-----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, NgpHrY4Mp/salFO3jiqJjhuiRDdiQGy0ImMa6I42M5dEsH8jeqF0wmap0kS82ChL He81+/fMst+chYJHOLHHqg== 0000891020-96-000801.txt : 19960730 0000891020-96-000801.hdr.sgml : 19960730 ACCESSION NUMBER: 0000891020-96-000801 CONFORMED SUBMISSION TYPE: 10-12G PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19960729 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED DIGITAL INFORMATION CORP CENTRAL INDEX KEY: 0000770403 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 911618616 STATE OF INCORPORATION: WA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-12G SEC ACT: 1934 Act SEC FILE NUMBER: 000-21103 FILM NUMBER: 96600412 BUSINESS ADDRESS: STREET 1: 1201 WILLOWS ROAD STREET 2: P O BOX 97057 CITY: REDMOND STATE: WA ZIP: 98073-9757 BUSINESS PHONE: 2068818004 MAIL ADDRESS: STREET 1: 10201 WILLOWS ROAD STREET 2: P O BOX 97057 CITY: REDMOND STATE: WA ZIP: 98073-9757 10-12G 1 FORM 10 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10 GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------ ADVANCED DIGITAL INFORMATION CORPORATION (Exact name of registrant as specified in its charter) WASHINGTON 91-1618616 (State or other jurisdiction (I.R.S. employer identification number) of incorporation or organization) 10201 WILLOWS ROAD REDMOND, WASHINGTON 98052 (Address of principal (Zip code) executive offices)
(206) 881-8004 (Registrant's telephone number, including area code) Securities to be registered pursuant to Section 12(b) of the Act: NONE Securities to be registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE PREFERRED STOCK PURCHASE RIGHTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 ADVANCED DIGITAL INFORMATION CORPORATION INFORMATION INCLUDED IN INFORMATION STATEMENT AND INCORPORATED IN FORM 10 BY REFERENCE CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10
LOCATION IN ITEM NO. ITEM CAPTION INFORMATION STATEMENT - --------- ---------------------------------------- ---------------------------------------- Item 1. Business................................ Summary; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business Item 2. Financial Information................... Summary; Selected Financial Data; Unaudited Pro Forma Statements of Operations; Management's Discussion and Analysis of Financial Condition and Results of Operations; Consolidated Financial Statements Item 3. Properties.............................. Business Item 4. Security Ownership of Certain Beneficial Owners and Management................. Beneficial Ownership Item 5. Directors and Executive Officers........ Management Item 6. Executive Compensation.................. Management Item 7. Certain Relationships and Related Transactions.......................... Certain Transactions Item 8. Legal Proceedings....................... Business Item 9. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters................... The Distribution; Dividend Policy; Description of Capital Stock Item 10. Recent Sales of Unregistered Securities............................ Not Applicable Item 11. Description of Registrant's Securities to Be Registered...................... Description of Capital Stock Item 12. Indemnification of Directors and Officers.............................. Liability and Indemnification of Directors and Officers Item 13. Financial Statements and Supplementary Data.................................. Consolidated Financial Statements; Schedule VIII (Valuation and Qualifying Accounts and Reserves) Item 14. Changes and Disagreements With Accountants on Accounting and Financial Disclosure.................. Not Applicable Item 15..... Financial Statements and Exhibits (a) Financial Statements Index to Financial Statements Schedule VIII (Valuation and Qualifying Accounts and Reserves) (b) Exhibits:
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EXHIBIT NUMBER DESCRIPTION - ------ ------------------------------------------------------------------------------------ 2.1 Separation Agreement between ADIC and Interpoint Corporation, dated as of July , 1996* 3.1 Restated Articles of Incorporation of ADIC* 3.2 Restated Bylaws of ADIC* 4.1 Form of Common Stock Certificate* 4.2 Rights Agreement, dated as of July , 1996, between ADIC and First Interstate Bank of Washington, N.A., as Rights Agent* 4.3 Certificate of Designation of Rights and Preferences of Series A Participating Cumulative Preferred Stock, incorporated by reference to Exhibit A to Exhibit 4.2* 4.4 Form of Right Certificate, incorporated by reference to Exhibit B to Exhibit 4.2* 10.1 Lease Agreement between K-M Properties and Advanced Digital Information Corporation, dated as of May 11, 1995 (incorporated by reference to Exhibit 10.3 of the Interpoint Corporation Annual Report on Form 10-K for the fiscal year ended October 31, 1995) 10.2 Tax Allocation Agreement, dated as of July , 1996, between ADIC and Interpoint Corporation* 10.3 ADIC 1996 Stock Option Plan* 10.4 ADIC Transition Plan* 21.1 Subsidiaries of the Registrant 27.1 Financial Data Schedule
- --------------- * to be filed by amendment 4 SIGNATURE Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. ADVANCED DIGITAL INFORMATION CORPORATION By: PETER H. VAN OPPEN ------------------------------------ Peter H. van Oppen Chairman, President and Chief Executive Officer Redmond, Washington July 26, 1996 5 SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FISCAL YEARS ENDED OCTOBER 31, 1995 AND 1994 AND SEPTEMBER 30, 1993
BALANCE AT ADDITIONS BEGINNING CHARGED TO BALANCE AT OF YEAR INCOME DEDUCTIONS* OTHER END OF YEAR ---------- ---------- ---------- ------ ----------- Allowance for doubtful accounts receivable: 1995................................ $ 54,008 $ 26,450 $ 27,003 $ 53,455 1994................................ 77,140 2,135 25,267 54,008 1993................................ 45,000 85,606 53,466 77,140 Allowance for inventory obsolescence: 1995................................ 141,584 199,000 68,831 271,753 1994................................ 271,339 234,686 364,441 141,584 1993................................ 136,507 335,570 200,738 271,339
- --------------- * Deductions represent amounts written off against the allowance, net of recoveries. 6 INFORMATION STATEMENT [ADIC LOGO] COMMON STOCK (NO PAR VALUE) This Information Statement is being furnished to the shareholders of Interpoint Corporation, a Washington corporation ("Interpoint"), in connection with the spinoff distribution (the "Distribution") by Interpoint to its shareholders of all the outstanding shares of Advanced Digital Information Corporation, a Washington corporation and a wholly owned subsidiary of Interpoint (the "Company" or "ADIC"). As a result of the Distribution, the Company will cease to be a subsidiary of Interpoint and will operate as an independent, publicly held company. The Distribution is being made in connection with, and is a condition precedent to, the merger (the "Merger") of Interpoint with a wholly owned subsidiary of Crane Co., a Delaware corporation ("Crane"), pursuant to an Agreement and Plan of Merger dated as of July 1, 1996 (the "Merger Agreement"). Interpoint will effect the Distribution only if all conditions to consummation of the Merger other than the Distribution have been satisfied or waived and the parties to the Merger are prepared to close the Merger immediately after the Distribution. See "The Merger and the Distribution -- The Merger" and "-- Conditions; Termination." The Distribution will be made immediately prior to the Merger to Interpoint shareholders of record as of that date, which is expected to be on or about September , 1996. The Distribution will be made on the basis of one share of common stock, no par value, of the Company ("ADIC Common Stock") for every one share of common stock, no par value, of Interpoint ("Interpoint Common Stock"). Holders of Interpoint Common Stock will not be required to pay any consideration for shares of ADIC Common Stock to be received by them in the Distribution. Approximately eight million shares of ADIC Common Stock are proposed to be distributed. In addition, options to purchase approximately 475,000 shares of ADIC Common Stock will be outstanding at the effective time of the Distribution. Currently, no public trading market for the ADIC Common Stock exists. The Company is applying to have the ADIC Common Stock approved for quotation on the Nasdaq National Market under the symbol "ADIC." ADIC Common Stock received in the Distribution will be freely tradable by nonaffiliates of the Company. See "The Distribution -- Market for ADIC Common Stock." SEE "SPECIAL FACTORS" FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY RECIPIENTS OF THE ADIC COMMON STOCK. ------------------------ NO VOTE OF SHAREHOLDERS IS REQUIRED IN CONNECTION WITH THE DISTRIBUTION. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY IN CONNECTION WITH THE DISTRIBUTION. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ------------------------ The date of this Information Statement is August , 1996. 7 [Three-page gatefold containing depiction of storage capacity of the Company's products and descriptions of different industries served by the Company's products] ADIC(TM), VLS(TM) and Scalar(TM) are trademarks of the Company. This Information Statement also contains other trademarks and trade names, which are the property of their respective holders. i 8 CONTENTS SUMMARY............................... 1 SPECIAL FACTORS....................... 5 THE MERGER AND THE DISTRIBUTION....... 9 General............................. 9 The Merger.......................... 9 Reasons for the Distribution........ 9 Manner of Distribution.............. 10 Certain Federal Income Tax Consequences..................... 10 Market for ADIC Common Stock........ 10 Future Management of the Company.... 11 Conditions; Termination............. 11 Treatment of Stock Options.......... 11 Relationship Between Interpoint and the Company after the Distribution..................... 12 CAPITALIZATION........................ 13 DIVIDEND POLICY....................... 13 SELECTED FINANCIAL DATA............... 14 UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS.......................... 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY............................. 18 General............................. 18 Results of Operations............... 19 Quarterly Information............... 21 Liquidity and Capital Resources..... 22 BUSINESS.............................. 23 General............................. 23 Industry............................ 23 Strategy............................ 24 Products............................ 25 Storage Management Software......... 27 Sales and Marketing................. 28 Customer Service and Support........ 29 Research and Development............ 30 Manufacturing....................... 31 Competition......................... 31 Proprietary Rights.................. 31 Legal Proceedings................... 32 Employees (Team Members)............ 32 Facilities.......................... 32 MANAGEMENT............................ 33 Officers and Directors.............. 33 Committees of the Board of Directors........................ 34 Compensation of Directors; Stock Option Program................... 34 Compensation of Executive Officers......................... 35 Stock Option Grants................. 36 Option Exercises and Year-End Value Table............................ 37 1996 Stock Option Plan.............. 37 1996 Transition Plan................ 41 CERTAIN TRANSACTIONS.................. 41 BENEFICIAL OWNERSHIP.................. 42 DESCRIPTION OF CAPITAL STOCK............................... 44 Authorized Capital Stock............ 44 Common Stock........................ 44 Preferred Stock..................... 44 Preferred Stock Purchase Rights..... 44 Certain Antitakeover Effects........ 46 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........................ 48 LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS.............. 50 TRANSFER AGENT AND REGISTRAR.......... 50 INDEPENDENT PUBLIC ACCOUNTANTS........ 51 ADDITIONAL INFORMATION................ 51 FINANCIAL STATEMENTS.................. 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ii 9 SUMMARY This summary is qualified by the more detailed information set forth elsewhere in this Information Statement, which should be read in its entirety. The ADIC Common Stock to be received by Interpoint shareholders in the Distribution is subject to certain risks. See "Special Factors." THE COMPANY Advanced Digital Information Corporation ("ADIC" or the "Company") designs, manufactures, markets, and supports specialized data storage peripherals used to backup and archive electronic data for PC/LAN (Novell NetWare and Microsoft Windows NT) and Unix client/server network computing environments. The Company's principal products, automated tape libraries, integrate proprietary electro- mechanical robotics, electronic hardware and firmware developed by the Company with industry standard, technologically advanced tape drives manufactured by third parties to provide an efficient solution for automating data backup when operated in conjunction with storage management software. As a leading drive- independent provider of automated tape libraries, the Company's strategy is to offer its customers a broad range of leading-edge library products. The Company believes its product offerings are currently the most comprehensive within its markets. The Company's product family consists of standalone tape drives and automated tape libraries ranging from four gigabytes to over three terabytes of data storage capacity. The Company incorporates a variety of tape drive technologies, including 4mm/DAT, 8mm and DLT, in its products to offer customers the latest in state-of-the-art technology. Multiple trends are fostering continued growth of the data storage segment of the client/server network computing market. Personal computer and workstation microprocessors continue to achieve dramatic increases in performance, both absolutely and relative to their cost. Enabled by this increased processing power and the increasing sophistication of both network operating systems and relational databases, core business processes (such as financial transaction processing, materials requirements planning, document imaging and management of patient records, engineering drawings and customer databases) are migrating from manual processes or mainframes to lower cost client/server computer networks. As organizations shift their core business processes to network computing environments, the importance of backing up this increasingly valuable data grows. In addition, the advent of the Internet, electronic mail and groupware are further contributing to the growth of client/server computer networks and the value of the digital data they contain. The combination of these trends is driving an increase in demand for data storage and a resultant growing need for data backup and archiving in client/server network computing environments. The Company believes its principal products, automated tape libraries, which operate in conjunction with storage management software, provide a systematic and cost-effective solution for automating data backup in client/server network computing environments. The Company's automated tape libraries integrate proprietary electro-mechanical robotics, electronic hardware and firmware developed by the Company with one or more technologically advanced tape drives supplied by third parties. Depending on capacity, these products may be configured as desktop, rackmount or floor-standing automated tape libraries with end-user list prices ranging from approximately $3,500 to $90,000. The Company believes its broad array of automated tape libraries for client/server network computing environments, which covers a wide range of data storage capacities, data transfer rates and price points, will allow the Company to continue to compete effectively in its markets. According to a December 1995 study by Dataquest Incorporated ("Dataquest"), the demand for automated tape libraries in these markets has grown from approximately $58 million in 1992 to approximately $301 million in 1995, and is projected to grow at an annual compound growth rate of approximately 32% from 1995 to 1999. The Company deploys a comprehensive sales, marketing, and support infrastructure to address the market for client/server network storage peripherals. The Company's customers range in size from large multinational companies to small businesses and are geographically dispersed with approximately 47% of sales in 1995 coming from outside the United States. The Company markets its products in North America, Europe, and the Asia Pacific region through multiple distribution channels, including distributors, value-added resellers, and original equipment manufacturers. Additionally, the Company's technical support and system 10 engineering organizations, along with third party on-site service providers, combine to provide pre- and post-sales support to its customers. The Company was incorporated under the laws of the State of Washington in August 1984 and was acquired by Interpoint in February 1994. Its corporate offices are located at 10201 Willows Road, Redmond, Washington 98052 and its telephone number is (206) 881-8004. THE MERGER AND THE DISTRIBUTION General. Currently, the Company is a wholly owned subsidiary of Interpoint, which is engaged in the microelectronics business, and, through the Company, the data storage business. The Distribution is being made in connection with, and is a condition precedent to, the Merger of Interpoint with a subsidiary of Crane pursuant to the Merger Agreement. In the Distribution, Interpoint will distribute pro rata to its shareholders approximately eight million shares of ADIC Common Stock, which, on the date of the Distribution, will constitute all of the outstanding shares of ADIC's Common Stock. As a result of the Distribution, the Company will cease to be a subsidiary of Interpoint and will operate as an independent, publicly held company. The Merger. Upon consummation of the Merger, holders of shares of Interpoint Common Stock outstanding immediately prior to the Merger (other than shares as to which dissenters' rights have been exercised) will be converted into the right to receive shares of Crane common stock. The Merger is subject to a number of conditions, including the approval of the Merger Agreement and the transactions contemplated thereby by holders of at least two-thirds of the outstanding Interpoint Common Stock as of the record date for the special meeting of Interpoint shareholders at which the Merger is considered. Pursuant to the Merger Agreement, immediately prior to the Distribution Interpoint will make a contribution to the working capital of ADIC through the cancellation of all intercompany indebtedness of ADIC to Interpoint and will contribute additional cash to ADIC in an amount currently estimated to be $1.5 million. The actual amount of cash contributed will be determined in Interpoint's discretion and will depend on Interpoint's and ADIC's operating results and cash flows prior to the Distribution. In addition, prior to the Distribution Interpoint will transfer certain other assets to ADIC, including ADIC Europe SARL ("ADIC Europe") and its interest in Visual Technologies, Limited. Purpose. Completion of the Distribution is a condition to the Merger. In addition, Interpoint's board of directors (the "Interpoint Board") believes that the separation of ADIC will enhance ADIC's access to capital, ability to attract personnel and potential to adapt in a rapidly changing industry. In approving the Merger Agreement and the transactions contemplated thereby, the Interpoint Board determined that the Merger, in combination with the Spinoff, is fair to, and in the best interest of, Interpoint shareholders insofar as it enables Interpoint shareholders to continue to have an equity interest in ADIC and to receive shares of Crane common stock in exchange for their Interpoint Common Stock. See "The Merger and the Distribution -- Reasons for the Distribution." Conditions. Interpoint will effect the Distribution only if the Merger has been approved by the requisite vote of Interpoint shareholders and all other conditions to consummation of the Merger other than the Distribution have been satisfied or waived, and the parties to the Merger Agreement are prepared to effect the Merger immediately after the Distribution. See "The Merger and the Distribution--Conditions; Termination." Trading Market. Currently, no public trading market for the ADIC Common Stock exists. The Company is applying to have the ADIC Common Stock approved for quotation on the Nasdaq National Market under the symbol "ADIC." Mechanics. As promptly as practical after the record date of the Distribution (which will be the same date the Merger is effective) (the "Distribution Record Date"), the Distribution Agent will mail stock certificates representing shares of ADIC Common Stock to holders of Interpoint Common Stock at the Distribution Record Date. Holders of Interpoint Common Stock will not be required to surrender or exchange 2 11 shares of Interpoint Common Stock or pay any consideration for shares of ADIC Common Stock to be received by them in the Distribution (although such shares must be surrendered to receive shares of common stock of Crane in the Merger). See "The Merger and the Distribution -- Manner of Distribution." Treatment of Options. Prior to the Effective Time of the Merger, Interpoint expects to enter into an agreement with each holder of an outstanding option to purchase Interpoint Common Stock. Pursuant to such agreements, options held by employees of Interpoint's microelectronics business will be cancelled in exchange for a cash payment, and options held by employees of ADIC (including those held by Peter van Oppen and members of ADIC's board of directors) will be replaced with an option to purchase ADIC Common Stock (which has the same vesting schedule and terms, other than the exercise price, of the original Interpoint option) and a cash payment for the portion of the original Interpoint option attributable to the microelectronics business. See "The Merger and the Distribution -- Treatment of Options." Tax Consequences. It is expected that the Distribution will qualify as a tax-free distribution for federal income tax purposes and, accordingly, no gain or loss will be recognized by holders of Interpoint Common Stock upon receipt of ADIC Common Stock in the Distribution. However, no ruling has been requested from the Internal Revenue Service (the "IRS") regarding the tax treatment of the Distribution. See "Certain Federal Income Tax Consequences." SUMMARY FINANCIAL DATA Set forth below is certain summary financial and operating data of the Company as of and for each of the three fiscal years in the period ended October 31, 1995 and as of and for the six months ended April 30, 1995 and 1996. The summary financial data for the two-year period ended October 31, 1995 relate to the Company as it was operated as part of Interpoint. The summary financial data for the fiscal year ended September 30, 1993 relate to the Company as it was operated as an independent company. In order to conform ADIC's fiscal year end to Interpoint's fiscal year end upon the merger of ADIC into Interpoint in February 1994, ADIC's financial statements for the month of October 1993 are not included for either of the fiscal years ended September 30, 1993 or October 31, 1994 . The summary financial data for each of the fiscal years in the three-year period ended October 31, 1995 are derived from the audited financial statements of the Company. The summary financial data for the six month periods ended April 30, 1995 and 1996 have been derived from unaudited financial statements appearing elsewhere in this Information Statement which, in the opinion of the Company's management, include all adjustments necessary, consisting only of normal recurring adjustments, for a fair presentation of the financial position and results of operations for the interim periods presented. The results for interim periods are not necessarily indicative of the results that may be expected for the full fiscal year. This data should be read in conjunction with the financial statements of the Company and the notes thereto for the corresponding periods, which are contained elsewhere in this Information Statement.
FISCAL YEAR ENDED SIX MONTHS ENDED FISCAL YEAR ENDED OCTOBER 31, APRIL 30, SEPTEMBER 30, ------------------- ------------------- 1993(1) 1994(2)(3) 1995(2) 1995(2) 1996(2) ----------------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) CONSOLIDATED STATEMENTS OF OPERATIONS: Net sales............................ $17,108 $20,083 $31,716 $12,499 $24,386 Gross profit......................... 6,333 6,588 9,609 4,313 6,729 Operating profit (loss).............. 1,658 (39) 511 78 1,747 Net income (loss).................... 1,285 (42) 292 (25) 1,008 ======= ======= ======= ======= ======= Pro forma net income per share....... $0.04 $0.12 ======= ======= Pro forma average number of common stock and common stock equivalent shares outstanding(4).............. 8,010,000 8,074,000
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AS OF APRIL 30, 1996 -------------------------- ACTUAL AS ADJUSTED(5) ------- -------------- CONSOLIDATED BALANCE SHEETS: Working capital..................................................... $10,917 $ 12,417 Total assets........................................................ 20,377 21,877 Long-term debt, excluding current portion........................... 8,702 0 Total shareholders' equity.......................................... 4,318 14,520
- --------------- (1) Reflects the Company's results of operations as a separate company prior to its acquisition by Interpoint. (2) Reflects the Company's results of operations as a wholly owned subsidiary of Interpoint. The Company was acquired by Interpoint in February 1994 in a transaction accounted for as a pooling of interests. Results of operations include allocations of corporate expenses and interest expense on intercompany borrowings. (3) In June 1994, the Company acquired its wholly owned subsidiary, ADIC Europe, in a transaction accounted for as a purchase. (4) Pro forma earnings per share is calculated for the six months ended April 30, 1996 and for the fiscal year ended October 31, 1995 based on the number of shares of Interpoint Common Stock outstanding at June 30, 1996, which reflects the Interpoint two for one stock split that became effective June 27, 1996, plus the incremental shares outstanding, as calculated under the treasury stock method, of the estimated number of ADIC stock options that will be outstanding as a result of the Distribution. (5) Adjusted to reflect the forgiveness of intercompany debt by Interpoint and the transfer of cash from Interpoint to the Company of $1.5 million. Actual cash transferred will be determined in Interpoint's discretion and may be more or less than this amount depending on operating results and cash flows of Interpoint and the Company prior to the Distribution. 4 13 SPECIAL FACTORS In addition to the other information contained in this Information Statement, the following factors should be considered by Interpoint shareholders who will receive ADIC Common Stock in the Distribution. Increasing Competition and Potentially Declining Prices. The markets for the Company's products are highly competitive. Important competitive factors include price, performance, diversity of product line, reliability, delivery capabilities, customer support and service. Some competitors of the Company have significantly greater financial, technical, manufacturing, marketing and other resources than the Company. Competitors may develop products and technologies which are less expensive or technologically superior to the Company's products. Potential and actual competitors include the suppliers of the data storage drives that the Company incorporates into its own products as well as major providers of computer hardware. Although the Company believes that its proprietary electro-mechanical robotics enable it to offer a variety of products which can compete effectively with existing high-capacity data storage devices, there can be no assurance that competitors will not develop products which incorporate capabilities or technologies that are superior to the Company's products. The markets for the Company's products are characterized by significant price competition, and the Company anticipates that its products will face increasing price pressure. This pressure could result in significant price erosion, reduced profit margins and loss of market share, which could have a material adverse effect upon the Company's results of operations. See "Business -- Competition." Dependence on Certain Suppliers. Although the Company's automated tape library products incorporate proprietary electro-mechanical robotics, the Company does not possess proprietary data storage drive technology and, consequently, is dependent on a limited number of third-party manufacturers for the drives that are incorporated into its products. In some cases, these manufacturers are sole source providers of the drive technology and competitors of the Company in that they market their own tape library products. The Company does not have any long-term contracts with any of its suppliers and if these suppliers decided to aggressively pursue the tape library market, they could cease supplying tape drives directly to the Company. To date, the Company has been able to obtain adequate supplies of tape drives at acceptable prices, but there can be no assurance that it will continue to do so. The partial or complete loss of certain of these sources could result in added costs and production delays or otherwise have a material adverse effect on the Company's results of operations and customer relationships. Technological Changes and Dependence on New Product Development. The market for the Company's products is characterized by rapidly changing technology and evolving industry standards and is highly competitive with respect to timely innovation. The introduction of new products embodying new technology and the emergence of new industry standards can render existing products obsolete or not marketable. The future success of the Company will depend on its ability to anticipate changes in technology, and to develop new and enhanced products on a timely and cost-effective basis. In particular, the Company must be able to maintain compatibility of its products with future drive technologies. Development schedules for high-technology products are subject to uncertainty and there can be no assurance that the Company will be able to meet its product development schedules. If the Company is unable for technological or other reasons to develop products in a timely manner in response to changes in the industry or if the products or product enhancements that it develops do not achieve market acceptance, the Company's business will be materially and adversely affected. Additionally, there can be no assurance that the Company will be able to develop new products in response to product introductions by competitors, which could have a material adverse effect on the Company's results of operations. Channel and Concentration. The majority of the Company's end-user customers purchase the Company's products from value-added resellers (VARs) who in turn purchase the Company's products from large distributors such as Access Graphics Inc. ("Access Graphics"), Gates/FA, GBC Distributing Inc., Ingram Micro Incorporated ("Ingram Micro"), Tech Data Corporation ("Tech Data"), and Tenex Data ("Tenex"). For the fiscal year ended October 31, 1995, Tech Data and Ingram Micro accounted for 16.2% and 13.6%, respectively, of the Company's total net sales. The Company has no long-term contracts with any of its customers or distributors, and sales are generally made pursuant to purchase orders. The Company's 5 14 distributors carry competing product lines. There can be no assurance that distributors will continue to purchase the Company's products or be able to market them effectively. The Company generally allows distributors to return defective and unsold products. The reduction, delay or cancellation of orders from one or more of its major customers, the loss of one or more of such customers, or any financial difficulties of such customers resulting in their inability to pay amounts owing to the Company could have a material adverse effect on the Company's results of operations. Sustaining and Managing Growth. The Company is currently undergoing a period of rapid growth and there can be no assurance that such growth can be sustained or managed successfully. This growth has resulted in, or is expected to create, the need for additional capacity, new and increased responsibilities for management personnel, and added pressures on the Company's operating and financial systems. While the Company believes it has adequate facilities, personnel and management systems to adequately manage its operations for the foreseeable future, there can be no assurances that these levels of facilities, personnel and management systems will be sufficiently adequate to manage and sustain its current or future growth. The Company's ability to manage future growth effectively and accomplish its overall goals will depend on its ability to hire and retain qualified management, sales and technical personnel. Competition for such personnel in the Company's industry is high. If the Company is unable to manage growth effectively or hire and retain qualified personnel, the Company's business and operating results could be materially and adversely affected. See "Business--Employees (Team Members)" and "Business -- Facilities." International Operations. Net sales to customers outside the United States accounted for approximately 47.1% of net sales in fiscal 1995 and 43.0% of net sales in the six-month period ended April 30, 1996. The Company expects that international sales will continue to represent a significant portion of the Company's net sales. Sales to customers outside the United States are subject to risks, including the imposition of governmental controls, the need to comply with a wide variety of foreign and United States export laws, political and economic instability, trade restrictions, changes in tariffs and taxes, longer payment cycles typically associated with international sales, and the greater difficulty of administering business overseas. Furthermore, although the Company endeavors to meet standards established by foreign regulatory bodies, there can be no assurance that the Company will be able to comply with changes in foreign standards in the future. The inability of the Company to design products to comply with foreign standards could have a material adverse effect on the Company. Most of the Company's international sales are U.S. dollar denominated and fluctuations in the value of foreign currencies relative to the U.S. dollar could therefore make the Company's products less price competitive. A portion of the Company's international sales are denominated in foreign currencies. Consequently, a decrease in the value of a relevant foreign currency in relation to the U.S. dollar after establishing prices and before receipt of payment by the Company would have an adverse effect on the Company's results of operations. The Company currently engages in only limited foreign currency hedging transactions, although it may engage in more of such transactions in the future. In addition, the laws of certain foreign countries may not protect the Company's intellectual property to the same extent as do the laws of the United States. Dependence on Key Employees (Team Members). The Company's future success also depends, in large measure, on its ability to retain certain key executives and other key personnel, some of whom have been instrumental in establishing and maintaining strategic alliances. The Company does not routinely enter into employment agreements with its team members. The Company's growth and future success will depend in large part on its continuing ability to hire, motivate and retain highly qualified management, technical, sales and marketing team members. Competition for such personnel is intense and there can be no assurance that the Company will be able to retain its existing personnel or attract additional qualified personnel in the future. Proprietary Technology. The Company's ability to compete effectively depends in part on its ability to develop and maintain proprietary aspects of its technology. The Company currently holds two U.S. patents and has applications for additional patents pending. There can be no assurance, however, that any future patents will be granted or that any patents will be valid or provide meaningful protection for the Company's product innovations. The Company also relies on a combination of copyright, trademark, trade secret and other intellectual property laws to protect its proprietary rights. Such rights, however, may not preclude 6 15 competitors from developing substantially equivalent or superior products to the Company's products. In addition, some aspects of the Company's products are not subject to intellectual property protection. While the Company is not currently engaged in any intellectual property litigation or proceedings there can be no assurance that it will not become so involved in the future. An adverse outcome in litigation or similar proceedings could subject the Company to significant liabilities to third parties, require disputed rights to be licensed from others or require the Company to cease marketing or using certain products, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. If the Company is required to obtain licenses under patents or proprietary rights of others, there can be no assurance that any required licenses would be made available on terms acceptable to the Company, if at all. In addition, the cost of responding to an intellectual property litigation claim, both in legal fees and expenses and the diversion of management resources, whether or not the claim is valid, could have a material adverse effect on the Company's results of operations. See "Business -- Proprietary Rights." Warranty Exposure. The Company generally provides a two-year warranty on its products, with the exception of the tapes and the tape drives used in the Company's products but manufactured by a third party, in which case the Company passes on to the customer the manufacturer's warranty on such tapes and tape drives. In the past, the Company has incurred higher warranty expenses relating to new products than it typically incurs with established products. Although the Company has established reserves for the estimated liability associated with product warranties, there can be no assurance that such reserves will be adequate or that the Company will not incur substantial warranty expenses in the future with respect to new or established products. Potential Fluctuations in Quarterly Results. Historically, a substantial portion of the Company's net sales in each quarter have resulted from current period bookings. A significant portion of the Company's operating expenses are relatively fixed in the short term. If anticipated shipments in any quarter do not occur, expenditure levels could be disproportionately high as a percentage of revenues and the Company's operating results for that quarter would be adversely affected. Operating results may also fluctuate based on other factors, such as the cancellation and rescheduling of orders, seasonal fluctuation in business activity and changes in pricing policies by the Company or its competitors. Absence of Prior Trading Market for ADIC Common Stock; Potential Volatility. There has not been any established public market for the trading of the ADIC Common Stock. The shares of ADIC Common Stock are expected to be approved for listing on the Nasdaq National Market, however, there can be no assurance with regard to the prices at which the ADIC Common Stock will trade. Until the ADIC Common Stock is fully distributed and an orderly market develops, the prices at which shares trade may fluctuate significantly. Prices for shares of ADIC Common Stock will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for the shares, investor perception of the Company and the industry in which the Company participates and general economic and market conditions as an independent company. In addition, the stock market has experienced extreme price and volume fluctuations which have affected the market price of many technology companies in particular and which have at times been unrelated to the operating performance of the specific companies whose stock is traded. Broad market fluctuations and general economic conditions may adversely affect the market price of ADIC Common Stock. The combined trading price of the ADIC Common Stock held by shareholders after the Distribution and the shares of Crane common stock they receive in the Merger may be less than, equal to or greater than the trading price of Interpoint Common Stock prior to the Distribution. Dividend Policy. The Company does not intend to pay any cash dividends on the ADIC Common Stock in the foreseeable future. Certain Antitakeover Considerations. The Company's Board of Directors (the "Board of Directors") has the authority, without any action by the shareholders, to issue up to 2,000,000 shares of Preferred Stock and to fix the rights and preferences of any shares of such Preferred Stock to be issued. In addition, the Company has adopted a shareholder rights plan involving the issuance of preferred stock purchase rights designed to cause substantial dilution to a person or group that attempts to acquire the Company on terms not approved by the Board of Directors (the "Shareholder Rights Plan"). Certain provisions in the Company's 7 16 Restated Articles of Incorporation (the "Articles of Incorporation"), Restated Bylaws (the "Bylaws") and Shareholder Rights Plan, as well as Washington law and the ability of the Board of Directors to issue Preferred Stock, may have the effect of delaying, deferring or preventing a change in control of the Company without further action by the shareholders, may discourage bids for the ADIC Common Stock at a premium over the market price of the ADIC Common Stock and may adversely affect the market price of, and the voting and other rights of the holders of, ADIC Common Stock. See "Description of Capital Stock -- Certain Antitakeover Effects." Shares Eligible for Future Sale. The approximately eight million shares of ADIC Common Stock distributed to Interpoint shareholders in the Distribution will be freely transferable, except for the approximately 1,185,000 shares distributed to persons who may be deemed to be "affiliates" of the Company under the Securities Act of 1933, as amended (the "Securities Act"). Such affiliates will be permitted to sell their shares of ADIC Common Stock pursuant to Rule 144 under the Securities Act 90 days after the Distribution Date, subject to certain volume limitations, manner of sale limitations, notice requirements and the availability of current public information about the Company. In addition, immediately following the Distribution, options to purchase approximately 475,000 shares of ADIC Common Stock will be outstanding under Company's 1996 Transition Plan (the "Transition Plan"), including 273,000 shares subject to options exercisable immediately following the Distribution, and options to purchase an additional 625,000 shares of ADIC Common Stock may be granted in the future under the Company's 1996 Stock Option Plan (the "1996 Plan"). Shares issued pursuant to exercise of options outstanding under the Transition Plan and to be granted under the 1996 Plan will be freely tradable without restriction, subject, in the case of sales by affiliates, to compliance with Rule 144. The Company is unable to estimate the number of shares that may be sold in the future by its shareholders or the effect, if any, that sales of shares by such shareholders will have on the market price of the ADIC Common Stock prevailing from time to time. Sales of substantial amounts of ADIC Common Stock, or the prospect of such sales, could adversely affect the market price of the ADIC Common Stock. Pending Tax Legislation. The Clinton administration has proposed legislation as part of the Revenue Reconciliation Act of 1996 (Section 9522) that would treat a spinoff such as the Distribution as taxable to the distributing corporation (but not to the shareholders of the distributing corporation) if the shareholders of the distributing corporation did not retain for a two-year period following the spinoff a 50% or greater interest in the distributing corporation and any successor thereto. The bill, if passed by Congress in its present form, would be effective for distributions occurring after March 19, 1996. Because the Interpoint shareholders will not acquire a 50% or greater interest in Crane pursuant to the Merger, the Clinton proposal would result in tax to Interpoint as a result of the Distribution. It is uncertain whether this bill will pass Congress or, if passed, whether the proposed effective date will be adopted. However, statements by leading members of the House and Senate tax writing committees indicate that it is unlikely that the proposal will be enacted with a March 19, 1996 effective date and that it is much more likely that the effective date of the legislation will be the date Congress takes action, which does not appear likely to occur before the Distribution. 8 17 THE MERGER AND THE DISTRIBUTION GENERAL All the outstanding shares of ADIC Common Stock are currently held by Interpoint, and Interpoint controls the Company. Interpoint expects to distribute all the outstanding shares of ADIC Common Stock to the holders of record of shares of Interpoint Common Stock immediately prior to the effective time of the Merger, on the basis of one share of ADIC Common Stock for every one share of Interpoint Common Stock held. Holders of Interpoint Common Stock will not be required to surrender or exchange shares of Interpoint Common Stock or pay any consideration for shares of ADIC Common Stock to be received by them in the Distribution. Interpoint will not own any shares of ADIC Common Stock following the Distribution. Upon completion of the Distribution, the Company will cease to be a subsidiary of Interpoint and will operate as an independent publicly held company. The Company is applying to have the ADIC Common Stock approved for quotation on the Nasdaq National Market under the trading symbol "ADIC." The Company's principal executive office is at 10201 Willows Road, Redmond, Washington, 98052, telephone (206) 881-8004. Interpoint's principal executive office is at 10301 Willows Road, Redmond, Washington 98052, telephone (206) 882-3100. Shareholders of Interpoint with inquiries relating to the Distribution should contact the Distribution Agent, or Interpoint's investor relations representative at (206) 882-3100. After the Distribution Date, shareholders of the Company with inquiries relating to their investment in the Company should contact the Company's investor relations representative at the Company's principal executive office. THE MERGER Interpoint and Crane have entered into a Agreement and Plan of Merger, as amended (the "Merger Agreement"), pursuant to which the shareholders of Interpoint will be entitled to receive, for each share of Interpoint Common Stock, a fraction of a share of Crane Common Stock as calculated pursuant to the Merger Agreement. The Merger Agreement contains various representations, warranties, covenants and closing conditions. In particular, Crane's obligation to effect the Merger is subject to the Distribution's having been effected. The Merger will be consummated immediately following the Distribution, provided that all required governmental approvals and other conditions to closing have been satisfied or, where permissible, waived. REASONS FOR THE DISTRIBUTION Interpoint is distributing the stock of ADIC to Interpoint shareholders for two reasons. First, the separation of ADIC from Interpoint enhances its access to capital, ability to attract personnel and potential to adapt in a rapidly changing industry. Second, the separation of ADIC is a condition to the Merger of Interpoint's microelectronics business into Crane, which the Interpoint Board believes is the best way to maximize shareholder value from that business. ADIC was acquired by Interpoint in February 1994 at a time when it was in need of both management and capital. The two founders were seeking liquidity for their investment and reduced responsibilities. At the same time, market growth required additional capital and management. Interpoint has provided capital and several key members of the management team. Subsequent to the Distribution, ADIC will have more than four times the shareholder's equity than it had at the time of its merger into Interpoint and its annual sales have improved by approximately 300%, based on a comparison of the quarter ended January 31, 1994 (the last full quarter of ADIC's operations prior to its acquisition by Interpoint) and ADIC's most recent fiscal quarter. As an independent company, ADIC's focus will be on the rapidly growing data storage market. As a portion of a diversified Interpoint business, it is more difficult for capital markets to fully understand its performance and potential. It is anticipated that, as an entity with a single focus, it will enjoy a closer following by securities analysts which, in turn, may enhance its potential to raise capital and increase shareholder value. 9 18 ADIC's ability to attract and retain key personnel is also expected to be enhanced through the separation. Equity-based compensation is characteristically a key element in attracting and retaining employees in the data storage industry. Establishing ADIC as a publicly held company that is focused on that business allows equity-based compensation to more closely relate to ADIC's specific performance and is expected to improve the effectiveness of such compensation in both the attraction and retention of key personnel. Finally, it is anticipated that rapid growth and change in the data storage industry may stimulate opportunities for acquisition or consolidation. ADIC may be in a better position to realize benefits from these trends, either as an acquiror or as the target of an acquisition, if it is an independent entity. The Distribution is also a condition to the Merger of Interpoint's microelectronics business into Crane. The Distribution allows ADIC to be established with substantial independent shareholder equity while facilitating the merger of Interpoint's microelectronics business, in a manner that is expected to be tax-free to Interpoint shareholders for federal income tax purposes. The Interpoint Board of Directors believes that each of the Distribution and the Merger is independently attractive and that the spinoff of ADIC is a necessary and beneficial step in accomplishing the merger of Interpoint's microelectronics business. MANNER OF DISTRIBUTION The Interpoint Board has approved the distribution of the outstanding shares of ADIC Common Stock on the basis of one share of ADIC Common Stock for each share of Interpoint Common Stock held of record immediately prior to the effective time of the Merger. Accordingly, the Distribution Record Date for the and the date the Merger is effective will be the same date. As promptly as practicable after the Distribution Record Date, the Distribution Agent will begin mailing stock certificates representing shares of ADIC Common Stock to holders of Interpoint Common Stock on the basis of one share of ADIC Common Stock for every one share of Interpoint Common Stock held of record as of the close of business on the Record Date. All shares of ADIC Common Stock distributed pursuant to the Distribution will be fully paid and nonassessable. See "Description of Company Capital Stock." NO HOLDER OF INTERPOINT COMMON STOCK WILL BE REQUIRED TO PAY CASH OR ANY OTHER CONSIDERATION FOR THE SHARES OF ADIC COMMON STOCK TO BE RECEIVED IN THE DISTRIBUTION OR TO SURRENDER OR EXCHANGE SHARES OF INTERPOINT COMMON STOCK OR TO TAKE ANY OTHER ACTION IN ORDER TO RECEIVE ADIC COMMON STOCK. CERTAIN FEDERAL INCOME TAX CONSEQUENCES It is expected that the Distribution will qualify as a tax-free distribution for federal income tax purposes and, accordingly, no gain or loss will be recognized by holders of Interpoint Common Stock upon receipt of ADIC Common Stock in the Distribution. However, no ruling has been requested from the IRS regarding the tax treatment of the Distribution. Although legal counsel to Interpoint and Crane will issue opinions Interpoint and Crane, respectively, that the Spin-off will be a tax-free transaction under the Internal Revenue Code of 1986, as amended (the "Code"), those opinions will not be binding on the IRS. In addition, those opinions will be based on a number of representations, the inaccuracy of any one of which could result in the Spin-off being a taxable transaction to Interpoint and its shareholders. Also, if the Revenue Reconciliation Act of 1996, as proposed by the Clinton administration, were passed by Congress in its current form (which appears unlikely at this time), the Distribution would be taxable to Interpoint. SHAREHOLDERS OF INTERPOINT ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE DISTRIBUTION. See "Certain Federal Income Tax Consequences." MARKET FOR ADIC COMMON STOCK The Company has filed an application to have the ADIC Common Stock approved for quotation on the Nasdaq National Market under the trading symbol "ADIC." The Company initially will have approximately 300 shareholders of record, based on the number of record holders of Interpoint Common Stock as of June 30, 1996. Upon consummation of the Distribution and closing of the Merger, the Company will have approximately eight million shares of ADIC Common Stock outstanding, based on the number of shares of Interpoint 10 19 Common Stock outstanding on June 30, 1996. See "Special Factors -- Absence of Prior Trading Market for ADIC Common Stock; Potential Volatility." FUTURE MANAGEMENT OF THE COMPANY Following the Distribution, the Company intends to operate its business substantially in the manner in which it has been operated by Interpoint. The majority of the executive officers of the Company are expected to be persons who currently serve as officers of the Company. See "Management -- Executive Officers." CONDITIONS; TERMINATION INTERPOINT WILL EFFECT THE DISTRIBUTION ONLY IF THE MERGER HAS BEEN APPROVED BY THE REQUISITE VOTE OF INTERPOINT SHAREHOLDERS AND ALL OTHER CONDITIONS TO CONSUMMATION OF THE MERGER OTHER THAN THE DISTRIBUTION HAVE BEEN SATISFIED OR WAIVED, AND THE PARTIES TO THE MERGER ARE PREPARED TO EFFECT THE MERGER IMMEDIATELY AFTER THE DISTRIBUTION. Even if all the other conditions to the Merger are satisfied, the Interpoint Board reserves the right to abandon, defer or modify the Distribution at any time prior to the Distribution. TREATMENT OF STOCK OPTIONS Interpoint has agreed in the Merger Agreement to take all actions necessary so that all stock option plans or other plans or arrangements for the issuance of Interpoint capital stock will be terminated, and outstanding options and other rights to acquire Interpoint capital stock are satisfied in full, prior to the effective time of the Merger. Prior to that time, Interpoint expects that each holder of an outstanding option to purchase shares of Interpoint Common Stock will have entered into a letter agreement providing for termination of such option on the applicable terms described below. Each outstanding option to purchase shares of Interpoint Common Stock held by an employee of Interpoint's microelectronics business, whether or not the vesting requirements for exercise of such option have been satisfied, will be cancelled in exchange for a payment in cash in an amount per share of Interpoint Common Stock subject to such option equal to the difference between the exercise price of such option and the average of the high and low trading prices per share of Interpoint Common Stock on the 10 trading days immediately preceding the Closing Date. Options to purchase Interpoint Common Stock held by ADIC employees will be divided so that each option to purchase one share of Interpoint Common Stock will become an option to purchase one share of Interpoint Common Stock and an option to purchase one share of ADIC Common Stock (an "Interpoint Replacement Option" and an "ADIC Replacement Option," respectively). Each Interpoint Replacement Option will be assigned an exercise price (the "Interpoint Replacement Option Exercise Price") determined by multiplying the per share exercise price of the original option by the quotient obtained by dividing (i) the Aggregate Share Distribution Amount (as defined in the Merger Agreement) by (ii) the average of the high and low trading prices per share of Interpoint Common Stock on the 10 trading days immediately preceding the closing date of the Merger multiplied by the number of shares of Interpoint Common Stock outstanding immediately before the effective time of the Merger. The exercise price per share of each option to purchase shares of ADIC Common Stock will be equal to the difference between the exercise price of the original option and the Interpoint Replacement Option Exercise Price. Interpoint will purchase prior to the effective time of the Merger each Interpoint Replacement Option, whether or not the vesting requirements for exercise of such option have been satisfied, for an amount per share of Interpoint Common Stock subject to the Interpoint Replacement Option equal to the difference between (i) the Interpoint Replacement Option Exercise Price and (ii) the Aggregate Share Distribution Amount divided by the number of shares of Interpoint Common Stock outstanding immediately prior to the effective time of the Merger. The vesting of ADIC Replacement Options will not be accelerated and the other terms and conditions thereof (other than the exercise price) will be the same as the original Interpoint stock option. See "Management -- 1996 Transition Plan." 11 20 RELATIONSHIP BETWEEN INTERPOINT AND THE COMPANY AFTER THE DISTRIBUTION The Company and Interpoint intend to enter into a Separation Agreement and a Tax Allocation Agreement containing certain provisions that will govern the relationship between the Company and Interpoint following the Distribution. Asset Transfers. The Separation Agreement provides that prior to the Distribution, Interpoint will transfer ADIC Europe and its interest in Visual Technologies, Limited to ADIC, will forgive all intercompany indebtedness, and will make certain contributions to ADIC's working capital. Employee Benefits. The Separation Agreement provides for the treatment of Interpoint stock options and certain other matters, including the allocation of retirement, medical and disability and other employee welfare benefit plans between Interpoint and ADIC. In general, from and after the Distribution, ADIC will assume, or retain and be solely responsible for, all liabilities and obligations of Interpoint and its subsidiaries under such plans, to the extent unpaid as of the effective time of Distribution, with respect to persons who, at or after the effective time of Distribution, will be employees of ADIC. With respect to the Interpoint 401(k) plan, Interpoint will transfer assets from its 401(k) plan to a new ADIC 401(k) plan in proportion to the expected benefit obligations of the new ADIC 401(k) plan. Mutual Indemnities; Release of Guaranties. Pursuant to the Separation Agreement, Interpoint and ADIC will each be responsible for all claims and liabilities relating to its own business (whether or not such claims and liabilities are asserted, or arise from activities occurring, prior to the Distribution) and will each indemnify the other against such claims and liabilities. Interpoint and ADIC will each agree to use its best efforts to have the other removed as guarantor or obligator in connection with any indebtedness, contracts or other obligations in respect of which Interpoint or ADIC, as the case may be, is primarily liable, and each will indemnify the other against losses incurred as a result of its status as guarantor or obligor if such removal is not effected. Tax Allocation Arrangements. At or prior to the Distribution, Interpoint and the Company will enter into the Tax Allocation Agreement, which will set forth each party's rights and obligations with respect to deficiencies and refunds, if any, of federal, state, local or foreign taxes for periods before and after the Spinoff and related matters such as the filing of tax returns and the conduct of IRS and other audits. In general, under the Tax Allocation Agreement the Company will be responsible for taxes imposed and entitled to refunds of taxes with respect to its operations before and after the Closing. Interpoint will generally be responsible for all taxes and entitled to refunds of taxes imposed with respect to Interpoint and its subsidiaries (except for ADIC) for all periods. If either Interpoint or the Company carries back a net operating loss after the Closing to a pre-Closing period, the company electing to carry back, generally, would be entitled to any refunds resulting from such carryback. The Company will have no liability if the Spinoff does not qualify for tax-free treatment under Section 355 of the Code unless the Spinoff is determined not to qualify as a tax-free spinoff under Section 355 of the Code due to the actions or inactions of the Company (or any of its affiliates). 12 21 CAPITALIZATION The following table sets forth the Company's capitalization as of April 30, 1996, and the pro forma capitalization of the Company after giving effect to the forgiveness of intercompany debt by Interpoint and transfer of cash from Interpoint of $1.5 million. Actual cash transferred may be more or less than this amount. The information set forth in the table below should be read in conjunction with the Company's financial statements, including the notes thereto, "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," appearing elsewhere in this Information Statement. The pro forma information may not reflect the capitalization of the Company in the future or as it would have been had the Company been a separate, independent company on April 30, 1996.
APRIL 30, 1996 (UNAUDITED) ----------------------- ACTUAL AS ADJUSTED ------- ----------- (IN THOUSANDS) Intercompany debt...................................................... $ 8,702 $ 0 ------- ------- Stockholders' equity: Preferred Stock; 2,000,000 shares authorized, none issued, as adjusted............................................................. Common Stock, $.01 par value; 1,000 shares authorized; 1,000 shares issued and outstanding: 7,932,200 shares issued and outstanding, as adjusted............................................................. -- -- Additional paid-in capital............................................. 702 10,904 Retained earnings...................................................... 3,560 3,560 Cumulative translation adjustment...................................... 56 56 ------- ------- Total stockholders' equity................................... 4,318 14,520 ------- ------- Total capitalization......................................... $13,020 $14,520 ======= =======
DIVIDEND POLICY The Company does not expect to pay any cash dividends on the ADIC Common Stock in the foreseeable future. The Company currently intends to reinvest earnings, if any, on the continued development and operation of its business. Any payment of cash dividends would depend upon the Company's pattern of growth, profitability, financial condition, and such other factors as the Board of Directors of the Company may deem relevant. 13 22 SELECTED FINANCIAL DATA The following selected financial data of the Company are derived from the Company's historical financial statements and notes thereto. For the two-year period ended October 31, 1995 this selected financial data relate to the Company as it was operated as part of Interpoint. For the three-year period ended September 30, 1993, the selected financial data relate to the operation of the Company as an independent company. In order to conform the Company's fiscal year end to Interpoint's fiscal year end upon the merger of the Company into Interpoint in February 1994, the Company's financial statements for the month of October 1993 are not included for either of the fiscal years ended October 31, 1994 or September 30, 1993. The selected financial data for each of the five fiscal years for the five-year period ended October 31, 1995 are derived from the audited financial statements of the Company. The selected financial data for the six month periods ended April 30, 1996 and 1995 are derived from unaudited historical financial statements appearing elsewhere in this Information Statement which, in the opinion of the Company's management, include all adjustments necessary, consisting only of normal recurring adjustments, for a fair presentation of the Company's financial position and results of operations for the interim periods presented. The results for interim periods are not necessarily indicative of the results that may be expected for the full fiscal year. The information set forth below should be read in conjunction with the Company's financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," which are included elsewhere in this Information Statement.
AT OR FOR AT OR FOR AT OR FOR FISCAL YEAR ENDED SEPTEMBER FISCAL YEAR ENDED SIX MONTHS ENDED 30, OCTOBER 31, APRIL 30, --------------------------- --------------------- ------------------- 1991 1992 1993 1994(1)(2) 1995(1) 1995(1) 1996(1) ------- ------- ------- ---------- ------- ------- ------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) CONSOLIDATED STATEMENTS OF OPERATIONS: Net sales............................ $11,735 $12,837 $17,108 $ 20,083 $31,716 $12,499 $24,386 Cost of sales........................ 8,381 8,831 10,775 13,495 22,107 8,186 17,657 ------- ------- ------- ------- ------- ------- ------- Gross profit......................... 3,354 4,006 6,333 6,588 9,609 4,313 6,729 Operating expenses Selling and administrative......... 2,793 2,219 3,796 5,000 8,001 3,787 4,299 Research and development........... 762 631 879 1,037 1,097 448 683 Acquisition expense(3)............. -- -- -- 590 -- -- -- Restructuring provision(4)......... 1,024 -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- Operating profit (loss).............. (1,225) 1,156 1,658 (39) 511 78 1,747 Other income (expense) Interest expense, net.............. (207) (109) (66) (134) (277) (115) (259) Foreign currency transaction gains (losses)........................ -- -- -- 32 (19) 2 18 Other, net......................... (1) (61) 1 -- -- -- -- ------- ------- ------- ------- ------- ------- ------- Income before (provision) benefit for income taxes................ (1,433) 986 1,593 (141) 215 (35) 1,506 (Provision) benefit for income taxes........................... 68 (22) (308) 99 77 10 (498) ------- ------- ------- ------- ------- ------- ------- Net income (loss).................... (1,365) 964 1,285 (42) 292 (25) 1,008 ======= ======= ======= ======= ======= ======= ======= Pro forma net income per share....... $0.04 $0.12 ======= ======= Pro forma average number of common stock and common stock equivalent shares outstanding(5).............. 8,010,000 8,074,000 CONSOLIDATED BALANCE SHEETS: Working capital...................... $ 36 $ 2,080 $ 3,004 $ 4,156 $ 7,249 $ 5,339 $10,917 Total assets......................... 3,637 3,958 5,895 8,710 13,943 9,508 20,377 Long-term and intercompany debt, excluding current portion.......... 106 916 672 2,358 5,434 3,497 8,702 Stockholders' equity................. 539 1,524 2,808 3,027 3,387 3,023 4,318
14 23 - --------------- (1) The periods subsequent to the fiscal year ended September 30, 1993 reflect the Company's results of operations as a wholly owned subsidiary of Interpoint. The Company was acquired by Interpoint in February 1994 in a transaction accounted for as a pooling of interests. Results of operations include allocations of corporate expenses and interest expense on intercompany borrowings. The fiscal years ended September 30, 1993, 1992 and 1991 reflect the Company's results of operations as a separate company prior to the acquisition by Interpoint Corporation. (2) In June 1994, the Company acquired its wholly owned subsidiary, ADIC Europe, in a transaction accounted for as a purchase. (3) In February 1994, the Company incurred $590,000 in acquisition-related expenses associated with its acquisition by Interpoint. (4) In the fiscal year ended September 30, 1991, the Company incurred a one-time restructuring charge of $1,024,000. (5) Pro forma net income per share is calculated for the fiscal year ended October 31, 1995 and for the six months ended April 30, 1996 based on the number of shares of Interpoint Common Stock outstanding at June 30, 1996, which reflects the Interpoint two-for-one stock split that became effective June 27, 1996, plus the incremental shares outstanding, as calculated under the treasury stock method, of the estimated number of ADIC stock options that will be outstanding as a result of the Distribution. 15 24 UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS The following unaudited pro forma statements of operations for the fiscal year ended October 31, 1995 and for the six months ended April 30, 1996 present the results of operations of the Company as if the divestiture of ADIC from Interpoint had occurred on the first day of the applicable period. The unaudited pro forma statements of operations are based on the historical financial statements of ADIC and are adjusted to reflect additional corporate expenses and a reduction in interest expense to reflect ADIC as a stand-alone public company. The unaudited pro forma statements of operations do not purport to represent what the Company's results of operations actually would have been if the divestiture had occurred on the first day of the applicable period. The unaudited pro forma statements of operations are based on assumptions that the Company believes are reasonable and should be read in conjunction with the financial statements and accompanying notes thereto included elsewhere in this Information Statement.
YEAR ENDED OCTOBER 31, 1995 SIX MONTHS ENDED APRIL 30, 1996 -------------------------------------- -------------------------------------- HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- ---------- ----------- --------- (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) Net sales................... $31,716 $31,716 $24,386 $24,386 Cost of sales............... 22,107 22,107 17,657 17,657 ------- ------- ------- ------- Gross profit.............. 9,609 9,609 6,729 6,729 Operating expenses Selling and administrative......... 8,001 $ 384(1) 8,385 4,299 $ 192(1) 4,491 Research and development............ 1,097 1,097 683 683 ------- ----- ------- ------- ----- ------- 9,098 384 9,482 4,982 192 5,174 Operating profit............ 511 (384) 127 1,747 (192) 1,555 Other income (expense) Interest expense, net..... (277) 324(2) 47 (259) 283(2) 24 Foreign currency transaction gains (losses)............... (19) (19) 18 18 ------- ----- ------- ------- ----- ------- (296) 324 28 (241) 283 42 Income before (provision) benefit for income taxes..................... 215 (60)(3) 155 1,506 91(3) 1,597 (Provision) benefit for income taxes.............. 77 21 98 (498) (31) (529) ------- ----- ------- ------- ----- ------- Net income.................. $ 292 $ (39) $ 253 $ 1,008 $ 60 $ 1,068 ======= ===== ======= ======= ===== ======= Pro forma average number of common and common equivalent shares outstanding............... 8,010,000 8,010,000 8,074,000 8,074,000 Net income per share........ $ 0.04 $ 0.03 $ 0.12 $ .13 ======= ======= ======= =======
16 25 - --------------- (1) Represents the additional estimated costs expected to be incurred by ADIC on a prospective basis, including the incremental costs associated with ADIC's status as a public company such as audit fees, directors' and officers' insurance, annual meeting(s), printing fees and directors' fees and additional executive salaries. A portion of such costs are included in the historical financial statements of ADIC. Incremental costs are estimated to be as follows:
YEAR ENDED SIX MONTHS ENDED OCTOBER 31, 1995 APRIL 30, 1996 ---------------- ---------------- (IN THOUSANDS) Executive compensation......................... $227 $114 Annual directors' fees......................... 27 13 Shareholder relations.......................... 70 35 Audit and legal................................ 25 13 Directors' and officers' insurance............. 35 17 ---- ---- $384 $192 ==== ====
(2) Reflects the decrease in interest expense resulting from the forgiveness of intercompany debt in connection with the Distribution and the increase in interest income earned on funds received in the Distribution from Interpoint for working capital purposes. (3) Records the estimated income tax effect on the pro forma adjustments described in footnotes (1) and (2). 17 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY GENERAL The Company was organized in 1983 to develop data backup and storage subsystems for computer systems. Its first product, launched in 1984, was a data cartridge tape drive system for use in MS-DOS applications. This initial product and a number of follow-on products used a variety of data storage technologies and media supplied by third parties, including large-capacity hard disks, but incorporated little technology which was proprietary to the Company. With the objective of improving margins by increasing the proprietary features of it product line, in 1988 the Company introduced a random access automatic tape changer, the LANbacker. Building on the proprietary electro-mechanical robotics and software incorporated into the LANbacker, in November 1991 the Company introduced a data backup tape changer product utilizing 4mm/DAT technology, the first product in its automated tape library family. Subsequently, the Company has pursued a strategy of offering the market a full range of automated tape library products through development of new library platforms that incorporate leading-edge tape drive technologies, including 4mm/DAT, 8mm, and DLT. In addition to automated tape libraries, the Company also markets tape products such as standalone tape drives and tape media in order to offer its customers a complete line of tape products for their backup and archiving needs. The Company historically remarketed a variety of additional products principally supplied by third parties and sold either under the Company's or the manufacturer's name, such as disk controller boards, storage management software and other products, as part of a complete storage system solution. Aside from special promotional programs offering storage management software packages bundled with library products, the Company has largely ceased sales of these product types. When used in this discussion and elsewhere in this Information Statement, the words "expects," "anticipates," and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results, performance or achievements of the Company or industry trends to differ materially from those projected. Factors which could affect such results are described below and in "Special Factors." Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. 18 27 RESULTS OF OPERATIONS The following table sets forth certain statements of operations data as a percentage of net sales for the periods indicated.
FISCAL YEAR ENDED ----------------------------------------- SIX MONTHS ENDED SEPT. 30, OCTOBER 31, OCTOBER 31, --------------------------- 1993 1994 1995 APRIL 30, APRIL 30, --------- ----------- ----------- 1995 1996 ----------- ----------- (UNAUDITED) (UNAUDITED) Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales...................... 63.0 67.2 69.7 65.5 72.4 ----- ----- ----- ----- ----- Gross profit..................... 37.0 32.8 30.3 34.5 27.6 Selling and administrative expenses......................... 22.2 24.9 25.2 30.3 17.6 Research and development expenses......................... 5.1 5.2 3.5 3.6 2.8 Acquisition expenses............... -- 2.9 -- -- -- ----- ----- ----- ----- ----- Operating profit (loss).......... 9.7 (0.2) 1.6 0.6 7.2 Other expenses..................... (0.4) (0.5) (0.9) (0.9) (1.0) ----- ----- ----- ----- ----- Income (loss) before income taxes......................... 9.3 (0.7) 0.7 (0.3) 6.2 Income tax (expense) benefit....... (1.8) 0.5 0.2 0.1 (2.0) ----- ----- ----- ----- ----- Net income (loss)................ 7.5 (0.2) 0.9 (0.2) 4.2 ----- ----- ----- ----- -----
Six Months Ended April 30, 1995 and 1996 Net Sales. Net sales for the six-month period ended April 30, 1996 increased 95.1% to $24.4 million from $12.5 million for the same period last year. The increase in net sales was primarily due to strong worldwide market acceptance of the Company's new DLT-based products, particularly the VLS DLT automated tape libraries and the DS9000 series standalone tape drives. Sales outside of the United States grew to $10.5 million or 43.0% of net sales for the six months ended April 30, 1996 compared to $5.1 million or 40.4% of net sales for the same period last year. 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 currency exchange rates. Gross Profit. Gross profit was $6.7 million or 27.6% of net sales for the six-month period ended April 30, 1996 compared to $4.3 million or 34.5% of net sales for the same period last year. Gross profit margin for the current six-month period was lower than the same period last year due to the higher per-unit tape drive costs associated with the DLT technology, manufacturing ramp-up costs associated with the new VLS DLT and Scalar products, and a higher percentage of standalone drives and tape media in the product mix due to the Company's entry into the DLT market. Gross profit margins are highly dependent on a number of factors, including customer and product mix, price competition and tape drive costs. There can be no assurance that the Company can sustain or improve upon the current gross margin levels, given that tape drives purchased from third-party suppliers are a significant component of the Company's product costs. Selling and Administrative Expenses. Selling and administrative expenses were $4.3 million or 17.6% of net sales for the six-month period ended April 30, 1996 compared to $3.8 million or 30.3% of net sales for the same period last year. Selling and administrative expenses for the six-month period ended April 30, 1996 decreased significantly as a percentage of net sales as the Company began to recognize the benefits of its significant investments in sales and marketing resources in prior fiscal periods, with net sales volume in the six- month period increasing 95.1%, compared to a corresponding 13.5% increase in selling and administrative expenses. Research and Development Expenses. Research and development expenses were $683,000 or 2.8% of net sales for the six-month period ended April 30, 1996 compared to $448,000 or 3.6% of net sales for the same period last year. Actual dollar spending during the current six-month period was higher than the same period last year due to increases in development expenses for the new VLS DLT and Scalar DLT products, 19 28 other product development expenses, and additions to research and engineering staff. The decrease as a percentage of net sales was primarily due to the higher sales volume in the current six-month period compared to the same period last year. Other Expenses. Other expenses for the six-month period ended April 30, 1996 were $241,000 compared to $113,000 for the same period last year. Increased expenses in the current six-month period were due primarily to higher interest expenses associated with intercompany loans financing working capital growth. Income Tax (Expense) Benefit. Income tax expense for the six-month period ended April 30, 1996 was $498,000 compared to a benefit of $9,800 for the same period last year. The increased expense reflects the change in operating results of $1.5 million of pre-tax earnings for the first six months of fiscal 1996 compared to the pre-tax loss of $35,000 for the same period last year. The Company believes that the tax rate reflected in its most recent results, between 33% and 34%, is indicative of the Company's tax rate in future periods. Inflation. The Company believes inflation has not had a material effect on its operations for these periods. Fiscal Years Ended September 30, 1993 and October 31, 1994 and 1995 In order to conform ADIC's fiscal year end of September 30 to Interpoint's fiscal year end of October 31, ADIC's financial statements for the month of October 1993 are not included in the statement of operations or cash flows for either fiscal year 1993 or fiscal year 1994. See Note 1 of the Company's Notes to Consolidated Financial Statements. Net Sales. Net sales increased by 57.9% to $31.7 million in fiscal 1995 from fiscal 1994. The increase in net sales was primarily due to strong worldwide market acceptance of the Company's automated tape libraries and standalone tape drive products. In addition, a portion of the growth from fiscal 1994 to fiscal 1995 reflects a full year of operations of ADIC Europe, which was acquired in June 1994. Net sales increased 17.4% from fiscal 1993 to fiscal 1994 as a result of increased volumes of library products and the benefit of a partial year of ADIC Europe's operating results, partially offset by price decreases in library products and a decline in certain discontinued non-library products. Over these time periods, sales outside of the United States grew to $14.9 million or 47.1% of net sales in fiscal year 1995 compared to 5.5 million or 27.4% and $2.3 million or 13.6% in fiscal years 1994 and 1993, respectively. Gross Profit. The gross profit margin decreased from 32.8% in fiscal 1994 to 30.3% in fiscal 1995, due to the introduction of DLT-based products and the growth in the percentage of the overall product mix represented by sales of lower-margin, non-library products by ADIC Europe. Gross margins decreased to 32.8% in fiscal 1994 from 37.0% in fiscal 1993 due to a decrease in automated tape library prices early in fiscal 1994, combined with sales by ADIC Europe of non-library products, which sales were absent in fiscal 1993. Selling and Administrative Expenses. Selling and administrative expenses totaled $8.0 million or 25.2% of net sales in fiscal 1995, compared to $5.0 million or 24.9% of net sales in fiscal 1994, and $3.8 million or 22.2% of net sales in fiscal 1993. This increase reflects a strategic decision to increase the Company's investment in sales and marketing subsequent to Interpoint's acquisition of the Company in February 1994. These investments include costs of European sales activities acquired in the purchase of ADIC Europe and the addition of experienced sales and marketing personnel at headquarters. Between fiscal 1994 and fiscal 1995, these expenses were relatively constant as a percentage of net sales, but actual dollar spending increased due to additional costs incurred in connection with increased sales and marketing staff and the full-year impact of the ADIC Europe acquisition. Between fiscal 1993 and fiscal 1994, selling and administrative expenses increased as a percentage of net sales in spite of net sales increases as a result of more rapid increases in actual dollar spending due to additional costs incurred in connection with increased sales and marketing and administrative staff, in particular related to the acquisition of ADIC Europe. Research and Development Expenses. Research and development expenses totaled $1,097,000 or 3.5% of net sales in fiscal 1995, compared to $1,037,000, or 5.2% of net sales in fiscal 1994 and $879,000 or 5.1% of net sales in fiscal 1993. The dollar increase in research and development expenses during these time periods 20 29 are due to new product development and additions to research and engineering staff. The Company anticipates making comparable or increasing investments in new product development in future periods. Acquisition Expenses. The Company incurred $590,000 in acquisition-related expenses during fiscal 1994 as a result of Interpoint's acquisition of the Company, which was accounted for as a pooling-of-interests. Other Expenses. Other expenses for fiscal 1995 were $296,000 compared to $102,000 and $66,000 for fiscal 1994 and fiscal 1993, respectively. Expense increases were due to increased interest expenses arising from additional working capital requirements resulting from higher net sales. Income Tax (Expense) Benefit. Income tax benefits were $78,000 and $99,000 for fiscal 1995 and fiscal 1994, respectively. There was an income tax expense of $308,000 in fiscal 1993. The benefits for income taxes in fiscal 1995 and fiscal 1994 both were primarily associated with the recognition of a net operating loss carryforward at ADIC Europe. The net operating loss carryforward existed when ADIC Europe was acquired in June 1994; however, a valuation allowance was provided for this item due to the uncertainty regarding the Company's ability to utilize this carryforward. Consequently, income taxes on earnings in fiscal 1994 and fiscal 1995 of ADIC Europe were offset by a reduction of this valuation allowance. At October 31, 1995, the valuation allowance associated with the remaining unused carryforward also was eliminated. In addition, certain federal tax credits reduced the effective tax rate in both years. In fiscal 1993, the tax provision reflects the benefit of losses incurred in fiscal 1991. QUARTERLY INFORMATION The following table presents selected quarterly financial information for the periods indicated. This information was derived from unaudited financial statements which have been prepared on a basis consistent with the Company's audited financial statements and notes thereto included elsewhere in this Information Statement and, in the opinion of management, reflects all normal recurring adjustments necessary to fairly present the information. The Company has experienced and expects to continue to experience significant fluctuations in its quarterly operating results due to a variety of factors, including the cost of tape drives, the timing of receipts and shipment of orders, the cost and timing of new product releases and product enhancements by the Company and its competitors, variations in the Company's products, changes in pricing and promotion policies by the Company and its competitors, and general economic conditions. The operating results for any quarter do not necessarily indicate the results to be expected for any future period.
FISCAL YEAR ENDING FISCAL YEAR ENDED OCTOBER 31, 1994 FISCAL YEAR ENDED OCTOBER 31, 1995 OCTOBER 31, 1996 ------------------------------------------- ------------------------------------------- ------------------- JAN. 31(1) APR. 30 JULY 31 OCT. 31 JAN. 31 APR. 30 JULY 31 OCT. 31 JAN. 31 APR. 30 ---------- ---------- ------- ------- ---------- ---------- ------- ------- ------- ------- (IN THOUSANDS) CONSOLIDATED STATEMENTS OF OPERATIONS: Net sales....... $4,703 $3,339 $4,786 $7,255 $5,823 $6,676 $8,470 $10,747 $10,606 $13,780 Gross profit.... 1,605 918 1,494 2,571 2,097 2,216 2,427 2,869 2,994 3,735 Operating profit (loss)........ (295) (317) 43 530 11 66 248 186 544 1,203 Net income (loss)........ (222) (224) 9 395 (22) (2) 196 120 292 716
- --------------- (1) Includes $590,000 of acquisition-related expenses. The Company's operating results over the 10 quarters ended April 30, 1996 reflect generally increasing net sales, excluding the second quarter of fiscal 1994 and the first quarters of fiscal 1995 and 1996. Net sales in the second quarter of fiscal 1994 were affected by increased shipments in the first quarter of that year resulting from a product price decrease which encouraged sales in that period that would have otherwise occurred in the second quarter. The sequential drop in net sales in the first quarters of fiscal 1995 and 1996, when compared to their respective previous fourth quarters, reflects a traditional seasonal pattern in the Company's results. 21 30 LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents totaled $441,000 at April 30, 1996, compared to $624,000 at October 31, 1995. The Company's working capital was $10.9 million at April 30, 1996 compared to $7.2 million at October 31, 1995. Cash flows used for operating activities of $3.0 million during the six-month period ending April 30, 1996 were largely attributed to increased working capital, partially offset by net earnings. Increases in accounts receivable of $3.6 million and inventories of $2.6 million occurred due to the increase in net sales and elimination by the Company of certain prepayment discounts. These increases were partially offset by an increase in accounts payable of $1.9 million. Cash flows used for investing activities of $487,000 for the six-month period ended April 30, 1996 were due to equipment purchases during the period. Cash flows provided by financing activities of $3.3 million for the six-month period ended April 30, 1996 were the result of intercompany loans from Interpoint. The Company believes that the forgiveness of intercompany debt and the capital contribution contemplated by the Distribution will provide sufficient cash to fund its operations for the foreseeable future. In addition, the Company is currently seeking and expects to receive additional bank financing to supplement its financial resources. The Company may acquire technologies, products, or businesses that complement its business, as such opportunities may arise, and the Company's working capital needs may change as a result of such acquisitions. Currently there are no commitments or agreements with respect to any acquisitions. 22 31 BUSINESS GENERAL The Company designs, manufactures, markets and supports specialized data storage peripherals used to backup and archive electronic data for PC/LAN (Novell Netware and Microsoft Windows NT) and Unix client/server network computing environments. The Company's principal products, automated tape libraries, integrate proprietary electro-mechanical robotics, electronic hardware, and firmware developed by the Company with industry standard, technologically advanced tape drives supplied by third parties. The Company addresses its markets by offering a broad family of standalone tape drives and automated tape libraries with data storage capacity ranging from four gigabytes to over three terabytes and incorporating a variety of tape drive technologies, including 4mm/DAT, 8mm, and DLT. The Company's customers are located worldwide and range in size from large multi-national companies to small businesses. The Company markets its products in North America, Europe, and the Asia Pacific region through multiple distribution channels, including distributors, value-added resellers ("VARs"), and original equipment manufacturers ("OEMs"). For fiscal year 1995, 47.1% of the Company's sales were from outside the United States. The Company supports these channels and its end customers with a combination of regional field sales, systems engineering, and technical support personnel, as well as third-party on-site service organizations. INDUSTRY Client/Server Network Data Backup Multiple trends continue to foster growth of the data storage segment of the client/server network computing environment. Personal computer and workstation microprocessors continue dramatic increases in performance, both absolutely and relative to their cost. Enabled by this increased processing power and the increasing sophistication of both network operating systems and relational databases, core business processes (such as financial transaction processing, materials requirements planning, document imaging and management of patient records, engineering drawings and customer databases) are migrating from manual processes or mainframes to lower cost client/server computer networks. In addition, the advent of the Internet, electronic mail, and groupware continue to foster further client/server network computing growth. The combination of these trends is driving a proliferation of client/server network computing. As the market for client/server networks grows, so does the market for data storage in these environments. Each of the trends outlined above is driving not only an increase in the installed base of networks, but also an increase in the data storage requirements of a given network. The data stored on client/server networks is not only growing in volume, but also in value. As a business migrates its core processes to client/server computer networks, the electronic data stored on these networks, such as a customer or patient database, a set of engineering drawings, or a record of financial transactions, becomes an increasingly vital asset. The opportunity cost of data loss has become extraordinarily high, with potentially large and long-term negative impacts on a business. Data loss can result from a wide variety of causes, including human error, equipment failure, database corruption, computer viruses, and even man-made or natural disasters. Because critical digital data can be lost for many reasons, systematic and cost-effective backup and archiving of data stored on client/server networks is essential to protecting one of a firm's most important assets. Automated Tape Libraries The Company believes automated tape libraries, which operate in conjunction with storage management software and incorporate magnetic tape drive technology, provide the best systematic and cost-effective backup solution for client/server networks. These products provide client/server networks with automatic, software-controlled access to multiple magnetic tape cartridges for storage and retrieval of digitally stored data. Automated tape libraries, housing these tapes and one or more tape drives, utilize an electro-mechanical 23 32 robotic mechanism to manipulate the tape cartridges, loading and unloading specific tape cartridges into and out of the tape drive or drives as directed by the storage management software. An automated tape library efficiently systematizes the network backup process through a number of features. As directed by storage management software, an automated tape library can perform sophisticated backups of a network's data without human intervention, automatically backing up specific network data to specific tapes at specific times. This process operates in a "lights out" mode, backing up the network at any time, day or night, eliminating the need for system administrator staffing when the network is backed up, generally at night. Access to multiple tape cartridges enables the library to automatically store much more data than a standalone drive, eliminating the need for a system administrator to swap tapes in order to back-up all the data. Because magnetic tape drives utilize a removable, robust media, data backed up by an automatic tape library, unlike a typical hard disk drive, can be reliably stored off-site as an element of a disaster recovery scheme. Within the library, tape cartridges are typically organized in magazines. In some cases, these magazines of tapes are removable, easing storage and off-site transfer of the tapes. A library with multiple tape drives can backup data simultaneously with each drive, significantly speeding up the backup process. Some larger libraries feature a barcode system which, in conjunction with the storage management software, can catalog each tape, further enhancing the management of the data. Libraries often feature key lock access to the tapes, providing security protection for the data by preventing undesired human access. Some libraries feature a software and password controlled access feature which allows for controlled addition or removal of selected cartridges without providing open access to all tapes housed within the library or taking the library off-line. The systemization of the backup process provided by an automated tape library enhances the protection of valuable data stored on client/server networks. The backups occur automatically and in a pre-defined, organized fashion. Human intervention is minimized, eliminating a major cause of backup failures due to mistakes, neglect or disorganization. Further, automated tape libraries provide this protection cost-effectively by leveraging cost-effective magnetic tape drive technology. Backup and archival storage needs differ somewhat from the demands of other storage applications, with overall capacity being more important than the speed of data access due to the nature of backup versus online data storage. While slower in data access time than other digital storage technologies such as hard disk drives and optical drives, the Company believes that magnetic tape drives are the most cost-effective technology for storing large amounts of data. Although the cost of each of these technologies continues to fall on a dollar-per-gigabyte basis, the Company believes that magnetic tape drives will continue to be the most economical in terms of cost per unit of data storage for the foreseeable future. Automated tape libraries enhance this cost-effectiveness by automating the access to multiple data cartridges by each tape drive, dropping further the dollar-per-gigabyte of storage cost relative to other technologies. STRATEGY The Company's goal is to continue expanding its position as a market leader in providing automated tape libraries and complementary products to the client/server network computing marketplace. Key components of the Company's strategy include: Offer A Full Range of Library Products. The Company believes it currently offers the most complete range of automated tape library and standalone drive products available for the client/server network marketplace. Available storage capacities range from four gigabytes to over three terabytes. Although different types and sizes of client/server networks require different levels of tape library capacity and performance, the Company's broad product family provides both end users and channel partners with "one-stop-shopping" for products, service, and support. By offering standalone drive products in addition to libraries, the Company is able to further enhance the breadth of its product line and seed the market at the low end, familiarizing customers with its brand name and products. Offer Products In Multiple Drive Technologies. The Company believes offering automated tape libraries based on several magnetic tape drive technologies, including 4mm/DAT, 8mm, and DLT, results in a number 24 33 of benefits. This strategy enables the Company to rapidly develop and offer to its customers leading-edge products by incorporating whichever tape drive technology happens to be state-of-the-art at the time. In addition, this strategy further broadens the Company's product line. It also further leverages both research and development, as well as manufacturing. By avoiding reliance on a single tape drive technology, the Company reduces the risk its products will be superseded by technological developments. Offering multiple drive technologies also enables the Company to address different market segments which may have preferences for one technology over another. Leverage Technology Across Products. The Company is able to leverage nearly a decade of automated tape library research and development investment across a number of products. Successive products and product line extensions build on an existing foundation of technology and knowledge, including operating systems software, electronic hardware, and electro-mechanical hardware. Leveraging its existing technology to build a broad product line enables the Company to decrease both the time-to-market and development costs of new products. The Company's most recently launched product, the Scalar library, features fifth-generation technology in many of these elements. Finally, this strategy also enhances manufacturing leverage and flexibility. The Company is able to share common parts, manufacturing resources, and suppliers across a wide range of products. Further Develop Strong Worldwide Distribution Channels. The Company has established and continues to develop strong distribution channels in the North American, European, and Pacific Rim markets. The Company has numerous long-standing relationships with a network of national distributors and resellers who have experience in offering the Company's line of products. These distribution channels enable the Company to cost-effectively offer its broad range of current products to multiple market segments and provide an immediate outlet for new products as they are developed. As is appropriate, the Company intends to pursue additional channel partnerships to address untapped or under-penetrated market segments. Offer Broad Technical Support. The Company believes there is value in offering a range of services coupled with the sale of its products. This process frequently begins with a consultative sale, with the Company's sales force and systems engineers providing technical recommendations to its channel partners and end users. After the sale, the Company provides twenty-four hour a day telephone technical support. The Company's technical support staff is able to address customers' inquiries beyond the automated tape library hardware level by being knowledgeable of storage management software and systems. In situations where problems grow in sophistication beyond the scope of the Company's technical support staff, systems engineers can be made available for telephone or on-site consultation. The Company also offers customers various levels of on-site service programs through third-party providers. Finally, the Company offers a comprehensive training program to resellers and end users. Develop or Acquire Related Specialized Storage Products. The Company believes that growth of the client/server network data storage market will create opportunities for it to expand its product offerings. The Company intends to continually seek out related market niches which leverage its strengths. The Company has over a decade of research and development experience in client/server network data storage and it believes this experience may be readily applied beyond automated tape libraries to other specialized storage products. In addition, the Company believes its distribution channels can be leveraged to distribute related data storage products through to end customers. New, related storage products could originate from internal research and development or through acquisitions. PRODUCTS The Company's principal products, automated tape libraries, integrate proprietary electro-mechanical robotics, electronic hardware, and firmware developed by the Company with industry standard technologically advanced tape drives supplied by third parties housed in a desktop, rackmount, or floor-standing enclosure. When operated in conjunction with storage management software, the Company's libraries provide a complete solution for systematically and cost-effectively automating data storage backup and archival in client/server network computing environments. 25 34 The Company offers a family of automated tape libraries and standalone tape drive products with different data storage capacity and data transfer rate characteristics. The products vary by tape technology, number of tape drives, and number of tape storage cartridges. New library product development is driven by two sources, the identification of new market opportunities and the availability of new tape drive technologies. The identification of new market opportunities results from ongoing work by the Company's sales, marketing, and product management organizations to identify new products to fulfill customer and marketplace needs. In addition, the Company maintains close relationships with tape drive manufacturers in order to stay abreast of technology developments. The table below summarizes the configurations and performance of the Company's current automated tape library product line. CURRENT ADIC PRODUCTS
DATA STORAGE DATA TRANSFER TAPE NUMBER OF NUMBER OF TAPE CAPACITY RATE PRODUCT TECHNOLOGY TAPE DRIVES CARTRIDGES (GB)(1) (MB/MIN)(1) - ---------- ---------- ----------- -------------- ------------ ------------- DATa 8000 4mm/DAT 1 1 8 44-90 DS9000 DLT 1 1 20-70 150-600 800 4mm/DAT 1 8 64 90 1200 4mm/DAT 1 12 96 44-90 VLS-4 4mm/DAT 1-2 15 120 44-180 VLS-8 8mm 1-2 11 154 60-120 VLS-DLT DLT 1 7 210-490 150-600 Scalar 224 DLT 2 24 720-1680 300-1200 Scalar 448 DLT 2-4 48 1440-3360 300-2400 Scalar 458 DLT 2-4 58(2) 1440-3360 300-2400
- --------------- (1) Both capacity and transfer rate values assume 2:1 data compression. Attainment of these rates and capacities depends on system software and hardware performance in addition to library performance. Capacity and transfer rate ranges for a specific library model are a function of different drive models. (2) Ten of the tape cartridges in the Scalar 458 are provided by the import/export feature and are not counted in calculating capacity. The Company's products range in end user list price of under $2,000 for a DATa 8000 to over $90,000 for a Scalar 458 with four of the most advanced DLT drives (the DLT 7000). In certain configurations, both the VLS and Scalar series products are can be purchased in lower-cost configurations and upgraded in the future as the customer's performance needs grow. DATa 8000 Series. The DATa 8000 series is the Company's line of standalone 4mm/DAT drives for use in the smallest backup applications. The DATa 8000 series includes the DATa 8000E which offers an industry-leading transfer speed of 90 megabytes per minute, compressed. DS9000 Series. The DS9000 series is the Company's line of standalone DLT drives for more demanding backup applications. Several of the DS9000 series models feature a differentiating user-friendly display which displays information regarding drive status and performance. 800E. The 800E is the Company's recently introduced entry-level library, an autoloader featuring one 4mm/DAT tape drive and up to eight tape cartridges. 1200 Series. The 1200 features one 4mm/DAT tape drive and up to twelve tape cartridges. The 1200 is available with either a Hewlett Packard or one of two performance levels of Sony tape drives. Introduced in 1992, the 1200 is the Company's longest established library. VLS Series. The VLS series is available in 4mm/DAT, 8mm, and DLT drive versions. The VLS features a display and an advanced keypad for ease of user operation. The 4mm/DAT and 8mm products are available in versions with two drives or with one drive upgradeable to two. As with the 1200, the VLS 26 35 4mm/DAT product is available with a Hewlett Packard or one of two performance levels of Sony drives. Also, the VLS DLT product is available with three performance levels of DLT drives (the 2000xt, 4000, and 7000). Scalar Series. The Scalar is the Company's fifth-generation and most recently launched library, represents the high end of the product line. The Scalar, which utilizes DLT drive technology, is available in three different levels of drive performance (the 2000xt, 4000, and 7000), with up to four drives and a fifty-eight tape cartridge capacity. Fully-configured, the Scalar can store over four terabytes of data. Available features include a bar code system, a tape import/export mechanism, and rack-mount or free-standing configurations. Critical subassemblies are field replaceable to minimize downtime and enhance serviceability. Additionally, the Scalar features upgradability from the lowest cost, base model through to the fully-featured model. This broad product offering enables the Company to address a wide range of the backup storage needs presented by the client/server network computing marketplace. The chart below arrays a subset of the Company's products, excluding Scalar 448 and 458 libraries configured with the highest performing DLT drive, on the critical performance dimensions of data storage capacity and data transfer rate. The full performance range of the Company's Scalar libraries is listed in the table above entitled "Current ADIC Products." [GRAPHIC INDICATING CERTAIN CRITICAL PERFORMANCE DIMENSIONS OF THE COMPANY'S PRODUCTS] Rated Capacity Transfer Rate Product (GB) (MB/Min) ------- -------------- ------------- 1200 96 44 VLS-4 120 88 VLS-8 154 120 VLS DLT300 210 150 VLS DLT400 280 180 Scalar 224 (2000xt) 720 300 Scalar 224 (4000) 960 360 VLS DLT700 490 600 Scalar 448/458 (2000xt) 1440 600 Scalar 448/458 (4000) 1920 720 STORAGE MANAGEMENT SOFTWARE The majority of the Company's products are installed on client/server computer networks in conjunction with storage management software. Currently, over fifty different storage management software packages support the Company's products. On the Novell NetWare and Microsoft Windows NT platforms, these packages include products from Cheyenne Software, Seagate Software (Arcada and Palindrome), Legato Systems, and STAC. On UNIX platforms, these packages include products from Legato Systems, IBM ADSM, OpenVision Technologies, Cheyenne Software, and Spectra Logic (Alexandria). The Company works closely with storage management software companies in a number of ways. The Company periodically engages in discussions with these developers regarding the marketplace, end-user needs, 27 36 and potential solutions to these needs combining the Company's products and the developer's storage management software. The Company partners with storage management software companies to offer promotional product bundles, offering customers a special price on the combination of a Company product and a storage management software product. In addition, the Company's field sales force strives to maintain relationships with its counterparts from each of the storage management software companies and frequently participates in joint sales calls and seminars. The Company also maintains technical relationships with these developers, in most cases providing Company products for their use in developing software for these products. The Company's system engineering lab has many storage management software products running in-house in order to perform ongoing compatibility testing. SALES AND MARKETING The Company's strategy is to deploy a comprehensive sales, marketing, and support infrastructure to address the market for client/server network storage peripherals both domestically and internationally. The Company relies on multiple distribution channels to reach end-user customers ranging in size from small businesses to large multinational corporations. The Company's channels include distributors, VARs and OEMs. The Company supports these channels with a field sales force operating out of regional offices in the following locations: Atlanta, Chicago, Dallas, Los Angeles, Munich, New York, Paris, San Francisco and Redmond, Washington. Resellers North American Distributors. The Company sells its products to large regional and national distributors who in turn resell the Company's products to national, regional, or local VARs with expertise in integrating network solutions for end customers. The Company provides support for these VARs through its authorized reseller programs. In the case of larger, more complex sales situations, the Company's field sales force may work in conjunction with a VAR to support the sale. The Company currently has relationships with six major North American distributors, including Access Graphics, Gates/FA, GBC Distributing Inc., Ingram Micro, Tech Data, and Tenex Data. For the fiscal year ended October 31, 1995, Tech Data and Ingram Micro represented 16.2% and 13.6%, respectively, of the Company's total net sales. International Distributors. Similar to North America, the Company also has relationships with a number of large regional and national distributors internationally. These include P.S. Solutions Pty. Ltd. in Australia, Infodip in France, Megabyte EDV-Handels GmbH and TIM GmbH in Germany, Tallgrass Technologies in Scandinavia as well as Memory Technology Limited and Transformation Software Limited in the United Kingdom. International sales represented 47.1% of total revenues in fiscal year 1995, the majority of which occurred in Europe. The Company believes that international markets represent an attractive growth opportunity and intends to expand the scope of its international sales efforts in part by continuing to actively pursue additional international distributors and resellers. Premier VAR Program. The Company has direct sales relationships with approximately 25 "Premier VARs" throughout North America and Europe. These Premier VARs are typically larger VARs specializing in data storage and network solutions for client/server networks. Premier VARs assume increased levels of responsibility for sales and support, though are still occasionally assisted by the Company's field sales force in certain large, complex sales situations. OEMs The Company sells its products to several companies under a private label or OEM relationship. These companies sell the products under their own brand name, sometimes after enhancing the product technically to target a specific market, performance, or application niche. Private labelers and OEMs assume responsibility for product sales, service and support. These relationships enable the Company to reach end-user market niches not served by its other reseller distribution channels. Although not a key component to its strategy, the Company maintains ongoing discussions with private labelers and OEMs, including leading systems suppliers, 28 37 regarding opportunities with the Company's products. The large majority of Company products are sold through non-OEM channels under the ADIC brand name. Corporate Sales The Company maintains corporate sales relationships with a number of large national and multinational companies, including financial institutions, telecommunications companies, large industrial corporations and professional service firms. In these sales situations, the Company typically works with such company's central information services organization to assess data storage backup needs and then recommend a solution incorporating the Company's products. The successful culmination of this recommendation is the creation of a corporate standard around a selection of the Company's products. Once this standard is established, organizations throughout the firm can purchase the Company's products to meet their needs. Corporate Marketing The Company supports its channel sales and its field sales force efforts with a broad array of marketing programs designed to build the Company's brand name, attract additional resellers, and generate end-user demand. Resellers are provided with a full range of marketing material including product specification literature and application notes. The Company advertises in key network systems publications and participates in national and regional tradeshows both domestically and internationally. The Company's World Wide Web page (http://www.adic.com) features a comprehensive collection of marketing information including product specification sheets, product user manuals, and application notes. The Company's field sales force conducts seminars targeting end users, frequently in conjunction with a sales representative from one of the storage management software companies. The Company also conducts sales and technical training classes for its resellers. The Company periodically engages in various promotional activities for resellers and end users, including product-specific rebates, bundling its products with selected storage management software, and certificates for free tape drive cleaning cartridges. In addition to the activities outlined above, the Company's marketing organization, specifically its product management team, is responsible for initiating development of new products and product line extensions. In order to create the Company's product development plan, the product management team combines its assessment of end-user needs, channel requirements, technology developments and competitive factors with input from the engineering, sales, and manufacturing organizations. CUSTOMER SERVICE AND SUPPORT The Company views customer service and support as strategically important elements of its business model. It feels customers increasingly value not only excellent products, but also excellent service and support of those products. The Company's customer service and support effort consists of five components. Technical Support. The Company maintains an internal technical support organization. Technical support personnel are available to all customers via telephone, facsimile, and Internet electronic mail to answer questions and solve problems relating to the Company's products. Technical support personnel are not only trained with respect to the Company's products, but are also experienced with storage management and network operating system software. This service is available to all customers at no charge. Products with problems not resolved via telephone support may be returned to the Company for repair or replacement during the warranty period. For a nominal fee, customers may choose to receive a "hot swap" exchange unit which will be shipped via express mail within twenty-four hours. Systems Engineering. The Company also maintains a staff of systems engineers who provide both pre-and post-sales support to resellers and end users. Systems engineers typically become involved in more complex problem solving situations involving interactions between the Company's products, the storage management software, the network server hardware, and the network operating system. System engineers work with resellers and end users both over the telephone and on-site. 29 38 On-site Service. The Company contracts with third-party service providers to offer on-site service for its products. A wide variety of programs are available, up to and including twenty-four hour a day, seven day a week on-site service. Training. The Company offers a comprehensive training program to resellers and end users. Training classes are conducted at the Company's headquarters location and on-site at reseller and end-user locations worldwide. Warranty. For standard Company products, parts and labor are covered for two years. With respect to drives and tapes used in the Company's products but manufactured by a third party, the Company passes on to the customer the warranty on such drives and tapes provided by the manufacturer. RESEARCH AND DEVELOPMENT The Company's research and development team has nearly ten years and five product generations of experience developing automated tape library products. The Company's research and development efforts rely on the integration of multiple engineering disciplines to generate products which competitively meet market needs in a timely fashion. Successful development of automated tape libraries requires the melding of firmware design, electro-mechanical design, electronic design, and engineering packaging into a single, integrated product. Product success also relies on the engineering team's thorough knowledge of each of the different tape drive technologies and SCSI protocol. The Company's new products arise from two primary sources. The first, and sometimes more straightforward source, is the availability of an evolved or new tape drive technology. As they compete in the marketplace, tape drive manufacturers continually invest in research and development to gain performance leadership either by offering increasingly enhanced versions of their current drive products or by coming out with a new drive technology altogether. The Company benefits from these industry developments by quickly utilizing these new tape drive technologies in its products. If a new drive is an enhanced version of one already incorporated in one or more of the Company's products, the Company's time and dollar investment to incorporate the new drive can be quite small, with the focus being on verification testing. With new tape drive technology introductions, the level of effort required to develop a corresponding product depends somewhat on the form factor of the drive and media. In cases where the form factors match a drive technology currently supported, again the time and investment required can be quite low. When the form factors differ, the time and investment requirements can grow substantially, to include requiring development of a new product altogether. Given the importance of relationships with tape drive manufacturers to the Company's success, the Company strives to, and believes it does, maintain close, high-level relationships on both a management and technical level with several tape drive manufacturers. The Company's second source for new products is the more traditional identification of a new product which will fill a market need in which the Company believes it can successfully compete. The sales, marketing, product development, and engineering organizations all contribute to this identification process. With these product development efforts, time and investment requirements tend to be significant, both in terms of engineering and tooling for manufacturing. However, the Company has found that it has been able to leverage its previous engineering investments into new products. For example, the firmware, or operating system, of the fifth-generation Scalar library product is based on successive generations of the operating system developed for the Company's first library. Similarly, the Company's engineers have been able to leverage its electro-mechanical and electronic hardware designs from previous products into next-generation designs. In some cases, entire sub-assemblies are transferable, leveraging not only engineering time but also tooling investments, materials purchasing, inventory stocking, and manufacturing. The Company's research and development expenses were $879,000, $1.0 million, and $1.1 million for fiscal years 1993, 1994, and 1995, respectively. The Company anticipates making comparable or increased investments in research and development efforts in the future. 30 39 MANUFACTURING The Company's manufacturing processes, which are ISO 9001 certified, entail manufacturing electro-mechanical robotic devices, integrating into them tape drives, and performing testing on the completed device. The Company's manufacturing strategy is to perform product assembly, integration and testing, leaving component and piece part manufacturing to its supplier partners. The Company works closely with a group of regional, national, and international suppliers obtain quality parts and components meeting its specifications. Though the Company's designs are proprietary, the various components are available off the shelf or are manufactured using standard, readily-available techniques, limiting supplier base risk and easing volume increases. Inventory planning and management is coordinated closely with suppliers and customers to match the Company's production to market demand. Product orders are confirmed and, in most cases, shipped to the customer within one week. The Company fills orders as they are received and therefore believes that its backlog levels are not indicative of future sales. COMPETITION The market for network data storage peripherals, and automated tape libraries in particular, is intensely competitive, highly fragmented, and characterized by rapidly changing technology and evolving standards. Competitors vary in size and in the scope and breadth of the products they offer. As the Company offers a broad range of automated tape library and complementary products, it tends to have a broad number of competitors which differ depending on the particular product format and performance level. Regarding 4mm/DAT products, the Company believes it competes with Hewlett Packard, Seagate, Sony, and Spectra Logic. With respect to DLT products, the Company believes ATL, Breece Hill, Overland Data, Qualstar, Quantum and StorageTek make up the its competition. With 8mm products, the Company believe its competition is represented by Exabyte, Qualstar, Spectra Logic, and StorageTek. Since there are relatively low barriers to entry into the automated tape library market, the Company anticipates increased competition from other fronts, ranging from emerging to established companies, including large system OEMs. Many of the Company's competitors have substantially greater financial and other resources, larger research and development staffs, and more experience and capabilities in manufacturing, marketing and distributing products than the Company. The Company's competitors may develop new technologies and products that are available for sale that are more effective than the Company's products. In addition, competitive products may be manufactured and marketed more successfully than the Company's products. Such developments could render the Company's products less competitive or obsolete, and could have a material adverse effect on the Company's business, financial condition and ability to market the Company's products as currently contemplated. The Company believes the primary competitive factors in the market for network data storage products are product quality, effectiveness, reliability and price, as well as customer issues, including technical and sales support. See "Special Factors -- Increasing Competition and Potentially Declining Prices." PROPRIETARY RIGHTS Although the Company relies predominately on its full product line, strong channel structure, and nearly a decade of library development experience to compete in its marketplace, the Company does have or is pursuing numerous patents on various design elements of its automated tape library products. There can be no assurance that pending patent applications will ultimately issue as patents or, if patents do issue, that the claims allowed will be sufficiently broad to protect the Company's proprietary rights. In addition, there can be no assurance that issued patents or pending applications will not be challenged or circumvented by competitors, or that the rights granted thereunder will provide competitive advantages to the Company. The Company relies on a combination of patent and trademark laws, trade secrecy, confidentiality procedures, and contractual provisions to protect its intellectual property rights. There can be no assurance that these procedures will be successful, that the Company would have adequate remedies for any breach or that the Company's trade secrets and know-how will not otherwise become known to or independently developed by competitors. See "Special Factors -- Proprietary Technology." 31 40 LEGAL PROCEEDINGS The Company has no legal proceedings of a material nature underway. EMPLOYEES (TEAM MEMBERS) As of July 23, 1996, the Company had 132 full-time Team Members, including 34 in sales and marketing, 21 in research and development, systems engineering and technical support, 63 in manufacturing and operations, and 14 in finance, general administration, and management. None of the Company's Team Members are covered by collective bargaining agreements, and management believes its relationship with Team Members is good. The Company's success depends in large part on its ability to attract and retain key Team Members. Competition among network data storage peripheral companies for highly skilled technical and management personnel is intense. There can be no assurance that the Company will be successful in retaining its existing Team Members, or in attracting additional qualified Team Members. FACILITIES The Company currently leases a 41,000 square foot facility in Redmond, Washington, under a lease which expires in 2005. This facility currently houses the primary executive offices of the Company, as well as its marketing, insides sales, sales administration, customer support, research and development, systems engineering, and manufacturing organizations. The Company currently leases office space throughout the United States for its eight regional sales offices and in Paris, France for the sales, marketing, and customer support organizations serving Europe, the Middle East, and Africa. 32 41 MANAGEMENT OFFICERS AND DIRECTORS The executive officers and directors of the Company and their ages as of June 30, 1996, are as follows:
NAME AGE POSITION - ---------------------------------------- --- -------------------------------------------------- Peter H. van Oppen...................... 44 Chairman of the Board, President and Chief Executive Officer Charles H. Stonecipher.................. 35 Senior Vice President and Chief Operating Officer Michel R. Grosbost...................... 50 President and General Manager, ADIC Europe William C. Britts....................... 37 Vice President, Sales and Marketing Barry W. Brugman........................ 51 Vice President, Operations and Finance Nathan H. Searle........................ 49 Vice President, Engineering Christopher T. Bayley................... 57 Director Walter P. Kistler....................... 76 Director Russell F. McNeill...................... 84 Director John W. Stanton......................... 40 Director Walter F. Walker........................ 41 Director
Peter H. van Oppen. Mr. van Oppen has served as Chairman, President and Chief Executive Officer of ADIC since its acquisition by Interpoint in 1994. In 1996 he was elected to serve as Chairman of the Board of Directors of ADIC for a term expiring at ADIC's annual meeting of shareholders (the "Annual Meeting") in 1999. He also served as a Director of ADIC for eight years prior to its acquisition by Interpoint in 1994. He has served as Chairman of the Board of Directors of Interpoint since 1995. He has served as President and Chief Executive Officer of Interpoint since 1989, as President and Chief Operating Officer of Interpoint from 1987 to 1989, and as Executive Vice President for Finance and Operations of Interpoint from 1985 to 1987. He serves as a Director for Seattle FilmWorks, Inc. Charles H. Stonecipher. Mr. Stonecipher has served as Senior Vice President and Chief Operating Officer of ADIC since 1995. Prior to this, he served as Vice President, Finance and Administration and Chief Financial Officer of Interpoint from 1994 to 1995. Prior to joining Interpoint, Mr. Stonecipher worked as a Manager at Bain & Company in San Francisco. Michel R. Grosbost. Mr. Grosbost has served as President and General Manager of ADIC Europe since 1994. From 1988 to 1994, Mr. Grosbost served in various general management positions with Gigabyte and Gigatrend. From 1985 to 1988, Mr. Grosbost served as Vice President, International, with Intertechnique. William C. Britts. Mr. Britts has served as Vice President, Sales and Marketing of ADIC since 1995. He has also served as Director of Marketing of ADIC since 1995. Prior to joining ADIC, Mr. Britts served in a number of marketing and sales positions with Raychem Corporation and its subsidiary, Elo TouchSystems, beginning in 1988. Barry W. Brugman. Mr. Brugman serves as Vice President, Finance and Operations of ADIC, a position he has held since 1994. He previously has served as the Vice President and General Manager of the Custom Hybrids Division of Interpoint from 1993 to 1994, Vice President of Operations of Interpoint from 1992 to 1993, and Vice President of Marketing of the Custom Hybrids Division of Interpoint from 1989 to 1992. Nathan H. Searle. Mr. Searle has served as Vice President, Engineering of ADIC since 1988. From 1986 to 1988, Mr. Searle served as Vice President of IQ Technologies Inc. Mr. Searle also co-founded Output Technology Corporation and served as its Vice President, Engineering, from 1984 to 1985. Christopher T. Bayley. Mr. Bayley was elected in 1996 to serve as a Director of ADIC for a term expiring at the Annual Meeting in 1997. He has served as a Director of Interpoint since 1987. He has served as Chairman of Dylan Bay Companies since 1995 and New Pacific Partners (Seattle and Hong Kong-based 33 42 investment bank) from 1992 to 1995. He served as President and Chief Executive Officer, Glacier Park Company (real estate development), and as Senior Vice President, Corporate Affairs, Burlington Resources Inc. (oil and gas exploration and production company) from 1985 to 1992 and 1989 to 1992, respectively. He is a Director of The Commerce Bank and a member of the Board of Governors of The Nature Conservancy and of the Board of Governors of The Bush School. Walter P. Kistler. Mr. Kistler was elected in 1996 to serve as a Director of ADIC for a term expiring at the Annual Meeting in 1998. He also served as a Director of ADIC for 11 years prior to its acquisition by Interpoint in 1994 and has served as a Director of Interpoint since 1972. Mr. Kistler has served as Chairman of the Board of Directors of Kistler Aerospace Corporation, since 1993. Mr. Kistler has served as Chairman Emeritus of the Board of Directors of Interpoint since 1987, and served as its Chairman from 1974 to 1987. Mr. Kistler has also served as Chairman of Kistler-Morse Corporation (electronic equipment manufacturer), since 1972. Russell F. McNeill. Mr. McNeill was elected in 1996 to serve as a Director of ADIC for a term expiring at the Annual Meeting in 1997 and has served as a Director of Interpoint since 1977. Mr. McNeill has also served as Secretary Emeritus of Interpoint since 1992 and served as its Secretary from 1997 to 1992. He is the former President of Old National Bank of Washington, and serves as Trustee Emeritus for Whitman College. John W. Stanton. Mr. Stanton was elected in 1996 to serve as a Director of ADIC for a term expiring at the Annual Meeting in 1999. He also served as a Director of ADIC for five years prior to its acquisition by Interpoint in 1994 and has served as a Director of Interpoint since 1988. Mr. Stanton has served as Chairman and Chief Executive Officer of Western Wireless Corporation and its predecessors companies since 1992. Prior to this, he served as Vice Chairman and Director of McCaw Cellular Communications, Inc. from 1988 to 1991. Mr. Stanton also serves as a Trustee of Whitman College. Walter F. Walker. Mr. Walker was elected in 1996 to serve as a Director of ADIC for a term expiring at the Annual Meeting in 1998. He has served as a Director of Interpoint since 1995. Mr. Walker has served as President of the Seattle Supersonics National Basketball Association basketball team (a subsidiary of Ackerley Communications, Inc.) since 1994. Prior to this, he served as President, Walker Capital (a money management firm), from March 1994 to September 1994 and as Vice President, Goldman Sachs & Co. (an investment banking firm), from 1987 to 1994. Mr. Walker also serves as a Director of Redhook Ale Brewery, Incorporated and Gargoyles Inc. (eyeware manufacturer). COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors has established an Audit Committee, a Nominating Committee and a Compensation and Stock Option Committee. The Audit Committee, composed of Messrs. Kistler, McNeill, and Walker, will review with the Company's independent auditors the scope, results and costs of the audit engagement. The Nominating Committee, composed of Messrs. Bayley, van Oppen, and Walker, will nominate and recommend candidates for the Board of Directors. The Compensation and Stock Option Committee, composed of Messrs. Bayley, Stanton, and Walker, will determine the salary and bonus to be paid to the Company's President and Chief Executive Officer and will review the salaries and bonuses for those reporting to the President and Chief Executive Officer. The Committee will also administer the Company's stock option plans and meet either independently or in conjunction with the Company's full Board of Directors to grant options to eligible individuals in accordance with the terms of each plan. COMPENSATION OF DIRECTORS; STOCK OPTION PROGRAM Nonemployee directors will be paid a retainer of $500 per quarter and $500 for each Board of Directors meeting attended. Employee directors will not be paid any fees for serving as members of the Board of Directors. Audit Committee members will be paid $500 per meeting. 34 43 The Company has adopted the 1996 Plan, which was approved by Interpoint, the Company's sole shareholder, and will become effective as of the consummation of the Distribution. The 1996 Plan provides for the grant of options to purchase ADIC Common Stock to directors who are not otherwise employees of the Company ("Eligible Directors") upon their initial election to the Board of Directors and for continuing service on the Board. Under the 1996 Plan, each Eligible Director, upon his or her initial election or appointment, will receive a nonqualified stock option for 5,500 shares of ADIC Common Stock. Such options will vest in four equal annual installments of 1,375 shares each beginning one year after the date of grant. The 1996 Plan also provides for an annual grant of options to purchase 500 shares of ADIC Common Stock to each Eligible Director on the date of each annual meeting of shareholders. Such options will vest on the date of the next annual meeting of shareholders and expire after five years. The 1996 Plan will be administered by the Compensation and Stock Option Committee of the Board of Directors. See "Management -- 1996 Stock Option Plan." COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth certain information concerning the Company's Chief Executive Officer (the "CEO") and each of the other three most highly compensated executive officers (together with the CEO, the "named executive officers") during the fiscal year ended October 31, 1995 (and where required, for the fiscal years ended October 31, 1994 and September 30, 1993) based on services rendered to Interpoint. Other than the named executive officers, no executive officer received total compensation in excess of $100,000 for the fiscal year ended October 31, 1995. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION -------------------------------------- ---------------------------- OTHER ANNUAL SECURITIES ALL OTHER NAME AND BONUS($) COMPENSATION UNDERLYING COMPENSATION PRINCIPAL POSITION YEAR SALARY($) (2) ($) OPTIONS(#)(3) ($) - ------------------------ ---- -------- -------- ------------ ------------- ------------ Peter H. van Oppen...... 1995 $212,493 $20,636 -- $ 150(4) President, Chairman 1994 202,339 45,896 -- 150(4) and CEO(1) 1993 194,322 5,642 20,000 150(4) Charles H. Stonecipher.. 1995 110,216 7,650 20,000 150(4) Senior Vice President 1994 25,004 2,089 30,000 33,879(5) and Chief Operating Officer(6) Michel R. Grosbost...... 1995 138,720(7) 5,487 (7) 36,809(7)(8) 32,000 President and General Manager, ADIC Europe Nathan H. Searle........ 1995 98,102 2,616 6,000 150(4) Vice President, Engineering
- --------------- (1) Salary excludes cash-out of unused sick days and vacation days in accordance with Interpoint's flexible time-off plan, which is applicable to all Interpoint Team Members. Such cash-out amounted to $4,023, $8,420 and $5,358 in fiscal 1995, 1994 and 1993, respectively. (2) Consists of profit bonus awards associated with performance for that year and Management Incentive Plan (MIP) awards for fiscal 1995 and 1994. (3) Adjusted to reflect a two-for-one stock split of Interpoint Common Stock that became effective on June 27, 1996. (4) Consists of matching contributions to the 401(k) plan. (5) Includes a payment in the amount of $33,729 associated with relocation expenses. The remainder consists of matching contributions to the 401(k) plan. 35 44 (6) Mr. Stonecipher joined the Company in August 1994. (7) Assumes an exchange rate of French Francs to U.S. Dollars of 5:1. (8) Includes payments to two companies for services rendered by Mr. Grosbost. STOCK OPTION GRANTS The following table sets forth certain information regarding options granted during the fiscal year ended October 31, 1995 to the named executive officers under the Interpoint Corporation Amended 1985 Stock Option Plan. Mr. van Oppen was not granted any options during the fiscal year ended October 31, 1995. As a condition to the Merger, all options to purchase Interpoint Common Stock held by Company employees (including Mr. van Oppen and members of the ADIC Board)will receive a combination of cash and options to purchase an equivalent number of shares of ADIC Common Stock prior to the effective time of the Distribution. See "The Merger and the Distribution -- Treatment of Stock Options." OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL INDIVIDUAL GRANTS REALIZABLE ----------------------------------------------------------- VALUE AT ASSUMED PERCENT OF ANNUAL RATES OF NUMBER OF TOTAL OPTIONS STOCK PRICE SHARES GRANTED TO APPRECIATION FOR UNDERLYING TEAM OPTION TERM(4) OPTIONS MEMBERS IN EXERCISE PRICE EXPIRATION ----------------- NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE)(1) DATE 5% 10% - --------------------------- ------------- ------------- -------------- ---------- ------- ------- Charles H. Stonecipher..... 16,000 7.86% $4.438 2/22/00(2) $19,616 $43,346 4,000 1.96% $5.500 8/16/05(3) $13,836 $35,062 Michel R. Grosbost......... 20,000 9.82% $4.563 11/11/99(2) $25,211 $55,709 8,000 3.93% $4.438 2/22/00(2) $ 9,808 $21,673 4,000 1.96% $5.500 8/16/05(3) $13,836 $35,062 Nathan H. Searle........... 6,000 2.95% $4.438 2/22/00(2) $ 7,356 $16,255
- --------------- (1) Adjusted to reflect a two-for-one stock split of Interpoint Common Stock that became effective on June 27, 1996. (2) These options vest in four equal annual installment beginning one year after the date of grant. The per share exercise price represents the fair market value of the Interpoint Common Stock on the date of grant. The options expire five years from the date of grant. (3) These options became fully vested in July 1996 upon the satisfaction of a condition to vesting based on achievement of a specified stock price during a consecutive 40-day period. The per share exercise price represents the fair market value of the Interpoint Common Stock on the date of grant. The options expire ten years from the date of grant. (4) Future value of current year grants assuming appreciation of 5% and 10% per year over the five-year or ten-year option period. The actual value realized may be greater than or less than the potential realizable values set forth in the table. 36 45 OPTION EXERCISES AND YEAR-END VALUE TABLE None of the named executive officers exercised options during the fiscal year ended October 31, 1995. The following table sets forth certain information regarding options held as of the end of such fiscal year by each of the named executive officers. FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS HELD AT IN-THE-MONEY OPTIONS AT OCTOBER 31, 1995(1) OCTOBER 31, 1995(2) --------------------------- --------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------------------------------- ----------- ------------- ----------- ------------- Peter H. van Oppen............................... 205,000 20,000 $ 656,735 $40,000 Charles H. Stonecipher........................... 7,500 42,500 10,313 50,438 Michel R. Grosbost............................... 0 32,000 0 37,250 Nathan H. Searle................................. 24,200 9,300 109,109 19,841
- --------------- (1) Adjusted to reflect a two-for-one stock split of Interpoint Common Stock that became effective on June 27, 1996. (2) Calculated based on the difference between the option exercise price and the fair market value of the Interpoint Common Stock at October 31, 1995, times the number of shares. 1996 STOCK OPTION PLAN Summary of the 1996 Plan Shares Subject to the 1996 Plan. Subject to adjustment from time to time as provided in the 1996 Plan, a maximum of 625,000 shares of ADIC Common Stock will be available for issuance under the 1996 Plan. Since no option grants can be made under the 1996 Plan until after the Distribution, as of the effective time of the Distribution, no options to purchase ADIC Common Stock will be outstanding under the 1996 Plan. Shares issued pursuant to the 1996 Plan will be drawn from authorized and unissued shares or shares now held or subsequently acquired by the Company. The Company intends to list the ADIC Common Stock on the Nasdaq National Market under the symbol "ADIC" upon notice of issuance. Not more than 100,000 shares of Company Common Stock may be subject to grants of options under the 1996 Plan to any participant in any one fiscal year of the Company. This per-employee limitation, which is subject to adjustment in the event of certain changes in the Company's corporate or capital structure, is designed to qualify option grants under the 1996 plan as "performance-based" compensation under Section 162(m) of the Code, which is discussed below. See "Federal Income Tax Consequences--The Company's Tax Deduction With Respect to Options." Any shares of ADIC Common Stock that have been made subject to an award that cease to be subject to the award (other than by reason of exercise), including, without limitation, in connection with the cancellation of an award and the grant of a replacement award, will be available for issuance in connection with future grants of awards under the 1996 Plan. Eligibility to Receive Awards. Discretionary awards may be granted under the 1996 Plan to those officers and key employees (including directors who are also employees) of the Company and its subsidiaries as the plan administrator from time to time selects. Awards may also be made to consultants, advisors and agents who provide services to the Company and its subsidiaries. Nonemployee directors are eligible to receive only the automatic awards specified in the 1996 Plan. Terms and Conditions of Stock Option Grants. Options granted under the 1996 Plan may be "incentive stock options" (as defined in Section 422 of the Code) or "nonqualified stock options." The option price for each option granted under the 1996 Plan will be determined by the plan administrator, but will be not less than 37 46 100% of the ADIC Common Stock's fair market value on the date of grant. For purposes of the 1996 Plan, "fair market value" means the closing price of the ADIC Common Stock as reported by the Nasdaq National Market for a single trading day. The exercise price for shares purchased under options must be paid in cash, already-owned ADIC Common Stock held by the optionee for at least six months and/or delivery of a properly executed exercise notice, together with irrevocable instructions to a broker. The optionee must pay to the Company applicable withholding taxes upon exercise of the option as a condition to receiving the stock certificates. The option term will be fixed by the plan administrator and if not so fixed will be ten years. Each option will be exercisable pursuant to a vesting schedule determined by the plan administrator. If not so determined, each option will be exercisable in four equal annual installments beginning one year after the date of grant. The plan administrator will also determine the circumstances under which an option will be exercisable in the event the optionee ceases to provide services to the Company or one of its subsidiaries. If not so established, options generally will be exercisable for three months after termination of services. An option will not be exercisable if the optionee's services are terminated for cause, as defined in the 1996 Plan. Nonemployee Director Grants. Nonemployee directors of the Company are eligible to receive option awards under the 1996 Plan only in the form of automatic grants. Each newly elected or appointed nonemployee director will automatically receive an option to purchase 5,500 shares of ADIC Common Stock upon their initial election or appointment to the Company's Board of Directors. Such options will vest in four equal annual installments of 1,375 shares each beginning one year after the date of grant. Nonemployee directors of the Company will also automatically receive an option to purchase 500 shares immediately after each subsequent annual meeting of shareholders after the date of their initial election or appointment. Such options vest upon the optionee's continued service as a director until the next Annual Meeting of Shareholders after the date of grant. Options granted to nonemployee directors are nonqualified stock options and have a term of five years from the date of grant. The options are exercisable at a price equal to the fair market value of the ADIC Common Stock on the date of grant. Any options granted to nonemployee directors are subject to the availability of ADIC Common Stock under the 1996 Plan. Except as otherwise provided, options to nonemployee directors are subject to the terms and conditions of the 1996 Plan applicable to other optionees. Loans, Loan Guarantees and Installment Payments. To assist a holder (including a holder who is an officer or director of the Company, but not a nonemployee director) in acquiring shares of ADIC Common Stock pursuant to an award granted under the 1996 Plan, the plan administrator may authorize (a) the extension of a loan to the holder by the Company, (b) the payment by the holder of the purchase price, if any, of the ADIC Common Stock in installments, or (c) the guarantee by the Company of a loan obtained by the grantee from a third party. The terms of any loans, installment payments or guarantees, including the interest rate and terms of repayment, will be subject to the plan administrator's discretion, and may be granted with or without security. Transferability. No option will be assignable or otherwise transferable by the holder other than by will or the laws of descent and distribution and, during the holder's lifetime, may be exercised only by the holder, except to the extent permitted by the plan administrator, Rule 16b-3 under the Exchange Act or Section 422 of the Code. Options held by nonemployee directors may be transferred only to certain family members and trusts, to the extent permitted by Rule 16b-3 under the Exchange Act. Adjustment of Shares. In the event of any changes in the outstanding stock of the Company by reason of stock dividends, stock splits, spin-offs, combinations or exchanges of shares, recapitalizations, mergers, consolidations, distributions to shareholders other than a normal cash dividend, or other changes in the Company's corporate or capital structure, the plan administrator shall make proportional adjustments in (a) the maximum number and class of securities subject to the 1996 Plan, (b) the number and class of securities that may be made subject to automatic awards to nonemployee directors, and (c) the number and class of securities subject to any outstanding award granted to a nonemployee director and the per share price of such securities, without any change in the aggregate price to be paid therefor, and the plan administrator, in its sole discretion, may make any equitable adjustments it deems appropriate for awards other than those granted to nonemployee directors, in (x) the maximum number and class of securities that may be made subject to 38 47 awards to any participant, and (y) the number and class of securities that are subject to any outstanding award and the per share price of such securities, without any change in the aggregate price to be paid therefor. Corporate Transaction. In the event of certain mergers or consolidations or a sale of substantially all the assets or a liquidation of the Company, each option that is at the time outstanding will automatically accelerate so that each such award will, immediately prior to such corporate transaction, become 100% vested, except that with respect to awards other than those granted to nonemployee directors, such award will not so accelerate if and to the extent: (a) such award is, in connection with the corporate transaction, either to be assumed by the successor corporation or parent thereof or to be replaced with a comparable award for the purchase of shares of the capital stock of the successor corporation or its parent corporation or (b) such award is to be replaced with a cash incentive program of the successor corporation that preserves the spread existing at the time of the corporate transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to such award. Any such awards that are assumed or replaced in the corporate transaction and do not otherwise accelerate at that time shall be accelerated in the event the holder's employment or services should subsequently terminate within two years following such corporate transaction, unless such employment or services are terminated by the successor corporation for cause or by the holder voluntarily without good reason. Further Adjustment of Awards. The plan administrator shall have the discretion, exercisable at any time before a sale, merger, consolidation, reorganization, liquidation or change in control of the Company, as defined by the plan administrator, to take such further action as it determines to be necessary or advisable, and fair and equitable to holders, with respect to awards other than those granted to nonemployee directors. Such authorized action may include (but is not limited to) establishing, amending or waiving the type, terms, conditions or duration of, or restrictions on, awards so as to provide for earlier, later, extended or additional time for exercise, alternate forms and amounts of payments and other modifications, and the plan administrator may take such actions with respect to all holders, to certain categories of holders or only to individual holders. The plan administrator may take such actions before or after granting awards to which the action relates and before or after any public announcement with respect to such sale, merger, consolidation, reorganization, liquidation or change in control that is the reason for such action. Administration. The 1996 Plan will be administered by the Compensation and Stock Option Committee of the Company's Board of Directors. The Board may delegate the responsibility for administering the 1996 Plan with respect to designated classes of eligible participants to different committees or, with respect to grants made to newly hired individuals other than persons subject to Section 16(b) of the Exchange Act, to one or more of the Company's officers, subject to such limitations as the Board deems appropriate. Committee members will serve for such term as the Board may determine, subject to removal by the Board at any time. The administration of the 1996 Plan with respect to officers and directors of the Company who are subject to Section 16 of the Exchange Act with respect to securities of the Company will comply with the requirements of Rule 16b-3 promulgated under Section 16(b) of the Exchange Act, or any successor provision. Amendment and Termination. The 1996 Plan may be terminated, modified or amended by the shareholders of the Company. The Company's Board of Directors may also terminate the 1996 Plan, or modify or amend it, subject to shareholder approval in certain instances, as set forth in the 1996 Plan. No incentive stock options may be granted under the 1996 Plan more than 10 years after the date the 1996 Plan is adopted by the Board. Federal Income Tax Consequences The federal income tax consequences to the Company and to any person granted an award of options under the 1996 Plan under the existing applicable provisions of the Code and the regulations thereunder are substantially as follows. Grant of Options. No income will be recognized by a participant upon the grant of a stock option. Exercise of Nonqualified Stock Options; Sale of Underlying Shares. On the exercise of a nonqualified stock option, the optionee will recognize taxable ordinary income in an amount equal to the excess of the fair 39 48 market value of the shares acquired over the option price. Upon a later sale of those shares, the optionee will have short-term or long-term capital gain or loss, as the case may be, in an amount equal to the difference between the amount realized on such sale and the tax basis of the shares sold. Generally the tax basis of the shares received is their fair market value unless the shares were received in exchange for already-owned shares, in which case special basis rules apply. Exercise of an Incentive Stock Option. Upon the exercise of an incentive stock option during employment or within three months after the optionee's termination of employment (12 months in the case of permanent and total disability, as defined in the Code), for regular tax purposes the optionee will recognize no income at the time of exercise. However, the optionee will have income for alternative minimum income tax purposes in an amount equal to the excess of the fair market value of the shares acquired over the option price. Sale of Shares Received Upon Exercise of an Incentive Stock Option. If the shares acquired upon the exercise of an incentive stock option are sold or exchanged after the later of (a) one year from the date of exercise of the option and (b) two years from the date of grant of the option, the difference between the amount realized by the optionee on that sale or exchange and the tax basis of the shares sold will be taxed to the optionee as a long-term capital gain or loss. Generally the tax basis of the shares received is the option price unless the shares were received in exchange for already-owned shares, in which case special basis rules apply. If the shares are disposed of before such holding period requirements are satisfied (a "disqualifying disposition"), then the optionee will recognize taxable ordinary income in the year of the disqualifying disposition in an amount equal to the excess, on the date of exercise of the option, of the fair market value of the shares received over the option price (or generally, if less, the excess of the amount realized on the sale of the shares over the option price), and the optionee will have capital gain or loss, long-term or short-term, as the case may be, in an amount equal to the different between (i) the amount realized by the optionee upon the disqualifying disposition of the shares and (ii) the option price paid by the optionee increased by the amount of ordinary income, if any, so recognized by the optionee. Certain Incentive Stock Options Treated as Nonqualified Stock Options. An incentive stock option that is exercised more than three months after the optionee's termination of employment (or more than 12 months thereafter in the case of permanent and total disability, as defined in the Code) is treated as a nonqualified stock option and subject to the rules for nonqualified stock options discussed above. Certain Directors or Officers. Special rules apply to a director or officer subject to liability under Section 16(b) of the Exchange Act. The Company's Tax Deduction With Respect to Options. In all the foregoing cases the Company will be entitled to a deduction at the same time and in the same amount as the participant recognizes ordinary income, subject to the following limitation. Under Section 162(m) of the Code, certain compensation payments in excess of $1 million are subject to a limitation on deductibility for the Company. The limitation on deductibility applies with respect to that portion of a compensation payment for a taxable year in excess of $1 million to either the Company's Chief Executive Officer or any one of the other four most highly compensated executive Officers. Certain performance-based compensation is not subject to the limitation on deductibility. Options can qualify for this performance-based exception, but only if they are granted at fair market value, the total number of shares that can be granted to an executive for any period is stated, and shareholder and Board approval is obtained. The 1996 Plan has been drafted to allow compliance with those performance-based criteria. New Plan Benefits Since awards under the 1996 Plan are discretionary, except for the specified grants to nonemployee directors, the Company cannot currently determine the number of awards which will be issued pursuant to the 1996 Plan during the fiscal year ending October 31, 1996. As of the effective time of the Distribution, no options to purchase ADIC Common Stock will be outstanding under the 1996 Plan. 40 49 1996 TRANSITION PLAN Interpoint, as sole shareholder of ADIC, has approved the Transition Plan. No new options may be granted under the Transition Plan after the effective time of the Distribution. The number of options outstanding under the Transition Plan will be equal to the number of ADIC Replacement Options issued in replacement of Interpoint stock options. See "The Merger and the Distribution -- Treatment of Stock Options." Except for the exercise price, the terms of ADIC Replacement Options granted under the Transition Plan, including the vesting schedule, will be the same terms of the original Interpoint stock options they replace. Based on the number of shares subject to Interpoint options held by ADIC employees as of June 30, 1996, approximately 475,000 ADIC Replacement Options will be outstanding under the Transition Plan. ADIC Replacement options to purchase an aggregate of 326,882 shares at an average exercise price of $3.81 per share (prior to the adjustment in exercise price pursuant to the Transition Plan (the "Adjustment")) will be held by all executive officers of the Company as a group, options to purchase an aggregate of 77,098 shares at an average exercise price of $4.60 per share (prior to Adjustment) will be held by all other employees of the Company as a group (including officers who are not executive officers), and options to purchase an aggregate of 71,800 shares at an average exercise price of $3.39 per share (prior to Adjustment) will be held by all nonemployee directors of the Company as a group. Options granted during 1995 to the Company's named executive officers under Interpoint stock options plans (which options will be converted to options to purchase ADIC Common Stock under the Transition Plan) are set forth under the table "Option Grants in Last Fiscal Year" under "Management -- Executive Compensation." CERTAIN TRANSACTIONS The Company leases its facility located in Redmond, Washington, from K-M Properties, a general partnership of which Walter P. Kistler, a director, is a partner. Rent payments for fiscal 1995 were $49,647. The Company reimburses Michel R. Grosbost, President and General Manager, ADIC Europe, for use of office space and equipment located in his residence in connection with the Company's sales operations in Europe. Rent payments for use of this office space and equipment in fiscal 1995 were $32,000. 41 50 BENEFICIAL OWNERSHIP The following table sets forth certain information with respect to the expected beneficial ownership of the ADIC Common Stock immediately after the Effective Time of the Distribution by (i) each person known by the Company to beneficially own more than 5% of the ADIC Common Stock, (ii) each director, (iii) each of the named executive officers, and (iv) all directors and executive officers of the Company as a group, based on their respective beneficial ownership of Interpoint Common Stock as of June 30, 1996. The table includes as a basis for calculation options to purchase shares of Interpoint Common Stock exercisable at or within 60 days as of June 30, 1996, as such options will be converted into options to purchase shares of ADIC Common Stock prior to the effective time of the Distribution. The Company believes that the beneficial owners of the Interpoint Common Stock listed below, based on information furnished by such owners, have sole voting and investment power with respect to such shares.
SHARES BENEFICIALLY OWNED ----------------------- NAME AND ADDRESS NUMBER PERCENT - ----------------------------------------------------------------------- --------- ------- John W. Stanton........................................................ 480,464(1) 6.0% 10201 Willows Road Redmond, Washington 98052 Kennedy Capital Management............................................. 443,600 5.6% 425 N. New Ballas Road, Suite 181 St. Louis, Missouri 63141-6821 Walter P. Kistler...................................................... 377,940(1) 4.8% Peter H. van Oppen..................................................... 314,620(2) 3.9% Nathan H. Searle....................................................... 73,766(3) * Christopher T. Bayley.................................................. 54,000(1) * Charles H. Stonecipher................................................. 43,060(4) * Barry W. Brugman....................................................... 39,050(5) * Michel R. Grosbost..................................................... 26,000(6) * Walter F. Walker....................................................... 20,000 Russell F. McNeill..................................................... 7,800(7) * William C. Britts...................................................... 5,276(8) * All directors and executive officers as a group (11 persons)........... 1,441,976(9) 17.6%
- --------------- * Represents holdings of less than 1%. (1) Includes 12,000 shares subject to issuance upon exercise of Interpoint options that are exercisable within 60 days. (2) Does not include 10,300 shares that are held in trust for Mr. van Oppen's minor children or 6,000 shares that are held in a trust (as to which Mr. van Oppen serves as trustee) for the benefit of certain minor relatives of Mr. van Oppen, as to which he disclaims beneficial ownership. Includes 127,482 shares subject to issuance upon exercise of Interpoint options that are exercisable within 60 days. (3) Includes 25,700 shares subject to issuance upon exercise of Interpoint options that are exercisable within 60 days. (4) Includes 23,000 shares subject to issuance upon exercise of Interpoint options that are exercisable within 60 days. (5) Includes 26,900 shares subject to issuance upon exercise of Interpoint options that are exercisable within 60 days. (6) Includes 4,000 shares subject to issuance upon exercise of Interpoint options that are exercisable within 60 days. 42 51 (7) Includes 7,800 shares subject to issuance upon exercise of Interpoint options that are exercisable within 60 days. (8) Includes 5,000 shares subject to issuance upon exercise of Interpoint options that are exercisable within 60 days. (9) Does not include 10,300 shares that are held in trust for Mr. van Oppen's minor children or 6,000 shares that are held in a trust (as to which Mr. van Oppen serves as trustee) for the benefit of certain minor relatives of Mr. van Oppen, as to which he disclaims beneficial ownership. Includes 255,882 shares subject to issuance upon exercise of Interpoint options that are exercisable within 60 days. 43 52 DESCRIPTION OF CAPITAL STOCK AUTHORIZED CAPITAL STOCK The authorized capital stock of the Company consists of 40,000,000 shares of Common Stock, no par value, and 2,000,000 shares of Preferred Stock, no par value. The following summary description of the capital stock of the Company is qualified in its entirety by reference to the Articles of Incorporation and the Bylaws of the Company, copies of which are filed as exhibits to the Registration Statement of which this Information Statement forms a part. COMMON STOCK Holders of ADIC Common Stock are entitled to one vote per share on all matters submitted to a vote of shareholders and are not entitled to cumulative voting rights with respect to the election of directors. Holders of ADIC Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor, subject to preferences that may be applicable to any outstanding Preferred Stock. In the event of liquidation, dissolution or winding up of the Company, holders of ADIC Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any outstanding Preferred Stock. Holders of ADIC Common Stock have no preemptive, subscription, redemption or conversion rights. All the outstanding shares of ADIC Common Stock are, and all shares of ADIC Common Stock to be outstanding upon completion of the Distribution will be, fully paid and nonassessable. PREFERRED STOCK The Board of Directors has the authority to issue up to 2,000,000 shares of Preferred Stock from time to time in one or more series and to fix the powers, designations, preferences and relative, participating, optional or other special rights thereof, including dividend rights, conversion rights, voting rights, redemption terms, liquidation preferences and the number of shares constituting each such series, without any further vote or action by the Company's shareholders. The Company has reserved for issuance 100,000 shares of Series A Preferred Stock in connection with its Shareholder Rights Plan. See "Description of Capital Stock--Preferred Stock Purchase Rights." The issuance of Preferred Stock could adversely affect the voting power of holders of ADIC Common Stock and could have the effect of delaying, deferring or preventing a change in control of the Company. No shares of Preferred Stock are currently outstanding. The Company has no present plans to issue any shares of Preferred Stock, except upon exercise of the Rights if, and when, the Rights become exercisable. PREFERRED STOCK PURCHASE RIGHTS Each outstanding share of ADIC Common Stock distributed in the Distribution will be accompanied by one Right. The Board of Directors has authorized the issuance of one Right with respect to each share of ADIC Common Stock that becomes outstanding prior to the earliest of the Trigger Date, the Expiration Date (as such terms are hereinafter defined) and the date, if any, on which the Rights are redeemed. Each Right entitles its registered holder to purchase from the Company one one-hundredth (1/100th) of a share of Series A Preferred Stock at a price of $50 (the "Purchase Price"), subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement") between the Company and [First Interstate Bank of Washington, N.A.,] as Rights Agent. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is hereby incorporated herein by reference. Until the earlier of (i) the close of business on the tenth business day after the first date of public announcement that a person or group (including any affiliate or associate of such person or group) has acquired, or has obtained the right to acquire, beneficial ownership of 15% or more of the outstanding ADIC Common Stock (such person or group being an "Acquiring Person") and (ii) such date, if any, as may be designated by the Board of Directors following the commencement of, or first public disclosure of an intent to 44 53 commence, a tender or exchange offer for outstanding ADIC Common Stock which could result in the offeror becoming the beneficial owner of 15% or more of the outstanding ADIC Common Stock (the earlier of such dates, subject to certain exceptions, being the "Trigger Date"), the Rights will be evidenced by the certificates for the ADIC Common Stock registered in the names of the holders thereof (which certificates for ADIC Common Stock will also be deemed to be Right Certificates, as defined below) and not by separate Right Certificates. Therefore, until the Trigger Date, the Rights will be transferred with and only with the ADIC Common Stock. As soon as practicable following the Trigger Date, separate certificates evidencing the Rights ("Right Certificates") will be mailed to holders of record of the ADIC Common Stock as of the close of business on the Trigger Date (and to each initial record holder of certain shares of ADIC Common Stock originally issued after the Trigger Date), and such separate Right Certificates alone will thereafter evidence the Rights. The Rights are not exercisable until the Trigger Date and will expire on the tenth year anniversary of the date of the closing of the Distribution (the "Expiration Date"), unless earlier redeemed or canceled by the Company as described below. The number of shares of Series A Preferred Stock or other securities issuable upon exercise of a Right, the Purchase Price, the Redemption Price (as hereinafter defined) and the number of Rights associated with each outstanding share of ADIC Common Stock are all subject to adjustment by the Board of Directors in the event of any change in the ADIC Common Stock or the Series A Preferred Stock, whether by reason of stock dividends, stock splits, recapitalization, mergers, consolidations, combinations or exchanges of securities, split-ups, split-offs, spin-offs, liquidations, other similar changes in capitalization, any distribution or issuance of cash, assets, evidences of indebtedness or subscription rights, options or warrants to holders of ADIC Common Stock or Series A Preferred Stock, as the case may be, or otherwise. In the event a person becomes an Acquiring Person, the Rights will entitle each holder of a Right (other than an Acquiring Person (or any affiliate or associate of such Acquiring Person)) to purchase, for the Purchase Price, that number of shares of ADIC Common Stock equivalent to the number of shares of ADIC Common Stock which at the time of the transaction would have a market value of twice the Purchase Price. Any Rights that are at any time beneficially owned by an Acquiring Person (or any affiliate or associate of an Acquiring Person) will be null and void and nontransferable and any holder of any such Right (including any purported transferee or subsequent holder) will be unable to exercise or transfer any such Right. After there is an Acquiring Person, the Board of Directors may elect to exchange each Right (other than Rights that have become null and void and nontransferable as described above) for consideration per Right consisting of one-half of the securities that would be issuable at such time upon the exercise of one Right pursuant to the terms of the Rights Agreement and without payment of the Purchase Price. In the event the Company is acquired in a merger by, or other business combination with, or 50% or more of its assets or assets accounting for 50% or more of its net income or revenues are sold, leased, exchanged or otherwise transferred (in one or more transactions) to, a publicly traded corporation, each Right will, unless earlier redeemed, entitle its holder to purchase, for the Purchase Price, that number of shares of the surviving corporation which at the time of the transaction would have a market value of twice the Purchase Price. In the event the Company is acquired in a merger by, or other business combination with, or 50% or more of its assets or assets accounting for 50% or more of its net income or revenues are sold, leased, exchanged or otherwise transferred (in one or more transactions) to, an entity that is not a publicly traded corporation, each Right will, unless earlier redeemed, entitle its holder to purchase, for the Purchase Price, at such holder's option, (i) that number of shares of the surviving corporation in the transaction with such entity (which surviving corporation could be the Company) which at the time of the transaction would have a book value of twice the Purchase Price, (ii) that number of shares of such entity which at the time of the transaction would have a book value of twice the Purchase Price, or (iii) if such entity has an affiliate which has publicly traded common stock, that number of shares of common stock of such affiliate which at the time of the transaction would have a market value of twice the Purchase Price. 45 54 At any time prior to any person or group becoming an Acquiring Person, the Board of Directors may redeem the Rights in whole, but not in part, at a price (in cash or ADIC Common Stock or other securities of the Company deemed by the Board of Directors to be at least equivalent in value) of $.01 per Right, subject to adjustment as provided in the Rights Agreement (the "Redemption Price"). Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends. At any time prior to the Trigger Date the Company may, without the approval of any holder of the Rights, supplement or amend any provision of the Rights Agreement (including the date on which the Trigger Date would occur and the time during which the Rights may be redeemed or the terms of the Series A Preferred Stock), except that no supplement or amendment shall be made which adversely affects the interests of the holders of the Rights Certificates. The Series A Preferred Stock issuable upon exercise of the Rights will not be redeemable. The holders of Series A Preferred Stock will be entitled to a minimum preferential quarterly dividend payment equal to the greater of (a) $.01 per share and (b) 100 times the dividend declared per ADIC Common Stock, if any. In the event of dissolution, liquidation or winding up of the Company, whether voluntary or involuntary, holders of Series A Preferred Stock will be entitled to a minimum preferential payment per share equal to the greater of (y) $.01 per share and (z) all accrued and unpaid dividends and distributions per share, plus 100 times the distribution to be made per ADIC Common Stock. Each share of Series A Preferred Stock will entitle its holder to 100 votes, voting together with the ADIC Common Stock. In addition, in the event of any merger, business combination, consolidation or other transaction in which the outstanding shares of ADIC Common Stock are exchanged, holders of the Series A Preferred Stock will be entitled to receive per share 100 times the amount received per ADIC Common Stock. Because of the nature of the dividend, liquidation and voting rights of the Series A Preferred Stock, the value of the one one-hundredth (1/100th) interest in a share of Series A Preferred Stock issuable upon exercise of each Right should approximate the value of one share of share of ADIC Common Stock. Customary antidilution provisions are designed to protect that relationship in the event of certain changes in the ADIC Common Stock and the Series A Preferred Stock. The Series A Preferred Stock may be issued in fractions which are an integral multiple of one one-hundredth (1/100th) of a share of Series A Preferred Stock. The Company may, but is not required to, issue fractional shares upon the exercise of Rights and, in lieu of fractional shares, the Company may utilize a depository arrangement as provided by the terms of the Series A Preferred Stock and, in the case of fractions other than one one- hundredth (1/100th) of a share of Series A Preferred Stock or integral multiples thereof, may make a cash payment based on the market price of such shares. The Rights have certain anti-takeover effects. The Rights are designed to cause substantial dilution to a person or group that attempts to acquire the Company on terms not approved by the Board of Directors. The Company does not believe that the Rights will interfere with any merger or other business combination approved by the Board of Directors since the Rights may be redeemed by the Company as described above. To the extent the Rights may discourage potential acquirors from obtaining equity positions in the Company, shareholders may be deprived of the opportunity to receive a premium for their shares of ADIC Common Stock. CERTAIN ANTITAKEOVER EFFECTS The Articles of Incorporation and Bylaws of the Company include provisions that may have the effect of impeding a hostile takeover of the Company. The Articles of Incorporation and Bylaws provide for a classified Board of Directors consisting of three classes of directors. The Articles of Incorporation and Bylaws direct that special meetings of the Company's shareholders may be called only by the Board of Directors, the Chairman of the Board or the President of the Company or at the direction of 50% of the Company's shareholders, once the Distribution has occurred. The Bylaws require that shareholder nominations for directors to be elected to the Board of Directors be made pursuant to timely notice and in proper written form to the Secretary of the Company. To be timely, the shareholders' notice must be received by the Company neither less than 60 nor more than 90 days prior to an annual meeting (or within 10 days of the mailing by the Company of notice of 46 55 the date of the annual meeting if such Company notice is made less than 60 days prior to the date of the annual meeting) and no more than seven days following the date on which notice is given to shareholders if the election is to take place at a special meeting. There are also specific content requirements for such notice. Requests to present matters to the shareholders at an annual meeting must also be received by the Company not less than 60 nor more than 90 days prior to the meeting, and such requests must meet specific content requirements. The Articles of Incorporation also contain a provision requiring certain business combinations to be approved by the affirmative vote of the holders of not less than two-thirds of the outstanding shares of the Company entitled to vote thereon. These business combinations require only the affirmative vote of the holders of not less than a majority of the outstanding shares of the Company if the business combination is otherwise required to be approved by the Company's shareholders pursuant to the provisions of the WBCA or certain provisions of the Articles of Incorporation and is approved by a majority of the Company's directors who were members of the Board on the date of the closing of the Distribution (the "Continuing Directors") or who were elected to the Board upon the recommendation of a majority of the Continuing Directors, voting separately and as a subclass of directors. These business combinations do not require approval by a shareholder vote if the business combination is approved by a majority of the Continuing Directors, voting separately and as a subclass of directors, and if the business combination is not required to be approved by the Company's shareholders pursuant to the provisions of the WBCA or certain provisions of the Articles of Incorporation. These provisions, the Shareholder Rights Plan, and the availability of Preferred Stock for issuance without shareholder approval, may have the effect of lengthening the time required for a person to acquire control of the Company through a proxy contest or the election of a majority of the Board of Directors, and may deter any potential unfriendly offers or other efforts to obtain control of the Company, thereby possibly depriving the Company's shareholders of opportunities to realize a premium for their Common Stock, and could make removal of incumbent directors more difficult. At the same time, these provisions may have the effect of inducing any persons seeking control of the Company to negotiate terms acceptable to the Board of Directors. Washington law imposes restrictions on certain transactions between a corporation and certain significant shareholders. Chapter 23B.19 of the WBCA, which applies to Washington corporations that have a class of voting stock registered under the Exchange Act, prohibits a "target corporation," with certain exceptions, from engaging in certain "significant business transactions" with a person or group of persons which beneficially owns 10% or more of the voting securities of the target corporation (an "Acquiring Person") for a period of five years after such acquisition, unless the transaction or acquisition of shares is approved by a majority of the members of the target corporation's board of directors prior to the time of acquisition. Such prohibited transactions include, among other things, a merger or consolidation with, disposition of assets to, or issuance or redemption of stock to or from, the Acquiring Person, termination of 5% or more of the employees of the target corporation as a result of the Acquiring Person's acquisition of 10% or more of the shares or allowing the Acquiring Person to receive any disproportionate benefit as a shareholder. After the five year period, a "significant business transaction" may take place as long as it complies with certain "fair price" provisions of the statute. A corporation may not "opt out" of this statute. This provision may have the effect of delaying, deferring or preventing a change in control of the Company. 47 56 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary describes the material federal income tax consequences of the Distribution to Interpoint, ADIC, and the shareholders of Interpoint who are citizens of or residing in the United States. It does not discuss all the tax consequences that may be relevant to Interpoint shareholders because of their particular tax situation (such as insurance companies, financial institutions, dealers in securities, tax-exempt organizations or non-U.S. persons) or to Interpoint shareholders who acquired their shares of Interpoint Common Stock pursuant to the exercise of employee stock options or warrants, or otherwise as compensation. This summary also does not discuss tax consequences to holders of outstanding Interpoint options. Neither Interpoint nor ADIC has requested a ruling from the Internal Revenue Service (the "IRS") with regard to any of the federal income tax consequences of the Distribution. A condition to the obligation of Interpoint to consummate the Distribution is that it receive the opinion of Perkins Coie, special counsel to Interpoint, to the effect that (i) the Distribution qualifies as a tax-free distribution described in Section 355 of the Internal Revenue Code (the "Code") and (ii) the Merger qualifies as a reorganization described in Section 368(a) of the Code (the "Tax Opinion"). A condition to the obligation of Crane to consummate the Merger is a similar opinion to be given by Milbank, Tweed, Hadley & McCloy, special counsel to Crane. However, these opinions of counsel will not be binding on the IRS or guarantee that the IRS will not challenge the tax treatment of the Distribution or the Merger. The Distribution will not be a taxable transaction if it meets the requirements of Section 355 of the Code, including, among others, that (i) there is a business purpose for the Distribution independent of tax reasons, (ii) the Distribution is not a device for the distribution of earnings and profits to the Interpoint shareholders, (iii) after the Distribution, the Company and Interpoint each continue to conduct a trade or business that has been actively conducted for the five years preceding the Distribution and that was not acquired in a taxable transaction, (iv) the Distribution result in a distribution of control (within the meaning of Section 368(b) of the Code) of ADIC, and (v) the historical shareholders of Interpoint continue to hold an amount of stock establishing a continuity of interest in Interpoint and ADIC. Business Purpose. Crane has represented that it would not agree to consummate the Merger if ADIC or the ADIC business had to be acquired as a part of the Merger. Interpoint has represented that the business purpose for the Distribution is to eliminate an asset that Crane did not wish to acquire in the Merger. Thus, the Distribution is necessary to facilitate the Merger. The IRS has ruled in the past that a premerger spinoff designed to eliminate unwanted assets of the target company for a post-spinoff merger constitutes a valid business purpose. See Rev. Proc. 96-30, Appendix A, Section 2.07, 1996-19 I.R.B. 8 (May 6, 1996). Based on the representations of Crane and Interpoint, counsel to Crane and to Interpoint and the Company will opine that the business purpose requirement for the Distribution will be met. No Device. In general, a sale or exchange of the stock of Interpoint or ADIC after the Distribution would be evidence that the Distribution was a device for the distribution of the earnings and profits of Interpoint in violation of the requirements of Section 355 of the Code. The Merger results in an exchange of Interpoint Common Stock for Crane Common Stock. However, the regulations under Section 355 indicate that the exchange of stock pursuant to a plan of reorganization under Section 368(a) of the Code in which either no gain or loss or only an insubstantial amount of gain is recognized on the exchange will not be treated as a subsequent sale or exchange. Treas. Reg. sec. 1.355-2(d)(2)(iii)(E). Thus, the fact that the Interpoint shareholders exchange their Interpoint Common Stock for Crane Common Stock pursuant to the Merger will not result in a determination that the Distribution is a device for the distribution of the earnings and profits of Interpoint if the Merger qualifies as a reorganization and little or no gain is recognized in the Merger. As indicated below, counsel to Crane and to Interpoint and the Company will opine that the Merger is a reorganization under Section 368(a) and that no gain or loss should be recognized with respect to the Merger except with respect to cash paid in lieu of fractional shares and dissenting shares. Five-Year Active Trade or Business. Under Section 355 of the Code, both Interpoint and the Company must continue a business that has been conducted as an active trade or business for at least five years prior to the Distribution and that was not acquired by Interpoint or ADIC in a taxable purchase of stock or assets. Interpoint has represented that Interpoint and ADIC each will continue a business after the Effective Time 48 57 that has been actively conducted by Interpoint and ADIC, respectively, for at least five years and that the business was not acquired in any taxable acquisition of stock or assets during the past five years. Based on that representation, counsel to Interpoint and to Crane will opine that the active trade or business test will be met. Continuity of Shareholder Interest. To qualify under Section 355 of the Code, historical shareholders of Interpoint must retain a continuity of interest in both Interpoint and ADIC after the Distribution. Although the shareholders of Interpoint will not continue to hold Interpoint shares after the Merger, the courts have held that the continuity of interest test nonetheless can be met if those shareholders retain a continuing interest in the surviving corporation in the merger. See Commissioner v. Morris Trust, 367 F.2d 794 (4th Cir. 1966); Rev. Rul 75-406, 1975-2 C.B. 125. Certain significant shareholders will be asked to represent, and counsel to Interpoint and to Crane have assumed, that those shareholders do not have any plan as of the Effective Time of the Merger to dispose of their interest in ADIC or Crane following the Effective Time of the Merger. Interpoint and Crane have represented they are not aware of any plan that would result in the historical shareholders of Interpoint and Crane retaining less than a 50% continuing interest in ADIC and Crane after the Effective Time. The IRS has ruled that a 50% continuing interest satisfies the continuity of interest requirement. Treas. Reg. sec. 1.355-2(c)(2), example 2. If the Distribution meets the requirements under Section 355 of the Code, the shareholders of Interpoint will recognize no gain or loss for federal income tax purposes. The aggregate basis of Interpoint Common Stock and ADIC Common Stock (including any fractional share interest) in the hands of each Interpoint shareholder after the Distribution will be the same as the basis of the Interpoint Common Stock held immediately before the Distribution, allocated in proportion to the fair market value of the respective stock in the Company and Interpoint. The holding period of the ADIC Common Stock (including any fractional share interest) received by each Interpoint shareholder will include the holding period of the Interpoint Common Stock with respect to which the Distribution will be made, provided that such Interpoint Common Stock is held as a capital asset on the Record Date of the Distribution. If any of the requirements were not met, the Distribution would not qualify as a tax-free transaction under Section 355. In that event, Interpoint would recognize any gain or loss as if it had sold the ADIC Common Stock, and the Interpoint shareholders would be taxed as if they had received the ADIC Common Stock as a dividend distribution with respect to their Interpoint Common Stock. The Tax Opinion will be based on the assumptions that (i) representations made as of the Effective Time of the Merger and the Distribution by Interpoint, ADIC, Acquisition Corp. and certain significant shareholders of Interpoint are accurate, (ii) the Merger will qualify as a merger under applicable state law, (iii) the Merger and the Distribution and related transactions will occur as described in the Merger Agreement and (iv) all parties to the Merger Agreement will comply with their covenants contained in the Merger Agreement. The Tax Opinion will be based on the law in effect at the time of the Distribution. Any changes in tax law enacted after the date hereof could affect the ability of Perkins Coie to issue the Tax Opinion. In particular, the Clinton administration has proposed legislation as part of the Revenue Reconciliation Act of 1996 that would treat a spin-off as taxable to the distributing corporation (but not the shareholders of the distributing corporation) if the shareholders of the distributing corporation did not retain for a two-year period following the spin-off a 50% or greater interest in the distributing corporation and any successor thereto. See Section 9522 of the Revenue Reconciliation Act of 1996. The bill, if passed by Congress, in its present form, would be effective for distributions occurring after March 19, 1996. Because the Interpoint shareholders will not acquire a 50% or greater interest in Crane pursuant to the Merger, the Clinton proposal would result in tax to Interpoint as a result of the Spinoff. It is uncertain whether this bill will pass Congress or, if passed, whether the proposed effective date will be adopted. On March 29, 1996, Senator Roth, Chairman of the Senate Finance Committee, and Congressman Archer, Chairman of the Ways and Means Committee, issued a statement indicating that the effective date of any such legislation would be the date of congressional action on the bill and not the retroactive date provided in the Administration's bill. A number of Democrats have also endorsed that approach. Thus, it does not appear likely that this bill, if enacted in the future, would apply to the Spinoff unless Congress acted before the Spinoff Date and did not adopt transition rules excepting transactions such as the Spinoff pursuant to agreements that were executed prior to approval of the legislation, which also does not appear likely. 49 58 THE ABOVE SUMMARY DOES NOT PURPORT TO BE COMPLETE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE TAX OPINION, A FORM OF WHICH IS INCLUDED AS EXHIBIT TO THE REGISTRATION STATEMENT ON FORM S-4, FILED WITH THE COMMISSION BY CRANE ON AUGUST , 1996. INTERPOINT SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE FOREGOING TO THEIR INDIVIDUAL CIRCUMSTANCES AND REGARDING THE STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE RECEIPT OF ADIC COMMON STOCK IN THE DISTRIBUTION. LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Bylaws contain provisions indemnifying the Company's directors and officers to the fullest extent permitted by law. The Company has also entered into indemnity agreements pursuant to which it has agreed, among other things, to indemnify its directors and executive officers against certain liabilities. In addition, the Articles of Incorporation contain provisions limiting the personal liability of directors to the Company or its shareholders to the fullest extent permitted by law. The Company has entered into an indemnification agreement with each of its directors and executive officers in which the Company agrees to hold harmless and indemnify the director or executive officer to the fullest extent permitted by Washington law. The Company agrees to indemnify the director or executive officer against any and all losses, claims, damages, liabilities or expenses incurred in connection with any actual, pending or threatened action, suit, claim or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal, in which the director or officer is, was or becomes involved by reason of the fact that the director or officer is or was a director, officer, employee or agent of the Company or that, being or having been such a director, officer, employee or agent, he or she is or was serving at the request of the Company as a director, officer, employee, partner, trustee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, whether the basis of such proceeding is alleged action (or inaction) by the director or officer in an official capacity or in any other capacity while serving as a director, officer, employee, partner, trustee or agent, other than an action, suit, claim or proceeding instituted by or at the direction of the director or officer unless such action, suit, claim or proceeding is or was authorized by the Company's Board of Directors. No indemnity pursuant to the indemnification agreements shall be provided by the Company (i) on account of any suit in which a final, unappealable judgment is rendered against the director or officer for an accounting of profits made from the purchase or sale by the director or officer of securities of the Company in violation of the provisions of Section 16(b) of the Exchange Act; (ii) for damages that have been paid directly to the director or officer by an insurance carrier under a policy of directors' and officers' liability insurance maintained by the Company; (iii) on account of the director's or officer's conduct which is finally adjudged to have been intentional misconduct, a knowing violation of law or Section 23B.08.310 of the WBCA or any successor provision of the statute, or a transaction from which the director or officer derived benefit in money, property or services to which the director or officer is not legally entitled; or (iv) if a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful. The Company has purchased and maintains insurance on behalf of any person who is or was a director or officer of the Company, or is or was a director or officer serving at the request of the Company as a director, officer, employee, partner, trustee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, against any liability asserted against such person and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Company would have the power or obligation to indemnify such person against such liability under the provisions of the Bylaws. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the ADIC Common Stock is First Interstate Bank of Washington, N.A. 50 59 INDEPENDENT PUBLIC ACCOUNTANTS The Company has appointed Price Waterhouse LLP as the Company's independent public accountants to audit the Company's consolidated financial statements as of and for the fiscal year ending October 31, 1996. Price Waterhouse LLP has audited the Company's financial statements for the fiscal years ended October 31, 1994 and 1995. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement on Form 10 (the "Registration Statement"), which shall include any amendments or supplements thereto under the Exchange Act with respect to the shares of ADIC Common Stock being received by Interpoint shareholders in the Distribution. This Information Statement does not contain all of the information set forth in the Registration Statement and the exhibits and schedule thereto, to which reference is hereby made. Statements made in this Information Statement as to the contents of any contract, agreement or other document referred to herein are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to such exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Registration Statement and the exhibits and schedule thereto filed by the Company with the Commission may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the Regional Offices of the Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such information can be obtained by mail from the Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Following the Distribution, the Company will be required to comply with the reporting requirements of the Exchange Act and will file annual, quarterly and other reports with the Commission. Similarly, the Company will also be subject to the proxy solicitation requirements of the Exchange Act and, accordingly, will furnish audited consolidated financial statements to its shareholders in connection with its annual meetings of shareholders. The Company intends to furnish its shareholders with annual reports containing audited consolidated financial statements and an opinion thereon expressed by independent auditors and with quarterly reports for the first three quarters of each fiscal year containing unaudited summary consolidated financial information. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS INFORMATION STATEMENT OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY INTERPOINT OR ADIC. THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS INFORMATION STATEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF INTERPOINT OR ADIC SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS INFORMATION STATEMENT OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF. 51 60 INDEX TO FINANCIAL STATEMENTS
PAGE ----- Report of Independent Accountants.................................................... F-2 Consolidated Balance Sheets of the Company at April 30, 1996 (unaudited), October 31, 1995 and October 31, 1994.......................................................... F-3 Consolidated Statements of Operations for the six months ended April 30, 1996, and April 30, 1995 (unaudited), and for the years ended October 31, 1995, October 31, 1994 and September 30, 1993........................................................ F-4 Consolidated Statements of Changes in Stockholders' Equity for the period September 30, 1992 through October 31, 1995 and for the six months ended April 30, 1996 (unaudited)........................................................................ F-5 Consolidated Statements of Cash Flows for the six months ended April 30, 1996 and April 30, 1995 (unaudited) and for the years ended October 31, 1995, October 31, 1994 and September 30, 1993........................................................ F-6 Notes to Consolidated Financial Statements........................................... F-8
F-1 61 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Interpoint Corporation In our opinion, the consolidated financial statements listed in the accompanying index appearing on page F-1 present fairly, in all material respects, the financial position of Advanced Digital Information Corporation (a wholly owned subsidiary of Interpoint Corporation) and its subsidiary at October 31, 1995 and 1994, and the results of their operations and their cash flows for the years then ended 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 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 provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Seattle, Washington July 19, 1996 F-2 62 ADVANCED DIGITAL INFORMATION CORPORATION (A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION) CONSOLIDATED BALANCE SHEETS
APRIL 30, OCTOBER 31, OCTOBER 31, 1996 1995 1994 ----------- ----------- ----------- (UNAUDITED) ASSETS Current assets Cash............................................... $ 441,370 $ 623,838 $ 183,985 Accounts receivable, net........................... 9,356,424 5,816,171 4,133,148 Inventories, net................................... 7,893,236 5,383,931 2,769,906 Prepaid expenses and other......................... 268,666 227,449 182,105 Income taxes receivable............................ -- -- 161,344 Deferred income taxes.............................. 314,764 319,657 49,965 ----------- ----------- ---------- Total current assets............................ 18,274,460 12,371,046 7,480,453 ----------- ----------- ---------- Property, plant and equipment, at cost Machinery and equipment............................ 2,241,442 1,933,090 1,373,318 Office equipment................................... 324,053 329,686 272,400 Leasehold improvements............................. 313,925 148,193 141,380 ----------- ----------- ---------- 2,879,420 2,410,969 1,787,098 Less: accumulated depreciation and amortization.... (1,480,145) (1,234,245) (928,018) ----------- ----------- ---------- Net property, plant and equipment............... 1,399,275 1,176,724 859,080 ----------- ----------- ---------- Deferred income taxes................................ 43,439 46,009 58,956 ----------- ----------- ---------- Other assets......................................... 659,857 349,251 311,357 ----------- ----------- ---------- $20,377,031 $13,943,030 $ 8,709,846 =========== =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable................................... $ 5,852,823 $ 3,937,194 $ 2,493,167 Accrued liabilities................................ 1,177,529 980,725 831,344 Income taxes payable............................... 327,282 204,024 -- ----------- ----------- ---------- Total current liabilities.................. 7,357,634 5,121,943 3,324,511 ----------- ----------- ---------- Intercompany debt.................................... 8,701,694 5,434,309 2,357,891 ----------- ----------- ---------- Commitments (Note 10)................................ Stockholders' equity Common stock (1,000 shares authorized, issued and outstanding; $.01 par value).................... 10 10 10 Additional paid-in capital......................... 701,742 701,742 701,742 Retained earnings.................................. 3,559,985 2,551,707 2,259,301 Cumulative translation adjustment.................. 55,966 133,319 66,391 ----------- ----------- ---------- Total stockholders' equity................. 4,317,703 3,386,778 3,027,444 ----------- ----------- ---------- $20,377,031 $13,943,030 $ 8,709,846 =========== =========== ==========
See the accompanying notes to these consolidated financial statements. F-3 63 ADVANCED DIGITAL INFORMATION CORPORATION (A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION) CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED YEAR ENDED ENDED APRIL 30, OCTOBER 31, ENDED APRIL 30, OCTOBER 31, SEPTEMBER 30, 1996 1995 1995 1994 1993 --------------- ----------- --------------- ----------- ------------- (UNAUDITED) (UNAUDITED) Net sales...................... $24,385,580 $31,716,372 $12,499,018 $20,083,275 $17,108,522 Cost of sales.................. 17,656,199 22,107,341 8,185,615 13,495,286 10,775,415 ----------- ----------- ----------- ----------- ----------- Gross profit................. 6,729,381 9,609,031 4,313,403 6,587,989 6,333,107 ----------- ----------- ----------- ----------- ----------- Operating expenses Selling and administrative... 4,298,575 8,001,290 3,787,653 5,000,139 3,795,704 Research and development..... 683,363 1,097,090 448,084 1,037,255 879,042 Acquisition expense.......... -- -- -- 590,000 -- ----------- ----------- ----------- ----------- ----------- 4,981,938 9,098,380 4,235,737 6,627,394 4,674,746 ----------- ----------- ----------- ----------- ----------- Operating profit (loss)........ 1,747,443 510,651 77,666 (39,405) 1,658,361 ----------- ----------- ----------- ----------- ----------- Other income (expense) Interest expense, net........ (259,354) (277,451) (114,753) (133,787) (66,329) Foreign currency transaction gains (losses)............ 18,145 (18,476) 2,182 31,568 -- Other income................. -- -- -- -- 509 ----------- ----------- ----------- ----------- ----------- (241,209) (295,927) (112,571) (102,219) (65,820) ----------- ----------- ----------- ----------- ----------- Income (loss) before (provision) benefit for income taxes................. 1,506,234 214,724 (34,905) (141,624) 1,592,541 ----------- ----------- ----------- ----------- ----------- (Provision) benefit for income taxes: Current...................... (497,956) (176,422) 9,780 183,832 (445,001) Deferred..................... -- 254,104 -- (84,491) 137,018 ----------- ----------- ----------- ----------- ----------- (497,956) 77,682 9,780 99,341 (307,983) ----------- ----------- ----------- ----------- ----------- Net income (loss).............. $ 1,008,278 $ 292,406 $ (25,125) $ (42,283) $ 1,284,558 =========== =========== =========== =========== =========== Pro forma average number of common and common equivalent shares outstanding........... 8,074,000 8,010,000 Pro forma net income per share........................ $ .12 $ .04 =========== ===========
See the accompanying notes to these consolidated financial statements. F-4 64 ADVANCED DIGITAL INFORMATION CORPORATION (A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL CUMULATIVE --------------------- PAID-IN RETAINED TRANSLATION SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT TOTAL ---------- -------- ---------- ---------- ---------- ---------- Balance at September 30, 1992........................ 2,436,900 $ 24,369 $ 589,383 $ 909,841 $1,523,593 Net income.................... 1,284,558 1,284,558 ---------- -------- -------- ---------- ---------- Balance at September 30, 1993........................ 2,436,900 24,369 589,383 2,194,399 2,808,151 Shares canceled in business combination................. (2,436,900) (24,369) (24,369) Shares issued in business combination................. 1,000 10 24,359 24,369 Contribution of capital from Interpoint.................. 88,000 88,000 Net loss...................... (42,283) (42,283) Translation adjustment........ $ 66,391 66,391 ADIC net income October 1993........................ 107,185 107,185 ---------- -------- -------- ---------- -------- ---------- Balance at October 31, 1994... 1,000 10 701,742 2,259,301 66,391 3,027,444 Net income.................... 292,406 292,406 Translation adjustment........ 66,928 66,928 ---------- -------- -------- ---------- -------- ---------- Balance at October 31, 1995... 1,000 10 701,742 2,551,707 133,319 3,386,778 Net income (unaudited)........ 1,008,278 1,008,278 Translation adjustment (unaudited)................. (77,353) (77,353) ---------- -------- -------- ---------- -------- ---------- Balance at April 30, 1996 (unaudited)................. 1,000 $ 10 $ 701,742 $3,559,985 $ 55,966 $4,317,703 ========== ======== ======== ========== ======== ==========
See the accompanying notes to these consolidated financial statements. F-5 65 ADVANCED DIGITAL INFORMATION CORPORATION (A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION) CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED APRIL 30, OCTOBER 31, APRIL 30, OCTOBER 31, SEPTEMBER 30, 1996 1995 1995 1994 1993 ---------- ----------- ----------- ----------- ------------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)....................... $ 1,008,278 $ 292,406 $ (25,125) $ (42,283) $ 1,284,558 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities............ Depreciation and amortization........ 268,891 483,739 204,585 331,153 164,139 Deferred taxes....................... -- (254,104) -- 84,491 (137,018) Assets retired....................... -- 2,156 2,156 (1,591) -- Change in assets and liabilities........ Accounts receivable.................. (3,557,306) (1,662,846) 308,143 (1,731,167) (690,928) Inventories.......................... (2,569,259) (2,563,452) (1,345,878) (151,951) (553,505) Prepaid expenses..................... (49,483) (39,788) 35,291 68,461 (122,215) Income taxes receivable.............. -- 161,344 161,344 (161,344) -- Other assets......................... (355,277) (59,474) (8,498) (15,958) 3,982 Accounts payable..................... 1,946,671 1,418,558 (402,082) 472,649 589,886 Accrued liabilities.................. 223,691 122,416 39,860 (111,775) (45,739) Income taxes payable................. 124,659 204,024 (24,901) (441,703) 364,486 ----------- ----------- ----------- ----------- --------- Net cash (used for) provided by operating activities.............................. (2,959,135) (1,895,021) (1,055,105) (1,701,018) 857,646 ----------- ----------- ----------- ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment............................ (487,188) (756,935) (200,154) (450,702) (284,103) Acquisition of ADIC Europe, net of cash acquired............................. -- -- -- (493,553) -- ----------- ----------- ----------- ----------- --------- Net cash used in investing activities..... (487,188) (756,935) (200,154) (944,255) (284,103) =========== =========== =========== =========== ========= CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt............ -- -- -- (778,999) (257,149) Net increase in intercompany loans...... 3,291,167 3,076,418 1,096,733 2,357,891 -- ----------- ----------- ----------- ----------- --------- Net cash provided by (used in) financing activities.............................. 3,291,167 3,076,418 1,096,733 1,578,892 (257,149) ----------- ----------- ----------- ----------- --------- Effect of exchange rate changes on cash... (27,312) 15,391 257 4,607 -- ----------- ----------- ----------- ----------- --------- Net (decrease) increase in cash........... (182,468) 439,853 (158,269) (1,061,774) 316,394 Cash at beginning of period............... 623,838 183,985 183,985 1,080,708 764,314 Adjustment to conform fiscal year of ADIC (see Note 1)............................ -- -- -- 165,051 -- ----------- ----------- ----------- ----------- --------- Cash at the end of the period............. $ 441,370 $ 623,838 $ 25,716 $ 183,985 $ 1,080,708 =========== =========== =========== =========== ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid (refunded) during the period for: Interest................................ $ 259,354 $ 277,451 $ 114,753 $ 142,027 $ 87,500 Income taxes............................ $ 500,000 $ (147,746) $ (105,023) $ 419,215 $ 80,515
See the accompanying notes to these consolidated financial statements. F-6 66 ADVANCED DIGITAL INFORMATION CORPORATION (A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Advanced Digital Information Corporation ("ADIC" or the "Company") designs, manufactures and markets 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. The Company sells its products on an international basis to original equipment manufacturers ("OEMs"), resellers and end users. On February 11, 1994, the Company was acquired by Interpoint Corporation ("Interpoint") pursuant to an Agreement and Plan of Merger dated October 29, 1993, in which the Company was merged into a wholly owned subsidiary of Interpoint. According 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 Interpoint common stock were issued to ADIC shareholders. The acquisition was accounted for as a pooling-of-interest in accordance with Accounting Principles Board Opinion No. 16 "Business Combinations." In order to conform ADIC's year end of September 30 to Interpoint's year end, ADIC's financial statements for the month of October 1993 are not included in the statements of operations or cash flows for either fiscal year 1993 or fiscal year 1994. ADIC's net income from October 1993 has increased retained earnings. Results of this month were as follows: Net sales........................................................ $1,826,744 Gross profit..................................................... 673,861 Income before provision for income taxes......................... 162,402 Net income....................................................... 107,185
The consolidated financial statements for all periods subsequent to September 30, 1993 reflect the results of operations, financial position, and cash flows of ADIC as a component of Interpoint and may not be indicative of actual results of operations and financial position of the Company under other ownership. As further described in Note 12, on June 17, 1994, the Company completed the purchase of substantially all of the assets and the liabilities of ADIC Europe SARL, formerly known as GigaTrend Europe SARL, a manufacturer and integrator of tape storage products for the computer network and workstation markets. The consolidated statements of operations reflect certain expense items incurred by Interpoint which are allocated to the Company on a basis which management believes represents a reasonable allocation of such costs to present ADIC as a stand-alone company. These allocations consist primarily of corporate expenses such as executive and other compensation and interest expense on intercompany borrowings. A summary of these allocations is as follows:
CORPORATE INTEREST PERIOD ENDED: EXPENSES EXPENSE --------------------------------------------------------------- --------- --------- April 30, 1996 (unaudited)..................................... $ 99,700 $ 260,167 ======== ======== October 31, 1995............................................... $ 175,400 $ 279,279 ======== ======== April 30, 1995 (unaudited)..................................... $ 87,700 $ 108,829 ======== ======== October 31, 1994............................................... $ 109,233 $ 77,915 ======== ========
2. DIVESTITURE OF ADIC On July 1, 1996, Interpoint announced its plan to divest itself of ADIC immediately preceding the sale of the remainder of its business to Crane Co., an unrelated company. The sale of Interpoint to Crane Co. is subject to approval by the shareholders of Interpoint at a special meeting, which is expected to take place in late September 1996. Significant terms of the divestiture include a distribution of one share of ADIC common F-7 67 ADVANCED DIGITAL INFORMATION CORPORATION (A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) stock for each share of Interpoint common stock held, forgiveness of the intercompany debt balance outstanding at the date of divestiture and infusion of working capital. As a result of the aforementioned divestiture, the Company believes that the following pro forma financial information is important to enable the reader to obtain a meaningful understanding of the Company's financial position and results of operations. The pro forma financial statements are for informational purposes only to illustrate the estimated effects of the spin-off of ADIC on a stand-alone basis and may not necessarily reflect the future results of operations of ADIC or what income or results of operations of ADIC would have been had ADIC operated as a separate, independent company. PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED YEAR ENDED APRIL 30, 1996 OCTOBER 31, 1995 ------------------------------------------- ------------------------------------------- HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ----------- ----------- ----------- ----------- ----------- ----------- Net sales...................... $24,385,580 $24,385,580 $31,716,372 $31,716,372 Cost of sales.................. 17,656,199 17,656,199 22,107,341 22,107,341 ----------- ----------- -------- -------- Gross profit................. 6,729,381 6,729,381 9,609,031 9,609,031 ----------- ----------- -------- -------- Operating expenses Selling and administrative... 4,298,575 $ 192,000(a) 4,490,575 8,001,290 $ 384,000(a) 8,385,290 Research and development..... 683,363 683,363 1,097,090 1,097,090 ----------- -------- ----------- -------- ----------- -------- 4,981,938 192,000 5,173,938 9,098,380 384,000 9,482,380 ----------- -------- ----------- -------- ----------- -------- Operating profit............... 1,747,443 (192,000) 1,555,443 510,651 (384,000) 126,651 ----------- -------- ----------- -------- ----------- -------- Other income (expense) Interest expense, net........ (259,354) 282,667(b) 23,313 (277,451) 324,278(b) 46,827 Foreign currency transaction gains (losses)............. 18,145 18,145 (18,476) (18,476) ----------- -------- ----------- -------- ----------- -------- (241,209) 282,667 41,458 (295,927) 324,278 28,351 ----------- -------- ----------- -------- ----------- -------- Income before (provision) benefit for income taxes..... 1,506,234 90,667 1,596,901 214,724 (59,722) 155,002 (Provision) benefit for income taxes........................ (497,956) (30,826)(c) (528,782) 77,682 20,305(c) 97,987 ----------- -------- ----------- -------- ----------- -------- Net income..................... $ 1,008,278 $ 59,841 $ 1,068,119 $ 292,406 $ (39,417) $ 252,989 =========== ======== =========== ======== =========== ======== Pro forma average number of common and common equivalent shares outstanding........... 8,074,000 8,074,000 8,010,000 8,010,000 =========== =========== ======== ======== Net income per share........... $ .12 $ .13 $ .04 $ .03 =========== =========== ======== ========
- --------------- (a) Reflects the additional estimated costs expected to be incurred by ADIC on a prospective basis, including the incremental costs associated with ADIC's status as a public company such as audit fees, directors' and officers' insurance, annual meetings, printing fees and directors' fees and additional executive salaries. A portion of such costs are included in the historical financial statements of ADIC. (b) Reflects the decrease in interest expense resulting from the forgiveness of the intercompany debt in connection with the divestiture and the increase in interest income earned on funds received in the divestiture from Interpoint for working capital purposes. (c) Records the estimated income tax effect of the pro forma adjustments described in footnotes (a) and (b). F-8 68 ADVANCED DIGITAL INFORMATION CORPORATION (A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The financial statements consolidate the accounts of ADIC and its wholly owned subsidiary ADIC Europe SARL ("ADE"). All intercompany transactions have been eliminated. Earnings per share Given the Company's historical capital structure as a wholly owned subsidiary of Interpoint and the changes therein to be effected by the spin-off of the Company from Interpoint, historical earnings per share amounts are not presented in the consolidated financial statements as they are not considered to be meaningful. Unaudited pro forma earnings per share As previously described, the Company will spin-off from Interpoint subject to a vote by the shareholders of Interpoint. It is anticipated that Interpoint shareholders will receive one share of ADIC common stock for each share of Interpoint stock held. Additionally, Interpoint stock options held by employees of ADIC that were granted while the individuals were employees of ADIC will be converted in part to cash and in part to ADIC stock options in connection with the spin-off. Unaudited pro forma earnings per share for the six months ended April 30, 1996 and for the year ended October 31, 1995 is calculated based on the number of shares of Interpoint stock outstanding at June 30, 1996, which reflects the Interpoint two-for-one stock split that became effective June 27, 1996, plus the incremental shares outstanding, as calculated under the treasury stock method, of the estimated number of ADIC stock options that will be outstanding as a result of the spin-off. 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. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Property, plant and equipment Property, plant and equipment is recorded at cost. Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the assets as follows: machinery and equipment, 3 to 10 years; office equipment, 3 to 10 years; leasehold improvements, the life of the lease. Income taxes Provision for income taxes has been recorded in accordance with Statements 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. For periods subsequent to September 30, 1993, the Company's operations have been included in consolidated income tax returns filed by Interpoint. Income taxes in the accompanying financial statements F-9 69 ADVANCED DIGITAL INFORMATION CORPORATION (A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) have been computed assuming the Company filed separate income tax returns worldwide. Deferred taxes result primarily from the use of accelerated depreciation for tax purposes and from the timing of tax deductions for allowances and accrued expenses. Foreign currency translations The financial statements of the foreign subsidiary have been translated into U.S. dollars in accordance with FASB Statement No. 52 "Foreign Currency Translation." Under the provisions of this Statement, all assets and liabilities in the balance sheets of 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. 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 in the financial statements in the ordinary course of business. The Company sells a significant portion of its products through third-party resellers and, as a result, experiences individually significant annual sales volumes with major distributors. Approximately $5,151,000 (16%) and $4,329,000 (14%) of the Company's fiscal 1995 revenues were from one customer and a second customer, respectively. The same two customers accounted for fiscal 1994 and 1993 revenues of $3,791,000 (19%) and $2,563,000 (13%), and $3,765,000 (22%) and $1,740,000 (10%), respectively. For the six-month periods ended June 30, 1996 and 1995 (unaudited), the same two customers accounted for revenues in the aggregate of $5,016,000 (21%) and $5,141,000 (21%), and $2,073,000 (17%) and $1,775,000 (14%), respectively. Revenue recognition Revenue from product sales is recorded by the Company when products are shipped to customers. Provision for sales returns is recorded for estimated products returned by customers. Interim results In the opinion of management, the interim financial statements and related data included herein present fairly the consolidated balance sheets, consolidated statements of operations, and consolidated statements of cash flows, as of and for the periods presented, and reflect all normal recurring adjustments which, in the opinion of management, are necessary for the fair presentation of the results for the interim periods. The interim results of operations are not necessarily indicative of results to be expected for a full year. The consolidated balance sheet at April 30, 1996 is unaudited as are the consolidated statements of operations and of cash flows for the six month periods ended April 30, 1996 and 1995. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-10 70 ADVANCED DIGITAL INFORMATION CORPORATION (A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Estimates that are particularly susceptible to significant change in the near term are the adequacy of the allowances for sales and warranty returns. 4. ACCOUNTS RECEIVABLE Accounts receivable consist of the following:
APRIL 30, OCTOBER 31, OCTOBER 31, 1996 1995 1994 ----------- ----------- ----------- (UNAUDITED) Trade receivables.............................. $ 9,451,898 $ 5,869,626 $ 4,187,156 Less-allowance................................. (95,474) (53,455) (54,008) ---------- ---------- ---------- $ 9,356,424 $ 5,816,171 $ 4,133,148 ========== ========== ==========
5. INVENTORIES Inventories are comprised of the following:
APRIL 30, OCTOBER 31, OCTOBER 31, 1996 1995 1994 ----------- ----------- ----------- (UNAUDITED) Finished goods................................. $ 3,548,754 $ 2,887,267 $ 1,871,890 Work-in-process................................ 1,283,657 885,397 252,671 Raw materials.................................. 3,632,109 1,883,020 786,929 ---------- ---------- ---------- 8,464,520 5,655,684 2,911,490 Allowance for inventory obsolescence........... (571,284) (271,753) (141,584) ---------- ---------- ---------- $ 7,893,236 $ 5,383,931 $ 2,769,906 ========== ========== ==========
6. ACCRUED LIABILITIES Accrued liabilities are comprised of:
APRIL 30, OCTOBER 31, OCTOBER 31, 1996 1995 1994 ----------- ----------- ----------- (UNAUDITED) Accrued payroll and related liabilities.......... $ 804,946 $ 631,420 $ 466,807 Allowance for warranty returns................... 107,736 74,454 206,210 Other............................................ 264,847 274,851 158,327 ---------- -------- -------- $ 1,177,529 $ 980,725 $ 831,344 ========== ======== ========
7. STOCK OPTIONS In conjunction with the merger of the Company with Interpoint in 1994, all options to purchase shares of the Company's common stock were converted to options to purchase shares of Interpoint common stock. As a result, there are no outstanding options to purchase common stock of the Company subsequent to the business combination. F-11 71 ADVANCED DIGITAL INFORMATION CORPORATION (A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OUTSTANDING OPTIONS PRICE ----------- --------- Balance at September 30, 1992................................. 142,000 $.41-1.40 Options reinstated.......................................... 2,000 .69 Options granted............................................. 75,000 2.53 -------- -------- Balance at September 30, 1993................................. 219,000 .41-2.53 Options canceled............................................ (2,500) 2.53 Options converted to Interpoint Corporation options......... (216,500) .41-2.53 -------- -------- Balance at October 31, 1994................................... 0 $ 0 ======== ========
8. FEDERAL INCOME TAXES Income before (provision) benefit for income taxes was taxed under the following jurisdictions:
OCTOBER 31, OCTOBER 31, SEPTEMBER 30, 1995 1994 1993 ----------- ----------- ------------- Current income tax: U.S. Federal...................................... $ (166,422) $ 188,832 $(445,001) State and local................................... (10,000) (5,000) -- --------- -------- --------- Total current..................................... (176,422) 183,832 (445,001) --------- -------- --------- Deferred income tax: U.S. Federal...................................... 97,456 (16,908) 137,018 Foreign........................................... 156,648 (67,583) -- --------- -------- --------- Total deferred.................................... 254,104 (84,491) 137,018 --------- -------- --------- Total (provision) benefit for income taxes.......... $ 77,682 $ 99,341 $(307,983) ========= ======== =========
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:
OCTOBER 31, OCTOBER 31, SEPTEMBER 30, 1995 1994 1993 ----------- ----------- ------------- Federal income tax at statutory rate of 34%......... $ (73,006) $ 48,152 $(541,464) Utilization of net operating loss carryforward/removal of valuation allowance....... 139,326 61,373 254,209 Tax credits......................................... 44,874 21,255 -- Non-deductible acquisition expenses................. -- (20,740) -- Activity of foreign subsidiaries.................... (17,848) -- -- State income taxes.................................. (10,000) (5,000) -- Other............................................... (5,664) (5,699) (20,728) -------- -------- --------- $ 77,682 $ 99,341 $(307,983) ======== ======== =========
F-12 72 ADVANCED DIGITAL INFORMATION CORPORATION (A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at October 31, 1995 and 1994 are:
OCTOBER 31, OCTOBER 31, 1995 1994 ----------- ----------- Deferred tax assets: Inventory.................................................. $ 188,326 $ 100,514 Team member benefits, primarily compensated absences....... 34,217 24,573 Net operating loss carryforwards........................... 97,114 140,000 Other...................................................... 50,986 63,933 -------- --------- Gross deferred tax assets............................... 370,643 329,020 Deferred tax assets valuation allowance.................... -- (140,000) -------- --------- Net deferred tax assets................................. 370,643 189,020 -------- --------- Deferred tax liabilities: Plant and equipment, excess of tax depreciation over book depreciation............................................ 4,977 4,977 Other...................................................... -- 75,122 -------- --------- Gross deferred tax liabilities.......................... 4,977 80,099 -------- --------- Net deferred tax asset.................................. $ 365,666 $ 108,921 ======== =========
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 asset 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 the Company's foreign subsidiary because the Company expects those earnings will be permanently reinvested. Net pretax operating results from the foreign subsidiary are losses of $51,000 for 1995 and income of $379,000 for 1994. 9. PROFIT INCENTIVE AND BONUS PLANS Beginning in fiscal 1995, the Company's employees participate in Interpoint's non-contributory profit incentive plan for key team members and a non-contributory profit sharing plan for all regular full-time domestic team members. These plans are generally based upon pre-tax profits. 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. The profit sharing plan provides that 15 percent of pretax profits will be contributed to the plan up to a maximum of one month's pay. Prior to 1995, ADIC team members had a separate plan based on certain ADIC financial performance criteria. Profit incentive and profit sharing expenses related to ADIC team members have been reflected in the accompanying ADIC stand-alone financial statements. Contributions to the plans were $123,000 and $70,000 for the years ended October 31, 1995 and 1993, respectively, and contributions for the six months ended April 30, 1996 and 1995 (unaudited) were $314,000 and $46,000, respectively. There were no contributions during the year ended October 31, 1994. 10. COMMITMENTS The Company leases production and operating facilities in Redmond, Washington. Sales offices are leased at various sites in the United States and Europe. F-13 73 ADVANCED DIGITAL INFORMATION CORPORATION (A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Minimum annual rental commitments at October 31, 1995, for noncancelable operating leases are as follows:
YEAR ENDED OCTOBER 31, AMOUNT -------------------------------------------------- -------- 1996........................................... $329,000 1997........................................... 411,000 1998........................................... 415,000 1999........................................... 422,000 2000........................................... 428,000
Rent expense aggregated $164,000 (unaudited) during the six months ended April 30, 1996, $253,000 in 1995, $258,000 in 1994, $116,000 (unaudited) during the six months ended April 30, 1995, and $139,000 in 1993. 11. GEOGRAPHIC SEGMENT INFORMATION Major operations outside the United States are comprised of a subsidiary in France. Certain information regarding operations in this geographic segment is presented in the table below. Transfers between geographic segments 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 ADE of $2,925,000 and $376,000 in 1995 and 1994, respectively. Included in U.S. sales are export sales to unaffiliated customers of $2,495,000, $2,006,000 and $2,332,000 in 1995, 1994 and 1993, respectively. Total international sales were $14,930,000, $5,508,000 and $2,332,000 in 1995, 1994 and 1993, respectively.
OCTOBER 31, OCTOBER 31, SEPTEMBER 30, 1995 1994 1993 ----------- ----------- ------------- Net sales: United States............................. $19,281,763 $16,581,272 $ 17,108,522 Europe.................................... 12,434,609 3,502,003 -- ----------- ----------- ----------- $31,716,372 $20,083,275 $ 17,108,522 =========== =========== =========== Operating profit: United States............................. 432,601 (428,280) 1,658,361 Europe.................................... 78,050 388,875 -- ----------- ----------- ----------- $ 510,651 $ (39,405) $ 1,658,361 =========== =========== =========== Identifiable assets: United States............................. 8,930,769 5,726,646 5,894,501 Europe.................................... 5,012,261 2,983,200 -- ----------- ----------- ----------- $13,943,030 $ 8,709,846 $ 5,894,501 =========== =========== ===========
12. ACQUISITION OF ADIC EUROPE SARL On June 17, 1994, the Company completed the acquisition of substantially all of the assets and the liabilities of ADE, formerly known as GigaTrend Europe SARL, a manufacturer and integrator of tape storage products for the computer network and workstation markets. The acquisition was accounted for by the F-14 74 ADVANCED DIGITAL INFORMATION CORPORATION (A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations" and, accordingly, the operating results from ADE product sales have been included in the consolidated operating results since the date of acquisition. The purchase price of the acquisition was $628,000 which was funded through a capital contribution and intercompany debt from Interpoint. The fair value of the net assets acquired approximated the purchase price and accordingly no goodwill was recorded. Net sales and operating results relating to ADE products for the period from June 17, 1994 through October 31, 1994 (post acquisition) amounted to $3,502,003 and $311,700, respectively. The following summary (unaudited), prepared on a pro forma basis, combines the consolidated results of operations for the year ended October 31, 1994 as if ADE had been acquired at November 1, 1993, after including the impact of certain adjustments. Net sales.................................. $ 22,833,000 Net loss................................... $ (435,000)
The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been in effect for the entire period presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might be achieved from consolidated operations. F-15 75 INDEX TO EXHIBITS
EXHIBIT SEQUENTIALLY NUMBER DESCRIPTION NUMBERED PAGE - ------ ----------------------------------------------------------------------- ------------- 2.1 Separation Agreement between ADIC and Interpoint Corporation, dated as of July , 1996*...................................................... 3.1 Restated Articles of Incorporation of ADIC*............................ 3.2 Restated Bylaws of ADIC*............................................... 4.1 Form of Common Stock Certificate*...................................... 4.2 Rights Agreement, dated as of July , 1996, between ADIC and First Interstate Bank of Washington, N.A., as Rights Agent*.................. 4.3 Certificate of Designation of Rights and Preferences of Series A Participating Cumulative Preferred Stock, incorporated by reference to Exhibit A to Exhibit 4.2*.............................................. 4.4 Form of Right Certificate, incorporated by reference to Exhibit B to Exhibit 4.2*........................................................... 10.1 Lease Agreement between K-M Properties and Advanced Digital Information Corporation, dated as of May 11, 1995 (incorporated by reference to Exhibit 10.3 of the Interpoint Corporation Annual Report on Form 10-K for the fiscal year ended October 31, 1995)............................ 10.2 Tax Allocation Agreement, dated as of July , 1996, between ADIC and Interpoint Corporation*................................................ 10.3 ADIC 1996 Stock Option Plan*........................................... 10.4 ADIC Transition Plan*.................................................. 21.1 Subsidiaries of the Registrant......................................... 27.1 Financial Data Schedule................................................
- --------------- * to be filed by amendment F-16 EX-21.1 2 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT ADIC Europe SARL, a French corporation EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS YEAR OCT-31-1996 OCT-31-1995 NOV-01-1995 NOV-01-1994 APR-30-1996 OCT-31-1995 441 624 0 0 9,452 5,870 95 53 7,893 5,384 18,274 12,371 2,879 2,411 1,480 1,234 20,377 13,943 7,358 5,122 0 0 0 0 0 0 1 1 4,318 3,387 20,377 13,943 24,386 31,716 24,386 31,716 17,657 22,107 22,639 31,205 (18) 19 0 0 259 277 1,506 215 498 (77) 1,008 292 0 0 0 0 0 0 1,008 292 0 0 0 0
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