<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
---------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-21103
ADVANCED DIGITAL INFORMATION CORPORATION
Incorporated under the laws I.R.S. Identification
of the State of Washington No. 91-1618616
11431 Willows Road
P.O. Box 97057
Redmond, Washington 98073-9757
(425) 881-8004
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[X] Yes [ ] No
The total shares of common stock without par value outstanding at the end of the
quarter reported is 20,195,644.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANCED DIGITAL INFORMATION CORPORATION
CONSOLIDATED BALANCE SHEETS
JULY 31, 1999 AND OCTOBER 31, 1998
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1999 1998
------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 31,657,804 $ 28,225,892
Accounts receivable, net of allowances of $610,000 in 1999
and $476,000 in 1998.................................. 34,763,776 31,797,375
Inventories, net........................................ 34,078,318 32,293,526
Marketable equity securities............................ 1,720,052 2,135,449
Prepaid expenses and other.............................. 1,200,883 1,500,145
Deferred income taxes .................................. 1,339,879 1,339,879
------------- -------------
Total current assets.................................. 104,760,712 97,292,266
------------- -------------
Property, plant and equipment, net ........................ 7,892,753 7,351,305
Deferred income taxes...................................... 62,681 62,681
Investment in common stock................................. 15,000,000 4,000,000
Intangible and other assets................................ 1,959,721 3,700,374
------------- -------------
$ 129,675,867 $ 112,406,626
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 22,166,812 $ 16,986,445
Accrued liabilities..................................... 8,327,174 7,901,981
Income taxes payable.................................... 640,673 397,539
Deferred revenue........................................ 3,682,472 2,252,106
Current portion of long-term debt....................... 8,548,944 3,172,328
------------- -------------
Total current liabilities........................... 43,366,075 30,710,399
------------- -------------
Long-term debt............................................. 9,102,462 18,368,092
Other long-term liabilities................................ -- 300,000
Minority interest.......................................... 405,612 24,744
Commitments................................................ -- --
Shareholders' equity:
Preferred stock, no par value; 2,000,000 shares
authorized; none issued and outstanding .............. -- --
Common stock, no par value; 40,000,000 shares authorized,
20,195,644 issued and outstanding (19,532,322 in 1998) 50,510,901 46,231,387
Retained earnings....................................... 27,153,040 16,009,334
Cumulative translation adjustment....................... (862,223) 762,670
------------- -------------
Total shareholders' equity.......................... 76,801,718 63,003,391
------------- -------------
$ 129,675,867 $ 112,406,626
------------- -------------
------------- -------------
</TABLE>
See the accompanying notes to these consolidated financial statements.
2
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ADVANCED DIGITAL INFORMATION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME THREE
MONTHS AND NINE MONTHS ENDED JULY 31, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
------------------------------ ----------------------------
1999 1998 1999 1998
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales...................................... $ 57,190,897 $ 25,314,025 $160,379,444 $ 72,985,581
Cost of sales.................................. 37,074,770 18,544,302 105,830,141 51,790,825
------------- ------------- ------------ -------------
Gross profit................................ 20,116,127 6,769,723 54,549,303 21,194,756
------------- ------------- ------------ -------------
Operating expenses:
Selling and administrative.................. 9,408,583 4,978,269 27,502,146 12,943,609
Research and development.................... 3,439,509 817,687 9,490,448 2,062,765
------------- ------------- ------------ -------------
12,848,092 5,795,956 36,992,594 15,006,374
------------- ------------- ------------ -------------
Operating profit .............................. 7,268,035 973,767 17,556,709 6,188,382
------------- ------------- ------------ -------------
Other income:
Interest income............................. 191,265 222,679 516,595 789,959
Interest expense............................ (182,387) -- (728,849) --
Gain on sale of marketable equity securities 7,232 -- 570,969 247,814
Foreign currency transaction gains (losses),
net....................................... 116,577 (63,317) 206,518 200,409
Other...................................... (92,336) -- (93,402) --
------------- ------------- ------------ -------------
40,351 159,362 471,831 1,238,182
------------- ------------- ------------ -------------
Income before provision for income taxes....... 7,308,386 1,133,129 18,028,540 7,426,564
Minority interest.............................. 97,995 -- 380,868 --
Provision for income taxes..................... 2,663,466 380,967 6,503,966 2,379,199
------------- ------------- ------------ -------------
Net income..................................... $ 4,546,925 $ 752,162 $ 11,143,706 $ 5,047,365
------------- ------------- ------------ -------------
------------- ------------- ------------ -------------
Basic net income per share..................... $ 0.23 $ 0.04 $ 0.56 $ 0.26
------------- ------------- ------------ -------------
------------- ------------- ------------ -------------
Diluted net income per share................... $ 0.22 $ 0.04 $ 0.54 $ 0.25
------------- ------------- ------------ -------------
------------- ------------- ------------ -------------
</TABLE>
See the accompanying notes to these consolidated financial statements.
3
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ADVANCED DIGITAL INFORMATION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JULY 31, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 11,143,706 $ 5,047,365
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 2,796,720 874,807
Minority interest................................... 380,868 --
Assets retired...................................... 157,493 --
Gain on sale of marketable equity securities........ (570,969) (247,814)
Change in assets and liabilities:
Accounts receivable................................. (3,774,377) (2,167,387)
Inventories......................................... (2,638,092) (4,916,788)
Prepaid expenses and other ......................... 212,178 138,836
Other assets........................................ (50,665) (46,267)
Accounts payable.................................... 5,480,376 (3,986,130)
Accrued liabilities................................. 689,695 (565,452)
Income taxes payable................................ 1,717,521 (296,074)
Deferred revenue.................................... 1,547,216 --
-------------- --------------
Net cash provided by (used in) operating activities........ 17,091,670 (6,164,904)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment............... (3,626,477) (2,511,984)
Investment in marketable equity securities.............. (1,769,488) (3,003,908)
Proceeds from sale of marketable equity securities...... 2,755,854 1,116,273
Investment in common stock.............................. (11,000,000) --
-------------- --------------
Net cash used in investing activities...................... (13,640,111) (4,399,619)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term and long-term borrowings....... 10,733,894 --
Repayment of long-term debt............................. (14,233,593) --
Repayment of other long-term liabilities................ (300,000) --
Proceeds from issuance of common stock for stock options
and stock purchase plan including tax benefit ........ 4,279,514 140,420
-------------- --------------
Net cash provided by financing activities.................. 479,815 140,420
-------------- --------------
Effect of exchange rate changes on cash ................... (499,462) (91,797)
-------------- --------------
Net increase (decrease) in cash and cash equivalents....... 3,431,912 (10,515,900)
Cash and cash equivalents at beginning of period........... 28,225,892 32,806,822
-------------- --------------
Cash and cash equivalents at end of period ................ $ 31,657,804 $ 22,290,922
-------------- --------------
-------------- --------------
</TABLE>
See the accompanying notes to these consolidated financial statements.
4
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ADVANCED DIGITAL INFORMATION CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED JULY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
------------ REVISED COMPREHENSIVE
SHARES AMOUNT EARNINGS INCOME TOTAL
------------ ----------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1998........... 19,532,322 $ 46,231,387 $ 16,009,334 $ 762,670 $ 63,003,391
Purchases under Stock Purchase Plan... 101,996 292,602 -- -- 292,602
Exercise of stock options,
including tax benefit of -- --
$1,794,000.......................... 561,326 3,986,912 3,986,912
Comprehensive income:
Net income.......................... -- -- 11,143,706 -- --
Foreign currency translation -- -- -- (1,624,893) --
adjustment........................
Comprehensive income............ -- -- -- -- 9,518,813
----------- ------------ ----------- -------------- --------------
Balance at July 31, 1999.............. 20,195,644 $ 50,510,901 $ 27,153,040 $ (862,223) $ 76,801,718
----------- ------------ ----------- -------------- --------------
----------- ------------ ----------- -------------- --------------
</TABLE>
See the accompanying notes to these consolidated financial statements.
5
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ADVANCED DIGITAL INFORMATION CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed financial statements are unaudited and
should be read in conjunction with the Advanced Digital Information Corporation
financial statements included in the Company's Annual Report on Form 10-K for
the year ended October 31, 1998. In the opinion of management, all normal
recurring adjustments which are necessary for the fair presentation of the
results for the interim periods are reflected herein. Operating results for the
nine-month period ended July 31, 1999 are not necessarily indicative of results
to be expected for a full year.
All references to the number of shares and per share amounts of the
Company's common stock in the accompanying financial statements and these notes
have been restated to reflect a two-for-one stock split effected on August 12,
1999.
NOTE 2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net
income per share for the three months and nine months ended July 31, 1999 and
1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
------------------------------ -------------------------------
1999 1998 1999 1998
---------------- --------- ------------ --------------
<S> <C> <C> <C> <C>
Numerator:
Net income.................................... $ 4,546,925 $ 752,162 $11,143,706 $ 5,047,365
Denominator:
Denominator for basic net income per share
-- weighted average shares ................. 19,975,792 19,511,732 19,731,004 19,460,172
Dilutive potential common shares from Team
Member (employee) stock options............ 1,049,677 298,392 764,783 349,622
-------------- ----------- ----------- -----------
Denominator for diluted net income per share
- adjusted weighted average shares and
assumed conversions......................... 21,025,469 19,810,124 20,495,787 19,809,794
-------------- ----------- ----------- -----------
-------------- ----------- ----------- -----------
Basic net income per share....................... $ 0.23 0.04 $ 0.56 $ 0.26
-------------- ----------- ----------- -----------
-------------- ----------- ----------- -----------
Diluted net income per share..................... $ 0.22 $ 0.04 $ 0.54 $ 0.25
-------------- ----------- ----------- -----------
-------------- ----------- ----------- -----------
</TABLE>
6
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NOTE 3. INVENTORIES
Inventory is comprised as follows:
<TABLE>
<CAPTION>
JULY 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
Finished goods..................................... $ 13,041,246 $ 13,104,058
Work-in-process.................................... 4,018,577 3,382,683
Raw materials...................................... 20,334,665 17,951,520
---------------- ----------------
37,394,488 34,438,261
Allowance for inventory obsolescence............... (3,316,170) (2,144,735)
---------------- ----------------
$ 34,078,318 $ 32,293,526
---------------- ----------------
---------------- ----------------
</TABLE>
NOTE 4. INVESTMENT IN COMMON STOCK
In December 1998, the Company purchased an approximately 8% interest in
Network Integrity, Inc. for an aggregate purchase price of $4,000,000. This
investment is accounted for under the cost method. Network Integrity, Inc. is a
developer of specialized data protection software products.
In July 1999, the Company purchased an approximately 15% interest in
@Backup, Inc., an Internet-based backup and data service company, for an
aggregate purchase price of $7,000,000. This investment is accounted for under
the cost method.
NOTE 5. INVESTMENT IN MARKETABLE EQUITY SECURITIES
At July 31, 1999, the Company has invested in certain equity
securities. In accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("FAS
115") these investments are classified as available-for-sale. Under FAS 115,
unrealized holding gains and losses are reflected as a net amount in a separate
component of shareholders' equity until realized. For the purpose of computing
realized gains and losses, costs are identified on a specific identification
basis. There is no significant difference between the cost basis and fair value
of these securities at July 31, 1999. During the nine months ended July 31,
1999, the Company sold certain marketable equity securities and realized a gain
of $571,000.
NOTE 6. SHORT-TERM AND LONG-TERM BORROWINGS
In June 1999, ADIC finalized two operating lines provided by German
banks totaling approximately $8,900,000 in German marks and borrowed the entire
amount. These loans are due May 2003 and bear interest at each bank's rate,
approximately 3.2% through November 1999. Beginning in December 1999, the
interest rate varies; the Company has entered into a hedging contract to fix the
interest rate at 4.3%.
In May 1999, ADIC repaid certain loans collateralized by its German
manufacturing facility and entered into a new loan, which is secured by the same
facility. The loan is payable in monthly installments of approximately $18,300
per month, plus interest at 4.4% through April 2009.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis may contain forward-looking
statements that involve risks and uncertainties. Such forward-looking statements
include, among others, those statements including the words "expect,"
"anticipate," "intend," "believe" and similar expressions. Our actual results
could differ materially from those discussed here. Such risks are detailed in
our Registration Statement on Form S-3 filed with the SEC on August 6, 1999 and
are incorporated herein by reference. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. We undertake 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.
NET SALES. Net sales for the three months ended July 31, 1999 increased
126% to $57.2 million from $25.3 million for the same period in fiscal 1998. Net
sales for the nine months ended July 31, 1999 were $160.4 million, an increase
of 120% compared to the nine months ended July 31, 1998. This increase in net
sales reflects the inclusion of revenue associated with the acquisition of
EMASS, as well as strong sales growth across our major product lines, in both
our branded products and OEM business.
GROSS PROFIT. Gross profit was $20.1 million or 35% of net sales for
the three months ended July 31, 1999 compared to $6.8 million or 27% for the
same period in fiscal 1998. This increase in gross profit percentage relates to
a combination of product mix and volume efficiencies. Gross profit was $54.5
million or 34% of net sales for the nine months ended July 31, 1999 compared to
$21.2 million or 29% of net sales for the same period in fiscal 1998. Gross
profit percentage for the nine-month period was higher than the same period in
fiscal 1998 due to a shift in product mix toward higher-margin tape libraries,
software and service, and away from lower-margin standalone tape drives and
media, as well as the effects of overall volume increases. Offsetting this trend
were higher overhead costs associated with our new Washington facility and
increases in personnel to support the OEM business, all of which began to be
incurred late in the second quarter of fiscal 1998.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses were $9.4 million or 16% of net sales for the three months ended July
31, 1999 compared to $5.0 million or 20% for the same period in fiscal 1998.
Selling and administrative expenses were $27.5 million or 17% of net sales for
the nine months ended July 31, 1999 compared to $12.9 million or 18% of net
sales for the same period in fiscal 1998. The dollar increases in the three
months and nine months ended July 31, 1999 over the comparable periods in fiscal
1998 are primarily a reflection of our acquisition of EMASS in August 1998, as
well as increased sales and administrative personnel both in the headquarters
office and in regional offices.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
were $3.4 million or 6% of net sales for the three months ended July 31, 1999
compared to $818,000 or 3% of net sales for the same period in 1998. Research
and development expenses were $9.5 million or 6% of net sales for the nine
months ended July 31, 1999 compared to $2.1 million or 3% of net sales for the
same period in fiscal 1998. The increase in the three and nine month periods is
primarily a result of our acquisition of EMASS, as well as our increased
emphasis on software-based products. We intend to maintain this higher level of
research and development spending as we continue investing heavily in software
development and new hardware products.
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OTHER INCOME. Other income was $40,000 in the quarter ended July 31,
1999 compared to $159,000 for the same period in fiscal 1998. Other income for
the nine months ended July 31, 1999 was $472,000 compared to $1.2 million for
the same period in fiscal 1998. Interest expense of $182,000 and $729,000 in the
three months and nine months ended July 31, 1999, respectively, relates
primarily to interest on a bank loan, the proceeds of which were used to
partially finance the acquisition of EMASS. The decrease in interest income for
the 1999 periods results from lower cash balances reflecting cash utilization
for the acquisition of EMASS in August 1998 and an investment in Network
Integrity, Inc. in December 1998, as well as for paydown of our long-term debt.
The gain on sale of marketable equity securities relates to investments in
certain securities made during fiscal 1998 and sold during fiscal 1999.
PROVISION FOR INCOME TAXES. Income tax expense for the three months and
nine months ended July 31, 1999 was $2.7 million and $6.5 million, respectively,
compared to $381,000 and $2.4 million for the same periods in fiscal 1998. We
believe that the 36% effective tax rate reflected in our results for fiscal 1999
which includes taxes paid in various federal, state and international
jurisdictions, is generally indicative of our effective tax rate in future
periods. There are significant deferred tax assets associated with net operating
loss carryforwards and other timing differences associated with subsidiaries
acquired in the EMASS transactions. A valuation allowance has been established
on these deferred tax assets because it is more likely than not that these
deferred assets will not be realized. In the event that earnings of these
companies allow us to deduct these expenses for tax purposes and recognize these
assets, we will reallocate the purchase price to reduce noncurrent intangible
assets related to the acquisition.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities were $17.1 million for the
first nine months of fiscal 1999 compared to cash used in operating activities
of $6.2 in the comparable period of fiscal 1998. In each of these periods,
operating cash was primarily provided by net income, depreciation and other
reserves. In fiscal 1999, accounts payable growth also contributed to cash
provided by operating activities. Increases in accounts receivable and
inventories in fiscal 1999 and 1998 were the most significant uses of cash.
Cash flows used in investing activities were $13.6 million for the
first nine months of fiscal 1999 and $4.4 million for the first nine months of
fiscal 1998. The first nine months of fiscal 1999 includes a $4.0 million
investment in Network Integrity, Inc., a $7.0 million investment in @Backup,
Inc. and ongoing investments in property, plant and equipment and marketable
equity securities.
Cash flows provided by financing activities were $480,000 for the first
nine months of fiscal 1999 compared to the provision of cash from financing
activities of $140,000 in the first nine months of fiscal 1998. In June 1999, we
finalized two operating lines provided by German banks totaling approximately
$8.9 million in German marks and borrowed the entire amount. These loans are due
May 2003 and bear interest at the bank's rate, approximately 3.2% through
November 1999. Beginning in December 1999, the interest rate varies; we have
entered into a hedging contract to fix the interest rate at 4.3%. Additionally,
we refinanced the mortgage loan on our Germany facility with a long-term loan
totaling approximately $1.8 million in German marks.
YEAR 2000 READINESS DISCLOSURE
Many computers, software and other equipment include computer code in
which calendar year data is abbreviated to only two digits. As a result, some of
these systems could fail to operate or fail to produce correct results if "00"
is interpreted to mean 1900, rather than 2000. This error could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a
9
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temporary inability to process transactions, send invoices, or engage in
similar normal business activities. We are actively assessing the impact of
the upcoming change on our business, financial condition and operating
results.
PRODUCTS. Based on our assessment to date, we believe the current
versions of our software and hardware products are year 2000 compliant. All
new products are being designed to be year 2000 compliant. While most of our
internally manufactured library products have no date functionality built
into them, this is not true for certain software and large library products.
Year 2000 compliant updates are currently available for all of these products
and our service personnel are able to install these upgrades in conjunction
with routine maintenance. In addition, we have reviewed and continue to
review hardware used in connection with certain large library products. We
have replaced certain systems that cannot be made compliant and upgraded
those that can. We estimate that the total costs to replace this hardware
approximates $250,000, with approximately $50,000 yet to be expended. A
portion of these costs is reimbursed by customers.
We cannot assure you that all of our existing products will contain
all necessary date codes. Further, use of our products in connection with
other products that are not year 2000 compliant, including non-compliant
hardware, software and firmware may result in the inaccurate exchange of
dates and result in performance problems or system failure. Any failure of
our products to perform could result in claims against us. The cost of
defending any such claim which may arise, as well as any liability for year
2000 related damages could have a material adverse effect on our business,
operating results and financial condition.
INTERNAL INFORMATION TECHNOLOGY SYSTEMS. Our business depends on
numerous systems that could potentially be impacted by year 2000 related
problems. We continue to assess the possible effects on our operations of the
year 2000 readiness of our enterprise resource planning computer systems and
other internal systems. Based on assessments to date and software vendor
certification, we believe that the enterprise resource planning computer
systems at our various manufacturing sites are either year 2000 compliant
currently or can be modified to ensure compliance. In addition, we plan to
complete follow-up testing in the fourth quarter of fiscal 1999. Other
internal systems have been assessed or are currently being assessed. Based on
such assessments we will modify or replace such systems. We expect the
assessments and tests of these systems to be completed in the fourth quarter
of 1999. Based on work completed through July 31, 1999 we anticipate
replacing several network servers in Denver and Germany and various other
pieces of equipment and software for a total cost of $100,000.
SYSTEMS OTHER THAN INFORMATION TECHNOLOGY SYSTEMS. In addition to
computers and related systems, the operation of office and facilities
equipment, such as fax machines, telephone switches, security systems and
other common devices, may be affected by year 2000 problems. We continue to
assess the potential effect and costs of remediating the year 2000 problem on
our office equipment and facilities. For example, we identified the need to
replace a phone switch and system in our Paris office for a total cost of
$30,000. We are not aware of any other significant operational year 2000
issues or costs associated with our non-information technology systems.
However, we may experience significant unanticipated problems and costs
caused by undetected errors or defects in the technology used in these
systems.
SUPPLIERS. Our reliance on key suppliers, and therefore on the proper
function of their information systems and software, means that their failure to
address year 2000 issues could have a material impact on our operations and
financial results. We have asked key suppliers to provide information regarding
their readiness for year 2000 related issues and have received responses from
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substantially all of them. We are reviewing the responses and will determine
what further actions are required to mitigate vulnerability to problems with
suppliers and other third parties' systems.
YEAR 2000 COSTS. We expect to incur primarily internal staff cost and
other expenses related to infrastructure and facilities enhancements necessary
to prepare the systems for year 2000. To date there have been no material direct
out-of-pocket costs in these areas. Although the total cost of these year 2000
compliance activities is not yet determined, it is not anticipated to be
material to our business, operating results and financial condition.
CONTINGENCY PLANS. We are developing contingency plans to be
implemented if our efforts to identify and correct year 2000 problems affecting
critical internal systems are not effective. We expect to complete our
contingency plans by late 1999.
WORST-CASE SCENARIO. We believe that the most likely worst-case
scenario related to the year 2000 issue that we may experience would be either
an inability to obtain inventory components from suppliers or delays in
receiving orders or payments from customers due to year 2000 problems
experienced by these third parties. If either of these events transpires, we
could experience decreased revenue due to our inability to produce and ship our
products or our inability to collect payments due to us in a timely fashion.
DISCLAIMER. The discussion of our efforts and expectations relating to
year 2000 compliance include forward-looking statements. Our ability to achieve
year 2000 compliance and the amount of necessary additional costs could be
adversely affected by the availability and cost of programming and testing
resources, third party suppliers' ability to modify proprietary software and
unanticipated problems identified in our ongoing compliance review.
11
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other information.
STOCK DIVIDEND; INCREASE IN AUTHORIZED COMMON STOCK
On July 20, 1999, the Company announced that its Board of
Directors approved a two-for-one stock split of its common
stock in the form of a stock dividend. Shareholders of record
on July 30, 1999 received one additional share of common stock
for each share of common stock held on that date. The stock
split was effective August 12, 1999. In connection with this
stock split, the Company's authorized common stock was
increased proportionately from 40 million shares to 80 million
shares.
CHANGE OF CONTROL AGREEMENTS
In May 1999, the Company's Board of Directors approved Change
of Control Agreements with each of our executive officers.
These agreements provide that upon a "change of control" (as
defined in the agreements), we or our affiliated companies
will continue to employ such executive officer, in accordance
with the terms of the agreement, for a specified period (the
"Employment Period"). The Employment Period is three years in
the case of the Company's Chief Executive Officer, Peter van
Oppen, and its Chief Operating Officer, Chuck Stonecipher, and
either two years or one year for other executive officers.
During the applicable Employment Period, such executive
officer's position and duties would remain commensurate to
those prior to the change of control, and such executive
officer would be employed at a location within 35 miles of
where such executive officer was employed prior to the change
of control.
During the applicable Employment Period, each such executive
officer will be entitled to receive an annual base salary at
least equal to his or her annual salary for the fiscal year in
which the change of control occurs plus an annual bonus at
least equal to 75% of the highest annual bonus paid or payable
to the executive officer in respect of the two fiscal years
immediately preceding the fiscal year in which the change of
control occurs. In addition, during the applicable Employment
Period each such executive will be entitled to participate in
insurance and employee benefit programs and to reimbursement
for
12
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reasonable employment expenses, as generally available to
other employees after the change of control.
If during the Employment Period the executive officer's
employment is terminated by us for any reason other than
death, disability or "cause," or by the executive for "good
reason" (as such terms are defined in the agreements), such
executive officer will be entitled to certain other benefits,
including a lump-sum payment equal to all accrued or deferred
compensation, plus severance pay equal to one, two or three
times the sum of the executive officer's annual base salary
for the fiscal year in which the termination occurs and an
amount equal to 75% of the highest annual bonus paid or
payable to the executive officer for the three years preceding
his or her termination. In addition, any executive officer so
terminated will be entitled to immediate vesting and
exercisability of all his or her options to purchase
securities of ADIC or our successor. The lump sum severance
amounts otherwise payable under the change of control
agreements are subject to reduction in the event that such
payments constitute an "excess parachute payment" within the
meaning of Section 280G of the Internal Revenue Code.
We may unilaterally terminate any of the change of control
agreements at any time by giving notice to an executive
officer. Such termination would be effective one year
following the date of such notice and would be without effect
were a change of control to occur during such one-year period.
Item 6. Exhibits and Reports on Form 8-K.
No Reports on Form 8-K were filed during the fiscal quarter
ended July 31, 1999.
The following exhibits are filed as part of this report.
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1.1 Restated Articles of Incorporation of
ADIC (incorporated by reference to
Exhibit 3.1 to Form 10 Information
Statement filed September 10, 1996)
3.1.2 Articles of Amendment of ADIC dated September 1,
1999
10.1 Form of Change in Control Agreement, together
with schedule of actual agreements
27.1 Financial Data Schedule
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED DIGITAL INFORMATION CORPORATION
Dated: September 1, 1999 /s/ Peter H. van Oppen
------------------------------------------
Peter H. van Oppen, Chairman
and Chief Executive Officer
Dated: September 1, 1999 /s/ Leslie S. Rock
------------------------------------------
Leslie S. Rock, Treasurer
and Chief Accounting Officer
14
<PAGE>
ARTICLES OF AMENDMENT
OF
ADVANCED DIGITAL INFORMATION CORPORATION
The following Articles of Amendment are executed by the undersigned, a
Washington corporation:
1. The name of the corporation is Advanced Digital Information
Corporation.
2. Effective upon the filing of these Articles of Amendment with the
Secretary of State of Washington, Article 4.1 of the Restated Articles of
Incorporation of the corporation is amended to read as follows:
4.1 AUTHORIZED CAPITAL
The total authorized stock of this corporation shall consist
of 80,000,000 shares of Common Stock, no par value, and 2,000,000
shares of Preferred Stock, no par value.
3. The date of the adoption of the amendment by the Board of Directors
of the corporation was July 19, 1999. Shareholder approval was not required
pursuant to RCW 23B.10.020(4).
4. The amendment does not provide for the exchange, reclassification or
cancellation of issued shares.
These Articles of Amendment are executed by said corporation by its
duly authorized officer.
DATED: September 1, 1999
ADVANCED DIGITAL INFORMATION CORPORATION
By /s/ Leslie S. Rock
------------------------------------------
Leslie S. Rock, Secretary-Treasurer and
Chief Accounting Officer
<PAGE>
SCHEDULE TO FORM OF CHANGE OF CONTROL
AGREEMENT
EXECUTIVES ENTERING INTO AGREEMENT AND COVERED PERIOD
<TABLE>
<CAPTION>
------------------------------------- -----------------------
EXECUTIVE NAME COVERED PERIOD
------------------------------------- -----------------------
<S> <C>
Peter H. van Oppen Three years
------------------------------------- -----------------------
Charles H. Stonecipher Three years
------------------------------------- -----------------------
William C. Britts Two years
------------------------------------- -----------------------
Michel R. Grosbost Two years
------------------------------------- -----------------------
Bruce G. Fox One year
------------------------------------- -----------------------
Mark W. Matson One year
------------------------------------- -----------------------
Jonathan E. Otis One year
------------------------------------- -----------------------
Andrew E. Richards One year
------------------------------------- -----------------------
Leslie S. Rock One year
------------------------------------- -----------------------
Paul G. Rutherford One year
------------------------------------- -----------------------
Richard S. Sato One year
------------------------------------- -----------------------
Richard N. Schulman One year
------------------------------------- -----------------------
Robert J. Swanson One year
------------------------------------- -----------------------
F. James Vaughn One year
------------------------------------- -----------------------
Christopher S. Willis One year
------------------------------------- -----------------------
</TABLE>
<PAGE>
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (this "Agreement"), dated as of May 14,
1999, is between ADVANCED DIGITAL INFORMATION CORPORATION, a Washington
corporation (the "Company"), and ___________________ (the "Executive").
RECITAL
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to ensure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined in
Section 1.1 hereof) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive arising from the personal
uncertainties and risks created by a pending or threatened Change of Control, to
encourage the Executive's full attention and dedication to the Company currently
and in the event of any threatened or pending Change of Control, and to provide
the Executive with reasonable compensation and benefit arrangements upon a
Change of Control.
AGREEMENT
In order to accomplish these objectives, the Board has caused the Company
to enter into this Agreement.
1. DEFINITIONS
1.1 CHANGE OF CONTROL
"Change of Control" means any of the following events:
(a) Consummation of a reorganization, exchange of securities, merger
or consolidation involving the Company (each, a "Business Combination"), unless
immediately following such Business Combination, (i) more than 50% of the then
outstanding shares of common stock of the corporation resulting from or
effecting such Business Combination and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all the individuals and entities who were the beneficial
owners of the outstanding common stock of the Company immediately prior to such
Business Combination in substantially the same proportion as their ownership
immediately prior to such Business Combination, and (ii) at least a majority of
the members of the board of directors of the corporation resulting from or
effecting such Business Combination were (or were approved by a majority of) the
Incumbent Directors (as defined below) at the time of the execution of the
initial agreement or action of the Board providing for such Business
Combination.
<PAGE>
(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 of the Company (as the term "subsidiary" is defined
for purposes of Section 424(f) of the Internal Revenue Code of 1986, as amended)
(the "Code"); or
(c) Acquisition by a person, within the meaning of Section 3(a)(9) or
Section 13(d)(3) (as in effect on the date of this agreement) of the Securities
Exchange Act of 1934, as amended (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 this Agreement) under the
Exchange Act.
For purposes of paragraph (a) above, "Incumbent Director" means a member
of the Board who has been either (i) nominated by a majority of the directors of
the Company then in office or (ii) appointed by directors so nominated, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a person other than the Board.
1.2 CHANGE OF CONTROL DATE
"Change of Control Date" shall mean the first date on which a Change of
Control occurs.
1.3 EMPLOYMENT PERIOD
"Employment Period" shall mean the [three] [two] [one]-year period
commencing on the Change of Control Date and ending on the [first] [second]
[third] anniversary of such date.
2. TERM
The term of this Agreement ("Term") shall be for [three] [two] [one] year
following the Change of Control Date, unless extended by the parties hereto.
3. EMPLOYMENT
3.1 EMPLOYMENT PERIOD
During the Employment Period, the Company hereby agrees to continue the
Executive in its employ or in the employ of its affiliated companies, and the
Executive hereby agrees to remain in the employ of the Company or its affiliated
companies, in accordance with the terms and provisions of this Agreement;
provided, however, that either the Company or the Executive may terminate the
employment relationship subject to the terms of this Agreement.
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<PAGE>
3.2 POSITION AND DUTIES
During the Employment Period, the Executive's title, position, authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the 90-day period immediately preceding the Change of Control Date.
3.3 LOCATION
During the Employment Period, the Executive's services shall be performed
at the same location that they were performed immediately prior to the Change of
Control Date, or at any other place within a 35-mile radius of such location
(except for reasonably required travel).
3.4 TERMINATION PRIOR TO CHANGE OF CONTROL
If prior to the Change of Control Date, the Executive's employment with
the Company or its affiliated companies terminates for any reason, then the
Executive shall have no further rights under this Agreement; provided, however,
that the Company may not avoid liability for any termination payments that would
have been required during the Employment Period pursuant to Section 7 hereof by
terminating the Executive prior to the Employment Period where such termination
is carried out in anticipation of a Change of Control and the principal
motivating purpose is to avoid liability for such termination payments.
4. ATTENTION AND EFFORT
During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive will devote all
[his] [her] productive time, ability, attention and effort to the business and
affairs of the Company and the discharge of the responsibilities assigned to
[him] [her] hereunder, and [he] [she] will use [his] [her] reasonable best
efforts to perform faithfully and efficiently such responsibilities. It shall
not be a violation of this Agreement for the Executive to (a) serve on
corporate, civic or charitable boards or committees approved in advance by the
Board, (b) deliver lectures, fulfill speaking engagements or teach at
educational institutions, (c) manage personal investments, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities in accordance with this Agreement, and (d) conduct
other activities approved in advance by the Company. It is expressly understood
and agreed that to the extent any such activities have been conducted by the
Executive prior to the Employment Period, the continued conduct of such
activities (or the conduct of activities similar in nature and scope thereto)
during the Employment Period shall not thereafter be deemed to interfere with
the performance of the Executive's responsibilities to the Company.
5. COMPENSATION AND BENEFITS
As long as the Executive remains employed by the Company during the
Employment Period, the Company agrees to pay or cause to be paid to the
Executive, and the Executive
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<PAGE>
agrees to accept in exchange for the services rendered hereunder by [him] [her],
the following compensation:
5.1 SALARY
The Executive shall receive an annual base salary (the "Annual Base
Salary") at least equal to the current annual salary for the fiscal year in
which the Change of Control Date occurs. The Annual Base Salary shall be paid
in substantially equal installments and at the same intervals as the salaries of
other employees of the Company are paid. The Board, or a committee of the
Board, shall review the Annual Base Salary at least annually and shall determine
in good faith and consistent with any generally applicable Company policy any
increases for future years.
5.2 BONUS
In addition to the Annual Base Salary, the Executive shall be awarded an
annual bonus (the "Annual Bonus") in cash in an amount determined in good faith
and consistent with past practice, taking into account the Executive's
performance to date, and at least equal to 75% of the highest bonus paid or
payable (annualized for any fiscal year consisting of less than 12 full months),
including by reason of any deferral, to the Executive by the Company and its
affiliated companies in respect of the two fiscal years immediately preceding
the fiscal year in which the Change of Control Date occurs. Each such Annual
Bonus shall be paid no later than 90 days after the end of the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to defer the
receipt of such Annual Bonus.
5.3 INCENTIVE, RETIREMENT AND WELFARE BENEFIT PLANS; VACATION
During the Employment Period, the Executive shall be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in such fringe benefit programs as shall be generally made
available to other employees of the Company and its affiliated companies from
time to time during the Employment Period by action of the Board (or any person
or committee appointed by the Board to determine fringe benefit programs and
other emoluments), including, without limitation, paid vacations; any stock
purchase, savings or retirement plan, practice, policy or program; and all
welfare benefit plans, practices, policies or programs (including, without
limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance plans
or programs).
5.4 EXPENSES
During the Employment Period, the Executive shall be entitled to receive
prompt reimbursement for all reasonable employment expenses incurred by [him]
[her] in accordance with the policies, practices and procedures of the Company
and its affiliated companies in effect for the employees of the Company and its
affiliated companies during the Employment Period.
-4-
<PAGE>
6. TERMINATION
During the Employment Period, employment of the Executive may be
terminated as follows:
6.1 BY THE COMPANY OR THE EXECUTIVE
At any time during the Employment Period, the Company may terminate the
employment of the Executive with or without Cause (as defined below), and the
Executive may terminate [his] [her] employment for Good Reason (as defined
below) or for any reason, upon giving Notice of Termination (as defined below).
6.2 AUTOMATIC TERMINATION
This Agreement and the Executive's employment during the Employment
Period shall terminate automatically upon the death or Total Disability of the
Executive. The term "Total Disability" as used herein shall mean the
Executive's inability (with such accommodation as may be required by law and
which places no undue burden on the Company), as determined by an independent
physician selected by the Company and reasonably acceptable to the Executive, to
perform the duties set forth in Section 3.2 hereof for a period or periods
aggregating 120 calendar days in any 12-month period as a result of physical or
mental illness, loss of legal capacity or any other cause beyond the Executive's
control, unless the Executive is granted a leave of absence by the Board. The
Executive and the Company hereby acknowledge that the duties specified in
Section 3.2 hereof are essential to the Executive's position and that the
Executive's ability to perform those duties is the essence of this Agreement.
6.3 NOTICE OF TERMINATION
Any termination by the Company or by the Executive during the Employment
Period shall be communicated by Notice of Termination to the other party given
in accordance with Section 10 hereof. The term "Notice of Termination" shall
mean a written notice that (a) indicates the specific termination provision in
this Agreement relied upon and (b) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated. The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance that contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
6.4 DATE OF TERMINATION
During the Employment Period, "Date of Termination" means (a) if the
Executive's employment is terminated by reason of death, at the end of the
calendar month in which the Executive's death occurs, (b) if the Executive's
employment is terminated by reason of Total
-5-
<PAGE>
Disability, immediately upon a determination by the Company of the
Executive's Total Disability, and (c) in all other cases, five days after the
effective date of notice pursuant to Section 13 hereof. The Executive's
employment and performance of services will continue during such five-day
period; provided, however, that the Company may, upon notice to the Executive
and without reducing the Executive's compensation during such period, excuse
the Executive from any or all of [his] [her] duties during such period.
7. TERMINATION PAYMENTS
In the event of termination of the Executive's employment during the
Employment Period, all compensation and benefits set forth in this Agreement
shall terminate, except as specifically provided in this Section 7.
7.1 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE OR BY THE
EXECUTIVE FOR GOOD REASON
If during the Employment Period the Company terminates the Executive's
employment other than for Cause or the Executive terminates [his] [her]
employment for Good Reason, the Executive shall be entitled to, in all cases,
less any amounts required by applicable law to be withheld by the Company:
(a) receive payment of the following accrued obligations (the "Accrued
Obligations"):
(i) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid; and
(ii) any compensation previously deferred by the Executive
(together with accrued interest or earnings thereon, if any) and any
accrued vacation pay that would be payable under the Company's standard
policy, in each case to the extent not theretofore paid;
(b) an amount as severance pay (the "Severance Obligation") equal
to the product of (i) [three][two] [one] multiplied by (ii) the sum of the
Executive's Annual Base Salary for the fiscal year in which the Date of
Termination occurs plus an amount equal to 75% of the highest annual bonus
paid or payable to the Executive for the three fiscal years preceeding the
year in which the Date of Termination occurs; provided, however, that such
payment shall be in full and final satisfaction of any claim of the Executive
against the Company arising out of the officer's employment by the Company or
the termination of such employment; and
(c) immediate vesting and exercisability of all options to purchase
securities of the Company or its successors held by the Executive.
-6-
<PAGE>
7.2 TERMINATION FOR CAUSE OR OTHER THAN FOR GOOD REASON
If during the Employment Period the Executive's employment shall be
terminated by the Company for Cause or by the Executive for other than Good
Reason, this Agreement shall terminate without further obligation on the part of
the Company to the Executive, other than the Company's obligation to pay the
Executive the Accrued Obligations to the extent theretofore unpaid.
7.3 EXPIRATION OF TERM
In the case of a termination of the Executive's employment as a result of
the expiration of the Term of this Agreement, this Agreement shall terminate
without further obligation on the part of the Company to the Executive, other
than the Company's obligation to pay the Executive the Accrued Obligations.
7.4 TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY
If during the Employment Period the Executive's employment is terminated
by reason of the Executive's death or Total Disability, this Agreement shall
terminate automatically without further obligation on the part of the Company to
the Executive or [his] [her] legal representatives under this Agreement, other
than the Company's obligation to pay the Executive the Accrued Obligations
(which shall be paid to the Executive's estate or beneficiary, as applicable in
the case of the Executive's death).
7.5 PAYMENT SCHEDULE
All payments of the Accrued Obligations and the Severance Obligation
or any portion thereof payable pursuant to this Section 7, shall be made to
the Executive within 30 calendar days of the Date of Termination.
7.6 CAUSE
For purposes of this Agreement, "Cause" means cause given by the
Executive to the Company and shall be limited to the occurrence of one or more
of the following events:
(a) A clear refusal to carry out any material lawful duties of the
Executive or any directions of the Board, all reasonably consistent with the
duties described in Section 3.2 hereof, provided the Executive has been given
reasonable notice and opportunity to correct any such failure;
(b) Violation by the Executive of a state or federal criminal law
involving the commission of a crime against the Company or any of its
subsidiaries;
(c) Deception, fraud, misrepresentation or dishonesty by the
Executive, or any incident materially compromising the Executive's reputation or
ability to represent the Company with investors, customers or the public; or
-7-
<PAGE>
(d) Unauthorized use or disclosure of confidential information or
trade secrets.
7.7 GOOD REASON
For purposes of this Agreement, "Good Reason" means
(a) The assignment to the Executive of any duties materially
inconsistent with the Executive's title, position, authority, duties or
responsibilities as contemplated by Section 3.2 hereof or any other action by
the Company that results in a material diminution in such title, position,
authority, duties or responsibilities;
(b) Any failure by the Company to comply with any of the provisions of
Section 5 hereof;
(c) The Company's requiring the Executive to be based at any office or
location other than that described in Section 3.3 hereof;
(d) Any failure by the Company to comply with and satisfy Section 11
hereof, provided that the Company's successor has received at least 10 days'
prior written notice from the Company or the Executive of the requirements of
Section 11 hereof; or
(e) Any other material violation of any provision of this Agreement by
the Company.
7.8 EXCESS PARACHUTE LIMITATION
(a) Subject to paragraph (b) of this Section 7.8, if either the
Company or the Executive receives confirmation from the Company's independent
tax counsel or its certified public accounting firm, or such other accounting
firm retained as independent certified public accountants for the Company (the
"Tax Advisor"), that any payment by the Company to the Executive under this
Agreement or otherwise would be considered to be an "excess parachute payment"
within the meaning of Section 280G of the Code, then the aggregate payments by
the Company pursuant to this Agreement shall be reduced to the highest amount
that may be paid to the Executive by the Company under this Agreement without
having any portion of any amount payable to the Executive by the Company or a
related entity under this Agreement or otherwise treated as such an "excess
parachute payment," and, if permitted by applicable law and without adverse tax
consequence, such reduction shall be made to the last payment due hereunder.
Any payments made by the Company to the Executive under this Agreement that are
later confirmed by the Tax Advisor to be "excess parachute payments" shall be
considered by all parties to have been a loan by the Company to the Executive,
which loan shall be repaid by the Executive upon demand, together with interest
calculated at the lowest interest rate authorized for such loans under the Code,
without a requirement that further interest be imputed.
(b) In the event that application of paragraph (a) of this Section
7.8 would result in the Executive's receiving pursuant to Sections 7.1(a)(b)
hereof an amount less than the product of
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<PAGE>
[two] [one and one-half] [one] multiplied by the Executive's Annual Base Salary
for the fiscal year in which the Date of Termination applies (the "Minimum
Severance Amount"), then the Minimum Severance Amount shall be paid to Executive
and Executive shall also be entitled to the adjustments contemplated by Section
7.9 hereof.
7.9 CERTAIN ADJUSTMENTS
(a) In the event that the Executive becomes entitled to the payments
or other benefits described this Section 7 and the Executive becomes subject to
the tax imposed by Section 4999 of the Code or any successor provision (the
"Excise Tax") as a result of such payments and benefits and any other payments
or benefits from the Company required to be taken into account under Code
Section 280G(b)(2) (collectively, "Parachute Payments"), the Company shall pay
to the Executive an additional amount (the "Make-Whole Payment") equal to the
sum of (i) the Excise Tax payable to the Executive prior to the Make-Whole
Payment and (ii) the Federal, state and local income tax and Excise Tax
(including any interest or penalties thereon) payable upon all payments made
under subparagraphs (i) and (ii) of this Section 7.9(a).
(b) All determinations required to be made under this Section 7,
including whether the Executive has received a Parachute Payment, shall be
made by the Tax Advisor (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that the Executive
has received a payment under Section 7.1, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the
Change of Control, the Executive shall appoint another nationally recognized
accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company. If the Accounting Firm determines that no Excise Tax is payable by
the Executive, it shall furnish the Executive with a written opinion that
failure to report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence or similar
penalty. As promptly as practicable following such determination, the
Company shall pay to or distribute for the benefit of the Executive such
payments as are then due to the Executive under this Agreement. Any
determination by the Accounting Firm shall be binding upon the Company and
Executive.
8. REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS
In order to induce the Company to enter into this Agreement, the
Executive represents and warrants to the Company that neither the execution nor
the performance of this Agreement by the Executive will violate or conflict in
any way with any other agreement by which the Executive may be bound.
-9-
<PAGE>
9. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, other than pursuant to the definition of Cause set forth in
Section 7.6 hereof, before such action is taken, the party asserting the breach
of this Agreement shall give the other party at least 10 days' prior written
notice of the existence and the nature of such breach before taking further
action hereunder and shall give the party purportedly in breach of this
Agreement the opportunity to correct such breach during the 10-day period.
10. NOTICES
All notices given hereunder shall be given in writing, shall specifically
refer to this Agreement and shall be personally delivered or sent by telecopy or
other electronic facsimile transmission or by reputable overnight courier, at
the address set forth below or at such other address as may hereafter be
designated by notice given in compliance with the terms hereof. Such notice
shall be effective upon receipt or upon refusal of the addressee to accept
delivery.
If to the Executive: [Name of Executive]
-------------------------------------------------
-------------------------------------------------
If to the Company: Advanced Digital Information Corporation
11431 Willows Road
Redmond, WA 98073
Attn: Chief Executive Officer
Phone: (425) 881-8004
Facsimile: (425) 881-2296
Copy to: Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Attn: Linda Schoemaker
Phone: (206) 583-8888
Facsimile: (206) 583-8500
11. ASSIGNMENT
This Agreement is personal to the Executive and shall not be assignable
by the Executive. The Company shall assign to and require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean Advanced
Digital Information Corporation and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law,
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<PAGE>
or otherwise. All the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
12. WAIVERS
No delay or failure by either party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof. The express waiver by a party hereto of any right, title, interest or
remedy in a particular instance or circumstance shall not constitute a waiver
thereof in any other instance or circumstance. All rights and remedies shall be
cumulative and not exclusive of any other rights or remedies.
13. TERMINATION OF AGREEMENT PRIOR TO THE EMPLOYMENT PERIOD;
AMENDMENTS IN WRITING
This Agreement may be unilaterally terminated by the Company at any time
prior to the commencement of the Employment Period by notice given to the
Executive in accordance with Section 10 hereof, with such termination effective
one year following the date the notice was so given. In the event that the
Employment Period commences prior to the effectiveness of the termination of
this agreement, the notice of termination shall have no effect.
Except as provided in the prior paragraph, no amendment, modification,
waiver, termination or discharge of any provision of this Agreement, nor consent
to any departure therefrom by either party hereto, shall in any event be
effective unless the same shall be in writing, specifically identifying this
Agreement and the provision intended to be amended, modified, waived, terminated
or discharged and signed by the Company and the Executive, and each such
amendment, modification, waiver, termination or discharge shall be effective
only in the specific instance and for the specific purpose for which given. No
provision of this Agreement shall be varied, contradicted or explained by any
oral agreement, course of dealing or performance or any other matter not set
forth in an agreement in writing and signed by the Company and the Executive.
14. APPLICABLE LAW
This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the state of Washington, without regard
to any rules governing conflicts of laws.
15. ARBITRATION
Any dispute arising under this Agreement shall be subject to arbitration.
The arbitration proceeding shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA Rules") then
in effect, conducted by one arbitrator either mutually agreed upon or selected
in accordance with the AAA Rules, except that the parties thereto shall have any
right to discovery as would be permitted by the
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<PAGE>
Federal Rules of Civil Procedure for a period of 90 days following the
commencement of such arbitration and the arbitrator thereof shall resolve any
dispute that arises in connection with such discovery. The arbitration shall be
conducted in King County, Washington under the jurisdiction of the Seattle
office of the American Arbitration Association. The arbitrator shall have
authority only to interpret and apply the provisions of this Agreement and shall
have no authority to add to, subtract from, or otherwise modify the terms of
this Agreement. Any demand for arbitration must be made within 60 days of the
event(s) giving rise to the claim that this Agreement has been breached. The
arbitrator's decision shall be final and binding, and each party agrees to be
bound by the arbitrator's award, subject only to an appeal therefrom in
accordance with the laws of the state of Washington. Either party may obtain
judgment upon the arbitrator's award in the Superior Court of King County,
Washington.
16. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, then, to the full extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision hereof, and (c) any court or
arbitrator having jurisdiction thereover shall have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.
17. ENTIRE AGREEMENT
This Agreement, on and as of the date hereof, constitutes the entire
agreement between the Company and the Executive with respect to the subject
matter hereof and all prior or contemporaneous oral or written communications,
understandings or agreements between the Company and the Executive with respect
to such subject matter are hereby superseded and nullified in their entireties.
18. COUNTERPARTS
This Agreement may be executed in counterparts, each of which
counterparts shall be deemed an original, but all of which together shall
constitute one and the same instrument.
19. HEADINGS
All headings used herein are for convenience only and shall not in any
way affect the construction of, or be taken into consideration in interpreting,
this Agreement.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement effective on the date first set forth above.
EXECUTIVE
------------------------------------
[Name of Executive]
ADVANCED DIGITAL INFORMATION CORPORATION
By
---------------------------------------
Its
---------------------------------
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000770403
<NAME> ADVANCED DIGITAL
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JUL-31-1999
<CASH> 31,658
<SECURITIES> 1,720
<RECEIVABLES> 35,374
<ALLOWANCES> 610
<INVENTORY> 34,078
<CURRENT-ASSETS> 104,761
<PP&E> 7,893
<DEPRECIATION> 0
<TOTAL-ASSETS> 129,676
<CURRENT-LIABILITIES> 43,367
<BONDS> 9,102
0
0
<COMMON> 0
<OTHER-SE> 76,802
<TOTAL-LIABILITY-AND-EQUITY> 129,676
<SALES> 160,379
<TOTAL-REVENUES> 160,379
<CGS> 105,830
<TOTAL-COSTS> 105,830
<OTHER-EXPENSES> 9,490
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 729
<INCOME-PRETAX> 18,029
<INCOME-TAX> 6,504
<INCOME-CONTINUING> 11,144
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,144
<EPS-BASIC> .56
<EPS-DILUTED> .54
</TABLE>
