SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-K
_________________
(Mark One)
Annual Report Pursuant to Section 13 or 15(d) of the
X Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended April 30, 1996
Transition Report Pursuant to Section 13 or 15 (d) of the
Security Exchange Act of 1934 [No Fee Required]
For the Transition Period From ________ to ________.
Commission File Number 0-1678
BUTLER NATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
Minnesota 41-0834293
(State of incorporation) (I.R.S. Employer Identification No.)
1546 East Spruce Road, Olathe, Kansas 66061
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code:
(913) 780-9595
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 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 twelve months and (2)
has been subject to such filing requirements for the past ninety days:
Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
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 nonaffiliates
of the Registrant was approximately $17,403,660 at June 27, 1996,
when the average bid and asked prices of such stock was $2.40625
The number of shares outstanding of the Registrant's Common Stock,
$0.01 par value, as of
June 27, 1996, was 9,280,890 shares.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
This Form 10-K consists of 46 pages (including exhibits). The
index to exhibits is set forth on page 22 - 24 .
<PAGE>
PART I
Item 1. BUSINESS
General
Butler National Corporation (the "Company" or "BNC") is a
Minnesota corporation formed in 1960, with corporate headquarters at
1546 East Spruce, Olathe, Kansas 66061.
Current Activities. The Company's current product lines and services
include:
(1) Aircraft Modifications - principally includes the modification of
business-size aircraft from passenger to freighter configuration,
conversion to air ambulance, addition of aerial photography
capability, stability enhancing modifications for Learjets and other
modifications. The Company provides these services through its
subsidiary Avcon Industries, Inc. ("Aircraft Modifications" or
"Avcon").
(2) Avionics - principally includes the manufacture of airborne radio
and instrument switching units used in DC-9, DC-10, DC- 9/80, MD-
80, MD-90 and the KC-10 aircraft. The Company provides these
services through its subsidiary Woodson Avionics, Inc. ("Switching
Units", "Avionics" or "WAI").
(3) Food Distribution Services - principally includes food
distribution to the wholesale, food processing and retailing industries.
The Company provides these services through its subsidiary R F, Inc.
("Food Distribution" or "RFI").
(4) Gaming - principally includes the business management services
to Indian tribes in connection with the Indian Gaming Regulatory Act
of 1988. The Company provides these services through its subsidiary
Butler National Service Corporation ("Management Services",
"Gaming" or "BNSC").
(5) SCADA Systems and Monitoring Services - principally includes
the monitoring of water and wastewater remote pumping stations
through electronic surveillance for municipalities and the private
sector and related repair services. The Company provides these
services through its subsidiary Butler National Services, Inc.
("Monitoring Services" or "BNS").
(6) Temporary Services - provides temporary employee services for
corporate clients. The Company provides these services through its
subsidiary Butler Temporary Services, Inc. ("Temporary Services" or
"BTS").
Assets as of April 30, 1996 and Net Revenues for the year ended
April 30, 1996.
Industry Segment Assets Revenue
Aircraft Modifications 56.7% 14.6%
Avionics 2.5% 1.5%
Food Distribution 22.5% 78.9%
Gaming 13.9% 0.0%
Monitoring Services 2.7% 5.0%
Temporary Services 0.1% 0.0%
Corporate Office 1.6% 0.0%
<PAGE>
Financial Information about Industry Segments
Information with respect to the Company's industry segments are
found at Note 12 of Notes to Consolidated Financial Statements for
the year ended April 30, 1996, located herein at pages 43 and 44.
Narrative Description of Business
Aircraft Modification. The Company modifies business category
aircraft at Avcon. The modifications include aircraft conversion from
passenger to freighter configuration, conversion to air ambulance,
addition of aerial photography capability, stability enhancing
modifications for Learjets, and other special mission modifications.
Avcon offers aerodynamic and stability improvement products for
selected business jet aircraft.
Sales of the Aircraft Modifications product line are handled directly
through the Aircraft Modifications Division in Newton, Kansas.
Specialty modifications are quoted individually by job. The
Company is geographically located in the marketplace for the
Aircraft Modifications products and it believes there are four primary
competitors (AAR of Oklahoma, AVTEC, Dee Howard Company,
Raisbeck Engineering) in the industry in which the Aircraft
Modifications Division participates.
On May 3, 1996, the Company's subsidiary, Avcon Industries, Inc.,
received approval from the Federal Aviation Administration of a
Supplemental Type Certificate ("STC") (no. ST00432WI) for its
AVCON FIN Modification for installation on Learjet Model 35 and
36 Aircraft. The STC authorizes Avcon to build the required parts
and assemblies and to perform the installations on applicable
customer-owned Learjets. FAA pilots thoroughly evaluated the test
aircraft, and determined that the fins substantially increase the
aerodynamic stability in all flight conditions. The fin STC eliminates
the operational requirement for Yaw Dampers which are otherwise
required in both Learjet models to control adverse yaw tendencies in
certain flight conditions, particularly during approach and landing.
Learjets equipped with AVCON FINS exhibit the same aerodynamic
stability and improved operating efficiency offered on newer Learjet
models, while maintaining the outstanding range, speed and load-
carrying capabilities that made the Learjet Models 35 and 36 among
the most popular Business Jets ever produced. Mounted like the fins
of an arrow on the rear of the aircraft, Learjets equipped with
AVCON FINS have a new look much the same as the current
production aircraft. This modification will give the Learjets
produced in the 1970's and 1980's the look of the 21st century.
Avionics - Switching Units. The Company has an agreement with
McDonnell Douglas to manufacture and repair airborne switching
systems for McDonnell Douglas and its customers. The Company
subcontracts with its wholly owned subsidiary Woodson Avionics,
Inc. for the manufacture and repair of Switching Units. Switching
Units are utilized to switch the presentation to the flight crew from
one radio system to another, from one navigational system to another
and to switch instruments in the aircraft from one set to another.
The Switching Units are designed and manufactured to meet
McDonnell Douglas and FAA requirements. Most McDonnell
Douglas commercial aircraft are equipped with one or more Butler
National Switching Units.
Marketing is accomplished directly between the Company and
McDonnell Douglas. Competition is minimal. However, sales are
directly related to McDonnell Douglas' production of DC-9, DC-10,
DC9/80, MD-80, MD-90, MD-11 and KC-10 tanker aircraft. The
current McDonnell Douglas contract has been extended to 1997.
The Company sells to McDonnell Douglas on terms of 2% 10 days,
net 30 days. All payments have been and continue to be within these
terms. The Company has ordinary course of business purchase orders
from the commercial division (Douglas Aircraft Company) for
products with scheduled shipment dates into the year 1997.
However, should McDonnell Douglas financially reorganize or for
some other reason not accept shipment against these orders, the
Company could suffer
significant loss of revenue.
Food Distribution. RFI is a specialty food distribution business with
contract warehouses in St. Louis and Kansas City, Missouri. RFI
serves a wide range of customers, nationwide, in the wholesale, food
processing and retailing industries. RFI purchases from
manufacturers product overruns, seconds,
<PAGE>
and merchandise approaching ideal quality date and sells these
products to various wholesalers and retailers. Product items are
"center of the plate items," ie. meat and poultry products. The
acquisition of various products in this very competitive market is
dependent upon successful bidding at a price standpoint. Most
products are sold on a bid basis and such products compete with all
other standard products sold under regulated method of distribution.
The Company competitively bids various governmental agencies,
school districts, prison systems and others to supply product to
institutions. Purchases are immediate with ten day terms and sales
terms are 30 days.
Management Services. BNSC is engaged in the business of
providing management services to Indian Tribes in connection with
the Indian Gaming Regulatory Act of 1988. The Company has three
management agreements in place; however, the performance of these
agreements is contingent upon and subject to various approvals by the
Secretary of Interior, Bureau of Indian Affairs, National Indian
Gaming Commission and the appropriate State if required. Also, the
Company has a signed consulting engagement letter with another
tribe to study and develop a plan for Indian gaming.
The management services to be provided by the Company will
include consulting and services for the development and plans to
manage the facilities for the Tribes. The Company will provide the
necessary funds to construct the facilities and will be repaid the
principal plus interest out of the profits of the operation.
Additionally, the Company will receive a thirty percent (30%) share
of the profits for its management services.
SCADA Systems and Monitoring Services. BNS is engaged in the
sale of monitoring and control equipment as well as the sale of
monitoring services including repairs for water and wastewater
remote pumping stations through electronic surveillance by radio or
telephone. BNS contracts with government and private owners of
water and wastewater pumping stations to provide both monitoring
and preventive maintenance services for the customer.
The Company expects a high percentage of BNS business to come
from municipally owned pumping stations. Currently, BNS is
soliciting business in Florida only. While the Company has exposure
to competitive forces in the monitoring and preventive maintenance
business, management believes the competition is limited.
Temporary Services. BTS is engaged in the business of providing
managed temporary personnel to corporate clients. These personnel
are provided to cover personnel shortages on a short and/or long term
basis. This service is being marketed in Kansas, Missouri and
Oklahoma. Currently, this Company is inactive.
Raw Materials. Raw materials relating to all of the Company's
products and services are currently available from several sources
except for certain components used in the manufacture of the
Switching Units which have long lead time components and/or are
single sourced.
Patents. There are no patents, trademarks, licenses, franchises, or
concessions held by the Company or which need to be held in order
for it to engage in the businesses in which it engages. However, the
Company maintains certain airframe alteration certificates, commonly
referred to as Supplemental Type Certificates ("STCs"), issued to it
by the FAA for its Aircraft Modification and Avionic businesses.
Seasonality. The Company's business is generally not seasonal.
Demand for the Falcon 20 cargo aircraft modifications is related to
the seasonal activity of the automotive industry in the United States
because many of these modified aircraft are used to carry automotive
parts to automobile manufacturing facilities. The peak modification
demand occurs in late spring and early summer. Peak usage of the
modified aircraft is from June to December. Future changes in the
automotive industry could result in
<PAGE>
the fluctuation of revenues at the Aircraft Modifications Division.
Customer Arrangements. Most of the Company's products are
custom-made. No special inventory storage arrangements,
merchandise returns and allowances policies or extended payment
practices are involved in the Company's business except in isolated
situations. The Company is not dependent upon any single customer
except in the case of Switching Units. Switching Units are sold to
McDonnell Douglas and Douglas Aircraft Company customers. The
Company has required deposits from its customers for aircraft
production schedule dates.
Backlog. The Company's backlog as of April 30, 1996, 1995, and
1994, was as follows:
<TABLE>
<CAPTION>
Industry Segment 1996 1995 1994
<S> <C> <C> <C>
Aircraft Modifications 820,694 1,470,005 2,432,041
Avionics 390,066 206,393 181,216
Food Distribution 251,160 1,850,000 932,478
Monitoring Services 1,645,844 208,188 238,800
Temporary Services - - 720,406
$3,107,764 $3,734,586 $4,504,941
</TABLE>
The Company's backlog as of June 27, 1996, totaled $3,318,799
consisting of $791,729, $390,066, $251,160, $1,885,844 and $0,
respectively, for Aircraft Modifications, Avionics, Food Distribution,
Monitoring Services and Temporary Services. The backlog includes
firm orders which may not be completed within the next twelve
months. The amount of backlog the Company expects will not be
filled within the next year totals $1,521,594 consisting of $375,000,
$138,066, $0, $1,008,528, and $0.
The company's backlog related to monitoring services segment
increased since its annual contract with its major customer has been
extended to a five year contract. Backlog related to food distribution
is immaterial compared to expected sales since the nature of the
business does not call for extended contracts. In prior years this
segment maintained an annual contract with one major customer
which has been converted to a renewable six week contract.
Employees. The Company employed 62 people on April 30, 1996,
compared to 54 people on April 30, 1995, and 920 people on April
30, 1994. The decrease in the number of employees is due to the
inactive status of the Temporary Services segment. As of June 27,
1996, the Company employed 57 people. None of the Company's
employees are subject to any collective bargaining agreements.
Financial Information about Foreign and Domestic Operations,
and Export Sales.
Information with respect to Domestic Operations may be found at
Note 12 of Notes to Consolidated Financial Statements for the year
ended April 30, 1996, located herein at pages 43 and 44. There are
no significant foreign operations.
Item 2. PROPERTIES
The corporate headquarters is located in a 7,500 square feet leased
facility for office and storage space at 1546 East Spruce Road in
Olathe, Kansas. The annual lease cost is $42,612 per year. The lease
expires December 31, 1998. The facilities are adequate for current
and anticipated operations.
The Company's Aircraft Modifications Division is located at the
municipal airport in Newton, Kansas, in facilities occupied under a
long-term lease extending to April 30, 2002 at an annual rental of
$33,000. The lease is renewable for an additional seven-year term.
In February 1989, the Company entered into a long-term capital lease
with the City of Newton, Kansas, for a second hangar. The lease
extends to February 28, 2009, at an initial annual rental of $55,200.
Commencing November 1, 1991, the annual rental declined to
$50,400 for the remaining term of the lease. The Company entered
into a letter of agreement with the landlord to reduce the lease
payments to $33,000 per year on a month-to-month basis and to
retain an option to reinstate the capital lease as originally contracted.
These facilities are adequate for current and anticipated operations.
The Company's wholly-owned subsidiary, Butler National Services,
Inc. has its principal offices in Ft. Lauderdale, Florida, in facilities
occupied under a three-year lease ending March 31, 1999. The
annual rental is approximately $25,903. The facilities are adequate
for current and anticipated operations.
The Company's wholly-owned subsidiary, Woodson Avionics, Inc.,
had its principal offices and manufacturing operations at Plectron
Place in Imboden, Arkansas. The Company rented 3,000 square foot
of space for $10,200 per year. During May, 1996, the Company
relocated to Arizona. As of June 1, 1996, the Company rents 5,200
square foot of space for $3,340 per month. The lease expires April
30, 1998. The facilities are adequate for current and anticipated
operations.
The Company's wholly-owned subsidiary, RFI, has its principal
offices in Wentzville, Missouri. The Company currently rents 4,700
square foot of space for office and storage for $4,000 per month.
The lease expires April 30, 2000. The facilities are adequate for
current and anticipated operations.
<PAGE>
Item 3. LEGAL PROCEEDINGS
The Company had an employment agreement with an individual
which the Company terminated in April 1995. This individual filed a
lawsuit against the Company, the President of the Company and
various corporate subsidiaries alleging the Company wrongfully
terminated the individual's employment in breach of the contract.
The suit was filed in October, 1995, in State Court in Johnson
County, Kansas. The individual has asserted a claim for damages in
excess of $1,400,000. The individual had proposed a settlement offer
for $500,000, but has recently withdrawn the settlement offer. It is
management's position that the Company will defend the claim
vigorously and in that pursuit the Company has asserted a
counterclaim against the individual for negligence in the performance
of the individual's professional duties.
Various other legal proceedings are now pending against the
Company. The Company considers all such proceedings to be
ordinary litigation incident to the character of the business. The
Company believes that the resolution of those claims will not,
individually or in the aggregate, have a material adverse effect on the
financial position, results of operations, or liquidity of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
The Company did not submit any matter to a vote of its security
holders during the fourth quarter of fiscal 1996.
<PAGE> PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON
STOCK AND RELATED STOCKHOLDER MATTERS
(a) Market Information. The Company was initially listed in the
national over-the-counter market in 1969, under the symbol "BUTL."
Effective June 8, 1992, the symbol was changed to "BLNL." On
February 24, 1994, the Company was and is listed on the NASDAQ
Small Cap Market under the symbol "BUKS."
The range of the high and low bid prices per share of the Company's
common stock for fiscal years 1996 and 1995 as reported by the
over-the-counter market on the pink sheets and NASDAQ is set forth
below. Such market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Year End 4/30/96 Year End 4/30/95
High Low higH Low
<S> <C> <C> <C> <C>
First Quarter 4 7/8 3 1/4 5 1/4 2 7/8
Second Quarter 4 3/8 2 3/4 4 3/4 2 3/4
Third Quarter 3 1/8 2 4 2
fourth Quarter 3 1/16 2 4 1/4 2 3/4
</TABLE>
(b) Holders. The approximate number of holders of record of the
Company's common stock, as of June 27, 1996, was 1,600.
(c) Dividends. The Company has not paid any cash dividends on its
common stock, and the Board of Directors does not intend to declare
any cash dividends in the foreseeable future.
Item 6. SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with
Management's Discussion and Analysis of Results of Operations and
Financial Condition and the Consolidated Financial Statements and
related Notes included elsewhere in the report.
<TABLE>
Year Ended April 30 (In thousands except per share data)
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Sales $17,339 $13,155 $17,713 $16,854 $12,497
Income(Loss)
from
Continuing
Operations $ 144 $ (825) $ 271 $ 800 $ 340
Net Income
(Loss) $ 144 $ (825) $ 271 $ 800 $ 340
Per Share
Income
(Loss)from
Continuing
Operations $ .02 $ (.10) $ .04 $ .12 $ .07
Net Income
(Loss) $ .02 $ (.10) $ .04 $ .12 $ .07
Selected
Balance
Sheet
Information
Total Assets $8,261 $4,263 $5,024 $2,645 $ 2,312
Long-term
Obligations $ 57 $ 81 $ 108 $ 355 $ 394
Cash
dividends
declared/
common
share None None None None None
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Fiscal 1996 compared to fiscal 1995
The Company's sales for fiscal 1996 were $17,338,966, an increase
of 31.8% from fiscal 1995 sales of $13,155,982. Discussion of
specific changes by operation follows.
Food Distribution: Revenues from the Food Distribution business
segment increased 44.2% from $9,487,964 in fiscal 1995 to
$13,685,871 in fiscal 1996. Revenue increase is due to increased
customer base and product sales. This increase was achieved
primarily through the Company's continued commitment to customer
service and top-quality products. The increase in sales resulted in a
81.2% increase in gross profit to $1,971,632 in fiscal year 1996 from
$1,087,891 in fiscal year 1995. Operating profit before corporate
allocations increased from $461,200 in fiscal year 1995 to $809,416
in fiscal year 1996.
This subsidiary was acquired by the Company on April 24, 1994.
Prior to January 1, 1994, the business was organized as a sole
proprietorship. During this time all distributions to the business's
shareholder were treated as capital transactions which had no impact
on operating income. Beginning January 1, 1994, when the business
began operations as a C corporation, officer distributions were treated
as salary expense which caused as increase in selling, general and
administrative expenses in fiscal year 1994. However, this only
accounted for a portion of the officer's salary in 1994. In fiscal year
1995 a full year's salary was included in sales, general and
administrative expense thereby reducing the operating income of the
business in comparison to fiscal year 1994 when only four (4)
months of the officer's salary was expensed through sales, general
and administrative expense.
The Company plans to continue increasing the customer base and
product sales in this segment. The Company believes this division
will continue to be a strong contributor in the future and will
continue to be a large contributor to the overall Company's growth.
Aircraft Modification: Sales from the Aircraft Modifications
business segment increased 37.2% from $1,845,609 in fiscal 1995 to
$2,531,504 in fiscal 1996. This segment earned an operating profit
of $356,916 in 1996 compared to income of $133,924 in 1995.
Product sales increased due primarily to one large job accounting for
approximately $700,000 in sales. The increase in the operating
income is due to the increase in sales.
As previously noted on page 3, (Item 1. business), on May 3,
1996, the Company's subsidiary, Avcon Industries, Inc., received
approval from the Federal Aviation Administration of a Supplemental
Type Certificate ("STC") (no. ST00432WI) for its AVCON FIN
Modification for installation on Learjet Model 35 and 36 Aircraft.
The STC authorizes Avcon to build the required parts and assemblies
and to perform the installations on applicable customer-owned
Learjets. The company believes the potential market for fin
installations to be approximately 1,000 aircraft and that
approximately 500 fin installations will be performed over the next
several years. the company plans to market the fin installation to the
user at an expected installed price of $110,000 per aircraft.
<PAGE>
The Company believes that it must continue to increase spending on
research and engineering development activities in order to expand
the aircraft modification market. The Company believes that the
increased modification market of the Learjet will enable this segment
to be an even greater contributor to the overall Company's growth.
Switching Units: Sales from the Avionics Switching Unit business
segment increased 9.3% from $238,162 in fiscal 1995 to $260,399 in
fiscal 1996. Sales to the major OEM customer increased 31.8% and
sales for aircraft repair and refurbishment declined 21.6% from fiscal
1995 to fiscal 1996. Sales have remained relatively stable between
years. Operating profits increased from $4,443 in fiscal 1995 to
$79,545 in fiscal 1996. Management expects this business segment
to continue to be stable in future years.
SCADA Systems and Monitoring Services: Revenue from
Monitoring Services increased from $793,930 in fiscal 1995 to
$861,192 in fiscal 1996, an increase of 8.5%. During fiscal 1996,
the Company was able to maintain a relatively level volume of
long-term contracts with municipalities. Revenue increased due to
the introduction of new products and services. The Company's
contracts with its two largest customers have been renewed for fiscal
1997. An operating profit of $227,028 in Monitoring Services was
recorded in fiscal 1996 compared to fiscal 1995 operating profit of
$156,614. The increased profit resulted from special jobs completed
in addition to the long term contracts with the municipalities. The
Company was able to secure performance bonds during the first
quarter of fiscal 1995. This division has since bid on certain jobs
requiring performance bonds and completed two special jobs, with
revenue totaling approximately $100,000.
The Company believes this segment will continue to grow at a
moderate rate. This segment has seen consistent increases over the
past few years and the Company expects this to continue.
Temporary Services: This operation provides temporary employee
services for corporate clients. This segment was inactive during fiscal
1996. If and when the Company is able to open Indian gaming
facilities, management expects that a majority of the personnel in the
various Indian gaming enterprises will be staffed by Temporary
Services.
Management Services:
- -general-
The Company received no revenue and incurred $525,000 in general
and administrative expenses in the current fiscal year associated with
its continued efforts to explore service opportunities related to the
Indian Gaming Act of 1988. Additionally, the Company amortized
$145,414 and $142,751 in fiscal years 1996 and 1995, respectively,
related to shares issued for services rendered to the Company in that
regard.
The Company has invested $1,150,000 in land, land improvements
and professional design fees related to the development of Indian
Gaming facilities. Included in this investment is 160 acres of land,
located adjacent to the Linn Valley Lakes resort and residential
development in Linn County, Kansas. The Company believes that
this tract could be developed and sold for residential and commercial
use other than Indian gaming if the gaming enterprise does not open.
Additional improvements including access roads, water and sewer
services, etc. are planned for this land. After these improvements,
the land may be sold in small tracts. This may allow the Company
to recover the majority, if not all, of the $1,150,000 investment.
- -Princess Maria Casino-
The Company has a management agreement with the Miami Tribe to
provide management services to the Miami Tribe. The Miami Tribe
requested a compact with the State of Kansas for Class III Indian
full-casino Indian gaming on Indian land known as the Maria
Christiana Miami Reserve No. 35 located in Miami County, Kansas,
on July 9, 1992.
The Miami Tribe's 1992 compact was the subject of a lawsuit filed
in February 1993, in the Federal District Court by the Miami Tribe
alleging the failure to negotiate a compact in good faith by the State
of Kansas. This case has been dismissed. The United States District
Court dismissed the Miami Tribe's failure to negotiate a compact suit
against the State of Kansas as a result of the United States Supreme
Court's ruling in Seminole v. State of Florida. The Supreme Court
ruled that the provision of the IGRA did not allow an Indian tribe to
compel a state by litigation to negotiate a compact.
In February, 1993, former Kansas Governor Finney requested a
determination of the suitability of the Miami Indian land for Indian
Gaming under the IGRA from the Bureau of Indian Affairs (the
"BIA"). In May, 1994, the NIGC again requested the same
determination. Finally, in May, 1995, an Associate Solicitor within
the BIA issued an opinion letter stating the Miami Tribe has not
established jurisdiction over the Miami land in Kansas. This is the
first definitive statement received from the central office of the BIA
in three years. The latest opinion is contrary to a September, 1994,
opinion of the Tulsa Field Solicitor, in an Indian probate stating that
the Miami Tribe has jurisdiction over the Miami Indian land in
Kansas. On July 11, 1995, the U.S. Department of Justice issued a
letter to the Associate Solicitor expressing concern about the
conclusions reached based upon the analysis of the case.
<PAGE>
The Miami Tribe has challenged this opinion in Federal Court to
prove and protect the sovereignty of the Miami Tribe and other
Indian tribes relating to their lands. On April 11, 1996, the Court
ruled that the Miami Tribe did not have jurisdiction because the BIA
had not approved the Tribal membership of the Princess Maria heirs
at the time the management agreement was submitted, therefore, the
Court ordered that the NIGC's determination that Reserve No. 35 is
not "Indian land" pursuant to IGRA is affirmed. However, the Court
noted in its ruling that nothing precludes the Tribe from resubmitting
its management agreement to the NIGC along with evidence of the
current owners' consent and the newly adopted tribal amendment.
On February 22, 1996, the BIA approved the Miami Tribe's
constitution and the membership of the heirs. Currently, the Tribe is
in the process of resubmitting the management agreement. Although
the Court noted that the Tribe could resubmit the management
agreement, the Court did not pass on whether or not a new
submission will obtain approval. Therefore, even though the
Company and the Tribe believe the re-submission will be in
compliance with all laws and regulations, there is no assurance that
the management agreement will be approved.
- -Stables Bingo and Off-Track Betting-
Additionally, the Company has a signed management agreement with
the Miami and Modoc Tribes. A class III Indian Gaming Compact
for a joint-venture by the Miami and Modoc Tribes, both of
Oklahoma, has been approved by the State of Oklahoma and by the
Assistant Secretary, Indian Affairs for the U.S. Department of the
Interior. The Compact was published in the Federal Register on
February 6, 1996, and is therefore, deemed effective. The Compact
authorizes Class III (Off-Track Betting "OTB") along with Class II
(high stakes bingo) at a site within the City of Miami, Oklahoma.
The Company will consult with the development of and plans to
manage the joint-venture for the tribes. The proposed facility is
planned to be approximately 22,000 square-feet and to be located
directly south of the Modoc Tribal Headquarters building in Miami.
it is currently intended that the complex will contain off-track betting
windows, a bingo hall, and a restaurant. The Company's
Management Agreement requires the approval of the NIGC. the
management agreement was filed in September, 1994, with the NIGC
and rejected pending approval of this Compact. On January 25,
1996, the managment agreement was resubmitted and currently is
being reviewed by the NIGC. Under the management agreement as
submitted, the Company, as manager, is to receive a 30% share of
the profits and reimbursement of the development costs. Therefore,
even though the Company and the Tribes believe the re-submission
will be in compliance with all laws and regulations, there is no
assurance that the management agreement will be approved.
- -Shawnee Reserve No. 206-
Since 1992, the Company has maintained a business relationship
with approximately seventy Indian and Non-Indian heirs (the
"Owners") of the Newton McNeer Shawnee Reserve No. 206
("Shawnee Reserve No. 206"). This relationship includes assistance
with the defense of the property against adverse possession by one
family member in exchange for being named the manager for any
Indian gaming enterprises that may be established on the land. As a
result of the Company's assistance, the Owners are in the process of
becoming the undisputed beneficial owners of approximately 72 acres
of the Shawnee Reserve No. 206 as ordered by the United States
District Court for the District of Kansas. The Company has
purchased options for an additional 17 acres continguous to the
Indian land.
Shawnee Reserve No. 206 has been a part of the Shawnee
Reservation in Kansas Territory since 1831 and was reserved as
Indian land and not a part of the State of Kansas when Kansas
became a state in 1861. Within the boundaries of Johnson County,
Kansas and the Kansas City metro area, the Indian land is located on
west 83rd Street approximately 25 road miles southwest from
downtown Kansas City, Missouri.
In addition, the Company maintains a relationship and agreement to
manage the proposed establishment as a part of the Owners' desire to
work with the Shawnee Tribe of Oklahoma. The Shawnee Tribe of
Oklahoma is not a federally recognized tribe. The tribe, sometimes
known as the Loyal Shawnee Tribe, is a tribe organized by a 1960
federal resolution operating within and as a part of the federal
recognition of the Cherokee Nation of Oklahoma. The Indian
Owners of Shawnee Reserve No. 206 have federal Indian
membership cards showing them as Cherokee-Shawnee members of
the Cherokee Nation of Oklahoma. The Shawnee and the Cherokee
are currently working to reaffirm the Shawnee's jurisdiction over the
Indian land.
The Company believes that there is a significant opportunity for
Indian gaming on the Shawnee Reserve No. 206. However, none of
the above agreements have been approved by the BIA or the
Cherokee Nation or any other regulatory authority. There can be no
assurance that these or future agreements will be approved and that
any Indian gaming will ever be established on the Shawnee Reserve
or that the Company will be the Management Company.
<PAGE>
- -Modoc Bingo-
The Company has a management agreement with the Modoc Tribe,
to construct and operate an Indian gaming facility on Modoc
Reservation lands in Eastern Oklahoma. The Management
Agreement was filed with the NIGC on June 7, 1994, for review and
approval. No approval has yet been received by the NIGC.
- -Other Gaming-
The Company is currently reviewing other potential Indian gaming
opportunities with other tribes. These discussions are in the early
stages of negotiation and there can be no assurance that these gaming
opportunities will be successful.
The various management agreements have not yet been approved by
the various governing agencies and therefore are not filed as exhibits
to the document.
Selling, general and administrative (SG&A) expenses increased
$330,058 (12.5%) in fiscal year 1996. These expenses were
$2,961,343 or 17.1% of revenue in fiscal 1996 and $2,631,285 or
20% of revenue in fiscal 1995. SG&A expenses related to the new
subsidiary, RFI, were $1,162,216 in fiscal 1996 and $608,412 in
fiscal 1995. The increase in SG&A related to RFI between years is
due to the increase in sales personnel. SG&A expenses related to
the Company, excluding RFI, were $1,799,127 in fiscal 1996
compared to $1,988,411 in fiscal 1995.
Other income (expense) expenses decreased due to the writedown of
the land and building in Overton, Nebraska in fiscal 1995. This
facility became idle in 1994. The Company was unable to complete
the negotiated sale of the land and building therefore the Company
reduced the value of the asset by $157,200 in order to record the
asset at its estimated net realizable value. The Company entered into
an agreement on September 13, 1995, with the Village of Overton for
the sale of the building in Overton, Nebraska. The Company
received a cash payment of $30,000 at closing on September 18,
1995, and may receive an additional $70,000 if the Village of
Overton is either able to sell or lease the building in the future. As
of yearend, the Company has not received any additional monies.
There can be no assurance that the Village of Overton will be able to
sell or lease the building.
Fiscal 1995 compared to fiscal 1994
The Company's sales for fiscal 1995 were $13,155,982, a decrease
of 25.7% from fiscal 1994 sales of $17,713,098. Discussion of
specific changes by operation follows.
Food Distribution: Revenues from the Food Distribution business
segment increased 43.5% from $6,610,746 in fiscal 1994 to
$9,487,964 in fiscal 1995 due to the increasing customer base.
Revenue increase is due to increased product sales. This increase
was achieved through the Company's continued commitment to
customer service and top-quality products. The increase in sales
resulted in a 22.9% increase in gross profit to $1,087,891 in fiscal
year 1995 from $885,114 in fiscal year 1994.
<PAGE>
Operating income was relatively the same with $471,277 in fiscal
year 1994 and $461,200 in fiscal year 1995. This division was
acquired on April 24, 1994, prior to January 1, 1994 the Company
was organized as a sole proprietorship, during this time all
distributions to the Company's shareholder were treated as capital
transactions which had no impact on operating income. Beginning
January 1, 1994, when the Company began operations as a C
corporation, officer distributions were treated as salary expense which
caused as increase in selling, general and administrative expenses in
fiscal year 1994. However, this only accounted for a portion of the
officer's salary in 1994. In fiscal year 1995 a full years salary was
included in sales, general and administrative expense thereby
reducing the Company operating income in comparison to fiscal year
1994 when only four (4) months of the officers salary was expensed
through sales, general and administrative expense.
Aircraft Modification: Sales from the Aircraft Modifications
business segment decreased 3.6% from $1,913,619 in fiscal 1994 to
$1,845,609 in fiscal 1995. This segment earned an operating income
of $133,924 in 1995 compared to income of $316,933 in 1994.
Product sales and prices were relatively stable between fiscal years.
The decrease in the operating income is due to increased personnel
costs at this division and increased research and development on new
modifications. This segment has hired additional management
personnel, in an effort to increase the introduction of the new
products and services.
Switching Units: Sales from the Avionics Switching Unit business
segment decreased 26.5% from $324,234 in fiscal 1994 to $238,162
in fiscal 1995. Sales to the major OEM customer declined 26.6%
and sales for aircraft repair and refurbishment declined 26.4% from
fiscal 1994 to fiscal 1995. Decrease in revenue is due to a decrease
in product sales. Operating profits decreased from $22,031 in fiscal
1994 to $4,443 in fiscal 1995. The Company believes the decrease
in revenue to be a continuing trend, however, the decrease in revenue
is due to a decrease in product sales and should level off in the
coming year. This segments revenue is directly related to the
production volume of its major customer, McDonnell Douglas. As
long as McDonnell Douglas continues to reduce its production, the
volume of switching units will decrease.
SCADA Systems and Monitoring Services: Revenue from
Monitoring Services increased from $671,910 in fiscal 1994 to
$790,317 in fiscal 1995, an increase of 17.6%. During fiscal 1995,
the Company was able to maintain a relatively level volume of
long-term contracts with municipalities. The Company's contracts
with its two largest customers have been renewed for fiscal 1996.
An operating profit of $156,614 in Monitoring Services was recorded
in fiscal 1995 compared to fiscal 1994 operating profit of $100,792.
The increased profit resulted from special jobs completed in addition
to the long term contracts with the municipalities. Revenue increased
due to the introduction of new products and services. The Company
was able to secure performance bonds during the first quarter of
fiscal 1995. This division has since bid on certain jobs requiring
performance bonds and completed two special jobs, with revenue
totaling approximately $125,000.
Temporary Services: This operation provides temporary employee
services for corporate clients. Sales from Temporary Services
decreased 90.35% from $8,192,589 in fiscal 1994 to $790,317 in
fiscal 1995. During the year ended April 30, 1995, the related gross
profit was $25,754, compared to $242,912 in fiscal 1994, and the
contribution to consolidated net operating profit (loss) by this
business segment was ($59,021) compared to an income of $75 in
fiscal 1994.
As of June 3, 1994, the Company no longer provided temporary
services to its largest customer (WH of KC). The Company's
customer sold the Wendy's stores in the Kansas City area to Wendy's
International. Wendy's International did not wish to contract with
the Company to provide temporary services. This represents a loss in
revenue of approximately 56 percent of the Company's consolidated
revenue, but only 13 percent of the Company's consolidated gross
profit. This segment became inactive during fiscal 1995. If and
when the Company is able to open Indian gaming facilities,
management expects that a majority of the personnel in the various
Indian gaming enterprises will be staffed by Temporary Services.
See Note 8 to the financial statements for further discussion of this
change.
<PAGE>
Management Services: The Company incurred $560,000 in general
and administrative expenses in the fiscal year 1995 associated with its
continued efforts to explore service opportunities related to the Indian
Gaming Act of 1988. Additionally, the Company amortized
$142,751 and $85,176 in fiscal years 1995 and 1994, respectively,
related to shares issued for services rendered to the Company in that
regard.
The Company had invested $978,000 in land, land improvements
and professional design fees related to the development of three
Indian Gaming facilities as of April 30, 1995.
Selling, general and administrative (SG&A) expenses increased
$837,484 (47.6%) in fiscal year 1995. These expenses were
$2,596,823 or 19.7% of revenue in fiscal 1995 and $1,759,339 or
9.9% of revenue in fiscal 1994. SG&A expenses related to RFI were
$608,412 in fiscal 1995 and $413,837 in fiscal 1994. The increase in
SG&A related to RFI between years is due to the increase in sales
personnel. SG&A expenses related to the Company, excluding RFI,
were $1,988,411 in fiscal 1995 compared to $1,345,502 in fiscal
1994. The increase of approximately $600,000 is directly related to
the Company's continued effort to explore opportunities in
connection with the Indian Gaming Act of 1988.
Other income (expense) expenses increased due to the writedown of
the land and building in Overton, Nebraska in fiscal 1995. This
facility became idle in 1994. The Company was unable to complete
the negotiated sale of the land and building therefore the Company
reduced the value of the asset by $157,200 in order to record the
asset at its estimated net realizable value.
Liquidity and Capital Resources
Borrowed funds have been used primarily for working capital. Bank
debt related to the company's operating line was $301,434 at April
30, 1996, $362,495 at April 30, 1995, and $405,351 at April 30,
1994.
The Company's unused line of credit at April 30, 1996 was
$198,566. As of June 27, 1996, the Company's unused line of credit
was $143,621. The Company's line of credit is $500,000. The
interest rate on the Company's line of credit is prime plus two, as of
June 27, 1996, the interest rate is 10.25%.
The Company plans to continue using the promissory notes payable
due in August 1996 as working capital. The Company believes the
extensions will continue and does not anticipate the repayment of
these notes in fiscal 1997. The extensions of the promissory notes
payable is consistent with prior years. If the Bank were to demand
repayment of the notes payable the Company currently does not have
enough cash to pay off the notes without materially adversely
affecting the financial condition of the Company.
Prior to 1991, the Company incurred significant operating losses,
which resulted in reduced working capital, cash flow problems, and a
net capital deficiency. Accordingly, the Company began a process of
voluntarily reorganizing and financially restructuring its financial
position. As a result, the Company was successful in settling
substantially all past due liabilities from vendors and governmental
taxing authorities on satisfactory terms. The Company recorded
income from the Favorable settlement of liabilities of $234,603 in
fiscal 1992, $78,842 in fiscal 1993, and $71,230 in fiscal 1995. This
income relates to the write off of vendor payables which had been
accrued for in prior years at amounts greater than the actual cost of
settlement. During fiscal 1991, many of these vendors accepted a
portion of the debt owed in stock and a portion to be paid off over a
three year period. During fiscal 1993, many of these same vendors
forgave the remaining payments due to the significant increase in the
value of the stock received and the fact that the Company was
continuing to restructure and incurring cash flow problems. During
fiscal 1995, the Company wrote off the rest of the vendor payables
related to prior to 1989 which were not settled by the restructuring.
In fiscal 1995, the Company issued stock at fair market value for
various legal, marketing and consulting services, in lieu of cash
payments. During fiscal 1995, the Company issued 95,000 shares of
<PAGE>
stock at a value $219,668 for professional services to be provided in
the future.
The Company did not issue shares for professional services to be
provided in the future in fiscal 1996.
The Company acquired RFI on April 21, 1994. The Company
exchanged 650,000 shares of the Company's common stock for 100%
of the issued and outstanding shares of RFI. At the date of
acquisition, RFI's total assets were $565,605, consisting of cash of
approximately $200,000, accounts receivable of approximately
$280,000, and inventory of approximately $60,000. RFI's liabilities
included approximately $260,000 of vendor payables, and $115,000
of accrued payroll and payroll taxes.
The Company does not expect nor has it incurred any substantial
costs associated with integrating RFI's operations. The Company
expects that the majority of RFI's operations will continue to operate
as it did under previous management. The Company does plan to
expand the customer base of RFI, by hiring additional sales personnel
in various locations. The additional costs of personnel should be
more than offset by the additional contribution margin recognized.
The Company hired seven (7) additional sales personnel at various
locations in fiscal 1995 and fiscal 1996.
The Company is planning a retail market test under its registered
trade name, Value Foods, of the products being distributed by RFI.
Two or more test stores are planned in smaller communities. Capital
to finance this planned test marketing of approximately $500,000
may be required during fiscal 1997.
The Company has entered into a letter of intent to purchase the
operating rights and assets of Woodson Electronics, Inc. If the
transaction is consummated under the terms of the letter of intent, the
Company anticipates a purchase price of approximately 100,000
shares of the Company's common stock, $.01 par value, and cash
payments totalling approximately $34,000, over a period of two (2)
years. This transaction was completed May 1, 1996. See Note 10.
The Company plans to relocate and consolidate the Avionics
manufacting operations and the planned to be acquired Woodson
Electronics, Inc., SCADA manufacturing operations to a new location
in the Phoenix, Arizona area. This relocation places Avionics closer
to its primary customer and provides a more skilled labor force for
the expansion of the consolidated manufacturing operation. Capital
to finance this planned relocation of approximately $500,000 may be
required during fiscal 1997.
The Company does not, as of April 30, 1996, have any material
commitments for other capital expenditures.
The Company had an employment agreement with an individual
which the Company terminated in April 1995. This individual filed a
lawsuit against the Company, the President of the Company and
various corporate subsidiaries alleging the Company wrongfully
terminated the individual's employment in breach of the contract.
The suit was filed in October, 1995, in State Court in Johnson
County, Kansas. The individual has asserted a claim for damages in
excess of $1,400,000. The individual had proposed a settlement offer
for $500,000, but has recently withdrawn the settlement offer. It is
management's position that the Company will defend the claim
vigorously and in that pursuit the Company has asserted a
counterclaim against the individual for negligence in the performance
of the individual's professional duties.
Depending upon the development schedules, the Company, through
BNSC, will need additional funds to complete its currently planned
Indian gaming opportunities. The Company will use current cash
available and these additional funds for the start up and construction
of gaming facilities. The Company anticipates initially obtaining
these funds from two sources: internally generated working capital
from non-gaming operations and the proceeds from an anticipated
private placement of the Company's common stock. After a few
gaming facilities become operational, the gaming operations will
generate additional working capital for the start up and construction
of other additional gaming facilities. The Company expects that its
start up and construction financing of gaming facilities will be
replaced by other financial lenders, long term financing through debt
issue, or equity issues.
<PAGE>
Analysis of Cash Flow
During 1996, the Company's cash position increased by $532,848.
A majority of the positive cash flow from operations in fiscal 1996 is
due to the proceeds from stock issuances of approximately
$1,250,000. A large portion of the cash flow from financing
activities is offset by the use of cash in the Indian gaming segment
and the development of aircraft and aircraft parts.
Operating Activities: The majority of the increase in accounts
Receivable relates to the food distribution division. The accounts
receivable related to the food distribution segment went from
approximately 800,000 in fiscal 1995 to 1,300,000 in fiscal 1996 due
to increased product sales. The majority of the increase in contracts
in process relates to one large job at the aircraft modification facility
of approximately $700,000. Additionally there are three other
smaller jobs in process. Inventories at the aircraft modification
segment increased approximately $240,000.
Investing Activities: The increase in cash used in investing activities
is due to the use of approximately $175,000 related to the
development of Indian gaming and approximately $220,000 in the
development of the aircraft modification business.
Financing Activities: During fiscal year 1996, the Company
received proceeds from the exercise of employee stock options of
approximately $50,000. Employees exercised 442,700 options to
purchase shares of stock in fiscal 1996.
Subsequent to April 30, 1996, the Company completed a private
placement in which the Company issued an 8% cumulative
convertible debenture, with a conversion price to be determined by
the previous five day average bid price, prior to the date of
conversion, with a maturity of June 26, 1998. The gross proceeds
from this offering were approximately $750,000. The net cash
proceeds were approximately $675,000, after deducting the expenses
of the offering.
Changing Prices and Inflation
The Company did not experience any significant pressure from
inflation in 1996.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
The Financial Statements of the Registrant are set forth on pages 26
through 44 of this report.
Item 9. DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has had no disagreements with their current
accountants.
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The names and ages of the directors, their principal occupations for
at least the past five years are set forth below, based on information
furnished to the Company by the directors.
Clark D.Stewart (56) SERVED SINCE 1989 President of the
Company from September 1, 1989 to present. President of
Tradewind Systems, Inc. (consulting and computer sales) 1980 to
present; Executive Vice President of RO Corporation (manufacturing)
1986 to 1989; President of Tradewind Industries, Inc.
(manufacturing) 1979 to 1985.
R. Warren Wagoner (44) SERVED SINCE 1986 Chairman of the
Board of Directors of the Company since August 30, 1989 and
President of the Company from July 26, 1989 to September 1, 1989.
Sales Manager of Yamazen Machine Tool, Inc. from March, 1992 to
March, 1994; President of Stelco, Inc. (manufacturing) 1987 to 1989;
General Manager, AmTech Metal Fabrications, Inc., Grandview, MO
1982 to 1987.
William E. Logan (58) SERVED SINCE 1990 Vice President and
Treasurer of Wendy's Hamburgers of Kansas City, Inc. June, 1984
to present. Vice President and Treasurer of Valley Foods Services,
Inc. (wholesale food distributor) June, 1988 to April, 1993.
Professional practice as a Certified Public Accountant 1965 to 1984.
William A. Griffith (49) SERVED SINCE 1990 Secretary of the
Company, President of Griffith and Associates (management
consulting) since 1984. Management consultant for Diversified
Health Companies (management consulting) from 1986 to 1989 and
for Health Pro (health care) from 1984 to 1986. Chief Executive
Officer of Southwest Medical Center (hospital) from 1981 to 1984.
David B. Hayden (50) SERVED SINCE 1996 Co-owner and
President of Kings Avionics, Inc. since 1974 (avionics sales and
service). Co-owner of Kings Aviation LLP (aircraft fixed base
operation and maintenance) since 1994. Field Engineer for King
Radio Corporation (avionics manufacturing) 1966 to 1974. Mr.
Hayden has been appointed by the Board of Directors and will be
voted upon by the Shareholders in October, 1996.
The executive officers of the Company are elected each year at the
annual meeting of the Board of Directors held in conjunction with
the annual meeting of shareholders and at special meetings held
during the year. The executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
R. Warren Wagoner 44 Chairman of the Board of Directors
Clark D. Stewart 56 President and CEO
Jack L. Graham 72 VP, Aircraft Modifications
Thomas E. Woodson 58 VP, Avionics
Jon C. Fischrupp 56 President of Butler National
Services, Inc.,
a wholly-owned subsidiary of the
Company
Marvin J. Eisenbath 44 President of R. F. Inc., a wholly-
owned
subsidiary of the Company ("RFI")
Stephanie S. Ruskey 31 VP, CFO and Assistant Secretary
Edward J. Matukewicz 48 Treasurer
William A. Griffith 49 Secretary
</TABLE>
R. Warren Wagoner was General Manager, Am-Tech Metal
Fabrications, Inc. from 1982 to 1987. From 1987 to 1989,
Mr. Wagoner was President of Stelco, Inc. Mr. Wagoner was Sales
Manager for Yamazen Machine Tool, Inc. from March 1992 to
March 1994. Mr. Wagoner was President of the Company from
July 26, 1989, to September 1, 1989. He became Chairman of the
Board of the Company on August 30, 1989.
Clark D. Stewart was President of Tradewind Industries, Inc., a
manufacturing company, from 1979 to 1985. From 1986 to 1989,
Mr. Stewart was Executive Vice President of RO Corporation. In
1980, Mr. Stewart became President of Tradewind Systems, Inc. He
became President of the Company in September 1989.
Jack L. Graham was President of Avcon Industries for 19 years and
joined the Company in December 1983, at the time of the acquisition
of Avcon Industries by the Company. Mr. Graham is Vice President,
Aircraft Modifications.
Thomas E. Woodson has been President of Plectron Corporation
since 1980. Mr. Woodson became General Manager of Woodson
Avionics, Inc. in February 1990, and Vice President of Avionics in
November 1990.
Jon C. Fischrupp was President of Lauderdale Services, Inc. ("LSI")
from June 14, 1978, until May 1, 1986, at which time the Company
acquired LSI and he became President of LSI (now known as Butler
National Services, Inc.).
Marvin J. Eisenbath was President of RFI from January 1988 to April
1994, at which time the Company acquired RFI and he continued as
its President. Mr. Eisenbath was the Vice President of Purchasing of
Sysco Corporation from 1981 to 1987.
Stephanie S. Ruskey, CPA, was a senior accountant with Arthur
Andersen LLP from May 1987 until December 1990. Ms. Ruskey
joined the Company in December, 1990, as controller and was
promoted to Vice President - Chief Financial Officer in 1991.
Edward J. Matukewicz was Vice President of Master Fund Company
from 1987 to 1990 and Vice President of First Trust of Mid America
from 1990 to 1991. Mr. Matukewicz joined the Company in May,
1991, as Treasurer.
William A. Griffith was Chief Executive Officer of Southwest
Medical Center (hospital) from 1981 to 1984. Mr. Griffith was a
management consultant for Health Pro from 1984 to 1986 and for
Diversified Health Companies from 1986 to 1989. Mr. Griffith has
been President of Griffith and Associates, management consulting,
since 1984. Mr. Griffith became Secretary of the Company in 1992.
Except for the following, based on the information filed with the
Company, all reports required to be filed for the fiscal year ending
April 30, 1995 and 1996 with the Securities and exchange
Commission under Section 16 of the Securities Exchange Act of
1934, as amended, by the Company's executive officers, directors and
10% stockholders have been filed in accordance with applicable rules.
Ms. Brenda Brainard Shadwick has not filed a Form 3 reflecting her
employment with the Company (beginning July 1994), a Form 4
reflecting her holdings of 8,333 shares of the Company's common
stock (restricted shares issued per her employment agreement on June
24, 1994) or a Form 5 reflecting her status as of April 30, 1995. On
April 17, 1995, Ms. Shadwick's employment was terminated.
<PAGE>
Item 11. EXECUTIVE COMPENSATION
SUMMARY
The following table provides certain summary information
concerning compensation paid or accrued by the Company to or on
behalf of the Company's Chief Executive Officer and each of the
other most highly compensated executive officers of the Company
whose salary and bonus exceeded $100,000 (determined as of the end
of the last fiscal year) for the fiscal years ended April 30, 1996, 1995
and 1994:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and
Principal Position Year Salary ($)Bonus ($) Other
Annual
Comp
<S> <C> <C> <C> <C>
Clark D. Stewart,
President and CEO,
Director 96 212,075 --- ---
95 195,590 --- ---
94 166,185 --- ---
Marvin J. Eisenbath,
President, R. F., Inc.
<fn2> 96 331,791 --- ---
95 307,469 --- ---
94 6,923 N/A N/A
Brenda Brainard
Shadwick, Indian
Affairs counsel<FN3>96 -- --- ---
95 133,709 N/A N/A
94 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
($)Restricted ($) Securities
YR Stock Award(s) Underlying
Options<FN1>
<S> <C> <C> <C>
Clark D. Stewart,
President and CEO,
Director 96 --- 50,000
95 --- 100,000
94 --- 970,000
Marvin J. Eisenbath,
President, R. F., Inc. 96 --- ---
95 --- ---
94 N/A N/A
Brenda Brainard
Shadwick, Indian
Affairs counsel 96 --- ---
95 24,999 N/A
94 N/A N/A
<FN>
<fN1>Represents options granted pursuant to the Company's 1989
Nonqualified Stock Option Plan (100,000) in 1995 and 1993
Nonqualified Stock Option Plan (20,000) and 1993 Nonqualified
Stock Option Plan II (950,000) in 1994.
</FN>
</TABLE>
<TABLE>
<CAPTION>
LTIP Payouts All Other
YR ($) Compensation($)
<S> <C> <C> <C>
Clark D. Stewart,
President and CEO,
Director 96 --- ---
95 --- ---
94 --- ---
Marvin J. Eisenbath,
President, R. F., Inc.
<fn1> 96 --- ---
95 --- ---
94 N/A N/A
Brenda Brainard
Shadwick, Indian
Affairs counsel<FN2>96 --- ---
95 N/A N/A
94 N/A N/A
<FN>
<FN1>Mr. Eisenbath, president of RFI, became an executive officer
of the Company on April 22, 1994. <FN2>Ms. Shadwick, Indian
Affairs counsel, employed July 5, 1994 to April 17, 1995. Ms.
Shadwick was issued 8,333 shares of common stock with a value of
$24,999 on June 24, 1994. Ms. Shadwick received these shares on
her termination date.
</FN>
</TABLE>
<PAGE>
OPTION GRANTS, EXERCISES AND HOLDINGS
The following table provides further information concerning grants
of stock options pursuant to the 1989 Nonqualified Stock Option Plan
during the fiscal 1996 year to the named executive officers:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Name Number of % of Total Exercise or
Securities Options Base Price
Underlying Granted to ($/Sh)
Options Employees in
Granted (#) fiscal Year
<S> <C> <C> <C>
Clark D.
Stewart,
CEO<FN1> 50,000 7.1% 2.00
Marvin J.
Eisenbath -0- n/a n/a
Brenda
Shadwick -0- n/a n/a
<FN>
<fn1>Except in the event of death or retirement for disability, if Mr.
Stewart ceases to be employed by the Company, his option shall
terminate immediately. Upon death or retirement for disability, Mr.
Stewart (or his representative) shall have three months or one year,
respectively, following the date of death or retirement, as the case
may be, in which to exercise such options. The option granted for
50,000 shares of Common Stock was granted on December 1, 1995
from the 1995 Stock Option Plan. All such options are immediately
exercisable.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Expiration Potential Realizable Value
Date at Assumed Annual Rates of
Stock Price Appreciation
for Option Term
5% ($) 10% ($)
<S> <C> <C> <C>
Clark D.
Stewart,
CEO 12/01/05 81,445 126,687
Marvin J.
Eisenbath n/a n/a n/a
Brenda
Shadwick n/a n/a n/a
</TABLE>
The following table provides information with respect to the named
executive officers concerning options exercised and unexercised
options held as of the end of the Company's last fiscal year:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
Name Shares Acquired
on Exercise (#) Value Realized ($)
<S> <C> <C>
Clark D. Stewart,
CEO 400,000 340,000
Marvin J.
Eisenbath n/a n/a
Brenda
Brainard
Shadwick N/A n/a
</TABLE>
<TABLE>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options at
Options at FY-End ($)<fn1>
FY-End (#)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
<S> <C> <C>
Clark D. Stewart,
CEO 1,120,000 / 0 43,750 / 0
Marvin J.
Eisenbath n/a n/a
Brenda
Brainard
Shadwick N/A n/A
<FN>
<FN1> Based on the price of the Company's common stock at the
close of business on Tuesday, April 30, 1996 and the exercise price
of the options.
</FN>
</TABLE>
<PAGE>
COMPENSATION OF DIRECTORS
Each non-officer director is entitled to a director's fee of $100 for
meetings of the Board of Directors which he attends.
Officer-directors are not entitled to receive fees for attendance at
meetings.
EMPLOYMENT CONTRACTS, TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
On March 17, 1994, the Company entered into a five-year
employment agreement with Clark D. Stewart under the terms of
which Mr. Stewart was employed as the President and Chief
Executive Officer of the Company at an initial minimum annual
salary of $198,000 and a minimum salary of $208,000, $218,500,
$229,500 and $241,000, respectively, in years two through five. In
the event Mr. Stewart is terminated from employment with the
Company other than "for cause," Mr. Stewart shall receive as
severance pay an amount equal to the unpaid salary for the remainder
of the term of the employment agreement. Mr. Stewart was also
granted an automobile allowance of $600 per month.
On April 22, 1994, the Company entered into a five-year
employment agreement with Marvin J. Eisenbath under the terms of
which Mr. Eisenbath was employed at an annual salary of $300,000
plus an annual incentive bonus based on the net profits of the food
distribution division. This incentive arrangement is consistent with
the incentive arrangements made with the Company's other division
managers. In the event Mr. Eisenbath is terminated from
employment with the Company other than "for cause," Mr. Eisenbath
shall receive as severance pay an amount equal to the unpaid salary
for the remainder of the term of the employment agreement.
On June 6, 1994, the Company entered into a five-year employment
agreement with Brenda Brainard Shadwick under the terms of which
Ms. Shadwick was employed at an annual salary of $150,000 plus
additional compensation to be issued in stock options or warrants
having fair market value of $25,000. The contract provided that in
the event Ms. Shadwick was terminated from employment with the
Company other than "for cause," Ms. Shadwick would receive as
severance pay an amount equal to the unpaid salary for the remainder
of the term of the employment agreement. See Item 3. Legal
Proceedings.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is
comprised of Mr. Wagoner, Mr. Stewart, Mr. Griffith and
Mr. Logan. Mr. Stewart is the President and Chief Executive Officer
of the Company and Mr. Griffith is the Secretary of the Company.
During fiscal 1996, the consulting firm of Griffith & Associates was
paid for business consulting services rendered to the Company in the
approximate amount of $47,000. William A. Griffith, who is a
director for the Company, is a principal at Griffith & Associates. It
is anticipated that Griffith & Associates will continue to provide
services for the Company.
During fiscal 1996, the Company paid consulting fees of
approximately $110,000 to Mr. Logan for business consulting
services. It is anticipated that Mr. Logan will continue to provide
services for the Company. During the 1995 fiscal year, sales to
Wendy's Hamburgers of Kansas City, Inc. ("WH of KC, Inc.")
accounted for approximately 6% of the net sales of the Company
($790,000). William E. Logan, who is a director for the Company,
is Vice President and Treasurer of WH of KC, Inc. Mr. Logan sold
the WH of KC, Inc. restaurants as of June 3, 1994. The Company
no longer provided temporary services subsequent to June 3, 1994.
During fiscal 1996, the consulting firm of Butler Financial
Corporation was paid for business consulting services rendered to the
Company in the approximate amount of $20,000. R. Warren
Wagoner, who is a director for the Company, is a principal at Butler
Financial Corporation. It is anticipated that Butler Financial
Corporation will continue to provide services for the Company.
During fiscal 1996, the Company paid rent payments totalling
approximately $30,000 to Eisenbath Properties, Inc. for office space
leased by RFI. Marvin J. Eisenbath, who is an officer of the
Company, owns Eisenbath Properties, Inc. It is anticipated the
Company will continue to lease office space from Eisenbath
Properties, Inc.
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, with respect to the Company's
common stock (the only class of voting securities), the only persons
known to be beneficial owners of more than five percent (5%) of any
class of the Company's voting securities as of June 27, 1996.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership<fn1> of Class
<S> <C> <C>
Clark D. Stewart
1546 East Spruce Road
Olathe, Kansas 66061 2,205,920<fn2> 18.69%
Marvin J. Eisenbath
1546 East Spruce Road
Olathe, Kansas 66061 650,000 5.51%
<FN>
<fn1>Unless otherwise indicated by footnote, nature of beneficial
ownership of securities is direct, and beneficial ownership as shown
in the table arises from sole voting power and sole investment power.
<fn2>Includes 1,120,000 shares which may be acquired by Mr.
Stewart pursuant to the exercise of stock options which are
exercisable.
</FN>
</TABLE>
The following table sets forth, with respect to the Company's
common stock (the only class of voting securities), (i) shares
beneficially owned by all directors and named executive officers of
the Company, and (ii) total shares beneficially owned by directors
and officers as a group, as of June 27, 1996.
<TABLE>
<CAPTION>
Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership<fn1> of Class
<S> <C> <C>
Clark D. Stewart 2,205,920<fn2> 18.69%
Marvin J. Eisenbath 650,000 5.51%
William E. Logan 260,000<fn3> 2.20%
R. Warren Wagoner 335,000<fn4> 2.84%
William A. Griffith 172,000<fn5> 1.46%
All Directors and
Executive Officers as a
Group (11 persons) 4,102,900<fn6> 34.77%
<FN>
<fn1>Unless otherwise indicated by footnote, nature of beneficial
ownership of securities is direct, and beneficial ownership as shown
in the table arises from sole voting power and sole investment power.
<fn2>Includes 1,120,000 shares which may be acquired by Mr.
Stewart pursuant to the exercise of stock options which are
exercisable.
<fn3>Includes 210,000 shares which may be acquired by Mr. Logan
pursuant to the exercise of stock options which are exercisable.
<fn4>Includes 235,000 shares which may be acquired by Mr.
Wagoner pursuant to the exercise of stock options which are
exercisable.
<fn5>Includes 92,000 shares which may be acquired by Mr. Griffith
pursuant to the exercise of stock options which are exercisable.
<fn6>Includes 2,104,700 shares for all directors and executive
officers as a group, which may be acquired pursuant to the exercise
of stock options which are exercisable.
</FN>
</TABLE>
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
See Item 11, Executive Compensation pages 18-20.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) Documents Filed As Part of Form 10-K Report.
(1) Financial Statements:
Description Page No.
Report of Independent Accountants 27
Consolidated Balance Sheet as of April 30, 1996 and 1995 28
Consolidated Statements of Operations for
the years ended April 30, 1996, 1995 and 1994 29
Consolidated Statements of Shareholders' Equity
for the years ended April 30, 1996, 1995 and 1994 30-32
Consolidated Statements of Cash Flows for
the years ended April 30, 1996, 1995 and 1994 33
Notes to Consolidated Financial Statements 34-44
(2) Financial Statement Schedules:
Schedule Description Page No.
II. Valuation and Qualifying Accounts and Reserves for the years
ended April 30, 1996, 1995 and 1994 45
All other financial statements and schedules not listed have been
omitted because the required information is inapplicable or the
information is presented in the financial statements or related notes.
(3) Exhibits Index Page No.
3.1 Articles of Incorporation, as amended, are *
incorporated by reference to Exhibit 3.1 of
the Company's Form 10-K for the year
ended April 30, 1988
3.2 Bylaws, as amended, are incorporated by *
reference to exhibit 3.2 of the Company's
Form 10-K for the year ended April 30, 1989
4.1 Certificate of Rights and Preferences of $100 *
Class A Preferred Shares of the Company, are
incorporated by reference to Exhibit 4.1 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.
10.1 1989 Nonqualified Stock Option Plan is *
incorporated by reference to the Company's
Form 8-K filed on September 1, 1989
10.2 Nonqualified Stock Option Agreement dated *
September 8, 1989 between the Company
and Clark D. Stewart is incorporated by
reference to the Company's Form 8-K filed
on September 1, 1989
10.3 Agreement dated March 10, 1989 between *
the Company and Woodson Electronics, Inc.
is incorporated by reference to the Company's
Form 10-K for the fiscal year ended
April 30, 1989
10.4 Agreement of Stockholder to Sell Stock dated *
January 1, 1992, is incorporated by reference to
the Company's Form 8-K filed on January 15, 1992
10.5 Private Placement of Common Stock pursuant *
to Regulation D, dated December 15, 1993, is
incorporated by reference to the Company's
Form 8-K filed on January 24, 1994
10.6 Stock Acquisition Agreement of RFI dated *
April 21, 1994, is incorporated by reference to
the Company's Form 8-K filed on July 21, 1994
10.7 Employment Agreement between the Company *
and Brenda Lee Shadwick dated July 6, 1994, are
incorporated by reference to Exhibit 10.7 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.**
10.8 Employment Agreement between the Company *
and Clark D. Stewart dated March 17, 1994, are
incorporated by reference to Exhibit 10.8 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.**
10.9 Employment Agreement among the Company, *
R.F., Inc. and Marvin J. Eisenbath dated
April 22, 1994, are incorporated by reference
to Exhibit 10.9 of the Company's Form 10-K/A,
as amended, for the year ended April 30, 1994.**
10.10 Real Estate Contract for Deed and Escrow *
Agreement between Wade Farms, Inc. and
the Company, are incorporated by reference
to Exhibit 10.10 of the Company's Form 10-K/A,
as amended, for the year ended April 30, 1994.
10.11 1993 Nonqualified Stock Option Plan, are *
incorporated by reference to Exhibit 10.11 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.
<PAGE>
10.12 1993 Nonqualified Stock Option Plan II, are *
incorporated by reference to Exhibit 10.12 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.
10.13 Industrial State Bank principal amount of *
$500,000 revolving credit line, as amended, are
incorporated by reference to Exhibit 10.13 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.
10.14 Bank IV guaranty for $250,000 dated *
October 14, 1994, are incorporated by
reference to Exhibit 10.14 of the Company's
Form 10-K/A, as amended, for the year
ended April 30, 1994.
10.15 Bank IV loan in principal amount of $300,000 *
dated December 30, 1993, are incorporated by
reference to Exhibit 10.15 of the Company's Form
10-K/A, as amended, for the year ended
April 30, 1994.
10.16 Letter of Intent to acquire certain assets of *
Woodson Electronics, Inc., is incorporated by
reference to Exhibit 10.16 of the Company's Form 10-K,
as amended for the year ended April 30, 1995.
10.17 Asset Purchase Agreement between the Company --
and Woodson Electronics, Inc. dated May 1, 1996.
10.18 Non-Exclusive Consulting, Non-Disclosure and --
Non-Compete agreement with Thomas E. Woodson
dated May 1, 1996.
10.19 1995 Nonqualified Stock Option Plan dated --
December 1, 1995.
21 List of Subsidiaries 46
* Incorporated by reference
** Relates to executive officer employment compensation
(b) Reports On Form 8-K.
None
(c) Exhibits.
Reference is made to Item 14(a)(3).
(d) Schedules.
Reference is made to Item 14(a)(2).
<PAGE>
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.
June 27, 1996
BUTLER NATIONAL CORPORATION
Clark D. Stewart
Clark D. Stewart, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant in the capacities and on the dates indicated:
Signature Title Date
Clark D. Stewart
Clark D. Stewart President, Chief Executive Officer and Director
(Principal Executive Officer) June 27, 1996
R. Warren Wagoner
R. Warren Wagoner Chairman of the Board and Director June 27,
1996
William A. Griffith
William A. Griffith Director June 27, 1996
William E. Logan
William E. Logan Director June 27, 1996
David B. Hayden
David B. Hayden Director June 27, 1996
Stephanie S. Ruskey
Stephanie S. Ruskey Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer) June 27, 1996
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (1) AND (2) --
LIST OF FINANCIAL STATEMENT STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
AND
ITEM 14(d) FINANCIAL STATEMENT SCHEDULES
Years Ended April 30, 1996, 1995 and 1994
BUTLER NATIONAL CORPORATION
Olathe, Kansas
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Butler National Corporation:
We have audited the accompanying consolidated balance sheets of
Butler National Corporation (a Minnesota corporation) and
Subsidiaries as of April 30, 1996 and 1995 and the related
consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended April 30, 1996.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and the 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 misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Butler
National Corporation and Subsidiaries as of April 30, 1996 and 1995
and the results of their operations and their cash flows for each of the
three years in the period ended April 30, 1996, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. Schedule II for each of
the three years in the period ended April 30, 1996, is presented for
purposes of complying with the Securities and Exchange Commission
rules and is not a required part of the basic financial statements.
This information has been subjected to the auditing procedures
applied in our audit of the basic financial statements and, in our
opinion, is fairly stated in all materials respects in relation to the
basic financial statements taken as a whole.
Arthur Andersen LLP
Kansas City, Missouri
June 27, 1996
<PAGE>
<TABLE>
<CAPTION>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of April 30, 1996 and 1995
ASSETS (Notes 1 and 2) 1996 1995
<S> <C> <C>
Current Assets:
Cash $ 745,647 $ 212,799
Accounts receivable, net
of allowance for
doubtful accounts of $110,161
in 1996 and 1995 1,473,854 974,506
Contracts in process 993,881 140,092
Inventories (Note 1):
Raw materials 593,994 406,383
Work in process 214,746 177,672
Finished goods 209,070 188,864
------------ -----------
1,017,810 772,919
Prepaid expenses and
other current assets 59,825 69,299
------------ -----------
Total current assets 4,291,017 2,169,615
Property, Plant and
Equipment (Note 1):
Building 150,240 -
Machinery and equipment 589,788 532,152
Office furniture and fixtures 384,928 375,111
Leasehold improvements 53,318 52,318
Building under construction - 130,000
----------- -----------
Total cost 1,178,274 1,089,581
Accumulated depreciation (856,092) (804,952)
------------- -------------
322,182 284,629
Other Assets (Note 1)
Deferred costs of Indian
Gaming 1,142,023 970,143
Aircraft and aircraft parts 2,394,677 675,055
Other assets 111,184 94,087
------------ ------------
Total Other Assets 3,647,884 1,739,285
Total assets $8,261,083 $4,193,529
LIABILITIES AND
SHAREHOLDERS' EQUITY
(Note 2) 1996 1995
Current Liabilities:
Bank overdraft
payable (Note 1) $248,878 $112,814
Promissory notes
payable (Note 2) 301,434 362,495
Current maturities
of long-term debt (Notes 2) 1,511,040 37,506
Accounts payable 1,211,760 638,741
Customer Deposits 526,407 155,669
Accrued liabilities -
Compensation and
compensated absences 258,519 188,609
Other 34,026 44,067
------------- -------------
Total current liabilities 4,092,064 1,539,901
Long-Term Debt, net of
current maturities (Note 2) 57,057 81,347
----------- -----------
Total liabilities 4,149,121 1,621,248
Commitments and
contingencies (Notes 6 and 7)
Shareholders' equity
(Notes 1, 4 and 9):
Preferred stock, par value $5:
Authorized, 200,000 shares,
all classes $100 Class A, 9.8%,
cumulative if earned, liquidation
and redemption value $100,
issued and outstanding,
20,000 shares 100,000 100,000
Capital contributed in
excess of par 1,900,000 1,900,000
Common stock, par value
$.01:
Authorized, 40,000,000 shares
Issued and outstanding
9,280,980 shares 92,809 82,310
in 1996 & 8,231,015 in 1995,
Common stock warrants 8,707 8,707
Capital contributed in
excess of par 5,266,731 3,645,342
Note receivable from officer
arising from stock
purchase agreement (359,027) (27,004)
Unearned service contracts (276,771) (422,185)
Treasury stock, at cost (20,000
preferred in 1996 and 1995 (2,087,240) (2,037,240)
& 50,000 and 30,000
common in 1996 and 1995)
Retained deficit (533,247) (677,649)
(Deficit of $11,938,813
eliminated October 31, 1992) ------------- -------------
Total shareholders' equity 4,111,962 2,572,281
Total liabilities and
shareholders' equity $8,261,083 $4,193,529
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
<TABLE>
<CAPTION>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended April 30, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
Net sales:
Nonaffiliates $ 17,338,966 12,365,666 9,882,840
WH of KC
(Note 8) - 790,316 7,830,258
--------------- -------------- --------------
17,338,966 13,155,982 17,713,098
Cost of sales 14,182,782 11,254,310 15,759,410
-------------- -------------- --------------
Gross profit 3,156,184 1,901,672 1,953,688
Selling, general and
administrative expenses 2,938,544 2,631,285 1,759,339
-------------- ------------- -------------
Operating income (loss) 217,640 (729,613) 194,349
Other income (expense):
Interest expense (119,258) (49,967) (59,425)
Interest income 17,639 32,392 10,064
Favorable settlement
of liabilities - 71,230 -
Revaluation of building
(Note 1) 30,000 (157,200) -
Other 21,181 (61,770) 132,218
-------------- ------------- -------------
Other income (expense) (50,438) (165,315) 82,857
------------- ------------- -------------
Income (loss) before
taxes 167,202 (894,928) 277,206
Provision for income
taxes 22,800 - 6,000
------------- ------------ -------------
Net income (loss) $ 144,402 $(894,928) $ 271,206
Net income (loss)
per share $ 0.02 $ (0.11) $ 0.04
Shares used in per
share calculation 9,269,432 8,043,994 7,466,589
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY
for the years ended April 30, 1996, 1995, and 1994
Preferred Capital Common Capital
Stock Contributed StocK Contributed
in Excess in Excess
of Par of Par
& warrants
<S> <C> <C> <C> <C>
Balance, April 30, 1993 $100,000 1,900,000 $64,889 $383,184
Distributions (Note 9)
Reduction in note receivable
arising from stock
purchase agreement
(Note 8)
Issuance of stock - private placement 6,966 1,486,033
Issuance of stock - regulation S 3,200 665,702
Issuance of stock - bank agreement 2,000 (1,354)
Exercise of stock options (Note 5) 40 9,960
Issuance of stock - other 1,100 273,900
Unearned service contracts 690 171,810
Amortization of unearned service contracts
Net income
Balance, 4/30/94 $100,000 $1,900,000 $78,885 $2,989,235
Note Unearned Treasury Treasury Retained Total
receivable Service Stock Stock Earnings Shareholders'
Arising fm Contracts (Preferred) (Common) (Deficit) Equity
stock
purchase
agreement
<C> <C> <C> <C> <C> <C>
$(72,051) $(132,926) $(2,000,000) $ (37,240) $ 228,109 $ 433,965
(282,036) (282,036) 45,663 45,663
1,492,999
668,902
646
10,000
275,000
(272,500) (100,000)
85,176 85,176
271,206 271,206
$(26,388)$(320,250) $(2,000,000) $(37,240) $217,279$2,901,521
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> <TABLE>
<CAPTION>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY
for the years ended April 30, 1996, 1995, and 1994
Preferred Capital Common Capital
Stock Contributed Stock Contributed
in Excess in Excess
of Par of Par
& warrants
<S> <C> <C> <C> <C>
Balance, 4/30/94 $ 100,000 $ 1,900,000 $ 78,885 $ 2,989,235
Note Receivable
arising from
stock purchase
agreement (Note 8)
Reduction in note rec.
arising from stock
purchase agreement
(Note 8)
Issuance of stock -
employment
agreement (Note 6) 83 24,916
Exercise of stock options
(Note 5) 1,695 241,735
Issuance of stock -
construction agreements
(Note 1) 697 179,425
Unearned service contracts 950 218,738
Amortization of unearned
service contracts
Net loss
Balance, 4/30/95 $ 100,000 $ 1,900,000 $ 82,310 $3,654,049
Note Unearned Treasury Treasury Retained Total
receivable Service Stock Stock Earnings Shareholders'
Arising fm Contracts (Preferred) (Common) (Deficit) Equity
stock
purchase
agreement
<C> <C> <C> <C> <C> <C>
$ (26,388) $(320,250) $(2,000,000)$ (37,240) $217,279 $2,901,521
(60,000) (60,000)
59,384 59,384
(24,999) -
243,430
180,122
(219,688) -
142,752 142,752
(894,928) (894,928)
$ (27,004) $(422,185) $(2,000,000) $(37,240) $(677,649) $2,572,281
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY
for the years ended April 30, 1996, 1995, and 1994
Preferred Capital Common Capital
Stock Contributed Stock Contributed
in Excess in Excess
of Par of Par
& warrants
<S> <C> <C> <C> <C>
Balance, 4/30/95 $ 100,000 $ 1,900,000 $82,310 $3,654,049
Note Receivable arising from
stock purchase agreement
(Note 8)
Reduction in note receivable
arising from stock
purchase agreement
(Note 8)
Acquisition of treasury stock
(Note 8)
Exercise of stock options
(Note 5) 4,437 447,595
Issuance of stock - other
(Note 1) 10 3,990
Issuance of stock - private offering 6,052 1,169,804
Amortization of unearned service
contracts
Net income
Balance, 4/30/96 $100,000 $1,900,000 $92,809 $5,275,438
Note Unearned Treasury Treasury Retained Total
receivable Service Stock Stock Earnings Shareholders'
Arising fm Contracts (Preferred) (Common) (Deficit) Equity
stock
purchase
agreement
<C> <C> <C> <C> <C> <C>
$ (27,004) $(422,185) $(2,000,000) $ (37,240) $ (677,649) $2,572,281
(340,000) (340,000)
7,977 7,977
(50,000) (50,000)
452,032
4,000
1,175,856
145,414 145,414
144,402 144,402
$ (359,027) (276,771) $(2,000,000) $(87,240) $(533,247) $4,111,962
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended April 30, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $144,402 $(894,928) $271,206
Adjustments to
reconcile income to
net cash used in
operations:
Depreciation 46,241 68,082 115,703
Amortization of
service contracts 145,414 142,752 85,176
Loss (Gain) on
retirement of
fixed assets (30,000) (875) 244
Provision for
uncollectible accounts - 56,518 -
Provision for obsolete
inventories (1,696) (5,121) -
Changes in assets and liabilities:
Accounts receivable (499,348) (20,079) (296,962)
Contracts in process (853,789) 11,787 104,092
Inventories (243,195) 158,807 289,321
Prepaid expenses and
other current assets 9,474 25,403 (364,225)
Other assets 12,903 122,224 12,734
Accounts payable 573,019 28,247 60,616
Customer deposits 370,738 140,669 (316,696)
Accrued liabilities 59,841 (349,035) 177,102
Total adjustments (410,398) 379,379 (132,895)
Cash provided by
(used in) operations (265,996) (515,549) 138,311
Cash flows from investing activities:
Capital expenditures,
net (83,794) (182,845) (11,819)
Deferred costs of
Indian Gaming (171,880) (265,305) (704,839)
Aircraft and
aircraft parts (219,622) (481,362) (192,849)
proceeds from short
term investments - 300,000 -
Cash provided by
(used in) investing
activities (475,296) (629,512) (909,507)
Cash flows from financing activities:
Net borrowings under
line-of-credit agreement (61,061) (42,857) 17,096
Proceeds from
long-term debt 12,734 12,618 432,000
Distributions to
sole proprietor - - (282,036)
Repayments of
long-term debt
and lease obligations (63,463) (344,400) (45,445)
Bank overdraft payable 136,064 112,814 -
Proceeds from Stock
Issuances, Net 1,249,866 183,431 1,871,901
Cash provided by
(used in) financing
activities 1,274,140 (78,394)1,993,516
Net increase (decrease)
in cash 532,848 (1,223,455)1,222,320
Cash, beginning of period 212,799 1,436,254 213,934
Cash, end of period 745,647 212,799 1,436,254
Supplemental disclosures of cash flow information:
Interest paid 114,821 47,970 42,778
Income taxes paid 22,800 6,650 -
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996
1. Significant Accounting Policies:
The following is a summary of significant accounting policies:
a. Consolidation Policy: The accompanying consolidated financial
statements include the accounts of BNC and its wholly-owned
subsidiaries, Cansas International Corporation, Butler National
Corporation Consulting Engineers, Inc., Butler National Services,
Inc., Butler Temporary Services, Inc., Butler National Service
Corporation, Woodson Avionics, Inc. and RFI, (collectively "the
Company"). Cansas International Corporation and Butler National
Corporation Consulting Engineers, Inc., were inactive during the
years ended April 30, 1996, 1995 and 1994. All significant
intercompany transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
b. Inventories: Inventories are priced at the lower of cost,
determined on a first-in, first-out basis, or market. Inventories include
material, labor and factory overhead required in the production of the
Company's products.
c. Properties and Related Depreciation: Machinery and equipment
are recorded at cost and depreciated over their estimated useful lives.
Depreciation is provided on a straight-line basis. Leasehold
improvements are amortized on a straight-line basis over the term of
the lease. The lives used for the significant items within each
property classification are as follows:
Life in Years
Building 23 years
Machinery and equipment 5 to 17 years
Office furniture and fixtures 5 to 17 years
Leasehold improvements 3 to 20 years
Maintenance and repairs are charged to expense as incurred. The
cost and accumulated depreciation of assets retired are removed from
the accounts and any resulting gains or losses are reflected as income
or expense.
d. Other Assets: The Company entered into an agreement on
September 13, 1995, with the Village of Overton for the sale of the
building in Overton, NE. The Company received a cash payment of
$30,000 at closing on September 18, 1995, and may receive an
additional $70,000 if the Village of Overton is either able to sell or
lease the building in the future. As of April 30, 1994, the Company
classified as other assets the land and building in Overton, Nebraska,
with a book value of approximately $190,000. This facility became
idle in 1994 when the Company's subsidiary, Woodson Avionics,
relocated to Imboden, Arkansas. During fiscal 1995, the Company
was unable to complete a negotiated sale of the land and building.
Therefore, the Company reduced the value of the asset by $157,200
in order to record the asset at its estimated net realizable value.
Subsequently, the Company recognized a gain on the sale of the
building of $30,000 in fiscal 1996.
<PAGE>
The Company has capitalized approximately $1,150,000 and
$978,000 at April 30, 1996 and April 30, 1995, respectively, of costs
related to the anticipated construction of an Indian bingo facility.
These costs are included in other assets in the accompanying balance
sheet. In the opinion of management, these costs will be recoverable
through the gaming activities or, in the event the Company is
unsuccessful in establishing such operations, these costs will be
recovered through the liquidation of the associated assets. These
costs include the following:
1. A prepayment of $242,500 for construction services to be
rendered. This prepayment was funded with 60,000 shares of the
Company's common stock issued in the fiscal year 1994 and an
additional 40,000 shares in fiscal year 1995.
2. Payments of $87,622 for architectural and engineering services.
These payments were also funded with stock issuances of 29,715
shares in fiscal year 1995. Payments of $50,000 for equipment.
These payments were funded with stock issuances of 20,000 shares in
fiscal year 1994.
3. Cash payments of approximately $172,000, $65,000 and $57,000
in 1996, 1995, and 1994, respectively, for architectural, engineering
and construction services.
4. Cash advances to the Tribes of $190,000 in fiscal 1995 which the
Tribes used for the acquisition of land.
5. Acquisition of land by the Company in the amount of $225,000 in
fiscal 1994.
The Company has acquired and is currently in the process of
refurbishing an aircraft at their Aircraft Modification facility. The
book value of this plane is $460,000 which includes the original cost
of the plane plus parts, labor and overhead incurred during the
refurbishment. At this time, the Company has not determined if this
plane will be retained for corporate use or sold and as such continues
to classify the plane as other assets.
During fiscal year 1995, the Company completed the
refurbishment of another aircraft and exchanged that aircraft which
had been classified in other assets in the prior year for Lear inventory
parts. The book value of this aircraft was approximately $250,000.
The Lear parts have been classified as other assets in the current
year.
During fiscal year 1996, the Company acquired a Lear 35 valued
at approximately $1,700,000 which is also recorded in other assets on
the Balance Sheet.
e. Bank Overdraft Payable: The Company's cash management
program results in checks outstanding in excess of bank balances in
the general disbursement account. When checks are presented to the
bank for payment, cash deposits in amounts sufficient to fund the
checks are made from funds provided under the terms of the
Company's revolving credit notes agreement (Note 2).
f. Financial Instruments: The fair values of the Company's
financial agreements approximate their fair market values.
g. Revenue Recognition: The Company performs aircraft
modifications under fixed-price contracts. Revenues from fixed-price
contracts are recognized on the percentage-of-completion method,
measured by the direct labor costs incurred compared to total
estimated direct labor costs. At April 30, 1996, there were four
contracts in process. The Company recognizes revenue for its
distribution company on product sales during the period in which title
passes to the purchaser.
h. Income Taxes: Effective May 1, 1993, the Company
implemented the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS
No. 109 utilizes the liability method and deferred taxes are
determined based on estimated future tax effects of differences
between financial statements and tax bases of assets and liabilities
given the provisions of the enacted tax laws (Note 4). Prior to
January 1, 1994, RFI was taxed under the Internal Revenue Code's
provisions for a sole-proprietorship whereby all income was taxable
directly to the proprietors.
<PAGE>
i. Income Per Share: Income per (common and common
equivalent) share is based on the weighted average number of
common shares outstanding during the year. Stock options are
included as common stock equivalents in 1996 and 1994, since they
are dilutive. Stock options are not included in 1995, since they are
anti-dilutive. Warrants are not included in any period as they are
anti-dilutive. No preferred stock dividends have been included in the
income per share calculation.
j. Quasi Reorganization: After completing a three year program
of restructuring the Company's operation, on October 31, 1992, by
using quasi reorganization accounting, the Company was able to
adjust the accumulated deficit to a zero balance thereby affording the
Company a "fresh start." No assets or liabilities required adjustment
in this process. The amount of accumulated deficit and capital
contributed in excess of par removed as of October 31, 1992, was
$11,938,813.
k. Non-Cash Transactions: During the year ended April 30,
1996, the Company issued 1,000 shares of stock valued at $4,000 in
a non-cash transaction. Additionally, the Company acquired a Lear
35 for debt of $1,500,000. During the year ended April 30, 1995,
the Company issued 173,048 shares of stock valued at $424,809 in
various non-cash transactions. As discussed in Note 1 (d), the
Company issued a total of 69,715 shares of stock with a value of
$180,122 in fiscal year 1995, for costs related to the Indian bingo
facility. As discussed in Note 1 (l), the Company issued a total of
95,000 shares of stock with a fair value of $219,688 in exchange for
current and future professional services. Additionally, 8,333 shares
were issued with a value of $24,999 as payment for services per an
employment agreement.
During the year ended April 30, 1994, the Company issued 797,500
shares of stock valued at $1,993,750 in various non-cash transactions.
In connection with the acquisition of RFI, 650,000 shares, with a
value of $1,625,000 were issued. The remaining 147,500 shares,
with a combined value of $368,750 were issued in exchange for
inventories and certain current and future professional services. See
Note 1 (l).
l. Unearned Service Contracts: During fiscal 1996, the Company
did not issue any stock for services to be performed in the future. As
discussed in Note 1(k), during fiscal year 1995, the Company issued
95,000 shares of stock at fair market value, ($219,688) to various
professionals in exchange for services contracted to be provided in
future periods. During 1994, the Company issued 169,000 shares of
stock at fair market value, ($422,500), to various professionals in
exchange for services contracted to be provided in future periods.
The unearned portion of these service contracts is being amortized
over the service period, (generally 12-60 months) and is reflected as
a reduction in equity until such time as the services are rendered.
Future amortization of unearned service contracts is as follows:
Year Ending
April 30, Amount
1997 66,458
1998 77,864
1999 76,563
2000 30,833
2001 11,563
2002 11,563
2003 1,927
Total 276,771
m. Reclassifications: Certain reclassifications within the financial
statement captions have been made to maintain consistency in
presentation between years.
<PAGE>
<TABLE>
<CAPTION>
2. Debt:
Principal amounts of
debt at April 30, 1996
and 1995, consist
of the following:
Promissory Notes: 1996 1995
<S> <C> <c.>
Interest at prime plus 2% $190,000 $226,000
(10.25% at April 30, 1996), due
August 25, 1996, collateralized
by a first or second position on
all assets of the Company
Interest at prime plus 2% 111,434 136,495
(10.25% at April 30, 1996), due
August 25, 1996, collateralized
by a first or second position on
all assets of the Company
Total Promissory Notes 301,434 362,495
Other Notes Payable:
Note Payable for Lear 35, 1,466,334 -
Interest at prime plus 2%
(10.25% at April 30, 1996), due
November 30, 1996,
collateralized by Aircraft
Security Agreement
dated November 30, 1995
Note payable for land purchase, 66,000 99,000
annual installments of $33,000
through January 19, 1998, non
interest bearing
Other Notes Payable: 35,763 9,853
1,568,097 108,853
Less: Current maturities 1,511,040 37,506
$ 57,057 $ 81,347
</TABLE>
Maturities of long-term debt (excluding Promissory notes) over
the next five years are as follows:
Year Ending
April 30, Amount
1997 $1,511,040
1998 45,296
1999 8,099
2000 3,662
2001 -
The Company has promissory notes in which it may borrow a
maximum of $500,000. The maturity of the notes was extended
from May 25, 1996 to August 25, 1996. At April 30, 1996, the
Company had borrowed $301,434 on the notes.
<PAGE>
3. Stock Transactions:
During the year ended April 30, 1996, the Company completed
private placements of its securities. The Company sold a total of
605,175 shares of common stock resulting in gross proceeds to
the Company of approximately $1,375,000, and net proceeds of
approximately $1,200,000, after deducting the expenses of the
offering.
4. Income Taxes:
Deferred taxes are determined based on the estimated future tax
effects of differences between the financial statement and tax
bases of assets and liabilities given the provision of the enacted
tax laws. The Company has net operating loss carryforwards
and cumulative temporary differences which would result in the
recognition of net deferred tax assets. A valuation allowance has
been provided which reduces the net deferred tax asset to zero.
At April 30, 1996, the Company had the following net operating
loss carry forwards:
Year of Expiration Amount
2002 $ 402,854
2003 77,783
2004 1,886,484
2005 1,222,565
2006 72,769
2007 -
2008 -
2009 61,772
2010 22,025
Total $3,746,252
Under the new standard, net operating loss carryforwards
realized are no longer reflected as extraordinary items but as
direct reductions of tax expense. The tax benefit of net
operating losses realized prior to the Quasi reorganization have
been reflected as such. However, due to the Company's Quasi
reorganization, the tax benefit of net operating loss carryforwards
realized after the reorganization will be reflected as additions to
capital contributed in excess of par.
<TABLE>
<CAPTION>
The deferred taxes are comprised of the following components:
Current Deferred Taxes 4/30/96 4/30/95
<S> <C> <C>
Current Assets $ 393,892 $ 406,371
Current Liabilities - -
Total Current Deferred Taxes 393,892 406,371
Noncurrent Deferred Taxes
Noncurrent Assets 1,995,017 1,806,170
Noncurrent Liabilities 149,611 (7,441)
Total Noncurrent Deferred
Taxes 2,144,628 1,798,729
Total Deferred Taxes 2,538,521 2,205,100
Less: Valuation Reserve (2,538,521) (2,205,100)
Total Deferred Taxes, Net $ 0 $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The tax effect of significant temporary differences representing
deferred tax assets and liabilities are as follows:
4/30/96 4/30/95
<S> <C> <C>
Accounts Receivable Reserve $ 44,064 $ 44,064
Inventory Reserve 315,922 316,600
Other 33,907 45,707
Net Operating Loss 1,498,501 1,728,917
Depreciation 149,611 (7,441)
Gaming 429,263 -
Other 67,253 77,253
Net Deferred Tax Items $2,538,521 $2,205,100
</TABLE>
<TABLE>
<CAPTION>
A reconciliation of the provision for income taxes to the
statutory federal rate is as follows:
1996 1995 1994
<S> <C> <C> <C>
Statutory Federal
Income Tax Rate 34.0% 34.0% 34.0%
Less: Income of
Sole-Proprietorship
not taxed at
corporate level - - (41.1)
Net operating
loss carryforwards
generated (used) - - (9.3)
Change in
Valuation Allowance
for net deferred
tax assets (44.9) 30.9 -
Nondeductable
expenses 10.9 (3.1) -
State taxes 15.8 - -
Effective Tax Rate 15.8% 0.0% 0.0%
</TABLE>
5. Stock Options and Incentive Plans:
The Company has established a number of nonqualified stock
option plans to provide key employees with an opportunity to
acquire a proprietary interest in the Company. Options are
granted under these plans at exercise prices equal to fair market
value at the date of the grant, are generally exercisable
immediately and expire in 10 years. Each of the plans
automatically terminates after 10 years at which time no more
options may be granted but all previously granted options remain
exercisable until reaching their expiration date.
The following table summarizes the Option Plans.
<TABLE>
<CAPTION>
4/30/96 4/30/95 4/30/94
1989 Nonqualified
Option Plan
<S> <C> <C> <C>
Beginning Balance -
options outstanding 500,000 500,000 600,000
Options granted - 100,000 -
Cancelled/Forfeited - - 100,000
Exercised 400,000 100,000 -
Ending Balance -
options outstanding 100,000 500,000 500,000
Exercise Price Ranges $2.3125 .70 to 2.3125 .60 to 1.00
Shares available for grants - - -
Price range of
options exercised .70 to 1.00 .60 -
</TABLE>
<TABLE>
<CAPTION>
1993 Nonqualified
Option Plan I 4/30/96 4/30/95 4/30/94
<S> <C> <C> <C>
Beginning Balance -
options outstanding 333,500 394,500 404,500
Options granted - - 525,564
Cancelled/Forfeited 17,000 7,000 531,564
Exercised 21,000 54,000 4,000
Ending Balance -
options outstanding 295,500 333,500 394,500
Exercise Price Ranges 2.50to3.00 2.50to3.00 2.50to 3.00
Shares available for
grants 125,500 108,500 101,500
Price range of
options exercised 2.50to3.00 2.50to3.00 2.50
1993 Nonqualified
Option Plan II
Beginning Balance -
options outstanding 1,484,264 1,427,064 -
Options granted - 72,700 1,577,064
Cancelled/Forfeited 5,000 - 150,000
Exercised 21,700 15,500 -
Ending Balance -
options outstanding 1,457,564 1,484,264 1,427,064
Exercise Price Ranges 2.3125to3.00 2.3125to3.00 2.50
Shares available
for grants 5,236 236 72,936
Price range of
options exercised 2.50to3.00 3.00 -
1995 Nonqualified
Option Plan
Beginning Balance
options outstanding -
Options granted 700,000
Cancelled/Forfeited 4,000
Exercised -
Ending Balance -
options outstanding 696,000
Exercise Price Ranges $2.00
Shares available
for grants 804,000
Price range of
options exercised -
</TABLE>
The Company has a qualified stock option plan with a maximum
of 100,000 shares available. This plan had no activity in fiscal
years 1996, 1995 or 1994 and no options are currently
outstanding.
6. Commitments:
a. Lease Commitments: The Company leases space under
operating leases with initial terms ranging from three years to
twenty years. Minimum lease commitments under operating
leases for the next five years are as follows:
For the year ending April 30,
1997 $215,847
1998 206,119
1999 137,744
2000 114,000
2001 66,000
<PAGE>
Total rental expense incurred for the years ended April 30, 1996,
1995 and 1994 was $164,993, $144,719 and $142,942,
respectively.
b. Employment Agreements: The Company has employment
contracts with two officers.
The first contract calls for annual compensation of $198,000
increasing in various amounts to $241,000. This contract expires
April 30, 1999. The Company also issued this officer options to
purchase 500,000 shares of common stock at $.1875 per share
and 600,000 shares of common stock at prices ranging from $.50
per share to $1.00 per share. During 1991, the Company issued
this officer additional options to purchase 800,000 shares of
common stock at $.05 per share. These options expire the
earliest of ten years from date of grant, one year after death
occurring while employed by the Company, or three months after
ceasing to be a full-time employee of the Company for any
reason other than death. This officer exercised options for
600,000 shares at prices ranging from $.1875 per share to $.50
per share during fiscal 1993 and 800,000 shares at $.05 per share
during fiscal 1992. This officer exercised options for 100,000
shares at $.60 per share during fiscal 1995. The Company
granted an additional options to purchase 100,000 shares at
$2.3125 during fiscal 1995. This officer exercised options for
400,000 shares at prices ranging from $.70 to $1.00 per share
during fiscal 1996. The Company granted options to purchase
50,000 shares at $2.00 during fiscal 1996. At April 30, 1996,
100,000 options remain available to exercise at 2.3125 per share
which expires September 1, 1999.
A second contract calls for annual compensation of
$300,000 and incentive compensation based on operating income.
This contract expires April 21, 1999.
7. Contingencies:
The Company had an employment agreement with an individual
which the Company terminated in April 1995. This individual
filed a lawsuit against the Company, the President of the
Company and various corporate subsidiaries alleging the
Company wrongfully terminated the individual's employment in
breach of the contract. The suit was filed in October, 1995, in
State Court in Johnson County, Kansas. The individual has
asserted a claim for damages in excess of $1,400,000. The
individual had proposed a settlement offer for $500,000, but has
recently withdrawn the settlement offer. It is management's
position that the Company will defend the claim vigorously and
in that pursuit the Company has asserted a counterclaim against
the individual for negligence in the performance of the
individual's professional duties.
The Company is involved in various lawsuits incidental to its
business. Management believes the ultimate liability, if any, will
not have an adverse effect on the Company's financial position.
Due to the Company's financial condition and the need to reduce
expenses, the Board of Directors approved the elimination of
product liability insurance in August, 1989. Management is not
aware of any claims which individually or in the aggregate
exceed the annual cost of the insurance.
8. Related Party Transactions:
During fiscal 1996, the Company paid consulting fees of
approximately $110,000 to a board member for business
consulting services.
A board member of the Company is also an officer of a major
customer (WH of KC) which accounted for approximately 6%
and 44%, respectively, of the net sales of the Company during
1995 and 1994. Subsequent to June 3, 1994, the Company no
longer provides temporary services to this customer. As a result,
the operating revenues, expenses, and income for the temporaries
segment as detailed in Note 12 was significantly reduced in fiscal
1995.
A board member of the Company is also a principal of a firm
which provides business consulting services to the Company.
Total payments in 1996 under this agreement were approximately
$ 47,000.
A board member of the Company is also a principal of a firm
which provides business consulting services to the Company.
Total Payments in 1996 under this agreement were
approximately $20,000.
In 1992, a loan was made to an officer to purchase 10,000 shares
of the Company's stock. These shares were purchased from the
company at $.60 per share and recorded at their fair market
value with the difference recorded as compensation. This loan is
shown as a reduction of stockholders' equity on the financial
statements. This loan was paid during fiscal 1995.
In 1993, a loan was made to an officer to purchase 600,000
shares of the Company's stock. These shares were purchased
with options outstanding from the 1989 Nonqualified Stock
Option Plan at prices ranging from $.1875 to $.50 per share.
This loan was paid during fiscal 1995. In 1995, an additional
loan was made to this officer to purchase 100,000 shares of the
Company's stock. These shares were also purchased with
options outstanding from the 1989 Nonqualified Stock Option
Plan at $.60 per share. In 1996, additional loans were made to
the officer to purchase 400,000 shares of the Company's stock.
These shares were also purchased with options outstanding from
the 1989 Nonqualified Stock Option Plan at prices ranging from
$.70 to $1.00 per share. This loan is shown as a reduction of
stockholders' equity on the financial statements. These loans are
non-interst bearing, due on demand and collateralized by the
stock purchased with the proceeds.
During fiscal 1996, an officer of the Company sold 20,000
shares of the Company stock to the Company at fair market
value. These shares are now held in treasury.
<PAGE>
9. Stock Acquisition Agreement:
On April 21, 1994 the Company entered into a stock acquisition
agreement whereby 100% of the issued and outstanding shares of
R F, Inc. ("RFI") were exchanged for 650,000 shares of Butler
National Corporation ("BNC"). RFI is a food distribution
business with contract warehouses in Kansas City and St. Louis,
Missouri. RFI sells to the wholesale, food processing and retail
industries. The acquisition was accounted for as a "pooling of
interests" under Accounting Principles Board Opinion No. 16 and
other applicable guidelines. Under "pooling of interests"
guidelines, the accompanying financial statements have been
restated to include RFI since inception.
10. Subsequent Events:
On May 1, 1995, the Company entered into a letter of intent to
acquire certain assets of Woodson Electronics, Inc. (WEI). On
May 1, 1996, this transaction was completed. The Company
received a portion of WEI's operating rights and assets in
exchange for 80,000 shares of stock with a fair market value of
$160,000. The Company also entered into a Non-Exclusive
Consulting, Non-Disclosure and Non-Compete Agreement with
Thomas E. Woodson, which provides for the issuance of 20,000
shares of the Company's common stock and $36,000 to be paid
out over 24 months. WEI is engaged in the business of
designing, manufacturing, improving, marketing, maintaining,
and providing, directly and with the assistance of others, data
acquisition, alarm monitoring and reporting products and services
related to such products. WEI supplies the monitoring products
to Butler National Services, Inc.
Subsequent to yearend, the Company completed a private
placement in which the Company issued a 8.0% cumulative
convertible debenture due June 26, 1998 in the amount of
$750,000. Net proceeds of the offering were $675,000, after
deducting the expenses of the offering.
11. New Accounting Pronouncements:
The Financial Accounting Standards Board has issued SFAS No.
121, "Accounting for the Impairment of Long-lived Assets and
for Long-lived Assets to be Disposed of". This standard
provides a framework for evaluating the realizability of the
Company's investments in long-lived assets. At this time, the
Company does not anticipate that adoption of the standard, which
is required in 1996, will have a material impact on its results of
operations or financial position. The Financial Accounting
Standards Board also issued SFAS No. 123, "Accounting for
Stock Based Compensation". Adoption of this standard is
required in 1996. Under the new standard, the Company must
either change its method of computing the compensation expense
associated with the issuance of stock options or make pro forma
disclosures based on the new computation method. At this time,
the Company anticipates adopting the standard by making the pro
forma disclosures.
<PAGE>
12. Industry Segmentation and Sales by Major Customer:
a. Industry Segmentation: The Company's operations have
been classified into six segments in 1996, 1995 and 1994.
1. Gaming - principally includes the business management
services to Indian tribes in connection with the Indian Gaming
Act of 1988. (Beginning in fiscal 1994).
2. Avionics - principally includes the manufacture of airborne
switching units used in DC-9, DC-10, DC- 9/80, MD-80, MD-90
and the KC-10 aircraft.
3. Aircraft Modifications - principally includes the modification
of business-size aircraft from passenger to freighter
configuration, conversion to air ambulance, addition of aerial
photography capability, stability enhancing modifications for
Learjets and other modifications.
4. Monitoring Services - principally includes the monitoring of
water and wastewater remote pumping stations through electronic
surveillance for municipalities and the private sector and related
repair services.
5. Temporary Services - provides temporary employee services
for corporate clients.
6. Food Distribution Services - principally includes food
distribution to the wholesale, food processing and retailing
industries.
<PAGE>
12. Industry Segmentation and Sales by Major Customer:
<TABLE>
<CAPTION>
Year ended April 30, 1996
Gaming Avionics Modifications Services
<S> <C> <C> <C> <C>
Net Sales$ - $260,399 $2,531,504 $861,192
Depreciation - 1,429 26,009 4,606
Operating
profit (loss)(a)(668,239) 79,545 356,916 227,078
Capital
expenditures - - 52,681 21,458
Interest, net
Other income
Net income
Identifiable
assets $1,150,312 $208,342 $4,679,582 $223,590
Temporaries Distribution Corporate Consolidation
<C> <C> <C> <C>
$ - $13,685,871 $ - $17,338,966
- 4,197 - 46,241
1,275 809,416 (581,151) 224,840
- 9,002 5,554
(101,619)
21,181
$144,402
$3,445 $1,861,513 $134,301 $8,261,085
</TABLE>
<TABLE>
<CAPTION>
Year ended April 30, 1995
Gaming Avionics Mods Services
<S> <C> <C> <C> <C>
Net Sales - $238,162 $1,845,609 $793,930
Depreciation- 17,113 25,867 15,405
Operating profit
(loss) (a) (701,678) 4,443 133,924 156,614
Capital expenditures - - 136,931 -
Interest, net
Other income
Net loss
Identifiable assets $978,432 $177,538 $1,571,643 $140,493
Temporaries Distribution Corporate Consolidation
<C> <C> <C> <C>
$790,317 $9,487,964 $ - $13,155,982
- 2,629 - 61,014
(59,021) 461,200 (725,094) (729,612)
- 3,686
(17,575) (17,575)
(147,741)
($894,928)
$ 2,874 $1,097,033 $225,516 $4,193,529
</TABLE>
<TABLE>
<CAPTION>
Year ended April 30, 1994
Gaming Avionics Mods Services
<S> <C> <C> <C> <C>
Net Sales $ - $324,234 $1,913,619 $671,910
Depreciation - 30,195 33,109 50,199
Operating
profit (loss)(127,454) 2,031 316,933 100,792
Capital
expenditures - 8,573 - 12,245
Interest, net
Other income
Net income
Identifiable assets $529,099 $471,600 $1,174,258 $107,035
Temporaries Distribution Corporate Consolidation
<C> <C> <C> <C>
$8,192,589 $6,610,746 $ - 17,713,098
- 2,200 - 15,703
75 471,277 (575,305) 188,349
- - -
(49,361)
132,218
$271,206
$440,992 $736,289 $1,564,827 $5,024,100
</TABLE>
Operating expenses not specifically identifiable are allocated
based upon sales, cost of sales, square footage or other factors as
considered appropriate.
b. Major Customers:
Sales to major customers (10% or more of consolidated sales)
were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Temporary services - 6% 44%
Food Distribution services 13% 36% 15%
13% 42% 59%
</TABLE>
SCHEDULE II
<PAGE>
<TABLE>
<CAPTION>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
for the years ended April 30, 1996, 1995 and 1994
Year ended April 30, 1996
Additions
Balance Charged to Balance
at Beg. Costs & at End
Description of Year Expenses Deduct of Year
<S> <C> <C> <C> <C>
Allowance
for doubtful
accounts $ 110,161 $ - $ - $ 110,161
Reserve for
inventory
obsolescence 63,767 - 1,696 62,071
Reserve for
loss on note
receivable 35,729 - - 35,729
Year ended April 30, 1995
Allowance
for doubtful
accounts $ 53,643 $ 56,518 $ - $110,161
Reserve for
inventory
obsolescence 68,888 - 5,121 63,767
Reserve for
loss on note
receivable 35,729 - - 35,729
Year ended April 30, 1994
Allowance
for doubtful
accounts $ 53,643 $ - $ - $ 53,643
Reserve for
inventory
obsolescence 95,377 - 26,489 68,888
Reserve for
loss on note
receivable 35,729 - - 35,729
</TABLE>
<PAGE>
EXHIBIT 21
Subsidiaries
Avcon Industries, Inc., a Kansas Corporation
Butler National Services, Inc., a Florida Corporation,
formerly Lauderdale Services, Inc.
Butler National Corporation Consulting Engineers,
Inc.,
a Kansas Corporation, formerly HSD, Inc.
Butler National Service Corporation, a Delaware
Corporation
Butler National, Inc., a Nevada Corporation
Butler Temporary Services, Inc., a Missouri
Corporation
Woodson Avionics, Inc., a Nebraska Corporation
Cansas International Corporation, a Delaware
Corporation
R F, Inc., a Missouri Corporation
<PAGE>
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, made and entered into May 1,
1996, by and between WOODSON ELECTRONICS,
INC., a Nebraska corporation, its subsidiaries and
affiliates, and Thomas E. Woodson, hereinafter
conjunctively referred to as "Sellers," and BUTLER
NATIONAL CORPORATION, a Minnesota
corporation, hereinafter referred to as "Purchaser."
WHEREAS, Sellers are engaged in the business of
designing, manufacturing, improving, marketing,
maintaining and providing, directly and with the
assistance of others, data acquisition, alarm monitoring
and reporting products and services related to such
products. Sellers' major product lines include, but are
not limited to, the A9000 Plus Base Station and RTU,
B9000 Retrofit Board, 7000 Plus (or A9000 Mini),
Radio Modem, Voice Dialer, MiniSonde Product and
older Plectron Repair Business. WHEREAS, Purchaser
desires to buy, and Sellers desire to sell, all of Sellers'
assets, except the cash, accounts receivable, real estate,
interests in real estate and other equipment set forth on
Schedule 4 attached hereto and incorporated herein
owned by Sellers on the date of closing, upon the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual
promises, covenants, and agreements of the parties, it
is agreed by and between the parties as follows:
1. Property Purchased. Subject to the terms and
conditions herein set forth, Sellers hereby agree to
convey, transfer, assign, and deliver to Purchaser, and
Purchaser agrees to purchase and accept as hereinafter
provided, all assets of Sellers, except the cash,
accounts receivable, real estate, interests in real estate
and other equipment set forth on Schedule 4 owned by
Sellers on the date of closing. It is specifically
understood and agreed that the assets sold herein
include all assets owned by Sellers except the cash,
accounts receivable, real estate, interests in real estate
and other equipment set forth on Schedule 4 owned by
Sellers on the date of closing, including, but not
limited to:
(a) Fixed Manufacturing Assets and Tangible
Personal Property. The fixed assets and tangible
personal property of Sellers (including but not limited
to all manufacturing and testing equipment, tooling,
dies and molds), except other equipment set forth on
Schedule 4.
(b) Inventory. All inventory including certain
BUTLER NATIONAL SERVICES Inventory ("BNS
Inventory") listed on Schedule 1 attached to this
Agreement.
(c) Intellectual Property, Manufacturing and
Marketing Rights and Information. All manufacturing
and marketing rights and information of Sellers,
whether tangible or intangible, including, without
limitation, domestic and foreign registered or common
law patents, trademarks, service marks, trade names,
service names and copyrights (including but not
limited to "A9000 Plus", "A7000 Plus", "MiniSonde",
and "Woodson Electronics"), and all registrations and
applications for any of the foregoing, licenses or
sublicenses to manufacture, use or sell, software,
inventions, labels, and label approval records, trade
secrets, processes, manufacturing or marketing
procedures, complete and current sets of plans,
specifications and drawings relating to all products,
formulae, and vendor and customer files and records.
Sellers retain the right to the name Woodson
Electronics, Inc. as a corporate name.
(d) Backlog and Repairs. All existing or hereafter
acquired customer purchase orders and sales orders
including but not limited to any such orders for repair
of products manufactured by Seller ("Backlog").
(e) Outside Engineering Consulting and Non-
Compete Agreements. All contractual rights and
benefits accruing to Sellers as a consequence of
continuing Consulting Agreements dated April 14,
1995 by and between Sellers and Mr. Mark Dietel and
Mr. Lonnie Moravetz as attached and incorporated to
this Agreement as Schedule 2 and Schedule 3.
(f) Other Assets. All other assets except cash,
accounts receivable, real estate, interests in real estate
and other equipment set forth on Schedule 4 owned by
Sellers on the date of closing, but including office
furniture, computers and office equipment, FCC
authorizations, computer programs and documentation
relating to the design, manufacture, processing,
management, accounting or inventory control
(including but not limited to "Data Flex" material
management and "Red Wing" account software
packages), any and all customer deposits respecting
and related to the Backlog, express or impled
warranties of third parties running directly or indirectly
to the benefit of Sellers regarding any Inventory or
Equipment, and all information and records (excluding
original personnel records and corporate records of
Sellers which may be required for regulatory reporting
and record keeping compliance but which Purchaser
may have access to and make copies of as Purchaser
and Seller shall determine beneficial) whether reduced
to physical form or otherwise.
2. Purchase Price and Payment. Purchaser shall issue
to Sellers in amounts made known by Sellers to
Purchaser in writing on or before closing, the
following in full payment for the assets purchased
herein:
(a) Eighty Thousand (80,000) Shares of Butler
National Common Stock ("BNC Stock") to be issued
by the Purchaser pursuant to SEC Rule 144 to be
recorded in the name of Sellers in amounts established
by Sellers on or before May 1, 1996. Such BNC
Stock shall be held by Purchaser until all duties and
obligations of Sellers pursuant to this Agreement have
been satisfied and all BNS Inventory has been
delivered to Purchaser but in no event later than June
1, 1998.
(b) Thirty-Six Thousand Dollars ($36,000.00), which
shall be paid in twenty-four (24) equal monthly
installments of Fifteen Hundred Dollars ($1,500.00)
commencing May 1, 1996 and continuing on the first
day of each successive month until twenty-four
payments shall have been made. The Purchaser and
Sellers agree that the sums set forth in this Paragraph
shall be paid to Thomas E. Woodson as additional
consideration for Thomas E. Woodson's execution of
the NON-EXCLUSIVE CONSULTING, NON-
DISCLOSURE AND NON-COMPETE AGREEMENT
required by this Agreement.
(c) The total cost to Sellers of BNS Inventory on
May 1, 1996 shall be detailed on Schedule 1.
Purchaser may take delivery of all BNS Inventory no
later than June 1, 1998. Payment shall be made to
Sellers at item prices detailed on Schedule 1 within
thirty days of delivery consistent with current account
terms and conditions.
(d) $3,685.00 to be paid by May 1, 1996
representing accumulated outside engineering hardware
and software consulting services incurred by Sellers as
requested by and for the benefit of Purchaser.
(e) Purchaser further agrees to assume the remaining
payments and remunerations for services when and as
due pursuant to certain consulting Agreements by and
between Mr. Mark Dietel and Mr. Lonnie Moravetz as
referenced in Section 1.2(e) and attached herewith as
Schedule 2 and Schedule 3, provided that the consents
required by Paragraph 8 (e) are delivered at or before
closing. These contracts are assets of Sellers and will
be assigned to Purchaser at closing.
3. Sellers and Buyer agree that assets shall be valued
as of close of business February 23, 1996.
4. Sellers and Buyer agree to the Apportionment of
purchase price as of February 24, 1996 as set forth in
Schedule 5.
5. Closing of this transaction shall be effective at
close of business February 23, 1996, and shall
physically occur no later than May 1, 1996 (hereinafter
"Closing Date").
6. On the Closing Date, Sellers shall deliver a bill of
sale and such other documents as are necessary to
evidence the conveyance of assets described herein and
are otherwise required by this Agreement.
7. Sellers' Representations and Warranties. Sellers
and Woodson (acting as an individual and as Director,
Chief Executive Officer, and the beneficial owner of
100% of all shares issued and outstanding of Sellers,
hereby represents and warrants to Purchaser that as of
the date of this Agreement:
(a) Ownership of Assets. Sellers are the true and
lawful owners of all the Assets and have good and
marketable title to all Assets and all necessary power
to sell and transfer the Assets to Purchaser free and
clear of all claims, liens, title defects and objections,
covenants, restriction, security interests and other
encumbrances (including, without limitation, leases,
chattel mortgagees, conditional sales contracts,
collateral security arrangements, other title or interest-
retaining agreements and any tax liens). Purchaser
acknowledges that it has reviewed the minutes of a
special joint meeting of shareholders of Woodson
Electronics, Inc. and Plectron Corporation dated
February 1, 1995. In said minutes, Woodson
Electronics, Inc. agreed that it would not sell the rights
for use to the A9000+, A9000+ Mini, B9000 Retro
Assembly, and the Voice Dialer in the indoor public
safety and the outdoor (siren) public safety and
regulated markets. Purchaser acknowledges and agrees
that it is not purchasing any such rights from
Woodson Electronics, Inc., pursuant to this Asset
Purchase Agreement.
(b) Delivery of Assets. Purchaser will acquire good
and marketable title to all the Assets free and clear of
all claims, liens, title defects and objections, covenants,
restrictions, security interests and other encumbrances
(including, without limitation, leases, chattel
mortgagees, conditional sales contracts, collateral
security arrangements, other title or interest-retaining
agreements and any tax liens).
(c) Organization and Authority. Corporate Sellers
are corporations duly organized, validly existing under
the laws of the state of their incorporation. Sellers
have all requisite power and authority to enter into,
and cause Sellers to perform and carry out this
Agreement. This Agreement has been duly authorized
by the Board of Directors of each Corporate Seller and
need not be approved by the shareholders of Corporate
Sellers under the Corporate Sellers' charter documents,
applicable law or otherwise. This Agreement has been
duly executed and delivered by Sellers and constitutes
a legal, valid, binding and enforceable obligation of
Sellers enforceable against Sellers in accordance with
its terms.
(d) Compliance with the Law and Other Instruments.
Sellers hold all licenses and permits necessary for the
lawful conduct of their business, wherever conducted.
Sellers know of no violation of any such license or
permit. The Sellers' business is, and at all times has
been, conducted substantially in compliance with all
applicable statutes, laws, ordinances, rules and
regulations of all governmental bodies, agencies, and
subdivisions having, asserting or claiming jurisdiction
over Sellers. Neither the execution and delivery of
this Agreement nor its performance by Sellers will
result in the creation of any lien, charge, or
encumbrance upon any of the Assets pursuant to, any
indenture, mortgage, lease, agreement, arrangement, or
other instrument or decree, judgment, order, law, or
regulation of any court or other governmental body to
which Sellers are a party or by which Sellers or any
of the Assets are bound.
(e) Absence of Certain Changes or Events. Since
February 23, 1996, there has not been any loss or
damage to any of the Assets due to fire or other
casualty, whether or not insured against, having an
original cost of more than $1,000.00 in the aggregate.
(f) Intellectual Property. Sellers are the owners of
all intellectual property and no litigation is pending or,
to the knowledge of Sellers, has been threatened
against Sellers or any representative or employee of
Sellers, for the infringement of any patent, copyright,
trademark, trade name, service mark or service name
of any other person or entity or for the misuse or
misappropriation of any trade secret or know-how
owned by any person or entity which relates to
Sellers' business, assets or products. All patents,
patent applications, licenses, service marks, service
names, trademarks, copyrights, trade names, brand
names, processes, designs, formulae, inventions, trade
secrets, plans, specifications, drawings, franchises,
know-how, technology and other proprietary rights
which are used by Sellers (collectively, "Property
Rights") are owned by Sellers without any requirement
to pay compensation to any person or entity. The
conduct of Sellers' business does not infringe, and
Sellers have not received any communication alleging
that Sellers have infringed, any Proprietary Rights of
any other person or entity which relates to Sellers'
business, assets or products.
(g) Litigation and Disputes. No Seller, nor any
officers, representative or employee of a Seller, is a
party to any pending or, to the knowledge of Sellers,
threatened, action, suit, proceeding or investigation, at
law, in equity or otherwise, in, for or by any court or
governmental board, commission, agency, department
or office arising from any act of Sellers which relates
to Sellers' assets or any product or (in the case of any
individual) the individual's acts as officer,
representative, or employee of a corporate Seller
relating only to Sellers' assets or products. Sellers are
not subject to any order, judgment or decree which
affects Sellers' assets or products which would prevent
or hinder the commission of the transactions
contemplated by this Agreement. Sellers are not in
violation of any order, writ, injunction or decree of
any court or federal, state, municipal or other
governmental department, commission, board, bureau,
agency or instrumentality (including without limitation,
legislation and regulations pertaining to environmental
protection) affecting Sellers' assets or any products and
is not in material violation of any other law affecting
Sellers' assets or any product.
(h) Sellers warrant and represent that, except for a
contract transferring to Federal Signal Corporation
certain non-exclusive marketing and selling rights to
the 9000 control and monitoring system, pursuant to
certain non-exclusive manufacturing, engineering and
distribution rights granted Sellers in paragraph 4.2 of
a certain Stock Purchase Agreement between Butler
National Corporation and Woodson Electronics, Inc.,
dated April 4, 1990, no other assignment of such
rights has been made. It is acknowledged that the
closing of this Agreement will transfer all Sellers'
retained rights under Paragraph 4.2 of the Stock
Purchase Agreement dated April 4, 1990 to the
Purchaser, as limited by the joint Woodson Electronic,
Inc./Plectron Corporation Shareholders Meeting
Minutes dated February 1, 1995.
(i) Brokers and Finders. Sellers have not taken any
action that would give rise to a claim against Sellers
for a broker's, finder's or investment banker's fee or
other like payment in connection with the transactions
contemplated by this Agreement.
8. Purchaser's Representations and Warranties.
Purchaser hereby represents and warrants to Sellers
that, as of the date of this Agreement:
(a) Organization and Authority. Purchaser is a
corporation duly organized, validly existing under the
laws of the State of Minnesota. Purchaser has all
requisite power and authority to enter into, perform
and carry out this Agreement. This Agreement has
been duly authorized by the Board of Directors of
Purchaser and need not be approved by the
shareholders of Purchaser under Purchaser's charter
documents, applicable law or otherwise. This
Agreement has been duly executed and delivered by
Purchaser and constitutes a legal, valid, binding and
enforceable obligation of Purchaser, enforceable against
Purchaser in accordance with its terms.
(b) Brokers and Finders. Purchaser has not taken
any action that would give rise to any claim against
Sellers for a broker's, finder's or investment banker's
fee or other like payment in connection with the
transactions contemplated by this Agreement.
9. Conditions to Closing. Purchaser shall not be
obligated to close hereunder unless the following
conditions have been satisfied:
(a) All the representations and warranties of Sellers
contained herein are accurate, true and correct at
closing, and Sellers have performed and carried out all
of its agreements hereunder.
(b) No damage or destruction has been suffered by
the assets to be transferred, whether or not the assets
to be transferred have been insured against such
damage or destruction.
(c) Sellers have delivered to Purchaser a Bill of Sale
and Assignment for the assets to be transferred at
closing and thereafter any other instruments of transfer
in form and substance satisfactory to Purchaser.
(d) Thomas E. Woodson shall have executed and
delivered to Purchaser the Non-Exclusive Consulting,
Non-Disclosure and Non-Compete Agreement attached
hereto as Schedule 6.
(e) Sellers shall deliver to Purchaser written consents
signed by Mark Dietel and Lonnie Moravetz
acknowledging and consenting to the transfer of the
Consulting Agreements referenced in Paragraph 1 (c)
of this Agreement. Mr. Dietel and Mr. Moravetz, in
said written consents, shall acknowledge the
substitution of Purchaser for Sellers and confirm the
interest and willingness of each to comply with the
terms of the referenced Consulting Agreement after the
assignment of such Agreements to Purchaser.
(f) Sellers at closing shall deliver to Purchaser all
proprietary information held by Sellers pursuant to a
certain Agreement dated April 27, 1995 and executed
by Seller, Woodson Electronics, Inc., on April 28,
1995 and Purchaser on May 8, 1995 which Sellers are
legally permitted to do under the terms and conditions
of any escrow or similar agreement between Purchaser
and the City of Titusville, Florida. It is acknowledged
that after closing and delivery of the proprietary
information covered by said Agreement, that Purchaser
shall possess all of Sellers' right, title and interest in
and to said proprietary information. Purchaser agrees
to indemnify and hold Sellers harmless from any
liability which may arise by virtue of the nullifying
and voiding of the April 29, 1995 Agreement referred
to in this paragraph.
10. Access to Properties and Records. Prior to
closing, Sellers agree to allow Purchaser's personnel or
representatives reasonable access to Sellers' premises
and properties, without cost to Purchaser, including the
right to physically inspect the assets, contracts, internal
reports, data processing files and records,
commitments, books, records and affairs of Sellers
relating to the Sellers' business, during normal
business hours and with reasonable notice, for the
purpose or removal and shipment of the assets
purchased herein.
11. Conduct of Sellers' Business Prior to May 1,
1996. Sellers shall conduct the business in the
ordinary course and in a normal, businesslike fashion,
and Sellers shall use their best efforts to preserve and
maintain the goodwill of the Sellers' business,
including relationships with suppliers, customers and
others with whom they deal. Sellers shall take no
action or suffer any action to be taken against Sellers,
which would cause any material change in the Sellers'
business or any of their assets or products, including,
without limitation:
(a) selling, transferring or agreeing to sell or transfer
any of the assets, excepting BNS Inventory sold to
Purchaser in the ordinary course of business;
(b) entering into any transaction in which an
extraordinary loss would be incurred or waiving any
rights of substantial value; or
(c) terminating any material contract, agreement,
license or other instrument to which Sellers are a
party.
12. Assistance of Sellers. Sellers agree to use
Sellers' best efforts to assist Purchaser, as and when
reasonably requested by Purchaser, in the transition
period, but not to exceed July 30, 1996, to produce
products for Purchaser using BNS Inventory or other
Purchaser owned inventory. The charge for these
production services shall be Sellers' actual cost
incurred, which shall include all labor and all overhead
costs, direct and indirect, rent, utilities and
miscellaneous production items, etc. Out of pocket
expenses incurred by Woodson Electronics, Inc. shall
be paid by Purchaser within 10 days after submitted to
Purchaser. Such costs do not include compensation of
any kind for Thomas E. Woodson.
13. Certain Equipment Matters. Sellers shall
cooperate and use their best efforts to obtain custody
of all dies, tooling, molds, and other items of
equipment or documentation which are not in Sellers'
custody. Sellers shall provide at closing a list of the
above-referenced items, the name of the entity in
whose custody the items may be found, and the
address and telephone number of such custodian. This
list will be attached hereto as Schedule 8.
14. Sellers Indemnification of Purchaser. Sellers shall
indemnify Purchaser and hold Purchaser harmless
against and in respect of any and all claims, losses,
damages, costs, assessments, judgments, awards,
expenses, commitments, agreements, liabilities and
obligations of any nature whatsoever (including the
costs of defense, whether or not successful, such as
attorney's and expert witness' fees) resulting from, or
arising out of, or in connection with, any: (i) liability
or obligation of Sellers arising from the operations of
Sellers prior to this Agreement, whether accrued,
absolute, contingent or otherwise, whether or not
disclosed in this Agreement and whether or not such
liability or obligation is imposed by law; (ii) any
breach (and costs and expenses of defense connected
with claims by third parties against Purchaser which if
true would constitute a breach) of any representation
or warranty contained in this Agreement; or (iii) the
non-performance, partial or total, of any covenant of
Sellers contained in this Agreement. The
indemnification provided for in this Section shall not
in any way limit any rights or remedies of Purchaser
for misrepresentations or breaches of warranties of
covenants in connection with this Agreement.
15. Purchaser's Indemnification of Sellers. Purchaser
shall defend, indemnify Sellers and hold Sellers
harmless against and in respect of any and all claims,
causes of action, losses, costs, damages, deficiencies or
expenses (including reasonable attorneys' fees) to
Sellers resulting from, or arising out of, or in
connection with any and all misrepresentations or
breaches of representations, warranties or covenants of
Purchaser set forth in this Agreement, or in any
exhibit hereto, or any certificate, document, instrument
or other material furnished to Sellers in connection
with the transaction contemplated herein.
16. Notice of Third Party Claims. Within 30 days
after either party receives written notice of any claim
against it by a third party (even if that party has not
yet commenced litigation or other formal proceedings)
that might be a basis for its being indemnified under
Paragraph 14 or 15, it shall give the other party an
opportunity to control the defense of such claim at the
other party's cost and expense, provided that the
indemnitee may participate in the defense at such other
party's cost and expense.
17. Non-Competition Covenant. Commencing upon
execution of this Agreement and ending on June 1,
2001, Sellers, including Thomas E. Woodson and any
corporation or other entity owned by Sellers or
Thomas E. Woodson in which Sellers or Thomas E.
Woodson at the time beneficially owns or is entitled
to acquire an equity interest, shall not carry on any
business that is directly or indirectly competitive with
or similar to the Sellers' business as it exists at the
close of business on May 1, 1996, in any state,
territory or possession of the United States or any
country in which any Seller or Purchaser conducts or
has conducted business or any like business (including,
without limitation, any county, state, territory,
possession or country in which customers of Sellers or
Purchaser were or are located or in which Sellers or
Purchaser have actively solicited business). For
purposes of this Section each of the following
activities, without limitation, shall be deemed to
constitute the carrying on of business: to engage in,
work with, be employed by, invest in, have an interest
in, advise, lend money to, guarantee the debts or
obligations of, or permit one's name or any part
thereof to be used in connection with, an enterprise or
endeavor, either individually, in partnership or
conjunction with any person, firm, association,
company or corporation, whether as principal, agent,
employee, shareholder, consultant or in any other
manner whatsoever. Notwithstanding the foregoing,
this Section shall not apply to: (i) the performance by
Sellers or Thomas E. Woodson of obligations under
Paragraph 8 (d) of this Agreement; (ii) the
performance of Sellers or Thomas E. Woodson as
Purchaser's representative, if so appointed by
Purchaser; (iii) the performance by Sellers or Thomas
E. Woodson of obligations in respect to a certain
consulting agreement with Federal Signal Corporation
dated June 1, 1995.
The scope and effect of this Section shall be as
broad in time (but not beyond June 1, 2001),
geography and in all other respects as is permitted by
applicable law. If this Section cannot be fully
enforced in one jurisdiction but is fully enforceable (or
is enforceable to a greater extent) in another
jurisdiction, the law of that other jurisdiction shall
apply to the enforcement of this Section in the
jurisdiction. Should a court or other body of
competent jurisdiction determine that any aspect of this
Section is excessive in scope, such term or provision
shall be adjusted rather than voided, if possible, in
accordance with the intent stated in the first sentence
of this Section and with applicable law, and all other
terms and provisions of this Section shall be deemed
valid and enforceable to the fullest extent possible.
Sellers and Purchaser acknowledge and agree that
damages would not adequately compensate Purchaser
if Sellers were to breach this Section. Consequently,
Sellers agree that in the event of any such breach,
Purchaser shall be entitled, in addition to any other
remedies, to enforce this Agreement by means of an
injunction or other equitable relief.
18. Non-Assumption of Liabilities. It is expressly
understood and agreed that Purchaser is not assuming
any liabilities or obligations of Sellers except
Purchaser shall assume and perform all "warranty"
obligations of Seller at Purchaser's expense. Purchaser
assumes no obligation to offer employment to, or
provide compensation or any benefits to, any
employees or former employees of Sellers, or any
obligation relating to Sellers' employees arising out of
the transactions contemplated by this Agreement
including, without limitation, any termination costs,
accrued vacation or sick pay, severance pay,
unemployment compensation or other like costs.
Purchaser assumes no obligations relating to any
accounts payable, product liability, corporate
insurances, federal, state or local property, income,
inventory, or other taxes relating to the Sellers'
business, property or assets except transfer taxes, if
any, as set forth in Paragraph 32 herein.
19. Expenses. Purchaser and Sellers each shall pay
their own costs and expenses (including all legal and
accounting expenses) relating to this Agreement, the
negotiations leading up to this Agreement and the
performance of this Agreement.
20. Notices. All notices, requests, demands and other
communications made in connection with this
Agreement shall be in writing and shall be deemed to
have been duly given on the date of delivery or
receipt, if personally delivered, or received by
facsimile or telecopier, or three days after mailing if
mailed by certified or registered mail, postage prepaid,
return receipt requested, addressed as follows:
If to Purchaser: Butler National Corporation
1546 East Spruce Road
Olathe, KS 66061
Attn.: Mr. Clark Stewart
with copy to:
Warren Wagoner
4519 East Maderos Drive
Paradise Valley, AZ 85253
If to a Corporate Seller: Woodson Electronics, Inc.
Attn.: Mr. Thomas E. Woodson
Plectron Place
P.O. Box 960
Imboden, AR 72434
If to Thomas E. Woodson: Thomas E. Woodson
c/o Woodson Electronics, Inc.
Plectron Place
P.O. Box 960
Imboden, AR 72434
Attn.: Mr. Thomas E. Woodson
or to such other address (or to such other person's
attention or with a copy to such other person) as either
party may specify in a notice given in accordance with
this Section.
21. Entire Agreement. This Agreement, including the
exhibits, schedules and other documents delivered
pursuant to this Agreement, contains all of the terms
and conditions agreed upon by the parties relative to
the subject matter of this Agreement and supersedes
any and all prior negotiations, correspondence,
understandings, agreements and communications
between the parties respecting that subject matter.
22. Severability of Invalid Provision. If any one or
more covenants or agreements provided in this
Agreement should be contrary to law, then such
covenants, agreement or agreements shall be null and
void and shall in no way affect the validity of the
other provisions of this Agreement.
23. Amendment. This Agreement may be amended
only by a writing duly executed by Purchaser and
Sellers.
24. Survival of Representations and Warranties. The
representations, covenants and warranties contained in
this Agreement or in any writing delivered to
Purchaser or Sellers in connection with this Agreement
shall survive the Closing Date and the consummation
of the transactions contemplated hereby and shall not
be affected by any examination made for or on behalf
of Purchaser or Sellers, the knowledge of any of
Purchaser's or Sellers' officers, directors, shareholders,
employees or agents, or the acceptance by Purchaser
or Sellers of any certificate or opinion.
25. Waiver. No waiver of any term or condition
contained in this Agreement shall be effective unless
it is signed by the party claimed to be bound by the
waiver. The waiver of any term or condition of this
Agreement by any party shall not be construed as a
waiver of any subsequent breach or failure of the same
term or condition, or a waiver of any other term or
condition of this Agreement.
26. Successors and Assigns. This Agreement shall be
binding upon, and shall inure to, the benefit of the
parties hereto and their respective successors and
assigns, and no other person shall acquire or have any
right under or by virtue of this Agreement.
27. Governing Law. This Agreement shall be
governed by and construed in accordance with the
laws of the State of Kansas.
28. Counterparts. This Agreement may be executed
in counterparts which together shall constitute one
instrument.
29. Further Assurances; Records. From time to time
each party, at the request of the other and without
further consideration, agrees to execute and deliver, or
cause to be executed and delivered, at its expense,
such other instruments of transfer or other appropriate
documents as reasonably may be requested by the
other in order more effectively to transfer to Purchaser
all of Sellers' right, title and interest in and to the
assets purchased herein or to better reflect the
agreements contained in this Agreement, and to take or
cause to be taken such further action as may
reasonably be necessary or appropriate in order to
effectuate the transaction contemplated by this
Agreement. Failure to effect or prepare any such
requested or necessary documents by Sellers shall not
be construed as a waiver of any rights of Purchaser
under this Agreement. In addition, Sellers and
Purchaser acknowledge that there may be occasions in
the future when one or the other of them will need
access to certain books and records of the other in
order to prepare financial statements, tax returns, or
other reports to third parties, or in order to facilitate
audits or legal proceedings (not involving the other
party to this Agreement), comply with applicable laws
or otherwise conduct its affairs in a proper manner.
Accordingly, Sellers and Purchaser shall cooperate
fully with the other in connection with such activities
and for this purpose shall make available to the
appropriate personnel, books and records, at reasonable
times and upon reasonable notice.
30. Enforcement. If any portion of this Agreement
shall be determined to be invalid or unenforceable, the
same shall be modified rather than voided if possible,
in order to carry out the intent of this Agreement. In
any event, the remainder of this Agreement shall be
valid and enforceable to the fullest extent possible.
31. Headings. The headings appearing at the
beginning of the articles and sections contained in this
Agreement have been inserted for identification and
reference purposes and shall not by themselves
determine the construction or interpretation of this
Agreement.
32. Transfer Taxes. Any sales, transfer or other taxes
arising out of or incurred in connection with the
transactions contemplated by this Agreement shall be
paid by Purchaser.
33. No Third Party Beneficiaries. The agreements of
the parties to, and the terms and conditions of, this
Agreement are for the sole benefit of such parties and
are not for the benefit of any third party.
34. Bulk Sales. If a creditor of Sellers makes a
claim against Purchaser or the assets that results in a
loss to Purchaser as a result on non-compliance with
the provisions of any bulk sales or similar law, Sellers
shall indemnify Purchaser and hold Purchaser harmless
against such loss.
35. Costs of Enforcement. If any party to this
Agreement seeks to enforce its rights under this
Agreement by legal proceedings or otherwise, the non-
prevailing party in such proceedings shall pay all costs
and expenses incurred by the prevailing party (who
shall be the party who obtains substantially the relief
sought by such party, whether by settlement,
compromise or judgment), including, without
limitation, all reasonable attorneys' and expert
witness's fees. Nothing in this Section shall diminish
the obligations of an indemnifying party under
Paragraphs 13 and 14 of this Agreement to pay the
costs and expenses of an indemnitee party relating to
a loss.
36. Non-Exclusivity. The rights, remedies, powers
and privileges provided in this Agreement are
cumulative and not exclusive and shall be in addition
to any and all other rights, remedies, powers and
privileges granted by law, rule, regulation or
instrument.
IN WITNESS WHEREOF, the parties have executed
this Agreement as of the date set forth in the first
paragraph of this Agreement.
PURCHASER: BUTLER NATIONAL
CORPORATION
By: CLARK D. STEWART
Clark D. Stewart, President
CORPORATE SELLER: WOODSON
ELECTRONICS, INC.
By: THOMAS E. WOODSON
Thomas E. Woodson, President
WOODSON: THOMAS E. WOODSON
By: THOMAS E. WOODSON
Thomas E. Woodson, Individually
<PAGE>
NON-EXCLUSIVE CONSULTING, NON-
DISCLOSURE
AND NON-COMPETE AGREEMENT
WITNESSETH:
WHEREAS, the undersigned, Thomas E. Woodson,
hereinafter referred to as "Woodson" is one of the
Sellers under a certain Asset Purchase Agreement
("Agreement"), dated the 1st day of May, 1996, by
and between WOODSON ELECTRONICS, INC., a
Nebraska corporation, and its subsidiaries and affiliates
("Sellers"), and BUTLER NATIONAL
CORPORATION, a Minnesota corporation
("Corporation"); and
WHEREAS, closing of the Asset Purchase Agreement
is conditioned upon the execution and delivery to
Corporation of this Non-Exclusive Consulting, Non-
Disclosure, and Non-Compete Agreement by Woodson;
NOW, THEREFORE, in consideration of the mutual
promises, representations, covenants and agreements
contained herein, the parties hereto agree as follows:
1. This Non-Exclusive Consulting, Non-Disclosure,
and Non-Compete Agreement shall commence May 1,
1996, and shall terminate on June 1, 1998 with respect
to the Non-Exclusive Consulting portion and shall
terminate on June 1, 2001 with respect to the Non-
Disclosure, Non-Compete portion of this Agreement.
2. The Corporation agrees to issue to Woodson
20,000 shares of Butler National Corporation stock,
issued pursuant to SEC Rule 144, such shares are not
registered with the Securities Exchange Commission,
as consideration for executing this Non-Exclusive
Consulting, Non-Disclosure, and Non-Compete
Agreement, and $36,000.00 cash as set forth in the
Asset Purchase Agreement, Paragraph 2(b). Woodson
agrees to accept said consideration and execute this
Agreement. Said shares shall be issued on May 1,
1996, in the name of Woodson, but shall be held by
Corporation until June 1, 1998, at which time said
shares shall be delivered to Woodson. In addition, all
costs incurred by Woodson in performing his duties
under this Agreement shall be reimbursed by
Corporation within 30 days after submittal by
Woodson. Such costs shall include travel costs, motel,
and meals (when away from Woodson's residence).
3.Woodson agrees that from May 1, 1996 through
June 1, 1998 he shall provide consulting services to
Corporation on an "as needed" basis, as determined by
Corporation. Woodson shall devote such time and
attention and energies as are reasonably required to
perform these services, but shall not be required to
provide more than fifteen (15) hours per calendar
month on a cumulative basis. The accumulation of
work hours performed by Woodson shall commence
when actual work is started or four hours after
Woodson leaves normal residence whichever is the
first to occur. In the event that Corporation requires
services in excess of fifteen cumulative hours per
calendar month after August 1, 1996, Corporation shall
pay to Consultant $100.00 per each additional hour of
service rendered to Corporation. Such additional
services must be agreed to in writing by Corporation
and Woodson prior to commencement of such
additional services. Such writing shall specify the
scope of work and anticipated hours required to
complete said services.
4.It is understood and agreed that Woodson shall not,
at any time or place, or to any extent whatsoever,
whether directly or indirectly, without the express prior
written consent of the Corporation, provide consulting
services to or engage in any business, calling, or
enterprise which is or may be competitive with, or
adverse to the business or affairs of the Corporation,
whether alone, as a partner, or as an officer, director,
employee, or five percent or greater shareholder of any
other corporation, or as a trustee, fiduciary, or other
representative, except under and pursuant to this
Agreement. Corporation acknowledges that Woodson
has disclosed to it, the terms and conditions of a
Consulting Agreement dated June 1, 1995 between
Federal Signal Corporation and Thomas E. Woodson,
and further acknowledges that Woodson's consulting
under such Consulting Agreement is not in violation of
this Agreement.
Without limiting the generality of the foregoing,
Woodson shall not, without the Corporation's prior
approval, directly or indirectly, for Woodson's own
account, or as an agent or employee of another person,
partnership or corporation, canvass, solicit, or accept
business from any client or customer or former client
of the Corporation, in any state, territory or possession
of the United States, or any country in which any of
the Sellers under the Asset Purchase Agreement, or
Corporation, conducts or has conducted business or
any like business (including, without limitation, any
county, state, territory, possession or country in which
customers of any of the Sellers or the Corporation
under the Asset Purchase Agreement were or are
located or in which any of the Sellers or Corporation
have actively solicited business).
5. For purposes of this Non-Compete, the definition of
"carrying on of business" shall have the same meaning
as that contained in the Asset Purchase Agreement,
Paragraph No. 16. For the period of this Agreement
and to the geographical extent specified in this
Agreement, Woodson shall not accept business or
employment or consult with for the account of
Woodson or others, without the prior written consent
of the Corporation, which consent shall not be
unreasonably withheld if Woodson agrees in writing to
restrict such activities so as to not compete with the
Corporation.
6.Woodson further agrees that during the term hereof,
Woodson shall not employ, engage or contract for
services of any individual employed by the
Corporation, or under contract with the Corporation as
an independent contractor, representative or distributor
of the Corporation, without the prior written consent
of the Corporation.
7. In the event Woodson dies or becomes disabled to
the extent that he cannot provide services pursuant to
this Agreement, his obligation to provide consulting
services shall terminate, but in all other respects, his
obligations under the terms of this Agreement shall
continue.
8. Nondisclosure of Information. Woodson agrees
that Woodson shall not at any time, in any fashion,
form, or manner, either directly or indirectly, divulge,
disclose, or communicate to any person, firm, or
corporation in any manner whatsoever, any information
derived from his affiliation with the Corporation. Any
information shall include, but not be limited to,
technical or non-technical data, formulas, patterns,
compilations, programs, devices, methods, techniques,
drawings, processes, financial data, or lists of actual or
potential customers.
Woodson further agrees that the disclosure of any
information derived from his affiliation with Sellers
and/or the Corporation, is important, material and
confidential, and its disclosure would gravely affect the
effective and successful conduct of the business of the
Corporation and its goodwill, and that any breach of
the terms of this Agreement is a material breach of
this Agreement. Woodson agrees to be bound by any
court orders regarding affirmative acts necessary to
protect any information derived from the Sellers and
the Corporation, and to pay as damages losses incurred
by the Corporation as the result of any such
disclosure.
Woodson further agrees that his promise not to
disclose any information derived from the Corporation
will be binding upon Woodson both during the term
of this Agreement, and at all times thereafter,
excepting any disclosures expressly authorized in
writing by the Corporation. In the event that
Woodson fails to comply with, or threatens not to
comply with any provision of this Section, the
Corporation shall be entitled to an injunction requiring
such affirmative act from Woodson as may be
necessary to enforce this paragraph; and further an
injunction restraining Woodson from disclosing or
exploiting in whole or in part any information of the
Corporation or from rendering any services to any
person, firm, corporation, association or other entities
to whom such information in whole or in part has
been disclosed, or by whom it has been exploited or
has threatened to be disclosed or exploited.
Nothing herein shall be construed as prohibiting the
Corporation's pursuit of other remedies, including
enforcement of Corporation's rights under Paragraph
16 of the Asset Purchase Agreement, for such non-
compliance or threatened non-compliance, including the
recovery of damages from Woodson.
9.Miscellaneous Provisions.
(a)Woodson acknowledges and agrees that no
representation has been made to him with respect to
the subject matters of this Exclusive, Consulting, Non-
Disclosure, and Non-Compete Agreement, nor any
representations made to induce the execution and
delivery hereof; and Woodson acknowledges that
Woodson has relied on his own judgment in entering
into this Exclusive Consulting, Non-Disclosure and
Non-Compete Agreement with the Corporation.
(b)No amendments of or additions to this Agreement
shall be binding unless in writing and signed by both
parties, except as herein otherwise provided.
(c)This Agreement and all of its provisions shall be
governed in all respects, whether as to validity,
construction, capacity, performance, or otherwise, by
the laws of the State of Kansas.
(d)The principal headings used in this Agreement are
included solely for the convenience of the parties and
shall not affect, or be used in connection with, the
interpretation of this Agreement.
(e)The waiver by either party of a breach of any
provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach of the
same or any other provisions of this Agreement.
(f)In the event that performance by either the
Corporation or Woodson of any obligations or
undertakings hereunder shall be interrupted or delayed
by any occurrence not occasioned by the conduct of
such party, whether such occurrence be an act of God
or an act of the common enemy or the result of war,
riot, civil commotion, sovereign conduct, or the act or
conduct of any person or persons not party or privy
hereto, then the party concerned shall be excused from
such performance for such period of time as is
reasonably necessary after such occurrence to remedy
the effects thereof.
(g)All notices required, permitted, or desired to be
given under this Agreement shall be deemed given if
in writing and sent by certified mail, return receipt
requested, to the parties at the following addresses, or
to such other addresses as either party may designate
in writing to the other:
iF TO cORporation: Butler National Corporation
1546 E. Spruce Road
Olathe, KS 66061
Attn: Clark Stewart, President
If to Woodson: Thomas E. Woodson
c/o Woodson Electronics, Inc.
Plectron Place
P.O. Box 960
Imboden, AR 72434
Attn: Mr. Thomas E. Woodson
(h) The scope and effect of this Agreement shall be
as broad in time (but not beyond June 1, 2001),
geography and in all other respects as is permitted by
applicable law. If this Agreement cannot be fully
enforced in one jurisdiction but is fully enforceable (or
is enforceable to a greater extent) in another
jurisdiction, the law of that other jurisdiction shall
apply to the enforcement of this Agreement in the
jurisdiction. Should a court or other body of
competent jurisdiction determine that any aspect of this
Agreement is excessive in scope, such term or
provision shall be adjusted rather than voided, if
possible, in accordance with the intent stated in the
first sentence of this Agreement and with applicable
law, and all other terms and provisions of this
Agreement shall be deemed valid and enforceable to
the fullest extent possible.
All other terms and provisions of this Agreement
that are deemed valid and enforceable shall remain so
to the fullest extent and be enforced to the fullest
extent possible.
IN WITNESS WHEREOF, the parties have hereunto
set their hands and seals all as of the day and year
first above written.
WOODSON THOMAS E. WOODSON
By: Thomas E. Woodson
Thomas E. Woodson, Individually
SELLERS WOODSON ELECTRONICS, INC.
By:Thomas E. Woodson
Thomas E. Woodson, President
CORPORATION BUTLER NATIONAL
CORPORATION
By: CLARK D. STEWART
Clark D. Stewart, President
<PAGE>
BUTLER NATIONAL CORPORATION
1995 NONQUALIFIED STOCK OPTION PLAN
1. Purpose
The purpose of this 1995 Nonqualified Stock Option
Plan (the "Plan") is to promote the interests of Butler
National Corporation, a Minnesota corporation (the
"Company"), and its shareholders by providing key
persons and key advisors and consultants whom rests
the major responsibility for the present and future
success of the Company and its subsidiaries with an
opportunity to acquire a proprietary interest in the
Company and thereby develop a stronger incentive to
put forth maximum effort for the continued success
and growth of the Company and its subsidiaries. In
addition, the opportunity to so acquire a proprietary
interest in the Company will aid in attracting and
retaining key personnel of outstanding ability.
2. Administration
All administrative duties hereunder shall rest with the
Stock Option Committee of the Board of Directors
(hereinafter the "Committee") or with the Board of
Directors if the Committee is not elected. The
Committee shall have the duty and authority, subject
to the provisions of the Plan, to:
(a) determine which individuals shall receive options
and how many options each individual shall receive;
(b) grant the options;
(c) determine the terms and conditions of the options
including exercise dates, limitations on exercise, and
the price and payment terms;
(d) determine the limitation, if any, on the number of
shares acquired under an option which may be sold by the person in any year;
(e) prescribe the form or forms of the instruments
evidencing any options granted under the Plan and of any other instruments
required under the Plan, and to change such forms from time to
time; and
(f) adopt such rules and regulations for the
administration of the Plan as it deems appropriate.
In making the foregoing determinations the
Committee may take into account the nature of the
services rendered by the respective individuals, their
present and potential contributions to the Company's
success, and such other factors as the Committee, in
its discretion, shall deem relevant.
3. Shares Subject to the Plan
The shares that may be made subject to options
under the Plan shall be shares of Common Stock of
the Company, one cent ($.010) par value ("Common
Stock"), and the total shares subject to option and
issued pursuant to this Plan shall not exceed, in the
aggregate, 1,500,000 shares of the Common Stock of
the Company. If any such option lapses or
terminates for any reason without having been
exercised in full, the shares covered by the
unexercised portion of such option may again be
made subject to options granted under the Plan.
Shares issued upon exercise of options granted under
the Plan may be shares held by the Company either
as treasury shares or as authorized but previously
unissued shares. Upon authorization from the Board
of Directors, the Company may from time to time
acquire shares of Common Stock on the open market
upon such terms as the Board shall deem appropriate
for reserve in its treasury for reissuance in
connection with exercises hereunder.
4. Eligibility
Employees eligible to participate in the Plan shall
be those salaried officers and other key persons and
key advisors and consultants of the Company and its
subsidiaries who, in the opinion of the Committee,
are in a position to affect materially the profitability
and growth of the Company and its subsidiaries.
Directors who are key persons within the meaning of
the foregoing are eligible to participate in the Plan.
5. Granting of Options
Subject to the terms and conditions of the Plan, the
Committee may from time to time prior to the
termination of the Plan grant to eligible persons
options to purchase the number of shares of Common
Stock authorized by the Committee, subject to such
terms and conditions as the Committee may determine.
More than one option may be granted to the same
person. The day on which the Committee approves
the granting of an option shall be considered as the
date on which such option is granted.
6. Option Price
The purchase price per share of Common Stock
subject to an option shall be fixed by the Committee.
7. Term of Options
The term of each option shall be not more than 10
years commencing with the date of grant. Except as
provided in Paragraph 12 hereof, no option may be
exercised at any time unless the holder thereof is then
a key person of the Company or of a subsidiary.
(A)Death. If an optionee dies while in the employ of
or under contract with the Company or a subsidiary,
and before the date of expiration of such option, such
option shall terminate on the earlier of such date of
expiration or twelve months following the date of such
death. After death, the optionee's executors,
administrators, or any person or persons to whom the
optionee's option may be transferred by will or by the
laws of descent and distribution shall have the right,
at any time prior to such termination, to exercise the
option, in whole or in part, subject to the terms and
conditions of the Plan and of the stock option
agreement entered into by the optionee.
(B) Retirement for Disability. If, before the date of
expiration of the option, the holder of an option
shall retire from the employ of the Company or any
subsidiary for reasons of disability and is disabled
within the meaning of Internal Revenue Code Section
105(d)(4), such option shall terminate on earlier of
the date of expiration or one year after the date of
such retirement.
8. Method of Exercising Options
Any option granted hereunder may be exercised by
the optionee by delivering to the Company at its main
office (attention of the Secretary) written notice of the
number of shares with respect to which the option
rights are being exercised and by paying in cash the
purchase price of the shares purchased in full, in
exchange for the issuance and delivery of certificates
therefor. The Committee in its discretion may permit
a key person to use shares of stock of the Company
as payment for additional stock purchased pursuant to
an option. The value of the shares to be used as
payment shall be determined by the Committee. The
Company may delay the processing of any exercise
hereunder so long as may be necessary, in the opinion
of counsel to the Company, to comply with securities
laws and regulations relating to disclosure of material
non-public information concerning the Company.
<PAGE>
9. Amount Exercisable
Each option may be exercised, so long as it is valid
and outstanding, from time to time in part or as a
whole, subject to any limitations with respect to the
number of shares for which the option may be
exercised at a particular time and to such other
conditions as the Committee in its discretion may
specify upon granting the option.
10. Capital Adjustments Affecting Common Stock
In the event of a capital adjustment resulting from a
stock dividend, stock split, reorganization, merger,
consolidation, or a combination or exchange of shares,
the number of shares of Common Stock subject to the
Plan and the number of shares under the option shall
be adjusted in a manner consistent with such capital
adjustment. The price of any shares under option shall
be adjusted so that there will be no change in the
aggregate purchase price payable upon exercise of any
such option.
11. Transferability of Options
Options shall not be transferable by the optionee
otherwise than by will or under the laws of descent
and distribution, and shall be exercisable, during his
lifetime, only by him.
12. Termination of Employment or Death of Optionee
Except as may be otherwise expressly provided
herein, options shall terminate upon the earlier of the
date of the expiration of such option or upon
termination of employment or contractor relationship
between the Company or a subsidiary and the optionee
for any reason other than death or disability as
described below. Whether authorized leave of
absence, or absence on military or government service,
shall constitute severance of the employment
relationship between the Company or a subsidiary and
the optionee shall be determined by the Committee at
the time thereof.
13. Requirements of Law
In the event the shares issuable on exercise of an
option are not registered under the Securities Act of
1933, the Company shall imprint the following legend
or any other legend which counsel for the Company
considers necessary or advisable to comply with the
Securities Act of 1933:
"The shares of stock represented by this certificate
have not been registered under the Securities Act of
1933 or under the securities laws of any State and
may not be sold or transferred except upon such
registration or upon receipt by the Corporation of an
opinion of counsel in form and substance satisfactory
to the Corporation that registration is not required for
such sale or transfer."
The Company may, but shall in no event be obligated
to, register any securities covered hereby pursuant to
the Securities Act of 1933 (as now in effect or as
hereafter amended); and in the event any shares are so
registered the Company may remove any legend on
certificates representing such shares. The Company
shall make reasonable efforts to cause the exercise of
an option or the issuance of shares pursuant thereto to
comply with any law or regulation of any
governmental authority.
14. No Rights as Stockholder
No optionee shall have rights as a stockholder with
respect to shares covered by an option until the date
of issuance of a stock certificate for such shares; and,
except as otherwise provided in Paragraph 10 hereof,
no adjustment for dividends, or otherwise, shall be
made if the record date therefor is prior to the date of
issuance of such certificate.
15. Employment Obligation
The granting of any option shall not impose upon the
Company or subsidiary any obligation to employ or
continue to employ any optionee; and the right of the
Company or subsidiary to terminate the employment of
any officer, contractor or other employee shall not be
diminished or affected by reason of the fact that an
option has been granted to such officer, employee or
contractor.
16. Written Agreement
Each option granted hereunder shall be embodied in
a written option agreement which shall be subject to
the terms and conditions prescribed above and shall be
signed by the optionee and by the President, any Vice
President or the Secretary of the Company for and in
the name and on behalf of the Company. Such an
option agreement shall contain such other provisions as
the Committee in its discretion shall deem advisable.
17. Amendment, Termination and Effective Date
This Plan shall be effective as of December 1, 1995
and shall terminate ten years after this Effective Date.
The Board shall have the right to amend, suspend or
terminate the Plan, provided that no termination or
amendment or the Plan may, without the consent of
the individual to whom any option shall have been
therefore granted, adversely affect the rights of such
individual under such option.
18. Governing Law
The Plan and all determinations made and actions
taken pursuant hereto will be governed by the law of
the State of Minnesota and construed accordingly.
IN WITNESS WHEREOF, the Company has caused
its Chairman and Secretary to execute this Plan this
1st day of December, 1995.
BUTLER NATIONAL CORPORATION
By: R. WARREN WAGONER
R. WARREN WAGONER, Chairman of the Board
Attest:
STEPHANIE S. RUSKEY
Stephanie S. Ruskey, Assistant Secretary
