or other applicable law as then in effect from paying such indemnification; and provided, further, that except as provided in Section 2 of this Article with respect to proceedings seeking to enforce rights to indemnification, this corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses in advance of the final disposition of a proceeding shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. - 14 - 15 Section 2. Right of Claimant to Bring Suit. If a claim under Section 1 of this Article is not paid in full by the corporation within sixty days after a written claim has been received by the corporation, except in the case of a claim for expenses incurred in defending a proceeding in advance of its final disposition, in which case the applicable period shall be twenty days, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, to the extent successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. The claimant shall be presumed to be entitled to indemnification under this Article upon submission of a written claim (and, in an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition, where the required undertaking has been tendered to the corporation) and thereafter the corporation shall have the burden of proof to overcome the presumption that the claimant is not so entitled. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its shareholders) to have made a determination prior to the commencement of such action that indemnification of or reimbursement or advancement of expenses to the claimant is proper in the circumstances nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its shareholders) that the claimant is not entitled to indemnification or to the reimbursement or advancement of expenses shall be a defense to the action or create a presumption that the claimant is not so entitled. Section 3. Nonexclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, Bylaws, agreement, vote or shareholders or disinterested directors or otherwise. Section 4. Insurance, Contracts and Funding. The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, -15- 16 liability or loss under the Washington Business Corporation Act. The corporation may enter into contracts with any director or officer of the corporation in furtherance of the provisions of this Article and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Article. Section 5. Indemnification of Employees and Agents of the Corporation. The corporation may, by action of its Board of Directors from time to time, provide indemnification and pay expenses in advance of the final disposition of a proceeding to employees and agents of the corporation with the same scope and effect as the provisions of this Article with respect to the indemnification and advancement of expenses of directors and officers of the corporation or pursuant to rights granted pursuant to, or provided by, the Washington Business Corporation Act or otherwise. Article XIII Amendments These Bylaws may be altered, amended or repealed and new bylaws may be adopted by the Board of Directors at any regular or special meeting of the Board of Directors. I hereby certify the foregoing to be the Restated Bylaws of Integrated Circuits Incorporated which were adopted on June 20, 1990. /s/ Russell F. McNeill ----------------------------- Secretary -16- EX-10.3 3 INTERPOINT CORPORATION EXHIBIT 10.3 1 EXHIBIT 10.3 K-M PROPERTIES ESTIMATED PAYMENT SCHEDULE ASSOCIATED WITH ADIC'S OCCUPANCY ================================================================================
- --------------------------------------------------------------------------------------------------------------------------- ITEM *COST PAYMENT DATE =========================================================================================================================== **Tenant Improvements: Total Cost: $100,000 Approx. July 1, 1995 1. Wall Reconfiguration: $ 50,000 2. Carpet & Tile: $ 50,000 - --------------------------------------------------------------------------------------------------------------------------- Building Improvements: Total Cost: Approx. $140,000 1. Paint Interior: 15,000 Approx. July 1, 1995 2. Elevator: 50,000 Approx. July 1, 1997 3. Parking Area: 25,000 Approx. July 1, 1997 4. Paint Bldg.: 20,000 Approx. July 1, 1997 5. Stairwell: 30,000 Approx. July 1, 1997 - --------------------------------------------------------------------------------------------------------------------------- Real Estate Commissions Total Cost: Approx. $ 79,730 50% - Approx. April 1, 1995 (Lease Execution) 50% - July 1, 1995 (Lease Commencement) - ---------------------------------------------------------------------------------------------------------------------------
*Above costs are only estimates. **Tenant improvements will potentially be paid by K-M Properties, and amortized over the lease term, and added to the rent. 2 BASIC LEASE INFORMATION - -------------------------------------------------------------------------------- Lease Date: April 20, 1995 Landlord: K-M Properties Address of Landlord: Tenant: Advanced Digital Information Corporation ("ADIC") Premises: K-M Building PARAGRAPH 1 Premises approximately 31,148 square feet for year one, and 41,352 square feet thereafter in The K-M Building of approximately 41,352 square feet, such premises being shown and outlined in red on the plan attached hereto as Exhibit A, and being part of the real property described in Exhibit B attached hereto. PARAGRAPH 1 Lease Term: Commencing on the "Commencement Date" as hereinafter defined and ending 120 months thereafter except that in the event the Commencement Date is a date other than the first day of a calendar month, said term shall extend for said number of days in addition to the remainder of the calendar month following the Commencement Date. PARAGRAPH 1 Scheduled Term Commencement Date: September 1, 1995 PARAGRAPH 2 Monthly Base Rent: Year 1: $23,361.00 NNN Years 2 - 3: $33,082.00 NNN Years 4 - 5: $35,149.00 NNN Years 6 - 7: $38,457.00 NNN Years 8 - 10: $42,593.00 NNN PARAGRAPH 2B Security Deposit: $35,149.00 PARAGRAPH 4A Tenant's Initial Monthly Escrow Payment for Taxes and Other Charges: N/A PARAGRAPH 7 Tenant's Initial Monthly Common Area Maintenance Charge: N/A PARAGRAPH 14B Tenant's Initial Monthly Insurance Escrow Payment: $297.00 Tenant's Initial Monthly Payment Total: $297.00 The foregoing Basic Lease Information is hereby incorporated into and made a part of this Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information herein above set forth and shall be construed to incorporate all of the terms provided under the particular Lease paragraph pertaining to such information. In the event of any conflict between any Basic Lease Information and the Lease, the former shall control. Please Initial Landlord CHM Tenant BWB 3 LEASE AGREEMENT THIS LEASE AGREEMENT, made and entered into by and between K-M Properties, hereinafter referred to as "Landlord", and Advanced Digital Information Corporation, hereinafter referred to as "Tenant"; WITNESSETH 1. PREMISES AND TERM. A. In consideration of the obligation of Tenant to pay rent as herein provided, and in consideration of the other terms, provisions and covenants hereof, Landlord hereby demises and leases to Tenant, and Tenant hereby takes and leases from Landlord those certain Premises as outlined in red on Exhibit "A" attached hereto (hereinafter referred to as the "Premises") and incorporated herein by reference, together with all rights, privileges, easements, appurtenances, and amenities belonging to or in any way appertaining to the Premises and together with buildings and other improvements situated or to be situated upon land described in Exhibit "B" attached hereto. B. TO HAVE AND TO HOLD the same for a term commencing on the "Commencement Date", as hereinafter defined, and ending thereafter as specified in the Basic Lease Information, attached hereto, (the "Lease Term"), provided, however, that, in the event the "Commencement Date" is a date other than the first day of a calendar month, said term shall extend for said number of days in addition to the remainder of the calendar month following the "Commencement Date". C. The "Commencement Date" shall be the Scheduled Term Commencement Date shown in the Basic Lease Information, attached hereto and incorporated herein by reference, or the date upon which the Premises shall have been substantially completed in accordance with the plans and specification described in Exhibit "C" and Exhibit "C-1" attached hereto and incorporated herein by reference, whichever is earlier. If the Premises shall not have been substantially completed as aforesaid by the Scheduled Term Commencement Date, Tenant's obligations to pay rent and its other obligations for payment under this Lease shall commence on the date the Premises are substantially completed as aforesaid, and Landlord shall not be liable to Tenant for any loss or damage resulting from such delay. Landlord shall notify Tenant in writing as soon as Landlord deems the Premises to be substantially completed and ready for occupancy. In the event that the Premises have not in fact been substantially completed as aforesaid, Tenant shall notify Landlord of its objections. Landlord shall have a reasonable time after delivery of such notice in which to take such corrective action as may be necessary, and shall notify Tenant in writing as soon as it deems such corrective action has been completed so that the Premises are substantially completed and ready for occupancy. The taking of possession by Tenant shall be deemed conclusively to establish that the Premises have been substantially completed in accordance with the plans and specifications and that the Premises are in good and satisfactory condition, as of when possession was so taken. Tenant acknowledges that no representations as to the repair of the Premises have been made by Landlord, unless such are expressly set forth in this Lease. After the Commencement Date, Tenant shall, upon demand, execute and deliver to Landlord a letter of acceptance of delivery of the Premises, specifying the Commencement Date and the rent commencement date, in recordable form. In the event of any dispute as to the substantial completion or work performed or required to be performed by Landlord, the certificate of Landlord's architect or general contractor shall be conclusive. 2. BASE RENT AND SECURITY DEPOSIT. A. Tenant agrees to pay to Landlord Base Rent for the Premises, in advance without demand, deduction or set off, for the entire Lease Term hereof at the rate specified in the Basic Lease Information, payable in monthly installments. One such monthly installment shall be due and payable on the commencement date and a like monthly installment shall be due and payable on or before the first day of each calendar month succeeding the Commencement Date recited above during the Lease Term, except that the rental payment for any factional calendar month at the commencement or end of the Lease period shall be prorated on the basis of a 30-day month. B. In addition, Tenant agrees to deposit with Landlord on the date hereof a security deposit in the amount specified in the Basic Lease Information, which sum shall be held by Landlord, without obligation for interest, as security for the performance of Tenant's covenants and obligation under this Lease, it being expressly understood and agreed that such deposit is not an advance rental deposit, not the last month's rent nor a measure of Landlord's damages in the event of Tenant's default. Upon the occurrence of any event of default by Tenant, Landlord may, from time to time, without prejudices to any other remedy provided herein or provided by law, use such deposit to the extent necessary to make good any arrears of rent or other payments due Landlord hereunder, and any other damage, injury, expense or liability caused by such event of default; or to perform any obligation required of Tenant under the Lease; and Tenant shall pay to Landlord on demand the amount so applied in order to restore the security deposit to its original amount. Although the security deposit shall be deemed the property of Landlord, any remaining balance of such deposit shall be returned by Landlord to Tenant at such time after termination of this Lease that all of Tenant's obligation under this Lease have been fulfilled. 1 Please Initial Landlord CHM Tenant BWB 4 3. USE. A. The Premises shall be used only for the purpose of general office, receiving, storing, shipping, assembly, light manufacturing, and selling (other than retail) products, materials and merchandise made and/or distributed by Tenant and for such other lawful purposes as may be incidental thereto. Outside storage, including without limitation, trucks and other vehicles, is prohibited without Landlord's prior written consent. Tenant shall at its own cost and expense obtain any and all licenses and permits necessary for its use of the Premises. Tenant shall comply with all governmental laws, ordinances and regulations applicable to the use of the Premises, and shall promptly comply with all governmental orders and directive including but not limited to those regarding the correction, prevention and abatement of nuisances in or upon, or connected with, the Premises, all at Tenant's sole expense. Tenant shall not permit any objectionable or unpleasant orders, smoke, dust, gas, noise or vibrations to emanate from the Premises, nor take any other action which would constitute a nuisance or would disturb or endanger any other tenants of the building in which the Premises are situated or unreasonably interfere with their use of their respective Premises. In addition to any other remedies Landlord may have for a breach by Tenant of the terms of this Section 3, Landlord shall have the right to have Tenant evicted from the Premises. Without Landlord's prior written consent, Tenant shall not receive, store or otherwise handle any product, material or merchandise which is explosive or highly inflammable. Tenant will not permit the Premises to be used for any purpose or in any manner (including without limitation any method of storage) which would render the insurance thereon void or the insurance risk more hazardous or cause the State Board of Insurance or other insurance authority to disallow any sprinkler credits. In the event Tenant's use of Premises shall result in an increase in insurance premiums, Tenant shall be solely responsible for said increase. B. With respect to any release of toxic or hazardous substances or wastes or other condition of the Premises occurring on or after the date of the Lease and caused by or resulting from the negligent acts or omissions or willful misconduct of Tenant, its employees, authorized agents, or contractors, and which release or other condition violates the provisions of, or necessitates any removal, treatment, or other remedial action under, any past, present, or future federal, state, or local statute or ordinance or any regulation, directive, or requirement or any governmental authority with jurisdiction relating to protection of the environment, Tenant agrees to defend, indemnify, and hold harmless Landlord, its partners, employees, agents, and contractors, from and against any and all losses, claims, liabilities, damages, demands, fines, costs, and expenses (including reasonable attorney's fees and legal expenses) arising out of or resulting therefrom. The provisions of this paragraph shall survive the termination or expiration of this Lease and the surrender of the Premises by Tenant, with respect to releases, events, or condition occurring prior to such termination, expiration, or surrender. With respect to any release of toxic or hazardous substances or wastes or other condition of the Premises occurring prior to the date of this Lease and caused by or resulting from the negligent acts or omissions or willful misconduct of Landlord, its employees, authorized agents, or contractors, and which release or condition violates the provisions of, or necessitates any removal, treatment, or other remedial action under, any past, present, or future federal, state, or local statute or ordinance or any regulation, requirement, or directive of any governmental authority with jurisdiction relating to protection of the environment, Landlord agrees to defend, indemnify, and hold harmless Tenant from and against any and all losses, claims, liabilities, damages, demands, fines, costs, and expenses (including reasonable attorneys' fees and legal expenses) arising out of or resulting therefrom. 4. TAXES AND OTHER CHARGES. A. Tenant agrees to pay its proportionate share of any and all real and personal property taxes, regular and special assessments, license fees, public service impact fees and other charges of any kind and nature whatsoever, payable by Landlord as a result of any public or quasi-public authority, private party, or owner's association levy, assessment or imposition against, or arising out of Landlord's ownership of or interest in, the real estate described in Exhibit "B" attached hereto, together with the building and the grounds, parking areas, driveways, roads, and alleys around the building in which the Premises are located, or any part thereof (hereinafter collectively referred to as the "Charges"). Landlord will deliver Tenant a statement of taxes owed by March 15th, and September 15th, of each year of the Lease term. Tenant shall make payment for said taxes on or before April 1st, and October 1st annually. Each Payment shall be due and payable, as additional rent at the same time and in the same manner as the payment of monthly rental as provided herein. The amount of the initial and last Payment will be prorated accordingly. Tenant's proportionate share of the Charges shall be computed by multiplying the Charges by a fraction, the numerator of which shall be the number of gross leasable square feet of floor space in the Premises and the denominator of which shall be the total applicable gross leasable square footage; or such other equitable apportionment as may be reasonably determined. B. If Tenant should fail to pay any taxes required to be paid by Tenant hereunder, in addition to any other remedies provided herein, Landlord may, if it so elects, pay such taxes, assessments, license fees and other charges. Any sums so paid by Landlord shall be deemed to be so much additional rental owing by Tenant to Landlord and due and payable upon demand as additional rental plus interest at the rate of eighteen percent (18%) per annum from the date of payment by Landlord until repaid by Tenant. 2 Please Initial Landlord CHM Tenant BWB 5 C. (1) If at any time during the Lease Term, the present method of taxation shall be changed so that in lieu of the whole or any part of any taxes, assessments, fees or charges levied, assessed or imposed on real estate and the improvements thereon, there shall be levied, assessed or imposed on Landlord a capital levy or other tax directly on the rents received therefrom and/or a franchise tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents or the present or any future building or buildings, then all such taxes, assessments, fees or charges, or the part thereof so measured or based, shall be deemed to be included within the term "Charges" for the purposes hereof. (2) Tenant may, alone or along with other tenants of the building containing the Premises, at its sole cost and expense, in its or their own name(s) dispute and contest any Charges by appropriate proceedings diligently conducted in good faith, but only after Tenant and all other tenants, if any, joining with Tenant in such contest have deposited with Landlord the amount so contested and unpaid or their proportionate shares thereof as the case may be, which shall be held by Landlord without obligation for interest until the termination of the proceedings, at which time the amount(s) deposited shall be applied by Landlord toward the payment of the items held valid (plus any court costs, interest, penalties and other liabilities associated with the proceeding(s), and Tenant's share of any excess shall be returned to Tenant. Tenant further agrees to pay to Landlord upon demand Tenant's share (as among all Tenants who participated in the contest) of all court costs, interest, penalties and other liabilities relating to such proceedings. Tenant hereby indemnifies and agrees to hold harmless the Landlord from and against any cost, damage or expense (including attorney's fees) in connection with any such proceedings. (3) Any payment to be made pursuant to this Paragraph 4 with respect to the calendar year in which this Lease commences or terminates shall bear the same ratio to the payment which would be required to be made for the full calendar year as that part of such calendar year by the Lease Term bears to a full calendar year. D. Tenant shall be liable for all taxes levied against personal property and trade fixtures placed by Tenant in the Premises. If any such taxes are levied against Landlord or Landlord's property and if Landlord elects to pay the same or if the assessed value of Landlord's property is increased by inclusion of personal property and trade fixtures placed by Tenant in the Premises and Landlord elects to pay the taxes based on such increase, Tenant shall pay to Landlord upon demand that part of such taxes for which Tenant is primarily liable hereunder. 5. TENANT'S MAINTENANCE. A. Tenant shall at its own cost and expense keep and maintain all parts of the Premises (except those for which Landlord is expressly responsible under the terms of this Lease) in good condition, promptly making all necessary repair and replacements, including but not limited to, windows, glass and plate glass, doors, any special office entry, interior walls and finish work, floor and floor covering, roof (up to $1,000 per year - see paragraph #6), downspouts, gutters, heating and air-conditioning systems, dock boards, truck doors, dock bumpers, paving, plumbing work and fixtures, termite and pest extermination, regular removal of trash and debris, keeping the parking areas, driveways, alleys and the whole of the Premises in a clean and sanitary condition and maintain the landscaping. Tenant shall not be obligated to repair any damage caused by fire, tornado, or other casualty covered by the insurance to be maintained by Landlord pursuant to subparagraph 14(A) below, except that Tenant shall be obligated to repair all wind damage to glass except with respect to tornado or hurricane damage. B. Tenant shall not damage any demising wall or disturb the integrity and support provided by any demising wall and shall, at its sole cost and expense, promptly repair any damage or injury to any demising wall caused by Tenant or its employees, agents, licensees or invites. C. Tenant and its employees, customers and licensees shall have the right to use the parking areas, if any, as may be designated by Landlord in writing, subject to such reasonable rules and regulations as Landlord may from time to time prescribe and subject to rights of ingress and egress of other tenants. Landlord shall not be responsible for enforcing Tenant's exclusive parking rights against any third parties. If Tenant or any other particular tenant of the building can be clearly identified as being responsible for obstructions or stoppage of a common sanitary sewage line, then Tenant, if Tenant is responsible, or such other responsible Tenant, shall pay the entire cost thereof, upon demand, as additional rent. D. Tenant shall, at its own cost and expense, enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor or servicing all heating and air-conditioning systems and equipment within the Premises. E. Tenant shall at its own cost and expense provide for all services and repairs to the Premises including but not limited to lighting, water, sewage, trash removal, exterior painting after the initial painting to be paid for by Landlord, exterior window cleaning, sweeping, policing, maintaining of plumbing and sewer drain lines, plumbing, paving, landscape maintenance, and other like charges necessary to maintain, operate, and keep the premises in reasonably good condition and repair. 3 Please Initial Landlord CHM Tenant BWB 6 6. LANDLORD'S REPAIRS. After reasonable notice from Tenant, Landlord shall repair the exterior walls and foundations, and the cost thereof shall be paid by Landlord. In addition, after reasonable notice from Tenant, Landlord shall repair the roof, only if said repair is in excess of $1,000.00 per year (not to be cumulative). If said repair is less than $1,000.00, said repair shall be passed through to Tenant as stated in paragraph #7. However, after Landlord installs a new roof on the building, all costs for repair and maintenance of the roof thereafter shall be borne by Tenant, with a cumulative annual cap of $1,000.00. Tenant shall repair and pay for any damage to such items to be maintained by Landlord caused by any act, omission or negligence of Tenant, or Tenant's employees, agents, licensees or invitees, or caused by Tenant's default hereunder. The term "walls" as used herein shall not include windows, glass or plate glass, doors, special store fronts or office entries. Tenant shall immediately give Landlord written notice of defect or need for repairs, after which Landlord shall have a reasonable opportunity and time to repair same or cure such defect. Landlord's liability with respect to any defects, repairs or maintenance for which Landlord is responsible under any of the provisions of this Lease shall be limited to the cost of such repairs or maintenance for the curing of such defect. 7. MONTHLY COMMON-AREA MAINTENANCE CHARGE. Tenant agrees to pay as an additional charge each month its proportionate share of the cost of operation and maintenance of the Common Area, unless said costs are paid directly by Tenant, which shall be defined from time to time by Landlord. Common Area costs which may be incurred by Landlord, at its discretion, shall include, but not be limited to costs incurred for lighting, water, sewage, trash removal, paving, exterior painting, exterior window cleaning, sweeping, accounting, policing, services negotiation, customary property management fee not to exceed 5% of said costs, sewer lines, plumbing, paving, landscape maintenance, plant material replacement and other like charges, and for administration of the items set forth in this paragraph. Landlord shall maintain the Common Areas in reasonably good condition and repair. The proportionate share to be paid by Tenant of the cost of operation and maintenance of the Common Area shall be computed on the ratio that the gross leasable square feet of the Premises bears to the total applicable gross leasable square footage or such other equitable apportionment as may be reasonably determined. Landlord shall make monthly or other periodic charges based upon the estimated annual cost of operation and maintenance of the Common Area, payable in advance but subject to adjustment after the end of the year on the basis of the actual cost for such year. Any such periodic charges shall be due and payable upon delivery of notice thereof. The initial Common-Area Maintenance Charges, subject to adjustment as provided herein, shall be due and payable, as additional rent, at the same time and in the same manner as the time and manner of the payment of monthly rental as provided herein. The amount of the initial monthly Common-Area Maintenance Charge shall be as specified in the Basic Lease Information. It is the intent of this Lease that the Tenant shall pay all common-area maintenance charges, and operating expenses directly once Allied Signal has vacated and its lease expires for the third floor, except for building insurance, which will be billed to Tenant once a year. This paragraph #7 is to apply if a second building is constructed on this property. In the event a second building is constructed on this property, the appropriate common-area maintenance charges, and operating expenses shall be pro-rated accordingly. 8. RENTAL ADJUSTMENT The base monthly rental rate stated in Paragraph 2 of the Lease shall be adjusted annually in the following manner. Year 1: $23,361.00 per month, NNN Years 2 - 3: $33,082.00 per month, NNN Years 4 - 5: $35,149.00 per month, NNN Years 6 - 7: $38,457.00 per month, NNN Years 8 - 10: $42,593.00 per month, NNN
In the event Allied Signal vacates the third floor prior to the beginning of year two of this Lease, Tenant shall pay an additional $1,500.00 per month as base rent plus all operating expenses for said space (approximately 10,204 sf), for the balance of year one if this space remains unoccupied. In the event Tenant occupies this space prior to the beginning of year two of this Lease (other than for storage purposes), Tenant shall pay rent for this space of $2,500.00 per month, NNN as base rent for said space, if the elevator and stairs are not required by Tenant prior to the beginning of year two of this Lease. In the event Tenant occupies this space prior to the beginning of year two of this Lease (other than for storage purposes), Tenant shall pay $7,653.00 per month, NNN ($.75 psf, NNN) as base rent for said space, but only if Tenant requires Landlord to install an elevator and stairs to the third floor prior to the beginning of year two of this Lease. 9. ALTERATIONS. A. Tenant shall not make any alterations, additions or improvements to the Premises (including but not limited to roof and wall penetrations) without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Tenant may, without the consent of Landlord, but at its own cost and expense and in a good workmanlike manner erect such shelves, bins, machinery and trade fixture as it may deem advisable, without altering the basic character of the building or improvements and without overloading or damaging such building or improvements, and in each case complying with all applicable governmental laws, ordinances, regulations and other requirements. All alterations, additions, 4 Please Initial Landlord CHM Tenant BWB 7 improvements and partitions erected by Tenant shall be and remain the property of Tenant during the Term of the Lease and Tenant shall, unless Landlord otherwise elects as hereinafter provided, to remove all alterations, additions, improvements and partitions erected by Tenant and restore the Premises to their original condition by the date of termination of this Lease or upon earlier vacating of the Premises, provided, however, that if Landlord so elects prior to termination of this Lease or upon earlier vacating of the Premises, such alterations, additions, improvements and partitions shall become the property of Landlord as of the date of termination of this Lease or upon earlier vacating of the Premises and shall be delivered up to the Landlord with the Premises. All shelves, bins, machinery and trade fixtures installed by Tenant may be removed by Tenant prior to the termination of this Lease if Tenant so elects, and shall be removed by the date of termination of this Lease or upon earlier vacating of the Premises if required by Landlord; upon any such removal Tenant shall restore the Premises to their original condition, less reasonable wear and tear. All such removals and restoration shall be accomplished in good workmanlike manner so as not to damage the primary structure or structural qualities of the buildings and other improvements situated on the Premises. B. Tenant shall remove any sumps and clarifiers and any related Hazardous Materials ("Hazardous Material" shall mean petroleum and petroleum products, asbestos, and PCBs and any "hazardous substances", "hazardous materials", or "toxic substances" in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Hazardous Materials Transportation Act, as amended, or the Resource Conservation and Recovery Act, as amended, and "hazardous" or "toxic" in the regulations adopted or publication promulgated pursuant to any of said laws) in or about the Premises and associated with Tenant's use and occupancy thereof upon the expiration or earlier termination of this Lease. C. Notwithstanding anything to the contrary contained herein, Landlord agrees that the Tenant shall not be responsible for, and Landlord shall hold Tenant harmless against, any costs of cleanup or removal arising from or associated with any hazardous material existing in, on or throughout the Premises, as of the date Tenant occupies the Premises pursuant to the terms of this Lease. 10. SIGNS. Tenant shall not install signs upon the Premises without Landlord's prior written approval, and any such signage shall be subject to any applicable governmental laws, ordinances, regulations and other requirements. Tenant shall remove all such signs by the termination of this Lease. Such installations and removals shall be made in such a manner as to avoid injury or defacement of the building and other improvements, and Tenant shall repair any injury or defacement, including without limitation discoloration caused by such installation and/or removal. 11. INSPECTION. A. Upon reasonable notice, Landlord and Landlord's agents and representatives shall have the right to enter and inspect the Premises at any reasonable time during business hours, for the purpose of ascertaining the condition of the Premises or in order to make such repairs as may be required or permitted to be made by Landlord under the terms of this Lease. During the period that is six (6) months prior to the end of the Term hereof, Landlord and Landlord's agents and representatives shall have the right to enter the Premises at any reasonable time during business hours for the purpose of showing the Premises and shall have the right to erect on the Premises a suitable sign indicating the Premises are available. B. Tenant shall give written notice to Landlord at least thirty (30) days prior to vacating the Premises and shall arrange to meet with Landlord for a joint inspection of the Premises prior to vacating. In the event of Tenant's failure to give such notice or arrange such joint inspection, Landlord's inspection at or after Tenant's vacating the Premises shall be conclusively deemed correct for the purposes of determining Tenant's responsibility for repairs and restoration. It shall be the responsibility of Tenant, prior to vacating the Premises, to clean and repair the Premises and restore them to the condition in which they were in upon delivery of the Premises to Tenant at the Commencement Date, reasonable wear and tear excepted. Cleaning, repair and restoration shall include, but not be limited to, removal of all trash, cleaning and repainting of walls, where necessary, cleaning of carpet and flooring, replacement of light bulbs and tubes, cleaning and wiping down of all fixtures, maintenance and repair of all heating and air-conditioning systems, and all similar work, which shall be done at the latest practical date prior to vacation of the Premises. 12. UTILITIES. Landlord agrees to provide at its cost water, electricity and gas service connections into the Premises; but Tenant shall pay for all water, gas, heat, light, power, telephone, sewer, sprinkler charges and other utilities and services used on or from the premises, together with any taxes, penalties, surcharges or the like pertaining thereto and any maintenance charges for utilities and shall furnish all electric light bulbs and tubes. If any such services are not separately metered to Tenant, Tenant shall pay a reasonable proportion as determined by Landlord of all charges jointly metered with other Premises. Landlord shall in no event be liable for any interruption or failure of utility services on the Premises. 13. ASSIGNMENT AND SUBLETTING. A. Tenant shall not have the right, voluntarily or involuntarily, to assign, convey, transfer, mortgage or sublet the whole or any part of the Premises under this Lease without the prior written consent of Landlord, which consent shall not be unreasonably withheld. 5 Please Initial Landlord CHM Tenant BWB 8 B. Notwithstanding any permitted assignment or subletting, Tenant shall at all times remain directly, primarily and fully responsible and liable for the payment of the rent herein specified and for compliance with all of its other obligations under the terms, provisions and covenants of this Lease. Upon the occurrence of an "event of default" as hereinafter defined, if the Premises or any part thereof are then assigned or sublet, Landlord, in addition to any other remedies herein provided, or provided by law, may at its option collect directly from such assignee or subtenant all rents becoming due to Tenant under such assignment, transfer or sublease and apply such rent against any sums due to Landlord from Tenant hereunder, and no such collection shall be construed to constitute a novation or a release of Tenant from the further performance of Tenant's obligations hereunder. 14. INSURANCE, FIRE AND CASUALTY DAMAGE. A. Landlord agrees to maintain insurance covering the building of which the Premises are a part in the amount not less than eighty percent (80%) (or such greater percentage as may be necessary to comply with the provisions of any co-insurance clauses of the policy) of the "replacement costs" thereof as such term is defined in the Replacement Cost Endorsement to be attached thereto, insuring against the perils of Fire, Lightning, Extended Coverage, Vandalism and Malicious Mischief, extended by Special Extended Coverage Endorsement to insure against all other Risks of Direct Physical Loss, such coverages and endorsements to be as defined, provided and limited in the standard bureau forms prescribed by the insurance regulatory authority for the State in which the Premises are situated for use by insurance companies admitted in such state for the writing of such insurance on risks located within such state. Subject to the provisions of subparagraph 14, C, D, E below, such insurance shall be for the sole benefit of Landlord and under its sole control. B. Tenant agrees to pay its proportionate share of Landlord's cost of carrying fire and extended coverage insurance ("Insurance") on the building. During each month of the term of this Lease, Tenant shall make a monthly escrow deposit with Landlord equal to one-twelfth of its proportionate share of the insurance on the buildings and grounds which will be due and payable for that particular year. Tenant authorizes Landlord to use the funds deposited by him with Landlord under this paragraph to pay the cost of such Insurance. Each Insurance Escrow Payment shall be due and payable, as additional rent, at the same time and manner of the payment of the monthly rental as provided herein. The initial share of the estimated insurance for the year in question, and the monthly Insurance Escrow Payment is subject to increase or decrease as determined by Landlord to reflect an accurate monthly escrow of Tenant's estimated proportionate share of this Insurance. The Insurance Escrow Payment account of Tenant shall be reconciled annually. If the Tenant's total Insurance Escrow Payments are less than Tenant's actual pro rata share of the Insurance, Tenant shall pay to Landlord upon demand the difference; if the total Insurance Escrow Payments of Tenant are more than Tenant's actual pro rata share of the Insurance, Landlord shall promptly refund the balance of such excess to Tenant after first crediting the excess to the next monthly payment by Tenant for its proportionate share of Taxes and Insurance. Tenant's cost of Insurance shall be computed by multiplying the cost of insurance by a fraction, the numerator of which shall be the number of gross leasable square feet of floor space in the Premises and the denominator of which shall be the total applicable gross leasable square footage. The amount of the initial monthly Insurance Escrow Payment will be as specified in he Basic Lease information. C. If the building, of which the Premises are a part, should be damaged or destroyed by fire, tornado, earthquake or other casualty, Tenant shall give immediate written notice thereof to Landlord. D. If the building, of which the Premises are a part, should be totally destroyed by fire, tornado or other casualty, or if it should be so damaged thereby that rebuilding or repairs cannot in Landlord's estimation be completed within two hundred (200) days after the date upon which Landlord is notified by Tenant of such damage, this Lease shall terminate and the rent shall be abated during the unexpired portion of this Lease, effective upon the date of the occurrence of such damage. Landlord shall give notice to Tenant in writing of its determination to terminate this Lease within ninety (90) days following the date of the occurrence of such damage. E. If the building, of which the Premises are a part, should be damaged by any peril covered by the insurance to be provided by Landlord under subparagraph 14(a) above, but only to such extent that rebuilding or repairs can in Landlord's estimation be completed within two hundred (200) days after the date upon which Landlord is notified by Tenant of such damage, this Lease shall not terminate, and Landlord shall at its sole cost and expense thereupon proceed with reasonable diligence to rebuild and repair such building to substantially restore the condition in which it existed prior to such damage, except that Landlord shall not be required to rebuild, repair or replace any part of the partition, fixtures, additions and other improvements which may have been placed in, or about the Premises by Tenant. If the Premises are untenantable in whole or in part following such damage, the rent payable hereunder during the period in which they are untenantable shall be reduced to such extent as may be fair and reasonable under all of the circumstances. In the event that Landlord shall fail to complete such repairs and rebuilding within two hundred (200) days after the date upon which Landlord is notified by Tenant of such damage, Tenant may at its option terminate this Lease by delivering written notice of termination at Tenant's exclusive remedy, whereupon, all rights and obligations hereunder shall cease and terminate. 6 Please Initial Landlord CHM Tenant BWB 9 F. Notwithstanding anything herein to the contrary, in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises required that the insurance proceeds be applied to such indebtedness, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made by any such holder, whereupon all rights and obligations hereunder shall cease and terminate. G. Each of Landlord and Tenant hereby releases the other from any loss or damage to property caused by fire or any other perils insured through or under them by way of subrogation or otherwise for any loss or damage to property caused by fire or any other perils insured in policies of insurance covering such property, even if such loss or damage shall have been caused by the fault or negligence of the other party, or anyone for whom such party may be responsible; provided, however, that this release shall be applicable and in force and effect only with respect to loss or damage occurring during such times as the releasor's policies shall contain a clause or endorsement to the effect that any such release shall not adversely affect or impair said policies or prejudice the right of the releasor to recover thereunder and then only to the extent of the insurance proceeds payable under such policies. Each of the Landlord and Tenant agrees that it will request its insurance carriers to include in its policies such a clause or endorsement. If extra cost shall be charged therefor, each party shall advise the other thereof and of the amount of the extra cost, and the other party, at its election, may pay the same, but shall not be obligated to do so. 15. LIABILITY. Landlord shall not be liable to Tenant or Tenant's employees, agents, servants, guests, invitees or visitors, or to any other person whomsoever, for any injury to person or damage to property on or about the Premises, resulting from and/or caused in part or whole by the negligence or misconduct of Tenant, its employees, agents, servants, guests, invitees or visitors, or of any other person entering upon the Premises, or caused by the building and improvements located on the Premises becoming out of repair, or caused by leakage of gas, oil, water or steam or by electricity emanating from the Premises, or due to any cause whatsoever related to the Lease tenancy, and Tenant hereby covenants and agrees that it will at all times indemnify and hold safe and harmless the property, the Landlord (including without limitation the trustee and beneficiaries if Landlord is a trust), Landlord's employees, agents, servants, guests, invitees and visitors from any loss, liability, claims, suits, costs, expenses, including without limitation attorney's fees and damages, both real and alleged, arising out of any such damage or injury; except injury to persons or damage to property the cause of which is the negligence of Landlord or Landlord's employees or Agents or the failure of Landlord to repair any part of the Premises which Landlord is obligated to repair and maintain hereunder within a reasonable time after the receipt of written notice from Tenant of needed repairs. Tenant's obligation to indemnify Landlord under this Paragraph 15 includes an obligation to indemnify for losses resulting from death or injury to Tenant's employees, and Tenant accordingly hereby waives any and all immunities it now has or hereafter may have under any Industrial Insurance Act, or other worker's compensation, disability benefit or other similar act which would otherwise be applicable in the case of such a claim. Tenant shall procure and maintain throughout the term of this Lease a policy or policies of Insurance , at its sole cost and expense, insuring both Landlord and Tenant against all claims, demands or actions arising out of or in connection with: (i) the Premises; (ii) the condition of the Premises; (iii) Tenant's operations in and maintenance and use of the Premises; and (iv) Tenant's liability assumed under this Lease, the limits of such policy or policies to be in the amount of not less than $3,000,000 per occurrence in respect of injury to persons (including death) and in respect of property damage or destruction, including loss of use thereof. All such policies shall be procured by Tenant from responsible insurance companies satisfactory to Landlord. A Certificate of Insurance shall be delivered to Landlord prior to the Commencement Date of this Lease. Not less than fifteen (15) days prior to the expiration date of any such Certificate of Insurance. A Certificate of Insurance shall be delivered to Landlord. Not less than thirty (30) days written notice shall be given to Landlord before such policy may be cancelled or changed to reduce insurance provided thereby. 16. CONDEMNATION. A. If the whole or any substantial part of the Premises should be taken for any public or quasi-public use under governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof and the taking would prevent or materially interfere with the use of the Premises for the purpose for which they are being used, this Lease shall terminate and the rent shall be abated during the unexpired portion of this Lease, effective when the physical taking of said Premises shall occur. B. If part of the Premises shall be taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof, and this Lease is not terminated as provided in the subparagraph above, this Lease shall not terminate but the rent payable hereunder during the unexpired portion of this Lease shall be reduced to such extend as may be fair and reasonable under all of the circumstances. C. In the event of any such taking or private purchase in lieu thereof, Landlord shall be entitled to receive the entire award. Tenant shall be entitled to make a claim in any condemnation proceedings which does not reduce the amount of Landlord's award, for the value of any furniture, furnishings and fixtures installed by and at the sole expense of Tenant. 7 Please Initial Landlord CHM Tenant BWB 10 17. HOLDING OVER. Tenant will, at the termination of this Lease by lapse of time or otherwise, yield up immediate possession to Landlord. If Landlord agrees in writing that Tenant may hold over after the expiration or termination of this Lease, unless the parties hereto otherwise agree in writing on the terms of such holding over, the hold over tenancy shall be subject to termination by Landlord at any time upon not less than thirty (30) days advance written notice, or by Tenant at any time upon not less than thirty (30) days advance written notice, and all of the other terms and provisions of this Lease shall be applicable during that period, except that Tenant shall pay Landlord from time to time upon demand, as rental for the period of any hold over, an amount equal to one and one-half (1-1/2) the Base Rent in effect on the termination date, plus all additional rental as defined herein, computed on a daily basis for each day of the hold over period. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided. The preceding provisions of this paragraph 17 shall not be construed as Landlord's consent for Tenant to hold over. 18. QUITE ENJOYMENT. Landlord covenants that it now has, or will acquire before Tenant takes possession of the Premises, good fee or leasehold title to the Premises, free and clear of all liens and encumbrances, excepting only the lien for current taxes not yet due, such mortgage or mortgages as are permitted by the terms of this Lease, zoning ordinances and other building and fire ordinances and governmental regulations relating to the use of such property, and easements, restrictions and other conditions of record. In the event this Lease is a sublease, then Tenant agrees to take the Premises subject to the provisions of the prior leases. Landlord represents and warrants that it has full right and authority to enter into this Lease and that Tenant , upon paying the rental herein set forth and performing its other covenants and agreements herein set forth, shall peaceably and quietly have, hold and enjoy the Premises for the term hereof without hindrance or molestation from Landlord, subject to the terms and provisions of this Lease. 19. EVENTS OF DEFAULT. The following events shall be deemed to be events of default by Tenant under this Lease: A. Tenant shall fail to pay any installment of the rent herein reserved when due, or any payment with respect to taxes hereunder when due, or any other payment or reimbursement to Landlord required herein when due, and such failure shall continue for a period of five (5) days from the date such payment was due. B. Tenant shall become insolvent, or shall make a transfer in fraud of creditors, or shall make an assignment for the benefit of creditors. C. Tenant shall file a petition under any section or chapter of the National Bankruptcy Act, as amended, or under any similar law or statute of the United States or any State thereof; or Tenant shall be adjudged bankrupt or insolvent in proceedings filed against Tenant thereunder. D. A receiver or trustee shall be appointed for all or substantially all of the assets of Tenant. E. Tenant shall fail to comply with any term, provision or covenant of this Lease (other than the foregoing in this Paragraph 19), and shall not cure such failure within twenty (20) days after written notice thereof to Tenant. 20. REMEDIES. Upon the occurrence of any such events of default described in Paragraph 19 hereof, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever. A. Landlord may accelerate all rent payments due hereunder which shall then become immediately due and payable. B. Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails so to do, Landlord may, without prejudice to any other remedy which it may have for possession or arrearage in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying such Premises or any part thereof, by all legal means without being liable for prosecution or any claim of damages therefor, and Tenant agrees to pay to Landlord on demand the amount of all loss and damage which Landlord may suffer by reason of such termination, whether through inability to relet the Premises on satisfactory terms or otherwise. C. Enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying such Premises or any part thereof, by all legal means without being liable for prosecution or any claim for damages therefor, and relet the Premises for such terms ending before, on or after the expiration date of the Lease Term, at such rentals and upon such other conditions (including concessions and prior occupancy periods) as Landlord in its sole discretion may determine, and receive the rent therefor; and Tenant agrees to pay to the Landlord on demand any deficiency that may arise by reason of such reletting. Landlord shall use its good faith efforts to relet the Premises but shall not be liable for refusal or failure to relet or in the event of reletting for refusal or failure to collect any rent due upon such reletting. In the event Landlord is successful in reletting the Premises at a rental in excess of that agreed to be paid by Tenant pursuant to the terms of this Lease, Landlord and Tenant each mutually agree that Tenant shall not be entitled, under any circumstances, to such excess rental, and Tenant does hereby specifically waive any claim to such excess rental. 8 Please Initial Landlord CHM Tenant BWB 11 D. Enter upon the Premises, by all legal means without being liable for prosecution or any claim for damages therefor, and do whatever Tenant is obligated to do under the terms of this Lease; and Tenant agrees to reimburse Landlord on demand for any expenses which Landlord may incur in thus effecting compliance with Tenant's obligations under this Lease, and Tenant further agrees that Landlord shall not be liable for any damages resulting to the Tenant from such action, whether caused by the negligence of Landlord or otherwise. E. Whether or not Landlord retakes possession or relets the Premises, Landlord shall have the right to recover unpaid rent and all damages caused by Tenant's default, including attorney's fees. Damage shall include, without limitation, all rents lost, all legal expenses and other related costs incurred by Landlord following Tenant's default, all costs incurred by Landlord in restoring the Premises to good order and condition, or in remodeling, renovating or otherwise preparing the Premises for reletting, all costs (including without limitation any brokerage commissions and the value of Landlord's time) incurred by Landlord, plus interest thereon from the date of expenditure until fully repaid at the rate of eighteen percent (18%) per annum. F. In the event Tenant fails to pay an installment of rent, additional rent or other charges hereunder as and when such installment is due, to help defray the additional cost to Landlord for processing such late payments Tenant shall pay to Landlord on demand a late charge in an amount equal to five percent (5%) of such installment; and the failure to pay such amount within ten (10) days after demand therefor shall be an event of default hereunder. The provision for such late charge shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner. Any and all late rent shall bear an eighteen percent (18%) interest rate. G. Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law, such remedies being cumulative and non-exclusive, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due to Landlord hereunder or of any damages accruing to Landlord by reason of the violation of any of the terms, provisions and covenants herein contained. No act or thing done by the Landlord or its agents during the Lease Term hereby granted shall be deemed a termination of this Lease or an acceptance of the surrender of the Premises, and no agreement to terminate this Lease or accept a surrender of said Premises shall be valid unless in writing signed by Landlord. No waiver by Landlord of any violation or breach of any of the terms, provisions and covenants herein contained shall be deemed or construed to constitute a waiver of any other violation or breach of any of the terms, provisions and covenants herein contained. Landlord's acceptance of the payment of rental or other payments hereunder after the occurrence of an event of default shall not be construed as a waiver of such default, unless Landlord so notifies Tenant in writing. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default or of Landlord's right to enforce any such remedies with respect to such default or any subsequent default. If, on account of any breach or default by Tenant in Tenant's obligations under the terms and conditions of this Lease, it shall become necessary or appropriate for Landlord to employ or consult with an attorney concerning or to enforce or defend any of Landlord's rights or remedies hereunder, Tenant agrees to pay any reasonable attorney's fees so incurred. 21. MORTGAGES. Tenant accepts this Lease subject and subordinate to any mortgage (s) and/or deed(s) of trust now or at any time hereafter constituting a lien or charge upon the Premises or the improvements situated thereon provided, however, that if the mortgagee, trustee or holder of any such mortgage or deed of trust elects to have Tenant's interest in this Lease superior to any such instrument, then by notice to Tenant from such mortgagee, trustee or holder, this Lease shall be deemed superior to such lien, whether this Lease was executed before or after said mortgages or deed of trust. Tenant shall at any time hereafter on reasonable demand execute any reasonable instruments, releases or other documents which may be required by any mortgagee for the purpose of subjecting and subordinating this Lease to the lien of any such mortgage. 22. LANDLORD'S DEFAULT. In the event Landlord should become in default in any payment due on any such mortgage described in Paragraph 22 hereof or in the payment of taxes or any other item which might become a lien upon the Premises and which Tenant is not obligated to pay under the terms and provisions of this Lease, Tenant is authorized and empowered after giving Landlord five (5) days prior written notice of such default and Landlord's failure to cure such default, to pay any such items for and on behalf of Landlord, and the amount of any item so paid by Tenant for or on behalf of Landlord, together with any interest or penalty required to be paid in connection therewith, shall be payable on demand by Landlord to Tenant; provided, however, that Tenant shall not be authorized and empowered to make any payment under the terms of this Paragraph 23 unless the item paid shall be superior to Tenant's interest hereunder. In the event Tenant pays any mortgage debt in full, in accordance with this paragraph, it shall, at its election, be entitled to the mortgage security by assignment or subrogation. 23. MECHANICS LIENS. Tenant shall have no authority, express or Implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord in the Premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs, and each such claim shall affect and each such lien shall attach 9 Please Initial Landlord CHM Tenant BWB 12 to, if at all, only the leasehold interest granted to Tenant by this instrument. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises on which any lien is or can be validly and legally asserted against its leasehold interest in the Premises or the improvements thereon and that it will save and hold Landlord harmless from any and all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the right, title and interest of the Landlord in the Premises or under the terms of this Lease. 24. NOTICES. Each provision of this instrument or of any applicable governmental laws, ordinances, regulations and other requirements with reference to the sending, mailing or delivery of any notice or the making of any payment by Landlord to Tenant or with reference to the sending, mailing or delivery of any notice or the making of any payment by Tenant or Landlord shall be deemed to be complied with when and if the following steps are taken: A. All rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord at the address hereinbelow set forth or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. Tenant's obligation to pay rent and any other amounts to Landlord under the terms of this Lease shall not be deemed satisfied until such rent and other amounts have been actually received by Landlord. B. All payments required to be made by Landlord to Tenant hereunder shall be payable to Tenant at the address hereinbelow set forth, or at such other address within the continental United States as Tenant may specify from time to time by written notice delivered in accordance herewith. C. Any notice or document required or permitted to be delivered hereunder shall be deemed to be delivered whether actually received or not after three (3) days from deposit in the United States Mail, postage prepaid, Certified or Registered Mail, addressed to the parties hereto at the respective addresses set out below, or at such other address as they have theretofore specified by written notice delivered in accordance herewith: LANDLORD: TENANT: K-M Properties Advanced Digital Information Corp. 10201 Willows Road NE Redmond, WA 98073 If and when included within the term "Landlord" as used in this instrument, there are more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address for the receipt of notices and payments to Landlord: if and when included within the term "Tenant", as used in this instrument, there are more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address within the continental United States for the receipt of notices and payments to Tenant. All parties included within the terms "Landlord" and "Tenant", respectively, shall be bound by notices given in accordance with the provisions of this paragraph to the same effect as if each had received such notice. 25. MISCELLANEOUS. A. Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. B. The terms, provisions and covenants and conditions contained in this Lease shall apply to, inure to the benefit of, and be binding upon, the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns, except as otherwise herein expressly provided. Landlord shall have the right to assign any of its rights and obligations under this Lease. Each party agrees to furnish to the other, promptly upon demand, a corporate resolution, proof of due authorization by partners, or other appropriate documentation evidencing the due authorization of such party to enter into this Lease. C. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease. D. Tenant agrees from time to time within ten (10) days after request of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel certificate stating that this Lease is in full force and effect, the date to which rent has been paid, the unexpired term of this Lease and such other matters pertaining to this Lease as may be requested by Landlord. It is understood and agreed that Tenant's obligation to furnish such estoppel certificates in a timely fashion is a material inducement for Landlord's execution of this Lease. E. This Lease may not be alter, changed or amended except by an instrument in writing signed by both parties hereto. 10 Please Initial Landlord CHM Tenant BWB 13 F. All obligations of Tenant hereunder not fully performed as of the expiration or earlier termination of the term of this Lease shall survive the expiration or earlier termination of the term hereof, including without limitation all payment obligations with respect to taxes and insurance and all obligations concerning the condition of the Premises. Upon the expiration or earlier termination of the Term hereof, and prior to Tenant vacating the Premises, Tenant shall pay to Landlord any amount reasonably estimated by Landlord as necessary to put the Premises, including without limitation all heating and air-conditioning systems and equipment therein, in good condition and repair pursuant to Paragraph 11 (B) hereof. Tenant shall also, prior to vacating the Premises, pay to Landlord the amount, as estimated by Landlord, of Tenant's obligation hereunder for real estate taxes and insurance premiums for the year in which the Lease expires or terminates. All such amounts shall be used and held by Landlord for payment of such obligations of Tenant hereunder, with Tenant being liable for any additional costs therefor upon demand by Landlord, or with any excess to be returned to Tenant after all such obligations have been determined and satisfied, as the case may be. Any security deposit held by Landlord shall be credited against the amount payable by Tenant under this Paragraph 26 (F). G. If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws effective during the Term of this Lease, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby, and it is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added as part of this Lease contract a clause or provision as similar in terms to such illegal, invalid or unenforceable clause of provision as may be possible and be legal, valid and enforceable. H. Because the Premises are on the open market and are presently being shown, this Lease shall be treated as an offer with the Premises being subject to prior lease and such offer subject to withdrawal or non-acceptance by Landlord or to other use of the Premises without notice, and this Lease shall not be valid or binding unless and until accepted by Landlord in writing and a fully executed copy delivered to both parties hereto. I. All references in this Lease to "the date hereof" or similar references shall be deemed to refer to the last date, in point of time, on which all parties hereto have executed this Lease. J. During the term of this Lease and any subsequent option periods, Landlord shall have the right to request and obtain Tenant's current financial statements with reasonable advance notice. Tenant shall comply with Landlord's request for financial statements in a reasonable time frame not to exceed thirty (30) days from the date of request. 26. LIABILITY OF LANDLORD. Tenant agrees that no trustee, officer, employee, agent or individual partner of Landlord, or its constituent entitles, shall be personally liable for any obligation of Landlord hereunder, and that Tenant must look solely to the interests of Landlord, or its constituent entitles in the subject real estate, for the enforcement of any claims against Landlord arising hereunder. 27. POSSESSION. Landlord will provide Tenant with partial possession of the premises approximately July 17, 1995 to start any tenant improvement work required. Beginning August 1, 1995, Landlord will deliver the premises with new paint throughout the first and second floors. Tenant shall pay a base rent of $5,250.00 plus operating expenses for floors one and two for rent during this early occupancy period of August, 1995. 28. RIGHT OF FIRST OPPORTUNITY TO NEGOTIATE. If and when Landlord chooses to sell the subject building during the lease term, and provided that Tenant is not in default, Landlord agrees to give Tenant the first opportunity to negotiate with Landlord for the purchase of the building. Tenant shall have thirty (30) days from the date Landlord advises Tenant of Landlord's decision to sell to negotiate a definitive purchase and sale agreement with Landlord. During this thirty (30) day period, neither party is under any compulsion, express or implied, to enter into a purchase and sale agreement. After expiration of the thirty (30) day period, Landlord shall have the unrestricted right to sell the property to any other parties, or at its sale option, to continue to negotiate with Tenant. If the Landlord has not entered into a letter of intent, option, or purchase and sale agreement by the end of six (6) months following expiration of the initial thirty (30) day negotiation opportunity period, then Tenant shall have a second right to negotiate with Landlord for an additional thirty (30) day period, provided Landlord is still offering the building for sale. During the first and second opportunity periods Landlord shall have the right to receive and entertain offers from other prospective buyers of the building. 11 Please Initial Landlord CHM Tenant BWB 14 30. ADDITIONAL PROVISIONS. Exhibit "A" - Building Floor Plates Exhibit "B" - Legal Description Exhibit "C" - Floor Plan Exhibit "D" - Rules & Regulations LANDLORD: TENANT: K-M PROPERTIES ADVANCED DIGITAL INFORMATION CORPORATION By: /s/ CHARLES H. MORSE By: /s/ BARRY W. BRUGMAN ------------------------- ------------------------- Its: Partner Its: VP Operations ------------------------ ------------------------ Date: 5/11/95 Date: 5/9/95 ----------------------- ----------------------- 12 Please Initial Landlord CHM Tenant BWB 15 CORPORATE ACKNOWLEDGEMENT: State of Washington ) ) ss. County of King ) On this 9th day of May, 1995 before me personally appeared Barry Brugman to me known to be the Vice President of the corporation that executed the within and foregoing instrument, and acknowledged the same instrument to be the free and voluntary act and deed of said corporation, for the uses and purposes therein mentioned, and on oath stated that they were authorized to execute said instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed by official seal the day and year first written above. Signature: /s/ ROBERT C. PINCUS ------------------------------------- Print Name: Robert C. Pincus ------------------------------------- Notary Public in and for the (Seal) State of Washington ---------------------------- Residing in Washington ------------------------- My appointment expires March 22, 1999 -------------- CORPORATE ACKNOWLEDGEMENT: State of_________________) ) ss. County of________________) On this _____ day of _________, 19__ before me personally appeared __________________________ to me known to be the _______________________________ of the corporation that executed the within and foregoing instrument, and acknowledged the same instrument to be the free and voluntary act and deed of said corporation, for the uses and purposes therein mentioned, and on oath stated that they were authorized to execute said instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed by official seal the day and year first written above. Signature: ------------------------------------ Print Name: ------------------------------------ Notary Public in and for the (Seal) State of ---------------------------- Residing in ------------------------- My appointment expires -------------- INDIVIDUAL ACKNOWLEDGEMENT: State of_________________) ) ss. County of________________) On this _____ day of _________, 19__ before me personally appeared __________________________ to me known to be the individual, or individuals, described in and who executed the within and foregoing instrument, and acknowledged that __________________________ signed the same as _______________ free and voluntary act and deed, for the uses and purposes therein mentioned. IN WITNESS WHEREOF, I have hereunto set my hand and affixed by official seal the day and year first written above. Signature: ------------------------------------ Print Name: ------------------------------------ Notary Public in and for the (Seal) State of ---------------------------- Residing in ------------------------- My appointment expires -------------- 13 Please Initial Landlord CHM Tenant BWB 16 GUARANTY OF LEASE THIS GUARANTY OF LEASE is attached to and is hereby made a part of that certain Lease dated April 20, 1995, between K-M Properties (Landlord), and Advanced Digital Information Corporation (Tenant). FOR VALUE RECEIVED and in consideration of and as an inducement to Landlord entering into this Lease, the undersigned guarantor ("Guarantor") unconditionally and continuously guarantees to Landlord, its successors and assigns, the full and timely performance and observance by Tenant of all the terms and conditions of the Lease to be performed and observed by Tenant. This Guaranty and the obligations of Guarantor hereunder shall not be terminated or impaired by reason of the granting by Landlord of any indulgences to Tenant or the assertion by Landlord against Tenant of any of Landlord's rights or remedies under the Lease, or by the relief of Tenant from any of Tenant's obligations under the Lease by operation of law or otherwise, whether or not Guarantor has received notice of same. Guarantor waives all suretyship defenses and waives notice of any breach by Tenant. This Guaranty shall continue in full force and effect as to any renewal, amendment, modification, extension, assignment or transfer of the Lease or any subletting of the Lease premises, whether or not Guarantor shall have received notice of or consented to the same. The liability of Guarantor under this Guaranty is primary and absolute, and Landlord may at its option proceed against Guarantor without proceeding against Tenant. Any action against Guarantor may be brought in the county in which the Lease premises are located, or in King County, Washington, at Landlord's option. Landlord's delay or failure to insist upon the strict performance or observance of any obligation of Tenant under the Lease or to exercise any right or remedy available under the Lease or at law or in equity, shall not be construed to be a waiver of Landlord's prerogative to insist upon such strict performance or observance or to exercise any such right or remedy. Receipt by Landlord of rent or other payment with knowledge of a breach of any term or condition of the Lease shall not be construed to be a waiver of such breach. The liability of Guarantor hereunder shall not be affected or limited by: the release or discharge of Tenant in any creditors', receivership, bankruptcy or other proceedings; the impairment, limitation or modification of the liability of the Tenant or the estate of the Tenant in bankruptcy, or of any remedy for the enforcement of Tenant's said liability under the Lease, resulting from the operation of any present or future provision of the federal bankruptcy laws or other statutes or from the decision in any court; the rejection of disaffirmance of the Lease in any such proceedings; any disability or other defense of Tenant; or the cessation, from any cause whatsoever, of the liability of Tenant. Until all the terms, conditions and agreements of the Lease are fully performed and observed by Tenant, Guarantor hereby waives the right to enforce any claim, right of remedy with Guarantor now has or hereafter shall have against Tenant by reason of any one or more payments or acts of performance in compliance with the obligations of Guarantor hereunder, and Guarantor hereby subordinates any liability or indebtedness of Tenant now or hereafter held by Guarantor to the obligations of Tenant to Landlord under the Lease. This Guaranty shall inure to the benefit of the Landlord, its affiliates, successors and assigns, and shall be binding upon the successors and assigns of Guarantor. This Guaranty is irrevocable and may not be changed, affected, discharged or terminated other than by an agreement in writing signed by Guarantor and Landlord. Guarantor shall pay all costs and expenses paid or incurred by Landlord in enforcing either the Lease or this Guaranty, including court costs and a reasonable amount for legal services performed by counsel, whether employed or retained by Landlord. DATED this 9th day of May, 1995. GUARANTOR: INTERPOINT CORPORATION By: /s/ LESLIE S. ROCK --------------------------------- (Signature) Leslie S. Rock --------------------------------- (Name - PLEASE PRINT) Its: Vice President, Treasurer -------------------------------- BUSINESS ADDRESS: 10301 Willows Road ------------------------------- Redmond, WA 98052 ------------------------------- BUSINESS TELEPHONE: (206) 882-3100 ------------------------------- 14 Please Initial Landlord CHM Tenant BWB 17 EXHIBIT C-1 Lease Agreement between K-M Properties and Advanced Digital Information Corporation. TENANT AND BUILDING IMPROVEMENTS Landlord will deliver a clean building in an "as is" condition, and will repair damages, if any exist. Landlord shall provide the following tenant and building improvements, at its sole cost and expense, by the date shown next to each item.
Item: Date: A) Paint the interior of floors 1 &2. No later than August 1, 1995. B) Paint the exterior of the building. No later than September 1, 1997. C) Add approximately 40 parking spaces. No later than September 1, 1997. D) Add an elevator and interior stairway to the 3rd floor. No later than September 1, 1996.
Please Initial Landlord CHM Tenant BWB EX-21 4 INTERPOINT CORPORATION EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF INTERPOINT CORPORATION ADVANCED DIGITAL INFORMATION CORPORATION ADIC EUROPE INTERPOINT TAIWAN CORPORATION INTERPOINT (UK) LIMITED INTERPOINT SARL INTERPOINT GMBH INTERPOINT TRADE CORP. EX-23 5 INTERPOINT CORPORATION EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 33-21987, 33-48200, 33-39237, 33-58441) of Interpoint Corporation of our report dated December 5, 1995 appearing in this Form 10-K. /s/ Price Waterhouse LLP Price Waterhouse LLP Seattle, Washington January 26, 1996 EX-23.1 6 INTERPOINT CORPORATION EXHIBIT 23.1 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Interpoint Corporation: We consent to the incorporation by reference in the Registration Statements (Nos. 33-21987, 33-48200, 33-58441 and 33-39237) on Form S-8 of Interpoint Corporation of our report dated November 9, 1993, with respect to the statements of income, stockholders' equity and cash flows of Advanced Digital Information Corporation for the year ended September 30, 1993, which report appears in the October 31, 1995 annual report on Form 10-K of Interpoint Corporation. /s/KPMG PEAT MARWICK LLP KPMG PEAT MARWICK LLP Seattle, Washington January 26, 1996 EX-27 7 INTERPOINT CORPORATION EXHIBIT 27
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR OCT-31-1995 OCT-31-1995 778 0 16,963 133 18,008 36,932 21,991 13,275 47,920 21,556 3,551 4,707 0 0 16,213 47,920 71,056 71,056 49,250 49,250 0 0 978 4,252 1,164 3,088 0 0 0 3,088 .77 .77
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