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FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended April 6, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the transition period from to
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Commission file number 0-23418
MTI TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3601802
(State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.)
4905 EAST LA PALMA AVENUE
ANAHEIM, CALIFORNIA 92807
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (714) 970-0300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was $ 25,003,916 on June 21, 1996, based on the closing sale
price of such stock on The Nasdaq National Market. The number of shares
outstanding of Registrant's Common Stock, $0.001 par value, was 25,514,386 on
June 21, 1996.
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PART II
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
The information required by this Item is incorporated herein by reference
to the consolidated financial statements and supplementary data listed in Item
14 of Part IV of this report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
Information with respect to the Company's executive officers is set forth
in Part I, above, under the caption "Executive Officers of the Registrant."
DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
<S> <C> <C>
*Raymond J. Noorda 72 Chairman of the Board of Directors
Steven J. Hamerslag 40 Director
*Val Kreidel 41 Director
*David Proctor 56 Director
Earl Pearlman 53 Nominee, President and Chief Executive Officer
</TABLE>
-------------------
*Member of Audit Committee and Compensation Committee.
MTI's Bylaws provide for the Board of Directors to be divided into three
classes, with each class to be as nearly equal in number of directors as
possible. At each annual meeting of stockholders, the successors to the class of
directors whose term expires at that time are elected to hold office for a term
of three years until their respective successors are elected and qualified, so
that the term of one class of directors expires at each such annual meeting. The
terms of office expire as follows: Mr. Noorda, 1998; Mr. Hamerslag, 1998; Mr.
Proctor, 1997; Ms. Kreidel, 1996; and a vacancy in the 1996 class.
Ms. Kreidel is the daughter of Mr. Noorda. There are no other family
relationships among the directors or executive officers of MTI.
Raymond J. Noorda has been Chairman of the Board of Directors of the
Company since 1987. Mr. Noorda previously served as the President, Chief
Executive Officer and Chairman of the Board of Directors of Novell, Inc. Prior
to joining Novell, Inc., Mr. Noorda served as Chief Executive Officer of
Boschert, Inc. and System Industries, Inc.
Steven J. Hamerslag has been a Director of the Company since 1987 and
served as President and Chief Executive Officer from 1987 until March 1996.
Prior to joining the Company, Mr. Hamerslag was Senior Vice President of System
Industries, Inc. Mr. Hamerslag presently serves on the Board of Directors of
Corvel, Inc., a medical cost containment company.
Val Kreidel was elected a Director of the Company in January 1994. Ms.
Kreidel has served as a financial analyst for NFT Ventures, Inc. and DSC
Ventures, Inc., private investment companies, since May 1989. From May 1985 to
May 1989, Ms. Kreidel served as a Vice President of Atlantic Financial Savings
Bank in its Real Estate Loan Department.
David Proctor was elected a Director of the Company in October 1995. Mr.
Proctor has been President and Chief Operating Officer of Platinum Software
Corporation, a supplier of financial software application programs, from May
1994 to December 1995. Prior to joining Platinum Software, Mr. Proctor was Vice
President of software products for the Personal Software Products Division of
IBM from April 1993 to May 1994. From October 1991 to April 1993, Mr. Proctor
was a private consultant providing executive management services to technology
companies. From May 1990 to October 1991, Mr. Proctor was with Ashton-Tate
Corporation, a supplier of business applications software products, and served
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as both the Vice President of the Database Division and as President and Chief
Operating Officer. Prior to joining Ashton-Tate, Mr. Proctor spent 23 years with
IBM in several executive capacities.
Earl Pearlman was named President and Chief Executive Officer of the
Company in April 1996. From April 1995 to March 1996, Mr. Pearlman was Vice
President, U.S. Sales for the Company. Prior to joining the Company, Mr.
Pearlman was the President and Chief Executive Officer of National Peripherals,
Inc., a supplier of cross-platform RAID - based storage products, which he
founded in 1980, acquired by the Company in 1995.
DIRECTORS' FEES
The Company's directors did not receive cash compensation for serving on
the Board of Directors for the fiscal year ended April 6, 1996, but they were
reimbursed for expenses incurred in attending Board meetings.
Each non-employee director of the Company is granted a nonqualified option
to purchase 10,000 shares of Common Stock under the Directors' Non-Qualified
Stock Option Plan and upon the closing of the Company's initial public offering
or upon his or her first election or appointment to the Board of Directors, if
subsequent to that offering. Pursuant to the provisions of the Directors' Plan,
Mr. Noorda and Ms. Kreidel each received an option for 10,000 shares with an
exercise price of $9.00 per share following the April 14, 1994 closing of the
Company's initial public offering and Mr. Proctor received an option for 10,000
shares with an exercise price of $3.00 per share following his election to
office on October 6, 1995. In addition, the Directors' Plan provides that each
non-employee director who is a director immediately prior to an annual meeting
of the Company's stockholders and who continues to be a director after such
meeting (i.e., Mr. Noorda, Mr. Hamerslag and Mr. Proctor, and Ms. Kreidel in the
event she is re-elected) will be granted an option to purchase 2,500 shares of
Common Stock, provided that such director has served as such for at least one
year. Mr. Noorda and Ms. Kreidel each received options to purchase 2,500 shares
of Common Stock with an exercise price of $3.00 per share following the
Company's 1995 Annual Meeting. Each option granted under the Directors' Plan has
an exercise price equal to the fair market value of the Common Stock on the date
of grant and vests monthly over a 12-month period.
COMMITTEES OF THE BOARD
The Company currently has two committees, the Audit Committee and the
Compensation Committee. The Audit Committee, currently consisting of Mr. Noorda,
Mr. Proctor and Ms. Kreidel, recommends the appointment of the independent
public accountants of the Company, reviews and approves the scope of the annual
audit and reviews the results thereof with the Company's independent
accountants. The Audit Committee also assists the Board in fulfilling its
fiduciary responsibilities relating to accounting and reporting policies,
practices and procedures, and reviews the continuing effectiveness of the
Company's business ethics and conflicts of interest policies. The Company does
not have an executive committee.
The Compensation Committee, currently consisting of Mr. Noorda, Mr. Proctor
and Ms. Kreidel, recommends to the Board of Directors the salaries, bonuses and
stock awards received by the officers of the Company. The Compensation Committee
is also responsible for administering the Company's Stock Incentive Plan. The
Compensation Committee determines the recipients of awards, sets the exercise
price of shares granted, and determines the terms, provisions and conditions of
all rights granted.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1996, the Compensation Committee consisted of Mr.
Noorda, Mr. Proctor and Ms. Kreidel. None of these persons is or has been an
officer or employee of the Company or any of its subsidiaries. In addition,
there are no Compensation Committee interlocks between MTI and other entities
involving MTI executive officers and Board members who serve as executive
officers of such entities.
On July 19, 1995, the Company entered into a Loan Agreement (the "Loan
Agreement") with NFT Ventures II, LLC ("NFTII"). Mr. Noorda is the Chairman of
the Board of NFTII. Pursuant to the Loan Agreement, NFTII provided the Company
$10.0 million at an interest rate of 10-3/4% per annum. Repayment was due in
two equal installments, 18 and 24 months after funding. As contemplated by the
Loan Agreement, NFTII and the Company have executed
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mutually satisfactory licenses granting NFTII a source code license (with the
right of sublicense) for the Company's BACKUP.UNET and XpresServe products
within thirty (30) days of the date of the Loan Agreement. Therefore, NFTII has
forgiven $650,000 of principal or interest due under the Loan Agreement. On
April 11, 1996, the principal and interest accrued under the Loan Agreement was
converted, in whole, to Common Stock of the Company at $1.6875 per share, the
then-current market price per share (the "Conversion Right") for an aggregate of
5,992,665 shares. The Conversion Right was approved by the Company's
stockholders at the 1995 Annual Meeting.
Pursuant to an agreement (the "NRE Funding Agreement"), dated as of June
27, 1996, between the Company and NFT Ventures, Inc. ("NFT"), NFT has agreed to
fund the non-recoverable direct operating expenses for certain development
projects for one year, up to an aggregate of $2.4 million. The development
projects consist of the Company's Sterling, Virginia Software Product
Development Center, the RLM Software Products Group, and the Open Media Products
Group. In return for the development project funding, NFT will receive 25% of
the net sales prices of all products arising out of the development projects
through April 7, 2000. In addition, the Company has agreed, subject to
stockholder approval, to issue NFT a warrant to purchase up to 750,000 shares of
Common Stock with an exercise price of $2.25 per share, vesting 25% at each
funding date. The aggregate number of shares of Common Stock subject to the
warrant will be reduced pro rata, to the extent the maximum funding obligation
is not reached. Mr. Noorda is the Chairman of NFT.
On May 3, 1996, an affiliate of NFT provided a guaranty (the "Loan
Guaranty") for the Company's $10.0 million bank financing with Greyrock Business
Credit. As consideration for such Loan Guaranty, the Company has agreed to issue
NFT a warrant to purchase up to 500,000 shares of Common Stock at $2.00 per
share, subject to approval of the Company's disinterested stockholders.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
During the fiscal year ended April 6, 1996, the Board of Directors met four
times. In addition, the Audit Committee and Compensation Committee met one and
three times, respectively. No director attended fewer than 75% of the aggregate
number of meetings held by the Board of Directors and all committees of the
Board on which such director served.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires that the Company's executive officers and directors file reports of
beneficial ownership on Form 3 and changes in beneficial ownership on Forms 4
and 5 with the Securities and Exchange Commission ("SEC"). Executive officers
and directors are also required by the SEC rules to furnish the Company with
copies of all Section 16(a) reports they file. As part of a Section 16
compliance program established by the Company for its executive officers and
directors, the Company undertakes to file these reports on behalf of such
individuals. Based solely on its review of the Forms 3, 4 and 5 filed on behalf
of its executive officers and directors, as well as written representations from
certain individuals that no Forms 5 are required by such individuals, the
Company believes that, during the fiscal year ended April 6, 1996, all Section
16(a) filing requirements applicable to its executive officers and directors
were complied with pursuant to the SEC rules, except that Richard L. Hicksted
and a related trust were nine days late in filing Form 4s reflecting sales of
Common Stock.
ITEM 11. EXECUTIVE COMPENSATION:
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth for each of the Company's last three
completed fiscal years the compensation of Steve Hamerslag, the Company's former
President and Chief Executive Officer, the four most highly compensated
executive officers other than Mr. Hamerslag whose total annual salary and bonus
for the last fiscal year exceeded $100,000, and two former executive officers
(collectively, the "Named Executive Officers").
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
------------
Annual Compensation Number of
------------------- Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($)(1) Options(#) Compensation($)(2)
- - --------------------------- ---- --------- -------- ------------------ ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earl M. Pearlman (3) 1996 186,362 0 * 375,000 14,068
Steven J. Hamerslag (4) 1996 200,000 0 * 0 1,674
1995 200,000 0 * 0 1,130
1994 200,000 0 20,013 0 1,313
Gary M. Scott (5) 1996 216,116 0 31,938 315,000 1,169
Senior Vice President, European 1995 199,111 32,773 25,195 100,000 1,130
Operations 1994 129,661 20,700 38,065 20,000 0
Dale R. Boyd (6) 1996 122,500 0 * 50,000 39
Vice President, Chief 1995 16,490 0 * 25,000 0
Financial Officer
Thomas P. Raimondi, Jr. (7) 1996 175,000 0 * 232,500 1,189
Senior Vice President, General Manager 1995 158,828 25,000 * 80,000 1,050
1994 109,304 39,996 * 12,500 0
Jack Hiett (8) 1996 105,000 0 32,820 175,000 0
Senior Vice President, 1995 109,039 0 * 60,000 0
Customer Service 1994 92,885 22,000 * 20,000 0
Bob P. Goetz (9) 1996 200,008 0 * 320,000 0
Senior Vice President, Sales 1995 199,994 0 * 100,000 1,220
1994 200,008 0 * 20,000 0
</TABLE>
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* Amount does not exceed the lesser of $50,000 or ten percent of the total
annual salary and bonus reported for the individual.
(1) 1996 amount for Mr. Scott includes $615 for medical insurance, $11,861 for
tax services, and $19,462 for an automobile allowance. 1996 amount for Mr.
Hiett includes $32,820 for medical insurance and expense reimbursement.
1995 amount for Mr. Scott includes $2,155 for medical insurance, $10,515
for tax services, and $12,525 for an automobile allowance. 1994 amount for
Mr. Hamerslag represents an automobile allowance of $10,833 and amounts
paid by the Company for medical insurance, disability insurance and
miscellaneous items. 1994 amount for Mr. Scott represents an automobile
allowance of $11,664, foreign service tax equalizing payments in the
amount of $15,463, tax services and medical insurance.
(2) Amounts represent the dollar value of insurance premiums paid by the
Company during the fiscal year with respect to term life insurance for the
benefit of the Named Executive Officer.
(3) Mr. Pearlman was elected President and Chief Executive Officer of the
Company effective April 8, 1996. From April 1995 to March 1996, he was
Vice President, U.S. Sales for the Company. Mr. Pearlman joined the
Company in April 1995. Includes options to purchase an aggregate of
125,000 shares that were repriced in May 1995.
(4) Mr. Hamerslag served as the Company's President and Chief Executive
Officer until March 29, 1996.
(5) Includes options to purchase an aggregate of 190,000 shares granted in
previous fiscal years that were repriced in May 1995.
(6) Mr. Boyd joined the Company on February 8, 1995, during fiscal 1995.
Includes options to purchase an aggregate of 25,000 shares that were
repriced in May 1995.
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(7) Includes options to purchase an aggregate of 132,500 shares granted in
previous fiscal years that were repriced in May 1995.
(8) Includes options to purchase an aggregate of 115,000 shares granted in
previous fiscal years that were repriced in May 1995.
(9) Mr. Goetz served as an executive office of the Company until October 1995.
Includes options to purchase an aggregate of 195,000 shares granted in
previous fiscal years that were repriced in May 1995.
SUMMARY OF OPTION GRANTS
The following table sets forth the individual grants of stock options
made by the Company during the fiscal year ended April 6, 1996 to each of the
Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- - --------------------------------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM (2)
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#) YEAR (1) ($/sh) (1) DATE 5%($) 10%($)
---- --- -------- ---------- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Earl M. Pearlman 125,000 3% $ 1.75 03/30/05 137,571 348,631
125,000 3% $ 2.25 02/08/03 114,497 266,827
125,000 3% $ 2.875 03/30/05 226,009 572,751
Dale R. Boyd 25,000 1% $ 1.75 02/27/05 27,514 69,726
25,000 1% $ 3.00 10/06/05 47,167 119,531
John M. Hiett 60,000 1% $ 1.75 05/26/05 66,034 167,343
60,000 1% $ 1.75 09/06/04 66,034 167,343
20,000 0% $ 1.75 05/07/03 22,011 55,781
20,000 0% $ 1.75 04/23/02 22,011 55,781
15,000 0% $ 1.75 06/12/98 10,688 24,904
Thomas P. Raimondi, Jr. 100,000 2% $ 1.75 05/26/05 110,057 278,905
80,000 2% $ 1.75 09/06/04 88,045 223,124
12,500 0% $ 1.75 05/07/03 13,757 34,863
30,000 1% $ 1.75 04/23/02 33,017 83,671
10,000 0% $ 1.75 12/09/98 7,124 16,602
Gary Scott 125,000 3% $ 1.75 05/26/05 137,571 348,631
100,000 2% $ 1.75 09/06/04 110,057 278,905
30,000 1% $ 1.75 05/07/03 33,017 83,671
60,000 1% $ 1.75 04/23/02 66,034 167,343
Bob Goetz 125,000 3% $ 1.75 05/26/05 137,571 348,631
100,000 2% $ 1.75 09/06/04 110,057 278,905
20,000 0% $ 1.75 05/07/03 22,011 55,781
75,000 2% $ 1.75 04/23/02 82,542 209,179
</TABLE>
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(1) Based on an aggregate of 4,300,900 options granted to directors and
employees of the Company in fiscal year 1996, including the Named
Executive Officers. The total number of options granted during fiscal year
1996 include 2,039,400 that represent options granted in previous years
that were repriced May 26, 1995.
(2) The potential realizable value is calculated based on the term of the
option at its time of grant (7-10 years). It is calculated by assuming
that the stock price appreciates at the indicated annual rate compounded
annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock
price. No gain to the option holder is possible unless the stock price
increases over the option term.
The options described above were granted under the Company's Stock
Incentive Plan and 1987 Plan, and with the exception of those options
granted to Mr. Pearlman, vest ratably 25% per year over four years
commencing on the date of the individual respective grant. Mr. Pearlman's
option grant to purchase 125,000 shares at $1.75, which expires May 30,
2005, vest ratably 33.3% per year over three years. Mr. Pearlman's option
grant to purchase 125,000 shares at $2.25, which expires on February 8,
2003, vest 100% on April 1, 1998.
SUMMARY OF OPTIONS EXERCISED
The following table sets forth information concerning exercises of
stock options during the year ended April 6, 1996 by each of the Named Executive
Officers and the value of unexercised options at April 6, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR FISCAL YEAR
SHARES END (#) END ($)
ACQUIRED ON VALUE ------------- -------------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($)(1) UNEXERCISABLE UNEXERCISABLE (2)
---- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Earl M. Pearlman 0 0 0/250,000 0/54,688
Dale R. Boyd 0 0 0/50,000 0/10,938
John M. Hiett 0 0 0/175,000 0/76,563
Thomas P. Raimondi, Jr. 0 0 0/232,500 0/101,719
Gary Scott 0 0 0/315,000 0/137,813
Bob Goetz 0 0 0/320,000 0/140,000
</TABLE>
- - -----------------------
(1) Value realized is based on estimated fair market value of Common Stock on
the date of exercise minus the exercise price.
(2) Value is based on estimated fair market value of Common Stock as of April
6, 1996 ($2.1875) minus the exercise price.
COMPENSATION PLANS
The Stock Incentive Plan. In April 1992, the Company and its
stockholders adopted the Stock Incentive Plan (the "1992 Plan"). The Company
currently has approximately 513 employees. The purpose of the 1992 Plan is to
provide incentives to selected individuals (generally employees and consultants)
and entities for increased efforts and successful achievement on behalf of or in
the interest of MTI and its subsidiaries.
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The 1992 Plan has three components: a stock option component, a stock
bonus/stock purchase component and a stock appreciation rights component. The
stock option component of the 1992 Plan provides a means whereby participants
are given an opportunity to purchase shares of Common Stock pursuant to: (i)
options that qualify as incentive stock options ("ISOs") under Section 422A of
the Internal Revenue Code of 1986, as amended (the "Code"), or (ii) nonqualified
stock options ("NQSOs"). ISOs may be granted only to persons who are officers or
employees of the Company or any of its subsidiaries. ISOs may not be granted to
any person who, at the time that the ISO is granted, owns stock possessing more
than 10% of the combined voting power of all classes of the Company's stock or
any of the Company's subsidiaries' stock ("10% Stockholders"), unless the
exercise price of the shares of the Common Stock covered by the option is at
least 110% of the fair market value of such shares at the date of grant and such
ISO by its terms is not exercisable after the expiration of five years from the
date of grant.
Options, stock bonuses and rights to purchase Common Stock may be
granted under the 1992 Plan to exercise or purchase an aggregate of not more
than 4,079,960 shares of Common Stock, but in no event may the aggregate number
of shares subject to outstanding options exceed the greater of 5% of the
authorized shares of Common Stock or 15% of the total number of shares
outstanding as of the close of business on the last day of the Company's prior
fiscal year. The 1992 Plan was amended in February 1996 to allow for the grant
of options for 300,000 additional shares of Common Stock. Notwithstanding the
foregoing, no option may be issued under the 1992 Plan if, at the time of any
such grant, the aggregate number of shares subject to outstanding options and
rights to purchase stock would exceed 30% of the then outstanding shares of the
Common Stock of the Company. The 1992 Plan has no aggregate limit for individual
stockholder grants. As of July 15, 1996, options to purchase an aggregate of
3,034,650 shares of Common Stock were outstanding under the 1992 Plan at an
average price of $1.89 per share and 6,275 options had been exercised under the
1992 Plan during fiscal year 1996 with an average exercise price of $1.80.
The 1987 Incentive Stock Option and Nonqualified Stock Option Plan. In
October 1987, the Company and its stockholders adopted the 1987 Incentive Stock
Option and Nonqualified Stock Option Plan (the "1987 Plan") for employees and
consultants of the Company. As of July 15, 1996, options to purchase an
aggregate of 463,000 shares of Common Stock were outstanding under the 1987 Plan
at an average price of $2.01 per share and 11,250 options had been exercised
under the 1987 Plan during fiscal year 1996 with an average exercise price of
$2.36. The Company does not intend to grant any further options under the 1987
Plan.
SF2 Stock Options. In March 1992, the Company acquired SF2 and assumed
the outstanding stock options of employees and consultants of SF2 under SF2's
1988 Stock Option Plan, which as a result of the merger became exercisable for
235,691 shares of Common Stock. The aggregate number of shares of Common Stock
subject to outstanding SF2 options at July 15, 1996 was 13,324.
Other Options. In February 1994, the Company granted stock options to
acquire an aggregate of 24,000 shares of Common Stock, at an exercise price of
$5.00 per share, to five former System Industries employees in connection with
their employment with the Company.
Employee Stock Purchase Plan. In March 1994, the Company adopted the
1994 Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate of
500,000 shares of Common Stock. The Purchase Plan is intended to qualify as an
employee stock purchase plan within the meaning of Section 423 of the Code.
Under the Purchase Plan, the Board may authorize participation by eligible
employees, including officers, in periodic six month offerings following the
commencement of the Purchase Plan. The initial offering under the Purchase Plan
commenced on July 1, 1994.
Employees are eligible to participate if they are employed by the
Company or a subsidiary of the Company designated by the Board for at least 20
hours per week and are customarily employed by the Company or a subsidiary of
the Company designated by the Board for at least five months per calendar year.
Participating employees may elect to have up to 10% of their earnings withheld
pursuant to the Purchase Plan. The amount withheld is then used to purchase
shares of Common Stock on specified dates determined by the Board. The price of
Common Stock purchased under the Purchase Plan is equal to 85% of the lower of
the fair market value of the Common Stock at the commencement date of each
offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the Company.
In the event of a merger, reorganization, consolidation or liquidation
involving the Company, the Board has discretion to provide that each right to
purchase Common Stock will be assumed or an equivalent right substituted by the
successor corporation, or the Board may shorten the offering period and provide
for all sums collected by payroll
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deductions to be applied to purchase stock immediately prior to such merger or
other transaction. The Purchase Plan will terminate in March 2004. The Board has
the authority to amend or terminate the Purchase Plan, provided, however, that
no such action may adversely affect any outstanding rights to purchase Common
Stock.
Directors' Non-Qualified Stock Option Plan. The Company adopted the
Directors' Non-Qualified Stock Option Plan (the "Director Plan") in March 1994.
A total of 150,000 shares of Common Stock are reserved for issuance under the
Director Plan.
The Director Plan grants to each non-employee director of the Company
("Non-Employee Director") a nonqualified option to purchase 10,000 shares of
Common Stock (an "Initial Grant") upon the closing of the Company's initial
public offering, or upon his or her first election or appointment to the Board
of Directors, if subsequent to that offering. In addition, the Director Plan
provides that each Non-Employee Director who is a director immediately prior to
an annual meeting of the Company's stockholders and who continues to be a
director after such meeting will be granted an option to purchase 2,500 shares
of Common Stock (a "Subsequent Grant"); provided that no Subsequent Grant will
be made to any Non-Employee Director who has not served as a director of the
Company, as of the time of such annual meeting, for at least one year. Each
Subsequent Grant will be made on the date of the annual stockholders' meeting in
question.
The exercise price per share of each option granted under the Director
Plan will be the fair market value of the Company's Common Stock on the date the
option is granted, except that, in the case of the Initial Grants to directors
in office as of the public offering, the exercise price per share for such
grants was the price to the public in the offering. Payment of the exercise
price of any option to purchase Common Stock granted under the Director Plan may
be made in whole or in part in (i) cash, (ii) Common Stock held by the
Non-Employee Director, (iii) notes or (iv) such other valuable consideration as
the Board, in its discretion, determines to be consistent with the Director
Plan's purpose and applicable law. Options granted under the Director Plan vest
monthly over a 12 month period.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During the fiscal year ended April 6, 1996, the Compensation Committee,
consisting of Mr. Noorda, Mr. Proctor and Ms. Kreidel, was responsible for
establishing and administering the policies that govern the compensation of
executive officers, including the Named Executive Officers. The Compensation
Committee has furnished the following report on executive compensation:
COMPENSATION COMMITTEE REPORT
The Compensation Committee ("Committee") of the Board of Directors is
composed of independent outside directors. The Committee reviews and administers
the Company's various incentive plans, including the cash compensation levels of
members of management, the Company's bonus plan and the Company's stock
incentive plan.
General Compensation Policy. The Committee's fundamental compensation
policy is to make a substantial portion of an executive's total potential
compensation contingent upon the financial performance of the Company.
Accordingly, in addition to each executive's base salary, the Company offers the
opportunity for an annual cash bonus which is tied to the Company's achievement
of financial performance goals, and stock option awards to provide incentives to
the executive officers through an equity interest of the Company. The Committee
believes that the stockholders benefit by aligning the long-term interests of
stockholders and employees.
Base Salary. For the fiscal year 1996, the Committee reviewed the
recommendations of the Chief Executive Officer as to proposed base salaries for
all executives. Base salaries generally remained unchanged unless the
individual's responsibilities had increased over the prior fiscal year,
including recognition of efforts relating to the Company's recent acquisitions,
or the individual's performance in the prior fiscal year was determined to be
particularly strong. The Committee's review of each individual's base salary and
performance in fiscal 1996 was based on the individual's overall performance. No
specific quantitative weight was given to any particular performance
measurement. In the future the Committee will perform annual reviews of the base
salary of each of the executive officers with reference to the executive's
performance, level of responsibility and experience to determine whether the
current base salary is appropriate and competitive. The Committee will evaluate
the reasonableness of the base salary based upon the median salary range paid to
executive officers with comparable duties at companies of similar size in the
same geographic area in the computer technology industry. The base salary of
executive officers other than the Chief
9
<PAGE> 10
Executive Officer will ultimately be fixed by the Committee after consultation
with the Chief Executive Officer. The base salary of the Chief Executive Officer
will be recommended by the Committee and approved by the Board.
Cash Bonuses. The Company does not have a formal executive bonus plan.
Cash bonuses are targeted for executive officers based upon individual
performance and achievement of financial goals. For fiscal 1996, bonuses were
based on the individual's overall performance and consideration was also given
to the overall performance of the Company. No specific quantitative weight was
given to any particular performance measurement.
Stock Option Awards. The Company has granted stock options under its
various stock option plans generally at prices equal to the estimated fair
market value of the Company's common stock at the date of grant. The plans
provide for the grant by the Company of stock options, stock bonuses/purchases
and stock appreciation rights to acquire under the current plan up to an
aggregate of not more than the greater of 5 percent of the authorized shares of
the Company's common stock or 15 percent of the total number of shares
outstanding as of the Company's prior fiscal year-end. Grants to executive
officers are based on their responsibilities and relative positions in the
Company, and are considered an integral component of total compensation. The
Committee believes the granting of options to be beneficial to stockholders
because it increases management's interest in the enhancement of stockholder
value. Grants were proposed by the Chief Executive Officer and reviewed by the
Committee based on the individual's overall performance. No specific
quantitative weight was given to any particular performance measure. The
Committee believes that stock option grants are necessary to retain and motivate
key employees of the Company.
Chief Executive Officer Compensation. Mr. Hamerslag participated in the
same executive compensation plans as those described above for the other
executive officers. As is true of the other executives officers, the Committee's
policy is to have a large portion of the Chief Executive Officer's compensation
based on the Company's financial performance. Mr. Hamerslag's base salary for
fiscal 1996 was unchanged from that set prior to the Company's initial public
offering by negotiations between Mr. Hamerslag and the Board of Directors, based
upon the Company's financial performance for fiscal year 1996. In addition, as
in prior years, Mr. Hamerslag did not receive any bonus or stock option grants.
Policy Regarding Deductibility of Compensation. Section 162(m) of the
Internal Revenue Code (the "Section ") provides that for federal income tax
purposes, the otherwise allowable deduction for compensation paid or accrued to
a covered employee of a publicly held corporation is limited to no more than $1
million per year. The Company is not presently affected by the Section because,
for the fiscal year ended April 6, 1996, no executive officer's compensation
exceeded $1 million, and the Company does not believe that the compensation of
any executive officer will exceed $1 million for the 1997 fiscal year.
COMPENSATION COMMITTEE
RAYMOND J. NOORDA
DAVID PROCTOR
VAL KREIDEL
10
<PAGE> 11
COMPANY STOCK PRICE PERFORMANCE
The following performance graph assumes an investment of $100 on April 7, 1994
(the date the Company became subject to Section 12 of the Exchange Act) and
compares the change to April 6, 1996 in the market prices of the Common Stock
with a broad market index (Nasdaq Stock Market - U.S.) and an industry index
(Nasdaq Computer Manufacturer Index). The Company paid no dividends during the
periods shown; the performance of the indexes is shown on a total return
(dividend reinvestment) basis. The graph lines merely connect the prices on the
dates indicated and do not reflect fluctuations between those dates.
[GRAPH APPEARS HERE]
COMPARISON OF 24 MONTH CUMULATIVE TOTAL RETURN AMONG MTI
TECHNOLOGY CORPORATION, THE NASDAQ STOCK MARKET - U.S.
INDEX AND THE NASDAQ COMPUTER MANUFACTURER INDEX
<TABLE>
<CAPTION>
NAME 4/7/94 3/31/95 3/31/96
---- ------ ------- -------
<S> <C> <C> <C>
MTI Technology Corporation 100 36 21
Nasdaq Stock Market - U.S. 100 109 149
Nasdaq Computer Manufacturer 100 117 180
</TABLE>
THE FOREGOING REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON
EXECUTIVE COMPENSATION AND THE PERFORMANCE GRAPH THAT APPEARS IMMEDIATELY ABOVE
SHALL NOT BE DEEMED TO BE SOLICITING MATERIAL OR TO BE FILED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934, OR INCORPORATED
BY REFERENCE IN ANY DOCUMENT SO FILED.
11
<PAGE> 12
REPORT OF COMPENSATION COMMITTEE ON REPRICING
In May 1995, the Compensation Committee of the Board of Directors
announced a repricing of all outstanding stock options with exercise prices in
excess of $1.75 per share (excluding options under the Directors' Plan). The
Company's stock option plans are intended to encourage Company employees,
through their individual efforts, to improve the Company's overall performance
and to promote profitability by providing them an opportunity to participate in
the increased value they help create. In May 1995, the Compensation Committee
determined, based upon the recommendation of management, that the imbalance
between the exercise prices under many of the stock options then outstanding
(equal to the respective market prices for the Common Stock at the times they
were granted) and the lower market price that prevailed for the Common Stock in
May 1995 was not an incentive for the employees holding such options to exert
their best efforts to achieve the Company's long-term goals. To restore that
incentive, the repriced options have exercise prices of $1.75 per share, the
fair market value on the date of the repricing, and the option holders were not
permitted to exercise any repriced options until the earlier of May 26, 1996 or
30 days prior to the date on which such options expired. Except as disclosed
above, each new option continues to be governed by the same terms as applied to
the prior option (including the vesting schedule).
COMPENSATION COMMITTEE
RAY NOORDA
DAVID PROCTOR
VAL KREIDEL
The following chart describes all repricings of options held by an
executive officer during the completed fiscal years subsequent to the date on
which the Company became a reporting company.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING LENGTH OF ORIGINAL
OPTIONS/SARS MARKET PRICE OF EXERCISE PRICE OPTION TERM
REPRICED OR STOCK AT TIME OF ATTIME OF REMAINING AT DATE
AMENDED REPRICING EXERCISE REPRICING OR NEW EXERCISE OF REPRICING OR
NAME DATE (#) OR AMENDMENT ($) AMENDMENT ($) PRICE ($) AMENDMENT
- - ---- ---- ---- ---------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Earl M. Pearlman, 5/26/95 125,000 $1.75 $2.875 $1.75 118 mos.
President and
Chief Executive
Officer
Dale R. Boyd, 5/26/95 25,000 $1.75 $3.375 $1.75 117 mos.
Vice President, Chief
Financial Officer
John M. Hiett 5/26/95 55,000 $1.75 $5.00 $1.75 36-111 mos.
Senior Vice President, 60,000 $1.75 $4.00 $1.75
Customer Service
Thomas P. Raimondi, Jr. 5/26/95 80,000 $1.75 $4.00 $1.75 42-117 mos.
Senior Vice President, 52,500 $1.75 $5.00 $1.75
General Manager
Gary M. Scott 5/26/95 90,000 $1.75 $5.00 $1.75 84-111 mos.
Senior Vice President, 100,000 $1.75 $4.00 $1.75
European Operations
Venki Venkataraman -- -- -- -- -- --
Vice President,
Operations
</TABLE>
12
<PAGE> 13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of July 15, 1996 by (i) each person
known by the Company to own more than 5% of such shares, (ii) each of the
Company's directors, (iii) the Company's Chief Executive Officer and each of its
four most highly compensated executive officers who served as executive officers
at April 6, 1996, and (iv) all directors and executive officers as a group. As
of July 15, 1996, there were 25,549,886 issued and outstanding shares of Common
Stock of the Company, not including treasury shares or shares issuable upon
exercise of options or warrants. Ownership information has been supplied by the
person concerned.
SECURITY OWNERSHIP TABLE
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED (1)
---------------------------
NAME NUMBER PERCENT
---- ---------- -------
<S> <C> <C>
NFT Ventures, Inc. (2) 13,699,461 52.90%
10050 N. Wolfe Road SW2
Cupertino, CA 95014
Raymond J. Noorda (3) 13,711,753 52.93%
Val Kreidel (4) 12,292 *
David Proctor (5) 9,167 *
Steven J. Hamerslag (6) 2,450,092 9.59%
Earl M. Pearlman (7) 51,667 *
Dale R. Boyd (8) 6,250 *
John M. Hiett (9) 95,000 *
Thomas P. Raimondi, Jr. (10) 149,375 *
Gary M. Scott (11) 413,750 1.61%
Bob Goetz (12) 341,250 1.33%
All directors and executive
officers as a group (10
persons) (13) 17,165,596 64.96%
</TABLE>
- - -------------------
*Less than 1%
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the Company believes that the persons
named in the table have sole voting and investment power with respect to
all shares.
(2) Includes 345,000 shares issuable upon exercise of warrants held by NFT,
exercisable within 60 days of July 15, 1996.
(3) The address for Mr. Noorda is c/o MTI Technology Corporation, 4905 East La
Palma Avenue, Anaheim, California 92807. Represents shares owned by NFT,
including shares subject to certain warrants as disclosed in note (2)
above, and 12,292 shares issuable to Mr. Noorda upon exercise of options
exercisable within 60 days of July 15, 1996. Mr. Noorda, Chairman of the
Board of Directors of the Company, is Chairman of the Board of NFT. Mr.
Noorda disclaims beneficial ownership of all shares held by NFT.
(4) Includes 12,292 shares issuable upon exercise of options exercisable
within 60 days of July 15, 1996.
13
<PAGE> 14
(5) Includes 9,167 shares issuable upon exercise of options exercisable within
60 days of July 15, 1996.
(6) Includes 2,362,592 shares held in a family trust in which Mr. Hamerslag
has shared voting and investment power with his wife. Mr. Hamerslag is a
Director of the Company. Mr. Hamerslag's address is P.O. Box 7227, Rancho
Santa Fe, California 92067.
(7) Includes 41,667 shares issuable upon exercise of options exercisable
within 60 days of July 15, 1996.
(8) Includes 6,250 shares issuable upon exercise of options exercisable within
60 days of July 15, 1996.
(9) Includes 95,000 shares issuable upon exercise of options exercisable
within 60 days of July 15, 1996.
(10) Includes 114,375 shares issuable upon exercise of options exercisable
within 60 days of July 15, 1996.
(11) Includes 163,750 shares issuable upon exercise of options exercisable
within 60 days of July 15, 1996.
(12) Includes 171,250 shares issuable upon exercise of options exercisable
within 60 days of July 15, 1996. Includes 170,000 shares held in a family
trust.
(13) Includes shares held by entities affiliated with directors and executive
officers of the Company as described above, including 876,043 shares
issuable upon exercise of stock options and warrants exercisable within 60
days of July 15, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NFTII Conversion Right. On July 19, 1995, the Company entered into the
Loan Agreement with NFTII. Mr. Noorda is the Chairman of the Board of NFTII.
Pursuant to the Loan Agreement, NFTII provided the Company $10.0 million at an
interest rate of 10-3/4% per annum. Repayment was due in two equal
installments, 18 and 24 months after funding.
As contemplated by the Loan Agreement, NFTII and the Company have
executed mutually satisfactory licenses granting NFTII a source code license
(with the right of sublicense) for the Company's BACKUP.UNET and XpresServe
products within thirty (30) days of the date of the Loan Agreement. Therefore,
NFTII has forgiven $650,000 of principal or interest due under the Loan
Agreement.
On April 11, 1996, the principal and interest accrued under the Loan
Agreement was converted, in whole, to Common Stock of the Company at $1.6875 per
share, the then-current market price per share (the "Conversion Right") for an
aggregate of 5,992,665 shares. The Conversion Right was approved by the
Company's stockholders at the 1995 Annual Meeting.
NRE Funding Agreement. Pursuant to the NRE Funding Agreement, dated as
of June 27, 1996, between the Company and NFT, NFT has agreed to fund the
non-recoverable direct operating expenses for certain development projects for
one year, up to an aggregate of $2.4 million. The development projects consist
of the Company's Sterling, Virginia Software Product Development Center, the RLM
Software Products Group, and the Open Media Products Group. In return for the
development project funding, NFT will receive 25% of the net sales prices of all
products arising out of the development projects through April 7, 2000. In
addition, the Company has agreed, subject to stockholder approval, to issue NFT
a warrant to purchase up to 750,000 shares of Common Stock with an exercise
price of $2.25 per share, vesting 25% at each funding date. See "Proposal
Three." The aggregate number of shares of Common Stock subject to the warrant
will be reduced pro rata, to the extent the maximum funding obligation is not
reached. Ray Noorda, the Company's Chairman and a major stockholder, is the
Chairman of NFT.
Loan Guaranty Warrants. On May 3, 1996, an affiliate of NFT provided
the Loan Guaranty for the Company's $10.0 million bank financing with Greyrock
Business Credit. As consideration for such Loan Guaranty, the Company has
14
<PAGE> 15
agreed to issue NFT a warrant to purchase up to 500,000 shares of Common Stock
at $2.00 per share, subject to approval of the Company's disinterested
stockholders. See "Proposal Four." Ray Noorda, the Company's Chairman and a
major stockholder is the Chairman of NFT.
Option Grants. In June 1996, the Compensation Committee of the Board of
Directors approved stock option grants to the following executive officers: Earl
Pearlman (250,000); Dale Boyd (70,000); and Venki Venkataraman (35,000).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K:
The following Consolidated Financial Statements of MTI and the
Independent Auditors' Report are attached hereto beginning on pages F-1 and S-1.
(a) (1) Consolidated Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets as of April 6, 1996 and April 1,
1995
Consolidated Statements of Operations for fiscal years 1996,
1995 and 1994
Consolidated Statements of Stockholders' Equity (Deficiency) for
fiscal years 1996, 1995 and 1994
Consolidated Statements of Cash Flows for fiscal years 1996,
1995 and 1994
(2) The following financial statement schedule for fiscal years
1996, 1995 and 1994 is submitted herewith:
Schedule II -- Valuation and Qualifying Accounts (See page S-1)
All other schedules are omitted because they are not applicable
or the required information is shown in the Consolidated
Financial Statements or notes thereto.
(3) Exhibits included herewith (numbered in accordance with Item 601
of Regulation S-K):
EXHIBIT
NUMBER DESCRIPTION
2.1 Agreement and Plan of Reorganization between the Company and SF2
Corporation, dated as of January 10, 1992, as amended by Amendment No. 1
dated as of February 24, 1992, and Amendment No. 2 dated as of March 3,
1992. Exhibits and Schedules to this Agreement, generally listing
affiliates, capitalization, material contracts requiring consent,
financial statements and information, and property, equipment,
inventory, patent and employee information concerning SF2 Corporation,
and purchase orders distributors and license agreements of the Company,
have been omitted. The Company undertakes to furnish supplementary a
copy of any omitted exhibit or schedule to the Commission upon request.
(1)
2.2 Agreement of Merger pertaining to the Company's reincorporation in
Delaware, dated as of September 9, 1992. (1)
2.3 Agreement for Purchase and Sale of Assets between the Company and System
Industries, Inc., dated as of November 12, 1993. Exhibits to this
Agreement, generally listing the real, personal and intellectual
property purchased and the agreements assumed by the Company under this
Agreement
15
<PAGE> 16
have been omitted. The Company undertakes to furnish supplementary a
copy of any omitted exhibit to the Commission upon request. (1)
3.1 Restated Certificate of Incorporation of the Company. (1)
3.2 By-laws of the Company. (1)
4.1 Form of Registration Rights Agreement between the Company and certain
Purchasers, and schedule of such Purchasers. (1)
4.2 Registration Rights Agreement among the Company, Dialogic System
Corporation and NFT Ventures, Inc., dated June 15, 1992, as amended as
of April 1, 1993 and as of February 11, 1994. (1)
4.3 Registration Rights Agreement between the Company and NFT Ventures,
Inc., dated November 30, 1992. (1)
4.4 [Intentionally omitted]
4.5 [Intentionally omitted]
4.6 Stock Purchase Warrant of the Company issued to NFT Ventures, Inc.,
dated April 1, 1993. (1)
4.7 Contingent Stock Purchase Warrant of the Company issued to NFT Ventures,
Inc., dated April 1, 1993. (1)
4.8 Contingent Stock Purchase Warrant of the Company issued to NFT Ventures,
Inc., issued April 1, 1993. (1)
4.9 Convertible Subordinated Note Purchase Agreements dated as of July 19,
1985. (1)
4.10 Class B Convertible Subordinated Note Purchase Agreement dated as of
August 6, 1986. (1)
4.11 Registration Rights Agreement between the Company and Dialogic Systems
Corporation, dated November 30, 1992. (1)
4.12 Specimen Stock Certificate. (1)
4.13 Stock Purchase Warrant of the Company issued to NFT Ventures, Inc.,
dated February 11, 1994. (1)
4.14 Contingent Stock Purchase Warrant of the Company issued to NFT Ventures,
Inc., dated February 11, 1994. (1)
4.15 Warrant to Purchase Common Stock of the Company issued to Raxco, Inc.,
dated as of December 31, 1994. (4)
10.1 Settlement Agreement between the Company and Digital Equipment
Corporation, dated as of December 4, 1992. (Confidential treatment
granted pursuant to Rule 406) (1)
10.2 Triple Net Lease between the Company and Catellus Development
Corporation effective December 20, 1991. (1)
10.3 Owner Participation Agreement between the Company, Catellus Development
Corporation and Anaheim Redevelopment Agency, dated as of January 7,
1992, including exhibits. (1)
10.4 Subordinated Promissory Note made by the Company to System Industries,
Inc., dated December 20, 1993. (1)
16
<PAGE> 17
10.5 Security Agreement between the Company and System Industries, Inc.,
dated as of December 20, 1993. (1)
10.6 [Intentionally omitted]
10.7 [Intentionally omitted]
10.8 [Intentionally omitted]
10.9 Reimbursement Agreement between the Company and Dialogic Systems
Corporation, dated as of June 18, 1992. (1)
10.10 10% Subordinated Promissory Note Due 1993, made by the Company to
Dialogic Systems Corporation, dated June 18, 1992. (1)
10.11 Subordinated Reimbursement Agreement between the Company, Micro
Technology GmbH, Dialogic Systems Corporation, and NFT Ventures, Inc.,
dated as of November 20, 1992. (1)
10.12 Stock Purchase Agreement between the Company and NFT Ventures, Inc.,
dated as of November 20, 1992. (1)
10.13 Form of Stock Purchase Agreement between the Company and certain
Purchasers, and schedule of such Purchasers. (1)
*10.14 Form of Nonqualified Stock Option Agreement under the Stock Incentive
Plan. (1)
10.15 Stock Purchase Agreement between the Company and the shareholders of SCR
S.A. and Systems Compatibles et Reseaux Technologies S.A., dated
December 10, 1991. (1)
*10.16 Form of Indemnification Agreement. (1)
10.17 [Intentionally omitted]
10.18 [Intentionally omitted]
10.19 Subordinated Reimbursement Agreement between the Company and Dialogic
Systems Corporation, dated as of April 1, 1993. (1)
*10.20 Micro Technology, Inc. Incentive Stock Option Plan -- 1985. (1)
*10.21 1987 Incentive Stock Option and Nonqualified Stock Option Plan of the
Company (the "1987 Stock Option Plan"). (1)
*10.22 Form of Incentive Common Stock Option Agreement under the 1987 Stock
Option Plan. (1)
*10.23 Form of Nonqualified Common Stock Option Agreement under the 1987 Stock
Option Plan. (1)
*10.24 Stock Incentive Plan of the Company. (1)
*10.25 1988 Stock Option Plan, as amended August 12, 1991, of SF2 Corporation.
(1)
10.26 Subordinated Promissory Note of the Company issued to NFT Ventures,
Inc., dated February 15, 1994. (1)
10.27 Subordinated Reimbursement Agreement between the Company and NFT
Ventures, Inc., dated February 11, 1994. (1)
10.28 Form of Consultant/Employee Confidentiality Agreement. (1)
17
<PAGE> 18
10.29 Lease between Oak Creek Delaware, Inc., and the Company, dated December
18, 1993. (1)
*10.30 Form of Incentive Stock Option Agreement under the Stock Incentive Plan.
(1)
*10.31 MTI Technology Corporation 1994 Employee Stock Purchase Plan, as
amended. (2)
*10.32 MTI Technology Corporation Directors' Non-Qualified Stock Option Plan.
(1)
10.33 Stock Purchase Agreement between Earl M. Pearlman, William E. Decker,
and the William E. Decker Trust and Registrant, dated as of April 2,
1995. Exhibits and schedules to this Agreement, generally listing stock
ownership, form of promissory notes, form of counsel opinions, form of
employment agreements, form of stock option agreements, form of
indemnification with agreements and initial term sheets have been
omitted. Registrant undertakes to furnish supplementary a copy of any
omitted exhibit or schedule to the Commission upon request. (3)
10.34 Loan and Security Agreement between the Company and Greyrock Business
Credit, dated March 31, 1995, and Schedule thereto. (4)
10.35 Loan Agreement, dated July 19, 1995, between NFT Ventures II, LLC and
Registrant. (5)
10.36 Amendment No. 1 to Stock Purchase Agreement and Senior Promissory Notes,
dated as of July 31, 1995, between Earl M. Pearlman, William E. Decker,
the William E. Decker Trust and Registrant. (5)
10.37 Statement of Work No. 1 under the Master Task Agreement Version 1.0,
effective July 27, 1995, between NFT Ventures II, LLC and Registrant,
and letter relating thereto. (6)
*10.38 Employment Agreement, dated as of May 15, 1995, between Earl M. Pearlman
and Registrant. (6)
10.39 Asset Purchase Agreement, dated February 9, 1996, between EMC
Corporation and Registrant, dated as of February 9, 1996. (Confidential
treatment granted pursuant to Rule 24b-2) (7)
10.40 Amended Loan Agreement and related documents between the Company,
Greyrock Business Credit, and Dialogic Systems Corporation, dated May 3,
1996. (8)
10.41 Stock Purchase Warrant of the Company issued to NFT Ventures, Inc.,
dated July 1, 1996. (8)
10.42 Settlement and Release Agreement between the Company and Bob L. Corey,
dated as of April 1, 1996. (Confidential treatment requested puruant to
Rule 24b-2)
10.43 Letter dated April 3, 1996, between the Company and Michael Clemens.
10.44 NRE Funding Agreement between the Company and NFT Ventures, Inc., dated
June 27, 1996. (8)
10.45 Contingent Stock Purchase Warrant of the Company issued to NFT Ventures,
Inc., dated June 27, 1996. (8)
21.1 Subsidiaries of the Company. (8)
23.1 Consent of KPMG Peat Marwick LLP.
24 Power of Attorney. (8)
27.1 Financial Data Schedule
- - ------------------------
(1) Filed as an Exhibit to the Registrant's Registration Statement on Form S-1
(No. 33-75180).
(2) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended April 2, 1994.
18
<PAGE> 19
(3) Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
May 15, 1995.
(4) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended April 1, 1995.
(5) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ending July 1, 1995.
(6) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1995.
(7) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended December 30, 1995.
(8) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended April 6, 1996.
* Management or compensatory plan or arrangement.
(b) Reports on Form 8-K
Registrant filed a report on Form 8-K dated March 29, 1996, regarding the
settlement of a class action lawsuit.
Registrant filed a report on Form 8-K dated April 8, 1996, regarding the
conversion of debt to common stock and changes in senior management of the
Company.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 31st day of
July 1996.
MTI TECHNOLOGY CORPORATION
By: /s/ Dale R. Boyd
-----------------------------------------
Dale R. Boyd
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ * President and Chief Executive July 31, 1996
- - ------------------------- Officer
(Earl M. Pearlman)
/s/ Dale R. Boyd Vice President, Chief Financial July 31, 1996
- - ------------------------- Officer (Principal Financial and
(Dale R. Boyd) Accounting Officer)
/s/ * Chairman of the Board July 31, 1996
- - -------------------------
(Raymond J. Noorda)
/s/ * Director July 31, 1996
- - -------------------------
(Val Kreidel)
/s/ * Director July 31, 1996
- - -------------------------
(David Proctor)
*By: /s/ Dale R. Boyd Attorney-in-Fact July 31, 1996
--------------------
(Dale R. Boyd)
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
HISTORICAL FINANCIAL STATEMENTS OF THE COMPANY Page
----
<S> <C>
Independent Auditors' Report............................................................. F-2
Consolidated Balance Sheets as of April 6, 1996 and April 1, 1995........................ F-3
Consolidated Statements of Operations for the fiscal years ended April 6, 1996,
April 1, 1995, and April 2, 1994.................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended
April 6, 1996, April 1, 1995, and April 2, 1994..................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended April 6, 1996,
April 1, 1995 and April 2, 1994..................................................... F-6
Notes to Consolidated Financial Statements............................................... F-7
FINANCIAL STATEMENT SCHEDULE OF THE COMPANY
Schedule II - Valuation and Qualifying Accounts.......................................... S-1
</TABLE>
F-1
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MTI Technology Corporation:
We have audited the consolidated financial statements of MTI Technology
Corporation and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedule listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MTI
Technology Corporation and subsidiaries at April 6, 1996 and April 1, 1995, and
the results of their operations and their cash flows for the fiscal years ended
April 6, 1996, April 1, 1995, and April 2, 1994, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Orange County, California
May 29, 1996
F-2
<PAGE> 23
MTI TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
April 6, April 1,
1996 1995
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,055 $ 5,562
Accounts receivable, less allowance for
doubtful accounts and sales returns of
$5,437 in 1996 and $9,986 in 1995 21,101 26,769
Inventories 21,499 22,420
Deferred income tax benefit 784 784
Prepaid expenses and other receivables 3,750 6,171
----- --------
Total current assets 51,189 61,706
Property, plant and equipment, net 16,323 15,239
Intangible assets and goodwill, less
accumulated amortization of $1,880 in
1996 and $3,218 in 1995 15,852 24,754
Other 659 752
----- --------
$ 84,023 $ 102,451
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Short-term borrowings $ 20,613 $ -
Current maturities of long-term debt 8,297 2,527
Accounts payable 14,580 16,540
Accrued liabilities 18,724 13,118
Deferred income 14,941 11,880
------- -------
Total current liabilities 77,155 44,065
Long-term debt, less current maturities 5,966 6,927
Deferred income 550 555
Other 539 1,766
------- -------
Total liabilities 84,210 53,313
------- -------
Stockholders' equity (deficiency):
Preferred stock, $.001 par value; authorized
5,000 shares; issued and outstanding, none - -
Common stock, $.001 par value; authorized
40,000 shares; issued (including treasury
shares) and outstanding 20,243 and 20,214
shares in 1996 and 1995, respectively 20 20
Additional paid-in capital 77,762 77,606
Accumulated deficit (73,645) (24,343)
Less cost of treasury stock (794 and 859 shares
in 1996 and 1995, respectively) (2,938) (3,201)
Cumulative foreign currency translation
adjustments (1,386) (944)
------- -------
Total stockholders' equity (deficiency) (187) 49,138
Commitments and contingencies
(notes 6, 9 and 11)
Subsequent events (notes 6, 8, 12, and 16)
------- -------
$ 84,023 $102,451
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 24
MTI TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED APRIL 6, 1996, APRIL 1, 1995 AND APRIL 2, 1994
(in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net product revenue $ 97,682 $ 91,140 $ 95,401
Service revenue 34,232 36,177 28,067
--------- --------- ---------
Total revenue 131,914 127,317 123,468
Product cost of revenue 74,057 72,082 56,623
Service cost of revenue 22,162 23,590 17,098
--------- --------- ---------
Total cost of revenue 96,219 95,672 73,721
--------- --------- ---------
Gross profit 35,695 31,645 49,747
Operating expenses:
Selling, general and administrative 65,715 39,812 33,256
Research and development 14,384 12,825 11,451
--------- --------- ---------
Total operating expenses 80,099 52,637 44,707
Operating income (loss) (44,404) (20,992) 5,040
Other income (expense):
Interest expense (4,090) (966) (1,386)
Interest income 99 339 225
Other expense (645) (381) --
--------- --------- ---------
Income (loss) before income taxes (49,040) (22,000) 3,879
Income tax expense 179 3,540 980
--------- --------- ---------
Net income (loss) $ (49,219) $ (25,540) $ 2,899
========= ========= =========
Income (loss) per common and common
equivalent share $ (2.54) $ (1.34) $ .18
========= ========= =========
Weighted average common and common
equivalent shares 19,400 19,029 15,925
========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 25
MTI TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FISCAL YEARS ENDED APRIL 6, 1996, APRIL 1, 1995 AND APRIL 2, 1994
<TABLE>
<CAPTION>
Cumulative Total
Foreign Stock-
Common Stock Additional Retained Currency holders'
------------------- Paid-in Earnings Translation Equity
Shares Amount Capital (Deficit) Adjustments (Deficiency)
------ ------ ------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 3, 1993 14,239 $ 14 $ 37,112 $ (1,685) $ (1,751) $ 33,690
Common stock issued; acquisition
and other (note 11) 495 1 3,486 -- -- 3,487
Exercise of stock options (including
compensation expense of $224) 301 -- 402 -- -- 402
Common stock repurchased and retired (27) -- (134) -- -- (134)
Foreign currency translation
adjustments -- -- -- -- (149) (149)
Net income -- -- -- 2,899 -- 2,899
------ -------- -------- -------- -------- --------
Balance at April 2, 1994 15,008 15 40,866 1,214 (1,900) 40,195
Common stock issued in connection
with initial public offering, net of
offering expenses 4,455 4 36,090 -- -- 36,094
Exercise of stock options (including
compensation expense of $239) 751 1 650 -- -- 651
Purchase of treasury shares (875) -- (3,263) -- -- (3,263)
Treasury shares issued under
Employee Stock Purchase Plan 16 -- 62 (17) -- 45
Foreign currency translation
adjustments -- -- -- -- 956 956
Net loss -- -- -- (25,540) -- (25,540)
------ -------- -------- -------- -------- --------
Balance at April 1, 1995 19,355 20 74,405 (24,343) (944) 49,138
Exercise of stock options (including
compensation expense of $129) 30 -- 155 -- -- 155
Treasury shares issued under
Employee Stock Purchase Plan and
other 64 -- 264 (83) -- 181
Foreign currency translation
adjustments -- -- -- -- (442) (442)
Net loss -- -- -- (49,219) -- (49,219)
------ -------- -------- -------- -------- --------
Balance at April 6, 1996 19,449 $ 20 $ 74,824 $(73,645) $ (1,386) $ (187)
====== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 26
MTI TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED APRIL 6, 1996, APRIL 1, 1995 AND APRIL 2, 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (49,219) $(25,540) $ 2,899
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 28,255 9,918 4,795
Provision for sales returns and losses
on accounts receivable, net 154 99 1,093
Provision for inventory obsolescence 4,056 10,600 3,457
Loss on disposal of fixed assets 923 3,297 --
Deferred income tax expense -- 5,123 431
Deferred income 3,056 (71) (1,567)
Compensation related to stock options 129 239 224
Change in assets and liabilities, net of
effect of acquisitions:
Accounts receivable 8,404 11,841 (1,284)
Inventories (2,531) (13,465) (6,482)
Prepaid expenses, other receivables
and other assets 2,199 (2,368) (1,495)
Accounts payable (5,799) 163 2,467
Accrued and other liabilities 3,299 (2,604) (3,482)
--------- -------- --------
Net cash provided by (used in) operating
activities (7,074) (2,768) 1,056
--------- -------- --------
Cash flows from investing activities:
Capital expenditures for property, plant
and equipment (8,910) (8,001) (4,086)
Proceeds from sale of property, plant and
equipment, net 340 -- --
Acquisition of assets and liabilities of
businesses, net of cash acquired (2,690) (1,628) (2,707)
Long term investments -- (250) --
--------- -------- --------
Net cash used in investing activities (11,260) (9,879) (6,793)
--------- -------- --------
Cash flows from financing activities:
Borrowings under notes payable, net of
acquisitions 129,887 20,984 35,050
Borrowings under notes payable to fund
acquisition of NPI 2,608 -- --
Proceeds from issuance of common stock
and exercise of options and warrants 66 36,551 193
Repayment of notes payable (115,807) (40,466) (28,781)
Repurchase of common stock -- (3,263) (134)
--------- -------- --------
Net cash provided by financing activities 16,754 13,806 6,328
--------- -------- --------
Effect of exchange rate changes on cash 73 427 32
--------- -------- --------
Net increase (decrease) in cash and cash equivalents (1,507) 1,586 623
Cash and cash equivalents at beginning of year 5,562 3,976 3,353
--------- -------- --------
Cash and cash equivalents at end of year $ 4,055 $ 5,562 $ 3,976
========= ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,330 $ 923 $ 1,152
Income taxes 481 1,438 791
Supplemental schedule of noncash investing and
financing activities:
Capital leases of property, plant and equipment -- -- 950
Revaluation on acquired SI fixed assets -- 1,347 --
Issuance of common stock, notes, options
and warrants in connection with acquisitions
(see note 11) 5,000 2,500 7,472
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 27
MTI TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of MTI Technology Corporation and subsidiaries (the "Company" or "MTI"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Fiscal Year
The Company's year-end is the first Saturday following March 31. Fiscal
year 1996 ended April 6 and consisted of 53 weeks. Fiscal years 1995 and 1994
ended on April 1, and April 2, respectively, and each year consisted of 52
weeks.
Revenue Recognition
Sales of the Company's computer equipment are recorded upon shipment,
net of an allowance for estimated returns. Revenue from equipment maintenance
contracts is recorded as deferred income when billed and is recognized as earned
over the period in which the services are provided, primarily straight-line over
the term of the contract. The Company maintains a warranty accrual for the
estimated future warranty obligation, based on the relationship of historical
and anticipated warranty costs and sales volumes.
The Company recognizes revenue from software licenses, provided there
are no significant Company obligations related to the sale and the resulting
receivable is deemed collectible, at the time the software is shipped, net of an
allowance for returns, cancellations and maintenance, including vendor and
post-contract support obligations. Revenue from maintenance agreements,
including the allowance for maintenance bundled with software licenses, is
recognized ratably over the term of the related agreement. Revenue from
consulting and other software-related services is recognized as the services are
rendered.
Cash and Cash Equivalents
At April 6, 1996 and April 1, 1995, $1,102 and $1,381, respectively, of
short term commercial paper investments and money market fund investments are
included in cash and cash equivalents. The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market (net realizable value), net of an allowance for obsolete, slow-moving and
non-salable inventory. The allowance is periodically adjusted based upon
management's review of inventories on-hand, historic product sales and
forecasts.
F-7
<PAGE> 28
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives of two
to seven years. Leasehold improvements are amortized using the straight-line
method over the lesser of the useful life of the improvement or the term of the
related lease. Maintenance and repairs are expensed as incurred.
Accounting for Stock Options
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("Statement 123") which encourages, but does not require, a fair
value based method of accounting for employee stock options. Statement 123 will
be effective for fiscal years beginning after December 15, 1995. While the
Company is still evaluating Statement 123, it currently expects to elect to
continue to measure compensation cost under APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Management does not believe that the adoption of
this new standard will have a material effect on the consolidated financial
statements of the Company.
Use of Estimates
Management has made a number of estimates and assumptions relating to
the reporting of assets and liabilities in conformity with generally accepted
accounting principles. Actual results could differ from these estimates.
Income Taxes
The Company applies the provisions of Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes" ("Statement 109") (see note 7).
Under the asset and liability method of Statement 109, deferred tax
assets and liabilities are determined based on differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse, net of a valuation allowance for deferred tax assets which
are determined to not be more likely than not realizable. Under Statement 109,
the effect on deferred taxes of a change in tax rates is recognized in
operations in the period that includes the enactment date. Under the deferred
method, deferred taxes were recognized using the tax rate applicable to the year
of the calculation and were not adjusted for subsequent changes in tax rates.
Intangible Assets and Goodwill
The Company amortizes intangible assets and costs in excess of net
assets acquired (goodwill) related to the Company's business acquisitions on a
straight-line basis over periods ranging from 7 to 10 years. Management had
regularly evaluated the continuing recoverability of intangible assets and
goodwill based upon the historical and projected revenue and profitability of
the related acquisitions and continuing benefits of the underlying assets. Based
upon these evaluations, the Company believes that the established estimated
useful lives are reasonable based on the economic factors and continuing
benefits applicable to the acquired businesses and/or assets.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", ("Statement
121"). Statement 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Under the provisions of Statement 121, if the sum of the expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset, an impairment loss is recognized. The amount of
impairment, if any, is measured based on projected discounted cash flows. The
Company adopted Statement 121 in the fourth quarter of fiscal 1996. Prior to the
adoption of Statement 121, the Company had used a similar approach for assessing
the recoverability of goodwill based on operating income.
F-8
<PAGE> 29
Intangible assets and goodwill, net of related amortization, are
summarized as follows:
<TABLE>
<CAPTION>
APRIL 6, APRIL 1,
1996 1995
-------- --------
<S> <C> <C>
Intangible assets $ -- $16,112
Goodwill 15,852 8,642
------- -------
$15,852 $24,754
======= =======
</TABLE>
During the fourth quarter of fiscal 1996, the Company wrote off $14,244,
representing the remaining unamortized intangible assets related to the purchase
of substantially all the assets and assumption of certain liabilities from
System Industries, Inc., and $2,347, representing the remaining unamortized
goodwill related to the acquisition of SCR Technologies (see note 11) based on
management's evaluation of the recovery of the acquired net assets. The Company
has evaluated the recoverability of the remaining goodwill by analyzing
forecasted undiscounted cash flows and found no further impairment exists at
April 6, 1996. Accordingly, as of April 6, 1996, goodwill represents
intellectual property rights, access to an installed customer base and research
and development capacity related to Raxco and NPI (see note 11) and is being
amortized over 10 years.
Foreign Currency Translation
The Company follows the principles of Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation," using the local currencies as
the functional currencies of its foreign subsidiaries. Accordingly, all assets
and liabilities outside the United States are translated into dollars at the
rate of exchange in effect at the balance sheet date. Income and expense items
are translated at the weighted average exchange rates prevailing during the
period. Net foreign currency translation adjustments accumulate as a separate
component of stockholders' equity. Net foreign transaction exchange gains
(losses) of $(262), $593 and $(171) were realized in 1996, 1995, and 1994,
respectively, and are included in selling, general and administrative expense in
the accompanying consolidated statements of operations.
Concentration of Credit Risk
Credit is extended for all customers based on financial condition and,
generally, collateral is not required. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer base and dispersion across many different
industries and geographies.
Income (Loss) per Common and Common Equivalent Share
Income (loss) per share of common stock is computed using the weighted
average number of common and common equivalent shares of stock outstanding
during the period. Common stock equivalents consist of dilutive outstanding
stock options and warrants calculated using the treasury stock method. Primary
income (loss) per share approximates fully diluted income (loss) per share for
all periods presented. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, common stock and warrants issued and stock options
granted during the 12-month period preceding the date of the initial filing of
the Registration Statement in connection with the Company's initial public
offering have been included in the calculation of common stock equivalents,
using the treasury stock method, as if they were outstanding for all years
presented.
Fourth Quarter 1996 Adjustments
During the fourth quarter of fiscal 1996, the Company made a
determination that it would not seek to continue its participation as a
subcontractor relating to the U.S. Army's RCAS contract; settled its shareholder
lawsuit; completed its audit by the State of California and received a
determination of sales and use tax liability therefrom; and, experienced a
substantial increase in its mix of revenues from the Open Systems marketplace,
partially offset by a corresponding decrease in revenues from the DEC market. As
a consequence of these events, during the fourth quarter of fiscal 1996, the
Company reevaluated the future recoverability and economic usefulness of certain
assets, the composition of its operating infrastructure, and recorded certain
charges to reflect its liability related to these events.
F-9
<PAGE> 30
During the fourth quarter of fiscal 1996, the Company recorded
approximately $19,806 of charges related to asset write-downs and increased
inventory reserves. The charges included a $14,244 charge to write-off the
remaining unamortized intangible assets related to the purchase of substantially
all of the assets and assumption of certain liabilities from System Industries,
Inc. (see note 11) based on management's evaluation of the recoverability of the
acquired net assets; a $2,347 charge to write-off the remaining goodwill related
to the acquisition of SCR Technologies (see note 11) based on management's
evaluation of the recoverability of the acquired net assets; a $2,056 charge to
increase excess and obsolete reserves on certain slower-moving or obsolete
product inventories that support the DEC market; a $504 charge to record the
write-down of field service spares inventory that support the DEC market to
estimated net realizable value; and, a $655 charge to write-off certain idle
fixed assets.
In addition to the above charges, the Company accrued $2,088 for the
settlement of a shareholder lawsuit and related legal costs (see note 9), $1,855
for sales and use tax liability and $1,450 for related interest and penalties,
and $1,777 for restructuring and severance costs.
At April 6, 1996, accrued restructuring and severance costs were $1,777
which included $1,265 and $512 for severance costs and office closures,
respectively, charged to operating expenses. These restructuring activities
resulted in the termination of approximately 46 employees and 4 office closures.
The following table summarizes the fiscal 1996 fourth quarter charges and the
impact to the Company's results of operations:
<TABLE>
<CAPTION>
<S> <C>
Product cost of goods sold
Charge to increase excess and obsolete reserves
on product inventories $ 2,056
-------
Service cost of goods sold
Write-down of field service spares inventory $ 504
-------
Operating expenses
Write-off of unamortized System Industries, Inc.
- related intangible assets $14,244
Write-off of unamortized SCR Technologies
- related goodwill 2,347
Reserve for shareholder lawsuit settlement and
related legal costs 2,088
Reserve for sales and use tax liability 1,855
Restructuring and severance costs 1,777
Write-off of idle fixed assets 655
-------
22,966
-------
Other expenses
Reserve for interest and penalties related to sales
and use tax liability 1,450
-------
Total fiscal 1996 fourth quarter adjustments $26,976
=======
</TABLE>
Fourth Quarter 1995 Adjustments
During the latter half of fiscal 1995, the Company experienced increased
competition from DEC and other competitors, expanded its efforts to implement
its strategy to undertake efforts to increase revenues from the open system
marketplace through in-house product development efforts and acquisitions, and
experienced certain product performance and manufacturing quality issues. As a
consequence of these events the Company reevaluated the future recoverability
and economic usefulness of certain of its assets during the fourth quarter of
fiscal 1995.
During the fourth quarter of fiscal 1995, the Company recorded
approximately $12,400 of charges related to asset write-downs and increased
inventory reserves. The charges included a $4,069 write-off of certain product
inventory based on management's evaluation of recent and estimated future sales
levels for the product; a $2,975 charge to increase excess and obsolete reserves
on offsite inventories of loaner, replacement, beta and evaluation units; a
$3,266
F-10
<PAGE> 31
charge to record the write-down of field service spares inventory to estimated
net realizable value; a $990 charge to write-off certain idle fixed assets; a
$714 charge to write-down the value of demonstration equipment located at
various field sales offices and customer sites due to revised estimates of
obsolescence and impairment; and, a $411 charge to write-off the remaining
unamortized goodwill related to the acquisition of SF2 Corporation (see note 11)
based on management's evaluation of the recoverability of the acquired product
line.
In addition to the above charges, the Company accrued an additional
returns reserve of $2,454 against the possibility of product returns due to
product performance issues at certain large customer installations. During
fiscal 1996, the product performance issues were resolved and the $2,454 returns
reserve was reversed. Additionally, the Company took a charge of $3,261 to tax
expense to adjust its valuation allowance to a level whereby the Company
believed it would be more likely than not realizable (see note 7).
The following table summarizes the fiscal 1995 fourth quarter charges and the
impact to the Company's results of operations:
<TABLE>
<S> <C>
Product cost of goods sold
Write-off of product inventory $ 4,069
Charge to increase excess and obsolete
reserves on offsite inventories 2,975
Write-off of idle fixed assets 165
-------
$ 7,209
-------
Service cost of goods sold
Write-down of field spares inventory $ 3,266
Write-off of idle fixed assets 31
-------
$ 3,297
-------
Operating expenses
Write-off of idle fixed assets $ 794
Write-down of demonstration equipment 714
assets
Write-off of unamortized SF2-related 411
goodwill -------
$ 1,919
-------
Total fourth quarter adjustments due to
asset write-downs and increased inventory $12,425
reserves -------
Additional returns reserves $ 2,454
Adjustments to deferred tax valuation $ 3,261
allowance -------
Total fiscal 1995 fourth quarter $18,140
adjustments =======
</TABLE>
Reclassifications
Certain reclassifications have been made to the fiscal 1995 and 1994
financial statements to conform to the fiscal 1996 presentation.
(2) PUBLIC OFFERING OF COMMON STOCK
In April 1994, the Company completed an initial public offering of
4,455,000 shares (including 455,000 shares representing partial exercise of
proceeds of the underwriters' over-allotment options) of newly issued common
stock for approximately $37,300, before offering costs.
F-11
<PAGE> 32
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
APRIL 6, APRIL 1,
1996 1995
-------- --------
<S> <C> <C>
Raw materials $13,090 $11,642
Work-in-process 2,106 1,902
Finished goods 6,303 8,876
------- -------
$21,499 $22,420
======= =======
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, are summarized as follows:
<TABLE>
<CAPTION>
APRIL 6, APRIL 1,
1996 1995
-------- --------
<S> <C> <C>
Plant equipment, office furniture and fixtures $12,327 $12,096
Computer equipment 13,064 12,006
Field service spares 9,294 7,188
Leasehold improvements 1,176 1,675
------- -------
35,861 32,965
Less accumulated depreciation and amortization 19,538 17,726
------- -------
$16,323 $15,239
======= =======
</TABLE>
Property, plant and equipment include assets held under capital leases
of $350 and $766 (net of accumulated depreciation of $364 and $376,
respectively) at April 6, 1996 and April 1, 1995, respectively.
(5) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
APRIL 6 APRIL 1,
1996 1995
------- --------
<S> <C> <C>
Salaries, wages and commissions $ 5,265 3,887
Taxes 4,970 2,840
Accrued warranty costs 1,142 1,157
Other 7,347 5,234
------- -------
$18,724 $13,118
======= =======
</TABLE>
6) DEBT
Credit Agreement and Lines of Credit
On March 31, 1995, the Company entered into an agreement with Greyrock
Business Credit whereby under an asset secured domestic line of credit the
Company may borrow up to $20,000, limited by the value of pledged collateral.
The agreement allows the Company to borrow at the prime rate plus 2%. Borrowings
outstanding under this line at April 6, 1996 were $20,613 which is classified as
short-term borrowings. The initial term of the agreement is for two years and
automatically and continuously renews for a subsequent year, unless terminated
by either party per the agreement. The bank line of credit agreement contains
certain restrictive covenants. At April 6, 1996, the Company was in compliance
with all such covenants. In May 1996 the agreement with Greyrock Business Credit
was amended to increase the line of credit to $30,000 based on additional
pledged collateral by an affiliate of NFT Ventures, Inc.("NFT"), an entity
affiliated with the Company's major stockholder and Chairman of the Board. As
consideration for the guaranty, the Company has agreed to issue warrants to
purchase up to 500,000 shares of the Company's common stock at a price of $2.00
per share, subject to approval of the Company's disinterested stockholders.
F-12
<PAGE> 33
The above noted agreement replaced an existing agreement entered in
December 1994 whereby the Company negotiated a renewal of a $12,000 asset
secured domestic line of credit with CoastFed Business Credit Corporation and
Silicon Valley Bank. There were $5,394 of borrowings outstanding against this
line of credit at April 1, 1995, which is classified under long-term debt.
Subsequent to April 1, 1995, the outstanding balance was repaid utilizing
proceeds from the facility discussed above.
Long-term Debt
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
APRIL 6, APRIL 1,
1996 1995
-------- --------
<S> <C> <C>
Capital lease obligations $ 273 $ 607
Notes payable 13,990 3,453
Bank line of credit borrowings -- 5,394
------- ------
$14,263 $9,454
Less current installments 8,297 2,527
------- ------
$ 5,966 $6,927
======= ======
</TABLE>
Principal maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1997 $ 8,297
1998 5,960
1999 6
-------
$14,263
=======
</TABLE>
The Company leases equipment under capital leases. These leases have
imputed interest rates of 9% to 14% and extend through 1999.
In addition, the Company issued a note in connection with the
acquisition of substantially all of the assets and certain liabilities of
Systems Industries, Inc. (see note 11) in December 1993. The note originally
bore interest at 6.0% and was payable in 10 quarterly installments. Pursuant to
the terms of the note, the Company repaid $2,000 of principal in fiscal 1995
upon completion of the Company's initial public offering, and the remaining
unpaid balance bears interest at 8.0%.
In January 1995, the Company issued two notes as part of the
consideration paid in the Company's acquisition of certain assets and the
assumption of certain liabilities of Raxco, Inc. (see note 11). The first note
is for the principal amount of $2,150, bears interest at 8.5% per annum, and is
payable in ten quarterly installments beginning March 31, 1995. The second note
is for the principal amount of $350, bears interest at 8.5% per annum, and is
payable in its entirety at the earlier of December 31, 1996, or upon completion
of certain activities by the Company.
In May 1995, the Company issued notes in the aggregate principal amount
of $2,000 in connection with the acquisition of National Peripherals, Inc. The
notes bear interest at 6.0% per annum, and are payable in two installments over
a two year period (see note 11). Of these notes, $1,285 is payable to an
individual who became an officer of the Company in April 1996. This individual
was not an officer at the date of acquisition.
On July 19, 1995 the Company entered into an agreement whereby it
received a loan of approximately $10,000 from NFT Ventures II, LLC ("NFT V2"),
an entity affiliated with the Company's major stockholder and Chairman of the
Board. Pursuant to the loan agreement, the Company issued a long-term, secured
subordinated note to NFT V2, which bears annual interest of 10.75% and is
repayable in two equal installments, the first installment being due and payable
in January 1997, the second in July 1997. Pursuant to the terms of the
agreement, the note was convertible at the lender's option into common stock of
the Company 90 days after the date of the agreement at a price per common share
equal to the then fair market value of such stock. Proceeds from the loan are
being used for working capital purposes.
F-13
<PAGE> 34
During the second quarter of fiscal 1996, the Company entered into an
agreement with NFT V2, whereby, pursuant to the terms of the agreement, the
Company licensed certain software products to NFT V2 for commercial use and
resale. As consideration for the licenses, the Company received $650 credit
against amounts owing to NFT V2 under the $10,000 Loan Agreement, dated July 19,
1995, between NFT V2 and the Company, and will have access to certain product
enhancements to be developed by NFT V2.
On April 11, 1996, NFT V2 exercised its right to convert current
principal and accrued interest outstanding of $10,113 into 5,992,665 common
shares of the Company (see note 12).
(7) INCOME TAXES
The components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------
APRIL 6, APRIL 1, APRIL 2,
1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
U.S. $(44,178) $(24,125) $2,448
Foreign (4,862) 2,125 1,431
-------- -------- -----
$(49,040) $(22,000) $3,879
======== ======== =====
</TABLE>
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
1996:
Federal $ -- $ -- $ --
State -- -- --
Foreign 179 -- 179
------- ------- -------
$ 179 $ -- $ 179
======= ======= =======
1995:
Federal $(1,862) $ 5,123 $ 3,261
State -- -- --
Foreign 279 -- 279
------- ------- -------
$(1,583) $ 5,123 $ 3,540
1994:
Federal $ -- $ 583 $ 583
State -- (152) (152)
Foreign 549 -- $ 549
------- ------- -------
$ 549 $ 431 $ 980
======= ======= =======
</TABLE>
F-14
<PAGE> 35
Reconciliations of the federal statutory tax rate to the effective tax
rate are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------
APRIL 6, 1996 APRIL 1, 1995 APRIL 2, 1994
------------- ------------- -------------
<S> <C> <C> <C>
Federal statutory rate (35.0)% (34.0)% 34.0%
Tax effect of net operating loss
carryforwards -- -- 1.1
Effect of foreign operations (3.1) 4.6 1.6
State taxes, net of federal benefit -- -- (4.2)
Change in valuation allowance 38.2 44.7 (18.1)
Non-deductible expenses 3.2 2.2 10.4
Other (2.9) (1.4) 0.5
----- ----- -----
0.4% 16.1% 25.3%
===== ===== =====
</TABLE>
Deferred tax assets and liabilities result from differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. The significant components of the deferred income tax assets and
deferred income tax liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Tax operating loss carryforwards 24,626 $ 10,162 $ 9,560
Tax basis of intangibles assets greater
than book basis 4,904 -- --
Accrued expenses not deductible for
tax purposes 2,996 3,552 2,926
Inventory reserves 1,715 3,795 1,351
Book depreciation greater than tax depreciation 758 -- --
Recognition of income reported on
different methods for tax purposes
than for financial reporting 188 186 406
Other 140 (17) --
-------- -------- --------
35,327 17,678 14,243
Less valuation allowance 34,543 15,828 5,985
-------- -------- --------
784 1,850 8,258
-------- -------- --------
Deferred tax liabilities:
Tax depreciation greater than book
depreciation -- (364) (1,845)
Book basis of intangible assets
greater than tax basis -- (702) (441)
Other -- -- (65)
-------- -------- --------
-- (1,066) (2,351)
-------- -------- --------
Net deferred tax asset $ 784 $ 784 $ 5,907
======== ======== ========
</TABLE>
At April 6, 1996, the Company had federal net operating loss ("NOL")
carryforwards arising from the acquisition of SF2 (see note 11), available to
offset future taxable income of $15,067, subject to alternative minimum tax
limitations. The utilization of these carryforwards is limited to approximately
$1,000 annually, as a result of the Internal Revenue Code's restrictive change
of ownership rules.
At April 6, 1996, the Company had federal NOL carryforwards, exclusive
of the $15,067 SF2 NOL discussed above, of $55,292. These carryforwards expire
beginning in fiscal year 2008.
F-15
<PAGE> 36
During fiscal 1995, management evaluated the valuation allowance and
adjusted it to a level whereby it believed the remaining net deferred tax asset
would more likely than not be realizable. The realization of the Company's
remaining net deferred tax asset is more likely than not due to the Company's
ability to carry back losses generated by the realization of the tax effects of
existing current temporary differences to taxes paid in previous periods.
Management believes that it is more likely than not that the Company will
realize the benefits of the remaining net deferred tax asset existing at April
6, 1996. The change in the valuation allowance from fiscal 1995 to fiscal 1996
was $18,715.
The Internal Revenue Service is conducting an examination of the
Company's fiscal years 1991, 1992, and 1993 federal income tax returns, but has
yet to issue any findings. The Company believes the ultimate resolution of the
examination will not result in a material impact on either the Company's future
consolidated results of operations or consolidated financial position.
(8) STOCKHOLDERS' EQUITY
Stock Options
The Company has granted stock options under its 1985 Incentive Stock
Option Plan, its 1987 Incentive Stock Option Plan and Non-Qualified Stock Option
Plan and its Stock Incentive Plan, generally at prices equal to the estimated
fair market value of the Company's common stock at date of grant. Going forward,
the Company intends to grant options only under its Stock Incentive Plan. The
1985 Incentive Stock Option Plan and the 1987 Incentive Stock Option Plan allow
a maximum of 458,000 and 2,072,000 shares to be issued in aggregate,
respectively. In addition, in connection with the acquisition of SF2 (see note
11) the Company assumed outstanding options to purchase 236,000 shares under the
1988 Stock Option Plan of SF2. The Stock Incentive Plan provides for the grant
by the Company of stock options, stock bonuses/purchases and stock appreciation
rights to acquire up to an aggregate of not more than the greater of 5% of the
authorized shares of the Company's common stock or 15% of the total number of
shares outstanding as of the Company's prior fiscal year-end, the aggregate
number of options and rights outstanding not to exceed 30% of the then
outstanding common stock of the Company. The maximum number of shares available
in any case under the Plan is 4,079,960.
In fiscal years 1994, 1992 and 1991, certain options were granted below
the then determined fair value of the Company's common stock, resulting in
compensation expense. Such compensation expense is being amortized through a
charge to operations over the vesting period of four years and amounted to $129,
$239, and $224 for fiscal years 1996, 1995, and 1994, respectively.
In May 1995, options to purchase 1,789,000 shares with exercise prices
ranging from $3.375 to $5.00 per share were repriced to an exercise price of
$1.75, the then determined fair value of the Company's common stock. All shares
repriced were not exercisable until the earlier of May 1996 or 30 days prior to
their expiration.
In May 1993, options to purchase 456,000 shares with exercise prices
ranging from $8.00 to $8.78 per share were repriced to an exercise price of
$5.00, the then determined fair value of the Company's common stock.
The options granted typically vest over a period of four years from the
date of grant. At April 6, 1996, 779,000 options were exercisable at prices
ranging from $.098 to $9.00 per share.
F-16
<PAGE> 37
A summary of all stock option transactions follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
SHARES OPTION PRICE
------ ------------
<S> <C> <C>
Options outstanding at April 3, 1993 1,966 $ .098- 8.78
Granted 458 5.00
Exercised (301) .098- 5.00
Canceled (224) .098- 8.78
-----
Options outstanding at April 2, 1994 1,899 $ .098- 5.00
Granted 1,011 3.375- 9.00
Exercised (751) .098- 5.00
Canceled (218) .475- 5.00
-----
Options outstanding at April 1, 1995 1,941 $ .098- 9.00
Granted 2,262 1.75 - 3.00
Exercised (29) .098- 1.75
Canceled (938) 1.75 - 5.00
-----
Options outstanding at April 6, 1996 3,236 $ .098-9.00
=====
</TABLE>
Stock Purchase Warrants
At April 6, 1996, warrants to purchase 250,000 shares of the Company's
common stock at a price of $6.00 per share were outstanding. The warrants were
issued in fiscal 1995 in connection with the acquisition of certain assets and
the assumption of certain liabilities of Raxco, Inc. (see note 11), and expire
December 31, 1999. At April 6, 1996, all such warrants under this agreement were
exercisable.
At April 6, 1996 warrants to purchase 20,000 shares of the Company's
common stock at a price of $8.50 per share were outstanding. The warrants were
issued in fiscal 1994 to a principal stockholder in connection with the
unsecured loan of $2,000 from the stockholder (see note 6). At April 6, 1996,
all such warrants were exercisable.
At April 6, 1996, warrants to purchase 325,000 shares of the Company's
common stock at $4.25 to $5.00 per share were outstanding. The warrants were
issued in fiscal 1993 to a principal stockholder in connection with
collateralizing the Company's line of credit and expire in March 1997. At April
6, 1996, all such warrants were exercisable.
In May 1996, the Company amended its line of credit to increase its
available borrowing capacity by $10,000 as a result of a collateralized
guarantee made to the bank by an affiliate of NFT, an entity affiliated with the
Company's major stockholder and Chairman of the Board. As consideration for the
guaranty, the Company has agreed to issue warrants to purchase up to 500,000
shares of the Company's common stock at a price of $2.00 per share, subject to
approval of the Company's disinterested stockholders.
Employee Stock Purchase Plan
On March 31, 1994, the Company adopted the 1994 Employee Stock Purchase
Plan (the "Purchase Plan") allowing for an aggregate of 500,000 shares of the
Company's common stock. Under the Purchase Plan, the Board may authorize
participation by eligible employees, including officers, in periodic six month
offerings following the commencement of the Purchase Plan. The price of the
Company's common stock purchased under the Purchase Plan will be equal to 85% of
the lower of the fair market value of the Company's common stock at the
commencement date of each offering period or the relevant purchase date. During
fiscal 1996 and 1995, 35,102 and 16,297 shares of stock, respectively, were
issued pursuant to this plan.
Directors' Non-Qualified Stock Option Plan
On March 31, 1994, the Company adopted the Directors' Non-Qualified
Stock Option Plan (the "Director Plan"). A total of 150,000 shares of the
Company's common stock are reserved for issuance under the Director Plan. Under
the Director Plan non-qualified options to purchase 10,000 shares were granted
to each non-employee director of the Company upon the closing of the Company's
initial public offering. Non-employee directors appointed to the Board of
Directors after the initial public offering also receive a non-qualified option
to purchase 10,000 shares of common stock. In addition, each non-employee
director who has served as a director for at least one year will receive an
option
F-17
<PAGE> 38
to purchase 2,500 shares of common stock following each annual meeting of
stockholders; provided that he or she continues to be a director of the Company
immediately following each meeting. The exercise price per share of each option
granted under the Director Plan will be the fair market value of the Company's
common stock on the date the option is granted, except that the initial grants
to directors, upon the closing of the Company's initial public offering had an
exercise price per share of $9.00 per share, the price to the public in the
initial public offering. As of April 6, 1996, options to purchase 35,000 shares
of common stock were outstanding, of which 27,500 were exercisable.
Stock Repurchase Program
In July 1994, the Company announced a stock repurchase program, pursuant
to which it would purchase up to 1,000,000 shares of the Company's common stock
in open market, negotiated, or block transactions. Purchased shares will be
issued to meet existing and future requirements of the Company's employee stock
option and stock purchase plans. During fiscal year 1995, the Company
repurchased approximately 875,000 shares of its common stock at an approximate
aggregate purchase price of $3,263 under this program.
Subsequent Event
On April 11, 1996, NFT V2 exercised its right to convert current
principal and accrued interest outstanding of $10,113 into 5,992,665 shares of
the Company's common stock at the current market price of $1.6875 per share on
the day of conversion. After giving effect to the conversion, NFT V2 and related
entities hold approximately 13,699,461 shares of the Company's common stock, or
approximately 54 percent of shares outstanding at the date of conversion. The
common stock provided to NFT V2 as part of the conversion was not registered
under the Securities Act of 1933, and NFT V2 has indicated that it is acquiring
the shares for investment purposes only.
The following table sets forth the capitalization of the Company as of
April 6, 1996, and as adjusted to reflect the conversion of the note payable to
5,992,665 shares of the Company's common stock, as noted above:
<TABLE>
<CAPTION>
APRIL 6, 1996
----------------------
ACTUAL ADJUSTED
-------- --------
<S> <C> <C>
Short-term borrowings and current
maturities of long-term debt $ 28,910 $ 24,235
Accrued liabilities 18,724 17,961
Long - term debt, less current maturities 5,966 1,291
Stockholders' equity (deficiency):
Preferred stock, $.001 par value; authorized
5,000 shares; issued and outstanding, none -- --
Common stock, $.001 par value; authorized 40,000 shares; issued (including
treasury shares) and outstanding 20,243 (26,363 shares adjusted) 20 26
Additional paid-in capital 77,762 87,869
Accumulated deficit (73,645) (73,645)
Less cost of treasury stock (794 shares) (2,938) (2,938)
Cumulative foreign currency translation
adjustments (1,386) (1,386)
-------- --------
Total stockholders' equity (deficiency) (187) 9,926
-------- --------
Total capitalization $ 53,413 $ 53,413
======== ========
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
Leases
The Company leases facilities and certain equipment under noncancelable
operating leases. Under the lease agreements for facilities, the Company is
required to pay insurance, taxes, utilities and building maintenance and is
subject to certain consumer price index adjustments.
F-18
<PAGE> 39
Future minimum lease payments at April 6, 1996 under all noncancelable
operating facility and equipment leases for subsequent fiscal years are as
follows:
<TABLE>
<S> <C>
1997 3,834
1998 3,181
1999 2,484
2000 2,056
2001 1,744
Thereafter 3,520
-------
$16,819
</TABLE>
Rent expense was approximately $4,373, $3,374 and $3,877, for fiscal
years 1996, 1995, and 1994, respectively.
Litigation
During July 1994, the Company and certain directors and officers were
served with four purported stockholder class-action lawsuits alleging certain
improprieties surrounding the April 1994 initial public offering and subsequent
decrease in the Company's stock price. Subsequently, these four actions were
consolidated into a single case (In re MTI Technology Securities Litigation) in
the United States District Court, Central District of California. This
litigation was a class action complaint for alleged violation of the federal
securities laws. Plaintiffs sought compensatory damages and other relief as
permitted by applicable law. The claims related to the Company's initial public
offering in April 1994 and the Company's announcements for financial results for
the quarter ended July 2, 1994.
In March 1996, the Company agreed to settle with plaintiffs. A
Memorandum of Understanding was signed providing for a total settlement amount
of $5,500, and the Claims Receipt and Policy Release agreement became effective
March 29, 1996. The Company's unreimbursed portion of the aggregate settlement
was $1,655 million. Preliminary approval for the settlement was granted by the
Court on June 3, 1996, and a settlement hearing is scheduled for August 6, 1996.
In addition to the above disclosed item, the Company is from time to
time subject to claims and suits arising in the ordinary course of business. In
the opinion of management, the ultimate resolution of these matters will not
have a material adverse effect on the Company's financial position or results of
operations.
(10) BUSINESS SEGMENT AND INTERNATIONAL INFORMATION
The Company is engaged in one business segment, the design, manufacture,
sale and service of high-performance storage systems, software and related
products. The Company's operations are structured to achieve consolidated
objectives. As a result, significant interdependence and overlap exists among
the Company's geographic areas. Accordingly, revenue, operating profit and
identifiable assets shown for each geographic area may not be indicative of the
amount which would have been reported if the geographic areas were independent
of one another.
Revenue and transfers between geographic areas are generally priced to
recover cost plus an appropriate mark-up for profit. Operating income is revenue
less cost of revenues and direct operating expenses.
F-19
<PAGE> 40
A summary of the Company's operations by geographic area is presented
below:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenue:
United States $ 105,153 $ 94,879 $ 98,532
Europe 35,795 49,104 38,241
Transfers between areas (9,034) (16,666) (13,305)
--------- --------- ---------
Total net revenue $ 131,914 $ 127,317 $ 123,468
========= ========= =========
Operating income (loss):
United States $ (43,005) $ (26,405) $ 3,093
Europe (1,399) 5,413 1,947
--------- --------- ---------
Total operating income (loss) $ (44,404) $ (20,992) $ 5,040
========= ========= =========
Identifiable assets:
United States $ 65,513 $ 73,244 $ 88,118
Europe 18,510 29,207 22,236
--------- --------- ---------
Total assets $ 84,023 $ 102,451 $ 110,354
========= ========= =========
</TABLE>
No single customer accounted for more than 10% of
revenue.
(11) ACQUISITIONS AND DISPOSITIONS
Sale of Patents
Effective February 9, 1996, the Company entered into an agreement with
EMC Corporation ("EMC"), whereby the Company sold to EMC substantially all of
the Company's existing patents, patent applications and rights thereof. The
consideration the Company will receive for these rights include: (a) $30,000 to
be received in six equal annual installments of $5,000 each, the first which was
received upon closing of the agreement on February 9, 1996, the remaining
payments to be received beginning January 1997 and in each of the subsequent
four years; and (b) royalty payments in the aggregate of up to a maximum of
$30,000 over the term of the agreement, of which a minimum of $10,000 will be
received in five annual installments, beginning within thirty days of the first
anniversary of the effective date of the agreement, and within thirty days of
each subsequent anniversary thereof. In addition, the Company also received an
irrevocable, non-cancelable, perpetual and royalty-free license to exploit,
market, and sell the technology protected under the aforementioned patents.
Pursuant to the terms and conditions of the agreement, this license will
terminate in the event of a change in control of the Company involving certain
acquirors. As part of the agreement, the Company and EMC granted to each other
the license to exploit, market and sell the technology associated with each of
their respective existing and future patents arising from any patent
applications in existence as of the effective date of the agreement for a period
of five years.
National Peripherals, Inc.
Effective April 2, 1995, the Company acquired all the outstanding stock
of National Peripherals, Inc. ("NPI"), a privately held provider of
cross-platform RAID-based storage solutions for the Open Systems computing
environment.
Consideration paid in the NPI acquisition included: (a) payments of
$2,608 in cash to NPI and its stockholders, (b) promissory notes in the
aggregate amount of $2,000 bearing 6% interest per annum and payable in two
equal annual installments beginning April 1996 (see note 6), (c) guaranteed
earnout payments in the aggregate amount of $3,000 and payable in three equal
annual installments beginning in April 1996, and (d) acquisition costs of $406.
In addition, the acquisition agreement provides for contingent payments of up to
$1,000 payable in April 1998 based on certain performance criteria. The
allocation of the purchase price at the time of acquisition is summarized as
follows:
<TABLE>
<S> <C>
Net tangible assets acquired $ 7,073
Liabilities assumed (8,715)
Goodwill 9,656
-------
Purchase price $ 8,014
-------
</TABLE>
F-20
<PAGE> 41
Tangible assets acquired and liabilities assumed as part of the
transaction were recorded at their estimated fair market value.
The acquisition was accounted for using the purchase method of
accounting, and accordingly, the results of operations of the acquired assets
and assumed liabilities have been included with those of the Company since the
effective date of acquisition. Goodwill acquired as part of the transaction is
being amortized on a straight-line basis over 10 years, based on management's
estimate of the economic lives of the assets acquired. During fiscal 1996, the
Company increased goodwill related to the acquisition of NPI in the amount
$1,962. The increase was primarily due to the further evaluation of the net
assets acquired in the transaction. The amortization of the goodwill will result
in quarterly and annual operating charges of approximately $293 and $1,172,
respectively.
Raxco Inc. Asset Purchase
In January 1995, the Company acquired certain assets, including
intellectual properties and source code rights, of the UNIX and OpenVMS storage
management software product lines of Raxco, Inc. ("Raxco"). The purchase price
of the acquired assets included payment of $1,000 in cash, notes in the amount
of $2,500, assumption of certain liabilities of $1,903, primarily deferred
service maintenance contracts, and acquisition costs of $58. In connection with
the acquisition, the Company recorded an accrual of $825 to reflect the
anticipated costs related to the closure of excess facilities in the United
Kingdom and the estimated costs to satisfy certain preexisting product
development obligations. In the fourth quarter of fiscal year 1996, the Company
recorded an additional $282 associated with the Company's satisfaction of the
preexisting product development obligations. In addition, as part of the
consideration paid, the Company issued warrants to purchase 250,000 shares of
the Company's common stock with an exercise price of $6.00 per share. The
warrants expire on December 31, 1999. In management's opinion, based on the
current market value of the Company's common stock, the fair market value of
these warrants is not material, and no value was assigned to the warrants. The
allocation of the purchase price is summarized as follows:
<TABLE>
<S> <C>
Tangible assets $ 100
Purchased technology licenses 75
Goodwill 6,111
-----
Purchase price $6,286
======
</TABLE>
As part of the transaction the Company also acquired software
development and technical support teams located domestically and in the United
Kingdom. In addition, the Company acquired access to the existing Raxco storage
management software customer base.
This acquisition was accounted for using the purchase method of
accounting, and accordingly, the results of operations of the acquired assets
and assumed liabilities have been included with those of the Company since the
effective date of acquisition. Goodwill acquired as part of the transaction is
being amortized on a straight-line basis over 10 years, based on management's
estimate of the economic lives of the assets. During fiscal 1996, the Company
increased goodwill related to the acquisition of the Raxco assets and assumed
liabilities in the amount of $82. The increase was primarily due to the further
evaluation of the assumed liabilities. The amortization of the goodwill will
result in quarterly and annual operating charges of $153 and $612, respectively.
F-21
<PAGE> 42
System Industries, Inc.
On December 17, 1993, the Company purchased substantially all of the
assets and assumed certain liabilities from System Industries, Inc. ("SI"), a
former competitor of the Company, for an aggregate purchase price of $11,572.
The purchase price included a cash payment of $4,100, a note payable of $4,000
(see note 6) and 491,710 shares of Company common stock which the Company valued
at $3,472. At the date of acquisition, the Company recorded an accrual of $3,747
in order to cover the anticipated costs related to the SI integration, including
the elimination of an excess SI manufacturing facility and approximately 10 SI
sales facilities. At April 1, 1995, the integration was essentially complete and
there was no remaining liability relating to the SI integration. The allocation
of the purchase price is summarized as follows:
<TABLE>
<S> <C>
Current assets $ 8,653
Net equipment and improvements and other assets 3,222
--------
Tangible assets acquired 11,875
Current liabilities (11,455)
Other (1,389)
--------
Liabilities assumed (12,844)
Accrual for severance and facility closing costs (3,747)
Intangible assets 16,288
--------
Purchase price $ 11,572
========
</TABLE>
Tangible assets acquired from SI are net of approximately $4,250 in
reserves for inventory resulting from the acquisition, which the Company did not
plan to use in its ongoing business, and $1,223 of assets not acquired pursuant
to the acquisition agreement. Liabilities assumed from SI are net of
approximately $21,761 of liabilities not assumed pursuant to the acquisition
agreement. In addition the Company reclassified approximately $1,389 of certain
assumed deferred income amounts from current to non-current liabilities.
The acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of SI have been included
with those of the Company since the date of acquisition. Intangible assets
relate to the maintenance service contracts, installed customer base,
proprietary UNIX software and contract opportunities acquired from SI. These
intangible assets were aggregated, as the Company believes it is not possible to
accurately measure or allocate specific values to the individual components of
the intangible assets acquired in the acquisition. Intangible assets were being
amortized on a straight-line basis over 10 years.
Within twelve months of the acquisition, the Company completed its
evaluation of the acquired assets which resulted in an increase to goodwill of
$1,891. The reallocation was primarily attributable to changes in the
preliminary valuation of field spares inventory.
In the fourth quarter of fiscal 1996, the Company took a charge of
$14,244 to write-off the remaining unamortized goodwill associated with the SI
acquisition. This impairment was based on management's current estimates of the
remaining economic value and life of the acquired assets related to the
goodwill.
SCR Technologies/SF2 Corporation
During fiscal 1992, the Company completed two acquisitions: on December
10, 1991, the Company purchased all of the capital stock of SCR Technologies
("SCR") for 118,000 shares of the Company's common stock aggregating $1,000
excluding a performance based contingency payment of $736. As the performance
criteria were not met, no contingent payment was required. Prior to the
acquisition, SCR was the Company's distributor in France. The purchase price of
$1,000 was allocated as follows: $2,637 to tangible assets, $5,326 to
liabilities and $3,689 to goodwill.
In the fourth quarter of fiscal 1996, the Company took a charge of
$2,347 to write-off the remaining unamortized goodwill associated with the SCR
Technologies acquisition. This impairment was based on management's current
estimates of the remaining economic value and life of the assets acquired.
In March 1992, the Company also acquired all of the capital stock of
SF2 Corporation ("SF2"), a development stage company, which had incurred
research and development costs approximating $18,258. The acquired research and
development had not reached technological feasibility and had no alternative
future use at the time of acquisition,
F-22
<PAGE> 43
and was therefore charged to operations. The purchase price included 1,589,000
shares of the Company's common stock, the assumption of SF2 stock options to
purchase 236,000 shares of the Company's common stock (see note 8), the
assumption of SF2 warrants to purchase 6,100 shares of the Company's common
stock (see note 8) and acquisition costs aggregating $15,616.
In the fourth quarter of fiscal 1995, the Company took a charge of $411
to write-off the remaining unamortized goodwill associated with the SF2
acquisition. This impairment was based on management's current estimates of the
remaining economic value and life of the acquired assets related to the
goodwill.
(12) RELATED PARTY TRANSACTIONS
On July 19, 1995 the Company entered into an agreement whereby it
received a loan of approximately $10,000 from NFT V2, an entity affiliated with
the Company's major stockholder and Chairman of the Board. Pursuant to the loan
agreement, the Company issued a long-term, secured subordinated note to NFT V2,
which bears annual interest of 10.75% and is repayable in two equal
installments, the first installment being due and payable in January 1997, the
second in July 1997. Pursuant to the terms of the agreement, the loan was
convertible at the lender's option into common stock of the Company 90 days
after the date of the agreement at a price per common share equal to the then
fair market value of such stock. Proceeds from the loan are being used for
working capital purposes.
During the second quarter of fiscal 1996, the Company entered into an
agreement with NFT V2, whereby pursuant to the terms of the agreement, the
Company licensed certain software products to NFT V2 for commercial use and
resale. As consideration for the licenses, the Company received $650 credit
against amounts owing to NFT V2 under the $10,000 loan agreement, dated July 19,
1995, between NFT V2 and the Company, and will have access to certain product
enhancements to be developed by NFT V2.
On April 11, 1996, NFT V2 exercised its right to convert current
principal and accrued interest outstanding thereunder of $10,113 into 5,992,665
shares of the Company's common stock at the current market price of $1.6875 per
share on the day of conversion. After giving effect to the conversion, NFT V2
and related entities hold approximately 13,699,461 shares of the Company's
common stock, or approximately 54 percent of shares outstanding at the date of
conversion. The common stock provided to NFT V2 as part of the conversion was
not registered under the Securities Act of 1933, and NFT V2 has indicated that
it is acquiring the shares for investment purposes only.
On March 31, 1995, the Company entered into an agreement with Greyrock
Business Credit whereby under an asset secured domestic line of credit the
Company may borrow up to $20,000, limited by the value of pledged collateral.
The agreement allows the Company to borrow at the prime rate plus 2%. Borrowings
outstanding under this line at April 6, 1996 were $20,613 which is classified as
short-term borrowings. The initial term of the agreement is for two years and
automatically and continuously renews for a subsequent year, unless terminated
by either party per the agreement. The bank line of credit agreement contains
certain restrictive covenants. At April 6, 1996, the Company was in compliance
with all such covenants. In May 1996 the agreement with Greyrock Business Credit
was amended to increase the line of credit to $30,000 based on additional
pledged collateral by an affiliate of NFT, an entity affiliated with the
Company's major stockholder and Chairman of the Board. As consideration for the
guaranty, the Company has agreed to issue warrants to purchase up to 500,000
shares of the Company's common stock at a price of $2.00 per share, subject to
approval of the Company's disinterested stockholders.
(13) EMPLOYEE BENEFITS
The Company maintains an employee savings plan which is intended to
qualify under section 401(k) of the Internal Revenue Code. The Company's
contributions to the plan are determined at the discretion of the Board of
Directors. During fiscal 1996, 1995, and 1994, the Company made no contributions
to the plan.
(14) NON-RECURRING CHARGES
In December 1992, the Company reached an agreement with Digital
Equipment Corporation which settled all outstanding litigation between the two
companies. The settlement resulted in the Company agreeing to pay to DEC a fixed
royalty payment of $500 semiannually over 4 1/2 years for certain technology
used by the Company in its products through December 31, 1992. The fixed royalty
related to past product sales and was therefore expensed at the time of
settlement. The total payments, which were fixed and determinable, were
discounted at 6 1/2% per annum, the Company's cost of capital at the date of
settlement, and recorded as a non-recurring charge. In addition, the Company
F-23
<PAGE> 44
entered into a perpetual cross license with DEC for current products and future
products to be developed. The Company will not receive any payment from DEC for
these licenses under the terms of the settlement agreement.
At April 6, 1996, the Company's total remaining obligations relating to
the non-recurring charges were $1,494 of which $969 was included in accrued
liabilities, with the balance included in other liabilities.
F-24
<PAGE> 45
(15) QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for continuing operations for fiscal 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
Net
Income (loss)
Net Per Common & Common-
Total Revenues Gross Profit Income (Loss) Equivalent Share
-------------- ------------ ------------- --------------------
<S> <C> <C> <C> <C>
1996:
Fourth quarter $ 28,939 $ 2,848 $(38,344) $(1.97)
Third quarter 35,077 11,262 (3,238) (0.17)
Second quarter 34,346 10,660 (3,380) (0.17)
First quarter 33,552 10,925 (4,257) (0.22)
Total $131,914 $35,695 $(49,219)
1995:
Fourth quarter $ 25,103 $(5,029) $(25,383) $(1.33)
Third quarter 34,349 12,548 208 0.01
Second quarter 34,227 12,497 317 0.02
First quarter 33,638 11,629 (682) (0.04)
Total $127,317 $31,645 $(25,540)
</TABLE>
During the fourth quarter of fiscal 1996, the Company recorded
approximately $19,806 of charges related to asset write-downs and increased
inventory reserves. In addition, the Company accrued $2,088 for the settlement
of a shareholder lawsuit and related legal costs, $1,855 for sales and use tax
liability and $1,450 for related interest and penalties, and $1,777 for
restructuring and severance costs.
During the fourth quarter of fiscal 1995, the Company recorded
approximately $12,400 of charges related to asset write-downs and increased
inventory reserves. Additionally, the Company accrued an additional returns
reserve of $2,454 against the possibility of product returns due to product
performance issues at certain large customer installations. In addition, the
Company took a $3,261 charge to tax expense to adjust its valuation reserve to a
level whereby it believed the remaining net deferred tax asset would more likely
than not be realizable.
A significant portion of the Company's operating expenses are
relatively fixed in nature and planned expenditures are based primarily on sales
forecasts. If revenue does not meet the Company's expectations in any given
quarter, the adverse impact on the Company's liquidity position and net income
may be magnified by the Company's inability to reduce expenditures quickly
enough to compensate for the revenue shortfall. Furthermore, as is common in the
computer industry, the Company historically has experienced an increase in the
number of orders and shipments in the latter part of each quarter and the
Company expects this pattern to continue in the future. The Company's failure to
receive anticipated orders or to complete shipments in the latter part of a
quarter could have a material adverse effect on the Company's results of
operations for that quarter.
The Company has experienced significant quarterly fluctuations in
operating results and anticipates that these fluctuations may continue in the
future. These fluctuations have been and may continue to be caused by a number
of factors, including the timing of customer orders (a large majority of which
have historically been placed in the last month of each quarter), the
introduction of new versions of the Company's products, and the timing of sales
and marketing and research and development expenditures. Future operating
results may fluctuate as a result of these and other factors, including the
Company's ability to continue to develop innovative products, the introduction
of new products by the Company's competitors, and decreases in gross profit
margin for mature products. There can be no assurance that the Company will be
profitable on a quarter-to-quarter or annual basis.
(16) SUBSEQUENT EVENTS (UNAUDITED)
Effective April 7, 1996, the Company entered into an agreement with
NFT, an entity affiliated with the Company's major stockholder and Chairman of
the Board, whereby NFT will provide the Company with up to $2,400 of
F-25
<PAGE> 46
non-refundable research and development funding based on actual research and
development expenses incurred in connection with new and enhanced Backup-UNET
software products, the RLM software Products Group and the Open Media Products
Group. The funding payments will be received in essentially four equal quarterly
installments of approximately $600 each, the first of which will be received
within ten days of submission by the Company of a statement setting forth the
amount and description of the applicable research and development expenses
incurred during the first quarter of fiscal 1997, the remaining installments
within ten days of submission of a statement of incurred expenses for each of
the next three successive quarters. The consideration NFT will receive for the
funding includes: (a) an irrevocable, worldwide, nonexclusive license to
develop, market and sell certain defined new or substantially enhanced software
products developed by the Company; (b) royalty payments based on the revenue
recognized by the Company from sale of the defined software products that are
sold within four years of the effective date of the agreement; and, subject to
stockholder approval, (c) warrants to purchase 750,000 shares of the Company's
stock with an exercise price of $2.25 per share. The warrants expire on June 27,
2001.
F-26
<PAGE> 47
SCHEDULE II
MTI TECHNOLOGY CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED APRIL 6, 1996, APRIL 1, 1995, APRIL 2, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO BALANCE
BALANCE AT REVENUE, AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES (1) DEDUCTIONS PERIOD
----------- --------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Year ended April 6, 1996
Allowance for doubtful accounts
and sales returns $9,986 $(4,395)(2) $ (154) $5,437
====== ======== ======= ======
Allowance for inventory
obsolescence $8,613 $ 4,056 $(8,725) $3,944
====== ======== ======= ======
Year ended April 1, 1995
Allowance for doubtful accounts
and sales returns $2,315 $ 7,770 $ (99) $9,986
====== ======== ======= ======
Allowance for inventory
obsolescence $2,476 $10,600 $(4,463) $8,613
====== ======== ======= ======
Year ended April 2, 1994
Allowance for doubtful accounts
and sales returns $1,305 $ 1,093 $ (83) $2,315
====== ======== ======= ======
Allowance for inventory
obsolescence $1,072 $ 3,457 $(2,053) $2,476
====== ======== ======= ======
</TABLE>
(1) The allowance for sales returns is recorded as a charge to revenue, the
allowance for doubtful accounts is charged to selling, general and
administrative expenses, and the allowance for inventory obsolescence
is charged to product cost of revenue.
(2) Includes amounts related to the recognition of receivables whose
related revenue was not recognized until fiscal 1996.
S-1
<PAGE> 48
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.1
The Board of Directors
MTI Technology Corporation:
We consent to incorporation by reference in the registration statement
(No. 33-80438) on Form S-8 of MTI Technology Corporation of our report dated May
29, 1996, relating to the consolidated balance sheets of MTI Technology
Corporation and subsidiaries as of April 6, 1996 and April 1, 1995 and the
related consolidated statements of operations, stockholders' equity (deficiency)
and cash flows for the fiscal years ended April 6, 1996, April 1, 1995 and April
2, 1994, and related schedule, which report appears in the April 6, 1996 annual
report on Form 10-K/A of MTI Technology Corporation.
KPMG Peat Marwick LLP
Orange County, California
July 31, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-06-1996
<PERIOD-START> APR-02-1995
<PERIOD-END> APR-06-1996
<CASH> 4,055
<SECURITIES> 0
<RECEIVABLES> 26,538
<ALLOWANCES> 5,437
<INVENTORY> 21,499
<CURRENT-ASSETS> 51,189
<PP&E> 35,861
<DEPRECIATION> 19,538
<TOTAL-ASSETS> 84,023
<CURRENT-LIABILITIES> 77,155
<BONDS> 5,966
0
0
<COMMON> 20
<OTHER-SE> (207)
<TOTAL-LIABILITY-AND-EQUITY> 84,023
<SALES> 97,682
<TOTAL-REVENUES> 131,914
<CGS> 74,057
<TOTAL-COSTS> 96,219
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 154
<INTEREST-EXPENSE> 4,090
<INCOME-PRETAX> (49,040)
<INCOME-TAX> 179
<INCOME-CONTINUING> 49,219
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,219
<EPS-PRIMARY> (2.54)
<EPS-DILUTED> 0
</TABLE>
