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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD TO
COMMISSION FILE NUMBER: 000-22037
ATL PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-3824281
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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2801 KELVIN AVENUE, IRVINE, CALIFORNIA 92614
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 774-6900
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, $.0001 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
Based on the closing sale price on Nasdaq National Market on June 20, 1997,
the aggregate market value of the voting stock held by nonaffiliates of the
registrant was $16,424,000. For the purposes of this calculation, shares owned
by officers, directors and 10% stockholders known to the registrant have been
deemed to be owned by affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other proposes.
The Company has two classes of common stock authorized, the Class A Stock
and the Class B Common Stock. The rights, preferences and privileges of each
class of common stock are identical in all respects except for voting rights.
Each share of Class A Common Stock entitles its holder to one vote and each
share of Class B Common Stock entitles its holder to .05 votes. As of June 20,
1997, there were 9,655,000 shares of Class A Common Stock outstanding and no
shares of Class B Common Stock were outstanding. Unless otherwise indicated, all
references herein to "Common Stock" shall refer to the Company's Class A Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the
registrant's definitive proxy statement (the "Proxy Statement") for the Annual
Meeting of the Stockholders scheduled to be held on September 4, 1997.
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ATL PRODUCTS, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS................................................................ 1
ITEM 2. PROPERTIES.............................................................. 13
ITEM 3. LEGAL MATTERS........................................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................... 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS... 14
ITEM 6. SELECTED FINANCIAL DATA................................................. 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................. 20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.................................................... 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................... 21
ITEM 11. EXECUTIVE COMPENSATION.................................................. 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......... 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................... 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K........ 21
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Note: When used in this Annual Report on Form 10-K and the information
incorporated herein by reference, the words "expect(s)," "feel(s),"
"believe(s)," "will," "may," "anticipate(s)," and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
certain risks and uncertainties which could cause actual results to differ
materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements which speak only as of the date
hereof. ATL Products, Inc. undertakes no obligation to republish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. Readers are also
urged to carefully review and consider the various disclosures made by the
Company which describe certain factors which affect the Company's business,
including the risk factors set forth at the end of Part I, Item 1 of this Report
and the disclosure in Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," as well as in the Company's
Registration Statement on Form S-1 (No. 333-18537), as amended, as filed with
the Securities and Exchange Commission.
PART I
ITEM 1. BUSINESS
GENERAL
ATL Products, Inc. (the "Company") designs, manufactures, markets and
services automated magnetic tape libraries used to manage, store and transfer
data in networked computing environments. The Company is a leading provider of
Digital Linear Tape ("DLT") automated tape libraries for the high end of the
networked computing market (one terabyte capacity and above). The Company's
products provide a high performance, reliable, cost effective and scalable
storage solution for organizations requiring the backup, archival and recovery
of critical computer data.
The Company's products incorporate DLT tape drives as well as the Company's
proprietary IntelliGrip cartridge handling system, providing end users with
rapid and reliable access to computer data across a wide variety of networks.
The Company's proprietary robotics system within each automated tape library
provides additional speed and reliability due to the accurate and timely manner
in which tape cartridges are loaded and unloaded into the DLT drives. The
Company's products are compatible with commonly used network operating systems,
protocols and topologies as well as with a broad range of storage management
software. In addition, these products are highly scalable and permit flexible
configuration. For example, the Company's 2640 Series is capable of storing 9.2
terabytes of data as a standalone unit or up to 46 terabytes of data with the
SystemLink Option, which links up to five 2640 units together for larger storage
requirements.
The Company was established in 1990 as a division of Odetics, Inc., a
Delaware corporation ("Odetics"), was incorporated in California in February
1993 as a wholly owned subsidiary of Odetics and was reincorporated in Delaware
in December 1996. The Company's executive offices are located at 2801 Kelvin
Avenue, Irvine, California 92614, and its telephone number at that location is
(714) 774-6900.
INDUSTRY BACKGROUND
Cartridge based magnetic tape has gained increased popularity for backing
up, archiving and recovering data in distributed computing environments due to
its cost effectiveness, high reliability and its ability to provide nearline
availability of data. Magnetic tape solutions have evolved considerably over the
past twenty years and have historically included two distinct technologies:
linear recording technology such as the 3480 and QIC which provided high data
integrity and rapid data accessibility but relatively low storage density; and
helical tape technology such as the 8 mm and 4 mm tape systems which provided
higher density, but generally resulted in lower data transfer rates, increased
maintenance requirements, less effective access to random data and reduced data
integrity.
DLT, a tape format introduced by Digital Equipment Corporation ("DEC") in
1993 and acquired by Quantum Corporation ("Quantum") in 1994, incorporates the
key advantages of linear recording and helical tape technologies into a single
technology. DLT is a high performance, half inch, linear serpentine recording
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tape solution designed to meet the capacity and reliability needs of high duty
cycle applications such as network server backup devices, midrange applications,
multimedia processes and online transactions. The Company believes DLT tape
drives offer certain performance, durability, error correction, cost and
reliability advantages over competitive technologies, including high speed data
transfer rates, greater capacity and better data integrity than other tape
formats, and, in general, represent a balance between price and performance for
the distributed computing environment.
In selecting alternatives for the protection, management and storage of
data, network administrators are primarily concerned with providing a storage
solution that meets their own needs for availability and capacity. To provide a
complete storage solution, however, tape library systems must also meet the
demanding needs of users relying on the network on a continuing basis.
Therefore, key criteria used to evaluate storage alternatives also include the
following: (i) reliability of the mechanical assemblies which handle and
transport storage media, (ii) the degree of system automation, (iii) the
compatibility with existing network operating systems, protocols and topologies,
(iv) the expandability and upgradeability of the storage device over time, (v)
the expected life cycle of the product, and (vi) the physical configuration of
the equipment. All of these factors must be considered in the context of the
overall operational cost of a given storage system, which includes both the
upfront cost of a particular storage system, as well as the annual cost of
operating, maintaining and supporting the systems and its users.
PRODUCTS
The Company's product families consist of the ATL 7100, the ATL 520 and the
ATL 2640 Automated DLT Library Series. Within each product family, customers may
specify the type and quantity of DLT drives, the maximum number of cartridges
and a number of interface options. The Company's products are compatible with
major hardware platforms including Sun Microsystems, DEC, Hewlett-Packard, IBM,
Auspex and Data General, and are supported by approximately 40 storage
management software applications.
The Company's products incorporate electromechanical and robotic systems
under the precise digital control of dedicated electronics utilizing the
Motorola 68332 microcontroller. These electronics control the robot, load port,
tape drives, control panel, position sensors and environmental sensors. The
products also include a wide variety of SCSI-2 interfaces configured to meet
specific needs of end users. The wide SCSI-2 interface permits data transfer at
rates up to 20 megabytes per second on each host connection. The assignment of
the library and drives among the SCSI interfaces may be selected at installation
of the products. The products permit sharing of the library among several hosts
to permit, for example, concurrent backup from several local area networks.
All of the Company's current products are based upon DLT technology which
is a high performance, half inch, linear tape solution. The Company believes
that DLT tape drives offer certain performance, reliability, durability, error
correction and cost advantages over competitive technologies which result in
greater capacity, higher transfer rates and better data integrity than other
tape offerings. The Company currently offers three series of products with a
range of performance characteristics; the 7100 Series, the 520 Series, and the
2640 Series. All three product series can be configured utilizing either DLT4000
or DLT7000 drives.
7100 Series
In November 1996, the Company announced the introduction of its 7100 Series
which the Company commenced shipping in March 1997. The 7100 Series affords a
cost effective solution for enterprise system administrators by providing
multi-terabyte backup and archiving capability in a compact system
configuration, with a high degree of commonality with the products in the 520
Series in terms of parts, operations and training. The 7100 Series was designed
for network environments requiring online disk capacities which will exceed 250
gigabytes in the near future. The products in the 7100 Series are particularly
appropriate for environments which already contain products in the 520 Series
due to the high degree of operational and support compatibility between these
two product families. The 7100 Series also represents an attractive choice for
rapidly growing network environments as a result of the relatively low entry
costs of these products and the significant potential offered for cost effective
field upgrades.
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The 7100 Series currently includes twelve product configurations which
contain between two and seven DLT4000 or DLT7000 drives and are available with
either a 68 or 100 maximum cartridge capacity. The 7100 Series delivers capacity
ranging from 1.4 to 3.5 terabytes and backup performance of up to 126 gigabytes
per hour. A fully configured 7100 library achieving a 2:1 data compression can
backup a one terabyte database in only four hours. In addition, the 7100 Series
libraries can provide room for seven generations of a single terabyte backup.
The 7100 Series also includes several advanced features such as a touch screen
control panel with a browser-like GUI for "point-and-click" library management
as well as enhanced access to both the DLT drives and cartridges. The 7100
Series will also permit "hot swap" of the DLT drives during library operation to
maximize library availability.
The end user list prices for products in the 7100 Series typically will
range from approximately $65,000 to approximately $130,000 depending primarily
on drive configuration.
520 Series
The Company introduced the 520 Series departmental libraries in 1995 for
Unix network environments. The 520 Series was designed specifically for the
DLT4000 and DLT7000 drive technology. The 4/52 and 2/28 models of the 520 Series
are designed for the demanding networked computing environment. The 4/52 models
primarily address high speed backup, archiving and hierarchical storage
management applications while the 2/28 models are used by companies making the
transition from single drive to multiple drive data storage management and are
easily upgradeable to address future requirements.
The 520 Series currently includes sixteen product configurations which
contain either two or four DLT4000 or DLT7000 drives and are available with
either a 28 or 52 maximum cartridge capacity. The 520 Series delivers capacity
ranging from 0.6 to 1.8 terabytes and backup performance of up to 72 gigabytes
per hour. All of the products in the 520 Series have demonstrated extremely high
field reliability and have achieved DLT drive reliability which exceed the
manufacturer's specifications. The end user list prices for products in the 520
Series generally range from approximately $50,000 to approximately $75,000 per
library depending primarily on drive configuration.
2640 Series
The 2640 Series was the Company's first product family to incorporate DLT
technology. The 2640 was originally developed pursuant to a strategic alliance
with DEC in 1993. The basic architecture of the 2640 was adapted from the
Company's earlier developments in midrange 3480 and 3490 tape libraries. The
2640 Series is sold primarily to the data intensive midrange segment of the
market. The 2640 Series products are used by companies which require unattended
backup of large quantities of data in a safe, reliable manner and by
organizations which have migrated to more demanding HSM applications. The
flexible design of the 2640 Series may be adapted to a variety of configurations
to deal with large amounts of data and is easily upgraded to meet future needs
in terms of both data capacity and transfer rate.
Libraries in the 2640 Series are controlled by the host computer through
either an RS-232C or a SCSI-2 interface. Products in the 2640 Series may be
integrated into configurations of up to five units which can be operated as a
single library to accommodate significant growth in end user requirements. The
2640 Series currently includes nine product configurations which contain between
three and nine DLT4000 or DLT7000 drives and have maximum capacities ranging
from 88 to 264 cartridges. The 2640 Series delivers capacity ranging from 1.8 to
9.2 terabytes per unit and backup performance of up to 162 gigabytes per hour
per unit. End user configurations of up to five units in the 2640 Series can be
created with the SystemLink option either at system installation, or at a later
time as requirements grow. The end user list prices for products in the 2640
Series generally range from approximately $75,000 to approximately $155,000
depending primarily on drive configuration.
PRODUCTS UNDER DEVELOPMENT
Prism Series. The Company expects to introduce a new generation of
automated tape library systems in calendar 1997 which incorporates the new Prism
architecture. Each of the Prism products will include a high
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performance, industry standard PCI bus, to address both the emerging NT market
and large data mining and warehousing applications. The initial Prism product,
the P1000, will consist of a rack mounted system with capacities range between
0.25 terabytes and 1.0 terabyte, and will offer effective migration paths to
higher capability and higher performance systems. The Company is developing
future versions within this product family which are designed to increase speed
and cartridge capacity and to enhance their integration into both high end
network and data archiving applications. The initial Prism products are being
developed in close cooperation with existing and potential OEM customers and
should provide substantially enhanced compatibility with a wide range of
hardware and software interfaces. Current automated tape library architectures
are restricted by the SCSI-2 specification which limits the integration of these
products into complex systems and network topologies. The Prism architecture
will permit remote monitoring and management of libraries distributed throughout
an enterprise, provide interface flexibility for a wide range of network and
channel protocols (including SCSI, FDDI, FC/AL and ATM), and facilitate a much
closer integration between the library and other elements of the storage
management system. These products will also provide significant added value
opportunities for the Company's OEM partners. The Company's statements
concerning the timing of the introduction of the initial Prism product and the
capabilities of the Prism series are intended to be forward looking statements
and actual results may differ as a result of the various risks, including but
not limited to, management's allocation of research and development resources,
unforeseen defects in the new architecture and the performance of the Company's
suppliers.
Software Enhancements. The Company is developing additional software
elements to complement its automated tape libraries and to enhance their
functionality in system monitoring and volume management. These proprietary
software elements are designed to comply with industry standard application
programming interfaces, including SNMP and JMAPI, and will provide remote access
for system monitoring and management within the internal network and across the
Internet.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are principally focused on
the development of new generations of storage products for the networked
computer market. The Company employs 46 engineers and maintains key design teams
in the areas of electromechanical, electronic, software, system and process
design. The Company has also engaged a number of third parties for product
development activities including a recently announced OEM relationship with
Veritas Software to develop the industry's first Internet tape library
management product. In addition, the Company continuously solicits and receives
consultation from its end users regarding system features and capabilities, and
works closely with its OEMs during the development and integration of the OEM
products.
In the near future, the Company intends to focus its development activities
to continue to accommodate advances in DLT technology for integration into the
Company's current products. As a leading supplier of DLT libraries, the Company
has been able to work closely with Quantum during the early stages of the
development of the new DLT7000 drive which has facilitated the Company's rapid
development of products using this new technology. While all of the Company's
products currently feature DLT technology, the Company believes the continued
system evolution in the networked computing market has led to an increasing need
for automated tape libraries which provide functional capabilities beyond those
available with current DLT technology. Accordingly, the Company continues to
evaluate emerging drive technologies which it believes will complement DLT.
The Company has gained significant expertise in the development of
automated tape libraries which extends beyond DLT technology and includes, among
other things, process automation knowledge and systems design and management
experience. The Company intends to continue to leverage this expertise to
support the development of additional removable storage media technologies which
it anticipates will play an important role in the distributed computer market.
The Company believes this expertise, together with its experience with a wide
variety of tape media, will enable the Company to adapt its products to
accommodate evolving storage technologies. There can be no assurance that the
Company will be able to make such adaptations on a timely basis, if at all.
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The Company believes that, in order to provide comprehensive solutions for
the emerging requirements of storage management, it must also design and
introduce tape libraries that incorporate embedded firmware and software to
further support archiving, data warehousing and HSM applications. The Company is
currently developing software elements which will complement the use of its
products in the Unix market and which will enhance the introduction of its
products into the rapidly developing NT market. These products, which are being
developed in conjunction with Veritas Software, a major file system provider,
are designed to permit monitoring and management of the Company's products
either within a network structure or through resources such as an enterprise
wide intranet and the Internet, and should substantially improve the efficiency
and effectiveness of the use of multiple libraries within a single organization.
In addition, these products should permit volume management of libraries without
requiring extensive backup, archiving or HSM applications, thereby making the
products more attractive for smaller scale networks, representing a majority of
the NT installations.
The data storage market is characterized by rapid technological change and
is highly competitive with respect to product innovation and introduction. The
Company believes its continued success depends in part on its ability to enhance
its existing products and develop new products that incorporate the latest
technological advancements. While the Company intends to continue to make
significant investments in research and development, there can be no assurance
that it will be able to modify its existing products or introduce new products
which incorporate new storage technology on a timely basis, if at all.
COMPETITION
The market for the Company's products is highly competitive and is
characterized by rapidly changing technology and evolving standards. The Company
believes that its ability to compete depends on a number of factors, including
the success and timing of new product development by the Company and its
competitors, compatibility of the Company's products with a broad range of
computing systems, product performance, reliability and price, and customer
support. The Company believes that the principal competitive factors in the
networked computing market are storage capacity, data transfer rate, low cost of
ownership, price, product quality and reliability, timing of new product
introductions and ability to meet customer volume needs.
Management believes eight tape library manufacturers currently provide DLT
based products, including the Company's principal competitors, ADIC, Breece Hill
Technologies, Hewlett-Packard and StorageTek. The Company competes indirectly
with a large number of manufacturers offering tape storage systems using formats
other than DLT including 8 mm, 4 mm (DAT), 3480 and QIC that have larger
installed bases and may be expected to continue to provide intense competition
for the DLT format. These competitors include ADIC, Exabyte, Fujitsu, Hitachi,
IBM, Spectra Logic and StorageTek. The Company anticipates these competitors
will expand the functionality and performance of their selected storage
technologies to compete effectively with DLT. In addition, if DLT continues to
maintain market acceptance, many of these competitors could elect to offer DLT
systems. The Company also expects increased competition from large integrated
computer equipment companies, many of whom have historically incorporated their
own tape storage products into their mainframe systems, and are broadening their
focus to include the distributed computing market. Increased competition is
likely to result in price reductions, reduced gross margins and loss of market
share, all of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Many of the Company's current and potential competitors have substantially
greater name recognition and financial, marketing, technical and other resources
than the Company. The Company's current and potential competitors may develop
new technologies and products that are more effective than the Company's
products. In addition, many of these companies sell directly to end users, which
the Company believes may provide a competitive edge over the Company when
marketing either similar products or alternative data storage solutions. There
can be no assurance that the Company will be able to compete successfully
against either current or potential competitors or that competition will not
have a material adverse effect on the Company's business, operation results and
financial condition.
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SALES AND MARKETING; PRINCIPAL CUSTOMERS
The Company markets and sells its products through indirect sales channels
comprised primarily of VARs and OEMs pursuant to strategic arrangements and
individual purchase agreements. Sales of new technological advancements are
often initially made through VARs who generally evaluate, integrate and adopt
new technology more quickly than OEMs. As a technology achieves greater market
acceptance, OEM sales generally have represented an increased portion of the
sales of the products incorporating that technology. During the year ended March
31, 1997, direct sales to VARs and OEMs accounted for approximately 67% and 33%,
respectively, of the Company's net sales. In addition, a small number of
customers have historically accounted for a substantial proportion of the
Company's net sales in recent periods, and the identity of such significant
customers changes from period to period. Sales to DEC represented 18.0% of the
Company's net sales for the year ended March 31, 1996.
The Company has relationships with selected VARs who integrate the
Company's products with storage management software to provide comprehensive
storage solutions. The Company has certified 40 independent software developers
including EMC, Hewlett-Packard, Legato, OpenVision, Spectralogic and Workstation
Solutions, among others, who provide storage management software which is
compatible with the Company's products. The Company's strategy is to pursue VARs
who have expertise in storage management, strong established relationships with
end users and the experience to understand and respond to their customers'
critical needs. The Company typically enters into a one year Reseller Agreement
with its VARs, which are usually subject to cancellation by the Company in the
event the VAR does not meet certain requirements. The Company provides marketing
and training support for its VARs and offers cooperative marketing programs to
certain VARs.
The Company has also entered into agreements with several major OEMs,
including, among others, DEC, EMC and Sun Microsystems, who incorporate the
Company's products into systems sold by the OEMs. The Company has entered into
strategic relationships with certain of these OEMs which has enabled the Company
to work with OEMs early in their product development cycle thereby providing
valuable development feedback to the Company. The sales cycle for OEMs often
encompasses a long lead time and generally involves extensive product and system
qualification, evaluation, integration and verification. The Company believes
the OEM channel is also critical to the Company's success because OEMs have
traditionally taken a more active role in the development, support and servicing
of the Company's products.
The Company maintains full time sales personnel in five regional sales
locations including Boston, Chicago, Dallas, San Francisco and Washington to
facilitate close cooperation and communication with its VAR and OEM customers.
The Company also employs four international sales managers who assist in the
marketing of the Company's products to VARs and OEMs throughout Europe and Asia.
International sales constituted approximately 21% of the Company's sales during
the year ended March 31, 1997. The Company anticipates that international sales
will continue to represent a significant portion of the Company's net sales. The
Company undertook a sales initiative for Europe in late fiscal 1995 and fiscal
1996 utilizing the pre-existing infrastructure of a European sales subsidiary of
Odetics, which offered products manufactured by other business units of Odetics.
In order to establish a European presence dedicated solely to expanding the
sales of the Company's products, the Company formed ATL Products Limited in the
United Kingdom to conduct its European operations. Sales to customers outside
the United States are subject to certain risks.
CUSTOMER SERVICE AND SUPPORT
The quality and reliability of the Company's products and the ongoing
support of these products is a key element of the Company's business. All of the
Company's products include a one year warranty which provides on-site customer
assistance on the next business day in the United States. In addition, warranty
coverage may be upgraded to include on-site customer assistance with a four hour
response time, which assistance is available for a fee 24 hours per day, seven
days a week.
The Company maintains two dedicated service centers and has qualified more
than 25 of its VAR and OEM customers as certified maintenance providers ("CMPs")
to service and provide support for the Company's products. The Company provides
a formal training program for its OEMs, VARs, and CMPs. The
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CMPs often provide the initial on-site response for on-site repairs, typically
replacing parts and possibly even reconfiguring the systems. The CMPs also
gather critical data at each call which enables the Company to continue to
monitor its robotics systems.
To supplement its own domestic field service program, the Company has
contracted with a national organization to provide on-call field service to the
Company's customers.
MANUFACTURING
The Company manufactures all of its tape libraries at its facility in
Irvine, California. The Company recently relocated its corporate headquarters
and manufacturing facilities to a new 120,000 square foot facility, of which
approximately 50,000 square feet is attributed to manufacturing space. The
Company currently operates four assembly lines during one daily eight hour
shift.
The Company manufactures the robotics subassemblies used in its automated
tape libraries and performs final assembly and testing of purchased components.
The Company's manufacturing processes consist primarily of final systems
integration and quality assurance. A significant portion of the manufacturing
process consists of quality assurance and testing which is conducted on a 24
hour basis. The Company depends, to a large degree, on outside suppliers to
provide most of the components incorporated in the Company's products including
the DLT drives, circuit boards, moldings and chassis. The Company intends to
continue to outsource as much of the manufacturing as possible in order to
maximize manufacturing flexibility. While many of the parts and components used
in the Company's products are available from a number of fabricators in
California, the DLT drives are available only from a single supplier, Quantum.
Quantum may terminate its agreement with the Company for any reason upon 90 days
notice. Any disruption in the Company's relationship with such supplier would
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the Company currently purchases most of
its circuit boards from one supplier. The Company has, however, qualified a
second supplier who can also provide the boards.
EMPLOYEES
At June 1, 1997, the Company employed 176 associates including 65 in
manufacturing, 49 in engineering, 21 in customer service, 28 in sales and
marketing, and 13 in finance and administration. The Company also employs a
small number of temporary and contract employees. The Company is not a party to
any collective bargaining agreement or other similar agreement. The Company has
not experienced any work stoppages to date. The Company believes that its
relationship with its employees is good.
RISK FACTORS
The Company's business is subject to a number of risks, some of which are
discussed below. Other risks are presented elsewhere in this Report. The
following risks should be considered carefully in addition to the other
information contained in this Report in evaluating the Company and its business
before purchasing the shares of the Company's Common Stock.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; HISTORY OF OPERATING LOSSES
The Company's quarterly operating results have fluctuated in the past and
may continue to fluctuate in the future based on a number of factors, not all of
which are in the Company's control. These factors include, without limitation,
the size and timing of significant customer orders; the introduction of new
products by competitors; the availability of components used in the manufacture
of the Company's products; changes in pricing policies by the Company, its
suppliers or its competitors; the ability of the Company to develop, introduce,
market and gain market acceptance of new products, applications and product
enhancements in a timely manner and to control costs; the Company's success in
expanding and implementing its sales and marketing programs; technological
changes in the distributed computing markets; the mix of sales among the
Company's channels; deferrals of customer orders in anticipation of new
products, applications or product enhancements; currency fluctuations; and
general economic and market conditions. Moreover, the Company's
7
<PAGE> 10
sales in any quarter typically consist of a relatively small number of large OEM
and VAR customer orders, and the timing of a small number of orders can impact
quarter to quarter results. The loss of or a substantial reduction in orders
from any significant customer could have a material adverse effect on the
Company's business, financial condition and results of operations. Since the
Company's sales are primarily made through OEMs and VARs who typically provide
the Company with relatively short lead times, it is often difficult for the
Company to forecast the timing and quantity of orders accurately. The Company's
expense levels and its purchases of parts, components and subassemblies are
based in part upon its expectations concerning future revenues. Accordingly, if
revenue levels are below expectations, whether as a result of product transition
or otherwise, operating results are likely to be adversely affected. There can
be no assurance that the Company will achieve profitability on a quarterly or
annual basis in the future. Due to all of the foregoing factors and other risks
discussed below, it is possible that in some future period the Company's
operating results may be below the expectations of analysts and investors. In
such event, the price of the Company's Common Stock would probably be materially
and adversely affected.
DEPENDENCE ON QUANTUM CORPORATION AND DLT TECHNOLOGY
The Company currently derives substantially all of its revenues from the
sale of its DLT based products and related services, and the Company expects
that revenues from its DLT based products will continue to account for
substantially all of the Company's revenues for the foreseeable future.
Accordingly, the Company's operating results for the foreseeable future will be
substantially dependent on the continued market acceptance of DLT technology and
growth of the DLT library market. The DLT market is relatively new, and there
can be no assurance that another technology will not replace or adversely affect
DLT technology as a widely accepted data storage medium. In addition, due to the
relatively recent emergence of the DLT market, the Company expects that
additional companies may introduce products incorporating DLT technology
competing directly with the Company. Any decline in the rate of growth of the
DLT market or failure of the market to sustain acceptance of DLT technology, or
any decline in unit prices of the Company's products as a result of increased
competition, technological change or otherwise, would have a material adverse
effect on the business, operating results and financial condition of the
Company. The Company's success also depends in large part upon its relationship
with Quantum, who has the exclusive worldwide manufacturing rights for the DLT
technology and is the sole supplier of DLT tape drives and upon the Company's
ability to continue to obtain adequate supplies of DLT drives from Quantum. The
Company has been informed by Quantum that the growth in the demand for the
DLT7000 drives will result in continued limitations in the availability of these
drives. The Company does not expect that its indicated allocation of DLT7000
drives will have a material adverse effect on the Company's results of
operations in the near future. The foregoing statement is intended to be a
prediction and actual results may differ as a result of the risks discussed in
this paragraph. There can be no assurance that Quantum will not revise its
allocation to the Company or that Quantum will otherwise continue to provide an
adequate supply of the DLT7000 drives. The Company has not been able to secure
any guarantee of the future supply of DLT drives from Quantum. The Company's
agreement with Quantum permits Quantum to terminate its arrangement with the
Company for any reason upon providing 90 days written notice to the Company. The
disruption or termination of the Company's supply of DLT drives from Quantum
would have a material adverse effect on the Company's business, financial
condition and results of operations. Quantum has also historically sold
DLTStore(TM), a competing tape library addressing the lower end of the
distributed computing market and may introduce other storage libraries in the
future. To the extent such products marketed by Quantum compete directly with
the Company's products, the existence of such products could disrupt the
Company's relationship with Quantum, particularly if Quantum chooses to satisfy
its own demand first. In addition, Quantum currently supplies drives to all of
the Company's competitors, and there can be no assurance that the Company's
competitors will not establish relationships with Quantum in which the
competitors could achieve higher priority in the supply of DLT drives. Moreover,
since Quantum has only one manufacturing facility for DLT drives located in
Colorado Springs, Colorado, any disruption in Quantum's ability to continue to
manufacture and supply the Company with DLT tape drives, whether as a result of
a natural disaster or otherwise, would have a material adverse effect on the
Company's business, financial condition and results of operations.
8
<PAGE> 11
EFFECT OF NEW PRODUCT INTRODUCTIONS
The Company's future operating results will depend significantly on the
degree and timing of market acceptance of the Company's 7100 Series (which was
introduced in November 1996), the P1000 (which was introduced in May 1997) and
other new products. It is difficult to predict the effect that the announcement
of these or other new products (or enhancements to existing products) will have
on sales of current products pending the full availability of the new products,
or the rate at which such products will be accepted by the market, if at all.
For example, the P1000 could result in a reduction in the sales of the Company's
520 Series products in anticipation of the new libraries by the Company's
customers. In addition, manufacturing defects or other operational problems
commonly associated with new product introductions could adversely affect the
successful introduction of such new products. There can be no assurance that the
Company will be able to introduce new products or enhancements to existing
products on a timely basis, if at all, or the effect to which such introductions
will have on sales of existing products.
COMPETITION
The data storage market is intensely competitive, highly fragmented and
characterized by rapidly changing technology and evolving standards. Competitors
vary in the number, scope and breadth of the products and services offered.
Management believes eight tape library manufacturers currently provide DLT based
products, including the Company's principal competitors, Advanced Digital
Information Corporation, Breece Hill Technologies, Hewlett-Packard and
StorageTek. The Company competes indirectly with a large number of manufacturers
offering tape storage systems using formats other than DLT, including 8 mm, 4 mm
(DAT), half inch format (3480) and QIC. Many of these indirect competitors have
larger installed bases and may be expected to continue to provide intense
competition for the DLT format. These competitors include ADIC, Exabyte,
Fujitsu, Hitachi, IBM, Spectra Logic and StorageTek. The Company also competes
with suppliers of other removable storage media such as optical storage systems
and floppy disks. These competitors are expected to expand the functionality and
performance of their selected storage technologies which may render such
technologies even more competitive as compared to DLT. The Company also expects
additional competition from large integrated computer equipment companies, many
of whom have historically incorporated their own tape storage products into
their mainframe systems, and are broadening their focus to include the
distributed computing markets. In addition, because there are relatively low
barriers to entrance into the tape library market, the Company anticipates
increased competition from other established and emerging companies. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share, any of which could have a material adverse affect upon the
Company's business, operating results and financial condition. Many of the
Company's current and potential competitors have significantly greater
financial, technical, manufacturing, marketing and other resources than the
Company, and may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
development, promotion, sale and support of their products than the Company.
Accordingly, there can be no assurance that the Company will be able to continue
to compete effectively.
RELIANCE ON OEMS AND VARS; CONCENTRATION OF SALES
The Company relies heavily upon its relationships with selected OEMs who
sell and support the Company's products as part of their comprehensive data
storage systems. Sales through OEMs accounted for approximately 24% and 33% of
the Company's total revenues in fiscal 1996 and 1997, respectively. The Company
is currently investing, and intends to continue to invest, significant resources
to develop these OEM relationships. These expenditures could materially and
adversely affect the Company's operating margins unless the Company is able to
achieve commensurate growth in sales to OEMs. The Company also relies heavily on
selected VARs who integrate the Company's products with storage management
software to provide comprehensive storage solutions. Most of the Company's VARs
carry product lines that are competitive with those of the Company, and there
can be no assurance that they will give the marketing of the Company's products
high priority, or that they will continue to carry the Company's products. The
Company's agreements with VARs and OEMs are generally not required to be
exclusive, and in many cases may be
9
<PAGE> 12
terminated by either party at any time with limited notice and without cause. A
small number of customers has historically accounted for a substantial portion
of the Company's net sales and the identity of the Company's significant
customers has historically varied from period to period. Sales to DEC accounted
for 18.0% of the Company's net sales for the year ended March 31, 1996. No other
customer accounted for 10% or more of net sales during these periods. The loss
of important OEMs or VARs, their reduced focus on the Company's products, or the
inability to obtain additional OEMs as the market evolves could materially and
adversely affect the Company's business, financial condition and operating
results.
MANAGEMENT OF EXPANDING OPERATIONS
The Company is currently experiencing a period of rapid growth which has
placed and is expected to continue to place a considerable strain on the
Company's management and its administrative, sales and marketing, financial,
information systems and operational resources. From April 1, 1995 to March 31,
1997, the size of the Company's staff increased from 66 to 176 employees
including approximately 25 new employees hired as a result of the acquisition of
certain sales and service divisions of Odetics. Further significant increases in
the number of employees are anticipated during calendar 1997. The Company
believes its success will depend, in part, on its ability to integrate these and
additional new employees into the Company rapidly to respond to the anticipated
growth of the Company. The Company's ability to manage growth effectively will
require it to install its own operational, financial and management controls,
reporting systems and procedures independent from Odetics, to establish new
management information and control systems and to train, motivate and manage its
employees. There can be no assurance that the Company will be able to install
such operational, financial and management information and control systems in an
efficient and timely manner or that the new structures, systems and controls
will be adequate to support the Company's operations and prevent the occurrence
of unforeseen management or financial issues. Continued growth will also require
the Company to recruit additional key management personnel (including a chief
financial officer), expand its engineering and product development capabilities,
expand its sales and marketing capabilities, improve its customer service and
support functions and to train, motivate and manage additional employees. There
can be no assurance that the Company will be able to manage these changes and
implement the required programs successfully, and its failure to do so could
have a material adverse effect upon the Company's business, financial condition
and operating results.
ABSENCE OF HISTORY AS AN INDEPENDENT ENTITY; LIMITED RELEVANCE OF HISTORICAL
FINANCIAL INFORMATION
The Company was operated as a wholly owned subsidiary of Odetics between
January 1993 and March 1997, accordingly, has had limited independent operating
history. Prior to the Distribution, the Company will continue to be a subsidiary
of Odetics, but will, subject to Odetics' rights as a controlling stockholder,
operate as an independent company. While the Company and Odetics have entered
into general agreements intended to facilitate the Company's transition to an
independent public company, there can be no assurance that the Company will be
able to manage this transition or to develop these independent resources
successfully. The Company's financial results as a subsidiary of Odetics may not
be representative of what the Company's results of operations and financial
condition would have been had the Company been a separate, standalone company
during the periods presented or be indicative of future results of operations
and the financial condition of the Company.
POSSIBILITY OF SUBSTANTIAL SALES OF COMMON STOCK; NO ASSURANCE OF DISTRIBUTION
Prior to December 31, 1997, Odetics intends to distribute all of its Common
Stock of the Company to the stockholders of Odetics, pending certain
contingencies, including, but not limited to receipt of a favorable tax ruling
from the Internal Revenue Service. The Distribution would involve the
distribution of an aggregate of approximately 8,005,000 shares of Common Stock
of the Company to the stockholders of Odetics. Substantially all of such shares
would be eligible for immediate resale in the public market. Sales of
substantial amounts of Common Stock in the open market in anticipation of, or
following, the Distribution, or the market perception that such sales might
occur, whether as a result of the Distribution or otherwise, could materially
and adversely affect the market price of the Company's Common Stock. No
assurance can be given
10
<PAGE> 13
that the conditions to the Distribution will be satisfied or waived, or that the
Distribution will occur. A failure to undertake the Distribution could adversely
affect the market price of the Company's Common Stock.
RAPID TECHNOLOGICAL CHANGE
The distributed computing market and the related data storage market are
characterized by rapid technological change, frequent new product introductions
and enhancements, and evolving industry standards. This industry has been
subject to fundamental changes reflecting the migration from mainframe based
systems to distributed computing environments, the significant increase in the
amount of data generated and stored in such environments and end users'
increasing dependence on near online access to such data. The Company's ability
to remain competitive will depend in part on its ability to develop new and
enhanced automated tape libraries in a timely and cost effective manner in order
to integrate the latest technological advancements in storage media and to
accommodate changes in the evolving distributed computing networks. Since all of
the Company's products are currently based on DLT technology, any change in DLT
technology or the emergence and acceptance of any new technologies may require
the Company to incur substantial unanticipated costs to incorporate such
changes, for which there can be no assurance that the Company will be able to
complete on a timely basis, if at all. The Company's inability to incorporate
advances or fundamental changes in storage media could materially and adversely
affect the Company's business, financial condition and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL SALES
International product sales represented approximately 19% and 21% of the
Company's net sales during fiscal 1996 and 1997, respectively. The Company
maintains sales and support offices in England, Germany and Taiwan. The Company
believes that international sales will continue to represent a significant
portion of its revenues, and that continued growth and profitability will
require further expansion of its international operations. The Company's
international sales are currently denominated in U.S. dollars, and an increase
in the relative value of the dollar could make the Company's products more
expensive and, therefore, potentially less price competitive in international
markets. Additional risks inherent in international business activities
generally include unexpected changes in regulatory requirements, tariffs and
other trade barriers, longer accounts receivable payment cycles, difficulties in
managing and staffing international operations, potentially adverse tax
consequences including restrictions on the repatriation of earnings, the burdens
of compliance with a wide variety of foreign laws, currency fluctuations and
political and economical instability. There can be no assurance that such
factors will not have a material adverse effect on the Company's future
international sales and, consequently, the Company's business, operating results
and financial condition. Furthermore, as the Company increases its international
sales, its total revenues may also be affected to a greater extent by seasonal
fluctuations resulting from lower sales that typically occur during the summer
months in Europe and other parts of the world.
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
The Company's ability to compete effectively depends in part on its ability
to develop and maintain the proprietary aspects of its technology. There can be
no assurance, however, that any future patents will be granted or that any
issued patents or other intellectual property rights of the Company will provide
meaningful protection for the Company's product innovations. Moreover, such
rights may not preclude competitors from developing substantially equivalent or
superior products to the Company's products. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights as fully as do
the laws of the United States. There can be no assurance that the Company's
means of protecting its proprietary rights in the United States or abroad will
be adequate, or that competitors will not independently develop technologies
that are similar or superior to the Company's technology, duplicate the
Company's technology, or design around any patent of the Company. Litigation may
be necessary in the future to enforce the Company's intellectual property
rights, to determine the validity and scope of the proprietary rights of others,
or to defend the Company against claims of infringement or invalidity by others.
An adverse outcome in such litigation or similar proceedings could subject the
Company to significant liabilities to third parties, require disputed rights
11
<PAGE> 14
to be licensed from others or require the Company to cease marketing or using
certain products, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. If the
Company is required to obtain licenses under patents or proprietary rights of
others, there can be no assurance that any required licenses would be made
available on terms acceptable to the Company, if at all. In addition, the cost
of addressing any intellectual property litigation claim, both in legal fees and
expenses and the diversion of management resources, regardless of whether the
claim is valid, could be significant and could have a material adverse effect on
the Company's results of operations.
FUTURE CAPITAL REQUIREMENTS
The Company entered into a four year promissory note payable to Odetics in
the amount of approximately $13.0 million as of April 1, 1997. Such note is
payable in sixteen equal quarterly installments of principal plus accrued
interest commencing June 30, 1997. Accordingly, the Company will continue to
have limited capital resources after the initial public offering. The Company
believes that in order to remain competitive, it may require additional
financial resources over the next several years for working capital, research
and development, and the expansion of sales and marketing expenditures.
CONTROL BY ODETICS PENDING THE DISTRIBUTION
The Company is currently a subsidiary of Odetics, and has no operating
history as an independent public company. Odetics owns approximately 82.9% of
the outstanding shares of Common Stock and is able to elect the entire Board of
Directors and otherwise control the management and affairs of the Company,
including any determinations with respect to acquisitions, dispositions,
borrowings, issuances of Common Stock or other securities or the declaration and
payment of any dividends on the Common Stock. Similarly, Odetics has the power
to determine matters submitted to a vote of the Company's stockholders without
the consent of the Company's other stockholders, has the power to prevent a
change of control of the Company, and could take other actions that might be
favorable to Odetics. Conflicts of interest may arise between the Company and
Odetics in a number of areas relating to their past and ongoing relationships,
tax and employee benefit matters, indemnity arrangements, sales or distributions
by Odetics of its remaining shares of Common Stock, and the exercise by Odetics
of its ability to control the management and affairs of the Company.
DEPENDENCE UPON KEY PERSONNEL; NEW MANAGEMENT PERSONNEL.
The Company's future performance depends to a significant extent on its
senior management and other key employees, in particular its Chief Executive
Officer, Kevin C. Daly, Ph.D., who has more than ten years experience in the
field of data storage technologies. The loss of Dr. Daly's services would have a
material adverse effect on the Company's development and marketing efforts. The
Company's future success will also depend in large part upon its ability to
attract, retain and motivate highly skilled employees. In addition, the Company
is actively seeking to retain a successor chief financial officer. Competition
for such employees, particularly development engineers and an experienced chief
financial officer, is intense, and there can be no assurance that the Company
will be able to continue to attract and retain sufficient numbers of such highly
skilled employees. The Company's inability to attract and retain additional key
employees or the loss of one or more of its current key employees could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTITAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION; BYLAWS AND DELAWARE LAW
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights of those shares without any
further vote or action by the stockholders. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock could have the effect of making it more difficult for a third
party to acquire a majority of the outstanding voting stock of the Company. In
addition, the Company is subject to the antitakeover provisions of Section 203
of the Delaware General Corporation Law, which will
12
<PAGE> 15
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 also could have the effect of delaying or preventing a change of
control of the Company. Further, certain provisions of the Company's Certificate
of Incorporation and Bylaws and of Delaware law could delay or make more
difficult a merger, tender offer or proxy contest involving the Company, which
could adversely affect the market price of the Company's Common Stock.
ITEM 2. PROPERTIES.
The Company's principal administrative, engineering and manufacturing
facilities are located in one 120,000 square foot facility in Irvine,
California, under a lease which expires in December 2003. The Company has an
option to extend the lease for an additional five year period. The base rent is
currently approximately $65,000 per month. In addition to the base rent, the
Company pays its share of operating expenses, property tax and insurance
premiums on the building. The Company believes this new facility will be
sufficient for its needs through at least the next five years. The Company also
leases office space for its sales representatives in Boston, Chicago, England
and Taiwan.
ITEM 3. LEGAL MATTERS.
On May 23, 1996, the Company announced that it and Odetics, Inc. settled
all pending litigation with E-Systems, Inc. and EMASS, Inc. (Collectively,
"E-Systems"). The settlement was effected pursuant to a written Settlement
Agreement and General Release between the parties, under which E-Systems paid
Odetics approximately $6.2 million, including an amount designated as a royalty
payment on library systems sold by E-Systems which Odetics alleged infringed on
its patented technology. See "Management's Discussion of Financial Condition and
Results of Operations." For its part, the Company agreed for a period of five
years to provide spare parts and certain other customer support services for the
installed base of DataTowers that the Company previously sold to E-Systems. The
parts and services generally will be provided in accordance with Odetics' terms
and conditions, less a specified discount. The Company has also agreed to
repurchase nine ACL 2640 units in E-Systems possession.
The Company is not currently a party to any pending litigation that it
believes could have a material adverse effect on the Company's business,
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the quarter
ended March 31, 1997.
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<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded in the over-the-counter market and is
quoted on the Nasdaq National Market under the symbol "ATLPA." The following
table sets forth, for the periods indicated, the high and low last reported sale
prices for the Common Stock on the Nasdaq National Market.
<TABLE>
<CAPTION>
FISCAL YEAR HIGH LOW
------------------------------------------------------------- ----- ----
<S> <C> <C>
1997
Fourth Quarter (commencing March 7, 1997).................... $12 7/8 $8
</TABLE>
As of June 20, 1997, there were 24 record holders of the Company's Common
Stock. On June 20, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $10.00 per share.
RECENT SALES OF SECURITIES
Since April 1, 1996, the Company has sold and issued the following
unregistered securities:
1. In December 1996, the Company granted nonstatutory stock options to
certain employees of the Company under its 1996 Stock Incentive Plan
covering an aggregate of 879,000 shares of the Company's Class B Common
Stock, at an exercise price of $5.00 per share. Such exercise price was
equal to the fair market value of the underlying Class B Common Stock on
the grant date, as determined by the Board of Directors of the Company.
These options vest over a three year period commencing two years following
the date of grant. All of such options were issued in consideration for
employment services rendered to the Company. None of the optionees paid any
cash consideration for these options. The sale and issue of these
securities was deemed to be exempt from registration under the Securities
Act by virtue of Rule 701 promulgated thereunder in that they were offered
and sold either pursuant to a written compensatory benefit plan or pursuant
to written contract relating to compensation, as provided by Rule 701.
2. In December 1996, the Company effected a reincorporation in
Delaware which included a recapitalization in which two classes of Common
Stock were authorized, and each share of the Company's no par Common Stock
was exchanged for 8,005 shares of Common Stock, par value $.0001 per share.
Such issuance was exempt from registration under Section 2(3) of the
Securities Act on the basis that such transaction did not involve a "sale"
of securities.
There were no underwriters, brokers or finders employed in connection with
any of the transactions set forth above.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on shares of its
capital stock. The Company currently intends to retain all of its earnings, if
any, for use in its business and does not anticipate paying any cash dividends
in the foreseeable future. Furthermore, the Company's agreement with its lender
currently limits the Company's ability to pay cash dividends. The payment of any
future dividends will be at the discretion of the Company's Board of Directors,
and will depend upon a number of factors, including, but not limited to, future
earnings, the success of the Company's business, activities, its capital
requirements, the general financial condition and future prospects of the
Company, general business conditions, the consent of the Company's principal
Lender and such other factors as the Board may deem relevant.
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<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA.
The following consolidated selected financial data with respect to the
Company's consolidated statement of operations for each of the five fiscal years
in the period ended March 31, 1997 and the consolidated balance sheet data at
March 31, 1993, 1994, 1995, 1996 and 1997 are derived from the audited
consolidated financial statements of the Company. The consolidated financial
statements and the related report of independent auditors for the fiscal years
ended March 31, 1993 and 1994 and the Company's consolidated balance sheet at
March 31, 1995 are not included in this Report. The following information should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the consolidated financial
statements of the Company and the related notes thereto included elsewhere in
this Report.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED AND COMBINED STATEMENTS OF
OPERATIONS DATA:
Net sales
Products............................... $ 5,592 $15,534 $15,898 $24,795 $53,717
Service and spare parts................ 4,344 4,972 6,743 4,615 6,311
------- ------- ------- ------- -------
Total net sales.......................... 9,936 20,506 22,641 29,410 60,028
Gross profit
Products............................... 34 3,136 3,623 9,113 21,126
Service and spare parts................ 1,589 1,653 2,095 1,434 3,260
------- ------- ------- ------- -------
Total gross profit....................... 1,623 4,789 5,718 10,547 24,386
Expenses:
Research and development............... 1,654 2,285 3,248 1,731 5,686
Sales and marketing.................... 711 1,308 1,838 3,718 7,070
General and administrative............. 951 1,195 1,299 1,414 1,841
Charges allocated by parent............ 1,582 1,354 1,563 1,534 1,551
Nonrecurring charge.................... -- -- 4,042 1,392 --
------- ------- ------- ------- -------
Income (loss) from operations............ (3,275) (1,353) (6,272) 758 8,238
Interest charges allocated by parent..... -- 542 1,243 1,861 1,707
------- ------- ------- ------- -------
Income (loss) before income taxes........ (3,275) (1,895) (7,515) (1,103) 6,531
Income taxes............................. -- -- -- 86 2,600
------- ------- ------- ------- -------
Net income (loss)........................ $(3,275) $(1,895) $(7,515) $(1,189) $ 3,931
======= ======= ======= ======= =======
Net income (loss) per share.............. $ (.39) $ (.22) $ (.89) $ (.14) $ .46
======= ======= ======= ======= =======
Shares used in computation of net income
per share.............................. 8,484 8,484 8,484 8,484 8,597
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
----------------------------------------------------------
1993 1994 1995 1996 1997
------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)............. $ (71) $ (2,875) $ (9,990) $(11,313) $15,894
Total assets.......................... 7,961 13,195 11,253 16,748 37,925
Total liabilities..................... 7,298 14,743 20,091 26,861 29,060
Total stockholders' equity
(deficit)........................... 663 (1,548) (8,838) (10,113) 8,865
</TABLE>
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<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the Financial Statements and related Notes thereto contained elsewhere in this
Report. This Report contains forward-looking statements that involve a number of
risks and uncertainties including, without limitation, those set forth in Item
1. "Business -- Risk Factors." The Company's actual results may differ
materially from any future performance discussed in the forward-looking
statements and in this Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OVERVIEW
The Company was established in 1990 as a division of Odetics to use its
technical expertise in information automation technology to develop automated
tape libraries that replace the manual storage and retrieval of computer tapes.
Initially, the Company teamed with E-Systems, Inc. to develop and provide a 19mm
automated tape cartridge handling subsystem which the Company introduced in
1992. In 1992, the Company also introduced automated tape handling products for
systems employing IBM 3480 and similar industry standard tape cartridges. In
1994, the Company introduced the ATL 2640, its first automated tape library
designed for distributed computing environments, based on the DLT format. The
Company extended its line of DLT based automated tape libraries in 1995 by
introducing its 520 Series, designed for smaller libraries in the midrange and
distributed computing environments, applications which historically had required
less storage capacity and less formal data processing. In November 1996, the
Company announced the introduction of its ATL 7100 tape library series, which
was designed for enterprise system administrators who require multiple terabyte
backup and archiving. Prior to fiscal 1995, the Company's sales, which consisted
primarily of 19mm and 3480 tape libraries, experienced modest growth to
approximately $20.5 million in fiscal 1994. In fiscal 1995, sales of these
products declined significantly, but the increase in DLT product sales resulted
in a $2.1 million net sales growth from the prior year. Since 1995, the increase
in DLT product sales has led to significant quarter-to-quarter revenue growth.
All of the Company's net product sales are currently derived from DLT based
automated tape libraries.
Effective December 31, 1996, Odetics transferred to the Company that
portion of its business which provided service and support for the Company's
products. The transfer was made at book value and resulted in an increase of
$2.3 million in the Company's obligations to Odetics. For financial accounting
purposes the transaction has been treated in a manner similar to a pooling of
interests, and the financial information for this operation has been included in
the Company's financial information for all periods presented.
Effective July 1, 1996, the Company established its own wholly owned
European subsidiary, APL, to facilitate the Company's sales in Europe. For
periods prior to the establishment of APL, the Company utilized a subsidiary of
Odetics for administrative services related to the distribution of its products
in Europe. The revenues, costs and expenses incurred by this entity that relate
to the Company's products have been combined in the accompanying selected
financial data for all applicable periods in order to present these activities
in a manner similar to a pooling of interests.
The Company's operating expenses have increased significantly in recent
periods, since the introduction of the Company's DLT based product lines, as the
Company has expended resources to support growth in the volume of DLT product
sales. The Company also expects operating expenses to increase as the Company
continues to build its management and information systems and other
infrastructure to support recent growth and any additional growth in the future
and to increase its administrative staff to perform many services previously
performed by Odetics, including public company reporting requirements.
Accordingly, historical overhead expense included herein is not necessarily
indicative of the expense which may be incurred by the Company in future
periods.
Odetics and the Company have entered into certain agreements providing for
the Distribution and governing various interim and continuing relationships
between the companies, including (i) a Separation and Distribution Agreement
which sets forth the principal corporate transactions required to effect the
separation of the Company from Odetics, the initial public offering and the
Distribution, (ii) a Tax Allocation Agreement which governs the allocation of
tax liabilities between the Company and Odetics, and (iii) a
16
<PAGE> 19
Services Agreement, pursuant to which Odetics will continue for an interim
period following the initial public offering and the Distribution to perform
certain financial, management information and other services for the Company.
The Company anticipates that charges paid to Odetics pursuant to the Services
Agreement will decline in future periods, as the Company begins to build its own
infrastructure and to incur directly expenses that otherwise would have been
included in charges allocated by Odetics.
In March 1997, the Company completed an initial public offering of
1,650,000 of its Common Stock following which Odetics' beneficial ownership of
the Company was reduced to 82.9%. The initial public offering generated net
proceeds to the Company of $15.9 million, $6.8 million of those proceeds were
used to reduce the Company's obligations to Odetics. The balance of the proceeds
is being used to fund working capital requirements.
RESULTS OF OPERATIONS
The following table sets forth for the years indicated, the percentages of
net sales represented by each item in the Company's statement of operations.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
-----------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net sales
Products............................................ 70.2% 84.3% 89.5%
Service and spare parts............................. 29.8 15.7 10.5
----- ----- -----
Total net sales....................................... 100.0% 100.0% 100.0%
Gross profit
Products............................................ 22.8 36.8 39.3
Service and spare parts............................. 31.1 31.1 51.7
----- ----- -----
Total gross profit.................................... 25.3 35.9 40.6
Expenses:
Research and development............................ 14.4 5.9 9.5
Sales and marketing................................. 8.1 12.6 11.8
General and administrative.......................... 5.7 4.8 3.0
Charges allocated by parent......................... 6.9 5.2 2.6
Nonrecurring charge................................. 17.9 4.8 --
----- ----- -----
Income (loss) from operations......................... (27.7) 2.6 13.7
Interest charges allocated by parent.................. 5.5 6.3 2.8
----- ----- -----
Income (loss) before income taxes..................... 33.2 (3.7) 10.9
Income taxes.......................................... -- 0.3 4.4
----- ----- -----
Net income (loss)..................................... (33.2)% (4.0)% 6.5%
===== ===== =====
</TABLE>
Net Sales. Total net sales increased 104.1% to $60.0 million for fiscal
1997 as compared to total net sales of $29.4 million in fiscal 1996. Total net
sales increased 29.9% to $29.4 million in fiscal 1996 from $22.6 million in
fiscal 1995.
Product sales increased 116.6% to $53.7 million for fiscal 1997 as compared
to fiscal 1996, reflecting continued growth in the Company's DLT based products
and included the initial shipments in the fourth quarter of fiscal 1997 of the
Company's new ATL 7100 tape library series. Product sales in fiscal 1996
increased 56.0% to $24.8 million as compared to fiscal 1995 which featured the
introduction of the 520 series of midrange libraries which more than offset the
loss of 19mm tape library products that were discontinued in fiscal 1995.
Service and spare parts sales include revenue derived from the sale of
spare parts and service activities to support the installed base of the
Company's products. In fiscal 1997, service revenue represented 10.5% of total
net sales as compared to 15.7% and 29.8% of total net sales in fiscal 1996 and
fiscal 1995, respectively. These sales have declined as a percentage of total
net sales primarily due to increased product sales for the respective comparable
periods. The Company anticipates that service revenue in future periods will
increase
17
<PAGE> 20
modestly as the initial warranty on increasing sales of DLT based products
expires and customers purchase service contracts.
Gross Profit. Total gross profit as a percent of total net sales increased
to 40.6% for fiscal 1997 from 35.9% in fiscal 1996 and 25.3% fiscal 1995.
Gross profit on product sales was 39.3% in fiscal 1997 as compared to 36.8%
in fiscal 1996. The increase is attributable primarily to improved absorption of
manufacturing overhead resulting from continued increases in sales of DLT based
products as well as reductions in the costs of materials for the Company's
products. Gross profit on product sales in fiscal 1996 increased to 36.8% from
22.8% in fiscal 1995 as the Company completed its first fiscal year selling
primarily DLT based products which generated improved margins as compared to
margins on the 19mm products which accounted for approximately one third of the
Company's sales volume in fiscal 1995. Average sales prices declined slightly in
both fiscal 1997 and fiscal 1996 as a result of increased competition, but these
declines have been offset in part by manufacturing efficiencies attributable to
higher sales volumes and the Company's cost reduction programs. The Company
believes average selling prices on product sales will continue to decline in the
future caused by competition and the Company's desire to maintain market share.
There can be no assurance the Company will be able to offset future reductions
in sales prices through improved manufacturing efficiencies or otherwise.
Gross profit on service and spare parts sales was 51.7% for fiscal 1997 and
31.1% for both fiscal 1996 and fiscal 1995. The increase in gross profit for
fiscal 1997 was largely due to a nonrecurring adjustment to inventory reserves.
Research and Development. In fiscal 1997, research and development expense
increased 228.5% to $5.7 million (or 9.5% of total net sales) from $1.7 million
in fiscal 1996 (or 5.9% of total net sales). Fiscal 1996 research and
development expense decreased 46.7% from $3.2 million in fiscal 1995 (or 14.4%
of total net sales). The increase in research and development expense in fiscal
1997 resulted primarily from the development, testing and preproduction
activities for the Company's ATL 7100 and Prism products and the incorporation
of the new DLT7000 tape drive into the Company's current products. The decline
in research and development expense in both absolute dollars and as a percentage
of total net sales in fiscal 1996 reflected the completion of development
activities relating to the Company's 2640 and 520 series libraries which were
initiated in the prior fiscal year. Research and development expense in fiscal
1995 expenditures was incurred primarily in development activities of the
Company's 2640 and 520 series libraries and included additional engineering
labor, consulting and prototype material costs. The Company expects expenditures
for research and development generally to increase over time and to be higher
during periods of new product development when significant expenditures are
incurred in preproduction activities and increased testing. These expenditures
may, therefore, fluctuate as a percentage of sales from period to period.
Sales and Marketing. Sales and marketing expense increased 90.2% in fiscal
1997 to $7.1 million (or 11.8% of total net sales) from $3.7 million in fiscal
1996 (or 12.6% of total net sales), and increased 102.3% in fiscal 1996 from
$1.8 million in fiscal 1995. The dollar increase in both fiscal years reflects
the Company's efforts to expand its sales and marketing capabilities through
infrastructure growth, which includes higher sales commissions associated with
increased sales, and increased expenditures for advertising, promotion and trade
show participation to meet the demands of the rapidly growing worldwide data
storage market.
General and Administrative. General and administrative expense increased
30.2% to $1.8 million (or 3.0% of total net sales) in fiscal 1997 from $1.4
million (or 4.8% of total net sales) in fiscal 1996, and increased 8.9% in
fiscal 1996 from $1.3 million (or 5.7% of total net sales) in fiscal 1995. The
dollar increase in all fiscal years primarily reflects the addition of
administrative personnel to support increased sales volume. General and
administrative expense does not reflect all of the costs which the Company
expects to incur as a standalone entity since certain corporate general and
administrative functions have been performed for the Company by Odetics, and
those costs have been included in charges allocated by parent. Management
expects general and administrative expense in absolute dollars to increase as
the Company assumes the responsibility for those functions that were previously
performed by Odetics.
18
<PAGE> 21
Charges Allocated by Parent. Odetics performs certain corporate general and
administrative functions and charges the Company a pro rata portion of the costs
Odetics incurs for such services. Charges allocated by parent were relatively
constant during the three year period ended March 31, 1997, because the Company
directly incurred most of the increases in administrative infrastructure
necessary to support the growth of its business.
Nonrecurring Charge. Nonrecurring charges were $1.4 million and $4.0
million in the years ended March 31, 1996 and 1995, respectively. The fiscal
1996 expense was comprised of legal expenses incurred in connection with
litigation with E-Systems, which was settled in May 1996. The charges in fiscal
1995 related to asset write downs, severance costs related to staffing
reductions and legal fees incurred in this litigation.
Interest Charges Allocated by Parent. Odetics has historically advanced
funds to meet the Company's capital requirements and has charged the Company
interest on the resulting intercompany account balance determined using Odetics'
cost of the related borrowed funds. Interest charges by parent decreased 8.3% to
$1.7 million for fiscal 1997 because of a reduction in average outstanding
intercompany borrowings during the fiscal year. Interest charges by parent
increased 49.7% to $1.9 million in 1996 as compared to $1.2 million in fiscal
1995. The increase in interest charges allocated by parent in fiscal 1996
reflects increased intercompany borrowings which were necessary to support the
Company's working capital requirements and operations.
Income Taxes. The Company is included in the consolidated federal tax
return of Odetics. Members of the consolidated group that generate taxable
losses are not allocated any tax benefit for such losses if the consolidated
group as a whole is profitable. Accordingly, for periods prior to April 1, 1996,
during which the Company incurred losses, the Company had no domestic income tax
provision or benefit. In addition, because the Company's losses have been used
to offset Odetics' taxable income in the consolidated federal tax returns, the
Company has no loss carry forward available to offset future taxable income. For
periods subsequent to April 1, 1996, the Company has entered into a Tax
Allocation Agreement with Odetics pursuant to which the Company will make a
payment to Odetics, or Odetics will make a payment to the Company, as
appropriate, in an amount equal to the taxes attributable to the operations of
the Company on the consolidated federal income tax returns and consolidated or
combined state tax returns filed by Odetics. In addition, the Tax Allocation
Agreement provides that members of the Odetics consolidated group generating tax
losses after April 1, 1996 will be paid by other members which utilize such tax
losses to reduce such other members' tax liability. For fiscal 1997, the
Company's effective tax rate is 40%.
BACKLOG
The Company builds products to order rather than to forecast, but has
achieved a relatively short manufacturing cycle. Accordingly, the Company's net
sales during any period are substantially dependent on orders booked and shipped
during that period. The Company includes in its backlog those customers orders
for which it has received orders and for which shipment is scheduled within the
next twelve months; however, most orders are filled within 90 days. In general,
all purchase orders are cancelable under certain circumstances. As a result of
potential cancellation of orders and delays in customer shipments and delivery
schedules, the Company's backlog at any particular date may not be indicative of
actual sales for any succeeding period. At March 31, 1997, the Company's backlog
was $6.0 million as compared to $4.4 million at March 31, 1996 and $1.0 million
at March 31, 1995.
Although the Company builds to order, in order to achieve a reasonably
short manufacturing cycle, it must purchase components and subassemblies and
incur operating expenses which are relatively fixed in nature based on forecast
orders and sales. If orders and revenue do not meet the Company's forecast in
any given quarter, the adverse impact of a shortfall in revenue may be magnified
by the Company's inability to reduce expenditures quickly, and could have a
material adverse effect upon the Company's results of operations for that
period.
19
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
In March 1997, the Company completed an initial public offering of
1,650,000 of its Common Stock. This offering generated net proceeds to the
Company of $15.9 million, $6.8 million of those proceeds were used to reduce the
Company's obligations to Odetics. The balance of the proceeds is being used to
fund working capital requirements.
During fiscal 1997, the Company generated $4.5 million of cash from
operating activities, of which $3.9 million was derived from net income. The
Company also generated $15.9 million of cash from the initial public offering
and used $8.9 million to repay intercompany indebtedness to Odetics. The Company
also used $2.0 million for purchases of equipment and investments in leasehold
improvements.
The Company was originally capitalized with a $1.0 million capital
investment provided by Odetics. Since its inception, and until its initial
public offering in March 1997, the Company relied primarily on interest bearing
advances from Odetics to provide necessary financing for its operating and
investing activities. At December 31, 1996, the Company purchased from Odetics
the net assets of the division of Odetics that provided service and support for
the Company's products for $2.3 million, which was reflected as an increase in
the Company's obligation to Odetics. On April 1, 1997, the Company entered into
a promissory note payable to Odetics in the original principal amount of $13.0
million representing the aggregate balance of the Company's intercompany
borrowings from Odetics. This note bears interest at a rate equal to Odetics'
cost of borrowing (8.5% at March 31, 1997). Principal and interest on this note
are payable in sixteen equal quarterly installments at the end of each calendar
quarter beginning June 30, 1997.
Prior to the initial public offering, the Company and Odetics were
co-borrowers under a joint Loan and Security Agreement (the "Agreement") with
Imperial Bank and Comerica Bank-California (together, the "Lenders") and were
jointly and severally liable for all amounts advanced to either borrower
thereunder. Upon the completion of the initial public offering, each Lender
released the Company from all of its obligations under the Agreement. Effective
March 15, 1997, the Company entered into a $5.0 million line of credit agreement
with Imperial Bank which provides for borrowings generally at the lesser of the
bank's prime rate (8.5% at March 31, 1997) or the bank's LIBOR rate plus 2.25%.
The Company had no borrowings against the bank line of credit at March 31, 1997.
The Company's borrowings under the line of credit are secured by substantially
all of the Company's assets.
The Company entered into a new lease for facilities in Irvine, California
during the first calendar quarter of 1997. The Company began to relocate to the
new facility at the end of the calendar quarter and completed the move in the
second calendar quarter of 1997. The Company anticipates it will incur
expenditures of approximately $500,000 for relocation, leasehold improvements
and capital equipment for the new facility.
As a result of the initial public offering and the profitable operations
for fiscal 1997, the Company had a net capital surplus of $8.9 million at March
31, 1997 versus a net capital deficiency of $10.1 million at March 31, 1996 and
working capital of $15.9 million at March 31, 1997 as compared to a working
capital deficiency of $11.3 million at March 31, 1996.
While the Company has historically relied on Odetics to finance its
operations and expansion, the Company believes that cash flow generated from
operations, together with the net proceeds of the initial public offering and
funds available under the Company's line of credit will be adequate to enable
the Company to meet its obligations on a timely basis for at least the next
twelve months.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by Regulation S-X
are included in this Form 10-K commencing on page F-1.
20
<PAGE> 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Identification of Directors. The information under the caption
"Election of Directors," appearing in the Proxy Statement, is incorporated
herein by reference.
(b) Identification of Executive Officers. The information under the
headings "Executive Officers," appearing in the Proxy Statement, is incorporated
herein by reference.
(c) Compliance with Section 16(a) of the Exchange Act. The information
under the caption "Section 16(a) Beneficial Ownership Reporting Compliance,"
appearing in the Proxy Statement, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information under the headings "Executive Compensation" appearing in
the Proxy Statement, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the headings "Certain Beneficial Owners" and
"Principal Stockholders" and "Common Stock Ownership of Management," appearing
in the Proxy Statement, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the heading "Certain Transactions," appearing in the
Proxy Statement, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Report:
1. Financial Statements. The following financial statements of the
Company are included in a separate section of this Annual Report on Form
10-K commencing on the pages referenced below:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index to Consolidated and Combined Financial Statements............................... F-1
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Consolidated Balance Sheets as of March 31, 1996 and 1997............................. F-3
Consolidated and Combined Statements of Operations for the years ended March 31, 1995,
1996 and 1997....................................................................... F-4
Consolidated and Combined Statements of Stockholders' Equity for the years ended March
31, 1995, 1996 and 1997............................................................. F-5
Consolidated and Combined Statements of Cash Flows for the years ended March 31, 1995,
1996 and 1997....................................................................... F-6
Notes to Consolidated and Combined Financial Statements............................... F-7
</TABLE>
2. Financial Statement Schedules. The following financial statement
schedule of the Company is included in a separate section of this Annual
Report on Form 10-K commencing on the pages referenced below. All other
schedules have been omitted because they are not applicable, not required,
or the information is included in the consolidated financial statements or
notes thereto.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule II -- Consolidated Valuation and Qualifying Accounts......................... S-1
</TABLE>
21
<PAGE> 24
3. EXHIBITS.
<TABLE>
<S> <C>
3.1 Certificate of Incorporation of the Company as filed with the Delaware
Secretary of State on December 19, 1996*
3.2 Certificate of Merger of the Company as filed with the Delaware Secretary
of State on December 19, 1996*
3.3 Bylaws of the Company*
4.1 Specimen certificate representing shares of Class A Common Stock of the
Company.*
4.2 1996 Stock Incentive Plan.*
4.3 Form of Notice of Grant of Stock Option and related Stock Option Agreement
under 1996 Stock Incentive Plan.*
10.1 Form of Indemnification Agreement.*
10.2 Real Property lease, dated October 9, 1996, by and between Thomas M.
Zapara and Violet J. Zapara, Trustees of the Zapara Family Trust U/D/T
dated December 7, 1995 and Company, a wholly-owned subsidiary of Odetics,
Inc.*
10.3 Separation and Distribution Agreement between the Company and Odetics
dated March 1, 1997.
10.4 Tax Allocation Agreement between the Company and Odetics dated March 1,
1997.
10.5 Services Agreement between the Company and Odetics dated March 21, 1997.
10.6 Form of Value Added Reseller Agreement.*
10.7 Form of International Value Added Reseller Agreement.*
10.8+ Technical Support Agreement dated May 6, 1996, between Technology Service
Solutions and Odetics, Incorporated, as amended May 7, 1996.*
10.9 Tape Library OEM Purchase Agreement dated August 28, 1996, between Quantum
Corporation and Company.*
10.10+ Veritas Software License Agreement, dated November 8, 1996, between
Veritas Software Corporation and the Company.*
10.11+ Agreement dated December 18, 1995, between Hewlett-Packard GmbH Local
Products Organization and Company.*
10.12+ Basic Order Agreement dated April 15, 1993, between Digital Equipment
Corporation and Odetics, Inc. and Company, as amended January 11, 1994,
March 25, 1994, October 19, 1994, October 27, 1994 and January 12, 1995.*
10.13 Basic Ordering Agreement dated September 14, 1995 between EMC Corporation
and the Company*
10.14 Promissory Note between the Company and Odetics dated April 1, 1997.
10.15 Form of Odetics Associate Agreement.*
10.16 Note, Security Agreement and Letter Agreement between the Company and
Imperial Bank dated March 15, 1997.
10.17 Intentionally Omitted.
10.18 Development and License Agreement dated January 14, 1997 between the
Company and Sun Microsystems, Inc.*
11.1 Statement Regarding Computation of Earnings Per Share.
21 List of Subsidiaries.
27 Financial Data Schedule.
</TABLE>
- ---------------
+ The Company has received confidential treatment for portions of this document
previously filed with the Commission.
* Included as a similarly numbered exhibit to the Company's Registration
Statement on Form S-1 (Reg. No. 333-18537), as amended, as filed with the
Securities and Exchange Commission, and incorporated herein by reference.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1997.
22
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Irvine,
State of California, on June 27, 1997.
ATL PRODUCTS, INC.
By: /s/ KEVIN C. DALY
------------------------------------
Kevin C. Daly, Ph.D.
Chief Executive Officer,
President and Chairman of the Board
POWER OF ATTORNEY
We, the undersigned officers and directors of ATL Products, Inc., do hereby
constitute and appoint Kevin C. Daly, Ph.D. and Gregory A. Miner, and each of
them, our true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Report, and to
file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby, ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------- --------------
<S> <C> <C>
/s/ KEVIN C. DALY Chief Executive Officer, June 27, 1997
- --------------------------------------------- President and Chairman of the
Kevin C. Daly, Ph.D. Board (principal executive
officer)
/s/ JOEL SLUTZKY Director June 27, 1997
- ---------------------------------------------
Joel Slutzky
/s/ CRANDALL GUDMUNDSON Director June 27, 1997
- ---------------------------------------------
Crandal Gudmundson
/s/ GREGORY A. MINER Chief Financial Officer June 27, 1997
- --------------------------------------------- (principal accounting officer)
Gregory A. Miner
</TABLE>
23
<PAGE> 26
ATL PRODUCTS, INC.
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated and Combined Financial Statements of ATL Product, Inc.
Report of Ernst & Young LLP, Independent Auditors................................... F-2
Consolidated Balance Sheets as of March 31, 1996 and 1997........................... F-3
Consolidated and Combined Statements of Operations for the years ended March 31,
1995, 1996 and 1997.............................................................. F-4
Consolidated and Combined Statements of Stockholders' Equity for the years ended
March 31, 1995, 1996 and 1997.................................................... F-5
Consolidated and Combined Statements of Cash Flows for the years ended March 31,
1995, 1996 and 1997.............................................................. F-6
Notes to Consolidated and Combined Financial Statements............................. F-7
</TABLE>
F-1
<PAGE> 27
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and Board of Directors
ATL Products, Inc.
We have audited the consolidated balance sheets of ATL Products, Inc. (the
Company), a subsidiary of Odetics, Inc. (Parent), as of March 31, 1996 and 1997,
and the related consolidated and combined statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended March 31, 1997. Our audits also included the financial statement schedule
listed in Item 14(a). These financial statements and schedule 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in Note 2, the Company has material transactions
with its Parent and affiliates.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of ATL Products,
Inc. at March 31, 1996 and 1997, and the consolidated and combined results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Orange County, California
April 23, 1997
F-2
<PAGE> 28
ATL PRODUCTS, INC.
(A SUBSIDIARY OF ODETICS, INC.)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31
--------------------
1996 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................. $ 1 $ 9,494
Trade accounts receivable, net of allowance for doubtful accounts of
$662 in March 1996 and $319 in March 1997.......................... 10,159 12,730
Inventories:
Finished goods..................................................... 1,886 2,937
Work in process.................................................... 487 1,019
Materials and supplies............................................. 2,944 8,671
Prepaid expenses and other............................................ 71 355
-------- -------
Total current assets.................................................... 15,548 35,206
Leasehold improvements and equipment:
Leasehold improvements................................................ -- 596
Equipment............................................................. 2,541 3,967
Allowances for depreciation........................................... (1,341) (1,844)
-------- -------
1,200 2,719
-------- -------
Total assets............................................................ $ 16,748 $37,925
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Trade accounts payable................................................ $ 4,301 $ 9,676
Accrued payroll and related........................................... 945 1,545
Income taxes payable.................................................. -- 2,018
Deferred service income............................................... -- 1,116
Other accrued expenses................................................ 552 1,199
Payable to Parent (Note 2)............................................ 21,063 509
Current portion of note payable to Parent (Note 2).................... -- 3,249
-------- -------
Total current liabilities............................................... 26,861 19,312
Long-term note payable to Parent (Note 2)............................... -- 9,748
Commitments and contingencies (Note 7)
Stockholders' equity (deficiency) (Note 6)
Preferred stock, $.0001 par value:
Authorized shares - $5,000,000
Issued and outstanding shares - none............................... -- --
Common stock, $.0001 par value:
Authorized shares - 45,000,000 Class A; 5,000,000 Class B
Issued and outstanding shares - 8,005,000 Class A at March 31, 1996
and 9,655,000 Class A at March 31, 1997; no Class B............... 1 1
Additional paid in capital......................................... 1,009 16,927
Accumulated deficit................................................... (11,123) (8,065)
Cumulative translation adjustment..................................... -- 2
-------- -------
Stockholders' equity (deficiency)....................................... (10,113) 8,865
-------- -------
Total liabilities and stockholders' equity (deficiency)................. $ 16,748 $37,925
======== =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 29
ATL PRODUCTS, INC.
(A SUBSIDIARY OF ODETICS, INC.)
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
-------------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
INFORMATION)
<S> <C> <C> <C>
Net sales:
Products.................................................... $15,898 $24,795 $53,717
Service and spare parts..................................... 6,743 4,615 6,311
------- ------- -------
Total net sales............................................... 22,641 29,410 60,028
Cost of sales:
Products.................................................... 12,275 15,682 32,591
Service and spare parts..................................... 4,648 3,181 3,051
------- ------- -------
Total cost of sales........................................... 16,923 18,863 35,642
------- ------- -------
Gross profit.................................................. 5,718 10,547 24,386
Expenses:
Research and development.................................... 3,248 1,731 5,686
Sales and marketing......................................... 1,838 3,718 7,070
General and administrative.................................. 1,299 1,414 1,841
Charges allocated by Parent (Note 2)........................ 1,563 1,534 1,551
Nonrecurring charge (Note 3)................................ 4,042 1,392 --
------- ------- -------
Income (loss) from operations................................. (6,272) 758 8,238
Interest charge allocated by Parent........................... 1,243 1,861 1,707
------- ------- -------
Income (loss) before income taxes............................. (7,515) (1,103) 6,531
Income taxes (Note 4)......................................... -- 86 2,600
------- ------- -------
Net income (loss)............................................. $(7,515) $(1,189) $ 3,931
======= ======= =======
Net income (loss) per share (Note 1).......................... $ (.89) $ (.14) $ .46
======= ======= =======
Shares used in computation of net income (loss) per share..... 8,484 8,484 8,597
======= ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 30
ATL PRODUCTS, INC.
(A SUBSIDIARY OF ODETICS, INC.)
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------
ADDITIONAL ACCUMU- CUMULATIVE
PAID IN LATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
------ ------ ---------- -------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994............... 8,005 $ 1 $ 1,009 $ (2,558) $ -- $ (1,548)
Allocation to Parent.................. -- -- -- 225 -- 225
Net loss.............................. -- -- -- (7,515) -- (7,515)
----- ---- -------- -------- ---- --------
Balance at March 31, 1995............... 8,005 1 1,009 (9,848) -- (8,838)
Allocation to Parent.................. -- -- -- (86) -- (86)
Net loss.............................. -- -- -- (1,189) -- (1,189)
----- ---- -------- -------- ---- --------
Balance at March 31, 1996............... 8,005 1 1,009 (11,123) -- (10,113)
Proceeds from initial public
offering........................... 1,650 -- 15,918 15,918
Allocation to Parent.................. (873) (873)
Foreign currency translation
adjustment......................... 2 2
Net income............................ 3,931 3,931
----- ---- -------- -------- ---- --------
Balance at March 31, 1997............... 9,655 $ 1 $ 16,927 $ (8,065) $ 2 $ 8,865
===== ==== ======== ======== ==== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 31
ATL PRODUCTS, INC.
(A SUBSIDIARY OF ODETICS, INC.)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
-------------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................................. $(7,515) $(1,189) $ 3,931
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................ 458 450 503
Provision for losses on accounts receivable.............. 648 39 343
Write-down of inventories................................ 2,015 -- --
Foreign currency translation adjustment.................. -- -- 2
Changes in operating assets and liabilities (Note 9)..... (1,494) (1,948) (243)
------- ------- -------
Net cash provided by (used in) operating activities........... (5,888) (2,648) 4,536
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................... (283) (498) (2,022)
------- ------- -------
Net cash used in investing activities......................... (283) (498) (2,022)
FINANCING ACTIVITIES
Net cash (paid to) received from Parent....................... 6,171 3,146 (8,939)
Proceeds from initial public offering......................... -- -- 15,918
------- ------- -------
Net cash provided by financing activities..................... 6,171 3,146 6,979
------- ------- -------
Net change in cash and cash equivalents....................... -- -- 9,493
Cash and cash equivalents at beginning of period.............. 1 1 1
------- ------- -------
Cash and cash equivalents at end of period.................... $ 1 $ 1 $ 9,494
======= ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 32
ATL PRODUCTS, INC.
(A SUBSIDIARY OF ODETICS, INC.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
MARCH 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
ATL Products, Inc. (the Company), a subsidiary of Odetics, Inc. (Parent),
designs, manufactures, markets and services automated magnetic libraries used to
manage, store and transfer data in networked computing environments. The
Company's customers are original equipment manufacturers, value added resellers
and storage system integrators located primarily in North America and Europe.
The Company has formed a wholly-owned subsidiary, ATL Products Limited (APL),
which effective July 1, 1996 distributes the Company's products in Europe.
Basis of Presentation
The accompanying financial statements include the accounts of the Company
and its subsidiary. Effective December 31, 1996, the Parent transferred to the
Company the portion of its business that provided worldwide service and support
for the Company's products. The transfer was made at book value and resulted in
the Company obtaining net assets with a carrying value of $2.3 million related
to the service and support operations and a corresponding increase in the amount
due to Parent. The financial information for the service and support operations
has been included in the Company's financial statements for all periods because
the transfer was treated in a manner similar to a pooling of interests for
financial reporting purposes. Additionally, for periods prior to the
establishment of APL, the Company utilized a subsidiary of the Parent for
administrative services related to the distribution of its products in Europe.
The accompanying financial statements combine the revenues, costs and expenses
incurred by this entity that relate to the Company's products in all applicable
periods in order to present these activities in a manner similar to a pooling of
interests. The net income or loss from these operations for periods prior to
December 31, 1996 has been retained by the Parent and are reflected as
"Allocation to Parent" in the accompanying consolidated and combined statements
of stockholders' equity. Intercompany balances and transactions have been
eliminated.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant estimates made in preparing the consolidated financial statements
include the allowance for doubtful accounts, inventory reserves and income tax
valuation allowances.
Revenue Recognition
Sales and related cost of sales are recognized on the date of shipment or,
if required, upon acceptance by the customer.
Fair Values of Financial Instruments
Fair values of amounts payable to Parent approximates its carrying value
because interest charges thereon are based on the prevailing market rates of
interest charged to the Parent under related borrowings.
Inventory Valuation
Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out method.
Leasehold Improvements and Equipment
Leasehold improvements and equipment are recorded at cost. Leasehold
improvements are amortized on a straight-line basis over the life of the lease.
Equipment is depreciated principally by the declining balance method over its
estimated useful lives (four to eight years).
F-7
<PAGE> 33
ATL PRODUCTS, INC.
(A SUBSIDIARY OF ODETICS, INC.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
Stock Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, Accounting for Stock-Based Compensation, requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
To calculate the pro forma information required by Statement 123, the
Company uses the Black-Scholes option pricing model. The Black-Scholes model was
developed for use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's option, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
Earnings Per Share
Earnings per share is computed using the weighted average number of shares
of common stock and common stock equivalents outstanding during the year. In
accordance with the accounting rules of the Securities and Exchange Commission,
stock options issued by the Company in the twelve month period prior to the
Company's initial public offering have been included in the calculation of
common and common equivalent shares as if they were outstanding for all periods
presented, computed using the treasury stock method and the assumed initial
offering price.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share (Statement No. 128), which is required to be adopted
on December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact is expected to
result in an increase in primary earnings per share for the years ended March
31, 1996 and March 31, 1997 of $.01 and $.02 per share, respectively. The impact
of Statement 128 on the calculation of fully diluted earnings per share for
these years is not expected to be material.
Research and Development Expenditures
Research and development expenditures are charged to expense in the period
incurred.
Advertising Expenses
The Company expenses advertising costs as incurred. Advertising expenses
totaled $106,000, $121,000 and $434,000 in the years ended March 31, 1995, 1996
and 1997, respectively.
Income Taxes
The Company is included in the consolidated federal income tax return with
its Parent. The Company and the Parent have entered into a Tax Sharing
Arrangement whereby U.S. and state income taxes are computed in accordance with
consolidated return Section 1552(a)(1) of the Internal Revenue Code. Under this
allocation, the consolidated tax liability for a given tax year is allocated
only to companies in the group
F-8
<PAGE> 34
ATL PRODUCTS, INC.
(A SUBSIDIARY OF ODETICS, INC.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
that have separate taxable income for that year. The tax liability is allocated
pro rata based on each Company's relative separate taxable income. Companies
with losses are not allocated any of the tax liability and are not given any
benefit for their losses. Effective upon the closing of the Company's initial
public offering, the Company entered into a new Tax Allocation Agreement which
was effective retroactively to April 1, 1996, whereby the consolidated federal
and state income tax liabilities for a given tax year will be allocated to the
companies in the Parent's group according to their relative separate taxable
income for such year.
Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax basis of assets and liabilities based on
enacted tax laws and rates applicable to the period in which differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to amounts which are more likely than
not to be realized. The provision for income taxes consists of the taxes payable
or refundable for the period plus or minus the change during the period in
deferred income tax assets and liabilities.
Warranty
The Company provides a one year warranty on all products and records a
related provision for estimated warranty costs at the date of sale. The Company
has reserved $100,000, $183,000 and $192,000 representing the Company's
estimated warranty liability at March 31, 1995, 1996 and 1997, respectively.
2. TRANSACTIONS WITH PARENT AND AFFILIATES
The Company and its Parent have entered into an agreement whereby the
Company is charged for certain corporate general and administrative functions
performed by the Parent. These charges are included in the caption "Charges
allocated by Parent" in the accompanying consolidated statements of operations
and consist of certain accounting, auditing, income tax, payroll and treasury
functions; administration of employee incentive programs; marketing support;
facilities management; certain legal services; and other support services.
Charges are allocated to the Company based on actual amounts incurred on behalf
of the Company or agreed upon amounts or percentages that management of the
Company believes are reasonable.
Prior to March 1997, the Parent also managed consolidated domestic cash
flows. Pursuant to that cash management program the Company transferred any
accumulated cash surplus to the Parent's accounts and the Parent funded cash
disbursements, as needed, to maintain minimum account balances. The Company and
its Parent also had an agreement whereby the Parent charged the Company interest
based on the Company's net payable to the Parent balance calculated using the
Parent's cost of related borrowed funds (8.5% at March 31, 1997).
The net payable to Parent represents the net of the following transactions:
cash advances to and from the Parent in connection with cash management policy;
proceeds from sales to affiliates; payments for purchases from affiliates; and
corporate charges for general corporate overhead and interest.
On April 1, 1997, the Company converted its net payable to Parent to a
promissory note that bears interest at the rate to be equal to the Parents' cost
of borrowing from the lesser of either of Parents' primary banks or principal
bank (8.5% at March 31, 1997). Principal and interest on this note is payable in
sixteen equal quarterly installments at the end of each calendar quarter
commencing June 30, 1997 and continuing until all principal and interest have
been fully paid.
Maturities on note payable to Parent are $3,249,000 in 1998, $3,249,000 in
1999, $3,249,000 in 2000 and $3,250,000 in 2001.
F-9
<PAGE> 35
ATL PRODUCTS, INC.
(A SUBSIDIARY OF ODETICS, INC.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
During fiscal 1995 the Company purchased $1,196,000 of components for
certain discontinued products from the Odetics Broadcast Division of its Parent.
3. NONRECURRING CHARGES
In December 1994, the Company recorded nonrecurring charges of $4,042,000
related to downsizing and restructuring in response to a deterioration in the
Company's contractual relationship with E-Systems, Inc., which was then a major
customer. The fiscal 1995 charges consisted of a $3,694,000 write-down of
inventories and accounts receivable to net realizable value, $283,000 of
severance costs and other charges and $65,000 of legal fees. In fiscal 1996 the
Company incurred an additional $1,392,000 of legal fees associated with the
E-Systems dispute (Note 7).
4. INCOME TAXES
As a result of its tax sharing agreement with the Parent (Note 1), the
Company has received no tax benefit from its losses and through March 31, 1996
has not paid or accrued federal or state income taxes. The Company's taxable
losses through March 31, 1996 have been used by the Parent to offset its taxable
income for such periods and as a result are not available to provide any tax
benefit in future periods.
The provision for income taxes for the year ended March 31, 1996 is
comprised of apportioned foreign income taxes for income earned by a subsidiary
of the Parent from administrative services provided on sales of the Company's
products in Europe. The revenues, costs and expenses incurred by this entity
that relate to the Company's products have been combined in the accompanying
financial statements as described in Note 1.
The Company's effective tax rate of 40% for the year ended March 31, 1997
consists of federal taxes of 34% and state taxes, net of federal benefit, of 6%.
If the Company had filed separate income tax returns in prior years, its taxable
loss carryforwards would have been available to offset anticipated income and,
therefore, no provision for federal income taxes would have been necessary.
The components of the Company's deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation............................. $ (24) $ (23)
Other.................................................. -- (27)
------- -------
Total deferred tax liabilities........................... (24) (50)
Deferred tax assets:
Inventory reserves..................................... 1,899 1,445
Deferred compensation and other payroll................ 215 232
Warranty reserves...................................... 73 76
Bad debt reserve....................................... 266 127
State taxes............................................ -- 154
Other.................................................. 19 --
------- -------
Total deferred tax assets................................ 2,472 2,034
Valuation allowance for deferred tax assets.............. (2,448) (1,984)
------- -------
Net deferred tax assets.................................. 24 50
------- -------
Net deferred tax assets (liabilities).................... $ -- $ --
======= =======
</TABLE>
F-10
<PAGE> 36
ATL PRODUCTS, INC.
(A SUBSIDIARY OF ODETICS, INC.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
Any future benefits recognized from the reduction of the valuation
allowance will result in a reduction of income tax expense.
5. EMPLOYEE INCENTIVE PROGRAMS
Under the terms of a the Parent's Profit Sharing Plan, the Company
contributes to a trust fund such amounts as are determined annually by the Board
of Directors. No contributions were made in the years ended March 31, 1995, 1996
or 1997.
The Company's employees participate in the Parent's 401(k) Plan. Under the
401(k) Plan, eligible employees voluntarily contribute to the plan up to 15% of
their salary through payroll deductions. The Company matches 50% of
contributions up to a stated limit. Under the provisions of the 401(k) Plan,
employees have ten investment choices, one of which is the purchase of Odetics,
Class A common stock at market price. Company matching contributions were
approximately $109,000, $115,000 and $123,000 in the years ended March 31, 1995,
1996 and 1997, respectively.
The Company's employees with more than six months of eligible service
participate in the Parent's noncontributory Associate Stock Ownership Plan
(ASOP). The ASOP provides that Company contributions, which are determined
annually by the Board of Directors, may be in the form of cash or shares of the
Parent's stock. The Company contributions to the ASOP were approximately $0,
$98,000 and $144,000 in the years ended March 31, 1995, 1996 and 1997,
respectively.
Certain executives of the Company participate in the Parent's Executive
Deferral Plan under which a portion of their annual compensation may be
deferred. The plan guarantees each executive a minimum annual return of 10% for
deferred amounts up to $20,000 annually through 1994. Effective April 1, 1994,
all subsequent deferred amounts and previous annual amounts in excess of $20,000
have no guaranteed rate of return. Compensation charged to operations and
deferred under the plan totaled $20,000, $20,000 and $25,000 for the years ended
March 31, 1995, 1996 and 1997, respectively.
6. COMMON STOCK AND STOCK OPTION PLANS
On December 19, 1996, the Company was reincorporated as a Delaware
corporation and effected a recapitalization in which two classes of common stock
were authorized, consisting of 45,000,000 shares of Class A common stock and
5,000,000 shares of Class B common stock, and each share of the Company's no par
common stock was recapitalized into 8,005 shares of Class A common stock, par
value $.0001 per share. All share and per share information included in the
accompanying financial statements has been restated to reflect the
reincorporation and the stock split. Class A and Class B common stock are
identical in all respects except for voting rights. The Class A common stock has
one vote per share while Class B common stock has .05 of one vote per share. The
Class B common stock is not convertible into Class A common stock. Management of
the Company has no present intention to convert the Class B common stock into
Class A common stock or to list the Class B common stock for trading on any
exchange.
On March 13, 1997, the Company completed an initial public offering
consisting of 1,650,000 shares of the Company's common stock, at an offering
price of $11 per share (Offering). From the net proceeds of the Offering of
approximately $15,918,000, $6,752,000 was used to repay a portion of Company's
indebtedness to its Parent. Following the Offering, the Parent's ownership
interest in the Company totals 82.9%. The Parent has also announced its
intention, subject to satisfaction of certain conditions, to divest its
ownership interest in the Company by December 31, 1997 by means of a tax-free
distribution to its stockholders.
The Company's Board of Directors and its Parent have adopted and approved
the ATL Products, Inc. 1996 Stock Incentive Plan (the Plan), authorized
2,000,000 shares of the Company's Class B common stock
F-11
<PAGE> 37
ATL PRODUCTS, INC.
(A SUBSIDIARY OF ODETICS, INC.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
for issuance under the Plan, and granted thereunder options to purchase 879,000
shares of Class B common stock at an exercise price of $5.00 per share, the fair
value of the underlying Class B common stock as of the date of grant as
determined by the Board of Directors. The options were granted on December 19,
1996, vest over a three year period, and none are exercisable as of March 31,
1997. Under terms of the Plan, eligible key employees, directors and consultants
can receive options to purchase shares of the Company's common stock at prices
not less than 100% for incentive stock options and not less than 85% for
nonqualified stock options of the fair value on the date of grant as determined
by the Board of Directors. Options expire ten years after date of grant or 90
days after termination of employment.
In calculating pro forma information regarding net income and earnings per
share, as required by Statement 123, the fair value was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for the options on the Company's Class B common
stock: risk-free interest rate of 6.5%; a dividend yield of 0%; volatility of
the expected market price of the Company's common stock of .40; and a
weighted-average expected life of the option of 4 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information for the year ended March 31, 1997 follows:
<TABLE>
<S> <C>
Pro forma net income............................................. $3,831,000
Pro forma net income per share................................... $ .45
</TABLE>
The Company also participates in its Parent's Associate Stock Option Plan
which provides that options for shares of the Parent's unissued Class A common
stock may be granted to employees of the Company. Options granted enable the
option holder to purchase shares of Odetics Class A common stock at prices which
are equal to or greater than the fair market value of the shares at the date of
grant. Options for shares have been granted at prices ranging from $4.25 to
$9.90 per share of Odetics Class A common stock representing in each case the
fair market value at the date of grant. Options expire ten years after date of
grant or 90 days after termination of employment and vest ratably at 33% or 25%
on each of the first three or four anniversaries of the grant date,
respectively, depending on the date of grant.
7. COMMITMENTS AND CONTINGENCIES
In November 1994 and February 1995, the Company and E-Systems, Inc.
(E-Systems), respectively filed legal actions related to E-Systems' cancellation
of purchase orders for ATL Product's DataLibrary and DataTower products. In May
1996, the parties entered into a settlement agreement under which, among other
things, E-Systems agreed to pay the Parent $6,160,000, all claims asserted by
the parties were released and the litigation dismissed. In addition, the parties
agreed to an equitable disposition of disputed inventory and entered into a five
year service agreement for Odetics to service units that had been sold to
E-Systems at agreed upon prices. The Parent allocated $3,964,000 of the
settlement proceeds to the Company and retained the balance of the settlement to
provide for the estimated cost of service obligations under the settlement
agreement. As a result, the Company recovered the net carrying value of its
accounts receivable and inventories related to the E-Systems litigation and
recognized no gain or loss on the settlement.
On March 15, 1997, the Company entered into a secured revolving credit
agreement with a bank collateralized by substantially all of the Company's
assets. Under the term of the agreement the Company is required to comply with
certain financial covenants, including certain debt to net worth ratios, current
ratios and minimum net worth requirements. The Company may borrow up to
$5,000,000 with interest at the lessor of the bank's prime rate (8.5% as of
March 31, 1997) or the bank's LIBOR rate plus 2.25%. No borrowings were
outstanding under this agreement at March 31, 1997. The agreement expires on
July 31, 1998.
F-12
<PAGE> 38
ATL PRODUCTS, INC.
(A SUBSIDIARY OF ODETICS, INC.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
The Company has leased and began to relocate to a new facility in Irvine,
California during the first calendar quarter of 1997. The annual commitment
under this noncancelable operating lease at March 31, 1997 is as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------------------------------
<S> <C>
1998.............................................................. $ 800
1999.............................................................. 844
2000.............................................................. 889
2001.............................................................. 933
2002.............................................................. 977
Thereafter........................................................ 1,723
</TABLE>
8. SIGNIFICANT CUSTOMER AND SEGMENT INFORMATION
The Company operates in a single industry segment (Note 1). Sales to major
customers in the years ended March 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------
CUSTOMER 1995 1996
------------------------------------------------------ --------- ---------
<S> <C> <C>
A..................................................... 4,996,000 5,306,000
B..................................................... 8,747,000 --
</TABLE>
No customer represented more than 10% of the Company's sales in 1997.
The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Credit losses
have been within management's expectations and within amounts provided through
the allowance for doubtful accounts.
Information regarding the Company's activities by geographical region as of
March 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE
-------- -------
<S> <C> <C>
Sales..................................................... $ 50,572 $ 9,456
Net income................................................ 3,716 215
Identifiable assets....................................... 34,951 2,974
</TABLE>
Prior to July 1, 1996 the Company had no foreign operations. All products
sold by the Company's subsidiary in Europe are acquired from ATL at agreed upon
transfer prices.
Export sales to all foreign customers are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1995 1996 1997
----- ------- -------
<S> <C> <C> <C>
Europe........................................... $ 453 $ 4,644 $ 6,683
Canada and Australia............................. 811 1,389 3,103
</TABLE>
An integral component of the Company's products is a data library tape
drive that is available from a single supplier. Demand for the supplier tape
drives is high and it is possible that in the near term the supply of tape
drives could be disrupted. Any disruption of the supply of tape drives would
cause delays in production that may be detrimental to the Company's financial
performance.
F-13
<PAGE> 39
ATL PRODUCTS, INC.
(A SUBSIDIARY OF ODETICS, INC.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
9. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash used in changes in operating assets
and liabilities
(Increase) decrease in accounts
receivable............................... $ 217 $(5,786) $(2,914)
(Increase) decrease in inventories.......... (1,102) 262 (7,310)
(Increase) decrease in prepaid expenses and
other assets............................. (11) 38 (284)
Increase (decrease) in accounts payable and
accrued expenses......................... (598) 3,538 10,265
------- ------- -------
Net cash used in changes in operating assets
and liabilities:............................ $(1,494) $(1,948) $ (243)
======= ======= =======
</TABLE>
F-14
<PAGE> 40
SCHEDULE II
ATL PRODUCTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGES TO CHARGES TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1995
Deducted from assets accounts:
Allowance for doubtful accounts............ $ 75 $ 648 $ -- $ 96 $ 627
Reserve for inventory obsolescence......... 63 4,080 -- 161 3,982
------ ------ ------ ------ ------
Total................................... $ 138 $4,728 $ -- $ 257 $4,609
====== ====== ====== ====== ======
YEAR ENDED MARCH 31, 1996
Deducted from assets accounts:
Allowance for doubtful accounts............ $ 627 $ 38 $ -- $ 3 $ 662
Reserve for inventory obsolescence......... 3,982 750 -- -- 4,732
------ ------ ------ ------ ------
Total................................... $4,609 $ 788 $ -- $ 3 $5,394
====== ====== ====== ====== ======
YEAR ENDED MARCH 31, 1997
Deducted from assets accounts:
Allowance for doubtful accounts............ $ 662 $ 253 $ -- $ 596(1) $ 319
Reserve for inventory obsolescence......... 4,732 1,450 -- 2,546(1) 3,636
------ ------ ------ ------ ------
Total................................... $5,394 $1,703 $ -- $3,142 $3,955
====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) Consists of additional write-offs in connection with the settlement of
litigation with E-Systems, Inc. See Note 7 of Notes to Consolidated and
Combined Financial Statements.
S-1
<PAGE> 41
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
------------ ----------------------------------------------------------------------- --------
<S> <C> <C>
3.1 Certificate of Incorporation of the Company as filed with the Delaware
Secretary of State on December 19, 1996*
3.2 Certificate of Merger of the Company as filed with the Delaware
Secretary of State on December 19, 1996*
3.3 Bylaws of the Company*
4.1 Specimen certificate representing shares of Class A Common Stock of the
Company.*
4.2 1996 Stock Incentive Plan.*
4.3 Form of Notice of Grant of Stock Option and related Stock Option
Agreement under 1996 Stock Incentive Plan.*
10.1 Form of Indemnification Agreement.*
10.2 Real Property lease, dated October 9, 1996, by and between Thomas M.
Zapara and Violet J. Zapara, Trustees of the Zapara Family Trust U/D/T
dated December 7, 1995 and Company, a wholly-owned subsidiary of
Odetics, Inc.*
10.3 Separation and Distribution Agreement between the Company and Odetics
dated March 1, 1997.
10.4 Tax Allocation Agreement between the Company and Odetics dated March 1,
1997.
10.5 Services Agreement between the Company and Odetics dated March 21,
1997.
10.6 Form of Value Added Reseller Agreement.*
10.7 Form of International Value Added Reseller Agreement.*
10.8+ Technical Support Agreement dated May 6, 1996, between Technology
Service Solutions and Odetics, Incorporated, as amended May 7, 1996.*
10.9 Tape Library OEM Purchase Agreement dated August 28, 1996, between
Quantum Corporation and Company.*
10.10+ Veritas Software License Agreement, dated November 8, 1996, between
Veritas Software Corporation and the Company.*
10.11+ Agreement dated December 18, 1995, between Hewlett-Packard GmbH Local
Products Organization and Company.*
10.12+ Basic Order Agreement dated April 15, 1993, between Digital Equipment
Corporation and Odetics, Inc. and Company, as amended January 11, 1994,
March 25, 1994, October 19, 1994, October 27, 1994 and January 12,
1995.*
10.13 Basic Ordering Agreement dated September 14, 1995 between EMC
Corporation and the Company*
10.14 Promissory Note between the Company and Odetics dated April 1, 1997.
10.15 Form of Odetics Associate Agreement.*
10.16 Note, Security Agreement and Letter Agreement between the Company and
Imperial Bank dated March 15, 1997.
10.17 Intentionally Omitted.
10.18 Development and License Agreement dated January 14, 1997 between the
Company and Sun Microsystems, Inc.*
11.1 Statement Regarding Computation of Earnings Per Share.
21 List of Subsidiaries.
27 Financial Data Schedule.
</TABLE>
- ---------------
+ The Company has received confidential treatment for portions of this document
previously filed with the Commission.
* Included as a similarly numbered exhibit to the Company's Registration
Statement on Form S-1 (Reg. No. 333-18537), as amended, as filed with the
Securities and Exchange Commission, and incorporated herein by reference.
<PAGE> 1
EXHIBIT 10.3
SEPARATION AND DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into this 1st day of March, 1997, by
and between ODETICS, INC., a Delaware corporation ("Odetics"), and ATL PRODUCTS,
INC., a Delaware corporation ("ATL").
PRELIMINARY STATEMENT
Odetics is the sole stockholder of ATL.
Odetics, through ATL and ATL's wholly owned subsidiary, ATL Products
Limited, a United Kingdom private limited liability company, is engaged in the
manufacture and sale of automated tape libraries, and related services (the "ATL
Business").
Odetics' Board of Directors has determined that Odetics will cause ATL
to make an initial public offering of up to 1,897,500 shares of its Class A
Common Stock (the "IPO"), and subsequent to the IPO and subject to certain
conditions, distribute to Odetics' stockholders all of the outstanding stock of
ATL owned by Odetics through a spinoff (the "Distribution"). The IPO and the
Distribution are together referred to herein as the "Separation" and will result
in the total and complete separation of the Business and ATL from Odetics at the
time of the Distribution (the "Separation Date"); provided, however, that
Odetics may continue to provide services to ATL pursuant to services agreements
after the Separation Date.
The parties hereto have determined that it is necessary and desirable
to set forth in this Agreement and in a services agreement (the "Services
Agreement"), a Promissory Note and a Tax Allocation Agreement (the "Tax
Allocation Agreement") between ATL and Odetics (the Services Agreement and the
Tax Allocation Agreement are collectively referred to herein as the "Ancillary
Agreements"), the principal corporate transactions determined by Odetics and ATL
to be appropriate to effect the Separation and to set forth other agreements and
undertakings by and between Odetics and ATL that will govern certain other
matters between the date hereof and the Distribution and following the
Distribution.
Simultaneously with the execution of this Agreement, Odetics and ATL
are entering into the Ancillary Agreements.
NOW, THEREFORE, in consideration of the promises and the mutual
representations, warranties, covenants and agreements, and upon the terms and
subject to the conditions hereinafter set forth, the parties do hereby agree as
follows:
1
<PAGE> 2
ARTICLE I.
THE TRANSFER
1.1 Transfer of Assets. On the terms and subject to the conditions set
forth in this Agreement, and the other agreements and instruments of conveyance
contemplated hereunder, simultaneously with the execution and delivery of this
Agreement, Odetics has heretofore transferred, assigned and conveyed to ATL all
of Odetics' right, title, and interest in and to all of the assets, tangible and
intangible, related to the Business (the "ATL Assets") for a purchase price
equal to the book value thereof, as calculated in accordance with generally
accepted accounting principles. The parties hereto believe that such purchase
price constitutes fair market value of the ATL Assets.
1.2 Payment of Purchase Price. The purchase price of the ATL Assets
will be included in the principal amount of a Promissory Note (the "Note") in
substantially the form attached hereto as Exhibit A, which will be completed at
the consummation of the IPO, and executed and delivered in connection therewith,
and such purchase price shall be payable in accordance with the terms of the
Note.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF ODETICS
Odetics represents and warrants to ATL as follows:
2.1 Power and Authority; Effect of Agreement. Odetics is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware, has requisite corporate power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance by it of this Agreement and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Odetics. This
Agreement has been duly and validly executed and delivered by Odetics and
constitutes its legal, valid and binding obligation. enforceable against it in
accordance with its terms, except to the extent that such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights generally. The execution, delivery and
performance by it of this Agreement and the consummation by Odetics of the
transactions contemplated by the Transfer does not, and will not, with or
without the giving of notice or the lapse of time, or both: (i) violate any
provision of law, rule or regulation to which it is subject; (ii) violate any
order, judgment or decree applicable to it; (iii) conflict with, or result in a
breach or default under, its Certificate of Incorporation or its Bylaws; or (iv)
conflict with, or result in a breach or default under, any contract to which it
is a party; except, in each case, for violations, conflicts, breaches or
defaults which in the aggregate would not materially hinder or impair the
consummation of the transactions contemplated hereby or have a material adverse
effect on the Business.
2
<PAGE> 3
2.2 Stock of Transferred Subsidiaries. Odetics is the owner,
beneficially and of record of all of the issued and outstanding stock of the
assets referred to in Section 1.1 hereof, free and clear of all liens,
encumbrances, security agreements, options, claims, charges and restrictions.
2.3 Government Consents. No consent, approval or authorization of, or
exemption from, or filing with. any governmental or regulatory authority is
required in connection with the execution, delivery or performance by Odetics of
the terms of this Article II or the taking by it of any other action required to
effectuate the Transfer.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF ATL
ATL represents and warrants to Odetics as follows:
3.1 ATL's Power and Authority. ATL is a corporation duly organized
validly existing and in good standing under the laws of Delaware, and has all
requisite corporate power and authority to carry on the Business as it is now
being conducted and as proposed to be conducted.
3.2 Due Authorization, Execution and Delivery; Effect of Agreement. ATL
has all requisite corporate power and authority to execute, deliver and perform
this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by ATL of this Agreement and the
consummation by ATL of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of ATL. This Agreement
has been duly and validly executed and delivered by ATL and constitutes the
legal, valid and binding obligation of ATL, enforceable against ATL in
accordance with its terms, except to the extent that such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights generally. The execution, delivery and
performance by ATL of this Agreement and the consummation by ATL of the
transactions contemplated by the Transfer does not, and will not, with or
without the giving of notice or the lapse of time, or both: (i) violate any
provision of law, rule or regulation to which ATL is subject; (ii) violate any
order, judgment or decree applicable to ATL; (iii) conflict with, or result in a
breach or default under, the Certificate of Incorporation or Bylaws of ATL; or
(iv) conflict with, or result in a breach or default under, any contract to
which it is a party; except, in each case, for violations, conflicts, breaches
or defaults which in the aggregate would not materially hinder or impair the
consummation of the transactions contemplated hereby or have a material adverse
effect on the Business.
3.3 Consents. No consent, approval or authorization of, or exemption
from, or filing with, any governmental or regulatory authority or any other
third party is required in connection with the execution, delivery or
performance by ATL of this Agreement or the taking by of any other action
required to effectuate the Transfer.
3
<PAGE> 4
ARTICLE IV.
COVENANTS OF ODETICS
4.1 Books and Records; Personnel. For a period of six years after the
Separation Date (or such longer period as maybe required by any law or
regulation, any governmental agency, any ongoing litigation or class of
connection with any administrative proceeding):
(a) Odetics shall not dispose of or destroy any of the business
records and files of the Business retained by it or any of its subsidiaries (the
"Retained Records"). If Odetics wishes to dispose of or destroy such records and
files after such six year period, it shall use reasonable efforts to first give
30 days' prior written notice to ATL and ATL shall have the right, at its option
and expense, upon prior written notice to Odetics within such 30 day period, to
take possession of the Retained Records within 60 days after the date of ATL's
notice to Odetics.
(b) Odetics shall allow ATL and its representatives reasonable
access to all Retained Records during regular business hours and upon reasonable
notice. Odetics shall maintain the Retained Records in a manner and at locations
that reasonably facilitates retrieval and review by ATL. ATL shall have the
right, at its own expense, to make copies of any such records and files and
Odetics shall provide convenient duplication facilities for such purpose,
provided, however, that any such access or copying shall be had or done in such
manner so as not to unreasonably interfere with the normal conduct of Odetics'
business or operations; and
(c) Odetics shall make reasonably available to ATL, upon written
request and at ATL's expense: (i) personnel to assist in locating and obtaining
records and files maintained by it (including those created after the date
hereof, to the extent necessary and appropriate in connection with pending and
future claims against ATL relating to the Business) and (ii) any of its
personnel whose assistance or participation (including as a witness during
depositions or at trial) is reasonably required by ATL in anticipation of, or
preparation for or during, existing or future litigation or other matters in
which ATL or any of its affiliates is involved and which is related to the
Business.
4.2 Supply Agreements. For a period of three years from the
consummation of the IPO, Odetics shall not unilaterally terminate or assign its
guarantee obligation with respect to any supply agreement pursuant to which it
has guaranteed the performance by ATL of ATL's obligations, unless such
suppliers have consented to the termination or assignment of such guarantee.
4.3 Cooperation. Odetics agrees to cooperate with ATL, both before and
after the Separation Date, to enable both parties to implement the Separation,
including but not limited to performing the obligations undertaken by the
parties hereunder. Such cooperation will include but not be limited to preparing
and submitting required financial reports after the Separation Date, which may
relate to periods before or after the Separation Date, and executing such
4
<PAGE> 5
documents and doing such other acts and things as may be necessary to carry out
the intent of this Agreement as it relates to the Separation.
ARTICLE V.
COVENANTS OF ATL
5.1 Cooperation. ATL agrees to cooperate with Odetics, both before and
after the Separation Date, to enable both parties to implement the Separation,
including but not limited to performing the obligations undertaken by the
parties hereunder. Such cooperation will include but not be limited to preparing
and submitting required financial reports after the Separation Date, which may
relate to periods before or after the Separation Date, and executing such
documents and doing such other acts and things as may be necessary to carry out
the intent of this Agreement as it relates to the Separation.
5.2 Books and Records; Personnel. For a period of six years after the
Separation Date (or such longer period as may be required by any law or
regulation, any governmental agency, any ongoing litigation or class of
litigation, or in connection with any administrative proceeding):
(a) ATL shall not dispose of or destroy the business records and
files of the Business that are transferred to it or any of its subsidiaries in
carrying out the transactions contemplated hereby (the "Transferred Records").
If ATL wishes to dispose of or destroy such records and files after that time,
it shall use reasonable efforts to first give 30 days' prior written notice to
Odetics and Odetics shall have the right. at its option and expense, upon prior
written notice to ATL within such 30 day period, to take possession of the
Transferred Records within 60 days after the date of Odetics' notice to ATL;
(b) ATL shall allow Odetics and its representatives reasonable
access to all Transferred Records during regular business hours and upon
reasonable notice. ATL shall maintain the Transferred Records in a manner and at
locations that reasonably facilitates retrieval and review by Odetics. Odetics
shall have the right. at its own expense, to make copies of any such records and
files and ATL shall provide convenient duplication facilities for such purposes
provided, however, that any such access or copying shall be had or done in such
a manner so as not to unreasonably interfere with the normal conduct of ATL's
business or operations; and
(c) ATL shall make reasonably available to Odetics upon written
request and at Odetics' expense: (1) ATL's personnel to assist in locating and
obtaining records and files maintained by it (including those created after the
date hereof, to the extent necessary and appropriate in connection with pending
and future claims against Odetics relating to the Business), and (ii) any of its
personnel whose assistance or participation (including as a witness during
depositions or at trial) is reasonably required by Odetics in anticipation of,
or preparation for or during, existing or future litigation or other matters in
which Odetics or any of its affiliates is involved.
5
<PAGE> 6
ARTICLE VI.
THE IPO AND ACTIONS PENDING THE IPO
6.1 Transactions Prior to the IPO.
(a) Subject to the conditions specified in Section 6.3 hereof,
Odetics and ATL shall use their reasonable best efforts to consummate the IPO.
Such actions shall include, but shall not necessarily be limited to, those
specified in this Section 6.1
(b) ATL shall file the IPO Registration Statement, and such
amendments or supplements thereto, as may be necessary in order to cause the
same to become and remain effective as required by law or by the Underwriters,
including, but not limited to, filing such amendments to ATL's Registration
Statement on Form S-1 as may be required by the Underwriting Agreement, the
Commission or federal, state or foreign securities laws. Odetics and ATL shall
also cooperate in preparing, filing with the Securities and Exchange Commission
(the "Commission") and causing to become effective a registration statement
registering the ATL Common Stock under the Exchange Act, and any registration
statements or amendments thereof which are required to reflect the establishment
of, or amendments to, any employee benefit and other plans necessary or
appropriate in connection with the IPO, the Separation, the Distribution or the
other transactions contemplated by this Agreement and the Ancillary Agreements.
(c) ATL and Odetics shall enter into the Underwriting Agreement,
in form and substance reasonably satisfactory to ATL and Odetics, and shall
comply with their respective obligations thereunder.
(d) Odetics and ATL shall consult with each other and the
Underwriters regarding the timing, pricing and other material matters with
respect to the IPO.
(e) ATL shall use its reasonable best efforts to take all such
action as may be necessary or appropriate under state securities laws of the
United States (and any comparable laws under any foreign jurisdictions) in
connection with the IPO.
(f) ATL shall prepare, file and use reasonable best efforts to
seek to make effective, an application for listing of the Class A Common Stock
of ATL (the "ATL Common Stock") issued in the IPO on the Nasdaq National Market,
subject to official notice of issuance.
(g) ATL and Odetics shall participate in the preparation of
materials and presentations as the Underwriters shall deem necessary or
desirable.
(h) ATL shall pay all third party costs, fees and expenses
relating to the IPO, all of the reimbursable expenses of the Underwriters
pursuant to the Underwriting
6
<PAGE> 7
Agreement, all of the costs of producing, printing, mailing and otherwise
distributing the Prospectus, as well as the Underwriters' discount as provided
in the Underwriting Agreement.
6.2 Proceeds of the IPO. The IPO will be a primary offering of ATL
Common Stock and the net proceeds of the IPO will be retained by ATL, subject to
its obligation to pay certain amounts to Odetics pursuant to the Note.
6.3 Conditions Precedent to Consummation of the IPO. As soon as
practicable after the date of this Agreement, the parties hereto shall use their
reasonable best efforts to satisfy the following conditions to the consummation
of the IPO. The obligations of the parties to consummate the IPO shall be
conditioned on the satisfaction, or waiver by Odetics, of the following
conditions:
(a) The IPO Registration Statement shall have been declared
effective by the Commission, and there shall be no stop-order in effect with
respect thereto.
(b) The actions and filings with regard to state securities laws
of the United States (and any comparable laws under any foreign jurisdictions)
described in Section 6.1 shall have been taken and, where applicable, have
become effective or been accepted.
(c) The ATL Common Stock to be issued in the IPO shall have been
accepted for listing on the Nasdaq National Market, on official notice of
issuance.
(d) ATL shall have entered into the Underwriting Agreement and all
conditions to the obligations of ATL and the Underwriters shall have been
satisfied or waived.
(e) Odetics shall be satisfied in its sole discretion that it will
own at least 80.0% of the outstanding ATL voting stock following the IPO, and
all other conditions to permit the Distribution to qualify as a tax free
distribution to Odetics' stockholders shall, to the extent applicable as of the
time of the IPO, be satisfied and there shall be no event or condition that is
likely to cause any of such conditions not to be satisfied as of the time of the
Distribution or thereafter.
(f) No order, injunction or decree issued by any court or agency
of competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Separation or the IPO or any of the other transactions
contemplated by this Agreement or any Ancillary Agreement shall be in effect.
(g) Such other actions as the parties hereto may, based upon the
advice of counsel, reasonably request to be taken prior to the Separation and
the IPO in order to assure the successful completion of the Separation and the
IPO and the other transactions contemplated by this Agreement shall have been
taken.
(h) This Agreement shall not have been terminated.
7
<PAGE> 8
(i) A pricing committee of Odetics directors designated by the
Board of Directors of Odetics shall have determined that the terms of the IPO
are acceptable to Odetics.
ARTICLE VII.
THE DISTRIBUTION
7.1 The Distribution.
(a) Subject to the conditions specified in Section 7.3 hereof, on
or prior to the Distribution Date, Odetics will deliver to First National Bank
of Boston (the "Agent") for the benefit of holders of record of Odetics' Class A
Common Stock and Class B Common Stock on the record date established by the
Board of Directors of Odetics, a single stock certificate, endorsed by Odetics
in blank, representing all of the outstanding shares of ATL Common Stock then
owned by Odetics, and shall cause the transfer agent for the shares of Odetics
Common Stock to instruct the Agent to distribute on the Distribution Date the
appropriate number of such shares of ATL Common Stock to each such holder or
designated transferee or transferees of such holder.
(b) Subject to Section 7.4, each holder of Odetics Common Stock on
the Record Date (or such holder's designated transferee or transferees) will be
entitled to receive in the Distribution a number of shares of ATL Common Stock
equal to the number of shares of Odetics Common Stock held by such holder on the
Record Date multiplied by a fraction the numerator of which is the number of
shares of ATL Common Stock beneficially owned by Odetics on the Record Date and
the denominator of which is the number of shares of Odetics Common Stock
outstanding on the Record Date.
(c) ATL and Odetics, as the case may be, will provide to the Agent
all share certificates and any information required in order to complete the
Distribution on the basis specified above.
7.2 Actions Prior to the Distribution.
(a) Odetics and ATL shall prepare and mail, prior to the
Distribution Date, to the holders of Odetics Common Stock, such information
concerning ATL, its business, operations and management, the Distribution and
such other matters as Odetics and ATL shall reasonably determine and as may be
required by law. Odetics and ATL will prepare, and ATL will, to the extent
required under applicable law, file with the Commission any such documentation
and any requisite no action letters which Odetics determines are necessary or
desirable to effectuate the Distribution and Odetics and ATL shall each use its
reasonable best efforts to obtain all necessary approvals from the Commission
with respect thereto as soon as practicable.
8
<PAGE> 9
(b) Odetics and ATL shall take all such action as may be necessary
or appropriate under the state securities laws of the United States (and any
comparable laws under any foreign jurisdiction) in connection with the
Distribution.
(c) Odetics and ATL shall take all reasonable steps necessary and
appropriate to cause the conditions set forth in Section 7.3(d) (subject to
Sections 7.3(d)) to be satisfied and to effect the Distribution on the
Distribution Date.
(d) ATL shall prepare and file, and shall use its reasonable best
efforts to have approved, an application for the listing of the ATL Common Stock
to be distributed in the Distribution on the Nasdaq National Market, subject to
official notice of distribution.
7.3 Conditions to Distribution. The Odetics Board currently intends to
effect the Distribution by December 31, 1997. Subject to any restrictions
contained in the Underwriting Agreement, the Odetics Board shall have the sole
discretion to determine the date of consummation of the Distribution at any time
after the Closing Date and on or prior to December 31, 1997. Odetics shall be
obligated to consummate the Distribution no later than December 31, 1997,
subject to the satisfaction, or waiver by the Odetics Board in its sole
discretion, of the conditions set forth below. In the event that any such
condition shall not have been satisfied or waived on or before December 31,
1997, Odetics shall consummate the Distribution as promptly as practicable
following the satisfaction or waiver of all such conditions.
(a) a private letter ruling from the Internal Revenue Service
shall have been obtained, and shall continue in effect, to the effect that,
among other things, the Distribution will qualify as a tax free distribution for
federal income tax purposes under Section 355 of the Code and will not result in
the recognition of any gain to Odetics or Odetics' stockholders, and such ruling
shall be in form and substance satisfactory to Odetics in its sole discretion;
(b) any material governmental approvals and consents necessary to
consummate the Distribution shall have been obtained and be in full force and
effect;
(c) no order, injunction or decree issued by any court or agency
of competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Distribution shall be in effect and no other event outside
the control of Odetics shall have occurred or failed to occur that prevents the
consummation of the Distribution; and
(d) no other events or developments shall have occurred subsequent
to the date hereof that, in the judgment of the Board of Directors of Odetics,
would result in the Distribution having a material adverse effect on Odetics or
on the stockholders of Odetics.
The foregoing conditions are for the sole benefit of Odetics and shall not give
rise to or create any duty on the part of Odetics or the Odetics Board of
Directors to waive or not waive any such condition.
9
<PAGE> 10
7.4 Fractional Shares. As soon as practicable after the Distribution
Date, Odetics shall direct the Agent to determine the number of whole shares and
fractional shares of ATL Common Stock allocable to each holder of record or
beneficial owner of Odetics Common Stock as of the Record Date, to aggregate all
such fractional shares and sell the whole shares obtained thereby at the
direction of Odetics either to Odetics, in open market transactions or
otherwise, in each case at then prevailing trading prices, and to cause to be
distributed to each such holder or for the benefit of each such beneficial
owner, in lieu of any fractional share, such holder's or owner's ratable share
of the proceeds of such sale, after making appropriate deductions of any amount
required to be withheld for federal income tax purposes and after deducting an
amount equal to all brokerage charges, commissions and transfer taxes attributed
to such sale. Odetics and the Agent shall use their reasonable best efforts to
aggregate the shares of Odetics Common Stock that may be held by any beneficial
owner thereof through more than one account in determining the fractional share
allocable to such beneficial owner.
7.5 The ATL Board of Directors. Odetics and ATL shall each take all
actions which may be required to elect or otherwise appoint as directors of ATL,
on or prior to the Distribution Date, persons to be designated by a nominating
committee of ATL's Board of Directors as additional or substitute members of the
Board of Directors of ATL on the Distribution Date.
ARTICLE VIII.
MUTUAL RELEASES; INDEMNIFICATION
8.1 Release of Pre-closing Claims.
(a) Except as provided in Section 8.1(c), effective as of the date
of consummation of the IPO (the "Closing Date"), ATL does hereby, for itself and
each of its affiliates, successors and assigns, and all persons who at any time
prior to the Closing Date have been stockholders, directors, officers, agents or
employees of ATL (in each case, in their respective capacities as such), remise,
release and forever discharge each of Odetics and its affiliates, successors and
assigns, and all persons who at any time prior to the Closing Date have been
stockholders, directors, officers, agents or employees of Odetics (in each case,
in their respective capacities as such), and their respective heirs, executors,
administrators, successors and assigns, from any and all losses, claims,
actions, damages, expenses or liabilities whatsoever (collectively, the
"Liabilities"), whether at law or in equity (including any right of
contribution), whether arising under any contract or agreement, by operation of
law or otherwise, existing or arising from any acts or events occurring or
failing to occur or alleged to have occurred or to have failed to occur or any
conditions existing or alleged to have existed on or before the Closing Date.
(b) Except as provided in Section 8.1(c), effective as of the
Closing Date, Odetics does hereby, for itself and its affiliates, successors and
assigns, and all persons who at any time prior to the Closing Date have been
stockholders, directors, officers, agents or
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employees of Odetics (in each case, in their respective capacities as such),
remise, release and forever discharge ATL, and its affiliates, successors and
assigns, and all persons who at any time prior to the Closing Date have been
stockholders, directors, officers, agents or employees of ATL (in each case, in
their respective capacities as such), and their respective heirs, executors,
administrators, successors and assigns, from any and all Liabilities whatsoever,
whether at law or in equity (including any right of contribution), whether
arising under any contract or agreement, by operation of law or otherwise,
existing or arising from any acts or events occurring or failing to occur or
alleged to have occurred or to have failed to occur or any conditions existing
or alleged to have existed on or before the Closing Date, including in
connection with the transactions and all other activities to implement any of
the Separation, the IPO and the Distribution.
(c) Nothing contained in Section 8.1(a) or (b) shall impair any
right of any person to enforce this Agreement, any Ancillary Agreement or any
agreements, arrangements, commitments or understandings that are specified
herein or in the Schedules and Exhibits hereto not to terminate as of the
Closing Date, in each case in accordance with its terms. Nothing contained in
Section 8.1(a) or (b) shall release any person from:
(i) any liability provided in or resulting from any agreement
between Odetics and ATL that is specified herein or the Schedules and Exhibits
hereto as not to terminate as of the Closing Date, or any other liability
specified as not to terminate as of the Closing Date;
(ii) any liability, contingent or otherwise, assumed,
transferred, assigned or allocated to such person;
(iii) any liability that the parties may have with respect to
indemnification or contribution pursuant to this Agreement for claims brought
against the parties by third Persons, which liability shall be governed by this
Article VIII and, if applicable, the appropriate provisions of the Ancillary
Agreements.
(d) ATL shall not make any claim or demand or commence any action
asserting any claim or demand, including any claim of contribution or any
indemnification, against Odetics or any other person released pursuant to
Section 8.1(a), with respect to any liabilities released pursuant to Section
8.1(a). Odetics shall not make any claim or demand, or commence any action
asserting any claim or demand, including any claim of contribution or any
indemnification, against ATL or any other person released pursuant to Section
8.1(b), with respect to any labilities released pursuant to Section 8.1(b).
(e) It is the intent of each of Odetics and ATL by virtue of the
provisions of this Section 8.1 to provide for a full and complete release and
discharge of all liabilities existing or arising from all acts and events
occurring or failing to occur or alleged to have occurred or to have failed to
occur and all conditions existing or alleged to have existed on or before the
Closing Date, between or among ATL and its affiliates on the one hand, and
Odetics and its affiliates on the other hand (including any contractual
agreements or arrangements existing or alleged to exist between or among any
such persons on or before the
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<PAGE> 12
Closing Date), except as expressly set forth in Section 8.1(c). At any time, at
the request of any other party, each party shall execute and deliver releases
reflecting the provisions hereof.
8.2 Indemnification by ATL. Except as provided in Section 8.4, ATL
shall indemnify, defend and hold harmless Odetics, and each of its directors,
officers and employees, and each of the heirs, executors, successors and assigns
of any of the foregoing (collectively, the "Odetics Indemnitees"), from and
against any and all Liabilities of the Odetics Indemnitees relating to, arising
out of or resulting from any of the following items (collectively, the ATL
Liabilities"):
(a) the operation of the ATL Business, as conducted at any time
prior to, on or after the Closing Date (including any Liability relating to,
arising out of or from any act or failure to act by any director, officer,
employee, agent or representative of ATL, whether or not such act or failure to
act is or was within such person's authority); provided however, that ATL shall
not be responsible for and shall not indemnify, defend or hold harmless Odetics
for any tax liability resulting from the reorganization of ATL's international
operations occurring prior to the Closing Date;
8.2.1 the ownership, leasing or use of any assets of ATL, including,
without limitation, the ATL Assets, any personal property, real property and
leasehold interests of ATL;
(a) the failure of ATL or any other person to pay, perform or
otherwise promptly discharge any liabilities of ATL or any material contract or
agreement of ATL in accordance with their respective terms, whether prior to or
after the Closing Date or the date hereof;
(b) any breach by ATL or its affiliates of this Agreement or any
of the Ancillary Agreements; or
(c) any untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, with
respect to all information contained in any IPO Registration Statement or
Prospectus made by ATL or any of its directors, officers, employees, agents or
representatives.
8.3 Indemnification by Odetics. Odetics shall indemnify, defend and
hold harmless ATL, and each of its directors, officers and employees, and each
of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "ATL Indemnitees"), from and against any and all Liabilities
of the ATL Indemnitees relating to, arising out of or resulting from any of the
following items:
(a) the operation of the business of Odetics (other than the ATL
Business), as conducted at any time prior to, on or after the Closing Date
(including any Liability relating to, arising out of or from any act or failure
to act by any director, officer, employee, agent or representative of Odetics,
whether or not such act or failure to act is or was within such person's
authority);
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<PAGE> 13
8.3.1 the ownership, leasing or use of any assets of Odetics,
including, without limitation, any personal property, real property and
leasehold interests of Odetics;
(a) the failure of Odetics or any other person to pay, perform or
otherwise promptly discharge any liabilities of Odetics (other than the ATL
Liabilities) or any material contract or agreement of Odetics in accordance with
their respective terms, whether prior to or after the Closing Date or the date
hereof;
(b) any breach by Odetics or its affiliates (other than ATL) of
this Agreement or any of the Ancillary Agreements; or
(c) any untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, with
respect to all information contained in any IPO Registration Statement or
Prospectus made by Odetics or any of its directors, officers, employees, agents
or representatives.
8.4 Indemnification Obligations Net of Insurance Proceeds and Other
Amounts.
(a) The parties intend that any liability subject to
indemnification or reimbursement pursuant to this Article VIII will be net of
insurance proceeds that actually reduce the amount of the liability.
Accordingly, the amount which any party (an "Indemnifying Party") is required to
pay to any person entitled to indemnification hereunder (an "Indemnitee") will
be reduced by any insurance proceeds theretofore actually recovered by or on
behalf of the Indemnitee in reduction of the related liability. If an Indemnitee
receives a payment (an "Indemnity Payment") required by this Agreement from an
Indemnifying Party in respect of any liability and subsequently receives
insurance proceeds, then the Indemnitee will pay to the Indemnifying Party an
amount equal to the excess of the Indemnity Payment received over the amount of
the Indemnity Payment that would have been due if the insurance proceeds
recovery had been received, realized or recovered before the Indemnity Payment
was made.
(b) An insurer who would otherwise be obligated to pay any claim
shall not be relieved of the responsibility with respect thereto or, solely by
virtue of the indemnification provisions hereof, have any subrogation rights
with respect thereto, it being expressly understood and agreed that no insurer
or any other third party shall be entitled to a benefit such insurer or other
third party would not be entitled to receive in the absence of the
indemnification provisions by virtue of the indemnification provisions hereof.
8.5 Procedures for Indemnification of Third Party Claims.
(a) If an Indemnitee shall receive notice or otherwise learn of
the assertion by any person other than the parties hereto of a claim (a "Third
Party Claim") with respect to which an Indemnifying Party may be obligated to
provide indemnification to such Indemnitee pursuant to Section 8.2 or 8.3, or
any other Section of this Agreement or any Ancillary Agreement, such Indemnitee
shall give such Indemnifying Party written notice thereof
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<PAGE> 14
within 20 days after becoming aware of such Third Party Claim. Any such notice
shall describe the Third Party Claim in reasonable detail. Notwithstanding the
foregoing, the failure of any Indemnitee or other Person to give notice as
provided in this Section 8.5(a) shall not relieve the related Indemnifying Party
of its obligations under this Article VIII, except to the extent that such
Indemnifying Party is actually prejudiced by such failure to give notice.
(b) An Indemnifying Party may elect to defend (and, unless the
Indemnifying Party has specified any reservations or exceptions, to seek to
settle or compromise), at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, any Third Party Claim. Within 30 days after
the receipt of notice from an Indemnitee in accordance with Section 8.5(a), the
Indemnifying Party shall notify the Indemnitee of its election whether the
Indemnifying Party will assume responsibility for defending such Third Party
Claim, which election shall specify any reservations or exceptions. After notice
from an Indemnifying Party to an Indemnitee of its election to assume the
defense of a Third Party Claim, such Indemnitee shall have the right to employ
separate counsel and to participate in (but not control) the defense,
compromise, or settlement thereof, but the fees and expenses of such counsel
shall be the expense of such Indemnitee except as set forth in the next
sentence. In the event that the Indemnifying Party has elected to assume the
defense of the Third Party Claim but has specified, and continues to assert, any
reservations or exceptions in such notice, then, in any such case, the
reasonable fees and expenses of one separate counsel for all Indemnitees shall
be borne by the Indemnifying Party.
(c) If an Indemnifying Party elects not to assume responsibility
for defending a Third Party Claim, or fails to notify an Indemnitee of its
election as provided in Section 8.5(b), such Indemnitee may defend such Third
Party Claim at the cost and expense of the Indemnifying Party.
(d) Unless the Indemnifying Party has failed to assume the defense
of the Third Party Claim in accordance with the terms of this Agreement, no
Indemnitee may settle or compromise any Third Party Claim without the consent of
the Indemnifying Party.
(e) No Indemnifying Party shall consent to entry of any judgment
or enter into any settlement of the Third Party Claim without the consent of the
Indemnitee if the effect thereof is to permit any injunction, declaratory
judgment, other order or other nonmonetary relief to be entered, directly or
indirectly, against any Indemnitee.
(f) The provisions of this Section 8.5 shall not apply to Taxes
(which are covered by the Tax Allocation Agreement).
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<PAGE> 15
ARTICLE IX.
INTERIM OPERATIONS AND CERTAIN OTHER MATTERS
9.1 Insurance Matters.
(a) ATL agrees that it will reimburse Odetics for its
proportionate share of premiums paid or accrued, from the date hereof until the
Distribution Date, in respect of Insurance Policies under which ATL will
continue to have coverage following the date hereof. Odetics and ATL agree to
cooperate in good faith to provide for an orderly transition of insurance
coverage from the date hereof through the Distribution Date and for the
treatment of any Insurance Policies that will remain in effect following the
Closing Date on a mutually agreeable basis. In no event shall Odetics, or any
Odetics Indemnitee have any liability or obligation whatsoever to ATL in the
event that any Insurance Policy or other contract or policy of insurance shall
be terminated or otherwise cease to be in effect for any reason, shall be
unavailable or inadequate to cover any liability of ATL for any reason
whatsoever or shall not be renewed or extended beyond the current expiration
date.
(b)(i) Except as otherwise provided in any Ancillary Agreement,
the parties intend by this Agreement that ATL and its affiliates be
successor-in-interest to all rights that any may have as of the Closing Date as
a subsidiary or affiliate of Odetics prior to the Closing Date under any policy
of insurance issued to Odetics by any insurance carrier or under any agreements
related to such policies executed and delivered prior to the Closing Date,
including any rights ATL and its affiliates may have, as an insured or
additional named insured, subsidiary or affiliate to avail itself of any such
policy of insurance or any such agreements related to such policies as in effect
prior to the Closing Date. At the request of ATL, Odetics shall take all
reasonable steps, including the execution and delivery of any instruments, to
effect the foregoing; provided however that Odetics shall not be required to pay
any amounts, waive any rights or incur any liabilities in connection therewith.
(ii) Except as otherwise contemplated by any Ancillary Agreement,
after the Closing Date, neither of Odetics or ATL shall, without the consent of
the other, provide any such insurance carrier with a release, or amend, modify
or waive any rights under any such policy or agreement, if such release,
amendment, modification or waiver would adversely affect any rights or potential
rights of the other hereunder; provided, however, that the foregoing shall not
(A) preclude either from presenting any claim or from exhausting any policy
limit, (B) require either to pay any premium or other amount or to incur any
liability, or (C) require either to renew, extend or continue any policy in
force. Each of ATL and Odetics will share such information as is reasonably
necessary in order to permit the other to manage and conduct its insurance
matters in an orderly fashion.
(c) This Agreement shall not be considered as an attempted
assignment of any policy of insurance or as a contract of insurance and shall
not be construed to waive any right or remedy of either Odetics or ATL in
respect of any insurance policy or any other contract or policy of insurance.
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<PAGE> 16
(d) ATL does hereby, for itself and its affiliates, agree that
Odetics or any Odetics Indemnitee shall have any liability whatsoever as a
result of the insurance policies and practices of Odetics and its affiliates as
in effect at any time prior to the Closing Date, including as a result of the
level or scope of any such insurance, the creditworthiness of any insurance
carrier, the terms and conditions of any policy, the adequacy or timeliness of
any notice to any insurance carrier with respect to any claim or potential claim
or otherwise.
ARTICLE X.
MISCELLANEOUS
10.1 Counterparts; Entire Agreement; Corporate Power.
(a) This Agreement and each Ancillary Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other party.
(b) This Agreement, and the Ancillary Agreements and the Exhibits,
Schedules and Appendices hereto and thereto contain the entire agreement between
the parties with respect to the subject matter hereof, supersede all previous
agreements, negotiations, discussions, writings, understandings, commitments and
conversations with respect to such subject matter and there are no agreements or
understandings between the parties other than those set forth or referred to
herein or therein.
10.2 Governing Law. This Agreement and, unless expressly provided
therein, each Ancillary Agreement, shall be governed by and construed and
interpreted in accordance with the laws of the State of California without
regard to principles of conflicts of law.
10.3 Assignability.
(a) Except as set forth in any Ancillary Agreement, this Agreement
and each Ancillary Agreement shall be binding upon and inure to the benefit of
the parties hereto and thereto, respectively, and their respective successors
and assigns; provided, however, that no party hereto or thereto may assign its
respective rights or delegate its respective obligations under this Agreement or
any Ancillary Agreement without the express prior written consent of the other
parties hereto or thereto.
10.4 Third Party Beneficiaries. Except for the indemnification rights
under this Agreement of any Odetics Indemnitee or ATL Indemnitee in their
respective capacities as such, (a) the provisions of this Agreement and each
Ancillary Agreement are solely for the benefit of the parties and are not
intended to confer upon any person except the parties any rights or remedies
hereunder, and (b) there are no third party beneficiaries of this Agreement or
any Ancillary Agreement and neither this Agreement nor any Ancillary Agreement
shall provide any
16
<PAGE> 17
third person with any remedy, claim, liability, reimbursement, claim of action
or other right in excess of those existing without reference to this Agreement
or any Ancillary Agreement. No party hereto shall have any right, remedy or
claim with respect to any provision of this Agreement or any Ancillary Agreement
to the extent such provision relates solely to the other two parties hereto or
the members of such other two parties' respective Groups. No party shall be
required to deliver any notice under this Agreement or under any Ancillary
Agreement to any other party with respect to any matter in which such other
party has no right, remedy or claim.
10.5 Notices. All notices or other communications under this Agreement
or any Ancillary Agreement shall be in writing and shall be deemed to be duly
given when (a) delivered in person or (b) deposited in the United States mail or
private express mail, postage prepaid, addressed as follows:
If to Odetics, to: Odetics, Inc.
1515 South Manchester Avenue
Anaheim, California 92802-2907
Attn: Joel Slutzky
If to ATL, to: ATL Products, Inc.
2801 Kelvin Avenue
Irvine, California 92614
Attn: Kevin C. Daly, Ph.D.
Any party may, by notice to the other party, change the address to which such
notices are to be given.
10.6 Severability. If any provision of this Agreement or any Ancillary
Agreement or the application thereof to any Person or circumstance is determined
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions hereof or thereof, or the application of such provision to
Persons or circumstances or in jurisdictions other than those as to which it has
been held invalid or unenforceable, shall remain in full force and effect and
shall in no way be affected, impaired or invalidated thereby, so long as the
economic or legal substance of the transactions contemplated hereby or thereby,
as the case may be, is not affected in any manner adverse to any party. Upon
such determination, the parties shall negotiate in good faith in an effort to
agree upon such a suitable and equitable provision to effect the original intent
of the parties.
10.7 Force Majeure. No party shall be deemed in default of this
Agreement or any Ancillary Agreement to the extent that any delay or failure in
the performance of its obligations under this Agreement or any Ancillary
Agreement results from any cause beyond its reasonable control and without its
fault or negligence, such as acts of God, acts of civil or military authority,
embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes,
floods, unusually severe weather conditions, labor problems or unavailability of
parts, or, in the case of computer systems, any failure in electrical or air
conditioning equipment. In the event of any such excused delay, the time for
performance shall be extended for a period equal to the time lost by reason of
the delay.
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10.8 Publicity. Prior to the Distribution, each of ATL and Odetics
shall consult with the other prior to issuing any press releases or otherwise
making public statements with respect to the IPO, the Distribution or any of the
other transactions contemplated hereby and prior to making any filings with any
governmental authority with respect thereto.
10.9 Headings. The article, section and paragraph headings contained in
this Agreement and in the Ancillary Agreements are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement
or any Ancillary Agreement.
10.10 Survival of Covenants and Representations and Warranties. Except
as expressly set forth in any Ancillary Agreement, the covenants,
representations and warranties contained in this Agreement and each Ancillary
Agreement, and liability for the breach of any obligations contained herein,
shall survive each of the Separation, the IPO and the Distribution and shall
remain in full force and effect regardless of whether Odetics shall consummate,
delay, modify or abandon the Distribution.
10.11 Waivers of Default. Waiver by any party of any default by the
other party of any provision of this Agreement or any Ancillary Agreement shall
not be deemed a waiver by the waiving party of any subsequent or other default,
nor shall it prejudice the rights of the other party.
10.12 Specific Performance. In the event of any actual or threatened
default in, or breach of, any of the terms, conditions and provisions of this
Agreement or any Ancillary Agreement, the party or parties who are or are to be
thereby aggrieved shall have the right to specific performance and injunctive or
other equitable relief of its rights under this Agreement or such Ancillary
Agreement, in addition to any and all other rights and remedies at law or in
equity, and all such rights and remedies shall be cumulative. The parties agree
that the remedies at law for any breach or threatened breach, including monetary
damages, are inadequate compensation for any loss and that any defense in any
action for specific performance that a remedy at law would be adequate is
waived. Any requirements for the securing or posting of any bond with such
remedy are waived.
10.13 Amendments.
(a) No provisions of this Agreement or any Ancillary Agreement
shall be deemed waived, amended, supplemented or modified by any party, unless
such waiver, amendment, supplement or modification is in writing and signed by
the authorized representative of the party against whom it is sought to enforce
such waiver, amendment, supplement or modification. Without limiting the
foregoing, the parties agree that any waiver, amendment, supplement or
modification of this Agreement or any Ancillary Agreement that solely relates to
and affects only two of the three parties hereto shall not require the consent
of the third party hereto.
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(b) Without limiting the foregoing, the parties anticipate that,
prior to the Closing Date, some or all of the Schedules to this Agreement may be
amended or supplemented and, in such event, such amended or supplemented
Schedules shall be attached hereto in lieu of the original Schedules.
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IN WITNESS WHEREOF, the parties have caused this Separation and
Distribution Agreement to be executed by their duly authorized representatives.
ODETICS, INC.
a Delaware corporation
By: /s/ Joel Slutzky
-------------------------------------
Joel Slutzky, Chief Executive Officer
ATL PRODUCTS, INC.
a Delaware corporation
By: /s/ Kevin C. Daly
--------------------------------------
Kevin C. Daly, Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.4
TAX ALLOCATION AGREEMENT
BY AND BETWEEN
ODETICS, INC.
AND
ATL PRODUCTS, INC.
<PAGE> 2
TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT (the "Agreement"), dated as of March 1,
1997, by and between ODETICS, INC., a Delaware corporation ("Odetics"), and ATL
PRODUCTS, INC., a Delaware corporation ("ATL"), is entered into in connection
with the initial public offering ("IPO") of ATL. For purposes of this Agreement,
ATL shall also be deemed to refer to ATL Products, Inc., a California
corporation, as predecessor of ATL.
WHEREAS, Odetics on behalf of itself and its present and future
subsidiaries other than ATL and its subsidiaries (the "Odetics Group"), and ATL
on behalf of itself and its subsidiaries (the "ATL Group") have determined that
it is necessary and desirable to provide for allocation between the Odetics
Group and the ATL Group of all responsibilities, liabilities and benefits
relating to taxes paid or payable by either group for all taxable periods,
whether beginning before, on or after the IPO, and to provide for certain other
matters;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Code: The Internal Revenue Code of 1986, as amended.
1.2 Effective Date: April 1, 1996.
1.3 Post-Spinoff Period: Any taxable period of ATL ending after the
distribution by Odetics of all of its ATL stock.
1.4 Pre-Spinoff Period: Any taxable period of ATL ending on or before
the distribution by Odetics of all of its ATL stock.
1.5 Spinoff: The distribution by Odetics of all of its ATL stock.
1.6 Tax or Taxes: All taxes of the Odetics Group and the ATL Group,
including any additions to tax, interest and penalties relating to such taxes.
1.7 Tax Benefit: The tax effect of any loss, deduction, credit or other
item that decreases taxes paid or payable.
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1.8 Tax Detriment: The tax effect of any income, gain, recapture of
credit or other item that increases taxes paid or payable.
ARTICLE II
FILING OF TAX RETURNS
2.1 Pre-Spinoff Period Income Tax Returns
(a) Federal Income Tax Returns. The income and other tax items of
ATL for any Pre-Spinoff Period shall be included in the Odetics consolidated
federal income tax return; provided that ATL is a member of the Odetics
"affiliated group" within the meaning of Section 1504 of the Code. Odetics shall
prepare and timely file all consolidated federal income tax returns for all such
periods.
(b) State Income Tax Returns. Odetics shall prepare and timely file
any consolidated or combined state income tax return that includes an Odetics
Group member and an ATL Group member for all Pre-Spinoff Periods.
2.2 Other Tax Returns. All tax reports or returns for Pre-Spinoff
Periods not covered by Section 2.1 and all tax reports or returns for
Post-Spinoff Periods shall be prepared and filed by ATL for the ATL Group and by
Odetics for the Odetics Group unless otherwise mutually agreed to by them.
ARTICLE III
PAYMENT OF TAXES
3.1 Payment of Taxes in General
(a) Except as otherwise provided in this Article III, Odetics shall
pay, and shall indemnify and hold harmless ATL and each other member of the ATL
Group from and against, all Taxes attributable to the Odetics Group and the ATL
Group (including any Taxes arising to any member of the ATL Group by virtue of
Section 1.1502-6 of the Treasury Regulations), whether heretofore or hereafter
arising or incurred. Odetics shall be entitled to any reduction in or refund of
Taxes for which it is responsible pursuant to the preceding sentence (except any
reduction in or refund of Taxes resulting from carrybacks of ATL as described in
Section 3.4).
(b) ATL shall pay, and shall indemnify and hold harmless each
Odetics Group member from and against, (i) all Taxes attributable to the ATL
Group (in the case of income or franchise Taxes, as determined under Section
3.2) for any Pre-Spinoff Period commencing on or after the Effective Date and
(ii) all Taxes for any Post-Spinoff
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Period that are attributable to the ATL Group. ATL shall be entitled to any
reduction in or refund of Taxes for which it is responsible pursuant to the
preceding sentence.
(c) Notwithstanding anything to the contrary herein, Odetics shall
be responsible for, and shall indemnify the ATL Group against any Taxes
resulting from the reorganization of the international operations of Odetics and
ATL prior to the IPO.
(d) If a member of the Odetics Group or the ATL Group, as the case
may be, receives a refund of Taxes to which the other group is entitled under
this Article III, then such member shall remit such refund to the other group by
promptly sending such refund to Odetics or ATL, as the case may be.
3.2 Allocation and Payment of Income and Franchise Taxes
(a) The consolidated Tax liability of the Odetics consolidated
group for each year commencing on or after the Effective Date shall be
apportioned among the Odetics Group and ATL Group members in accordance with
this paragraph. For purposes of this Agreement, the consolidated Tax liability
shall include any liability for alternative minimum Tax. The Tax liability for a
taxable year shall be apportioned only among the members of the Odetics
consolidated group with separate company taxable income for that year (the
"Profit Members"). The Tax liability will be allocated to the Profit Members in
the same ratio as each Profit Member's separate company taxable income bears to
the total of the separate company taxable incomes of all Profit Members. No Tax
liability will be allocated to members of the affiliated group with a taxable
loss computed on a separate return basis ("Loss Members"). The Profit Members
will make payments to Loss Members for Tax Benefits to the Profit Members as a
result of losses or credits generated by the Loss Members. For purposes of
allocating alternative minimum Tax, alternative minimum taxable income amounts
shall be substituted for taxable income amounts in the foregoing calculation.
(b) The principles set forth in Section 3.2(a) shall be applied for
the allocation of state income Taxes in states where the Odetics affiliated
group files consolidated or combined returns, with appropriate modifications, to
account for differences in the tax laws of the United States and individual
states. As a general rule, the amount of the consolidated or combined Tax
liability to a particular state shall be allocated among the profitable members
of a combined or consolidated group filing in such state based on the relative
amounts of their deemed taxable income in that state. For this purpose, each
member of the consolidated or combined group of corporations filing in a
particular state shall generally be treated as having an amount of deemed
taxable income in that state which that member would be required to report to
the state if the member were filing a separate franchise or income tax return
for the state, but applying the combined apportionment factors which are in
effect for the subject consolidated or combined group of corporations (rather
than the member's individual factors).
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<PAGE> 5
(c) Payment of the consolidated or combined income or franchise Tax
liability for a taxable period shall be made according to the schedule of
estimated tax installments and final payments prescribed in the Code or
applicable state law. ATL shall pay to Odetics the ATL Group members' share of
each Tax payment within five (5) days of receiving notice from Odetics, but in
no event more than ten (10) days prior to the due date for each such payment and
no later than such due date. Any overpayment of estimated Tax shall be promptly
refunded to the member which made such overpayment.
3.3 Adjustments to Tax Liability and Tax Attributes
(a) Odetics shall be responsible for, and shall indemnify and hold
harmless each member of the ATL Group from and against, all adjustments to Taxes
attributable to the Odetics Group, whether heretofore or hereafter arising or
incurred, except Taxes for which the members of the ATL Group are liable
pursuant to Section 3.1(b).
(b) Except as provided in Section 3.3(c), Odetics shall be entitled
to any Tax Benefit and shall bear any Tax Detriment resulting from adjustments
to Taxes attributable to the Odetics Group or the ATL Group (except adjustments
resulting from carrybacks of ATL from a Post-Spinoff Period). If an adjustment
to a tax item attributable to the Odetics Group increases the Tax liability of
the Odetics Group and correspondingly reduces a Tax liability for which the ATL
Group is responsible under this Agreement, ATL shall pay promptly to Odetics the
amount of the Tax Benefit realized by the ATL Group. If an adjustment to a tax
item attributable to the Odetics Group reduces the Tax liability of the Odetics
Group and correspondingly increases a Tax liability for which the ATL Group is
responsible under this Agreement, Odetics shall pay promptly to ATL the amount
of the Tax Detriment realized by the ATL Group.
(c) ATL shall be responsible for, and shall indemnify and hold
harmless each Odetics Group member from and against, all adjustments to Taxes
(i) for any Pre-Spinoff Period commencing on or after the Effective Date with
respect to the ATL Group and (ii) for any Post-Spinoff Period with respect to
the ATL Group. If an adjustment to a tax item for which ATL is responsible under
this Section 3.3 increases the Tax liability of the ATL Group and
correspondingly reduces the Tax liability of the Odetics Group, Odetics shall
pay promptly to ATL the amount of the Tax Benefit realized by the Odetics Group.
If an adjustment to a tax item for which ATL is responsible under this Section
3.3 reduces the Tax liability of the ATL Group and correspondingly increases the
Tax liability of the Odetics Group, ATL shall pay promptly to Odetics the amount
of the Tax Detriment incurred by the Odetics Group.
3.4 Carrybacks from Post-Spinoff Periods to Pre-Spinoff Periods.
Any loss, credit or other item attributable to the ATL Group and arising in a
Post-Spinoff Period may be carried back to a consolidated or combined return of
the Odetics affiliated group for a
Page 4
<PAGE> 6
Pre-Spinoff Period as permitted under applicable law. Odetics shall cooperate
with any ATL Group member to the extent reasonably necessary (including, without
limitation, amending any return and filing any claim for refund) for such member
to realize the Tax Benefit of carrying such loss, credit or other item back to
such Pre-Spinoff Period. Odetics shall remit promptly to ATL any refund or
reduction in Tax resulting from such carryback; provided, however, that the
amount payable in respect of any such refund shall be reduced by the amount of
any Tax incurred by any Odetics Group member as a result of the accrual or
receipt of the refund.
ARTICLE IV
COOPERATION
4.1 Cooperation in General
(a) Each of Odetics and ATL agrees to make available to the other
party documents and records in its custody and in the custody of any member of
its group, to furnish other information and otherwise to cooperate to the extent
reasonably required for the filing of tax returns and the handling of audits of
such other party.
(b) So long as the ATL Group is included in the consolidated
financial statements of Odetics, ATL shall timely provide the necessary
financial information of the ATL Group to Odetics so that Odetics may prepare a
consolidated tax provision to meet its deadlines.
4.2 Notice, Defense and Settlement of Tax Claims
(a) If a member of the Odetics Group or ATL Group receives written
notice of a deficiency, contest, audit or other proceeding with respect to a
proposed Tax liability for which a member of the other group is or may be liable
under this Agreement (including liability hereunder to indemnify or reimburse a
member of the other group), then the recipient shall notify the other group of
such matter by promptly sending written notice thereof to Odetics or ATL, as the
case may be. Odetics and ATL shall cooperate to contest and defend any such
proposed Tax liability, with each party bearing its own expenses relating to
such proceeding. The corporation that is liable under applicable law for such
proposed Tax liability (without regard to this Agreement) shall not settle,
compromise or otherwise agree to pay such liability without the consent of the
party that is liable for such Tax under this Agreement. Such consent shall not
be unreasonably withheld.
(b) Odetics shall be responsible for responding to any notice of
deficiency, contest, audit or other proceedings with respect to a proposed Tax
liability of a consolidated or combined federal or state tax return of the
Odetics Group or the ATL Group for a Pre-Spinoff Period. ATL shall be
responsible for responding to any notice
Page 5
<PAGE> 7
of deficiency, contest, audit or other proceedings with respect to a proposed
Tax liability of a stand-alone tax return of ATL or any member of the ATL Group
for a Pre-Spinoff Period. In addition, ATL shall be responsible for responding
to any proposed claims for Taxes other than income or franchise taxes, including
but not limited to sales, property and payroll Taxes, attributable to the ATL
Group for a Pre-Spinoff Period. Odetics shall bear the expense of and have
control of such proceedings relating to the ATL Group except in cases involving
Taxes for which the ATL Group is responsible under this Agreement.
4.3 Confidentiality. The members of both the Odetics Group and the ATL
Group understand the confidential nature of financial information disclosed in
tax returns and the related supporting documentation. Each of Odetics and ATL
(on behalf of themselves and the members of their respective groups) hereby
agrees not to release any tax and supporting documentation or information with
respect to the other party to any outside party (including taxing authorities)
without the consent of the other party, which consent shall not be unreasonably
withheld.
ARTICLE V
RESOLUTION OF DISPUTES
Any dispute or ambiguity concerning the amount of any payment provided
for under this Agreement shall be resolved, in a manner consistent with the
principles and procedures set forth in this Agreement, by an internationally
recognized accounting firm (a so-called "Big-Six" accounting firm) jointly
selected by Odetics and ATL. The judgment of such accounting firm shall be
conclusive and binding upon each of the parties to this Agreement. The
accounting firm's fee shall be borne equally by Odetics and ATL.
ARTICLE VI
GENERAL
6.1 Waiver. Any waiver by any party of any default by the other party
hereunder shall not be deemed to be a continuing waiver of such default or a
waiver of any other default or of any of the terms and conditions of this
Agreement.
6.2 Amendments. The terms and conditions of this Agreement may not be
superseded, modified or amended except in writing stating that it is such a
modification and signed by an authorized representative of each party hereto.
6.3 Governing Law; Forum Selection. This Agreement shall be governed by
the laws of the State of California, without reference to conflict of laws
principles. All disputes arising out of this Agreement shall be subject to the
exclusive jurisdiction and venue of the California state courts of Orange County
(or, if there is exclusive federal
Page 6
<PAGE> 8
jurisdiction, the United States District Court for the Southern District of
California), and the parties consent to the personal and exclusive jurisdiction
and venue of these courts.
6.4 Attorneys' Fees. The prevailing party in any legal action brought
by one party against the other shall be entitled, in addition to any other
rights and remedies it may have, to reimbursement for its expenses incurred
thereby, including court costs and reasonable attorneys' fees.
6.5 Complete Agreement. This Agreement constitutes the entire agreement
between the parties as to the subject matter hereof, and supersedes and replaces
all prior or contemporaneous agreements, written or oral, regarding such subject
matter, including any prior tax sharing or tax allocation agreements.
6.6 Binding Agreement. This Agreement shall be binding upon and inure
to the benefit of each party hereto, its respective successors and assigns, and
each member of the Odetics Group and the ATL Group not a party hereto.
6.7 Notices. Any notice which any party desires or is obligated to give
to the other shall be given in writing or by facsimile or telex and sent to the
chief financial officer of the other party. Except as otherwise expressly
provided herein, notice shall be deemed to have been received on the earlier of
the date when actually received or ten (10) days after being deposited in the
mail, postage prepaid, registered or certified mail, or within one (1) day if by
facsimile or telex, promptly confirmed in writing, properly addressed to the
other party.
6.8 Headings; Counterparts. Headings to sections of this Agreement are
to facilitate reference only, do not form a part of this Agreement and shall not
in any way affect the interpretation hereof. This Agreement may be executed in
two (2) or more counterparts or duplicate originals, all of which shall be
regarded as one and the same instrument, and which shall be the official and
governing version in the interpretation of this Agreement.
6.9 Partial Invalidity. If any provision in this Agreement shall be
found or be held to be invalid or unenforceable in any jurisdiction in which
this Agreement is being performed, then the meaning of said provision shall be
construed, to the extent feasible, so as to render the provision enforceable,
and if no feasible interpretation would save such provision, it shall be severed
from the remainder of this Agreement which shall remain in full force and
effect. In such event, the parties shall negotiate, in good faith, a substitute,
valid and enforceable provision which most nearly effects the parties' intent in
entering this Agreement.
6.10 Additional Members. If during a Pre-Spinoff Period any other
corporation becomes a member of the Odetics Group or the ATL Group, then such
corporation shall join in and be bound by this Agreement.
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<PAGE> 9
6.11 Effect of Prior Tax Allocation Agreement. The parties are parties
to an existing tax allocation agreement. Such prior allocation agreement is
superseded by this Agreement retroactive to the Effective Date.
IN WITNESS WHEREOF, Odetics and ATL have caused this Agreement to be
duly executed by their respective officers, each of whom is duly authorized, as
of the date first above written.
ODETICS, INC.
By /s/ JOEL SLUTZKY
-----------------------------
Title CEO
--------------------------
ATL PRODUCTS, INC.
By /s/ KEVIN C. DALY
-----------------------------
Title CEO
--------------------------
Page 8
<PAGE> 1
EXHIBIT 10.5
SERVICES AGREEMENT
This SERVICES AGREEMENT is made and entered into as of this 21st day of
March, 1997, by and between ODETICS, INC., a Delaware corporation ("Odetics")
and ATL PRODUCTS, INC., a Delaware corporation ("ATL").
R E C I T A L S
WHEREAS, Odetics and ATL have entered into a Separation and
Distribution Agreement which sets forth the principal transactions between
Odetics and ATL as a result of ATL's recent issuance of additional shares of its
authorized but unissued Class A Common Stock in a registered and underwritten
initial public offering of less than 20% of its outstanding shares and Odetics'
proposed distribution to its stockholders pursuant to a tax free spinoff under
Internal Revenue Code ss. 355 of the Class A Common Stock of ATL which it owns
(the "Distribution"); and
WHEREAS, ATL desires Odetics to perform certain business, information
and facilities services on ATL's behalf following the Distribution;
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. Business Services. During the term of this Agreement, Odetics shall
provide to ATL the services set forth in Exhibit A attached hereto (the
"Services") in substantially the same manner and to the same extent as currently
and heretofore provided.
2. Performance of Services.
2.1 Services to be provided by Odetics may, at Odetics's sole
discretion, be provided, in whole or in part, by affiliates of Odetics.
Odetics shall not be obligated to acquire new or additional assets, or
hire new or additional employees, to perform the Services. In addition,
Odetics may contract with one or more third parties for the performance
of all or any part of the Services provided (i) the costs to ATL for
the services to be provided by the third party do not exceed the
amounts that would have been charged by Odetics, (ii) the level of
service provided by the third party is at least substantially
equivalent to that provided by Odetics hereunder, and (iii) such third
party is reasonably acceptable to ATL. It is currently contemplated
that the Services will generally continue to be provided by the
organization that is providing such Services as of the date hereof. ATL
agrees that all third parties currently providing any Services are
acceptable third parties to provide Services.
2.2 The Services to be provided by Odetics shall be provided
to ATL as appropriate to reflect the organizational and operational
structure of ATL; provided,
1
<PAGE> 2
however, that Odetics shall not be required to provide any Services to
the extent that the performance of such Services becomes more expensive
for Odetics as a result of an organizational or operations change by
ATL.
2.3 ATL shall provide to Odetics on a timely basis any and all
information which is reasonably necessary for Odetics to provide the
Services. ATL shall be solely responsible for the timely delivery of
such information, and the accuracy and completeness thereof. ATL shall
have no right to obtain any confidential or proprietary information of
Odetics, and any such information so obtained by ATL shall be deemed to
be confidential and treated in accordance with the provisions of
Section 7 hereof.
3. Limitation of Services.
3.1 Odetics shall not be required to provide a level of
service which is higher than that provided currently, at the date of
this Agreement.
3.2 Odetics shall not be required to perform any information
system services to the extent such services would result in the breach
of any software license or other applicable contract. If Odetics
believes it is unable to provide any information systems services
pursuant to the foregoing, Odetics shall promptly notify ATL. If
requested by ATL, Odetics shall use reasonable efforts to obtain the
rights necessary to provide such information system services, including
obtaining any appropriate consents from third parties. ATL shall be
responsible for all additional costs and expenses incurred by Odetics
in order to allow Odetics to provide such information system services.
3.3 Odetics shall not be required to provide any Services to
the extent the performance of such Services becomes impractical as a
result of a cause or causes outside the reasonable control of Odetics
or to the extent the performance of such Services would require Odetics
to violate any applicable laws, rules or regulations.
3.4 ODETICS MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, AND ODETICS SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO
THE SERVICES TO BE PROVIDED HEREUNDER.
4. Fees.
4.1 ATL shall pay to Odetics, as fees for the Services
performed by Odetics pursuant to this Agreement, the amounts set forth
in Exhibit A, which amounts are intended to represent the fair market
value of such services. Such fees shall be adjusted throughout the term
of this Agreement, so that they will reflect fair market value at all
times. In addition, ATL shall reimburse Odetics for all direct third
party costs incurred by Odetics in connection with providing the
Services, provided that such third party costs have been approved in
advance by ATL.
2
<PAGE> 3
4.2 Odetics shall submit to ATL, on a monthly basis, Odetics's
invoice for Services performed under this Agreement in the preceding
month. Each invoice shall be payable net thirty (30) days after the
date of the invoice; however, in the event that ATL, in good faith,
questions any invoiced item, payment of that item shall be made only
after the satisfactory resolution of those questions. ATL shall pay a
service charge of 1% per month for all overdue amounts, other than
amounts which ATL has, in good faith, questioned.
5. Term.
5.1 Unless terminated earlier as provided in this Section,
this Agreement shall terminate as of a date eighteen (18) months after
the date of this Agreement.
5.2 ATL may terminate any of the Services, in whole or in
part, upon 30 days written notice to Odetics.
5.3 This Agreement may be terminated at any time upon the
mutual consent of the parties.
5.4 Either party may terminate this Agreement if the other
party is in material default under this Agreement and fails to correct
such default within 30 days after receiving written notice of such
default.
5.5 The parties acknowledge that the purpose of this Agreement
is to provide the Services on an interim basis to permit ATL to obtain
alternative sources for the Services. ATL shall use its best efforts to
obtain alternative sources for the Services as soon as practicable.
6. Indemnification.
6.1 ATL shall indemnify and hold harmless Odetics, its
affiliates, and their officers, directors, employees, and agents from
and against all claims, liabilities, obligations, suits, causes of
action, or expenses (including reasonable attorneys fees) (collectively
"Claims") claimed to have resulted, directly or indirectly, in
connection with the performance of Services by Odetics, provided,
however, that ATL shall not be required to indemnify or hold harmless
any indemnitee to the extent the Claims are caused by the gross
negligence or willful misconduct of such indemnitee.
6.2 An indemnitee shall provide written notice to ATL of any
Claims with respect to which it seeks indemnification, and ATL shall
assume the defense of such Claims with counsel reasonably satisfactory
to the indemnitee. If such defense is assumed by ATL with counsel so
selected, ATL will not be subject to any liability for
3
<PAGE> 4
any settlement of such Claims made by an indemnified party without
ATL's consent (such consent to not be unreasonably withheld or
delayed). No indemnified party will be subject to any liability for any
settlement of such Claims made by ATL without such party's consent
(which consent is not to be unreasonably withheld), and such settlement
shall include an unconditional release of all indemnitees from all
liability on such Claims. If an indemnified party desires to retain
separate counsel, such indemnified party shall have the right to do so,
but ATL will not be obligated to pay the fees and expenses of such
separate counsel. The parties hereto agree to cooperate fully with each
other in connection with the defense, negotiation or settlement of any
legal proceeding, claim or demand and to engage in no action that would
result in or increase liability on the part of another party.
6.3 The provisions of this Section 6 shall survive termination
of the Agreement.
7. Confidentiality.
7.1 In the course of performance of this Agreement, either
party ("Receiving Party") may acquire information the other party
("Disclosing Party") deems confidential, including trade secrets and
unpublished technical or business related information and data to which
the Disclosing Party (or companies affiliated with the Disclosing
Party) has proprietary rights. Confidential information shall also
include information of a third party which the Disclosing Party is
under an obligation to maintain in confidence. All such information is
referred to hereinafter as "Disclosed Information."
7.2 The Receiving Party shall retain Disclosed Information in
strict confidence and shall not communicate it to others without the
Disclosing Party's prior written agreement. Notwithstanding the
foregoing, Odetics shall be allowed to disclose Disclosed Information
of ATL to third parties as necessary to perform the Services, provided
such third parties have undertaken confidentiality obligations
substantially similar to those set forth in this Section 7.
7.3 Nothing in this Agreement shall prevent the communication
to others of any Disclosed Information which the Receiving Party can
show was known to it or its representatives prior to its receipt
hereunder, was lawfully received by the Receiving party and its
representatives other than directly or indirectly from the Disclosing
Party or became public knowledge through no fault of the Receiving
Party.
7.4 The provisions of this Section 7 shall survive termination
of this Agreement for a period of three years.
4
<PAGE> 5
8. Miscellaneous.
8.1 Notices. All notices required or permitted to be given
under this Agreement shall be in writing and shall be sent by facsimile
transmission or mailed by registered or certified mail addressed to the
party to whom such notice is required or permitted to be given. All
notices shall be deemed to have been given when transmitted if given by
facsimile and confirmation of receipt is received or, if mailed, 48
hours after mailed as evidenced by the postmark at the point of
mailing.
All notices to Odetics shall be addressed as follows:
Odetics, Inc.
1515 South Manchester Avenue
Anaheim, California 92802-2907
Attn: Joel Slutzky
All notices to ATL shall be addressed as follows:
ATL Products, Inc.
2801 Kelvin Avenue
Irvine, California 92614
Attn: Kevin C. Daly, Ph.D.
Either party may, by written notice to the other, designate a new
address to which notices to the party giving the notice shall thereafter be
mailed.
8.2 Force Majeure. Odetics shall not be liable for any delay
or failure of performance to the extent such delay or failure is caused
by circumstances beyond its reasonable control and that by the exercise
of due diligence it is unable to prevent, provided that the party
claiming excuse use its best efforts to overcome the same.
8.3 Limitation of Liability. In no event shall Odetics be
liable to ATL for indirect, consequential, incidental or special
damages, including but not limited to lost profits, arising from or
relating to any breach of this Agreement, regardless of any notice of
such damages. Nothing in this Section is intended to limit or restrict
the indemnification rights or obligations of either party.
8.4 Entirety of Agreement. This Agreement sets forth the
entire agreement and understanding of the parties relating to the
subject matter contained herein and merges all prior discussions
between them, and neither party shall be bound by any representation
other than as expressly stated in this Agreement, or by a written
amendment to this Agreement signed by authorized representatives of
both parties.
5
<PAGE> 6
8.5 Waiver. The failure of either party in any one or more
instances to insist upon strict performance of any of the terms and
conditions of this Agreement shall not be construed as a waiver or
relinquishment, to any extent, of the right to assert or rely upon any
such terms or conditions on any future occasion.
8.6 Disclaimer of Agency. This Agreement shall not constitute
either party the legal representative or agent of the other, nor shall
either party have the right or authority to assume, create, or incur
any third-party liability or obligation of any kind, express or
implied, against or in the name of or on behalf of the other party
except as expressly set forth in this Agreement. The relationship of
Odetics and ATL shall be solely that of contracting parties and no
partnership, joint venture or other arrangement of any nature shall be
deemed to be created hereby.
8.7 Severability. In the event any term of this Agreement is
or becomes or is declared to be invalid or void by any court of
competent jurisdiction, such term or terms shall be null and void and
shall be deemed deleted from this Agreement, and all the remaining
terms of the Agreement shall remain in full force and effect.
8.8 Governing Law. The validity, performance and construction
of this Agreement shall be governed by the laws of California without
regard to principles of conflicts of laws.
8.9 Assignment. Except as provided in Section 2, neither party
shall delegate duties of performance or assign, in whole or in part,
rights or obligations under this Agreement without the prior written
consent of the other party, and any attempted delegation or assignment
without such written consent shall be of no force or effect. Subject to
the restrictions contained in the preceding sentence, this Agreement
shall be binding upon the successors and assigns of both parties.
8.10 Amendment. This Agreement shall be amended as mutually
agreed by Odetics and ATL in order to comply with any requirements
imposed by the Internal Revenue Service in order to issue a ruling
pursuant to Section 355 of the Internal Revenue Service Code of 1986,
as amended.
This Agreement is executed by the parties as of the date indicated
above.
ATL PRODUCTS, INC. ODETICS, INC.
By: /s/ Kevin C. Daly By: /s/ Joel Slutzky
------------------------------- -----------------------------
Kevin C. Daly, Ph.D. Joel Slutzky,
Chief Executive Officer Chief Executive Officer
6
<PAGE> 7
EXHIBIT A
ATL PRODUCTS, INC.
ODETICS CORPORATE SERVICES TO BE PROVIDED TO ATL
FOR THE PERIOD 4/1/97 - 3/31/98
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
AMOUNT ASSUMPTIONS
- -----------------------------------------------------------------------------------------------------------------------------------
QTR QTR QTR QTR FYE QTR QTR QTR QTR
- -----------------------------------------------------------------------------------------------------------------------------------
Jun-97 Sep-97 Dec-97 Mar-98 Mar-98 Jun-97 Sep-97 Dec-97 Mar-98
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
40k sq ft 1.3k sq ft 1.3k sq ft 1.3k sq ft
RENT @ 1515 S Manchester 32,000 3,000 3,000 3,000 41,000 apr mo mo mo
- -----------------------------------------------------------------------------------------------------------------------------------
1.3 sq ft
mo
- -----------------------------------------------------------------------------------------------------------------------------------
Payroll preparation 16,600 16,600 16,600 16,600 66,400 .75MM .75MM .75MM .75MM
- -----------------------------------------------------------------------------------------------------------------------------------
All other accounting
support 10,800 10,800 10,800 10,800 43,200 .25MM .25MM .25MM .25MM
- -----------------------------------------------------------------------------------------------------------------------------------
MIS Support
- -----------------------------------------------------------------------------------------------------------------------------------
MRP 8,150 8,150 8,150 8,150 32,600 .25MM .25MM .25MM .25MM
- -----------------------------------------------------------------------------------------------------------------------------------
Network security 8,150 8,150 8,150 8,150 32,600 .25MM .25MM .25MM .25MM
- -----------------------------------------------------------------------------------------------------------------------------------
Alpha HW/SW
maintenance support 11,550 11,550 11,550 11,550 46,200 35% 35% 35% 35%
- -----------------------------------------------------------------------------------------------------------------------------------
Alpha lease payment 2,993 2,993 2,993 2,993 11,972 35% 35% 35% 35%
- -----------------------------------------------------------------------------------------------------------------------------------
Sun H/S Support 2,100 2,100 2,100 2,100 8,400 35% 35% 35% 35%
- -----------------------------------------------------------------------------------------------------------------------------------
Phone Switch 0 0 0 0 0 25% 25% 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Facilities management 6,500 6,500 0 0 13,000 .25MM .25MM 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Associate Relations 30,000 30,000 0 0 60,000 1MM 1MM 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Health/Insurance Benefits 7,700 7,700 7,700 7,700 30,800 .25MM .25MM .25MM .25MM
- -----------------------------------------------------------------------------------------------------------------------------------
CFO 25,00 25,000 0 0 50,000 .5MM .5MM 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
CEO Support 22,250 22,250 44,500 .25MM .25MM 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 183,793 154,793 71,043 71,043 480,672
================================================================================
</TABLE>
<PAGE> 8
ATL PRODUCTS LIMITED
OEL FACILITY COSTS AND SERVICES TO BE PROVIDED TO APL
FOR THE PERIOD 1/4/97 - 12/31/97
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
AMOUNT ASSUMPTIONS
- ----------------------------------------------------------------------------------------------------------------------------------
QTR QTR QTR QTR FYE QTR QTR QTR QTR
- ----------------------------------------------------------------------------------------------------------------------------------
Jun-97 Sep-97 Dec-97 Mar-98 Mar-98 Jun-97 Sep-97 Dec-97 Mar-98
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RENT & RATES 23,822 23,822 23,822 0 71,466 1.5k sq ft 1.5k sq ft 1.5k sq ft N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Utilities 2,616 2,616 2,616 0 7,848 Water, Light, Heat, Cleaning N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Office equipment 2,450 2,450 2,450 0 7,350 fire, phone, copier, s/w, pc spt, etc N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Depreciation on Tls 11,550 11,550 11,550 0 34,650 Ref: Seymour memo 3/26/97 N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Support
- ----------------------------------------------------------------------------------------------------------------------------------
Warehousing 2,549 2,549 2,549 0 7,647 1/3 MM 1/3 MM 1/3 MM N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Accounting 5,821 5,821 5,821 0 17,463 1/3 MM 1/2 MM 1/2 MM N/A
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL 48,808 48,808 48,808 0 146,424
===============================================================================
</TABLE>
<PAGE> 1
EXHIBIT 10.14
PROMISSORY NOTE
$12,997,444 April 1, 1997
Anaheim, California
FOR VALUE RECEIVED, ATL Products, Inc., a Delaware corporation (the
"Borrower"), promises to pay to the order of Odetics, Inc., a Delaware
corporation (the "Lender"), at Anaheim, California, or at such other place as
the holder of this Note may from time to time designate in writing, the
principal amount of $12,997,444.00 dollars, with interest on the principal
amount from the date of disbursement of the principal amount at the rate per
annum set forth in this Note, to be paid as set forth in this Note.
The principal amount of this Note shall bear interest at the rate per
annum equal to Lender's cost of borrowing from the lesser of either of Lender's
primary banks, or Lender's principal bank, as the case may be during the term of
the Note, but shall not exceed the maximum rate of interest permitted by
applicable law.
The Borrower shall pay the principal amount of this Note and interest
in sixteen (16) equal quarterly installments at the end of each calendar quarter
commencing June 30, 1997 and continuing until all principal and interest have
been fully paid. Each payment of principal shall be accompanied by a payment
equal to all interest accrued on the outstanding principal amount of the Note.
The Borrower shall have the right to prepay the principal sum of this
Note, or any part thereof or interest thereon, at any time without penalty or
prepayment charge.
Both principal and interest shall be paid by Borrower in lawful money
of the United States of America in cash or in the form of a cashier's or
certified check.
If the Borrower shall default in the timely making of any payment of
principal and/or interest due hereunder and if the same remains unpaid for
fifteen (15) days following receipt by Borrower of written notice of such
default the Lender may declare the entire remaining indebtedness owing
hereunder, including any accrued interest, to become immediately due and
payable.
Notwithstanding anything to the contrary in this Note, the total
liability of the Borrower for payments in the nature of interest shall not
exceed the limits applicable to this Note, if any, imposed by the usury laws, if
any, of the United States of America or the State of California. If any payment
in the nature of interest made by the Borrower or received by the holder of this
Note is determined to be in excess of any limit applicable to this Note imposed
by such usury laws, then the amount of such excess shall constitute and be
considered a payment of principal, not interest, and such amount shall be
applied to reduce the principal sum so that the total liability of the Borrower
for payments in the nature of interest does not exceed the
<PAGE> 2
applicable limits, if any, imposed by such usury laws. In the event and to the
extent such excess amount of interest exceeds the outstanding unpaid principal
balance hereunder, any such excess amount shall be immediately returned to
Borrower by Lender.
No delay or omission on the part of the Lender hereof in exercising any
right hereunder shall operate as a waiver of such right or of any other right
under this Note.
Neither this Note nor any term hereof may be waived, amended,
discharged, modified, changed, or terminated orally, nor shall any waiver of any
provision hereof be effective except by an instrument in writing signed by
Borrower and the Lender thereof.
Whenever used herein, the words "Borrower" and "Lender" shall be deemed
to include their respective heirs, personal representatives, successors and
assigns.
All notices to be given under this Note shall be deemed served upon
receipt by the addressee or, if mailed, upon the expiration of seventy-two (72)
hours after deposit in the United States Postal Service, certified mail, postage
prepaid, addressed to the address of Borrower or Lender as hereinafter set
forth:
Borrower's Address: 2801 Kelvin Avenue
Irvine, California 92715
Attention: Chief Executive Officer
Lender's Address: 1515 South Manchester Avenue
Anaheim, California 92802-2907
Attention: Chief Executive Officer
This Note may from time to time be extended or renewed, with or without
notice to Borrower or any guarantor hereon and any related right may be waived,
exchanged, surrendered or otherwise dealt with, all without affecting the
liability of Borrower or any guarantor hereon.
There are no oral agreements between the Lender and the Borrower
relating to this Note. If any provision of this Note is held to be invalid or
unenforceable, it shall not affect the validity and enforceability of the other
provisions of this Note. This Note has been executed and delivered in the State
of California and is to be governed by and construed according to the laws
thereof.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the Borrower has executed this Note as of the date
first hereinabove written.
ATL Products, Inc.
By: /s/ Kevin C. Daly
---------------------------
Kevin C. Daly, Ph.D.
Chief Executive Officer
- 3 -
<PAGE> 1
EXHIBIT 10.16
NOTE
$ 5,000,000.00 Costa Mesa, California, March 15, 1997
On July 31, 1998 , and as hereinafter provided, for value received, the
undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking
corporation, or order, at its ORANGE CO. REGIONAL office, the principal sum of
$5,000,000.00 MAXIMUM or such sums up to the maximum if so stated, as the
Bank may now or hereafter advance to or for the benefit of the undersigned in
accordance with the terms hereof, together with interest from date of
disbursement or N/A , whichever is later, on the unpaid principal
balance [ ] at the rate of 0.000 % per year in excess of the rate of interest
which Bank has announced as its prime lending rate (the "Prime Rate"), which
shall vary concurrently with any change in such Prime Rate, or $250.00 ,
whichever is greater. Interest shall be computed at the above rate on the basis
of the actual number of days during which the principal balance is outstanding,
divided by 360, which shall, interest shall [ ] monthly [ ] quarterly [ ]
included with principal [ ] in addition to principal [ ] beginning April 30,
1997 , and if not so paid shall become a part of the principal. All
payments shall be applied first to any late charges owing, then to interest and
the remainder, if any, to principal. [ ] (If checked), Principal shall be
payable in installments of $ , or more, each installment on the day of
each , beginning Advances not to exceed any unpaid balance owing at any one
time equal to the maximum amount specified above, may be made at the option of
Bank.
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of principal or
interest when due, or in the performance or observance, when due, of any item,
covenant or condition of any deed of trust, security agreement or other
agreement (including amendments or extensions thereof) securing or pertaining to
this note, at the option of the holder hereof and without notice or demand, the
entire balance of principal and accrued interest then remaining unpaid shall (a)
become immediately due and payable, and (b) thereafter bear interest, until paid
in full, at the increased rate of 5% per year in excess of the rate provided for
above, as it may vary from time to time.
Defaults shall include, but not be limited to, the failure of the maker(s)
to pay principal or interest when due; the filing as to each person obligated
hereon, whether as maker, co-maker, endorser or guarantor (individually or
collectively referred to as the "Obligor") of a voluntary or involuntary
petition under the provisions of the Federal Bankruptcy Act; the issuance of any
attachment or execution against any asset of any Obligor; the death of any
Obligor; or any deterioration of the financial condition of any Obligor which
results in the holder hereof considering itself, in good faith, insecure.
If any installment payment, interest payment, principal payment or principal
balance payment due hereunder is delinquent ten or more days, Obligor agrees to
pay Bank a late charge in the amount of 5% of the payment so due and unpaid, in
addition to the payment; but nothing in this paragraph is to be construed as any
obligation on the part of the holder of this note to accept payment of any
payment past due or less than the total unpaid principal balance after maturity.
If this note is not paid when due, each Obligor promises to pay all costs
and expenses of collection and reasonable attorneys fees incurred by the holder
hereof on account of such collection, plus interest at the rate applicable to
principal, whether or not suit is filed hereon. Each Obligor shall be jointly
and severally liable hereon and consents to renewals, replacements and
extensions of time for payment hereof, before, at, or after maturity; consents
to the acceptance, release or substitution of security for this note; and waives
demand and protest and the right to assert any statute of limitations. Any
married person who signs this note agrees that recourse may be had against
separate property for any obligations hereunder. The indebtedness evidenced
hereby shall be payable in lawful money of the United States. In any action
brought under or arising out of this note, each Obligor, including successor(s)
or assign(s) hereby consents to the application of California law, to the
jurisdiction of any competent court within the State of California, and to
service or process by any means authorized by California law.
No single or partial exercise of any power hereunder, or under any deed of
trust, security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
1
<PAGE> 2
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect to
any of the security. Any delay or omission on the part of the holder hereof in
exercising any right hereunder, or under any deed of trust, security agreement
or other agreement, shall not operate as a waiver of such right, or of any other
right, under this note or any deed of trust, security agreement or other
agreement in connection herewith.
See LIBOR Addendum attached
ATL PRODUCTS, INC.
By
- --------------------------------------- -------------------------------------
- --------------------------------------- -------------------------------------
- --------------------------------------- -------------------------------------
2
<PAGE> 3
GENERAL SECURITY AGREEMENT
(TANGIBLE AND INTANGIBLE PERSONAL PROPERTY)
This Agreement is executed on March 15, 1997, by ATL PRODUCTS, INC.
(hereinafter called "Obligor"). In consideration of financial accommodations
given, to be given or continued, the Obligor grants to IMPERIAL BANK
(hereinafter called "Bank") a security interest in (a) all property (i)
delivered to Bank by Obligor, (ii) which shall be in Bank's possession or
control in any matter or for any purpose, (iii) described below, (iv) now owned
or hereafter acquired by Obligor of the type or class described below and/or in
any supplementary schedule hereto, or in any financing statement filed by Bank
and executed by or on behalf of Obligor; (b) the proceeds, increase and products
of such property, all accessions thereto, and all property which Obligor may
receive on account of such collateral which Obligor will immediately deliver to
Bank (collectively referred to as "Collateral") to secure payment and
performance of all of Obligor's present or future debts or obligations to Bank,
whether absolute or contingent (hereafter referred to as "Debt"). Unless
otherwise defined, words used herein have the meanings given them in the
California Uniform Commercial Code.
Collateral:
A. VEHICLE, VESSEL, AIRCRAFT:
<TABLE>
<CAPTION>
- ------------------------------------------------------ ----------------- ----------------- -----------------
Identification License or
Year Make/Manufacturer Model and Serial No. Registration No. New or Used
- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Engine or other equipment:
------------------------------------------------------
(For aircraft - original ink signature on copy to FAA)
B. DEPOSIT ACCOUNTS:
Type Account Number Amount $
----------- -------------- -------------------
In name of Depository
----------------------- -----------------------------
AND ALL EXTENSIONS OR RENEWALS THEREOF:
C. ACCOUNTS, INTANGIBLES AND OTHER: (Describe)
All personal property, whether presently existing or hereafter created
or acquired, including but not limited to: All accounts, chattel paper,
documents, instruments, money, deposit accounts and general intangibles
including returns, repossessions, books and records relating thereto,
and equipment containing said books and records. All goods including
equipment and inventory. All proceeds including, without limitation,
insurance proceeds. All guarantees and other security therefor.
The collateral not in Bank's possession will be located at: see Addendum
attached
3
<PAGE> 4
[ ] If checked, the Obligor is executing this Agreement as an Accommodation
Debtor only and the Obligor's liability is limited to the security interest
granted in the Collateral described herein. The party being accommodated is
("Borrower").
All the terms and provisions on the reverse side hereof are incorporated herein
as though set forth in full, and constitute a part of this Agreement.
<TABLE>
<CAPTION>
Signature
(Indicate title, if
Name applicable) Address
<S> <C> <C>
ATL PRODUCTS, INC.
- ---------------------------- --------------------------- --------------------------
BY
- ---------------------------- --------------------------- --------------------------
- ---------------------------- --------------------------- --------------------------
</TABLE>
4
<PAGE> 5
Obligor represents, warrants and agrees:
1. Obligor will immediately pay (a) any Debt when due, (b) Bank's costs of
collecting the Debt, of protecting, insuring or realizing on Collateral, and any
expenditure of Bank pursuant hereto, including attorneys' fees and expenses,
with interest at the rate of 24% per year, or the rate applicable to the Debt,
whichever is less, from the date of expenditure, and (c) any deficiency after
realization of Collateral.
2. Obligor will use the proceeds of any loan that becomes Debt hereunder for the
purpose indicated on the application therefore, and will promptly contract to
purchase and pay the purchase price of any property which becomes Collateral
hereunder from the proceeds of any loan made for that purpose.
3. As to all Collateral in Obligor's possession (unless specifically otherwise
agreed to by Bank in writing), Obligor will:
(a) Have, or has, possession of the Collateral at the location disclosed
to Bank and will not remove the Collateral from the location.
(b) Keep the Collateral separate and identifiable.
(c) Maintain the Collateral in good and saleable condition, repair it if
necessary, clean, feed, shelter, water, medicate, fertilize, cultivate,
irrigate, prune and otherwise deal with the Collateral in all such ways
as are considered good practice by owners of like property, use it
lawfully and only as permitted by insurance policies, and permit Bank to
inspect the Collateral at any reasonable time.
(d) Not sell, contract to sell, lease, encumber or transfer the
Collateral (other than inventory Collateral) until the Debt has been
paid, even though Bank has a security interest in proceeds of such
Collateral.
4. As to Collateral which is inventory and accounts, Obligor:
(a) May, until notice from Bank, sell, lease or otherwise dispose of
inventory Collateral in the ordinary course of business only, and
collect the cash proceeds thereof.
(b) Will, upon notice from Bank, deposit all cash proceeds as received
in a demand deposit account with Bank, containing only such proceeds and
deliver statements identifying units of inventory disposed of, accounts
which gave rise to proceeds, and all acquisitions and returns of
inventory as required by Bank.
(c) Will receive in trust, schedule on forms satisfactory to the Bank
and deliver to Bank all non-cash proceeds other than inventory received
in trade.
(d) If not in default, may obtain release of Bank's interest in
individual units of inventory upon request, therefore, payment to Bank
of the release price of such units shown on any Collateral schedule
supplementary hereto, and compliance herewith as to proceeds thereof.
5. As to Collateral which are accounts, chattel paper, general intangibles and
proceeds described in 4(c) above, Obligor warrants, represents and agrees:
(a) All such Collateral is genuine, enforceable in accordance with its
terms, free from default, prepayment, defense and conditions precedent
(except as disclosed to and accepted by Bank in writing), and is
supported by consecutively numbered invoices to, or rights against, the
debtors thereon. Obligor will supply Bank with duplicate invoices or
other evidence of Obligor's rights on Bank's request;
(b) All persons appearing to be obligated on such Collateral have
authority and capacity to contract;
(c) All chattel paper is in compliance with law as to form, content and
manner of preparation and execution and has been properly registered,
recorded, and/or filed to protect Obligor's interest thereunder;
5
<PAGE> 6
(d) If an account debtor shall also be indebted to Obligor on another
obligation, any payment made by him not specifically designated to be
applied on any particular obligation shall be considered to be a payment
on the account in which Bank has a security interest. Should any
remittance include a payment not on an account, it shall be delivered to
Bank and, if no event of default has occurred, Bank shall pay Obligor
the amount of such payment;
(e) Obligor agrees not to compromise, settle or adjust any account or
renew or extend the time of payment thereof without Bank's prior written
consent.
6. Obligor owns all Collateral absolutely, and no other person has or claims any
interest in any Collateral, except as disclosed to and accepted by Bank in
writing. Obligor will defend any proceeding which may affect title to or Bank's
security interest in any Collateral, and will indemnify and hold Bank free and
harmless from all costs and expenses of Bank's defense.
7. Obligor will pay when due all existing or future charges, liens or
encumbrances on and all taxes and assessments now or hereafter imposed on or
affecting the Collateral and, if the Collateral is in Obligor's possession, the
realty on which the Collateral is located.
8. Obligor will insure the Collateral with Bank as loss payee in form and
amounts with companies, and against risks and liability satisfactory to Bank,
and hereby assigns such policies to Bank, agrees to deliver them to Bank at
Bank's request, and authorizes Bank to make any claim thereunder, to cancel the
insurance on Obligor's default, and to receive payment of any endorse any
instrument in payment of any loss or return premium. If Obligor should fail to
deliver the required policy or policies to the Bank, Bank may, at Obligor's cost
and expense, without any duty to do so, get and pay for insurance naming as the
insured, at Bank's option, either both Obligor and Bank, or only Bank, and the
cost thereof shall be secured by this Security Agreement, and shall be repayable
as provided in Paragraph 1 above.
9. Obligor will give Bank any information it requires. All information at any
time supplied to Bank by Obligor (including, but not limited to, the value and
condition of Collateral, financial statements, financing statements, and
statements made in documentary Collateral) is correct and complete, and Obligor
will notify Bank of any adverse change in such information. Obligor will
promptly notify Bank of any change or Obligor's residence, chief executive
office or mailing address.
10. Bank is irrevocably appointed Obligor's attorney-in-fact to do any act which
Obligor is obligated hereby to do, to exercise such rights as Obligor may
exercise, to use such equipment as Obligor might use, to enter Obligor's
premises to give notice of Bank's security interest, and to collect Collateral
and proceeds and to execute and file in Obligor's name any financing statements
and amendments thereto required to perfect Bank's security interest hereunder,
all to protect and preserve the Collateral and Bank's rights hereunder. Bank
may:
(a) Endorse, collect and receive delivery or payment of instruments and
documents constituting Collateral;
(b) Make extension agreements with respect to or affecting Collateral,
exchange it for other Collateral, release persons liable thereon or take
security for the payment thereof, and compromise disputes in connection
therewith;
(c) Use or operate Collateral for the purpose of preserving Collateral
or its value and for preserving or liquidating Collateral.
11. If more than one signs this Agreement, their liability is joint and several.
Any Obligor who is married agrees that recourse may be had against separate
property for the Debt. Discharge of any Obligor except for full payment, or any
extension, forbearance, change of rate of interest, or acceptance, release or
substitution of Collateral or any impairment or suspension of Bank's rights
against an Obligor, or any transfer of an Obligor's interest to another shall
not affect the liability of
6
<PAGE> 7
any other Obligor. Until the Debt shall have been paid or performed in full,
Bank's rights shall continue even if the Debt is outlawed. All Obligors waive:
(a) any right to require Bank to proceed against any Obligor before any other,
or to pursue any other remedy; (b) presentment, protest and notice of protest,
demand and notice of nonpayment, demand or performance, notice of sale, and
advertisement of sale; (c) any right to the benefit of or to direct the
application of any Collateral until the Debt shall have been paid; (d) and any
right of subrogation to Bank until Debt shall have been paid or performed in
full.
12. Upon default, at Bank's option, without demand or notice, all or any part of
the Debt shall immediately become due. Bank shall have all rights given by law,
and may sell, in one or more sales, Collateral in any county where Bank has an
office. Bank may purchase at such sale. Sales for cash or on credit to a
wholesaler, retailer or user of the Collateral, or at public or private auction,
are all to be considered commercially reasonable. Bank may require Obligor to
assemble the Collateral and make it available to Bank at the entrance to the
location of the Collateral, or a place designated by Bank.
Defaults shall include:
(a) Obligor's failure to pay or perform this or any agreement with Bank
or breach of any warranty herein, or Borrower's failure to pay or
perform any agreement with Bank.
(b) Any change in Obligor's or Borrower's financial condition which in
Bank's judgment impairs the prospect of Borrower's payment or
performance.
(c) Any actual or reasonably anticipated deterioration of the Collateral
or in the market price thereof which causes it, in Bank's judgment, to
become unsatisfactory as security.
(d) Any levy or seizure against Borrower or any of the Collateral.
(e) Death, termination of business, assignment for creditors,
insolvency, appointment of receiver, or the filing of any petition under
bankruptcy or debtor's relief laws of, by or against Obligor or Borrower
or any guarantor of the Debt.
(f) Any warranty or representation which is false or is believed in good
faith by Bank to be false.
13. Bank's acceptance of partial or delinquent payments or the failure of Bank
to exercise any right or remedy shall not waive any obligation to Obligor or
Borrower or right of Bank to modify this Agreement, or waive any other similar
default.
14. On transfer of all or any part of the Debt, Bank may transfer all or any
part of the Collateral. Bank may deliver all or any part of the Collateral to
any Obligor at any time. Any such transfer or delivery shall discharge Bank from
all liability and responsibility with respect to such Collateral transferred or
delivered. This Agreement benefits Bank's successors and assigns and binds
Obligor's heirs, legatees, personal representatives, successors and assigns.
Obligor agrees not to assert against any assignee of Bank any claim or defense
that may exist against Bank. Time is of the essence. This Agreement and
supplementary schedules hereto contain the entire security agreement between
Bank and Obligor. Obligor will execute any additional agreements, assignments or
documents reasonably required by Bank to carry this Agreement into effect.
15. This Agreement shall be governed by and construed in accordance with the
laws of the State of California, to the jurisdiction of whose courts the Obligor
hereby agrees to submit. Obligor agrees that service of process may be
accomplished by any means authorized by California law. All words used herein in
the singular shall be considered to have been used in to plural where the
context and construction so require.
7
<PAGE> 8
March 15, 1997
IMPERIAL BANK ("Bank") Borrower: ATL Products, Inc.
695 Town Center Drive
Costa Mesa, California 92626
Subject: Credit Terms and Conditions (the "Agreement")
Gentlemen:
Subject to the terms and conditions of the Loan Documents (as defined below),
IMPERIAL BANK ("Bank" or "you") shall make loans to ATL Products, Inc.
("Borrower") from time to time as advances are requested by Borrower until July
31, 1998, not to exceed, in the aggregate, $5,000,000. To induce Bank to make
loans to Borrower and in consideration of any loan or loans Bank may make to
Borrower, Borrower warrants and agrees as follows:
A. Borrower Represents and Warrants that:
1. EXISTENCE AND RIGHTS. Borrower is a corporation and is duly organized,
existing and in good standing under the laws of the State of Delaware and is
authorized and in good standing to do business in the State of California;
Borrower has powers and adequate authority, rights and franchises to own its
property and to carry on its business as now conducted, and is duly qualified
and in good standing in each State where failure to so qualify would have a
material adverse effect on the operations of Borrower and Borrower has the power
and adequate authority to make and carry out this Agreement. Borrower has no
investment in any other business entity.
2. AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement are duly authorized and do not require the consent or approval of any
governmental body or other regulatory authority; are not in contravention of or
in conflict with any law or regulation or any term or provision of Borrower's
articles of incorporation, by-laws, or Articles of Association, as the case may
be, and this Agreement is the valid, binding and legally enforceable obligation
of Borrower in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency or other similar laws of general
application relating to or affecting the enforcement of creditors' rights or by
general principals of equity.
3. NO CONFLICT. The execution, delivery and performance of this Agreement are
not in contravention of or in conflict with any agreement, indenture or
undertaking to which Borrower is a party or by which it or any of its property
may be bound or affected, and do not cause any lien, charge or other encumbrance
to be created or imposed upon any such property by reason thereof.
4. LITIGATION. There is no litigation or other proceeding pending or threatened
against or affecting Borrower, and Borrower is not in default with respect to
any order, writ, injunction, decree or demand of any court or other governmental
or regulatory authority
8
<PAGE> 9
(involving in excess of $100,000). Borrower also agrees to notify you in writing
of any future litigation threatened against or affecting borrower that is
reasonably likely to result in damages or costs to Borrower in excess of
$100,000.
5. FINANCIAL CONDITION. The balance sheet of Borrower as of December 31, 1996,
and the related profit and loss statement for the nine (9) months ended on that
date, a copy of which has heretofore been delivered to you by Borrower, and all
other statements and data submitted in writing by Borrower to you in connection
with this request for credit are materially true and correct, and said balance
sheet and profit and loss statement fairly present the financial condition of
Borrower as of the date thereof and the results of operations for the period
covered thereby, and has been prepared in accordance with generally accepted
accounting principles on a basis consistently maintained. Since such date there
have been no material adverse changes in the financial condition or business of
Borrower. Borrower has no knowledge of any liabilities, contingent or otherwise,
at such date not reflected in said balance sheet, and Borrower has not entered
into any special commitments or substantial contracts which are not reflected in
said balance sheet, other than in the ordinary and normal course of its
business, which may have a materially adverse effect upon its financial
condition, operations or business as not conducted.
6. TITLE TO ASSETS. Borrower has good title to its assets, and the same are not
subject to any liens or encumbrances other than those permitted by Section C.3
hereof.
7. TAX STATUS. Borrower has no liability for any delinquent state, local or
federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
8. TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all necessary
trademarks, trade names, copyrights, patents, patent rights, and licenses to
conduct its business as now operated, without any known conflict with the valid
trademarks, trade names, copyrights, patents and license rights of others.
9. REGULATION U. The proceeds of the notes have not been used to purchase or
carry margin stock (as defined within Regulation U of the Board of Governors of
the Federal Reserve system).
B. Borrower agrees that so long as it is indebted to you, under borrowings, or
other indebtedness, it will, unless you shall otherwise consent in writing:
1. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and other
authority adequate for the conduct of its business; maintain its properties,
equipment and facilities in good order and repair; conduct its business in an
orderly manner without voluntary interruption and, if a corporation or
partnership, maintain and preserve its existence.
2. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses
9
<PAGE> 10
and/or in the exercise of good business judgment and as to property insurance
have Bank named in a Lenders Loss Payee Endorsement form 438BFU or equivalent
3. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and all its
other liabilities at any time existing, except to the extent and so long as:
(a) The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse effect
upon its financial condition or the loss of any right of redemption from any
sale thereunder; and
(b) It shall have set aside on its books reserves (segregated to the extent
required by generally accepted accounting practice) deemed by it adequate
with respect thereto.
4. FINANCIAL COVENANTS. Maintain the following financial covenants, to be tested
on a quarterly basis, for the periods set forth below, all as computed and
determined in accordance with generally accepted accounting principles on a
basis consistently maintained by Borrower:
(a) Maintain a minimum TANGIBLE NET WORTH, defined as the excess of all
tangible assets (excluding any value for goodwill, trademarks, patents,
copyrights, organization expenses and other similar intangible items), less
its liabilities, of not less than $8,750,000 for the period ending March 31,
1997, and increasing by (i) 90% of net profit after taxes for each reporting
period thereafter, and with no offset for losses, and (ii) 100% of the
aggregate net proceeds received by Borrower or their Subsidiaries upon
issuance of capital stock after March 31, 1997.
(b) Maintain a maximum LEVERAGE RATIO, defined as its total liabilities to
its Tangible Net Worth, of not more than 4.00 to 1, beginning with the
period ending March 31, 1997, and thereafter.
(c) Maintain a minimum QUICK RATIO, defined as the ratio of Borrower's cash
and cash equivalents plus accounts receivables to its current liabilities,
of not less than 1.05 to 1, beginning with the period ending March 31, 1997,
and thereafter.
(d) Maintain NET PROFITABILITY AFTER TAXES of not less than $1.00 per fiscal
quarter, beginning with the period ending March 31, 1997, and thereafter.
5. RECORDS AND REPORTS. Maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles on a basis consistently
maintained; permit your representatives to have access to, and to examine its
properties, books and records, upon reasonable notice and at all reasonable
times during normal business hours; and furnish you:
(a) As soon as available, and in any event within thirty (30) days after the
close of each month of each fiscal year of Borrower, commencing with the
month next ending, a balance sheet, profit and loss statement and
reconciliation of Borrower's
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<PAGE> 11
capital accounts as of the close of such period and covering operations for
the portion of Borrower's fiscal year ending on the last day of such period,
all in reasonable detail and stating in comparative form the figures for the
corresponding date and period in the previous fiscal year, prepared in
accordance with generally accepted accounting principles on a basis
consistently maintained by Borrower and certified by an appropriate officer
of Borrower, subject, however, to year-end audit adjustments. When the month
end is a fiscal quarter end, Borrower to provide the financial information
listed above in Form 10-Q, along with a covenant compliance worksheet
certified by an officer of Borrower, within 45 days of quarter-end;
(b) As soon as available, and in any event within ninety (90) days after the
close of each fiscal year of Borrower, a report of audit of Company as of
the close of and for such fiscal year, all in reasonable detail and stating
in comparative form the figures as of the close of and for the previous
fiscal year, with the unqualified opinion of independent certified public
accountants satisfactory to you, accompanied by a covenant compliance
worksheet certified by an officer of Borrower;
(c) Promptly after the receipt thereof by Borrower, copies of any detailed
audit reports submitted to Borrower by independent accountants in connection
with each annual or interim audit of the accounts of Borrower made by such
accountants;
(d) Budgets, operating plans, and such other information relating to the
affairs of Borrower as you reasonably may request from time to time.
6. NOTICE OF DEFAULT. Promptly notify Bank in writing of the occurrence of any
Event of Default hereunder or any event which upon notice and lapse of time
would be an Event of Default.
7. BUSINESS ACCOUNTS. Maintain all primary business deposit accounts at Bank.
C. Borrower agrees that so long as it is indebted to you, it will not, without
your written consent:
1. TYPE OF BUSINESS; MANAGEMENT. Make any substantial change in the character of
its business; or make any change in its executive management.
2. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than loans from you except obligations
now existing as shown in the financial statement dated December 31, 1996,
excluding those being refinanced by Bank; or sell or transfer, either with or
without recourse, any accounts or notes receivable or any moneys due to become
due, or in the financial statement dated 12/31/96, provided that the principal
amount thereof is not increased or the terms thereof are not modified to impose
more burdensome terms upon Borrower.
3. LIENS AND ENCUMBRANCES. Create, incur, or assume any mortgage, pledge,
encumbrance, lien or charge of any kind (including the charge upon property at
any time purchased or acquired under conditional sale or other title retention
agreement) upon any asset now owned or hereafter acquired by it, other than
liens for taxes not delinquent and liens in your favor.
11
<PAGE> 12
4. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances to any
person or other entity other than in the ordinary course and normal course of
its business as now conducted or make any investment in the securities of any
person or other entity other than the United States Government; or guarantee or
otherwise become liable upon the obligation of any person or other entity,
except by endorsement of negotiable instruments for deposit or collection in the
ordinary and normal course of its business, provided, however, that the
following loans and investments shall be permitted under this Section C.4:
a. (i) commercial paper maturing no more that one (1) year from the date of
creation thereof and currently having the highest rating obtainable from
either Standard & Poor's Corporation or Moody's Investors Service, Inc., and
(ii) certificates of deposit maturing more than one (1) year from the date
of investment therein issued by Bank;
b. extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the
ordinary course of business;
c. investments (including debt obligations) received in connection with the
bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers
arising in the ordinary course of business;
d. investments consisting of (i) travel advances, employee relocation loans
and other employee loans and advances in the ordinary course of business ,
(ii) loans to employees, officers or directors relating to the purchase of
equity securities of Borrower, (iii) other loans to officers and employees
approved by the Board of Directors in an amount not to exceed in any one
fiscal year $50,000 per officer or director or $200,000 in the aggregate for
all such employees or directors; and
e. investments of Borrower not otherwise permitted hereunder, aggregating
not in excess of $50,000 at any one time.
5. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or
otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings therefor;
or sell any assets except in the ordinary and normal course of its business as
now conducted; or sell, lease, assign, or transfer any substantial part of its
business or fixed assets, or any property or other assets necessary for the
continuance of its business as now conducted, including without limitation the
selling of any property or other asset accompanied by the leasing back of the
same.
6. DIVIDENDS, STOCK PAYMENTS. Declare or pay any dividend (other than dividends
payable in common stock of Borrower) or make any other distribution on any of
its capital stock now outstanding or hereafter issued or purchase, redeem or
retire any of such stock.
12
<PAGE> 13
7. CAPITAL EXPENDITURES. Make or incur obligations for capital expenditures in
excess of $2,200,000 for the fiscal year ending March 31, 1998 or $2,000,000 for
the fiscal year ending March 31, 1999.
D. The occurrence of any of the following events of default (individually an
"Event of Default") shall, at your option, terminate your commitment to lend and
make all sums of principal and interest then remaining unpaid on all Borrower's
indebtedness to you immediately due and payable, all without demand, presentment
or notice, all of which are hereby expressly waived:
1. FAILURE TO PAY NOTE. Failure to pay any installment of principal of or
interest on any indebtedness of Borrower to you.
2. BREACH OF COVENANT. Failure of Borrower to perform any material term or
condition of this Agreement binding upon Borrower.
3. BREACH OF WARRANTY. Any of Borrower's representations or warranties made
herein or any statement or certificate at any time given in writing pursuant
hereto or in connection herewith shall be false or misleading in any material
respect.
4. INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or admit
its inability to pay its debts as they mature; or make an assignment for the
benefit of creditors; or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business.
5. JUDGMENTS, ATTACHMENTS. Any money judgment, writ or warrant of attachment, or
similar process shall be entered or filed against Borrower or any of its assets
and shall remain unvacated, unbonded or unstayed for a period of 10 days or in
any event later than five days prior to the date of any proposed sale
thereunder.
6. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against Borrower and, if instituted
against it, shall be consented to; provided, however, with respect to an
involuntary petition in bankruptcy such petition shall not have been dismissed
within 60 days after the filing thereof.
E. Miscellaneous Provisions.
1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of imperial
Bank or any holder of Notes issued hereunder, in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing under this agreement or any note issued in
connection with a loan that Imperial Bank may make hereunder, are cumulative to,
and not exclusive of, any rights or remedies otherwise available.
2. CONFLICTS. In the event of a conflict between this Agreement and any other
related document, including but not limited to the General Security Agreement,
Note, Agreement to Provide insurance and Disbursement Instructions, each dated
of even
13
<PAGE> 14
date herewith (together with this Agreement, the "Loan Documents"), the terms
and conditions of this Agreement shall prevail.
3. CURE. Upon the occurrence of an Event of Default other than non-payment of
amounts due to Bank under the Loan Documents, the Borrower shall have 30 days
from notice from Bank within which to cure any such default. Borrower shall have
five days from the due date of any payment within which to cure such payment
default.
ATL Products, Inc.
BY:
---------------------------
ITS:
---------------------------
Accepted and Agreed to:
IMPERIAL BANK
BY:
---------------------------
ITS:
---------------------------
14
<PAGE> 15
LIBOR ADDENDUM
This Libor Addendum ("Addendum") is dated as of March 15, 1997, and is by and
between ATL PRODUCTS, INC. ("Borrower") and Imperial Bank ("Bank"). This
Addendum amends and supplements the Note to which it is attached (the "Note")
and forms a part of and is incorporated into the Note.
In the event of any inconsistency between the terms herein and the terms of
the Note, the terms herein shall in all cases govern and control. All
capitalized terms herein, unless otherwise defined herein, shall have the
meanings set forth in the Note.
1. ADVANCES
1.1 Prime Loans. Advances permitted pursuant to the terms of the Note or
this Addendum which bear interest in relation to Bank's Prime Rate shall be
referred to herein as "Prime Loans" and each such advance shall be a "Prime
Loan." Each Prime Loan shall bear interest at an annual rate equal to the sum of
0.000 % plus the Bank's Prime Rate. "Prime Rate" shall mean the rate of interest
publicly announced by Bank from time to time in Inglewood, California, as its
prime rate for lending. The Prime Rate is not intended to be the lowest rate of
interest charged by Bank in connection with extensions of credit to borrowers.
1.2 Libor Loans. Advances permitted pursuant to the terms of the Note or
this Addendum which bear interest in relation to the Libor Rate shall be
referred to herein as "Libor Loans" and each such advance shall be a "Libor
Loan." Each Libor Loan shall bear interest at the Libor Rate, as defined below.
A Libor Loan shall be in the minimum amount of One Million Dollars ($1,000,000)
or such greater amount which is an integral multiple of Fifty Thousand Dollars
($50,000). No Libor Loan shall be made after the last Business Day that is at
least three (3) months prior to the Maturity Date described in the Note.
2. INTEREST ON LIBOR LOANS.
2.1 Rate of Interest. Each Libor Loan shall bear interest on the unpaid
principal amount thereof from the Loan Date through the date paid (whether by
acceleration or otherwise) at a rate equal to the sum of 2.250% per annum plus
the Libor Rate for the Interest Period.
(a) "Loan Date" shall mean the date on which (i) a Libor Loan is made, a
Libor Loan is continued, or a Prime Loan is converted to a Libor Loan.
(b) "Interest Period" shall mean a period of thirty (30), sixty (60), or
ninety (90) days, commencing on the applicable Loan Date, as selected by
Borrower pursuant to Section 2.2; provided, however, that Borrower may not
select an Interest Period that would otherwise extend beyond the Maturity Date
of the Loan. Borrower may also select a twelve (12) month Interest Period if and
when Bank notifies Borrower that such Interest Period is available, as
determined by Bank in its sole discretion.
(c) "Libor Rate" shall mean, for the applicable Interest Period for a
Libor Loan, a rate per annum (rounded upwards, if necessary, to the nearest 1/16
of 1%) equal to (i) the Libor Base Rate for such Interest Period divided by (ii)
1.00 minus the Reserve Requirement Rate (expressed as a decimal fraction) for
such Interest Period.
(d) "Libor Base Rate" shall mean with respect to any Interest Period,
the rate equal to the arithmetic mean (rounded upwards, if necessary, to the
nearest 1/16 of 1%) of:
(i) the offered rates per annum for deposits in U.S. Dollars for a
period equal to such Interest Period which appears at 11:00 a.m., London time,
on the Reuters Screen LIBOR Page on
15
<PAGE> 16
LIBOR ADDENDUM
the Business Day that is two (2) Business Days before the first day of such
Interest Period, in each case if at least four (4) such offered rates appear on
such page, or
(ii) if clause (i) is inapplicable, (x) the offered rate per annum
for deposits in U.S. Dollars for a period equal to such Interest Period which
appears as of 11:00 a.m., London time on the Telerate Monitor on Telerate Screen
3750 on the Business Day which is two (2) Business Days before the first day of
such Interest Period; or (y) if clause (x) above is inapplicable, the arithmetic
mean (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the interest
rates per annum offered by at least three (3) prime banks selected by Bank at
approximately 11:00 a.m. London time, on the Business Day which is two (2)
Business Days before such date for deposits in U.S. Dollars to prime banks in
the London interbank market, in each case for a period equal to such Interest
Period in an amount equal to the amount to which the Libor Rate applies.
(e) "Business Day" means any day on which Bank is open for business in
the State of California.
(f) "Reuters Screen LIBOR Page" means the display designated as page
LIBOR on the Reuters Monitor Money Rates Service or such other page as may
replace the LIBOR page on that service for the purpose of displaying London
interbank offered rates of major banks.
(g) "Reserve Requirement Rate" means, for any Interest Period, the
aggregate of the rates, effective as of the Business Day which is two (2)
Business Days before the first day of the Interest Period, at which:
(i) reserves (including any marginal, supplemental or emergency
reserves) are required to be maintained during such Interest Period under
Regulation D against "Eurocurrency liabilities" (as such term is used in
Regulation D) by member banks of the Federal Reserve System; and
(ii) any additional reserves are required to be maintained by Bank by
reason of any Regulatory Change against (x) any category of liabilities which
includes deposits by reference to which the Libor Rate is to be determined as
provided in the definition of "Libor Base Rate;" or (y) any category of
extensions of credit or other assets which include Libor Loans.
(h) "Regulatory Change" means, with respect to Bank, any change on or
after the date of the Note and this Addendum in any Governmental Regulation,
including the introduction of any new Governmental Regulation or the rescission
of any existing Governmental Regulation.
(i) "Governmental Regulation" means any (i) United States Federal, state
or foreign law or regulation (including without limitation Regulation D); and
(ii) the adoption or making or any interpretation, application, directive or
request applying to a class of lenders, including Bank, of or under any United
States Federal, state, or any foreign law or regulation (whether or not having
the force of law) by any court or by any governmental, central banking, monetary
or taxing authority charged with the interpretation or administration of such
law or regulation.
2.2 Determination of Interest Rates. Subject to the terms and conditions of
the Note and this Addendum, Borrower, at its option, may request an advance in
the form of a Libor Loan, a continuation of a Libor Loan, or a conversion of a
Prime Loan into a Libor Loan, only upon delivery to Bank of an irrevocable
written notice received by Bank at least three (3) Business Days prior to the
requested Loan Date, specifying (i) the principal amount of such Libor Loan,
(ii) the requested Loan Date, and (iii) the selected Interest Period. Upon
receiving such notice, Bank shall determine (which determination shall be in
accordance with Section 2.1 and shall, absent manifest error, be final,
conclusive and binding upon all parties hereto) the Libor Rate applicable to
such Libor Loan two (2) Business Days prior to the Loan Date, and shall promptly
give notice thereof (in writing or
16
<PAGE> 17
LIBOR ADDENDUM
by telephone confirmed in writing) to Borrower. If Borrower shall fail to notify
Bank of its selected Interest Period for a Libor Loan (including the
continuation of an existing Libor Loan or the conversion of a Prime Loan into a
Libor Loan), the Borrower shall be deemed to have selected an Interest Period of
three (3) months.
2.3 Computation of Interest and Fees. All computations of interest and fees
payable pursuant to the Note shall be calculated on the basis of a three hundred
sixty (360) day year for the actual number of days elapsed (less the date of
repayment).
2.4 Recordation by Bank. Bank is hereby authorized to record the Loan Date,
the applicable Interest Period, the principal amount, and the interest rate of
each Libor Loan made (or continued or converted) by Bank, and the date and
amount of each payment or prepayment of principal thereof, in Bank's records.
Any such recordation shall constitute prima facie evidence of the accuracy of
the information recorded; provided that the failure to make any such recordation
shall not in any way affect the Borrower's obligations hereunder.
3. CONVERSION TO PRIME LOANS.
3.1 Election by Borrower. Subject to all the terms and conditions of this
Addendum, Borrower may elect from time to time to convert a Libor Loan to a
Prime Loan by giving Bank at least three (3) Business Days' prior irrevocable
notice of such election, and any such conversion of a Libor Loan shall be made
on the last day of the Interest Period with respect thereto.
3.2 Failure of Notice by Borrower. If Borrower otherwise fails to give
notice specifying its requests with respect to any Libor Loans that are
scheduled to become due, such failure shall be deemed, in the absence of any
notice from Borrower to the contrary, to be notice of a requested advance in the
form of a Prime Loan in a principal amount equal to the amount of said Libor
Loan.
4. PREPAYMENTS.
4.1 Voluntary Prepayment by Borrower. Subject to the terms and conditions
of the Note and this Addendum, Borrower may, upon at least three (3) Business
Days' irrevocable notice to Bank as provided herein, at any time and from time
to time on any Business Day prepay any Prime Loan or Libor Loan in whole or in
part, without penalty or premium, other than customary actual "Breakage Fees"
and "Prepayment Costs" as defined below, resulting from prepayment of any Libor
Loan prior to the expiration of the Interest Period relating thereto. The notice
of prepayment shall specify the date and amount of the prepayment, and the Loan
to which the prepayment applies. Each partial prepayment of a Libor Loan shall
be in an amount not less than Fifty Thousand Dollars ($50,000) or such greater
amount which is an integral multiple of Fifty Thousand Dollars ($50,000);
provided, that unless a Libor Loan is prepaid in full, no prepayment shall be
made if, after giving effect to such prepayment, the aggregate principal amount
of Libor Loans having the same Interest Period shall be less than One Million
Dollars ($1,000,000). Notice of prepayment having been delivered as aforesaid,
the principal amount of the prepayment specified in such notice shall become due
and payable on the prepayment date set forth in such notice. All payments of
principal under this Section 4 shall be accompanied by accrued but unpaid
interest on the amount being prepaid through the date of such prepayment.
4.2 Breakage Fees. If for any reason (including voluntary or mandatory
prepayment, voluntary or mandatory conversion of a Libor Loan into a Prime Loan,
or acceleration), Bank receives all or part of the principal amount of a Libor
Loan prior to the last day of the Interest Period for such Loan, Borrower shall
immediately notify Borrower's account officer at Bank and, on demand by Bank,
pay Bank the Breakage Fees, defined as the amount (if any) by which (i) the
additional interest which would have been payable on the amount so received had
it not been received until the last day of such Interest Period exceeds (ii) the
interest which would have been
17
<PAGE> 18
LIBOR ADDENDUM
recoverable by Bank (without regard to whether Bank actually so invests said
funds) by placing the amount so received on the deposit in the certificate of
deposit markets or the offshore currency interbank markets or United States
Treasury investment products, as the case may be, for a period starting on the
date on which it was so received and ending on the last day of such Interest
Period at the interest rate determined by Bank in its reasonable discretion.
Bank's determination as to such amount shall be conclusive and final, absent
manifest error.
4.3 Prepayment Costs. Borrower shall pay to Bank, upon the demand of Bank,
such other amount or amounts as shall be sufficient (in the sole good faith
opinion of Bank) to compensate it for any loss, costs or expense incurred by it
as a result of any prepayment by Borrower (including voluntary or mandatory
prepayment, voluntary or mandatory conversion of a Libor Loan into a Prime Loan,
or prepayment due to acceleration) of all or part of the principal amount of a
Libor Loan prior to the last day of the Interest Period for such Loan (including
without limitation any failure by Borrower to borrow a Libor Loan on the Loan
Date for such borrowing specified in the relevant notice of borrowing
hereunder). Such costs shall include, without limitation, any interest or fees
payable by Bank to lenders of funds obtained by it in order to make or maintain
its loans based on the London interbank eurodollar market. Bank's determination
as to such costs shall be conclusive and final, absent manifest error.
5. REMEDIES UPON EVENTS OF DEFAULT.
5.1 Conversion to Prime Loans. If any Event of Default has occurred and is
continuing under the Note or this Addendum, then in addition to all other
remedies available to Bank under the Note, at the option of Bank and without
demand or notice, all Libor Loans then outstanding shall be automatically
converted to Prime Loans on the last day or each respective Interest Period for
each Libor Loan.
5.2 Indemnity. Borrower agrees to pay and indemnify Bank for, and to hold
Bank harmless from, any and all cost, loss or expense (including without
limitation any such cost, loss or expense arising from interest or fees payable
by Bank to lenders of funds obtained by it in order to maintain its Libor Loans
hereunder, or in its reemployment of funds obtained in connection with the
making or maintaining of Libor Loans) which Bank may sustain or incur as a
consequence of any default by Borrower in connection with or related to: (a)
payment of the principal amount of or interest on Libor Loans, (b) making a
borrowing or conversion of a Libor Loan after Borrower has given a notice
thereof in accordance with this Addendum, or (c) making a prepayment of a Libor
Loan after Borrower has given a notice thereof in accordance with this Addendum,
or any prepayment (whether optional or mandatory) of any Libor Loan prior to the
end of the applicable Interest Period for such Loan.
6. ADDITIONAL PROVISIONS REGARDING LIBOR LOANS.
6.1 Libor Rate Taxes. All payments of principal, interest, fees, costs,
expenses and all other amounts payable to Borrower pursuant to the Note and this
Addendum shall be made free and clear of and without reduction by reason of all
present and future income, stamp and other taxes or other charges whatsoever
imposed, assessed, levied or collected by any national government or any
political subdivision or taxing authority thereof or any organization of which
it is a member (excluding (i) any taxes imposed on or measured by the overall
net income or gross receipts of Bank by any such entity, and (ii) any taxes
which would have been imposed even if no provisions for Libor Loans had appeared
in this Addendum) (collectively, "Libor Taxes").
If any Libor Taxes are required to be withheld from any amounts payable
to Bank, Borrower shall pay such additional amounts as may be necessary so as to
yield to Bank a net amount equal to the total amount of the payments provided
for in this Addendum or under the Note which Bank would have received if such
amounts had not been subject to Libor Taxes.
18
<PAGE> 19
LIBOR ADDENDUM
If any Libor Taxes are payable directly by Borrower, they shall be paid
by Borrower prior to the date on which penalties attach for failure to timely
pay such Libor Taxes. Within forty five (45) days after the date on which
payment of any such Libor Taxes is due pursuant to applicable law, Borrower will
furnish Bank the original receipt for the full payment of such Libor Taxes or,
if such is not available, evidence of such payment satisfactory in form and
substance to Bank. Borrower shall indemnify and hold Bank harmless against, and
will reimburse to Bank, upon demand, any incremental taxes, interest or
penalties that may become payable by Bank as a result of any failure by Borrower
to pay any Libor Taxes when due.
6.2 Inability to Determine Fair Interest Rate. If at any time Bank, in its
sole and absolute discretion, determines that: (i) the amount of the Libor Loans
for periods equal to the corresponding Interest Periods are not available to
Bank in the offshore currency interbank markets, (ii) the Libor Rate does not
accurately reflect the cost to Bank of lending the Libor Loan, or (iii) by
reason of any changes arising after the date of the Note affecting the London
interbank eurodollar market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in Sections
2.1 and 2.2 above, then Bank shall promptly give notice thereof to Borrower.
Upon the giving of such notice, Bank's obligation to make Libor Loans shall
terminate, unless Bank and the Borrower agree in writing to a different interest
rate applicable to Libor Loans, or until such time as Bank notifies Borrower
that the circumstances giving rise to Bank's notice no longer exist. While such
circumstances continue to exist, (x) any requested Libor Loan shall be treated
as a request for a Prime Loan, (y) any Prime Loan that was to have been
converted to a Libor Loan shall be continued as a Prime Loan, and (z) any
outstanding Libor Loan shall be converted retroactively, on the first day of the
then current Interest Period with respect thereto, to a Prime Loan.
6.3 Illegality or Impracticability. If (i) due to any Government Regulation
it shall become unlawful for Bank to continue to fund or maintain any Libor
Loans, or to perform its obligations hereunder, or (ii) due to any contingency
occurring after the date of the Note which has a material adverse effect on the
London interbank eurodollar market, it has become impracticable for Bank to
continue to fund or maintain any Libor Loans, or to perform its obligations
hereunder, then Bank shall promptly give notice thereof to Borrower. Upon the
giving of such notice, Bank's obligation to make Libor Loans shall terminate,
and in such event, (x) any requested Libor Loan shall be treated as a request
for a Prime Loan, (y) any Prime Loan that was to have been converted to a Libor
Loan shall be continued as a Prime Loan, and (z) any outstanding Libor Loan
shall be converted retroactively, on the first date of the then current Interest
Period with respect thereto, to a Prime Loan.
6.4 Governmental Regulations; Increased Costs. Borrower shall pay to Bank,
within 15 days after demand by Bank, from time to time such amounts as Bank may
determine to be necessary to compensate it for any increased costs incurred by
Bank that Bank determines are attributable to its making or maintaining of any
Libor Loans to Borrower (such increases in costs and reductions in amount
receivable being herein called "Additional Costs"), in each case resulting from
any Regulatory Change which:
(a) imposes a new tax or changes the basis of taxation of any amounts
payable to Bank under the Note or this Addendum in respect of any Libor Loans
(other than changes which affect taxes measured by or imposed on the overall net
income of Bank by the jurisdiction in which such Bank has its principal office);
or
(b) imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or any
deposits or other liabilities with or for the account of Bank (including any
Libor Loans or any deposits referred to in the definition of Libor Base Rate);
or
19
<PAGE> 20
LIBOR ADDENDUM
(c) imposes any other condition affecting the Note (or any of such
extensions of credit or liabilities); or
(d) imposes or modifies a Governmental Regulation regarding capital
adequacy which has or would have the effect of reducing the rate of return on
capital of Bank or any person or entity controlling Bank ("Parent") as a
consequence of its obligations hereunder to a level below that which Bank (or
its Parent) could have achieved but for such adoption, change or compliance
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by Bank to be material.
Bank will notify Borrower of any event occurring after the date of the
Note which will entitle Bank to Additional Costs pursuant to this Section 6.4 as
promptly as practicable after it obtains knowledge thereof and determines to
request such compensation. Bank will furnish Borrower with a statement setting
forth the basis and amount of each request by Bank for Additional Costs under
this Section 6.4. Determinations and allocations by Bank for purposes of this
Section 6.4 of the effect of any Regulatory Change on its costs of maintaining
its obligations to make Libor Loans or of making or maintaining Libor Loans or
on amounts receivable by it in respect of Libor Loans, and of the additional
amounts required to compensate Bank in respect of any Additional Costs, shall be
conclusive and final, absent manifest error.
This Addendum is executed as of the date first written above.
BORROWER BANK
IMPERIAL BANK,
ATL PRODUCTS, INC. a California banking corporation,
- ----------------------------- -------------------------------------
a By
- ----------------------------- -------------------------------------
Officer Name
By Its OFFICER TITLE
- ----------------------------- -------------------------------------
Its
- -----------------------------
By
- -----------------------------
Its
- -----------------------------
20
<PAGE> 1
EXHIBIT 11.1
ATL PRODUCTS, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended March 31
--------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Average shares outstanding 8,005,000 8,005,000 8,118,014
Shares related to SAB No. 83 479,455 479,455 479,455
---------- ---------- ----------
Shares used in computing net income (loss) per share 8,484,455 8,484,455 8,597,469
========== ========== ==========
Net income (loss) (7,515,000) (1,189,000) 3,931,000
Income (loss) per share $ (0.89) $ (0.14) $ 0.46
========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21
ATL PRODUCTS, INC.
LIST OF SUBSIDIARIES
<TABLE>
<S> <C>
ATL PRODUCTS LIMITED A private limited company incorporated under the laws of
England and Wales
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 9,494
<SECURITIES> 0
<RECEIVABLES> 12,730
<ALLOWANCES> 319
<INVENTORY> 12,627
<CURRENT-ASSETS> 35,206
<PP&E> 4,563
<DEPRECIATION> 1,844
<TOTAL-ASSETS> 37,925
<CURRENT-LIABILITIES> 19,312
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 8,864
<TOTAL-LIABILITY-AND-EQUITY> 37,925
<SALES> 60,028
<TOTAL-REVENUES> 60,028
<CGS> 35,642
<TOTAL-COSTS> 35,642
<OTHER-EXPENSES> 16,148
<LOSS-PROVISION> 253
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</TABLE>
