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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10/A
(AMENDMENT NO. 4)
GENERAL FORM FOR
REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
ADVANCED DIGITAL
INFORMATION CORPORATION
(Exact name of registrant as specified in its charter)
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WASHINGTON 91-1618616
(State or other jurisdiction (I.R.S. employer identification number)
of incorporation or organization)
10201 WILLOWS ROAD
REDMOND, WASHINGTON 98052
(Address of principal (Zip code)
executive offices)
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(206) 881-8004
(Registrant's telephone number, including area code)
Securities to be registered
pursuant to Section 12(b) of the Act:
NONE
Securities to be registered
pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
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ADVANCED DIGITAL INFORMATION CORPORATION
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ITEM NO. ITEM CAPTION
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Item 15(a) Financial Statements:
Report of Price Waterhouse LLP
Report of KPMG Peat Marwick LLP
Consolidated Balance Sheets of the Company at July 31, 1996 (unaudited), October 31,
1995 and October 31, 1994
Consolidated Statements of Operations for the nine months ended July 31, 1996 and
July 31, 1995 (unaudited), and for the years ended October 31, 1995, October 31, 1994
and September 30, 1993
Consolidated Statements of Changes in Shareholders' Equity for the period September 30,
1992 through October 31, 1995 and for the nine months ended July 31, 1996 (unaudited)
Consolidated Statements of Cash Flows for the nine months ended July 31, 1996 and
July 31, 1995 (unaudited) and for the years ended October 31, 1995, October 31,
1994 and September 30, 1993
Notes to Consolidated Financial Statements
Financial Statement Schedules:
VIII -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
Item 15(b) Exhibits
EXHIBIT NO. DESCRIPTION
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2.1 Form of Separation Agreement between ADIC and Interpoint Corporation
3.1 Restated Articles of Incorporation of ADIC**
3.2 Restated Bylaws of ADIC**
4.1 Form of Common Stock Certificate**
4.2 Rights Agreement, dated as of August 12, 1996, between ADIC and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent**
4.3 Certificate of Designation of Rights and Preferences of Series A
Participating Cumulative Preferred Stock, incorporated by
reference to Exhibit A to Exhibit 4.2**
4.4 Form of Right Certificate, incorporated by reference to Exhibit B to
Exhibit 4.2**
8.1 Form of Opinion of Perkins Coie
10.1 Lease Agreement between K-M Properties and Advanced Digital
Information Corporation, dated as of May 11, 1995 (incorporated by
reference to Exhibit 10.3 of the Interpoint Corporation Annual
Report on Form 10-K for the fiscal year ended October 31, 1995)**
10.2 Form of Tax Allocation Agreement between ADIC and Interpoint
Corporation
10.3 ADIC 1996 Stock Option Plan
10.4 ADIC 1996 Transition Plan**
11.1 Pro Forma Net Income Per Share**
21.1 Subsidiaries of the Registrant**
27.1 Financial Data Schedule**
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** previously filed
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment No. 4 to registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
ADVANCED DIGITAL INFORMATION
CORPORATION
By: CHARLES H. STONECIPHER
------------------------------------
Charles H. Stonecipher
Senior Vice President and
Chief Operating Officer
Redmond, Washington
September 6, 1996
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INFORMATION STATEMENT
LOGO
COMMON STOCK
(NO PAR VALUE)
This Information Statement is being furnished to the shareholders of
Interpoint Corporation, a Washington corporation ("Interpoint"), in connection
with the spinoff distribution (the "Distribution") by Interpoint to its
shareholders of all the outstanding shares of Advanced Digital Information
Corporation, a Washington corporation and a wholly owned subsidiary of
Interpoint (the "Company" or "ADIC"). As a result of the Distribution, the
Company will cease to be a subsidiary of Interpoint and will operate as an
independent, publicly held company.
The Distribution is being made in connection with, and is a condition
precedent to, the merger (the "Merger") of Interpoint with a wholly owned
subsidiary of Crane Co., a Delaware corporation ("Crane"), pursuant to an
Agreement and Plan of Merger dated as of July 1, 1996 (the "Merger Agreement").
Interpoint will effect the Distribution only if all conditions to consummation
of the Merger other than the Distribution have been satisfied or waived and the
parties to the Merger are prepared to close the Merger immediately after the
Distribution. See "The Merger and the Distribution -- Background of the Merger
and the Merger Agreement" and "-- Conditions; Termination."
The Distribution will be made immediately prior to the Merger to Interpoint
shareholders of record as of that date, which is expected to be on or about
October 11, 1996. The Distribution will be made on the basis of one share of
common stock, no par value, of the Company ("ADIC Common Stock") for every one
share of common stock, no par value, of Interpoint ("Interpoint Common Stock").
Holders of Interpoint Common Stock will not be required to pay any consideration
for shares of ADIC Common Stock to be received by them in the Distribution.
Approximately eight million shares of ADIC Common Stock are proposed to be
distributed. In addition, options to purchase approximately 475,000 shares of
ADIC Common Stock will be outstanding at the effective time of the Distribution.
Currently, no public trading market for the ADIC Common Stock exists. The
Company has applied to have the ADIC Common Stock approved for quotation on the
Nasdaq National Market under the symbol "ADIC." ADIC Common Stock received in
the Distribution will be freely tradable by nonaffiliates of the Company. See
"The Merger and the Distribution -- Market for ADIC Common Stock."
SEE "SPECIAL FACTORS" FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE
CONSIDERED BY RECIPIENTS OF THE ADIC COMMON STOCK.
------------------------
NO VOTE OF SHAREHOLDERS IS REQUIRED IN CONNECTION WITH THE DISTRIBUTION.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO
SEND US A PROXY IN CONNECTION WITH THE DISTRIBUTION.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS ANY SUCH COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS INFORMATION STATEMENT.
------------------------
The date of this Information Statement is September 10, 1996.
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[Three-page gatefold containing depiction of
storage capacity of the Company's products and descriptions
of different industries served by the Company's products]
ADIC(TM), VLS(TM) and Scalar(TM) are trademarks of the Company. This
Information Statement also contains other trademarks and trade names, which are
the property of their respective holders.
i
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CONTENTS
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SUMMARY............................... 1
RISK FACTORS.......................... 5
THE MERGER AND THE DISTRIBUTION....... 9
General............................. 9
Background of the Merger and the
Merger Agreement................. 9
Reasons for the Distribution........ 9
Manner of Distribution.............. 10
Certain Federal Income Tax
Consequences..................... 10
Market for ADIC Common Stock........ 11
Future Management of the Company.... 11
Conditions; Termination............. 11
Treatment of Stock Options.......... 11
Relationship Between Interpoint and
the Company after the
Distribution..................... 12
CAPITALIZATION........................ 13
DIVIDEND POLICY....................... 13
SELECTED FINANCIAL DATA............... 14
UNAUDITED PRO FORMA STATEMENTS OF
OPERATIONS.......................... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 18
General............................. 18
Results of Operations............... 18
Quarterly Information............... 21
Liquidity and Capital Resources..... 21
BUSINESS.............................. 23
General............................. 23
Industry............................ 23
Strategy............................ 24
Products............................ 25
Storage Management Software......... 27
Sales and Marketing................. 28
Customer Service and Support........ 29
Research and Development............ 30
Manufacturing....................... 30
Competition......................... 31
Proprietary Rights.................. 31
Legal Proceedings................... 31
Employees (Team Members)............ 32
Facilities.......................... 32
MANAGEMENT............................ 33
Officers and Directors.............. 33
Committees of the Board of
Directors........................ 34
Compensation of Directors; Stock
Option Program................... 35
Compensation of Executive
Officers......................... 36
Stock Option Grants................. 37
Option Exercises and Year-End Value
Table............................ 38
1996 Stock Option Plan.............. 38
1996 Transition Plan................ 42
CERTAIN TRANSACTIONS.................. 42
BENEFICIAL OWNERSHIP.................. 43
DESCRIPTION OF CAPITAL
STOCK............................... 45
Authorized Capital Stock............ 45
Common Stock........................ 45
Preferred Stock..................... 45
Preferred Stock Purchase Rights..... 45
Certain Antitakeover Effects........ 47
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES........................ 49
LIABILITY AND INDEMNIFICATION OF
DIRECTORS AND OFFICERS.............. 51
TRANSFER AGENT AND REGISTRAR.......... 52
INDEPENDENT PUBLIC ACCOUNTANTS........ 52
ADDITIONAL INFORMATION................ 52
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
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SUMMARY
This summary is qualified by the more detailed information set forth
elsewhere in this Information Statement, which should be read in its entirety.
The ADIC Common Stock to be received by Interpoint shareholders in the
Distribution is subject to certain risks. See "Risk Factors."
THE COMPANY
Advanced Digital Information Corporation ("ADIC" or the "Company") designs,
manufactures, markets, and supports specialized data storage peripherals used to
backup and archive electronic data for PC/LAN (Novell NetWare and Microsoft
Windows NT) and Unix client/server network computing environments. The Company's
principal products, automated tape libraries, combine proprietary electro-
mechanical robotics, electronic hardware and firmware developed by the Company
with industry standard, technologically advanced tape drives manufactured by
third parties to provide an efficient solution for automating data backup when
operated in conjunction with storage management software. As a leading drive-
independent provider of automated tape libraries, the Company's strategy is to
offer its customers a broad range of leading-edge library products. The Company
believes its product offerings are currently the most comprehensive within its
markets. The Company's product family consists of standalone tape drives and
automated tape libraries ranging from four gigabytes to over three terabytes of
data storage capacity. The Company incorporates a variety of tape drive
technologies, including 4mm/DAT, 8mm and DLT, in its products to offer customers
the latest in state-of-the-art technology.
Multiple trends are fostering continued growth of the data storage segment
of the client/server network computing market. Personal computer and workstation
microprocessors continue to achieve dramatic increases in performance, both
absolutely and relative to their cost. Enabled by this increased processing
power and the increasing sophistication of both network operating systems and
relational databases, core business processes (such as financial transaction
processing, materials requirements planning, document imaging and management of
patient records, engineering drawings and customer databases) are migrating from
manual processes or mainframes to lower cost client/server computer networks. As
organizations shift their core business processes to network computing
environments, the importance of backing up this increasingly valuable data
grows. In addition, the advent of the Internet, electronic mail and groupware is
further contributing to the growth of client/server computer networks and the
value of the digital data they contain. The combination of these trends is
driving an increase in demand for data storage and a resultant growing need for
data backup and archiving in client/server network computing environments.
The Company believes its principal products, automated tape libraries,
which operate in conjunction with storage management software, provide a
systematic and cost-effective solution for automating data backup in
client/server network computing environments. The Company's automated tape
libraries integrate proprietary electro-mechanical robotics, electronic hardware
and firmware developed by the Company with one or more technologically advanced
tape drives supplied by third parties. Depending on capacity, these products may
be configured as desktop, rackmount or floor-standing automated tape libraries
with end-user list prices ranging from approximately $3,500 to $90,000. The
Company believes its broad array of automated tape libraries for client/server
network computing environments, which covers a wide range of data storage
capacities, data transfer rates and price points, will allow the Company to
continue to compete effectively in its markets. According to a December 1995
independent study by Dataquest Incorporated ("Dataquest"), the demand for
automated tape libraries in these markets has grown from approximately $58
million in 1992 to approximately $301 million in 1995, and is projected to grow
at an annual compound growth rate of approximately 32% from 1995 to 1999.
The Company deploys a comprehensive sales, marketing, and support
infrastructure to address the market for client/server network storage
peripherals. The Company's customers range in size from large multinational
companies to small businesses and are geographically dispersed with
approximately 47.1% of net sales in fiscal 1995 coming from outside the United
States. The Company markets its products in North America, Europe, and the Asia
Pacific region through multiple distribution channels, including distributors,
value-added resellers ("VARs"), and original equipment manufacturers ("OEMs").
Additionally, the
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Company's technical support and system engineering organizations, along with
third-party on-site service providers, combine to provide pre- and post-sales
support to its customers.
The Company was incorporated under the laws of the State of Washington in
August 1984 and was acquired by Interpoint in February 1994. Its corporate
offices are located at 10201 Willows Road, Redmond, Washington 98052 and its
telephone number is (206) 881-8004.
THE MERGER AND THE DISTRIBUTION
General. Currently, the Company is a wholly owned subsidiary of
Interpoint, which is engaged in the microelectronics business, and, through the
Company, the data storage business. The Distribution is being made in connection
with, and is a condition precedent to, the Merger of Interpoint with a
subsidiary of Crane pursuant to the Merger Agreement. In the Distribution,
Interpoint will distribute pro rata to its shareholders approximately eight
million shares of ADIC Common Stock, which, on the date of the Distribution (the
"Distribution Date"), will constitute all the outstanding shares of ADIC Common
Stock. As a result of the Distribution, the Company will cease to be a
subsidiary of Interpoint and will operate as an independent, publicly held
company.
The Merger. Upon consummation of the Merger, holders of shares of
Interpoint Common Stock outstanding immediately prior to the Merger (other than
shares as to which dissenters' rights have been exercised) will be converted
into the right to receive shares of Crane common stock. The Merger is subject to
a number of conditions, including the approval of the Merger Agreement and the
transactions contemplated thereby by holders of at least two-thirds of the
outstanding Interpoint Common Stock as of the record date for the special
meeting of Interpoint shareholders at which the Merger is to be considered.
Prior to the vote by Interpoint shareholders on the Merger Agreement,
Interpoint will make a contribution to the working capital of ADIC through the
cancellation of all intercompany indebtedness of ADIC to Interpoint ($8,441,000
at July 31, 1996) and will transfer certain other assets to ADIC, including ADIC
Europe SARL ("ADIC Europe") and its interest in Visual Technologies, Limited. In
addition, immediately prior to the Distribution Interpoint expects to contribute
additional cash to ADIC for working capital in an amount currently estimated to
be a minimum of $1.5 million. The actual amount of cash contributed will be
determined in Interpoint's discretion and will depend on Interpoint's and ADIC's
operating results and cash flows prior to the Distribution.
Purpose. Completion of the Distribution is a condition to the Merger. In
addition, Interpoint's board of directors (the "Interpoint Board") believes that
the separation of ADIC will enhance ADIC's access to capital, ability to attract
personnel and potential to adapt in a rapidly changing industry. In approving
the Merger Agreement and the transactions contemplated thereby, the Interpoint
Board determined that the Merger, in combination with the Distribution, is fair
to, and in the best interest of, Interpoint shareholders insofar as it enables
Interpoint shareholders to continue to have an equity interest in ADIC and to
receive shares of Crane common stock in exchange for their Interpoint Common
Stock. See "The Merger and the Distribution -- Reasons for the Distribution."
Conditions. Interpoint will effect the Distribution only if the Merger has
been approved by the requisite vote of Interpoint shareholders and all other
conditions to consummation of the Merger other than the Distribution have been
satisfied or waived, and the parties to the Merger Agreement are prepared to
effect the Merger immediately after the Distribution. See "The Merger and the
Distribution--Conditions; Termination."
Trading Market. Currently, no public trading market for the ADIC Common
Stock exists. The Company has applied to have the ADIC Common Stock approved for
quotation on the Nasdaq National Market under the symbol "ADIC."
Mechanics. As promptly as practical after the record date of the
Distribution (which will be the same date the Merger is effective) (the
"Distribution Record Date"), the Distribution Agent will mail stock certificates
representing shares of ADIC Common Stock to holders of Interpoint Common Stock
at the
2
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Distribution Record Date. Holders of Interpoint Common Stock will not be
required to surrender or exchange shares of Interpoint Common Stock or pay any
consideration for shares of ADIC Common Stock to be received by them in the
Distribution (although such shares must be surrendered to receive shares of
common stock of Crane in the Merger). See "The Merger and the
Distribution -- Manner of Distribution."
Treatment of Options. Prior to the effective time of the Merger,
Interpoint expects to enter into a letter agreement with each holder of an
outstanding option to purchase Interpoint Common Stock. Pursuant to such
agreements, options held by employees of Interpoint's microelectronics business
will be cancelled in exchange for a cash payment, and options held by employees
of ADIC (including those held by Peter H. van Oppen and other members of ADIC's
board of directors) will be replaced with options to purchase ADIC Common Stock
(which will have the same vesting schedule and terms, other than the exercise
price, of the original Interpoint option) and a cash payment for the portion of
the original Interpoint option attributable to the microelectronics business.
See "The Merger and the Distribution -- Treatment of Stock Options."
Tax Consequences. It is expected that the Distribution will qualify as a
tax-free distribution for federal income tax purposes and, accordingly, no gain
or loss will be recognized by holders of Interpoint Common Stock upon receipt of
ADIC Common Stock in the Distribution. However, no ruling has been requested
from the Internal Revenue Service (the "IRS") regarding the tax treatment of the
Distribution. See "Certain Federal Income Tax Consequences."
SUMMARY FINANCIAL DATA
Set forth below is certain summary financial and operating data of the
Company as of and for each of the three fiscal years in the period ended October
31, 1995 and as of and for the nine months ended July 31, 1995 and 1996. The
summary financial data for the two-year period ended October 31, 1995 relate to
the Company as it was operated as part of Interpoint. The summary financial data
for the fiscal year ended September 30, 1993 relate to the Company as it was
operated as an independent company. In order to conform ADIC's fiscal year-end
to Interpoint's fiscal year-end upon the merger of ADIC into Interpoint in
February 1994, ADIC's financial statements for the month of October 1993 are not
included for either of the fiscal years ended September 30, 1993 or October 31,
1994. The summary financial data for each of the fiscal years in the three-year
period ended October 31, 1995 are derived from the audited financial statements
of the Company. The summary financial data for the nine-month periods ended July
31, 1995 and 1996 are derived from unaudited financial statements appearing
elsewhere in this Information Statement which, in the opinion of the Company's
management, include all adjustments necessary, consisting only of normal
recurring adjustments, for a fair presentation of the Company's financial
position and results of operations for the interim periods presented. The
results for interim periods are not necessarily indicative of the results that
may be expected for the full fiscal year. This data should be read in
conjunction with the financial statements of the Company, including the notes
thereto, which are contained elsewhere in this Information Statement.
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FISCAL YEAR ENDED NINE MONTHS ENDED
FISCAL YEAR ENDED OCTOBER 31, JULY 31,
SEPTEMBER 30, ---------------------- -------------------
1993(1) 1994(2)(3) 1995(2) 1995(2) 1996(2)
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(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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CONSOLIDATED STATEMENTS OF
OPERATIONS:
Net sales.......................... $17,108 $ 20,083 $31,716 $20,969 $39,571
Gross profit....................... 6,333 6,588 9,609 6,740 10,983
Operating profit (loss)............ 1,658 (39) 511 326 3,301
Net income (loss).................. 1,285 (42) 292 170 1,941
Pro forma net income per share..... $0.04 $0.24
Pro forma average number of common
stock and common stock equivalent
shares outstanding(4)............ 8,010,000 8,158,000
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AS OF JULY 31, 1996
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ACTUAL AS ADJUSTED(5)
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(UNAUDITED)
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CONSOLIDATED BALANCE SHEETS:
Working capital..................................................... $11,812 $ 13,312
Total assets........................................................ 21,269 22,769
Long-term debt, excluding current portion........................... 8,441 0
Total shareholders' equity.......................................... 5,304 15,245
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(1) Reflects the Company's results of operations as a separate company prior to
its acquisition by Interpoint.
(2) Reflects the Company's results of operations as a wholly owned subsidiary of
Interpoint. The Company was acquired by Interpoint in February 1994 in a
transaction accounted for as a pooling of interests. Results of operations
include allocations of corporate expenses and interest expense on
intercompany borrowings.
(3) In June 1994, the Company acquired its wholly owned subsidiary, ADIC Europe,
in a transaction accounted for as a purchase.
(4) Pro forma net income per share is calculated for the fiscal year ended
October 31, 1995 and for the nine months ended July 31, 1996 based on the
number of shares of Interpoint Common Stock outstanding at June 30, 1996,
plus the incremental shares outstanding, as calculated under the treasury
stock method, of the estimated number of ADIC stock options that will be
outstanding as a result of the Distribution. Retroactive effect was given to
the two-for-one stock split that became effective June 27, 1996.
(5) Adjusted to reflect the forgiveness of intercompany debt by Interpoint and
the transfer of $1.5 million cash from Interpoint to the Company. Actual
cash transferred will be determined in Interpoint's discretion and may be
more or less than this amount depending on operating results and cash flows
of Interpoint and the Company prior to the Distribution.
4
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RISK FACTORS
In addition to the other information contained in this Information
Statement, the following factors should be considered by Interpoint shareholders
who will receive ADIC Common Stock in the Distribution.
Increasing Competition and Potentially Declining Prices. The markets for
the Company's products are highly competitive. Important competitive factors
include price, performance, diversity of product line, reliability, delivery
capabilities, customer support and service. Some competitors of the Company have
significantly greater financial, technical, manufacturing, marketing and other
resources than the Company. Competitors may develop products and technologies
which are less expensive or technologically superior to the Company's products.
Potential and actual competitors include the suppliers of the data storage
drives that the Company incorporates into its own products as well as major
providers of computer hardware. Although the Company believes that its
proprietary electro-mechanical robotics enable it to offer a variety of products
which can compete effectively with existing high-capacity data storage devices,
there can be no assurance that competitors will not develop products which
incorporate capabilities or technologies that are superior to the Company's
products.
The markets for the Company's products are characterized by significant
price competition, and the Company anticipates that its products will face
increasing price pressure. This pressure could result in significant price
erosion, reduced profit margins and loss of market share, which could have a
material adverse effect upon the Company's results of operations. See
"Business -- Competition."
Dependence on Certain Suppliers. Although the Company's automated tape
library products incorporate proprietary electro-mechanical robotics, the
Company does not possess proprietary data storage drive technology and,
consequently, is dependent on a limited number of third-party manufacturers for
the drives that are incorporated into its products. These suppliers include
Quantum Corporation, Sony Electronics Inc., and Hewlett-Packard Company. In some
cases, these manufacturers are sole source providers of the drive technology and
competitors of the Company in that they market their own tape library products.
The Company does not have any long-term contracts with any of its suppliers and
if these suppliers were to decide to aggressively pursue the tape library
market, they could cease supplying tape drives directly to the Company. To date,
the Company has been able to obtain adequate supplies of tape drives at
acceptable prices, but there can be no assurance that it will continue to do so.
The partial or complete loss of certain of these sources could result in added
costs and production delays or otherwise have a material adverse effect on the
Company's results of operations and customer relationships.
Technological Changes and Dependence on New Product Development. The
market for the Company's products is characterized by rapidly changing
technology and evolving industry standards and is highly competitive with
respect to timely innovation. The introduction of new products embodying new
technology and the emergence of new industry standards can render existing
products obsolete or not marketable. The future success of the Company will
depend on its ability to anticipate changes in technology, and to develop new
and enhanced products on a timely and cost-effective basis. In particular, the
Company must be able to maintain compatibility of its products with future drive
technologies. Development schedules for high-technology products are subject to
uncertainty and there can be no assurance that the Company will be able to meet
its product development schedules. If the Company is unable for technological or
other reasons to develop products in a timely manner in response to changes in
the industry or if the products or product enhancements that it develops do not
achieve market acceptance, the Company's business will be materially and
adversely affected. Additionally, there can be no assurance that the Company
will be able to develop new products in response to product introductions by
competitors, including both automated tape libraries and other sequential or
random access mass storage devices that may be developed in the future which
could have a material adverse effect on the Company's results of operations.
Channel and Concentration. The majority of the Company's end-user
customers purchase the Company's products from VARs who in turn purchase the
Company's products from large distributors such as Access Graphics Inc. ("Access
Graphics"), Gates/FA, GBC Distributing Inc., Ingram Micro Incorporated ("Ingram
Micro"), Tech Data Corporation ("Tech Data"), and Tenex Data ("Tenex"). For the
fiscal year ended October 31, 1995, Tech Data and Ingram Micro accounted for
16.2% and 13.6%,
5
<PAGE> 12
respectively, of the Company's total net sales. The Company has no long-term
contracts with any of its customers or distributors, and sales are generally
made pursuant to purchase orders. The Company's distributors carry competing
product lines. There can be no assurance that distributors will continue to
purchase the Company's products or be able to market them effectively. The
Company generally allows distributors to return defective and unsold products.
The reduction, delay or cancellation of orders from one or more of its major
customers, the loss of one or more of such customers, or any financial
difficulties of such customers resulting in their inability to pay amounts owing
to the Company could have a material adverse effect on the Company's results of
operations.
Sustaining and Managing Growth. The Company is currently undergoing a
period of rapid growth and there can be no assurance that such growth can be
sustained or managed successfully. This growth has resulted in, or is expected
to create, the need for additional capacity, new and increased responsibilities
for management personnel, and added pressures on the Company's operating and
financial systems. While the Company believes it has adequate facilities,
personnel and management systems to adequately manage its operations for the
foreseeable future, there can be no assurances that these levels of facilities,
personnel and management systems will be sufficient to manage and sustain its
current or future growth. The Company's ability to manage future growth
effectively and accomplish its overall goals will depend on its ability to hire
and retain qualified management, sales and technical personnel. Competition for
such personnel in the Company's industry is high. If the Company is unable to
manage growth effectively or hire and retain qualified personnel, the Company's
business and results of operations could be materially and adversely affected.
In addition, to the extent expected revenue growth does not materialize,
increases in the Company's selling and administrative costs that are based on
anticipated revenue growth could negatively impact the Company's results of
operations. See "Business -- Employees (Team Members)" and
"Business -- Facilities."
International Operations. Net sales to customers outside the United States
accounted for approximately 47.1% of net sales in fiscal 1995 and 38.3% of net
sales in the nine-month period ended July 31, 1996, of which international sales
customers in Europe represented 83.3% and 79.4%, respectively. The Company
expects that international sales will continue to represent a significant
portion of the Company's net sales. Sales to customers outside the United States
are subject to risks, including the imposition of governmental controls, the
need to comply with a wide variety of foreign and U.S. export laws, political
and economic instability, trade restrictions, changes in tariffs and taxes,
longer payment cycles typically associated with international sales, and the
greater difficulty of administering business overseas. Furthermore, although the
Company endeavors to meet standards established by foreign regulatory bodies,
there can be no assurance that the Company will be able to comply with changes
in foreign standards in the future. The inability of the Company to design
products to comply with foreign standards could have a material adverse effect
on the Company. Most of the Company's international sales are U.S. dollar
denominated and fluctuations in the value of foreign currencies relative to the
U.S. dollar could therefore make the Company's products less price competitive.
A portion of the Company's international sales are denominated in foreign
currencies. Consequently, a decrease in the value of a relevant foreign currency
in relation to the U.S. dollar after establishing prices and before receipt of
payment by the Company would have an adverse effect on the Company's results of
operations. The Company currently engages in only limited foreign currency
hedging transactions, although it may engage in more of such transactions in the
future. In addition, the laws of certain foreign countries may not protect the
Company's intellectual property to the same extent as do the laws of the United
States.
Dependence on Key Employees (Team Members). The Company's future success
depends in large part on its ability to retain certain key executives and other
key personnel, some of whom have been instrumental in establishing and
maintaining strategic alliances. The Company does not routinely enter into
employment agreements with its team members. The Company's growth and future
success will depend in large part on its continuing ability to hire, motivate
and retain highly qualified management, technical, sales and marketing team
members. Competition for such personnel is intense and there can be no assurance
that the Company will be able to retain its existing personnel or attract
additional qualified personnel in the future.
Proprietary Technology. The Company's ability to compete effectively
depends in part on its ability to develop and maintain proprietary aspects of
its technology. The Company currently holds two U.S. patents and has
applications for additional patents pending. There can be no assurance, however,
that any future
6
<PAGE> 13
patents will be granted or that any patents will be valid or provide meaningful
protection for the Company's product innovations. The Company also relies on a
combination of copyright, trademark, trade secret and other intellectual
property laws to protect its proprietary rights. Such rights, however, may not
preclude competitors from developing substantially equivalent or superior
products to the Company's products. In addition, some aspects of the Company's
products are not subject to intellectual property protection.
While the Company is not currently engaged in any intellectual property
litigation or proceedings there can be no assurance that it will not become so
involved in the future. An adverse outcome in litigation or similar proceedings
could subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from others or require the Company to cease
marketing or using certain products, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
If the Company is required to obtain licenses under patents or proprietary
rights of others, there can be no assurance that any required licenses would be
made available on terms acceptable to the Company, if at all. In addition, the
cost of responding to an intellectual property litigation claim, both in legal
fees and expenses and the diversion of management resources, whether or not the
claim is valid, could have a material adverse effect on the Company's results of
operations. See "Business -- Proprietary Rights."
Warranty Exposure. The Company generally provides a two-year warranty on
its products, with the exception of the tapes and the tape drives used in the
Company's products but manufactured by a third party, in which case the Company
passes on to the customer the manufacturer's warranty on such tapes and tape
drives. In the past, the Company has incurred higher warranty expenses relating
to new products than it typically incurs with established products. Although the
Company has established reserves for the estimated liability associated with
product warranties, there can be no assurance that such reserves will be
adequate or that the Company will not incur substantial warranty expenses in the
future with respect to new or established products.
Potential Fluctuations in Quarterly Results. Historically, a substantial
portion of the Company's net sales in each quarter have resulted from current
period bookings. A significant portion of the Company's operating expenses are
relatively fixed in the short term. If anticipated shipments in any quarter do
not occur, expenditure levels could be disproportionately high as a percentage
of revenues and the Company's operating results for that quarter would be
adversely affected. Operating results may also fluctuate based on other factors,
such as the cancellation and rescheduling of orders, seasonal fluctuation in
business activity and changes in pricing policies by the Company or its
competitors.
Absence of Prior Trading Market for ADIC Common Stock; Potential
Volatility. There has not been any established public market for the trading of
the ADIC Common Stock. The shares of ADIC Common Stock are expected to be
approved for listing on the Nasdaq National Market, however, there can be no
assurance with regard to the prices at which the ADIC Common Stock will trade.
Until the ADIC Common Stock is fully distributed and an orderly market develops,
the prices at which shares trade may fluctuate significantly. Prices for shares
of ADIC Common Stock will be determined in the marketplace and may be influenced
by many factors, including the depth and liquidity of the market for the shares,
investor perception of the Company and the industry in which the Company
participates and general economic and market conditions as an independent
company. In addition, the stock market has experienced extreme price and volume
fluctuations which have affected the market price of many technology companies
in particular and which have at times been unrelated to the operating
performance of the specific companies whose stock is traded. Broad market
fluctuations and general economic conditions may adversely affect the market
price of ADIC Common Stock. The combined trading price of the ADIC Common Stock
held by shareholders after the Distribution and the shares of Crane common stock
they receive in the Merger may be less than, equal to or greater than the
trading price of Interpoint Common Stock prior to the Distribution.
Dividend Policy. The Company does not intend to pay any cash dividends on
the ADIC Common Stock in the foreseeable future.
Certain Antitakeover Considerations. The Company's Board of Directors (the
"Board of Directors") has the authority, without any action by the shareholders,
to issue up to 2,000,000 shares of Preferred Stock and to fix the rights and
preferences of any shares of Preferred Stock to be issued. In addition, the
Company
7
<PAGE> 14
has adopted a shareholder rights plan involving the issuance of preferred stock
purchase rights ("the Rights") designed to protect the Company's shareholders
from abusive takeover tactics by causing substantial dilution to a person or
group that attempts to acquire the Company on terms not approved by the Board of
Directors (the "Shareholder Rights Plan"). Until the occurrence of the Trigger
Date (as hereinafter defined), the Rights will be evidenced by a legend
appearing on the certificates representing the ADIC Common Stock. Certain
provisions in the Company's Restated Articles of Incorporation (the "Articles of
Incorporation"), Restated Bylaws (the "Bylaws") and Shareholder Rights Plan, as
well as Washington law and the ability of the Board of Directors to issue
Preferred Stock, may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the shareholders, may
discourage bids for the ADIC Common Stock at a premium over the market price of
the ADIC Common Stock and may adversely affect the market price of, and the
voting and other rights of the holders of, ADIC Common Stock. See "Description
of Capital Stock -- Certain Antitakeover Effects."
Shares Eligible for Future Sale. The approximately eight million shares of
ADIC Common Stock distributed to Interpoint shareholders in the Distribution
will be freely transferable, except for the approximately 1,185,000 shares
distributed to persons who may be deemed to be "affiliates" of the Company under
the Securities Act of 1933, as amended (the "Securities Act"). Such affiliates
will be permitted to sell their shares of ADIC Common Stock pursuant to Rule 144
under the Securities Act either immediately following or beginning 90 days after
the Distribution, depending upon the Securities and Exchange Commission's
Staff's response to the Company's request for interpretative guidance on this
point, subject to certain volume limitations, manner of sale limitations, notice
requirements and the availability of current public information about the
Company. In addition, immediately following the Distribution, options to
purchase approximately 475,000 shares of ADIC Common Stock will be outstanding
under the Company's 1996 Transition Plan (the "Transition Plan"), including
273,000 shares subject to options exercisable immediately following the
Distribution, and options to purchase an additional 625,000 shares of ADIC
Common Stock may be granted in the future under the Company's 1996 Stock Option
Plan (the "1996 Plan"). Shares issued pursuant to exercise of options
outstanding under the Transition Plan and to be granted under the 1996 Plan will
be freely tradable without restriction, subject, in the case of sales by
affiliates, to compliance with Rule 144.
The Company is unable to estimate the number of shares that may be sold in
the future by its shareholders or the effect, if any, that sales of shares by
such shareholders will have on the market price of the ADIC Common Stock
prevailing from time to time. Sales of substantial amounts of ADIC Common Stock,
or the prospect of such sales, could adversely affect the market price of the
ADIC Common Stock.
Proposed Tax Legislation. The Clinton administration has proposed
legislation as part of the Revenue Reconciliation Act of 1996 (Section 9522)
that would treat a spinoff such as the Distribution as taxable to the
distributing corporation (but not to the shareholders of the distributing
corporation) if the shareholders of the distributing corporation did not retain
for a two-year period following the spinoff a 50% or greater interest in the
distributing corporation and any successor thereto. The proposal, if passed by
Congress in its present form, would be effective for distributions occurring
after March 19, 1996. Because the Interpoint shareholders will not acquire a 50%
or greater interest in Crane pursuant to the Merger, the Clinton proposal would
result in tax to Interpoint as a result of the Distribution. It is uncertain
whether this proposal will pass Congress or, if passed, whether the proposed
effective date will be adopted. However, statements by leading members of the
House and Senate tax writing committees indicate that it is unlikely that the
proposal would be enacted with a retroactive effective date and that it is much
more likely that the effective date of the legislation would be the date
Congress takes action. The Revenue Reconciliation Act of 1996 is in the form of
a draft administration proposal and has not yet been introduced as a bill in
Congress. No hearings are scheduled at this time with respect to the subject
matter of the proposal. Congress is scheduled to end its current session on
October 4, 1996.
8
<PAGE> 15
THE MERGER AND THE DISTRIBUTION
GENERAL
All the outstanding shares of ADIC Common Stock are currently held by
Interpoint, and Interpoint controls the Company. Interpoint expects to
distribute all the outstanding shares of ADIC Common Stock to the holders of
record of shares of Interpoint Common Stock immediately prior to the effective
time of the Merger, on the basis of one share of ADIC Common Stock for each
share of Interpoint Common Stock held. Holders of Interpoint Common Stock will
not be required to surrender or exchange shares of Interpoint Common Stock or
pay any consideration for shares of ADIC Common Stock to be received by them in
the Distribution. Interpoint will not own any shares of ADIC Common Stock
following the Distribution.
Upon completion of the Distribution, the Company will cease to be a
subsidiary of Interpoint and will operate as an independent, publicly held
company. The Company has applied to have the ADIC Common Stock approved for
quotation on the Nasdaq National Market under the trading symbol "ADIC."
The Company's principal executive office is at 10201 Willows Road, Redmond,
Washington 98052, telephone number (206) 881-8004. Interpoint's principal
executive office is at 10301 Willows Road, Redmond, Washington 98052, telephone
number (206) 882-3100. Shareholders of Interpoint with inquiries relating to the
Distribution should contact the Distribution Agent, or Interpoint's investor
relations representative at (206) 882-3100. After the Distribution Date,
shareholders of the Company with inquiries relating to their investment in the
Company should contact the Company's investor relations representative at the
Company's principal executive office.
BACKGROUND OF THE MERGER AND THE MERGER AGREEMENT
Beginning in January 1996, representatives of Interpoint and Crane held
discussions from time to time regarding a possible transaction between the two
companies. Crane was interested in pursuing a possible acquisition of Interpoint
in part because of potential synergies Crane believed might be realizable
between Interpoint's microelectronics business and Crane's wholly owned
subsidiary, ELDEC Corporation, an aerospace products manufacturer and
long-standing customer of Interpoint. Crane determined that ADIC did not offer
the same fit with Crane's long-term business strategies and therefore it was not
willing to pay the value that would have been required for Crane to acquire ADIC
as part of the acquisition of Interpoint's microelectronics business. During
June 1996, the parties negotiated the Merger Agreement, which provided for the
merger of Interpoint with a subsidiary of Crane following the completion of the
Distribution. The Merger Agreement was executed on July 1, 1996.
Pursuant to the Merger Agreement, the shareholders of Interpoint will be
entitled to receive, for each share of Interpoint Common Stock held, a fraction
of a share of Crane common stock as calculated pursuant to the Merger Agreement.
The Merger Agreement contains various representations, warranties, covenants and
closing conditions. In particular, Crane's obligation to effect the Merger is
subject to the Distribution's having been effected. The Merger will be
consummated immediately following the Distribution, provided that all required
governmental approvals and other conditions to closing have been satisfied or,
where permissible, waived.
REASONS FOR THE DISTRIBUTION
Interpoint is distributing the ADIC Common Stock to Interpoint shareholders
for two reasons. First, the separation of ADIC from Interpoint enhances ADIC's
access to capital, ability to attract personnel and potential to adapt in a
rapidly changing industry. Second, the separation of ADIC is a condition to the
merger of Interpoint's microelectronics business into Crane, which the
Interpoint Board believes is the best way to maximize shareholder value from
that business.
ADIC was acquired by Interpoint in February 1994 when it was in need of
both management and capital. ADIC's two founders were seeking liquidity for
their investment and reduced responsibilities. At the same time, market growth
required additional capital and management. Interpoint has provided capital and
several key members of the management team. Subsequent to the Distribution, ADIC
will have more than four times
9
<PAGE> 16
the shareholders' equity than it had at the time of its merger into Interpoint
and its annual sales have more than tripled, based on a comparison of the
quarter ended January 31, 1994 (the last full quarter of ADIC's operations prior
to its acquisition by Interpoint) and its most recent fiscal quarter.
As an independent company, ADIC's focus will be on the rapidly growing data
storage market. As a portion of a diversified Interpoint business, it is more
difficult for capital markets to fully understand ADIC's performance and
potential. It is anticipated that, as an entity with a single focus, ADIC will
enjoy a closer following by securities analysts which, in turn, may enhance its
potential to raise capital and increase shareholder value.
ADIC's ability to attract and retain key personnel is also expected to be
enhanced through its separation from Interpoint. Equity-based compensation is
characteristically a key element in attracting and retaining employees in the
data storage industry. Establishing ADIC as a publicly held company that is
focused on that business allows equity-based compensation to more closely relate
to ADIC's specific performance, and is expected to improve the effectiveness of
such compensation in both the attraction and retention of key personnel.
Finally, it is anticipated that rapid growth and change in the data storage
industry may stimulate opportunities for acquisition or consolidation. ADIC may
be in a better position to realize benefits from these trends, either as an
acquiror or as the target of an acquisition, if it is an independent entity.
The Distribution is also a condition to the merger of Interpoint's
microelectronics business into Crane. The Distribution allows ADIC to be
established with substantial independent shareholders' equity while facilitating
the merger of Interpoint's microelectronics business, in a manner that is
expected to be tax-free to Interpoint shareholders for federal income tax
purposes. The Interpoint Board believes that each of the Distribution and the
Merger is independently attractive and that the spinoff of ADIC is a necessary
and beneficial step in accomplishing the merger of Interpoint's microelectronics
business.
MANNER OF DISTRIBUTION
The Interpoint Board has approved the distribution of the outstanding
shares of ADIC Common Stock on the basis of one share of ADIC Common Stock for
each share of Interpoint Common Stock held of record immediately prior to the
effective time of the Merger. Accordingly, the Distribution Record Date and the
date the Merger is effective will be the same date. As promptly as practicable
after the Distribution Record Date, the Distribution Agent will begin mailing
stock certificates representing shares of ADIC Common Stock to holders of
Interpoint Common Stock on the basis of one share of ADIC Common Stock for each
share of Interpoint Common Stock held of record as of the close of business on
the Distribution Record Date. All shares of ADIC Common Stock distributed
pursuant to the Distribution will be fully paid and nonassessable. See
"Description of Capital Stock."
NO HOLDER OF INTERPOINT COMMON STOCK WILL BE REQUIRED TO PAY CASH OR ANY
OTHER CONSIDERATION FOR THE SHARES OF ADIC COMMON STOCK TO BE RECEIVED IN THE
DISTRIBUTION OR TO SURRENDER OR EXCHANGE SHARES OF INTERPOINT COMMON STOCK OR TO
TAKE ANY OTHER ACTION IN ORDER TO RECEIVE ADIC COMMON STOCK.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is expected that the Distribution will qualify as a tax-free
distribution for federal income tax purposes and, accordingly, no gain or loss
will be recognized by holders of Interpoint Common Stock upon receipt of ADIC
Common Stock in the Distribution. However, no ruling has been requested from the
IRS regarding the tax treatment of the Distribution. Although legal counsel to
Interpoint and Crane will issue opinions to Interpoint and Crane, respectively,
that the Distribution will be a tax-free transaction under the Internal Revenue
Code of 1986, as amended (the "Code"), those opinions will not be binding on the
IRS. In addition, those opinions will be based on a number of representations,
the inaccuracy of any one of which could result in the Distribution being a
taxable transaction to Interpoint and its shareholders. Also, if the Revenue
Reconciliation Act of 1996, as proposed by the Clinton administration, were
passed by Congress in its current form (which appears unlikely at this time),
the Distribution would be taxable to Interpoint. SHAREHOLDERS OF INTERPOINT ARE
URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE DISTRIBUTION. See "Certain Federal Income Tax
Consequences."
10
<PAGE> 17
MARKET FOR ADIC COMMON STOCK
The Company has filed an application to have the ADIC Common Stock approved
for quotation on the Nasdaq National Market under the symbol "ADIC." The Company
initially will have approximately 300 shareholders of record, based on the
number of record holders of Interpoint Common Stock as of June 30, 1996. Upon
consummation of the Distribution and closing of the Merger, the Company will
have approximately eight million shares of ADIC Common Stock outstanding, based
on the number of shares of Interpoint Common Stock outstanding on June 30, 1996.
See "Special Factors -- Absence of Prior Trading Market for ADIC Common Stock;
Potential Volatility."
FUTURE MANAGEMENT OF THE COMPANY
Following the Distribution, the Company intends to operate its business
substantially in the manner in which it has been operated by Interpoint. The
majority of the executive officers of the Company are expected to be persons who
currently serve as officers of the Company. See "Management -- Officers and
Directors."
CONDITIONS; TERMINATION
INTERPOINT WILL EFFECT THE DISTRIBUTION ONLY IF THE MERGER HAS BEEN
APPROVED BY THE REQUISITE VOTE OF INTERPOINT SHAREHOLDERS AND ALL OTHER
CONDITIONS TO CONSUMMATION OF THE MERGER OTHER THAN THE DISTRIBUTION HAVE BEEN
SATISFIED OR WAIVED, AND THE PARTIES TO THE MERGER ARE PREPARED TO EFFECT THE
MERGER IMMEDIATELY AFTER THE DISTRIBUTION. Even if all the other conditions to
the Merger are satisfied, the Interpoint Board reserves the right to abandon,
defer or modify the Distribution at any time prior to the Distribution.
TREATMENT OF STOCK OPTIONS
Interpoint has agreed in the Merger Agreement to take all actions necessary
so that all stock option plans or other plans or arrangements for the issuance
of Interpoint capital stock will be terminated, and outstanding options and
other rights to acquire Interpoint capital stock are satisfied in full, prior to
the effective time of the Merger. Prior to that time, Interpoint expects that
each holder of an outstanding option to purchase shares of Interpoint Common
Stock will have entered into a letter agreement providing for termination of
such option on the applicable terms described below.
Each outstanding option to purchase shares of Interpoint Common Stock held
by an employee of Interpoint's microelectronics business, whether or not the
vesting requirements for exercise of such option have been satisfied, will be
cancelled in exchange for a payment in cash in an amount per share of Interpoint
Common Stock subject to such option equal to the difference between the exercise
price of such option and the average of the high and low trading prices per
share of Interpoint Common Stock on the 10 trading days immediately preceding
the closing date of the Merger. Options to purchase Interpoint Common Stock held
by ADIC employees will be divided so that each option to purchase one share of
Interpoint Common Stock will become an option to purchase one share of
Interpoint Common Stock and an option to purchase one share of ADIC Common Stock
(an "Interpoint Replacement Option" and an "ADIC Replacement Option,"
respectively). Each Interpoint Replacement Option will be assigned an exercise
price (the "Interpoint Replacement Option Exercise Price") determined by
multiplying the per share exercise price of the original option by the quotient
obtained by dividing (i) the Aggregate Share Distribution Amount (as defined in
the Merger Agreement) by (ii) the average of the high and low trading prices per
share of Interpoint Common Stock during the 10 trading days immediately
preceding the closing date of the Merger multiplied by the number of shares of
Interpoint Common Stock outstanding immediately before the effective time of the
Merger. The exercise price per share of each option to purchase shares of ADIC
Common Stock will be equal to the difference between the exercise price of the
original option and the Interpoint Replacement Option Exercise Price. Interpoint
will purchase prior to the effective time of the Merger each Interpoint
Replacement Option, whether or not the vesting requirements for exercise of such
option have been satisfied, for an amount per share of Interpoint Common Stock
subject to the Interpoint Replacement Option equal to the difference between (i)
the Interpoint Replacement Option Exercise Price and (ii) the Aggregate Share
Distribution Amount divided by the number of shares of Interpoint Common Stock
outstanding immediately prior to the
11
<PAGE> 18
effective time of the Merger. The vesting of ADIC Replacement Options will not
be accelerated and the other terms and conditions thereof (other than the
exercise price) will be the same as the original Interpoint stock option. See
"Management -- 1996 Transition Plan."
RELATIONSHIP BETWEEN INTERPOINT AND THE COMPANY AFTER THE DISTRIBUTION
The Company and Interpoint intend to enter into a Separation Agreement and
a Tax Allocation Agreement containing certain provisions that will govern the
relationship between the Company and Interpoint following the Distribution.
Asset Transfers. The Separation Agreement provides that, prior to the vote
by Interpoint shareholders on the Merger Agreement, Interpoint will transfer
ADIC Europe and its interest in Visual Technologies, Limited to ADIC and will
forgive all intercompany indebtedness of ADIC to Interpoint. At July 31, 1996,
the intercompany debt that would have been forgiven was $8,441,000. In addition,
Interpoint expects to make a cash contribution to ADIC's working capital
immediately prior to the Distribution, which is expected to be a minimum of $1.5
million. The actual amount of the cash contributed will be determined in
Interpoint's discretion and will depend on Interpoint's and ADIC's operating
results and cash flows prior to the Distribution.
Employee Benefits. The Separation Agreement provides for the treatment of
Interpoint stock options and certain other matters, including the allocation of
retirement, medical and disability and other employee welfare benefit plans
between Interpoint and ADIC. In general, from and after the Distribution, ADIC
will assume, or retain and be solely responsible for, all liabilities and
obligations of Interpoint and its subsidiaries under such plans, to the extent
unpaid as of the effective time of Distribution, with respect to persons who, at
or after the effective time of Distribution, will be employees of ADIC. With
respect to the Interpoint 401(k) plan (i.e., the Interpoint Corporation Savings
and Investment Plan), the account balances of plan participants who are (or
were) employed by ADIC prior to, or immediately after, the Distribution
generally would be transferred from the Interpoint 401(k) plan to a new ADIC
401(k) plan.
Mutual Indemnities; Release of Guaranties. Pursuant to the Separation
Agreement, Interpoint and ADIC will each be responsible for all claims and
liabilities relating to its own business (whether or not such claims and
liabilities are asserted, or arise from activities occurring, prior to the
Distribution) and will each indemnify the other against such claims and
liabilities. Interpoint and ADIC will each agree to use its best efforts to have
the other removed as guarantor or obligator in connection with any indebtedness,
contracts or other obligations in respect of which Interpoint or ADIC, as the
case may be, is primarily liable, and each will indemnify the other against
losses incurred as a result of its status as guarantor or obligor if such
removal is not effected.
Tax Allocation Arrangements. Prior to the Distribution, Interpoint and the
Company will enter into the Tax Allocation Agreement, which will set forth each
party's rights and obligations with respect to deficiencies and refunds, if any,
of federal, state, local or foreign taxes for periods before and after the
Distribution and related matters such as the filing of tax returns and the
conduct of IRS and other audits.
In general, under the Tax Allocation Agreement the Company will be
responsible for taxes imposed and entitled to refunds of taxes with respect to
its operations before and after the Closing. Interpoint will generally be
responsible for all taxes and entitled to refunds of taxes imposed with respect
to Interpoint and its subsidiaries (except for ADIC) for all periods. The Tax
Allocation Agreement also provides that ADIC must pay to Interpoint an amount
equal to any federal income taxes of the Interpoint affiliated group that remain
payable for the taxable year ending on the Distribution Date after taking into
account all prior quarterly estimated tax payments for the Interpoint affiliated
group. The amount of that obligation will give rise to an intercompany advance
by Interpoint to ADIC in an amount sufficient to satisfy that obligation. Any
such advance will reduce the Aggregate Share Distribution Amount and,
accordingly, the amount of Crane common stock to be received by the Interpoint
shareholders in the Merger. If either Interpoint or the Company carries back a
net operating loss after the Closing to a pre-Closing period, the company
electing to carry back, generally, would be entitled to any refunds resulting
from such carryback. The Company will have no liability if the Distribution does
not qualify for tax-free treatment under Section 355 of the Code unless the
Distribution is determined not to qualify as a tax-free spinoff under Section
355 of the Code due to the actions or inactions of the Company (or any of its
affiliates).
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<PAGE> 19
CAPITALIZATION
The following table sets forth the Company's capitalization as of July 31,
1996, and the pro forma capitalization of the Company after giving effect to the
forgiveness of intercompany debt by Interpoint and transfer of $1.5 million cash
from Interpoint. Actual cash transferred may be more or less than this amount.
The information set forth in the table below should be read in conjunction with
the Company's financial statements, including the notes thereto, "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," appearing elsewhere in this Information Statement.
The pro forma information may not reflect the capitalization of the Company in
the future or as it would have been had the Company been a separate, independent
company on July 31, 1996.
<TABLE>
<CAPTION>
JULY 31, 1996
(UNAUDITED)
-----------------------
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
(IN THOUSANDS)
Intercompany debt...................................................... $ 8,441 $ 0
------- -------
Shareholders' equity:
Preferred Stock; 2,000,000 shares authorized, none issued............
Common Stock, $.01 par value; 1,000 shares authorized; 1,000 shares
issued and outstanding; 7,932,200 shares issued and outstanding,
as adjusted....................................................... -- 79
Additional paid-in capital........................................... 702 10,564
Retained earnings.................................................... 4,493 4,493
Cumulative translation adjustment.................................... 109 109
------- -------
Total shareholders' equity........................................ 5,304 15,245
------- -------
Total capitalization......................................... $13,745 $15,245
======= =======
</TABLE>
DIVIDEND POLICY
The Company does not expect to pay any cash dividends on the ADIC Common
Stock in the foreseeable future. The Company currently intends to reinvest
earnings, if any, on the continued development and operation of its business.
Any payment of cash dividends would depend upon the Company's pattern of growth,
profitability, financial condition, and such other factors as the Board of
Directors may deem relevant.
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<PAGE> 20
SELECTED FINANCIAL DATA
The following selected financial data of the Company are derived from the
Company's historical financial statements and notes thereto. For the two-year
period ended October 31, 1995 this selected financial data relate to the Company
as it was operated as part of Interpoint. For the three-year period ended
September 30, 1993, the selected financial data relate to the operation of the
Company as an independent company. In order to conform the Company's fiscal year
end to Interpoint's fiscal year end upon the merger of the Company into
Interpoint in February 1994, the Company's financial statements for the month of
October 1993 are not included for either of the fiscal years ended September 30,
1993 or October 31, 1994. The selected financial data for each of the fiscal
years in the five-year period ended October 31, 1995 are derived from the
audited consolidated financial statements of the Company. The selected financial
data for the nine-month periods ended July 31, 1995 and 1996 are derived from
unaudited consolidated financial statements appearing elsewhere in this
Information Statement which, in the opinion of the Company's management, include
all adjustments necessary, consisting only of normal recurring adjustments, for
a fair presentation of the Company's financial position and results of
operations for the interim periods presented. The results for interim periods
are not necessarily indicative of the results that may be expected for the full
fiscal year. The information set forth below should be read in conjunction with
the Company's financial statements, including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere in this Information Statement.
<TABLE>
<CAPTION>
AT OR FOR AT OR FOR AT OR FOR
FISCAL YEAR ENDED FISCAL YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, OCTOBER 31, JULY 31,
--------------------------- --------------------- -------------------
1991 1992 1993 1994(1)(2) 1995(1) 1995(1) 1996(1)
------- ------- ------- ---------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS:
Net sales............................ $11,735 $12,837 $17,108 $ 20,083 $31,716 $20,969 $39,571
Cost of sales........................ 8,381 8,831 10,775 13,495 22,107 14,229 28,588
------- ------- ------- ------- ------- ------- -------
Gross profit....................... 3,354 4,006 6,333 6,588 9,609 6,740 10,983
Operating expenses
Selling and administrative......... 2,793 2,219 3,796 5,000 8,001 5,695 6,634
Research and development........... 762 631 879 1,037 1,097 719 1,048
Acquisition expenses(3)............ -- -- -- 590 -- -- --
Restructuring provision(4)......... 1,024 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Operating profit (loss).............. (1,225) 1,156 1,658 (39) 511 326 3,301
Other income (expense)
Interest expense, net.............. (207) (109) (66) (134) (277) (195) (407)
Foreign currency transaction gains
(losses)........................ -- -- -- 32 (19) 25 38
Other, net......................... (1) (61) 1 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Income (loss) before (provision)
benefit for income taxes........... (1,433) 986 1,593 (141) 215 156 2,932
(Provision) benefit for income
taxes.............................. 68 (22) (308) 99 77 14 (991)
------- ------- ------- ------- ------- ------- -------
Net income (loss).................... $(1,365) $ 964 $ 1,285 $ (42) $ 292 $ 170 $ 1,941
======= ======= ======= ======= ======= ======= =======
Pro forma net income per share....... $0.04 $0.24
======= =======
Pro forma average number of common
and common equivalent shares
outstanding(5)..................... 8,010,000 8,158,000
CONSOLIDATED BALANCE SHEETS:
Working capital...................... $ 36 $ 2,080 $ 3,004 $ 4,156 $ 7,249 $ 5,968 $11,812
Total assets......................... 3,637 3,958 5,895 8,710 13,943 10,892 21,269
Long-term and intercompany debt,
excluding current portion.......... 106 916 672 2,358 5,434 3,892 8,441
Shareholders' equity................. 539 1,524 2,808 3,027 3,387 3,304 5,304
</TABLE>
14
<PAGE> 21
- ---------------
(1) The periods subsequent to the fiscal year ended September 30, 1993 reflect
the Company's results of operations as a wholly owned subsidiary of
Interpoint. The Company was acquired by Interpoint in February 1994 in a
transaction accounted for as a pooling of interests. Results of operations
include allocations of corporate expenses and interest expense on
intercompany borrowings. The fiscal years ended September 30, 1991, 1992 and
1993 reflect the Company's results of operations as a separate company prior
to its acquisition by Interpoint.
(2) In June 1994, the Company acquired its wholly owned subsidiary, ADIC Europe,
in a transaction accounted for as a purchase.
(3) In February 1994, the Company incurred $590,000 in acquisition-related
expenses associated with its acquisition by Interpoint.
(4) In the fiscal year ended September 30, 1991, the Company incurred a one-time
restructuring charge of $1,024,000.
(5) Pro forma net income per share is calculated for the fiscal year ended
October 31, 1995 and for the nine months ended July 31, 1996 based on the
number of shares of Interpoint Common Stock outstanding at June 30, 1996,
plus the incremental shares outstanding, as calculated under the treasury
stock method, of the estimated number of ADIC stock options that will be
outstanding as a result of the Distribution. Retroactive effect was given to
the Interpoint two-for-one stock split that became effective June 27, 1996.
15
<PAGE> 22
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
The following unaudited pro forma statements of operations for the fiscal
year ended October 31, 1995 and for the nine months ended July 31, 1996 present
the results of operations of the Company as if the divestiture of ADIC from
Interpoint had occurred on the first day of the applicable period.
The unaudited pro forma statements of operations are based on the
historical financial statements of ADIC and are adjusted to reflect additional
corporate expenses and a reduction in interest expense to reflect ADIC as a
stand-alone public company. The unaudited pro forma statements of operations do
not purport to represent what the Company's results of operations actually would
have been if the divestiture had occurred on the first day of the applicable
period. The unaudited pro forma statements of operations are based on
assumptions that the Company believes are reasonable and should be read in
conjunction with the Company's financial statements and accompanying notes
thereto included elsewhere in this Information Statement.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31, 1995 NINE MONTHS ENDED JULY 31, 1996
-------------------------------------- --------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- --------- ---------- ----------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $31,716 $31,716 $39,571 $39,571
Cost of sales............... 22,107 22,107 28,588 28,588
-------- -------- -------- --------
Gross profit.............. 9,609 9,609 10,983 10,983
-------- -------- -------- --------
Operating expenses
Selling and
administrative......... 8,001 $ 384(1) 8,385 6,634 $ 288(1) 6,922
Research and
development............ 1,097 1,097 1,048 1,048
-------- --------- -------- -------- --------- --------
9,098 384 9,482 7,682 288 7,970
-------- --------- -------- -------- --------- --------
Operating profit............ 511 (384) 127 3,301 (288) 3,013
Other income (expense)
Interest expense, net..... (277) 279(2) 2 (407) 408(2) 1
Foreign currency
transaction gains
(losses)............... (19) (19) 38 38
-------- --------- -------- -------- --------- --------
(296) 279 (17) (369) 408 39
-------- --------- -------- -------- --------- --------
Income before (provision)
benefit for income
taxes..................... 215 (105)(3) 110 2,932 120(3) 3,052
(Provision) benefit for
income taxes.............. 77 36 113 (991) (40) (1,031)
-------- --------- -------- -------- --------- --------
Net income.................. $ 292 $ (69) $ 223 $1,941 $ 80 $ 2,021
======== ========= ======== ======== ========= ========
Pro forma average number of
common and common
equivalent shares
outstanding............... 8,010,000 8,010,000 8,158,000 8,158,000
Pro forma net income
per share................. $ 0.04 $ 0.03 $ 0.24 $ 0.25
======== ======== ======== ========
</TABLE>
16
<PAGE> 23
- ---------------
(1) Represents the additional estimated costs expected to be incurred by ADIC on
a prospective basis, including the incremental costs associated with ADIC's
status as a public company such as audit fees, directors' and officers'
insurance, annual meetings, printing fees and directors' fees and additional
executive salaries. A portion of such costs are included in the historical
financial statements of ADIC. Incremental costs are estimated to be as
follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
OCTOBER 31, 1995 JULY 31, 1996
---------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Executive compensation........................ $227 $ 170
Annual directors' fees........................ 27 20
Shareholder relations......................... 70 53
Audit and legal............................... 25 19
Directors' and officers' insurance............ 35 26
---- ----
$384 $ 288
==== ====
</TABLE>
(2) Reflects the decrease in interest expense resulting from the forgiveness of
intercompany debt in connection with the Distribution.
(3) Records the estimated income tax effect on the pro forma adjustments
described in footnotes (1) and (2).
17
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company was organized in 1983 to develop data backup and storage
subsystems for computer systems. Its first product, launched in 1984, was a data
cartridge tape drive system for use in MS-DOS applications. This initial product
and a number of follow-on products used a variety of data storage technologies
and media supplied by third parties, including large-capacity hard disks, but
incorporated little technology which was proprietary to the Company. With the
objective of improving margins by increasing the proprietary features of it
product line, in 1988 the Company introduced a random access automatic tape
changer, the LANbacker. Building on the proprietary electro-mechanical robotics
and software incorporated into the LANbacker, in November 1991 the Company
introduced a data backup tape changer product utilizing 4mm/DAT technology, the
first product in its automated tape library family. Subsequently, the Company
has pursued a strategy of offering the market a full range of automated tape
library products through development of new library platforms that incorporate
leading-edge tape drive technologies, including 4mm/DAT, 8mm and DLT.
In addition to automated tape libraries, the Company also markets tape
products such as standalone tape drives and tape media in order to offer its
customers a complete line of tape products for their backup and archiving needs.
The Company historically remarketed a variety of additional products principally
supplied by third parties and sold either under the Company's or the
manufacturer's name, such as disk controller boards, storage management software
and other products, as part of a complete storage system solution. Aside from
special promotional programs offering storage management software packages
bundled with library products, the Company has largely ceased sales of these
product types.
When used in this discussion and elsewhere in this Information Statement,
the words "expects" and "anticipates" and similar expressions are intended to
identify forward-looking statements. Such statements are subject to certain
risks and uncertainties that could cause actual results, performance or
achievements of the Company or industry trends to differ materially from those
projected. Factors which could affect such results are described below and in
"Special Factors." Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
----------------------------------------- ---------------------------
SEPT. 30, OCTOBER 31, OCTOBER 31, JULY 31, JULY 31,
1993 1994 1995 1995 1996
--------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................... 63.0 67.2 69.7 67.9 72.2
----- ----- ----- ----- -----
Gross profit..................... 37.0 32.8 30.3 32.1 27.8
Selling and administrative
expenses......................... 22.2 24.9 25.2 27.2 16.8
Research and development
expenses......................... 5.1 5.2 3.5 3.4 2.7
Acquisition expense................ -- 2.9 -- -- --
----- ----- ----- ----- -----
Operating profit (loss)............ 9.7 (0.2) 1.6 1.5 8.3
Other income (expense)............. (0.4) (0.5) (0.9) (0.8) (0.9)
----- ----- ----- ----- -----
Income (loss) before (provision)
benefit for income taxes......... 9.3 (0.7) 0.7 0.7 7.4
(Provision) benefit for income
taxes............................ (1.8) 0.5 0.2 0.1 (2.5)
----- ----- ----- ----- -----
Net income (loss).................. 7.5% (0.2)% 0.9% 0.8% 4.9%
===== ===== ===== ===== =====
</TABLE>
18
<PAGE> 25
NINE MONTHS ENDED JULY 31, 1995 AND 1996
Net Sales. Net sales for the nine-month period ended July 31, 1996
increased 88.7% to $39.6 million from $21.0 million for the same period in the
prior year. The increase in net sales was primarily due to strong worldwide
market acceptance of the Company's new DLT-based products, particularly the VLS
DLT automated tape libraries and the DS9000 series standalone tape drives. Sales
outside the United States, primarily to European customers, grew to $15.2
million or 38.3% of net sales for the nine months ended July 31, 1996 compared
to $9.4 million or 44.7% of net sales for the same period in the prior year.
Such sales are made primarily in U.S. dollars. Where sales are made in foreign
currencies, the Company takes appropriate actions to minimize exposure to
fluctuations in foreign currency exchange rates.
Gross Profit. Gross profit was $11.0 million or 27.8% of net sales for the
nine-month period ended July 31, 1996 compared to $6.7 million or 32.1% of net
sales for the same period in the prior year. Gross profit margin for the current
nine-month period was lower than the same period in the prior year due to the
higher per-unit tape drive costs associated with the DLT technology,
manufacturing ramp-up costs associated with the new VLS DLT and Scalar products,
and a higher percentage of standalone drives and tape media in the product mix
due to the Company's entry into the DLT market. Gross profit margins are highly
dependent on a number of factors, including customer and product mix, price
competition and tape drive costs. There can be no assurance that the Company can
sustain or improve upon the current gross margin levels given that tape drives
purchased from third-party suppliers are a significant component of the
Company's product costs.
Selling and Administrative Expenses. Selling and administrative expenses
were $6.6 million or 16.8% of net sales for the nine-month period ended July 31,
1996 compared to $5.7 million or 27.2% of net sales for the same period in the
prior year. Selling and administrative expenses for the nine-month period ended
July 31, 1996 decreased significantly as a percentage of net sales as the
Company began to recognize the benefits of its significant investments in sales
and marketing resources in prior fiscal periods, with net sales volume in the
nine-month period increasing 88.7%, compared to a corresponding 16.5% increase
in selling and administrative expenses.
Research and Development Expenses. Research and development expenses were
$1,048,000 or 2.7% of net sales for the nine-month period ended July 31, 1996
compared to $719,000 or 3.4% of net sales for the same period in the prior year.
Actual dollar spending during the current nine-month period was higher than the
same period in the prior year due to increases in development expenses for the
new VLS DLT and Scalar DLT products, other product development expenses, and
additions to research and engineering staff. The decrease as a percentage of net
sales was primarily due to the higher sales volume in the current nine-month
period compared to the same period in the prior year.
Other Expenses. Other expenses for the nine-month period ended July 31,
1996 were $370,000 compared to $170,000 for the same period in the prior year.
Increased expenses in the current nine-month period were due primarily to an
increase of $212,000 in interest expenses associated with intercompany loans
financing working capital growth. Included in other expenses are foreign
currency transaction gains and losses. Primarily, such gains and losses arise as
a result of the operation of ADIC Europe, the functional currency of which is
French francs. ADIC Europe buys product from ADIC in U.S. dollars and resells
approximately 80-90% of such product in U.S. dollars. However, because francs
are used as the functional accounting currency, all monetary assets and
liabilities are translated into francs on ADIC Europe's financial statements. To
the extent that these monetary assets and liabilities do not fully offset each
other and the franc-to-U.S. dollar exchange rate changes, transaction gains or
losses may result. The Company attempts to estimate this potential exposure as
well as exposure for those sales denominated in other currencies, and implement
appropriate hedging strategies.
Income Tax (Expense) Benefit. Income tax expense for the nine-month period
ended July 31, 1996 was $991,000 compared to a benefit of $14,000 for the same
period in the prior year. The Company believes that the tax rate reflected in
its most recent results, between 33% and 34%, is indicative of the Company's tax
rate in future periods. The benefit in 1995 was due primarily to the recognition
of certain operating loss carryforwards at ADIC Europe.
19
<PAGE> 26
Inflation. The Company believes inflation has not had a material effect on
its operations for these periods.
FISCAL YEARS ENDED SEPTEMBER 30, 1993 AND OCTOBER 31, 1994 AND 1995
In order to conform ADIC's fiscal year end of September 30 to Interpoint's
fiscal year end of October 31, ADIC's financial statements for the month of
October 1993 are not included in the statement of operations or cash flows for
either fiscal 1993 or fiscal 1994. See Note 1 of the Company's Notes to
Consolidated Financial Statements.
Net Sales. Net sales increased by 57.9% to $31.7 million in fiscal 1995
from fiscal 1994. The increase in net sales was primarily due to strong
worldwide market acceptance of the Company's automated tape libraries and
standalone tape drive products. In addition, approximately $9 million of the
growth from fiscal 1994 to fiscal 1995 is a result of the inclusion of a full
year of operations of ADIC Europe, which was acquired in June 1994. Net sales
increased 17.4% from fiscal 1993 to fiscal 1994 as a result of increased volumes
of library products and the benefit of a partial year of ADIC Europe's operating
results, partially offset by price decreases in library products and a decline
in certain discontinued nonlibrary products. Over these time periods, sales
outside the United States grew to $14.9 million or 47.1% of net sales in fiscal
1995 compared to $5.5 million or 27.4% and $2.3 million or 13.6% in fiscal 1994
and 1993, respectively.
Gross Profit. The gross profit margin decreased from 32.8% in fiscal 1994
to 30.3% in fiscal 1995, due to the introduction of DLT-based products and the
growth in the percentage of the overall product mix represented by sales of
lower-margin nonlibrary products by ADIC Europe. Gross margins decreased to
32.8% in fiscal 1994 from 37.0% in fiscal 1993 due to a decrease in automated
tape library prices early in fiscal 1994, combined with sales by ADIC Europe of
nonlibrary products, which sales were absent in fiscal 1993.
Selling and Administrative Expenses. Selling and administrative expenses
totaled $8.0 million or 25.2% of net sales in fiscal 1995, compared to $5.0
million or 24.9% of net sales in fiscal 1994, and $3.8 million or 22.2% of net
sales in fiscal 1993. This increase reflects a strategic decision to increase
the Company's investment in sales and marketing subsequent to Interpoint's
acquisition of the Company in February 1994. These investments include costs of
European sales activities acquired in the purchase of ADIC Europe and the
addition of experienced sales and marketing personnel at headquarters. Between
fiscal 1994 and fiscal 1995, these expenses were relatively constant as a
percentage of net sales, but actual dollar spending increased due to additional
costs incurred in connection with increased sales and marketing staff and the
full-year impact of the ADIC Europe acquisition. Between fiscal 1993 and fiscal
1994, selling and administrative expenses increased as a percentage of net sales
in spite of net sales increases as a result of more rapid increases in actual
dollar spending due to additional costs incurred in connection with increased
sales and marketing and administrative staff, particularly in relation to the
acquisition of ADIC Europe.
Research and Development Expenses. Research and development expenses
totaled $1,097,000 or 3.5% of net sales in fiscal 1995, compared to $1,037,000,
or 5.2% of net sales in fiscal 1994 and $879,000 or 5.1% of net sales in fiscal
1993. The dollar increase in research and development expenses during these time
periods are due to new product development and additions to the research and
engineering staff. The Company anticipates making comparable or increasing
investments in new product development in future periods.
Acquisition Expenses. The Company incurred $590,000 in acquisition-related
expenses during fiscal 1994 as a result of Interpoint's acquisition of the
Company, which was accounted for as a pooling of interests.
Other Expenses. Other expenses for fiscal 1995 were $296,000 compared to
$102,000 and $65,000 for fiscal 1994 and fiscal 1993, respectively. Expense
increases were due to increased interest expenses arising from additional
working capital requirements resulting from higher net sales.
Income Tax (Expense) Benefit. Income tax benefits were $77,000 and $99,000
for fiscal 1995 and fiscal 1994, respectively. There was an income tax expense
of $308,000 in fiscal 1993. The benefits for income taxes in both of fiscal 1995
and fiscal 1994 were primarily associated with the recognition of a net
operating loss carryforward at ADIC Europe. The net operating loss carryforward
existed when ADIC Europe was acquired in June 1994; however, a valuation
allowance was provided for this item due to the uncertainty regarding the
20
<PAGE> 27
Company's ability to utilize this carryforward. Consequently, income taxes on
earnings in fiscal 1994 and fiscal 1995 of ADIC Europe were offset by a
reduction of this valuation allowance. At October 31, 1995, the valuation
allowance associated with the remaining unused carryforward also was eliminated.
In addition, certain federal tax credits reduced the effective tax rate in both
years. In fiscal 1993, the tax provision reflects the benefit of losses incurred
in fiscal 1991.
QUARTERLY INFORMATION
The following table presents selected quarterly financial information for
the periods indicated. This information was derived from unaudited financial
statements which have been prepared on a basis consistent with the Company's
audited financial statements and notes thereto included elsewhere in this
Information Statement and, in the opinion of management, reflects all normal
recurring adjustments necessary to fairly present the information. The Company
has experienced and expects to continue to experience significant fluctuations
in its quarterly operating results due to a variety of factors, including the
cost of tape drives, the timing of receipts and shipment of orders, the cost and
timing of new product releases and product enhancements by the Company and its
competitors, variations in the Company's products, changes in pricing and
promotion policies by the Company and its competitors, and general economic
conditions. The operating results for any quarter do not necessarily indicate
the results to be expected for any future period.
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
FISCAL YEAR ENDED OCTOBER 31, 1994 FISCAL YEAR ENDED OCTOBER 31, 1995 OCTOBER 31, 1996
---------------------------------------- ------------------------------------- ---------------------------
JAN. 31(1) APR. 30 JULY 31 OCT. 31 JAN. 31 APR. 30 JULY 31 OCT. 31 JAN. 31 APR. 30 JULY 31
---------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENTS OF
OPERATIONS:
Net sales........ $4,703 $3,339 $4,786 $7,255 $5,823 $6,676 $8,470 $10,747 $10,606 $13,780 $15,185
Gross profit..... 1,605 918 1,494 2,571 2,097 2,216 2,427 2,869 2,994 3,735 4,254
Operating profit
(loss)......... (295) (317) 43 530 11 66 248 186 544 1,203 1,554
Net income
(loss)......... (222) (224) 9 395 (22) (2) 196 120 292 716 933
</TABLE>
- ---------------
(1) Includes $590,000 of acquisition-related expenses.
The Company's operating results over the 11 quarters ended July 31, 1996
reflect generally increasing net sales, excluding the second quarter of fiscal
1994 and the first quarters of fiscal 1995 and 1996. Net sales in the second
quarter of fiscal 1994 were affected by increased shipments in the first quarter
of that year resulting from a product price decrease which encouraged sales in
that period that would have otherwise occurred in the second quarter. The
sequential drop in net sales in the first quarters of fiscal 1995 and 1996, when
compared to their respective previous fourth quarters, reflects a traditional
seasonal pattern in the Company's results. Net losses in the second quarter of
fiscal 1994 and the first two quarters of fiscal 1995 resulted primarily from
net sales volumes being insufficient to cover the selling and administrative and
research and development costs incurred during these periods. The net loss in
the first quarter of fiscal 1994 was a result of the acquisition-related
expenses of $590,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $444,000 at July 31, 1996, compared to
$624,000 at October 31, 1995. The Company's working capital was $11.8 million at
July 31, 1996 compared to $7.2 million at October 31, 1995.
Cash flows used for operating activities of $2.5 million during the
nine-month period ended July 31, 1996 were largely attributed to increased
working capital, partially offset by net earnings. Increases in accounts
receivable of $5.0 million and inventories of $2.1 million occurred due to the
increase in net sales and elimination by the Company of certain prepayment
discounts. These increases were partially offset by an increase in accounts
payable of $1.1 million.
21
<PAGE> 28
Cash flows used for investing activities of $652,000 for the nine-month
period ended July 31, 1996 were due to equipment purchases during the period.
Cash flows provided by financing activities of $3.0 million for the nine-month
period ended July 31, 1996 were the result of intercompany loans from
Interpoint.
The Company is currently negotiating and has received a preliminary
commitment for bank financing in the form of a revolving line of credit of
approximately $10 million. The Company believes that the forgiveness of
intercompany debt, the capital contribution of at least $1.5 million
contemplated by the Distribution and the line of credit will provide sufficient
cash to fund its operations for the next 12 months. The Company may acquire
technologies, products, or businesses that complement its business, as such
opportunities may arise, and the Company's working capital needs may change as a
result of such acquisitions. Currently there are no commitments or agreements
with respect to any acquisitions.
22
<PAGE> 29
BUSINESS
GENERAL
The Company designs, manufactures, markets and supports specialized data
storage peripherals used to backup and archive electronic data for PC/LAN
(Novell Netware and Microsoft Windows NT) and Unix client/server network
computing environments. The Company's principal products, automated tape
libraries, combine proprietary electro-mechanical robotics, electronic hardware,
and firmware developed by the Company with industry standard, technologically
advanced tape drives manufactured by third parties. The Company addresses its
markets by offering a broad family of standalone tape drives and automated tape
libraries with data storage capacity ranging from four gigabytes to over three
terabytes and incorporating a variety of tape drive technologies, including
4mm/DAT, 8mm, and DLT.
The Company's customers are located worldwide and range in size from large
multi-national companies to small businesses. The Company markets its products
in North America, Europe, and the Asia Pacific region through multiple
distribution channels, including distributors, VARs, and OEMs. For fiscal 1995,
47.1% of the Company's net sales were from outside the United States. The
Company supports these channels and its end customers with a combination of
regional field sales, systems engineering, and technical support personnel, as
well as third-party on-site service organizations.
INDUSTRY
Client/Server Network Data Backup
The Company believes that multiple trends continue to foster growth of the
data storage segment of the client/server network computing environment.
Personal computer and workstation microprocessors continue dramatic increases in
performance, both absolutely and relative to their cost. Enabled by this
increased processing power and the increasing sophistication of both network
operating systems and relational databases, core business processes (such as
financial transaction processing, materials requirements planning, document
imaging and management of patient records, engineering drawings and customer
databases) are migrating from manual processes or mainframes to lower cost
client/server computer networks. In addition, the advent of the Internet,
electronic mail, and groupware continue to foster further client/server network
computing growth. The combination of these trends is driving a proliferation of
client/server network computing.
As the market for client/server networks grows, so does the market for data
storage in these environments. Each of the trends outlined above is driving not
only an increase in the installed base of networks, but also an increase in the
data storage requirements of a given network. The data stored on client/server
networks is not only growing in volume, but also in value. As a business
migrates its core processes to client/server computer networks, the electronic
data stored on these networks, such as a customer or patient database, a set of
engineering drawings, or a record of financial transactions, becomes an
increasingly vital asset. The opportunity cost of data loss has become
extraordinarily high, with potentially large and long-term negative impacts on a
business. Data loss can result from a wide variety of causes, including human
error, equipment failure, database corruption, computer viruses, and even
man-made or natural disasters. Because critical digital data can be lost for
many reasons, systematic and cost-effective backup and archiving of data stored
on client/server networks is essential to protecting one of a firm's most
important assets.
Automated Tape Libraries
The Company believes automated tape libraries, which operate in conjunction
with storage management software and incorporate magnetic tape drive technology,
provide the best systematic and cost-effective backup solution for client/server
networks. These products provide client/server networks with automatic,
software-controlled access to multiple magnetic tape cartridges for storage and
retrieval of digitally stored data. Automated tape libraries, housing these
tapes and one or more tape drives, utilize an electro-mechanical robotic
mechanism to manipulate the tape cartridges, loading and unloading specific tape
cartridges into and out of the tape drive or drives as directed by the storage
management software.
23
<PAGE> 30
An automated tape library efficiently systematizes the network backup
process through a number of features. As directed by storage management
software, an automated tape library can perform sophisticated backups of a
network's data without human intervention, automatically backing up specific
network data to specific tapes at specific times. This process operates in a
"lights out" mode, backing up the network at any time, day or night, eliminating
the need for system administrator staffing when the network is backed up,
generally at night. Access to multiple tape cartridges enables the library to
automatically store much more data than a standalone drive, eliminating the need
for a system administrator to swap tapes in order to back up all the data.
Because magnetic tape drives utilize a removable, robust media, data backed up
by an automatic tape library, unlike a typical hard disk drive, can be reliably
stored off-site as an element of a disaster recovery scheme.
Within the library, tape cartridges are typically organized in magazines.
In some cases, these magazines of tapes are removable, easing storage and
off-site transfer of the tapes. A library with multiple tape drives can backup
data simultaneously with each drive, significantly speeding up the backup
process. Some larger libraries feature a barcode system which, in conjunction
with the storage management software, can catalog each tape, further enhancing
the management of the data. Libraries often feature key lock access to the
tapes, providing security protection for the data by preventing undesired human
access. Some libraries feature a software and password-controlled access feature
which allows for controlled addition or removal of selected cartridges without
providing open access to all tapes housed within the library or taking the
library off-line.
The systemization of the backup process provided by an automated tape
library enhances the protection of valuable data stored on client/server
networks. The backups occur automatically and in a pre-defined, organized
fashion. Human intervention is minimized, eliminating a major cause of backup
failures due to mistakes, neglect or disorganization.
Further, automated tape libraries provide this protection cost effectively
by leveraging cost-effective magnetic tape drive technology. Backup and archival
storage needs differ somewhat from the demands of other storage applications,
with overall capacity being more important than the speed of data access due to
the nature of backup versus online data storage. While slower in data access
time than other digital storage technologies such as hard disk drives and
optical drives, the Company believes that magnetic tape drives are the most
cost-effective technology for storing large amounts of data. Although the cost
of each of these technologies continues to fall on a dollar-per-gigabyte basis,
the Company believes that magnetic tape drives will continue to be the most
economical in terms of cost per unit of data storage for the foreseeable future.
Automated tape libraries enhance this cost-effectiveness by automating the
access to multiple data cartridges by each tape drive, dropping further the
dollar-per-gigabyte of storage cost relative to other technologies. According to
a December 1995 independent study by Dataquest, the demand for automated tape
libraries for client/server network computing environments has grown from
approximately $58 million in 1992 to approximately $301 million in 1995, and is
projected to grow at an annual compound growth rate of approximately 32% from
1995 to 1999.
STRATEGY
The Company's goal is to continue expanding its position as a market leader
in providing automated tape libraries and complementary products to the
client/server network computing marketplace. Key components of the Company's
strategy include:
Offer a Full Range of Library Products. The Company believes it currently
offers the most complete range of automated tape library and standalone drive
products available for the client/server network marketplace. Available storage
capacities range from four gigabytes to over three terabytes. Although different
types and sizes of client/server networks require different levels of tape
library capacity and performance, the Company's broad product family provides
both end users and channel partners with "one-stop-shopping" for products,
service, and support. By offering standalone drive products in addition to
libraries, the Company is able to further enhance the breadth of its product
line and seed the market at the low end, familiarizing customers with its brand
name and products.
Offer Products in Multiple Drive Technologies. The Company believes
offering automated tape libraries based on several magnetic tape drive
technologies, including 4mm/DAT, 8mm, and DLT, results in a number
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of benefits. This strategy enables the Company to rapidly develop and offer to
its customers leading-edge products by incorporating whichever tape drive
technology happens to be state-of-the-art at the time. In addition, this
strategy further broadens the Company's product line. It also further leverages
both research and development, as well as manufacturing. By avoiding reliance on
a single tape drive technology, the Company reduces the risk its products will
be superseded by technological developments. Offering multiple drive
technologies also enables the Company to address different market segments which
may have preferences for one technology over another.
Leverage Technology Across Products. The Company is able to leverage
nearly a decade of automated tape library research and development investment
across a number of products. Successive products and product line extensions
build on an existing foundation of technology and knowledge, including operating
systems software, electronic hardware, and electro-mechanical hardware.
Leveraging its existing technology to build a broad product line enables the
Company to decrease both the time-to-market and development costs of new
products. The Company's most recently launched product, the Scalar library,
features fifth-generation technology in many of these elements. Finally, this
strategy also enhances manufacturing leverage and flexibility. The Company is
able to share common parts, manufacturing resources, and suppliers across a wide
range of products.
Further Develop Strong Worldwide Distribution Channels. The Company has
established and continues to develop strong distribution channels in the North
American, European, and Pacific Rim markets. The Company has numerous
long-standing relationships with a network of national distributors and
resellers who have experience in offering the Company's line of products. These
distribution channels enable the Company to cost-effectively offer its broad
range of current products to multiple market segments and provide an immediate
outlet for new products as they are developed. As is appropriate, the Company
intends to pursue additional channel partnerships to address untapped or
under-penetrated market segments.
Offer Broad Technical Support. The Company believes there is value in
offering a range of services coupled with the sale of its products. This process
frequently begins with a consultative sale, with the Company's sales force and
systems engineers providing technical recommendations to its channel partners
and end users. After the sale, the Company provides 24-hour-a-day telephone
technical support. The Company's technical support staff is able to address
customers' inquiries beyond the automated tape library hardware level by being
knowledgeable of storage management software and systems. In situations where
problems grow in sophistication beyond the scope of the Company's technical
support staff, systems engineers can be made available for telephone or on-site
consultation. The Company also offers customers various levels of on-site
service programs through third-party providers. Finally, the Company offers a
comprehensive training program to resellers and end users.
Develop or Acquire Related Specialized Storage Products. The Company
believes that growth of the client/server network data storage market will
create opportunities for it to expand its product offerings. The Company intends
to continually seek out related market niches which leverage its strengths. The
Company has over a decade of research and development experience in
client/server network data storage and it believes this experience may be
readily applied beyond automated tape libraries to other specialized storage
products. In addition, the Company believes its distribution channels can be
leveraged to distribute related data storage products through to end customers.
New, related storage products could originate from internal research and
development or through acquisitions.
PRODUCTS
The Company's principal products, automated tape libraries, integrate
proprietary electro-mechanical robotics, electronic hardware, and firmware
developed by the Company with industry-standard technologically advanced tape
drives supplied by third parties housed in a desktop, rackmount, or
floor-standing enclosure. When operated in conjunction with storage management
software, the Company's libraries provide a complete solution for systematically
and cost-effectively automating data storage backup and archival in
client/server network computing environments.
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<PAGE> 32
The Company offers a family of automated tape libraries and standalone tape
drive products with different data storage capacity and data transfer rate
characteristics. The products vary by tape technology, number of tape drives,
and number of tape storage cartridges. New library product development is driven
by two sources, the identification of new market opportunities and the
availability of new tape drive technologies. The identification of new market
opportunities results from ongoing work by the Company's sales, marketing, and
product management organizations to identify new products to fulfill customer
and marketplace needs. In addition, the Company maintains close relationships
with tape drive manufacturers in order to stay abreast of technology
developments. The table below summarizes the configurations and performance of
the Company's current automated tape library product line.
CURRENT ADIC PRODUCTS
<TABLE>
<CAPTION>
DATA STORAGE DATA TRANSFER
TAPE NUMBER OF NUMBER OF TAPE CAPACITY RATE
PRODUCT TECHNOLOGY TAPE DRIVES CARTRIDGES (GB)(1) (MB/MIN)(1)
- ---------- ---------- ----------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
DATa 8000 4mm/DAT 1 1 8 44-90
DS9000 DLT 1 1 20-70 150-600
800 4mm/DAT 1 8 64 90
1200 4mm/DAT 1 12 96 44-90
VLS-4 4mm/DAT 1-2 15 120 44-180
VLS-8 8mm 1-2 11 154 60-120
VLS-DLT DLT 1 7 210-490 150-600
Scalar 224 DLT 2 24 720-1680 300-1200
Scalar 448 DLT 2-4 48 1440-3360 300-2400
Scalar 458 DLT 2-4 58(2) 1440-3360 300-2400
</TABLE>
- ---------------
(1) Both capacity and transfer rate values assume 2:1 data compression.
Attainment of these rates and capacities depends on system software and
hardware performance in addition to library performance. Capacity and
transfer rate ranges for a specific library model are a function of
different drive models.
(2) Ten of the tape cartridges in the Scalar 458 are provided by the
import/export feature and are not counted in calculating capacity.
The Company's products range in end-user list price from under $2,000 for a
DATa 8000 to over $90,000 for a Scalar 458 with four of the most advanced DLT
drives (the DLT 7000). In certain configurations, both the VLS and Scalar series
products can be purchased in lower-cost configurations and upgraded in the
future as the customer's performance needs grow.
DATa 8000 Series. The DATa 8000 series is the Company's line of standalone
4mm/DAT drives for use in the smallest backup applications. The DATa 8000 series
includes the DATa 8000E which offers an industry-leading transfer speed of 90
megabytes per minute, compressed.
DS9000 Series. The DS9000 series is the Company's line of standalone DLT
drives for more demanding backup applications. Several of the DS9000 series
models feature a differentiating user-friendly display which displays
information regarding drive status and performance.
800E. The 800E is the Company's recently introduced entry-level library,
an autoloader featuring one 4mm/DAT tape drive and up to eight tape cartridges.
1200 Series. The 1200 features one 4mm/DAT tape drive and up to 12 tape
cartridges. The 1200 is available with either a Hewlett Packard or one of two
performance levels of Sony tape drives. Introduced in 1992, the 1200 is the
Company's longest established library.
VLS Series. The VLS series is available in 4mm/DAT, 8mm, and DLT drive
versions. The VLS features a display and an advanced keypad for ease of user
operation. The 4mm/DAT and 8mm products are available in versions with two
drives or with one drive upgradeable to two. As with the 1200, the VLS
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<PAGE> 33
4mm/DAT product is available with a Hewlett Packard or one of two performance
levels of Sony drives. Also, the VLS DLT product is available with three
performance levels of DLT drives (the 2000xt, 4000, and 7000).
Scalar Series. The Scalar is the Company's fifth-generation and most
recently launched library, represents the high end of the product line. The
Scalar, which utilizes DLT drive technology, is available in three different
levels of drive performance (the 2000xt, 4000, and 7000), with up to four drives
and a 58 tape cartridge capacity. Fully-configured, the Scalar can store over
four terabytes of data. Available features include a bar code system, a tape
import/export mechanism, and rack-mount or free-standing configurations.
Critical subassemblies are field replaceable to minimize downtime and enhance
serviceability. Additionally, the Scalar features upgradability from the lowest
cost, base model through to the fully featured model.
This broad product offering enables the Company to address a wide range of
the backup storage needs presented by the client/server network computing
marketplace. The chart below arrays a subset of the Company's products,
excluding Scalar 448 and 458 libraries configured with the highest performing
DLT drive, on the critical performance dimensions of data storage capacity and
data transfer rate. The full performance range of the Company's Scalar libraries
is listed in the table above entitled "Current ADIC Products."
(Rated Capacity Chart)
STORAGE MANAGEMENT SOFTWARE
The majority of the Company's products are installed on client/server
computer networks in conjunction with storage management software. Currently,
over 50 different storage management software packages support the Company's
products. On the Novell NetWare and Microsoft Windows NT platforms, these
packages include products from Cheyenne Software, Seagate Software (Arcada and
Palindrome), Legato Systems, and STAC. On UNIX platforms, these packages include
products from Legato Systems, IBM ADSM, OpenVision Technologies, Cheyenne
Software, and Spectra Logic (Alexandria).
The Company works closely with storage management software companies in a
number of ways. The Company periodically engages in discussions with these
developers regarding the marketplace, end-user needs, and potential solutions to
these needs combining the Company's products and the developer's storage
management software. The Company partners with storage management software
companies to offer promotional product bundles, offering customers a special
price on the combination of a Company product and a storage management software
product. In addition, the Company's field sales force strives to maintain
relationships with its counterparts from each of the storage management software
companies and frequently
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<PAGE> 34
participates in joint sales calls and seminars. The Company also maintains
technical relationships with these developers, in most cases providing Company
products for their use in developing software for these products. The Company's
system engineering lab has many storage management software products running
in-house in order to perform ongoing compatibility testing.
SALES AND MARKETING
The Company's strategy is to deploy a comprehensive sales, marketing, and
support infrastructure to address the market for client/server network storage
peripherals both domestically and internationally. The Company relies on
multiple distribution channels to reach end-user customers ranging in size from
small businesses to large multinational corporations. The Company's channels
include distributors, VARs and OEMs. The Company supports these channels with a
field sales force operating out of regional offices in the following locations:
Atlanta, Chicago, Dallas, Los Angeles, Munich, New York, Paris, San Francisco
and Redmond, Washington.
Resellers
North American Distributors. The Company sells its products to large
regional and national distributors who in turn resell the Company's products to
national, regional, or local VARs with expertise in integrating network
solutions for end customers. The Company provides support for these VARs through
its authorized reseller programs. In the case of larger, more complex sales
situations, the Company's field sales force may work in conjunction with a VAR
to support the sale. The Company currently has relationships with six major
North American distributors, including Access Graphics, Gates/FA, GBC
Distributing Inc., Ingram Micro, Tech Data, and Tenex Data. For the fiscal year
ended October 31, 1995, Tech Data and Ingram Micro represented 16.2% and 13.6%,
respectively, of the Company's total net sales.
International Distributors. Similar to North America, the Company also has
relationships with a number of large regional and national distributors
internationally. These include P.S. Solutions Pty. Ltd. in Australia, Infodip in
France, Megabyte EDV-Handels GmbH and TIM GmbH in Germany, Tallgrass
Technologies in Scandinavia as well as Memory Technology Limited and
Transformation Software Limited in the United Kingdom. International sales
represented 47.1% of net sales in fiscal 1995, the majority of which occurred in
Europe. The Company believes that international markets represent an attractive
growth opportunity and intends to expand the scope of its international sales
efforts in part by continuing to actively pursue additional international
distributors and resellers.
Premier VAR Program. The Company has direct sales relationships with
approximately 25 "Premier VARs" throughout North America and Europe. These
Premier VARs are typically larger VARs specializing in data storage and network
solutions for client/server networks. Premier VARs assume increased levels of
responsibility for sales and support, although they are still occasionally
assisted by the Company's field sales force in certain large, complex sales
situations.
OEMs
The Company sells its products to several companies under a private label
or OEM relationship. These companies sell the products under their own brand
name, sometimes after enhancing the product technically to target a specific
market, performance, or application niche. Private labelers and OEMs assume
responsibility for product sales, service and support. These relationships
enable the Company to reach end-user market niches not served by its other
reseller distribution channels. Although not a key component to its strategy,
the Company maintains ongoing discussions with private labelers and OEMs,
including leading systems suppliers, regarding opportunities with the Company's
products. The large majority of Company products are sold through non-OEM
channels under the ADIC brand name.
Corporate Sales
The Company maintains corporate sales relationships with a number of large
national and multinational companies, including financial institutions,
telecommunications companies, large industrial corporations and
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<PAGE> 35
professional service firms. In these sales situations, the Company typically
works with such company's central information services organization to assess
data storage backup needs and then recommends a solution incorporating the
Company's products. The successful culmination of this recommendation is the
creation of a corporate standard around a selection of the Company's products.
Once this standard is established, organizations throughout the firm can
purchase the Company's products to meet their needs.
Corporate Marketing
The Company supports its channel sales and its field sales force efforts
with a broad array of marketing programs designed to build the Company's brand
name, attract additional resellers, and generate end-user demand. Resellers are
provided with a full range of marketing material, including product
specification literature and application notes. The Company advertises in key
network systems publications and participates in national and regional
tradeshows both domestically and internationally. The Company's World Wide Web
page (http://www.adic.com) features a comprehensive collection of marketing
information, including product specification sheets, product user manuals, and
application notes. The Company's field sales force conducts seminars targeting
end users, frequently in conjunction with a sales representative from one of the
storage management software companies. The Company also conducts sales and
technical training classes for its resellers. The Company periodically engages
in various promotional activities for resellers and end users, including
product-specific rebates, bundling its products with selected storage management
software, and certificates for free tape drive cleaning cartridges.
In addition to the activities outlined above, the Company's marketing
organization, specifically its product management team, is responsible for
initiating development of new products and product line extensions. In order to
create the Company's product development plan, the product management team
combines its assessment of end-user needs, channel requirements, technology
developments and competitive factors with input from the engineering, sales, and
manufacturing organizations.
CUSTOMER SERVICE AND SUPPORT
The Company views customer service and support as strategically important
elements of its business model. It feels customers increasingly value not only
excellent products, but also excellent service and support of those products.
The Company's customer service and support effort consists of five components.
Technical Support. The Company maintains an internal technical support
organization. Technical support personnel are available to all customers at no
charge via telephone, facsimile, and Internet electronic mail to answer
questions and solve problems relating to the Company's products. Technical
support personnel are not only trained with respect to the Company's products,
but are also experienced with storage management and network operating system
software. Products with problems not resolved via telephone support may be
returned to the Company for repair or replacement during the warranty period.
For a nominal fee, customers may choose to receive a "hot swap" exchange unit
which will be shipped via express mail within 24 hours.
Systems Engineering. The Company also maintains a staff of systems
engineers who provide both pre-and post-sales support to resellers and end
users. Systems engineers typically become involved in more complex
problem-solving situations involving interactions between the Company's
products, the storage management software, the network server hardware, and the
network operating system. System engineers work with resellers and end users
both over the telephone and on-site.
On-Site Service. The Company contracts with third-party service providers
to offer on-site service for its products. A wide variety of programs are
available, up to and including 24-hour-a-day, seven-day-a-week on-site service.
Training. The Company offers a comprehensive training program to resellers
and end users. Training classes are conducted at the Company's headquarters
location and on-site at reseller and end-user locations worldwide.
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Warranty. For standard Company products, parts and labor are covered for
two years. With respect to drives and tapes used in the Company's products but
manufactured by a third party, the Company passes on to the customer the
warranty on such drives and tapes provided by the manufacturer.
RESEARCH AND DEVELOPMENT
The Company's research and development team has nearly ten years and five
product generations of experience developing automated tape library products.
The Company's research and development efforts rely on the integration of
multiple engineering disciplines to generate products which competitively meet
market needs in a timely fashion. Successful development of automated tape
libraries requires the melding of firmware design, electro-mechanical design,
electronic design, and engineering packaging into a single integrated product.
Product success also relies on the engineering team's thorough knowledge of each
of the different tape drive technologies and SCSI protocol.
The Company's new products arise from two primary sources. The first, and
sometimes more straightforward source, is the availability of an evolved or new
tape drive technology. As they compete in the marketplace, tape drive
manufacturers continually invest in research and development to gain performance
leadership either by offering increasingly enhanced versions of their current
drive products or by coming out with a new drive technology altogether.
The Company benefits from these industry developments by quickly utilizing
these new tape drive technologies in its products. If a new drive is an enhanced
version of one already incorporated in one or more of the Company's products,
the Company's time and dollar investment to incorporate the new drive can be
quite small, with the focus being on verification testing. With new tape drive
technology introductions, the level of effort required to develop a
corresponding product depends somewhat on the form factor of the drive and
media. In cases where the form factors match a drive technology currently
supported, again the time and investment required can be quite low. When the
form factors differ, the time and investment requirements can grow
substantially, and may require development of a new product altogether. Given
the importance of relationships with tape drive manufacturers to the Company's
success, the Company strives to, and believes it does, maintain close,
high-level relationships on both a management and technical level with several
tape drive manufacturers.
The Company's second source for new products is the more traditional
identification of a new product which will fill a market need in which the
Company believes it can successfully compete. The sales, marketing, product
development, and engineering organizations all contribute to this identification
process. With these product development efforts, time and investment
requirements tend to be significant, both in terms of engineering and tooling
for manufacturing.
However, the Company has found that it has been able to leverage its
previous engineering investments into new products. For example, the firmware,
or operating system, of the fifth-generation Scalar library product is based on
successive generations of the operating system developed for the Company's first
library. Similarly, the Company's engineers have been able to leverage its
electro-mechanical and electronic hardware designs from previous products into
next-generation designs. In some cases, entire subassemblies are transferable,
leveraging not only engineering time but also tooling investments, materials
purchasing, inventory stocking, and manufacturing.
The Company's research and development expenses were $879,000, $1.0
million, and $1.1 million for fiscal 1993, 1994, and 1995, respectively. The
Company anticipates making comparable or increased investments in research and
development efforts in the future.
MANUFACTURING
The Company's manufacturing processes, which are ISO 9001 certified, entail
manufacturing electro-mechanical robotic devices, integrating into them tape
drives, and performing testing on the completed device. The Company's
manufacturing strategy is to perform product assembly, integration and testing,
leaving component and piece part manufacturing to its supplier partners. The
Company works closely with a group of
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regional, national, and international suppliers obtain quality parts and
components meeting its specifications. Though the Company's designs are
proprietary, the various components are available off the shelf or are
manufactured using standard, readily available techniques, limiting supplier
base risk and easing volume increases. Inventory planning and management is
coordinated closely with suppliers and customers to match the Company's
production to market demand. Product orders are confirmed and, in most cases,
shipped to the customer within one week. The Company fills orders as they are
received and therefore believes that its backlog levels are not indicative of
future sales.
COMPETITION
The market for network data storage peripherals, and automated tape
libraries in particular, is intensely competitive, highly fragmented, and
characterized by rapidly changing technology and evolving standards. Competitors
vary in size and in the scope and breadth of the products they offer. As the
Company offers a broad range of automated tape library and complementary
products, it tends to have a broad number of competitors which differ depending
on the particular product format and performance level. Regarding 4mm/DAT
products, the Company believes it competes with Hewlett Packard, Seagate, Sony
and Spectra Logic. With respect to DLT products, the Company believes ATL,
Breece Hill, Overland Data, Qualstar, Quantum and StorageTek comprise its
competition. With 8mm products, the Company believe its competition is
represented by Exabyte, Qualstar, Spectra Logic and StorageTek. Since there are
relatively low barriers to entry into the automated tape library market, the
Company anticipates increased competition from other fronts, ranging from
emerging to established companies, including large system OEMs. Many of the
Company's competitors have substantially greater financial and other resources,
larger research and development staffs, and more experience and capabilities in
manufacturing, marketing and distributing products than the Company. The
Company's competitors may develop new technologies and products that are more
effective than the Company's products. In addition, competitive products may be
manufactured and marketed more successfully than the Company's products. Such
developments could render the Company's products less competitive or obsolete,
and could have a material adverse effect on the Company's business, financial
condition and ability to market the Company's products as currently
contemplated. The Company believes the primary competitive factors in the market
for network data storage products are product quality, effectiveness,
reliability and price, as well as customer issues, including technical and sales
support. The Company believes that it is currently well positioned in its
markets along these multiple dimensions and is focused on maintaining its
competitive strengths. See "Special Factors -- Increasing Competition and
Potentially Declining Prices."
PROPRIETARY RIGHTS
Although the Company relies predominately on its full product line, strong
channel structure, and nearly a decade of library development experience to
compete in its marketplace, the Company does have or is pursuing numerous
patents on various design elements of its automated tape library products. There
can be no assurance that pending patent applications will ultimately issue as
patents or, if patents do issue, that the claims allowed will be sufficiently
broad to protect the Company's proprietary rights. In addition, there can be no
assurance that issued patents or pending applications will not be challenged or
circumvented by competitors, or that the rights granted thereunder will provide
competitive advantages to the Company.
The Company relies on a combination of patent and trademark laws, trade
secrecy, confidentiality procedures, and contractual provisions to protect its
intellectual property rights. There can be no assurance that these procedures
will be successful, that the Company would have adequate remedies for any breach
or that the Company's trade secrets and know-how will not otherwise become known
to or independently developed by competitors. See "Special
Factors -- Proprietary Technology."
LEGAL PROCEEDINGS
The Company has no legal proceedings of a material nature underway.
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EMPLOYEES (TEAM MEMBERS)
As of July 23, 1996, the Company had 132 full-time Team Members, including
34 in sales and marketing, 21 in research and development, systems engineering
and technical support, 63 in manufacturing and operations, and 14 in finance,
general administration, and management. None of the Company's Team Members are
covered by collective bargaining agreements, and management believes its
relationship with Team Members is good.
The Company's success depends in large part on its ability to attract and
retain key Team Members. Competition among network data storage peripheral
companies for highly skilled technical and management personnel is intense.
There can be no assurance that the Company will be successful in retaining its
existing Team Members, or in attracting additional qualified Team Members.
FACILITIES
The Company currently leases a 41,000 square foot facility in Redmond,
Washington, under a lease which expires in 2005. This facility currently houses
the primary executive offices of the Company, as well as its marketing, inside
sales, sales administration, customer support, research and development, systems
engineering, and manufacturing organizations. The Company currently leases
office space throughout the United States for its eight regional sales offices
and in Paris, France for the sales, marketing, and customer support
organizations serving Europe, the Middle East, and Africa.
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MANAGEMENT
OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
June 30, 1996, are set forth in the following table. All the executive officers
and directors named below are expected to continue to serve in the capacities
indicated following the Distribution.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Peter H. van Oppen...................... 44 Chairman of the Board, President and Chief
Executive Officer
Charles H. Stonecipher.................. 35 Senior Vice President and Chief Operating Officer
Michel R. Grosbost...................... 50 President and General Manager, ADIC Europe
William C. Britts....................... 37 Vice President, Sales and Marketing
Barry W. Brugman........................ 51 Vice President, Operations and Finance
Nathan H. Searle........................ 49 Vice President, Engineering
Christopher T. Bayley................... 57 Director
Walter P. Kistler....................... 76 Director
Russell F. McNeill...................... 84 Director
John W. Stanton......................... 40 Director
Walter F. Walker........................ 41 Director
</TABLE>
The Board of Directors is divided into three classes. Each director serves
for a three-year term and one class is elected each year by the Company's
shareholders. Directors hold office until their terms expire and their
successors are elected and qualified. Executive officers of the Company are
appointed by, and serve at the direction of, the Board of Directors. There are
no family relationships between any of the directors or executive officers of
the Company.
Peter H. van Oppen. Mr. van Oppen has served as Chairman, President and
Chief Executive Officer of ADIC since its acquisition by Interpoint in 1994. In
1996 he was elected to serve as Chairman of the Board of Directors of ADIC for a
term expiring at ADIC's annual meeting of shareholders (the "Annual Meeting") in
1999. He also served as a Director of ADIC for eight years prior to its
acquisition by Interpoint in 1994. He has served as Chairman of the Board of
Directors of Interpoint since 1995. He has served as President and Chief
Executive Officer of Interpoint since 1989, as President and Chief Operating
Officer of Interpoint from 1987 to 1989, and as Executive Vice President for
Finance and Operations of Interpoint from 1985 to 1987. He serves as a Director
for Seattle FilmWorks, Inc.
In connection with the Merger, Mr. van Oppen will enter into a consulting
agreement with a subsidiary of Crane providing that, for a transition period of
six months beginning October 31, 1996, Mr. van Oppen will be available for up to
five days a month to provide certain advice and assistance relating to the
Interpoint microelectronics business.
Charles H. Stonecipher. Mr. Stonecipher has served as Senior Vice
President and Chief Operating Officer of ADIC since 1995. Prior to this, he
served as Vice President, Finance and Administration and Chief Financial Officer
of Interpoint from 1994 to 1995. Prior to joining Interpoint, Mr. Stonecipher
worked as a Manager at Bain & Company in San Francisco.
Michel R. Grosbost. Mr. Grosbost has served as President and General
Manager of ADIC Europe since 1994. From 1988 to 1994, Mr. Grosbost served in
various general management positions with Gigabyte and Gigatrend. From 1985 to
1988, Mr. Grosbost served as Vice President, International, with Intertechnique.
William C. Britts. Mr. Britts has served as Vice President, Sales and
Marketing of ADIC since 1995. He has also served as Director of Marketing of
ADIC since 1995. Prior to joining ADIC, Mr. Britts served in a number of
marketing and sales positions with Raychem Corporation and its subsidiary, Elo
TouchSystems, beginning in 1988.
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Barry W. Brugman. Mr. Brugman has served as Vice President, Operations and
Finance of ADIC since 1994. He previously served as Vice President and General
Manager of the Custom Hybrids Division of Interpoint from 1993 to 1994, Vice
President of Operations of Interpoint from 1992 to 1993, and Vice President of
Marketing of the Custom Hybrids Division of Interpoint from 1989 to 1992.
Nathan H. Searle. Mr. Searle has served as Vice President, Engineering of
ADIC since 1988. From 1986 to 1988, Mr. Searle served as Vice President of IQ
Technologies Inc. Mr. Searle co-founded Output Technology Corporation and served
as its Vice President, Engineering, from 1984 to 1985.
Christopher T. Bayley. Mr. Bayley was elected in 1996 to serve as a
Director of ADIC for a term expiring at the Annual Meeting in 1997. He has
served as a Director of Interpoint since 1987. He has served as Chairman of
Dylan Bay Companies since 1995 and New Pacific Partners (Seattle and Hong
Kong-based investment bank) from 1992 to 1995. He served as President and Chief
Executive Officer, Glacier Park Company (real estate development), and as Senior
Vice President, Corporate Affairs, Burlington Resources Inc. (oil and gas
exploration and production company) from 1985 to 1992 and 1989 to 1992,
respectively. He is a Director of The Commerce Bank and a member of the Board of
Governors of The Nature Conservancy and of the Board of Governors of The Bush
School.
Walter P. Kistler. Mr. Kistler was elected in 1996 to serve as a Director
of ADIC for a term expiring at the Annual Meeting in 1998. He also served as a
Director of ADIC for 11 years prior to its acquisition by Interpoint in 1994,
and has served as a Director of Interpoint since 1972. Mr. Kistler has served as
Chairman of the Board of Kistler Aerospace Corporation since 1993. Mr. Kistler
has served as Chairman Emeritus of the Interpoint Board since 1987, and served
as its Chairman from 1974 to 1987. Mr. Kistler has also served as Chairman of
Kistler-Morse Corporation (electronic equipment manufacturer), since 1972.
Russell F. McNeill. Mr. McNeill was elected in 1996 to serve as a Director
of ADIC for a term expiring at the Annual Meeting in 1997 and has served as a
Director of Interpoint since 1977. Mr. McNeill has also served as Secretary
Emeritus of Interpoint since 1992 and as its Secretary from 1997 to 1992. He is
the former President of Old National Bank of Washington, and serves as Trustee
Emeritus for Whitman College.
John W. Stanton. Mr. Stanton was elected in 1996 to serve as a Director of
ADIC for a term expiring at the Annual Meeting in 1999. He also served as a
Director of ADIC for five years prior to its acquisition by Interpoint in 1994,
and has served as a Director of Interpoint since 1988. Mr. Stanton has served as
Chairman and Chief Executive Officer of Western Wireless Corporation and its
predecessors companies since 1992. Prior to this, he served as Vice Chairman and
Director of McCaw Cellular Communications, Inc. from 1988 to 1991. Mr. Stanton
also serves as a Trustee of Whitman College.
Walter F. Walker. Mr. Walker was elected in 1996 to serve as a Director of
ADIC for a term expiring at the Annual Meeting in 1998. He has served as a
Director of Interpoint since 1995. Mr. Walker has served as President of the
Seattle Supersonics National Basketball Association basketball team (a
subsidiary of Ackerley Communications, Inc.) since 1994. Prior to this, he
served as President, Walker Capital (a money management firm), from March 1994
to September 1994 and as Vice President, Goldman Sachs & Co. (an investment
banking firm), from 1987 to 1994. Mr. Walker also serves as a Director of
Redhook Ale Brewery, Incorporated and Gargoyles Inc. (eyeware manufacturer).
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee, a Nominating
Committee and a Compensation and Stock Option Committee. The Audit Committee,
composed of Messrs. Kistler, McNeill, and Walker, will review with the Company's
independent auditors the scope, results and costs of the audit engagement.
The Nominating Committee, composed of Messrs. Bayley, van Oppen, and
Walker, will nominate and recommend candidates for the Board of Directors.
The Compensation and Stock Option Committee, composed of Messrs. Bayley,
Stanton, and Walker, will determine the salary and bonus to be paid to the
Company's President and Chief Executive Officer and
34
<PAGE> 41
will review the salaries and bonuses for those reporting to the President and
Chief Executive Officer. The Committee will also administer the Company's stock
option plans and meet either independently or in conjunction with the Company's
full Board of Directors to grant options to eligible individuals in accordance
with the terms of each plan.
COMPENSATION OF DIRECTORS; STOCK OPTION PROGRAM
Nonemployee directors will be paid a retainer of $500 per quarter and $500
for each Board of Directors meeting attended. Employee directors will not be
paid any fees for serving as members of the Board of Directors. Audit Committee
members will be paid $500 per meeting.
The Company has adopted the 1996 Plan, which was approved by Interpoint,
the Company's sole shareholder, and will become effective as of the consummation
of the Distribution. The 1996 Plan provides for the grant of options to purchase
ADIC Common Stock to directors who are not otherwise employees of the Company
("Eligible Directors") upon their initial election to the Board of Directors and
for continuing service on the Board.
Under the 1996 Plan, each Eligible Director, upon his or her initial
election or appointment, will receive a nonqualified stock option for 5,500
shares of ADIC Common Stock. Such options will vest in four equal annual
installments of 1,375 shares each beginning one year after the date of grant.
The 1996 Plan also provides for an annual grant of options to purchase 1,000
shares of ADIC Common Stock to each Eligible Director on the date of each annual
meeting of shareholders. Such options will vest on the date of the next annual
meeting of shareholders and expire after five years. The 1996 Plan will be
administered by the Compensation and Stock Option Committee of the Board of
Directors. See "Management -- 1996 Stock Option Plan."
35
<PAGE> 42
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
Chief Executive Officer (the "CEO") and each of the other four most highly
compensated executive officers of the Company (together with the CEO, the "named
executive officers") during the fiscal year ended October 31, 1995 (and where
required, for the fiscal years ended October 31, 1994 and September 30, 1993)
based on services rendered to Interpoint. Other than the named executive
officers, no executive officer received total compensation in excess of $100,000
for the fiscal year ended October 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------- ----------------------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND BONUS($) COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) (2) ($) OPTIONS(#)(3) ($)
- ------------------------ ---- -------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Peter H. van Oppen...... 1995 $212,493 $20,636 -- $ 150(4)
President, Chairman 1994 202,339 45,896 -- 150(4)
and CEO(1) 1993 194,322 5,642 20,000 150(4)
Charles H.
Stonecipher........... 1995 116,059 7,650 20,000
Senior Vice President 1994 25,004 2,089 30,000 33,879(5)
and Chief Operating
Officer(6)
Michel R. Grosbost...... 1995 138,720(7) 5,487 (7) 36,809(7)(8) 32,000
President and General
Manager, ADIC Europe
Barry W. Brugman........ 1995 92,040 8,000
Vice President,
Operations and
Finance(1)
Nathan H. Searle........ 1995 93,875 7,308 6,000 150(4)
Vice President,
Engineering(1)
</TABLE>
- ---------------
(1) Salary excludes cash-out of unused sick days and vacation days in accordance
with ADIC and Interpoint's flexible time-off plan, which is applicable to
all Team Members. Such cash-out amounted to $4,023, $8,420 and $5,358 in
fiscal 1995, 1994 and 1993, respectively, for Mr. van Oppen, and $1,057 and
$1,857 in fiscal 1995 for Messrs. Brugman and Searle, respectively.
(2) Consists of profit bonus awards associated with performance for that year
and Management Incentive Plan awards for fiscal 1995 and 1994.
(3) Adjusted to reflect a two-for-one stock split of Interpoint Common Stock
that became effective on June 27, 1996.
(4) Consists of matching contributions to the 401(k) plan.
(5) Includes a payment in the amount of $33,729 associated with relocation
expenses. The remainder consists of matching contributions to the 401(k)
plan.
(6) Mr. Stonecipher joined the Company in August 1994.
(7) Assumes an exchange rate of French francs to U.S. dollars of 5:1.
(8) Includes payments by ADIC Europe to two companies, which in turn compensated
Mr. Grosbost for services rendered.
36
<PAGE> 43
STOCK OPTION GRANTS
The following table sets forth certain information regarding options
granted during the fiscal year ended October 31, 1995 to the named executive
officers under the Interpoint Corporation Amended 1985 Stock Option Plan.
Messrs. van Oppen and Brugman were not granted any options during the fiscal
year ended October 31, 1995. As a condition to the Merger, all options to
purchase Interpoint Common Stock held by Company employees (including Mr. van
Oppen and other members of the Board of Directors)will receive a combination of
cash and options to purchase an equivalent number of shares of ADIC Common Stock
prior to the effective time of the Distribution. See "The Merger and the
Distribution -- Treatment of Stock Options."
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
----------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK PRICE
SHARES GRANTED TO APPRECIATION FOR
UNDERLYING TEAM OPTION TERM(4)
OPTIONS MEMBERS IN EXERCISE PRICE EXPIRATION -----------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE)(1) DATE 5% 10%
---- ------------- ------------- -------------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Charles H. Stonecipher..... 16,000 7.86% $4.438 2/22/00(2) $19,616 $43,346
4,000 1.96% $5.500 8/16/05(3) $13,836 $35,062
Michel R. Grosbost......... 20,000 9.82% $4.563 11/11/99(2) $25,211 $55,709
8,000 3.93% $4.438 2/22/00(2) $ 9,808 $21,673
4,000 1.96% $5.500 8/16/05(3) $13,836 $35,062
Nathan H. Searle........... 6,000 2.95% $4.438 2/22/00(2) $ 7,356 $16,255
</TABLE>
- ---------------
(1) Adjusted to reflect a two-for-one stock split of Interpoint Common Stock
that became effective on June 27, 1996.
(2) These options vest in four equal annual installment beginning one year after
the date of grant. The per share exercise price represents the fair market
value of the Interpoint Common Stock on the date of grant. The options
expire five years from the date of grant.
(3) These options became fully vested in July 1996 upon the satisfaction of a
condition to vesting based on achievement of a specified stock price during
a consecutive 40-day period. The per share exercise price represents the
fair market value of the Interpoint Common Stock on the date of grant. The
options expire 10 years from the date of grant.
(4) Future value of current year grants assuming appreciation of 5% and 10% per
year over the five-year or 10-year option period. The actual value realized
may be greater than or less than the potential realizable values set forth
in the table.
37
<PAGE> 44
OPTION EXERCISES AND YEAR-END VALUE TABLE
None of the named executive officers exercised options during the fiscal
year ended October 31, 1995. The following table sets forth certain information
regarding options held as of the end of such fiscal year by each of the named
executive officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
OCTOBER 31, 1995(1) OCTOBER 31, 1995(2)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter H. van Oppen............................... 205,000 20,000 $ 656,735 $40,000
Charles H. Stonecipher........................... 7,500 42,500 10,313 50,438
Barry W. Brugman................................. 18,900 8,000 70,302 17,500
Michel R. Grosbost............................... 0 32,000 0 37,250
Nathan H. Searle................................. 24,200 9,300 109,109 19,841
</TABLE>
- ---------------
(1) Adjusted to reflect a two-for-one stock split of Interpoint Common Stock
that became effective on June 27, 1996.
(2) Calculated based on the difference between the option exercise price and the
fair market value of the Interpoint Common Stock at October 31, 1995, times
the number of shares.
1996 STOCK OPTION PLAN
Summary of the 1996 Plan
Shares Subject to the 1996 Plan. Subject to adjustment from time to time
as provided in the 1996 Plan, a maximum of 625,000 shares of ADIC Common Stock
will be available for issuance under the 1996 Plan. Since no option grants can
be made under the 1996 Plan until after the Distribution, as of the effective
time of the Distribution, no options to purchase ADIC Common Stock will be
outstanding under the 1996 Plan. Shares issued pursuant to the 1996 Plan will be
drawn from authorized and unissued shares or shares now held or subsequently
acquired by the Company. The Company intends to list the ADIC Common Stock on
the Nasdaq National Market under the symbol "ADIC" upon notice of issuance.
Not more than 100,000 shares of ADIC Common Stock may be subject to grants
of options under the 1996 Plan to any participant in any one fiscal year of the
Company. This per-employee limitation, which is subject to adjustment in the
event of certain changes in the Company's corporate or capital structure, is
designed to qualify option grants under the 1996 plan as "performance-based"
compensation under Section 162(m) of the Code, which is discussed below. See
"--Federal Income Tax Consequences--The Company's Tax Deduction With Respect to
Options."
Any shares of ADIC Common Stock that have been made subject to an award
that cease to be subject to the award (other than by reason of exercise),
including, without limitation, in connection with the cancellation of an award
and the grant of a replacement award, will be available for issuance in
connection with future grants of awards under the 1996 Plan.
Eligibility to Receive Awards. Discretionary awards may be granted under
the 1996 Plan to those officers and key employees (including directors who are
also employees) of the Company and its subsidiaries as the plan administrator
from time to time selects. Awards may also be made to consultants, advisors and
agents who provide services to the Company and its subsidiaries. Eligible
Directors are eligible to receive only the automatic awards specified in the
1996 Plan.
38
<PAGE> 45
Terms and Conditions of Stock Option Grants. Options granted under the
1996 Plan may be "incentive stock options" (as defined in Section 422 of the
Code) or "nonqualified stock options." The option price for each option granted
under the 1996 Plan will be determined by the plan administrator, but will be
not less than 100% of the ADIC Common Stock's fair market value on the date of
grant. For purposes of the 1996 Plan, "fair market value" means the closing
price of the ADIC Common Stock as reported by the Nasdaq National Market for a
single trading day.
The exercise price for shares purchased under options must be paid in cash,
already-owned ADIC Common Stock held by the optionee for at least six months
and/or delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker. The optionee must pay to the Company
applicable withholding taxes upon exercise of the option as a condition to
receiving the stock certificates.
The option term will be fixed by the plan administrator and if not so fixed
will be ten years. Each option will be exercisable pursuant to a vesting
schedule determined by the plan administrator. If not so determined, each option
will be exercisable in four equal annual installments beginning one year after
the date of grant. The plan administrator will also determine the circumstances
under which an option will be exercisable in the event the optionee ceases to
provide services to the Company or one of its subsidiaries. If not so
established, options generally will be exercisable for three months after
termination of services. An option will not be exercisable if the optionee's
services are terminated for cause, as defined in the 1996 Plan.
Nonemployee Director Grants. Eligible Directors of the Company are
eligible to receive option awards under the 1996 Plan only in the form of
automatic grants. Each newly elected or appointed Eligible Director will
automatically receive an option to purchase 5,500 shares of ADIC Common Stock
upon their initial election or appointment to the Company's Board of Directors.
Such options will vest in four equal annual installments of 1,375 shares each
beginning one year after the date of grant. Eligible Directors of the Company
will also automatically receive an option to purchase 1,000 shares immediately
after each subsequent annual meeting of shareholders after the date of their
initial election or appointment. Such options vest upon the optionee's continued
service as a director until the next Annual Meeting of Shareholders after the
date of grant. Options granted to Eligible Directors are nonqualified stock
options and have a term of five years from the date of grant. The options are
exercisable at a price equal to the fair market value of the ADIC Common Stock
on the date of grant. Any options granted to nonemployee directors are subject
to the availability of ADIC Common Stock under the 1996 Plan. Except as
otherwise provided, options to nonemployee directors are subject to the terms
and conditions of the 1996 Plan applicable to other optionees.
Loans, Loan Guarantees and Installment Payments. To assist a holder
(including a holder who is an officer or director of the Company, but not a
Eligible Director) in acquiring shares of ADIC Common Stock pursuant to an award
granted under the 1996 Plan, the plan administrator may authorize (a) the
extension of a loan to the holder by the Company, (b) the payment by the holder
of the purchase price, if any, of the ADIC Common Stock in installments, or (c)
the guarantee by the Company of a loan obtained by the grantee from a third
party. The terms of any loans, installment payments or guarantees, including the
interest rate and terms of repayment, will be subject to the plan
administrator's discretion, and may be granted with or without security.
Transferability. No option will be assignable or otherwise transferable by
the holder other than by will or the laws of descent and distribution and,
during the holder's lifetime, may be exercised only by the holder, except to the
extent permitted by the plan administrator, Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or Section 422 of the
Code. Options held by Eligible Directors may be transferred only to certain
family members and trusts, to the extent permitted by Rule 16b-3 under the
Exchange Act.
Adjustment of Shares. In the event of any changes in the outstanding stock
of the Company by reason of stock dividends, stock splits, spin-offs,
combinations or exchanges of shares, recapitalizations, mergers, consolidations,
distributions to shareholders other than a normal cash dividend, or other
changes in the Company's corporate or capital structure, the plan administrator
shall make proportional adjustments in (a) the maximum number and class of
securities subject to the 1996 Plan, (b) the number and class of securities that
may be made subject to automatic awards to nonemployee directors, and (c) the
number and class of
39
<PAGE> 46
securities subject to any outstanding award granted to a Eligible Director and
the per share price of such securities, without any change in the aggregate
price to be paid therefor, and the plan administrator, in its sole discretion,
may make any equitable adjustments it deems appropriate for awards other than
those granted to nonemployee directors, in (y) the maximum number and class of
securities that may be made subject to awards to any participant, and (z) the
number and class of securities that are subject to any outstanding award and the
per share price of such securities, without any change in the aggregate price to
be paid therefor.
Corporate Transaction. In the event of certain mergers or consolidations
or a sale of substantially all the assets or a liquidation of the Company, each
option that is at the time outstanding will automatically accelerate so that
each such award will, immediately prior to such corporate transaction, become
100% vested, except that with respect to awards other than those granted to
Eligible Directors, such award will not so accelerate if and to the extent: (a)
such award is, in connection with the corporate transaction, either to be
assumed by the successor corporation or parent thereof or to be replaced with a
comparable award for the purchase of shares of the capital stock of the
successor corporation or its parent corporation or (b) such award is to be
replaced with a cash incentive program of the successor corporation that
preserves the spread existing at the time of the corporate transaction and
provides for subsequent payout in accordance with the same vesting schedule
applicable to such award. Any such awards that are assumed or replaced in the
corporate transaction and do not otherwise accelerate at that time shall be
accelerated in the event the holder's employment or services should subsequently
terminate within two years following such corporate transaction, unless such
employment or services are terminated by the successor corporation for cause or
by the holder voluntarily without good reason.
Further Adjustment of Awards. The plan administrator shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, liquidation or change in control of the Company, as defined by
the plan administrator, to take such further action as it determines to be
necessary or advisable, and fair and equitable to holders, with respect to
awards other than those granted to Eligible Directors. Such authorized action
may include (but is not limited to) establishing, amending or waiving the type,
terms, conditions or duration of, or restrictions on, awards so as to provide
for earlier, later, extended or additional time for exercise, alternate forms
and amounts of payments and other modifications, and the plan administrator may
take such actions with respect to all holders, to certain categories of holders
or only to individual holders. The plan administrator may take such actions
before or after granting awards to which the action relates and before or after
any public announcement with respect to such sale, merger, consolidation,
reorganization, liquidation or change in control that is the reason for such
action.
Administration. The 1996 Plan will be administered by the Compensation and
Stock Option Committee of the Board of Directors. The Board of Directors may
delegate the responsibility for administering the 1996 Plan with respect to
designated classes of eligible participants to different committees or, with
respect to grants made to newly hired individuals other than persons subject to
Section 16(b) of the Exchange Act, to one or more of the Company's officers,
subject to such limitations as the Board of Directors deems appropriate.
Committee members will serve for such term as the Board of Directors may
determine, subject to removal by the Board of Directors at any time. The
administration of the 1996 Plan with respect to officers and directors of the
Company who are subject to Section 16 of the Exchange Act with respect to
securities of the Company will comply with the requirements of Rule 16b-3
promulgated under Section 16(b) of the Exchange Act, or any successor provision.
Amendment and Termination. The 1996 Plan may be terminated, modified or
amended by the shareholders of the Company. The Board of Directors may also
terminate the 1996 Plan, or modify or amend it, subject to shareholder approval
in certain instances, as set forth in the 1996 Plan. No incentive stock options
may be granted under the 1996 Plan more than 10 years after the date the 1996
Plan is adopted by the Board of Directors.
Federal Income Tax Consequences
The federal income tax consequences to the Company and to any person
granted an award of options under the 1996 Plan under the existing applicable
provisions of the Code and the regulations thereunder are substantially as
follows.
40
<PAGE> 47
Grant of Options. No income will be recognized by a participant upon the
grant of a stock option.
Exercise of Nonqualified Stock Options; Sale of Underlying Shares. On the
exercise of a nonqualified stock option, the optionee will recognize taxable
ordinary income in an amount equal to the excess of the fair market value of the
shares acquired over the option price. Upon a later sale of those shares, the
optionee will have short-term or long-term capital gain or loss, as the case may
be, in an amount equal to the difference between the amount realized on such
sale and the tax basis of the shares sold. Generally the tax basis of the shares
received is their fair market value unless the shares were received in exchange
for already-owned shares, in which case special basis rules apply.
Exercise of an Incentive Stock Option. Upon the exercise of an incentive
stock option during employment or within three months after the optionee's
termination of employment (12 months in the case of permanent and total
disability, as defined in the Code), for regular tax purposes the optionee will
recognize no income at the time of exercise. However, the optionee will have
income for alternative minimum income tax purposes in an amount equal to the
excess of the fair market value of the shares acquired over the option price.
Sale of Shares Received Upon Exercise of an Incentive Stock Option. If the
shares acquired upon the exercise of an incentive stock option are sold or
exchanged after the later of (a) one year from the date of exercise of the
option and (b) two years from the date of grant of the option, the difference
between the amount realized by the optionee on that sale or exchange and the tax
basis of the shares sold will be taxed to the optionee as a long-term capital
gain or loss. Generally the tax basis of the shares received is the option price
unless the shares were received in exchange for already-owned shares, in which
case special basis rules apply. If the shares are disposed of before such
holding period requirements are satisfied (a "disqualifying disposition"), then
the optionee will recognize taxable ordinary income in the year of the
disqualifying disposition in an amount equal to the excess, on the date of
exercise of the option, of the fair market value of the shares received over the
option price (or generally, if less, the excess of the amount realized on the
sale of the shares over the option price), and the optionee will have capital
gain or loss, long-term or short-term, as the case may be, in an amount equal to
the different between (i) the amount realized by the optionee upon the
disqualifying disposition of the shares and (ii) the option price paid by the
optionee increased by the amount of ordinary income, if any, so recognized by
the optionee.
Certain Incentive Stock Options Treated as Nonqualified Stock Options. An
incentive stock option that is exercised more than three months after the
optionee's termination of employment (or more than 12 months thereafter in the
case of permanent and total disability, as defined in the Code) is treated as a
nonqualified stock option and subject to the rules for nonqualified stock
options discussed above.
Certain Directors or Officers. Special rules apply to a director or
officer subject to liability under Section 16(b) of the Exchange Act.
The Company's Tax Deduction With Respect to Options. In all the foregoing
cases, the Company will be entitled to a deduction at the same time and in the
same amount as the participant recognizes ordinary income, subject to the
following limitation. Under Section 162(m) of the Code, certain compensation
payments in excess of $1 million are subject to a limitation on deductibility
for the Company. The limitation on deductibility applies with respect to that
portion of a compensation payment for a taxable year in excess of $1 million to
either the Company's Chief Executive Officer or any one of the other four most
highly compensated executive officers. Certain performance-based compensation is
not subject to the limitation on deductibility. Options can qualify for this
performance-based exception, but only if they are granted at fair market value,
the total number of shares that can be granted to an executive for any period is
stated, and shareholder and Board approval is obtained. The 1996 Plan has been
drafted to allow compliance with those performance-based criteria.
New Plan Benefits
Since awards under the 1996 Plan are discretionary, except for the
specified grants to Eligible Directors, the Company cannot currently determine
the number of awards which will be issued pursuant to the 1996
41
<PAGE> 48
Plan during the fiscal year ending October 31, 1996. As of the effective time of
the Distribution, no options to purchase ADIC Common Stock will be outstanding
under the 1996 Plan.
1996 TRANSITION PLAN
Interpoint, as sole shareholder of ADIC, has approved the Transition Plan.
No new options may be granted under the Transition Plan after the effective time
of the Distribution. The number of options outstanding under the Transition Plan
will be equal to the number of ADIC Replacement Options issued in replacement of
Interpoint stock options. See "The Merger and the Distribution -- Treatment of
Stock Options." Except for the exercise price, the terms of ADIC Replacement
Options granted under the Transition Plan, including the vesting schedule, will
be the same terms of the original Interpoint stock options they replace.
Based on the number of shares subject to Interpoint options held by ADIC
employees as of June 30, 1996, approximately 475,000 ADIC Replacement Options
will be outstanding under the Transition Plan. ADIC Replacement Options to
purchase an aggregate of 326,882 shares at an average exercise price of $3.81
per share (prior to the adjustment in exercise price pursuant to the Transition
Plan (the "Adjustment")) will be held by all executive officers of the Company
as a group, options to purchase an aggregate of 77,098 shares at an average
exercise price of $4.60 per share (prior to Adjustment) will be held by all
other employees of the Company as a group (including officers who are not
executive officers), and options to purchase an aggregate of 71,800 shares at an
average exercise price of $3.39 per share (prior to Adjustment) will be held by
all Eligible Directors of the Company as a group. Options granted during 1995 to
the Company's named executive officers under Interpoint stock options plans
(which options will be converted to options to purchase ADIC Common Stock under
the Transition Plan) are set forth under the table "Option Grants in Last Fiscal
Year" under "Management -- Executive Compensation."
CERTAIN TRANSACTIONS
The Company leases its facility located in Redmond, Washington, from K-M
Properties, a general partnership of which Walter P. Kistler, a director, is a
partner. Rent payments for fiscal 1995 were $49,647.
The Company reimburses Michel R. Grosbost, President and General Manager,
ADIC Europe, for use of office space and equipment located in his residence in
connection with the Company's sales operations in Europe. Rent payments for use
of this office space and equipment in fiscal 1995 were $32,000.
42
<PAGE> 49
BENEFICIAL OWNERSHIP
The following table sets forth certain information with respect to the
expected beneficial ownership of the ADIC Common Stock immediately after the
Effective Time of the Distribution by (i) each person known by the Company to
beneficially own more than 5% of the ADIC Common Stock, (ii) each director,
(iii) each of the named executive officers, and (iv) all directors and executive
officers of the Company as a group, based on their respective beneficial
ownership of Interpoint Common Stock as of June 30, 1996. The table includes as
a basis for calculation options to purchase shares of Interpoint Common Stock
exercisable at or within 60 days as of June 30, 1996, as such options will be
converted into options to purchase shares of ADIC Common Stock prior to the
effective time of the Distribution. The Company believes that the beneficial
owners of the Interpoint Common Stock listed below, based on information
furnished by such owners, have sole voting and investment power with respect to
such shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
-----------------------
NAME AND ADDRESS NUMBER PERCENT
---------------- ----------- -------
<S> <C> <C>
John W. Stanton........................................................ 480,464(1) 6.0%
10201 Willows Road
Redmond, Washington 98052
Kennedy Capital Management............................................. 443,600 5.6%
425 N. New Ballas Road, Suite 181
St. Louis, Missouri 63141-6821
Walter P. Kistler...................................................... 377,940(1) 4.8%
Peter H. van Oppen..................................................... 314,620(2) 3.9%
Nathan H. Searle....................................................... 73,766(3) *
Christopher T. Bayley.................................................. 54,000(1) *
Charles H. Stonecipher................................................. 43,060(4) *
Barry W. Brugman....................................................... 39,050(5) *
Michel R. Grosbost..................................................... 26,000(6) *
Walter F. Walker....................................................... 20,000
Russell F. McNeill..................................................... 7,800(7) *
William C. Britts...................................................... 5,276(8) *
All directors and executive officers as a group (11 persons)........... 1,441,976(9) 17.6%
</TABLE>
- ---------------
* Represents holdings of less than 1%.
(1) Includes 12,000 shares subject to issuance upon exercise of Interpoint
options that are exercisable within 60 days.
(2) Does not include 10,300 shares that are held in trust for Mr. van Oppen's
minor children or 6,000 shares that are held in a trust (as to which Mr. van
Oppen serves as trustee) for the benefit of certain minor relatives of Mr.
van Oppen, as to which he disclaims beneficial ownership. Includes 127,482
shares subject to issuance upon exercise of Interpoint options that are
exercisable within 60 days.
(3) Includes 25,700 shares subject to issuance upon exercise of Interpoint
options that are exercisable within 60 days.
(4) Includes 23,000 shares subject to issuance upon exercise of Interpoint
options that are exercisable within 60 days.
(5) Includes 26,900 shares subject to issuance upon exercise of Interpoint
options that are exercisable within 60 days.
(6) Includes 4,000 shares subject to issuance upon exercise of Interpoint
options that are exercisable within 60 days.
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<PAGE> 50
(7) Includes 7,800 shares subject to issuance upon exercise of Interpoint
options that are exercisable within 60 days.
(8) Includes 5,000 shares subject to issuance upon exercise of Interpoint
options that are exercisable within 60 days.
(9) Does not include 10,300 shares that are held in trust for Mr. van Oppen's
minor children or 6,000 shares that are held in a trust (as to which Mr. van
Oppen serves as trustee) for the benefit of certain minor relatives of Mr.
van Oppen, as to which he disclaims beneficial ownership. Includes 255,882
shares subject to issuance upon exercise of Interpoint options that are
exercisable within 60 days.
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<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000 shares
of Common Stock, no par value, and 2,000,000 shares of Preferred Stock, no par
value. The following summary description of the capital stock of the Company is
qualified in its entirety by reference to the Articles of Incorporation and the
Bylaws of the Company, copies of which are filed as exhibits to the Registration
Statement of which this Information Statement forms a part.
COMMON STOCK
Holders of ADIC Common Stock are entitled to one vote per share on all
matters submitted to a vote of shareholders and are not entitled to cumulative
voting rights with respect to the election of directors. Holders of ADIC Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor, subject to
preferences that may be applicable to any outstanding Preferred Stock. In the
event of liquidation, dissolution or winding up of the Company, holders of ADIC
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preference of any outstanding Preferred
Stock. Holders of ADIC Common Stock have no preemptive, subscription, redemption
or conversion rights. All the outstanding shares of ADIC Common Stock are, and
all shares of ADIC Common Stock to be outstanding upon completion of the
Distribution will be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 2,000,000 shares of
Preferred Stock from time to time in one or more series and to fix the powers,
designations, preferences and relative, participating, optional or other special
rights thereof, including dividend rights, conversion rights, voting rights,
redemption terms, liquidation preferences and the number of shares constituting
each such series, without any further vote or action by the Company's
shareholders. The Company has reserved for issuance 100,000 shares of Series A
Preferred Stock in connection with its Shareholder Rights Plan. See "Description
of Capital Stock--Preferred Stock Purchase Rights."
The issuance of Preferred Stock could adversely affect the voting power of
holders of ADIC Common Stock and could have the effect of delaying, deferring or
preventing a change in control of the Company. No shares of Preferred Stock are
currently outstanding. The Company has no present plans to issue any shares of
Preferred Stock, except upon exercise of the Rights if, and when, the Rights
become exercisable.
PREFERRED STOCK PURCHASE RIGHTS
Each outstanding share of ADIC Common Stock distributed in the Distribution
will be accompanied by one Right, which will be evidenced by a legend appearing
on the certificates representing the ADIC Common Stock. In addition, the Board
of Directors has authorized the issuance of one Right with respect to each share
of ADIC Common Stock that becomes outstanding following the Distribution and
prior to the earliest of the Trigger Date, the Expiration Date (as hereinafter
defined) and the date, if any, on which the Rights are redeemed. Each Right
entitles its registered holder to purchase from the Company one one-hundredth
(1/100th) of a share of Series A Preferred Stock at a price of $50 (the
"Purchase Price"), subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement (the "Rights Agreement") between the
Company and ChaseMellon Shareholder Services, L.L.C. as Rights Agent. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is hereby
incorporated herein by reference.
Until the earlier of (i) the close of business on the tenth business day
after the first date of public announcement that a person or group (including
any affiliate or associate of such person or group) has acquired, or has
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding ADIC Common Stock (such person or group being an "Acquiring Person")
and (ii) such date, if any, as may be
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<PAGE> 52
designated by the Board of Directors following the commencement of, or first
public disclosure of an intent to commence, a tender or exchange offer for
outstanding ADIC Common Stock which could result in the offeror becoming the
beneficial owner of 15% or more of the outstanding ADIC Common Stock (the
earlier of such dates, subject to certain exceptions, being the "Trigger Date"),
the Rights will be evidenced by the certificates for the ADIC Common Stock
registered in the names of the holders thereof (which certificates for ADIC
Common Stock will also be deemed to be Right Certificates, as defined below) and
not by separate Right Certificates. Therefore, until the Trigger Date, the
Rights will be transferred with and only with the ADIC Common Stock.
As soon as practicable following the Trigger Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of record
of the ADIC Common Stock as of the close of business on the Trigger Date (and to
each initial record holder of certain shares of ADIC Common Stock originally
issued after the Trigger Date), and such separate Right Certificates alone will
thereafter evidence the Rights.
The Rights are not exercisable until the Trigger Date and will expire on
the tenth year anniversary of the date of the closing of the Distribution (the
"Expiration Date"), unless earlier redeemed or canceled by the Company as
described below.
The number of shares of Series A Preferred Stock or other securities
issuable upon exercise of a Right, the Purchase Price, the Redemption Price (as
hereinafter defined) and the number of Rights associated with each outstanding
share of ADIC Common Stock are all subject to adjustment by the Board of
Directors in the event of any change in the ADIC Common Stock or the Series A
Preferred Stock, whether by reason of stock dividends, stock splits,
recapitalizations, mergers, consolidations, combinations or exchanges of
securities, split-ups, split-offs, spin-offs, liquidations, other similar
changes in capitalization, any distribution or issuance of cash, assets,
evidences of indebtedness or subscription rights, options or warrants to holders
of ADIC Common Stock or Series A Preferred Stock, as the case may be, or
otherwise.
In the event a person becomes an Acquiring Person, the Rights will entitle
each holder of a Right (other than an Acquiring Person (or any affiliate or
associate of such Acquiring Person)) to purchase, for the Purchase Price, that
number of shares of ADIC Common Stock equivalent to the number of shares of ADIC
Common Stock which at the time of the transaction would have a market value of
twice the Purchase Price. Any Rights that are at any time beneficially owned by
an Acquiring Person (or any affiliate or associate of an Acquiring Person) will
be null and void and nontransferable and any holder of any such Right (including
any purported transferee or subsequent holder) will be unable to exercise or
transfer any such Right.
After there is an Acquiring Person, the Board of Directors may elect to
exchange each Right (other than Rights that have become null and void and
nontransferable as described above) for consideration per Right consisting of
one-half of the securities that would be issuable at such time upon the exercise
of one Right pursuant to the terms of the Rights Agreement and without payment
of the Purchase Price.
In the event the Company is acquired in a merger by, or other business
combination with, or 50% or more of its assets or assets accounting for 50% or
more of its net income or revenues are sold, leased, exchanged or otherwise
transferred (in one or more transactions) to, a publicly traded corporation,
each Right will, unless earlier redeemed, entitle its holder to purchase, for
the Purchase Price, that number of shares of the surviving corporation which at
the time of the transaction would have a market value of twice the Purchase
Price. In the event the Company is acquired in a merger by, or other business
combination with, or 50% or more of its assets or assets accounting for 50% or
more of its net income or revenues are sold, leased, exchanged or otherwise
transferred (in one or more transactions) to, an entity that is not a publicly
traded corporation, each Right will, unless earlier redeemed, entitle its holder
to purchase, for the Purchase Price, at such holder's option, (i) that number of
shares of the surviving corporation in the transaction with such entity (which
surviving corporation could be the Company) which at the time of the transaction
would have a book value of twice the Purchase Price, (ii) that number of shares
of such entity which at the time of the transaction would have a book value of
twice the Purchase Price, or (iii) if such entity has an affiliate which has
publicly traded common stock, that number of shares of common stock of such
affiliate which at the time of the transaction would have a market value of
twice the Purchase Price.
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<PAGE> 53
At any time prior to any person or group becoming an Acquiring Person, the
Board of Directors may redeem the Rights in whole, but not in part, at a price
(in cash or ADIC Common Stock or other securities of the Company deemed by the
Board of Directors to be at least equivalent in value) of $.01 per Right,
subject to adjustment as provided in the Rights Agreement (the "Redemption
Price").
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends.
At any time prior to the Trigger Date the Company may, without the approval
of any holder of the Rights, supplement or amend any provision of the Rights
Agreement (including the date on which the Trigger Date would occur and the time
during which the Rights may be redeemed or the terms of the Series A Preferred
Stock), except that no supplement or amendment shall be made which adversely
affects the interests of the holders of the Rights Certificates.
The Series A Preferred Stock issuable upon exercise of the Rights will not
be redeemable. The holders of Series A Preferred Stock will be entitled to a
minimum preferential quarterly dividend payment equal to the greater of (a) $.01
per share and (b) 100 times the dividend declared per ADIC Common Stock, if any.
In the event of dissolution, liquidation or winding up of the Company, whether
voluntary or involuntary, holders of Series A Preferred Stock will be entitled
to a minimum preferential payment per share equal to the greater of (y) $.01 per
share and (z) all accrued and unpaid dividends and distributions per share, plus
100 times the distribution to be made per ADIC Common Stock. Each share of
Series A Preferred Stock will entitle its holder to 100 votes, voting together
with the ADIC Common Stock. In addition, in the event of any merger, business
combination, consolidation or other transaction in which the outstanding shares
of ADIC Common Stock are exchanged, holders of the Series A Preferred Stock will
be entitled to receive per share 100 times the amount received per ADIC Common
Stock. Because of the nature of the dividend, liquidation and voting rights of
the Series A Preferred Stock, the value of the one one-hundredth (1/100th)
interest in a share of Series A Preferred Stock issuable upon exercise of each
Right should approximate the value of one share of ADIC Common Stock. Customary
antidilution provisions are designed to protect that relationship in the event
of certain changes in the ADIC Common Stock and the Series A Preferred Stock.
The Series A Preferred Stock may be issued in fractions which are an integral
multiple of one one-hundredth (1/100th) of a share of Series A Preferred Stock.
The Company may, but is not required to, issue fractional shares upon the
exercise of Rights and, in lieu of fractional shares, the Company may utilize a
depository arrangement as provided by the terms of the Series A Preferred Stock
and, in the case of fractions other than one one-hundredth (1/100th) of a share
of Series A Preferred Stock or integral multiples thereof, may make a cash
payment based on the market price of such shares.
The Rights have certain antitakeover effects. The Rights are designed to
cause substantial dilution to a person or group that attempts to acquire the
Company on terms not approved by the Board of Directors. The Company does not
believe that the Rights will interfere with any merger or other business
combination approved by the Board of Directors since the Rights may be redeemed
by the Company as described above. To the extent the Rights may discourage
potential acquirors from obtaining equity positions in the Company, shareholders
may be deprived of the opportunity to receive a premium for their shares of ADIC
Common Stock.
CERTAIN ANTITAKEOVER EFFECTS
The Articles of Incorporation and Bylaws of the Company include provisions
that may have the effect of impeding a hostile takeover of the Company. The
Articles of Incorporation and Bylaws provide for a classified Board of Directors
consisting of three classes of directors. The Articles of Incorporation and
Bylaws direct that special meetings of the Company's shareholders may be called
only by the Board of Directors, the Chairman of the Board or the President of
the Company or at the direction of 50% of the Company's shareholders, once the
Distribution has occurred. The Bylaws require that shareholder nominations for
directors to be elected to the Board of Directors be made pursuant to timely
notice and in proper written form to the Secretary of the Company. To be timely,
the shareholders' notice must be received by the Company not less than 60 or
more than 90 days prior to an annual meeting (or within 10 days of the mailing
by the Company of notice of the
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<PAGE> 54
date of the annual meeting if such Company notice is made less than 60 days
prior to the date of the annual meeting) and no more than seven days following
the date on which notice is given to shareholders if the election is to take
place at a special meeting. There are also specific content requirements for
such notice. Requests to present matters to the shareholders at an annual
meeting must also be received by the Company not less than 60 or more than 90
days prior to the meeting, and such requests must meet specific content
requirements.
The Articles of Incorporation also contain a provision requiring certain
business combinations to be approved by the affirmative vote of the holders of
not less than two-thirds of the outstanding shares of the Company entitled to
vote thereon. These business combinations require only the affirmative vote of
the holders of not less than a majority of the outstanding shares of the Company
if the business combination is otherwise required to be approved by the
Company's shareholders pursuant to the provisions of the Washington Business
Corporation Act (the "WBCA") or certain provisions of the Articles of
Incorporation and is approved by a majority of the Company's directors who were
members of the Board of Directors on the date of the closing of the Distribution
(the "Continuing Directors") or who were elected to the Board of Directors upon
the recommendation of a majority of the Continuing Directors, voting separately
and as a subclass of directors. These business combinations do not require
approval by the shareholders if the business combination is approved by a
majority of the Continuing Directors, voting separately and as a subclass of
directors, and if the business combination is not required to be approved by the
Company's shareholders pursuant to the provisions of the WBCA or certain
provisions of the Articles of Incorporation.
These provisions, the Shareholder Rights Plan, and the availability of
Preferred Stock for issuance without shareholder approval, may have the effect
of lengthening the time required for a person to acquire control of the Company
through a proxy contest or the election of a majority of the Board of Directors,
and may deter any potential unfriendly offers or other efforts to obtain control
of the Company, thereby possibly depriving the Company's shareholders of
opportunities to realize a premium for their ADIC Common Stock, and could make
removal of incumbent directors more difficult. At the same time, these
provisions may have the effect of inducing any persons seeking control of the
Company to negotiate terms acceptable to the Board of Directors.
Washington law imposes restrictions on certain transactions between a
corporation and certain significant shareholders. Chapter 23B.19 of the WBCA,
which applies to Washington corporations that have a class of voting stock
registered under the Exchange Act, prohibits a "target corporation," with
certain exceptions, from engaging in certain "significant business transactions"
with a person or group of persons which beneficially owns 10% or more of the
voting securities of the target corporation (an "Acquiror") for a period of five
years after such acquisition, unless the transaction or acquisition of shares is
approved by a majority of the members of the target corporation's board of
directors prior to the time of acquisition. Such prohibited transactions
include, among other things, a merger or consolidation with, disposition of
assets to, or issuance or redemption of stock to or from, the Acquiror,
termination of 5% or more of the employees of the target corporation as a result
of the Acquiror's acquisition of 10% or more of the shares or allowing the
Acquiror to receive any disproportionate benefit as a shareholder. After the
five-year period, a "significant business transaction" may take place as long as
it complies with certain "fair price" provisions of the statute. A corporation
may not "opt out" of this statute. This provision may have the effect of
delaying, deferring or preventing a change in control of the Company.
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<PAGE> 55
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material federal income tax
consequences of the Distribution to Interpoint, ADIC, and the shareholders of
Interpoint who are citizens of or residing in the United States. It does not
discuss all the tax consequences that may be relevant to Interpoint shareholders
because of their particular tax situation (such as insurance companies,
financial institutions, dealers in securities, tax-exempt organizations or
non-U.S. persons) or to Interpoint shareholders who acquired their shares of
Interpoint Common Stock pursuant to the exercise of employee stock options or
warrants, or otherwise as compensation. This summary also does not discuss tax
consequences to holders of outstanding Interpoint options.
Neither Interpoint nor ADIC has requested a ruling from the IRS with regard
to any of the federal income tax consequences of the Distribution. A condition
to the obligation of Interpoint to consummate the Distribution is that it
receive the opinion of Perkins Coie, special counsel to Interpoint, to the
effect that (i) the Distribution qualifies as a tax-free distribution described
in Section 355 of the Code and (ii) the Merger qualifies as a reorganization
described in Section 368(a) of the Code (the "Tax Opinion"). A condition to the
obligation of Crane to consummate the Merger is a similar opinion to be given by
Milbank, Tweed, Hadley & McCloy, special counsel to Crane. However, these
opinions of counsel will not be binding on the IRS or guarantee that the IRS
will not challenge the tax treatment of the Distribution or the Merger. In
addition, the Tax Opinion includes Perkins Coie's opinion with respect to the
accuracy of the tax consequences described herein.
The Distribution will not be a taxable transaction if it meets the
requirements of Section 355 of the Code, including, among others, that (i) there
is a business purpose for the Distribution independent of tax reasons, (ii) the
Distribution is not a device for the distribution of earnings and profits to the
Interpoint shareholders, (iii) after the Distribution, the Company and
Interpoint each continue to conduct a trade or business that has been actively
conducted for the five years preceding the Distribution and that was not
acquired in a taxable transaction, (iv) the Distribution results in a
distribution of control (within the meaning of Section 368(c) of the Code) of
ADIC, and (v) the historical shareholders of Interpoint continue to hold an
amount of stock establishing a continuity of interest in Interpoint and ADIC.
Business Purpose. Crane has represented that it would not agree to
consummate the Merger if ADIC or the ADIC business had to be acquired as a part
of the Merger. Interpoint has represented that a business purpose for the
Distribution is to eliminate an asset that Crane did not wish to acquire in the
Merger. Thus, the Distribution is necessary to facilitate the Merger. The IRS
has ruled in the past that a premerger spinoff designed to eliminate unwanted
assets of the target company for a post-spinoff merger constitutes a valid
business purpose. See Rev. Proc. 96-30, Appendix A, Section 2.07, 1996-19 I.R.B.
8 (May 6, 1996). Based on the representations of Crane and Interpoint, counsel
to Crane and to Interpoint and the Company will opine that the business purpose
requirement for the Distribution will be met.
No Device. In general, a sale or exchange of the stock of Interpoint or
ADIC after the Distribution would be evidence that the Distribution was a device
for the distribution of the earnings and profits of Interpoint in violation of
the requirements of Section 355 of the Code. The Merger results in an exchange
of Interpoint Common Stock for Crane common stock. However, the regulations
under Section 355 indicate that the exchange of stock pursuant to a plan of
reorganization under Section 368(a) of the Code in which either no gain or loss
or only an insubstantial amount of gain is recognized on the exchange will not
be treated as a subsequent sale or exchange. Treas. Reg.
sec. 1.355-2(d)(2)(iii)(E). Thus, the fact that the Interpoint shareholders
exchange their Interpoint Common Stock for Crane common stock pursuant to the
Merger will not result in a determination that the Distribution is a device for
the distribution of the earnings and profits of Interpoint if the Merger
qualifies as a reorganization and little or no gain is recognized in the Merger.
As indicated below, counsel to Crane and to Interpoint and the Company will
opine that the Merger is a reorganization under Section 368(a) and that no gain
or loss should be recognized with respect to the Merger except with respect to
cash paid in lieu of fractional shares and dissenting shares.
Five-Year Active Trade or Business. Under Section 355 of the Code, both
Interpoint and the Company must continue a business that has been conducted as
an active trade or business for at least five years prior to the Distribution
and that was not acquired by Interpoint or ADIC in a taxable purchase of stock
or assets.
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<PAGE> 56
Interpoint has represented that Interpoint and ADIC each will continue a
business after the effective time of the Distribution that has been actively
conducted by Interpoint and ADIC, respectively, for at least five years and that
the business was not acquired in any taxable acquisition of stock or assets
during the past five years. Based on that representation, counsel to Interpoint
and to Crane will opine that the active trade or business test will be met.
Continuity of Shareholder Interest. To qualify under Section 355 of the
Code, historical shareholders of Interpoint must retain a continuity of interest
in both Interpoint and ADIC after the Distribution. Although the shareholders of
Interpoint will not continue to hold Interpoint shares after the Merger, the
courts have held that the continuity of interest test nonetheless can be met if
those shareholders retain a continuing interest in the surviving corporation in
the merger. See Commissioner v. Morris Trust, 367 F.2d 794 (4th Cir. 1966); Rev.
Rul. 75-406, 1975-2 C.B. 125. Certain significant shareholders will be asked to
represent, and counsel to Interpoint and to Crane have assumed, that those
shareholders do not have any plan as of the effective time of the Merger to
dispose of their interest in ADIC or Crane following the Effective Time of the
Merger. Interpoint and Crane have represented they are not aware of any plan
that would result in the historical shareholders of Interpoint and Crane
retaining less than a 50% continuing interest in ADIC and Crane after the
Effective Time. The IRS has ruled that a 50% continuing interest satisfies the
continuity of interest requirement. Treas. Reg. sec. 1.355-2(c)(2), example 2.
Thus, the continuity of interest test should be met for both the Distribution
and the Merger.
If the Distribution meets the requirements under Section 355 of the Code,
the shareholders of Interpoint will recognize no gain or loss for federal income
tax purposes. The aggregate basis of Interpoint Common Stock and ADIC Common
Stock (including any fractional share interest) in the hands of each Interpoint
shareholder after the Distribution will be the same as the basis of the
Interpoint Common Stock held immediately before the Distribution, allocated in
proportion to the fair market value of the respective stock in the Company and
Interpoint. The holding period of the ADIC Common Stock (including any
fractional share interest) received by each Interpoint shareholder will include
the holding period of the Interpoint Common Stock with respect to which the
Distribution will be made, provided that such Interpoint Common Stock is held as
a capital asset on the Distribution Record Date.
If any of the requirements were not met, the Distribution would not qualify
as a tax-free transaction under Section 355. In that event, Interpoint would
recognize any gain or loss as if it had sold the ADIC Common Stock, and the
Interpoint shareholders would be taxed as if they had received the ADIC Common
Stock as a dividend distribution with respect to their Interpoint Common Stock.
The Tax Opinion will be based on the assumptions that (i) representations
made as of the effective time of the Merger and the Distribution by Interpoint,
ADIC, Acquisition Corp. and certain significant shareholders of Interpoint are
accurate, (ii) the Merger will qualify as a merger under applicable state law,
(iii) the Merger and the Distribution and related transactions will occur as
described in the Merger Agreement, and (iv) all parties to the Merger Agreement
will comply with their covenants contained in the Merger Agreement. The Tax
Opinion will be based on the law in effect at the time of the Distribution. Any
changes in tax law enacted after the date hereof could affect the ability of
Perkins Coie to issue the Tax Opinion. In particular, the Clinton administration
has proposed legislation as part of the Revenue Reconciliation Act of 1996 that
would treat a spin-off as taxable to the distributing corporation (but not the
shareholders of the distributing corporation) if the shareholders of the
distributing corporation did not retain for a two-year period following the
spin-off a 50% or greater interest in the distributing corporation and any
successor thereto. See Section 9522 of the Revenue Reconciliation Act of 1996.
The proposal, if passed by Congress, in its present form, would be effective for
distributions occurring after March 19, 1996. Because the Interpoint
shareholders will not acquire a 50% or greater interest in Crane pursuant to the
Merger, the Clinton proposal would result in tax to Interpoint as a result of
the Distribution. It is uncertain whether this proposal will pass Congress or,
if passed, whether the proposed effective date will be adopted. On March 29,
1996, Senator William V. Roth, Jr., Chairman of the Senate Finance Committee,
and Congressman Bill Archer, Chairman of the Ways and Means Committee, issued a
statement indicating that the effective date of any such legislation would be
the date of congressional action on the bill and not the retroactive date
provided in the Clinton administration's proposal. A number of Democrats have
also endorsed that approach. Thus, it does not appear likely that this
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<PAGE> 57
proposal, if enacted in the future, would apply to the Distribution unless
Congress acted before the Distribution Date and did not adopt transition rules
excepting transactions such as the Distribution pursuant to agreements that were
executed prior to approval of the legislation, which also does not appear
likely. The Revenue Reconciliation Act of 1996 is in the form of a draft
administration proposal and has not yet been introduced as a bill in Congress.
No hearings are scheduled at this time with respect to the subject matter of the
proposal. Congress is scheduled to end its current session on October 4, 1996.
THE ABOVE SUMMARY DOES NOT PURPORT TO BE COMPLETE, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE TAX OPINION, A FORM OF WHICH IS INCLUDED AS EXHIBIT
8.1 TO THE REGISTRATION STATEMENT ON FORM 10, FILED WITH THE COMMISSION BY THE
COMPANY. INTERPOINT SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING
THE APPLICATION OF THE FOREGOING TO THEIR INDIVIDUAL CIRCUMSTANCES AND REGARDING
THE STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE RECEIPT OF ADIC COMMON
STOCK IN THE DISTRIBUTION.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws contain provisions indemnifying the Company's
directors and officers to the fullest extent permitted by law. The Company has
also entered into indemnity agreements pursuant to which it has agreed, among
other things, to indemnify its directors and executive officers against certain
liabilities. In addition, the Articles of Incorporation contain provisions
limiting the personal liability of directors to the Company or its shareholders
to the fullest extent permitted by law.
The Company has entered into an indemnification agreement with each of its
directors and executive officers in which the Company agrees to hold harmless
and indemnify the director or executive officer to the fullest extent permitted
by Washington law. The Company agrees to indemnify the director or executive
officer against any and all losses, claims, damages, liabilities or expenses
incurred in connection with any actual, pending or threatened action, suit,
claim or proceeding, whether civil, criminal, administrative or investigative
and whether formal or informal, in which the director or officer is, was or
becomes involved by reason of the fact that the director or officer is or was a
director, officer, employee or agent of the Company or that, being or having
been such a director, officer, employee or agent, he or she is or was serving at
the request of the Company as a director, officer, employee, trustee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan, whether
the basis of such proceeding is alleged action (or inaction) by the director or
officer in an official capacity or in any other capacity while serving as a
director, officer, employee, trustee or agent, other than an action, suit, claim
or proceeding instituted by or at the direction of the director or officer
unless such action, suit, claim or proceeding is or was authorized by the
Company's Board of Directors. No indemnity pursuant to the indemnification
agreements shall be provided by the Company (i) on account of any suit in which
a final, unappealable judgment is rendered against the director or officer for
an accounting of profits made from the purchase or sale by the director or
officer of securities of the Company in violation of the provisions of Section
16(b) of the Exchange Act; (ii) for damages that have been paid directly to the
director or officer by an insurance carrier under a policy of directors' and
officers' liability insurance maintained by the Company; (iii) on account of the
director's or officer's conduct which is finally adjudged to have been
intentional misconduct, a knowing violation of law or Section 23B.08.310 of the
WBCA or any successor provision of the statute, or a transaction from which the
director or officer derived benefit in money, property or services to which the
director or officer is not legally entitled; or (iv) if a final decision by a
court having jurisdiction in the matter shall determine that such
indemnification is not lawful.
The Company has purchased and maintains insurance on behalf of any person
who is or was a director or officer of the Company, or is or was a director or
officer serving at the request of the Company as a director, officer, employee,
trustee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit
plan, against any liability asserted against such person and incurred by him or
her in any such capacity, or arising out of his or her status as such, whether
or not the Company would have the power or obligation to indemnify such person
against such liability under the provisions of the Bylaws.
51
<PAGE> 58
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the ADIC Common Stock is ChaseMellon
Shareholder Services, L.L.C.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company has appointed Price Waterhouse LLP as the Company's independent
public accountants to audit the Company's consolidated financial statements as
of and for the fiscal year ending October 31, 1996. Price Waterhouse LLP has
audited the Company's financial statements for the fiscal years ended October
31, 1994 and 1995.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form 10 (the "Registration
Statement"), which shall include any amendments or supplements thereto under the
Exchange Act with respect to the shares of ADIC Common Stock being received by
Interpoint shareholders in the Distribution. This Information Statement does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedule thereto, to which reference is hereby made. Statements
made in this Information Statement as to the contents of any contract, agreement
or other document referred to herein are not necessarily complete. With respect
to each such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to such exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
The Registration Statement and the exhibits and schedule thereto filed by
the Company with the Commission may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the Regional Offices of the
Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such information can be obtained by mail from the Public Reference
Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the Commission maintains a World Wide Web site on
the Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission, including the Company.
Following the Distribution, the Company will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. Similarly, the Company will also be subject
to the proxy solicitation requirements of the Exchange Act and, accordingly,
will furnish audited consolidated financial statements to its shareholders in
connection with its annual meetings of shareholders. The Company intends to
furnish its shareholders with annual reports containing audited consolidated
financial statements and an opinion thereon expressed by independent auditors
and with quarterly reports for the first three quarters of each fiscal year
containing unaudited summary consolidated financial information.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS INFORMATION
STATEMENT OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN. ANY INFORMATION
OR REPRESENTATIONS WITH RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN OR THEREIN
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY INTERPOINT OR ADIC. THIS
INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS INFORMATION STATEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF INTERPOINT OR ADIC SINCE THE DATE HEREOF OR THAT THE INFORMATION IN
THIS INFORMATION STATEMENT OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
52
<PAGE> 59
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Price Waterhouse LLP....................................................... F-2
Report of KPMG Peat Marwick LLP...................................................... F-3
Consolidated Balance Sheets of the Company at July 31, 1996 (unaudited), October 31,
1995 and October 31, 1994.......................................................... F-4
Consolidated Statements of Operations for the nine months ended July 31, 1996 and
July 31, 1995 (unaudited), and for the years ended October 31, 1995, October 31,
1994 and September 30, 1993........................................................ F-5
Consolidated Statements of Changes in Shareholders' Equity for the period September
30, 1992 through October 31, 1995 and for the nine months ended July 31, 1996
(unaudited)........................................................................ F-6
Consolidated Statements of Cash Flows for the nine months ended July 31, 1996 and
July 31, 1995 (unaudited) and for the years ended October 31, 1995, October 31,
1994 and September 30, 1993........................................................ F-7
Notes to Consolidated Financial Statements........................................... F-8
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Interpoint Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a) on page R-2 present fairly, in all material respects,
the financial position of Advanced Digital Information Corporation (a wholly
owned subsidiary of Interpoint Corporation) and its subsidiary at October 31,
1995 and 1994, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Seattle, Washington
July 19, 1996
F-2
<PAGE> 61
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Interpoint Corporation:
We have audited the statements of operations, changes in shareholders'
equity and cash flows of Advanced Digital Information Corporation for the year
ended September 30, 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Advanced
Digital Information Corporation for the year ended September 30, 1993 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Seattle, Washington
November 9, 1993
F-3
<PAGE> 62
ADVANCED DIGITAL INFORMATION CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31, OCTOBER 31,
1996 1995 1994
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash............................................... $ 443,730 $ 623,838 $ 183,985
Accounts receivable, net........................... 10,866,757 5,816,171 4,133,148
Inventories, net................................... 7,498,948 5,383,931 2,769,906
Prepaid expenses and other......................... 207,708 227,449 182,105
Income taxes receivable............................ -- -- 161,344
Deferred income taxes.............................. 317,906 319,657 49,965
----------- ----------- ----------
Total current assets............................ 19,335,049 12,371,046 7,480,453
----------- ----------- ----------
Property, plant and equipment, at cost
Machinery and equipment............................ 2,421,188 1,933,090 1,373,318
Office equipment................................... 320,552 329,686 272,400
Leasehold improvements............................. 317,951 148,193 141,380
----------- ----------- ----------
3,059,691 2,410,969 1,787,098
Less: accumulated depreciation and amortization.... (1,622,977) (1,234,245) (928,018)
----------- ----------- ----------
Net property, plant and equipment............... 1,436,714 1,176,724 859,080
----------- ----------- ----------
Deferred income taxes................................ 45,089 46,009 58,956
----------- ----------- ----------
Other assets......................................... 451,716 349,251 311,357
----------- ----------- ----------
$21,268,568 $13,943,030 $ 8,709,846
=========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable................................... $ 5,078,077 $ 3,937,194 $ 2,493,167
Accrued liabilities................................ 1,610,473 980,725 831,344
Income taxes payable............................... 834,852 204,024 --
----------- ----------- ----------
Total current liabilities.................. 7,523,402 5,121,943 3,324,511
----------- ----------- ----------
Intercompany debt.................................... 8,441,287 5,434,309 2,357,891
----------- ----------- ----------
Commitments (Note 10)
Shareholders' equity
Common stock (1,000 shares authorized, issued and
outstanding; $.01 par value).................... 10 10 10
Additional paid-in capital......................... 701,742 701,742 701,742
Retained earnings.................................. 4,492,896 2,551,707 2,259,301
Cumulative translation adjustment.................. 109,231 133,319 66,391
----------- ----------- ----------
Total shareholders' equity................. 5,303,879 3,386,778 3,027,444
----------- ----------- ----------
$21,268,568 $13,943,030 $ 8,709,846
=========== =========== ==========
</TABLE>
See the accompanying notes to these consolidated financial statements.
F-4
<PAGE> 63
ADVANCED DIGITAL INFORMATION CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED NINE MONTHS YEAR ENDED YEAR ENDED
ENDED JULY 31, OCTOBER 31, ENDED JULY 31, OCTOBER 31, SEPTEMBER 30,
1996 1995 1995 1994 1993
-------------- ----------- -------------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................... $ 39,571,341 $31,716,372 $ 20,968,952 $20,083,275 $ 17,108,522
Cost of sales................... 28,588,518 22,107,341 14,228,786 13,495,286 10,775,415
----------- ----------- ----------- ----------- -----------
Gross profit.................. 10,982,823 9,609,031 6,740,166 6,587,989 6,333,107
----------- ----------- ----------- ----------- -----------
Operating expenses
Selling and administrative.... 6,633,794 8,001,290 5,694,910 5,000,139 3,795,704
Research and development...... 1,047,546 1,097,090 719,341 1,037,255 879,042
Acquisition expense........... -- -- -- 590,000 --
----------- ----------- ----------- ----------- -----------
7,681,340 9,098,380 6,414,251 6,627,394 4,674,746
----------- ----------- ----------- ----------- -----------
Operating profit (loss)......... 3,301,483 510,651 325,915 (39,405) 1,658,361
----------- ----------- ----------- ----------- -----------
Other income (expense)
Interest expense, net......... (407,074) (277,451) (195,275) (133,787) (66,329)
Foreign currency transaction
gains (losses)............. 37,416 (18,476) 25,471 31,568 --
Other income.................. -- -- -- -- 509
----------- ----------- ----------- ----------- -----------
(369,658) (295,927) (169,804) (102,219) (65,820)
----------- ----------- ----------- ----------- -----------
Income (loss) before (provision)
benefit for income taxes...... 2,931,825 214,724 156,111 (141,624) 1,592,541
----------- ----------- ----------- ----------- -----------
(Provision) benefit for income
taxes:
Current....................... (990,636) (176,422) 13,872 183,832 (445,001)
Deferred...................... -- 254,104 -- (84,491) 137,018
----------- ----------- ----------- ----------- -----------
(990,636) 77,682 13,872 99,341 (307,983)
----------- ----------- ----------- ----------- -----------
Net income (loss)............... $ 1,941,189 $ 292,406 $ 169,983 $ (42,283) $ 1,284,558
=========== =========== =========== =========== ===========
Pro forma average number of
common and common equivalent
shares outstanding............ 8,158,000 8,010,000
Pro forma net income per
share......................... $ .24 $ .04
=========== ===========
</TABLE>
See the accompanying notes to these consolidated financial statements.
F-5
<PAGE> 64
ADVANCED DIGITAL INFORMATION CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
--------------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT TOTAL
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1992........................ 2,436,900 $ 24,369 $ 589,383 $ 909,841 $1,523,593
Net income.................... 1,284,558 1,284,558
---------- -------- -------- ---------- ----------
Balance at September 30,
1993........................ 2,436,900 24,369 589,383 2,194,399 2,808,151
Shares canceled in business
combination................. (2,436,900) (24,369) (24,369)
Shares issued in business
combination................. 1,000 10 24,359 24,369
Contribution of capital from
Interpoint.................. 88,000 88,000
Net loss...................... (42,283) (42,283)
Translation adjustment........ $ 66,391 66,391
ADIC net income October
1993........................ 107,185 107,185
---------- -------- -------- ---------- -------- ----------
Balance at October 31, 1994... 1,000 10 701,742 2,259,301 66,391 3,027,444
Net income.................... 292,406 292,406
Translation adjustment........ 66,928 66,928
---------- -------- -------- ---------- -------- ----------
Balance at October 31, 1995... 1,000 10 701,742 2,551,707 133,319 3,386,778
Net income (unaudited)........ 1,941,189 1,941,189
Translation adjustment
(unaudited)................. (24,088) (24,088)
---------- -------- -------- ---------- -------- ----------
Balance at July 31, 1996
(unaudited)................. 1,000 $ 10 $ 701,742 $4,492,896 $109,231 $5,303,879
========== ======== ======== ========== ======== ==========
</TABLE>
See the accompanying notes to these consolidated financial statements.
F-6
<PAGE> 65
ADVANCED DIGITAL INFORMATION CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JULY 31, OCTOBER 31, JULY 31, OCTOBER 31, SEPTEMBER 30,
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................... $ 1,941,189 $ 292,406 $ 169,983 $ (42,283) $ 1,284,558
Adjustments to reconcile net income
(loss) to net cash provided by (used
for) operating activities:
Depreciation and amortization........ 416,996 483,739 342,504 331,153 164,139
Deferred taxes....................... -- (254,104) -- 84,491 (137,018)
Assets retired....................... -- 2,156 2,156 (1,591) --
Change in assets and liabilities, net of
effects of purchase of ADE:
Accounts receivable.................. $(5,043,797) (1,662,846) (1,108,700) (1,731,167) (690,928)
Inventories.......................... (2,138,377) (2,563,452) (1,042,650) (151,951) (553,505)
Prepaid expenses..................... 16,882 (39,788) (45,776) 68,461 (122,215)
Income taxes receivable.............. -- 161,344 161,344 (161,344) --
Other assets......................... (135,413) (59,474) (32,042) (15,958) 3,982
Accounts payable..................... 1,152,337 1,418,558 343,365 472,649 589,886
Accrued liabilities.................. 639,391 122,416 166,701 (111,775) (45,739)
Income taxes payable................. 629,557 204,024 (7,632) (441,703) 364,486
----------- ----------- ----------- ----------- ---------
Net cash (used for) provided by operating
activities.............................. (2,521,235) (1,895,021) (1,050,747) (1,701,018) 857,646
----------- ----------- ----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and
equipment............................ (652,425) (756,935) (345,852) (450,702) (284,103)
Acquisition of ADIC Europe, net of cash
acquired............................. -- -- -- (493,553) --
----------- ----------- ----------- ----------- ---------
Net cash used in investing activities..... (652,425) (756,935) (345,852) (944,255) (284,103)
----------- ----------- ----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt............ -- -- -- (778,999) (257,149)
Net increase in intercompany loans...... 3,006,973 3,076,418 1,421,046 2,357,891 --
----------- ----------- ----------- ----------- ---------
Net cash provided by (used in) financing
activities.............................. 3,006,973 3,076,418 1,421,046 1,578,892 (257,149)
----------- ----------- ----------- ----------- ---------
Effect of exchange rate changes on cash... (13,421) 15,391 13,618 4,607 --
----------- ----------- ----------- ----------- ---------
Net (decrease) increase in cash........... (180,108) 439,853 38,065 (1,061,774) 316,394
Cash at beginning of period............... 623,838 183,985 183,985 1,080,708 764,314
Adjustment to conform fiscal year of ADIC
(see Note 1)............................ -- -- -- 165,051 --
----------- ----------- ----------- ----------- ---------
Cash at end of period..................... $ 443,730 $ 623,838 $ 222,050 $ 183,985 $ 1,080,708
=========== =========== =========== =========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (refunded) during the period
for:
Interest................................ $ 407,074 $ 277,451 $ 195,275 $ 142,027 $ 87,500
Income taxes............................ $ 400,000 $ (147,746) $ (105,023) $ 419,215 $ 80,515
</TABLE>
See the accompanying notes to these consolidated financial statements.
F-7
<PAGE> 66
ADVANCED DIGITAL INFORMATION CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Advanced Digital Information Corporation ("ADIC" or the "Company") designs,
manufactures and markets automated high performance data storage products used
to file or archive electronic data in conjunction with integrated computer
systems, including local area networks, workstations and other microcomputer
systems. The Company sells its products on an international basis to original
equipment manufacturers ("OEMs"), resellers and end users.
On February 11, 1994, the Company was acquired by Interpoint Corporation
("Interpoint") pursuant to an Agreement and Plan of Merger dated October 29,
1993, in which the Company was merged into a wholly owned subsidiary of
Interpoint. According to the terms of the merger agreement, each outstanding
share of common stock of ADIC was converted into .55 share of Interpoint common
stock. A total of 1,340,255 shares of Interpoint common stock were issued to
ADIC shareholders. The acquisition was accounted for as a pooling of interest in
accordance with Accounting Principles Board Opinion No. 16 "Business
Combinations."
In order to conform ADIC's year end of September 30 to Interpoint's year
end, ADIC's financial statements for the month of October 1993 are not included
in the statements of operations or cash flows for either fiscal 1993 or fiscal
1994. ADIC's net income from October 1993 has increased retained earnings.
Results of this month were as follows:
<TABLE>
<S> <C>
Net sales........................................................ $1,826,744
Gross profit..................................................... 673,861
Income before provision for income taxes......................... 162,402
Net income....................................................... 107,185
</TABLE>
The consolidated financial statements for all periods subsequent to
September 30, 1993 reflect the results of operations, financial position, and
cash flows of ADIC as a component of Interpoint and may not be indicative of
actual results of operations and financial position of the Company under other
ownership.
As further described in Note 12, on June 17, 1994, the Company completed
the purchase of substantially all the assets and liabilities of ADIC Europe
SARL, formerly known as GigaTrend Europe SARL, a manufacturer and integrator of
tape storage products for the computer network and workstation markets.
The consolidated statements of operations reflect certain expense items
incurred by Interpoint which are allocated to the Company on a basis which
management believes represents a reasonable allocation of such costs to present
ADIC as a stand-alone company. These allocations consist primarily of corporate
expenses such as executive and other compensation and interest expense on
intercompany borrowings. Compensation has been allocated based on an estimate of
Interpoint personnel time dedicated to the operations and management of ADIC.
Interest expense has been allocated based on Interpoint's borrowing rate and
actual intercompany borrowings. A summary of these allocations is as follows:
<TABLE>
<CAPTION>
CORPORATE INTEREST
PERIOD ENDED: EXPENSES EXPENSE
------------- --------- ---------
<S> <C> <C>
July 31, 1996 (unaudited)...................................... $ 146,250 $ 408,513
======== ========
October 31, 1995............................................... $ 175,400 $ 279,279
======== ========
July 31, 1995 (unaudited)...................................... $ 131,550 $ 197,557
======== ========
October 31, 1994............................................... $ 109,233 $ 77,915
======== ========
</TABLE>
F-8
<PAGE> 67
ADVANCED DIGITAL INFORMATION CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. DIVESTITURE OF ADIC
On July 1, 1996, Interpoint announced its plan to divest itself of ADIC
immediately preceding the sale of the remainder of its business to Crane Co., an
unrelated company. The sale of Interpoint to Crane Co. is subject to approval by
the shareholders of Interpoint at a special meeting, which is expected to take
place in October 1996. Significant terms of the divestiture include a
distribution of one share of ADIC common stock for each share of Interpoint
common stock held, forgiveness of the intercompany debt balance outstanding at
the date of divestiture and infusion of working capital.
As a result of the aforementioned divestiture, the Company believes that
the following pro forma financial information is important to enable the reader
to obtain a meaningful understanding of the Company's financial position and
results of operations. The pro forma financial statements are for informational
purposes only to illustrate the estimated effects of the spin-off of ADIC on a
stand-alone basis and may not necessarily reflect the future results of
operations of ADIC or what income or results of operations of ADIC would have
been had ADIC operated as a separate, independent company.
PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
JULY 31, 1996 OCTOBER 31, 1995
------------------------------------------- -------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... $39,571,341 $39,571,341 $31,716,372 $31,716,372
Cost of sales.................. 28,588,518 28,588,518 22,107,341 22,107,341
----------- ----------- ----------- -----------
Gross profit................. 10,982,823 10,982,823 9,609,031 9,609,031
----------- ----------- ----------- -----------
Operating expenses
Selling and administrative... 6,633,794 $ 288,000(a) 6,921,794 8,001,290 $ 384,000(a) 8,385,290
Research and development..... 1,047,546 1,047,546 1,097,090 1,097,090
----------- --------- ----------- ----------- ----------- -----------
7,681,340 288,000 7,969,340 9,098,380 384,000 9,482,380
----------- --------- ----------- ----------- ----------- -----------
Operating profit............... 3,301,483 (288,000) 3,013,483 510,651 (384,000) 126,651
----------- --------- ----------- ----------- ----------- -----------
Other income (expense)
Interest expense, net........ (407,074) 408,513(b) 1,439 (277,451) 279,278(b) 1,827
Foreign currency transaction
gains (losses)............. 37,416 37,416 (18,476) (18,476)
----------- --------- ----------- ----------- ----------- -----------
(369,658) 408,513 38,855 (295,927) 279,278 (16,649)
----------- --------- ----------- ----------- ----------- -----------
Income before (provision)
benefit for income taxes..... 2,931,825 120,513 3,052,338 214,724 (104,722) 110,002
(Provision) benefit for income
taxes........................ (990,636) (40,974)(c) (1,031,610) 77,682 35,605(c) 113,287
----------- --------- ----------- ----------- ----------- -----------
Net income..................... $ 1,941,189 $ 79,539 $ 2,020,728 $ 292,406 $ (69,117) $ 223,289
=========== ========= =========== =========== =========== ===========
Pro forma average number of
common and common equivalent
shares outstanding........... 8,158,000 8,158,000 8,010,000 8,010,000
=========== =========== =========== ===========
Pro forma income per share..... $ .24 $ .25 $ .04 $ .03
=========== =========== =========== ===========
</TABLE>
- ---------------
(a) Reflects the additional estimated costs expected to be incurred by ADIC on a
prospective basis, including the incremental costs associated with ADIC's
status as a public company such as audit fees, directors' and officers'
insurance, annual meetings, printing fees and directors' fees and additional
executive salaries. A portion of such costs are included in the historical
financial statements of ADIC.
F-9
<PAGE> 68
ADVANCED DIGITAL INFORMATION CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Reflects the decrease in interest expense resulting from the forgiveness of
intercompany debt in connection with the divestiture.
(c) Records the estimated income tax effect of the pro forma adjustments
described in footnotes (a) and (b).
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The financial statements consolidate the accounts of ADIC and its wholly
owned subsidiary ADIC Europe SARL ("ADE"). All intercompany transactions have
been eliminated.
Earnings per share
Given the Company's historical capital structure as a wholly owned
subsidiary of Interpoint and the changes therein to be effected by the spin-off
of the Company from Interpoint, historical earnings per share amounts are not
presented in the consolidated financial statements as they are not considered to
be meaningful.
Unaudited pro forma net income per share
As previously described, the Company will spin-off from Interpoint as part
of a series of transactions, which will include the sale of Interpoint's
remaining business as well as the spin-off of ADIC. It is anticipated that
Interpoint shareholders will receive one share of ADIC common stock for each
share of Interpoint stock held. Additionally, Interpoint stock options held by
employees of ADIC that were granted while the individuals were employees of ADIC
will be converted in part to cash and in part to ADIC stock options in
connection with the spin-off.
Unaudited pro forma net income per share for the nine months ended July 31,
1996 and for the year ended October 31, 1995 is calculated based on the number
of shares of Interpoint stock outstanding at June 30, 1996, plus the incremental
shares outstanding, as calculated under the treasury stock method, of the
estimated number of ADIC stock options that will be outstanding as a result of
the spin-off. Retroactive effect was given to the Interpoint two-for-one stock
split that became effective June 27, 1996.
Cash and cash equivalents
The Company considers short-term investments with maturities from the date
of purchase of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property, plant and equipment
Property, plant and equipment is recorded at cost. Depreciation and
amortization are computed on the straight-line method over the estimated useful
lives of the assets as follows: machinery and equipment, 3 to 10 years; office
equipment, 3 to 10 years; leasehold improvements, the life of the lease.
Income taxes
Provision for income taxes has been recorded in accordance with Statement
of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income
Taxes." Under the liability method of FAS 109, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax
F-10
<PAGE> 69
ADVANCED DIGITAL INFORMATION CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
bases of assets and liabilities and are measured using enacted tax rates and
laws that will be in effect when the differences are expected to be recovered or
settled.
For periods subsequent to September 30, 1993, the Company's operations have
been included in consolidated income tax returns filed by Interpoint. Income
taxes in the accompanying financial statements have been computed assuming the
Company filed separate income tax returns worldwide. Deferred taxes result
primarily from the use of accelerated depreciation for tax purposes and from the
timing of tax deductions for allowances and accrued expenses.
Foreign currency
The financial statements of the foreign subsidiary have been translated
into U.S. dollars in accordance with FASB Statement No. 52 "Foreign Currency
Translation." Under the provisions of this Statement, all assets and liabilities
in the balance sheets of ADE, whose functional currency is other than the U.S.
dollar, are translated at year-end exchange rates, and translation gains and
losses are accumulated in a separate component of shareholders' equity.
Foreign currency transaction gains and losses are a result of the effect of
exchange rate changes on transactions denominated in currencies other than the
functional currency, including U.S. dollars. Gains and losses on those foreign
currency transactions are included in determining net income or loss for the
period in which exchange rates change. The effect of exchange rate fluctuations
on the results of operations is minimized by the offsetting nature of ADE
foreign currency transactions.
Concentration of credit risk
The Company sells products to a wide variety of industries on a worldwide
basis. In countries or industries where the Company is exposed to material
credit risk, sufficient collateral, including cash deposits and/or letters of
credit, is required prior to the completion of a transaction. The Company does
not believe there is a material credit risk beyond that provided in the
financial statements in the ordinary course of business.
The Company sells a significant portion of its products through third-party
resellers and, as a result, experiences individually significant annual sales
volumes with major distributors. Approximately $5,151,000 (16%) and $4,329,000
(14%) of the Company's fiscal 1995 revenues were from one customer and a second
customer, respectively. The same two customers accounted for fiscal 1994 and
1993 revenues of $3,791,000 (19%) and $2,563,000 (13%), and $3,765,000 (22%) and
$1,740,000 (10%), respectively. For the nine-month periods ended July 31, 1996
and 1995 (unaudited), the same two customers accounted for revenues in the
aggregate of $8,286,000 (21%) and $8,221,000 (21%), and $3,067,000 (15%) and
$2,910,000 (14%), respectively.
Revenue recognition
Revenue from product sales is recorded by the Company when products are
shipped to customers. Certain distributors have the right, on a quarterly basis,
to return products according to a stock rotation policy. Typically, the value of
the products returned cannot exceed 15% of the previous quarter's purchases, the
returns must be accompanied by offsetting orders of commensurate value, and the
products returned must be new and in sealed cartons. The Company accrues a
provision for the estimated sales returns in the period the products are shipped
to customers.
Interim results
In the opinion of management, the interim financial statements and related
data included herein present fairly the consolidated balance sheets,
consolidated statements of operations, and consolidated statements of
F-11
<PAGE> 70
ADVANCED DIGITAL INFORMATION CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cash flows as of and for the periods presented, and reflect all normal recurring
adjustments which, in the opinion of management, are necessary for the fair
presentation of the results for the interim periods. The interim results of
operations are not necessarily indicative of results to be expected for a full
year. The consolidated balance sheet at July 31, 1996 is unaudited as are the
consolidated statements of operations and of cash flows for the nine-month
periods ended July 31, 1996 and 1995.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Estimates that are particularly susceptible to significant change in the
near term are the adequacy of the allowances for sales returns and warranty.
4. ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following:
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31, OCTOBER 31,
1996 1995 1994
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Trade receivables........................... $10,958,309 $ 5,869,626 $ 4,187,156
Less-allowance for doubtful accounts........ (91,552) (53,455) (54,008)
---------- ---------- ----------
$10,866,757 $ 5,816,171 $ 4,133,148
========== ========== ==========
</TABLE>
5. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31, OCTOBER 31,
1996 1995 1994
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Finished goods.............................. $ 3,993,218 $ 2,887,267 $ 1,871,890
Work-in-process............................. 1,372,670 885,397 252,671
Raw materials............................... 2,940,018 1,883,020 786,929
---------- ---------- ----------
8,305,906 5,655,684 2,911,490
Less allowance for inventory obsolescence... (806,958) (271,753) (141,584)
---------- ---------- ----------
$ 7,498,948 $ 5,383,931 $ 2,769,906
========== ========== ==========
</TABLE>
F-12
<PAGE> 71
ADVANCED DIGITAL INFORMATION CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF INTERPOINT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED LIABILITIES
Accrued liabilities are comprised of:
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31, OCTOBER 31,
1996 1995 1994
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll and related liabilities.......... $ 1,133,470 $ 631,420 $ 466,807
Allowance for warranty........................... 175,298 74,454 206,210
Other............................................ 301,705 274,851 158,327
---------- -------- --------
$ 1,610,473 $ 980,725 $ 831,344
========== ======== ========
</TABLE>
7. STOCK OPTIONS
In conjunction with the merger of the Company with Interpoint in 1994, all
options to purchase shares of the Company's common stock were converted to
options to purchase shares of Interpoint common stock. As a result, there are no
outstanding options to purchase common stock of the Company subsequent to the
business combination.
<TABLE>
<CAPTION>
OUTSTANDING
OPTIONS PRICE
----------- ---------
<S> <C> <C>
Balance at September 30, 1993................................. 219,000 $.41-2.53
Options canceled............................................ (2,500) 2.53
Options converted to Interpoint options..................... (216,500) .41-2.53
--------
Balance at October 31, 1994................................... 0 $ 0
========
</TABLE>
8. FEDERAL INCOME TAXES
Income before (provision) benefit for income taxes was taxed under the
following jurisdictions:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31, SEPTEMBER 30,
1995 1994 1993
----------- ----------- -------------
<S> <C> <C> <C>
Current income tax:
U.S. Federal...................................... $ (166,422) $ 188,832 $(445,001)
State and local................................... (10,000) (5,000) --
--------- -------- ---------
Total current..................................... (176,422) 183,832 (445,001)
--------- -------- ---------
Deferred income tax:
U.S. Federal...................................... 97,456 (16,908) 137,018
Foreign........................................... 156,648 (67,583) --
--------- -------- ---------
Total deferred.................................... 254,104 (84,491) 137,018
--------- -------- ---------
Total (provision) benefit for income taxes.......... $ 77,682 $ 99,341 $(307,983)
========= ======== =========
</TABLE>
F-13
<PAGE> 72
The provision for federal income tax differs from the amount computed by
applying the statutory federal income tax rate to income before provision for
income taxes for the following reasons:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31, SEPTEMBER 30,
1995 1994 1993
----------- ----------- -------------
<S> <C> <C> <C>
Federal income tax at statutory rate of 34%......... $ (73,006) $ 48,152 $(541,464)
Utilization of net operating loss
carryforward/removal of valuation allowance....... 139,326 61,373 254,209
Tax credits......................................... 44,874 21,255 --
Non-deductible acquisition expenses................. -- (20,740) --
Activity of foreign subsidiaries.................... (17,848) -- --
State income taxes.................................. (10,000) (5,000) --
Other............................................... (5,664) (5,699) (20,728)
-------- -------- ---------
$ 77,682 $ 99,341 $(307,983)
======== ======== =========
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at October 31, 1995 and 1994
are:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31,
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets:
Inventory.................................................. $ 188,326 $ 100,514
Team member benefits, primarily compensated absences....... 34,217 24,573
Net operating loss carryforwards........................... 97,114 140,000
Other...................................................... 50,986 63,933
-------- ---------
Gross deferred tax assets............................... 370,643 329,020
Deferred tax assets valuation allowance.................... -- (140,000)
-------- ---------
Net deferred tax assets................................. 370,643 189,020
-------- ---------
Deferred tax liabilities:
Plant and equipment, excess of tax depreciation over book
depreciation............................................ 4,977 4,977
Other...................................................... -- 75,122
-------- ---------
Gross deferred tax liabilities.......................... 4,977 80,099
-------- ---------
Net deferred tax asset.................................. $ 365,666 $ 108,921
======== =========
</TABLE>
At October 31, 1995, ADE had net operating loss carryforwards of
approximately $300,000, which are available to offset future ADE taxable income.
The October 31, 1994, deferred tax asset valuation allowance has been removed
based upon expectations of future ADE operating income.
Deferred U.S. income taxes are not provided for the earnings of the
Company's foreign subsidiary because the Company expects those earnings will be
permanently reinvested. Net pretax operating results from the foreign subsidiary
are losses of $51,000 for 1995 and income of $379,000 for 1994.
9. PROFIT INCENTIVE AND BONUS PLANS
Beginning in fiscal 1995, the Company's employees participate in
Interpoint's noncontributory profit incentive plan for key team members and a
noncontributory profit sharing plan for all regular full-time domestic team
members. These plans are generally based upon pretax profits.
The profit incentive plan allows the Company's Board of Directors to
provide up to 10% of the pretax profits, after a set minimum profitability is
achieved, for distribution to the plan's participants. The profit sharing plan
provides that 15% of pretax profits will be contributed to the plan up to a
maximum of one month's pay. Prior to 1995, ADIC team members had a separate plan
based on certain ADIC financial performance criteria. Profit incentive and
profit-sharing expenses related to ADIC team members have been
F-14
<PAGE> 73
reflected in the accompanying ADIC stand-alone financial statements.
Contributions to the plans were $123,000 and $70,000 for the years ended October
31, 1995 and September 30, 1993, respectively, and contributions for the nine
months ended July 31, 1996 and 1995 (unaudited) were $413,000 and $92,000,
respectively. There were no contributions during the year ended October 31,
1994.
10. COMMITMENTS
The Company leases production and operating facilities in Redmond,
Washington. Sales offices are leased at various sites in the United States and
Europe.
Minimum annual rental commitments at October 31, 1995, for noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, AMOUNT
----------- --------
<S> <C>
1996........................................... $329,000
1997........................................... 411,000
1998........................................... 415,000
1999........................................... 422,000
2000........................................... 428,000
</TABLE>
Rent expense aggregated $276,000 (unaudited) during the nine months ended
July 31, 1996, $253,000 in 1995, $258,000 in 1994, $180,000 (unaudited) during
the nine months ended July 31, 1995, and $139,000 in 1993.
11. GEOGRAPHIC SEGMENT INFORMATION
Major operations outside the United States are comprised of a subsidiary in
France. Certain information regarding operations in this geographic segment is
presented in the table below. Transfers between geographic segments are made at
arm's-length prices consistent with rules and regulations of governing tax
authorities. The profit on these transfers are not recognized until sales are
made to unaffiliated customers.
Excluded from U.S. net sales are transfers from the U.S. to ADE of
$2,925,000 and $376,000 in 1995 and 1994, respectively. Included in U.S. sales
are export sales to unaffiliated customers of $2,495,000, $2,006,000 and
$2,332,000 in 1995, 1994 and 1993, respectively.
Total international sales were $14,930,000, $5,508,000 and $2,332,000 in
1995, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31, SEPTEMBER 30,
1995 1994 1993
----------- ----------- -------------
<S> <C> <C> <C>
Net sales:
United States............................. $19,281,763 $16,581,272 $ 17,108,522
Europe.................................... 12,434,609 3,502,003 --
----------- ----------- -----------
$31,716,372 $20,083,275 $ 17,108,522
=========== =========== ===========
Operating profit:
United States............................. $ 432,601 $ (428,280) $ 1,658,361
Europe.................................... 78,050 388,875 --
----------- ----------- -----------
$ 510,651 $ (39,405) $ 1,658,361
=========== =========== ===========
Identifiable assets:
United States............................. $ 8,930,769 $ 5,726,646 $ 5,894,501
Europe.................................... 5,012,261 2,983,200 --
----------- ----------- -----------
$13,943,030 $ 8,709,846 $ 5,894,501
=========== =========== ===========
</TABLE>
F-15
<PAGE> 74
12. ACQUISITION OF ADIC EUROPE SARL
On June 17, 1994, the Company completed the acquisition of substantially
all the assets and liabilities of ADE, formerly known as GigaTrend Europe SARL,
a manufacturer and integrator of tape storage products for the computer network
and workstation markets. The acquisition was accounted for by the purchase
method of accounting in accordance with Accounting Principles Board Opinion No.
16, "Business Combinations" and, accordingly, the operating results from ADE
product sales have been included in the consolidated operating results since the
date of acquisition. The purchase price of the acquisition was $628,000 and was
comprised of cash and the Company's product totaling $540,000 plus stock of
$88,000. The purchase price was funded through a capital contribution and
intercompany debt from Interpoint. The fair value of the net assets acquired
approximated the purchase price and accordingly no goodwill was recorded. The
fair value of assets acquired, net of cash was $1,826,000, and the liabilities
assumed were $1,244,000.
Net sales and operating results relating to ADE products for the period
from June 17, 1994 through October 31, 1994 (post acquisition) amounted to
$3,502,003 and $311,700, respectively.
The following summary (unaudited), prepared on a pro forma basis, combines
the consolidated results of operations for the year ended October 31, 1994 as if
ADE had been acquired at November 1, 1993, after including the impact of certain
adjustments.
<TABLE>
<S> <C>
Net sales.................................. $ 22,833,000
Net loss................................... $ (435,000)
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire period
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from
consolidated operations.
F-16
<PAGE> 75
[Photograph of the Company's corporate headquarters
and list of headquarters and
sales office locations]
<PAGE> 76
[Company logo]
<PAGE> 77
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED OCTOBER 31, 1995 AND 1994 AND SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO BALANCE AT
OF YEAR INCOME DEDUCTIONS* OTHER END OF YEAR
---------- ---------- ---------- ------ -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
receivable:
1995................................ $ 54,008 $ 26,450 $ 27,003 $ 53,455
1994................................ 77,140 2,135 25,267 54,008
1993................................ 45,000 85,606 53,466 77,140
Allowance for inventory obsolescence:
1995................................ 141,584 199,000 68,831 271,753
1994................................ 271,339 234,686 364,441 141,584
1993................................ 136,507 335,570 200,738 271,339
</TABLE>
- ---------------
* Deductions represent amounts written off against the allowance, net of
recoveries.
<PAGE> 78
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
<C> <S> <C>
2.1 Form of Separation Agreement between ADIC and Interpoint Corporation...
3.1 Restated Articles of Incorporation of ADIC**...........................
3.2 Restated Bylaws of ADIC**..............................................
4.1 Form of Common Stock Certificate**.....................................
4.2 Rights Agreement, dated as of August 12, 1996, between ADIC and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent**............
4.3 Certificate of Designation of Rights and Preferences of Series A
Participating Cumulative Preferred Stock, incorporated by reference to
Exhibit A to Exhibit 4.2**.............................................
4.4 Form of Right Certificate, incorporated by reference to Exhibit B to
Exhibit 4.2**..........................................................
8.1 Form of Opinion of Perkins Coie........................................
10.1 Lease Agreement between K-M Properties and Advanced Digital Information
Corporation, dated as of May 11, 1995 (incorporated by reference to
Exhibit 10.3 of the Interpoint Corporation Annual Report on Form 10-K
for the fiscal year ended October 31, 1995)**..........................
10.2 Form of Tax Allocation Agreement between ADIC and Interpoint
Corporation............................................................
10.3 ADIC 1996 Stock Option Plan............................................
10.4 ADIC 1996 Transition Plan**............................................
11.1 Pro Forma Net Income Per Share**.......................................
21.1 Subsidiaries of the Registrant**.......................................
27.1 Financial Data Schedule**..............................................
</TABLE>
- ---------------
** previously filed
<PAGE> 1
Exhibit 2.1
SEPARATION AGREEMENT
This SEPARATION AGREEMENT (this "Agreement"), dated as of September
__, 1996, is made by and between INTERPOINT CORPORATION, a Washington
corporation ("Interpoint") and ADVANCED DIGITAL INFORMATION CORPORATION, a
wholly owned subsidiary of Interpoint and a Washington corporation ("ADIC").
RECITALS
A. Interpoint has entered into an Agreement and Plan of Merger
among Crane Co., a Delaware corporation ("Crane"), Crane Acquisition Corp., a
Washington corporation and a wholly owned subsidiary of Crane ("Acquisition
Sub"), and Interpoint dated as of July 1, 1996 (the "Merger Agreement"),
providing for the merger of Interpoint with Acquisition Sub. It is a condition
precedent to the closing of the Merger that Interpoint spinoff ADIC to
Interpoint shareholders.
B. The Board of Directors of Interpoint has determined that it is
appropriate and desirable to separate ADIC from Interpoint by distributing as a
dividend to the holders of shares of common stock, no par value per share, of
Interpoint (the "Interpoint Common Stock") immediately prior to the effective
time of the Merger all outstanding shares of common stock, no par value per
share, of ADIC (the "ADIC Common Stock").
C. Interpoint and ADIC have determined that it is necessary and
desirable to set forth the principal corporate transactions required to effect
such separation and dividend distribution and to set forth other agreements
that will govern certain other matters following such distribution. This
Agreement together with the Tax Allocation Agreement (as defined below)
constitute the "Spinoff Agreements" as such term is used in the Merger
Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have the following
meanings (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
Action: any action, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
ADIC 1996 Transition Plan: the ADIC 1996 Transition Plan to be
adopted by ADIC pursuant to which shares of ADIC Common Stock may be issued to
holders of Adjusted
<PAGE> 2
ADIC Options and which is expected to provide substantially identical benefits
to the Interpoint Stock Option Plans.
ADIC Business: the data storage business and any other businesses
conducted by ADIC or any ADIC Subsidiary in the past, at the date hereof or in
the future.
ADIC Employee: any individual employed (or retained as a consultant,
agent, advisor or independent contractor) by ADIC or any ADIC Subsidiary on,
before or following the Distribution Date, including Peter van Oppen, but only
during the time such individual was or is employed (or retained) by ADIC or a
ADIC Subsidiary.
ADIC Europe: ADIC Europe SARL, a wholly owned subsidiary of
Interpoint organized under the laws of France.
ADIC Holder: any holder of an Interpoint Stock Option who (i) is an
employee of ADIC or an ADIC Subsidiary, (ii) whose last employment prior to the
Distribution Date was with ADIC or an ADIC Subsidiary and (iii) any beneficiary
of any individual specified in clauses (i) or (ii) above.
ADIC Liabilities: collectively, (i) all the Liabilities of ADIC under
this Agreement, (ii) all the Liabilities, whenever arising (whether prior to,
on or following the Effective Time), arising out of or in connection with or
otherwise relating to the management or conduct of the ADIC Business, including
without limitation, the products made, sold or distributed by ADIC or any ADIC
Subsidiary prior to, on or following the Distribution Date, the former, present
or future assets of ADIC or any ADIC Subsidiary or the former, present or
future ADIC Employees (but only with respect to the time any such individual
was a ADIC Employee), and (iii) all the Liabilities arising out of or based
upon any untrue statement of material fact contained in the Information
Statement or in the portion of the Proxy Statement/Prospectus describing the
ADIC Business or otherwise relating to ADIC, or the omission or alleged
omission to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading, but excluding the first $10,000 of
Liabilities relating to the pending IRS audit of the ADIC 401(k) plan.
ADIC Subsidiary: ADIC Europe, ADIC International, any other Subsidiary
of ADIC on or before the Distribution Date, and any Subsidiary of ADIC which
may thereafter be organized or acquired.
Adjusted ADIC Option: an Interpoint Stock Option, adjusted as
provided in Section 3.03(a).
Adjusted Interpoint Option: an Interpoint Stock Option, adjusted as
provided in Section 3.03(a).
-2-
<PAGE> 3
Affiliate: as defined in Rule 12b-2 promulgated under the Exchange
Act, as such Rule is in effect on the date hereof.
Code: the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations promulgated thereunder, including any successor legislation.
Commission: the Securities and Exchange Commission.
Disclosure Letter: the Disclosure Letter delivered by Interpoint to
Crane pursuant to the Merger Agreement
Distribution: the distribution prior to the effective time of the
Merger on the Distribution Date to holders of record of shares of Interpoint
Common Stock as of that time of the shares of ADIC Common Stock owned by
Interpoint on the basis of one share of ADIC Common Stock for each outstanding
share of Interpoint Common Stock.
Distribution Agent: First Interstate, N.A., or other entity appointed
by Interpoint to distribute shares of ADIC Common Stock pursuant to the
Distribution.
Distribution Date: the date determined by Interpoint's Board of
Directors as of which the Distribution will be effected, which will be the date
on which the Merger is effective.
Distribution Record Date: the date determined by Interpoint's Board
of Directors as the record date for the Distribution, which will be the same
date as the Distribution Date.
Effective Time: the time on the Distribution Date when Interpoint
delivers to the Distribution Agent instructions directing the Distribution
Agent to effect the Distribution.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended, or any successor legislation.
Exchange Act: the Securities Exchange Act of 1934, as amended.
Indemnifiable Losses: any and all losses, Liabilities, claims,
damages, costs or expenses (including, without limitation, reasonable
attorney's fees and any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any Actions or threatened
Actions), but excluding any taxes covered by the Tax Allocation Agreement.
Information Statement: the information statement containing
information about ADIC and the ADIC Business to be distributed to Interpoint
shareholders in connection with the Distribution.
Insurance Proceeds: those monies (i) received by an insured from an
insurance carrier or (ii) paid by an insurance carrier on behalf of the
insured, in either case net of any
-3-
<PAGE> 4
applicable premium adjustment, retrospectively rated premium, deductible,
retention, cost or reserve paid or held by or for the benefit of such insured.
Insured Claims: those Liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of the Interpoint
Policies, whether or not subject to deductibles, co-insurance, uncollectability
or retrospectively rated premium adjustments, but only to the extent that such
Liabilities are within applicable policy limits, including aggregates.
Interpoint 401(k) Plan: the Interpoint Corporation Savings and
Investment Plan.
Interpoint Business: the custom microelectronics and power products
business and any other businesses conducted by Interpoint or any Interpoint
Subsidiary other than the ADIC Business, in the past, at the date hereof or in
the future.
Interpoint Employee: any individual employed (or retained as a
consultant, agent, advisor or independent contractor) by Interpoint (not
including any subsidiaries) or a Interpoint Subsidiary on, before or following
the Distribution Date, but only during the time such individual was or is
employed (or retained) by Interpoint (not including any subsidiaries) or a
Interpoint Subsidiary.
Interpoint Holder: any holder of an Interpoint Stock Option (i) who
is an employee at Interpoint or an Interpoint Subsidiary, (ii) whose last
employment prior to the Distribution Date was with Interpoint (not including
ADIC or any ADIC Subsidiary) or a Interpoint Subsidiary and (iii) any
beneficiary of any individual specified in clauses (i) and (ii) above.
Interpoint Liabilities: collectively, (i) all the Liabilities of
Interpoint under this Agreement, (ii) all the Liabilities, whenever arising
(whether prior to, on or following the Effective Time), arising out of or in
connection with or otherwise relating to the management or conduct of the
Interpoint Business, including, without limitation, the products made, sold or
distributed by any Interpoint Subsidiary prior to, on or following the
Distribution Date, the former, present or future assets of Interpoint or any
Interpoint Subsidiary (other than assets of ADIC or any ADIC Subsidiary) or the
former, present or future Interpoint Employees (but only with respect to the
time any such individual was a Interpoint Employee) and (iii) all the
Liabilities arising out of or based upon any untrue statement of material fact
contained in the Proxy Statement/Prospectus , or the omission or alleged
omission to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading, other than Liabilities arising out of or
based upon the incorporation of the Information Statement in the Proxy
Statement/Prospectus and the description of the ADIC Business or otherwise
relating to ADIC in the Proxy Statement/Prospectus.
Interpoint MIP Plan: the Interpoint Management Incentive Plan.
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Interpoint Policies: the following insurance policies, together with
the rights, benefits and privileges thereunder, which are owned or maintained
by or on behalf of Interpoint or any of its predecessors and which relate to
both the Interpoint Business and the ADIC Business: Package Policy (3530 38
09), Business Auto Policy (7319 14 03), Foreign Liability Policy (7317 62 81),
Umbrella Policy (7967 59 04) and Directors and Officers Liability Policy
(900DB0150).
Interpoint Profit Sharing Plan: the Interpoint Profit Sharing Plan
for the fiscal year ending October 31, 1996.
Interpoint Stock Option Plans: the Interpoint 1995 Stock Option and
Award Plan, 1985 Incentive Stock Option Plan, 1981 Amended Incentive Stock
Option Plan and Nonqualified Stock Option Plan.
Interpoint Stock Option: an option to purchase shares of Interpoint
Common Stock granted pursuant to any of the Interpoint Stock Option Plans.
Interpoint Subsidiary: any subsidiary of Interpoint on or before the
Distribution Date and any subsidiary of Interpoint which may thereafter be
organized or acquired, other than ADIC or any ADIC Subsidiary.
IRS: the Internal Revenue Service.
Liabilities: any and all debts, liabilities and obligations, absolute
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, including, without limitation,
those debts, liabilities and obligations arising under any law, rule,
regulation, Action, threatened Action, order or consent decree of any court,
any governmental or other regulatory or administrative agency or commission or
any award of any arbitration tribunal, and those arising under any contract,
commitment or undertaking, but excluding any taxes covered by the Tax
Allocation Agreement.
Merger: the merger of Acquisition Sub with and into Interpoint
pursuant to the Merger Agreement.
Nasdaq National Market: the National Association of Securities
Dealers, Inc., Nasdaq National Market.
New ADIC 401(k) Plan: a Qualified Plan to be sponsored or maintained
by ADIC which will provide benefits for ADIC Employees, including former ADIC
Employees, who, as of the Effective Time, are participants in or otherwise
entitled to benefits under the Interpoint 401(k) Plan and which is expected to
provide substantially identical benefits to the Interpoint 401(k) Plan.
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Opinions: the opinions of Perkins Coie and Milbank, Tweed, Hadley and
McCloy, counsel to Interpoint and Crane, respectively, as to certain tax
aspects of the Distribution.
Option Cash Out Program: the program to cash out certain Interpoint
Stock Options described in Section 3.03.
Plan: any plan, policy, arrangement or contract providing benefits
for any group of employees or former employees or individual employee or former
employee, or the beneficiary or beneficiaries of any such employee or former
employee, whether formal or informal, written or unwritten and whether or not
legally binding, including, without limitation, any means, whether or not
legally required, pursuant to which any benefit is provided by an employer or
any employee or former employee to the beneficiary or beneficiaries of any such
employee or former employee.
Proxy Statement/Prospectus: the proxy statement/prospectus to be sent
to the holders of shares of Interpoint Common Stock in connection with the
Special Meeting of Shareholders of Interpoint to be held to vote on the
approval of the Merger Agreement.
Qualified Plan: a Plan which is an employee pension benefit plan
(within the meaning of Section 3(2) of ERISA) and which constitutes or is
intended in good faith to constitute a qualified plan under Section 401(a) of
the Code, including, without limitation, the Interpoint 401(k) Plan.
Securities Act: the Securities Act of 1933, as amended.
Subsidiary: any entity at least 51% of the total outstanding voting
interests of which are owned, directly or indirectly, by another entity.
Tax Allocation Agreement: the Tax Allocation Agreement dated as of
the date of this Agreement between Interpoint and ADIC.
Welfare Plan: any Plan, including, without limitation, the Plans
listed on Addendum A to Section 3.13 of the Disclosure Letter delivered by
Interpoint pursuant to the Merger Agreement, which is not a Qualified Plan and
which provides medical, health, disability, accident, life insurance, death,
dental, severance or any other welfare benefit within the meaning of Section
3(1) of ERISA.
References to an "Exhibit" or to a "Schedule" are, unless otherwise
specified, to one of the Exhibits or Schedules attached to this Agreement, and
references to a "Section" are, unless otherwise specified, to one of the
Sections of this Agreement.
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ARTICLE II
DISTRIBUTION AND RELATED TRANSACTIONS
2.01 INTERPOINT BOARD ACTION
The Board of Directors of Interpoint shall, in its discretion,
establish the Distribution Record Date and the Distribution Date and any
procedures necessary or appropriate to effect the Distribution. Such action
shall not create any obligation on the part of Interpoint to effect the
Distribution or in any way limit Interpoint's power of termination set forth in
Section 7.07 or alter the consequences of any such termination from those
specified in such Section.
2.02 THE DISTRIBUTION
Immediately prior to the Effective Time on the Distribution Date, ADIC
shall issue to Interpoint as a stock dividend a number of shares of ADIC Common
Stock such that, at the Effective Time, Interpoint will own that number of
shares of ADIC Common Stock equal to the number of shares of Interpoint Common
Stock outstanding at the Effective Time. At the Effective Time, subject to the
conditions and rights of termination set forth in this Agreement, Interpoint
shall deliver to the Distribution Agent a share certificate representing all
the then outstanding shares of ADIC Common Stock and shall deliver to the
Distribution Agent instructions to distribute, on or as soon as practicable
following the Distribution Date, one share of ADIC Common Stock for each share
of Interpoint Common Stock held by holders of record of shares of Interpoint
Common Stock on the Distribution Record Date. ADIC shall provide all share
certificates that the Distribution Agent requires in order to effect the
Distribution. The Distribution will, for all purposes, be deemed to have been
effected at the time Interpoint delivers such instructions to the Distribution
Agent.
2.03 ELIMINATION OF INTERCOMPANY ACCOUNTS
The net amounts of all intercompany receivables, payables and
indebtedness between ADIC or any ADIC Subsidiary, on the one hand, and
Interpoint or any Interpoint Subsidiary, on the other hand as of the Effective
Time, will be satisfied in full by dividend or capital contribution, as
appropriate, and without the need for any further documentation, prior to the
vote by Interpoint shareholders on the Merger Agreement.
2.04 TRANSFER OF ASSETS
Prior to the vote by Interpoint shareholders on the Merger Agreement,
Interpoint shall transfer to ADIC all of its interest in ADIC Europe and in
Visual Technologies, Limited.
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2.05 ASSUMPTION AND SATISFACTION OF LIABILITIES
Except as otherwise set forth herein, from and after the Effective
Time, (a) Interpoint shall, and shall cause the Interpoint Subsidiaries to
assume and pay, perform or discharge in due course all Interpoint Liabilities
and (b) ADIC shall, and shall cause the ADIC Subsidiaries to, assume and pay,
perform or discharge in due course all the ADIC Liabilities.
2.06 RESIGNATIONS
Interpoint shall use its best efforts to cause all Interpoint
Employees, except for Peter van Oppen, to resign, effective as of the Effective
Time, from all positions as officers or directors of ADIC or as officers or
directors of any ADIC Subsidiary in which they serve. ADIC shall use its best
efforts to cause all ADIC Employees to resign, effective as of the Effective
Time, from all positions as directors or officers of Interpoint or any
Interpoint Subsidiary in which they serve.
2.07 FURTHER ASSURANCES
In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement or to vest
Interpoint or ADIC with full title to all properties, assets, rights,
approvals, immunities and franchises pertaining to the Interpoint Business or
the ADIC Business, as the case may be, the proper officers and each party to
this Agreement shall take all such necessary action. Without limiting the
foregoing, Interpoint and the Interpoint Subsidiaries and ADIC and the ADIC
Subsidiaries shall use their best efforts to obtain all consents and approvals,
to enter into all amendatory agreements and to make all filings and
applications and take all other actions which may be required for the
consummation of the transactions contemplated by this Agreement, including,
without limitation, all applicable regulatory filings.
2.08 NO REPRESENTATIONS OR WARRANTIES
Each of the parties hereto understands and agrees that no party hereto
is, in this Agreement or in any other agreement or document contemplated by
this Agreement or otherwise, making any representation or warranty whatsoever,
including, without limitation, as to title, value or legal sufficiency.
2.09 GUARANTEES
Except as otherwise provided in Article III hereof with respect to
employee benefit matters, Interpoint and ADIC shall each use their best efforts
to have, on or prior to the Distribution Date, or as soon as practicable
thereafter, Interpoint or any Interpoint Subsidiary removed as guarantor of or
obligor for indebtedness or obligations for which ADIC or any ADIC Subsidiary
is primarily liable and ADIC or any ADIC Subsidiary removed as guarantor of or
obligor for indebtedness or obligations for which Interpoint or any Interpoint
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Subsidiary is primarily liable. Without limiting the generality of the
foregoing, Interpoint shall use its best efforts to have the assets of ADIC and
any ADIC Subsidiary released as collateral under Interpoint's bank line of
credit and ADIC shall use its best efforts to have Interpoint released as a
guarantor of the lease relating to ADIC's principal office. Interpoint shall
indemnify, defend and hold harmless ADIC from and against any and all
Liabilities of ADIC arising from a guarantee or other obligation of ADIC in
respect of indebtedness or obligations for which Interpoint (or any Interpoint
Subsidiary) is primarily liable. ADIC shall indemnify and hold harmless
Interpoint from and against any and all Liabilities of Interpoint arising from
a guarantee or other obligation of Interpoint in respect of indebtedness or
obligations for which ADIC (or any ADIC Subsidiary) is primarily liable.
2.10 LITIGATION
(a) With respect to all Actions now pending or which may hereafter
be commenced or threatened which may result in an Interpoint Liability,
Interpoint and ADIC shall each use their best efforts to have Interpoint or an
Interpoint Subsidiary substituted as parties to such Action in the place of and
for ADIC, any ADIC Subsidiary or any ADIC Employee and to have ADIC, any ADIC
Subsidiary and any ADIC Employee removed as parties to such Action following
the Distribution Date.
(b) With respect to all Actions now pending or which may hereafter
be commenced or threatened which may result in a ADIC Liability, Interpoint and
ADIC shall each use their best efforts to have ADIC or an ADIC Subsidiary
substituted as parties to such Action in the place of and for Interpoint, any
Interpoint Subsidiary or any Interpoint Employee and to have Interpoint, any
Interpoint Subsidiary and any Interpoint Employee removed as parties to such
Action following the Distribution Date.
(c) At all times from and after the Distribution Date, each of
ADIC and Interpoint shall use reasonable efforts to make available to the other
upon written request its and its Subsidiaries' officers, directors, employees
and agents as witnesses to the extent that such persons may reasonably be
required in connection with any Actions in which the requesting party may from
time to time be involved (without reimbursement for such persons' salaries).
(d) The provisions of this Section 2.10 shall be in addition to,
and not in limitation of, the provisions of Article V, and compliance with the
provisions of this Section 2.10 shall not affect the obligations of the parties
under Article V.
2.11 COMPLIANCE WITH TAX OPINIONS REPRESENTATIONS
Interpoint shall, and shall cause each Interpoint Subsidiary to,
comply with each representation and statement made, or to be made, in writing
to Perkins Coie and Milbank, Tweed, Hadley & McCloy in connection with the
Opinions. ADIC shall, and shall cause each ADIC Subsidiary to, comply with
each representation and statement made, or to be made, in writing to Perkins
Coie and Milbank, Tweed, Hadley & McCloy in connection with
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the Opinions. Interpoint represents and warrants to ADIC, and ADIC represents
and warrants to Interpoint, that it has no present intention to take any action
inconsistent with the representations and statements referred to in this
Section 2.11.
2.12 PUBLICITY
Any existing printed material implicitly or explicitly showing any
affiliation or connection between Interpoint and ADIC as of the date such
material is used may be used by Interpoint and ADIC only for a period ending
six months after the Distribution Date. After the Distribution Date, neither
party hereto shall otherwise represent to third parties that it has a present
business affiliation with the other.
2.13 PARKING
For so long as Interpoint and ADIC are utilizing the facilities
located at 10301 Willows Road and 10201 Willows Road, respectively, Interpoint
agrees to allow ADIC Employees, and ADIC agrees to allow Interpoint Employees,
to utilize excess employee parking capacity at such facilities. The agreement
contained in this Section 2.13 is subject to the availability of such excess
parking capacity and may be terminated at any time by Interpoint or ADIC if
there is no excess parking capacity at the applicable facility. Any claims or
other liabilities relating to the use of such excess parking capacity at ADIC
by Interpoint Employees, or at Interpoint by ADIC Employees, as the case may
be, constitute Interpoint Liabilities and ADIC Liabilities, respectively, and
are subject to the provisions of Article 5 of this Agreement.
ARTICLE III
EMPLOYEE BENEFITS
3.01 401(K) PLAN
(a) As soon as practicable after the date hereof and effective as
of the Effective Time, ADIC shall take, or cause to be taken, all action
necessary and appropriate to establish and administer the New ADIC 401(k) Plan,
which will be a Qualified Plan, and to provide benefits thereunder for all ADIC
Employees, including former ADIC Employees, who, as of the Effective Time, were
participants in or otherwise entitled to benefits under the Interpoint 401(k)
Plan. ADIC agrees that each such ADIC Employee will be, to the extent
applicable, entitled, for all purposes under the new ADIC 40l(k) Plan, to be
credited with the term of service credited to such ADIC Employee as of the
Effective Time under the terms of the Interpoint 401(k) Plan.
(b) Interpoint agrees to prepare and provide to ADIC, as soon as
practicable after the Effective Time, a list of the ADIC Employees, including
former ADIC Employees, who were participants in or otherwise entitled to
benefits under the Interpoint 401(k) Plan as of
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the Effective Time, together with a listing of each such ADIC Employee's term
of service for eligibility and vesting purposes under such Plan and a listing
of each such ADIC Employee's "Estimated Account Balance" thereunder. An ADIC
Employee's "Estimated Account Balance" is his or her account balances under the
Interpoint 401(k) Plan as of the last day of the quarter immediately preceding
the quarter in which the Distribution occurs plus employee salary deferral
contributions, loan payments, employer matching contributions and any other
contributions made to the Interpoint 401(k) Plan by or on behalf of such ADIC
Employee during the quarter in which the Distribution occurs, less any
withdrawals or new loans made from such accounts during such quarter, plus
estimated earnings allocable to such accounts for such quarter. Interpoint and
ADIC agree to provide one another with such additional information in the
possession of one company and not already in the possession of the other as may
be reasonably requested by either of them and necessary in order for ADIC to
establish and administer effectively the New ADIC 401(k) Plan. For purposes of
this Section 3.01, "quarter" means any of the three month periods ending on the
last day of August, November, February or May.
(c) Interpoint agrees to direct the trustee of the trust funding
the Interpoint 401(k) Plan to transfer, on the first business day of the
quarter commencing after the quarter in which the Distribution occurs, to the
trustee or other funding agent of the New ADIC 401(k) Plan, an amount equal to
the total Estimated Account Balances of all ADIC Employees, including former
ADIC Employees. As soon as administratively practicable after the
reconciliation of the Interpoint 401(k) Plan trust to participant accounts for
the quarter in which the Distribution occurs has been completed by the
recordkeeper of the Interpoint 401(k) Plan, Interpoint shall direct the trustee
of that trust to transfer any amounts remaining in the Interpoint 401(k) Plan
accounts of ADIC Employees, including former ADIC Employees, to the trustee or
other funding agent of the New ADIC 401(k) Plan and shall provide ADIC with a
listing of the account balances of each ADIC Employee, including each former
ADIC Employee, under the Interpoint 401(k) Plan as of the last day of the
quarter in which the Distribution occurs. ADIC agrees that, following such
transfer, each ADIC Employee on whose behalf assets were transferred will be
credited with an account balance under the New ADIC 401(k) Plan equal to the
amount transferred from the Interpoint 401(k) Plan to the New ADIC 401(k) Plan
on behalf of such ADIC Employee (adjusted, as necessary, for any investment
gains or losses incurred (and for any other transaction occurring) with respect
to such account under the New ADIC 401(k) Plan from the date of the initial
transfer of assets through the date of the final transfer of assets to the New
ADIC 401(k) Plan from the Interpoint 401(k) Plan).
(d) Interpoint and ADIC shall, in connection with the transfers
described in this Section 3.01, cooperate in making any and all appropriate
filings required under the Code or ERISA, and the regulations thereunder, and
any applicable securities laws, and take all such action as may be necessary
and appropriate to cause such transfers to take place at the times specified in
this Section 3.01.
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(e) Except for liabilities and obligations arising under ERISA or
the Code (including, but not limited to, Sections 409, 502(i) and 502(l) of
ERISA and Sections 4972 and 4975 of the Code) with respect to events, actions
or inactions occurring prior to the final transfer referred to in Section
3.01(c) (other than liabilities and obligations relating to events, actions or
inactions occurring with respect to the Advanced Digital Information
Corporation 401(k) Retirement Plan prior to the June 8, 1996 transfer of such
plan's assets to the Interpoint 401(k) Plan) and the first $10,000 of
liabilities and obligations arising out of, related to or in any way connected
with the pending IRS audit of the ADIC 401(k) plan disclosed in the Disclosure
Letter, after the final transfer referred to in Section 3.01(c) occurs,
Interpoint and the Interpoint Subsidiaries shall cease to have any liability
or obligation whatsoever with respect to ADIC Employees under the Interpoint
401(k) Plan, and ADIC shall assume or retain, as the case may be, and shall be
solely responsible for, all liabilities and obligations whatsoever with respect
to ADIC Employees under the Interpoint 401(k) Plan and shall be solely
responsible for all liabilities or obligations whatsoever under the New ADIC
401(k) Plan; provided, however, that if as a result of the IRS audit disclosed
in the Disclosure Letter, the IRS requires that any action(s) be taken with
respect to the ADIC Employees' account balances transferred to the New ADIC
401(k) Plan from the Interpoint 401(k) Plan to retain the Interpoint 401(k)
Plan's and/or the New ADIC 401(k) Plan's tax-qualified status, then Interpoint
will take (or will direct the trustee of the Interpoint 401(k) Plan to take)
such action(s) with respect to the Interpoint 401(k) Plan and ADIC will direct
the trustee of the New ADIC 401(k) Plan to make such distributions from ADIC
Employees' account balances under the New ADIC 401(k) Plan as the IRS may
require to retain the Interpoint 401(k) Plan's and the New ADIC 401(k) Plan's
tax-qualified status with respect to the account balances transferred to the
New ADIC 401(k) Plan from the Interpoint 401(k) Plan. ADIC shall either be
responsible for or make all required contributions, no later than the later of
the Effective Time and the date such contributions are legally required to be
made, in respect of ADIC Employees with respect to the Interpoint 401(k) Plan
to the extent not previously made.
3.02 WELFARE PLANS
(a) Interpoint and the Interpoint Subsidiaries shall assume or
retain all Liabilities and obligations whatsoever for benefits of Interpoint
Employees and their spouses and dependents under any Welfare Plan. Except as
provided in Section 3.02(b), as of the Effective Time or as soon thereafter as
may be agreed upon by Interpoint, ADIC and the applicable insurance carriers,
but no later than December 31, 1996, ADIC shall cease to co-sponsor any Welfare
Plans with Interpoint or any Interpoint Subsidiary; provided, however, that
ADIC Employees and their spouses and dependents participating in Interpoint
Welfare Plans co-sponsored by ADIC or an ADIC Subsidiary shall remain entitled
to benefits under (and in accordance with the terms of) such Welfare Plans for
covered expenses incurred and benefits accrued prior to the time at which their
participation in such Welfare Plans ceases. With respect to the insured
medical and dental plan(s) co-sponsored by Interpoint and ADIC for eligible
employees and their spouses and dependents, ADIC agrees to pay after the
Effective Time any premiums and claims runoff for ADIC employees and their
spouses and dependents and any claims of such persons that are not otherwise
paid by the insurer of such plans for covered services incurred by such persons
through the date ADIC's participation in such plan ceases (whether such
services were incurred before or after the Effective Time); provided, however,
that Interpoint shall at the Effective Time transfer to ADIC a reserve with
respect to such claims equal to 16% of the reserve on Interpoint's books at the
Effective Time for claims under the insured medical and dental plan(s)
co-sponsored by Interpoint and ADIC.
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ADIC shall also be responsible for providing COBRA coverage under Code Section
4980B for former ADIC Employees and their covered dependents who are entitled to
COBRA coverage on and after the date ADIC ceases to co-sponsor the Interpoint
medical and dental plan(s). ADIC shall also be liable for any retiree medical
coverage liabilities to retired ADIC Employees and their spouses and dependents,
and for any severance benefits payable to any ADIC Employee under a severance
pay plan or policy.
(b) Interpoint shall permit ADIC and any ADIC Subsidiaries to
co-sponsor any Interpoint Welfare Plan(s) (except for any severance pay plan)
for such period following the Effective Time as may be agreed upon by
Interpoint, ADIC and the applicable insurance carriers, but not later than
December 31, 1996; provided that ADIC and any ADIC Subsidiaries shall pay the
costs associated with such co-sponsorship for ADIC Employees and their spouses
and dependents on the same basis as Interpoint pays the costs associated with
such co-sponsorship for Interpoint Employees and their spouses and dependents.
3.03 STOCK OPTION PLANS
(a) Interpoint shall take, or cause to be taken, all actions
necessary and appropriate to effect the Option Cash Out Program, pursuant to
which (i) each Interpoint Stock Option held by an Interpoint Holder will be
cancelled and in exchange therefor the Interpoint Holder will receive a cash
payment equal to the difference between the exercise price of such option and
the average of the high and low sale prices of the Interpoint Common Stock on
each of the 10 trading days prior to (but not including the date of) the
Effective Time (the "Interpoint Average Stock Price") and (ii) each Interpoint
Stock Option held by an ADIC Holder will be adjusted by Interpoint so as to
represent two separate options, one to purchase Interpoint Common Stock and the
other to purchase ADIC Common Stock (an "Adjusted Interpoint Option" and an
"Adjusted ADIC Option," respectively). Each Adjusted Interpoint Option will be
cancelled and in exchange therefor the ADIC Holder will receive a cash payment
equal to the difference between (1) the exercise price of such Adjusted
Interpoint Option (determined as described below) and (2) the Aggregate Share
Distribution Amount (as defined in the Merger Agreement) divided by the number
of shares of Interpoint Common Stock outstanding immediately prior to the
Merger. Each Adjusted ADIC Option will be exercisable for the same number of
shares as was originally covered by the related Interpoint Stock Option prior
to the Effective Time, and will have substantially the same other terms as such
Interpoint Stock Option except for the exercise price and except that Adjusted
ADIC Options will be administered pursuant to the ADIC 1996 Transition Plan.
The exercise price of each Adjusted Interpoint Option will be determined by
multiplying the per share exercise price of the original option by a fraction
the numerator of
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which is the Aggregate Share Distribution Amount and the denominator of which
is the Interpoint Average Stock Price multiplied by the number of shares of
Interpoint Common Stock outstanding immediately prior to the Merger. The
exercise price per share of the Adjusted ADIC Option will be the difference
between the exercise price of the original Interpoint Stock Option and the
exercise price of the Adjusted Interpoint Option.
(b) For purposes of this Section 3.03, all members of Interpoint's
Board of Directors who are not Interpoint Employees will be deemed to be ADIC
Holders.
3.04 INTERPOINT MIP AND PROFIT SHARING
Interpoint and ADIC will, to the extent practicable, each continue
accruing for payments under, and shall make payments in accordance with, the
Interpoint MIP and Interpoint Profit Sharing Plan for the fiscal year ended
October 31, 1996. Each of ADIC and Interpoint shall be responsible for the
determination and payment of awards to their respective employees for the
fiscal year ended October 31, 1996. The payments to be made to Peter van Oppen
under the Interpoint MIP and Interpoint Profit Sharing Plan will be made by
Interpoint, notwithstanding that Mr. van Oppen shall have terminated his
employment with Interpoint immediately after the Effective Time.
3.05 OTHER BALANCE SHEET ADJUSTMENTS
To the extent not otherwise provided in this Agreement, Interpoint and
ADIC shall take such action as is necessary to effect an adjustment to the
books of Interpoint and ADIC so that, as of the Effective Time, the prepaid
expense balances and accrued employee liabilities with respect to any employee
liability or obligation assumed or retained as of the Effective Time (except to
the extent a later time is agreed upon as provided in this Agreement) by
Interpoint and the Interpoint Subsidiaries, on the one hand, and ADIC and the
ADIC Subsidiaries, on the other hand, are appropriately reflected on the
respective consolidated balance sheets as of the Effective Time, respectively,
of Interpoint and ADIC.
3.06 PRESERVATION OF RIGHTS TO AMEND OR TERMINATE PLANS
No provision of this Agreement, including, without limitation, the
agreement of Interpoint or ADIC that it, or any Interpoint Subsidiary or ADIC
Subsidiary, will make a contribution or payment to or under any Plan herein
referred to for any period, shall be construed as a limitation on the right of
Interpoint or ADIC or any Interpoint Subsidiary or ADIC Subsidiary to amend or
terminate such Plan which Interpoint or ADIC or any Interpoint Subsidiary or
ADIC Subsidiary would otherwise have under the terms of such Plan or otherwise,
and no provision of this Agreement shall be construed to create a right in any
employee or former employee or beneficiary of such employee or former employee
under a Plan which such employee or former employee or beneficiary would not
otherwise have under the terms of the Plan itself.
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ARTICLE IV
INSURANCE
4.01 CONTINUATION OF ADIC RIGHTS UNDER INTERPOINT POLICIES
Interpoint and ADIC agree that, following the Effective Time, ADIC
shall retain all rights of an insured party (to the extent ADIC is an insured
party) under each of the Interpoint Policies with respect to any injury, loss,
liability, damage or expense incurred or claimed to have been incurred prior to
the Effective Time by any party in or in connection with the conduct of the
ADIC Business or against ADIC or any ADIC Subsidiary, to the extent that such
injury, loss, liability, damage or expense may arise out of insured or
insurable occurrences or events under one or more of the Interpoint Policies.
If, subsequent to the Effective Time, any person, corporation, firm or entity
shall assert such a claim whose occurrence is prior to the Effective Time
against ADIC or any ADIC Subsidiary, Interpoint shall at the time such claim is
asserted be deemed to assign, without need of further documentation, to ADIC
any and all rights of an insured party under the applicable Interpoint Policy
with respect to such asserted claim, specifically including rights of
indemnity, if any, and the right, if any, to be defended by or at the expense
of the insurer; provided, however, that nothing in this paragraph shall be
deemed to constitute (or to reflect) the assignment of the Interpoint Policies,
or any of them, to ADIC.
4.02 ADMINISTRATION AND ALLOCATIONS
(a) Administration. From and after the Effective Time, Interpoint
shall be responsible for accounting for premiums,indemnity payments,
deductibles and retentions, as appropriate under the terms and conditions of
each of the Interpoint Policies; distributing Insurance Proceeds as
contemplated by this Agreement; reporting to insurers its own Insured Claims
and those Insured Claims which ADIC has reported to it; and processing and
managing Insured Claims made under the Interpoint Policies based upon
supporting information and documentation provided by the party submitting such
Insured Claim; provided that Interpoint's retention of the administrative
responsibilities for the Interpoint Policies listed in this paragraph (a) will
not relieve the party submitting any Insured Claim of the primary
responsibility for reporting such Insured Claim accurately, completely and in a
timely manner. Each of Interpoint and ADIC shall administer and pay any costs
related to defending its respective Insured Claims under the Interpoint
Policies to the extent such defense costs are not covered under such policies,
and will be responsible for obtaining or reviewing the appropriateness of
releases upon settlement of its respective Insured Claims under the Interpoint
Policies. The retention of the Interpoint Policies by Interpoint is in no way
intended to limit, inhibit or preclude any right to insurance coverage for any
Insured Claim of a named insured under the Interpoint Policies, including, but
not limited to, ADIC and any of its operations, and any ADIC Subsidiary or
Affiliate.
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(b) Premium Adjustment for Package Policy. In the event that upon
the cancellation or termination of the "package policy" there are additional
premiums payable, or entitlement to return of premiums previously paid, with
respect to such policy as a result of the actual sales of Interpoint and ADIC,
then such amounts shall be paid by, or refund paid to, Interpoint and/or ADIC,
as the case may be, to the extent that such additional payment or refund arises
due to sales of that party.
(c) Allocation of Policy Limits. Interpoint and ADIC agree that
where ADIC Liabilities are specifically covered under Interpoint Policies in
effect for periods prior to the Effective Time, then from and after the
Effective Time ADIC may claim for Insured Claims under each such Interpoint
Policy as and to the extent that such insurance is available up to the full
extent of the applicable fixed dollar coverage limits of the policy, subject to
the terms of this Section 4.02(c). In the event that the aggregate of Insured
Claims by Interpoint and ADIC have exhausted the fixed dollar coverage limits
under a particular Interpoint Policy, taking into account defense costs to the
extent such costs are applied against such limits of such policy, then the party
that has utilized more than its "allocable portion" (as defined below) of the
fixed dollar coverage limits under such Policy (the "benefitted party") shall
indemnify the party which utilized less than its allocable portion of such fixed
dollar coverage limits (the "nonexceeding party") for any subsequent claim by
the nonexceeding party (including, without limitation, defense costs related to
such claim) arising out of an insured or insurable occurrence or event under
such Interpoint Policy which would have been an Insured Claim but for the fact
that the limits of such Interpoint Policy were exceeded, up to the difference
between such parties allocable portion of the fixed dollar coverage limits under
such Interpoint Policy and the amount of such fixed dollar coverage limits
(excluding defense costs to the extent such costs are not applied against the
fixed dollar coverage limits) actually utilized by the nonexceeding party (the
"maximum reimbursement amount"). The nonexceeding party shall submit to the
benefitted party the same information and documentation that it would have been
required to submit to the insurance carrier under the applicable Interpoint
Policy within the same time frames provided for in such Interpoint Policy, and
the benefitted party shall, within 30 days of receipt of documentation
supporting such claim, either pay such claim or give written notice denying the
claim to the nonexceeding party. ADIC's "allocable portion" is the percentage
of consolidated Interpoint sales attributable to the ADIC Business for the
fiscal year during which the event giving rise to the claim occurred (or, which
respect to the 1996 fiscal year, for the portion of the 1996 fiscal year prior
to the Merger), and Interpoint's "allocable portion" is the percentage of
consolidated Interpoint sales attributable to the Interpoint Business for the
same period.
In the event the benefitted party denies any claim, then the parties
shall select an independent insurance coverage expert within 30 days of the
notice of denial. If the parties are unable to agree on an independent
insurance coverage expert, then each party shall select one independent
insurance coverage expert within 45 days of the notice of denial, and a third
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<PAGE> 17
independent insurance coverage expert shall be selected by mutual agreement of
the first two independent insurance coverage experts within 60 days of the
notice of denial. If the parties agree on the selection of an independent
insurance coverage expert, such expert so selected, or if the parties do not so
agree, the third independent insurance coverage expert so selected, shall
interpret the terms, provisions and conditions of the applicable Interpoint
Policy and shall determine, within 45 days of being selected, whether the claim
would have been an Insured Claim under such Interpoint Policy and the amount of
reimbursement that the nonexceeding party will receive in settlement of such
claim; provided, however, that the aggregate amount of claims paid by a
benefitted party under this paragraph (c) shall not exceed the maximum
reimbursement amount.
The decision of the independent insurance coverage expert will be
[final and binding] on the parties, and no appeal may be taken from that
decision. Fees and costs for attorneys, experts and all independent insurance
coverage experts will be borne equally by the parties. This agreement of the
parties to submit disputes between them to the procedures set forth in this
paragraph (c) will not be deemed a waiver of legal defenses, including, but not
limited to, statutes of limitations, that either party may have.
Except as set forth in this paragraph (c) or in paragraph (d) of this
Section 4.02, Interpoint and ADIC will not be liable to one another for claims
by the other not reimbursed by insurers for any other reason whatsoever not
within the control of Interpoint or ADIC, as the case may be, including, but
not limited to, coinsurance provisions, deductibles, quota share deductibles,
self-insured retentions, bankruptcy or insolvency of an insurance carrier,
Interpoint Policy limitations or restrictions, any coverage disputes, any
failure to timely claim by ADIC or Interpoint or any defect in such claim or
its processing.
Notwithstanding Section 7.01 of this Agreement, in the event of any
inconsistency between the provisions of this Section 4.02(c) and the provisions
of Section 6.10 of the Merger Agreement, the provisions of Section 6.10 of the
Merger Agreement will be prevailing.
(d) Allocation of Insurance Deductibles. Insured Claims by both
Interpoint and ADIC shall be subject to, and shall apply toward the
satisfaction of, the full amount of applicable deductibles or self-insured
retentions under the Interpoint Policies; provided that, if the aggregate
deductibles or self-insured retentions under any Interpoint Policy (other than
a Interpoint Policy providing for directors and officers liability coverage)
are exceeded and one company benefits from the deductibles or retentions paid
by the other, then the benefitted company shall reimburse the other company to
the extent of such benefit up to its allocable portion of such aggregate
deductible or retention within 30 days of receipt of such benefit.
(e) Allocation of Insurance Proceeds. Interpoint shall direct the
insurance carriers to pay Insurance Proceeds with respect to claims, costs and
expenses under the Interpoint Policies directly to or on behalf of ADIC with
respect to ADIC Insured Claims and directly to or on behalf of Interpoint with
respect to Interpoint's Insured Claims. The parties agree to use their best
efforts to cooperate with respect to insurance matters.
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<PAGE> 18
4.03 AGREEMENT FOR SHARED DEFENSE
In the event that Insured Claims of both ADIC and Interpoint exist
relating to the same occurrence, ADIC and Interpoint agree to jointly defend
such Insured Claim; provided, that, if, in the reasonable judgment of one
party, a conflict of interest between Interpoint and ADIC exists in respect of
such Insured Claim or if the other party assumes responsibility for such
Insured Claim with any reservations or exceptions, the party which concludes
that a conflict exists or that has not assumed responsibility for such Insured
Claim will have the right to employ separate counsel reasonably satisfactory to
the other party. In that event, the fees and expenses of such separate counsel
will be paid by the party retaining such counsel unless the other party shall
have indemnified such party against such fees and expenses pursuant to this
Agreement or otherwise. Nothing in this Section 4.03 shall be construed to
limit or otherwise alter in any way the indemnity obligations of the parties to
this Agreement, by operation of law or otherwise.
4.04 DIRECTORS AND OFFICERS LIABILITY INSURANCE POLICIES
Interpoint shall comply with its obligations as set forth in Section
6.10 of the Merger Agreement with respect to Interpoint Policies providing for
directors and officers liability coverage.
ARTICLE V
INDEMNIFICATION
5.01 INDEMNIFICATION BY INTERPOINT
Except as otherwise set forth herein, Interpoint shall indemnify,
defend and hold harmless ADIC, each of its directors, officers, employees and
agents, each Affiliate of ADIC and each of the heirs, executors, successors and
assigns of any of the foregoing (the "ADIC Indemnitees") from and against any
and all Indemnifiable Losses of the ADIC Indemnitees arising out of, by reason
of or otherwise in connection with the Interpoint Liabilities.
5.02 INDEMNIFICATION BY ADIC
Except as otherwise set forth herein, ADIC shall indemnify, defend and
hold harmless Interpoint, each of its directors, officers, employees and
agents, each Affiliate of Interpoint and each of the heirs, executors,
successors and assigns of any of the foregoing (the "Interpoint Indemnitees")
from and against any and all Indemnifiable Losses of the Interpoint Indemnitees
arising out of, by reason of or otherwise in connection with the ADIC
Liabilities.
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<PAGE> 19
5.03 LIMITATIONS ON INDEMNIFICATION OBLIGATIONS
The amount which any party (an "Indemnifying Party") is or may be
required to pay to any other party (an "Indemnitee") pursuant to Section 5.01
or Section 5.02 shall be reduced (retroactively or prospectively) by any
insurance proceeds or other amounts actually recovered by or on behalf of such
Indemnitee, in reduction of the related Indemnifiable Loss. If an Indemnitee
shall have received the payment required by this Agreement from an Indemnifying
Party in respect of an Indemnifiable Loss and shall subsequently actually
receive insurance proceeds or other amounts in respect of such Indemnifiable
Loss, then such Indemnitee shall pay to such Indemnifying Party a sum equal to
the amount of such insurance proceeds or other amounts actually received, up to
the aggregate amount of any payments received from such Indemnifying Party
pursuant to this Agreement in respect of such Indemnifiable Loss.
5.04 PROCEDURE FOR INDEMNIFICATION
(a) If an Indemnitee shall receive notice or otherwise learn of
the assertion by a person (including, without limitation, any governmental
entity) who is not a party to this Agreement or the Merger Agreement of any
claim or of the commencement by any such person of any Action (a "Third Party
Claim") with respect to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement, such Indemnitee shall give such
Indemnifying Party written notice thereof promptly after becoming aware of such
Third Party Claim; provided, however, that the failure of any Indemnitee to
give notice as provided in this Section 5.04 shall not relieve the applicable
Indemnifying Party of its obligations under this Article V, except to the
extent that such Indemnifying Party is prejudiced by such failure to give
notice. Such notice shall describe the Third Party Claim in reasonable detail
and shall indicate the amount (estimated if necessary) of the Indemnifiable
Loss that has been or may be sustained by such Indemnitee.
(b) Subject to the proviso of the following sentence, an
Indemnifying Party shall defend or 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 of the receipt of notice from an
Indemnitee in accordance with Section 5.04(a) (or sooner, if the nature of such
Third Party Claim so requires), the Indemnifying Party shall notify the
applicable Indemnitee whether the Indemnifying Party will assume responsibility
for defending such Third Party Claim, which notice must specify any
reservations or exceptions with respect to such assumption of responsibility;
provided, however, that an Indemnifying Party may elect not to assume
responsibility for defending a Third Party Claim only in the event of a good
faith dispute that a claim was appropriately tendered under Section 5.01 or
5.02, as the case may be, in which case the Indemnitee may defend or seek to
compromise or settle such Third Party Claim. After notice from an Indemnifying
Party to an Indemnitee of its election to assume the defense of a Third Party
Claim, such Indemnifying Party will not be liable to such Indemnitee under this
Article V for any legal or other expenses (except
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<PAGE> 20
expenses approved in advance by the Indemnifying Party) subsequently incurred
by such Indemnitee in connection with the defense thereof; provided, that, if
the defendants in any such claim include both the Indemnifying Party and one or
more Indemnitees and in such Indemnitees' reasonable judgment a conflict of
interest between such Indemnitees and such Indemnifying Party exists in respect
of such claim or if the Indemnifying Party shall assume responsibility for such
claim with any reservations or exceptions, such Indemnitees will have the right
to employ separate counsel reasonably satisfactory to the Indemnifying Party to
represent such Indemnitees, and in that event the reasonable fees and expenses
of such separate counsel (but not more than one separate counsel) will be paid
by such Indemnifying Party.
(c) If an Indemnifying Party elects to defend or to seek to
compromise any Third Party Claim, the appropriate Indemnitee shall (x)
cooperate in all reasonable respects with the Indemnifying Party in connection
with such defense, (y) not admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the Indemnifying
Party's prior written consent and (z) agree to any settlement, compromise or
discharge of such Third Party Claim which the Indemnifying Party may recommend
and which by its terms obligates the Indemnifying Party to pay the full amount
of the liability in connection with such Third Party Claim and which releases
the Indemnifying Party completely in connection with such Third Party Claim.
(d) In the event of payment by an Indemnifying Party to any
Indemnitee in connection with any Third Party Claim, such Indemnifying Party
shall be subrogated to and shall stand in the place of such Indemnitee as to
any events or circumstances with respect to which such Indemnitee may have any
right or claim relating to such Third Party Claim against any claimant or
plaintiff asserting such Third Party Claim. Such Indemnitee shall cooperate
with such Indemnifying Party in a reasonable manner, and at the cost and
expense of such Indemnifying Party, in prosecuting any subrogated right or
claim.
(e) With respect to any Third Party Claim for which the
Indemnifying Party assumes responsibility for defense, the Indemnifying Party
shall inform the Indemnitee, upon the reasonable written request of the
Indemnitee, of the status of efforts to resolve such Third Party Claim. With
respect to any Third Party Claim for which the Indemnifying Party does not
assume such responsibility, the Indemnitee shall inform the Indemnifying Party,
upon the reasonable written request of the Indemnifying Party, of the status of
efforts to resolve such Third Party Claim.
5.05 SURVIVAL OF INDEMNITIES
The obligations of Interpoint and ADIC under this Article V shall
survive the sale or other transfer by it of any assets or businesses or the
assignment by it of any Liabilities, with respect to any Indemnifiable Loss of
the other related to such assets, businesses or Liabilities. All obligations
of Interpoint and ADIC under this Article V shall terminate five years after
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<PAGE> 21
the Distribution Date, except with respect to claims for which one party has
provided notice to the other prior to the end of such five-year period.
ARTICLE VI
ACCESS TO INFORMATION
6.01 PROVISION OF CORPORATE RECORDS
Interpoint shall use its best efforts to arrange, as soon as
practicable following the Distribution Date, for the transportation to ADIC of
all original agreements, documents, books, records and files relating to or
affecting ADIC, any ADIC Subsidiary or the ADIC Business (collectively
"Records"), to the extent such items are not already in the possession of ADIC
or a ADIC Subsidiary, subject to the following exceptions:
(i) ADIC recognizes that certain Records may contain
incidental information relating to Interpoint and the Interpoint
Subsidiaries or may relate primarily to subsidiaries or divisions of
Interpoint other than ADIC and the ADIC Subsidiaries, and that
Interpoint may retain such Records and provide copies of the relevant
portions thereof to ADIC; and
(ii) Interpoint may retain any tax returns, reports, forms
or work papers, and ADIC will be provided with copies of such returns,
reports, forms or work papers only to the extent that they relate to
or affect ADIC and the ADIC Subsidiaries' returns or tax liability.
6.02 ACCESS TO INFORMATION
From and after the Distribution Date, each of Interpoint and ADIC
shall afford to the other and its authorized accountants, counsel and other
designated representatives reasonable access during normal business hours,
subject to appropriate restrictions for classified information, to the
personnel, properties, books and records of such party and its subsidiaries
insofar as such access is reasonably required by the other party.
6.03 CONFIDENTIALITY
Each of Interpoint and the Interpoint Subsidiaries on the one hand,
and ADIC and the ADIC Subsidiaries on the other hand, shall hold, and shall
cause its respective consultants and advisors to hold, in strict confidence,
all information concerning the other in its possession (except to the extent
that such information has been (a) in the public domain through no fault of
such party or (b) later lawfully acquired from other sources by such party) to
the extent such information (i) relates to the period up to the Effective Time,
(ii) relates to this Agreement or (iii) is obtained from the other party
pursuant to this Agreement, and each party shall not release or disclose such
information to any other person, except its auditors,
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<PAGE> 22
attorneys, financial advisors, bankers and other consultants and advisors,
unless compelled to disclose by judicial or administrative process or, as
advised by its counsel, by other requirements of law.
ARTICLE VII
MISCELLANEOUS
7.01 COMPLETE AGREEMENT; CONSTRUCTION
Except as provided in Section 4.02(c), this Agreement and the Tax
Allocation Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and thereof, and supersedes all previous
negotiations, commitments and writings with respect to such subject matter. In
the event of any inconsistency between the provisions of this Agreement and the
provisions of the Tax Allocation Agreement, the provision of the Tax Allocation
Agreement will be controlling. To the extent any liability for any tax is not
covered by the provisions of the Tax Allocation Agreement, such liability will
be treated as a Liability hereunder.
7.02 SURVIVAL OF AGREEMENTS
Except as otherwise contemplated by this Agreement, all covenants and
agreements of the parties contained in this Agreement will survive the
Distribution Date.
7.03 GOVERNING LAW
This Agreement will be governed by and construed in accordance with
the laws of the State of Washington, without regard to the principles of
conflicts of laws thereof.
7.04 NOTICES
All notices and other communications hereunder must be in writing and
must be delivered by hand, mailed by registered or certified mail (return
receipt requested) or sent by facsimile transmission to the parties at the
following addresses (or at such other addresses for a party as may be specified
by like notice) and will be deemed given on the date on which such notice is
received:
To Interpoint:
10301 Willows Road
Redmond, Washington 98052
Attn: Chief Executive Officer
Fax: (206) 869-7402
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<PAGE> 23
To ADIC:
10201 Willows Road
Redmond, Washington 98052
Attn: Chief Executive Officer
Fax: (206) 881-2296
7.05 AMENDMENTS
This Agreement may not be modified or amended except by an agreement
in writing signed by the parties.
7.06 SUCCESSORS AND ASSIGNS
Except in connection with a merger (including the Merger) or
consolidation or the sale of all or substantially all the assets of a party
hereto, this Agreement shall not be assignable, in whole or in part, directly
or indirectly, by either party hereto without the prior written consent of the
other, and any attempt to assign any rights or obligations arising under this
Agreement without such consent shall be void; provided, however, that the
provisions of this Agreement shall be binding upon, inure to the benefit of and
be enforceable by the parties and their respective successors and permitted
assigns.
7.07 TERMINATION
This Agreement may be terminated and the Distribution abandoned at any
time prior to the Distribution Record Date by and in the sole discretion of the
Board of Directors of Interpoint without the approval of ADIC or of
Interpoint's shareholders. In the event of such termination, no party will
have any liability of any kind to any other party.
7.08 NO THIRD PARTY BENEFICIARIES
Except for the provisions of Article V relating to Indemnitees and as
otherwise expressly provided herein, this Agreement is solely for the benefit
of the parties hereto and their respective successors and permitted assigns and
should not be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
7.09 TITLE AND HEADINGS
Titles and headings to sections herein are inserted for the
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
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<PAGE> 24
7.10 LEGAL ENFORCEABILITY
Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof. Any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. Without prejudice to any rights or remedies otherwise
available to any party hereto, each party hereto acknowledges that damages
would be an inadequate remedy for any breach of the provisions of this
Agreement and agrees that the obligations of the parties hereunder are
specifically enforceable.
7.11 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the day and year first above written.
INTERPOINT CORPORATION
By
------------------------------------------
Its
-----------------------------------
ADVANCED DIGITAL INFORMATION CORPORATION
By
--------------------------------------
Its
-----------------------------------
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<PAGE> 1
EXHIBIT 8.1
[FORM OF PERKINS COIE TAX OPINION]
_____________, 1996
Interpoint Corporation
10301 Willows Road
P.O. Box 97005
Redmond, WA 98073-9705
RE: SPINOFF OF ADIC AND MERGER OF INTERPOINT WITH CRANE CO.
Ladies and Gentlemen:
You have asked us, as counsel to Interpoint Corporation
("Interpoint"), to render this opinion regarding the material U.S. income tax
consequences of the distribution by Interpoint of all of the stock of Advanced
Digital Information Corporation ("ADIC") to the Interpoint shareholders (the
"Spinoff") and the subsequent merger of Crane Acquisition Corp. ("Acquisition
Corp.") into Interpoint in exchange for voting common stock of Crane pursuant
to that certain Agreement and Plan of Merger, dated as of July 1, 1996 (the
"Merger Agreement"). Capitalized terms not otherwise defined herein shall have
the same meanings given to them in the Merger Agreement or if not defined
therein as described in the Registration Statement on Form S-4 of Crane
(Registration No. 333-_____) (the "Registration Statement") filed with respect
to the Merger and the Proxy Statement/Prospectus contained therein (the
"Proxy/Prospectus") or in the Registration Statement on Form 10 filed by ADIC
with the Securities and Exchange Commission in connection with the Spinoff (the
"Information Statement"). This opinion letter is rendered pursuant to Section
7.03(d) of the Merger Agreement.
In connection with our opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Agreement, the Proxy/Prospectus, the Information Statement, the tax opinion
of Price Waterhouse dated October 29, 1993 and reaffirmed by letter dated
February 11, 1994 regarding the ADIC Merger (as defined below) (the "Price
Waterhouse Opinion"), and such other documents as we have deemed necessary or
appropriate as a basis for the conclusions set forth below. We have relied, as
to matters of fact, solely upon those
<PAGE> 2
Interpoint Corporation
__________, 1996
Page 2
statements and representations by Interpoint, on its own behalf and on behalf
of ADIC, contained in that certain Interpoint Corporation Certificate dated the
date hereof and attached hereto as Exhibit A, upon statements and
representations by Crane, on its own behalf and on behalf of Acquisition Corp.,
contained in that certain Crane Certificate dated the date hereof and attached
hereto as Exhibit B, and upon statements and representations by certain
significant shareholders of Interpoint attached hereto as Exhibit C (the "Tax
Certificates"), and upon the assumptions contained herein. Without the Tax
Certificates, we would not render this opinion.
In rendering our opinion, we have considered the applicable provisions
of the Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"), Treasury Regulations promulgated thereunder and the pertinent judicial
authorities and interpretative rulings of the Internal Revenue Service (the
"IRS").
In rendering the opinion set forth below, we have assumed that (1) the
representations contained in the Tax Certificates are true as of the date
hereof and as of the Effective Time of the Merger, (2) the Merger and the
Spinoff will be consummated in accordance with the Merger Agreement and the
Spinoff Agreements, (3) ADIC was acquired by Interpoint pursuant to that
Agreement and Plan of Merger dated as of October 29, 1993, between ADIC,
Interpoint, and IP Merger Corporation in a transaction constituting a
reorganization within the meaning of Section 368(a) of the Code and with
respect to which no gain or loss was recognized for federal income tax purposes
by ADIC, Interpoint or the then shareholders of ADIC as set forth in the Price
Waterhouse Opinion, (4) each of the parties to the Merger Agreement will adhere
to their representations, warranties, and covenants contained in the Merger
Agreement, including, but not limited to, the agreement by Crane contained in
Section 6.15 (b) of the Merger Agreement not to liquidate or merge Interpoint
into Crane or any of the Crane Subsidiaries at any time within one year after
the Effective Time and the agreement by Crane contained in Section 6.06 of the
Merger Agreement not to pay, guaranty, or contribute any funds used to pay
Interpoint dissenting shareholders or optionholders, the Merger qualifies as a
merger under the Washington Business Corporation Act and other applicable laws,
and (5) all signatures and all documents we examined are genuine, all documents
submitted to us as originals are authentic, and all documents submitted to us
as certified or photostatic copies are in conformity to the original documents.
<PAGE> 3
Interpoint Corporation
__________, 1996
Page 3
Based on the facts and assumptions set forth above and upon our
examination of the Merger Agreement, the Proxy/Prospectus, the Information
Statement, the Price Waterhouse Opinion, and the relevant legal authorities, it
is our opinion that:
1. The Spinoff will qualify as a tax-free distribution under
Section 355 of the Code.
2. The Merger will qualify as a reorganization under Section
368(a) of the Code.
3. The sections of the Proxy/Prospectus entitled
"Summary--Additional Considerations--Certain Federal Income Tax Consequences"
and "Certain Federal Income Tax Consequences" and the sections of the
Information Statement entitled "Risk Factors--Pending Tax Legislation," "The
Merger and the Distribution--Certain Federal Income Tax Consequences," and
"Certain Federal Income Tax Consequences" accurately reflect our opinion as to
the matters discussed therein.
Our opinion is limited to the specific matters described in paragraphs
1, 2, and 3 above. We give no opinion with respect to other tax matters,
whether federal, state or local, that may relate to the Merger or the Spinoff.
Although we believe that the opinion covers the material federal income tax
consequences of the Merger, it may not address issues that are material to an
individual shareholder based on his or her particular tax situation. No ruling
will be requested from the IRS regarding the Spinoff or the Merger. Our
opinion is not binding on the IRS and does not constitute a guaranty that the
IRS will not challenge the tax treatment of the Merger or the Spinoff.
We caution that our opinion is based on the federal income tax laws as
they exist on the date hereof. It is possible that subsequent changes in the
tax law could be enacted and applied retroactively to the Merger or Spinoff and
that such changes could result in a materially different result than the result
described in the opinions above. In particular, the Clinton administration has
proposed, as Section 9522 of a draft bill referred to as the Revenue
Reconciliation Act of 1996, to tax transactions such as the Spinoff if the
shareholders of the distributing corporation in the Spinoff do not retain for
two year period following the Spinoff a 50% or greater interest in the
distributing corporation and any successor thereto. As proposed, the draft
bill would be effective for distributions occurring after March 19, 1996. If
that proposed
<PAGE> 4
Interpoint Corporation
__________, 1996
Page 4
legislation were enacted by Congress and signed by the President, the Spinoff
would not qualify for tax-free treatment as described above.
This opinion is furnished to you solely in connection with the Merger
and the Spinoff and is intended for your use and the use of your shareholders
and may not be provided to or relied upon by others without our expressed
written consent.
Very truly yours,
Perkins Coie
<PAGE> 5
Exhibit A
INTERPOINT CORPORATION
CERTIFICATE
INTERPOINT CORPORATION ("Interpoint"), a Washington corporation,
submits this certificate (this "Certificate") to be relied upon by Perkins Coie
and Milbank, Tweed, Hadley & McCloy in delivering their respective opinions
regarding the tax consequences of the proposed distribution by Interpoint to
its shareholders of the shares of stock of Advanced Digital Information
Corporation ("ADIC"), a Washington corporation (the "Spinoff"), pursuant to a
Separation Agreement between Interpoint and ADIC, dated as of September __,
1996 (the "Separation Agreement"), and the subsequent merger (the "Merger") of
Crane Acquisition Corp., a Washington corporation that is wholly owned by Crane
("Acquisition Corp."), into Interpoint pursuant to an Agreement and Plan of
Merger by and among Crane Co., a Delaware corporation and the sole shareholder
of Acquisition Corp. ("Crane"), Acquisition Corp. and Interpoint dated as of
July 1, 1996 (the "Merger Agreement").
For purposes of this Certificate, the "Microelectronics Business"
means that business, carried on by Interpoint and described in the Proxy
Statement/Prospectus contained in the Registration Statement on Form S-4 filed
by Interpoint with the Securities and Exchange Commission in connection with
the Merger (the "Proxy") and in the Information Statement on Form 10 filed by
Interpoint with the Securities and Exchange Commission in connection with the
Spinoff (the "Information Statement"), of the design, manufacture and sale of
microelectronics products, including proprietary, high-performance power
converters and custom hybrid microcircuits and the "Data Storage Business"
means that business, carried on by ADIC and described in the Proxy and the
Information Statement, of the design, sale and manufacture of specialized,
automated high-performance data storage systems. Capitalized terms not
otherwise defined here have the meaning stated in the Agreement or, if not
defined there, in the Proxy or the Information Statement.
Interpoint certifies that the facts and assumptions relating to the
Spinoff and the Merger, insofar as they relate to Interpoint and ADIC, that are
described in the opinion letter from Perkins Coie to Interpoint dated the date
hereof (a copy of which you acknowledge has been provided to you), and the
following statements, are true, correct and complete in all material respects
as of the date of this letter:
1. Other than the Voting Agreement, there are no existing,
planned or intended agreements, such as a voting trust, affecting the rights of
any shareholders owning directly, or as a result of the agreement, controlling,
5 percent or more of any class of stock directly, or as a result of an
agreement, 5 percent or more of any Interpoint or ADIC stock.
2. Interpoint owns all of the total combined voting power of ADIC
and all of the total number of shares of all other ADIC stock classes
immediately prior to the distribution.
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<PAGE> 6
3. The sole consideration being distributed by Interpoint in the
Spinoff is the ADIC Common Stock.
4. ADIC has no planned or intended stock issuances, redemptions,
or dispositions of shares of its stock.
5. On February 21, 1994, Interpoint acquired 100% of all the
outstanding ADIC shares in a merger effected pursuant to an Agreement and Plan
of Merger, dated as of October 29, 1993, between ADIC, Interpoint and IP Merger
Corporation, a Washington corporation (the "ADIC Merger"). Interpoint has
continuously held all the outstanding ADIC shares since that time. In
connection with the ADIC Merger, Interpoint received the opinion of Price
Waterhouse dated October 29, 1993 and reaffirmed by letter dated February 11,
1994, that the ADIC Merger was a reorganization described in Section 368(a) of
the Code and that no gain or loss was recognized by the former shareholders of
ADIC or by Interpoint, ADIC or IP Merger Corporation in connection with the
ADIC Merger. Nothing has occurred since the ADIC Merger that would be
inconsistent with treatment of the ADIC Merger as a reorganization within the
meaning of Section 368(a) of the Code in which no gain or loss was recognized.
The Internal Revenue Service has not taken a position inconsistent with that
treatment.
6. Interpoint will retain no stock, securities or options or
other rights to acquire shares of ADIC after the Spinoff.
7. No intercorporate debt will exist between Interpoint and ADIC
at the time of, or subsequent to, the Spinoff except as may arise after the
Spinoff under the Tax Allocation Agreement dated as of ___________, 1996 between
Crane and ADIC or the Separation Agreement dated as of ___________, 1996 between
ADIC and Interpoint.
8. No securities of Interpoint or ADIC are being exchanged in
connection with the Spinoff. No security holder will receive consideration in
the Spinoff.
9. No part of the consideration to be distributed by Interpoint
will be received by a shareholder as a creditor, employee, or in any capacity
other than that of a shareholder of the corporation.
10. No shareholder or creditor of Interpoint will transfer
property in the Spinoff.
11. Substantial managerial and operational activities have been
directly carried on by the Microelectronics Business during each of the past
five years.
12. The Microelectronics Business has not employed fewer than 50
full-time employees during any of the past five years.
13. The Microelectronics Business has been continuously conducted
by Interpoint for the previous five years.
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14. Substantial managerial and operational activities have been
directly carried on by the Data Storage Business during each of the past five
years.
15. The Data Storage Business has not employed fewer than 50
full-time employees during any of the past five years.
16. The Data Storage Business has been continuously conducted as
an active business by ADIC for the previous five years and was not acquired by
ADIC in a taxable transaction during the 5-year period ending on the date of
the Spinoff.
17. The Microelectronics Business has been continously conducted
as an active business by Interpoint and was not acquired by Interpoint in a
taxable transaction during the 5-year period ending on the date of the Spinoff.
18. No person will own a 50 percent or greater interest in
Interpoint immediately following the Spinoff and prior to the Merger.
19. Following the Spinoff, Interpoint and ADIC will each continue
the active conduct of its business, independently and with its separate
employees.
20. Interpoint and ADIC will not share the services of any
employee following the Spinoff.
21. There are no planned or intended substantial reductions in
business activity for either the Microelectronics or the Data Storage Business.
22. The distribution of the ADIC stock is motivated in substantial
part by the following corporate business purpose: to tailor Interpoint's assets
to facilitate the acquisition of Interpoint and its business by Crane.
23. Crane would not agree to the Merger unless the Spinoff occurs
because Crane is not willing to acquire ADIC.
24. Crane is not related to Interpoint or ADIC and no shareholder
owns 5% or more of both Crane and either Interpoint or ADIC.
25. To the best knowledge of Interpoint, there is no plan or
intention by any Interpoint shareholder to sell, exchange, transfer by gift or
otherwise dispose of any stock of either Interpoint (other than in the Merger)
or ADIC following the Spinoff.
26. There is no plan or intention by either Interpoint or ADIC,
directly or through any subsidiary corporation, to purchase any of its
outstanding stock after the Spinoff, other than stock purchases where: (i)
there is a sufficient business reason for the stock purchase; (ii) the stock to
be purchased is widely held; (iii) the stock purchases are made in the open
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market; and (iv) there is no plan or intention that the aggregate amount of
stock purchases will equal or exceed 20 percent of the outstanding stock of
either Interpoint or ADIC.
27. There is no plan or intention to liquidate either Interpoint
or ADIC, to merge either corporation with any other corporation (other than
with Crane in the Merger), or to sell or otherwise dispose of the assets of
either corporation after the Spinoff, except in the ordinary course of
business.
28. ADIC assumed no liabilities of Interpoint in connection with
the transfer of assets from Interpoint to ADIC and none of the transferred
assets were subject to any liabilities.
29. The contributions to the capital of ADIC to be made by
Interpoint pursuant to the terms of the Separation Agreement will be the result
of sound business practice and will not be in excess of the reasonably
foreseeable working capital needs of ADIC after the Spinoff.
30. The cancellation of ADIC intercompany indebtedness by
Interpoint, if any, occurring pursuant to the terms of the Separation Agreement
will be the result of sound business practice.
31. Immediately after the Spinoff, the working capital of each of
Interpoint and ADIC will be consistent with the needs and the sound business
practice of each company.
32. Neither Interpoint nor ADIC has accumulated its receivables
or made extraordinary payments of its payables in anticipation of the Spinoff.
33. Immediately before the Spinoff, items of income, gain, loss,
deduction, and credit will be taken into account as required by the applicable
intercompany transaction provisions of the Treasury Regulations.
34. Interpoint does not have a consolidated tax return "excess
loss account" in the ADIC shares.
35. Payments made in connection with all continuing transactions,
if any, between Interpoint and ADIC, will be for fair market value based on
terms and conditions arrived at by parties bargaining at arm's length.
36. Any consideration received by Interpoint from ADIC as part of
the Spinoff (including distributions by ADIC and cancellation of Interpoint
indebtedness to ADIC) will be the result of sound business practice.
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37. The factual statements of or relating to Interpoint or ADIC
contained in the Proxy and the Information Statement are accurate.
38. The fair market value of Crane common stock received by each
Interpoint shareholder will be approximately equal to the fair market value of
the Interpoint common stock surrendered in the exchange.
39. There is no plan or intention by any Interpoint common
shareholder who owns five percent or more of Interpoint common stock, and to
the best of the knowledge of the Interpoint management, there is no plan or
intention on the part of the remaining Interpoint common shareholders to sell,
exchange, or otherwise dispose of a number of shares of Crane stock received in
the Merger that would reduce the Interpoint shareholders' ownership of Crane to
a number of shares having a value, as of the date of the Merger, of less than
50 percent of the value of all of the formerly outstanding Interpoint common
stock as of the same date. For purposes of this representation, shares of
Interpoint common stock surrendered by dissenters or exchanged for cash in lieu
of fractional shares of Crane stock will be treated as outstanding Interpoint
common stock on the Merger date. Shares of Interpoint common stock and shares
of Crane common stock held by Interpoint shareholders and otherwise sold,
redeemed or disposed of prior or subsequent to the transaction will be
considered as having been disposed of in making this representation.
40. Interpoint has no plan or intention to issue additional shares
of its stock that would result in Crane owning less than 80 percent of the
total combined voting power of all classes entitled to vote and 80 percent of
the total number of shares of each other Interpoint stock class.
41. No intercorporate indebtedness exists between Crane and
Interpoint or between Acquisition Corp. and Interpoint that was issued,
acquired, or will be settled at a discount.
42. Crane, Interpoint and the Interpoint shareholders will pay
their respective expenses, if any, incurred in connection with the Merger.
43. The sole consideration Crane will provide to Interpoint
shareholders in exchange for the surrender of Interpoint Common Stock in the
Merger will be Crane voting common stock (other than cash payments made in lieu
of fractional shares). For purposes of this representation, Interpoint stock
or options to acquire Interpoint stock redeemed for cash or other property
furnished by Crane will be considered as acquired by Crane. Further, there is
no plan or intention on the part of Interpoint, or, to the best of the
knowledge of Interpoint, on the part of Crane for Crane to pay, guaranty or
secure the Segregated Account indebtedness. No liabilities of Interpoint or
the Interpoint shareholders will be assumed by Crane, nor will any of the
Interpoint stock be subject to any liabilities.
44. At the time of the Merger, Interpoint will not have
outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could
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acquire stock of Interpoint that, if exercised or converted, would affect
Crane's acquisition or retention of at least 80 percent of the total combined
voting power of all classes entitled to vote and at least 80 percent of the
total number of shares of each other class of Interpoint stock.
45. Following the Merger, Interpoint will continue its historic
business and use a significant portion of its historic business assets.
46. Neither Interpoint nor ADIC is a regulated investment company,
real estate investment trust, or a corporation fifty percent or more of the
value of whose total assets are stock and securities, and eighty percent or
more of the value of whose total assets are assets held for investment. In
making the percentage determinations under the preceding sentence, stock and
securities in any subsidiary corporation are disregarded and the parent
corporation is deemed to own its ratable share of the subsidiary's assets, and
a corporation is considered a subsidiary if the parent owns fifty percent or
more of the combined voting power of all classes of stock entitled to vote or
fifty percent or more of the total value of shares of all classes of stock
outstanding.
47. Interpoint will pay its dissenting shareholders the value of
their stock out of its own funds and it will pay its option holders the value
of their extinguished options out of its own funds. No funds will be supplied
for either of these purposes, directly or indirectly, by Crane, nor will Crane
directly or indirectly reimburse Interpoint for any payments it makes to
dissenters or optionholders.
48. On the date of the Merger, the fair market value of the assets
of Interpoint will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which its assets are subject.
49. Interpoint is not under the jurisdiction of a court in a case
under Title 11 of the United States Code or a receivership, foreclosure, or
similar proceeding of a federal or state court.
50. The payment of cash in lieu of fractional shares of Crane is
solely for the purpose of avoiding the expense and inconvenience to Crane of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the Merger to
the Interpoint shareholders instead of issuing fractional shares of Crane stock
will not exceed one percent of the total consideration that will be issued in
the transaction to the Interpoint shareholders.
51. None of the compensation to be received by any Interpoint
shareholder-employee will be separate consideration for, or allocable to, any
of the shareholder-employee's shares of Interpoint stock; none of the shares of
Crane stock received by any Interpoint shareholder-employee will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employee will be for services
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actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
52. The Merger is being undertaken for the following business
purposes: It is expected that Crane's ownership of the two microelectronic
corporations, Interpoint and its existing subsidiary, ELDEC, will result in
decreased development, production and sales costs, thereby creating the
opportunity for more competitive pricing and greater profits. Crane expects to
consolidate certain corporate and administrative functions common to both
Interpoint and ELDEC, thereby reducing duplicative positions, reducing other
nonlabor corporate and administrative expenses, and limiting or avoiding
duplicative expenditures for administrative and customer service programs and
information systems.
[Space intentionally left blank]
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IN WITNESS WHEREOF, Interpoint has caused this Certificate to be duly
executed this ______ day of _________, 1996.
INTERPOINT CORPORATION
By
--------------------------------
Name
--------------------------------
Title
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EXHIBIT 10.2
TAX ALLOCATION AGREEMENT
This TAX ALLOCATION AGREEMENT, dated as of __, 1996 (this
"Agreement") is being entered into by and between INTERPOINT CORPORATION, a
Washington corporation (together with its successors and assigns, "Interpoint"),
and ADVANCED DIGITAL INFORMATION CORPORATION, a Washington corporation (together
with its successors and assigns, "ADIC"). Interpoint and ADIC are entering into
this Agreement to provide for the allocation between Interpoint and the
Interpoint Subsidiaries, on the one hand, and ADIC and the ADIC Subsidiaries, on
the other hand, of all responsibilities, liabilities and benefits relating to
(1) Taxes paid or payable by either of them for all taxable periods ending on or
before Disaffiliation Date (as hereinafter defined) and (2) Tax returns to be
filed by either of them for those taxable periods.
I. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings (the meanings to be equally applicable to the singular and
the plural forms of the terms defined). Any terms used but not defined herein
shall have the meaning given them in the Separation Agreement.
"ADIC Affiliated Group" means the affiliated group of
corporations (within the meaning of Section 1504(a) of the Code or applicable
state or local statute, rule or regulation, as the case may be) of which ADIC
is the common parent (or would be the common parent if ADIC were not a member
of the Interpoint Affiliated Group).
"ADIC Companies" means, for any taxable period, ADIC and the
ADIC Subsidiaries that are includable in the ADIC Affiliated Group (or, in the
case of Article III hereof, are foreign corporations, including ADIC Europe).
"Alternative Minimum Tax" means the Tax imposed by Section 55
of the Code, or any successor provision thereto.
"Annual State or Local Income Taxes" means, with respect to
any combined, consolidated or unitary state or local Income Tax Return, the sum
of all of the Tax liabilities of the ADIC Companies as reflected on the Tax
Return.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
"Disaffiliation" means ADIC's ceasing to be a member of the
Interpoint Affiliated Group.
"Disaffiliation Date" means the date upon which ADIC ceases to
be a member of the Interpoint Affiliated Group as determined by ADIC in
conformity with Treasury Regulations Section 1.1502-76(b).
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"Final Determination" means the final resolution of liability
for any Tax for a taxable period, including any related interest or penalties,
(i) by IRS Form 870-AD (or any successor form thereto), on the date of
acceptance by or on behalf of the Commissioner of the IRS, or by a comparable
agreement form under the laws of any state, local or foreign government or the
rules or regulations of any state, local or foreign taxing authority, except
that a Form 870-AD or comparable form that reserves the right of the taxpayer
to file a claim for refund or the right of the taxing authority to assert a
further deficiency shall not constitute a Final Determination with respect to
the item or items so reserved; (ii) by a decision, judgment, decree, or other
order by a court of competent jurisdiction that has become final and
unappealable, (iii) by a closing agreement or accepted offer in compromise
under section 7121 or 7122 of the Code, or comparable agreements under the laws
of any state, local or foreign government or the rules or regulations of any
state, local or foreign taxing authority, (iv) by any allowance of a refund or
credit in respect of any overpayment of Tax, including any related interest or
penalties, but only after the expiration of all periods during which the refund
may be recovered (including by way of offset) by the jurisdiction imposing the
Tax (including a refund or credit allowed as a result of the filing of an
amended return); or (v) by any other final disposition by reason of the
expiration of the applicable statute of limitations. In addition to the
foregoing, any event (e.g., the filing of an IRS Form 870 or a partial
settlement) which is agreed by the parties in writing to be a Final
Determination shall also be treated as a Final Determination.
"Income Taxes" means Taxes based on or measured by net income,
including franchise or similar Taxes for which a consolidated, unitary or
combined Tax Return is required or permitted.
"IRS" means the Internal Revenue Service.
"Interpoint Affiliated Group" means the affiliated group of
corporations (within the meaning of Section 1504(a) of the Code or applicable
state or local statute, rule or regulation, as the case may be) of which
Interpoint is the common parent.
"Interpoint Affiliated Group Annual Federal Income Taxes"
means, for any taxable period, the consolidated federal Income Taxes of the
Interpoint Affiliated Group.
"Interpoint Affiliated Group Annual State or Local Income
Taxes" means, with respect to any separate, combined, consolidated or unitary
state or local Income Tax Return, the sum of all of the Tax Liabilities of the
Interpoint Companies as reflected on the Tax Return.
"Interpoint Companies" means, for any taxable period,
Interpoint and the Interpoint Subsidiaries that are includable in the
Interpoint Affiliated Group (or, in the case of Article III hereof, that are
foreign corporations), excluding all ADIC Companies.
"Interpoint Consolidated Return" has the meaning specified in
Section 2.01.
"Original Tax Provision" means the amount paid (after taking
into account the third sentence of Section 2.02(b) hereof) by Interpoint or
ADIC, as the case may be, prior to any audit or other adjustment of any Tax
Item by any taxing authority.
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3
"Outstanding Federal Tax Liability" has the meaning specified
in Section 2.02(b).
"Outstanding State or Local Tax Liability" has the meaning
specified in Section 3.02(b).
"Post-Disaffiliation Correlative Amounts" means all payments
made pursuant to this Agreement that are not in settlement of a tax liability
but are correlative thereto (e.g., interest, penalties, additions to tax or
costs of contesting a proposed adjustment under Section 9 hereof) and which are
neither paid nor accrued on or before the Disaffiliation Date and which are not
obligations existing as of the Disaffiliation Date.
"Separate Annual Federal Income Taxes" means with respect to
any member of the Interpoint Affiliated Group, the separate federal Income Tax
liability (which may be positive or negative) of the member, calculated as
follows:
(i) taxable income or loss shall be determined in accordance
with Section 1.1552-1(a)(1)(ii) of the Treasury Regulations, except that (A)
the portion of the separate net operating loss of the member, if any, that will
become part of the consolidated net operating loss attributable to the member
under Section 1.1502-79(a)(3) of the Treasury Regulations shall not be taken
into account, (B) the portion of any consolidated net capital loss carryback
attributable to the member shall be taken into account, but only to the extent
absorbed in the taxable year and (C) the last sentence thereof (which does not
permit taxable income to be reduced below zero) shall be disregarded,
(ii) taxable income or loss shall be multiplied by the
highest marginal rate in effect for the Interpoint Affiliated Group for the
period under Section 11(b) of the Code.
(iii) all Tax Credits Attributable To Such Member, if any,
shall be subtracted from the amount set forth in clause (ii),
(iv) all tax credit recapture, if any, attributable to such
member shall be added to the amount set forth in clause (ii),
(v) all other additions to tax (e.g. interest on the deferred
tax liability with respect to installment obligations under Section 453A of the
Code or the Environmental Tax imposed on corporations under Section 59A of the
Code), if any, attributable to such member shall be added to the amount set
forth in clause (ii), and
(vi) any Alternative Minimum Tax liability, as provided under
Section 2.02(c), shall be added to the amount set forth in clause (ii).
Notwithstanding anything in the preceding sentence to the
contrary, any reference to, or incorporation of, any Sections of the Treasury
Regulations shall be modified to the extent necessary to comply with the Code.
In addition, except as otherwise directed by Interpoint and to the extent
permitted by law, the methods, conventions, elections and principles of
taxation shall be used that are
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consistent with the methods, conventions, elections and principles previously
used by the Interpoint Affiliated Group or ADIC in preparing prior federal
income tax returns and for the taxable period that ends as the result of the
Disaffiliation. To the extent permitted by law, income shall be calculated in
accordance with either Section 1.1502-76(b)(2)(i) (on the basis of income shown
on permanent records) of the Treasury Regulations.
"Separation Agreement" means the Separation Agreement dated
the date hereof by and between ADIC and Interpoint.
"Tax Benefit" means any item of loss, deduction, or tax credit
or any similar item that, at any time, results in an actual reduction in
taxable income or taxes payable on a Tax Return (if a Tax Return is required to
reflect such item).
"Tax Credit Attributable To Such Member" means, for any
taxable period with respect to any tax credit, the sum of:
(A) the product of (1) the amount of the credit allowed
(after taking into account any relevant limitations but without taking into
account any carryovers or carrybacks of the credit) on the Interpoint
Consolidated Return and (2) a fraction the numerator of which is the credit
earned (or foreign tax paid) by the member and the denominator of which is the
sum of all credits earned (or foreign taxes paid) by all members of the
Interpoint Affiliated Group that earned such credits (or paid foreign taxes)
and
(B) the amount of carrybacks or carryovers of the credit of
the member that are absorbed in accordance with Section 1.1502-3(b) (or-4(e))
of the Treasury Regulations.
"Tax Detriment" means any item of income, gain, recapture of
credits or any similar item that results at any time in an actual increase in
taxable income or taxes payable as reflected on a Tax Return (if a Tax Return
is required to reflect the item).
"Tax Item" means any Tax Benefit or Tax Detriment.
"Tax Return" means any return, filing, questionnaire, report,
form or other document, including amended returns or claims for refund filed or
required to be filed for any period with any taxing authority (whether domestic
or foreign) in connection with any Taxes (whether or not a payment is required
to be made with respect to the filing), including any forms required to obtain
an exemption from any Tax.
"Taxes" means all forms of taxation, whenever created or
imposed, and whether of the United States or elsewhere, and whether imposed by
a local, municipal, governmental, tribal (including Indian or native American),
state, federation or other body, and without limiting the generality of the
foregoing shall include income, sales, use, ad valorem, gross receipts, value
added, franchise, transfer, recording, withholding, payroll, employment,
excise, occupation, premium or property taxes, together with any related
interest, penalties and additions to tax, or additional amounts imposed by any
taxing authority (domestic or foreign) upon the ADIC Companies or the
Interpoint Companies.
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II. FEDERAL INCOME TAXES
2.01 Filing of Federal Income Tax Returns and Federal
Income Tax Payments
For all tax periods or portions thereof ending on or before
the Disaffiliation Date, Interpoint shall prepare and file all consolidated
federal income Tax Returns ("Interpoint Consolidated Returns") that are
required to be filed for the Interpoint Affiliated Group and will pay all Taxes
shown as due thereon. The returns shall include all Tax Items of the ADIC
Companies. Subject to review and approval by ADIC (which approval shall not be
unreasonably withheld), Interpoint will make all decisions relating to the
preparation and filing of the returns. Each ADIC Company, whose Tax Items are
includable in any return, shall agree to be included in the Interpoint
Consolidated Return if consent is requested.
2.02 (a) Information to be Provided by ADIC Companies
To enable Interpoint to prepare accurately and completely the
Interpoint Consolidated Returns and to provide for accurate financial
reporting, for tax periods ending on or before the Disaffiliation Date, ADIC
shall (i) prepare and submit to Interpoint, no later than 180 days after the
end of the tax period, information in the form requested by Interpoint
necessary to complete a federal income tax return (complying with all
appropriate rules and regulations, policies and practices) reflecting the Tax
Items of the ADIC Companies, and (ii) provide such other information with
respect to taxes (including forecasts and projections) as Interpoint may
reasonably request. ADIC shall bear all costs and expenses of preparing and
submitting the information, including accounting and attorneys fees.
(b) Tax Payments
On the Disaffiliation Date, an obligation shall arise
requiring ADIC to pay Interpoint an amount equal to the Interpoint Affiliated
Group Annual Federal Income Taxes that have not been paid to the Internal
Revenue Service (the "Outstanding Federal Tax Liability"). This obligation
shall be satisfied at the Closing by increasing ADIC's obligations under the
intercompany advance account. If estimated payments to the IRS have exceeded
the Interpoint Affiliated Group Annual Federal Income Taxes, ADIC's
intercompany advance account obligation shall be decreased by the amount of the
overpayment. To the extent the Outstanding Federal Tax Liability or the
overpayment determined at the Disaffiliation Date is later determined to be
overstated or understated, a cash payment shall be due, in the amount of the
overstatement or understatement, by the appropriate party (i.e., from
Interpoint, if the Outstanding Federal Tax Liability was overstated or the
overpayment was understated, or from ADIC, if the Outstanding Federal Tax
Liability was understated or the overpayment was overstated) within 15 days of
the filing of the tax return for the tax period ending on the Disaffiliation
Date.
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III. STATE AND LOCAL INCOME TAXES
For all tax periods ending on or before the Disaffiliation
Date, Interpoint will prepare and file all combined, consolidated or unitary
state or local income Tax Returns required to be filed that include both any
Tax Item of any ADIC Company and any Tax Item of any Interpoint Company.
Interpoint will pay all Taxes due on the Tax Returns (including those for which
any subsidiary may be liable). Interpoint will advise ADIC in a timely manner
of the ADIC Companies that will be included in combined, consolidated or
unitary Tax Returns to be field by Interpoint pursuant to this paragraph, and
the states or localities in which the returns will be filed. Subject to review
and approval by ADIC (which approval shall not be unreasonably withheld),
Interpoint will make all decisions relating to preparing and filing the
returns. Each ADIC Company, whose Tax Items are included in any combined,
consolidated or unitary state or local income Tax Return, will agree to be
included on the return if consent is requested. ADIC shall prepare and file
all other state and local income and franchise Tax Returns required to be filed
with respect to the ADIC Companies and shall pay all taxes reportable on such
returns.
3.02 (a) Information to Be Provided by ADIC Companies
To enable Interpoint to prepare all combined, consolidated or
unitary state and local income Tax Returns and to provide for accurate
financial reporting, for tax periods ending on or before the Disaffiliation
Date, each ADIC Company included in a combined, consolidated or unitary return
filed by Interpoint pursuant to the preceding paragraph shall (i) prepare and
submit to Interpoint, no later than 180 days after the end of the tax period,
information in the form requested by Interpoint necessary to complete state and
local income and franchise tax returns (complying with all applicable rules and
regulations, policies and practices) for each state or locality in which
combined, consolidated or unitary returns will be filed and (ii) such other
information with respect to taxes (including forecasts and projections) as
Interpoint may reasonably request. ADIC shall bear all costs and expenses of
preparing and submitting the information, including accounting and attorneys
fees.
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(b) Tax Payments
On the Disaffiliation Date, an obligation shall arise
requiring ADIC to pay Interpoint an amount equal to the Interpoint Affiliated
Group Annual State or Local Taxes that have not been paid to the applicable
state or local taxing authorities (the "Outstanding State or Local Tax
Liability"). This obligation shall be satisfied at the Closing by increasing
ADIC's obligation under the intercompany advance account. If estimated
payments to a state or local taxing authority have exceeded the Interpoint
Affiliated Group Annual State or Local Taxes, ADIC's intercompany advance
account obligation shall be decreased by the amount of the overpayment. To the
extent the Outstanding State or Local Tax Liability determined at the
Disaffiliation Date is later determined to be overstated or understated, a cash
payment shall be due, in the amount of the overstatement or understatement, by
the appropriate party (i.e., from Interpoint, if the Outstanding State or Local
Tax Liability was overstated or the overpayment was understated, or from ADIC,
if the Outstanding State or Local Tax Liability was understated or the
overpayment was overstated) within 15 days of the filing of the tax return for
the tax period ending on the Disaffiliation Date. Notwithstanding anything to
the contrary contained herein, in the Merger Agreement or the Separation
Agreement or in the laws, regulations or rulings of any state or local taxing
authority, any deductions arising from the payment to holders of options to
acquire Interpoint stock pursuant to Section 2.01(d) of the Merger Agreement
shall be allocated to ADIC in determining ADIC Annual State and Local Income
Taxes whether such holders are employees of ADIC or Interpoint.
IV. FOREIGN TAXES AND U.S. TAXES OF FOREIGN CORPORATIONS
4.01 Filing of Foreign Income Tax Returns and Payment of Taxes
ADIC shall prepare and file all foreign Income Tax Returns
required to be filed by any ADIC Company for all Tax periods and shall pay all
taxes due in connection therewith. Interpoint shall prepare and file all other
foreign Income Tax Returns required to be filed by any other Interpoint Company
and will pay all Taxes due in connection therewith.
4.02 Filing of U.S. Tax Returns and Payment of Taxes
ADIC shall prepare and file all U.S. Income Tax Returns (if
any) required to be filed by any ADIC Company that is a foreign corporation and
pay all Taxes due in connection therewith. Interpoint shall prepare and file
all U.S. Tax Returns (if any) for all other Interpoint Companies and pay all
Taxes due in connection therewith. Any obligations for the payment of Taxes
for periods ending on or before the Disaffiliation date shall be treated as an
advance made by Interpoint to ADIC or the payment of any intercompany advance
by ADIC to Interpoint as the case may be, and shall be satisfied pursuant to
Section 2.03 of the Separation Agreement.
V. SUBSEQUENT ADJUSTMENTS OF TAX LIABILITY
5.01 Federal, State, Local and Foreign Income Taxes - In General
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(a) ADIC Liability
ADIC shall indemnify and hold harmless the Interpoint
Companies from and against any and all federal, state, local or foreign Income
Tax liability resulting from any Final Determination that adjusts any Tax Item
of any ADIC Company for any Tax period or portion thereof, including any
interest, penalties or additions to tax attributable thereto. ADIC shall be
entitled to the benefit of all refunds (whether actual or constructive) of
federal, state, local and foreign Income Taxes, and all interest attributable
thereto, resulting from any Final Determination that adjusts any Tax Item of
any ADIC Company for any Tax period or portion thereof. As provided in Article
IV of the Separation Agreement, Taxes other than Income Taxes may be considered
Liabilities subject to indemnification under the Separation Agreement.
(b) Interpoint Liability
Interpoint shall indemnify and hold harmless the ADIC
Companies from and against any and all federal, state, local or foreign Income
Tax liability resulting from any Final Determination that adjusts any Tax Item
of any member or former member of the Interpoint Affiliated Group (other than
an ADIC Company) for any tax period including any interest, penalties or
additions to tax attributable thereto. Interpoint shall be entitled to the
benefit of all refunds (whether actual or constructive) of federal, state,
local or foreign Income Taxes, and all interest attributable thereto, resulting
from any Final Determination that adjusts any Tax Item of any Interpoint
Company for any tax period.
5.02 Determination of Indemnification Amounts
If any Final Determination results in an adjustment of any Tax
Item of any ADIC Company or Interpoint Company for any Tax period ending on or
before the Disaffiliation Date, and the adjustment would affect the liability
of ADIC to pay to Interpoint or of Interpoint to pay to ADIC, as the case may
be, any Original Tax Provision, the Original Tax Provision shall be
redetermined to give effect to the adjustment, as if it had been made as part
of or reflected in the Tax Return to which the Original Tax Provision relates.
ADIC shall pay to Interpoint or Interpoint shall pay to ADIC, as the case may
be, (a) any excess of the Original Tax Provision pursuant to the
redetermination over the Original Tax Provision as originally computed, plus
(b) the amount of any applicable interest, penalties, additions to tax or
expenses (as described in Section 5.01). Any amount payable to ADIC or to
Interpoint pursuant to this Section 5.02 shall be reduced to reflect any amount
paid directly by any ADIC Company or an Interpoint Company, as the case may be,
to any government or taxing authority to satisfy the increased Tax liability.
Any amounts paid under this Secion 5.02 shall satisfy the obligation under
Section 5.01.
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VI. CARRYBACKS OF ADIC TAX BENEFITS
If a Tax Benefit of an ADIC Company arises in any taxable
period ending after the Disaffiliation Date that either (i) is required under
applicable law to be carried back to any taxable period ending on or before the
Disaffiliated Date or (ii) ADIC properly elects to carryback to an earlier
taxable period, then the Original Tax Provision for the taxable period to which
the Tax Benefit is carried back shall be adjusted accordingly, and (whether or
not an Original Tax Provision existed for the applicable period) Interpoint
shall pay to ADIC the amount of the reduction in Tax liability resulting from
the carryback of the Tax Benefit (to the extent that ADIC does not receive the
amount directly from the appropriate taxing authority). The Interpoint payment
shall be made within thirty (30) days of the receipt by any Interpoint Company
of the tax benefit from the reduction. For the purposes of this Article VI, if
for any taxable period ending after the Disaffiliation Date, both Interpoint
and ADIC have Tax Benefits they can properly elect to carry back, then the Tax
Benefit shall be applied first against income or tax attributable to Interpoint
or ADIC, as the case may be. Interpoint then shall pay ADIC the amount of the
additional reduction in Tax liability remaining after that application to the
extent of ADIC's pro rate share of the amount of the remaining Tax Benefits
that can be carried back. The pro rata share shall be the total amount of
remaining Tax Benefits that can be carried back multiplied by a fraction the
numerator of which is the amount of the remaining Tax Benefits of the ADIC
Companies and the denominator of which is the sum of the remaining Tax Benefits
of both the ADIC and Interpoint Companies described in the first sentence of
this Article VI.
VII. TAXES ATTRIBUTABLE TO FORMATION AND DISAFFILIATION OF ADIC
7.01 Interpoint Liability. Notwithstanding any provision
of this Agreement to the contrary, except as otherwise provided in this Article
VII, Interpoint shall pay, and shall indemnify and hold harmless the ADIC
Companies from and against, and ADIC shall not be required to make any payment
to Interpoint in respect of, any Taxes (including (i) the inclusion in income
of "excess loss accounts," within the meaning of Section 1.1502-19 of the
Treasury Regulations or comparable provisions of state or local tax laws or
(ii) the restoration of deferred gain on deferred intercompany transactions
under Section 1.1502-13 of the Treasury Regulations) attributable to
transactions undertaken in contributing to or capitalizing the ADIC Companies
or in the Disaffiliation, including the transfer of the stock or the assets of
any ADIC Company within the Interpoint Affiliated Group, or the sale, exchange,
distribution or other transfer of the stock of ADIC by or to any Interpoint
Company or to the shareholders of Interpoint.
7.02 Tax Benefits. In the event that, as a result of a
Final Determination attributable to one or more transactions described in
Section 7.01, there is an adjustment to a federal, state, local or foreign Tax
Item of an ADIC Company with respect to a tax period or portion thereof ending
on or before the Disaffiliation Date (other than an adjustment with respect to
which ADIC has borne all resulting increases in Tax liability pursuant to
Section 7.03) and as a result of the adjustment there is allowable a net
increase in federal, state, local or foreign Tax Benefits or a net decrease in
federal, state, local or foreign Tax Detriments of an ADIC Company in any tax
period ending after the Disaffiliation Date, ADIC shall pay Interpoint the
amount of any reduction, together with interest received as a result of the
reduction. The payments shall be made within thirty (30) days of the receipt
by the ADIC
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10
Companies of the benefit of any reduction or interest that the ADIC Companies
would not have received but for the net increase or net decrease. Interpoint
shall notify ADIC of any Final Determination that may give rise to a payment
under this paragraph and will provide ADIC with such information as may be
reasonably necessary for the ADIC Companies to avail themselves of the benefit
of any resulting net increase in Tax Benefits or net decrease in Tax
Detriments. ADIC shall promptly take all action reasonably necessary to secure
the benefit of any reduction in Income Tax liability, plus interest resulting
from a net increase or decrease (including by filing an amended return or claim
for refund) and shall diligently pursue securing the benefit. ADIC shall
provide Interpoint with notice as to the date of the closing of the statute of
limitations for any taxable year of any material ADIC Company under any state,
local or foreign Income Tax law under which there may be a material benefit for
which Interpoint may be entitled to a payment under this section at least
thirty (30) days prior to the payment date. Any benefit or interest that is
not received by the ADIC Companies as a result of the application of the
statute of limitations to a taxable year of an ADIC Company shall be considered
to have been received at the time of the receipt by ADIC of the notification
from Interpoint required under this paragraph if the notification is promptly
given by Interpoint after the occurrence of an adjustment and if it is received
at least ten (10) business days prior to the last day for which procedures are
available under the relevant statute of limitation to make claims for refunds
of Income Taxes for the taxable year of the ADIC Company in question.
7.03 ADIC Liability. Notwithstanding Section 7.01 hereof,
ADIC shall be liable for the Taxes described in Article VII of this Agreement,
even if attributable to transactions undertaken in organizing or capitalizing
the ADIC Companies or the Disaffiliation, if the incurrence of the Tax in
question resulted solely from the failure by ADIC to timely provide information
available to the Interpoint Companies, or file any forms or provide any
certificates, reasonably requested in writing by Interpoint either to be
provided to Interpoint or to be filed by the ADIC Companies.
VIII. TAXES OTHER THAN INCOME TAXES
ADIC shall pay, and shall indemnify and hold harmless the
Interpoint Companies against, all Taxes, other than income taxes, attributable
to the ADIC Companies for all periods prior to the Disaffiliation Date,
including any expenses incurred by any Interpoint Company (including reasonable
accounting and attorneys fees) in connection therewith. Interpoint shall pay,
and shall indemnify and hold harmless the ADIC Companies against, all Taxes,
other than income taxes, attributable to the Interpoint Companies for all
periods prior to the Disaffiliation Date, including any expenses incurred by
ADIC Company (including reasonable accountants' and attorneys' fees) in
connection therewith.
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IX. ADMINISTRATIVE PROVISION
9.01. Contests
To be indemnified under this Agreement, a party entitled to be
indemnified under this Agreement for any liability resulting from an adjustment
to Tax Item reportable in any tax period or portion thereof or the imposition
of a Tax shall provide the indemnifying party (at the indemnifying party's
cost) with written notice of any claim or of the commencement of any audit or
proceeding that may result in any indemnification, together with copies of all
correspondence, notices or other documents resulting thereto, shall provide the
indemnifying party with notice of and an opportunity to attend any meeting with
tax authorities regarding the claim, audit or proceeding; and shall not (unless
otherwise required by a proper notice of assessment of levy) pay, settle,
compromise or concede any portion of the claim or issue relating thereto
without the written consent of the indemnifying party and shall, at the
indemnifying party's sole cost (including any reasonable out-of-pocket costs
incurred by the indemnified party) take such action as the indemnifying party
may reasonably request (including the filing of a petition, amended return or
claim for refund) in contesting the claim, provided the indemnifying party
shall, if so requested, provide an option of independent tax counsel or
independent accounting firm that there exists a reasonable basis for the
contest, and shall assign to the indemnifying party any claim for refund or any
portion of the claim that shall have been paid. If in the course of a contest,
a compromise is offered with respect to offsetting or partially offsetting
issues, the parties agree to negotiate in good faith to share the benefits and
burdens of the compromise. Any party receiving a refund (or interest
attributable thereto) to which the other party is entitled shall promptly pay
the refund and interest to the other party.
9.02 Cooperation and Exchange of Information
Interpoint and ADIC will provide each other with cooperation
and information as either of them may reasonably request of the other in filing
any Tax Return, determining a liability for Taxes or a right to refund of Taxes
or in conducting any audit or other proceeding in respect of Taxes.
Cooperation and information shall include providing copies of all relevant Tax
Returns, together with accompanying schedules and related workpapers, the
computerized tax data base with respect to any Interpoint Company or ADIC
Company, documents relating to rulings or other determinations by taxing
authorities, and records concerning the ownership and tax basis of property,
which either party may possess. Each party shall make its employees available
on a mutually convenient basis to provide explanations of any documents or
information requested. Except as otherwise provided in this agreement, the
party requesting assistance shall reimburse the other for any reasonable out-
of-pocket costs incurred in providing any Tax Return, document or other written
information, upon receipt of reasonable documentation of the costs. Each party
will retain all returns, schedules and workpapers, and all material records or
other documents relating thereto, until the expiration of the statute of
limitations (including extensions) of the taxable years to which returns and
other documents relate and, unless Tax Returns and other documents are offered
to the other party, until the final determination of any payments that may be
required in respect of years under this agreement. Any information obtained
under this Section shall be kept confidential, except as may be otherwise
necessary in connection with the filing of returns or claims for refunds or in
conducting any audit or other proceeding.
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9.03 Statement of Possible Carryforward
Within thirty (30) days before the filing by the Interpoint
Affiliated Group of its consolidated federal income tax return for its taxable
year, which includes the Disaffiliation Date, and the filing by the Interpoint
Affiliated Group of any state or local consolidated, combined or unitary tax
returns including an ADIC Company for the taxable year that includes the
Disaffiliation Date (and, if requested by ADIC, at any additional time prior to
those dates), Interpoint will provide ADIC with its estimate of the amount of
carryforwards of losses, credits or other Tax Items, if any, that may be
available to the ADIC Companies following the Disaffiliation Date. The
estimate will be for information only, based on Interpoint's best estimate of
the available benefits as of the time the estimate is provided, and no warranty
as to the existence or availability of carryforwards shall be given or implied.
Interpoint will inform ADIC of any adjustments to the carryforward determined
in connection with the filing of the Interpoint Affiliated Group's Tax Returns,
promptly after filing, or which may result from any audit or other proceeding,
at the time of a Final Determination.
9.04 Meaning of Receipt or Reduction
Any reference in this Agreement to the receipt by a party of
an amount, or a reduction in a tax liability or interest with respect thereto,
shall (except where the context indicates to the contrary) include any offset
or credit against any other tax liability of the party, and shall be deemed to
have been received or refunded at the time the other tax liability (or interest
thereon) would otherwise have been due.
9.05 Character and Effect of Payments
All amounts paid pursuant to this Agreement by one party to
another, other than Post Disaffiliation Correlative Amounts, shall be treated
for all Tax purposes as intercompany settlements of liabilities existing on or
before the Disaffiliation Date. If, notwithstanding that treatment by
Interpoint and ADIC, as a result of a Final Determination the federal, state,
local or foreign income tax liability of either Interpoint or ADIC is increased
as a result of its receipt of a payment pursuant to this Agreement, or with
respect to any payment of a Post Disaffiliation Correlative Amount, the payment
shall be appropriately adjusted (but only to the extent that the indemnifying
party shall have been given the opportunity to contest the adjustment in
accordance with Section 9.01 hereof) so that the amount of the payment, as
adjusted, reduced by the amount of all Income Taxes payable with respect to the
receipt thereof (but taking into account all correlative tax benefits resulting
from the payment of such Income Taxes), shall equal the amount of the payment
the party receiving the payment would otherwise be entitled to receive pursuant
to this Agreement.
9.06 Entire Agreement; Termination of Prior Agreements
This agreement constitutes the entire agreement between the
parties concerning the subject matter hereof and supersedes (to the extent not
incorporated herein) all other agreements, whether or not written, in respect
of any Tax between any of the Interpoint Companies, on the one hand, and any of
the ADIC Companies, on the other hand. This Agreement may not be amended
except by an agreement in writing, signed by the parties hereto.
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9.07 Notices
All notices, requests, demands and other communications to any
party hereunder shall be in writing and shall be duly given if delivered and
mailed (registered or certified mail, postage prepaid, return receipt
requested) to the address set forth or such other address as either party shall
given written notice to the other:
If to Interpoint:
10301 Willows Road
Redmond, Washington 98073-9705
Attention: Chief Executive Officer
If to ADIC:
10201 Willows Road
Redmond, Washington 981052
Attention: Chief Operating Officer
9.08 Resolution of Disputes
Any disputes between the parties concerning the calculation of
amounts, allocation or attribution of costs or of any Tax or Tax Item or
similar accounting matters shall be resolved by a nationally recognized public
accounting firm selected by the parties, whose fees and expenses shall be
shared equally by Interpoint and ADIC.
9.09 Application to Present and Future Subsidiaries or
Affiliates
This agreement is being entered into by Interpoint (on behalf
of itself and each of the Interpoint Companies) and ADIC (on behalf of itself
and each of the ADIC Companies). This agreement shall constitute a direct
obligation of Interpoint and the ADIC Companies, and shall continue whether or
not they remain affiliated, and shall be deemed to have been readopted and
affirmed on behalf of any corporation that becomes an ADIC Company in the
future. ADIC shall, upon the written request of Interpoint, cause any of its
companies formally to execute this Agreement. This agreement shall be binding
upon, and shall inure to the benefit of, the successors, assigns and persons
controlling any of the corporations bound hereby, including Crane Co. and its
Affiliates.
9.10 Term
This agreement shall commence on the date of execution
indicated on page one hereof and shall continue in effect until otherwise
agreed to in writing by Interpoint and ADIC, or their successors.
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9.11 Comprehensive Settlement
Following the expiration of the statute of limitations for all
taxable years ending on or before the Disaffiliation Date, and for the taxable
year that includes the Disaffiliation Date, of Interpoint and each ADIC
Company, under any federal, state, local or foreign Tax law under which
Interpoint or ADIC may have a material liability for those years, Interpoint
and ADIC shall each, if requested by the other, agree to negotiate in good
faith in an effort to reach an appropriate settlement of all of the then
remaining obligations of either party pursuant to this Agreement.
9.12 Governing Law
This agreement shall be governed by the laws of the State of
Washington, without regard to the principles of conflicts of law thereof.
9.13 Severability
If any term, provision or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions and restrictions shall remain in full
force and effect and shall not be affected, impaired or invalidated. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions and restrictions without
including any invalid, void or unenforceable provisions.
9.14 Source of Interpoint Payments
Interpoint shall satisfy all of its payment obligations under
this Agreement with its own funds and shall not directly or indirectly obtain
or borrow funds or use as security any funds of Crane Co. to satisfy Interpoint
payment obligations.
IN WITNESS WHEREOF, the parties have executed this agreement
as of the date first above written.
INTERPOINT CORPORATION
By_______________________________
ADVANCED DIGITAL INFORMATION
CORPORATION
By_______________________________
Acknowledged and Agreed
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CRANE CO.
By________________________________
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Exhibit 10.3
ADVANCED DIGITAL INFORMATION CORPORATION
1996 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of the Advanced Digital Information Corporation 1996 Stock
Option Plan (the "Plan") is to enhance the long-term shareholder value of
Advanced Digital Information Corporation, a Washington corporation (the
"Company"), by offering opportunities to employees, directors, officers,
consultants, agents, advisors and independent contractors of the Company and its
Subsidiaries (as defined in Section 2) to participate in the Company's growth
and success, and to encourage them to remain in the service of the Company and
its Subsidiaries and to acquire and maintain stock ownership in the Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set
forth below:
2.1 AWARD
"Award" means an award or grant made to a Participant pursuant to the
Plan, including awards or grants of Incentive Stock Options and Nonqualified
Stock Options or any combination thereof.
2.2 BOARD
"Board" means the Board of Directors of the Company.
2.3 CAUSE
"Cause" means dishonesty, fraud, misconduct, unauthorized use or
disclosure of confidential information or trade secrets, or conviction or
confession of a crime punishable by law (except minor violations), in each case
as determined by the Plan Administrator, and its determination shall be
conclusive and binding.
2.4 CODE
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.5 COMMON STOCK
"Common Stock" means the common stock, no par value, of the
Company.
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2.6 CORPORATE TRANSACTION
"Corporate Transaction" means any of the following events:
(a) Consummation of any merger or consolidation of the Company
in which the Company is not the continuing or surviving corporation, or
pursuant to which shares of the Common Stock are converted into cash,
securities or other property, if following such merger or consolidation
the holders of the Company's outstanding voting securities immediately
prior to such merger or consolidation own less than 66-2/3% of the
outstanding voting securities of the surviving corporation;
(b) Consummation of any sale, lease, exchange or other
transfer in one transaction or a series of related transactions of all
or substantially all of the Company's assets other than a transfer of
the Company's assets to a majority-owned subsidiary corporation (as the
term "subsidiary corporation" is defined in Section 8.3) of the
Company;
(c) Approval by the holders of the Common Stock of any plan or
proposal for the liquidation or dissolution of the Company; or
(d) Acquisition by a person, within the meaning of Section
3(a)(9) or of Section 13(d)(3) (as in effect on the date of adoption of
the Plan) of the Exchange Act of a majority or more of the Company's
outstanding voting securities (whether directly or indirectly,
beneficially or of record).Ownership of voting securities shall take
into account and shall include ownership as determined by applying Rule
13d-3(d)(1)(i) (as in effect on the date of adoption of the Plan)
pursuant to the Exchange Act.
2.7 DISABILITY
"Disability" means "disability" as that term is defined for purposes of
Section 22(e)(3) of the Code.
2.8 ELIGIBLE DIRECTOR
"Eligible Director" means a member of the Board who is not also an
employee of the Company or any "parent corporation" or "subsidiary corporation"
(as those terms are defined in Section 8.3) of the Company.
2.9 EXCHANGE ACT
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.10 FAIR MARKET VALUE
"Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the closing selling price for the Common Stock as reported by the Nasdaq
National Market for a single trading day or (b) if the Common Stock is listed on
the New York Stock Exchange or the American Stock Exchange, the closing selling
price for the Common Stock as such price is officially quoted in the composite
tape of transactions on such exchange for a single trading day. If there is no
such reported price for the Common Stock for the date in question, then such
price on the last preceding date for which such price exists shall be
determinative of Fair Market Value.
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2.11 GOOD REASON
"Good Reason" means the occurrence of any of the following events or
conditions and the failure of the Successor Corporation to cure such event or
condition within 30 days after receipt of written notice by the Holder:
(a) a change in the Holder's status, title, position or
responsibilities (including reporting responsibilities) that, in the Holder's
reasonable judgment, represents a substantial reduction in the status, title,
position or responsibilities as in effect immediately prior thereto; the
assignment to the Holder of any duties or responsibilities that, in the Holder's
reasonable judgment, are materially inconsistent with such status, title,
position or responsibilities; or any removal of the Holder from or failure to
reappoint or reelect the Holder to any of such positions, except in connection
with the termination of the Holder's employment for Cause, for Disability or as
a result of his or her death, or by the Holder other than for Good Reason;
(b) a reduction in the Holder's annual base salary;
(c) the Successor Corporation's requiring the Holder (without
the Holder's consent) to be based at any place outside a 35-mile radius of his
or her place of employment prior to a Corporate Transaction, except for
reasonably required travel on the Successor Corporation's business that is not
materially greater than such travel requirements prior to the Corporate
Transaction;
(d) the Successor Corporation's failure to (i) continue in
effect any material compensation or benefit plan (or the substantial equivalent
thereof) in which the Holder was participating at the time of a Corporate
Transaction, including, but not limited to, the Plan, or (ii) provide the Holder
with compensation and benefits substantially equivalent (in terms of benefit
levels and/or reward opportunities) to those provided for under each material
employee benefit plan, program and practice as in effect immediately prior to
the Corporate Transaction;
(e) any material breach by the Successor
Corporation of its obligations to the Holder under the Plan or any
substantially equivalent plan of the Successor Corporation; or
(f) any purported termination of the Holder's employment or
service for Cause by the Successor Corporation that does not comply with the
terms of the Plan or any substantially equivalent plan of the Successor
Corporation.
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2.12 GRANT DATE
"Grant Date" means the date the Plan Administrator adopted the granting
resolution or a later date designated in a resolution of the Plan Administrator
as the date an Award is to be granted, or the date an Option is automatically
granted pursuant to Section 9.
2.13 HOLDER
"Holder" means the Participant to whom an Award is granted or, for a
Holder who has died, the personal representative of the Holder's estate, the
person(s) to whom the Holder's rights under the Award have passed by will or by
the applicable laws of descent and distribution or the beneficiary designated
pursuant to Section 10.
2.14 INCENTIVE STOCK OPTION
"Incentive Stock Option" means an Option to purchase Common Stock
granted under Section 7 with the intention that it qualify as an "incentive
stock option" as that term is defined in Section 422 of the Code.
2.15 NONQUALIFIED STOCK OPTION
"Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.
2.16 OPTION
"Option" means the right to purchase Common Stock granted under Section
7.
2.17 PARTICIPANT
"Participant" means an individual who is a Holder of an Award or, as
the context may require, any employee, director, officer, consultant, agent,
advisor or independent contractor of the Company or a Subsidiary who has been
designated by the Plan Administrator as eligible to participate in the Plan.
2.18 PLAN ADMINISTRATOR
"Plan Administrator" means the Board or any committee of the Board
designated to administer the Plan under Section 3.1.
2.19 SECURITIES ACT
"Securities Act" means the Securities Act of 1933, as amended.
2.20 SUBSIDIARY
"Subsidiary," except as provided in Section 8.3 in connection with
Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company or in which the
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Company has a significant ownership interest, as determined by the Plan
Administrator, and any entity that may become a direct or indirect parent of the
Company.
2.21 SUCCESSOR CORPORATION
"Successor Corporation" has the meaning set forth under
Section 12.2.
SECTION 3. ADMINISTRATION
3.1 PLAN ADMINISTRATOR
The Plan shall be administered by the Board or a committee or
committees (which term includes subcommittees) appointed by, and consisting of
two or more members of, the Board. If and so long as the Common Stock is
registered under Section 12(b) or 12(g) of the Exchange Act, the Board shall
consider in selecting the Plan Administrator and the membership of any committee
acting as Plan Administrator of the Plan with respect to any persons subject or
likely to become subject to Section 16 under the Exchange Act the provisions
regarding (a) "outside directors" as contemplated by Section 162(m) of the Code
and (b) "nonemployee directors" as contemplated by Rule 16b-3 under the Exchange
Act. The Board may delegate the responsibility for administering the Plan with
respect to designated classes of eligible Participants to different committees,
subject to such limitations as the Board deems appropriate. Committee members
shall serve for such term as the Board may determine, subject to removal by the
Board at any time.
3.2 ADMINISTRATION AND INTERPRETATION BY THE PLAN
ADMINISTRATOR
Except for the terms and conditions explicitly set forth in the Plan,
the Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the selection
of individuals to be granted Awards, the type of Awards, the number of shares of
Common Stock subject to an Award, all terms, conditions, restrictions and
limitations, if any, of an Award and the terms of any instrument that evidences
the Award. The Plan Administrator shall also have exclusive authority to
interpret the Plan and may from time to time adopt, and change, rules and
regulations of general application for the Plan's administration. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 AUTHORIZED NUMBER OF SHARES
Subject to adjustment from time to time as provided in Section 12.1, a
maximum of 625,000 shares of Common Stock shall be available for issuance
under the Plan. Shares issued under the Plan shall be drawn from authorized and
unissued shares.
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4.2 LIMITATIONS
Subject to adjustment from time to time as provided in Section 12.1,
not more than 100,000 shares of Common Stock may be made subject to Awards
under the Plan to any individual Participant in the aggregate in any one fiscal
year of the Company, such limitation to be applied in a manner consistent with
the requirements of, and only to the extent required for compliance with, the
exclusion from the limitation on deductibility of compensation under Section
162(m) of the Code.
4.3 REUSE OF SHARES
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for in shares), shall again be available
for issuance in connection with future grants of Awards under the Plan;
provided, however, that any such shares shall be counted in accordance with the
requirements of Section 162(m) of the Code.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors and
key employees of the Company and its Subsidiaries as the Plan Administrator from
time to time selects; provided, however, that Eligible Directors shall be
eligible to receive Awards only under Section 9. Awards may also be made to
consultants, agents, advisors and independent contractors who provide services
to the Company and its Subsidiaries.
SECTION 6. AWARDS
6.1 FORM AND GRANT OF AWARDS
The Plan Administrator shall have the authority, in its sole
discretion, to determine the type or types of Awards to be made under the Plan.
Such Awards may consist of Incentive Stock Options and/or Nonqualified Stock
Options. Awards may be granted singly or in combination.
6.2 ACQUIRED COMPANY AWARDS
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Award is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or of stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan Administrator without
any further action by the Plan Administrator, except as may be required for
compliance with Rule 16b-3 under the Exchange Act, and the persons holding such
Awards shall be deemed to be Participants and Holders.
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SECTION 7. AWARDS OF OPTIONS
7.1 GRANT OF OPTIONS
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
7.2 OPTION EXERCISE PRICE
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date.
7.3 TERM OF OPTIONS
The term of each Option shall be as established by the Plan
Administrator or, if not so established, shall be five years from the Grant
Date.
7.4 EXERCISE OF OPTIONS
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall become exercisable, which provisions may be waived or modified by
the Plan Administrator at any time. If not so established in the instrument
evidencing the Option, the Option will become exercisable according to the
following schedule, which may be waived or modified by the Plan Administrator at
any time:
<TABLE>
<CAPTION>
Period of Holder's Continuous Employment or
Service With the Company or Its Subsidiaries Percent of Total Option
From the Option Grant Date That Is Exercisable
-------------------------- -------------------
<S> <C>
After 1 year 25%
After 2 years 50%
After 3 years 75%
After 4 years 100%
</TABLE>
To the extent that the right to purchase shares has accrued thereunder,
an Option may be exercised from time to time by written notice to the Company,
in accordance with procedures established by the Plan Administrator, setting
forth the number of shares with respect to which the Option is being exercised
and accompanied by payment in full as described in Section 7.5. The Plan
Administrator may determine at any time that an Option may not be exercised as
to less than 100 shares at any one time (or the lesser number of remaining
shares covered by the Option).
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7.5 PAYMENT OF EXERCISE PRICE
The exercise price for shares purchased under an Option shall be paid
in full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or check, or, unless the Plan Administrator at any time
determines otherwise, a combination of cash and/or check and one or both of the
following alternative forms: (a) tendering (either actually or, if and so long
as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange
Act, by attestation) Common Stock already owned by the Holder for at least six
months (or any shorter period necessary to avoid a charge to the Company's
earnings for financial reporting purposes) having a Fair Market Value on the day
prior to the exercise date equal to the aggregate Option exercise price; or (b)
if and so long as the Common Stock is registered under Section 12(b) or 12(g) of
the Exchange Act, delivery of a properly executed exercise notice, together with
irrevocable instructions, to (i) a brokerage firm designated by the Company to
deliver promptly to the Company the aggregate amount of sale or loan proceeds to
pay the Option exercise price and any withholding tax obligations that may arise
in connection with the exercise and (ii) the Company to deliver the certificates
for such purchased shares directly to such brokerage firm, all in accordance
with the regulations of the Federal Reserve Board. In addition, the exercise
price for shares purchased under an Option may be paid either singly or in
combination with one or more of the alternative forms of payment authorized by
this Section 7.5, by (y) a promissory note delivered pursuant to Section 10 or
(z) such other consideration as the Plan Administrator may permit.
7.6 POST-TERMINATION EXERCISES
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such exercise, if a Holder ceases to be employed by,
or to provide services to, the Company or its Subsidiaries, which provisions may
be waived or modified by the Plan Administrator at any time. If not so
established in the instrument evidencing the Option, the Option will be
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time.
In case of termination of the Holder's employment or services other
than by reason of death or Cause, the Option shall be exercisable, to the extent
of the number of shares purchasable by the Holder at the date of such
termination, only within three months after the date the Holder ceases to be an
employee, director, officer, consultant, agent, advisor or independent
contractor of the Company or a Subsidiary if termination of the Holder's
employment or services is for any reason other than Disability and only within
one year after the date of such termination by reason of Disability, but in no
event later than the remaining term of the Option. Any Option exercisable at the
time of the Holder's death may be exercised, at any time or from time to time
within one year after the date of death, but in no event later than the
remaining term of the Option, to the extent of the number of shares purchasable
by the Holder at the date of the Holder's death, by the personal representative
of the Holder's estate, the person(s) to whom the Holder's rights under the
Award have passed by will or the applicable laws of descent and distribution or
the beneficiary designated pursuant to Section 11. Any portion of an Option that
is not exercisable on the date of termination of the Holder's employment or
services shall terminate on such date, unless the Plan
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<PAGE> 9
Administrator determines otherwise. In case of termination of the Holder's
employment or services for Cause, the Option shall automatically terminate upon
first notification to the Holder of such termination, unless the Plan
Administrator determines otherwise. If a Holder's employment or services with
the Company are suspended pending an investigation of whether the Holder shall
be terminated for Cause, all the Holder's rights under any Option likewise shall
be suspended during the period of investigation.
A transfer of employment or services between or among the Company and
its Subsidiaries shall not be considered a termination of employment or
services. The effect of a Company-approved leave of absence on the terms and
conditions of an option shall be determined by the Plan Administrator, in its
sole discretion.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock
Options shall be subject to the following additional terms and conditions:
8.1 DOLLAR LIMITATION
To the extent the aggregate Fair Market Value (determined as of the
Grant Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event
the Participant holds two or more such Options that become exercisable for the
first time in the same calendar year, such limitation shall be applied on the
basis of the order in which such Options are granted.
8.2 10% SHAREHOLDERS
If a Participant owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five
years. The determination of 10% ownership shall be made in accordance with
Section 422 of the Code.
8.3 ELIGIBLE EMPLOYEES
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.
8.4 TERM
The term of an Incentive Stock Option shall not exceed 10 years.
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<PAGE> 10
8.5 EXERCISABILITY
To qualify for Incentive Stock Option tax treatment, an Option
designated as an Incentive Stock Option must be exercised within three months
after termination of employment for reasons other than death, except that, in
the case of termination of employment due to total disability, such Option must
be exercised within one year after such termination. Employment shall not be
deemed to continue beyond the first 90 days of a leave of absence unless the
Participant's reemployment rights are guaranteed by statute or contract. For
purposes of this Section 8.5, "total disability" shall mean a mental or physical
impairment of the Participant which is expected to result in death or which has
lasted or is expected to last for a continuous period of 12 months or more and
which causes the Participant to be unable, in the opinion of the Company and two
independent physicians, to perform his or her duties for the Company and to be
engaged in any substantial gainful activity. Total disability shall be deemed to
have occurred on the first day after the Company and the two independent
physicians have furnished their opinion of total disability to the Plan
Administrator.
8.6 TAXATION OF INCENTIVE STOCK OPTIONS
In order to obtain certain tax benefits afforded to Incentive Stock
Options under Section 422 of the Code, the Participant must hold the shares
issued upon the exercise of an Incentive Stock Option for two years after the
Grant Date of the Incentive Stock Option and one year from the date of exercise.
A Participant may be subject to the alternative minimum tax at the time of
exercise of an Incentive Stock Option. The Plan Administrator may require a
Participant to give the Company prompt notice of any disposition of shares
acquired by the exercise of an Incentive Stock Option prior to the expiration of
such holding periods.
8.7 PROMISSORY NOTES
The amount of any promissory note delivered pursuant to Section 10 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.
SECTION 9. AWARDS OF OPTIONS TO NONEMPLOYEE
DIRECTORS
Notwithstanding any other provision of the Plan to the contrary, grants
to Eligible Directors shall be made only pursuant to the terms and conditions
set forth below.
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<PAGE> 11
9.1 ANNUAL GRANTS
Commencing with the Company's 1997 Annual Meeting of Shareholders, each
Eligible Director shall automatically receive a grant of an Option to purchase
1,000 shares of Common Stock immediately following each year's Annual Meeting of
Shareholders ("Annual Grants"). Annual Grants shall vest and become exercisable
upon the optionee's continued service as a director until the next Annual
Meeting of Shareholders after the Grant Date.
9.2 INITIAL GRANTS
Each Eligible Director shall automatically receive a grant of an Option
to purchase 5,500 shares of Common Stock immediately following his or her
initial election or appointment to the Board ("Initial Grants"). Initial Grants
shall vest and become exercisable as follows: Options for 1,375 shares shall
become exercisable on and after one year after the Grant Date, and Options for
an additional 1,375 shares shall become exercisable on and after each of the
three succeeding anniversaries of the Grant Date.
9.3 NONQUALIFIED STOCK OPTIONS; TERM OF OPTIONS
Options granted to an Eligible Director under the Plan shall constitute
Nonqualified Stock Options. The term of each Option granted under this Section 9
shall be five years from the Grant Date.
9.4 OPTION EXERCISE PRICE
The exercise price for shares purchased under an Option granted under
this Section 9 shall be the Fair Market Value of the Common Stock on the Grant
Date.
9.5 POST-TERMINATION EXERCISES
In case of termination of the Holder's services other than by reason of
death or Cause, the Option shall be exercisable, to the extent of the number of
shares purchasable by the Holder at the date of such termination, only within
three months after the date the Holder ceases to be a director of the Company if
such termination is for reasons other than Disability and only within one year
if such termination is by reason of Disability, but in no event later than the
remaining term of the Option. Any Option exercisable at the time of the Holder's
death may be exercised, to the extent of the number of shares purchasable by the
Holder at the date of the Holder's death, by the personal representative of the
Holder's estate entitled thereto at any time or from time to time within one
year after the date of death, but in no event later than the remaining term of
the Option. In case of termination of the Holder's services for Cause, the
Option shall automatically terminate upon first notification to the Holder of
such termination. If a Holder's services with the Company are suspended pending
an investigation of whether the Holder shall be terminated for Cause, all the
Holder's rights under any Option likewise shall be suspended during the period
of investigation.
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<PAGE> 12
9.6 CORPORATE TRANSACTION
In the event of a Corporate Transaction, each Award that is at the time
outstanding shall automatically accelerate so that each such Award shall,
immediately prior to the specified effective date for the Corporate Transaction,
become 100% vested, except that such acceleration will not occur if, in the
opinion of the Company's accountants, it would render unavailable "pooling of
interests" accounting for a Corporate Transaction that would otherwise qualify
for such accounting treatment. All such Awards not exercised prior to that time
shall terminate and cease to remain outstanding immediately following the
consummation of the Corporate Transaction.
9.7 AVAILABILITY OF SHARES
The Options provided for in this Section 9 are subject to the
availability of shares under the Plan. If at the date of any grant under this
Section 9 there are insufficient shares of Common Stock available to satisfy the
grants in whole, then the shares available shall be divided by the number of
Eligible Directors then entitled to a grant and each such Eligible Director
shall be granted an Option for that number of shares.
9.8 OTHER TERMS APPLICABLE
Except as otherwise provided in this Section 9, Options granted to
Eligible Directors shall be subject to the terms and conditions of the Plan
applicable to other Participants.
SECTION 10. LOANS, INSTALLMENT PAYMENTS AND
LOAN GUARANTEES
To assist a Holder (including a Holder who is an officer or director of
the Company) in acquiring shares of Common Stock pursuant to an Award granted
under the Plan, the Plan Administrator, in its sole discretion, may authorize,
either at the Grant Date or at any time before the acquisition of Common Stock
pursuant to the Award, (a) the extension of a loan to the Holder by the Company,
(b) the payment by the Holder of the purchase price, if any, of the Common Stock
in installments, or (c) the guarantee by the Company of a loan obtained by the
Holder from a third party. The terms of any loans, installment payments or loan
guarantees, including the interest rate and terms of repayment, will be subject
to the Plan Administrator's discretion. Loans, installment payments and loan
guarantees may be granted with or without security. The maximum credit available
is the purchase price, if any, of the Common Stock acquired, plus the maximum
federal and state income and employment tax liability that may be incurred in
connection with the acquisition.
SECTION 11. ASSIGNABILITY
No Award granted under the Plan may be pledged, assigned or transferred
by the Holder other than by will or by the laws of descent and distribution, and
during the Holder's lifetime, such Awards may be exercised only by the Holder.
Notwithstanding the foregoing, and to the extent permitted by Section 422 of the
Code, the Plan Administrator, in its sole discretion, may permit such
assignment, transfer and exercisability and may permit a Holder of such Awards
to designate
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<PAGE> 13
a beneficiary who may exercise the Award or receive compensation under the Award
after the Holder's death; provided, however, that any Award so assigned or
transferred shall be subject to all the same terms and conditions contained in
the instrument evidencing the Award.
SECTION 12. ADJUSTMENTS
12.1 ADJUSTMENT OF SHARES
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock of the Company, then the Plan
Administrator shall make proportional adjustments in (i) the maximum number and
class of securities subject to the Plan as set forth in Section 4.1, (ii) the
number and class of securities that may be made subject to Awards to any
individual Participant as set forth in Sections 4.2, 9.1, 9.2 and 9.3 and (iii)
the number and class of securities subject to any outstanding Award and the per
share price of such securities, without any change in the aggregate price to be
paid therefor. The determination by the Plan Administrator as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
12.2 CORPORATE TRANSACTION
Except as otherwise provided in the instrument that evidences the
Award, in the event of a Corporate Transaction, each Award that is at the time
outstanding shall automatically accelerate so that each such Award shall,
immediately prior to the specified effective date for the Corporate Transaction,
become 100% vested, except that such acceleration will not occur if, in the
opinion of the Company's accountants, it would render unavailable "pooling of
interests" accounting for a Corporate Transaction that would otherwise qualify
for such accounting treatment. Except for Options granted pursuant to Section 9,
such Award shall not so accelerate, if and to the extent (a) such Award is, in
connection with the Corporate Transaction, either to be assumed by the successor
corporation or parent thereof (the "Successor Corporation") or to be replaced
with a comparable award for the purchase of shares of the capital stock of the
Successor Corporation or, (b) such Award is to be replaced with a cash incentive
program of the Successor Corporation that preserves the spread existing at the
time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to such Award. The
determination of Award comparability under clause (a) above shall be made by the
Plan Administrator, and its determination shall be conclusive and binding. All
such Awards shall terminate and cease to remain outstanding immediately
following the consummation of the Corporate Transaction, except to the extent
such Awards (other than Options granted pursuant to Section 9) are assumed by
the Successor Corporation. Any such Awards that are assumed or replaced in the
Corporate Transaction and do not otherwise accelerate at that time shall be
accelerated in the event the Holder's employment or services should subsequently
terminate within two years following such Corporate Transaction, unless such
employment or services are
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<PAGE> 14
terminated by the Successor Corporation for Cause or by the Holder voluntarily
without Good Reason. Notwithstanding the foregoing, no Incentive Stock Option
shall become exercisable pursuant to this Section 12.2 without the Holder's
consent, if the result would be to cause such Option not to be treated as an
Incentive Stock Option (whether by reason of the annual dollar limitation
described in Section 8.1 or otherwise).
12.3 FURTHER ADJUSTMENT OF AWARDS
Subject to the preceding Section 12.2, the Plan Administrator shall
have the discretion, exercisable at any time before a sale, merger,
consolidation, reorganization, liquidation or change in control of the Company,
as defined by the Plan Administrator, to take such further action as it
determines to be necessary or advisable, and fair and equitable to Participants,
with respect to Awards (other than Options granted pursuant to Section 9). Such
authorized action may include (but shall not be limited to) establishing,
amending or waiving the type, terms, conditions or duration of, or restrictions
on, Awards so as to provide for earlier, later, extended or additional time for
exercise, alternate forms and amounts of payments and other modifications, and
the Plan Administrator may take such actions with respect to all Participants,
to certain categories of Participants or only to individual Participants. The
Plan Administrator may take such actions before or after granting Awards to
which the action relates and before or after any public announcement with
respect to such sale, merger, consolidation, reorganization, liquidation or
change in control that is the reason for such action.
12.4 LIMITATIONS
The grant of Awards will in no way affect the Company's right to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
SECTION 13. WITHHOLDING
The Company may require the Holder to pay to the Company the amount of
any withholding taxes that the Company is required to withhold with respect to
the grant or exercise of any Award. In such instances, subject to the Plan and
applicable law and unless the Plan Administrator determines otherwise, the
Holder may satisfy withholding obligations, in whole or in part, by paying cash,
by electing to have the Company withhold shares of Common Stock or by
transferring shares of Common Stock to the Company, in such amounts as are
equivalent to the Fair Market Value of the withholding obligation. The Company
shall have the right to withhold from any shares of Common Stock issuable
pursuant to an Award or from any cash amounts otherwise due or to become due
from the Company to the Participant an amount equal to such taxes. The Company
may also deduct from any Award any other amounts due from the Participant to the
Company or a Subsidiary.
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<PAGE> 15
SECTION 14. AMENDMENT AND TERMINATION OF
PLAN
14.1 AMENDMENT OF PLAN
The Plan may be amended by the shareholders of the Company. The Board
may also amend the Plan in such respects as it shall deem advisable; however, to
the extent required for compliance with Section 422 of the Code or any
applicable law or regulation, shareholder approval will be required for any
amendment that will (a) increase the aggregate number of shares as to which
Awards may be granted, (b) modify the class of employees eligible to receive
Awards, or (c) otherwise require shareholder approval under any applicable law
or regulation.
14.2 TERMINATION OF PLAN
The Company's shareholders or the Board may suspend or terminate the
Plan at any time. The Plan will have no fixed expiration date; provided,
however, that no Incentive Stock Options may be granted more than 10 years after
the earlier of the Plan's adoption by the Board or approval by the shareholders.
14.3 CONSENT OF HOLDER
The amendment or termination of the Plan shall not, without the consent
of the Holder of any Award under the Plan, impair or diminish any rights or
obligations under any Award theretofore granted under the Plan.
Any change or adjustment to an outstanding Incentive Stock Option shall
not, without the consent of the Holder, be made in a manner so as to constitute
a "modification" that would cause such Incentive Stock Option to fail to
continue to qualify as an Incentive Stock Option.
SECTION 15. GENERAL
15.1 AWARD AGREEMENTS
Awards granted under the Plan shall be evidenced by a written agreement
which shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and which are not inconsistent with the
Plan.
15.2 CONTINUED EMPLOYMENT OR SERVICES; RIGHTS IN AWARDS
None of the Plan, participation in the Plan as a Participant or any
action of the Plan Administrator taken under the Plan shall be construed as
giving any Participant or employee of the Company any right to be retained in
the employ of the Company or limit the Company's right to terminate the
employment or services of the Participant.
15.3 REGISTRATION; CERTIFICATES FOR SHARES
The Company shall be under no obligation to any Participant to register
for offering or resale or to qualify for exemption under the Securities Act, or
to register or qualify under state
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<PAGE> 16
securities laws, any shares of Common Stock, security or interest in a security
paid or issued under, or created by, the Plan, or to continue in effect any such
registrations or qualifications if made. The Company may issue certificates for
shares with such legends and subject to such restrictions on transfer and
stop-transfer instructions as counsel for the Company deems necessary or
desirable for compliance by the Company with federal and state securities laws.
Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of an
exemption from registration for the issuance and sale of any shares hereunder
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.
15.4 NO RIGHTS AS A SHAREHOLDER
No Award shall entitle the Holder to any dividend, voting or other
right of a shareholder unless and until the date of issuance under the Plan of
the shares that are the subject of such Award, free of all applicable
restrictions.
15.5 COMPLIANCE WITH LAWS AND REGULATIONS
Notwithstanding anything in the Plan to the contrary, the Board, in its
sole discretion, may bifurcate the Plan so as to restrict, limit or condition
the use of any provision of the Plan to Participants who are officers or
directors subject to Section 16 of the Exchange Act without so restricting,
limiting or conditioning the Plan with respect to other Participants.
Additionally, in interpreting and applying the provisions of the Plan, any
Option granted as an Incentive Stock Option pursuant to the Plan shall, to the
extent permitted by law, be construed as an "incentive stock option" within the
meaning of Section 422 of the Code.
15.6 NO TRUST OR FUND
The Plan is intended to constitute an "unfunded" plan. Nothing
contained herein shall require the Company to segregate any monies or other
property, or shares of Common Stock, or to create any trusts, or to make any
special deposits for any immediate or deferred amounts payable to any
Participant, and no Participant shall have any rights that are greater than
those of a general unsecured creditor of the Company.
15.7 SEVERABILITY
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.
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<PAGE> 17
SECTION 16. EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by the
Board, so long as it is approved by the Company's shareholders at any time
within 12 months of such adoption.
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