<PAGE>
================================================================================
INFORMATION STATEMENT
================================================================================
As filed with the Securities and Exchange Commission on September 13, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATA TRANSLATION II, INC.
(Exact name of registrant as specified in its charter)
DELAWARE APPLIED FOR
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 LOCKE DRIVE
MARLBORO, MASSACHUSETTS 01752
(Address of principal executive offices) (Zip Code)
(508) 481-3700
(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:
Title of each class Name of each exchange on
to be so registered: which each class is to be registered:
Common Stock, par value $.01 per share The Nasdaq Stock Market
<PAGE>
INFORMATION STATEMENT
DATA TRANSLATION II, INC.
COMMON STOCK
(par value $0.01 per share)
This Information Statement is being furnished in connection with the
distribution (the "Distribution") by Data Translation, Inc. ("DTI") to holders
of record of shares of common stock of DTI, par value $.01 per share (the "DTI
Stock"), at the close of business on ____________, 1996 (the "Record Date"), of
one share of common stock, par value $.01 per share (the "Common Stock"), of a
newly formed Delaware corporation and wholly-owned subsidiary of DTI, initially
called Data Translation II, Inc. (the "Company") for each share of DTI Stock
owned on the Record Date. Simultaneously with the Distribution, DTI will change
its name to Media 100 Inc. and the Company will change its name to Data
Translation, Inc. As a result of the Distribution, 100% of the outstanding
shares of Common Stock will be distributed to holders of the DTI Stock on a pro
rata basis. The Company expects the Distribution to be effective on _____, 1996
(the "Distribution Date"). It is expected that certificates representing shares
of Common Stock will be mailed to DTI stockholders on or about _____, 1996.
As a result of certain transactions entered into in connection with the
Distribution, on and after the Distribution Date, the Company will own
substantially all of the businesses and assets of, and will be responsible for
substantially all of the liabilities associated with, DTI's data acquisition and
imaging, commercial products and networking distribution businesses, as more
fully described herein (the "Transferred Businesses").
No consideration will be paid by DTI's stockholders for the shares of
Common Stock. There is no current public trading market for the shares of Common
Stock, although it is expected that a "when-issued" trading market will develop
on or about the Record Date. The Company has applied for listing of the Common
Stock on the Nasdaq Stock Market ("Nasdaq") under the symbol "DATX."
---------------
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS DISTRIBUTION.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
---------------
The date of this Information Statement is _____, 1996.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY .......................................................................1
SUMMARY HISTORICAL FINANCIAL DATA .............................................3
INTRODUCTION ..................................................................4
THE DISTRIBUTION ..............................................................4
Background and Reasons for the Distribution ...............................4
Manner of Effecting the Distribution ......................................5
Federal Income Tax Aspects of the Distribution ............................5
Listing and Trading of the Common Stock ...................................6
SPECIAL FACTORS ...............................................................7
Competition ...............................................................7
Capital Requirements ......................................................7
Absence of History as an Independent Company ..............................8
Common Stock Dividend Policy ..............................................8
Certain Tax Considerations ................................................8
Relationship Between the Company and DTI; Conflicts of Interest ...........9
Listing and Trading of DTI Stock ..........................................9
Certain Provisions of the Company's Certificate of Incorporation
and By-laws ..............................................................9
Accounting Treatment .....................................................10
RELATIONSHIP BETWEEN THE COMPANY AND DTI AFTER THE DISTRIBUTION ..............10
Intercompany Agreements ..................................................10
Distribution Agreement .............................................10
Intellectual Property Agreement ....................................11
Use and Occupancy Agreements .......................................11
Corporate Services Agreement .......................................12
Board of Directors and Management ........................................12
PRO FORMA CAPITALIZATION OF THE COMPANY ......................................13
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY ............................14
Consolidated Statement of Operations Data ................................14
Consolidated Balance Sheet Data ..........................................14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY .......................15
General Overview .........................................................15
Forward Looking Statements ...............................................15
Discontinued Operations ..................................................15
Results of Operations ....................................................16
Comparison of Six Months Ended May 31, 1996 to May 31, 1995 ..............16
(i)
<PAGE>
Page
Comparison of Fiscal Year Ended November 30, 1995 to November 30, 1994 ...17
Comparison of Fiscal Year Ended November 30, 1994 to November 30, 1993 ...17
Liquidity and Capital Resources ..........................................18
BUSINESS OF THE COMPANY ......................................................19
Company Overview .........................................................19
Commercial Products ......................................................19
Market .............................................................19
Business Strategy ..................................................20
Product and Technology .............................................21
Customers and Sales ................................................22
Competition ........................................................22
Data Acquisition and Imaging .............................................22
Market .............................................................22
Business Strategy ..................................................23
Products and Services ..............................................23
Customers and Sales ................................................24
Competition ........................................................24
Research and Development .................................................24
Manufacturing ............................................................24
Proprietary Rights .......................................................25
Backlog ..................................................................25
Employees ................................................................26
Properties ...............................................................26
Legal Proceedings ........................................................26
MANAGEMENT OF THE COMPANY ....................................................27
Directors and Executive Officers .........................................27
Board of Directors and its Committees ....................................28
Board of Directors Compensation ..........................................29
Executive Compensation ...................................................29
Stock Options ............................................................29
Option Grants in Last Fiscal Year ........................................30
Option Exercises and Holdings ............................................30
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values .30
Compensation Committee Interlocks and Insider Participation ..............30
Company Stock Plans ......................................................31
Tax Aspects of the 1996 Plan Under the U.S. Internal Revenue Code ........32
Parachute Payments .......................................................33
Limitation on Company's Deductions .......................................34
TREATMENT OF EMPLOYEE OPTIONS IN THE DISTRIBUTION ............................34
CERTAIN RELATIONSHIPS AND TRANSACTIONS .......................................34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ...............36
(ii)
<PAGE>
Page
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK ...................................38
Authorized and Outstanding Capital Stock .................................38
Certain Provisions of the Company's Charter and By-laws ..................38
Statutory Business Combination Provision .................................40
Transfer Agent and Registrar .............................................40
INDEPENDENT PUBLIC ACCOUNTANTS ...............................................40
ADDITIONAL INFORMATION .......................................................41
(iii)
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement. Reference is made to, and this summary is qualified
by, the more detailed information set forth in this Information Statement, which
should be read in its entirety. Unless the context otherwise requires, (i)
references in this Information Statement to DTI and the Company shall include
DTI's and the Company's respective subsidiaries after the Distribution and (ii)
references in this Information Statement to the Company prior to the
Distribution Date shall refer to the Transferred Businesses as operated by DTI.
DISTRIBUTING CORPORATION: Data Translation, Inc. ("DTI"), which will change its
name to Media 100 Inc. simultaneously with the
Distribution.
DISTRIBUTED CORPORATION: Data Translation II, Inc., a newly formed Delaware
corporation to be renamed Data Translation, Inc.
simultaneously with the Distribution (the "Company")
which, as of the Distribution Date, will have
transferred to it substantially all of the businesses
and assets of, and will be responsible for
substantially all of the liabilities associated with,
DTI's data acquisition and imaging, commercial
products and networking distribution businesses, as
more fully described herein (the "Transferred
Businesses"). The Company intends to divest itself of
the networking distribution business either prior to,
or as soon as practicable after, the Distribution.
PRINCIPAL BUSINESS TO BE DTI will retain its digital media business,
RETAINED BY DTI: consisting of its Media 100/R/ product line (the
"Retained Business").
PRIMARY PURPOSE OF To separate the Transferred Businesses from the
THE DISTRIBUTION: Retained Business in order to (i) allow each company
to pursue strategies and investment opportunities
appropriate to its business and size; (ii) create
separate identities for each business in their
respective marketplaces, thereby enhancing the
competitive presence of each company; (iii) allow
management of each of the Company and DTI to
concentrate exclusively on their own businesses,
without regard for the policies and objectives of the
other company; (iv) allow implementation of more
effective equity incentive compensation plans through
the creation of separate publicly traded equity
securities that will be more closely linked to the
separate businesses of the two companies, thereby
enhancing the ability of both companies to attract,
retain, and motivate key personnel; and (v) allow
each of the Company and DTI to position themselves to
obtain lower cost, industry specific debt and equity
financing by presenting the financial community with
simpler, more coherent credit and investment
profiles.
SHARES TO BE DISTRIBUTED: Approximately _____ shares of Common Stock, based on
the shares of DTI Stock outstanding on _____, 1996.
The shares to be distributed will be equal to the
number of shares of DTI Stock outstanding on the
Record Date and will constitute 100% of the
outstanding shares of Common Stock of the Company on
the Distribution Date.
DISTRIBUTION RATIO: Each DTI stockholder will receive one share of Common
Stock for each share of DTI Stock held on the Record
Date.
LISTING AND TRADING The Company has applied for listing of the Common
MARKET: Stock on Nasdaq under the symbol "DATX."
RECORD DATE: Close of business on _____________, 1996.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION DATE: _____, 1996. As of the Distribution Date, the
transfer of substantially all of the assets and
liabilities of the Transferred Businesses from DTI to
the Company will become effective and the shares of
Common Stock to be distributed will be delivered to
the Distribution Agent for distribution to holders of
DTI Stock.
MAILING DATE: Certificates representing the shares of Common Stock
will be mailed to DTI stockholders on or about
_____, 1996.
DISTRIBUTION AGENT: Boston EquiServe, L.P. (the "Distribution Agent").
TAX CONSEQUENCES: See "THE DISTRIBUTION--Federal Income Tax Aspects of
the Distribution."
DIVIDEND POLICY: The Company currently intends to reinvest any
earnings in the Company to finance future growth.
Accordingly, the Board of Directors of the Company
does not anticipate paying any cash or other
dividends in the foreseeable future.
RELATIONSHIP WITH DTI Following the Distribution, the Company and DTI will
AFTER THE DISTRIBUTION: each be operated as an independent public company.
The Company and DTI will, however, continue to have a
relationship pursuant to certain agreements being
entered into between the Company and DTI in
connection with the Distribution regarding certain
shared services, use of leased space by DTI, certain
tax matters and other matters. See "RELATIONSHIP
BETWEEN THE COMPANY AND DTI AFTER THE DISTRIBUTION,"
and "MANAGEMENT OF THE COMPANY--Directors and
Executive Officers."
SPECIAL FACTORS: Stockholders should carefully consider the matters
discussed under the section entitled "SPECIAL
FACTORS" in this Information Statement.
2
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY HISTORICAL FINANCIAL DATA
The following summary historical financial data of the Company should be
read in conjunction with the Company's historical and pro forma financial
statements and the notes thereto included elsewhere in this Information
Statement. The following financial information relates to the Transferred
Businesses as they were operated as part of DTI and is derived from the
historical financial statements of the Company. The Company's historical
financial statements include an allocation of certain general corporate expenses
of DTI which were not directly related to the Transferred Businesses.
The summary historical financial data that relate to the three years in the
period ended November 30, 1995 have been derived from the historical financial
statements audited by Arthur Andersen LLP, independent public accountants. The
historical financial statements of the Company may not reflect the results of
operations or financial position that would have been obtained had the Company
been a separate, independent company during such periods.
Consolidated Statements of Operations Data(1):
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
Fiscal Years Ended November 30, May 31,
-------------------------------- -----------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales.......................... $23,733 $22,440 $21,826 $10,777 $10,757
Cost of sales...................... 9,412 9,355 8,187 4,039 3,921
Income from continuing operations.. 422 1,908 2,407 1,283 419
Discontinued operations(2)......... (126) 381 24 105 (334)
Net income (loss).................. $ (5) $ 1,553 $ 1,460 $ 874 $ (112)
Income from continuing operations
per share...................... $ 0.22 $ 0.03
Discontinued operations per share.. $ 0.00 $ (0.04)
Net income (loss) per share........ $ 0.22 $ (0.01)
Weighted average number of shares
outstanding.......... 6,701 7,915
<CAPTION>
Consolidated Balance Sheet Data:
(In thousands)
November 30, May 31, 1996
----------- ------------------------------
1995 Actual Pro Forma(3)
---- ------ ------------
<S> <C> <C> <C>
Cash............................... $ -- $ -- $ 10,000
Working capital.................... 1,655 2,836 12,836
Total assets....................... 9,337 10,007 20,007
Long-term debt..................... -- -- --
Total liabilities.................. 3,067 2,425 2,425
Total stockholder's investment..... 6,270 7,582 17,582(4)
</TABLE>
(1) Does not include incremental annual expenses of approximately $350,000
which the Company expects to incur as the result of being an independent
public company.
(2) Discontinued operations relates to the networking distribution business of
DTI prior to the Distribution which will be divested by the Company either
prior to, or as soon as practicable after, the Distribution.
(3) Adjusted to give effect to the deemed contribution of $10,000,000 from DTI
after August 31, 1996 and the distribution of the investment by DTI to the
existing stockholders of DTI in the form of a one for one stock dividend.
The actual amount of cash, which will be contributed simultaneously with
the Distribution, will depend on certain adjustments based on changes in
the working capital of the Transferred Businesses after August 31, 1996
as described in the Distribution Agreement.
(4) Does not include any tax considerations pertaining to the Distribution.
See "SPECIAL FACTORS--Certain Tax Considerations."
3
- --------------------------------------------------------------------------------
<PAGE>
INTRODUCTION
On _____, 1996, the Board of Directors of DTI (the "DTI Board") declared a
dividend payable to holders of record of DTI Stock at the close of business on
the Record Date of one share of Common Stock for each share of DTI Stock held on
the Record Date. The Company expects the Distribution to be effective on _____,
1996. Certificates representing the Common Stock will be mailed to DTI
stockholders on or about _____, 1996. As a result of the Distribution, 100% of
the outstanding shares of Common Stock will be distributed to DTI stockholders.
See "THE DISTRIBUTION--Manner of Effecting the Distribution."
The Company was formed in September, 1996 for the purpose of effecting the
Distribution. As of the Distribution Date, DTI will transfer to the Company
substantially all of the assets and liabilities of the Transferred Businesses.
Prior to the Distribution, DTI operated the Transferred Businesses as its data
acquisition and imaging, commercial products and networking distribution groups.
If you have any questions relating to the Distribution and delivery of
certificates representing shares of Common Stock of the Company, please contact
the Distribution Agent, Boston EquiServe, L.P., Investor Relations Department,
P.O. Box 644, Mail Stop 45-02-64, Boston, MA 02102-0644, Tel. No. (617) 575-
3100.
The Company's principal executive offices are located at 100 Locke Drive,
Marlboro, Massachusetts 01752-1192 and its telephone number is (508) 481-3700.
THE DISTRIBUTION
Background and Reasons for the Distribution
DTI has historically been a leader in the design, development and
manufacture of high performance digital media and data acquisition and imaging
products, as well as engaged in the distribution of networking products
manufactured by third parties. Each major market has been served by different
business groups which consist of units that focus on specific business niches
within those markets.
In April 1996, DTI received the approval of its stockholders at its annual
meeting of stockholders to transfer its digital media business to a newly-formed
Delaware corporation. At the time of the solicitation of proxies for the annual
meeting, the DTI Board believed that the structure proposed at that time would
be most suitable for the organization of its business units. Further analysis,
however, has since lead the DTI Board to determine that a transfer of its data
acquisition and imaging, commercial products and networking distribution groups
to a new subsidiary and the subsequent distribution of such subsidiary's stock
to DTI's stockholders would be a more advantageous structure for separating the
businesses. The DTI Board has, therefore, restructured the proposed separation
of its business units in the form described herein. In order to effect the
Distribution, DTI recently formed the Company, a Delaware corporation and
wholly-owned subsidiary, to which it will transfer its data acquisition and
imaging, commercial products and networking distribution business groups on the
Distribution Date .
The DTI Board believes that the Distribution will: (i) allow each company
to pursue strategies and investment opportunities appropriate to its business
and size; (ii) create separate identities for each business in their respective
marketplaces, thereby enhancing the competitive presence of each company; (iii)
allow management of each of the Company and DTI to concentrate exclusively on
their own businesses, without regard for the policies and objectives of the
other company; (iv) allow implementation of more effective equity incentive
compensation plans through the creation of separate publicly traded equity
securities that will be more closely linked to the separate businesses of the
two companies, thereby enhancing the ability of both companies to attract,
retain, and motivate key personnel; and (v) allow each of the Company and DTI to
position themselves to obtain lower cost, industry specific debt and equity
financing by presenting the financial community with simpler, more coherent
credit and investment profiles.
4
<PAGE>
Manner of Effecting the Distribution
The general terms and conditions relating to the Distribution are set forth
in the Distribution Agreement between DTI and the Company (the "Distribution
Agreement"). See "RELATIONSHIP BETWEEN THE COMPANY AND DTI AFTER THE
DISTRIBUTION--Intercompany Agreements--Distribution Agreement."
On the Distribution Date, all of the shares of Common Stock will be
delivered by DTI to the Distribution Agent. As soon as practicable thereafter,
certificates representing shares of Common Stock will be mailed by the
Distribution Agent to holders of record of DTI Stock as of the Record Date on
the basis of one share of Common Stock for each share of DTI Stock held on that
date. The actual number of shares of Common Stock to be distributed with respect
to each outstanding share of DTI Stock will depend upon the number of shares of
DTI Stock outstanding on the Record Date. In any event, 100% of the shares of
Common Stock will be distributed in the Distribution. No holder of DTI Stock
will be required to pay any cash or other consideration for the shares of Common
Stock received in the Distribution or to surrender or exchange shares of DTI
Stock in order to receive shares of Common Stock. All such shares of Common
Stock will be fully paid and nonassessable and the holders thereof will not be
entitled to any preemptive rights. See "DESCRIPTION OF COMPANY CAPITAL STOCK."
Simultaneously with the Distribution, DTI intends to merge its wholly-owned
subsidiary, Media 100 Inc., a Delaware corporation, into DTI in accordance with
Section 253 of the General Corporation Law of the State of Delaware, and as a
result of such merger, the name of DTI shall be changed to "Media 100 Inc."
The Company will also change its name by filing an amendment to its Certificate
of Incorporation changing its name to "Data Translation, Inc."
Federal Income Tax Aspects of the Distribution
DTI has not requested and does not intend to request a letter ruling from
the Internal Revenue Service (the "IRS"), nor has DTI received an opinion of
counsel on the tax treatment of the Distribution. Further, the Distribution is
not conditioned on the receipt of either a letter ruling from the IRS or an
opinion of counsel that the Distribution qualifies as a tax-free distribution.
The tax treatment of the Distribution is not entirely clear. The
Distribution does not appear to satisfy the IRS' published guidelines for
issuing advance letter rulings on the tax-free treatment of spin-off
transactions. However, based on the law in effect as of the date of this
Information Statement and certain facts beyond the control of the Company and
DTI assumed to be true at the time of the distribution, DTI believes
that the Distribution may qualify as a tax-free distribution under Section 355
of the Internal Revenue Code of 1986, as amended (the "Code"), in which case (i)
the DTI stockholders would not recognize income, gain or loss upon the receipt
of shares of Common Stock; (ii) the aggregate tax basis of the shares of DTI
Stock and Common Stock held by the DTI stockholders immediately after the
Distribution would be the same as the tax basis of the shares of DTI Stock held
by the DTI stockholders immediately before the Distribution, allocated in
proportion to the fair market value of each security immediately after the
Distribution; (iii) the holding period of the shares of Common Stock received by
the DTI stockholders would include the holding period of the shares of DTI Stock
with respect to which the Distribution is made, provided that the shares of DTI
Stock are held as a capital asset on the date of the Distribution; and (iv) no
gain or loss would be recognized by DTI on the Distribution.
The tax-free consequences described above depend on, among other
conditions, there not being sales or other dispositions of Common Stock or DTI
Stock (before or after the Distribution) that would violate the continuity of
interest or anti-device requirements under Section 355 of the Code. If any of
these or other requirements for tax-free treatment is not satisfied, or if the
IRS should successfully assert for any other reason that the Distribution does
not qualify as a tax-free distribution under Section 355(a) of the Code, then
(i) DTI would be required to recognize gain, if any, equal to the excess of the
fair market value of the Common Stock immediately after the Distribution over
DTI's tax basis in that Common Stock; and (ii) each DTI stockholder receiving
shares of Common Stock in the Distribution would be treated as though each
stockholder had received a taxable distribution in an amount equal to the fair
market value of Common Stock received, which would result in (a) a dividend to
the extent of such stockholder's pro rata share of DTI's current and accumulated
5
<PAGE>
earnings and profits, (b) a reduction in such stockholder's basis in such
holder's shares of DTI Stock to the extent that the amount received exceeds such
stockholder's share of earnings and profits, (c) a gain from the deemed sale or
exchange of such shares of DTI Stock and (d) the tax basis of the Common Stock
received in the Distribution would be equal to its fair market value on the date
of the Distribution and a new holding period for the Common Stock would commence
on the day following such date.
In addition, the tax-free consequences to DTI depend on there being no
person (or group of persons subject to the aggregation rules of Section
355(d)(7), (8) or (9) of the Code) who holds a 50-percent interest in the stock
of DTI or the Company that was acquired by purchase (within the meaning of
Section 355(d)(5) of the Code) within the five-year period ending on the date of
the Distribution. Under the consolidated tax return rules of the Code, each
member of DTI's consolidated group (including the Company) would be severally
liable for any tax liability of DTI arising as a result of the Distribution
failing to qualify for tax-free treatment under Section 355 of the Code. For a
description of the tax sharing arrangement entered into between the Company and
DTI in connection with the Distribution, see "RELATIONSHIP BETWEEN THE COMPANY
AND DTI AFTER THE DISTRIBUTION--Intercompany Agreements--Distribution
Agreement."
THE SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS
BASED ON THE CODE, THE REGULATIONS PROMULGATED THEREUNDER BY THE TREASURY
DEPARTMENT AND THE INTERPRETATIONS OF THE CODE AND REGULATIONS BY THE COURTS AND
THE IRS, ALL AS THEY EXIST AS OF THE DATE OF THIS INFORMATION STATEMENT. THE
SUMMARY DOES NOT DISCUSS ALL TAX ASPECTS OF THE DISTRIBUTION THAT MAY BE
RELEVANT TO DTI STOCKHOLDERS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, NOR
DOES IT ADDRESS THE CONSEQUENCES TO CERTAIN DTI STOCKHOLDERS SUBJECT TO SPECIAL
TREATMENT UNDER THE UNITED STATES FEDERAL INCOME TAX LAWS (SUCH AS NON-RESIDENT
ALIEN INDIVIDUALS AND FOREIGN CORPORATIONS). ALSO THE SUMMARY DOES NOT ADDRESS
ANY STATE, LOCAL OR FOREIGN TAX CONSEQUENCES. DTI STOCKHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE
DISTRIBUTION, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS AND
ANY CHANGES IN FEDERAL TAX LAWS WHICH OCCUR AFTER THE DATE OF THIS INFORMATION
STATEMENT.
Listing and Trading of the Common Stock
Under existing Nasdaq requirements, DTI will make a public announcement of
the special dividend to effect the Distribution at least 10 calendar days prior
to the Record Date.
The Company has applied for listing of the Common Stock on Nasdaq under the
symbol "DATX." The shares of DTI common stock, par value $.01 per share (the
"DTI Stock"), will trade on Nasdaq after the Distribution Date under the symbol
"MDEA." Initially the Company is expected to have approximately 247 holders of
record, based on the number of stockholders of record of DTI as of August 31,
1996.
A "when-issued" trading market is expected to develop on or about the
Record Date. The term "when-issued" means that shares can be traded prior to the
time certificates are actually available or issued. Prices at which the shares
of Common Stock may trade, on a "when-issued" basis or after the Distribution,
cannot be predicted. See "SPECIAL FACTORS--Absence of Prior Trading Market for
the Common Stock."
The shares of Common Stock distributed to DTI stockholders will be freely
transferable, except for shares of Common Stock received by persons who may be
deemed to be "affiliates" of the Company under the Securities Act of 1933 as
amended (the "Securities Act"). Persons who may be deemed to be affiliates of
the Company after the Distribution generally include individuals or entities
that control, are controlled by, or are under common control with the Company
and may include the directors and principal executive officers of the Company as
well as any principal stockholder of the Company. Persons who are affiliates of
the Company will be permitted to sell their shares of Common Stock only pursuant
to an effective registration statement under the Securities Act or an exemption
from the registration requirements of the Securities Act, such as the exemptions
afforded by Section 4(2) of the Securities Act and Rule 144 thereunder.
6
<PAGE>
SPECIAL FACTORS
Future Prospects; Dependence on New Product; No Assurance of Profitability
Substantially all of the Company's current revenues and operating profits
are derived from its data acquisition and imaging group. During the Company's
last five completed fiscal years, revenues from this group declined an aggregate
of $3.8 million, or 14.9%. There can be no assurance that such revenues will not
continue to decline, or that any such decline would not have a material adverse
effect on the Company's financial condition and results of operations.
The Company's future operating results depend in large part on the success
of the Company's new video capture and encoding product called Broadway/TM/. DTI
began shipping Broadway at the end of June 1996. There can be no assurance that
Broadway will gain the wide market acceptance and generate the significant
revenues necessary for the Company to remain profitable. The failure of Broadway
to generate such revenues for the Company would have a material adverse effect
on the Company's business, financial condition and results of operations.
Further, the Company expects to be required to reduce the price of Broadway
periodically in order to maintain unit sales levels as a result of competition
and reductions in the cost of technology generally. There can be no assurance
that such price reductions will not cause declines in the Company's revenues and
that any such revenue declines will not cause the Company to become
unprofitable.
In addition, the Company anticipates continuing to invest a significant
amount of its resources on research and development for Broadway and other new
products. The Company also expects increases in certain other operating expenses
relating to the marketing and selling of Broadway and other new products. Such
expenses could cause the Company to become unprofitable, and there can be no
assurance as to when the Company would return to profitability, if at all.
Competition
The markets for the Company's data acquisition and imaging and externally-
sourced networking products are highly competitive. The Company competes in the
data acquisition market principally with National Instruments Corporation,
Computer Boards, Inc. and Keithley Instruments, Inc. and in the imaging market
with Matrox and Imaging Technology Inc., some of which have substantially
greater financial, technical or marketing resources than the Company. The
Company also competes with a number of smaller competitors in each of these
markets. The data acquisition and imaging markets and the Company's share of
such markets have been adversely affected in recent years by reduced government
funding of research, increased competition and lower levels of corporate capital
expenditures. There can be no assurance that such markets will grow in the
future or that the Company can maintain its position in such markets.
In the commercial products area, the Company currently competes with Sigma
Design's Real Magic Producer/R/ and Darim Corporation's hardware encoding
product, MPEGator/R/ as well as a number of other competitors whose products are
based on platforms and video standards other than those used by the Company.
There can be no assurance that customers in the markets for the Company's
products will not prefer products offered by the Company's competitors to those
currently offered by the Company, or that the Company's competitors will not
adapt more quickly than the Company to new technologies or evolving customer
requirements. There also can be no assurance that companies with greater
financial, technical or marketing resources who do not currently compete with
the Company will not develop products in the future to compete with products
offered by the Company.
Capital Requirements
Following the Distribution, the Company will be responsible for obtaining
its own financing. The Company expects to be required to obtain such financing
from time to time due, in particular, to expected increases in research and
development and other operating expenses. The Company believes that historically
DTI was successfully able to raise equity financing in the public markets due to
investors' belief in the future
7
<PAGE>
prospects of DTI's Media 100 product line. No assurance can be given that the
Company will be able to obtain either debt or equity financing on terms
acceptable to the Company, or at all.
Absence of History as an Independent Company
The Company was formed for the purpose of effecting the Distribution and
does not have an operating history as an independent company. Accordingly, the
financial statements included herein may not necessarily reflect the results of
operations, financial position and cash flows of the Transferred Businesses had
the Company been operated independently during the periods presented. See
Historical Financial Information.
Dependence on Proprietary Technology
The Company's success is heavily dependent upon its proprietary technology.
The Company relies principally upon patent, trademark, copyright and trade
secret protection to protect its proprietary technology. There can be no
assurance such measures are adequate to protect the Company's proprietary
technology or that third parties will not assert infringement claims in the
future or that such claims will not be successful. See "BUSINESS OF THE
COMPANY--Proprietary Rights" and "RELATIONSHIP BETWEEN THE COMPANY AND DTI AFTER
THE DISTRIBUTION--Intercompany Agreements--Intellectual Property Agreement."
Absence of Prior Trading Market for the Common Stock
There has not been any established public market for the trading of the
Company's Common Stock, although it is expected that a "when-issued" trading
market will develop on or about the Record Date. The Company has applied for
listing of the Common Stock on Nasdaq. There can be no assurance, however, that
a liquid trading market for the Common Stock will develop, or that listing of
the Common Stock on Nasdaq will be maintained. There also can be no assurance as
to the prices at which the Common Stock will trade before or after the
Distribution Date. Until the Common Stock is fully distributed and an orderly
market develops, the prices at which shares trade may fluctuate significantly.
Prices for shares of Common Stock will be determined in the marketplace and may
be influenced by many factors other than the financial performance and prospects
of the Company, 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.
Common Stock Dividend Policy
Consistent with DTI's historical policy, the Company currently intends to
reinvest any earnings to finance future growth. Accordingly, the Board of
Directors of the Company does not anticipate paying any cash or other dividends
in the foreseeable future.
Certain Tax Considerations
Based on the law in effect as of the date of this Information Statement and
on certain facts beyond the control of the Company and DTI assumed to be true at
the time of the Distribution, DTI believes that the Distribution may qualify as
a tax-free distribution under Section 355 of the Code. However, there is a
significant risk that the Distribution may not qualify as a tax-free
distribution. DTI has not requested and does not intend to request a letter
ruling from the IRS nor has DTI received an opinion of counsel on the tax
treatment of the Distribution. Further, the tax treatment of the Distribution is
not entirely clear. The Distribution does not appear to satisfy the IRS'
published guidelines for issuing advance letter rulings on the tax-free
treatment of spin-off transactions. The Distribution is not conditioned on
either the receipt of a letter ruling from the IRS or an opinion of counsel that
the Distribution qualifies as a tax-free distribution. If the Distribution were
to fail to qualify for such tax-free treatment, the Distribution may be taxable
to DTI and would be taxable to its stockholders receiving Company Stock pursuant
thereto. See "THE DISTRIBUTION--Federal Income Tax Aspects of the Distribution."
8
<PAGE>
Relationship Between the Company and DTI; Conflicts of Interest
Conflicts of interest may arise between the Company and DTI in a number of
areas relating to their past and ongoing relationships, including potential
competitive business activities, international marketing functions, tax and
employee benefit matters and indemnity arrangements. Several of the current
executive officers of the Company are former executive officers of DTI. In
addition, the Chief Executive Officer and Chairman of the Board of the Company
will continue to serve on the Board of Directors of DTI, and his son will be the
Chief Executive Officer and a director of DTI. These relationships may create
conflicts of interest with respect to matters potentially or actually involving
or affecting the Company and DTI. Further, although neither the Company nor DTI
presently intends to engage in the business currently conducted by the other,
neither company is contractually obligated not to do so. Moreover, following the
Distribution, each company will be cross-licensed to use the technology of the
other. See "RELATIONSHIP OF THE COMPANY AND DTI AFTER THE DISTRIBUTION."
Following the Distribution, the Company expects that certain of its
products will continue to be distributed by value added resellers who will also
continue to distribute products for DTI. Conflicts of interest may arise with
respect to such distributors, in particular if an exclusive relationship should
become desirable for one party or the other.
Ability to Attract Qualified Personnel
The businesses of each of the Company and DTI are dependent upon each
company's ability to attract and retain highly qualified managerial, technical
and sales personnel. Competition for such personnel is intense, and following
the Distribution the Company and DTI may compete with each other as well as
third parties for such personnel. There can be no assurance regarding the impact
of the Distribution on the ability of each of the Company and DTI to retain its
key managerial, technical and sales personnel or to attract, assimilate or
retain such personnel in the future. The inability of either company to attract
and retain such personnel could have a material adverse effect on the business,
results of operations and financial condition of such company.
Listing and Trading of DTI Stock
It is expected that the DTI Stock will continue to be listed and traded on
Nasdaq after the Distribution. Following the Distribution, the Company's
financial results will no longer be consolidated with those of DTI, and DTI's
assets and revenues will be substantially lower than prior to the Distribution.
Accordingly, as a result of the Distribution, the trading price range of the DTI
Stock immediately after the Distribution may be significantly lower than the
trading price range of the DTI Stock prior to the Distribution. The combined
trading prices of the DTI Stock and the Common Stock after the Distribution may
be less than, equal to or greater than the trading price of the DTI Stock prior
to the Distribution. The prices at which the DTI Stock trades after the
Distribution will be determined by the marketplace and may be influenced by many
factors, other than the financial performance and prospects of the Company,
including the continuing depth and liquidity of the market for the DTI Stock,
investor perception of DTI's remaining businesses, dividend policy and general
economic and market conditions.
Certain Provisions of the Company's Certificate of Incorporation and By-laws
The Company's Certificate of Incorporation and By-laws as of the
Distribution Date and applicable law contain provisions that may have the effect
of delaying, deterring or preventing a change in control of the Company. In
addition, the Company's Certificate of Incorporation authorizes the issuance of
up to 30,000,000 shares of Common Stock and 5,000,000 shares of preferred stock
(the "Preferred Stock"). The Company's Board has the authority to determine the
price and terms under which any such additional capital stock may be issued and
to fix the terms of the Preferred Stock and stockholders of the Company do not
have preemptive rights with respect thereto. See "PURPOSES AND EFFECTS OF
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS--Certain
Charter and By-law Anti-Takeover and Other Provisions."
9
<PAGE>
Accounting Treatment
Effective with its quarterly financial statements with respect to its
fiscal quarter ended August 31, 1996, DTI will present the business of the
Company and its subsidiaries as a discontinued operation to the extent financial
information for periods prior to the Distribution is required to be included in
DTI's historical financial statements.
RELATIONSHIP BETWEEN THE COMPANY
AND DTI AFTER THE DISTRIBUTION
For purposes of an orderly transfer on the Distribution Date of the
Transferred Businesses to the Company and an orderly transition to the status of
two separate independent companies, the Company and DTI have entered or will
enter into various agreements and relationships, including those described in
this section. The forms of agreements summarized in this section are included as
exhibits to the Company's registration statement on Form 10 (the "Registration
Statement"), as filed with the Securities and Exchange Commission (the
"Commission") of which this Information Statement forms a part, and the
following summaries are qualified in their entirety by reference to the
agreements as filed.
Intercompany Agreements
Distribution Agreement
On or prior to the Distribution Date, the Company and DTI will enter into a
Distribution Agreement, which provides for, among other things, the principal
corporate transactions required to effect the Distribution, the contribution to
the Company of the Transferred Businesses and the assumption by the Company of
related liabilities, the contribution to the Company simultaneously with the
Distribution of an amount in cash and cash equivalents for use in the Company's
business equal to $10 million increased or decreased based on the results of
operations of the Transferred Businesses after August 31, 1996, plus the net
proceeds of any sale prior to the Distribution of the networking distribution
business, and certain other arrangements between DTI and the Company related to
the Distribution.
The Distribution Agreement will provide for indemnification of DTI by the
Company in a manner designed to place financial responsibility with the Company
for specified liabilities arising out of the Transferred Businesses, including
such liabilities prior to the Distribution. DTI will indemnify the Company for
liabilities arising out of the Retained Business both prior to and after the
Distribution.
The Distribution Agreement will contain certain provisions relating to
employee compensation and benefits and the treatment of options to purchase DTI
Stock held by both employees of DTI who will become employees of the Company and
employees of DTI who will remain employees of DTI. The Distribution Agreement
will provide for the establishment by the Company of a stock option plan, an
employee stock purchase plan and retirement and savings plan similar to those
maintained by DTI, and the transfer of certain assets and liabilities relating
to the Company's employees from the DTI plans to the Company's plans. The
Distribution Agreement also will provide for the establishment by the Company of
employee welfare plans similar to those maintained by DTI.
The Distribution Agreement also will provide for a tax sharing arrangement
between the Company and DTI. Pursuant to such agreement, DTI will be solely
responsible for any tax liabilities relating to periods prior to the
Distribution Date, and is entitled to any tax refunds relating to such periods.
After the Distribution Date, each of the Company and DTI will be responsible for
tax liabilities relating to their respective operations.
With respect to any liability relating to the Distribution being deemed a
taxable transaction, DTI will be responsible for 75% of any such liability and
the Company will be responsible for 25% of any such liability; provided,
however, that if the Distribution is deemed a taxable transaction as a result of
certain actions taken, caused by or within the control of either DTI or the
Company, such party shall be solely responsible for the resulting tax liability.
10
<PAGE>
The Distribution Agreement will further provide that each of the Company
and DTI shall be granted access to certain records and information in the
possession of the other and, subject to certain exceptions, requires the
retention by each of the Company and DTI of all such information in its
possession in accordance with its record retention program. The Distribution
Agreement will also provide that DTI will bear all expenses incurred by the
Company and DTI in connection with the Distribution. It is expected that such
expenses will be approximately $1.8 million.
Intellectual Property Agreement
On or prior to the Distribution Date, the Company and DTI will enter into
an Intellectual Property Agreement, pursuant to which DTI will assign to the
Company those trademarks, trade secrets, know-how, patents and patent
applications that are used exclusively or primarily in the Transferred
Businesses. DTI will retain the trademarks, trade secrets, know-how, patents and
patent applications that are used exclusively or primarily in the Retained
Business.
The Intellectual Property Agreement will further provide for royalty-free
perpetual cross-licenses to each of DTI and the Company, as the case may be, for
all technologies covered by existing patents and patent applications held by DTI
and the Company, respectively. The parties will also cross-license to each other
technologies under patents issued pursuant to applications made in the two year
period following the Distribution. The parties may not sell or sublicense
technology to which they are the licensee; rather they may only use such
technology in their own products. The cross-licensed technology may only be
transferred by the licensee in connection with a sale of the licensee's business
as a going concern. The cross-licenses provide for termination upon certain
changes in control with respect to patents issued pursuant to applications made
after August 31, 1996.
The parties will also cross-license each other under trade secrets and
know-how. Like the patent cross-licenses, these licenses will be royalty-free
and only transferable in the event of a sale of the business as a going concern.
All employees of each company will sign non-disclosure agreements which
acknowledge non-disclosure obligations with respect to the other company.
Use and Occupancy Agreements
On or prior to the Distribution Date, the Company and DTI will enter into
various use and occupancy agreements (the "Use and Occupancy Agreements") with
respect to use by DTI following the Distribution of facilities leased by the
Company. The Company will grant to DTI a license to use a portion of the
Company's facility in Marlboro, Massachusetts to enable DTI to conduct
operations at such facility. See "BUSINESS OF THE COMPANY--Properties." DTI will
pay the Company a monthly license fee for the use of such facility. It is
expected that the license agreement shall remain in effect until December 31,
1997, or an earlier date mutually agreed upon by the Company and DTI.
In addition, pursuant to such Use and Occupancy Agreements, the Company
shall also grant to DTI a license to use a portion of the Company's facilities
in Wokingham, Berkshire, England and in Bietigheim-Bissingen, Germany. See
"BUSINESS OF THE COMPANY--Properties." It is expected that these license
agreements shall remain in effect until December 31, 1997, or an earlier date
mutually agreed upon by the Company and DTI.
DTI has indicated that in each case, it intends to find a new space for its
operations prior to the expiration of the agreements.
11
<PAGE>
Corporate Services Agreement
On or prior to the Distribution Date, the Company and DTI will enter into a
Corporate Services Agreement pursuant to which each company has agreed to
provide the other company with certain corporate services. The Company will
provide DTI with accounting and finance, information systems and support,
computer aided design, manufacturing engineering, receiving and incoming
inspection, mail distribution, shipping and invoicing, purchasing, document
control, production planning and manufacturing management and supervisory
services. DTI also will pay the Company for the use of certain equipment. The
amount that DTI shall pay for such services will be based upon the particular
service. DTI may terminate such service upon 30 days prior written notice to the
party providing such service. The Company may terminate such service upon 30
days notice to DTI if it no longer provides such service to its own
organization. The Corporate Services Agreement shall terminate upon the earlier
of the discontinuance or termination of all services thereunder or December 31,
1997.
Board of Directors and Management
Alfred A. Molinari, who will serve as Chairman of the Board of Directors
and Chief Executive Officer of the Company, will also continue to serve on the
Board of Directors of DTI. See "MANAGEMENT OF THE COMPANY." Mr. Molinari's son,
John A. Molinari, will serve as a director and Chief Executive Officer of DTI.
Alfred A. Molinari and members of his family, including John A. Molinari, who
hold a significant number of shares of DTI Stock will also own a significant
number of shares of Common Stock following the Distribution. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." These relationships may
give rise to potential conflicts of interest should the interests of the Company
and DTI be different. See "SPECIAL FACTORS--Relationship Between the Company and
DTI; Conflicts of Interest."
12
<PAGE>
PRO FORMA CAPITALIZATION OF THE COMPANY
The following table sets forth the unaudited pro forma capitalization of
the Company at May 31, 1996. This data should be read in conjunction with the
pro forma balance sheet and the introduction to the pro forma financial
statements 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
May 31, 1996. In addition, it does not include any tax considerations pertaining
to the Distribution. See "SPECIAL FACTORS--Certain Tax Considerations."
Assumptions regarding the number of shares of the Company's Common Stock may not
reflect the actual numbers on the Distribution Date. See Consolidated Financial
Statements and the notes thereto.
<TABLE>
<CAPTION>
May 31, 1996
---------------------------
Historical Pro Forma
---------- ---------
<S> <C> <C>
Long-term debt................................... $ -- $ --
Stockholder's investment:
Investment by DTI.............................. 7,318,000 --
Preferred Stock, $.01 par value per share,
5,000,000 shares authorized,
none issued.................................. -- --
Common Stock, $.01 par value per share,
30,000,000 shares authorized,
8,043,205 shares issued as adjusted.......... -- 80,000
Additional paid-in capital..................... -- 17,238,000
Cumulative translation adjustment.............. 264,000 264,000
----------- -----------
Total Stockholder's Investment................... 7,582,000 17,582,000
----------- -----------
Total Capitalization......................... $ 7,582,000 $17,582,000
=========== ===========
</TABLE>
13
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY
The following data has been derived from the Company's consolidated
financial statements which have been audited by Arthur Andersen LLP, independent
public accountants, as of and for the fiscal years in the five year period ended
November 30, 1995. The data as of May 31, 1996 and for the six month periods
ended May 31, 1995 and 1996 are derived from the Company's Unaudited
Consolidated Financial Statements that are included elsewhere in this
information statement and include, in the opinion of management, all adjustments
consisting only of normal recurring adjustments necessary for a fair
presentation of this information. The data should be read in conjunction with
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY" and the Consolidated Financial Statements and the
notes thereto and other financial information included elsewhere in this
Information Statement.
This selected historical financial data relates to the Transferred
Businesses as they were operated as part of DTI. They also include an allocation
of certain general corporate expenses of DTI which were not directly related to
these businesses. The historical financial data of the Company may not reflect
the results of operations or financial position that would have been obtained
had the Company been a separate, independent company. The results of operations
for the six month period ended May 31, 1996 should not necessarily be taken as
indicative of the results of operations that may be expected for the entire year
1996.
Consolidated Statements of Operations Data(1):
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended November 30, Six Months Ended May 31,
--------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................................... $25,647 $24,775 $23,733 $22,440 $21,826 $10,777 $10,757
Cost of sales...................................... 10,627 9,793 9,412 9,355 8,187 4,039 3,921
------- ------- ------- ------- ------- ------- -------
Gross profit.................................... 15,020 14,982 14,321 13,085 13,639 6,738 6,836
Research and development expenses.................. 4,114 3,820 3,165 3,041 2,806 1,346 1,703
Selling and marketing expenses..................... 8,348 8,681 8,154 6,212 6,799 3,374 3,832
General and administrative expenses................ 3,178 2,948 2,580 1,924 1,627 735 882
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations................... (620) (467) 422 1,908 2,407 1,283 419
Interest expense, net.............................. (20) (10) (16) (1) (7) (3) --
Other income (expense)............................. (127) (23) (210) 63 2 1 (50)
------- ------- ------- ------- ------- ------- -------
Income (loss) from continuing operations before
provision for income taxes...................... (767) (500) 196 1,970 2,402 1,281 369
Provision for income taxes......................... -- -- 75 798 966 512 147
------- ------- ------- ------- ------- ------- -------
Income (loss) from continuing operations........ (767) (500) 121 1,172 1,436 769 222
Discontinued operations(2)......................... (455) (142) (126) 381 24 105 (334)
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................... $(1,222) $ (642) $ (5) $ 1,553 $ 1,460 $ 874 $ (112)
======= ======= ======= ======= ======= ======= =======
Income (loss) from continuing operations per share $ 0.22 $ 0.03
Income (loss) from discontinued operations
per share....................................... $ 0.00 $ (0.04)
Net income (loss) per share........................ $ 0.22 $ (0.01)
======= =======
Weighted average shares outstanding............. 6,701 7,915
======= =======
<CAPTION>
Consolidated Balance Sheet Data:
(In thousands)
November 30, May 31, 1996
---------------------------------- --------------------------
1993 1994 1995 Actual Pro Forma(3)
---- ---- ---- ------ ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................... $ -- $ -- $ -- $ -- $10,000
Working capital............................. 627 1,523 1,655 2,836 12,836
Total assets................................ 8,354 7,769 9,337 10,007 20,007
Total liabilities........................... 3,332 2,792 3,067 2,425 2,425
Total stockholder's investment.............. 5,022 4,977 6,270 7,582 17,582(4)
</TABLE>
(1) Does not include incremental annual expenses of approximately $350,000
which the Company expects to incur as the result of being an independent
public company.
(2) Discontinued operations relates to the networking distribution business
of DTI prior to the Distribution which will be divested by the Company
either prior to, or as soon as practicable after, the Distribution.
(3) Adjusted to give effect to the deemed contribution of $10,000,000 in cash
and cash equivalents from DTI after August 31, 1996 and the distribution of
the investment by DTI to the existing stockholders of DTI in the form of a
one for one stock dividend. The actual amount of cash and cash equivalents,
which will be contributed simultaneously with the Distribution, will depend
on certain adjustments based on changes in the working capital of the
Transferred Businesses after August 31, 1996 as described in the
Distribution Agreement.
(4) Does not include any tax considerations pertaining to the Distribution. See
"SPECIAL FACTORS--Certain Tax Considerations."
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
General Overview
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company is based upon the separate historical
financial statements of the Company, which present the Company's results of
operations, financial position and cash flow. These historical financial
statements include the assets, liabilities, income and expenses that were
directly related to the Transferred Businesses as they were operated within DTI.
In the case of assets and liabilities not specifically allocable to any
particular business of DTI, only those assets and liabilities expected to be
owned by the Company after the Distribution were included in the Company's
separate balance sheets. Regardless of the allocation of these assets and
liabilities, however, the Company's statement of operations includes all of the
related costs of doing business, including charges for the use of facilities and
for employee benefits, and includes an allocation of certain general corporate
expenses of DTI which were not directly related to the Transferred Businesses,
including costs for corporate logistics, corporate research and development,
information technologies, finance, legal and corporate executives. These
allocations were based on a number of factors including, for example, personnel,
space, time and effort, and sales volume. Management believes these allocations
as well as the assumptions underlying the development of the Company's separate
financial statements to be reasonable.
The financial information included herein may not, however, necessarily
reflect the results of operations, financial position and cash flows of the
Company as it will operate in the future or what the results of operations,
financial position and cash flows would have been had the Company been a
separate, stand-alone entity during the periods presented. This is due, in part,
to the historical operation of the Company as an integral part of the larger
DTI. The historical financial information included herein also does not reflect
any changes which may occur in the operations of the Company following the
Distribution.
The Company historically has operated as part of DTI. Following the
Distribution, the Company will be a stand-alone entity with objectives and
strategies separate from those of DTI. The Company will focus on providing
products in the data acquisition, imaging and consumer video editing industries.
Forward Looking Statements
Certain information, other than the historical information, discussed in
the following Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company (and elsewhere in this Information
Statement) may constitute forward looking statements and as such may involve
risks and uncertainties. Important factors which may cause actual results to
differ from the forward looking statements contained herein or in other public
statements by the Company are described under the caption titled "SPECIAL
FACTORS," including, in particular, the Company's ability to implement
successfully its reorganization plan and future business strategy. See "SPECIAL
FACTORS."
Discontinued Operations
On July 30, 1996, DTI announced its strategic decision to discontinue the
operations comprising its networking business. The networking business is
operated by Data Translation Networking, Limited ("Networking") which
distributes, integrates and supports enterprise wide networking products
manufactured by third party suppliers in the United Kingdom. The Company
estimates a loss on discontinued operations of $484,000 for the period June 1,
1996 through July 30, 1996, and an estimated loss on disposal of $1,019,000
which includes estimated operating losses of $718,000 through the phase out
period. Net sales from Networking were $10,850,000, $15,382,000 and $20,348,000,
for the years ended November 30, 1993, 1994, and 1995, respectively, and
$9,251,000 and $12,705,000 for the six months ended May 31, 1995 and 1996,
respectively.
15
<PAGE>
Results of Operations
The following table shows certain statement of operations data as a
percentage of net sales.
<TABLE>
<CAPTION>
Fiscal Year Ended November 30, Six Months Ended May 31,
------------------------------ ------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales.................................... 100.0 100.0 100.0 100.0 100.0
Gross margin................................. 60.3 58.3 62.5 62.5 63.5
Research and development expenses............ 13.3 13.5 12.9 12.5 15.8
Selling and marketing expenses............... 34.3 27.7 31.1 31.3 35.6
General and administrative expenses.......... 10.9 8.6 7.5 6.8 8.2
----- ----- ----- ----- -----
Income from operations....................... 1.8 8.5 11.0 11.9 3.9
Interest (expense) income and other, net..... (1.0) 0.3 (0.0) (0.0) (0.5)
----- ----- ----- ----- -----
Income from continuing operations
before provision for income taxes.......... 0.8 8.8 11.0 11.9 3.4
Income from continuing operations............ 0.5 4.9 6.1 3.2 0.9
Provision for income taxes................... 0.3 3.6 4.4 4.8 1.3
(Loss) income from discontinued
operations................................. (0.5) 1.7 0.1 1.0 (3.1)
----- ----- ----- ----- -----
Net income (loss)............................ 0.0% 6.9% 6.7% 8.1% (1.0)%
====== ====== ===== ===== ======
</TABLE>
Comparison of Six Months Ended May 31, 1996 to May 31, 1995
Net sales for the six months ended May 31, 1996 were $10,757,000 compared
to $10,777,000 for the same period in the prior year. Although net sales were
essentially the same as the comparable period in 1995, increased unit net sales
of newly introduced products utilizing the PCI bus architecture were offset by
decreased unit net sales of older mature products as well as lower average
selling prices.
Gross margin for the period ended May 31, 1996 was 63.5% of net sales,
compared to 62.5% of net sales for the same period in the prior year. The
increase in gross margins was primarily due to a favorable product mix which
included a higher proportion of software sales and the decline in demand for
older mature products.
Income from operations for the first six months of fiscal 1996 were
$419,000, compared to $1,283,000 for the same period in the prior year. The
decrease in income from operations is due to an increase in operating expenses
over the prior year's period of $962,000. Total operating expenses increased to
59.7% of net sales for the period compared to 50.6% in the prior period.
Research and development expenses were $1,703,000 or 15.8% of net sales compared
to $1,346,000 or 12.5% of net sales for the first six months of fiscal 1995. The
increase in research and development expenses was the result of continuing
investment in the commercial products group's new MPEG-1 encoder product,
Broadway. Selling and marketing expenses were $3,832,000 or 35.6% of net sales
compared to $3,374,000 or 31.3% of net sales for the first six months of fiscal
1995. The increase in selling and marketing expenses is due largely to the
initial marketing promotion of the Company's Broadway product, which began
shipping in June 1996.
The provision for income taxes was $147,000 for the six months ended May
31, 1996, compared to $512,000 for the same period in fiscal 1995. The provision
for income taxes for both periods has been calculated on a separate tax return
basis. Historically, the Company filed its tax return as part of a consolidated
group with DTI. The offsetting charge for the provision for income taxes has
been included as an element of DTI's net investment in the Company as reflected
in the accompanying consolidated statements of stockholder's investment. The
provision for income taxes may not necessarily reflect the consolidated results
of operations of the Company in the future or what they would have been had it
been a separate, stand-alone entity during the periods presented.
16
<PAGE>
Income from continuing operations was $222,000 for the six months ended May
31, 1996, compared to $769,000 for the same period in the prior year.
The Company incurred a net loss of $112,000 for the six months ended May
31, 1996 compared to net income of $874,000 for the same period in the prior
year. These results take into account a loss on discontinued operations of
$334,000 for the six months ended May 31, 1996 and income from discontinued
operations of $105,000 for the six months ended May 31, 1995. See
"--Discontinued Operations."
Comparison of Fiscal Year Ended November 30, 1995 to November 30, 1994
Net sales for the fiscal year ended November 30, 1995 were $21,826,000,
which represented a decrease of 2.7%, or $614,000, over the same period in the
prior year. The decrease was primarily the result of a continued shift in the
data acquisition and imaging market toward new, lower priced hardware and
software solutions. Despite the decrease in net sales dollars, data acquisition
and imaging experienced an increase in unit sales from the same period in fiscal
1994.
Gross margin for fiscal 1995 was 62.5% of net sales, compared to 58.3% of
net sales in the comparable period in the prior year. This increase primarily
reflects higher margins on the Company's manufactured products due to higher
utilization of the Company's manufacturing capacity.
Income from operations for fiscal 1995 was $2,407,000 or 11.0% of net
sales, compared to $1,908,000 or 8.5% of net sales in fiscal 1994. The increase
in operating income of $499,000 can primarily be attributed to the increase in
gross margin as discussed above as well as level operating expenses year to
year.
The provision for income taxes was $966,000 for fiscal 1995, compared to
$798,000 for fiscal 1994. The provision for income taxes for both periods has
been calculated on a separate tax return basis. Historically, the Company filed
its tax return as part of a consolidated group with DTI. The offsetting charge
for the provision for income taxes has been included as an element of DTI's net
investment in the Company as reflected in the accompanying consolidated
statements of stockholder's investment. The provision for income taxes may not
necessarily reflect the consolidated results of operations of the Company in the
future or what they would have been had it been a separate, stand-alone entity
during the periods presented.
Income from continuing operations was $1,436,000 for fiscal 1995, compared
to $1,172,000 in fiscal 1994.
Net income for fiscal year 1995 was $1,460,000 compared to net income of
$1,553,000 for fiscal year 1994. These results take into account income from
discontinued operations of $24,000 for fiscal year 1995 compared to net income
of $381,000 from discontinued operations for fiscal year 1994. See
"--Discontinued Operations."
Comparison of Fiscal Year Ended November 30, 1994 to November 30, 1993
Net sales for the fiscal year ended November 30, 1994 were $22,440,000,
which was a decrease of 5.4%, or $1,293,000, over the same period in the prior
year. The decrease was primarily the result of changes in the product mix.
Demand for older, mature data acquisition and imaging products began to decline
over the prior year, partially offset by the introduction of new, lower priced
hardware products.
The gross margin decreased to 58.3% of net sales, compared to 60.3% of net
sales in fiscal 1993. This decrease was, again, the result of changes in product
demand and the lowering of average selling prices.
Although there was a decrease in both net sales and gross profit, income
from operations for fiscal 1994 was $1,908,000, which was an increase of
$1,486,000 over the same period in the prior year. The increase was primarily
the result of a decrease of $1,942,000 in selling and marketing expenses, and a
decrease of $656,000 in general and administrative expenses over the same period
in the prior year.
17
<PAGE>
The provision for income taxes was $798,000 for fiscal 1994, compared to
$75,000 for fiscal 1993. The provision for income taxes for both periods has
been calculated on a separate tax return basis. Historically, the Company filed
its tax return as part of a consolidated group with DTI. The offsetting charge
for the provision for income taxes has been included as an element of DTI's net
investment in the Company as reflected in the accompanying consolidated
statements of stockholder's investment. The provision for income taxes may not
necessarily reflect the consolidated results of operations of the Company in the
future or what they would have been had it been a separate, stand-alone entity
during the periods presented.
Income from continuing operations was $1,172,000 for fiscal 1994 compared
to $121,000 in fiscal 1993.
Net income for fiscal year 1994 was $1,553,000 compared to a net loss of
$5,000 for fiscal year 1993. These results take into account income from
discontinued operations of $381,000 for fiscal year 1994 compared to a loss from
discontinued operations of $126,000 for fiscal year 1993. See "--Discontinued
Operations."
Liquidity and Capital Resources
Pursuant to the Distribution Agreement, simultaneously with the
Distribution DTI will contribute $10,000,000 in cash and cash equivalents to the
Company, for use in the Company's business, which will be increased or decreased
based upon the results of operations of the Transferred Businesses after August
31, 1996, plus the net proceeds from the possible sale prior to the Distribution
of the networking distribution business. The Company plans to fund and support a
business plan which includes continuing investment in channel development,
promotion and product development for Broadway and other new commercial
products, as well as other product areas. Although the Company believes that the
proceeds for the Distribution, together with cash generated from future
operations, should be sufficient to meet the Company's cash requirements for at
least twelve months, it may need to raise additional capital from equity and/or
debt sources in order to finance its anticipated growth.
18
<PAGE>
BUSINESS OF THE COMPANY
Company Overview
The Company was incorporated in September, 1996. Following the
Distribution, the Company will operate the Transferred Businesses, consisting of
the data acquisition and imaging and commercial products groups of DTI. The
Company will also acquire DTI's networking distribution group of which the
Company intends to divest itself either prior to, or as soon as practicable
after, the Distribution. References to "the Company" below refer to the
Transferred Businesses after the Distribution, or as operated by DTI prior to
the Distribution, as the context requires.
The Company has been a leader in the design, development and manufacture of
high performance data acquisition and imaging products. For more than two
decades, the Company's products have provided engineers and scientists with
accurate and timely data for measurement, analysis and process control in a wide
range of industrial, scientific and medical applications. The Company has sold
more than 320,000 data acquisition and imaging products since its inception. The
Company's principal products in this area are data acquisition and imaging
hardware, which are used in personal computers ("PCs") to receive analog
signals, convert them to digital form and process the digital data. The
Company's strategy is to identify existing growth opportunities in the data
acquisition and imaging market.
An outgrowth of the Company's core technology of analog to digital
conversion is its low cost, high performance video capture and encoding system
for Microsoft/R/ Windows/R/ 95-based PCs called Broadway/TM/. Broadway captures
analog video, digitizes it, compresses it into an editable MPEG-1 format, and
writes it to disk in real time. The video can then be edited using the Broadway
editing utility or a third-party video editing package, highly compressed to the
MPEG-1 video format and then sent over the Internet or incorporated in
presentation packages such as Microsoft Powerpoint/R/. The Company's Broadway
product has many applications, including incorporation of video into home pages
on the world wide web (the "Web"), multimedia presentations, CD-ROM titles and
computer-based training.
The Transferred Businesses also include DTI's networking distribution
business in the United Kingdom. On July 31, 1996, DTI announced a plan to
discontinue the networking distribution business. The Company intends to divest
itself of the networking distribution business either prior to, or as soon as
practicable after, the Distribution.
Commercial Products
Market
New video and audio technologies are impacting the way in which
presentations and communications are being created and sent. The advancement of
such technologies now allows many PC users to utilize the benefits of video at
increasingly reduced cost. The Company believes the areas offering the greatest
prospects for growth in the use of PC video applications are Web home pages,
business presentations, PC-based training and the production of CD-ROM titles.
OEM Magazine predicts that in 1996, eleven million MPEG-capable PCs will be
shipped. In 1997 thirty-five million will be shipped. The Company believes this
capability to play back high quality MPEG video will inspire many presentation,
training, and Web page authors to use video in their work.
The Company believes that many PC users would consider video clips an
attractive, creative and useful addition to their presentations and other
communications and would utilize them if they were easy to create and it was
affordable to do so. Businesses, for example, could create short, full-motion
video clips to install on their Web home pages showing interviews with satisfied
customers, product demonstrations and personal messages from celebrity
advertisers or corporate executives. Video could also be used to create
multimedia, PC-based corporate training presentations. In addition, PowerPoint
users might also find video an attractive addition to corporate marketing
presentations and other sales and marketing efforts. As a result of the greatly
reduced file sizes created by MPEG-1 compression, video is also available for
use on laptop PCs, even further broadening
19
<PAGE>
its potential applications. For example, sales people could visit prospective
customers and make sophisticated, interactive multimedia presentations,
including video product demonstrations, without the inconvenience of arranging
the availability of TVs, VCRs or overhead or slide projectors.
The Company believes that users in this market will only be attracted by a
high quality product that is easy to use and which can be offered at a
reasonably low price. The Company believes that these users have historically
not utilized video regularly because existing high quality products were too
expensive and too hard to use, and the products which were affordable did not
offer high enough quality for use in professional presentations.
Business Strategy
The Company's strategy for its commercial products, initially Broadway, is
to target low-end business users and consumers with an easy-to-use solution to
create near VHS quality video clips and incorporate such clips into common PC
applications. Historically, the use of video in computer applications was
largely confined to higher-end multimedia professionals. The Company believes
its Broadway product will make video capture and editing available to the low-
end business user and consumer markets due to its relatively lower suggested
retail price of $995 and ease of use compared to traditional systems. Broadway
is an intuitive application which allows virtually anyone to capture and edit
video clips within minutes with very little instruction. The Company believes
that the consumer market for video editing will grow substantially as technology
becomes more affordable and consumers become more familiar with video
applications.
The Company's strategy for its commercial products incorporates the
following critical elements:
. Ease of use. The Company targets customers who do not create video on
a regular basis. Therefore, in order to attract such customers to utilize
products such as Broadway, the product must allow them to incorporate and edit
video simply and easily. The Broadway graphical user interface was intentionally
designed to be used like any other Windows application, such as Microsoft
PowerPoint or Word for Windows/R/. A user familiar with PowerPoint would find
using a Broadway system intuitive and could easily incorporate video into a
presentation created with PowerPoint, or with many other applications.
. Standards based. Historically, video has not been available on
conventional PCs due to the enormous amount of memory and storage space required
to handle traditional video files. In the past several years, however,
compression techniques have been developed to allow standard PCs to manipulate
such files. Such techniques have begun to be standardized to allow video to be
incorporated into the widest variety of applications. The MPEG-1 format is an
ISO standard and is emerging as a leading industry standard. Most PCs sold today
now include playback of MPEG-1 video as a standard feature. Because Broadway is
based on the MPEG-1 standard, it allows users to incorporate video into many
applications and delivery mechanisms which are also based on such standard.
Broadway allows delivery of MPEG-1 video via the hard drive, CD-ROM, video CDs,
DVD, private networks and the Internet. MPEG video can be played back on
millions of PCs that include either hardware or software MPEG-1 playback
capabilities.
. Affordability. The continued penetration of the PC into the home
market has been brought about by the continuously declining cost of technology.
The Company believes that it is critical to the Company's success to be able to
continue to reduce the cost of its commercial products thereby making them
increasingly affordable for the Company's target customers.
. Distribution to mass market. The Company's marketing strategy for its
commercial products is to achieve broad distribution of such products through
retail outlets, mass distribution centers, value added resellers, Internet
marketers, catalogs, and super stores. This broad distribution will allow
products such as Broadway to be available to consumers at familiar and
convenient purchasing locations.
20
<PAGE>
Product and Technology
Broadway is a high-performance video capture and encoding system for
Windows 95 PCs that can be integrated with third party video editing software
packages to edit and produce near VHS quality digital video clips with CD-
quality stereo sound. Using Broadway, a computer user can capture video from
most analog sources, edit the digitized version created by Broadway, fully
compress it to MPEG-1 and then incorporate the finished video into multimedia
applications, such as Web home pages, multimedia presentations and CD-ROMs.
Broadway is comprised of a Peripheral Component Interconnect ("PCI") integrated
circuit board and a graphical user interface compatible with Windows. The
Company's standard Broadway package is shipped complete with Ulead Systems,
Inc.'s MediaStudio Pro/TM/ video editing software. Broadway is also designed to
be integrated with a variety of other video editing packages, including Adobe
Premiere/R/. The standard Broadway package currently has a manufacturer's
suggested retail price of $995.
The first step in the process of creating a video presentation with
Broadway is to capture a clip of analog video from an external source, such as a
camcorder or a VCR. Video capture is the process of converting an analog video
signal into a digital format for storage on a computer disk drive from which it
can be manipulated. To capture a video clip with Broadway, a user first connects
the video source, such as a VCR, to the Broadway PCI board in the user's PC with
a standard video cable. The user then starts the video which begins to play on
the user's computer monitor allowing the user to determine exactly which video
frames to digitize. Using simple point-and-click commands, the user starts and
stops the capture of the video clip from the source video. The video is
automatically digitized and written to the hard disk drive of the user's PC in
an editable digital format.
Once a user has captured the desired video clip and it has been digitized
by Broadway, it can be edited using software utilities which are a part of
Broadway itself. Broadway contains a variety of editing utilities such as
cutting and pasting, saving selections and replacing audio. Broadway also allows
users to combine several video clips in one sequence and to incorporate fade-to-
and fade-from-black transitions. If more sophisticated transitions are desired,
or the user would like to include titles in the video clip, the third party
video editing software integrated with Broadway can perform these functions.
Editing with Broadway is performed in near real time because it uses hardware to
accelerate the editing process.
The final step in creating a video presentation with Broadway is to
compress the edited video clip and to incorporate the edited video into an
application such as a Web home page or a PowerPoint presentation. Compression is
necessary to play back digital video on a PC because of the enormous amount of
data required to create a video image. Fifteen seconds of uncompressed video
would occupy approximately 400 megabytes of disk storage space, far more than
the typical PC could dedicate to one small video clip. In addition, uncompressed
video is infeasible for low bandwidth environments, such as the Internet and CD-
ROMs. There are numerous digital video compression methods, however, the Company
believes that MPEG-1, a standard promulgated by the Moving Picture Experts
Group, is becoming the leading international standard for PC digital video
compression. MPEG-1 reduces digital video file sizes by up to a 200 to 1 ratio,
one of the highest data compression ratios of any video compression standard.
Broadway utilizes a robust implementation of the MPEG-1 standard which uses a
combination of hardware and software to fully compress video clips into the
MPEG-1 format at approximately three times real time (approximately three
minutes for a one minute clip). Alternative systems which use software
compression are only able to perform this task at approximately thirty to sixty
times real time (approximately sixty minutes for a one-minute clip), although
such systems are relatively inexpensive. Historically, MPEG-1 compression at the
rate provided by Broadway was only available through service bureaus charging up
to $300 per minute of video or sophisticated computer packages costing in excess
of $15,000.
Using the MPEG-1 standard allows Broadway to produce compressed videos
which can be played back at 30 frames per second, the standard, full-motion
video speed. Videos compressed to be played back at speeds slower than 30 frames
per second typically drop frames causing the resulting video to be less than
full-motion and of lower image quality. Once the video clip is compressed and
saved on the user's hard drive in the standard video file format, it is easily
incorporated into applications such as PowerPoint.
21
<PAGE>
Customers and Sales
The Company believes there are three general categories of customers that
will use its commercial products.
. Multimedia content creators and developers. These include CD-ROM title
developers, computer-based training designers, game creators and professional
video service providers.
. Presentation and Web page creators and developers. This group includes
sales and marketing professionals, financial presenters, trainers and service
providers such as advertising agencies, real estate agencies and talent
agencies.
. Home users. This category includes consumers who want to preserve and
archive their family videos. Valuable, irreplaceable home videos can be
preserved on CD-ROM or on a PC whereas they would ordinarily be subject to
deterioration over time. Additionally, consumers can edit these videos and
enhance their presentation.
Worldwide, the Company's commercial products are sold through a two-tier
distribution network. The Company has direct relationships with international
mass market distributors as well as resellers and value-added resellers
("VARs"). The distributors sell the commercial products to retail outlets as
well as smaller computer resellers and VARs. This allows the Company's products
to be available through any method used by its customers to purchase their
products. The strategy is to make it easy for the customer to purchase the
product by offering a 30-day money back guarantee which eliminates any possible
user concerns or hesitations. The product packaging was designed to be sold
through the retail channel with packaging which is attractive to the retailer
and consumer.
The Company provides end users with free technical support with the
purchase of the product. Broadway includes extensive on-line technical support
via the Company's Web site, as well as documentation which provides a video
tutorial to the non-video user and an intuitive installation guide.
Competition
The Company's greatest competition for the Broadway product includes other
products which include MPEG encoding. Sigma Design's Real Magic Producer, like
Broadway, includes hardware and software encoding. Darim Corporation, another
competitor, offers a hardware encoding product at a similar price point to
Broadway. The Company's Broadway product competes principally on the basis of
price and speed of compression of video. In addition, there are a number of
other competitors whose products are based on platforms and video standards
other than those used by the Company. There can be no assurance that customers
in the markets for the Company's products will not prefer products offered by
the Company's competitors to those currently offered by the Company, or that the
Company's competitors will not adapt more quickly than the Company to new
technologies or evolving customer requirements. There also can be no assurance
that companies with greater financial, technical or marketing resources who do
not currently compete with the Company will not develop products in the future
to compete with products offered by the Company.
Data Acquisition and Imaging
Market
The market for the Company's data acquisition and imaging products is
comprised primarily of technical users, such as engineers and scientists,
interested in incorporating the Company's systems in their final products. These
products are designed for the scientific research and analysis, test and
measurement and industrial machine vision inspection markets. End users include
original equipment manufacturers, research laboratories, universities, hospitals
and government agencies. Users require highly accurate, real-time measurement
and control of analog signals, such as temperature, pressure, sound and video.
22
<PAGE>
The Company believes it is one of the top five suppliers in each market
although the data acquisition and imaging markets are highly fragmented. These
markets have been adversely affected in recent years by reduced government
funding of research and lower levels of corporate capital expenditures.
Business Strategy
In the data acquisition and imaging area, the Company is focused on
providing system solutions which include not only exceptional hardware but also
powerful, easy to use software. The Company will continue to invest in its
current data acquisition and imaging markets, while identifying new applications
and growth opportunities in the machine vision and inspection markets.
In the imaging market, the Company is focused on continuing to develop its
Mach/TM/ series of PCI-based frame grabbers, leveraging this technology into two
distinct markets, machine vision and scientific image analysis. Both markets
require high accuracy and low-cost hardware. The Company's strategy will be to
continue to focus on its strengths in these areas. In the data acquisition
market, the Company is focused on expanding its market leadership through
continued development of its PCI-based data acquisition products. These
developments are being driven by rapid adoption of PCI bus slots by personal
computer manufacturers. In both data acquisition and imaging, the Company is
pursuing relationships with software companies who offer application-specific
programs in the Company's markets.
Products and Services
The Company's data acquisition and imaging products are designed to
facilitate (i) the high-speed capture of analog signals representing physical
events, such as temperature, pressure, sound and video, (ii) the fast conversion
of such signals into digital form and (iii) the use of such digital signals in
PCs for processing. These capabilities permit customers to use PCs to identify,
measure, analyze and control physical phenomena (data acquisition) and to
analyze or enhance video images (imaging).
The Company's data acquisition and imaging systems consist of plug-in cards
and Windows-based software which provide an integrated, high performance systems
solution to the general scientific and measurement marketplace. These systems
allow customers to configure their own PC-based data acquisition, signal
processing or imaging system with higher performance and lower cost than
alternative pre-packaged or custom-integrated systems. Users are able to
integrate these products more quickly into their systems, thereby reducing their
development time. Over a three year period the Company defined and developed DT-
Open Layers/R/, a standard set of software protocols under the Microsoft Windows
operating system. DT-Open Layers simplifies programming and accelerates the
development of new software products and permits customers to replace circuit
boards and add new functions. These products offer leading-edge functionality
for data acquisition and imaging under Windows while allowing customers to
protect their software investments and develop solutions more quickly.
The Company sells over 300 data acquisition and imaging products, which
range in retail price as of August 31, 1996 from $199 to $4,995. Domestically,
the Company sells such products to end users, VARs, system integrators and
original equipment manufacturers ("OEMs"). Internationally, the Company sells
through its wholly-owned subsidiaries, as well as through resellers and
independent distributors. Such prices do not reflect distributor discounts for
international sales, which range from approximately 20% to 35% on hardware
products and up to approximately 50% on software applications.
Data acquisition products provide capabilities ranging from simple
measurement to advanced digital signal processing (DSP) functions. While
researchers, systems integrators and OEMs have been predominant data acquisition
users in the past, new data acquisition markets have emerged in the industrial
and medical areas, such as industrial inspection, medical diagnostic/therapeutic
applications, high-performance control, vibration analysis, acoustics and test
and measurement applications. Customers incorporate the Company's data
acquisition boards into PCs to measure real-world parameters, including
temperature, pressure, acceleration and sound; to analyze this data; and to use
the results to control real-world events and processes.
23
<PAGE>
The Company's imaging products may be used in a number of applications. In
machine vision applications, images can be captured and processed immediately in
real time for fast, accurate inspection of manufactured parts. In scientific
imaging applications, images can be captured from video cameras for analysis, or
images can be captured from cameras mounted on microscopes to identify and count
cells. In medical applications, images can be captured from different diagnostic
devices, such as CAT scanners or ultrasound imaging devices, for enhancement,
analysis and display.
The Company has incorporated several new technologies in its products. For
example, the Company's frame grabber, a product which combines software with
proprietary circuits that permit users to acquire data from a variety of video
inputs, now utilizes the PCI bus architecture. In addition, the Company has
begun using the Display Connect Interface ("DCI") standard in certain of the
Company's frame grabber products.
Customers and Sales
The Company sells its data acquisition and imaging products to end users,
VARs, system integrators and OEMs for use primarily in the scientific, medical
and industrial markets. End users include manufacturers, research laboratories,
universities, hospitals and government agencies.
The Company sells its data acquisition and imaging products through a
comprehensive, widely distributed annual catalog, an in-house telemarketing
force, OEM-focused direct sales, indirect channels (VARs, distributors and
system integrators), and extensive advertising and promotional campaigns. The
Company has a full-time sales and administrative staff of over 26 employees in
the United States to support sales. International sales are supported by three
subsidiaries and various distributors throughout Europe, Asia and the Pacific
rim.
Competition
The Company competes in the data acquisition market principally with
National Instruments Corporation, Computer Boards, Inc. and Keithley
Instruments, Inc. and in the imaging market with Matrox and Imaging Technology,
Inc., all of which may have substantially greater financial, technical and
marketing resources than the Company. The Company also competes with a number of
smaller companies in each of these markets. The Company's data acquisition and
imaging products compete on the ability to supply extensive hardware and
software components with competitive performance and price.
Research and Development
The Company intends to continue to invest in research and development for
new products and for enhancements to existing products. The Company is currently
targeting spending on research and development at an annual rate of
approximately 12% of net sales. For the six months ended May 31, 1996, the
Company invested approximately $1,703,000 in product development.
The Company employed, as of May 31, 1996, 17 full-time engineers whose
primary duties relate to product development. Outside firms and consultants are
selectively engaged to develop or assist with development of products when
favorable opportunities exist.
In the data acquisition and imaging area, the new areas for hardware
development include the integration of ASICs (application specific integrated
circuits) into circuit boards, which will reduce cost and advance the
development of new computer bus technologies (e.g., PCI). The Company's software
development in data acquisition and imaging centers on supporting Windows 95 and
Windows NT/TM/.
Manufacturing
The Company manufactures all of its products at its facility in Marlboro,
Massachusetts. The Company believes its control of manufacturing significantly
contributes to hardware design improvements, and allows for
24
<PAGE>
quicker turn-around of engineering changes for shipment to the market. The
Company periodically assesses its production efficiencies against the benefits
of outsourcing certain hardware production.
In manufacturing, the Company seeks to be the leader in both technology and
management. The Company has adopted the philosophy of Total Quality Management
(TQM), a systematic approach to continuous improvement. The Company uses work
cells with higher volume products which, together with Just-In-Time techniques,
allows the Company to reduce throughput time and provide five day shipment on
most customer orders.
The Company's fully integrated assembly and test operations have sufficient
capacity to meet the Company's needs for assembled printed circuit boards. In
addition, the Company designs circuit boards and modules using advanced
computer-aided-design (CAD) technology. The Company's manufacturing capabilities
include the assembly of fine pitch, surface mounted electronic devices utilizing
state of the art pick and place robotics for high density, multi-layered, single
or double sided boards. A majority of the Company's shipments incorporate
surface-mount components. Initial testing is performed to assure that products
are free from process-related defects after assembly. Following this, a complete
functional test is performed twice on each board, with an environmental stress
screen between tests to eliminate defects and assure long-term reliability of
products. The Company uses automated test equipment to assure product quality,
improve throughput and increase production yields.
Components used in circuit board assembly are generally available from
several distributors and manufacturers. Suppliers are selected based on their
ability to provide defect-free products quickly at low cost. The Company
continuously measures the performance of key suppliers. Special programs are
used to speed availability of material and protect the Company from unplanned
shifts in product demand. These programs include ship-to-stock, and point-of-use
bonding, a program where suppliers hold material on-site at the Company and as
the material is used, title transfers to the Company and payment is made.
Certain components used by the Company do not have ready substitutes or have
been subject to industry-wide shortages. There can be no assurance that the
Company's inventories would be adequate to meet the Company's production needs
during any interruption of supply. The Company's inability to develop
alternative supply sources, if required, or a reduction or stoppage in supply,
could adversely affect its operations until new sources of supply become
available.
Proprietary Rights
Following the Distribution, the Company will hold eight United States
patents, expiring from March 2001 through August 2013, and have three pending
patent applications in the United States, none of which the Company believes is
material. Pursuant to the Company's Intellectual Property Agreement with DTI,
the Company also has full cross-licenses to technology under DTI's current
patents and patent applications, together with technology resulting from patent
applications which DTI applies for during the two years following the
Distribution. The cross-licensed technology may only be transferred by the
Company in connection with a sale of the Company's business as a going concern.
The cross-licenses provide for termination upon certain changes in control with
respect to patents issued pursuant to applications made after August 31, 1996.
See "RELATIONSHIP BETWEEN THE COMPANY AND DTI AFTER THE DISTRIBUTION--
Intercompany Agreements--Intellectual Property Agreement."
The Company believes that its success depends primarily upon the
proprietary know-how, innovative skills, technical competence and marketing
abilities of its employees.
Backlog
Most customers order products on an as-needed basis, relying, in the case
of most products, on the Company's five-day delivery capability. As a result,
the Company believes that its backlog at any point in time is not indicative of
its future sales.
25
<PAGE>
Employees
As of the Distribution Date, the Company expects to employ approximately
160 persons worldwide. None of the employees is represented by a labor union.
The Company believes it has good relations with its employees.
Competition for employees with the skills required by the Company is
intense in the geographic areas in which the Company's operations are located.
The Company believes that its future success will depend on its continued
ability to attract and retain qualified employees, especially in research and
development.
Properties
DTI maintains its principal executive, engineering, manufacturing and sales
operations in a 103,000 square foot facility located in Marlboro, Massachusetts.
The building is rented under leases signed by DTI with a related party trust
expiring in 1999. On the Distribution Date, the lease will be assigned to the
Company which will license a portion to DTI pursuant to a Use and Occupancy
Agreement.
The United Kingdom operations are conducted in an 18,050 square foot
facility in Wokingham, Berkshire, England, that is leased by DTI through a
United Kingdom subsidiary under a twenty-five year net lease. The subsidiary has
an option to terminate the lease in 1997. The minimum annual basic rent is
approximately $257,000 per year. On the Distribution Date the stock of the
subsidiary will be transferred to the Company and the Company will license a
portion to DTI pursuant to a Use and Occupancy Agreement.
The German operations are conducted in a 2,420 square foot office facility
in Bietigheim-Bissingen, Germany that is leased under a five-year renewable
lease, expiring in 2000, by Data Translation GmbH. The minimum annual basic rent
is approximately $52,000 per year. On the Distribution Date the stock of the
subsidiary will be transferred to the Company and the Company will license a
portion to DTI pursuant to a Use and Occupancy Agreement. See "CERTAIN
RELATIONSHIPS AND TRANSACTIONS" and "RELATIONSHIP BETWEEN THE COMPANY AND DTI
AFTER THE DISTRIBUTION--Use and Occupancy Agreements."
Legal Proceedings
From time to time, DTI has been involved in disputes and/or litigation with
respect to the products and operations of the Transferred Businesses encountered
in its normal course of business. In accordance with DTI's past experience, the
Company does not believe that the ultimate impact of the resolution of such
other outstanding matters will have a material effect on the Company's financial
condition or results of operations.
26
<PAGE>
MANAGEMENT OF THE COMPANY
Directors and Executive Officers
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
Alfred A. Molinari, Jr. 55 Chairman and Chief Executive Officer(1)
Gary B. Godin 40 Vice President--Finance and Administration,
Chief Financial Officer
Mark L. Basler 34 Vice President--Strategic Marketing
Kim J. Gray 35 Vice President/General Manager--Data
Acquisition and Imaging Group
Lori A. Dustin 34 Vice President--Sales
William T. Hack 41 Vice President--Operations
Bruce E. Walsh 38 Vice President--Engineering
Ellen W. Harpin 40 Director and Vice President
D'Anne Hurd 45 Director(1)(2)(3)
Dr. David Cyganski 41 Director(1)(2)(3)
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee.
(3) Ms. Hurd and Dr. Cyganski have agreed to serve as Directors of the Company
as of the Distribution Date and the Company will cause such persons to be
appointed to the Board of Directors on such date.
Mr. Molinari is the Chief Executive Officer and Chairman of the Company.
Mr. Molinari is the founder of DTI, and served as the Chief Executive Officer
and a director of DTI from its inception in 1973 and will resign as Chief
Executive Officer as of the Distribution Date. Mr. Molinari will continue to
serve on the Board of Directors of DTI. Mr. Molinari served as director of
Viewlogic Systems, Inc., which is a supplier of electronic design automation
solutions, from July 1992 to February 1995.
Mr. Godin was appointed Vice President Finance and Administration and Chief
Financial Officer of the Company in September 1996. Mr. Godin served as
Corporate Controller and Chief Accounting Officer of DTI since August 1992. He
was employed by DTI since May, 1987 and served as Corporate Accounting Manager
until August 1992. As of the Distribution Date, Mr. Godin shall resign from his
offices at DTI.
Mr. Basler was appointed Vice President--Strategic Marketing of the Company
in September 1996. Mr. Basler served in the same position for DTI from January
until September 1996. Prior to that, while still employed by DTI, he served as
Vice President/General Manager--Data Acquisition and Imaging Group beginning
July 1995 and General Manager--Data Acquisition and Imaging Group beginning
March 1994. From 1985 until his employment with DTI, he served in several
engineering and marketing management positions for the Semiconductor Group of
Analog Devices, Inc. As of the Distribution Date, Mr. Basler shall resign from
his office at DTI.
Ms. Gray was appointed Vice President/General Manager--Data Acquisition and
Imaging Group of the Company in September 1996. Ms. Gray served in the same
position for DTI from January until September 1996. Prior to that, she served as
Vice President--Operations of DTI beginning July 1995. She was employed by DTI
since 1979, and during her tenure held various positions in materials,
production and manufacturing service. As of the Distribution Date, Ms. Gray
shall resign from her office at DTI.
Ms. Dustin was appointed Vice President Sales in September 1996. Prior to
that she served as General Manager/Commercial Products Group for DTI from
December 1995 to September 1996. Ms. Dustin has been employed by DTI since June
1984. During her tenure, she has held various positions in both International
and Domestic sales and marketing for the Data Acquisition and Imaging Group. As
of the Distribution Date, Ms. Dustin shall resign from her office at DTI.
27
<PAGE>
Mr. Hack was appointed Vice President of Operations in September 1996.
Prior to that he served as Director of Operations for DTI from January 1996 to
September 1996. Mr. Hack served as Director of Materials from November 1994 to
January 1996. He has been employed by DTI since February 1990 and during his
tenure has held various positions within manufacturing operations, including
Production Manager. As of the Distribution Date, Mr. Hack shall resign from his
office at DTI.
Mr. Walsh was appointed Vice President of Engineering in September 1996.
Prior to that he served as Director of Engineering for the Commercial Products
Group of DTI from June 1995 to September 1996. He also served as Director of
Software Engineering for the Data Acquisition and Imaging Group of DTI from June
1994 to June 1995. Mr. Walsh has been employed by DTI since June 1991 and during
his tenure has held various engineering and engineering management positions. As
of the Distribution Date, Mr. Walsh shall resign from his office at DTI.
Ms. Harpin was appointed a Director of the Company in September 1996. Prior
to that she served as Vice President of Administration for DTI from July 1995
through September 1996. She also served as Chief Financial Officer for DTI from
November 1991 to July 1995. Ms. Harpin has been employed by DTI since March 1983
and during her tenure has served as Vice President--Finance and Administration,
Treasurer, Vice President Manufacturing and Director of Sales. As of the
Distribution Date, Ms. Harpin shall resign from her office at DTI.
Ms. Hurd will become a Director of the Company on the Distribution Date.
Ms. Hurd has served as a business/legal consultant since January 1995,
specializing in initial public offerings and strategic alliances/joint ventures.
From September 1993 until December 1994, Ms. Hurd was Corporate Vice President,
General Counsel and Clerk and from June 1993 until September 1993 General
Counsel of MediSense, Inc., a manufacturer of blood glucose monitors for people
with diabetes. From 1985 to 1993 she was associated with the law firm of Burns &
Levinson in Boston, specializing in corporate and securities law.
Dr. Cyganski will become a Director of the Company on the Distribution
Date. Dr. Cyganski has served in faculty and administrative positions at
Worcester Polytechnic Institute ("WPI") since July 1981. Since October 1992 Dr.
Cyganski, has been a professor in the WPI Electrical and Computer Engineering
Department. From 1987 until resuming his position as Professor, Dr. Cyganski
held the administrative positions of Chief Information Officer, Vice President
of Information Systems and Vice Provost at WPI.
Board of Directors and its Committees
As of the Distribution Date, the Board of Directors will be divided into
three classes, each of whose members will serve for a staggered three-year term.
The Board will be comprised of one Class I Director (Ms. Harpin), two Class II
Directors (Ms. Hurd and Dr. Cyganski) and one Class III Director (Mr. Molinari).
At each annual meeting of stockholders, a class of directors will be elected to
a three-year term to succeed the directors of the same class whose terms are
then expiring. The terms of each of the Class I Director, Class II Directors and
Class III Director will expire upon the election and qualification of successor
directors at the annual meeting of stockholders held following the end of the
Company's fiscal years in 1997, 1998 and 1999, respectively.
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the Directors and executive officers of the
Company.
The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation for employees of and consultants to the Company,
establishes and approves salaries and incentive compensation for certain senior
officers and employees. As of the Distribution Date, the members of the
Compensation Committee shall be Ms. Hurd, Dr. Cyganski and Mr. Molinari. The
Audit Committee reviews the results and scope of the financial audit and other
services provided by the Company's independent public accountants. As of the
Distribution Date the members of the Audit Committee shall be Ms. Hurd and Dr.
Cyganski.
28
<PAGE>
Board of Directors Compensation
The Company compensates each director who is not also an employee of the
Company $7,500 per year plus $500 per meeting for services as a director. In
addition, each non-employee director is eligible to receive options under the
Company's 1996 Stock Option Plan.
Executive Compensation
The following table provides certain summary information concerning
compensation paid or accrued by DTI to or on behalf of the Chief Executive
Officer of the Company and each of the executive officers of the Company whose
cash compensation exceeded $100,000 annually (the "Named Executive Officers") in
the most recently ended fiscal year.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards All Other
---------------------------- -------------
Name and Principal Position Year Salary($) Bonus($) Options(#)(1) Compensation($)(2)
--------------------------- ---- --------- -------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Current Officers
- ----------------
Alfred A. Molinari, Jr................. 1995 $223,945 $50,000 100,000 $1,256
Chairman and Chief 1994 206,700 10,335 -- 422
Executive Officer 1993 206,700 -- 20,000 3,138
Mark L. Basler......................... 1995 115,000 24,262 12,000 932
Vice President--Strategic Marketing 1994(3) 75,769 4,750 40,000 98
1993 -- -- -- --
Kim J. Gray............................ 1995 92,000 25,000 4,000 696
Vice President/General Manager-- 1994 75,981 2,250 -- 153
Data Acquisition and Imaging Group 1993 63,000 -- -- 49
Lori A. Dustin......................... 1995 100,000 25,000 2,000 900
Vice President-- Sales 1994 110,043 3,000 -- 179
1993 90,748 -- 15,000 1,431
Ellen W. Harpin........................ 1995(4) 93,195 25,000 4,000 364
Director and Vice President 1994 104,712 5,250 20,000 214
1993 100,000 -- 5,000 1,559
</TABLE>
- ------------------------
(1) DTI has not issued stock appreciation rights or granted restricted stock
awards. In addition, DTI does not maintain a "long-term incentive plan," as
that term is defined in applicable rules.
(2) The amounts for fiscal 1994 represent the dollar value of premiums paid by
DTI on term life insurance for the benefit of the Named Executive Officers.
(3) Mr. Basler was hired by DTI on March 22, 1994.
(4) Beginning in January 1995, Ms. Harpin has been working a reduced time
schedule.
Stock Options
The following table provides information concerning the grant of stock
options under DTI's Key Employee Incentive Plan (1992) to the Named Executive
Officers. For a discussion of the treatment of employee stock options in the
Distribution, see "TREATMENT OF EMPLOYEE OPTIONS IN THE DISTRIBUTION."
29
<PAGE>
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants Potential Realized Value
-------------------------------------------------- at Assumed Annual Rates
Number of % of Total of Stock Price Appreciation
Securities Options Exercise for Option Term
Underlying Granted to or Base ---------------------------
Options Employees in Price Expiration 5% 10%
Name Granted(#) Fiscal Year ($/Sh) Date ($) ($)
- ---- ----------- ------------- -------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Alfred A. Molinari, Jr..... 30,616(1) 9.31% $14.365 6/28/00 $ 70,613 $204,279
69,384(2) 21.09 13.063 6/28/01 308,204 699,252
Mark L. Basler............. 12,000(3) 3.65 11.00 2/28/01 44,893 101,846
Kim J. Gray................ 4,000(3) 1.22 11.00 2/28/01 14,964 33,948
Lori A. Dustin............. 2,000(3) 0.61 11.00 2/28/01 7,482 16,974
Ellen W. Harpin............ 4,000(3) 1.18 11.00 2/28/01 14,964 33,949
</TABLE>
- -------------------
(1) These incentive options become exercisable over four years, 25% on each
anniversary of the date of grant and expire five years after grant. The
exercise price is 110% of the fair market value of the Common Stock on the
date of grant.
(2) These non-incentive options become exercisable over five years, 20% on each
anniversary of the date of grant and expire six years after grant.
(3) These incentive options become exercisable over five years, 20% on each
anniversary of the grant, and expire six years after grant.
Option Exercises and Holdings
The following table provides information, with respect to the Named
Executive Officers, concerning the unexercised DTI options held as of the end of
the fiscal year. For a discussion of the treatment of employee stock options in
the Distribution, see "TREATMENT OF EMPLOYEE OPTIONS IN THE DISTRIBUTION."
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-The-Money
Shares Options at FY-End (#) Options at FY-End ($)(1)
Acquired on Value --------------------------- ----------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alfred A. Molinari, Jr..... 32,000 $ 374,295 5,000 115,000 $ 72,750 $ 831,748
Mark L. Basler............. 8,000 109,000 -- 44,000 -- 578,000
Kim J. Gray................ 11,766 99,675 800 5,600 13,800 61,600
Lori A. Dustin............. 15,566 191,630 -- 12,600 -- 185,550
Ellen W. Harpin............ 30,666 333,493 30,000 27,000 497,000 362,250
</TABLE>
- ----------------------
(1) Market value of underlying securities at November 30, 1995, minus the
exercise price of "in-the-money" options.
Compensation Committee Interlocks and Insider Participation
As of the Distribution Date, Mr. Molinari, the Chief Executive Officer and
Chairman of the Board of Directors of the Company will be a member of the
Compensation Committee of the Board of Directors. See "CERTAIN RELATIONSHIPS
AND TRANSACTIONS" for a description of certain lease payments by the Company in
which Mr. Molinari has an interest.
30
<PAGE>
Company Stock Plans
1996 Stock Option Plan.
As of the Distribution Date, the Board of Directors shall adopt the
Company's 1996 Stock Option Plan (the "1996 Stock Option Plan") pursuant to
which 1,000,000 shares of Common Stock are authorized and reserved for issuance.
The 1996 Stock Option Plan permits the grant of (i) options to purchase shares
of Common Stock intended to qualify as incentive stock options under Section 422
of the Code ("Incentive Options") and (ii) options that do not so qualify ("Non-
Qualified Options"). The 1996 Stock Option Plan is designed and intended as a
performance incentive for officers, directors, employees, consultants and other
key persons performing services for the Company to encourage such persons to
acquire or increase a proprietary interest in the success of the Company.
Plan Administration. The 1996 Stock Option Plan provides that it shall be
administered either by the entire Board of Directors or a Stock Option Committee
as appointed by the Board of Directors from time to time (in either case, the
"Administrator"). If the Company has a Stock Option Committee, each member of
the Stock Option Committee must be a "Non-Employee Director" within the meaning
of rules promulgated by the Securities and Exchange Commission in order for
specific grants of Incentive Options or Non-Qualified Options to receive
favorable treatment under certain relevant securities laws.
The Board of Directors may discontinue or amend the 1996 Stock Option Plan
at any time but may not, without stockholder approval, adopt any amendment which
would materially increase the benefits accruing to participants under the 1996
Stock Option Plan. In addition, the rights and obligations under any option
issued prior to an amendment of the 1996 Stock Option Plan cannot be altered or
impaired by such amendment without the consent of the optionee.
The Administrator has full power to select, from among the persons eligible
for awards under the 1996 Stock Option Plan, the individuals to whom awards
will be granted, to make any combination of awards to participants, and to
determine the specific terms of each award, subject to the provisions of the
1996 Stock Option Plan. Incentive Options may be granted only to officers or
other employees of the Company, including members of the Board of Directors who
are also employees of the Company or its subsidiaries. Non-Qualified Options
may be granted or issued to officers or other employees of the Company,
directors and to consultants and other key persons who provide services to the
Company (regardless of whether they are also employees).
The exercise price of each option granted under the 1996 Stock Option Plan
is determined by the Administrator but, in the case of Incentive Options, may
not be less than 100% of the fair market value of the underlying shares on the
date of grant. No Incentive Option may be granted under the 1996 Stock Option
Plan to any employee of the Company or any subsidiary who owns at the date of
grant shares of stock representing in excess of 10% of the voting power of all
classes of stock of the Company or a parent or a subsidiary unless the exercise
price for stock subject to such option is at least 110% of the fair market value
of such stock at the time of grant and the option term does not exceed five
years. No options may be transferred by the optionee other than by will or the
laws of descent or distribution. Each option may be exercised only by the
optionee during his or her lifetime.
The term of each option is fixed by the Administrator and, in the case of
an Incentive Option, may not exceed ten years from the date of grant. The
Administrator determines at what time or times each option may be exercised and,
subject to the provisions of the 1996 Stock Option Plan, the period of time
during which options may be exercised, if any, after termination of employment
for any reason. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the Administrator. Upon exercise
of options, the option exercise price must be paid in full (i) in cash or by
certified or bank check or other instrument acceptable to the Administrator,
(ii) if the applicable option agreement permits, by delivery of shares of Common
Stock already owned by the optionee, or (iii) through a "cashless" exercise
procedure, subject to certain limitations.
31
<PAGE>
Change of Control Provisions. The 1996 Stock Option Plan provides that in
the case of certain transactions constituting a change in control of the
Company, the 1996 Stock Option Plan and the options issued thereunder shall
terminate upon the effectiveness of any such transaction or event, unless
provision is made in connection with such transaction for the assumption of
options theretofore granted, or the substitution for such options of new options
of the successor entity or parent thereof, with appropriate adjustment as to the
number and kind of shares and the per share exercise price. In the event of such
termination, each holder of outstanding options shall be permitted to exercise
all options whether vested or unvested for a period of at least 15 days prior to
the date of such termination.
Employee Stock Purchase Plan.
The Company Employee Stock Purchase Plan (the "Stock Purchase Plan")
provides an opportunity for eligible employees of the Company and its
subsidiaries to purchase shares of Common Stock, at a discount, through regular
monthly payroll deductions of up to 10% of their pre-tax gross salary. Subject
to adjustment for stock splits, stock dividends and similar events, a maximum of
500,000 shares of Common Stock may be issued under the Stock Purchase Plan.
The first offering under the Stock Purchase Plan will begin on January 1,
1997 and end on June 1, 1997. Unless otherwise determined by the Board of
Directors, subsequent offerings will commence on each January 1 and July 1
thereafter and will have a duration of six months. The Board of Directors may,
in its discretion select a different offering period for any offering, provided
the duration of the offering is not more than one year. Generally, all employees
who are customarily employed for more than 20 hours per week as of the first day
of the applicable offering period are eligible to participate in the Stock
Purchase Plan.
The maximum number of shares which may be purchased by a participating
employee of the Company and its subsidiaries during an offering will be
determined by the Board of Directors on a uniform basis and generally will equal
1,000 shares. An employee may purchase shares under the Stock Purchase Plan by
authorizing payroll deductions, of up to 10% of his regular pay during this
offering period. Unless the employee has previously withdrawn from the
offering, his accumulated payroll deductions will be used to purchase Common
Stock on the last business day of the period at a price equal to 85% of the fair
market value of the Common Stock on the first or last day of this offering
period whichever is lower. For these purposes, the fair market value of the
Common Stock on the first day of the initial offering period shall be deemed to
be the offering price to the public on such date. Under applicable tax rules,
an employee may purchase no more than $25,000 worth of Common Stock in any
calendar year (determined on the first day of this offering period(s) in which
such stock is purchased); certain other tax limitations may apply.
The Stock Purchase Plan will be administered by the Board of Directors. The
Board of Directors has the discretion to designate the subsidiaries of the
Company whose employees are eligible to participate in the Stock Purchase Plan
from time to time. The Board of Directors may at any time amend the Stock
Purchase Plan, subject to the approval of the Company's stockholders if and to
the extent required to comply with Rule 16b-3 under the 1934 Act or to preserve
the favorable tax treatment of participants, or discontinue the Stock Purchase
Plan.
The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" as defined in Section 1423 of the Code, which provides that an
employee will not have income for federal income tax purposes at the start of an
offering or upon receipt of shares of Common Stock at the end of an offering,
but generally will recognize ordinary income, in addition to capital gain or
loss, when the employee sells the shares. The Company generally will not be
entitled to a tax deduction upon either the purchase or sale of shares issued
under the Stock Purchase Plan if certain holding period requirements are met.
Tax Aspects of the 1996 Plan Under the U.S. Internal Revenue Code
The following is a summary of the principal Federal income tax consequences
of option grants under the 1996 Plan. It does not describe all Federal tax
consequences under the 1996 Plan, nor does it describe state or local tax
consequences.
32
<PAGE>
Incentive Options. Under the Code, an employee will not realize taxable
income by reason of the grant or the exercise of an Incentive Option. If an
employee exercises an Incentive Option and does not dispose of the shares until
the later of (a) two years from the date the option was granted or (b) one year
from the date the shares were transferred to the employee, the entire gain, if
any, realized upon disposition of such shares will be taxable to the employee as
long-term capital gain, and the Company will not be entitled to any deduction.
If an employee disposes of the shares within such one-year or two-year period in
a manner so as to violate the holding period requirements (a "disqualifying
disposition"), the employee generally will realize ordinary income in the year
of disposition, and, provided the Company complies with applicable withholding
requirements, the Company will receive a corresponding deduction in an amount
equal to the excess of (1) the lesser of (x) the amount, if any, realized on the
disposition and (y) the fair market value of the shares on the date the option
was exercised over (2) the option price. Any additional gain realized on the
disposition of the shares acquired upon exercise of the option will be long-term
or short-term capital gain and any loss will be long-term or short-term capital
loss depending upon the holding period for such shares. The employee will be
considered to have disposed of his shares if he sells, exchanges, makes a gift
of or transfers legal title to the shares (except by pledge or by transfer on
death). If the disposition of shares is by gift and violates the holding period
requirements, the amount of the employee's ordinary income (and the Company's
deduction) is equal to the fair market value of the shares on the date of
exercise less the option price. If the disposition is by sale or exchange, the
employee's tax basis will equal the amount paid for the shares plus any ordinary
income realized as a result of the disqualifying disposition. The exercise of
an Incentive Option may subject the employee to the alternative minimum tax.
Special rules apply if an employee surrenders shares of Common Stock in
payment of the exercise price of such employee's Incentive Option.
An Incentive Option that is exercised by an employee more than three months
after an employee's employment terminates will be treated as a Non-Qualified
Option for Federal income tax purposes. In the case of an employee who is
disabled, the three-month period is extended to one year and in the case of an
employee who dies, the three-month employment rule does not apply.
Non-Qualified Options. There are no Federal income tax consequences to
either the optionee or the Company on the grant of a Non-Qualified Option. On
the exercise of a Non-Qualified Option, the optionee (except as described below)
has taxable ordinary income equal to the excess of the fair market value of the
Common Stock received on the exercise date over the option price of the shares.
The optionee's tax basis for the shares acquired upon exercise of a Non-
Qualified Option is increased by the amount of such taxable income. The Company
will be entitled to a Federal income tax deduction in an amount equal to such
excess, provided the Company complies with applicable withholding rules. Upon
the sale of the shares acquired by exercise of a Non-Qualified Option, the
optionee will realize long-term or short-term capital gain or loss depending
upon his or her holding period for such shares.
Section 83 of the Code and the regulations thereunder provide that the date
for recognition of ordinary income (and the Company's equivalent deduction) upon
exercise of a Non-Qualified Option and for the commencement of the holding
period of the shares thereby acquired by a person who is subject to Section 16
of the 1934 Act will be delayed until the date that is the earlier of (i) six
months after the date of the exercise, and (ii) such time as the shares received
upon exercise could be sold at a gain without the person being subject to such
potential liability.
Special rules apply if an optionee surrenders shares of Common Stock in
payment of the exercise price of a Non-Qualified Option.
Parachute Payments
The exercise of any portion of any option that is accelerated due to the
occurrence of a change of control may cause a portion of the payments with
respect to such accelerated options to be treated as "parachute payments" as
defined in the Code. Any such parachute payments may be non-deductible to the
Company, in
33
<PAGE>
whole or in part, and may subject the recipient to a non-deductible 20% federal
excise tax on all or portion of such payments (in addition to other taxes
ordinarily payable).
Limitation on Company's Deductions
As a result of Section 162(m) of the Code, the Company's deduction for
certain awards under the Plan may be limited to the extent that the Chief
Executive Officer or other executive officer whose compensation is required to
be reported in the summary compensation table receives compensation (other than
performance-based compensation) in excess of $1 million a year.
TREATMENT OF EMPLOYEE OPTIONS IN THE DISTRIBUTION
DTI currently maintains and has outstanding options under its 1992 Key
Employee Incentive Plan and its 1982 Key Employee Incentive Plan (collectively
the "Incentive Plans"). Each current holder of an option to purchase shares of
DTI Stock outstanding under the Incentive Plans (an "Old DTI Option") will have
the exercise price of such Old DTI Options adjusted (a "New DTI Option") and
will receive a new option for the same number of shares to purchase Common Stock
under the 1996 Stock Option Plan (a "Company Option"). Each Company Option will
have the same terms, including expiration dates and vesting provisions, as the
Old DTI Options, except for exercise prices. The exercise prices of the Company
Options and the Old DTI Options, will be adjusted to preserve the Aggregate
Spread (as defined below) in value attributed to the Old DTI Options held by
each employee, which will be based on the relative trading prices of the Company
Stock and the DTI Stock following the Distribution. The "Aggregate Spread"
means, with respect to any Old DTI Option, an amount equal to (a) the difference
between the exercise price of such Old DTI Option and the market price per share
of DTI Stock immediately prior to the Distribution multiplied by (b) the
aggregate number of shares of DTI Stock underlying such Old DTI Option.
Subject to certain conditions, employees of the Company and DTI will be
paid an amount in cash intended to compensate them for the loss of incentive
stock option treatment under the Code with respect to options they hold in the
company which is not their employer following the Distribution. Such amount will
be paid by the company which has issued the option, will be determined by such
company in its discretion and will not exceed the value of the corresponding tax
benefit to such company.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
DTI has leased, and upon the Distribution, the Company will lease its
domestic headquarters (the "facilities") from a related party trust, Nason Hill
Trust (the "Trust"), a nominee trust of which Alfred A. Molinari, Jr., Chairman
and Chief Executive Officer of the Company, and his wife are the sole trustees
and beneficiaries.
The facilities are leased from the Trust under operating lease agreements
expiring on December 1, 1999. Pursuant to an amendment dated November 29, 1989,
the annual lease payments are equal to the sum of (i) $1,092,000 and (ii) any
additional interest costs payable by the Trust in such year under a note in
favor of Fleet National Bank due to the failure of the Company to maintain the
financial ratios required for the most favorable interest rate under such note.
In addition to such lease payments, the Company bears all of the tax, insurance
and other costs of operating the facilities and, under certain circumstances,
various costs and expenses associated with the series of industrial revenue
bonds, the proceeds of which were used in connection with the facilities. Total
rental expense included in the operations of the Company under the lease
agreements for fiscal 1995 was $633,000 and $273,000 for the six months ended
May 31, 1996.
34
<PAGE>
The Company believes that the terms of its leases with the Trust are at
least as favorable as it could have obtained in an arm's-length transaction with
an unrelated third party. The leases were approved by those directors of DTI who
had no beneficial interest in the Trust.
Following the Distribution, DTI will license a portion of the Company's
facilities for a license fee equal to DTI's pro rata portion of the base rent
and operating expenses under the lease. See "RELATIONSHIP BETWEEN THE COMPANY
AND DTI AFTER THE DISTRIBUTION--Intercompany Agreements--Use and Occupancy
Agreements." Alfred A. Molinari is a director of DTI and will continue to be a
director of DTI after the Distribution. See "RELATIONSHIP BETWEEN THE COMPANY
AND DTI AFTER THE DISTRIBUTION--Board of Directors and Management."
35
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the shares of
Common Stock which are expected to be beneficially owned by each person holding
more than 5% of the outstanding securities of any class of the Company, each
director, and the Named Executive Officers of the Company and by all directors
and officers of the Company as a group as of the Distribution Date based upon
their respective holdings of DTI's Stock as of September 12, 1996. The table
includes as a basis for calculation options to purchase shares of Common Stock
issued as a result of the Distribution which are exercisable at or within 60
days of July 31, 1996. See "TREATMENT OF EMPLOYEE OPTIONS IN THE DISTRIBUTION."
The table does not include any options which may be granted as part of the
Company's employee benefit programs following the Distribution.
<TABLE>
<CAPTION>
Number of
Shares
Beneficially
Owned(1) Percent(1)
-------- ----------
<S> <C> <C>
5% Stockholders
Dawson-Samberg Capital Management, Inc.(2)...... 552,600 7.25%
354 Pequot Ave.
Southport, Connecticut 06490
Oppenheimer Funds, Inc.(3)...................... 515,000 6.76
Two World Trade Center, Suite 3400
New York, New York 10048-0203
Twentieth Century Companies, Inc.(4)............ 554,000 7.27
4500 Main Street
P.O. Box 418210
Kansas City, Missouri 64141-9210
West Highland Capital, Inc.(5).................. 757,700 9.94
300 Drake's Landing Road, Suite 290
Green Brac, California 94904
Directors and Named Executive Officers
Alfred A. Molinari, Jr.(6)...................... 1,033,599 13.56
100 Locke Drive
Marlboro, Massachusetts 01752
Ellen W. Harpin................................. 19,256 *
100 Locke Drive
Marlboro, Massachusetts 01752
Kim J. Gray(7).................................. 1,974 *
Lori A. Dustin(8)............................... 10,400 *
Mark L. Basler.................................. 2,067 *
D'Anne Hurd..................................... 500 *
David Cyganski.................................. -- *
All executive officers and directors as a group
(10 persons in all)............................ 1,082,223 14.20%
</TABLE>
* Represents less than 1%.
- ---------------
(1) The number and percent of the outstanding shares of Common Stock treat as
outstanding all shares issuable on exercise of options held by a particular
beneficial owner that are exercisable within 60 days of July 31, 1996 and
are included in the first column.
36
<PAGE>
(2) Information is based on a telephone call with Dawson-Samberg Capital
Management, Inc. ("Dawson") on September 11, 1996. According to a Schedule
13D filed by Dawson with the Commission on April 22, 1996, Dawson is a
registered investment advisor and beneficially owns 53,500 shares of the
Company's Common Stock, Pequot General Partners beneficially owns 196,300
shares of the Company's Common Stock, PS International Partners
beneficially owns 166,300 shares of the Company's Common Stock and Pequot
Endowment Partners, L.P. beneficially owns 96,400 shares of the Company's
Common Stock. Jonathan T. Dawson and Arthur J. Samberg are the principal
stockholders of Dawson and are general partners of each of Pequot Partners,
PS International Partners and Pequot Endowment Partners, L.P.
(3) According to Schedule 13G filed with the Commission on February 8, 1996,
Oppenheimer Funds, Inc. ("OFI") is a registered investment advisor to
certain registered investment companies including the Oppenheimer Discover
Fund which holds 350,000 shares of the Common Stock. The Board of
Directors or Trustees of the registered investment companies managed by OFI
and owning shares of the Company can direct the disposition of dividends
received by such funds and can dispose of such securities. Additionally,
OFI shares the power to dispose of such securities with the Board of
Directors or Trustee of such funds; however, the Board of Directors or
Trustees of such fund has delegated these responsibilities to OFI as the
fund's investment advisor under its advisory agreement. In the Schedule
13D, OFI has disclaimed beneficial ownership of the shares held by the
Oppenheimer Discover Fund.
(4) Twentieth Century Companies, Inc. (TCC) and its affiliates collectively
hold 554,000 shares of the Company's Common Stock. According to Schedule
13G filed with the Commission on February 13, 1996. Investors Research
Corporation ("IRC"), a registered investment advisor, is a wholly-owned
subsidiary of TCC. Mr. James E. Stowers, Jr., controls TCC by virtue of
his beneficial ownership of a majority of the voting stock of TCC. As a
result of its status as investment advisor to six registered investment
companies and to several institutional investors, IRC is deemed to be the
beneficial owner of 554,000 shares or 7.1% of the outstanding common stock
of the Company. TCC, as a result of its control of IRC, and Mr. Stowers,
as a result of his control of TCC, are also deemed to beneficially own all
such shares deemed to be beneficially owned by IRC. Mr. Stowers, TCC and
IRC all disclaim beneficial ownership of the shares. The ownership of one
investment company client of IRC, Twentieth Century Investors, Inc.,
totaled 500,000 shares or 6.4% of the outstanding Common Stock of the
Company.
(5) West Highland Capital, Inc. and its affiliates collectively hold 757,700
shares of the Company's Common Stock (the "West Highland Shares").
According to a Schedule 13D filed with the Commission on November 27, 1995,
(i) West Highland Capital, Inc. beneficially owns all 757,700 of the West
Highland Shares, (ii) Lang H. Gerhard beneficially owns 644,675 of the West
Highland Shares, (iii) West Highland Partners, L.P. beneficially owns
530,830 of the West Highland Shares and (iv) Buttonwood Partners L.P.
beneficially owns 113,845 of the West Highland Shares.
(6) Includes 31,531 shares subject to options exercisable on or before
September 30, 1996. Does not include 17,614 shares owned by Mr. Molinari's
wife as to which Mr. Molinari disclaims beneficial ownership.
(7) Includes 1,600 shares subject to options exercisable on or before September
30, 1996.
(8) Includes 3,400 shares subject to options exercisable on or before September
30, 1996.
37
<PAGE>
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK
Authorized and Outstanding Capital Stock
The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, of which __________ shares will be issued and outstanding as of
the Distribution Date, and 5,000,000 shares of Preferred Stock, of which no
shares will be issued and outstanding. The following summary description of the
capital stock of the Company is qualified in its entirety by reference to the
Company's Certificate of Incorporation as of the Distribution Date (the
"Certificate") and By-laws, copies of which are filed as exhibits to the
Registration Statement of which this Information Statement is a part. The
Certificate and By-laws have been adopted by the stockholders and the Board of
Directors of the Company.
Common Stock. Holders of Common Stock are entitled to one vote per share
on all matters to be voted on by stockholders. Holders of Common Stock are not
entitled to cumulative voting rights. Therefore, the holders of a majority of
the shares voted in the election of directors can elect all of the directors
then standing for election, subject to the rights of the holders of Preferred
Stock, if and when issued. The holders of Common Stock have no preemptive or
other subscription rights.
The holders of Common Stock are entitled to receive such dividends, if any,
as may be declared from time to time by the Board of Directors from funds
legally available therefor, with each share of Common Stock sharing equally in
such dividends. The possible issuance of Preferred Stock with a preference over
Common Stock as to dividends could impact the dividend rights of holders of
Common Stock.
There are no redemption or sinking fund provisions with respect to the
Common Stock. All outstanding shares of Common Stock, including the shares
offered hereby, are, or will be upon completion of the Offering, fully paid and
non-assessable.
The By-laws provide, subject to the rights of the holders of the Preferred
Stock, if and when issued, that the number of directors shall be fixed by the
Board of Directors. The directors, other than those who may be elected by the
holders of Preferred Stock, if and when issued, are divided into three classes,
as nearly equal in number as possible, with each class serving for a three-year
term, except with respect to the initial term of each class of directors which
shall be for the period described under "Management--Directors and Executive
Officers." Subject to any rights of the holders of Preferred Stock, if and when
issued, to elect directors, and to remove any director, whom the holders of any
such stock had the right to elect, any director of the Company may be removed
from office only for cause and by the affirmative vote of at least two-thirds of
the total votes which would be eligible to be cast by stockholders in the
election of such director.
Undesignated Preferred Stock. The Board of Directors of the Company is
authorized, without further action of the stockholders of the Company, to issue
up to 5,000,000 shares of Preferred Stock in classes or series and to fix the
designations, powers, preferences and the relative, participating, optional or
other special rights of the shares of each series and any qualifications,
limitations and restrictions thereon as set forth in the Certificate. Any such
Preferred Stock issued by the Company may rank prior to the Common Stock as to
dividend rights, liquidation preference or both, may have full or limited voting
rights and may be convertible into shares of Common Stock.
The purpose of authorizing the Board of Directors to issue Preferred Stock
is, in part, to eliminate delays associated with a stockholder vote on specific
issuances. The issuance of Preferred Stock could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring or seeking to acquire, a significant portion of the outstanding
stock of the Company.
Certain Provisions of the Company's Charter and By-laws
General. A number of provisions of the Certificate and By-laws concern
matters of corporate governance and the rights of stockholders. Certain of
these provisions, as well as the ability of the Board of Directors to issue
shares of Preferred Stock and to set the voting rights, preferences and other
terms thereof,
38
<PAGE>
may be deemed to have an anti-takeover effect and may discourage takeover
attempts not first approved by the Board of Directors (including takeovers which
certain stockholders may deem to be in their best interests). To the extent
takeover attempts are discouraged, temporary fluctuations in the market price of
the Common Stock, which may result from actual or rumored takeover attempts, may
be inhibited.
The Certificate provides for the Board of Directors to be divided into
three classes of directors serving staggered three-year terms. As a result,
approximately one-third of the Board of Directors will be elected each year. In
addition, the Certificate provides that stockholders may remove a director only
for cause and only by the vote of the holders of two-thirds of the Common Stock
of the Company. This provision, when coupled with the provision of the
Certificate authorizing only the Board of Directors to fill vacant
directorships, will preclude stockholders from removing incumbent directors
without cause and simultaneously gaining control of the Board of Directors by
filling the vacancies created by such removal with their own nominees, and will
make more difficult, and therefore may discourage, a proxy contest to change
control of the Company. These provisions, together with the ability of the
Board to issue Preferred Stock without further stockholder action, also could
delay or frustrate the removal of incumbent directors or the assumption of
control by stockholders, even if such removal or assumption would be beneficial
to stockholders of the Company. In addition, these provisions could discourage
or make more difficult a merger, tender offer or proxy contest, even if they
could be favorable to the interests of stockholders, and could potentially
depress the market price of the Common Stock. The Board of Directors of the
Company believes that these provisions are appropriate to protect the interests
of the Company and all of its stockholders. The Board of Directors has no
present plans to adopt any other measures or devices which may be deemed to have
an anti-takeover effect.
Meetings of Stockholders. The By-laws provide that, unless otherwise
required by law, a special meeting of stockholders may be called only by the
Board of Directors. The By-laws provide that only those matters set forth in
the notice of special meeting may be considered or acted upon at that special
meeting, unless otherwise provided by law. In addition, the By-laws set forth
certain advance notice and informational requirements and time limitations on
any director nomination or any new business which a stockholder wishes to
propose for consideration at an annual or special meeting of stockholders.
No Stockholder Action by Written Consent. The Certificate provides that
any action required or permitted to be taken by the stockholders of the Company
at an annual or special meeting of stockholders must be effected at a duly
called meeting and may not be taken or effected by a written consent of
stockholders in lieu thereof.
Indemnification and Limitation of Liability. The By-laws provide that
directors and officers of the Company shall be, and, in the discretion of the
Board of Directors, non-officer employees may be, indemnified by the Company to
the fullest extent authorized by Delaware law, as it now exists or may in the
future be amended, against all expenses and liabilities reasonably incurred in
connection with service for or on behalf of the Company. The By-laws also
provide that the right of directors and officers to indemnification shall be a
contract right and shall not be exclusive of any other right now possessed or
hereafter acquired under any by-law, agreement, vote of stockholders or
otherwise. The Certificate contains a provision permitted by Delaware law that
generally eliminates the personal liability of directors for monetary damages
for breaches of their fiduciary duty, including breaches involving negligence or
gross negligence in business combinations, unless the director has breached his
or her duty of loyalty, failed to act in good faith, engaged in intentional
misconduct or a knowing violation of law, paid a dividend or approved a stock
repurchase in violation of the Delaware General Corporation Law or obtained an
improper personal benefit. This provision does not alter a director's liability
under the federal securities laws. In addition, this provision does not affect
the availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty.
Amendment of the Certificate. The Certificate provides that an amendment
thereof must first be approved by, a majority of the Board of Directors and
(with certain exceptions) thereafter approved by the holders of a majority of
the outstanding shares entitled to vote on such amendment or repeal and the
affirmative vote of a majority of the outstanding shares of each class entitled
to vote thereon as a class; provided however, that the affirmative vote of two-
thirds of the outstanding shares of each class entitled to vote thereon as a
class, is required to amend (i) provisions set forth in Article V therein
relating to stockholder actions at annual or
39
<PAGE>
special meetings of stockholders, (ii) provisions set forth in Article VI
therein relating to Directors of the Company, (iii) provisions set forth in
Article VII therein relating to the limitation of liability of Directors and
officers of the Company and (iv) provisions set forth in Article IX therein
relating to amendments to the Certificate.
Amendment of By-laws. The Certificate provides that the By-laws may be
amended or repealed by the Board of Directors or by the stockholders. Such
action by the Board of Directors requires the affirmative vote of a majority of
the directors then in office. Such action by the stockholders requires the
affirmative vote of the holders of at least two-thirds of the total votes
eligible to be cast by holders of voting stock with respect to such amendment or
repeal at an annual meeting of stockholders or a special meeting called for such
purpose, unless the Board of Directors recommends that the stockholders approve
such amendment or repeal at such meeting, in which case such amendment or repeal
shall only require the affirmative vote of a majority of the total votes
eligible to be cast by holders of voting stock with respect to such amendment or
repeal.
Statutory Business Combination Provision
Upon completion of the Offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law ("Section
203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or affiliate, or associate of such person, who is an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved by
the board of directors of the corporation before the person becomes an
interested stockholder, (ii) the interested stockholder acquired 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder (excluding shares owned by persons who are
both officers and directors of the corporation, and shares held by certain
employee stock ownership plans); or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined (with certain limited exceptions) as any
person that is (i) the owner of 15% or more of the outstanding voting stock of
the corporation or (ii) an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action of
its stockholders to exempt itself from coverage, provided that such by-law or
charter amendment shall not become effective until 12 months after the date it
is adopted. Neither the Certificate nor the By-laws contains any such exclusion.
Transfer Agent and Registrar
The Transfer Agent and Registrar of the Common Stock of the Company is
Boston Equiserve, L.P.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company has appointed Arthur Andersen LLP as the Company's independent
public accountants to audit the Company's financial statements as of and for the
year ending November 30, 1996. Arthur Andersen LLP has audited the Company's
historical financial statements as of November 30, 1994 and 1995 and for each of
the three years in the period ended November 30, 1995.
40
<PAGE>
ADDITIONAL INFORMATION
The Company has filed the Registration Statement with the Commission under
the Exchange Act with respect to the shares of Common Stock being received by
DTI stockholders in the Distribution. This Information Statement does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules 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 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
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and 7 World Trade Center, Suite 1300, 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.
41
<PAGE>
DATA TRANSLATION II, INC.
Index to Consolidated Financial Statements
Page
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of November 30, 1994 and 1995 and F-3
May 31, 1996 (unaudited)
Consolidated Statements of Operations for the Years Ended November 30, F-4
1993, 1994, and 1995 and for the Six Months Ended May 31, 1995
and 1996 (unaudited)
Consolidated Statements of Stockholder's Investment for the Years F-5
Ended November 30, 1993, 1994, and 1995 and for the Six Months
Ended May 31, 1996 (unaudited)
Consolidated Statements of Cash Flows for the Years Ended November 30, F-6
1993, 1994, and 1995 and for the Six Months Ended May 31, 1995
and 1996 (unaudited)
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
Report of Independent Public Accountants
To Data Translation II, Inc.:
We have audited the accompanying consolidated balance sheets of Data
Translation II, Inc. (a Delaware corporation and wholly-owned subsidiary of Data
Translation, Inc. ("DTI")) and subsidiaries as of November 30, 1994 and 1995 and
the related consolidated statements of operations, stockholder's investment and
cash flows for each of the three years in the period ended November 30, 1995.
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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Data Translation II, Inc. and
subsidiaries as of November 30, 1994 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
November 30, 1995, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
September 12, 1996
F-2
<PAGE>
DATA TRANSLATION II, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
November 30, November 30, May 31, Pro Forma
1994 1995 1996 May 31, 1996
---- ---- ---- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current Assets:
Cash $ - $ - $ - $ 10,000,000
Accounts receivable, net of reserves
of $238,000, $156,000 and $128,000 in
1994, 1995 and 1996, respectively 2,979,000 3,253,000 2,780,000 2,780,000
Inventories 968,000 1,086,000 1,352,000 1,352,000
Prepaid expenses 368,000 383,000 1,129,000 1,129,000
----------- ----------- ------------ ------------
Total current assets 4,315,000 4,722,000 5,261,000 15,261,000
Net assets of discontinued operations 1,920,000 2,232,000 1,789,000 1,789,000
Equipment and leasehold improvements, net 1,389,000 2,250,000 2,631,000 2,631,000
Other assets -- net 145,000 133,000 326,000 326,000
----------- ----------- ------------ ------------
Total Assets $ 7,769,000 $ 9,337,000 $ 10,007,000 $ 20,007,000
=========== =========== ============ ============
Current Liabilities:
Accounts payable $ 640,000 $ 716,000 $ 1,091,000 $ 1,091,000
Due to related party 546,000 - - -
Borrowings from bank - 39,000 - -
Accrued expenses 1,606,000 2,312,000 1,334,000 1,334,000
----------- ----------- ------------ ------------
Total current liabilities 2,792,000 3,067,000 2,425,000 2,425,000
Commitments and Contingencies (Note 9)
Stockholder's Investment:
Investment by DTI 4,950,000 6,102,000 7,318,000 -
Preferred stock, $.01 par value, -
Authorized 5,000,000 shares, issued
none - - - -
Common stock, $.01 par value, -
Authorized 30,000,000 shares,
8,043,205 shares issued and
outstanding at May 31, 1996 pro forma - - - 80,000
Additional paid-in capital - - - 17,238,000
Cumulative translation adjustment 27,000 168,000 264,000 264,000
----------- ----------- ------------ ------------
Total stockholder's investment 4,977,000 6,270,000 7,582,000 17,582,000
----------- ----------- ------------ ------------
Total Liabilities and Stockholder's
Investment $ 7,769,000 $ 9,337,000 $ 10,007,000 $ 20,007,000
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
DATA TRANSLATION II, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Fiscal Years Ended November 30,
------------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $ 23,733,000 $ 22,440,000 $ 21,826,000
Cost of sales 9,412,000 9,355,000 8,187,000
------------ ------------ ------------
Gross profit 14,321,000 13,085,000 13,639,000
Research and development expenses 3,165,000 3,041,000 2,806,000
Selling and marketing expenses 8,154,000 6,212,000 6,799,000
General and administrative expenses 2,580,000 1,924,000 1,627,000
------------ ------------ ------------
Income from operations 422,000 1,908,000 2,407,000
Interest expense (16,000) (1,000) (7,000)
Other income (expense) (210,000) 63,000 2,000
------------ ------------ ------------
Income from continuing operations 196,000 1,970,000 2,402,000
before tax provision
Provision for income taxes 75,000 798,000 966,000
------------ ------------ ------------
Income from continuing operations 121,000 1,172,000 1,436,000
Discontinued operations (Note 3):
Income (loss) from discontinued
operations of Data Translation
Networking, Limited. (less
applicable income tax provision
(benefit) of $(44,000), $163,000,
$10,000, $54,000, and $0, (126,000) 381,000 24,000
respectively) ------------ ------------ ------------
Net income (loss) $ (5,000) $ 1,553,000 $ 1,460,000
============ ============ ============
Income from continuing operations per
common share $ 0.22
Income (loss) from discontinued
operations per common share $ 0.00
------------
Net income (loss) per common share $ 0.22
============
Weighted average number of common
and common equivalent shares
outstanding 6,701,000
============
<CAPTION>
Six Months Ended
May 31,
---------------------------------
1995 1996
---- ----
(Unaudited)
<S> <C> <C>
Net sales $ 10,777,000 $ 10,757,000
Cost of sales 4,039,000 3,921,000
------------ ------------
Gross profit 6,738,000 6,836,000
Research and development expenses 1,346,000 1,703,000
Selling and marketing expenses 3,374,000 3,832,000
General and administrative expenses 735,000 882,000
------------ ------------
Income from operations 1,283,000 419,000
Interest expense (3,000) -
Other income (expense) 1,000 (50,000)
------------ ------------
Income from continuing operations
before tax provision 1,281,000 369,000
Provision for income taxes 512,000 147,000
------------ ------------
Income from continuing operations 769,000 222,000
Discontinued operations (Note 3):
Income (loss) from discontinued
operations of Data Translation
Networking, Limited. (less
applicable income tax provision
(benefit) of $(44,000), $163,000,
$10,000, $54,000, and $0, 105,000 (334,000)
respectively) ------------ ------------
Net income (loss) $ 874,000 $ (112,000)
============ ============
Income from continuing operations per
common share $ 0.03
Income (loss) from discontinued
operations per common share $ (0.04)
------------
Net income (loss) per common share $ (0.01)
============
Weighted average number of common
and common equivalent shares
outstanding 7,915,000
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
DATA TRANSLATION II, INC.
Consolidated Statements of Stockholder's Investment
<TABLE>
<CAPTION>
Pro Forma
Six Months Six Months
Fiscal Years Ended November 30, Ended Ended
1993 1994 1995 May 31, 1996 May 31, 1996
---------------------------------------------- ------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Investment by DTI
Balance - Beginning of Year $ 6,904,000 $ 5,018,000 $ 4,950,000 $ 6,102,000 $ 6,102,000
Net income (5,000) 1,553,000 1,460,000 (112,000) (112,000)
Impact of income taxes (75,000) (798,000) (966,000) (147,000) (147,000)
Net activity with DTI (1,806,000) (823,000) (658,000) 1,475,000 1,475,000
Pro forma contribution from DTI - - - - 10,000,000
Pro forma transfer to common stock
and additional paid-in capital - - - - (17,318,000)
----------- ----------- ----------- ----------- ------------
Balance - End of Year $ 5,018,000 $ 4,950,000 $ 6,102,000 $ 7,318,000 $ -
Common Stock
Balance - Beginning of Year $ - $ - $ - $ - $ -
Pro forma issuance of 8,043,205
shares of common stock, $.01 par value
per share - - - - 80,000
----------- ----------- ----------- ----------- ------------
Balance - End of Year $ - $ - $ - $ - $ 80,000
Additional Paid-in Capital
Balance - Beginning of Year $ - $ - $ - $ - $ -
Pro forma contribution from DTI - - - - 17,238,000
----------- ----------- ----------- ----------- ------------
Balance - End of Year $ - $ - $ - $ - $ 17,238,000
Cumulative Translation Adjustment
Balance - Beginning of Year $ (31,000) $ 4,000 $ 27,000 $ 168,000 $ 168,000
Translation adjustments 35,000 23,000 141,000 96,000 96,000
----------- ----------- ----------- ----------- ------------
Balance - End of Year $ 4,000 $ 27,000 $ 168,000 $ 264,000 $ 264,000
----------- ----------- ----------- ----------- ------------
Total Stockholder's Investment $ 5,022,000 $ 4,977,000 $ 6,270,000 $ 7,582,000 $ 17,582,000
=========== =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
DATA TRANSLATION II, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Fiscal Years Ended November 30, Six Months Ended May 31,
1993 1994 1995 1995 1996
----------------------------------------- ----------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (5,000) $ 1,553,000 $ 1,460,000 $ 874,000 $ (112,000)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities-
Depreciation and amortization 1,214,000 873,000 836,000 573,000 483,000
Changes in current assets and liabilities -
Accounts receivable 965,000 (460,000) (274,000) 647,000 473,000
Inventories 55,000 199,000 (118,000) (273,000) (266,000)
Prepaid expenses 279,000 (95,000) (15,000) (139,000) (746,000)
Net assets of discontinued operations (704,000) 350,000 (312,000) (340,000) 443,000
Accounts payable 71,000 (137,000) 76,000 (525,000) 375,000
Due to related party 546,000 - (546,000) (546,000) -
Accrued expenses 111,000 (403,000) 706,000 1,086,000 (978,000)
------------ ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities 2,532,000 1,880,000 1,813,000 1,357,000 (328,000)
------------ ----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Purchases of equipment and leasehold
improvements (617,000) (217,000) (1,617,000) (763,000) (839,000)
Increase in other assets (81,000) (65,000) (68,000) (37,000) (218,000)
------------ ----------- ----------- ----------- -----------
Net cash used in investing activities (698,000) (282,000) (1,685,000) (800,000) (1,057,000)
------------ ----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Net borrowings from bank 12,000 - 39,000 187,000 (39,000)
Impact of income taxes (75,000) (798,000) (966,000) (512,000) (147,000)
(Increase) decrease in investment by DTI (1,806,000) (823,000) 658,000 (243,000) 1,475,000
------------ ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities (1,869,000) (1,621,000) (269,000) (568,000) 1,289,000
------------ ----------- ----------- ----------- -----------
Exchange Rate Effects 35,000 23,000 141,000 11,000 96,000
------------ ----------- ----------- ----------- -----------
Change in Cash - - - - -
Cash, beginning of period - - - - -
------------ ----------- ----------- ----------- -----------
Cash, end of period $ - $ - $ - $ - $ -
============ =========== =========== =========== ===========
Supplemental Disclosure of Cash Flow
Information:
Cash paid for income taxes $ - $ - $ - $ - $ -
Cash paid for interest 16,000 1,000 7,000 3,000 -
============ =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
DATA TRANSLATION II, INC.
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Periods)
1. Background and Basis of Presentation
(a) Background
Data Translation II, Inc. ("the Company") was incorporated in September
1996 with 1,000 shares of Common Stock, $.01 par value, authorized and
outstanding, all of which are owned by Data Translation, Inc. ("DTI"). The Board
of Directors of DTI intends to declare a dividend payable to holders of record
of DTI common stock at the close of business on a record date to be determined
of one share of the Company's common stock for each share of DTI's common stock
held (the "Distribution"). As a result of the Distribution, 100% of the
outstanding shares of the Company's common stock will be distributed to DTI
stockholders. The Company expects the Distribution to be effective shortly after
the receipt of approval by the Securities Exchange Commission (the "Distribution
Date"). As of the Distribution Date, DTI will transfer to the Company
substantially all of the assets and liabilities of DTI's data acquisition and
imaging, networking distribution and commercial products businesses (the
"Transferred Businesses"). DTI will contribute to the Company $10 million which
will be increased or decreased based on the Company's results of operations
after August 31, 1996, and the sale of the networking distribution business. The
contribution will be distributed simultaneously with the Distribution.
Based on the law in effect as of the date of this Information Statement and
on certain facts beyond the control of the Company and DTI assumed to be true at
the time of the Distribution, DTI believes that the Distribution may qualify as
a tax-free distribution under Section 355 of the Internal Revenue Code (the
"Code"). However, there is a significant risk that the Distribution may not
qualify as a tax-free distribution. DTI has not requested and does not intend to
request a letter ruling from the Internal Revenue Service (the "IRS") nor has
DTI received an opinion of counsel on the tax treatment of the Distribution.
Further, the tax treatment of the Distribution is not entirely clear. The
Distribution does not appear to satisfy the IRS' published guidelines for
issuing advance letter rulings on the tax-free treatment of spin-off
transactions. The Distribution is not conditioned on either the receipt of a
letter ruling from the IRS or an opinion of counsel that the Distribution
qualifies as a tax-free distribution. If the Distribution were to fail to
qualify for such tax-free treatment, the Distribution may be taxable to DTI and
would be taxable to its stockholders receiving Company Stock pursuant thereto.
The Company designs, develops and manufactures high performance data
acquisition and imaging products for use with personal computers. The Company's
principal products are digital signal processing boards and software which
receive analog signals, convert them to digital form and process the digital
data.
(b) Basis of Presentation
The consolidated financial statements reflect the results of operations,
financial position, changes in stockholder's investment and cash flows of the
business that will be transferred to the Company from DTI in the Distribution as
if the Company were a separate entity for all periods presented. The
consolidated financial statements have been prepared using the historical basis
in assets and liabilities and historical results of operations related to the
Transferred Businesses. Changes in stockholder's investment represent DTI's
contribution of its net investment after giving effect to the net income of the
Company plus net cash transfers to or from DTI. The Company will begin
accumulating its retained earnings on the Distribution Date.
Additionally, the consolidated financial statements include allocations of
certain DTI corporate assets, liabilities and expenses relating to the
Transferred Businesses that will be transferred to the Company from DTI.
Management believes these allocations are reasonable. All material intercompany
transactions and balances between the Transferred Businesses have been
eliminated.
General corporate overhead related to corporate headquarters and common
support divisions will be allocated by the Company based on a number of factors
including, for example, personnel, space, time and effort, and sales volume.
Management believes these allocations are reasonable. However, the costs of
these services charged to the Company are not necessarily indicative of the
costs that would have been incurred if the Company had performed these functions
as a stand-alone entity. Subsequent to the Distribution, the Company will
allocate costs associated with certain shared services to DTI as disclosed in
the Corporate Services and Use and Occupancy Agreements (see Note 9(a)(iii)).
Additionally, income taxes are calculated on a separate tax return basis (see
Notes 2(i) and 10).
F-7
<PAGE>
DATA TRANSLATION II, INC.
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Periods)
(Continued)
The financial information included herein may not necessarily reflect the
consolidated results of operations, financial position, changes in stockholder's
investment and cash flows of the Company in the future or what they would have
been had it been a separate, stand-alone entity during the periods presented.
2. Summary of Significant Accounting Policies
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
(b) 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
disclosure 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.
(c) Inventories
Inventories are stated at the lower of first-in, first-out ("FIFO") cost or
market and consist of the following:
<TABLE>
<CAPTION>
November 30, May 31,
-----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Raw materials $564,000 $ 629,000 $ 880,000
Work in-process 18,000 20,000 11,000
Finished goods 386,000 437,000 461,000
-------- ---------- ----------
$968,000 $1,086,000 $1,352,000
======== ========== ==========
</TABLE>
Work in-process and finished goods inventories include material, labor and
manufacturing overhead. Management performs periodic reviews of inventory and
disposes of items not required by their manufacturing plan.
(d) Depreciation and Amortization
The Company provides for depreciation and amortization, using the straight-
line and declining balance methods, by charges to operations in amounts that
allocate the cost of the equipment and leasehold improvements over the following
estimated useful lives:
Description Useful Lives
----------- ------------
Machinery and equipment................. 3 to 7 years
Furniture and fixtures.................. 7 years
Vehicles................................ 3 years
Leasehold improvements are amortized over the shorter of their economic
life or the life of the lease.
F-8
<PAGE>
DATA TRANSLATION II, INC.
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Periods)
(Continued)
(e) Equipment and Leasehold Improvements, Net
Equipment and leasehold improvements are stated at cost, less accumulated
depreciation and amortization, and consist of the following:
<TABLE>
<CAPTION>
November 30, May 31,
-----------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Machinery and equipment $12,777,000 $14,206,000 $14,496,000
Furniture and fixtures 2,046,000 2,171,000 2,310,000
Vehicles 87,000 87,000 87,000
Leasehold improvements 1,480,000 1,543,000 1,953,000
----------- ----------- -----------
16,390,000 18,007,000 18,846,000
Less - accumulated depreciation 15,001,000 15,757,000 16,215,000
and amortization ----------- ----------- -----------
$ 1,389,000 $ 2,250,000 $ 2,631,000
=========== =========== ===========
</TABLE>
(f) Foreign Currency
The Company translates the assets and liabilities of its foreign
subsidiaries at the rates of exchange in effect at year-end. Revenues and
expenses are translated using exchange rates in effect during the year. Gains
and losses from foreign currency translation are credited or charged to
"Cumulative translation adjustment" included in stockholder's investment in the
accompanying consolidated balance sheets. Foreign currency transaction gains and
losses are included in "Other income (expense)" on the accompanying consolidated
statements of operations. Foreign currency transaction losses for the year ended
November 30, 1993 were approximately $180,000. Foreign currency transaction
gains and losses were not significant for the years ended November 30, 1994 and
1995 and for the six months ended May 31, 1995 and 1996.
(g) Revenue Recognition
The Company recognizes revenue when products are shipped. Costs of service
and warranty are not significant and are charged to operations as incurred.
Revenues from hardware systems with other than incidental software components
and stand alone software sales are recognized upon shipment, provided that no
significant vendor or postcontract support obligations remain outstanding and
collection of the resulting receivable is deemed to be probable.
(h) Research and Development Costs
In accordance with Statement of Financial Accounting Standard ("SFAS") No.
2, Accounting for Research and Development Costs, the Company charges research
and development costs to operations as incurred. However, in accordance with
SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased,
or Otherwise Marketed, the Company capitalizes certain computer software
development costs upon establishing technological feasibility. Capitalized
costs, net of accumulated amortization, were approximately $119,000, $106,000
and $301,000 as of November 30, 1994, 1995 and May 31, 1996, respectively, and
are included in other assets. These costs are amortized on a straight-line basis
over two years, which approximates the economic life of the product.
Amortization expense, included in cost of sales in the accompanying consolidated
statements of operations, was $60,000, $90,000, $80,000, $35,000 and $25,000 in
1993, 1994, 1995 and the six months ended May 31, 1995 and 1996, respectively.
F-9
<PAGE>
DATA TRANSLATION II, INC.
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Periods)
(Continued)
(i) Income Taxes
Historically, the Company's operations have been included in the
consolidated income tax returns filed by DTI. The provision for income taxes in
the Company's consolidated financial statements has been calculated on a
separate tax return basis (see Note 10).
(j) Interim Financial Statements
The financial statements as of May 31, 1996 and the six months ended May
31, 1995 and 1996 are unaudited but, in the opinion of management, reflect all
adjustments of a normal recurring nature necessary for a fair presentation of
results for these interim periods. The results of operations for the six months
ended May 31, 1996 are not necessarily indicative of the results to be expected
for the entire year or any other interim period.
(k) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit
Risk, requires disclosure of any significant off-balance sheet and credit risk
concentrations. The Company has no significant off-balance sheet concentration
of credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements.
(l) Disclosure About Fair Value of Financial Instruments
SFAS No. 107, Disclosure About Fair Market Value of Financial Instruments,
requires disclosure of estimated fair values for certain of its financial
instruments. The Company's financial instruments include accounts receivable and
accounts payable. The carrying amounts of these financial instruments
approximate their fair value.
(m) Stock-based Compensation Plans
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. The Company has adopted the disclosure option of SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 123 requires that companies
which do not choose to account for stock-based compensation as prescribed by
this statement, shall disclose the pro forma effects on earnings and earnings
per share as if SFAS No. 123 had been adopted. Additionally, certain other
disclosures are required with respect to stock compensation and the assumptions
used to determine the pro forma effects of SFAS No. 123. As of May 31, 1996, the
Company has no reporting requirements under SFAS No. 123 as no stock option
grants have been made under the Company's 1996 Stock Option Plan (see Note 5).
(n) Pro Forma Presentation
The pro forma consolidated balance sheet and pro forma consolidated
statement of stockholder's investment as of May 31, 1996 reflect (1) the
contribution of $10 million from DTI simultaneously with the Distribution, which
will be increased or decreased based on the results of operations of the
Transferred Businesses after August 31, 1996, plus the net proceeds from the
possible sale prior to the Distribution of the networking distribution business
and (2) the distribution of the investment by DTI to the existing stockholders
of DTI in the form of a one for one stock dividend as discussed in Note 1(a) and
reflects the capitalization of the Company. The pro forma stockholder's
investment excludes any tax considerations pertaining to the Distribution.
F-10
<PAGE>
DATA TRANSLATION II, INC.
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Periods)
(Continued)
3. Discontinued Operations
On July 30, 1996, the Company announced its strategic decision to
discontinue the operations comprising its networking business. The networking
operations comprise Data Translation Networking, Limited ("Networking") which
distributes, integrates and supports enterprise wide networking products
manufactured by third party suppliers in the United Kingdom.
The Company estimates the loss from discontinued operations during the two
month period ended July 30, 1996 to be approximately $484,000. The Company
estimates the loss on disposal to be approximately $1,019,000 before applicable
income taxes, which includes estimated operating losses of $718,000 to be
incurred during the period from July 31, 1996 to November 30, 1996, the
estimated sale date, and a provision of $302,000 for estimated direct disposal
costs to be incurred on the sale of Networking.
Sales from Networking were approximately $10,850,000, $15,382,000,
$20,348,000, $9,251,000, and $12,705,000 for the years ended November 30, 1993,
1994, and 1995 and the six months ended May 31, 1995 and 1996, respectively.
The components of net assets of discontinued operations included in the
accompanying consolidated balance sheets at November 30, 1994 and 1995 and May
31, 1996 follow:
<TABLE>
<CAPTION>
November 30, May 31,
------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash $ 814,000 $ - $ -
Accounts receivable 3,039,000 5,742,000 3,404,000
Inventories 1,139,000 2,546,000 3,337,000
Prepaid expenses 173,000 337,000 898,000
Equipment and leasehold
improvements, net 199,000 233,000 259,000
Accounts payable (2,728,000) (3,903,000) (2,476,000)
Borrowings from a bank - (657,000) (1,819,000)
Accrued expenses (716,000) (2,066,000) (1,814,000)
----------- ----------- -----------
$ 1,920,000 $ 2,232,000 $ 1,789,000
=========== =========== ===========
</TABLE>
4. Net Income Per Common Share
The Company has 1,000 shares of Common Stock outstanding, all of which are
owned by DTI. Effective with the Distribution discussed in Note 1(a),
stockholders of DTI would receive one share of the common stock of the Company
for each common stock share held of DTI. Accordingly, the net income per common
share was calculated by dividing net income by the sum of the weighted average
number of shares of common stock plus common equivalent shares of DTI. Common
equivalent shares are calculated using the treasury stock method and considered
outstanding for all periods presented. Fully diluted net income per common share
has not been separately presented, as the amounts would not be materially
different from net income per share.
F-11
<PAGE>
DATA TRANSLATION II, INC.
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Periods)
(Continued)
5. Stock Option Plan
Effective with the Distribution, the Company will adopt the 1996 Stock
Option Plan (the "1996 Stock Option Plan") for its key employees, directors, and
others, which permits the grant of stock options as approved by the Company's
Board of Directors. 1,000,000 shares of common stock have been reserved for
issuance under the 1996 Stock Option Plan. Options granted pursuant to the 1996
Stock Option Plan may, at the discretion of the Board, be incentive stock
options as defined by the Internal Revenue Code. Subject to the provisions of
the 1996 Stock Option Plan, options granted are at a price as specified by the
Board. The Board will determine when the options will vest and expire, but in no
event will the option period exceed ten years.
Employees of the Company currently participate in DTI's incentive plans.
DTI currently maintains and has outstanding options under its 1992 Key Employee
Incentive Plan and its 1982 Key Employee Incentive Plan (collectively the
"Incentive Plans"). Each current holder of an option to purchase shares of DTI
Stock outstanding under the Incentive Plans (an "Old DTI Option") will have the
exercise price of such Old DTI Options adjusted (a "New DTI Option") and will
receive a new option for the same number of shares to purchase Common Stock
under the 1996 Stock Option Plan (a "Company Option"). Each Company Option will
have the same terms, including expiration dates and vesting provisions, as the
Old DTI Options, except for exercise prices. The exercise prices of the Company
Options and the Old DTI Options, will be adjusted to preserve the Aggregate
Spread (as defined below) in value attributed to the Old DTI Options held by
each employee, which will be based on the relative trading prices of the Company
Stock and the DTI Stock following the Distribution. The "Aggregate Spread"
means, with respect to any Old DTI Option, an amount equal to (a) the difference
between the exercise price of such Old DTI Option and the market price per share
of DTI Stock immediately prior to the Distribution multiplied by (b) the
aggregate number of shares of DTI Stock underlying such Old DTI Option.
Subject to certain conditions, employees of the Company and DTI will be
paid an amount in cash intended to compensate them for the loss of incentive
stock option treatment under the Code with respect to options they hold in the
company which is not their employer following the Distribution. Such amount will
be paid by the company which has issued the option, will be determined by such
company in its discretion and will not exceed the value of the corresponding tax
benefit to such company.
6. Employee Stock Purchase Plan
Effective with the Distribution, the Company will establish an Employee
Stock Purchase Plan (the "Stock Purchase Plan") which permits the eligible
employees of the Company and its subsidiaries to purchase shares of the
Company's common stock, at a discount, through regular monthly payroll
deductions of up to 10% of their pre-tax gross salary. Subject to adjustment for
stock splits, stock dividends and similar events, a maximum of 500,000 shares of
common stock may be issued under the Stock Purchase Plan.
7. Retirement Plan
The majority of the Company's employees have been eligible to participate
in DTI's employee savings plan (the "Savings Plan") in compliance with Section
401(k) of the Internal Revenue Code. The Savings Plan provides for annual
Company contributions of up to 15% of the first 6% of total salary per
participant. These contributions vest incrementally over a five-year period. The
Company's contributions to the Savings Plan charged to operations were $63,000,
$0, $28,000, $7,000 and $28,000 in 1993, 1994 and 1995 and the six months ended
May 31, 1995 and 1996, respectively.
The Company does not provide postretirement benefits to any employees as
defined under SFAS No. 106, Employer's Accounting for Postretirement Benefits
Other Than Pensions.
8. Bank Facilities
The Company's United Kingdom subsidiary, Data Translation Ltd., has a bank
overdraft facility of approximately $150,000. The facility bears interest at the
bank's base rate (6.0% at May 31, 1996) plus 1.75%. No amounts were outstanding
at November 30, 1994 and May 31, 1996. Approximately $39,000 was outstanding at
November 30, 1995.
9. Commitments and Contingencies
(a) Intercompany Agreements
(i) Distribution Agreement
As discussed in Note 1, the Distribution Agreement will provide for
indemnification of DTI by the Company in a manner designed to place financial
responsibility with the Company for specified liabilities arising out of the
Transferred Businesses, including such liabilities prior to the Distribution.
DTI will indemnify the Company for liabilities arising out of the Retained
Business both prior to and after the Distribution.
The Distribution Agreement will contain certain provisions relating to
employee compensation and benefits and the treatment of options to purchase DTI
Stock held by both employees of DTI who will become employees of the Company and
employees of DTI who will remain employees of DTI. The Distribution Agreement
will provide for the establishment by the Company of a stock option plan, an
employee stock purchase plan and retirement and savings plan similar to those
maintained by DTI, and the transfer of certain assets and liabilities relating
to the Company's employees from the DTI plans to the Company's plans. The
Distribution Agreement also will provide for the establishment by the Company of
employee welfare plans similar to those maintained by DTI.
The Distribution Agreement also will provide for a tax sharing arrangement
between the Company and DTI. Pursuant to such agreement, DTI will be solely
responsible for any tax liabilities relating to periods prior to the
Distribution Date, and is entitled to any tax refunds relating to such periods.
After the Distribution Date, each of the Company and DTI will be responsible for
tax liabilities relating to their respective operations.
With respect to any liability relating to the Distribution being deemed a
taxable transaction, DTI will be responsible for 75% of any such liability and
the Company will be responsible for 25% of any such liability; provided,
however, that if the Distribution is deemed a taxable transaction as a result of
certain actions taken, caused by or within the control of either DTI or the
Company, such party shall be solely responsible for the resulting tax liability.
(ii) Intellectual Property Agreement
On or prior to the Distribution Date, the Company and DTI will enter into
an Intellectual Property Agreement, pursuant to which DTI will assign to the
Company those trademarks, trade secrets, know-how, patents and patent
applications that are used exclusively or primarily in the Transferred
Businesses. DTI will retain the trademarks, trade secrets, know-how, patents and
patent applications that are used exclusively or primarily in the Retained
Business.
The Intellectual Property Agreement will further provide for royalty-free
perpetual cross-licenses to each of DTI and the Company, as the case may be, for
all technologies covered by existing patents and patent applications held by DTI
and the company, respectively. The parties will also cross-license to each other
technologies under patents issued pursuant to applications made in the two year
period following the Distribution. The parties may not sell or sublicense
technology to which they are the licensee; rather they may only use such
technology in their own products. The cross-licensed technology may only be
transferred by the licensee in connection with a sale of the licensee's business
as a going concern. The cross-licenses provide for termination upon certain
changes in control with respect to patents issued pursuant to applications made
after August 31, 1996.
The parties will also cross-license each other under trade secrets and
know-how. Like the patent cross-licenses, these licenses will be royalty-free
and only transferable in the event of a sale of the business as a going concern.
All employees of each company will sign non-disclosure agreements which
acknowledge non-disclosure obligations with respect to the other company.
(iii) Corporate Services and Use and Occupancy Agreements
Effective as of the Distribution Date, the Company and DTI will have
corporate services and use and occupancy agreements under which the Company will
provide DTI with certain facilities, equipment and administrative services
including accounting and finance, human resources and benefit administration
services, information systems and support, computer-aided design, manufacturing
engineering, mail distribution, purchasing, document control, production
planning, manufacturing management and supervisory and other services as
required. DTI will pay the Company in accordance with predetermined rates and
fees as mutually agreed upon.
F-12
<PAGE>
DATA TRANSLATION II, INC.
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Periods)
(Continued)
Management believes that the rates and fees charged by the Company are
reasonable and that such fees are representative of the expenses DTI would have
incurred on a stand-alone basis. The corporate services agreement shall remain
in effect until the earlier of the discontinuance or termination of all services
to be provided or December 31, 1997.
Prior to the corporate services agreement, related expenses were allocated
based on estimated time spent relating directly to the Company's activities.
Management believes these allocations are reasonable. Allocated expenses under
these agreements totaled $4,007,000, $3,567,000, $2,545,000, $1,112,000 and
$2,096,000 in fiscal years 1993, 1994, and 1995 and for the six months ended May
31, 1995 and 1996, respectively.
(b) Contingencies
From time to time, the Company is involved in other disputes and/or
litigation encountered in its normal course of business. The Company does not
believe that the ultimate impact of the resolution of such other outstanding
matters will have a material effect on the Company's financial condition or
results of operations.
(c) Lease Commitments
The Company has operating lease agreements expiring December 1, 1999 for a
building and property owned by a related party trust. The agreements provide for
aggregate minimum annual rental payments plus other expenses of the lessor on a
net basis. Total rental expense charged to operations on these leases included
in the accompanying consolidated statements of operations was approximately
$874,000, $732,000, $633,000, $317,000 and $273,000 for each of the years ended
November 30, 1993, 1994, and 1995 and the six month periods ended May 31, 1995
and 1996, respectively.
In addition, the Company leases sales facilities and equipment under leases
expiring through 2000. Rent expense under these agreements totaled $237,000,
$229,000, $425,000, $155,000, and $128,000 in the years ended November 30, 1993,
1994, and 1995 and the six months ended May 31, 1995 and 1996, respectively.
Future minimum lease payments under all operating leases are as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended November 30, Amount
------
<S> <C>
1996 $ 906,000
1997 1,897,000
1998 1,316,000
1999 1,283,000
2000 130,000
Thereafter 3,000
----------
Total minimum lease payments $5,535,000
==========
</TABLE>
F-13
<PAGE>
DATA TRANSLATION II, INC.
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Periods)
(Continued)
10. Income Taxes
The income tax provision in the accompanying consolidated statements of
operations has been calculated on a separate tax return basis. Prior to the
spin-off to the stockholders as discussed in Note 1(a), the Company filed its
tax return as part of a consolidated group with DTI. The consolidated group
did not have any net tax requirements during any of the periods presented due to
the utilization of net operating losses of its other entities. Thus, the
offsetting charge for the income tax provision has been included as an element
of the "Investment by DTI" in the accompanying consolidated statements of
stockholder's investment. The financial information included herein may not
necessarily reflect the consolidated results of operations of the Company in the
future or what they would have been had it been a separate, stand-alone entity
during the periods presented.
The Company has accounted for income taxes in accordance with the
provisions of SFAS No. 109. The approximate tax effect of each type of temporary
difference is summarized as follows:
<TABLE>
<CAPTION>
November 30, May 31,
------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Depreciation $304,000 $387,000 $428,000
Nondeductible reserves and accruals 385,000 568,000 388,000
Capitalized software development costs (47,000) (43,000) (121,000)
-------- -------- ---------
642,000 912,000 695,000
======== ======== =========
</TABLE>
The income tax provision (benefit) shown in the accompanying consolidated
statements of operations comprise the following:
<TABLE>
<CAPTION>
November 30, May 31,
------------------------------------
1993 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Federal:
Current $ 565,000 $693,000 $ 920,000 $(46,000)
Deferred (249,000) (27,000) (209,000) 168,000
State:
Current 164,000 202,000 268,000 (12,000)
Deferred (73,000) (8,000) (61,000) 49,000
Foreign - Current (benefit) (332,000) (62,000) 48,000 (12,000)
--------- -------- --------- --------
$ 75,000 $798,000 $ 966,000 $147,000
========= ======== ========= ========
</TABLE>
The effective income tax rate varies from the amount computed using the
statutory U.S. income tax rate due to the effect of state and foreign income
taxes.
F-14
<PAGE>
DATA TRANSLATION II, INC.
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Periods)
(Continued)
11. Geographic Information
Operations in various geographic areas for the three years ended November
30, 1995 and six month period ended May 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Domestic Foreign Eliminations Consolidated
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Fiscal 1993
Sales to unaffiliated customers(1) $18,689,000 $5,044,000 $ - $23,733,000
Sales or transfers between geographic
areas 2,672,000 - (2,672,000) -
----------- ---------- ----------- -----------
Total net sales $21,361,000 $5,044,000 $(2,672,000) $23,733,000
----------- ---------- ----------- -----------
Income (loss) before provision for
income taxes $ 837,000 $ (730,000) $ 89,000 $ 196,000
=========== ========== =========== ===========
Identifiable assets from continuing
operations (2) $ 6,502,000 $1,333,000 $(1,751,000) $ 6,084,000
=========== ========== =========== ===========
Fiscal 1994
Sales to unaffiliated customers(1) $18,272,000 $4,168,000 $ - $22,440,000
Sales or transfers between geographic
areas 2,104,000 - (2,104,000) -
----------- ---------- ----------- -----------
Total net sales $20,376,000 $4,168,000 $(2,104,000) $22,440,000
----------- ---------- ----------- -----------
Income (loss) before provision for
income taxes $ 2,185,000 $ (154,000) $ (61,000) $ 1,970,000
=========== ========== =========== ===========
Identifiable assets from continuing
operations (2) $ 5,751,000 $1,418,000 $(1,320,000) $ 5,849,000
=========== ========== =========== ===========
Fiscal 1995
Sales to unaffiliated customers(1) $17,692,000 $4,134,000 $ - $21,826,000
Sales or transfers between geographic
areas 1,919,000 - (1,919,000) -
----------- ---------- ----------- -----------
Total net sales $19,611,000 $4,134,000 $(1,919,000) $21,826,000
----------- ---------- ----------- -----------
Income before provision for income
taxes $ 2,275,000 $ 120,000 $ 7,000 $ 2,402,000
=========== ========== =========== ===========
Identifiable assets from continuing
operations (2) $ 7,004,000 $1,557,000 $(1,456,000) $ 7,105,000
=========== ========== =========== ===========
Fiscal 1996 (through May 31, 1996)
Sales to unaffiliated customers(1) $ 8,843,000 $1,914,000 $ - $10,757,000
Sales or transfers between geographic
areas 1,017,000 - (1,017,000) -
----------- ---------- ----------- -----------
Total net sales $ 9,860,000 $1,914,000 $(1,017,000) $10,757,000
----------- ---------- ----------- -----------
Income (loss) before provision for
income taxes $ 223,000 $ (31,000) $ 177,000 $ 369,000
=========== ========== =========== ===========
Identifiable assets from continuing
operations (2) $ 8,192,000 $1,453,000 $(1,427,000) $ 8,218,000
=========== ========== =========== ===========
</TABLE>
(1) Foreign sales from the United States to unaffiliated customers for the
years ended November 30, 1993, 1994 and 1995 and the six months ended May
31, 1996 were approximately $3,511,000, $3,547,000, $3,748,000 and
$1,961,000, respectively.
(1) Excludes net assets of discontinued operations of $2,270,000, $1,920,000,
$2,232,000, and $1,789,000 as of November 30, 1993, 1994, and 1995 and May
31, 1996, respectively.
12. Accrued Expenses
F-15
<PAGE>
DATA TRANSLATION II, INC.
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Periods)
(Continued)
Accrued expenses consist of the
following:
<TABLE>
<CAPTION>
November 30, May 31,
--------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Payroll and related taxes $ 428,000 $ 551,000 $ 425,000
Bonuses and commissions 50,000 15,000 172,000
Accrued inventory 111,000 69,000 119,000
Other 1,017,000 1,677,000 618,000
---------- ---------- ----------
$1,606,000 $2,312,000 $1,334,000
========== ========== ==========
</TABLE>
13. Valuation and Qualifying Accounts
The following table sets forth activity in the Company's accounts
receivable reserve account:
<TABLE>
<CAPTION>
Beginning Cost and End of
Balance At of Year Expense Deductions Year
------- ------- ---------- ----
<S> <C> <C> <C> <C>
For the Year Ended November 30, 1993 $273,000 $148,000 $174,000 $247,000
For the Year Ended November 30, 1994 $247,000 $172,000 $181,000 $238,000
For the Year Ended November 30, 1995 $238,000 $(46,000) $ 36,000 $156,000
For the Six Months Ended May 31, 1996 $156,000 $ 2,000 $ 30,000 $128,000
</TABLE>
F-16
<PAGE>
II. INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
Item 10. Recent Sales of Unregistered Securities.
The Registrant has issued no securities other than shares of its common
stock issued to Data Translation in September, 1996. Such issuance did not
involve an underwriter, and no discount or commission was paid in connection
therewith. The Registrant relied on the exemption contained in Section 4(2) of
the Securities Act of 1933, as amended.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
Schedules for which provision is made in the applicable regulations of the
Securities and Exchange Commission have been omitted because the information is
disclosed in the financial statements or because such schedules are not required
or are not applicable. See Index to Consolidated Financial Statements.
(b) Exhibits
3.1* Form of Certificate of Incorporation of Registrant
3.2* Form of By-laws of Registrant
4.1* Form of Stock Certificate of Common Stock (See also
Exhibits 3.1 and 3.2)
10.1* Form of Distribution Agreement
10.2* Form of Intellectual Property Agreement
10.3* Form of Corporate Services Agreement
10.4* Form of Lease
10.5* Form of Employee Non-disclosure Agreement
10.6* Form of 1996 Stock Option Plan
10.7* Form of Employee Stock Purchase Plan
21* List of Subsidiaries of the Company as of the
Distribution Date
99.1 Information Statement of Data Translation II, Inc.
(included as Part I of this Registration Statement)
99.2* Consents of Persons Named to Become Directors
--------------------------------------------------------------------
* To be filed by Amendment
<PAGE>
SIGNATURES
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.
DATA TRANSLATION II, INC.
By: /s/ Alfred A. Molinari, Jr.
---------------------------------------
Alfred A. Molinari, Jr., President
Date: September 12, 1996
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Document Description
- -------------- --------------------
<S> <C>
3.1* Form of Certificate of Incorporation of Registrant
3.2* Form of By-laws of Registrant
4.1* Form of Stock Certificate of Common Stock (See also Exhibits 3.1 and 3.2)
10.1* Form of Distribution Agreement
10.2* Form of Intellectual Property Agreement
10.3* Form of Corporate Services Agreement
10.4* Form of Lease
10.5* Form of Employee Non-disclosure Agreement
10.6* Form of 1996 Stock Option Plan
10.7* Form of Employee Stock Purchase Plan
21* List of Subsidiaries
99.1 Information Statement of Data Translation II, Inc.
(included as Part I of this Registration Statement)
99.2* Consents of Persons Named to Become Directors
</TABLE>
- --------------------------------------------------------------------------------
* To be filed by Amendment
